DEBIT CREDIT

Part three

There is no doubt that the objective of the privatization of electric power transmission is to pass the heavy capital burden of expansion to the private sector, but at the same time, get the maximum benefit for the government. Part of that agreement was to turn over not only the operations, but also the profits thereon to the winning private sector bidder but at the same time the government retains the ownership of the assets. Therefore, while ownership was retained, the benefits of use and profits were transferred.

If the concession fee represents the present value of the expected future cash flows from transmission operations, this means that the government already received in advance the future profits (over 25 years) from transmission operations. Why do we now question the profitability of the concessionaire National Grid Corporation of the Philippines (NGCP)? Was there a mistake in the privatization? If there was none, then focus must be made on the more important issues like how to make the transmission operations responsive to the current industry needs after determining the issues to be resolved.

Let us accept it—the necessary increase in capacities cannot happen overnight. If there will be any benefit from Malampaya gas field, this will take a few more years to materialize. The current focus on renewables can provide a very low Effective Load Carrying Capacity (ELCC). A perfect plant is always available when needed and has an ELCC of 100 percent. Renewables would have an ELCC of about 30 percent because of their intermittency. This means a 1,000 MW renewable plant can be expected to contribute to capacity only 300 MW. So, the DOE’s Green Energy Program that is expected to contribute about 7,000 MW up to 2030 only translates to about 2,100 MW additional capacity by 2030. The other area not yet studied carefully is how this intermittency could affect integration with the grid and how the ancillary requirements would be acquired. Offhand, I believe that the intermittency would increase ancillary requirements – which translate to additional capacity requirements and higher electricity costs to be passed on to consumers.

An amount is considered reasonable or unreasonable in relation to various factors. Rate of return, for example, may be considered as such in relation to experience in the industry or market conditions at that time. There will be differences determined by many factors like credit worthiness, asset values, integrity of management and the financial state- ments submitted, internal control structures, risk management practices, consultants involved and the governance structure. So, to allege that Annual Revenues and net income are unreasonable would have to be clearly determined with reference to reliable bases of comparison. The annual gross revenues, for example, has to be closely related to the Maximum Allowed Revenue each year, and the Net Income has to be closely related to the Return on Investment as one of the MAR determinants. The MAR and the ROI are evaluated by the Energy Regulatory Commission (ERC) and subjected to public hearings and at times involve independent consultancy studies.

Let us take a look the summary below lifted from the Research Brief Energy Financial Assessment of NGCP prepared by the staff of Sen. Win Gatchalian—June 6, 2017

(Amounts in Billion Pesos).

From the above comparisons, it should be noted that the actual gross revenues reported by NGCP are quite close to the maximum allowed revenues by ERC. However, the reported net income in the NGCP financial statement is much lower than the approved return on investment by the ERC. Finally, the annual concession fee, which was assumed to be the future cash flows each year, is also higher than the actual net income reported. This means that the cash flows to NGCP that formed part of the calculation of the concession fee are not materializing. Contrary to allegations that net income is unreasonable, when compared to what was promised in the concession agreement, NGCP is receiving even less.

So, where does the unreasonableness come from?

To be continued.

Alfredo Non is a CPA by profession and a former Partner at SGV & Co. He served as Commissioner of the Energy Regulatory Commission till he completed his term in 2018. He also served as Director and Executive Officer of several private companies and a former professor in Financial Management at the Ateneo Graduate School of Business.

IN Army operations, a feint is a diversion used to distract the enemy from the main point of attack. The US Army defines a feint as a “form of attack used to deceive the enemy as to the location or time of the actual decisive operation.” The pertinent field manual further describes these distractive maneuvers as “shallow, limitedobjective attacks conducted before or during the decisive operation.” (FM 3-90).

In history, the best feint ever happened in 1944 when Allied forces during World War II deceived the Nazis by convincing the latter that the Allies wanted to invade occupied Norway and Pas de Calais in France instead of Normandy. The feint operations included the deployment of a fake army consisting of inflatable tanks and trucks and a deliberate transmission of “secret” information about troop movements for easy interception by German intelligence.

Feints are also used in sports, especially in boxing, where players try to out-fake each other before delivering a power punch. One boxing analyst said that eight-division world boxing champion Manny Pacquiao has a very unique feinting technique since he “doesn’t only use his gloves to feint his opponents but he uses his shoulders, head, torso, and even footwork to feint.” Whether called a trick or a ruse, these kinds of maneuver are indirect means to gain the real objective or a diversion or distraction of attention away from one’s real intent. In combat or in boxing, these distractions are aimed towards the destruction of another.

Similarly in life, feints are thrown at us, which make us pay more attention to what is good instead of what is better. Some people fail to pursue the more important things in life and

By Denitsa Tsekova, Carly Wanna & Lu Wang

UP and down Wall Street, forecasters were caught flat-footed by how the first half of 2023 unfolded in financial markets. That seems to have rattled their faith in what the winning playbook for the rest of it should be. heading into the year, a handful of predictions dominated strategists’ annual outlooks. A global recession was imminent.

