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Nationwide round-up (03/10/21)

SC tallies cases involving attacks on lawyers, judges

THE Supreme Court (SC) has ordered lower courts to provide information on all pending cases involving attacks on judges, prosecutors, and lawyers in the country as part of the response to address growing concern on the safety of members of the judicial sector. The high court issued a circular on Tuesday instructing judges of first and second level courts to accomplish an online nationwide survey on criminal cases relating to the harassment, threats, attack, and killing of those in the legal profession. The circular, signed by Court Administrator Jose Midas P. Marquez, aims to make an inventory of such cases, including lawyers in private practice. This survey, with a Mar. 19 deadline, is in line with the memorandum of Chief Justice Diosdado M. Peralta in January directing the Office of the Court Administrator “to address the growing concern over the continued attacks against lawyers and judges.” Lawyers’ groups Integrated Bar of the Philippines and the National Union of People’s Lawyers (NUPL) have been making appeals to address the security of lawyers. According to NUPL, at least 54 lawyers and judges have been killed since the Duterte administration started in 2016. — Bianca Angelica D. Añago 

Only 11% pass 2020 Shari’ah Bar exam, lowest in 37 years

OF the 654 examinees for the 2020 Shari’ah Bar exams, only 71 or 10.86% passed, the Supreme Court announced Tuesday. Court of Appeals Justice Japar B. Dimaampao, chair of last year’s Shari’ah Bar examination committee, said the result “will go down in history as the second lowest passing percentage” since 1983 when 14 out of 182 examinees, or 7.69%, passed. The topnotcher of the 2020 examination is Mohammad Hisham M. Mocsir with a score of 87.075%. Shari’ah Courts, which are under the supervision of the Supreme Court, handle cases involving Islamic beliefs. The establishment of these courts is in line with the Philippine Constitution, which provides that, “The State shall consider the customs, traditions, beliefs and interests of national cultural communities in the formulation and implementation of state policies.” — Bianca Angelica D. Añago 

OWWA says additional funds needed to cover quarantine costs of OFWs

THE Department of Labor and Employment (DoLE) has asked the national government for additional funds to cover the quarantine costs of returning overseas Filipino workers (OFWs) following new protocols on the isolation period. Overseas Workers Welfare Administrator Hans Leo J. Cacdac said the P6.2-billion allocation for the hotel, COVID-19 swab test, transport, and food of returning OFWs might be depleted soon. “We project by April or May, maubos ang 2021 budget na (we might finish the 2021 budget),” he said in a virtual briefing on Wednesday. He explained that the new protocol issued as precautionary measure against the new coronavirus disease 2019 (COVID-19) variants requires OFWs to wait six days in quarantine hotels before they undergo a swab test. Under the previous protocol, testing is conducted immediately upon arrival and OFWs with a negative result are allowed to go home. Mr. Cacdac said Labor Secretary Silvestre H. Bello III has already written the Department of Budget and Management for a supplemental budget. — Gillian M. Cortez

Regional Updates (03/10/21)

Megawide, SUEZ Asia to build Manila Water treatment plant

MEGAWIDE Construction Corp. and SUEZ Asia have been tapped to design and build Manila Water, Inc.’s 60,000-cubic meter sewage treatment plant in Mandaluyong, Megawide announced Wednesday. The Aglipay Sewage Treatment Plant will treat waste water from Mandaluyong City, and the southern parts of Quezon City and San Juan City, covering 650,000 residents. “This partnership between Manila Water, Megawide and SUEZ provides a strong foundation for this project and will significantly enhance the water quality, hygiene and sanitation for the population in Metro Manila by 2037,” Francois Fervier, SUEZ Asia chief executive officer of water, said in a statement. Megawide said it would be in charge of all civil works for the project, which broke ground on Feb. 24. The listed firm’s foreign partner would be using its innovative MeteorTM Moving Bed Biofilm Reactor and GreendafTM technologies in cutting operating costs and installation space. — Angelica Y. Yang

Pangasinan gov’t says LTFRB assures resumption of provincial buses before Holy Week

BUSES going to Pangasinan will be allowed to resume operations before the Catholic Holy Week, set this year on the last week of March, according to the provincial government. Land Transportation Franchising and Regulatory Board (LTFRB) Regional Director Nasrudin U. Talipasan told the provincial board on Mar. 8 that permits for inter-regional buses will be released soon by the agency’s central office. Pangasinan Governor Amado I. Espino III and mayors in the province sent a request letter to the LTFRB in end-December to push for the resumption of provincial bus services. In stating this, Mr. Talipasan appealed for patience and understanding on the long process. “Konting tiis at pasensya na lang (Just a bit more forebearance and patience). The process is ongoing and more than halfway,” Mr. Talipasan told the board members. Existing bus operators need to apply for special permits to resume operations, which is subject to another round of road worthiness inspection and compliance to health protocols. Inter-regional bus services have resumed in several other areas such as Baguio and other northern Luzon provinces, parts of the Visayas, and Mindanao.

