Maynilad welcomes concession contract review
MAYNILAD Water Services, Inc. is open to any state review of its concession agreement after the president’s spokesman announced President Rodrigo R. Duterte’s plan to look into all government contracts with foreign and private entities, including those with the water concessionaires.
“Maynilad has always believed in the sanctity of the concession agreement and the merits of this public-private partnership as seen in the vast improvement in the service levels enjoyed by our customers since we took over,” Maynilad Chief Operating Officer Randolph T. Estrellado said on Wednesday, a day after the Palace directive.
“We welcome any review of our obligations under this agreement as has been undertaken by our regulator since the start of the concession,” he added in a text message.
Manila Water Co., Inc. declined to comment when asked to react to the President’s order.
“None at the moment,” Geodino V. Carpio, Manila Water chief operating officer, said in a text message when asked to comment on the order.
Asked for comment, Metropolitan Waterworks and Sewerage System (MWSS) Administrator Reynaldo V. Velasco said the President’s directive was not addressed to his office.
“I cannot comment because in the first place I’m not a lawyer. Pangalawa (Second), it’s not addressed to us. It’s addressed to DoJ (Department of Justice),” he told reporters.
Mr. Velasco added that he was ready to submit a report as called for by Mr. Duterte during their meeting on March 19, days after a water shortage was experienced by Metro Manila’s east zone under Manila Water’s concession.
“Ready ako (I’m ready),” he said, adding that the MWSS would meet this week to approve his recommendations.
He said he can submit the report as early as April 6, or days ahead of the April 10 deadline set by the President, and not on April 7, as cited by Presidential Spokesman Salvador S. Panelo.
In an earlier interview, Ramoncito S. Fernandez, Maynilad president and chief executive officer, said he did not feel that the company was alluded to when the President threatened to fire officials and terminate the concession agreements.
“I don’t think Maynilad is alluded to, we don’t have a problem,” he said about the threat of losing its concession contract. But he said the company is prepared to respond to Malacañang and “rehash” its existing medium-term and long-term plans.
Mr. Velasco said on Wednesday that Maynilad was not part of the problem referred to by Mr. Duterte.
On Tuesday, Mr. Panelo said the President “instructed all agencies to check and review all contracts entered into and remove onerous provisions that might be detrimental to the lives of the Filipinos.”
Maynilad entered into a concession agreement with MWSS in February 2017, with respect to the agency’s west service area.
Under the concession agreement, MWSS grants Maynilad the sole right to manage, operate, repair, decommission and refurbish all fixed and movable assets required to provide water and sewerage services for 25 years ending in 2022.
In September 2009, MWSS approved an extension of its concession agreement with Maynilad for another 15 years to 2037.
Manila Water was granted the exclusive rights to provide the same services in the east service area, covering the same time period. — Victor V. Saulon
Legislators caution against reneging on contracts, support arbitration
SENATE Minority Leader Franklin M. Drilon cautioned against cancelling government contracts found to be onerous, after a review was ordered by President Rodrigo R. Duterte.
“I must caution that existing and binding contracts cannot simply be classified as onerous and unilaterally cancelled,” Mr. Drilon said in a statement on Wednesday.
Mr. Duterte at Monday’s 36th cabinet meeting directed the Office of the Solicitor General and the Department of Justice to review all government contracts.
While he supports the review of bilateral and multilateral agreements entered into by the government, Mr. Drilon said the government should act according to the provisions of the contracts.
“To do otherwise would constitute a breach of the government’s obligations under the contract,” he also said, noting this could send signal to other countries that the Philippine government does not honor its obligations.
“If the government thinks a contract duly executed is disadvantageous or onerous, it can renegotiate its terms, or go to court for its reformation. Or, bring it to the Ombudsman if it violates the anti-graft law. This power to review, moreover, must not be used to harass,” he said.
Senator Sherwin T. Gatchalian concurred, saying the review of the contracts should not result in the country’s withdrawal from agreements as this could reduce foreign investment.
“The review should not be meant to rescind live contracts. Reneging on contracts will tarnish the reputation of the our country in terms of attracting potential investors and the much needed FDI (Foreign Direct Investment,” Mr. Gatchalian said in a statement on Wednesday.
