Thursday, June 30, 2022

BWorld 548, Taxes, cement, electricity and land transportation

* My article in BusinessWorld last June 20.
-----------------

Last week, there were a number of developments in these four subjects or sectors: taxes, cement, electricity and land transportation.

DINNER TALK

Last Monday, June 13, I organized a dinner with incoming Finance Secretary Benjamin Diokno and Budget Secretary Amenah Pangandaman, and I gathered a few fellow columnists in BusinessWorld plus the newspaper’s editor-in-chief, Willy Reyes. I could have brought more columnists from the paper but Sir Ben wanted a small group.

Ben Diokno was my teacher twice at the UP School of Economics (UPSE): when I was an undergrad in 1984 and again when I took my graduate studies Program in Development Economics (PDE) in 1997. Mina was my classmate in PDE batch 33 so maybe they found it difficult to decline my request.

Among the topics we talked about that evening were the tax reforms done by the Duterte administration, infrastructure spending, agriculture modernization, reducing the debt stock, and the deficit/GDP ratio.

I checked some key fiscal ratios: there is truth to Sir Ben’s assessment that the recent tax reform legislation (TRAIN, CREATE, others) have indeed improved the government’s revenue mobilization, but public spending has significantly gone up resulting in a huge jump in the budget deficit/GDP ratio in the last two years (Table 1).

Among the things that Sir Ben and incoming Sec. Mina plan to do that I like are: avoid tax hikes and focus on improved tax administration via digital processes; the equal application of VAT on more sectors; no additional fuel tax hikes; restraining some subsidies and “elephant in the room” budget items that bloat expenditures; cut the deficit/GDP ratio back to -3% by 2028; and, more Public-Private Partnership (PPP) projects, especially with the Public Service Act (PSA) liberalization where foreign investors plus local partners can invest more in seaports, airports, airlines and so on.

I say “Amen” to these plans. And this means that some populist plans announced by President-elect Ferdinand Marcos, Jr. during the campaign period may have to be restrained as there are clear numerical targets of reducing the deficit and public debt burden.

Until last week, many Departments did not have secretaries yet, but the economic team — composed of the departments of Finance, Budget and Management, Trade and Industry, the National Economic and Development Authority (NEDA), and Bangko Sentral ng Pilipinas — was filled up some three weeks ago. It was a good move by Mr. Marcos Jr., telling the business communities here and abroad that the selection of the economic team is based on expertise and not political patronage.

CONFUSED ENERGY REGULATOR

Last week, the Energy Regulatory Commission (ERC) reiterated its plan that only one of two entities that govern and operate the Wholesale Electricity Spot Market (WESM) — the Philippine Electricity Market Corp. (PEMC) as governing body and the Independent Electricity Market Operator of the Philippines (IEMOP) as market operator — should stay.

Yet the ERC does not recognize IEMOP even though the Department of Energy (DoE) has recognized it through DoE Circular No. DC2018-01-0002. The PEMC, as a governing board, is like the Philippine Stock Exchange (PSE) and is composed of industry players. IEMOP, as a technical body, handles the actual market operation and is composed of non-industry players.

Last Saturday, another “red alert” in the Luzon grid was issued by the National Grid Corp. of the Philippines (NGCP) “due to generation deficiency.” Every year, yellow- and red-alerts over thin power reserves are experienced in the Luzon grid, partly because several generating plants are restrained from expanding the supply due to NGCP’s failure to complete certain transmission lines. The ERC is silent whenever the NGCP failures adversely affect the power supply situation in the country, but the ERC is outspoken in penalizing generation and distribution players for their failures.

The ERC should leave the PEMC-IEMOP dynamics alone and respect the DoE circular that recognizes both entities.

FREE TRADE IN CEMENT NEEDED

Until last week, the “Cement Anti Dumping” group kept sending their materials to columnists of BusinessWorld, and perhaps other newspapers, arguing that expensive imported cement via higher tariffs is good and beautiful.

Among the important policies of modern East Asia is lowering tariff rates — although non-tariff measures have been rising worldwide, tariff rates on goods have been declining. Which drastically helped their local manufacturing in need of more materials from more countries at more competitive prices. And East Asian economies are able to sustain their fast growth (Table 2).

So, the rationale to impose, even institutionalize, higher tariffs on imported cement from Vietnam or other neighbors in the region is weak. Free trade is pro-consumer and pro-construction industry.

TRANSPORT CONTROL AND LTFRB

As the economy further opens up, the mobility of people and goods becomes busier. But oil prices have been rising high so people look for alternative transportation and minimize driving their cars.

But the Land Transportation Franchising and Regulatory Board (LTFRB) and Transportation department have been adamant on various controls — the cap or maximum number of carriers, transport network vehicle service (TNVS) and motorcycle taxis, the limit on the number of players, the limit or cap on the fares, etc.

