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Eastern Petroleum sees fuel prices turning higher

THE CHAIRMAN of Eastern Petroleum Corp. has warned that prices of petroleum products are set to rise this week after several weeks of reductions.
In a statement on Sunday, Fernando L. Martinez, chairman and chief executive officer of Eastern Petroleum, said recent developments could have “positive” and “calming” effects in the world oil market.
In the near term, however, the company said oil prices “are poised to make moderate increase this Tuesday to reflect the slight reversal in international price.” This is after several weeks of price cuts totaling P2.40 per liter for diesel and P2.90 per liter for gasoline.
“Despite earlier expectations of sustained price cuts due to OPEC (Organization of the Petroleum Exporting Countries) boosting their production, and with Saudi Arabia and Russia agreeing to add production, recent political turbulence in Libya and Venezuela , and the recent oil export ban on Iranian oil production coupled with low inventory in US resulted in this price reversal,” the company said.
Mr. Martinez, who is also chairman of the Independent Philippine Petroleum Companies Association (IPPCA), said the favorable response of both Saudi Arabia and Russia to increase production could have positive and calming sentiments in the international petroleum market.
He also cited the possible warming relationship between the US and Russia with the upcoming summit of US President Donald Trump and Russian President Vladimir Putin as adding to the positive sentiments.
Last week, oil companies rolled back the prices of petroleum products, with gasoline having the biggest cut at P1.15 per liter. Diesel prices were down by P0.90 per liter while kerosene by P0.85 per liter.
On Sunday, oil companies that sell liquefied petroleum gas (LPG) increased the price of the cooking gas by P0.90 per kilogram.
They also increased the price of LPG for cars by P0.05 per liter. The price hikes reflected the international LPG contract prices for the month of July. — Victor V. Saulon

Kalibo International Airport rehabilitation starts

THE Civil Aviation Authority of the Philippines (CAAP) said the expansion and rehabilitation of the Kalibo International Airport (KIA) in Aklan will start today.
In a statement on Sunday, it said construction is set to get under way after the P17-million contract for the project was awarded last month.
“Priority projects in the KIA rehabilitation include the refurbishment of existing passenger terminal building, the repainting of the international passenger terminal building interiors, landside beautification through landscaping, electrical system and air-conditioning system rewiring, and the enhancement of railings and barricades,” CAAP added.
It also noted the construction will cover the re-blocking of the airport’s Apron Pavement which will start on Sept. 4, the Runway Strip Grade Correction which will begin on Nov. 22, and the building of a Power House scheduled on Nov. 24.
“The traffic and passenger movement cutback due to the ongoing Boracay Island closure from April until October this year will significantly allow several projects to be put into action. The CAAP plans to make the most out of the given time and opportunity brought about by reduction of flights,” CAAP said in the statement.
Boracay Island has been closed for tourists since April after President Rodrigo R. Duterte ordered a six-month rehabilitation of the island, leading airlines to cancel flights to the area until October.
CAAP said the KIA was able to serve more than 2 million passengers last year, of which 1 million are domestic and almost 1.5 million international. — Denise A. Valdez

Common cell tower policy due by end-July

THE GUIDELINES for the government’s common tower policy may be released by the end of this month, the Office of the Presidential Adviser on Economic Affairs and Information Technology Communications said.
Presidential adviser Ramon P. Jacinto said his estimated timetable for the release is the end of the month.
“[End of July], that’s my estimate,” Mr. Jacinto said in a phone interview when asked about the release of the guidelines.
The original timetable was for a February release, but Mr. Jacinto said his office has been working to carefully draft the guidelines.
“There are factors to be considered,” Mr. Jacinto said, without elaborating.
Mr. Jacinto announced in January the government policy, which will require current operators to lease cell towers from cell tower companies, instead of building their own cell sites. The policy is aimed at providing better services, and providing a level playing field for the entry of the “third player” into the telecommunications industry. The Philippines has only 16,000 cell sites, and Mr. Jacinto has said that it will need about 50,000 for better coverage.
Incumbents PLDT, Inc. and Globe Telecom, Inc. have expressed opposition to the policy.
PLDT Chairman, President, and CEO Manuel V. Pangilinan has said the companies should be allowed to continue building cell sites.
Globe legal counsel Vicente Froilan M. Castelo has said that there is “doubtful” legal basis for the policy and added the phone companies are empowered by Congress through their franchises to build sites.
Both telcos have cited red tape as a barrier to building more cell sites.
In February, Globe announced that it was in talks with certain parties to form an independent tower company and divest some or all of its tower assets, to help speed up the build and deployment of cellular towers in the Philippines, and as part of its network expansion and optimization plan.
It has said it is open to partnering with or being in a consortium with competitor PLDT, Inc. for the initiative, but PLDT has said that the company does not see any need to share any of its network assets.
Department of Information and Communications Technology (DICT) Acting Secretary Eliseo M. Rio, Jr. has said that the common tower policy is attractive for those wanting to join the third player selection. — Patrizia Paola C. Marcelo

