current events, Scam / Scandal

Energy Blues: How Filipinos are bamboozled by energy institutions

When closed shop some years ago, my blog Reflections on the Bangsa Moro went with it. Years of blogging went for naught.

A couple of nights ago, I decided to look for some of my posts from that blog. I was hoping that some of my posts had been saved in the Internet. And I was not disappointed. Quite a number of my blogposts were saved, archived!

My posts on the Jun Lozada-ZTE NBN affair were saved! ALL my posts (11 of them) on the ZTE-NBN scandal were archived! This could not have been done randomly. Somebody really wanted to save these blogposts, thank God! I re-blogged them in my other blog.

And I found this post: MERALCO, NPC, ERC AGAINST THE FILIPINO CONSUMERS. It details how Meralco, its sister company Price Gas, and National Power Corporation (NPC) hoodwinked the Filipino people by over-charging them by more than 200% of electricity rates. And with the approval of the Energy Regulatory Commission (ERC). It is highway robbery!

And the people who spilled the beans were the Presidents of NPC and First Gas who claimed that what they were doing was legitimate and above-board.

Here is my blog of June 9, 2008. If they were doing that then, they must be still doing it now. Senate did not do anything to stop such criminal activities.

reflections blog title 2


June 9, 2008

MERALCO, NPC, ERC AGAINST THE FILIPINO CONSUMERS | # | Current eventsSocio-Political — jamalashley @ 1:09 am

When the Arroyo administration started accusing MERALCO of shortchanging and meralcoovercharging the Filipino people, I found it quite amusing. MERALCO has been doing that for ages with nary a complaint from the government because it (or at least its energy company, NPC and its energy department, DOE) is colluding with MERALCO. It was obvious that the administration merely wants to have a deal with the Lopezes so that the Lopez media network would go easy on the administration.


Some weeks ago, I caught on TV a congressional hearing on this matter. Congress invited NPC head Cyril Del Callar and Richard Tantoco of First Gas, among others. I was astounded by what I heard.

First Gas admitted several times the following:

            From July to Dec 2000, First Gas was paid P 3 Billion pesos by MERALCO but delivered only TWENTY PERCENT (20%) of that amount. That is, First Gas delivered only 20 % of Meralco’s order but got paid in full (100 %).

In 2001, First Gas was paid P 7.9 Billion pesos by MERALCO but delivered only P 840 Million worth. First Gas delivered only 12% of the quantity ordered by Meralco but got paid in full.

In 2002, Meralco paid P7.4 Billion for gas delivered that was worth only half that much.


First Gas and Meralco claim that this is all legal and proper because of the TAKE-OR-PAY clause in their contract.


Take-or-pay clauses are there to insure that the buyer TAKES the amount it had specified. Otherwise, they would pay a penalty.

But in the Meralco-First Gas scenario, the Buyer (MERALCO) TOOK all the seller couldfirst gas deliver. Therefore, there is NO Penalty. If somebody needs to pay a penalty, it is the SELLER (FIRST GAS) who should pay for FAILING TO DELIVER. This is called Deliver-or-Pay. There is hardly any deliver-or-pay clause included in gas contracts because it very rarely happens. If it does happen, it probably could be blamed on force majeure.

The take-or-pay clause is necessary in the contract between the gas field developer (in this case, Shell) and the buyers because of the huge project cost of developing the Malampaya-Camago (M-C) field.

The take-or-pay clause is unnecessary in a contract between First Gas, a power plant and Meralco, a distributor of electricity. First, they are sister companies. In fact, the right to half of the gas production of the M-C field was first given to MERALCO since, at that time, First Gas did not exist yet.

It is but natural to assume that the sister companies would always see to it that their operations are complementary. One would produce what the other would take. In this case, they decided that one would NOT produce yet the other would pay for the gas that was NOT produced. Of course, such payments would be later billed to the poor end-users.


The fact that Meralco and First Gas are owned by the same people means that both companies are merely making more money out of the Filipino people. By claiming convoluted definitions of take-or-pay clauses, Meralco and First Gas earn HUGE HUGE money by SELLING non-existent gas which is eventually paid by the CONSUMERS.


