Manila Water presses for indemnity

THE CURRENT ADMINISTRATION is winding down with still another contractual dispute under adjudication, this time as Manila Water Company, Inc. said yesterday that it has gone to an international arbitration court to compel the government to pay it P79 billion for losses projected from 2015 to 2037 resulting from recently approved lower-than-sought tariffs.

“In relation to our disclosure letter, dated April 23, 2015, please be informed that the Manila Water Company, Inc. has filed a notice of arbitration with the Permanent Court of Arbitration in Singapore,” the company said in a Dec. 10 letter to the Securities and Exchange Commission (SEC) and the Philippine Stock Exchange, Inc. (PSE) that was attached to a disclosure yesterday.

Manila Water cited as basis the April 23 notice of claim it submitted to the Finance department (DoF) that called for implementation of the July 31, 1997 Letter of Undertaking that guaranteed the obligations of the Metropolitan Waterworks and Sewerage System (MWSS) under their Feb. 21, 1997 concession agreement.

“In the Letter of Undertaking, the Republic, through the DoF, undertook to indemnify Manila Water against any loss caused by any action on the part of the Republic and/or the MWSS, resulting in the reduction of the standard rates ‘below the level that would otherwise be applicable in accordance with the concession agreement,’” according to the letter that was signed by Manila Water Chief Legal Counsel Jhoel P. Raquedan.

Manila Water’s main concession area covers the Metro Manila cities of Makati, Mandaluyong, Pasig, Pateros, San Juan, Taguig, Marikina; most parts of Manila and Quezon City; as well as some parts of Rizal province. It has also expanded operations to cover Boracay, Clark in Pampanga and parts of Cebu. Outside the Philippines, it holds substantial stakes in Thu Duc Water BOO Corp. and in Kenh Dong Water Supply Joint Stock Co., which are both water suppliers in Vietnam.

Last Apr. 21, an appeals panel ended a year-long government-Manila Water dispute over the latter’s tariff for the 2013-2017 rate-rebasing period. Manila Water originally proposed a P5.83-per-cubic meter (/cu.m.) increase in its 2012 basic water charge of P25.07/cu.m., but MWSS instead ordered the company in September 2013 to cut tariffs by P7.24/cu.m. after excluding tax payments from tariff computation. That regulatory decision prompted Manila Water -- which argued it was entitled to such treatment under its concession deal -- to take its case to the International Chamber of Commerce that same month for arbitration. The final award resulted in an 11.05% cut -- about P2.77/cu.m. -- to the basic water charge.

“As a result of certain actions by the MWSS and the Republic, which are covered by the provisions of the Letter of Undertaking, the company demanded indemnification from the Republic by reimbursing its losses in operating revenues to be realized for each remaining year of the concession as such losses are realized, which losses are estimated to amount to P79 billion for the period 2015 up to 2037,” Manila Water explained in its letter. “Since the filing of the Notice of Claim on Apr. 23... the Republic has not responded... which prompted the company to avail of its remedy under the Letter of Undertaking; hence, the Notice of Arbitration in the Permanent Court of Arbitration in Singapore.”

In its filing with the Singapore court, the company said that even as it continues to pursue its claim, it has started to implement the new rates set by MWSS that “incorporates a reduction” of P1.66 per cubic meter in the basic charge.

The latest move on this matter by Manila Water -- whose shares yesterday lost 55 centavos or 2.15% to end P25 apiece, compared to a 0.40% drop each of the PSE index and of the industrial index to which the firm belongs -- comes in the wake of similar action by Maynilad Water Services, Inc. that holds the concession for Metro Manila’s so-called “west zone”. Maynilad last March 27 haled the government before the International Chamber of Commerce to compel payment of P3.44 billion for estimated losses -- covering the first two months of this year -- from deferred implementation of a tariff increase it won under arbitration. Maynilad had said then that it continued to incur “revenues losses averaging P208 million for every month of of additional delay in 2015.”

source:  Businessworld

PPP thrust stained by canceled deal

THE PUBLIC-private partnership (PPP) thrust of the government has suffered a blow just as it was trumpeting economic gains at this year’s Asia Pacific Economic Cooperation meetings, as Megawide Construction Corp. canceled an P8.69-billion contract for the country’s first hospital PPP deal after the Department of Health (DoH) took “too long” to fulfill its part of the deal.

It is the first time a contract under the government’s flagship PPP program has been canceled.

“Megawide has terminated the contract for the Modernization of the Philippine Orthopedic Center (POC) with the DoH,” the company said in a statement yesterday.

“The DoH has not yet given us the Certificate of Possession for the project site,” Megawide Corporate Information Officer Manuel Louie B. Ferrer said in a telephone interview yesterday.

“It’s been too long. It’s been two years already.”

The project involves a 25-year contract to design, finance, build, operate and maintain a 700-bed orthopedic hospital within the National Kidney and Transplant Institute (NKTI) Compound along East Avenue in Quezon City, and transfer the facility to the DoH after the concession period.

Megawide Citi Consortium, Inc. -- a subsidiary of listed Megawide whose shares ended flat yesterday at P6.34 apiece even as the industrial sectoral index to which it belongs edged up 0.94% -- was awarded the contract in December 2013. It then entered into a P2.9-billion syndicated loan in October 2014 to help finance the project and had expected to start construction within that quarter in order to make the facility operational within the first three months of 2017.

A DoH-Megawide statement e-mailed to media later in the day pinned the blame squarely on the department.

The statement noted that former Secretary Enrique T. Ona failed to convince the board of the NKTI -- a government firm under the department that directly owns the land on which the new facility was to rise -- to allow such use of the area. Janette P. Loreto-Garin, who succeeded Mr. Ona in acting capacity in October last year after the latter resigned amid a controversy over vaccine acquisitions, did not fare any better.

“While DoH sits in the board of NKTI, it failed to convince the management of the said hospital to allow the use of their [sic] land for the proposed PPP project,” the statement read, adding that Ms. Garin “also failed to secure the consent of NKTI management for the use of its land for the proposed PPP project.”

