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Lacson’s Metro Manila plan: Decongest rather than build more roads 

SENATOR Panfilo M. Lacson, who is running for the top seat in 2022, plans to ease traffic in the nation’s capital by adapting a policy that will encourage people to leave the metropolis through opportunities in sub-urban areas and the countryside.  

He said in a radio interview Wednesday that his agenda focuses on urban decongestion rather than building more roads.  

He cited one of his flagship legislative proposals, the Budget Reform Advocacy for Village Empowerment (BRAVE) measure under Senate Bill 23, which aims to allocate more funds for community development projects through the local government units.   

“Fixing the traffic situation is attached to village empowerment,” Mr. Lacson told Radyo Singko in a mix of English and Filipino, “because when you disburse the resources of the government and it results in development, livelihood for the people in distant places, they will naturally move to those areas.”  

He said the National Capital Region already has “so many layers of elevated highways.” 

The BRAVE bill is pending at the committee level. — Alyssa Nicole O. Tan 

DoTr says Mindanao rail House probe an opportunity to explain procedures 

EMB.GOV.PH

THE TRANSPORTATION department welcomed the proposed investigation on the Mindanao railway project at the House of Representatives, saying it will be a venue for explaining government procedures on right-of-way as well as address concerns of affected residents.    

In a statement released to local media Wednesday, the Department of Transportation (DoTr) central office said it understands the position of some stakeholders, particularly owners of properties that are along the railway’s alignment.   

It said officials of the department and its project management office on the ground are continuously holding engagements with those affected by the project.   

“We wish to assure the committee of the DoTr’s fullest cooperation and transparency, aligned with our commitment to implementing this long overdue mega transport project for Mindanao. In this light, allow us to respectfully note that DoTr is not the entity that directly undertakes the appraisal of properties that need to be acquired for the construction of MRP (Mindanao Railway Project),” the statement said.  

On Oct. 28, 2021, Davao City Rep. Paolo Z. Duterte and ACT-CIS Party Rep. Eric Go Yap filed a resolution calling for a committee investigation on alleged “variations in the offers for the acquisition of road right-of-way or expropriation of the private properties by the DoTr and/or its contractors, sub-contractors, or other service providers.”  

The inquiry aims to revisit existing laws and rules on right-of-way acquisition and expropriation of private properties affected by government projects.  

The first phase of the project, with a P35.91-billion budget that will be financed by China, covers 105 kilometers connecting the cities of Davao, Tagum, and Digos in Davao Region. — Maya M. Padillo 

Rights group calls for independent probe of killing of communist leader 

A HUMAN RIGHTS group on Wednesday called for an “independent and impartial” investigation into the killing of a leader of the New People’s Army (NPA), the armed branch of the communist movement.  

Karapatan said a probe is needed to determine the actual circumstances of the deaths of NPA leader Jorge “Ka Oris” Madlos and his medical aide, Eighfel Dela Peña, in Bukidnon last week.   

The group said the killings could possibly violate the Comprehensive Agreement on Respect for Human Rights and International Humanitarian Law (CARHRIHL) signed by the National Democratic Front of the Philippines (NDFP), the political arm of the Communist Party of the Philippines (CPP), and the national government. 

“Military officials who commit, abet, and order war crimes and violations of the CARHRIHL should be held accountable as war criminals and serious allegations should not go unnoticed, especially when there appears to be attempts to cover up such violations,” said Karapatan Secretary General Cristina E. Palabay.  

Reports from the Philippine Army’s 4th Infantry Division said that Mr. Madlos, who has several pending criminal cases, and Mr. Dela Peña were killed during an armed encounter.  

CPP Chief Information Officer Marco Valbuena, on the other hand, said the two were unarmed on Oct. 29 while seeking medical treatment and were “murdered in cold blood.”  

COMMUNIST MATERIALS
Meanwhile, the Commission on Higher Education (CHED) said schools have the “academic freedom” to remove materials they deem “subversive.”    

CHED Chairperson Prospero E. de Vera III, in a statement on Tuesday evening, said the turnover of NDFP-related materials by three state-owned universities to the government were done with “sufficient administrative discretions under existing laws.”  

The turnover was made by Kalinga State University, Isabela State University, and Aklan State University.  

