Meralco’s Generation Cartel is the Issue and Itgoes Beyond Meralco and into Power…..the political kind. (Part 2)
David Celestra Tan, MSK
28 September 2017
Worthwhile Competitors
Ironically there are many equally capable independent bidders who could have provided healthy competition, technologies, and alternatives that would have been beneficial to consumers. Shutout by the MVP Group were the Ayala Group (for now), a long time cooperative party in the Telecoms and water sectors, the Lopez group that had been focusing on natural gas generation. Left outside looking in also are the TeamEnergy group of Japan, GN Power, Giant Kepco of Korea, Filinvest Group, Trans Asia, Salcon Power, Vivant, Lucio Co Group, Ng Family, PetroEnergy, Emerging Power of Zamora Group, Energy World of Australia, and etc.
TeamEnergy and Kepco have established an impressive record of efficiency in operating base load plants. They will still supply power to Meralco but their contracts are expiring in 2025. So does First Gas. Kepco’s 1200mw Ilijan gas plant that is marketed by San Miguel has an expiring contract in 2022. First Gas 1,500mw contract with Meralco expires in 2026. The American IPP AES had apparently seen the writing on the wall and will exit the Philippine market soon. Come 2022, these outsiders will be serving the crumbs of the market…. if they stay.
What is sadder is the fact that “cartelization” is clearly prohibited by the Epira Law and unequivocally mandated for the Energy Regulatory Commission to guard against. From here on CSP is only for the commoners. An ideal reduced to a calmative to sooth the hapless consumer victims, after they have been duped. You don’t know what is worse. Having no rules to protect consumers and country or having them but not implementing them patriotically.
Meralco Coal Cartel
The Meralco Cartel might as well be called Meralco Coal Cartel for the 4,011mw they signed among themselves are all coal power. They, as a group, forced upon the government and the Filipino people their own energy mix and climate change policy. Together with the coal plants the group already own, coal will dominate the Philippine power sector with 10,000mw and 75% of the power supply contracts. It will take at least 10 years for this to reverse with disastrous effects on the Filipinos environment.
Cartelization is unfortunately born from evil causes that had been foreseen, identified, and prohibited by the EPIRA Law. Anti-competitive behavior, cross-ownerships, market power abuse, market domination. The ERC is specifically mandated under Section 43(k) to guard against cartelization and investigate. MSK petitioned the ERC to hold the processing of the Meralco PSA’s until they make a determination on the resulting harmful cartelization. Instead it was announced that they will approve them. The violations seem self-evident. Why has there be no action to prevent them? These are even clear violations of Meralco’s franchise.
They like to point to RCOA or open access as evidence of market competition. It is dominated by the same cartel.
50% Limit on Buying from a Sister Company and its Circumvention
The Epira Law of 2001 aspired also to assure continuous power supply to meet its growing needs. That can be achieved only if the power generation sector is opened to all generator investors and allowed for robust true competition to encourage the continuous introduction of more efficient and competitive technologies and operators.
Allowing a Meralco Cartel is a big barrier to entry of more generators with competitive rates without sister company premiums charged to consumers.
The EPIRA law under Section 45 limits to 50% of power supply a distribution utility can buy from its affiliated companies. So how is Meralco able to get away with more?
The circumvention loophole was provided by Rule 11 of the Epira Law IRR that limited the determination of capacity to only “control”and eliminated “own and operate” This means even if MeralcoPowerGen, the Meralco affiliate owns 51% of the generators supplying 100% of Meralco’s needs, it will circumvent the limitation as long as the minority partner or a marketing agent “control” the capacity. Hayy the games we play. Rule 11 is clearly contradictory to its mother law which is the Epira and must be declared illegal. But who will do it?
It goes Beyond Meralco and into Power…..the political kind.
This Meralcocartel is composed of groups that by themselves are already oligarchic in methods except maybe for foreign owned EGAT. Beyond their enormous resources and stake in power, they also control real estate, water, telecoms, infrastructure, health services, banking, mining, and media that combined they probably would control 50% of the GDP of the country. The Summit Group and Metro Bank are close allies.
