Government urged to scrap nat gas royalties
The Philippine Star 11/28/2006
Lopez-owned First Gen Corp. (FGC) is urging the government to consider scrapping the royalties on natural gas to bring down the power rates of Manila Electric Co. (Meralco) by at least P1 per kilowatthour (kwh).
"We are proposing that royalties be taken out as long as the natural gas is used domestically. This will result to at least P1 per kwh reduction on Meralco rates," First Gen president Federico Lopez said at the sidelines of the Foreign Correspondents Association of the Philippines (FOCAP) forum.
But while Lopez said this is one of the best ways for government to reduce electricity costs, this move may entail some amendments to old laws and may result to huge revenue losses to the government.
"This will require amending PD 87, however doing so could make the government lose revenues, but again they have a lot of revenues already from VAT (value-added tax)," he said.
Presidential Decree 87, issued during the time of President Marcos, was drawn to promote the discovery and production of indigenous petroleum.
Lopez said there is an existing provision in the Electric Power Industry Reform Act (EPIRA) which is supposed to address this concern but the government appears to be reluctant to push for it.
"I think they overlooked the royalty, as it was lifted from PD 87. Repealing it will take time, and this is why they pushed for equalization, which is not being implemented," he said.
Under the EPIRA, there is a provision that aims to equalize the taxes imposed on indigenous sources of energy. "Equalization is revenue-neutral, but equalization will not bring the general power rate down and will just level the playing field," Lopez said.
Government earns some $637 million from royalties being paid by the Malampaya consortium which supplies the natural gas requirements of First Gas Corp. (FGC), a First Gen subsidiary. FGC owns and runs the 1,500-megawatt (MW) Sta. Rita and San Lorenzo gas-fired power plants. The government has been raising about P11 billion or $200 million in tax revenues from the Malampaya project in Palawan.
"They could lose roughly $600 million a year from the Camago-Malampaya. But you can leave the VAT, and just remove the royalties," Lopez said.
In a presentation before the same FOCAP forum, Oscar Lopez, chairman of Benpres Holdings Corp., the investment arm of the Lopez Group, noted that in First Gas‚ the selling price of P4.76 per kwh to Meralco, fully P3.25 per kwh or almost 70 percent is the cost of gas, with approximately P1.79 per kwh going to government in the form of royalties. Aside from FGC, Korea Electric Power Corp. with the National Power Corp. (Napocor) runs a 1,200-MW Ilijan natural gas power plant.
The Benpres official noted that consumers also pay 56 centavos per kwh in the form of 12 percent VAT for power using Camago-Malampaya gas on top of the royalties.
The older Lopez also noted that though there was an improvement on the use of indigenous fuels in the generation mix to 70 percent, "we still haven’t narrowed the gap in our electricity prices vis-à-vis our neighbors and our indigenous fuels in fact appear costly."
Lopez-owned First Gen Corp. (FGC) is urging the government to consider scrapping the royalties on natural gas to bring down the power rates of Manila Electric Co. (Meralco) by at least P1 per kilowatthour (kwh).
"We are proposing that royalties be taken out as long as the natural gas is used domestically. This will result to at least P1 per kwh reduction on Meralco rates," First Gen president Federico Lopez said at the sidelines of the Foreign Correspondents Association of the Philippines (FOCAP) forum.
But while Lopez said this is one of the best ways for government to reduce electricity costs, this move may entail some amendments to old laws and may result to huge revenue losses to the government.
"This will require amending PD 87, however doing so could make the government lose revenues, but again they have a lot of revenues already from VAT (value-added tax)," he said.
Presidential Decree 87, issued during the time of President Marcos, was drawn to promote the discovery and production of indigenous petroleum.
Lopez said there is an existing provision in the Electric Power Industry Reform Act (EPIRA) which is supposed to address this concern but the government appears to be reluctant to push for it.
"I think they overlooked the royalty, as it was lifted from PD 87. Repealing it will take time, and this is why they pushed for equalization, which is not being implemented," he said.
Under the EPIRA, there is a provision that aims to equalize the taxes imposed on indigenous sources of energy. "Equalization is revenue-neutral, but equalization will not bring the general power rate down and will just level the playing field," Lopez said.
Government earns some $637 million from royalties being paid by the Malampaya consortium which supplies the natural gas requirements of First Gas Corp. (FGC), a First Gen subsidiary. FGC owns and runs the 1,500-megawatt (MW) Sta. Rita and San Lorenzo gas-fired power plants. The government has been raising about P11 billion or $200 million in tax revenues from the Malampaya project in Palawan.
"They could lose roughly $600 million a year from the Camago-Malampaya. But you can leave the VAT, and just remove the royalties," Lopez said.
In a presentation before the same FOCAP forum, Oscar Lopez, chairman of Benpres Holdings Corp., the investment arm of the Lopez Group, noted that in First Gas‚ the selling price of P4.76 per kwh to Meralco, fully P3.25 per kwh or almost 70 percent is the cost of gas, with approximately P1.79 per kwh going to government in the form of royalties. Aside from FGC, Korea Electric Power Corp. with the National Power Corp. (Napocor) runs a 1,200-MW Ilijan natural gas power plant.
The Benpres official noted that consumers also pay 56 centavos per kwh in the form of 12 percent VAT for power using Camago-Malampaya gas on top of the royalties.
The older Lopez also noted that though there was an improvement on the use of indigenous fuels in the generation mix to 70 percent, "we still haven’t narrowed the gap in our electricity prices vis-à-vis our neighbors and our indigenous fuels in fact appear costly."
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