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BIZ BUZZ: Seeking ‘temporary relief’

/ 02:03 AM August 05, 2022

When San Miguel Corp. entered into fixed-price agreements to supply electricity to Manila Electric Co. (Meralco) consumers in 2019, little did it know that unforeseen geopolitical forces would cause it to lose billions of pesos on its Sual and Ilijan power plants.

For one, the price of coal which powers Sual stood between $60 and $65 per metric ton at the time the contract was entered into, and was expected to stay in that range for the next 10 years.

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But no one could have foreseen that Indonesia would impose a coal export ban in January of this year, soon to be followed by a spike in energy prices globally due to Russia’s invasion of Ukraine the following month. As a result, coal prices skyrocketed to over $400 per MT at present.

To make matters worse, the Malampaya gas field which supplies the natural gas for the Ilijan plant was “derated,” resulting in a drop in supply. This forced San Miguel to source fuel from overseas which, as one would expect, is also substantially more expensive at present.

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The result is some P15 billion in losses since the cost of energy rose sharply. But the conglomerate gamely soldiered on all these months, opting to take it in the chin rather than petition for price adjustments as is its right under the law.

But with no end in sight to the high energy prices, it looks like San Miguel has little choice going forward but to do exactly that: ask the Energy Regulatory Commission (ERC) for “temporary relief” from the expensive fuel for its power plants, the cost of which it has been absorbing all these months.

Now here’s the thing: San Miguel is the only power supplier with a fixed-rate contract, supplying an estimated 30 percent of the electricity distributor’s needs. Other power generation firms are using so-called pass-through contracts which allow them to fully pass on all the costs to end consumers. One could say that San Miguel is doing consumers a favor by absorbing the costs through a fixed-rate contract. And it intends to continue doing so, if only regulators grant it some breathing space.

The alternative is to rescind the contract, after which Meralco will source the rest of its supply from other pass-through contractors, resulting in much higher prices for consumers.

So, to protect consumers from extremely high electricity prices, the counterintuitive move for power regulators is to actually grant a temporary hike for the two San Miguel power plants to allow them to recover part of their costs.

The alternative is a much heavier burden on consumers at a time when all prices are rising sharply.

How will the ERC decide on this matter? Abangan!

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Daxim L. Lucas

Sugar mill for sale

Ma-Ao sugar mill in Negros Occidental—part of an estate which heritage experts consider a historical landmark dating back to the American colonial period—is being dismantled after nearly three decades of dormancy.

The Araneta family, which owns the estate, has put on the auction block the entire contents of the 15,000-square meter facility via HMR shop n’ bid platform.

“Huge quantity of steel and copper must be sold!” said the teaser from HMR, which will accept bids until Nov. 18.

Among those up for grabs in one go are the boiler room, several buildings, truck scale, waste water treatment pond facilities, crane lifter and transloading station.

As nobody is interested to buy and operate the sugar mill (which industry sources seem to recall had been managed by First Lady Liza Araneta-Marcos’ father, Manuel, at one point), observers say it’s a good decision to just sell the facility and possibly convert the estate into a real estate play or any other viable new venture.

Based on an article written by Armando Arciaga III for the Architectural Arts and Built Heritage Division of the National Museum of the Philippines, one of the founders of Ma-ao Sugar Central was Capt. Juan Anacieto Araneta, a leader of the Negros Revolution and a pioneering sugar farmer.

“The central remained in operation past the liberation of the Philippines from colonial rule, continuing into a decline by 1982, the operation eventually fell into disuse, and came to a halt in 1994,” the article said.

Doris Dumlao-Abadilla

Busy biz council

Business tycoon Sabin Aboitiz, enlisted by President Marcos to head the Private Sector Advisory Council (PSAC), isn’t wasting any time bringing business insights to Malacañang, hoping to make a meaningful impact on policymaking.

Regular meetings between PSAC and the President have begun, with the agriculture and digital infrastructure sector groups having mapped out initial recommendations for the first 100 days of the administration.

The agri group is headed by Aileen Uygongco-Ongkauko of La Filipina Uy Gongco, who is working with industry leaders Christopher Po of Century Pacific Group, Francisco Tiu Laurel Jr. of Frabelle, Irwin Lee of Universal Robina Corp. and Ramon Lim of RNCL Prime Holdings Corp. This cluster has identified their immediate focus: address food security issues related to increasing productivity for farmers and closing supply chain gaps.

The digital infrastructure group, on the other hand, is headed by Union Bank of the Philippines chief transformation officer Henry Aguda. Also part of the cluster are Dennis Anthony Uy of Converge ICT, Al Panlilio of PLDT, Ernest Cu of Globe Telecom and Ramon Jocson of Bank of the Philippine Islands. Recognizing the importance of the digital economy, this sectoral group’s focus is a nationwide expansion of access to internet connectivity, alongside other digitalization initiatives.

PSAC’s sectoral groups will regularly provide feedback to the President on what is happening on the ground and make recommendations on policy development.

In accepting the role of PSAC convenor, the Aboitiz chief hopes to mobilize the country’s “brightest and boldest” business minds to “create and strengthen innovative new synergies between the private and public sectors.”

The council is expected to name more of its members in the coming weeks once other sectoral groups on health, jobs and infrastructure/tourism meet with the President to present their work plans and recommendations.

Aboitiz himself is leading the Build, Build, Build sector, while Joey Concepcion (RFM) is spearheading “Jabs to Jobs” and Paolo Borromeo (AC Health) is heading the health-care cluster.

Doris Dumlao-Abadilla 

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TAGS: Biz Buzz, Meralco, San Miguel Corp.
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