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Government Service Insurance System
GSIS stand
on the
By
WINSTON F. GARCIA
President and General Manager
meralco issue
Government Service Insurance System
Major shareholders’ profile
GSIS owns 26.5% of Meralco
Together with other GFIs – SSS,
Landbank, Philhealth and Pag-
ibig – government accounts
for 36.9% of Meralco shares
Government Service Insurance System
Major shareholders’ profile
Lopez holding company , FPHC,
Union Fenosa and the Meralco
pension fund own/ control
33.4% of Meralco
Government Service Insurance System
Major shareholders’ profile
Lopez group controls the management, while GSIS and other GFIs assume a minority role
GSIS has 1.5 million members, 1/3 of which are MERALCO consumers.
Government Service Insurance System
GSIS issues (as a shareholder) vs Lopez-controlled
management
1. Insensitive to shareholders
rights to profit sharing.
- by end of 2007 unappropriated
surplus reached PhP13.8 Billion.
Government Service Insurance System
GSIS issues (as a shareholder) vs Lopez-controlled
management
a) No dividend declaration from 2001 to 2006
b) Only PhP500 Million was declared as dividends in 2008
Government Service Insurance System
GSIS issues (as a shareholder) vs Lopez-controlled
management
2. Lack of Good Corporate
Governance
Self-dealing transactions worth
P55 billion yearly are confidential and beyond stockholders’ scrutiny
-
Government Service Insurance System
GSIS issues (as a shareholder) vs Lopez-controlled
management
2. Lack of Good Corporate Governance
Representatives of the Lopez
Group, including the Chairman, participate actively in approving their self-dealing transactions
-
Government Service Insurance System
GSIS issues (as a shareholder) vs Lopez-controlled
management
2. Lack of Good Corporate Governance
Access to other transactions and documents of the company are severely restricted
Government Service Insurance System
Issues transcending
shareholder concerns
Why does Meralco charge
the highest electricity rate in the country?
- Meralco rates are 20% to 30%
more than the rest of the
country
Government Service Insurance System
To illustrate:
P10.20
P8.89
P6.50 P6.44 P5.87
P7.63 P7.45
6.92
0123456789
101112
Meralco VECO Davao
Light
Pampanga
Resdl
Comml
P10.20
P8.89
P6.50 P6.44
P5.87
P7.45 P7.03 P6.92
* Based on May 2008 Billing.
Government Service Insurance System
To illustrate:
0
1
2
3
4
5
6
7
8
9
10
Bohol Baguio Bataan Bacolod
Resdl Comml
P7.63 P7.45
P7.50
P5.63
P4.92
P5.43
P5.22 P5.21
* Based on May 2008 Billing.
Government Service Insurance System
Anomalous because:
Meralco is the biggest DU in the country, accounting for 60% of power produced in
the country, with 4.4 million customers
- By economies of scale and volume
discount, Meralco should be cheaper.
Government Service Insurance System
Meralco’s Excuses
Lifeline subsidies to the poor household consumers
- Fallacy because:
a. Other DUs extend the same.
b. Subsidy is less than 1% of the bill or roughly P0.05 to P0.06 centavos per kwh.
-
Government Service Insurance System
Meralco’s Excuses
Taxes - Fallacy because:
Other DUs pay the same rate of taxes.
-
Government Service Insurance System
Meralco’s Excuses
High Cost of Napocor Rates
- Fallacy because:
a. Other DUs sourced 80% to 90% of their power from Napocor.
b. Meralco sourced only 35% to 40% of its power needs from
Napocor.
-
Government Service Insurance System
Attributable Causes
Immoral and onerous IPP power supply contracts (Sta. Rita, San Lorenzo and Quezon Power)
-
Government Service Insurance System
Attributable Causes
Backgrounder: - In 1997, Lopez-controlled management entered into contracts with Lopez-controlled companies to supply more than 50% of its power needs. - All cost of contracts were agreed to be passed on to consumers. - Contracts were implemented in 2002.
-
Government Service Insurance System
Attributable Causes
Burdensome and immoral provisions:
a. Lease of plants as capital recovery cost (capacity, fixed operating and transmission line fees)
- Contracts are BOOs and not BOTs
- Guaranteed purchase of all produced power
-
Government Service Insurance System
Attributable Causes
Burdensome and immoral provisions:
a. Lease of plants as capital recovery cost (capacity, fixed operating and transmission line fees)
- Lease is grossly overpriced ($978/kw for Ilijan vs. $2,100/kw for Lopez Plants)
- Cost to consumers : P108 billion (from 2002 to 2007) or an average of P18 billion per year
-
Government Service Insurance System
Attributable Causes
b. Take or pay provision
- Volume and rate are agreed by self- dealing parties without public participation - Amount passed on to consumers for unused gas totaled:
in 2006 – P7.06 billion in 2007 – P4.89 billion
-
Government Service Insurance System
Attributable Causes
c. Contractual Rate Fixing
- Violates the provisions of EPIRA and its franchise Section 23 of EPIRA and Section 4 of
the Meralco franchise impose the obligation to supply electricity to its captive market in the least cost manner
-
Government Service Insurance System
Attributable Causes
c. Contractual Rate Fixing
- To illustrate, NAPOCOR’s TOU rate as
approved by ERC during off-peak ranges from P1.87 to P2.719/kwh.
