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Debt yields down on Fed rate hike, Fitch rating move

YIELDS on government securities (GS) ended lower last week as the Federal Reserve turned dovish after its interest rate hike and on the back of slower US consumer price index (CPI) data and the Philippines’ credit rating upgrade.

Bond yields, which move opposite to prices, fell by an average of 0.11 basis point (bp) week on week, data from the Philippine Dealing & Exchange Corp. as of Dec. 15 showed.

“Government securities fell by an average of 0.11 basis point week on week on a dovish Fed and lower US CPI,” Carlyn Therese X. Dulay, vice-president and head of institutional sales at Security Bank Corp. (Security Bank), said in an e-mail.

Land Bank of the Philippines (Landbank) market economist Guian Angelo S. Dumalagan said yields fell primarily because of the upgrade received by the Philippines from Fitch Ratings.

“The downward bias was minute, as were also upward forces last week that almost offset the impact of the credit upgrade,” added Mr. Dumalagan.

Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc., said via e-mail that yield movements were minimal.

“Downward pressure came from recent events [last] week on monetary policy directions of advanced countries. The uncertainty of the pace of the tightening is fuelling these movements,” added Mr. Asuncion.

A bond trader added that last week’s trading activity was “lackadaisical” as investors awaited the Bangko Sentral ng Pilipinas’ (BSP) decision on top of the US Fed, European Central Bank and Bank of England policy meetings.

“Relatively, no fireworks from these meetings, market players opted to keep to the sidelines with traders simply servicing client-based requirements,” the bond trader added.

The BSP Monetary Board kept borrowing rates unchanged during its eighth and final policy review for 2017.

Rates stayed at 3.5% for the overnight lending rate, 3.0% for the overnight reverse repurchase rate, and 2.5% for overnight deposit.

The BSP’s decision followed this year’s third rate increase from the Federal Reserve during its two-day review. Central bank officials have said that they need not move in sync with the Fed, as they focus more on domestic developments in setting interest rates.

The US central bank raised rates by a quarter of a percentage point to a range of 1.25% to 1.5%. It expects three more hikes in both 2018 and 2019, unchanged from the last round of forecasts in September.

However, the market perceived the rate hike to be dovish, with two out of the twelve members of the Federal Open Market Committee, namely Charles L. Evans and Neel Kashkari, voting against the move.

In its justification for Wednesday’s rate increase, which was widely expected by financial markets, the Fed’s policy-setting committee cited “solid” economic growth and job gains.

Meanwhile, the US Labor Department said its CPI excluding the volatile food and energy components slowed to 1.7% in November from 1.8% in October as prices for airline fares and household furnishing declined.

The overall CPI increased 0.4% in November after edging up 0.1% in October. That raised the year-on-year increase in the CPI to 2.2% from 2% in October.

Back home, at the close of trading at the secondary market last Friday, in the short end of the yield curve, debt yields went down across the board. Yields on the 91-, 182- and 364-day Treasury bills dropped 3.61 bps to 3.1193%, 3.18 bps to 3.2521%, and 10.91 bps to 3.0194%, respectively.

In the belly, all debt yields also declined. The two-, three-, four, five- and seven-year Treasury bonds (T-bond) saw their rates drop by 2.26 bps to 4.0519%, 10 bps to 4.25%, 10.92 bps to 4.8279%, 4.77 bps to 4.6843% and 4.82 bps to 5.2982%, respectively.

On the other hand, in the long end of the curve, yields on the 10- and 20-year T-bonds went up 10.5 bps to 5.685% and 38.83 bps to 5.6074%.

Looking forward, Landbank’s Mr. Dumalagan said yields might see an upward correction, as likely strong US third-quarter growth data and positive developments on the US tax bill might divert investors’ attention back to prospects of three more interest rate hikes in 2018.

Meanwhile, Security Bank’s Ms. Dulay expects the securities market to remain range-bound as participants await the four-year Treasury bond reissuance tomorrow, which is expected to print between 4.5% and 4.625%.

UnionBank’s Mr. Asuncion said this week would be more of the same as the year comes to an end. — Lourdes O. Pilar

How Disney is bringing the brand to more Filipinos

By Cathy Rose A. Garcia,
Associate Editor

IF YOUR FAVORITE SM mall is looking more like a Disney wonderland these days, it’s just part of the mall giant’s multi-year partnership with The Walt Disney Company (Philippines), Inc.

This holiday season, Christmas decorations at SM malls are all about Disney. For instance, a giant Christmas tree made up of Disney Tsum Tsum characters dominates SM City North EDSA’s The Block. Other malls feature well-loved characters like Mickey Mouse, as well as those from Disney animated films like Cars and Frozen.

The “We Love Disney” campaign with SM Supermalls is just one part of The Walt Disney Company’s plan to bring the well-loved brand to more Filipinos, not just in urban areas but around the country.

