Lopez Holdings


I am honored to be in this distinguished company, led by New York City's former and legendary mayor himself, Rudy Giuliani. Of course, we also have with us today as our host, our own legendary Mayor Jojo Binay who is leading in the celebration of Makati's 137th Anniversary.

Let me pose this rhetorical question, why is it that when people talk of crisis in this country, they invariably think of the Lopezes. When our politicians get themselves into trouble with the people, their reflex reaction is to hit the Lopezes. This happened during the time of President and later Dictator Marcos. It is happening again today, as officials in both the executives and legislative branches of government are ganging up on the Lopez management in Meralco, when their real gripe is against ABS-CBN.

This morning I would like to talk to you about the various crisis which the Lopez Group of Companies have experienced during its 80 years of history.

The first one was in 1928. My father Eugenio and his younger brother Fernando had just finished their schooling (my father from Ateneo, then UP law school plus one year at Harvard Law School while my uncle went to Letran and the University of Sto. Tomas) and both have just gotten married. Both tried working in their sugar haciendas in Negros Occidental which they inherited from their father, Iloilo Governor Benito Lopez who was shot dead by a political enemy in 1908. But in that year 1928, a super typhoon hit Negros that destroyed 60% of their sugar crop. The bitter lesson they learned from that experience was that you could not build a solid business on the whims of nature. How did they resolve this crisis? After 1928, they left the farm to an overseer and went back to the city of their birth, Iloilo City and began starting business there.

They started out by reviving the old newspaper owned by their father called El Tiempo. My father made it a crusading newspaper that went after illegal gambling in the form of jueteng that eventually caused the dismissal of the provincial governor of Iloilo as well as the City Mayor and Chief of Police of Iloilo City.

Aside from the newspaper business, the Lopez brothers went into transportation in a big way, covering land, sea and air transport. They broke the monopoly of the Dela Rama lines on the Iloilo --“ Negros ferry boat service by introducing their own steamship ferry. They also imported double decker buses from England to ply the streets of Iloilo and surrounding areas. In 1933, they started the very first passenger airline service in the country, going from Iloilo to Manila, Bacolod, Cebu, Davao and Zamboanga, but all of these businesses were destroyed during World War II. We were all thankful to have come out of that ordeal all alive and well, after having walked down for 2 nights and 3 days in April 1945 from Baguio, where the Japanese were entrenched, down to La Union, where the Americans were encamped.

This brings us to the second crisis of leadership in the Lopez group. My father then decided to make a fresh new start in his business career but no longer in Iloilo but in Manila, where there were more opportunities available for new businesses. He decided to start up with a new airline called Far East Air Transport Inc. or FEATI. He got a jump start on everyone else by buying surplus U.S. Army transport planes (C-47) with the help of US Airforce Major Henry Meider, his chief pilot in INAEC who escaped to Australia in his early days of the war.

By November 1945, or about 4 months ahead of PAL, FEATI was flying from Manila to Iloilo, Cebu, Davao with 4 C-47s. In the next 2 years he bought 24 more army C-47s plus 4 bigger DC-4s with 4 engines to fly international routes. In those 2 years FEATI set up a widespread domestic network and established the country's first international airline services, with flights to San Francisco, Shanghai, Hongkong, Bangkok and Calcutta. But fierce competition soon developed between FEATI and PAL, and after a series of air crashes my father decided to sell out to PAL in 1947.

He then went back to his first love, running a newspaper. He bought the Manila Chronicle and managed it until it was closed down by Martial Law. He had a vision of a media empire so he also went into radio and television, in fact the first television station in the country, which my brother Geny then developed for him into the country's largest radio television network called ABS-CBN.

But the biggest business he went into is the postwar period was in power, when my father led a group of Filipino investors to acquire the biggest electric utility in the country, MERALCO from its American owners, General Public Utility (GPU) in 1961. The M leveraged buy out of Meralco was the biggest for the country then. Two syndicate of banks were established to handle this big transaction --“ one syndicate of US Banks headed by Citibank and another of local banks headed by PCI Bank. There was a down payment and the rest was payable over a 10 - year period.

There was also the fear that Filipinos could not handle an undertaking of the magnitude of Meralco. My father and his associates proved the critics wrong. He recruited the best and highest Filipino managers, such as Vicente Paterno, Antonio Ozaeta and Christian Monsod. But he also retained some of the American managers like Lee Garner, Russ Swartley and Steve Psinakis. He wove them into a cohesive team.

