Energy 62, Feed in tariff means more expensive electricity

* This is my article in SPARK by ADRi last April  06, 2016
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The Philippines has the unhealthy label of having the “second or third most expensive electricity prices in Asia” next to Japan and Singapore. This is not a good news for energy-intensive industries like manufacturing and hotels where electricity demand can be running 24/7.

With ASEAN economic integration, many big energy-intensive industries will be put up in cheaper-electricity countries like Vietnam, Thailand, Malaysia, Indonesia and Cambodia, then export to the Philippines at zero tariff. That means potential job creation that fails to materialize here.

It is important then that all succeeding government energy policies should be geared towards reducing the prices of electricity. Unfortunately, we are doing the opposite with the implementation of the feed in  tariff (FIT), priority dispatch, and  renewable portfolio standards (RPS) under the Renewable Energy law of 2008 (RA 9513).

FIT means guaranteed fixed price for solar, wind, biomass and run-of-river hydro for 20 years. FIT for solar and wind in particular are 2x current average prices of conventional energy sources. Priority dispatch means even if cheaper conventional energy is available, expensive renewables will be prioritized in the grid. And RPS is the minimum percentage of generation that should come from eligible RE resources.

Let us briefly review the  case of Germany – #1 in solar installation  in the planet, #3 in wind after the  US and China, and perhaps having the most gallant policies  in FIT, other subsidies, and priority dispatch of renewables in the industrialized world.

Figure 1. Electricity prices in selected rich countries, 2015.

Source: Gilbert Kreijger, Stefan Theil, Allison Williams,  “How to Kill an Industry”, Handelblatt, 24 March 2016, https://global.handelsblatt.com/edition/396/ressort/companies-markets/article/how-to-kill-an-industry

So Germany has the most expensive residential electricity tariff and second most expensive in industrial tariff next to Japan. The authors further made these observations:

* Ordinary consumers saw their electricity bills double since the introduction in 2000 of RE; total cost has risen from €0.9 billion in 2000 to €23.7 billion last year and will likely hit €25.5 billion this year.

* Some 350,000 German households have had their power cut off, up 13 percent from 2011. Shocking inefficiency with RE producing €25 billion in electricity-bill surcharges this year will only be worth €3.6 billion on the market.

* Green-power surcharge on electricity bills already cost consumers €188 billion since it was first introduced in 2000 – or €4,700 for each of the country’s 40 million households. The nuclear shutdown will cost another €149 billion by 2035, according to a Stuttgart University study.

How expensive is FIT in Germany that they are among the factors why a number of that country’s top manufacturing and energy-intensive firms like Siemens and BASF are moving or have already moved their production facilities abroad?

Figure 2. FIT rates in Germany, lessons for the Philippines

Source for Germany: No Tricks Zone, Germany’s Electricity Price More Than Doubles…Electrocuting Consumers And Markets, December 07, 2014.

In 2003 in Germany, FIT constituted only 2.4% of the electricity price. By 2011, it ballooned to 14% and further up to 21.4% by 2014. In the Philippines, there is a huge % increase in the FIT-Allowance (or FIT-ALL) from 2015 to 2016, tripling FIT-ALL rates in just one year.

The RE law or RA 9513 was enacted in December 2008 but FIT was only granted in July 20012 mainly due to public opposition to more expensive electricity, and was finally implemented in February 2015. Starting this April 2016, the FIT-ALL will rise to 12.40 centavos/kWh. Households that consume up to 200 kWh a month will pay an extra P24.80. Households that consume up to 300 kWh a month will pay an extra P37.20/month.

Aside from FIT, priority dispatch and RPS, the RE law gives many other subsidies or relaxation of taxation to renewable producers, privileges that are denied to producers of conventional but cheaper power sources. Among these additional sweetheart deals contained in Section 7 of RA 9513 are: income tax holiday for 7 years, duty-free importation of RE machinery, equipment and materials within the first 10 years, special realty tax rates, net operating loss carry over (NOLCO) for the next 7 years, 10% corporate tax rate (not 30%), and tax exemption of carbon credits.

Renewables are good and useful because they help expand power capacity in the country. But the FIT, other subsidies and privileges given to them are not, they contribute to more expensive electricity prices and grid-destabilizing power supply that go up or down within minutes.

If cheaper electricity, more stable power supply, and more investments and job creation are to be the priority for the Philippines, we should allow market pricing of energy sources and in the grid dispatch. The expanded MW allocation for solar, from the original 50 MW to 500 MW, should be recalled. There are pressure and lobbying to further raise solar allocation to 2,000 MW to be eligible to FIT.

Compromise measures would look like these: (1) revert the FIT-eligible solar allocation from 500 MW back to 50 MW, or down to 250 MW but retain priority dispatch for solar at market rates for up to 1,000 MW. (2) revert the FIT-eligible wind allocation from 400 MW back to the original 20 MW, but retain priority dispatch for wind at market rates up to 1,000 MW.

