BWorld 174, MMDA towed my car even with my kids inside

* This is my article in BusinessWorld last December 21.
And an erratum here. I referred here to Tiger Towing co., it should be Fighter Towing Co. I corrected this in my part 2 column, thank you.

“The animals you eat are not those who devour others; you do not eat the carnivorous beasts, you take them as your pattern. You only hunger for the sweet and gentle creatures which harm no one, which follow you, serve you, and are devoured by you as the reward of their service.”

— Jean-Jacques Rousseau

(French philosopher, 1700s)

These are the thoughts that to my mind, describe many government officers, the Metro Manila Development Authority (MMDA) in particular, on Dec. 19.

That afternoon, I briefly parked my car along J. P. Rizal St. in Makati City to buy pork and rice in a nearby wet market. I turned the hazard lights on, kept the engine running, and left the air-con full blast because my two daughters — 7 and 11 years old — were inside.

When I came back more than five minutes later, MMDA officers and a truck were already in the process of towing my car.

Yes, there was a “No illegal parking” sign where I left my car and yes, I recognized my mistake. This is why I talked to the officers and asked that they issue me a ticket violation instead of towing my car. But they refused.

I appealed again because my girls are already terrified while inside the car but it was futile.

Helpless, I gave in but said I needed to bring my daughters home first to spare them from the stress of being towed to far away place. They agreed but said that a crew member of the Tiger towing company must be at the wheel of the car, not me. Then the towing started, prompting my 11-year-old daughter to cry.

This, to me, felt irregular.

First, a stranger was inside my car, holding the wheel. Second, the noise and the sudden jolt resulting from the car being pulled by the truck scared my two daughters further.

When we reached an intersection, I explained to the MMDA officer who escorted us on a motorcycle that my daughters were already terrified. Again, I asked him to issue me a ticket and just like the others, he refused.

His uniform showed the name “Dayaon LD.”

We arrived at their impounding area in Tumana, Marikina City around 5:30 p.m. Then the tow truck quickly left, perhaps to prowl for more potential victims. The area is secluded, far from the Tumana proper, muddy, and isn’t easily accessible to public transportation, not even tricycles. I saw hundreds of cars and vans and realized that I have come upon the mess the government has caused its citizens.

With this in mind, I have decided to raise several questions after having experienced the cavalier attitude of the MMDA.

1. Why did the MMDA officers insist on towing my car when I already showed up, admitted my mistake, and agreed to get a ticket for the violation? After all, my car was not “unattended vehicle” because the engine was running, the air-con and that hazard lights were on with two young girls inside?

2. Why did the MMDA officers allow or instruct Tiger Towing Co.’s crew to board and drive my car with me and my two girls inside? I stayed in the car after my girls went home, took a photo while the car was being towed with Tiger’s crew member behind the wheel.

3. Why did they bring the car to Marikina City when another MMDA impounding area is located in Ortigas, which is closer to Makati City?

4. Will the MMDA and/or its accredited towing company accept responsibility for damages to the car during towing?

5. Why is the information on the impounding notice for my vehicle incomplete? The notice should indicate the name, signature, and designated ID number of the officer who issued the impounding notice.

But it only indicated the name of the team leader — a certain Gonzales — while the names of the driver and the two crew members were not identifiable. Only a signature was on the notice, without any names nor ID numbers. The MMDA escort should have a printed name as well but there was nothing.

After reading the Impounding Notice and MMDA’s FAQs, I learned that:

An illegal parking violation penalty is only P500; towing is P1,500 for the first four kilometers while it is P200 for every succeeding kilometer. Makati City to Tumana in Marikina City is quite a distance, allowing the towing company to earn thousands of pesos per vehicle.

MMDA’s FAQs on towing also says:

“11. Are the towing crew allowed to board an attended vehicle?

This is NOT allowed. If this happens when the driver is present, this must be taken note of and reported as a violation to the MMDA (136).” (http://www.mmda.gov.ph/20-faq/2085-towing-and-impounding-faq)

“13. Who will be responsible for any damage/s obtained by the vehicle during the towing?

