Gov't readies new infrastructure firm

The Department of Trade and Industry (DTI) is finalizing plans to form a new state company that will undertake at least 10 major infrastructure projects within the new six-year term of President Gloria Macapagal-Arroyo. The proposed Philippine Infrastructure Corporation, which will be tasked to administer a pooled infrastructure fund projected to reach PhP200 billion, will be incorporated within the month and will be "up and running" by August, Trade and Industry Secretary Cesar A.V. Purisima told reporters over the weekend. He said the government was targetting an initial tranche of PhP20 billion for the proposed Philippine Infrastructure Fund, which would come from "present resources" of the National Development Company (NDC), a DTI unit, and part of the proceeds from the sale of Economic Recovery through Agricultural Productivity or ERAP bonds issued by the Estrada administration in 1999.

NDC had sold PhP5 billion in ERAP bonds out of the planned PhP50 billion, to raise money originally for small and medium enterprises and agricultural productivity projects. Mr. Purisima said the bonds would soon be re-issued to raise capital for the proposed Philippine Infrastructure Corporation, which would be a wholly owned subsidiary of NDC. "Ultimately we would like to raise as much as PhP200 billion as funding for [this company] so we can really have major infrastructure projects," Mr. Purisima told reporters. Project-based funding will also be obtained through the Development Bank of the Philippines (DBP), he added.

The NDC board last week approved the appointment of DBP as financial adviser so it could seek foreign funding for the proposed company. Mr. Purisima also said various government assets would soon be transferred to the proposed Philippine Infrastructure Corp., for use a collateral. He said some of the assets would come from the Privatization and Management Office, the former Asset Privatization Trust, as well as the government's stake in the Lopez led-Manila Electric Company. "There will be others that will be transferred ultimately, but we have to do some staff work on it or get legislative support for some of the moves. That is why we are going to do [the funding] in tranches," Mr. Purisima said.

The rational for the pooled fund is the need to jumpstart a number of infrastructure projects to improve the country's competitiveness as an exporter, and enhance the country's viability as an investment destination, he said. Mr. Purisima argued that the normal bidding process always took a long time. "The idea is if the government is to jumpstart it, then [construction projects] don't have to wait that long [and] can probably break ground within a month or two. [Later on we can] invite investors...when investors finally come in, the project may be completed or is towards completion," he said. Mr. Purisima also said the government intended to "outsource" all construction projects. "Everything will be outsourced, construction would be bidded out to private entities. The project management financial adviser is DBP, and the packaging of this project will be done by DBP," he said. The projects will have to be viable since they will eventually be turned over to private entities, Mr. Purisima said. For highway projects, aside from toll fees the government also hopes to earn from its development of commercial spaces and real estate on exit and entry points.

The proposed Philippine Infrastructure Corp.'s 10 priority projects, the list of which has yet to be released officially, will begin with the long-delayed repair of the Alabang Viaduct. Later on, the South Luzon Expressway (SLEX) would be extended eight kilometers from Calamba, Laguna to connect to the Southern Tagalog Arterial Road (STAR) in Sto. Tomas, Batangas. The STAR tollway will also be extended by 20 kilometers to Batangas City from Lipa City south of Metro Manila. The Alabang Viaduct repair as well as these two road extension projects will cost around PhP2.8 billion. Without right-of-way acquisition, the cost is PhP1.4 billion, at PhP40 million to PhP50 million per kilometer of "simple road." "In the end, you will have a complete expressway between Batangas City and Magallanes [interchange]," Mr. Purisima said. He noted that almost 60% of the country's exports go through SLEX, which was being used by electronics, semiconductors, and automotives parts exporters based in the Cavite-Laguna-Batangas-Rizal-Quezon corridor as access road to Manila air and sea ports. "If we connect [SLEX and STAR], that would encourage companies to reverse the flow of goods. Instead of through Manila, it can now be through Batangas, thereby helping decongest Metro Manila by more utilization of the Port of Batangas," Mr. Purisima said.

However, he clarified that existing franchises involving the two highways would be respected. Officials will soon negotiate with franchise holders, he said. SLEX and the Metro Manila Skyway on it is being administered by the Philippine National Construction Corp. (PNCC) and a subsidiary, the PNCC Skyway Corp., respectively. STAR is operated by Star Infrastructure Development Corp. "We will come in only as joint venture partners or to jumpstart the whole thing, so they won't wait a long time to get funding," Mr. Purisima said. -- Felipe F. Salvosa II

Prescriptions for the ailing power industry

By FRANCISCO L. VIRAY, Ph.D.
Former Energy Secretary

Our current illusory sense of contentment may not last for long if we fail to act decisively and in a timely manner.

Since the Philippines licked a debilitating power crisis that virtually ground the economy to a halt more than 10 years ago, nobody hears of voluntary load curtailments anymore or of schedules for power interruptions. Today, lights are on in our houses, business establishments and industries. It's business as usual. But this illusory sense of contentment may not last for long if we fail to act decisively and in a timely manner.

The country, it seems, is facing not only another round of power shortages but continuing threats of high power rates and a more stinging debt crisis. The danger signs are all there but, our response to the three major problems of power supply shortages, power rates and the government's debt is insufficient, as solutions do not address these three closely intertwined and chronic ailments plaguing the country's power industry holistically.

SUPPLY-DEMAND SITUATION

Taking a look at the current forecasts made by the Department of Energy (DoE), the actual supply and demand of power will meet between 2008 to 2009 in the major grids of the country. That is only four to five years from now.

Sadly, the immediate future is not bright for Luzon, Visayas and Mindanao in terms of their power supply situation. Unlike the power crisis in 1993 where only Luzon was affected, the next round of shortages will definitely affect the entire country. In fact, occasionally, it's already happening in the Visayas. In the early 90s, estimated losses then reached PhP30 billion as businesses closed down. The companies that survived had to trim down their work force, making many Filipinos jobless, as electricity was virtually being rationed.

ELECTRICITY RATES AND DEBT ISSUES

Compounding the possible power supply shortages is the politicized power rates and its contribution to the debt problem. Everybody knows that selling electricity at artificially low rates means Napocor is incurring losses every second its plants are running. Based on an estimate by the Department of Finance, accumulated losses have pushed Napocor debts to PhP1.3 trillion ($23.5 billion), more than a third of the National Government's total debt of PhP3.32 trillion as of October 2003.

