Lower royalties from use of indigenous energy sources sought

MANILA, Philippines - Senate President Juan Ponce Enrile has filed a bill seeking to lower government royalties from the use of indigenous sources of energy to bring down the cost of electricity to consumers from such sources.

In his explanatory note to Senate Bill No. 3148, Enrile said that while the Philippines is endowed with abundant energy resources, government impositions on the use of such resources for electricity generation “are more burdensome than those applied on imported fuels.”

As a result, the “rates of electricity generated using indigenous energy resources are rendered artificially high,” he said.

Under Section 3 of his bill, Enrile proposed that the government share from the discovery, exploitation and use of indigenous energy resources be reduced to three percent of the net proceeds from the sale of the energy resource over the life of the relevant service contract.

He said 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. It shall also be subject to annual adjustment or reconciliation to ensure that such reduction shall be revenue-neutral to the service contractor.

The bill provides that any distribution utility obtaining supply from a generation company shall pass on the full reduction in electricity price to its end-user customers, thereby lowering the retail rates of electricity. This way, end-users will fully benefit from the reduction in the electricity price.

Under the bill, the Energy Regulatory Commission (ERC) shall determine the reduction in electricity rates to end-users, “giving priority to efficient end-users such as industrial loads for maximum multiplier effect on the national economy and marginalized end-users for more meaningful benefits.”

Enrile pointed out that as of May 2007, government royalties (or government share) on indigenous natural gas was around P1.46/per kilowatt-hour (kWh), which was five to eight 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).

“If taxes and royalties were to be removed on both indigenous and imported fuels, the rates of electricity generated using indigenous energy resources would be substantially lower,” Enrile said.

The Senate chief said these policy anomalies are not present in our Asian neighbors similarly endowed with natural resources such as Thailand, Indonesia, Malaysia and Vietnam.  

In the Manila Electric Co. (Meralco) franchise area alone, a reduction of government royalties will mean a reduction of electricity rates by as much as P0.50/kWh for all customers.

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

The study also concludes that the reduction of the royalties provide government additional tax and non-tax revenues that would be more than sufficient to offset the foregone royalties collection in less than two years from implementation.

Recent newspaper reports reveal that associations of industrial establishments such as the Semiconductor and Electronics Industries in the Philippines Inc., an organization of semiconductor and electronics companies which account for about 70 percent of Philippine exports, have already called for lower royalties and lower electricity rates to help the Philippine export industry cope with effects of the global crisis.

“Needless to say, the ordinary Filipino, especially the marginal end-user of electricity, has long been in need of respite from high electricity rates,” Enrile said.