Carlo's Think Pieces

Reflections of a Filipino in the Netherlands

Archive for April, 2010

EV Sales will exceed Expectations

Posted by butalidnl on 27 April 2010

Car makers seem to be wedded to the idea that Electric Vehicles(EVs) will suffer the same lack of public interest as hybrid cars have to date.  GM was quoted as projecting the sales of EVs in 2020 at 3% of total car sales. Even Nissan (which is set to start with sales of the LEAF by the end of 2010) is estimating only 10% of total sales in 2010. Okay, 10% is still a lot – it will be about 2 million EVs sold in 2020 in the US; but I think this is a gross under-estimation of the impact of EVs in the world, or even in the US. Why do I say this?

Gasoline Prices
Gasoline prices are set to go up very soon. In 2012, it will reach its previous highs of $150/gallon; and it will go even higher than that in later years. The supply of gasoline has not increased during the crisis, and the consumption of oil by China has continued rising at this time. When the US, Europe, and the rest of the world would have returned to its pre-recession level of production, the price of oil will go up accordingly. Thus, it is  safe to assume that prices will reach 2007 levels or higher by 2012. Add to this the fact that world oil supplies are projected to reach its peak by 2012, and you have even more reason to think that prices will even exceed $150/barrel by 2012.

$150/barrel translates to about $5/gallon at the pump for US buyers. And it will stay at least at this level indefinitely, so US consumers will have to permanently adjust their auto riding/buying habits accordingly. In Europe, we already have the equivalent of $6/gallon prices, and sales of hybrid autos have increased significantly – to 4% of total autos sold in the Netherlands in 2009. Actually, it could have gone higher if not for the fact that auto imports did not keep pace with demand.

But US consumers go longer distances with their cars. Since they can’t change where they live in the short run, they will have to find a way to reduce gasoline costs. This they will do, initially, by buying smaller cars; but then they will go further, to buying hybrid cars and eventually Electric Vehicles.

The step from hybrid to electric is not too far.  Once EVs become available in volume, they will be bought by many who now have hybrid cars. Especially for two-car families; a second car could very well be an EV.

Cost
The Nissan LEAF that is set to enter the market in 2010 is priced at $25280 (after tax).  This compares favorably even with the Toyota Prius which costs $25990.  By 2013 EVs will start to be available at prices that are even lower. This is because Chinese and even Indian car manufacturers are set to sell their EVs in the US market.

And take note that the market for EVs in Europe is going to be much bigger than that for the US. After all, at $80/barrel Europeans pay $7 or $8/gallon prices. When the price goes to $150/barrel, prices will surely go to the equivalent of between $10 -$12/gallon prices.
Thus, with a fast growing market in Europe, car makers will have a scale advantage early on, and this will surely mean that the average price of EVs will go down, expanding the market in its turn.

Pollution
EVs have an added advantage – in that it does not cause pollution on site. Not only CO2, but also NOn, CO, benzene, fine particles, etc; and of course also noise. For cities, this is going to be an attractive thing about EVs – it will lessen noise levels and all kinds of pollution in their city centers. This will mean that cities will actively promote EVs in their city centers. London and Tokyo are actively promoting EVs (even though mass production is still to start) for this reason. And I think that many more cities will follow suit.

Technical Questions
Of course there are “teething problems” with the introduction of EVs. How will recharging of cars be done – mainly at home? or at the work place? public places?  Or what about the Lithium battery: will the supply for lithium be continuous or be subject to the whims of China and Bolivia? And there is also the question of having a standard plug, which will make it easier to have recharging stations in many places.

Well, all I can say to these kinds of problems is that they will be solved with time – and 10 years is time enough to solve them. I think a standard plug for recharging will come; in fact, the Netherlands has already decided which one it will be – and it seems that Germany and Belgium are also adopting the same standard. The question re Lithium is funny; since lithium is one of the more plentiful elements in this planet. Of course, the supply of lithium that is easily recoverable and cheap in these China and Bolivua, but if the price asked would be too high, we can always recover lithium from seawater. And if not, other kinds of batteries will be invented.

