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Transforming lives through clean, efficient, and sustainable energy

The energy sector is inextricably tied to the growth of a country. The more a country develops — that is, build more buildings, create more jobs, and have more people move away from poverty  — the more energy is needed.

Yet with the looming threat of climate change and increasing pressure to reduce greenhouse gas emissions, which the energy sector contributes the lion’s share of, the industry is in for a revolution. The Philippines’ energy sector must be prepared to adapt and overcome future challenges, or else be left behind as the rest of the world moves into a cleaner, more sustainable energy future.

This highlights the role that the Department of Energy (DoE) will play in the years to come. Now more than ever, as the department celebrates 29 years of service to the Filipino people, it faces the crucial task of fulfilling its vision of becoming “a globally-competitive agency that powers up Filipino communities through clean, efficient, robust and sustainable energy systems that will create wealth, propel industries and transform the lives of men and women and the generations to come.”

Last November, Energy Secretary Alfonso G. Cusi reaffirmed the country’s commitment to support the global effort to transition gradually from coal to clean power, one of the key issues tackled in the historic COP26 climate summit in Glasgow, UK.

“We cannot behave like developed economies since we are a developing country. Nonetheless, we remain committed to a gradual transition to renewable energy. Immediate transition will entail additional cost so we must strike a healthy balance in protecting our consumers and our economy and our quest for a cleaner environment,” Mr. Cusi said.

The Philippines joined more than 40 countries at COP26 that have committed to shift away from fossil fuels. Mr. Cusi further affirmed their support of intergovernmental and interagency collaboration to make clean power affordable and accessible globally as an effort to build back better from the COVID pandemic, and encourage others to make similar commitments.

Mr. Cusi also stated the agency’s continuing commitment to rapidly scale up deployment of clean power generation and energy efficiency measures in the economy, and to support other countries doing the same, recognizing the leadership shown by countries making ambitious commitments, including through the Energy Transition Council, as well as scale up technologies and policies aimed at supporting this development within the decade.

There are also plans to strengthen domestic and international efforts to provide a robust framework of financial, technical, and social support to workers affected by such changes.

“We recognize that while significant progress has been made to realize our shared vision, our task is not yet complete, and we call on others to join us as we redouble our effort to accelerate the global energy transition over the coming years,” Mr. Cusi said.

“We wish to emphasize that energy security is foremost because our energy transition comes as a means to improve the lives of our people and our country’s economic development,” he added.

Signatories of the COP26 agreement made a commitment to phase out coal-fueled power generation in the 2030s for richer countries, and the 2040s for poorer nations. Last year, the Philippines declared a moratorium on new coal-fired power plants. In its updated Energy Plan 2020-2040, the DoE seeks to make renewable energy account for 35% of the Philippine energy mix by 2030 and 50% by 2040.

Powering through the challenges

The journey towards the future of Philippine energy will not be easy. Even as the world slowly comes to grips with the climate problem and the health crisis brought about by the COVID-19 pandemic, there are still other significant issues that need to be addressed and other goals that the DoE is committed to pursue.

One such goal is achieving full electrification of unserved and underserved areas across the country by 2022. With the steady progress on expanding access to electricity, the country is on track to meet this target, as the household electrification level stood at 93.5% in June 2020, boosting an additional 292,491 energized households from only 23,229,866 in December 2019 up to 23,522,357 in June 2020. In particular, as of the publication of the 2019-2020 Energy Sector Accomplishment Report, the household electrification is already at almost 98% in Luzon, 94.6% in Visayas and 81.3% in Mindanao.

Meanwhile, pursuant to the goal of building a resilient energy infrastructure and securing such facilities in times of emergencies and disasters, the DoE institutionalized the Energy Resiliency Policy (ERP) which aims to strengthen existing infrastructure facilities, incorporate mitigation improvements into the reconstruction and rehabilitation, improve operational and maintenance standards and practices, and develop resiliency standards.

In 2019, the passage of Republic Act 11285 or the Energy Efficiency Act and its Implementing Rules and Regulations answered the sector’s call for a mandatory law that addressed issues on increasing energy demand and rising cost of imported fuels, allowing for creation of the Government Energy Management Program, and the Philippine Energy Labeling Program (PELP) and Minimum Energy Performance (MEP).

“The period 2019-2020 goes down in history as one of the most challenging periods of the 21st century. Our world is plagued with uncertainties and dangers brought about by climate change and the health pandemic. The challenge for the government is to do more and to do better,” Mr. Cusi said in the report.

