Will MVP’s Legacy Eventually Include Fair Treatment of Consumers?

Super Successful business executive Manuel V. Pangilinan, widely known as MVP, recently celebrated his 70th birthday, and was paid a glowing 12 full page tribute in the national broadsheet, Philippine Star, headlined “Seven decades: A Celebration The MVP leadership legacy”.

How many Filipinos get to celebrate his birthday with a 12 full page newspaper tribute? I doubt even Donald Trump got that. Clearly MVP is a businessman of mythical accomplishments, loved by his colleagues and employees, a paragon of business success, and an inspiration for rising through the ranks in the corporate world.

Indeed Mr. MVP has quite a leadership legacy.  Legions of basketball fans know him as the generous supporter of successful teams Gilas Pilipinas and Ateneo Blue Eagles.  “One thing notable about the character of MVP is his sense of mission for the country, and his unwavering faith in the Filipino… MVP lives by the Filipinos values of hard work, financial and mental integrity, resiliency, compassion, and deep and abiding faith in God.” “MVP singled out three core values that are essential to great leadership: hard work, financial and mental integrity, and passion.”

Our legacy resides in the hearts of those who were affected and touched by our presence as we pass through this life.

MVP’s friends and colleagues hold him in high esteem in their hearts. “I admire his decisiveness, drive, and demanding work ethic. These are inspiring and essential qualities of a great and wise leader” shared lawyer Ray Espinosa. Former Foreign Affairs Secretary Albert Del Rosario said “I feel incredibly blessed to have MVP as a close and true friend. His kindness, generosity, and inspiration continue to permeate our friendship at all times”. The equally illustrious Oscar J. Hilado, Chairman of Phinma for his part revealed that “for MVP, no job was too big nor too small. No task was too daunting, no risk too great, no aspiration beyond reach. He was always driven to outdo.”

MVP has his generous share of “feel good” and “giving back to the community” projects common among the rich and large corporations with CSR or corporate social responsibility. There are hundreds of thousands of poor Filipinos who also benefit from MVP’s various charity advocacies in education with equipment donations, scholarships, and even solar power. His companies donate water systems for neighborhood food programs.

The published tribute heralded that “MVP is one gifted with the ability to “see” the future, anticipate what the future will bring, and prepare well for its coming. MVP had a compelling vision when he took over the reins of PLDT, Maynilad, Meralco, Makati Medical Center”. “The companies he has acquired or built are living testaments of his dealmaking skills” again said Ray Espinosa.  “MVP has become successful in making his vision a reality, rallying his executives and workforce to join him in the pursuit of his dreams for his corporate organizations”.

When they talk about MVP’s unwavering faith in the Filipino and looking after their welfare, and when they define MVP’s sense of mission “to improve lives of Filipinos” it appears they refer to the hardworking Filipinos who have had wonderful and rewarding careers as part of the MVP Group. It is an accomplishment to behold and we are happy for our countrymen and their families who are richly rewarded for their roles in the conglomerates profit making success.

MVP’s Sense of Mission

MVP is quoted as declaring that “business especially in a developing country like the Philippines should play a unique part in enhancing overall welfare”. Miguel Belmonte enthused that MVP “sees to it that our companies manage to strike a balance between profitability and social responsibility”. Noel Lorenzana, President and CEO of MediaQuest Holdings Inc cited MVP’s “genuine concern for the welfare of the Filipino most especially those in need is something that all people in business should emulate”.

One lady officer of the MVP group who elected to be anonymous summed it this way. “He cares about our country and the plight of our countrymen, as shown in the tangible steps he takes toward progress and alleviation of poverty.”

It is in these statements of MVP’s broader sense of mission “for the welfare of the Filipino” that we as consumers of electricity, telephone services, and water have yet to relate to. We say it is too soon to agree.

In his day job as CEO of Meralco and PLDT we hope that MVP will eventually take to heart the claimed ideals for  genuine concern for the welfare of the Filipino, to improve their lives,  the trait for financial and mental integrity, and compassion for the consumers. Meralco and Maynilad have more than 5 million metered customers serving 40 million people. PLDT has 30 million customers nationwide. It is not an exaggeration to say that the life of every single one of the 100 million Filipinos is touched by one of MVPs enterprises in electricity, water, telephone and hospitals. (If you escape those how about TV basketball and Channel 5?)

It is common knowledge though that PLDT and Smart is providing the slowest internet service in Asia and yet charging a lot. They refuse to charge calls on per 6 second increments as internationally practiced, charging the poor Filipinos instead for minimum one minute, reportedly resulting to undeserved charges of P8 billion a year. In other words they are not giving fair value but profiting a lot. Consumers are just inundated by advertisements.

