Thursday, November 28, 2019

BWorld 388, TAPP paper on power

* My article in BusinessWorld on November 20, 2019.

“Power is a key component of any nation’s growth. Ensuring a balanced and reliable generation portfolio and a robust and responsive transmission and distribution network should be a key priority of our public and private sectors.”

— Emmanuel de Dios,
CEO of GE Philippines and former DOE UnderSecretary

The Arangkada Philippines Project (TAPP) 2019 conference today at the Marriott Hotel Manila has a beautiful theme, “Turning on the TAP (Tourism, Agribusiness, Power).” TAPP is a major project of the Joint Foreign Chambers (JFC) in the Philippines composed of the Chamber of Commerce of the US, Canada, the EU, Australia-New Zealand, Japan, and Korea.

One of the three policy papers to be launched is “A Policy Brief on the Philippine Power Sector,” co-authored by Emmanuel “Jocot” de Dios, Lorenz de la Cruz, and yours truly. The 39 page-long paper contains a wealth of data, analysis, and recommendations addressed to both government and private stakeholders. Below is among the data presented there, I expanded the countries and years covered in the first two tables. Data sources are the BP Statistical Review of World Energy 2019, and US CIA Factbook.

The Philippines has low installed power capacity to cover increasing peak demand and unscheduled outages. Our 22 GW capacity in 2016 was just half of the capacity of Thailand, Vietnam, and Taiwan. Our electricity generation in 2018 was only half of Vietnam’s, which showed almost 10 times expansion over 1998 level (see Table 1).
Many environmental and climate activists oppose continued use of coal and even natural gas in power generation. They are misguided in imposing their desire on the rest of the Philippines population and businesses because our coal and natgas (natural gas) consumption is among the lowest in the region and if we cut those, we will be facing large-scale blackouts. Our coal use in 2018 was only half of Taiwan’s and Vietnam’s, one-fifth of South Korea’s, and one-seventh of Japan’s (see Table 2).

Low power capacity and low reserves lead to low electricity supply relative to demand and this results in higher electricity prices. When many other charges (transmission, distribution, system loss, universal, subsidies to renewables, etc.) and taxes are added to the generation cost, the result is the Philippines having the 3rd most expensive power in East Asia. Data sources are the International Energy Consultants (IEC), “Regional/Global Comparison of Retail Electricity Tariffs,” May 2016 and August 2018, and Department of Energy Director Mario Marasigan, Energy Outlook forum by Stratbase-ADRi, Sept. 27, 2018, Joy-Nostalg Hotel, Ortigas (see Table 3).

Now there are continuing moves to have more coal supply control, to oppose the construction of additional coal power plants like the proposed 1,200 MW plant in Atimonan, Quezon, and to have more power price control via lower secondary price cap in WESM.

Coal control, price control, wage control, rent control and other varieties of command and control are wrong. They distort the supply-demand dynamics towards shortages, discourage supply while encourage demand.

The Energy Regulatory Commission should fast track the approval of power supply agreements (PSAs) of more coal and conventional plants. We should have not just one but four or more 1,000+ MW new coal plants. Again, see Tables 1 and 2 on why this is necessary.

Business groups like the Federation of Philippine Industries (FPI) and Philippine Independent Power Producers Association, Inc. (PIPPA) are correct in pushing for faster PSA approval, which will encourage more gencos to build more power capacity, especially more baseload plants (running 24/7).

Less politics, less climate and energy alarmism, more energy realism and market competition. That is what we need.

See also:

Farmers and tractors protest vs EU climate and env policies

So far four European countries are affected recently by farmers opposing certain agri, environment and climate policies -- Netherlands, Ireland, Germany, France.

(1) Massive tractor protest leads to 700 miles of traffic jams
Basit MahmoodTuesday 1 Oct 2019 5:45 pm

“An estimated 10,000 Dutch farmers planned the protest to The Hague, to challenge plans to cut back on livestock farming, so that the country can comply with EU laws on nitrogen emissions. One MP has suggested livestock production be halved, leading to a furious backlash from the farmers.”

(2) Farmers' strike causes disruption across Netherlands
16/10/2019 - 17:36

“Thousands of tractor-driving Dutch farmers stepped up protests on Wednesday against the government's climate policies, prompting authorities to block off parliament with army vehicles.
In the second national demonstration in three weeks against government plans to curb nitrogen emissions, farmers laid siege to the country's seat of power in The Hague…”

(3) German farmers stage tractor protest over climate measures
22/10/2019 - 17:57

“Many farmers have said they are fed up with "farmer bashing" by environmental activists, who they say have made agricultural businesses the bogeyman in the climate debate.”

