Enrile wants 3% royalty on indigenous energy sources

MANILA, Philippines - Senate President Juan Ponce Enrile wants to reduce government royalties to three percent of net proceeds from sale of indigenous sources of energy to cut down electricity costs passed on to consumers.

Enrile has placed this provision in a separate proposal aimed at granting a tax exemption package to power distribution companies in a bid to further bring down consumers’ electric bills.

In filing Senate Bill 3148, Enrile explained that while the Philippines is endowed with abundant energy resources, government impositions on the use of such resources for electricity generation “are more burdensome than those applied on imported fuels.”

As a result, he added, the rates of electricity generated using indigenous energy resources are rendered “artificially high.”

Once passed into law, the reduction of government royalties would lower the government share in the exploration, development and production of indigenous energy resources other than those already covered by the Renewable Energy Act of 2008. It would also set such government share at the level that maintains the relative preference to indigenous renewable energy resources and still provide for a substantial revenue for the government; and remove the disparities in tax/royalty treatment between indigenous energy resources and imported fuels.”

“If taxes and royalties were to be removed on both indigenous and imported fuels, the rates of electricity generated using indigenous energy resources would be substantially lower. Moreover, between indigenous petroleum which is intensively used for generating electricity and other local extractive industries such as mining, the former is being subjected to royalties of about 60 percent while the latter enjoys a much lower tax rate of three percent,” Enrile said.

Thus, instead of enjoying lower electricity rates, Enrile said every Filipino is effectively being penalized for utilizing its own energy resources. In addition, because of the disparities, the country’s energy self-sufficiency is being held on a tight leash of its own making – a regrettable stance in the face of volatile energy prices in the international markets.

The Senate President lamented that “these policy anomalies are not present in our Asian neighbors similarly endowed with natural resources such as Thailand , Indonesia , Malaysia and Vietnam .

While royalties/taxes on oil and gas in these countries are comparable with those in our country, domestic use of these indigenous natural resources are afforded substantially lower prices unlike in a Philippine scenario.

“It’s about time that the Filipino people should fully benefit from its energy resources by removing the disparities in the tax/royalty treatment of indigenous resources not covered by the Renewable Energy Act of 2008,” Enrile said.

Enrile noted that this will directly result in reducing the commodity prices of these energy resources since these are utilized for electricity generation, which reduction will translate into lower electricity rates to the Filipino consumers.

For instance, Enrile pointed out that in the Meralco franchise area alone, a reduction of government royalties will mean a reduction of electricity rates to as much as P0.50/kWh for all customers.”

He noted that as of May 2007, government royalties (or government share) on indigenous natural gas was around P1.46/kWh (per kilowatt hour), which was five to eight times more than the taxes imposed on imported fuels such as coal (P0.17/kWh), oil (P0.20/kWh) and liquefied natural gas (P0.29/kWh).