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Water woes — just the facts

First of two parts

The President unleashed a torrent of expletives on the two Metro Manila water concessionaires for supposedly “onerous” contracts. I tried to understand why. After all, this major privatization, undertaken in 1997 during the Ramos administration to respond to a water crisis, was a celebrated case of a working public private partnership and was awarded multiple times for the transparency and design of the bid process and for its success in addressing the core problem of poor water services provision, especially its inclusive business model of connecting millions of poor communities. The concession agreements were subsequently extended during the Arroyo term in recognition of this success and in order to enable more investments in water and sewerage services to be done, pursuant to the Clean Water Act.

So indeed, why? The best I can come up with is this: the President felt he was dealt a bad hand through no fault of his and has not been properly briefed on the background and history of this water PPP.

More specifically, the missteps and inactions of the last administration that have led to:

a) non-investment in raw water that resulted in the water shortage last summer and;

b) non-adjustment in tariff rates in accordance with the contract based on a flawed re-interpretation of the treatment of corporate income taxes (which deviated from the practice over the past 17 years) that has resulted in government losing in international arbitration, which now this administration has to pay.

(See my column: Never waste a good crisis, April 2019, BusinessWorld. https://www.bworldonline.com/never-waste-a-good-crisis-2/).

On top of this frustration for being in the hot seat, the President’s anger may have been driven by certain mis-appreciation of the facts about the water service business.

1) Is water free?

Yes, in its natural state. But to deliver safe drinking water to the taps in our homes require investments in storage and treatment facilities and underground distribution networks. These investments that yield high economic and social returns are not free.

Ask the 3.7 million mostly poor informal settlers who were unconnected to the pre-privatization water distribution system. They had to either take a whole morning going to a natural water source or buy their water by the pail at 10 times the cost of what they are now paying under the multi-awarded “Tubig Para sa Barangay” in the east zone where they were organized by Manila Water Co., Inc. into communities and connected to its network. Add to this, the medicine bills and lost hours of work and missed classes when they’s get sick from dysentery due to poor water quality pre-1997.

The reality is that it takes billions of pesos of investments to bring clean potable water to our homes. And, unlike businesses that have declining costs with volume, water is the opposite. As the concessionaires try to connect farther communities in hilly areas with sparser populations, unit costs go up, especially with increased demand for sewerage service which, incidentally, costs three times that of fresh water to put in place.

What is the score card of the two concessionaires in connecting people and in reducing the wastage from leakages and theft (non-revenue water or NRW)?

Here it is. (See the Table. — Ed.)

To achieve all these, the Manila Water and Maynilad have had to invest P166 billion and P208 billion respectively. Critics like giving out profit numbers of these companies without reference to the huge amounts of their investments. When that is done, the average Return on Invested Capital (ROIC) is around eight to 10 percent annually during the past five years, which is comparable to water concessions in other emerging market countries.

And by reducing the NRW through these massive investments and more efficient management, they have prevented a water shortage despite the failure of past administrations to put up a single new water source. Indeed, not a single stone was turned or shovel lifted, after tying the hands of the concessionaires from making such investments.

The amount of incremental water provided by the two concessionaires by reducing NRW is equivalent to the water output of three Kaliwa dams. The one Kaliwa dam that the last administration has talked about for six years and this one for three, but which has yet to be started, will cost P 12.2 billion using Chinese ODA.

2) Contracts were “onerous”?

The facts are that these contracts were diligently prepared and carefully reviewed by various agencies and professionals in government and expert consultants.

Preparing, reviewing, approving, and signing authorities for the original contract included: then MWSS (Metropolitan Waterworks and Sewerage System) management led by Dr. Angel Lazaro III, the entire MWSS Board led by Department of Public Works and Highways (DPWH) Secretary Gregorio Vigilar and his Chief of Staff Mark Dumol, Dept of Finance Secretary Roberto de Ocampo and undersecretaries, the Cabinet Level Privatization Committee, the National Economic and Development Authority (NEDA) Board whose secretariat was headed by Planning Secretary Cielito Habito, Justice Secretary Teofisto Guingona and his Usec Presbyterio Velasco, Chief Presidential Legal Counsel Rene Cayetano, Corporate Legal Counsel Oscar Garcia, Executive Secretary Ruben Torres, and, finally President Ramos himself (who is known for demanding CSW — complete staff work). A similar though less lengthy process was followed on the contract extension which was signed by President Gloria Arroyo and Finance Secretary Gary Teves. Additionally, consultants were engaged — the key ones were International Finance Corporation/World Bank (as the principal adviser for privatization), which in turn engaged NERA from the UK (as economic advisers), Sogreah, a French engineering firm (as process consultants), audit firm Punongbayan and Araullo, and lawyers ACCRALAW (led by attorney Eusebio Tan) and Cleary Gottlieb (led by Lee Buccheit) over a period of a year.

The concessionaires were asked to bid on this contract competitively in both 1996 (there were four highly qualified consortia involving the best names locally, and the leading global water companies which bid) and then again in 2007 when the original west zone concessionaire, the Benpres-Lyonnaise des Eaux consortium, went bankrupt and the contract for Maynilad had to be re-bid. The fact that 50% of the original proponents failed is the best demonstration that there was absolutely no guarantee of returns, no sweetheart deal as contended.

