Government and Taxes: July 2023

Sunday, July 30, 2023

BWorld 624, First year of Marcos: Assessing energy policies

First year of Marcos: Assessing energy policies
July 25, 2023 | 12:02 am

My Cup Of Liberty
By Bienvenido S. Oplas, Jr.
https://www.bworldonline.com/opinion/2023/07/25/535715/first-year-of-marcos-assessing-energy-policies/

We base this assessment on the first State of the Nation Address (SONA) of President Ferdinand R. Marcos, Jr., given on July 25, 2022. In his 2022 SONA, the President said this about the energy sector:

“Another fundamental requirement for growth and increased employment will be the availability of cheap, reliable energy… We must increase the level of energy production… We must build new power plants…. improving the mix of the energy supply between traditional and renewable sources.

“In the interim, natural gas will hold the key. We will provide investment incentives by clarifying the uncertain policy in upstream gas, particularly in the area close to Malampaya… re-examine our strategy towards building nuclear power plants in the Philippines.… allow smaller scale modular nuclear plants and other derivations thereof.

“We must expand the network of our transmission lines while examining schemes to improve the operation of our electrical cooperatives…. We will increase our use of renewable energy sources such as hydropower, geothermal power, solar, and wind.”

So, we will assess energy achievements on these seven points. The quickest way to do this exercise is to check reports in BusinessWorld this year, and I would say that all the subjects mentioned by the President have been acted upon by the Department of Energy (DoE), the Energy Regulatory Commission (ERC), and the administration-aligned legislature. See the seven points and the corresponding reports this year, mostly written by my favorite objective energy reporter, Ashley Erika Jose:

1. Build new power plants and expand energy production: “Making progress towards a Philippines powered by secured, reliable supply” (March 31), “New power projects to stabilize electricity supply in 2-3 years” (June 12).

2. Cheap, reliable energy: “Electricity spot price drops in July as power demand declines” (July 19), “No net-zero target in Philippine Energy Plan” (July 23).

3. Natural gas development near Malampaya: “Marcos signs deal extending Malampaya service contract” (May 16), “Malampaya Consortium plans to spend $600 million on SC 38 drilling” (May 16).

4. More nuclear energy: “Next Philippine Energy Plan to propose share of nuclear power” (May 23), “DoE may set 2,400 MW goal for nuclear power by 2035” (July 19).

5. Expand transmission lines: “Senators slam NGCP over poor network, keeping high gains” (May 24), “Approval of more ancillary contracts sought by NGCP” (July 18).

6. Improve electric cooperatives (EC): “ERC issues 33 show-cause orders against power co-ops, distributors” (May 31), “For a more equipped, energy-secure power industry” (June 8).

7. Expand renewables: “Green energy auction awards revised down to 3,440 MW” (July 13).

As reported in the July 19 story in BusinessWorld, the Independent Electricity Market Operator of the Philippines (IEMOP) showed that spot prices have been declining, from P7.69/kWh in the April 2023 billing and P8.83/kWh in May to P6.67 in June and P6.07 in July. Meralco also announced a huge decline in electricity prices of P0.72/kWh for July. That is good news from IEMOP and Meralco. Since coal prices have been stabilizing at below $150/ton since late May this year, electricity consumers benefit from it.

The ERC has been clamping down on many problematic EC and distribution utilities that were charging fuel pass-through costs to consumers even without supporting documents from the gencos, serving them with various show-cause orders.

Meanwhile, I saw a full-page ad by the “People 4 Power” coalition (P4P) in the Philippine Star entitled “Murang Kuryente para sa lahat: A message to President Marcos ahead SONA 2023.” It is a wish list of practically brain-dead advocacies like, a.) mandating straight energy pricing in all power contracts, b.) transitioning to 100% renewable energy with a minimum 50% by 2030, c.) turning away from coal, gas and hastening the phase out of fossil fuel plants, and, d.) rejecting nuclear energy.

I call these “brain-dead” advocacies because they are straight socialist, dictatorial, and hallucinatory arguments. Mandatory straight energy pricing means mandatory price control, price dictatorship regardless of fluctuations in prices of energy inputs, capex, and opex. Going 100% RE, with a phase out of fossil fuels and nuclear energy is illusory. Germany started their “energiewende” or energy transition from nuclear and fossil fuels to RE since the 1970s. After five decades, the share of solar+wind to total power generation in 2022 was only 31%. Socialists and energy alarmists like P4P are advocating degrowth, deindustrialization, and blackout economics.

I constructed the accompanying table by comparing data over 15 years — 2007 and 2022 — from three groups of countries. In group A are the four biggest economies of Europe, in group B are the big North and South Asians, and in group C are the ASEAN-6. It also includes data from the Energy Institute’s Statistical Review of World Energy (EI-SRWE) 2023, and GDP growth from IMF World Economic Outlook (WEO) 2023.

The numbers are very clear. This is hard data, not hypothetical, fictional narratives. Here is what we found:

One, as Europe embraces and adds more wind+solar, as the share of coal to total generation declines, their overall total power generation declines, and their average GDP growth crawls between 0% and 1.2%.

Two, as big Asian nations, especially China and India, add more coal power to their mix, their total power generation expands fast, and their average GDP growth jumps high — 3.1% to 7.7%. Japan is the exception because it follows the Europeans under the influence of G7.

Three, ASEAN-6 has the same trends as group B countries — huge expansion in coal use leads to huge overall power generation and fast GDP growth, 2.6% to 6.1%.

Four, there is no real energy transition happening in the world, there is only the addition of RE to conventional energy — see the doubling of world coal generation from 8,250 TWH in 2007 to 10,300 TWH in 2022. In Europe, their “decarbonization” attempts only lead to degrowth.

From IEMOP data on power generation mix for April, May, and June 2023, we see that coal generated 64.2% of total, wind+solar combined generated only 3.4% of total. If the Philippines pushes strongly for wind+solar and the phase out of coal, there will be large-scale blackouts, and perhaps P4P leaders and groups would be in the business of selling candles and gensets.

