January 01, 2014

Meralco gets partial payment reprieve

BusinessWorld reported that the Manila Electric Co (MER, Buy) has been granted a reprieve on its financial obligations with Philippine Electricity Market Corp (PEMC). This came after the Energy secretary summoned officials of the company, power generating firms and the PEMC to address MER’s predicament of not being able to pass through the increase in generation costs in light of a temporary restraining order by the Supreme Court.
He was quoted by the media as saying that MER will only pay the charges based on theP5.67/kWh November generation charge. This is pending the resolution of its rate hike application to pass on the higher generation charges.

Our take: While we believe that the company has enough cash to address its financial obligations, the reprieve should be a welcome development for MER as this will not unduly burden its cash flows.

More importantly, while the ongoing impasse on the rate hike highlights the regulatory risks that the industry is facing, it also shows the government’s resolve to find a solution that is fair to all stakeholders. With this development, the burden of not being able to pass through the higher power costs is now shared by the power generators as well. – WealthSec