Saturday, September 23, 2017

BWorld 152, Cronyism in Renewable energy, gas sectors?

* This is my article in BusinessWorld last September 7, 2017.

Last week, the National Transmission Corp. (TransCo), the administrator of feed in tariff (FiT) — which guarantees high prices for 20 years for variable renewable energy (solar, wind, biomass, run of river hydro) filed a petition at the Energy Regulatory Commission (ERC). It sought for an increase in FiT-Allowance to be paid by all electricity consumers nationwide.

FiT-All is one of roughly 12 different charges and taxes in our monthly electricity bill and the one with the fastest increases in recent years: four centavos/kWh in 2015, 12.40 centavos in 2016, 18 centavos this 2017, and 29.32 centavos next year. It is a clear example of renewables’ cronyism that penalizes electricity consumers and rewards renewable energy (RE) developers supposedly to help “save the planet.”

Also last week, I attended the Energy Policy Development Program (EPDP) lecture at UP School of Economics, entitled: “Natural gas: Addressing the energy trilemma and powering our energy needs.” The lecture was delivered by Mr. Giles Puno, President and COO of FirstGen, a big Lopez-owned power company. Mr. Puno covered many topics but I will only focus on the lecture’s three aspects.

One, the lecture mentioned that the cost of wind-solar keeps decreasing so efforts to decarbonize the economy is improving, away from coal power which cannot remain cheap in the long-term.

During the open forum, I said that this is not exactly correct because while it is true that the technology cost of wind-solar is declining, the FiT rates given to wind-solar keeps rising actually. FiT rates for wind batch 1 (2015 entrants) were P8.53/kWh in 2015, this went up to P8.90 in 2016, and P9.19 in 2017. Wind batch 2 (2016 entrants) were P7.40/kWh in 2016 and P7.71 in 2017.

Solar batch 1 (2015 entrants) FiT rates were P9.68/kWh in 2015, P9.91 in 2016, and P10.26 in 2017. Solar batch 2 (2016 entrants) FiT rates were P8.69/kWh in 2016 and P8.89 in 2017.

FiT revenues collected by all RE firms given FiT privilege were P10.22B in 2015, a figure that rose to P18.54B in 2016, and P24.44B in 2017.

Two, to address the energy trilemma (energy security, energy equity/affordability, environmental stability), the lecture questioned the 3,500 MW worth of coal supply in the Meralco power supply agreements (PSA). These PSAs were anathema to environmental stability and energy equity since power rate hikes will be expected since coal prices are expected to rise over the long-term. That government should instead prioritize natural gas development.

I mentioned in the open forum that I saw the World Energy Council (WEC) World Energy Trilemma Index 2016 and out of the 125 countries covered, the Philippines was #1 in environmental sustainability, thanks to our big geothermal and hydro, plus recently added variable REs. But Philippines was #92 in energy equity because of our expensive electricity, 3rd highest in Asia next to Japan and Hong Kong.

So it is wrong to demonize coal (nearly 35% of installed capacity but 48% of actual electricity production in 2016) that contributed to declining prices in generation charge in recent years. For instance, the load-weighted average price (LWAP) at the Wholesale Electricity Spot Market (WESM) was declining from about P5.40/kWh in 2012 to only P2.80 in 2016.

Consider also the fact that Philippines’ coal use is small compared to what our neighbors in the region consume. Vietnam consumes twice the amount of what we use, Taiwan three times, Indonesia five times, South Korea and Japan six times — for 2016 alone (see graph).

Power companies like FirstGen should focus on ensuring that electricity consumers have cheap and stable electricity available 24/7 without any brownouts, even for a minute. Instead of demonizing and suggesting the stopping of more coal power to come on stream.

Third, Mr. Puno and FirsGen want “government support crucial for LNG development and (1) Holistic and defined energy mix to direct planning and investments, (2) Incentivize LNG through fiscal and non-fiscal policies, (3) Secure LNG Off-take, similar to how Malampaya was underpinned.”

The first two items I consider as cronyist or seeking a crony status from the government. Setting the energy mix should be done by the consumers, not government. The previous Petilla/Monsada plan of 30-30-30-10 energy mix for coal-natural gas-renewable energy-oil respectively is wrong and has no sensible basis. It is good that new DoE Secretary Cusi has dumped it in favor of 70-30-10 energy mix for baseload-mid merit-peaking plants, respectively.

Government taxes should apply to all technology — coal, natgas, hydro, geothermal, etc. — no special privileges of tax breaks and other non-fiscal sweeteners. To ask for tax and non-tax privileges for LNG is asking for crony privileges.

We need less government regulations in setting the energy mix, less government favoritism for expensive wind-solar resulting in more expensive electricity. Government should focus on having energy laws and taxes that apply to all technology and players without any entity enjoying special privileges.

See also:

Friday, September 22, 2017

EFN Asia 66, Meeting 2017 in Kuala Lumpur

The Economic Freedom Network (EFN) Asia held its meeting 2017 last September 11 at the Intercon Hotel Kuala Lumpur, Malaysia. The Institute for Democracy and Economic Affairs (IDEAS, KL) and the Friedrich Naumann Foundation for Freedom (FNF, sponsor) co-hosted it.

Small group. Main agenda was some reorganization of the network as there is now an annual Asia Liberty Forum (ALF) mainly sponsored by Atlas with support from the Center for Civil Society (CCS, India), FNF, Templeton Foundation (I think), and local partner think tank/s in an Asian city where the 3-days annual conference is held.

Productive discussions, became intense and extended in late afternoon. Will discuss later when final decisions have been made by key sponsors.

See also:
EFN Asia 63, Day 1 of Conference 2016, November 26, 2016 

EFN Asia 64, Day 2 of Conference 2016, February 16, 2017 

EFN Asia 65, EFN panel at Jeju Forum 2017, June 20, 2017

BWorld 150, Rising state-inspired murders and budget 2018, September 18, 2017

BWorld 151, Mining taxes per hectare of land

* This is my article in BusinessWorld last August 30, 2017.

