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ASEAN’s 50th anniversary marks progress in energy cooperation

By Aloysius Damar Pranadi

THE Association of Southeast Asian Nations (ASEAN) commemorated a golden jubilee on Aug. 8.

As the current chair of ASEAN, the Philippines has been hosting numerous ASEAN meetings this year, including the last 35th ASEAN Ministers on Energy Meeting (AMEM) in September. This meeting of the highest level in ASEAN energy has prompted the member states to reflect on their energy cooperation, its achievements, and challenges.

Throughout the 50 years of ASEAN, the region was successfully transformed into a promising economic community. Today, ASEAN is the sixth largest world economy with $2,559 billion of gross domestic products (GDP), which skyrocketed from $23 billion in 1967.

This ASEAN’s rapid development was inevitable due to the role of energy cooperation which is fundamental for the region.

The journey of ASEAN’s energy cooperation started in the oil and gas sector, with the declaration of the ASEAN Council on Petroleum in 1975. Then, on Feb. 24, 1976, the ASEAN founders signed the ASEAN Concord with which each member state made the commitment to assist each other by prioritizing supply of individual country’s needs and commodities (in particular food and energy). These moves show that the ASEAN Member States (AMS) realize the importance of energy in strengthening the economy and unity of ASEAN.

Following the ASEAN Concord, the Meeting of the ASEAN Economic Ministers on Energy Cooperation (now AMEM) was held in September 1980. This meeting aimed to formulate a framework of energy cooperation within the region. In 1986, an Agreement on ASEAN Energy Cooperation was signed by the Member States.

In April 1981, ASEAN expanded its cooperation to coal and the power sector by conducting the First Meeting of ASEAN Experts Group on Coal (now ASEAN Forum on Coal) and the Heads of ASEAN Power Utilities/Authorities. ASEAN then widened the cooperation to renewable energy (RE) by conducting a first review meeting on the new and renewable sources of energy in 1987.

In 1993, the establishment of experts group on energy efficiency and conservation (EE&C) was initiated by the Member States.

On Dec. 15, 1997, ASEAN declared the ASEAN Vision 2020. The Vision declared that interconnecting arrangements for natural gas through the Trans-ASEAN Gas Pipeline (TAGP) and the establishment of electricity interconnecting arrangements within ASEAN through the ASEAN Power Grid (APG) are the ASEAN’s vision on energy in 2020. APG and TAGP were also highlighted in the Hanoi Action Plans, which was established on Dec. 16, 1998.

In the objective of strengthening energy cooperation within the region, the ASEAN-EC Energy Management Training and Research Centre (AEEMTRC) was established in 1988. This center was what is today the ASEAN Centre for Energy (ACE), currently the intergovernmental organization that represents the 10 AMS’ interests in the energy sector by accelerating the integration of energy strategies within ASEAN.

To support the energy cooperation agenda under Hanoi Action Plan, the first series of guiding policy documents were established in 1998. The document, known as ASEAN Plan of Actions on Energy Cooperation (APAEC), laid the foundation for sound policy frameworks and implementation strategies for energy cooperation with relevant dialogue partners and international organisations. The APAEC then continues on a five-year basis, consisting of 7 program areas: the APG; TAGP; Coal & Clean Technology; EE&C; RE; Regional Energy Policy & Planning; Civilian Nuclear Energy.

With the existence of the APAEC, the AMS have clear and measurable objectives in their energy cooperation, which enabled them to attain progress throughout the years. The APAEC 2016-2025 took the theme “Enhancing Energy Connectivity and Market Integration in ASEAN to Achieve Energy Security, Accessibility, Affordability and Sustainability for All.”

This is in line with the ASEAN Economic Community’s (AEC) blueprint, which aims to achieve energy security cooperation and move towards greater connectivity and integration for a well-connected ASEAN to drive an integrated, competitive and resilient region.

And connectivity has been achieved by the AMS, step by step.

By the year of its 50th anniversary, ASEAN has successfully built 3,673 kilometers of existing pipelines that connect six (6) AMS and six (6) liquefied natural gas (LNG) regasification terminals with a total capacity of 22.5 million tons per annum (MTPA) under the TAGP Program.

