How PSEi member stocks performed — January 8, 2020
Here’s a quick glance at how PSEi stocks fared on Wednesday, January 8, 2020.
Direct flights to regional airports driving tourist arrival targets
THE Department of Tourism (DoT) said its target of 9.2 million international visitors this year is driven by more airport development projects which allow tourists to bypass Manila’s congested airport.
“According to the National Tourism Development Plan, it’s at 9.2 million for this year,” Tourism Secretary Bernadette Romulo-Puyat told reporters on Wednesday on the sidelines of the conference on the Institutionalized Leveraging of Infrastructure Program for Airport Development (iLIPAD) held in New Clark City.
The 2019 tourist arrival target was set at 8.2 million.
“We are happy that there are more airports opening: Clark, according to (Transportation) Secretary (Arthur P.) Tugade, will be at the latest July, Legazpi, of course that will help. And of course, when we have the approval of the consortium for the expansion of NAIA (Ninoy Aquino International Airports).”
She was referring to the new passenger terminal at Clark as well as the Bicol International airport in Daraga, Albay, in the Legazpi City area.
“We want the tourists not to go via NAIA but to go straight, so we have Mactan, Bohol and of course Clark and Bicol (airports),” she added.
Asked about her department’s target tourism revenue for 2020, Ms. Puyat said: “I’m not quite sure but then for January to September last year, we had an increase of 25% from the previous year.”
Ms. Puyat and Transportation Secretary Arthur P. Tugade also signed a memorandum of agreement on behalf of the DoT and the Department of Transportation (DoTr) to “intensify infrastructure development that will support the development and promotion of tourism circuits across the country.”
Under the agreement, both departments will prioritize airport development programs in support of tourism development areas, monitor the progress of airport projects in such areas, and explore, develop and increase the value proposition of destinations “for sustainable tourism through the productive utilization of airport assets and route development.”
In her opening remarks during the conference, Ms. Puyat said the Tourism Infrastructure and Enterprise Zone Authority (TIEZA), which is the infrastructure arm of the DoT, is now working with the DoTr “on the possibility of funding several airports to equip them (for night operations).”
“Funding amounting to P1 billion is set for approval by the TIEZA Board in its next board meeting. We must make sure that it’s not only more fun in the Philippines, but much safer too,” she added.
Mr. Tugade said: “I would like to thank the Department of Tourism. This gesture is very encouraging, because believe it or not, the capacity of all commercially-operating airports in the Philippines has and have to be night-rated in order that they make sense and the efficiency desired can be achieved.” — Arjay L. Balinbin
DoJ’s Guevarra urges water firms to accept ‘fair’ new contracts
By Gillian M. Cortez and Genshen L. Espedido
JUSTICE SECRETARY Menardo I. Guevarra urged Metro Manila water concessionaires not to “play hardball” after President Rodrigo R. Duterte offered the service providers new agreements under threat of nationalization and possible plunder and fraud charges.
Mr. Duterte on Tuesday called on Manila Water Co., Inc. and Maynilad Water Services, Inc. to accept the new contracts, which the government considers to be free of the original onerous provisions. He raised the prospect of nationalization and plunder or fraud prosecutions for the parties that negotiated the contract.
“I see no good reason why the water concessionaires will play hardball and induce the government to take extraordinary measures, like taking over their operations or nationalizing the water distribution service,” Mr. Guevarra said in a message to reporters on Wednesday.
Mr. Gueverra’s Department of Justice (DoJ) is responsible for drafting a new contract alongside the Office of the Solicitor General for both water providers. The government claims the current contracts are onerous because they reject the government’s power to regulate prices in the public interest.
The President has also accused Maynilad and Manila Water of not delivering on water treatment facilities while charging fees for such services.
Mr. Guevarra said the draft contracts will be “fair and equitable, more transparent, and advantageous to the consuming public.” No timeline has been set on when the new deals will be presented to both Maynilad and Manila Water.
Speaker Alan Peter S. Cayetano said he hopes the new agreements are made public soon and are acceptable to the two concessionaires to avert problems in the water supply for the medium and long term.