A repeated argument by many sectors clamoring for suspension or closure or higher taxation of large mining projects is that the taxes, fees, and royalties they pay is very small. So there is a need to further raise the tax.

At the House of Representatives, there are bills proposing to raise the mining excise tax from 2% to 10% to generate bigger taxes from the industry.

However, is it really true that mining taxes and fees are “very small” so government should raise them (or even shutter their operations to preserve the environment?)

Table 1 was constructed to test their arguments’ validity. Please have patience reading what the numbers in various asterisks mean.

These numbers show two important points.

One, of the Philippines’ 30 million hectares total land area, only 700,300 hectares have mining permits from 319 companies, of which only 81,000 hectares are in active mining. The balance of roughly 620,000 hectares are for the various structures like offices, housing, school buildings, hospitals, sports, and training centers for personnel; roads, mined out areas for rehabilitation; future mining sites.

Two, these 81,000 hectares or 0.27% of total land area contributed an estimated of P420,000 per hectare in taxes, fees, and royalties to the national and local governments in 2016. That is more than six times the overall national taxes per hectare of the country.

Hence, the argument by many anti-mining groups that “government tax revenues from big mining is small so government should overtax, suspend, or close as many big mining firms as possible” is wrong. It is invalid.

Note further that the numbers on mining taxes and fees do not include mining expenses that go direct to the communities as mandated by law, not to the government. These include spending like (a) Social Development and Management Program (SDMP), (b) the annual Environmental Protection & Enhancement Program (EPEP), (c) Community development program (CDP), (d) Environmental work program (EWP), (f) Safety and health program, others.

Plus mandatory environmental funds like (a) Rehabilitation cash fund, (b) Mine monitoring trust fund, (c) Mine waste and tailings fees reserve fund, (d) Final mine rehabilitation and decommissioning fund, (e) Environmental trust fund, (f) Mine rehabilitation fund (MRF), and several others.

Two of several fiscal reforms in the mining industry to make the taxation system more transparent and easily understood would be the following:

One, MGB is required to disclose in its regular “Mining Industry Statistics” the annual cost of various mandatory/obligatory programs and funds as mentioned.

Two, the mining excise tax of 2% can be raised to 6% or 10% or even higher but other taxes and regulatory fees, mandatory programs, and funds should be reduced or abolished. It is not possible to keep raising the taxes, fees, royalties, mandatory programs and funds without resulting in business distortion. Like honest firms closing down or going bankrupt while others will be forced to become dishonest just to remain in business.

MGB should show more updated data about small scale mining — estimated land area covered, gold production, taxes and fees paid, others. Lots of environmental damage with zero mine rehabilitation or reforestation after are done by small-scale mining, like those in Mt. Diwalwal as mentioned by President Duterte during his second SONA last July 24.

Government should always bear in mind the importance of the rule of law. Mining laws should apply to both big and small players, foreign and local. Creating exceptions and favoritism makes a mockery of the law.

Bienvenido S. Oplas, Jr. is the President of Minimal Government Thinkers and a Fellow of SEANET and Stratbase-ADRi.

See also:

Thursday, September 21, 2017

Atty. Florin Hilbay's tweets on government and Du30

Among my favorite tweetters is former Solicitor-General Florin Hilbay. UP Law graduate, faculty member.

Some of his tweets, 3-5 weeks ago:

(1) He said the plunderers will return some gold bars. A daughter of the plunderer-in-chief denied it. Nag-usap ang sinungaling at magnanakaw.

(2) A leader can't be Hitler to poor citizens, enemies, & dissidents and be a constitutionalist when it comes to family, relatives, & friends. (Sept. 3)

(3) The goal of politics is to make itself irrelevant so citizens can focus on philosophy, sciences, the arts, the mundane & the transcendent. (Sept. 1)

(4) Proposal. The Jon Snow Anti-Political Estafa Law.
20 years imprisonment for making false promises during election campaign.

(5) If you're not for human rights, then you're for human wrongs.
It's really as simple as that.

(6) The dead are inarticulate. The people are afraid.
Let their voices be eloquently heard through the nation's poets. (Aug. 31)

(7) I hope one of our senators do a Theon Greyjoy & realize that it's possible to have balls even after losing one's dick. (Aug. 30)

(8) How to distract an angry nation? Make outrageous statements, claims, threats. A raging river, controlled thru estuaries. Estero Politics.

(9) Regardless of what Kian's parents do to seek justice for their son, we must seek accountability for Kian's death & those of 13K others. (Aug. 30)

(10) Losing hope means giving up. Not. An. Option. (Aug. 29)

(11) The Wall that stands bet the Night King & his murderous army is the Constitution. We must fight together in this long night. For the realm. (Aug. 25)

(12) Sa isang basurang abugado, WALA.
In academic terms: You expect police to protect; the criminal, to hurt. It's about rational expectations. (Aug. 25)
--> Replying to @inquirerdotnet @dzIQ990 and 2 others
Aguirre: "Ano ang diperensiya ng bata na pinatay ng addict sa bata na pinatay ng Pulis,"

(13) Just a special shout-out to hardworking, competent, professional, decent gov't employees. You're the silent majority.

(14) The basic function of gov't is to enhance the human capacity to love the world--its details, contradictions, beauty, & power--not hate it. (Aug. 24)

(15) The basic function of gov't is to enhance the human capacity to love the world--its details, contradictions, beauty, & power--not hate it. (Aug. 23) --> 6.1k likes, 2.5k retweets, wow!

(16) What do you call a person with authority & obligation to respond to incursions into our territory, but won't? A threat to nat'l security. (Aug. 23)
--> about news that China's fishing fleet makes a move on Sandy Cay.

(17) Any investigation that will not look into the accountability of the President over Kian's & so many others' deaths will have no credibility. (Aug. 22)

Monday, September 18, 2017

BWorld 150, Rising state-inspired murders and budget 2018

* This is my article in BusinessWorld last August 25, 2017.

