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Peso seen moving sideways on budget approval, holiday break

THE PESO is expected to move sideways in the last trading week of 2020 amid the holidays and on expectations that next year’s budget will be signed on Monday.

The local unit closed at P48.07 per dollar on Wednesday, appreciating by 2.5 centavos from its P48.095 close on Tuesday, data from the Bankers Association of the Philippines showed.

Week on week, it rose by 1.5 centavos from its P48.085-a-dollar finish on Friday. Financial markets were closed on Dec. 24 and 25 for the Christmas holidays. Trading sessions will resume on Monday.

The peso will likely move sideways or strengthen further as the markets expect more remittances to come in from overseas Filipino workers (OFWs) in time for the holidays according to Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort.

Cash remittances to the Philippines rose for a second straight month in October, rising by 2.9% to $2.747 billion year on year, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Mr. Ricafort said the markets are also on the lookout for the scheduled signing of next year’s P4.5-trillion budget, and if the validity of the 2020 budget and stimulus measure will be extended.

Presidential Spokesperson Harry L. Roque said last week that President Rodrigo R. Duterte will sign the 2021 budget on Monday in his hometown, Davao City.

Bills extending the validity of this year’s P4.1-trillion budget and Republic Act No. 11494 or the Bayanihan to Recover as One Act (Bayanihan II) also await Mr. Duterte’s signature.

For Ruben Carlo O. Asuncion, chief economist at the UnionBank of the Philippines, Inc., the peso will move sideways with the “wrapping up for the new year.”

“It seems the BSP has drawn the line on the sand and if levels try to breach sub-P48 (per dollar), they intervene,” he said in a text message.

Further reopening of the economy and trend in coronavirus infections will remain as catalysts for the peso, added Mr. Ricafort.

For this week, Mr. Ricafort sees the peso moving within P47.95-48.12 versus the greenback, while Mr. Asuncion expects it ranging from P48.04 to P48.10 per dollar. — Beatrice M. Laforga

Shares seen to decline on final week profit taking

PHILIPPINE shares are expected to trade sideways this trading week as investors book profits while waiting for updates on the new strain of the coronavirus disease 2019 (COVID-19), which hit the United Kingdom (UK) earlier this week.

The bellwether Philippine Stock Exchange index (PSEi) closed Wednesday’s session at 7,204.38, higher by 1.99 points or 0.027% than the previous trading day.

Week on week, the benchmark index inched down 0.84% or 68 points.

The market’s average value turnover slid 14.1% week on week to P8.5 billion, while average net foreign selling decreased 31.9% week on week to P510 million.

Darren Blaine T. Pangan, head of online trading at Timson Securities, Inc., said that updates on the new COVID-19 strain and the government’s decision to extend the ban on travel from the UK for two more weeks might lead to more profit taking during the last two trading days of the year.

“The recent developments might give market participants a reason to stay cautious, thus urging them to lessen their exposure from the market by taking profits for the meantime,” Mr. Pangan told BusinessWorld via Viber.

He added that this “might affect the market by trading sideways, if not moving lower to retest its nearest support at 6,800.”

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in an e-mail that the local markets anticipated President Rodrigo R. Duterte’s final approval of the 2021 national budget on Dec. 28 and the possible final extension of the availability of national budget funds for 2021.

“The markets are also anticipating further progress on the Corporate Recovery and Tax Incentives for Enterprises Act Bill, [which] could become the country’s biggest stimulus measure, especially after the final approval of the 2021 national budget,” Mr. Ricafort said.

Meanwhile, online brokerage 2TradeAsia.com said in a market note that the local bourse will be affected by the COVID-19 pandemic, which it described as the “single biggest threat to risk asset-investing.”

“This supports not only a guarded outlook for full economic reopening plays (such as aviation, tourism, and leisure), but also that COVID-19, at the end of the day, remains to be a developing case. In this regard, market participants may have to brace for extra volatility in the coming weeks,” the brokerage said.

2TradeAsia estimated that the market’s immediate support will be at 7,070, while its resistance will be at 7,300. — Angelica Y. Yang

Gov’t eyes 80M coronavirus vaccine doses

By Vann Marlo M. Villegas and Charmaine A. Tadalan, Reporters

THE PHILIPPINE government expects millions of coronavirus vaccine doses to arrive next year as it continues negotiations with drug companies for supply.