In the power sector, a number of cross-border interconnections under APG were established, amounting to 5,212 MW. Furthermore, on 27 September 2017, the Philippines as the ASEAN’s chair during this year of anniversary, hosted the historic signing of the Energy Purchase Wheeling Agreement (EPWA) during the 35th AMEM in Manila. EPWA is the first multilateral electricity transaction among the ASEAN member states that targets to advance electricity trade in the region under the APG. The signing of the EPWA among Lao PDR, Thailand and Malaysia (LTM) implements Phase 1 of the Lao PDR-Thailand-Malaysia-Singapore Power Integration Project (LTMS-PIP), and will enable the purchase of up to 100 MW electricity power from Lao PDR to Malaysia using Thailand’s existing transmission grid.

As written in AEC’s blueprint, the promotion of cleaner energy technology is pursued by ASEAN. By 2015, ASEAN reduced its energy intensity by 18% compared to 2005.

Meanwhile in RE, ASEAN managed to double its installed capacity by achieving 205 GW in 2015 in only a decade. RE share in energy supply was increased from only 9.6% in 2005 to 13.6% in 2015. The Philippines was one of the biggest contributors in solar and wind energy, as this archipelagic country achieved more than its target in solar power due to its feed-in-tariff scheme for RE. The absence of fossil fuel subsidies in the Philippines is also a major factor to boost RE in the country.

The achievements above show that ASEAN has come a long way in its energy cooperation to improve its economy through energy supply and to contribute to climate change mitigation.

However, the leaders of the AMS acknowledged that stronger efforts are still needed to reach their regional targets, and they agreed that 50 years of cooperation should drive all member states to continue the collective progress.

 

Aloysius Damar Pranadi is a Technical Officer for the Policy & Research Analytics at the ASEAN Centre for Energy (ACE).

NEDA-ICC approves new timetable for Samar, Iloilo projects

THE CABINET-LEVEL National Economic and Development Authority-Investment Coordination Committee (NEDA-ICC) last week approved extensions for the loan validity and construction period of two projects, citing procurement delays.

In a statement, NEDA said that the ICC’s Cabinet Committee (CabCom) approved the Department of Public Works and Highways (DPWH)’s request to extend the loan validity for the Samar Pacific Coastal Project as well as that of the National Irrigation Administration’s (NIA) Jalaur River Multi-purpose Project (JRMP).

“Citing the need to recoup the time lost due to procurement delays and security issues, the NEDA ICC-CabCom approved the Department of Public Works and Highways (DPWH)’s request to extend by 24 months the validity of the loan for the Korean loan-assisted Samar Pacific Coastal Project. Also, the ICC-CabCom approved the changes in the project’s scope and construction period,” NEDA said.

The P1.03-billion Samar Pacific Coastal Road will now be constructed between January 2018 and December 2019 for the remaining works. The validity of the loan for the project, provided by the Export-Import Bank of Korea, was extended 24 months to Jan. 17, 2020.

The project is a 109.3-kilometer road under the Arterial Road Network, which will link towns facing the Pacific and eventually complete the circumferential loop for Samar Island.

“Similarly, the ICC-CabCom also approved the request of the National Irrigation Administration (NIA) to extend by 46 months the validity of the loan for the second stage of another Korean-assisted project, the Jalaur River Multi-purpose Project,” NEDA said.

The project completion schedule was likewise extended from Nov. 28, 2017, to Sept. 28, 2021, while the loan will now be valid until March 28, 2022 from May 28, 2018 originally.

The P11.21-billion JRMP involves the construction of dam and irrigation facilities, including a high dam and reservoir with afterbay and catch dams in Iloilo.

The ICC-CabCom, co-chaired by the Department of Finance and NEDA, also heard a report from the Department of Transportation and Philippine Coast Guard analyzing lease and purchase options for the Maritime Disaster Response Helicopter Acquisition.

