Monday, January 22, 2018

BWorld 181, Effects of Supreme Court TRO on RCOA

* This is my column in BusinessWorld last January 18.

“The real bosses, in the capitalist system of market economy, are the consumers… The entrepreneur profits to the extent he has succeeded in serving the consumers better than other people have done.”

— Ludwig von Mises, Bureaucracy

Geographical monopolies in electricity distribution are among the last remaining state-created monopolies in the country via congressional franchises because electricity distribution is considered a “public utility.”

As a result, factories, hotels, malls, or hospitals have no choice but to source their energy requirements from electric cooperatives (EC) or privately run distribution utilities (DU) which were given the franchise to serve these particular locations.

However, Rule 12 of the Electric Power Industry Reform Act (EPIRA) of 2001 (RA 9136) has changed this constitutional and legal guarantee of monopoly through the Retail Competition and Open Access (RCOA) provision.

RCOA breaks the geographical monopoly and allows retail competition in electricity to a contestable market composed of medium to big-ticket electricity consumers. Open access allows any qualified person or entity to use the transmission and/or distribution system and related facilities subject to payment of retail wheeling rates.

With rising power capacity addition yearly and RCOA implementation, average prices in the Wholesale Electricity Spot Market (WESM) have been declining.

In 2010, the cost of electricity in pesos per kWh was at 6.43. In 2011, it was 3.80; in 2012, 4.87; in 2013, 3.85; in 2014, 4.40; in 2015, 3.47; and in 2016, 2.84.

However, in early 2017, the implementation of the RCOA was suspended by a Supreme Court temporary restraining order (TRO). In effect, five resolutions issued by the Energy Regulatory Commission (ERC) from June 2015 to November 2016 were likewise suspended. Besides affecting the voluntary participation of contestable customers (CCs) for 750-999 kW, the suspension also reduced potential competition because many retail electricity suppliers (RES) — especially those whose licenses were expiring — were unable to renew them.

This decline in competition resulted in lower capacity demand by the contestable customers, from 3,456 MW in end-2016 to only 862 MW in November 2017 for the 1MW and higher customers, and from 351 MW end-2016 to only 78 MW in November 2017 for the 750-999 kW customers (see table).

A BusinessWorld report last Jan. 8 entitled “DoE to seek SC guidance on retail competition” said that the department issued a new circular allowing the switching from captive to contestable consumers to allow greater participation from new players. It also allowed the ERC to continue issuing licenses to RES and renew the licenses of RES with expiring licenses.

Here is a summary of the benefits of RCOA to consumers and the Philippine economy in general. Many of these were discussed at the EPDP presentation last September.

1. Contestable customers will have more choices in pricing and power supply contracting — privileges that are not available to small and captive customers.

2. Small customers can aggregate their demand or allow an aggregator to pool their combined demand to become contestable customers.

3. Contestable customers can choose the type or source of power they want. Some simply want cheaper prices, others want stable 24/7 electricity even if costs are higher than those offered by their previous ECs or DUs, whose services may be unreliable. For their part, other consumers who wish to source all of their energy needs from renewables can also do so — as long as they are willing to fork out more money for the privilege.

4. Contestable customers can have full control of their generation costs and are not required to subsidize small and/or off-grid consumers, unlike traditional end-users. They can choose to have flatter load factors by using more baseload, an arrangement that is ideal for companies, especially those that use power 24/7 like manufacturing plants, big hotels, hospitals, and BPO centers.

5. Customers can shift demand to off-peak hours and can “peak shave” to reduce their electricity price. Consumers have big leeway and choices based on their needs and corporate philosophy and branding.

6. There are more than 50 RES to choose from, shown in the table above. Contestable customers can also engage in financial hedging or enter into contracts with any financial provider to hedge its existing contact structure and they need not necessarily be an RES.

7. More investments in power generation can be expected as power companies can contract directly with customers and bypass ECs, a number of which have issues with paying generation companies on time.

The SC TRO has therefore resulted in the following unintended consequences:

1) It disallowed many contestable customers in the 750-999 kW demand category to enjoy RCOA, forcing them to stay with their ECs or DUs and depriving them of the benefits discussed above.

