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Stakeholders begin drafting Bangsamoro normalization program guidelines

FORTY MULTI-sector representatives gathered last week for the “writeshop aimed at producing the program document for the Normalization Program in the Bangsamoro,” the Office of the Presidential Adviser on the Peace Process (OPAPP) announced. “Crafting this program document will hopefully set the modalities and parameters in executing the programs, thus providing us with uniformity, consistency, and timeliness in our actions,” Nabil A. Tan, head of the government implementing panel, said in a statement. The event was attended by both government and Moro Islamic Liberation Front (MILF) representatives to the peace talks, government functionaries, donor agencies and Bangsamoro non-government organizations. “We appreciate the enthusiasm and the assistance of the Office of the Cabinet Secretary, Development Academy of the Philippines, World Bank, and the United Nations Development Programme for their assistance,” Mr. Tan said. Also last week, Presidential Peace Adviser Jesus G. Dureza joined the President in various meetings to muster stronger support for the Bangsamoro Organic Law. Among these meetings were with Indonesian Ambassador Sinyo Harry Sarundajang. “The ambassador also expressed support to the new Bangsamoro government that will be formed and the work being done by Task Force Bangon Marawi,” said Mr. Dureza. Other issues that were discussed included “joint cooperation in the areas of border security, maritime, trade, and development.” — Carmelito Q. Francisco

Nation at a Glance — (08/27/18)

News stories from across the nation. Visit www.bworldonline.com (section: The Nation) to read more national and regional news from the Philippines.

DICT studying higher fees to force return of underused frequency

THE Department of Information and Communications Technology (DICT) said it is studying raising user fees for under-utilized frequency owned by telecommunications companies.
DICT Acting Secretary Eliseo M. Rio, Jr. told reporters on the sidelines of the government’s first formal public hearing on the selection of a so-called “third player” for telecommunications on Thursday that the government will review all frequency held by companies.
“Those that are not being used, we may try to take back,” he said.
He noted that while the distribution of frequency is administrative, withdrawal of frequency is quasi-judicial, and may end up being determined in court.
“We are thinking of ways to make the withdrawal of frequency administrative too. For example, we could raise the spectrum user fee for the frequency that is not being used. It becomes uneconomical for them to hold on to that. That’s one of the things we could do,” Mr. Rio said.
The spectrum user fee is an annual payment that is based on the amount of spectrum, type of service and economic classification of the areas covered by a telco provider.
The DICT head said some of these frequencies may be owned by Globe Telecom, Inc. and Smart Communications, Inc., but there are also some owned by smaller firms.
“This is a matter of how much frequency you were given vis-a-vis your traffic. How many subscribers are using it? If that’s too low, it means you are not using it efficiently. Therefore we could say what frequency is good enough for your number of subscribers in the present or in the near future… That’s what we’ll add spectrum user fee to, so the companies will be forced to return the frequencies,” he said.
He said the DICT is consulting with the International Telecommunication Union (ITU) on best practices for frequency review.
“We are also advocating for an equitable distribution of frequency as a law… If it’s a law, it would be stronger. But even before that law can be enacted, then this is the plan (for) how to more or less distribute these frequencies more equitably than what it is now.”
Asked if the government plans to reassign frequency to the third player, Mr. Rio said the DICT is open to the idea, but added that the frequency on offer in the draft terms of reference is sufficient.
“Our point is the frequency available is interesting enough for potential bidders,” he said.
In June, the National Telecommunications Commission (NTC) said around 30.32% of the available frequency is owned by PLDT, Inc., which operates Smart Communications. Globe Telecom, Inc. has around 24.9%. About 39.35% represent frequency that is unassigned or still subject to litigation, and 5.41% is unallocated.
Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a stake in BusinessWorld through the Philippine Star Group, which it controls. — Denise A. Valdez