Mr. De Vera’s remarks came after officials of the University of the Philippines (UP) Diliman, the biggest state-funded academic institution, condemned the removal of materials as a “clear example of censorship.”  

“It abandons the freedom to think, ask questions, and research; and on the freedom to discover the truth based on the students’ own abilities,” the UP officials said in Filipino. 

Mr. De Vera said UP Diliman should “respect these decisions… in the spirit of mutual respect and proper governance of their institutions.” 

“It would be best for the chancellor of UP Diliman and their officials to be more prudent, circumspect, respectful, and discerning in issuing statements especially involving the exercise of academic freedom of other higher education institutions,” he said.  

The Makabayan bloc filed a resolution at the House of Representatives on Oct. 13 seeking for a probe into the matter. — Russell Louis C. Ku 

Closed fishing season in northern Palawan starts 

PHILSTAR

THE ANNUAL closed fishing season in northern Palawan started Nov. 1, a conservation measure to increase the population of round scad, locally known as galunggong, in the area.    

The Bureau of Fisheries and Aquatic Resources (BFAR) said in a statement on Wednesday that the three-month closed fishing season prohibits the use of purse seine, ring net, and bag net in catching galunggong in waters off northern Palawan, a major fish source for Metro Manila.   

The Nov. to Jan. period is the peak spawning season for the species. 

“Based on the National Stock Assessment Program of the BFAR and the National Fisheries Research and Development Institute, catch estimates of the species caught by purse seine has increased from 233.07 metric tons (MT) in 2015 to 434.98 MT in 2020, while those caught by ring net bumped up from 187.02 MT to 206.30 MT in the same period,” BFAR said.     

BFAR National Director Eduardo B. Gongona urged fisheries stakeholders to cooperate with the implementation of the closed fishing season, which is also undertaken in other parts of the country on different periods.    

“This measure will help protect the commercially-important galunggong species, ensuring its availability as part of our efforts following the guidance of Agriculture Secretary William D. Dar on achieving food security and fostering sustainable growth in the fisheries industry,” Mr. Gongona said.    

According to BFAR, Palawan supplies 95% of the galunggong catch arriving at the Navotas Fish Port, which provides fish supply to Metro Manila and nearby provinces.  

With the implementation of the closed fishing season, BFAR said it is banking on the aquaculture industry to provide alternative supply.    

The Department of Agriculture also previously approved the importation of 60,000 MT of small pelagic fishes such as galunggong into the country in an effort to avoid price spikes and supply gaps during the closed fishing season. — Revin Mikhael D. Ochave  

Transport officials endorse move to higher vehicle capacity as ‘safe’

PHILSTAR

THE TRANSPORTATION department said Wednesday that it considers a move to increase capacity in public transport to be “safe,” citing studies performed overseas.

(May) mga katibayan na ligtas pa rin po ang ating mga pasahero… sa kabila ng COVID-19, kahit po taasan natin ang capacity (There is evidence of passenger safety even with COVID-19 present if capacity is raised),” Transportation Assistant Secretary Eymard D. Eje, the officer-in-charge general manager of Metro Rail Transit Line 3, said at a virtual briefing.

He said that in Germany, only 0.2% of traceable infections were linked to transport. He estimated the chance of contracting coronavirus disease 2019 (COVID-19) while commuting at 0.01%, assuming health protocols are observed.

Transportation Assistant Secretary Goddes Hope O. Libiran said a study of data from the Philippines, Indonesia, Thailand, Japan, Taiwan, Singapore, China, Australia, Vietnam, and Malaysia indicated “that public transport capacity has no significant correlation with the number of COVID-19 cases.”

“Evidence suggests that a high vaccination rate prompts an increase in public transport capacity,” Ms. Libiran also noted.

More than 80% of Metro Manila’s population is now fully vaccinated against the virus.

Independent pandemic monitor OCTA Research has said that it still backs limiting public transport to fully-vaccinated passengers.

“’Yung recommendation naming i-restrict sana iyan to fully vaccinated na passengers pero sa ngayon naman kung sa Metro Manila ay nasa 96% na tayo ng may first dose, it means siguro na iyong adults natin malapit na… sa 100% fully vaccinated (Our recommendation is to restrict public transport to the fully vaccinated. Right now in Metro Manila, 96% have received a first dose, which means nearly 100% of adults are fully vaccinated),” OCTA Research fellow Fredegusto Guido P. David said at a virtual briefing Tuesday.

