MANILA, JULY 2, 2008
(STAR) By Des Ferriols - The peso finally breached the 45-to-the-dollar mark yesterday as the market fretted over the possibility of a substantial increase in interest rates on the heels of an expected double-digit inflation rate in June.

The peso opened slightly higher at 44.85 to the dollar but immediately dropped below the 45 mark, going down to as low as 45.02 before closing at 45.01.

The currency dipped lower than its Monday close of 44.90 to the dollar, as the market turned gloomier with the stock market composite index plummeting 44.73 points to 2,415.25.

Traders said the market was pricing in the expected increase in the key policy rates of the Bangko Sentral ng Pilipinas when the Monetary Board meets again next week.

The inflation rate is expected to hit 11.2 percent in June and monetary officials have already conceded the government would miss the 2007 inflation target, possibly even the 2009 target unless monetary actions were taken.

Traders said the BSP was sighted in the market selling dollars to support the peso, attempting to stem the depreciation at 44.99 to the dollar.

Returning from his US trip, BSP Governor Amando Tetangco Jr. said the peso was merely reacting to higher oil prices and the resulting increase in the demand for dollars as imports become more expensive.

Tetangco said the BSP fully expected the peso to react to foreign exchange inflows and outflows as well as weaker equities markets that have affected currencies in the region as well.

Tetangco had expressed optimism that the country’s reserve surplus would ultimately buoy the peso amid the slowdown in foreign exchange inflows, possibly picking up in the fourth quarter when remittances peak toward the holiday season.

Economic planners have used the assumption that the peso would range anywhere between P42 to P45 to the dollar to lay down their macro-economic projections and fiscal targets for 2008.

Tetangco said the government has not changed its assumption despite the recent decline in the peso-dollar exchange rate.

He, however, admitted that portfolio investments were being affected by the continuing aftermath of the credit crisis in the US, especially following a series of downgrades by credit rating agencies.

Still, Tetangco said the country’s external position remained favorable, supported heavily by inflows from overseas Filipino workers (OFWs) as well as foreign direct investments in key industries like business process outsourcing, mining and even manufacturing.

“That P42-P45 range is an assumption used in economic modelling so I really can’t say anything about an assumption,” Tetangco said. “But in the fourth quarter, for instance, it will be remittance season so we still see a strong BOP surplus.”

Aside from the strength of the BOP, additional inflow would also support a seasonal appreciation of the peso.

The BSP said it would not intervene in the currency market anymore to hold inflationary pressures at bay, allaying fears that monetary officials had planned to keep the peso from rising against the dollar.

Tetangco said earlier that the BSP was not following a “strong peso strategy” as a monetary tool to control inflation which surged to 9.6 percent in May amid rising commodity prices. 

COLUMN:  No cause to celebrate HIDDEN AGENDA By Mary Ann Ll. Reyes Wednesday, July 2, 2008

The National Power Corp. (Napocor) proved once again its penchant for not reflecting its true generation costs in real time - at the expense of taxpayers and electricity consumers.

As it turns out, the Energy Regulatory Commission (ERC) had been hounding Napocor for close to two years to file its application for rate reduction, not because of any operational efficiencies on Napocor’s part but by virtue of artificial profits from improved foreign exchange rates since July 2006. With the peso steadily gaining on the dollar in the last three years, our electricity rates should have been regularly reduced.

Last week, the ERC ordered the slashing of Napocor rates to pay back the P10 billion overcharged from July 2006 to March 2008. The refund will be reflected in the coming billings of distribution utilities, including the Manila Electric Co. (Meralco).

It was only when ERC chairman Rodolfo Albano recently went public about Napocor having cheated the public for close to two years did the government power corporation file the application for rate reduction.

The ERC ordered Napocor in May this year to explain why it failed to file a petition for the recovery of an estimated P10 billion in generation and forex-related costs for July 2006 to March 2008, the approval of which would have meant a rate reduction of around 20 centavos per kilowatt hour for Napocor customers.

