Economy

New year, more hope?

Increases in toll rates, fares in MRT/LRT and other public transport, prices of food, etc. greet Filipinos in 2011 (Photo from Inquirer.net/Richard Reyes)

As a people, Filipinos are said to be optimistic even amid the direst economic situation. In fact, 93 percent of the population are hopeful of the new year, according to the latest survey of the Social Weather Stations (SWS). The survey results came amid unchanged data on job scarcity and poverty and unabated rise in cost of living.

Malacañang as expected was quick to interpret the survey results as another unmistakable indicator of the people’s trust in the Aquino administration, which a presidential spokesperson called “an engine of hope”. However, it must be pointed out that the first new year of a new administration is usually greeted with high optimism.

For instance, the December 2002 SWS survey showed an all-time high of 95 percent in hopefulness among Filipinos. The ouster of the Estrada administration through People Power 11 months before provided the context of such unprecedented national optimism. It is also noteworthy that Filipino optimism remains high even amid the most uncertain periods. In December 2008, for example, 92 percent of the population were still hopeful amid the massive retrenchment and economic dislocation triggered by the worst global recession since the 1930s.

Thus, when the Arroyo administration, which turned out to be more corrupt, oppressive, and anti-people than the one it replaced was at last over, the people could only have high expectations that things will now start to get better.

Exposing the “reformist” presidency

To be sure, the willingness of President Aquino, unlike his predecessor, to negotiate peace with Asia’s longest-running insurgency is something to look forward to this year. And certainly we have reason to be optimistic that if unrelenting political pressure is applied such as what happened in the case of the Morong 43, the Aquino administration may just address the injustices committed by the past regime.

But Aquino knows that the hopeful perception of Filipinos will quickly dissipate once promises of reforms are not met and the economic situation remains dismal.  This means new economic policies that reverse or correct the failed policies of the past must be put in place very soon. Unfortunately, reforms in this area leave a lot to be desired.

To illustrate, there were three policy issues that stood out in the first six months of the Aquino presidency which exposed the sort of programs and priorities of the new administration and whose impact may before long dampen Filipinos’ high optimism. These were the enactment of the P1.645-trillion 2011 national budget, Malacañang’s promotion of public-private partnership (PPP), and Aquino’s stand on the Hacienda Luisita agrarian dispute.

Debt-funded dole-out

Operating in a tight fiscal space, Aquino chose to fund a P21-billion dole-out program, in lieu of long-term and comprehensive social services, in his first national budget. Called Pantawid Pamilyang Pilipino Program (4Ps), the local version of the conditional cash transfer (CCT) scheme being promoted and bankrolled by World Bank and Asian Development Bank (ADB) loans in many countries (the 4Ps itself is being funded by $870 million worth of debt from the World Bank and the ADB), the program is expected to quickly benefit a portion of the poor and thus bolster grassroots support for the administration.

But at the same time, Aquino has increased payments for public debts by a whopping P81 billion, which easily comprised 78 percent of the total budget increase and 22 percent of his spending program (together with principal amortization, debt payments will eat up 39 percent of what Aquino is ready to spend this year). He also vetoed the proposal of Congress to cap government borrowings at 55 percent of the GDP thus assuring the continued depletion of public resources due to automatic debt servicing while substantially trimming the budget for state colleges and universities as well as public hospitals and specialty hospitals nationwide.

Think tank IBON Foundation has earlier estimated that payments for the CCT loans could reach around $1 billion, an amount which at current exchange rates is more than double of the total CCT funding and could have been used to build more schools and hospitals or hire more teachers and health workers.

PPP – protecting private profits

As his centerpiece economic program, Aquino has aggressively promoted PPPs to supposedly address the national infrastructure needs, spur development, and create jobs without adding pressure to the government’s fiscal woes (the 2010 budget gap is expected to hit P325 billion).