“The DoE remains steadfast with its mission of improving the quality of life of the Filipinos by formulating and implementing policies and programs to ensure sustainable, stable, secure, sufficient, and accessible energy. In achieving such a mission, the DoE endeavors to balance between the provision of reliable and reasonably priced energy services to support the country’s inclusive growth, and the protection of the environment. Energy resiliency remains at the core of the DoE’s initiatives to mitigate the impact of any disaster with its adoption in the planning and programming of energy programs and projects,” he said. — Bjorn Biel M. Beltran

‘Odette’ may dampen PHL recovery

PHILIPPINE COAST GUARD FACEBOOK PAGE
Typhoon Odette left a trail of destruction in Surigao del Norte, as seen in this photo taken by the Philippine Coast Guard Civil Relations Service, Dec. 18. — PHILIPPINE COAST GUARD FACEBOOK PAGE

AGRICULTURE and productivity losses caused by Typhoon Odette could significantly impact fourth-quarter economic expansion, economists said.

Socioeconomic Planning Secretary Karl Kendrick T. Chua said the government is currently prioritizing immediate relief operations to mitigate the impact of the typhoon on affected communities.

“We will await a full impact/damage report and if needed do a post disaster needs assessment,” he said when asked how the devastation caused by Typhoon Odette could impact the fourth-quarter gross domestic product.

Typhoon Odette (international name: Rai) brought heavy rains and destructive winds over central and southern Philippines. It first made landfall in Siargao Island, Surigao del Norte on Thursday. Surigao del Norte may have suffered around P20 billion in damage, according to provincial officials.

The Agriculture department on Sunday said an initial assessment showed damage to crops in Western Visayas and the Caraga region is estimated at P127 million. Agriculture typically makes up around 10% of overall economic output, and a fourth of the country’s jobs.

“Typhoon Odette’s drag on gross domestic product (GDP) would be on the tangible damage on agriculture and the productivity losses brought about by the disruptions in business and other economic activities,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message on Sunday.

Disruptions would be especially seen in areas of Visayas and Mindanao without electricity, water, and telecommunications, he said.

The typhoon had 195 kilometers per hour (kph) in maximum sustained winds and gusts of up to 240 kph, cutting power and water supply and damaging parts of Visayas and Mindanao.

The Department of Public Works and Highways on Sunday said that damage to public infrastructure is now estimated at P309 million. It is still clearing 11 impassable roads in the five regions affected by Typhoon Odette.

The extent of the infrastructure damage is affecting the transport of goods, creating a shortage of fuel, drinking water, and basic commodities in the typhoon-hit areas.

“There may also be temporary loss of jobs and other economic activities until some reparation/restoration already in place to allow resumption of business and other economic activities,” Mr. Ricafort said.

Price hikes in areas hit hard by the typhoon could also impact fourth-quarter growth, he added.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the typhoon’s effects on major economic hubs in Visayas and Mindanao, such as Cebu, Bohol, and Cagayan de Oro, could translate into significant economic impact.

“We may see a slowdown through about 30% of national output,” he said in a Viber message, noting that Luzon accounts for 70% of the country’s GDP.

“Hopefully, it will not be too much of an economic impact and people can celebrate the holidays especially we are still in a pandemic,” he said.

Third-quarter GDP grew 7.1%, slowing from the 12% expansion in the preceding three months, after the government reintroduced lockdowns to curb a Delta-driven coronavirus disease 2019 (COVID-19) surge.

Last week, economic managers raised the government GDP growth projection to 5-5.5% for this year from the downgraded 4-5% goal issued in August.

Department of Finance Chief Economist Gil S. Beltran had said the 7% fourth-quarter GDP growth needed to hit the revised target is “doable” and “within range.”

Meanwhile, reconstruction activities after the typhoon could support some economic recovery.

“Rehabilitation of areas hit by storm damage would ironically add to economic activities, just like in large storm damage in the past,” Mr. Ricafort said.

Repairs on damaged homes and businesses would require additional spending from both the private sector and the government, increasing economic activities, he said.

The Department of Finance previously said that extreme weather events have caused P506.1 billion in losses and damage to the Philippines over the past decade, emphasizing the country’s vulnerability to the climate crisis. — Jenina P. Ibañez

Government urged to be transparent over funds in ‘Odette’ aftermath

PHILIPPINE COAST GUARD FACEBOOK PAGE
HOUSES were destroyed by Typhoon Rai (Odette) are seen in Surigao del Norte in this photo taken by the Philippine Coast Guard Civil Relations Service, Dec. 18. — PHILIPPINE COAST GUARD FACEBOOK PAGE

By Kyle Aristophere T. Atienza, Reporter

ANALYSTS and development workers urged the Philippine government to disclose the status of its three special purpose funds that could be used for calamity response programs, as one of the world’s strongest storms of the year left many parts of the country devastated.