On the other side of the coin, removing subsidies will definitely increase rates resulting in protests, but only because the public has been misinformed. Let us take the case of the controversial Purchased Power Adjustment (PPA) being misconstrued by some quarters and individuals as the root cause of high electricity rates. The PPA issue led to a lot of misconceptions. One major fallacy is that the public thinks that the PPA is payment for "unused electricity" only and the independent power producers (IPPs) are getting richer at the expense of the consumers. But the truth is: the PPA is payment for both "used and unused electricity." In effect, it is the payment for the building of capacity or plants needed to ensure that there is enough supply and reserve electricity in case a number of plants bog down. No utility will want to run on a zero reserve capacity as this will mean periodic brownouts whenever there is a disruption in the system.

However, because of the slowdown in the economy from 1998 to 2000, there was substantial excess capacity. By 2002, this naturally had an impact on the rates. While government did the right thing when it planned to subsidize the rates up to a portion where there was unused capacity, it unfortunately ended up subsidizing more when government decided in May 2002 to reduce Napocor's PPA by PhP0.85/kwh. This is because the PhP0.85/kwh reduction also captured a portion of the used capacity! That was 2002. Today, after only two years, we are concerned with shortages rather than an excess. For the Visayas, shortages are not only looming but are already being felt. This means that all of Napocor's available supply is being used and the volume of electricity from the IPPs are also increasing. From 2002 to 2003, there was a 12% increase in the use of electricity from IPPs in Luzon, 37% hike in Mindanao, while IPPs in the Visayas are fully utilized already. However, even if the use of the IPPs are increasing, thereby reducing the portion of the so-called unused capacity, the subsidy brought about by the PhP0.85/kwh reduction in the rates are still imbedded. Thus, to reflect the true cost of power, there is no choice but for power rates to increase to be able to remove the subsidy on the "used electricity."

The good part about it is that once the "used capacities" now are all reflected in the rates, there will be a negligible impact on the cost for additional "used capacities" in the years to come. So, we can bite the bullet now as the impact of this removal of subsidies for the used capacities will only be one time, and the government benefits as it is relieved of the burden of carrying more subsidies. And when the supply equals the demand by 2008-2009, all of the "unused capacity or electricity" would be eaten up. Thus, paying for "unused electricity" should cease to be an issue and the outrage over the PPA must end. Aside from subsidies in the PPA, embedded cross-subsidies in the rates (inter-class, inter-grid, intra-grid) and subsidies resulting from recent changes in regulatory practices such as the Generation Rate Adjustment Mechanism (GRAM) and Incremental Currency Exchange Rate Adjustment (ICERA) have to be removed as mandated by Electric Power Industry Reform Act (EPIRA). These subsidies have to be removed to reflect the true costs of power. However, reflecting true costs of electricity inevitably leads to an increase in power rates. Thus, industries fear that they will no longer be globally competitive. The consumers, likewise, look at any increase as a further cut in their monthly budget.

Nonetheless, industries and the consumers should be aware that while the long-term solution to our high electricity rates starts with the removal of all forms of subsidies, it does not end with it. The EPIRA and deregulation, when properly implemented in a timely manner, will provide the necessary solutions to make our power rates affordable and competitive, if not regionally, globally.

EPIRA AND DEREGULATION: SOLUTIONS?

Presently, some quarters are quick to point to the Power Purchased Adjustment (PPA) and lately, even the Electric Power Industry Reform Act (EPIRA) as the reasons for the problems plaguing the industry -- from high electric rates (despite all the forms of subsidies in place) to the looming power crisis. But is it really? Or are the PPA and the EPIRA merely being used as convenient scapegoats?

To get to the bottom of the current and future power problems and the debt situation, we have to look back at the power industry post-EDSA. The government at that time already realized that the industry was burdened with problems of subsidies, inefficiencies and perceived corruption. The allegations of corruption were the main reason for the mothballing of the 620-MW Bataan Nuclear Power Plant (BNPP), which was contributory to the country's first power crisis. As a first step towards deregulating the power industry, EO215 was promulgated in 1987 to allow the private sector to invest in power generation. Deregulation is seen as the only means to relieve the government from subsidizing Napocor and ensuring adequate power supply. Then came the build-operate-transfer (BOT) scheme as embodied in RA6957 in 1990, and RA7718 in 1994.

While EO215, the Emergency Power Crisis Act (EPCA) or RA7648 of 1993, and the BOT projects solved the power crisis, they cannot address the long-term problems of the power industry, particularly the high costs of electricity, cross-subsidies, and Napocor's unending need to borrow funds for its expansion projects. To address this, government had to go one step further, it had to restructure and deregulate the power industry and encourage private sector to invest outside of the BOT scheme. Thus, after six years of debates and countless public hearings, Congress passed the EPIRA. EPIRA was meant to introduce drastic and radical changes but in a gradual manner to an industry that has been so set in its ways for the last 68 years. A delicate balancing act was necessary to achieve the difficult goals of more transparency, accountability, and competition, yet still keep the industry attractive enough to lure in investments.

Difficult, yes, but doable as the EPIRA showed a roadmap and equipped the executive and legislative branches of government with the necessary powers to make the country's bid to deregulate, a sparkling showcase for the others to follow. Unfortunately, after three years, these goals have remained goals and worse, the vision seems to be getting dimmer. In fact, the necessary ingredients of a competitive market are, up to now, not yet in place. These are the removal of "embedded" subsidies, privatization, wholesale electricity spot market (WESM), and retail competition.

SCENARIOS

Given that many of the major "to-do-list" outlined in the EPIRA have not been implemented, what are the likely scenarios? Does the government still have any practical and doable options? On the energy side alone, the threat of power shortages is a possibility. No investor worth his salt will put money in a project where the returns are not foreseeable given the prevailing uncertainty not only on the regulatory side but on the investment climate as well. And considering the alarming budget deficit that the government is saddled with, does it still have the capability to finance such capital-intensive projects? For as long as government continues to build power plants, the country's budget deficit will continue to balloon. For 2004, Napocor's losses are expected to be over PhP100 billion.

BLACK HOLE

Under EPIRA, in an emergency situation, government still has the option of entering into contracts with independent power producers (IPPs) under Sec. 71. However, once Sec. 71 of EPIRA is invoked by government to meet the additional power requirements, we will no longer get out of the hole we are in right now. The addiction to subsidies will continue eating away on the funds that can be used for other vital services such as education and health. Furthermore, hopes for competitive and affordable rates will just continue to be a dream.

Entities created by EPIRA like PEMCOR, PSALM, TRANSCO, and the Joint Congressional Power Commission will have no more reason to exist and they must therefore be dissolved. Transco and Napocor will have to remerge to become again the traditional Napocor, wasting millions of pesos in retirement benefits given to its employees.