Biomass and run-of-river hydro do not create much problem now compared to solar and wind. So the existing FIT-eligible allocation of 250 MW for both can be retained. Additional pressures to expand this capacity should be resisted too.

  

Bienvenido S. Oplas, Jr. is a Fellow of the Albert del Rosario Institute, a BusinessWorld columnist, and President of Minimal Government Thinkers. minimalgovernment@gmail.com.

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See also:
Energy 59, Cheap oil and the OFWs, March 07, 2016
Energy 60, PH solar companies, PagIBIG loan for solar, March 12, 2016 
Energy 61, EPDP lecture on PH power projections by 2040, April01, 2016

BWorld 25, Feed in tariff means expensive electricity, November 14, 2015 

BWorld 47, Renewable energy and the illusion of merit order effect, March 06, 2016 

BWorld 51, WESM as market-oriented, PEMC as bureaucracy-oriented, March 25, 2016 

Sensational libertarians and solar power in the Visayas, March 30, 2016

BWorld 53, Population and growth projections

* This is my article in BusinessWorld last April 06, 2016.

Many international agencies, both multilateral and private, have been producing growth projections for the Philippines and other developed and emerging economies in Asia. Most of these projections are short-term, usually for 2016 to 2018, and they show generally that the Philippines has better prospects for faster growth than other economies.

NEDA also launched the “Ambisyon Natin 2040” or “#SanaSa2040” campaign this week, which mostly focuses on a “Middle Class Lifestyle” long-term perspective for Filipinos. It is a modest goal actually compared to the more ambitious goal of “Developed Country by 2050” that was articulated by other groups about two years ago. The latter is an ambitious but not impossible goal.

One factor that contributes to this optimistic view of the Philippines is its huge and young population, an indication that it will result in more workers and entrepreneurs, more producers and consumers, more sellers and buyers.

Here is a set of data incorporating the top 10 biggest population countries and East Asian economies (see Table 1).

Our average population age is only one-half that of Japan, 13-14 years younger than that of China and the US, and 16-19 years younger than those of Singapore, South Korea, and Hong Kong. These rich and developed East Asian economies will soon be needing more migrants to sustain their economy, especially their huge number of pensioners. One can expect the big need for health professionals from highly-globalized and English-speaking Filipino professionals to fill the needs of these rich East Asians, not to mention those from US-Canada and Europe.

A big, young population means a big pool of highly trainable work force, eager to explore the world, and learn about the latest technological innovations and production processes.

Ten or 20 years from now, the situation will further tilt in favor of the Philippines because of its huge pool of young children at the moment. Meaning 10 to 20 or 30 years from now, they are the workers, managers, or shareholders of many enterprises here and abroad.

Nearly one-third of the Philippines’ nearly 100 million people in 2014 were babies up to 14-years old. That’s huge compared to Japan’s 13%, Hong Kong’s 12% and Singapore’s 16%. Only Laos and Cambodia have a similar situation but they have a smaller population (see Table 2).

  

There are important policy implications for the Philippines of the above data.

One, public health care and education should focus on the young and less on the adult population because education is now more decentralized with the continued revolution in IT. There is bigger role for household and private sector education and skills development these days are much easier and faster since intensive training with very competent international speakers can be done online.

Two, migration of university students, labor and professionals should be facilitated with few transparent rules and not be peppered with envy-inspired regulations and revenues-raising measures. In the case of rich and ageing East Asians (Japan, South Korea, Taiwan, Hong Kong, Singapore), north Americans and Europeans, either they will need more Filipino health professionals, or they will build retirement and modern health care facilities here and bring many of their ageing people here.

If more Filipinos have good-paying and stable jobs, they will need less welfare and subsidies from the government, and the state’s high and multiple taxation policies will no longer be justified.

Bienvenido S. Oplas, Jr. is the President of Minimal Government Thinkers and a Fellow of SEANET and the Albert del Rosario Institute (ADRi). minimalgovernment@gmail.com.

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See also: 
BWorld 50, Adam Smith and Jovito Salonga, March 21, 2016 
BWorld 51, WESM as market-oriented, PEMC as bureaucracy-oriented, March 25, 2016 

BWorld 52, Tax reform proposals for the Philippines, April 01, 2016

Demography 23: The UN, Depopulation and Climate, May 03, 2015 
Demography 24, The Maddison Project data, August 13, 2015 

Demography 25, Ageing societies, Japan's depopulation, December 29, 2016

Lion Rock 18, Nick Smith as new Chairman of LRI

The Lion Rock Institute (LRI), Hong Kong's first and only independent free market think tank, has a new Chairman, Mr. Nick Sallnow-Smith. For 10 years, 2004-2014, LRI Chairman was Bill Stacey. Then in 2015, he changed job I think and he needed more time there, so LRI Exec. Dir. Peter Wong acted as interim Chairman in 2015 until March 2016.