He organized a PPP summit last November where he announced that investors participating in his PPP projects will be protected from regulatory risks on top of having easier access to bank loans and speedier processing and the usual benefits such as guaranteed profit rates. Regulatory risk insurance requires government to compensate investors whose profits will be affected by intervention from regulatory bodies, Congress, or the courts. Aside from undermining the mandates of these independent bodies, the regulatory risk insurance will also likely be funded by foreign loans that will further aggravate the already heavy public debt burden.

In addition, the 300-percent increase in toll rates implemented starting this month by the South Luzon Expressway’s (SLEX) Malaysian operator as well as rate hikes in the North Luzon Expressway (NLEX) and the Subic-Clark-Tarlac Expressway (SCTEX), and the impending 100-percent increase in metro rail transit (MRT) fares all show how PPP projects directly burden the ordinary folk. There are demands for Aquino to exercise his executive power to stop these increases but doing so will undermine his PPP program and turn off the investors.

Hacienda Luisita and lack of land reform

But perhaps the biggest challenge to Aquino’s claim as a reformist President is in the area of genuine agrarian reform, specifically the just resolution of the longstanding unrest in his family-controlled Hacienda Luisita. He has refused to implement the 2005 decision of the Presidential Agrarian Reform Council (PARC) rescinding the stock distribution option (SDO) deal between his family and the hacienda farmers and farm workers.

Aquino, who justified the 2004 massacre of seven protesting Hacienda Luisita farm workers when he was still Tarlac congressman, continues to defend the SDO even as peasant groups, civil society organizations, and the Catholic church have all demanded that the control and ownership of Luisita lands be effectively transferred to farmers as a legal and moral imperative. Despite his obvious presidential authority to intervene in favor of the farmers, Aquino opted for a hands-off policy when his relatives again duped the farmers last August through a questionable compromise deal intended to keep the SDO scheme.

Independent estimates say that 75 percent of the Filipino poor live in the countryside while official data show that poverty incidence is highest among farmers (44 percent) and fishers (49 percent). Instead of championing genuine agrarian reform, Aquino has trumpeted the narrow and deceptive line of “Kung walang corrupt, walang mahirap”, concealing the fact that a great majority of Filipinos are poor because of a backward rural economy that is still heavily dominated by landlord families like Aquino’s.

Challenges and hopes

More challenging times await the people in 2011. Aside from the increases in toll rates; MRT/LRT, bus/jeepney/taxi fares; and food prices, oil prices are anticipated to again skyrocket as global prices threaten to breach the $100-mark anew. Officials have warned of possible water shortage and rotating brownouts similar to last year’s amid onerous utility rates even as Aquino vows to privatize more water and energy resources under his PPP initiative.

The fiscal deficit does not show any sign of abating despite the P500-million surplus posted in December and the high-profile campaign of revenue agencies to go after tax evaders and smugglers. This stokes fear that new and higher taxes as long demanded by foreign creditors led by the IMF-World Bank will come sooner than later.

Aquino plans to pursue poverty alleviation not within the framework of long-term development but within the context of a supposedly brand new counterinsurgency campaign called Oplan Bayanihan. The CCT dole-outs and foreign development aid will be used for this purpose. This distorts the concept of development work and the inalienable human right to decent living since addressing the structural roots of poverty, such as the lack of genuine agrarian reform, is sidelined in favor of short-term dole-outs and projects.

The victory of the Morong 43 notwithstanding, the systematic violation of human rights perpetrated by the state’s security forces continue under Aquino. Just last January 2, a local leader of the Kilusang Magbubukid ng Pilipinas (KMP) in Nueva Ecija was gunned down, bringing to 23 the total number of victims of extrajudicial killings under the new administration.