DEMONIZED IPPs

But the worrisome part about the situation is: Will there be interested IPPs wanting to come in after being demonized the first time around? Maybe only if the price is right, at tremendous premiums given the prevailing political and economic uncertainties. That means rates will even get higher. And to think that everybody is complaining already of high power rates! We are shooting ourselves in the foot!

REVERSING THE TREND

The Philippines still has time, albeit a short one (from 3.5 to 4.5 years), to prevent a power crisis and runaway budget deficit and provide long-term solutions to high costs of electricity. Looking at these three enormous problems, it seems like solving one does not mean solving the others. The only holistic solution is to really implement the EPIRA as it was envisioned, creating a truly competitive power industry. But this time around, there is no room for deviations. Any further delays will result, unfortunately, in only diesel and gas turbine plants using expensive bunker oil and diesel fuel as the only solution to avert a shortage again. This will surely result in higher electricity costs, something the consumers have been so publicly fretful about!

Several steps have to be taken to ensure the success of the EPIRA and hopefully, mitigate if not avert the looming power crisis. Topping the list is for the government to launch a massive information campaign about the EPIRA. It is of utmost importance to make the public understand what EPIRA's vision is all about, that is, to ensure the supply of quality, reliable and affordable electricity through a privatized and competitive power industry. Having almost no options to avert a power crisis, it seems there is no alternative but to entice the private sector to again invest in the industry. By all means, let us be circumspect and prudent in our contracts and dealings with the private sector. But it will not help us a bit if we continue demonizing them.

To prevent shortages, investment in new capacities must happen. Those investing in new capacities will have to take the risks on demand growth, something that government used to do under a regulated environment.

To mitigate this risk, investors will:
a) rely on their competitiveness to sell through the Wholesale Electricity Spot Market (WESM); and/or,
b) work on bilateral contracts.

Without any of the two, no investments will come in and government will have to invoke Sec. 71 so it can build the new capacities and take the risk again on demand growth. The danger is government will continue to borrow, exacerbating its debt and pushing the country to the brink of a debt crisis.

WESM

The role of WESM in a competitive environment cannot be undermined. While it will account for a minimum of 10% of the supply, it is an indicator of the short-term market price for electricity. In effect, it gives the market signals and aids the industry players in their planning and future investments. WESM will provide the primary signal for the private sector to build new merchant power plants. And merchant plants will only be built in a developing country like ours if, and only if the political and regulatory regime is clear, predictable and stable. WESM must have that predictability and stability!

PRIVATIZATION

The privatization of Napocor still hangs in the air. Recent developments show TRANSCO may not be privatized ahead of the generating assets, after all. Up to now, TRANSCO has not attracted many serious bids even if it posted profits of PhP15 billion in 2003. It is high time government consider other models of privatization for TRANSCO other than the "concessionaire" model. Equity privatization of up to 40% with a strategic partner can be the viable alternative model. With artificially low generation rates, the privatization of Napocor's generating assets cannot get off the ground unless government will take a loss on the sale of assets.

This is something the government cannot afford right now. Napocor's and PSALM's recent decision to petition for a PhP1.87/kwh increase in Napocor's rate will need a lot of political will especially from the ERC, and unwavering support from the national and local government leaders, but it is a step in the right direction if privatization is to succeed. It is imperative that privatization must be accelerated because true competition cannot happen even with the WESM if government continues to dominate the generation sector as Napocor will have an "illegal monopoly." Why? Because it can unreasonably lower its rates as it is subsidized by government. Predatory pricing by government is a threat to competition. Operating at a loss is acceptable to the politicians as long as populist policies satisfy voters. Taxpayers pick up the tab anyway! Definitely, privatizing Napocor will free the government from further sinking into a mire of debts. At the very least, this will stop the hemorrhage of the government's coffers.

RACE AGAINST TIME

Thus, WESM and privatization must happen just in time to give enough lead-time for new investments. For example, if it takes three years to build a plant and the shortages will occur 2008, then WESM and privatization must happen no later than end-2004. Moreover, it must be noted that the WESM will not work if there are shortages. WESM works in a period only of excess capacity. Considering that shortages are expected to happen in less than four years, WESM must already be successfully in commercial operations soon, to encourage the private sector to invest in the needed additional power requirements. So, it is truly a race against time. In fact, if it takes more than three years to build a power plant, there is really no time left to spare.

SUBSIDIES AND BILATERAL CONTRACTS

While WESM is an important feature to ensure competition, bilateral contracts reduce risks of private sector investments and play a very important role in stabilizing power rates. But the prevailing artificially low rates of Napocor, which are the basis or benchmark for the transition supply contracts (TSCs) mandated under the EPIRA, do not encourage new investments in generation. This is because they prevent private distribution utilities (DUs) and rural electric cooperatives (RECs) from contracting prices above the subsidized TSC rates. Ironically, the TSCs are supposed to help entice bidders for Napocor's privatization. Thus, increasing Napocor rates to market levels will unclog this bottleneck and allow the flow of new investments in generation.

Another important feature of the EPIRA is the cross-subsidy removal. This is very important as it will make rate-making transparent and in the process reflect the true cost of power and therefore promote fair competition. Subsidies indirectly favor the more affluent residential consumers. The more one consumes, the more subsidy one gets. So ergo, the rich benefit more than the poor.

The irony about it is residential customers with large consumptions are being subsidized by both government and industries, but it comes at the expense of vital sectors such as education, health, nutrition, and social services, and sacrifices competitiveness of our industries. Thus, the funds that should have been spent on the poor are used to subsidize luxurious consumption of electricity because of the current rate structure.

While admittedly some sectors of society still need some government support, subsidies can still be given but in a more transparent manner and only to the low-income group. This can be done by identifying them separately from the tariff as a line item surcharge or an electricity tax added to the electricity bill like the universal charge. Doing it this way really supports the poor and clearly shows how much the government is willing to subsidize. The universal charge covers missionary electrification and addresses subsidy requirements for electricity infrastructures (not for consumption) of remote islands and barangays. A robust industry with increasing electricity consumption increases funds for missionary electrification.

ISSUES ON BILATERAL CONTRACTS

The credit worthiness of DUs, RECs and end-users qualified for retail competition must be strengthened. This is not only the concern of investors but also for lenders. Private distribution utilities and rural electric cooperatives have been the most misunderstood bunch in the whole chain of the power industry. Acting as middlemen between the generators and the consumers, they end up as the "villains" especially when electric bills are high. But their role in attracting new investments in the power generation industry is so pivotal. Why? Because the DUs are the buyers of power from these new investments. No IPP will put up a new plant for a DU or REC that is financially weak. It is, therefore, the responsibility of the ERC to strengthen their balance sheets with predictable regulatory rulings and policies.

