June 28th, 2023
House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) says that the Philippine Downstream Natural Gas Industry (PDNGI) Development Act, which the House approved on 2nd reading prior to the end of the first regular session, will help lower power costs in the country, “as it provides LNG with the same privileges as renewable energy.”
“The cost structure of LNG will be markedly lower than coal or oil, because it has no excise tax, the sale of LNG-generated power will be VAT free, and conversion costs from coal to LNG are under a 150% enhanced deduction from gross income.”
“The tax regime alone makes LNG-generated power cheaper by at least P1.81 per kwh than if the provisions were not there. The PDNGI Act makes widespread use of LNG viable.”
“Basically, it has the same tax treatment as renewable energy, which in effect it is – from an emissions-reduction perspective. It reduces emissions to half that of coal. That matters in a country that relies on coal for as much as 65% of its power,” Salceda added.
Salceda says that the tax treatment for LNG, will also help mitigate the impacts of global price volatility.
“That will help manage any issues with price volatility in the global market for LNG.”
Salceda: Reforms to develop full LNG value-chain needed
Salceda says however that “to complete the circle, we need two more reforms for the LNG sector – one on exploration, and the other for demand.”
“Because LNG is still a commodity subject to price fluctuations, we really need to build our indigenous sources of natural gas. The PDNGI Act touches a bit on that by giving priority dispatch for indigenous natural gas sources. But, we can also simplify our LNG exploration regime and encourage demand by law.”
Salceda also said that he is proposing changes to the tax regime of indigenous natural gas production to simplify it, reduce investor uncertainty, and encourage more investments.
“On the exploration and indigenous production side, I will be proposing, when session resumes, a new fiscal regime on upstream natural gas. Simply put, the tax rate will be 60% on net revenue of oil and gas production service contracts, in lieu of any and all taxes. It will amend Presidential Decree No. 87, but we will focus on the fiscal regime. It will save us on dollars needed to purchase oil and gas abroad.”
“Meanwhile on the demand side, I will be proposing, at the proper time, perhaps in Bicam, a 200% enhanced deduction on power costs of firms directly connected to generating plants using LNG. It encourages LNG demand, which will encourage more investments on downstream natural gas, and with infrastructure and demand ready, it will also be more attractive to explore and harness indigenous natural gas.”
“Natural gas is the crucial link between renewable, clean energy and dirty coal and oil power. LNG is available, emits half as much as coal, and can be used by current coal plants. It’s not a silver bullet, but it’s a bridge to where we want our energy mix to be.”