Below is Nick's letter as posted in the LRI website.
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1 April 2016

A Message From Our New Chairman

Dear Lionrockers,

Despite the date, this is not an April fool’s message! Rather it is my means of expressing my pleasure today in saying a formal hello to all involved in the Institute.  I had the honour (with a ‘u’  for all you North Americans!)  of being asked, in our own “small circle” election, to take over today from Peter Wong as the Chairman of LRI.

It is a role I am happy to take up. The “Lion Rock spirit” in Hong Kong has been one of the key factors attracting me to stay in this city for the rest of my life. But it is a spirit which is at risk of damaging erosion.  For all of its modern history, our city has been an international role model for free enterprise and open markets. Hong Kong’s success has demonstrated to the world the value that these freedoms create for the whole community. That they could be questioned here of all places is astonishing, and is a challenge which we should not shirk.

We have a duty to speak up for the spirit of individual freedom and accountability that the Lion rock represents, so that new generations of Hong Kongers understand what made this city such a success, and realise that its loss could irreparably damage it.

For over 150 years politics were effectively “outsourced” to London. Free markets here were an economic issue. Today, they are also critical for personal freedom. The two cannot be separated. Without freedom to exchange, there can be no genuine personal freedom, and without the personal freedom to benefit from it, free trade means nothing.

I look forward to joining you in our own “free enterprise” collaboration at LRI aimed at standing up for these freedoms and explaining their fundamental value. This stand is increasingly important, as we face a growing global wave of collectivist fervour, which urges the denial of individual freedoms because they prevent those who would “socially engineer” our lives from doing so.

I hope to meet more of you over the coming months to share ideas on how we can be more effective in this mission.

Best wishes,

Nick Sallnow-Smith

Chairman

The Lion Rock Institute

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I have met Nick 3x in HK, during the LRI's Reading Club Salon 2012, 2013 and 2014. I attended those 3 events of small-group reading-discussion sessions, courtesy of LRI travel scholarship, along with Barun Mitra, Feng Xingyuan and Mao Shoulong. Our group photos on those 3 events in 2012, 2013 and 2014, respectively.

In the last photo, Nick is 2nd from left standing, Peter Wong is 4th from right standing, and Bill is in the center, seated.

Nick is British, been living and doing business in HK for decades. Soft-spoken guy, I can't imagine how he gets angry because he seems to be smiling often.

Congrats LRI for having Nick on the board.
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See also: 
Lion Rock 4: Leftism and Populism by Intellectuals, November 05, 2012 
Lion Rock 11: Barun Mitra on Democracy, Reading Salon 2013, October 28, 2013
Lion Rock 15: Mary Ruwart's Book, "Healing Our World", November 03, 2014
Lion Rock 16: 10th Anniversary of LRI, November 07, 2014 
Lion Rock 17: Photos and Discussions in Reading Club Salon 2014, November 25, 2014

El Nino, Oplan Bayanihan, CPP-NPA and Kidapawan road closure

If the issue of rallyists and demonstrators in Kidapawan, Cotabato was asking government for subsidy to deal with El Nino crop failure, why (1) most plackards were campaigning against Oplan Bayanihan (OB), (2) farmer demonstrators were supposed to be very poor and hungry yet have neat, uniformly-printed plackards, (3) there were flags with hammer and sickle, (4) occupy an important highway connecting Davao-Cotabato, among the major urban centers of Mindanao?

Photos from  http://www.gmanetwork.com/news/story/561130/news/regions/farmers-killed-dozens-hurt-in-dispersal-of-protesters-in-cotabato

and http://davaotoday.com/main/headline/in-photos-tension-brews-a-day-before-the-dispersal-of-the-farmers-barricade-in-kidapawan-city/

I was not so familiar with OB, I googled "Oplan Bayanihan", the top 9 articles given by google are from (1) philippinerevolution.net, (2) human rights PH, (3) karapatan, (4) nato reyes, (5) inquirer, (6) Bayan USA, (7) bulatlat, (8) army.mil, and (9) interaksyon.

Ahaa, anti-OB is mainly the campaign of the CPP-NPA and affiliates -- 6 of those 9 sources, except from #5, 8 and 9. And the campaign has drowned the legitimate farming issue of farm subsidy against El Nino crop damage.

This video shows that (1) BFP started spraying water, (2) PNP started tactical advance, (3) protesters started throwing rocks and stones, lots of of stones, (4) PNP retreated, some running away in panic, (5) a small group of PNP was cornered by the advancing protesters armed with rocks, (6) gun shots. 

