Meralco sees bleak prospects

Manila Electric Co. (Meralco), the country’s biggest power distributor, sees bleak prospects ahead with a feeble economy along with the implementation in July of the last phase of its P30-billion refund to its customers.

At the same time, the imposition of the expanded value added tax (EVAT) may further curtail the electricity consumption of Meralco customers, company officials said.

Meralco chairman and chief executive officer Manuel Lopez said in yesterday’s stockholders’ meeting that the weak economy brought down the company’s volume sales in the first five months by 0.2 percent.

"What we are seeing is a general slowdown in business which will challenge our sales," said Lopez.

He said that weakened economic activities already took its toll in the first quarter when its sales volume declined 0.03 percent to 5.6 billion kilowatthours (kwh) from the 2004 level.

Jesus P. Francisco, Meralco president and chief operating officer said that among its customers, only the commercial sector posted consistent positive growth in consumption with the opening of new office buildings and shopping malls.

In contrast, electricity consumption in the residential sector went down by four percent from January to May, while the industrial sector’s growth was unimpressive.

"We may experience flat growth sales except for the commercial customers, especially if the price of electricity goes up. That would have a depressing effect on consumption," said Francisco.

Other Meralco officials noted the company could miss its projected sales for the full year as the government starts implementing the 10 percent EVAT next month that is expected to push up electricity rates.

EVAT will eliminate the VAT exemptions enjoyed by the electricity and oil sectors. The VAT, which currently stands at 10 percent could be raised to 12 percent next year.

Ivanna de la Pena, Meralco vice president and head of utility economics, said the removal of the two percent franchise tax will result in a net effect of additional eight percent adjustment in the electricity bills of customers.

De la Pena said the company is still awaiting the guidelines to be issued by the Bureau of Internal Revenue on how the EVAT will be carried out.

Moreover, Meralco is unsure if it will agree to the proposal of the Department of Energy to increase the coverage of the so-called lifeline rate users or the poorest of the poor to 100 kwh to 200 kwh that currently enjoy discounts of up to 50 percent.

Currently, Meralco consumers with monthly consumptions of 101 to 200 kwh under the lifeline rate structure already consists 32.7 percent of its residential customers, while customers using 101 to 200 kwh account for 70 percent.

Further casting a strain on Meralco’s finances is that it will have to continue setting aside P500 million monthly in case the Supreme Court issues an unfavorable ruling on its unbundling rate case.

Daniel Tagaza, Meralco chief finance officer, said that the company will continue setting aside provisions of about P500 million monthly in case the Supreme Court issues an unfavorable ruling on its unbundling rate case. From January to March this year, these provisions totaled P1.41 billion, resulting in a net loss of P1.71 billion for Meralco.

By July this year, Meralco intends to implement the final phase of its P30-billion refund program for its customers.Previously, the Court of Appeals junked Meralco’s plea for a reversal of an earlier court order that stopped the power firm’s tariff increase of 17 centavos per kwh that started in June 2003.

The increase was integrated in its tariff unbundling petition which the Energy Regulatory Commission approved.

The tariff hike includes an 8.65-centavo per kwh hike in its basic distribution rates, its first since 1994.

It was implemented for 18 months before it was ordered stopped.Meralco elevated the case to the Supreme Court last March.

Meralco posted a net loss of P2.7 billion in 2004 largely due to provisioning but said it could have posted a hefty P4 billion net income sans these provisions.