Trade war to weed out inefficient exporters — UNCTAD

IN CASE a “full trade war” erupts, average tariffs for Philippine exporters could rise to a worst-case 30% from their current level of 2%, putting the least competitive firms at risk, the United Nations Conference on Trade and Development (UNCTAD) said in a report.
The findings were contained in an UNCTAD report, “The Cost of a Full Trade War on Tariffs.”
“In case of a full trade war, the average tariff would be about 30%,” Alessandro Nicita, Chief of the Research Section in the Trade Analysis Branch of UNCTAD, said in an e-mail last week.
The economist said a full trade war is defined as “the case in which every country will set the tariffs unilaterally at levels that they deem optimal from a purely mercantilistic perspective.” Under such a scenario, preferential tariffs are not in place.
Asked how the Philippines will do relative to the region, Mr. Nicita said: “An informed answer to these questions will require a lot of analysis.”
“It would depend on how competitive Philippine exports are vs. other countries. In a full trade war, the least competitive suppliers are the one likely to be hurt more,” he added.
Mr. Nicita noted, however, that the escalating trade tensions between the US and China and other countries will not bring the world economy “even close” to a full trade war.
“In this regard, the numbers we put out were to give an idea about the most catastrophic outcome (in case the WTO was to collapse, together and regional agreements),” Mr. Nicita added.
“At the moment what seems most likely to happen is a series of distinct “regional trade wars,” with the US taking part in most of them,” Mr. Nicita said.
Trade Secretary Ramon M. Lopez had said that the steel industry will benefit in the ongoing trade war between China and the US.
The department is also exploring which other export commodities can gain from the trade dispute. — Janina C. Lim

Use of parametric thinking in provisioning

(Last of three parts)
IFRS 9 is an International Financial Reporting Standard (IFRS) promulgated by the International Accounting Standards Board on July 24, 2014. It addresses the accounting for financial instruments and features three main topics: classification and measurement of financial instruments; impairment of financial assets; and hedge accounting. It became effective on Jan. 1, 2018 and has replaced International Accounting Standards (IAS) 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. In this article, IFRS 9 is referred to as a “science” because of its systematically organized body of information and measurements on specific topics.
Basel III (or the Third Basel Accord or Basel Standards) is a global, voluntary regulatory capital and liquidity framework agreed upon by the members of the Basel Committee on Banking Supervision (BCBS) in 2010–11. It was scheduled to be introduced from 2013 until 2015; however, the implementation has been extended to March 31, 2019. Another round of changes was agreed upon in 2016 and 2017 (informally referred to as Basel IV) and the BCBS is proposing a nine-year implementation timetable, with a “phase-in” period to commence in 2022 and full implementation to be expected by 2027. Basel III was developed in response to the deficiencies in financial regulation that came to light after the financial crisis of 2007–08. Basel III is intended to strengthen banks’ capital requirements, liquidity, maturity profile, and leverage. It also introduced macroprudential elements and capital buffers designed to improve the banking sector’s ability to absorb shocks from financial and economic stress; and reduce spillover effects from the financial sector to the real economy. Basel is an “art” form in the context of the need to perform skillful planning and creative visualization in fully comprehending its dynamic processes and uncertainties.
The timing of BSP Circular 989 and the adoption of IFRS 9 will be of equal interest to regulators as well as boards and management, who are keen on understanding the impact on financial institutions’ (FIs) loss-absorbing capacity under stressful conditions and implications for macro-prudential policy on one hand, and the strengthening of strategic plans on the other. FIs are expected to deal with expected credit loss (ECL) and time series data sets and calculation templates at granular and portfolio levels and draw upon multiple scenarios using their own expanded methodologies. They will need to achieve clarity on which would be considered base case and stressful scenarios, in order to help establish the range that would feed into the overlay mechanism of IFRS 9. When this development happens, the top-down and bottom-up approaches to adjusting Probability of Default (PD) for the overlay mechanism will become manifested in the coming months, so it is helpful to understand these two simultaneous processes that may converge (with the corporate and institutional exposures in mind).
Under the bottom-up approach, the PD is determined from the base credit risk model that accounts for idiosyncratic properties before it is adjusted for industry-level factors. The final adjustment is the overlay of the macroeconomic scenarios. Methodology-wise, this process involves recalibrating the rating or scoring PD models to incorporate macroeconomic factors. In practice, and for communication purposes, it would be helpful to distinguish the base PD and the corresponding overlay adjustment, which could be illustrated as a scalar or multiplier of 1 to 1.2 given an intense view of the economy.
On the other hand, the top-down approach is influenced by macroeconomic modeling that may involve auto-regression and would use a combination of an underlying Basel PD model and a portfolio model associated with stress testing. This Basel PD model produces a long-run or through the cycle PD that requires scaling, such that the portfolio average PD matches the predicted PD from the stress testing model. Forward-looking macroeconomic factors are applied in this exercise, with a scalar derived through optimization when linking the two models. In addition to regression, single factor models and credit index approaches may also be employed for top-down approaches.
Currently we are observing more bottom-up approaches being employed by the industry as it improves its base credit risk models and the relevant industry factors given the segment of the exposure. With the introduction of BSP Circular 989, we would expect top-down approaches to be revisited.
At some point within the next 12 to 15 months, we would expect a ‘VaR to VAR’ methodology connection between IFRS 9 and stress testing. From Value at Risk models to Vector Autoregressive models and back, this development could usher in the second generation of overlay and stress testing models that would allow economic forecasting (and potentially reduce the probability-weighting exercise to a sense-check exercise rather than as the main input) and incorporate lifetime and transition criteria. Regardless of the advancement to be implemented by financial institutions, there are helpful operational guidelines to be noted. The first point is that the exercise could result in an unintended front loading of losses, leading to capital erosion. The second is for any stress testing methodology and overlay mechanisms to be connected to internal risk management, notwithstanding the regulatory floors that may be imposed for capital adequacy purposes. The final point is for the Board to be directly involved in the identification and evaluation of stress scenarios, the stress test interrelationship map and oversight on the macroeconomic projections and its linkage to the institution’s resilience plan. Readers may refer to our July 26, 2010 article in this column, “Stress Testing as a governance tool,” for more guidance.
While the overlay mechanism prepares us for the foreseeing function and expansive view, let’s not lose sight of the tightening of the data, systems and processes within the base ECL model. In particular, for the PD determination for the corporate and institutional exposures, we are recommending the following that should be viewed as loops and iterations rather than as a set of finite linear steps:
1. Segmentation process -— covering the traditional data processing and management, risk profiles and internal risk rating system, with a subset for emerging and unstructured data capture assessments, “Big Data Small Data” initiatives, and clustering of observed attributes and properties.
2. Credit evaluation — covering mainly the financial condition, industry assessment and outlook and management quality of the corporate and institutional customers.
3. Assessment of factors and variables — covering both single factor and multifactor analysis, analysis and binning, and other approaches used to ascertain the relationship between the data points to the intuition and judgment of experts to be used for the model selection step.
4. Model selection — covering model runs that will result in candidate integrated models (composed of main and sub-models); these models initially start with an optimization algorithm of instructions and eventually “learn” over time; it may take another two to three learning rounds over the next 12 to 15 months to help stabilize the PD models.
5. PD transformation — covering the derivation of the through-the-cycle and point-in-time PD from the models chosen.
6. Portfolio analytics — assessment of the results against the internal policies and portfolio management, which then feeds back to the segmentation process.
This “future-proofing” recommendation will help FIs transition from parametric thinking to the rise of coding drivers — specifically on the adoption of machine learning while monitoring any progress on artificial intelligence for risk management and provisioning calculations.
At this point, the emerging parametric thinking underlying the ECL calculation has established the boundaries of PD and Loss-Given Default (LGD) to reflect both idiosyncratic properties and to a certain extent — through the overlay mechanism — the systematic risk that the obligor, or broadly the portfolio, is exposed to. But what is this systematic risk factor? Are we still talking about the generic market or financial economy? Or should this now be expanded to include “funding the real economy” discussions?
The connection between Basel and IFRS 9 has been limited so far to excessive concentration, contagion and spill-over risks. What has not been covered are the network and transmission risks that arise from stagnation. In an upcoming article, we will examine its application to the areas that have the strongest potential to break inertia and have an impact on the economy — agriculture and infrastructure.
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 authors and do not necessarily represent the views of SGV & Co.
 