Take note that before the actual towing, the tow truck crew shall issue a Technical Inspection Report indicating the name of the owner, vehicle’s plate number, type and color, including the accessories thereof, and a description of the vehicle’s condition. The towing company/agency shall be held responsible for losses/damages incurred while towing the vehicle.”

Neither Tiger’s crew nor MMDA officers did this. They only gave me a one-page “Impounding Notice” with vehicle type and plate number and they did not even ask for my name.

The MMDA is a big bureaucracy in the metropolis.

The money they get from us via annual appropriation keeps on increasing: P1.726 billion in 2016, P2.180 billion in 2017, and P3.558 billion in 2018, according to the Budget department’s Budget of Expenditures and Sources of Financing 2018.

The MMDA also earns more from so many penalties for mundane violations like dirty plates, using slippers and/or sleeveless shirts while driving. I saw its list of “Traffic violations and penalties” and it was four and a half pages long, describing 300 different prohibitions and hence, potential sources of fines, penalties and harassment.

The MMDA towed my car at 2:39 p.m. and arrived Tumana about 5:30 p.m. I got home in Makati City around 8 p.m., wasting about six hours. Now, I have to go to the MMDA office in Pasig to settle the fees, then back to Tumana, then drive back home to Makati City, which will take many hours again.

(Later on, I was able to meet some MMDA personnel who helped correct the behavior of their errant staff. I was able to meet Mr. Mike Salalima, Deputy Chief of Staff of MMDA chairman Danny Lim. He said that what happened was wrong. I should have just been issued with a ticket violation, instead of towing my vehicle. He will call Tiger Towing Company and I will be there to listen in. And I will be spared of possibly P6,000+ towing fee because of the long distance from Makati City to Tumana.)

We private citizens and taxpayers already pay lots of taxes and fees partly to pay the salaries and bonuses, travels and vehicles, perks and pensions of government people. Next year we will pay even higher taxes with the TRAIN law. Why add more fines and fees in thousands of pesos, why harass us with many unproductive hours, as if we committed a huge, horrible crime?

If some traffic violations are made, the driver should be penalized, not the car. The process should also be shortened, not lengthened.

Government should be more sensitive to taxpayers and not punish them with harassment. Are these too much to ask?

----------------

See also:

BWorld 171, Global vs national tax reforms, December 29, 2017 

BWorld 172, Mining and natural disasters, December 30, 2017 

BWorld 173, Energy favoritism under TRAIN, December 30, 2017

La Nina and flooding in the PH, other countries

After a big El Nino the last two years, La Nina is back this year and it seems to be a bad one, lasting probably for the next two years. In the Philippines' main island of Luzon for instance, regular rainy or wet season is from June to October. This year, it is end-December already and it's been cloudy on most days with occasional scattered rains.

There have been several heavy flooding in the country too until this month that killed dozens of people due to landslides and drowning.

Ok, just what is El Nino - La Nina, how are they measured?

The quick answer is if the sea surface temperature (SST) anomaly or deviation in the Nino region 3.4 -- the center-most and widest part of the 4 Nino regions 1, 2, 3 and 4 in the Pacific Ocean -- is above or warmer than 0.5 C compared to average temperature over the last 30 years I think, that's El Nino. If the SST anomaly is below or colder than -0.5 C, that's La Nina. So if the SST is between -0.5 to +0.5 C, say -0.35 C or 0.48 C, that's the neutral zone, neither El Nino nor La Nina, just developing towards either condition.

Here is the time series data over the past 67 years, 1950-2017. Prominent recent big El Nino years were 1998 and 2016, while prominent recent La Nina years were 1989, 1999-2000, and around 2008, 2011.

On average, the El Nino - La Nina cycle (yes, it's a cycle, like global warming - global cooling cycle, wet-dry cycle in the Tropics, winter-spring-summer-fall cycle in the North and South Hemisphere, water evaporation-condensation cycle, etc.) occur six years or so, three years El Nino development, another three years La Nina development.

So the UN, Al Gore, many governments, are dishonest and deceptive when they say that anthropogenic (or man-made) global warming is "unprecedented" (no precedent) and "unequivocal" (no ambiguity, so sure).

