Growth projection, electricity generation and PPP Center

* BusinessWorld April 26, 2023.
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Last week, the Development Budget Coordination Committee (DBCC) held a press conference on the revised macroeconomic and fiscal targets from 2023-2028. The DBCC — or the economic team — is composed of the Secretaries of the Departments of Finance and Budget and Management (DoF and DBM), the National Economic and Development Authority (NEDA), and the Governor of the Bangko Sentral ng Pilipinas.

It is good that the economic team is keeping the original growth targets at 6-7% for 2023, and 6.5-8% for 2024-2028. As argued in this column last Monday, the Philippines’ quarterly GDP growth momentum in 2022 plus employment data as of February 2023 show that the domestic economy is dynamic, and local businesses can sustain a virtuous cycle of production-consumption at higher and rising levels.

I also think that the macroeconomic assumptions to make the growth projections are realistic. For instance, the Dubai crude price of $70-$90/barrel for 2023-2024, and $60-$80/barrel for 2025-2028. The actual Dubai prices from January 2023 to the present range from $75-$85/barrel, so there are four months of actual data that support the assumption already. Oil price pressure is stabilizing if not declining because many countries continue to buy cheap Urals or Russia oil, which is $10-$15/barrel cheaper than Dubai and other OPEC exporters. This competition is somehow good for us.

This week, the Independent Electricity Market Operator of the Philippines (IEMOP) released the mid-April update for power supply-demand prices. I computed the total power generation by source or technology, then averaged in supply-demand, January-March 2023, and compared them with same period last year.

The share of coal in installed capacity has not increased — roughly about 40% of the total — but actual power generation has increased from 54% in the first quarter 2022, to 61% of the total generation this year. So, it is unwise and dangerous for the country to listen to the climate lobby about restricting and even killing coal power because their beloved wind-solar can contribute only 4.7% of total generation.

Electricity prices have increased from an average of P6.47/kWh last year to P7.24/kWh this year mainly because of declining power margins; demand is picking up while supply is not rising at commensurate levels (see Table 1).

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