2) Other eligible customers have been discouraged from availing the RCOA due to lingering uncertainties.

3) DUs also face uncertainties whether to get additional generation contracts or not for contestable customers because the latter can leave them anytime once the TRO is lifted.

4) New RES players and existing RES with expiring licenses cannot get new ERC licenses. This means lesser competition among RES, DUs, and ECs. Less competition means lesser choice for customers.

The SC therefore, should resolve this uncertainty soon — either lift the TRO and allow the various ERC resolutions to be implemented again, or strike down those resolutions so that the ERC can issue new resolutions and regulations to implement RCOA. RCOA has to be implemented because it is pro-choice, pro-consumers, and abandons monopolization and unreasonable subsidies.

See also:

Sunday, January 21, 2018

WHO must go back to basics

I am reposting this good article by a friend, Philip Stevens, published in BusinessWorld last Thursday, January 18.

AS one of 34 executive board members of the World Health Organization (WHO) meeting in Geneva next week, the Philippines shares a pivotal role in setting the global health agenda for the next year.

The WHO’s work has never been more important to address serious and evolving international health threats. It is only a matter of time before there is another global influenza pandemic to match the devastating outbreak of 1918, and, as recent outbreaks of Ebola and Zika have shown, new and deadly diseases can emerge at any time.

As a UN organization to which almost every country in the world belongs, the WHO should make strengthening national health systems and coordinating defenses against transnational disease its priority. But it’s often hard to know if the organization has any priority.

Superficial involvement in a ballooning number of health areas has made it a directionless, ineffective, and inward-looking player in an increasingly crowded global health scene.

The WHO’s tendency to do a lot poorly has seen it fail in its core business of leading international action on transnational disease outbreaks.

Take the organization’s response to the West African Ebola crisis of 2014.

An expert panel convened by Harvard Global Health Institute and the London School of Tropical Medicine criticized the WHO for its “catastrophic” delay in declaring a public health emergency.

The worry is that WHO will fail to handle the next inevitable global pandemic, leading to needless loss of life.

Funding is part of the problem: The WHO spent just 5.7% of its 2014-2015 budget on disease outbreaks, a 50% drop on the previous two years.

The WHO’s core budget, paid by member governments, fell from $579 million in 1990 to a feeble $465 million this year. To put this in context, this is considerably less than the Philippines receives each year in foreign aid earmarked for health.

The WHO has topped up its budget with project-based donations from countries and big charities, which now constitute 80% of its overall income. But that has cost the WHO its strategic independence.

Alongside global health staples like tropical diseases and immunization, the WHO now publishes recommendations on subjects from adolescent health and headaches to traffic safety and prisons.

Jeremy Farrar, director of the UK-based global health research charity the Wellcome Trust, argues the WHO is being undermined by its inability to focus on a few core issues.

“It’s so thinly stretched,” he told Reuters. “There’s arguably no organization on earth that could cover all those (topics) at sufficient depth to be authoritative.”

This lack of focus and mission creep will be on full display at next week’s WHO executive board meeting. Bizarrely, large parts of the agenda are dedicated to discussion of how to dilute the intellectual property (IP) protections that drive discovery of new health technologies.

Given the scale of today’s global health challenges, it’s not clear how repeating a tired and long discredited debate about IP and access to medicines will help. The vast majority of treatments prescribed in both developing and developed countries are off-patent and therefore unaffected by IP rules, yet far too many still do not have reliable access to them.

The real reasons for this have been well known for decades. There are too few doctors and clinics, and a lack of social and health insurance to protect people from the cost of health care expenditures (something WHO itself implicitly recognizes in its efforts to promote universal health care). In many places, weak supply chains and poor infrastructure separate people from the treatments they need.

A narrow and divisive focus by WHO on IP may tick political boxes, but it does nothing to improve health and will only lead to more unproductive debate. It looks like a power grab by WHO staff to intervene in areas that are best left to national governments.

