Economy, Privatization

“Growth” for big business, at the people’s expense

growth under aquino - ayala-pangilinan-ppp.gov.ph

The Ayala and Pangilinan groups team up in a bid to bag the ₱60-billion LRT 1 privatization project, so far the biggest PPP initiative of the Aquino administration. San Miguel Corp. of presidential uncle Danding Cojuangco is also bidding for the contract. These groups, which enjoy close ties with Aquino, have made a fortune by cornering privatization deals that burden the people with high user fees. (Photo from www.ppp.gov.ph)

Read first part

Structural issues

With the rapid and steady decline of the domestic labor market, labor export has further intensified under Aquino who deploys an average of 1.58 million OFWs a year, a significant jump from the 1 million during Arroyo’s term. If you stretch the comparison to the 1980s, the country is exporting about 3-4 times more OFWs today. In addition, OFW deployment relative to the number of domestically employed workers has steadily increased through the years – from just 2.9% in 2001 to 4.5% in 2011 – indicating the deepening reliance on labor export of the Philippines.

Their remittances (which for the first time breached the $20-billion mark in 2011 and as of September 2012 is reported at $15.57 billion but expected by the World Bank to reach a new record high of $24 billion for the full year) have been keeping the economy afloat in the past three decades by providing means for domestic consumption and payments for our import-dependent production (trade deficit stood at $6.8 billion as of October) and massive foreign debt (pegged at $61.72 billion as of September, which is also the quick and straight answer to one of the favorite 2012 highlights of the administration – the Philippines supposedly being a creditor nation).

In fact, while exports and FDI inflows have increased this year, OFW remittances, the third largest in the world behind remittances from Chinese and Mexican migrant workers, remained the single largest source of dollars for the economy. In the past 10 years, annual OFW remittances are almost 90 times the size of net FDI while the trade balance, as in previous decades, remained perennially in the red, meaning that the neocolonial import-export sector continues to take out invaluable resources from the country, while others in the region like Indonesia, Malaysia, South Korea and Singapore are posting trade surplus of between $25 to $43 billion. Like neocolonial trade, labor export actually takes away more from the economy than the remittances it brings as highly-skilled and trained Filipino workers render their productivity to foreign economies instead of ours. The social costs of labor export such as disintegrating families, issues left unmeasured by statistics, should not be ignored as well.

While actually symptomatic of the permanent and structural crisis that forever besets the Philippines, labor export and remittances drive “growth” as measured by the GDP. This is perhaps one of the biggest anomalies of our maldevelopment. The surprising third quarter expansion, for instance, was mainly driven among others by the 24.3% growth in construction gross value-added (GVA) and 24.8% growth in construction expenditure as record-breaking inflows of remittances fuel demand for residential property. The so-called real estate boom is also being pushed by the BPO sector that according to industry insiders has been driving up demand for new office space which is expected to hit a record 400,000 to half a million square meters this year, or an increase of as much as 25% from 2011.

Like labor export, growth stimulated by BPO is an aberration because its predominance in economic production is actually indicative of the country’s continuing failure to develop and industrialize. Both are the results of the domestic economy’s longstanding structural inability to generate sustainable and productive jobs from vibrant local industries including the manufacture of consumer and industrial goods and modernized agriculture. Without a national industrialization plan, we are forced to rely on what the US and other rich countries require us to do for their advanced economies, whether as production workers in their global assembly lines and factories or as call center agents to service the various needs of their clients. Certainly, they do create some (low-paying, insecure) jobs but just enough to meet their needs while the jobs generated are totally detached from our own development needs.

Furthermore, the so-called resilience amid the global crisis is not because the economy is internally-driven by sustainable, job-generating domestic industries but because our main drivers of growth – BPO and labor export – are precisely useful cost-cutting schemes for the crisis-hit economies of the First World to cope with the economic crunch. In other words, we may continue to “grow” amid the global crisis, but at the great expense of our workers who will be forced to accept further exploitative arrangements in the form of more depressed wages and lack of social protection whether as an irregular call center agent here or an undocumented migrant worker in the US.

At our expense

“Growth” indeed has been at our expense. Not only is the supposed growth not creating enough jobs, it is also being pushed by skyrocketing costs of basic needs and vital economic services. At current prices, electricity, gas and water grew the second fastest in the third quarter among all major industries, just behind construction as the year as usual saw the regular rate increases in privatized electricity and water. While this meant additional burden for the public, it meant more profits for the private corporations that control them.

The nine-month profits of the Manila Electric Co. (Meralco), for instance, increased by 7.9% to ₱12.89 billion, which the company expects to hit ₱16 billion for the full-year. Similarly, In the first nine months of 2012, Maynilad Water Services Inc. has amassed more than ₱5 billion in profits (13% higher than last year) while Manila Water Co. has raked in ₱3.9 billion in profits (26% higher than last year). Due to the never-ending surges in user fees, Manila already has the most expensive electricity rates and the fifth most expensive water rates among major Asian cities.

These utilities are controlled by the country’s richest clans and individuals who are closely associated with Aquino such as presidential uncle Danding Cojuangco and political supporters Manny Pangilinan and the Ayala family. Aside from electricity and water utilities, they also control other key infrastructure such as toll roads, telecoms and power generation. Together with other close Aquino allies like the Lopezes, Aboitizes and Consunjis, among others, these groups have positioned themselves to further expand their business empire through Aquino’s PPP scheme.

growth under aquino - table

The Ayalas have already bagged the ₱1.96-billion Daang Hari – Slex Link Road project earlier this year; Pangilinan/Ayalas, Cojuangco’s San Miguel Corp. and the Consunjis are all vying for the ₱60-billion LRT 1 extension and privatization project, which is also tied to government’s adamant plan to raise LRT/MRT fares by next year; even hospitals are not spared such as the ₱5.6-billion privatization of the Philippine Orthopedic Center which Pangilinan is eyeing to add to his growing list of hospitals.

The much ballyhooed credit rating upgrades are also being achieved at the people’s expense. Credit rating agencies cite the fiscal reforms being undertaken by Aquino that tame the national budget deficit. This includes, among others, raising government fees and imposing new charges through Administrative Order (AO) No. 31 and imposing more taxes like the newly-signed Sin Tax Law to generate additional revenues. Most of these revenues, however, will go to debt servicing as Aquino needs to gain favorable reviews from creditors and credit rating agencies.

Since Aquino took over up to September this year, government has already shelled out ₱1.59 trillion for debt servicing, equivalent to 70.2% of total revenues and 53.3% of total expenditures plus principal amortization. For comparison, debt servicing under Arroyo was equivalent to 65.8% of revenues and 41.5% of expenditures. These belie claims that the national budget under the Aquino administration is now being redirected towards social services to empower and benefit the poor. The expenditure program from 2011 to the recently signed ₱2-trillion 2013 national budget shows that the budget for debt servicing (including principal amortization) is equivalent to an average of 2.5 times that of the budget for education; 6.4 times, health; and 11.2 times, housing.

For elite interests

While the Aquino administration is harping on good governance as being behind the supposed drastic economic turnaround, much of the so-called reforms it is undertaking – with substantial backing from the US government and multilateral institutions like the World Bank – have been more about protecting elite and big business interests and less about curbing big-time systemic corruption or democratizing government. The reforms are all about creating a more conducive atmosphere for investors, i.e. stable and predictable policy environment, less business risks and reduced costs, etc. to reinforce liberalization, deregulation and privatization. The false assumption is that when business is thriving, the people will ultimately benefit through more jobs and income opportunities and improved living conditions. But clearly, this is not happening as the gains from a supposedly expanding economy have remained monopolized by a handful of big local businessmen and their foreign partners and funders.

On top of promoting the interests of big business, the good governance rhetoric is also being used to advance the agenda of the Aquino clique of the political elite. The successful ouster of Renato Corona as Supreme Court (SC) Chief Justice and the appointment of Ma. Lourdes Sereneo, for instance, were more about the consolidation of the political power of the ruling Liberal Party (LP) than making Mrs. Arroyo accountable. Executive hegemony over government branches that formulate policies (Congress) and review the legality of such policies (Judiciary) makes an even more ideal political setting to push for retrogressive economic programs that promote certain big business interests.

