Regulators must do a balancing act in giving the green light on mergers and acquisitions.
Mergers and acquisitions are sometimes frowned upon because of fears that they are aimed at removing a competitor or a threat in the industry.
For the players involved in the process, the business option boosts their combined strengths and eliminates weaknesses to achieve ascending growth.
Regulators, thus, must do a balancing act in giving the green light on mergers and acquisitions, and ensure the market stays competitive.
The Philippine Competition Commission (PCC) did the right thing in allowing Meralco PowerGen Corp.(MGEN), Aboitiz Power Corp. and San Miguel Global Power Holdings Corp. (SMGP) to proceed with their joint acquisition of two gas-fired power plants and a liquefied natural gas (LNG) terminal.
The PCC noted that the transaction supported the country’s energy security but imposed conditions that it deemed were vital to maintaining a competitive market.
The deal is subject to conditions aimed at ensuring fair competition and promoting transparency.
The transaction involves MGEN and Therma NatGas Power Inc. (Therma) of Aboitiz Power Corp., through their joint venture Chromite Gas Holdings Inc. (Chromite), acquiring a 67-percent equity interest in South Premiere Power Corp. (SPPC), Excellent Energy Resources Inc. (EERI) and Ilijan Primeline Industrial Estate Corp.
In addition, MGEN and Therma, through Chromite, along with San Miguel Power, will jointly acquire 100 percent of Linseed Field Corp. (LFC), which operates the LNG terminal in Batangas City.
As a result of the acquisitions, MGEN and Therma, through their 60-40 ownership of Chromite, will control 67 percent of SPPC, EERI and Ilijan Primeline. San Miguel Power retained a 33-percent stake in these three entities and gains a corresponding interest in LFC.
The series of transactions clearly impact the Philippine natural gas industry. The PCC identified potential competition concerns, including risks of coordination in the national power generation market and foreclosure in power supply deals with distribution utility companies (DUs).
The ultimate parent companies―Pilipinas Enterprise Management Holdings Inc. (PEMHI), Aboitiz & Company Inc. and Top Frontier Investment Holdings Inc.—had to offer voluntary commitments on October 18, 2024 to address the issues.
Such pledges were reviewed and validated by the PCC, with input from industry players, stakeholders, the Department of Energy (DOE) and the Energy Regulatory Commission (ERC).
The PCC eventually approved the resulting voluntary commitments on December 20, 2024 and imposed key safeguards. These include a PCC oversight of the Competitive Selection Process (CSP) to ensure power supply agreements are awarded through a transparent and competitive bidding process. The PCC supervision aims to prevent collusion or unfair practices.
Per the regulator, the acquired companies must operate independently of their parent companies, with strict measures to separate IT systems, offices and management to prevent coordination or undue influence. The boards of directors should include independent members, and internal trading units will operate independently of affiliates.
The PCC went further. It asked power plants to submit reports on unplanned outages to the regulator within seven days of reporting to the DOE to promote transparency. The regulator also required companies to appoint a competition compliance officer to monitor the fulfillment of the commitments.
The conditions, according to the PCC, will remain in effect for five years, with possible extensions depending on market conditions. Violations could result in daily fines of up to P2 million per infraction, until the entity fully complies, in addition to other penalties and sanctions.
The PCC assured that the safeguards strike a balance between encouraging investments in critical energy infrastructure and ensuring a fair and competitive market that benefits consumers, businesses and the broader economy.
Ensuring the energy security of the Philippines is not a simple task. The goal must address potential competition issues, a key step toward bolstering the Philippines’ energy landscape and long-term sustainability.
E-mail: rayenano@yahoo.com or extrastory2000@gmail.com
