THE VOICE OF BUSINESS IN NORTHERN MINDANAO

Friday, August 12, 2011

Butuan City wants NG to install solar farms to address power-supply woes

12 August 2011
Paul Anthony A. Isla / Reporter
THE Butuan City government on Thursday blamed the unstable supply of
electricity in Mindanao that has forced some businesses and industries to be
on standby mode.
To address the shortage, Butuan City Mayor Ferdinand Amante Jr. urged the
national government to kick off the setting up of solar farms in Mindanao.
Amante said the government could take advantage of the short gestation of
solar-power technology as businesses in Mindanao are stagnating due to the
unstable supply of power.
Amante's statement came a week after the Philippine Solar Power Alliance
(PSPA) claimed that the recurring brownouts in Mindanao could be fixed by
solar power with the shorttime frame needed to deploy such technologies.
He said Butuan City has incurred an income of P220 million in end-July
coming from a P23-million deficit.
"We fear we may lose our gains unless the stability of electricity is
restored. Tourists and investors are not coming to Mindanao because of
persistent power shortages," he said.
Amante said inadequate power supply has caused recurring brownouts in most
provinces in Mindanao, particularly in the Caraga Region, Iligan, Cotabato
and Davao, as power-reserve levels remain low at only 100 megawatts (MW)
during peak hours.
He said the National Grid Corp. of the Philippines has even implemented this
month a grid-wide power-load reduction in Mindanao due to insufficient
generation from power plants.
According to the reports, Amante said 92 MW to 150 MW have been withdrawn
from the grid as a result of the forced outages of generating facilities.
Mindanao's power-generating capacity is heavily reliant on water supply as
about 50 percent of the electricity generated is sourced from hydroelectric
power plants.
Dennis Ibarra, PSPA president, earlier said the process of putting up solar
power plants is the fastest among all energy technologies.
He added that a 10-MW solar power plant can be installed and commissioned in
just six months or even less because it does not have fuel or other
environmental concerns.
Ibarra said the time needed to deploy the solar power projects is shorter
than fossil fuel-based, large hydroelectric, geothermal power projects and
other renewable-energy sources.
"The speed of deploying solar power plants can be attributed to over 40
years of installation and connection experience by established companies now
keen on investing in Mindanao. Local and international solar companies can
produce at least 400 MW of electricity to deal with power shortages if the
government allows them," he said.
As of May 2011, Ibarra said 40 local and international project applications
were submitted to the Department of Energy (DOE). He added that these
projects, if allowed to produce 10 MW each, can generate 400 MW of clean and
renewable power.
He said the power-supply shortage has been causing intermittent outages in
Mindanao throughout the year and that reports indicate that power-reserve
levels remain low at only 100 MW during peak hours.
Ibarra said Mindanao's power-generating capacity is heavily reliant on
weather and water supply as about 50 percent of the electricity generated is
from hydroelectric power plants.
The DOE, however, has put a 50-MW cap on solar energy installation target
for three years.
Thus, the PSPA has been appealing to the DOE to increase its installation
targets to 269 MW instead of 50 MW.
"The Renewable Energy Act of 2008 does not prioritize or discriminate
against different renewable-energy technologies, but calls for a balanced
set of technologies, along with their distinct features and applications,"
Ibarra said.

Philippine Markets: 12 August 2011

12 August 2011 
USD/PhP:          42.64           + 0.10        PSEi:             4321.73                        + 10.71         
USD/JPY:           76.67                        PFINC:                   999.69                        + 8.05 
EUR/USD:         1.4185                        BDO:                  60.00                        - 0.80 
GBP/USD:         1.6179                        BPI:                  57.95                        + 0.60 
PDSTF3M:         2.0250                        MBT:               75.70                        + 1.30 
Prices as of  4:00pm                        Source: Bloomberg, Reuters 
Philippine Interest Rate Outlook 
Secondary market rates moved down by an average of 32 basis points week-on-week as investors sought safety of government debt amidst volatility in the financial markets.  As inflation remains contained, investors are expecting monetary board to keep interest rates unchanged during the next policy meeting in September as economic growth could slowdown due to recent events in developed markets.  Expect interest rates to remain on the low side and move sideways next week. 
Philippine Equities Outlook 
Local shares lost 2.61 percent week-on-week to 4321.73 as global equity markets experienced high volatility after the downgrade of US credit ratings.  The swings in the US equity markets were huge causing panic in global markets.  The PSEi index reached 4,129.30 low during the week, erasing all the year to date gains, but managed to stay in the positive territory again as bargain hunting took place led mining shares.  Expect volatility to continue next week. 
Chartwise, the week’s close at 4,321.73 could see a possible retest of 4,400, however with risk aversion flaring worldwide, any rally could be met by sellers and could still put the 4,100 levels  at risk.
Philippine Peso Outlook 
The local currency depreciated 0.14 percent week-on-week to 42.64 as risk aversion dominated market theme this week.  The currency continues to take its cue to dollar movements against the major currencies especially the euro. 
Chartwise, as long as the 42.25 support level holds, a near-term bounce back to 43.00 levels is still in the cards.  A break below the said level will signal the resumption of the test of the 41.00 levels.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 
The recent downgrade of the US long-term debt rating has created a new period of uncertainty. Not until last Saturday, the global sentiment had been more of RISK ON.  But with the recent downgrade, global investors got more than warning sign that the global recovery remain slow and uncertain.
So what does this mean for investors? The markets will remain volatile for now and may last for another 2-3 weeks(normally risk aversion periods may last longer up to 6 weeks). At such time investors may be more comfortable taking on more risks, provided no additional deteriorating news comes. 
Please see table below on near-term expectations for the market: 