TOURISM REVIVAL
The Thursday and Friday of Holy Week are declared national holidays in the country and people traditionally visit their hometowns or go on holiday during this long weekend. Pangasinan has reopened its tourism sector, and majority of local governments have adopted the national guidelines on less documentary requirements for travelers. As of Mar. 8, only the towns of Bani, Asingan, Balungao, and Sto. Tomas require a negative RT-PCR test result for visitors. The entire province including the independent city of Dagupan, with a population of about three million, has recorded 5,120 coronavirus cases as of Mar. 10. Of the total, 178 are active, 4,702 have recovered while 240 died. For more information on traveling to Pangasinan, visit the province’s official sites: pangasinan.gov.ph, seepangasinan.com or facebook.com/pangasinan.gov.ph, facebook.com/pangasinan.tourism.

Pharma industry pushes back on drug price control board

DRUGMAKERS said further price controls on their products will hinder the industry in recovering from the economic downturn triggered by the pandemic.

Responding Wednesday to a legislative proposal to establish a price board for drugs, Pharmaceutical and Healthcare Association of the Philippines (PHAP) Trustee Jannette Alcantara Jakosalem said price controls will be an added burden to the industry on top of the difficult economic environment.

“Like many industries, the pharmaceutical industry has not recovered from the pandemic. The contraction of the market reached up to minus 18% in 2020. This is evidence of our struggles. On top of our struggles, the government imposed mandatory price reductions of up to 50% for 133 pharmaceutical products,” she said at a hearing of the House Committee on Trade and Industry.

“The imposition of price controls is retrogressive and may discourage highly needed pharmaceutical investments that are crucial to economic recovery… price regulation is a disincentive to innovation and is a barrier to the entry for new life-saving medicines,” she added.

The committee was deliberating House Bills 4306 and 2578, which call for the creation of the Drug Price Regulatory Board. They propose to amend Republic Act (RA) 9502 or the Universally Accessible Cheaper and Quality Medicines Act of 2008.

RA 9502 gives the President the power to impose maximum retail drug prices upon recommendation of the Secretary of Health. The proposed price board that features in both bills will be given sole authority to determine and recommend maximum retail prices.

Both bills’ explanatory notes cite the need to make innovative drugs available at affordable prices, which they claim RA 9502 did not achieve.

Ms. Jakosalem said that the government should focus on ensuring the availability of quality drugs, after past price caps discouraged the entry and restricted the supply of innovative medicines.

She said of the 166 innovative medicines registered in the US and European Union, only nine were available in the Philippines, while the price controls have also forced some products to be withdrawn from the market.

Philippine Alliance of Patient Organizations Board Member Karen Alparce-Villanueva said while the organization supports the amendments, an additional agency will add to the healthcare “bureaucracy,” and called for a system expanding access to more medicines.

Any such system “needs to balance regulation and innovation so medicines can get to the country,” she said.

Ms. Jakosalem said PHAP believes that the President needs to make the final call on drug price levels, as he has direct access to the best advice of various agencies. She added that a price board represents another bureaucratic layer that may delay decision-making.

Laban Konsyumer, Inc. President Vic Dimagiba said at the hearing that the proposed price board has been considered by past Congresses, adding that the pandemic should finally push the 18th Congress to make it happen.

“We are making a plea na sana ’wag itong palampasin nitong 18th Congress at isabatas ang drug price regulatory board (the 18th Congress should not let this opportunity pass and approve the measure creating the drug price regulatory board),” he said.

He added that the proposed body could address any “gaps” in Executive Order No. 104 issued last year by President Rodrigo R. Duterte, which imposed price caps on the 133 medicines. — Gillian M. Cortez

Hog population expected to decline if pork imports expanded

HOG NUMBERS, decimated by African Swine Fever (ASF), could decline further next year if the government expands the quota for pork imports, discouraging growers from rebuilding their herds, the pork industry said.

Nicanor M. Briones, vice-president for Luzon of the Pork Producers Federation of the Philippines, said in a radio interview Wednesday that many hog raisers will choose to cease operating if they are forced to compete with more pork imports, defeating the purpose of various ongoing efforts to rebuild hog numbers and risking another supply crisis.

“Hog supply for next year will be a problem since instead of increasing the number of hog raisers returning to the industry, more will be discouraged from continuing,” Mr. Briones said.

According to Mr. Briones, the Department of Agriculture’s (DA) proposal to lower tariffs for pork imports will not address demand for fresh, never-frozen meat.

Imports “cannot fill the supply gap because Filipino consumers want fresh meat. They will look for domestic supply since imported pork spends two months in a freezer,” Mr. Briones said.

He called imported frozen pork a health risk because “it can easily attract bacteria and be dangerous for consumers,” he added.

Asked to comment, DA Spokesperson Noel O. Reyes said in a mobile phone message that the DA has recommended imports to stabilize supply since the domestic hog production is not sufficient to meet demand.

Mr. Reyes added that the DA and the Land Bank of the Philippines will launch a P15-billion financing program to support the repopulation efforts of commercial hog raisers.

