MERALCO POWERGENS 3,551mw Power Supply Contracts – Are they Midnight? Are they not Sweetheart? Are they Cartelization?

David Celestra Tan, MSK
27 December 2017

Meralco and their supporters are going to great lengths to deny that these contracts are midnight and that they are not sweetheart deals?

  1. What is a Midnight contract or appointment?

A contract or appointment is Midnight when it was signed in the last hours before the authority of the approving party expires.  In other words it is designed to beat a deadline which is the expiration of the authority of the signing party.

In the case of the seven (7) power supply contracts that Meralco signed with seven companies all controlled 49 to 51% by its sister company MeralcoPowerGen, they were signed only on April 26 and 27 and filed with the ERC at 7am on April 29, 2016, just the day before the new deadline set by the ERC for the implementation by the ERC.  April 30, 2016 was the last day Meralco had a right to sign power supply contracts without going through a competitive bidding called CSP.

We do not need to be too literal that to be called midnight they needed to be filed with the ERC in the Midnight of April 30, 2016.  The act involved the clear effort to rush the signing of the contracts and the beating the deadline for the filing of the ERC application to beat the April 30, 2016 deadline.

Just to give you an idea, many power generators and electric cooperatives had appealed to the ERC for the power supply contracts they signed before the original November 6, 2015 deadline but they needed time to get all the board approvals and preparing the complex ERC documentation for application.

Practitioners in the ERC know that it will take a minimum of 15 to 30 days to complete a proper ERC application before the agency considers them acceptable.  The seven Meralco contracts totaling 3,551mw of power generation projects took only two (2) days to complete. And if you look at the documentation, they are from one template with the same pricing formula. And they all passed ERC rigorous checking of sufficient of documentation in form and substance.

These seven (7) contracts were clearly rushed to beat the April 30, 2016 deadline. Clearly bonafide Midnight deals.

  1. What is a sweetheart deal?

With slight variations, a sweetheart deal or contract is one signed between two parties at terms very favorable to one or both. In the case of the Meralco deals that it signed with its sister company MeralcoPowerGen, the prices and contract terms that will be passed on to the consumers were just negotiated between the two related parties.  Meralco drumbeaters had at one point claimed that they had negotiated aggressively to get the best terms for the consumers.  It is a most preposterous idea and insulting to the publics intelligence that the prices that the two related parties with the same officers and stockholders negotiated to be charged to the public, would be “least cost” and beneficial to the latter.

There is really no other way to assure the public that the prices and terms are competitive and not sweetheart than to hold a truly competitive bidding.

It is clear with all the three year efforts of Meralco to avoid a truly open and competitive bidding that they want to negotiate and corner the contracts with its sister company. The problem is it would be the public paying for the price that they negotiate between themselves. It clearly is sweetheart arrangements that are disadvantageous to the public.

The apathy of the government including the legislators to raise this issue is something that is eerie and unusual specially in this country where we make a big deal of government officials doing procurement and signing contracts with no or rigged biddings.  Many government officials have cases in the office of the ombudsman for contracting and disbursement anomalies. In both cases, it involve the peoples’ money. In the latter, it is peoples’ money that had been collected in the form of taxes and already in the government coffers.   In Meralco’s case, it is peoples’ money that are still in their pockets.

Except in the case of Meralco, the amount of the overcharge can easily be a mind boggling P12 billion a year or P240 billion over the 20 year life of the contracts. And there will be more if this practice continue to be condoned.

  1. Why is this cartelization?

The 4,015mw of contracts Meralco signed with companies controlled by its sister company MeralcoPowerGen is with 5 main partners. Aboitiz, DMCI, Global Business, San Miguel, and EGAT of Thailand. All are minority partners of MeralcoPowerGen.

Cartelization is when business groups cooperate to control the business and prices to the exclusion of competition. This can also be called oligopolization, the cousin of monopolization.

Even more scary is that these six companies already control 10,000 mw of power generation capacity and dominates both the bulk supply market and the wholesale electricity spot market.

They would control 90% of the power demand in the whole country.

If this happens, real competition is dead.  True competition is the main hope of the consumers of getting charged power that is least cost and fair and reasonable.  Without competition they have no chance.  It is for this reason that even the imperfect law, the Epira Law of 2001, tried to mandate ERC to protect the public interest.

Unfortunately we have yet to see ERC, other than Lip service, truly doing so.

It is a sad time for the Filipino electric consumers, 100 million of them.

“Evil triumphs when good men do nothing”. Consumers have been waiting for a few good men in positions of power to do something.  We have been waiting for a long time. It is a sad commentary on us as a people.


MatuwidnaSingilsaKuryente Consumer Alliance Inc.

Leave a Reply

Your email address will not be published. Required fields are marked *