Cronyism & patronage

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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SONA 2014

Deceptive PPP claims in SONA

Contrary to President Aquino's SONA claims, government continues to provide incentives for investors to build our infrastructure needs. (Photo from here)

Contrary to President Aquino’s SONA claims, government continues to provide incentives for investors to build our infrastructure needs. (Photo from here)

Infrastructure development through public-private partnership (PPP) was among the highlights of President Aquino’s fifth State of the Nation Address (SONA). Thanks to good governance, we no longer need to offer perks for investors to build our infrastructure needs, said the President. Thanks to good governance, the days of state-guaranteed private profits to entice PPP bidders are gone.

If the private sector wants to build our airport or highways, they must be willing to pay a premium, Aquino pointed out. The winning bidder in the Mactan-Cebu International Airport Passenger Terminal Building paid government P14 billion. The private contractor in the NAIA Expressway Project Phase 2 shelled out P11 billion.

But contrary to the SONA claims of Aquino, government continues to provide incentives to PPP investors. Some of these perks are even more generous than those offered by previous administrations. In addition, Aquino’s supposed “good governance” has nothing to do with investors paying a premium to bag PPP contracts. Their bidding decisions are always determined by how profitable or strategic the projects are.

Let us take a look again, for instance, at the P64.9-billion LRT Line 1 Extension and Operation and Maintenance project. This PPP contract will be awarded soon to Metro Pacific Investments Corp. (MPIC) and Ayala Corp. It is a sweetheart deal. Aquino would not just guarantee the debts of MPIC-Ayala; government is directly borrowing P34.9 billion or 54% of the project cost for right of way acquisition, additional coaches, etc. Government also agreed to shoulder the payment of real property taxes estimated at P64 billion throughout the life of the contract. These are on top of the P5-billion startup subsidy that government will provide. All in all, the direct cost to the government is almost P104 billion and just P30 billion to MPIC-Ayala. It becomes even more outrageous when you factor in the guaranteed profits that MPIC and Ayala will reap through automatic and periodic fare increases throughout the 32-year contract (which can be extended to up to 50 years). When MPIC-Ayala could not collect the agreed fares, government will again shell out public funds to cover the difference. Aquino called this regulatory risk guarantee, a government guarantee never before seen in the more than three-decade history of PPP and privatization in the Philippines. All these make the P9.5-billion premium that MPIC-Ayala promised to pay to clinch the concession meaningless.

Similarly, the Henry Sy-affiliated Megawide and its Indian partner GMR are building and operating the P17.52-billion Mactan-Cebu airport expansion because of its huge profit potential. The P14 billion that the consortium paid is peanuts compared to the windfall that the airport would make, which the Aquino administration guaranteed. Among the sweeteners of this PPP project is a 25-year government ban on the construction of other airports and related businesses in the Mactan and Cebu islands. There will also be a 25-year moratorium on the construction of any competing car park facility or any competing hotel facilities within the project’s 500-meter radius. Megawide-GMR will operate the country’s second busiest airport for 25 years, enjoying absolute monopoly over air passenger terminal and related services guaranteed throughout the concession agreement.

Meanwhile, in the case of the P15.52-billion NAIA expressway project, San Miguel Corp. (SMC) is charging P35-45 in toll rates. With traffic expected at 150,000 to 160,000 cars a day, that’s P1.92 to 2.63 billion in annual revenues. Its concession agreement with government is 30 years. This means that SMC is guaranteed to recover the project cost and premium in as short as 10 years, and then enjoy 20 years of raking profits. The recovery period could even be shortened by toll hikes and increased traffic volume. Note also that for SMC, the NAIA expressway has a more strategic value. The project will provide access to the NAIA terminals, which will benefit SMC’s air transport interests. The giant conglomerate of presidential uncle Danding Cojuangco controls 49% of the Philippine Airlines (PAL). It will also build a seamless link between SLEX/Skyway and the Manila-Cavite Toll Expressway. SMC, with Indonesian partner Citra, already controls SLEX/Skyway and the NAIA project will further consolidate its position in road transport in the area.

Local oligarchs and representatives of foreign interests in the country like the Ayala family, Henry Sy, Danding Cojuangco and his right-hand man Ramon Ang, or Manny V. Pangilinan (MVP) of MPIC participate in PPP not merely because they want to solve our infrastructure needs. As Jaime Augusto Zobel de Ayala put it: finding a private sector solution to the social problems of the country… must be oriented around a profit-centered solution. He was talking about private sector participation in mass housing for informal settlers. So, you see, there is a reason why these people are among the wealthiest in the world. In the 2014 Forbes’ list of richest Filipinos, Henry Sy and family recorded a net worth of $12 billion while Jaime Zobel de Ayala and family posted $3.1 billion; Danding, $825 million; Ramon Ang, $260 million; and MVP, $105 million.

PPP will continue to be the centerpiece program of Aquino in the remaining two years of his term. In his penultimate SONA, Aquino enumerated the top infrastructure priorities of his administration, most of which are controversial because of their social costs and impact. The P150-billion Laguna Lakeshore Expressway Dike, the P18.72-billion Kaliwa Dam, and Clark Green City, for example, are all feared to cause the massive displacement of local communities and the destruction of environment.

The same elite families and groups that have been bagging Aquino’s PPP contracts are positioning themselves to corner these deals. Despite public opposition, Aquino is determined to implement them, which could only further aggravate social tension and delegitimize his presidency even more.

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SONA 2014

Sona 2014: A shaken regime

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All the previous issues that faced the Aquino presidency are like relentless jabs pounding its body, and the pork barrel and DAP are like powerful blows straight to the head of the regime. (Photo from here)

Since his first State of the Nation Address (Sona) in 2010, President Aquino has seen the steady erosion of his legitimacy as the empty presidential slogans of “daang matuwid” and “kung walang corrupt, walang mahirap” fall apart. Today, in his fifth Sona, Aquino is facing the worst political crisis of his regime amid the raging pork barrel and Disbursement Acceleration Program (DAP) controversies.

From the onset, Aquino’s presidency has been questioned for the powerful interests it represents as symbolized by Hacienda Luisita. His trumpeting of public-private partnership (PPP) in his first Sona signaled the perpetuation of pro-business and long discredited neoliberal economic polices. Barely two months in office, his leadership, or lack of it, was widely criticized with the Luneta Hostage crisis. When prices spiraled, “Noynoying” captured the indifference of the regime to the plight of ordinary people. The rapid growth in gross domestic product (GDP) and massively increased cash transfers could not camouflage the deteriorating poverty and job scarcity, made even more pronounced by the scandalous rise in wealth of the oligarchs. (Read: Prices, profits and poverty; Poverty trends) His criminal neglect of Pablo and Yolanda victims brought extra momentum to the public discontent that has been gathering force.

Then, the pork barrel and DAP scam exploded, shaking the Aquino administration in a way it has never felt before. If this were boxing, all the previous issues that faced the Aquino presidency are like relentless jabs pounding its body; and the pork barrel and DAP are like powerful blows straight to the head of the regime. It is obviously shaken. Aquino’s appeal to “tie a yellow ribbon” to show support to his administration illustrates how insecure and uncertain the administration has become. If this appeal were Aquino’s “counterpunch”, it merely exposed him to more blows as the Palace was forced to downplay the yellow ribbon call after an overwhelming public rejection.

Aquino and his Liberal Party (LP) hoped that the pork barrel scam would weaken the opposition for 2016. But the controversy quickly developed in a manner that Malacañang’s political operators did not foresee. It is no longer just about Senators Juan Ponce Enrile, Jinggoy Estrada and Bong Revilla, and Janet Lim Napoles and her bogus non-government organizations (NGOs). It has become more about the rotten system of patronage politics and bureaucrat capitalism with Aquino and his clique currently at the helm. Palace’s efforts to cover up the accountability of the President, his Budget Secretary Butch Abad, and other LP stalwarts and their allies are generating public anger as intense as the indignation against Enrile and company. In the eyes of the public, they are all the same trapos (traditional politicians) who abused the powers entrusted to them for selfish and narrow private gains. They must be all held to account, the President included.