He said that to remedy a disadvantageous agreement, the government should follow the contract’s arbitration provisions. “I-trigger ang arbitration proceedings or provisions at doon pag-usapan kung paano ayusin ‘yung hindi tamang provision,” he said in a chance interview on Wednesday (“The government needs to trigger arbitration proceedings and there discuss which provisions need to be fixed.”)
Senator Gregorio B. Honasan II also proposed to subject all bilateral and multilateral agreements entered into by the government to a performance audit.
“Beyond review, performance audit of ALL multilateral, bilateral economic, security engagements and arrangements to determine if they have served mutual interests in the short-, medium-, and long-term,” Mr. Honasan told reporters in a phone message on Wednesday. — Charmaine A. Tadalan
Andaya says ‘no basis’ for Sotto’s budget reservations
HOUSE appropriations committee chair and Camarines Sur 1st District Rep. Roland G. Andaya Jr. said in a letter that Senate President Vicente C. Sotto III’s reservations about the 2019 national budget have no legal basis.
Mr. Andaya said he wrote to Executive Secretary Salvador C. Medialdea and Department of Budget and Management Acting Secretary Janet B. Abuel in separate letters on March 28 to counter the Senate President’s arguments for conditionally signing the 2019 budget bill.
“The Senate President is ill-advised by his lawyers. The letter he sent to the President expressing his ‘strong reservations’ as annotation in the 2019 National Budget enrolled bill has no legal basis. It is just a personal request, which the President may or may not take heed of,” Mr. Andaya said in a statement on Wednesday.
Mr. Sotto, despite signing the national budget on March 26, noted his “reservations” about the post ratification realignments made by the House, amounting to P95 billion.
He also asked President Rodrigo R. Duterte to veto the P75 billion worth of programs under the Local Infrastructure Program of the Department of Public Works and Highways.
Mr. Andaya added, “Also, I pointed out that the ‘Senate President cannot interfere with the exercise by President Duterte of his veto power by suggesting what items should be vetoed in an enrolled bill, which bears his signature.’”
The appropriations committee chair noted in his letters that there is no “conditional signing of an enrolled bill.”
“The Senate cannot clothe his signature to the 2019 General Appropriations Bill with ambivalence or dissent,” said Mr. Andaya.
Further, he said that the arguments by the Senate President in his letter are “completely baseless.”
“For one, the realignments he cited were adjustments authorized by no less than the Bicameral Conference Committee Report, which was approved and signed by the conferees from both chambers,” said Mr. Andaya.
The budget, ratified on Feb. 8, is awaiting President Rodrigo R. Duterte’s signature.
Sought for comment, Speaker Gloria Macapagal-Arroyo said that Malacañang is expected to sign the budget bill soon.
“I think it will signed soon. They are just, every year the President does line item vetoes so they are just working on now I think on what will be the line item veto but there is a date for us to go to Malacañang,” Ms. Arroyo sad in a chance interview with reporters on Wednesday.
Asked to comment, Mr. Sotto told reporters over Viber: “Omnibus motions only apply to them, not the entire Congress. Palusot lahat ’yan (it’s all an excuse). Bottom line is they touched something they shouldn’t have AFTER RATIFICATION.”
“What they did affected their colleagues that’s why they complained to us aside from the fact that LBRMO (the Legislative Budget Research and Monitoring Office) saw a red flag. But all their talk is now water under the bridge. It’s all in the President’s hands. I washed mine,” he also said, maintaining that the Senate only served its function as an independent branch of the government. — Vince Angelo C. Ferreras
Indonesia declares priority status for PHL agricultural goods
THE Indonesian government will implement a “Philippines First Policy” that will prioritize the Philippines as a source of agricultural goods whenever there is a need to import, Agriculture Secretary Emmanuel F. Piñol said on Tuesday.
“Yesterday, [Indonesian] Trade Minister [Enggartiasto] Lukita announced a new policy which will be adopted by Indonesia and they call it Philippine First Policy. They have recognized us as their distant cousins and they said starting now, if there is anything they need, they will look at the Philippines as a priority source for the things that they need before sourcing it from other countries,” Mr. Piñol said in a briefing in Quezon City.
