Tuesday, January 2, 2018

Power consumers should brace for TRAIN impact



By Lenie Lectura -

CONSUMERS must brace for higher power rates following the passage of the first tax-reform package into law.
On December 19 President Duterte signed into law the Tax Reform for Acceleration and Inclusion (TRAIN) bill. The TRAIN law, or Republic Act 10963, is expected to generate P130 billion in revenues.
Seventy percent of the revenues will finance the administration’s “Build, Build, Build” infrastructure program, while the remaining 30 percent will fund socioeconomic programs. Moreover, the law is expected to reduce personal income tax.
“I hope it brings development and progress to our country for the benefit of all,” Energy Secretary Alfonso G. Cusi said in a text message on the day the bill was signed.
While the TRAIN law will surely bring in revenues, it will, however, impose higher taxes on fuel, cars, tobacco and sugary beverages.
Based on available figures, the initial impact of on power rates will reach P0.04 per kilowatt-hour (kWh). It will then increase to P0.07 per kWh if excise tax on coal reaches P150 per metric ton. Overall, the total impact is P13.2 billion worth of pass-on charges to the consumers. A Senate Ways and Means Committee briefer said the P10 coal-excise tax rate has remained unchanged since 1988, while the local industry has been exempted from paying excise tax since 1976.

Prepare for the worst
Manila Electric Co. (Meralco), the country’s largest power-distribution firm, said all it could do for now is to “prepare our consumers.”
Company spokesman Joe Zaldarriaga said Meralco has stated in the past its position about the issue. Preparation, he said, includes a massive information campaign on the impact on power rates.
“We really need to prepare our consumers on the rate impact, including possible adjustments in the FIT [feed-in-tariff] and universal charges starting next year,” Zaldarriaga said when sought for comment.
In its letter addressed to Sen. Edgardo J. Angara, chairman of the Senate Committee on Ways and Means, Meralco said any move toward increasing excise tax on coal would impact significantly on electricity consumers across all sectors—residential, commercial and industrial.
Since more than 50 percent of the country’s gross domestic product (GDP) comes from Meralco’s franchise area, increasing the excise tax on coal would already be felt by end-users and may reduce competitiveness of industries that are competing in the world market, as well with imports.
“Coal is a major fuel source for power generation in the country. Increasing the existing excise tax on coal will only result in higher electricity prices, which will reduce the country’s competitiveness vis-à-vis Asean neighbors,” said Meralco First Vice President and head of Regulatory Management Office Ivanna de la Peña. Meralco’s 6.2 million customers comprise around one-fourth of the Philippine population.
Abotiz Power Corp. President Antonio Moraza, in a text message, also said consumers should face the inevitable.
“I am sure the government is happy with the results. They raised a substantial amount of money,” Moraza said. “For the private sector, opinions will differ, for sure. In our case, unfortunately, power rates will go up.”
AboitizPower is the holding company for the Aboitiz Group’s investments in power generation, distribution and retail electricity services. It also owns distribution utilities that operate in high-growth areas in Luzon, the Visayas and Mindanao, including the second- and third-largest private utilities in the country.
The power firm is on track to meeting its 4,000-megawatt (MW) net attributable capacity target by 2020. It is set to add some 500 MW of attributable capacity next year. Moreza said the additional power projects are on track and should be mostly online in the first half of 2018.
For Alsons Consolidated Resources Inc. (ACR), company vice president for business development Joseph Nocos stressed that coal still accounts for a significant portion of the power generated in the country because of its reliability and affordability.
“Given the crucial role that coal plays in the power industry, it is imperative for us and our fellow power generators to closely study the implications of this new tax measure,” Nocos said in a text message.
Alsons’s power projects are in Mindanao. It operates three diesel power facilities: the 103-MW Mapalad Power Corp. diesel plant in Iligan City, the 55-MW Southern Philippines Power Corp. facility in Alabel, Sarangani, and the 100-MW power plant of the Western Mindanao Power Corp. in Zamboanga City.
Three more power projects are set for construction by the middle of 2018. These are the second 105-MW coal plant of Sarangani Energy Corp.(SEC) , the 105-MW San Ramon Power Inc. (SRPI) base-load coal-fired power plant in Zamboanga City and the 15.1-MW Siguil hydropower project in Sarangani Province.
Once finished, these three projects will bring ACR’s power-generation portfolio to around 588 MW of generating capacity, which is approximately 25 percent of Mindanao’s projected peak power demand in 2021.
Meanwhile, Semirara Mining and Power Corp. (SMPC), the country’s largest coal producer, said the tax adjustment should cover all types of fuel.
“If coal should have additional tax then natural gas should be taxed, as well,” DMCI Holdings Chairman Isidro Consunji said in a text message.
SMPC is a subsidiary of DMCI.
“In the short run, it favors Semirara,” Consunji added. “Our contract specifies we are exempt from all taxes except income tax until end of our coal operating contract.”
Meanwhile, the National Electrification Administration (NEA) also expressed grave concern.
The NEA chief feared the proposal to raise the coal tax would lead to higher electricity rates.
“I believe this will discourage investors in putting up generation facilities that are not friendly to environment,” NEA chief Edgardo Masongsong said. “With more than 50 percent of energy source coming from coal, I am afraid we will be paying more for our electricity consumption.”