- Yet the contract obliges Meralco to
buy power during off-peak hours at a higher rate from Lopez plants.
-
Government Service Insurance System
Computation of the Generation Charge Based on April 2008 supply month preliminary bills of power suppliers
(A) (B) (C ) (D=B+C) (E=D/ A)
gWh (million kWh)
Purchased
Basic
Generation Cost
(million Php)
Total
Generation
Cost for the
Month (million
Php)
Average Gen
Cost (Apr
2008)
(Php/ kWh)
NPC and WESM
NPC TSC 950.38 4,446.47 (4.89) 4,441.58 4.6735
WESM 295.60 2,140.95 28.74 2,169.69 7.3400
Subtotal 1,245.98 6,587.42 23.85 6,611.27 5.3061
IPPs
QPPL 232.84 1,002.88 (0.60) 1,002.28 4.3046
Sta. Rita 669.16 2,990.33 2,990.33 4.4688
San Lorenzo 340.34 1,529.87 1,529.87 4.4951
Sub-total 1,242.34 5,523.08 (0.60) 5,522.48 4.4452
TOTAL 2,488.32 12,110.50 23.25 12,133.75 4.8763
Generation Rate Adjustments
Other Adjustments -0.0009
Generation Charge for May 2008 4.8754
Source
Other Cost
Adjustments
(million Php)
Avg. gen. cost = P4.87/kwh
Government Service Insurance System
Attributable Causes
- NAPOCOR and WESM rates appear higher because 80%-90% of their power were purchased during peak hours. - IPP power were purchased at uniform rates whether peak or off- peak.
-
Government Service Insurance System
Simulation 1: 50-50 distribution between NPC and IPPs (peak and off-peak)
(A) (B=E*A+C) (C ) (D=B+C) (E)
% to Total
kWh
purchased
gWh (million kWh)
Purchased
Basic
Generation Cost
(million Php)
Total Generation
Cost for the
Month (million
Php)
Average Gen
Cost (Apr
2008)
(Php/ kWh)
Peak
NPC 50.07% 25.07% 623.86 3,382.23 (4.89) 3,377.34 5.4136
IPPs 49.93% 25.00% 622.12 2,765.45 2,765.45 4.4452
Sub-total 50.07% 1,245.98 6,147.68 (4.89) 6,142.79 4.9301
Off-peak
NPC 50.07% 25.00% 622.04 1,259.34 (4.88) 1,254.47 2.0167
IPPs 49.93% 24.93% 620.30 2,757.37 2,757.37 4.4452
Sub-total 49.93% 1,242.34 4,016.72 (4.88) 4,011.84 3.2293
TOTAL 100.00% 2,488.32 10,164.40 (9.77) 10,154.64 4.0809
Generation Rate Adjustments
Other Adjustments -0.0009
Generation Charge for May 2008 4.0800
Source
Other Cost
Adjustments
(million Php)
Reduction of 16% in gen. cost
from P4.87/kwh to P4.08/kwh
Government Service Insurance System
Simulation 2: 70% NPC, 30% IPPs
% to Total
kWh
purchased
gWh (million kWh)
Purchased
Basic
Generation Cost
(million Php)
Average Gen
Cost (Apr
2008)
(Php/ kWh)
Peak
NPC 70.00% 35.05% 872.19 4,721.67 5.4136
IPPs 30.00% 15.02% 373.79 1,661.76 4.4457
Sub-total 50.07% 1,245.98 6,383.43 5.1232
Off-peak
NPC 70.00% 34.95% 869.64 1,753.80 2.0167
IPPs 30.00% 14.98% 372.70 1,656.91 4.4457
Sub-total 49.93% 1,242.34 3,410.71 2.7454
TOTAL 100.00% 2,488.32 9,794.14 3.9360
Generation Rate Adjustments
Other Adjustments -0.0009
Generation Charge for May 2008 3.9351
Source
Reduction of 19% in generation
cost, from P4.87/ kwh to P3.93/kwh
Government Service Insurance System
Simulation 3: 100% NPC
(A) (B=E*A+C) (C ) (D=B+C) (E)
% to Total
kWh
purchased
gWh (million kWh)
Purchased
Basic
Generation Cost
(million Php)
Total Generation
Cost for the
Month (million
Php)
Average Gen
Cost (Apr
2008)
(Php/ kWh)
NPC
Peak 50.07% 1,245.98 6,751.65 (6.41) 6,745.24 5.4136
Off-peak 49.93% 1,242.34 2,511.82 (6.39) 2,505.43 2.0167
TOTAL 100.00% 2,488.32 9,263.47 (12.80) 9,250.66 3.7176
Generation Rate Adjustments
Other Adjustments -0.0009
Generation Charge for May 2008 3.7167
Source
Other Cost
Adjustments
(million Php)
Reduction of 24% in generation cost,
from P4.87/kwh to P3.71/kwh
Government Service Insurance System
Attributable Causes
- More purchases from NAPOCOR have other cost reduction benefits.