Christian G. Lauron is a Partner of SGV & Co.

Tax reform for a brighter future

By Changyong Rhee
THE government’s proposed second phase of the tax reform is critical to the modernization of the corporate tax system in the Philippines, in support of the country’s development. Once implemented, this reform will improve the overall business environment and further establish the Philippines as a strong reformer in the region.
The government has embarked on a process to modernize the country’s tax system and raise more revenues to pay for much needed public investment in infrastructure, education, and health. The first phase of this process, known as TRAIN, reduced the number of people paying income tax by increasing the income threshold, raised excises on fuel, tobacco, and automobiles, and introduced taxes on sweetened beverages. These reforms are expected to generate additional revenue equivalent to 0.5% of GDP starting in 2018. Some of the additional revenue will be transferred to poor households to compensate for lower purchasing power due to higher taxes.
Building on TRAIN, the second phase of tax reform will create a more efficient, transparent and fairer corporate income tax (CIT) by rationalizing tax incentives and, at the same time, reducing the CIT rate to 25%, from 30%. The lower CIT rate will help attract more investment to the economy and in turn support growth and job creation. A modern tax incentive regime will also help put businesses on a more equal footing in terms of tax payment with greater transparency and accountability.
Today, the Philippines offers a wide range of tax incentives at a significant cost of government revenue. Incentives include income tax holidays, reduced income taxes, increased tax deductions, tax credits, and exemptions from the value-added tax and import duties. The Department of Finance estimates the revenue lost at about 2 percent of GDP, that is P301 billion or nearly P2,900 per person. It is not surprising that while having the highest CIT rate (30%) among ASEAN countries, the Philippines’s collects only around 3.8% of GDP from this tax — well below the average of 6.5% of GDP in other ASEAN countries.
In our view, the decision to grant tax incentives needs to be considered against the need for providing more and better public services. With 22 million people estimated to be living in poverty in 2015, a careful balance needs to be achieved between tax incentives and meeting critical spending needs on education, health care, and basic necessities. For example, according to the World Bank, one in three Filipino children under age of five is stunted because of malnutrition. More resources are needed to help these children and meet the government’s commitment to significantly reduce poverty rate by 2022.
In seeking a more equitable tax system, the second phase of tax reform will help spread tax burdens more evenly.
The current high CIT rate acts as a disincentive to businesses not receiving tax incentives, which are effectively subsidizing the current recipients of incentives. A more equitable corporate tax system would help strengthen competition among businesses and encourage overall investment in the Philippines more broadly.
This reform would simplify tax incentives and make them more transparent. There are now over 220 laws that provide tax incentives and 14 government agencies that have the authority to grant incentives with discretion. This tends to create competition among the agencies in granting incentives. Moreover, monitoring the impact of incentives can be challenging. The planned reform would centralize the system and set clearer and uniform criteria for granting tax incentives to help achieve more inclusive growth and faster poverty reduction.
Ongoing reforms to streamline government regulations should help address some of the concerns over the rationalization of tax incentives. It is often cited that the incentive schemes also provide more streamlined regulatory requirements. In addition to improving infrastructure, it is encouraging to note that the government is undertaking reforms to ease burdens on businesses, including reducing red tape and liberalizing foreign direct investment by reducing the negative list.
In summary, the second package of tax reform represents a major step forward in modernizing corporate taxes in the Philippines. It will help build a more equitable, efficient, and transparent corporate tax system with a lower CIT rate for everyone and a clearer focus on the country’s development priorities.
Early approval of this reform will help the Philippines compete in the global economy. It will again show the country’s determination to modernize its institutions; give confidence that the Philippines is committed to keep its public debt manageable, while it scales up spending on infrastructure and social programs; and show the world that the Philippines will continue to undertake important reforms to support more inclusive growth.
 
