Enrile’s power bills

One way Congress can help ailing industries in the provinces, particularly in an economic downturn, is by helping lower their production cost through cheaper electricity. And this is precisely what Senate President Juan Ponce Enrile had in mind in filing Senate Bill 3147 or the Uniform Franchise Tax Act, and Senate Bill 3148 or the Electricity Rate Reduction Act.

Both bills intend to lower power costs by reducing government taxes and royalties on power distribution utilities and power generation companies, respectively. The Enrile initiative is both timely and necessary, for industries and residences alike, especially with the state-owned National Power Corporation (Napocor) again petitioning for a power rate increase.

Rightly or otherwise, the Enrile bills hold that the country’s high electricity rates, to a large part, is traceable to excessive taxes being charged to both power generation and distribution utilities firms, which are mostly passed on to electricity consumers. And by cutting these taxes, rates can be reduced significantly, to benefit residences, businesses, and industries.

His SB 3147 proposes that government goes back to a franchise tax regime where electric utilities are levied only a three percent tax on their gross distribution income, in lieu of all national and local taxes, including the 12% value added tax. Currently, distribution utilities pay VAT, local franchise tax imposed by local government units, and corporate income tax. And this all are passed on to consumers.

But Enrile insists that public services such as transmission and distribution of power should not be a major source of tax revenue for the government since it is actually the function of government to provide for these services.

Meantime, his SB 3148 proposes that government share or royalties in exploration, development, and production of indigenous energy sources like natural gas, coal, and crude oil be reduced to three percent of net proceeds. In turn, additional proceeds can be used for initiatives to lower electricity prices.

Among others, the bill seeks to remove the disparities in the treatment of royalties of indigenous energy sources not covered by the Renewable Energy Act of 2008, particularly natural gas, oil, and coal. Moreover, by paying less royalties and taxes to the government, exploration companies can reduce the commodity price of natural gas and other indigenous energy resource, and this will benefit consumers through lower electricity rates.

Perhaps by lowering electricity prices, as Enrile intends through his two bills, savings to be generated by consumers and businesses may yet be channelled to more productive use, and thus help boost economic activity. At the very least, lower electricity costs can help keep more businesses alive during the downturn, while also provide economic relief to consumers.

In a statement, Ernie Santiago, president of the Semiconductors and Electronics Industry of the Philippines Inc. or Seipi, urged Malacañang to certify the power-reform bills of Enrile as priority bills to ensure their immediate passage.

Citing the Philippines to have one of the most expensive power rates, Santiago added that Seipi has long been asking the government to reduce the royalties in indigenous-energy sources—such as natural gas. This will encourage foreign investors to stay and not transfer their operations to other ASEAN countries that have more competitive power rates, he said.

In a statement, Enrile noted that “a frail and volatile economy, coupled with the high prices of goods and services, remains as a major threat to economic recovery, with exorbitant electricity prices in the country—one of the highest in Asia, being cited as one of the major roadblocks.”

He also said that with his bills, the power costs of businesses and industries could be reduced by P1.34 to P2 per kilowatt-hour, while electric bills of residential consumers will go down by at least P1 per kilowatt-hour.

Enrile said both power-reform bills would serve as an economic stimulus that would not only make industries more competitive, but would also contribute to the purchasing power of the consuming public.

Comments to matort@yahoo.com

Marvin A. Tort is a veteran business journalist. He is a former Managing Editor of BusinessWorld and also a former chairman of the Philippine Press Council. He is presently into various businesses including gaming and IT, and business and communication consulting. He also writes a twice-weekly column for the BusinessMirror.