Veronica Espinosa-Cabalinan, Country Manager Philippines, The Walt Disney Company (Photo: RENDY ARYANTO/Visual Verve Studios)

Veronica Espinosa-Cabalinan, general manager in the Philippines, said the company is pursuing more local partnerships, like the one with SM, to be able to expand the brand’s reach.

“One of our key strategies really to expand our reach is localization. As you know, for you to be able to be successful in localization is you have to partner with local companies because they would really tie in the brand messaging seamlessly into the local culture,” she said, in an interview at the company’s new office in Taguig.

For partnerships, Ms. Cabalinan said The Walt Disney Company is looking for companies that it shares common values and goals, as well as provide reach and relevance.

“Local companies pretty much have ears and eyes on ground. And one of the things me and my team are working on is we want to be known as the Filipino Walt Disney Company, not The Walt Disney Company Philippines. Our goal is really for every Filipino household to have the opportunity to touch and feel the Disney and Marvel brands. That’s our primary goal,” she said.

With SM, the company has a multi-year theatrical promotions partnership that “aims to bring Disney, Marvel, Pixar,and Star Wars movies to life through unique Disney experiences at SM’s entertainment properties.”

“We’re doing the We Love Disney campaign. The SM malls are allowed to dress up their malls in Disney or Marvel characters. This kind of mall-theming is across its chain of malls, including far-flung malls like SM Rosales or SM Lanang. That’s the type of reach we’re looking at,” Ms. Cabalinan said.

This perhaps has helped ensure box office success for Disney and Marvel films. The top five highest-grossing films of all-time in the Philippines are all from Disney and Marvel, namely Beauty and the Beast; Captain America: Winter Soldier; Avengers: Age of Ultron; Avengers, and Iron Man.

Disney has also tied up with Globe Telecom, Inc. for theatrical promotions, media distribution and Disney Interactive. “In terms of how to expand our stories and integrate into every day lives of Filipinos, we have partnership with Globe where we did the web series called I Dare to Dream — which showed how our (Disney) Princess stories were integrated in the every day lives of Filipinos,” Ms. Cabalinan said.

She noted both SM and Globe have the “reach” that Disney was looking for. “That’s very important for us, the way we want to expand into areas where our content hasn’t be able to reach,” she said.

Folded & Hung Star Wars Collection as modeled by celebrity endorsers James Reid and Nadine Lustre

PRIORITY MARKET
Ms. Cabalinan emphasized that Disney considers the Philippines as one of two priority markets in Southeast Asia, along with Indonesia.

“It comes from the fact that Filipinos have a natural resonance towards the Disney and Marvel brands,” she said, noting Filipino children’s favorite characters include Spiderman, Sofia The First, Avengers and Frozen’s Anna and Elsa.

“The challenge is how to continue giving best in class Disney and Marvel experiences to the fans over and over again… Also to remain relevant, we just have to keep up, especially with the technological advancements,” she added.

Disney has also worked with several local companies on consumer products. Folded and Hung recently released a Star Wars clothing line, while Lamoiyan Corporation sells Mickey Mouse-themed Hapee kiddie toothpaste.

Homegrown beauty brand Happy Skin released Disney Princess-inspired lipsticks in October 2016, followed by a Beauty and the Beast collection in time for the live action film’s release in March this year.

“We really work closely with the partner to integrate the (Disney) stories in the every day lives of Filipinos, whether content or products, even social media,” Ms. Cabalinan said.

Disney also has an up-coming partnership with furniture designer Kenneth Cobonpue, although she did not give details.

“From low to high, what we are looking at is making the content available for all,” she said.

Peso to drop on upbeat US data

THE PESO is expected to slide this week due to positive developments on the US tax bill, as well as the upbeat expectations on third-quarter US economic growth data.

On Friday, the local currency moved sideways against the greenback, gaining 2.5 centavos to close at P50.445, as the market consolidated driven by stronger-than-expected US retail sales data.

Week on week, the peso also ended stronger than its P50.50 close last Dec. 8.

An analyst said the dollar might regain its footing in the coming days as the peso “unexpectedly appreciated” last week following the sovereign credit rating upgrade by Fitch Ratings.

Fitch upgraded its long-term issuer default rating for the Philippines to “BBB” from “BBB-”, assigning a stable outlook, on the back of the country’s strong economic performance, reinforced by the tax reform package which is now awaiting the president’s approval.

“The dollar might rebound as a trend in the next five days amid reports that Republican negotiators in US Congress are already finalizing the US tax bill, increasing the chances of its passage before 2017 ends,” Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (Landbank), said in an e-mail.

Meanwhile, a trader noted that third-quarter US gross domestic product (GDP) growth data to be released later this week is “something to look at.”

“This growth report might help divert investors’ attention back to the latest US policy meeting where policy makers affirmed their view of three rate hikes in 2018 on the back of upwardly revised projections for 2018 growth and inflation,” Mr. Dumalagan noted.

Meanwhile, the Wednesday and Thursday sessions might be favorable for the local unit as expectations on the US housing reports are “mixed.”