"Who started the violence? You be the judge"
https://www.facebook.com/kalumuranmindanao/videos/1272844346063461/

The CPP-NPA militants + Bayaan Mo Na front organizations manipulated the farmers. From the plackards, there seems to be little mention about subsidy against El Nino, more of anti-OB. Plus the red banners, plus the KMP.

A day before the dispersal, those at the frontline looked like non-militants, young boys, some women. But the plackards were consistent -- Oppose OB. 

Some (or many?) reporters are simply pro-demonstrators, like this story:

"All they wanted was rice, plus free vegetable seedlings and financial subsidy in the wake of the El Niño. But after three days of protest to air their demands, all that the protesting farmers and their supporters got were bullets." http://www.mb.com.ph/demand-for-rice-turns-bloody/

Wanted rice and vegetables only? But many plackards show that the highway occupants wanted the military/AFP's OB to be stopped, which has zero relevance to El Nino issue. The reporter did not mention anything about this.

El Nino also affected the provinces or islands of Negros, Cebu, Mindoro, Masbate, Samar, Leyte, Ilocos, etc. Farmers also suffered there but there were no highway occupation and closure for several days, no demand to stop OB. Why? The CPP-NPA on those provinces were less active, or less manipulative?

Meanwhile, this big El Nino is fading fast. Big La Nina is coming, more floods and destruction of farms soon. Will there be another road occupation and closure in Cotabato, elsewhere?

If the demonstrators, the CPP-NPA and Bayaan Mo Na opposed another OB like Oplas Bienvenido smile emoticon I can understand because that guy always says politically incorrect things, like big El Nino is not man-made but nature-made. But hey, they are opposing another OB, Oplan Bayanihan, that has zero relations with El Nino and prolonged drought.

To summarize my arguments:

1. Wrong venue by the demonstrators, NOT a highway please, there are public plaza, school grounds, idle farms, etc. Rallyists' freedom of assembly is secondary to other people's freedom of mobility.

2. Wrong insertion of anti-OB campaign in an otherwise legitimate farming issue of drought and crop failure.

3. Wrong use of live bullets against the demonstrators. Teargas, rubber bullets, strong water pressure, truncheons, etc. would be enough to disperse them from the highway.

Meanwhile, this video and interview of one of the original farmer rallyists shows that some or many of them really wanted to go home earlier, a day before, but leftist leaders prevented them from leaving.

https://www.facebook.com/atrocitiesandlies/videos/695574457252433/

In a debate in a friend's wall on this subject, I argued the following:

1. Inconveniencing the public via closure of a highway to get public attention is not justified. The rallyists have created more public animosity, not sympathy, in that act. Except for the few deaths, perhaps hundreds of thousands of people in Davao and Cotabato are clapping the PNP for opening up the road again.

2. When the Iglesia mob closed and occupied Edsa for 2D/3N to protest against DOJ's Leila de Lima, that act was road dictatorship. Even assuming that their "cause" was 101% valid, their choice of venue was 101% wrong. Their "freedom of assembly" is secondary or far out compared to the "freedom of mobility" of other people.

3. Road/highway closure and occupation for days is evil and wrong -- whether the perpetrators are Iglesia or Catholic or IS or commies or capitalists or batman. No justification. Kidapawan highway closure for 3 days is wrong. Mali lang ang govt kasi may namatay, but the dispersal was 100% correct.

EFN Asia 60, Conference 2014 in Hong Kong, part 5

Continuation of notes made by Karthik Chandra during Conference 2014.

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Day 2: November 7, 2014

Session 7: CALD – EFN Asia Joint Session

MC: Andrew Work

Jules Maaten

Head of FNF Philippines and former Member of European Union Parliament

• Introduced the Council of Asian Liberals and Democrats (CALD, politicians) and EFN (network of think tanks and liberal activists/individuals)

Dr. Chee Soon Juan

Secretary General, Singapore Democratic Party & Former Chairperson, CALD

• The state of democracy in Singapore (SG) and HK is of great interest to the entire world itself. SG and HK both have very high inequalities. SG reportedly has the highest number of per capita millionaires; at the same time nearly 5% of the population draws less than US$5,000 per capita.

• SG has a broken pension savings scheme and an entire generation is at a threat of no security/income. According to the ILO, SG’ workers work the highest number of hours in Asia; are the most stressed out in Asia.

• Still, no protests and opposition in SG. The only reason why SG does not witness protests (such as those currently taking place in the HK) is that SG crackdowns heavily on gatherings and political opposition.

• There is a need to understand the difference between extractive societies (where a tiny minority extracts the resources) and inclusive societies (creative destruction is inherent to inclusive capitalist societies). Despite prosperity and high wealth SG’s economy does not see innovation: nothing like the SG version of the Apple or Google. SG depends heavily on immigrants amd the finance sector – no atmosphere and culture of innovation, democracy, creative destruction and etc. Staid, one party rule is mostly to blame – no mention of political freedoms – till recently human rights itself was a taboo word in SG.