The second week of August 2017 would possibly be the bloodiest in the drugs war of the Duterte administration. More than 80 people were murdered mostly by the Philippine National Police (PNP) in various drugs-raid and victims were described as “nanlaban eh (they fought the police).”

Perhaps 99% of all countries and governments in the world have their own “drugs war,” like the Philippines. Punishment range from imprisonment to death penalty. Many of our neighbors in the ASEAN have death penalty for drug crimes like Indonesia, Malaysia, and Singapore.

The “war on drugs” therefore is not a unique program or policy of the Philippine government, the Duterte administration especially.

What makes the Duterte drugs war unique is the absence of due process for poor victims.

True, there is due process for very rich drug suspects like those implicated in the P6.4-billion drugs smuggled from China and passed through the Bureau of Customs. Not one of the personalities implicated including the President’s son, Davao City Vice-Mayor Paulo Duterte, were shot or murdered. They enjoyed due process of investigations, filing of affidavits, dismissal of allegations, if proof is weak.

It is the poor or several middle class or rich but not-politically connected people who get murdered on mere suspicions of being drug users or pushers. Of the roughly 9,000 estimated casualties in the Duterte drugs war, majority are labeled by the PNP as death under investigation (DUIs). However, for those who were killed outright by the PNP because they supposedly resisted arrest, no police investigation is expected.

These are state-inspired murders. The President himself is urging the police to have more deaths for drug suspects, warning the Commission on Human Rights (CHR) and other human rights advocates that he will order the police to shoot them.

The continuing murders from mid-2016 — when the Duterte administration was inaugurated — to the present has coincided with the big increase in the government budget, P667 billion in 2017 and P417 billion in 2018. I checked the PNP’s budget and I wondered why its allotment for this year fell by P17B despite the increase in personnel from 184,000 to 194,000 during the same period. What explains this discrepancy?

In interviews by various media (local and foreign) and human rights groups of self-confessed but anonymous murderers, the murderers claimed that they get cash from the PNP for each murdered victim, usually previous or current drug users or pushers but people who are generally poor. Remember also the testimonies at the Senate of several ex-Davao policemen (LascaƱas, et al.) who claimed they got paid by then Davao City Mayor Duterte for the murders they made.

If this claim is true — and I hope it is not — where would the government get extra resources given the decline in the PNP budget?

I checked the other items of the proposed 2018 budget and there were five big items that stand out. They get P566B of the P667B total increase in 2017 budget, and P260B of the P417B increase in 2018 budget (see table).

If the claims of the anonymous hired murderers, of LascaƱas et al. are true, then the extra resources may be sourced from “Miscellaneous personnel benefits fund” and from “Gratuity fund.” But since this is only surface data, this is hard to prove.

On another note, the Economic Freedom Network (EFN) Asia will hold its annual meeting and conference this coming Sept. 11-12 in Kuala Lumpur, Malaysia. While the focus is on economic freedom and trade, political freedom will also be tackled among network members because there are instances of decreasing political freedom and rising dictatorial trends in the region. These include the continued rule of military junta in Thailand and the rise of murders in the Duterte government.

Economic freedom cannot prosper well in an environment of threatened political freedom and decline in the rule of law. Rise in public health care spending to save the lives of sick and weak people becomes a farce when the same government is engaged in state-inspired murders by the thousands.

Bienvenido Oplas, Jr. is the head of Minimal Government Thinkers, a member of EFN Asia.

See also:

Sunday, September 17, 2017

IPR and innovation 37, US-China dispute on IP

Last month, there was a high profile dispute between the US and China, the former accusing the latter of having policies and practices that discriminate US companies' IP rights and innovation. Here's one story from Fox, August 03, 2017.

Weeks after that, this news from Lexology, August 22, 2017.

The China government, its state-owned enterprises and perhaps many private enterprises, have the tendency to act like business monopolies because of their political monopoly, one-party-state character. So Mr. Trump is checking this behavior.

The WTO and its relevant agreements like TRIPS should play a role in resolving this and many related disputes among member-countries.

See also:

BWorld 149, Free tuition and irresponsibility

* This is my article in BusinessWorld last August 17, 2017.

There are many reasons why the new law providing for free tuition for all students — rich and poor alike — in all state universities and colleges (SUCs) is wrong, but for this piece, we will limit them to only four arguments.

One, the government has no extra cash to cover extra spending on these already substantial expenditures. This means the deficit — which happens when revenues are lower than spending — that will require new borrowings will become bigger. The projected budget deficit rose from P353 billion in 2016 (during the Aquino government) and projected to rise to P482B this year to P524B in 2018, P576B in 2019 (see Table 1).

Note that the deficit is based on the cash budget, “the actual deposits and withdrawals of cash of national government agencies from the Bureau of Treasury (BTR) for payment of current and previous year’s obligations.”

If the obligation budget, “the proposed amount of commitments that the government may incur or enter into for the delivery of goods and services in a fiscal year” is considered, the deficit will be much bigger: P923B in 2017, P927B in 2018 and P968B in 2019. The law calling for free tuition in SUCs — enacted in August 2017 while the proposed 2018 budget was submitted to Congress in July 2017 — would fall in the obligation budget.

Two, spending in public elementary and secondary education is still limited and it is unwise to further expand spending in public tertiary education.

Numbers below show that out of the 16 countries and economies (10 in the ASEAN, six in Northeast Asia), hiring of teachers in the Philippines was 2nd lowest in primary/elementary education, second only to Cambodia. In secondary education, Philippines was 3rd lowest, next to Cambodia and Myanmar (see Table 2).

Three, students who are absolutely destitute do not reach university level. They drop out after elementary or after high school and start working, especially now with the K+12 years of pre-college schooling. So those who reach universities are lower middle class to rich students.

If one sees the cars and SUVs in the University of the Philippines and many other SUCs, one will wonder why these students are getting subsidies. Budget Sec. Ben Diokno even oppose this new law and said that this welfarist program alone will cost P100B/year — on top of existing deficit and high spending.

