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Tariffs and sanctions turmoil may overshadow EU, German data

BERLIN, — US tariffs and sanctions policies are likely to keep investors on their toes in the coming week as European politicians and policy makers continue their summer break, while economic data from Germany and the euro zone will also be in focus.
Washington’s latest sanctions on Russia have battered the rouble, and Turkey’s lira has been hammered by concern that Ankara is sliding into a full-blown economic crisis.
US President Donald Trump’s determination to push ahead with sanctions on Tehran that also target foreign companies doing business with Iran has opened another battle front in addition to a much broader dispute over trade tariffs.
German business associations have warned that companies are increasingly suffering from Trump’s sanctions policies — including those against Iran — as well as the tariffs he is imposing in an escalating tit-for-tat trade conflict with China.
“In terms of geopolitics, the trade war between the US and China could enter centre stage again next week,” ING economist Carsten Brzeski said. “Also, keep an eye on Turkey, where some kind of IMF involvement is getting closer.”
Turkey’s lira has plunged to record lows on concerns about President Tayyip Erdogan’s influence on monetary policy and increasingly authoritarian rule, and about a diplomatic rift with Washington over Ankara’s detention of several Americans including an evangelical pastor.
On the data front, Germany on Tuesday will be the last of the large euro zone economies to publish an estimate for gross domestic product (GDP) in the second quarter.
Analysts polled by Reuters expect the quarterly growth rate to pick up to 0.4% from 0.3% in the first quarter, suggesting that Europe’s largest economy is humming along despite the uncertainty caused by US tariffs and sanctions.
Also on Tuesday, the euro zone will report its second estimate for GDP in April-June. Preliminary data last month showed economic growth in the 19 countries sharing the euro slowed to 0.3% quarter-on-quarter.
Eurostat’s preliminary figures for euro zone growth have often been revised up in the past, but weaker-than-expected June industrial output data from Germany and Spain have suggested this may not be the case this time.
“An upward revision would change little in economic terms, but could bolster perceptions of stable growth despite rising risks,” Oliver Rakau from Oxford Economics said.
The European Central Bank has said that risks to global growth are growing as the spectre of protectionism and the threat of higher US tariffs sap confidence.
Final inflation data for the euro zone due on Friday is likely to confirm that headline consumer price inflation accelerated to 2.1% year-on-year in July from 2.0% in June, mainly because of a spike in the cost of energy.
The ECB wants to keep headline inflation below but close to 2% over the medium term.
“For the ECB all of this means that it can remain on track with its dovish tapering,” ING’s Brzeski said. “The timing of a first rate hike, however, remains extremely uncertain.”
The ECB plans to wrap up its unprecedented 2.6 trillion euro stimulus programme known as quantitative easing (QE) by the end of the year and keep interest rates at record lows through the summer of 2019.
Surveys suggest concerns over trade have already begun to dampen investment activity which could translate into meagre growth and moderate inflation rates in the second half of the year.
“All of that should not alter the ECB’s QE exit plans, but it will keep all of us busy speculating about the first rate hike,” Rakau from Oxford Economics said. — Reuters

Suspension sought on SRP hikes until March

A CONSUMER RIGHTS advocacy group is requesting that the Department of Trade and Industry (DTI) suspend price increases on the expanded suggested retail price list until March.
Laban Konsyumer, Inc. (LKI) said government should implement a moratorium on any price increases for items listed in the expanded SRP until the end of the first quarter of 2019.
“In two weeks’ time, we shall enter the BER months where pressures on demand and supply of commodities can trigger another round of price increases,” the group said in a statement.
LKI also requested that the DTI publish in major dailies and tabloids updates to the E-SRP and to highlight the items which increased in price.
The group also called on other agencies like the Departments of Agriculture and Health to deploy full time price monitors in all wet markets and supermarkets in all urban centers.
LKI earlier said items on the expanded list, released at the start of the month, have recorded price increases greater than were approved by the DTI.
The DTI said it will step up its price monitoring activities by checking 600 stores every week, more than the 400 it used to check.
The SRP is a tool used by the DTI to manage profiteering in the widely-sold consumer goods. Under the expanded list, items being monitored have risen to 209 from 145 previously.
July inflation rose 5.7%, elevating concerns about the impact of rising prices on poor families.
LKI also sought the implementation of the 10% discount of up to 20 kilos of NFA rice per month to those living below the poverty line, as provided by the tax reform law. — Janina C. Lim

Arroyo files bill proposing water, irrigation dep’t

SPEAKER Gloria M. Arroyo has filed a bill creating a new government office to rationalize the country’s water, irrigation, sewage and sanitation systems.
House Bill (HB) 8068, or the “Department of Water, Irrigation, Sewage and Sanitation Resource Management Act of 2018,” seeks to consolidate the functions carried out by the National Water Resources Board (NWRB), Local Water Utilities Administration (LWUA), Metropolitan Waterworks and Sewerage System (MWSS) and the National Irrigation Administration (NIA).
The government agencies are controlled by three separate offices — the Department of Environment and Natural Resources (DENR), Department of Public Works and Highways (DPWH), and the Office of the President.
This present set-up resulted in a “poorly coordinated or even conflicting implementation of national policies and plans… thereby resulting in backlogs in the provision of water supply and sanitation services,” Ms. Arroyo said in the explanatory note.
If passed into law, the department will be mandated to develop policies to provide universal access to safe, adequate, affordable and sustainable water supply, irrigation, sewage and sanitation services.
The Department will also be in charge of protecting and conserving water resources and managing its ownership, appropriation, utilization, exploitation, and development.
It will also assume all obligations of the relevant parts of the Department of Interior and Local Government, Metro Manila Development Authority, NIA, NWRB, and the DPWH, through its attached agencies, LWUA and MWSS.
The office will be led by a Secretary and five undersecretaries to handle finance, administration, planning and engineering, regulatory and financial assistance programs, as well as operations.
At present, there are two similar bills filed in the chamber — HBs 2457 and 4995, authored by Representatives Arthur C. Yap and Estrellita B. Suansing, respectively.
Senators Ralph G. Recto and Grace S. Poe-Llamanzares, have each filed Senate Bill 933 and 1217, proposing to create instead the Water Regulatory Commission. Both the earlier House bills and the Senate bills mentioned remain pending at the committee level. — Charmaine A. Tadalan