• SG signed a free trade agreement in the USA. This has improved trade and wealth overall, but apparently has not increased freedom, prosperity and health for its poorest of the poor and poor workers. Interests of SG corporations are visibly protected – but the interests and concerns of the workers are not protected.

• SG’s FTA with EU: EU and USA are seen as exploiting the workers of SG through the FTA. Liberals should have the foresight, courage, compassion and commitment to fight for the freedoms and rights of the workers. Because, without protecting the rights of the workers, there is no true liberty and freedom.

• HK and SG both face unique opportunities in the form of the current challenges. Liberals and Democrats have to deeply introspect and decide on the role they should play.

Bill Stacey

Chairman, Lion Rock Institute, HK

• Gordon Tullock (who passed away only last week) is the father of public choice theory which is about the importance of decentralization of power, the need for constitutional checks on power, etc.

• HK has achieved a lot in terms of freedoms for the people and there is a need to cherish,

preserve and promote these freedoms.

Hon. Markus Loning

Fmr Federal Govt. Commissioner for Human Rights Policy and Humanitarian Aid, Germany

Former MP, Free Democratic Party (FDP)

• There is a need to inject the concept/underlying philosophy of human rights in the discourse on economic growth and progress.

• We all are supporters of growth; but, we should go beyond the narrow definition of growth as in terms of economic incomes and wealth. The definition of growth should also include the human rights and humanitarian aspects of growth.

• Typically, the debate about inequality (esp. in Germany and the rest of Europe) is centered on the approach to bring everybody to the same mean/level. Usually such discussions are dominated by socialists and social democrats. Liberals are generally seen as supporters of inequality (because that is the driver of capitalism, market forces, etc.)

• Differences between people will always be there and there is nothing wrong with that – but we liberals have to strive for removing inequality esp. in opportunities to grow and prosper (by improving access to quality education, employment, social security, etc.). In that sense, we liberals have to be concerned about elimination of inequality – of opportunities.

• Strengthening human rights and political freedoms should be seen as integral to reducing/removing such inequalities.

Olaf Kellerhoff

Head of Asia & Human Rights Department, FNF Head Office, Germany

• The search for a remedy to inequalities leads to a tendency to look too far into the past…where we find several models that have failed and proven to be wrong. But let us not be fearful of past failures and be too bound by them. Let us boldly go forward and am confident that this conference would certainly help chart new courses.

Hon. Emily Lau, MP

Legislative Councillor, Hong Kong

Chairperson, Democratic Party of Hong Kong

• Described the precursors to the HK’s Occupy Square/Umbrella movement, the initial stages, her role, and the key events on how they unfolded. How the police used force and arrests to control the key opposition political leaders and legislators.

• All these wonderful pro-democracy events are taking place only because the citizens esp. the youth and opposition leaders of HK are demanding greater freedoms - which were promised to them by China.

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See also: 
EFN Asia 44: Day 2 of Conference 2014, November 10, 2015 
EFN Asia 45: Growth, Inequality and the Philippines, November 14, 2015 
EFN Asia 58, Conference 2014 in Hong Kong, part 3, March 30, 2016 
EFN Asia 59, Conference 2014 in Hong Kong, part 4, April 01, 2016

Energy 61, EPDP lecture on PH power projections by 2040

Yesterday afternoon, I attended the Energy Policy and Development Program (EPDP) lecture at the UP School of Economics (UPSE). The 5 co-authors were all there. The powerpoint version of this 34-pages paper was presented by Dr. Majah Ravago. Lecture room was full, audience from different groups, energy companies, NGOs.

http://garnet.zoom.ph/~upeconor/wp-content/uploads/2016/03/DP2016-01-Filipino-2040-Energy_Power-Security-and-Competitiveness.pdf

Sadly, there was no one from the WWF because during the open forum, I referred to them as "dishonest people" (audience laughed) for claiming that the capacity factor of renewables is 53%. From WESM data, capacity factor of solar in the PH is around 18% only, wind about 14%, biomass about 12%, so where did the WWF get their 53% figure, from the cold air of the Arctic or Antarctica?

The EPDP team however used the WWF data in projecting PH power capacity by 2040. I hope they will discard that WWF paper as a source and make another PH power projection.

Among the slides shown was this chart, that the generation charge in Meralco area is the biggest component of our monthly electricity bill. I pointed out during the open forum that one reason for this is that the cost of generation for natural gas power plants is distorted upwards by government royalty or energy tax, the Malampaya royalty. It is about P1 to P1.50/kWh, the royalty alone, that government collects from the Malampaya consortium (composed of Shell, PNOC, another company) that developed the nat gas field offshore of Palawan, which the consortium passes to the 2 power companies that own and run the 3 nat gas power plants in Batangas, and these companies ultimately pass it to us electricity consumers in the form of higher generation cost.

