Scrapping of nat gas royalties urged to lower power costs

The Semiconductor and Electronics Industries in the Philippines Inc. (SEIPI) appealed yesterday to President Arroyo to implement a provision in the Electric Power Industry Reform Act (EPIRA) reducing or scrapping the royalties on natural gas.

“It has long been the call of the association along with the National Competitive Council and the Philippine Chamber of Commerce and Industry to effect the reduction or removal of natural gas royalties to lower the cost of electricity,” SEIPI chairman Arthur Young said in a statement.

He said removing or reducing the royalties will not only help big industries but also the end-users.

“This will boost the competitiveness of Philippine industries in the global market,” he added.

He said the natural gas royalties, reported to be around $1 billion or P44 billion annually,  will benefit end-users   as mandated in the EPIRA.

“Amid concern over the utilization of government royalties on natural gas, SEIPI, the leading organization of the country’s top exporters directly employing 500,000 and the biggest users of electricity, points out that there should be no doubt as to where said royalties should go since the law is clear and specific as to the purpose — to lower the cost of electricity,” he said.

Sec. 35 of Republic Act 9136 or the EPIRA  provides that “any law to the contrary, notwithstanding, the President of the Philippines shall reduce the royalties, returns and taxes collected for the exploitation of all indigenous sources of energy, including but not limited to, natural gas and geothermal steam, so as to effect parity of tax treatment with the existing rates for imported coal, crude oil, bunker fuel and other imported fuels.”

With the reduction of royalties the Energy Regulatory Commission (ERC) is directed to “forthwith reduce the rates of power from all indigenous sources of energy” in order to “ensure lower rates for end-users.”

In a recent study conducted by UP professor Dante B. Canlas, a former Socioeconomic Planning Secretary and director general of the National Economic and Development Authority, it was shown that a reduction of the natural gas royalties to lower the cost of electricity to industrial loads would induce economic output growth on account of greater competitiveness and productivity of the Philippine industries.

This will provide government additional tax and non-tax revenues, and increase attractiveness and investments in the country. These benefits would be more than sufficient to offset the foregone royalties collection in less than two years from implementation.

The reduction of natural gas royalties to lower electricity cost is specially needed in these trying times, SEIPI said, when the costs of production inputs are beginning to undermine the viability of Philippine industries due to the soaring price of oil.