In 1961, Meralco was greatly dependent on NPC for 35% of its power and there were frequent brown out during the late 1950's and early 1960's because NPC hyrdroplants were late coming on stream. This forced Meralco to build a new power station every 18 months. But by 1972, after a decade of continuous expansion, Meralco was self sufficient by having increased its generating capacity 5 times from 300,000 KW to 1.5M KW.

The excellence of Meralco's operation was matched by its low electricity rates. By the early 1970's Meralco produced the cheapest power in Asia, with an average of 6 centavos / KWH. How was Meralco able to produce power at the lowest rates in the world? It was a unique set of circumstances, some of which may never be replicated again. For one, cost of fuel oil products was very cheap at that time, around to per barrel of oil compared to 0/barrel today. In addition, Meralco franchise area was a very compact area, composed mainly of the Metro Manila area, but this area had a very high economic growth rate since the country was undergoing the early stages of its industrialization.

But probably the most important factor in this equation, which can be replicated is that it was a private business enterprise responding successfully to the challenge of its times and its environment by rendering the best possible public, political and economic service at the least cost to its consumers and still make a profit in the process.

Contrast this to what we have today, when our electricity rates are among the highest in Asia because the post Marcos government has dominated the generation and transmission sectors of the power industry all these years, almost as if the Marcos dictatorship never ended. And there seems to be no urgency in government's desire to return the power industry to the private sector as dictated by law.

Also during the decade of the 60's, Meralco's parent company, Meralco Securities or MSC, where I worked as its Senior Vice President in charge of research and development, also engineered a successful diversification into utility-related businesses. First Philippine Industrial Corporation, the oil pipeline from Batangas to Manila, was organized in 1967 and remains today as the only commercial pipeline system in the country. Philippine Electric Corporation, the pioneer distribution transformer company, was established in 1969 and its products today compete effectively with the best imported brands in both quality and price. Philippine Petroleum Corporation, the lubricating oil refinery, was also set up in 1969, but this company was sold to Shell Philippines when FPHC ran into serious financial trouble in the mid-1980's.

This golden age of both Meralco and Meralco Securities Corporation lasted into early seventies. The advent of martial law saw the takeover of Meralco and Meralco Securities as well as Manila Chronicle and ABS-CBN by President Marcos and his cronies and presaged a gradual decline in the fortunes of all these Lopez companies. Martial law was a crisis which my father could no longer handle. Because he was old and sick and he passed away in San Francisco in 1975, where he was living in exile since the start of Martial law.

Just to make sure that my father would not retaliate against him, Marcos jailed and kept my brother Geny hostage for 5 long years until Geny and now Senator Serge Osmena decided to make their spectacular escape to San Francisco via Hongkong in 1977, two years after the death of my father.

The Lopez business story could have ended with the death of my father because the whole Lopez business empire was dismantled and broken up by the Marcoses.

But at the same time, my father left a rich legacy after his death which enabled his 3 sons to continue the work where he left off.

The richest legacy of my father was the education he gave to his 3 eldest sons. Just as he was the recipient of the best education money could buy, in Ateneo, UP Law School and Harvard Law School, he also insisted that we go to the best schools. In the case of Geny, it was Ateneo for pre-law, then to Virginia Military Institute in West Virginia in the U. S. then to Harvard Business School. In my case it was to Harvard College then to the Littauer School of Public Administration, also at Harvard University. Manolo finished his business administration degree at the University of the East here in the Philippines but went on to Harvard Business School for his advanced Management Program.

But the more important education we got from my father was working with him in the different companies he owned and imbibing the values he espoused. Among these Lopez DNA values are:
1. Entrepreneurship
2. Nationalism and public service
3. A strong work ethic
4. Family unity
5. A strong sense of corporate social responsibility
6. The primacy of employee welfare

After the 1986 EDSA revolution, I returned to Meralco Securities, now called First Philippine Holdings Corporation, to find, as I related earlier, a company saddled with debts of P1.2 billion and on the brink of bankruptcy, and its staff completely demoralized. My two brothers found the same bad situation in both ABS-CBN and Meralco. The only problem is there was no longer a father who could help us out. It was no our problem and our crisis to solve, and solve the problem we did in our three companies.

Current operations show how successful we were in rescuing the company after the Marcos cronies run it to the ground:
 Through First Generation Holdings Corporation, First Holdings has helped jump-start the vital development of the country's natural gas industry. It has answered for half of the upcoming electricity demand needed to make the development of the Malampaya natural gas fields economically viable. It now runs the 1000 MW Sta. Rita and the 500 MW San Lorenzo power plants in Batangas.

 The 225 MW Bauang power plant of First Private Power Corporation, is the largest medium-speed diesel power plant in the world, and the fastest time and lowest-priced BOT contract of the National Power Corporation.