(4) UPDATE: Huge disruption in Berlin as thousands of farmers in tractors shut down streets
26 November 2019 10:38 CET+01:00

“Furious farmers say the environmental protection measures go too far and pose an existential risk to their farms.
Many are also fed up with the "farmer bashing" they say has cast them as villains in the fight against climate change.”

"WATCH: Farmers hit the streets of Dublin today in opposition to carbon taxes and rock-bottom beef prices. Many claim there is no future in farming for young people if the status quo continues."

(6) One thousand tractors roll into Paris for farmer protest
Similar protests in Berlin and Dublin
Anthony Cuthbertson @ADCuthbertson  27 November 2019

“The two main farm unions organising the unrest blame stagnant revenues, the phasing out of certain pesticides and what they claim is unfair competition.”

Wednesday, November 27, 2019

BWorld 387, Agribusiness and corporate farming

* My article in BusinessWorld on November 19, 2019

The good news about Philippines agriculture is that the average yield per hectare of many crops keeps rising, thanks to technological modernization. The bad news is that there is continuing land conversion from forest to agriculture — and residential, industrial, commercial — uses.

I checked data from the UN Food and Agriculture Organization (UN FAO) over the past five decades, I picked the Philippine crops with millions of tons of output in a year, meaning major crops. Sugarcane and pineapples have the highest productivity and crop intensity per hectare, although sugar yields were generally flat for five decades while pineapples showed consistent rise. Bananas reached 20+ tons/hectare/year in 2010-2012 but there were bad harvests in recent years. The biggest crops in terms of huge land use, with millions of hectares planted, are rice, coconuts, and corn, and it is here where average productivity is among the lowest in the country (see Table 1).

Then I checked the productivity of three crops for selected Asian countries. Surprisingly, despite the modern corporate farming of the Philippines’ pineapple and banana industry (although there are also huge backyard, small-scale pineapple and banana plantations), Indonesia has much bigger output per hectare in these crops than the Philippines (see Table 2).

Our rice industry needs to take the path taken by the banana and pineapple industries which have some big corporate farming growers in the Philippines. Wide areas — hundreds or thousands of hectares — are managed by few entities that employ the most modern crop sciences (agronomy, insectology, biotechnology, and molecular biology, etc.) and machines (tractors, irrigation, harvesters, drones, etc.).

Lands need not be owned by these corporate farms — they can be leased for five years or so, although a long-term lease of 15 years or more and wide corporate land ownership are preferable. Farm owners will just wait for their annual land rents plus the opportunity to work in these corporate farms and earn extra, more stable incomes.

The government’s endless, no timetable agrarian reform or forced redistribution of private farm lands — from Marcos’ 1972 agrarian reform to Cory Aquino’s 1998 CARP and extensions — is among the big hindrances to dynamic agribusiness (and mass housing) development in the country. Government should end this continuing rural business uncertainty.

Meanwhile, The Arangkada Philippines Project (TAPP) conference on Nov. 21 at the Marriot Hotel Manila will tackle the TAP (Tourism, Agribusiness and Power) as focused sectors. Local and foreign businesses and researchers in these and related sectors will learn new data and perspectives at this big event.

See also:

Pol Ideology 77, On monopolies, M&A's and virtual government

These are some of the early notes and exchanges when we were starting the Minimal Government Movement in 2004-2005. Here are exchanges in April 2005 from three friends and me. The image below I got from the web, I didn't make it.

(1) Yo M:

How is monopolization avoided in a free market society? or in a minimal government rather? As the usual lines from red-tainted dicussions go… company A grows, "eats up" smaller companies B, C, D..eventually becoming a super company, "crushing" any other small companies with similar product. Now, super company A controls the can now dictate the prices, etc. How is this situation eliminated by a minimal government? – Yo.

My answer to him:

Corporate growth is often due to (a) innovation, and (b) government-sponsored monopoly through single franchise. We know that (b) is bad, that is why we want a small government, not a monstrous
and overly-interventionist one.

If (a) happens, normally it doesn't take long for rivals and competitors to catch up.
Toyota invents an "average" car, its innovation paid off, it made lots of money.
Honda invents a car with sleek design, has air-con, its innovation paid off, takes away a portion of Toyota's car market share.
Nissan invents a car with power windows, power locks, power-steering, other innovation, it paid off, knocks off the market share of Toyota and Honda.
Ford invents a huge car, 4WD, with power controls and all, its innovation paid off, takes away a portion of the 3 Japanese manufacturers’ share.
BMW invents a sleek and very fast car, with power controls, etc., its innovation paid off...
Mercedes, General Motors, Kia, Hyundai, Daewoo, Chrysler, Renault, Jaguar, Volvo, Saab, Citroen, Mitsubishi, Peugeut, Ferrari, etc. come up with their own innovations and marketing styles.
Overall result: no car monopoly or oligopoly or cartel.