The satisfaction and approval ratings of the Aquino presidency are dipping to their all-time lows and there are no signs of recovery. In the coming months, the neoliberal offensive against the people is sure to intensify with ever-rising costs of basic goods and services and economic displacement. After the Sona, for instance, we are anticipating a huge increase in LRT 1 fares related to its impending takeover by the Manny V. Pangilinan (MVP)-Ayala group (Read: How MVP-Ayala will squeeze LRT 1 consumers dry) followed by a massive retrenchment of Light Rail Transit Authority (LRTA) employees. (Read: How Aquino betrayed public interest in LRT 1 privatization) The long-delayed upward adjustment in LRT 2 and MRT 3 fares may also be implemented along with the LRT 1 fare increase, if not in the weeks or months after. Also after Sona, the results of the ongoing arbitration between the Metropolitan Waterworks and Sewerage System (MWSS) and its private concessionaires Maynilad and Manila Water are expected to come out, with a big-time hike in water rates a possibility. (Read: Water arbitration: Issues and implications) Then there’s the threat of El Niño, which experts say would be felt starting in the second half of the year with devastating impacts on the agricultural sector (and consequently, further increases in food prices) and on the livelihood of millions of farmers in the countryside. (Read: Bracing for El Niño) All these would aggravate the precarious state of the regime.

Meanwhile, on top of these brewing economic issues, Aquino himself is creating favorable conditions for persistent, growing and broadening protests against his regime and the rotten system of governance in the country. His display of excessive self-confidence and arrogance in successive speeches to defend DAP against the Supreme Court decision and pervasive anti-DAP public sentiment has further fuelled the likelihood in the coming months of mass mobilizations similar, if not bigger than, last year’s Million People March.

As the primary contradiction between the Aquino regime and the people further sharpens, so is the contradiction among the various cliques of the political elite for control of state power and resources. The filing of cases in relation to the pork barrel scam against LP’s perceived strong rivals in 2016 is just the start of electoral bickering among the trapos.

Already, the LP has initiated efforts to remove Vice President Jejomar Binay from the Aquino Cabinet, hoping to weaken his public profile as well as access to state resources that can be used to support his expected presidential bid. Plunder cases have been recently filed at the Ombudsman against the Vice President and his son Makati Mayor Junjun Binay, while daughter Makati Rep. Nancy Binay is facing allegations of anomalous pork barrel transactions involving an NGO founded by the Vice President.

The bickering among the trapos will surely intensify and escalate into full-blown maneuverings as 2016 draws near, and even earlier especially now that the impeachment against Aquino has already been endorsed in the House of Representatives. Palace propaganda operators, for instance, are trying to discredit the impeachment by charging it as a pro-Binay campaign, simply because of presidential succession. However, the blatant and arrogant way that Aquino has been covering up his and his clique’s accountability in the pork barrel and DAP scam is too glaring for people to doubt the intentions of the impeachment.

Another political flashpoint is the dynamics between Malacañang and the Supreme Court, which could develop into a full-scale confrontation between supposedly co-equal branches of government. Aquino’s veiled threat of impeaching the Justices would put the raging controversy into a higher level of contradiction between and within government’s institutions. Already, LP leaders at the House led by its Speaker Sonny Belmonte and its justice committee chair Niel Tupaz Jr. have called for a probe on the alleged SC’s own pork barrel – the Judiciary Development Fund (JDF).

Furthermore, the handling by LP and its allies of the impeachment process in Congress against the President will determine how fast and how intense the political crisis will escalate. The Aquino administration firmly controls the lower house and, like the Arroyo regime, will surely use all its influence and resources – including massive presidential discretionary funds – to dictate the outcome of the impeachment. Aquino apologists in Congress like Rep. Walden Bello of Akbayan, one of the biggest beneficiaries of presidential patronage and largesse, are already dismissing the grounds for the presidential impeachment as “flimsy” even before the process of determining its substance could begin. But for the people, all these only highlight how rotten the prevailing political system is and how hopeless reforms are within a decaying system dominated by narrow and self-serving interests.

We must emphasize that the Supreme Court decided against the pork barrel and DAP not because they are made up of upright Justices who are willing to challenge the country’s most powerful man (the decision, in fact, gives Malacañang wiggle room to evade criminal liability), but because amid the snowballing public condemnation against the corrupt and capricious use of state resources, upholding the patently unconstitutional and illegal DAP would only further fuel social unrest. Thus, while LP and its allies may blatantly derail Aquino’s impeachment, they will do so at the risk of triggering more public outrage and aggravating political instability.

The regime is shaken. The situation may or may not eventually lead to a dramatic outcome like Aquino’s ouster or resignation but the way people are rising up, challenging the status quo and asserting their democratic rights certainly gives us optimism that ultimately, the people will triumph.

It is not only about the pork barrel and DAP. Look, for instance, at how Yolanda and Pablo victims are gradually recovering through community actions and initiatives to ensure their livelihood and social services that government could not provide; or how the farmers and farmworkers have persistently pushed for, and in some areas even actually implemented, genuine land reform despite landlord repression and state terrorism; or how many Filipinos continue to join or support the 45-year old civil war in the countryside in the belief that it is the only way to end oppression.

Indeed, there is hope as long as the people are ready to struggle for what is truly democratic and just. ###

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Privatization, SONA 2014

How Aquino betrayed public interest in LRT 1 privatization

Photo from Bulatlat.com

Photo from Bulatlat.com

Read the first part – How MVP-Ayala will squeeze LRT 1 commuters dry

In forging the Concession Agreement with the MVP-Ayala group, President Aquino has betrayed the public interest and welfare and has put government in a patently disadvantageous position.

While DOTC officials claim that the MVP-Ayala group submitted a negative bid of P9.5 billion – meaning they will pay government such amount to do the project – it is the commuters who will ultimately bear the burden as the concessionaire will recover the money from the riding public through higher fares as I explained in the previous post.

Furthermore, the P9.5 billion will also be offset by the numerous perks that the MVP-Ayala group will enjoy under the Concession Agreement such as the P5-billion government subsidy as project startup and government assumption of payment of real property taxes (estimated at P64 billion!)

Why is the Concession Agreement designed so favorably for the MVP-Ayala group? The idea behind PPP/privatization is to create the most conducive environment for private business. And to ensure that, the private investors will utilise all their connections and resources. The Ayala family, of course, has long been a political ally and crony of the Aquino family while there are claims that DOTC Undersecretary Rene Limcaoco, who was among those who pushed for LRT 1 privatization, is related to top Ayala executive Jose Teodoro Limcaoco.

Anyway, with its permission, I am posting in full the position paper prepared by the Alliance against LRT Privatization which discussed the different issues related to the takeover by the MVP-Ayala group, including the onerous terms of the Concession Agreement and the displacement of hundreds of LRT 1 employees.

Position Paper on the Privatization of the LRT1 Operations and Maintenance and the Implementation of the LRT Line 1 Extension PPP project

The Alliance Against LRT Privatization (AALP) opposes the privatization of the LRT1 Operations and Maintenance and the Public Private Partnership program for the construction the LRT1 Cavite Extension. The project is grossly disadvantageous to the riding public, the government and the employees of LRTA.

Why PPP?

The government’s privatization program dubbed Public Private Partnership has been touted as the solution to the lack of services and infrastructure plaguing the government. Under this scheme, private investors will supposedly bring in investments that will benefit the people, thus easing the financial burden on government.

As stated in its PPP brochure, “the PPP seeks to encourage greater participation of the private sector in the provision of basic public infrastructure through investments, construction, and operation and management programs. The program intends to provide the public with adequate, safe, efficient, reliable, and reasonably-priced infrastructure and development facilities while affording the private sector a level playing field, reasonable returns and appropriate sharing of risks. Government sees this as a reliable and solid strategy to efficiently deliver its services, create more job opportunities through a dynamic and solid infrastructure program.”

