THERE are three global tinderboxes that directly affect overseas Filipinos in terms of trade, economics, employment, and national security. One is the Middle East. The other is Eastern Europe. The third is within Philippine waters.
While Philippine media is focused on a gangland war that seeks to perpetuate political powers beyond 2028, of the global hotspots where we could very well lose the whole farm to a hostile hegemon, only one makes it to the headlines in the Philippines.
Back home given a propensity for political parochialism, we hardly talk about the Middle East, our largest source of fuel and a significant employment destination for overseas labor. Fortunately, recent developments auger well for an enduring peace not only from an imminent and sustained ceasefire but from ambitious long-term blueprints to develop its war-torn region.
The other hotspot for Philippine media backburners is Eastern Europe. When the proxy war made domestic headlines, it debuted as a black swan scapegoat to explain why energy prices in the Philippines had gone through the roof, triggering constantly high Philippine inflation rates.
There is, however, a looming cessation of hostilities likely to depend on accepting some degree of defeat and loss of territory as the appetite for continuing death wanes at the far end of the negotiating table where a principal non-combatant bankrolling the war shifts policies post November 2024.
The manner that the United States now approaches threats to its allies has a significant impact on the Philippines given the latter’s own indecisiveness to contain an on-going de facto Chinese invasion both offshore and inland.
China is at the center of this tinderbox issue. What cinders can however freely spread from the Taiwan Straits to the South China Sea and eastward to the Micronesian islands where, for two consecutive years, China has attempted beachheads through trade dependence and economic crutches. Never mind that a few nautical miles north, the Marianas are critical to American security in the Pacific.
The admonition by U.S. State officials that America’s allies must at least carry their own end to achieve global security invariably highlights how the Philippines has lost control of its own waters. This hints at how the U.S. might react should maritime matters worsen given the dereliction by Philippine officials in safeguarding national security.
Note how one Philippine energy official had rewarded as much as 90% control of a critical indigenous energy supply to a cash-strapped start-up with deep ties to China.
Farther inland, see how Philippine officials allowed illegal quarrying by undocumented Chinese workers. Note the treasonous co-opting where gambling and human trafficking hubs established by deeply embedded Chinese agents legitimized as local government leaders, or nationwide as legislators.
Now allow some specificity.
A recent start-up, the Maharlika Investment Corporation or MIC manages the Maharlika Sovereign Wealth fund spawned, not from wealth surpluses, but from funds ripped off the capital of government-owned and controlled financial institutions.
With MIC’s two-year bottom lines hemorrhaging as operating expenses and executive salaries rack up, MIC turned to the National Grid Corporation of the Philippines or NGCP.
NGCP is a controversial shareholder’s cash cow. Forty percent of its equity and its operational control is in hostile hands. The NGCP’s current controversies concern the ever-soaring price of electricity. That is partly the result of its aggressive preferred and common shares dividend schedules that deplete retained earnings from which expansion capital is drawn thus demystifying controversies founding the delayed expansion of the transmission network that should have reduced power rates.
Recently the MIC invested 19.5 billion pesos ($337.08 million) for two seats in the NGCP through a secondary sale. As such the MIC funds accrued to the disposing shareholder and not NGCP.
Do the math. Where MIC seeks at least 1.28 billion pesos ($22.12 million) yearly for the next three years, this can only be achieved if NGCP maintains its aggressive dividend policies that reprioritize from grid expansion to shareholder wealth.
Because the shares purchased were preferred, MIC’s equity income is accelerated by maintaining or increasing NGCP’s returns. Worse, abbreviated three-year dividend cashflows compel even higher utility rates.
The MIC deal does not dilute NGCP’s 40% foreign ownership. The threat of losing a war with China remains. If hostilities break out, with the flip of a switch, NGCP’s capital structure volatility could surrender all of the Philippines without a single shot fired.
Dean de la Paz is a former investment banker and a managing director of a New Jersey-based power company operating in the Philippines. He is the chairman of the board of a renewable energy company and is a retired Business Policy, Finance and Mathematics professor.
