Sell

Too bad, Meralco chair Oscar Lopez reversed quickly his position on selling the Lopez stake in the power distribution monopoly.

The earlier offer to sell was attributed to an emotional outburst by the Lopez patriarch. Proper business sense might have also eventually taken hold. Several power plants, majority-owned by the Lopez holding company, earn much more than Meralco selling to the distribution monopoly.

But that is precisely the issue. With the Lopez group controlling management of Meralco and Lopez-owned power producers selling to the monopoly, a very clear conflict of interest pertains. That conflict of interest could be injurious to consumer interest and welfare.

A very interesting point was brought out in the course of the congressional hearings on the Meralco issue last Monday. By deft questioning, Sen. Juan Ponce Enrile elicited from Meralco representatives that fact that the company consumes 72 million kilowatt hours of electricity each year.

Meralco, it appears, does not pay for the electricity it uses for its own operations. In which case, the cost of that large volume of power usage is passed on to consumers. At a discounted rate of P5.70 per kilowatt hour, the cost of that volume of power adds up to P427.5 million. That amount is added to the bills consumers pay.

That might only be the tip of the iceberg. Meralco should be asked to reveal all major buyers of power who benefit from discounts and deferred payment arrangements. That might be an interesting list.

Deferred payment constitutes a form of hidden subsidy since the favored buyer does save on the cost of money covering the period from when payment was due to when payment is deferred.

Senator Enrile goes on to question the real ownership of Meralco, producing a letter from Eugenio and Fernando Lopez to the late President Ferdinand Marcos offering to sell the company. That is an earthshaking claim and, should Enrile present more evidence, could serve to fire up this controversy even more.

At any rate, this item about Meralco not accounting for its own power usage as part of the cost of doing business is interesting in itself. Strangely, this item was not at all mentioned in ABS-CBN’s report of the hearings.

GSIS chief Winston Garcia is likewise demanding more information about Meralco’s taking out insurance from a doubtful company based in the Bahamas. That item, too, needs to be looked at more closely.

The GSIS chief is demanding that the Lopezes yield management control to a more independent group. That will at least relieve some of the conflict of interest issues arising from the present state of affairs.

Garcia is not offering to buy out the Lopez stake in Meralco, demanding only greater transparency in the firm’s operations. But if it comes to that, the GSIS has the financial clout to, indeed, buy out the Lopezes.

This might not be the best outcome, however. It will bring the power distribution firm in the fold of government — at least at the level of public perception, since the GSIS is actually a private fund owned by its members.

A GSIS buyout can only make the firm vulnerable to politicization of power rates.

If the Lopez group is open to selling its stake, the better option is to have a third party buy out that stake. That third party ought not to be involved in power production, lest the conflict of interest issues persist.

The sale of the Lopez stake to a third party will, necessarily, precipitate a change in management control. That should bring the present controversy to a resolution.

The Lopez group will, of course, be reluctant to give up control of Meralco. It is the critical link between their profitable power producing investments and the nation’s largest electricity market.

But for as long as the same family group is both invested in power generation plants and in control of the power distribution monopoly, there will continue to be suspicions about how fair power pricing is in this country. There will continue to be serious doubt about whether or not a competitive power market has indeed been achieved in this country.

That item about Meralco not paying for its own voluminous electricity consumption underscores the doubt.

Let’s see how this controversy plays out. The present debate was sparked by issues concerning the transparency and efficiency of Meralco’s management. It should remain focused on those issues and not be sidetracked by parallel concerns such as the VAT imposed on power usage.

Some politicians detract from the focus by making the populist demand that the VAT on power be withdrawn. That might produce short-term reductions in prevailing power prices. But in the longer term, that will be harmful to the poor.

Power, like all other commodities, are consumed in disproportionately higher quantities by the wealthier consumers. Revenues generated from higher consumption by the rich fund social services consumed largely by the poor.

Withdrawal of the VAT is an illusory fix to the problem of high power costs. It is an anti-poor fix.

Over the long haul, what we should ensure is a truly competitive power market. One that is not leveraged by related cross-ownership over subsections of this market that might conspire against economic efficiency and consumer interest.