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Striking the energy balance

By Adrian Paul B. Conoza, Special Features Writer

IN THE ENERGY sector, there is an apparent balance to be met between addressing energy security and tapping further renewable energy (RE) resources. This was recently expressed by Department of Energy (DoE) Secretary Alfonso G. Cusi in reaffirming his commitment to the full implementation of the Renewable Energy Act.

“I fully support the development and utilization of our renewable resources — but without sacrificing the attainment of our energy security,” Mr. Cusi stressed in a statement, adding that with the current energy situation leaving “much to be desired”, all power sourcing should be considered.

In DoE’s “Energy Situationer” published in 2017, oil was found to have contributed the most in the total primary energy supply (TPES), accounting for about a third of the supply, followed by coal, which contributed 26.7% of TPES.

More recently, DoE’s power statistics in 2019 showed coal tallying the highest total power generation in the Philippines, with 57,890 gigawatt hours (GWh), followed by coal with 22,354 GWh. In terms of installed generating capacity and dependable generating capacity, coal remains the highest, with 10,417 megawatts (MW) and 9,743 MW, respectively.

As leading companies in the sector see it, there is much to do in meeting the country’s energy needs with sustainable resources.

“[T]he regulatory environment is still not ideal for renewable energy. Yet, we remain hopeful. We believe that it is only a matter of time before this improves,” Francis Giles B. Puno, First Gen Corporation’s president and chief operating officer, pointed out in the company’s 2019 Integrated Report. “Several government policies and legislations have already been enacted, and it is every stakeholder’s role to respond firmly and be consistent in shifting to low carbon energy.”

Meanwhile, John Eric T. Francia, president and chief executive officer of AC Energy, noted that investing in long-term capacity is needed to deal with the country’s “tight power supply situation”.

“[T]here remains an imperative to invest in long term capacity, especially with the impending decline in Malampaya output. It is critical to complete Competitive Selection Process soon, to enable major greenfield investments,” Mr. Francia told BusinessWorld in an e- mail.

He added that unlocking the potential of renewables also requires more expedient land conversion process, timely upgrading of the grid, and incorporating battery storage in the grid when the technology becomes scalable and economically viable.

RENEWABLE ENERGY

When the Renewable Energy Act was passed in 2008, Mr. Francia shared, renewables accounted for 34% of energy output. Yet, more than 80% of the new capacity in the past decade came from thermal plants. As such, renewables’ share of output dropped to 21% in 2019.

The National Renewable Energy Plan, however, calls for RE output to go back to 35% by 2030. “To achieve this goal, we estimate that the country needs to build 15-20 GW of new renewables capacity in the next decade, which will require the grid to be strengthened,” the AC Energy president explained.

In addition, Mr. Francia noted that the government has made good progress in implementing the Renewable Portfolio Standards (RPS), which the government is planning to conduct a ‘green auction’ to aggregate the demand for green energy among several utilities.

“This initiative is an important enabler for the RPS policy and help address the supply-demand gap in three to four years,” he said.

In his statement last July, Mr. Cusi reported that DoE has awarded 472 RE service contracts, with a potential capacity of 20 gigawatts. This, in turn, may translate to an additional 8% RE share to the country’s TPES, which Mr. Cusi finds to be higher than the country’s indicative and committed coal plants for the same period, which has a potential capacity of 14.5 GW. On the side of companies, the move for sustainable energy and even beyond is evident in their recent actions.

Driven by its renewed mission “to forge collaborative pathways for a decarbonized and regenerative future”, First Gen gears up to accelerate the transition to RE. “First Gen’s clean and flexible gas portfolio is a pioneer in the country and is well-positioned to help with the transition,” Mr. Puno said.

As a leading renewable energy company, Mr. Puno said First Gen will deploy its extensive experience in geothermal in order to expand its use. Recognizing the variability and intermittency of some resources, the company also aims to expand its hydro platform through the development of the 100-MW Aya Pumped-Storage facility, capable of providing energy during peak periods and storing energy during off-peak periods.

Also, First Gen’s pioneering of liquefied natural gas (LNG) to the country continues to progress with a groundbreaking with partner Tokyo Gas and the completion of a study on modifying its existing jetty at the First Gen Clean Energy Complex in Batangas City.  “Introducing LNG to the country allows us to support and boost the growth of variable renewable energy sources like wind, solar, and hydro,” Mr. Puno noted.

Meanwhile, AC Energy also expressed its support in helping the country achieve secured and sustainable energy. “AC Energy intends to play a leading role in scaling up renewables capacity and transitioning the country to a low carbon economy,” Mr. Francia said.

AC Energy, he added, is fully committed in growing renewables in the country. “The company currently has 447 MW of attributable renewables capacity in the Philippines, and we expect this number to grow to over 2000 MW by 2025,” the CEO said. “This means that the company is expected to build an average of at least 300 MW of renewables capacity (mostly solar and wind) per year in the next five years.”

Another player in the sector, Aboitiz Power Corporation, is also aiming to transition to renewable and clean energy, as stated in the latest integrated report of Aboitiz Equity Ventures.