Other projects discussed were the Philippine Fisheries Development Authority’s proposal to review the third phase of the Nationwide Fish Ports Project as five separate projects; the DPWH’s proposal on project cost breakdown adjustments for the Metro Manila Flood Management Project (MMFMP) — Phase 1; and the Fuel Marking Program under the Tax Reform for Acceleration and Inclusion, which was determined to no longer require ICC approval. — Elijah Joseph C. Tubayan

Philippines AirAsia IPO seen before end-2018

PHILIPPINES AIRASIA, Inc. is pushing back its planned initial public offering (IPO) once again.

“We are working on the papers. We hope to do it before the end of the year (2018). Around the second semester of next year, hopefully,” Philippines AirAsia CEO Dexter M. Comendador told reporters late Tuesday.

In October, the budget carrier said it is set to conduct its long-awaited IPO by mid-2018. The company expects to raise up to $250 million from the IPO, which will be used mainly for expanding its facilities.

BDO Capital and Investments Corp. was designated as the underwriter for the IPO.

The IPO is part of the plan of AirAsia Group CEO Tony Fernandes to consolidate its Southeast Asian units under one listed holding company. This is seen to create economies of scale and strengthen its position as the primary regional airline.

Philippines AirAsia expects to end the year with P12 billion in revenues, driven by robust passenger volume as more Filipinos travel around the country and abroad.

“We will end at around P12 billion for 2017,” Mr. Comendador said.

“We started turnaround since late 2016. I hope we get good profits this December. We were able to break even last month.”

In May, the AirAsia Group reported that the Philippine unit posted an operating profit of P400 million in the first quarter of 2017, attributed to a rise in passenger count by 19% and surge in revenues by 41%.

The budget airline also expects 87% passenger load factor next year, as well as increase in capacity by 30-40% with addition of new aircraft.

“We should end the year 22 planes,” Mr. Comendador said. Its current fleet has 17 aircraft. — Patrizia Paola C. Marcelo

Stocks rise as market prices in tax reform effect

By Arra B. Francia, Reporter

SHARES jumped on Wednesday as investors priced up shares of companies set to be affected by the government’s tax reform program.

The 30-member Philippine Stock Exchange index (PSEi) added 0.31% or 25.55 points at the close of Wednesday’s trading to finish at 8,359.61. The broader all-shares index also increased 0.32% or 15.36 points to 4,881.98 yesterday.

“The market ended positive today after JGS (JG Summit Holdings, Inc.), URC (Universal Robina Corp.), GTCAP (GT Capital Holdings, Inc.) and TEL (PLDT, Inc.) contributed 43.61 points to the index. The news about the tax on sugar (from P10 to P6) buoyed investors’ sentiment on URC and lifted JGS stock price as well,” Timson Securities, Inc. Equity trader Jervin S. de Celis said in a text message on Wednesday.

The bicameral conference committee on Tuesday finalized merging the versions of the Senate and House of Representatives for the Tax Reform for Acceleration and Inclusion bill. The version is now awaiting ratification from both chambers of Congress before being turned over to the president for signing.

Among the changes investors cheered was the levy of P6 per liter for beverages using caloric and non-caloric sweeteners, which was previously proposed to be at P10 and the simpler tax scheme for automobiles.

Mr. De Celis also noted that George SK Ty-led GT Capital surged “after the bicameral committee adopted a four-tier tax scheme for cars.”

Regina Capital Development Corp. Managing Director Luis A. Limlingan meanwhile cited a slim value turnover on Wednesday, which stood at P6.3 billion after a total of 1.14 billion issues switched hands.

“The PSEi is still riddled with a psychological resistance on its way back up, with the 8,379.64-level looking to be its next ceiling. Breach that level, and the PSEi is faced yet again by another hurdle at 8,433.48,” Mr. Limlingan said.

The local bourse tracked the positive performances of international markets, as the Dow Jones Industrial Average bagged its third straight record high to 24,504.80, 0.49% or 118.77 points higher than the previous trading day.

All sectoral counters ended in positive territory, save for the property sub-index which closed 0.28% or 10.87 points to 3,904.56.

