BWorld 784, Towards a flat income tax of 10% to 15%

Towards a flat income tax of 10% to 15%

March 20, 2025 | 12:02 am

My Cup Of Liberty

By Bienvenido S. Oplas, Jr.

https://www.bworldonline.com/opinion/2025/03/20/660354/towards-a-flat-income-tax-of-10-to-15/

 

An interesting study was released recently by the Congressional Planning and Budget Research Department (CPBRD) of the House of Representatives entitled “Progressivity, Fairness, and Efficiency: An Evaluation of the Impact of the TRAIN Law on the Distribution of the Income Tax Burden,” CPBRD Policy Brief No. 2025-04. The authors were David Joseph Emmanuel Barua Yap, Jr., Edrei Y. Udaundo, and Jubels C. Santos.

 

The old name of the CPBRD was the Congressional Planning and Budget Office (CPBO) and I worked there from 1991-1999.

 

Among the study’s findings were that the tax share of the top earners — those who earned at least P1.35 million in 2017 and P1.43 million in 2023 — increased from 72.4% (P183 billion) to 88.1% (P258 billion) under the Tax Reform for Acceleration and Inclusion (TRAIN) Law of 2017. See this report about it in BusinessWorld by Kenneth Basilio, “Flat tax seen easing burden on top earners — think tank” (March 18).

 

Among the recommendations of the CPBRD paper are that there should be a flat income tax of 10% to 15%, VAT should be hiked from 12% to 14%, and that there be a 10% reduction in government bureaucracy.

 

I support these suggestions except the value-added tax (VAT) hike to 14%. Currently our 12% VAT is among the highest in Asia, with most of our neighbors having VAT or sales taxes of 7-10%.

 

In the accompanying table I summarized the existing and proposed tax rates, including my own proposal. An income tax cut often leads to a broader tax base because those who evade paying income taxes at 20% to 35%, or who downscale their declared income to avail of lower tax rates, will be encouraged to declare their real income and pay only 10% to 15%.

 

I think a flat 12% national income tax regardless of income level will attract more people to be more honest about their real income. Then we can allow the local government units (LGUs) to impose their own income tax.

 

The CPBRD paper also proposes a spending cut, which is among my favorite advocacies. They estimate that a 10% reduction in the government payroll would save taxpayers some P160 billion, equivalent to half of the 2023 income tax take.

 

I checked the reactions to the report of two officials in charge of taxation and spending. Department of Finance (DoF) Secretary Ralph G. Recto said that: “We are committed to maximizing tax administration efficiency and ensuring a progressive tax system. Right now, our priority is to collect what is already on the table by accelerating digitalization and closing tax loopholes. By doing so, we can maximize revenue collections without placing an additional burden on our people through new taxes.

 

“One of the critical mandates of the DoF is to ensure that economic growth is inclusive and equitable by providing more government assistance to those who are in greater need. This can only be done through a progressive tax system, wherein higher-income brackets can contribute more, enabling the government to provide more public services and support to vulnerable sectors.”

 

Meanwhile, Budget Secretary Amenah F. Pangandaman was happy that the National Government Rightsizing Program (NGRP) was mentioned in the study as they really intend to streamline and make public spending more efficient and not wasteful.

 

OK then, Secretaries Recto and Pangandaman.

 

I hope that some legislators someday will be bold enough to push for a flat income tax 10% to 15%. My idea is to have a flat 12% national income tax, then allow the LGUs to impose their own income tax, encourage more devolution of functions to LGUs and then they will have social services competition, infrastructure competition, and peace and order competition among themselves.

 

Currently 10 countries and territories have zero income tax. Bless them (see Table 2).

PhilStar 33, From energy regulation to deregulation (Part 3)

From energy regulation to deregulation (Part 3)

 

ENERGY, INFRA AND ECONOMICS - Bienvenido Oplas Jr. - The Philippine Star 

March 20, 2025 | 12:00am

https://www.philstar.com/business/2025/03/20/2429601/energy-regulation-deregulation-part-3

 

This is a continuation of the previous articles this year in this column , “From energy regulation to deregulation” Part 1 (Jan. 25) and Part 2 (Feb. 6). In Part 1, the three regulations I discussed were price control via the secondary price cap in the Wholesale Electricity Spot Market, high reliability standards and fines, and price regulation after competitive selection process (CSP) has been done.

 

In Part 2 I discussed a dangerous regulation of “benchmarking rates” not only for transmission and distribution but also for procurement of necessary power supply for distribution utilities (DUs) and ancillary services (AS), explained five reasons why the policy is wrong.

 

In Part 3 I will tackle prolonged regulation by the Energy Regulatory Commission (ERC) on already awarded CSP procurement of ancillary service power agreement (ASPA) by the National Grid Corp. of the Philippines (NGCP).

 

From what I gathered, NGCP implemented AS CSP in early 2023 to procure its ASPAs. Many or most  ASPAs that time were either expired or nearly expiring. The agreement in mid-2023 then among the Department of Energy (DOE), ERC, NGCP and generation companies (gencos) was that ERC would fast-track the approval of those ASPAs that already won in the CSP.

 

The ERC issued notice of resolutions (NOR) for the provisional approval (PA) of some ASPAs around August  or September 2023. Not all gencos were issued PAs, some were issued interim relief in 2024 already. However, those NORs, PAs and interim reliefs have capped prices or price-controlled.

 

The gencos were asking ERC to resolve the ASPA rates as the price capping has adverse effects on their operations and financial stability. It is already 2025 and the ERC still has not resolved the issues on ASPA rates.