They made the call after President Rodrigo R. Duterte said the government is trying to raise money for relief measures since the public coffers were depleted due to pandemic spending.

“At the peak of COVID, the government really pooled all its resources, there’s hardly no spending limit. But we didn’t expect that this (typhoon) would happen now,” he said in a public briefing in Maasin, Leyte on Saturday. A transcript was made available by his office on Sunday.

“So this is what I said last night: We’re trying to scrape whatever we can from the savings of the government. There’s a little money left so I can help you. Help will arrive here,” he added.

Mr. Duterte’s statement reflects “a lack of understanding of his government’s national budget and failure to consult the Budget department before speaking about it,” said Zy-za Nadine Suzara, executive director of the public finance think-tank, Institute for Leadership, Empowerment, and Democracy (I-LEAD).

In a Viber message, Ms. Suzara said it is “irresponsible” to say the budget was depleted by pandemic spending and to suggest that nothing can be immediately tapped in the aftermath of Typhoon Rai, locally known as Odette, because “every national budget contains funds for disaster relief and rehabilitation.”

Ms. Suzara said “knowing which parts of the budget can immediately be tapped is necessary in dealing with the large-scale devastation wrought by Typhoon Odette.”

She noted as of end-November, there is a total available balance of P6.5 billion from the government’s 2020 and 2021 national disaster risk reduction and management funds, which can be released upon the approval of the President.

Ms. Suzara said there are also quick response funds under the budget of frontline agencies such as the Department of Social Welfare and Development, Department of Health, Department of Agriculture, among others.

“A third option is the President’s Contingent Fund — another special purpose fund that can be used, as its name suggests, for contingencies,” she added. “Those are programmed appropriations that the Treasury will have to finance.”

While local governments have disaster funds that can also be immediately tapped, the National Government needs to step in considering the extent of the destruction, Ms. Suzara said.

“President Duterte’s statement was insensitive at the very least and ill-informed at worst, especially for an office which has so much resources and from which so much is expected,” Sonny A. Africa, executive director of think tank Ibon Foundation, said in a Facebook Messenger chat.

Mr. Africa said the National Government’s calamity fund has averaged just P18.6 billion annually over the 2017-2022 period, nearly half of the P38.9 billion budget in 2016 or the last budget of the Aquino administration.

“The budget was not even wholly used up in 2020 and some P5.1 billion carried over for a total of P25.1 billion at the start of 2021… We suspect that much still remains because of the economic managers’ proven stinginess on relief measures,” he said.

Mr. Africa said the government “does not seem cash-strapped at all” because in the first 10 months of the year, it has had P2.5 trillion in revenues and borrowed P2.8 trillion. “It has only spent P4 trillion so far and so still has some P1.3 trillion in cash.”

“If the president chose to, he can use balances from his P4.5 billion in confidential and intelligence funds or P13 billion contingent fund, both directly under his control,” he said.

IBON estimated the destruction brought by Typhoon Odette would likely take its toll on the national economy, which is still recovering from the pandemic.

Government reports showed that more than 70 people died as of Dec. 19 from the recent typhoon, which destroyed thousands of homes in southern and central parts of the country.

“It is the government’s mandate to make sure enough funds are allocated should emergencies like Typhoon Odette happen,” a representative from the Citizens’ Disaster Response Center (CDRC) said in a Facebook Messenger chat, noting that the country should have the budget to mitigate Typhoon Odette’s impacts even while managing the pandemic because it is a fact that the country is visited by an average of 20 typhoons yearly.

“The government should be quick to carry out activities to arrest further deterioration of life and property, and remove affected families from life threatening situations,” it said. “This is why it is necessary for the government to immediately release funds and aid to people affected by Typhoon Odette.”

A community-based disaster response organization in Leyte said at least 300 houses were totally destroyed in four towns in the southern part of the province. “These were the horrors that awaited us: 24 deaths and many more missing. The count continues to rise.”

The Leyte Center for Development, Inc., which is part of CDRC’s network of disaster response groups nationwide, said several villages in the province experienced storm surges as high as 12 feet, resulting in a “gargantuan devastation to livelihoods and properties.”

“The people told us no regional nor provincial government agency has checked on them,” Executive Director Minet Aguisanda said in a Facebook Messenger chat. “They need food, shelter materials and livelihood support.”

The CDRC urged presidential candidates to prioritize disaster risk reduction and management in their electoral agenda. “We challenge them to come up with platforms not only to effectively respond to disasters, but most importantly, to build the capacities of communities to prevent or prepare for calamities, and address the root causes of people’s vulnerability to disasters.”

Mr. Africa of IBON said the government should “embrace civil society and mass media as partners in governance rather than, as present, enemies to be shut down.”