Bohol’s Panglao airport opening moved back to October

THE Department of Transportation (DoTr) said the target launch of the New Bohol (Panglao) Airport has been moved back two months to October after the July completion rate of 92.14% ruled out an August launch.
In a statement on Sunday, the DoTr said the new October launch is still earlier than the original timetable of opening by 2021, which was the goal when construction began in June 2015.
“The 2021 target is just too long,” Transportation Secretary Arthur P. Tugade said in the statement.
The Panglao airport is expected to have a capacity of 2 million passengers a year once it is completed. Aside from being designed to use natural ventilation, one-third of its electricity will also be sourced from solar panels on the roof of its passenger terminal building.
“Everyone should be excited about Panglao airport. I am very excited. This is the kind of airport that we should be building, an airport that has regard for the environment and the future generations,” Mr. Tugade added.
Although the government is expecting the new airport to transform Bohol into the “next Boracay,” an Australia-based aviation think tank, the Center for Asia-Pacific Aviation, said in July that it may take more time before Panglao gets to “ramp up and attract flights.”
“Potential investors in the Bohol International Airport and other new international airport projects may be wary that the ambitious traffic projections may not materialize,” CAPA said in a report. — Denise A. Valdez

Agus-Pulangi rehab named priority among China-funded projects

THE PHILIPPINES is seeking to fast-track a funding agreement with China for the rehabilitation of the Agus-Pulangi hydroelectric power complexes after the project emerged as one of its priorities during a meeting of both parties last week.
In a statement yesterday, the Department of Finance (DoF) said that the Philippine delegation, led by Secretary Carlos G. Dominguez III, met with its Chinese counterparts led by Commerce Minister Zhong Shan on Aug. 23 to discuss “the progress of the projects that, will be and are being, implemented with Chinese financing support.”
The DoF said that Mr. Dominguez “underscored” a “possible parallel financing arrangement between China and the World Bank for the rehabilitation of the Agus-Pulangi Hydroelectric Power Plants of the National Power Corp. (Napocor),” which he described as “a very important project that the Philippines wants to fast-track.”
Mr. Zhong said the Ministry of Commerce was “supportive” of the proposal, according to the DoF.
The Agus-Pulangi rehabilitation project was among those projects lined up for China financing after President Rodrigo R. Duterte obtained $9 billion worth of official development assistance (ODA) during his visit to Beijing in October 2016. Funding was only firmed up as part of the “second basket” of projects in September 2017.
The complex currently serves as Mindanao’s main power source.
Mr. Dominguez has said pursuing a rehabilitation will be timely as the region currently enjoys an oversupply of power.
Following the rehabilitation, the power plants are scheduled to be privatized.
According to the National Economic and Development Authority (NEDA), the rehabilitation is scheduled for 2020 and completed by 2022. The Power Sector Assets and Liabilities Management Corp. has yet to prepare a feasibility study for the project.
Of all the proposed projects to be funded by China, only the P3.69 billion partial financing of the Chico River Pump Irrigation Project has been signed, along with grants for the Estrella-Pantaleon and Binondo-Intramuros bridges, drug rehabilitation facilities in Mindanao, and assistance in the rehabilitation of Marawi City.
Apart from China and the World Bank, the DoF had also asked the OPEC Fund for International Development a participate in the project during a meeting here in May.
The DoF said in 2017 showed that the project could take about five years to complete, and would cost about P54 billion.
Mr. Dominguez also said that the government’s China Projects Task Force, which was created in April, “has been effective in monitoring and facilitating the preparation and implementation” of projects proposed for China’s Official Development Assistance (ODA) financing.
Socioeconomic Planning Secretary Ernesto M. Pernia said in June that the financing process with China is not moving as fast as those of other development partners, largely due to inexperience in dealing with Beijing.
Mr. Dominguez also welcomed the creation of the China International Development Cooperation Agency tasked to handle foreign aid. The agency was created in March.
“We look forward to working with them,” he said.
During the meeting, Mr. Dominguez was joined by Mr. Pernia, Budget Secretary Benjamin E. Diokno, Transportation Secretary Arthur P. Tugade, Public Works and Highways Secretary Mark A. Villar; Foreign Affairs Secretary Alan Peter S. Cayetano; Vivencio B. Dizon, President and Chief Executive Officer of the Bases Conversion and Development Authority; and Philippine Ambassador to China Jose Santiago L. Sta. Romana. — Elijah Joseph C. Tubayan