 

Frequent use of government price cap or price control often leads to cheap but not available products and services. When products are artificially cheap because of price control, demand goes up while supply goes down. If non-distorted market price is P11/kwh but controlled price is only P10/kwh, some households who normally use only electric fans at night will turn on one or two air-conditioners. Some gencos that cannot make a profit for their efforts will limit if not stop producing electricity at some levels. End result is cheap but not available electricity. Or blackout.

 

Power supply insufficiency is felt every single year until this year via frequent yellow-red alerts during dry months. Luzon and Visayas grids are particularly prone to this. We need more investments in big, stable and reliable sources of electricity. Private investors can mobilize funds but are scared to lose money with price control polices. Investor confidence is low for generation, transmission, and even distribution aspects of electricity. Good thing that there is co-optimized market system as alternative which can provide other business opportunities.

 

I checked the ERC website, “Applications and Petitions” for Power Supply Agreements (PSAs) between gencos and distribution utilities or electric cooperatives, also ASPAs with NGCP, there are many: 90 in 2022, 146 in 2023, 171 in 2024, and 54 as of February 2025 alone. The high numbers maybe  including multiple filings per case (motions, manifestations, etc.).

 

I asked ERC chairperson Monalisa Dimalanta how many of these are approved or still pending approval, she replied that “for ASPAs the live ones are 36 arising from the NGCP CSP in 2023, all with provisional authorities and for final evaluation this month. For PSAs, out of 946 cases filed, 383 have been resolved.”

 

Good, Madame Chair. It is also good that the ERC is doing a 60-day time limit to act on pending applications.

In 2006, power generation of the Philippines was 57 terawatt-hours (TWH) while Vietnam has 58 TWH. After 10 years or in 2016, they have 91 TWH and 179 TWH respectively. And in 2023 they have 119 TWH and 276 TWH, respectively.

 

Aside from heavy investment in power generation, transmission and distribution by the Vietnam government and private sector partners, I think their energy regulatory environment and practices are conducive to investors, that they are properly rewarded for their risk-taking power projects.

 

We should have a similar investment and regulation environment here. If CSP – designed by the ERC itself – has been successfully held, then it should be considered as least cost already and no other price adjustment downwards by the ERC should be done. Any verification should be limited only to how transparent and compliant with the rules that the CSP was conducted. Deregulation moves should be done once players have complied with the regulatory procedures and requirements.

BWorld 783, On GDP size, exports, FDI, and electricity generation

On GDP size, exports, FDI, and electricity generation

March 18, 2025 | 12:02 am

My Cup Of Liberty

By Bienvenido S. Oplas, Jr.

https://www.bworldonline.com/opinion/2025/03/18/659818/on-gdp-size-exports-fdi-and-electricity-generation/

 

In comparing the GDP size of countries, I use the purchasing power parity (PPP) values, not current values for two reasons. One is that PPP adjusts prices of a comparable basket of commodities that reflect varying standards of living in various nations, each of which has its own currency. And two, PPP values are consistent with electricity generation numbers, and these are in terawatt-hours (TWh), not in currency values.

 

For this column I have compared the data of major economies in the world plus ASEAN-5 in 2008 and 2023, 15 years apart. I took GDP size — the values of the flow of goods and services in one year — at PPP values, and compared it with levels of power generation, merchandise (or goods) exports, and foreign direct investment (FDI) outward stock or net of inflows minus outflows accumulated through the years.

 

Comparing China and the US, one sees that in GDP size at PPP values, China overtook the US in 2016 — $18.85 trillion vs $18.80 trillion, respectively. When it comes to power generation, China overtook the US in 2011, with 4,713 TWh vs 4,363 TWh, respectively. In merchandise exports, China overtook the US in 2007 — $1.22 trillion vs $1.15 trillion. But in FDI outward stock, China is still way behind the US — but China’s expansion has been big, going from $184 billion in 2008 to $2.94 trillion in 2023, expanding by 16 times over the last 15 years.

 

I used FDI outward stock in the table, not inward stock because I want to know by how much countries have evolved from being net recipients of capital to being exporters of capital.

 

Let us compare the ASEAN-5 in FDIs. In 2023, the Philippines’ FDI inward stock was only $119 billion, Malaysia’s was $207 billion, Vietnam’s $229 billion, Thailand’s $291 billion, and Singapore’s was $2.63 trillion — an outlier in the ASEAN. In FDI outward stock in 2023, the Philippines’s was $68 billion, larger than Vietnam’s $14 billion (see the table). Philippine multinational companies like Jollibee, SM, San Miguel Corp., Unilab, and Ayala banner the country in foreign investments abroad.

 

THE POWER OF POWER

How China overtook the US in GDP size, in merchandise exports, and other major indicators, I think is due to China’s huge expansion in power generation. In 2023, it had twice the capacity of the US, nine times that of Japan, 18 times that of Germany, and 33 times that of the UK. So, China can do all sorts of energy-intensive manufacturing, run big hotels and resorts, malls and theme parks, hospitals and universities, and not worry about blackouts or expensive electricity because the supply is so big.

 

And of China’s 9,456 TWh in total generation, 61% comes from coal, 13% from hydro, and 5% from nuclear. China has expanded its solar-wind power generation recently, but such is only addition, not a substitution for or transition away from coal power.

 

For context, the Philippines’ total generation of 119 TWh in 2023 was equivalent to only five days of China’s generation. That is how small our economy and power generation are, or how large China’s are. Aside from having a huge population and hence a huge demand for power, since China is a socialist country it has huge state-led power generation and transmission infrastructure through the State Grid Corp. of China (SGCC) — which also happens to be the owner of 40% our own National Grid Corp. of the Philippines (NGCP).

