After the past weeks’ price cuts on petroleum products comes the backlash from the petroleum companies. As announced by Pilipinas Shell and Eastern Petroleum, petroleum prices will have to take a hike due to a trend of price increase for crude oil in the global market. Globally speaking, crude oil prices have started to go back up again. Dubai crude oil raised its prices $ 2.00 from $103 to reach $ 105 as of August 18. As a result, premium gasoline is pegged to increase around P 1.40 per liter, regular gasoline with P 0.90 per liter and diesoline with P 0 40 a liter. While this might spell slightly higher returns in the short run, the volatility of crude oil prices coupled with the Department of Energy’s drive to pressure oil firms to follow downtrends as closely as they follow uptrend might cause will serve to balance petroleum price shocks.

Libyan dictator Moammar Gadhafi’s grip on the civil war-torn country is crumbling every day as Libyan rebels march through and eventually dominate the Libyan capital of Tripoli. As of press time, the eccentric yet iron-fisted dictator is nowhere to be found and has not yet made any effort to declare his intentions to the press. Even assuming that Gadhafi’s reign will end any time soon, the general sentiment in the globe seems to be of caution against Libyan oil. It will take months, even years, before oil firms will be confident enough to consider reopening the oil industry as instability in the government is still seen as a threat to business. Most, if not all oil firms under operation in Libya are still cautious even as talks with the Libyan rebels assumed to be in control of the country (but not the state) are ongoing. Still, there is renewed hope in the changes that might be able to come out of the civil war, but for now, the hope is still dim.

The Lopez-affiliated Energy Development Corporation (EDC) has just received approval from the Board of Investments (BOI) for incentives grants for its two geothermal projects in Negros Oriental and the Albay-Sorsogon area. EDC’s geothermal plants qualified for incentives under the Republic Act 9513, or the Renewable Energy Act of 2008, even though the geothermal plants have been in operation for a long time already. Incentives under the Republic Act include possible duty-free importation of machinery for the first 10 years of operation, as well as income tax holidays for the first 7 years of operation, followed by corporate tax rates amounting to 10% of net taxable income as defined in the National Internal Revenue Act of 1997 provided that EDC passes the savings to the end user in the form of lower power rates.

For the first half of 2011, net income generated decreased by 57.8% to P 2.007 billion from the previously recorded first half 2010 net income of P 4.752 billion. This was attributed heavily to the higher operating expenses due to increased operations and maintenance expenses associated with the Northern Negros Geothermal Project, as well as the acquisition of the Bacon-Manito (BacMan) power plants in Sorsogon. As a result, the first half of 2011 was met with Current Ratio reductions from 2.76:1 from 2010 to 2.22:1 in this year. Debt-to-equity ratio also increased from 1.26:1 to 1.84: in due part again to the acquisition of the Sorsogon power plant.

The incentives therefore will be a welcome help for the EDC as it will, at the very least, allow the company to recoup and reduced expenses due to potential leeways from corporate taxation. This of course is still subject to government scrutiny as the law suggests that the savings should also be redounded to the end-users and consumers as savings for the period of the tax holiday of the company. Still, the costs of buying the BacMan power plant, along with other costs of maintaining the clean, yet expensive energy plant can and will be mitigated by the tax incentives well enough to provide a semblance of relief to stockholders of EDC.

Considering this development, there is much potential for investing in renewable energy, given that the law itself is in support of this drive to wean the Philippines out of conventional energy sources.

However, it might take a long time before the Philippines can cut its dependence on conventional and “dirty” energy sources such as coal. Of course, comparatively speaking, the maintenance of coal power plants is much cheaper and much easier to build and maintain than adopting burgeoning new technologies such as wind and solar power.

Most power plant projects (notably and recently, that of the Aboitizes and the Consunjis) are fed with coal, which provides energy rather inefficiently as compared to other energy sources such as nuclear or hydroelectric power.

While the law might provide some support for these renewable energy sources, the fact of the matter still remains that renewable energy remains expensive and therefore out of practicable reach for the Philippines. Nevertheless, by pushing gradually into adopting newer forms of technology, the Philippines can hope to accelerate the transition from conventional non-renewable energy sources to eventually adopt renewable energy.


Images from: