Just Cause

It is a simple case to make. We are totally dependent on energy for our essential needs. Our stores and factories require electricity. Our airports, sea ports, and all sorts of transport terminals require power to operate. By any definition, legal or otherwise, any facility that provides such a service is a public utility, a vital installation of national interest for national security.

After good old Napocor (National Power Corp.) was privatized, an entity called the National Grid Corporation of the Philippines (NGCP) became the operator of our national electrical grid that transmits electricity from the source of power generation to the distribution utilities. Even if the name has the word “national” in it, it is purely a private corporation.

This private corporation is actually a concessionaire, much like any other similar business arrangements. A school or a jail owns a canteen and a concessionaire runs it. A mall owns a parking building and a parking company manages the operation.

Now, this private corporation is 60% owned by Filipinos and 40% owned by foreigners. In the case of the NGCP, it is owned by the Chinese. And it is not just any Chinese individual or company. It is owned by a government-owned company, the State Grid Corporation of China (SGCC). Just note the corporate name, it is a “state” grid of “China.” The SGCC serves as the technical partner in the NGCP as the Filipino owners do not have the experience or expertise to operate a national grid.

While 40% foreign ownership of utilities is allowed under the law, it means that the majority stockholder here — the 60% Filipino — is the controlling and presumably dominant owner that watches out for the best interests of the private company. This best interest is the maximization of profits and is expected of any private company.

A usual concern of the minority stockholder is how to secure their investment in a foreign land and to make a return on their capital. In the strategic view of a state company of China, the security lies in technically managing the transmission grid to make the Filipino partners entirely dependent on them for the highly complex aspects of the operations.

It also helps to keep the Filipino owners happy with consistent and good dividends year in and year out that in sum is now more than the concessionaire fee. It means the NGCP is profitable. Guess where its income is coming from?

The related problem is under-investment. In public utilities with consistently good margins, it can mean two things: one, the rates or fees are higher than necessary, or, two, under-invest so that the yields will be higher. It can be that these two are happening at the expense of optimization of the grid infrastructure that is necessary to power a developing economy like the Philippines, and at the expense of consumers especially the poor and the middle class who may otherwise use the savings for education and health.

As a concessionaire with a mandate given by law, is expected to comply with all the conditions. One requirement is to undertake an initial public offering (IPO) of 20% of its stock 10 years from 2009. The year 2019 is ending. The NGCP continues to cite pending matters to delay the public ownership of a portion of it as a “public” utility. This is a way to redistribute the profits from the private to the public. It is also to make a vital installation more transparent.

While it is a given the private companies exist to make money, does the same logic apply to the Chinese state company which owns a part but effectively runs the national electricity grid of another state — the Philippines — with which it has opposing territorial disputes?

The answer is no. The SGCC’s first and only interest is the government of China, being its owner.

If the NGCP says otherwise, the way to resolve it is relatively easy. The first step to investigating the grid is for policymakers and technical experts to do a site inspection. One can tell who actually calls the shots in the control room. The second step is to ask the Filipinos, who are presumably loyal to the flag and the Republic, to operate and shut down a least disruptive component of the grid. If it can be done, in the event of a switch-off at least the Filipino engineers know where to look.

An electrical grid is a terribly territorial business. It wholly runs within the national territory. It means that there is no need for any network connection overseas. There ought not be any industrial type or commercial speed internet link to China. This is the third step of the investigation.

There are other technical and management actions for sure. The governance course of action is to amend the law. No justification is necessary. Any country has the right to protect itself.