The same statement cited other hurdles that were under the government’s purview -- including displacement of current POC employees as well as difficulty and delay in appointing an independent project consultant -- “all of which were unanticipated by the DoH and which negatively affected the implementation of the project.”

“Furthermore, the proposed rehabilitation hospital that will house the displaced employees of the Philippine Orthopedic Center is still being deliberated in Congress,” the statement read further.

“All of these contributed to the decision of Megawide to terminate the… agreement…”

The statement quoted Ms. Garin as saying: that “DoH cannot abandon its duty of ensuring care for our indigent patients in the Philippine Orthopedic Center if their place of transfer cannot be ensured”.

“Furthermore, it will be unfair to expect Megawide to shoulder the cost of caring for our indigent patients and be obligated to absorb all displaced employees pending approval of a new law in Congress to create the rehabilitation hospital.”

It went on to say that “DoH and Megawide assure the public and all investors that this is an isolated case”.

“Megawide looks forward to other PPP agreements that the DoH will offer.”

Besides this hospital project, Megawide has bagged four other PPP deals out of the 10 the government has awarded, so far: the P2.5-billion Southwest Integrated Transport System Project, the P16.43-billion first phase of PPP for School Infrastructure Project (PSIP), PSIP’s P3.86-billion second phase, as well as the the P17.52-billion Mactan-Cebu International Airport Passenger Terminal Building.

Sought for comment, Peter Angelo V. Perfecto, executive director of the Makati Business Club, said in a mobile text message yesterday: “Is the DoH willing to accept the responsibility for the failure of this PPP that could deliver better services to our people?”

Despite the DoH-Megawide explanation, he said “it still remains their [department’s] problem though and their commitment. Megawide -- or any private sector partner -- cannot be made to wait indefinitely.”

“It would be wise for government, particularly the DoH, to deliver on its commitment in connection with the project site.”

John D. Forbes, senior adviser of the American Chamber of Commerce of the Philippines, said in a separate text that the “repeated review” of projects by successive secretaries and administrations creates “policy inconsistency.” He warned this case could “undermine other PPP projects in process when the next administration takes over.”

PPP Center Executive Director Cosette V. Canilao said via text that she was “preparing a memo” to President Benigno S. C. Aquino III and economic managers on the “process, remedies and consequences” of this development.

“It’s up to the DoH how to move this forward.”

source:  Businessworld

Big plantations create big problems in Mindanao

“In the name of development, the nexus of state and TNCs (transnational corporations) has dispossessed people of their lands, resources and rights, captivating the whole island and enslaving people in TNC-led plantations and mines.  The original masters of the land have become slaves in their own lands, made to work till death and earning a pittance.  The loot is taken out by the TNCs in the form of profits whereas local communities get nothing as they witness their wealth… being plundered beyond repair and bringing them to extreme poverty.”

The above passage is from a solidarity message by the Asia Monitor Resource Center to the National Conference on Mindanao Plantations held at UP Diliman recently. It sums up the alarming consequences, discussed at the conference, of the unbridled expansion of agricultural plantations.

Launched at the conference, the Network Resisting Expansion of Agricultural Plantations in Mindanao, (REAP Mindanao Network) vows to “synthesize efforts and struggles” against the expansion of the plantations and to generate public awareness on the critical issues related to them.

Here’s a rundown of the situation:

• Agricultural plantations, mostly owned by TNCs and primarily geared to export markets, occupy almost 500,000 hectares, or 12% of Mindanao’s agricultural land. They produce rubber, Cavendish bananas, pineapple, palm oil, cacao, and sugarcane. More than half (51.2%) of the plantations are in Northern Mindanao, covering 127,105.7 hectares, and in Socsksargen (South Cotabato, Sultan Kudarat, Sarangani, and Gen. Santos City), 126,170.5 hectares.

• Over 10 years, the plantations expanded by 79%. Rubber plantations, which occupy 43.3% of the lands, increased nearly threefold: from 81,667 hectares in 2005 to 214,313.6 hectares in 2014. Palm oil plantations almost doubled in the same period: from 23,478  to 42,731 hectares.

Opinion ( Article MRec ), pagematch: 1, sectionmatch: 1

• Two banana plantations plan to expand further: American-controlled Dole Philippines, by 12,000 hectares; and Unifrutti (South American), by 2,600 hectares; the sugarcane plantations are to add 256,360 hectares, while cacao producers target 150,000 hectares more by 2020.

• Two state agencies have drawn up “roadmaps” to expand agri-plantations. The DENR’s National Greening Commodity Roadmap plans 116,000 additional hectares for rubber, 87,903 hectares for coffee, and 60,000 hectares for cacao by 2016. The Philippine Palm Oil Development Council Inc. targets 300,000 hectares more for palm oil plantations by 2023.

What are the consequences of these developments?

Land dispossession, labor exploitation, violence including killings, environmental degradation, and health problems characterize the history and development of agricultural plantations in Mindanao. A REAP briefing paper points out the following: 

Del Monte, Dole, and Sumifro plantations encroach on peasant communities and ancestral lands of thelumad (indigenous peoples) in Bukidnon, CompostelaValley, Davao provinces, Sarangani, and South Cotabato. Around 1 million hectares of grasslands in North Cotabato, Sultan Kudarat, and in the Caraga and Northern Mindanao regions are gradually being transformed into palm oil plantations.

The failure of the Comprehensive Agrarian Reform Program (CARP) has impelled agrarian reform beneficiaries to either lease their lands to TNCs or enter into “outgrower” contracts (grow TNC crops on their lands) under disadvantageous terms. Examples: 1) outgrowers are tied down to long-term contracts to supply Cavendish bananas to Dole at a fixed price of US$2.50 per 13-kilogram box; 2) in Caraga, lands are leased to palm oil plantations for 25 years at only P166 per hectare each month.

