Sunday, November 04, 2018

Energy 116, Cheaper oil but rising oil tax

The good news is that recently, world oil prices are falling and peso depreciation has stopped so domestic oil prices are falling. World coal prices are falling too (In 2017, 50% of total PH electricity supply came from coal power plants).

The bad news is that oil and coal tax hikes part 2 under TRAIN law will proceed in January 2019 or two months away. Dutertenomics and TRAIN law believe that cheap oil, cheap electricity is bad so they raised the taxes to make oil and electricity prices become more expensive.

And while Malacanang earlier announced that they will suspend part 2 excise tax hikes by January, DOF also announced that they may not suspend part 2 tax hikes. Any suspension is only for electioneering purpose, after the May 2018 mid-term elections, they will resume part 2.

See also:
Energy 113, First Gen/EDC's anti-coal drama, September 23, 2018 

Wednesday, October 31, 2018

Bishop Ambo David and the prisoners

This is a heart-warming story written by Bishop "Ambo" David. I know him personally -- cool, warm and very friendly priest, now a Bishop. He is the younger brother of my former boss for 3 years, Prof. Randy David during 'Public Forum' days in IBC Ch 13 in the 90s. When I went to the Netherlands for 3+ months in 1987, I was also able to see him in his graduate school, University of Louvaine I think, in Belgium.

Pablo Virgilio David
October 28 at 7:55 PM


I celebrated a Sunday Mass this morning at the fully-packed Caloocan city Jail. I was aware that Sunday was their visiting day so I didn’t want to delay the Mass, knowing that a delay would shorten their time with their families. I really thought they all had visitors. On my way out, after the Mass, some of them had been assigned to stand as marshals on either side of the path leading to the exit door, with their arms locked to each other’s, in order to facilitate my exit from the prison chapel. One of the inmates assigned to keep the line unbroken was sweating under the weltering heat of the sun when I passed in front of him. He looked up at me with contrite eyes, his arms linked with those of his fellow marshals on his right and on his left, and said: “Father! Father, please bless me po!” He bowed his head and i put my hand on the crown of his head. When he looked up again he had tears in his eyes as he said “Thank you po! Pls pray that I be able to return to my family soon!” I looked at him and said, “Yes, I’ll pray for that!” Perhaps because I stopped and they saw that I laid my hands on one of the marshals, the rest of the inmates at the back started stretching out their hands to seek my blessing too. The marshals did not prevent them anymore. Soon, those on the other side were also pleading, “Here too, father!” One of the ‘mayores’ said to him: “He’s a bishop!” The man quickly corrected himself and said, “Father bishop! Please bless us too!” I turned to his direction and said, “I am hurrying because I don’t want to deprive you of your time with your visitors.” The man said, “We have no visitors, Father.” I looked at him and I said, “Ok. In that case, let me be your visitor today, ok?” They answered in unison, “Yes, po! Thank you for visiting us!”

The heads that I laid hands on were greasy. The hand-clasps that I got were tight, like they wanted to hold on, desperate for a little blessing. One of them proudly presented to me his son, a little hare-lipped boy who smiled from ear to ear despite his severely deformed mouth and teeth. Before I stepped out of their quarters, they asked for a group photo with me. I suggested a wacky pose, signaling a little heart sign with the thumb and the forefinger pressed on each other. They imitated my wacky pose and, after the group photo, warmly waved goodbye to me.

BWorld 263, Institutional decline and garbled competition regulations

* This is my column in BusinessWorld yesterday, October 30, 2018.

The Duterte government is known for political environmentalism and recycling — it recycles its heavily tainted officials, sacking them from one post only to be given another post in another government agency. The Bureau of Customs in particular is becoming more known as a “blinded” facilitator of multibillion pesos worth of imported shabu smuggled into the country.

