As Pres. Aquino declares that the country is "ready for takeoff", private investors anticipate soaring profits under PPPs (Photo from The Philippine Star)
First published by the Philippine Online Chronicles
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Aquino used his first foreign trip as President as an opportunity to heavily promote his PPP scheme. In a speech before members of the Council on Foreign Relations, a New York-based think tank, he said:
“Given the scarce resources that we have, attracting foreign capital has become a vital component of my anti-poverty program. And I am here today to tell you that my government is doing what it takes to create a more investor-friendly environment… I came here to declare that the Philippines is open for business under new management…The forging of private-public partnerships, or PPPs, would be our main engine in revving up our economy. We will enlist the participation of the private sector, both domestic and foreign, in big-ticket, capital-intensive infrastructure projects, while ensuring reasonable returns… We look forward to the participation of the U.S. investors, specifically as we open up our infrastructure sector for foreign participation.”
Creating an environment conducive to private and foreign capital, based on the country’s experience from past PPP initiatives, entails government assurance that investors will make handsome profits through guaranteed returns and other incentives, and ultimately of showing bias against the poor that these PPP initiatives are supposed to benefit.
Increase in rail transit fares
One example is the Aquino administration’s planned increase in fares of the Light Rail Transit (LRT) and Metro Rail Transit (MRT) by as much as 100 percent. In his SONA speech, Aquino criticized the Arroyo administration for “forcing the MRT operator to keep its rates low” which violated government’s assurance that the operator will recoup its investment and earn guaranteed profits.
The President said that the MRT fare hike is “inevitable” because the subsidy is supposedly too high and government does not have the funds to sustain it. MRT officials also claimed that the subsidy per passenger is at P45 and that government spends P5 billion a year for its maintenance and operation although it only earns P1.8 billion annually.
However, the high operation and maintenance cost of the MRT should be blamed on the 1997
25-year build-lease-transfer (BLT) agreement between the Metro Rail Transit Corp. (MRTC), a consortium of Japanese and Filipino firms and the Department of Transportation and Communication (DOTC).
In an effort to make the PPP attractive, government agreed to guarantee payments for the USD426-million debt incurred by the private contractor in building the MRT infrastructure. Government also guaranteed a 15 percent return on investment (ROI) per year for MRTC.
Private investors involved in the MRT project made a killing because aside from guaranteed profits, guaranteed debt payments also go to the banks that they control. The Ayalas, for instance, control the Ayala Land Inc. which was among the firms that made up the MRTC, and the Bank of Philippine Islands (BPI), one of the creditors of the MRT project. Another case is the Japanese Sumitomo Corp. which clinched the Engineering, Construction, and Procurement contract with the MRTC while its affiliate Sumitomo Bank provided loans. Eventually, the Arroyo administration through the Land Bank of the Philippines (LBP) and the Development Bank of the Philippines (DBP) decided to acquire 76 percent equity of the MRTC last year with a lump-sum payment of USD800 million. The move was meant to terminate the guaranteed 15-percent ROI because the contract apparently was too burdensome for government, which started missing payments for the MRT debt on time.
Commuters support sign campaign versus the MRT fare hike (Photo by Marya Salamat/Bulatlat.com)
But the DBP and LBP made it clear from the start that the government takeover is only temporary and will transfer ownership of the MRTC to a private entity as soon as possible. The proposed MRT fare hike is thus meant to make the re-privatization of the MRT attractive to private investors and assure them that the guaranteed 15 percent ROI will be realized.
Aquino’s officials said they are already talking to prospective buyers and they plan to privatize not only the MRT along Edsa but the entire railway system in the country including LRT 1 (Baclaran in Pasay City to Balintawak in Quezon City) and LRT 2 (from Recto in Manila to Santolan in Marikina). Those that are still being planned for construction by the new government will also be privatized. Among them is the MRT Line 7 that stretches 22 kilometers from North Avenue to San Jose, Del Monte in Bulacan and which the Japan Bank for International Cooperation (JBIC) has reportedly expressed interest to bankroll. MRT 7 will be implemented through a BOT contract with Universal LRT Corp., a consortium led by San Miguel Corp.
