Tuesday, December 12, 2017

BWorld 169, On tobacco tax and plain packaging

* This is my column in BusinessWorld last November 30, 2017.


Protection of private property rights — including physical and intellectual — is an important cornerstone of a free society. People can exclusively use, keep, sell, donate or give away their property if they want to.

There is a measurement of property rights protection worldwide being done annually by the Property Rights Alliance (PRA), a Washington DC-based think tank. It produces the annual International Property Rights Index report and partners with independent, nongovernment, and market-oriented think tanks and institutes from many countries. IPRI covers three major areas: (1) Legal and Political Environment, (2) Physical Property Rights (PPR), and (3) Intellectual Property Rights (IPR) that include protection of patents, trademarks and brands, copyrights and trade secrets.

In the IPR of several ASEAN countries, the gap is not very wide between say, Singapore and the Philippines or Indonesia (see table).


Currently, there are IPR issues that are intertwined with taxation issues of some “sin products” like tobacco and alcohol.

In the Philippines, the sin tax law of 2012 or RA 10351 is turning five years old next month. The law has dual purposes of (a) reducing smoking and drinking incidence in the country by raising tobacco and alcohol taxes, and (b) raising more government revenues.

So far, both have been achieved but there are moves and legislative bills to further raise tobacco tax to twice or thrice their current rates.

In December 2012, Australia introduced a variant of this law aimed to further discourage smoking. Its plain packaging law required tobacco companies to remove the brand, trademark, and logos of its tobacco products and replace them with plain packs with graphic warnings.

Since some smokers may be unable to distinguish good brands from new and/or inferior brands, they are supposedly discouraged from stop smoking.

While the goal is good — to protect public health — the means and the policy leaves much to be desired.

Since it is assumed that consumers can no longer distinguish good brands from inferior ones, brand competition is precluded.

As a result, companies will now be forced to compete on the basis of prices alone, allowing players with poor but cheap products to gain advantage and attract more customers.

Which may then defeat the purpose of anti-tobacco initiatives because this may yet increase the incident of smoking.

Five years after introducing its plain packaging scheme, has Australia been able to meet its goal?

The Australian government collects data on national smoking incidence every three years as part of its National Drug Strategy Household Survey (NDSHS).

Based on 2016 data — its most recent — there has been no statistically significant decline in the overall daily smoking rate between 2013 (12.8%) and 2016 (12.2%).

So the plain packaging scheme is a failure in Australia.

Moreover, the plain packaging law has unwittingly succeeded in raising the consumption of illegal tobacco, estimated at 13.9% of total consumption in 2016. This results in an estimated excise tax loss of A$1.6 billion for the government last year.

Furthermore, Australia is also facing a dispute resolution panel at the WTO for implementing the law that disrespects IPR laws on trademark and branding.

France and the UK have also introduced the plain packaging scheme in recent years. One unintended result in France is the rise in illicit tobacco coming from some terrorist groups and criminal syndicates while the French government suffered an excise tax loss of approximately €2 billion in 2016. This illicit trade was linked to jihadists traveling to Syria and Iraq and terrorist attacks in France. Counterfeit cigarettes are also among the most investigated IP-crime in the UK and are linked directly to criminal organizations.

In Asia, there are plans to introduce plain packaging legislation in Singapore, Malaysia, Taiwan, Sri Lanka, and Nepal.

This may a dangerous precedent.

Soon, other “sin products” will be targeted — alcohol, sugary drinks and beverages, fatty foods, even toys.

I am a non-smoker and have never been a fan of smoking. I am just a fan of individual liberty and people having the freedom what to do with their own body and life, also a fan of the rule of law and people’s right to private property.

The plain packaging scheme is dangerous because (a) it disrespects private property rights and IPR laws, (b) encourages the production of illicit items from illicit and possibly criminal players who can easily play with price competition, (c) it encourages more consumption because very cheap products with no brands are more easily available, and (d) it reduces government potential excise tax revenues, which might result in creating new taxes elsewhere.
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Energy 104, Ric Barcelona on energy investment and subsidies

I am reposting an article by a friend, Ricardo "Ric" Barcelona, published in the Inquirer last November 27, 2017. I attended the book launching of Ric's book, “Energy Investment: An Adaptive Approach to Profiting from Uncertainties” last November 22, 2017 at Shangrila Hotel Makati. Good work and congrats again, Ric.
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In writing my new book, I came face to face with three energy investment paradoxes. All trace their roots to generous subsidies.

Counter-intuitively, generous subsidies did not result in wide scale deployment of renewables, more so with solar as subsidies’ poster kid.

Innovation is the second paradox. Advocates argue that as increasing renewables capacity is installed, their costs would fall.

Ironically, when subsidies are too generous, the costs decline more slowly than in markets without subsidies.

The third paradox blasted the notion that growth and profitability go hand in hand.

With solar installation’s “frenzied” growth, albeit from a low base, I struggled to find beneficiaries of this boom that profited financially, much less achieving value-creating returns.

Perhaps, not surprisingly, we come across contradictory reports on renewables’ progress from the business press.

One sunny morning in 2013, leading journalists herald the dawn of renewables’ new era. Solar is sold at a price lower than coal, so the headline says. As analysts scramble to validate their financial models, most could only scratch their heads and were at a loss for answers. The next batch of headlines came to their rescue. Investors and advocates of “competitive” solar power were up in arms. The cause? Governments in Europe cut renewables’ subsidies drastically. Within weeks, “high growth” solar companies filed for bankruptcies, with wind struggling to make ends meet while barely remaining afloat albeit financially moribund.

In The Atlantic’s November 2015 issue, which I quoted William Gates, Microsoft’s founder, provided an answer as to where the problem lies.

By succinctly arguing how costs comparisons become a disservice to the environmental cause, Gates observed: “Photovoltaic solar is not economical. Its intermittency is a major problem. When environmental enthusiasts point to photovoltaic solar as having a similar cost to hydrocarbons, what they mean is that at noon in Arizona that may be the case. However, solar does not come at night. So the fact that at one moment you reach parity, so what? Distinguishing a real solution from a false one is actually very complicated”.