 

China has electricity price control too, like our secondary price cap at the Wholesale Electricity Spot Market or WESM. Their National Energy Administration under the National Development and Reform Commission is like our Energy Regulatory Commission. But their price regulation function is secondary to their heavy power generation function, so that “cheap but not available” electricity and blackouts are not a problem there but a regular threat here.

 

Recently the Maharlika Investment Corp. (MIC) invested in the NGCP and I think it was a good move. I want to mention my former classmate and batchmate (1984) from the UP School of Economics (UPSE), Gladys Cruz-Sta. Rita. Gladys joined the MIC last week as Vice-President for Investment Management Group (Power). She is a good addition there because she was the Provincial Administrator of Bulacan province under three different governors, and was a president of the National Power Corp. Her extensive experience in running a government bureaucracy and in the power sector should help the MIC make prudent investments, especially in the energy sector.

 

Another batchmate from UPSE 1984 is Lynette Ortiz, President of the Land Bank of the Philippines (LANDBANK). Last week, LANDBANK received an upgraded Viability Rating from Fitch Ratings, rising from ‘BB’ to ‘BB+’. When LANDBANK contributed to the MIC’s capital fund, many analysts predicted there would be a deterioration of LANDBANK’s financial condition. They were wrong, with the ratings upgrade serving as a testament of improved standalone financial strength. Congratulations batchmates Lynette and Gladys.

PhilStar 32, Government revenues are fine but spending cut is needed

Government revenues are fine but spending cut is needed 

ENERGY, INFRA AND ECONOMICS - Bienvenido Oplas Jr. - The Philippine Star 

March 13, 2025 | 12:00am

https://www.philstar.com/business/2025/03/13/2427870/government-revenues-are-fine-spending-cut-needed

 

The Bureau of the Treasury (BTr) released the cash operations report for full year 2024 the other week. So annual data is now complete and comparable, here are some of the important results.

 

One, overall revenues reached P4.42 trillion in 2024, 15.6 percent higher than P3.82 trillion in 2023, good. GDP growth at nominal values in 2024 was 8.7 percent. Overall revenues in 2019 was P3.14 trillion, declined to P2.86 trillion in 2020 due to the horrible lockdown and closure of many tax-paying businesses and shops.

 

Two, tax revenues reached P3.80 trillion, 10.8 percent higher than P3.43 trillion in 2023. It was P2.83 trillion in 2019 or nearly P1 trillion increase in five years.

 

Three, domestic-based taxes kept rising especially income tax, VAT and sales tax, but excise tax kept declining from P317.7 billion in 2021 to P312.2 billion in 2022, P293.0 billion in 2023, data for 2024 not reported out yet.

 

Excise tax revenues from alcohol and sugar-sweetened beverages kept rising but taxes from tobacco kept declining. From P176.5 billion in 2021 to P160.3 billion in 2022, P134.9 billion in 2023, and flat level in 2024 at around P134 billion. Illicit and smuggled tobacco that pay zero excise tax and VAT and hence sold cheaply is the main culprit.

 

Four, non-tax revenues jumped big time, from P325.7 billion in 2022 to P394.8 billion in 2023 to P618.3 billion in 2024. These represent 21.2 percent growth in 2023 and 56.6 percent growth in 2024.

 

Five, remittances by government corporations contributed a big chunk of this big increase in non-tax revenues, from P91.6 billion in 2023 to P255.4 billion in 2024, a whooping 179 percent increase.

 

Finance Secretary Ralph Recto is largely responsible for this almost miraculous increase in non-tax revenues. He raised the mandatory remittances of government corporations from 50 percent to 75 percent, among other measures he implemented in his first year as finance secretary. Then there was upfront payment of P30 billion by New NAIA Infra Corp. (NNIC) led by SMC.

  

Six, income from Malampaya gas royalties kept declining, from P25.9 billion in 2022 to P17.8 billion in 2023, to only P10.7 billion in 2024. Declining volume of gas from the offshore Malampaya field plus lower global oil prices (Malampaya gas prices are pegged at Dubai crude oil prices) contributed to this.

 

Seven, BTr income significantly increased from P154.8 billion in 2022 to P227.6 billion in 2023 and P283.4 billion in 2024. The bulk of this income in 2024 came from dividend on shares of stocks at P138.5 billion, government share in PAGCOR income at P45.1 billion and income from BSF/SSF (bond sinking fund, securities stabilization fund) at P48.3 billion.

 

As a result of significant increase in revenues, the budget deficit was limited to P1.51 trillion or -5.7 percent of GDP. The deficit/GDP ratio has been declining from -7.6 percent in 2020, -8.6 percent in 2021, -7.3 percent in 2022, -6.2 percent in 2023, and -5.7 percent in 2024. The target of the economic team is to be back at around three to four percent of GDP by 2028.

 

The new CREATE MORE Law of 2024 (RA 12066) with implementing rules and regulations should be able to attract more investments and hence help broaden the tax base.

 

Three revenue and spending measures that the economic team has initiated recently that have become controversial are the following.

 

One, transfer of PhilHealth idle funds in 2024, P60 billion to the National Treasury. This case is now in the Supreme Court. This column has consistently argued that said transfer of excess funds is correct mainly on fiscal economics angle. That is P60 billion of avoided borrowings in 2024 which at an average six percent interest rate in 2024 (10-year government bonds) would mean P3.6 billion of avoided interest payment yearly plus principal amortization.

 

Two, zero government subsidy for PhilHealth in 2025. PhilHealth is not into “fiscal crisis” situation, its operating budget for 2025 (mainly from active members’ contribution) is P284 billion, which is P25 billion more than its 2024 budget and P118 billion more than its 2022 budget of P166 billion.

 

Three, huge increase in public works budget that reached P1 trillion in 2025, an election year.

