The Patent Mal-Privatization of the Transmission Sector

By Ted Aldwin Ong

On the eve of EPIRA’s 20^th year, power end-users in the Luzon grid found themselves lighting candles amid an ongoing COVID-19 pandemic. The NGCP raised Yellow and Red Alert public warnings for May 31 and June 1, 2021, respectively, stating “severe power supply deficiency”. The power outage generated public criticism as power end-users take into account the critical need for electricity, especially among health institutions servicing COVID-19 patients, workers on a work-from-home arrangement, and students who had online classes. 

1. INTRODUCTION

In June 2021, the Electric Power Industry Reform Act (EPIRA) marked its 20th year. The law billed as Republic Act 9136 was signed on June 8, 2001, by then President Gloria Macapagal-Arroyo paving the way for a transition of the country’s power industry from a largely government-controlled sector into a deregulated, market-based, and privatized one.

The EPIRA carried out a mission of power sector modernization through privatization, thus enhancing the country’s economic development. Its passage, however, did not emanate from the collective aspiration of the Filipino people to have an efficient power sector with cheap electricity. The EPIRA and its accompanying implementing rules and regulation were among 21 attached policy conditionalities under the $300 million Power Sector Restructuring Program (PRSP) funded by the Asian Development Bank (ADB) in 1998 and with an additional $300 million support from Japan Bank for International Cooperation (JBIC). Numerous components of the restructuring program like technical assistance were also supported by a loan from the two International Finance Institutions (IFIs). 

One of the major components of the restructuring program is the disaggregation of generation, transmission, and distribution sectors, and the privatization of transmission. A plan to privatize the government-owned National Transmission Corporation (TRANSCO) was approved by then President Gloria Arroyo in October 2002. Four interested parties submitted bids for Transco in 2004, but these were rejected by the Power Sector Assets and Liabilities Management Corporation (PSALM). The government then hired an Australian consultancy firm to undertake a revaluation of the transmission assets, to determine the regulatory asset base of Transco. The revaluation was completed in 2005, as a result of which PSALM and TRANSCO filed a motion with the Energy Regulatory Commission (ERC) for the regulatory reset of the Maximum Annual Revenue (MAR) of TRANSCO or its concessionaire. In June 2006 the ERC issued its final decision on the MAR of TRANSCO.

Between 2003 and 2006 there were three failed biddings for TRANSCO. In December 2007 a fourth and this time successful bidding took place. Two parties submitted bids for TRANSCO. The winning bid came from a consortium involving Monte Oro Grid Resources Corp. (Filipino, with 30 percent interest in the consortium), Calaca High Power Corporation (Filipino, 30 percent interest), and the State Grid Corporation of China (Chinese, state-owned, with 40 percent interest). Take note that while this group is 60 percent Filipino-owned, the largest single interest is that of the Government of China. 

The losing bid was submitted by the San Miguel Group 63 seconds before the deadline for submission. An interesting fact is that the winning bid was valued at USD 3.95 billion, while the losing bid of San Miguel and co-bidders amounted to USD 3.59 billion.

In February 2008 a concession agreement was executed between the Philippine government and the winning bidder, which formed the National Grid Corporation of the Philippines. 

A franchise to operate transmission was granted to NGCP in December 2008. In January 2009, the NGCP remitted USD987.5 million as a down payment of its concession fees. TRANSCO formally turned over the transmission assets and business to the NGCP—nearly eight years after EPIRA was passed. For more than ten years now, the NGCP has been running the transmission sector and is responsible for the stability and reliability of the Luzon-Visayas and Mindanao grids.

This paper focuses on aspects of the privatization of transmission within the mandate of EPIRA and its implementing rules and regulations that TRANSCO privatization shall generate “maximum present value” of proceeds to the National Government. Data from the National Transmission Corporation, presented to the Philippine Senate during hearings conducted in 2020 and 2021 show that this objective was patently unmet. The privatization of transmission has resulted in revenue and tax losses for the National Government. In stark contrast, the profits that the NGCP has generated—and the dividends the company has bestowed on its owners—can only be described as vulgar.

Furthermore, the objective of grid stability and reliability is in serious question today.