Moreover, government tends to review Public-Private Partnership (PPP) contracts with today’s lenses without reference to the context at the time the contracts were entered into. This was done, I suspect by the Department of Justice in the review reported in the news without consulting the many people then who were involved in drafting, reviewing, and approving the contract.

Had they reached out, they would have appreciated the dramatically different situation then versus now in the conditions of the country and the MWSS. Contract terms offered needed to be appropriate to these conditions and global standards and requirements to attract the best qualified bidders.

Let me just cite a few facts:

1.) PPP then was very new. There were only a handful of contracts to serve as precedents in water or even other sectors, and thus the structure was perceived to be high risk considering especially regulatory uncertainty. The Philippines did not have a clear regulatory regime on water and thus had to develop an innovative “regulation by contract” scheme. A big part of the risk mitigation aspects of this depended on a performance undertaking by the Republic as represented by the Finance Secretary, and the provision of international arbitration for dispute resolution.

2.) The Philippines’ credit rating was below investment grade, interest rates on treasury bills were at double digits, our government debt to GDP and budget deficits to GDP were much higher, as was the external debt to GDP, the current account in deficit, while foreign reserve coverage was only two months’ worth of goods and services versus eight today.

3.) The MWSS then was a mess, very inefficient, there was intermittent water supply, very high water leakage and theft (NRW over 60%). It was over-staffed but had low productivity, was highly indebted, and with high technical risks — nobody knew the condition of the pipes, so this added to the risk premium.

Insofar as “onerous” provisions, let me try to respond to some of the points reported in the newspapers.

1.) The contention that “government interference” was not allowed under the contracts. This is completely false. The facts are that at every step, government is involved in rate setting in what is, after all, a public private partnership.

These steps include: a.) in setting the parameters in the concession agreements, b.) setting the service levels for both piped water and sewerage, c.) determining and auditing which expenditures are prudent and efficient, d.) determining the cost of capital that the concessionaires will receive, adjusted to market every five years, and, finally, e.) approval of the tariffs schedules after proper public hearings that derive from steps a.) through d.). The Republic simply undertook in the Performance Undertaking to respect this procedure.

This is Part One of this column. The second and concluding part will cover other supposed “onerous conditions” relating to recoverability of the corporate income taxes from tariffs, the extension of the contract, and the possible consequences of government terminating the contract unilaterally.

For those who wish to understand the subject more fully, I would refer you to:

1. “The Manila water concession: a key government official’s diary of the world’s largest privatization,” by Mark Dumol

http://documents.worldbank.org/curated/en/118971468776361965/The-Manila-water-concession-a-key-government-officials-diary-of-the-worlds-largest-water-privatization

2. Built on Dreams, Grounded in Reality: Economic Policy Reform in the Philippines by National Scientist and Prof. Emeritus Raul Fabella, https://asiafoundation.org/resources/pdfs/BuiltonDreamsGroundedinReality.pdf

3. Tap Secrets: The Manila Water Story by Virgilio C. Rivera, Jr.,

https://www.gwp.org/globalassets/global/toolbox/case-studies/asia-and-caucasus/cs_450_tap_-manila.pdf

4. The video tape of the Senate Hearings of Dec. 11, Chaired by Senator Grace Poe. In this link: https://www.facebook.com/sengracepoe/videos/845201489268434/

 

Romeo L. Bernardo is Vice-Chairman of the Foundation for Economic Freedom and GlobalSource Partners Philippine Advisor. He was Finance Undersecretary during the Corazon Aquino and Fidel Ramos administrations and was a Trustee of the MWSS from 1995 to June 1996, six months before award of the concessions.

romeo.lopez.bernardo@gmail.com

Philippine tourism positioned for take off

The year 2019 will be a banner year for Philippine tourism. If we are to go by the trends from January to September, the Philippines is poised to surpass its 8.2 million visitor target, clocking in a growth rate of 14.37%. At this pace, we are likely to supersede the 12.5 million arrival target by 2022.

Philippine tourism is finally positioned to take off in a massive way with all the pillars for robust growth slowly falling into place. In the last two years, several new domestic airports have become operational, nearly a thousand kilometers of roads were built to connect ports to tourism sites, new destinations have been developed (e.g. Romblon, Camiguin, and Siquijor) to complement established ones, and thousands of new lodging options have been integrated to the grid.

It took many years of hard work to get here and government will do well to capitalize on our position today. The objective is to accelerate growth to 20% or more. This was the growth rate of Thailand in the 1990s. Growing at this rate will generate an additional 1 million jobs per year and will allow us to double our tourism revenues in five years to $15 billion.

At this point, the name of the game is to achieve seamless travel in and out of the Philippines. It is all about making the end-to-end journey of the travelers as smooth and stress-free as possible. Doing so opens the way for the creation of fond memories and favorable endorsements, not horror stories and bad feedback.

The Word Economic Forum has identified 16 steps in a traveler’s journey, from pre-trip planning to post-trip assessment. Among them, five were identified as the cause of the most stress. They are: 1.) Visa Application; 2.) Airline booking; 3.) Airport departure gate and exit security controls; 4.) Immigration clearance; and, 5.) Customs screening.