Pass-on
SEN. Sherwin T. Gatchalian, chairman of the Senate Committee on Energy, said the excise tax would become a “pure pass-on charge,” resulting to an additional P13.2 billion in electricity costs that consumers inevitably would have to shoulder. 
“Despite my affirmative vote, I would like to put on record that I still maintain my reservations regarding the massive increase in the excise tax on coal that has made it into the final version of the law for the President’s signature,” Gatchalian said.
The two chambers of Congress agreed on a compromise tax rate of P150 per metric ton on coal, divided into tranches over the next three years upon its enactment. This means the excise tax would be P50 per metric ton in 2018, P100 in 2019 and P150 in 2020. The original Senate version proposed a “100-200-300” hike scheme. 
Gatchalian explained the negative implications of the tax hike.
“The tax hike up to P150 after three years will result in an average monthly rate increase of P14.348 for a 200-kWh household served by a 100-percent coal-contracted distribution utility,” he said. “This is equivalent to the price of half a kilogram of rice for 2.7 million households,”
While proponents of the coal-tax increase may downplay it as negligible, Gatchalian pointed out that Filipinos are already struggling through the pain of paying the highest power rates in Southeast Asia. With this, Gatchalian stresses its supporters “miss the point entirely.”
Meawnhile, Laban Konsyumer Inc. President Vic Dimagiba appeals to businessmen never to take advantage of the looming higher excise taxes by manipulating a supply situation on basic goods and services with the end in view of creating windfall profits for themselves.
“Consumers deserve protection of their universal right of access to goods and services at justified prices,” Dimagiba said. “Thus, we enjoin government agencies…to protect and safeguard the well-being of the consumers and strengthen monitoring and enforcement activities and file cases against businessmen who may commit profiteering and hoarding at the expense of the consumers.”
The consumer group, he added, may take legal action to question the legality of the higher excise tax.