 

The problem in our persistent annual budget deficit that requires big annual financing and borrowing lies in the expenditure side, not on the revenue side. When lockdown was imposed in 2020-2021, many new subsidies and freebies were invented. When the virus scare was gone and lockdown was lifted around mid-2022, most if not all of those subsidies were retained until today when they should have been discontinued and stopped.

 

Also, huge public works and transportation spending when we already have a dynamic public-private partnership (PPP) financing of big and important infrastructure, and huge annual budget for local governments under the Mandanas Ruling. I think DPWH can be abolished, all big national infra can be done via PPP and local infra can be done by local governments, provincial-city-municipal.

 

Other departments should be meaningfully devolved to local governments and their national offices should be shrunk if not abolished. We should aspire to significantly cut that P16 trillion plus outstanding public debt. Interest payment alone for our public debt in 2024 was P763 billion or average of P2.1 billion a day. But we need a different group of legislators and civil society leaders to push this.

BWorld 782, Philippine nuclear energy, soon please

Philippine nuclear energy, soon please

March 11, 2025 | 12:02 am

My Cup Of Liberty

By Bienvenido S. Oplas, Jr.

https://www.bworldonline.com/opinion/2025/03/11/658303/philippine-nuclear-energy-soon-please/

 

A year ago, in early March 2024, I joined the Philippine Nuclear Trade Mission to Canada that was organized by the Canadian Embassy in Manila. The delegation was headed by Department of Energy (DoE) Undersecretary Sharon Garin, plus Science and Technology Undersecretary Leah Buendia, Energy Regulatory Commission Chairperson Monalisa Dimalanta, and Philippine Nuclear Research Institute Deputy Director Vallerie Samson.

 

Private sector participants included Ronald “Suiee” Suarez, Vice-President for Corporate Communications of Aboitiz Power (AP) along with Lino Bernardo and Nicole Yazon, also of AP; Froilan Savet, Vice-President and Head of Networks of Meralco; and Sebastian Quinones, Jr. of Prime Energy. Guy Boileau, Senior Trade Commissioner of the Canadian Embassy in Manila plus Philippine consular officers in Toronto were with us all throughout.

 

I super-enjoyed that very educational trip. It was not the regular conference where we’d stay in one hotel all day long — instead we hopped from one meeting to another, had site visits to the McMaster University Nuclear Reactor, a big CANDU (Canada Deuterium-Uranium) mock-up reactor by Ontario Power Generation (OPG). In Toronto, we also met the officials of Bruce Power, the biggest nuclear power company in North America, among many others.

 

On Feb. 26 this year, the DoE released a statement, “DoE and OECD-NEA Strengthen Collaboration on Advancing the Philippine Nuclear Energy Program.” It is about the visit to the DoE of Director-General William D. Magwood IV of the Organization for Economic Cooperation and Development Nuclear Energy Agency (OECD- NEA) to discuss developments in the Philippine Nuclear Energy Program (NEP). The DoE projects the integration of 1,200 megawatts (MW) of nuclear power into Philippines’ energy mix by 2032.

 

Energy Secretary Raphael P.M. Lotilla was quoted as saying that, “Much of our work has focused on building a strong legal and regulatory framework for nuclear energy. We have made significant progress in submitting all necessary requirements for the ratification of existing nuclear energy-related agreements, paving the way for a safe, sustainable, and responsible nuclear energy program that will secure our nation’s energy future.”

 

I checked the status of nuclear energy development in the world. In the accompanying table, these nuclear reactors are defined as follows: “Operable” are already connected to the grid, “Under Construction” have their first concrete already poured and a keel layed for floating plants, “Planned” have approvals and funding or commitments in place and are mostly expected to be in operation within the next 15 years, and “Proposed” are specific programs or site proposals but the timing is uncertain.

 

The US remains the nuclear powerhouse with a capacity of 96,952 MW, followed by France. But China will lead the world in the future with 33,165 MW under construction and 38,710 MW from planned reactors. Europe’s largest economy, Germany, had hit peak nuclear generation of 171 terawatt-hours (TWh) in 2001 then started de-nuclearization as they pivoted hard towards more intermittent wind-solar energy sources with only 34.7 TWh of nuclear energy in 2022 and 6.7 TWh in 2023 (see Table).

 

Taiwan is phasing out its nuclear power and has only one remaining 932-MW operable plant. In contrast, Saudi Arabia and Iran have proposed nuclear plants with 2,900 MW and 5,200 MW respectively.

 

One company in the Philippines that is very enthusiastic about integrating nuclear power into the mix is Meralco, through its subsidiary Meralco Power Gen (MGEN). I asked Emmanuel V. Rubio, President and CEO of MGEN, about the preparations they are making for this task. He has an optimistic response.

 

“We believe that nuclear energy will play an important role in the energy mix of the Philippines as we shift towards a low carbon economy. We continue to endorse the efforts of the DoE in crafting the necessary policies to enable nuclear energy, and we likewise support the work in Congress in crafting legislation that will allow for the safe use of nuclear energy.

 

“At One Meralco, we are proactively working towards this future by undertaking initiatives such as the NEST (Nuclear Energy Strategic Transition) program and the FISSION (Filipino Scholars and Interns on Nuclear Engineering) program. These initiatives are designed to build our institutional readiness and cultivate local talent, ensuring that we are well-positioned to be at the forefront of nuclear energy development in the Philippines.”

 

If the planned 1,200 MW of nuclear power comes online, can the transmission system handle it given the huge entry of intermittent renewables wind-solar in the grid? I asked Cynthia Alabanza, spokesperson and Head of Corporate Communications and Public Affairs of the National Grid Corporation of the Philippines (NGCP). She gave a practical response.