“Once successful, commercial hog raisers in Luzon, the Visayas and Mindanao that are bio-secured from ASF can continue and even expand their operations,” Mr. Reyes said.

“Hog raising will continue in ASF-free areas across the country,” he added.

The DA proposed to lower tariff rates charged on pork imports within the minimum access volume (MAV) allocation to 5% in the first six months and 10% in the succeeding six months.

It also recommended bringing down the tariffs for out-of-quota pork imports to 15% in the first six months, increasing to 20% in the following six months.

Currently, pork imports inside the MAV quota are charged a 30% tariff, while those beyond MAV pay 40%.

The other DA proposal awaiting approval is to raise the MAV to 404,210 metric tons (MT) from the current 54,000 MT. — Revin Mikhael D. Ochave

First Gen to make 690 MW available for Energy dep’t green energy program

FIRST GEN Corp. said Wednesday that it will make available around 690 megawatts (MW) of geothermal power for the green energy option program (GEOP).

“Primarily, our participation will be through our geothermal plants — Bacman Geothermal in Luzon (with) 140 megawatts (MW); Unified Leyte (plants) in Visayas… (of around 400 or 450 megawatts); in Mindanao, Mt. Apo Geothermal at 100 megawatts,” First Gen Vice-President for Power Marketing, Trading and Economics Carlos Lorenzo L. Vega said at a webinar hosted by the non-governmental organization Center for Renewable Energy and Sustainable Technology.

“(Our planned capacity for the GEOP is a) total of 690 MW,” he said.

Mr. Vega was referring to the total planned capacity of Energy Development Corp.’s Bacman Geothermal, Inc., and First Gen Energy Solutions, Inc., (FGES) which were granted permits to participate in the GEOP by the Department of Energy (DoE).

Bacman Geothermal, Inc. is an indirect wholly-owned subsidiary of Energy Development Corp., a unit of First Gen; while FGES is a wholly-owned unit of First Gen., according to the Retail Electricity Suppliers Association.

The GEOP, which was launched in 2018, allows users consuming at least 100 kilowatts of power to source their supply from retail energy suppliers that generate electricity from renewables.

Mr. Vega described the program as a non-fiscal incentive that was pro-consumer because it gave end-users “the power to choose renewables” for their electricity demands. Aside from saving on generation charges, Mr. Vega said that the program will help consumers comply with the DoE’s guidelines in conserving energy.

“GEOP provides a compliance mechanism for energy conservation, I think you’ll be getting so much value out of GEOP because you’ll be able to realize savings, match and achieve your RE supply commitment, and comply with the DoE’s guidelines for energy conservation,” he said.

At the webinar, Renewable Energy Management Bureau Director Mylene C. Capongcol said that the department has issued GEOP operating permits to six firms which are currently “marketing their services,” including to the Philippine Economic Zone Authority and other commercial establishments.

“So far, there are still three or four applications for RE suppliers that we’re processing. We’re just doing some due diligence as far as those companies are concerned,” Ms. Capongcol said.

Other suppliers which hold GEOP operating permits include: SN Aboitiz Power-Magat, Inc.; SN Aboitiz Power-Res, Inc.; AC Energy Philippines, Inc.; and Solar Powered Agri-Rural Communities Corp. — Angelica Y. Yang

Share swap enabling third telco backdoor listing hurdles competition regulator

A SHARE SWAP that will facilitate the backdoor listing of third telco DITO Telecommunity Corp. has been approved by the competition regulator, with the market proceeding to revalue the shares of one of the swap parties with a 25% drop.

The revaluation came after the financial advisor engaged to provide a fairness opinion on the swap concluded that the transaction’s terms fell outside its own valuation range, to the advantage of DITO CME Holdings Corp., the Udenna Group’s communications, media and entertainment arm.

The other party to the swap was Udenna Communications Media and Entertainment Holdings Corp. (Udenna CME).

“The company… discloses that it has received today, 9 March 2021, clearance from the Philippine Competition Commission with regard to the share-swap transaction,” DITO CME told the bourse.

“The PCC noted that the share-swap transaction does not breach the thresholds prescribed by the Philippine Competition Act and its Implementing Rules and Regulations, and qualifies as consolidation of ownership in the same natural person,” it added.

On Tuesday, DITO CME released the fairness opinion report on the transaction, which was prepared by its financial advisor, Multinational Investment Bancorporation (MIB).

MIB noted that in the share swap transaction, DITO CME will issue 11.2 billion common shares at P6.11 per share in favor of Udenna, in exchange for 10 million shares of Udenna CME.

“This will translate to an actual swap ratio of 1,120:1, or 1,120 DITO CME shares for every share of Udenna CME,” it said.

The fairness opinion on the deal valuation was based on DITO CME shares’ net asset value (NAV) and volume weighted average price (VWAP); and a discounted cash flow analysis and NAV of DITO Telecommunity.

DITO CME’s NAV was estimated at P1.4944 per share, while the VWAP came to P6.2654 per share.