Still there is always a reason to be optimistic. But certainly, the people’s strongest hope lies not in the purportedly reformist disposition of the Aquino administration but in exercising their inherent right to demand that the government adhere to their aspirations of peace with social justice and long-term development anchored on wealth redistribution and the utmost respect for human rights. #

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Photo slideshow, Privatization

Photo slideshow: people’s protest vs PPP summit

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Activists from various people’s organizations under the umbrella group Bagong Alyansang Makabayan (Bayan) today (November 18) trooped to the Manila Marriot Hotel in Pasay City where a summit aimed to promote the Aquino administration’s public-private partnership (PPP) scheme is being held. In his speech to officially open the summit, President Aquino, as expected, promised to guarantee PPP projects in a bid to attract more investors. Read more about the PPP summit here and why the people should denounce it.

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Privatization

PPP summit: A grand party of the biggest compradors and finance oligarchs hosted by a haciendero President

(Click here for the official website of the PPP summit)

Senior government officials led by President Aquino himself, some 150 to 200 foreign and local investors, and high-level representatives from the World Bank, Asian Development Bank (ADB), Japan Bank for International Cooperation (JBIC) as well as private financial institutions like the Deutsche Bank AG, HSBC, Standard Chartered, and ING Bank N.V., among others are expected to attend the so-called “Infrastructure Philippines 2010” or better known as the public-private partnership (PPP) summit.

The PPP summit, which will officially open today (Nov. 17) at the posh Manila Marriot Hotel, is like a grand party organized by the haciendero President for the biggest local compradors, foreign finance oligarchs, and multilateral creditors to discuss how they can further squeeze profits from the Filipino people through PPP projects in infrastructure.

Who benefits from PPP?

Private investors participate in infrastructure development with the clear goal of making and maximizing profits, according to the ADB itself. The job of government, as a consequence, has been reduced from ensuring that the infrastructure needs of the people and of the economy are met to ensuring the most favorable investment climate for the private sector. Infrastructure development has become a lucrative business because of captive markets and state guarantees.

The country’s largest businesses, owned by the richest and most influential families in the Philippines like the Lopezes, Cojuangcos, Ayalas, Aboitizes, Pangilinans, and Consunjis have thus taken advantage of the PPP and now control the biggest and most strategic infrastructure such as power generation, toll roads, water utilities, rail transit, etc.

In many cases, they have also partnered with investors from the US, Europe, Japan, and other foreign countries in these PPP projects. Multilateral lending institutions like the World Bank through its various units – International Finance Corp. (IFC), Multilateral Investment Guarantee Agency (MIGA), and the International Bank for Reconstruction and Development (IBRD), as well as the ADB and others have also provided them with loans. At the end of the day, all the costs of the PPP ventures are shouldered by the people through user fees and debt servicing. (See Table below)

More guarantees

The ambitious PPP campaign of Aquino will not take off unless more guarantees, incentives, etc. are provided to the private investors. Thus, to make its PPP summit more saleable, the Aquino administration has designed a new scheme to protect the interest of investors. Aside from the traditional state guarantees on profits, etc, the government is also offering “pertinent incentives” to further stimulate private resources for PPP projects.

One of them is a so-called “regulatory risk insurance” under which the government will protect investors from “certain regulatory risk events such as court orders or decisions by regulatory bodies which prevent investors from adjusting tariffs to contractually agreed levels”.

Aquino’s economic managers explain that such insurance could take the form of make-up payments from the government to PPP investors, other guaranteed payments, and adjustment to contract terms. The terms of protection will be included in the contract of each PPP project.

While the government assures us that the risk insurance will only be offered on a case-to-case basis, it is reasonable to expect every profit-seeking investor that will participate in PPP projects to ask for the said insurance.

More debts

But if the government is operating on a serious deficit, how can it fund the regulatory risk insurance? National Economic and Development Authority (NEDA) chief Cayetano Paderanga said that they will tap multilateral institutions to provide for the guarantees so that when PPP investors face risk, they can still “be paid fast and immediately”.

Ultimately, however, it will still be the taxpayers who will foot the bill of the risk insurance through debt payments – interest and principal – to the multilateral creditors. Likely sources include the ADB and the World Bank, two of the most aggressive lenders and active promoters of PPP projects. The latter has already indicated a willingness to provide funds for the PPP projects of the Aquino administration.

