Moving the goalposts-A A +A
An Independent View
Monday, October 14, 2013
ONE of the factors causing few new jobs to be generated is the low rate of foreign direct investment compared to other countries in the region. This is partly because overseas investors are unsure about whether rules on tax and other incentives will be changed. Investors do not particularly mind quantifiable business risk, but they are unrelaxed about the uncertainties of government policy.
Last week, Gunter Matschuck, president of the German-Philippine Chamber of Commerce, expressed concern about government plans to modify the tax holiday regime. He emphasized that a stable environment is critical for obtaining foreign investments, particularly in the manufacturing sector where the investments, once made, are irreversible. The service sector has a greater tolerance towards uncertainties in government tax policies because if the legal environment changes the service-oriented company can disengage from the Philippines without too much cost being incurred.
The Japanese Chamber of Commerce and Industry of the Philippines (JCCI) has echoed the concerns of the German-Philippine Chamber of Commerce. In a letter to the Department of Trade and Industry, commenting on the water rate rebasing dispute involving the Metropolitan Waterworks and Sewerage System (MWSS), JCCI criticized MWSS’ “unilateral and arbitrary act of changing the terms or interpretation of the concession agreement, in total disregard of the contractual rights and interest of the parties with grave concern.”
The dispute has caused the Maynilad Water Services Inc. of the Pangilinan-Consunji group to seek international arbitration with the Paris-based International Chamber of Commerce against the regulator MWSS. Ayala-led Manila Water Co. has also said that it too would be filing a dispute notice.
The enforcement of contracts is an issue that the National Competitiveness Council wants to improve, noting that foreign investors seek stable regulatory and business environments, especially when evaluating infrastructure projects.
Despite concerns about our regulatory framework, it is gratifying that the Swiss-German ThomasLloyd Group Plc is making a substantial investment in San Carlos Biopower Inc (SCBP) which aims to produce 20 megawatts of power. This will use available biomass.
In a validation report submitted to the international accreditation agency, Paris-based Bureau Veritas, SCBP has mentioned that where necessary fossil fuels will be used.
Any use of fossil fuels, in this case, bituminous coal, is a cause for concern because it introduces additional uncertainty in an already uncertain regulatory environment involving the feed-in tariff (FIT) subsidy which presumably encouraged Thomas Lloyd to make the investment in the first place.
In the case of biomass the FIT allowance is P6.63 per kilowatt hour. But if the biomass may be augmented by coal, there is a problem with calculating the FIT subsidy for SCBP. How do we know how much electricity will actually be generated from biomass? The Department of Energy (DOE), which has calculated the FIT allowances, will need to be clear on this matter because organizations that are responsible for selling electricity to end users, such as Meralco, have never shown enthusiasm for the FIT concept. FIT opponents will look for ways to cause FIT payments to be withheld. Using coal is one of these ways.
Thomas Lloyd is also reported to have invested in a solar farm venture-the US$45 million [almost P2billion] 22 MW facility of San Carlos Solar Energy Inc. The FIT allowance for solar Energy is P9.69 per kilowatt hour but this is a substantial decrease from the initially announced solar FIT allowance. The reduction for solar FIT was due to improved cost-effectiveness due to technological advances in solar panel design. But these technological advances are happening all the time. Does this mean that the solar FIT allowance will incur further decreases before any solar project is implemented?
Those who have supported renewable energy investments in Negros will need to be vigilant so as to ensure that no-one will move the goalposts.
Otherwise the investors will disappear.
“The art of government is the organization idolatry”
Man and Superman (1903), George Bernard Shaw (1856-1950)
Published in the Sun.Star Bacolod newspaper on October 14, 2013.