The state is in talks with British drugmaker AstraZeneca Plc for 20 million doses that will be allotted to the government, and 10 million more for the private sector, vaccine czar Carlito G. Galvez, Jr. said at a televised Cabinet meeting on Saturday

“For the Western-based vaccines, the earliest is May,” he said.

The government is also signing a contract with Serum Institute of India Ptv. Ltd. by January, which had committed 30 million doses for the Philippines, Mr. Galvez said.

He also said they were in talks with US drug company Pfizer, Inc., while Moderna, Inc. has agreed to ship 20 million doses. Pfizer and Moderna are frontrunners in vaccine development, both reporting more than 90% efficacy rate.

“If we will get Novavax, Astrazeneca, Pfizer, Johnson & Johnson and also Moderna, we might have more or less 80 million doses,” Mr. Galvez said.

Moderna, Inc. has agreed to fast-track the shipment of coronavirus vaccines to the Philippines, Foreign Affairs Secretary Teodoro L. Locsin, Jr. said on Sunday.

“Moderna on board and accelerating huge shipment,” he tweeted, citing Philippine Ambassador to the United States Jose Manuel G. Romualdez. “Everything’s falling back into place.”

“We will have a complete range of vaccines from least effective to most available for everyone to choose from,” he added.

Mr. Locsin last week said a government official had “dropped the ball” in negotiations to get 10 million doses of COVID-19 vaccines from Pfizer, Inc.

Mr. Romualdez later said the Philippine government could secure as many as 25 million doses from Moderna and Arcturus Therapeutics Holdings, Inc.

This comes ahead of a plan to convene the Senate committee of the whole on Jan. 11 to inquire into the state’s COVID-19 vaccination program.

Mr. Galvez said they negotiated with Russia’s Gamaleya Research Institute of Epidemiology and Microbiology last week for 25 million doses, hoping that they close a deal by January and have these produced by February.

He also said that they were negotiating with Chinese drugmaker Sinovac Biotech Ltd., disputing claims that they were prioritizing the Chinese company.

“It is a portfolio. Our first contract will be with AstraZeneca,” Mr. Galvez said in mixed English and Filipino. Next is Covovax vaccine from Novavax, Inc. and Serum Institute of India Ptv. Ltd., then Pfizer and Johnson & Johnson, he added.

Moderna, Gamaleya and Sinovac might follow suit.

‘EMERGENCY USE’
The government is aiming to vaccinate 20 million people yearly in the next three years.

President Rodrigo R. Duterte has signed an executive order allowing the local Food and Drugs Administration (FDA) to issue an emergency use authorization for coronavirus drugs and vaccines.

This will cut the approval process to 21 days from six months.

Presidential spokesman Harry L. Roque on Saturday said Pfizer had applied for emergency use in the Philippines. The US has approved its vaccine for emergency use.

Meanwhile, the Department of Health (DoH) is preparing for the rollout of the vaccines for priority groups, Napoleon L. Arevalo, director of the agency’s Disease Prevention and Control Bureau, told an online news briefing last week. Vaccinations could start in April, he said.

Health workers, senior citizens and jail personnel would be prioritized, Mr. Arevalo said.

Health Secretary Francisco T. Duque III said at the same briefing the poor would also be prioritized as ordered by President Rodrito R. Duterte.

He said health authorities would monitor potential adverse effects after inoculation.

“We really just have to monitor these as closely as we can  and most importantly, make sure that the surveillance is adequate to be able to identify people who might be developing acute or latent side effects,” Mr. Duque said.

Congress has set aside P2.5 billion under the Department of Health budget for 2021 for the immunization program and P70 billion more in unprogrammed funds for procurement, distribution and storage.

There is also a P10-billion standby fund, bringing the total vaccine allocation to P82.5 billion.

Meanwhile, Senator Francis N. Pangilinan urged the government to take decisive actions in preventing a new coronavirus strain from entering Philippine borders.

“It’s time authorities take swift action because all it takes for the new variant to spread is one person getting on a plane and landing at the Ninoy Aquino International Airport (NAIA),” he said in a statement.

He also asked the Department of Health (DoH) and an inter-agency task force (IATF) to keep the public informed to avoid causing fear or panic and monitor developments constantly.

DoH reported 883 coronavirus infections on Sunday, bringing the total to 469,886.

The death toll rose to 9,109 after 42 more patients died, while recoveries increased by 7,635 to 438,678, it said in a bulletin.

