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THE CHANGING ENERGY LANDSCAPE
The Philippine Star A deregulated electricity industry where competition would strive and choices can be made is now knocking at our doors, and it is a change that means different things for different sectors and for everyone. For industry insiders, it is venturing into a new playing field where not only the rules but also the participants are evolving. Take Napocor for instance: the monopoly we've known for so long would eventually be broken up into pieces to foster a new era in the power industry. For investors who are from the outside looking in, it may mean more opportunity for profit. This early, foreign brokerage houses have picked the utilities sector as the most attractive Philippine industry since its stock offering are generally undervalued relative to its peers in the region. Improvements in the regulatory environment under which companies are now able to raise tariffs without much political interference as before has also make returns easier to predict. But perhaps the more important part of this whole thing is what these reforms would mean to consumers like you and me. The power industry and its workings will always remain a mystery to most common tao like us, unless we are able to make sense of what all the technical jargon means. Asset sale A low equity base, mounting debts, and government's inability to fund future power projects have made it a necessity to break up Napocor and sell most of its power plants as well as its transmission operations. And last year turned to be most aggressive as far as asset disposal is concerned. Just before 2007 ended, government finally broke a losing streak when it successfully auctioned of the 25-year concession to operate the country's high-voltage power grid which is now under Transco. The consortium of Monte Oro Grid Resources, Calaca High Power Corp. and State Grid Corp. of On top of this amount, the winner will also have to invest until 2010 $725 million to repair and upgrade the network, and obviously more in the coming years to meet the demand of a growing economy. In return, this would mean a guaranteed stream of revenue. Less we forget, Transco is a natural monopoly. And given its debt-free status (as it was spun off from Napocor with the latter shouldering all the debt), its annual net profit hovers at P15 billion or thereabouts which in the Should privatization proceed as planned (remember that winning the bid is just one hurdle; getting a congressional franchise is another, albeit more difficult, challenge), this would mean government being able to pay off billions of Napocor debts. Including proceeds from the sale of state power plants, PSALM the state agency tasked with selling state power assets have been able to raise privatization receipts of over $6 billion, which if fully paid by all the buyers and if all is used to pay off debt, would sharply cut Napocor's debt that now stands at over $7 billion. The Transco privatization is still far from being a done deal, and in the Year of the Rat, everybody would be watching the grilling in Congress. Perhaps that's the reason why it didn't fetch a very attractive price, or at least not as much as the government's controlling stake in PNOC EDC. New utility rate setting process Another good thing in the year that just ended (apparently from the utility companies' point of view) was the semblance of order as far as the regulatory framework is concerned. Suddenly, it's as if all the rules in the power sector are now working. Whether they will benefit not only the utility companies but the consumers as well, only time will tell. In the third quarter, the ERC finally approved the performance-based regulation or PBR pricing application of Meralco, much-awaited by stock traders as well as other power distributors who are also set to go into PBR price setting regulation. PBR is a new tariff mechanism that allows a regulator to set a utility's tariffs over a four-year period based on its projected costs and a decent return on capital. For investors, this makes a company's earnings easier to predict and less prone to political intervention. For customers, according to its proponents, the system minimizes price shocks since rate increases are usually smoothened out over the four-year duration. Investors were initially disappointed with the lower-than-applied for tariff increases granted to Meralco, but nonetheless satisfied that finally the rules of the games are clearer and all participants especially the customers are informed. It's the same change in the rate setting process that's boosting the shares of Manila Water, who this month would be starting a series of price increases after going through a periodic review of their capital expenses and revenue requirement. There would always be opposition to any rate increase, but it surely helps if there are no surprises. Change, after all, need not be painful. And since with these changes in the process of utility firms' pricing, rate increases are inevitable, we, the consumers, might as well just grin and bear it. Pag-usapan Natin at IBC-TV 13 Watch Pag-usapan Natin, a segment of the IBC-TV 13 news program News Tonite, from Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center,
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