Of course, the sales of EVs will not fly right away – there are too many technical obstacles that face the first buyers. For example, public charging stations will not be that readily available; making it logical that the first EV buyers will install their own charging stations at home. And, people will want to be sure that technical support from garages will be available for their car. For these and other reasons, initial sales will not be high right away. But in a couple of years, the number of public charging stations will increase and familiarity with servicing EVs among auto mechanics will get widespread. And the EV market will take off.

So, what would be my prediction for EV sales in 2020? Well, I estimate it to take up 30% of European auto sales, and 20% of US ales by 2020.

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On the Philippines’ Claim to Sabah

Posted by butalidnl on 22 April 2010

The Philippines claim to Sabah seems to be picking up support again. Lately, President Macapagal-Arroyo hosted a meeting with the various heirs to the Sulu Sultanate in order to discuss the Sabah claim. And there seem to be groups in the web which advocate pursuing this claim.

Well, I am a Filipino; but I do not advocate the Philippines claiming Sabah as part of our country.

Let me explain.

Sabah?
The basis of the Philippines’ claim to Sabah is that the Sulu Sultanate owns this land, which was merely leased to the British East India Company in 1878. Let us take a look at this agreement, when it defined what exactly was being leased:

“Pandasan River on the east, and thence along the whole east coast as far as Sibuku on the South, and including all territories, on the Pandasan River and in the coastal area, known as Paitan, Sugut, Banggai, Labuk, Sandakan, China-Batangan, Murniang and all other territories and coastal lands to the south, bordering on Darvel Bay and as far as the Sibuku River, together with all the lands which lie within nine miles from the coast…” from manilabaywatch

Well, I looked it up. The Pandasan River is just to the west of the northernmost point of Sabah, and the Sibuku River is the boundary between Indonesia and Malaysia.  Thus, the area covered is roughly the eastern coast of Sabah, and extends up to 9 miles inland.
This is less than half of present-day Sabah. Worse (for many people, at least), all the oil and natural gas reserves are on the WEST coast, where Kota Kinabalu, Labuan etc are. So, for Philippine politicians who think that they are claiming an oil-rich land, I’m sorry to say that it is not true – the Sabah they are claiming has no oil at all!

Sulu Sultanate’s Property
And then comes the question of whether Sabah (which I use here to refer to the Eastern Part of Sabah which was part of Sulu)  belongs to the Philippines or just merely to the Sulu Sultanate. Sulu was incorporated into the Philippines on the basis of the Treaty of Paris of 1898. I cannot find any piece of paper that says that the Sulu Sultanate itself (which included Sabah) became part of the Philippines. Thus, the Sultanate, by virtue of a treaty of which it had no part in drawing up, got split – Sulu went to the Philippines, and Sabah went elsewhere.

It is probably for this reason that to this day, Malaysia continues to pay the Sulu Sultanate the “rent” (equivalent to 5000 Malayan dollars).  The Sultanate continues to “own” Sabah, and its rights to it are upheld by Malaysian practice; but this does not mean that the Philippines inherited this right. Of course, normally, when Sulu became part of the Philippines, it would mean that everything the Sultanate owns became part of the Philippines. But in the case of Sulu, its lands were divided arbitrarily by those who wrote the Treaty of Paris; so it’s not the Sulu Sultanate’s fault that its lands have been split up.

During the term of Diosdado Macapagal, the heirs to the Sulu Sultanate authorized the Philippine government to pursue the claim to Sabah. But this authorization has since then been withdrawn; and the present government tried, in vain, to get authorized again. So, without this authorization from the Sulu Sultanate’s heirs, the Philippine government has nothing to pursue the claim with.

And then there is the question of whether the Sulu Sultanate still exists. After all, if it no longer exists, then there is no more claim of ownership of Sabah. I think that the Sulu Sultanate’s heirs continue with the myth of the Sultanate, in order to continue receiving their “rent” (or even to ask for more) from Malaysia, and also so that the Philippine government will continue to recognize the Sultanate’s existence.