Thus, even if government claims that it is not providing notorious sovereign guarantees for PPP projects, the country may still end up more indebted that ever before.

Undermining the courts

In addition, the risk insurance guarantee may also have the effect of undermining the system of check and balance and the use of courts to protect public interest.

For example, people who will turn to courts to question and stop the implementation of disadvantageous and harmful PPP contracts – like those that will lead to an astronomical increase in toll rates, MRT fares, water and electricity bills, etc; or those that will result to physical displacement, environmental degradation, etc – may get a favorable ruling.

But this favorable ruling will be negated, if not become practically meaningless, because the private operator will still be compensated through the risk insurance, which the people themselves will ultimately pay for to the World Bank, ADB, or whichever multilateral bank is funding the risk insurance.

Infrastructure fund

Aside from the risk insurance, the Aquino administration is also working with the multilateral banks for the establishment of the Philippine Infrastructure Development Fund (PIDF). This new entity is being patterned, according to the Finance department, after India’s Infrastructure Development Finance Co. Ltd. (IDFC) and Indonesia’s PT Indonesia Infrastructure Finance (IIF).

In its website, the IDFC is described as “India’s leading infrastructure finance player providing end to end infrastructure financing and project implementation services”. On the other hand, the IIF was officially launched just last August as a private infrastructure financing company with an initial capital of $170.3 million from the Indonesian government, the World Bank’s private lending arm International Finance Corp. (IFC), and the ADB on top of a 2 trillion rupiah loans from the same multilateral banks.

There is no official and final announcement yet on how the planned PIDF will raise resources (the PPP summit is expected to produce such detail). But it is likely that similar to the IIF of Indonesia, the Philippine government will shell out funds for the new entity’s initial capital, which is also expected to be beefed up by loans from the World Bank, ADB, and other foreign creditors.

In earlier statements, Finance officials also disclosed that the PIDF may engage in issuing 25-year bonds domestically, targeting pension and insurance companies. The money borrowed will then be re-loaned to investors involved in PPP projects. Thus, in effect, the PIDF will become a mechanism of the Aquino administration to guarantee funders and creditors that the money loaned to PPP investors will be repaid.

Anti-development, anti-people

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 guarantees on investment, protection from risks, and other incentives, and ultimately of showing bias against the poor that these PPP initiatives are supposed to benefit.

And let me reiterate that the heavy focus on profitability which is inherent in any private enterprise instead of net economic and social gains make infrastructure projects pursued through PPP ultimately anti-development and anti-people.

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Privatization

The Philippines for sale: Noynoy’s first 100 days (Part 2)

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

Read Part 1

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.

Toll hikes

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.

NLEx's private operator also wants a toll hike (Photo from http://www.mntc.com)

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.

Displacement

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.

People's strong resistance forced Noynoy to suspend the demolition in North Triangle (Photo from http://www.journal.com.ph)

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.

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Privatization

The Philippines for sale: Noynoy’s first 100 days (Part 1)

Policy signals coming from Malacañang during Aquino’s first 100 days are not very encouraging for those who have been struggling to make both ends meet (Photo from BusinessWorld/AFP)

First published by the Philippine Online Chronicles

One hundred days is too short a time to make an impact on an economy that has been beset by structural crises for decades. But this brief period provides hints on the general policy direction that the administration of President Benigno “Noynoy” Aquino III intends to pursue and what the people can expect from him in the next six years.

Sadly, the policy signals coming from Malacañang during Aquino’s first 100 days in office are not very encouraging especially for ordinary Filipinos who have been struggling to make both ends meet. Early statements by Aquino and his economic managers indicate strong adherence to controversial free market policies embraced by past regimes which have pushed poverty and hunger to ever worsening levels.