Most plantations hire only one regular worker per hectare of land. In rubber plantations, it’s only one regular worker per 3 hectares. The TNCs have minimized the number of their regular workers by hiring contractual or seasonal workers via manpower cooperatives. For instance, in Polomolok, South Cotabato, Dole maintains only 4,000 regular workers (1/5) out of a 20,000 workforce. Dole and Sumifro have been accused of union busting and other trade-union rights violations.

Due to their unfair contracts with the TNCs, outgrowers can’t afford to pay decent wages to their workers, often paying only half of the standard daily wage in the area, which ranges from P235 to P307.

Hiring minors is a prevalent practice among palm oil plantations in Caraga, banana plantations in Davao  del Norte, and sugarcane estates in Bukidnon. 

Given these conditions, the state hasn’t been of help. Instead, through the AFP and other security forces, it has practically acted as a partner of the TNCs and big Filipino plantation owners in suppressing mass protests against unjust labor and trade practices.

The AFP and its paramilitary adjuncts have been accused of intimidating, vilifying, harassing, and killing protest leaders.  Example: in October 2012, Higaonon tribal leader Gilbert Paborada was slain allegedly because he vigorously opposed the expansion into Opol, Misamis Oriental, of the Filipino-American palm oil firm, A. Brown Energy and Resources Development Inc.

Mountains are flattened and forests are denuded to give way to plantations, gravely affecting biodiversity and water sources, and causing soil erosion. Worsening the environmental degradation has been the rampant use of pesticides and other chemicals. These have polluted the land, air and water and caused respiratory, skin and other diseases among plantation workers and residents of the nearby communities.

In Surallah and other towns of South Cotabato, the people have publicly protested against aerial spraying of toxic pesticides in Sumifro plantations.  They have organized BATOAN (Ban Aerial Spray of Toxic Chemicals Alliance) to effectively pursue their campaign.

Verily, vital issues related to the plantations – national patrimony, agrarian reform, human rights, social justice, environment, and sustainable development – ought to be scrutinized through public debate.

* * *

Email: satur.ocampo@gmail.com

AT GROUND LEVEL By Satur C. Ocampo (The Philippine Star)

PPP status report

IT turns out that the Public Private Partnership program is not the way media has described it – slow, ineffectual, an obstacle course with so far no results. It had some hoops to jump through, but it is off and running.

Let us start by clarifying that PPP is not privatization but a contractual arrangement between government and a private party to partner together for development. Think classrooms, airports, highways, dams, even prison facilities. Those will always be in government hands and not privatized. In other words, it will be government infrastructure, the built assets that will make life for all better in basic services, mobility, communication, social institutions, future planning and everything else that governance owes its constituents in the social contract between them. The Constitution encourages the private sector to assist thegovernment to do infrastructure.

Undersecretary Cosette V. Canilao gave the annual Ongpin Memorial Lecture on PPP. It was entitled “PPP: Where We Are At,” last Wednesday to a packed audience at the Ateneo Professional School in Rockwell, Makati City. Ms. Canilao is the Executive Director of the PPP and has an intimate knowledge of the facts and figures, the processes and results, the plans and the vision towards acquiring this country’s infrastructure needs estimated to cost $127B between 2010-2020. [A Manila Times editorial praised her presentation at the Times Business Forum last July].

Between 2010-2014 $26B has already been spent with another $30B is programmed for 2014-15. Government has funded $57B so far with a gap of $70B still to be found presumably from various sources. The next administration should be managing about $45B. It is to be hoped that whoever wins the election will see the program through.

The LRT 1 has already been bid out and won. Train stations will be the first to show the improvement that a PPP program can do to infrastructure – refurbishment of restrooms, getting the escalators and elevators to work properly and serve the commuting public better. Present cars will also be refurbished to be more comfortable and clean and punctual. New cars are expected some time next year. So that is one bid won and now on the implementing stage. Watch it take off. The DaangHari highway has opened after initial right of way issues. The beep cards usable for all the light rail lines are now a done deal. Classrooms have been built fulfilling the logistical demands of withstanding 250kph typhoon winds, even using new technology from the traditional cement and wood configurations which have shown much vulnerability in this age of climate change and the potential big one earthquake.

The Mactan-Cebu airport is under implementation with Terminal One completed through some creative configuration that has made going through it faster and more efficient as well as more comfortable. More terminals to follow. The private partner involved has gone beyond construction into marketing it as a hub for OFWs from the Visayas who need not go through Manila to get to and from their destinations. That makes the infrastructure expansively more useful.

Usec Canilao says the PPP Center learned some valuable lessons here when after the bidding was won; was discovered that the Philippine Air Force which was using some of the land had never been brought into the negotiations so that it would be prepared to transfer its facilities elsewhere. This dilemma caused undue delay because understandably the Air Force was not prepared not having been a party to the negotiations. Eventually it did but time was lost. Now the PPP Center knows enough to bring in everyone concerned or to be affected in a bidding so as not to delay matters after a bidding is won. Same with the right-of-way issue.

One of the projects for bidding which upon the request of interested would-be bidders was postponed from this month to December is the new prison facility to be built in Nueva Ecija to replace the New Bilibid Prison and its intolerable overcrowded conditions and tenuous security arrangements. It is envisioned to be a state-of-the-art humane and secure institution for the rehabilitation of lawbreakers who have been convicted. So it has more complex requirements which the bidders are trying to meet.

Other LRT lines are also about to bid out for expansion and for an addition of two new lines. The North-South railway from Tutuban to Matnog, Sorsogon is another project soon to be up for bidding.The Cavite-Laguna Expressway has been bid and won. Then coming up for bidding is the Laguna Lakeshore Expressway that will also include a dike and reclamation around Laguna de Bay. The NAIA Expressway is being implemented as well as the Orthopedic Center Rehabilitation.

All in all with the kinks and the obstacles encountered 14 projects have been bid out, 10 have been awarded and at least two completed with an accelerating number on their way to completion as building has started. One remaining kink is the need for independent consultants for each project, which seems to be difficult to fill considering the complexity of some.

