Scourge

Mindanao’s economy is about to be hit by two scourges. Together, they could produce widespread economic dislocation, high unemployment, disrupted production systems and, at worst, even famine.

The first scourge is the abrupt closure of about 26 mining companies on orders of DENR secretary Gina Lopez and on the basis of a fuzzy “audit” process. The mine closures will result in mass layoff of workers who have no alternative employment in the areas where they work. The closures will cut deeply into the revenues of local governments, inhibiting their capacity to respond to looming economic emergency.

The second scourge is the cancellation of agribusiness venture agreements (AVAs) entered into by plantation companies and agrarian reform beneficiaries. Any of the plantations volunteered to enroll their landholdings in the agrarian reform program with the understanding that AVAs will be an option open to both agribusiness companies and farmers. The threatened cancellation completely reverses standing policy and injects paralyzing uncertainty for both the agribusinesses and the farmers.

The effort to revoke existing AVAs is spearheaded by Agrarian Reform secretary Rafael Mariano – the other wide-eyed ideologue President Duterte allowed into his Cabinet.

The most immediately affected agribusinesses will be those that produce tropical fruits for exports. Tropical fruits are the only export products where we enjoy competitive advantages. Should the plantations suspend production because of the threat to the AVAs, we could end up in a situation where we fail to supply our export markets. President Duterte, having worked hard to open up the Chinese and Japanese markets to larger volumes of Philippine fruit exports, will end up embarrassed for lack of fruit supply.

A case in point is the Marsman Estate Plantation Inc. (MEPI). The company, which pays the best wages and gives out the most benefits among the banana producers, has been fighting in court against a small minority of militant farmers. The vast majority of farmers support the lease agreements with MEPI.

The small minority lost their court cases. Now Mariano wants to reverse the courts by reversing policy. Economic rights will be supplanted by ideology.

When he took his oath of office, President Duterte promised businessmen stability and predictability in government policy. Those are some of the leading reasons investments have decided to skirt our economy in favor of neighboring emerging economies.

Together, Gina Lopez and Paeng Mariano have torpedoed whatever stability and predictability is left in our investment environment, especially for Mindanao. They have made mining contracts and land leases unpredictable and politicized. The damage to investor confidence will be irreparable. The President’s own pledge during his inaugural address amount to nothing.

When standing policies are thrown to ideologues, the country goes to the dogs.

President Duterte admits to a weak grasp of economic issues. The cure to that is to listen more closely to his impressive economic team.

If he leans to the side of Gina and Paeng, he will produce a grand historical irony. The first President from Mindanao will be precisely the one who will kill the island’s economy. And all on bad advice.

Fluctuation

Electricity consumers are forewarned about an impending increase in power charges in the next billing period. For those in the Meralco franchise area, the increase will amount to P0.92 per kWh. This will bring the overall rate to exactly P9.00 per kWh. The average estimated residential rate for households for 2017 is P8.55.

The increase might appear significant because consumers are coming from a 7-year low overall rate of P8.09 per kWh. That low rate is due to a number of technical factors usual for the first month of the year. This includes the reduction in capacity fees of generators. The reduction is passed directly to the consumers.

From February, capacity fees normalize. A number of scheduled and forced outages of power plants bring down supply levels. In January, power demand in the metropolitan area was 400 MW lower than December 2016. Demand is expected to pick up in February.

The rest of the components of the rate increased are accounted for by higher fuel prices, including the re-pricing of Malampaya natural gas, as well as the depreciation of the peso. However, a P0.25 decrease in WESM charges helps mitigate the increases in fuel prices.

As quickly as power distributors like Meralco pass on savings (such as the power capacity fees) to consumers, the need to pass on higher generation costs (or face bankruptcy). Meralco’s distribution, supply and metering charges remained unchanged for 19 months now. The rate increase facing consumers later this month are all due to factors beyond Meralco’s control.

Despite the increase, power rates will not be higher than the average for the past few years. With more power producers coming to the market, we can expect power rates to decline gradually in the coming period due to more intense competition – subject, of course, to the vagaries of the exchange rate and fuel prices.

The usual suspects, who seek to politicize rate-setting by agitating consumers through oversimplifications, are again at work. They are demanding power distributors absorb fluctuations in currency and fuel pricing. That is such an unscientific demand.

The power industry, our consumers now understand, has many moving parts. Market forces influence each part. Over the years, we have developed the mechanisms to properly reflect the workings of market forces on charges made in the various components of the power industry. These mechanisms help make power pricing fair, predictable and sustainable.

If we politicize power pricing, we will prevent variable costs reflecting in power pricing. That is never good.