When transport competition and choices are limited and restricted, commuters are penalized. And existing players — those accredited and authorized by government — are favored at the expense of the public.

One result of reduced competition in land transportation is higher inflation in the sector relative to overall inflation. This is shown by data from 2018 to 2022 except in 2019 (Table 3).

Like the need for free trade in cement, rice, appliances and gadgets, we need more competition in land transportation. Government should step back from cap and control, and open up the sector to more players, more competition, and give more choices, more options to more commuters.
---------------- 

See also:
BWorld 545, Public finance and UPSE’s PDE batch 33, June 27, 2022
BWorld 546, Demonopolize social security, June 28, 2022 
BWorld 547, Inflation, cement importation, and electricity concerns, June 29, 2022.

Housing and the economy

I saw this report,

Q2 office demand more than doubles
June 30, 2022 | 12:35 am
https://www.bworldonline.com/top-stories/2022/06/30/458421/q2-office-demand-more-than-doubles/

Then posted in our UPSEAA group was the ppt by Leechiu Property Consultants (LPC). Parts of the ppt are these three slides.


Yes, high inflation means reduced household spending as people hold back and save more, prepare for any household economic and health emergencies. Low household spending generally pulls down overall GDP. Developers adjust their pricing and financing like lower downpayment in order to attract more residential condo, housing buyers.


Big uptick in high-end housing occured during the PNoy Aquino admin, 2011-2016, momentum was sustained until 2019. Then lockdowns and business closures happened. Philippines' GDP contraction in 2020 was the worst in Asia at -9.6%.


Just hoping that the country's housing market will fully recover and expand under the new administration. And hoping that the lockdown dictatorship under the Duterte admin will never happen again.

Wednesday, June 29, 2022

BWorld 547, Inflation, cement importation, and electricity concerns

* My column in BusinessWorld last June 13.
-----------------

Three different topics here, we go straight to them.

RISING PHILIPPINES INFLATION, BIDENFLATION

The Philippines saw a big jump in its inflation rate last month, from 3% in January-February to 5.4% in May. Big increases in May happened in transport (14.6%), housing, water and electricity (6.5%), and alcoholic beverages and tobacco (6.8%).

In the US, “Bidenflation” continued to wreak havoc in ordinary American households. The US inflation rate was only 1.4% in January 2021 when Trump left the White House; it jumped to 7.5% in January 2022 or 12 months into the Biden presidency and before the Russian invasion of Ukraine, and went up to 8.6% in May, the highest rate in 40 years.

Germany’s inflation of 7.9% in May was highest perhaps in about six decades, while the United Kingdom’s 9% in April was the highest in 40 years. The industrial economies of America and Europe are limping from high inflation (Table 1).

The west’s “war on fossil fuels” is a big reason why this happened. High oil-gas-coal prices mean a higher cost of manufacturing, and higher commercial and household electricity bills. Underinvestment in oil refining also contributed to low fertilizer output and high fertilizer and food prices.

CEMENT IMPORTATION AND THE CONSUMERS

I recently received many materials on “Cement Anti Dumping” presented by the Cement Manufacturers Association of the Philippines (CEMAP). They believe that cheaper imported cement, mainly from Vietnam, is bad for the economy because it adversely affects the revenues of their member-companies, their capacity expansion and job generation. Their argument is summarized in one report in BusinessWorld, “Cement group seeks safeguard for local manufacturers” (June 9).

Free trade means the consumers are the main beneficiaries of trade. Cheaper cement, steel, and other construction materials means poor people who otherwise would have weak wooden or bamboo houses can have concrete houses that can better protect them from strong typhoons and flash flooding, helping save lives and properties. And CEMAP think this is bad, that cheaper imported cement should be penalized with high tariffs to make it more expensive for consumers. Bad lobby.

I checked the Philippine Statistics Authority (PSA) data — the construction materials price index and price changes from 2020 to April 2022 — and it shows that concrete materials and cement has low or small price changes compared to overall construction materials and national inflation. In 2021, Philippines inflation was 3.9%, inflation for all construction materials was 3.2%, and inflation for cement was 1.5%. In the first four months of 2022, Philippines inflation was 3.7%, all construction materials 6%, cement 4.1% (see Table 2). This means cement liberalization is working for the consumers and if CEMAP will have its way, cement inflation should rise higher — at a time when higher inflation is causing more social and economic stress on Philippine households and businesses.


The Tariff Commission (TC) should consider the interests of consumers and not just the cement manufacturers, importers, and traders. Free trade is pro-consumers.

ELECTRICITY CONCERNS

These recent reports in BusinessWorld are interesting.

1. “NGCP starts new transmission line for Bataan capacity expansion” (May 26),

2. “Meralco seeks ‘sound’ policies to cut power costs” (June 1),

3. “Razon firm ‘poised’ to control Malampaya project” (June 3),

4. “Prime Infra unit plans world’s largest solar farm” (June 9),

5. “Gov’t imposes sanctions on two electric cooperatives” (June 9),

6. “Meralco power rates to rise in June” (June 10).