Clearly, the airport experience is the most stressful part of the journey, which is why progressive governments spend billions to make these processes as painless as possible. Singapore’s Changi Airport started the trend of on-line check-in and bag drops to make the check-in experience less burdensome. The Dubai airport was the first to introduce facial biometrics for outbound immigration clearance. Qatar Airport was the pioneer in body scanning as well as facial and fingerprint biometrics. Vancouver airport was the first to utilize electronic immigration kiosks to make inbound immigration less intimidating.

In the Philippines, certain measures have been put in place to simplify airport procedures. Among them is the integration of travel tax and terminal fees to the ticket price (unless the traveler opts for a ticket that does not include these fees); on-line check-in, seat selection, and bag drops are now available in all airports; electronic generation of boarding passes are offered by some airlines; and electronic immigration kiosks are now installed in NAIA, Clark, Mactan, and Davao, although limited to Filipino passport holders only. While Philippine airports still have a long way to go in terms of technology adoption, authorities maintain that they are all in the plan and will be rolled-out in due course.

Liberalizing visa requirements not only relieves travel stress but also contributes towards boosting inbound travelers. Between 2013 and 2018, a wave of Asian countries, notably Japan, liberalized their visa policies by introducing visa-on-arrival and electronic-visa options. They have also increased the period of visa validity and expanded the list of visa-free nationalities.

The Philippines grants visa-free entry to 157 nationalities for a maximum of 30 days. China is our second largest inbound market while India is the 10th — both nationalities are required visas for security and immigration reasons. However, Indians have recently been granted visa-free entry if they have a valid Schengen, Japanese, American, or Canadian visa.

The Philippines is a part of the ASEAN Common Visa Scheme whereby an ASEAN visa holder can gain access to all 10 nations in Southeast Asia. It is similar in form and intent to the Schengen visa. The scheme is scheduled to come on-line by 2025, if not sooner.

Achieving seamless travel means having the appropriate infrastructure to give tourists a pleasant airport experience and to get them to their final destination (and back to the airport) in the fastest way possible.

In 2017, 99% of arrivals to the Philippines came by air. This decreased to 95% in 2018 due to the increase of cruise passenger arrivals.

Airport development is a priority of both the Departments of Transportation and Tourism

Last year, the opening and/or expansion of the international airports in Mactan, Panglao, Clark, Iloilo, Kalibo, and Davao resulted in 40 new inbound flights from Australia as well as various parts of Asia and the Middle East. This translated to an addition of 1.6 million in-bound air seats. The Philippines posted a 10% increase in inbound air-seats, 4% more than ASEAN’s average.

In the first semester of 2020, Terminal 2 of Clark International Airport will be opened and will boost its capacity from 4 million to 12.2 million passengers per year. Meanwhile, the upgrade, rehabilitation, and expansion of the NAIA complex just merited NEDA approval and is now on the Swiss challenge stage. Given the slow pace in which the process is moving, the project proponents will likely receive their Notice to Proceed by 2022.

As for the much awaited Bulacan Airport, Finance Sonny Secretary seems to be throwing one monkey wrench at the project after another. Despite having settled all terms and conditions for the PPP deal, the Finance Secretary continues to ask for more concessions, in effect putting the project in limbo. The good Secretary must realize that we, the citizens, want this project to push through simply because the country needs it. Clark will not be enough now and in the future. We resent the fact that he is standing in its way of this project. As for seaport infrastructure, we can look forward to a proper cruise ship terminal to be built on reclaimed land behind Solaire Hotel at Entertainment City. Constructed by Bloomberry Cruise Terminals Inc. at the cost of $308 million, the luxurious Solaire Cruise Center will be inaugurated by 2021.

To compliment the Manila port, the Philippine Ports Authority will further develop the seaports of Boracay and Puerto Princessa. The three ports, taken collectively, are known as the “Turquoise Triangle.” Also in the pipeline is the expansion of the ports in Coron, Curmimao, Iloilo, Salomague, and Tagbilaran.

As far as land transport is concerned, the public works department has constructed 962 kilometers of new roads to link ports to tourist hotspots. For 2018 and 2019, it is spending an additional P49 billion to build even more roads. All these should translate to reduced travel time, better mobility, and greater convenience for our visitors.

Achieving seamless travel is the silver bullet that will take us from 8.2 million visitors to 15 million and beyond. Lets hope government keeps its eye on the ball and does not lose the momentum.

 

Andrew J. Masigan is an economist.

Water: How the story is told

The story starts with Martial Law President Ferdinand Marcos. When he became president in 1965, the total external debt was $600 million; by the time he was ousted in 1986, it had ballooned to $26 billion — a 4,300% rise, according to the Ibon Databank, cited in an article in the Philippine Daily Inquirer of Nov. 24, 2016.

When Senator Benigno “Ninoy” Aquino, Jr. was assassinated on Aug. 21, 1983, foreign banks worried about the Marcos autocracy and withheld their credit facilities. Marcos declared bankruptcy in October 1983 and sought a 90-day moratorium on principal debt payments. The World Bank had to lend him some more to avert a default but “with painful conditions like cutting the government budget, peso devaluation, tariff dismantling, and ending subsidies,” the same Ibon report related.