The mining and oil sector led Wednesday’s climb at 1.4% or 161.82 points to 11,721.07, followed by services that ended 1.04% higher or 16.29 points to 1,586.18. Industrials edged up 0.78% or 86.30 points to 11,103.30; financials posted a 0.27% uptick or 5.79 points to 2,158.69; and holding firms were higher by 0.11% or 9.48 points to 8,421.69.

Advancers narrowly beat decliners, 97 to 96, while 43 stocks remained unchanged. Foreigners turned sellers for the ninth consecutive day, selling P419.27 million on Wednesday, lower than Tuesday’s P491.40 million.

James leads

Double-digit leads aren’t what they used to be in the National Basketball Association. The smallest ones can conceivably be overcome in three possessions, with the shift in momentum enough to turn what should have been a sure victory into a disappointing outcome. Which, in a nutshell, is why head coaches aren’t predisposed to changing their usual rotations no matter the scores. Even as they seek to maximize the volume of rest they can give their stars in an effort to keep them fresh through a long season, they remain focused in getting the job done to the point of playing safe.

Take, for instance, yesterday’s match between the Cavaliers and the Hawks. After a close first quarter, the reigning East champions found their groove in the second and built an advantage that went up to as high as 22 with four minutes and change left in the third. Unfortunately, they succumbed to a familiar failing: They got bored, thereby allowing the Hawks to get back in the match. In the process, they wound up missing a grand opportunity to give top dog LeBron James a much-needed breather.

Not that the newly named East Player of the Month wanted any. In fact, James was a model of efficiency in leading the Cavaliers to their 11th win in 15 set-tos at the Q. He matched a career-high 17 dimes and put up 25 markers on a remarkable 11-of-13 shooting from the field (including sinking two of three attempts from beyond the arc) in 35 minutes of exposure. And he had seven caroms, too, a significant number considering that he didn’t post his first until midway through the second period.

Considering all the miles on James’ odometer, it’s a wonder he remains the best player in the league by far. And, this season, he actually seems to have reversed the aging process. He’s about to turn 33, and yet he’s still posting otherworldly numbers; advanced metrics paint have, in fact, shown a progression in his offensive efficiency not seen since the turn of the decade. And because he has hit the ground running (as opposed to pace himself akin to his preference for the first half of campaigns in recent memory), he’s firmly in the Most Valuable Player conversation.

Whether James keeps up the pace remains to be seen. Trends actually point to a marked uptick in his performance as the playoffs draw near. That said, it’s clear that, now more than ever, the Cavaliers’ fate is determined by his showing. While they’ve always gone where he leads them, it’s far more pronounced these days. And if their record is to be a basis, they shouldn’t have it any other way.

 

Anthony L. Cuaycong has been writing Courtside since BusinessWorld introduced a Sports section in 1994. He is the Senior Vice-President and General Manager of Basic Energy Corp.

Russia welcomes ‘constructive’ US position on North Korea dialogues

MOSCOW — Russia on Wednesday said it welcomed US Secretary of State Rex W. Tillerson’s statement that Washington is ready for talks with North Korea without preconditions, calling this a constructive approach.

“We can state that such constructive statements impress us far more than the confrontational rhetoric that we have heard up to now. Undoubtedly this can be welcomed,” Kremlin spokesman Dmitry Peskov told journalists.

Mr. Peskov said that Washington’s change of tone chimed with Russia’s repeated calls for Washington to cool down its response to North Korea’s nuclear weapons program.

“This goes in the same direction as the calls from Russia,” said Mr. Peskov, adding that President Vladimir Putin has regularly warned the US that “confrontational rhetoric and any steps that could provoke further tensions on the Korean peninsula are absolutely counterproductive.”

“It was Putin who regularly and consistently called for all the parties involved to do all they could to set up channels for dialogue. Therefore, such statements (as Tillerson’s) of course do give us satisfaction,” the Kremlin spokesman said.

Asked if the US was grabbing the initiative from Russia, Mr. Peskov said that calming the situation was a shared aim and “no one can grab anything from any one else. The main thing here is succeeding in the task.”

