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Nationalize Meralco

It’s been a week, and many parts of the National Capital Region and Southern Luzon are still without electricity. And these are supposed to be the country’s most developed areas, which account for 50 percent of our GDP and a third of our population.

The company in charge of this area is the country’s biggest power firm, Meralco. It has never been as profitable as it has been in the past several years, with its ultimate biggest controlling stockholder, Anthoni Salim, remitting about P20 billion in Meralco profit since 2010 to his Hong Kong corporate headquarters, and then to his four firms in the tax-free havens in British Virgin Islands and Liberia (See my column, “Indonesian Magnate Controls Meralco,” Feb. 23, 2014).

How an Indonesian can get to control such a monopoly in an industry that affects the lives of millions of Filipinos is, indeed, another indictment of our weak state, in which crucial regulatory agencies are captured by corporations and elites. In the cases of Meralco and its mother firm, Philippine Long Distance Telephone Co., the capture agency is mainly the Securities and Exchange Commission that is supposed to enforce nationality requirements.

Meralco a failure
But the failure of Meralco’s infrastructure in withstanding a typhoon also exposes the bankruptcy of a policy – really a gargantuan lie—adopted since President Cory Aquino’s watch.

This is the idea, propagated of course by the elites, foreign and local, that would profit from it, which our country stupidly mimicked from the West: privatization, that public services, to be more efficient, must be run by private enterprises.

The notion actually defies common sense and logic:

Public utilities are, by definition, essential services a state has the duty to provide its citizens. How does it do this? By getting contributions from its citizens, which we call taxes, which in principle should be provided mostly by the rich, the elite.

But what does privatization do?

It even makes public utilities a source of profits for the elite. In Meralco’s case, the private owners would first have to recover at least 6 percent of what it spent to buy the shares – or the cost of borrowing the funds from banks. Then it would need to make at least 10 percent—the minimum profit rate of capital in our country.

That means a total of 16 percent returns the owners need to make Meralco worth their investments, which they, of course, can recover only by raising the prices of the firm’s product, electricity. That’s how much more—at the very least ‚Meralco’s electricity rates are than if it were run by a non-profit state firm.

The usual argument against government ownership is that it is inherently inefficient, as it does not have the profit motive, and its managers don’t have to answer to shareholders.

Rather than arguing about this theoretically, I will just stick to facts. Many government corporations or state-run firms in the world are even more efficient than their private counterparts. Even here, the Bangko Sentral ng Pilipinas is considered to be as efficient as any private firm.

One of the biggest investment firms in the world is Temasek Holdings, which is owned by the government of Singapore. And even our elite capitalist group, the Ayalas obviously are in awe of Temasek’s capability: its subsidiary Singapore Telecoms is the biggest stockholder of Globe Telecoms, and reportedly has full control of the technical side of the business.

Except Singapore
Except for Singapore, which is after all, just a fourth of Quezon City in area and population, we are the only country in Southeast Asia that got fooled by the propaganda that the power industry must be run by private firms.

Indonesia: The electricity market of Indonesia is dominated by the state-owned Perusahaan Listrik Negara (PLN, National Electric Company). Except for several small, closed private networks operating in industrial areas, PLN is virtually the only supplier of electricity in the country. This is because under the 1985 Electricity Law, only public utilities are allowed to supply electric services.

Malaysia: Three state-owned utilities—Tenaga Nasional Berhad (TNB), Sabah Electricity SDN Berhad, and Syarikat Sesco Berhad—operate and manage each of the country’s three separate grid systems for Peninsular Malaysia, Sabah, and Sarawak. While Malaysia also has privately-owned independent power producers like us, all power is sold and distributed only to the state-owned TNB.

Thailand: Most of the generation and all transmission activities are operated by a state-owned utility, Electricity Generating Authority of Thailand (EGAT), with a few very small power producers. The distribution and supply activities are the responsibility of the Metropolitan Electricity Authority and Provincial Electricity Authority, which gets its power from EGAT.

People’s Republic of China: While private power firms have been allowed in the past several years, China’s electricity industry is controlled and dominated by 11 state firms. The State Grid Corporation of China (SGCC), the largest state-owned electric utilities company in the world, distributes electricity throughout China.

This SGCC is the state corporation which is the partner—the controlling partner, some allege —of mall-magnate Henry Sy’s son in our National Grid Corp. of the Philippines (NGCP), the firm privatized out of the National Power Corp.’s transmission part. How ironic is that? We privatize a state firm, which is taken over by a state firm of another country? It is NGCP which Meralco had blamed for not being able to power parts of Southern Luzon.