Borrow to complacency, that is what Marcos and other “third world” (developing) countries did at that time. It was in this situation that the concept of privatization was gaining popularity, in the thinking of economist F. A. Hayek that governments should devolve commercial activities to the private sector and just regulate these, while concentrating on social development. Privatization seemed a convenient way to unload government-run enterprises and services (and produce cash therefrom), as then British Prime Minister Margaret Thatcher had tested in the UK.

And Marcos took notice of this “panacea” to his financial problems. He issued PD 2032 to prepare for the privatization of some of his collection of sequestered companies, called Government-Owned and -Controlled Corporations (GOCCs). But the February 1986 EDSA People Power Revolution soon ousted Marcos and installed Ninoy’s widow, Corazon “Cory” Aquino, as president, and she returned most of the sequestered corporations to their rightful owners. Cory instead implemented the Build, Operate and Transfer (BOT) scheme for self-financing of new projects.

It was President Fidel Ramos who maximized the privatization scheme for boosting the economy. He sold government assets totaling to about P70 billion, the most massive “fire sale” among all administrations. From this Ramos, and only he among all presidents, had budget surpluses for four of the six years of his term. He was able to contain and resolve the power crisis in his time, with emergency powers to fast-track the construction of power projects on BOT and BOO (Build, Operate and Own) — bases, the latter a sort of “prepaid” privatization to the contractor.

The water crisis in the early 1990s became the justification for the privatization of the water sector, the Water for the People Network Asia (WPNA) declared to the UN Office of the High Commissioner on Human Rights (ohchr.org). The National Water Crisis Act of 1995 (RA 8041) gave President Ramos emergency power for one year to manage the projected 75% increase in national demand for water. The Metropolitan Waterworks and Sewerage System (MWSS) had incurred a debt of $307 million by 1995, $204 million of which were debts from World Bank (WB) and the Asian Development Bank (ADB). To ensure repayment of debts, the WB proposed privatization as the solution to the problem, according to the WPNA report.

“The World Bank became the Ramos administration’s consultant on the privatization through the International Finance Corporation, even designing the bidding process and drawing up the Concession Agreement,” the WPNA said.

Is that the Concession Agreement that turned President Duterte livid, as he lashed out at water concessionaires Manila Water and Maynilad on live television? The President threatened to sue officials of the two companies and former government officials who had been part of the concession agreement, following the ruling of the Permanent Court of Arbitration (PCA) ordering the national government to pay P7.39 billion in “foregone revenues” to the Ayala-owned Manila Water. Maynilad won its own case in 2017 in the arbitration court, which directed the government to pay P3.4 billion.

“I will file plunder. Ang plunder Mr. Ayala, no bail ’yan,” Mr. Duterte seethed through gritted teeth (CNN Philippines, Dec. 5). Presidential Spokesman Salvador Panelo called certain provisions being reviewed by the Department of Justice as “onerous” and said these will be removed, as all those who had anything to do with the Concession Agreement will be charged in court — possibly including Presidents Fidel Ramos and Gloria Arroyo and those who let those onerous provisions go through — all up to the administration of Benigno S.C. Aquino III.

President Ramos publicly reacted immediately, saying that “any agreement (must be honored), be it between governments and/or the government and the private sector… our word must be our bond. With privatization, the private sector mobilized funding from both foreign and local sources depending on the word of the Philippine government that the essential conditions of adherence to the sanctity of contracts and rule of law must be observed.

“The MWSS concession agreement, as with all projects and agreements entered into by government during my administration, was anchored on complete staff work, review and consultation with various government agencies, organizations and the concerned public, which resulted in complete transparency all the while negotiating terms most favorable to government.” President Ramos said in a statement quoted in the Philippine Daily Inquirer of Dec. 14.

What President Ramos did not say was that the government was probably under the gun by the IMF/World Bank at the time of the Water Concession Agreement. Remember that the World Bank was hot on collecting the $307 million in MWSS debt, during the world financial crisis when other countries who owed the IMF/WB were boldly talking of debt repudiation. In separate Concession Agreements that MWSS signed, Maynilad would shoulder 90% of MWSS debts while Manila Water would shoulder 10% through payments of concession fees.

And so, the WPNA bewailed to the UNCHR, “The architects behind the privatization of MWSS ensured that the ‘commercial viability’ of firms operating the water system through a pricing scheme that automatically generates profits.”

The Rate Rebasing every five years allows the concessionaires to recover historical capital, operating and investment expenditures, and review future capital, operating, and investment plans. The foreign currency differential adjustments (FCDA) every quarter and the accelerated extraordinary price adjustment (AEPA) also cover foreign currency exchange and other risks.

“Manila Water’s net income from 2015 to 2018 totaled P25 billion… its average annual earnings was P6.2 billion, increasing from P5.6 billion in 2011 to 2014” (Manila Times, Dec. 6). And the two concessionaires, both profitable all these years, do not pay income taxes, President Duterte boomed on national television, as he threatened to charge them with economic sabotage.

Maynilad Chief Executive Officer Ramoncito Fernandez said at the joint House Committees on Good Government and on Public Accountability on Dec. 10: “We are not losing money… (but) everything that we have spent, including capital expenditure, operating expenses… averaged P20 billion in income but we have spent P33 billion.”

To cut a long story short, both “Maynilad and Manila Water announced they decided to abandon their arbitral claim of a combined P10.8 billion supposedly for lost revenues from an unenforced rate hike,” as the Philippine Star of Dec. 11 reported. The two concessionaires also declared there will be no water rate hike in January 2020 for consumers.