Report No. 1 is somehow good because the National Grid Corp. of the Philippines (NGCP) has a record of frequent delayed delivery of the needed transmission lines between new power plants and distribution utilities. The report refers to the Mariveles to Hermosa, Bataan line, which should have been finished much earlier. And NGCP should have finished the Hermosa, Bataan to San Jose, Zambales line by June 30 as the delayed transmission line there chokes 818 MW of power (GN Power Dinginin Unit 2 with 668 MW and SMC Mariveles Unit 1 with 150 MW) that can expand supply in the Luzon grid. This is far from happening yet. See Table 3 of this column on May 16, https://bit.ly/Oplas051622.

Reports Nos. 2 and 6 are related: Meralco has no choice but to raise electricity rates because the generation cost has increased. The price of coal (Newcastle) this June was $390+ per ton which is three times higher than a year ago when it was $175+ per ton. Even the price of domestic Malampaya gas is pegged to Dubai crude’s price and thus is also rising. Good thing that Meralco is able to keep its distribution charge flat, with no increase since about 2015.

Reports No. 3 and 4 show further expansion of Mr. Razon’s Prime Infra in energy. Its planned 2,500-3,500 MW solar plants will have a big impact on competition for land use because that will require about 4,000 to 5,500 hectares of land. In addition, more intermittent renewables with priority dispatch to the grid mean they can discourage other investments in coal, oil, gas, and nuclear as they are a lower priority in the grid. For instance, if coal and gas plants offer power at P5/kwh and solar offers P6/kwh, the latter will still be prioritized. Discouraging investments in conventional thermal plants can lead to the threat of blackouts in the future, and this is happening now in Europe, the US, and even Japan.

Report No. 5 is about Maguindanao Electric Cooperative, Inc. (Magelco) and Lanao del Sur Electric Cooperative, Inc. (Lasureco). They respectively owe P3.8 billion and P12.9 billion — a total of P16.7 billion — to the state-owned Power Sector Assets and Liabilities Management Corp. (PSALM). These two electric cooperatives (ECs) could be the reason why PSALM asked for P16 billion in budgetary support for 2021 and 2022. So, taxpayers from Zamboanga to Visayas to Luzon are subsidizing these ECs as they extract more “free electricity” from PSALM. Wow. This is one more reason why the National Electrification Agency (NEA) that supervises all ECs should go, and all ECs should become private distribution utilities, supervised and monitored by the Securities and Exchange Commission (SEC) and not by a political agency like the NEA.

Meanwhile, Department of Energy (DoE) data show that in 2021, the Philippines produced 103,448 gigawatt-hours (GWH) of electricity, more than 2020’s 101,800 GWH but still lower than 2019’s 106,000 GWH. Coal’s share in installed capacity is still at around 35% of the total but contributed 57.5% in actual power generation in 2021.

Malampaya gas generation is declining, from 19,500 GWH in 2010 and 2020 to 18,300 GWH in 2021. The shares of geothermal and hydro are increasing slightly, and wind-solar’s contribution is only 2.6% of total generation in 2021, still insignificant even if the Renewable Energy law was enacted in 2008 and feed-in tariff (FIT) or assured high prices for 20 years was granted in 2012 or a decade ago (Table 3).

I am hoping that the Ferdinand Marcos, Jr. administration will realize that energy rationing, giving unnecessary priorities to intermittent renewables and discouraging investments in thermal power generation, will be counter-productive economically. The right energy mix should be done by the consumers themselves, not by government’s Executive or Legislative branches, nor by environmental and climate lobby groups.
---------------

See also:
BWorld 544, ESG, electricity prices, and BBM’s economic team, June 26, 2022
BWorld 545, Public finance and UPSE’s PDE batch 33, June 27, 2022
BWorld 546, Demonopolize social security, June 28, 2022.

Tuesday, June 28, 2022

Energy 167, ESG, Russia and US oil

Random thoughts and reports on energy, food shortage...

1. Food shortage, high food prices. Root cause is war on fossil fuels and climate alarmism drama.

From crude oil are (1) diesel for tractors, harvesters, water pumps, trucks, ships. Also (2) gasoline for farmers' motorcycles, tricycles, cars, pumpboats, etc. And (3) fertilizers like urea, from natgas are ammonia nitrate. Corn, soybeans etc are used for poultry piggery beef feeds. And (4) plastics, other petrochem for crops and fertilizer sacks, packaging materials. And (5) asphalt for farm roads. And (6) corn should feed people and animals, not vehicles via ethanol and biofuels. And so on.

The world should explore and extract more fossil fuels. More, not less.  The world should re-learn to say, "fossil fuels are good and useful." Then we solve the artificial, politics-driven high food prices and food supply shortages.

