Bad Energy

ON GOOD GOVERNANCE IN THE ELECTRIC POWER INDUSTRY

In its ongoing campaign to replace the current management of the Manila Electric Company, the Arroyo Administration, represented by the General Manager of the Government Service Insurance System, has damaged several public institutions and sent wrong governance signals to the private sector.

Since R.A. 8799 transferred all intra-corporate disputes from the Securities and Exchange Commission to the Regional Trial Courts designated as Commercial Courts, the resort to SEC intervention by the GSIS was improper. By allowing itself to be used by the GSIS to wrest management control, the SEC has contributed to the diminution of its own credibility in the eyes of the business community.

The Administration has used the consumerist cause of lowering the price of electricity as the rationale for revamping Meralco’s management. Yet the responsibility for protecting consumers’ interest in this particular area lies with the Energy Regulatory Commission. By shifting that responsibility to the GSIS, the Administration has weakened the authority of the proper government institution to handle this issue.

In order to bring down the cost of electricity, Congress passed R.A. 9136, otherwise known as the Electric Power Industry Reform Act of 2001. As the law encourages the development of a more competitive environment, electricity rates should come down as and when the EPIRA comes into full effect. But because its own executives have not achieved the benchmarks set by the EPIRA, this Administration appears to have lost faith in that law and has resorted to forcing down electricity rates on its own by bludgeoning Meralco, one of the private distribution companies. It is no coincidence that Meralco’s major owners may not share the Administration’ s political views.

The funds invested by the GSIS belong to its members—current and retired government employees who have dedicated their careers to public service. The GSIS has a fiduciary responsibility to act in a manner that enables the investments it enters into to grow. Yet ever since the GSIS increased its holdings in Meralco to at least 25% of the company, Meralco’s stock has fallen from P80 per share to P56 per share due to the very public denigration of Meralco’s management and its major owners by the GSIS itself! In so doing, the actuarial soundness of the government employees’ retirement fund may have been adversely affected.

The Securities and Exchange Commission, the Energy Regulatory Commission, the Electric Power Industry Reform Act of 2001, and the GSIS itself have all been undermined in the course of the Administration’ s professed effort to take over management control of Meralco as the ultimate solution to high power costs. Damaging public institutions in this way is plainly bad governance. It sends the signal to the private sector that this Administration is prepared to sacrifice public institutions and its own reform program for political objectives.

The Makati Business Club stands firmly against the use of state power to intimidate the private sector and vigorously opposes the nationalization of the electric power industry. Reverse-privatizati on is the worst way to bring down the cost of electricity, as state-owned enterprises in this country are vulnerable to political patronage and are inefficient due to lack of competition. With few exceptions, government-owned and -controlled corporations have been a heavy burden on the resources of the state.

We support the Administration’ s call on Meralco’s management for transparency, but we also call for transparency on the part of National Power Corporation. A full and sober analysis of the causes of high electricity costs is needed at this time. Let reason and good governance prevail.

5 June 2008

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