In 2017, former Ethiopian foreign minister Tedros Adhanom was elected as new director general on a mandate to reform and consolidate the WHO. Almost immediately, he appointed no fewer than 14 assistant director generals to oversee a huge number of program areas. This is not the work of a reformer.

Next week is the first executive board meeting under Tedros’s leadership. The Philippines and other member states need to steady the ship. To maintain its relevance, WHO must get back to basics and do a few things well, not many things poorly. It must therefore unite nations around practical solutions, not divide them in pointless debates.

Philip Stevens is director of Geneva Network, a UK-based research organization focusing on international trade and health issues.

Friday, January 19, 2018

Pictures from UP Diliman, 1985-1987

Mula sa baul ni Fidel Nemenzo at ibang mga friends sa UP, these photos strike nostalgia and happy memories. Below, in one of the group photos of the Independent Student Alliance (ISA) student party during the UP University Student Council (USC) elections. Among the people here: Agnes Camacho, Rowena Alvarez, Alan Ortiz, Marie Sharon Guerrero, Sheila Espine Villaluz, Doby Pineda, Jay Batongbacal, Alex Lacson, Ariel Nepomuceno, Bjay Angeles, Doyet Sevilla, Bong Belaro, Francisco Magno, Dulce Natividad, Sharon Dauz, Gilbert Caloza... 

ISA was formed around 1986 or 1987 as a 'third force" against the dominant student parties in UP Diliman. The nat-dems SAMASA and soc-dems TUGON. Many of the original members of ISA were former SAMASA member-organizations like UP Sapul, Alpha Phi Beta fraternity. Not sure if UP Buklod Isip was also former SAMASA member but they joined ISA. UP SURGE was a new organization, formed 1985 or 86 and also joined ISA.

Fidel Nemenzo, Dulce Natividad, Doyet Sevilla, Berting Garlitos (RIP), Kiko Magno, Ruben Coprado, Cresma Somera Reotutar, Lorenzo Ziga,  Ruena Bernardo, BJay Angeles, Jomar Oligario.

With Tess Ujano-Batangan (RIP), Mil Millora (RIP), Ted Te, Oggie Arcenas, Lisa Punongbayan, Dada Santos,...

Jay, Norman Roxas, Choy Libron. Norman and Choy were my roommates in Narra dormitory for one semester.

Sapul tambayan.

In one of the Kamia dorm "open house", non-dorm residents can visit and enter the rooms of residents who invite them.

Those were the days. We were young, wild and free :-)
Thank you for these photos Fidel, Winnie, other friends.

BWorld 180, Has East Asia liberalized its trade enough?

* This is my column in BusinessWorld last January 11.

Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each. By rewarding ingenuity… it distributes labour most effectively and most economically: while, by increasing the general mass of productions, it diffuses general benefit, and binds together by one common tie of interest and intercourse, the universal society of nations throughout the civilized world.

— David Ricardo, Principles of Political Economy and Taxation (1817)

Classical British philosophers and political economists were the pioneer thinkers in articulating the net benefits and advantages of free trade over autarky and protectionism. These include David Ricardo, Adam Smith (“A nation may import to a greater value than it exports for half a century… and yet its real wealth, the exchangeable value of the annual produce of its lands and labor, may, during the same period, have been increasing in a much greater proportion,”) and David Hume (“the increase of riches and commerce in any one nation, instead of hurting, commonly promotes the riches and commerce of all its neighbors.”)

Perhaps it is no coincidence that former British protectorates and colonies in Asia are among the most rabid free traders in the world such as Hong Kong, Singapore, and Brunei.

Among the important indicators of how free an economy to global trade and commerce are (a) the mean and average tariff rates, and (b) standard deviation of tariff rates, which show how wide the variations among tariffs are that indicate high protectionism of certain sectors compared to other sectors.

Hong Kong, Singapore, and Brunei have impressive numbers: zero or very low tariff rates and standard deviation is also zero or very low. This means that there is little or no favoritism and protectionism of certain sectors. As a result, consumers and local producers are given the greatest freedom to choose various products and commodities available from around the world to come into their shores.