Emmanuel V. Rubio, Aboitiz Power’s president and CEO, and Erramon I. Aboitiz, outgoing president and CEO, noted in the report the company’s increased generation capacity with the commercial operation of new facilities, among them the 19-MW La Trinidad Hydro in Benguet and a 200-kilowatt pilot floating project in Isabela launched by subsidiary SN Aboitiz Power.

“We will aggressively expand our Cleanergy portfolio to optimize opportunities from the implementation of the government’s Renewable Portfolio Standards (RPS) and the Green Energy Option Program (GEOP), while selectively building baseload capacities to support our country’s growth aspirations,” the executives added.

Moderna COVID-19 vaccine appears to work as well in older adults in early study

Moderna is one of the leading contenders in the race to develop a vaccine against the virus that has killed more than 820,000 people worldwide. Its candidate, mRNA-1273, is already in late-stage human trials testing its ability to safely prevent infection. Image via Bloomberg

Moderna Inc. said on Wednesday its experimental COVID-19 vaccine induced immune responses in older adults similar to those in younger participants, offering hope that it will be effective in people considered to be at high risk for severe complications from the coronavirus.

The company is one of the leading contenders in the race to develop a vaccine against the virus that has killed more than 820,000 people worldwide. Its candidate, mRNA-1273, is already in late-stage human trials testing its ability to safely prevent infection.

The latest data from an early Phase I study includes an analysis from 20 additional people detailing how the vaccine performed in older adults.

The analysis looked at subjects given the 100-microgram dose being tested in the much larger Phase III trial. Moderna said the immune responses in those aged between ages 56 and 70, above age 70, and those aged 18–55 were similar.

Health officials have been concerned about whether vaccine candidates would work in older people, whose immune systems typically do not respond as strongly to vaccines.

Moderna shares, which have more than tripled in value this year, rose about 6% after the data’s release.

The company has so far enrolled over 13,000 participants in its late-stage study. About 18% of the total participants are Black, Latino, Native American or Alaska Native, groups that have been particularly hard hit by the pandemic, and are often under represented in clinical trials.

Dr. Jacqueline Miller, Moderna’s head of infectious disease development, told a US Centers for Disease Control and Prevention (CDC) panel the company plans to post weekly updates on enrollment of Black and Latino trial subjects on its website.

Pfizer Inc told Reuters last week that 19% of the 11,000 subjects already enrolled in its vaccine trial are Black or Latino.

Ms. Miller said the demographic makeup of Moderna’s trial is a frequent topic at meetings with US officials heading the White House program aimed at accelerating development of COVID-19 vaccines and treatments.

DEEP FREEZE
Companies and health officials also are working on ways to distribute COVID-19 vaccines, some of which must be shipped and stored at extremely cold temperatures.

Dr. Nancy Messonnier, director of the CDC’s National Center for Immunization and Respiratory Diseases, questioned Pfizer’s plans after the company said its vaccine must be stored at ultra-low temperatures for up to six months or in specially designed shipping containers for up to 10 days.

Once removed from the containers, the vaccine can be kept for up to a day at a temperature between 2°C and 8°C—roughly the temperature of a normal refrigerator—or two hours at room temperature.

“The complexities of this plan for vaccine storage and handling will have major impact in our ability to efficiently deliver the vaccine,” Ms. Messonnier said.

Pfizer told the CDC panel it is working on making the vaccine stable at higher temperatures. Pfizer shares were down about 1.5%.

Moderna’s vaccine has to be kept at -20°C for shipping and longer-term storage of up to six months, but it can be kept at regular refrigeration temperatures for up to 10 days. The vaccine will be distributed in 10-dose vials with no preservatives, the company said.

Moderna is also working to make the vaccine stable at higher temperatures, Ms. Miller said.

Moderna, which has never brought a vaccine to market, has received nearly $1 billion from the US government under its Operation Warp Speed program. It has also struck a $1.5 billion supply agreement with the United States. — Reuters

Powering the path to a brighter future

The year 2020 will be forever remembered as the year of the coronavirus disease 2019 (COVID-19), a pandemic which has cost countless lives, ground the world’s economy to a halt, and brought the world into a new normal.

Yet, Bill Gates, billionaire philanthropist, warns that a bigger crisis could be waiting in the future: that of climate change. In an article he published on his website titled, “COVID-19 is awful. Climate change could be worse”, Mr. Gates outlined the urgent need for governments to address climate change as intensely as they have the pandemic, or else face dire consequences in the future.

“If you want to understand the kind of damage that climate change will inflict, look at COVID-19 and spread the pain out over a much longer period of time. The loss of life and economic misery caused by this pandemic are on par with what will happen regularly if we do not eliminate the world’s carbon emissions,” he wrote.

“As of last week, more than 600,000 people are known to have died from COVID-19 worldwide. On an annualized basis, that is a death rate of 14 per 100,000 people. How does that compare to climate change? Within the next 40 years, increases in global temperatures are projected to raise global mortality rates by the same amount — 14 deaths per 100,000. By the end of the century, if emissions growth stays high, climate change could be responsible for 73 extra deaths per 100,000 people. In a lower emissions scenario, the death rate drops to 10 per 100,000,” he added.