RETAIL COMPETITION

Another reason why the DUs and RECs are hesitant to enter into long-term bilateral contracts is because they do not want to take the risk once retail competition or open access begins. A definite timetable, and clear and predictable implementing rules and regulations are, therefore, needed. For example, competition rules can require end-users qualified for open access to agree to sign contracts with the DUs or RECs at least until retail competition begins. End-users who do not sign beyond this period are considered to have opted to become contestable markets and therefore cannot obligate the DUs and RECs to serve them once retail competition sets in.

On the other hand, these contracts should enable the DUs and RECs to sign long-term contracts with IPPs because they can already predict their captive market. With this, the DUs and RECs can then remove the volume of demand of these end-users from their demand profile and need not contract said volume with the IPPs. Thus, the DUs and RECs have no more reason to use retail competition and open access as scapegoats for not taking on responsibility for their own long-term power supply requirements. Likewise, for the DUs and RECs to be competitive during retail competition, all forms of subsidies must be removed from the generation and supply businesses and the TRANSCO charges.

REGULATORY ISSUES

Aside from taking risks on the demand growth, investors are also faced with risks on regulatory rules and government policies. Thus, investors need clear, predictable, sustainable national and local government policies and investor-friendly regulation. Today, we are faced with a number of regulatory issues that are both controversial and politically volatile. This is compounded by the specter of Supreme Court decisions that muddles regulatory governance. For example, the rate unbundling, which under the EPIRA was intended to make rate-making transparent so that eventually the true cost of power can easily be seen, resulted in more questions and controversial issues than answers.

For EPIRA to be successful, it needs the ERC to function as it was designed to be -- a truly independent quasi-judicial body manned by competent regulators willing to take a stand amidst the pressure from different sectors. The ERC will have to balance the interests of both the industry players and the consumers. But on the other hand, if consumers and industry players do not trust the ERC and the regulatory environment and ask the court to intervene in all issues of rate adjustments, then we should be ready to accept the fact that shortages will always loom in the horizon, discouraging investors and resulting ultimately in a stagnant economy with the poor getting poorer.

POLICIES IN A DEREGULATED ENVIRONMENT

Lastly, while EPIRA will lessen government's role on the industry, it is still imperative for government to create a "catch-all" policy that will spur the development of indigenous fuels. Market forces may not be enough to spur exploration and development of indigenous fuels. Thus, government has to give the necessary push through clear policy directions and even incentives to lessen the country's dependence on imported fuels.

ROUGH SAILING

Today, we are still going through rough seas as the EPIRA is being bogged down by current regulatory issues and strong populist clamor.

Currently, the EPIRA implementation is held hostage by "public opinion" on the following issues:
a) IPP contract review;
b) Meralco income tax refund;
c) SC rulings on ERC's decision on Meralco's cases like income tax, provisional authority on rate increases;
d) ERC decisions on GRAM and ICERA; and
e) consumers' perception of high power rates.

However, these issues must not be used as excuses to delay or at worst, prevent the implementation of EPIRA because, except for the Meralco refund, they will all be resolved with the proper and timely implementation of the EPIRA. Had government bitten the bullet and implemented EPIRA properly even at the height of the PPA controversy, we will already be reaping the benefits of EPIRA today. But since we did not, our window of opportunity to restructure the industry has been reduced from seven to four years. Of these four years, the transition period is about 2-3 years. The question is: are we willing to face head-on the next 2-3 rough years ahead of us? Or do we set aside EPIRA and continue quarrelling over current issues (which EPIRA will eventually solve anyway) and let Napocor keep on borrowing until we default on our obligations and have our own financial crisis?

THE REAL HURDLE

Ironically, the real impact of artificially low power rates in the long-term are higher power rates and unreliable power infrastructure. This discourages investors from coming to the Philippines and consequently, limiting economic opportunities for us Filipinos in our own country. And sadly, if politics and populist decisions take precedence, then we will be holed up forever in an era of artificially low power rates but high costs of power infrastructure and of operation and maintenance to the government and shouldered by the taxpayers. But worst of all, we plunge into a debilitating debt crisis. Thus, the choice for the policy makers of government is either to continuously subsidize power rates of Napocor until it defaults on Napocor's debt obligations and go Argentina's way (for which the middle class and the poor are the biggest losers); or it can brace for the rough road ahead and convince the public to bear with the birth pains of EPIRA, most specially higher power rates before reaping the full benefits of the EPIRA in about five years.

The gains are sustainable, affordable, regionally competitive power rates and a vibrant and healthy power industry. Therefore, I submit that power rates need to be increased before they can actually go down. Why? Once power rates are increased to their true market levels, then new investments will come in and Napocor can be successfully privatized. This will not only avert a looming power shortage, it will also then create an environment of a stable power supply. A stable power supply gives rise to a robust economy that creates more jobs and therefore increases the purchasing power of every Filipino. Payments for their electric consumption will then become affordable. And under such an environment, we can now address the problems of electricity rates for the long-term by injecting competition with WESM. This will remove inefficiencies, lower the reserve requirements because of higher availability and efficiency, which will lead to reduced costs of generation from the market level of today (not from the artificially low, subsidized level of Napocor). Aside from reducing power rates, competition encourages the offering of more value-added services to those paying the full cost of their electric consumption.

Other regulatory reforms that can further lower power costs can now be easily implemented such as the Performance-Based Regulation (PBR) for monopoly businesses of the industry, mandating loss reduction programs by TRANSCO, DUs and RECs. Likewise, cost saving measures through efficient use of electricity such as the time-of-use can be offered. The ERC can also positively influence future growth in the industry through carefully crafted policies on the optimal expansion of transmission grids and subtransmission and distribution systems, siting for new power plants, and encourage the use of indigenous resources and renewables. Given all these recommendations, the new administration will have a lot on its hands. Time is of the essence. Hopefully, it will not be too late.

Target: $50-B exports in two years

The government hopes to create millions of jobs through initiatives that can raise the country's annual export earnings to about $50 billion by 2006 from the current average of $38 billion. Socioeconomic Planning Secretary Romulo L. Neri said the government would do this through several programs. "We need to strengthen and sustain our global competitiveness to achieve our goal of creating 10 million jobs," he said.

He listed the programs as:

• reduce electricity cost to make local manufacturers regionally competitive;
• modernize the country's physical infrastructure and logistics system;
• propagation of hybrid rice and corn to increase production, stabilize food prices, and improve purchasing power; and
• reduce bureaucratic red tape.

