THE Department of Energy (DoE) has put on hold the acceptance of comments for the draft rules covering the launch of a wholesale electricity spot market in Mindanao, citing “recent developments.”

Energy Undersecretary Felix William B. Fuentebella did not immediately respond to a request for details on what transpired recently to prompt the DoE to “temporarily discontinue” accepting comments.

The circular, entitled “Declaring the Launch of the Wholesale Electricity Spot Market (WESM) in Mindanao and Providing for Transition Arrangements” was posted last week. The draft placed the market’s launch on June 26, 2017.

A source familiar with the matter said the DoE was awaiting the submission of an “annex” covering a power dispatch protocol and would post the amended draft circular shortly. The notice on the DoE web site called on the industry to disregard the previous draft as the agency “will be uploading the revised version soon.”

The source added that there would be no change in the launch date, which should coincide with the introduction of a new system by the market’s governance arm, the Philippine Electricity Market Corp. (PEMC), for the Luzon and the Visayas market.

Under the previous draft, the DoE issued a set of criteria for PEMC to comply with 15 days before the launch date. It also said that all provisions of the WESM rules, market manuals, and pricing methodology will apply to the Mindanao market.

“Prior to the establishment of the physical infrastructure connecting the Mindanao grid to the Luzon-Visayas grids, prices and dispatch schedules for Mindanao shall be separate,” the draft stated.

The criteria, numbering five, require all systems and procedures — including all interfaces with the participants and service providers necessary for the market’s operation — to be in place.

The DoE also required the forecasting, scheduling, dispatch, pricing,metering and settlement processes of the WESM to be fully operational in the Mindanao grid.

It said training programs should have been conducted for the southern island’s trading participants, with the Energy Regulatory Commission (ERC) giving its approval to the price determination methodology for the WESM design.

An independent auditor should also have certified the market dispatch optimization model as compliant with existing market rules.

In the draft circular, the DoE has also set “transition arrangements,” which directed system operator National Grid Corp. of the Philippines (NGCP) — in consultation with generation companies, distribution utilities and PEMC — to submit an interim nomination and dispatch procedures.

The procedures will govern the scheduling of available power capacities and nomination of contracted capacities in Mindanao.

The dispatch protocol will serve as a standard guideline and procedure to be followed by the NGCP Mindanao system operations, the generation companies, including those with embedded generators with a capacity of at least 10 megawatts, and load-end customers. — Victor V. Saulon

A BUDGET of P750 million may be “tight” for electric cooperatives seeking to restore services after calamities given the magnitude of the recent typhoons that visited the country, an official of the National Electrification Administration (NEA) said.

“The calamity loans extended by NEA in the past five years averaged P1.1 billion [yearly],” said Rossan Rosero-Lee, the agency’s deputy administrator in reaction to the proposed legislation that would set aside a “disaster management fund” for electric cooperatives.

Ms. Rosero-Lee made the assessment after typhoons Yolanda and Lawin hammered distribution utilities in the provinces in 2013 and 2016, respectively.

She said about 20 typhoons hit the country each year, based on data from the weather agency, most frequently transiting northern Luzon followed by Catanduanes and northern Samar.

Based on statistics from NEA, from 2007 to 2016, NEA extended financial assistance to electric cooperatives amounting to P6.75 billion, of which P5.2 billion are in the form of grants and P1.55 billion were calamity loans. The grants are outright assistance extended by the government while loans are to be repaid with interest.

Senator Sherwin T. Gatchalian is proposing that the government “shore up” the resiliency of the country’s electric cooperatives against natural calamities, which hit power structures including distribution and transmission lines.

Senate Bill No. 1253, or the Electric Cooperatives Disaster Management Fund Act, proposes putting up a P750-million fund to provide financial assistance to the cooperatives for the restoration and rehabilitation of damaged power facilities and infrastructure.

Mr. Gatchalian, who chairs the Senate energy committee and principal author of the bill, explained that without a dedicated funding source, electric cooperatives have no choice but to seek interest-bearing calamity loans from NEA.

