Meralco’s troubles not over yet despite Lopezes' 'victory'

MANILA, Philippines - The Lopez family on Tuesday foiled a bid by the head of a state pension fund to take over Manila Electric Co. (Meralco), ignoring a last-minute order from regulators to stop the firm’s annual stockholders’ meeting. Meralco’s troubles, however, remain far from over as Government Service Insurance System (GSIS) chief Winston F. Garcia said he wanted company officials punished for setting aside a Securities and Exchange Commission (SEC) cease and desist order. The votes for shareholders’ board choices were still being counted as of press time but Lopez nominees were widely expected to return to the board. The firm’s share prices were unchanged Tuesday, closing at P63. Meralco officials questioned the SEC order, which would have allowed the corporate regulator to supervise the election for the 11-man board and set aside for scrutiny proxy votes in favor of the Lopezes. The board declared a recess to discuss the SEC directive but resumed the meeting shortly before noon. Meralco assistant corporate secretary Anthony V. Rosete said the order was void as only one SEC commissioner, Jesus Enrique G. Martinez, had signed. The document also did not have a date, docket number, and the agency’s seal. Mr. Garcia, scion of the powerful Cebu political family that is aligned with the President, was jeered throughout and left the stockholders’ meeting in a huff for a press conference at the nearby Crowne Plaza Hotel, but not without first casting his vote. The takeover bid is widely perceived as the Arroyo administration’s way of getting back at the Lopezes, whose ABS-CBN television network is highly critical of the Palace. Arroyo allies insist only goal was to reduce the cost of electricity, the second highest in Asia. Oscar M. Lopez, the Lopez patriarch, called the SEC order a "low blow". While publicly conceding the fight to the Lopezes a day earlier, the GSIS, it turned out, had filed a complaint with the SEC on Monday, claiming some of the proxies solicited by Meralco may have been "fake." A GSIS statement Tuesday pointed out that 86.8% of stockholders were at the meeting when only 71-75% had been represented in the past. Mr. Garcia told reporters he believed a government takeover was possible as the GSIS and other government shareholders, which he said collectively hold a 35% stake, had their own proxies. The Lopezes own 33.47% of Meralco, whose four million customers account for 70% of the country’s power consumption. Per Meralco’s reckoning, the Lopez group headed by First Philippine Holdings Corp. has 33.47% while government financial institutions own 33.32%. Other shareholders hold 34.21%. The government stake is broken down as follows, according to Meralco: GSIS, 22.05%; Social Security System, 5.52%; Land Bank of the Philippines, 4.41%; Philippine Health Insurance Corp., 0.17%; and the Home Development Mutual Fund or Pag-IBIG, 0.17%. Mr. Garcia said the Meralco board could be held in contempt for defying an SEC order, which he claimed had declared some proxies "illegal." "[The] management-solicited proxies are illegal. We requested [accounting firm SGV & Co.] not to tally the votes declared illegal by the SEC. [And if they will be counted], we will have SEC declare these votes as null and void," he told a press briefing. Asked how many the "illegal" proxies were, the GSIS chief said "I do not know." Mr. Rosete, the corporate secretary, himself was the subject of the GSIS complaint and the SEC order, with the pension fund opposed to his appointment as he is an in-house Meralco counsel. The appointed secretary, retired justice Jose C. Vitug, quit last week, saying he had disagreements with Mr. Garcia. The SEC order, served by compliance chief Hubert B. Guevara, said Mr. Rosete should not honor proxies in favor of Meralco Chairman Manuel "Manolo" M. Lopez, president Jesus P. Francisco, and directors Felipe B. Alfonso, Christian S. Monsod, as well as Elpidio L. Ibañez and Francis Giles B. Puno of the Lopezes’ First Philippine Holdings "or any officer representing Meralco management, that have in any way been challenged, protested or objected to at the validation proceedings." SEC secretary Gerard M. Lukban, in a telephone interview, said the cease and desist order was pursuant to Section 5.1 of Republic Act 8799 or the Securities Regulation Code (SRC). The provision states that the commission has the power to issue such order "to prevent fraud or injury to the public and such other measures necessary to carry out the Commission’s role as regulator." The SEC is questioning the validity of the proxies gathered by Mr. Rosete, he said. "On what authority was he acting on?," Mr. Lukban said. He said the SEC received Mr. Garcia’s petition at 10 a.m. Monday after which the commission en banc, only composed of Mr. Martinez, Raul J. Palabrica, and Thaddeus E. Venturanza, met. SEC chief Fe B. Barin is currently abroad while Commissioner Juanita E. Cueto is on medical leave. "Our actions are provided by the SRC so probably the lawyers of the parties have already studied that and they could see what our next actions could be," Mr. Lukban said. He said Meralco would be fined for defying a valid order but added that the parties also had the option to file lawsuits. Aside from Messrs. Lopez, Francisco, Alfonso, and Monsod, the other management nominees were Peter D. Garrucho, Jr. and Cesar E.A. Virata. The government nominees, meanwhile, were Mr. Garcia, GSIS Chairman Bernardino R. Abes, former Pangasinan congressman Generoso D.C. Tulagan, Export and Industry Bank corporate secretary Daisy P. Arce, businessman Eusebio H. Tanco, and Jeremy Z. Parulan, director of Philippine National Construction Corp. Nominees for independent directors were Vicente L. Panlilio and former chief justice Artemio V. Panganiban. Malacañang Tuesday said it would not intervene in the dispute but Executive Secretary Eduardo R. Ermita said the Meralco board may be sanctioned. "I suppose the [Meralco] board is answerable to the SEC if there is a legitimate cease and desist order.," he said. He reiterated that the government was only after lowering power rates regardless of who is Meralco’s owner. "There are regulatory bodies, it is within their mandate to do such things. What is important is everything is done through the proper procedures and that a resolution be reached to bring down power rates," Mr. Ermita said. The GSIS chief told reporters he had begun scouting for a new Meralco management that would push for the reduction of electricity costs by getting 65% of supply from National Power Corp. and only 35% from independent power producers. Currently, Lopez-owned power plants corner 55% of Meralco power. The Lopezes have been accused by the GSIS and Arroyo allies of self-dealing although cross-ownership in the power sector is allowed by law. The proposal would mean a reduction of up to P2 per kilowatt hour in generation charges, Mr. Garcia said. - from reports by Ava Kashima K. Austria/Business