So this type of energy pricing by the gencos in the PH, that P4.48/kWh from nat gas includes the Malampaya royalty or energy tax (about $1 B a year, makes the government richer, greedier). If there was no royalty, then the consortium and the 3 power plants in Batangas that use the Malampaya nat gas can sell at around P3 to P3.50/kWh including their profit already.

I did not comment anymore on carbon tax as inspired by the UN FCCC global energy racket. There were many hands raised that afternoon from an active audience.

So this is the result of using that lousy and dishonest WWF data on capacity factor of renewables. The projected installed capacity by 2040 under the 30% minimum share of renewables is 48 GW. If the more realistic cap factor of around 16% for renewables is used, then the required installed capacity by 2040 should be 50+ GW.

Nonetheless, this table and projection shows a very important point -- that if we use the 30% mandatory renewables share by 2040, we will require some 48 GW of installed power cap (in 2014 it was 16+ GW) and the average generation cost will be P6+/kWh.

Whereas if we discard that 30% mandatory renewables, we will need only 40.5 GW of installed capacity to serve some 130 M Filipinos by 2040. And the cost of generation that consumers will pay will be lower, only about P4.7/kWh.

I like the points made by Alan Ortiz of San Miguel Energy Corp. (SMEC), the biggest genco in the country, followed by Aboitiz Power, First Gen and so on. Especially on the cost of building renewable power plants: about $5M per MW for solar, $4M/MW for wind and hydro, $2M/MW for coal. And solar requires 2 hectares of land to produce 1 MW of power. Me thinks that if actual electricity production is considered and not the installed capacity, it will require about 5-6 hectares of land to produce 1 MW because solar's average capacity factor is only around 18%. That is, a 100 MW solar farm can actually produce only around 18 MW on average.

After the lecture. All UPSE faculty members and EPDP Fellows, except the left most :-) From left: Ruping Alonzo, Raul Fabella, Ernesto Pernia, Majah Ravago, Rolly Danao. Sir Ruping (also my ninong, wedding godfather) and Raul were my former teachers at the school.

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See also:
Energy 58, Sen. Loren Legarda and renewables, February 27, 2016
Energy 59, Cheap oil and the OFWs, March 07, 2016
Energy 60, PH solar companies, PagIBIG loan for solar, March 12, 2016

BWorld 34, Solar power and supply instability, December 24, 2015
BWorld 47, Renewable energy and the illusion of merit order effect, March 06, 2016 

BWorld 51, WESM as market-oriented, PEMC as bureaucracy-oriented, March 25, 2016

Electric cars, the promise... of inconvenience? March 02, 2016

Wind power, flattened mountain ridges, collapsed towers, March 08, 2016

Business 360-34, Hydropower in Asia, March 17, 2016

Earth Hour 7, Lesson in basic electrical engineering, March 21, 2016

Sensational libertarians and solar power in the Visayas, March 30,  2016

EFN Asia 59, Conference 2014 in Hong Kong, part 4

Continuation of notes made by Karthik Chandra during Conference 2014. The full 25-pages notes are posted in http://efnasia.org/wp-content/uploads/2015/10/EFN-Asia-2014-Conference-Report.pdf

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Day 2: November 7, 2014

Session 5: ‘The most radical form of egalitarianism is equality before the law’

Dr. Tom Palmer

Executive Vice-President for International Programmes

Atlas Economic Research Foundation, USA

• Introduction about the Occupy Wall Street – background and the demands behind this movement – started by a group of disgruntled students mostly from privileged backgrounds and having incoherent demands and philosophy. In particular, their demands were based on the concept of ‘99% and the 1%’, which proved to be a very popular meme and this entire Occupy Wall Street movement quickly caught popular imagination.

• Focus on the meme ‘99% vs. 1%’ - originally started by the students who were essentially anti-globalization. The irony of it is that it quickly became popular across the globe as the rallying cry of the Occupy Wall Street.

• The global inequality has consistently reduced over the past 20 years and is still falling. But, within countries, the inequality is increasing/at elevated levels.

• Impact of immigration on inequality within countries should be carefully understood and decoded: for instance, the US allows lot of immigrants (from poor Latin American countries and especially those with poor education and hailing from very poor economic backgrounds) and therefore the income inequality within USA is much higher (i.e. Gini coefficient is much higher for USA). In contrast, the European countries (eg. France, Germany, etc.) have much lower immigrations (due to comparatively more restrictive immigration policies vis-à-vis the USA) and also have lower inequality i.e. lower Gini coefficients. The lesson from this is that we can have (a lower equilibrium) equality by making others lives worse.

