Cheap power to speed up PHL industrialization

The government is at risk of undermining its own economic-growth targets if the Senate version of the tax reform, which will raise the excise tax on coal from P10 per metric ton (MT) to P100 per metric ton in 2018, P200 in 2019 and P300 in 2020 and succeeding years, gets implemented. Increasing the excise tax on coal is not included in the House version of the Tax Reform for Acceleration and Inclusion.

Based on the Department of Energy’s  2015 statistics on the country’s coal consumption, 80 percent of coal is used for power generation, while 15 percent is used by cement plants. The different industries use the rest. The impact of increasing the excise tax on coal to P100 per MT means an additional P0.02 per kilowatt-hour (kWh) from around one-fifth of a centavo at the current level of P10 per MT. Increasing the excise tax to P200 per MT will result in an add-on of P0.04 per kWh, while at P300 per MT the increase will be around P0.07 per kWh. In other words, this will have a heavy impact on power consumers and will also affect President Duterte’s “Build, Build, Build” program.

That’s because an increase in the excise tax on coal would result in higher generation charge and would impact distribution utilities, depending on how much they are sourcing from coal. There will also be corresponding increase in valued-added tax (VAT) because coal has 12-percent VAT. Some electric cooperatives are 100 percent supplied by coal plants, so they bear the full impact of the increase in excise tax.

Duterte has said the country is still in the process of industrialization. We must, therefore, use whatever energy resources are available and affordable for power generation. Coal, as a source of power, is cheaper than renewable energy. This is the reason power companies are taking their cue from the President by building more coal plants. They are doing this knowing that technology and best practices of clean and responsible coal are currently available.

The government generates about P166 million based on the current P10 per MT excise tax on coal. If the Senate version is approved, government income will go up to P1.7 billion in 2018 based on P100 per MT excise tax on coal. The following year, this will go up to P3.3 billion, and again to P5 billion in 2020. The analysis excludes the impact of higher coal excise tax on the transmission charge, since some coal-fired plants provide ancillary service to the grid. Now we ask: Who will pay for all of these?

The Philippine Chamber of Commerce and Industry (PCCI) is opposing moves to raise taxes on coal, saying this would lead to higher electricity cost that would further drag down the country’s competitiveness as an investment site.

PCCI President George Barcelon said any policy that would increase the country’s already uncompetitive power cost should be avoided. Barcelon added: “It is imperative that any policy affecting the quality and costs of power supply should be approached with active awareness and purpose of enhancing the key elements of our economy and that the same shall promote sensitive inclusiveness. Power quality and costs are among those critical elements that are always viewed with clinical valuation by foreign and local investors, especially with regards to heavy or so-called brick-and-mortar type of production, which we need to focus on, too. Many investors have left some years ago due to high and unpredictable power costs and policies.”

Like the PCCI and other sectors, we disagree with justifications that say the resulting increase is not really as high as being projected, or that the increase is small compared to other processes affecting increase in power cost, or the argument that the excise tax on coal has not been touched for some years. These arguments point the issue away from the premise that any increase in the country’s already uncompetitive power cost should be avoided. As the President has said, we need to industrialize. And we need cheap power to do this.