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MANILA Electric Co. (Meralco), the Philippines’ biggest power distributor, said it expects sales to suffer in the last three months of this year, as its customers adjust to costlier electricity arising from the implementation of the expanded value-added tax.
The new tax measure removes the VAT-exempt status of power and oil products.
In a recent roundtable with The Manila Times editorial staff, Jesus Francisco, Meralco president, said the impending increase in power rates due to the imposition of the 10-percent VAT may pull down energy consumption, especially in the residential areas.
The electric utility has 4.2 million customers in its franchise area, which covers Metro Manila and surrounding areas. About 90 percent of its clientele comprise residential end-users, whose electricity usage accounted for about a third of Meralco’s sales in the first six months of the year.
Ivanna de la Peña, Meralco vice president for utility economics, said preliminary estimates show sales in the first nine months of this year had been flat, with the company managing to post a mere 1-percent rise in the third quarter alone.
“The increase is about 1 percent but the [Meralco] board has yet to approve the figure,” de la Peña said. This represented a slight improvement from the 0.8-percent up tick in the first six months of the year.
The Lopez-led electric utility earlier announced that the removal of its VAT-exempt status would translate to a P0.60 per kilowatt-hour increase in power tariffs. This increase would already include the removal of the 2-percent franchise tax, a mitigating measure the government inserted into the law to minimize the inflationary impact of the expanded VAT.
Besides the new tax measure, the removal of an interclass subsidy scheme, which requires heavy electricity users to bear a bigger part of the cost of power, would also raise electric bills, thus leading to a dip in sales.
Meralco said residential customers may have to incur an additional P0.15 per kilowatt-hour adjustment in their monthly bills due to the removal of this cross-subsidy scheme.
“Residential end-users may really feel the effect [of the VAT and the removal of the subsidy scheme],” Francisco said.
In November Meralco suffered a 4-percent dip in sales due to a price adjustment implemented by the National Power Corp., which was subsequently passed on to the power distributor.
The possible drop in energy consumption and sales comes at a time when Meralco has yet to complete a court-ordered refund of its customers. The Supreme Court earlier ruled that the Lopez-led utility shouldn’t have passed on to its customers the cost of paying corporate income taxes.
Rise in pilferage feared
Francisco said costlier power may also lead to the rising incidence of pilferage, as more end-users avoid having to pay the more expensive electricity.
Power pilferage forms part of Meralco’s systems loss, which it also bills its customers.
System loss rose to 12.37 percent in the second quarter this year from 11.57 percent in the same period last year.
Francisco said the commercial and industrial end-users’ electricity consumption would remain stable, since the decrease in their power bills brought about by the removal of the cross subsidy may offset the VAT.
“Energy sales and consumption is really hard to predict but there is really no reason for the industrial and commercial customers to use less [power],” he said.
Francisco said the growing demand in the commercial and industrial sectors will sustain the growth in Meralco’s energy sales and consumption.
In the second quarter, sales to the residential and industrial sectors dipped by 0.6 percent and 0.68 percent, respectively, while electricity sold to the commercial sector rose 5.19 percent.
--With a report from Niel V. Mugas
By Donnabelle L. Gatdula
The Philippine Star
The Energy Regulatory Commission (ERC) will finally intervene in an effort to put an end to the unresolved transition supply contract (TSC) between the National Power Corp. (Napocor) and the Manila Electric Co. (Meralco).
"They (Napocor and Meralco) have submitted to the ERC’s jurisdiction because they are reluctant to sign a TSC. Whatever the ERC’s decision, they will follow," ERC chairman Rodolfo Albano Jr. said.
Albano said he is optimistic that the ERC’s intervention will enable the two parties involved to enter into a TSC.
He said they hope to come up with a resolution before the end of the year even as the commission has yet to receive all supporting documents.
Meralco is Napocor’s biggest client. The country’s largest private power distribution firm used to source about 85 percent of its power requirement from Napocor by virtue of a long-term supply contract which expired in 2004. Up to now, the two firms have yet to sign another supply contract.