Changyong Rhee is the Director of the Asia and Pacific Department at the International Monetary Fund.

Fare control makes it difficult to get a ride

“For every action, there is an equal opposite reaction.”

— Isaac Newton (1642 — 1726) 3rd law of motion.

“Every government intervention creates unintended consequences which leads to further intervention.”

— Ludwig von Mises (1881-1973, Austrian economist)

My addition to the two related statements above is: For every government intervention and taxation, there is an equal opposite distortion.
And this is what exactly happens with a series of franchise, price, and surge control and then the per-minute charge control policies of the Land Transportation Franchising and Regulatory Board (LTFRB) in its regulation of transport network vehicle services (TNVSs) and transport network companies (TNCs).
First, franchise control.
When Uber exited Southeast Asia last April and was acquired by Grab, it had 19,000 Uber drivers in the Philippines. However, only 11,000 were absorbed by Grab because LTFRB only accredited this number. Until June this year, some 6,000 former Uber drivers were still waiting accreditation but LTFRB franchise control does not give them the chance. Some 2,000 ex-Uber drivers must have given up.

As a result, after the acquisition, ride requests reached 600,000 per day on average, making it difficult for everyone — even previous Uber users — to get a ride.
Second, price and surge control.
Even when Uber was operational, LTFRB put a cap on surge pricing on both Uber and Grab to 2x, later down to 1.5x, and this resulted in passenger inconvenience as their waiting time to get a car during rush hours became longer.
When the price is too low, the number of drivers to supply the demand is also low. A notice of “no cars available” shows up and riders’ waiting time to get a ride gets longer, if ever the car shows up. Which might mean cancellations of important meetings or inability to bring a sick person to the hospital.
When the price is too high, the number of riders will decline, or they will take the regular taxi or cheaper but lesser-known (good or bad) companies. If the trip is not very important, they may choose to postpone their trip and wait until prices decline.
Third, per-minute charge control.
TNVS charging P2 per minute is a mechanism to offset the big decline in surge pricing to only 1.5x. So even if the route and the pickup and drop-off areas have heavy traffic or are flooded, drivers will have additional incentive to take that trip. Abolition of per-minute charging therefore removes the incentive and hence, passengers will be unable to get a ride.
These three ugly interventions and regulations by LTFRB are anti-commuter and directly contradict its stated mission, “Ensure that the commuting public has adequate, safe, convenient, environment-friendly and dependable public land transportation services at reasonable rates.” Cheap but not available service is not desirable.
Now there is a fourth ugly intervention by the LTFRB. It disallows Grab the P2/minute charge but allows new players to charge that amount.
This new policy of LTFRB violates the rule of law, that a law should apply to all players with no exception. What the agency exhibited therefore is favoritism of new players while harassment of existing player. In which case, LTFRB can also be called as the “Land Transport Favoritism and Regulations Bureaucracy.”
Only about 2.7% of the commuting public use ride-hailing services, the rest use mass transportation (jeepney, bus, UV express, MRT, LRT) plus tricycle, trisikad, and regular taxi. Why is the LTFRB focusing on that segment?
LTFRB should be ashamed of its franchise control, surge control, per-minute charge control, and TNC favoritism. It should reverse these policies. It should (a) expand the number of TNC drivers, (b) allow higher surge pricing, and (c) allow the P2/minute for all players, and not play favorites.
 
Bienvenido S. Oplas, Jr. is President of Minimal Government Thinkers, a member-institute of Economic Freedom Network (EFN) Asia.
minimalgovernment@gmail.com