The Health department said Tuesday that it detected 520 new cases of the Delta variant of COVID-19.

“We have an additional 520 Delta cases, additional 83 Beta, and 64 (cases of) Alpha variant,” Alethea de Guzman, director of the Health department’s Epidemiology bureau, said at an online briefing. 

But she said COVID-19 infections have declined by 49% nationwide in the past two weeks.

The daily infection tally declined by 14% week on week to 4,183 cases in the Oct. 26-Nov. 1 period, following a 26% decrease in the first few weeks of October.

The passenger capacity for rail lines and selected public utility vehicles (PUVs) operating in Metro Manila and nearby provinces will be increased from 50% to 70% starting Thursday, Nov. 4.

PUVs allowed to increase their capacity are buses, jeepneys, and UV Express vans.

The Land Transportation Franchising and Regulatory Board said that plastic barriers inside jeepneys are no longer required nationwide, “provided that proper physical distancing is observed, and passengers practice health and safety protocols to prevent the spread of COVID-19.”

The transport regulator believes that the increase in passenger capacity will help cushion the impact of the pandemic and the recent hike in fuel prices on the livelihood of PUV drivers and operators. — Arjay L. Balinbin

Upside surprise seen in third-quarter GDP

PHILIPPINE STAR/EDD GUMBAN

THIRD-QUARTER economic performance will likely exceed expectations despite the tightening of quarantine rules as manufacturing and trade start to recover, First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P) said in a joint report Wednesday.

“The most recent economic data suggest Q3 GDP (gross domestic product) growth should dispel some of the pessimism after the imposition of stricter lockdown of Metro Manila+ in July-August,” FMIC and UA&P said in their October market call.

The manufacturing sector’s improving performance could bring the economy back on track, they said.

Manufacturing activity fell to a 15-month low in August after a Delta variant-driven surge in coronavirus disease 2019 (COVID-19) infections led to heightened restrictions in Metro Manila.

IHS Markit reported that the Philippine manufacturing purchasing managers’ index fell to 46.4 in August from 50.4 in July.

But UA&P and FMIC noted that the volume of production index that month rose 534.6% year on year, just slightly slower than the previous month’s increase.

“Expansions in 16 out of 22 industry categories, one of which recorded a four-digit increase, sustained the momentum,” according to the report.

“The manufacturing sector looks poised to lead Q3 gains as we have seen employment increases in July and August. Besides, IHS Markit Philippines Manufacturing PMI for September climbed to a six-month high of 50.9 from 46.4 a month earlier.”

Manufacturing helped employment to rebound as job creation hit about 2.6 million in August, the two institutions said.

“Although the Industry sector called in only some 33,000 back to work, the manufacturing sub-sector added 169,000 people to its payroll and resulted also in the highest contribution to the industry sector from October 2020 with a cumulative 680,000 workers harnessed.”

The report also pointed to improvements in trade as well as foreign direct investment after investors bought stakes in Aboitiz Power and raised their holdings in First Generation Corp.

Merchandise exports rose 17.6% year on year to $6.47 billion in August, while merchandise imports grew 30.8% to $10.04 billion, according to preliminary estimates by the Philippine Statistics Authority.

“The runup of exports should continue for the rest of the year especially considering the recent depreciation of the peso,” UA&P and FMIC said.

The government in August cut its economic growth target for the year to 4-5% from 6-7% previously to reflect the effect of reimposed mobility restrictions in Metro Manila.

Although optimistic, UA&P and FMIC said third-quarter GDP will not come close to the 11.8% uptick in the second quarter.

“Job gains in the services sector remained tepid, and insufficient to cover the losses in July. Inflation should remain elevated in October-November, but we still expect it to fall below 4% by December especially as crude oil prices steady or decline and 2020’s last two months showed unusually high price upticks,” they said.

Inflation likely accelerated in October due to the continued rise in pump prices of fuel and a spike in food costs due to a severe tropical storm, analysts said. A BusinessWorld poll of 21 analysts yielded a median estimate of 4.9% for the October consumer price index, falling at around the midpoint of the 4.5-5.3% forecast given by the Bangko Sentral ng Pilipinas (BSP).

If the projections are realized, headline inflation will exceed the 2-4% BSP annual target range for a third straight month. Inflation data will be released Friday.

