More views on Meralco & First Gen
April 17, 2006 | 12:00am
Readers’ comments for today focus on two entities widely perceived as Lopez family interests, First Gen and Meralco. One of our readers offers a view on why First Gen’s IPO (initial public offering) last February paled in comparison to Universal Robina Corp. (URC). Chris Murphy has this to say:
"I read with interest your BizLinks column (Is First Gen a good buy? – 17 February 2006) and would like to offer my observations for what they are worth.
"FirstGen will be constrained, I believe by the following:
"First, FirstGen is ultimately a family-owned business in a country dominated by other wealthy/influential families. These families fall into three basic groupings: those on the rise, those on the decline, and those who are neutral. This is reflected also in politics which plays (possibly?) an unhealthy role in business in the Philippines – families, politics, and businesses are all intimately linked.
"We will all have heard at times the phrase ‘Business is politics.’ In the Philippines, it is the reverse: ‘Politics is business.’ This is the crux of the issue, not just with FirstGen, but with the business environment as a whole, and the multinational aspect in particular.
"It is this relationship between families, politics and business that will determine the economic future of the Philippines.
"If we were to analyze critically the dynamics between Meralco, Napocor, the government and representative families and other stakeholders, we might agree with market sentiments, but for different reasons.
"The premise is then that First Gen is not politically the ‘flavor of the month.’ Interestingly, would this be the case if the company were owed by numerous ‘low profile or invisible’ shareholders? Maybe, maybe not.
"Leading on from the first point, utility companies the world over are typically heavily regulated by "Big Government.’ Obviously big utility bills can impact at certain points in the electoral cycle, which adds a political dimension. High costs to the consumer can be justified by heavy infrastructure investment – you can ‘see’ what you are paying for – but there will still be a political dimension.
"Third, utility companies the world over are considered ‘steady performers.’ They will never turn in massive profits simply because this would be politically unacceptable – generally with little or no choice in utility supplier, the regulator must constrain monopolistic pricing. Spectacular growth will therefore be inhibited – either by demand, or in a mature economy – by the regulator. In terms of the Philippines, the market demand is presently steady.
"Following on from the third point, where the market has matured, the utility industries will tend to be capital intensive, the ‘payback’ being a guaranteed (if not spectacular) return on capital employed or investment made.
"Typically the local market will be moved by sentiment as much hard fact. At present the market has decided that URC is the better bet."
Last week’s column on the story about Meralco’s "unconditional" offer to start open access drew a response from Meralco’s corporate communications vice president and director Elpi Cuna. Here is Elpi’s letter.
"This has reference to your column entitled Is Meralco offer truly ‘unconditional‚’ which came out on April 10, 2006. Allow me to comment on the points that were raised in your column.
"Meralco’s IPPs (independent power producers) are protected by their contracts which allow them to recover fixed costs even if they are not fully dispatched. It is therefore not to their benefit but to our customers if they can be dispatched at MEQ (minimum energy quantity) or higher.
"Based on simulations done on the February purchases of power by Meralco, the average rate to our captive customers could go down by P0.18 per kilowatthour if we could optimize our three IPPs while running at MEQ.
"With regard to the independent power producers (IPPs), we would like to make clear that Meralco is not protecting the interest of any IPP.
"Although some of the IPPs are affiliates of Meralco, Meralco itself does not stand to benefit from its purchases from these IPPs. It must be recalled that Meralco entered into an agreement with these IPPs to complement Napocor’s insufficient power generating capacity in the 1990s that resulted in the frequent power outages.
"If Meralco wants the IPPs to run at minimum energy quantity (MEQ), it is not because Meralco wants to assure the IPPs’ viability. Rather, it is because allowing the IPPs to run at MEQ will result in lower generation costs, as you mentioned in your column. Meralco’s purchases from the various power generators are based on which supply mix will yield the lowest cost to the consumers, and of course on the existing contracts with them.
"Now, whatever happens to Napocor with the eventual implementation of the open access should not be attributed to Meralco. Open access, in the first place will be implemented not to assure the viability of any one company (Meralco included), but to benefit the consumers through the expected lower electricity rates it will facilitate. That is how it works in a competitive market: the ones that survive are the most efficient ones and those that are able to best meet the demands and cost considerations of the customers.
"Meralco’s giving of freedom to its customers to choose their own electricity suppliers has actually initiated the groundwork for the implementation of open access, and should be seen as a step forward in achieving a positive environment for the electric industry.
"The present system or at least the system during the initial phase of the ‘open access’ scenario may still be far from perfect though as we are still in the process of laying the foundations for a wider coverage of competition. Things have to be taken one step at a time, following a schedule set by the Electric Power Industry Act (EPIRA).
"We hope that through this letter, we have clarified certain issues and questions you may have regarding our position on the opening up of the power industry to competition. I hope you could find space for this in your very popular column."
I am glad that Meralco is now taking time to explain to the public their side on issues and perceptions aired by consumers.
After the Holy Week break, Philippine Poker Tour (PPT) satellite competitions offering a chance to win a seat to the Main Event
of the Million-Peso Hold’em Philippine Championship resumes today at the following venues: Valle Verde Country Club (daily competition starts at 7:30 pm), SanMig at Alabang Town Center (on Wednesday), Elbow Room at MetroWalk, Pasig City (on Thursday) and Rajah Hotel, Cebu City (on Friday).
Poker tournament enthusiasts have two weeks to join the Main Event of the Championship scheduled on 29th April 2006 at Airport Casino Filipino Paranaque. One may get a seat for the Main Event either by winning in a satellite tournament or by paying the Main Event Tournament fee.
