Meralco eyes P15-billion profit this year

MANILA, Philippines – Power utility giant Manila Electric Co. (Meralco) is projecting its income to substantially increase to P15 billion this year from only P3.1 billion in 2008, a company official said.

Meralco director Alan T. Ortiz told reporters that the huge income jump could be attributed to several factors.

Ortiz, who is a San Miguel Corp. nominee to the Meralco board, said the substantial earnings would be generated from approved increases in Meralco’s basic rate and the adoption of performance-based rate (PBR) mechanism.

“It (income forecast) has been discussed. It can be misinterpreted. So we have to explain it – that it looks large but it’s not that large if you would divide it by three years. It stabilizes our finances. So it’s like P5 billion for every year of delay. But hopefully next year that will level to an affordable and reasonable rate,” he said.

“Obviously, the rate increase has been pending for three years so the income that will be reported by year-end will be an accretion or accumulation of the last three years. It may look very large but really it should be divided by three years. But it will still be a quantum leap from 2008. From where we sit, it was reported last year that Meralco’s net income was P3.14 billion. But this year, it will be somewhere between P13 and P15 billion,” he added.

According to Ortiz, the PBR would greatly contribute to the substantial improvement of Meralco’s overall financial standing in the coming years.

“The deviation from the rate base system to PBR is a significant improvement in the way power rates are going to be determined in the years to come. And Meralco will be a direct beneficiary of that,” he said.

PBR, he said, would also help improve efficiencies of the power utility firm thus resulting in improved operational performance.

 “It’s clear where it came (PBR and the rate increase), but again look at it positively. One, it would put Meralco on an even financial theme and will allow us to address our capital expenditure requirements, which was immediately improved from P700 million to P850 million and more to come,” he said.

“It will be a quantum leap in earnings, which we will translate in more efficient services and down the road lower rates. It will also wipe out our provisions for debts,” he added.

He said the proposed twin bills of Sen. Juan Ponce Enrile would also contribute to the improvement of Meralco’s finances.

“If and when the two Enrile measures come into play, it will enable us to lower the rates directly. So the first two events will stabilize Meralco’s finances, if we get the VAT reduction from 12 percent to three percent and if we get the reduction in royalties from 60 percent to three percent – that would have a big impact,” he said.Ortiz said the bright income prospects of Meralco will enable it to pour in more capital for expansion and improvement of its services to its customers.

“This is true to Mr. Ramon Ang (of SMC)’s vision to make Meralco the Crown Jewel for the Energy Industry. Remember it used to be a blue chip firm listed in the New York Stock Exchange and traded internationally,” he said.

Among other factors that would help Meralco sustain its income growth momentum are the implementation of various synergies with its new shareholders- SMC and Philippine Long Distance Telephone Co. (PLDT).