The economy exited recession after growing 11.8% in the second quarter. It had declined 3.9% in the three months to March. —  Jenina P. Ibañez

Senator rejects DoE claim of hearings hindering Malampaya development

SHELL GLOBAL

SENATOR Sherwin T. Gatchalian, who chairs the chamber’s energy committee, rejected the Energy department’s claim that legislative hearings are delaying work on the Malampaya gas field amid an investigation into the project’s change in ownership.

“It is the responsibility of the consortium to fulfill their commitment and if there’s any ongoing delay in fulfilling their work program, it’s the DoE’s responsibility to hold the consortium accountable,” Mr. Gatchalian said in a statement Wednesday.

“We at the Senate are exercising our oversight functions as part of the check and balance mechanism in the government given the significant role that the Malampaya gas field plays in our country’s energy security,” he added.

The Department of Energy (DoE) has said Malampaya consortium members are seeing their timelines for doing work on the field delayed after a series of public hearings into their transactions.

“It is unfair to accuse the Senate of delaying any timeline or work program of the consortium,” Mr. Gatchalian said.

In March 2020, Udenna group unit UC Malampaya Philippines Pte. Ltd. acquired Chevron Malampaya’s 45% stake in the gas-to-power project, which was approved by the DoE.

Earlier this year, Shell Petroleum N.V. reached a deal with another Udenna subsidiary, Malampaya Energy XP Pte Ltd., to acquire the 45% stake held by the project’s operator Shell Philippines Exploration B.V.

The DoE is currently reviewing the technical, financial, and legal aspects of the Shell-Udenna deal.

In a statement earlier this week, Udenna Spokesperson Allan Raymond T. Zorilla said the Chevron and Shell deals were compliant with government bidding rules.

“The share sales were above board and legal and had to pass thorough scrutiny by Philippine regulators, international lenders, and the private multinationals involved,” he said.

According to Mr. Zorilla, both UC Malampaya and Malampaya Energy XP are qualified to hold stakes in the project.

“We were awarded because of the depth of our understanding of the business — how it should be managed and how it can be rejuvenated.”

The DoE has said that Udenna’s deals with Chevron Philippines, which owned Chevron Malampaya; and Shell Petroleum N.V., were in line with “rigorous” global standards.

In a statement on Oct. 26, the department said no law which compels it to review the sale of shares between private companies, but it decided to review the Shell-Udenna deal anyway since the gas field accounts for a significant portion of the power mix.

The remaining 10% of the Malampaya project is held by the Philippine National Oil Co.-Exploration Corp.

Located off northwest Palawan, the Malampaya field fuels five power plants on Luzon with a combined capacity of 3,200 megawatts.

The Energy department has said that the gas field’s reserves are expected to be commercially depleted by 2027. — Angelica Y. Yang

PHL fixed-line telco market projected at $4.7B in 5 years

THE MARKET for fixed-line telecommunications services in the Philippines is projected at $4.7 billion by 2026, equivalent to a compound annual growth rate (CAGR) of 5%, from a starting point of $3.6 billion this year, according to estimates by the UK’s GlobalData.

The increase will be driven by the “strong growth” in the fixed broadband segment, GlobalData said in a statement on its website.

Fixed broadband services revenue is expected to post CAGR of 6.3% during the 2021-2026 period.

GlobalData sees “healthy growth” in broadband subscriptions as well as rising broadband average revenue per user (ARPU).

Meanwhile, the fixed-line voice service market is expected to post CAGR of 1.6% over the 2021-2026 stretch. GlobalData noted a “drop in circuit switched subscriptions and a significant decline in fixed voice ARPU levels.”

“DSL (digital subscriber line) lines will remain the dominant fixed broadband technology with 36.7% share of the total fixed broadband subscriptions in 2021, but will gradually lose its market share over the forecast period,” according to Hrushikesh Mahananda, a telecoms analyst with GlobalData.

“Fiber broadband lines, on the other hand, will increase at a robust CAGR of 17.2% over the forecast period, supported by government and operator investments in fiber network infrastructure and FTTH (fiber to the home) service expansions,” he added.

PLDT, Inc. is expected to lead the fixed-line voice services segment in terms of subscriptions through 2026.