In the run-up to the 2013 midterm polls, the LP further heightened their political consolidation under the guise of daang matuwid. Aquino appointed Grace Padaca to the Commission on Elections (Comelec) while LP President and 2016 presidential wannabe Mar Roxas is leading the campaign to unseat non-LP governors in the vote-rich provinces of Cebu and Pangasinan through his powerful post as Secretary of the Department of Interior and Local Government (DILG). The LP is obviously laying the groundwork for their prolonged rule and continued imposition of their brand of elite governance and economics beyond the 2016 term of Aquino.

However, contradictions will surely heighten as the crisis gripping the great majority of Filipinos intensifies. The deception of good governance is good economics and the popularity of Aquino will certainly reach their threshold if joblessness, poverty and hunger continued to deteriorate. The significant 12-point drop in Aquino’s latest satisfaction rating despite the scorching speed of GDP growth could be a portent of things to come. ###

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Consumer issues, Privatization, Water crisis

PH water rates among Asia’s highest

Don’t be surprised if soon we will not just have the most expensive electricity rates in the region but the most exorbitant water rates as well (Photo from gmanetwork.com)

Because of privatization, don’t be surprised if soon the Philippines will have not just  the most expensive electricity rates in Asia but the most exorbitant water rates as well (Photo from gmanetwork.com)

We already know that power rates in the Philippines are the most expensive in Asia. What we do not know yet which will certainly make our collective blood pressure rise is that water rates in the country are also among the highest in the region. Using the same 2011 survey conducted by the Japan External Trade Organization (JETRO) on power rates in major Asian cities, I found out that the water rates in Cebu City and Manila rank fourth and fifth, respectively behind Sydney, Singapore and Jakarta. Yes, we are paying more expensive water than more developed cities like Hong Kong, New Delhi, Beijing, Seoul and others. (See Chart 1, click on image to enlarge) (Download the JETRO survey here)

ph water rates - chart 1

I bring this up after hearing the news that the private water concessionaires of the Metropolitan Waterworks and Sewerage System (MWSS) have been allowed again to jack up their rates next year. A report by the BusinessWorld said that by January 2013, the ordinary customers of Maynilad Water Services Inc. or those with a monthly consumption of 30 cubic meters will see their bill increase by ₱22.52. Meanwhile, the customers of Manila Water Co. Inc. with the same level of monthly consumption will bear a ₱6-spike in their water bill. What a way to greet the New Year for some 13.3 million people in Metro Manila and nearby provinces who get their water from Maynilad and Manila Water.

Prior to these latest increases, Maynilad has already increased its average tariff from ₱4.96 per cubic meter when it first took over the MWSS’s west zone service area in 1997 to ₱32.92 this year. During the same period, Manila Water which services the east zone has hiked its average tariff from ₱2.32 per cubic meter to ₱27.44. This means water rates have already ballooned by 564% to 1,083% since the MWSS was privatized 15 years ago. (See Chart 2, click on image to enlarge)

ph water rates - chart 2

Like in the case of the power sector, privatization and the numerous anomalous perks granted to corporations are behind the incessant rise in our water bills. The concession agreement between the MWSS and the private water concessionaires allows automatic adjustment to protect the profits the Manny V. Pangilinan group (Maynilad) and the Ayala group (Manila Water). In case you did not know, these big business groups with close ties to President Benigno Aquino III do not only control our cellphone networks, roads, electricity, hospitals and soon our LRT and MRT, but also our water.

Anyway, what are some of these automatic adjustments? Take the case of the most recent water rate hike. Maynilad and Manila Water are increasing their basic charge to reflect the movement in the inflation rate as provided under their respective concession agreements with the MWSS. The said agency’s Regulatory Office allowed a 3.2% adjustment in the consumer price index (CPI) to be applied to the private water concessionaires’ current basic charge. What does this mean? It’s a double whammy. Inflation rises because the costs of basic goods and services like food and utilities have gone up. And then water rates will further rise because of higher inflation. Another is the foreign currency differential adjustment (FCDA), which covers fluctuations in the exchange rate and affect the foreign-denominated loans of the concessionaires.

That’s what the water privatization contract stipulates. It doesn’t make sense to us poor consumers but it makes perfect sense for the Pangilinans and the Ayalas. Just look at their soaring profits to see why. In the first nine months of the 2012, Maynilad has amassed more than ₱5 billion in profits (13% higher than last year) while Manila Water has raked in ₱3.9 billion in profits (26% higher than last year).

Meanwhile, the water distribution system in Cebu City which has the fourth most costly rates in Asia is being managed by the Metro Cebu Water District (MCWD). Though not yet privatized, MCWD like the rest of the other 860 water districts nationwide has also been under constant threat of privatization. This was the intention of Senator Edgardo Angara’s Senate Bill (SB) 2997. Fortunately, the proposal has been effectively derailed by the strong campaigning of the Water System Employees’ Response (WATER), a national federation of water district employees. But the bill will certainly be revived after the midterm elections.

In the meantime, the water privateers continue to make inroads through other means. Earlier this year, the provincial government of Cebu has privatized its bulk water system through an agreement with guess who? Manila Water. Manny Pangilinan Manila Water has been on a buying spree of potable water systems around the country. Aside from the MWSS east zone and the Cebu bulk water project, his group it also controls the Boracay Island Water Co., the Laguna Water Co. (servicing the towns of Biñan, Cabuyao and Sta. Rosa) and the Clark Water Corp. in Pampanga.

The bad news is that the buying spree of our potable water systems and even water resources itself by the Pangilinans, the Ayalas, etc. and the consequent soaring user fees and marginalization of the poor will not end any time soon. In fact, the direction is the further expansion and consolidation of wealth and power of these big business groups through more privatization under the public-private partnership (PPP) of Mr. Aquino.

Just recently, the PPP Center announced that the administration’s first PPP water project – the New Centennial Water Source Project – is already in progress. This mega-project costs about ₱25 billion and is seen to provide an additional water source for Metro Manila. Needless to say, a project this big to be undertaken by a profit-oriented consortium will translate to even higher user fees for us under the privatization principle of full-cost recovery. Government has lined up a total of 14 PPP projects that could affect our access to water including four multi-purpose projects or the construction of dams for hydropower, irrigation and domestic water uses which cost some ₱50.75 billion; three hydropower projects, ₱39.24 billion; and three projects for potable water; ₱26.47 billion. The costs of the four other PPP projects have yet to be determined. (See Table at the end of this article)

These are big-ticket items that will surely provide a bottomless well of profits for those who will bag them, which are most likely the same elite families and their foreign funders and partners that have been taking advantage of past privatization projects and Aquino’s current PPP program. For us, it simply means even further exploitation and marginalization as most of us will find it increasingly harder to afford our basic human right to water for domestic use, for our livelihood and decent living.

Don’t be surprised if soon we will have not just the most expensive electricity rates in the region but the most exorbitant water rates as well. ###

Click on table to enlarge

ph water rates - table

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Agrarian reform, Cronyism & patronage, Economy, Privatization, SONA 2012

Sona 2012: How the rich is getting (scandalously) richer under Aquino

Among the major commitments he made in his so-called Social Contract, creating favorable conditions for private business is the only promise that Aquino has been fulfilling (Photo from The Philippine Star)

Part II: Reviewing Aquino’s “Social Contract” and performance

Read Part I: On job creation here

In 2009, the Forbes magazine reported that the 40 richest Filipinos had a combined wealth of $22.4 billion. Last year, the amount more than doubled to $47.43 billion, amid deteriorating poverty and joblessness. What explains such rapid accumulation of wealth? The short and simple answer is that government, including the incumbent Aquino administration, has been creating the most favorable policy environment for big business.

Indeed, Aquino’s apathy to the working class is matched only by his concern for big business. In fact, among the major commitments he made in his so-called Social Contract, creating favorable conditions for private business is the only promise that Aquino has been fulfilling.

In particular, the administration is creating a conducive environment and providing more profit-making opportunities for big business through further privatization of infrastructure, utilities, social services and other vital sectors, or what is called public-private partnership (PPP). Aquino has also aggressively promoted extractive industries including foreign-dominated, export-oriented mining and oil and gas exploration that create social, development and ecological issues.

Privatization and plunder

He has been calling it “daang matuwid” but Aquino’s good governance campaign is more about instituting reforms to reduce business costs and risks than going after big-time plunderers like Mrs. Gloria Macapagal-Arroyo. His campaign to oust Renato Corona as Chief Justice of the Supreme Court (SC) was less about his supposed reform agenda but more about consolidating his control over the entire bureaucracy.