You might pooh pooh the above but again the Philippines is the pioneer here in Southeast Asia on PPP. The Indonesians and the Vietnamese have been visiting our PPP Center to see how they can come up with their own using us as a model or learning how we have come along. Both foreign and local entities are interested in participating in its projects. PPP is definitely a positive road that should be continued into the next administrations.

It has had its beginnings in the first Aquino Administration with the Build Operate and Transfer law, amended during the Ramos Administration, then under another name with the Estrada and Arroyo administrations and now the improved arrangements via the PPP. The only logic in this matter of infrastructure for nation-building is moving forward and not turning back.

source:  Manila Times Column of MA. ISABEL ONGPIN

Telstra to Invest $1B in PH

Australia’s biggest telecommunication company, Telstra Corp., is expected to infuse at least $1 billion in the Philippines through a joint venture with San Miguel Corp. (SMC)

Telstra in a disclosure to the Australian Stock Exchange  said the company has allocated $1.5 billion for new business and mergers and acquisition (M&A) this year.

Warwich Bray, Telstra chief financial officer, was quoted as saying the amount includes “investments  in our capital program and start up investment such as the investment in the Philippines where we (are to pursue that opportunity. “ 

A report by Australian Business Review dated Oct. 29, 2015 quoted  Telstra chief Andy Penn as saying  the company   will spend up to $1 billion if it goes ahead with its plans to launch a new mobile phone venture with beer and food giant San Miguel in the Philippines.

SMC in August confirmed it was in talks with Telstra but no  deal has been sealed.

Telstra is expected to challenge the duopoly in the Philippine telecom market that is dominated by local players PLDT and Globe Telecom.

As of press time, SMC did not give any comment. 

Last July, SMC through its unit Vega Telecom Inc. bought the interest of  Qatar Telecom in Liberty Telecom after it signed a definitive agreements to acquire the stakes of Qtel West Bay Holdings S.P.C., wi-tribe Asia Ltd. and White Dawn Solution Holdings in Liberty  for P5.75 billion. 

SMC plans to start the commercial rollout of its cellular mobile telecommunication services by early next year, consolidating its four telecom units.

 Aside from Liberty which operate under brand name WiTribe , SMC also controls  Express Telecommunications Inc (Extelcom), Eastern Telecommunications Philippines Inc (ETPI) and its subsidiaries Telecommunications Technologies Philippines Inc. (TTPI) and the Bell Telecom Inc.

The four telecom unit have enough frequency to compete with the existing two telecom operator.

Extelcom and Belltel have mobile phone frequency rights. Liberty has broadband frequency while  ETPI and TTPI have landline and fiber optic licenses allowing SMC to offer almost the same services offered by Globe Telecom and Smart Communications.

Liberty Telecoms Inc. expected is  to break even following its exit from corporate rehabilitation last May. The Makati regional trial court issued an order to stop the rehabilitation proceeding of Liberty, allowing it to exit early from corporate rehabilitation which was until December 2016.

The company currently has 500 base stations, more than enough to cover the target subscriber base. Its Wi-tribe brand has 50,000 subscribers to date.

Liberty revenue declined to P42.17 million in the January to March period from P78.38 million in the same period last year. Expenses declined to P280.94 million in the three-month period from P323.39 million last year.

source:  Malaya

MNTC takes over SCTEx

MANILA, Philippines - Manila North Tollways Corp. (MNTC), a unit of Metro Pacific Investments Corp. (MPIC), has assumed operations of the Subic-Clark-Tarlac Expressway (SCTEx) after receiving the Toll Operation Certificate (TOC) from the government.

In a disclosure to the Philippine Stock Exchange yesterday, MPIC said the MNTC received the TOC covering the operation and maintenance of the SCTEx from the Toll Regulatory Board on Oct. 23.

The MNTC was awarded the contract to manage, operate and maintain the 94-kilometer SCTEx traversing the provinces of Bataan, Pampanga and Tarlac, during a price challenge in January.

The business and operating agreement gives MNTC the right to operate and manage SCTEx for 33 years, while BCDA would be relieved of payment of the P34-billion debt to the Japan International Cooperation Agency for the construction of the tollway.

For the price challenge, MNTC offered an upfront cash payment of P3.5 billion, inclusive of 12 percent value-added tax to the BCDA in addition to the 50-50 sharing of gross revenues.

MNTC, the tollways arm of infrastructure giant MPIC, is the concessionaire of the North Luzon Expressway.

Aside from tollways, MPIC is involved in other businesses such as healthcare, power generation and distribution, and water utility.

“Our team looks forward to implementing world class seamless travel for our NLEx and SCTEx motorists. We remain committed in delivering safe, convenient travel to our motorists,” Ramoncito Fernandez, president of MNTC’s parent firm Metro Paci-fic Tollways Corp. said.

He added that the concession further solidifies Metro Pacific’s leadership in the Philippine toll road industry.

source:  The Philippine Star

MRT buyout: deal or no deal?

First of three parts - Oct 26, 2015

The key to effectively ferry vast numbers of people from one place to another is through mass-transit systems, such as railways. In Asia, the Philippines is proud to have been the first country to have developed such a light-rail transit system in the early 1980s. Its neighbors soon followed its footsteps, and started their own journey into building massive train lines to improve mobility and lessen traffic congestion.

But more than three decades into the inauguration of the first overhead train system in the continent, the Philippines now lags behind its Asian peers with only four working train systems—a heavy rail, two light rails and a commuter line.

Experts and business leaders agree that the government failed to keep up with the times. Underspending, underinvestment and under-the-table deals were tagged as culprits behind the deterioration of the rail sector in the Philippines.

Jose Regin F. Regidor, a transportation expert, lamented the “lousy service” provided by local railways systems.

“The overall state of railways in the Philippines is poor, since we have rail only in Luzon and much of it is in Metro Manila. The Philippine National Railways is still in a sorry state despite efforts within the agency and, so far, it has gotten only little support from the national government, especially from the transport department,” Regidor said.

