Taking the cue

Investors in the power industry should take the cue from Lopez-owned First Gen Corp., which is scheduled to list its shares in the stock market next month. Even with downscaled growth projections, it appears the country will still be short of 4,438 megawatts in new generation capacity additions (read: new power plants) by 2010.

First Gen is scheduled to launch its public offering by the end of this month and have its shares listed at the Philippine Stock Exchange on Feb. 10. It will be the first company – the first power company at that – to list this year. No wonder PSE president Francis Lim was all smiles at First Gen’s recent investors briefing in Makati. The First Gen IPO is expected to kick off what the stock market hopes to be a banner year, with at least 10 other companies signifying interest in listing their shares in the bourse.

What could make the First Gen IPO a very good market play is the fact that it is the only power company in a position to address industry demand. While the Power Sector Assets and Liabilities Management Corp. (PSALM) is scheduled to sell 70 percent of Napocor’s generation assets (operational and mothballed) this year – assuming the government finally makes good its word to implement EPIRA – the installed capacity has already been factored in by the Department of Energy – when it made its supply and demand projections. Based on DOE projections and industry estimates, Luzon alone will have a capacity shortfall of 746 MW by 2010.

If you take a look at First Gen’s portfolio, more than 90 percent of its installed capacity is located in Luzon, which accounts for about 75 percent of the nationwide demand for power. First Gen’s plan of constructing a 550-MW gas-fired combined cycle power plant in San Gabriel, Batangas, which will be adjacent to its 1,000-MW Sta. Rita and 500-MW San Lorenzo gas-fired power plants, fits in nicely with the projected capacity demand.

Speaking of IPOs in the power industry, the Philippine Independent Power Producers Association (PIPPA) will be coming out with a position paper on the mandated listing of shares of power companies this year. Aside from First Gen, no other major power company has signified plans to undertake an IPO.

Industry players want the Energy Regulatory Commission (ERC) to clarify the rules on public offerings of power companies. EPIRA mandates that power generation and distribution companies sell 15 percent of their common shares to the public via the stock market.

I can understand PIPPA’s predicament: does the law cover the parent companies of power generation firms (such as First Gen) or the generation subsidiaries and affiliates themselves? An industry official explained that it would be senseless to compel subsidiaries to list since many of these firms are Napocor IPPs with fixed life terms. There is simply no way to make any rational or sensible valuation of these IPPs. If at all, the ERC should issue specific guidelines that would mandate the parent companies of these IPPs to list since these are holding companies. Either way, the ERC should address the issues raised by PIPPA asap lest EPIRA’s implementation – three years delayed now and still counting – encounter more roadblocks.

Double standards

It would be interesting to find out how the National Telecommunications Commission (NTC) will be able to explain its obvious inconsistencies in deciding on the various applications for 3G frequencies.

All five which failed to secure frequencies, namely Lopez-owned Bayan Telecommunications (Bayantel), Next Mobile Inc., Tonyboy Cojuangco’s AZ Communications, Pacific Wireless, and Multimedia Telephone Inc. (MTI), have filed their respective motions for reconsideration on the Dec. 28, 2005 consolidated order of the NTC disposing of the different applications.

What is immediately apparent from all these MRs are accusations that the NTC has applied double standards in the case of MTI owned by Joey de Venecia, Fritz Server and Andres Soriano III. MTI failed to get a 3G frequency because its score in the evaluation of qualified applicants failed to meet the minimum required by NTC. But since the NTC itself admits that the last remaining 3G frequency will be given only to those who have already applied (which means any of the five losers), MTI appears to be a shoo-in considering that it ranked fifth (after Smart, Globe, Digitel and CURE). But did MTI deserve its rank?

MTI was awarded a license to install, operate and maintain a nationwide public mobile telephone service on Oct.12, 2005 or three days after the effectivity of the rules that will govern the allocation of new 3G licenses. Under said rules contained in NTC Memorandum Circular no. 07-08-2005, existing CMTS companies are already pre-qualified to get 3G frequencies.

The NTC considered MTI an existing CMTS company together with the likes of Smart Communications, Globe Telecom, and Digitel, but in the evaluation process, the commission considered MTI as non-CMTS. Does anyone own an MTI mobile phone? Thus, in the track record criterion, Bayantel got a score of 1.5 while MTI got 5.5 because according to the NTC, MTI being a "non-CMTS" should get an automatic score of 4. But how can MTI possibly beat Bayantel which has built 300,000 local exchange lines, a National Digital Transmission Network, a Metro Ethernet infrastructure, and now a 3G-compliant wireless local loop? The answer: MTI needed the points.

The next question is, if MTI is a "non-CMTS" operator, why was it not subjected to the required minimum paid-up capital stock of P100 million, debt-to-equity ratio of 70:30, among others. According to the NTC, MTI in this respect is a CMTS operator. CURE and Next Mobile, on the one hand, were subjected to these criteria before they were given CMTS licenses.

MTI has a low authorized capital of P70 million and paid-up capital of only P43 million based on SEC records as of Oct. 2005. But the NTC chose to disqualify Pacific and AZ for failure to meet the required amounts when these two companies have higher paid-up capitals than MTI. Even if MTI’s capital deficiecies were cured by adding more equity to its capital stock after Dec. 2005, MTI still did not deserve the CMTS license it surreptitiously got from the NTC on Oct. 12.

MTI’s 2003 audited financials show additional paid-in capital (APIC) amounting to P271.5 million, and P390 million and P561.9 million both in 2001. So why did NTC not assess MTI’s spectrum users fees and SRF based on these APIC but disqualified Next Mobile for unpaid SUF and SRF due to the latter’s owned APIC?

MTI likewise did not submit any evidence, supposedly as a prequalified CMTS operator, to show that it is updating its supposed CMTS network (such as maps of coverage, technical studies, etc.). On the other hand, other applicants were required to submit comprehensive technical studies. The same company did not even submit an audited financial statement for 2004.

AZ Communication’s 3G application was denied by the NTC for failure to meet the minimum five-year roll-out plan coverage (80 percent of provincial capital cities/municipalities and 80 percent of chartered cities). MTI’s application meanwhile was not denied despite a two percent proposed roll-out coverage. To correct an obvious faux pas, MTI sent a commitment letter that it will meet the NTC requirement.

Rumor has it that the NTC intends to award to MTI the last 3G frequency (only Smart, Globe, Digitel and CURE were awarded frequencies). How the NTC will justify its decision is going to be interesting? And we haven’t even dealt with the issue of how CURE was able to edge out Bayantel in the grant of frequencies.

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