The trick is innovation and product differentiation. Someone invents an ordinary white T-shirt. Competitors invent colored shirts, various designs. Other competitors invent shirts with collar; long-sleeve and short sleeves. Other competitors invent shirts with many buttons, etc.
Result: no shirt monopoly or oligopoly or cartel.

Extending the example to shoes, hamburgers, beer, jeans, computers, cellphones, wrist watches, etc., you have a common result: freer markets lead to zero monopolies. Only big governments create
monopolies because they hate competition. See the SSS and GSIS monopolies for instance in pension fund. See the Pag-IBIG and PhilHealth monopolies in housing and health care mandatory, compulsory, coercive contributions.

(2) Jo F:

Hi, Noy and Yo, Include nyo na rin and mergers and acquisitions. This is the fast track to beating competition and creating what seems like a monopoly. It automatically increases capitalization and the much needed network or reach to consumers.

Another is the practice of buying and selling products. Innovations sometimes take a backseat because of this shortcut. If a company wants to compete against a specific product, the cost-benefit analysis will boil down to which is costlier: developing your own product or just buying the profitable brand in the market. The latter is usually the pick.(Just like what Gokongwei group does in URC, or Nestle, too.). This same principle applies to a product which cannot take off from the ground. It will be sold to a company that has the means to re-launched it and make a profit of it. (Just like why Pop-Cola is now with  Coca-Cola). By the way, after San Miguel bought into Coca-Cola, do we have any other competitor right behind? Asia Brewery needs to accelerate its pace, I believe.

M & A's are the fastest way to become monstrous. Conglomerates are formed because the group would like to capture every available source of revenue, Dip itself into every business available. A holding company serves as the common link to all unrelated companies. It can also cushion impact of one unprofitable business whenever possible. But it can work itself otherwise just like what is happening to the Yuchengco Group with its Pacific Plans following the footsteps of CAP. Other companies in the group are on the defensive trying to prove that the rest of the group is financially sound.

In the financial sector,  M&A's are more actively practiced in recent years - after the Asian financial bore a hole on smaller banks. Banks have the advantage if they have a big capitalization and if the bank does consumer or retail banking, branches/network will be the key. So an M&A is the easier way.  It even paves the way to solving non-performing assets since regulations will force the surviving bank to clean up. It will also rationalize costs since it will give a chance to clean up the ranks and eradicate duplication of functions and positions - redundant employees, usually those whom each bank has been wanting to get rid of but cannot, can now legally be edged out of the new and efficient organization. 

(3) Ags U.

Innovation can also create monopolies (by industry or market segment) even for a long time and especially in case the innovation is covered by a patent (e.g. drugs) or copyright.

Some industries or product sectors are prone to monopolistic or cartelistic behavior.  This is probably more true for those in the upstream industry (raw materials or intermediate goods) or the basic goods sector where economies of scale and efficiency is more important than innovation.  Take the case of the local cement industry, it is definitely acting like a cartel especially now that a P25 per bag safeguard duty has been imposed.  No thanks to the big government protecting an industry that is 90% owned by the world's top three cement companies (La Farge, Holcim and Cemex).  Prior to the safeguards duty, the cartel-like behavior of the cement industry was checked by the surge in cheap cement imports such that for a time prices went down to as low as P50 per bag.

Accordingly, monopoly per se is not necessarily evil considering that a monopoly theoretically might be able to offer cheaper goods or services due to economies of scale particularly in supply sourcing and logistics.  What should be evil is "monopolistic" or "cartelistic" behavior which stifles free competition.  I do not know if this can be an exception to the "minimal government" posture but a solution to this may be a policy / regulation on competition and fair trade.

For the downstream or finished goods sector, I guess (sorry no data or study) it is much difficult to maintain a monopoly of the market where there is now too much market segmentation.  As an example, a car model now may have up to 15 variants compared to about 2 decades ago where a model may just have 2 variants.  In addition to innovation, the challenge for car companies is how to lower inventory and logistics costs to address the varying demands of each and every consumer.

I read this article from BusinessWeek which mentioned of a study indicating that it is feasible to create a new but "virtual" automotive company even at this late stage of the game.  The company is "virtual" because it will be outsourcing everything (from R&D, to auto parts manufacture, to assembly, to marketing and to distribution) and yet, it can still make money than most of the existing automotive companies.   I believe something similar is actually happening in the ICT industry, particularly those upstart telecom and electronic companies from china.

Noy, how about a "virtual" government, where everything is outsourced.

