MOODY'S HAILS RP STRATEGY ON OIL CRISIS OVER LONG TERM
MANILA, JULY 9, 2008 (STAR) By Des Ferriols - Compared with its neighbors, credit rating agencies said the Philippines picked the better strategy for addressing the oil crisis over the long term.
Moody’s Investor Services said yesterday that giving incentives to encourage private investments in renewable energy sources and incentives to reduce household energy consumption was a step in the right direction.
Environment groups estimated that the Philippines had a renewable energy potential of more than 200,000 megawatts from a combination of geothermal, wind, solar, biomass, and mini-hydro — more than five times the country’s energy demand.
Moreover, the country’s oil consumption had also declined from the previous average of 300 million barrels a year to only 287 million barrels in 2007 as consumers cut back on consumption because of soaring prices.
The self-correction in the consumer market, however, would work best with fiscal encouragement and since the price of oil has doubled since June last year, Moody’s said governments in Asia have reacted generally by being forced to reduce their subsidy programs and raise fuel prices.
Moody’s economist Nikhilesh Bhattacharyya said that in recent months, the governments of India, Malaysia and Indonesia have all been forced to raise petrol prices in response to ballooning fuel subsidy bills associated with keeping petrol prices fixed at an artificially low level.
“This has incurred the wrath of voters in these nations, with Malaysia and India’s coalition governments threatening to fall apart as a result of the difficult, but necessary, decision to reduce fuel subsidies,” Bhattacharyya said.
But Bhattacharyya admitted that apart from scrapping fuel subsidies, there was very little that governments could do to reduce their nation’s dependence on oil.
“The cases of South Korea and the Philippines provide vastly contrasting examples,” Bhattacharyya said. “In Korea, the embattled prime minister had created yet another enemy for himself, by telling public servants that only half of the government vehicle fleet can be driven each day for the foreseeable future.”
Bhattacharyya said this policy was unlikely to help to any great extent, since it would leave private demand unchanged in the world’s 5th largest oil importer.
In a contrast to the Korean government’s rationing scheme, Bhattacharyya said the rising price of oil has prompted the Philippine legislature to provide incentives to invest in long-term solutions to the country’s evolving energy crisis.
“While it may have taken nearly two decades, last month the legislature finally passed a renewable energies bill,” Bhattacharyya noted. The bill was intended to provide financial incentives for the private sector to invest in developing sustainable energy infrastructure.
The bill would also see government departments coordinate to integrate new and existing renewable energy sources to the nation’s power grid.
“Apart from just focusing on the supply side, the Philippine government recently announced a cash reimbursement scheme for low energy user households,” Bhattacharyya said. “This effectively gives incentives for households to conserve energy.”
“While the Philippine government’s reforms may face problems with implementation, they do represent a step in the right direction,” Bhattacharyya said.
“Longer-term solutions, based on providing incentives to innovate and conserve energy are needed to transition Asian economies away from their dependence on oil,” Bhattacharyya added.
PESO CONTINUES TO WEAKEN, NEARS 46-TO-$1
JULY 9, 2008 (STAR) By Des Ferriols - The peso continued to weaken against the dollar yesterday, closing near the 46 to $1 level at 45.870 as buying interest in the peso was undermined by concerns about high oil prices and the global credit crisis.
The peso opened at 45.65 to $1, higher than its previous close of 45.72 to the dollar. But the level was not sustained throughout the day and the currency ended up yielding more ground to close at its lowest level since Sept. 8 last year. Yesterday’s close was 15 centavos lower than Monday’s close of 45.720 to $1.
“The bullish sentiment (on the dollar versus the peso) is still intact, it seems a test of the 46 level is just around the corner,” said a trader.
Total volume was actually thin at $695.5 million but sentiments were generally bleak, with world oil prices staying firmly above the $140/barrel level, indicating a continued rise in domestic prices.
Last week, the Bangko Sentral ng Pilipinas was seen supporting the peso by selling dollars and it sparked a mild profit-taking that was accompanied by a slight softening in oil prices.
This week, however, market traders expect dollar buying on weakness especially since the inflation rate is not expected to start easing up until late in the year.
Analysts said that if the peso should close below the 45.50 level, it could go straight towards 46:$1 especially if oil prices were to surge beyond $146 per barrel in the world market.
But the market was only projecting an average of 45 to 45.70 this week.
Yesterday’s close was already below this range and the peso’s weakness gave no indication of easing up.
The market was also not assuaged by the central bank’s pronouncements that it expected the peso to start recovering in the fourth quarter especially when remittances from overseas Filipinos start peaking towards the holiday season.
The weakness of the currency was not unique to the Philippines, however, with other central banks in the region moving in to support their foreign exchange rates.
Traders said central banks, including the Bangko Sentral ng Pilipinas, are largely keeping their currencies within a tight range, a strategy more reflective of keeping volatility down rather than supporting a stronger domestic currency.
The BSP itself insisted that its market operations were confined to keeping the peso from swinging wildly since volatility would make the changes in foreign exchange rate harder to absorb.
Traders said they expect the peso to dip to as low as 46 to the dollar especially if oil prices continue to surge. They said the fear was that domestic prices would pick up even faster than official projections mainly because there was a separate pressure building up in the food sector.
Food is the single biggest item in the consumer price index and also most vulnerable to changes in oil prices since produce needed to be transported across the country regardless of whether they are imported or locally produced.
Chief News Editor: Sol Jose Vanzi
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