Economics of subsidies

The economic cost of energy equates to their life cycle cost of energy. This is a simple addition of the recovery of its normalized fixed assets costs, variable operating expenses, and fuel costs. Embedded within the fixed costs are its implied return on assets and a depreciation expense, while variable and fuel costs are inflation adjusted, with fuel prices accounting for most of the volatilities. Renewables tend to have stable costs.

Philippine coal-fired power’s economic costs would be about P7.29/kWh, while PV Solar would be about P9.09/kWh. Financial costs based on acquisition prices would be about P3.00/kWh to P4.50/kWh. This compares with PV Solar’s feed-in tariff (FiT) of P8.50/kWh. With PV Solar equipment costs having fallen sharply, its economic cost is below the feed-in tariffs. While the learning curves effects favor PV Solar’s improved costs competitiveness, fuel and power prices from coal-fired and gas-fired power fell from peak of P8.00/kWh to its present levels of P2.00 to P3.00/kWh. The FiT subsidies actually widened to P5.50 to P6.50/kWh, or up to two thirds of revenues.

The lessons are stark. When subsidies are set as the costs differences, the “correct” level is indeterminate. As power prices increase, renewables need lesser subsidies but nevertheless continue to collect. When this happens, consumers would coax regulators to claw back the subsidies because renewables are raking it in at consumers’ expense.

Paradox One: Generous subsidies do not result in wide scale renewables deployment. Highly dependent on subsidies, changing government priorities that cut subsidies turn secure revenues, into the very source of uncertainty that bankrupt the venture.

Innovation paradox

Learning curves suggest that with each doubling of renewables’ capacity, its costs would decline by about 20 percent. Enthusiasts present this as evidence that success is a fait accompli.

PV Solar exceeded what the theory prescribes. The learning curves, however, could stall or even reverse its decline. For example, US wind turbines costs declined from about $4,500/kW in 1997 to $1,200/kW in 2001. When subsidies were made more generous in 2004, the rush to build wind farms clogged the production lines that saw wind turbine prices spiked to $2,400/kW in 2010 before settling at $1,500/kW in 2015.

Rapid declines in renewables’ costs impact producers’ revenues, where exponential volume expansion is subdued by accelerated price declines. In effect, innovations that lead to rapid costs decline may be curtailed when subsidies buffer the need for aggressive costs competition.

Project proponents act as mechanisms to channel subsidies from the state to producers. A quick mental calculation would convince proponents that the cost of postponing investments has its value.

If it becomes certain that tomorrow’s equipment costs would be substantially lower, and the technological cycle is shortened significantly, the cost of waiting in terms of foregone revenues could be lower than the equipment costs savings.

This is where PV Solar’s fate is sealed. Unlike hydro or geothermal power’s utilization rate of up to 95 percent, PV Solar at best is 22 percent. The foregone revenues are a fifth of those lost from alternative technologies. Worse, after five years of operation, PV Solar’s utilization rates could fall to 12 percent to 15 percent. This comparison makes developers more inclined to wait rather than to rush in to invest—unless of course the subsidies are generous.

What happened to the early movers—an advantage that strategy would suggest they reap the benefits for being decisive? Ironically, as future equipment costs fall farther, the early movers are stuck with obsolescing assets that are stranded as they lose competitiveness. Worse, their valor and decisiveness to be the first to invest leaves them to do the heavy lifting to lower costs that ultimately benefit the latecomers to profit from their labor.

Paradox Two: Subsidies blunt the need to accelerate costs reduction. Waiting to invest could prove lucrative where the latecomers profit from “early movers” follies.

High growth, expanding losses

Simple arithmetic tells us that for as long as revenues falls lag the rate of costs reductions, firms could expand cash operating margins. Solar equipment and panel producers are trapped in vicious cycles.

To remain competitive, they continually innovate that costs money while reducing costs (and prices). Competitors push the technology frontier that renders obsolete any incumbents’ offerings. As competition intensifies, rising costs and falling revenues or market shares could only lead to bankruptcies.

Within the PV Solar waiting game, in bypassing one generation of technology, and wait the more cost effective innovation, the shorter waiting period could prove lucrative for developers. However, for PV Solar producers, the waiting game could only exacerbate the pressure on operating margins.

Paradox Three: Accelerated volume expansion and rapidly declining prices erode cash operating margins, where the firm loses more the more it grows.

In my academic sojourn, what was presented as simple and readily understood formulation for calculating the “correct” subsidies turns out to be nuanced and complex. Under dynamic markets, where energy prices vary daily, fixing the subsidies becomes an indeterminate exercise. There are many possible answers for a given time that does not hold true once the prices change.

When PV Solar rely on up to 67 percent of revenues from subsidies, the state becomes a counter-party that is critical to sustaining the firm’s financial viability.

Vagaries of politics imply constantly changing priorities, making for a fickle advocate.

Contrary to popular belief, subsidies are far from a source of secure income. As governments renege, subsidies (or its loss) become a major credit risk.

My short prescription: Treat renewables, coal and gas as one supply portfolio. Their different costs structures provide physical hedges against rising energy prices, potentially increasing portfolio returns.

We may take William “Bill” Gates’ advice to heart: “Distinguishing a real solution from a false one is actually very complicated.” Understanding how business work, and applying the same rigor to renewables and our energy supply portfolios may just lead us to offering a real solution to meeting our future energy needs.
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See also:

BWorld 168, Uncertainty in mining policy and the Manicani debate

* This is my column in BusinessWorld last November 23, 2017.


The Duterte administration’s mining policy shows continuing uncertainty.

First, ex-DENR secretary Gina Lopez issued a Department Administrative Order (DAO 2017-10) banning open-pit mining for metallic products.

After her rejection by the Commission on Appointments (CA) last May, it was expected that her successor, Sec. Roy Cimatu, would recall or reverse the order. He did not. So the Mining Industry Coordinating Council (MICC) formally recommended the lifting of the ban last October. Then President Duterte himself declared that the ban remains.