On the eve of EPIRA’s 20^th year, power end-users in the Luzon grid found themselves lighting candles amid an ongoing COVID-19 pandemic. The NGCP raised Yellow and Red Alert public warnings for May 31 and June 1, 2021, respectively, stating “severe power supply deficiency”. The power outage generated public criticism as power end-users take into account the critical need for electricity, especially among health institutions servicing COVID-19 patients, workers on a work-from-home arrangement, and students who had online classes. 

The outage reminded end-users of a similar event 30 years ago when Metro Manila plunged into darkness during the post-EDSA 1 administration of the late President Corazon C. Aquino and which extended on her anointed successor Fidel V. Ramos. Ramos fast-tracked solutions backed up by Emergency Power issued by Congress, but only to bury the state-operated National Power Corporation (Napocor) into indebtedness as a result of the onerous contracts it signed with private independent power producers (IPPs). The latter served as an antecedent for the privatization of the country’s power industry through numerous bills filed in Congress which eventually became the Omnibus Power Bill, and which ultimately led to the EPIRA.

The members of the Senate Committee on Energy chaired by Senator Sherwin T. Gatchalian assembled an inquiry on June 10 and June 17, 2021, to investigate the power blackouts and seek explanations for these from the Department of Energy (DoE), the Energy Regulatory Commission (ERC), TRANSCO, and NGCP. What surfaced from the public hearings was that the transmission sector now under the hands of NGCP involves multi-layer issues. These range from legal issues and possible violation of the Constitution to issues around ownership, control, and management; questions about the concession agreement, and NGCP’s compliance with some of its provisions. The row between NGCP and TRANSCO also became evident – which reactivated serious concerns regarding national security and the protection of public welfare. Data supplied to the Senate by TRANSCO tended to confirm the same issues and concerns raised by citizen’s groups on the privatization of the power industry and the passage of EPIRA, then stressing the potential consequences of handing over to private hands the operations and management of the country’s power transmission highway.

Industry players may have lauded EPIRA as a success, but to the Filipino taxpayers and electricity users, the benefits of EPIRA remain unrealized. The NGCP concession contract of 25 years and its franchise of 50 years offers a narrative of EPIRA’s failure – the law was not for cheap electricity or efficient industry, but for concentrated power and tremendous profits in the hands of a new monopoly. 

1. FROM TRANSCO TO NGCP: THE TRANSMISSION SECTOR ON A SILVER PLATTER

The powers given to TRANSCO are embodied in Sections 7 to 21 of EPIRA and it established the legal basis for the operations of TRANSCO, subject to the regulation of ERC. TRANSCO assumed the authority and responsibility of the National Power Corporation for the planning, construction and centralized operation and maintenance of its high voltage transmission facilities, including grid interconnection and ancillary services.

1. TRANSCO and its transition role to privatization 

The various roles that TRANSCO can play as part of its facilitative role before privatization are summarized as the following: 

• Assume franchise of NPC and continue operations of transmission facilities.Six (6) months after the passage of EPIRA, the transmission and sub-transmission facilities of NPC and all other assets related to transmission operations, including the nationwide franchise of NPC for the operation of the transmission system and the grid, shall be transferred to the TRANSCO.
• Establish open access.Two (2) years to start open access. In the case of electric cooperatives, the TRANSCO shall grant concessional financing over a period of twenty (20) years: 
• Exercise the power of an eminent domain.The TRANSCO may exercise the power of eminent domain subject to the requirements of the Constitution and existing laws. Except as provided herein, no person, company, or entity other than the TRANSCO shall own any transmission facilities.
• Prepare the Transmission Development Plan (TDP). Transco is likewise tasked to prepare the TDP through a consultative process with other participants of the electric power industry such as the generation companies, distribution utilities, and the electricity end-users and submit the accomplished TDP to DOE for integration with the Power Development Program and the Philippine Energy Plan.
• Privatization of Transco.In the same manner, EPIRA mandated the privatization of Transco within six (6) months of its effectivity. Section 21 states: “PSALM Corp which shall submit a plan for the endorsement by the Joint Power Commission and the approval of the President of the Philippines. The President of the Philippines thereafter shall direct PSALM Corp. to award in open competitive bidding, the transmission facilities, including grid interconnections and ancillary services to a qualified party either through an outright sale or a concession contract.”

