August 29, 2022

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ABS-TV5 Partnership, SMC rate hike petition, and Budget 2023

“Consolidation means more visibility, more content, and more accountability and this will be good for media consumers.” I wrote that in this column on Aug. 15 when the news on a planned joint venture of two broadcast networks was announced. ABS-CBN will acquire 35% of TV5, and Cignal TV will acquire 38.9% of Sky Cable.

BRIEF EVOLUTION OF ABS-CBN AND TV5 PARTNERSHIP
These four reports in BusinessWorld this month summarize the quick evolution of the planned deal:

“Pangilinan media group plans joint venture with ABS-CBN” (Aug. 5)

“ABS-CBN, TV5 sign landmark deal that includes SkyCable” (Aug. 11)

“ABS-CBN, TV5 partnership to face scrutiny — NTC” (Aug. 12)

“ABS-CBN, TV5 ‘pause’ partnership to face concerns” (Aug. 25)

Congress and the National Telecommunications Commission (NTC) quickly intervened in otherwise purely corporate affairs and deal-making. This is wrong. Here are five reasons why.

One, there is no merger and acquisition (M&A) that will happen, only a joint venture (JV) where content-rich ABS-CBN will have airspace via TV5 which has franchise to operate as TV network.

Two, there is no threat of a monopolistic position because the No. 1 TV station, GMA Network, Inc. (with gross revenues of P19.3 billion in 2020, and P22.4 billion in 2021) is not involved. On the contrary, there will be better competition with GMA because TV5 is still far out from the competition — it is not even in the Top 1,000 Corporations — while ABS-CBN has been weakened by three years of consecutive net losses, P8.6 billion in 2019, P11.9 billion in 2020 (see Table 1), and P5.7 billion in 2021.

Three, both Sky Cable and Cignal TV may be justified to have a JV because their combined net income is thin, P0.05 billion in 2018, P0.55 billion in 2019, P0.40 billion in 2020. Pooling of resources and a cutback in some expenses will help both companies optimize revenues for their shareholders and employees. Newcomer Converge ICT has 10 times the net income of these two firms combined in 2020.

Four, the NTC opposition to the JV is not valid because the NTC can continue its scrutiny of previous ABS-CBN violations that resulted in non-renewal of its franchise in 2020. It is not merging with TV5, it is not being acquired by TV5, it retains its corporate identity as ABS-CBN.

Five, Congress should focus on scrutinizing Budget 2023 of P5.268 trillion, and the revenues and borrowings needed to finance such huge spending, as the target approval of end-September is fast approaching before the House-approved budget is submitted to the Senate. Congress should focus there and not on corporate matters.

The partnership of these and other corporations should proceed with no or little intervention by Congress. There will be more competition in free (non-cable) TV, more content and information for the public, and more checks and balance as the “fourth estate” (which some politicians want to cripple to escape accountability).

SMC PETITION FOR POWER INCREASE
These two recent reports in BusinessWorld might send another chill down the spines of consumers in the Meralco franchise area:

“SMC power unit says losses hit P15B, seeks rate hike” (Aug. 2)

“SMC unit warns of power price surge starting Oct.” (Aug. 24)

San Miguel Corp. (SMC) has two power generation companies (gencos) — San Miguel Energy Corp. (SMEC), a coal plant in Sual, Pangasinan, and South Premiere Power Corp. (SPPC), a natural gas plant in Ilijan, Batangas — which it declared had incurred combined losses of P15 billion: P10 billion in 2021, and P5 billion in January-May 2022.

SMEC committed 330 MW and SPPC committed 670 MW, for a total of 1,000 MW, to Meralco from December 2019 to December 2029. SPPC has asked the Energy Regulatory Commission (ERC) for a rate increase from January to May 2022 of P0.80/kWh (from P4.30 to P5.10/kWh), and SMEC asked for a big increase of P4/kwh (from P4.30 to P8.30/kWh).

SMC issued notices of termination of their power supply agreements (PSAs) to Meralco, blaming the unexpected “change in circumstance,” especially the global surge of oil and coal prices. If the ERC will not give them the requested relief, the termination will be effective on Oct. 4 or five weeks from now.

SMC’s petition is understandable — but if granted by the ERC it can be dangerous. For two reasons.

One, it will set as a bad precedent that PSAs and contracts can be revised and amended depending on one’s corporate influence. Bidders can shrewdly offer a low price to ensure winning a supply contract and, when things go bad, lobby to change the contract. If granted by the ERC, they must also grant PSA revisions and rate hike adjustments of other gencos that will come to them for similar reasons.

Two, both SMEC and SPPC benefitted from previous low fuel prices, with combined net income of P15.75 billion in 2020, and yet there were no petitions to lower their contract prices. Other gencos of First Gen (EDC, FGPC), Aboitiz, even NPC were less lucky in 2020 (see Table 2).

So, both gencos were rewarded when fuel prices were low and they must be rewarded again via relief when fuel prices are high. Since SMC is a very influential conglomerate in the country, the ERC or the courts may likely grant their petition. If so, there are two possible compromises.

One, any change in existing contract rates must be based on marginal cost, not full recovery; and keep the relief to bare a minimum, just enough to continue operations and not close down.

Two, the gencos that are granted relief in contract amendment may be disqualified from participating in future competitive selection processes (CSP) as they have a track record of petitioning to change rules midway.

BUDGET 2023 AND HIGH INTEREST PAYMENT
The proposed budget for 2023 is huge — P5.27 trillion — but the good thing is that it is just a 4.9% increase over this year’s budget, which is 9.2% higher than 2021’s budget. Interest expenses remain high — from P300+ billion a year few years ago to P500+ billion a year in 2022 and 2023. It comprises 10-11% of the total budget.

Salaries, allowances, and bonuses for government personnel kept rising in 2020 and 2021 even when many workers and professionals lost their jobs and businesses during the two-year COVID-19 lockdowns. Personnel services including pensions will reach P1.6 trillion in 2023.

There is high inequality in the pensions of military and uniformed personnel (MUP) vs. civilian personnel. In 2014, the MUP pensions were 18 times larger than the pensions of civilians. This further rose to 22 times in 2016 and 2021, 41 times in 2022, and are projected to decline to 17 times in 2023 (see Table 3).

The Department of Budget and Management’s Rightsizing program for the various agencies will be important. Government size must taper down, giving relief to taxpayers. It is good that many of President Ferdinand Marcos, Jr.’s campaign pronouncements of many other subsidies are not being pushed through by the economic team.

 

Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers.

minimalgovernment@gmail.com