What, no previous ,global warming precedents over the past 4.6 B years of planet Earth's history? Big lie. And no global cooling that happen after global warming phase? Big lie. And climate change, climate cycle is not natural (nature-made), only man-made? Big lie.

I hope that by 2018 and the coming years, that big fake news by the UN, governments, big activist environmentalists will be exposed.

BWorld 173, Energy favoritism under TRAIN

* This is my column in BusinessWorld last December 19, 2017.

The recently approved tax reform for acceleration and inclusion (TRAIN) by the Congressional Bicameral Committee exhibits a number of favoritism for some energy products and players while penalizing others. In particular, among the three fossil fuels, only petroleum products and coal received tax hike while natural gas was not mentioned and hence, not taxed.

In the VAT base expansion, expensive, unstable and intermittent renewable energy (RE) like wind-solar is again exempted (see table).

Here are the possible implications:

1. Since petroleum products are a public good, many goods and services will experience price hikes. Not only fares for jeepneys, buses, taxi, boats, and airplanes but also for agricultural products because most farmers now no longer use carabaos in tilling their farms, they use tractors, big and small; more farmers now also do not use human labor for harvesting rice, they use harvest + threshing combiner machines. Fishermen hardly use manual paddle boats, they use motorboats. Traders no longer use animals in transporting cargo, they use trucks.

2. Since coal power contributes 48% of total electricity production nationwide (2016 data) despite having only 34% of total installed power capacity, electricity prices will further go up, slowly but surely. Most apologists of raising coal taxes cite the “minimal impact” on households consuming 200 kWh/month. This may be true but those households work in factories, malls and hotels, schools and universities, hospitals and residential condos, airports and seaports. These establishments consume hundreds or thousands of MWh per month, not kWh of electricity. The additional cost will be passed on to the consumers.

3. Natural gas is also fossil fuel but it was never slapped with excise taxes. The Malampaya gas royalty is a tax on exploitation of a natural resource, the same way that the price of our imported petroleum and coal already include royalties. There is favoritism in exempting natural gas from excise tax. And there are some connections between some legislators and a known economist who pushed for high coal tax but silent on natural gas tax, with a big energy company whose main product is natural gas power generation.

4. Exempting RE from VAT but retaining VAT for fossil fuels. These REs are enjoying favoritism three times. First, this exemption from a high 12% VAT. Second, they are given guaranteed high prices for 20 years via feed-in-tariff (FiT). Third, they are given priority or mandatory dispatch to the grid even if they are expensive. For instance, FiT for solar1 is P10+/kWh, FiT for wind1 is P9+/kWh, average coal price is P4/kWh, can go down to P1.50/kWh on off-demand hours like midnight.

Soon, REs will be given a fourth privilege via the renewable portfolio standards (RPS), or minimum percentage of REs that electric cooperatives (ECs) and private distribution utilities (DUs) must purchase and distribute to households. REs then can price their electricity output high because these ECs and DUs have no choice, they will be penalized if they will not buy those expensive and intermittent REs.

Meanwhile, the DoF is often quoted as saying that “two million richest Filipino families consume 50% of oil products in the country.” This is one of the reasons why they pushed for high tax hike for oil products.

I have been intrigued by that repeated statement since last year and I am wondering what papers or studies justify this?

There are about 25 million Filipino families now. The DoF refers to the richest 2 million families, so the other 23 million middle class and poorer class Filipinos consume the other 50% of oil products.

The DoF is saying then that anytime in EDSA, NLEx, SLEx, roads in Visayas and Mindanao, etc. on average, about 50% of the cars, buses and trucks there transport the two million rich families and their goods? And that about half of domestic flights and the inter-island boat rides transport the richest two million families? This is absurd.

I think the DoF displayed dishonesty and deception in making that claim to further justify the high oil tax hikes. If such DoF claim has indeed objective basis, I am willing to apologize for this remark. For now, that statement is not backed up by solid numbers and hence, deceptive and opportunist.

