The Energy Regulatory Commission directed Manila Electric Co. (Meralco) on Friday to refund P13.89 billion in over-recoveries based on its actual weighted average tariff charges (AWAT) from July 2015 to November 2020. 

This comes around two months after Meralco applied for the approval of its final refund scheme based on the calculation of its AWAT compared to the ERC’s approved interim average rate (IAR).

In a statement on Friday, the ERC said it had released the order for Meralco to refund P13.89 billion worth of its over-recoveries, which was equivalent to an average of PhP0.1528 per kilowatt-hour (kWh), in 24 months or until the amount has been fully returned to customers.

“The Commission approved Meralco’s prayer for the issuance of a provisional authority in order to allow their customers to immediately enjoy the benefits of the proposed refund and provide immediate rate relief especially during this time of pandemic,” ERC chairperson and chief executive officer Agnes VST Devanadera was quoted as saying in a statement.

In the order, the ERC told Meralco to reflect the refund as a separate line item in the power bills of consumers. Those from the customer classes of Residential and General Service A, General Service B, and General Power would receive a refund of P0.2761/kWh, P0.1811/kWh and P0.0789/kWh, respectively, it said.

The ERC noted the refund was “without prejudice to the outcome of the final evaluation of the application after completion of both technical and legal proceedings.

The regulator said its provisional authority extended only to the refund of the amount which Meralco applied for. 

As of press time, the order is not yet available for viewing on the ERC website.

Last month, Meralco Head of Utility Economics Lawrence S. Fernandez explained that the AWAT was based on Meralco’s distribution charges, which increased during the pandemic. During the global health emergency, the distribution rate differed from the interim average rate (IAR), as residential households consumed more power, he said. 

Mr. Fernandez earlier said that Meralco resolved to ask the ERC to refund the difference between its AWAT and IAR to consumers.

In a separate statement, Energy Secretary Alfonso G. Cusi said that the result of Meralco’s CSP was “very encouraging, and that it would help in lowering the power rates of consumers.”

He added: “The CSP is a work in progress, which aims to help us achieve electricity tariff levels that are both affordable and competitive enough to attract both foreign and local investors to do business in the Philippines.” 

Meralco’s controlling stakeholder, Beacon Electric Asset Holdings, Inc., is partly owned by PLDT, Inc. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., which has interest in BusinessWorld through the Philippine Star Group, which it controls.

The Bangko Sentral ng Pilipinas (BSP) issued new regulations for service providers of virtual currencies and assets on Friday, instructing them to conduct background checks on customers and strengthen their financial consumer protection policies.

BSP Deputy Governor Chuchi G. Fonacier laid out the guidelines for virtual asset service providers (VASP), which are entities that offer financial services for virtual assets or cryptocurrencies such as Bitcoin, through memorandum No. 2021-013 dated Feb. 18.

“With strict risk-based implementation of KYC (know your customer) by BSP-supervised financial institutions, AML (anti-money laundering) risks are mitigated,” Ms. Fonacier said in a text message on Friday.

“Actually, (this applies) not just for VASPs but to all BSP-supervised financial institutions that offer financial services, consumer protection is a MUST. The public must be protected especially the vulnerable and also those availing of financial services for the first time,” she added.

Under the guidelines, VASPs were asked to conduct customer due diligence when establishing business relations with clients, including those that they do occasional transactions with.

They are also expected to do a background check if they suspect possible money laundering or terrorist financing activities happening, or have any doubt that the initial information of the customers obtained was not enough or was lacking accuracy.

A business transaction is considered relevant if a single transaction, or if two or more linked transactions combined, are worth at least P5,000.

“For this purpose, the VASP should have an appropriate system to identify and determine occasional customers or transactions,” the circular, which was posted on Friday, stated.

In ensuring the clients’ safety, VASPs are required to adopt customer awareness measures to educate their clients about: safeguarding their virtual assets (VAs) or currency wallets; keeping sensitive information such as login credentials safe; using mobile applications; the fees they are being charged during transactions as well as troubleshooting measures.

“VASPs shall clearly communicate and explain to their customers the terms and conditions prescribing the manner on how the losses and liabilities from security breaches, system failure, or human error will be settled between the VASP and its customers,” the BSP said.

They also need to disclose to their customers, in a “fair and not misleading way,” the potential risks that they might be encountering during transactions, including when they are acquiring, holding and trading their crypto assets.