And many UN agencies should be defunded. Many multilateral lenders should be exposed for their endless climate loans and corruption.

2. Germany's Vice Chancellor, equivalent to Deputy Prime Minister, from Greens Party, formerly anti-coal anti-nuke, now embraces coal to avoid huge blackouts in Europe's biggest economy because their beloved wind-solar remains unreliable unstable even with battery until today,

German Vice Chancellor Announces a Return to Coal
Eric Worrall  June 19, 2022
https://wattsupwiththat.com/2022/06/19/german-green-party-announces-a-return-to-coal/.

3. Why Does Boston Buy Natural Gas from Russia?
The environmental organizations have full veto power on all energy projects through the legal system.
By Andy May.  May 29, 2022
https://amgreatness.com/2022/05/29/why-does-boston-buy-natural-gas-from-russia/

Yet, everyone in the oil and gas industry is afraid to invest any money, even if they have financing available. Who wants to start a 10- to 20-year natural gas project, whether it’s a gas field, pipeline, or LNG (liquified natural gas) terminal, when the current administration is saying it will shut you down in 10 years?

“You’ve got six years, eight years, no more than 10 years or so,” says climate envoy John Kerry. “No one should make it easy for the [natural] gas interests to be building out 30- or 40-year infrastructure.”

The United States has an abundance of coal and natural gas. Yet, natural gas is actually imported, at great cost, to Boston’s LNG facility from Russia, Canada, and the Caribbean due to the lack of pipeline capacity. In late January natural gas from the Algonquin City Gate Hub (near Boston) sold for over $20 per million BTUs, and more than $23 on the futures market. Natural gas from nearby Pennsylvania cost just $4 in January.

4. DISCLOSING THE REAL “CLIMATE RISK”: CASE STUDY: UK “ESG” Billionaire Behind U.S. Climate Regulatory, Litigation Campaigns
https://govoversight.org/disclosing-the-real-climate-risk-case-study-uk-esg-billionaire-behind-u-s-climate-regulatory-litigation-campaigns/

  • British billionaire and “ESG” hedge fund manager Sir Christopher Hohn has directed scores of millions of dollars to the climate advocacy industry driving investment to ESG
  • Hohn funds global climate litigation-support infrastructure through a network of groups
  • Profits from Hohn’s hedge-fund operation are run from the UK to underwrite ESG, “climate risk disclosure” and climate litigation to, e.g., the U.S.
  • Despite claims by grant beneficiaries that Hohn’s charity “has a strict policy against funding any activities related to US litigation”, funds granted to a Dutch group heavily financed by Hohn are then transferred to U.S. beneficiaries central to the U.S. climate litigation industry

5. The 29-pages paper is here, 
https://govoversight.org/wp-content/uploads/2022/06/Hohn-TCI-CIFF-Paper.pdf.


6. Biden Ahead of Schedule in Destroying US Offshore Oil Production
David Middleton  June 21, 2022
https://wattsupwiththat.com/2022/06/21/biden-ahead-of-schedule-in-destroying-us-offshore-oil-production/



7. SHORT-TERM ENERGY OUTLOOK
Release Date: Jun. 7, 2022
https://www.eia.gov/outlooks/steo/

8. MISCWho’s Still Buying Fossil Fuels From Russia?
By Niccolo Conte  June 22, 2022
https://elements.visualcapitalist.com/importers-of-russian-fossil-fuels/

9. Somehow Europe should be thankful of Putin. When he became President first time in 2000, he was already a skeptic of climate drama, Russia never signed the Kyoto protocol and kept high investment in oil gas coal, which supported Europe especially Germany, Poland, Netherlands, Italy etc, until 2021 as these countries embrace climate drama and cut investment in oil gas coal exploration and devt. Putin has supported and prolonged their climate illusion. When the invasion happened, they said enough of Russia oil gas but it was already late. They need at least 5 - 10 yrs to develop their own oil gas coal. Now they realize their mistakes belatedly.

10. And PH is gung-ho with more solar-wind. Leandro Legarda-Leviste of Solar Philippines announced 10 GW of solar with battery, 3.5 GW of which in partnership with Razon's Prime Infra.

This is huge... huge uncertainty for power security tomorrow. Since the grid will prioritize solar say 15 hours a day with battery, and my business is thermal plants or nuke, I can only earn revenue in the next 9 hours. Ano yan, panakip butas daily? Wag na lang. And that's where frequent blackouts will stare us in the face several years from now. This is happening now in Japan, happening in Australia, happening in Europe, some states in the US.
------------

See also:
Energy 163, Impact of sanctions on energy supply in Germany, rest of Europe, April 03, 2022
Energy 164, More Europe energy agony, May 7, 2022
Energy 165, ESG and more impact of sanctions vs Russia, June 03, 2022.