“In other words, by 2060, climate change could be just as deadly as COVID-19, and by 2100 it could be five times as deadly,” he added.

Mr. Gates noted that among the things governments should consider to fight climate change is in finding zero-carbon methods of producing electricity. With universal access to renewable and sustainable energy, many countries would not need to rely on fossil fuels like coal or oil, which produce the greenhouse gases that worsen climate change.

In this, the COVID-19 pandemic provides an opportunity. The World Economic Forum found that during the full-lockdown measures implemented to cope with the pandemic, electricity demand has declined at historical levels (15%-30%) in many countries, generating an oversupply of available power capacity. “As the crisis hit, grid operators, sought the cheapest (and cleanest) supply source to balance the lower demand. Therefore, weaker electricity demand increased the share of renewables in the system while sending the more polluting and costly carbon fuels to the back of the queue. This effect happened even at a time of historically low fossil fuel prices, making carbon the biggest loser in the pandemic,” the organization published on its website.

In a post-COVID world, there is a real chance for governments and businesses to spur a clean energy revolution.

“As businesses, industry and households focus on restarting their operations, the lockdown provides a real sense of opportunity for the energy sector. It brings plenty of lessons about clean energy policy, changes in demand patterns and knowhow for a greener grid without compromising the security of supply. It also opens further opportunities for investment and innovation,” the World Economic Forum wrote.

“Businesses and investors can play a role in boosting clean investment, both by promoting low-carbon supply chains and by grasping the opportunities of clean energy markets.” It added, “As governments begin to shape new regulations and support businesses for the post-COVID- 19 world, their focus should be on taking stock from the lockdown and promoting green conditions to sustain and effectively manage a higher share of renewables; as well as redirecting investment and increasing innovation for improvements in batteries, storage, digital markets, blockchain and smarter grids.”

It falls to key officials, leaders in both the public and private sectors of society to ensure that this future comes about. Governments, businesses and households need to invest in recovery, innovation and infrastructure opportunities in low-carbon and digital technologies for a cleaner, sustainable future. — Bjorn Biel M. Beltran

US targets Chinese individuals, companies amid South China Sea dispute

WASHINGTON — The United States on Wednesday blacklisted 24 Chinese companies and targeted individuals it said were part of construction and military actions in the South China Sea, its first such sanctions move against Beijing over the disputed strategic waterway.

The US Commerce Department said the two dozen companies played a “role in helping the Chinese military construct and militarize the internationally condemned artificial islands in the South China Sea.”

Separately, the State Department said it would impose visa restrictions on Chinese individuals “responsible for, or complicit in,” such action and those linked to China’s “use of coercion against Southeast Asian claimants to inhibit their access to offshore resources.”

The companies blacklisted included Guangzhou Haige Communications Group, several firms that appear to be related to the China Communications Construction Co. (CCCC), as well as Beijing Huanjia Telecommunication, Changzhou Guoguang Data Communications, China Electronics Technology Group Corp and China Shipbuilding Group.

It was the latest US move to punish firms whose goods may support Chinese military activities and comes in the run up to the Nov. 3 US election, in which both President Donald J. Trump and rival Joseph R. Biden have been sharply critical of China.

The United States accuses China of militarizing the South China Sea and trying to intimidate Asian neighbors who might want to exploit its extensive oil and gas reserves.

US warships have gone through the area to assert the freedom of access to international waterways, raising fears of clashes.

A spokesperson for China’s embassy in Washington condemned the US sanctions as “completely unreasonable,” and urged the United States to reverse them.

“(South China Sea Islands) is an integral part of China’s territory, and it is fully justified for us to build facilities and deploy necessary defense equipment there,” the spokesperson said.

“The Chinese government has firm determination to safeguard its sovereignty and territorial integrity.”

A US defense official, speaking on the condition of anonymity, told Reuters that on Wednesday China launched four medium-range ballistic missiles that hit the South China Sea between Hainan Island and the Paracel Islands.

The official added that an assessment was underway to determine the type of missile launched.

The Hong Kong-based South China Morning Post newspaper quoted a source close to the Chinese military as saying that China had launched two missiles, including an “aircraft-carrier killer”, into the South China Sea on Wednesday morning in a warning to the United States.

China complained that the United States had sent a U-2 reconnaissance plane into a no-fly zone over Chinese live-fire military drills on Tuesday.

The Pentagon said a U-2 flight conducted in the Indo-Pacific region was “within the accepted international rules and regulations governing aircraft flights.”

In July, Washington said it could sanction Chinese officials and enterprises involved in coercion in the South China Sea after it announced a tougher stance rejecting Beijing’s claims to offshore resources there as “completely unlawful.”

China claims virtually all of the potentially energy-rich South China Sea, but Brunei, Malaysia, the Philippines, Taiwan and Vietnam also lay claim to parts of an area through which about $3 trillion of trade passes each year.

“This is the first time the US has levied any type of economic sanction against Chinese entities for behavior in the South China Sea,” said Greg Poling, a South China Sea expert at Washington’s Center for Strategic and International Studies.