--------------

See also:
BWorld 166, US energy trading and implications for Asia and Philippines, November 26, 2017 

BWorld 170, The Habito carbon tax distortion, December 28, 2017 

BWorld 171, Global vs national tax reforms, December 29, 2017 

BWorld 172, Mining and natural disasters, December 30, 2017

BWorld 172, Mining and natural disasters

* This is my article in BusinessWorld on December 15, 2017.

Environmental activists claim that the planet is going into a deepening death spiral with more and more people either killed or displaced by natural disasters that occur around the world.

The method and counting of deaths and displacement, however, is deceptive.

Whether flood or drought, torrential rain or foul weather, these are all counted as “proof” of the “deteriorating situation of the global environment.”

A more objective assessment of the effects of natural disasters is to get data of global temperatures, especially the lower tropospheric temperature (LTT) and sea surface temperature (SST) that are collected by satellites 24/7, and not just the land surface temperature that are collected by various meteorological agencies of many countries.

Another approach is to get the ratio of casualties over X number of people. I found one piece of data that precisely answers the question, “Are there more deaths and displacement in the world today compared to 40, 50, or 100 years ago?”

Based on the chart above, the answer to the question is no.

Assuming that the frequency of strong storms or of an El Niño is rising now compared to hundreds or thousands of years ago, the number of casualties have declined because (1) people now live and work inside stronger structures, and (2) better preparations have been made, thanks to modern forecasting models and communications technology.

Mining in particular is often blamed for big landslides and soil or mountain erosions.

While it is true that some irresponsible mining companies are to blame and must be held accountable — the same way that there are irresponsible construction companies and irresponsible logging and fishing companies — it is also true that landslides occur simply because of the volume of rainfall and flashfloods that come, not because of any mining and quarrying in a particular area.

To further control irresponsible mining, non-environmental regulations have been tightened further to squeeze mining companies to become “responsible” to the communities.

The more complicated ones are mining taxes, royalties, regulatory fees, and mandatory community projects on top of taxes, royalties and fees.

And the Duterte government’s tax reform program has raised the mining excise tax from 2% to 4% of revenues. This excise tax is on top of corporate income tax, VAT, withholding tax, documentary stamp tax, etc.

Perhaps a better option that should have been done was to raise the mining excise tax from 2% to 10%, then abolish some mandatory expenditures and programs, like any or some of these: Annual Environmental Protection & Enhancement Program (EPEP), Social Development and Management Program (SDMP), Community Development program, Environmental Work program (EWP), Safety and health program, and others.

The advantage of this option is that government will collect more money since many people always argue that mining firms don’t pay enough taxes. Then government through the national and local government agencies should do those community projects that mining firms are currently forced and coerced to spend on top of various taxes and fees they pay.

So to prepare the locals from natural disasters like annual flash floods, government should build huge and stable drainage, ensure robust riprap structures on hills and cliffs to control erosion and landslides.

It remains a question of course if government officials and legislators will really do this once they hold the money. After all, giving away freebies and endless subsidies is often seen as more “politically productive” than building long-term infrastructures to communities.

 ---------------

See also:

BWorld 168, Uncertainty in mining policy and the Manicani debate, December 12, 2017 

BWorld 169, On tobacco tax and plain packaging, December 12, 2017 

BWorld 170, The Habito carbon tax distortion, December 28, 2017 

BWorld 171, Global vs national tax reforms, December 29, 2017

Rizal Day, 121 years of heroism vs colonialism

Today is Jose Rizal Day, a regular holiday in the Philippines to commemorate his death anniversary in December 30, 1896, less than two years before the end of Spanish formal colonization that started around 1560s. He was killed via firing squad at Luneta, Manila.

With more than two centuries of generally cruel and bloody colonization by Spain, the Philippines has produced dozens of heroes in many parts of the country, leaders who started early independence movements but were unsuccessful because of the superior arms and merging of church-state affairs by the Spanish colonizers. Jose Rizal was one of those heroes.

Rizal however, was a standout among them because of his brain, his high intellect. He was a writer and book author, a poet, a painter, a physician, an orator, has several other talents. His two books, "El Filibusterismo" and "Noli me Tangere" are classic materials that are still used in elementary and high schools until now in Philippine history subject.