The World Economic Forum (WEF) publishes an annual report, the Global Competitiveness Index (GCI) and GCI 2018 was released two weeks ago. The good news is that the overall rank of the Philippines has stabilized at 56th-57th the past three years.

The bad news is that the country’s rank in Pillar #1, reliability of institutions, obviously the most important out of 12 pillars and components, has been declining and eroding. There is overall decline of the rule of law, decline of reliability of the police and judicial independence, and increase of organized crimes and terrorism over the past four years. I skip the 11 other pillars and focus on some components of pillar #1. The trend can be depressing (see table).

Where investors are less secure about their own safety and their businesses, we can expect a flatline if not decline in business optimism, which is countered somehow by the Philippines’ most important advantage now — a big and young population, meaning more workers and entrepreneurs, more producers and consumers.

Meanwhile, a garbled competition policy by the Philippine Competition Commission (PCC) penalizing both Uber and Grab for their merger last April will be another uncertainty factor that potential big foreign players will note if they ever think of coming in.

Among the most important factors for real competition to kick in is the existence of a “contestable market,” which is zero or minimal cost of entry and exit. New players entering a sector anytime so long as they have sufficient resources, then exiting it when the projected revenues and profit do not materialize and before they lose more money.

The exit of Uber in the Philippines and other ASEAN countries was a global headquarter decision, not country manager’s decision. When Grab became the surviving entity, it inherited the expectations and combined demand level (about 600,000 bookings a day) but not the combined supply of transport network company (TNC) cars and drivers because LTFRB has not acted on the franchise application of 8,000 cars out of total 19,000 Uber cars before the merger.

So while demand remains the same but supply has declined, the supply curve shifts to the left, the immediate results are (a) longer waiting time for passengers, and (b) higher fares via higher surge pricing as a form of price rationing. Those who are unhappy with the higher price will seek the regular taxi or aircon vans/UV express, P2P buses, regular buses, and so on.

Thus, PCC’s penalty of P16 million vs Grab and Uber is wrong. The decline in supply of TNC cars, the longer waiting time by passengers, was caused by LTFRB, not by the merger. Penalizing players for a problem caused by another government bureaucracy is a policy signal to potential big players and competitors that the same level of penalties and harassment can be applied to them someday once they come here. There is high entry cost, high exit cost, far out from being a contestable market. Bad business signal.

Another garbled transportation policy is the heavy fare control of buses, jeepneys, taxi and UV express imposed by the LTFRB by granting a small fare hike purportedly to “protect the public.” When the operating costs (high oil taxes and prices, etc.) keep rising but the revenues per passenger do not catch up, public transportation companies will either (a) jampack their buses and jeepneys with more passengers, and (b) cut costs somewhere like extending the use of near-bald tires, using cheaper but less reliable spare parts. Either way, passenger convenience and safety is compromised, which defeats the LTFRB’s purported goal.

Government must focus on the rule of law, not rule of incumbent politicians and bureaucracies. More competition favors the consumers and passengers. More regulations and prohibitions only favor bureaucrats and their corrupt ways.

See also: 

Tuesday, October 30, 2018

Mining 58, Rivers and forest

Last week, I have a brief and friendly debate in fb with a friend Rodney, who suggested that all mining activities in the Philippines should be closed because of the various environmental damage they cause. I countered that he should also give that advice to Australia, Canada, USA, Russia, Indonesia, Sweden, UK, Chile, etc. They are among the biggest mining exporters in the planet.

Rod cited two cases: recent landslide in Cebu where many workers died, and the Placer Dome or Marcopper mining disaster in Marinduque many years ago.

Itogon-Benguet, Cebu landslides, other past landslides were caused by so-called "small-scale" mining and quarrying, not by big corporate mining which are under strict monitoring by DENR, LGUs. Mining in the US, Canada, Australia, etc are all done by corporate players, no, zero, nada ‘small scale’ mining.

