Conversion and Privatization

It was not NEA Administrator Antonio Mariano Almeda’s discretion to set the duration of NEA’s intervention in BENECO’s operation to just six months.

In fact, that’s what the law provides, in Sec. 21(d) of the Implementing Rules and Regulations of Republic Act 10531, “If within a reasonable period, not exceeding 180 days [there’s your six months] from its takeover, the NEA determines that [BENECO] is unable to continue its operation in the ordinary course of business…” then NEA is faced with a smorgasbord of options.

Let’s study those options one by one, starting with the most misunderstood one.

NEA can convert BENECO into a stock cooperative, but I say that’s out of the question. NEA never recognized any of the board resolutions passed by the BENECO Board (that included the Magnificent Seven) AFTER October 2021. Probably even earlier, as early as August when the GM controversy really started.

Certainly, the series of board resolutions that enabled the holding of the supposedly first Annual Regular General Assembly Meeting (ARGAM) last year, which in turn made it possible for the Members to ratify the supposed new By-laws of BENECO as a CDA-registered cooperative, came AFTER October 2021. As did the enabling resolutions to start collecting “membership share contributions” and constituting it as an emergency fund—a “war chest” in the midst of the crisis that surrounded the GM controversy last year, if you will.

Of course, that will be denied today because the new official line now is that the money is being reserved to fund the coop’s alternative, or sustainable, energy development program. But that is mostly just p-r talk.

It is even worse to say that, because it betrays a total lack of understanding of what “capital” means and what the collection of “capital shares” is intended to achieve.

This is not homeroom PTA.

Hindi ito bahay-bahayan.

Collection of capital shares is NOT a fundraising program. It is a system of subscription to allow member consumers to subscribe to shares of the cooperative’s capital stock. Under the Trust Fund Doctrine, you must not use capital for any purpose other than to warrant the refund of any claim for capital share reimbursement.

Another way to look at capital is to think of it as similar to casino chips, as a way of tracking who holds how many chips among the players. If you want to know how much the chips in any man’s hands are worth in total, you multiply the chips by their assigned values. Different colored chips have different values. In a corporation, different classes of shares have different par values. But even if you won ALL the chips in the casino, you still DO NOT own the casino.

In the same way, even if you bought all the shares of San Miguel in the stock market, you still DO NOT own San Miguel Corporation.

Owning a share of stock—be it in a stock corporation or a stock COOPERATIVE (which BENECO aspires to be) does not buy you OWNERSHIP. It only buys you proportional VOTING RIGHT, because stock corporations or stock cooperatives are democratic ecosystems—“one stock, one vote.”

Question: If I bought ALL the shares of Corporation A, which has a capital stock of One Million Pesos, with acquired assets of Ten Million Pesos, don’t I end up owning P10-million worth of assets after spending ONLY P1-million? Can I get so lucky?

The answer is NO.

Those P10-million assets are NOT owned by the controlling stockholder. It is owned by the corporation in its own right. After all, as everyone knows, a corporation has a legal personality of its own—distinct and separate from the legal personality of the persons comprising it.

First of all, it’s impossible to acquire 100% because there will always be “company shares” which are reserved and cannot be sold or acquired. Secondly, no corporation is allowed to “sell its whole self” to the public AFTER incorporation. That’s why there is a 40% limit to a “public float”—a corporation can only make available for “initial public offering” (IPO) so much capital stock as to NEVER amount to a controlling share. That’s the rationalè for the 40% cap.

Conversion into a stock cooperative is not like creating a new corporation where the incorporators get to DECLARE just by themselves what the starting capital is.

A cooperative is a going concern, it has operated with capital for decades (in the case of BENECO, since 1975). It doesn’t matter how big, successful, or wealthy BENECO has grown today—amassing total assets allegedly of over Four Billion Pesos. That Four Billion is NOT its capital—that is its total assets.

Remember, all that assets are owned by BENECO in its own right. It is NOT owned by the MCO’s, no matter how their high-profile “social influencing” leaders say otherwise. You can rhapsodize all day until you turn a blue, about a cooperative being “owned by its members” and you will be speaking the truth—until you start equating ownership of the cooperative to ownership of its ASSETS. Those are two different animals.

Remember how impressed you were with your high school buddy who now owns his own mini-grocery?

Remember he said, “Alam mo, pare, nung nagsimula ako ang CAPITAL ko isang libo lang!” But, of course, his mini-grocery is now being run by a family corporation, and has an inventory of several millions—multiple times bigger than the starting capital.