He believes a prolonged standoff could create confusion on the government’s power to regulate water supply contracts.
“Hindi makakapagplano ng long-term solutions sa supply ng tubig kapagka hindi alam ng negosyante o hindi alam ng gobyerno kung anong duties nila within na next 10, 15, 20 years. So sana sa pinakamadaling panahon etong first quarter ng taon, mailabas yung bagong kontrata at magkasundo (It will be difficult to plan for the long term on water supply if businesses do not know or the government does not know what their duties are over the next 10, 15, or 20 years. I hope as soon as the first quarter of this year, the new contracts will be released and signed),” he told reporters Wednesday.
The House of Representatives last month investigated the alleged irregularities found in the concession agreements of Maynilad and Manila Water.
Sangley to be launched as general aviation hub in February
THE GOVERNMENT will inaugurate Sangley Airport in Cavite on Feb. 15, positioning it as the main hub for general aviation to decongest Metro Manila’s main gateway.
In his speech at the conference on the Institutionalized Leveraging of Infrastructure Program for Airport Development (iLIPAD) held in New Clark City Wednesday, Transportation Secretary Arthur P. Tugade said that the “formal inauguration” of the Sangley Airport will be on Feb. 15, with President Rodrigo R. Duterte in attendance.
Mr. Duterte ordered last year the immediate use of the facility for general aviation to reserve Ninoy Aquino International Airport (NAIA) for larger commercial aircraft.
According to the Civil Aviation Authority of the Philippines, an average of 3,000 general aviation flights depart NAIA every month. The DoTr has been developing Sangley to accommodate such flights.
General aviation includes charter, corporate, military and pilot training flights typically using lighter aircraft.
The field at Sangley operated as Danilo Atienza Air Base. Its location on Sangley Point, a peninsula which has been a naval facility since Spanish times, means it is surrounded by navigable waters which will require extensive reclamation if it is to be expanded, making it expensive to redevelop as a bigger hub.
Department of Transportation (DoTr) officials said in October that the new airport will have “turbo-prop as the maximum aircraft that will operate in Sangley.”
The airport’s runway will serve as the “third runway” of Ninoy Aquino International Airport with a maximum capacity of 20 movements per hour, referring to both landings and take-offs, the DoTr said. — Arjay L. Balinbin
Veto-less budget message imposes conditions
THE NEWLY SIGNED 2020 national budget amounting to P4.1 trillion passed without any veto from President Rodrigo R. Duterte, though he imposed conditions on some spending items.
According to the President’s budget message released late Tuesday, Mr. Duterte specified “conditional implementation” for some items in the 2020 General Appropriations Act (GAA).
The Department of Budget and Management said according to its evaluation, the 2020 budget has no vetoable provisions, but added that some items could be subject to conditional implementation to remain compliant with budget rules.
In a budget briefing Wednesday, the DBM’s Director for Legal Services Ryan S. Lita said no items in the 2020 General Appropriations Fund (GAA) were likely to be vetoable.
“Based on the review by the DBM, we didn’t find any item…that is strongly objectionable vis-a-vis existing laws and policies, and which cannot be addressed by conditional implementation,” he said.
The P4.1-trillion national spending plan, the largest national budget to date, was ratified by both houses of Congress on Dec. 12. The signed version maintained the total amount approved by Congress.
In his budget message, Mr. Duterte said: “I am duty bound to subject the following provisions to specific conditions prior to implementation, in order to faithfully comply with existing laws, policies, and rules and regulations, for the effective and efficient utilization of public funds.”