“The operator will also top the fixed broadband services market, by subscriptions, supported by its strong position in DSL and FTTH service lines,” Mr. Mahananda said.

PLDT has said that it increased its fiber infrastructure by 22% to 524,000 kilometers in the first six months of the year.

On the other hand, Globe Telecom, Inc. is expected to “retain its leadership” in the mobile telecommunications market, GlobalData Telecom Analyst Harika Damidi said.

The mobile services market is expected to increase at a CAGR of 5.6% to $5.4 billion in 2026.

This is primarily “due to the rising adoption of mobile data services,” GlobalData said in a separate statement.

“Mobile data revenue will grow at the fastest CAGR of 6.6% between 2021 and 2026, due to growing 4G subscriptions and the planned rollout of 5G services,” it said.

“Mobile voice revenues will increase at a relatively slow CAGR of 3.2% over the same period as voice ARPU decreases further,” GlobalData added.

It expects the average monthly mobile data usage to rise from 3.7 GB (gigabyte) this year to around 4.8 GB in 2026.

The increase is expected to be driven by the rising consumption of high-bandwidth online video services and social media content via smartphones.

“4G subscriptions will surpass 3G in 2021, driven by the ongoing 4G/LTE network expansions and increase in the availability of 4G-enabled smartphones. 5G services, on the other hand, will account for a 22.5% share of the total mobile subscriptions by 2026 end,” GlobalData’s telecom analyst added.

In a statement Wednesday, Globe Head of Consumer Mobile Business Darius Jose Delgado said: “These latest findings are aligned with our efforts to bring first-world connectivity to more Filipinos to further enrich their digital lifestyle.”

“We foresee this rapid digitization to continue beyond these pandemic times, thus our ongoing efforts to increase our 4G LTE footprint and expand our 5G network,” he added.

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld through the Philippine Star Group, which it controls. — Arjay L. Balinbin

EEI unit joins green energy option program

A POWER subsidiary of EEI Corp. has been admitted to the green energy option program (GEOP) after obtaining clearance from the Department of Energy (DoE), EEI Corp., said in a disclosure Wednesday.

Construction group EEI Corp. said EEI Energy Solutions Corp. received its GEOP operating permit from the DoE in September.

The permit authorizes participants to supply power to end-users.

The GEOP allows users consuming at least 100 kilowatts of power to source power from accredited retail energy suppliers which generate electricity from renewables.

EEI Energy’s inclusion in the program brings the number of eligible firms to 15, as of Sept. 30, the Technical Services Management Division of the DoE-Renewable Energy Management Bureau separately told BusinessWorld in an e-mail.

Other firms holding GEOP permits include Bacman Geothermal, Inc., First Gen Energy Solutions, Inc., SN Aboitiz Power-Magat, Inc., Shell Energy Philippines, Inc. and Solar Philippines Retail Electricity, Inc.

In its disclosure, EEI Corp. said EEI Energy signed a retail supply deal with Valenzuela-based plastics packaging manufacturer Genstar Manufacturing Corp. in September.

“We are truly honored to having been given the privilege of helping (Genstar) realize savings in their power bills and funds which it can use in other aspects of its operation,” EEI Energy President Cris Noel E. Torres said.

EEI Energy has retail electricity supply agreements with Laguna-based Centro Mall and animal feed manufacturer Limcoma Multi-purpose Cooperative, which both require over 500 kilowatts of power each.

The power supplier began commercial operations in Feb. 2021.

EEI Energy is wholly-owned by EEI Power Corp., which is in turn owned by EEI Corp. — Angelica Y. Yang

Pain-free, tax-free

Previously, one had to secure a confirmatory tax-free ruling to transfer legal title over certain business assets transferred via tax-free exchanges (TFEs). The requirement has been revoked with the passage of Republic Act No. 11534 or the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law, ratified on March 26, 2021. Many, dare I say, all of us in the tax profession, welcomed this development as may be gleaned from the articles written in anticipation of how this development can positively impact business transactions. Seven months since the enactment of CREATE, it may be an opportune time to share some actual experience with the new rules and what we hope to see in the immediate future: a uniform administration of TFEs that is true to the spirit of CREATE.

