POSTSCRIPT / September 21, 2006 / Thursday


Philippine STAR Columnist

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Coming sale of Mirant intrigues industry, labor

DIVESTING: Mirant Philippines Corp., the country’s biggest power generator, is being sold by its Atlanta-based parent company, and its 1,200 employees are jittery. The industry is all eyes.

Its workers are afraid that the company’s assurance that they would be given 2.5 months’ separation pay for every year of service may not be honored by the new owners. Separation benefits have been estimated at $20 million.

In the context of Mirant’s volume of business and payment rates, $20 million is not really that big. Note these figures:

  1. Mirant had a net income of almost P12 billion last year from its business in the Philippines. That was roughly P1 billion a month. No other power firm comes close to that.
  2. Its Philippine employees have delivered over P10 billion ($200 million) net income to the parent company over the years.
  3. Mirant’s owners are expected to collect $2.5 -$3 billion from the sale that may be consummated by the end of the year. The money will go to its American parent company, which has been closing its non-US operations.
  4. Mirant is paying credit advisor Credit Suisse First Boston $22 million for managing the sale. Its legal advisers and other foreign consultants are paid millions of dollars more to handle the sale.

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WILL IT STICK?: Mirant Philippines President Jose Leviste Jr. has been assuring the rank and file at every turn, telling them that the company has a “generous” severance policy that gives 2.5 months worth of pay for every year of service.

But the employees have noted that while there is a practice about separation benefits, there is nothing written about the prospective owners assuming that legal obligation.

What is on sale is not just shares of stock but an entire ownership and management package that gives the new owners considerable leeway in running things, including the replacement of personnel and rearranging business structures.

Since they have no control over the buyers and the impending transaction, workers wrote Cyril del Callar, president of the National Power Corp. to use government influence to prompt Mirant and the incoming owners to honor commitments to the rank and file.

The employees are from the plants in Sual, Pangasinan (1,200 megawatts), Pagbilao, Quezon (735 megawatts), and Ilijan, Batangas, and the business offices in Pasay City.

They said they were willing to consider a transition contract to work for the new owners for at least three to six months or whatever period to be agreed upon for a smooth turnover. The incoming owners can very well ignore that offer, I think.  

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SEAMLESS: The decision of Mirant to divest from the power industry must be, to say the least, unsettling to the Arroyo administration considering that it has not been that successful in drawing big investors and in privatizing the government’s own power assets.

Other foreign investors must be watching how the government handles the Mirant divestment. They also would want to know if the administration will stick to established policies and honor contracts.

Rep. Roilo Golez said in a hearing last week in the House that Mirant’s divestment must be “seamless” and unimpeded if the country is to attract more foreign investments.

It is important, he said, that investors can come in and out freely. Mirant’s selling price of close to $3 billion is expected to go to the parent company in the US.

What will remain in the country are the separation pay of the workers and the capital assets, such as the generators, of the power company.

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FATE OF CONTRACTS: Mirant Asia-Pacific Ltd. of Hong Kong owns the Sual and the Pagbilao power plants and a portion of Ilijan. This is the parent company Mirant bought in the 90s from Hopewell to enter the Philippine power sector.

It is the same company that is now being sold, aside from all other non-US businesses of Mirant. The company has said that it plans to concentrate on its core businesses in the US.

When it sold out, Hopewell exited freely. But unlike Hopewell, it seems that Mirant is now being required to address issues that Hopewell did not. Foremost of these is that it must seek government consent before consummating its sale.

An interesting detail is that the sweetheart IPP (Independent Power Producer) contracts of Mirant still have a long way to go, making them attractive to investors.

Mirant’s contract for Sual expires in 2021, while that for Pagbilao ends in 2025. This gives the new owners time to recover their investments with loads of profits peculiar to IPP contracts.

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GENEROUS RATES: Leviste said that the new owners will be bound to honor existing contractual obligations, that the rank and file will likely remain where they are, and that only a few from top management, including him, will likely be let go.

He noted that the separation pay of 2.5 months for every year of service is way above what the largest Philippine companies give their employees and is much more than what the law requires.

The usual rate is half a month’s pay per year for retrenchment or only one month per year for redundancy based on the monthly salary.

Some of the workers have expressed misgivings that the rates being mentioned by Leviste may not be honored if the buyers are Asians. (Among the more aggressive prospective buyers are Koreans and Japanese).

That sounds like an implied compliment to Mirant, which is American.

Some of the employees have told us that two of their top executives who earn more than P600,000 a month have been insisting that they get their separation pay once the sale pushes through whether they are separated or not.

Their “sariling lakad” apparently does not sit well with the rank and file since it got around that one of them is already considering accepting the offer of a rival power company to hire him.

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PESO MAGIC: Meanwhile, we are being told that the strengthening of the peso had lopped off, as if by magic, billions (in pesos) from the country’s foreign debt.

Unless the government rushes instant payments, such gain resulting from the appreciation of the peso does not translate into anything concrete. The gain is temporary, because the peso’s exchange value vis-à-vis the US dollar may just drop tomorrow or next week.

Actually, the Arroyo administration has been carefully programming its debt service so that — whatever the opposition says — the amount that the country will pay for foreign debt next year will be smaller than that of this year.

Looking at the public debt payments, Sen. Ralph G. Recto said that our gross debt service for 2007 of P622 billion is P100 billion less than this years level of P721.7 billion.

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DIZZYING FIGURES: To the man in the street, government spending P1.7 billion a day for debt service next year is still a dizzying thought. Recto said this amount includes payments for principal and interest for the country’s P4-trillion debt.

Analyzing the big figures, Recto said six and half days of debt service is what we will spend for the Department of Health the whole of next year.

He said interest payments are pegged at P318.2 billion next year while the amount for principal amortization is set at P303.8 billion, or a gross debt service program of P622 billion.

Interest payments, with a 29-percent share, remain the biggest account in the proposed P1.136 trillion budget for 2007.

The education department plays second fiddle to debt service, Recto said. DepEd has a budget of P133 billion next year, or, by the senator’s computation, equivalent to two and half months of debt service.

Most people are unaware that the government pays more for its domestic borrowings than for foreign loans. Of next year’s P318.2-billion interest payment bill, P117 billion will settle foreign obligations while P201 billion will be for domestic creditors.

As to the P303.8 billion budgeted for principal amortization, P232.2 billion of this is earmarked for domestic obligations and the remaining P71.6 billion is programmed for foreign liabilities.

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(First published in the Philippine STAR of September 21, 2006)

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