“Building permits and housing starts are expected to show weaker readings, while existing home sales, which comprise about 90% of the US housing market, is likely to come out firm,” Landbank’s market economist said.

For this week, traders expect at the peso to move between P50.25 and P50.75, as Mr. Dumalagan noted that “unexpected hawkish moves from Bank of Japan and negative results from GDP growth and tax bill” might reverse the upward trajectory of the dollar. — K.A.N. Vidal

Dos Anjos masters Lawler in UFC Winnipeg

By Michael Angelo S. Murillo
Senior Reporter

THE penultimate Ultimate Fighting Championship (UFC) event for 2017 concluded yesterday with ex-lightweight champion Rafael Dos Anjos continuing his ascent at welterweight with a unanimous decision victory over former welterweight king “Ruthless” Robbie Lawler in Winnipeg, Canada.

Locked in right from the start, Mr. Dos Anjos left his imprint on the fight, not allowing Mr. Lawler to get much of his game going on his way to a 50-45, 50-45 and 50-45 UD win.

In the co-main event earlier in the day, meanwhile, Josh Emmett knocked out Ricardo “The Bully” Lamas in the opening round of their catchweight fight.

Mr. Dos Anjos got off to a strong start, bucking the early pressure that his opponent put at him with solid leg kicks and good clinch work. He went on to dictate the pace of the contest in the second round.

Mr. Lawler positioned himself better to start the third round but eventually was mastered by the Brazilian as he spent much of the tailend of the round on the receiving end of Mr. Dos Anjos’ ground-and-pound.

Sensing that he has the fight under control, Mr. Dos Anjos used rounds four and five taking the fight to Mr. Lawler, punctuated by a flashy flying knee to end the fourth round, leaving no doubt who won the fight.

Immediately after the battle, Mr. Dos Anjos (28-9) made his intentions known that he wants a shot at the division title currently held by Tyron Woodley.

“In my opinion, I just beat the toughest guy in the division. I think I deserve a title shot because of my history as a fighter,” Mr. Dos Anjos said.

With the loss, Mr. Lawler dropped to 28-12, losing two of his last three fights.

A FAST ONE
Meanwhile in the co-main event, Sacramento’s Mr. Emmett dealt a fast one on number three featherweight contender Mr. Lamas, knocking out the latter just 27 seconds in the opening round.

After a brief feeling-out period with the fighters testing the waters initially, Mr. Emmett, who weighed 2.5 pounds over the limit in featherweight in the weigh-in, unleashed a left hook that immediately sent Mr. Lamas to the mat and signaled the end of the fight.

The win was the second straight for Mr. Emmett (13-1) in the UFC while Mr. Lamas (18-6) slumped to his second loss in four fights.

In earlier fights, welterweight Santiago Porzinibbio beat Mike Perry by unanimous decision and light heavyweight Glover Teixeira TKO’d via punches Misha Cirkunov in the first round.

Next for the UFC is “UFC 219” on Dec. 31 (Manila time) in Las Vegas, Nevada, that will feature the women’s featherweight title clash between champion Cris Cyborg and challenger Holly “The Preacher’s Daughter” Holm.

In the Philippines, Cignal TV, the country’s foremost direct-to-home (DTH) company, is the home of the UFC after the two groups agreed to an extensive deal that will see the UFC beamed on various platforms.

First-ever PFL champion

By Michael Angelo S. Murillo
Senior Reporter

ONE of the teams whose inaugural Philippines Football League (PFL) campaign got intermittently halted because of various commitments, including international ones, Ceres-Negros FC eventually underscored its standing as the best club in the country by bagging the first-ever championship of the newly formed national league.

Defeating Global Cebu FC, 4-1, in the maiden final match of the PFL at the Panaad Park and Football Stadium in Bacolod City on Saturday, “The Busmen” were dominant right from the get-go with Iain Ramsay leading the way with a hat trick en route to the title.

The win was in contrast to the previous matches that Ceres and Global had in the regular season which were tightly fought and went in contrast to the expectations of many pundits and observers.

Bienvenido Maranon, the league’s top goal scorer, started the scoring parade for Ceres, finding the bottom of the net in the fourth minute, sending the hometown crowd to early celebration.

Global had a good chance to equalize immediately after but Rufo Sanchez’s attempt failed to go through.

Mr. Ramsay made it 2-nil, scoring his first goal of the night in the 20th minute off a pass from teammate Stephan Schrock.

Ceres further buried Global, 3-0, seven minutes later as Azkals member Ramsay was on the scoring end anew.

The Busmen maintained the comfortable lead heading into the halftime break as they rebuffed every Global attempt to gain traction.

Ceres pretty much sealed the championship when Mr. Ramsay completed his hat trick in the 61st minute when he slotted in an assist from Patrick Reichelt.

Global though would save some face as the match wore on with Darryl Roberts converting a goal in the 89th minute before the final whistle sounded.

For his sparkling performance on the offensive end, Mr. Ramsay was named man of the match in the championship game.