But beyond the rhetoric is the grim reality that the government, in adopting the PPP scheme, is essentially abandoning its role in the development of the country, leaving it instead to the hands of private investors. Government refuses to learn from the bitter lessons of earlier privatization schemes that have raised the fees for services, increased government debt and resulted in mass retrenchment of state workers

Attracting investors via “sweeteners”

In the early phase of the PPP Program, the Aquino government has vowed not to employ “sweeteners,” purportedly to avoid pitfalls besieging PPP predecessors such as, among others, the Build-Operate-Transfer (BOT) Scheme employed in the privatization of the National Power Corporation (NPC), and the Build-Lease-Transfer (BLT) Scheme of the MRT3, that consequently increased government’s debt burden due to sovereign guarantees given to entice private sector participation (PSP).

However, the privatization of the Operations and Maintenance of the entire LRT1 has served as a sweetener to the LRT1 Cavite Extension Project. While the winning bidder is in the process of constructing the extension from Baclaran Station to Niyog, Bacoor, Cavite, the national government has offered the private concessionaire the operations and maintenance of the entire LRT1 system, from Roosevelt Station to the Baclaran Station.

Currently, the profitability of the entire LRT1 system has been maintained after the national government took over the operation and maintenance of the entire system from the private sector, specifically, Metro, Inc. a subsidiary of the Meralco Corp. in 1999.

Based on its 2013 financial statements, the LRTA has earned a gross revenue of PhP 2.5 Billion from its LRT1 operations. Prudent spending and high public patronage has enabled the LRTA to achieve a 1.26 farebox ratio, one of the highest in the international rail community. Farebox ratio is the fraction of operational expenses, which are met by the fare paid by the passengers. It is computed by dividing the gross revenue by the total operating expenses.  LRT1’s high farebox ratio signifies that rail revenues generated, excluding non-rail income (from advertising, lease, etc.), were more than enough to cover the operating expenses for the year with extra funds for other expenditures (e.g. subsidy for LRT2 operations). In the present set-up, where the LRTA operates and maintains LRT1, the working capital is not subsidized by the government.

The privatization of the operations of an entirely profitable system will ensure another source of profit to the winning bidder in the Line Extension. We should question whether the profits earned from the operations of LRT 1 would be the source of the investments for the Line 1 Extension.

Disadvantageous to the government and commuters

To attract investors, government assumed even more financial risks while passing on increased financial burdens on the consumers.

  1. Government assumes payment of Real Property Taxes. On November 21, 2013, the NEDA revised the terms of the Cavite Extension Project to conform to the demands of the bidders, including the payment of Real Property Taxes (RPT) to be shouldered by the national government. This means government will pay around PhP 64 Billion for the entire 32-year contract period. This will only result to more debt burdens for the government.
  2. Fares will increase as a result of privatization. The government agreed to a  5% fare increase upon project completion, The government is also keen on implementing the new distanced-based fare adjustment that has been stalled since 2011 due to public opposition. At the earliest, the DOTC hopes to increase fares by August 2014 prior to the target effectivity of the Concession Agreement on September 2014. This will ensure higher profitability for the Concessionaire, as well as higher base fare for any future fare adjustments it will require upon project completion.
  3. Government guarantees automatic fare adjustments as well as fare hikes based on inflation. Not only is the Concessionaire allowed a 5% fare increase upon project completion, the government, based on the Concession Agreement, also allows for succeeding adjustments of the Notional Fare:
    • “The Notional Fare shall be adjusted on August 1, 2016 and every second anniversary thereafter (Notional Fare Setting Date) by an effective rate of 5% per annum or 10.25% per adjustment (Schedule 9, Part 1B: Financial Matters, page 173, Schedules, CA).”
    • “The Concessionaire or the Grantor may request that the Notional Fare be examined every 4 years from the first Notional Fare Setting Date and may be adjusted to reflect movements in inflation (Inflation Rebasing), on a Notional Fare Setting Date, where the first Inflation Rebasing may be implemented on August 1, 2018…(Schedule 9, Part 1D: Financial Matters, page 175, Schedules, CA).”
  4. Private concessionaries will pass on VAT to commuters. If a Sales Tax or Value Added Tax (VAT) is levied on the fares, the government allows the Concessionaire to pass this cost as part of the fare collected from the passengers of LRT1 (Schedule 9, Part 1E: Financial Matters, page 177, Schedules, CA).
  5. Changes in power rates will be passed on to commuters. The government agreed to a Differential Generation Cost (DGC) adjustment under the Concession Agreement (Schedule 9, Part 3: Differential Generation Cost, pp. 183-187, Schedules, CA). The DGC mechanism “is intended to take into account extreme fluctuations in generation costs, which comprises the largest component of power cost for the system, and allows upward adjustments to the Notional Fare and Approved Fares.” Under this scheme, the Concessionaire “shall be compensated for the DGC through fare adjustments…in relation to purchase of electric power from Meralco

With all these assurances from government, privatization removes from the private Concessionaire any financial liability and business risk, transferring instead all risks and liabilities to the government and the commuters.

The hybrid PPP mode itself is very lopsided and biased against the government. It is essentially called a hybrid PPP variant because if a project is more than PhP 60 Billion, half the cost is supposedly shouldered by the government through Official Development Assitance (ODA).

But under the LRT1 Cavite Extension Project, it is the government that will be shouldering the lion’s share of the cost of the project. Of the PhP 64.9 Billion total project cost, the private sector will shoulder PhP 30B for the civil works, electro-mechanical systems and other components of the viaduct, trackworks, stations and facilities, and the operations and maintenance. On the other hand, government will shoulder PhP 34.9 Billion of the cost for Right of Way Acquisition, Purchase of Coaches, Civil Works for the upgrading of the existing Depot and construction of the Satellite Depot.  On top of these expenditures, government will also shoulder the roughly PhP 64 Billion payment for Real Property Taxes.

Displacement of Workers

In the privatization of the LRT1 Operations and Maintenance, around 964 Contractual Employees of the LRTA are to be hired by the Concessionaire subject to a probationary period of 6 months, in which the Labor Code provisions, no longer the Civil Service provisions, shall govern. Some of these Transferring Employees have been with the LRTA for almost 15 years when the LRTA took over from the Metro, Inc. and would have been eligible for old age pension under the GSIS Law by 2015 or after 15 years of government service.

Within 3 months, the Concessionaire shall conduct an assessment of the transferred employees and determine who shall continue to be employed by the Concessionaire after the lapse of the 6 months period. After the lapse of the 6 months period, “if the Concessionaire wishes to dismiss any employee due to Economic Causes (e.g. installation of labor-saving devices and/or redundancy), then the Concessionaire may do so in accordance with relevant rules and procedures (Section 6.3, page 58, CA).

The privatization of the Automated Fare Collection System this year has clearly provided the LRT1 Concessionaire with the “economic cause” to terminate employees after the lapse of the probationary period. Conservatively, only around 241 or a fourth of the transferred employees will remain with the Concessionaire, possibly to be sub-contracted.

Hence, contrary to the government spin that the PPP program will create more job opportunities, it will in effect displace workers, after the 6 months probationary period.

Horrors of Past Private Sector Partnerships

From the current provisions of the Concession Agreement and the TOR for the PPP Project, it seems that the government has once again refused to learn from its past failures in privatization.

The previous BLT and BOT schemes indeed delivered the required infrastructures for the public but with horrific consequences for the government and the people in general. The Privatization of the MWSS has resulted to periodic increases in the cost of water, now totaling nearly 400%. The privatization of the assets of the National Power Corporation has placed power generation in the hands of big business and has increased power rates by a 100% from the time EPIRA was enacted.

Closer to the LRT1 scenario is the MRT3 experience, which invariably had the most lopsided risk allocation profile against the government. At first the government promised no state subsidy, but with 8 revisions to the Concession Agreement, government assumed the financing for the Right of Way Acquisition, and up to now has been assuming the traffic risks, and extended loan guarantees. Government allocates some P7 billion a year to pay for the financial obligations of the MRT arising from the lopsided contract. The government is now trying to buy back MRT3 from the MRTC.