Chinese province to send business delegation to explore opportunities in the Philippines

By Camille A. Aguinaldo
HARBIN, HEILONGJIANG, CHINA — The Heilongjiang provincial government in China is planning to send a delegation to the Philippines next year or in 2020 to explore business opportunities.
At a symposium with Asian journalists in the province’s capital, Harbin, on Saturday, Heilongjiang Department of Commerce Director Li Leyu said the provincial government is willing to “propose or encourage” Harbin companies to invest or cooperate in the Philippines.
“As the foreign trade promoting department, my department… has reestablished a connection with the Philippines and we are trying to organize a group to visit next year or in 2020 to explore business opportunities,” Mr. Li said, speaking through a translator.
Heilongjiang, in northeastern China, has a population of almost 38 million and shares a border with Russia. The province leads China in the production of crude oil, mainly through China’s largest oilfield, Daqing.
Mr. Li said there used to be four or five Heilongjiang companies operating in the Philippines but they pulled out due to the shaky relationship of the two countries in the past.
“In the past there have been some zigzags in international relations between China and the Philippines. We used to have four or five companies in the Philippines and after that zigzag, they all came back,” he said.
Philippine-China relations hit a snag over the South China Sea maritime dispute following the arbitral ruling favoring the Philippines. With the change of government in 2016, President Rodrigo R. Duterte sought warmer ties with China.
A framework agreement is currently being formed between the Philippines and China in the planned joint exploration in South China Sea. Meanwhile, a high level Philippine delegation, including the country’s economic managers, visited Beijing to secure bilateral deals on China-funded infrastructure projects.
Mr. Li invited the Philippine government, organizations and companies to visit Harbin. He added that more Philippine products can also be introduced to Heilongjiang if demand develops for them.
According to the Pilipino Banana Growers and Exporters Association, China is currently the Philippines’ second-biggest export market for banana, the country’s number two agricultural commodity after coconut products.
June 2018 export data from the Philippine Statistics Authority show China ranked fourth in export shipments after Hong Kong, United States and Japan. Outbound shipments to China was valued at $729.77 million, comprising 12.8% of total exports for the month.
In the same month, China was the country’s biggest source of imports with a 21.4% share of the $7.04 billion total. Import payments to China hit $1.93 billion.
Mr. Li said Harbin companies specialize in the power and infrastructure sector, which could provide technological support to the Philippines.
“If the Philippines is in need of these kinds of investment in the power sector we would like very much to support our companies in doing these kinds of projects,” he said.

Tourism dep’t looking to accredit more agri-tourism ventures

THE Department of Tourism (DOT) hopes to develop more agri-tourism sites nationwide amid slowing growth in the farming sector.
The department has accredited about 100 such sites, some of which were promoted at the second Philippine Harvest event which sought to highlight organic produce and sustainable tourism.
Tourism spokesperson Benito C. Bengzon, Jr. said the department is currently finalizing a five-year farm tourism strategic plan, which calls for more such sites to be developed and promoted.
The plan hopes to raise farm revenue and “strategically also make people appreciate farm tourism in the Philippines,” Mr. Bengzon added.
Details of the program are set to be finalized by September, by which time the department hopes to release the target for farms it hopes to convert to agri-tourism ventures.
“Another thing we have to work on is to look at the existing potential farm tourism sites across the country. We have to do this with the Department of Agriculture (DA),” he added.
The DA will be responsible for identifying the farm sites.
“We have to talk to farmers and tour operators because they play the crucial role in whatever packages are commercially viable.”
One of the accredited sites, Amancio Farm Hotel in Isabela province, is considered a model that the department hopes to reproduce.
Starting as a 45-hectare multi-purpose organic farm in 2012, Amancio’s farm head Arnold F. Reyes told BusinessWorld that a hotel was built two years later when the farm started attracting visitors.
The hotel kitchen uses organic produce from the farm, human resources and marketing head Claire O. Pinera said.
“Even in the vicinity of the hotel, all we plant are vegetables,” Ms. Pinera said.
“We are promoting organic foods especially to our guests. Most of the time, they are unaccustomed to the taste. We are explaining the benefits that organic food gives them,” Ms. Pinera said.
The farm’s five-hectare pond supplies fish for direct consumption or for processing as buro, a fermented preparation of fish, rice and shrimp. The site also includes livestock, with carabaos supplying fresh milk to the hotel.
Coffee and black, brown and red rice are is also sourced from the farm.
Despite the small share of black, brown and red rice bring planted in the province, Ms. Pinera noted that growing health consciousness could point to a potential market for these varieties.
“We want to bring back the lifestyle from before when it comes to eating so that visitors can see what good organic food is doing in their bodies. Now, we are getting so many kinds of illnesses because of what we are eating.” — Anna Gabriela A. Mogato