Mr. Ramsay highlighted collective hard work as key to their success in the inaugural season of the PFL, which took the place of the United Football League.

He also gave credit to the experience they had in various international competitions for strengthening their legs to compete.

“It’s been a lot of hard work to get to this stage. Fortunately for us in Ceres we’ve had a lot of success in the AFC Cup, becoming ASEAN Champions. This just caps it off, to win the final. Massive congratulations go to the whole club of Ceres, the people of Negros, my teammates, and the coaching staff,” Mr. Ramsay was quoted as saying but the official Ceres Web site.

Apart from winning the PFL title, Ceres earned a spot in the AFC Champions League 2018 preliminary stage and will face Myanmar’s national league champion Shan United on Jan. 16.

Officially opened in May, the PFL is planned and organized by the Philippine Football Federation with help from Asian Football Confederation (AFC) and the International Football Federation (FIFA).

The PFL, organizers said, is another step in taking the growth of the sport of football in the country to another plane.

Beermen open title-retention bid with a win; PBA board impasse resolved

By Michael Angelo S. Murillo
Senior Reporter
Beermen open title-retention bid with a win; PBA board impasse resolved

THE defending PBA Philippine Cup champions San Miguel Beermen opened their title-retention bid with a win, beating the Phoenix Petroleum Fuel Masters, 104-96, in the season opener yesterday at the Smart Araneta Coliseum.

Towed anew by its solid starting five, San Miguel withstood everything that a “retooled” Phoenix squad threw at it from start to finish and marched to its first win in the season-opening tournament of the Philippine Basketball Association.

San Miguel opened the game with an 8-0 blast and pretty much never looked back.

It built a 23-18 lead at the end of the first period before doubling it to a 10-point cushion, 47-37, by the halftime break.

Phoenix, now playing under the baton of new coach Louie Alas, tried to make its move in the third period but Arwind Santos and the rest of the Beermen would hold the fort and maintain control, 79-68, at the end of the frame.

The Fuel Masters continued to crowd the Beermen to begin the fourth, cutting down their deficit to just five points, 85-80, with 6:28 left on the clock.

However, like much of what they done throughout the match, the Beermen would find ways anew to keep their opponents at bay, outscoring their opponents, 18-4, in the next four minutes to extend their lead to 19 points, 103-84, that all but put the game away from the reach of the Fuel Masters.

June Mar Fajardo led San Miguel to the win with 23 points, 16 rebounds and four blocks.

Alex Cabagnot had 22 points while Marcio Lassiter had 20 markers.

Chris Ross finished with 16 points and nine assists while Mr. Santos had 14 points and 11 rebounds.

Phoenix, for its part, was paced by Jeff Chan with 18 points while Matthew Wright had 12.

“We really wanted to take the first game because we want to bounce back for the kind of finish we had last conference. Good thing everybody did their job and nobody got hurt,” said Mr. Fajardo, named player of the game, following their win.

ALL’S NOW WELL
Meanwhile, prior to the opening of Season 43 of the PBA, members of the Board of Governors met the press to announce that the impasse that beset it in the last few months is now over.

At a quagmire over the status of Commissioner Chito Narvasa, the board said everything has been ironed out with Mr. Narvasa agreeing to step down.

TNT representative Ricky Vargas said Mr. Narvasa tendered his resignation yesterday morning effective immediately.

He was, however, asked to stay until the end of the year to facilitate in the transition.

Named officer-in-charge of the league was PBA media bureau chief Willie Marcial.

“I’d like to thank some people who made us stronger than ever and who never gave up during this crisis the PBA underwent,” said Mr. Vargas, who also announced a swap in board chairmanship this season with him taking leadership from supposed chairman Ramoncito Fernandez of NLEX.

“We reached out to Commissioner Narvasa and we made amends for the things that needed to be clarified and he has tendered his resignation effective today (yesterday). We thank him for his services and contributions to the PBA. Appointed OIC is Willy Marcial,” added Mr. Vargas, who was surrounded by members of the board as he spoke to the media.

Prior to settling their differences, league board members were divided over the standing of Mr. Narvasa.

Seven teams, namely TNT KaTropa, Alaska Aces, Blackwater Elite, Meralco Bolts, NLEX Road Warriors, Rain or Shine Elasto Painters and Phoenix Petroleum Fuel Masters, citing “loss of confidence” over “questionable” decisions of Mr. Narvasa of late, were calling for his outright resignation.

Five teams — San Miguel Beermen, Barangay Ginebra San Miguel Kings, Magnolia Hotshots, Kia Picanto and GlobalPort — meanwhile, were batting for Mr. Narvasa’s retention until due process was done.

No cease-fire with communist rebels this Christmas — Palace

GOVERNMENT FORCES will not observe a cease-fire with communist rebels this Christmas, Malacañang clarified on Sunday.

“Our defenders would not stand down as there has been call on the other side to launch offensives against state forces. The CPP-NPA is notorious for conducting treacherous attacks even when there was unilateral cease-fire in the past during which we have lost scores of our brave defenders,” Presidential Spokesperson Harry L. Roque, Jr. said.

