Meralco to cut capex by 40%

The Manila Electric Co. (Meralco) said it may reduce its capital expenditures (capex) budget for 2002 to P4.5 billion, or 40 percent lower than the P6.8 billion programmed for the year, if its 30-centavo per kilowatthour (kWh) rate hike petition will not be approved by the Energy Regulatory Commission (ERC) this June.

In a press conference after the company’s stockholders’ meeting, Meralco chairman Manuel Lopez said they are still looking forward to ERC’s decision.

"We do not know whatever happened to it. It will be the decision of the ERC. We are hopeful though that they will act on it," Lopez said.

According to Lopez, they have not yet withdrawn the 30-centavo per kWh rate application though they have applied for an unbundled rate of P1.12 per kWh with the ERC.

Meralco Treasurer Rafael Andrada explained that the unbundled rate petition will just create a data bank for ERC and will not necessarily result to an increase in power rates.

Andrada said they normally conduct a review of the company’s financial position every June or July to see if revisions are necessary.

"We continue to monitor the developments. The 6.8-billion capex is based on an assumption that the rate relief (30-centavo rate hike petition) will be granted in the second half of this year and will be implemented on a staggered basis. But we are seriously considering revising the level of our capex since it would now be difficult to bank on foreign borrowings with the current means we have," Andrada said.

Meralco chief finance officer Daniel Tagaza said if they decide to reduce their capex it will not be lower than P4.5 billion, which is the minimum amount needed for maintenance. "This is a non-negotiable capex. This (P4.5 billion or 60 percent of the P6.8 billion) is covered by internally-generated funds. The remaining 40 percent is to be raised from borrowings. If it will be brought down further, we will suffer technical losses," he said.

ERC Chairwoman Fe Barin said earlier that if they would approve the unbundled rate application of Meralco, the 30-centavo rate hike would be rendered "moot and academic."

Meralco filed in April 1999 a 30-centavo per kWh rate hike petition. If its petition is approved by the ERC, Meralco said it plans to implement the first 15-centavo hike in July, followed by a 10-centavo hike in October and the balance in January or February 2003.

Meralco said the delay in the approval of its rate hike petition had forced it to continuously reduce its capex. In 2000, Meralco’s capex stood at P7.23 billion. This was trimmed to P6.5 billion in 2001 and this year to P6.8 billion.

Andrada also expressed concern over the company’s inability to tap the international financial market. "Without the rate hike, it would be impossible for us to secure foreign borrowings. We have eyed a syndicated facility, or whatever efficient form of borrowings. That’s if there is also a favorable market environment," he said.

Tagaza said their bottomline is also expected to suffer. "We need to review the income projection for the year if the rate hike will not be approved this June," he said. — Donnabelle Gatdula