Meralco losses down to P411M in 2005

Manila Electric Co. (Meralco) reported a net loss of P411 million in 2005, a substantial 80-percent cut from the P2.03-billion loss incurred in 2004, the company said in a disclosure to the Philippine Stock Exchange.

Meralco, the country’s biggest power distributor, said the loss last year was brought down by two major factors: the continued provision for probable losses and the change in accounting standards.

"The consistent provisioning for probable losses in the event of a final and executory adverse decision of the unbundling rate case pending in the Supreme Court amounted to P5.9 billion," the company said.

The High Tribunal has ordered Meralco to stop the implementation of the unbundled rate scheme amounting to an average of 25.35 centavos per kilowatthour (kwh). As a result, Meralco started to set aside provision for losses of 25.35 centavos per kwh since June 2003.

In March last year, Meralco filed a petition for review with the Supreme Court seeking the reversal and setting aside of the July 2, 2004 decision and Jan. 24, 2005 resolution of the Court of Appeals which annulled and set aside the Energy Regulatory Commission’s rulings on Meralco’s rate unbundling case.

Another major factor is the effect of the transition from the company’s previous accounting policies based on Generally Accepted Accounting Principles (GAAP) to the Philippine Financial Reporting Standards (PFRS)/Philippine Accounting Standards (PAS) on Meralco’s reported financial position, financial performance and cash flows.

Prior to the transition to PFRS/PAS, the company realized a net income of P599 million, and further excluding the provision for probable losses, net income would have been at P4.43 billion.

The company’s revenues, however, rose by 14.9 percent from P151.61 billion in 2004 to P174.27 billion in 2005.

The improvement in revenues last year, it said, could be attributed to significant changes such the 0.6-percent sales growth coupled with the increase in purchased power costs by 15.9 percent from P147.35 billion in 2004 to P170.85 billion last year.

Purchased power cost in 2005 went up by as much as 19.5 percent to P148.87 billion from P124.60 billion in 2004. This was primarily due to a 19.8-percent increase in the average cost of purchased power per kwh.

Operation and maintenance expenses increased by 12.5 percent to P10.41 billion for 2005, compared with P9.26 billion in 2004 due primarily to net provisions for various tax assessment and legal claims, increase in contractors’ services and increase in pension cost and other long-term employee benefits.

In accordance with the EVAT Law (RA No. 9337) made effective on Nov. 1, 2005, the company also started collecting a 10 percent value-added tax on electricity consumption in lieu of the national franchise tax of two percent.

Capital expenditures were kept within the cap of P5.75 billion at P5.28 billion in 2005 from P5.42 billion in 2004.

The level of capital expenditures in 2005 was affected by lower-than-expected growth in new service applications and delay in government’s road widening projects. The level of spending was at the ratio of 88 percent is to 12 percent for electric capital projects and non-electric projects, respectively.