Meralco gives up on 8% RORB target

The Manila Electric Corp. (Meralco) has practically given up hopes of attaining an eight-percent return on rate base (RORB) as its P0.30 per kilowatthour (Kwh) rate increase petition has not been granted.

Last April, Meralco filed for a P0.30 per Kwh rate hike to bolster its aim of achieving an eight-percent RORB which is a requirement by its creditors for the power firm to access low-interest loans. Meralco treasurer Rafael Andrada earlier said the electricity distributing company could "at best" achieve a five-percent RORB at the end of the year without the rate hike.

Andrada lamented that Meralco would be forced to draw down high-interest loans from its creditors resulting in suspension of some of its expansion plans as well as service improvements.

In the first nine months of the year, Meralco registered an 8.37-percent decline in net income from P2.783 billion last year to P2.55 billion. Comparative figures in the nine months of 1999 versus the same period in 1998 also show a 26.7-percent drop in the earnings.

For the whole of 1999, the country’s leading electricity distributor reported a 33.5-percent drop in net income to P3.3 billion from the P5-billion in 1998.

"We have been in technical default for the past three years with our creditors," Meralco president and chief executive officer Manuel M. Lopez said.

Lopez said he does not expect the rate increase to be granted by the Energy Regulatory Board (ERB) this year. "I do not even know the exact condition of our petition anymore."

Meralco is looking at foreign investors to improve its financial and borrowing position in the next three to four years to avoid a financial "brownout."

Lopez said they are holding discussions with business groups from the United Kingdom and the United States. At stake is the 14-percent government equity held by the Land Bank of the Philippines (2.9 percent), Asset Privatization Trust (4.8 percent), Social Security System (4.0 percent), the Presidential Commission for Good Government (2.3 percent), and Government Service Insurance System (10,000 shares).

Union Fenosa of Spain already holds a nine-percent equity in the Lopez-controlled utility company.

Other strategic foreign partners of the Lopez conglomerate under the First Philippine Holdings Corp. (FPHC) banner have earlier expressed interest in acquiring the government stake. These are National Power Plc of the United Kingdom, Edison Mission Energy of the US, British Gas Plc, and China Electric Co.

Delays in the disposition of the government stake of Meralco is also one of the thorns in the company’s plans for major expansion projects. Most foreign groups have already stated that they would only undertake new projects in the country’s energy and electricity sector "if the rules of the game are clear and binding."

The other concern of foreign investors is the passage of the Electricity Reform Bill, which among others privatizes the debt-ridden National Power Corp. (Napocor).