The items subject to conditions include foreign travels of government officials and employees; the Last Miles Schools Program of the Department of Education (DepEd); the resettlement of families or individuals affected by infrastructure projects under the Department of Public Works and Highways (DPWH) and Department of Transportation (DoTr); assistance and subsidies provided by the DepEd; the supplementary feeding program of the Department of Social Welfare and Development (DSWD); the DSWD’s protective services program; funding for foreign assisted projects; the DepEd’s quick response fund; Special funds including the Department of Finance’s (DoF) Rewards and Incentive Fund; the Department of Tourism’s (DoT) Tourism Development Fund; the DoF’s use of fees and other receipts of the Securities and Exchange Commission; the Department of Trade and Industry (DTI) and Technological Education and Skills Development Authority’s (TESDA) Tulong Trabaho Fund; and the National Economic Development Authority’s (NEDA) Innovation Fund; and the release of funds for regions affected by earthquakes and for Marawi’s rehabilitation.
When he signed the 2019 budget, Mr. Duterte vetoed billions of pesos worth of items, reducing the P3.7-trillion budget as legislated to P3.6 trillion. — Gillian M. Cortez
DBM sees cash-based budgeting improving spending performance
THE Department of Budget and Management (DBM) said it expects improved spending performance from the government on 2020 budget items, due to the cash-based budgeting system currently in force.
It added that the budget, which will finance the National Expenditure Plan (NEP), is free from the sort of illegal insertions that delayed the 2019 budget.
Assistant Budget Secretary Rolando U. Toledo told BusinessWorld said visibility on spending will likely improve because cash-based budgeting forces agencies to spend on priority items with the required clearances, within a certain period and with specified prices.
“Even before the implementation in the preparation of the budget we require agencies that the programs and price should be ready for implementation (due to the rules of) cash based-budgeting,” he said.
“So far, we see that the cash-based budgeting system improves spending… with this system, implementing agencies are required to, of course, deliver the projects and pay for the projects within the fiscal year,” Mr. Toledo said during a briefing Wednesday.
The government operated on a re-enacted 2018 budget for more than a quarter in 2019 because that year’s budget was signed in April, dampening spending on new items and slowing the economy’s growth. President Rodrigo R. Duterte signed into law last month a measure extending the validity of the P3.6-trillion 2019 budget by a year, overriding cash-based budgeting rules.
The DBM added that the 2020 budget complies with the rules, contrary to fears that the spending plan contains so-called “pork barrel” items. The DBM confirmed no provisions were vetoed by the President following the release late Tuesday of the President’s budget message.
Earlier this week, Senator Panfilo M. Lacson expressed his suspicions over certain items allegedly inserted in the spending plan after the budget was signed by the President.
“Based on the review by the DBM, we didn’t find any item of appropriation provision or proviso that is strongly objectionable vis-a-vis existing laws and policies and which cannot be addressed by conditional implementation or general observation,” the DBM’s Director for Legal Service Ryan S. Lita said during the same briefing.
In the President’s 2020 Budget message released on Tuesday, Mr. Duterte listed 11 items for conditional implementation to comply with existing laws. — Gillian M. Cortez
Philippine nickel output seen growing at about 8% a year
NICKEL production is expected to increase by over 8% a year in the next few years despite policy uncertainty that could limit project development, Fitch Solutions Macro Research said in a report.
“We expect Philippine production to continue rising over the coming years although high levels of policy uncertainty could constrain project development, posing downside risks to our forecasts. We forecast nickel production to average 8.6% year-on-year growth over 2020-2028,” Fitch Solutions said in its industry trend analysis published Jan. 8.
It said that the Philippines will regain its spot as the mineral’s top producer due to Indonesia’s nickel ore export ban, which took effect this year. Indonesia hopes to accelerate the establishment of domestic smelters to capture more value than the current practice of exporting ore.
The United States Geological Survey said in a report in February that Indonesia produced 560,000 tons of nickel in 2018, taking the top spot, followed by the Philippines with 340,000 tons.
Fitch Solutions said that most of the Philippine supply will come from SR Metals, Inc., Global Ferronickel Holdings, Inc., Nickel Asia Corp., and CTP Construction and Mining Corp. Of these, Nickel Asia will remain the top producer on the back of its Taganito and Cagdianao mine operations.
The Taganito mine site covers the barangays of Hayanggabon, Urbiztondo, Taganito, and Cagdianao in Claver, Surigao del Norte. The total land area covered in its Mineral Production Sharing Agreement (MPSA) is 4,862.71 hectares.