This roller-coaster style in policy is captured in recent stories in BusinessWorld, their publication date this year is indicated:

1. “End open-pit mining ban — MICC” (Oct.25)

2. “Miners face longer wait for end to open-pit ban” (Nov. 21)

3. “Better prices push up value of metal production even as volumes drop” (Nov.22)

The last report mitigates the gloom in the industry, that while metallic mineral output in the country from January-September 2017 has declined, world prices of copper, nickel and silver have increased, according to the Mines and Geosciences Bureau (MGB).

MINERAL RENTS
This leads us to the big mining potential of the Philippines compared to its neighbors in North and Southeast Asia. One indicator of such potential is mineral rents, defined by the World Bank as “the difference between the value of production for a stock of minerals at world prices and their total costs of production. Minerals included in the calculation are tin, gold, lead, zinc, iron, copper, nickel, silver, bauxite, and phosphate.”

In 2015 in the ASEAN, only Laos has a higher mineral rents/GDP ratio than the Philippines. Even Indonesia and China, which are abundant in mineral resources, have lower ratio than the Philippines. Many African countries have very high ratio, partly because they have high output and partly because they have a low denominator, GDP size (see table).


Russia’s ratio that year was 0.9, Canada 0.5%, US 0.1%. World average was 0.4%, all lower than the Philippines. Australia indeed is a good model in developing the industry with high ratio despite its huge denominator.

MANICANI ISLAND MINING DEBATE
Among the recent high profile debates in the industry is the renewal of the Mining Production Sharing Agreement (MPSA) of Hinatuan Mining Corp. (HMC) in Manicani Island, municipality of Guiuan, province of Eastern Samar. The current MPSA (1992-2017) will expire this year and hence, a renewal is applied by the company.

Some facts and numbers here which I got from a friend, BS Geology student in UP Diliman, Ralph Abainza, who went to Manicani last Nov. 14-15.

• MPSA covers 420 hectares or 36% of Manicani Island’s total land area of 1,165 hectares but actual mine area is less than 3% of total land area, the other 33% are roads, community projects like school buildings, housing, offices and equipment area, etc.

• Of the 25 years MPSA, active but discontinuous mine operations occurred only for an accumulated 5 years.

• Island’s soil is mainly LATERITIC, highly mineralized that agriculture may survive but will never be sustainable nor profitable.

• Barangay surveys of residents in Manicani showed a 85% — 15% approval vs disapproval of mining in the island.

AUSTRALIA MINING MODEL
Australia is a good model for the Philippines and other countries. Mining occupies only 0.02% of total land area but the sector contributes 9% of GDP — compare that with the Philippines’ exports of millions of OFWs who contribute 10% of GDP annually. There are also no “small scale” mining in Australia, only big corporate operations that are easier to monitor for compliance with mining laws by the government.

The sector is heavily mechanized, monster machines, and engines at work at open-pit mines, giving high-paying jobs to tens or hundreds of thousands of people, and can give lots of community projects to cover even nonworkers of the industry.

The Philippine government should learn more from rich and developed Australia. There are more mining entrepreneurs, investors, workers, community beneficiaries and tax revenues there than anti-mining activists.

With this in mind, we should just strictly implement existing laws and not change them arbitrarily depending on the whims of the Environment secretary or the President. We should have a rule of law, not arbitrary rule of men.
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Friday, December 08, 2017

Hockey stick in blog stats this week

This week, the last three days in particular, this blog experienced extra-high views. Top chart here shows hourly views from morning of December 4 to evening of December 7. It started with 200+ views per hour, then 400+/hour, later rising to 600+, peaked at 1,000+ views on some hours. Viewers mostly came from France, Brazil and Belgium.

Bottom chart shows one month views, average of 300+/day, then the "hockey stick" of 9,264 views on December 5, then 14,962 on December 7.


Thank you readers.

Monday, November 27, 2017

BWorld 167, Multilateral, bilateral, or unilateral liberalization

* This is my article in BusinessWorld last November 21, 2017.


During the ASEAN Summit + Related Summits in Manila, trade and the further deepening of economic integration was among the major topics. There were new initiatives as well as updates to existing negotiations at multilateral and bilateral free trade agreements (FTAs).

Here are some of those old and new FTAs as reported in BusinessWorld from Nov. 13-16:

1. “ASEAN, HK sign free trade, investment deals” — the ASEAN-Hong Kong FTA (AHKFTA) and ASEAN-Hong Kong Investment Agreement (AHKIA).

2. “Do you know your TPPs from your RCEPs, NAFTAs and OBORs?” — about the Asia Pacific Economic Cooperation (APEC), Trans-Pacific Partnership (TPP), Regional Economic Comprehensive Partnership (RCEP), One Belt One Road initiative (OBOR), North America FTA (NAFTA).

3. “ASEAN claims ‘significant progress’ on RCEP” — mentioned the ASEAN Seamless Trade Facilitation Indicators (ASTFI), ASEAN Inclusive Business Framework (AIBF), others.

4. “US agrees to explore FTA with Philippines” — to be called the US-Philippines Trade and Investment Framework Agreement (TIFA).

Free trade is good, regardless of what those against it would say because it always results in “net gains.”

There are always gains/winners and pains/losers the same way that there are gains and pains under protectionism. When people withdraw their savings for several months in exchange for a new car or dream vacation, they derive net gains from trade of savings vs. vacation.

ASEAN is known for its fast pace of tariff liberalization towards zero compared to many other economic blocs in the world. That’s the good news.

The bad news is the big increase in non-tariff barriers (NTBs) or non-tariff measures (NTMs). These are restrictions and barriers other than tariffs and taxes that make imports or exports of products more difficult, more complicated and hence, more costly (see table).



The authors also noted that “As the average tariff rates of ASEAN countries decreased from 8.9% in 2000 to 4.5% in 2015, the number of NTMs had increased from 1,634 measures to 5,975 measures over the same period. The increase of NTMs was notable not only in ASEAN but also around the world, particularly, between 2008 and 2011.”

Among ASEAN member-states, Thailand has the highest number of NTMs at 1,630, 2nd was the Philippines with 854, 3rd was Malaysia with 713, 4th was Indonesia with 638, 5th was Singapore with 529, 6th Brunei with 516, 7th Vietnam with 379, 8th Laos with 301, 9th Cambodia with 243, and 10th was Myanmar with only 172.