More alarmingly, it seems that Aquino plans to even outdo his predecessors in implementing these widely opposed policies. In his first State of the Nation Address (SONA) he implied willingness to implement unpopular economic reforms shelved supposedly for political reasons by former President and now Pampanga Rep. Gloria Macapagal-Arroyo. After the SONA, Aquino’s cabinet secretaries have on separate occasions announced increases in mass rail transit farespower rate hikes to shoulder privatization debts and scrapping of the rice price subsidy.

These plans form part of what may be called the grand mega-sale of the Philippines that the administration will aggressively pursue through an ambitious privatization program, which will rival the privatization frenzy of the 1990s, including via the so-called ‘public-private partnership’ (PPP) route. As Aquino proudly declared during his recent visit to the US where he enticed American and other foreign investors to participate in his PPP projects, “The Philippines is open for business”.

Privatization galore

One week before he left for the US, Aquino signed Executive Order (EO) No. 8 in a renewed bid to fast track the financing, construction, and operation of vital government infrastructure through PPP. The order renamed the Build-Operate and Transfer (BOT) Center as the Public-Private Partnership Center of the Philippines (PPP Center) and earmarked P300 million of working fund for the studies and activities of selected PPP programs and projects.

Aquino’s salesmanship and promises of a lucrative partnership with his administration apparently worked as he reported USD2.4 billion in committed fresh investments to the Philippines when he returned from his US trip. The said amount includes a PPP worth USD1 billion from the American Energy Solutions (AES) which plans to expand the capacity of the Masinloc power plant by up to 660 megawatts.

For Aquino, privatization is the key to solving government’s most pressing problem of a huge budget deficit that has already reached P229.4 billion as of August and is expected to balloon to an all-time high of P325 billion by yearend. As he said in his SONA, “We have so many needs: from education, infrastructure, health, military, police and more. Our funds will not be enough to meet them… Our solution: public-private partnerships”. Through the BOT Law, PPP was first implemented as a policy by Aquino’s mother, the late President Corazon Aquino upon the advice of the International Monetary Fund (IMF) and World Bank.

An estimate by National Economic and Development Authority (Neda) Director General Cayetano Paderanga Jr. shows that all in all, government is targeting some P740 billion worth of infrastructure projects through PPPs. An initial list of 10 priority PPP projects worth at least P127.7 billion for 2011 has been released by government, with the expansion of the mass rail transit system accounting for 54.8 percent of the amount. (See Table)

Power rate hikes

Meanwhile, of the P740 billion initial cost of all PPP projects announced by Neda, PPPs in the power sector account for P348.5 billion or 47.1 percent of the total covering 43 power projects. This despite the country’s bitter experience from previous and current PPP initiatives in the sector dating back to the BOT contracts entered into by the Cory administration that set off the financial bleeding of Napocor and jacked up power rates while failing to address the country’s energy insecurity.

One week after Aquino took his oath, the Manila Electric Co. (Meralco) increased its rates by 58 centavos per kilowatt-hour (kWh). The rate hike continued the trend of rising electricity bills in the previous months which Meralco has blamed on rising generation costs. The utility giant announced a new round of rate hike in August, raising bills by 44 centavos per kWh and attributed the increase to higher prices at the Wholesale Electricity Spot Market (WESM). Then, in September, the Energy Regulatory Commission (ERC) ruled that Meralco can impose an additional charge of 3.14 centavos per kWh starting in October to recover from its customers its WESM purchases that were in excess of the mandated 10 percent during the period August 2006 to May 2007. Rising electricity rates is being felt not only by the 24.7 million people in Meralco’s franchise area but also by other households around the country. In August, the Visayan Electric Co. (Veco) also implemented a 3 percent increase in its basic charge through a performance based regulation (PBR) scheme approved by the ERC.

These increases are, of course, the result of the ongoing restructuring of the power sector under the nine-year old Electric Power Industry Reform Act (Epira) of 2001 or Republic Act (RA) 9136 and could not be faulted on the Aquino administration. However, the responsibility of Aquino is to immediately address this failed policy, which was among the anti-people legacies of the previous Arroyo government.

