"Letter of Oscar Lopez to his "Dearest Tatay and Nanay"

Annex D

Dearest Tatay and Nanay,

In the past few days, T. Peding finally revealed his whole proposal to Abello, Tony and myself. I must admit that it is a bold plan. If the government will accept it, and apparently, the President is sufficiently interested in it, let us have T. Peding discuss it with Bobby Benedicto and Licaros one whole afternoon next week.

The proposal hinges on the need of the government for a way to finance its land reform program. The magnitudes are between 2 to 3 billion pesos. Now, MECO is the only company in the country that has assets worth that much about ---- billion pesos. Of course, MECO also has obligations of more than 1 billion pesos. The government can somehow take over these obligations and then ask the governments of countries where we have creditors to have these loans become a government-to-government affair; MECO could then be debt-free and would be able to issue shares of stock to the dispossessed landlords to the tune of 2 billion pesos. MSC in turn gets paid in government bonds, probably Central Bank bonds and Land Bank bonds, which would earn 9.5% interest, tax-free. If the sale price is, say 600 million pesos, these bonds would earn yearly about 60 million pesos. The yearly interest alone would, over the years, help greatly to reduce MSC’s obligations of 300 million pesos. The government would also be prepared to encash these bonds as required to pay fully the current maturities of our loans.

The advantages then of T. Peding’s plan is 1) its appeal to the government is a possible solution to financing of the land reform program; 2) in one fell swoop effects the sale of MECO to the government; 3) MSC would be earning from the government bonds to be able to pay its own obligations.

Although we have presented you the voting trust as an alternative plan, it will be wiser under the circumstances to allow T. Peding to continue pursuing his proposal with the government and see how far he can go with it. In the event the government finds it impractical, we can then present our alternative proposal. We have a long discussion yesterday afternoon on this with Bert, Picong, Tony and Mommoy and this was the consensus.

So much for the ultimate solution. Right now, we have a more immediate problem. Mr. Abello met with Alex Melchor last week to present the problems of MECO: that MECO needed $40 million over the next two years and that unless the government guaranteed the loans for these amounts, MECO service would deteriorate rapidly and the company would be forced to default on its obligations. Alex was quite accommodating. He told Abello that the government is prepared to give MECO the guarantees and help keep MECO viable on one condition, that MECO present a program of reform to the government which would accomplish two things: 1) Reduce the expenses of MECO, including the salaries of executives; 2) structure the relationship between MECO and its sister companies, so that “arms-length” is maintained at all times.

With regards to the second point, Alex mentioned that an anti-trust presidential decree for public utilities and industries receiving govt. financing now awaiting the President’s signature and Alex suggests that we effect our program of reform even before this decree is signed and announced. We were able to get a copy of the proposed decree and it prohibits dealings between a public utility and its sister company or companies, both of which are owned 20% or more by the same stockholders. The only way MECO can deal with its sister companies is to have the National Economic Development Authority approve such transactions as there are between the two. The proposed decree also prohibits interlocking directorships between MECO and its sister companies. This means that no Meralco officer can sit on the board of sister companies.

This is all for now. All my love to all of you.