It is safe to say that when CREATE was passed, everyone agreed that the removal of the tax-free ruling was a significant step towards achieving easy implementation of reorganizations. After years of dealing with time-consuming tax-free ruling applications that delayed the transfer of legal ownership over certain business assets, it was such a sweet victory to read the now amended Section (40)(C)(2) of the Tax Code. The last paragraph specifically states, “[i]n all of the foregoing instances of exchange of property, prior Bureau of Internal Revenue confirmation or tax ruling shall not be required for purposes of availing (of) the tax exemption.” Less than two weeks from CREATE’s signing, the Department of Finance issued Revenue Regulations (RR) No. 5-2021 reiterating this no-ruling provision, and more importantly, providing for the obvious and practical effect — parties to a TFE can implement the transaction and secure a Certificate Authorizing Registration (CAR) from the relevant Revenue District Office (RDO).

The RR cleverly provided a balance between the codified tax exemption available to taxpayers and the right of the Bureau to conduct a post-transaction tax audit. Businesses can immediately carry out their reorganization plans, but not free from government review, and rightfully so as we are speaking of tax exemptions. It means that businesses may now transfer legal title over business assets, the subject of the TFE, to the transferee to serve their commercial purposes without unnecessary delay.

Prior to CREATE and RR No. 5-2021, securing a confirmatory ruling for TFEs from the taxman could take a patience-testing 18 months, and in some cases, even longer. Fortunately, we were spared this ordeal in a recent case. On the strength of the policy amendment, we secured a CAR for shares of stock transferred through a TFE, on behalf of a client, without a tax-free ruling from the BIR. Our CAR application illustrated the elements of a TFE and did not need to be supported by all the documentation required by Revenue Memorandum Order (RMO) No. 32-2001 for tax-free ruling applications. Not only was the administrative process smooth, but the time it took to complete it was also short. The experience was a breath of fresh air, and credit must be given where it is due. CREATE’s removal of the tax-free ruling requirement was proving to be effective, and the BIR officers’ implementation of RR No. 5-2021, in that case, ensured that CREATE’s intent was carried out. Even our discussions with tax officers from other BIR offices/RDOs were promising, as we hear that they intend to follow suit and honor CREATE and RR No. 5-2021 for our CAR applications.

However, not all tax officers we consulted at the RDO level seemed familiar with the new rules. Some appeared unaware of the latest regulations when we tried to get some guidance. The answers we received varied, depending on the Officer of the Day’s familiarity with CREATE and RR No. 5-2021. A handful of tax officers believe that when applying for a CAR, the parties to the TFE must still fully comply with RMO 32-2001, except that the documentary requirements should be submitted to the RDO that will issue the CAR, rather than to the BIR National Office Law Division. After all, it can be argued that the BIR still has the right to conduct a post-transaction audit, as provided by RR No. 5-2021.

Incidentally, RMO 32-2001 provides that the documentary requirements for a tax-free ruling should be submitted specifically to the National Office Law Division. It is the tax office with authority to evaluate tax-free ruling applications and their accompanying documentary support (or should I say “was” the tax office, considering tax-free ruling applications are no longer required by law). Such authority, however, was not devolved to the RDOs. When the tax-free ruling requirement was removed, neither law nor RR No. 5-2021 categorically transferred the authority to require RMO 32-2001 documents from the National Office Law Division to the RDOs. It is only the CAR issuance that is processed at the RDO level, subject to post-transaction audit.

That said, however, I am confident that eventually, the straightforward CAR process for TFEs we experienced a while back will be replicated nationwide. I believe there is no intent on the part of any tax officer to be vague or to make CAR processing for TFEs challenging. Perhaps, they only intend to have access to all information that will aid in their post-transaction audit, should they choose to conduct one. After all, our tax officers are tasked to look out for the government’s interests in terms of tax collection on the deferred gain resulting from tax-free transactions. We only hope that specific regulations on CAR requirements for TFEs will soon be issued for the common guidance and observance of all tax officers and taxpayers alike. They will be instrumental in fully realizing what we hoped CREATE sought to provide taxpayers — a pain-free, tax-free exchange.

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.

 

Chiara Feliz C. Gutierrez is a director at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.

+63 (2) 8845-2728

chiara.feliz.c.gutierrez@pwc.com

Banks are to manage sustainability risks, and what if they don’t?