“There is no doubt that the development sector and civic groups will mobilize to provide aid as swiftly as they could, but the National Government has to take the lead and coordinate those emergency relief efforts done by different groups,” Ms. Suzara of I-LEAD said. “That means the National Government should have a clear recovery plan and strategy.”

She said the administration must be transparent about which funds are available for relief and recovery programs. “They should also be transparent about the amounts and status of foreign aid and donations coursed through National Government agencies.”

“Later on, the National Government also needs to come up and present a concrete plan for recovery and rehabilitation later on. Malacañang also needs to show how exactly those programs will be funded,” Ms. Suzara said.

Coronavirus pandemic slams revenues of Philippines’ top 1000 firms

REUTERS
Operations of many businesses were affected by the strict lockdown implemented to curb the coronavirus disease 2019 (COVID-19) outbreak last year. A woman walks in an almost empty shopping mall amid a lockdown in Quezon City, Metro Manila in this photo taken on May 17, 2020. — REUTERS/ELOISA LOPEZ

By Ana Olivia A. Tirona, Researcher

THE COUNTRY’S TOP 1,000 corporations saw their combined gross revenue decline for the first time in 2020 as the economy grappled with the effects of the coronavirus disease 2019 (COVID-19) pandemic.

The aggregate gross revenue of the top 1000 firms amounted to P10.796 trillion, 13.2% lower than the P12.439 trillion earned by the same roster of firms in 2019. Meanwhile, their combined net income declined by 39.5% to P889.346 billion from P1.469 trillion recorded in the year prior.

Now on its 35th year, BusinessWorld Top 1000 Corporations in the Philippines ranks private and public stock entities based on gross revenue using the latest available full-year audited financial statements.

Comparison of sectoral performance in 2020

The contraction in gross revenue reflected the decline in economic output amid the onset of the COVID-19 pandemic last year that prompted companies to close shop, suspend operations or operate at below full capacity. The Philippine economy contracted by a record 9.6% in 2020 in real terms (-8.1% in current prices), its worst performance since the 1940s.

The latest edition of the Top 1000 had a gross revenue cutoff of P1.563 billion, 16% lower than the previous edition’s P1.870 billion, considering the financial statements that were collected.

Manila Electric Co. (Meralco) grabbed the no. 1 spot in this year’s edition with P266.055 billion in gross revenue in 2020. However, this was down 13.9% from the previous year’s gross earnings of P309.090 billion. Likewise, its net income fell by 29.1% to P14.628 billion from P20.644 billion.

Second on the list is BDO Unibank, Inc., which saw its gross revenue contract by 4.7% to P186.951 billion last year from P196.226 billion. The lender’s net profit stood at P28.606 billion, dropping by 35.3% from P44.233 billion the year before.

Petron Corp. ranked third with a gross revenue of P179.452 billion, 44.5% down from the P323.273 billion posted in 2019. The oil refiner and distributor saw net losses of P11.202 billion, a reversal of its net profit of P114.923 million the previous year.

Rounding out the top 10 are PMFTC, Inc. with P176.939 billion in revenues; Mercury Drug Corp., P161.928 billion; Pilipinas Shell Petroleum Corp., P158.002 billion; Nestlé Philippines, Inc., P135.735 billion; Globe Telecom, Inc., P135.519 billion; Puregold Price Club, Inc., P125.888 billion; and Metropolitan Bank & Trust Co., P113.849 billion.

The Top 1000 publication also includes a separate table ranking of these firms that include their respective subsidiaries. This is different from the main top 1,000 list wherein parent-only financial statements are used to account only for parent firms’ equitized earnings of their subsidiaries and associates.

In this year’s top 200 “consolidated” corporations, Top Frontier Investment Holdings, Inc. and subsidiaries topped the list with P774.294 billion in gross revenue in 2020, falling 27.5% from the year prior.

The combined business units of San Miguel Corp. and SM Investments Corp. placed second and third with gross earnings of P773.569 billion (-27.6%) and P396.751 billion (-21.7%), respectively.

The rest of the top 10 included Petron Corp. and subsidiaries with P290.369 billion in revenues; San Miguel Food and Beverage, Inc. and subsidiaries, P281.643 billion; Meralco and subsidiaries, P279.161 billion; Ayala Corp. and subsidiaries, P239.031 billion; JG Summit Holdings, Inc. and subsidiaries, P226.395 billion; BDO and subsidiaries, P212.241 billion; and Aboitiz Equity Ventures, Inc. and subsidiaries, P201.645 billion.