He said electricity cost could be cut by the full implementation of the so-called open access service, which would allow large-scale customers consuming at least one megawatt of electricity monthly to access directly from power plants. The government is also keen on the development of Subic and Clark economic zones in Central Luzon as "logistics hubs," and the development of Poro Point and Lingayen Gulf as export outlets to China. "We also need to make wages more competitive and we can do this by increasing our food production and maintain their prices at reasonable levels," Mr. Neri said.

The government, particularly the Department of Agriculture, is banking on the propagation of hybrid rice and corn to increase rice and corn production. Mr. Neri also said reducing red tape was part of the government agenda to significantly cut down transaction costs incurred by businessmen. The government earlier expressed optimism it would achieve its target of increasing export earnings by 10% this year. Export receipts had already gone up by 15.3% in May on purchases particularly of electronics products by the United States, Japan, and Europe, as well as the sale abroad of garments and manufactured goods.

But in a separate report, the Trade department said earnings from garments exports in six months to June actually fell by 3.08% year on year to $1.349 billion from $1.391 billion last year. Export earnings for June were down by 0.74% to $255.553 million, said state-run Garments and Textile Export Board (GTEB). January-June exports to countries providing guaranteed market access through the quota system -- the United States, Canada, and members of the European Union -- fell by 2.98% year on year to $1.191 billion from $1.228 billion last year. Exports to the US, which accounted for 70% of the total, dropped by 8.41% to $932.729 million from $1.018 billion. Canada exports also declined, by 1.03% to $34.244 million, accounting for 2.5% of the market.

Europe remained the only bright spot for the garments industry, which is gearing for the abolition of quotas by the end of the year. Accounting for 17% of the total, earnings from January-June exports to Europe jumped by 28.2% year on year to $224.476 million from $175.070 million last year. For June alone, exports to Europe went up by 33% to $44.324 million from $33.407 million. "June is the sixth consecutive month that EU exports have been growing at double-digit rates as the industry's transformation plan continues to succeed in expanding customer base and product mix in the European market," GTEB executive director Serafin Juliano told reporters.

Explaining the drop in US sales, Mr. Juliano said strong demand for major brands in the first quarter resulted in "prudent production requirements" in succeeding months. He noted that the transformation plan, the industry roadmap toward a quota-less regime, has skewed the Philippines' garments business toward the so-called "Top Four" -- Polo Ralph Lauren, Ann Taylor, Liz Claiborne, and Gap -- whose fiscal years ended in either April or May.

A 7% decline in exports to Japan, meanwhile, led to a 4% drop in exports to some 100 nonquota countries, which comprised 12% of total sales. Non-quota exports reached $156.853 million, lower than last year's $163.163 million. For June, the figure is $26.173 million, 12.05% lower than last year's $29.760 million. Mr. Juliano said Japan, which accounted for 28% of total non-quota exports with $43.494 million, remained a "soft" market for garments. "If you look at our total exports, Japan is increasing very much, essentially electronics and durable good products plus our special arrangement in automotives. However, apparel in the hierarchy of purchase priorities of the Japanese consumer. especially high-end apparel, which is our business with Japan, has not yet reached that same level of growth," he said.

Some "serious" markets such as Hong Kong, which is essentially the Philippines' China business, nonetheless performed well, Mr. Juliano said. "Our Hong Kong exports are indicative of our outward processed arrangement business where we do certain things here in the Philippines and the product is completed in China. That is growing at a rate [of 3%]," he added. Another "success story" is the United Arab Emirates, which is on its way to doubling total volume at $12.679 million, a 68% jump from last year's $7.552 million. Mr. Juliano said all indications still pointed to flat growth by the end of the year, as earlier predicted. "We've taken a look at [the] supply chain dynamics. All indicators show achieving our zero growth forecast or flat growth performance...for us to achieve [that], we need to grow the balance of the year by only 3%, which the price adjustment itself without growing unit sales will already cover through the natural movements of the market," he said. -- Jennifer A. Ng and Felipe F. Salvosa II

Palace pressed to rethink gross income tax thrust

Malacañang's informal economic advisers want President Gloria Macapagal-Arroyo to take a second look at her plan to tax corporations based on gross instead of net income, following strong opposition to the plan, particularly by the International Monetary Fund (IMF). The President will decide today which of the 10 tax initiatives proposed by her advisers will be included in her legislative agenda.

Meanwhile, businessmen said Congress should give more attention to the Palace's tax initiatives, and to legislate new taxes with the "correct formula." But Negros Oriental (Central Visayas) Rep. Herminio Teves said the solution to low tax collection was not new taxes but better collection. He noted the Bureau of Internal Revenue (BIR) has failed to collect an estimated PhP107 billion in annual individual income taxes, mostly from wealthy households. He also said most of the income that escaped taxes was earned by families with average annual earnings of almost PhP1 million. "Salaried employees and daily wage earners are now shouldering the bulk [86%] of the individual income tax burden. These people have no choice but to pay taxes because taxes are automatically withheld from their paychecks," Mr. Teves said. "Stronger enforcement is the key to stricter compliance. If rich families or high net-worth individuals believe they can get away with evasion or avoidance, then compliance will remain weak," he added.

On the list of tax measures to be decided by the President today is the proposed shift to gross income taxation, which IMF and several economic experts have bucked for being "inefficient" and "inequitable." "Let her be the one to decide [on those measures] based on our advice," Finance undersecretary Eric O. Recto said. But "based on every piece of paper out, [it appears that gross income taxation] is the most unpopular tax measure of all," he added. The IMF has warned that gross income taxation was risky, and was unlikely to raise additional revenues for the cash-strapped government.

The government presently charges a 32% tax on annual corporate net income. With the gross income tax system, the tax will be lowered to 15% of gross income, minus cost of sales.

Aside from gross income taxation, Palace advisers are also pushing for:

• the indexation to inflation of the excise tax on tobacco and alcoholic drinks;
• grant of tax amnesty for individuals and corporations;
• a franchise tax for telecommunication companies (instead of tax on text messaging);
• increase in the expanded value added tax (EVAT) rate to 12% from 10%;
• use of a performance-based attrition system in government;
• extension of motor vehicles users charge for four more years; and
• rationalization of fiscal incentives.