“It probably doesn’t make much impact on those entities directly—I doubt that there is much CCCC needs to buy from the US that it can’t get from other suppliers. And these certainly aren’t the financial sanctions that some might have expected… But it could be a start at trying to convince Southeast Asian partners that the new policy is more than just rhetoric.”

Messages left with CCCC, a transport and infrastructure conglomerate, the Shanghai Cable Offshore Engineering Co. Ltd., an engineering company that specializes in submarine cables, and Guangzhou Haige Communication Group, which manufactures communications equipment, were not immediately returned after business hours in China. Several other firms on the list could not immediately be reached or could not immediately be located.

The Commerce Department said it was adding the 24 firms to its “entity list,” which restricts sales of US goods shipped to them and some more limited items made abroad with US content or technology. Companies can apply for licenses to make the sales, but they must overcome a high bar for approval.

The State Department did not name those subject to visa bans, but a senior department official told reporters “dozens” would be affected. A senior Commerce Department official said US exports to the Chinese companies targeted had been relatively small—about $5 million in the last five years. — Reuters

AC Energy accelerates renewable energy expansion in the Philippines

Strong government support, enabling policies, technology improvements, and abundant resources make investing in renewable energy an attractive prospect in the Philippines.

For AC Energy, Ayala Corporation’s power generation arm, the Philippines remains to be a core market, and the company reinforces its strong commitment to invest in much needed energy projects in the country as it takes strides to expand and diversify its generation portfolio, and significantly increase its renewables capacity.

As AC Energy moves toward playing a significant role in helping the country’s energy security, the company is keen on ensuring a stable supply of power generation to sustain its long-term strategy of shifting its portfolio to renewable energy. The company is focusing on strategic investments and operates thermal assets to complement its renewable assets and ensure power reliability.

Driving RE expansion in the Philippines

AC Energy’s rapid growth in the Philippines was underpinned by a combination of asset infusion, acquisitions and new greenfield projects.

Less than a year since its integration, AC Energy’s listed platform (PSE: ACEN) executed its turnaround plan effectively and established a clear growth path, aggressively growing its generation capacity from 416 MW to over 990 MW, with renewable assets comprising 45% of its total portfolio at 447 MW.

Most recently, AC Energy completed the infusion of its onshore assets to ACEN, increasing the latter’s outstanding capital stock to 13.69 billion shares. With the closing price of P2.80/share last August 25, 2020, ACEN’s implied market capitalization stands at P38.33 billion.

“While we are facing significant challenges amidst the current crisis, ACEN remains committed to investing in the country and drive renewables expansion,” said Eric Francia, ACEN President and CEO. “We take the long view when investing, and we also recognize that investments are very much needed urgently to help reignite the economy and create jobs. This is the true meaning of sustainable investing.”

Earlier this year, AC Energy announced its plans to integrate its international business, and recently received the Philippine Stock Exchange’s nod to change its stock symbol from ACEPH to ACEN. The shift to ACEN signifies the forthcoming integration of AC Energy’s onshore and offshore business into a unified platform. Apart from its existing projects in the Philippines, Vietnam, Indonesia and India, AC Energy has also identified Australia and Myanmar as key target markets.

Pivot towards renewable energy

As AC Energy prepares to scale up its renewables business, the company has adopted an Environment and Social Policy that is aligned with the United Nations Sustainable Development Goals. The policy will be integrated into the company’s business strategies, performance management and governance, highlighting its determination to be sensitive to the environment and its host communities as the company provides reliable, affordable and sustainable energy, and transition to a lower carbon portfolio.

To support its renewable energy investments, AC Energy made its debut in the capital markets last year and raised US$410 million in Green Bonds, the first publicly syndicated US dollar Green Bonds in Southeast Asia to be certified by the Climate Bonds Initiative. The company then capped 2019 with the world’s first US dollar-denominated senior perpetual fixed-for-life green notes at an aggregate principal amount of US$400 million. “AC Energy is in an excellent position to reach 5,000MW of renewables capacity by 2025, and realize its aspiration to be the largest listed renewable platform in Southeast Asia,” said Francia.

Regional Updates (08/26/20)

Sulu governor opposes martial law, says economic development is what province needs

SULU GOVERNOR Abdusakur M. Tan is opposed to a declaration of martial law in the province, which was proposed by the top military officers following Monday’s twin blasts in the capital Jolo that killed 14 people and wounded over 70 others. “Hindi ako papayag dyan. Nagawa na natin yan noon (I will not agree to that. Because we have done that before)… Military intervention is just one aspect of the solution. What we need in Sulu is to try a different tact and method like educational and economic development,” Mr. Tan said during a multi-sectoral meeting on Wednesday streamed live on the provincial government’s Facebook page. “I had been there in the ‘70s, and I don’t want it to happen again,” he said during the meeting attended by security forces and civil society groups, among other sectors. At the same time, Mr. Tan expressed full backing to the military and the police in their security measures. “We will support you for helping us,” he said. At the same time, the governor called on local government units and the communities to help in addressing the problem of extremism.