The burden of privatized rail transit systems under generous contracts will of course be shouldered by commuters and will be felt most by those who hardly earn enough for a decent living. The P15-hike being contemplated by authorities for the MRT, for instance, will mean an additional expense of P600 per month (20 working days, two-way trip), which is pretty heavy especially for minimum wage earners.
Another development that generated major public uproar during the first 100 days of Aquino is the implementation of the 300-percent increase in toll rates for the South Luzon Expressway (SLEx) that was fortunately stopped by a Supreme Court temporary restraining order (TRO). Again, the rates that private operator South Luzon Tollway Corp. (SLTC) wanted to implement have been approved long before Aquino became President. But the case of SLEx is also another argument against the PPP scheme of the new administration.
For one, the toll hike was approved by the Toll Regulatory Board (TRB) to allow the SLTC not only to recoup its supposed P11.8-billion investment but also to realize its guaranteed ROI of 17 percent per year under their 30-year Supplemental Toll Operation Agreement (STOA). SLTC is 80-percent owned by Malaysia-based MTD Capital Bhd and 20-percent state-owned through the Philippine National Construction Corp. (PNCC).
As for its direct role, the Aquino administration aggravated the huge SLEx rate hike because of its insistence that toll roads are covered by the 12 percent value added tax (VAT) despite contrary claims by tax experts and legislators. The VAT imposition, if approved, will increase the rates in other toll roads around the country.
Meanwhile, motorists using another privately operated major toll road, the North Luzon Expressway (NLEx), could be paying more soon as well if the TRB will approve the 12 percent toll hike petition to be filed by Manila North Tollways Corp. (MNTC). The company reminded the TRB that under their contract, MNTC is allowed to seek a rate increase every two years although this is the first time since 2005 that it will be filing for a toll hike.
Some 156,000 motorists use the NLEx daily while the SLEx accommodates as much as 300,000 vehicles every day. Bus operators using the said expressways have already warned of a fare hike to pass on the burden of the additional toll to commuters. Businesses have also said that they may have to increase prices as well while the smaller ones expressed fear of having to downsize or even fold up.
Despite the obvious harsh impact of privatized toll roads on ordinary commuters and motorists, as well as small businesses and consumers, the Aquino administration is determined to implement more privatization in road infrastructure development and operation. Last week, the Department of Public Works and Highways (DPWH) announced that starting next year, maintenance of the major roadways around the country, such as the whole stretch of Edsa from Balintawak to Roxas Boulevard, would be delegated to the private sector. The move, according to DPWH is part of the Aquino administration’s PPP concept and is expected to save government some P120 thousand per kilometer per year.
In many cases, PPPs in infrastructure development also entail the physical dislocation of thousands of informal settlers. The absence of a comprehensive and sustainable mass housing program, including acceptable and economically viable relocation sites, means that the poor who become victims of forcible eviction are left with no option but to squat somewhere else and forever suffer from insecurity in housing.
Such is the case of the demolition of urban poor communities in North Triangle in Quezon City, which ironically was carried out by authorities while Aquino was in the US to attend the UN meeting on Millennium Development Goals (MDGs). The demolition in the area’s Sitio San Roque, which left several people injured, marks the start of the implementation of a P22-billion PPP project in the form of a joint venture between the National Housing Authority (NHA) and property giant Ayala Land Inc. to develop a 29.1-hectare property in North Triangle into the so-called Quezon City Central Business District (CBD). Based on official estimates, some 9,000 families will be evicted from Sitio San Roque to give way to the NHA-Ayala Land project but urban poor group Kadamay pegs the total number of affected families at 16,000.
Due to fierce resistance from the affected communities, a local court was forced to issue a TRO and Aquino himself was also forced to suspend the demolition. But the suspension simply intends to allow the “orderly” demolition of the remaining shanties. In fact, the threat of eviction remains not only against the residents of Sitio San Roque but against all urban poor communities that stand in the way of Aquino’s PPP projects.
