Malacañang vs. Meralco
by E. R. Kiunisala
It’s a “Fight to the Finish” Between President Marcos and The Brothers Lopez.
January 30, 1971–IT WAS the surprise of surprises—it came like a bolt out of the blue, setting the country all agog, leaving politicians and businessmen on tenterhooks.
Until then, nobody thought that the six-year old political marriage between Pres. Ferdinand E. Marcos and the Lopez brothers, Eugenio, Sr., and Fernando, the Vice-President, would ever be dissolved. After all, the common belief was: what politics has joined together, not even the public interest can put asunder.
But the political divorce is now a fait accompli and it is fast developing into a full-scale war between Malacañang and Meralco, the financial bastion of the Lopezes. Malacañang has opened fire at the Meralco and the latter fired back in kind.
A “fight to the finish,” declared Marcos.
“So be it” might well be the reply of the Lopezes.
While the Malacañang-Meralco war has so far been limited to ink and talk, the stakes are high: the political supremacy of Marcos, on the one hand, and the financial empire of the Lopezes, on the other.
To start with, Marcos is bent on cutting down Meralco to size. Last week, four government agencies, namely, the Public Service Commission, the Solicitor General’s office, the Bureau of Customs and the Bureau of Internal Revenue, started going over Meralco’s operations with a fine-tooth comb.
Even as the Solicitor General’s office was mapping out legal strategies to lower Meralco’s electric rates last week, the PSC announced that it would investigate the recent Meralco power failure. At the same time, the Bureau of Customs threatened to slap Meralco with a P5 million compensating tax and the Bureau of Internal Revenue filed in court a franchise tax delinquency suit against the light firm.
In Malacañang, Marcos pointed to Meralco’s high rates as one of the principal factors in the rise of prices.
Meralco, of course, did not take Malacañang’s charges lying down. Its board chairman, Emilio Abello, was ready with answers. At the same time, Malacañang strategists got some labor leaders and consumer groups to their side. Their obvious purpose was to show that it is the public itself, not just Malacañang, which is fighting Meralco. The major issue of Malacañang against Meralco is Meralco’s alleged high rates. It is now established, said Marcos, that Meralco’s annual income is P93 million. Which means that the light firm, controlled by the Lopezes, is earning more than it should, in the view of Malacañang. Therefore, it should not have increased its rates last year—the floating rate notwithstanding.
To get a clearer view of the issue, a brief review of Meralco’s history is necessary. To begin with, the Lopezes acquired Meralco from its former American owners in 1962. About a year later, Meralco sought increases in its rates. The FREE PRESS fought it all the way. Even then President Diosdado Macapagal opposed it, too. Just the same, in less than two years, Meralco succeeded in getting the PSC to approve Meralco’s proposed higher rates.
Meralco’s main reason for increasing its rates then was: it needed funds to expand its services. The FREE PRESS believed that what Meralco should have done was to raise money from its stockholders, not from the power and light consumers. Meralco also tried to show that its profits then were way below the ceiling set for public service entities. But the FREE PRESS questioned this and pointed to an official report of the General Auditing Office which stated that the light firm had overvalued its assets.
In March of 1965, Meralco’s 23% increase in rates became final. The Supreme Court itself ruled in favor of the new Meralco rates. The public, including the FREE PRESS, had no alternative but to accept the high court’s decision. It must be noted, in fairness to Meralco, that power and electric services has been very efficient. Unlike the telephone service, the Meralco performance—aside from the rates—gave no one reason to complain.
But when Marcos unofficially devalued the peso by imposing the floating rate in February last year, Meralco again sought for an increase in rates. Its principal argument for the increase: the high costs of operation and maintenance as a result of the floating rate. The government, under Marcos, put up only a token resistance. In record time, the PSC decided to grant the Meralco petition seeking higher rates, involving an average of about 36%.
Again, the case was elevated to the Supreme Court. This time, the FREE PRESS presented the case for and against the proposed rates increase while conscious of the fact that Marcos’s floating rate had increased the costs of business operations. In fact, FREE PRESS, too, had to increase its price—and, thanks to Marcos’s debauchment of the currency through overspending to win reelection, may have to increase its price again.
In May last year, Meralco’s rates went up by an average of 36%. Although the people felt none to happy about it, Marcos himself did not complain. He could not—not because he was close to the Lopezes then, but because he knew that his floating rate had increased the cost of dollars by more than 50%. In fact, Marcos, at that time, sang the praises of Meralco, saying that the light firm had improved and expanded its services without asking help from the government in terms of loans and guarantees!
But now Marcos is singing a different tune. He now blames Meralco for having contributed to the spiraling of prices; he wants Meralco’s rates to be lowered. He has set the machinery of four government agencies into action to look deeper into Meralco’s operations. If Marcos had only done this a year ago, he would have earned the plaudits of the public, in general, and the Meralco consumers, in particular.