“Declaring a SOMO (Suspension of Military Operations) now is not to the nation’s best interest as it would only expose our defenders to enemy attacks and embolden them to commit more atrocities, especially during their anniversary. However, we do not discount possibilities that there may be circumstances that may arise for government to reconsider its present position,” he added.

Mr. Roque’s statements serve to affirm Mr. Duterte’s earlier remarks that practically discourage hopes for a cease-fire.

“Pag sinabi ng military, Armed Forces na, ‘Huwag ‘yan kasi they will gain grounds (sic).’ But the only reason is you’ll give an advantage to the enemy,” Mr. Duterte said in an interview with reporters last Wednesday.

(If the military, Armed Forces, say that “No, because they will gain ground.” But the only reason is you’ll give an advantage to the enemy.)

“If they take advantage there but lull, and the military will say, “Give them the space and the time and motion to move against government forces,” eh ‘di maniwala ako sa kanila (of course, I will believe them),” he added.

On Dec. 5, Defense Secretary Delfin N. Lorenzana said he was not inclined to recommend a SOMO after Mr. Duterte had signed Proclamation 360, terminating the peace talks with the communists.

“We can always break tradition,” Mr. Lorenzana said of the annually observed cease-fire.

“Because there have been, there was an order by their (the rebels’) commanders to intensify operations against us, so kung mag-SOMO kami (so if we declare a SOMO) and we will stand down, then they will attack us again,” he added.

Following Proclamation 360, Mr. Duterte thereafter issued another proclamation classifying the Communist Party of the Philippines-New People’s Army (CPP-NPA) as terrorist organizations. — Rosemarie A. Zamora

ESPN5 launches SportsCenter after PBA games

ESPN5’s SportsCenter debuted on Sunday, bringing up-to-date developments of what’s happening in the PBA, the NBA, American Football, Volleyball and a lot more.

Produced live and exclusive by ESPN5, the show is being hosted by the PBA panel’s familiar fixtures Magoo Marjon and Aaron Atayde and former courtside reporter Lia Cruz and fitness buff Amanda Fernandez.

The 30-minute daily program will be bringing to Filipino fans the latest sports news and developments from the Philippines and around the world, with daily content contribution from SportsCenter US.

Mr. Marjon is a longtime PBA play-by-play commentator, who’s been around in the business for about 15 years. He’s been covering Asia’s pioneering professional basketball league and has covered FIBA-sanctioned tournaments, including FIBA Asia and FIBA World Cup.

Ms. Cruz, on the other hand, has covered sports for a long time before being assigned in the news department of News 5, but continuously tapped by the network for the coverages in FIBA and the Olympics.

Host Aaron Atayde also brings a wealth of sports knowledge to SportsCenter. Well-known to sports fans as one of the most-recognized voices on Philippine radio, Mr. Atayde has built an 11 -year career doing play-by-play commentary for college basketball and host of Sports5’s Sports 360. TV Host, football club manager and fitness facility owner Amanda Fernandez rounds out the team with her fitness and lifestyle knowledge.

Chot Reyes, president of TV5 is excited on the launching of our country’s version of SportsCenter.

“We are excited to bring the iconic SportsCenter brand to the Filipino audience. As a die-hard viewer of this show, I truly believe that it is the definitive sports program on television. We at TV5 are honored to be bringing SportsCenter Philippines to you as this is truly a milestone for local TV,” said Mr. Reyes. — Rey Joble

Foreign debt drops as weak peso favors domestic fund raising

By Melissa Luz T. Lopez,
Senior Reporter

OUTSTANDING foreign debt dropped further in the nine months to September as the government and companies were net payers of debt, the Bangko Sentral ng Pilipinas (BSP) said, driving the share of foreign debt share to less than a quarter of the economy.

External debt totaled $72.368 billion during the first nine months, down 5.6% from a year earlier, according to latest central bank data. The total was also lower than the $72.493 billion balance at the end of the six months to June.

The debt stock combines all foreign currency-denominated borrowings held by Filipinos, Philippine companies, and the national government from foreigners.

The BSP said the “substantial” slide in unsettled debt came as the government and private companies paid down debt worth $2.9 billion. Exchange rate revaluations worth $1.3 billion also played a role in the lower debt burden, as well as increased investments by Filipinos in debt paper issued overseas.

“The peso’s depreciation during the period may have encouraged a shift in borrower preference from foreign to domestic financing to minimize exposure to exchange rate volatility,” the central bank said in a statement sent over the weekend.

The peso traded at 11-year-lows this year to around the P51 level against the dollar, which effectively made foreign borrowing more costly due to exchange rate fluctuations.

Around 61.5% of the outstanding foreign loans are expressed in dollars, while yen-denominated debt accounted for 13%.

In the third quarter, net repayments totaled $805 million, the bulk of which were settled by Philippine companies, the BSP said.

