Businessman Enrique Razon, widely perceived as among the richest and most influential cronies of Mrs. Gloria Arroyo, is again in the news after his company – Monte Oro Resources and Energy Inc. – reportedly clinched a huge P6.2-billion contract to mine coal in 7,000 hectares of land in Catanduanes. It is bad enough that the coal project itself will have serious, irreversible damage to the environment and cause the physical and economic displacements of Catandunganons. It is worse that that the project smacks of patronage politics and cronyism.

This is not the first time that Razon figured in a controversial business deal that has been sealed because of his ties with Arroyo. Below is an article I wrote in December 2007 about Razon and his business empire that has expanded rapidly since Arroyo became president in 2001.

CRONYISM UNDER THE ARROYO REGIME

(Two-Part Series)

From human rights abuses and authoritarianism to corruption and cronyism, the uncanny similarity of Arroyo’s brand of political rule to that of the late strongman Ferdinand Marcos keeps growing by the day. Independent human rights groups have already declared Arroyo’s human rights record as worse than Marcos’s while a recent Pulse Asia survey found out that Filipinos believe that Arroyo is more corrupt than Marcos.

Now, Arroyo seems vying to outdo Marcos’s cronyism, with certain tycoons rapidly accumulating wealth under the current regime and cornering anomalous mega-million dollar contracts from the government.

Part 1 of this series details how Arroyo’s cronies have been using the Electric Power Industry Reform Act (Epira) of 2001 to expand their business empire. Part 2 deals with Enrique K. Razon, who is widely acknowledged as the closest crony to Malacañang.

POWER BROKERS IN POWER SECTOR REFORM

(Part 1 of a Two-Part Series)

The Electric Power Industry Reform Act (Epira) has been peddled by the Arroyo regime as the program to bring down the cost of electricity in the country, with the ordinary consumers reaping the benefits of cheaper electricity bills. But Epira, which has been beleaguered by graft and corruption issues in the past, suffered another setback with the controversy spawned by the recent $3.95-billion sale of the National Transmission Corp. (TransCo).

At the center of the latest Epira debacle is Enrique K. Razon, a known crony of President Gloria Macapagal-Arroyo, and who has also figured in the anomalous National Broadband Network (NBN) project. A deeper probe of the issue shows that a Transco franchise would only consolidate the control that Razon and his close business colleagues have already established in the Arroyo regime’s power sector reform.

Tip of the Iceberg

That Razon is one of the seven directors of the winning TransCo bidder, Monte Oro, is just the tip of the iceberg. It appears that a certain group of businessmen – which has bankrolled the administration’s previous electoral bids marred by allegations of massive cheating – have been cashing in on the Epira, with great help from their patron, Arroyo.

The appointment by Arroyo of Jose C. Ibazeta last February 21, 2007 as president of the Power Sector Assets and Liabilities Management Corp. (PSALM), the body created under Epira to handle the privatization of the National Power Corporation’s (Napocor) assets, is most illustrative. PSALM needs a “business-minded” president, Arroyo declared, and Ibazeta perfectly fits the position. Ibazeta is a member of the Board of Directors of the International Container Terminal Services Inc. (ICTSI), where Razon is Chairman and President.

Like Razon, Ibazeta is also a Director in several companies of the Soriano family, among them the Phelps Dodge Philippine Energy Products Corp. (PDE). Phelps Dodge Philippines (PDP) was formed by Andres Soriano, father of Andres Soriano III, also a Director of ICTSI and other Razon firms, in 1955 through a merger with Phelps Dodge International Corporation (PDIC), a US-based company and the world’s second largest copper mining company and the world’s biggest producer of continuous cast copper rods. In 1997, PDP established the PDE to consolidate all the manufacturing operations of various entities under the PDP.

PDE supplies aluminum wires and cables to the Napocor and independent power producers (IPPs) for their transmission lines and the National Electrification Administration (NEA) and electric cooperatives for their rural electrification program. PDE also manufactures high voltage power cables up to 35 KV, which are used extensively by the Manila Electric Co. (Meralco) and the NAPOCOR to deliver electric power to residential and commercial areas throughout the country.

The Epira created the Joint Congressional Power Commission (JCPC) to oversee Epira’s implementation. Among its tasks is to “ensure transparency, require the submission of reports from government agencies on the conduct of public bidding procedures regarding (the) privatization of Napocor’s generation and transmission assets”. The JCPC is currently co-chaired by Senator Miriam Defensor-Santiago, a fierce Arroyo ally, and presidential son Rep. Juan Miguel “Mikey” Macapagal-Arroyo (Pampanga, 2^nd district).