BWorld 546, Demonopolize social security

SSS clarifies: Not a subsidy for operations
June 8, 2022 | 5:49 pm
https://www.bworldonline.com/opinion/2022/06/08/453611/sss-clarifies-not-a-subsidy-for-operations/

Letter To The Editor

WE WANT to thank you for your support in helping the Social Security System (SSS) further raise the awareness of our members and the general public through the publication of stories about SSS.

However, we would like to clarify one of the statements in the column article by Bienvenido S. Oplas, Jr. entitled, “Public finance and UPSE’s PDE batch 33,” published in BusinessWorld today, June 7, 2022 (https://bit.ly/Oplas060722).

Mr. Oplas discussed the “three elephants in the room” in public finance in the article. One of which is the endless subsidies to government corporations and financial institutions. He cited SSS as an example after the national government gave SSS P51 billion in 2020.

We want to inform him that the P51 billion given to SSS in 2020 was not a subsidy for the agency’s operation. The amount was intended and paid for the wage subsidies to over three million workers nationwide under the Small Business Wage Subsidy (SBWS) program.

SSS only served as the primary conduit for releasing the wage subsidies to workers of small businesses.

The SBWS is a joint program by SSS, the Department of Finance (DoF), and the Bureau of Internal Revenue (BIR) that provided wage subsidies to workers affected by COVID-19. It extended financial assistance to small and medium business enterprises affected by the pandemic and the nationwide enhanced community quarantine from March 2020 onwards, which affected the employment of those working in the private sector.

Workers of small businesses who lost their income while their respective areas were under enhanced community quarantine (ECQ) received a wage subsidy in two tranches ranging from P5,000 to P8,000, based on their respective areas of residence.

We want to emphasize that SSS is not receiving any subsidy from the national government for its operation. SSS remains financially viable in providing benefits to its stakeholders and is not on the verge of bankruptcy.

In this regard, may we kindly request to rectify the statement to avoid misconceptions from our members and employers that the national government is subsidizing SSS.

Thank you for the opportunity to clarify this matter.
-----------

Replying to SSS: Demonopolize social security
June 9, 2022 | 5:41 pm
By Bienvenido S. Oplas, Jr.
https://www.bworldonline.com/opinion/2022/06/09/453907/replying-to-sss-demonopolize-social-security/

IN a Letter to the Editor yesterday, “SSS clarifies: Not a subsidy for operations,” Mr. Fernando F. Nicolas of the Social Security System (SSS) said that “the P51 billion given to SSS in 2020 was not a subsidy for the agency’s operation (but) wage subsidies to over three million workers nationwide under the Small Business Wage Subsidy (SBWS) program.”

I checked again Tables B.9 and B.11 of the Department of Budget and Management’s Budget of Expenditures and Sources of Financing (BESF) 2022 and the term used is “Budgetary support to government corporations.”

So the SSS is correct, it is “support” to member-workers and not a “subsidy” for its regular operations. My apologies to SSS for mixing them along with PhilHealth, the National Food Authority, the National Irrigation Administration, the National Electrification Administration, Bases Conversion and Development Authority, and other government corporations that just rely on taxpayers’ subsidy yearly to make them “viable.”

Now that we discuss SSS, a state-owned pension monopoly for private sector personnel, we can extend the discussion to another state-owned pension monopoly, that for government sector personnel, the Government Service Insurance System (GSIS). And why they need to be demonopolized and the pension system be made competitive. Three quick reasons.

One, people mobility needs pension mobility. The SSS was created in 1957, and the GSIS was created in 1937, periods when it was generally assumed that people would work, retire, and die in the Philippines. No longer the case now, many Filipinos work a few years here, then work abroad, and go back and forth, even migrate and retire abroad. Same for foreigners who opt to work and retire here. Their pension contributions should be credited wherever they work and retire later. Private pension and insurance firms with a global network would be in a better position to offer this kind of service.

Two, government-owned and -controlled corporations (GOCCs) and government financial institutions (GFIs) like the SSS are political institutions subject to political pressure by any administration in power. Expansion of benefits, even if revenues are not there, extension of funding even to non-contributing members and sectors, are yearly political pressures they must endure and are likely to give in to.

Three, the government needs more privatization money to service and retire huge public debt without any major tax hike. SSS, GSIS, other GFIs and GOCCs are good candidates for privatization in the long-term. SSS and GSIS combined have P2.28 trillion in assets as of 2022.

Government regulations are expanding, not shrinking. When government regulates players and owns some players at the same time, there is a conflict of interest, and favoritism towards government-owned players is inevitable. That is why demonopolization and privatization of those government enterprises should be the appropriate fiscal policy over the medium to long-term.
-------------

See also:
BWorld 543, Inflation, mining and WHO pandemic treaty, June 12, 2022
BWorld 544, ESG, electricity prices, and BBM’s economic team, June 26, 2022
BWorld 545, Public finance and UPSE’s PDE batch 33, June 27, 2022.