Regidor, a research fellow at the University of the Philippines-Diliman National Center for Transportation Studies, noted that there have been proposals in Cebu and Davao for urban rail lines, and then there were the proposals to revive Panay Railways and construct Mindanao Railways.

“But, these all have not progressed since the last administration and has gotten little support from the present,” he said.
‘Worst in Asean’

Businessmen echoed the pundit’s observation, frowning at how the government had failed to improve the train systems despite having the money and time to do so.

“Philippine rail system has been left behind by the rest of Asia despite us, historically, having pioneered the light-rail transit in the region. While our neighbors followed our lead, they continued with their programs and ours was left to stagnate, resulting in the deteriorated state of rail today,” Makati Business Club (MBC) Executive Director Peter Angelo B. Perfecto lamented.

In terms of connectivity among different cities, the Philippines is considered as one of the worst not only in Asia, but in the world.

“Intercity is probably the worst in the world; of four Asean capitals with light rail lines— Bangkok, Kuala Lumpur, Manila and Singapore—Manila is the slowest to expand and has the poorest maintenance and most overcrowding,” American Chamber of Commerce Senior Advisor John D. Forbes observed.

Filipinos living in the capital are the patrons of the train lines; after all, these mass- transit systems still are the fastest means to go from one part of the city to another.

“The train systems are in bad shape and are in need of upgrades and expansions with urgency,” European Chamber of Commerce of the Philippines (ECCP) External Vice President Henry J. Schumacher noted.

The worst of them all, however, is the “middle child,” the 16-year-old Metrostar Line, more commonly known to the masses as the MRT.
‘Inappropriate’

Manila gave birth to the 17-kilometer  mass-transit system in 1999—almost a decade after it was first conceived—with the primary purpose of decongesting the capital’s main artery, the iconic Epifanio de los Santos Avenue (Edsa).

The build-lease-transfer contract was awarded to Metro Rail Transit Corp. (MRTC) two decades ago, when it acquired the company’s original contractor due to its botched agreement with the government.
The 25-year contract essentially provides that the private partner builds the line, the government leases the transport system, and the infrastructure will be transferred to the state at the end of the concession period.

When it was built, observers, at first, thought it was a flop, as its average daily ridership only hit the 40,000-passenger mark. Despite this, the private company that built the train system still insisted on major expansion programs to prevent congestion in the railway line.

The government, however, refused, saying that the train system must first hit the 350,000-passenger mark before it does anything as drastic as an expansion of the line. It hit its rated capacity in four year’s time, but still, the government failed to approve proposals to add capacity to the train system.

As the years went by and the Philippine economy grew faster and faster, the train line’s passengers increased until it hit its crush load, which in layman’s term, is it’s maximum capacity. Still, the government failed to hear the cries of both the consumers and the private partner for modernization.

This led to worse situations along Edsa, as the train line snakes through the middle of the thoroughfare, eating up at least three lanes in the process.

“We now know that a light rail system along Edsa was not appropriate, despite studies back in the 1990s that purportedly supported this. We should have built a heavy rail system along this corridor together with other rail lines proposed in the past that could have formed a good network of transit
lines,” Regidor said.  But it seems that it is too late to lament over this fact, and the government is now moving toward the improvement of the line, or so its officials claim.
‘There’s still time’

Aside from procuring P9.7 billion worth of improvement projects, the government is also moving toward the acquisition of the train line to end its obligations to the private partner and essentially improve the hellish ride that commuters have to face on a daily basis.

The takeover is enshrined in Executive Order 126 that was issued by President Aquino in February 2013. The order stipulates that the Department of Transportation and Communications (DOTC) and the Department of Finance (DOF) must execute an equity value buyout of the private company that owns the MRT to free the government from paying billions of pesos in equity rental payments (ERPs) to MRTC per year.

Transportation Secretary Joseph Emilio A. Abaya said the takeover will be instrumental to the modernization of the railway system that ferries more than 540,000 passengers daily.

Before the government can actually buy the private partner out, several steps must be undertaken to ensure that the takeover will be smooth sailing and is within the bounds of international laws.

To fully take over the line, the government must purchase all the shares and the bonds in the railway company. Another  requirement of the buyout deal is for the government and the private partner to strike up a compromise deal to end the ongoing arbitration case in Singapore that was lodged against the state in 2008 due to its failure, as the operator of the line, to pay billions of ERPs to the owner of the rail system.

But more than two years into the issuance of the President’s order, the DOF and DOTC have not moved an inch toward the implementation of a buyout. They encountered a number of roadblocks in the not-so-distant past—including a thumbing down of the takeover’s budget by lawmakers—that prevented them from moving forward with the transaction.

The government agencies are trying to get back on their feet and find “creative” ways on how to execute the buyout.

With only a few months left before the President bows out from office in June 2016, the transport chief expressed optimism that his camp can execute the transaction within the term of Mr. Aquino.

“We are keen on pursuing the buyout of MRT 3 from the private-sector  owner,” Abaya said. “I think there’s still time.”

But the chairman of the majority shareholder in the private company that owns the train line just laughed the idea off.
‘Nonsense’

MRT Holdings II Inc. (MRTH-II) Chairman Robert John L. Sobrepeña said that he is “amazed” at the persistence of the government—particularly Abaya—in undertaking the multibillion-peso takeover.

“I’m amazed that Abaya is still pursuing the so called buyout when he has failed to do this over the last several years. The reason he has failed, and will fail again, is that it just doesn’t make sense to spend P54 billion to buy the MRT bonds, which are already owned by the government through the Development Bank of the Philippines [DBP] and Land Bank [LandBank] of the Philippines,” he said.

The two government banks together hold roughly 80-percent economic interest in the MRTC by virtue of the bonds they purchased in 2009.  “In short, they are spending P54 billion to buy something which they already own, so that they can control MRTC, which they already have complete control of via the DBP-Landbank nominees in the board,” Sobrepeña said.  LandBank National Director Tomas T. de Leon Jr. currently sits as the chairman of MRTC.