POLICE SUPPORT
In Manila, Police chief Archie Francisco F. Gamboa said they are supporting the proposal to place Sulu under martial law to give security forces “more  operational flexibility” in pursuing the Abu Sayyaf Group that is suspected to be behind the bombings. Palace Spokesperson Harry L. Roque, meanwhile, said  President Rodrigo R. Duterte will decide on a martial law declaration based on the recommendations of the police and the military. “Kapag ang report naman ay nagtugma na sapat na dahilan ito sa martial law, ikukunsidera naman po yan ng Presidente (If the report justifies the reasons for martial law, this will be considered by the President),” he said in an interview over government-run PTV station. — with reports from Gillian M. Cortez and Emmanuel Tupas/PHILSTAR

Medical teams, equipment to be deployed to Bacolod City as COVID-19 cases surge

MEDICAL TEAMS from the Philippine Army and neighboring areas will be deployed to Bacolod City after Mayor Evelio R. Leonardia made an urgent call for help on Tuesday from the national government “before our health care system completely bogs down.” In a statement on Wednesday, Mr. Leonardia said Lt. Gen. Roberto T. Ancan of the military’s Visayas Command Center “promised to field, as soon as possible, a medical team composed of army doctors, nurses, and support health workers.” Medical equipment will also be sent after a needs assessment. The mayor also said Secretary Carlito G. Galvez Jr., chief implementer of the national action plan for the coronavirus disease 2019 (COVID-19) crisis, also gave assurance that nurses and doctors from other parts of the Western Visayas Region as well as the neighboring Central Visayas will be sent to help Bacolod’s health care sector. “Our need for medical staff to fill up the gap in our hospitals is great, Mr. President. Patients have already died in their homes for failing to avail of emergency hospital services,” the mayor said in his Aug. 25 letter addressed to President Rodrigo R. Duterte. “The recent spike in local transmissions of COVID-19 in our City has filled up, in no time, the 149 COVID beds in our 7 hospitals (1 government, 6 private). The situation was worsened because many of the medical staff in these hospitals has tested positive for the virus and had to go on quarantine/isolation,” he explained. Department of Health Regional Director Marlyn W. Convocar said the hospitals are already preparing to increase the city’s COVID bed allocation by another 98 while additional health workers and personal protective equipment will be provided.

WESTERN VISAYAS
A team from the national task force on COVID-19 were off to the Western Visayas Region on Wednesday, with Iloilo City as their first stop then Bacolod. The group will be led by Presidential Assistant for the Visayas Michael Lloyd Dino and Environment Secretary Roy A. Cimatu, who also headed the team that was sent to Cebu at the height of its COVID-19 outbreak. As of Aug. 25, region had 3,651 COVID-19 cases, with 2,043 active. Of the active cases, the biggest number is in Iloilo City with 604, followed by Bacolod with 460. The rest are in the following: Negros Occidental, 313; Iloilo province, 239; Guimaras, 37; Capiz, 21; Antique, 11; and Aklan, 2. The remaining 334 cases are categorized as returning residents or persons authorized to be outside residence. — MSJ

National Government Fiscal Performance

THE National Government’s budget deficit ballooned to a record P700 billion as of end-July, as pandemic expenses continued to rise while revenues fell amid the economic slowdown. Read the full story.

National Government Fiscal Performance

7-month deficit exceeds 2019 record

By Beatrice M. Laforga, Reporter

THE National Government’s budget deficit ballooned to a record P700 billion as of end-July, as pandemic expenses continued to rise while revenues fell amid the economic slowdown.

The Bureau of the Treasury (BTr) on Wednesday released its cash operations report showing the seven-month budget deficit at P700.6 billion, nearly six times the P117.9 billion during the same period a year ago. It also exceeded the P660.2-billion deficit recorded for the entire 2019.

“The year-to-date budget deficit hit P700 billion, translating to roughly 3.7% of GDP (gross domestic product), a deterioration from the 3.2% posted at the end of 2019 but far less severe than the doomsday threshold set by the (Finance department) of roughly 9%,” said Nicholas Antonio T. Mapa, a senior economist of ING Bank N.V. Manila.

The fiscal balance once again slipped into the red in July with a P140.2-billion deficit, from a P1.8-billion surplus in June.

July revenues declined by 11.2% to P234.5 billion as uncertainty over the pandemic continues to weigh on economic activity, the Treasury bureau said.

Tax revenues, which accounted for 85% of the total, fell 10.4% from a year ago to P212.3 billion. The Bureau of Internal Revenue’s (BIR) collections declined by 11.8% to P159 billion, while the Bureau of Customs (BoC) generated 8.8% lower collections at P49.8 billion. This was partly offset by the taxes generated by other offices, which almost doubled to P3.5 billion.

“BoC’s July performance was lower compared with the P54.6 billion achieved in the same month a year ago, weighed down by disruptions to trade caused by the lockdown,” the Treasury bureau said.

Revenues from non-tax sources also declined by 18.7% to P22.2 billion in July. BTr’s income dropped by 47% to P7.6 billion, partly due to the remittance of dividends earlier this year. Non-tax income of other offices increased by 12.4% to P14.6 billion.