Executive hegemony over government branches that make policies (Congress) and review the legality of such policies (Judiciary) creates an even more favorable political environment to push for retrogressive economic programs that favor certain big local businesses and their foreign partners. They include those who are closely associated with the Cojuangco-Aquino clan and are taking advantage of government’s centerpiece program, the PPP, as well as new contracts in mining and oil and gas exploration, among others.

These big business interests are the same companies that have been expanding their economic empire by taking over, through PPP deals, infrastructure development in energy, telecommunications, transport, and water and storage in the past almost three decades. They include the Ayala family ($10.2 billion in investment commitments from 1984 to 2009); Lopez ($7.1 billion); Pangilinan ($5.3 billion); Razon ($3.2 billion); Aboitiz ($2.8 billion); Ang/Cojuangco of SMC ($2.6 billion); and Consunji ($1.1 billion).

Expectedly, they are the same families that are bagging PPP contracts under the current regime. The Ayalas and its Spanish partner, for instance, cornered the ₱1.9-billion Daang Hari – SLEx link road project. Meanwhile, the Ayala family is also competing with the Ang/Cojuangco group, Pangilinan and Consunji and their respective foreign partners for the ₱60-billion LRT Line 1 extension project. PPP projects oppress the poor not only through higher user fees. To give way to PPP projects, tens of thousands of urban poor families are also being displaced from their communities. (More on this in the next article)

Aside from infrastructure and utilities, another major source of massive profits for the local elite and foreign corporations is the wanton extraction and exploitation of the country’s natural wealth; in particular the vast domestic reserves of mineral and energy resources. Three of Aquino’s closest businessmen-allies are already dominating the energy sector with power firms associated with Cojuangco, Aboitiz and Lopez controlling more than half of the national generating capacity.

For sure, these families were able to increase their power portfolio even before Aquino became President. But under Aquino, they are enjoying even more opportunities for expansion as government implements the Electric Power Industry Reform Act (Epira) of 2001 even more aggressively. Aquino has made a strong pitch to fully implement the Epira in Mindanao, where Cojuangco and Aboitiz have pending coal-fired power plant projects and where private power operators are eyeing the privatization of the Agus-Pulangi hydropower complex.

Meanwhile, it is estimated that some 24% of approved mining applications have been clinched in the first two years of the Aquino administration. As such, it’s not a coincidence that Cojuangco’s SMC has been on a buying spree of mining firms in the past two years.

In 2011, it bought 10.1% stake in Australian firm Indophil Resources NL which owns 37.5% of Sagittarius Mines Inc. (the rest owned by Swiss firm Xstrata Copper), the operator of the estimated $5.9-billion Tampakan copper-gold project in South Cotabato – one of the world’s largest undeveloped sites. In 2010, SMC bought three coal mines in South Cotabato and Sultan Kudarat previously owned by Daguma Agro Minerals, Inc., Bonanza Energy Resources, Inc. and Sultan Energy Mining and Development Corp.

But mining, while profitable, is also contentious and invites strong opposition from various sectors. Consistent with the deception of daang matuwid, Aquino recently issued Executive Order (EO) No. 79, which supposedly attends to concerns on environmental degradation and negligible economic benefits from mining.

While the EO imposes a mining ban on 78 areas designated as ecotourism sites (including Palawan, apparently to appease Gina Lopez and co.) and a moratorium on new mining deals until Congress passes a new law that will increase government’s mining revenues, it will not stop controversial and greatly destructive mining projects such as SMC’s Tampakan. More significantly, Aquino does not intend to reorient the industry and reverse its liberalization the Mining Act of 1995.

Land (un)reform

In his Social Contract, Aquino also promised to recognize farms and rural enterprises as vital to achieving food security and more equitable economic growth. In his PDP, he identified food security and increased rural incomes as among the major goals of government. Also, for agriculture to fulfill its role in reducing rural poverty and achieve food security in the long term, increased incomes, productivity and production shall be enhanced, according to the PDP.

While government boasts of improving rice and food production, even claiming that the country may become self-sufficient in rice by next year, agriculture officials also admit that domestic agriculture remains very dependent favorable weather. But what make domestic food production especially vulnerable to adverse weather events are the accumulated effects of decades of neoliberal restructuring such as trade liberalization, land use conversion, promotion of export crops, etc. which aggravate the basic problems of backward agricultural system (one report said Philippine agriculture is among the least mechanized in Southeast Asia) and landlessness among the direct food producers.

Alas, Aquino is not reversing these neoliberal policies much less implement genuine land reform. The dismantling of large haciendas for land distribution is not in Aquino’s agenda, which of course is not unexpected for someone who comes from one of the wealthiest and most influential landlord clans in the country. Last year, the Department of Agrarian Reform (DAR) was able to distribute just 113,196 hectares out of the already small target of 200,000 hectares, or an accomplishment rate of below 57 percent.

DAR data also show that since taking over as President in July 2010, Aquino’s land acquisition and distribution (LAD) has averaged below 18,000 hectares a month – the second lowest among all post-Edsa administrations. As of yearend 2011, government still needs to acquire and distribute almost 962,000 hectares of land, which at its current LAD rate will be accomplished two to three years after the 2014 deadline set by the Comprehensive Agrarian Reform Program Extension with Reforms (Carper).

Such lackluster performance in LAD is indicative of how the landlord President is indifferent to the plight of landless farmers. The Aquino family’s Hacienda Luisita remains a contentious target for land distribution despite the Supreme Court (SC) ruling, which revoked the stock distribution option (SDO) and ordered the transfer of the sprawling sugar estate to the direct control of farmers and farmworkers.

Taking advantage of the basic flaws of Carper, the President himself is pushing for so-called “just compensation” that his family calculates at a staggering ₱10 billion – a further insult to the poor farmers who are the real owners of the hacienda.

Instead of land reform and consistent with its bias for big corporations, the Aquino administration has been promoting projects that result in further displacement of farmers such as the case of almost 700,000 hectares of agricultural lands that foreign firms from the US, Europe, Middle East and others control (or will control) through agribusiness deals. And as mentioned, the PPP and mining projects that also grab lands away from tillers.

Genuine land reform is indispensable if Aquino truly wants to increase rural income and reduce rural poverty like he stated in his Social Contract and PDP. As shown in previous studies, dismantling the land monopoly will generate an enormous amount of income and free up huge resources, in the process reducing poverty in the countryside where two out of three poor Filipinos live.

Part III: Aquino’s failure to ease poverty and provide social services

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Economy, Human rights, Poverty

Silverio Compound: A fight for the right to live

(Video by Tudla Productions)

The Silverio Compound demolition in Parañaque City was the most brutal in recent memory, leaving at least one dead and some 36 hurt, mostly by gunshot wounds. Some 33 residents and protesters were also arrested, including seven minors and two women. Twenty-nine of them were eventually charged with resistance and disobedience to a person in authority and disturbance of public order. While some of the wounded were brought to various hospitals, many others refused to seek proper medical attention out of fear of being arrested or simply due to lack of money.

Negotiations

On April 23, residents blocked certain portions of Silverio Compound as early as 5 a.m. The main barricade was set up at Purok 4, which fronts the SM Hypermart. By 7 AM, five 6×6 trucks each carrying 30 to 40 policemen from the Parañaque City Civil Disturbance Management Unit (CDMU) along with two fire trucks began arriving in the area. They were backed by several members of the police’s Special Weapons and Tactics unit (SWAT) who were armed with high-powered assault rifles. By around 7:30 AM, many residents had already occupied Sucat Road, which was meant to cause traffic and delay the demolition. A demolition team of some 50 men arrived at about 8 a.m.

Initial findings of the emergency fact-finding mission (FFM) conducted by the Bagong Alyansang Makabayan (Bayan) several hours after the bloody incident show that members of the CDMU provoked the violent confrontation. Prior to the hostility, leaders of the residents and local politicians Cong. Edwin Olivarez, former Cong. Ed Zialcita, and Councilor Eric Olivarez were negotiating with the police (talks began at around 9 a.m.) to suspend the demolition as the Silverio compound is the subject of a pending court case. The CDMU, on the other hand, was asking the protesters to free up a portion of the road to let vehicles pass.

Gun shots

Despite ongoing negotiations to suspend the demolition and willingness of residents to heed the police’s request to allow traffic flow, the CDMU prepared to turn toward the direction of the protesters at past 10 a.m. Witnesses also said they saw men secure the local politicians, which indicated that the police was getting ready to move. Thinking that the CDMU was about to disperse them, the residents started to hurl stones at the police. Eventually, the police responded by firing teargas toward the direction of the protesters. Accounts claimed that the police fired more than 10 teargas canisters.