Udenna CME, MIB noted, is not an operating company, and its main asset is its 89% interest in DITO Holdings Corp., a holding company that is separate and distinct from the listed DITO CME.

DITO Holdings’ interest in the third telco was 60.07% prior to the share swap, MIB said.

MIB concluded that the acceptable ratio for a share swap should be a range of 1,238.57-6,005.04 to one. “In other words, for every share of Udenna CME to be acquired, DITO CME should issue between 1,238.57 to 6,005.04 shares,” it said.

“In the planned share swap transaction, DITO CME will only issue 1,120 shares for every Udenna CME share, which is lower than what DITO CME would otherwise issue following our valuation. Hence, we are of the opinion that the actual swap ratio of 1,120: 1 is advantageous to the shareholders of DITO CME,” it added.

DITO CME Holdings shares closed 25% lower at P9.00 on Wednesday. — Arjay L. Balinbin

PHL needs more resources to police illegal fishing — USAID

fish vendor wet market
REUTERS

THE GOVERNMENT needs to devote more resources to curtail illegal, unreported, and unregulated (IUU) fishing, the United States Agency for International Development (USAID) said.

USAID said in a statement Wednesday that it conducted a study with the Bureau of Fisheries and Aquatic Resources (BFAR) which concluded that more government assets are needed to limit the economic losses caused by IUU.

“While the government has invested significant resources in the campaign against illegal fishing, its operational assets have to be augmented to curb the country’s huge economic losses from destructive and unsustainable fishing practices,” USAID said.

The report also noted that compliance with fisheries law and regulations requires a more responsive governance structure, while initiatives to contain IUU fishing need a broader science-based approach.

“IUU fishing ranges from small-scale, unlawful domestic fishing to more complex operations carried out by industrial fishing fleets. It is by nature complex and clandestine, which means data are hard to come by and substantiate,” it said.

The report estimated that IUU fishing in the Philippines accounted for 27% to 40% of the catch, valued at about P62 billion.

“At least 30,000 or 30% of municipal vessels remain unregistered, and commercial fishers do not report up to 422,000 metric tons (MT) of fish each year,” it said.

BFAR National Director Eduardo B. Gongona said the government is currently developing an IUU fishing index and threat assessment tool which will be adopted in fisheries management areas across the country.

“Once fully implemented, this tool will provide us with periodic information needed to identify other ways to encourage voluntary compliance, strategically guide law enforcement operations, and clearly communicate our progress in reducing IUU fishing in the Philippines,” Mr. Gongona said.

“Addressing IUU fishing remains an important Philippine government priority. USAID has worked with BFAR for over three decades to promote sustainable fisheries,” USAID Philippines Mission Director Lawrence Hardy II said.

In 2020, the Philippine Statistics Authority estimated that fish production dropped 0.3% to 4.403 million MT.

Aquaculture accounted for 52.8% or 2.32 million MT, followed by municipal fisheries at 25% or 1.10 million MT, and commercial fisheries at 22.2% or 978,170 MT. — Revin Mikhael D. Ochave

House panel approves resolution declaring housing crisis

A HOUSE committee approved on Wednesday a resolution declaring a housing crisis and called the housing units that will become available next year inadequate to address the shortage.

The House Committee on Housing and Urban Development approved House Substitute Resolution No. 1458, with its members urging the Department of Human Settlements and Urban Development (DHSUD) to focus on providing housing to the poor.

Legislators said the DHSUD needs to better utilize idle government land and expedite its socialized housing program in partnership with the private sector. The Department of Finance and the Philippine Guarantee Corporation were also asked to create a housing finance system that will attract private sector participation.

“It is incumbent upon Congress to determine the efficient mobilization of government resources in the implementation of housing laws which will contribute to our economic recovery, growth and resilience, and will translate to the benefit of present and future generations,” according to the Substitute Resolution said.

Only 777,879 housing units were constructed between July 2016 and June 2020, behind the pace for demand estimated at 6,796,920 housing units by 2022.

“Unfortunately, the housing industry is saddled by rising urban land prices and regulatory costs,” according to a statement issued by the resolution’s co-author, San Jose Del Monte City Representative Florida P. Robes.

The government has allocated less than 1% of the national budget for housing between 2010 and 2021.

The housing crisis has led to the growth of informal settler communities, many of them in Metro Manila. The DHSUD estimates their numbers at 1,898,993 families, including 478,899 in the capital region. — Gillian M. Cortez

The Danger of Unilateral Digital Services Tax

While our physical movement has been limited by the pandemic, technology enables us to reach even the farthest corners of the digital world. Nearly a year under community quarantine, virtual meetings and gatherings have remained part of our everyday life. At the end of a workday, most people’s routines consist of turning to online video and audio streaming services, or clicking the add-to-cart button to shop online. Even though these online transactions were present before the pandemic, they have continued to flourish given our current circumstances. This has also heightened the intention of governments worldwide to throw the net of taxation to capture a fair share of the income earned by these online businesses.