While TRANSCO remains the legal owner of the transmission infrastructure and facilities after its privatization, some of its powers and functions were delegated, transferred (or even duplicated) with the concessionaire, and these were expressed in the franchise provisions of NGCP.  

2. Winner by Default and Switch: NGCP

The NGCP conglomerate is composed of Monte Oro Grid Resources Corporation, Calaca High Power Corporation, and the State Grid Corporation of China (SGCC) who submitted the highest offer of $3.95 billion and secured the 25-year concession contract to operate the transmission aspect of the electricity business. 

Outbid by $360 million was the consortium comprising San Miguel Energy Corporation, TPG Aurora BV of the Netherlands, and TNB Prai Sdn Bhd of Malaysia, which offered $3.59 billion. Two Rivers Pacific Holdings Corporation and its partner Terna-Rete Electtrica Nazionale SPA did not participate in the final bidding while the consortium Citadel Holdings Inc. and the Power Grid Corp of India Ltd. backed out.  Thus NGCP won the bid by the default of two qualified bidders and by a digital switch in bid price: NGCP’s $3.95 billion versus the San Miguel Group’s bid of $3.59 billion.

The $3.95 billion was a bargain. At that time estimates for the upgrade of the country’s 21,319 circuit kilometers of transmission line, including its submarine cable system, were at $850 million. Bobby de Ocampo, former finance minister and vice-chairman of disqualified bidder La Costa Development Corporation, said that had his company been allowed by PSALM to bid for transmission, it would have offered a minimum of $6 billion. De Ocampo explained that the TRANSCO privatization was worth more than $3 billion considering that the transmission facility is 2-in-1, a power transmission line which could serve as a broadband backbone at the same time. La Costa—a company allegedly owned by mining and telecoms businessman Salvador Zamora—was disqualified to bid for transmission in the prequalification stage. (Miraflor and Bordamonte, 2008). 

It was the privatization of the transmission sector that ushered in the Chinese government through SGCC to have a significant control of the country’s power system. The composition of the NGCP Board of Directors illustrates the power of SGCC’s 40 percent ownership.

• SGCC is the Chairman of NGCP.As a majority holder of NGCP, SGCC Vice-Chief Engineer Zhu Guangchao chairs the NGCP Board of Directors. The SGCC is not a private entity, unlike the two Filipino companies. It is owned by the People’s Republic of China and has a 1.1 billion customer market. It is considered the world’s third largest company by revenue and with  recorded profits of USD 383.9 million as of August 2020. 

Moreover, Zhu Guangchao is not the only SGCC official in the NGCP governing body. He is joined by SGCC Philippine Office Director General Shan Shewu and SGCC Chief Representative of Africa Office Liu Ming. The SGCC representation shows its technical and financial power to decide over the country’s power backbone – a clear national security concern, but never dismantled by the Philippine Government. 

• Monte Oro Grid Resources Corp is Vice-Chair.SM group’s chair Henry Sy, Jr. acquired Monte Oro’s 100 percent stake in NGCP in 2010 and serves as one of the vice-chairs of NGCP. The Sy family is a byname through SM Malls with a net worth of Php846.6 billion. 
• Calaca High Power Corp is Vice-Chair.Robert Coyiuto, Jr. represents Calaca in the NGCP Board. Coyiuto, Jr.’s major business involvement covers Prudential Life and PGA Cars (the Philippine importer of luxury vehicles and with a net worth of Php66.6 billion. 

The shares in NGCP of Monte Oro Grid Resources and Calaca High Power Corporation have been consolidated under Synergy Grid & Development Phils., Inc. Henry Sy Jr. is its chairman, Robert Coyiuto Jr. is vice-chairman, and Paul Sagayo Jr. is its President and CEO. The lead independent director of Synergy Grid is newly appointed DoE Secretary Jose Perpetuo Lotilla. Another independent director is Francis Saturnino Juan, formerly of the Energy Regulatory Commission.

3. Franchise weakens cross-ownership limitations and reduces tax liabilities

Similarly, it did not take a serious and lengthy lobbying effort for NGCP to secure a franchise from Philippine Congress. Within nine months of the signing of the Concession Agreement for transmission, then President Gloria Macapagal-Arroyo signed Republic Act 9511 (December 1, 2008) granting a 50-year franchise to the NGCP even though the Concession Agreement between the company and TRANSCO was for 25 years.