DTI amends company name rules to boost ease doing business

THE Department of Trade and Industry (DTI) has updated the implementing rules and regulations of the Business Name (BN) Law to incorporate an industry benchmarking system while harmonizing it with the Ease of Doing Business (EoDB) Act of 2018, among other laws.
Department Administrative Order No. 08-07, published in one of the country’s dailies over the weekend, said the revision hopes “to provide streamlined requirements for processing BN applications and promote ease of doing business.”
Overhauling the 2010 revisions made on the IRR of the BN Act of 1931 or Republic Act 3883, the newly issued guidelines also aim to adjust disclosure rules in line with the Data Privacy Act of 2012 or Republic Act 10173 and the Freedom of Information rule under 2016-signed Executive Order No. 2.
“New DAO allows us now to transition from our legacy system into a stronger and more stable system we now refer to as BN NEXT GEN,” Trade Secretary Ramon M. Lopez said in a mobile message yesterday.
He added that the amendments make DTI the “first” to adopt PSIC. A benchmarking system, PSIC provides a detailed classification of industries.
On the EoDB law, the new guidelines removes the requirement for a signed application form for online registrants. Meanwhile, filers of disapproved online applications may seek reconsideration at any DTI office.
The new law also extended the early renewal filing period for certificates nearing expiration, to 180 days from only 90.
The standard information included in the Certificate of Business Name Registration has also been reduced in compliance with the Data Privacy law. Meanwhile, it added provisions to request for the authenticated or certified true copy of the CBN.
It also included refugees and stateless persons as eligible BN applicants.
Mr. Lopez added that amendment will make the system more transparent with inclusion of a QR code which is accessible to the public.
The Business Name Law makes it unlawful for any person to use or sign on any written or printed receipt, agreement or business transaction, any name used in connection with his business, other than his true name, or exhibit in plain view in the place of his business any sign announcing his firm name or business name, without first registering such other name, firm name or business name with the DTI.
Violators can be fined between P50 and P200, or imprisoned between 20 days and three months. — Janina C. Lim