MILF
It is MILF policy to work for Moro autonomy in places where Moros are now the majority. They don’t want to pursue claims to lands where Moros historically were the majority (which will be a very big chunk of Mindanao, and even Sabah). Besides,  the MILF is not eager to recognize or raise the status of the Sulu Sultanate’s heirs – to them the Sultanate is a feudal institution that they would rather not deal with.

If the MILF gets the autonomy that it is fighting for, the issue of Sabah will probably also go away.

Regional Cooperation and Malaysia
And there is of course the point that Sabah is now an integral part of Malaysia.  Pursuing the Sabah claim would mean conflict between the Philippines and Malaysia. This is not good, to say the least. Especially since Malaysia seems to be doing a good job at ruling Sabah.

Philippines-Malaysia border problems are lessened by increased barter trading, and of course lax border crossing rules. Now, Tausugs from Sulu and Sabah could behave, more or less, as if they were in one country. Increased cooperation between the two countries would be good for development at both sides of the border.

All in all, I think that the “Sabah question” should be laid to rest. There is not much to gain for the effort, and the basis for the claim is getting more and more vague as time passes.

Posted in Philippine politics, Philippines, politics, World Affairs | Tagged: , , , , | 67 Comments »

The Future of BPO in the Philippines

Posted by butalidnl on 19 April 2010

The BPO (Business Process Outsourcing) industry in the Philippines is going to quadruple in size in the next 5 years. Thus, it will grow from employing about 500 thousand people now, to about 2 million in 2015. This is not only be an expansion in terms of size, but it will also come with significant changes.
Here are some of them.

Careers, Higher Salaries
When the BPO industry grows to two million, it will have to outgrow the current model of young people doing this for a few years and then moving on. When the industry will be 2-million employees strong, it will be too big to afford the present level of turnover.  This means that the industry will have to find better ways to retain personnel, to make them want to stay on longer and make their work in the BPO industry their careers.

For one, this means that salaries need to rise somewhat. From about PhP 12 thousand entry-level now, to about PhP 20 thousand entry-level in 2015. And that staying on will result in  increased pay with experience. This increase will not price out Philippine BPO, since it will be then about 4 times cheaper than their US counterparts.

A BPO agent receiving a  PhP 10 thousand salary would easily be enticed by a salary of $1000 abroad. However, at a salary of PhP 20 thousand, they would not consider leaving unless they receive an offer of $2000 or above. BPO jobs will have to compete with the Overseas job market for qualified workers, and this is another reason why its salaries will have to go up.

And there needs to be certain amenities for BPO workers, especially for those working the night shift: shuttle buses, 24-hour fast food eateries, 24-hour groceries etc. , gyms, etc. And then, there need to be pension plans in place, which are preferably industry-wide plans.  I foresee that BPO centers will then tend to cluster in the same areas, so that the attached services are located together also.

English Proficiency
There needs to be a thoroughly new way in which English proficiency is taught to call center agents. While a lot of the training will probably remain at the company level, the education especially in English, needs to improve significantly. English proficiency for admission as call-center agents may then be done by special courses offered in the various universities.

All this would mean that the demand for good English teachers will increase. English teachers will then be in short supply, and they need to do a lot more teaching, and thus the salaries for English teachers will have to be increased.

Other BPO
As the call-center type of BPO expands, other types of BPO will also logically be brought in. For example, if a BPO center does the accepting of orders for a certain product, then it may be logical to also base that company’s product distribution for Asia or Southeast Asia in the Philippines. And then, logically, also the accounting functions associated with this.  This could be done by BPO companies or by the mother company setting up a Philippine office.

Then consider medical transcriptions. It may be logical to also outsource the analysis of Xrays and Echos to the Philippines.

Qualitative Changes in Economy
The BPO industry, if it succeeds in quadrupling in size by 2015, would also have led to the transformation of the Philippine economy as a whole. While todays 400 thousand workers seem to be able to do there thing without too much effect on the overall economy; 2 million workers will have a more pronounced effect.

