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Greed at the grid

Indeed, the NGCP has a lot to answer for, including questions of greed.




Of the secretaries of energy since the Electric Power Industry Reform Act (EPIRA) was passed and the privatization of the National Transmission Corporation (TransCo) contrary to the EPIRA prioritizations, none has been so bold as to question, not just the performance of the transmission franchisee, but the logic of surrendering a national monopoly to an entity whose objectives might not be in our best interests.

None until the current Department of Energy (DoE) not only asked the National Grid Corporation of the Philippines (NGCP) to account for apparent lapses in performance, its unfulfilled mandate to adequately expand capacities, its delay in offering 20 percent of its equity to the public and, most important, the question of our vulnerability to geopolitical threats worsened since the last administration.

Indeed, the NGCP has a lot to answer for, including questions of greed. Note NGCP collects over P48.6 billion in revenues (2020). Do the calculus.

With P33.4 billion in retained earnings available for expansion projects, plus a prospective P1.5 billion from an initial public offering (IPO) of only one-fifth of its outstanding stock, NGCP has enough to fulfill what it promised.

In 2009, we privatized TransCo’s operations, maintenance and management so that the expansion burden is taken over by the franchisee using its own capital. Where NGCP is a monopoly chaired by a non-Filipino beholden to an alien government the question of greed is important.

NGCP intends to raise from the public between P1 billion to P1.5 billion in incremental capital despite unfulfilled expansion stipulated by the privatization award, its national franchise, and the ever-changing development plan it committed to undertake.

Since NGCP seeks to raise capital and adding its uncommitted retained earnings, these must be viewed against its unfulfilled commitments, pending projects and violations of its franchise award where either its earning per share of P11.7 against a par value of P1, or its book value per share (assets of P333.6 billion minus P253.7 billion in liabilities divided by two billion shares outstanding) had bloated from non-performance savings, suggesting that any divestment of secondary shares will yield fantastic windfalls for its current owners, both Chinese and Filipino, should the IPO price range from P203.34 to P327.6 per share depending on utility company price-earning ratios.

Within the energy value chain, NGCP wields the most powers as the sole systems operator that chooses which sources will supply what markets need electricity.

Yet the privatization was a fire sale cleansed of risk contingencies as debt-encumbered assets and liabilities were retained by the National Power Corporation or transferred to the Power Sector Assets and Liabilities Management Corporation. Thus immaculate, the monopoly was sold for a song at $3.9 billion as only 25 percent was front-ended with the balance payable in 20 years at periodically repriced rates.

The libretto was especially questionable. Staggered payments allow NGCP to earn from transmission revenues it could apply to its amortizations.

At 12 percent, the future value of the 20-year opportunity loss outweighs the present value of the $45 million difference from the next bidder. In effect NGCP dished out only $987.5 million. Consumers effectively financed its privatization.

The idiomatic expression where we were cooked in our own lard comes to mind as do questions of greed.