VECTORJUICE-FREEPIK

So many exciting things going on this week, despite the long weekend holiday: an Econ data dump including trade, IHS Markit, PMI, employment, a Fed Meeting over in the US, at least 10 blue chip stocks to report third quarter earnings and many pivotal decisions on reopening the economy, including public transport now moving up to 70% capacity, and the possibility that with a lowering of the capital’s COVID-19 restrictions to Alert Level 2 we may truly be on our way back to a normal life. But there is also the COP26 happening right now, which reminds us that not only is our time here on earth finite, but soon enough we may not have any earth to live in, largely swallowing all the little wins. And this event has also brought to light the different initiatives of countries and governments to pitch in to mitigate the damage. Interestingly, it is also during these weeks, surrounding this event that the Sustainable Finance Roadmap by the Department of Finance is in the spotlight, whereas the Bangko Sentral is now telling banks to manage environmental and social risks in their credit exposure.

On Oct. 20, the government launched a 99-page inter-agency sustainable finance roadmap, together with the UK, which it is now showcasing in the COP26 in Glasgow. The idea of the roadmap, according to Finance Secretary Carlos Dominguez, is to raise the capital and investments needed in reducing the country’s greenhouse gas emissions while still increasing its economic output. A week later, Bangko Sentral ng Pilipinas (BSP) Circular No. 1128 was released, which directs banks to adopt procedures that will take into account environmental and social issues related to both borrowers and their portfolio. This can be seen as the implementation of the BSP’s sustainable finance framework which it launched in April 2020. Essentially, banks are not only to identify whether those they lend to are credit worthy from a financial perspective and set aside provisions in the event they are less than so, but also whether they are doing good things with the money being lent and spent, or, at minimum, not harming society and/or the planet with their businesses. They are to engage in a constructive dialogue with clients with red flags to evaluate on an ongoing basis. Theoretically, these companies should already have within their internal Sustainability teams, their own explicit goals for how to become better. But then again, it’s the Pandemic, it’s an economy on its knees, already MSMEs are struggling to get reprieve from delayed debt repayments, can they afford to be “good” in the tough times too?

To make people act, it must matter to them; for what gets measured gets done. Thus, setting goals does have a way of turning into action assuming such goals are feasible. The Philippines has committed to a projected greenhouse gas emission reduction and avoidance of 75% from 2020 to 2030 for the agriculture, wastes, industry, transport, and energy sectors. According to the roadmap, Finance policies will enable a shift from carbon-intensive to renewable power sources. They will enable greener habitat and transport systems as well as more resilient agricultural practices. It all sounds sensible and it all sounds like a dream. What kinds of companies will be looked at? The low-hanging fruit are those that extract, like mining, those that are in non-renewable energy sources, and those whose activities are largely linked to carbon emissions.

However, in the latest earnings reports of our energy-related companies, it is obvious that baseload power is what is causing surging profits, with prices of coal at record highs, providing a windfall of dividends to those invested, confusing market participants as to whether cutting non-renewable sources would make economic sense from both a bottom-line and portfolio perspective. These earnings, at the onset of an economy reopening and energy being scarce, only illustrates that if we do not produce more power, wherever these sources come from, the consequences of energy security are dire, and moreover, the prices of electricity will soar, something consumers as well as firms on shaky financial ground simply cannot afford at the moment.

There is also talk on impact investing, given that farmers, fisherfolk, and those living in coastal communities bear the brunt of the consequences of climate change in the Philippines. And agricultural resilience has been touted; but these have been counter to the polices of lowering tariffs on imported products, specifically pork and other meats that then discourage farming altogether. Further, there are the supply chain difficulties that widen the gap between farmgate and retail and hinder the possibility of the sector thriving. We have a pending ban on single-use plastics, but we need much more than this. We need education on waste management, and technologies to turn waste products into energy or other circular goods.

In October last year, Department of Energy Secretary Alfonso Cusi declared a moratorium on endorsements for greenfield coal power plants to be able to build a more flexible and sustainable power supply mix, but it now appears that a ban on open pit mining may be lifted in order to collect more government revenues to finance our ballooning double-deficit to fund the country’s pandemic response.

This leaves financiers with a conundrum: they need more sustainable projects to actually fund rather than a refocus of the funding. These sustainable projects are few and far between. According to the BSP, at least seven local Philippine banks have already issued a total of $1.15 billion and P85.4 billion in green, social, and sustainability bonds since 2017. This is great in a sense that there is money going around (although this is a drop in the bucket of the trillions in total loans and assets of our commercial banks) but is there a consistent stance on policies across all government units? Are unsustainable companies and practices really suffering? Until that is clear, banks will not budge, even if they wanted to.

