TO LOWER ELECTRIC COST, CUT TAX
ON LOCAL ENERGY SOURCES - ENRILE

To reduce further the cost of electricity, Senate President Juan Ponce Enrile has asked Congress to enact a law reducing the tax or royalty on the use of indigenous energy resources in the generation of electricity.

In Senate Bill No. 2, Enrile proposed the reduction of the government share in indigenous energy resource utilization to three percent (3%) of the net proceeds from the sale of the energy resource over the life of the relevant service contract.

In order that end-users would fully benefit from the cut, Enrile proposed that any distribution utility benefiting from the reduction shall pass on the full reduction in electricity price to its end-user customers, thereby lowering the retail rates of electricity.

The Senate chief explained that despite the enactment of the Renewable Energy Act of 2008, the country has not fully benefited from the availability of rich energy resources because of high government impositions for their exploration, exploitation and development.

"Government impositions associated with making available such resources for electricity generation are more burdensome than those applied on imported fuels such that rates of electricity generated using indigenous energy resources are rendered artificially high," Enrile observed.

For instance, as of May 2007, government royalties (or government share) on indigenous natural gas was around P1.46/kWh, which was 5 to 8 times more than the taxes imposed on imported fuels such as coal (P0.17/kWh), oil (P0.20/kWh) and liquefied natural gas (P0.29/kWh).

Moreover, indigenous petroleum which is intensively used for generating electricity is subjected to royalties of about 60%, while other local extractive industries such as mining enjoy a much lower tax rate of 3%, Enrile said.

"Thus, instead of enjoying lower electricity rates, the Filipino is effectively being penalized for utilizing its own energy resources. In addition, because of the disparities, the country's energy self-sufficiency is being held on a tight leash of its own making - a regrettable stance in the face of volatile energy prices in the international markets," Enrile added.

He pointed out that in neighborhood countries like Thailand, Indonesia, Malaysia and Vietnam, while royalties/taxes on oil and gas are comparable with those in our country, domestic use of these indigenous natural resources are afforded substantially lower prices.

Enrile stressed that in the Meralco franchise area alone, a reduction of government royalties will mean a reduction of electricity rates to as much as P0.50/kWh for all customers.

He cited a study conducted in early 2008 by University of the Philippines Professor Dante B. Canlas, former director general of the National Economic Development Authority, which showed that a reduction of the natural gas royalties would induce economic output growth on account of greater competitiveness and productivity of the local industries.

"There is more need for competitiveness and greater productivity now when millions of Filipinos ARE reeling from the effects of the global financial crisis," said Enrile.

He cited the call of the Semiconductor and Electronics Industries in the Philippines Inc., which account for about 70% of Philippine exports, for lower royalties and lower electricity rates to help the Philippine export industry brace for the effects of the global crisis.

In his bill, Enrile proposed that the commodity price reduction shall be fully reflected as a reduction in the price of electricity produced by generation companies utilizing the indigenous energy resource. The commodity price reduction shall be subject to annual adjustment or reconciliation to ensure that such reduction shall be revenue-neutral to the service contractor. The bill also provides that in order to reflect the true cost of power and to avoid additional burden to the consumers, there shall henceforth be no recovery of stranded debts and contract costs for the NPC, PSALM, generation companies, and distribution utilities.

To lower rates of electricity to end-users, the bills seek to reduce the royalties, returns, and taxes of the national government for the exploitation of all indigenous sources of energy, including natural gas and geothermal steam.

The Enrile bill also expands the membership of the ERC to include an engineer with ten years experience in power system engineering and a regulatory economist with ten years experience in utility economics.

The measure seeks to make the ERC handle consumer complaints and ensure the adequate promotion of consumer interests, including the provision of quality, reliable, affordable, safe, and regular supply of electric power.

The ERC will also be tasked to promote competition; encourage market development; protect end-users of electricity from discriminatory, unfair, or oppressive rates; and ensure end-user's choice. It will be empowered to penalize monopolization, cartelization, abuse of market power or anti-competitive and/or discriminatory act or behavior by any participant in the electric power industry with imprisonment and fines.

Finally, the bill expands the membership of the NCP board to include the PSALM president. PSALM will have the power to access at all times and examine, inspect, audit, take copies of books of accounts, financial statements, documents, papers, contracts entered into, pertaining to the remittances and utilization of the universal charge for electricity; and to bring or defend actions for the protection, preservation, recovery of the special trust fund to the beneficiaries of the universal charge.