Four, people’s values will be corrupted because personal and parental responsibility will be assumed by the state. As a result, children’s education from elementary to university level will no longer be the responsibility of their parents but of the state.

Health care is already largely a state responsibility. Soon more parents will be drinking or partying or gambling more often because their children’s education will no longer be their responsibility.

Before you know it, proponents and supporters of this lousy free tuition law will demand that each student in SUCs should be given free laptops and free Internet access. Or that the monthly water and electricity bills of the poor be paid for by the state as well.

The number of free riders, irresponsible people, and tax-hungry bureaucrats and consultants, welfare-dependents and people pretending-to-be-poor will increase.

For any problem, their “solution” is more government, more “tax-the-rich” schemes. Then people will complain of massive wastage, inefficiency, and plunder in government. As government expands, stupidity and irrationality expands.

There are several remedial measures about this new law. One is that it can be questioned and rendered void at the Supreme Court for being anti-taxpayers, anti-fiscal responsibility.

Second, it can be replaced with a new law that will void or drastically revise it, like no free tuition for rich students in SUCs while extending limited subsidies to poor students in private universities.

Three, taxpayers should remember the main authors in the House and Senate and penalize them in the next round of elections.

As someone said: “A government that’s big enough to give you everything you want is also big enough to take everything you’ve got.”

See also:
BWorld 146, Mining and industrialization in Duterte SONA 2017, August 12, 2017 

BWorld 147, Sugar tax and health alarmism, August 15, 2017 

BWorld 148, Energy Trilemma Index 2016, September 16, 2017

Saturday, September 16, 2017

On the CHR P1,000 or $20 budget for 2018

The House of Representatives led by Speaker Pantaleon Alvarez passed the proposed 2018 budget and it gave the Commission on Human Rights (CHR) a mere P1,000, less than $20, budget for 2018. Key Duterte officials are displeased with the CHR, headed by Atty. Chito Gascon (a friend since the 80s in UP Diliman) because of its investigation of many murder cases where the main suspects are policemen.

Last Wednesday, September 13, while I was queuing at NAIA for my flight to the US via Korean Air, Chito called me, he would be on the same flight as mine. Picture muna :-)

The CHR was created by the 1987 Constitution, not by Congress and much less by the House of Alvarez. Alvarez wants Chito to resign as CHR head, then he will reinstate the proposed P600+ million 2018 budget. Now look at his reasoning below. Low life logic.

Another lawyer-friend from UP, Gigo Alampay, explained it well in his fb wall the other day.

It is the responsibility of the Commission on Human Rights (CHR) to protect the rights of the people from abuse BY STATE AGENTS such as the government, police and the military. As a response to our experience with Martial Law, the CHR was created to ensure that the government will not abuse and violate its duty to protect the primary rights of the people.

It is NOT the job of the CHR to investigate violations committed by a non-state or non-government actors, such as criminals. This is not because the CHR condones those heinous acts. Rather, it is simply because investigating crimes is the job of the police. Requiring the CHR to expand its responsibilities to these violations is not only redundant. It would also be a massive waste of manpower and resources. (Is Congress prepared to add the equivalent of the PNP's billion-peso budget to the CHR?)

Do not fall for what appears to be a systematic effort by the President, legislators in the majority, and by Pro-Duterte apologists to discredit the CHR by confusing the public on this issue, and insisting that the CHR must investigate ALL cases of human rights violations.

A former tv clown and entertainer and now Senator Tito Sotto added his equally low-life argument. Suggesting that all government officials including those heading constitutional bodies (CHR, COA, Comelec,...) should always obey the President's orders and wishes.

When I posted my photo with Chito in my fb wall, a certain Manuel Saludadez jumped in with this accusation.

The man did not provide any proof, even news link. I have a term for this type of attitude -- emotional or arrogant idiocy. If one should make a serious accusation of robbery or plunder ("nakulimbat"), one should present some reliable proof. Otherwise, remove the comment or say "sorry, I do not have proof, I take back my words" or similar statements. If there is humility. There is none.

Meanwhile, I think the Senate should also give a P1,000 2018 budget for many agencies that are favored by the President and the Speaker, like the DOJ. That way, a compromise can be made between the two chambers.

BWorld 148, Energy Trilemma Index 2016

* This is my article in BusinessWorld last August 11, 2017.

The Philippines has acquired a growth momentum that started a few years ago in the past administration and we are now looked upon as among the fastest growing economies in the world. Sustaining fast GDP growth will require stable and cheaper energy because almost all economic activities now require energy and electricity.

The World Energy Council (WEC), a UN-accredited global energy body composed of 3,000+ organizations from 90+ countries (governments, private and state corporations, academe, NGOs, other energy stakeholders) produces the annual World Energy Trilemma Index.

The Trilemma index is based on a range of data sets that capture both energy performance and their context, indicating energy sustainability of countries. The index is composed of three factors: energy security, energy equity, and environmental sustainability, defined as follows:

Energy security — effective management of primary energy supply from domestic and external sources, reliability of energy infrastructure, and ability of energy providers to meet current and future demand.

Energy equity — accessibility and affordability of energy supply across the population.

Environmental stability — achievement of supply and demand-side energy efficiencies and development of energy supply from renewable and other low-carbon sources.

There are 125 countries covered and ranked. Top five countries overall in the 2016 report are Denmark, Switzerland, Sweden, Netherlands, and Germany. Here are the rankings of selected Asian countries. Some Asian economies not included in the study are Indonesia, Taiwan, and Vietnam (see table).

Based on these numbers, here are the implications for the Philippines in energy policy:

1. Environmental sustainability: We are already world’s number one in this category. We have high reliance on renewables like hydro and geothermal plus newly added renewables like run of river hydro, biomass, solar and wind. There is no need to “further decarbonize” as suggested by the CCC, DENR and other greenies, suggesting that we close or discontinue having more coal power plants.