B onds would trounce stocks as equities re-tested bear-market lows. Central banks would soon be able to stop the aggressive rate hikes that made 2022 such a year of market misery. As growth stumbled, there’d be more pain for risky assets. But that bearish outlook was shattered as stocks rallied even as the Federal Reserve continued to ratchet up interest rates in the face of stubbornly elevated inflation. And what was supposed to be the Year of the Bond fizzled: US Treasuries have nearly wiped out their tiny gain for the year as yields test new highs and the economy remains surprisingly resilient in the face of the Fed’s monetary policy onslaught. As a result, financial soothsayers have rarely disagreed more about where markets are headed next. That’s brought into relief by forecasts for where the S&P 500 will end the year: There’s a 50 percent difference between the most bullish one from Fundstrat (which sees it rising nearly 10 percent more to 4,825), and the most bearish call from Piper Sandler (down some 27 percent to 3,225), according to those compiled by Bloomberg. The mid-year gulf hasn’t been that wide in two decades.

Some are now rescinding recommendations or pushing out the timing of their calls. JPMorgan Chase & Co. strategists recently ditched a recommended long position in fiveyear Treasuries. Those at BlackRock enjoy life’s little pleasures. Time for work is good. Attention to family can be better. Money is always good but a good name can be better. Watching movies in Netflix is good but listening to a podcast that teaches us or inspires us to read the Bible can be better. In the Bible, the story of Martha and Mary in Luke 10:40-41 tells us how feints can distract us from what matters most. “But Martha was distracted by the big dinner she was preparing. She came to Jesus and said, “Lord, doesn’t it seem unfair to you that my sister just sits here while I do all the work? Tell her to come and help me. But the Lord said to her, “My dear Martha, you are worried and upset over all these details!” Martha was “distracted” by fixing dinner while “her sister, Mary, sat at the Lord’s feet, listening to what he taught.” (Luke 10:39). Such story depicts how distractions can lead us to destruction. What we do when we wake up every morning dictates whether we can fish out the “feint attacks” sent our way. On a few occasions, I succumb to these feints by checking my phone or tablet for work e-mail or Facebook posts instead of reading my Bible devotional or spending quiet time with Him. The Mary and Martha story encourages us to spend quality time with God every day, preferably the first thing we do when we wake up in the morning and the last thing we do before we sleep at night. Indeed, time in our offices or businesses to earn money is good. Spending dedicated attention with loved ones can be just as good. But, time spent studying the Bible, praying to Him, and following the instructions given by Him is what matters most. Our preoccupation to things that are good distract us, just like a feint in military operations and in boxing matches, from the “decisive” and more important aspects of living. Each day, while we can be both, let’s be more of a Mary than a Martha. Or better yet, we can all strive to be like Jesus who responded to Martha’s query: “There is only one thing worth being concerned about. Mary has discovered it, and it will not be taken away from her.” (Luke 38:41) And that thing is truly The Only One. tute are among those forecasting it will end the year lower than it is now. BlackRock is betting on the AI boom, even as it continues to warn about the dangers haunting developed-market equities.

A former infantry and intelligence officer in the Army, Siegfred Mison showcased his servant leadership philosophy in organizations such as the Integrated Bar of the Philippines, Malcolm Law Offices, Infogix Inc., University of the East, Bureau of Immigration, and Philippine Airlines. He is a graduate of West Point in New York, Ateneo Law School, and University of Southern California. A corporate lawyer by profession, he is an inspirational teacher and a Spirit-filled writer with a mission. For questions and comments, please e-mail me at sbmison@gmail.com.

Investment Institute, who suggested a push into investment-grade bonds at the start of the year, now have a neutral view of the sector. At Bank of America Corp.—and elsewhere— the recession once expected for this year has been pushed out as growth holds up stronger than expected. Bespoke co-founder Paul Hickey was among those who weren’t caught completely off guard. In January, he offered a contrarian outlook, saying that the negative consensus among strategists meant that risk assets like stocks may be poised for a rebound. “With consensus being so bearish to kick off the year, rather than needing a positive catalyst to spark a rally, all the market needed was a lack of bad news,” he said. “Whenever we are faced with conflicting messages from the news and the markets, we always defer to the markets.”

After a 37 percent surge in the Nasdaq 100 Index this year, some strategists have revised their stockmarket targets just to account for the equity rally—even if they see modest gains, or declines, for the rest of the year. Goldman Sachs has raised an initial 4,000 year-end target for the S&P 500 to 4,500 after the bank downgraded the odds of recession. It closed just shy of 4,400 Friday. Bank of America, Barclays, BNY Mellon Investment Management, Citigroup, Morgan Stanley and Wells Fargo Investment Insti-

But even with about a third of the two-dozen strategists surveyed by Bloomberg already upgrading their targets and measures of short-term sentiment improved, big investors remain cautious. A survey by HSBC Holdings Plc of the largest 60 asset managers shows they have turned more dour on the long-term outlook, making them even more pessimistic on high-yield bonds and stocks and fueling an even stronger preference for long-duration government debt. At the same time, the average of strategists’ year-end outlooks represents a decline of around 8 percent in the S&P 500 in the last six months of 2023. That’s the most bearish second-half view since at least 1999.

