Napocor back in the red with P8.32-B loss in H1

The Philippine Star 11/29/2006

State-owned National Power Corp. (Napocor) has reverted to a net loss of P8.32 billion in the first six months of 2006 due to huge foreign exchange and interest expenses, official documents said.

The amount, it was learned, did not yet include the financial losses as a result of its trades at the country’s wholesale electricity spot market (WESM).

The loss was a reversal from the P15.46 billion income registered in the same period in 2005.

Based on the documents, Napocor’s interest expense payments for the first half of the year jumped by P2.13 billion. "The increase in interest expenses was due to higher volume of loans," the report said.

Napocor, through the Power Sector Assets and Liabilities Management Corp. (PSALM), has been borrowing money to partly fund its huge principal and interest payments.

Since last year, PSALM, which handles the finances of Napocor as mandated under the Electric Power Industry Reform Act (EPIRA), has borrowed $700 million to refinance the power firm’s maturing obligations.

For the six-month period, forex losses went up to P9.86 billion due to the depreciation of the peso against the dollar and other foreign currencies as against a P13.982 billion gain in the same period in 2005.

In 2005, Napocor posted P62.756 billion net earnings due to forex gains of P64.756 billion.

Other factors that contributed to Napocor’s favorable income performance last year included the rate adjustment approved by the Energy Regulation Commission and its P200-billion outstanding debts absorbed by the National Government.

In the early part of its trading at the WESM, Napocor had been claiming to have incurred losses of more than P1 billion.

If this trend continues, it is estimated that Napocor may end the year 2006 with a net loss of P48.87 billion for 2006.

Noli Kabayan De Castro

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Government urged to scrap nat gas royalties

The Philippine Star 11/28/2006

Lopez-owned First Gen Corp. (FGC) is urging the government to consider scrapping the royalties on natural gas to bring down the power rates of Manila Electric Co. (Meralco) by at least P1 per kilowatthour (kwh).

"We are proposing that royalties be taken out as long as the natural gas is used domestically. This will result to at least P1 per kwh reduction on Meralco rates," First Gen president Federico Lopez said at the sidelines of the Foreign Correspondents Association of the Philippines (FOCAP) forum.

But while Lopez said this is one of the best ways for government to reduce electricity costs, this move may entail some amendments to old laws and may result to huge revenue losses to the government.

"This will require amending PD 87, however doing so could make the government lose revenues, but again they have a lot of revenues already from VAT (value-added tax)," he said.

Presidential Decree 87, issued during the time of President Marcos, was drawn to promote the discovery and production of indigenous petroleum.

Lopez said there is an existing provision in the Electric Power Industry Reform Act (EPIRA) which is supposed to address this concern but the government appears to be reluctant to push for it.

"I think they overlooked the royalty, as it was lifted from PD 87. Repealing it will take time, and this is why they pushed for equalization, which is not being implemented," he said.

Under the EPIRA, there is a provision that aims to equalize the taxes imposed on indigenous sources of energy. "Equalization is revenue-neutral, but equalization will not bring the general power rate down and will just level the playing field," Lopez said.

Government earns some $637 million from royalties being paid by the Malampaya consortium which supplies the natural gas requirements of First Gas Corp. (FGC), a First Gen subsidiary. FGC owns and runs the 1,500-megawatt (MW) Sta. Rita and San Lorenzo gas-fired power plants. The government has been raising about P11 billion or $200 million in tax revenues from the Malampaya project in Palawan.

"They could lose roughly $600 million a year from the Camago-Malampaya. But you can leave the VAT, and just remove the royalties," Lopez said.

In a presentation before the same FOCAP forum, Oscar Lopez, chairman of Benpres Holdings Corp., the investment arm of the Lopez Group, noted that in First Gas‚ the selling price of P4.76 per kwh to Meralco, fully P3.25 per kwh or almost 70 percent is the cost of gas, with approximately P1.79 per kwh going to government in the form of royalties. Aside from FGC, Korea Electric Power Corp. with the National Power Corp. (Napocor) runs a 1,200-MW Ilijan natural gas power plant.

The Benpres official noted that consumers also pay 56 centavos per kwh in the form of 12 percent VAT for power using Camago-Malampaya gas on top of the royalties.

The older Lopez also noted that though there was an improvement on the use of indigenous fuels in the generation mix to 70 percent, "we still haven’t narrowed the gap in our electricity prices vis-à-vis our neighbors and our indigenous fuels in fact appear costly."

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Lopez Group considers sale of Meralco stake

The Philippine Star 11/28/2006

The Lopez Group intends to revisit plans of disposing its stake at Manila Electric Co. (Meralco) amid continuing controversies being faced by the power utility firm, a top company official said yesterday.

Oscar Lopez, chairman of the Lopez Group, told reporters during a forum sponsored by the Foreign Correspondents Association of the Philippines (FOCAP), said the sale option is still being explored by the company.

"If the price is right, we will (divest our shares). If there is a good offer, we will (sell)," he said

Meralco is 23 percent owned by a venture of Spain’s Union Fenosa and the Lopez family’s First Philippine Holdings Corp.

Union Fenosa holds roughly nine percent; government owns about 25 percent; while the rest is owned by the public and other investors.

Lopez noted that the power distribution firm’s operations have been severely affected by judicial issues such as decisions by the Supreme Court. "We continue to have a problem in courts."

The High Tribunal’s rulings have taken a huge toll on the country’s largest private power distributor’s finances. The Supreme Court two years ago ordered Meralco to refund some P30-billion worth of alleged "excess charges." The company is still paying the refund and is expected to complete the process in three years’ time.

The SC had also nullified the second generation rate adjustment mechanism (GRAM) application of Meralco which will also result to the refund of over P800 million to its consumers.

In 2005, Union Fenosa had expressed "strong disappointment" and was "getting restless" in its investment in Meralco and wanted to "sell out."

Aside from Meralco, Lopez said they continue to look for a buyer for its telecom subsidiary Bayan Telecommunications Inc. (BayanTel).

While the SC rulings had severely affected Meralco’s financial position, BayanTel suffered huge losses due to its dollar dominated loans. The company was forced to seek court action for corporate rehabilitation in 2003.

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