Overall, Year 1 of the Marcos Jr. administration’s energy achievements is good. The explicit advocacy for more nuclear power, its non-commitment to illusory and brain-dead “net zero,” and protection of consumers without resorting to price dictatorship are all good policies of the administration. Congratulations, Energy Secretary Raphael Lotilla, ERC Chairperson Monalisa Dimalanta, and President Marcos Jr.
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Macroecon 22, Econ performance of Marcos Jr administration in year one

Last Friday July 28 I was one of four speakers in a forum reviewing the promises and implementation under the Marcos Jr. administration. Below are some of my slides.

Among the Qs during the open forum were (a) what's new in SONA 2023 that were not present in SONA 2022, (b) if directions and targets are clear and not ambiguous. I answered in (a) the Maharlika Fund and MUP pension reform. A number of big infra projects were killed by politics, like BNPP and Tampakan gold-copper mining, $5.9 B, the single biggest FDI in the country killed by politics, the provincial govt. An investment entity with political presence/signature can send signal to political harassment by LGUs, national agencies, that they should step back. Also SWF from other countries would consider putting their money here since their counterpart is putting money on certain sectors with big potential returns.

The MUP pension reform, current set up is anomalous, MUP people contribute zero to their pension then receive huge pension, tax free, corrupt set up. They should contribute, for their own good in the long term.

The medium term fiscal outlook are spelled out, explicitly and categorically, like budget deficit from 6% of GDP to 3% by 2028; public debt down from 60% to around 40% by 2028, these are non-ambiguous targets.
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Saturday, July 29, 2023

BWorld 623, Year 1 of Marcos Jr.: GDP growth and agriculture

Year 1 of Marcos Jr.: GDP growth and agriculture
July 20, 2023 | 12:02 am

My Cup of Liberty
By Bienvenido S. Oplas, Jr.
https://www.bworldonline.com/opinion/2023/07/20/534979/year-1-of-marcos-jr-gdp-growth-and-agriculture/

(Last of 4 parts)

This column attempts to make an independent assessment of year 1 economic performance of the Marcos Jr. administration. Part 1 discussed the budget deficit and unemployment, part 2 assessed inflation and interest rates, part 3 tackled trade and investments, and this part 4 will review the overall GDP performance and the agriculture sector.

Regular readers of this column will have some basic economic data when President Ferdinand Marcos, Jr. delivers his second State of the Nation Address (SONA) on Monday.

I wrote a nine-page paper for Stratbase-Albert Del Rosario Institute (ADRi) that was released yesterday, “An Assessment of the Economic Performance of the Marcos Jr. Administration During its First Year,” Stratbase-ADRi Occasional Paper, July 2023 Issue 16.07. I covered nine assessment areas there: GDP growth, agriculture, inflation rate, government borrowing rates and central bank rates, ratings upgrade, exports performance, foreign direct investment, employment, and people mobility.

I started the paper by showing that in 2022, the Philippines was the world’s 39th largest economy by GDP nominal values, or 30th largest by GDP purchasing power parity (PPP) values. And since the Philippines is the 12th largest population size in the world, then its per capita GDP is low compared with many countries, and that is the big challenge facing the administration — how to expand fast the overall size of the economy and the per capita income.

Here, I will show two of the nine areas discussed in the paper.

GDP GROWTH

As of July 14, 2023, I counted 113 countries and territories that reported their GDP growth in the first quarter (Q1) of 2023. The Philippines’ growth was 6.4% and many analysts and observers heckled it as low and slowing down. But compared with those 113 economies, our 6.4% growth was the 10th fastest, and among the major economies, the top 50 largest GDP size, ours was #1. It was a big achievement by the administration and its economic team that many sectors did not realize or recognize, for the sake of criticizing or mema.

GDP performance in Q2 2023 is not yet available, so the assessment will use only the last three quarters, Q3 and Q4 of 2022 and Q1 of 2023, and compare it with the same quarters of preceding years, and with the performance of the other countries over the same period.

I grouped the countries into three: Group A for the G7 industrialized countries, Group B for the big economies of North and South Asia, and Group C for the ASEAN-6, for a total of 17 economies.

The Philippines under the Marcos Jr. administration has the third-fastest growth of 7.1% next to Malaysia’s 8.9% and Vietnam’s 7.7%. But what makes the Philippines’ growth impressive is that it was a high growth over a high base the previous year, whereas Malaysia and Vietnam have high growth over a low base the previous year.

AGRICULTURE, FISHERY AND FORESTRY (AFF)

The President remains the Agriculture secretary so this sector needs special assessment. I reviewed the gross value added (GVA) in AFF in the past three quarters, and the overall growth is 1.3% — modest enough. The quarterly growth was 2.1% in Q3 2022, -0.3% in Q4 2022, and 2.2% in Q1 2023. The last time that AFF has a growth above 2% was in Q3 2019 at 3%.

For many years, AFF growth remains muted and low, why? One explanation is the high degree of underreporting of output as these are raw products from the farms, the forest, the lakes and the sea. One proxy for real growth of the AFF sector would be the accommodation and food service activities in GDP. Raw fish from the sea, fishponds and lakes become cooked food in restaurants and hotels and their valuation is more realistic than raw food.

Accommodation and food services have an average growth of 9.5% in 2015-2019. In contrast, AFF average growth over the same period was only 1.1%. So, even assuming that half of the growth of the former is AFF, then the actual annual growth of AFF is around 4.7%, not 1.1%.

AGRICULTURE IN SONA 2022

The President mentioned in his SONA 2022 the need to adopt more modern technology and farming practices to improve output and raise productivity in the sector. Among the government measures he mentioned is to provide more financial and technical assistance to farmers and fisherfolks. Agricultural credit and farm inputs that the government will bulk purchase are fertilizers, pesticides, seeds, feeds, and fuel subsidies.

A long-term measure is value chain coordination. Research in modern farming, animal husbandry and fishery will use modern technology, plus improvements in post-production and processing. The national network of farm-to-market roads will be expanded to hasten the delivery of products to consumers.

The President did not mention or consider land consolidation, and more large-scale corporate farming in more sub-sectors. I hope he will consider this in his SONA 2023 this Monday.