 

Daniela “Danie” Luz Laurel is a business journalist and anchor-producer of BusinessWorld Live on One News, formerly Bloomberg TV Philippines. Prior to this, she was a permanent professor of Finance at IÉSEG School of Management in Paris and maintains teaching affiliations at IÉSEG and the Ateneo School of Government. She has also worked as an investment banker in The Netherlands. Ms. Laurel holds a Ph.D. in Management Engineering with concentrations in Finance and Accounting from the Politecnico di Milano in Italy and an MBA from the Universidad Carlos III de Madrid.

The Glasgow Climate Test

THE CLIMATE crisis is a code red for humanity.

World leaders will soon be put to the test at the UN Climate Conference — known as COP26 — in Glasgow.

Their actions — or inactions — will show their seriousness about addressing this planetary emergency.

The warning signs are hard to miss: temperatures everywhere are reaching new highs; biodiversity is reaching new lows; oceans are warming, acidifying and choking with plastic waste. Increasing temperatures will make vast stretches of our planet dead zones for humanity by century’s end.

And the respected medical journal The Lancet just described climate change as the “defining narrative of human health” in the years to come — a crisis defined by widespread hunger, respiratory illness, deadly disasters, and infectious disease outbreaks that could be even worse than COVID-19.

Despite these alarm bells ringing at fever pitch, we see new evidence in the latest UN reports that governments’ actions so far simply do not add up to what is so desperately needed.

Recent new announcements for climate action are welcome and critical — but even so, our world is on track for calamitous global temperature rises well above 2 degrees Celsius.

This is a far cry from the 1.5-degree Celsius target to which the world agreed to under the Paris Agreement — a target that science tells us is the only sustainable pathway for our world.

This target is entirely achievable.

If we can reduce global emissions by 45% compared to 2010 levels this decade.

If we can achieve global net-zero by 2050.

And if world leaders arrive in Glasgow with bold, ambitious and verifiable 2030 targets, and new, concrete policies to reverse this disaster.

G20 leaders — in particular — need to deliver.

The time has passed for diplomatic niceties.

If governments — especially G20 governments — do not stand up and lead this effort, we are headed for terrible human suffering.

But all countries need to realize that the old, carbon-burning model of development is a death sentence for their economies and our planet.

We need decarbonization now, across every sector in every country. We need to shift subsidies from fossil fuels to renewable energy, and tax pollution, not people.  We need to put a price on carbon, and channel that back towards resilient infrastructures and jobs.

And we need to phase-out coal — by 2030 in OECD countries and 2040 in all others. Increasing numbers of governments have pledged to stop financing coal — and private finance needs to do the same, urgently.

People rightly expect their governments to lead. But we all have a responsibility to safeguard our collective future.

Businesses need to reduce their climate impact, and fully and credibly align their operations and financial flows to a net-zero future. No more excuses; no more greenwashing.

Investors — public and private alike — must do the same. They should join front runners like the net-zero asset owners alliance, and the UN’s own pension fund, which met its 2021 carbon reduction investment objectives ahead of time and above its target, with a 32% reduction this year.

Individuals in every society need to make better, more responsible choices in what they eat, how they travel, and what they buy.

And young people — and climate activists — need to keep doing what they’re doing: demanding action from their leaders and keeping them accountable.

Throughout, we need global solidarity to help all countries make this shift. Developing countries are grappling with debt and liquidity crises. They need support.

Public and multilateral development banks must significantly increase their climate portfolios and intensify their efforts to help countries transition to net-zero, resilient economies. The developed world must urgently meet its commitment of at least $100 billion in annual climate finance for developing countries.

Donors and multilateral development banks to allocate at least half their climate finance towards adaptation and resilience.

The United Nations was founded 76 years ago to build consensus for action against the greatest threats facing humanity.  But rarely have we faced a crisis like this one — a truly existential crisis that — if not addressed — threatens not only us, but future generations.

There is one path forward.  A 1.5-degree future is the only viable future for humanity.

Leaders must get on with the job in Glasgow, before it’s too late.

 

António Guterres is secretary-general of the United Nations.