Presidential pork, election budget and Aquino cronies

Image from the DBM website

Image from the DBM website

Massive presidential lump sums and discretionary funds in the 2015 National Expenditure Program (NEP), along with a redefined savings, expose the proposed P2.6-trillion budget to abuse by the Aquino administration. It is vulnerable, in particular, to patronage and electioneering by the ruling Liberal Party (LP). The LP is desperate to bolster the low popularity of its president-on-leave and perceived 2016 presidential bet – Department of Interior and Local Government (DILG) Secretary Mar Roxas. Local government units (LGUs), including the barangays, play a key role in ensuring the electoral victory of a presidential candidate. With enormous pork barrel-like funds at Aquino’s disposal, the LP and Roxas have the resources to buy the political loyalty of governors, mayors and barangay captains for the 2016 presidential race. Vice President Jojo Binay may be the most popular choice right now as the next Chief Executive according to various polls, but Roxas boasts of a bottomless election war chest.

Thus, we see in the 2015 NEP mammoth increases in the administration’s planned spending for LGUs, many of which will be directly handled by Roxas as DILG head. A glaring example is the huge 80% increase in lump sum allocations for LGUs – from the current P17.3 billion to P31.1 billion next year. The amount includes P27.9 billion in LGUs’ Special Shares in Proceeds of National Taxes and P3 billion in Local Government Support Fund (LGSF), including P2.8 billion under the controversial Grassroots Participatory Budgeting (GPB) scheme and P200 million for “financial assistance to support various priority programs and projects”. The balance is comprised of a “death benefit fund” for barangay officials worth P50 million and shares in proceeds of fire code fees pegged at P200 million. The P31.1-billion LGU allocation is part of the P48.1 billion that Department of Budget and Management (DBM) Sec. Butch Abad has admitted as lump sum in the 2015 NEP. The remaining P17 billion is composed of P14 billion in disaster fund, P1 billion in rehabilitation fund, and P2 billion as presidential “contingent” fund. These amounts pertain to DBM-admitted lump sums; to be sure, much larger discretionary lump sums are tucked in various items of the NEP.

But another feature of the NEP seldom discussed is how the proposed spending plan, including presidential lump sums, will be used to support rich families and business groups with close ties to the Aquino administration. Through budgetary support for the Public-Private Partnership (PPP) program, these elite families and groups, and their foreign partners and patrons, will continue to receive presidential favors under the pretext of infrastructure development. Indeed, the proposed 2015 budget will be used not only to promote the political interests of LP’s presidential wannabe; it will also be used to promote the economic interests of presidential cronies.

Some P57.2 billion in public funds have been allocated in the 2015 NEP to guarantee the profits of investors participating in Aquino’s PPP program, pay for an onerous PPP contract, and facilitate the implementation of more PPP projects. The amount includes: (a) P30 billion for the Risk Management Program (RMP); (b) P10.9 billion for the Department of Public Works and Highways’ (DPWH) PPP for Infrastructure Projects; (c) P7.4 billion to support the LRT 1 and LRT 2 extension projects of the Light Rail Transit Authority (LRTA); (d) P4.7 billion to pay for government obligations under its Build-Lease-Transfer (BLT) deal with the Metro Rail Transit Corp. (MRTC); (e) P2.7 billion for the Department of Transportation and Communications’ (DOTC) PPP for Transport Projects; and (f) P1.6 billion for the Department of Education’s (DepEd) PPP for School Building Projects.

The P30-billion RMP, according to the NEP, is meant to “manage the National Government’s fiscal risks and enhance the country’s credibility among potential PPP proponents”. Executive agencies and departments as well as government-owned and -controlled corporations (GOCCs) can avail of the RMP fund to “cover commitments made by, and obligations of, the National Government, in the concession agreements relative to PPP projects”. The amount shall also be tapped to pay for all the obligations of a GOCC in concession agreement covered by a performance undertaking or any similar instrument issued by the National Government. A performance undertaking usually involves government assuming debt or other financial obligations related to a PPP project. One of the projects covered by the Aquino administration’s performance undertaking is the P62.7-billion MRT 7 of presidential uncle Danding Cojuangco and his right hand man Ramon S. Ang.