Taxation of fintech companies in the Philippines

Financial Technology (Fintech) companies combine technology and innovative business models to enable, enhance and disrupt financial services. They are dramatically changing the financial services industry landscape in all parts of the world. Blockchain, cryptocurrencies, app-based alternative finance and open-banking are amongst the biggest disruptive themes introduced by these companies.
With a techie young population willing to spend, the Philippines is becoming a haven for fintech companies in Southeast Asia. In fact, the Bangko Sentral ng Pilipinas (BSP), citing the FINTQ Inclusive Digital Finance Report for 2017-2018, puts the number of fintech companies in the country at 60 with expected transaction values of $5.7 billion this year.
The annual growth rate of fintech transactions in the Philippines is pegged at 16.4% by the same FINTQ report. By 2022, forecasters believe that transactions from this industry can reach the half-trillion-peso mark.
Considering the potential economic impact of the fintech industry, some\ regulators have begun to set standards for this specialized industry.
Since 2014, the BSP has adopted a “test and learn” approach, now referred to as the “regulatory sandbox” approach. Under this approach, the BSP observes actual operations of fintech companies and then drafts appropriate regulations in response.
In June, the BSP established the Financial Technology Sub-Sector (FTSS), a new unit to oversee fintech companies.
The BSP has also issued several regulations for this type of financial organization. For example, Circular No. 944 provides the regulatory framework for entities that use Virtual Currency (VC) as the underlying instrument for remittance.
At the same time, the Securities and Exchange Commission (SEC) has also flexed regulatory muscle in order to protect investors in the fintech landscape while encouraging investments in this new technology. The SEC has recently issued draft rules on Initial Coin Offerings (ICOs). ICOs refer to distributed ledger technology fund-raising operations involving the issuance of tokens in return for cash, cryptocurrency or other assets.
Other regulators, such as the Insurance Commission (IC) and Philippine Deposit Insurance Corporation (PDIC), are closely coordinating with the BSP and SEC to establish a committee that will guide fintech companies.
We should note, however, that while some regulators have issued rules or at least have shaped some regulatory matters pertaining to fintech, stakeholders are still waiting for the Bureau of Internal Revenue (BIR) to issue a revenue regulation or issuance that would provide guidance in connection with the taxation of fintech companies.
There is reason to believe that the BIR has yet to issue a FinTech Tax Regulation because the transactions of these companies are similar to industries such as banks and other financial institutions that have tax regulations applicable to their transactions. Perhaps also the taxing authority may also want to observe first the transactions before coming up with definite regulations, just like the BSP’s “test and learn” or sandbox approach.
In the absence of a revenue issuance that squarely applies to them, fintech companies may, however, assess and analyze their transactions and apply the basic taxation principles and procedures to comply with their tax obligations.
Like any other corporation, fintech companies are subject to regular income tax based on net taxable income at the rate of 30%. Also, considering that the fintech industry in the Philippines is just in its infancy, a Minimum Corporate Income Tax (MCIT) of 2%, in lieu of the regular 30% Regular Income Tax, may be imposed on a new fintech company beginning on the fourth taxable year immediately following the year in which such a fintech corporation commenced its business operations. Withholding taxes on such income may also apply.
Considering that some Philippine fintech companies may register as branches or subsidiaries of foreign fintech companies, they may also be subject to 15% branch profit remittance (BPR) for branch or dividend withholding tax for subsidiaries on their remittance of earnings.
According to the 2017 Fintech Startup Report, the fintech segments with the most players are mobile payments/digital payments and alternative finance. This is not surprising because 86% of households in the Philippines are “unbanked” according to the BSP.
BSP Governor Nestor Espenilla said during an employers’ conference on April 18 that digital payments account for the largest share of the fintech market in the Philippines at 98.9%. Given that bulk of the fintech transactions are digital payments, the tax obligations applicable to companies processing digital payments may also be used as a guide. These digital payment channels usually charge transfer or remittance fees. The transfer fee or remittance may be subject to 12% value added tax (VAT) on services.
For the tax obligations of other online transactions of payment gateways, the BIR issued, on Aug. 5, 2013, Revenue Memorandum Circular (RMC) No. 55-2013, which reiterated the taxpayer’s obligations in relation to online business transactions. The RMC defined payment gateways as “banks or other organizations and third party settlement organizations that have contractual obligations to make payments to participating payees in the settlement of the transactions. These include, but are not limited to, credit card companies, banks, financial institutions, and bill paying services.”
Only the tax obligations of credit card companies and banks as payment gateways were mentioned. The tax obligations of fintech companies were not mentioned because the RMC was issued in 2013, a time when the word “fintech” was not even a buzzword.
Alternative finance is another fintech service with the most number of players. These companies provide alternative modes of granting loans using technology from their own capital funds and from funds sourced from not more than 19 persons.
The income of such companies from their lending activities, including income incidental to their lending business, is subject to 30% income tax or MCIT and to the applicable withholding taxes. Moreover, RMC No. 13-96 provides that lending companies are subject to 12% VAT on their gross income consisting of interest, fees, charges, and incidental receipts derived from the lending of money.
Another emerging fintech segment that has caught much attention is blockchain. Blockchain is the technology that underpins bitcoin and other cryptocurrencies.
The BIR has yet to release clear guidelines on the tax treatment of cryptocurrency transactions and those that utilize blockchain technology.
However, it is clear under the National Internal Revenue Code that all income (such as income from crypto- currency transactions) are subject to tax, unless expressly exempted by law.
While the fintech community eagerly waits for the BIR to finally catch the “fintech bug,” hopes are high that any revenue regulation or issuance that would be issued could provide clear-cut guidelines that truly understand the complicated nature of fintech and that it would give regulatory clarity to all stakeholders.
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.
 