Long before COVID-19, the Organisation for Economic Co-operation and Development (OECD) acknowledged the challenges brought about by digitalization. The OECD/Group of Twenty (G20) Inclusive Framework intends to address these challenges with consensus-based and long-term solutions. According to the OECD, without this kind of solution, the world can expect the passing of domestic and unilateral digital services taxes (DSTs). Consequently, it may produce damaging tax and trade disputes, which would undermine tax certainty and investment. And if left uncontrolled, these unilateral DSTs worldwide may start a global trade war. The OECD estimated that the failure to reach a consensus to handle the challenges brought about by digitalization could reduce global gross domestic product (GDP) by more than 1% annually. For instance, in response to France’s DST that it found to be discriminatory against US companies, the US announced that it would be levying import duties on products from France beginning January of this year. However, this duty imposition was deferred since France delayed its DST implementation. The US is currently reviewing if it can also apply the same import duties against nine other countries which have adopted or drafted DST legislation.

To work on this consensus-based solution, the G20 Finance Ministers and Leaders endorsed in June 2019 the Programme of Work that laid down a two-pillar approach in an attempt to solve this challenge. Pillar One aims to create a new nexus and profit allocation rules, while Pillar Two will provide the formation of a global base erosion mechanism. In October of the same year, the OECD Secretariat developed and published the “Unified Approach” under Pillar One.

Unhampered by the pandemic and even by their political differences, last year, the Inclusive Framework members released for public comment the Reports on the Blueprints of Pillar One and Pillar Two. These blueprints reflect their perspectives on various key policy features, principles, and parameters on both Pillars, and identify remaining political and technical issues where differences of views remain to be bridged, including the next steps to be taken to reach an agreement by mid-2021.

From only having a Unified Approach in 2019, which I considered a game-changer in the digital taxation landscape as mentioned in a 2019 article, Pillar One has now become clearer under this blueprint. In line with the Unified Approach, the Blueprint still classified Pillar One’s 11 key elements into three groups: (1) Amount A, which is the new taxing right for market jurisdictions over a share of residual profit calculated at a Multinational Enterprise (MNE) group (or segment) level; (2) Amount B, which is the fixed return for certain baseline marketing and distribution activities taking place physically in a market jurisdiction, in line with the arm’s length principle; and (3) the processes to improve tax certainty through effective dispute prevention and resolution mechanisms.

While the Blueprint for Pillar One still has some open issues on key features of the solution, like the scope of application, amount of profit to be allocated, and extent of tax certainty, it already provides for a process map to apply the various elements in possibly computing for Amount A. In determining whether an MNE will be covered by this Amount A, global revenue and foreign-source income in-scope revenue threshold shall be used. Afterward, the consolidated financial accounts of the MNE groups will be used to compute for the profit before tax where tax adjustments, segmentations, and carry-forward losses can be applied. Upon arriving at the proper tax base, a three-step formulaic calculation (i.e., profitability threshold, reallocation percentage, and allocation key) will be applied to determine the share of an eligible market jurisdiction.

In case the MNE has a taxable presence in a certain country, the MNE can eliminate duplicative allocation of residual profit from its share in Amount A. Lastly, MNE groups should identify the jurisdiction(s) where they are required to relieve double taxation and determine the entities that have to pay Amount A tax liability through a simplified administrative procedure.

On the other hand, Pillar Two Blueprint provides a solid basis for a systemic solution that is designed to unravel the remaining issues about base erosion and profit shifting. It also laid down the rules enabling countries to have the right to “tax back” transactions where other jurisdictions have not exercised their primary taxing rights or where these transactions were subjected only to low levels of effective taxation. Despite not reaching an agreement yet, this Blueprint is a giant leap for the future agreement that would ensure that all large internationally operating businesses pay at least a minimum level of tax.

Although the Philippines is not yet a member of this Inclusive Framework, our government may consider these as positive developments since our country can be considered a large market jurisdiction for these digital products. Though there is a pending bill in Congress that seeks to impose a value-added tax on digitally supplied services including those rendered by non-resident foreign corporations, it would be good if our legislators consider the above changes in the international tax architecture in balancing our fiscal needs with the additional administrative burden it may impose on MNEs. With this in mind, we can help prevent the danger of having a unilateral DST.

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.

 

Mac Kerwin P. Visda  is a Manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.

mac.kerwin.visda@pwc.com

Responsible investing in different cultural contexts 2

(Second of four parts)

Last week, we began with an investigation of how different geographies are engaged in Responsible Investment and Sustainable Finance practice. We kicked off with Europe and North America and today we continue with this series, focusing on Latin America before moving on to Africa and then ending with Asia Pacific. Reiterating an earlier caveat, we cannot generalize how an entire nation or population behaves and simply try our best to spot some cultural trends that stand out as we recognize that society plays a role in shaping Responsible Investment (RI) practices.

Latin America is seeing tremendous growth and boasts highly developed stock markets such as Mexico’s BMV, Brazil’s B3, the Chilean Santiago Stock Exchange, and the Colombian Stock Exchange. However, the region is not without its problems. Argentina (which nationalized its local pension funds in 2008) and Venezuela experience a lack of investor confidence due to their economic and political instability, producing a less favorable investment environment in general and less developed sustainable finance markets, in particular.

