Gov’t conflicting roles as regulator and player

CONFLICTING ROLES: How can Malacañang credibly oppose an electricity rate increase when the government itself is into power generation and distribution, and regularly slaps a 12-percent Value-Added Tax on sales?

In the debate over the cost of electricity, Malacañang cannot pretend to be an objective referee with only public welfare guiding it.

That is because the government, being both a regulator and a power player, is caught in a conflict of interest.

It was not surprising then that Energy Secretary Jericho Petilla, with President Noynoy Aquino in agreement, defended a hefty government-approved price hike and urged the Manila Electric Co. (Meralco) to appeal the Supreme Court order suspending for 60 days the rate increases.

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GOV’T EQUITY: The top three components of the monthly Meralco bill are generation (52 percent), transmission (24 percent) and taxes (9 percent) – making a total big bite of 85 percent of payments demanded from captive consumers.

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The government is a Meralco stockholder, owning 4.91 percent of equity through the Government Service Insurance System, 11,002,610 shares; Land Bank, 44,338,940 shares; Social Security System, 56 shares; and the Home Development Mutual Fund (Pag-IBIG), 9,400 shares. These figures were taken from a Meralco disclosure to the Philippine Stock Exchange dated Nov. 16, 2013.

As for generation, although the state-owned National Power Corp. has privatized most of its major plants such as those in Masinloc (Zambales) and Calaca (Batangas), it is mandated to generate power. It still operates the 153-megawatt Naga coal-fired plant in Cebu and some power barges in “missionary” areas.

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BLOATED TAX: The VAT shown on the Meralco bill is misleading, redundant and oppressive. The household and commercial consumers in the 25 cities and 86 towns in its franchise area, including Metro Manila, are most likely unaware that the tax has been bloated.

What customers see is actually just the final sales tax after it had been rolled over many times. Unknown to them, previous VATs had already been tacked on the products and services involved in generation and distribution.

The government imposes a 12-percent VAT — paid eventually by the last user — every time these goods and services are sold from one merchant to another. The last tax shown on the Meralco bill is just the last big bite.

The cost of electricity in the Philippines is reportedly the highest in the region. The lack of affordable and predictable power is one of the reasons why foreign investors keep away.

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GLOWING REPORT: In yearend remarks, President Aquino gave the impression he intended to pursue more aggressively in 2014 the same economic program he had adopted when he became president in 2010 – with some changes in his road map to be announced soon.

The administration cites the “stellar performance” of the economy last year marked by “some of the highest growth numbers in Asia.” Official figures show five consecutive quarters of at least 7 percent growth in gross domestic product, including an average of 7.4 percent in the first three quarters of 2013.

Net foreign direct investment grew with inflows rising 33.3 percent to $3.1 billion in the first nine months of 2013 compared to the same period last year. Foreign investment approvals more than doubled (114 percent) in the first nine months to P126.5 billion.

The World Bank’s Doing Business Report ranked the country 108th in 2013, or a jump of 30 notches from 2012. There was a similar improvement in the World Economic Forum’s Global Competitiveness Report with the country going up to 87th in 2013-2014 from 114th in 2010-2011.

The three major credit ratings agencies also gave the Philippines its first ever investment grade ratings. The Philippine Stock Exchange Index reached its all-time record-high.

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OTHER VIEW: The independent research group Ibon Foundation Inc. noted, however, that although 2013 saw rapid growth, there was also “falling job generation, rising unemployment, soaring prices, growing poverty, and stagnant incomes.”

Ibon warned: “If the administration’s policy choices remain biased for foreign investors and local big business, these plans will unlikely lead to improved conditions for the majority Filipinos. In fact, growth is becoming more exclusionary with every year of the Aquino administration’s unreformed economic policies.

“There is a severe disconnect between economic growth and foreign investment, on one hand, and job generation. The latest data for 2013 showed GDP growing by 7.4 percent, FDI inflows by 33.3 percent and FDI approvals by 114 percent — yet employment only increased by 317,000 or 0.8 percent in 2013 from the year before.

“Job generation has actually been falling steeply in the last three years with 1.2 million jobs generated in 2011, down to 408,000 in 2012 and falling further to the 317,000 in 2013. Job generation in 2013 was the lowest since 2000 during the Estrada administration.”

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JOBS, PRICES: Ibon said: “Job generation is poor because growth has been driven mainly by the real estate and construction boom, which are only a small part of the economy and, even considering their inter-linkages, account for only around 15-20 percent of GDP.

“The number of unemployed Filipinos reached an all-time record high in 2013 at 4.5 million Filipinos, using IBON estimates correcting for government underestimation; the conclusion is unchanged even using the lower official estimate of 2.9 million unemployed. Also considering the 7.3 million underemployed means that there were 11.8 million Filipinos either jobless or looking for additional work in 2013.

“The year 2013 was also characterized by record increases in prices of basic commodities and services. The country saw huge increases in power rates, LPG prices, and water rates as monopolies continue to take advantage of government’s privatization and deregulation policies. However due to widespread public resistance, the implementation of water and power hikes have been delayed.” –Federico D. Pascual Jr. (The Philippine Star)