Another thing that distinguished Rizal from majority of Filipino heroes then was that he was a "pacifist" reformer, he did not favor armed confrontation with Spain. He travelled a lot, in Spain and other European countries, he was able to highlight the cruelty of Spanish front line officials in the Philippines and thus, campaigned hard for drastic reforms. Of course the colonizers' cruelty prevailed and he was jailed for several months as the colonizers were searching for the leaders of the spreading armed insurrections against them. Then the final verdict, death by firing squad, 121 years ago.

My friend, famous libertarian Lawrence "Larry" Reed, President of the Foundation for Economic Education (fee.org) in the US, asked me to write about Rizal, to be published in their website. I readily said Yes because Larry is a good friend since 2004 when he was still the President of the Mackinac Center for Public Policy in Midland, Michigan. I attended the Mackinac Leadership Conference, early April that year, a training for aspiring free market leaders.Our batch that year has many participants from Asia -- from HK, Sri Lanka, India, Vietnam, Mongolia, PH of course.

Rizal is famous in fighting for national freedom and independence. I am not familiar, however, if he also wrote a lot about individual freedom and liberty. That is something I have to research.

Jose Rizal, thank you for your bravery and heroism. Other heroes in the PH fight vs Spanish colonization -- Andres Bonifacio, Apolinario Mabini, the Gomburza priests, Diego Silang, Marcelo del Pilar, etc. -- thank you too.

* Trivia:

1. The PH is the only Asian country colonized by Spain; also the only Asian country colonized by the Americans after the Spaniards have left.

2. Many Filipinos have Spanish family names, like Gonzales, Marquez, Evangelista, de los Santos, Burgos, Zobel, etc. Many also have Spanish first names, like Bienvenido (me and my late father), Juanito, Andres, etc.

BWorld 171, Global vs national tax reforms

* This is my column in BusinessWorld last December 13.

“The problem is not that the people are taxed too little. The problem is that government spends too much.”

— former US President Ronald Reagan

Until 1980, much of the world’s countries and governments were socialistic in their taxation and spending policies. For instance, the top marginal income tax rates that year were 60% in Malaysia and Thailand, 70% in the Philippines, 75% in Japan, 89% in South Korea, 70-75% in the US, and 83% in UK.

Then the Reagan-Thatcher era in the ’80s changed this, they cut their respective tax rates by half. Both were advocates of limited government and free market as indicated by Reagan’s statement above. He also once described role of many governments as “if it moves, tax it; if it keeps moving, regulate it; if it stops moving, subsidize it.” Ms. Thatcher on the other hand once said that “the problem with socialism is that you eventually run out of other people’s money.”

In the Philippines, former President Cory Aquino and other world leaders in the ’80s also joined to institute drastic income tax cut.

Fast forward today. The Duterte administration initiated drastic personal income tax cut, which is a good thing. The problem is that it also increased taxes elsewhere as it expanded public spending big time. The average increase in the national government budget of the previous administration was around P250-300 billion/year. Dutertenomics easily doubled this level: P670B increase in the first year (from 2016’s P2.68 trillion to 2017’s P3.35 trillion), another P420B increase next year with 2018 budget of P3.77 trillion.

Among the global NGOs that fight high and multiple taxes, big and wasteful public spending, is the World Taxpayers Association (WTA).

Formed in 1998 as Taxpayers Associations International, it was renamed as WTA IN 2000. It has many members from over 60 countries promoting lower tax rates, limited government, and more individual freedom.

The WTA held its regional forum and meeting last week, Dec. 9-10 at Rembrandt Hotel Bangkok, Thailand. I went there and I was the only participant with an institute from ASEAN countries. Other participants were from China, Hong Kong, South Korea, Japan, India, Nepal, Australia, UK, Sweden, US and Canada. Former WTA Sec. Gen. Bjorn Tarras-Wahlberg, current WTA Chairman Troy Lanigan who is also the president of Canadian Taxpayers Foundation (CTF), and current WTA Sec. Gen. Cristina Berechet were there.

Among the biggest members of WTA and represented in the Bangkok meeting are the Korea Taxpayers Association (KTA) with 1.2M dues-paying members, CTF with 117,000+ members, Taxpayers Alliance (UK) with 75,000+ members, others.