Nickel Asia unit Taganito wins P2.9-M VAT refund

A UNIT of Nickel Asia Corp. has won a Value Added Tax (VAT) refund from the Bureau of Internal Revenue (BIR) worth about P2.9 million on more than P3 billion worth of zero-rated sales.
In an amended decision dated July 27, the Court of Tax Appeals (CTA) partially granted petitioner Taganito Mining Corp.’s (TMC) Petition to Review an earlier CTA ruling ordering the BIR to refund P2,863,631.56 to TMC.
“Accordingly, respondent is ORDERED to refund to petitioner the amount of P2,946,937.07, representing its excess/unutilized input VAT paid on its importation of capital goods with aggregate acquisition cost exceeding P1 million, which are attributable to its zero-rated sales for taxable year 2013,” the Amended Decision added.
In the CTA’s April 5, 2017 decision, TMC petitioned for a BIR refund of P8,326,025.84 in excess/unutilized input VAT. CTA partly granted the reduced amount of P2,863,631.56 in refundable input VAT.
In the amended decision, CTA said “Consequently, only the input VAT of P2,946,937.07 is attributable to the valid zero-rated sales of P3,242,247,906.69.”
BIR said about the court’s earlier ruling in granting the P2,863,631.56 refund that there was “no evidence” presented by TMC “to prove that the input tax on importation is directly attributable to export sales.”
TMC said it “complied with the substantiation requirements to prove that the input tax paid on its importation and domestic purchases of capital goods are directly attributable to its zero-rated sales for taxable year 2013.”
Based on Section 12 (A) of the Tax Code, the CTA declared that the law “does not decree that the input tax be directly attributable to petitioner’s zero-rated sales” and found BIR’s claim “bereft of merit.”
In the earlier ruling, TMC’s valid zero-rated sales amounted to P3,150,594,396.73, making the refundable input tax P2,863,631.56.
In the amended decision, the substantiated zero rated sales was changed to P3,242,247,906.69 after additional evidence provided by TMC showed it also had VAT zero-rated sales worth P91,653,509.96.
The CTA stated in its amended decision “the input VAT on importation of capital goods, which are undeniably necessary for the production of petitioner’s exports, are attributable to its zero-rated sales.”
TMC is one of Nickel Asia’s four operating mines and exports saprolite and limonite ore. According to Nickel Asia’s website, the Surigao del Norte-based mine is the “exclusive supplier of limonite ore to Taganito HPAL Nickel Corporation (THPAL), the Philippines’ second hydrometallurgical nickel processing plant.” — Gillian M. Cortez

TRAIN Law: Updating the Certificate of Registration

LIKE its fast-moving namesake, the effects of the TRAIN (Tax Reform for Acceleration and Inclusion) Law or Republic Act. No. 10963 continue to have impact on professionals and entrepreneurs.
The Bureau of Internal Revenue (BIR) has issued several regulations to implement the TRAIN Law, such as requiring certain compliance reports and submissions from taxpayers. These regulations have raised new concerns with taxpayers since non-compliance will have corresponding fines and administrative penalties.
Among the requirements of the BIR is for income payees to submit to their income payors a sworn declaration of their gross receipts/sales together with a copy of their Certificate of Registration (COR). Previously, sole proprietors, professionals or mixed-income earners whose gross receipts exceeded P1,919,500.00 were required to register as value added tax (VAT) covered persons. As such, the covered professionals and entrepreneurs must obtain a COR that reflects that they are VAT-registered taxpayers.
With the TRAIN Law, the ceiling for VAT registration has been increased to P3,000,000.00. Interestingly, this new threshold determines the difference between withholding tax rates of 5% and 10%.