Mexico is one of the largest economies in the world and yet its sustainability investing market is very nascent, with the first “Green Funds” launched only in 2006. But unlike European funds which target the integration of sustainability in the selection process and try as much as possible to create a “business case” for sustainability, such funds in Mexico began with a philanthropic dimension or a characteristic of donating some of its proceeds to social purposes such as environmental conservation projects and educational scholarships. This donation component is something that goes against many European concepts of fiduciary duty, the idea that an investment manager has a responsibility to return money to investors and not impose her or his own ethical modes of decision making.

Until today, savings in Mexico are mainly held by local commercial banks, with pension and investment funds accounting for only 8% and 7% of national savings respectively, though the retirement system has undergone quite some restructuring which led to a surge in managed funds. And so, unlike Europe, sustainability investing is thus done by private equity players or the so-called Impact Investors.

RI in South America is also fairly incipient, with the majority of initiatives taking place in Brazil. The case happens to be the same as in Mexico. Again, RI is led by private equity funds that take on a more philanthropic approach, wherein they invest in social enterprises or donate a part of their revenues to fund community projects. Unsurprisingly, Impact Investing tends to be especially relevant in a region where poverty and inequality are prevalent. It is easier and more practical to invest (or donate) one’s money to causes on the home front, which are easily monitored, unlike the practice in developed countries where recipients are elsewhere. Given its geographical positioning, South American impact funds also tend to focus on addressing the problems of carbon emissions and deforestation. For instance, HSBC’s FIC Referenciado DI Solidariedade donates 50% of its management fees to social and environmental projects whereas Banco do Brasil’s DI Social 50 and DI Social 200 donate 50% of their fees to social projects.

Mainly colonized by the Iberics, most countries in Latin America have a largely Roman Catholic population, which is a possible explanation for the prevalent philanthropic-type focus on the donation of proceeds. Still, investors are shifting towards a more market-oriented approach. With the creation of indices such as the Corporate Sustainability Index (ISE) and the Carbon Efficient Index (ICO2) of Brazil, the Corporate Governance Index (IBGC) of Peru, and the Sustainable Index by the Mexican Stock exchange, there has been increasing readiness of tools available for institutional investors to jump into the game. Such indices make regularly traded companies visible and open to scrutiny. It can serve as a marketing and communication tool to be included in such indices, and companies begin to compete by voluntarily disclosing their best practices. According to scholars, it is this incentive to be part of a list that may actually drive the sustainability practices of firms to come into fruition, creating a virtuous cycle from the top to bottom and back.

Another thing driving the market approach is the environment for disclosure, though such initiatives are generally recommendations rather than regulation. Mexican pension funds regulator CONSAR has published a recommendation for disclosure of RI practices and in 2009, the National Monetary Council, the highest deliberative body of the Brazilian Financial System Council issued a Resolution requiring all Brazilian pension funds to disclose whether they consider ESG issues in their investment decisions, also forcing pension fund leadership in the arena. When it comes, however, to shareholders really fighting for practice change at a corporate level, not a lot of this occurs in the region. Shareholder activism is not a common practice simply because most companies are family owned and thus the market percentage of stocks floating freely is relatively small. There is still not enough influence for minority shareholders or retail investors to truly threaten companies with bad sustainability practices.

But some major shifts are now occurring in the region. According to a UNPRI blog, in 2020, in the midst of a global pandemic, more and more investors in Latin America have advanced in their understanding of ESG investing, making growth of these initiatives an increasing reality. They say that COVID-19 has served to accelerate interest in responsible investment in Latin America because investors want to recover from the pandemic “with a clear vision of how protecting human and natural resources will allow for more resilient and faster growth.” With a culture of philanthropy embedded in religious roots, tools such as indices already up and running, and disclosure becoming the norm, will the pandemic be the catalyst for the practice to finally take off?

The original book chapter on which this series is based is published in Italian: Laurel, D. & Piani, V. 2013 L’SRI nei diversi contesti culturali (Socially Responsible Investing in Different Cultural Contexts) in Creare Valore a Lungo Termine (Creating Long-term Value) eds. Del Maso, D. and Fiorentini, G. EGEA (Milan, Italy).

 

Daniela “Danie” 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 IESEG School of Management in Paris and maintains teaching affiliations at IESEG 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.

Bracing for the worst

Despite the rise in the number of coronavirus disease 2019 (COVID-19) cases in the last two weeks, the economy cannot afford another nationwide “lockdown” like what was imposed in the second quarter of 2020. Even a region-wide enhanced community quarantine (ECQ) will be extremely difficult to implement particularly in business centers like Metro Manila, Metro Cebu, and Metro Davao.

People need to go to work, to earn a living; businesses need to stay open, to survive. And, as people continue to move around, presumably for “essential” reasons, then the virus unfortunately gets a free ride. It can be argued that the “surge” since the start of March could have been avoided, if people strictly followed protocols, but we are past that now.