SUMMARY AND CONCLUSION

From the nine areas of assessment that I covered in the Stratbase-ADRi paper, the administration performance in year 1 is as follows:

1. Good in four areas: GDP growth, ratings upgrade, low unemployment, and people mobility.

2. Modest or mild performance in four areas: interest rate, merchandise exports, FDI, and agriculture.

3. Poor performance in controlling high inflation. But as discussed there, areas where commodity inflation is high actually point to high consumer demand for “less necessities” like alcohol, beverage and tobacco, and accommodation/hotel services. In this case, high consumer confidence will just prod other sectors to expand production and hence, high overall GDP growth in the coming quarters and years.

The first year of the Marcos Jr. administration, therefore, is off to a good start, with more jobs and businesses for Filipinos and foreigners doing business here.
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Climate and Freedom 2, Energiewende and deindustrialization

Last Thursday I was one of guest speakers in an online meeting of the new international coalition based in the US. I presented this in 4 minutes then another speaker from another country took his turn.

In the chatbox, I shared these reflections with other participants:

Darkness, unstable electricity is fatal. Today, not 50 or 100 years from now. Dark streets mean more road accidents, more crimes, more stealing stabbing abduction etc. Any energy source that expands power supply, esp coal or gas or nuke, greatly helps fight darkness, crimes and accidents.

In the Philippines, we have RE law of 2008 or 15 years ago. As of Jan-June 2023, wind+solar contribute only about 3.2% of total electricity, coal alone contributes 64.2%. If we pamper the climate alarmists and ecological socialists who want to kill coal power today, we will have massive darkness, massive underdevelopment, massive road accidents, massive crimes abduction rape murder etc.

I read in several papers that many env. groups in Europe who opposed fracking were funded by Putin. Aka Putin's useful idiots. They lobbied hard that UK Germany Italy etc shd not do fracking oil gas, so they keep buying Russia oil gas.

Friday, July 21, 2023

BWorld 622, Year 1 of Marcos Jr.: Trade and investments

Year 1 of Marcos Jr.: Trade and investments
July 18, 2023 | 12:01 am

My Cup Of Liberty
By Bienvenido S. Oplas, Jr.

(3rd of 4 parts)
https://www.bworldonline.com/opinion/2023/07/18/534463/year-1-of-marcos-jr-trade-and-investments/

In this part 3 assessment of the year 1 economic performance of the Marcos Jr. administration, we will discuss trade and investment. Part 2 (July 11) discussed inflation and interest rates and Part 1 (July 4) discussed the budget deficit and unemployment.

Last week the Philippine economic team went on a US-Canada Non-Deal Roadshow (NDR) with a series of meetings with American investors, like US asset management firms and investors on July 10 at the Citi Headquarters in New York City. Then the 8th Philippine Economic Briefing (PEB) and first in Canada, held on July 13 in Toronto.

The Economic Team is composed of Budget Secretary Amenah F. Pangandaman, Finance Secretary Benjamin E. Diokno, NEDA Secretary Arsenio M. Balisacan, and Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. They presented the country’s macroeconomic performance and outlook, investment opportunities, and priority expenditures.

In 2022, Canada was the Philippines’ 20th largest trading partner with total trade (exports + imports) of $1.5 billion, and cash remittances of $1.2 billion from the nearly one million overseas Filipinos in Canada.

I checked the UN Conference on Trade and Development (UNCTAD) World Investment Report (WIR) 2023, on what countries are the largest net exporters of capital. Then I checked the BSP data on sources of FDI in the Philippines, whether these big exporters of capital have poured investments in the country.

In the table below, I grouped the countries into four: Group A is G7 member countries, B is other big FDI sources in Europe, C is north and south Asia big economies, and D is ASEAN-6 countries. Then I traced a three-decades time series of FDI outward stock from 1992-2022. The results are interesting.

One, the top eight largest exporters of capital and their respective FDI outward stocks in 2022 are: US $8 trillion, Netherlands $3.2 trillion, China $2.9 trillion, UK $2.2 trillion, Hong Kong and Canada $2.0 trillion each, Japan and Germany $1.9 trillion each.

Two, from 1992 to 2022, the expansion in FDI outward stock were: Netherlands 27x, Canada 23x, US and UK 10x, Germany 6x. In Asia, China 312x, S. Korea 147x, HK 93x, Singapore 15x, Taiwan 13x, Japan 8x. The Philippines has low FDI outward stock (SMC, Jollibee, Unilab, etc) but high expansion of 149x.

Three, the largest sources of FDI in the Philippines are Singapore, Japan and US. Canada is not even in the top 20 with $19 million in net outflows from 2020-2022 (see Table 1). Perhaps this is one of the reasons why the economic team chose to go to Canada to meet investors there.

See some recent stories on trade and investments reported in BusinessWorld: “Europe roadshow yields P73B in ‘investment leads’” (July 10), “FDI net inflows decline 14% in April” (July 11), “PEZA approves P80.6-B investments in first half” (July 11), “$88-M investments from Marcos’ trips to materialize this year” (July 13), “Marcos signals more liberal economic measures” (July 14).

On the decline in FDI net inflows, the cumulative numbers for January-April are $3.561 billion in 2022 and $2.918 billion in 2023, or a change of minus $643 million. Big declines came from Net debt instruments: minus $504 million, and Net equity other than reinvestment of earnings: minus $119 million.

There was a net increase of $78-million FDI from Singapore, Japan and South Korea, but a net decrease of $89 million from Malaysia and $50 million from the US.

At the Philippine Economic Zone Authority (PEZA), investment values were P22.49 billion in January-June 2022 and P80.59 billion in January-June 2023, or an increase of P58 billion, huge.

I do not know how to reconcile the net decrease in FDI in the first four months and net increase in PEZA investments in the first six months; perhaps big investments came in May-June this year.

Next, international trade. Total trade in the first six months of the administration (July-December 2022) was $109 billion, exceeding the 2021 level and the same period in previous years. But in January-May 2023, total trade was only $80 billion, lower than the year-earlier level but higher than those of previous years.