A trash-to-fuel refinery planned for the Philippines

Howard Warren Buffett, the grandson of Warren Buffett, is an entrepreneur of our generation.
Unlike his grandfather who built Berkshire Hathaway to a $707-billion conglomerate on the back of pure capitalist pursuits, Howard’s company is one that invests solely on projects that yield both financial gains and positive social impacts. The young Buffet insists that the two can and must go hand in hand.
His company is called “i(x) Investments” and is driven my a simple mantra. The company believes that “capitalism is the most powerful force on the planet…. if a company builds and invests in businesses that have an explicit social purpose, it can create a sustained change in the world on a scale we’ve never imagined.”
i(x) Investments provides capital to companies with proven technologies but without the means nor wherewithal to scale-up to a global level. They help companies gain access to markets normally inaccessible to them by tapping into their vast network of top-level decision makers, management expertise, and of course, by infusing large amounts capital. So far, their investment portfolio include businesses involved in renewable energies, LEED certified real estate projects, ecologically friendly agro-industries, and companies that promote gender equality, among others.
Research shows that companies that yield positive impacts are more sustainable than those whose sole purpose is profit.
Howard is in partnership with another heavyweight in the global investment scene, Trevor Neilson. Trevor was the CEO of the G2 Investment Group, an affiliate of the $350-billion Guggenheim Fund. Prior to that, Trevor served as the director of public affairs for the Bill & Melinda Gates Foundation and the office of former President Bill Clinton.
Trevor is married to Evelin Weber who is half Filipina. Evelin is a philanthropist who heads The Philippines Foundation. The power couple were recently in Manila and I had a chance to enjoy an afternoon of chat with them.
i(x) Investments is a permanently capitalized holding company that provides individuals and institutions with the opportunity to invest in meaningful pursuits.
Socially relevant investments is the trend among individuals with billions of dollars in net worth, says Nielson.
For the likes of Bill Gates, Amancio Ortega, Bernard Arnault, and even Robert De Niro, they invest not only to gain financial returns but more so, to make an impact in the state of the world. Their lot is enormous. In 2013, as much as $6.57 trillion was invested in socially responsible endeavors.
As a matter of policy, however, i(x) Investments does not declare dividends. Instead, it reinvests its earning to compound its growth and social impact. Investors exit the fund by selling their shares at a handsomely appreciated value.
The beauty of i(x) Investments is that it has built systems to precisely measure the social impact of their projects. In one glance, investors can readily see (and appreciate) how many lives have improved and how much the degradation of the environment has been retarded as a result of their investments. For those who invest in i(x), returns line both the pocket and the soul.
THE PHILIPPINE PROJECT
The Neilsons are committed to help in the development of the Philippines. What is appalling to Trevor is the sheer amount of trash generated by our cities and how much these pollute our sewerage systems, air and waters.
Case in point, the city of Manila alone produces a staggering 8,600 tons of waste a day, nearly the same amount of trash generated by the whole of Singapore. The entire Metro Manila produces 35,000 tons of garbage daily, three times the amount produced by New York City. Metro Manila’s trash goes directly to our landfills, if not dumped in Manila Bay and Laguna de Bay.
Even more worrying is the fact that Metro Manila produces the world’s largest amount of non-biodegradable plastic. Plastic waste find their way in the digestive systems of marine life and nostrils of turtles, invariably poisoning them.
Trevor has his eye on solving this problem.
Fortunately, one of the companies in i(x) Investments’ portfolio has the technology capable of turning trash into fuel suitable for aviation applications. Thermochem Recovery International, an American company, is the owner of the technology but is only interested in operating in the US. i(x) Investments has licensed the technology for worldwide rollout. It is now in the final stages of building its trash-to-fuel refineries in Mexico, Colombia and Argentina.
Trevor’s intention is to build the fourth refinery in Metro Manila, in partnership with a Philippine based company. Funding, in whole or in part, can be provided by i(x) Investments.
With the amount of trash generated in Metro Manila, the intended refinery will be capable of producing as much as 212.7 million gallons of aviation fuel per year. At the present rate of approximately $2.26 per gallon, this represents a resource worth $480.7 million which is otherwise “rubbish”.
This year, Philippine Airlines will consume 462 million gallons of aviation fuel for its operations. I suspect Cebu Pacific will consume the same amount, if not more, given the size of its fleet. Between the country’s two principal carriers, the entire output of the intended refinery will be spoken for.
In fact, three more refineries of the same capacity are warranted just to meet demand.
The Philippines is an importer of 99.8% crude oil that produces jet fuel. One can imagine the savings on import costs on a national level.
Aviation fuel produced from trash is cheaper than those produced from crude oil. The savings translates to better profits margins for airlines. This, in turn, will allow them to lower ticket prices to the benefit of the riding public.
More significantly, this type of aviation fuel emits 70% less carbon than oil-based fuel. This bodes well for most international airlines which are co-signatories to the Paris Agreement on Climate Change and committed to lower their carbon emissions. Using biofuel is a win-win situation, emission-wise and profit-wise.
In terms of land-based pollution, having the refinery to absorb Metro Manila’s trash will ease the inundation of our landfills. This will decrease the carbon emission from burning waste and lessen stray trash from polluting our lakes, rivers, and seas.
i(x) Investment’s proposed refinery in the Philippines is both timely and desperately needed.
Fortunately, they are already in talks with a local conglomerate that has a footprint in land-side aviation and power generation. Let’s hope the talks come to fruition. The nation will greatly benefit from this. Watch out for updates on this space as I monitor the progress of negotiations.
 
Andrew J. Masigan is an economist
(The title of this piece has been changed. It has also been corrected to reflect the correct spelling of the name of Mr. Howard Warren Buffett. Our apologies to our readers and Mr. Buffett.)