Mark Anthony N. Manuel is a Senior Associate Lawyer at SGV — Financial Services Tax.

The draft Constitution is terrible

Scratch that; the draft Constitution drawn up by the Puno Consultative Commission, is uber-terrible.
The draft Constitution is a 102-page boondoggle of a document. It’s verbose whereas good Constitutions are short and simple, just declaring the fundamental, nearly immutable law of the land. This draft Constitution, on the other hand, was probably crafted by lawyers with a diarrhea of words that is designed to elicit litigation.
For example, it says that a candidate for President must be “a college graduate or its equivalent.” (Section 2, Article VIII). Not only is this provision elitist (former Senators Serge Osmeña and the late Blas Ople did not bother to get college degrees.), but what the heck is “equivalent.”? I can mention more examples, but I don’t want to take up more space to belabor an obvious point.
The authors of the draft Constitution also love bureaucracy. The draft Constitution creates four High Courts as opposed to only one, which we have at present: A Federal Supreme Court, Federal Constitutional Court, Federal Administrative Court, and Federal Electoral Court, each with a Chief Justice. (More cushy jobs for lawyers.)
Congress will have 36 Senators (two from each Federal Region) and a maximum of 400 representatives in the House.
Each of the 16 Federal Regions will have 16 Regional Assemblies and Regional Governors for the Federal Regions, in addition to the current Local Government Units under the Local Government Code, plus the Federal Regions of the Bangsamoro and the Cordilleras.
There will also be six Constitutional Commissions, namely, Federal Civil Service Commission, Federal Commission on Elections, Federal Commission on Audit, Federal Commission on Human Rights, Federal Ombudsman, and Federal Competition Commission.
Obviously, the authors of the draft Constitution love bureaucracy, but they failed to state how the government will pay for the added bureaucracy. Philippine Institute of Development economist Chat Manasan estimates that P55 billion would be needed for the Federal government that the draft Constitution envisions. I frankly think that’s even an underestimate. No matter. The added bureaucracy and Federal officials mean only one thing: more taxes from the people.
There are already popular complaints about the added taxes and inflationary effects from the recently passed TRAIN 1 (Tax Reform for Acceleration and Inclusion, Package 1). This doesn’t seem to bother the Puno Consultative Commission. Basta! It will have its bureaucratic monster even if this represents an added burden on the Filipino people.
However, the gross failure of the authors of the draft Constitution is that they failed to explain what has changed about government and bureaucracy for them to create this Federal monstrosity. Filipinos already experience the corruption, inefficiency, and incompetence of the present bureaucracy and dysfunctions of government institutions, from dealing with the Bureau of Internal Revenue to riding in Department of Transportation-managed MRT.
Instead of providing a solution to this problem, however, the draft Constitution wants to multiply these government afflictions on the people. It’s pure sadism to inflict on the Filipino people multiples of the same — more taxes but the same corruption and inefficiency multiplied by 16 Federated regions plus all the other additional officials!
Perhaps the Filipino people will be willing to pay more taxes for more government if the draft Constitution will lead to a more vigorous economy that generates more investments and jobs.
However, on the contrary, the vision of the draft Constitution is backward looking on the economy. It is highly protectionist and basically retains the foreign ownership restrictions in the present Constitution.
constitutionLet me quote the press statement of the Foundation for Economic Freedom:
“We, the Foundation for Economic Freedom, are seriously concerned with the proposed Constitution drafted by the Puno Consultative Committee.
“The draft Constitution retains all the restrictive and protectionist provisions of the current 1987 Constitution and the past Constitutions. These provisions have been responsible for the country’s historically inferior growth relative to the economic aspirations of the broader Filipino population and relative to the country’s neighbors. These have sent strong signals to foreign investors that they are not welcome to invest in the Philippines to create jobs, transfer technology, provide healthy competition, and improve the lives of Filipinos.
“While we acknowledge that the draft Constitution allows Congress to change the voting capital requirement and other requirements under certain conditions, the draft Constitution does not fulfill the change that President Duterte promised. Instead, it retains the present restrictive provisions in the current Constitution and signals that change will only happen if and when Congress sees fit. In the case of the exploration and development of natural resources, the draft is even more restrictive in casting doubt on the possibility of 100% ownership under a Financial or Technical Assistance Agreement (FTAA).
“We propose that the default provisions not be restrictions but allow Congress to regulate the entry of foreign investments as conditions, including public welfare and national interest, warrant. Through this suggestion, we are following the practice of other countries which do not put such restrictions in their Constitutions but legislate them, allowing for flexible responses to changing conditions. Moreover, by removing these restrictions in the fundamental law of the land, we are signaling that change has happened and we are open to investment, foreign or local.
“We find these restrictions out of step and out of sync with reality. For example, the limitation on ownership of mass media entirely to Filipino citizens seems irrelevant in the age of the Internet when Filipinos consume their mass media from foreign companies, such as Facebook, Netflix, CNN, Twitter, and Youtube.
“We also contend that provisions mandating preference to Filipinos in the “grant of rights, privileges, and concessions covering the national economy and patrimony” may be interpreted as keeping out foreigners to promote insularity, protectionism and worse, mediocrity and monopoly. The draft Constitution does not project the Philippines as a modernizing country embracing the future but rather projects it as backward-looking, anti-modernist, and protectionist.” [The original FEF statement quoted by Mr. Chikiamco covered several articles and sections of the draft Constitution but these were omitted owing to space constraints. — Ed.]
The outdated, backward-looking vision of the draft Constitution is also repeated in the sections on land reform. The authors of the draft Constitution seem to be Rip Van Winkles, sleeping through the entire period when the Comprehensive Agrarian Reform Program was enacted soon after the passage of the 1987 Constitution and its successor, CARP-ER or the Comprehensive Agrarian Reform Program with Extension and Reforms.
Don’t the authors know that despite having the most successful land distribution program in the world (the World Bank states that about 80% of targeted lands have been distributed), agricultural productivity remains low and our farmers are still mired in rural poverty? Yet the draft Constitution authors enshrine agrarian reform in one section of the draft Constitution, as if it’s still the answer to the problem of social inequity and rural poverty.
In fact, the draft Constitution is full of social justice gobbledygook, from land reform to housing and urban land reform (the latter section could be interpreted to mean encouraging squatting.)
Yet there’s no modernizing vision: how the country can modernize its politics, economics, and culture and in the process increase the productivity of its economy, which can help pay for the added bureaucracy and Constitutionally-mandated social justice programs. It’s all about outdated, anachronistic provisions and backward-looking vision.
The draft Constitution is full of pretense of being progressive. For example, it supposedly has a self-executing provision prohibiting political dynasties, but only bans relatives up to the second degree of consanguinity. That means uncles, cousins, and nephews can hold political offices at the same time.
I could go on and on about the defects of the draft Constitution.
However, recently, the Puno Consultative Commission (well, okay, maybe just the spokesman Ding Generoso) appointed Asec Mocha Uson to explain Federalism and the draft Constitution. We saw the video. ’Nuff said.
 