The franchise granted to the NGCP had two notable provisions.

Section 7 on Cross Ownership (RA9511) appears to have diluted the original provision in the EPIRA law (RA 9136). The original provision prohibited cross-ownership of generation, distribution, and supply with transmission “within the fourth civil degree of consanguinity or affinity.” In RA 9511, this provision was restated to say that the cross-ownership prohibition would not apply under certain conditions:

(a) Any relative by blood or marriage of an NGCP director, stockholder or officer who “has no employment, consultancy, fiduciary, contractual, commercial or other economic relationship or interest” in NGCP;

(b) Similarly, any relative by blood or marriage of a Power Player director, stockholder or officer who “has no employment, consultancy, fiduciary, contractual, commercial or other economic relationship or interest” in said Power Player (any business interest engaged in generation, distribution, supply).

(c) Ownership of shares of stocks in a company listed in the Philippine Stock Exchange “even if such listed company is a Power Industry Player, if such share ownership is not more than one percentum (1%) of the total outstanding shares of such listed Power Industry Player.

(d) Ownership of shares of stocks of not more than one percentum (1%) in a company listed with the Philippine Stock Exchange which owns or controls shares of stocks in NGCP, provided that such owner of shares of stocks shall not own more than one percentum (1%) of the shares of stock or equity interest in any Power Industry Player. 

The franchise given to NGCP also reduced the company’s tax liabilities. Section 9 of RA 9511 requires NGCP to pay a franchise tax equivalent to “three percent (3%) of all gross receipts” derived by NGCP from its operation under this franchise. This 3% tax is “in lieu of income tax and any and all taxes, duties, fees and charges of any kind, nature or description levied, established or collected by any authority whatsoever, local or national, on its franchise, rights, privileges, receipts, revenues and profits, and on properties used in connection with its franchise, from which taxes, duties and charges, the Grantee [NGCP] is hereby expressly exempted…”

Because of this tax exemption given to NGCP, the Power Sector Assets and Liabilities Management Corporation (PSALM) was also exempted from paying any income tax or value added tax on the concession fees paid to it by the NGCP.

III. KEY ISSUES ON THE PRIVATIZATION OF TRANSMISSION

1. Privatization, instead of yielding maximum present value from privatization proceeds, resulted in gigantic losses to the National Government, in terms of Transco revenues and taxes.
2. In stark contrast, we are seeing the Concessionaire earning vulgar profits and declaring dividends, just 10 years into the Concession, of amounts way in excess of the 20-year concession fee. (By the way the concession fee is pegged at ₱42.50:$1.)
3. Onerous provisions abound in the concession contract
4. Refusal of NGCP to subject its operations to PHL government oversight. (Ironically, the Chinese government has FULL oversight.)
5. Broadband business a flagrant violation of concession agreement

The privatization of transmission through a Concession Agreement was intended to yield maximum revenue for the government. This is stated in Section 47(a) of the EPIRA, as well as in Rule 22 Section 11(a) of EPIRA implementing rules and regulations. To quote from the latter: “The [Transco privatization] award shall result in maximum present value of proceeds to the National Government.” (emphasis added)

In a submission to the Senate, TRANSCO compared the present value of its projected net income had it continued to operate transmission of the grid, with the present value of the concession fees from NGCP as per the privatization deal. What turns out is that TRANSCO’s net income for the 25 year period from 2009 to 2033, discounted at a rate of 9.3992 percent, would have yielded returns to the government of PhP341.4 billion. The concession fees paid by NGCP to the government for the 20-year period from 2009 to 2029, discounted at a similar rate of 9.3992 percent, yields a value of PhP168.9 billion—slightly less than half of the Transco projection.

Furthermore, because the franchise granted to NGCP reduced its tax liabilities, the losses in terms of government tax revenue are estimated (in present value terms) to run to billions of pesos. Unlike NGCP, Transco was required to pay a range of taxes—averaging nearly PhP10 billion a year prior to privatization. Had Transco continued to operate transmission, it would have contributed, in present value terms, a total of PhP108.8 billion in corporate income taxes to the Government Treasury. Compare this with the measly 3 percent franchise tax of NGCP. Over the same period, this would have resulted in a tax return at present value of only PhP16.3 billion. Transco would also have had to remit a final withholding tax of 20 percent on its interest income. NGCP has been exempted from doing so. The estimated total loss in government tax revenue, thanks to the generous tax provisions in the NGCP franchise, is PhP94.3 billion. These are losses on top of the previous estimate of lower returns from concession fee payments.