The loans can take as long as two years to be converted into grants. The cooperatives, in the meantime, resort to borrowing from financial institutions to carry out their services. There are times when the loans are not converted because of budgetary constraints, resulting in financial distress for the non-stock, non-profit entities.

Calamity loans carry a 3.25% interest rate per annum and a repayment period of 10 years, but without exceeding the remaining franchise life of electric cooperative that avails of financing. — Victor V. Saulon

DAVAO CITY — Import bans on poultry products including dressed and deboned chicken, duck and eggs, following outbreaks of bird flu in Europe and Asia, are expected to benefit the local poultry industry.

“This will be a big boost to the local poultry industry,” Vicente T. Lao, chairman and chief executive officer of Maharlika Agro-Marine Venture said.

Maharlika is supplying Japan and several Manila restaurants with premium-cut duck meat.

Maharlika, which was established in 2006 exports up to 28 metric tons (MT) of duck suitable for preparation as Peking Duck preparation to Japan every month. It supplies the local market with up to 20MT. The company sources from 3,000 duck breeders every three months for Cherry Valley Farms, Ltd in the United Kingdom. It breeds ducks in Manolo Fortich, Bukidnon and in the Arakan Valley, at the boundary of Davao City and North Cotabato. The ducks are then processed in facilities in Cagayan de Oro and Davao City cities for the local and export markets.

Agriculture Secretary Emmanuel F. Piñol ordered the import ban last week to protect the country’s poultry and duck industry.

“During the weekend, I have signed directives specifically identifying the following countries with total ban to export chicken and poultry products and ducks to the Philippines,” Mr. Piñol said.

The Philippines is currently free from bird flu, helping boost the prospects of its poultry products worldwide.

Among the countries that are totally banned from exporting poultry to the Philippines are South Korea, Germany, France and Netherlands. The only countries allowed to export poultry to the country are the United States, Canada and Australia.

“These three countries are exempted from the ban mainly because they never had reported cases of Avian Flu or poultry diseases and also because they have always implemented stringent quarantine measures,” he said.

Despite this, strict quarantine measures will be implemented even for products coming from the three exempted countries.

“The Philippines has never had cases of bird flu mainly because we are isolated by the bodies of water which surround our islands and we do not share borders with other countries,” he said.

Mr. Piñol said the import ban may be a drastic measure but it has to be done to protect the poultry and duck industry and also public health.

“I expect to receive complaints and requests for reconsideration from the countries affected by the ban but I am appealing to our trading partners to understand our position,” he said. — Carmencita A. Carillo

THE European Chamber of Commerce of the Philippines (ECCP) said that the new Investment Priorities Plan (IPP) will help address certain “pressing issues” on the investment process, given the high cost of doing business here compared to other ASEAN countries.

ECCP President Guenter Taus outlined specific concerns that need to be addressed to improve business conditions in the Philippines, noting how preferred incentives of the IPP 2017-2019 reflect similar priorities of the business chamber.

The IPP 2017-2019 is awaiting the approval of President Rodrigo R. Duterte. Submitted to Malacañang in late December, the IPP aims to make development inclusive, providing incentives intended to drive progress across regions.

“We are encouraged seeing the IPP and its provisions, showing resolute commitment to encourage and bring in investors to the Philippines,” he said in an e-mail to BusinessWorld last week.

Commenting on the final copy of the draft, Mr. Taus cited the need to address issues in certain key sectors like telecommunications, construction, infrastructure development, climate change and energy efficiency.

“In the area of telecommunications, the opening up of this sector to more industry players as well as multinational prospects is much needed as this will help provide consumers with fast, reliable and stable internet at competitive price,” he said.

Among the preferred activities listed under the new IPP are strategic services. These cover a wide variety of services from the design of integrated circuits to state-of-the-art engineering, procurement and construction.

Under strategic services, incentives will be given to “new players” that establish connectivity for fixed and mobile broadband services.

“Only new players may qualify for registration,” the IPP read.

PLDT, Inc. and Globe Telecom, Inc. — which are in the middle of their own expansion plans — currently dominate the market. The government has been looking for a third player to challenge the duopoly and possibly make telco services more affordable.