See also: 

Tuesday, November 26, 2019

BWorld 386, Exports, manufacturing, and electricity

* My column in BusinessWorld last November 13, 2019.

“Under a system of perfectly free commerce, each country naturally devotes its capital and labor to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole.”

— David Ricardo,
The Principles of Political Economy and Taxation (1821), 
Chapter VII, “On Foreign Trade”

Despite many stories of “slowing” growth and exports globally last year, many countries and economies actually registered significant improvement in exports, except for a few like the Philippines. The creation of the World Trade Organization (WTO) in 1995 was a big factor for global trade expansion as there are now globally binding rules with penalties to discourage countries and governments from continuing high protectionism. These are shown in the numbers in Table 1 — exports level in 1994 (pre-WTO) and 1995, then in succeeding decades.

The bulk of countries’ exports are manufactured products — machinery and transport equipment, chemicals, iron and steel, office and telecom equipment, circuits and electronic components, etc. And two countries really stood out in terms of a huge jump in manufacturing exports — China and Vietnam. China’s manufactured exports jumped 233x from 1985-2018 (or in just 33 years) while Vietnam’s jumped 12.5x from 2005-2018. If the WTO has data for 1985, very likely Vietnam’s expansion here would probably be at least 150x (see Table 2).

There are many factors that contribute to such huge expansion in manufactured exports by China, Vietnam, Thailand, Malaysia, and Indonesia over the past three decades. Like industrial, investment, and taxation policies. But beyond macroeconomic policies, often forgotten in economic and trade discourses are energy policies. Manufacturing requires lots of power, electricity that runs 24/7 with no blackouts even for a minute except during big natural disasters (see Table 3).

The bulk of such power sources are coal and natural gas, and oil for peaking plants. As countries slow down if not reduce their electricity generation, often in the guise of “saving the planet,” their manufacturing output and overall GDP growth also slow down. Like Germany, Japan, and the US.

The Philippines should do more to significantly expand its merchandise exports and manufacturing. It should have more free trade and globalization, and less protectionism and nationalism. It should have more power capacity, a huge expansion in electricity generation from fossil fuels like coal, gas and oil, even nuclear, and less reliance on intermittent, unstable, weather/battery/subsidy-dependent renewables like solar-wind.

See also:

Climate Tricks 88, Bullying the EIKE conference in Munich

Last week, November 19, I was surprised to read this from NTZ,

Radicals Bully NH Munich Conference Center…Force Cancellation Of 13th Skeptic Climate Conference!
By P Gosselin on 19. November 2019
...Munich NH Congress Center bullied, cancels at last minute

The latest free speech suppression and intimidation has unfolded in Munich: The 13th International Climate and Energy Conference, sponsored by the European Institute for Climate and Energy (EIKE) and CFACT, has seen its contractual agreement torn up, and the event was booted out of the conference facility at the last minute.

Pressured by “left-green mob”
According to EIKE spokesman, Prof. Horst-Joachim Lüdecke, “a left-green mob” pressured the hotel management of the NH Congress Center in Munich(Aschheim) “to illegally cancel the accommodation contract”.

EIKE had gone to court and demanded revocation of the termination in an emergency motion. However, today, a Bavarian court ruled in favor of the NF Conference Center, citing “security reasons”. German law is no longer able to protect...

The story was reposted in WUWT same day,

Then Heartland's James Taylor posted in townhall,

Climate Scientists Reduced to Hiding from Climate Thuggery in Germany
James Taylor|Posted: Nov 22, 2019 12:24 PM

More than 200 people, including dozens of scientists, are in hiding right now in Germany. I am one of them. I can tell you that I am in Munich, but I can’t tell you my hotel. I can tell you that the scientists will meet on Friday and Saturday to share scientific knowledge, but I can’t tell you where. The meeting, in which scientists will present evidence contradicting an asserted climate crisis, was scheduled to be open to the public, but fascist climate thugs have forced us into hiding. The German government, rather than protecting scientists and free speech, has explicitly refused to protect scientists from the threat of violence….

It was reposted in WUWT after two days,

Polar Bear Science also mentioned it,

Fabulous lectures in Holland done: Munich conference forced to relocate
Posted on November 20, 2019 

My satisfaction over these successful lectures was short-lived. I found out late yesterday that the organizers of the Munich conference had had their venue cancelled at the last minute due to intimidation by activists from a group called the ‘Anti-Capitalist Climate Society.‘ Apparently, a crowd of about 20 thugs staged a flash mob at the hotel booked to host the EIKE meeting and threatened further havoc and disruption to guests if the conference was allowed to go ahead.