The Marcopper mining disaster indeed was bad, it happened more than two decades ago and Marcopper paid a heavy price for that both in money and corporate brand/image. But if people cite a failed corporate miner, they must also consider non-failing corporate miners, lots of them. No landslides, no death, no dirty tailmines.

There is also a tendency for people who live and work far away from successful and responsible mining towns and provinces, to just advocate total mining ban. They care little about lost jobs, lost community projects like free but private hospitals and schools, lost local and national taxes. They have their own jobs anyway.
Pictures, top is Rio Tuba River in Bataraza, Palawan (with mining); below is Marilao, Bulacan River, (no mining).

I have seen Barangay Rio Tuba mining, I went there about four years ago. One can go swimming, fishing, it's clean. The "blighted conditions of many communities affected by mining" is imaginary and emotionalism, hyped up by Gina Lopez and other dramatists.

Rod cited a paper of cancer threats from mining activities,

One can get cancer from inhaling black smoke of big buses in HK or Metro Manila. But people don't lobby for the closure of those buses and jeepneys, they don't get emotional on these, only in mining emotionalism,

Mining in rio tuba is about 40, or 60 years already. One can see the place's population explosion, not implosion or reduction. People with stable jobs and free/cheap community projects tend to live longer, healthier, they expand faster.

On forests and deforestation, a mining company which have say 20,000 has. only mines about 100 hectares at anytime. The rest are for structures like housing, hospitals, roads; then future mining areas; then mined out that have been reforested.

That is why various government (Congress, DENR, LGUs) measures to further regulate, further tax, further bureaucratize corporate mining are counter-productive.

See also: 

Rise in PH public debt stock by administration

Growth of PH public debt stock, various administrations contributed: Cory Aquino P448B, Fidel Ramos P824B, Erap Estrada P1,080B, Gloria Arroyo1 P1,765B, Gloria Arroyo2 P622B, Benigno Aquino P1,336B, Duterte year1 P527B. If this trend continues, Duterte 6 years will add P3,162B.

Now there is a post by Brondial shared 3,800+ by the DDS camp, implying that public debt started only during the Gloria Arroyo administration and B. Aquino admin added P4 trillion while Duterte year 1 added only P0.7 trillion to the PH outstanding public debt. Bogo.

And yet many people gladly share the disinformation and stupidity.

Monday, October 29, 2018

BWorld 262, Capitalism and electricity distribution

* This is my article in BusinessWorld last October 25, 2018.

Yesterday, a lecture on “Capitalism and inclusion under weak institutions” was delivered by national scientist Dr. Raul Fabella, my former professor at UP School of Economics and fellow columnist here in BusinessWorld. Another columnist Romy Bernardo mentioned the lecture in his column here last Monday.

Dr. Fabella talked about the primacy of fighting poverty and not inequality per se, the unwarranted expansion of state and politicians’ powers and regulations to sectors and services that are beyond their competence, the resulting government failure as government intervenes more and more supposedly to correct a perceived market failure, the consolidation of capital and investments into conglomerates that can somehow check the government’s over-arching interventionism, both local and national.

When applied to an ongoing legislative dispute between existing distribution utility (DU), Panay Electric Company, Inc. (PECO) serving Iloilo City, and newcomer MORE Electric and Power Corp. (MORE Power), the issue of “weak but over-arching institutions” of government comes to fore.

The PECO franchise bill at the House of Representatives was filed in Congress in July 2017 and after two hearings in November that year, end of story. MORE Power franchise bill on the other hand was filed only in August 2018 and was passed on third reading in just one month, faster than even MalacaƱang’s priority bills.

I asked some friends living in Iloilo City, two of whom are faculty members of UP Visayas, how their experience is with PECO, if bad or good in terms of pricing and power supply stability.