We have a beautiful, firm statement by President Marcos Jr. for free trade in the report “Marcos signals more liberal economic measures.” He said, “No country ever got wealthy by following a protectionist policy… wealth of a nation is defined by the amount of trade that it has gone (through). We can look back many centuries and it has always been trade that has been the key to the wealth of any nation, of any system, of any economic system.”

Spot on, bright statement, Mr. President. High imports, high trade deficit are not necessarily bad if those imports — oil, machines, tractors, electronics, etc. — help improve overall productivity in the country. The merchandise trade deficit can be funded by non-merchandise trade surpluses, from BPO revenue, OFW remittances, or tourism revenues.

So in the first year of the Marcos Jr. administration, investment, especially in PEZA is up, exports especially in the second half of 2022 are up. He also reiterated his intention to stay the course of free trade. Good performance in year one in trade and investment by the administration.

Meanwhile, Secretary Diokno and Secretary Pangandaman are alumni of the Program in Development Economics (PDE) of the UP School of Economics and they will be the guest speakers in the PDE Alumni Homecoming on Aug. 19, Saturday at 4 p.m. at the School Auditorium. PDE graduates from various batches, from the late 60s to 2023, are encouraged to attend. No registration fee.
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Global power play and political economy

Sharing here a portion of my short presentation the other day on the theme, "Global power play: Navigating the future of political economy" organized by the European Studies Association, De La Salle University (DLSU), zoom.

The other speakers were Michael Ricafort, chief economist of RCBC, and Paulo Lim, lecturer at UA&P Manila and Univ. of Bristol, UK. About 140+ audience, undergrad DLSU students.

Thank you for the opportunity to share my ideas and data, Kristine, Quianna, Nicole, Margret and your other team members.

Thursday, July 20, 2023

BWorld 621, Energy realism: Oil-coal consumption and NGCP’s delayed projects

Energy realism: Oil-coal consumption and NGCP’s delayed projects
July 13, 2023 | 12:02 am

My Cup Of Liberty
By Bienvenido S. Oplas, Jr.

(Part 3)
https://www.bworldonline.com/opinion/2023/07/13/533840/energy-realism-oil-coal-consumption-and-ngcps-delayed-projects/

Last week two beautiful statements from two agencies came out.

One was from the Department of Energy (DoE) on July 6: “DoE, MENRE Sign Circular on the Joint Award of Petroleum Service Contracts and Coal Operating Contracts in the BARMM.” The other was from the Department of Budget and Management (DBM) on July 7: “Pangandaman lauds DoE-BARMM deal on energy exploration.”

The DoE and the Ministry of Environment, Natural Resources, and Energy (MENRE) of the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM) signed the Intergovernmental Energy Board (IEB) Circular on the Joint Award of Petroleum Service Contracts (PSCs) and Coal Operating Contracts (COCs) in the BARMM at Malacañang Palace, witnessed by President Ferdinand E. Marcos, Jr. and DBM Secretary Amenah F. Pangandaman, among others.

Energy Secretary Raphael P.M. Lotilla said, “It will not only contribute to the energy security of the country but also unlock vast opportunities for economic growth in the Bangsamoro Autonomous Region.”

Budget and Management Secretary Pangandaman, the only Muslim Secretary in the Marcos Jr. Administration, said, “The Joint Circular agreement between DoE and MENRE exemplifies a significant step towards sustainability and prosperity for BARMM.”

Bravo, Mr. Lotilla and Ms. Pangandaman. Bravo, MENRE-BARMM, and President Marcos Jr. We need more oil, gas, and coal. We need more investments and businesses, more job creation.

The Philippines remains a laggard in oil and coal consumption compared to many countries in the world and yet aspires to industrialize. In the table, I trace the numbers over four decades — the years 1982, 2002, 2022 — in oil and coal consumption then foreign direct investment (FDI) inward stock. Data sources are the Energy Institute Statistical Review of World Energy (EI-SRWE) 2023 which was released last month, and the UN Conference on Trade and Development (UNCTAD) World Investment Report (WIR) 2023, which was released last week.

I grouped the countries into three — the G7 industrialized countries, the BRICS (Brazil, Russia, India, China, South Africa), and the rest of East Asia. The results after four decades are really interesting.

One, G7 oil consumption in 2022 is back to 1982’s level of 59,000 petajoules (1PJ = 163,400 barrels of oil equivalent, or 1 PJ = 277.78 gigawatt-hours), while their coal consumption has declined from 29,400 to PJ to 18,200 PJ — Wow! Their FDI inward stock has expanded 12.2 times from the 1982 level.

Two, BRICS’ oil consumption expanded by 6.6x, coal consumption expanded 6.2x, and their FDI inward stock expanded 58.2x. Great achievement.

Three, the oil use, coal use, and FDI inward stock of the other East Asian economies including South Korea, Taiwan, and the ASEAN-6, have expanded 4.2x, 13.5x, 38.2x, respectively. Good achievement too.

Four, the Philippines’ oil consumption in 2022 was only 86% of Vietnam’s, 51% of Malaysia’s, 37% of Thailand’s, 33% of Singapore’s, and 16% of South Korea’s. And the Philippines remains to have the smallest FDI inward stock (see the table).

NGCP’S PROJECTS

Also last week, these developments were reported in BusinessWorld: “NGCP ordered to explain 37 delayed projects” (July 6), “Delayed approvals blamed for transmission project delays” (July 10), “Yellow alert declared over Luzon grid after Batangas power plant suffers outage” (July 11), and, “Meralco implements lower rates this month” (July 11).

The Energy Regulatory Commission (ERC) — in the Show Cause Order (SCO) dated June 14, issued on July 4 — ordered the only remaining private monopoly nationwide, the National Grid Corp. of the Philippines (NGCP), “to explain why it should not face administrative penalties for the delays, non-completion, and failure to commence ERC-approved transmission projects.”

Bravo, ERC.

Delayed completion of 37 projects, three of which are yet to commence, with delays ranging from 21 to 2,561 days — horrible job, NGCP.

The biggest private monopoly’s Transmission Development Plans submitted to DoE show that since 2009 the transmission grid increased only by 8% in terms of line expansion (from 19,425 circuit-kilometers in 2009 to 21,027 circuit-kilometers in 2022). From 2011-2018, NGCP’s line expansion was only 1.05% progress rate per year.

