Glut
FIRST PERSON - Alex Magno (The Philippine Star) - July 9, 2019 - 12:00am

There are consequences to the ongoing trade war between the US and China that reverberate across the region. These consequences threaten the viability of enterprises that may not seem directly related to the products on which tariffs have been imposed by the two giant economies.

Among the industries affected by the trade dispute are the steel and cement manufacturers across the region. Even before the trade spat, China had an excess steel producing capacity of about 300 million tons annually. Compare that to the Philippines’ 3 million tons annual manufacturing capacity.

This excess is likely to grow as China’s economic expansion shows signs of slowing down. The world’s second largest economy once grew at double digits. This year, the Philippines could potentially grow at a faster rate than China at a little over 6 percent.

It is not a good sign that Vietnam’s largest steelmaker, Formosa Ha Tinh Steel (FHS), is considering putting capacity expansion plans on hold. The company anticipates a flood of cheaper steel products coming into Southeast Asia’s largest steel consumer from China.

Vietnam’s per capital steel consumption is about thrice that of the Philippines. The sustained infrastructure buildup in that country along with the entry of investments into heavy industries, including car making, encouraged plans to expand domestic steel manufacturing.

FHS has a current capacity of 7.1 million tons per year. They had planned to increase that capacity to 10 million tons per year in 2020 and up to 22.5 million tons in the longer term. Now the company is taking a long hard look at the situation.

Over the past years, steel manufacturers in Southeast Asia have been under pressure from Chinese exports. Some rogue plants that were supposed to have been scuttled because of their backward technology continued operating nevertheless and dumping substandard products on neighboring markets.

The decision of one of Vietnam’s largest companies to review expansion plans would have a double-edged impact on our own economy. We have been struggling against the dumping of substandard Chinese steel products for years. We have also been hit by massive imports of Vietnamese cement products, some of them, like the obsolete Chinese steelmakers, are turned out by obsolete plants.

The Philippines is in the midst of a construction boom. The building spree could be undermined by the entry of substandard steel and cement products.

Too, even if consumers might benefit from lower prices in the short term, the dumping could wipe out our domestic manufacturing capacity, making us vulnerable in the longer term.

Given the prospects, our domestic cement manufacturers have asked government to make the provisional safeguard tariff imposed on cement imports permanent. Domestic cement manufacturers are under strict quality supervision and may be held accountable for inferior products by the consuming public. The same guarantee could not be provided for imported cement products from nameless manufacturers.

Competitive

When the Supreme Court recently ruled to void nine power supply agreements (PSAs), it was for the reason they had not undergone a competitive selection process (CSP) as required by law for all contracts after June 30, 2015.

While the PSAs were invalidated as a result of this ruling, the generating companies were not disqualified. The cure was simply to open the process to other potential suppliers and ensure consumers get the best deal.

The ruling definitely delays the construction of new power plants to meet the country’s growing power demand. But it does not mean that the projects on the drawing board are to be trashed. Proponents of these projects will simply have to qualify through competitive bidding and, if they win, continue with their projects.

All of us hope the process of constructing new power plants continues with urgency. Otherwise, our economy will be hit with the sort of power shortages we experienced in the late eighties. That will torpedo the growth momentum we have been building up over so many years.

The Court ruling and its implications are all very clear. The statements made past week by Bayan Muna Rep. Carlos Isagani Zarate, however, are not.

Zarate called on Meralco to exclude its generation company (genco) subsidiaries from bidding for Meralco power supply agreements. There is no factual nor legal basis for this call, says Meralco spokesman Joe Zalderriaga. There is no prohibition in the law, the DOE guidelines and even the Supreme Court decision that prevent affiliate gencos from participating in the bidding for the power supply requirements of distribution companies.

Therefore, Zarate’s statements amount to nothing more than propaganda intended to discriminate against the Meralco-affiliated gencos. These gencos are willing to submit to a competitive bidding process that will ensure the fairest terms for its consumers.

This month, for instance, Meralco will lower electricity tariffs to reflect the lower costs of power supplied by a solar energy company. A competitive bidding process for the distribution utility’s baseload needs will ensure the most efficient sourcing of our power needs – regardless of whether the genco is Meralco-affiliated or not.

We have to trust an open and transparent bidding process rather than propagate ill will without factual basis. Otherwise we will not be able to build the generating capacity we need in the short time we have before a full-blown power shortage.

The Meralco spokesman reassures the distributor’s customers that its participation in the competitive selection process conforms to all existing laws, rules and regulations. The company, he says, is committed to ensure adequate, reliable and quality power supply according to the mandate of the EPIRA law.

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