The CDMU and SWAT members were forced to backtrack a bit but moments later, gun shots were heard, apparently fired by the police, sporadic at first and then in succession. The string of gun shots forced protesters to back down and run away while the CDMU and SWAT teams advanced and began arresting people. One person – later identified as 21-year old Arnel Leonor, a resident of Silverio Compound – was seen lying on the pavement, with what appeared to be a fatal gunshot wound in the head. He was brought to a hospital by the police many minutes later but was declared dead on arrival.

Violations galore

The atrocities committed by the police did not end in the indiscriminate shooting of the residents that killed Leonor and wounded others. Many of those who were already apprehended or subdued were still assaulted by the angry police. They were truncheoned, punched, kicked and slapped at whim by the arresting officers. These were captured by the media who were covering the incident. Worse, the arrests were arbitrary; the police picked up anyone they wanted. Some of those arrested and assaulted by the police were mere onlookers. They said they did not run away because they did not participate in the protest and thus thought will not be arrested, much less assaulted by members of the CDMU.

Arbitrary house-to-house searches were also carried out by the police to look for more people to pick up. Witnesses claimed that some police officers again fired their guns during these house searches. The demolition team, meanwhile, pushed through with the demolition of several stalls and houses.

Private profits over public housing

This bloody incident could have been prevented had Mayor Florencio Bernabe respected the original agreement between Silverio Compound residents and former Mayor Joey Marquez that the entire 9.7-hectare property will be used for socialized housing. This means that the 28,000 families occupying the property will just amortize the land to the Parañaque City government. It was Marquez who, in 2003, initiated the expropriation proceedings by virtue of an ordinance against Silverio Compound’s private owner Magdiwang Realty Corp. But Bernabe changed the plan, reduced the size for socialized housing to 3 hectares, and pushed for the construction of 32 medium-rise condos that can only accommodate some 1,900 families.

Bernabe is pushing for a public-private partnership (PPP) project for Silverio Compound, eyeing big developers including SM Development Corp. (SMDC) to build the medium-rise buildings and other infrastructures in the area. The remaining 6.7 hectares of the property will also be devoted for commercial development in a bid to entice private investors in the city. Clearly, this is a case of the local government prioritizing private profits over the people’s basic right to shelter.

Impunity

The blatant disregard for human rights displayed by the police involved in the incident speaks volume of how deep the culture of impunity has been ingrained among our law enforcers and security forces. To end this culture of impunity, those who are involved, directly and indirectly, and not only members of the SWAT and CDMU but even police and civilian officials, in the tragic Silverio Compound demolition must be held liable.

What is alarming is that recent developments point to the regrettable possibility of a whitewash. National officials, for instance, are now seemingly conditioning the public mind that Leonor could have died from a bullet fired by one of the protesters. Supposedly, one of those arrested tested positive for gunpowder. Only an independent probe of the incident, including a re-autopsy of Leonor’s body by an independent party, could provide a more credible finding.

There is no doubt that the police used excessive force in enforcing the demolition order. Their abuses have been well-documented by media outfits who covered the incident and their identities could be easily established. Bernabe, on the other hand, clearly abused his power in insisting to implement the demolition. There are more than enough grounds to immediately make these people accountable.

Call for support

While the residents of Silverio Compound remain undaunted by oppression and brutality, they need all the support that they can muster to ensure that justice will be served. At the same time, they also need assistance – medical, legal, etc. – to help them cope with the tragedy inflicted on them by institutions that are supposed to uphold their rights and promote their interests.

The people of Silverio Compound, like those in other urban poor communities who have been dislocated or threatened by PPP projects that only profit the few, are fighting not only for their homes but for their right to live as human beings. All those who value this very fundamental human right could not allow them to fail. (end)

Written for Paninindigan, Bayan’s official publication (click here)

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Economy

PH economy in 2011 (Part 1): Flawed development plan

There is nothing in the 400-page Philippine Development Plan (PDP) 2011-2016 that could create the conditions for inclusive growth as it adheres to the same flawed development paradigm of neoliberal globalization (Image from the NEDA)

First published by The Philippine Online Chronicles

The political noise generated by the showdown between Malacañang, the Arroyo camp, and the Supreme Court (SC) towards the end of 2011 drowned concerns on the anemic performance of the economy. Critics of President Benigno S. Aquino III even argue that the energy of government is being spent too much on going after Mrs. Gloria Arroyo. Consequently, they said, important issues like the slowdown in economic growth are left unaddressed. The most rabid allies of Arroyo even go as far as claiming that Aquino is reversing the supposed gains achieved by the economy during the previous administration.

However, the deteriorating economic performance and social conditions are not simply the result of Aquino’s mismanagement as often alleged by critics and the political opposition. Much of it is due to the lack of real policy reforms that can shift the course of the economy from that taken by Arroyo and previous governments. This has been the underlying reason behind Aquino’s continuing failure to turn the economy around and improve the lot of our people.

Inclusive growth?

In March, the Aquino administration approved the Philippine Development Plan (PDP) 2011-2016 which details the policies and programs that it intends to pursue throughout its term. Supposedly, the primary aim of the plan is inclusive growth that is unlike the trickle-down and jobless growth the economy had in the past. To achieve inclusive growth, the PDP promotes good governance and anti-corruption that are expected to create massive job opportunities and reduce poverty.

But aside from being couched in good governance and anti-corruption rhetoric, the PDP does not offer anything substantially different from past medium-term plans. There is nothing in the 400-page document that could create the conditions for inclusive growth as it adheres to the same flawed development paradigm of neoliberal globalization. Like its predecessors, Aquino’s PDP is skewed towards building the most favorable environment for profit-seeking foreign business and their local partners.

Even the much ballyhooed good governance campaign of the administration has been reduced to issues that affect investment decisions and cost of doing business in the Philippines, including the enforcement of contracts and competition measures. Such pro-business environment could only come at the expense of the toiling masses and other oppressed sectors including small Filipino industries.

To conceal the bankruptcy of globalization policies like its centerpiece program public-private partnership (PPP), Aquino is scaling up the foreign debt-funded conditional cash transfer (CCT) scheme. According to the PDP, the CCT “shall be the cornerstone of the government’s strategy to fight poverty.”

By insisting on a development model that depends on unreliable external sources of growth mainly from the US and other advanced capitalist countries, Aquino’s PDP is oblivious to the glaring failures of past medium-term plans and the lessons of the ongoing global crisis. Since 2008, many developed countries have been implementing protectionist measures, which for the PDP, are “policies that distort competition” and “are the main impediments to growth.”

For big business

To achieve inclusive growth, the PDP has set a target of an annual expansion in the real gross domestic product (GDP) of 7-8% and an annual net employment increase of one million jobs from 2011 to 2016. The PDP aims to do this by promoting what it described as areas with “the highest growth potentials and generate the most jobs.” The PDP listed them as tourism; business process outsourcing (BPO); mining; agribusiness and forest-based industries; logistics; shipbuilding; housing; electronics; and infrastructure.

It is not by chance that these are the same priority areas being lobbied for government promotion by the Joint Foreign Chamber of Commerce of the Philippines (JFC) to supposedly increase investment and create jobs in the country. The JFC is composed of the chambers of commerce of the US, Japan, Europe, Canada, Australia-New Zealand, and South Korea as well as the Philippine Association of Multinational Companies Regional Headquarters.

This underscores how medium-term plans, including Aquino’s PDP, are shaped not by the specific development needs of the country and its people, but by the particular interests of outside investors forever looking for the most profitable means to cash in on the domestic economy. Filipino micro, small, and medium enterprises (MSMEs), on the other hand, are still reduced to mere adjuncts of foreign business and exporters, and not as dynamic players in domestic production.

The PDP’s priority areas are long held as supposed drivers of growth and employment but have until today continued to fail to induce sustained economic growth, much less address the chronic job scarcity and reduce poverty. They fail because while they may attract some capital and create some jobs, they are not anchored on any long-term national industrialization plan that promotes and relies on domestic production and consumption. They have always been driven by what is profitable for foreign investors and what meets the appetite of the global market, specifically of the developed world.