During the “Pandesal Forum” on July 5, DoE Secretary Lotilla said: “The NGCP is the biggest monopoly in the Philippines … the one that can hinder or facilitate the progress or the entry of new generation capacity …. major projects still delayed … Congress has given them a 3% franchise tax in lieu of all other taxes.”

Secretary Lotilla is 100% correct in his assessment there. Congress and the previous Arroyo administration had given NGCP a tax privilege, and NGCP is even passing this franchise tax on to customers. It earns huge revenues, has a huge tax shield, and has huge project delays that lead to frequent yellow-red alerts in the country, which can terrify potential investors from coming into the country. I really hope that when the Maharlika Investment Fund becomes a law, among its big investments is to acquire majority control of the NGCP.

Finally, some good news announced by Meralco — a reduction of P0.72/kWh in the electricity rate this July. The overall rate for a typical household declined from P11.91/kWh last June to P11.19/kWh this July.

The generation charge has declined from P7.25/kWh in June to P6.61/kWh this July. There are three reasons why this is so.

One, Meralco has increased its power purchase from the Wholesale Electricity Spot Market (WESM) where prices have gone down by P2.66/kWh as demand has decreased. Two, low coal prices that led to low prices from non-fixed power supply agreements. And three, Peso/Dollar appreciation.

And back to energy realism. Stable, reliable, predictable, dispatchable energy on demand by consumers can come only from conventional sources like coal, oil, gas, and nuclear power. Coal and oil prices can go up but they can protect customers from blackouts and inconvenience, damaged appliances, and damaged production. When coal prices decline, then we have blackout-free and cheap electricity at the same time.
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Climate and Freedom 1, Energy transition and developing countries

Last April 27, I was one of several guest speakers in a virtual meeting by Climate and Freedom coalition. It's a small group, off the record meeting. Below I share 4 of 11 slides I discussed that day. Enjoy.

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Tuesday, July 18, 2023

BWorld 620, Year 1 of Marcos Jr.: Inflation and interest rates

Year 1 of Marcos Jr.: Inflation and interest rates
July 11, 2023 | 12:02 am

My Cup Of Liberty
By Bienvenido S. Oplas, Jr.
https://www.bworldonline.com/opinion/2023/07/11/533308/year-1-of-marcos-jr-inflation-and-interest-rates/

(2nd of 4 parts)

There were two pieces of good news reported by the Philippine Statistics Authority (PSA) last week.

One, that the inflation rate further decelerated to only 5.4% in June 2023, from 6.1% the previous month. It was also 6.1% in June 2022.

Two, the unemployment rate further declined to only 4.3% of the labor force in May 2023, from 4.5% the previous month and 6% in May 2022.

The underemployment rate was also down to only 11.7% of the labor force in May 2023, from 12.9% the previous month, and 14.5% in May 2022.

The Inter-Agency Committee on Inflation and Market Outlook (IAC-IMO) headed by the Secretaries of the Department of Finance (DoF), the NEDA, and the Department of Budget and Management (DBM), is producing good results from their efforts.

Doing market-oriented reforms at home, keeping taxation policies stable and predictable, then announcing these in face-to-face meetings with investors in key cities abroad, these are among the useful innovations made by the economic team of the Marcos Jr. administration.

A report last week in BusinessWorld caught my attention: “Rate cuts eyed if inflation falls below 4%” (July 7).

Bangko Sentral interest rates increased fast last year, from 2% in April to 5.5% in December, it is now 6.25%. The big jump in interest rates failed to cool down prices until early 2023, implying that the monetary policy has not been really effective in stabilizing prices.

The main inflation generator last year, especially in the second half (H2) or July-December, was transport (high oil prices) followed by alcoholic beverages and tobacco (ABT), then food and non-alcoholic beverages. Since oil is a public good, a necessity by almost everyone, people would endure high inflation but not let go of their cars or motorcycles or trucks.

In the first half (H1) of 2023, the main inflation generator is ABT followed by food, then restaurants and accommodation/hotel services. Transport inflation has receded due to lower oil prices. This implies that people are going out more to eat, drink, smoke, and party. If so, this may slow down inflation deceleration but will perk up GDP growth.

I now compare inflation rate of various countries, also interest rates by central banks or monetary authorities (CB/MA). In H1 2023, Bangladesh, India, and the Philippines have had among the highest inflation rates and interest rates in Asia. The US and European countries have had the biggest jump in interest rates, from zero in April 2022 to 4%, 5% in June 2023 (see the table).

The high inflation in ABT, food, restaurants, and accommodation this year could be an explanatory factor why the Philippines’ GDP growth in the first quarter of 6.4% was the highest among the major economies (top 50 largest GDP size) in the world. People were going out more, spending more, which expands consumer demand and supply, which expands overall GDP.

The decline in unemployment rate and underemployment rate in May this year is further proof that consumer and business confidence is high in the country. People are doing more entrepreneurial activities, hiring others or hiring themselves — they should be backed up by low interest rates.

On this consideration, the BSP may consider reducing the interest rate sooner and not wait for the inflation rate to reach below 4% by October. More domestic businesses should expand fast as consumer confidence is high, and high interest rates can discourage more loan takeout for business expansion.

The Marcos Jr. administration overall is doing good when it comes to economic achievement in year one. Even if inflation stays at 4-5% in the coming month, so long as the unemployment rate is 4.5% or lower, so long as the GDP quarterly growth is 6% or higher, that would be a tolerable trade off.

Meanwhile, the Program in Development Economics Alumni Association (PDEAA) of the UP School of Economics will hold its homecoming on Aug. 19, Saturday, at 4 p.m., at the school auditorium.

Confirmed guest speakers are DoF Secretary Benjamin Diokno (7th PDE batch) and DBM Secretary Amenah Pangandaman (33 PDE batch). Graduates of PDE are encouraged to attend this educational and entertaining homecoming event.
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Water economics

I have written a number of papers in my column re water.