Calixto V. Chikiamco is a board director of the Institute for Development and Econometric Analysis.
idea.introspectiv@gmail.com
www.idea.org.ph

Federalism: What’s the rush?

I chanced upon Mocha Uson’s video on Facebook where she and co-host, a certain Drew Olivar, performed a lewd dance supposedly meant to educate our people about federalism.
They thought it was amusing. It was not — it made people sick to their stomach. It raised questions about the methods of the Presidential Communications Operations Office (PCOO) and their motivations.
Uson’ s latest caper is in fact a backhanded insult to the Filipino people — and her actions reflect on the PCOO itself. It shows that the PCOO deems the “masses” too stupid to understand a straightforward discussion.
Sometime last year, I spoke to Secretary Martin Andanar and inquired why Uson was chosen to be the mouthpiece of the administration. Andanar told me that apart from rewarding her for her fierce loyalty to the President, she also spoke the language of the “masses.” She was effective communicator in her chosen platform, no matter how guttural the style of communication may be.
This is where the problem lies.
The PCOO is more concerned about pushing its agenda rather than genuinely educating the people. It will stop at nothing to sell its propaganda — even if it dumbs down the Filipino people in the process, even if it intentionally distorts the issue or provides erroneous data, even if it intentionally frames the issues in such a way that it instigates a war between the red and the yellows, thereby dividing the nation.
Responsible governments would go about its information campaign in a different way. They would provide the public with the information they need to form an intelligent opinion on the matter. This includes its pros and cons, risk and rewards, costs and benefits.
The people deserve nothing less.
Federalism, after all, will cause sweeping changes in the very fabric of Filipino life — from the way we are governed, to our economic future, to the way we interact with each other to the way our culture evolves. It will be change that transcends multiple generations.
According to an SWS survey last June, only 37% of Filipinos support federalism. The PCOO must be so desperate to sell the idea that it is willing to bypass the facts and simply dance its way to approval.
MOTIVATION BEHIND FEDERALISM
Why is the Palace so intent on making the shift from a unitary government to a federal one?
It is no secret that President Duterte has an axe to grind against “Imperial Manila.” He has expressed his disdain over the capital on numerous occasions. At the heart of his spite is the fact that Metro Manila receives the lion’s share of national taxes.
See, in our unitary system, local governments are bound to remit some 60% of their tax collections to the national government. This includes income taxes, real estate taxes, donor’s taxes, corporate taxes, value-added taxes, excise taxes, documentary stamp taxes, etc.
Under a federal system, these remittances will be reduced to 30% or lower.
With the taxes collected, the national government redistributes the funds back to the local governments according to the stipulations of the general appropriation act (GAA). Has the distribution been equitable? Let the numbers speak for themselves.
Data from the Philippine Statistics Authority show that between the years of 2015 to 2017, Luzon received 73.2% of the budget, the Visayas received 14.4% while Mindanao was appropriated 12.4%.
On the surface, it would appear that indeed, Luzon (and Metro Manila) gets the lion’s share. But we must look at it in context. The ratios in which the national budget is distributed is in fact consistent with population density. As of the 2016 census, 55% of the population reside in Luzon, 20% in the Visayas and 25% in Mindanao.
It should also be noted that the bulk of funds attributed to Luzon are used to finance services that benefit the entire nation. This includes maintaining the armed forces, foreign service, national irrigation and agricultural programs, land reform, investment & tourism promotions, education, health care and social services, the justice system and many others. More importantly, it includes the sizeable budget allotment to the office of the President.
The economic output of Metro Manila comprises 38% of gross domestic product (GDP) while the entire Luzon accounts for 72% of GDP. The Visayas contributes 13% and Mindanao contributes 15%. As the most populous and productive region, it is only fair that Luzon be supported with the development funds it needs to help subsidize the regions unable to support themselves.
‘IMPERIAL MANILA’
I take exception to the misleading moniker, “Imperial Manila.” First of all, there is nothing “imperial” about Manila. No king resides here. “Imperial Manila” is in fact a metaphor for the executive branch, the Supreme Court, the House of Representatives and the Senate — all of which dictate policies that affect all our 17 regions and all of which happen to be based in Manila. Hence, “Imperial Manila” does not refer to the capital, it refers to the national government.
Let us make this clear because Manila, the city and her people, are not the enemy of the provinces. If there is anyone to blame for the “inequitable” distribution of development funds, it is the national government, including the congressmen and senators whom the provincial voters elect.
To refer to Manila as the enemy further divides our already fragmented nation. Again, it should not be forgotten that Manila, by virtue of its vibrant economy, is the hand that subsidizes impoverished regions.
NO RUSH
No doubt, federalism will yield many benefits to the regions. Apart from reducing its tax contributions to the national government and having the power to tax its constituents more, federalism empowers local governments to be the master of their own fates. It allows them to tailor-fit their laws to what is meaningful to them. It weans them from their over-dependence on the national government. It encourages them to be fiscally responsible while promoting specialization of industries based on their demographic and geographic advantages. It encourages experimentation with multiple solutions for the same problem, thereby enriching the nation in experience and best practices.
Certainly, it is something worth pursuing. But we must prepare for it. Government must first arm underdeveloped regions like Mimaropa, the Bicol Region, Caraga and the Zamboanga Peninsula with adequate infrastructure so their industries can develop and thrive.
Without it, they will not have enough revenues to sustain themselves.
Remember, under a federal framework, the regions must fund their own administrative and development expenses.
They will have to build and maintain their own infrastructure, schools, universities, hospitals and mass housing; they would have to finance their own land reform and agriculture programs including expensive irrigation; they will have to create and maintain their own justice system; their own regional security and police force; They will have to invest in their own electrification, waste disposal, water supply and sewerage systems, among many others.
Statistics show that only five regions are capable of autonomy at this time. They are: Calabarzon, Central Luzon, Central Visayas, the Davao Region and NCR. The rest generate revenues too minuscule to support themselves, even with a greater share of national taxes collected within their borders.
The stakes are high.
If government does not give our underdeveloped regions the infrastructure and time they need to develop, federalism will consign them to further poverty.
This is why federalism cannot be taken lightly.
This is why it cannot be rushed.
 