The most common NTMs in Thailand and Myanmar was sanitary and Phytosanitary (SPS) measures while for the other eight ASEAN countries, technical barriers to trade (TBT) was most common.

So which way to achieve regional if not global free trade: (a) Multilateral via World Trade Organization (WTO), APEC, TPP, RCEP, AEC, others ; or (b) bilateral like US-Philippines TIFA, Japan-Philippines Economic Partnership Agreement (JPEPA)?

The advantage of multilateral liberalization is that all economies in the world or at least in the region are committed to bring down their tariffs and NTMs. The disadvantage is that under WTO, real liberalization remains far off even after 22 years (1995 to present) of numerous negotiations.

The setback of regional FTAs is that while member-countries can have near-zero tariff and reduced NTMs, other countries outside the FTA are slapped with high tariffs and/or multiple NTMs.

The advantage of bilateral liberalization is that differences and disputes can be ironed out easier and faster so that FTA can materialize soon. The disadvantage is that a country will need to dispatch plenty of trade negotiation teams to deal with many countries and hence, it can be costly and messy.

A third way is via unilateral liberalization.

Just bring down the tariffs and NTMs, open up the borders with little or no conditions. The main advantage of this move is that it can be done quickly with very little trade negotiation teams and hence, non-costly to taxpayers. However, the disadvantage is that it is “too scary, too radical” for many people as it might result in massive labor displacements.

There are a few countries that boldly took unilateral liberalization and so far, almost all of them have attained economic prosperity in just a few decades such as Hong Kong, Singapore, Dubai/UAE, Chile.

Unilateral liberalization in goods has been done by the ASEAN as a bloc. The challenge is unilateral liberalization in services.

With continued modernization in the information and communications technology worldwide, it is much easier, not harder, to liberalize trade in services.

Asian economies, the Philippines in particular, should consider a unilateral liberalization policy. This would involve fewer trade bureaucracies, taxes and subsidies, and more competition from more suppliers and manufacturers from countries around the world. Local consumers will benefit from more choices and more options while shelling out less taxes and fees.

Bienvenido S. Oplas, Jr. is President of Minimal Government Thinkers, a member-institute of Economic Freedom Network (EFN) Asia.
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See also: 
BWorld  91, Free trade means faster growth in manufacturing, November 14, 2016 
BWorld 137, ASEAN trade expansion and RCEP, June 20, 2017
BWorld 164, PES conference amidst reduced risk and uncertainty, November 21, 2017 

Sunday, November 26, 2017

BWorld 166, US energy trading and implications for Asia and Philippines

* This is my article in BusinessWorld last November 16, 2017.


Among the global leaders who attended the ASEAN Summit 2017 this week in Manila were the leaders of the US, China, Russia, Australia, and India. These five countries are also the top five in having the world’s biggest coal reserves and top five biggest coal producers.

US President Trump in particular emphasized his desire for “reciprocal trade” with Asian countries. Energy trading is a growing sector in the US as it is now the world’s biggest oil and natural gas producer (overtaking Saudi Arabia and Russia in oil and gas output, respectively, since 2014) but not yet the world’s biggest exporter of these two commodities.

The subject of Trump’s energy policies was well-discussed by many scholars, researchers, and some players during the “America First Energy Conference” in JW Marriott Houston, Texas last Nov. 9, organized by the Heartland Institute and co-sponsored by many other US-based independent think tanks and research institutes.

I attended that meeting and it seems I was the only Asian in the big conference hall. I went there from a different perspective compared to American participants — to further understand how the evolving US climate and energy policies would impact Asia in the short to long-term, the Philippines in particular.

In his breakfast plenary lecture, Joe Leimkuhler, VP for drilling of LLOG, a deepwater exploration company, discussed whether the US can dominate energy as articulated by President Trump.

“Energy dominance” is defined as being able to meet all US domestic demand and export to markets around the world at a level where they can “influence the market.”

He showed lots of very interesting tables and charts including the usual Strengths-Weaknesses-Opportunities-Threats (SWOT) analysis of current US energy environment. Among his conclusions are the following:

a. Oil, natural gas — The US can have energy dominance in the short-term but to make it long-term, the shale revolution should be sustained and supported, and if more gas reserves are discovered.

b. Coal — Supplies can meet domestic demand but may be unable to provide for short-term exports. There are no coal exporting facilities on the West Coast to cater to the biggest coal customers in the world, Asia. The states of Washington, Oregon, and California have passed laws preventing the construction of such facilities or delaying the permits. US coal is cheaper to produce and its quality is higher than other suppliers can give.

Many sessions in the conference provided extra information about the current weaknesses of the US coal industry despite its huge reserves.

In the session on “Peace Dividend: Benefits of Ending the War on Fossil Fuels,” Dr. Paul Driessen, Senior Fellow at the Committee For A Constructive Tomorrow (CFACT), showed these data on electricity prices, 2017, in US cents/kWh: (a) Germany: residential 35, business and industry 18; (b) California: residential 19, business/commercial 18, industry 14.5; (c) Indiana-Kentucky-Virginia average: residential 11.7, commercial 9.5, industry 6.5. Germany, Denmark, South Australia and California have the highest concentration of wind-solar farms and they have the most expensive electricity prices in the planet.

The US has the largest coal reserves in the world estimated at 381-year supply, shown in the Reserves/Production (R/P) ratio. Russia has the highest R/P ratio because its production and consumption is smaller compared to the US. China has the second biggest reserves but its R/P ratio is small because of its huge production and consumption in million tons oil equivalent (MTOE). In 2016, half of global coal consumption was made in China alone (see table).


Once the US can build those coal export facilities in the West Coast and various anti-coal policies in the Clean Power Plan (CPP) and CO2 Endangerment Findings are finally reversed, Asia will have more options of cheaper and higher-quality coal, aside from what they currently get from Australia, Russia, Indonesia, South Africa, and others.