Lotilla earlier said he expects the Napocor and Power Sector Assets and Liabilities Management Corp. (PSALM) to complete negotiations on 70 percent or more of the power supply contracts between Napocor and distribution utilities (DUs) by September this year.
Napocor is required to submit a TSC with ERC under the Electric Power Industry Reform Act (EPIRA).
The TSC is designed to allow the new buyers of the generation assets of Napocor to have a ready market once it is privatized. Most of the potential investors of Napocor’s privatization have indicated that they would prefer to buy a generation company with TSC.
Under the EPIRA, the TSCs shall be assignable to the Napocor successor generation companies.
The power bill called for Napocor to file with the ERC for approval TSCs duly negotiated with the distribution utilities including Meralco within six months from the effectivity of the Act or in December 2001.
The ERC did not require Napocor and Meralco then to enter into a TSC since they had a pending application for a settlement agreement under a 10-year supply contract which expired last December 2004.
Up to now, the ERC has yet to approve the proposed settlement agreed upon by the two power firms. Once effected, the agreement will result in an estimated reduction in the electricity rates of Meralco customers by about 12 centavos per kilowatthour (kWh).
Meralco is now sourcing bulk of its power requirement from its independent power producers (IPPs) which resulted in a 37.5 centavo rate reduction in the electricity being paid in Meralco’s franchise areas.
POWER distributor Manila Electric Co (Meralco) reported a net loss of 316.72 million pesos in the third quarter to September, reversing a profit of 832 million in the same period last year, as it continued to provide for probable losses in case of an adverse Supreme Court ruling against its petition to unbundle its rate structure.
Without the provisions totaling 1.63 billion pesos, the company said it would have a posted a net profit of 792 million pesos in the July-September period.
Operating revenues in the third quarter rose 22.1 percent to 44.62 billion pesos on the back of a 1.06 percent rise in electricity sales to 6,460 gigawatthours. Operating expenses increased 25.7 percent to 42.98 billion pesos due to higher purchased power costs.
Meralco is the Philippines' largest electricity distributor, with a franchise servicing four million customers in metropolitan Manila and nearby provinces.
Finance Secretary Margarito Teves said yesterday the government plans to sell its shareholdings in power distributor Manila Electric Co. and food and beverage conglomerate San Miguel Corp. next year as part of a broader effort to raise government revenues and drastically reduce its deficit.
"The intention is there, but it is something that we would rather not go into detail at this point," Teves told a press conference.
He said that while the divestment will likely take place next year, thorough studies have yet to be made.
The national government owns 10 percent of Meralco. However, together with the holdings of government financial institutions, its stake totals 25 percent and it is Meralco’s biggest shareholder.
It also owns about 41 percent of San Miguel, consisting of shares held by the Presidential Commission on Good Government and two state pension funds. The entire stake is valued at roughly $2 billion, according to earlier reports.
After the success of the R8-billion Philippine National Bank privatization the government is now preparing the ground works for other big-ticket asset sale including blocks in Meralco and San Miguel.
In the meantime the privatization of National Power Corp. is a complicated and long-delayed plan. "Napocor is not a purely privatization exercise. It is a different breed," Energy Secretary Raphael Lotilla said yesterday.
Teves said earlier the sale of state assets would fatten up government coffers, cash flow the state badly needs to correct its fiscal problems.
The Do is still reviewing government holdings managed by the Presidential Commission on Good Government and to find out what can be sold as quickly as possible. PCGG has a major block in San Miguel.
‘We have to be practical and dispose only what we can sell. There are many government assets that can be sold but we have to prioritize," DoF Undersecre-tary Gabriel Singson Jr.
For the year the Do’s P500 million privatization target has been exceeded, now at R2 billion after PNB and other shares. By December they are hoping to get an R500 million more or a total of R2.5 bilion for the year.
If the holdings of govt on Meralco is around 40% then it probably would generate higher interest.
El Kapitan did not buy it at a cheap price. In fact, El Kapitan matched the highest price bid by UnionBank.
M sure government will set a flooring price.
The point m driving at is interest will be higher if the stakes is bigger.