“It’s premature to say that the bearish end-of-year calls are truly wrong,’’ said Steve Sosnick, chief strategist at Interactive Brokers. “Being bullish on equities in the face of the sharpest rate hikes in a generation alongside persistent quantitative tightening flies in the face of that logic.’’

From a contrarian point of view, the persisting pessimism can be framed as a good sign for risk assets, since that suggests unspent buying power that could push stocks higher when it’s plowed back into the market and bears finally give in. That’s what has happened all year, when defensively positioned investors were under pressure to chase gains.

One thing is for sure, while some bears are sticking to their guns, the few bulls from the start of the year are getting more bullish. Fundstrat’s Tom Lee, who already had the highest year-end forecast for the

S&P 500, has boosted his estimate further to 4,825. Meanwhile, Ed Yardeni, founder of his namesake research firm, who was calling for a soft landing at the end of last year, says the worst may be behind and the economy may already be accelerating. “Our ‘rolling recession’ is turning into a ‘rolling expansion,’” Yardeni said. “The pessimists were putting a lot of weight to the tightening of the monetary policy. They kept waiting for a recession and just like Godot, it just didn’t show up.”

Here’s a sampling of what some of the biggest names are telling clients: Bank of America: The bank has revised higher its target for US stocks and predicts a later and milder recession in the US.

Barclays Research: The firm has given up on their preference for bonds over stocks and sees milder economic contraction in the US. BlackRock Investment Institute: The world’s largest asset manager has just introduced a bullish call on AI while remaining cautious on developed market stocks.

BNY Mellon Investment Management: The firm is seeing higher chances of recession and higher price pressures than previously forecasted.

Citi: The bank has maintained a US stocks target that suggests losses in the second half and sees a US recession in 2024.

JPMorgan: The bank is currently forecasting weakness for equities in the second half of the year amid challenging macro backdrop.

Morgan Stanley: The bank sees the US and Europe avoiding a recession but sees no gains for US stocks through June 2024.

Wells Fargo Investment Institute: It is pushing its recession forecast later and has lowered its target range of returns for US stocks. Bloomberg gers “often long after a conflict is over.” Meanwhile, Sen. Tom Cotton, R-Arkansas, backed the move, saying Ukraine needs access to weapons Russia already is using.

According to the International Committee of the Red Cross, some cluster munitions leave behind bomblets that have a high rate of failure to explode—up to 40 percent in some cases. With a claimed rate under 3 percent for the supply to Ukraine, US officials said there would be fewer unexploded bombs left behind to harm civilians.

A convention banning the use of cluster bombs has been joined by more than 120 countries that agreed not to use, produce, transfer or stockpile the weapons and to clear them after they’ve been used. The United States, Russia and Ukraine are among those who have not signed on.

The cluster munitions are included in a new $800 million package of military aid the US will send to Ukraine. Friday’s package, drawn from Pentagon stocks, will also include Bradley and Stryker armored vehicles and an array of ammunition, such as rounds for howitzers and the High Mobility Artillery Rocket System, officials said.

Providing the cluster bombs will also ease the pressure on limited US ammunition stockpiles. The US has been taking massive amounts of 155 mm rounds from Pentagon stocks and sending them to Ukraine, creating concerns about eating into American stores. The cluster munitions, which are fired by the same artillery as the conventional 155 mm, will give Ukraine a highly lethal capability and also allow them to strike more Russian targets using fewer rounds.

Kahl said the cluster bombs are not a permanent solution, but more of “a bridge” as the US and allies work to increase the production of the 155 mm rounds.

So far the reactions from allies have been muted. NATO SecretaryGeneral Jens Stoltenberg stressed on Friday that the military alliance takes no position on cluster munitions and it is a decision that allies will make. And Germany, which has signed the ban treaty, said it won’t provide the bombs to Ukraine, but expressed understanding for the American position.

“We’re certain that our US friends didn’t take the decision about supplying such ammunition lightly,” German government spokesman Steffen Hebestreit told reporters in Berlin. “We need to remember once again that Russia has already used cluster ammunition at a large scale in its illegal war of aggression against Ukraine.”

Oleksandra Ustinova, a member of Ukraine’s parliament who has been advocating that Washington send more weapons, noted that Ukrainian forces have had to disable mines from much of the territory they are winning back from Russia. As part of that process, Ukrainians will also be able to catch any unexploded ordnance from cluster munitions. The last large-scale American use of cluster bombs was during the 2003 invasion of Iraq, according to the Pentagon. But US forces considered them a key weapon during the invasion of Afghanistan in 2001, according to Human Rights Watch. In the first three years of that conflict, it is estimated the US-led coalition dropped more than 1,500 cluster bombs in Afghanistan. AP Diplomatic Writer Matthew Lee and Associated Press writers Geir Moulson, Ellen Knickmeyer, Lorne Cook, Nomaan Merchant, Frank Jordans and Edith M. Lederer contributed to this report.