Mr. Piñol earlier this year complained that Indonesia is not open to importing from the Philippines which results in a huge trade deficit between the two countries. Recently, the two countries along with Malaysia entered into a tripartite agreement to limit exports to the Philippines of palm oil.
“(Yesterday), [Indonesian] Trade Minister Lokita, [Philippine Trade] Secretary Ramon Lopez and myself, agreed that the three countries would form a technical working group (TWG) to come up with an acceptable arrangement. We call it a brotherly arrangement, to ensure that nobody will be placed in a disadvantageous position,” Mr. Piñol said.
“(Indonesia saw) it could have an adverse effect not only on diplomatic relations but also trade relationships. We are already consolidating our production that will be ready for the Indonesian market and I’m prioritizing onions [for export],” Mr. Piñol noted.
According to Mr. Piñol, the three countries have agreed to fight the campaign of Western countries against the use of palm oil and coconut oil.
“We should join hands to standing up to the lobby of vegetable oil producers in the Western countries who are waging a campaign against palm oil and coconut oil,” Mr. Piñol said.
Mr. Piñol also said that Indonesia is currently having a hard time in exporting palm oil to the European Union (EU), and banning them from exporting to the Philippines will be detrimental for Jakarta. Mr. Piñol earlier considered imposing quantitative restrictions (QR) on export of palm oil to the Philippines, claiming that such exports may have disadvantaged Filipino coconut farmers who are dealing with low prices for copra.
“I can understand their concern because right now hirap sila pumasok sa EU (…they are having difficulty to penetrate the EU market). Nagsta-start na ’yung ban ng EU sa palm oil (EU has already started banning palm oil). If they will get the same ban from the Philippines, that will be detrimental to their palm oil industry,” Mr. Piñol said.
“(There is a move right now) to really join hands and address this problem because we also have our own palm oil production in the Philippines. We will also be affected by the ban imposed by the EU,” Mr. Piñol said. — Reicelene Joy N. Ignacio
US-China trade war offers opportunities for PHL
THE Philippines stands to gain from an escalating China-US trade war, with the possible redirection of trade favoring Southeast Asian economies.
Asian Development Bank (ADB) statistician, Manhinthan Joseph Mariasingham said during the development forum “Global Economic Environment: A Symposium on the Global Economy and What It Means for the Philippines” that negative effects of the US-China trade war can be offset by the potential redirection of trade, benefiting the Philippines in the medium to long term.
“Philippine manufacturing could see a boost of 0.2-0.7%, primarily in electronics…[assuming] the Philippine economy is able to attract more trade from tariff-affected economies,” he said.
He said Malaysia, Vietnam and Taiwan are well-positioned to absorb excess demand.
“[These] countries have infrastructure to absorb the excess demand that would arise as result of tariffs [imposed in China]… mainly in the electronics sector,” Mr. Mariasingham said.
Meanwhile, he said that although the US-China trade war has very little impact on the Philippines’ trade in commodities, “services will be affected negatively because the sector is highly dependent on economic performance of other countries, especially those highly linked to globalization or global value chains (GVCs).”
Mr. Mariasingham noted that even without the US-China trade conflict, companies will move out of China because it is losing its competitive advantage as a major manufacturing hub for GVCs.
Kristy Tsun-Tzu Hsu, Director at the Chung-Hua Institute for Economic Research (CIER), concurred, and expects the US-China trade conflict to continue to escalate.
“Taiwanese companies with customers in the US (operating in China) will look for other countries to operate in,” she said during the same forum, organized by the Philippine Institute for Development Studies (PIDS).
In its survey of listed companies on the Taiwan stock exchange in December, CIER found that more than 60% of the companies which have operations in China will or are already planning to invest in other countries, 40% are considering investing back in Taiwan while 65% will consider other destinations in Southeast Asia.
“Most Taiwanese companies believe that the US-China rivalry and trade conflicts will escalate in the future, no matter whether US and China will reach a trade deal or not. China’s changing environment also makes it less competitive for export-oriented operations in central industrial sectors,” she said.