Because MERALCO could buy only portions of what they needed from First Gas, they NPCthen bought the remaining quantity (80 % in 2000, 88% in 2001 and 50 % in 2002) from NATIONAL POWER CORPORATION.  This certainly gave NPC a big boost in their revenues, which usually translates to much bigger bonuses to the extremely highly-paid NPC officers.


According to Meralco, NPC or TRANSCO dispatched to them only a portion of what they ordered from First Gas. Thus, it was NPC/TRANSCO who was to blame, and not Meralco / First Gas.

Del Callar defended the government by emphatically saying that according to the natural gas contracts, it was very clearly stated that natural gas from Malampaya-Camago would become available only in 2002. In other words, the pipeline was not finished until that time. Therefore, it was not NPC’s fault if Meralco decided to buy gas as early as 2000.

This is really a dubious defense. If the distribution network was not yet operational in 2000 to 2002, then why did NPC not notify Meralco? Instead, NPC made money by selling its own gas to Meralco.

And why did the Department of Energy not do anything about it? And what about the Energy Regulation Commission? ERC would have easily seen that the electricity price ercwas unreasonably increased because of the payment of Meralco to First Gas of gas that was NOT delivered but must be nonetheless paid for allegedly because of the take-or-pay clause.

There is only one conclusion for all of these – MERALCO, FIRST GAS, NPC, DOE and ERC colluded against the Filipino people. So what else is new?


It was also revealed in the Congressional hearing that the cost of gas was INDEXED TO OIL. Now why would any right-thinking natural gas buyer agree to that? No one, of course. Unless FIRST GAS and MERALCO, who are SISTER COMPANIES, want to put one over the Filipino consumers again. Good God, such greed!

In the first place, I doubt very much if First Gas agreed to buy its natural gas indexed to oil.

During the natural gas negotiations among NPC, Meralco, Shell, OXY and DOE, I was the Philippine Team Leader (composed of people from DOE, PNOC and NPC) who went to Hawaii to study and create the Gas Price computer models. Our Final Report was submitted to President Ramos. This became the basis for the natural gas negotiations.

And in our computer models, we certainly DID NOT index the gas price to oil. Nobody in his right mind would do that, knowing the volatility of the price of oil.

In fact, our suggested price was only about US$ 3.50 per million cubic feet. But for some reasons, I later read that First Gas agreed to pay more than US$ 5 per million cubic feet.


When the natural gas discovery from the Malampaya-Camago (M-C) fields were confirmed, the Department of Energy, without any bidding whatsoever, declared that half of the natural gas production would be sold to NPC and the other half to MERALCO. MERALCO, a private company, was so lucky to be given the gas on a silver platter, as it were, without even having any concrete plans on how to utilize the gas.

Not a single congressman, senator or politician or media organizations / personalities complained. I, at least, managed to insert some sarcastic remarks in my reports to the Energy Secretary.

Other companies which gave superb proposals on how to use the Malampaya-Camago natural gas were simply turned down. One proposal was to convert the Bataan Nuclear plant into a Gas-powered plant. The proposal included payments of the nuclear debts, buying the engines, etc.

While other proposals to use the natural gas included rehabilitation of old or unused power plants like the Bataan nuclear power plant, payment for old equipment and even paying the debts, the Department of Energy preferred to give the right to purchase and utilize the M-C natural gas to MERALCO whose only plan was to put up a sister company, First Gas, who would eventually sell the gas to it (MERALCO) which would be paid in full even if only 12% of the quantity ordered was delivered.


Sometime in 1996 or 1997, I reported to the Energy Secretary that the Philippines’ electricity rates are the second-highest in Asia, next only to Japan.  I expected the Secretary to form teams to study the causes and perhaps give recommendations. Instead, I saw him on TV exclaiming to all and sundry that our electricity rates are next only to Japan in Asia. He said it as if it were a Badge of Honor! And again, not a pipsqueak from anyone.

As the Filipinos are wont to say, “only in the Philippines”!!!


See related post:
Knowledge Society – Philippine Energy sector


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