The Cagdianao mine site is located in barangay Valencia, Cagdianao, in the Dinagat Islands. The total land area of its MPSA is 697 hectares, one third of which is mineable.
Fitch Solutions noted that from 2016 to 2018, nickel production declined by an average of 12% due to the ban on open-pit mining.
The current Environment Secretary, Roy A. Cimatu, reversed some of his predecessor’s restrictions, but some mine suspensions are still in force until miners address concerns raised about their environmental compliance.
Globally, Fitch Solutions is projecting nickel ore production to fall 15.7% due to Indonesia’s nickel export ban.
This is “despite rising production growth in competitor the Philippines as well as steady output in other major producers Australia, Canada and Russia.”
“In the longer term, we forecast global nickel production to grow by an annual average rate of 1.6% year-on-year over 2020-2028, a significant slowdown from the 5.8% year-on-year average achieved over 2011-2019, which was boosted by higher nickel prices at the time and strong Indonesian output before another export ban in 2014,” Fitch Solutions noted. — Vincent Mariel P. Galang
Palay farmgate price resumes upward trend in early December
THE AVERAGE farmgate price of palay, or unmilled rice, resumed its upward path in the first week of December, rising 0.4% to P15.62 per kilogram (kg), the Philippine Statistics Authority (PSA) said.
According to PSA’s weekly palay and corn price update, the average wholesale price of well-milled rice rose 0.1%, week-on-week to P37.23, while retail prices fell 0.3% to P41.44.
The average wholesale price of regular-milled rice fell 0.2% week-on-week to P33.09 per kg, while retail prices fell 0.3% to P36.57.
The farmgate price of palay briefly increased before declining again in late November. However, on a year-on-year basis, it fell 22.3% in the first week of December. The recent bout of volatility has been described as a natural market adjustment before establishing a new normal value following the disruptions of 2019, when the price structure was upended by imports.
The Rice Tariffication Law, or Republic Act No. 11203, was signed in March, removing limits on the entry of imported rice, which have to pay a 35% tariff if imported from within Southeast Asia. The large volume of imports disrupted the domestic palay market, pressuring farm incomes.
The average farmgate price of yellow corn grain fell 0.5% week-on-week, to P11.92 per kg. The average wholesale price rose 1.2% to P21.30. The retail price rose 0.6% to P25.86.
The farmgate price of white corn grain averaged P13.24 per kg, up 0.8% week-on-week. The average wholesale price was unchanged at P17, while the average retail price increased 0.2% to P26.74. — Vincent Mariel P. Galang
Davao business chamber volunteers services for farm logistics upgrades
DAVAO CITY’s business chamber has offered to work with the Department of Agriculture (DA) and the Department of Trade and Industry (DTI) to plan for improved farm logistics.
John Carlo B. Tria, president of the Davao City Chamber of Commerce and Industry, Inc. (DCCCII), said the association will be initiating discussions with the two departments after Agriculture Secretary William D. Dar’s announcement Friday that the construction of farm-to-market roads, especially in conflict-affected areas, will be among the top priorities this year.
“(W)e are open to dialogue… to help build strong logistics networks and infrastructure such as cold storage facilities, which will help farmers and consumers. Having better logistics helps farmers by minimizing the volatility in prices since excess produce need not go to waste or drive down prices as they can be stored,” Mr. Tria said in a statement late Tuesday.
Asked to comment, Mr. Tria said setting up a good logistics network can be fast-tracked through private-public partnerships.
He said improvements in the supply chain are particularly important in Mindanao given that it provides “about 40% of the country’s food supply, and where prices of commodities are often lower than the rest of the country.”
“This will allow food to get to consumers quickly and cheaply.”
Mr. Tria also said that a stable food supply will have a positive impact on other sectors such as tourism.
“If food prices go up, so will the cost of eating in restaurants and tourism establishments, which may make them less competitive,” he said. — Carmelito Q. Francisco
Inflation target range implies 0.3% cap on price growth month-on-month — Finance dep’t
PRICE gains in general goods need to be capped at 0.3% month-on-month this year for inflation to land within the official 2-4% target range in 2020, according to an economic bulletin issued by the Department of Finance (DoF).