Pol. Ideology 84, Capitalism and prosperity

I like this meme. Capitalism, private property, profit orientation and competition can produce more goods and services, more prosperity to humanity.


 I also like these.




See also:
Pol. Ideology 83, The end of liberalism and return of militarist-protectionism? April 12, 2022.

Monday, June 27, 2022

BWorld 545, Public finance and UPSE’s PDE batch 33

* My article in BusinessWorld last June 6. 
--------------

The Philippines’ public debt stock continues to increase big time, from P8.22 trillion (actual + guaranteed) in 2019 to P10.25 trillion in 2020, P12.15 trillion in 2021, and P13.18 trillion in April 2022. This is due to huge borrowings — from a monthly average of P73 billion in 2019 to P208 billion in 2020, P188 billion in 2021, and P291 billion in January-April 2022. (See last week’s column: https://bit.ly/Oplas053122.)

There are many elephants in the room when it comes to public spending, big issues and problems that people try to avoid discussing as they can cause discomfort to many other people. The article last week identified one — that while millions of people in the private sector lost their businesses and jobs during the lockdowns 2020-2021, the number of government personnel, from national down to barangay levels, stayed intact and their salaries, allowances, and bonuses continued to be given.

THREE ELEPHANTS IN THE ROOM

This piece will briefly discuss three other elephants in the room — the rising pensions of military and uniformed personnel (MUP), climate expenditures, and endless subsidies to government corporations.

From the Department of Budget and Management (DBM), Budget of Expenditures and Sources of Financing (BESF) 2022 report, the special purpose funds have trillions, with four of these comprising 38% to 41% of the annual total budget from 2020-2022 (Table 1).


The first elephant in the room (ER) is the huge, monstrous pensions given to MUP — P153 billion this year or 21.5 times higher than the pensions of all civilian personnel combined (government teachers and doctors, engineers and agriculturists, diplomats, and so on).

The burden to taxpayers of MUP pensions is so huge that either it should be cut, or the MUP should also contribute a huge amount to the fund.

The second ER is the rising and bottomless spending on the climate because hundreds of billions of pesos yearly from taxpayers will fight less rain and more rain, fewer floods and more floods, fewer storms and more storms, etc. Climate spending by the National Government was P184 billion in 2020 and P284 billion in 2022. This is excluding climate spending by local governments from their own local funds.

The “Global Tropical Cyclone Frequency” and “Global Tropical Cycle Accumulated Cyclone Energy” (ACE) from 1970 to 2022 are not steadily rising but simply fluctuating. Good data from Dr. Ryan Maue can be found here: https://climatlas.com/tropical/.


The volume of annual Arctic and Antarctic Sea ice from 1981 to 2022 is not steadily declining but simply fluctuating. Check the official data from the Japan Aerospace Exploration Agency (JAXA), the Danish Meteorological Institute (DMI), Norway’s Nansen Environmental and Remote Sensing Center (NERSC), the US’ National Snow & Ice Data Center (NSIDC), and more (see https://wattsupwiththat.com/reference-pages/sea-ice-page/).

There is no “climate crisis” to justify huge climate spending from taxpayers and energy consumers.

The third ER is the bottomless subsidies to government corporations and financial institutions. These are supposed to be earning and not subsidies-dependent agencies. And many of them should be in the hands of the private sector, subject to competition, expansion, or bankruptcy. Like the SSS (Social Security System) that gets annual contributions from members then got P51 billion more from taxpayers in 2020 (Table 2).


One way to reduce the public debt is to privatize many government corporations and spare the taxpayers from any tax hikes, or have tax cuts in commodities that are necessary for households and industries like energy products.

PDE BATCH 33 OF UPSE

In the same column last week, I mentioned that incoming Finance Secretary Benjamin Diokno and returning National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan were both my former teachers at the Program in Development Economics (PDE) of the UP School of Economics (UPSE) batch 33, school year 1997-1998. The Dean of the school at that time was former NEDA Secretary and incoming Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla.

The PDE Director that time was Prof. Ruperto Alonzo (RIP), a very kind and warm teacher for 45 years who became UP Professor Emeritus, and was NEDA Undersecretary in 1998-2000 under the Estrada administration. He also became a godfather at my wedding.

PDE is a graduate program designed for mid-level government officers and junior technocrats, so the course content is applied economics with deep theoretical background. Many of my classmates have stayed in government and excelled in their fields. Among them are the following:

Marilou Mendoza is now Chair of the Tariff Commission (TC). Two classmates pursued PhDs — Florante Victor Balatico, PhD Agricultural Economics from UP Los BaƱos (UPLB) and now the Campus Executive Officer (CEO) of Cagayan State University (CSU) Lasam campus; and Joselito Basilio, PhD Economics at the University of Illinois at Chicago, now Principal Researcher at the BSP Research Academy.