This does not mean, however, that the people now disapprove of Marcos’s action taken by itself. Malacañang can make its charges against Meralco stick, Marcos will certainly earn the gratitude of the public. However, his motives for doing so would be suspect. Precisely because of this, businessmen and industrialists are now on pins and needles. If Marcos can steamroller a giant industry, with no government loans or guarantees, such as Meralco, what can stop him from acting similarly in the case of other industries, especially those beholden to the government, whose owners may displease him?
But back to the issues between Malacañang and Meralco. First, about Meralco’s alleged income of P93 million annually.
This amount is now “established,” according to Marcos.
“False!” said Abello, adding that Meralco’s income is very much lower.
How much Meralco is earning yearly, Abello did not say, although he quickly pointed out that it is well within the limit set by law.
The President charged Meralco with paying taxes only 25% of its yearly income.
This is another lie, said Abello.
The truth of the matter, Abello went on, is that “Meralco has always been paying a franchise tax based on 100% of gross earning received as provided for its franchise in addition to all other taxes as provided by law.”
Malacañang according to reports, accused Meralco of not fully paying franchise taxes due the government from 1962 to 1965. What it paid covered only the gross income actually received. Meralco should pay, according to the BIR, a franchise tax on gross billings, whether collected or not.
Abello, contended that Meralco’s franchise provides that Meralco should pay the franchise tax only on gross earnings received—not on, in effect, bad debts. In other words, under the explicit term of its franchise, Meralco has not been deficient in the payment of the franchise tax.
“We have formally filed with the BIR our position papers on the question of the franchise tax. . . . We expected that a formal decision would be rendered on the question that we raised and on the basis of this decision, if adverse to us, than an assessment would be served on us, as is the normal procedure. But to our surprise, out of the clear, blue sky, after the events of the last few days, four complaints were suddenly filed by the government in the Manila court of first instance. This is a radical departure from the legal procedure at the BIR.”
While the BIR and Meralco are now locked in a legal battle, the customs bureau is going after the light firm for its alleged non-payment of compensating tax on crude oil importations. The amount involved is P5 million, covering the years from 1968 to the present.
Meralco retorted that it had paid all the taxes due from 1968 to the present.
“We have never been assessed for any deficiency in the payment of taxes until this time.”
The PSC, too, is now after Meralco’s neck. The casus belli of the PSC was the recent power failure in Greater Manila and environs. The PSC, stated Commissioner Jose Evangelista, a provincemate of the President, is empowered to regulate public utilities to improve public service. The penalty for the violation of the Public Service Act, warned Evangelista, is the cancellation of the utility firm’s franchise.
The recent power failure widened the rift between Marcos and the Lopezes which ultimately led to an open break between them. Marcos claims that the power failure was the result of a deliberate act, not an accident—to prevent him from making his nationwide address concerning the jeepney strike , which, incidentally, according to Marcos, was instigated by the Lopezes. And the PSC, acting on Marcos’s order, is now investigating the cause of the blackout.
Meralco authorities denied that the power failure was the result of a deliberate act on the part of the light firm. The blackout, they said, was caused by malfunction of a circuit breaker as a result of a vehicle bumping an electric pole on Ramon Magsaysay boulevard. The accident snapped a secondary line which fell on a transmission circuit carrying 110,000 volts. When that happened, continued Meralco spokesmen, the circuit breaker at the Rockwell station failed to switch off automatically, causing other transmission lines to go off.
And then came the Solicitor General’s office, which had been ordered by Malacañang to take immediate steps to lower Meralco’s rates—“in accordance with the clamor of the labor and consumer groups.”
Solicitor General Felix Antonio was also directed by Marcos “to look into the widespread claim that the increase in Meralco rates has been one of the major causes for the spiraling of prices of all other prime commodities.”
Meralco replied that it was ready to roll back its rates if Malacañang would roll back the exchange rate from P6.45 to $1 to the previous rate of P3.90 to $1.
“As we have stated from the very beginning before the PSC and the Supreme Court, we will immediately roll back our rates to what they were before the floating rate if the government does the same in the case of the dollar-peso parity value.”
Abello went on:
“All we are asking the President of our Republic is to make a pious examination of conscience and review what he has done during the last five years, especially in the fields of monetary and fiscal policy and administration, and he will, we are certain, see that the ills that plague this country today are due to him. Let him not blame business and industry for conditions which he alone is responsible.”
But even as Marcos pledged to carry out the fight with Meralco “to the bitter end,” he professed “no personal” enmity with the Lopezes. He was fighting for principles, he said, and there was no turning back. On the other hand, Meralco let it be known that its stand is based simply on fair play and truth.
Who is telling the truth?
Meanwhile, the Malacañang-Meralco was continues.
May the people gain, not suffer, from it! In that case, vive la guerre!