For one, 2015 may see a new trend of lower OFW deployments. With BPO work getting more attractive, more Filipinos will opt to stay in the country. OFWs will have to be either more qualified than the BPO workers (and thus earn more than $2000) or less qualified than BPO workers (and earn less than $1000). The layer in-between will be a battle-ground between BPO and OFW.

The extension of high-speed fiber-optic lines all over the country (which is necessary if BPO companies are to spread to more cities) would cause the rapid improvement in internet connectivity throughout the Philippines. Internet access will be faster and cheaper, and a lot of people (even in the more remote towns) will have access to the Internet. And this will have a profound effect on business throughout the country.

The mere volume of the BPO industry will have effects on labor laws, zoning rules, and laws governing ICT.  Transportation networks will have to consider people travelling at the middle of the night. Or, if brownouts are still a problem – there may be “brownout-free” zones established where BPO firms are located.

Posted in Philippine economics, Philippine education, Philippines | Tagged: , , , | 6 Comments »

Lowering Electricity Prices

Posted by butalidnl on 14 April 2010

The Philippines has one of the most expensive electricity rates in the whole world. And this is due to corruption, inefficiency, and the onerous contracts the government went into with the IPPs (Independent Power Producers).  There are various ways of reducing electricity prices; some are relatively straightforward, while others more complicated. I suggest that people look into these to see which ones should be done.

Abolish the VAT for Electricity
This is the easiest to do in a technical sense. But of course, it all depends on how the government handles its finances. Eliminating VAT for electricity will mean a reduction of at least PhP 1/KwH.  This would be great for residential consumers; although it will make no difference for commercial/industrial consumers.

Renegotiate with IPPs
The Philippine government should renegotiate the contracts with the Independent Power Producers (IPPs). The provision that they get paid for capacity instead of actual electricity supplied should be changed.  Instead, they should merely be paid for the actual amount of electricity produced. After all, these days, with many shortages, we can safely say that a well-managed electricity supplier will surely be able to find buyers for all the energy they can produce.

The government is afraid to do this because it fears that investors will shun the Philippines as a result. I don’t think this will happen. We are giving investors too good a deal – this is not normal in the world, and the investors are taking unfair advantage of us. I think we should simply offer investors a good deal; and our growing energy market is indeed a good deal in itself. We will offer them a deregulated market, with no upper or lower limits. This should be enough for them.

Day/Night Rates
The electricity distribution companies e.g. Meralco should implement day/night rates. By this, I mean that the rates for use in the evening and at night should be significantly lower than that for the “day”. Let’s say that the day rate will be valid from 7 am to 7pm, and the night rate for 7pm to 7 am. Then, let the electricity during the night be 30% cheaper than during the day. This will encourage consumers to shift their electricity consumption to the nighttime. Thus, washing machines, flatirons, etc. could perhaps be used more at night.  Even companies will be encouraged to shift their production when possible to the nighttime.

The advantage of the lower night rates is that it will make the consumption of electricity more distributed across a 24 hour period, thus maximizing the utilization of the grid and the generating power. At the same time, consumers will benefit because part of their consumption will inevitably fall at night. Many BPO companies will benefit a lot from this, since most of their operations are done at night.

The problem with having day and night rates is that consumers need to have new electricity meters installed. This will cost money, and it will take time. I believe, though, that it will all be worth it.

Allow more Direct Sourcing of Electricity
Business of a certain size should be able to directly acquire energy from other providers, and not only the one which holds the distribution system for an area. This would mean, for example, that a hotel should be allowed to source its electricity from some other company than say, Meralco. Or a factory. Or a subdivision. This can be done. It is the system here in the Netherlands. The geographic distributor merely charges a (reasonable) fee for transporting the electricity to the customer. The various providers would then source their electricity from whichever generating source gives the best price.

This way, there would be more competition in the whole system. And Meralco will no longer be able to simply pass on the generating cost charged to them by their suppliers, but would have to shop around for the best source of electricity themselves. And consumers will be able to get a chance to buy electricity directly for the cheapest price possible.