 

“NGCP has two major projects which will be completed by 2026 and 2027. Assuming no further major generation development will be built and commissioned in the Bataan area before 2032, and assuming further that the 1,200 MW nuclear target will be located in the Bataan area, then the existing facilities by 2027 will be adequate for that. Until the details of the project (location and capacity) are determined, and a System Impact Study (SIS) is issued for said project, everything remains speculative. NGCP cannot overemphasize the importance of collaborative and holistic planning when it comes to energy security.”

 

If oil-gas powerhouses Iran, Saudi, and the United Arab Emirates are setting up or planning more nuclear plants, the Philippines, which is an oil-gas-coal importer, should have big nuclear plants too. In 2023, the Philippines’ total power generation (from coal, gas, geothermal, hydro, etc.) was 119 TWh. That is equivalent to the nuclear generation of Japan in 1983, South Korea in 2002, and China in 2013.

 

The non-commissioning of the Westinghouse-built Bataan Nuclear Power Plant (BNPP) in 1986 was one of the single biggest mistakes of the Cory Aquino administration. If it had been allowed to operate, and with an average capacity factor of 85%, it could have generated an average of 4.6 TWh/year. This is larger than the combined generation of wind and solar of 3.8 TWh in 2023.

 

The BNPP was a “classmate” of nuclear plants built by Westinghouse in many countries, including Brazil’s Angra 1 plant (609 MW, commissioned in 1982); Slovenia’s Krisko plant (688 MW, commissioned in 1983); Spain’s Asco plant (995 MW, commissioned in 1984); and South Korea’s Hanbit 1 and Hanbit 2 (995 MW and 988 MW, respectively, both commissioned in 1986). They all were started to be built by Westinghouse in the 1970s, all experienced cost escalations when construction started, all were commissioned in the 1980s, and all are operating until now. And all are safe and have had no accidents. 

Macroecon 34, Philippines from 31st to 28th largest economy in the world by 2026

In 2024 the Philippines was the 31st largest economy in the world by GDP size at purchasing power parity (PPP) values. This year, we are projected to overtake Malaysia for the 30th spot and next year we are projected to overtake Argentina and Netherlands for the 28th spot. Data from the IMF World Econ. Outlook 2025 database.

Meanwhile the Philippines remains a consumption-based economy with household consumption comprising 73% of GDP, although this is a reduction already from 78% two decades ago or 2004. Government consumption, national and local, and investment or capital formation saw an increase in share from 2004 to 2024. Data from the PH Statistics Authority (PSA).

GDP by industrial origin, 2004 to 2024, the share of agriculture declined from 15% to 8% of GDP. Industry share is generally flat at 29-31% of GDP while the services sector share has significantly increased from 54% to 63%. Data also from PSA.

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See also:

Macroecon 31, Low oil prices, low inflation, September 05, 2024

Macroeconomic 32, GDP growth in Q1 2025, Germany degrowth, Japan inflation, June 01, 2025

Macroecon 33, Updated DBCC fiscal program, 2025-2028, June 29, 2025

BWorld 781, On Meralco rates and NGCP’s cost of capital

On Meralco rates and NGCP’s cost of capital

March 6, 2025 | 12:01 am

My Cup Of Liberty

By Bienvenido S. Oplas, Jr.

https://www.bworldonline.com/opinion/2025/03/06/657373/on-meralco-rates-and-ngcps-cost-of-capital/

 

Former Energy Undersecretary and now “consumer advocate” recently attacked the Manila Electric Co. (Meralco) as being “unjust and unfair… charging households more than businesses,” referring to the lower rates for commercial and industrial customers compared to those of residential customers.

 

Petronilo Ilagan alleged that residential customers are subsidizing businesses. He used old numbers to make his argument, saying that residential customers pay “P1.8082 per kilowatt-hour (kWh) for 1-200 kWh users, P2.1187 per kWh for 201-300 kWh, P2.4116 per kWh for 301-400 kWh, and P2.9220 per kWh for those consuming over 401 kWh.” These were June 2022 numbers.

 

The most recent numbers are: P1.29/kWh for those consuming 201-300 kWh per month, and P2.09/kWh for those consuming over 401 kWh. In contrast, General service B and General Power (GP) Secondary customers pay only P0.134/kWh. The GP 13.8 KV pay even lower at 5 centavos/kWh. The supply charge and metering charge are up to P12,461 per large customer per month (see table).

 

Meralco rates as of February 2025 for residential, commercial and industrial, P/kWh unless specified

 

Mr. Ilagan, who serves as president of the National Association of Electricity Consumers for Reforms, Inc. (Nasecore) is confused. Here are four reasons why.

 

1. The main concern of average residential or household customers like me is not “cheap at all costs” electricity but no blackouts. Electricity should be there when I need it, when I turn on the lights or the aircon. If electricity prices go up, then I can adjust by using an electric fan instead of an aircon, or turning off one or two of the many bulbs in the house. But when there is a blackout, my choices are horrible — either endure the darkness and inconvenience or light a candle. The latter is dangerous when a fire can accidentally happen, the price is damaged properties if not death to people.

 

2. The rates charged by private distribution utilities (DU) like Meralco are all regulated by the Energy Regulatory Commission (ERC) and not arbitrarily set by the DU. The current distribution charge rate has been there since 2003 and was not questioned for the last 22 years.

 

3. Setting up electric cables, meters, monitoring, and collection is more complicated and more costly with numerous small customers like households, compared with a single big hotel or mall or university.

 

4. The Electric Power Industry Reform Act of 2001 (EPIRA) Section 36 prohibits big customers from subsidizing residential customers, and businesses would be discouraged from coming into an area and creating more jobs if their cost of electricity gets even higher.

