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President's Message
Ma. Victoria C. Españo Message from the President:

Ma. Victoria C. Españo


PRESIDENT’S MESSAGE

Year 2018 is indeed a special year for FINEX: it marks our 50th anniversary as a leading organization of finance professionals. Through the able leadership of our past presidents and the multitude of members who have actively participated in and supported our different initiatives, we have made significant achievements in supporting the professional development of finance executives,

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Energy and infrastructure
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Flor G. TarrielaBy Flor G. Tarriela

Business World (FINEX Folio)
September 22, 2017

Energy and infrastructure

FINEX Folio is a rotating column of members of the Financial Executives Institute of the Philippines appearing every Friday in BusinessWorld, opinion section.

At the successful 2 nd  Annual Philippines Energy and Infrastructure Forum held recently sponsored by PNB Capital, BPI Capital and PJS Law, topics included the Golden Age of Infrastructure, the new role of the Public-Private Partnership Center (PPPC), optimal financing strategies for energy and infrastructure projects, legal implications of the competition law on energy and infrastructure sectors, and the energy mix in the future. The forum also tried to provide answers to the question “is there life after the end of the feed-in tariff (FIT)?”

Socioeconomic Planning Secretary Ernesto M. Pernia discussed the Build! Build! Build! program, which would utilize P8.44 trillion within the next five years to complete the 75 game-changing flagship projects of the government. Some of these projects are Mindanao Railway, PNR North & South Railways, Bohol Airport, Mactan Cebu International Airport, Puerto Princesa Airport, Common Station and the Cavite Gateway Terminal, among others. These project, financed through a combination of official development assistance (ODA) and traditional funding via the General Appropriations Act (GAA), are expected to generate employment of 1 million and increase the country’s gross domestic product by 1.5%.

Secretary Pernia said the private sector can still participate in the operations and maintenance of the projects. One issue is the Philippines’ absorptive capacity to execute such large-scale projects. Undersecretary Karen Singson of the Department of Finance (DoF) says the issue will not be a problem as foreign contractors can augment capacity.

We are all looking forward to the “Golden Age of Infrastructure,” with optimism and hope that government can really execute its plans. This means the Comprehensive Tax Reform should pass.

In the past, large infrastructure and energy projects undertaken through private initiatives would usually raise up to 75% of the project cost through collaboration between banks. The Philippine financial market has been liquid, making it cheaper for private proponents to raise money from the loans market due to low interest rates and the scale of financing made available by banks. With the shift of funding strategy to ODA and GAA, can local banks still participate? Yes, by financing complementary industries which are direct beneficiaries of developed infrastructure like real estate, tourism, manufacturing and logistics.

Another interesting point is the possibility of raising money from the capital markets, particularly through a “project bond” instrument, but the eternal issue for project bonds is whether investors can take in certain risks coming from the construction phase. Is the PPPC still relevant in today’s infrastructure environment? PPPC Executive Director Ferdinand Pecson says PPP still plays a vital role in finishing past PPP projects, and facilitating new joint venture projects between the private sector and local governments.   The concern raised was “As the local government changes administration every three years, will the new administration honor the approved contracts?”

On energy mix, Energy Undersecretary Jesus Posadas said the power sector’s installed capacity and generation show that in the first half of 2017, the installed generating capacity has already increased more than threefold as compared to 6,869 megawatts in 1990.  Capacity-wise, coal has the largest share at 35% followed by renewable energy at 32.5%.  Much of the renewable energy-based installed capacities come from hydropower (16.8%) and geothermal (8.8%). Oil-based and natural gas had shares of 16.6% and 15.9%, respectively. He also said that under Dutertenomics the Department of Energy (DoE) will engage industry players and an additional power capacity of 43,765 megawatts will be required from this year up to 2040.

On renewable energy, there is a lot of untapped potential to contribute to the total power supply. Solar energy has come a long way. With the implementation of the feed-in tariff (FIT) scheme, solar power generators were pricing solar energy at approximately P8.69 per kilowatt-hour (kWh). Now, generators such as Solar Philippines can still be profitable by selling it at an even lower price of P3 per kWh even without the FIT in place. Due to the positive outlook on the sector, wind energy generators are appealing for an inclusion of another round of FIT rates to serve as a springboard for new projects, as current rates are nearing oversubscription.

So is there life after FIT? Yes. There’s life after FIT but FIT was a catalyst for wind and solar energy. One issue raised was will local banks lend even without FIT? PNB Capital President and CEO Gerry Valenciano replied that banks remain stalwart on the basic principle that for as long as there is evident capacity to pay and overall credit worthiness, then banks will be able to lend.

Prospects for the future still continue to be bright for the Philippines, and in order to sustain this economic demand for local investments, there has to be enough supply. Yes, we need more infrastructure projects, more power generation projects and more transportation projects for us to be at par with our more developed regions.  Be it through infrastructure, through transportation, through energy and through financing such as ODAs and PPPs, our ultimate goal is to move this country forward and be a formidable economic force to be reckoned with.

Flor G. Tarriela is chairman of PNB and a director of FINEX. She was formerly undersecretary of Finance, the first Filipina vice president of Citibank N.A. and past president of BAIPHIL.

http://bworldonline.com/energy-and- infrastructure/

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