Shamefully, it appears that either the hotel did not bother to call police or the police did nothing about the activists’ threats. Why not? The hotel now claims the safety of their guests are their first priority. However, the increased risk to the safety of these guests was coming from the protestors, not from EIKE members and speakers. Why blame the mild-mannered scientists for being ‘controversial’ rather than the radical activists threatening hotel guests with violence?

Those environmental militants in Germany are horrible. They cannot debate in hard science, only in hard bullying and violence. Here's the latest proof that many if not all climate alarmists cannot debate face to face with real climate scientists -- climatologists and an astro-physicist -- when they were dared to a public debate with livestream, also last week,

They just want more government environment and energy regulations, more oil and carbon taxes, more UN and global junkets, more climate money.

Meanwhile, here's the original program on Day 2, I don't know if this was changed or not.

Saturday, 23 November

Climate Change and the melting Alpine Glaciers
Prof. em. Dr. Christian Schlüchter, University of Bern, Institute for Geologie

About the Reliability of Climate Models
Prof. Dr. Nicola Scafetta
Università di Napoli Federico II, Dipartimento di Scienze della Terra

Which Role did the Sun Play in Climate Change? What does it mean for us?
Prof. Dr. Henrik Svensmark, Centre for Sun-Climate Research des Danish National Space Centre

Prof. Dr. Nir Shaviv
Racah Institute of Physics – The Hebrew University of Jerusalem

What you always wanted to know about Climate Change…
Dipl.-Ing. Michael Limburg
Vice-President, Europäisches Institut für Klima und Energie (EIKE)

How much of the Climate is man-made
Dr. Sebastian Lüning, Die kalte Sonne

Natural Limitations of the German Energy Transition
Prof. Dr. Horst Lüdecke, Press Spokes Person, Europäisches Institut für Klima und Energie (EIKE)

Climate Panic – Radiation Panic
Dr. Lutz Niemann, Physicist and former Radiation Protection Officer
Nuclear Power of the 21st Century
Dr. rer. nat. Götz Ruprecht, Institute for Solid State-Nuclear Physics gGmbH

Saving the Climate by Abolishing Democracy?
Günter Ederer, Author, Film Producer and Economic Editor

Closing Remarks

Wolfgang Müller, Generals Secretary, Europäisches Institut für Klima und Energie (EIKE)

See also:

Tuesday, November 19, 2019

BWorld 385, John Gokongwei and Q3 GDP

* This is my article in BusinessWorld on November 12, 2019.

“Choose to be an entrepreneur because then you create value. Choose to be an entrepreneur because the products, services, and jobs you create then become the lifeblood of our nation.”

— John Gokongwei, Jr.

Another icon of Philippine capitalism has passed away. John Gokongwei, Jr., the founder of JG Summit with engagements in airline, telecoms, banking, food, power and real estate, had lived 93 years of a very productive entrepreneurial life.

In the Forbes’ Billionaires list 2018 and 2019, he and his children are the third richest family in the Philippines (see Table 1).

I have not met the man or his other children but I have met his eldest daughter, Robina Gokongwei-Pe, in several lectures and activities of the UP School of Economics Alumni Association (UPSEAA). In the few times that I met Robina, she was the picture of a very humble entrepreneur, often smiling and with no fanfare even in clothing and yet she heads the family’s Robinsons Retail Holdings, the country’s second largest chain of malls.

On May 24 this year, Robina gave a lecture among members of UPSEAA and among the topics she discussed were “The Ten Commandments of Running a Family Business, the Gokongwei Way.” Among such commandments are: No work no pay. No in-laws. No moonlighting. There can be only one boss. Being family is no guarantee of employment. Give the next generation wings. Wow. That is how the father, John Gokongwei, Jr., imparted to the family and corporate personnel, his wisdom in entrepreneurship.

And I have to link this story with the Philippines’ 3rd quarter (Q3) GDP growth that was released by the Philippine Statistics Authority (PSA) last week. The Philippine economy grew 6.2%, somehow good news after growing only 5.6% and 5.5% in Q1 and Q2.

I checked the components of GDP on the demand side, composed of household consumption (C) + government consumption (G) + and private investments (I). The net exports of goods and services (X-M) is not significant because they compensate for each other.

While C has recovered after low inflation rates in July-September, G also grew fast because of higher government spending. The bad news is that I shrank for the second time this year (see Table 2).

The last time the Philippines experienced two consecutive quarters of I contraction was seven years ago, in Q1-Q2 2012. I think the TRAIN 2 bill in 2017, renamed TRABAHO bill in 2018, further renamed CITIRA bill in 2019, is part of this mess as this bill plans to abolish several fiscal incentives at once while promising to cut corporate income tax over 10 years.