Dredge Laguna de Bay for potable water use
February 21, 2022 | 9:38 pm
https://www.bworldonline.com/opinion/2022/02/21/431344/dredge-laguna-de-bay-for-potable-water-use/

More water and investments, less political whims
July 29, 2020 | 6:36 pm
https://www.bworldonline.com/editors-picks/2020/07/29/308308/more-water-and-investments-less-political-whims/

Thank you, Metro Manila water concessionaires
March 9, 2020 | 10:21 pm
https://www.bworldonline.com/opinion/2020/03/09/282859/thank-you-metro-manila-water-concessionaires/

More water and investments, less virus
March 18, 2020 | 9:54 pm
https://www.bworldonline.com/editors-picks/2020/03/18/284395/more-water-and-investments-less-virus/

Thank you Maynilad, Manila Water
December 22, 2019 | 9:13 pm
https://www.bworldonline.com/opinion/2019/12/22/270637/thank-you-maynilad-manila-water/

(Tables here not showing, reposted with the tables,
https://funwithgovernment.blogspot.com/2019/12/bworld-397-thank-you-maynilad-manila.html)

Water politics and power price control
December 11, 2019
http://bworldonline.com/water-politics-and-power-price-control/
https://funwithgovernment.blogspot.com/2019/12/bworld-394-water-politics-and-power.html

MORE smart cities… with sufficient water
May 6, 2019 | 12:58 am
https://www.bworldonline.com/editors-picks/2019/05/06/229188/more-smart-cities-with-sufficient-water/

Reason over populism in infrastructure development
June 26, 2019 | 10:02 pm
https://www.bworldonline.com/editors-picks/2019/06/26/238839/reason-over-populism-in-infrastructure-development/

(Table not showing, reposted here with the numbers, https://funwithgovernment.blogspot.com/2019/07/bworld-343-reason-over-populism-in.html)

Water surplus vs water shortage
March 14, 2019 | 10:03 pm
https://www.bworldonline.com/opinion/2019/03/14/219856/water-surplus-vs-water-shortage/

(Tables here, https://funwithgovernment.blogspot.com/2019/03/bworld-303-water-surplus-vs-water.html)

Integrated PPP vs Hybrid PPP: The case of Kaliwa Dam
November 7, 2018 | 10:17 pm
https://www.bworldonline.com/editors-picks/2018/11/07/197877/integrated-ppp-vs-hybrid-ppp-the-case-of-kaliwa-dam/

(Table shown here, https://funwithgovernment.blogspot.com/2018/11/bworld-265-integrated-ppp-vs-hybrid-ppp.html)

Sunday, July 09, 2023

BWorld 619, Energy realism: G7, BRICS, and other big Asian economies

July 6, 2023
https://www.bworldonline.com/opinion/2023/07/06/532516/energy-realism-g7-brics-and-other-big-asian-economies/
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The latest global and multi-country data from the Energy Institute Statistical Review of World Energy 2023 (EI-SRWE) further confirm that as countries embrace “decarbonization” and reduce their fossil fuel consumption, their economic expansion is compromised and restricted.

I compared the economic and energy performance over the past 25 years — 1997 to 2022 — of four groups of countries: the G7 industrialized countries, the competing economic bloc BRICS (Brazil, Russia, India, China, South Africa), other big Asians (OBAs) like South Korea and Saudi Arabia, and the ASEAN-6.

The three indicators of comparison are: GDP size in Purchasing Power Parity (PPP) values, primary energy consumption (PEC), and power or electricity generation. The results are interesting.

One, 25 years ago the G7 countries, led by the US, were larger than BRICS in all three indicators. Today it is the reverse, BRICS, led by China, have overtaken the G7.

Two, all G7 countries except the US and Canada experienced significant declines in PEC, they seem to have embraced slow deindustrialization in hard pursuit of decarbonization and “net zero.” Their PEC has contracted 11% over 25 years vs. 123% growth in BRICS, 156% in OBAs, and 215% in ASEAN-6. And the power generation of G7 has increased only 6% after 25 years vs. 229% in BRICS, 265% in OBAs, and 372% in the ASEAN-6.

Three, within the ASEAN-6, Vietnam has overtaken the Philippines in all three indicators. Their PEC was only one half of the Philippines’ 25 years ago, now it is twice that of the Philippines (See the table).

The Philippines really needs to expand and modernize power generation, transmission, and distribution systems. We should keep the pace of the BRICS, OBAs, and ASEAN, not the G7. Our power generation is less than half of Vietnam’s — even if all conglomerates and corporations in the power sector will double their output in the next five to 10 years, it will greatly help but will not be enough given the high growth momentum and targets for the Philippine economy.

Yesterday I attended the Pandesal Forum on the subject “Achieving Philippine Energy Security through Strategic Policy Reforms” and the lone speaker was Secretary Raphael “Popo” Lotilla. The event was hosted by Wilson Lee Flores.

Among the points discussed by Secretary Lotilla were the following:

(a) President Ferdinand Marcos, Jr. is very serious about energy issues, they keep him awake at night;

(b) nuclear power in the Philippines is on the table, the President already mentioned it as early as in his first State of the Nation Address last year;

(c) high electricity prices in the Philippines compared to neighbors in Asia is partly because our neighbors subsidize their electricity, directly or indirectly, like Vietnam which asked their government to subsidize $2 billion last year, and Indonesia which, as a big coal producer and exporter, has cheap domestic coal;

(d) renewable energy’s share to total power generation will keep rising, 50% by 2040, with natural gas power as backup;

(e) the National Grid Corp. of the Philippines (NGCP) audit is proceeding, Congress is asked by the Energy department to review the NGCP franchise, it is the only corporation in the Philippines granted by Congress to pay only a 3% franchise tax in lieu of all other taxes;

(f) there is stranded energy, excess energy supply in some islands that cannot be shared or exported to other islands due to NGCP transmission congestion;

(g) there are reforms in electric cooperatives sought by local governments via corporatization or bringing in private corporations, or being registered with Philippine Cooperative Authority.

On high electricity prices, the Energy Regulatory Commission (ERC) has been adjusting rates down — the ERC-approved rate is lower than what was applied for in the power supply agreement between distribution utilities and generation companies.