How to mitigate power-rate hikes
ON the other hand, higher excise tax on coal will promote the development of renewable energy (RE) sources.
“It should be favorable for RE,” said SN Aboitiz Power President President Joseph Yu, who agreed that the tax adjustment will encourage the utilization of RE in the country. He said that for those who are not using coal as fuel, this will “have a lifting effect on profitability, which will then make RE projects more viable.”
The power-generation arm of Meralco is “seriously” looking at venturing into wind energy, amid an impending rise in coal taxes.
“We’ve been asked to look at wind proposals,” Meralco PowerGen Corp. (MGen) CEO Rogelio Singson said. “When coal tax kicks in, wind will be competitive.”
Meanwhile, Gatchalian called on the DOE to fast-track the implementation of the Retail Competition and Open Access (RCOA) circular to mitigate the effects of projected electricity-rate hikes.
The circular, which seeks to finally implement the RCOA provision of the 16-year-old Electric Power Industry Reform Act of 2001 (Epira), is expected to foster competition among electricity suppliers by giving consumers the freedom to select from where and what kind of electricity to purchase. This is expected to drive down electricity costs and promote transparency in the energy sector.
“With the coal tax in place, all the more that we need to implement RCOA to democratize our power sector. The RCOA will help lower costs to protect consumers from the inflationary effects of the coal tax,” Gatchalian said. “Once you give the consumers the power of choice, they can choose whether they want coal, renewable energy or geothermal, whichever is cheaper for them.”
The lawmaker reiterated the expected impact of the coal tax on consumers. He estimates an increase of P10 in the monthly electricity bills of average households in 2018, P20 by 2019 and P28 by 2020, noting that these estimates are bound to grow as new coal plants come online in the near future.
The DOE, meanwhile, assured that the legal hurdles of RCOA will be settled as soon as the revised circular is approved by the Energy Regulatory Commission and signed by the agency’s secretary. “I highly commend the Department of Energy for its initiative to implement RCOA,” Gatchalian said. “Our end goal here is to drive down the price of electricity for the benefit of energy consumers.”
The National Renewable Energy Board (NREB), the advisory body tasked with the effective implementation of RE projects in the Philippines, meanwhile, commented that the government needs to fully implement the mandate of the RE Act of 2008, which include the issuance of the rules on Renewable Portfolio Standards (RPS) for on-grid and off-grid areas and Green Energy Option Program.
The RPS requires distribution utilities (DUs) to source a portion of their power supply from eligible RE sources. The Green Energy Option, meanwhile, is a mechanism to provide end-users the option to choose RE as their source of energy.
“NREB already endorsed all three draft rules for approval of the DOE,” NREB Chairman Jose Layug said. “NREB is set to endorse the RE market rules to the DOE for approval by the end of the year after finishing the public consultation.”

Yes to higher coal taxes
ENVIRONMENT advocates like members of Greenpeace laud the members of the Senate and the House of Representatives for pushing efforts toward what they say is “a fairer tax scheme on coal.”
“We will continue to work with partners to expose the true costs of coal, and to empower communities and the government in transforming our energy systems to renewable sources, which are the real cheaper, safer and cleaner alternatives,” Greenpeace said in a statement. “The vision is to power the country’s development with 100-percent renewable energy.”
The group added, “While the tax adjustment is a historic victory, the fight is far from over in ending the age of coal and limiting global temperature increase to 1.5 degrees Celsius.”
“We owe this to every Filipino who are at the forefront of climate impacts. And the coal industry still owes a lot.”
Meanwhile, WWF-Philippines said the passage of the coal-tax hike is necessary to help protect Filipinos and environment from the devastating impacts of coal consumption.
“Companies need to embrace sustainability as a business imperative,” said Angela Consuelo Ibay, WWF-Philippines head of climate and energy program. “Extreme weather events, climate disasters, resource depletion, ecosystem loss and pollution can cause major disruptions on businesses’ value chain and productivity, and can debilitate our economy.”
According to the group, they believe that “taxing coal and other fossil fuels is a way of climate-proofing our assets and industries.”
“Consumers have become more socially and environmentally aware and demand companies to make lasting contributions to our people and planet’s overall well-being.”
The group said that the coal tax pooled together with fossil-fuel taxes from diesel, kerosene and natural gas can bring valuable fiscal benefits for the country.
“Why do we continue to allow the dirtiest fossil fuel to enjoy exemptions from taxes, which they have been enjoying for more than 30 years?” Ibay added. “Our people deserve better.”

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