There were 22,099 active cases, 80.2% of which were mild, 9.9% did not show symptoms, 6.2% were critical, 3.2% were severe and 0.43% were moderate.

Rizal reported the highest number of new cases at 66, followed by Quezon City at 50, Benguet at 47, Davao City at 42 and Manila at 35.

DoH said two duplicates had been removed from the tally, while 10 recovered cases were reclassified as deaths. Fifteen laboratories failed to submit their data on Dec. 26, it said.

Mr. Duterte on Saturday said he would cancel face-to-face pilot classes in January after a coronavirus strain caused cases to soar in the United Kingdom.

Philippines to block Sabah visitors who want to enter Sulu

THE GOVERNMENT plans to block Sabah visitors seeking to enter Sulu province in the Philippine south after a reported case of a mysterious virus in the Malaysian region.

“We will also ban the movement of people from Sabah to Sulu,” Defense Secretary Delfin N. Lorenzana told a televised Cabinet meeting on Saturday.

President Rodrigo R. Duterte called for a Cabinet meeting at the weekend to discuss the new variant of the coronavirus first detected in the United Kingdom.

A suspected case of the virus was reported in Sabah, but experts from the World Health Organization (WHO) said this was different from the UK strain.

Sulu officials sought help from the National Government after reports of the new virus in the Malaysian region that the Philippines claims as its territory.

Socorro Escalante, WHO coordinator for essential medicines and health technologies, said at the meeting the mutation found in Sabah was not the same as the UK variant but was another mysterious coronavirus variant found in South Africa, Australia and the Netherlands.

“We do not yet know what is the significance of this mutation and what are the implications in terms of the public health system,” she said. — Gillian M. Cortez

Gov’t told to monitor tourists after new UK coronavirus strain

HEALTH experts on Saturday recommended monitoring of visitors not only from the United Kingdom (UK) but also from countries with reported cases of a new coronavirus strain.

Marissa M. Alejandria, president of the Philippine Society for Microbiology and Infectious Diseases, told a televised Cabinet meeting on Saturday the government should monitor countries especially in Asia that have cases of the new variant.

“We also need to check on other travelers coming from other countries where the variant was also reported,” she said.

While virus mutations are expected, imposing a lockdown or travel restrictions would not be sustainable.

The World Health Organization (WHO) also frowned upon travel restrictions, saying governments should instead strengthen their health systems.

“The WHO recommendation for now is not to restrict travel but to ensure that our public health interventions are in place,” Socorro Escalante, WHO coordinator for essential medicines and health technologies told the meeting.

The virus strain was first detected in the United Kingdom and later in other European and Asian countries.

Edsel T. Salvana, director of the Institute of Molecular Biology and Biotechnology said the country managed back in June a variant of the virus that was “three to nine times more infectious” than the original virus.

“If we remember in June when we had the surge of cases, there was actually a new variant that came from Europe, which is the D614G, and this was actually worse,” he said.

“We know how to deal with these variants and minimum health standards are the key,” he added.

The government on Saturday extended the ban on inbound flights from the UK, originally to run until year-end.

Philippine Health authorities last week said they had not detected a new coronavirus strain similar to a rapidly spreading variant that has caused cases to soar in the UK.

Europe has closed its doors to British travelers after the UK tightened its coronavirus disease 2019 (COVID-19) restrictions for London and nearby areas, and reversed plans to relax restrictions during the Christmas holiday.

France said it would bar all people coming from the UK for 48 hours, including freight carriers, whether by road, air, sea or rail, according to a Reuters report.

Germany, Italy and the Netherlands suspended flights from Britain, while Ireland said it would restrict  flights and ferries from its neighbor.

Belgium said it would close its borders to flights and trains — including the popular Eurostar service — coming from the UK. — Gillian M. Cortez

Nationwide round-up (12/27/20)