The lower debt stock kept outstanding debt at “comfortable” levels as of the end of September, accounting for 23.4% of gross domestic product (GDP). This is lower than the 25.4% share during the same period in 2016.

Philippine GDP grew by a faster-than-expected 6.9% in the three months to September, which brought growth in the nine months to 6.7%.

Buffers are considered sufficient in the event of a funding crisis, with $80.962 billion in gross international reserves equivalent to 5.7 times the Philippines’ short-term liabilities.

Loans due in less than a year account for less than a fifth of the total debt stock, composed of bank dues and trade credits worth $14.218 billion. Meanwhile, the bulk of outstanding debt came with medium to long-term maturities, with such obligations deemed “manageable” as terms average at 17.4 years.

Public-sector debt accounted for half the total loans at $37.2 billion, carrying an average maturity of 23.1 years. On the other hand, private-sector borrowing hit $35.1 billion and average eight years’ duration.

Credit obtained from multilateral lenders accounted for a third of the total debt stock at $24 billion, while loans from foreign banks hit $22.3 billion. Notes issued to foreigners hit $20.9 billion, and $5.1 billion was owed to foreign suppliers.

The Philippines borrows from both domestic and external sources to help fund its budget deficit and support a growing economy, particularly to support the ambitious P8.44-trillion infrastructure spending plan.

Determination, adjustments did it for F2 Logistics

THE F2 Logistics Cargo Movers completed an impressive finals turnaround in the recently concluded best-of-three Philippine SuperLiga (PSL) Grand Prix finals, winning it all over the Petron Blaze Spikers.

While they were completed outplayed in the series opener last Tuesday, the Cargo Movers made the necessary adjustments and played with a lot of determination in the next two matches en route to what their coach said was a “sweet victory” for the team.

The finals comeback by F2 Logistics was completed on Saturday at the Mall of Asia Arena as it defeated Petron, 25-20, 25-19, 20-25 and 25-18, in the winner-take-all and in the process took its first Grand Prix crown.

“We know Petron as a very talented team. They have so many weapons,” said F2 Logistics coach Ramil de Jesus, a many-time champion coach at various levels in local volleyball.

“That’s why it’s a sweet victory for us. We made some adjustments and they failed to respond. We also made some key defensive stops that led us to this win,” he added.

Mr. De Jesus also paid tribute to one of their reinforcements in the Grand Prix in Venezuelan Maria Jose Perez, who played her heart out in the clincher despite losing his brother to cancer the previous day.

The F2 Logistics coach said Ms. Perez exemplified the determination of the team to overcome whatever obstacles.

“She played with a heavy heart after the passing of her older brother yesterday (Friday),” Mr. De Jesus said of Ms. Perez who led the team in Game Three with 24 points.

“But she remained focus, played great and led us to this victory,” he added.

Also stepping up for the Cargo Movers was veteran Cha Cruz, who picked up from her stellar performance in Game Two off the bench to come up with 16 points, 13 from kills and three aces, in the clincher.

Their latest championship conquest is the second for the Cargo Movers in the PSL. They bagged their maiden title in the 2015 All-Filipino Conference.

Meanwhile, it was a double celebration for F2 Logistics import Ms. Perez who also won league most valuable player honors.

Joining Ms. Perez on the honor roll were Serbian Sara Klisura of Foton as the best scorer, Hillary Hurley of Petron (1st Best Outside Spiker), Lindsay Stalzer of Petron (2nd Best Outside Spiker), Mika Reyes of Petron (1st Best Middle Blocker), Majoy Baron of F2 Logistics (2nd Best Middle Blocker), Kim Fajardo of F2 Logistics (Best Setter), Jaja Santiago of Foton (Best Opposite), Kianna Dy of F2 Logistics (2nd Best Opposite), Dawn Macandili of F2 Logistics (Best Libero) and Yuri Fukuda of Petron (2nd Best Libero) in the podium.

PSL matches are shown live over ESPN5. — Michael Angelo S. Murillo

Senator to pursue higher tax on tobacco than in TRAIN

By Arjay L. Balinbin

THE FIGHT for a higher excise tax rate on cigarettes is not over, despite its “unexpected” inclusion in the ratified version of the first package of the Tax Reform for Acceleration and Inclusion (TRAIN) bill, according to Senator Joseph Victor G. Ejercito, chairman of the Senate committee on health and demography.

In a text message on Sunday, Dec. 17, Mr. Ejercito said that “definitely” he will continue pushing for a higher tobacco tax, adding that he expects “a hearing in January” on Senate Bill 1605 which he filed in November and which seeks to increase the excise tax on cigarettes to P90 in 2018, followed by a 9% increase per year from 2019 onwards.

In the ratified version of the tax reform measure, the excise tax on tobacco was raised from the current P30 per pack. Starting January to June 2018, the excise tax will increase to P32.50; between July 2018 and December 2019, it will rise to P35. Between 2020 and 2021, the tax rate is P37.50, rising to P40 between 2022 and 2023. The tax will ratchet up 4% annually from 2023 onwards.