“Puede naman pala (so it can be done, after all),” former Vice-President Noli de Castro said in his TV news program Kabayan the morning after. But, perhaps riding the crest of public delight at the staying of water rates, President Duterte has been titillating his audience with “coming-soon” trailers of killing off Manila Water and Maynilad with the cancellation of the “onerous” Concession Agreement.

Let’s see how the story goes from there.

 

Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.

ahcylagan@yahoo.com

GCash partners with MultiSys, Bayad Center to upgrade its bills payment services

The country’s#1 mobile wallet app, GCash, partners leading software solutions company Multisys Technologies Corporation to integrate systems with Bayad Center’s bills payment services. This will allow GCash app to access thousands of billers nationwide.

“This system integration is one to look forward to, as it will allow GCash users to transact with thousands of billers nationwide—all in one app,” MultiSys founder and CEO David Almirol Jr. said. “MultiSys will help GCash achieve a streamlined and seamless business process, which is crucial in a digitally driven world.”

Under the partnership, MultiSys will integrate Bayad Center’s billers for GCash’s in-app Pay Bills service, and enable GCash payments in more platforms and websites through Web Pay.

Anthony Thomas, CEO of Mynt, the company behind GCash, said, “We are confident that this partnership with MultiSys and Bayad Center will not only fortify our existing linked systems but also pave the way for more institutional connections with our mobile platform. GCash aims to link with more government agencies and businesses, which will allow us to provide convenience to more Filipinos who wish to transact conveniently online, wherever they may be.”

Bayad Center CEO and President Manuel Tuason also expressed excitement on the system integration. “With this integration of GCash and Bayad Center through the technological know-how of MultiSys, Filipinos will be able to enjoy bills payment and convenience for other transactions via online and mobile, better than ever,” Tuason said.

 

Diokno eyes around 50bps rate cuts in 2020

THE Bangko Sentral ng Pilipinas (BSP) may consider cutting rates by about 50 basis points (bps) in 2020, according to Governor Benjamin E. Diokno.

“Maybe we’ll be considering 50 basis points (bps) next year and we have more time on the reserve requirement because my promise is that we will cut the reserve requirement to single digit by the end of my term which is 2023…,” he said in an interview with Bloomberg TV on Friday.

If realized, a total of 125 bps will have been unwound by 2020 from the 175-bps rate hike barrage in 2018 that the BSP fired in the midst of soaring inflation.

Fitch Solutions on Friday also said that they are predicting another rate cut from the BSP in 2020.

“…we maintain our view that the BSP will opt to cut its key policy rate once again in 2020. Our view is supported by the fact that external conditions are likely to remain challenging for the Philippine economy over the coming quarters,” Fitch Solutions said in a report titled “Economic Analysis — Philippine Monetary Policy To Maintain Dovish Tilt in 2020”.

On Thursday, the Monetary Board decided to hold key interest rates for its eighth and final meeting in 2019.

Before this, the policy-setting body has trimmed rates by a total of 75 bps this year through 25-bps cuts that were done in May, August, and September.

This has brought overnight reverse repurchase to four percent, while overnight deposit and lending facilities are at 3.5% and 4.5%, respectively.

Mr. Diokno that their decision was supported by the continued benign inflation environment.

“The bank’s statement indicated a strong sense that monetary conditions remained sufficient given its current outlook for the economy and inflation, with little need for a further easing of conditions,” Fitch Solutions said in its report.

Headline inflation in November was at 1.3%, which, although a pickup from the 0.8% logged in October, is still well within the BSP’s range of 2-4%.

Mitsubishi UFJ Financial Group ASEAN head of global markets Research Leong Sook Mei also thinks there is room for further easing in 2020 based on BSP’s remarks on Thursday.

“A sign that a rate cut is still in the offing despite not moving yesterday, and the last meeting was BSP’s remark that the likely 2020 rate hold by the [US] Fed[eral Reserve] will help to ‘add boost to the further downward trend in the interest rate path’ and accords ‘greater flexibility’ for the BSP to conduct monetary policy,” she said in a note sent to reporters on Friday.

Union Bank of the Philippines, Inc. chief economist Ruben Carlo O. Asuncion has likewise told BusinessWorld on Thursday that he sees a 50 bps rate cut could be on the table as early as the first half of 2020.

“Major factors would be inflation expectations, global oil price movements, and the impact, so far, of 2019’s easing on market liquidity and credit growth,” he said in a text message.

BSP data showed that loan growth of universal banks was at 10.5% in October, slower than the 10.5% expansion in September.

Mr. Diokno has previously said that monetary easing works with a lag and that it may take up to nine months before it could fully set into the financial system. — Luz Wendy T. Noble

PHL, ADB ink loan deals worth $623M

THE Philippine government, through the Department of Finance (DoF), and the Asian Development Bank (ADB) on Friday signed a total of $623 million worth of loans to finance feasibility studies for infrastructure projects, to further boost the competitive market and to provide more employment opportunities for the youth.

The three loan packages included the $400-million funding for the Facilitating Youth School-to-Work Transition program — subprogram 2; the $200-million additional financing for the Infrastructure Preparation and Innovation Facility; and $23.3-million Capacity Building to Foster Competition project.