One friend who also frequents Manila and Zambales said, “I haven’t noticed a real difference between PECO and Meralco and the electric cooperative in Zambales. In my 15 years in Iloilo, the reliability of electricity has certainly increased. We used to regularly suffer from blackouts — once a week or more though often for only a few minutes — but that is no longer the case. I am not sure why. It could be because of the coal power plants that were built more than PECO. I’m just offended that Imperial Manila gets to decide this issue. It seems to me that the people who have to live with PECO should be the ones that make the decision.”

Good points – why the franchise and permit to operate electricity DUs and cooperatives are centralized in Congress and not decentralized in provinces and cities where the DUs operate? Because of the Constitution.

A related point, why financially-muscular MORE Power would go for legislation and take over an entire franchise area – which is very politically controversial and generator of business uncertainty – when they can compete with PECO and all other DUs and electric cooperatives nationwide via the retail competition and open access (RCOA) provision of the EPIRA law of 2001?

Becoming a retail electricity supplier (RES) to serve the “contestable customers” (CCs) or those that consume 750 kW or more is not politically controversial, will not require a Congress franchise, only an ERC accreditation, and one can go national and compete with several other RES.

Below are some numbers on the implementation status of retail competition. It is a good guide for those contemplating to enter the Philippines’ electricity supply and distribution sub-sector. Minus the Supreme Court TRO on RCOA implementation around February 2017, the number of CCS and RES players should be expanding fast by now.

By going through legislative assault where Congress sat and did not act on the franchise renewal of PECO while its own franchise bill was approved in legislative lightning speed, MORE Power has put itself in the eye of public criticism of legislative favoritism if not cronyism.

Perhaps this is a lesson that the power of the legislature to create franchises should be removed in the Constitution. Like power generation, power distribution should be deregulated and non-franchised.

Capitalism in electricity distribution must get accreditation only from DoE and ERC which assess players based on technical grounds, not on political and cronyism factors.

See also: 

Climate Tricks 74, People should eat insects to fight CC?

The climate alarmism movement is getting more ridiculous. Advising people to reduce their meat intake and eat insects more, like crickets, worms, and perhaps genetically-modified 'edible' cockroaches? Agh. See these stories.

Reducing our meat intake is crucial to avoiding climate breakdown, since food production accounts for about a quarter of all human-related greenhouse gas emissions, and is predicted to rise. In western countries, this means eating 90% less beef and five times as many beans and pulses.

Edible insects have been hailed as a solution to both global food shortages and reducing emissions from animal agriculture, but despite the industry’s best efforts, our response when faced with a cockroach is disgust.

Insects like crickets emit less greenhouse gas than livestock, and the Food and Agriculture Organization of the United Nations found that pigs produce ten to one hundred times more greenhouse gases per kilogram than mealworms. (March 6, 2018)

If we compare, for example, crickets to cattle and chicken in terms of farming efficiency, it becomes apparent that they are the superior choice.
To produce the same amount of protein crickets need 12x less feed than cattle, and half as much as chickens.
Crickets also only need 15l of water compared to the 30 000l of water that cattle need and 2300l that chickens need.
Crickets will require only 15m2 of farm land compared to the 250m2 for cattle and 45m2 for chickens.

The team, which includes scientists involved in the N8 Research Partnership’s AgriFood programme, says halving global consumption of animal products by eating more insects or imitation meat would free up 1680 million hectares of land – 70 times the size of the UK.
Similar land savings could also be made by switching from the current mix of animal products to diets higher in chicken and eggs, the team says.

That's from the Univ. of Edinburgh, UK. agh.

The Guardian again, they announced last week that they will limit or discontinue their climate blogging. ????