“The relocation of manufacturing operations may lead to the decentralization of China-centered supply chains, and the [emergence] of new ‘Asian Factories,’” she added.
“In particular, some Taiwan electronic, footwear and textile companies have already expressed their interest in setting up shop in the Philippines,” she said.
CIER’s Ms. Hsu said the the Philippines is one of the six priority countries Taiwan will partner with under its New Southbound Policy — a foreign investment policy adopted in 2016.
“Taiwan and Philippines have built closer business and people-to-people ties in the past few years. The two should work together to make the most of the current changing international economic environment and promote supply chain collaboration,” she said.
Currently, the Philippines has a unique relationship with Taiwan, Ms. Hsu said, as “Philippine workers have become the most important workforce in Taiwan’s technology industry,” she said.
Meanwhile, trade protectionism seem to be on the rise globally, not only between US and China.
The Foreign Service Institute’s (FSI) foreign affairs research specialist Jovito Jose P. Katigbak said at the forum: “Asia is [gearing] towards liberalization while countries on the other side of the globe are becoming protectionist, bringing jobs back to their countries and restraining future trade agreements.”
Mr. Katigbak said that free trade agreements (FTAs) are becoming the “new normal” as negotiations under the World Trade Organization are “deadlocked.”
With the rise in protectionism among developed economies as well as the trade disruptions brought by the US-China conflict, Mr. Katigbak said that the Philippines stands to gain in the Regional Comprehensive Economic Partnership (RCEP).
“The RCEP has an overall positive impact on the country within the period 2017-2023, [particularly in] major industries such as construction, transport and machinery equipment, and services,” he said.
Meanwhile, “rice and textile industries will experience contraction during the 10-year period,” he added. — Carmina Angelica V. Olano
NFA first-quarter domestic palay purchases up sharply
THE National Food Authority (NFA) said on Wednesday that it bought 1.052 million bags of palay, or unmilled rice, from domestic farmers in the first quarter of 2019, with the agency settling into its new role of maintaining a buffer stock from domestic rice.
The NFA said that the total is 5,120% higher than the 20,540 bags procured in the first quarter of 2018.
According to NFA, it bought 780,397 bags of palay in March 2019, coinciding with the passage of the Rice Tariffication Law, which is awaiting the approval of its Implementing Rules and Regulations.
“We are not surprised though because March is the start of the dry season crop harvest and we were able to capitalize on our higher incentives versus the low buying price of palay traders,” Mr. Tomas R. Escarez, the NFA Officer-in-Charge Administrator, said in a statement.
“While traders reduced their buying price to as low as P14 per kilogram, we on the other hand increased our buying price up to P20.70 per kg for clean and dry palay,” Mr. Escarez added.
The NFA increased its target palay procurement from 7.78 million bags to 14.46 million bags for 2019. According to data provided by the NFA, the highest palay procurement as of March 31 this year was recorded in Tarlac with 116,907 bags, followed by Isabela with 112,855 bags, then Occidental Mindoro with 110,904 bags, Nueva Ecija with 87,072 bags, Sultan Kudarat with 70,996 bags, Bulacan with 58,454 bags, Bataan with 29,934 bags, Cagayan with 29,241 bags, and the province of Ilocos Norte with 26,143 bags.
“With the implementation of Republic Act (RA) 11203 or the Rice Trade Liberalization Law, rice distribution was removed from the functions of NFA. We now have to shift our focus to palay procurement. NFA will continue to serve our farmers by buying their produce to ensure a reasonable return for their harvest especially now that farmers are suffering from the effects of El Niño,” Mr. Escarez said.
The Department of Agriculture (DA) estimated that the rice crop suffered P2.69 billion worth of damage, with lost production of 125,590 metric tons (MT) affecting 111,851 hectares of land and 108,845 farmers across 37 provinces. — Reicelene Joy N. Ignacio
Coal-fired plants taking up slack from Mindanao hydropower during El Niño
DAVAO CITY — Mindanao’s shift in recent years to more power generated by coal-fired plants is for now saving the southern Philippines from energy problems caused by the El Niño dry spell.
