Litanya ng Pagkalugi ng OMECO

Financial Analysis

OMECO, as of June 30, 2008, is totally bankrupt.

Property Capital/Stockholders Equity Php 249 M+
Less: Total Unappropriated Margins (Losses) ( 265 M+)
Deficit (Php 16 M+)

This means that negative operating performances have already eaten up more than 100% of the capital base.

Technically, OMECO is a deficit spending cooperative since 2001 (average of Php 3.5 M net loss per month from January to June, 2008 alone).

Consequently, this uncertainty may affect the cooperative’s financial statement, and ultimately, its ability to remain on a “going concern” basis.

Key Points for Losses Incurred

A: Questionable Contracts entered into by the Board of Directors (BOD) and General Manager (GM)

Genset Rental with Fabmik Construction and Equipment Co., Inc. (2MW’s)

1.Hiring of genset was done in haste and without proper consultation.
2.OMECO should not be in the business of power generation since its mandate is power distribution.
3.National Power Corporation (NPC) should have been vigorously persuaded by OMECO to shoulder the genset rental since power generation is their mandate, more especially, in island provinces as part of its missionary mission. It is clearly defined in the EPIRA law.
4.Not sanctioned by the Energy Regulation Commission (ERC).
5.OMECO failed to oblige Island Power Corporation (IPC) to generate power in spite of the essence of the Energy Conversion Agreement (ECA) mandating them to provide the necessary 2MW’s shortfall.
6.Hiring was not subjected to open bidding. Justification made was the frequent brown-outs.
7.The contract was grossly disadvantageous to the cooperative in the absence of off-setting provision wherein the value of rental shall be applied as payment to power purchased. Also, the usual prompt payment discount provision was not integrated in the contract, OMECO payments always ahead of time.
8.De-rated amount for inability of the genset to run other than its maintenance period was not deducted although de-rated statement was always submitted by NPC every billing period.
9.Assumed losses to OMECO of this amounted to more or less Php 30 M.

Hiring of System Loss Consultant

1.The contract executed is an open ended contract. No cap and no definite coverage.
2.This hiring is a duplication of function and an insult to the Technical System Department who can handle the job better. Matter of fact, they were not consulted in this matter, although, a program for system loss reduction was already in place and proven effective in MAPSA area..
3.System Loss Consultant showed up in OMECO only for a week and just in time to collect his fees.
4.System Loss Consultant accommodation in hotel and air fares is so enormous for OMECO.
5.System Loss Consultant is not an Electrical Engineer but a Mechanical Engineer.
6.Assumed losses for this hiring is Php 500,000 to Php 1 M.

Island Power Corporation Energy Conversion Agreement

1.This agreement is one sided and all the benefits accrued only to IPC.
2.This agreement which will still be binding for twelve (12) more years is the greatest stumbling block for power generation development in Occidental Mindoro.
3.It must be rescinded by the OMECO BOD since it is no longer tenable at present condition for their units are no longer serviceable. Its failure to generate power resorted to hiring of genset by OMECO which should not be the case.

Procurement and Services

1.Procurement was overly centralized to the GM office.
2.Prices of materials were higher than the NEA Price Index of 2006 and 2007.
3.Accredited suppliers were limited to the chosen few for years.
4. Bidding was rigged by manipulations of suppliers which almost always resulted to failed bidding. Faxed quotations were transmitted to GM office even at the wee hour of the evening.
5. Orders were made without even assessing its urgent need. Instead, the warehouseman just annotate the “for warehouse stock” on it.
6.Assumed losses for this is Php 3 to 4 M per year.

B: Act of Bribery undertaken by the GM

Foodstuffs given to NEA and NPC officials

1.A violation of Anti-Graft Law on the part of NEA and NPC officials.
2.It could have direct bearing on the periodic evaluation of GM performance by the NEA to accelerate the OMECO category into a passing grade and the conversion of power bill payable into a restructured loan by the NPC to avert warranted disconnection on the basis of non-payment of power bill for six (6) months.

C: Extravagant Expenditures undertaken by the BOD and the GM

Purchase of Toyota Fortuner and its excessive maintenance

1.This is highly immoral for the deficit spending cooperative.
2.The GM was already provided an elegant Nissan Frontier which will suffice his need.
3.Said vehicle was privately used by his family in many instances.

Purchase of Cellular Phones and Load Provisions to OMECO officers

1.This is highly immoral for the deficit spending cooperative.
2.There was no clear cut policy in the use of cellular phones and load provisions by the beneficiaries.

Excessive Travels and Accommodations by the BOD and the GM

1.Travels were not prioritized in accordance to its necessity.
2.Cash advances for travels remained unliquidated.
3.This is one of the reasons why budget for non-power cost was already in deficit in just seven (7) months of the year.
4.There were BOD meetings that were held in five star hotels and other venues outside the cooperative territory.

D: Unpaid Power Bill to NPC

Payables to NPC as of June 30, 2008

Power Bill Payable - converted to loan Php 108,730,587.63
Power Bill Payable – current 62,064,590.12
Power Bill Interest 28,212,060.41
Penalty 11,474,562.55
Php 210.481,800.71

Re-structured Loan

1.It offered no relief since it is still a payable on the part of the cooperative to NPC.
It was just a mere change of account name in the books of account of OMECO.
2.It could have been done, possibly, just to avert power disconnection by the NPC if OMECO could not pay its power bills within six (6) months period. Perhaps, out of gratitude, the GM sent foodstuffs to NPC officials chargeable to the cooperative.
3.The Power Bill Payable to NPC account which has a balance of Php 60 M after the restructuring now surpassed the Php 100 M benchmark as the cooperative used portion of would be payments to NPC for its operating expenditures just to survive.

Accumulated Interests and Surcharges

1.Non-payment of power bills to NPC for several months although there was an almost 100% collections from consumers subjected the cooperative to paying Php 28 M+ in interests payment and surcharges.
2.Also, prompt payment discount was not availed for failure to pay on time (equivalent to 1 to 2% of monthly power bill payments).
3.It is a clear case of member-consumers subsidizing the gross incompetence of the BOD and the GM.

Generation E-Vat

1. Generation E-Vat (12% output E-Vat of NPC power sales to OMECO) collected from the consumers was not remitted to the BIR on time via NAPOCOR in violation of the BIR policy in withholding tax collection and payments.
2. The reason given by OMECO BOD is that the generation E-Vat is inclusive in the NPC Power Bill and since they are months in arreages with NPC, the amount pertaining to generation E-Vat collected was not remitted. Meaning, they will only remit the generation E-Vat collected once there is power bill payment to NPC on a per month basis.
3. Worse, the unremitted generation E-Vat is not appearing in the financial statement of the cooperative under withholding tax payable account because it was integrated under current power bill account which is not appropriate..
4. Need to be explained by the management.(status).


CONCLUSION

Based on the relevant facts herein presented, no doubt, there was a case of gross incompetence and mismanagement at the highest level on the part of the BOD and the GM which warranted removal of both in their offices.

Our cooperative is now endangered. We should intervene to save OMECO. We should not be passive and will just sit down to allow what is happening in OMECO unabated. We should sustain the initiative until we hit the objective.

And the right time to do it is NOW!

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(Mula sa "OMECO: Unsurmountable Losses" na Discussion Paper ng isa sa mga Save OMECO convenor na si Joaquin "Jake" Castronuevo sa kanilang series of forum na inilulunsad simula pa noong November 2, 2008. Na ini-mail niya sa akin the other day. Siguro naman ay hindi na masasabi ngayon na 'unsubstantial' ang mga isyu ng kilusan-NAN)