BDO UNIBANK, INC. 
Jonathan Ravelas
Chief Market Strategist
(632) 858-3145 

Morning Brief: 12 August 2011



Gov’t sets PPP auction 
EIGHTEEN COMPANIES, so far, have signified their interest to bid for the P1.956-billion Daang Hari-South Luzon Expressway (SLEx) link -- the government’s first public-private partnership (PPP) deal that may finally be auctioned off, on Dec. 28. 
"There are 18 bidders [sic] for the first [PPP deal]," Finance Secretary Cesar V. Purisima told reporters at the sidelines of the 3rd Corporate Treasury & CFO Summit Philippines held yesterday in Makati City.
The Department of Public Works and Highways (DPWH), the agency implementing the project, invited investors to pre-qualify for the bidding last month.
"There are 18 companies who have bought the invitation documents for Daang Hari," Public Works Secretary Rogelio L. Singson confirmed separately by phone.
"The bidders are mostly local companies. Some of them already operate toll roads," Mr. Singson explained, citing Metro Pacific Tollways Corp. (MPTC), the operator of the North Luzon Expressway, and Citra Metro Manila Tollways Corp. (Citra), the operator of the South Metro Manila Skyway Project.
DPWH yesterday released the preliminary list of companies that have bought bid documents, namely: Citra; China International Water & Electric Corp.; CM Pancho Construction Inc.; DM Consunji, Inc. (DMCI); EFC Enterprises; IL & FS Transportation Networks Ltd.; JD Legaspi Construction; Ayala Land construction arm Makati Development Corp.; Moldex Construction, Inc.; Sy-led Monte Oro Grid Resources Corp.; MPTC; Malaysia-based MTD Group; Ramon S. Ang-chaired Optimal Infrastructure Development, Inc.; R-II Builders, Inc.; South Luzon Tollways Corporation (SLTC); Star Infrastructure Development Corp.; UEM-MARA Philippines Corp.; and Vicente T. Lao Construction.
MPTC President Ramoncito S. Fernandez confirmed via text yesterday that "Yes, MPTC bought bid documents."
SLTC Spokesperson Christiaan S. Orlina also validated the report. "We bought the invitation documents because we feel that we are the best qualified to finance, design, construct, operate and maintain the Daang Hari," Mr. Orlina said by phone.
DMCI Executive Vice-President Edilberto C. Palisoc, however, confirmed only the construction firm’s interest, saying via text, "Yes, we will purchase [the documents]."
Interested parties can still purchase bid documents from the Central Procurement Office of the DPWH until Sept. 16 for a non-refundable fee of P50,000.
All qualification documents have to be submitted by Sept. 19. A pre-bid conference will be held on Oct. 28.
Interested investors must submit their formal bids to the DPWH by Dec. 28, the same day the bids will be opened, Mr. Singson said.
The P1.956-billion project includes construction of a four-kilometer, four-lane paved toll road that will connect Bacoor, Cavite to the South Luzon Expressway. The road "will address the requirement for additional access between Metro Manila and Cavite where rapid urbanization and consequent worsening of traffic situation is being experienced," the project brief states.
The project specifically consists of:
• paying for advanced work completed by Alabang-Sto. Tomas Development, Inc. in 2009;
• financing and construction of the remaining works for Segment I at the junction of Daang Hari and Daang Reyna;
• financing, design and construction of Segment II at the Susana Heights Interchange; as well as
• the operation and maintenance of the entire Daang Hari-SLEx Link Road as an open-system tolled expressway.
The project will be implemented under a build-transfer-operate arrangement, whereby the private sector party will build the road and assume all construction-related risks.
Once the facility is completed, the title will be transferred back to the DPWH.
The private sector party will operate the highway on behalf of the government and will be authorized to collect toll from users.
The DPWH will be responsible for toll-setting.
The Daang Hari-SLEx link should have been the second PPP deal to be rolled out by the government, after the P15-billion operation and maintenance contract for the Light Rail Transit Line 1 and the Metro Rail Transit Line 3 was opened to investors in March. Bidding for that project had been scheduled for July 11. However, the PPP deal for the commuter train lines was shelved last month after a change of leadership at the Department of Transportation and Communications.
The government has said it aims to auction off at least 10 PPP projects this year. 
VAT on toll to be collected by October 
Toll on all privately-run expressways are to rise by 12 percent on October 1 with the slapping of value-added tax (VAT) on their operations, according to a government announcement on Thursday.
The move, which has been fiercely opposed by motorist and transport groups who expected the tax to be totally passed on to toll users, is expected to give the government an additional P2 billion a year in revenues to help keep state finances healthy.
“The BIR (Bureau of Internal Revenue) in a meeting with toll road operators and the Toll Regulatory Board (TRB) agreed to impose VAT on toll on October 1,” the TRB said in a text message to reporters late Thursday.
The implementation of the VAT was held back a month later than the original target of September 1, TRB Spokesperson Julius Corpuz said.
“This is to give the toll operators ample time to prepare for a smooth implementation (of higher fees),” he said.
Notices would be published in newspapers once the new rates for each highway were finalized, he added.
The Department of Finance ordered the imposition of VAT on toll last year as it struggled to find new sources of income.
The Supreme Court earlier issued an order temporarily restraining the imposition of VAT on tolls, but in a decision last month, sided with the government on the issue.