“Mindanao’s current energy mix and supply status may be able to spare Mindanao from the effects of long dry spell to our power situation,” Romeo M. Montenegro, deputy executive director of the Mindanao Development Authority (MinDA), told BusinessWorld on Wednesday.
As of April 3, Mindanao had a power reserve of 569 megawatts (MW) with capacity at 2,369 MW and peak demand of 1,800 MW, based on data from the National Grid Corp. of the Philippines.
About 70% of Mindanao’s supply is currently sourced from coal-fired plants and the rest from renewable energy, mainly from the Agus and Pulangi hydropower complexes.
In 2015, the breakdown was 49% hydro, 14% coal, 31% oil-based, and 6% geothermal. By 2017, it has tilted to 49% coal, 29% hydro, 18% oil-based, 3% geothermal, and 1% biomass.
Output from the two hydro facilities, already on the decline due to the age of the facilities, has further been affected by the prevailing dry spell.
The Lanao del Sur Provincial Disaster Risk Reduction and Management Council (PDRRMC) conducted a special council meeting on Tuesday to discuss the effects of El Niño, including the situation in Lake Lanao that powers the Agus plant.
Pili Papandayan of the Provincial Environmental and Natural Resources Office said during the meeting that Lake Lanao is now below critical level.
As of Tuesday, Lake Lanao’s elevation was at 698.45 meters above sea level (masl), lower than the 699.15 masl minimum operating level, based on the National Power Corp.’s monitoring.
The PDRRMC is set to meet again on April 4 for the comprehensive plan to address the El Niño impact.
Mr. Montenegro noted that the effect on power supply depends on the contracted supply of the power distributors.
He said those that are heavily contracted with the hydroelectric plants with “no financial flexibility to contract non-hydro sources in the interim will likely be affected.”
“It can be said therefore that the effect of El Niño, if ever, to certain electric cooperatives in Mindanao could happen on a case to case basis,” he added.
Nonetheless, MinDA continues to push for more renewable energy sources to at least have a 50-50 balanced mix with fossil fuel.
“Go renewable,” Mr. Montenegro said at the recent Water, Energy and Power Summit in Zamboanga City.
He said Mindanao’s long-term energy plan remains geared towards a secure, optimal, and sustainable system.
He said there are currently 234 renewable energy projects, mostly hydro, that are pending with the various permitting agencies.
Rehabilitation plans for the Agus and Pulangi plants also remain pending. — Carmelito Q. Francisco
CA upholds 2017 ruling nullifying ERC order on electricity rates
THE Court of Appeals (CA) upheld its 2017 decision nullifying the orders of the Energy and Regulation Commission (ERC) in 2014 which regulated the surge in prices at the Wholesale Electricity Spot Market (WESM) during the Malampaya shutdown in 2013 for maintenance.
In a 20-page resolution on March 29, the CA former fifteenth division denied the motion for reconsideration of the ERC, saying there is no “delegated authority” in the Constitution or in the Electric Power Industry Reform Act (EPIRA) which grants ERC the authority to regulate electricity rates.
“The absence of delegated authority empowering the ERC to impose agency rates as an exercise of police power ordinarily moots any need to determine the concurrence of a lawful subject and lawful means to justify the power’s exercise,” the CA ruled.
“Movants insist that the power to replace rates must be recognized. However, it bears stressing that had the legislature intended the ERC to have such power, Congress would have expressly included the same in the plethora of prerogatives the EPIRA granted the ERC. However, the EPIRA is plainly silent on the matter,” the CA added.
The CA also disputed the agency’s failure to exercise validly the fixing of rates as a “quasi-judicial function” as no notice and hearing with the parties were conducted. “(E)RC’s investigations were still ongoing when the ERC issued the challenged Orders. The inevitable conclusion is that the parties were not heard.”
The court also denied the “police power contention” on the issuance of the assailed orders as it failed to comply with the requirements that there should be a lawful subject and lawful method.
“As We have found, the imposition of ERC rates in lieu of WESM prices was a penalty levied prematurely. Its investigations into abusive and competitive behavior was still ongoing. Therefore, there were no offenses justifying such penalty, rendering the method unfounded and illegal,” the CA ruled.
