(First of two parts)

In the usually placid boardroom of Manila Electric Co. (Meralco), the country's biggest power distributor controlled by the Lopez family, the entry of brash and aggressive Winston Garcia, a new member of the board, was disconcerting.

Boardroom meetings were usually cordial and members were cozy with each other. Enter Garcia, whose skewering questions on corporate governance stretched an April meeting up to almost four hours. With his table banging and forceful voice, he stresses his points—and upsets others.

Garcia is the president and general manager of pension fund Government Service Insurance System (GSIS), a cash-rich government corporation, which increased its stake in Meralco early this year. The Lopez family is the legacy owner of Meralco.

Personality differences between the two shareholders, each currently controlling about one-third of Meralco, have since sparked a public spat amid the declining price of Meralco's listed shares because of worries on its political risks.

These public exchanges, moreover, have led to discussions on issues ranging from why electricity rates in the country are the second most expensive in the region, next to Japan, to the specter of a government takeover.

Unlike most boardroom dramas, Meralco's is imbued with public interest. It has triggered a public discussion not only on Meralco's corporate issues, but also on what else needs to be done in both policy and implementation of reforms in the energy sector.

As the drama unfolds, the question remains: will all this trigger reforms that will benefit consumers? 

Board changes

In interviews with abs-cbnnews.com/Newsbreak, Garcia said that by forcing Meralco management to be accountable for questionable transactions or improve company practices, which can be made more efficient, then Meralco's earnings could increase and dividends paid out to shareholders more often.

But Garcia's motives have been a puzzle. Meralco shareholders and supporters view Garcia's high handedness as an effort by the government to harass the Lopez family who is into highly regulated industries such as power, telecommunications and, toll roads, since its media outlet, ABS-CBN, is perceived to be critical of the current administration. (Disclosure: This Web site, abs-cbnNEWS.com, is run by ABS-CBN Interactive, a company owned by the Lopezes.)

Some energy sector observers perceive Garcia as an "attack dog" unleashed by the current administration, but Garcia continues to hammer his message that he only wants value for the billions that GSIS has invested in Meralco.

He advocates transparency and good governance, which he said could be had through a change in management and not by controlling Meralco. At the same time, Garcia has been making moves to change some members in the Meralco board.

In the lead up to the annual stockholders meeting on May 27, which will elect its board, two independent directors have already quit. In early May, Garcia had separate dinners with Meralco independent directors Washington Sycip and Federico Puno, a former National Power Corporation head. Immediately after, both declined their nomination to the board.

Garcia declined to comment when asked what were discussed in these meetings that led to two directors, said to be sympathetic to the Lopezes, out of the board. Instead, he said he describes himself as an impatient man: " I immediately go for the jugular."

Garcia said he was informed that former Supreme Court Chief Justice Artemio Panganiban has been nominated to take over one of the vacated seats. "He (Panganiban) is a decent man," Garcia said.

We asked Panganiban to comment and he confirmed the nomination. He said that part of his advocacy as a jurist is to represent the underserved and marginalized. Panganiban is also an independent director of First Philippine Holdings Co., the Lopez holding company and a Meralco shareholder.

Hugo Gutierrez?

Another casualty is the corporate secretary, Camilo Quiazon, former Supreme Court associate justice and lawyer of the Lopez family, who tendered his resignation. Those in the know said Quiazon couldn't take the heat from Garcia anymore.

Besides the verbal bashing during board meetings, in March and April, Garcia sent at least 22 letters to Meralco—some directed to Quiazon—to demand documents and responses to his queries on Meralco's various transactions. At least three of these letters were addressed to former director Sycip and the company he founded, SGV&Co, which also audits Meralco.

Last April 28, during a 3.5-hour board meeting, Garcia opposed the nomination of Monico Jacob to replace Quiazon as corporate secretary. Jacob was once chairman of energy-related companies, Philippine National Oil Company and Petron.

Again, Garcia cited an administrative lapse of management: "They (management) did not even furnish the (board) members a copy of his (Jacob) resume. They (management) are so used to having their way and the board just allows it. I will not tolerate that."

A special board meeting is set for May 15 to elect a new corporate secretary. Garcia said he is batting for former Supreme Court justice Hugo Gutierrez.

In the book, "Getting A Dial Tone: Telecommunications Liberalization in Malaysia and the Philippines," Gutierrez's 1992 resignation from the high court was described as the "first concrete evidence of corruption in the judiciary." Gutierrez wrote a decision favoring giant Philippine Long Distance Telephone (PLDT) over competitor Eastern Telecom. A professor and language expert from Columbia University testified that the decision penned by Gutierrez was actually drafted by PLDT's lawyer.

Garcia, however, described Gutierrez as a "legal luminary" and "very professional."

How it began

What started the rift between Garcia and the Meralco's other shareholders and current management was actually a simple issue: Garcia wanted to receive an advance copy of the audited financial statements of Meralco days before the board was to convene on Mach 17 to approve them. Several phone calls and letters between Garcia and Meralco management yielded nothing.