In power distribution and generation, the consumers aspiration for “least cost” and true competition is getting further and further away from being a reality as Meralco and the MVP power group leverage to the hilt their monopsony in distribution into monopolized and oligopolistic generation sector and the perpetuation of the era of self-negotiated sweetheart deals on charges to the consumers. These coldly denies Filipino consumers the right to competitively determined power rates, the opening of the generation sector to truly independent power generators, and the removal of unfair charges to consumers.

In a laissez faire economic society, we can accept the business tactics of market domination and maximization of profits. We can understand even Machiavellian and Sun Tzu methods in competition. But when these domination schemes are applied in public services like electricity, water, and telephone, it is anti-people, unpatriotic, and exploitive. Because those are essential human life needs that our people have no choice but to buy. Overcharging is certainly contrary to a supposed mission “for the welfare of the Filipino, the improvement of their lives, financial and mental integrity, true compassion for the consumers, and alleviation of poverty”.

Is this the reason the provision of electricity, water, and telephone are no longer referred to by the media as public utilities but as infrastructure projects?

Of course it is not totally the fault of MVP and his Group. The government officials whose job it is to stop these monopolization are making it possible by acts of commission, omission, disinterest, or unawares.   The loopholes in the Epira law, its IRR, and regulatory capture, were there when MVP arrived in the power scene in 2010.

Our greatness though (and legacy) will be defined as much by what we did and accomplished as by what we have elected not to do as disciplined by our true moral compass. We don’t rob just because someone left his door open overnight. We don’t rape just because we had the chance. True power comes in the judicious use of dominant force. Otherwise it is just brute force to overwhelm the weak and vulnerable especially those that failed to get the protection of its own government.  Discipline and restraint equally define our legacy especially where millions of consumers are affected.

Personally, I believe the greatest form of achievement is the one that benefits the most people. And that our legacy will reside in the hearts of those who are grateful for being given a fair deal and fair service. It cannot be done if Meralco continues to charge consumers whatever self-negotiated power generation rates they signed with their affiliated companies and for essentially eliminating competition.

If the professed mission “to promote the general welfare of the people” refer to the people who work for the MVP group, then Mr. MVP’s record and achievement is already legendary.What we hope is that eventually MVP will “see” it in his future to make it part of his legacy to treat the electric, telephone, and water consumers well, to show that what is being charged to them is truly products of genuine competition in the market place, and for Meralco as their electricity services provider to be loyal to the pursuit of least cost power by allowing arms length dealings untainted by conflict of interest.

The way things are going MVP’s legacy to the electricity consumers would be one of a menacing Meralco who, as the 800 lb gorilla with corresponding fierceness, can make the regulators, the department of energy, the legislature, and the Presidency tremble when he roars his disagreement.

He tried to tell the new President to leave business alone, when the monopolistic and consumer exploitive tendencies of the MVP group are precisely the reasons that government should protect its citizens and not leave private business alone (including in mining).

President Duterte’s government may have not yet realized that the MVP group has similarly grown another 800lb gorilla in the generation sector with the lesser players commiserating recently evidently in exchange for access to the Meralco generation market at negotiated sweetheart prices.

Consumers face captivity and burden for the next 25 years. Ironically the 25 years is coinciding with the start of the new government.  It is a national tragedy that will be a sad backdrop to a new era in governance when the Filipino nation harbors so much hope for reform against crime, corruption, and injustice.  Who will step up for us consumers?

Let us hope eventually MVP can find it in his Filipino heart to seek a legacy that will include the fair treatment of Filipino consumers.  At 70 years old now, let’s pray that MVP’s epiphany comes to him soon.

(My epiphany against consumer exploitation came to me 5 years ago hence the birth of MSK)
Matuwid na Singil sa Kuryente Consumer Alliance Inc.