According to Mr. Ejercito, “the insertion of the tobacco tax in TRAIN during the bicam was unexpected.”

“It was agreed upon during the period of amendments that the tobacco tax will be included in the package 2,” Mr. Ejercito said, adding that his proposed rate for tobacco products in the TRAIN bill was “P60 per pack.”

“They must have anticipated this and included it (as) a very low rate,” the senator claimed.

In an interview with DWIZ on Saturday, Dec. 16, Mr. Ejercito explained that he almost voted “no” to the TRAIN during its ratification last Dec. 13.

“Nagsalita nga ako na almost on a no, because of my disappointment dahil nga po d’yan sa pagkaka-insert ng tobacco tax doon sa bicam kasi ang punto ko dito I was worried sa inflation, so sabi ko sa halip na itaas natin ’yung petroleum at ’yung sa beverage tax which may cause for inflation, dito na lang natin bawiin dahil there is room for tobacco tax to be increased, dito na lang natin ito i-insert kasi basic commodity ang petroleum at beverage kaya lang sabi nga ni Senator (Sonny) Angara hindi ito napag usapan, hindi nagkaroon ng hearing in particular under TRAIN, kaya sabi nya kung pwede sa package 2 na lang, so pumayag ako,” Mr. Ejercito said.

(I almost said “no” due to my disappointment over the insertion of the tobacco tax in the bicameral conference committee report. My point here is that I was worried about the inflation, so I suggested that instead of increasing the excise tax rate on petroleum and sugar-sweetened beverages, we just take it from tobacco because there is still room to increase its tax rate. However, Senator Juan Edgardo M. Angara, the chairman of the Senate committee on ways and means, said there was no hearing conducted on the tobacco tax. He asked if it could be included in the second package, so I agreed.)

“I did not see this coming na bigla itong naisingit ang problema dito napakababa (that I was surprised that it was included, and the problem here is that the rate is too low),” Mr. Ejercito added.

For its part, the Philippine Tobacco Growers Association (PTGA) objected to the new excise tax rate on tobacco, citing its possible burden on tobacco farmers.

“It’s a sad Christmas for tobacco farmers and our families, thanks to the huge cigarette excise tax gift we got from Congress,” said PTGA in a statement released last week after the ratification of the bicam-approved TRAIN bill where the tobacco tax was inserted.

“Our appeal to our representatives to give our industry a respite from successive tax hikes has fallen on deaf ears. Our production has seen a significant drop from 68 million kilograms (kg) in 2013 to 52 million kg in 2015 and this alarming trend would only get worse with this massive 16% increase beginning Jan. 1. As we struggle with reduced demand, we hope we will get the support we need for the livelihood of our farmers and their communities,” PTGA added.

Coal Tax Follies

Carbon tax is what the doctors prescribed to cure our fossil fuels’ addiction. This works when supplies shift to favor cleaner, affordable, and secure sources of energy. Given the choice and incentives, managers would opt to adopt non-polluting supplies to avoid the penalty.

The prescription fails ab initio when policy misdiagnosed the illness. By ignoring the Philippine peculiarities as an archipelagic power system, how coal tax would hit consumers could only provide a partial view. This is a disservice to applying a theoretically sound prescription (i.e. penalizing polluting technologies) to the wrong illness (i.e. lack of affordable and secure supplies).

Continued access to viable and affordable power supply and poor infrastructure are the real problems. The coal tax hardly addressed these issues. However, it may just achieve to kill the goose (secure power supply) that lays the golden eggs (buoyant economy).

GAS AVAILABILITY ≠ POWER SUPPLIES
The Philippines started with extensive use of hydro and geothermal power, balanced with coal and diesel.

When Malampaya became operational, gas usage grew to account for 22% (2,871 MW) of Luzon’s dependable power supplies (or 13,108 MW), with coal and diesel accounting for half (7,517 MW). Curiously, Visayas (2,498 MW) and Mindanao (2,318 MW) has zero gas usage. Instead, Mindanao opted for diesel before adopting coal belatedly. After experiencing up to 18 hours blackouts by 2011, the logic for balancing hydropower with coal became convincing. Visayas followed by using coal-fired power to meet expanding demand in Iloilo and Cebu. Leyte and Negros’ geothermal supplies complete the power supplies portfolio.

European power markets “progressed” from coal to gas and nuclear, with wind and hydropower selectively gaining traction. In contrast, Philippines “retrogressed” from clean energy to coal — not by choice but by necessity. Pipeline gas requires gas-fired capacity to use the gas it delivers. This requires substantial investment in infrastructure that only the Luzon grid could provide the minimum economic volume. Visayas and Mindanao, in contrast, are far too limited to viably absorb Malampaya’s gas.

Imported gas could substitute for the depleted Malampaya gas by 2025.

To make this happen, a regasification facility should be constructed. The investment is viable at a minimum annual volume of a million tons, enough to fuel 1,000 MW of gas-fired capacity. Luzon is the only viable market to sustain this volume.