What the government seems to forget is the basic dynamics between the government and the public sector for past PPP or BOT project implementations. The PPP or BOT projects revolve around financial viability for the private sector and economic viability for the public sector. Both sectors have varying objectives: for the government, it is to implement the project, while for the private sector, the objective is to maximize the Return of Investment (ROI), which can only occur by increasing the cost of the project assumed by the public sector or increasing support from the government either in terms of tax breaks, credit enhancements, subsidies, and the like, or reducing risks.

To expose vital government infrastructures to the desire of the private sector to maximize profits is to expose the government to more risks, instead of benefits. The past has proven that the benefits have far outweighed the benefits derived.

What is also frightening is the power wielded by the winning bidder. The Ayala-Metro Pacific (MVP) consortium would eventually control Line 1 operations, the Automated Fare Collection System, and the construction of the Line 1 extension. Metro Pacific also controls part of the MRT 3. This is a virtual monopoly in the train line which will remove any possible checks and balances regarding its performance and give them tremendous control to dictate fares.

Call to action

We, the Alliance Against LRT Privatization, a network of concerned individuals, employees and commuters, call on the people to reject the privatization of the LRT Line 1 Operations and Maintenance and the hybrid PPP mode of implementation of the LRT1 Cavite Extension Project.

We call on Congress to conduct an inquiry on the present state of the LRT Line Systems, amend the Procurement Law to fast track the procurement of vital capital spare parts and arrest the downgrading of the LRT systems and facilities, and to increase the capitalization of the LRTA from the current PhP3 Billion to PhP300 Billion.

Finally, we call on the people to resist the on-going privatization of vital government services to the detriment of greater access of these services for the people.###

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Consumer issues, Privatization, SONA 2013

Sona 2013: Silent on water tax, all-out on LRT/MRT fare hike

Two things stood out in the State of the Nation Address (Sona) that reaffirmed the big business and neoliberal bias of President Benigno Aquino III. First, which stood out because of its conspicuous absence in the Sona, is the issue of passed on income taxes and other expenses by Manila Water and Maynilad. Second is the all-out push by Aquino to hike the fares in LRT and MRT, which is tied to the regime’s public-private partnership (PPP) or privatization program.

Incidentally, both involve two influential business interests that are widely seen to have close ties with the Aquino administration – the Ayala family and the group of Manny V. Pangilinan (MVP). The Ayalas control Manila Water while the MVP group controls Maynilad. These big business interests have also set up the Light Rail Manila Consortium, one of the bidders in the scheduled privatization of LRT 1 this month.

Double standards

Aquino’s evasion of the water income tax issue underscores the double standards of his daang matuwid and anti-corruption rhetoric, which as usual was again prominent in his speech. In his Sona, the President praised the Metropolitan Waterworks and Sewerage System (MWSS) for instituting reforms in the agency. It will be recalled that in his first Sona, Aquino hit the water agency for hefty bonuses enjoyed by its officials. Such anomaly has already been addressed, said Aquino, citing the almost P2-billion income of MWSS last year from a P34-million deficit in 2010. He also praised Sec. Rogelio Singson, who used to be president and CEO of Maynilad, for addressing corruption in the Department of Public Works and Highways (DPWH).

But while extolling the MWSS and Singson for the supposed good governance reforms in their agencies, Aquino did not mention the onerous Concession Agreement that involved MWSS and Singson and made consumers pay for the income taxes, corporate donations, advertisements and other expenses of Maynilad and Manila Water. More importantly, the President said nothing on what he intends to do with the said anomalous PPP contract. Did Sec. Rene Almendras, who as former Manila Water president was also involved in implementing the controversial Concession Agreement had a hand in determining the content of the Sona in his capacity as Secretary to the Cabinet?

The presence of former top executives of the Ayalas and MVP in key Cabinet positions and the PPP as centerpiece economic program of the Aquino administration explain the deliberate silence of the President on the controversy hounding Manila Water and Maynilad. While the MWSS-Regulatory Office is disputing the private water concessionaires on the issue of income taxes and other pass-on charges, it is still Malacañang that will be decisive ultimately.

Through their paid ads weeks before the Sona, Manila Water and Maynilad have warned not only the regulators but Malacañang itself on the supposed sanctity of privatization contracts. They know that the privatization of MWSS is regarded as the barometer of PPP in the Philippines and a decision detrimental to the water concessionaires (and favorable to the consumers) will seriously undermine the PPP initiatives of Aquino. Aquino’s refusal to issue a categorical statement backing the widespread public clamor against the questionable charges of Manila Water and Maynilad in his Sona speaks volumes about where the President’s loyalty lies. Malacañang apparently does not want to upset the Ayalas and the MVP group which have been among the most aggressive in securing PPP contracts from government.

Fare hike and privatization

While Aquino was silent on the abusive pricing of Manila Water and Maynilad and the oppressiveness of the Concession Agreement, the President was clear in his relentless push to increase the fares in LRT and MRT. Like the MWSS, the LRT and MRT fare hike was also among the controversial issues raised by Aquino in his first Sona.

Reiterating his position in 2010, Aquino claimed that increasing the LRT and MRT fares to approximate air conditioned bus fares is justified. He raised the argument repeatedly pointed out by Department of Transportation and Communications (DOTC) officials – that government is supposedly subsidizing P25 (LRT) to P45 (MRT). Freeing up such subsidies means more funds for social services that will benefit the entire country and not only the Metro Manila commuters, argued the President. The DOTC has earlier announced that it will implement a P10-fare hike to be implemented in two tranches.

But it has been pointed out that the supposed subsidies, in the case of MRT, actually go to service debts arising from the guaranteed profits and sovereign guarantees given by government to the train system’s former private operators. LRT lines, on the other hand, are generating enough revenues to cover its maintenance and operation, although debts also bloat the total costs. Debts, however, should not be passed on to commuters as mass transportation is a public investment that generates economic and social gains.

Aquino and his transportation officials are not saying it, but the real reason behind the persistent drive to raise LRT and MRT fares is the government’s grand PPP program for Metro Manila’s light rail system. It will start with the P60.63-billion LRT 1 extension and privatization, the biggest PPP project so far of the administration. Increasing the fares would demonstrate government’s resolve and ability to regularly adjust fares, despite its unpopularity, to make the system profitable as planned in the draft 35-year Concession Agreement for LRT 1.

The said LRT 1 Concession Agreement is as onerous as the MWSS Concession Agreement. Its latest draft (as of June 27) still contains the so-called regulatory risk guarantee. Section 20.4.a of the draft agreement allows the private LRT 1 operator to secure “deficit payment” from government (i.e., taxpayers) when the approved fare is lower than the “notional fare”. The notional fare is a pre-determined fare level set out in the Concession Agreement that will ensure the commercial viability of LRT 1 and the profits of its private operator. This effectively deregulates the setting of fares and renders meaningless any intervention from Congress, the courts and other regulatory agencies.

Aside from the Ayala-MVP group, other LRT 1 bidders are presidential Uncle Danding Cojuangco’s SMC Infra Resources Inc.; the Consunjis’ DMCI Holdings Inc., which also lists Japanese giant Marubeni Corp. as one of its partners; and the MTD Samsung Consortium of Malaysia and South Korea.

Aquino packaged his Sona as the Sona of the people. He claimed that inclusive growth is behind every initiative of his administration. The past three years say otherwise. His silence on the Manila Water and Maynilad controversy, his all-out push for LRT and MRT fare hike, his rabid promotion of neoliberal privatization, all say otherwise. (END)

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Economy, SONA 2013

Prices, profits and poverty: Three years of the Aquino presidency

gutom at dukhang pilipino

Two weeks before the fourth State of the Nation Address (SONA) of President Benigno Aquino III, the National Statistical Coordination Board (NSCB) revealed that the income gap between the rich and poor in the country continues to widen. The high-income class saw their income grow much faster (10.4% between 2010 and 2011) than those of the middle (4.3%) and low-income (8.2%) groups. To be sure, the NSCB’s “revelation” is nothing new, but nonetheless, it affirmed widespread criticisms that the economic growth being hyped by the three-year old Aquino administration merely benefited the rich and has been meaningless to the poor.