The CA in November 2017 nullified the four orders issued by ERC on 2014 which declared void the price increases for the November and December 2013 supply months in the WESM for Luzon.
The ERC on March 3, 2014 issued an order following “hints that certain power industry players may have breached the aforementioned market rules.”
The ERC said that the prices on WESM during the November and December 2013 were not “reasonable, rational and competitive.”
The appellate court also denied the motion for intervention of Manila Electric Company (Meralco) which claimed that voiding the orders of ERC would impact “millions of consumers.”
Meralco then was supposed to increase its power rate to P4.15 per kilowatt-hour for the December 2013 bill. However, it was unable to pass to the consumers the said increase following the Supreme Court’s issuance of a temporary restraining order (TRO) against ERC’s approval of Meralco’s increase following a petition led by Bayan Muna Rep. Neri J. Colmenares and Carlos Isagani T. Zarate, along with other party-lists.
The Supreme Court in May 2014 extended the TRO indefinitely.
Petitioners are San Miguel Energy Corp., South Premier Power Corp., Strategic Power Development Corp., SMC Powergen Inc., Petron Corp., SN Aboitiz Power-Magat, Inc., SN Aboitiz Power-Benguet, 1590 Energy Corp., AP Renewables, Inc., Team (Phils.) Energy Corp., Sem-Calaca Power Corp., Masinloc Power Partners Co. Ltd., Therma Luzon, Inc., Therma Mobile, Inc., and Northwind Power Development Corp.
The resolution was written by Associate Justice Marlene B. Gonzales-Sison and was concurred in by associate justices Mariflor P. Punzalan-Castillo and Rafael Antonio M. Santos. — Vann Marlo M. Villegas
DA soliciting more solar irrigation proposals
THE Department of Agriculture (DA) is encouraging more firms to submit proposals to provide Solar-Powered Irrigation Systems (SPIS).
“They endorsed the proposal… but we are not saying that only LR Group can do that. If another company will make a presentation and offer the same arrangement we will consider,” Agriculture Secretary Emmanuel F. Piñol told reporters on Tuesday.
“Ang kailangan nating i-irrigate [The area we need to irrigate] is still 2.9 million hectares. This package will only irrigate 500,00 hectares. If there’s another group that could make a similar offer and cover another 500,000 hectares so much the better,” he noted.
In February, Israeli agro-industrial firm LR Group submitted a P44-billion proposal to the government to fund the deployment of the 6,200-Solar-powered Irrigation Systems. President Rodrigo R. Duterte gave the green light for initial negotiations involving the Philippines and the group’s subsidiary Innovative Agro Industry Ltd.
The offer includes a 10-year loan which can supply water to 500,000 hectares of rice and high-value crops over the next three years.
Another Israeli company expressing interest, is Netafim, which makes irrigation equipment. “Netafim has shown interest pero wala sila nung [but they don’t have the] package na may dala silang sarili nilang pera [that they will fund the project]. ’Yung LR Group kasi may proposal sila, may pera silang dala [LR Group has a proposal indicating that tells they will fund],” Mr. Piñol noted.
He said: “With irrigation, you will not really mind if there is El Niño or not kasi [because] it is better to plant during the dry months kasi walang [because there is no] interference ’yung ulan sa [from the rain],” he said.
Crops being considered for the SPIS deployment are lowland rice, upland rice, sugarcane, corn, coffee, cacao, coconuts, and other fruit-bearing trees. Currently, there is an SPIS facility in Llanera, Nueva Ecija, valued at P7.2 million and powered by 140 solar modules which can generate 30 to 50 horsepower (hp). Mr. Piñol said that this is supplying water to about 80 hectares of land. This facility was turned over by the DA to the Caridad Norte and Sur Irrigators’ Association last month.
If ever the company wins status as original proponent, the project will undergo a Swiss challenge.
