By Lenie Lectura & Catherine N. Pillas
Part Three
OPTIMISM on infrastructure development is relative to an important facet: electricity. And such optimism has a basis, as electricity rates are likely to remain stable since more power-generation capacity is expected to flood the grid. On the other hand, pump prices may still continue to go up based on international oil market’s forecast.
Francis Satunino Juan, one of the members of the transition committee at the Philippine Electricity Market Corp. (PEMC), said prices at the Wholesale Electricity Spot Market (WESM) are expected to continue to remain low this year, barring any unforeseen circumstances.
According to Juan, market rates in the second half of 2017 remained low. This scenario is expected to continue this year, mainly on account of additional capacity that will enter the Luzon, Visayas and Mindanao grids.
“So far, for the last two quarters of 2017, there were no major power outage incidents that occurred. If there were any outages, these had minimal impact,” Juan said. “Hopefully, everything will remain stable as we see more capacity coming in. There is also no scheduled shutdown of Malampaya, so, I guess, we are safe for 2018.”
Threshold
THE natural-gas plants fueled by Malampaya provide around 40 percent of the supply
requirements of the Manila Electric Co. (Meralco). The rest are sourced from bilateral contracts with generation companies and the WESM.
PEMC operates the WESM, the country’s electricity trading floor. It has put in place mitigating measures to prevent abnormal price spikes. In essence, there is a threshold that will prevent higher WESM prices.
WESM’s primary offer cap was lowered to P32 per kilowatt-hour (kWh).
Besides the primary cap, the Energy Regulatory Commission (ERC) also ordered the implementation of a secondary cap to further protect consumers from excessive price spikes triggered by supply tightening.
The P6.245-per-kWh secondary cap kicks in the market once an average threshold of P9 per kWh is reached over a 168-hour period. This is what’s called the price-threshold mechanism. The thresholds were computed based on historical prices, with allowance for three intervals hitting high market-clearing prices.
With these measures, Meralco said rates may not reach the record-high levels.
“We don’t expect price spikes like in the November and December 2013 supply months because of the lower primary cap in the WESM and the secondary cap,” Meralco Head for Utility Economics Lawrence Fernandez said.
Oil
FOR oil prices, the country is likely to see prices go up.
The price adjustment in petroleum products reflects movements in the international petroleum market.
Local oil firms adjust their prices on a weekly basis to reflect prices of imported oil products that arrive in the country. It takes about a week for the oil companies to bring their products to the market from the time they import the products.
The World Bank said recently that oil prices are forecast to rise to $56 a barrel in 2018, from about $54 in 2017 as a result of steadily increasing demand, decline in the production volume as agreed among oil exporters and stabilizing US shale-oil production.
“Energy prices are recovering in response to steady demand and falling stocks, but much depends on whether oil producers seek to extend production cuts,” said John Baffes, senior economist and lead author of the Commodity Markets Outlook. Supplies from producers, such as Libya, Nigeria and Venezuela, could be volatile. Members of the Organization of the Petroleum Exporting Countries and other producers could agree to cut production further, maintaining upward pressure on prices.
Support
THE power sector’s outlook adds to the optimism being shared in the Department of Trade and Industry (DTI).
Aside from that, the DTI is coming equipped with a larger budget this year, following the chief executive’s marching orders to scale up support for micro, small, and medium enterprises (MSMEs), at the same time putting in the budget for the industry stimulus program, the Comprehensive Automotive Resurgence Strategy (CARS) Program.
At least P1 billion was proposed for the agency’s MSME Development Program, ramp up key initiatives, such as microfinancing the “Pondo sa Pagbabago at Pag-asenso” (P3) and earmarking P1.6 billion for the start of the CARS Program.
“The effort for the P3 is around P1 billion,” Lopez told reporters. “There is another P1 billion for our ‘Shared Services Facilities’ that we requested on top of the P200 million we initially proposed.”
Cars
FOR Industry Development, some P1.62 billion was proposed for the CARS Program, meant as government support to offset production costs for participating manufacturers behind the Toyota and Mitsubishi vehicle brands.
The support will come in the form of tax-payment certificates that can be used to pay additional taxes on the vehicle to be produced for the program. The CARS Program gives a production, per-unit incentive equal to $1,000 for participant carmakers Toyota and Mitsubishi. Investments of participant carmakers have begun pouring in since late-2016.
As envisioned by the BOI, the CARS program is intended to make the country’s auto-manufacturing industry on a par with other regional manufacturing hubs like Thailand; through incentives, the program intends to localize key auto parts while making the participant vehicle models competitive versus imported ones in the Philippine market. Production for the CARS program is slated in July of last year.
Overall, Lopez sees the budget for the agency to be in the neighborhood of
P5.8 billion this year—and will gradually be on the rise every succeeding year of the administration. The DTI will gradually be incorporating the P50 billion in MSME-support pledged by President Duterte into its budget, in tranches, over the next six years.
To be continued
Image credits: Nonie Reyes