Cases are on the rise. We have hit a new wave. Some researchers forecast about 3,000 cases per day by end-March for Metro Manila alone. Nationwide, the projection is about 5,000 to 6,000 cases per day, from around 3,000 now. We peaked at about 7,000 cases daily in August 2020, when we had to revert to ECQ for two weeks for the sake of health workers.

Two weeks ago, people were already talking about further easing restrictions, to help fight poverty and hunger. Cases were down at the time. But, President Duterte still opted to delay the shift to the most lenient restriction level until at least two million people have been vaccinated. However, in just over 10 days, things have turned for the worse.

On Tuesday, GMA News reported that quarantine restrictions would not be eased if the number of COVID-19 cases would continue to rise. Even if two million people have already been vaccinated, said Cabinet Secretary Karlo Nograles. The other factors to consider now are attack rate, hospital bed utilization rate, and other socio-economic factors, he added.

But he also said that shifting to the more lenient modified general community quarantine (MGCQ) by April is still not out of the question, noting that it was “too early to tell.” The matter is still up for discussion, he said. My best guess, however, is that MGCQ will still not happen by next month. Not even in May. Perhaps in June, if COVID-19 cases start going down by end-March.

Some experts point to more infectious variants of COVID-19 as the reason for the surge since March 5, although Health officials are more inclined to blame non-compliance with health measures. Personally, I am inclined to believe that more infectious variants are the bigger factor. Since early March, more cases of the UK or South African variants have been detected in the country, and this could not have been just a coincidence.

Metro Manila has been under GCQ for months now. We have not eased restrictions any further in the last two weeks. In this line, the level of people’s “compliance” with minimum health standards and protocols have not changed significantly, based on personal observation. How then can “non-compliance” result in a surge?

In Makati City, for instance, the total number of active COVID-19 cases was only at 261 on Feb. 21. Prior to this, active cases were below the 200 level for some time. Since then, however, it has climbed, to 425 by Feb. 28, to 536 by March 5, and to 632 by March 8. In a span of 16 days, 371 cases were added. Cases more than doubled in two weeks.

But from Feb. 21 to March 8, no changes in restrictions had happened. The number of businesses open had not gone up, and the number of workers reporting for work had not changed. In short, we still have relatively the same number of people moving about daily in the city. Protocols have not changed either, so it can be assumed that the level of compliance has been maintained. There is nothing to indicate that we should think otherwise. And yet, the number of cases more than doubled in two weeks?

And this brings me back to my argument against blaming “non-compliance” with health protocols as the cause of the “surge” since late February. As our household’s designated market person, or the one who goes out periodically to procure essential goods, I have not noted a significant increase in the number of people moving about in Makati, or a significant decrease in the level of people’s “compliance” with health protocols.

Moreover, the bulk of new cases are in Makati barangays closest to Pasay City, where cases have also been on the rise and where more infectious variants have been detected. This does not scientifically explain the reason for the surge in the city, but it also cannot be just coincidence that there are more cases in the last two weeks in the western side of Makati.

At the same time, the Department of Health (DoH) does not appear to have provided any data or statistics or information to prove that non-compliance with health protocols is to blame for the surge. How then do we prove this assertion?

The President’s spokesman has said there was no need to panic, despite the surge, since the country was still capable of caring for those with serious conditions. “Even if the number of cases increases, we are ready to treat those with serious conditions, which is about two to three percent of the cases,” he said. He also said reverting to strict quarantine was unwarranted.

While I agree that panic is unwarranted, I also believe that the “surge” is a cause for concern. And given the indicators now, we cannot afford to be complacent. We cannot just rely on our capacity to care for the sick. And we cannot wait for the worst-case scenario before we act. We need to ask ourselves if there is anything else that we can do meantime. Or, do we just have to brace for the worst and wait it out?

 

Marvin Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippines Press Council

matort@yahoo.com

What the Texas energy crisis means for emerging LNG importers in Asia

THE ENERGY CRISIS in Texas has become world news. During last month’s extreme winter weather, surging electricity demand collided with falling generation, forcing the state’s grid operator to implement rolling blackouts. In many cases, blackouts lasted for over 24 hours, causing fuel and electricity supply shortages and disruptions throughout the natural gas supply chain. At least 4.5 million Texans were at one point without electricity and more than 30 deaths have been attributed to power losses, though the final toll could be much larger.

News of the Texas power crisis spread throughout Asia, where energy growth markets such as Vietnam, the Philippines, and Bangladesh are considering US liquified natural gas (LNG) imports as an alternative to coal-fired electricity generation. But the events in Texas have highlighted the risks inherent in LNG imports for both the energy transition and climate change adaptation. Below are five lessons from the crisis for emerging markets in Asia.

LESSON 1. NATURAL GAS VOLATILITY IS HERE TO STAY.
It has been a tumultuous year in global LNG markets. The coronavirus disease 2019 (COVID-19) outbreak sent global LNG demand plummeting and Asian prices hit an all-time low of $1.85/MMBtu last May. US LNG export facilities remained idle for much of the summer, oil and gas drilling fell by 40% internationally, and bankruptcies in the North American oil and gas sector soared to their highest level since 2016. Starting in the fall, a combination of production shut-ins, shipping delays, and cold weather caused Asian LNG prices to spike to a record high of $32.50/MMBtu.