This has been the case, for instance, in foreign-dominated extractive industries like mining, agribusiness, and forestry which have only plundered the country’s natural wealth to satisfy the need for raw materials of advanced capitalist economies. Export-oriented manufacturing, including electronics, has only exploited cheap Filipino labor and has no significant linkages to the domestic economy. The fast rising BPO industry, meanwhile, is also illustrative of how “growth” has become detached from the specific requirements of the domestic economy as it caters to First World industries and produces jobs that are alien to most unemployed Filipinos.

Labor export

Whether or not these industries could help generate a million jobs a year remains to be seen, but as it is, the target is too modest for the promised economic growth under the PDP to be inclusive. Job scarcity has been at its worst since the past decade, mitigated only by the growing export of overseas Filipino workers (OFWs). In 10 months this year, the country has been deploying 4,441 OFWs every day, higher than last year’s 4,214.

And as if an implied admission of the absence of a comprehensive program for domestic job creation, the PDP endorsed labor export as a policy, defining employment generation as “all forms of employment… whether at home or abroad.” On top of mitigating the jobs crisis, labor export, said the PDP, has also become a steady source of foreign exchange and capital, and help fuel domestic consumption. These are the supposed “benefits” of labor export that the Aquino administration is unwilling to forego and instead pursue through strong domestic job creation. But aside from the incalculable social dimension of forced labor migration, labor export is also anti-development in the long run as the domestic economy is deprived of invaluable human resources.

Justified by its stated goal of creating jobs, the PDP is explicit in its intent to promote the interest of corporations. At the same time, it is silent on the quality of jobs that it intends to produce or in particular, how the rights and welfare of workers will be safeguarded and advanced. Due to the single-minded purpose of the PDP to attract more foreign investment to generate jobs, it is likely that the ongoing assault on workers’ rights to job security, to unionize, and to receive wages that allow for decent living, among others will continue and worsen. Under the PDP, tripartite councils shall be strengthened to ensure “industrial peace”, often a euphemism for subverting workers’ resistance, instead of the government assuming a more proactive role in defending the rights and welfare of wage earners.

Infra for profits

As envisioned in the PDP, infrastructure development will serve the overall goals of inclusive growth and poverty reduction in two major ways – first, as a priority area for private investment and as a producer of jobs; and second, as support to economic sectors and as a provider of equitable services, including housing, health, and education. At the heart of government’s efforts to accelerate infrastructure development is the PPP scheme, thus ignoring the decades of harmful experience under privatization. PPP first became a national policy through the structural reforms imposed by the International Monetary Fund (IMF) and the World Bank in the late 1980s during the first Aquino administration.

The case of privatized water and power infrastructure is most telling; private investors are assured of profits through over-generous and anomalous incentives and even bailouts, which exacerbated the fiscal burden of government. User fees have also gone up excessively to the great detriment of consumers especially because the target of privatization has been the basic infrastructure like utilities. These are the sorts of problems that the PDP will aggravate with its avowed promotion of PPP. Under Aquino, the fees at the country’s toll roads have already hugely increased while similarly exorbitant fare hikes face commuters of the LRT and MRT.

Meanwhile, the administration is also proposing specific amendments to the Build-Operate-Transfer (BOT) Law or Republic Act (RA) 6957 (as amended by RA 7718) to set the legal basis of the so-called regulatory risk guarantee. The said guarantee will oblige government to shoulder the “losses” of a PPP investor in case a local court, regulator, or Congress stopped it from imposing a questioned user fee. These issues easily offset whatever economic gains the country gets from additional and improved infrastructure. Worse, even the supposed economic gains are suspect. Due to the flawed neoliberal framework of the PDP, infrastructure development will merely serve the narrow profit agenda of foreign business and their local partners instead of helping lay down the foundation for genuine national industrialization.

Dole and smokescreen

Finally, the PDP has also set “social development” among its agenda, and will “focus on ensuring an enabling policy environment for inclusive growth (and) poverty reduction.” One of the main strategies to meet the social development component of the PDP is the provision of CCT to the poor.

Under Aquino, the scope of the CCT has been expanded tremendously and the program that Arroyo started with just several thousand beneficiaries in 2007 now intends to cover 4.3 million households by end of the PDP. For 2012 alone, the CCT program targets 3 million households with a proposed budget of P39.5 billion (from just P10 billion in 2010). This massive expansion in scope and budget is not backed by any thorough assessment on whether the program has actually contributed to sustained poverty reduction, not to mention that it is funded by $805 million in growing foreign debt that has long been debilitating the economy and depriving the poor of much needed social services.

As it is, even the target of 4.3 million households is still just a fraction of the ever growing population crippled by joblessness or lack of livelihood amid ever rising cost of living – social ills that ironically are being aggravated by the same globalization policies of the PDP. With the absence of programs that can produce long-term, productive jobs, and address the structural roots of poverty such as implementing genuine land reform and dismantling the neocolonial economy in favor of national industrialization, the CCT at best, could only provide temporary dole to a small portion of the poor. For Aquino, the CCT’s best purpose is to smokescreen the failed neoliberal policies of past Philippine development plans in order to justify the present. Meanwhile, questions on the CCT program have also been raised recently by the Commission on Audit (COA), which found out that cash allowances had been provided to families who are not qualified beneficiaries. #

To be continued (read here)

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Economy, Fiscal issues, Privatization

Aquino’s 2012 budget: Diretso sa tubo (Part 2)

Aside from creating more profit-making opportunities for private business through the PPP, the 2012 budget is also focused on creating the most favorable conditions for investors. (Photo from mylot.com)

First published by The Philippine Online Chronicles

Continued from Part 1

To fund his Public-Private Partnership (PPP) initiatives, President Benigno S. Aquino III is proposing in his 2012 budget an amount of P8.6 billion for the Department of Transportation and Communications (DOTC) and another P3 billion for the Department of Public Works and Highways (DPWH). The said amounts are for the various PPP ventures of the two agencies, including for the preparation of business cases, pre-feasibility and feasibility studies.

Aquino has tasked the DOTC and DPWH to implement his first 12 PPP projects. PPP Center data show that the DOTC is handling eight projects worth P95.3 billion for the privatization and expansion of the light rail transit (LRT) and metro rail transit (MRT) and another P16.7 billion for the privatization and development of airports in Bohol, Albay, Palawan, and Puerto Princesa. On the other hand, the DPWH is in charge of four projects worth more than P44.9 billion for expressway projects in Luzon.

These projects are on top of the numerous other PPP initiatives that will be handled by the DOTC and DPWH under the medium-term plan of the Aquino administration.

Another major recipient of the 2012 PPP support fund is the Department of Agriculture (DA), which will receive P2.5 billion for right of way, infrastructure, and other related support. The DA and its attached agencies are in charge of 16 PPP projects for medium-term rollout worth at least P55.8 billion for irrigation, post-harvest facilities, and agribusiness ventures, among others.

(Download the complete list of Aquino’s PPP projects here)

PPP for social services

But aside from infrastructure development, Aquino is also expanding the use of PPP schemes to the delivery of social services. One is the P3-billion government counterpart funding to rehabilitate, maintain, and operate 25 regional hospitals. Another is the P5-billion fund for school building construction through PPP, wherein the contractor will undertake the financing, design, construction, and maintenance of classrooms and turns them over to the Department of Education (DepEd) after completion.

In his budget message, Aquino also said that the administration is employing the Multi-Year Obligational Authorities (MYOA) to encourage private participation in the
construction, operation, and maintenance of school buildings, health centers, and other basic government infrastructures. MYOA is an authority released by the Department of Budget and Management (DBM) to enable an agency to enter into a multi-year contract for locally-funded or foreign-assisted projects.

The DepEd has been ordered by the President to pursue PPP projects for the construction of elementary and secondary schools (amount still to be determined) “as public funds are not being able to fully cover the needs of an increasing school population”, according to the PPP Center. DepEd Secretary Armin Luistro has also recently bared his agency’s plan to establish privately-run public schools
supposedly to address critical shortages in the public school system.

Department of Finance (DOF) Secretary Cesar Purisima, on the other hand, said that the government will be bidding out contracts for the construction of 10,000 school buildings within the year. Purisima said the private contractors will build and maintain the school buildings while the government will pay them over a period of time.

Meanwhile, the DOH will handle 11 PPP projects for medium-term rollout worth at least P7.9 billion, including the construction of the Philippine Health Insurance Corp.’s (PhilHealth) building, hospital staff housing facilities, use for commercial operations of hospitals’ unused lands, research facilities and materials, air transport service, commercialization of the Philippine Orthopedic Center, and use of information and communication technology (ICT).