“For inflation to fall within the target range, the month-on-month price change should be at most 0.3% per month,” the DoF said Wednesday.
A rise of 0.3% month-on-month points to 2.7% inflation in January, 2.8% in February and 3.1% in March, it said. In December inflation came in at 2.5%, which was also the 2019 average.
The DoF is banking on productivity programs for the agriculture sector to ease gains in food prices to keep monthly gains within 0.3%.
The 2-4% inflation target applies until 2022, when the current government steps down.
“Productivity programs for agriculture will ease seasonal food price increases in the future. The Department of Agriculture (DA) has set up programs to modernize agriculture, build farm-to-market roads, develop value chains and enhance research and development,” it said.
However, public and private economists have warned that a Middle Eastern conflict are a risk to global oil prices, which could cause overall inflation to accelerate further this year.
For December, the DoF said inflation rose 0.7% month-on-month due to holiday demand for fish and vegetables, whose prices accelerated by 5% and 3.7%, respectively.
It said price gains were tempered by a continued easing in rice prices, which brought overall food inflation to 2.1%.
“In the non-food group, inflation rose 2.4% boosted by a seasonal upsurge in health (3.5%), restaurants (3.3%), and household furnishings (3.2%) prices. This was dampened by lower electricity and fuel prices (0.8%),” it added. — Beatrice M. Laforga
Stronger fourth quarter GDP expected on strong jobs data — UA&P, FMIC
FOURTH QUARTER gross domestic product (GDP) likely ended on a “stronger” note with positive employment and lower poverty data boosting investment during the period, the University of Asia and the Pacific (UA&P) and the First Metro Investment Corp. (FMIC) said.
The projection was made ahead of the official release of fourth quarter GDP data this month.
“Recent economic indicators point to a stronger Q4 and 2020, with positive employment print and poverty data indicating better investment numbers for the last quarter of 2019. Household consumption will still benefit from this, softer inflation (on average) and low interest rate,” UA&P and FMIC said in their December issue of The Market Call, released Wednesday.
Economists also said investment spending in the last quarter will further accelerate on the back of a strong rebound in infrastructure and capital outlays in the last two months of 2019.
Citing data from the Philippine Statistics Authority (PSA), the report said the economy added about 1.3 million jobs in 2019 and recorded all-time low rates in both unemployment and underemployment at 4.5% and 13%, respectively.
The poverty rate moved closer to the government’s 14% target by 2022, dropping to 16.6% in 2018 from 23.3% in 2015, for average decline of 2.2 percentage points annually since 2015.
Meanwhile, they said consumer spending was likely to have posted above-average gains during the quarter amid easing inflation, which is estimated to average 1.4% during the last quarter of 2019.
Inflation picked up to 2.5% in December to bring the full-year average to 2.5%, well within the official 2-4% target range.
“The peso may have seen its best months as we expect higher BoT/CAB (balance of trade/current account balance) deficits in Q4 with national government ramping up infrastructure spending and the economic momentum gather(ing) pace,” it said.
UA&P and FMIC maintained a 6-6.5% GDP growth forecast for 2019, similar to the narrowed official target issued by the government.
The economy grew by 5.6%, 5.5% and 6.2% in the first three quarters of 2019, bringing the year-to-date average to 5.8%. It would take a 6.7% growth in the fourth quarter to hit the low end of the official target.
Moving forward, UA&P and FMIC said they expect “a last 25 bps (basis points) cut in policy rate by the Monetary Board (MB) in Q1-2020.”
Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno told reporters Tuesday that monetary authorities may deliver another 25-bp cut to benchmark policy rates.
The Monetary Board is due to meet on Feb. 6 and on March 19 during the first quarter.