“Hopefully the NEDA-ICC [National Economic and Development Authority- Investment Coordination Council] will start looking into this and it is our hope that before the end of the year things will start moving because I actually warned our fellow cabinet officials… that we have to move fast because the El Niño phenomenon is occurring with greater frequency now. It used to be about every five years. It became every three years. Now, it’s every two years, so kapag hindi natin ginawa ’yan, every two years… magre-repair, magre-rehabilitate [if we did not do that, every two years… we will repair, we will rehabilitate], which is an expensive exercise,” he said. — Vincent Mariel P. Galang
Creative industry hopes to be ASEAN’s biggest by 2030
THE Creative Economy Council of the Philippines has drafted a road map that aims to make the Philippines the top creative economy in the Association of Southeast Asian Nations (ASEAN) by 2030.
“[B]y 2030, the Philippines will be the number one Creative Economy in ASEAN in terms of size and value of our creative industries, as well as the competitiveness and attractiveness of our creative talent and content in international markets,” according to the road map as quoted by the Department of Trade and Industry in a statement on Wednesday.
The initial scope includes six cultural domains — cultural and natural heritage; performance and celebration; visual arts and artisan products; books and press; audio-visual, broadcast and interactive media; and creative services. Other related domains include tourism, and sports and recreation.
Trade Undersecretary and BoI Managing Head Ceferino S. Rodolfo suggested shortlisting at least five sectors from the cultural and related domains for a more “granular” focus and “doable” approach in drafting specific action plans of the road map.
CECP Founder and President Paolo A. Mercado identified advertising, film, animation, game development and design (specifically graphics and digital design) as among the five priority sectors to come up with specific action plans.
The road map is expected to further develop the country’s creative industries particularly its high-value services that provide major contributions to the GDP, such as tourism, Information Technology — Business Process Management and other creative services.
It can also serve as a tool towards achieving a sustainable creative economy amid rapid marriage of physical and digital technologies brought about by the Fourth Industrial Revolution (Industry 4.0).
Among the policy recommendations in the Creative Economy Roadmap include declaring “creativity” as a national priority via law; mapping; measurement of priority creative industries for accelerated growth in domestic and international markets; encouraging and incentivizing the development of creative hubs and creative clusters as places for incubation, production, education and research and development; pushing for the development and recognition of “Creative Cities; promotion of new models of creative tourism that will enhance the country’s image and promote sustainable tourism: and prioritizing creative education programs to strengthen the country’s creative workforce to become the “Creative Education Capital” of ASEAN.
In addition, Mr. Rodolfo recommended a definition for what makes u[p a “creative economy.”
He also proposed the creation of a body, composed of the Board of Investments, Export Marketing Bureau, and CECP, to be tasked with implementing the road map.
A technical working group (TWG), to include the Department of Tourism, Department of Education, Commission on Higher Education and Technical Education and Skills Development Authority, was also proposed.
Mr. Rodolfo proposed exploring the benefits of TESDA’s “voucher system” and DTI’s Shared Service Facilities (SSF) Project.
He also added that road maps for animation, game development, and film headed by their respective associations will complement the creative economy and once these are in place, could benefit from tax incentives under the upcoming strategic investments priority plan 2020 — 2023.
The CECP has been seeking the identification of creative industries as special economic zones in order to benefit from fiscal incentive packages enjoyed by current economic zones.
Under the road map, the CECP is hoping to locate in one to five SEZs within the 2016 to 2020 period; five to 10 from 2020 to 2025; and over 10 by 2030.
At present no creative industries cluster has been identified as an SEZ by the Philippine Economic Zone Authority. — Janina C. Lim
Fighting conflicts of interest
In my article on fraud under this column last week, I cited PwC’s 2018 PwC Global Economic Crime Survey (GECS) Report which showed that 87% of internal fraud committed over the last two years were by members of management, specifically by junior, middle and senior corporate officers. In terms of principal function, the top five to which these internal fraud perpetrators belong are: Operations and Production (22%); Marketing and Sales (14%); Finance (11%); Procurement (10%); and Executive Management (10%).