 First Generation our new publicly listed holding corporation that holds all our generating plant assets, also won the privatization bid for the 112 MW Pantabangan-Masiway Hydroelectric Power Plant. Also subsequently won was the bid for a 60 per cent stake in PNOC-EDC, a major geothermal power producer in the world. It is the largest geothermal producer in the country with over 1,100 MW of steam capacity. First Holdings, in partnership with Sumitomo Corporation has also established a very successful 300 hectare industrial park in Batangas province which today plays host to some of the largest manufacturing companies in Japan, the U.S. and Europe.

Consistent with our commitment to clean and sustainable sources of energy, First Holdings has entered into a joint venture with Sunpower of the US to provide wafer slicing services for the solar power industry. Whatever else that we decide to enter going forward, it will be in keeping with First Gen's stature as the largest vertically-integrated power generation company in the Philippines, with a bias for "clean and green" energy. First Gen now has an installed capacity of 2,582 megawatts and accounts for approximately 16 percent of the country's total installed capacity.

But all has not been pure business in FPHC. In the past few years, we were able to turn First Holdings around to enable us to take several CSR initiatives.

The first was in reforestation. During President Aquino's presidency, FPHC took on the task of reforesting 1,000 hectares in the foothills of Bamban, Tarlac under the supervision of the DENR. This is was followed by my own personal involvement as Board member of Conservation International, a Washington D.C. based NGO that has been doing excellent work in the Philippines in the conservation of biodiversity in the remaining rainforests of the Sierra Madre mountain range in Luzon. Its work was extended to the marine resources of Coron Island in Palawan.

That, in a nutshell, is how we were able to turn around First Holdings from virtual bankruptcy to reclaim its status as one of the country's top listed holding companies. The Lopezes have been in business for 80 years this year. It was in 1928 when my father, Eugenio H. Lopez, Sr. and his brother, former Vice President of the Republic Fernando Lopez, signed the co-ownership agreement for the business operations of E&F Lopez Enterprises, the original private holding company of our family, which today has spawned so many companies in the areas of mass media and telecommunications, infrastructure, manufacturing and real estate development. We have experienced many ups and downs through the years so much so that when the family history was being written, author Raul Rodrigo chose to call the two volume history Phoenix, after the mythical bird who always rose from the ashes after each defeat. What accounts for this ability to regenerate? Rodrigo attributes our family's Phoenix-like resilience to what he calls the Lopez DNA in business: 1) willing to break old paradigms; 2) predisposed to be a pioneer, and ready to invest in leading-edge technology; 3) aimed at serving the Filipino market; 4) oriented toward opportunities in mass media and public utilities (airlines, buses, taxis, shipping); and 5) resilient despite adversity.

Thus, through thick or thin, that Lopez DNA from 1928 still defines the way the Lopez Group does business today. It is a conglomerate committed to serving Filipinos, ready to invest in leading-edge technology to serve them better, constantly on the lookout for new opportunities to pioneer in service, and ready to absorb setbacks and disappointments on the way to long-term success.

Admittedly, our business model isn't the easiest. Being in media and utilities exposes us to serious political risk. Being willing to pioneer means we will bring innovations to market before the market is ready. And serving Filipinos is making a really long-term bet on the health of the Philippine economy. The significance of the Group's 80 years has more to do with WHY we are in business rather in how big we have become or how much money we have made. We are here to make a difference.

Throughout this period of 80 years, we have continually been true to the values attendant to the practice of our public service philosophy: entrepreneurship and innovation, integrity, nationalism, teamwork and a strong work ethic. We have also persistently subscribed to good governance, business excellence and social responsibility as core values on which to anchor a sustainable enterprise. We have remained consistent with the vision of our founding fathers to serve our people well through fair, transparent, and prudent business practices.

The Winston Garcias of the world will come and go, just as the Marcoses and their cronies did. At some points in our history, they have inflicted and will inflict crisis situations for the group, some more serious than others. But I have no doubt that we will prevail because we always remain true to our core values through thick or thin.

Leadership and core values are the secrets not just of our business longevity but also of our continuing ability to create a positive impact in the lives of the Filipino people. That's our only reason for being --¦ from my father's time and beyond.

Thank you and a good day to you all.

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Lopez Holdings Corporation 
16/F North Tower, Rockwell Business Center Sheridan, Sheridan St. corner United St., 1550 Bgy. Highway Hills, Mandaluyong City, Philippines

  • Trunkline: (632) 8878 0000
  • Fax: (632) 8878 0000 ext 2009