Dutertenomics should bear in mind always that private investors and entrepreneurs like the Gokongwei family are the real heroes of any economy because they produce value in many sectors — from fishery and agriculture to food manufacturing and banking, land and air transportation, and so on. Government should have low taxes and fewer regulations, not introduce new sources of business uncertainty.

Meanwhile, I want to congratulate the Foundation for Economic Freedom (FEF) for winning the Templeton Freedom Prize Award given by the Atlas Network on Nov. 7 in New York City. FEF’s work on helping legislate the agriculture free patent law — giving formal property rights to farmer beneficiaries — was greatly recognized.

See also:

Energy 131, Labor productivity by power sources

Good data here from a good article from WUWT, What’sgreen, employs ten times as many people as the “fossil fuel industry” and fake? by David Middleton, November 18, 2019. He showed these beautiful charts and tables. Many people think that oil, gas and coal are evil? What?

1. Petrochemical products flow chart.

2. Energy productivity in tons of oil equivalent (TOE) per job.

3. Energy productivity in tera-watt hours (TWH) per job.
Sources: Employment -- 2019 U.S. Energy and Employment Report; MTOE, TWH -- BP 2019 Statistical Review of World Energy.

Source: 2019 U.S. Energy and Employment Report.

If you employ many people even though your actual energy production is low, it means only one thing -- your industry has low productivity and bloated with unnecessary labor -- tons of consultants, PR guys and lobbyists?

That is the inevitable result when there is too much government intervention and legislation, high politics in energy development and pricing.

See also:

Monday, November 18, 2019

BWorld 384, Inflation and electricity prices

* My column in BusinessWorld last November 06, 2019.

The good news about Philippines inflation is that we have declining rates, only 0.9% in September and 0.8% in October 2019. The bad news is that after being the inflation valedictorian in 2018, taking the gold medal at 5.2% (silver was Vietnam, bronze Indonesia), the country still has the third highest inflation rate year to date (ytd), January to September/October 2019 (see Table 1). 

The main culprit is the “expensive energy is beautiful” policy under the TRAIN law, with the oil excise tax rising yearly from 2018-2020, total of P6/liter. Since the VAT also applies to the excise tax, the effective increase by January 2020 will be P7.20/liter. The coal excise tax also rising from P10/ton in 2017 to P150/ton by 2020.

What mitigated the continued price pressure was rice tariffication — rice and food price indices declined in recent months and hence, it is a good policy. It is the “expensive energy is beautiful” policy that is anti-poor, anti-farmer, anti-fisherfolk as farming and fishing now are becoming more mechanized and hence use lots of oil that contribute to higher agriculture and fishery productivity.

Aside from agriculture, fishery, and transportation, higher oil taxes also caused higher electricity prices in many islands, including big ones like Mindoro and Palawan, that are served only by big gensets running on diesel, from NPC-SPUG, and private generators. The people in these provinces and islands should pay P15-25/kWh in generation charge alone, but they only pay below P10/kWh and the balance is passed on to all consumers in the country via the higher universal charge in our monthly electricity bill.

That universal charge, along with eight other charges (generation, transmission, distribution, supply, system loss…) plus subsidies to renewables (FIT-All) and taxes make the Philippines’ electricity prices reach about P10/kWh, the 3rd highest in Asia after Japan and Singapore (see Table 2).

Note that countries with the highest electricity prices in the world — Germany and Denmark — are also those with the highest concentration of wind-solar, variable renewables that are intermittent, unstable, and unreliable, dependent on the weather for power supply and dependent on state subsidies to become “economically viable.”

During the ASEP-CELLs project launch at Xavier University in Cagayan de Oro City last week, Senior Technical Advisor Dr. Josef Yap showed data on comparative electricity prices among eight Asian countries from 2010-2017. His source, EnerData, showed that the Philippines has 2nd highest prices of around 18 US cents/kWh in 2017, next to Japan’s 23 cents/kWh.

Now we read reports this week of “more than 11,000 scientists worldwide warning of a climate emergency” and that the world “must replace fossil fuels with low-carbon renewables.”

This is just another alarmist paper as the UN FCCC meeting is approaching, mid-December in Madrid, Spain.

Now consider the Petition Project ( signed by 31,487 American scientists and academics, 9,029 of whom have PhDs, explicitly declaring: “There is no convincing evidence that human release of carbon dioxide, methane or other greenhouse gases is causing or will, in the foreseeable future, cause catastrophic heating of the Earth’s atmosphere and disruption of the Earth’s climate. Moreover, there is substantial scientific evidence that increases in atmospheric carbon dioxide produce many beneficial effects upon the natural plant and animal environment of the Earth.”