Andrew J. Masigan is an economist

IMO, coal dependence, and renewables lobby

This title is rooted from three recent reports in BusinessWorld:

1. DoE gives up chair of PHL Electricity Market (Aug. 1),

2. PHL to become ASEAN’s most coal-dependent economy by 2030 — ADB (Aug. 4), and

3. Renewables firms hoping to unify lobbying efforts (Aug. 7).

Report #1 is the realization of a provision in Electric Power Industry Reform Act (EPIRA) law of 2001 that an independent market operator (IMO) be created to operate the Wholesale Electricity Spot Market (WESM), which was created in June 2006. For more than a decade, the Philippine Electricity Market Corporation (PEMC) as market operator was a DoE-chaired and controlled body and hence, was not an independent entity.
I attended the PEMC Chairmanship Turnover Ceremony last July 31 at the PEMC office in Ortigas.
DoE Secretary Cusi has officially turned over PEMC Board Chairmanship to Mr. Jose Aboboto, one of the private industry players in WESM. Atty. Oscar Ala remains as PEMC president.
The IMO technical and secretariat function will be done by the Independent Electricity Market Operator of the Philippines (IEMOP) headed by its first President, Atty. Francis Saturnino “Nino” Juan. In the ASEAN, only the Philippines and Singapore have an electricity market between power producers and distributors/suppliers.
Report #2 may send alarm bells to the climate alarmism and anti-coal movement as if Philippine coal consumption is already substantial and may yet increase. Our coal use in 2017 of 13 million tons oil equivalent (mtoe) was only 1/9 of Japan, 1/7 of South Korea, 1/4 of Indonesia’s 57 mtoe, 1/2 of Vietnam’s 28 mtoe.
In addition, our total primary energy supply (TPES, sum of domestic production plus imports minus exports) is also very small at only 0.52 tons of oil equivalent (toe) per capita in 2016, or only 1/10 of South Korea and 1/9 of Singapore.
Our average electricity consumption is also very small, only 744 kWh per capita in 2015, or only 1/14 of South Korea and 1/12 of Singapore (see table).
Electricity Market Operations in the Asia Pacific
One can conclude that among the big reasons why South Korea, Japan, Singapore, Hong Kong, others are developed is because they have huge energy and electricity consumption. Energy precedes development that is why it is foolish to over-regulate and over-tax power generation, transmission, distribution and pricing. When power supply is huge relative to demand, there is no other way for the price to go but down, resulting in cheaper electricity for consumers.
Singapore has very low coal consumption because it is largely using natural gas, about 98% of its total power generation. New Zealand is more dependent on hydro and other renewables like biomass, geothermal.
Report #3 is about the fear of renewable energy (RE) developers especially wind-solar that the DoE will insist on a competitive selection process (CSP) instead of a “Swiss challenge” for distribution utilities and electric cooperatives in getting their power supply contract. Related to this is the fear of the RE lobby that their tax perks like exemption from VAT, income tax holidays, etc. will be removed under TRAIN 2 bill now in Congress.
A good compromise between expensive, unstable electricity by the RE lobby vs cheaper, stable electricity by the consumers, is to have a uniform feed in tariff (FIT) for all variable REs — wind, solar, biomass and run-of-river hydro — to the lowest FIT level of P5+/kWh. Solar-wind currently get P9+ to P10+/kwh of FIT or guaranteed high price for 20 years.
Solar-wind developers and campaigners keep repeating the mantra of “wind-solar technology are improving very fast, their prices are declining very fast.” If so, their high FIT should be adjusted downwards because high FIT automatically negates that mantra.
If the EPIRA was implemented without distortions like RE law of 2008, we should have cheaper and more reliable electricity market in the country by now. Which reiterates the fact that more competition, not state favoritism, is more conducive to the economy.
 