After the signing ceremony, Finance Secretary Carlos G. Dominguez III said that the $200 million loan was the second one that they availed from the ADB, following the $100 million they borrowed in 2017.

“We realized that in order to come up with a robust pipeline, we needed to finance the project studies for projects (to be implemented).. in the future. (After the first loan program), we see that there is still a long list of feasibility studies that we have to make so we applied for this facility of $200 million and I think this will develop a very good pipeline for future administrations to implement,” Mr. Dominguez said.

ADB Vice President Ahmed Saeed said the loan will support the government in “high quality and innovative project preparation” for its priority infrastructure projects, including the Bataan–Cavite Interlink Bridge Project and the Metro Rail Transit Line 4 connecting Ortigas in Metro Manila and Taytay in eastern Rizal province.

ADB also said in a statement that the funding will support the staff of the country’s biggest infrastructure implementing bodies, the Department of Public Works annd Highways (DPWH) and the Department of Transportation (DoTr), in the preparation and implementation stages of the infrastructure projects.

Mr. Saeed said that the $400-million loan for the Facilitating Youth School-to-Work Transition Program will support reforms and programs by the Department of Labor and Employment.

“These reforms have translated into robust employment growth, with a net of 1.3 million new wage jobs created in the 12 months to October 2019… Labor market programs have also been fundamental to reducing poverty and household inequality,” he said.

In an earlier statement, ADB said that the loan will also support the government’s effort to reduce the number of out-of-school youth while enhancing skills of young Filipinos for employment through labor market programs and accessible on-the-job training systems.

“As the populations of some of the more mature economies in Asia begin to age, we are looking forward to the entry of millions of young Filipinos into the workforce. We must invest in them and ensure that they are globally competitive,” Mr. Dominguez said.

Meanwhile, the $23-million capacity building to foster competition project will help the government enforce the Philippine Competition Law and provide support to the Philippine Competition Commission (PCC).

PCC Chairman Arsenio M. Balisacan said that the competition policy regime in the country is relatively new, while individuals and institutions are not fully equipped to address the proliferation of anti-competitive practices.

“With this assistance, we will be able to build that human capacity, we will be able to send more people to pursue specialization in competition law and policy and we will be able to build in the Philippines a center of excellence that will produce a manpower for competition policy and reinforcement,” Mr. Balisacan told reporters during the same event.

The three recently signed loan agreements are part of the ADB’s $10.3 billion financing support it committed to the country over the medium term.

So far since 2009, the multilateral lender provided a total of $7.2 billion worth of loans to the Philippines and is looking to grow its portfolio with an additional $2.5 billion this year and another $7.8 billion next year until 2021.

“The proposed substantial increase in ADB’s loan assistance underscores the Bank’s strong support in translating the Duterte administration’s development objectives into concrete investments, particularly related to the country’s Build, Build, Build Program, human capital development, disaster preparedness, tourism, health care, and agriculture,” Mr. Dominguez added. — Beatrice M. Laforga

Local stocks get lift from trade talks

By Denise A. Valdez, Reporter

THE main index ended on a high note this week as investors turned bullish after positive developments on the Sino-US trade talks and the Philippine central bank’s decision to keep interest rates unchanged.

The 30-member Philippine Stock Exchange index (PSEi) picked up 136.56 points or 1.76% to close at 7,877.63 on Friday, while the broader all shares index added 63.32 points or 1.38% to end at 4,662.07.

“The market rebounded, recovering losses for the subdued trading for the past four days amid the external factors such as the US-China positive news on the trade deal,” Research Associate Piper Chaucer E. Tan of Philstocks Financial, Inc. said in a text message Friday.

Several foreign news outlets reported late Thursday US President Donald J. Trump has agreed to a trade agreement with China in principle, ahead of the Dec. 15 deadline for imposing tariffs on Chinese goods.

Citing people familiar with the talks, US supposedly agreed to roll back tariffs on Chinese consumer goods, while China committed to increase spending on US agricultural goods.

Wall Street rejoiced at the end of Thursday’s trading, as increases were recorded in the Dow Jones Industrial Average index (0.79%), the S&P 500 index (0.86%) and the Nasdaq Composite index (0.73%).

The rally was also felt in Asia Pacific on Friday, where Japan’s Nikkei 225 and Topix indices grew 2.55% and 1.59%, respectively. Australia’s S&P/ASX 200 index also gained 0.46%, China’s Shanghai SE Composite index increased 1.78% and South Korea’s Kospi index rose 1.54%.

Aside from external factors, Regina Capital Development Corp. Head of Sales Luis A. Limlingan said the Bangko Sentral ng Pilipinas’ decision to maintain interest rates also affected the market’s performance on Friday.

“Investors were also reacting when the Monetary Board of the central bank kept the key interest rates unchanged in yesterday’s meeting, citing the benign inflation environment and making the currency firm,” he said in a mobile message Friday.

The central bank decided during Thursday’s policy meeting to keep the interest rate on the overnight reverse repurchase facility at 4%, on the overnight deposit at 3.5% and on lending facilities at 4.5%.

All sectoral indices at the PSE ended in green territory. Leading were industrial which rose 132.16 points or 1.38% to 9,722.08, property which expanded 116.25 points or 2.85% to 4,193.94 and mining and oil which grew 102.98 points or 1.39% to 7,521.46.

