MANILA, Philippines — The Economic cluster of the Cabinet has approved in principle the planned renegotiation for the reduction in power subsidy to big foreign investors, which was granted by the previous administration in an effort to persuade these huge projects to locate in Clark and Subic freeport zones.
Board of Investments (BoI) managing head Cristino L. Panlilio has confirmed this move by the new administration saying the government is hoping for ‘understanding’ from the three investors Korean shipbuilder Hanjin Heavy Industries Corp., Texas Instruments and Phoenix Semiconductor of the Philippines.
TI has $1.5 billion expansion facility in Clark, Phoenix with $2 billion, and Hanjin with $1.6 billion in Subic. Under full commercial operation, Phoenix is expected to export $3.5 billion annually. Hanjin is employing more than 15,000 workers in Subic freeport and is exporting ocean-going vessels. TI is also expected to export between $3 to $4 billion worth of exports annually.
“We ask for their understanding,” Panlilio said noting that the government is seeking to renegotiate the contract to make it ‘mutually beneficial for government and investors who invested billions of pesos and created 30,000 jobs.’
The firms were reportedly agreeable to the government proposal to reduce the subsidy, but have not yet accepted it formally.
The proposal was to reduce the subsidized power rate from P2.15 per kilowatt hour to about P3 per kwh or from an estimated at P40 billion subsidy to P2 billion or P500 million per year for three to four years.
The subsidized power rate of P2.15 per kwh, which is about half the current cost to ordinary consumers, already includes generation, transmission and distribution charges. The subsidy, approved by the Arroyo administration, was supposed to be taken from the Competitiveness Fund.
Under the current contract, TI has six years more to go, Hanjin has 8 years and Phoenix has nine years.
The move to renegotiate the contracts with the country’s three biggest investors was called after other companies, particularly electronics firms belonging to the Semiconductor and Electronics Industries of the Philippines Inc. (SEIPI), but which were not granted the power subsidy, have started to raise the issue.
In addition, an official said the new owners of the power plants that won in the privatization of National Power Corp. plants, like San Miguel Corp., do not want to honor anymore the lower power rate contracts the three companies had with the government.
The subsidized rate to the three huge investors was implemented under EO 666 signed by then President Gloria Macapagal-Arroyo on Sept. 25, 2007. At that time, the power plants under the National Power Corp. have not yet been privatized.
EO 666 directed all heads of departments and government agencies to support the power infrastructure requirements of Clark Freeport Zone and support the investment of Texas Instruments in Clark Texas Instrument special economic zone and Baguio City Economic Zone.
Specifically, Section 5 of EO 666 (Generation,Transmission and Distribution Rates to TI) provides that National Power Corp. and TRANSCO shall provide discounted generation and transmission rates of US$ 0.0600 for year 7 to year 10 contracted with TI in its manufacturing locations (Clark TISEZ and Baguio CEZ) within the Philippines in accordance with the policies, rules and regulations of these government corporations.
Should the prevailing industrial retail rates decrease to a level lower than the discounted rates agreed and granted by NPC and TRANSCO, the rates shall be correspondingly decreased to match the prevailing rates. Said discounted rates shall be reported to the Energy Regulatory Commission (ERC). Distribution rates of PEZA at BCEZ shall be waived for the period covered by the grant of discounted generation and transmission rates by NPC and TRANSCO.
Further, Section 6 (Concessionary Lease Rates) provides that Clark Development Corp. shall provide concessionary lease rates to TI for the duration of the lease agreement between CDC and TI, subject to existing laws, rules and regulations.
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By: Bernie Cahiles-Magkilat
Source: Manila Bulletin, Aug. 30, 2011
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