“The worst is to spend all that money without a single peso going to much needed rehab and repair of the MRT 3,” the businessman said.

But for the transport chief, a close friend of President Aquino, the government is better left with the complete ownership of public utility instead of allowing the private sector own the facility.

He cited, for example, the current structure of the LRT Line 1 and the Mactan-Cebu International Airport, both of which are currently being managed and maintained by private proponents, but are still owned by the state.   “Managing the train system is really best left to private sector, then the government is regulator,” Abaya said. “Leaving the operations and maintenance to the private sector is the right solution for us.” To be continued

Why is Subic Bay successful?

When the United States military bases at Subic Bay and in Pampanga were brought back to the Philippines, it was—or should have been—a golden opportunity. But disaster, both natural and human, intervened to turn gold into lead.

The problem with the Philippines is not that everything is terrible, as so many would like us and the world to believe, but that there are so many inconstancies that favor negative assessments. Most social programs fail to achieve the desired results, and then we have the Pantawid Pamilyang Pilipino Program, which is a success. So many politicians are a disgrace to the country, and then we also have the like of the late Sen. Joker Arroyo and people like Blas Ople and Raul Roco as role models.

It is the inconstancies of accomplishment that is keeping us down in some areas and killing us in others. The Philippines is unpredictable. Foreign direct investment has been a bad joke for decades and yet, for example, the call-center business is a stunning and enviable success.

However, we are not the only nation with this problem. Thailand has been trying for 50 years to achieve political stability under its constitutional monarchy but cannot seem to get it together, needing regular political intervention by the military. Maybe it is simply a matter of geography being next to the US, but Mexico is a narco-state whether they like that description or not.

The Subic Bay Freeport Zone (SBFZ) should have been an economic and investment jewel in the crown from the first day. The reason it was not was because there was little vision, too much political power infighting, and no thought-out long-term plan. Was it to be a tourist zone, a shipping-transit harbor, or a manufacturing free port? Like a child wanting to eat the cake, ice cream and candy all at the same time, the government was not able to focus and develop a single goal.

Instead, the country saw a failure in all three areas.

Nevertheless, over time, the SBFZ has finally found its legs, and is moving forward. Once again, Subic has been counted among the world’s best by being crowned winner of the Asia region, as well as picking up the award for best zone in South Asia and Southeast Asia. This award is given by fDi Intelligence, a division of the Financial Times Ltd.

The SBFZ was commended also for its infrastructure and its ability to attract reinvestment. In our opinion, all the credit should go to the Subic Bay Metropolitan Authority. We offer our congratulations to its chairman, Roberto V. Garcia, and his team.

We will not second-guess why the SBFZ is doing so well in its appointed task. But we will note that the SBFZ is 110 kilometers north of Metro Manila. Maybe the key to success is to get as far away from the seat of the national government as possible. Perhaps, we should ask Gov. Joey S. Salceda of Albay or Mayor Rodrigo R. Duterte of Davao City about that.

source:  Business Mirror

Purisima Wants Public Float Increased to 30%

Finance secretary Cesar Purisima wants the average public float of listed companies to increase to 30 percent to deepen the domestic capital markets.

Purisima said on the sidelines of the SEC (Securities and Exchange Commission)-PSE (Philippine Stock Exchange) Corporate Governance Forum yesterday the average public ownership rule must be raised from the current average of 20 to 25 percent.

“Here in the Philippines, the float is still not deep enough. We need to further expand that,” Purisima said.

“The market needs to be deep enough so that there is true price discovery,” he added.

The PSE requires publicly listed companies to maintain a minimum 10 percent public float.

The PSE implemented the minimum public float rule to increase market liquidity and for the efficient price discovery in the stock market.

When the minimum public ownership was set at 10 percent in 2011, several listed companies decided to voluntarily delist themselves from the market.

Many foreign investors have complained that the number of shares traded in the country is limited.

The compulsory 10 percent float had long been considered as too small. 

The shallow float also makes price manipulation easier. 

Meanwhile, in the same event, Purisima said the Department Order (DO) issued by the Department of Finance in April which prescribes the “fit and proper rule” for directors of insurance and public companies is his recommendation.

“The DO is not an order in the real sense because it is very clear that it is a recommendation, it is not compulsory to adopt it. I just felt that I needed to share my thoughts on it,” Purisima said.

DO No. 054-2015 prescribes that covered entities have directors who are fit and proper to hold such positions in the interest of building a strong and stable financial system by virtue of upholding the highest standards in corporate governance.

“Good governance extends to corporate governance. We want our insurance and public companies to reflect the highest corporate standards of integrity and excellence. For company directors in the country to be ‘fit and proper’ is a given; this rule merely enforces good practice,” he earlier said.

The DO sets forth minimum qualifications of directors and independent directors. 

For directors, s/he must ideally be at least 25 years old and a college graduate or an individual with at least five years experience in the business. Ideally, s/he must also have attended a special seminar on corporate governance for board of directors conducted or accredited by SEC or the Insurance Commission (IC) as may be applicable. 

Lastly, s/he must be fit and proper for the position of a director of the covered entity, taking into account several factors including integrity or probity, competence, relevant education/training (e.g., financial literacy), physical and mental fitness, diligence, and knowledge or experience.

Meanwhile, the DO prescribes that an independent director is ideally an individual not more than 80 years old, unless otherwise found fit to continue serving as such by SEC or IC. 

Ideally, s/he must also not be (or has been) a member of the executive committee of the board of directors, or an officer or employee, of the covered entity, its subsidiaries, affiliates or related companies during the three years immediately preceding the date of his election.

An independent director must not be a “substantial shareholder,” i.e., does not own/hold shares of stock sufficient to elect one seat in the board of directors of either the covered entity, its subsidiaries, affiliates or any related companies of its majority corporate shareholders.