The electric power industry in Cambodia, Laos, Brunei and Burma, are all run by state firms, of course.

An academic in Australia who specializes in this issue, Prof. Sharon Beder, summarizes what happened in the rest of the world that got fooled by the myth of privatization:

The global experience
“Dozens of governments have embarked on the pathway to electricity deregulation and privatization since the mid­1990s. It has become the accepted wisdom amongst governments and opinion leaders despite the consequent price rises and disasters that have followed in its wake: the series of blackouts that have been experienced from California to Buenos Aires to Auckland; the government bailouts of electricity companies that have been necessary in California and Britain; the need for electricity rationing in Brazil; and the fact that it has become too expensive for millions of people from India to South Africa.

Electricity deregulation and privatization is referred to as ‘liberalization’ by its advocates who use the term to disguise what is in essence a massive shift of ownership and control of electricity from public to private hands, in the name of economic efficiency and in the cause of private profits.

‘Liberalization’ has meant that maintenance teams that were once fully staffed have been dramatically cut leading to frequent equipment failures. It has meant that privately owned electricity conglomerates are able to blackmail governments into bailouts and high prices with threats of blackouts.

And it has meant that the planning function of electricity authorities that once ensured adequate generating reserves for times of peak demand, and kept infrastructure up to date in developed countries, have been abandoned to market forces. Because of market forces, electricity prices are based not on the cost of production, but on how desperately consumers want electricity and this has led to sky­rocketing prices whenever private companies have been able to limit supply in times of high demand.

The privatization of electricity is not something that citizens have demanded nor wanted. In general, there has been very little public participation in electricity reform decisions and as the consequences are observed, there have been many bitter protests against electricity privatization.

Popular uprisings have occurred in Argentina, India, Indonesia and Ghana. Protests have halted privatization proposals in Peru, Ecuador and Paraguay. In the Dominican Republic several people were killed during protests against blackouts imposed by privatized companies.

In South Africa, thousands marched during a two-day general strike to protest privatization, which they labeled “born­again apartheid.” In Papua New Guinea, students were killed when thousands rallied against the planned privatization of government services including Elcom, the electricity authority. Even in China, workers protested the sale of a power plant in Henan province to a private company and threatened to “block the state highway and lie on the railroad while the trains run over us”.

Meralco, a microcosm
Meralco is a microcosm of our history, and the sad situation we are in:

It was set up during our period of US colonialism, by —who else—US corporations. In 1962, the landlord-political clan headed by Eugenio Lopez, Sr. took control of it, funded by massive loans from a government bank. During martial law, the strongman Marcos took it over from the Lopezes, had his wife’s brother Kokoy Romualdez supervise it, and pretended to turn over ownership to its consumers. Cory Aquino handed it over back to the Lopezes. The Lopezes in turn, as their other firms were sinking to bankruptcy, sold it to firms controlled by the Indonesian tycoon Anthoni Salim.

I would like to think reforming the microcosm that is Meralco could be a template for reforming the country. Ironically, such reform could be along that which was proposed by Eugenio Lopez, Sr. in his letter to Marcos dated Feb. 19, 1973, after Marcos imposed martial law, and which had the Lopezes fleeing abroad, and his son thrown in jail:

“Nanding [Eugenio’s brother and former vice president Fernando] and I are also in accord with your concept of democratizing property in the Philippines and believe that ownership of industries vital to the economy should be dispersed as widely as possible. For this reason, Nanding and I would like to offer the sale of our holdings to a cooperative composed of Meralco employees, customers and the general public that could be organized with the assistance of the government.”

I would like to believe such a window of opportunity for such a nationalization of Meralco —in the word’s two senses of reverting it back from foreign hands and putting it under government control—would occur when the Indonesian magnate Salim is required to comply with the Supreme Court ruling on the nationality requirement of public utilities.

That could be soon, with the Supreme Court’ s newfound strength in imposing the rule of law in this land.

This Post Has One Comment

  1. Edz

    The very fact that Meralco is a publicly-listed entity traded on Philippine Stock Exchange, it is just expected that investors with large funds to invest can do so. However, upon checking firm ownership, the name Anthoni Salim or Salim Group is never listed. If indeed, Meralco is majority owned by Salim Group, then this entity must be using a local counterpart to fool us. Any idea on this?

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