Geothermal prospecting yielded mix outcomes, while hydropower experienced similar results.

With all the good intentions, alluring headlines claiming solar power’s competitiveness (vs. coal and gas) failed to convince. At least no long queues are apparent to rush to develop solar farms.

Ironically, short of a massive gas find to replace Malampaya, or regasification facility becoming available, coal-fired power remains among the few viable and affordable sources to secure power supplies for years to come. Geothermal and hydropower could pull their weight to secure our energy supplies if new sites are found soon.

COAL TAX FALLACIES
Carbon taxation succeeds when it is implemented as part of a holistic energy strategy. This takes into account available indigenous resources, energy logistics and grid infrastructures, existence of functional energy markets, and coherent fiscal practices that balance competing interests. Ad hoc and piece meal cherry picking of measures have failed, and continue to inflict enormous harm to consumers and industry.

In my new book, I posit that under functional energy markets, carbon tax applied to ALL polluting technologies could set one periodic price for power. Given this market price signal, managers could decide on how to structure their supply portfolios that best achieve their objectives. That portfolio is influenced by what energy resources are available, and the uncertainties surrounding access, costs, and fuel supplies.

Under integrated and interconnected markets, such as continental Europe and North America, energy and power supplies are fungible. For consumers, they pay for the kWh or molecules of energy that they consume. Managers in turn decide and invest on assets that best satisfy a given demand – usually through a portfolio of supplies that balances risks and returns under dynamic markets.

Renewables’ virtues are embodied in geothermal and hydropower.

Running at 85% to 95% utilization, they compete with coal and gas in terms of costs with the added advantage of zero fuel costs once the resources are found. This is where the twin challenges of the Philippines are manifested: We have to find the resources first — a feat that is proving difficult. The other is sub-optimal efficiency where some assets operate at 65% — a far cry from well-maintained assets’ performance.

Philippine power grids operate as partially connected systems, with Luzon and major Visayan islands functioning as “one system.” In reality, they are constrained by limited interconnection capacity, with Mindanao completely isolated. Implications? We have multiple prices that reflect distortions arising from regulator’s frequent interventions, long-term supply contracts that experience occasional renegotiations, and subsidies divorced from market realities.

A coal tax imposed under Philippines’ archipelagic energy systems could adversely impact coal-dependent Luzon. Accounting for the bulk of the country’s economic activities, Luzon’s decline could arrest the country’s continued economic buoyancy.

What drove Philippines to embrace coal was a classic response to resolving a resource constraint problem. With limited alternatives, the simpler coal and diesel fuel logistics made coal and diesel the fuel of choice for power generation.

By ignoring these realities, a coal tax may inadvertently contribute to the next severe power shortage. If the tax succeeds, investors will be deterred from building new coal-fired power plants. Without regasification facility, gas-fired power supplies could diminish for lack of gas. At this point, the specter of 1986-1994 power outages comes back to haunt us. Renewables on its own are unlikely to replace lost supplies, much less to meet rising demand.

Poor logistics impairs realizing the full benefits of renewables. Visayas is a case in point. Enthused by sunlight’s allure, Negros Island hosts among the largest solar farms in Asia. Sustained by generous feed-in-tariffs (FiT), solar power’s peak outputs at noon exceed the transmission capacity to deliver supplies to Cebu and Iloilo, where the bulk of power demand is. When Negros needs the power at night, the island suffers the occasional “brownouts” in a sea of surplus installed capacity.

CONTRADICTIONS AND CONSEQUENCES
Taking the environmental logic to its (il) logical end, the coal tax should discourage the lock-in on “dirty coal” by decisively shifting to “clean” solar. Two contradictions are apparent:

Advocates tout Meralco’s contract at P2.99/kWh with Solar Philippines as proof of solar power’s viability. However, solar power’s “success” argues for elimination of all forms of carbon taxes and subsidies. Investors are always free to compete, provided they do not lean on government support to gain competitive edge. “Cheaper” solar cannot claim costs advantage while continuing to receive P8.50/kWh in FiT in a P2.50/kWh power market.

Fixing poor energy logistics is the path to cheaper power supplies. Access to market is a function of price, and available infrastructure and logistics, to deliver power from source to demand. Paradoxically, “cheap” solar power becomes expensive when congested grid prevents its use.

By singularly taxing coal, without resolving the infrastructure bottlenecks, consumers are hit twice. They subsidize solar power without coming close to securing power supplies, while paying more for their electricity generated from coal.

Inadvertently, could the coal tax transform candle making into the next boom industry, when severe blackouts finally hit us again, and again?

 

Ricardo G. Barcelona is Professorial Lecturer at School of Economics, University of the Philippines. He is author, Energy Investments: An adaptive approach to profiting from uncertainties to be published by Palgrave Macmillan, in 2018. He has PhD in Management, King’s College London, and a managing director of Barcino Advisers, Hong Kong.

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