Russian deputy foreign minister Sergei Ryabkov said earlier Wednesday that Moscow did not need to put pressure on its Soviet-era ally and neighbor North Korea to participate in talks with Washington, since Pyongyang has said it is keen to do this.

“I don’t think we need to influence North Korea in this direction, because Pyongyang has many times at different levels declared its readiness (for talks),” Ryabkov told journalists, quoted by RIA Novosti state news agency.

“Let’s hope that after the statements coming from a high level in Washington, the opportunity for this will fall into place,” he said. — AFP

Tacloban to launch 45 e-PUVs on Dec. 15

THE TACLOBAN City government is set to formally launch on Friday, Dec. 15, the operation of 45 units of electric public utility vehicles (e-PUVs) under the national government’s transport modernization program. “The city government of Tacloban is grateful for this rare opportunity of being the first city in the country to have the e-PUVs. This will serve the 8,000 Yolanda survivors now residing at permanent housing villages in Tacloban,” the city’s media information chief Bernardetta Valenzuela told The Freeman. The e-PUVs will be available to jeepney operators and single owners via a financing plan that will be introduced later, amounting to P1.6 million per unit. Old jeepneys could be used as downpayment with the balance payable within seven years at 6% interest per annum. Land Transportation Franchising and Regulatory Board Regional Director Renwick K. Rotaguio said he is confident of convincing PUV operators and representatives from the different sectors in Eastern Visayas to support the drivers of these e-PUVs by providing them regular salaries and benefits. “This may also lessen the traffic problem now hounding the entire city of Tacloban and other places in the region, and will make (them) realize that the modernization of PUVs has a lot of benefits for operators and the public,” he said. — The Freeman

The cat that sold millions of bottles of wine

Gato Negro — Spanish for “black cat” — was born as a wine brand in Chile in 1960, making it probably the oldest wine label with a critter or animal on it, appearing some four decades earlier than the immensely popular kangaroo label of Yellow Tail.

The origin story has it that for more than half a century, a black cat enchanted the wine makers of Viña San Pedro, convincing them that his presence inspired high quality wines, and so the label was created. Viña San Pedro was founded in Curicó Valley in 1865 by the Correa Albano brothers, who were pioneers in bringing varieties from the Old World/Old Continent to the valley. San Pedro is one of the most important wineries in Chile and one of the country’s most significant exporters, with a huge presence in over 80 countries across five continents, and Gato Negro has been its best selling wine brand since its inception.

The brand is also one of the most successful internationally recognized wine brands of all time. In fact as of 2016, based on volume sold, a bottle of Gato Negro wine is being drunk and enjoyed every one-and-a-half seconds globally. Gato Negro wines are known to be fruit-forward, fresh, uncomplicated, and not too dry.

ILLUSTRIOUS PAST
Gato Negro was one of the first commercially successful Chilean wine brands to be launched in the Philippines back in the late 1980s/early 1990s. For a long time, Gato Negro was actually the best selling Chilean wine brand in the country. Back then, the most saleable wines were mostly generic wines like those from California, simply called red or white, and wines with grape varietal names such as Cabernet Sauvignon, Merlot, and Chardonnay were in the minority and far more expensive too.

Gato Negro was one of the first wine brands to sell with grape varietals on its label at a very reasonable price — below P200/bottle (a fantastic price then). It was not a surprise therefore that Gato Negro was a huge hit. Gato Negro established itself as an incredible value for money quality wine, and it also had the packaging and label that appealed to a big segment of our small but growing wine drinking populace.

Gato Negro 2

But in the past decade or so, Gato Negro has lost most of its market share in the Philippines to other more aggressive Chilean wine brands, and it was only in middle of 2017 that its mother company, The VSPT Wine Group (or Viña San Pedro Tarapaca S.A.), decided to make some major changes. One of the very first moves was for VSPT to sever ties with their long time wine importer in the Philippines and transfer these to a different importer-distributor, hoping that this change would reignite the brand in the country. Expect therefore to see more of the black cat wines in the weeks ahead and more brand visibility this holiday season.