For more details, visit www.PhilippinePokerTour.com <http://www.philippinepokertour.com/> or call PPT Secretariat (c/o Cindy) at 817-9092 or 812-0153.
Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected] or at [email protected]. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.
"I read with interest your BizLinks column (Is First Gen a good buy? – 17 February 2006) and would like to offer my observations for what they are worth.
"FirstGen will be constrained, I believe by the following:
"First, FirstGen is ultimately a family-owned business in a country dominated by other wealthy/influential families. These families fall into three basic groupings: those on the rise, those on the decline, and those who are neutral. This is reflected also in politics which plays (possibly?) an unhealthy role in business in the Philippines – families, politics, and businesses are all intimately linked.
"We will all have heard at times the phrase ‘Business is politics.’ In the Philippines, it is the reverse: ‘Politics is business.’ This is the crux of the issue, not just with FirstGen, but with the business environment as a whole, and the multinational aspect in particular.
"It is this relationship between families, politics and business that will determine the economic future of the Philippines.
"If we were to analyze critically the dynamics between Meralco, Napocor, the government and representative families and other stakeholders, we might agree with market sentiments, but for different reasons.
"The premise is then that First Gen is not politically the ‘flavor of the month.’ Interestingly, would this be the case if the company were owed by numerous ‘low profile or invisible’ shareholders? Maybe, maybe not.
"Leading on from the first point, utility companies the world over are typically heavily regulated by "Big Government.’ Obviously big utility bills can impact at certain points in the electoral cycle, which adds a political dimension. High costs to the consumer can be justified by heavy infrastructure investment – you can ‘see’ what you are paying for – but there will still be a political dimension.
"Third, utility companies the world over are considered ‘steady performers.’ They will never turn in massive profits simply because this would be politically unacceptable – generally with little or no choice in utility supplier, the regulator must constrain monopolistic pricing. Spectacular growth will therefore be inhibited – either by demand, or in a mature economy – by the regulator. In terms of the Philippines, the market demand is presently steady.
"Following on from the third point, where the market has matured, the utility industries will tend to be capital intensive, the ‘payback’ being a guaranteed (if not spectacular) return on capital employed or investment made.
"Typically the local market will be moved by sentiment as much hard fact. At present the market has decided that URC is the better bet."
"This has reference to your column entitled Is Meralco offer truly ‘unconditional‚’ which came out on April 10, 2006. Allow me to comment on the points that were raised in your column.
"Meralco’s IPPs (independent power producers) are protected by their contracts which allow them to recover fixed costs even if they are not fully dispatched. It is therefore not to their benefit but to our customers if they can be dispatched at MEQ (minimum energy quantity) or higher.
"Based on simulations done on the February purchases of power by Meralco, the average rate to our captive customers could go down by P0.18 per kilowatthour if we could optimize our three IPPs while running at MEQ.
"With regard to the independent power producers (IPPs), we would like to make clear that Meralco is not protecting the interest of any IPP.
"Although some of the IPPs are affiliates of Meralco, Meralco itself does not stand to benefit from its purchases from these IPPs. It must be recalled that Meralco entered into an agreement with these IPPs to complement Napocor’s insufficient power generating capacity in the 1990s that resulted in the frequent power outages.
"If Meralco wants the IPPs to run at minimum energy quantity (MEQ), it is not because Meralco wants to assure the IPPs’ viability. Rather, it is because allowing the IPPs to run at MEQ will result in lower generation costs, as you mentioned in your column. Meralco’s purchases from the various power generators are based on which supply mix will yield the lowest cost to the consumers, and of course on the existing contracts with them.
"Now, whatever happens to Napocor with the eventual implementation of the open access should not be attributed to Meralco. Open access, in the first place will be implemented not to assure the viability of any one company (Meralco included), but to benefit the consumers through the expected lower electricity rates it will facilitate. That is how it works in a competitive market: the ones that survive are the most efficient ones and those that are able to best meet the demands and cost considerations of the customers.
"Meralco’s giving of freedom to its customers to choose their own electricity suppliers has actually initiated the groundwork for the implementation of open access, and should be seen as a step forward in achieving a positive environment for the electric industry.
"The present system or at least the system during the initial phase of the ‘open access’ scenario may still be far from perfect though as we are still in the process of laying the foundations for a wider coverage of competition. Things have to be taken one step at a time, following a schedule set by the Electric Power Industry Act (EPIRA).
"We hope that through this letter, we have clarified certain issues and questions you may have regarding our position on the opening up of the power industry to competition. I hope you could find space for this in your very popular column."
I am glad that Meralco is now taking time to explain to the public their side on issues and perceptions aired by consumers.
of the Million-Peso Hold’em Philippine Championship resumes today at the following venues: Valle Verde Country Club (daily competition starts at 7:30 pm), SanMig at Alabang Town Center (on Wednesday), Elbow Room at MetroWalk, Pasig City (on Thursday) and Rajah Hotel, Cebu City (on Friday).
Poker tournament enthusiasts have two weeks to join the Main Event of the Championship scheduled on 29th April 2006 at Airport Casino Filipino Paranaque. One may get a seat for the Main Event either by winning in a satellite tournament or by paying the Main Event Tournament fee.
For more details, visit www.PhilippinePokerTour.com <http://www.philippinepokertour.com/> or call PPT Secretariat (c/o Cindy) at 817-9092 or 812-0153.
Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected] or at [email protected]. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.
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