June 17th, 2023
House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) pushed for key provisions to accelerate investments that would shift the country’s power supply away from coal generation in the Philippine Downstream Natural Gas Industry Development Act (House Bill No. 8456) which the House of Representatives is set to approve on 3rd reading during the week of the State of the Nation Address.
Salceda, a principal author of the measure, wrote the tax provisions and key economic portions of the bill, including tax incentives that would encourage immediate infrastructure investments in the liquefied natural gas (LNG) sector.
“This will expedite the shift away from coal. Right now, we rely on coal for 65% of our electricity needs. It’s cheap and baseloadable. Renewable energy is slowly getting there. But we need emissions reduction now. LNG is that transitional fuel – that reduces emissions while providing baseload power,” Salceda said.
Salceda adds that “because we have proven reserves of Natural Gas in the West Philippine Sea, LNG also has potential to bring us to more energy independence.”
Salceda pushed for the following incentives which were adopted in the final version which the House approved:
First, the sale of LNG and the local purchases of the sector are VAT zero-rated, akin to the VAT privileges of the local renewable energy sector. Salceda said that, “until 2038, when coal shall have been displaced significantly, LNG is a carbon avoidance scheme. It produces less than half the emissions of coal power.”
Expenses for converting a power plan from coal to LNG are also chargeable as a capital expenditure, and are therefore subject to a 150% deduction, pursuant to the CREATE Law.
“The conversion incentive will be crucial for plants like Ilijan, which aim to convert from coal to LNG. That has the highest potential to make more coal plants shift to more emissions-friendly LNG.”
Salceda also pushed for a longer income tax holiday for LNG projects by pushing for their inclusion under Tier III of the CREATE Law.
Four-year tax perk window to “frontload” emissions reductions
Salceda also introduced a provision that allows investors to avail of the special incentives as long as they register within the next four years.
“LNG should just be Tier I, if you look at the definition in CREATE. It will benefit from Tier III incentives as long as you register within the next four years. After that, you are subject to just whatever incentives the Fiscal Incentives Review Board gives you,” Salceda explained.
Salceda emphasized that the four-year opening will encourage LNG investors to make the investments soon, so that they can benefit from the tax perks, “while we benefit from immediate emissions reduction.”
“The reason for the four-year period is so that they begin registering and building the infrastructure now. We need it for carbon avoidance and for energy security. It frontloads the emissions reduction benefit,” Salceda added.
LNG as a source of power generates as much as 50% less carbon dioxide than coal.
Salceda also successfully pushed for provisions allowing cross-ownership of various segments of the LNG value-chain, to encourage investors to integrate their operations and lower costs.
Salceda also pushed for a provision limiting the definition of public utility to only those parts of the LNG value-chain that are specifically classified as such under the Public Service Act. This would allow more foreign investments into the LNG sector, since equity restrictions on public utilities would not apply to those sectors.
Salceda also pushed for a provision that prioritizes indigenous natural gas for dispatch, in anticipation of new discoveries of LNG in the country’s West Philippine Sea. The provision is subject to exceptions set by the Energy Department “due to significant price differences or the level of adequacy of supply.”
“You want to create some degree of certainty of demand for our indigenous natural gas. That reduces the risk investors take in exploring and extracting LNG from our seas, making it more attractive to invest in exploration and service contracting,” Salceda added.