Specifically, under Revenue Regulations (RR) No. 14-2018, if the gross income of the professional for the current year does not exceed P3 million, the withholding tax rate is 5%. If gross income is more than P3 million or the income payee is VAT-registered (regardless of amount), the withholding tax rate is 10%.
Moreover, except for VAT-registered taxpayers, the P3 million mark has also been identified as a point of reference for self-employed individuals or professionals availing of 8% tax in lieu of the graduated income tax rates under the TRAIN Law.
In particular, wholly self-employed individuals or professional practitioners whose gross sales and/or receipts do not exceed P3 million and/or are not VAT-registered taxpayers were given the option to avail of an 8% tax on their gross sales or gross receipts and other non-operating income in excess of P250,000 in lieu of the graduated income tax rates under the Tax Code.
As the P3 million threshold determines both the applicable withholding tax rate for individual professionals and the necessity of registration as VAT-registered taxpayer, the BIR has issued RR No. 11-2018, as amended. It provides that income payees have the responsibility to submit a Sworn Declaration of their gross receipts/sales together with a copy of the COR. The documents submitted will be used by income payors as the basis to determine the applicable withholding tax rate to individual payees in cases of payment of professional fees.
This requirement serves a practical purpose for the BIR as it abbreviates the process of determining the applicable tax rate. For example, a VAT-registered person will automatically be subjected to the 10% withholding tax rate.
Reference to Section 236 of the Tax Code reveals that the lawmakers have long considered the possibility that changes in taxpayers’ registered tax type and details may occur. In fact, under Section 236, taxpayers have the obligation to update their registration whenever applicable. The BIR, in Revenue Regulation (RR) No. 07-2012, or the Amended Consolidated Revenue Regulations on Primary Registration, Updates, and Cancellation, has also promulgated guidelines in the event of changes in the registered tax types and details of taxpayers. It provides that registered taxpayers are required to update their registration information with the Revenue District Office where they are registered whenever there is any change in tax type and details. Examples of updates include, but are not limited to, change of surname, change of address within same district office, or exemption status.
For this reason, taxpayers who opt to avail of the 8% income tax rate in lieu of the graduated income tax rates under the TRAIN Law must submit an updated COR considering that there is a change in their registered tax type.
However, under RR No. 8-2018, all existing VAT registered taxpayers, whose gross sales/receipts and other non-operating income in the preceding year did not exceed the VAT threshold of P3 million, have the option to update their registration to non-VAT. If qualified VAT registered taxpayers opt to update their registration to Non-VAT, it would be likely that they must also submit an updated COR to reflect the option that they made.
The obligation of updating one’s COR is not a new requirement considering that the previous Tax Code mandated the update if the status of a taxpayer changes. In fact, this requirement was also reiterated by the taxing authority in several issuances. We should all note that, in addition to bringing about tax reform for the country, the changes brought about by the TRAIN Law remind taxpayers to become more aware of their tax responsibilities at all times.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.
 