The numbers speak for themselves: the privatization of transmission did not yield a maximum present value of proceeds to the National Government. On this objective alone—set by the government that enacted EPIRA—the result is negative.

In stark contrast are the profit numbers of NGCP, leading to generous cash dividends amounting to over 90 percent of profits earned. According to the audited financial statements of the NGCP, from 2009 to 2018, the company netted a total of PhP205.9 billion from revenues of PhP446.5 billion—a profit rate of 46 percent! The net income in its first 10 years of operation already exceeded the total concession fees of PhP168.9 payable over 20 years.

From the net income generated, the company declared cash dividends for its stockholders amounting to PhP187.8 billion. This means that 91.2 percent of the profits earned went to the pockets of NGCP’s owners—including the Chinese government, in its first ten years of operation.

NGCP’s obscene profitability indicates that it is a business that has enjoyed zero risks, passing on unresolved cases (such as right of way) to the Transco.

The Concession Agreement has questionable provisions. For example, the annual concession fee, denominated in US dollars, is pegged at an exchange rate of PhP42.75:US$1. Now that the peso is falling to over PhP50 per dollar, this fixed rate peg spells more losses for the government—and more evidence of the failure to maximum present value of proceeds.

The Concession Agreement identifies NGCP as being responsible for the Transmission Development Plan. The company maintains it has exclusive rights over this planning function and has been excluding both the Transco and the Department of Energy from taking part in this. Nor has NGCP allowed the two agencies of government to review the Transmission Development Plan. (Again, take note: the Chinese government, through its parastatal, has access to this plan.)

Moreover, the NGCP’s non-compliance with the provision of the concession agreement and violations to the Anti-Dummy Law and the 1987 Constitution underscoring the prohibition for foreigners to have an active participation in the management, operations, administration or control of a corporation operating with a franchise. TRANSCO cited various NGCP memorandum and requests with the names of SGCC officials in the Board like Mr. Liu Zhaoquiang and also Mr. Liu Xinhua.

Various significant issues were also presented, such as the power to expropriate government property being exercised by NGCP, placing government property in the name of NGCP, the failure to ensure ancillary contracts for standby power in case of power deficiency, and its failure to comply with the Transmission Development Plan resulting to delays in the completion of transmission projects in the Visayas and Mindanao.

The government’s inability to enforce its power over a private concessionaire reveals the lopsided EPIRA in favor of private monopoly.  Among issues raise by TRANSCO were the following: 

• Concession agreement related issues which emanated from the commencement fee and prepayment of concession fee by NGCP to PSALM in 2013 amounting to Php57.88 billion yet with “excluded receivables” due to TRANSCO. 
• NGCP collection of non-current receivables, an amount supposedly due to TRANSCO yet collected by NGCP and not remitted to TRANSCO. Two cases were cited: 1.) The non-current receivables paid by Central Azucarera de Tarlac to NGCP between 2011 to 2013, and 2.) Capiz Electric Cooperative (CAPELCO) wherein NGCP collected an amount from the cooperative in November 2021 but remitted to TRANSCO months later.
• Collected amount of NGCP related to Connection Charges/Residual Sub Transmission Charges (CC/RSTC) for year 2007, a subject of various ERC Orders in 2011 directing NGCP and TRANSCO to refund over-recoveries amounting to P339 million. The same issue ensued in the 2008 approval of CC/RSTC. 
• NGCP collections under the Third Regulatory Period (2011-2015) of WACC which integrated recovery of TRANSCO-incurred expenses for operating expenditures related to claims in the management of right-of-way.
• Performance Incentive Scheme (PIS) approved by ERC for TRANSCO in 2008 amounting to PhP334.32 million but which was claimed by NGCP as an item under its account. 
• Force Majeure Event (FME), a pass through amount charged to customers during disasters caused by typhoon, flood, earthquake, sabotage, among others, which TRANSCO petitioned to ERC and approved by the Commission in 2008 in the amount of Php13.88 million but collected by NGCP and not remitted to TRANSCO asserting that it is not part of “excluded receivables” due to TRANSCO. 

