Power producers to govt: Use Malampaya royalties to lower electricity rates

The country’s power producers want government to use part of the royalties from the Malampaya gas-to-power royalties to help lower power rates. Philippine Independent Power Producers Association (PIPPA) president Ernesto Pantangco said during a press briefing on Wednesday that the group is also looking into upgrading their study on the financial implications of the proposal. Three years ago, several groups also asked for government to use the Malampaya royalties to cut energy costs. "We did several proposals to lower power prices — which I'm sure you're all aware of — one of which is to use the royalties from Malampaya. We have to upgrade our study since it's already a year and a half old," he said. PIPPA had earlier proposed to use some $300 million of the $500 million annual royalties collected by the government from the Malampaya deep water gas-to-power project to lower power rates of "critical industries" which would eventually translate to lower electricity rates for end-users. Pantangco clarified that they have not yet identified the specific groups but they "are looking at industries that are supportive of the export-oriented industries like food production." “We just did some arbitrary allocations since we were still finalizing the actual percentages, which are part of our proposal. And the $300 million will be coming from the government share. We've made several presentations to the JCPC [Joint congressional Power Commission] and to the DOE," he said. The national government, through the Finance Department, had opposed the proposal since it would cut more than P10 billion in revenues. The Aquino administration also put on hold previous plans to sell government's stake in the Malampaya project. PIPPA also asked for a review of the value-added tax (VAT) on power, saying that the VAT is the reason why electricity rates in the country are among the highest in the region. The government charges a 12-percent VAT on top of a 32-percent corporate income tax and a local franchise tax on power utility firms, which are then passed on to consumers. Other countries in the region meanwhile subsidize their power sector, resulting in cheaper rates. According to Pantangco, PIPAA supports Senate bills that aim to lower electricity costs by reducing or eliminating the royalties imposed on indigenous sources of energy, particularly natural gas. Presidential Decree (PD) 87 or the Oil Exploration and Development Act of 1972 imposes royalties on natural gas. First Gen Corporation chairman Federico Lopez earlier said, "there's nothing to stop government from removing the royalties. PD 87 can be corrected via a new legislation or amendment." First Gen is an energy company that invests in renewable energy. Earlier estimates indicate that if the government removes the P1.46 per kilowatt hour (kWh) royalties from the Malampaya project, industries would enjoy a 38-percent drop in electricity bills. Residential customers, specifically those of the Manila Electric Co., will experience a rate reduction of 50 centavos per kWh should royalties on natural gas be removed. First Gen supplies Meralco with power from its 1,000-MW Sta. Rita and 500-MW San Lorenzo power facilities in Batangas. — BC/VS, GMA News