Unfortunately, instead of shifting course, the Aquino administration is steering the power sector towards more privatization and deregulation, which means more power rate hikes for hapless consumers.

While Malacañang spokesman Edwin Lacierda is trying to appease the consumers by claiming that power rates may go down this month, energy officials have been conditioning the public mind of additional increases in electricity bills. Department of Energy (DOE) Secretary Jose Rene Almendras, for instance, said that consumers would have to shoulder part of the burden of paying the huge P932.21 billion in debts incurred by the National Power Corp. (Napocor), Power Sector Assets and Liabilities Management Corp. (Psalm), and the National Transmission Corp. (Transco).

Tracking same flawed path

Bulk of the power sector’s debt, P785.09 billion, represents Psalm obligations, which it absorbed from Napocor under Epira. Specifically, these are called stranded debts and stranded contract costs.

Stranded debts refer to any unpaid financial obligations of Napocor which have not been liquidated by the proceeds from the sale and privatization of its assets. Stranded contract costs, on the other hand, refer to the excess of the contracted cost of electricity under contracts entered into by Napocor with independent power producers (IPPs) as of Dec. 31, 2000 over the actual selling price of the contracted energy output of such contracts in the market. Under the Epira, these debts shall be passed on to consumers through the universal charge and could result in a rate hike of about P1.86 per kWh.

As mentioned, government has already been forging various types of BOT deals with private corporations to build power plants since the time of the Cory administration. To entice investors, government forged “sweetheart deals” with them. Government agreed to shoulder all the risks associated with market demand, fuel cost and foreign exchange fluctuation. The “take or pay” clause in these onerous contracts requires Napocor to pay 70 percent to 100 percent of the capacity of an IPP (capacity fee), whether electricity is actually delivered and used or not. Meanwhile, as power rates soared and public coffers bled because of these guarantees, energy insecurity has never been truly addressed. While these onerous contracts continue to burden consumers such as the pending hike in the universal charge, the country’s serious energy woes have remained unaddressed. Until today, Mindanao, for instance, continues to experience rotating brownouts as power supply in the island remains critical.

Yet this is the exactly the same flawed path that the current Aquino administration wants to track. Power officials have vowed that the sale of the remaining assets of the power sector under the Epira will push through including the remaining assets of Transco valued at P4.19 billion as well as the still unsold power plants of Napocor – on top of the fresh 43 PPP projects in the power sector that the Neda announced.

Read Part 2

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Poverty

North Triangle demolition: a glimpse of what the poor can expect from Noynoy’s PPP

As Pres. Aquino talks about poverty reduction and the MDGs in New York, the urban poor of North Triangle are forced to defend their shanties against demolition (Photos by Associated Press and Boy Santos)

While late because a temporary restraining order (TRO) has already been issued yesterday (Sep. 23) by a local trial court, Pres. Aquino’s order to suspend the forced relocation of residents of an urban poor community in North Triangle must be welcomed if only for the temporary respite it brings. But the issue is far from settled since the suspension simply intends to allow the “orderly” demolition of the remaining shanties.

In fact, the threat of eviction remains not only against residents of North Triangle but against all urban poor families who stand in the way of the administration’s centerpiece economic program – the public-private partnership (PPP). Indeed, the violent demolition of shanties in Sitio San Roque, Barangay Bagong Pag-asa yesterday gives a glimpse of what awaits the poor under the PPP.

(See the short video on Sitio San Roque’s demolition produced by multimedia production group Kodao Productions)

The demolition, 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). It is similar to another Ayala Land project and PPP initiative – the Bonifacio Global City in Taguig that also displaced thousands of urban poor families.

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.

This is just the beginning of what promises to be a tremendously and increasingly oppressive times for the urban poor not only in Metro Manila but in other parts of the country as well as the Aquino administration has vowed to aggressively pursue privatized infrastructure development through PPPs. An initial list of 10 priority PPP projects worth P127.78 billion for 2011 has been released by government, with the expansion of the mass rail transit system accounting for 55 percent of the amount.