See also:
Climate Tricks 71, "Rising ocean" when reality is rising rivers, lakes, August 13, 2018 

Climate Tricks 72, Calling El Nino-La Nina as weather anomalies, September 02, 2018 
Climate Tricks 73, Attacking Dr. Will Happer as 'CC denier', September 10, 2018

Sunday, October 28, 2018

BWorld 261, PPP, tunnels and mining

* This is my column in BusinessWorld last October 22, 2018

Two weeks ago, I traveled from Manila to North Luzon by bus. Going up via NLEx, SCTEx, Tarlac, Pangasinan, La Union, Ilocos Sur, Ilocos Norte, finally to Gonzaga, Cagayan. I went there to visit a friend, also gave a talk on TRAIN law and inflation at Cagayan State University (CSU) Gonzaga campus. Going back I took the Cagayan Valley route, passed Isabela, Nueva Vizcaya, Nueva Ecija, SCTEx, NLEx.

Among my observations in that nearly 1,500 kilometers trip are (1) too many motorcycles and tricycles now in the highway except tollways, and (2) lots of palay or corn are still dried on the highway especially in Cagayan-Isabela, these slow down overall speed of regular vehicles and may cause accidents. There is a need for more tollways around North Luzon and by extension, down to South Luzon, big provinces in Visayas and Mindanao.

The subject of private tollways and Public Private Partnership (PPP) was discussed in a roundtable forum on “Unsolicited PPP Proposals” jointly organized by the Stratbase-ADRi and the PPP Center last Oct. 15, 2018. Among the speakers and reactors were Mr. Ferdinand Pecson, current Executive Director of the Center, Ms. Cosette Canilao, former Executive Director of the Center, Dr. Epictetus Patalinghug, Prof. Emeritus of UP College of Business Administration, Mr. Romulo Neri, former NEDA chief, and Mr. Jimbo Reverente of NAIA Consortium.

Dr. Patalinghug expressed reservations on unsolicited PPP because of lack of competition, lack of transparency, and this leaves room for corruption. The original proponent can match the best offer, which may discourage further participation in the Swiss challenge.

I still support unsolicited PPP for at least two reasons. One, government officials especially in DPWH, DoTr and OP are constrained by their six-years term so the solicited PPP projects they will identify will likely be aligned with their business partners before or after their term which is a long-term engagement. And two, there are too many potential projects nationwide that many investors with long-term exposure on certain provinces and regions can think of.

Among the PPP projects that I think should be prioritized is the construction of long and elaborate tunnels under the mountains going up to Baguio City (via Kennon Road is 33.5 kms., via Aspiras–Palispis Highway or Marcos Highway is 47.2 kms). Then the mountainous Dalton Pass connecting Nueva Vizcaya and Ecija provinces. Buses and cars are crawling on those roads (especially in Dalton Pass) as there are many big, long and heavy trucks, sometimes tricycles, negotiating the climbs and curves.

It will be a partnership between mining firms and tollway firms. The cost of construction and, hence, the future toll rates will significantly decline because mining firms will get all the rocks and minerals, metals and non-metals and, hence, will contribute big money for such extraction and tunnel boring.

The advantages of these projects are (1) safety: accidents and deaths due to landslides, cars and buses falling off deep cliffs and mountains will be eradicated; (2) faster travel time: there will be no intermittent landslides blocking roads, tricycles and bicycles on the roads; and (3) huge employment generation in mining and construction.

Anti-open pit mining environmentalists who love to travel across the country can support this as this is tunnel mining, not open pit, and it will quicken their travels.

For mining companies, this is an opportunity for them to join big PPP infrastructure projects while retaining their core business. Many metallic products retain their high prices compared to a decade ago, like gold, silver and lead (see table).

For toll road companies, this is a good exposure to the engineering skills and machineries of miners in boring deep, long distances.

Meanwhile, the newly proposed mining tax bills in Congress tend to be more extortionary. TRAIN law has raised the mining excise tax from 2% to 4%, the new bills will impose variable royalties on mining margins of 1-5% for firms outside designated mineral reservations.

These policies do not recognize the job creation, community development, high taxes paid, and soon toll road-tunnel development functions of mining. Government should step back from more taxation.

See also:
BWorld 252, Mining, Itogon and Lee Kuan Yew, September 25, 2018