All in all, the 2012 strategic support fund for PPP projects of the DepEd, DOH, DOTC, DPWH, and DA is pegged at P22.1 billion, of which P8 billion are fresh funding for PPPs in education and health.

Budget cuts

While allotting P8 billion and P5 billion in new funding for PPP initiatives in health and education, respectively, the supposedly Diretso sa Tao budget has either frozen or cut the allocation for key items to sufficiently meet the growing public health and education needs.

According to the Coalition for Health Budget Increase (CBHI), for instance, the Maintenance and Other Operating Expenses (MOOE) of five Metro Manila-based special hospitals and 18 local hospitals nationwide have been kept at their 2011 levels. Also, the Personal Services budget of the five special hospitals and of 16 local hospitals nationwide has been reduced.

In addition, the budget for Service Delivery Programs has been cut by almost a billion pesos while the budget for Health Facilities Enhancement Program has been slashed by more than two billion. Also, the subsidy for indigent patients for confinement or use of specialized equipment has been totally scrapped, according to the CBHI. It said that at least P90 billion, or more than P40 billion higher than Aquino’s proposed 2012 allocation, is needed to provide immediate relief to the health needs of the people.

The same thing is true with the education budget. Activist youth group Anakbayan has pointed out that the budget for 50 State Universities and Colleges (SUCs) will be slashed by P583 million. Meanwhile, despite the seemingly huge P31.5-billion increase in the DepEd budget, its allocation can only plug 27% of the backlog in classrooms, 19% of the backlog in desks, and 13% of the shortfall in teachers.

Pro-business budget

The country’s experience with PPP in the past three decades has been awful, to say the least. Various PPP initiatives in the power, water, road, and mass transportation sectors, among others, have all resulted in exorbitant user fees and onerous debts all in the name of assuring the profits of private business. The proposed regulatory risk guarantee of Aquino to further entice the private sector in his PPP program will surely worsen the public cost of privatization.

But even more alarming is the greater intrusion of profit-oriented investors in the most basic social services. The costs of running of hospitals and schools will certainly rise as PPP contractors expect not only to recover their investment but also to earn profits, which distorts the nature and role of public schools and hospitals. The increased cost will either be directly passed on to the patients and students through higher user fees or to the general public through the regulatory risk guarantee, or both.

From a fiscal point of view, PPP also does not guarantee that the budgetary woes of the government will be resolved based on the country’s own experience. Similar outcomes are evident in other countries. A recent study, for instance, by the Washington-based group Project on Government Oversight (POGO) found that the US government actually spends more when it hires private contractors to provide services than when the government itself is undertaking such tasks.

Anti-development

Aside from creating more profit-making opportunities for private business through the PPP, the 2012 budget is also focused on creating the most favorable conditions for investors, particularly in those sectors that the administration deems as growth and employment drivers. They include tourism, electronics export, and business process outsourcing (BPO), among others.

P9.2 billion, for example, has been allocated for access roads to tourist destinations on top of airport projects that will also be pursued through PPP. P500 million, meanwhile, has been assigned to the Commission on Higher Education (CHED) to focus the curricula of SUCs on BPO and tourism as well as agriculture and infrastructure development.

But these priority areas for development have long failed to spur sustained economic growth, much less address the chronic job scarcity and reduce poverty. They fail because they are not anchored on any long-term national industrialization plan that promotes and relies on domestic production and consumption. They have always been driven by what is profitable for foreign investors and what meets the appetite of the global market, specifically of the developed world.

Dole-out for the poor

The only semblance of Diretso sa Tao in the 2012 budget is the P39.5 billion allocated for the controversial Conditional Cash Transfer (CCT) program. For 2012, the CCT targets 3 million households with a proposed budget of P39.5 billion or P18.3 billion higher than this year’s budget. Aquino aims to cover 4.3 million households by the end of his term.

Such massive expansion in scope and budget is not backed by any thorough assessment on whether the program has actually contributed to sustained poverty reduction, not to mention that it is funded by $805 million in growing foreign debt that has long been debilitating the economy and depriving the poor of much needed social services.

As it is, even the target of 4.3 million households is still just a fraction of the ever growing population crippled by joblessness or lack of livelihood amid ever rising cost of living – social ills that ironically are being aggravated by PPP and other flawed development programs that the 2012 budget supports. Thus, the CCT is simply being used by the Aquino administration to sell his proposed national budget as Diretso sa Tao but at its core is Diretso sa Tubo. #

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Consumer issues, Power industry, Privatization

Power lords

San Miguel Corporation cornered 41.3 percent of privatized generating plants and IPP contracts in terms of capacity (Photo from allvoices.com)

(Continued from Part 2)

The restructuring of the power industry under EPIRA facilitated the creation of new private monopolies that lord over not only the distribution but also the generation of electricity. The dominant position of these monopolies, controlled by billionaires in Forbes’ list of richest Filipinos and their foreign partners, is bound to further intensify under Aquino’s public-private partnership (PPP) program.

Privatized power plants and IPP contracts

Out of the 7,665.88 megawatts (MW) in capacity of privatized generating plants and IPP contracts, Danding Cojuangco’s San Miguel Corporation (SMC) cornered 41.3 percent while the Aboitiz group bagged 28.5 percent. Other major buyers include the Consunjis (7.8 percent) and the Lopezes (7.4 percent). American firm AES Corporation accounted for a significant 7.8 percent. South Korean companies SPC Power and K-Water have a combined 5.8 percent. (It includes the Angat hydropower plant that was put on-hold by the Supreme Court.) Five companies accounted for the remaining 1.4 percent.

The costs of these transactions total $6.69 billion. SMC accounted for 35.9 percent of the said amount; Aboitiz, 30.2 percent; AES Corp., 13.9 percent; K-Water, 6.6 percent; Lopez, 5.7 percent; Consunji, 5.4 percent; and others, 2.3 percent. (See Table 1)

In terms of overall generating capacity, the restructured Philippine power sector is now dominated by just three companies – San Miguel Power Corporation (20 percent), Lopez-owned First Gen Corporation (17 percent), and the Aboitiz group (15 percent).

Government through NAPOCOR and PSALM has 30 percent. (See Chart 4) SMC’s rise as a major player in the power industry is truly phenomenal considering that it has only started venturing in the industry in 2008.

These are the same groups that also control the biggest distribution utilities (DUs) in the country. SMC and the Lopez group, for example, control MERALCO with 27 percent and 6.6 percent, respectively. (Manny Pangilinan’s Metro Pacific controls 45 percent.) MERALCO is the largest DU in the Philippines with a franchise area covering 24.7 million (about 25% of the national population) in 31 cities and 80 municipalities. It serves Metro Manila, Bulacan, Rizal, and Cavite as well as parts of Laguna, Quezon, Batangas, and Pampanga.

The Aboitiz group, on the other hand, controls the second and third largest DUs – the Visayan Electric Company (VECO) and Davao Light and Power Company. VECO serves Metro Cebu covering four cities and four municipalities. Meanwhile, Davao Light serves Davao City and Panabo City as well as three municipalities in Davao del Norte. Aside from these DUs, the Aboitiz group also controls Cotabato Light and Power Company, San Fernando Electric Light and Power Company, and the DUs serving the Subic Freeport zone, Mactan export processing zone, and the West Cebu industrial park.

SM tycoon Henry Sy has taken advantage of the EPIRA as well. His One Taipan Holdings (30 percent), State Grid of China (40 percent), and Calaca High Power Corporation (30 percent) control the National Grid Corporation of the Philippines (NGCP). NGCP holds a 25-year concession agreement (CA) with government to operate the country’s transmission system beginning in January 2009.

No transparency or competition

Cross-ownership in distribution and generation, which EPIRA allows, makes claims by advocates of neoliberal power restructuring about transparency and competition in pricing an outright lie. EPIRA’s unbundling of rates, for example, is practically meaningless even if a consumer can see in his or her monthly bill how much he is paying for generation and distribution. Market abuse is not prevented even if rates are unbundled due to cross-ownership. This has been clearly illustrated in the operation of the EPIRA-created Wholesale Electricity Spot Market (WESM).

