As reports swirled that a deal is already forthcoming next month for the equity divestment of shareholders in National Grid Corporation of the Philippines (NGCP), the prospective parties in the acquisition plan are being cautioned on the cross ownership ban under the power industry reform law.

The Electric Power Industry Reform Act (EPIRA) explicitly provided that “cross ownership” between generation and transmission or distribution and transmission will not be allowed.

Sources privy to the ongoing talks noted that the group of Henry Sy Jr. is being tugged into the deal, but it would be its partners which may eventually have “conflict of interest,” primarily in reference to the cross ownership prohibition.

It must be noted that Sy’s foray into the power industry was widely-known to have been in tandem with the group of San Miguel Corporation (SMC) president Ramon S. Ang – the latest of which was their planned acquisition in Manila Electric Company (Meralco) wherein they used Triratna Holdings as corporate vehicle.

Manifestly, SMC is already both into the distribution and power generation segments of the electric power industry, thus, it may already dangerously tread into the cross ownership ban proviso if it plans to pursue interest in NGCP with Sy’s group. SMC is shareholder in Manila Electric Company (Meralco) and buyer of generation assets of the National Power Corporation.

“Even a corporate veil will not free up any of the partners in violating that provision of the law, because affiliates are included in the ban,” industry sources opined.

Section 45 of the EPIRA expressly prescribed that: “No generation company or distribution utility, or its respective subsidiary or affiliate or stockholder or official of a generation company or distribution utility, or other entity engaged in generating and supplying electricity specified by ERC (Energy Regulatory Commission) shall be allowed to hold any interest, direct or indirect, in TRANSCO or its concessionaire.” NGCP is the appointed concessionaire of the National Transmission Corporation’s (TransCo) for the country’s transmission assets.

The law added that: “Likewise, the TRANSCO, or its concessionaire or any of its stockholders or officials or any of their relatives within the fourth civil degree of consanguinity or affinity, shall not hold any interest, whether direct or indirect, in any generation company or distribution utility. Except for government-appointed representatives, no person who is an officer or director of TRANSCO or its concessionaire shall be an officer or director of any generation company, distribution utility or supplier.”

Such provision under the power industry reform law was reinforced in the TransCo franchise law, which also serves as the policy underpinning for the privatization of the transmission firm.

It was gathered that the deal may be sealed with the equity takers by end February, and this may trigger movements in the management and board of NGCP.

The purported entry of Sy’s group is seen to be via shareholdings acquisition from Monte Oro Grid Resources Corporation, one of the shareholders in NGCP. The alignment is reportedly with another local partner Calaca High Power of the Coyiuto group. The foreign partner is State Grid of China.