Bienvenido S. Oplas, Jr. is President of Minimal Government Thinkers, a member-institute of Economic Freedom Network (EFN) Asia.
minimalgovernment@gmail.com.

Doubts on federalism

Finance Secretary Carlos G. Dominguez III met with some members of the Consultative Commission (ConCom) on the government’s proposed change to federalism. He asked, “Who is going to pay for the national debt? Who is going to pay for the military? Who is going to pay for the [Department of Foreign Affairs] and the central bank? I mean if it needs additional capital, who is going to put it up?” (philstar.com Aug. 7, 2018). And the ConCom’s response was, “the sharing with the local governments or the states will be after those expenses” (Ibid.).
“But you know, when I read the draft, it doesn’t say so there. It just says 50%,” Dominguez said. Not clear.
At the Senate hearing last week on the ConCom’s proposed draft charter, Dominguez told senators that while the Duterte administration’s economic team has no official position yet regarding federalism, he agrees with Socioeconomic Planning Secretary Ernesto Pernia on the potential fiscal risks of the proposed change in form of government. Pernia had stressed that while federalism could unlock economic benefits, it could also spell disaster for some regions not prepared for such a transition and “wreak havoc” on the country’s balance sheet (Ibid.).
When asked how much budget was needed for the proposed shift to federalism, Pernia said, “Our rough estimate is P120 billion but this is just the direct cost, there will be indirect costs like disruptions and other things” (CNN Philippines Aug 8, 2018). Dominguez admitted he is also confused about the proposed shift to a federal form of government, as senators pressed more for how much the transition would cost (Ibid.).
Sen. Francis Escudero questioned why is there even a P90-million information campaign for federalism, when even the country’s economic managers are confused about the proposed shift (Ibid.). And aside from the ConCom’s version, the House Committee on Constitutional Amendments and the ruling party PDP-Laban have different versions of the proposed federal charter.
Would you then vote against the shift if the draft federal constitution is presented for ratification now, the senators asked. Dominguez said, “Absolutely” (Ibid.). And that was what drew the ire of ConCom member and San Beda Graduate School of Law Dean Father Ranhilio Aquino. “If (Duterte) favors federalism let him sack Dominguez and Pernia or command them to keep their traps shut. Freedom of expression does not apply to Cabinet officials in respect to policy,” Fr. Aquino said (philstar.com Aug 9, 2018).
“Enough of double-talk. If the President is now cool to federalism let him give the order to abandon the federalist ship. Then all of us fools who wrote the draft and defended it with all our might will know that we have been taken for a ride — for a very expensive ride — but we shall at least have the chance to abandon ship before it is scuttled!” he said.
Fr. Aquino’s subjective reaction jolts more than Secretaries Dominguez’s and Pernia’s objective and candid cost-benefit analysis of federalism. Why does the Reverend Father cry out for their blood, for speaking their minds? “Sack Dominguez and Pernia,” he says with such vehemence to Duterte — the ruling “god” that wants us to convert to federalism.
But why, in the first place, has the ConCom developed into that shackle of justifying and pushing for federalism, when it was supposed to be an independent “consultative” assembly that could come out, for or against, the concept of federalism as would be applicable and workable for our country?
And in this seeming mind-set of working towards what Duterte wants instead of what is good for the people, the ConCom (e.g., Fr. Aquino) will be ready to “jump ship” (leave Duterte?) and reverse themselves on their 100% conviction that federalism is the only way to go for 109+ million Filipinos. What emerges here is the specter of professionals — academicians, lawyers, economists, businessmen, and other enlightened “consultants” who have sold their people down the river for the edited and tailored draft of a federalist charter promised by Duterte when he was still campaigning.
In a poll conducted from June 15 to 21, Pulse Asia found that 67% of Filipinos are against Charter change, an increase of 3 percentage points from 64% in March 2018. Of this, 37% said they do not want to amend the charter now and in the future, while 30% expressed openness to altering the constitution sometime in the future but not now. Three quarters of Filipinos (74%) have “little/almost no/no knowledge at all” about the current constitution, and 62% of Filipinos are not in favor of replacing the present unitary system of government with a federal one (philstar.com July 16, 2018).
A separate Social Weather Stations’ poll conducted March 23 to 27, however, showed that 34% favored the federal system of government while 29% expressed opposition to it, and 34% were undecided about the matter. Of the 1,200 respondents, 75% only learned about the federal system during the conduct of the poll (Ibid.).
Clear as day that Filipinos are still in the dark about federalism.
With some of Duterte’s own men now expressing doubts about its viability and soundness, it cannot be rushed and ratified to seal in the self-serving advantages preemptively claimed by some of those in present power and influence.
When in doubt, don’t!
 