See the result of climate and energy alarmism — Germany having the highest electricity prices in the world, got 24.3% of its total electricity generation in 2018 from wind-solar. In contrast, Malaysia and Vietnam got only 0.3% and 0.2% respectively from wind-solar and they have among the cheapest electricity prices in the world, only 1/6 of prices in Germany.

More energy issues and data will be discussed in The Arangkada Philippines Project (TAPP) conference on Nov. 21 at the Marriot Hotel Manila. One of the three focus sectors to be discussed in the afternoon session is power and electricity.

We need climate and energy realism, not alarmism. We need less politics, coercion, and legislation in power generation and pricing of commodities, especially energy sources.

See also:

Selected stockmarkets 3 years after the US Presidential elections 2016

The DJIA (US), Shanghai (China), Hang Seng (HK) and Dax (Germany) performance some three years after the US Presidential elections of 2016. The main lessons here: Trump is somehow good for the US economy, bad for CN economy. HK and Dax somehow performed well.

Above as of November 04, below as of November 14.

Sunday, November 17, 2019

BWorld 383, Bureaucracy control and drug price control

* My article in BusinessWorld on November 05, 2019.

Among the recent good news in the Philippines in terms of improving economic competitiveness is the big jump in its global ranking in the World Bank’s Doing Business (DB) report, from No. 124 in DB 2019 to No. 95 in DB 2020 reports, a jump of 29 notches.

I backtracked and checked the DB reports from 2015. There were 189 countries covered in DB 2015-2016 reports, then 190 countries in 2017-2020 reports. The Philippines simply reclaimed the No. 95 spot it occupied in 2015 (see Table 1).

The top 10 countries were consistently there except for Georgia which crawled up from No. 24 in DB 2016 to 7th. Many Asian economies registered improvement over the past five years — Malaysia, Thailand, China (from No. 90 to No. 31) and India (from No. 142 to No. 63).

Of the 10 factors in the DB scoring, the Philippines ranks low on these: Starting a business (No. 171), Enforcing contracts (No. 152), Getting credit (No. 132), and Trading across borders (No. 113). In short, the bureaucracy. Too many permits required to start and renew a business, to get credit, and to do exports and imports, and the bureaucracy is poor or lousy at enforcing contracts.

Nonetheless, two improvement in the Philippines’ score in 2020 over 2019 came from: a.) Protecting minority investors (+16), by requiring greater disclosure of transactions with interested parties and enhancing director liability for transactions with interested parties; and, b.) Starting a business (+2), by abolishing the minimum capital requirement for domestic companies.

These gains can be reversed if the bureaucracy finds ways to penalize businesses for various populist and bleeding heart arguments. One such move is the insistence by the Department of Health (DoH) to have a second round of drug price control this year. The first round was made in 2009 when Secretary Francisco T. Duque III was the head of the DoH. Mr. Duque loves price controls and price dictatorship. He dictates who should be penalized with mandatory and obligatory price cuts and who should be exempted.

In a BusinessWorld report last week, “Price-controlled drug list headed to Palace for approval” (Nov. 1), it said “Secretary Francisco T. Duque is set to endorse an executive order (EO) that will set a Maximum Retail Drug Price (MRDP) for 122 medicines to Mr. Duterte before this week ends… The MRDP will cover treatments for the Philippines’ top 40 diseases.”

There are many factors to determine pricing of commodities, foremost of which are government taxes, national and local, and the degree of innovation and competition. The most innovative products and services tend to have higher initial prices to cover the cost of R&D while the most competitive — lots of “me too” generic products — tend to have lower prices as the high cost of innovation has been recovered. For duties and taxes, the Philippines has among the highest in the region (see Table 2).

We should have more private players and investors, more competition, and less bureaucrats and bureaucracies, less regulations and taxation, bureaucracy control, and regulations control. Then we can have a higher global ranking in DB, and lower prices of many goods and services including medicines and healthcare.

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Photos, IPRI 2019 launching in Singapore

Late post, photos during the International Property Rights Index (IPRI) 2019 launching at Singapore Management University (SMU), School of Law, last October 22, 2019. The event was locally sponsored by the Adam Smith Center (ADC) Singapore, the first free market think tank in that city-state.

From left: Donovan Choy, me, Dr. Linda Low, Dr. Sary Levy, Lorenzo Montanari, Bryan Cheang, and Dr. Chandra Kukathas. Donovan and Bryan are from the ADC

See also: 
Photos, IPRI 2019 launching in Manila, Oct. 16, October 27, 2019 
Photos, IPRI 2019 launching in KL, Oct. 19, October 29, 2019 
Photos, IPRI 2019 launching in Jakarta, November 06, 2019

Saturday, November 16, 2019

BWorld 382, Energy matters ASEP, CELLS, INIR

* My column in BusinessWorld last October 30, 2019.