State spending in July jumped by 10.4% from a year ago to P374.7 billion, with primary spending — or expenditures net of interest payments — rising 9.3% to P315.3 billion and interest payments growing by 16.5% to P59.4 billion.

The BTr said the higher disbursement was mainly due to the release of the second tranche of the government’s cash aid program for Filipinos whose livelihoods were affected by the lockdown.

In the seven months to July, BTr data showed overall revenues went down by an annual 6.8% to P1.688 trillion as tax collections declined by 11.7% to P1.429 trillion.

Taxes collected by the BIR slipped by 10.53% to P1.115 trillion during the January to July period, while BoC collections fell by 15.3% to P303 billion. Tax revenues of other agencies also went down by 23% to P10.3 billion due to the impact of the health crisis on business activities and government operations. This was partly offset by the 34% jump in non-tax revenues to P259.2 billion.

Higher dividends from state corporations and other service income drove BTr’s revenues 87% higher to P190.9 billion as of end-July, exceeding its P82.3-billion target for the entire year. Non-tax revenues from other offices, meanwhile, slid by 25.7% to P68.3 billion.

State spending for the first seven months of the year rose by 23.8% to P2.388 trillion on the back of the 26% growth in primary spending to P2.141 trillion and the 7% increase in interest payments to P247.1 billion.

Year-to-date interest payments as a share of revenues grew to 14.64% from 12.75% a year ago because of lower tax collections. As a percentage of expenditures, interest payments improved to 10.34% from 11.97% as spending accelerated.

The fiscal gap is widely expected to balloon this year but it could have been bigger if the government was not “financially constrained” to spend more, said Cid L. Terosa, a senior economist at the University of Asia and the Pacific.

“I believe that spending was not enough to cushion the impact of the pandemic on the economy since GDP growth slid further and the unemployment rate ballooned by double digits,” Mr. Terosa said via e-mail on Wednesday.

The economy plunged into a recession as GDP shrank by a record 16.5% in the second quarter. Unemployment rate hit 17.7% in April from 5.1% a year earlier, equivalent to 7.25 million Filipinos out of work.

Mr. Terosa said the country’s fiscal balance is expected to remain in deficit for the rest of the year with faster spending seen to “arrest the downward trajectory of economic growth and to shore up the country’s ability to address pandemic-related socio-economic concerns.”

“Revenues will continue to lag behind spending and slump relative to levels achieved last year, but it might improve slightly relative to previous months given less restrictive quarantine conditions in the remaining months of the year,” he added.

ING Bank’s Mr. Mapa said the deficit-to-GDP ratio gives the government “more than ample fiscal space” to allow for faster and bigger spending plans to “salvage some form of growth for the economy.”

“With the rest of the economy mired in recession, the Bayanihan II fiscal recovery bill and possible other outlays should help stimulate growth in the coming months, although the window for spending to generate enough critical mass to prevent five quarters of contracting GDP is closing fast,” he said in a note e-mailed to reporters on Wednesday.

Congress has passed the “Bayanihan to Recover as One Act,” which allots for P140 billion in funding to hard-hit sectors and P25 billion in standby appropriations, bringing the total stimulus package to P165 billion. The measure has been transmitted to Malacañang for President Rodrigo R. Duterte’s signature.

National Government Fiscal Performance

House panel OK’s tax perks for SMC airport

By Arjay L. Balinbin, Senior Reporter

THE House ways and means committee on Wednesday approved a proposal to exempt a San Miguel Corp. (SMC) subsidiary from all taxes while it is constructing the P740-billion international airport in Bulacan province.

The tax exemption is included in the substitute version of House Bill No. 7241 which seeks to grant San Miguel Aerocity, Inc. a 50-year franchise to build, develop, establish, operate, and maintain an airport in Bulakan town.

“During the 10-year construction period, the grantee shall be exempt from any and all direct and indirect taxes and fees of any kind, nature or description, which emanates exclusively from the construction, development, establishment, and operation of the airport and the airport city,” according to a copy of the substitute bill.

The SMC unit will be exempted from income, value-added, percentage, excise, and documentary stamp taxes, customs duties and tariffs, taxes on real estate, buildings and personal property, business and franchise, and supervision fees.

At the end of the construction period, San Miguel Aerocity will remain exempt from income tax and taxes on real estate, buildings and property for the remainder of its franchise, according to the bill. The tax exemptions will expire “as soon as it is determined by a competent authority that the grantee has fully recovered its investment cost” on the airport project.

In a phone message to BusinessWorld, Finance Assistant Secretary Maria Teresa S. Habitan said the department is “not okay” with the proposed grant of tax incentives.

“The Bulacan Airport was an unsolicited bid. Under the BoT (build-operate--transfer) law, the government must not provide subsidies or guarantees to proponents. We take that to mean including tax perks,” Ms. Habitan said.

House ways and means committee Chairman Albay Rep. Jose Maria Clemente S. Salceda said the panel had tempered the tax incentives to be granted to SMC’s unit under the substitute bill.

“On its own, the project was already going to be beneficial, as a P740-billion infrastructure investment that will come entirely out of the private sector’s hands, Mr. Salceda said at the hearing. “That’s 4% of GDP (gross domestic product). In return, we are being asked to provide some tax concessions. By tempering the tax provisions, we made sure that the Filipino people will get even more economic benefits for less taxpayer cost,” he added.