Solon questions measly funding for vaccine procurement

A LAWMAKER has questioned the increase in the proposed budgets of several institutions for next year while no realignments were made for the procurement of coronavirus vaccines. Party-list Rep. Michael T. Defensor, in a statement on Sunday, cited that the funding for coronavirus disease 2019 (COVID-19) vaccines remains measly while the House of Representatives and the Senate each received a P1-billion hike in their 2021 budgets. He also noted that the Office of the Vice President’s (OVP) allocation increased by P229 million, which would likely be used for its financial assistance program and to purchase six new vehicles. The lawmaker said the increase in the budgets of the two chambers of Congress brought their combined funding to P28.5 billion, while funding for vaccine acquisition was maintained at P2.5 billion as originally proposed by the executive department. Mr. Defensor said the increases in the budget of the House and the Senate as well as the OVP were part of the P183 billion in realignments made in the “programmed” or tax-funded portion of the 2021 budget. “None of that amount was added to the procurement of COVID-19 vaccines that will save lives and livelihood, revive the economy and return the country to pre-pandemic normality,” Mr. Defensor said. “We could have funded this from taxes instead of relying on lenders for money to buy badly-needed vaccines,” he added. Under the 2021 spending plan, an amount of P2.5 billion is lodged under the Department of Health for the procurement of COVID-19 vaccines. The proposed budget is currently under review by Malacañang prior to the President’s signature. Some P70 billion has also been placed under unprogrammed appropriations, funding for which will be released depending on the non-tax revenue collection of the government. “They augmented it by P72 billion, but this was relegated to the ‘un-programmed’ part of the budget that could be used only if there is excess tax revenue, a new tax or a loan,” Mr. Defensor said. The Bayanihan to Recover as One Act or Bayanihan II, which was extended by Congress until mid-2021, also sets aside some 10 billion for vaccine procurement. — Kyle Aristophere T. Atienza

DoLE assists over 340,000 minors profiled as child laborers

MORE than 340,000 minors involved in child labor, along with their families, have been extended assistance by the government, the Department of Labor and Employment (DoLE) reported on Sunday. In a statement, the department said 293,318 minors “were referred for assistance while more than 47,000 were removed from child labor.” In addition, another 274,924 child laborers were profiled. DoLE said children and young workers are considered “among the most vulnerable” as the coronavirus health crisis affects the livelihood of mostly poor families in urban and rural areas. “Along with our campaign to protect the vulnerable workers, we also stepped up our efforts to eliminate the worst forms of child labor,” Labor Secretary Silvestre Bello III said. Republic Act No. 9231 or the Special Protection of Children against Child Abuse, Exploitation and Discrimination Act mandates the department to address child labor. Mr. Bello noted that the pandemic has drawn children of poor families into some of the worst forms of child labor. “This is indeed unfortunate. This is why we had to work doubly hard to arrest the situation,” he said. DoLE’s child labor elimination programs include the provision of health and medical assistance, education and training, livelihood opportunities for the parents as well as legal action alongside protection and monitoring. — Gillian M. Cortez

SSS slammed for unfulfilled pension hike for seniors

A LAWMAKER on Sunday scored the Social Security System (SSS) for reneging on its commitment to grant the second tranche of the approved increase in pension for senior citizens. President Rodrigo R. Duterte in 2017 approved an initial P1,000 additional monthly pension benefit for pensioners, with the second tranche of another P1,000 to be granted beginning 2019. However, the net income of SSS slid 37% to P20.3 billion in 2017, after the approval of additional pension for retirees. SSS earlier warned that the implementation of the P1,000 additional pension this year could harm the long-term sustainability of its funds after its expenditures climbed by 27% to P180.2 billion in 2018. House Deputy Minority leader Carlos Isagani T. Zarate, however, said this is just an old excuse by the agency. “Using its already long discredited excuse of depleting fund life in exchange for the very lives of their pensioners, is the height of callousness and insensitivity, especially in this pandemic which aggravated a crisis that hit even more our senior citizens or elderly people,” he said in a statement. Mr. Zarate pointed out that the SSS fund life was thought to be less than 10 years in 2001, but that did not prevent the state-run institution from providing additional benefits as it embarked on reforms in the management of its funds. The results of the agency’s reforms should be made public, the lawmaker asserted. “In 2018, it had assured the people and Congress that it will institute the needed reforms to improve its fund life. What happened to these reforms?” he asked. “By saying that 10 years will be deducted from the SSS fund life if the 2nd tranche of the pension hike is implemented, they are using the same scare tactic used by the previous SSS administrations, which we have already debunked,” Mr. Zarate said. The SSS, which covers private sector workers, is mandated to provide social protection to members and families against the hazards of disability, sickness, maternity, old age, death, and other contingencies resulting in loss of income or financial burden. The Melbourne Mercer Global Pension Index 2019 (MMGPI) listed the Philippines as one of the countries having the worst pension systems for retirees, rating the country’s retirement income protocol at 43.7 out of 100. The study was a collaboration of the Monash Center for Financial Studies and professional services firm Mercer. — Kyle Aristophere T. Atienza

Regional Updates (12/27/20)

Cagayan flood

THE ANNAFUNAN East Provincial Road in Cagayan, which suffered flooding in several areas in November due to continuous rains and a series of typhoons, was again flooded on Sunday.

