Meralco, Maynilad: Gov’t partner or foe?

These are bad times for the Lopezes. The Supreme Court has ordered Meralco, their crown jewel, to refund P28 billion in electricity overcharges since 1994. The MWSS too has told the Lopez-run Maynilad Water Service Inc. to stop collecting hundred-millions more in unauthorized monthly billings. People of all stripes are hitting at the clan. Businessmen on one end of the spectrum sneer that the Lopezes are lousy managers. Moderates in the middle are clamoring for immediate rollback of Meralco rates while preparing to sue Maynilad for estafa. Radicals on the other extreme are demanding instant cash refund from Meralco to the masa: P3,500 per household consuming less than 200 kilowatt-hours a month, P5,200 for those using less than 300 kwh. Caught in the middle is the government, with whom the Lopezes signed long-term electricity and water franchises – utilities that must be ensured for millions of consumers.

Critics have accused President Arroyo of babying the Lopezes on both counts. Yet she has no choice but be cautious. For, there are financial, legal and other constraints to consider.

In Meralco, for one, government is in the same bind as the Lopezes. While the clan and its holding firms together own a substantial 14 percent, government has a bigger 26 percent. Land Bank and Development Bank of the Philippines long converted their loans into equity, making 80 million Filipinos co-owners of Meralco. SSS and GSIS also hold shares, making their combined 29 million members co-owners as well. Instant cash refund would cripple the company, along with the investments of the mutual funds and government banks. Some 1.3 million low-consumption households may enjoy a windfall, but only at the expense of majority of taxpayers and SSS-GSIS members who live outside the Meralco franchise area. Then there’s Meralco’s 75,000 small shareholders – middle-class folk who bought stocks with salary deductions or retirement pensions. Their share value is now only P10 for every P100 invested.

It’s not up to Malacañang to enforce the refund. The SC ruling was directed at the Energy Regulatory Commission. Meralco, if it won’t appeal the five-man division ruling to the en banc of 15 justices, will have to draw the refund mechanics with the ERC. It could take months to solve puzzles, like how to treat apartment tenants who have since moved or whose bills were paid in the names of landlords. Never mind factories that passed on their Meralco bills to customers, but there are also the middle-class users who are as entitled to refund as the masa. And there’s the matter of form of refund. Entrepreneurs prefer stock certificates in lieu of cash rebates from monthly billings. That way, the refund’s effects would be far-reaching than, say, P90 a month for the eight years of overbillings. The stocks not only would earn dividends but also enable Meralco customers to command board seats. And, as the moderates say, immediate rollback of Meralco rates should come first, because easier. The SC determined that Meralco had overcharged customers 16.7¢ per kwh since 1994 by booking income taxes as operating expenses in computing the 12-percent profit ceiling for power firms. Since Meralco continues to book taxes as costs – as shown in its recent petition for a rate increase – ERC must order it to roll back by 16.7¢ per kwh.

Then, there’s the issue of who should have control of Meralco once and for all. Government’s 26-percent share entitles it to more than just the present three of 12 board seats. Finance Sec. Lito Camacho had proposed a board revamp in a meeting with ABS-CBN head Gabby Lopez days before the first SC verdict in November. To reflect the true ownership pattern, government would get five seats for the LBP, DBP, SSS and GSIS. The Lopezes would retain three. Both sides would nominate two directors each to represent the 75,000 shareholders. Mrs. Arroyo heard about it for the first time over dinner with the Lopezes when the first ruling came out. So did Gabby’s uncles, Meralco chairman Manolo and Benpres Holdings chief Oscar. "I was shocked," Manolo later told reporters. Camacho explained that he only followed the "PNB template," in which the government and Lucio Tan, as majority owners of Philippine National Bank, reorganized the board before issuing new stocks to fetch the best price from the market. He said Gabby, a college classmate, liked the plan and promised to brief his kin. But Opposition leaders saw malice in it, accusing Mrs. Arroyo of either arm-twisting the Lopezes into supporting her presidential bid or colluding to bail them out. Her subsequent declaration to not run in 2004 doused cold water on them, but she’s facing another problem with water.

Maynilad, 60 percent owned by Benpres, surrendered its concession over the MWSS west zone last Dec. 9. Blaming MWSS for all its woes, it seeks reimbursement of P19 billion in capital and operating losses since 1997. MWSS counters that it’s Maynilad’s fault, so the latter may get back only 75 percent of its capital, or P6 billion. But since Maynilad has not paid P5.2 billion in concession fees since March 2001, they’re just about even. The case is under arbitration by the International Chamber of Commerce.

Last March 3 the MWSS told Maynilad to stop billing customers P4.21 per cubic meter in accelerated extraordinary price adjustment (AEPA) and another P4.07 in foreign currency differential adjustment (FCDA). MWSS had allowed Maynilad to collect the AEPA only from Jan. 1-Dec. 31, 2002 to recover losses in 1998-2000. But Maynilad collected P323 million more from Jan.-March 2003, claiming it needed to recover losses in 2001. MWSS also allowed the FCDA on condition that Maynilad will pay its monthly concession fee or roughly P220 million. Since Maynilad stopped paying in March 2001, it should have stopped collecting too. But Maynilad claims that it couldn’t pay precisely because MWSS never helped it in securing digging permits and hounding water thieves to reduce its losses.

Meanwhile, the International Finance Corp. (IFC), the World Bank’s investment arm that designed the water distribution privatization scheme in 1996, wants to save the idea. Noting that it’s the Lopezes who want out, IFC is talking with the 40-percent French partner Ondeo to run Maynilad. IFC would buy 11 percent of the Lopez shares, withdraw the surrender notice, and let Ondeo take over. Ondeo in turn is asking MWSS for another five-year moratorium in concession fee payments. If MWSS gives in, Mrs. Arroyo would again be blamed for favoring the Lopezes.

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