While the poor of Sitio San Roque were desperately defending their shanties against the Metro Manila Development Authority’s (MMDA) demolition force backed by the Quezon City Police District (QCPD), Pres. Aquino was in New York with other world leaders to talk about progress in achieving the so-called Millennium Development Goals (MDGs), a set of targets aiming to halve poverty by 2015. According to reports, the country’s efforts to reduce poverty have been well-received at the United Nations’ (UN) assembly on the MDGs.

The World Bank even promised to fund government’s MDG efforts because in its view the Aquino administration is “moving in the right direction” with its promotion of PPP and conditional cash transfer (CCT). By the way, it was the World Bank that funded the framework plan of the CBD, which is now being implemented by the NHA and Ayala Land, whose board vice chairman Jaime Augusto Zobel de Ayala II, incidentally, joined Noynoy in his US trip to help scout for potential American partners in PPP initiatives.

The contrasting image of Noynoy in his neat Americana suit in New York talking about poverty reduction and of men in tattered shirts in North Triangle hurling stones at the MMDA and police in a desperate defense of whatever is left of their demolished shanties captures the hypocrisy of the MDGs and deception of the Aquino administration’s poverty alleviation program.

By promoting pro-business, anti-poor PPP projects such as the NHA-Ayala Land joint venture, government and the World Bank deprive the poor of shelter and consequently of a chance to be productive and get out of poverty. Instead of a decent, accessible, and sustainable housing project and other social services, what the poor get are CCT dole-outs from the Department of Social Welfare and Development (DSWD) to supposedly encourage them to send their kids to school and for pregnant or lactating mothers to have their regular check-up (note: universal primary education and improved maternal health are among the MDG targets).

But how can poor children attend school even with financial incentives from the DSWD when their families have been forcibly uprooted from their community and forever economically dislocated by wrong policies?

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Privatization

SLEx toll hike: neoliberal privateers should stop imposing onerous user fees

The privatization of development initiatives and state responsibilities must be stopped and reversed (Image from http://www.mtdsltc.com)

In its August 13 editorial, the Philippine Daily Inquirer asked, “When it comes to toll fees, when is an increase ‘reasonable’ and when is it ‘stupefying’”? It argued that the South Luzon Tollway Corp. (SLTC) is entitled to a rate hike considering the “improvements it has done” to the South Luzon Expressway (SLEx).

The newspaper chided critics of the toll hike and reminded them that the cash-strapped government could not subsidize motorists using the expressway. The challenge to the Aquino administration, the editorial pointed out, is to “find that delicate balance” between the need of SLTC to recoup its investments and the need of the public for real relief. It then proposed to remove the 12 percent value added tax (VAT) from the new SLEx toll to “ease the burden on ordinary motorists”.

Still staggering

Removing the VAT, which in the first place should have been excluded from toll rates, will certainly provide immediate relief for some 300,000 motorists that use SLEx every day. Without the VAT, the new rates will go down by P10.2 (for cars and jeepneys) to almost P30.6 (for trailers and large trucks). But does removing the VAT make the SLEx toll hike acceptable and justified? Will the new rates be more reasonable and less stupefying? Taking away the VAT, SLEx toll will increase by 240 to 248 percent, which is still a staggering one-time increase by any standard.

SLTC’s supposed “entitlement” to a rate increase of such magnitude stems from the flawed policy of privatization of infrastructure development, or what President Noynoy Aquino calls Public-Private Partnership (P3). Privatized infrastructure narrowly measures the viability of a project in terms of how much and how fast the contractor will profit from his investment. On the contrary, publicly funded infrastructure measures a project’s success using a broader set of economic and social benefits.

Return on investment

Regulators, in evaluating the toll hike asked by SLTC, simply factored in the doubling of the number of lanes, the installation of TV cameras, and electronic collection system, among other physical improvements in the 27.3-kilometer superhighway. All these reportedly cost SLTC P11.8 billion, which it will recoup through a guaranteed 17 percent return on investment (ROI).