Regulatory capture or regulators captured?

Intending to lower transmission charges for power end-users, ERC ordered a cap to NGCP’s target revenue for 2020 at Php47.05 billion but the regulatory body has yet to act on the WACC of NGCP, delayed project completion, and other rates related issues. 

• Failure to reset NGCP WACC

For instance, the Weighted Average Cost of Capital or WACC of NGCP remained at 15.04 percent, a rate approved by ERC for the 3^rd Regulatory Period (2011-2015) when it should have been lowered considering the completion of capital expenditures and operations cost of NGCP for the period. This is a cost levied to power end-users through the transmission charge.     

At 15.04 percent WACC, the Philippines has the highest WACC compared to Malaysia (7.5%) or Thailand (7.2%). It appears ERC has allowed NGCP to sustain the rate charged by NGCP to its end-users for a regulatory period that has concluded allowing NGCP to rake in a whopping 66.12 percent of profits. 

According to TRANSCO President Melvin Matibag, NGCP’s WACC should already be brought down to 7 percent by this time based on their study. Matibag has called the attention of ERC Chairperson Agnes VST Devanadera in 2018 regarding the delayed re-setting of NGCP’s WACC for the Fourth Regulatory Period (2016-2020). ERC only responded that the process is ongoing. 

TRANSCO cited its analysis that NGCP’s updated WACC would have reduced the average P0.70/kWh transmission rate by 30 to 35 percent to about or about P0.20 to P0.25/kWh by this time.

• Chill with the big players

The ERC has obviously taken a cautious stand on the NGCP issue as demonstrated by numerous orders soliciting explanation from the conglomerate regarding delays of project completion, inaction to integrate supply security mechanism like entering into contingency reserve contracts for ancillary services, and unjust pass-on of cost as a result of disruption in the transmission system. 

In 2017, President Rodrigo R. Duterte signed Executive Order No. 30 (EO 30) to fast-track investments and implementation of new project proposals. It formed the Energy Investment Coordinating Council (EICC) and was given the authority to issue certifications for the Energy Project of National Significance (EPNS).

By June 2019, 29 of NGCPs transmission projects with a combined investment cost of PhP90.3 billion gained EPNS status. Listed also is the biggest undertaking of NGCP, the Visayas Mindanao Interconnection Project (VMIP) valued at PhP52 billion. The VMIP will connect the Visayas and Mindanao power system and link to Luzon looping in the three major islands of the archipelago. The project was started in 2018 and targeted for completion in December 2020. But completion was delayed due to the pandemic. The new timeline was further pushed back to December 2021 after MVIP’s Submarine Cable No.1 in between Dapitan, Zamboanga del Norte and Santander, Cebu was damaged by a vessel reportedly by the Dept. of Public Works and Highways (DPWH) doing a dredging in the area.

These disruptions in the project timeline have caused power supply deficiency and even drove power costs higher among DUs and electric cooperatives connected to the grid. In Panay Island, for instance, NGCP passed-on the charges termed as “line rental cost” to DUs and electric cooperatives as a result of a dredging incident that took place in June 2021. It took months for the ERC to act on the matter and perhaps no action was taken if the Local Government Units, business associations and consumers groups did not write ERC. 

• Weak to zero oversight over ERC.

Slow resolutions of cases at the ERC involving transmission issues were also observed resulting in a delay or suspension of availment of rates reduction by power end-users. One example was the NGCP petition in 2012 to acquire transmission assets of Panay Energy Development Corp. (PEDC) who was supplying power to then PECO. It snoozed at the Commission suspending the reduction of power rates for Iloilo City power end-users. 

Fast forward to 2021, Razon’s MORE Electric and Power Corp’s assumption of power distribution services to Iloilo City demonstrated a smooth reconnection to the NGCP Visayas power grid with the installation of its 69-KV transmission facility. It resulted in a P3.55/kWh rate reduction. 

In a related case, however, the petition filed by consumer groups to ERC demanding settling of refundable amounts to PECO as a result of its disenfranchisement and eventual takeover by MORE Power remained ignored by the Commission.