Privatization: from mining to gambling
Aquino’s grand privatization scheme covers not only infrastructure development through PPP but also includes the outright sale of state assets that have long been targeted for sale to the private sector as well as the corporate takeover of state responsibilities. One of them is the National Food Authority (NFA), which has been undergoing restructuring since the last decade to pave the way for its full privatization. The Aquino administration has attempted to initiate the process of full privatization by taking away the food agency’s P8.5-billion budget for rice procurement and diverting it to the rice subsidy program of the Department of Social Welfare and Development (DSWD). The move could have effectively clipped a very vital function of the NFA consistent with the reform long being pushed by the Asian Development Bank (ADB) and the World Bank. But farmers and consumers have successfully opposed the plan because it will further strengthen the private rice cartel that will lead to depressed farm gate and bloated retail prices.
Another form of privatization that Aquino will implement is the leasing of government properties to private developers. In his SONA speech, Aquino disclosed that a private developer is interested to lease the Philippine Navy headquarters on Roxas Boulevard in Manila as well as the Naval Station in Fort Bonifacio. The still unnamed developer is supposedly willing to shell out an initial $100 million as “goodwill money”. Officials claimed that the arrangement will help modernize the Navy.
Other targets of privatization include the Philippine National Oil Co. (PNOC) Shipping Corp., which is primarily engaged in the business of shipping, tankering, lighterage, barging, towing, transport, and shipment of goods, chattels, petroleum and other products, marine, and maritime commerce in general. Another is the Philippine Amusement and Gaming Corp. (Pagcor), which is reportedly being eyed by San Miguel Corp.’s president Ramon Ang and foreign businessmen for a whopping $10 billion. Meanwhile, Malacañang is hoping to dispose sequestered television stations RPN 9 and IBC 13 within two years. The sale of the 103-hectare Food Terminals Inc. (FTI) in Taguig for P6 billion will also be pursued while talks are ongoing on the possibility of privatizing the country’s prison facilities – the National Bilibid Prisons in Muntinlupa and the Correctional Institute for Women in Mandaluyong. Even frequencies of telecommunications providers awarded by the National Telecommunication Commission (NTC) and the mining rights given by the Mining and Geosciences Bureau (MGB) are also being considered for privatization.
Private benefits, public costs
The Aquino administration, whose team of economic managers and advisers are made up of the same people behind the neoliberal reforms of the past regimes, considers privatization and PPPs as a magic bullet that will help solve the country’s chronic fiscal deficit and lack of infrastructure. Combined with a strong anti-corruption drive, the program will supposedly bring in and maximize private investments, create jobs, and consequently address poverty.
After 100 days, it has now become unmistakably clear that the Aquino administration is far from being a reform-oriented government (Photo from BusinessWorld/AFP)
But as pointed out, the social and economic costs of privatization far
outweigh whatever supposed benefits it will bring. In terms of addressing the fiscal deficit, the country’s experience with Epira is most telling – the power sector ended up more indebted that it was before state-owned generation plants and transmission facilities were privatized. The ambitious PPP campaign of Aquino will not take off unless incentives similar to the power sector’s “sweetheart deals” are provided. Aquino’s Cabinet members admitted that investors needed some form of protection to ensure the success of PPPs, including some form of an insurance scheme that will compensate private investors involved in big-ticket infrastructure projects to eliminate “risks”. This means guaranteed returns that hurt consumers with exorbitant user fees as well as access to loans with government guarantees that aggravates the debt burden and worsens the fiscal deficit.
In the end, only the “private” side of the PPP benefits from the “partnership” while the “public” is made to shoulder all the costs.
After 100 days, it has now become unmistakably clear that the Aquino administration is far from being a reform-oriented government that it has depicted itself to be, especially in the realm of economic management and policies. The good news is that the public saw this reality as early as now and thus could immediately start exerting pressure on the Aquino administration to shift its course towards the genuine “straight path”, the one that puts people’s interests above all.