Sy Jr., Porsche dealer, China state firm make P171-B super profits from electricity grid

WHATEVER hard-core believers of the once-upon-a-time magic wand called “privatization” will tell you, I’m sure you’ll find something deeply wrong here.

Henry Sy Jr. of the SM empire; insurance tycoon Robert Coyuito, known more as the dealer of Porsche here; and a Chinese state-owned company have been making super profits as owners of the monopoly that runs the country’s electricity transmission network, the National Grid Corp. of the Philippines (NGCP).

Sy has 30 percent of NGCP, officially through his One Taipan Holdings and then through Monte Oro Grid Resources. Coyiuto owns 30 percent through his Calaca High Power Corp. It is not clear though if Sy, who is either vice chairman or chairman of most of the SM conglomerate’s firms, represents the investments of that group in the NGCP or his own personal investments. I suspect though that while he may have his own money there, the SM empire’s money accounts for the bulk of One Taipan’s holdings.

The Chinese firm with 40-percent holdings is the Chinese government-owned State Grid Corp. of China, which was the second largest firm in the world in 2018 in terms of revenue. You read that right: it is second only to Walmart and had bigger profits than Royal Dutch Shell, Aramco, Apple and Toyota.

They run the firm that transmits electricity to us: Sy, 30 percent; Coyuito, 30 percent; China state firm, 40 percent. COMPANY PHOTOS

Strategic firm
Why have we allowed a foreign firm to be one of the three biggest owners of a strategic and profitable public utility? I hate to use that cliché, but it’s another horrendous only-in-the-Philippines case. In all other Asian countries, such transmission firms are owned by their governments, except for tiny Singapore, which allowed foreign companies into that sector only in 2008.

In our case, the firm, which is the biggest owner with 40 percent, is a foreign firm, which theoretically can play the two Chinese-Filipino tycoons, each with only 30 percent holdings, against each other. For Sy and Coyuito, electricity transmission of course is nuclear science: they are totally dependent on the Chinese firm to run NGCP.

What happened to our country since EDSA 1? The biggest distribution company Meralco, as well as several power generation companies are controlled by another foreigner, the Indonesian Anthoni Salim through his Hong Kong-based First Pacific Co. Ltd.

I’m convinced we are the only country in Asia to have been so stupid, or to have governments so controlled by big business, as to allow the electricity transmission monopoly to be owned by two of its richest profit-hungry conglomerates and a foreign behemoth.

Isn’t it foolish that we “privatized” not just a strategic monopoly but also an extremely profitable one?

From 2010 to 2018, NGCP made nearly P200 billion in income, about 95 percent of which the owners promptly took out and put in their bank accounts through regular, higher-than-normal annual dividends.

I call NGCP’s income super profits, since the firm’s average return on equity from 2010 to 2018 of 36 percent is double the 16-percent average return on equity in a listing of 30 of the country’s biggest firm.

Greed
The greed for profits of NGCP’s owners is starkly demonstrated in its dividend-payout ratios — or how much of the firm’s profits they’ve been taking out as dividend. From 2010, the full year it had ownership, to 2017, this averaged an astonishing 96. This is way above the 7 to 37 ratios for five of the country’s largest firms. Amazingly, Sy’s investment in NGCP is more profitable than that in SM Investments, which has a dividend payout of 37.

With its dividend payouts in 10 years of operation, NGCP owners have recovered, if we include its income this year, its P200-billion ($3.95 billion) payment for its 25-year concession to run the transmission company. That means it reached breakeven this year: starting next year, income from NGCP will be pure profits for the company.

The cash-out of this group in buying the transmission company for P200 billion ($3.9 billion) was just 25 percent, or $1 billion, with the rest paid in installments over a period of 15 years.

As happens in most big-league corporate acquisitions, the installments were likely paid out of the firm’s enormous profits. The $1-billion cash-out was, again as in most big-league corporate acquisitions, raised through loans at interest rates, say 6 percent, much lower than the firms’ over 30 percent profit rate.

The NGCP deal, one tycoon had told me, is practically a “printing press for money,” as the investors most likely didn’t put in their own money. With NGCP’s monopoly status, banks would have fallen over each other to offer Sy and Coyuito loans to raise the $1-billion down payment.

That, ladies and gentlemen, is how big capitalism works, how big companies get bigger to become mammoth conglomerates.

Disgusting
But what’s disgusting in this case is that the profits come out of an essential public utility — electricity — “transmitted” by a monopoly mostly to another monopoly retail distributor, Meralco. NGCP’s profits come out of the hard-earned money of millions of Filipino electricity consumers, most of whom are poor.

Take out and examine your electricity bill, and you will see how you contribute to the NGCP’s profits. These come from that part of the bill’s breakdown that Meralco says are the transmission charges “that goes to NGCP.” Meralco in its website says this averages 10.1 percent of your electricity cost, with its own share labeled “distribution” at 17.5 percent.

The shares though change for each bill, and we consumers are totally in the blind how NGCP bills Meralco or how it computes its distribution and generation costs.

The call made by Senators Risa Hontiveros and Sherwin Gatchalian for the Senate to investigate whether NGCP risks or not our national security because Chinese engineers there could sabotage its system which would lead to our country’s total loss of electricity, is either naïve, or even a smoke-screen maneuver.

Indeed, the company president yesterday swiftly responded to these senators’ claims by pointing out “the software and hardware system that controls the Philippine grid, or the supervisory control and data acquisition system, is operated only by authorized Filipino technical experts.”

Security
If government had worries over the security risk the Chinese in NGCP posed, its investigation should have been done covertly and not in public. The National Security Council could have organized a task force together with the Energy Regulatory Commission that supervises the country’s entire electricity system to verify such possibility, and to check if Chinese technicians are in crucial positions that involve the transmission system’s integrity.

But then, in what situations would Chinese engineers sabotage the transmission grid? In only two instances. First, when a Chinese engineer is so disgruntled, or homesick, he sabotages its operations, and the Chinese firm would be swiftly kicked out because how the sabotage happened could easily be traced with NGCP’s systems. And second, when China and the Philippines declare war against each other — which I dare say is impossible to happen.

I don’t have any doubt that a Senate investigation into security issues would reveal nothing, with the more important issue forgotten: Why have we allowed profit-hungry conglomerates to run a strategic monopoly, and regularly take out huge profits, with the foreign partner even remitting theirs out of the country?

 

 


 

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Filed under: Manila Times Columns

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