2. Energy equity: We are very low here, ranking 92nd because of our expensive electricity, 3rd highest in Asia next to Japan and Hong Kong. However, there has been a steady decrease in generation cost of electricity in the country. The Load Weighted Average Price (LWAP) at the Wholesale Electricity Spot Market (WESM) has decreased from an average P5.37/kWh in 2012 to P4.65 in 2014 and further down to P2.81 in 2016. This is the result of more big coal plants, more players, more competition. But there are other factors that can neutralize these as discussed further below.

3. Energy security: We are midway, ranking 61 out of 125 countries in this category. We need to add more big conventional plants to take over many aging plants, and to put in place an LNG facility in Batangas to import gas in case no substantial gas reserves are discovered when Malampaya gas runs out sometime around 2024.

There are at least four dangers in Philippine energy policies resulting in prices either rising or flatlining.

One is feed-in-tariff (FiT) or guaranteed high prices for 20 years for variables renewables especially wind-solar. FiT has been rising steadily and slam-dunking all electricity consumers from Aparri to Tawi-tawi: four centavos/kWh in 2015, 12.40 centavos in 2016, 18 centavos middle of this year, and going up to 26 centavos (Transco petition at the Energy Regulatory Commission [ERC]) later this year.

Two is transmission charge. NGCP must add more ancillary services to stabilize power supply from intermittent wind-solar, and build more transmission facilities in far-flung areas where these wind-solar plants are constructed. Consequently, transmission fees will slowly and steadily rise.

Three is system losses. High losses in provinces — areas which are run by monopoly electric cooperatives (ECs) — are ultimately passed on to the consumers. Current ERC and legislative proposals plan to allow these ECs to retain their high system losses while pressuring private distribution utilities (DUs), which on average have low system losses, to further bring this down.

Four is the impending renewable portfolio standards (RPS). This will require all ECs, DUs, and retail electricity suppliers (RES) to get a mandatory, minimum percentage of their electricity sales to come from expensive wind-solar and other variable renewables. If these renewables are cheap and getting cheaper as claimed by their developers and lobbyists, there is no need for RPS. But because they are expensive, RPS is made mandatory and coercively imposed.

Nature has given the Philippines energy advantage. Volcanoes have given us plenty of geothermal resources and potentials. Our big mountains have given us more waterfalls and big river systems.

Government policies favor expensive electricity via FiT, RPS, priority dispatch of renewables at WESM, accommodating more renewables in the grid. These policies must be reversed soon. Only then will we have higher scores in energy equity and energy security and finally, economic security.

See also:
BWorld 145, Energy agenda of China’s Belt and Road Initiative, August 11, 2017 
BWorld 146, Mining and industrialization in Duterte SONA 2017, August 12, 2017 

BWorld 147, Sugar tax and health alarmism, August 15, 2017

Earthquakes and economics

Among the recent strong earthquakes (EQs) that I personally felt was last August 11, 2017. I was in the office, 25/F of the building and I felt a bit dizzy, then I watched the door swinging by itself, the window blinds were swaying -- for nearly one minute, it was long. And it was a magnitude 6.3 EQ.

We get about 3-4 EQs a day on average in the Philippines, though most of them are mild (magnitude 1, 2) that only seismographs can detect them. Or they occur under the sea in Philippine territory.

EQs are our friend. The whole PH archipelago came from below the sea, a product of volcanic and geological movement hundreds of millions of years ago. That huge Benham/PH rise west of Luzon island is a product of volcanic and EQ movements. Though about 1+ kms. below sea level by now, it keeps rising, few cms a year.

Tectonic movements below allow gases and molten rocks from the core and mantle to move to the crust. The gases help mineralize ordinary rocks and stones into metallic products; they give us steam for geothermal power, natural gas, etc. Volcanoes that protrude from below the seas create new islands, like the current PH archipelago. 

All real estate developers in the country are aware of the high EQ frequency. EQs are 100% part of PH's geographical DNA. Hence, buildings should be strong. 

Government should tax less those strong buildings, them that use lots of steel, strong steel, in their posts and beams. But it seems the opposite happens, government taxes (real property tax by LGUs, VAT and other taxes by the national government) are higher in bigger, taller, stronger buildings. There is little danger living in strong skyscrapers even if EQs reach magnitude 7 or 8, possibly even 9, because of the huge volume of steel and more modern architectural designs for these structures. Dangers would be indoors like falling chandeliers, cabinets, bottles and glasses from tables and wine cabinets if the EQ is strong but the structures would normally withstand the swinging and sideways pressure.

BWorld 30th anniversary

BusinessWorld turned 30 years old last month. A big celebration was held at Manila Peninsula Hotel and among the invitees were the paper's columnists.

From left, Jemy Gatdula and Phil. Star's Jay Sarmiento. Jemy has been a BW columnist for more than a decade now.

From left: Arnold Tenorio, me Boojie Basilio, Krista Montealegre. Arnold was my opinion editor in for three years (2012-2014) and was head of research of the paper until last month. Boojie is the current BWorld oped editor. Krista is a finance reporter of the newspaper. I have been a  BW columnist for 2+ years now (BW Weekender for about half year, Opinion page for 2 years).

I first sat in a table with other columnists like Romy Bernardo, Men Sta. Ana, Toti Chikiamco. Then I moved to the above table. Lots of entertainers, lots of wine and food.

More power, BusinessWorld.

Tuesday, August 15, 2017

BWorld 147, Sugar tax and health alarmism

* This is my article in BusinessWorld on August 03, 2017.

“To what extent will the poor merely replace more expensive colas and 3-in-1 coffee with unsafe sugared water in plastic bags, samalamig, or home-brewed sugared coffee, none of which are covered by the tax? … there is simply a great deal we do not know, which is all the more reason to proceed with reserve and caution.” -- Emmanuel de Dios, “Just take it, it’s good for you”

Among the tax-tax-tax plan of Dutertenomics to finance the budget swell is premised on health alarmism, that government is concerned about public health and dangers of obesity so it will confiscate more money from the public via the sugar-sweetened beverage (SSB) tax.

