Maintaining consistency of investor expectations

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Mike Wootton

Mike Wootton

I was interviewed last week by people doing a feature on energy in the Philippines. They were from a major international publisher and were based in the United Kingdom. Their comment during the meeting was that they had heard all the positive and encouraging words about the Philippines, and the energy sector in particular as an alluring investment destination made even more enticing by talk of inadequate power supplies and impending power crises, with high power tariffs, the “new” Renewable Energy Act, the economic boom, and stellar gross domestic product growth, etc., and a remorseless desire to privatize everything in sight. But after they had been here a little while and done their first few interviews, they had discovered that what they had heard was all just empty words. “It’s not like that at all . . .,” they said with a smile.

There is quite some skepticism about the real economic growth of the Philippines, as well as outright proof that whatever enriching may be going on it is not very evenly distributed. All the money goes to the powerful. Mind you, it’s not only in the Philippines that the distribution of wealth is skewed. According to Oxfam, the richest 82 people in the World have as much money as the remaining 3.5 billion to 4 billion.

It sometimes feels around here as if there is somebody who is just out to trip you up. The real policy intent of laws is frequently modified by the implementing rules and regulations (the IRRs, when they eventually appear). In a well organized administration, the implementing rules would be reviewed by those who made the relevant law in order to ensure consistency, and importantly that the implementing rules did not in any way change the intent of the law, but here the IRRs do sometimes amend the law. The [Electric Power Industry Reform Act] contains a few examples.

But overall things are becoming much less predictable. Government should be expected to maintain a level and consistent playing field in the interests of investors and through that in the interests of its citizens, and to assure them of fair treatment and the ability to earn returns as they expected. For government to fail to not only enforce but also to abide by its own rules makes for an investment environment that is just too risky.


Too risky that is unless you happen to have the connections and the money, but not necessarily the knowledge or competence to work your way around this ever changing investment regulatory environment.

In today’s world, there is no shortage of “bright ideas” but the use of such ideas when representing government has to be restrained in order that investor expectations and the requirements of the law are not suddenly changed by the introduction of some new bright idea or other. The Renewable Energy (RE) Law is a case in point. Suddenly an edict is issued requiring that renewable energy facilities have to be 80-percent complete in construction before it is possible to apply for the Feed in Tariff—nowhere in the law itself or in any government policy statements has this ever even been contemplated, even less had it been contemplated by any service contract holding RE investors (who had already sunk money into their projects). No doubt, the rationale behind the bright idea edict was to try to ensure that service contracts were not just “flipped” or
traded as often happens around here, so a justification can be made.

However, to introduce such a requirement late in the day after the pre-development money has been invested is a fatal thing to do and simply has the effect of destroying any investor confidence . . . “What next?” they will say.

It is the job of government to protect its citizens, but such protection has to be undertaken within the policies and laws that it has set, and any bright ideas that come along later either have to be enshrined within amendments to the law in a way that does not drastically alter people’s good faith and expectations.

The government must follow its own laws and importantly, their intent. Some discipline is required, even though it may be fun to think up new bright ideas!

Mike can be contacted at mawootton@gmail.com.

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