If rates are cut as advertised, they will follow 75 bps worth of rate cuts in 2019, partially reversing the 175-bps of rate hikes in 2018, when inflation rose to multi-year highs. — Beatrice M. Laforga
A new year for us and for CITIRA
With the close of the decade, we have seen how Philippine taxation has been transformed by numerous developments unfolding in the landscape. Several changes that are in the works may make progress in the coming months. One of them is the second package of the tax reform, which proposes to rationalize tax incentives.
In the predecessor bill, known as the Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO), our legislators proposed a sunset provision for the tax incentives of projects or activities that are currently registered under various incentive-giving laws. The registered projects can continue to be entitled to their existing tax incentives, e.g., income tax holiday (ITH) or the preferential 5% gross income tax (GIT), for a maximum of five years. For those enjoying the 5% GIT, the entitlement depends on the number of years the tax perk has been availed of.
When the 18th Congress opened last year, the Corporate Income Tax and Incentives Rationalization Act or the CITIRA bill, which incorporated a majority of the proposals under TRABAHO, was filed and was approved by the House of Representatives. Among the additions introduced was this sunset provision:
“Provided, finally, that existing registered activities which will qualify for registration under the Strategic Investment Priority Plan, may opt to be governed by the provisions of this Act. In such case, the said enterprise shall be required to surrender its certificate of registration, which shall be deemed as an express waiver of their privilege to avail of incentives provided in the incentives law under which they were previously registered.”
The CITIRA bill provides registered projects or activities two options. They may either (1) continue enjoying their current tax incentives, subject to a set limit, or (2) part with their existing tax incentives and avail of the perks available under CITIRA, as long as these activities meet the prescribed conditions.
For example, let us assume Project A currently enjoys the 5% GIT. With the proposed provision, Project A could give up such tax concessions by surrendering the certificate covering its existing incentive, and avail of the tax incentives granted under CITIRA, e.g., ITH for three to six years, 18% preferential income tax, or the enhanced deductions for two to four years. The only condition that Project A has to satisfy is that it is an existing registered activity which will qualify for registration under the Strategic Investment Priority Plan (SIPP).
Moving further, let us assume that CITIRA takes effect, and Project A opts to avail of the tax incentives under the new regime. If Project A’s tax incentives are about to expire, will it be allowed to renew or refresh its tax incentives if it surrenders its certification of registration and its activities are still included in the SIPP? Can Project A continue applying for the renewal of tax incentives as long as it remains to be qualified under the SIPP and gives up its previous registration certificate?
To my mind, the proposed provision seems to yield an affirmative answer.
Is this the intent of our lawmakers though? Wouldn’t this be contrary to the limited incentive period proposed by CITIRA, and ultimately, to the tax reform’s objective that the incentives be time-bound? Nevertheless, if our lawmakers contemplated possible renewals of tax incentives for existing registered enterprises, shouldn’t they draft the bill to clearly express this intent?
A law, which is clear and unambiguous, should be applied as stated. There should only be room for application, and none for interpretation. It is a cardinal rule in statutory construction of laws, that if the language of the tax law is written in clear terms free from ambiguity, then it must be applied to the letter to ease tax compliance.
In this day and age, when time and resources are scarce, who would not want clear and straightforward tax rules and policies? Taxpayers can use their resources for activities more valuable than resolving vague tax law provisions at length. More importantly, a clear tax law would minimize the troubles of our tax authority when it comes to implementation and would also lessen the burden on taxpayers in terms of tax compliance.
CITIRA still has a chance to improve in the Senate and the bicameral deliberations. The bill was transmitted from the House of Representatives to the Senate on Sept. 16. At this stage, the Technical Working Group of the Senate Committee on Ways and Means has prepared the final committee report and is ready to file it for deliberations.
Just like some of us who look forward to kicking off 2020 with a good start, the CITIRA bill also deserves an opportunity to start the year well. With the upcoming deliberations, let us hope that the bill is enhanced to achieve its purported end of realizing fairness, improving the competitiveness of the Philippines across the ASEAN, plugging tax leakages, and rationalizing tax incentives to the most reasonable and competitive extent possible.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Noelie Kristine M. Tagle is a manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
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