David Celestra Tan is a co-convenor of MSK. He is a pioneer in the IPP industry and one of the founders and a former President of the Philippine Independent Power Producers Assn. (PIPPA). A CPA by education, he is a utility economist and was an active private sector volunteer to key Senators and Congressmen in finalizing the Epira Law of 2001. He saw up close the horse-trading that went on that caused serious flaws in the law. His recent consumer advocacies in retirement are part of his desire to correct the imperfections of the law to finally achieve the law’s goal of reducing power costs, creating true competition, and preventing harmful monopoly. He hopes his “legacy” will include “he shared and tried”

Five evils of cross-ownership in power industry

by Neal Cruz, republished from Philippine Daily Inquirer website, September 05, 2007 

President Gloria Macapagal-Arroyo has endorsed the amendment of the Electric Power Industry Reform Act (Epira), which, contrary to its original intent of reducing power rates, has instead led to higher rates, the second highest in Asia, next only to those in Japan, a rich and highly developed country with a standard of living many times higher than ours. The Epira was copied from the California model of deregulating and privatizing the monopolistic power industry by creating competition in every sub-sector. Competition will force the players to reduce costs and be more efficient to be able to sell more electricity.

It is difficult for laymen to understand the workings of the power industry. For their benefit, therefore, here is a simplified explanation of the power sector and the Epira and its flaws:

Electricity flows from the generating plant through the transmission lines to the distribution lines of the distribution utility, like Manila Electric Co. (Meralco). The distributor connects the users’ residences, factories and business establishments to the power sources, installs meters and does monthly readings, sells the electricity and collects the monthly bills.

The Epira that was passed in June 2001 divided the industry into four sectors: generation, transmission, distribution and supply. Transmission and distribution, however, are considered natural monopolies in providing the lines through which power flows and will continue to be regulated sectors under the supervision of the Energy Regulatory Commission (ERC). The ERC’s job is to make sure that the rates of these two monopolies will always be reasonable and fair.

Accordingly, Section 36 mandated the unbundling of rates and functions of these four sectors.

The National Power Corp. (Napocor) was split into two: generation and transmission. The distribution side was also split. Each one was required to submit its own rates for the review and approval of the ERC.

For the whole thing to work for the benefit of the consumers, there has to be enough players in the generation and supply sectors that will compete with one another in serving the customers.

Section 23 states the whole purpose of the Epira: A distribution utility shall have the obligation to supply electricity in the least cost manner to its captive market. But this obligation is nullified by the evil of cross-ownership.

What is cross-ownership? It is the case of a company in one sector, say distribution, owning a sister company in another sector, say generation. There is a conflict of interest here. A distributor cannot supply electricity at the least cost if it has to buy power from a sister company selling its electricity at a high rate.

The framers of Epira knew the harmful effects of cross-ownership and prohibited it in the original version. Unfortunately, lobbying by vested interests won over patriotic integrity so that Section 45 which was supposed to ban cross-ownership was watered down, banning cross-ownership only in the transmission sector and other sectors but not cross-ownership between the distribution and generation sectors. Thus, the Lopez family, which owns Meralco, the country’s largest distributor, was allowed to own and operate generation facilities. Epira’s purpose is to make distributors like Meralco buy power from competing power generators to get the least cost. But with the loophole in the ban on cross-ownership, Meralco is now allowed to enter into negotiated bilateral contracts with sister generating companies. This loophole has led to five evils, the end result of which is still high power rates.

Evil No. 1: These bilateral contracts totaling 2,300 megawatts so far were sweetheart deals. They all have guaranteed minimum take-or-pay provisions that were the real cause of the skyrocketing Purchased Power Adjustments (PPA). Meralco contracted power at P5.20 per kilowatt-hour with its sister companies when power can be bought from Napocor and its IPPs (Independent Power Producers) at P3.97 per kWh. This would not have happened if Meralco the distributor was doing business with an unrelated generator at arm’s length. They would have held competitive biddings from generators so that they could supply power at the least cost to their captive customers.

Evil No. 2: Since Meralco represents 72 percent of the country’s power requirements, it has become a monopoly with full rights to choose who gets to supply their power requirements. The Lopezes of Meralco have then become the controller of the country’s new generation sector once Napocor is privatized as the Epira envisions. There will be no real competition as intended by the law and therefore no reduction in generation rates. Also, the future development of the generation sector on which the country depends for its future needs, will be totally dependent on the whims and caprices of one group.

Evil No. 3: There will be few bidders for the Napocor power plants because only the Lopez-anointed investors can come into the sector. The government will lose hundreds of billions of pesos in lost value-recovery from the Napocor assets. Nobody will buy the generators if it cannot sell the generated power to distributors like Meralco.

Remember, there were two failed biddings for the 600-megawatt Calaca power plant of Napocor. And Masinloc was going to be sold only for $524 million to a Malaysian group with the Lopez-owned First Gen Corp. offering only $384 million. In more recent biddings, Napocor’s Masinloc plant was sold for a whopping $930 million, even higher than the Lopez offer of $570 million.

(To be continued)

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