The guaranteed ROI is contained, according to news reports, in the February 2006 Supplemental Toll Operation Agreement (STOA) between SLTC and the Toll Regulatory Board (TRB). The 30-year STOA allows SLTC, which is 80 percent owned by Malaysia-based MTD Capital Bhd and 20 percent state-owned through the Philippine National Construction Corp. (PNCC), to rehabilitate and operate the SLEx.

ROI is a popular indicator used to calculate the profitability of an investment. In its broadest sense, it means total gain from investment (X) minus total cost of investment (Y) divided by total cost of investment (Y), thus: ROI = (X – Y) / Y. At an ROI of 17 percent annually and investment of P11.8 billion, the guaranteed profit of SLTC is pegged at not less than P2 billion a year for 30 years.

Guaranteed profits

With the newly approved toll, however, SLTC will apparently profit much more than P2 billion annually. At a traffic volume of 300,000 vehicles a day, SLTC will earn annual gross revenues of P11.79 billion (of which P1.41 billion will go to the VAT). This means that in one or two years, it can easily recoup its P11.8 billion investment and settle its liabilities, and then neatly profit from its monopoly of SLEx until 2036. See the table below.

Of course, the projected P11.78 billion annual revenues will depreciate over time but it is more than compensated by the annual increase in vehicular traffic in SLEx, which some estimates peg at more than 10 percent a year.

The heavy focus on profitability that is inherent in any private enterprise instead of net economic and social gains make infrastructure projects pursued through P3s such as SLEx ultimately anti-development and anti-people, and therefore makes “that delicate balance” the Inquirer editorial is looking for practically impossible.

Zero ROI

On the other hand, a zero ROI is not necessarily bad in the context of core infrastructure like SLEx and other toll roads, MRT and LRT, water distribution, etc. that should be publicly controlled. According to the US Federal Geographic Data Committee (FGDC) in its paper “Economic Justification: Measuring Return on Investment (ROI) and Cost Benefit Analysis (CBA)”, while it takes an ROI ratio greater than zero to be attractive, “A sub-zero ratio may not automatically ‘kill’ a project, because it may result in a required capability that doesn’t currently exist”, said the FGDC. (FGDC is an interagency body that publishes the National Spatial Data Infrastructure.) 

It further pointed out that “Not all government functions are required to have a positive rate of return as they are in the business world. Government is required to provide certain services to the public, and so is more tolerant of low ROI”.

Thus, if government did not privatize SLEx, there is room to compute its toll using a multi-faceted approach that takes into account not only the direct financial gains from the investment but indirect and long-term development gains as well. Note, for instance, that 60 percent of landed and export products to and from Luzon pass through the SLEx and as much as 20 percent of its traffic volume are commuter buses and cargo trucks. As such, it produces economic benefits for the country that are not captured by private profits.

Raising revenues

But the government is bankrupt and could not undertake infrastructure projects, proponents of P3s and privatization will claim. People’s organizations have long been campaigning for the de-liberalization of the economy, repeal of automatic debt servicing, cancellation of odious debt, etc. aside from curbing high-level bureaucratic corruption, tax evasion by the biggest foreign and local corporations, etc. to raise much needed revenues for infrastructure and other development and social needs of the country.

But the government is corrupt and inefficient unlike the private sector, privateers will argue. Should we then just allow the CEOs of Meralco, San Miguel, Metro Pacific, and the transnational corporations (TNCs) to run the government instead of elected political leaders? Practically, this has been already the case in the Philippines especially under imperialist globalization, and now more increasingly under the Aquino administration.

Concrete and doable alternatives to privatization are available. The neoliberal privateers should not be allowed to burden the people and undermine development with onerous and outrageously increasing user fees like the SLEx toll, or the MRT fare, water and power bills, etc. The privatization of development initiatives and state responsibilities must be stopped and reversed. The people and not the corporations should run the government.

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