“VASPS shall also disclose whether they are holding VAs in custody and the attendant risks or whether the customers have full control and responsibility of protecting and safeguarding their VAs,” the regulator said.

The service providers also need to set up a system where they will handle and respond to customer complaints.

In a text message, Fintech Alliance.ph Chairman Angelito “Lito” M. Villanueva said he believes the new guidelines will help minimize money-laundering activities and fraud in dealing with cryptocurrencies.

The BSP said a VASP with safekeeping and administration services for VAs should maintain a minimum capital requirement worth P50 million, while those without these services will only need to have at least P10 million.

Those that are offering wallet services where VAs can be held and stored should have a cybersecurity framework and security measures to ensure confidentiality, integrity and availability of data in the platforms.

The regulator said this will shield the platforms from malware, cyber-attacks and other threats that may arise against VAs.

Entities maintaining fiat wallets also need to maintain enough unencumbered liquid assets to make sure sudden redemptions will be met, as well as establish a system that will record receipts.

When using outsourcing services, VASPS will need to have a “sound risk management system” to minimize risks on confidentiality of information, data privacy and management and other security issues.

“The VASP shall be responsible for the performance of the service in the same manner and to the same extent as if it were directly performing the said activity,” it said.

The entities also need to have an internal control system based on the size and complexity of the business, with “competent offices” to perform key functions such as risk management, audit, compliance, anti-money laundering and information security, among other things.

The VASPs are limited to do business with companies authorized and licensed by regulations, and are required to have a robust accreditation process in choosing VAs that will be traded on the platforms.

VASPs, where VA transactions worth at least P50,000 will be coming from, should keep required and accurate records on where the funds originated and the information on the recipient. Such data will have to be sent to the beneficiary institution and should be readily available when asked by regulators.

The central bank started tightening its regulations on VASPS early this year after revising guidelines to include more service providers under its watch.

The move was meant to boost safeguards against risks in using these emerging digital services.

As of November last year, there were 17 money service businesses with virtual currency exchange services authorized by the central bank, based on latest available data.

The Securities and Exchange Commission (SEC) has drafted the implementing rules of the law that would help financial institutions dispose of their bad loans through asset management companies.

The corporate regulator on Friday said it is seeking public comments on the draft implementing rules and regulations (IRR) for Republic Act No. 11523, otherwise known as the Financial Institutions Strategic Transfer (FIST) Act.

“The State recognizes the role of banks and other financial institutions as mobilizers of savings and investments and in providing the needed financial system liquidity to keep the economy afloat. Thus, it is essential that banks and other financial institutions are able to maintain their financial health in order to cushion the adverse economic impact of the COVID-19 pandemic,” the proposed rules stated.

The FIST law is applicable to financial institutions’ assets that have become non-performing on or before Dec. 31, 2022.

The IRR covers the creation of a FIST Corporation (FISTC), which will invest in or acquire non-performing assets (NPA) of financial institutions, as well as the submission of its plans and the process of transferring these assets.

Under the rules, a FISTC is a stock corporation, and cannot be allowed to incorporate as a one-person corporation.

“Provided, further, that if the FISTC will acquire land, at least sixty percent (60%) of its outstanding capital stock shall be owned by Philippine nationals as defined under the FIA (Foreign Investment Act),” it said.

Since these corporations are vested with public interest, FISTCs need to have independent directors on the board, appoint a compliance officer and submit compensation and performance reports.

Applications for the registration of a FISTC should be filed with the SEC within 36 months from the effectivity of the FIST law. However, no tax incentives will be granted to FISTCs established between the 25th and 36th month of the law’s effectivity.

An FISTC will have a minimum authorized capital stock of P500 million, with a minimum subscribed capital stock of P125 million and a minimum paid-up capital of P31.25 million (in cash).

The company should submit to the SEC its plan that includes its investment policies, contribution plan, features of its investment unit instruments (IUIs) and other details.

Under the rules, IUIs are not considered as deposit substitutes, which means the interest will not be subjected to a 20% final withholding tax.

“However, the IUI and any income arising from the IUIs shall be subject to the normal income tax and/or such other applicable taxes, including but not limited to, documentary stamp tax,” it said.