“Gusto kong matuloy ang project na ito (I want this project to push through). But we need stronger guarantees of returns for the public,” he said, noting that the airport project “will make a lot of money.”

The House panel also agreed the SMC subsidiary will be entitled to generate income from the Airport City, after a competent authority has determined that it has fully recovered its investment cost, equivalent to a project internal rate of return (IRR) of 12% per annum. But for IRR in excess of 12%, 100% of the income will be remitted to the National Government.

“There will be hotels and restaurants in the surrounding Airport City, so we want to make sure that the franchise’s tax privileges only extend to the airport operations,” Mr. Salceda said of the project, which will cover 2,500 hectares and accommodate 100 million passengers annually.

Bureau of Internal Revenue Assistant Commissioner Manuel V. Mapoy said during the hearing the tax incentives “should be limited only to the airport construction and not the airport city.”

“If this project fails, baka delikado ang financial system natin. I don’t see from the records how many passengers will pass through Bulacan. I don’t see where we’re going guaranteeing and granting a 50-year franchise,” Aklan Rep. Teodorico T. Haresco, Jr. said at the hearing.

ACT-Teachers party-list Rep. France L. Castro added: “Talong-talo ang mga mamamayan dito dahil sa 5-10 years na tax exemption (Citizens will lose big because of the five to 10 years of tax exemption).”

Gabriela Rep. Arlene D. Brosas also raised concerns about the farmers and residents who will be displaced by the construction of the airport, but SMC Holdings Operations head Edgar L. Dona said the company has programs for affected residents.

SMC and the Transportation department signed the concession agreement for the airport in September 2019. Under the deal, San Miguel will build, operate and maintain the New Manila International Airport for 50 years. The project includes the construction of an 8.4-kilometer toll road, which will link the gateway to the North Luzon Expressway. — with a report from Beatrice M. Laforga

2020 targets for BIR, BoC slashed anew

The Customs bureau is tasked to generate P506.15 billion in revenues this year. — PHILIPPINE STAR/EDD GUMBAN

THIS YEAR’S collection targets of the government’s main revenue-generating agencies have been slashed once again, as economic activity remains sluggish due to the pandemic.

Based on the latest Budget of Expenditures and Sources of Financing, the Bureau of Internal Revenue (BIR) and Bureau of Customs (BoC) now aim to collect a combined P2.192 trillion this year. This is a fifth lower than the P2.8 trillion the two agencies collected in 2019.

The BIR’s target was lowered by 3% to P1.686 trillion, from the  P1.744 trillion goal revised last May. The BoC’s collection target is now at P506.15 billion, down 6.6% from the previous goal of P542 billion.

For 2021, the BIR and BoC’s combined collection goal was hiked to P2.52 trillion, up by 15% from this year’s target.

The BIR aims to generate P1.904 trillion, while the BoC is expected to collect 25% or P619.5 billion. Compared with their targets this year, these are higher by 12.9% for the BIR and 22.4% for the BoC.

Other tax-collecting offices were tasked to generate P17.8 billion next year.

“Where tax revenue collections are dwindling — and when government spending is most critically needed — government has to resort to deficit spending,” President Rodrigo R. Duterte  said in his 2021 budget message published on Wednesday.

The revenues collected will support the state’s P4.5-trillion spending plan next year.

Mr. Duterte said the implementation of the tax measures under the Comprehensive Tax Reform Program (CTRP) will “continue to strengthen” the tax base and support higher collections.

He said the Tax Reform for Acceleration and Inclusion Act (TRAIN) is expected to generate P133.9 billion in additional revenues next year, while the second package or the Corporate Recovery and Tax Incentives for Enterprises pending in Congress could contribute P26.1 billion.

However, with the expected P97.2-billion reduction in revenues when the corporate income tax is lowered to 25% from 30% now, Mr. Duterte said the estimated tax receipts from the CTRP will be reduced to P62.7 billion next year.

The President ordered the economic team to fast-track the digitalization of the government’s financial management operations such as developing digital taxation, establishing related infrastructure and the use of technology in collecting taxes and releasing funds.

“With this at hand, we expect to limit the need for physical tax payment transactions at the BIR, thereby reducing unnecessary exposure to COVID-19 infections, but more importantly, promoting contactless and less corruption- prone transactions,” he added.

For 2022, the BIR and BoC collection targets were at P2.84 trillion, broken down into P2.178 trillion for the BIR and P663.1 billion for the BoC.

They are expected to account for 76% and 23% of the P2.86-trillion total tax revenues that year, respectively.

As of July, taxes collected by the BIR fell by 10.53% from a year ago to P1.115 trillion, while Customs collections also went down by 15.3% to P303 billion

Economic managers expect the economy to shrink by 4.5-6.6% this year before bouncing back to 6.5-7.5% growth next year. —  B.M.Laforga

Central bank flags potential systemic risks from global recession

By Luz Wendy T. Noble, Reporter

THE central bank vowed to ensure financial stability in the market, as it raised the possibility that “systemic risks may materialize” due to the global recession.

