Change requires new ideas

DEMAND AND SUPPLY By Boo Chanco (The Philippine Star) | Updated May 25, 2016 – 12:00am

The Duterte campaign promised the nation that change is coming. Close to 40 percent of the voters bought that promise. The question now is… can Mr. Duterte deliver change?

Based on recent cabinet appointments, change is not apparent. I saw one complaint on social media that captures a skeptical sentiment: “I voted for Duterte but it seems Gloria Arroyo won.”

Indeed, some Duterte appointments are rethreads from the Arroyo era. There is nothing wrong with that if the appointees have been outstanding. That does not seem to be the case.

Other than the names, ideas are also important. We have age old problems and past administrations have applied the same old solutions that have not been effective.

Someone said something about the idiocy of applying failed solutions over and over in the hope of having a different outcome. Past administrations have been doing that and the Duterte administration is in danger of doing that too.

In a way, I like the appointment of former Gov. Manny Piñol as agriculture secretary. He doesn’t have formal training in agriculture, but he runs his own farm. I don’t know how big a farm it is, but I can imagine that running a farm plus his direct contact with farmers as a provincial governor are good inputs in crafting and carrying out agriculture policies that work and not just in theory.

Mr. Piñol’s first pronouncement, however, makes me wonder if change is coming. Maybe it is not just Mr. Piñol, but Mr. Duterte himself. The former governor said it is the policy of Mr. Duterte to stop private importation of rice to stop smuggling. Only the NFA will do importations.

Perhaps, it will help Mr. Piñol to get the economists of PIDS, the government economic think tank, to brief him on the problem. Or consult Dr. Rolly Dy, a native of Davao who is an expert in agri-business at the University of Asia and the Pacific.

It seems the policy of Mr. Duterte, as announced by Mr. Piñol, is more of the same thing that already failed. The policy also resulted in piling up NFA debts that surpass our annual national defense budget.

The problem is precisely in the government agency’s monopoly to import rice. Private importers have to get NFA’s permit to import. This is at the root of corruption in NFA and the recyclable permits they issue are the basis of much rice smuggling. NFA officials also have the incentive to over import and pad costs of related services like trucking.

On the other hand, if we liberalized rice importation, the private traders will not import more rice than the market can buy. They can also respond more quickly to unexpected market demand, up or down.

Private importers will have the incentive to buy rice as cheaply as possible because there’s competition from other importers. There will be no reason to smuggle rice because importation is allowed. We can also put an import tax and the proceeds used to help local rice farmers.

This is why a group of economists under the Foundation for Economic Freedom (FEF) called on the incoming Duterte administration to stop the rice importation monopoly of NFA. It is only through liberalizing rice importation that the new administration can make good on its promise of affordable food for the poor.

FEF believes liberalizing rice importation “will enhance food security, rather than diminish it.  Malaysia allows up to 30 percent of its needs to be met by rice imports.

The economists are sure “liberalizing rice importation will definitely benefit the poor. Our country cannot bear rice to become more unaffordable especially at a time of supply uncertainty due to severe drought conditions.”

There is also the need to unburden taxpayers with billions of annual subsidies to NFA which presently exceeds P150 billion, the economists urge. The World Bank estimates that for every P5 of spending for NFA, P4 are wasted leakages that provide no public benefit.

In any case, our rice quantitative restriction (QR) expires in 2017. After that, we are committed by our international trade obligations to allow private sector importers. The QRs on rice should have expired in 2012, but extended to 2017 at our request.

As part of the continued QR on rice, the Philippines has committed to cut tariff under the scheme starting July 2015. Tariff is now 35 percent and with minimum access volume or MAV of 805,200 MT. Purchases beyond that will be subject to a 50 percent rate.

In energy, Duterte’s pick for Energy secretary promised to “ensure reliable, steady and affordable power supply and work towards greater energy self-sufficiency.” Those are wonderful motherhood objectives an Energy secretary has no power to deliver due to the nature of the sector today.

But I cannot blame Al Cusi, a close friend of Mike Arroyo, who was appointed to head the Energy department by Mr. Duterte, for trying to sound like he can deliver. Al has little or no background in energy, his last assignments under the Arroyo administration having been running NAIA, CAAP and the Philippine Ports Authority.

Al will be disappointed to eventually find out he got the worse Cabinet seat there is. Unlike during the time when I was with Energy under the late Ronnie Velasco, we had the power and resources to really manage the energy sector.

Today, the Energy secretary is powerless. The petroleum downstream sector is deregulated. All he can do is monitor prices in Singapore, make some computations and exert moral suasion on oil companies not to raise prices too much. During our time, we had Petron to set prices that the private oil companies must follow or lose market share.

In the power sector, we had NPC to build new plants and distribution lines. Now the Energy secretary must convince the private sector to invest in power plants and the power grid.

Once power plants are built, the private generators pretty much call the shots under EPIRA. Then there is the independent ERC for regulating the utilities including the approval of power rates.

There is PSALM which holds and manages assets of NPC. Here, the chairman of the board is the Secretary of Finance, not the Energy secretary.

The Energy secretary does not have powers, but has all the responsibilities. Al will get blamed when oil prices don’t go down at the pump fast enough or go up too quickly. He will be blamed for blackouts even if all he can do is monitor the power supply situation through data given by NGCP.

I am not sure how the Energy department can handle government-to-government oil importations from Russia or some other country as some eager beaver in Davao announced. Government no longer has a refinery to process that crude. The independent oil companies import processed products from Singapore. Petron has a top rated refinery, but any deal has to benefit its bottom line.

On energy development, government has no money to risk in this very risky side of the energy business. We are dependent on private oil companies with the risk appetite. But they look at the most favorable deals that also depend on world oil market prices (now depressed and unattractive for exploration) and data about our geology.

A good Energy secretary must have some good ideas that can only come from years of experience in the energy business. Otherwise, he will be a non-performer, his best intentions notwithstanding.

Source: www.philstar.com/business