POSTSCRIPT / May 28, 2002 / Tuesday


Philippine STAR Columnist

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SC must act fast to end debate over power rates

CASE GATHERING DUST: Will the Supreme Court please help resolve the bitter controversy over soaring electricity rates? All it has to do is act with dispatch on a long-pending case of the Manila Electric Co. (Meralco). A final decision on it will unravel many knotty issues.

The case is an appeal on a ruling of the Court of Appeals that reversed a 1998 order of the Energy Regulatory Board (now the Energy Regulatory Commission) for Meralco to, among other things, roll back its rate by 16.7 centavos per kilowatt-hour, refund some P10 billion in overbilling, and exclude certain Meralco assets in computing the profit cap of the utility firm.

Since the Supreme Court has allowed the case to hang, the unresolved Court of Appeals ruling favorable to Meralco stands. In fact, Meralco has been using the CA ruling to justify many of its moves pertaining to power rates and profitability that consumers find objectionable.

So now we see the ERC, state auditors, Meralco officials and consumers locked in endless debate over what constitutes operating expense (is income tax, for example, such an expense?), how to compute Meralco’s profit or RORB (return on rate base), if it deserves a rate increase and how much, if it is overcharging consumers, et cetera.

That the heated debate is threatening to explode into civil strife is understating the situation.

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RECYCLED ARGUMENTS: Supposed “independent studies” being trotted out to show that Meralco has been overcharging its customers merely recycle arguments previously raised before the ERB/ERC and in the case on appeal before the Supreme Court.

A clear ruling by the high court at this point will clear the table in one sweeping action and, hopefully, restore sobriety and give direction to the debate. All the facts are already with the court and the pertinent laws have been discussed in detail.

One question is on what property may be included by Meralco to its list of assets whose combined value is used as basis for computing its allowed profit. The profit cap now is 12 percent of operating assets. It follows that if the list or value of the assets is padded, the peso-profit level correspondingly goes up.

In asking for a rate increase, Meralco has been saying that it has not been profiting enough and its creditors want improved profitability. Those opposing the petition claim that, to make its profits look small, Meralco had padded its assets base by including property that have nothing to do with distributing electricity.

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INTRIGUING SC SILENCE: With the Supreme Court’s continued silence, some of us are tempted to suspect that the tribunal is evading the question and is just waiting for the problem to resolve itself through extra-legal discussion and accommodation.

If the ERC agrees to raise the 12-percent cap on profits, the case before the SC may have to be reviewed all over again since it is based on 12 percent. If the cap is raised high enough, the SC can justify its upholding the Court of Appeals ruling favorable to Meralco.

Is the tribunal waiting for a compromise to emerge from the public debate among consumers, the National Power Corp., the Meralco, the regulatory bodies, Malacanang and Congress – and thereby render the case before the SC moot and academic?

The more cynical among us are already asking if there is an expensive game plan to deliberately delay the case to enable Meralco to continue operating under conditions favorable to it. Note that the refund and rollback order alone means billions lining the pockets of whoever wins the case.

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RAMOS IPP SPREE IS GRAFT?: Opposition Sen. Edgardo J. Angara told us, meanwhile, that former President Fidel V. Ramos may have committed graft when he continued to award sweetheart deals to IPPs (independent power producers) after the setting up of 28 IPPs had assured the country of excess capacity.

The senator said the questioned contracts are grossly disadvantageous to the government. Even assuming that only 80 percent of the total capacity of the first 28 IPPs is usable, he noted, the total demand for power by that time (1992) was adequately met by their total contracted capacity of 3,856 megawatts.

After the 28th contract, that of the Naga thermal complex, Ramos continued to sign 13 more IPP contracts. Angara recalled that in December 1994, the World Bank itself warned us of an impending oversupply of electricity.

By that time, the cushion or buffer supply to meet any power emergency was already 3,800 mw — which was 43 percent of the installed capacity, way above the 30-percent standard insurance levels.

“But the warning fell on deaf ears,” Angara said, “Mr. Ramos signed 13 more contracts, some of which had been denounced as corrupt and overpriced.” For examples of overpriced plants, the senator mentioned the Casecnan hydroelectric plant (140 mw) in Nueva Ecija and the San Roque multipurpose project (345 mw).

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GERMANS WORRIED ON PIATCO: In Deutschland, meanwhile, there is increasing interest in Manila, particularly from Hessen, one of the 16 states comprising the Federal Republic of Germany, which is home to Fraport AG Frankfurt Airport Services Worldwide. Fraport is a conglomerate operating the Frankfurt Airport, one of the world’s biggest and busiest.

Focus is on Fraport’s multimillion-dollar contract to build the controversial Passenger Terminal 3 of the Ninoy Aquino International Airport.

Its biggest and most important project outside of Frankfurt, Terminal 3 is also proving to be Fraport’s biggest headache. In late March, Fraport admitted in its media release that it had to write down about US$60-million (roughly P3-billion) “on loans and shareholder advances to the Philippine company involved in the Manila Airport BOT (build, operate, transfer) project.”

A “write down” is a reduction in the book value of an asset. Certain funds poured into a project cannot be recovered and are therefore being erased from a company’s books, otherwise they would stick out.

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INVESTORS HORRIFIED: With the write down, many German shareholders are asking how publicly-listed Fraport could sink in P3 billion in a project without prospects of recovering it. They also want to know why Fraport, with its 65-percent stake in the project, has only 30 percent of the voting rights.

They are horrified that the ambitious project has turned into a major scandal that is causing much embarrassment for the Philippine government and President Gloria Macapagal Arroyo.

The stink has stalled the confirmation of acting Transportation Secretary Pantaleon Alvarez. Said to be a compadre of one of Fraport’s local partners, Alvarez is facing complaints from airport concessionaires, aviation workers and other sectors for alleged corruption, conflict of interest and inaction on several provisions of the airport contract described as onerous and monopolistic.

Some German publications have reported that Fraport’s main problem arises from its Philippine partner. The main concession for Terminal 3 was awarded to the Chengs, a family engaged in cargo handling. The Chengs set up a company called Philippine International Air Terminals Co. Inc. (PIATCO) to manage the project.

The media have reported that construction costs were bloated for contractors allegedly close to Alvarez. Unexplained and unjustified payments that run to millions of dollars are also being questioned by a team tasked by President Arroyo to review the project.

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MYSTERIOUS CONSULTANT: Another mystery is a PIATCO consultant by the name of Alfonso Liongson. A virtual unknown in business circles, Liongson’s name surfaced as a high-flying consultant tapped by PIATCO president Cheng Yong to secure juicy concessions from government.

For his “services” that apparently include influence-peddling at the Department of Transportation and Communications, Liongson was paid US$2-million or a cool P100-million.

Some of Fraport’s creditors have stopped releasing money for the project until such time that contract terms are clarified and the scandals are settled. As a result, work on Terminal 3 has stopped for lack of funds.

If this controversy is not resolved quickly and decisively, the Philippines may soon be taken off the map of German investors. As home to giant investment banks and as an influential member of multilateral lending agencies, Germany might just pull the plug from the Philippines.

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(First published in the Philippine STAR of May 28, 2002)

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