Simple joys of the poor like 3-in-1 coffee, mango or guyabano powdered juice, softdrinks, etc. add flavor to meals and whet more appetite so people eat more, which help their nutritional intake. But the government says this is bad and must be taxed.

Before you know it, the government will increase taxes twice, thrice, or even four times, citing whatever health alibi is handy when the real goal is to collect more money for the state, for the politicians, for the bureaucrats and their consultants, not to mention those who are already dependent too much on welfare.

There is one paper from Harvard Heart Letter that said: “Eating too much added sugar increases the risk of dying with heart disease” by Julie Corliss (updated Nov. 30, 2016).

“Sugar-sweetened beverages such as sodas, energy drinks, and sports drinks are by far the biggest sources of added sugar in the average American’s diet. They account for more than one-third of the added sugar we consume as a nation. Other important sources include cookies, cakes, pastries, and similar treats; fruit drinks; ice cream, frozen yogurt and the like; candy; and ready-to-eat cereals.”

Since this seems an authoritative article, then the SSB tax of Dutertenomics suffers from an old disease of selective harassment and taxation.

If they have to be consistent, they should tax not only soda, powdered juice, energy drinks but also cakes, ice cream, chocolates, cookies, yogurt, candy, pastries, samalamig, banana-Q, etc.

If all the claims of various health and environmentalist groups are true -- that there are more diseases, morbidity, and mortality due to high sugar consumption, man-made climate change, high maternal death, etc. -- then life expectancy of Filipinos should be declining, not rising.

Numbers below show that this is not the case -- that life expectancy among Filipinos and other people in the region are rising (see table).

Life expectancy at birth  in the ASEAN, years 

Source: WB, World  Development  Indicators database 2017

From only around 61 years in 1970, Filipinos are living longer and healthier compared to the past and they can expect to live to 68 years old, as of 2015. This, despite the fact that more Filipinos are eating and drinking more “unhealthy” products.

So, what to do?

One, the government should not impose a sugar tax. No to selective harassment and taxation of sugar-sweetened drinks and food and confiscation of more money from the pockets of ordinary Filipinos.

Two, if they have to tax some sugar-sweetened beverages, they should tax all of them without exceptions. Just keep the tax as low as possible.

Three, proceeds from the substantial sin tax revenues should be enough to promote health awareness and finance the fight against infectious and communicable diseases on top of regular DoH and LGUs’ health budget.

Health is not just a “right” but more importantly, health is also a personal responsibility.

It is very likely that proceeds from the tax are designed more to pay the multitrillion-peso loans to Duterte-beloved China-funded infrastructure programs. And since this government is run like a one-party state, they will get what they want from Congress.

Tax-tax-tax mentality and policy is wrong and ugly. And this is the philosophy that Dutertenomics wants to impose on the whole country.

See also:
BWorld 136, Income tax and the politics of envy, June 12, 2017
BWorld 144, Individual liberty vs state coercion and taxation, August 10, 2017 
BWorld 145, Energy agenda of China’s Belt and Road Initiative, August 11, 2017 

BWorld 146, Mining and industrialization in Duterte SONA 2017, August 12, 2017

Saturday, August 12, 2017

BWorld 146, Mining and industrialization in Duterte SONA 2017

* This is my article in BusinessWorld on July 27, 2017.

Aside from frequently cussing and cursing or threatening people with state-sponsored murders over his anti-drugs war, President Rodrigo R. Duterte (PRRD) is not exactly known for articulating policies on industrialization. But during the State of the Nation Address (SONA) this year, he was able to coherently explain his dreams for the country.

“That is why I say that it is not enough that we mine this wealth. What is more important is that we convert the raw material thereof into finished products for international and local purposes. That way, it will not only be the few who are the rich but also the poor who are many who will benefit therefrom.

Therefore, I call on our industrialists, investors [and] commercial barons to put up factories and manufacturing establishments right here in the Philippines to process our raw materials into finished products.... if possible, we shall put a stop to the extraction and exportation of our mineral resources to foreign nations for processing abroad and importing them back to the Philippines in the form of consumer goods at prices twice or thrice the value of the original raw materials foreign corporations pay for them.”

This is an understandable concern and aspiration.

And this has been articulated by many other previous administrations and Presidents in the past. For instance, former President Fidel V. Ramos articulated it partly at the Mining Act of 1995. Former President Gloria Arroyo articulated it in Executive Order (EO) 270 in January 2004.

Is the Philippines ready now to undertake this mining-to-industrialization quickly?

In December 2010, the Philippine Institute for Development Studies (PIDS) produced a paper by Dr. Danilo C. Israel, “National Industrialization in Philippine Mining: Review and Suggestions,” PIDS Discussion Paper Series No. 2010-35 (Revised).

The 53-page paper gives a number of useful data about the sector. It concluded that “judging by experience, the search for national industrialization in the mining sector would be difficult. In the past, the record of the Philippines in this regard was one of failure. This, however, should not prevent the country from attempting once again especially given the importance of industrialization to the growth of the economy.”

It added, “the knowledge base of the country required to pursue the national industrialization strategy is poor. The following studies therefore were suggested: a) value chain analysis for the mining sector and its sub-sectors, including but not limited to the copper, nickel, gold and chromite industries; b) development of community-based small and medium-scale operations in mining including the technology, financial, institutional and other forms of government support that could be provided to them...”

What are the stages of supply chain from mineral extraction to finished products? In one illustration, Dr. Israel identified these nine stages.

(1) Exploration stage, locating the ore to be mined, (2) Development stage, preparation of the mining project before (3) actual Mining and extraction of the ore, (4) Milling and concentration stage, the separation of the desirable minerals in the ore from the undesirable contents, (5) Marketing and transportation, shipping and selling of the desirable minerals to buyers or users, (6) Smelting, the treatment of the desirable minerals to produce impure metal, (7) Refining the impure metal and afterwards built into metal structures by cutting, bending, and assembling, technically referred to as the (8) Semi-fabrication and (9) Fabrication stages.