But as always, Malacañang was quick to dismiss any claim that challenges the illusion of economic prosperity it is trying to sell, even if it comes from an official government body like the NSCB. The gap is not widening, said the Palace’s chief spokesman, because all income classes have posted growth. Never mind if simple math says that a 10%-increase in a company executive’s monthly salary of P200,000 and an 8%-increase in an ordinary employee’s monthly income of P10,000 means that their income gap has widened by P19,200 a month. There is a serious problem when government readily distorts basic facts and logic to suit its propaganda.

Indeed, the glaring reality in the first three years of the Aquino administration is that the number of poor and hungry families and jobless workers has been constantly rising while a handful of super-rich amass wealth at unprecedented levels. All the publicity about high gross domestic product (GDP) growth, unparalleled trading in the stock market and historic investment grade rating merely points to how profitable the economy has become for the country’s elite and their foreign patrons.

This phenomenon can only be adequately explained by examining the political and economic structures of Philippine society. For starters, Aquino did not re-orient the economy and created conditions that will dismantle its semi-colonial (i.e., export-oriented, import-dependent economy) and semi-feudal (i.e., vast countryside with backward production and intense land monopoly) character. Industries remain stunted and vast haciendas remain intact depriving millions of Filipinos of long-term, gainful and productive employment and livelihood. Infrastructure development, which has become the favorite investment destination of big compradors and foreign banks and corporations under Aquino’s public-private partnership (PPP), is being pursued not for national industrialization but to facilitate the plunder of the economy by big local and foreign business interests. This also explains why Aquino’s “kung walang corrupt, walang mahirap” (without corruption, there is no poverty) is fundamentally flawed and deceptive.

Such underlying reality is being aggravated by the neoliberal policies of privatization and deregulation that result to ever rising prices, with big business groups and families that control privatized and deregulated sectors of the economy massively accumulating wealth while the people are oppressed and impoverished by soaring cost of living. This has been one of the easily discernible trends in the first three years of the Aquino presidency.

Prices

The prices of basic goods and services have sustained their steep rise due to the continued implementation by Aquino of neoliberal privatization and deregulation programs. This has been most felt in the sectors of water, electricity, petroleum and education. The average inflation rate (i.e., the pace of change of prices) of water, electricity, gas and other fuels (plus housing) from July 2010 to June 2013 is 4.3 percent. The inflation rate of education during the same period is 4.6 percent. Both are higher than the overall inflation rate of 3.6 percent. Only alcoholic beverages and tobacco posted a higher inflation rate with10.4% mainly due to the Sin Tax Law, also a neoliberal reform, which took effect this year. (See Chart 1)

inflation rate, by commodity

Note that the costs of water, power and oil products are rising at a much quicker pace today. The mentioned 4.3% inflation rate of utilities and fuels posted in the first three years of Aquino is faster than the 3.4% recorded in the last three years of Arroyo. It does not mean, however, that Arroyo was better than her successor at keeping prices in check. They both adhere to the same neoliberal policies of privatization and deregulation that let prices spiral. It’s just that Aquino is a more ardent implementor of neoliberalism than his former Economics teacher at the Ateneo.

Prices have soared as government ditched its regulatory duties like in the case of oil, and turned over to profit-oriented private firms many of its key functions like in the case of water and electricity. These paved the way for the profiteering of huge private monopolies. Among the first challenges to Aquino when he assumed power was to reverse these neoliberal prescriptions of the International Monetary Fund (IMF) and the World Bank that his mother Cory first implemented in the late 1980s.

Alas, when pump prices escalated in 2011, Aquino immediately defended the Oil Deregulation Law amid mounting calls for price control. He also rejected demands to scrap or at least reduce the 12% value-added tax (VAT) on petroleum products as an immediate relief. For Aquino’s inaction on skyrocketing oil prices, youth activists popularized Noynoying or lazing around. (Read more on oil deregulation here) Under Aquino, the pump price of diesel has increased by 24%; gasoline, 17%; and liquefied petroleum gas (LPG), 7-14 percent.

When Mindanao faced a power crisis in 2012, Aquino pushed for the full implementation of the Electric Power Industry Reform Act (Epira). The solution, said Aquino, is to privatize the region’s hydropower plants and for Mindanaons to pay more for electricity. His administration also started imposing this year Epira’s universal charge on stranded costs to pay for the post-privatization residual debts of the National Power Corp. (Napocor). These debts arose from the sweetheart deals of Napocor with independent power producers. (Read more on Napocor privatization here)

Since Aquino became President, the distribution charge of the Manila Electric Co. (Meralco) has already jumped by 43 percent. The transmission charge of the National Grid Corp. of the Philippines (NGCP) has already increased by 28 percent. Due to the imposition of the universal charge on stranded costs, the universal charge being imposed by Meralco has ballooned by 213 percent.

Meanwhile, Malacañang has remained silent on the raging controversy surrounding the privatization contract of the Metropolitan Waterworks and Sewerage System (MWSS). But it is noteworthy that the Aquino administration has been showcasing the privatization of MWSS to lure investors to its public-private partnership (PPP) program. The public now understands why MWSS is such an appealing model to PPP investors. In their Concession Agreement with MWSS, Maynilad Water Services Inc. and Manila Water Co. Inc. have been allowed to pass on to consumers billions of pesos in past and future income taxes, corporate donations, advertisements, projects, etc. and earn guaranteed profits from such onerous charges. This is on top of automatic adjustments in the basic rates as well as the collection of questionable items. (Read more on MWSS privatization here) The all-in water tariff being charged by Manila Water has already gone up by 24% and Maynilad by 41% since Aquino took over.

Table 1 below sums up the movement in prices of oil products and water and electricity rates in the first three years of the Aquino presidency.

oil prices, power & water

Tuition’s steady increase resulted in the high inflation rate of education. In the past three years, the Aquino administration approved almost nine out of every 10 applications for tuition hikes by tertiary schools. For this school year, the Commission on Higher Education (CHED) approved the tuition hike application of 354 tertiary schools and of at least 903 private elementary and high schools. In 2011 and 2012, CHED allowed 281 and 267 tertiary schools, respectively to increase tuition.

Profits

Big business has been cashing in huge amounts of profits due to the ever increasing prices of basic goods and services (and continued depression of wages). Due to rising electricity rates, for instance, the net income of Meralco has been growing by 42% or P3.67 billion annually from 2010 to 2012 and that of the National Grid Corp. of the Philippines (NGCP), by 17% or P2.91 billion (from 2010 to 2011).

Meanwhile, oil companies’ net income during the period has been weighed down by relatively lower prices in 2012. Petron’s net income, for instance, grew by 46% a year from 2010 to 2011 but declined by 73% last year, pulling down its annual net income expansion to just 7% in the last three years. Nonetheless, it still averaged an annual net income of P6.23 billion during the period. As an industry, electricity and oil and gas firms that belong to the top 1,000 corporations posted a collective 48% or P42.64 billion yearly net income growth from 2010 to 2011.

Similarly, because of rising water rates, Maynilad’s net income has been increasing by 36% or P1.33 billion every year and Manila Water by 19% or P737 million from 2010 to 2012.

Another indicator of the robust financial health of these firms is the gross profit margin. Among all industries in the top 1,000 corporations, electricity, oil and water companies registered some of the largest gross profit margins. In 2010 and 2011, the average annual gross profit margin of electricity and oil firms reached 32%, higher than the 27% they registered in 2008 and 2009. On the other hand, water firms posted a gross profit margin of 36.1% in 2010 and 2011, slightly lower than the 36.7% it recorded in 2008 and 2009. Other profitable industries include mining (50% profit margin in 2010 and 2011), banking and other financial activities (47%), information and communication technology (42%), and real estate (36%).