In the Netherlands, the system is such that all customers could shop around for the cheapest energy provider. Thus, the electricity provider for my neighbors are different from ours – and all providers simply pay the holder of the local grid money for transporting electricity.

The possible problem with this approach will be how the distribution companies behave. They could harass consumers who seek to change providers; and they could also harass the other providers by imposing too high transport fees. The government will need to enforce good rules regarding these and other steps that distribution companies will take to hinder the process.

Make Electricity Companies Declare Prices for 6 Months at a Time
Electricity companies should no longer have the present assured profit system. What kind of business is that? Business means risk taking, and electric utilities should be no exception. We should not pay for all the “passed  on” costs of these companies. Electric companies should take on longer-term contracts (i.e. 6 months) that have a fixed price for everything from fuel oil to exchange rates. These should all be fixed through longer term contracts, warrants or options. Then, these prices should be offered to the public as a choice. If some people don’t want this, they should have the option (above) of transferring energy providers.

This would make energy distribution more predictable, and prices more stable. And the contracts, warrants or options, if handled correctly should prevent electricity distributors from suffering losses. This is the way pricing is done in other countries; the Philippines is rather unique in that its electricity prices jump from month to month.

See also:Why Meralco Rates are High

Posted in electricity, Philippine economics, Philippines | Tagged: , , , , , | 2 Comments »

Why Meralco rates are high

Posted by butalidnl on 13 April 2010

Philippine electricity rates are high, and Meralco’s is higher than most of the rest. If we take from the blogpost of Chuvaness , her consumption was 3120 KwH and her bill was PhP 41,902, making the net price of electricity in Manila at PhP13.46/kwH, or $0.30/KwH. This would make it among the highest in the world. (In the EU, only 3 countries have rates higher than that – the Netherlands, Germany and Denmark – and it is because of the high taxes they impose on electricity.)

Now, why is it that Philippine electricity prices are so high?

IPPs
The main problem with the electricity prices in the Philippines is the scandalous terms with which the Napocor buys electricity from Independent Power Producers (IPPs). Among these terms is the requirement that Napocor pay the IPPs based on their generating capacity and not on the  actual electricity delivered. So, for example, an IPP would have a rated capacity of 1000 MW, and the grid only required 100 MW. Napocor would still be obliged to pay the IPP the price for 850 MW, even if it only received 100 MW from that IPP. This meant that the Napocor, and by extension, the consumer, would pay way too much for electricity.
Now, with the coming of the so-called deregulation of the electricity market by the setting up of the WESM (Wholesale Electricity Spot Market), the market was deregulated all right, but not to the consumers’ benefit. The IPPs use the WESM to jack up the price of electricity. After all, in a system of monopoly, or rather oligopoly, prices rise to the level of maximizing the profits of the electricity providers.

Lopez-owned IPPs
Meralco sources 50% of its electricity from the Santa Rita and San Lorenzo power stations, both of which are owned by the Lopez family (note: but NOT by Meralco). And these two power stations sell electricity to Meralco at a relatively high price. And the only thing that the Energy Regulatory Commission can regulate are the distribution and other add-on charges on the electricity, leaving the generation charge to the “market”. Thus, the government cannot control the price by which these Lopez-owned IPPs sell electricity to Meralco. So now, with the Lopez’s selling most of their Meralco stake,the Lopez’s get to benefit from Meralco’s rates without having the obligations that Meralco has; since after all, most of their profits come from these IPPs. And everybody blames Meralco, when it is the IPPs that are causing the main rise in electricity rates.
Of course, Meralco itself is also making a lot of profit, through things like distribution charges, charges for “system loss” and other such things; but the main profit still goes to the Lopez’s owned IPPs.

And that is the main reason why Meralco’s rates are so high.

See also: Lowering Electricity Prices

Posted in electricity, Philippine economics, Philippines | Tagged: , , , , , , , , | Leave a Comment »