 

This attack on big DUs, the big generation companies, to force “cheap at all costs” electricity is only political noise and optics. The result would be “cheap but not available” electricity because the necessary cost and returns to entrepreneurship would not be met, so potential power businesses will not come into an area.

 

NGCP’S WACC

Recently the ERC set the weighted average cost of capital (WACC) for the National Grid Corp. of the Philippines (NGCP) for the 4th regulatory period (RP, 2016-2020) at 10.71%. This is lower than the 15.07% under the 3rd RP (2011-2015, under NGCP), and 15.88% under the 2nd RP (2006-2010, when the grid was under TransCo’s management).

 

This low level of WACC — meaning a low transmission charge to be allowed — can be problematic in terms of infusing more capital for more big transmission projects as more power generation capacities are added, espe-cially for geographically scattered, small renewable energy projects like solar.

 

The NGCP shoulders the Concession Fee Payment, then the 3% franchise tax, which are now considered as not being part of the revenue building blocks, or not an expenditure item for recovery. Then there are nearly a doz-en recoveries as adjustments to the annual revenue requirement (ARR) — some dating back to the 2nd RP — which are now facing uncertainty of recovery.

 

The regulated sub-sectors of power transmission and distribution are problematic because each costing is subject to approval or disapproval by the ERC. As an economics writer and researcher, my approach is always to have a high but realistic growth target — like 7-8% annual GDP growth — and seeing what the inputs are — like power generation-transmission-distribution levels — that can support such high growth targets. Working backwards to identify bottlenecks, regulation should adjust, not prevail. Growth targets should prevail over regulation and bureaucratic requirements. 

PhilStar 31, Low inflation, low borrowings via PhilHealth idle fund transfer

Low inflation, low borrowings via PhilHealth idle fund transfer

 

ENERGY, INFRA AND ECONOMICS - Bienvenido Oplas Jr. - The Philippine Star 

March 6, 2025 | 12:00am

https://www.philstar.com/business/2025/03/06/2426152/low-inflation-low-borrowings-philhealth-idle-fund-transfer

 

Yesterday, the Philippine Statistics Authority released the inflation data for February 2025 at only 2.1 percent, nice. Inflation in recent years: 3.1 percent in February 2017, 3.7 percent in February 2018, 3.8 percent in February 2019, 2.5 percent in February 2020, 4.2 percent in February 2021, 3.0 percent in February 2022, 8.6 percent in February 2023, 3.4 percent in February 2024 and 2.1 percent in February 2025.

 

So this is the lowest inflation for February over the past eight years. Good, kudos to the government economic team and Philippine entrepreneurs.

 

Low food inflation this year, at only 2.6 percent in February versus 4.6 percent in February 2024 has greatly contributed to the low overall price movement because food and non-alcoholic beverages constitute the biggest weight in overall inflation.

 

Other contributors are: housing, water, electricity, gas and other fuels, only 2.1 percent; transport, -0.1 percent vs 2.1 percent in February 2024; and health, only 2.1 percent vs 3.2 percent in February 2024.

 

Low inflation means high consumer confidence, and high household and private spending means high overall GDP growth because household consumption constitutes 73 percent of GDP.

 

In the first quarter of 2024, average inflation was 3.3 percent and household spending growth was 4.6 percent. In the first two months of 2025, inflation averaged at 2.5 percent only and household spending growth in Q1 2025 could be around 5.5 percent or higher.

 

I checked the press statements of the economic team. Budget Secretary Amenah Pangandaman said that they “welcome the news of lower-than-expected inflation and it   reflects the intensity of gains from previous actions to achieve price stability.  DBM will continue supporting programs which ensure that benefits are felt among the marginalized and lower-income deciles of the population.”

 

Finance Secretary Ralph Recto said that “Our fiscal consolidation and economic measures have contributed to declining trend in overall inflation. Ongoing measures include fast-track importation permits especially of key food commodities, implementation of lower tariff of rice under EO 62, the National Food Authority to release at least 25,000 metric tons (MT) of rice monthly through Food Terminal Inc. while continuing to support local farmers through palay procurement. Lower inflation contributes to higher business and consumer confidence leading to more economic activities, more revenue collections to fund more infrastructure and development projects nationwide.”

 

NEDA Secretary Arsenio Balisacan said that “The government will sustain its efforts to keep inflation low and manageable to protect the purchasing power of Filipinos… our efforts to combat inflationary pressures are working.”

 

Last week, the Bureau of the Treasury released the full year 2024 cash operations report. The budget deficit was P1.51 trillion, similar to a deficit of P1.51 trillion in 2023 and lower than the deficit of P1.67 trillion in 2021 and P1.61 trillion in 2022.

 

Financing or net borrowing is declining: P2.25 trillion in 2021, P1.97 trillion in 2022, P2.07 trillion in 2023, and P1.31 trillion in 2024. Good. We must aim for borrowings below P1 trillion a year because high public debt stock means high annual interest payment for us.

 

And yesterday the third oral arguments at the Supreme Court about PhilHealth idle funds transfer to the National Treasury continued.

 

During the second oral arguments last Feb. 25, Solicitor General Menardo Guevarra argued that majority of PhilHealth’s P60 billion excess funds remittance to the National Treasury were used to finance critical health and social service programs, including settlement of long-overdue Public Health Emergency Benefits and Allowances for Health Care and Non-Healthcare Workers during the COVID crisis, and Medical Assistance to Indigent and Financially Incapacitated Patients.