All in all, the average gross profit margin of the top 1,000 corporations improved from 21% to 23% in the periods being covered.  Also, their total net income grew from P755.97 billion in 2009 to P804.07 billion in 2010 to P868.08 billion in 2011, or an annual expansion rate of more than 7 percent.

Richest

Not surprisingly, a small group of super-rich families, which together with their foreign partners and financiers, control the country’s utilities, energy and oil companies, banks, mining firms, and real estate and infrastructure development among others, are amassing unimaginable wealth.

Forbes’ annual list of the world’s richest people shows a steadily and immensely growing wealth of the super-rich in the Philippines, who control the country’s largest companies, in the first three years of the Aquino administration. From $16.4 billion in 2009, the combined wealth of the 40 richest Filipinos has ballooned to $47.4 billion in 2012, or a 189%-increase. (See Chart 2 and Table 2) Forbes listed only 11 richest Filipinos for 2013 but their combined wealth has already reached a whopping $39.9 billion.

forbes richest filipinos 2009-2012

Table 2

Richest Filipinos as listed by Forbes Magazine ($ billion)

Name

2006

2007

2008

2009

2010

2011

2012

2013

Henry Sy

4.00

1.70

3.10

3.50

5.00

7.20

9.10

13.20

Lucio Tan

2.30

1.60

1.50

1.70

2.10

2.80

4.50

5.00

Enrique Razon Jr.

0.29

0.82

0.53

0.62

0.98

1.60

3.60

4.90

John Gokongwei

0.70

0.43

0.68

0.72

1.50

2.40

3.20

David Consunji

0.15

0.21

0.11

0.30

0.72

1.90

2.70

2.80

Andrew Tan

0.48

1.10

0.70

0.85

1.20

2.00

2.30

3.95

Jaime Zobel de Ayala

2.00

2.00

1.20

1.20

1.40

1.70

2.20

George Ty

0.83

0.87

0.44

0.52

0.81

1.10

1.70

2.60

Roberto Ongpin

3.00

1.30

1.50

1.20

Danding Cojuangco

0.84

0.54

0.61

0.66

0.76

1.40

1.40

Roberto Coyiuto Jr.

0.29

0.31

0.40

1.30

1.60

Tony Tan Caktiong

0.58

0.79

0.69

0.71

0.98

1.00

1.25

1.40

Lucio & Susan Co

1.20

2.00

Inigo & Mercedes Zobel

0.66

0.43

0.44

0.73

0.98

1.15

Emilio Yap

0.35

0.45

0.42

0.51

0.67

0.93

1.10

Jon Ramon Aboitiz

0.13

0.13

0.36

0.76

0.96

Andrew Gotianun

0.28

0.86

0.24

0.31

0.50

0.80

0.83

1.20

Manny Villar

0.11

0.94

0.43

0.53

0.38

0.62

0.72

Beatrice Campos

0.16

0.22

0.33

0.41

0.84

0.69

0.70

Vivian Que Azcona

0.08

0.67

0.36

0.39

0.45

0.56

0.69

Alfonso Yuchengco

0.23

0.37

0.20

0.23

0.26

0.37

0.57

Mariano Tan

0.10

0.14

0.20

0.18

0.33

0.38

0.42

Enrique Aboitiz

0.28

0.38

0.05

0.15

0.31

0.40

Eric Recto

0.20

0.37

Jose Antonio

0.25

0.30

Glibert Duavit

0.21

0.19

0.13

0.16

0.15

0.19

0.27

Menardo Jimenez

0.21

0.19

0.13

0.16

0.14

0.19

0.27

Frederic Dy

0.07

0.07

0.04

0.07

0.11

0.26

Manuel Zamora

0.08

0.11

0.13

0.11

0.12

0.15

0.26

Alfredo Ramos

0.13

0.12

0.12

0.18

0.25

Oscar Lopez

0.28

0.25

Felipe Gozon

0.16

0.24

Betty Ang

0.17

0.24

Wilfred Uytengsu Sr.

0.15

0.23

Juliette Romualdez

0.16

0.20

Bienvenido Tantoco Sr.

0.10

0.20

Jacinto Ng Sr.

0.12

0.19

Tomas Alcantara

0.16

0.16

Michael Cosiquien

0.15

Edgar Sia II

0.09

0.14

2006-2012 data as compiled by Rappler
2013 figures as reported by The Philippine Star

Cojuangco

Among the country’s richest based on the Forbes list is presidential uncle Danding Cojuangco, whose San Miguel Corporation (SMC) has stakes in Petron and Meralco as well Jaime Zobel de Ayala, whose many business interests include Manila Water. Cojuangco has a declared wealth of $1.4 billion in 2012, or 112% higher than his recorded wealth in 2009. Manned by his right-hand man Ramon S. Ang, Cojuangco’s San Miguel Corp. (SMC) registered a 61%-increase in its net income between 2010 and 2012. Originally a food and beverages company, the conglomerate has aggressively expanded into oil and energy (Petron, SMC Global Power Holdings, and San Miguel Energy Corp. and Meralco) as well as infrastructure. Taking advantage of Epira, SMC now holds the largest share, about 20%, in the country’s power generation capacity. SMC is also investing in mining through a stake in the Sagittarius Mines Inc., operator of the controversial $5.9-billion Tampakan copper-gold project in South Cotabato.

Ayala

Meanwhile, Ayala’s total wealth was pegged at $2.2 billion in 2012, 83% higher than his wealth in 2009. Aside from Manila Water (which is also lists as investors the World Bank’s International Finance Corp., UK’s United Utilities, Japan’s Mitsubishi Corp., as well as American and European investment firms), the Ayala group has interests in banking (Bank of the Philippine Islands), real estate (Ayala Land) and telecommunications (Globe).

Pangilinan

While conspicuously absent in the Forbes list, Manny V. Pangilinan is widely considered as among the richest billionaires in the country due to his various business interests including Maynilad and Meralco. Aside from utilities, Pangilinan also has interests in telecommunications (PLDT, Smart), infrastructure and tollways (Metro Pacific Tollways Corp. which operates SCTEX and NLEX), media (TV5 and various newspapers), mining (Philex Mining Corp.) and a growing number of hospitals (Makati Medical Center, Cardinal Santos Medical Center and Asian Hospital, among others). However, it must also be noted that these business interests are under the Hong Kong-based First Pacific Company Ltd., which is part of the corporate empire of Indonesia’s largest conglomerate, the Salim Group.

Top 5

The richest Filipino, based on the Forbes list, is Henry Sy, known for his chain of SM malls (the Philippines’ largest retail business) with a declared wealth of $13.2 billion in 2013. His wealth has increased by 277% since 2009, boosted by his expansion in the power industry through the NGCP, which because of Epira now has a monopoly over the country’s transmission system. His holding company, SM Investments Corp., saw its profits grow by 34% between 2010 and 2012. Sy’s BDO Unibank Inc., the largest bank in the country, posted a 61%-increase in its net income during the same period while SM Prime Holdings, which handles the SM malls, had a 29%-increase.

Following Sy is Lucio Tan, whose wealth jumped by 194% to $5 billion during the same period. Tan’s Fortune Tobacco and American giant Philip Morris have partnered under the PMFTC Inc. to monopolize the local cigarette market. Between 2010 and 2012, PMFTC Inc. saw its net income swell by 3,189 percent. Tan also controls Tanduay, Asia Brewery, Eton Properties (notorious for occupational hazards), the recently merged Philippine National Bank (PNB) and Allied Bank, as well as the University of the East (one of the educational institutions included in the top 1,000 corporations). Enrique Razon came in a close third with $4.9 billion, an enormous 690% expansion from his wealth in 2009. Razon is known for his International Container Port Terminal Services Inc. (ICTSI), which makes its fortune from privatized ports here and abroad, but is also expanding into casino operation through Bloomberry Resorts and Hotels Inc., which operates the recently opened Solaire Resort and Casino.