While this is understandable as the ERC is trying to help mitigate high consumer prices, plus there is a policy where neither party can withdraw from the approved rate, there is problem in this modification of contract because this already went through competitive bidding.

One option is to decouple the generating plant from the energy supply contract. It becomes the supplier’s problem to source energy from one or more generators. It will also address the problem of capacity utilization or forcing plants to load follow at inefficient levels. With no plant linkage, there is no cost basis to evaluate, only the integrity of the bidding process. So, fuel costs become the supplier’s problem and safeguards can include financial penalties covered by L/Cs that can be drawn in case of default.

Meanwhile, there is a piece of good news — the energization of a remote health center in Barangay Laiban, Tanay, Rizal which serves over 3,000 individuals, done by Meralco under its community electrification program that covers low-income households. Good job, guys.
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Weekend Fun 85, Climate "emergency"

Enjoy these ironies and hypocrisies.

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See also:
Weekend Fun 82, Bawal Party, BBM supporters, May 08, 2022
Weekend Fun 83, Academic lessons on Mother's day, May 14, 2023
Weekend Fun 84, More Father's day jokes, June 18, 2023.

Saturday, July 08, 2023

BWorld 618, Year 1 of Marcos Jr.: Budget deficit and unemployment

Year 1 of Marcos Jr.: Budget deficit and unemployment
July 4, 2023 | 12:03 am

My Cup Of Liberty
By Bienvenido S. Oplas, Jr.
(Part 1 of 4)
https://www.bworldonline.com/opinion/2023/07/04/531968/year-1-of-marcos-jr-budget-deficit-and-unemployment/

The Ferdinand Marcos, Jr. administration turned one year old last week on June 30. This column will produce a four-part assessment of the economic performance of the Marcos Jr. administration leading to the second State of the Nation Address (SONA) on July 24.

The goal of this informal exercise is to assess if the first year performance so far would help the Philippines achieve fast growth — create more jobs, expand the production of more goods and services, further industrialize and modernize the Philippines in the medium- to long-term.

Eight economic sectors, two per article, will be assessed this month: the budget deficit, unemployment, inflation, the interest rate, GDP growth, agriculture, trade, and investment.

CASH OPERATIONS REPORT

Last week, the Bureau of the Treasury (BTr) released the cash operations report for May 2023. The January-May 2023 data are available, so I will compare the numbers with performance in the same months of 2018 to 2022. The results are generally good.

One, revenues this year have significantly improved, reaching P1.59 trillion from P1.44 trillion last year. This is important for two reasons: there was no tax hike, and lockdown-era tax cuts still remained in place. So, an improvement in economic activities, not a tax hike, expanded the tax base.

Two, expenditures have mildly increased to P1.92 trillion this year from P1.89 trillion last year. While allocations for local government units have declined this year, National Government disbursement remains high as there is spending that continues to remain bloated like the military and uniformed personnel (MUP) pension. This fund must decline significantly if we must control the annual deficit, financing, and borrowing.

Three, the budget deficit has declined to only P326 billion this year from an average of P529 billion/year in the last three years 2020-2022, so this is good news. Financing or borrowing has mellowed to P1.17 trillion this year, higher than 2022 but lower than in 2020 and 2021 (see Table 1).

Interest payment is high, already P230 billion in the first five months of 2023 alone. This is a reflection of the huge increase in public debt during the lockdown years of 2020-2021 and this is not good. We should aim to reduce the annual budget deficit, reduce the need for borrowing, find new revenues like the large privatization of some government assets, in order to retire more public debt while controlling the rise in spending.

DECLINING UNEMPLOYMENT

Next is the labor market. In Table 2, I group countries into three: group A are G7 member countries, group B are the big North and South Asian economies, and group C are the ASEAN-6 or the six large economies of the regional bloc.

As of April 2023, four of the G7 countries, plus India and China, and Indonesia in the ASEAN-6 countries had unemployment rates of 5% and above of the labor force. The Philippines’ unemployment rate has significantly declined to only 4.5% which is almost half the 8.7% registered in April 2021, so this is good news.

More Filipinos now have jobs and, hence, have money to spend and buy, which will create more consumer demand and invite more business expansion and innovation.

So far, considering these two indicators — budget deficit and unemployment rate — the Philippines under the Marcos Jr. administration is doing well. These are consistent with the economic team’s high growth target of 6-7% in 2023 and 6.5-8% in 2024-2028. Meaning if both the deficit and unemployment rate continue their downward trends, the high growth targets are achievable, and, better yet, may be surpassed.

We should target high employment, high productivity, and high economic ambition. Go for high revenues and high investments, and a low deficit and low borrowings. Aim for becoming an upper middle-income country — with a per capita income of $4,046 to $12,535 per year — by 2028 or earlier, vs. the current level of $3,623 in 2022.

This is achievable if we have a single-track goal: more growth, expanded production, more economic and business competition. Aim for a larger economic pie, not “well-distributed” shares in a small economic pie.
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Deindustrialization 16, UK expensive electricity, coal to avoid blackout

These are ironic, if not comedy, stories for an industrial country. Enjoy.
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UK Grid Puts Coal Plant On Standby While Ordering Wind Farm to Cut Output
By Charles Kennedy - Jul 06, 2023
https://oilprice.com/Latest-Energy-News/World-News/UK-Grid-Puts-Coal-Plant-On-Standby-While-Ordering-Wind-Farm-to-Cut-Output.html

Billionaire Ratcliffe Sees UK Energy Policy Wrecking Industries
UK government made ‘daft’ decisions on nuclear: Ratcliffe
Competitive energy is critical for manufacturing investments
By Sabah Meddings and David Hellier
July 6, 2023
https://www.bloomberg.com/news/articles/2023-07-06/british-billionaire-ratcliffe-slams-uk-energy-policy-as

Wind Lobbyists Push UK Government For More Subsidies
July 6, 2023
https://finance.yahoo.com/news/wind-lobbyists-push-uk-government-150000778.html

Revealed: Brits are paying the highest electricity bills in the entire world
BY:MICHIEL WILLEMS January 14, 2023
https://www.cityam.com/revealed-brits-are-paying-the-highest-electricity-bills-in-the-entire-world/