2 LPAs not likely to become typhoons but alert warning up for possible flooding, landslides in various regions

THE two low pressure areas (LPAs) in the country are not likely to develop into typhoons until Monday, but state weather agency PAGASA warned of possible flooding and landslides with the expected moderate to heavy rains. “However, due to improvements in the cloud system of both disturbance over the past 12 hours, the likelihood of tropical cyclone formation is not ruled out at this time,” PAGASA said in its 11 a.m. advisory on Sunday. As of 10 a.m. Sunday, the low pressure area over the West Philippine Sea was located around 80 kilometers west of Puerto Princesa City, Palawan. The other 85 kilometers east of Legazpi City, Albay. Areas that will experience rains include most parts of mainland Luzon, Mindoro provinces, Marinduque, Romblon, Dinagat Islands, Calamian Islands, Kalayaan Islands, and the regions of Eastern, Northern Mindanao, and Zamboanga Peninsula. “Flooding (including flashfloods) and rain-induced landslides may occur during heavy or prolonged periods of rainfall, especially in areas identified to be highly or very highly susceptible to these hazards or in localities that received significant amount rainfall over the past couple of days or weeks,” PAGASA warned. Malacañang also issued an advisory calling on the public to heed local officials should there be a call for preemptive evacuation.

City mayors form committee to coordinate COVID-19 vaccine distribution

CITY mayors around the country have formed a special committee to coordinate with the national task force on coronavirus disease 2019 (COVID-19) in planning and implementing the vaccine distribution program.

In a memorandum dated December 23, League of Cities of the Philippines President and Bacolod City Mayor Evelio R. Leonardia informed members that the vaccine availment committee is tasked to organize meetings with Vaccine Czar Carlito G. Galvez, Jr. and other key officials as well as “initiate exploratory talks” directly with the different vaccine manufacturers.

The league, in a statement, said the creation of the committee is in “view of determining and recommending the most appropriate courses of action to facilitate the availment of COVID-19 vaccines for cities.”

“We need to strategize our efforts to ensure that our constituents have early access to quality and affordable vaccines, but we need to gather as much information as possible to guide our decisions. Proper coordination with concerned agencies is a must. This is, after all, a top priority for all of us,” Mr. Leonardia said.

The committee is composed of Iloilo City Mayor Jerry P. Treñas, General Santos Mayor Ronnel C. Rivera, Balanga Mayor Francis S. Garcia, Candon Mayor Eric G. Singson, and Zamboanga Mayor Maria Isabelle Climaco-Salazar.

An initial meeting with Mr. Galvez has been set for January 12, according to the league. — MSJ

Trade dep’t completes safeguard measures probe into automobiles

assembly line (car/auto)

THE DEPARTMENT of Trade and Industry (DTI) said it concluded its investigation into potential safeguard duties on imported cars.

Trade Undersecretary Ceferino S. Rodolfo said that results and recommendations from the investigation will be submitted to the secretary by this week for a final decision.

“The report on whether there is a positive finding or not on the preliminary safeguard investigation is being finalized along with — if it is positive, the applicable rates,” he said at a virtual press conference last week.

The DTI launched the investigation in February after being petitioned by the labor group Philippine Metalworkers Association (PMA), which last year flagged a possible link between a surge in automotive imports and a decline in local employment.

If Trade Secretary Ramon M. Lopez decides to implement duties, the DTI will publish the order and a provisional measure will take effect.

The case will then be sent to the Tariff Commission, which will have 120 days to conduct public hearings before submitting its recommendations to the Secretary.

Collected duties from the provisional measure will be placed in escrow, DTI Bureau of Import Services Director Luis M. Catibayan said at the same event.

“If, for example, the Tariff Commission recommended dismissal then… the bond will be returned to the importers,” he said.

Republic Act No. 8800, or the Safeguard Measures Act, authorizes the government to impose temporary tariffs after a determination that a domestic industry has been substantially harmed by a surge in imports.

Both car industry groups have pushed back against safeguard duties. The Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) said that the measure will hinder the car industry’s recovery from the effects of the pandemic.