• But, the current debate on inequality (Eg: Thomas Piketty’s Capital) never focuses on global inequality but mostly on inequality within countries. Tom Palmer pointed out the conceptual faults and defects in his book’s thesis.

• Made a strong case of why people like Piketty are less egalitarian than someone like himself who is a ‘hardcore capitalist’. In essence, the question is why does inequality in possessions still amount to more egalitarianism?

• The reason he says is that those who advocate equality usually are advocates of unequal political power. “egalitarian societies” (socialist/communist) survive on unequal political power (eg: communist Soviet Union’s ‘blat system’ or communist China ’guanxi’ system) : putative equal allocation of resources in such systems is not through free market pricing but through exercise of unequal political power. Paradoxically, this results in final unequal allocation of resources and all consequential harmful outcomes. This is true of all totalitarian systems whether they are rightwing or leftwing.

• Usually, the state’s interventionist policies in the name of egalitarianism (Eg: subsidies to special interest groups) serve to transfer wealth from the unorganized majority to the organized minority. This is nothing but predatory and rent-seeking behavior by the organized minority. That is why capturing political power assumes so much importance, especially in heterogeneous societies; the powerful few control the levers of redistribution to favored groups.

• On the other hand, and paradoxically, the so called unequal/capitalist societies actually give a greater opportunity to achieve equality/egalitarianism in outcomes by allowing a freer, more open allocation of resources based on market prices.

• At the heart of creating a more just and egalitarian society is the concept of equality before the law – where we have ‘rule of law’ and not ‘rule of men’. Only such a system would allow the less privileged to get a chance to move ahead in life.

• Therefore, aspirational claims to equality would be realized only with market-based provisioning of equality of opportunities. Eg: The rise of Dalit entrepreneurs in India. Prior to 1991, they had notional, paper based equality rooted in Indian Constitution and the law. But only after free markets expanded are they having a real shot at prosperity.

• Equality of opportunity, equality to access, equality to power, equality before law…this is the real equality that we should aspire for and not mere notional equality that attempts not just redistribution/reallocation of resources: ostensibly, from rich to the poor, but actually by tearing down the rich – and not lifting the poor.

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Session 6: Special Session

‘The ASEAN Economic Community (AEC): Opportunities and Challenges for SMEs’

Organized by SEANET (Southeast Asia Network for Development)

‘Why SEANET is needed?’

MC: Wan Saiful Wan Jan

• The AEC is coming up in 2015. But, there are growing calls for protectionism and also not much demand for pro-market policies and concerted effort by forces. Most pro-trade  organizations are focused on local and national issues. But anti trade organizations are well organized. SEANET hopes to fill this gap and meet this requirement.

Yam Tunku Zain Al Abidin ibni Tuanku Muhriz

President, IDEAS, Malaysia

• IDEAS organisation is committed to promoting free market policies and pro growth approaches in the ASEAN region.

• Overview of the history and background of the ASEAN group.

• Among these countries, fears among SMEs and labour group exist that big corporations would dominate the AEC region. However, they actually would greatly benefit from greater opening of the markets in various countries. Eg. SMEs would benefit from greater access to institutional finance, greater ease of doing business and accessing larger markets thanks to lesser regulations and hurdles and better property rights.

Dr. Kriengsak Chaeronwongsak

President, Institute of Future Studies for Development, Thailand,

Senior Fellow, Harvard University

• The benefits of AEC are multiple and spread across various sectors: (1) unified, single, huge market and production base, (2) coherent and integrated external policy.

• The benefits of AEC for entrepreneurs are clear. The most to gain from AEC are the large, established businesses. However, SMEs too would need to be ensured better opportunities; for this, several steps must be taken (none of which are protectionist and anti-markets and therefore lack fidelity to principles of liberalism and free market economics). It is important that the potential benefits to SMEs are articulated effectively.

• In general, among the SMEs, after the AEC is formed, the small and the large enterprises would survive; but it is difficult to foresee how medium enterprises would survive in this new, changed world. Small-scale enterprises can leverage their competitive advantage of mobility, nimbleness and flexibility (i.e. lack of inertia) in this new system and then be better prepared than medium enterprises to face the changed market.

• On the opposite spectrum, large companies would have deeper pockets and greater access to capital. But the medium enterprises are neither fast-and-nimble nor have access to huge capital. Hence the threat to medium enterprises in the new AEC dispensation: they should either scale up or scale down to survive.

• At the same time, there should be a concerted effort to ensure that SMEs and small players do not “lose out” in the new, liberalized market dispensation. They justifiably need hand-holding and capacity building so that they are prepared for the new, upcoming market scenario.

• One key aspect is access to institutional finance by the SMEs: we need to ensure that banks are free from political interference and nepotism/favouritism so that they are not forced to end up with the burden of non-performing loans after lending to undeserving candidates. 

