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TRANSCO: SUCCESS AT LAST? The Philippine Star Finally, a successful bidding for a 25-year contract to operate the country's high voltage transmission highway took place Wednesday, ending years of failure to sell one of government's few remaining crown jewels – a natural monopoly that does not only generate billions in guaranteed revenues to the private operator but is also debt-free. However, what could be a major triumph for Psalm may be just the start of a laborious journey for the winning bidder who has yet to secure a franchise from both chambers of Congress – something that might not be very easy to do especially given the controversies generated ahead of Transco's privatization. The group of Monte Oro and State Grid of China won with a bid of $3.95 billion, besting the other bidder – a consortium led by San Miguel – whose offer was not too far away at $3.905 billion. For San Miguel, this could be the end of the line in its quest for a spot in the country's booming electricity sector. With most of the big ticket items such as PNOC-EDC and Transco already disposed of, it could still try its luck with the remaining power plants and IPP contracts that are up for auction. For the Monte Oro-State Grid consortium and Psalm, they'd soon be facing a skeptical Senate whose members have raised the issue of impropriety since the head of the agency in charge of selling the country's power assets is an associate of businessman Enrique Razon, a member of the consortium and an ally of the President, whose brother is also part of the winning group. The ‘right' price In 2006, Transco's regulatory asset base was at $3.2 billion. I heard some say it's around $3.8 billion now, an indication that the offers were not as attractive, compared to the surprisingly high offers PNOC-EDC received. (Psalm would not divulge the minimum price government was prepared to take, although they said both bids met the reserve price.) The bottom line though is customers will end up footing the bill whether the bid price was low or high. So, are both generation and transmission tariffs regulated? I certainly hope yes. Two other prospective bidders – Citadel and Earlier on, doubts were raised on whether the Metro Pacific affiliate complies with the rule that it is a Filipino company given the Hong Kong-listed background of grandparent company First Pacific. Was Terna not fully convinced that the Metro Pacific affiliate could pass a thorough scrutiny should they have bagged the deal, ergo the decision to back out? Talks are rife that Citadel, who has Power Grid Corp. of India as technical partner, pulled out of the race after failing to secure financing. Ironically, Citadel and Terna-Rete were previously partners in a consortium who early this year emerged as the only bidder for Transco and were prodding the government to enter into a negotiated sale with them instead of going through another bidding round. They could have given the others a good fight had they decided to stick together. Too early to say where developments are headed, but some things are sure to date. A successful bidding for Transco took place, and the winner will have a year to ask Congress for a franchise. How easy that would be or what will happen should they fail to get one are questions which are begging for answers. For government, a successful Transco sale would enable it to pay down debts and lessen the likelihood consumers will be paying extra charges for stranded costs. Would transferring operations to the private sector redound to better service and more competitive power rates? More power plays There is certainly no doubt that the electricity industry is perhaps one if not the most dynamic sector in the country today, primarily due to the fact that government is now accelerating the sale of its power assets ahead of what could be another era of power shortages. It also helps that industries most affected by the high cost of power are also now more vigorous in pushing for more competitive – if not lower – rates to make Philippine products less costly and therefore more competitive with its peers. The elusive “open access” According to Psalm, it expects to meet its target of privatizing 50 percent of Napocor's generating capacity by the end of this year. Proceeds from the sale of these assets – including Transco – are estimated to reach $6.6 billion; if fully realized, this would drastically cut Napocor's debt of $7.2 billion. The 50 percent privatization target is also crucial in the light of efforts to finally give way to "open access" or retail competition in the sector, which basically will give consumers the freedom of choosing where they want to get electricity from. Under the current set-up, distributors such as Manila Electric Co. contracts electricity on behalf of customers within its franchise area. These deals, however, have often been marred with allegations of preferential terms in cases when a generator and a distributor have the same major shareholder. Also, as provided under EPIRA, "open access" will only be triggered once 70 percent of Napocor's capacity has been privatized. There are now moves in Congress to lower that 70 percent threshold to 50 percent to allow competition to start at the soonest time possible. Some independent power producers have been opposing this idea and have warned that lowering the threshold and introducing retail competition while Napocor is still a monopoly will only result in an uneven playing field, where one utility will still have control of the market. I guess, it again boils down to who can offer the public cheaper power rates. In the meantime, industry groups are eagerly awaiting the start of retail competition, hoping the accelerating pace of privatization we've seen in recent days will continue at the same time as Congress works out technicalities of the law. In the meantime, expect the same set-up as before as Transco continues to remain under government control until a franchise is secured and down payment has been made. Yes, it does feel so near yet so far. “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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