Of the 18 sectors represented by the top 1,000 corporations, 14 saw their combined gross revenue fall with 11 showing double-digit declines. Gross earnings of manufacturers, which made up 36.2% of the 2020 total, slipped by 13.2%. Likewise, those in the wholesale and retail trade (19.2% share) and financial and insurance activities (16.9% share), contracted by 9.8% and 7.0%, respectively.

The list included 370 multinational companies, accounted for 37.1% of the top 1000’s total gross revenue this year. Its gross revenues stood at P4.010 trillion, 8.9% less than in 2019.

Exporting firms included in the top 1000 recorded P2.046 trillion in revenues, down 6.9% from the previous year. They made up 19% of total gross revenues in 2020.

BusinessWorld Top 1000 Corporations in the Philippines can be purchased at select branches of National Book Store, Powerbooks, Fully Booked, Office Warehouse and Rustan’s Supermarket. These can also be purchased directly through BusinessWorld’s Circulation Department at (+632) 8535-9901 loc. 256-257 or (+63) 917 658 4564. You may also e-mail at circ@bworldonline.com or contact the Research Department at research@bworldonline.com for further inquiries. The portable document format (PDF) version will be available in January 2022.

Firms participating in an ACH told to manage liquidity risks

BW FILE PHOTO
A DRAFT circular from the central bank said financial institutions must manage the liquidity risks that could come from settlement activities.

FINANCIAL INSTITUTIONS participating in an automated clearing house (ACH) for electronic payments could soon be mandated to have liquidity risk management measures to avoid damages from rejected client transactions, a draft circular from the Bangko Sentral ng Pilipinas (BSP) said.

The central bank said financial firms must manage potential risks from the “prescribed settlement mechanism for electronic payments, including the possibility that a rejected payment transaction of a client due to pre-funding issues may give rise to serious reputational damages to the concerned clearing participant.”

Clearing participants for electronic payments must assure certainty of settlement of the multilateral clearing obligations of clearing participants.

To do so, either the clearing participant or its settlement sponsor must maintain a BSP demand deposit account to be used for clearing obligations from electronic payments.

Meanwhile, distinct deposit accounts must be used for instant retail payments and batch settlement of electronic payments.

The BSP draft circular said clearing participants must make sure their demand deposit accounts can sufficiently settle obligations at each cycle, pre-funding the settlement of their net clearing obligations.

The draft circular also listed rules for service contracts between clearing participants and the clearing switch operator, including creating a record of the demand deposit account balances.

“Should the clearing participants determine that the funds in their demand deposit accounts for instant retail electronic payments are excessive after taking into account their highest potential clearing obligations, the clearing participants shall be allowed to withdraw from their demand deposit accounts to enable them to make optimal use of their funds,” the draft circular said.

The demand deposit accounts will form the financial institution’s reserves against deposit and deposit substitute liabilities, the central bank said. — J.P. Ibañez

ECB must follow peers with tough inflation message, Wunsch says

BW FILE PHOTO

THE European Central Bank (ECB) risks underestimating the threat posed by inflation and falling too far behind global peers in confronting soaring prices, Governing Council member Pierre Wunsch said.

The Belgian central bank chief said new projections showing euro-area inflation at 1.8% in 2023 and 2024 mean the 2% goal has basically been reached — allowing for a faster withdrawal of stimulus. He spoke a day after the ECB confirmed it would wind down its pandemic bond-buying program but temporarily expand an older one to ease the transition.

“There’s a lot of uncertainty about 2023 and 2024, but my take is that we’re essentially at target,” Wunsch said Friday in an interview. “Whether you’re at target or just a little bit below or a little bit above doesn’t matter so much. What I’m a bit concerned about is the fact that we’d insist so much on still being below target.”

Wunsch said he probably would have preferred a faster reduction in regular bond buying, while adding “that’s to me not the big issue.”

“The big issue for me is the narrative that doesn’t recognize enough that there seems to be an inflation issue in the world and we seem to see it very differently,” he said.

Thursday’s decision by the Frankfurt-based institution was an acknowledgment that emergency stimulus enacted to stem the economic damage from Covid-19 must be wound down now that output is near pre-crisis levels and inflation at its fastest since the euro was created.

But the steps it took were far less aggressive than elsewhere. The US Federal Reserve doubled the pace of its own stimulus exit, while the Bank of England delivered a surprise increase in interest rates — the first since the pandemic struck.

Speaking after Thursday’s announcement, ECB President Christine Lagarde said loose monetary policy remains necessary “for inflation to stabilize at our 2% inflation target over the medium term” from 4.9% in November.

Wunsch argued that the ECB no longer faces the dangerously slow price growth seen before the pandemic.