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See also: 
EFN Asia 44: Day 2 of Conference 2014, November 10, 2015 
EFN Asia 45: Growth, Inequality and the Philippines, November 14, 2015 
EFN Asia 56, Conference 2014 in Hong Kong, part 1, March 28, 2016 
EFN Asia 57, Conference 2014 in Hong Kong, part 2, March 29, 2016 
EFN Asia 58, Conference 2014 in Hong Kong, part 3, March 30, 2016

BWorld 52, Tax reform proposals for the Philippines

* This is my article in BusinessWorld yesterday.

In two weeks, it will be the deadline for the filing of income tax by individuals and corporations. April 15 each year is a reminder for many people of how much of their monthly or annual income goes to the government, aside from the various consumption-based taxes (VAT, excise tax, vehicle registration tax, and so on) that they pay.

With the ASEAN economic integration that occurred at the start of 2016, there is both business competition and complementation among firms and individuals that are based in the 10 member-countries. And tax competition is among such factors that people look up to. They can put up their manufacturing plants in country/ies which have (1) lower and simpler taxes, (2) lower cost of electricity, (3) lower cost of labor relative to skills, among others. And then sell the products to other ASEAN countries at zero tariff.

How competitive and business-friendly, or non-competitive is the Philippines compared to its neighbors in taxation policy? Let us review the most recent numbers (see Table 1).

Of the 189 countries covered in the 2016 PWC report, the Philippines ranked 126th or in the third quartile, which is not really a good position. Compare the numbers for the Philippines vs those of Hong Kong and Singapore, which indicate that they are most business-friendly and hence, most attractive to investors.

* 36 payments of taxes and mandatory contributions vs only 3 and 6 for HK ang Singapore.

* 193 hours per year to pay for all those steps and procedures vs only 74 and 84 hours for HK and Singapore.

* 43% of commercial profit goes to paying various taxes to government (local and national) and social insurance state corporations (SSS, PhilHealth, Pag-IBIG) vs only 23% and 18% for HK and Singapore.

In total tax rate alone, here are the numbers for the 10 ASEAN countries for the 4 PWC Reports. The Philippines has the highest rate in the region, followed by Malaysia and Vietnam. Very prominent are the huge improvement or reduction of tax rates for Brunei and Myanmar (see Table 2).

Tax wise, the Philippines is NOT an attractive place to do business in the ASEAN. It has the highest total tax rate (TTR) in the region plus complicated and bureaucratic procedures. Although in number of hours, Vietnam proves it is indeed a socialist and bureaucratic state; in number of payments, Indonesia’s bureaucracies are most notable.

The time to cut the Philippine’s number of taxes and forced contributions, and income tax rates was yesterday. So we need to move fast today and tomorrow.

Among the significant reform measures are the following:

One is to cut the income tax rate (currently it is 32% for individuals and 30% for corporations) to a flat rate of only 20% or less. Recall an earlier paper of this column where it was shown that

Tax revenues (TR) is a product of tax rate (t) multiplied by the quantity (Q) or number of taxpayers, individuals and corporate.

TR = t x Q.

If there is only one form of tax, the income tax, then there are two ways to raise TR:

(i) raise t or keep it at a high rate and wait for Q to rise because of increase in population and number of private enterprises, or

(ii) reduce t and watch Q to expand faster than the decline in t.

The second measure is to allow the island-provinces and other far flung provinces to become new countries, and encourage tax competition and governance competition with one another. They should compete with Metro Manila, Cebu, and other big provincial centers.

The third proposal is to have zero national income tax, “No tax on work” proposal, and allow the provinces to impose income tax on top of other local taxes that they collect like real property taxes and business permits. The national government can continue collecting various consumption-based taxes like VAT, excise tax, and franchise tax. The key is to have provincial tax competition without disintegrating the country into many new island-nations. Many social services done by the national government should also be devolved further to the provinces and cities.

Lower tax rates, good governance, quality of infrastructure, and peace and order will prompt provinces to compete with one another, which, in turn, will help empower people to vote with their feet. Companies meanwhile, will be encouraged to go to areas and provinces that give them more peace and order, better roads and cheaper electricity, low or reasonable tax rates that are commensurate with the services that they receive.

By shrinking the national government bureaucracies and empowering the local and provincial governments under the spirit of tax and economic competition, the public will be better served because the leaders know that beyond voting by the ballot, the people are also voting with their feet.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers, and a Fellow of South East Asia Network for Development (SEANET). minimalgovernment@gmail.com

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See also: 
BWorld 33, Computing rise in tax revenues if rates are cut, December 17, 2016
BWorld 49, John Locke and Jovito Salonga, March 18, 2016
BWorld 50, Adam Smith and Jovito Salonga, March 21, 2016 
BWorld 51, WESM as market-oriented, PEMC as bureaucracy-oriented, March 25, 2016