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Deal made in hell

“It did not make any business sense for the government to privatize the electricity transmission business.




Not only an imperative but the law requires that the government take over energy security through the use of the transmission assets. This is due mainly to indications that the 25-year concession agreement on the electricity backbone signed in 2009 was a sweetheart deal and thus, onerous to the state.

For one, the deal was in clear violation of Section 21 of the Electricity Power Industry Reform Act that mandated the privatization of the National Transmission Corporation (TransCo) should “result in maximum present value of proceeds to the national government.”

Government, instead, has been losing billions of pesos of potential earnings while surrendering a strategic resource under the agreement signed among the National Grid Corporation of the Philippines (NGCP), TransCo and the Power Sector Assets and Liabilities Management Corporation (PSALM).

The concession agreement was inked on 8 February 2008 by then TransCo president and chief executive officer Arthur Aguilar; NGCP directors Walter Brown, Elmer Pedregosa and Du Zhigang, and Jose Ibazeta, president and CEO of PSALM.

Through the years, the ownership structure of NGCP has evovled and is now comprised of the Monte Oro Grid Resources Corporation led by Henry Sy Jr., Calaca High Power Corporation led by Robert Coyiuto Jr., and the State Grid Corporation of China (SGCC). The state-owned Chinese company supposedly is a technical partner and holds a 40-percent stake, but government sources said it is actually in control of the concession holder.
At the time, the privatization of the transmission assets was put into play. The use of the electricity network was bringing in an annual average 20 percent growth in revenues.

“It did not make any business sense for the government to privatize the electricity transmission business,” an expert in the power industry told Daily Tribune.

Prior to the takeover of NGCP, TransCo’s gross sales for 2007 was P23.43 billion and even rose to P28.03 billion on the year the transfer to NGCP was agreed on.

The government clearly lost from the deal as reflected in the huge declines in the annual average net government revenues from operations of the grid from P20.75 billion under TransCo to a mere P6.75 billion.

On the average annual tax revenues, TransCo remitted P9.5 billion for fiscal years 2007 and 2008, while NGCP only paid P2.23 billion in 2010 and 2011.

NGCP pays a three percent franchise tax in lieu of all taxes, contrary to state firm TransCo, which is not exempted from paying national and local taxes
With the NGCP deal, the resulting effect on government revenues is very clear.

TransCo’s average tax payments for 2007 and 2008 was P9.5 billion annually, while NGCP’s franchise tax payments for 2010 and 2011 averaged at P2.23 billion only.

“The concession agreement itself is replete with provisions that are ambiguous and disadvantageous resulting to damage against the government,” according to a power sector expert.

The concession with NGCP based on computations of an energy sector veteran would earn for the government P163 billion for the entire 25 years, which is equivalent to a mere P6.75 billion a year average against the P20.75 billion revenues after taxes of TransCo in 2008.

Consider the absurdity of giving up control of the power backbone that controls electricity supply for the entire nation and the government earning less in the process.

NGCP’s deal is against both the law and human logic.