Credit Rating Downgrades
Working Double-Time

Newly appointed Finance Secretary Margarito Teves starts his term with downgrades on the country’s ratings outlook by three international credit rating agencies

Finance Secretary Margarito Teves has his hands full as the head of President Gloria Macapagal-Arroyo’s new economic team. A day after his appointment was announced by Malacañang on 12 July, another international credit rating agency joined Fitch Ratings and Standard & Poor’s in cutting the ratings outlook on Philippine bonds to negative from stable.

Moody’s Investors Service worries the political turmoil in the country “might have negative consequences on the budget and external payments position.” The international credit rating agency added that the “uncertainty following the forced-resignation of the economic team casts doubt on the ability of the administration to preserve recent improvements in the country’s fiscal performance.”

Moody’s, however, is also concerned over the Supreme Court’s temporary restraining order on the implementation of the expanded value-added tax. Moody’s Sovereign Risk Unit managing director Vincent Truglia and vice president Thomas Byrne further warned of additional downward pressure on Philippine sovereign ratings “should signs of heightened exchange rate volatility, deterioration in the fiscal performance, or weakness in the balance of payments appear in the weeks or months ahead.”

Two days before, Fitch Ratings downgraded its outlook on long-term foreign- and local-currency Philippine sovereign ratings to negative from stable due to “heightened political uncertainty” and the Supreme Court’s TRO on the EVAT law. At the same time, Standard & Poor’s also revised its outlook on the Philippine government’s foreign- and local-currency ratings to negative from stable. S&P cited the ongoing political crisis, the freezing of the expanded sales tax, and the resignation of members of President Arroyo’s economic team as key factors.

According to Fitch, a rating downgrade “could be triggered by protracted delays in the Supreme Court decision.” On the other hand, S&P believes the country’s ratings could “revert to a stable outlook once the political crisis is over and the government returns to a credible and sustained fiscal consolidation process.”

First CNG Bus
Gee, Your Air Smells Terrific!

If the country can attract more investments to build compressed natural gas fueling stations, we may eventually see the number of diesel-fueled buses reduced and our air become cleaner. The government has launched and test-driven the first CNG-powered bus in the country on 1 June. Now all we need are more CNG fueling stations.

The air should clear up if more buses would run on CNG rather than diesel. The only hitch—there are only two CNG fueling stations in the country

The country’s first CNG fueling station, which will serve as the “mother” station, is located in Tabangao, Batangas. Another in Biñan, Laguna, will serve as the “daughter” station. Ukraine-based Sukhin Energy Inc. is helping in the construction of the Biñan station, which is expected to be operational in September. CNG will be priced at P14.52 per liter for the next seven years, much cheaper than diesel, which now costs over P30 per liter. But until a gas pipeline is installed from the mother station to the daughter station, CNG will be transported in cylinders overland from one station to the other. The CNG will come from the Malampaya offshore gas field in Palawan and then piped to Batangas. The gas is currently used for running electricity-generating plants. The CNG-run buses will be the first non-electric use for the natural gas.

Under the government’s Natural Gas Vehicle Program for Public Transport, at least 2,000 CNG buses will be running by 2010. Each unit will cost an estimated P4 million to P6 million. Before yearend, about 199 more China-built units with engines by Cummins Westport Inc. of Canada are expected to arrive. The new buses will ply the Batangas-Manila-Batangas routes. Investors in this program will enjoy zero import duty and lower tariffs for the acquisition of the CNG-powered buses. As there are no refueling stations yet in Metro Manila, no new bus can run the Baclaran-Monumento route yet.

With so many buses and so few stations, it will be difficult to see how this program will succeed in the short run. More stations will be needed before we begin to see the air clear up again.