Winston Garcia gears up for proxy war with Lopezes
By Ronnel Domingo
Philippine Daily Inquirer
First Posted 19:21:00 05/23/2008
Filed Under: Electricity Production & Distribution
MANILA, Philippines -- Government Service Insurance System president Winston Garcia is gearing up for a proxy war at the Manila Electric Co.'s annual stockholders meeting on Tuesday even as he fears he might lose his seat at the power utility’s board.
In an interview Thursday, Garcia said the soliciting of proxies could result in a reduction of government representatives’ seats on the on the 11-member Meralco board from four to three, with him as the casualty.
The government "needs the four seats to establish quorum as well as a majority (with the two independent directors)," the GSIS general manager said.
Garcia maintained that his aim was to change Meralco's management team, whose "abusive practices" according to him was the reason the utility's rates were the highest in Luzon and even in Asia.
Data supplied by Garcia show that while Meralco charges its residential customers P9.64 per kilowatt-hour, the country's next-largest private power distributors charge substantially less: the Visayas Electric Co. charges P6.92 and Davao Light & Power Co., P6.44.
While Meralco charges its large customers P8.09 per kWh, Veco bills them P6.50 and Davao Light P5.87.
"Meralco's business accounts for 60 percent of all kilowatt-hours sold in the country and it has some four million customers," he said. "In terms of client base, that is 10 times the second-largest utility in the country (Veco)."
"With such economy of scale, Meralco should be charging 20 percent to 30 percent lower than the other utilities" but the management's abuses make it otherwise, he added.
Garcia said the root of the problem was Meralco's contracts with the Lopez group-affiliated independent power producers, which he said were "the most disadvantageous" IPP contracts in the country.
He was referring to First Gas Power Corp. which owns the 1000-megawatt Sta. Rita power plant and FGP Corp., which owns the 500-MW San Lorenzo plant, both in Batangas.
First Gas Power and FGP are 60-40 joint ventures between the Lopez-controlled First Gen Corp. and the United Kingdom's BG Plc.
"To give the illusion that the Lopez IPPs charge lower than the National Power Corp., Meralco buys from Napocor at peak hours," he said.
According to him, electricity supplied by the First Gen plants was priced at a take-or-pay rate of P4.25 per kWh.
"Napocor's peak hour rates are higher than that, but at off-peak hours (Napocor’s prices) range between P1.87 and P2.719 per kWh," Garcia said. "Despite that, 80 percent of Meralco's purchases from Napocor is done at peak hours."
"This manipulative purchasing is against the law, which says that purchases should result in the least cost" for consumers, he added.
Jesus Francisco, Meralco president and chief operating officer, has denied Garcia's accusations at hearing of the Joint Congressional Power Commission last May.
Francisco told senators and congressmen that under contracts with both the National Power Corp. and IPPs, Meralco was being charged a flat rate regardless of the time of day the purchases were made.
As for purchases made outside these contracts or through the wholesale electricity spot market, Francisco said Meralco was forced -- at certain times when supply is scarce -- to buy at a clearing price of as high as P20 per kWh.
"Our supply-demand profile is made 24 hours in advance," he explained. "As a price taker, we are not sure where the power will come from."
Garcia said it was apparent that the utility's rates could go down only with a change of Meralco's management team.
He said this was his objective at the shareholders meeting when a new board will be elected.
But Garcia has warned about and accused the Lopez group of "engaging in dirty tricks" by soliciting proxies even after the deadline for this had lapsed last week.
Meralco vice-president Elpi Cuna said this was "not only irresponsible but downright false."
"It was and will never be the policy of Meralco management to engage in dirty tricks," Cuna said, adding that Garcia seemed to have "made it his resolve to continue his tirades that are devoid of facts."
Cuna, who is Meralco's director for corporate communication, said Garcia has made it a habit to spew false information about the company which was dampening investor confidence.
Still, Garcia said his GSIS team was watching the developments leading to and during the annual meeting.
"I will bring eight lawyers (against the Lopez group's) 40 lawyers," he said.
"If we see that we have been wronged, we are ready to bring them to court," he added. "A lot of people can go to jail."
Garcia said that with a new management that is responsible and accountable to consumers, he would push for Meralco to buy as much as 90 percent of its supply needs from Napocor and at off-peak hours.
While this means putting the Lopez IPPs out of business, Garcia's data show that Meralco rates could go down by a range of P1.531 to P2.38 per kWh.
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