Japan, Malaysia, and Taiwan have low tariffs but their standard deviations are in double digits. For their part, the Philippines, Myanmar, and Indonesia have declining tariffs and single-digit variations, which are good.

Thailand, Vietnam, and South Korea seem to have not liberalized fast enough because of their relatively high mean tariffs and high tariff variations (see table).

David Ricardo has articulated the classical definition and theory of “comparative advantage.”

This theory has a beautiful application for developing economies like the Philippines to avoid concentrating their resources — human, financial, and land, among others — on few goals like food “self-sufficiency” when they can diversify their resources and earn higher income from manufacturing, tourism, and other sectors.

These economies can then use surplus and savings to purchase food and other commodities from abroad, especially from neighbors that have better natural endowment in bigger food production.

From the numbers above, there is a mixture of results in trade liberalization by East Asian economies. Overall tariff rates have declined through time but tariff variations have also increased in some countries and economies.

We go back to choosing three pathways to trade liberalization: multilateral like World Trade Organization (WTO), Asia-Pacific Economic Cooperation (APEC), Regional Comprehensive Economic Partnership (RCEP) negotiations; bilateral like Japan-Philippines Economic Partnership Agreement (JPEPA); or unilateral like what Hong Kong, Singapore, and Brunei have done.

The best outcome would be via global and multilateral liberalization under the WTO but this is also the most difficult, most complicated, and most bureaucratic.

After 22 years (1995-2017) of regular global negotiations, there were no major achievements except the Trade Facilitation Agreement (TFA) which needs legislative ratification by all signatory countries.

Unilateral liberalization is the simplest and fastest route to take. Just consider the interests of local consumers and producers in general — to have the widest choices possible in terms of prices and product quality. More choices means more freedom, more savings and by extension, higher incomes.

Bienvenido S. Oplas, Jr. is President of Minimal Government Thinkers, a member-institute of Economic Freedom Network (EFN) Asia.

See also:
BWorld 175, Trends in global and Philippine trade, January 05, 2018

Thursday, January 18, 2018

Interaksyon shutting down

Interaksyon's "Fat-Free Economics" column was my other home for two years, early 2012 to mid-2014. I wrote several dozen articles there with the support of my editor and friend, Arnold Tenorio. Am sad with this news... 

My first article in interaksyon, March 2012, Fat-Free Econ 1: Macroeconomics for Micro Concerns
My concluding paragraph:
"Main lesson: BIG government is bad for the economy. More taxation, more regulations and more bureaucracies often inhibit rather than encourage micro and corporate entrepreneurship and higher economic growth."

My last energy article there, January 2014, Fat Free Econ 53: WESM, Myths and Realities.
I debunked the claims that the big electricity price hike in December 2013 was caused by "collusion" by several power companies (hence, fake news).

Seems this was my last column in interaksyon, July 31, 2014, Fat Free Econ 55: The President's 5th SONA and Market-Oriented Reforms.

I concluded here, "The President is a Liberal, not a socialist like Bayan Muna or Akbayan, nor a populist like the other political parties. Let us expect more liberal and market-oriented policies from him and his team in his remaining year."

Goodbye interaksyon and thank you for the opportunity to spread the philosophy of limited/minimal government on those two years.

Tuesday, January 16, 2018

IPR and innovation 40, WHO health alarmism and IPR tinkering

Seven years ago, I briefly surveyed the various offices under the UN and I was surprised to see about 100+ different agencies. See UN bureaucracies -- too many! (December 20, 2010).

Among the huge and wide UN offices and bureaucracies is the World Health Organization (WHO). On its website, Media Center, News Releases 2017, these stories seem like we are still in the 90s or even the 80s, or the 70s -- there are many scary and alarmist stories in public health around the world until now.

It is already 2018 -- when illiteracy is already zero in many developing countries, when smoke signal and animal whistles are no longer used to communicate as hundreds of millions of poor people in developing and emerging countries now use smart phones with access to emails, facebook, twitter, youtube and other social media.

And the WHO and WB still declare that "half the world lack access to essential health services"? That measles "still kills 90,000 per year"?