Apart from being named a priority in the new IPP, the infrastructure industry could attract more investment if it eliminates a rule by the Philippine Contractors Accreditation Board (PCAB) that currently favors domestic contractors over foreign ones, in terms of the flexibility of their licensing schemes.

“With regard to construction, PCAB issue must be addressed and abolition (of the requirement that foreign firms be licensed separately for each project) would probably encourage much needed investment in needed technologies in order to guarantee that necessary infrastructure projects are being realized,” he said.

“We also believe tourism is one of the most important sectors with the highest potential to create inclusive growth, through employment generation and economic development in remote areas across the archipelago. However, much infrastructure development is badly needed to achieve the ambitious goal of achieving 6.5 million tourist arrivals this year.”

He also said that the government should be true to its word and ratify the Paris agreement in mid-2017, which would formally include the Philippines in the global movement to cut down carbon emissions in order to lessen the risk of climate change.

Mr. Taus added that energy efficiency technologies, which are among preferred activities under the new IPP, could be further incentivized through an expanded list of technologies exempted from import duties for PEZA locators; and expansion of the measure nationwide level to cover all manufacturing activities, even those that are not located in PEZA zones.

He also said noted the need to ensure institutionalizing energy efficiency and conservation and the nationwide coverage of incentives for the installation of technology in support of energy efficiency and conservation.

“Furthermore, we are of the opinion that the IPP incentives and penalties need to be in line with the energy efficiency bills supported by the Department of Energy (DoE) and developed during the 16th Congress,” he said.

The European Union is one of the largest investors in the Philippines.

Net foreign direct investment (FDI) rose 86.98% in 2015 to $330.64 million, according to central bank data. However, preliminary figures show that net FDI fell 31.23% in the first 10 months of 2016 to $142.19 million.

Presidential Spokesperson Ernesto C. Abella said in a text message yesterday that the process to approve the IPP is “ongoing.” He later clarified that the “Philippine Development Plan must be approved first.”

If approved, the 2017-2019 IPP will count as “preferred” investment the following areas: manufacturing including agri-processing; agriculture, fishery and forestry; strategic services; infrastructure and logistics including local government unit public-private partnerships; health care services including drug rehabilitation; mass housing; inclusive business models; environment and climate change; innovation drivers; and energy.

Tourism is one of the most important sectors with the highest potential to create inclusive growth

AGRICULTURE Secretary Emmanuel F. Piñol said legislation to impose a two-tiered tax system on cigarettes will bring hardship to tobacco farmers who are still reeling from the previous tax hike.

“The DA (Department of Agriculture) supports the position of a unified tax scheme,” Mr. Piñol said in a text message over the weekend, adding that he will direct the National Tobacco Administration (NTA), one of its attached agencies, to explain its position.

Mr. Piñol was reacting to reports that the NTA had expressed support for House Bill 4144, which seeks to impose a higher sin tax on cigarettes and amend provisions of the Republic Act of 10351 or the Sin Tax Reform Law of 2012.

Last week, a group of tobacco farmers called on the Senate to consider the effects of the said bill.

“Our position is that we hope the old law is maintained without adding the new tax from 4144. We want the old law to mature before they make another one. They already are taxing cigarettes a lot,” said Philippine Tobacco Growers Association (PTGA), Inc. President Saturnino C. Distor in a phone interview last week.

“We are affected because every time cigarette prices rise, demand falls,” Mr. Distor added.

In a petition published in a newspaper last week, the PTGA, with the Federation of Free Farmers (FFF) said that revenue the government derived from tobacco hit P100 billion in 2015, from P32 billion recorded in 2012.

This, according to the farmer groups, has the tobacco sector “giving more than our fair share” as it accounts for around two-thirds of total sin tax collections.

Data from the NTA, as cited by the groups, also showed that local tobacco production dropped to 51.95 million kilograms in 2015, down 19.81% from 2012 levels.

Mr. Distor also said Congress is trying to pass House Bill 4144 without due consultation with farmers.

“We were never consulted. I only found out about the bill on second reading,” Mr. Distor added.

Under HB 4144, packs of cigarettes will be taxed P32 or P36 depending on price, with a 5% increase in tax every year.