When Mikey, with the help of Malacañang-backed majority coalition in the House of Representatives, took the post as House energy committee chair last July 2007, many questioned his expertise on energy reforms. Now their questions have been answered. Santiago and Mikey have acquitted Ibazeta on charges of “conflict of interest” in the TransCo sale because “there is no conflict between terminal services and power sector”, ignoring Ibazeta’s deep interests in the power business that make his position as PSALM chief highly dubious.

Monopoly Control

Meanwhile, Razon’s connection to the energy business is not limited to his “less than 2 percent share” in Monte Oro as well as his business association with Ibazeta. According to Senator Maria Ana Consuelo “Jamby” Madrigal, Razon also has close relations with the Aboitiz Group, which has been aggressively expanding its energy empire under the Epira. Razon is a brother-in-law of Stephen Aboitiz Paradis. Paradis serves as the senior vice president, chief financial officer, and corporate information officer of the Aboitiz Equity Ventures (AEV) and senior vice president for finance of Aboitiz & Co., Inc. He also sits on the board of ICTSI.

The Aboitiz Group controls power distributors Davao Light and Power Company, Inc., the third largest power distribution utility in the Philippines; Cotabato Light and Power Co., Inc.; Visayan Electric Company, the second largest power distribution utility in the country; San Fernando Electric Light and Power Company; and the Subic Enerzone Corporation. In addition, the Aboitiz has also been on a buying spree of Napocor generation assets such as the Philippine Hydropower Corp., Hedcor Inc., Luzon Hydro Corporation, Southern Philippine Power Corporation, and the Western Mindanao Power Corporation. The Philippine Hydropower Corporation is the holding company of the Aboitiz Group for its various hydroelectric power investments such as the Hydroelectric Development Corporation, Benguet Hydropower Corporation, Luzon Hydro Corporation, Northern Mini Hydro Corporation, and Bukidnon Hydro Corporation.

A TransCo franchise completes the Aboitiz Group’s stranglehold of the national power industry – from generation to transmission and to distribution.

Furthermore, Razon is also a Director of the CLSA Exchange Capital, which serves as the financial advisor, underwriter, and global coordinator of the Philippine National Oil Company (PNOC) – Energy Development Corp. (EDC) and the PNOC – Exploration Corp. (EC). PNOC-EDC was recently privatized for P58.5 billion and sold to Red Vulcan. Incidentally, CLSA Exchange Capital is also the financial advisor in the privatization of television networks RPN 9 and IBC 13.

A CRONY’S PROFILE

(Part Two of a Two-Part Series)

Establishing a foothold in the country’s power industry is just part of the aggressive expansion in Razon’s business empire, which has been growing dramatically under the term of Arroyo. Razon, who served as treasurer and major financier of Arroyo’s Team Unity ticket in the 2007 senatorial elections, is the eight richest Filipino with a net worth of around $820 million as of 2007, according to the Forbes.com. His net worth has increased by at least $100 million from 2006, highlighting his rapid accumulation of wealth in recent years.

Dramatic Expansion

Two of his companies are among the top 500 corporations in the Philippines in 2006. ICTSI ranked 129^th in terms of profits with P955 million and 157^th in gross revenues with P6.72 billion. On the other hand, ICTSI Warehousing, Inc. ranked 181^st in terms of profits and 424^th in gross revenues with P2.44 billion. ICTSI Warehousing, Inc., in fact, posted remarkable increases in gross revenues (3,411 percent) and profits (796 percent) between 2005 and 2006.

ICTSI is the crown jewel of Razon’s business empire. Established in December 1987, it holds a virtual monopoly control of the country’s ports. It has 25 subsidiaries (11 port management companies; eight holding companies; three software developers; one company each involved in warehousing, manpower recruitment, and port equipment rental) in the Philippines, Cayman Islands, Bermuda, Brazil, Poland, Madagascar, Japan, Indonesia, China, the Netherlands, British Virgin Islands, Australia, and Singapore. In the Philippines, ICTSI controls some of the biggest and most important ports such as those in Manila, Batangas, Subic, Davao, and Cebu.