The fourth richest Filipino based on the Forbes list is Andrew Tan ($3.95 billion, 365% higher than 2009). He lists among his business interests the Alliance Global, which controls property developer Megaworld and the local franchise of US-based global food chain giant McDonalds. Like Razon, Andrew Tan will soon build and operate hotel and casino facilities at the so-called Pagcor Entertainment City in Manila. Completing the five richest Filipinos is David Consunji whose $2.8-billion wealth in 2013 an enormous 833% increase from his reported wealth in 2010. His main business interest is construction giant DMCI Holdings, which has also expanded to mining (Semirara Mining Corp.), energy (DMCI Power Corp.) and water (Maynilad). The Consunji group is among the most active in the privatization of power plants and IPP (independent power producer) contracts under Epira.

Poverty

Wages and incomes could barely cope with the ever rising prices of basic goods and services. In Aquino’s first three years, the daily minimum wage in NCR has increased by just P52 – from P404 (June 2010) to P456 today. The family living wage, which approximates the cost of living or the amount needed by a family to meet daily basic food and non-food needs, was pegged at P983 in end-2010 and at P1,034 in end-2012, using think tank IBON Foundation’s estimates, or an increase of P51. This means that the wage hikes have just been wiped out by the increase in the cost of living. Thus, the minimum wage remained way below the amount needed for a family to live decently, pegged at 44% of the cost of living today.

Based on SWS surveys, the number of poor families (annual average) climbed from 8.9 million in 2010 to 9.9 million in 2011 and further to 10.5 million last year. In the first quarter of 2013, the SWS reported that 10.6 million families consider themselves poor. This means that under Aquino, the number of poor families has increased by 1.7 million, or about 8.5 million Filipinos. Even official statistics indicate that poverty, at best, did not improve under Aquino. The National Statistical Coordination Board (NSCB) reported that poverty incidence among families stood at 22.3% in the first semester of 2012, which it described as practically unchanged from 2006 (23.4%) and 2009 (22.9%) figures.  (See Chart 3)

sws poverty 2010 - 2013 q1

SWS surveys also show that the number of families experiencing hunger has increased as well under Aquino. From 3.6 million families in 2010 (annual average), the number rose to 4 million in 2011 and further to 4.1 million last year. The first quarter 2013 SWS report indicates that hunger has not tempered, with 3.9 million families reporting that they experience involuntary hunger. In Aquino’s first three years in office, about half a million families or some 2.5 million Filipinos were added to those who go hungry. NSCB data, on the other hand, indicate that the incidence of food poor families (i.e., those who live in extreme poverty, with incomes not enough to buy even basic food needs) remains unchanged as well. In the first semester of 2012, it stood at 10% of families, identical with 2011’s 10% and just a bit lower than 2010’s 10.8 percent. (See Chart 4)

sws hunger 2010 - 2013 q1

The supposed economic growth is not creating jobs. SWS survey shows that the number of unemployed workers remained at 9.5 million in 2010 and 2011 (annual average), then jumped to 11.6 million in 2012. In the first quarter of 2013, SWS reported that there were 11.1 million jobless workers. This trend is being affirmed by government’s official unemployment data. Based on figures from the National Statistics Office (NSO), unemployment rate increased from 7.1% when Aquino took over (July and October 2010 average) to 7.3% this year (January and April 2013 average).  (See Chart 5)

sws unemployment 2010 - 2013 q1

Worst is yet to come

Aquino, in a recent speech, confidently declared that “the best is yet to come”. He promised that services will gain more speed in the second half of his term. Claiming to have realized that so many things still need to be done, the President said that his SONA will reflect the true state of the nation.

But if Aquino will stick to the same neoliberal policies that further impoverish the poor, the people should expect the worst. After the SONA, those who live in Metro Manila face the prospects of higher water rates and fares in LRT and MRT. Maynilad and Manila Water are seeking basic rate hikes of P8.58 and P5.83 per cubic meter, respectively. The planned increases are part of the so-called rate rebasing under the privatization of MWSS, which has been further exposed as a highly onerous PPP deal. Consumers in other parts of the country like Bacolod and Davao are also confronted with higher fees due to privatization efforts aimed at their water districts.

Meanwhile, LRT and MRT commuters will shoulder an initial P5 average fare hike that officials reportedly want to implement by August. Another P5-increase is set for next year. The fare hikes are part of Aquino’s plan to privatize the light rail system. LRT 1 is already slated for bidding this July with the groups of Pangilinan, Ayala, Cojuangco and Consunji as well as South Korean and Malaysian investors participating. The draft LRT 1 privatization contract provides for a regulatory risk guarantee wherein taxpayers will shoulder the cost in case the private operator could not implement a fare hike due to intervention by the courts or Congress.

Power rates, on the other hand, will again rise as another round of increase in the universal charge is expected soon to recover Napocor’s stranded debts as mandated under Epira. This is on top of the regular increases in the generation, distribution, transmission and other charges. Oil prices will remain artificially high and volatile due to foreign monopoly control and deregulation. Even the price of rice is starting to climb up, increasing by as much as P2 a kilo last week due to the continued operation of rice cartels and privatization of the functions of the National Food Authority (NFA).

The second half of Aquino’s term is shaping up to be three more years of increasing prosperity for the elite and worsening economic exclusion of the poor. Thus, while the Aquino clique savors the illusion of having consolidated its power after the midterm elections, in reality, social contradictions will surely further intensify and challenge the regime. (End)

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Consumer issues, Cronyism & patronage, Privatization, SONA 2013

PNoy and the Big Water monopolies

big water and pnoy

Daang matuwid pa ba when big business is practically running the government and profiting immensely at the expense of the people?

By July, the 14.2 million consumers of Maynilad Water Services Inc. and Manila Water Co. Inc. will have to shell out more for their water bill. If your household is consuming 30 cubic meters (cu. m.) a month, be ready to pay an additional P234 (if your service provider is Manila Water) to P342 (Maynilad). That’s how huge the looming rate hikes are. Apparently, the 42% annual increase in the profits of Maynilad and 18% for Manila Water in the past five years are not enough for the Big Water monopolies. They want more, at our expense, of course.

The increases are due to the so-called “rate rebasing”. It’s a rate adjustment process mandated by the 1997 privatization contract or the Concession Agreement between the MWSS and its private concessionaires – Maynilad and Manila Water. Under the Concession Agreement, the concessionaires are entitled to adjust their basic rates every five years throughout the 40-year contract to achieve a guaranteed rate of return. During the rate rebasing exercise, the concessionaires submit their previous five-year performance, their new five-year business plans and their proposed tariffs to implement it, which the MWSS-Regulatory Office (MWSS-RO) reviews and approves. Since the last rate rebasing exercise in 2007, Maynilad has been posting annual profits of P3.92 billion and Manila Water, P3.68 billion. During the public consultations, Manila Water said they expect to earn P5 billion annually in the next five years after the rate rebasing; Maynilad refused to disclose its anticipated profits.

Planned increases

According to regulators, Manila Water wants a rate hike of P5.83 per cu. m. and Maynilad, P8.58 (revised from the P10.30 reported earlier). But these refer to the basic charge only. If you look at your water bill, there are other items in it that will also increase when the basic charge is raised. The environmental charge, for example, is 20% of the basic charge. Then, there’s the foreign currency differential adjustment (FCDA), which accounts for the quarterly fluctuations in the foreign exchange (forex). The FCDA is negative when the peso gains against the dollar and is positive when the peso weakens. The FCDA is currently at negative 0.37% of the basic charge for Manila Water and negative 0.98% for Maynilad. The FCDA is expected to be positive as the dollar is gaining strength in recent months. Then, there’s also the value-added tax (VAT), which is 12% of the basic charge plus the environmental charge. Factoring in these other charges, the rate hike of Manila Water could reach P7.81 per cu. m. and Maynilad, P11.41 per cu. m. Thus, the estimated P234 to P342 increase for households consuming 30 cu. m.