The Association of Vehicle Importers and Distributors, Inc. (AVID) called it a “disruptive” measure, noting that the group does not believe duties would encourage investments.

CAMPI sales fell 41.6% year-on-year in the first 11 months, while AVID sales plummeted 42.6% in the first 10 months. — Jenina P. Ibañez

Holiday spending, vaccine rollout seen producing ‘robust’ recovery

THE HOLIDAY spending surge and rising optimism associated with the vaccine rollout will support a “robust” economic recovery, according to First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) in a report released over the weekend.

In the December issue of its Market Call, FMIC and UA&P Capital Markets Research said it expects “a good economic recovery” next year as the economy reopens further and quarantine restrictions are relaxed, building on the momentum provided by holiday spending this month.

However, it warned that recovery “may not be fast enough for some” sectors.

“The further opening of the economy, the relaxation of lockdown restrictions due to the country’s winning stance against coronavirus disease 2019 (COVID-19) even without the expected rollout of vaccines and the usually ebullient Christmas season spending, provide the ingredients for a robust economic recovery,” it said.

The report cited the latest business expectations survey and consumer’s confidence index report of the Bangko Sentral ng Pilipinas (BSP) which showed firms and consumers becoming more optimistic this quarter, possibly carrying over intoh 2021.

The vaccine news has been positive lately, according to FMIC and UA&P Capital Markets Research, noting that in the Philippines, case rates are on a downtrend.

The Department of Finance (DoF), in an economic bulletin Sunday, said that “with a vaccine in sight, continuing the prudent, calibrated reopening of key sectors of the economy will be key to the recovery of the economy in general and trade in particular.”

The government should also proceed with its push to adopt policy reforms, boost infrastructure programs and attract more investments to further support recovery, it said.

FMIC and UA&P Capital Markets Research said the stronger-than-expected uptick in inflation to 3.3% in November is likely to be a one-off event caused by the destruction caused by the late-year typhoons and the resulting floods.

It maintained its inflation forecast for 2020 at 2.6% as “prices will revert to pre-typhoon days,” but expects the indicator to pick up to slightly higher levels next year.

This view of inflation is within the BSP’s inflation target of 2-4% for the year.

“Money growth continues to decelerate and this, together with inflation going back closer to 2% by January 2021, provides the BSP with more elbow room to cut policy rates by another 25 bps in Q1-2021 to provide a further boost to the domestic economy and lower borrowing costs of the national government,” it said. — Beatrice M. Laforga

DoE sees pickup in oil demand as transport sector opens further

DEPARTMENT of Energy (DoE) Secretary Alfonso G. Cusi said demand for oil products will be higher in 2021 as the transportation sector continues to open and as the economy recovers.

Sa oil sector…magkakaroon iyon ng demand. Also, nagkakaroon tayo ng opening in the transportation sector where even the provincial buses are being allowed to operate (There will be demand in the oil sector. The transportation sector is opening up. Even provincial buses are being allowed to operate),” Mr. Cusi said at a briefing on Dec. 21.

Demand overall will also rise as the economy recovers, Mr. Cusi said.

He added that overseas Filipino workers (OFWs), including health workers and seafarers, will contribute to the recovery if the government increases deployment.

Pag nag-deploy tayo (when we deploy workers)…then that will help in our economic recovery,” he said, noting that OFWs were not able to travel for work this year, adding to the weak demand for oil.

Asked for an outlook on power, Mr. Cusi said that the DoE is carrying on with building power capacity, noting that the current supply “barely” meets demand. “We have to make sure that we are ready, but we are already building up the supply. Hindi pwede ‘yung intermittent supply (It won’t do to have intermittent supply) during our economic recovery,” he said.

“I think as far as the power demand is concerned, there will be (a) surge when we fully open our economy and the energy family must be ready to meet that,” he added.

At the same briefing, Mr. Cusi said Petron Corp.’s closure of its Bataan oil refinery was a business decision.

The company announced this month that it would shutter its 180,000-barrel-per-day crude oil refinery, the country’s only remaining refinery. Mr. Cusi also said that the closure would not affect the fuel supply. — Angelica Y. Yang

Southeast Asian coal demand doubles in past decade — IEA

COAL demand in Southeast Asia doubled in the past decade led by Indonesia, with Philippine consumption fourth, according to the International Energy Agency (IEA).