The Drama King

I voted for President Duterte.
Like millions of Filipinos, I was desperate for change and was lured by candidate Duterte who promised that “change was coming.” The old political families that had governed the Philippines since Independence had given us nothing but grief.
I don’t agree with everything that President Duterte does. I strongly disagree with the ouster of Supreme Court Chief Justice Maria Lourdes Sereno, masterminded by his minions, because it’s unconstitutional and rooted in petty grievances by her fellow Justices. It will also weaken the Judiciary as an institution.
I also don’t agree with President Duterte’s foreign policy of appeasement to China. Like Vietnam, we can still economically cooperate with China without yielding on principles of national sovereignty and territorial integrity.
President Duterte practices a leadership style that doesn’t serve the country well. I call it leadership by drama. I have to call him the drama king. What are the components of this leadership by drama?
1. USING A SLEDGEHAMMER TO KILL A FLY.
His solutions have been over the top.
Take, for example, the drug problem.
President Duterte has correctly identified it as a threat to the state. It’s also a human resource problem that has become a scourge in many poor communities. However, his solution has resulted in extrajudicial killings. Drug dealers and drug users have been treated alike, especially if they are poor. The aspect of drug rehabilitation has been basically ignored in favor of quick solutions engineered by the police.
Another example is the Boracay problem.
Again, here President Duterte is basically correct in that self-inflicted environmental problems were threatening this island paradise. He has also shown political will by going against politically powerful businessmen and local government officials. The problem is that he could and should have ordered the closure of Boracay in stages. Also, those who were complying with the law and those who weren’t, suffered alike with the closure of entire Boracay.
Not only has the closure of the entire island resulted in billions of pesos in losses, it has given the country a bad name in the tourism industry. It’s no longer fun to book beach vacations in the Philippines.
President Duterte has added to the drama and the uncertainty by saying he wants Boracay declared a land reform area. This is pure drama. There are no real agricultural lands in Boracay and the Ati tribesmen in Boracay aren’t farmers.
Then President Duterte piles on the drama by saying that the beneficiaries can turn around and sell the land to Big Business. Where’s the drama? The only legal way for President Duterte to give titles to the Ati tribe is through agricultural free patent. However, this means that the agricultural free patent beneficiaries have to wait for 30 years before they can be granted a title. During all that time, the Ati beneficiaries are supposed to pay taxes on the land. With what money since the land isn’t productive?
President Duterte has also said that land reform in Boracay is about social justice. Or is it about rent-seeking, since bureaucrats or politically-connected people may end up owning the titles and making a killing under the guise of land reform?
President Duterte may have good intentions but the Boracay drama has just given investors more uncertainty and reasons not to invest in the Philippines.
Another example of an over-the-top solution is martial law in Mindanao.
The ISIS-inspired insurgency is confined to Marawi and a few other provinces. However, President Duterte declared martial law in the entire Mindanao and even after the Marawi siege has ended. Martial law is drama enough, but does it have to be in the entire Mindanao? The declaration is not without economic consequences since tourists and investors would be warned by their respective embassies to avoid Mindanao. Martial law in the entire Mindanao gives the impression that there’s widespread lawlessness in the island when there isn’t.
2. PUFF UP ACTIVISM WITH AN INCOMPETENT BUREAUCRACY.
President Duterte has a can-do attitude. He likes to solve problems immediately. He probably got this attitude as mayor of Davao City, where for instance, he could easily order the sanitation department to clean up the streets if he sees garbage.
Unfortunately, governing the Philippines is more complex and the bureaucracy is incompetent, politicized, and inefficient. His government’s move to turn away from PPP (Public Private Partnership) and toward ODA (Official Development Assistance) and GAA (Government Appropriations Act)-financed infrastructure projects is built on the assumption of a competent and efficient bureaucracy. There have been a lot of fanfare (drama, if you will) about the Golden Age of Infrastructure, but going into the midpoint of his presidency, “Build, Build, Build” has yet to materialize.
Even his drug war is built on the assumption of a competent and honest police force. However, as he found out after the killing of a Korean businessman right in the headquarters of the PNP in Camp Crame, this isn’t so. There are a lot of scalawags in the PNP whom he has to root out first and he must reform the institution before he can pursue his drug war in earnest.
And then there’s the PCOO or the Presidential Communications Operations Office, which is, to say the least, an embarrassment.
Moreover, the National Food Authority, with whom, President Duterte sided in the dispute with Cabinet Secretary Leoncio Evasco Jr., has mismanaged the rice situation, leading to rising rice and food inflation.
3. EXTREME PRACTICALITY.
President Duterte is a pragmatic person. He likes to solve problems on the spot, without regard to ideology or high-level concepts like human rights. Maybe, this is why he has no use for a God. Again, this was probably shaped by his term as mayor. I think this guides his approach to China. He can’t do anything about China’s military might anyway so he might as well give in and extract concessions, such as getting loans, the influx of tourists, and more trade from China.
To him, abstract principles like human rights, rule of law, morality, national sovereignty, and territorial integrity are more of a hindrance in solving the nation’s problems. However, ignoring these principles altogether will have real life consequences in the long run.
4. MIXED SIGNALING.
President Duterte showed a lot of drama in firing government officials, saying that he will not tolerate a whiff of corruption. However, he has also recycled many officials he has fired, possibly sending mixed signals to the bureaucracy. On one hand, he has said he will fire scalawags in the police force, and yet on the other hand, he publicly declared the innocence of PNP Supt. Marvin Marcos, who was implicated in the killing of Albuera Mayor Rolando Espinosa by no less than the Department of Justice.
I’m pointing out the deficiencies in President Duterte’s leadership style because I believe he can be better. He has shown that he’s capable of learning and evolving. He has reached out from his small circle of campaign supporters and Davao friends in appointing government officials. He has walked back from some of his populist promises, such as ending the ENDO (labor contractualization) practice. He’s no longer as naïve anymore in dealing with the CPP-NPA and the Left, some of whose representatives he initially appointed to his Cabinet. He’s no longer the fawning former student of CPP Founder Jose Ma. Sison, who was once his professor.
He’s also no longer mouthing the unrealistic rice self-sufficiency mantra of Agricultural Secretary Manny Piñol.
The latest example of his evolution is his appointment of Bernadette Romulo-Puyat as Secretary of Tourism and Menardo Guevarra as Secretary of Justice. He appointed Puyat after firing Wanda Teo, the sister of the Tulfo brothers, media personalities who were outspoken supporters during his campaign. He gave Puyat a free hand in running the department, even moving his friend and campaign social media director, Pompee La Viña, from the Department of Tourism to the Department of Agriculture.
However, it’s his appointment and support for Menardo Guevarra that deserves commendation.
His previous work in the office of the Executive Secretary under President Noynoy Aquino could have been toxic for Guevarra, but Duterte appointed this well-respected professional anyway. Gueverra lived up to his reputation as a standup legal eagle by nullifying the Bureau of Immigration’s order deporting Australian missionary Patricia Fox, stating that he has to follow the “rule of law.” To his credit, President Duterte chose to respect Gueverra’s decision even if Fox had earned the former’s ire.
My message to President Duterte is this: You can become better. You have shown a capacity to evolve. You need to become a better leader for the sake of the Filipino people. We need less drama but more real achievements on the ground. Maintain your activist, can-do mentality but always assume that the government is inefficient and incompetent.
Use a scalpel when a scalpel will do. Not noise, not drama, but lower inflation, more affordable food, faster work on infrastructure, and more jobs are what Filipinos care about.
But that is not all that they care about. They also value nationalism, sense of independence, human and national dignity. Please consider these in our foreign relations.
We accept that you can’t be a philosopher-King, but you can be the King of the People you promised to be.
 