Investors may acquire IUIs in a FISTC for a minimum of P10 million. However, parent firms, subsidiaries, affiliates, and directors of the selling financial institutions (FI) cannot acquire, directly or indirectly, the IUIs of the FISTC that acquired the former’s non-performing assets.

The rules also cover the transfer of non-performing assets to a FISTC, as well as tax exemptions and fee privileges for covered transactions.

“The FISTC shall be exempt from income tax on net interest income arising from new loans in excess of existing loans, which are extended to a borrower with NPL that has been acquired by the said FISTC from an financial institution within a period of not more than two years from the date of effectivity of the Act,” the draft rules stated.

The Finance department and the Bureau of Internal Revenue are also finalizing revenue regulations covering the tax exemptions for certain transactions.

The SEC’s draft IRR also includes a section on net operating loss carry-over (NOLCO) of financial institutions that have disposed of their non-performing assets.

“Any loss that is incurred by an FI as a result of transferring its NPA to an FISTC within a period of not more than two years from the date of effectivity of the Act, excluding accrued interests and penalties receivable, and which had not been previously offset as deduction from gross income, shall be treated as ordinary loss, and may be carried over as a deduction from its taxable gross income for a period of five (5) consecutive taxable years immediately following the year of the transfer that resulted to such loss,” it stated.

Any tax savings from this cannot be used by the financial institution for dividend declaration. — K.C.G.Valmonte

MANILA/SINGAPORE – A clutch of Philippine firms, including newly launched real estate investment trusts (REITs), could make the country Southeast Asia’s biggest IPO market this year, driven by attractive valuations and a recovering economy.

Investors and bankers say consumer retailers and REITs are lining up record fundraisings that could top $4 billion in 2021, more than the combined tally of the last seven years, according to Refinitiv data.

Across the rest of the region, only a $2 billion Singapore IPO by a subsidiary of Thai Beverage, smaller floats in Indonesia and insurance IPOs in Thailand, are among those lining up for launches this year.

“We see a confluence of abundant liquidity, recovering macro fundamentals and relative valuation attractiveness contributing to the positive investor sentiment towards Southeast Asia IPOs,” said Martin Siah, Southeast Asia head of corporate and investment banking at Bank of America Merrill Lynch.

“The strength in global capital markets has made it very attractive for quality Philippine issuers who have been timing their eventual IPOs.”

A $1.5 billion float by Singapore sovereign fund GIC-backed Monde Nissin, the company behind the iconic local instant noodle brand Lucky Me! and meat alternative Quorn, is set to be the biggest local IPO, sources familiar with the matter said.

Others include two $500 million REITs, from conglomerate-owned SM Prime and Robinsons Land, sources said.
“It is really a question of when, not if. On the size, it depends on what the market can absorb,” Alex Pomento, vice president for investor relations of SM Prime, told Reuters.

A long-pending $1.5 billion IPO from National Grid Corp of the Philippines (NGCP) to comply with regulatory requirements is also expected, though sources said the process could be pushed to next year.

Robinsons Land did not respond to a request for comment. NGCP declined to comment while calls to Monde Nissin were unanswered.

Issuers are keen to take advantage of the abundant market liquidity and tap investors before next year’s presidential elections that could create market volatility.

“Companies are willing to fund expansion. That is what we did not experience last year when a lot of them held back on expansion plans, borrowing and IPOs,” said Michael Gerard Enriquez, CIO of Sun Life of Canada (Philippines).

The economy slumped by a record 9.5% last year, the worst contraction in Southeast Asia for 2020, as Philippines enforced one of the world’s longest and strictest pandemic-induced lockdowns.

The government’s record $93.7 billion national budget is expected to pump-prime the economy, which is targeted to grow by 6.5-7.5% this year, government officials say.

A strong performance of IPOs launched last year is also supporting new issues despite the broader market falling 9% last year.

“I assume these will be well-received. They will be a play on high growth and consumption and economic dividends,” said Eduardo Francisco, president of BDO Capital and Investment Corp, referring to potential IPOs of Monde Nissin and NGCP.

This year, about four property units are set to launch REITs, an emerging asset class, after new rules announced last year allowed lower public floats and tax breaks for REITs, which typically pay higher dividends to investors.

“Given the attractiveness of REITs as an investment and the robust real estate market fundamentals in the Philippines, we are expecting to see more REIT IPOs come to the market,” said BofA’s Siah. — Reuters