Rosalie T. Lapuz is a Director at SGV — Financial Services Tax.

Q2 Growth: Old or New Normal?

THE one bright spot for the Philippines in the second half of the 21st century is its growth. The average growth rate of GDP in the last six years was 6.5%, which exceeded the 4.8% average growth under the Arroyo administration and thus was considered the “new normal.” The Duterte administration aimed to maintain or even exceed the new normal. The first full year of the Duterte administration managed a 6.7% GDP growth which exceeded the 6.5% norm. TRAIN 1, a feat of sorts, was signed in January 2018. One could, with reason, entertain the thought that the Duterte watch is poised to set a “new” normal of perhaps close to 7%. But the 6% GDP growth in Q2 is a three-year low and has renewed the conversation of revert to the old. Not because the 6% growth is to be sneezed at but because by mid-2018 the rainclouds are starting to gather. Inflation in July is 5.7%, and the BSP has responded with increases in the interest rate. The GDP growth for S1 is now 6.3%, which means that the economy has to grow at 7.1% in S2 to equal last year’s 6.7% or grow at 6.7% in S2 to reach the new normal level of 6.5%. Either 6.7% or 7.1% in S2 is now a tall order, given the contractionary pressure from the interest rate rise, the disruptions and floods due to inclement weather, the possible adverse fallout from TRAIN 2 on DFIs and ENDO and the looming headwinds from the tariff wars. Firms may prefer to batten their hatches and wait for sunnier days.
The 6% GDP growth itself owes to the no-growth in the Agriculture output (0.02%) despite no marked weather problem in Q2; a rising trade deficit due to slowing down of exports (13%) and a rising imports (19.7%) also mattered; the latter no doubt related to BUILDx3. There is no observable blip in consumption spending in S1, which could have been expected from TRAIN 1 personal income tax cut. The salient consumption blip came rather in the last quarter of 2017 (6.2%) which anticipated the TRAIN 1 vehicular tax increase. We hope that this dip is a one-off.
But the aspect that is worrying in the Q2 growth is the performance of the drivers: Manufacturing grew at 5.6% while Services grew at 6.6%. In other words, Services was driving the GDP! By contrast, in Q1 2018, Manufacturing grew at 8% while Services grew at 7%; likewise, in the first full year of Duterte’s watch, Manufacturing grew at 8.8% and services grew at 6.8 %. Manufacturing was the driver of GDP during the last six years.
Why is the change in the driver of interest? Because Services, not Manufacturing, was always the driver of GDP in Philippine growth of the old normal going all the way back to Marcos. It was the unique achievement of the Aquino administration that Manufacturing drove GDP (see Figure 1) below. This is the signature of the new normal.
The deeper reason is that this signature of the new normal makes for inclusive growth. It is now a canon in the annals of low-income country development that when Manufacturing drives growth, growth tends to be inclusive; when Services drives growth, it tends to be non-inclusive (see, e.g., Daway, Ducanes, and Fabella, 20161)! The relationship between growth drivers and inclusion is illustrated by the experience of the Philippines, China and Vietnam. Figure 2 gives the average growth of Manufacturing and Services from 1990 to 2010 for these countries.
Note that both in China and Vietnam Manufacturing led Services in growth; the opposite held in the Philippines. Now, contrast the poverty reduction performance of the same countries in the same period (Figure 3). The poverty reduction performance of both China and Vietnam dwarfs that of the Philippines for the same period.
This is consonant with the regression result of above-cited (Daway, Ducanes and Fabella, 2016). When Manufacturing drives GDP growth, growth tends to be inclusive. Thus, it is prudent to beware of Services being the engine of growth in low income countries! That is what happened in Q2 2018. Old habits die hard.
If the Duterte administration’s announced intention to renew Manufacturing especially in the regions sees fulfillment, it would leave inclusion as its legacy. The dip in Manufacturing in Q2 is a reminder that growth in the new normal is still fragile and its roots shallow. There are storm clouds in the global horizon which are beyond our control. The trepidation triggers in our own backyard are, however, our own making: the rising murkiness in the investment climate due to the CHA-CHA, especially the version issued by the Consultative Committee, the added uncertainty from TRAIN 2 and the ill-wind from ENDO. Q2 growth may be the first blush of this trepidation; investors may be deciding to stay on the sidelines and wait for more clarity and clemency.
The stakes are high. If we lose the investment battle, we lose the war. n
1 “Quality of Growth and Poverty Incidence in Low Income Countries,” available at https://www.academia.edu/34094141/Quality_of_Growth_and_Poverty_Incidence_The_Role_of_Manufacturing
 
Raul V. Fabella is a retired professor of the UP School of Economics and a member of the National Academy of Science and Technology. He gets his dopamine fix from hitting tennis balls with wife Teena and bicycling.

Low-carbon path

A previous piece showed that our greenhouse gas reduction commitment to the Paris climate treaty meant a gradual 2.02% annual reduction in fossil-based electricity generation, for a total reduction of 23.3% by 2030 compared to 2017 levels. The annual reduction required by this low-carbon path is only half the 4% natural attrition rate of coal plants, if they are retired at the end of their 25-year useful life. This provides the country with some flexibility.
Our commitment gives the Duterte administration a fossil-based generation ceiling of around 64,280 GWh by 2022, which was our level of fossil-based generation in mid-2016. Thus, if the Duterte administration, by the end of its term, brings down our fossil-based generation to the same level as the level when it assumed office, we can meet our Paris commitment.
WHAT ABOUT OUR GROWING ELECTRICITY REQUIREMENTS?
We definitely do not want to sacrifice national development and our power needs for the sake of meeting our Paris commitment. So, the real question is: if we took the low-carbon path and reduced our fossil-based generation by 2% per year, can renewable energy (RE) and energy efficiency cover the balance?
This piece will show that as of 2017, enough RE projects have already been approved by the DoE to cover the balance, with a few years to spare.
Thus, with the right policies, we can meet our growing electricity requirements and our Paris commitment too.
Let us first determine what this balance is.
Using the DoE’s load factor method in the DoE’s Power Development Plan 2016-2040, we estimate the DoE generation target to be around 118,000 GWh by 2022 and 182,000 GWh by 2030. Since a low-carbon scenario limits the Duterte administration to at most 64,280 GWh (54%) of fossil-based generation by 2022, this means that the balance of 53,720 GWh (46%) must be covered by RE.