Interestingly, 12 of ICTSI’s 25 subsidiaries were either acquired or established only between 2005 and 2007. The Naha International Container Inc., a port management firm in Japan, was acquired only in January 2005; the Madagascar International Container Terminal Services, Ltd., a port management firm in Madagascar, was established only in June 2005; the Australian International Container Terminal Limited, a port management firm in Australia, was established only in September 2005; the ICTSI Far East Pte. Ltd., a holding company in Singapore, was established only in March 2006; the PT Makassar Terminal Services, Inc., a port management firm in Indonesia, was acquired only in May 2006; the ICTSI Capital BV, a holding company in the Netherlands, was established only in August 2006; the Pentland International Holdings, Ltd., a holding company in the British Virgin Island, and the Abbotsford Holdings, Ltd., a Philippine-based holding company, were both established only in December 2006; the Davao Integrated Port and Stevedoring Services Corp., a port management firm, was acquired only in December 2006; the Yantai Rising Dragon International Container Terminals, a port management firm in China, was clinched in January 2007; while the Cebu International Container Terminal Inc., a port management firm, and the Prime Staffing and Selection Bureau, Inc., a manpower recruitment firm in the Philippines, have both not yet started commercial operations. In March 2007, ICTSI announced that it bagged another contract on port management in Ecuador.

Special Place

Is it merely a coincidence that such rapid expansion in Razon’s business empire is happening under the Arroyo regime? It does not seem so. Apparently, Razon enjoys a special place in Arroyo’s scheme of things. In fact, it is widely believed that Razon was behind the sudden transfer of Romulo Neri from the National Economic and Development Authority (NEDA) to the Commission on Higher Education (CHED) last July 2007 after Neri earned “Razon’s ire” over the issue of ports liberalization that threatens ICTSI’s monopoly.

Razon’s name was also mentioned by businessman Joey de Venecia in one of his testimonies in the Senate’s inquiry on the NBN. According to de Venecia, Razon, along with Soriano and Ibazeta, bought his shares at Multimedia Telephony in 2003, the company which subsequently signed a vendor and financing deal with Chinese firm ZTE Corp. Razon, according to de Venecia, filled in the shoes of First Gentleman Mike Arroyo, who got sick early this year, in brokering the NBN deal and ensuring that ZTE seal the contract with the Department of Transportation and Communication (DOTC).

In 2003, Razon was one of the only four private sector representatives appointed by Arroyo in the Public-Private Sector Task Force to coordinate Philippine Participation in the post-war reconstruction and development of Iraq.

Membership in this task force meant huge business opportunities. As stated in Arroyo’s Executive Order (EO) No. 194 issued in April 14, 2003, the task force was in charge of, among others, “assisting the participation of Philippine companies in the rehabilitation and development of the Iraqi infrastructure – public works, highways, transportation, information and communications, energy, agriculture – and public services such as education, sanitation, civil administration and other service industries; developing procedures to expedite deployment of Philippine manpower and other services in the fulfillment of contracts; and such other actions relevant to Philippine private sector participation in the reconstruction and development of Iraq”.

Razon also enjoys advantage over his competitors as he has “easy” access to infrastructure projects funded by Arroyo’s foreign loans. A case in point is the $215-million Subic Port Modernization Project, which is being bankrolled by the Japan Bank for International Cooperation (JBIC) and a flagship infrastructure project of the national government. The Subic Bay International Terminal Corp., an ICTSI subsidiary, was chosen by the Subic Bay Metropolitan Authority (SBMA) Board of Directors to operate the modernization project’s New Container Terminal 1, which was completed in July 2007.

Undermining Development and Democracy

Cronyism, or the act of giving concessions to favored businessmen, friends, relatives, and allies by political leaders, is inherent in any government that governs over a society divided between those who have money and power, and those who have not. In this kind of society, government is just an extension of those who have money and power and they use the control of government to further advance certain economic interests. Thus, cronyism undermines development because its definition is further narrowed to mean development only for a favored few. The Epira, for instance, is already a bad program for the poor but it is even worse that Razon, Aboitiz, and company are cashing in on the program to enrich themselves at the poor’s expense.

Cronyism undermines democratic governance as well because it further stunts the country’s political maturity and reinforces patronage politics. It robs the people the sovereign will to determine government policies and ensure that these policies truly benefit the general public and not only several cronies. For the Arroyo regime, its cronyism only further exposed its lack of accountability to the people and that it owes its survival and legitimacy not to the public but to a handful of rich and powerful.