The Philippine government seems to be the most tax-hungry among the 10 members of the ASEAN as reflected in the total tax rate (TTR) as % of commercial profit. This is reported by the Price Waterhouse Coopers (PWC) in its “Paying Taxes” annual reports. TTR is the sum of corporate taxes + labor taxes (mandatory contributions for employees’ SSS, health, housing insurance, etc) + other taxes and fees (by other national and local government agencies).

On the country list, I chose members of the proposed Regional Comprehensive Economic Partnership (RCEP), composed of ASEAN 10 countries + 6 regular dialogue partners China, Japan, South Korea, India, Australia, New Zealand; then the two tiger economies in the region, Hong Kong and Taiwan. Also included are the biggest economies in North America (US and Canada) and Europe (Germany and UK). Of the 22 countries covered, only four (indicated by *) have experienced increase or deterioration in TTR (see table). 

The good news is that over the past five years, many countries and governments have learned to cut their various taxes and fees collected from corporate job creators. The bad news is that after such decrease, the level of TTR remains high.

Take the Philippines.

Its TTR has declined from 46.4% of firms’ commercial profit in 2012 to 42.9% in 2017, that’s the good news. The bad news is that this 42.9% is the highest in the ASEAN, even higher than socialist Vietnam.

So can the Duterte TRAIN help remove this dubious image of the Philippines having the most tax-hungry policies in the ASEAN and other neighboring countries?

With new tax hikes affecting the prices of cars, oil, electricity, and sweetened beverages; high VAT affecting many goods and services, the answer seems to be an ugly NO.

Dutertenomics could have improved this situation by cutting the VAT from 12% to 8% or lower with zero exemption except raw agri and fishery products. But Dutertenomics is focused on spend-spend-spend with little regard for the inflationary pressure of its tax-tax-tax policies.

---------------

See also:

BWorld 168, Uncertainty in mining policy and the Manicani debate, December 12, 2017 

BWorld 169, On tobacco tax and plain packaging, December 12, 2017 

BWorld 170, The Habito carbon tax distortion, December 28, 2017

My first article in BWorld, Oct 2007, on IPR

I just rediscovered this image from my old emails a decade ago -- my first article in BusinessWorld. Reposting.

Intellectual Property Rights

BWorld, October 24, 2007, page 5.

Downloading pirated songs from the internet is cool. Dying from counterfeit medicine is not. But the pirates and the slack law enforcement that give you one also give you the other--and there are people who will tell you this is a good thing.

Many governments and humanitarian groups want you to believe that patents and intellectual property rights on medical innovations deprive the poor of important medicines and should be discarded in the name of public health.

But if one's innovation and invention that produces welfare to society, like producing medicines to cure malaria or cancer, using extracts from the leaves and fruits of the most common fruit tree in a particular country, is not respected, why would some guys innovate in the first place? It is protection of patents that brought those useful drugs into existence, along with millions of other products, wonderful and mundane alike: yielding to the slogan "patients over patents" would hurt poor patients the most by depriving them of new inventions.

Say you are an unknown band, performing in bars. You wrote a few good original compositions and your audiences like them. Suddenly your songs have been recorded and patented by someone else, on albums and CDs, with no mention of you and no royalties. How would you feel?

You are a researcher or academic. You presented a paper to a conference. A few months later, you see a paper published in some magazine or journal that contains most of your paper--your methodology, scientific model, data, results and conclusions. How would you feel?

You are an ordinary inventor. You invented a device that can reduce fuel consumption in diesels by 35% and you're selling it for a few bucks because you don't have a wide marketing network, or you don't have the capacity for mass production. Then, a few months later, your device is patented by someone who is selling it a handsome price, with no mention of you.. How would you feel?

The civil contracts of intellectual property, like deeds to physical property, underpin innovation, creativity and growth, as well as personal and political freedoms. Left-leaning health activists claim that breaking patents would hit multinationals and "Big Pharma" hardest--but these guys are innovators, they can find their way out like investing their money and people into something else, like new cosmetics and perfumes. It's the poor who will suffer most, from bad products, lack of new effective medicines, and economic stagnation.