Sky-High UK Energy Bills Shouldn't Be The Norm
By City A.M - Jul 07, 2023
https://oilprice.com/Energy/Energy-General/Sky-High-UK-Energy-Bills-Shouldnt-Be-The-Norm.html

Britain’s energy failure risks killing off what is left of our manufacturing base
Sir Jim’s latest lambast provides yet another wake-up call to sleepy ministers
BEN MARLOW 7 July 2023
https://www.telegraph.co.uk/business/2023/07/07/britain-energy-failure-risks-killing-off-manufacturing-base/

The Tory civil war over climate policy is heating up - and there is no peace deal in sight
James Murray 03 July 2023
https://www.businessgreen.com/analysis/4119365/tory-civil-war-climate-policy-heating-peace-deal-sight

Why The U.S. Has Become The Blackout Capital Of The Developed World
By Alex Kimani - Jul 02, 2023
https://oilprice.com/Energy/Energy-General/Why-The-US-Has-Become-The-Blackout-Capital-Of-The-Developed-World.html
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Tuesday, July 04, 2023

BWorld 617, Energy realism: Raising consumption and economic growth

Energy realism: Raising consumption and economic growth
June 29, 2023 | 12:02 am

My Cup Of Liberty
By Bienvenido S. Oplas, Jr.
https://www.bworldonline.com/opinion/2023/06/29/531213/energy-realism-raising-consumption-and-economic-growth/

(Part 1)

This column will produce a series of articles on energy realism, not alarmism, to support sustained economic growth for developing countries, especially the Philippines. New global data are now available from the Energy Institute (EI), which launched the Statistical Review of World Energy 2023 on June 26. The report has been published by British Petroleum since the 1960s until 2022.

We start with consumption of primary energy — commercially traded fuels, fossil and nuclear, plus modern renewables for electricity generation.

I compare GDP per capita at purchasing power parity values at constant prices, and primary energy consumption in gigajoule (GJ) per capita. One GJ is equivalent to 277.8 kWh in electricity, or 0.16 barrel of oil.

I grouped the selected countries below into three. Group A consists of G7 member-countries, group B is made up of the big North and South Asians, and group C consists of the ASEAN-6 countries. I chose a 20-year gap — 1982, 2002 and 2022, with 2019 as peak GDP levels before the global lockdowns of 2020-2021 that slammed many economies into deep recession.

The results over the past 40 years, 1982 to 2022, are interesting.

One, only the US has doubled GDP per capita among G7 countries. Only Japan has expanded GJ per capita; the rest have experienced a decline especially the UK.

Two, group B countries expanded their GDP per capita many times — India 5.5x, Taiwan 6.5x, South Korea 7.4x and China 24x. Their GJ per capita consumption also expanded many times — Taiwan 3.2x, India 3.9x, South Korea 5.6x and China 6.3x. Higher energy consumption raises productivity and income.

For ASEAN-6, it’s the same trend as for group B countries. Singapore has very high GJ per capita. In 2022 it was almost 5x that of the UK and Italy, and Singapore has very high GDP per capita, more than 2x of G7 countries except the US. Vietnam has expanded its energy consumption 12.3x and income per capita has expanded 7.1x.

The Philippines remains to have the lowest energy consumption per capita in ASEAN-6 in 2022 — only 51% of Thailand, 39% of Vietnam, 26% of Thailand and only 13% of Malaysia. The mothballing of the Bataan Nuclear Power Plant in 1985 — 620 MW of reliable, dispatchable electricity source with no alternative — that led to large-scale blackouts in 1990-1992 is one of the major factors. One result is muted growth. Per capita income expanded only 2x over four decades (see table).

Another factor is that the Philippines legislated an energy-alarmist law, the Renewable Energy Act of 2008 (RA 9513), which pushed hard intermittent, unreliable, nondispatchable on-demand sources like wind and solar energy. While the installed megawatt capacity of the Philippines is rising high mainly from wind and solar energy, the actual MWh electricity generation remains low. That’s because wind and solar energy produce no electricity when the wind does not blow and when it is nighttime, or produce very little energy even at daytime when there are thick clouds or when it’s raining.

The 26-page paper “Full Cost of Electricity ‘FCOE’ and Energy Returns ‘eROI’” by Lars Schernikau, William Hayden Smith & Rosemary Falcon in the Journal of Management and Sustainability offers good advice on economic and energy realism for policy makers in the Philippines and other developing countries.

“Energy policy and investors should not favor wind, solar, biomass, geothermal, hydro, nuclear, gas, or coal but should support all energy systems in a manner which avoids energy shortage and energy poverty,” according to the paper. “All energy always requires taking resources from our planet and processing them, thus negatively impacting the environment. It must be humanity’s goal to minimize these negative impacts in a meaningful way through investments — not divestments — by increasing, not decreasing, energy and material efficiencies.”

Amen to that.

Meanwhile, there have been developments in the Philippine energy sector as reported in BusinessWorld: “ERC says 48 power distributors applying for rate adjustments” (June 20); “NGCP says investment in substation upgrades reached P6.47 billion”(June 20); “DoE expects offshore wind rules to help bring down power rates” (June 22); “Emergency power procurement pricing allowed to vary from approved tariff” (June 26); “ERC asks SC to void decision halting power deal” (June 26); and “Reserve power market commercial launch expected by September” (June 27).

The ERC move asking the Supreme Court to void the halting of the power deal of a San Miguel energy company is good. The establishment of reserve power market is also good. Modern blackout economics in the Philippines is largely explained by the absence of long-term power reserve contracts by the only remaining private monopoly nationwide, NGCP. So having an institutional reserve market is a move in the right direction.

One reform that must be done to complement this reserve market is the abolition of electricity price control via primary and secondary price caps in the wholesale electricity spot market (WESM). Or at least adjust it high. Peaking plants do not run 24/7, 12 months a year. They run only for a few months and weeks with tight power supply and thin power margins so they must be rewarded with a higher price to avoid blackouts, potential or actual. That is how real capitalism should work. We should have it back in WESM.
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Government and Taxes

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