I know they will never operate transmission assets contrary to the country's interests. So, I believe our Filipino engineers will never knowingly allow a "kill switch" from Beijing.
All-Filipino at the operating level
On the other hand, as I’ve said, I am not in a position to comment on the corporate governance of NGCP, as I am no longer privy to information on its shareholdings or board membership. If I were to judge the participation of the Chinese representatives in NGCP, I would say I have known them to be professionals and respectful of Filipino culture.
There was a time when Chinese engineers were involved at the operating level, but they have since returned to China. Today, NGCP, at least at the operating level, is being entirely run by Filipino engineers and professionals.
Project execution hurdles
NGCP, however, faces a real challenge in executing its transmission line projects. As I pointed out, delays in the approval of its projects are a significant factor contributing to implementation delays.
NGCP also faces a substantial challenge in addressing rights-of-way issues. Talking to landowners and local governments is a universal problem for all transmission companies worldwide.
The issue of "excessive profits" is a regulatory matter. I have pointed out that using the PBR and the wrong use of the CAPM can lead to this problem. PBR is a very complex methodology; currently, the detailed performance metrics, cost projections, and other inputs to the formula are unclear and non-transparent.
Another job for ERC
It is the ERC’s responsibility to help consumers understand what they are paying for. Based on the criticisms we hear from the public, ERC is failing in this one.
The use of the CAPM exacerbates this problem. While the CAPM is a favorite for many regulators around the world, it just does not fit the Philippine situation.
As a concept, it was proven inadequate when the Fama French 3-factor model was introduced in 1992. The information needed to calculate the CAPM is not available in the Philippines. So, the ERC has done this by getting "equivalent" numbers from other countries. Common sense will tell us that no two economies are the same.
In effect, the Philippine power sector relies on an arbitrary tool like the CAPM. We then put these arbitrary numbers into the PBR and voîla, we have a completely arbitrary number, a number that all electricity consumers will end up paying.
Wrong way to go
It behooves us to question who will benefit from the arbitrariness of the numbers. Does it help the utilities, or does it benefit the consumers?
In conclusion, while NGCP presents itself as a problem, the problem is a creation of the regulatory framework we put ourselves in.
As I have always said, we need to reboot our regulatory framework. And making the ERC immune from suits is undoubtedly the wrong way to go.
A power industry expert with over 40 years in experience as chief executive officer in firms ranging from banking, power, and advisory services.