The Texas energy crisis is another sign that volatility in global gas markets is likely to continue. High electricity demand combined with supply chain disruptions sent wholesale natural gas prices skyrocketing. At Texas’s Waha Hub, for example, prices jumped from $2.77 to $219, while spot prices in Oklahoma’s Oneok hub jumped to over $1,000/MMBtu. For gas producers able to keep wells operating, the Texas freeze was “like hitting the jackpot,” but for LNG exporters, power outages disrupted liquefaction trains and feedgas pipelines. Several LNG export terminals scaled back production, while Corpus Christi LNG and Cameron LNG went offline completely. Overall, 10 cargoes amounting to 1 billion cubic meters of gas were likely delayed from the already-volatile global LNG market.

LESSON 2. VOLATILE PRICES CAN CAUSE LNG-FIRED POWER PLANTS IN ASIA AND ASSOCIATED INFRASTRUCTURE TO GO UNDERUTILIZED.
Volatile LNG prices create an increasingly challenging environment for price-sensitive emerging markets. High prices and difficulties sourcing gas can cause gas-fired power plants in importing countries to go underutilized. In turn, all the associated infrastructure — ports, regasification facilities, pipelines — are also at risk of being stranded. Institute for Energy Economics and Financial Analysis (IEEFA) recently estimated that volatile LNG prices put over $50 billion of natural gas projects at risk of cancellation in Vietnam, Bangladesh, and Pakistan.

Since the value of associated infrastructure is dominated by fixed costs, per unit natural gas prices depend largely on total gas demand. This means that to realize any economic benefits from imported gas, costs must be spread over a wider consumer base than currently exists in many south and southeast Asian countries. The decision to import LNG is therefore not an incremental one. Rather, it will lead to new sources of financial vulnerability resulting from long-term, large-scale fossil gas lock-in. Without major storage capacity, volatile LNG prices will be a constant threat to the affordability of gas and gas-powered electricity in import markets.

LESSON 3. LNG IMPORTS COME AT THE COST OF DOMESTIC ENERGY SECURITY.
By importing greater volumes of LNG, Asian countries become more vulnerable to supply disruptions in global gas markets and geopolitical dynamics beyond their control. With increasingly severe and frequent weather events caused by climate change, Asian importers are not just assuming the risks of climate-related disruptions in their own country, they are also assuming risks of climate-related weather events in exporting countries. In Texas, generators were not required to invest in cold weather safeguards, leaving them vulnerable to unpredictable weather events.

LNG import infrastructure in Asia is also highly vulnerable to extreme weather. While numerous countries rely on floating storage and regasification units (FSRUs) as cheaper alternatives to land-based import terminals, FSRUs are difficult to operate in poor weather conditions. In 2018, Bangladesh announced it would cancel plans to build additional FSRUs because they were unreliable during the monsoon season. In Malta, the inoperability of FSRUs during storms has caused the complete shut-down of the country’s gas-fired power plants.

LESSON 4. GRID EXPANSION AND MODERNIZATION MUST TAKE CENTER STAGE.
Some commentators have suggested the solution to climate-related blackouts is to build more generation capacity, but all power sources are susceptible to outages when weather events occur. In Texas, 30,000 MW of thermal capacity was forced offline — including 40% of natural gas capacity and a nuclear reactor — as well as 17,000 MW of wind capacity. As a result, wholesale electricity prices skyrocketed to the state’s $9,000 per MWh cap, up from their average of $30.

Along with generation capacity, grid reliability depends largely on transmission infrastructure and interconnections to other areas. The Texas grid is highly isolated from surrounding power systems, limiting power imports from nearby markets. In small portions of the state connected to other grids, cities experienced brief blackouts compared to the rest of the state.

A greater emphasis on system-level planning in emerging Asian markets, rather than a myopic focus on generation, could improve the efficiency of existing generators, enable the installation of greater capacities of domestic renewable energy, and lower wholesale electricity prices during times of short supply.

LESSON 5. THE ENERGY TRANSITION IS A HUMANITARIAN ISSUE.
The COVID-19 pandemic and the Texas energy crisis have exacerbated the risks inherent in LNG imports and revealed the flaws of centralized generation capacity buildouts. In Texas, blackouts disproportionately affected low-income communities, while electricity bills for some households that maintained power spiked into the tens of thousands of dollars. The total cost of electricity sold in Texas from Feb. 15-19 was $50.6 billion, up from $4.2 billion in the prior week. For Asian countries already grappling with high electricity prices, the risks of LNG imports and associated infrastructure lock-in are simply too high. Instead, reliability and resilience are key to keeping costs down and the lights on.

 

Sam Reynolds is an Energy Finance Analyst at the Institute for Energy Economics and Financial Analysis.

sreynolds@ieefa.org

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