 

Then some P13 billion of the P60 billion was used to fund government counterpart financing for foreign-assisted infrastructure like counterpart financing for the Panay-Guimaras-Negros Island Bridges; the Metro Manila Subway Project; the Philippine Multi-Sectoral Nutrition Project; the Mindanao Inclusive Agriculture Development Project; the Cebu-Mactan Bridge and Coastal Road Construction Project; the North-South Commuter Railway System.

 

At end-2024, PhilHealth has P498 billion in cash, more than enough to continue increasing its inpatient, outpatient and special benefit packages.

 

Lower inflation, lower deficit and borrowings by tapping idle funds of some big government corporations like PhilHealth. These will contribute in pushing for higher economic growth, higher job creation for our people without resorting to more taxation or more borrowings.

BWorld 780, To reduce poverty and create jobs, 7-8% economic growth is needed

To reduce poverty and create jobs, 7-8% economic growth is needed

March 4, 2025 | 12:02 am

My Cup Of Liberty

By Bienvenido S. Oplas, Jr.

https://www.bworldonline.com/opinion/2025/03/04/656799/to-reduce-poverty-and-create-jobs-7-8-economic-growth-is-needed/

 

Last week Canada and India released their fourth quarter (Q4) 2024 GDP data. So, the top 15 largest economies in the world have now provided their full year 2024 data (except Brazil and Russia). Extending the list to encompass the top 60 medium and large economies in the world, one sees that the fastest growing economies last year were Vietnam, India, and the Philippines. Kudos to Philippine businesses and workers, and the government economic and infrastructure teams.

 

The European nations and Japan remain laggards economically. The largest economy of Europe, Germany, has been contracting for the last two years straight, a clear case of deindustrialization. As has Austria too, and Russia’s three neighbors — Finland, Latvia, and Estonia (see Table 1).

 

Growth of nearly 6% is good, but we need to grow 7-8% yearly if we are to significantly reduce poverty and create more jobs. From 1982 to 2011, China grew by an average of 10.3% per year. From 1992 to 2019, Vietnam grew by an average of 7.1% per year.

 

Aside from having had a low economic base up to the early 1980s, both China and Vietnam grew fast on the back of electricity generation which was heavily dependent on coal. India and Indonesia did so too. Their big manufacturing capacity, their huge hotels, resorts, and malls, their airports and seaports were all powered mostly from their coal plants which give cheap, reliable, and dependable electricity.

 

Meanwhile, the Philippines’ coal generation is the smallest among developed and emerging Asian countries except for those that rely more on natural gas like Thailand and Singapore. Even developed and “greenie” Korea and Japan have high coal generation (see Table 2).

 

I believe that the Philippines can grow by 7-8% per year for a decade — provided we discard growth-braking climate-related regulations and restrictions, plus if we have improvements in rule of law and a drastic reduction in the annual budget deficit and borrowings.

 

Last week, on Feb. 24, CNN’s Richard Quest interviewed Finance Secretary Ralph G. Recto about trade and investments, asking if the Philippines is in danger of US President Donald Trump’s “protectionist” policies. I liked the practical reply of Secretary Recto.

 

He said: “Our economy is 70% to 75% domestic driven. Unlike China and Vietnam, or even our neighbors in Southeast Asia, [which are] more export-oriented driven. We earn foreign exchange from OFW remittances. We have a trade deficit when it comes to goods. We have a robust BPO industry… FDIs, hopefully, maybe Apple… Western companies [that] invested in China will probably move also to the Philippines. And we have a new law CREATE MORE, for that purpose… [we are] now working on a free trade agreement with the European Union… [we are] open to a free trade agreement with the United States. And I will bat for a reduction in tariffs on US vehicles.”

 

Mr. Recto was referring to the Implementing Rules and Regulations (IRR) of the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act or RA 12066 that he signed on Feb. 21 as the Chair of the Fiscal Incentives Review Board (FIRB), along with his FIRB Co-Chair, Trade Secretary Ma. Cristina Aldeguer-Roque.

 

Last Friday, Feb. 28, the Bureau of the Treasury released the December and hence full year 2024 cash operations report. The budget deficit was P1.51 trillion. But the revenues data is still incomplete, with no breakdown yet for income tax, excise tax, VAT, and other domestic taxes. I think when these are fully accounted, the deficit can go down to probably P1.3 trillion only.

 

The budget deficits in previous years were: P1.37 trillion in 2020, P1.67 trillion in 2021, P1.61 trillion in 2022, and P1.51 trillion in 2023.

 

Meanwhile, financing or net borrowing is declining: P2.50 trillion in 2020, P2.25 trillion in 2021, P1.97 trillion in 2022, P2.07 trillion in 2023, and P1.31 trillion in 2024.

 

Budget Secretary Amenah F. Pangandaman, in a press release, hailed that the budget deficit for 2024 has “gone down to 5.7% of GDP, better than expected… the lowest rate recorded since the pandemic in 2020… a marked improvement compared to the 6.2% deficit in 2023… also well within the fiscal outlook of the Development Budget Coordination Committee (DBCC) at our last meeting.”

 

While I share Ms. Pangandaman’s exuberance, I still wish that spending, the deficit, and borrowing decline significantly. The interest payments for our public debt in 2024 was P763 billion, or an average of P2.1 billion per day. This is huge and wasteful.

 

Also last week, on Feb. 26, I attended the BusinessWorld Stock Market Outlook 2025, held at the Dusit Hotel in Makati. The finance speakers expressed an overall business optimism for the country this year, coming from 2024’s “high-interest rate environment,” the “tug of war between low-risk premiums and elevated bond yields,” “foreign fund outflows of $442 million or three times higher than 2023,” and saying that “PSEi still significantly undervalued.”

 

The CREATE MORE law and its IRR, especially the corporate income tax cut from 25% to 20% to start this year, should help attract those foreign equities and FDIs back to Philippine soil and companies. 