Three classmates became academics. Joey Sescon and Malou Perez are teaching at the Ateneo Economics Department, and Raymund Addun is teaching at the Ateneo Environmental Science Department (he finished his MS in Ecology in Spain).

Maliz Guan-Aragon pursued law and is now the presiding judge in Magallanes, Sorsogon. Other classmates are working at the Department of Agriculture, the Bureau of Internal Revenue, and the Philippine Statistics Authority (PSA). Others have retired already — from the PSA, the Supreme Court, the Department of Education, and the Technical Education and Skills Development Authority (TESDA).

Two classmates went to the private sector. Cynthia Hernandez is now the Deal Advisory Principal Sector Head for Infrastructure, Sector Head for Energy and Natural Resources, KPMG. And Mark Agaloos is now Vice-President for Middle East, LBC.

But the most prominent among us is Amenah “Mina” Pangandaman, the incoming Secretary of the Department of Budget and Management (DBM). Back then we would occasionally make fun of her because she was the youngest in our batch at 21 years old, a fresh graduate of BS Economics from Far Eastern University. She has a good sense of humor.

Working her way in government, she became the Chief-of-Staff (COS) of former Senate President Edgardo Angara, then COS to the Chairperson of the Senate Committee on Finance, Senator Loren Legarda.

Then she moved to DBM when Sir Ben Diokno was Secretary under the Duterte administration. Sir Ben promoted her to DBM Undersecretary, supervising the Department Liaison Office and Budget Technical Bureau.

When Sir Ben became BSP Governor, he brought Mina along and she became Assistant Governor for Strategic Communication and Advocacy and Executive Offices Coordinator. And when Sir Ben was appointed as the incoming Finance Secretary of the Marcos Jr. administration, I thought that Mina would be one of the Finance Under Secretaries. But Mina has matured enough to be a Cabinet Secretary.

The Development Budget Coordination Committee (DBCC) is composed of four agencies — the DBM, the Department of Finance, NEDA, and BSP. The Council prepares the yearly budget, the revenues to fund it, and the macroeconomic assumptions that justify the spending-funding-borrowings outlook. And the heads of these four agencies are all from UPSE, all are non-politicians and plain technocrats with decades of experience in government.

I am hopeful that more market-oriented economic reforms and growth-enhancing policies that are non-burdensome to taxpayers can be fast tracked. I did not expect this under the Ferdinand Marcos, Jr. administration but it is there, a really good start. Looking towards more social and economic prosperity for the country and the Filipinos.
--------------

See also:
BWorld 542, Growth, electricity, vaccination, and the new administration, June 03, 2022
BWorld 543, Inflation, mining and WHO pandemic treaty, June 12, 2022
BWorld 544, ESG, electricity prices, and BBM’s economic team, June 26, 2022.

Sunday, June 26, 2022

Revised IRR of BOT law on MAGA

There is a big controversy in the recent move by outgoing leadership of NEDA (Sec. Karl Chua) and DOF (Sec. Sonny Dominguez) revising the implementing rules and regulations (IRR) of the Build Operate Transfer (BOT) law as implemented by the Public Private Partnership (PPP) Center. See these reports and articles.

The high price of (not) properly dealing with MAGA
Taxwise Or Otherwise
By Jose Patrick S. Rosales March 9, 2022 
https://www.bworldonline.com/economy/2022/03/09/435037/the-high-price-of-not-properly-dealing-with-maga/

A hot topic on government undertakings is government liabilities arising from Material Adverse Government Action (MAGA). According to the World Bank’s Guidance on PPP Contractual Provisions (2019), MAGA may be defined as “any act or omission by the government contracting authority (GCA) or any relevant public authority, which occurs during the term of the PPP Contract and which directly causes the private sector partner (PSP) to be unable to comply with all or some of its obligations under the PPP Contract and/or has a material adverse effect on its costs or revenues....

If the above view is adopted, however, two consequences arise. First, MAGA becomes a form of support or contribution that may only be extended to solicited projects. This means that original proponents of unsolicited proposals cannot be compensated for MAGA events. Second, MAGA can at most only cover liabilities up to 50% of the total project cost, since it is merely an additional form of “support” along with other government undertakings in the project (if any). Perhaps a different view may be adopted. Section 13.3 covers various forms of support or contribution to the project, which a MAGA clause is not. Instead, it is more akin to a form of compensation by way of damages arising from a contractual breach (committed by the government), where such payment is meant to indemnify the injured party (i.e., the PSP) for the damage or loss caused by the breach. As such, MAGA is more a form of penalty on government, and not an undertaking by it, for failure to abide by its obligations under the PPP contract.

MBC opposes changes to BOT Law IRR
March 17, 2022 by James A. Loyola
https://mb.com.ph/2022/03/17/mbc-opposes-changes-to-bot-law-irr/

In a letter to NEDA Secretary Karl Kendrick T. Chua, MBC Chairman Edgar O. Chua said “the timing and tenor of some of the proposed changes could offset recent gains and weaken the country’s chances of boosting infrastructure, investment, trade, and creation of jobs.”