“We used to have low inflation rates and we were expecting to converge to the target,” he said. “But today is very different. Now we’re clearly above target. We have an average inflation over four years that’s clearly above 2%.”

Wunsch, who’s been in his role since 2019, has become increasingly hawkish in recent months. Other Governing Council members, while not as forceful, have said the inflation landscape may be changing.

Portugal’s Mario Centeno, who’s traditionally more dovish, warned that “the risk that inflation is higher than the forecasts exists.” France’s Francois Villeroy de Galhau, who objects to hawk or dove labels, said Friday “in some ways there is a new inflation regime around the 2% target that looks more like what we had before the financial crisis.”

So far, Lagarde appears to have convinced investors that a rate hike next year is unlikely — particularly as the developing threat from the omicron coronavirus variant triggers restrictions across Europe. Money markets are only betting on a 10 basis-point rate hike in early 2023.

For Wunsch, however, there’s a clear case to act — especially with the future inclusion of owner-occupied housing in the inflation calculations likely to push the rate up a little more.

“If we don’t believe that we’re going to have any kind of second-round effects, if we don’t believe our monetary policy is effective, at some point, we’re going to have a problem,” he said. “Because otherwise we’re in a situation where we’re never going to exit.” — Bloomberg

Colombia central bank raises rate to 3% on rising inflation

BOGOTA — Colombia’s central bank board raised the benchmark interest rate by 50 basis points to 3% on Friday, as policymakers look to tamp down rising inflation amid a recent increase in the minimum wage for next year.

The seven-member board was once again divided on how sharply to increase the rate, with four policymakers backing a half-point uptick and the remainder backing a 75 basis-point increase.

Central banks around Latin America are sharply hiking rates. Mexico raised its rate by a surprise 50 basis points on Thursday, also on inflation concerns, while Chile raised its borrowing costs by a 20-year high of 125 points and Brazil increased its by 150.

Colombia’s bank revised its inflation projections for this year and next, raising the 2021 estimate to 5.3% from a previous 4.9% and the 2022 projection to 3.7% from 3.6%.

Inflation reached 5.26% in the 12 months to November, well above the bank’s long-term 3% target, and may increase further after the government approved a minimum wage increase of 10.07% for 2022.

“The central bank reiterates its commitment to the inflation target of 3% per year, and will continue to take the decisions required to ensure inflation moves towards that target,” the board said in a statement.

The uptick in the minimum wage, nearly three times the raise implemented for this year, is a great challenge board chief Leonardo Villar said.

“The increase in the minimum wage creates a particularly strong challenge for the central bank and for the fulfillment of its constitutional mandate to maintain a stable and low inflation,” he said.

The rate decision was in line with predictions by analysts in a Reuters survey last week and takes rate rises to a total of 125 basis points since September. The government raised its growth projection for 2021 to 9.7% this week, though it remains below the central bank’s prediction of 9.8%. — Reuters

IPO stability fund requirement seen as encouraging for investors

By Keren Concepcion G. Valmonte, Reporter

REQUIRING a stability fund for companies planning to go public with a secondary share component may help ease investor worry and it may also “provide better cushion” against volatility, analysts said.

“This will somehow be a positive step for investors so as to make them confident to place their investments on IPO (initial public offering) with secondary share offering within the near term,” Diversified Securities, Inc. Equity Trader Aniceto K. Pangan said in a text message on Friday. 

In a televised interview last week, Philippine Stock Exchange President and Chief Executive Officer Ramon S. Monzon said the local bourse is looking into requiring a stabilization fund for companies with a secondary share component in their offering.

This came after shares of Medilines Distributors, Inc. plunged 30% on its first day at the stock exchange on the first week of December. The company’s public offer comprised 550 primary shares and 275 million secondary shares. 

“We’re looking at anywhere from 10% to 15% of the base offer,” Mr. Monzon told the ABS-CBN News Channel’s Market Edge on Dec. 16.

A stabilization fund is deployed by issuers through their underwriters to support the company’s stock price at the secondary market for a limited time. 

COL Financial Group, Inc. Chief Technical Analyst Juanis G. Barredo said requiring a stability fund is “a reasonable idea to study.”

“It may provide [a] better cushion for extra-ordinary volatility on listing day. The size of it may need to be examined though to see if it would be viable for the company to provide such as an anchor,” Mr. Barredo said in a Viber message on Friday.

He added that firms going public may “think twice” about being overly priced “as such contributes to the possible stretch back that may be encountered, thus reducing volatility.”

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that an issue’s price valuations would “fundamentally matter.”

“The underlying price valuations would fundamentally matter,” Mr. Ricafort said in a separate Viber message on Sunday. “If the IPO price is seen as either priced at a premium, fair value, or at a discount based on estimated earnings, future cash flows/income, and book value.”