Garcia said he sits on the board of other companies where he receives a formal copy of the agenda and documents, such as financial statements, a week or two before the meetings, so he could study them. But in the case of Meralco, he said he received the documents on the day of the meeting itself. "How can I study the financial statements properly if I receive it just minutes before we approve it?" he told abs-cbnnews.com/Newsbreak.

Getting documents from Meralco on time became a recurring irritation to Garcia. For example, Meralco board meetings fall on Mondays, and since the meetings' agenda were usually handed out the Saturday before, Garcia said he has no time to study the issues since he goes home to Cebu on weekends. "They (Meralco management) say it's been their practice. But that is not acceptable," he said.

Those intimately familiar with the board goings on say the friction between the two all boils down to style—well, Garcia's brash style, that is. Garcia is perceived as "arrogant," "brat-like," "unprofessional," and "seeking importance." All of these are new to the Meralco old-timers with established work pace and practices already.

Dinners and letters

Nonetheless, there have been efforts by third parties to patch the rift between the Lopez family and Garcia. But two dinners between Meralco chairman, Manolo Lopez, and Garcia didn't work either. They didn't warm up to each other, and in fact, exacerbated the already brewing tension.

Garcia said that he reiterated to Manolo Lopez that his letters to management to get copies of Meralco transactions remained unheeded. A few days after one of the meetings with the Lopez family member, Garcia said Meralco management imposed conditions, like asking GSIS's five lawyers who went to Meralco office, to sign confidentiality letters before they could pore over the supply contracts between Meralco and the generating plants of Lopez holding company and Meralco shareholder First Philippine Holdings Corp. (FPHC).

In the letters of Meralco management to Garcia dated March 25 and 27, 2008, Garcia was told that he could be given a personal briefing about the details of supply contracts, but could not bring home copies of the documents. However, the GSIS lawyers, since "they are strangers to the transaction," need to sign a confidentiality agreement first, management wrote. This was because of "confidentiality and security reasons… especially now that the [energy sector] is undergoing deregulation."

In a radio interview, Christian Monsod, a Meralco board member, explained that while these contracts are open for all their 80,000 shareholders to scrutinize, Meralco needs to follow certain procedures to ensure order.

This peeved Garcia. "I am a major shareholder of this company (Meralco), but why am I not given the courtesy due to the institution I am representing?"

On its own, GSIS has a 22 percent stake in Meralco, but the government has an aggregate of about 35 percent stake to include the shares of Landbank, Philhealth and Pag-Ibig Fund. The Lopez's FPHC has 33.4 percent.

"I have to remind them (Lopez) that this is not their company. This is our company," Garcia said.

No takeover

In another dinner meeting with a Lopez family member, this time with Federico Lopez, son of family leader and FPHC chairman, Oscar Lopez, the brother of Meralco's Manolo Lopez, the mood turned better.

Federico told abs-cbnnews.com/Newsbreak that he listened to the concerns of Garcia and immediately sent copies of the supply contracts to Garcia afterwards.

Garcia described Federico as "level-headed." Thus, when Oscar Lopez told reporters on the sideline of a business chambers meeting last May 8 that the Lopez family is willing to sell its stake in Meralco, Garcia said he sent word to Oscar Lopez that "he is willing to talk."

He stressed however, that he has no intention to buy Lopez's stake and eventually control Meralco.

He hints that he prefers dealing with this branch of the family. He said he is more open to discussions with Oscar and Federico. "I find them more down-to-earth to talk to," he said to abs-cbnnews.com/Newsbreak an hour after Oscar made the announcement about selling their shares in Meralco.

Supply contracts

He puts the blame on management for stonewalling him when he tried to access documents regarding a long list of Meralco transactions, including those with other Lopez companies

He claims that these transactions, some of which may be "self-dealing," cost Meralco some P55 billion a year so he wants to scrutinize them. Among the transactions that he has been asking Meralco management for more documents and information on is Republic Surety Insurance Company, which takes care of the insurance needs of Meralco.

"This is a Bahamas-based insurance company. My friends in the insurance business told me that this company is charging a lot. Meralco management does not want to give me documents about this company because they say I'm also in the insurance business. But if we can source insurance cheaper that way, what's wrong with it?"

Sources from Meralco, however, said that whatever explanation they give to Garcia fell on deaf ears since they think Garcia is out to "witch hunt."

The focus of Garcia's scrutiny, however, has been on the supply contracts between Meralco and FPHC subsidiary, First Generation's two power plants in Batangas, which process natural gas sourced from the Malampaya offshore gas platform, into electricity. The supply contracts cover a commercial agreement where the electricity from the Batangas plants are sold directly to Meralco.

Garcia explained that one of the reasons why the supply of electricity to Meralco is more expensive than those sourced by its counterparts outside Luzon, such as Visayan Electric Company and Davao Light & Power Company, is because of these supply contracts between Meralco and the First Generation power plants.

Federico Lopez, president of FPHC, however, explained the electricity supplied by their Batangas power plants is actually cheaper than those from other sources, such as those from government-owned power plants.

But the story doesn't end here. Other factors come into play. (abs-cbnNEWS.com/Newsbreak)

The second part will focus on why power rates in the Philippines are high. Read this story here. 

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