The WESM, which has been operating in Luzon since 2006, is meant to among others “provide and maintain a fair and level playing field for suppliers and buyers of electricity”. But cross-ownership negates whatever benefits that the WESM is supposed to offer. The intention of the WESM is to make rates more competitive by offering prices other than those set in the bilateral contracts. EPIRA even capped at 50 percent the power requirements that DUs can source from their own generators and the rest they must get from other IPPs and the WESM.

However, the WESM itself is dominated by the same generators that are related with the DUs. IPPs connected with MERALCO, for instance, account for 42.6 percent (SMC with 24.8 percent and Lopez, including Quezon Power, 17.8 percent) of the 11,652-MW capacity registered at the WESM. The Aboitiz group, meanwhile, comprises 13.1 percent. The huge shares of these groups to the WESM-registered capacity make the spot market vulnerable to manipulation and speculation. Case in point was early last year when the price of electricity at the WESM reached an unbelievable P68 per kWh at one point during the height of the El Niño.

The high WESM prices have been blamed by MERALCO for the monthly increases in its generation charge last year. The latest adjustment in MERALCO’s generation charge worth 51 centavos per kWh, announced last Tuesday, is again being blamed at the high increases in the WESM, where rates jumped by P1.89 per kWh. MERALCO IPPs, on the other hand, increased their rates by a smaller 16.2 centavos per kWh.

Energy insecurity

Finally, the country’s energy security has remained precarious under EPIRA. The rotating brownouts experienced in different parts of the country last year is a tell-tale sign that the power crisis has not been resolved by privatization. In Mindanao, for example, the power shortage reached as high as 700 MW in March 2010 that led to rotating brownouts of as long as 8 hours daily. Government quickly blamed the El Nño because Mindanao gets more than half of its power supply from hydroelectric plants.

But apparently, the deeper issue is not drought but government neglect. During the Aquino administration, for instance, Mindanao’s power mix was 75 percent hydro while peak demand was 800 MW, according to a former NAPOCOR president. In 2010, DOE data show that hydro accounted for a relatively smaller 51.8 percent of installed capacity in Mindanao while peak demand was 1,288 MW. Thus, the El Niño could not be solely blamed for the shortage since no significant additional capacity has been put in the region. This should have been the job of government but because of EPIRA, it focused on selling the assets of NAPOCOR instead of installing additional capacity.

Even Luzon was not spared from rotating brownouts during last year’s El Niño. Aggravating the low levels in Luzon’s major dams were the uncoordinated shutdowns implemented by privately controlled power plants. They include SMC generation plants Sual and Limay as well as the Lopez plants that use natural gas from Malampaya. The power supply shortfall reached 641 MW, which could have been easily offset by Luzon’s excess capacity and thus avoid the rotating brownouts. But because EPIRA has dissolved government’s role in ensuring power supply, there is no mechanism in place to fill the gap resulting from plant shutdowns.

Ten years is enough

Its proponents argue that EPIRA must be given a chance to work because once fully implemented, the country will surely reap its promised benefits. They cite the impending implementation of the so-called open access and retail competition. Under this system, power consumers will have the opportunity to choose their suppliers. But then again, the industry has already been monopolized by a few players making the supposed option to choose an illusion.

For its part, the Aquino administration and its allies in Congress have worked for the amendment of EPIRA to extend the so-called lifeline subsidy. But it still does not address the exorbitant and rising electricity rates that Filipino consumers are forced to shoulder. Besides, the subsidy is being paid for by other consumers and does not come from the pocket of MERALCO or government.

Ten years of EPIRA is enough. Its defects could not be corrected by simple cosmetic amendments. It is fundamentally wrong to allow the narrow profit agenda of private companies and banks to take over a sector as strategic as the power industry.

EPIRA has resulted in the doubling of power rates and intensification of private monopolies. At the same time, it failed to address the financial problems of NAPOCOR and the country’s energy security. Only NAPOCOR’s creditors and private local and foreign companies have benefitted from power restructuring. For these reasons, there is a clear and urgent need for our policy makers to seriously rethink the law and work for its repeal. (END)

Read Part 1 – 10 years of EPIRA: what went wrong? and Part 2 – The curious case of NAPOCOR debts

Also read The role of foreign lenders, investment banks, and credit rating agencies in Philippine power sector reform

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Privatization

LRT, MRT fare hike: no other recourse but to protest

Today’s (February 4) public consultation on the LRT and MRT fare hike organized by the Light Rail Transit Authority (LRTA) and the Department of Transportation and Communications (DOTC) confirmed two important issues.

First, that the fare hike is indeed meant to pass on a bigger share of the debt burden to LRT and MRT commuters. The presentations of the technical staff of the two government agencies confirmed, in so many words, what we have been saying all along. Current fares are enough to cover the core expenses of operation and maintenance. But the onerous terms contained in the contracts created huge and even unnecessary debts for government.

Download the Powerpoint presentations of the LRTA here and the DOTC here.

Consider, for instance, the slides below which I lifted from the Powerpoint presentation of the DOTC on MRT. The first slide shows that the total income of the MRT in 2010 was P1.916 billion, of which P1.904 billion were generated from passenger fares.

However, as shown in the next slide, MRT expenses reached P8.52 billion during the same year which the DOTC said resulted in a government subsidy of P6.6 billion to bridge the shortfall in revenues (that was only P1.92 billion).

The next question is what makes up the P8.52 billion in expenses? The third slide below breaks down the P8.52 billion (the figures in the slide add up to P8.52 billion) and shows that operating costs comprise only 7.6 percent of the total and maintenance costs comprise only 13.9 percent. A huge 61.1 percent represents the Equity Rental Payment, which refers to DOTC payments for the 15 percent return on investment (ROI) that government guaranteed private investors in their Build Lease Transfer (BLT) agreement. Another 13.6 percent represents debt payments that government also guaranteed in the BLT.

The LRTA presentation on LRT 1 and 2 tells the same story about the so-called losses and subsidies that government wants to reduce by making commuters pay more. The slide below shows that the consolidated revenues of LRT 1 and 2 in 2010 was P3.089 billion but spent P2.928 billion for operation expenses. The LRTA also spent P3.556 billion for interest payments and others resulting in a net loss of P5.902 billion.

Add to these expenses the amortization of principal worth P2.341 billion and capital expenditures of P648 million, as shown in the slide below, further pushing the LRTA deficit in 2010 to P8.927 billion, which government claims is the cost of subsidy. In other words, of the P8.927 billion in so-called subsidy, P5.269 billion or more than 59 percent represents interest and principal payments for loans.

If you consider that almost 8 out of 10 LRT and MRT commuters are ordinary workers and employees and students, passing on an increasing portion of these debts, which include onerous loans, through a fare hike is a major, major injustice.

Secondly, LRTA administrator Rafael Rodriguez also confirmed that the public consultation is optional and therefore has no real bearing on the decision of Malacañang to increase the fare in LRT and MRT. This means that despite the opposition of those being consulted, students in this particular case, the LRTA and DOTC, as ordered by President Aquino, can still proceed with the fare hike anyway.

The consultation ended with the expected “We will study your concerns”, which was the gist of the closing statement made by DOTC Undersecretary for Rail Transport Glicerio Sicat. He also said that they will consider the option of lowering the increase and giving fare discounts because of the concerns raised by the students. This, however, dismissed altogether the issues of onerous debts, mass transport as public service, privatization as the driving motive behind the fare hike, and other major policy issues that were raised during the open forum.

Therefore, the commuters have no other option now but to continue and further intensify the protests until the Porsche-driving President backs down on his decision to raise the fares.

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Privatization

Public consultation on LRT/MRT fare hike starts today as Pangilinan offers to buy MRT for $1.1B

Servicing debts through higher user fees will cancel out the social and economic gains from LRT/MRT

One of the most basic questions that we have been asking DOTC and LRTA officials is what constitutes their estimated full cost fare of P35.77 for LRT 1, P60.75 for LRT 2 and P60.03 for MRT. Sadly, we have not been given a detailed and exact answer (the closest is the rule of thumb that 85 percent of cost in large infrastructure projects is made up of debts) in our several dialogues with them. Even the documents that have been given us do not provide the answer. Thus, we have only made assumptions on what comprises the full cost fare (for instance, read here and here) based on data made available to us by the authorities.

The full cost fare is one issue that we hope to finally get a detailed answer from the LRTA and DOTC in the public consultation on the LRT and MRT fare hike today (February 4) and tomorrow. (Bayan and other groups are participating in the consultation. You may download Bayan’s position paper, which will be submitted to the LRTA during the consultation, here.) If you’re wondering why this is so important, it’s because the crux of government’s argument for a fare hike is that they could no longer continue “subsidizing” the gap between the current fare and the supposed full cost fare.

