The National Power Corp. and Meralco, its main customer, both
need the services of a certified forensic accountant. He is one who goes beyond
the numbers enumerated in the balance sheets and profit and loss statements.
In the case of Napocor, only insiders know how much it pays
for imported coal and spare parts for its generating plants. For all we know,
the purchases are overpriced. And that contributes heavily to the mounting
losses of the state-owned power agency.
Simple business sense dictates that after all costs are
determined, Napocor should sell electricity to Meralco at a profit.
The price may be high but if that is what it takes to keep
Napocor going, it has to be done that way.
Our problem with Napocor is we are denied information on the
list of suppliers of coal and spare parts. I would guess it has a list of what
is generally known as "accredited suppliers." We do not have access to the names
of companies in the list.
We should start wondering why many large business
establishments do not have accredited suppliers. They buy from any supplier who
assures the best quality at the most reasonable price. And they make money. On
the other hand, Napocor charges high rates to Meralco but is so deeply in debt
that its obligations have had to be taken over by government to make
privatization attractive.
The order of President Arroyo to Napocor to reduce its rates
to Meralco by nearly half means mounting losses for Napocor. Privatization will
be extremely difficult to implement. Which fool of a businessman will buy a
company deep in debt and unable to make a profit? Anyway, privatization was
effectively abandoned with the creation of PSALM which has been disposing of the
generating plants of Napocor.
A forensic accountant might also be needed in the sales to
make sure the government gets the best deal and the buyer a reasonable chance to
make a profit.
The case of Meralco is nearly similar. It does not disclose
its purchases.
For example, which company buys the electric posts, the
transformers, the meters, etc. Is it Meralco? Or are they other companies owned
by the Lopezes? If they are, at what prices are these materials sold?
Transfer pricing is a common practice among big businesses.
There is nothing wrong with it for as long as the stockholders of the company
also benefit.
There is no reason for Meralco to have a separate purchasing
agency or a separate insurance agency. There is no reason for doing so if there
were intentions of selling the materials to Meralco at a huge profit. This
profit affects the finances of Meralco while the purchasing and insurance
agencies and their stockholders line their pockets thick.
The services of a forensic accountant would also disclose the
extent of Meralco’s losses resulting from what could be overpriced purchases
that benefit only a few, particularly those in management.
In fact, before President Arroyo plunged headlong into what
is easily interpreted as an attempt at confiscation, she should have demanded
that Meralco fully disclose its relationship with its suppliers. Ideally, that
relationship should be arms-length.
But we will never know whether there is such distance until
Meralco is forced to make full disclosure.
After all, this is a requirement of the Securities Act of all
listed companies.
If a common or separate forensic accountants are engaged for
both Napocor and Meralco, they should be able to determine who benefits from the
purchases. His familiarity with transfer pricing will tell him that Napocor is
being had by its own officers in the same way that while Meralco does not make
too much money or may even carry a loss, the stockholders of the purchasing and
insurance agencies are making oodles.
The plan to force Meralco to reduce its rates for the reason
that it will get cheaper electricity from Napocor is a political decision. Or it
may be a veiled blackmail.
It is unfortunate that President Arroyo decided to get
businessmen behind her cause of helping the poor with cheaper electricity. They
got the orders, and they will obey.
But how does one interpret this effort? I suspect that
President Arroyo is using business – big and small – to finance her war with
Meralco.
But there are no likely winners in this kind of war be cause
it runs counter to the norms of business practices. And to think that the
President is an economist by education. Unfortunately, she finds no difficulty
deciding between good economics and good politics for her personal benefit.