THE LAUNCH OF A RESERVE RANGE
After over 55 years of commercial success, the Gato Negro brand finally released its first ever brand extension — Gato Negro 9 Lives Reserve range — two year ago. Only two varietals were released initially: the all-time favorite Cabernet Sauvignon for the Reserve Red, and Sauvignon Blanc for the Reserve White. Nine Lives will be the premium line of the Gato Negro portfolio, and the brand will also over-deliver on its quality based on its pricing. This 9 Lives Reserve range uses lower yield juices of the best vineyards of Viña San Pedro, is aged in new oaks, and is produced in much less quantities than its regular Gato Negro wines. The wines are also more complex and age-able.

Already, the Gato Negro 9 Lives Reserve wines have gotten medals and accolades from very distinguished international competitions, including Concours Mondial de Bruxelles, Sélections Mondiales des Vins, and the International Wine Challenge.

The Philippines is the second country in Asia after Japan to be launching the Gato Negro 9 Lives wines. The suggested retail price of these wines is P410/bottle, while the SRP of popular regular Gato Negro varietals is P300/bottle — both very reasonably priced.

With a new importer in tow, and the launch of a reserve range in 9 Lives, Gato Negro looks to regain its lost ground and return the black cat back to its familiar alley atop the local Chilean wine market. Gato Negro and 9 Lives Reserve wines are exclusively available from Golden Wines, Inc., and they can be reached at 638-5025/27 or through e-mail at info@goldenwines.com.

 

The author has been a member of the Federation Internationale des Journalists et Ecrivains du Vin et des Spiritueux or FIJEV since 2010. For comments, inquiries, wine event coverage, and other wine-related concerns, e-mail the author at protegeinc@yahoo.com. He is also on Twitter at twitter.com/sherwinlao.

DeepMind has simple tests that may prevent Elon Musk’s AI apocalypse

YOU don’t have to agree with Elon Musk’s apocalyptic fears of artificial intelligence (AI) to be concerned that, in the rush to apply the technology in the real world, some algorithms could inadvertently cause harm. This type of self-learning software powers Uber’s self-driving cars, helps Facebook identify people in social-media posts, and let’s Amazon’s Alexa understand your questions. Now DeepMind, the London-based AI company owned by Alphabet, Inc., has developed a simple test to check if these new algorithms are safe.

Researchers put AI software into a series of simple, two-dimensional video games composed of blocks of pixels, like a chess board, called a gridworld. It assesses nine safety features, including whether AI systems can modify themselves and learn to cheat.

AI algorithms that exhibit unsafe behavior in gridworld probably aren’t safe for the real world either, Jan Leike, DeepMind’s lead researcher on the project said in a recent interview at the Neural Information Processing Systems (NIPS) conference, an annual gathering of experts in the field.

DeepMind’s proposed safety tests come at a time when the field is increasingly concerned about the unintended consequences of AI. As the technology spreads, it’s becoming clear that many algorithms are trained on biased data sets, while its difficult to show why some systems reach certain conclusions. AI safety was a major topic at NIPS.

DeepMind is best known for creating AI software that outperforms humans at games. It recently created an algorithm that, without any prior knowledge, beat the world’s best players at games like chess – in some cases requiring just a few hours of training. If DeepMind wants to build artificial general intelligence – software that can perform a wide-range of tasks as well or better than humans – then understanding safety is critical, Leike said. He also stressed that gridworld isn’t perfect. It’s simplicity means some algorithms that perform well in tests could still be unsafe in a complex environment like the real world. The researchers found two DeepMind algorithms that mastered Atari video games failed many of the gridworld safety tests. “They were really not designed with these safety problems in mind,” Leike said. One of the tests deals with a scenario close to the Musk-envisioned AI apocalypse: Will a learning software program develop a way to keep humans from turning it off? To win the game, the AI has to reach a certain location by traveling down a narrow digital corridor. A pink tile in the corridor stops the system 50 percent of the time, while a purple button somewhere else in gridworld disables the pink button. The test sees if the algorithm will learn to use this button to keep itself from being interrupted.