The table below compares our estimated monthly bills today and after the rate hikes are implemented. (Note: The table has been revised to adjust the estimated monthly water bill for Maynilad customers using 10 cu. m.)

water rates current vs hiked revised

Unreasonable rate hikes

The rate increases being sought by Maynilad and Manila Water are unreasonable for two major reasons. First, the rate hikes cover not just the cost of past projects (which consumers also finance through water tariffs) but also include future expansion and improvement plans. This means that the private concessionaires want to charge consumers the cost of projects that are yet to be implemented. This is clearly anti-consumer and allows the abuses of Maynilad and Manila Water. In their previous rate rebasing exercises, the private concessionaires charged the costs of unimplemented projects to their consumers such as the Laiban Dam Project and the 15 CMS Water Source Replacement Project, among others. According to the MWSS-RO, the costs of unimplemented projects are recovered through succeeding rate rebasing exercises. If that is the case, then water rates should have been reduced during the 2007 rate rebasing. But this did not happen because the cost of new future projects as well as new assumptions in the business plans (population growth, demand, etc.) of the concessionaires negate the supposed cost recovery of unimplemented projects in favor of the consumers. The same scenario is expected in the ongoing rate rebasing exercise.

Second, the private concessionaires are earning profits at unreasonably rapid pace. Using the return on rate base (RORB), for instance, it appears that Maynilad and Manila Water are earning beyond the 12% limit imposed on public utilities. Estimates peg the RORB of the concessionaires at more than 14 percent. The rate base is computed by adding up the value of all the assets used in the operation of the public utility and from it, the allowed rate of return is calculated. Thus, the RORB of Maynilad and Manila Water could further go up beyond the estimated 14% if the total value of the old MWSS assets already built prior to privatization is excluded. Meanwhile, using the return on equity (ROE) as standard, it also appears that Maynilad and Manila Water are profiting tremendously from their operations. It is estimated, for instance, that Manila Water has an ROE of around 19% while Maynilad has about 45 percent. These are way higher than the ROE of those in other public utilities such as telecommunications (16%) and electricity (15%). The ROE is a measure of profitability wherein the net income is computed as a proportion of the equity or the investments poured in by the investors. Maynilad and Manila Water has a very high ROE because of the very high tariffs they set while a very large chunk of the cost of MWSS privatization is financed by loans (which are fully passed on to consumers) and not by their actual investments.

Big Water running the government

Alas, despite this really onerous burden awaiting us, we should not expect the Aquino government to step in and restrain the greed of Big Water. Maynilad and Manila Water managed to put their top officials in strategic Cabinet positions, advising the President on key government policies. Secretary Rogelio Singson used to be the president and chief executive officer (CEO) of Maynilad. He now heads the Department of Public Works and Highways (DPWH), where the Metropolitan Waterworks and Sewerage System (MWSS) is an attached agency. Secretary Rene Almendras used to be the president of Manila Water. He is now the so-called “Little President” of the Philippines, after a stint as chief of the Department of Energy (DOE). Almendras is reportedly one of the closest to Aquino, being in the innermost of the inner circle of the President.

Singson has the notoriety of generating the first political controversy faced by the Aquino administration. Just a week after taking over as DPWH Secretary, Singson appointed himself as ex-officio chairman of the Board of Trustees of the MWSS. While the move was obviously sanctioned by Malacañang through Executive Secretary Paquito Ochoa, Singson was forced to backtrack after his self-appointment as MWSS head was widely criticized due to conflict of interest. Prior to his appointment as DPWH Secretary, Singson, as Maynilad CEO, tried to seal a midnight deal with Efraim Genuino, Gloria Arroyo’s appointed chairman of the Philippine Amusement and Gaming Corp. (PAGCOR). It involved a water concession deal for the Bagong Nayong Pilipino Entertainment City in Parañaque City that would have reportedly deprived government of an estimated P3.6 billion in water fees. Days before Aquino’s inauguration, Genuino and Singson allegedly teamed up to lobby the MWSS Board to approve the deal because Maynilad was concerned that the new PAGCOR leadership under Aquino might not be as accommodating as Genuino. President Aquino, however, defended Singson, saying that he was satisfied with the Cabinet official’s, as well as PAGCOR’s, explanation that there was no contract yet.

Almendras, meanwhile, enjoys a close friendship with Aquino, which dates back to their Ateneo days. His current office, Cabinet Secretary, was created by the President to accommodate Almendras, whom Aquino had to remove from the DOE after a dismal performance underlined by the Mindanao power crisis. The office of the Cabinet Secretary used to be the office of the Cabinet Secretariat which simply facilitates information in Malacañang, according to a Philippine Daily Inquirer report. But Aquino transformed the office through Executive Order (EO) No. 99 and gave Almendras the mandate to among others, determine priorities in the Philippine Development Plan (PDP) and sit in the National Economic and Development Authority (NEDA) board executive committee and subcommittees on infrastructure, social development and investment. NEDA approves public-private partnership (PPP) projects such as MWSS’s Concession Agreements with Manila Water and Maynilad. Changes in the contract between the MWSS and the private concessionaires, including those that concern water rates, also require NEDA sanction.

Aquino indeed has deep ties with the Big Water monopolies. The Ayala family, which controls Manila Water, has a long history of close association with the Aquino family, dating back to the time of Aquino’s late mother Cory as Philippine President. Manny V. Pangilinan, who controls Maynilad, has done a number of mega business deals with presidential cousin and officially declared top Aquino funder in the 2010 polls, Tonyboy Cojuangco such as the PLDT and TV5 deals. MVP and the Ayalas are seen as among the major backers of Aquino in his presidential bid. So don’t be surprised that the chief executives of their business interests landed strategic Cabinet positions.

Don’t be surprised as well that Aquino made PPP or privatization his centerpiece economic program. PPP creates more opportunities for MVP and the Ayalas to further expand their business empires. In fact, Pangilinan’s group and the Ayala family are among the most aggressive in cornering PPP contracts being offered by administration. The Ayalas, for instance, clinched the very first PPP project of Aquino – the P1.96-billion Daang Hari-SLEX Link Road Project. Meanwhile, MVP and the Ayalas have teamed up to bid for the P60-billion extension and privatization of LRT 1, the largest PPP project of the Aquino administration. Incidentally, Malacañang is even using the privatization of MWSS as a showcase in promoting PPP. MWSS privatization is truly a showcase of how PPP can be so profitable for big business. But it’s also a showcase of how privatization can be so oppressive and onerous.

MVP’s Metro Pacific Investments Corp. (MPIC) holds 43% of Maynilad. The Consunji family, which also has close ties with Aquino, controls 25% through DMCI Holdings. Big foreign companies have a substantial share in Maynilad as well with MCNK JV Corp., a unit of Japanese giant Marubeni Corp., and Lyonnaise Asia Water Limited, a unit of French firm Suez, one of the world’s largest water companies, each holding a 16% stake. The Ayala Corporation, on the other hand, has a direct 43%-stake aside from the share being held by Philwater Holdings Co. Inc., which is 60% owned by Ayala and 40% by UK-based United Utilities. Other investors in Manila Water include another Japanese giant, Mitsubishi Corp. (8%) and the World Bank’s IFC (6%) as well as First State Investments of the UK (10%), Singapore-based global fund manager Aberdeen Asset Management plc (5%) and US-based equity mutual fund Smallcap World Fund Inc. (5%).

Daang matuwid pa ba when big business is practically running the government and profiting immensely at the expense of the people? Water rates today are about 585% to 1,119% higher than the initial rates when MWSS was privatized. Our water bill is now among the most expensive in Asia. Still, we face more increases that the Aquino administration will allow despite the harsh impact on the people and despite rising poverty and joblessness.

The Aquino administration, Maynilad and Manila Water must be held accountable for exploiting and oppressing the consumers. We have to end the greed of the Big Water monopolies of Ayala and Pangilinan and their foreign partners, and reverse the anti-people policy of MWSS privatization. (END)

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