The latest batch of documents that we were able to get from the LRTA yesterday through its corporate secretary Atty. Hernando Cabrera still does not give the answer despite our very specific request. The documents include, among others, the breakdown of subsidies that the LRTA received from the national government from 2006 up to the approved amounts for 2011. These subsidies total P12.85 billion but are for expansion projects and, I assume, not the subsidies that the LRTA and DOTC refer to when they computed the full cost fare. Or I might be wrong. And if this is the case, transport officials will have more explaining to do – why will they charge to the commuters the cost of expansion projects? Anyway, this also shall be brought up during the consultation. (See Table 1)

Another is the income statement of the LRTA from 2006 to November 2010 (the 2009 and 2010 figures are unaudited). The income statement supports our contention that what the Aquino administration wants to pass on to the commuters is the debt burden of the LRT and MRT and not simply the shortfall in the costs of maintaining and operating the trains. For instance, the total rail (from passenger fares) and non-rail (from rental, advertising, etc) revenues of the LRTA from January to November 2010 is P462 million more than what it spent for operation and maintenance (O&M). Revenues from passenger fares alone are P272 million higher than O&M. (See Table 2)

Interest payments and bank charges, on the other hand, reached P1.72 billion during the said period. Amortization, bad debts, and others added another P955.32 million to the expenses of the LRTA. These expenses offset the rail and non-rail revenues resulting in net losses for the LRTA of some P2.22 billion. But as I have repeatedly argued, these are not actually losses in the business sense but public investment. They are loans that government borrowed in order to enable the economy and the people achieve new or additional capability. Servicing these debts should be done through taxes (and if they’re onerous like in the case of MRT, should be renegotiated) and not through higher user fees which what government plans to do. Servicing these debts through higher user fees will cancel out the social and economic gains that the LRT and MRT create.

Meanwhile, it seems that the fare hike, which could reach as much as 100 percent, and the President’s offer to guarantee so-called regulatory risks for major public-private partnership (PPP) projects have succeeded in stoking investor appetite in LRT and MRT privatization. Just three days ago, news came out that the Metro Pacific Investments Corp. (MPIC) of Manny Pangilinan has already formally written Finance Secretary Cesar Purisima offering to buy government’s 71 percent stake in MRT for $1.1 billion. MPIC already controls 29 percent of MRT which it bought from Fil-Estate Corp.

Pangilinan’s bid is indeed tempting for the cash-strapped Aquino administration since the offer is reportedly enough to settle government’s outstanding debt in MRT. But it is bad news for the commuters who will ultimately shoulder this debt through even more exorbitant fares in the future.

MPIC itself reportedly said in its letter to Purisima that fares could go up to as high as P100 if government will bundle MRT and LRT 1 for privatization because the investor will have to pass on the cost of servicing the lines’ debt obligations of about $2.6 billion to the commuters.

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Privatization

DOTC executive report on LRT/MRT fare hike: some initial points

DOTC study confirms that the LRT/MRT fare hike is meant to bolster Noynoy's public-private partnership (PPP) scheme

The Department of Transportation and Communications (DOTC) has provided a copy of the Executive Report on LRT/MRT fare restructuring. They also sent Chapter 8 of the Mega Manila Public Transport Study of 2007 which details the profile of LRT/MRT users.

This report is supposedly the same document presented to Pres. Aquino and his Cabinet economic cluster and became the basis for the Executive’s decision to increase the fare in LRT/MRT by as much as 100 percent. It validated the main points that we have already raised on the fare hike issue. For instance, it confirmed that the fare increase is meant to attract private investors. The report said that: “The proposed LRT fare adjustment is expected to… send clear signal to private sector investors that regulatory risks will be minimized in future public-private partnership projects”.

(You may download the Executive Report here and the Transport Study Chapter 8 here)

Social and economic benefits

Dated October 27, 2010, the report noted that although not profitable, the LRT and MRT play a vital social and economic role. In its opening paragraph it said: “Most urban railway systems in the world are not financially viable, but are implemented for their socio-economic benefits. Our Manila Light Rail Transit (LRT) systems promote the use of high-occupancy vehicles, thereby reducing traffic congestion on the corridors served, local air pollution and greenhouse gases emissions. Besides the substantial savings in travel time cost of LRT riders, the LRT systems reduce infrastructure investment in Metro Manila road expansion”. (emphasis added)

However, these socioeconomic benefits were not factored in by the DOTC study in determining the need for a fare hike. For instance, the savings of government from less air pollution and GHG emissions (i.e. public health budget) and less pressure for road expansion (i.e. public infrastructure budget) should have been computed to get the net losses or even gains from operating the LRT/MRT. The economic value accruing from reduced traffic congestion and considerable savings in travel time cost should have also been calculated to know additional potential benefits for government such as increased tax revenues.

Farebox ratio

Instead, the study merely looked at the cost of operating the LRT/MRT system which is mainly financed through passenger fares, government subsidies, and commercial development at stations and advertisements. It said that the farebox ratios or the proportion of the fare revenues to the total operating and maintenance (O&M) expenses are “projected to fall below 1.0”. This means “greater government subsidies to cover O&M costs”, said the study. It estimated that without a fare hike, government will be forced to increase its subsidies from P13.85 billion in 2010 to P17.06 billion this year.

A farebox ratio of 1.0 means that fare revenues cover 100 percent of O&M. The study did not say the basis of its projection that the farebox ratio will fall below 1.0. But in the past four years, the farebox ratio has averaged 1.39 for LRT 1 and 1.01 for LRT 2 which means that collections from passengers cover more than 100 percent of O&M. This provides more statistical evidence to our argument that fare revenues can cover O&M but the total costs are bloated by debt.

Non-rail revenues

The study also admitted that “Compared with urban railway lines in neighboring countries, our LRT lines are not generating substantial revenues from commercial development and advertisement”. But the DOTC did not further explore the option of raising collections from tenants and commercial establishments and advertisers that use the railway infrastructure. A study by the Japan Bank for International Cooperation (JBIC) disclosed that LRT’s non-rail revenues comprise a paltry 2.6 percent of total revenues. In neighboring countries, non-rail revenues account for 20 percent.

I asked a DOTC official why increasing the non-rail revenues to at least approximate the 20 percent benchmark is not being seriously considered. He said that substantially increasing the non-rail income of LRT/MRT will require some investment from government to develop commercial spaces. Put another way, government chose the easy route by placing more burden on commuters through a fare hike.

Alternative transportation

The study said that minimum wage earners are among the most affected groups by the proposed fare increase. But it assumed that Minimum wage earners will likely shift to cheaper alternative modes such as jeepneys and regular buses”. Under the new fare structure, regular and aircon bus fares will be lower than an LRT/MRT ride unlike today where it is cheaper to take the train. This was actually used as one of the justifications for the fare hike. For government, it is unreasonable that the fare in LRT/MRT which is a more efficient mode of mass transportation is cheaper than the fare in public buses and jeepneys.

But the DOTC failed to mention that the fare in road-based public transport modes has been increasing due to unabated oil price hikes and failure of government to stop the overpricing of the oil companies. Also, following government’s logic, does it mean that every time private jeepney and bus operators asked for a fare hike because of high pump prices, the Light Rail Transit Authority (LRTA) will also have to automatically increase LRT/MRT fares?

Impact on commuters

Aside from minimum wage earners, the study said that the fare hike will also heavily affect “students who are not granted fare discounts on LRT lines”. It claimed, however, that such impact “could be eased by the grant of 15-20% fare discounts”. As for MRT users, the DOTC said that while they face the steepest fare hike, “they are expected to afford the increase in fare with their average personal monthly income of P13,560 or 1.5 times the minimum wage in Metro Manila”. But still, fare discounts and the relative capacity of commuters to afford the higher fares do not legitimize the unwarranted fare increase.

The overall ridership of LRT/MRT is characterized by a high level of low-income and vulnerable groups that makes the fare hike anti-people. The Mega Manila Public Transport Study says that 68.1 percent of LRT/MRT users during weekdays earn below P10,000 monthly and a significant 15.3 percent earn nothing at all. Ordinary employees/workers comprise 48.8 percent of LRT/MRT ridership during weekdays while students account for 31.5 percent. Unemployed workers account for 9.5 percent. (See Charts)

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