Privatization vs. price regulation and franchise
The National Transmission Corp. (Transco), a government corporation in charge of transmitting power produced from various power plants in the country to distribution utilities and electric companies, has been on privatization auction since 2003. And past attempts have been failures.
Recently, the Energy Regulatory Commission (ERC), another government agency that tells energy companies like Transco how much they can charge, how much they can earn, has given Transco lower-than-expected revenue ceiling. ERC set Transco's maximum allowable revenue for 2006-2010 at P192.2 billion (around $3.63 billion at P53/$), from P35.6 billion in 2006 to P41 billion in 2010. Whereas Transco applied for a revenue ceiling of P35 billion in 2006 to P97.5 billion in 2010. (source: BusinessWorld, June 21 '06)
Meanwhile, whoever wins the privatization bid for a 25-year concession will still have to obtain a congressional franchise to operate Transco (net income 2005, P16.2 billion). The 25-year contract has been valued by Sinclair Knight Merzas at $2.6 billion, and grid maintenance and upgrades for the next 10 years estimated at $2.5 billion.
Although there are interested bidders and buyers, and government says it wants to dispose of the company so it can get the money, winning bidders will encounter a number of traditional bureaucratic roadblocks.
First, the ERC. Why would a government agency tell you how much you can earn at the maximum, even if you put in a lot of modernization and productivity-enhancing tools and management processes (that require large sums of money)? Problem is, the ERC is mandated by the law that also mandates Transco privatization, to meddle in pricing and earnings of the privatized government power corporations.
Second, Congress. You may have won the bid by paying higher concession fee to the Department of Finance compared to your competitors, but what if Congress will give you a hard time to get a franchise, or worse, Congress will not give you a franchise, unless you give in to their demands, both official and under-the-table?
Third but less problematic, is the bureaucracy currently hired in the government-owned Transco. Many of them are fearful that they may not be hired by the new private owners, so they will put up a number of rationale and objections to kill, or at least postpone, privatization.
I think the lesser the risks that any of the 3 groups above plus other groups and concerns not mentioned here can possibly put up, the more bidders the government will attract, which means potentially higher revenues.
Recently, the Energy Regulatory Commission (ERC), another government agency that tells energy companies like Transco how much they can charge, how much they can earn, has given Transco lower-than-expected revenue ceiling. ERC set Transco's maximum allowable revenue for 2006-2010 at P192.2 billion (around $3.63 billion at P53/$), from P35.6 billion in 2006 to P41 billion in 2010. Whereas Transco applied for a revenue ceiling of P35 billion in 2006 to P97.5 billion in 2010. (source: BusinessWorld, June 21 '06)
Meanwhile, whoever wins the privatization bid for a 25-year concession will still have to obtain a congressional franchise to operate Transco (net income 2005, P16.2 billion). The 25-year contract has been valued by Sinclair Knight Merzas at $2.6 billion, and grid maintenance and upgrades for the next 10 years estimated at $2.5 billion.
Although there are interested bidders and buyers, and government says it wants to dispose of the company so it can get the money, winning bidders will encounter a number of traditional bureaucratic roadblocks.
First, the ERC. Why would a government agency tell you how much you can earn at the maximum, even if you put in a lot of modernization and productivity-enhancing tools and management processes (that require large sums of money)? Problem is, the ERC is mandated by the law that also mandates Transco privatization, to meddle in pricing and earnings of the privatized government power corporations.
Second, Congress. You may have won the bid by paying higher concession fee to the Department of Finance compared to your competitors, but what if Congress will give you a hard time to get a franchise, or worse, Congress will not give you a franchise, unless you give in to their demands, both official and under-the-table?
Third but less problematic, is the bureaucracy currently hired in the government-owned Transco. Many of them are fearful that they may not be hired by the new private owners, so they will put up a number of rationale and objections to kill, or at least postpone, privatization.
I think the lesser the risks that any of the 3 groups above plus other groups and concerns not mentioned here can possibly put up, the more bidders the government will attract, which means potentially higher revenues.
posted by Bienvenido Oplas Jr | 9:58 PM
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