The DO prescribes the ideal minimum number of independent directors as at least 20 percent but not less than two members of the board of directors. 

For publicly-listed corporations, the DO holds that the number of independent directors shall be proportionate to the percentage of shares held by the public.

Further, the DO describes an ideal tenure as five consecutive years, after which re-election is possible after a “cooling period” of two years.

source:  Malaya

GSIS Family Bank stake sale fails again

PENSION FUND Government Service Insurance System (GSIS) has once again failed to dispose its majority stake in GSIS Family Bank after interested buyers were unable to comply with the agency’s bid requirements.

GSIS’ Investment Bids and Awards Committee (IBAC) declared the failure of the new round of negotiated sale for its thrift banking arm in Advisory No. 03-2015 dated Oct. 12 posted on its Web site.

“The Committee declared the failure of negotiated sale of all GSIS shares in GSIS Family Bank since no party fully complied with the requirements, as published on September 11, 2015,” the statement signed by GSIS’ IBAC Chairperson Severina L. Resurrection said.

This is the third time this year that the GSIS put its 99.5% stake in its thrift banking arm for sale and failed to clinch a deal.

GSIS had set the deadline for the submission of documentary requirements and financial offers for the latest round of negotiated sale last Oct. 5.

In its invitation to interested parties last September, GSIS sought more detailed plans on bids for its banking unit.

Interested bidders were required to submit a “detailed action plan with timelines to rehabilitate the bank,” GSIS said.

They also had to hand over projected monthly financial statements for the first 12 months of operations, together with assumptions. 
The floor price for the stake on sale remained unchanged at P501 million.

The negotiated sale was also subject to the condition that the remaining 0.5% of GSIS Family Bank belonging to private stockholders, represented by the heirs of former Cavite Rep. Renato P. Dragon (2nd district), will also be sold to the same buyer through a separate transaction.

In July, after the first round of its negotiated sale for GSIS Family Bank failed and during the second bidding process, GSIS President and General Manager Robert G. Vergara said the agency may have to consult its advisers should the its new attempt fall through. Still, it again put up the thrift bank for sale last month after the second round of bidding failed as well.

In the first round declared a failure in June, private equity company Altus Capital Partners Inc. submitted a P501-million offer for the government’s majority shares in the bank. During the second sale round deemed a failure last month, GSIS accepted the P502-million offer of Phindep Development Corp., a real estate firm based in Kawit, Cavite, the lone offeror to secure the consent from the Dragon family.

GSIS Family Bank was put back on the auction block in April after the pension fund cleared a legal stumbling block from a Makati Regional Trial Court.

The Makati court placed a restraining order against the bank’s sale based on a complaint by Mr. Dragon who claimed GSIS failed to rehabilitate the thrift bank. 

Mr. Dragon has a stake in the bank through Royal Savings Bank which he had owned. GSIS Family Bank was the result of several mergers, including that of Royal Savings Bank and ComSavings Bank. -- Imee Charlee C. Delavin

source:  Businessworld

Berjaya eyes more investments in PHL

MALAYSIAN conglomerate Berjaya Corp. Berhad is keen on expanding its businesses in the Philippines, as it sees the economy enjoying robust growth on the back of strong consumer spending, its founder said on Tuesday.

In an interview, Berjaya Founder and Advisor Vincent Tan said the Philippines is a “great” country to invest in, particularly for its core businesses.

“You have a great population which is great in our consumer business.

We think that outside Malaysia, the Philippines is a great place to invest,” Mr. Tan said.

He said Berjaya is looking at developing a sanitary landfill in the country, but admits securing government support may be difficult. 

“We hope we are able to build one by next year. What you need is sanitary landfill. We’re still talking but getting support from the government is a big challenge,” Mr. Tan said.

“We are definitely keen to invest in sanitary landfills in the Philippines if we can get the support of the authorities.”

Also, Mr. Tan said he sees good opportunities in the hotel industry.

“I think there is a good opportunity in Philippines’ resorts. You have beautiful waters,” he said.

Berjaya Philippines, Inc.’s business include gaming, distribution of motor vehicles, hotels and restaurants. 

Perdana Hotel Philippines, Inc. currently manages a 4-star hotel in Makati City, while Philippine Gaming Management Corporation leases online lottery equipment to the Philippine Charity Sweepstakes Office. 

Berjaya Philippines also acquired United Kingdom-based luxury car dealer HR Owen in 2013.

Its associate companies include Berjaya Pizza Philippines, Inc., which holds the Papa John’s Pizza franchise in the Philippines, and Berjaya Auto Philippines, Inc., which distributes Mazda vehicles. 

In Malaysia, Berjaya’s interests are diversified into several core businesses: consumer marketing, direct selling and retail, financial services, hotels, resorts, investment and development, gaming and lottery management, environmental services and clean technology investment, motor trading and distribution, food and beverage, and investment holding, among others. -- M.F.E. Flores

source:  Businessworld

JICA, MILF identify economic and logistics corridors in Midanao

CONOMIC and logistics corridors in Mindanao have been identified by the development arm of the Moro Islamic Liberation Front (MILF) and the Japan International Cooperation Agency (JICA), highlighting the channels which can be industrialized further to bring development in the conflict-affected areas in the region.

In a statement released by JICA on Friday, the development agency, together with the Bangsamoro Development Authority (BDA), identified these channels as the: Northern corridor: Cotabato City-Marawi City-Iligan (Lanao del Norte); Central corridor: Cotabato City-Midsayap-Pikit-Digos (Davao del Sur); and Southern corridor: Cotabato City-Shariff Aguak-General Santos (South Cotabato).

The three channels which were identified are pegged for development by upgrading arterial roads and improving ports and airports as planned under the Bangsamoro Development Plan (BDP), the plans for which were presented to different stakeholders this week.

The BDP is a six-year development plan (2014 to 2019) which provides a blueprint for development in conflict areas in Mindanao as mandated by the peace agreement between the Philippine government and the MILF.