The country is currently engaged in stages (1) to (5), perhaps up to (6), depending on the metallic products. So the challenge is to find investors, local and foreign who can do stages (6) to (9). And it will not be easy to attract these large investors who need large requirements before they bring in their money and technologies.

Dr. Israel said that there should be a “comparative advantage” for the country to make this possible. This advantage includes the following: (a) location of mineral deposits to be processed; (b) relative factor costs and input prices; (c) availability of processing technology, (d) distance from major markets and the associated transport costs, and (e) the security of supply.

He cited Glance et al. (1992) who said that factors that affect the costs of a prospective processing location and activities are: (a) the cost of meeting environmental regulation which can vary from site to site of operations, (b) market for by products as the profitability of smelting and refining often depends on the ability of processors to sell by-products, and (c) government intervention, which can directly or indirectly distort investment decisions and trade flows.

The last item, government intervention, is very important. Interventions can span from A to Z, from where to explore and mine and where not, how to do it, how much payments in taxes, fees, permits, bonds, mandatory funds and contributions, both local and national.

Seemingly not mentioned in Dr. Israel’s paper is the role of electricity -- cheap, stable supply of electricity that is available 24/7. Intermittent energy like wind-solar will be a disincentive for mining-to-industrialization development because they are heavily dependent on the weather, not on consumer demand.

Plenty of big and reliable base-load plants from coal power have been installed in recent years. This means 24/7 of cheap, stable electricity is assured now and the medium-term.

The industrialization dream has been restated and the energy infrastructure has been set up.

What the President should assure now is the rule of law, stability of policies, that there will be no more Gina Lopez type of government officials whose happiness rests on how many mining companies he/she has suspended and/or closed. His threat of “tax mining to death” during the SONA is a new source of uncertainty that can complicate his dreams of industrialization.

See also:
BWorld 143, Coal power and economic development, August 09, 2017 
BWorld 144, Individual liberty vs state coercion and taxation, August 10, 2017 

BWorld 145, Energy agenda of China’s Belt and Road Initiative, August 11, 2017

Friday, August 11, 2017

Lion Rock 21, Dangers of Universal basic income (UBI) philosophy

The philosophy of universal basic income (UBI) is floated and discussed in many countries now including the Philippines. The philosophy is lousy because even the lazy or irrelevant-thinking people will have guaranteed universal income.

I am reposting a good article by a friend, Nick Sallnow-Smith, Chairman of The Lion Rock Institute (LRI) in Hong Kong. This was published in the LRI Newsletter, June 2017.

Nick Sallnow-Smith

It is often suggested by those skeptical about the value of free markets, that to contribute to the community you need to be active in the world of charities, NGOs, or what is called “public service”. By implication, to work in the business sector is an indication of selfishness and greed. You are only out for yourself is the implied slur. This approach finds the idea of Universal Basic Income (UBI) very attractive because it is claimed it enables the detachment of the income you receive from the work you do. The promoters of this idea seem to find it self evident that this a “good thing” because people will be spared the drudgery of work and can instead follow their dreams to be creative, or make other life choices unconstrained by the need to earn income. Let’s examine if either of the elements of this argument make sense: that working in business is selfish, and that detaching income from what you do with your life is inherently desirable.

The growth in our standard of living since most human beings were engaged in subsistence farming is largely due to the division of labour; to specialisation in activities in which you are relatively more able than others. For this specialisation to be facilitated, we need a means to exchange our skills with the products and services produced by others. This means is money (whether gold, fiat money, shells and any other accepted exchange medium). Money does more than enable us to exchange with others, it provides a measuring device by which we can assess the cost of products and services against their relative value to us. But more than that, the market enables us to assess the relative value to others of the skills we have.

When I choose whether to be an artist or a banker or a tour guide, I know my own preferences for what I’d like to spend my time doing. The income I am offered by potential customers of my art, banking skills or tour guide work tells me the relative assessment by others of my prowess in these areas. I may still choose to be an artist, and settle for a low income if I love it enough, but market pricing tells me that the community would prefer me to stick to being a tour guide and not bother with my rather poor oil painting. By pricing my skills in a free market, my value to the community – what I am worth – is laid bare.

By contrast, if I work in a charity, NGO, or the public sector generally, there is no test of the value of what I do; certainly not one that enables relative value to be assessed. I might be a rather poor schoolmaster (actually in 1974 I was!) but since the students’ parents did not pay my wages, had no way to dispense with my services, and had no input into the process by which their children were taught, I had no information about whether what I did was valued at the level of my income, nor whether I would be contributing more to society as a barman.

Which is more selfish then? To offer your services in a competitive labour market and see how the community truly values what you do; or to take a position in those sectors which never submit you to a market test.

It is concerning to me that those who work in “public service” frequently imply that theirs is a more noble calling than the down and dirty private sector, where everyone is in it “only for the money”. In fact, the opposite is the case. Only if you subject yourself to the market test can you ever know whether the community of which you are a part, values what you do.

Let me turn now to the UBI idea, which is currently such a hot topic in policy debates about how to respond the feared loss of jobs resulting from AI. If what you do is detached from the income you receive, you sever completely any possibility of knowing whether what you do is of any value to the community. Indeed the policy proponents are claiming this severance is a benefit, that what we do should have no relationship to what others value in us. We should all be supported by the state so that we can do whatever we like, without regard to its value to society. This seems to me to be a policy of institutionalising the disregard of our value to the community. In answer to the question in my title, it does not matter what you are worth, say the proponents of UBI, it need never be measured. Many who disapprove of free market libertarianism claim it “atomises” the community, rendering us all completely separate uncaring individuals, alone in the social universe. Yet the opposite is the truth. Selling your skills in the market means you are taking account of what others value in what you do, while UBI is the truly “atomising” policy.