CAN THE DUTERTE ADMINISTRATION PRODUCE 53,720 GWH FROM RE BY 2022?
As of end-2017, some 1,075 private sector RE projects had been submitted to the DoE. Of these, 869 projects had been approved (Table 1), while 206 were still pending.
The approved projects totaled 23,760 MW, good for an annual generation of more than 58,000 GWh based on very conservative capacity factor assumptions (35% hydro, 35% OTEC, 63% geothermal, 23% wind, 14% solar, and 27% biomass). As long as all approved RE projects as of 2017 are implemented on time, we can generate more than enough electricity for our national development goals and exceed our Paris commitment at the same time, with several years to spare.
Including the 206 RE projects still awaiting approval raises the potential annual generation to 68,000 GWh, far exceeding our low-carbon target of 53,720 GWh RE by 2022. Remember that these are just RE projects approved as of 2017. The Duterte administration has four more years to exceed its low-carbon targets.
With a further 10% reduction in electricity demand through energy efficiency, subsequent administrations can go for even more ambitious carbon cuts or GDP growth rates in the future.
OTHER BENEFITS OF A LOW-CARBON PATH
This low-carbon path will also 1) help the Philippines access climate-related international grants and financing; 2) reduce local pollution; 3) pull down the price of electricity as solar, wind and battery prices decline steadily; 4) open the country’s industrialization program to sunrise industries offering green investments and green jobs; 5) democratize the electricity sector as more rooftops are solarized; 6) improve the resilience as well as efficiency of our energy infrastructure through distributed generation; and 7) reduce financial and project risk through expansion in smaller increments.
RE PROJECT DELAYS DUE TO ENERGY SPECULATION AND RED TAPE
Sadly, some RE developers have dilly-dallied in finishing their projects. They are apparently more interested in reselling their service contracts to latecomers.
Worse, some of these speculators are also building coal plants, whose outputs are contracted out to electric utilities through long-term power supply agreements. And these plants are completed with little delay, especially today, with DoE’s EO 30 fast-tracking “projects of national significance.” Thus, RE projects are locked out of potential markets, while we are locked in for the next decade or more to coal plants which cause global warming, local pollution, volatile prices and other problems.
To foil these energy speculators, the DoE must insist on iron-clad contracts, clear milestones, performance bonds, and hefty penalties for delays in RE projects.
The red-tape problem, a common complaint, can be solved: the DoE should do the pre-feasibility studies and project specifications, collect all the necessary signatures, and package the projects itself. It can then auction off the packaged projects to the most qualified bidders who bid to finish them on time at the lowest cost.
DISMAL RESULTS FROM THE RE ACT
The Renewable Energy Act of 2008 is ten years old this year. Its implementation has been dismal.
The feed-in-tariff (FIT) system for big players was hobbled from the beginning by an ill-conceived high-risk “race-to-finish” approach which required developers to finish their RE project first before they can learn if they qualify for FIT or not. FIT participants regularly complain of delayed payments.
The net metering provision for small players was recast by electric utilities into an unattractive net billing system and saddled with barriers like permitting requirements, impact studies and unnecessary charges.
Other provisions like the renewable portfolio standards, renewable energy certificates and green energy options have languished, unimplemented after ten years.
Pres. Duterte should step in to ensure that Filipinos are not denied the full benefits from renewable technologies that are increasingly enjoyed by people in countries with better pro-RE policies.
 
Roberto Verzola is a Senior Fellow of Action for Economic Reforms. The German foundation Friedrich Ebert Stiftung published in 2017 his book Crossing Over: The Energy Transition to Renewable Electricity (second edition, PDF is online). He is currently president of the non-profit Center for Renewable Energy and Sustainable Technology (CREST).

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