A stabilization fund may also be “an added feature” for the public offering. 

“Having a stability fund would also be part of the branding or value-added offered by the issuer, together with the issue managers, an important signaling for the market,” Mr. Ricafort said.

JCurve targets local sectors for service management solutions

By Arjay L. Balinbin, Senior Reporter

AUSTRALIA-LISTED cloud technology solution provider JCurve Solutions Ltd. is targeting various sectors in the Philippines for its service management solution, quicta, including healthcare and logistics.

The company said quicta allows businesses to automate their end-to-end processes and optimize their operations and resources. Its target sectors in the Philippines include healthcare, consumer, transportation & logistics, professional, and retail & distribution services.

“Each of these industries has a service component that our solution can fulfill,” Arthur Fernandez, chief growth officer at JCurve, told BusinessWorld in a recent e-mail interview.

The ability to manage multiple parties is a key feature of quicta. “By seamlessly bridging this gap, it’s easier to provide a great customer experience, and retaining customers becomes more achievable,” he said.

Being a mobile-first solution, quicta adapts to any device without the need for an application.

“One surprise is that quicta users do not need to download an app,” Mr. Fernandez said. “Today’s businesses understand the true nature of what you can do with technology without having to download yet another app to the device and have the headache of managing it or worrying about constant fixes and updates.”

Asked what made JCurve decide to launch quicta in the Philippines, he said: “We see several businesses growing in the service industry but not necessarily having the tools or budget to build custom apps.”

“quicta having a configurable solution is easily adaptable to any service provider to complete their processes and sustain a high level of customer engagement,” he added.

JCurve announced in June its acquisition of the business assets of Philippine-based digital marketing company Creative Quest, as part of its expansion efforts in the country and the Southeast Asian region.

JCurve Solutions entered the Philippine market in 2019. It also has an office in Singapore.

“We have just started within the Philippines and are growing. The key challenge we face is meeting the right price point for our customers,” Mr. Fernandez said.

“Every industry is different in how they price for their customers; therefore, we must find a fine balance of not ‘eating’ into their cost of sale. The key takeaway is that we are flexible in working with our customers to provide the best solution possible.”

On the company’s future plans for quicta, he said: “We have a road map of which a few key futures include ‘out of the box’ integration with ERP (enterprise resource planning) solutions, multiple payment options, and enhanced workflow.”

Bank of Canada likely to signal earlier rate hikes possible

INFLATION surging, the Bank of Canada is likely to change its interest rate guidance in the new year so that it has the option to raise borrowing costs earlier than planned despite the threat the Omicron variant poses to growth, analysts said.

Last week when it left the key overnight rate at 0.25% — where it has been since March 2020 — the bank reiterated its guidance, saying it would not raise rates until economic slack has been absorbed “in the middle quarters of 2022.”

But it has turned hawkish since then, warning that inflation will run hot for longer than expected, and Governor Tiff Macklem said the slack in Canada’s economy caused by the coronavirus pandemic has substantially diminished.

“Even if the Bank of Canada wants to be a little bit cautious in front of a potential winter set of shutdowns…, if they think inflation expectations are starting to become unanchored, that will be their primary concern,” Andrew Kelvin, chief Canada strategist at TD Securities.

“Certainly, in January they will want to give themselves the option of March,” he added.

The bank will next meet to decide rates on Jan. 26, when it will also update its forecasts. Money markets expect about four rate hikes next year, with the first one coming in March. They see about a 40% chance of a January move.

“January will be a declaration that every meeting is now a live meeting” for a rate increase, said Adam Button, chief currency analyst at ForexLive.

While the spread of Omicron could undermine growth, it could also reduce slack in the economy more quickly by dialing back the speed at which the economy can grow, analysts said.

“I don’t think (the bank) will change course on Omicron because they’ll see that as inflationary” because it could disrupt supply chains even further, Button said.

November inflation hit nearly 5% and is starting to pinch. On Wednesday, Macklem said the bank is getting closer to no longer providing forward guidance that guaranteed low interest rates during the pandemic, which was seen as a signal by some analysts that it would be dropped in January.

A shift in guidance in January would probably mean the Bank of Canada would start raising rates ahead of the U.S. Federal Reserve, which on Wednesday said it would speed up a phase-out of its bond-buying stimulus ahead of possibly three interest rate rises in 2022. Lift-off by the Fed is expected by money markets in June.

The Bank of England on Thursday became the world’s first major central bank to raise borrowing costs since the coronavirus pandemic hammered the global economy.

A bevy of Canadian economic data, including December jobs and inflation, will set the tone for January meeting. While most economists are skeptical about an increase as early as January, it is not impossible, said Doug Porter, chief economist at BMO Capital Markets.