There is one last aspect of this which I believe to be of even more importance; the “self-worth” that any of us feels every day as a result of what we do. If others have valued what you do (apart from your own satisfaction in a job well done), you feel good. This is deeply important for the way communities are bound together. Not only have you found a way of selling your skills that gives you an income but you have done so in a way that is evidently valued by others. The baker whose cakes are wildly popular is not only happy to be paid for his efforts, his can and does take pride in being valued by his customers. If the future consists of millions of people detached from the feeling that what they did that day was valued, I fear there will be a serious deterioration in self worth and self reliance; the stuff of many apocalyptic sci-fi movies.

Of course proponents of UBI will argue that it will meet only “basic” requirements (let’s see how the demands for it to be increased are resisted before we are confident about  that). But the drive to find the best use of your skills for the community at large will still have been significantly eroded. You will be paid to be useless, not useful. It is suggested by common sense as well as economic theory that if you subsidise something you will get more of it. Communities should be very careful before they embark on large scale subsidisation of uselessness.

See also: Lion Rock 18, Nick Smith as new Chairman of LRI, April 05, 2016 
Lion Rock 19, Not enough capitalism in Hong Kong, May 12, 2016 

Lion Rock 20, Hong Kong's labor welfarism and rising unemployment, July 08, 2016

BWorld 145, Energy agenda of China’s Belt and Road Initiative

* This is my article in BusinessWorld on July 21, 2017.

In a presentation during the Asia Pacific Pathways to Progress Foundation, Inc. (APPFI) round table discussion on China Belt and Road Initiative (BRI) last July 11 at Astoria Plaza, Ortigas, APPFI president Dr. Aileen Baviera said that BRI is China’s new international development strategy. It will link China to the larger Asian region, Europe, and Africa through connectivity of policy coordination, facilities/infrastructure, trade/markets, finance (investments, loans, grants, AIIB), and people.

The Silk Road Economic Belt will span China, Central Asia, Russia, Europe while the 21st century Maritime Silk Road will span eastern China, South China Sea, Indian Ocean, Mediterranean, North Africa, Europe) + SCS-South Pacific and China-Europe via Arctic, covering 65 countries, 3 international organizations, 4.4 billion people and $21 trillion of trade.

Why is China doing this? Aileen said there are three main reasons.

(1) Economic -- put excess local production capacity and funds to profitable use, help develop Western China, and access to markets and resources.

(2) Political -- shore up domestic support for Xi (amid anti-corruption drive ad slowing economy), build platform for China to take leadership in the provision of global public goods, counter the China Threat Theory.

(3) Strategic -- avoid Malacca dilemma, make the South China Sea irrelevant in developing transport and trading links in the region, access to ports and airports reduces need for overseas air and naval bases, and compete with the US influence and perceived containment efforts against China.

This is incisive analysis from a local scholar. She also showed maps of the Silk Road Beltway, the Maritime Road covering the three continents of Asia, Europe and Africa, and the Pan-Asia railway network.

In many discussions on China’s BRI, often left out is China’s energy agenda that spans practically the same continents and countries. Here are just three of several reports on this aspect.

(1) From NY Times, July 1: “When China halted plans for more than 100 new coal-fired power plants this year… China’s energy companies will make up nearly half of the new coal generation expected to go online in the next decade.

These Chinese corporations are building or planning to build more than 700 new coal plants at home and around the world, some in countries that today burn little or no coal, according to tallies compiled by Urgewald.”

(2) From China Dialogue, May 5: “Global Environment Institute (GEI) figures show that between 2001 and 2016 China was involved in 240 coal power projects in BRI countries, with a total generating capacity of 251 gigawatts. The top five countries for Chinese involvement were India, Indonesia, Mongolia, Vietnam and Turkey.”

(3) From Financial Times, March 31, 2016: “China’s proposed investments in long-distance, ultra-high voltage (UHV) power transmission lines will pave the way for power exports as far as Germany… Exporting power to central Asia and beyond falls into China’s ‘one belt, one road’ ambitions to export industrial overcapacity and engineering expertise as it faces slowing growth at home.”

Europe’s problem is that they are committing sort of energy mini-suicide by relying more on intermittent wind-solar and closing down many of their reliable and big nuclear and coal power plants. So here comes China with huge domestic coal supply capacity plus additional coal plants in countries along the BRI route. It will have the capacity to augment Europe’s energy needs via those UHV transmission lines and power sources are several thousand kilometers away (see table).

 Source: BP Statistical Review of World Energy, June 2017
* Less than 0.05.

Notice the huge discrepancy between installed capacity of wind-solar and China, and the very small actual electricity output from them.

In a forum on “The Framework Code of Conduct, One Year After Arbitration” organized by Stratbase-Albert del Rosario Institute (ADRi) last July 12 at the Manila Polo Club, among the speakers were Roilo A. Golez, former National Security adviser; Antonio T. Carpio, senior associate Justice, Supreme Court of the Philippines, and Dr. Jay Batongbacal, director of UP Institute for Maritime Affairs and Law of the Sea.

Justice Carpio highlighted the energy aspect of China’s occupation of shoals and creation of artificial islands in the South China Sea or West Philippine Sea, and the huge implication for the Philippines if China will occupy areas near Malampaya, currently the source of about 3,000 MW of natural gas plants based in Batangas. Malampaya natural gas is expected to be exhausted around 2024 or less than a decade from now. We shall have massive, daily blackouts for many hours daily if no new gas is discovered or new gas facility is created.

China has a different agenda in its massive BRI project, some are useful, some are harmful to their partner countries. The Philippines should craft foreign affairs and energy policies that will secure the country’s economic needs, not China’s needs.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a Fellow of SEANET and Stratbase-ADRi.

See also:
BWorld 142, PPP vs ODA, Part 3, August 08, 2017 

BWorld 143, Coal power and economic development, August 09, 2017 

BWorld 144, Individual liberty vs state coercion and taxation, August 10, 2017