Capital is much, much LESS than assets. Assets are acquired and accumulated along the way. Capital hovers around about the same figure for long periods—sometimes years—and is only adjusted upwards at particular milestones along the corporate life.

NEA itself is a good example. It is a Government-Owned and Controlled Corporation (GOCC)—with regulatory functions—so it was bequeathed a starting capital by the government.

Strictly speaking, NEA—or its “ancestor” the “Electrification Administration”—was born on June 19, 1960 when Congress passed Act No. 2717.

Subsequently on July 28, 1969, it was reborn (born again?) under its present name “National Electrification Administration” and given broader powers which bordered on being almost like a BANK, specializing on giving out loans to small electric grid owners. The money it used to give out these loans was sourced from its “revolving fund” which was constantly replenished by the government. The law is careful not to call this revolving fund as “capital”—which NEA had none of for at least four years when it was a mere government line agency.

It wasn’t until August 6, 1973 that NEA finally became a corporation wholly-owned by the government when President Ferdinand E. Marcos issued Presidential Decree No. 269.

NEA was given a seed CAPITAL STOCK of One Billion Pesos, divided into ten million shares, each share valued at One Hundred Pesos.

Even though NEA was wholly-owned by the government, the government only gave it FIFTY MILLION PESOS in 1973—that was the government’s only subscribed AND paid-up capital share contribution in 1973. It gradually paid up its remaining P950-million subscription in the ensuing years, by “instalment” as it were.

Congress had increased NEA’s capital at least twice: from One Billion Pesos to FIVE Billion pesos, pursuant to P.D. 1645 (October 8, 1979) and again on May 7, 2013 via Republic Act No. 10531 which raised it to TWENTY FIVE Billion pesos–divided into 250-million shares, each still with a par value of P100.

If the government were to privatize NEA (which it cannot do, by the way, because no private entity can exercise regulatory power, a reserved ministrant function of the State) for argument purposes only the government would know exactly how much of NEA’s capital it owns. That’s because the law is clear: 100%

But if the government, through NEA, were to privatize BENECO (which, I must emphasize, it can do anytime) , it can only do so to the extent of the government’s contribution to BENECO’s capital which—not being clearly specified in the law nor computable by extrapolating it based on how it was divided into shares of stock—would take a lot of doing to determine.

It helps, of course, if you have collaborators within BENECO who will give you unlimited access to all its records and books, and therefore unlimited opportunity to rationalize every peso that went into BENECO’s operations—to claim all of these as government capital infusions.

What many do not realize is that securing the records and books of BENECO from casual curious and possibly malicious audit is a vital element in the defense of the cooperative against privatization.

That defense is completely lost now because people you trusted to tell you everything about the moves of NEA (to be your “eyes and ears” inside) are now dedicated to keeping information FROM you, rather than from NEA.

Converting BENECO into a “true cooperative” at this time—or even in 2020—is like you trying to change the destination of the airplane you are riding in after hijackers have overrun the cockpit.

No can do, Virginia, because the hijackers are calling all the shots now.

And being that you are converting BENECO into a stock cooperative TODAY (or anytime in the not too recent) you don’t get to unilaterally declare how much you want—or you think—its capital to be.

You have to DETERMINE what its capital ACTUALLY is. To do this, you have trace back all the capital infusions—from the beginning when the government provided its “seed capital,” through all the capital infusions it made over the years—assuming somebody kept faithful record.

Here, careful reckoning is critical. If the government grants BENECO a loan, that should NOT be considered an addition to its capital, because the loan is eventually paid back in full, plus interest. If BENECO uses the money to buy new equipment, the value of those equipment should NOT be added to capital, either. It should be tallied under asset acquisitions.

NEA, of course, will count every centavo as capital infusion. If NEA auditors had their way, all of BENECO’s total worth—Four Billion Pesos—would be counted as government equity in the cooperative, and that’s when Sec. 23 of the IRR kicks into play: “The NEA shall, in determining the propriety of conversion, be guided by the ability of the member-consumers of the said EC to pay for their shares in the stock cooperative or stock corporation…”

Four Billion Pesos divided by 138,000 is P28,985.50.

Can EVERY member consumer afford that? If the answer is no, then NEA can abandon cooperative stock conversion altogether and go for full conversion into a stock corporation—that would be full privatization—and participation in the acquisition of shares of capital stock would be open to all investors.

So I guess, YES—some people out there could still be so lucky.*