Aside from performance undertaking, RMP will also cover “contingent liabilities arising from regulatory risks assumed by the National Government”. One project that enjoys Aquino’s regulatory risk guarantee is the P64.9-billion LRT 1 extension and privatization of the Ayala family, a longtime ally of the Aquinos, and the group of presidential supporter Manny V. Pangilinan (MVP) and his Indonesian patron, the Salim family. Under the concession agreement that will be signed with the Ayala-MVP group, if the notional LRT 1 fares stipulated in the contract are lower than actual or approved fares, government will pay the difference through a so-called Deficit Payment Scheme. Notional fares refer to the adjusted fares as scheduled in the concession agreement. Such situation may arise, when, for example, a regulatory body or local court intervened and prevented the collection of the notional fare. To fulfill its deficit payment obligation with the Ayala-MVP group, which is essentially a profit guarantee, government will disburse from the RMP fund paid for by the people’s taxes. The RMP is actually just one of the many favors that Aquino is giving the Ayala-MVP group in relation to the LRT 1 project. As part of the contract, the common station that will link the LRT 1, MRT 3 and the soon-to-be-built MRT 7 was taken away from Henry Sy’s SM North and moved to the Ayala’s Trinoma Mall. (The SM group questioned this before the Supreme Court and got a temporary restraining order or TRO. In response, the DOTC said they might just build two common stations to accommodate Henry Sy and the Ayalas.) The Ayala-MVP group is also exempted from paying real property taxes, which government agreed to shoulder and could reach P64 billion throughout the 32-year concession agreement. These are on top of the P5-billion startup subsidy and P34.9 billion in loans that government will borrow for the project.

Meanwhile, the P10.9 billion allocated for DPWH’s PPP for Infrastructure Projects will be used to cover the costs of right of way (ROW) acquisition and relocation of affected communities. The projects identified in the NEP where this fund will be used include those controlled by the same groups with close presidential ties such as San Miguel’s P15.52-billion NAIA Expressway Project and P18.1-billion Tarlac-Pangasinan-La Union Toll Expressway Project, and the Ayalas’ P2.01-billion Daang Hari SLEX Link Road Project. Similarly, the DOTC’s P2.7-billion PPP Transportation Infrastructure Project fund will be used for ROW costs particularly for the P2.5-billion Integrated Transport System, which San Miguel, Ayala, MVP and Henry Sy, among others, are also eyeing. Meanwhile, DepEd’s P1.6-billion PPP for School Building Projects 2015 fund will be used for the amortization or lease payment of the total project costs of school buildings constructed by Henry Sy-affiliated Megawide Corp. and other firms.

P4.7 billion under the proposed 2015 PPP budget will go to the servicing of onerous contractual obligations with the MRTC, which is 48% controlled by the MVP group. The BLT contract, a PPP deal signed during the Ramos administration, tied the national government to paying Equity Rental Payments (ERP) to MRTC for its guaranteed 15% return on investment (ROI). Instead of rescinding, or at least renegotiating, the patently unfavorable contract with MRTC to build and operate the MRT 3, the Aquino administration continued to honor it because doing otherwise would undermine its PPP program. To supposedly correct the situation, Aquino has set aside P53.9 billion in the 2015 NEP’s unprogrammed appropriations to buy out the MRTC and scrap the BLT. But this approach means government will shell out more people’s money while legitimizing the illegitimate financial obligations with the MVP group.

Lastly, the P7.4 billion allocated for LRT 1 and LRT 2 extension projects will be used to support the privatization of both lines. The Ayala-MVP group will take over LRT 1, as already mentioned, soon. On the other hand, the LRT 2 operation and maintenance project, estimated to cost P14.3 billion, is scheduled for bidding within the year or in early 2015.

These planned expenditures show how public funds, raised mainly through taxes of ordinary wage earners and consumers, are being wasted and drained not only through corruption and political patronage but also through questionable economic policies that only benefit a favored few such as big business groups involved in PPP projects.

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