“Systemic risks may seem like a high-level concept but it really just means that financial authorities are looking for any sign that the operations of the financial market may be impaired to the detriment of the general public,” BSP Governor Benjamin E. Diokno said in a statement after a  meeting with the Financial Stability Policy Committee (FSPC).

Systemic risk is the potential for an event at the company level to trigger severe instability or the collapse of an entire industry or economy.

“Pursuing financial stability requires us to manage systemic risks and we do this because our primary goal is to protect the welfare of the public,” he said.

Pressed for details, Mr. Diokno said the FSPC is looking into many factors to gauge the possibility of systemic risks.

“For example, was the economy weak or strong at the start of the pandemic? What’s the country’s debt-to-GDP ratio? How strong or weak the banking system [is] before the pandemic and so on. As you can see, no two countries are alike,” Mr. Diokno said in a text message.

In July, Mr. Diokno said they had yet to see any indications that the financial market had been impaired as a result of the pandemic.

In a bid to manage financial stability, the FSPC said ensuring liquidity will be critical to recovery and the transition to a new economy.

“Among the steps that the FSPC is considering is a new instrument that will allow banks to mobilize the liquidity already with them by taking a view on future GDP (gross domestic product) growth,” the BSP said.

It said boosting risk assessment practices for bank credit “is continuously aligned with spot yields in the securities market.”

Most lenders implemented more stringent lending standards for both enterprises and households due to reduced tolerance for risk as the pandemic raged, a BSP study showed. The same trend was seen during the global financial crisis.

Risk management systems imposed by regulators are vital to guard against systemic risks that may materialize, said Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

“If banks have huge losses from loan defaults, that could threaten their capital. Large market losses is also a risk to bank’s capital, that is why regulators have placed limits on trading activities,” he said in a text message.

Impaired and impacted banks may in turn be unable to act as financial intermediaries which are much needed at a time of crisis, said ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa.

“More businesses will close, incomes will drop further, loan payments will freeze and banks will get hit again and so on and so forth,” Mr. Mapa said in an e-mail.

Mr. Ricafort said banks have been required by BSP to have a business continuity plan to ensure continued operation even in the face of extreme situations such as calamities and the current pandemic.

Gross nonperforming loans (NPL) or credit unsettled at least 30 years past due date surged 26.7% to P273.6 billion in June from P215.9 billion a year ago. This, as the industry’s total credit portfolio dipped 1.27% to P10.82 trillion from P10.96 trillion in June last year.

With this, the banking industry’s gross NPL ratio stood at 2.53% from 2.43% in May.

The BSP expects NPL to reach around 4.6% by end-December 2020 due to the pandemic. This is much lower than the 17.6% peak in 2002 at the aftermath of the Asian financial crisis.

“If banks come under fire due to souring loans, it may drag the economy further into recession and government will need to step in to save the system from imploding,” Mr. Mapa said.

Amid the rise in bad loans, lenders have beefed up provisions for credit losses by 48.5% year on year to P300.3 billion in June.

Banks’ capital adequacy ratio stood at 12.73% as of end-June, well beyond the 10% minimum required by the BSP.

Amid the possibility that such systemic risks can materialize, Mr. Mapa said the government has the responsibility to address the main problem.

“[The] government needs to do all it can to nip the risk in the bud by addressing the root cause of the systemic risk, which is the drop in income and loss of jobs caused by the pandemic. Prevention always trumps the cure and the government may end up spending more if it waits for these systemic risks to materialize,” Mr. Mapa said.

8990 eyes up to P9-B bond offer

MASS HOUSING developer 8990 Holdings, Inc. is planning an issuance of up to P9-billion fixed rate notes to refinance existing bonds maturing by the end of the year.

In a disclosure to the exchange on Wednesday, 8990 said its board of directors has approved offering peso-denominated notes with a base size of up to P5 billion and an oversubscription option of up to P4 billion.

The plan is to sell the notes only to qualified institutional buyers, which means it would not require registration with the Securities and Exchange Commission.

“The fixed rate notes are intended to pay off our 5-year bonds due in October,” 8990 Investor Relations Officer Patricia Victoria G. Ilagan said in a text message to BusinessWorld.

8990 has tapped BDO Capital & Investment Corp. as the sole issue manager, lead arranger and sole bookrunner, and RCBC Capital Corp. as co-arranger for the planned offering.

“The final terms of the notes will be determined after the bookbuild process and prior to the issuance thereof. The company shall provide the necessary updates regarding this in due course,” it said.

The notes will be listed at the Philippine Dealing & Exchange Corp. (PDEx).

8990 currently has three securities listed at PDEx: the P8.41-billion bonds maturing in October, P375.5-million bonds maturing in July 2022, and P218.91-million bonds maturing in July 2025.

In the first half of the year, 8990 recorded a 47% drop in attributable net income to P1.48 billion, as its revenues fell 30% to P4.91 billion. In a regulatory filing, it said the decline was due to the lockdown to contain the coronavirus pandemic, which hampered its business operations and sales especially in the second quarter. — Denise A. Valdez

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