CORRECT FORMULA NEEDED

Meanwhile, Philippine Chamber of Commerce and Industries (PCCI) president Sergio R. Ortiz-Luis Jr., Employers Conferederation of the Philippines (ECoP) governor Donald G. Dee, and Makati Business Club executive director Guillermo M. Luz noted an urgent need to address declining tax collection efficiency and to legislate new taxes with the "correct formula." Mr. Ortiz-Luis said since the legislative process moved slowly, the House and the Senate should now jump-start discussions on the Palace's tax proposals. "We have to make sure that the right taxes are being collected and there should be sincerity in the crafting of the new tax laws," he told reporters at the sidelines of the business forum last Friday. But Mr. Dee said the business community has yet to realize the merit of new tax laws, particularly the proposed shift to gross income taxation. "We have to come out with a formula before we can even react. What will be the basis for gross income tax -- is it sales less the cost of sales? Or is it by industry because different industries have different gross profit margins? Or is it based on gross revenues? We also have to see how we will implement it," he told BusinessWorld.

Mr. Luz outrightly bucked the proposal, noting that it was more prone to loopholes than the present tax collection system. "There is going to be a huge debate on how to define gross income tax. Gross income tax of a manufacturing company is very different from other companies. Right now, 50% of the income produced is from service income, and not manufacturing," he told BusinessWorld. He also also scored as a "negative move" the proposal to increase EVAT to 12% from 10%, while Mr. Dee supported the plan to double the excise tax on petroleum products to 6% from 3%. But the executives were all one in saying that the government should not scrap fiscal incentives for businesses. "Giving incentives is a common practice of all the countries, whether in the region or outside," Mr. Dee said. Mr. Luz added, "They should review it but they should be careful not to remove too many. We need those incentives to compete and attract investments." he said. -- Karen L. Lema with a report from Carina I. Roncesvalles

Buyer of govt's Malampaya stake known in 3rd quarter

By BENNET S. STO. DOMINGO, Reporter

The government expects to ink a deal with a foreign consortium in the third quarter for the sale of half its stake in the $4.5-billion Malampaya natural gas project in Palawan. The government, through state-owned Philippine National Oil Co.-Exploration Corp. (PNOC-EC), owns 10% of the Malampaya project. The PNOC-EC said it is in talks with a group of foreign investors over 4.9% of the project, estimated to be worth $300 million to $400 million. "We are negotiating the sale with a group. We expect to finish negotiations at the end of the third quarter," PNOC Executive Vice-President Alfredo B. Parungao said.

The project, which is the biggest foreign investment in the country to date, is a joint venture with Shell Philippines Exploration BV and ChevronTexaco, which each own 45%. After the sale, the remaining 5.1% will still be owned by the PNOC unit. Mr. Parungao said once the deal is sealed, the agreement will have to be approved by the Department of Finance. "It will have to go through the PNOC board then to the Department of Finance privatization committee, which will decide the final price. If they think the amount of the stake sold is too small, we would have to renegotiate. We will then approach the Malampaya consortium members. They have the right of first refusal," Mr. Parungao said. He declined to name the prospective buyer or buyers, saying this could jeopardize talks.

ING Bank-NV Investment Banking Group is the government's financial adviser in the sale. PNOC-EC has decided to negotiate with prospective buyers of 4.9% of the project after a failed bidding last year, where only one consortium participated and submitted a "very low offer." "We needed at least three bidders and we did not meet that. We decided to enter into a negotiated deal as this way, we could ask for a higher value, rather than be contented with the winning bid," Mr. Parungao said. "We talked to 13 potential investors, then we narrowed it down to nine; we rejected some bids and now we are pushing for a negotiated deal," he said.

The natural gas in Malampaya in Northern Palawan could yield three trillion cubic feet of gas that could be used to fuel up to 3,000 megawatts of electricity for 20 years, which is equivalent to more than half of the electricity requirements of Luzon even during peak hours. The Malampaya project is covered by Service Contract No. 38, which was issued by the government for offshore exploration and the development of oil and gas in an area covering 834 square kilometers of deep water acreage located approximately 80 kilometers northwest of the northern end of Palawan.

SEC insists on regulatory functions over PSE

By JENNEE GRACE U. RUBRICO, Senior Reporter

The Securities and Exchange Commission (SEC) said the oversight functions it has over the Philippine Stock Exchange (PSE) is provided for in the law, and may be necessary given that there have been complaints from brokers investigated by the exchange. In a press conference, SEC Chairman Lilia R. Bautista said that "there is no complete self-regulation." This, after Francis Ed. Lim, the newly appointed PSE president, said that under his leadership, the PSE will clarify and assert its status as a self-regulatory organization.

Under the present setup, the SEC and PSE have "some sort of a working relationship" on the self-regulatory status of the bourse, SEC officials said. "The law [provides for] an oversight. If they have a good compliance department who can monitor all the brokers, there's no need for the SEC [to come in]. But when there are complaints, that's the time the SEC comes in," Ms. Bautista said.

An SEC official said that ideally, the PSE should audit all its members, but this does not prevent the SEC from conducting a random audit. "Part of the job is given to the exchange, but we can audit the exchange," she said. She said the SEC only "actively interferes" when the PSE "is not doing its job." Mr. Lim earlier said there is a need to clarify with the SEC, the bourse's status as a self-regulatory organization following observations that some of the exchange's members have been subjected to "double investigations." It had also been observed in a book by the Asian Development Bank that "there is a need to define the roles and functions of the [SEC] to allow a demutualized PSE to operate independently pursuant to its role as a self-regulatory organization without compromising the oversight function of the SEC." "To this end, the development and publication of a policy statement from the SEC setting out its oversight objectives with a view of strengthening its cooperation with PSE is necessary," the book, which was published in 2002, states.

The Securities Regulation Code provides among others that the SEC has the power to, after due notice and hearing, suspend or revoke the registration of a self-regulatory organization, or censure or impose limitations on the activities, functions, and operations of such self-regulatory organization, if it finds the self-regulatory organization to have "willfully violated or is unable to comply with" the provision of the law, its rules and regulations, or has failed to enforce compliance therewith by a member of, person associated with a member, or a participant in such self-regulatory organization. If a self-regulatory organization suspends a member, participant or person it must immediately notify the SEC of the action taken. "The Commission, by order, may stay a summary action on its own motion or upon application by any person aggrieved thereby, if the Commission determines summarily or after due notice and hearing that a stay is consistent with the public interest and the protection of investors," the law states.

ATN Holdings planning listing of Clinica Manila

After the successful initial public offering (IPO) of its technology services unit, ATN Holdings, Inc. is planning to list another unit, Managed Care Philippines, Inc., at the Philippine Stock Exchange (PSE) . In a statement, ATN President and Chairman Arsenio T. Ng said the move has been on the pipeline all along. Managed Care Philippines is the operator of medical clinic chain Clinica Manila. ATN said it was encouraged by the stock market debut of Transpacific Broadband Group International as it sold 69.7 million common shares which were 100% subscribed. "Clinica Manila, which has been set aside to give way to Transpacific, will be the next to go through the same procedure when the opportune time comes," Mr. Ng said. He said with Transpacific's access to the capital market, ATN will funnel resources into health care to prepare Clinica Manila for an IPO.