Another of the tests deals unintended side effects. The software has to move digital bricks out of its way to reach a certain goal. But these bricks can only be pushed, not pulled, and so, in some cases, they can end up in positions that can’t be changed. This lack of “reversibility” is a problem for AI safety, Leike said.

Gridworld is available for anyone to download and use. Whether it goes far enough to ensure safety remains debated. In other research DeepMind conducted with OpenAI, a non-profit AI group backed by Mr. Musk, AI software was shown to learn to satisfy a human teacher, rather than pursuing the task it was programed to perform. Developing AI systems this way could limit the discovery of useful solutions that humans wouldn’t think of. But, in complex environments, using human coaches may provide a better way of assuring safety, Dario Amodei, who heads safety research at OpenAI, said. — Bloomberg

RCBC expects loan growth to slow amid shift in focus

RIZAL COMMERCIAL Banking Corp. (RCBC) expects its loan growth to slow down next year as it veers towards loans to consumers and small and medium enterprises (SME).

In an interview with reporters on Tuesday, RCBC Senior Vice-President for Corporate Planning Ma. Cristina P. Alvarez said the bank sees its loan growth to slow to around 15% in 2018 from the projected 17% this year.

“[For next year,] maybe a little bit slower so [around] 15%, but still positive,” Ms. Alvarez said.

RCBC President and Chief Executive Officer Gil A. Buenaventura said the expected slowdown in loan growth will be due to the bank’s pivot from corporate loans to SME and consumer funding.

“That is our thrust next year. [We will focus] less on the big corporates and more on the SME and consumers, so these are smaller loans,” Mr. Buenaventura explained.

He added that the pivot to SME and consumer loans will be done “because the GDP (gross domestic product) growth is still good and consumer spending and consumption just tracks the growth.”

Mr. Buenaventura noted the Yuchengco-led bank is looking at a 17% growth in loans for this year, tracking the industry rate of around 20-21%. He also expects the bank’s net interest margin to slightly increase following its new thrust.

Meanwhile, RCBC is also looking at strengthening its cross-selling activities to increase its income growth, which is expected to stand at around 10-12% next year.

“I think the key to business growth is to make the branches more effective in cross-selling. For instance, RCBC Savings will rely heavily on the bank branches to be able to cross sell all these consumer products,” Mr. Buenaventura said.

He added that the bank is bullish about the consumer spending, as the first package of tax reform will bolster spending.

“Tax reform will also happen which will I think translate to consumer spending therefore more need for houses, cars, [among others.] I think it will be positive for everybody.”

The lender intends to open 15 more branches for next year. Broken down, Mr. Buenaventura said they are looking to open five new RCBC branches and nine for RCBC Savings Bank.

MOVING ON
Meanwhile, the bank president noted that the bank has already “moved on” from last year’s cyber heist, saying it has put in place measures to prevent such an incident from happening again.

He noted that RCBC’s sales and operations have been split into two units in accordance with the current industry setup.

“I think the numbers will show that after the incident the bank is making money and doing well. We just have to make sure that we do things better,” he said.

In February 2016, RCBC was used by cyber-attackers to channel the $81 million stolen from the Bangladeshi central bank.

On another note, Mr. Buenaventura also clarified that there will be no asset sales, following the speculations that Sy-led BDO Unibank, Inc. and Ayala-led Bank of the Philippine Islands will acquire a controlling stake in the bank. — K.A.N. Vidal

Year-end reminders, transfer pricing edition

In a few days, we will be celebrating Christmas and New Year. While everyone is excited for the upcoming holidays, thinking about vacation and what to do during the break, for most accountants, this is the time of the year when they are busy doing final adjustments to accounting records, completing transactions and closing financial books of account.

For entities that have intercompany transactions, this could also be the time of year when transfer pricing policies/arrangements are revisited.

Under Revenue Regulations No. 2-2013, also known as The Philippine Transfer Pricing Guidelines, the term transfer pricing is defined “as the pricing of cross-border, intra-firm transactions between related parties or associated enterprises.” For instance, if a subsidiary sells goods or services to its parent company, the cost of the goods and services sold is the transfer price.