The Philippines is a small player in the global coal market — very small reserves, negligible production (mostly from Semirara), and meager consumption. Yet many environmentalists seek to further restrict, if not actually prohibit Philippine coal power plants and force us to depend on undependable, unstable, unreliable, erratic, intermittent, and expensive wind-solar energy.

Governments should not pick winners and losers via legislation and multiple regulations, taxation, and selected subsidies. They should allow consumers to realize higher consumer surplus via competition and more choices in energy sources that are cheaper, stable, predictable, and dispatchable.
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See also:
BWorld 160, A high carbon tax is irrational, October 25, 2017 

Climate Tricks 63, The search for huge climate money in COP 23

Many if not all politicians and "planet saviours" from developed countries during the UN COP meeting in 2009 or so were dishonest when they pledged that their countries will give $100B/year to developing countries starting 2020. Now the latter are asking, "where's our money? Oodles of money?" And they demand further this week, "More money on top of $100B/year."

"In 2013, the World Economic Forum estimated US$5.7 trillion will be needed annually by 2020 for green infrastructure. The report suggests that public funds would need to increase to US$130 billion, an increase over the Green Climate Fund target of US$100 billion, to leverage US$570 billion of private capital." https://www.nature.com/articles/nclimate3343

No wonder Al Gore, the UN, WWF, etc. are so passionate to "save the planet". $100B/year is not enough, $5.7 trillion/year is the high target.

"needed to achieve the United Nations Sustainable Development Goals (SDGs): an additional $1 trillion annually in clean energy investments to limit global warming to below 2 degrees..." https://www.weforum.org/.../the-money-is-there-to-fight.../  
$100B/year or $1 trillion/year or $5.7 trillion/year....

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See also:
Climate Tricks 60, Alarmism by the socialists and global ecological central planners, January 28, 2017 
Climate Tricks 61, Hysteria and tantrums over Trump's withrawal from Paris Agreement, June 02, 2017 

Climate Tricks 62, Climate religionism of Arcy Garcia, July 02, 2017.

Saturday, November 25, 2017

BWorld 165, Airport transfers and tourism

* This is my article in BusinessWorld last November 10, 2017.


Is there a connection between tourism and the travel time to and from the international airport and the city proper?

I asked myself this question while I was reading Eva Air’s inflight magazine en route to Houston, Texas.

I spent a total of 17 hours traveling — two hours from Manila to Taiwan, a layover of one hour, and another 14 hours from Taiwan to Houston.

The good news is that all three airports mentioned have free Wi-Fi, especially in Taiwan, which offers fast Internet connections without requiring registrations. The bad news is that free Wi-Fi does not reach some gates at the NAIA.

I paid a visit to Houston to attend the “America First Energy Conference,” set for Nov. 9 at JW Marriott Houston, sponsored by the Heartland Institute, which also provided me a travel scholarship.

The airline’s En Voyage inflight magazine has one table that shows the list of the global airports they serve, distance from airport to downtown, the estimated travel time by train, bus and car/taxi (C), and cost in local currencies. I reconstructed the table and chose only major cities in East Asia, computed the average speed by car/taxi travel, then added data on each country’s international tourist arrivals and tourism receipts in 2016 (see table).


From the above numbers, these preliminary analysis would show:

1. Economies that have quick and convenient transport systems between their airports and city centers have higher tourism arrivals, even if their airports are far away from the cities. These examples include: China, Hong Kong, Japan, Malaysia, Thailand, South Korea, and Singapore.

2. Airports near their city centers have fewer visitors, if transport systems between locations are slow. These examples include: Vietnam (especially Ho Chi Minh airport) and Philippines, both NAIA/Manila and Mactan-Cebu airports.

There are many factors of course why some countries have very high tourist arrivals while others have fewer visitors. These factors are convenience of the airport itself, overall peace and order situation of the country, dominance of the rule of law, proximity of that city/country to other important tourism areas in other cities and countries.

If one lands in Bangkok, one can go to Cambodia, Laos, and Vietnam by land, without the need to take other flights.

Preliminary data show that yes, there seems to have a positive connection or correlation between fast airport transfer and tourism arrivals.

The data on Manila airport is a bit outdated because (1) there are now convenient and fast bus transportaion from NAIA/Manila airport to city centers of Makati City, Pasay City, and Manila and vice-versa, and (b) newly opened NAIA Expressway (PPP project by San Miguel) has significantly cut the travel time by car from the airport’s three terminals to city centers.

Some implications for the Philippines and its infrastructure and tourism policies.

One, NAIAEx tollway is doing good and should contribute to attracting more visitors into the country; thus, further extension of this tollway to BGC and other areas as planned by the project proponents and O&M operators should be facilitated by the government and not subjected to various cumbersome and costly regulations and permitting procedures.

Two, moving the Philippine international airport to a farther but bigger space (Clark in Pampanga, or Sangley Point in Cavite, or currently rice lands in Bulacan, etc.) complemented by fast train and/or buses to city centers will be a win-win situation.

Three, allow more integrated PPP (builders and O&M operation functions are assigned to only one winning bid player or consortium of players) for big, new airports, not hybrid PPP.
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See also:
BWorld 162, Open pit mines and open economy, November 05, 2017 

Energy 103, The proposed Jamaica coalition in Germany -- before the collapse

Until middle of this month, there was still hope of a possible “Jamaica coalition” in Germany – Black flag by CDU-CSU, Yellow by FDP and Green by the Greens. I posted these thoughts and news liniks from November 18-20, 2017 in my fb wall, reposting them here.
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Before, Merkel and CDU/CSU were chummy-chummy with Obama in the anti-coal, "save the planet" drama. Then pro-coal, climate realist parties AfD and FDP surged high in the Bundestag elections last Sept, CDU and SDP suffered big time. Now Merkel perhaps realizes that Trump is correct in allowing more coal power for highly-industrialized economies like Germany so Merkel won't give in to the Greens' blackmail of closing all coal plants just to have a coalition govt with them. The danger -- a collapse in negotiation would mean new elections.