Ginawang stooge ni el kapitan si union bank so that the bid will not fail for a fee.
Erik de la Cruz
ATR-Kim Eng Securities Inc said it has lowered its net loss estimate for Manila Electric Co (Meralco) for 2005 to 151 million pesos from 1.47 billion pesos, after the power distributor posted a lower-than-expected net loss for the third quarter to September.
Meralco reported on Oct 26 a net loss of 316.72 million pesos for the third quarter, reversing the year-earlier profit of 832 million pesos, because of continuing provisions for probable losses should the Supreme Court rule against its petition to modify its rate structure, which means higher tariffs.
ATR-Kim Eng analyst Laura Dy-Liacco said Meralco's operations and maintenance costs, "under-recoveries" in purchased power costs and system losses were all lower than expected in the third quarter.
For the first nine months, Meralco's net loss was 243.13 million pesos, compared to a net profit of 2.25 billion pesos in the same period last year.
Dy-Liacco still sees a recovery for Meralco in 2006, but she has reduced her net profit estimate for the company to 2.47 billion pesos from 2.57 billion pesos, assuming a lower volume growth of 3.6 percent instead of 5.5 percent.
The earnings forecast for next year also assumes favorable decisions on its rate hike petitions, including one pending with the Energy Regulatory Commission.
By Donnabelle L. Gatdula
The Philippine Star
The Manila Electric Co. (Meralco) will start charging the 10-percent value-added tax (VAT) in its December billings to its customers.
Meralco VAT implementation task force chairman Anthony Rosete said customers whose 30-day billing cycles start on Nov. 1 and end on Dec. 1 will be billed for electric consumption during such period, plus the VAT thereon in their December bills.
The new tax measure took effect last Nov. 1.
Earlier, Meralco estimated that the impact of the expanded VAT law on the electricity rate of its customers will amount to an average increase of 58 centavos per kilowatthour.
But customers whose billing cycles start after Nov. 1 and end 30 days after in December will be billed in their December bills for: electric consumption plus the VAT thereon during the billing cycle; and the VAT on consumption for the period from Nov. 1 to the start of the billing cycle less the two percent national franchise tax paid during the same period.
To illustrate, customers with billing cycles from Nov. 15 to Dec. 15 will be billed in their December bills for electric consumption during such period plus the VAT, as well as the VAT for consumption from Nov. 1 less the two percent national franchise tax paid for the period.
The backbilling of VAT in the December bills is unavoidable for some customers due to their billing cycles and the fact that customers are billed only once a month and not on a daily basis.
Rosete said Meralco would comply with the implementing guidelines issued by the Bureau of Internal Revenue and the Energy Regulatory Commission (ERC), after a few clarifications on certain provisions.
The Meralco official reiterated that the VAT is revenue neutral to Meralco and that all VAT collections will accrue to the government.
"The VAT component on the charges to be reflected in the Meralco bill is only a pass-through charge. Hence, Meralco only serves as a collecting agent of the government for the collection of the VAT," he said.
"We would like to assure our customers that their electric bills will clearly indicate the VAT for each component of the bill subject to the value added tax," he added. "The ERC bill format shows how the VAT will be reflected in the bill to be given to each customer."
Meralco’s statement came after the ERC released last Wednesday the guidelines for the VAT implementation in the power sector.
Based on its estimates, the ERC said the impact of 10-percent VAT on power will only be at 6.6 percent to seven percent due to several mitigating measures implemented by the government such as the removal of the two percent franchise tax.
JP MORGAN said it has substantially reduced its net loss forecasts for power distributor Manila Electric Co (Meralco) for this year and the next due to lower costs.
Meralco has been setting aside hefty provisions for probable losses in the event that the Supreme Court rules against the company's petition to restructure its rate system.
Yeah, I saw the JP Morgan report. MER and MERB may be worth a second look - due to improving prospects. Even if only half of the requested rate hike is granted by the ERC, this stock will fly. Watch out for any accumulation of this stock as this may give a hint on whether the rate hike will granted or not. I believe the hearing just ended - either today or yesterday - and is up for a decision.
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