“Never say never. I definitely can’t rule it out,” Porter said. “We’ll have lots of data by then,” he said, adding that the figures would have to all point in “one direction” and create a sense of urgency for the bank to move so quickly. — Reuters

Paschi planning to raise $2.8B for capital needs

BANCA MONTE dei Paschi di Siena SpA plans to raise €2.5 billion ($2.8 billion) to cover capital needs after the Italian government’s efforts to sell the lender to UniCredit SpA failed.

The capital increase is part of a five-year business plan that will be submitted to European authorities for approval, it said in a statement late Friday. The fresh funds will enable the bank to cover a gap that emerged in stress tests, investments for €800 million and restructuring charges of €1 billion.

Monte Paschi is revising a plan submitted to regulators earlier this year as the Italian government is failing to comply with a European Union (EU) requirement that it exits its stake. Italy bailed out Paschi, the world’s oldest bank, in 2017 and under the conditions of the rescue is supposed to exit the lender by the end of the year, though officials have indicated they’re asking for an extension.

Finance Minister Daniele Franco has said that Italy has already held initial talks with the EU to extend the deadline. Italy now expects to need at least another year to find a new buyer, people with knowledge of the matter have said.

The measures announced Friday are part of a 2022-2026 strategic plan, which also envisages job cuts managed through a voluntary exit scheme. Friday’s proposal will be the starting point for talks with the European Commission, which oversees the application of rules around government aid to companies.

Monte Paschi has been a financial burden for the Italian government since it was first bailed out in 2009, undermined by souring loans and derivatives deals that backfired. It has struggled to deliver consistent profit, given limited room for maneuver under terms the EU set in exchange for backing the aid plan.

Talks on selling Monte Paschi to UniCredit came to a halt earlier this year over the question of how much capital Italy should inject into the lender. — Bloomberg

Quality does not mean paying top dollar

CHINA won 38 gold medals at the 2020 Summer Olympics in Tokyo and will host the Winter Olympics next year. Anta Sports, a brand founded in China in the 1990s, is poised for international exposure thanks to their sponsorships within the Olympic Games.

During the opening of their 7th store in the Philippines earlier this month in Robinsons Place Ermita, John Paul Paglinawan, General Manager of AvidSports Philippines, said that Anta sponsors not just China’s Olympic teams, but also its Olympic Games committee, as well as its referees and officials. The store opening was also an opportunity to launch the KT7, a sports shoe created with the collaboration of Golden State Warriors player Klay Thompson.

The KT7 features shock absorption, and fluid, bulletproof materials that can absorb 99.4% of impact to reduce the burden on ankles and knees to a great extent. It also uses lower heights, and thin and breathable material for comfort. For stability, KT7 uses parametric for better traction and liquid rubber for better grip.

According to Mr. Paglinawan, the brand has had a presence in the country for the past 10 or 15 years under another distributor. AvidSports Philippines has only been around since 2019, but is part of a company that distributes the brand in Southeast Asia under a joint venture between Anta Sports in China and Luen Thai in Hong Kong. According to an article in China Daily, Anta is the world’s “third-largest sportswear company by revenue.” Mr. Paglinawan credits this to the sheer size of the company in its (similarly large) country of origin. “In China, the brand has 10,000 stores. With the size of China, that basically drives it.” The brand has also acquired Amer Sports, which owns various sports-oriented brands such as Wilson (as in the balls) and outdoor clothing brand Arc’teryx, adding to its bulk.

Touring the store, one finds that the brand is relatively affordable: on average, the sneakers cost P2,795, and its flagship shoe at present, the KT7, costs about P7,995. “From design to manufacturing, to retail, they own the whole process,” said Mr. Paglinawan. “Because of that vertical integration, since we’re involved on all levels… we can drive down the process.”

Meanwhile, celebrity and PBA Blackwater Bossings player Andre Paras, one of the ambassadors of Anta in the country, said that he personally wears the KT5 (two editions behind the new flagship sneaker). He said that the KT5 is “very comfortable. I’m someone who doesn’t like changing shoes.” While he was browsing through a display of sportswear from Anta (just a little above P1,000), he explained to BusinessWorld:  “I’m not sure if you’re familiar: players, when they play the game, first half, they wear different shoes, and second half, they swap. I never do that, because I just stick to one shoe. I’m not even kidding.

“You want to get that extra comfort, and that’s what Anta provides for me.”

Speaking about the Anta consumer profile, Mr. Paglinawan, said, “I think you’re a practical customer who demands quality, but you know you don’t need to pay top dollar to get it.” — Joseph L. Garcia

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