"The Greens reject a yearly 200,000 cap on asylum seekers, which is one of the CSU's main demands....
Merkel has proposed to reduce the capacity of coal stations, by 7 gigawatts (GW) by 2020, instead of 5 GW as proposed earlier by the CDU/CSU and FDP, but the Greens insist on a 10 GW reduction.
The FDP and the Greens are also at opposing ends over the so-called solidarity tax, a 5.5 percent tax on incomes, capitals and companies. The end of the tax is a core FDP demand, which the Greens reject."
-- from the EU observer article, Nov. 17, 2017.

Meanwhile, this is fake news from The Guardian “German Greens drop car and coal policies in coalition talks with Merkel”, Nov. 8, 2017.

“It is clear to me that we will not be able to enforce a ban on internal combustion engines by 2030,” the Greens’ co-leader Cem Özdemir told Stuttgarter Zeitung.
The Greens are also prepared to modify their demand that the 20 most polluting coal-fired power plants in Germany should be shut by 2020."

 The Greens are outright watermelons, green outside, red inside.

Many watermelons and frequent climate junketeers and jetsetters are angry that Trump is not giving them more money for the expensive, thousands participants annual UN FCCC meeting, this year held in Bonn, Germany. Now the watermelons are extra angry that Merkel won't give in to their demands that Germany should close down many of its coal power plants.

"Germany's Merkel dodges coal deadline at climate talks", Nov. 15, 2017.
"Germany generates about 40 percent of its electricity from coal, including the light brown variety called lignite that's considered to be among the most heavily polluting fossil fuels.

"Coal, especially lignite, must contribute a significant part to achieving these goals," Merkel said. "But what exactly that will be is something we will discuss very precisely in the coming days."

The watermelons are a big bunch of hypocrites. They lambast coal yet super-enjoy Germany's industrialization and its 24/7 electricity, 40% of which is from coal power. They also lambast other fossil fuel like oil yet they jetset by the thousands from many countries and cities, their airplanes and cars using oil, not water or solar.

Macron is less hypocrite when he lambasts coal because France is largely dependent on nuke power that produces about 75% of its total electricity supply. Next to Germany in having big coal power supply is Poland, which will host the UN FCCC 2018 meeting.

"Poland ready for SHOWDOWN with EU over climate change as Trump sends 74,000 tonnes of coal", Nov. 16, 2017.
"Prime Minister Beata Szydło has warned MEPs she will "throw it back at them" if they criticise her nation's carbon consumption at next month's EU summit.
And that could set the scene for more stand-offs next year, when Poland hosts the next round of UN climate talks....
The ruling Law and Justice party are unapologetically pro-mining, a belief shared by US President Donald Trump, who visited the country in the summer and said: "Whenever you need energy, just give us a call."

"Mrs. Merkel’s failure comes despite astronomical costs. By one estimate, businesses and households paid an extra €125 billion in increased electricity bills between 2000 and 2015 to subsidize renewables, on top of billions more in other handouts. Germans join Danes in paying the highest household electricity rates in Europe, and German companies pay near the top among industrial users. This is a big reason Mrs. Merkel underperformed in September’s election.

Berlin has heavily subsidized renewable energy since 2000, primarily via feed-in tariffs requiring utilities to buy electricity from renewable generators at above-market rates. Mrs. Merkel put that effort into overdrive in 2010 when she introduced the Energiewende, or energy revolution." (Nov. 17, 2017) https://www.wsj.com/articles/germanys-green-energy-revoltgermanys-green-energy-revolt-1510848988

"It has already announced some 6,000 job cuts in its wind power unit, due to falling prices in major markets such as India and the US." (Nov. 16, 2017) http://www.bbc.com/news/business-42008269

'German Conventional Turbine Producer Siemens To Slash 6900 Workers Worldwide Due To “Energiewende”' (Nov. 18, 2017) http://notrickszone.com/.../german-conventional.../...


"At the 17-minute mark, Bernd Benser of GridLab-Berlin tells viewers that while grid operator Tennet had to intervene only 3 times in 2002 to avert grid instability, last year he says the number was “over 1000” times — or “three times daily”.

These intervention actions, known as redispatching, cost the consumer about a billion euros last year alone, says Benser. The SAT 1 voice-over warns that more power transmission lines are urgently needed if the Energiewende is to avoid “becoming a sinking ship“. (Nov. 11, 2017) http://notrickszone.com/.../german-media-report-power.../...

"Chief financial officer Markus Krebber said such a unilateral move by Germany, which had just contributed to making a pan-European CO2 trading mechanisms much stricter, would harm the economy and undermine the security of supply.

“Focusing on climate protection goals alone is not enough and will lead to fatal misallocations,” (Nov. 14, 2017), https://www.reuters.com/.../quick-german-coal-exit-would...

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See also:

Tuesday, November 21, 2017

BWorld 164, PES conference amidst reduced risk and uncertainty

* This is my article in BusinessWorld last November 6, 2017.


The Philippine Economic Society (PES) annual conference is probably the most cerebral event in the field of economics and business in the country. The reason is that in the afternoon, there are eight simultaneous panel discussions on eight different topics within 1 ½ hours, each panel with 3-4 presenters giving technical papers. A coffee break then another 7-8 simultaneous panel discussions, a total of 15-16 different topics with a total of about 50 speakers and panelists, in just one afternoon.

The morning session is devoted to big personalities in government (Cabinet Secretaries, Congress leaders), multilaterals, and sometimes corporate leaders. Except on few cases, I don’t give these speakers much weight because their presentations are generally presented and discussed somewhere else and in media.

So I became a lifetime member of PES and I have attended all the past PES annual conferences in the past decade or more. The next PES annual conference will be this coming Wednesday, Nov. 8 at Novotel Hotel in Cubao, Quezon City.

This year’s theme is “Growing Amidst Risk and Uncertainty.” I have developed skepticism to subjects with generally pessimistic or alarmist titles so I checked certain numbers to see if indeed there are more economic and social risks and uncertainties now and the near future, both global and national, compared to the past few years.