PhilStar 30, Meralco finance and GDP congruence, energy regulation incongruence

Meralco finance and GDP congruence, energy regulation incongruence

 

ENERGY, INFRA AND ECONOMICS - Bienvenido Oplas Jr. - The Philippine Star 

February 27, 2025 | 12:00am

https://www.philstar.com/business/2025/02/27/2424408/meralco-finance-and-gdp-congruence-energy-regulation-incongruence

 

Last Monday, Feb. 24 , I attended the 2024 Meralco Financials Operating Results: Media Briefing held at Grand Hyatt in BGC, Taguig City. Top officers of the company were there led by chairman and CEO Manuel V. Pangilinan or MVP, EVP and COO Ronnie Aperocho, SVP and chief finance officer Betty Siy-Yap, SVP and chief revenue officer Ferdinand Geluz, SVP and head of Regulatory Management Office Jose Ronald Valles, FVP and head of Networks Froilan Savet, Meralco Power Gen (MGen) president and CEO Emmanuel Rubio, others. Moderator was the always-smiling communications expert Joe Zaldariaga, the company’s VP and head of Corporate Communications.

 

STAR energy reporter Brix Lelis was also there and his recent stories include “Meralco earnings at all-time high” (Feb. 25), “NGCP wins Singapore arbitration case vs PSALM, TransCo” (Feb. 25), “Meralco: Consumers save P3.88 billion from new power deal” (Feb. 26).

 

As an economics researcher and writer for decades, I always try to look for the macro perspective of some micro or corporate/industry trends. I saw three correlations and congruences between some national macroeconomic data with Meralco finance.

 

One, in 2024 our GDP growth was 5.6 percent, Meralco electricity sales (in gigawatt-hours, GWh) growth was 6 percent.

 

Two, in 2024 the Philippines’ S&P credit ratings was “BBB+ positive,” Meralco ratings was “BBB- positive.”

 

Three, also in 2024 GDP, household consumption of P16.1 trillion constituted 72.5 percent of GDP. The combined consumption of residential 19,455 GWh plus commercial 20,406 GWh was 73.4 percent of total electricity sales of 54,325 GWh.

 

I mentioned the first two during the open forum, good numbers. In a closing message, MVP mentioned that the Philippine economy is a private or household consumption-driven economy, hence a high share of household spending on food, restaurants, malls, etc. He is correct. The numbers are in point three above.

 

The report by MGen president Manny Rubio is cool when he said something like “MThermal and MGas are helping drive the country’s energy security through strategic baseload power expansion.”

 

Correct. I always believe that hydrocarbons and fossil fuels are useful, not harmful, if we prioritize to save our economy and jobs, save our households and food from the inconvenience of blackout. Save the planet, well planet Earth is 4.6 billion years old and it has seen natural climate change of warming-cooling endless cycle.

 

Rubio was referring to their existing 1,293 MW coal plants, then an expansion of their coal plant in Toledo, Cebu at additional 78 MW. Then MGas’ LNG plant in Singapore, Pacific Light Plant (PLP) with 1,570 MW by 2030. And LNG plants in Batangas operational 2,475 MW from two huge gas plants in partnership with Aboitiz Power through Chromite Gas, and SMC Global Power. Plus an expansion of Excellent Energy Resources Inc. (EERI) Unit 4 with additional 432 MW by 2029. Coal and gas power, we need more of them, not less.

 

ERC delayed ruling on ASPA

 

Last week Feb. 18, the Energy Regulatory Commission (ERC) said it is delaying and postponing until March its decisions on several ancillary service procurement agreements (ASPA) submitted by the National Grid Corp. of the Philippines (NGCP) and its potential suppliers.

 

These ASPAs went through a competitive selection process (CSP) in 2023, winners announced that year. It is now 2025 or two years since the CSP and the ASPAs – standby power by generation companies (gencos) for NGCP to stabilize the grid when power reserves are low or insufficient -- are still not approved by the ERC.

 

There is big danger to power investment in this kind of regulation. When gencos bid in the CSP, the parameters and terms set by the ERC itself, they bid at the lowest price possible for them and still make a profit. If the winning price is not quickly honored by the ERC, delays approval of the ASPA because it wants to revise some parameters, have another price control to further bring down the price, winning gencos may be put on the verge of losing money. And potential investors will not come in because rules are changed midway, there is high business uncertainty.

 

The primary interest of consumers is no blackout. Not cheap at all cost. Power should be available 24/7 to avoid using candles (which can cause fires) or gensets (costly buying the unit and operating on diesel). If the price is high, consumers can adjust their consumption like turning only one aircon instead of two. If the price is forcibly low but there is blackout, the usual “cheap but not available” electricity, consumers cannot adjust but endure the darkness, inconvenience, damaged appliances or food in the refrigerator.

 

Ronald Valles discussed in his presentation some of Meralco’s PSA that successfully underwent CSP but still awaiting final verification by ERC. Which to me is another delayed approval and implementation and it is not good.

 

ERC should learn to deregulate. Once they have set the rules and terms at the CSP, there should be quick if not automatic approval of the power supply agreement, ASPA and related schemes for the regulated distribution and transmission sub-sectors.

 

The transmission sub-sector and NGCP also experience some price control by ERC. Huge and multi-year capital expenditures costing hundreds of billions pesos will require appropriate price adjustments in transmission charge. Adding more ancillary services towards more redundancy in reserves and ensure more stable grid will also require price adjustments in ancillary service charge.

 

See also this column’s recent papers, “From energy regulation to deregulation, Part 1” (Jan. 30), “Part 2” (Feb. 6).