Upon the invitation of the Ateneo School of Government, I attended the project launch of the Access to Sustainable Energy Program-Clean Energy Living Laboratories (ASEP-CELLs) in Xavier University (XU), Cagayan de Oro City on Oct. 28. It is an EU-funded project that targets to achieve 100% rural electrification through renewable energy (RE).

The speakers at the launch were XU President Fr. Roberto Yap; Department of Energy (DoE) UnderSecretary Felix “Wimpy” Fuentebella; Program Manager of the Environment and Climate Change, EU in the Philippines, Giovanni Serritela; and ASEP-CELLs’ Senior Technical Advisor Dr. Josef “Jop” Yap. Jop has been my friend since the 1980s at the UP School of Economics (UPSE).

There was a brief press conference then two panel discussions, First about “Towards greater energy security,” and the second, “Building a low-carbon Mindanao.”

During the press conference, I raised two points, on prices and energy security. How the project can avoid proposing and advocating another round of subsidies to RE that can further jack up the monthly electricity bill of all consumers nationwide, and aim instead at lowering prices. And given the intermittency of variable REs like solar and wind, how to ensure energy stability and security, and how to get people to avoid using the really dirty energy — candles and gensets — due to frequent blackouts.

I checked the Philippines’ and other countries’ solar-wind generation. After decades of huge subsidies and other fiscal plus non-fiscal incentives to rich Europe, the share of solar-wind has not even reached one-fourth (25%) of total power generation in Germany.

Among Asians, many rich and emerging economies of the region hardly care about raising the RE components to no more than 0.5% of their total power production — HK, Indonesia, Malaysia, Singapore and Vietnam (see Table 1).

Yesterday, I attended the hand-over ceremony of the Official Integrated Nuclear Infrastructure Report (INIR) Report by the International Atomic Energy Agency (IAEA) to DoE Secretary Alfonso G. Cusi, at F1 Hotel in BGC Taguig City.

Nuclear energy remains taboo and a “scary” option for many Filipinos until now, or they may support it but “not in my backyard” (NIMBY). The technology for nuclear power generation and safety keeps improving such that many rich countries in the world continue to use nuclear power until now (see Table 2).

The speakers in the event were Miko Kovachev, Head of the Nuclear Infrastructure Development Section, IEAE; Ambassador to Austria Maria Cleofe Natividad; Mikhail Chudakov, Deputy Director General of IEAE; and of course DoE Secretary Cusi. Congressman Mark Cojunagco, the main nuke power advocate in Congress, and DoE Assistant Secretary Gerardo “Gerps” Erguiza Jr. also spoke.

Good move, Secretary Cusi. On these, may I mention these two energy-related events next month:

First, The Arangkada Philippines Project (TAPP) Conference on Nov. 21 at Marriott Hotel Manila. Theme is “Turning on the TAP – Tourism, Agribusiness, Power.”

Second, the 13th International Climate and Energy Conference on Nov. 22-23 in Munich, Germany, organized by the European Institute for Climate and Energy (EIKE). The Secretary-General of EIKE, Wolfgang Müller, is my friend. We met at the Heartland Institute’s 4th International Climate Change Conference (ICCC) in Chicago in 2010, then in the 13th ICCC in Washington, DC in July this year.

Conventional energy sources should continue to be used in the Philippines alongside with RE. Secretary Cusi is correct in adopting a “technology agnostic” policy — let more power plants from different sources and technologies be built to further expand our power capacity and reserves. No special privileges and government mandates as much as possible, just give the consumers cheap, affordable, stable, and reliable electricity.

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Catching up with Wan Saiful Wan Jan

After more than two years, I was able to see old friend Wan Saiful Wan Jan last October 21 at the KLIA. Me and Lorenzo Montanari of PRA were flying out of KLIA and going to Singapore that afternooon while Wan was arriving from Sabah, Malaysia.

Wan is the founder of the Institute for Democracy and Economic Affairs (IDEAS), Malaysia's first free market think tank. He resigned as CEO of IDEAS around March 2018 to run for Parliament under now PM Mahathir's party. He lost but after a few months, he was appointed by PM Mahathir to head the government's student loan body, one of the problematic agencies in Malaysia. One of my Malaysian friends not affiliated with IDEAS said that if Wan won in the May 2018 elections, he could have been appointed as Education Minister.

The last time I saw Wan was September 16, 2017 in NYC. We attended an IPR-related roundtable that day. In the evening, our old friend Cathy Windels (leftmost in the photo) treated us to dinner. Here at the rooftop of the Yale Club. Beside Cathy is Barbara Kolm, head of the Hayek Institute in Austria.

Thanks again for that wonderful evening, Cathy.
And good to catch you up, Wan.