My skepticism is justified because I found out that there are less risks and uncertainties, not more, now and at least next year compared to the recent past. In particular:

(1) Projected gross domestic product (GDP) growth among the world’s biggest economies US, Canada, Germany and Japan are faster than the last four years. There is projected growth slowdown in China and India, the world’s #1 and #3 biggest economies in GDP-PPP values but the rates are still high at nearly 7%.

In the ASEAN-6, the same pattern of higher growth this year and the next compared to the past four years except in Singapore.

(2) In consumer prices, projections for 2017 are higher than the last four years for the industrialized west but the uptick is not scary nor alarming. For Asia’s big economies, either there is projected decline or the rise will be mild.

(3) It is in fiscal irresponsibility, in the spend-spend-spend culture of many governments around the world, where long-term risks can materialize because of their persistent budget deficit (revenues lower than expenditures). Still, it is good to see that some welfare states like Germany and S. Korea are posting fiscal surplus this year. (see table)



For the Philippines, note that The Economist/EIU pool of forecasters project a crack in growth momentum next year. The past Aquino administration has managed to post really strong growth compared to many countries in the planet, growth momentum until this year but expected to somehow crack starting 2018.

Sadly, I cannot attend the PES meeting this year because I am going to the US for another conference this week and hence, first time in many years that I will miss this big event. If I could attend, of the 15 different topics in the afternoon, I would attend the Energy Policy Development Program (EPDP) panel on “Power Economics: Prices, Generation and Use” or Trade topic in session A. In session B, I would attend the Friedrich Naumann Foundation for Freedom (FNF) panel on “Climate Change and the Economics of Natural Disaster” or Ateneo School of Government (ASoG)’s panel on infrastructure.

I have written a number of papers in this column on the merits of cheaper, stable energy from conventional sources and the lousiness of unstable, intermittent, expensive renewables that depend on subsidies and priority dispatch to make them “viable.” In Germany, there is a growing momentum of policy reversal in climate and energy policies because the German liberals Free Democratic Party (FDP) and politically wild Alternatives for Germany (AfD) have surged high in the recent Bundestag/Parliament elections last September and these two parties are very explicit in questioning continued renewables cronyism and endorsing cheaper, stable energy from coal.

To summarize: (a) There are less risks and uncertainties now and the near future compared to recent years; (b) Endless fiscal irresponsibility by governments will create long-term risks with rising public debt; (c) Dutertenomics of tax-tax-tax aside from kill-kill-kill in its drugs war may crack starting next year; and (d) Climate and renewables alarmism will see slow policy reversals in more countries soon.
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See also:
BWorld 161, The sin of smuggling and corruption in the Sin tax law, November 02, 2017 

Trolling by cell phone

Last Saturday, November 18, my cell phone has been getting anonymous calls. I thought they were from some friends but when I answered the call, the caller/s would not speak. I replied by text to some numbers, "Who is this please, thank you", no reply, deadma.

My suspicions where they were coming from:

1. Marketing warriors trying to sell me something.
2. Duterte warriors who love my criticism of the President.
3. Climate warriors who want to "save the planet" and unhappy with those who question their religion.
4. Others, as joked by some friends: (a) BBC trying to interview me (a joke in reference to a Du30 fanatic blogger Sass Sassot who got angry at BBC because they never interviewed her), (b) they are my silent admirers, etc.

#1 is not possible because marketing people quickly speak when their call is picked up.
#s 2 and 3 are possible.

Then the anonymous calls continued until yesterday. Here is a summary of the calls:

a) Last Saturday, 7 calls from 7 different numbers:
0917-5377634
0917-5372684
0917-8163219
0917-8163621
0917-3183613
0917-5375776
0917-3194184

b) Last Sunday, 2 calls from 1 number:
0956-8660941(2x)

c. Yesterday, Monday, 8 calls from 9 different numbers:

0917-5372550 (2x)
0917-8163046
0917-5372684
0917-8163621
0917-3158973
0917-5379213
0917-8163513
0917-5378095

Here are the screen shots, arranged from latest to earliest calls. "Today" refers to yesterday, Monday, I took the shots at 11:42pm.

 

So there, I don't know who these trolls are but I ignore their calls. I will also report this to DICT and Sec. Eli Rio, Jr.

Sunday, November 19, 2017

BWorld 163, US energy policies and implications in Asia and Philippines

* This is my article in BusinessWorld last October 31, 2017.


Energy means development. It is not possible to have fast growth in all sectors — agriculture, manufacturing and services — and sustain it without ample supply of affordable and stable energy and electricity.

The US remains the world’s biggest economy in terms of nominal or current values of gross domestic product (GDP). But in purchasing power parity (PPP) valuation of GDP, China has tied the US economic size in 2013, both with $16.7 trillion, and in 2014, China ($18.2T) overtook the US ($17.4T).

US ENERGY POLICIES UNDER EX-PRESIDENT OBAMA
The energy policies of the previous administration can be summarized as follows: (1) drastic reduction of coal use, (2) steady use and consumption of nuclear and hydroelectricity, (3) relative encouragement of natural gas and oil, and (4) massive support and subsidies for variable renewable energies (VREs) especially wind-solar.

In contrast, other giant economies in the world have the following energy policies:

Germany: (1) mild reduction in coal, oil and nuclear, (2) relative encouragement of natural gas, and (3) massive support and subsidies for VREs.

Japan: (1) increased use of coal and natural gas, (2) decreased use of oil and nuclear, and (3) big support for solar.

China and India: uniform increase in coal, oil, natural gas and VRE. Which is the right thing to do, to improve energy capacity as big and as stable as possible to hasten their economic development (see table).


The US energy transition from coal to VREs like wind-solar has affected its long-term energy stability and competitiveness and punch some holes on the budget and ordinary consumers’ pockets.

US ENERGY POLICIES UNDER PRESIDENT TRUMP
Recognizing the long-term threat of this trend, President Donald Trump issued a series of policies reversing the Obama policy. Among them are the following:

(1) Appointed an Anthropogenic global warming (AGW) skeptic, Scott Pruitt as head of the Environmental Protection Agency (EPA). EPA in the previous administration has issued lots of regulations that explicitly or implicitly restrict new coal power plants while putting existing coal plants.

