Tuesday, July 12, 2011

Boo Chanco on Renewable Energy


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Unlock private sector money
DEMAND AND SUPPLY By Boo Chanco (The Philippine Star) Updated June 08, 2011 12:00 AM

The QE2 is about to end and employers in the US added 54,000 jobs in May, the smallest increase in eight months. Economists expected the numbers to show employers added 165,000 jobs, according to the median forecast in a Bloomberg survey. All that plus the unease over the gridlock surrounding the partisan debate on adjusting America’s debt ceiling have all combined to douse hopes for stronger economic recovery soon.

But it isn’t as if America has run out of resources. Government may have budget problems but American businesses are doing quite well. They have trimmed their costs and have been lean and mean for sometime now. US businesses have also done quite well overseas, notably in emerging markets so that observers say they are sitting on piles of cold cash. If only they would start hiring and investing… the economic recovery can be more certain. Instead, there are talks of a possible double dip.

Indeed, Austan Goolsbee, President Barack Obama’s chief economic adviser, observed in an interview I monitored last Sunday on CNN’s “State of the Union” program said, “Corporations have become profitable again. What we need to do now is get the private sector stood up. We want to leverage the private sector money.”

In other words, the government wants private businesses to spur job growth. To help convince private businesses to start spending, Goolsbee said, the administration is aiming to make it easier and cheaper to create private sector jobs through payroll tax cuts and investment subsidies. I understand US multinationals are also waiting for some changes in the tax code before they bring home profits sitting in foreign banks.

In a way, it can be said that we have a similar situation here. The BSP has been for months saying there is so much excess liquidity sloshing around so that special BSP accounts have been created to mop some of these up. Our taipans are oozing with more cash than they know what to do with. Many have started to invest more heavily in China. Most are investing in building condo units all over the metropolis.

I guess many would have noticed by now how feverish the competition is among condo property developers. The SM Group has jumped into the market in a big way. Henry Sy Jr. told me some months ago that the SM Group has in fact overtaken Megaworld in the affordable condo market for the middle class.

Surprisingly, the high end market has not lost its luster. Some developers say they should have built more units with larger floor areas in the 3BR category because these are selling better than the virtual bird houses with floor areas barely enough for a bed and a dining table. The rich are accumulating more wealth than they know how to use in socially productive ways.

I am not sure it is a good idea for our taipans to just put their money on condo development, given that there are obviously better uses for local capital such as the various PPP projects. The administration’s problem is how to convince them to risk their money on more productive ventures like MRTs and expressways. To begin with, P-Noy’s boys are still trying to get their act together on PPP.

But there it is. In the US as it is here, government may not have the budget for needed infrastructure or the ability to create needed jobs to cut the unemployment rate. The private sector, on the other hand, is reported to be sitting on piles of cold cash waiting for good investment opportunities. Indeed as Goolsbee puts it, we can leverage private sector money.

We don’t need to list down everything that must be done to get private sector investment confidence. P-Noy should know that by heart after a year in office. The trick is in how to get going. For starters, pay attention to folks like Metro Pacific and San Miguel since both have expressed a desire to invest big on infrastructure here. The ODA-obsessed bureaucrats at DOTC and NEDA are snuffing their interest out.

I suppose a Mar Roxas by P-Noy’s side in Malacañang will go a long way to reassure private sector investors. So will the appointment of a credible replacement to Ping de Jesus at DOTC, someone like Rene Almendras.

Beyond appointments, the administration must get really going and start delivering on low hanging fruits (like developing Clark as a budget airline hotspot in the region) and instill confidence that corruption will be managed to extinction. It is possible to leverage private sector resources to accelerate the nation’s growth… but not before private sector investors become really confident that indeed this time government means business.

Renewable energy

Beyond the subsidy called Feed-in Tariff, there are other things that ought to be looked at before we agree to allow them to put additional burdens on our power users. For instance, it is not clear, the position paper of the Foundation for Economic Freedom (FEF) observes, what is it exactly that the envisioned FIT program is supposed to buy us?

“Is it to lower our carbon emissions in order to help arrest global warming? Our carbon footprint is a rounding error vs. the large and more industrialized countries, and our RE component, at 30 to 40 percent of installed capacity, is already five times the global average.”

Romy Bernardo who spearheaded the paper’s drafting illustrates: The subsidy cost for solar per kWh is over P12. (calculated as the FIT rate of P17.95 less avoided cost of P4.50/kwh or the cost of buying at the current grid cost). One can lower consumption of power by giving away new efficient light bulbs that produce 60 watts of brightness at 15 watts use of power. Based on the calculation, by an ADB expert, the cost of doing this translates to $0.025 per kWh saved, roughly ten centavos/kWh saved. The numbers are striking-- P12 solar vs. P0.10 for energy efficient light bulbs.

In short, just give free light bulbs and you can do more than 100 times the benefit in terms of reducing carbon footprint for the same peso spent from public purse. A slightly clever solar operator selling at FiT rates can put solar panels under a light bulb, run even when there is no sunlight (like even night time) to get paid for power at P 17.95 per kWh, and only incur cost of P4.50 per kWh to buy power from the grid for the light bulbs.

Delayed flights

My mother-in-law left for the US last weekend via Hawaiian Airlines. The flight was fully loaded and ready to take-off as scheduled. But they had to wait for over an hour because of the air traffic congestion at NAIA. Unfortunately, most of the passengers on that flight are bound for Los Angeles via Honolulu. They have a very tight window to catch the connecting flight to Los Angeles.

Because of the one-hour delay in Manila, the Los Angeles flight was delayed as well. If this is how we are going to run NAIA in the near term, we can forget about more airlines wanting to add Manila in its route map. On the contrary, there could be those already flying to Manila who may decrease their frequencies or even drop Manila altogether.

Maybe the problem is that Malacañang now and in the past, have this penchant of appointing retired air force generals, with no experience in running a free market sari sari store, to run our airports. We need proven managers who know their business. In fact, the management of our airport should be privatized to a qualified international airport management firm. It is possible that we are already paying the price for world class management but are just not getting it. If not, we should be willing to pay for it. We probably need less people but more capable ones.

For so long as we are running the airport like a government bureaucracy, NAIA will remain a third world airport that embarrasses every Filipino every day.

Memo to P-Noy: Why be satisfied with Third World when World Class can be had?

Air Asia Philippines

A correction on the Filipino ownership structure of Air Asia Philippines: Tonyboy Cojuangco 20 percent; Maan Hontiveros 20 percent and Mikee Romero 20 percent… not 60 percent for Tonyboy as I indicated last Monday which actually refers to total Filipino ownership.

Medical history

These are notes on some patient’s medical history sent in by Lito Balquiedra.

Patient has two teenage children, but no other abnormalities. She stated that she had been constipated for most of her life, until she got a divorce.

Boo Chanco’s e-mail address is bchanco@gmail.com. He is also on Twitter @boochanco

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