According to JICA, 24 key development projects have been identified under the BDP and are set to be implemented starting mid-2016 to 2022, out of 60 projects in 15 programs under the comprehensive plan.

Aside from the upgrading of road networks, airports and seaports, projects such as communal irrigation support, goat-based integrated farming, and mixed field crops farming are also part of the upcoming development measures.

Talks between the Philippine and the Japanese government in the past have touched on improving peace and development in Mindanao, a region which has the highest poverty incidence in the country at 56% of its populace.

Japan has been extending assistance to the Philippines to achieve inclusive development in Mindanao as early as 2006, at a time when it launched the Japan-Bangsamoro Initiatives for Reconstruction and Development program. Japan has also given the Philippines P7.55 billion in funding assistance for Mindanao development through its Official Development Assistance (ODA) fund. -- Alden M. Monzon

source:  Businessworld

Productive Time Lost to High Cost of Doing Business in Ph

The high cost of starting and maintaining a business in the Philippines has resulted to lost productive time, which translates to an annual opportunity cost of more than P100 billion in the form of foregone income, taxes, and spending, the World Bank said.

In a Special Focus section in the World Bank’s Philippine Economic Update, the multilateral bank agency said that business regulations have long been a cumbersome process in the Philippines, posing obstacles to the development of micro, small, and medium enterprises (MSMEs) and job creation.

The World Bank said that one particular concern is the high cost imposed on MSMEs in starting and maintaining a business.  

“They not only have to pay for legitimate fees equivalent to 17 to 36 percent of per capita income (P21,000 to P45,000), they also spend a considerable amount of time moving from one agency to another and waiting in line to process their documents, often resulting in significant loss of productive time and income,” the report said.

“In some instances, businesses report that they need to pay bribes or give gifts to obtain various permits and government services,” it added.

The agency said that aside from the more than P100 billion estimated total opportunity cost from productive days lost annually, opportunity cost  of around P40 billion can also arise from discouraged Filipinos who could have started a business if only the cost was reasonable.  

The World Bank said that this translates to foregone employment of 62,179, or about five percent of new labor force entrants annually.

The multilateral bank agency said that simplifying and streamlining the business registration process in the Philippines would not only support job generation, but also improve transparency and accountability in the government.  

source:  Malaya Insights

More incentives for stand-alone trust corporations

In an effort to encourage more banks to spin off their trust operations, thereby allowing Bangko Sentral ng Pilipinas (BSP) to better supervise the activities of trust entities, the Monetary Board issued BSP Circular No. 884 on July 22 concerning the guidelines on the establishment and operation of trust corporations. The new circular aims to increase the competition in the asset management business by introducing provisions authorizing foreign entities to purchase, own or acquire voting stocks of trust corporations.

Trust corporations essentially performs the same functions as the trust departments of banks by engaging in trust, other fiduciary business and investment management activities, as trustee. These are stock corporations authorized to administer any trust or hold property in trust or on deposit for the use and benefit of others, and/or act as a financial consultant, investment adviser or portfolio manager.

While as early as 2011, the BSP allowed the establishment of stand-alone trust corporations by banks and non-bank entities through BSP Circular No. 710, the July 22 BSP report on entities with trust authority shows that banks continue to manage trust operations through their trust departments. Based on the report, the BSP has granted authority to engage in trust business to 40 banks compared to just seven non-bank financial intermediaries.

The new circular does not prohibit banks to continue conducting its trust operations through its departments, but it provides incentives and relaxed some rules in a bid to address the reservations of banks and non-bank entities in establishing stand-alone trust corporations.

For instance, under the new circular, the Monetary Board may now authorize foreign banks and regulated non-bank foreign entities engaged in finance, asset management and other similar activities acceptable to the BSP to purchase, own or invest in up to 100% of the voting stock of stand-alone trust corporations. However, only qualified foreign banks and regulated non-bank entities may acquire more than 40% of the voting stock of trust corporations. Further, only widely-owned and publicly listed foreign banks and regulated non-bank foreign entities may acquire controlling interest in trust corporations.

Meanwhile, individuals and non-regulated corporations are allowed to invest in up to 40% of the voting stock of a trust corporation. But in case of foreign individuals and non-regulated foreign corporations, their investments are subject to an aggregate ceiling of 40% of the trust corporation’s total outstanding voting stock.

BSP Circular No. 884 likewise relaxed the rules on minimum capital requirements of trust corporations. They are now allowed to have an initial paid-in capital of only P100 million at the time of incorporation compared to the P300 million required capital under the old circular. They are given a five-year transition period to increase their capital to P300 million which is expected to give trust corporations enough time to expand its operations and afford the higher capital requirement.

Another incentive under the new circular is the reduction of the basic security deposit requirement to not less than P500,000 or 0.03% to 0.2% of the book value of the assets under management, whichever is higher, depending on the trust rating of the trust corporation. Prior to the issuance of this circular, trust corporations are required to deposit with the BSP eligible government securities for the faithful performance of its activities equivalent to the required capital of the trust corporation or at least P300 million, significantly reducing the resources it could use in the trust operations.

The BSP circular also introduced a new provision which permits trust corporations to establish branches and marketing offices upon prior approval of the Monetary Board. Although these entities are only allowed to carry out its trust and other fiduciary operations in its principal place of business as specified in its articles of incorporation, the branches and marketing offices may promote and present the trust corporation’s products to a wider customer base.

Based on the new guidelines, trust corporations would not be subject to reserve requirements and other credit-related prudential controls applicable to bank operations such as the single borrowers’ limit and limit on loan accommodations to directors, officers, stockholders and their related interests.

Based on the foregoing, the new rules and regulations provided significant incentives and benefits to existing and potential market players. The question is whether these would be enough for BSP to achieve its objectives of attracting more market players, increasing the competition in the trust business and inducing development of new trust products and services for the benefit of the investing public.

Shiree Amor P. Roma is an Associate of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW).

sproma@accralaw.com

source:  Businessworld