And how do the consumers feel when they get these rip-offs? If you buy a pirated book or CD and it turns out to be of bad quality, you only lose your money. But if you buy pirated and bad quality medicine, you can lose your health--even your life.

This year Kenya found 20,000 counterfeit doses of anti-malarial Duo-cotecxin, one of many counterfeits in an uncontrolled market where some 35,000 people die of malaria each year. The fake, probably from China, does not just fail to cure the disease, it can increase drug resistance and make patients worse.

Governments around the world like to play the hero by promising to reduce prices, usually by price controls or patent infringement but never by cutting taxes on goods or service. My older brother, our eldest in the family, died of prostate cancer more than a year ago. His earlier hormonal chemo-theraphy cost around P25,000 per session excluding the physician's fee. Of that amount, government VAT collection alone was P3,000 per session. After several sessions, he did not get well. He was later given chemo that cost P90,000 per treatment, of which government's VAT was nearly P11,000 per session. The import tax, corporate income tax, business permit and other related taxes not included yet.

If a government wants to bring down the price of medicines, rice, clothing, fertilizers, farm tractors, or any commodity essential to life and economic growth, the first thing would be to drastically cut, if not abolish, the import duties and direct taxes that hit the poor hardest.

So the next time your government blames foreign companies or international rules for high prices, find out what taxes and covert barriers it is hiding from you--and shout the truth out loud.

BWorld 170, The Habito carbon tax distortion

* This is my column in BusinessWorld on December 7, 2017.

Very often, the purpose of government is to make cheap things become more expensive. It does this via high and multiple taxes, regulatory fees, mandatory contributions, and multiple permits and bureaucracies that raise the cost of compliance. Many governments display hypocrisy when they say that they want to control inflation yet create those multiple taxes and bureaucracies that create inflationary pressure.

In the energy sector, the most recent proposed tax hikes are in the excise tax of oil products of up to P6/liter, and a big jump in excise tax of coal also known as “carbon tax” from the current P10/ton to P300/ton. The original bill by Sen. Sonny Angara proposed a hike from P10 to P20/ton but last week, an amendment by Sen. Joel Villanueva and followed up by Sen. Loren Legarda changed this to P300/ton.

Romeo Bernardo in his BusinessWorld column last Monday “The Gravy TRAIN is leaving and common sense isn’t in it” estimated that “The P300 per metric ton tax on coal will add P0.14 per kWh to our cost of generating electricity. This is on top of… feed-in-tariffs (FiT), a fancy term for what are just subsidies from the taxpayer. Combined, they will add P0.43 per KWh to our electricity bills or, at current consumption levels, a total of P40 billion for 2018.”

That is huge, a big government-instigated expensive electricity measure via legislation. In 2016, coal power constituted only 34% of total installed capacity in the country but contributed 48% of total electricity production. If the distortion created by priority and mandatory dispatch to the grid of solar-wind even if they are expensive (feed-in-tariff or FiT of up to P10+/kWh for solar and P9+/kWh for wind, more than 2x the price of coal and natgas) and intermittent, the share of coal electricity production can easily reach 50%.

The earlier proposal by former NEDA secretary Ciel Habito to impose a carbon tax of P600/ton has something to do with this. It is a lousy proposal yet it emboldened the legislators to make cheap and stable energy from coal become more expensive.

When Dr. Habito wrote his article at the Inquirer last September 2017, coal prices were around $60/ton, not $80 as he claimed. So $60 x P51/$ = P3,060/ton. His distorted proposal of a tax of P600/ton would be equivalent to 19.6% tax, not 15%. So the legislators may perhaps claim that at least they did not follow the distorted logic of P600/ton Habito proposal and they proposed only P300/ton.

I was wondering about Dr. Habito’s inconsistencies. One, he frequently advocates expensive electricity via high coal and carbon tax with about four articles at the Inquirer since June 2017. Two, no advocacy for high carbon tax of natural gas/LNG which are also fossil fuels. And three, silence in expensive electricity via guaranteed high price for 20 years also known as FiT for wind-solar. To say that the impact of the coal tax on electricity prices will be small is a cavalier attitude on price increases when he’s not the only one paying for it.