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.
ahcylagan@yahoo.com

Business chambers caution on federalism

BUSINESS GROUPS in a joint statement on Sunday, Aug. 12, supported the call by economic managers of the Duterte administration to “weigh carefully” the costs and risks in the government’s planned shift to a federal system.
“We, the undersigned business organizations, appeal to our legislators to weigh carefully the costs, risks and uncertainty associated with the proposed monumental shift to a federal system of government,” said the joint statement by the Cebu Business Club, Employers Confederation of the Philippines, Financial Executives Institute of the Philippines, Makati Business Club, Management Association of the Philippines, Philippine Chamber of Commerce and Industry Inc., and Philippine Exporters Confederation Inc.
The statement also said, “Accordingly, we echo the concerns of fiscal and economic experts about the ambiguous provisions on the division of revenue and expenditure responsibilities between the proposed federal government and its federated regions.”
“Reports indicate an alarming cost to the would-be multi-level government under a federal system. Preliminary estimates range from P72 billion of the Philippine Institute for Development Studies (PIDS) to P130 billion of the National Economic Development Authority (NEDA). The fiscal deficit is estimated to reach 6.7% of the gross domestic product, which is way beyond the sustainable 3 percent target of our fiscal managers—a prudential limit also observed by the European Union for its member countries.”
“We worry about the dire consequences that such fiscal imbalance could have on the economy and the flagship Build, Build, Build program of the current administration.”
The statement also said, “We commend the economic managers in the Department of Finance, the Department of Budget and Management, National Economic and Development Authority, Bangko Sentral Ng Pilipinas, as well as the researchers in the Philippine Institute of Development Studies for their transparency in openly sharing their analysis and airing their concerns to the public. We support and join their call for a more detailed analysis of the fiscal impact of federalism to serve as basis for the deliberations in Congress.”
“As always, the business community stands ready to work with our political and economic leaders to bring about sustained and inclusive economic growth in the country.”
According to a statement from the Department of Finance last Friday, Finance Secretary Carlos G. Dominguez III said in part that, “based on the fiscal provisions of the draft federal Charter, the federal government would incur a deficit of 6.7 percent, which may result (in) a credit rating downgrade for the Philippines, which currently enjoys an investment-grade rating.”
This means “the Federal government will have to cut its expenditure program by P560 billion,” Mr. Dominguez also said in the statement.
“This means the national government may have to lay off 95 percent of its employees, or reduce the funds for the ‘Build Build Build’ program by 70 percent, or a combination of both,” he added.
Mr. Dominguez, at a Senate appearance last Wednesday where he was joined by Budget Secretary Benjamin E. Diokno and Socioeconomic Planning Secretary Ernesto M. Pernia, flagged the possible cost of a federal system under the proposed federal charter submitted by the Consultative Committee (Con-Com) to Review the 1987 Constitution.
But in his statement, Mr. Dominguez also qualified, “we never stated that we are against federalism. Rather, with respect to the fiscal provisions of the proposed Constitution, there are ambiguous provisions on revenue assignment and there are no provisions on expenditure assignment.”
For his part, Senate President Pro Tempore Ralph G. Recto also on Sunday said the shift to a federal form of government should undergo a “fiscal responsibility check” to determine whether the government can handle the costs.
“It’s like a four-way test. What is the cost to implement it? Do we have the money for it? Do we have to raise tax or impose fees or create savings or borrow money? What is the per capita burden it will impose?” he said in a statement.
He said the country’s economic managers should not be left out from the discussions since they “provide a reality check if a proposal is financially feasible and fundable.”
“Especially now when our debt needle is moving up. Of course when the(re) are expenditures, we should ask the people who manages the government’s money,” he said.
Senator Sherwin T. Gatchalian has filed a resolution directing the Senate to look into the potential economic impact of federalism.
Mr. Gatchalian said Senate Resolution No. 823, filed on Aug. 7, will look into the economic risks and opportunities, impact on regional economic growth, additional fiscal costs of the shift to federalism, effects on investments due to emerging issues on the imposition of additional taxes, administration of incentives, and repercussions on ease of doing business in the country. — with a report by Camille A. Aguinaldo