Calixto V. Chikiamco is a board director of the Institute for Development and Econometric Analysis.
idea.introspectiv@gmail.com
www.idea.org.ph

Messi, Ronaldo depart; new star Mbappe shines

KAZAN, Russia — Cristiano Ronaldo and Lionel Messi saw their World Cup dreams snuffed out on Saturday as French teenager Kylian Mbappe flew the flag for a new generation in Russia.
Ten goals were scored on a gripping first day of the knockout phase as France progressed to a quarterfinal tie against Uruguay but Messi and Ronaldo may have played their last games on football’s biggest stage.
In the first match, in Kazan, France roared back to beat Argentina 4-3, with 19-year-old Mbappe scoring twice in an electrifying display.
Later in Sochi, Ronaldo — who started the World Cup with a hat-trick against Spain — was powerless to prevent Portugal slipping out of the tournament as Edinson Cavani scored twice in a 2-1 win to send the European champions home.
The Paris Saint-Germain striker opened the scoring with an early header and curled a superb first-time shot past Rui Patricio to win the match after a Pepe equalizer.

FRANCE’s forward Kylian Mbappe scores their fourth goal during the Russia 2018 World Cup round of 16 football match between France and Argentina at the Kazan Arena in Kazan on June 30.

Cavani, who forms a dangerous front-line pairing alongside Luis Suarez, later limped off, helped by Ronaldo, sparking fears for his World Cup future.
Ronaldo, who will be 37 by the time of the next World Cup, was unable to keep Portugal alive despite incessant pressure from his side in the dying stages of the match.
But Portugal coach Fernando Santos said the Real Madrid forward still had plenty to offer.
“Cristiano still has a lot to give to football and I hope he will stay to help the young players grow and develop,” he said. “We have a team with many young players and of course we all want him there with us.”
Uruguay coach Oscar Tabarez said Cavani had sustained an injury and it was unclear how serious it was.
“As always we will bank on the strength of our team as a collective,” he said. “That is our best chance against any adversary, and we know that France will be very tough indeed.
“But we will try our best and look to impose our way of playing on them, using our strengths,” he added. “We’re here to play all seven matches, right up until the final, and we will see what happens.”
FRANCE PACE
France, the 1998 champions, looked a totally different side from the one that struggled to find their cutting edge in the group stage, pouring forward with pace and purpose to stretch the ageing Argentine defense.
Antoine Griezmann gave France the lead from the penalty spot but the South Americans leveled with a sweet hit from Angel Di Maria and edged ahead shortly after halftime through Gabriel Mercado.
But defender Benjamin Pavard equalized with a thunderous strike to pull France level and once more change the complexion of the game.
That set the scene for Mbappe, who netted two goals in four second-half minutes to become the first teenager to score at least twice in a World Cup match since a 17-year-old Pele in 1958.
Sergio Aguero gave Argentina late hope but they ran out of time and head home after a roller coaster ride in Russia that ultimately ends in bitter disappointment for the two-time champions.
Man-of-the-match Mbappe, who is Cavani’s teammate at PSG, brushed off comparisons with Brazil great Pele.
“I’m very happy, and it’s flattering to be compared to a great player like Pele,” he said.
“But he’s in another category. Still, it’s great to join the list of players that have achieved such feats.”
Mbappe was born in 1998, the year Les Bleus secured their first World Cup title under captain Didier Deschamps.
Deschamps, now national manager, praised his team’s character to fight back from 2-1 down.
“We answered the call, we have a lot of character and it was not easy as we were leading, then there was an equalizer, then we were 2-1 behind, but we kept fighting.
“There is an excellent mentality in this group and we did everything to go further. Since I am responsible for everything, particularly when it doesn’t go well, I’m very proud.”
RAGGED ARGENTINA
Beaten finalists four years ago, Argentina only reached the last 16 by the skin of their teeth after a shambolic group phase and despite a brave effort against France, the age of their players and an unbalanced squad ultimately caught up with them.
Barcelona’s Messi, 31, has spent the tournament trying to hold the squad together, even apparently bypassing coach Jorge Sampaoli to give coaching instructions in the 2-1 win against Nigeria that saved the South Americans from a humiliating group-stage exit.
He has scored only once and Argentina’s campaign was defined as much by Diego Maradona’s erratic and emotional outbursts.
Astonishingly, neither Messi nor Ronaldo have ever scored a goal in a World Cup knockout match, in a combined 14 games. — AFP