Holding firms climbed 88.18 points or 1.17% to 7,633.31, services increased 27.69 points or 1.85% to 1,525.19 and financials gained 14.65 points or 0.78% to 1,903.17.

Value turnover on Friday stood at P7.49 billion with 714.47 million issues changing hands, up from P6.26 billion with 591.09 million issues on Thursday.

Advancers outnumbered decliners 123 against 61. A total of 55 names were unchanged.

Foreign investors turned bullish with a net buying of P309.55 million on Friday from Thursday’s net selling of P387.41 million.

Villar inhibits from water concession review

JUSTICE UNDERSECRETARY Emmeline Aglipay-Villar has inhibited herself from the review of the concession agreements between the government and private firms Maynilad Water Services, Inc. and Manila Water Co., Inc.

“To eliminate any cloud of doubt on the impartiality of the Department’s review and renegotiation of the water concession agreements with the Metropolitan Waterworks and Sewerage System (MWSS) that my affinity to the owners of PrimeWater Infrastructure Corp. has brought, I am inhibiting from any involvement in the Department’s review and renegotiation of the said agreement,” Ms. Villar said in a memorandum addressed to Justice Secretary Menardo I. Guevarra.

Ms. Villar is married to Public Works and Highways Secretary Mark A. Villar, whose family owns PrimeWater.

Mr. Guevarra, meanwhile, said he asked Ms. Villar not to participate in the review.

“I requested Usec. Villar to inhibit herself na lang to dispel suspicions that the DoJ (Department of Justice) contract review may not be completely objective due to an alleged possible conflict of interest,” he told reporters in a mobile phone message.

“It’s unfair to Usec. Villar who has always acted with professionality, but the circumstances call for it. One thing I can say, any good lawyer will come to the same findings and conclusion,” he added.

Mr. Guevarra on Thursday said he is leading the review and that there was no conflict of interest in the review of the contracts of the two water utilities.

The Justice chief also said that it was only coincidental that the review fell under Ms. Villar’s supervision.

“The fact that Undersecretary Emmeline Villar is part of the DoJ review is totally irrelevant,” he said.

Mr. Guevarra said last week said that the department’s review has found a dozen onerous provisions in the contracts signed in February 1997, including the non-interference of the government in rate-setting and the government’s liability should the corporations suffer losses.

The extension of the contracts until 2037 from the original 2022 expiration was also found to be irregular, Mr. Guevarra said.

MWSS, the regulator of the two firms, has revoked the contract extension.

Mr. Guevarra on Monday said a team is being formed to draft the revised concession agreement, which is targeted for completion before the year ends.

LETTERS
Meanwhile, President Rodrigo R. Duterte is still reviewing the response of Maynilad and Manila Water regarding the alleged onerous provisions of the concession agreement and their request for discussions, according to Presidential Spokesperson Salvador S. Panelo

“As we have previously stated, Maynilad and Manila Water each wrote a formal letter making an offer to talk about the issue and renegotiate the onerous provisions of the contracts. There has been no acceptance by the President of their offer nor has he declined it,” Mr. Panelo said on Friday.

He added that the President “will not renege from his constitutional duty of enforcing the law (and) neither will he be swayed nor enticed into accepting a compromise”.

“All legal options are open to him. It must be remembered that the President is a lawyer and a public prosecutor for many years hence knowledgeable on the provisions of the anti-graft law,” he said, “Stated differently, the agreements violate every prohibited act of the law.”

The separate letters by the two firms, both dated Dec. 10, were released to the media by Malacañang Palace on Friday.

“Maynilad wishes to assure His Excellency of its willingness to cooperate with MWSS relative to HE’s Directive to have certain provisions of the Concession Agreement reviewed and amended,” reads the company’s letter.

It was signed by Chairman of the Board Manuel V. Pangilinan, and President and Chief Executive Officer Ramoncito S. Fernandez.

Manila Water, in its letter signed by Chairman Fernando Zobel de Ayala, made a similar assurance as well as puts in writing that “We will not collect the Php 7.39b arbitral award…”

Representatives of both concessionaires said during a hearing at the House of Representatives earlier this week that they will not pursue the award granted to them by a Singapore-based arbitration court and not increase rates in January.

In separate cases, the Permanent Arbitration Court has ordered the government to indemnify the companies for losses with amounts of P7.39 billion for Manila Water and P3.4 billion for Maynilad. — Vann Marlo M. Villegas and Genshen L. Espedido

Palace says Duterte’s SALN available at Ombudsman’s office

PRESIDENT RODRIGO R. Duterte’s Statement of Assets, Liabilities, and Net Worth (SALN) is available to the public at the Office of the Ombudsman,
Malacañang said on Friday, countering a report of its “alleged failure” to provide a copy to the media.

“The Office of the President is not the repository of the SALNs of the President. Per Memorandum Circular No. 3 (series of 2015) of the Civil Service Commission (CSC), the instrumentality which has the authority to carry out the provisions of Republic Act No. 6713, it is the Office of the Ombudsman which is the repository of the original SALNs of the President, the Vice President and the Constitutional Officials,” Presidential Spokesperson Salvador S. Panelo said.