Going back a few decades ago, the WHO was known for various health alarmism worldwide. Like the HIV/AIDS alarmism in the 80s to 90s and more recently, about NCDs (non-communicable diseases) alarmism.

Then the usual fare of the WHO -- blame directly or indirectly IPR and drug patents by innovator pharma and biotech R&D. Also blame free trade and FTAs for expensive medicines.

And I was surprised to see this.

"Global shortage of medicines and vaccines", wow. Since about 95-99% of WHO's essential medicines list (EML) are already off-patent, what stops the WHO and member-governments from mass-producing these drugs, directly or indirectly?

The WHO needs to shrink, both in size of bureaucracy and governments' funding. It has lots of health and economic global central planners that they want to plan-and-control many things and policies, forgetting that it was the private sectors and corporations' risk-taking that gave the world plenty of life-saving medicines since many decades ago.

See also:

Monday, January 15, 2018

BWorld 179, Federalism dream vs centralized government

* This is my article in BusinessWorld last January 5.

Repeated calls for federalism by the Duterte administration actually point to more centralization of the national government — the complete opposite of what they’re advocating.

Here are some examples.

1. National taxes have been rising, instead of declining, which could have helped prepare federal states to have their own income and value-added taxes, etc. Instead of lowering the top marginal income tax rate of 32%, it was even raised to 35%. Instead of reducing the VAT to 10% or 8% with few exemptions, the 12% was retained but many sectors were also exempted.

2. Expanding the number of departments and bureaus instead of reducing them. The Department of Transportation and Communication (DoTC) has become two departments — the Department of Transportation (DoTr) and the Department of Information and Communications Technology (DICT). Then there are proposals to create a Department of Housing, Department of Fisheries. A good federal set up is to abolish many existing departments (like NEDA, DA, DENR, DoH, DoT, etc.) and allow the state governments to create their own departments as they see fit, create, or expand local or state revenues to finance these state departments.

3. Forcing national legislative franchising like buses and taxi, instead of decentralized regional or provincial franchising. Speaker Pantaleon Alvarez and other House leaders are behind the proposal.

4. Reversing integrated public private partnerships (PPP) where government fiscal exposure is very limited to hybrid PPP where national government budget and foreign borrowings (especially China ODA) is much bigger. A meaningful federal set up will empower the state governments to deal with local infrastructure like airports, seaports, provincial tollways and inter-city MRT/LRT.

5. Centralized declaration of class suspensions. During the anti-martial law rallies in Sept. 21, 2017, MalacaƱang declared a Luzon-wide or nationwide class suspensions even if many provinces and cities did not even have scheduled rallies. Then during the PISTON jeepney strike in Oct. 16-17, 2017, MalacaƱang declared nationwide class suspensions, even if many provinces and cities did not even have planned jeep strike. President Duterte should have allowed the mayors and governors to decide, saying something like “the national government will step back from these decisions and it is up to the local governments to decide what’s best for their people.”

Beyond federalism plans contradicted by more centralization of powers and taxation, a long-term alternative would be for the Philippines to split into many new countries and allow these new countries to compete with one another in the field of taxation, governance, infrastructure, trade, and tourism to attract more investors and visitors from around the world. Peace and diplomacy will be retained as fellow ASEAN member-states as well as various multilateral formations and the United Nations.

Many existing Philippine island-provinces are actually comparable in size to existing countries and/or big territories (see table).

This is a far out view and may not be considered in the current decade but would appear more viable through time. Singapore will not be as dynamic and developed as it is now if it was just one of many states of Malaysia.

Under the current activities of the Duterte administration, there lies a danger that when federalism is finally enacted, local entrepreneurs and job creators will be walloped with both high national and high local taxes, fees, royalties and various mandatory spending. This will be a good formula to encourage more corruption and black market business operation, or get out of the country and do business elsewhere.

For the federalism plan to be more attractive to the people, the national government should learn to step back, to tax less, regulate less, bureaucratize less, build confidence among the people and investors in the provinces that indeed they will be given more leeway, more opportunities to craft their own political and economic identity.