Because Napocor did not file for the recovery of these costs during the 21-month period, the rates reflected on customers’ bills were more than what they should have paid. The ERC said Napocor had overcharged its customers by a whopping P10 billion.

And only after being exposed to the public did Napocor admit amassing at least P78.7 billion in forex gains and about P9.2 billion in GRAM and ICERA deferred accounting adjustments.

(GRAM is a quarterly adjustment mechanism that allows public utilities to recover costs from fluctuations in the cost of fuel and of purchased power. ICERA is a similar mechanism to recover costs related to fluctuations in the foreign exchange rate. A strong peso usually means a reduction in rates.)

Napocor is said to have posted more than P80 billion from forex gains alone in 2006 and another P80 billion last year since the peso was last traded at 46.50=$1.

Our coffee shop kibitzers note that rather than being forthright, and in useless attempt at trying to look good, Napocor passed off all those gains as either income and/or profit. In 2006, Napocor reported a net income of almost P90 billion due to forex gains. It also reported forex gains amounting to P65 billion the year before.

Napocor president Cyrill del Callar has been boasting that they would turn a profit by 2007 while hiding the truth that it was because two reasons: foreign exchange rates were improving and, the national government absorbed P200 billion of Napocor’s debt.

Observers emphasize that before Napocor and its allies start demanding that Meralco begin buying supposedly cheaper electricity from Napocor, we must not lose sight of the fact that Napocor’s refund through reduction is good only for six months after which ERC will entertain a pending Napocor application for rate increase.

And many find it disconcerting that Napocor’s pending application with the ERC is to increase rates to levels way beyond its rate prior to this refund.

Simply put, Napocor’s rate will be reduced by P0.74 centavos, from P3.89/kwh down to P3.15/kwh. This will be good for no more than six months. Napocor’s pending application is for increasing its power generation rates to P4.75/kwh. That’s P1.60 more than the new refund rate ordered by ERC.

Why the secrecy?

The drama featuring publicly listed Liberty Telecoms Holdings and its subsidiaries Liberty Broadcasting Network and Skyphone Logistics continues.

Since the filing by creditor Rizal Commercial Banking Corp. (RCBC) of a motion to terminate Liberty’s rehabilitation proceedings with the Makati court which approved Liberty’s rehabilitation plan, the court and the general public have not been informed of the official status of the frequency assignment which Liberty used to own for its planned WiMax network but has transferred by the National Telecommunications Commission to Smart Broadband Inc.

Liberty has moved to expunge RCBC’s motion, citing technicalities to prevent the rehabilitation court from hearing it. Liberty and the NTC have also separately moved to quash the subpoenae issued by the rehabilitation court directing the NTC commissioner and other officials to appear and testify on the status of Liberty’s valuable frequency.

RCBC has scored the NTC for stonewalling and preventing the rehabilitation court from hearing and resolving the issues raised in its motion. The bank also chided NTC commissioner Ruel Canobas for making public statements to media on the issue but refusing to make the same statements before the rehabilitation court under oath.

There is no doubt that the public deserves to know the true status of Liberty’s frequency assignment and the feasibility of its rehabilitation plan which was almost entirely based on the WiMax network. So why the secrecy from the NTC?

Recently, Liberty informed the Philippine Stock Exchange and the rehabilitation court of alleged negotiations to convert Liberty’s debt to equity and that four of its directors (from the Moreno group) have resigned and were replaced by new directors. It did not mention the supposed investor and the terms of the supposed investment agreement, citing an alleged confidentiality and non-disclosure agreement or undertaking.

Some sectors are now asking whether the transaction is bona fide or merely a ruse to deflect the pending incidents before the rehabilitation court. Is the Moreno group, after locking up Liberty’s creditors to a 10- year rehabilitation plan which now appears to be no longer feasible, abandoning Liberty to the prejudice of the creditors?

Maybe the PSE should give the investing public some assurance that their money is still in good hands by demanding more transparency from Liberty and the NTC.

Chief News Editor: Sol Jose Vanzi

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