National Greed?

Those who watched last week’s hearing of the Senate Energy Committee will tend to agree with a suggestion that NGCP should be renamed National Greed Corp.

Using his media interviewing skills, Sen Raffy Tulfo expertly elicited so much information that made us shake our heads in disbelief. How can our government allow a public utility to take in so much profits? Without assuring commensurate performance?

But don’t blame NGCP. It was doing only what it was allowed to do under its concession agreement and following the orders of the Energy Regulatory Commission or ERC.

Blame former president Arroyo who allowed a lopsided contract unfavorable to the public interest to be signed. Also blame the ERC for failing to use its powers to control NGCP’s ability to amass large profits without delivering on its obligations to modernize the transmission grid.

Sen Tulfo managed to get an admission from the NGCP officials at the Senate hearing that most of its income in 2014, 2015, 2017 and 2019 went to dividends for its shareholders. For 2014, the NGCP officials said that its dividends even exceeded its net income with P24 billion being handed to shareholders even if it only earned P22 billion.

That’s not surprising. A former NEDA official told me that NGCP has been earning huge profits while giving a very high percentage of its net income as dividends (ROE of about 36% and dividend payout of about 90% except for the last two years) leaving very little for reinvestment.

That’s not the worse part. Sen. Sherwin Gatchalian was able to elicit an admission from an NGCP official that they had been charging electricity consumers for expansion and development projects that have not been completed. Citing data from the ERC, Gatchalian said NGCP has yet to accomplish dozens of projects, among them the full interconnection of the Visayas-Mindanao grids that should have been finished in 2019.

“This is really a super profitable business. We’re being cooked in our own lard,” Gatchalian said.

Sen. Tulfo then asked ERC chair Monalisa Dimalanta if collecting fees for unfinished projects was allowed under the law.

“Unfortunately,” Dimalanta replied, “under the (ERC) order issued in 2020, they are allowed to do it.”

Dimalanta was referring to the interim Maximum Annual Revenue, which authorized NGCP to increase its income ceiling from P43 billion in 2019 to P47.1 billion in 2020.

To which Tulfo retorted: “Why did you allow it, ERC? You have the power to stop it!”

But to be fair, the ERC chair at that time was a former Cabinet member of former president Arroyo, not the current one.

For background, NGCP, on Feb. 28, 2008, entered into a Concession Agreement with PSALM and TRANSCO. The commencement date of the concession Agreement is on January 15, 2009 and shall expire on the 25th anniversary of the Commencement Date. NGCP is 40 percent owned by the State Grid Corp. of China (SGCC).

The Concession Fee is $3.95 billion. NGCP gave a down payment in dollars with the peso equivalent of P46 billion. The balance is converted to pesos pegged at the exchange rate of P43.75. That is about P127 billion to be paid in over 40 semi-annual installments with interest over 20 years.

Pegging the conversion rate to P43.75, given the historically certain depreciation of the peso over the concession years appears to be another special treatment. At the current exchange rate of around P55-56 to the dollar, that’s a lot of pesos saved by NGCP investors and lost by PSALM or the taxpayers.

The concession agreement shouldn’t have been a giveaway. The Arroyo administration knew that TRANSCO was making tons of income. TRANSCO was collecting wheeling charges for the power passing through the wires, and the national grid capital assets had been financed by long term ODA loans or even grants.

The principal justification for privatization was for NGCP to upgrade and expand the grid. But with failure to deliver projects on time, NGCP has been free riding on a big bulk of TRANSCO’s assets.

“Why is NGCP being given so many special treatments? What’s so special about these people?” Sen. Tulfo asked.

Who are the fortunate stockholders of NGCP other than the State Grid of China?

It is a company called Synergy Grid & Development Phils whose principal officers are Henry Sy, Jr as chairman and Robert Coyuito as vice chairman. Also listed as Independent Director is Energy Secretary Popo Lotilla, who I presume has resigned prior to assuming his current Cabinet position.

Synergy Grid (SGP) market capitalization is at P56.34 billion (as of April 4, 2023).

According to the Financial Times, year-on-year, Synergy Grid grew revenues 27.19 percent from P48.60 billion to P61.82 billion while net income improved 64.62 percent from P9.12 billion to P15.02 billion.

With the commencement fee of P46.34 billion as initial investment, the investors in NGCP immediately earned an IRR of 40.8 percent and a payback period of just 2.5 years.

NGCP has been delivering on the average, P20 billion a year to its shareholders over the last 12 years. Zero risk. Maharlika Fund cannot top that.

Year net income and dividends in billions of pesos: 2010, P19.411 B; 2011, P21.598 B; 2012, P20.757 B; 2013,

P19.457 B; 2014, P22.393 B; 2015, P23.314 B; 2016,

P21.185 B; 2017, P21.118 B; 2018, P21.196 B; 2019, P19.832 B; 2020,

P23.312 B; 2021, P23.229 B.

NGCP claims they have made capex investments (funded by borrowings, among other sources) larger than their dividends. But the public has not benefited because of significant project delays. And ERC allowed them to include unfinished projects in computing how much profits they can make.

Lesson learned: the concession agreement must protect the public interest and the regulatory agency must not be captured by the concessionaire.

The collusion of vested economic interests and those holding political power has always been our bane. It happened with MRT3. It is the case with NGCP.

Will Congress amend or abrogate the franchise of NGCP? Will the franchise be fixed to protect the public interest?

Good to have Senators Tulfo, Gatchalian and Riza Hontiveros making all these public. But will other senators and congressmen join in protecting the public interest?

Boo Chanco’s email address is [email protected]. Follow him on Twitter @boochanco