During the Senate Energy Panel inquiry, ERC Chair Agnes Devanadera was asked by Sen. Risa Hontiveros if expenses of NGCP for advertisement, public relations, entertainment and professional fees were passed on to power consumers. The Chairperson initially responded that she cannot give any opinion for she was not privy to the details of the expenses yet she offered a follow through that items that are considered not prudent and necessary expenses are examined in the determination of rates and are not allowed to become part of the rate charge.

Senator Hontiveros revealed that NGCP’s Annual Audited Financial Statements filed with the Securities and Exchange Commission (SEC) showed that from 2009 to 2020, the conglomerate spent billions of pesos on the following: representation and entertainment – P1.454 billion; advertising – P1.032 billion; public relations – P1.268 billion; and professional fees P646 million.

If the ERC Chairperson was forthright that such items could not be passed on to consumers, then why did the same charges under the PBR regime have made it through the bills of power consumers of Distribution Utilities?  

• Government turned a blind eye on NGCP’s blatant violations.

The severity of abuse by NGCP against power end-users in general and the government in particular stirred public interest on the power and influence that the Chinese Government played through SGCC especially encroachment on the national patrimony and sovereignty of the Philippines. But high government officials appeared to have turned a blind eye and remained cozy with NGCP despite serious issues revealed by TRANSCO. 

TRANSCO highlighted that NGCP violated provisions of the concession agreement with serious implication to national security and with violation to the 1987 Philippine Constitution. The issues were as follows: 

• Non-compliance on required auditing protocol like maintaining separate audited accounts for each related business.
• Violations of Anti-Dummy Law and the 1987 Philippine Constitution because of Chinese nationals who are officials of SGCC exercising participation in the management and operations of NGCP.
• NGCP engaged in other businesses without the consent of TRANSCO and PSALM.
• NGCP utilization of transmission assets for use as a telecommunications backbone uncovered by TRANSCO in 2017 consisting of a separate facility with 48 cores from the existing 24 cores embedded in the transmission grid. TRANSCO ordered the inventory, audit, and accounting of telecoms facilities embedded in the transmission grid but NGCP denied TRANSCO inspectors access to the facility.

1. CONCLUSION

In 2008, the power campaigns team of the Freedom from Debt Coalition (FDC) took the first courageous step to issue an appeal to the national government by opposing the privatization of TRANSCO and the granting of a national franchise to the NGCP through a paper, entitled: “Transco: The Filipino’s Last Line of Defense Against Privatization,” by Matthew James Miraflor and Job Bordamonte. 

The issues raised by the paper were not taken from a fortune teller who gleaned the future impact of privatizing the transmission sector from the crystal ball, rather it was grounded on the position of protecting public interest by underscoring that “electricity is a critical element of national development” and it must not be delegated to powerful groups in the private sector.

The paper evoked that privatizing TRANSCO is wrong because it will result in losses to the government, exacerbate consumer woes, labor issues, questionable auction, and more importantly, national security concern considering that the country’s power backbone can serve as a broadband infrastructure at the same time. Senator Sherwin Gatchalian, chair of the Senate Energy Panel, opened the inquiry session for the two-day power outages in Luzon with losses estimated at P116 million and which affected around 705,000 consumers in the Meralco franchise alone. But this is not the only loss that the government must take into account 20 years after EPIRA. 

The privatization of TRANSCO has not maximized present value for the Government. Instead it has placed in private hands the golden opportunity of earning billions of profits from a risk free business whose regulation is more symbolic than real. It has also surrendered a priceless asset of a national broadband network—the only one in the country—and has given a private entity with Chinese government equity to earn far more from broadband than from transmission. Broadband should serve as a developmental asset for the equitable spread of knowledge and information especially in hard to reach areas. No such thing under the present setup.

Government was at a losing end from the start – debt-induced power industry restructuring charged to taxpayers and cost of post-EPIRA implementation borne by power consumers. Yet the government continues to lean backwards and provide business a golden ticket—lock stock and barrel.

The paper is part of the project of the Center for Power Issues and Initiatives (CPII), entitled: “Saan Umabot ang Bente Mo: EPIRA 20 Years After,” with inputs and editing by Maitet Diokno Pascual, executive director, CPII.