Chua said the MBC “would like to request more than the six working days given to more thoroughly consider all the proposals. As well, with less than 60 days before the 2022 National Elections, the expected benefit of any changes may be discounted by the perception that they may be changed anew by the incoming administration.”

“A significant point of concern for us are the exclusions from what MAGA effectively covers. The BOT IRR exempts the following acts from MAGA coverage: acts of the executive branch, acts of the agency/LGU and approving body, acts of the legislative and judicial branches,” said Chua.

Why in the last two minutes?
By: Peter Wallace  / 05:03 AM March 24, 2022
https://opinion.inquirer.net/151374/why-in-the-last-two-minutes

The build-operate-transfer (BOT) law implementing rules and regulations (IRR) committee, chaired by the National Economic and Development Authority (Neda), has raised the wish to change the current IRR of the BOT law....

The one I particularly don’t understand is MAGA. MAGA is material adverse government action and, as I understand it, this is where the government makes a change—by law or executive action—that will have an adverse effect on the private sector proponent, yet expects the proponent to accept some of the consequent additional cost or increased difficulty imposed by the change. Why? Why should the affected party, the one who’ll be adversely affected yet has no say or control of the change, have to accept some of the risk imposed by the change?

BOT IRR seen forcing private partners to take on more risk
May 3, 2022
https://www.bworldonline.com/economy/2022/05/03/446270/bot-irr-seen-forcing-private-partners-to-take-on-more-risk/

The government cannot be taken to court for arbitration, according to Section 12.22 of the BOT Revised IRR, or the Resolution of Disputes between the Contracting Parties. The IRR states that “Acts and decisions of Regulators shall not be subject to arbitration,” and that “in default thereof, the venue shall be in the Philippines.”

The revised IRR also includes a material adverse government action (MAGA) clause. It defines MAGA as “any act of the executive branch, which the Project Proponent had no knowledge of, or could not reasonably be expected to have had knowledge of, prior to the effectivity of the contract; and that occurs after the effectivity of the contract, that: specifically discriminates against the project proponent; and has a material adverse effect on the ability of the project proponent to comply with any of its obligations under the contract.

The article cited 2 cases, Manila Water sued the govt at the PCA and won. Then PIATCO sued the govt at ICC but govt won. Not mentioned there Malampaya consortium sued COA in a court in Singapore re huge tax extortion, P147 B as of 2018, http://bworldonline.com/coa-should-consider-benefits-of-malampaya-project/

I think the consortium won but still needs SC ruling to be executory. When govt changes rules midway and affect big investors, often multinationals, intl arbitration is necessary, not limit to PH courts.

Chua: Amended BOT IRR to protect Filipinos from PPP contingent liabilitiesv
Ben O. de Vera -- May 12, 202
https://business.inquirer.net/347706/chua-amended-bot-irr-to-protect-filipinos-from-ppp-contingent-liabilitiesv

The private sector was jittery about the revised BOT law’s implementing rules and regulations (IRR) approved by Duterte’s economic managers, which not only shielded the government from arbitration, but also provided supposedly “anti-market” definitions of contingent liabilities arising from PPP projects.

“The last two years show that our contingent liabilities are also going up, so we have to find the best way to address the problem today, and that is why we pursued the BOT law IRR amendment,” the Neda chief said.

Contingent liabilities included material adverse government action (Maga) clauses, force majeure, breach of government warranties, as well as failure to deliver contractual obligations, the amended IRR said.

BOT Law IRR Committee approves 2022 Amended BOT Law IRR
May 12, 2022
https://ppp.gov.ph/press_releases/bot-law-irr-committee-approves-2022-amended-bot-law-irr/

To remove uncertainty in the rules on project variations, the 2022 IRR authorizes the Approving Body to set a cap on allowable variations during the project evaluation stage, which in no case shall exceed 10 percent of the original project cost.

Moreover, the 2022 IRR now requires the contract to define the materiality thresholds and compensation which the Project Proponent shall be entitled to, following the occurrence of a material adverse government action.

Nonetheless, for the benefit of the consuming public, regulatory acts of the Executive Branch are excluded from MAGA (material adverse government action).

REVISED IMPLEMENTING RULES AND REGULATIONS OF RA NO. 6957, "AN ACT  AUTHORIZING THE FINANCING, CONSTRUCTION, OPERATION AND MAINTENANCE OF INFRASTRUCTURE PROJECTS BY THE PRIVATE SECTOR AND FOR OTHER PURPOSES" AS AMENDED BY R.A. NO. 7718
https://www.officialgazette.gov.ph/downloads/2022/03mar/20220331-IRR-RA-6957-RRD.pdf (82 pages)