See also:
BWorld 115, Centralization and federalism, March 23, 2017
BWorld 171, Global vs national tax reforms, December 29, 2017 

Sunday, January 14, 2018

Pol Ideology 72, You love capitalism

I am reposting this good article in Manila Standard by a friend, Eric.

You love capitalism
posted January 05, 2018 at 12:01 am
By Eric Jurado

You love capitalism.  Really, you do.

And you can’t stand big government. Really, you can’t

Don’t believe me? Then I’ll just have to prove it to you.

Do you use an iPhone? Android?  Macbook?  PC?

Read on a Kindle?

Watch TV and movies on Netflix? Videos on YouTube?

Shop on Amazon? Zalora?

Listen to Spotify?

Search on Google?

Send money on GCash? Coins?

Grab a ride with Uber?

Drive with Waze?

Book a room with Airbnb?

Are you on Facebook? Or Instagram? Or Snapchat?

You probably use many, if not all, of these things, and, if you’re like me, you love them. In today’s world, they’re practically necessities.

Where do you think they came from?

From entrepreneurs with great ideas and the freedom to test them in the marketplace. That is what is known as . . . capitalism.

Now consider some other things you probably do:

Have you been to the LTO?

Gone through security at Naia?

Mailed a package at the Post Office?

Called the BIR customer service line?

Or called any government office, for that matter?

What’s the difference?

Why is going to Uniqlo so fun but going to the LTO so painful? Because one has nothing to do with government, and the other is the government. One needs to satisfy its customers to survive and grow. The other doesn’t.

The purpose of government is not to create products. And we don’t expect it to. But if you thought about it for a few moments, you’d realize you don’t want the government involved in just about anything private business can do.  That’s because profit-motivated individuals have to work hard to please their customers—you. Government agencies don’t have to please anyone.

Call that BIR service line or any government service line, if you doubt me.

Can you imagine if Steve Jobs had to seek government approval for every new design of the iPhone? We’d have been lucky to get to iPhone 3G.

Look at Uber. Just a few years ago, summoning a private car and driver in a few minutes that would take you where you wanted to go was truly a service available only to the wealthiest people. But now, thanks to capitalism, private rides are an affordable option for ordinary people all over the world.  Until Uber came around, if it started to rain in Manila and you wanted to grab a cab, good luck. Too many rain-drenched people and too few cabs available. Uber had a better idea. Rain falls. Demand for rides spikes. Raise prices to give more Uber drivers an incentive to hit the road. Ride-in-the-rain problem solved.

Airbnb is another example. Only a few years ago, if you were going on vacation with your friends or family, hotels were just about your only option. But hotels are expensive and often don’t provide all that much in terms of space, amenities or interesting neighborhoods.

If you wanted to find out if individual homeowners were making their homes or condos available for a few nights, you’d have to scour internet postings.

But then Airbnb came along, giving anyone with a computer or smartphone access to over two million homes in 190 countries. You can find places with hot tubs and pools; or, if you’re on a tighter budget, you can rent a room, or even just a couch.

Government never could have done this. What motivation would it have? How would it even know we wanted services like Uber or Airbnb?  We didn’t know it, until risk-taking entrepreneurs made it possible. Thanks to capitalism. And no thanks to government which, more often than not, just gets in the way.


Because the government’s knee-jerk reaction is to regulate and control everything it can regulate and control. Otherwise, what would be the purpose of many government agencies and all those bureaucrats?

Cities across the globe are putting up barriers to slow down or shut down services like Uber and Airbnb. Making rules may be the only area where the government shows creativity. Economic growth has the best chance of happening in the absence of that rulemaking.

According to economist Adam Thierer, the internet, to use just one important example, was able to develop in a regulatory climate that embraced what he calls “permissionless innovation.” This approach to regulating allows entrepreneurs to meet their customers’ needs without first seeking government approval.

In sum, almost everything you enjoy using is a product of capitalism; almost everything you can’t stand is a product of big government.

So, do you love capitalism? Of course you do. You practice it every day. It’s time to preach it.

Eric Jurado is an independent investment banker and economist.

See also: