Counterpoint: Meralco’s CSP Exclusionary Bidding Schemes the Exact Opposite of “Above Board”. Instead We Challenge You with a way for you to get 50% of Meralco energy needs. We hope you are game.

David Celestra Tan, MSK
9 January 2021

Meralco, the ever master hoodwinker, is trying to make the public believe that the competitive selection process for its power procurement of its 6,500mw power needs, which rates are paid for by the consumers, have been “above board”, is open and competitive because “there are 23 interested bidders”, and rates will save the consumers billions.

We don’t know what is more repugnant. To be openly overcharged with impunity or to be openly insulted for our lack of basic intelligence. Sleight of Hand tricks are okay for magic entertainment but when billions of charges are involved for 20 years to the consumers, it is anything but.

Meralco’s bidding schemes for its CSP’s have been anything but “above board” from day 1, obviously intended to exclude real competitors, and evidently bent on being held only when the desired winners will most likely be awarded.

Let us start with the basics of what we consumers are supposed to be expecting from Meralco.

Basic No. 1 Meralco’s franchise obligations to the public

“the grantee shall supply electricity to its captive market in the least cost manner….the grantee shall charge reasonable, just, and competitive rates for its services to all types of consumers located in its franchise area.”

 “The grantee shall not engage in any activity that will constitute an abuse of market power such as but not limited to, unfair trade practices, monopolistic schemes and any other activities that will hinder competitiveness of businesses and industries.”

To put it simply, Meralco is supposed to charge us least cost, just, and competitive rates. These they can do so only if they don’t engage in abuse of market power, unfair trade practices, and monopolistic schemes. The reason? By securing a franchise for public services, they are supposed to be committed to serve the public, primary of which is to provide least cost power.

Basic No. 2  What does “above board” mean?

Dictionaries say “above board” means a transaction with no illegal or unethical undertones. Legitimate, honest, and open way. In the open, without dishonesty, concealment, or fraud.  These badges of proper behavior from your public utility are pretty straightforward. Let’s go over what they have done and you be the judge.

True openness of the bidding is essential for the CSP to be truly competitive. For a bid to be really “open” it means potential bidders are given enough time to study the project and to prepare their bid with all the documentation requirements and the multi million dollar bid bond. So let us see what Meralco did.

Meralco’s CSP Strategems

Meralco’s First CSPs for 2900mw of power supply in July 2019.

Watching Meralco conduct its CSP for 2,900mw of power supply is like watching a magician do a deft sleight of hand, ”now you see it now you don’t” trick complete with clever, even if devious, misdirection for full mesmerizing effect on the audience.

1. There were two parcels for 1,200mw and 500mw for “brownfield” capacity with supply to start a few months later on December 26, 2019. Obviously these can be participated only by power generators with existing capacities so we can understand that there would only be a limited number of people who can try participate in the bid realistically.

So let us just give them the benefit of the doubt on the competition on these brownfield projects. We would like to say a two things though.

a) Meralco claimed that the consumers will save P0.28 per kwh and P9 billion for 10 years. The winners San Miguel and Ayala are now supplying these power at P4.04 to P4.60 per kwh. But disappearing from the Meralco supply mix are the P3.40 to P3.80 per kwh prices of Masinloc and Calaca. How is that better? Was there bid collusion?

b) Meralco publicized that there were 23 interested bidders. But look at the breakdown. 8 are San Miguel Companies, 4 Ayala, 3 Lopez, 2 Aboitiz, 2 Legarda, and one each for EGAT, DMConsunji, and one Meralco for the 1,200mw Atimonan.

Of the 23, 16 are from the Meralco six combine that tried to get away with the seven (7) midnight contracts in April 2016.

2. The CSP for 1,200mw greenfield

Here is where Meralco’s CSP is obviously not above board.

a) To start, of the 23 supposed bidders, only four (4) were for this package. Atimonan One of course of Meralco, First Gen of the Lopez Group, and Panasia and Mariveles both San Miguel companies.

b) The bid was announced in July 20, 2019 with interested bidders asked to submit their “expression of interest” 9 days later on July 29, 2019. If you want to register for the 1,200mw “greenfield project”, you have to pay P6 million to obtain and see the bid documents and to attend the pre-bid conference 10 days later on August 9.

Interested bidders are supposed to submit their bid 30 days later on September 10, 2019 for the approximately US$2 Billion project. The bid bond was US$73 million.

Who can put a credible bid for such a big project in only 30 days?

c) Besides, it is obvious to most capable bidders that this bid is being arranged by Meralco for its own Atimonan One. After all it has been working on that project for four (4) years. So why will anyone worth his salt bother?

d) It is also obvious that information on the terms of the bidding including its technical requirements have been known to the other bidders specially Atimonan One and probably San Miguel. The others already have a competitive disadvantage.

e) The result of the bidding was very revealing which is why we are saying what temerity for Meralco to claim it was above board.  First Gen did not show up. Panasia and Mariveles, both San Miguel companies, backed out one after the other, and voila only Meralco’s own Atimonan One is the only one left standing.

This did not happen by chance. Was San Miguel doing its big customer a favor since it is getting 1,000mw of new 10 year contract from the “brownfield” packages anyway?

Let us try to respond to Meralco’s claims or alibis point by point based on their claims that was published by the Inquirer article referred to here as Viewpoint for public information.

1.The CSP are above board because a) they are approved by the Department of Energy and b) follow limits on ownership by law.

MSK Counterpoint:

Let us grant that Meralco’s CSP terms of reference are complying in shape and form to the DOE’s CSP Guidelines 2018-02-0003. They certainly are not complying with the spirit of a truly open competition. See above.

Are they following the ownership limits set by law? What is that?

Section 45 of the EPIRA Law allows Meralco to enter into bilateral contracts with affiliated companies for up to 50% of its demand or energy requirements.

If we go by the 3,551mw midnight contracts it tried to fast break with five (5) partners in April 2016, Meralco is not intending to comply with the limits set by law. Those 3,551mw plus the 480mw San Buenaventura plant in Mauban with minority partner EGAT of Thailand would corner 80% of the energy needs of Meralco for the next 10 years.

And who are the five (5) partners? San Miguel, EGAT, Aboitiz, DMCI, Global of Metrobank (now owned by the MVP group). The same people now participating in the CSP biddings.

Is it possible to have a truly competitive bidding that will give us the consumers a fair market price when they are all partners with Meralco?

2. For the 1200mw greenfield project needed in 2024, Meralco PowerGen is participating with 17 other interested suppliers.

 Please see above.

3. “The CSP bidding process is to achieve the lowest possible cost for consumers”

a. A CSP bidding process to achieve lowest possible cost need to be fair, open, and transparent.

b. The United Nations and the World Bank Bidding rules say “equal opportunities to all bidders by sharing the same information with all bidders at the same time and communicating the same contents on a specific procurement. In the context of public procurement, a fair process is free from favoritism, self-interest, or preference in judgment. Integrity requires an Organization or individual to exhibit probity in their actions. Probity means having strong moral principles and honesty and decency in dealing with others. Integrity is reflected in truthfulness that is apparent in professional and personal undertakings and adherence to commonly accepted moral and ethical standards. Transparency…means that all information on procurement policies, procedures, opportunities, and processes is clearly defined, made public, and/or provided to all interested parties concurrently”.

c. The Philippine Procurement law of RA 9184 says in Section 2 that

“ Competitiveness by extending equal opportunity to enable private contracting parties who are eligible and qualified to participate in competitive bidding”

Meralco’s CSP’s bidding scheme was clearly exclusionary in nature and no way will assure consumers of the “lowest possible cost”

4. As to banning cross ownership…they were already following restrictions set under the Electric Power Industry Reform Act of 2001.

Ok Meralco, if you really mean to follow the 50% restriction on the amount of power supply you can contract with an affiliated company, we have a proposal.

50% of your power requirement is easily 3,250mw or 20 Billion kwh a year. You can get these by having a swiss challenge preference in a DOE approved CSP.

However, we need some safeguards for the consumers that they will not be overcharged.  So we challenge you to first hold a CSP even for 1,500mw of power that would be truly open and assured to be without favoritism. One that will establish a genuinely market tested price which will then be used as the benchmark or maximum price for your swiss challenge bidding.

a) We propose 500mw of LNG, 500mw of Super Critical coal, and 500mw of open technology including nuclear.

b) To assure true competition, none of your Meralco 5 partners or their affiliates can participate in the bidding. There are many bidders. Kepco, Team Japan, Alsons, Ayala, AES, Energy World, Vivant, Phoenix Group, and other interested firms from Japan, Malaysia, China, and Singapore.

c) Bidders will be given sufficient time to study and prepare their bid for six (6) months.

The EPIRA Law already did the owners of Meralco a big lucrative favor with 3,250mw of long-term power supply contracts. Consumers do not mind you getting them. We just want to be assured that we are not being overcharged.

Are you game?

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david.mskorg@yahoo.com.ph