“Coal consumption in Southeast Asia has more than doubled in the last decade, with the largest growth in Indonesia and Vietnam, followed by Malaysia and the Philippines. In 2019, demand in Southeast Asia was 332 MT (million tons), of which 42% was accounted for by Indonesia and 27% by Vietnam,” the IEA said in a report.

According to IEA data, the Philippines used 250 MT in the past decade. In 2019, coal consumption was 30 MT. The Philippines’ coal-fired power plant capacity was 9.6 gigawatts (GW) last year, making the power industry by far the largest user of coal.

According to the Department of Energy (DoE), the Philippines consumed around 33 MT of coal last year.

This year, however, coal demand in the Philippines will fall “for the first time in several years due to the global health emergency, the IEA said.

The IEA’s report on coal, published on Dec. 18, projected that overall coal demand in Southeast Asia will rebound 7% next year as economies recover.

In Indonesia, which consumed 1,001 MT of coal in the past decade, demand is expected to rise after Jakarta ruled that coal producers investing in downstream operations will receive a waiver on royalties, the IEA said.

The IEA said global demand for coal in 2020 will register the “largest drop since the Second World War, falling 5% from its 2019 levels.”

“Coal’s decline is only slightly sharper in power generation than in industrial applications. Except for China, industrial output has been severely subdued by the COVID-19 crisis,” the IEA said.

The European Union (EU) and the US logged a 19% increase and 14% decrease, respectively, in coal-fired power generation. Consumption increased 1.2% in the Asia Pacific region this year, the IEA reported.

It added that by 2025, global coal demand is projected to “flatten out” at 7.4 billion tons, but Southeast Asia will surpass the US and EU to become the third-largest coal-consuming region.

Two months earlier, the Department of Energy (DoE) announced a moratorium on new coal-fired power plant projects, following a recent assessment which showed the need to shift to a “more flexible” power supply mix.

The Institute for Energy Economics and Financial Analysis (IEEFA) said in a November report that around 10GW of greenfield coal plants will be affected by the DoE’s ban.

However, a report by non-government organization Clean Air Asia estimated that power generating capacity from coal-run plants is expected to rise by 135% as soon as the plants which are currently being built became operational. — Angelica Y. Yang

The geopolitical outlook in 2021

As the world continues to grapple with the pandemic, global political risk hit a multi-year high and is expected to persist in 2021. The performance of markets and companies will be impacted by events and conditions due to a combination of pandemic-related issues, climate change, trade tensions, political transitions and other factors. Without question, the top risk is COVID-19.

Pandemics are inherently geopolitical, involving issues such as global leadership, international cooperation and competition, and national security. The COVID-19 pandemic has become a political-risk event on an unprecedented global scale as well as a public health crisis, influencing all the top 10 risks identified by the EY Geostrategic Business group in a recent report, the EY 2021 Geostrategic Outlook.

In addition to coronavirus disease 2019 (COVID-19), the report discusses the geopolitical dynamics in the Indo-Pacific, the disentangling of US-China interdependence, European strategic autonomy, and the rise of neo-statism. Also identified are reinvigorated climate policy agendas, the geopolitics of technology and data, US policy realignment, the tipping point for emerging market debt and another wave of social unrest.

Furthermore, COVID-19 will continue to generate high levels of uncertainty as governments continue to rapidly develop pandemic response policies and innovate in real time. This uncertainty will challenge strategy development and execution, making it even more crucial for companies to dynamically monitor political risks for challenges as well as opportunities in the coming year.

POLITICAL RISKS IN 2021
Export controls, vaccine nationalism, domestic political consequences and restrictions on cross-border people movement will generate political risks in markets worldwide. This underscores the need to re-evaluate talent decisions, supply chains, and approaches towards building enterprise resilience. We should also anticipate that the geopolitics of data and technology will come to the fore, given that each country has different approaches to data privacy, technological standards, digital taxation efforts and antitrust enforcement. Companies with cross-border operations will increasingly need to evaluate how the standards in one of their markets will interact with the standards in the other markets within which they operate.

Significant trends in regulatory and policy changes will see the world entering an era of neo-statism. Neo-statism refers to state-controlled competition where the state takes on a more active role and may even intervene in driving certain industries within its economy. As the pandemic intensifies the focus on self-reliance, several countries may start to diversify supply chains or re-shore manufacturing, with governments deploying policy tools to not only support domestic production, but also take measures to make their chosen industries inherently more competitive.