U.S. Stocks Rally as Profits, Drop in Jobless Claims Offset Europe Woes
U.S. stocks rallied, reversing yesterday’s drop for the Standard & Poor’s 500 Index, as a decline in jobless claims and better-than-estimated corporate earnings tempered concern Europe’s debt crisis is worsening.
All 10 groups in the S&P 500 advanced at least 2.5 percent, with gains being led by financial, energy and raw-material companies. Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) rallied more than 6.7 percent, after plunging at least 5.5 percent yesterday. Cisco Systems Inc. (CSCO), the world’s largest maker of networking equipment, soared 16 percent, the most since May 2002, as profit and sales beat analysts’ estimates.
The S&P 500 surged 4.6 percent to 1,172.64 at 4 p.m. in New York. The gauge had plunged as much as 18 percent from its 2011 high and yesterday traded at 12.3 times reported earnings, the lowest valuation since March 2009, according to data compiled by Bloomberg. The Dow Jones Industrial Average jumped 423.37 points, or 4 percent, to 11,143.31 today.

U.S. 30-Year Bond Yield Rises Most Since 2008 on Concerns About Inflation

Treasury 30-year bonds tumbled, pushing yields up the most since 2008, on speculation Federal Reserve policies will stoke inflation, which sapped demand at the $16 billion offering of the securities.
The first auction of the debt since Standard & Poor’s cut the U.S. credit rating on Aug. 5 drew the lowest level of demand since February 2009. Today’s auction produced a yield of 3.750 percent, compared with the average forecast of 3.622 percent in a Bloomberg News survey of eight primary dealers.
“People didn’t show up for this one,” said Scott Sherman, an interest-rate strategist in New York at Credit Suisse Group AG, one of the 20 primary dealers that are obligated to participate in U.S. auctions. “Increased worry about inflation has to get priced into the long bond, given the Fed’s accommodative stance. For now, there will be apprehension to buy that far out on the curve at these yield levels.”
The current 30-year bond yield increased 25 basis points, or 0.25 percentage point, to 3.77 percent at 5:01 p.m. in New York, according to Bloomberg Bond Trader prices. The price of the 4.375 percent securities maturing in May 2041 dropped 5, or $50 per $1,000 face amount, to 110 25/32.
The yield rose as much as 29 basis points, the most on an intraday basis since Nov. 21, 2008, when the S&P 500 Index soared 6.3 percent after falling to its lowest level in 11 years during a period of extreme volatility following the bankruptcy of Lehman Brothers Holdings Inc.
Crude Oil Declines, Heading for Third Weekly Drop, on Concern Over Economy 
Oil fell in New York, heading for a third week of declines, as concerns the U.S. economy is slowing countered an unexpected drop in unemployment benefits in the world’s biggest crude-consuming nation.
Futures slipped as much as 0.4 percent today, the first drop in three days. Prices rose yesterday after the number of applications for U.S. unemployment payments fell 7,000 in the week ended Aug. 6 to 395,000, the fewest since early April. Other reports showed consumer confidence fell and the trade gap widened in June to the highest level since October 2008.
Crude for September delivery fell as much as 35 cents to $85.37 a barrel in electronic trading on the New York Mercantile Exchange and was at $85.44 at 9:49 a.m. Sydney time. The contract yesterday gained 3.4 percent to $85.72. Prices are down 1.7 percent this week and 13 percent higher the past year.
Brent oil for September settlement gained $1.34, or 1.3 percent, to $108.02 a barrel on the ICE Futures Europe exchange in London yesterday. The European benchmark contract settled at a premium of $22.30 to U.S. futures, compared with a record close of $23.79 on Aug. 10.

BDO UNIBANK INC. 
Jonathan Ravelas
Chief Market Strategist
(632) 858-3145
Rhys Cruz
Junior Researcher 
(632) 858-3001 
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