Philippine Renewable Energy Act: Dysfunctional and Inefficient Protectionism

Posted by BongV on 3/15/10 • Categorized as Economy, Government

I will cut to the chase – The issuance of the Renewable Energy Act is as exciting as a root canal to a foreign investor, but a godsend to the only domestic companies that can afford the capital investments – aka monopolies owned by the oligarchs – you know those companies who are owners of the biggest corporations in media, power generation, water utilities, transportation, retail – have “pedigree” and who support Aquino.

Wind energy - Used to fry Pinoys in their own lard!

Consider these incentives – it’s like a fire sale!

Incentives for renewable energy developers
Posted on July 12th, 2009

Mario Marasigan, assistant director of Department of Energy, said during his presentation in Tiwi, Albay said that the use of renewable energy could lower power rates. Marasigan said fiscal and non-fiscal incentives for projects under the Renewable Energy (RE) Act could help reduce electricity rates.

The Energy Regulatory Commission (ERC) would see to it that the benefits of the RE law trickle down to the consumers, assured Marasigan. It is the role of the ERC. The reduction will definitely be felt by the consumers. The ERC will determine the impact of all these incentives, he said.

Marasigan, in saying that the RE law will lower electricity costs, is taking into consideration the tariff cuts spelled out in the implementing rules and regulations (IRRs) of the RE law. For instance, if a wind energy project is selling P7 per kilowatt hour and after applying the tariff incentives in the RE Act, it went down to P4 to P4.50 per kWh, then it will be translated to lower rates for consumers. It depends on the ERC’s discretion. All rate-related issues are addressed by the ERC, he said.

Fiscal incentives available to the developers of the renewable energy include:
- one percent of gross income on RE development projects
- income tax holiday for seven years
- corporate tax rate of 10 percent of net taxable income
- duty free importation
- 10-year exemption from tariff duties
- Net operating loss carry over
- Accelerated depreciation
- Zero percent value-added tax rate
- Cash incentive for missionary electrification
- Special realty tax
- Tax exemption on custom credits, and
- Tax credit on domestic capital equipment.

Other incentives awaiting RE developers are, 10-year duty free importation and VAT exemption of all types of agricultural equipment and machinery and tax rebates on purchase of RE components.

The country is expecting to generate up to $10 billion in fresh capital from renewable energy development projects in the next 10 years.

Sounds really good don’t you think? You would think that with these kinds of incentives will attract investments like bees to a flower. However, these same type of incentives can be easily matched by our neighbors – and then our handicap comes into play.

The point is – the monopolies are already here – they have already made a hefty killing such that their owners wind up in the Global Fortune 500 with billions of dollars in assets – while at least 35% of the population leaves on roughly $3 per day.

Those incentives are guaranteed to reduce revenues that could have gone to schools, hospitals, roads.

They need more incentives to recover their capital outlay right? Why not just open up the economy and let foreign companies come in and pose a competition to our monopolies? How about that for incentive?

You know what the handicap is? If you check the Foreign Investments Negative List – you will note that operation and management of public utilities, under which Renewable Energy developers and providers are categorized allows limited foreign equity.

*****
Up to Forty Percent (40%) Foreign Equity

19. Operation and management of public utilities (Art. XII, Sec. 11 of the Constitution; Sec. 16 of CA 146)

23. Project Proponent and facility Operator of a BOT project requiring a public utilities franchise (Art. XII, Sec. 11 of the Constitution; Sec. 2a of R.A. 7718)

You know how foreign investors react to these provisions right? They reacted in the same manner in the first wave of FDI – they invested elsewhere – anywhere in ASEAN but the Philippines. At best, the Philippines gets the crumbs.

It will be a stretch to imagine the SMEs benefiting from this arrangement given the lack of venture capital (which can be accessed by SME under a more foreign investment friendly regime, i.e 60%-foreign/40% domestic).

So, who really is going to benefit from these incentives?

The companies that are already here – the monopolies.

The companies that can match foreign capital (without the constitutional prohibitions) – the monopolies.

At most, Pinoys will become resellers of the goods imported by… you guessed it right, the monopolies.

Just like the telecom market, the renewable energy market is poised to become another intramurals between the old rich under a protectionist environment – - Lopez vs Aboitiz? Lopez/Aboitiz vs Pangilinan?

And you thought, Silicon Valley will come to set up shop – not so fast, buster. It will just become another glitzy campaign just like your 3G celphone services, or your wireless DSL – the same lousy expensive services courtesy of your monopoly next door. Another day in the islands – where indios are niluluto sa sariling mantika.

Ignorance is bliss – WOWOWEE.

About Bong:
A self-described "mutt" having ancestors of diverse origins - Maranao, Ilonggo, Butuanon, and Ilocano. Born and raised in Southern Mindanao's Davao City, now living in the East Coast's Sunshine State.