Job fair launched to complement ‘Build, Build, Build’ infra program

AROUND 17,000 jobs vacancies were offered Sunday, Aug. 12, at the “Jobs, Jobs, Jobs” Caravan led by government agencies under the Duterte administration’s “Build, Build, Build” infrastructure program.
The job fair, held 8:30 a.m. to 4:30 p.m. at the SMX Convention Center in Pasay City, was attended, among others, by Finance Secretary Carlos G. Dominguez, Budget Secretary Benjamin E. Diokno, and Trade Secretary Ramon M. Lopez, as well as Public Works Secretary Mark A. Villar, Transportation Secretary Arthur P. Tugade, and Labor Secretary Silvestre H. Bello III.
Most of these officials form part of the economic cluster of President Rodrigo R. Duterte’s Cabinet. At Sunday’s job fair, they represented their agencies which were identified as the lead departments in that event. Also in attendance were President/CEO Vivencio B. Dizon of the Bases Conversion and Development Authority and Communications Secretary Martin M. Andanar.
According to updates by the Department of Labor and Employment (DoLE) and the Department of Transportation (DoTr), 17,159 vacancies were offered at the job fair from 40 employers and contractors operating under the “Build, Build, Build” program.
In his remarks as of 2:00 p.m. Sunday, August 12, Mr. Villar said “Natutuwa kami na as of now, 3,000 na po ang uma-attend sa ‘Jobs, Jobs, Jobs’…. Makikita niyo po marami ay nabigyan ng trabaho.” [We are happy that, as of now, 3,000 attended the “Jobs, Jobs, Jobs”….You can see that many were given jobs].
DoLE’s update as of 1:30 p.m. said a total 2,665 applicants registered at the job fair, with 27 hired on the spot and 206 shortlisted.
Mr. Lopez, for his part, cited a number of big construction players under which 500 were hired on the spot.
Mr. Bello, in turn, said, “[W]e are prioritizing yung mga kababayan natin na na-repatriate…. ‘Yung mga Saudi, ‘yun ang aming tina-target upon strict orders of the President na lahat ng na-repatriate nating manggawa galing sa Saudi ay mabibigyan ang first break sa programang ‘Build, Build, Build’ ng ating Pangulo.” (We are prioritizing our repatriated workers….Those from Saudi [Arabia], they’re our target, upon strict orders of the President that all our repatriated workers from Saudi [Arabia] will be given the first break in the “Build, Build, Build” program of our President.)
For his part, Mr. Tugade said, “Ang mga taong gusto magtrabaho at magempleyo sa mga riles, sa mga subway, ay kukuha ng class program at kukuha ng certification. Bago mag-o-operate ang subway, uumpisahin namin ang training.” [“Those who want to be employed in the railway and subway projects under ‘Build, Build, Build’ will get a class program and a certification. Before the subway will operate, we will start training”].
A social-media statement by DoTr said in part that the job fair was open to, among other skilled workers, “engineers, architects, carpenters, welders, and other (workers with) construction-related skills. The other jobs available include support staff in the fields of accounting, finance, Information Technology (IT), customer service, etc.”
Mr. Villar said the Caravan will be the first of many the government plans to bring around nationwide.
“‘Yung mga projects ng ‘Build, Build, Build’ nationwide, actually mas marami pa sa probinsya. Heto po ang unang job fair pero magkakaroon ng marami pang job fair sa iba’t ibang lugar,” he said. (The projects under the ‘Build, Build, Build’ [program] nationwide, actually there are more [vacancies to be offered] in the provinces. This is the first job fair but there’ll be more job fairs elsewhere around the country).
Mr. Diokno, for his part, said his agency is exploring options to keep the infrastructure program, including turning over the “inactive budget” of the Department of Public Works and Highways to next year’s funding.
“Pinag-aaralan namin lahat ng options including their inactive budget nu’ng 2018 dahil marami pang proyekto nu’ng 2017 at 2018 na hindi pa nagagawa. Pag ina-add mo ‘yun sa 2019, napakalaki pa rin ng budget,” the budget chief said, amid the House of Representatives’ suspension of hearings on the proposed 2019 budget. — with Janina C. Lim and Gillian M. Cortez

Malacañang tells public to stay alert as 961 areas hit by flooding

MALACAÑANG ON Sunday reminded the public to “stay alert and safe” amid flooding and heavy rains in various parts of the country, especially in Metro Manila and parts of Luzon. “Sa mga lugar na nakakaranas pa rin ng pagbaha, hinihikayat po namin kayo na manatili sa mga evacuation centers na inihanda ng inyong lokal na pamahalaan [For those in areas that are still flooded, we urge you to stay in the evacuation centers designated by the local government units],” Presidential Spokesperson Harry L. Roque, Jr. said in a statement on Sunday, Aug. 12. Citing data from the National Disaster Risk Reduction and Management Council, Mr. Roque said 961 areas were reported to have experienced flooding. These are in Regions I (Ilocos), III (Central Luzon), CALABARZON, MIMAROPA, VI (Western Visayas), X (Northern Luzon), Cordillera Autonomous Region, and the National Capital Region. — Arjay L. Balinbin

17 towns, 1 city in Pangasinan on alert as San Roque Dam releases water

RESIDENTS in 17 towns and parts of one city in Pangasinan have been put on alert as the San Roque Dam started spilling operations at 2:00 a.m. Sunday, Aug. 12. The Provincial Disaster Risk Reduction and Management Council (PDRRMC) issued the warning to areas along the Agno River, namely: the towns of San Manuel, San Nicolas, Tayug, Asingan, Sta. Maria, Rosales, Villasis, Sto. Tomas, Alcala, Bautista, Bayambang, Mangatarem, Urbiztondo, Aguilar, Bugallon, Lingayen, and Labrador; and parts of San Carlos City. As of 9:00 a.m. yesterday, the San Roque Dam had four gates open with water level at 281 meters above sea level (MASL), breaching the normal high water level of 280 masl. Spillway gate discharge was at 298 MASL. The National Power Corporation (NPC), in its dam monitoring, said while alert was up, the water discharge was not expected to cause flooding in the warning zones.
BENGUET
Meanwhile, in Benguet, two dams — the Ambuklao Dam in Bokod and the Binga Dam in Itogon — were at “critical” level as of Sunday morning. The NPC said spilling operations “might cause extensive flooding in cultivated land and residential areas” in the two towns.
MONSOON RAINS
Weather bureau PAGASA, in its 4:00 a.m. Sunday weather update, said monsoon rains and thunderstorms were expected over Luzon and parts of the Visayas until Tuesday, and possible Wednesday. PAGASA Weather Specialist Meno Mendoza said they are also monitoring another tropical storm, with international name Leepi, located 2,230 kilometers east of northern Luzon, although it is not expected to enter the Philippine area.

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