ATN aims to generate cash flow from services, mainly in health care and information and communications technology, as financial returns from its real estate interest and portfolio investments remain uncertain.

Napocor says Jan.-March power output up 1.28%

State-owned National Power Corp. (Napocor) yesterday said its power output rose 1.28% from January to March against the same period last year. In a statement, the firm said gross energy output went up to 9,444.16 gigawatt-hours (GWh) from 9,324.93 GWh in the year-ago period. Napocor's independent power producers (IPPs) accounted for 64.50% or 6,091.07 GWh, of the total generation, while power plants owned and operated by Napocor generated 35.50% or 3,353.09 GWh.

On a regional basis, Luzon accounted for the biggest share of the first-quarter generation at 62.96%, slightly lower than last year's output of 63.71%. The Visayas and Mindanao grids contributed 19.23% and 17.80%, respectively, to the firm's total output during the first three months. In terms of plant type, coal-fired plants continued to contribute the biggest share of the total generation at 27.92% or 2,637.26 GWh. Napocor said this is considerably lower than the year-ago share of 32.05%, or 2,989.06 GWh.

Geothermal plants were second in line at 24.39% or 2,303.57 GWh. As in the case of coal, the share of geothermal plants dropped from the comparative year-ago figure of 27.39% or 2,553.76 GWh, the firm said. Hydrolectric power plants posted the most "dramatic growth" in terms of generation-mix share to 19.65% from 14.90% year-on-year, Napocor said. Volume-wise, hydro plants produced 1,855.81 GWh during the three-month period, up from the 2003 figure of 1,389.67 GWh, the firm said. Napocor said the share of oil-based plants in the generation mix stood at 15.67% or 1,479.95 GWh, up from 12.57% or 1,172.54 GWh last year.

Natural gas plants contributed 12.36% or 1,167.57 GWh, a slight drop from the year-ago level of 13.08% or 1,219.90 GWh. The generation mix refers to the proportion of the different fuel types that Napocor uses to run its power plants. In a separate statement, Napocor announced that its Leyte geothermal power plant was recently conferred the ISO (International Standards Organization) 9001:2000 certification for quality management system.

RP on track in meeting poverty goals - UN

By JENNIFER A. NG, Reporter

The Philippines is on track in halving poverty incidence by 2015, the United Nations (UN) said. UN resident coordinator in the Philippines Deborah Landey said the Philippine government, together with the local business sector, has made significant progress in terms of achieving eight Millennium Development Goals (MDGs). MDGs commit members to reduce poverty incidence by half by 2015 through more investments in health and education, promoting women's rights and environmental protection. "Using 1990 as the baseline, the Philippines has seen the proportions of families at subsistence levels drop from 20.4% in 1990 to 13.1% in the year 2000 according to recent government statistics," Ms. Landey said over the weekend in a speech at a forum on Philippine Business and the Millennium Development Goals. "We feel, therefore, that at the aggregate level, the Philippines is on track to meeting the goal of reducing extreme poverty in the country," she added.

Ms. Landey, however said, much needs to be done by the government to keep pace with the rate of poverty reduction in other Asian countries. "Since the absolute number of poor people continues to grow and other Asian countries are reducing poverty at an even faster rate, there is still a need to redouble efforts in line with the President's 10-point pro-poor agenda," she said. Ms. Landey also said the Philippines is on track in terms of expanding the number of those who should have access to primary education. "On goal two of achieving universal primary education by 2015, the participation rate already stood at 97% in the year 2000 and there was an almost equal number of boys and girls at the primary level," she said.

But while the Philippines has been able to improve participation in and access to primary education, Ms. Landey said there is a need to address two key issues. "(While) we are on track to meet goals two and three in terms of participation and access .... improving completion rates and quality of education are still key issues," she said. The UN also commended the Philippines for having one of the lowest HIV infection rates in the Asia and the Pacific region. "There are (also) excellent tuberculosis and anti-malaria programs in the country," Ms. Landey said.

Efforts of the Philippines to protect the environment have also been recognized by the UN. "Laws such as the Clean Air Act and Ecological Solid Waste Management Act are recognized around the world as very positive efforts to protect and sustain the country's rich but fragile natural resources," Ms. Landey said. But, the UN said, the country needs to address its huge debt which takes up most of its national budget year after year. "Debt servicing remains a challenge a challenge for the Philippines [as] a significant portion of the national budget [is] taken up for this component," Ms. Landey said.

The Philippine government, the UN said, should also step up efforts to reduce malnutrition among Filipino children as one-third of Filipino children under the age of five are malnourished. The UN also said maternal mortality continues to be high in the Philippines as the country registered 172 deaths per 100,000 live births. The country's commitment is to reduce maternal mortality to 53 deaths per 100,000. "This will most likely be a goal the Philippines may not reach and we need to be extra proactive," Ms. Landey said.

POPULATION

In another development, the Philippine representative of the United Nations Populations Fund (UNPF) said a 4%-5% economic growth would be irrelevant if the country fails to curb population growth. "The high population growth actually eats up the economic gains," Zahidul Huque last week said in ceremonies marking World Population Day. A UNPF study released early this year said the Philippine's population will hit 84.7 million before the year ends. "This is too many," said Mr. Huque. He also said the ideal population growth rate for a country with an economy like the Philippines is 1.3%. The current population growth rate is above 2%. When it comes to family planning and reproductive health, "the Philippines is far, far behind," he said. He also noted that the Philippines and Thailand used to have similar social indicators. "Now Thailand has gone forward so much". Mr. Huque urged the national government to take a decisive stand on the issue of family planning. He said the country has many competent reproductive health workers who are prevented from doing their jobs by "political constraints."

Six investors keen on UCPB assets

By RUBY ANNE M. RUBIO, Reporter

Six foreign investors have expressed interest in the United Coconut Planters Bank's (UCPB) PhP15 billion worth of foreclosed properties which will be auctioned on July 19, the bank's president said. "It is the first for a commercial bank to go on a wholesale selling of these bad assets," UCPB president Jose L. Querubin told reporters. "I cannot disclose the bidders. But we have serious international bidders. For them to bid, you have to pay $15,000 to get the info memo, to know the assets and documents. If they don't bid, they lose $15,000," he added. Tapped to advise on the properties' valuation was Joaquin Cunanan & Co.-PricewaterhouseCoopers.

