The patent mal-privatization of the transmission sector (Second of four parts)

By Ted Aldwin Ong

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.

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.

This was first published in https://tedaldwinong.wordpress.com/2023/03/20/the-patent-mal-privatization-of-the-transmission-sector/

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 from and editing by Maitet Diokno Pascual, CPII executive director.