In a report entitled “Duterte’s secret SALN: The lie of his FOI (Freedom of Information)” published Dec. 4, the Philippine Center for Investigative Journalism (PCIJ) said the Office of the President and the Office of the Ombudsman failed to provide a copy of the President’s 2018 SALN, noting that this is the “first time in the last thirty years a President has not released his or her SALN.”

Mr. Panelo said the President submitted on time a declaration under oath of his assets, liabilities, and net worth, adding that “neither instrument requires the President to personally and directly furnish a copy thereof to the media or to whomever wants it”.

“Accordingly, PCIJ may want to direct its request to the Office of the Ombudsman. The Office of the President, can not dictate upon the Office of the Ombudsman the course of action it wishes to undertake relative to such request given that the latter is a separate and independent institution that we have no control of,” he said.

All government officials and employees are required to submit an annual SALN to the Office of the Ombudsman by April 30.

“We take strong exception to the thoughts bordering to innuendo of a few that the failures of the PCIJ in getting a copy of the President’s SALN can be ascribed to the President’s policy on transparency. Such accusation is baseless if not malicious,” Mr. Panelo said.– Genshen L. Espedido

Zarate files resolution to investigate SEA Games funds use

A LEGISLATOR has called for an investigation on the controversies involving the use of funds for the hosting of the 30th Southeast Asian (SEA) Games that was concluded Dec. 11.

Bayan Muna Rep. Carlos Isagani T. Zarate led the filing of House Resolution 602 last Thursday, which seeks to probe how the allocated budget was spent for the sporting event.

The resolution says the probe aims to shed light on the most controversial issues, including reports of several unfinished sports venues and the P50 million stadium cauldron.

“It is the primordial duty of the Congress, in the exercise of its legislative and oversight functions, to ensure that the people’s money was utilized for the benefit of the Filipino people and not wasted due to government inefficiency and corruption” part of the resolution said.

The resolution is pending before the House of Representatives committee on good government and public accountability. — Genshen L. Espedido

Burnt manufacturing plant not an ecozone firm, PEZA clarifies

THE PHILIPPINE Economic Zone Authority (PEZA) clarified on Friday that the manufacturing plant that burned down early December is not a PEZA-registered firm nor is it located within the Cavite Economic Zone (CEZ).

In a statement, PEZA said Betafoam Corp. is located in Paliparan I in Dasmarinas, Cavite and not within CEZ, which is located in the town of Rosario and neigboring General Trias City.

PEZA Director General Charito B. Plaza said their agency ensures safety in its ecozones through various measures and protocols.

“Through the affiliation as military reserve units of PEZA employees and workers in the ecozones, PEZAns and industry workers are prepared and able to respond to man-made and natural disasters and help in nation building,” she said.

Betafoam Corp. has been manufacturing polyethylene (PE) foam and insulation products since 2003.

It occupies a 10,000-square meter area for its factory and warehouse, and has 200 employees.

The fire incident in the morning of Dec. 6, which reached the fifth alarm, injured one worker.

The cause is still being investigated by the Bureau of Fire Protection Dasmarinas. — Vincent Mariel P. Galang

PAO asks Duterte to veto removal of its forensics lab budget

THE PUBLIC Attorney’s Office (PAO) has asked President Rodrigo R. Duterte to veto a provision in the 2020 budget that does not provide funding and limits other allocations from being used for its forensics laboratory.

In a letter dated Dec. 11, PAO cited that the P19.5 million allotted for the purchase of forensic laboratory equipment was deleted from the 2020 National Expenditure Program (NEP).

It added that there is a provision inserted in the General Appropriations bill that restricts PAO from using its maintenance and other operating expenses budget “to the effect that no funds may be used for the meetings and other maintenance and operating expenses of the PAO Forensic Laboratory.”

“These modifications in the President’s budget or the NEP have only one objective — to paralyze the PAO Forensic Laboratory and jeopardize its operations, depriving them the opportunity to assist the clients of the PAO,” the letter read.

It noted that it “cannot help but wonder” if the said modifications was “an act averse to the PAO’s and Administration’s efforts” in handling cases related to deaths allegedly due to Dengvaxia.

PAO said the deletion of certain allocations is unconstitutional because the Philippines Constitution mandates free access to courts and adequate free legal assistance.

“The changes in the budget would lead to its clients’ failure to present forensic evidence in their case,” it said.

“Securing the services of private practitioners to challenge the NBI’s/PNP’s/CHR’s (National Bureau of Investigation/Philippine National Police/Commission on Human Rights) forensic findings would be to practically deny PAO clients of such opportunity — because they are, in the first place, indigents,” PAO said.

“The inevitable consequence thereof is the denial of adequate legal assistance to PAO clients by reason of their poverty,” it added.

It would also violate the proprietary rights of the office’s eight complement plantilla personnel.

PAO said the Forensic Laboratory Division was created by the Department of Budget and Management (DBM) and is a “small unit” under the Office of the Chief Public Attorney.

“We humbly reiterate that the 2018 GAA (General Appropriations Act) gave the DBM the power to approve minor changes in the organizational structure and staffing pattern of agencies, and create positions up to a division chief and equivalent level under the Executive branch — the legal basis for the change in the structure of the Office of the Chief Public Attorney,” it said.

The letter was signed by PAO Chief Persida V. Rueda-Acosta and seven other officers. — Vann Marlo M. Villegas

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