Imagine the political ramifications of such economic, infrastructure, and public services juggernaut? With this monstrous economic might and stake and their natural need to perpetuate themselves, they can elect Presidents,Senators, Congressmen, and Governors. Appoint people in government, and some say even Justices in the Supreme Court.
In the past we asked where does an 800Lb Gorilla sit? The answer was Wherever it wants to!
In the future we will ask Where do future Presidents and government officials sit? Wherever the gang of 800lb gorillas tell them to.
The longer term danger is the Filipino people will feel so exploited that they would be open to another Marcos to liberate them. Except Marcos had it easier because he only had to dismantle ONE oligarchy. The next people’s hero will need to neutralize SEVEN groups each one the size of or bigger than what Marcos faced! That would be a miracle and could destroy the country before it is rebuilt. Historically it seems it is a cycle of boom and bust for the Philippines. We Filipinos just can’t seem to help ourselves from fooling around with governance.
Millennials are still unconcerned because their parents are paying for the electricity, water, and real estate. Wait until they have their own families and will have to foot the bills.
Cartelization is the Real Issue now for the country
Meralco and the MVP Group’s main defense is that the 3,551mw of contracts are LEGAL because they were signed and filed with the ERC before the new deadline of April 30, 2016. Yes, maybe they were just honest entrepreneurs trying to take advantage of a wonderful gift of opportunity given by the ERC. Yes, maybe the ERC were just guilty of misjudgement for extending it.
Meralco can also argue that their ownership of 51% of these project companies are legal under Rule 11 of the Epira Law. (whoever inserted this wording in the IRR should be shot in Luneta!).
Just love it that they argue the label “midnight” contracts. Contracts were rushed to signing 3,551mw with 5 partners in two days on April 26 and 27 2016, just 2 days before the filing at 7am on April 29, the day before the deadline. (Was ERC’s docket office even open normally that early?)
The fact of the matter is it created a CARTEL which is unquestionably prohibited by the Epira Law and a clear job of the ERC to investigate and prevent it under Section 43(k)(r)(s). There is clear abuse of market power, anti-competitive behavior, monopolization. We can play games and choose to call it border line legal, technically. These are further unquestionably a violation of Meralco’s franchise. Those cannot be argued.
The ERC Commissioners can claim misjudgement for extending the CSP deadline. What they would not be able to argue is that at this time is it is their responsibility to protect against cartelization under Section 43(k) and their unwillingness to even investigate and make a determination as their motuproprio duty (Section 45) would be hard to defend against suits for dereliction of duty. MSK had filed a petition for the ERC to hold the processing of the Meralco Cartel applications until they make a determination that there would be no cartelization. This has been unacted. Instead it appears they are foisted to approve them. In compliance with EO30.
The emergence of the MeralcoCartel is a dangerous threat to an enduring democracy that we paid so dearly to regain. Why are we allowing this to happen? How long will we wait for a savior? Will the Supreme Court step up for the consumers and proper governance as petitioned by the cause oriented group Alyansa para saBagongPilipinas?
Will the new anti-trust watchdog Philippine Competition Commission (PCC) still be of help? It is just coming out of its 2 year transition period when the business sector is supposed to realign their anti-competitive dealings. Or face sanctions. Instead Meralco grew its hulking Cartel. With the sheer size that they have been allowed to coagulate, is the MeralcoCartel now too big for the PCC to still stop the cartelization?
The filing of bills in the Senate to mandate CSP would be too late even if passed because the cows are out of the barn. Let us hope the authors of the bill will include a call for investigation of the Meralco Cartelization. Otherwise it would be just a gesture bill or worse diversionary strategy intended to placate the Meralco consumers.
The Meralco midnight projects are of “national significance” alright but in an adverse way and the resulting cartelization must be reviewed instead of approved in 90 days. It would be a use of President Duterte’s EO30 in vain.
In parallel why don’t we call for CSP biddings now on generating capacity so that we don’t face a shortage down the road?
It is saddest that this is happening at a time when the Filipino nation has so much hope for good governance. And to think that it all started with the seeming simple postponement of the implementation of the CSP policy.
MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