With more countries announcing their carbon neutrality targets, ambitious climate policy agendas are also likely to be part of COVID-19 stimulus plans, particularly in light of the upcoming 2021 United Nations Climate Change Conference (COP26) in November.

Also coming into play are power politics among the EU, China and the US. The European Union (EU) will utilize its investment, industrial and trade policies as well as its ability to shape global standards to progress towards strategic autonomy. On the other hand, China and the US will continue to try disentangling their strategic interdependence amid their trade relationship, rival industrial policies, technological competition and friction regarding Chinese sovereignty.

President-elect Biden has also declared his incoming administration’s focus on environmental and industrial policies, with volatility likely in the areas of anti-trust, immigration and trade. Companies could expect production and supply chains in strategic sectors to shift more towards the US economy, while green industries will see expanded investment and growth opportunities.

Meanwhile, the global competition in the Indo-Pacific will likely cause more geopolitical instability. This is evinced by recent tensions between China and India, as well as Australia and China, with middle and major powers becoming more assertive in shaping geopolitics while balancing between US and China. Government interventions will also affect investment and growth strategies, while maritime policies may reconfigure global supply chains.

Moreover, emerging market debt may hit a tipping point in 2021, with funding vulnerabilities expected to be highest in large emerging markets such as Brazil, India, Mexico and South Africa. Key markets growth prospects may suffer as tax and financial burdens rise among companies. Despite international efforts at debt relief, debt resolution will likely to be complicated by geopolitical dynamics and COVID-19.

Finally, a potential wave of social unrest in the form of protests may bring more disruptions to business operations. Five primary issues likely to motivate protestors in 2021 include social justice, climate change, inequality, pandemic restrictions and governance issues. Heightened stakeholder expectations could also magnify reputational risks for companies.

MANAGING RISKS THROUGH GEOSTRATEGIC PRIORITIES
While the geostrategic considerations differ for each specific political risk, there are five overarching actions that business leaders may consider to manage such risks in 2021.

1. Actively monitor your company’s political risk environment. Make political risks part of the company’s risk radar and dynamically monitor them throughout the year. The debt situation in some large emerging markets and the US policy realignment will require constant monitoring as the year progresses.

2. Conduct in-depth and real-time assessments of identified risks. Model the impact of potential political risk events across key business functions such as supply chain, revenue, data and intellectual property, as well as regularly monitor the potential effects of evolving US-China relations. Moreover, the geopolitics of technology and data likewise warrant close assessment.

3. Create a culture of political risk management across the company. Too often, the identification, assessment, and management of political risk is siloed within various business functions, as revealed in the EY Geostrategy in Practice 2020 survey of global executives. Companies should establish cross-functional teams that will leverage on the lessons learned from ongoing COVID-19 crisis management. This fosters better communication and management of political risks arising from the pandemic and will build greater agility in company operations.

4. Engage your stakeholders in political risk management. Political intervention and public opinion will continue to target companies on a variety of issues, upon which companies must proactively engage their stakeholders. By leveraging on relationships with policymakers, employees, customers, non-governmental organizations, community groups, and other stakeholders, companies can potentially turn challenges from political risks into opportunities.

5. Make political risk analysis integral to strategic decisions. Scenario analyses about political risks can be used to quantify and capture the uncertainty associated with their trajectories in the coming years. These insights can better inform strategic decisions that include M&A, market entry and exit as well as other transactions. As an example, the state of the EU’s pursuit of strategic autonomy and the geopolitical dynamics in the Indo-Pacific in 2021 will likely affect the global business environment for several years to come.

THE NEED FOR A GEOSTRATEGY
The New Normal may have started in 2020, but it is poised to become even more disruptive in 2021, with the medium and long-term effects of the pandemic becoming more visible. It would therefore be advisable for companies to develop their own geostrategy — one that can help the business integrate political risk management into its operations, as well as into its broader risk management, governance and strategic analyses.

Let us look to 2021 with renewed strength, depth of purpose, and clarity of insight as we work to unmask the difficulties brought about by the disruptions happening now, focus on the work to be done Next in order to recover, and keep our eyes on the vision of building and restoring long-term value to our businesses in the world beyond the pandemic.

Allow me to take this opportunity to thank the readers of Suits the C-Suite, a thought leadership column regularly published by SGV & Co. since 2009. On behalf of our partners, principals and staff who have contributed to this column, I wish you all a New Year filled with hope and peace.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.

 

Wilson P. Tan is the Country Managing Partner of SGV & Co.