PSE Circular for Brokers No. 1455-98

June 29, 1998 PSE CIRCULAR FOR BROKERS NO. 1455-98 June 26, 1998 Philippine Stock Exchange PSE Center, Exchange Road Ortigas Center, Pasig City Gentlemen : In connection with news article captioned "ADB wants Meralco out of Napocor privatization", Meralco, in an interview on June 19, 1998 by press agents gave its statement/position which was published in the Business World on June 22, 1998, xerox copy of which is attached hereto. LibLex Very truly yours, (SGD.) ATILANO S. GUEVARRA, JR. Assistant Corporate Secretary Business World June 22, 1998 Meralco denies any interest in Napocorgencos The Manila Electric Co. (Meralco) yesterday said it is not interested in buying any of the National Power Corp.'s (Napocor) generating companies (gencos) once the state-run firm is privatized. The Lopez-controlled firm said acquiring and operating one of Napocor's generating companies will be more expensive than purchasing its power requirements from independent power producers (IPPs). "The report that we had plans to acquire generation companies which will spun out of Napocor was a surprise to us. There are no such plans," Rafael Andrada, Meralco senior assistant vice-president for finance, said in response to an Asian Development Bank (ADB) study which warned on Meralco's possible participation in the privatization of Napocor. Mr. Andrada added that based on Meralco's power development plan, the Lopez-controlled firm is inclined towards increasing its power purchases from IPPs as it moves towards lesser dependency on Napocor. From a high of 99.5%, Meralco plans to reduce its power purchases from Napocor and source 30% of its supply from IPPs. These IPPs include oil-fired and gas power plants presently being constructed by another Lopez firm, First Private Power Corp. (FPPC). Despite Meralco's disclaimer, however, industry insiders said any of the Lopez subsidiaries may move to acquire Napocor's gencos in Meralco's behalf. "Meralco will be buying from IPPs because of their lower costs compared to Napocor whose rates are currently the highest among the region," Mr. Andrada said. "When Meralco purchases power from Napocor, the price paid include the inherent inefficiencies of Napocor as well as the burden of subsidies for the rest of the country." In a study, the ADB advised the incoming Estrada administration to prevent Meralco from gaining a majority share in Napocor once it is privatized given its dominance of the power sector. The Lopez-controlled firm, by far the largest power distributor in the country, corners more than 50% of Napocor's electricity sales. Industry insiders feel its participation in the privatization of Napocor would bring about monopoly in the sector.