(2) Issued America Energy Independence policy in March 2017, targeting to reverse among others, the Clean Power Plan (CPP) projected to cost the US economy up to $39 billion a year and increase electricity prices in 41 States by at least 10%. A follow up Executive Order (EO) “Implementing an America-First Offshore Energy Strategy” was issued in April 2017.

(3) Exit from the Paris Agreement and the multi-trillion dollars possible liabilities in legal and environmental challenges.

These policies will reverberate to Asia and the rest of the world in terms of higher US production of coal, oil and gas. Higher supply means lower or stable prices for these energy sources.

On a related note, an America First Energy Conference (http://americafirstenergy.org/) will be held in Houston, Texas this coming Nov. 9, to be sponsored by the Heartland Institute. Being organized by an NGO, speakers and moderators (41 so far) are all from nongovernment entities except one, from the US Department of Interior.

HUGE COAL POWER IN SOUTHEAST ASIA (SEA)
Last week, the International Energy Agency (IEA) reported that about 100 GW of new coal-fired power generation capacity is expected to come online in SEA alone by 2040, increasing the region’s installed capacity to about 160 GW and more than doubling the region’s current coal power capacity. Global coal-fired generation capacity to grow by nearly 50% over today’s levels.

Coal as fuel is preferred because it is cheaper than natural gas and coal plants are in many cases less costly than the capex needs of gas plants, the IEA admits.

The Philippines will be among the big SEA nations that is investing big amount of resources in expanding its coal capacity. And rightly so. In 2016, coal constituted 34% of PH total installed power capacity but contributed 48% of actual electricity production.

Cheap, stable, and dispatchable electricity upon demand, that is the kind of power sources that people the developing world need. Governments must step back from climate and renewables alarmism and cronyism and go for least-cost, reliable energy.
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See also:
BWorld 160, A high carbon tax is irrational, October 25, 2017 

On the PH's GDP growth of 6.9% in Q3 2017

A friend, Ateneo de Manila's Economics Professor, Ser Pena-Reyes, posted this chart from Rappler in his fb wall yesterday. I like it.


My immediate reaction -- see in the Expenditures side, Q3 2016 vs Q3 2017, Household consumption is declining this year while Government consumption is rising fast. The Du30 government is spending big time this year, funded by lots of borrowings, to be followed by tax-tax-tax in 2018 and beyond. Magaleeeng.

Another economist friend, Jun Neri, BPI's chief economist, posted their chart analysis of the Q3 growth, their version on the spending side. Jun said "It factors in the weight of each sector. Notice how Net Exports (X - M) helped compensate for the slowdown in HFCE (household consumption)." Good chart, Jun/BPI.



Ser made another chart, below, on the demand side of the GDP growth. Ser noted that "HFCE, GFCE, and capital formation appear to be the main drivers of the deceleration—an observation that raises some concern regarding growth sustainability. There is a need to accelerate capital formation in particular, if we are to shift from consumption-led to investment-led growth."



Growthwise, the slow growth in year 1 of PNoy Aquino government was momentum from the lousy Gloria Arroyo economy. Likewise, the fast growth in year 1 of the Du30 administration is momentum from PNoy fast growth era. Besides, while PNoy budget deficit was around P300 B/yr or less, Du30 deficit in year 1, this year, is p600B+. No crisis year yet it borrowed heavily, hence the high jump in Government consumption growth.

Fiscal responsibility means in financial turmoil or crisis years, government borrows big time to help propel an economy then have fiscal surplus in non crisis years to pay some debt. This administration  displays big time fiscal irresponsibility of spend-spend-spend, ramp up the deficit and borrowings in non crisis, already fast growth period.



Sunday, November 05, 2017

BWorld 162, Open pit mines and open economy

* This is my article in BusinessWorld on October 27, 2017.


Open pit mining (OPM) is not as scary and draconian as many activists would paint it to be. Thus the ban on OPM by the CA-rejected ex-DENR secretary Gina Lopez has little or zero technical basis, only emotional outburst.

The Mining Industry Coordinating Council (MICC), the multi-stakeholder body on the sector has finally decided that the ban on OPM should be abandoned and new DENR Secretary Roy Cimatu has said that he will soon issue a new department order for this.

OPM is done and practiced in many countries including developed ones like the US, Australia, Germany, Sweden and Canada. Mining firms and their stockholders get good income, governments get huge tax revenues, many workers get long-term high-paying jobs, and consumers worldwide enjoy continued supply of electricity, gadgets, appliances, cars, steel bars and numerous other products of mining. (See table)


Now that the uncertainty of OPM banning has been removed, existing mines should be able to continue their production without fear of policy reversals. The image of the country as having fickle, atras-abante investment policies should be somehow corrected.

New, big prospective mining projects in the Philippines will hopefully see the green light for their operations. Two of those big potential projects are (1) the $2-billion MVP-led Silangan gold mine in Surigao del Norte, and (2) the $5.9-billion Tampakan gold-copper project in South Cotabato. The latter is actually the Philippines’ single biggest foreign investment project and is expected to bring huge income for the locals and the government, national and local.

Many local anti-mining groups vehemently oppose the Tampakan project citing thousands of hectares of land that will soon be wasted. That is an outright exaggeration. The copper-gold ore extraction in just one area is projected to be about 2.5 kms. wide, 3 kms. long and about 0.8 km deep, after 17 years of operation. This is significantly smaller than the Hibbing and Bingham Canyon in the US, among other big OPMs in the world.

Government should simply set the parameters and criteria for business to follow based on existing laws, like the Mining Act of 1995. Once government has given its permit and approval for a mining project, it should simply monitor the players that they comply with the laws and penalize violators, not change rules midway and in the process, violate the laws that it is bound to follow and implement in the first place.

The rule of law applies not only to businesses and regulated entities but also to the government. The rule of law applies to both governors and governed, both administrators and administered, both regulators and regulated. If governors and regulators want to exempt themselves from the law and make their own instant rules, that is the rule of men with arbitrary powers circumventing the rule of law.
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See also:
BWorld 151, Mining taxes per hectare of land, September 22, 2017
BWorld 159, Electoral reforms and the President, October 19, 2017