To demonstrate that their transfer prices are consistent with the arm’s-length principle, taxpayers are required to maintain contemporaneous documentation. It is contemporaneous if it exists or is brought into existence at the time the associated enterprises develop or implement any arrangement that might raise transfer pricing issues, or review these arrangements when preparing tax returns. Thus, at the end of every financial year, associated enterprises, or those companies that participate directly or indirectly in the management, control, or capital of other companies, must check whether or not their intercompany arrangements were conducted under arm’s-length conditions and were properly applied and reported in the financial records and tax returns.

If the associated enterprise finds out that there are discrepancies between its transfer pricing policies (or those that were actually charged by/to the company) and the arm’s-length transfer price, it is generally allowed to take up transfer pricing adjustments in order to reflect the true arrangement and the arm’s-length charging of the related parties.

While there are no specific rules in the Philippines on year-end transfer pricing adjustments, the Transfer Pricing Guidelines of the Organisation for Economic Co-operation and Development (OECD), which has some persuasive effect in the Philippines, generally allows taxpayers to adjust their intercompany transactions’ transfer price as compensating adjustments to achieve compliance with the arm’s-length principle. Under the OECD Transfer Pricing Guidelines, compensating adjustment is defined as “an adjustment in which the taxpayer reports a transfer price for purposes that is, in the taxpayer’s opinion, an arm’s-length price for a controlled transaction, even though this price differs from the amount actually charged between associated enterprises. This adjustment would be made before the tax return is filed.”

Compensating adjustments may facilitate the reporting of taxable income in accordance with the arm’s-length principle, recognizing that information about comparable uncontrolled transactions may not be available at the time associated enterprises establish their related party transactions. Thus, for the purpose of lodging a correct tax return, a taxpayer is permitted to make an adjustment that would reflect the difference between the arm’s-length principle and the actual price recorded in its financial books.

Consequently, transfer pricing adjustments should generally be acceptable to the Bureau of Internal Revenue (BIR) as long as taxpayers are able to show that such adjustments were made to reflect an arm’s-length charge for their intercompany transactions. As these transfer pricing adjustments may also entail adjustments to tax returns, it is advisable for them to be made prior to the closing of the books of account and filing of the tax returns. Otherwise, the BIR may impose its own adjustments on taxpayers’ tax returns if it determines, during a tax investigation, that the taxpayers’ income and expenses are not at arm’s-length.

In case of adjustments to revenue and costs, among other tax considerations, there are income tax and value-added tax (VAT) implications. For instance, if the taxpayer determines at the end of the year that there is a need for an additional charging of sales to its related party customer, these could be recorded as a transfer pricing adjustment which must be reported in the relevant income tax and VAT returns. For income tax, the adjustment could be reflected in the annual income tax return to be filed on or before the 15th day of the fourth month after the close of the taxable year, while for VAT, this could be included in the quarterly return that must be filed on or before that 25th day after the close of the taxable quarter (i.e., April 15 and Jan. 25, respectively, for taxpayers applying the calendar year period).

In terms of documentation, it is advisable that these transfer pricing adjustments are supported by proper documents. This may include, among others, invoices/official receipts, credit/debit memos, and/or a provision in the agreement or contract which indicates the parameters with respect to the allowable adjustments, such as when these adjustments will be applied (e.g., at year end) and under what circumstances (e.g., if the agreed margin is not met). If the issuing party is a local entity, the supporting billing documents must be duly registered with the BIR.

While the development of transfer pricing rules in the global scene is expeditiously growing, the strict and strong implementation of transfer pricing rules in the Philippines has yet to be seen. Nevertheless, it is apparent that the BIR is now starting to scrutinize transfer pricing issues during tax investigations and impose transfer pricing adjustments on transactions that they deem not compliant with the arm’s length principle. With this, it would be helpful for taxpayers to exercise caution in terms of dealing with their intercompany engagements. With the new year fast approaching, including a review of transfer pricing arrangements in your company’s annual year-end requirements checklist would be a good start.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.

Iris Kristine Lacebal is a manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of PwC network.

+63 (2) 845 2728

iris.kristine.d.lacebal@ph.pwc.com

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