a. Transmission line charges will be reduced.
-
Government Service Insurance System
Attributable Causes
b. More electricity discounts for residential consumers. EPIRA mandates maximum of 30 centavos/kwh discount to residential customers for NAPOCOR power. c. Multi-billion yearly lease rentals on Lopez plants passed on to consumers will have to be drastically reduced.
-
Government Service Insurance System
Attributable Causes
Mismanagement
a. Bloated bureaucracy
- more than 6,000 regular employees
- ratio of 4 officials for every 1 rank and file employee
- costs P5.1 billion a year, or an average cost of P850,000 per employee
-
Government Service Insurance System
Attributable Causes
b. Costly and unnecessary outsourcing of services mostly through subsidiaries - Miescor
* All engineering construction - Corporate Information Solutions, Inc. * e-transactions
-
Government Service Insurance System
Attributable Causes
- Meralco Energy, Inc. * energy systems management - Meralco Financial Services * Financial services provider - e-Meralco Ventures, Inc. * eBusiness Development - Soluziana * JV in management and information technology
-
Government Service Insurance System
Attributable Causes
b. Costly and unnecessary outsourcing of services mostly through subsidiaries - costs P2.95 billion in 2007
-
Government Service Insurance System
Attributable Causes
c. Non-contributory pension plan - monthly pension for life for every retiring executive and employee, including their survivors - exhorbitantly high pension cost passed on to consumers
-
Government Service Insurance System
Meralco’s pension costs:
0
1
2
3
4
2005 2006 2007
Cost ofpension
P1.58B P1.79B
P2.8B
In 2008, only P1.8 billion was approved by ERC.
Government Service Insurance System
Attributable Causes
d. Non-competitive procurement process
- Lopez Group controls the supply of major Meralco purchases:
1. First Philippine Industrial Corporation * service fuel requirements 2. Philippine Electric Corporation * distribution and power transformers
-
Government Service Insurance System
Attributable Causes
- Lopez Group controls the supply of major Meralco purchases:
3. First Electro Dynamics Corp. * ballasts & current transformers 4. First Sumiden Circuits, Inc. * flexible printed circuits
-
Government Service Insurance System
Attributable Causes
e. Systems Loss
- Failure to curb system losses
-
0
15
16
17
18
2006 2007
P15.8B
P16.4B
P17.3B
2005
Government Service Insurance System
Attributable Causes
- Lack of transparency * Law allows recoverable systems loss if due to technical loss or pilferage. * Yet, no accounting have been made on the occurrence of loss.
-
Government Service Insurance System
Attributable Causes
- Abusive use of systems loss charges * Own use is considered systems loss. * Lease rentals are part of computing maximum allowable systems loss.
-
Government Service Insurance System
So, why does the Lopez-
controlled Meralco management continue to charge its customers electricity rates which are more than 20% to 30% than what the rest of the country are paying?
-
Government Service Insurance System
Lopez Group sourced 80% to
90% of their business in Meralco and has been declaring record profits year in and year out.
- In 2007, FPHC, its holding company, declared 66% increase in its net profits despite multi-billion loans.
-
Government Service Insurance System
FPHC and its subsidiaries P 107.930 B
First Philippine Holdings Corp. 31.807
FGHC International Limited 1.462
FPH Fund Corporation 2.919
First Philippine Infrastructure 8.499
First Gen Corporation 63.243
ABS-CBN 5.109
BENPRES Holdings 8.254
Bayan Telecomm 15.213
TOTAL P 136.506 B
Lopez Group Loans
Government Service Insurance System
Must we allow this situation to persist?
-
Government Service Insurance System
End of the Presentation
Government Service Insurance System