The asset disposal will take advantage of the perks offered under the Special Purpose Vehicle (SPV) Act. "I am hoping it will push through and hit the price we believe that is within our acceptable reserved price. We have a reserved price in mind but not known to anybody. That will be the basis for accepting the bids," Mr. Querubin said. UCPB expects to be in the black next year, or two years ahead of the 10-year plan approved by the deposit insurer following a PhP20-billion bailout.

The bank is largely banking on the bad asset disposal to help it regain its footing in the industry. It is also bent on improving revenues, which will be supported by the sale of non-core investments. Currently, the bank is in the process of getting a financial adviser for a plan to sell, by the third quarter, its equity in four oil mills that also own shares of stock in San Miguel Corp., the country's biggest food and beverage company. UCPB fully paid its PhP7.5-billion loan from the Philippine Deposit Insurance Corp. (PDIC) last Friday, two months ahead of the scheduled repayment date, as the bank's deposit base experienced sustained growth in the last nine months. The loan is part of the PhP10-billion "liquidity facility" extended by the PDIC last year. Of the amount, UCPB drew PhP7.5 billion. The bank said its total deposits have reached PhP81 billion from PhP59 billion as of end-September. "The bank is very fortunate to have a loyal depositor base. They were admittedly concerned with some negative news item last year especially in the political front and the ownership issue," UCPB chairman Deogracias Vistan said during the special ceremonies at the PDIC office. Mr. Querubin added, "The quality of our service is what made them come back. When they understood at the end that we are a viable institution, it was not a hard task to get them back. It is explaining them the situation and what we are doing to move forward."

For his part, PDIC president Ricardo M. Tan lauded the bank for a job well done. "It is a demonstrated proof that UCPB is not only surviving but thriving. I must stress this liquidity facility was extended on commercial terms and secured by first-class collateral. We now have the money two months in advance." He added, "That [increase in deposit base] is no mean feat. We look forward to even greater growth. As a major stakeholder of the continued viability and success of UCPB, we exert grater efforts to provide requisite support." Citing UCPB management commitment to pursue reforms and "undertake the bold steps in the road to stability," PDIC senior executive vice-president Rosalinda Casiguran said the deposit insurer will continue to "watch over in support of the bank to bring in the best for the depositors."

Trading seen to stay slow this week

By ROULEE JANE F. CALAYAG

Unless a big economic or political development unfolds, the stock market will remain in a "consolidation" mode this week, analysts said. Investors would be looking for incentives to buy or sell stocks following uneventful sessions last week, they added. Still, there is optimism that market sentiment will improve in anticipation of earnings reports that will start coming later this month. "With no major economic news expected, earnings news will receive a healthy dose of attention," Jose Vistan, Jr., research director at AB Capital Securities, noted in his online analysis. "Corporate earnings will set the tone for the market." Mr. Vistan said although many have forecast an average earnings growth of 20% for the second quarter, this expectation has already been discounted in current share prices.

STATE OF THE NATION ADDRESS

Investors also said the State of the Nation Address (SONA) of President Gloria Macapagal Arroyo on July 26 would set the tone for the market's direction. Jojo Gonzales, research head at Philippine Equity Partners, Inc., told BusinessWorld that investors would likely concentrate on the SONA. "Everyone's focus will be on the grand economic plan of Ms. Arroyo because all those news on raising taxes to improve revenues and the government's plan to ask for more budget in 2005 are leading to it," said Mr. Gonzales.

The SONA, he said, would provide investors a hint on the government's economic thrust as these issues are "clearly set out in the next few weeks." Government economic managers had proposed last week 10 measures to raise taxes in order to plug a gaping budget deficit. The measures include higher taxes on oil and the sale of goods to improve government finances. Albay Representative Jose Salceda, a member of the Palace advisory body Economic Managers Group, said the taxes appeared to be good as approved. This came as the Bangko Sentral ng Pilipinas reported that inflation rate in June spiked to 5.1%, the highest since November 2001. But this was offset by a strong exports growth in May.

While the inflation data underpinned confidence, the 15.3% year-on-year increase in exports encouraged the market. The growth was the highest since December 2002. For January to May, merchandise exports grew 8.6% to $15.4 billion.

MARKET PICKS

Chelsea Dipasupil, RCBC Securities' research head, also sees more consolidation this week. "As earnings reports start to come out on July 15, the market may see positioning among investors and more active participation in major blue chip issues," Ms. Dipasupil told BusinessWorld. She expects investors to snap up shares of San Miguel Corp., Philippine Long Distance Telephone Co., Globe Telecom, and Jollibee Foods Corp. on the basis of their "good earnings reports." Ms. Dipasupil said most investors pocketed gains on Friday while some took positions slowly in preparation for the previous quarter's corporate earnings reports.

RISING PRICES

The stock market barely moved last week with the benchmark Philippine Stock Exchange composite index (Phisix), dipping by 1.82 points or 0.11% to 1,592.46. The marginal growth was due to an absence of fresh leads and mixed sentiments on government economic data released recently. A lower gross domestic product (GDP) projection for the second quarter may have also sparked concerns among investors. Socioeconomic Planning Secretary Romulo L. Neri had admitted that increases in fuel prices may have slowed down the economy's growth in the second quarter.

In the first quarter, higher-than-expected output by all sectors helped the country's GDP to grow by 6.4%. Last week, crude oil prices in the world market surpassed the $40-per-barrel level on renewed worries of possible terrorist threats after the United States warned that al Qaeda operatives were poised for a new attack. These concerns had relegated investors to the sidelines leading to a temporary market weakness.

BARGAIN HUNTING

Also last week, bargain hunting limited the profit-taking on some big capital stocks. In her online analysis, Grace Cerdeña of 2tradeasia.com expects "sideways" trading to prevail this week as several players scout for incentives. "Some are likely to monitor how fiscal and monetary authorities will address prevailing concerns, especially with the simultaneous increase in prices brought about by volatility in the world crude market," she said.

The stock portal does not see aggressive selling, noting that long-term investors seize on weakness to position in their favorite stocks. Investors should trade selectively and must time their entry and exit using technical charts, said Ms. Cerdeña. She said the immediate support for the week is 1,580 while resistance is between 1,610 and 1,630. "It looks like the market will just try to hold tight and wait for the second-quarter earnings results," said AB Capital's Mr. Vistan. Waiting for more corrections would facilitate investors in arriving at attractive levels, he added. "Be ready to get in when valuations become more reasonable," he said.