Romeo Bernardo has a point when he further wrote in his article, “why single out coal for a carbon tax? Why not a carbon tax on every fuel based on its impact on the ozone layer (which incidentally should also include LNG)?”

Our electricity prices are already heavily distorted with about 10 different items and charges in our monthly electricity bill. Generation charge, transmission charge, distribution charge, supply charge, system loss charge, universal charge, metering charge, lifeline rate subsidy, taxes, FiT. For consumers such as households with about 600+ kWh consumption, industrial users, there are 2 other charges (total 12), like environmental tax.

The FiT keeps rising from 4 centavos/kWh in 2015 and now 18 centavos with a pending hike to 29 centavos/kWh late this year. Very likely it will no longer be granted so Transco will likely ask for 32 centavos/kWh or higher early next year. Add 32 centavos subsidy for expensive and intermittent renewables + 14 centavos coal tax and soon we shall have 56 centavos/kWh of unnecessary and distortionary extra cost in expensive electricity.

The continued favoritism of renewables while penalization and demonization of coal and fossil fuels is triggered by continued climate alarmism. Whether we have less rain, no rain or lots of rain; whether we have no flood or lots of flood; whether there are few storms or lots of storms, whatever weather and climate, the alarmism movement suggests that we should pay more expensive electricity, we should send more money to the UN, WB, ADB, CCC, WWF, etc. We should get more climate loans, more renewables loans, and cronyism. It is a lousy movement.

Coal power and fossil fuels are responsible for higher productivity of the poor and cheaper electricity for households and industries. We have a rising life expectancy, rising per capita GDP despite rising population because of the rise in overall human productivity, thanks to coal and fossil fuels.

The House of Representatives should counter the high coal tax proposal of the Habito-inspired Senate bill. The various tax-tax-tax under TRAIN should not add more distortions and inflationary pressure in our daily electricity consumption.

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 160, A high carbon tax is irrational, October 25, 2017 

BWorld 163, US energy policies and implications in Asia and Philippines, November 19, 2017 

BWorld 166, US energy trading and implications for Asia and Philippines, November 26, 2017 

BWorld 167, Multilateral, bilateral, or unilateral liberalization, November 27, 2017
BWorld 168, Uncertainty in mining policy and the Manicani debate, December 12, 2017 

BWorld 169, On tobacco tax and plain packaging, December 12, 2017

On Tesla gigafactory, WEF + Tesla fake news and video

The other day, I commented on this tweet by Vala Afshar re Tesla gigafactory in Nevada producing battery cells and e-cars.

This portion particularly caught my attention because it cannot be true, it is fake news. If the wind does not blow, or the Sun does not shine (at night or in rainy/cloudy days), there will be massive blackout in that gigafactory.

The source of that video is the WEF in this article dated 23 August 2017.

People resort to public disinformation and deception just to advance their commercial interests and ecological-political ideology of more government intervention, government favoritism and cronyism of RE developers while penalizing cheap, stable, dispatchable energy sources like coal, natgas, geothermal, etc. Lousy.

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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See also: 
BWorld 153, Property rights, trademarks and consumer protection, September 30, 2017

BWorld 166, US energy trading and implications for Asia and Philippines, November 26, 2017 

BWorld 167, Multilateral, bilateral, or unilateral liberalization, November 27, 2017
BWorld 168, Uncertainty in mining policy and the Manicani debate, December 12, 2017

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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Why do subsidies often fail?

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:

Energy 101, Disinformation and fake stories by the watermelon movement, October 22, 2017 

Energy 102, Germany's CDU/CSU and FDP rejecting the Greens' anti-coal agenda, October 31, 2017 

Energy 103, The proposed Jamaica coalition in Germany -- before the collapse, November 25, 2017

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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See also: 
BWorld 162, Open pit mines and open economy, November 05, 2017 

BWorld 165, Airport transfers and tourism, November 25, 2017
BWorld 166, US energy trading and implications for Asia and Philippines, November 26, 2017 

BWorld 167, Multilateral, bilateral, or unilateral liberalization, November 27, 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.