Meanwhile, the current Sin Tax Reform Law of 2012, which took effect in 2013, provides that packs of cigarettes, regardless of net retail price, will be taxed at a single rate of P30.00 with an annual 4% upward adjustment thereafter.

ABS party-list representative Eugene Michael B. De Vera who filed the measure said that lawmakers had to “strike a balance” between the need to discourage cigarette smoking, raise government revenue, and look after the welfare of the tobacco industry.

Mr. De Vera also noted that under Republic Act 7171 and Republic Act. 8240, tobacco planters have a 15% share out of the collection of the tobacco excise taxes.

“So any increase in tobacco excise taxes benefits the tobacco planters,” Mr. De Vera said in a text message last week. — Janina C. Lim

THE Senate committee on ways and means will seek to temper the first tax reform package of the Department of Finance (DoF), with the committee chair, Sen. Juan Edgardo M. Angara, calling the proposal too aggressive.

“It’s quite aggressive basically the DoF package is quite aggressive. From zero pesos no [diesel] excise tax you’re going to six pesos,” Mr. Angara said in a television interview yesterday morning, the uncut transcript of which was sent to journalists as a press release.

Mr. Angara added that the six peso excise tax for gasoline and diesel proposed by the DoF would translate to an approximately 5%-6% increase in food prices.

Using this month’s retail prices as a benchmark, he explained that the measure would lead to a P10 per kilo increase in the price of pork, P7 per kilo increase in fish, and a P2 per kilo increase for both rice and sugar. Prices of sliced bread would increase by P2 per loaf.

Jeepney fares, meanwhile, would increase by P0.70, while bus fares would see a P1-P1.25 price increase depending on whether or not the bus is air conditioned.

The DoF also plans to increase the excise tax imposed on automobiles to 5% from 2% for automobiles priced below P600,000; 20% for those at P600,000 to P1.1 million; 40% for those at P1.1 million to P2.1 million; and 60% for vehicles above P2.1 million.

Mr. Angara reported that this would lead to an approximately 2% increase in the price of the Hyundai Eon small car, a 7% increase for the Toyota Innova minivan, a 20% increase for the Ford Everest SUV, and an 84% increase for the Toyota Land Cruiser SUV.

These excise taxes are among the measures proposed by the DoF to offset the revenue losses from the reduction of personal income tax (PIT) rates, in a method which the legislator also found too aggressive.

“They are very aggressive also on the cutting-side like their proposed income tax reforms,” said Mr. Angara.

In the DoF’s proposal, those earning not more than P250,000 annually would not have to pay personal income taxes.

For the first two years of the tax reform’s implementation, those earning more than P250,000 but not more than P400,000 would have to pay 20% of the amount in excess of P250,000; those earning over P400,000 but no more than P800,000 a charge of P30,000 plus 25% of the amount in excess of P400,000; those earning over P800,000 but no more than P2 million a charge of P130,000 plus the 30% of the amount in excess of P800,000.

Those earning over P2 million but not over P5 million will continue to pay the current top rate of 32%, charged P490,000 plus 32% of the amount exceeding P2 million.

The “ultra-rich” earning more than P5 million will pay P1.45 million plus 35% of the amount in excess of P5 million.

For the third year of implementation, personal income tax rates will be reduced to 15%, 20%, 25% and 30% respectively, while the ultra-rich and the tax exempt will have their personal income tax rates unchanged.

“That’s why they have to be aggressive also on the revenue-raising side,” Mr. Angara said.

“For me, we should not have to be aggressive on both sides because it will shock a lot of sectors,” he added. Speaking for legislators, he said that they would only seek to index PIT rates to inflation.

“The country collects about P300 billion from its people and the DoF proposal will cut the collection in half,” he added. “For us lawmakers, our proposals to cut it or to update the tax brackets, you would lose about P50 billion. Under their package you will lose a 150 billion.”

The bill for the reduction of personal income tax and the fuel excise tax is currently pending at the committee level in the House of Representatives. — Lucia Edna P. de Guzman

Photo of Senator Juan Edgardo ‘Sonny’ M. Angara, chair of the Senate Committee on Ways and Means, speaking during a senate committe hearing in 2015. — SENATE PRIB