Gilas, Boomers battle for Group B leadership

By Michael Angelo S. Murillo, Senior Reporter
THE Philippines and Australia meet in an all-important game in the third window of the FIBA World Cup Asian Qualifiers today at the Philippine Arena in Bocaue, Bulacan, with leadership in Group B at stake.
Both sporting a 4-1 record, Gilas Pilipinas and the Boomers dispute the top spot in their scheduled 7:30 p.m. encounter as they look to boost their respective causes in the tournament and build a winning momentum heading into the next round.
Gilas enters the contest off a high after routing Chinese Taipei, 93-71, in Taiwan on June 29 in its first game in the third window.
The Philippines had to dig deep in the first three quarters of the game against Chinese Taipei before pulling away in the fourth period to book the big victory.
June Mar Fajardo had a solid offensive game of 22 points to lead Gilas with Jayson Castro adding 15 points.
Gilas-returning Terrence Romeo finished with 14 points and six assists while naturalized player Andray Blatche had all-around numbers of 13 points, 12 rebounds, five assists, three steals and two blocks.
Australia, for its part, will try to bounce back after absorbing a shock 79-78 loss at the hands of Japan last Friday in Chiba.
Came out flat in the opening half of the match, the Boomers tried to rally back in the second half but just could not complete the task in the end.
Christopher Goulding paced Australia with 22 points in the loss.
National Basketball Association player Thon Maker had a double-double of 13 points and 12 rebounds while Nicholas Kay had 12.
Champion NBA guard Matthew Dellavedova, for his part, only had four points but had eight assists.
The Philippines and Australia will meet for the second time in the tournament after the latter took the first one, 84-68, in February in the second window.
Gilas is hoping to get a better result this time around, vowing to have learned from the first encounter.
“We need our run-and-gun offense to be effective because that’s what we missed in the first game against Australia. They were bigger than us, and they slowed the game down before. That’s why we couldn’t get into a good rhythm. They stopped our fast-break attack, so we need to do better with our run-and-gun. That’s the true game of Gilas Pilipinas,” Mr. Castro was quoted as saying by the official FIBA website.
He encouraged Filipino fans to rally behind the team and trek to the Philippine Arena even as he promised a good game that Gilas supporters can appreciate.
“I hope to see our fans give their all-out support for us… against Australia at the Philippine Arena. I am certain they will enjoy, since we’ve prepared even better this time around,” Mr. Castro said.
In the first game, Cameron Gliddon led the way with 16 points, followed by Angus Brandt’s 13.
Mr. Fajardo top-scored for Gilas in the defeat, finishing with 15 points while Matthew Wright had nine.
Roger Pogoy and Mr. Blatche had eight points each.
Also in Group B, Chinese Taipei and Japan, tied for third spot with identical 1-4 records, jostled today in Taiwan to determine who gets to join the Philippines and Australia to the next round of the Qualifiers.
The Philippines-Australia match will be shown live on ESPN5 with livestream on ESPN5.com.

Batang Gilas falls to Croatia in U17 World Cup opener

THE Philippine national boys under-17 team fell in its debut in the 2018 FIBA U17 Basketball World Cup, losing to Croatia, 97-75, early Sunday morning (Manila time) at the Newell’s Old Boys in Rosario, Argentina.
Despite getting a solid 23 points and 12 rebounds from big man Kai Sotto, the Filipino boys just could not much the firepower of the Croatians throughout the match en route to slumping to the defeat.
Croatia opened the proceedings with an 8-0 blast in the first three minutes of the contest and never looked back after.
It held a 25-15 lead at the end of the first quarter, before padding it to a 13-point cushion, 44-31, by the halftime break.
The second half proved to be even tougher for Batang Gilas as its opponent cranked things up, racing to a 71-49 advantage at the end of the third period and extending it to its biggest lead of 32 points, 85-53, at the 7:13 mark of the fourth quarter.
Batang Gilas managed to trim down its deficit after, eventually settling for the 97-75 final score.
Guard Terrence Fortea finished with 14 points to backstop Sotto with Raven Cortez and Carl Tamayo adding 13 and 12 points each.
Matej Rudan led Croatia to the win with 16 points, followed by Matej Bosnjak with 14, Ivan Gulin 13 and Roko Prkacin 10 points.
Next for Batang Gilas, which is bracketed in Group D, is an encounter with France early Monday morning.
As per tournament format, the teams in each of the four groupings play their group mates for positioning after which they play in a crossover encounter with those from other groups.
Group D teams, which also include host team Argentina, will battle those from Group C which features Canada, Egypt, New Zealand and Montenegro.
While they recognize that it is not going to be easy for them in the tournament, the Batang Gilas think tank said in the lead-up that it would not deter them from their goals of having a better showing in the tournament and furthering the program they have set under the Samahang Basketbol ng Pilipinas.
“We are not necessarily looking at it as the Group of Death but rather we are approaching it as the Philippines very fortunate to be able to compete with some of the best teams in the world,” said coach Michael Oliver.
“We’re happy for the players for the opportunity because this does not happen very often; that they get to play these teams. You only get to play them when you qualify in big tournaments,” Mr. Oliver said.
The 2018 edition of the U17 FIBA Basketball World Cup marks the second time the Philippines is competing in the tournament.
The U17 FIBA Basketball World Cup happens from June 30 to July 8. — Michael Angelo S. Murillo

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