The above results align with my personal observations as a forensics practitioner, which is that most corporate fraud having the biggest financial impact are committed by internal actors who are in a position of trust. Corporate fraud is usually the combined result of two things: (1) a perpetrator abusing his fiduciary authority; and (2) the existence of a conflict of interest. We can even go so far as to say that there is a cause-and-effect relationship between the two. While most reported fraud incidents primarily involve situations where an individual exploits the fiduciary authority entrusted to him, what really emboldens them to do so is if they can capitalize on opportunities to circumvent existing controls for their own benefit, allowing them to get away with fraud without getting caught. One often exploited opportunity is the inadequacy of appropriate management controls, lack of senior management oversight, and/or infrequent or absence of surprise audits and compliance reviews concerning conflicts of interest.
Allow me to tell you of two interesting cases that I investigated in the past. I have intentionally changed the names of actual characters to avoid identification.
The first case involves John Doe, a Registered Engineer who worked in XYZ Corp. for more than 20 years as Operations Manager. A month before he got terminated, he was seen receiving an achievement award from a well-known multi-level marketing company that sells herbal food supplements. Little did he know, a supplier had already filed a complaint against him and the auditors were already conducting an immediate investigation on his activities. To cut the story short, the investigation revealed that John Doe had used his position to ask suppliers to buy boxes of herbal food supplements over the course of 5 months. Unless they agreed to buy the supplements, John Doe would either delay or disapprove the required project clearance for the supplier to get paid. In the end, John Doe got terminated from his position due to the grave abuse of his authority. On the other hand, while the company did not lose any money or company assets, its reputation with suppliers took a hit owing to the acts of John Doe.
Another case involves the President of a well-known company, who had been very effective at his position. While he made significant reforms within the organization and was very much instrumental in turning the whole business around, he used his authority to influence the competitive tendering process for a multi-million business transformation project. He instructed the Bids and Awards Committee to quickly decide upon the winning bidder due to the urgency of the project. However, he did not disclose that his son was a Director at one of the bidders, which ended up winning the project. This case is a classic tale of a conflict of interest where a senior management exercised his undue influence, thereby tainting the sanctity of the bidding process in favor of a conflicted entity. Upon discovery, the President was similarly removed from his position.
These are very common incidents in Philippine businesses — you may even have heard of similar incidents in your business circles. Each of these anomalies, driven by conflicts from which a corporate officer abuses his authority for his own benefit and/or unfairly favors a close relative or a personal friend or an entity where he has business interest, result in questionable integrity due to undisclosed conflicts of interests.
The question now is — how should organizations handle conflicts of interest?
First, the regular disclosure of potential conflicts among personnel is very critical to any organization. There is a need to ensure that corporate representatives, from employees up to the Board of Directors, are aware of what conflicts of interest are and are knowledgeable on the steps for disclosing conflicts, so that appropriate controls can be implemented to mitigate, if not resolve, such conflicts. One of the best advice I can give to persons occupying positions of trust is to simply be transparent and declare in writing the potential conflict. They should openly declare if there are any potential conflicts on transactions with third parties who are doing business with the company.
At the same time, more rigid detective controls must be implemented across the organization as this helps to establish oversight on controls and overall governance, ultimately ensuring that undisclosed conflicts potentially posing more risks to the company are identified and addressed in a timely manner.
For any potential conflicts of interest, it is extremely important to take note of the functions performed by the subject employee and to also understand the nature of his relationship with the third party to be engaged by the company for a particular project. For major projects subject to bidding, it is prudent to conduct relationship checks on interested bidders as a form of due diligence prior to accepting bids. Any potential conflicts identified should be handled accordingly. Finally, companies need to implement the appropriate safeguards to ensure that independence and objectivity are maintained at all times.
Organizations should not discount the importance of managing conflicts of interest. Whether real or perceived, a potential conflict of interest that is clearly present or widely-known within the organization that is not resolved appropriately may greatly affect your business relationship with third parties. This would affect the company’s sustainability in the long run. For example, suppliers who feel that they have lost business opportunities and are at a disadvantage against more favored suppliers, may no longer wish to transact with the company in the future, possibly leading to higher production costs and lower profits.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of PricewaterhouseCoopers Consulting Services Philippines Co. Ltd. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Aurelio Mari G. Gueco is a senior manager with the Risk Consulting practice of PricewaterhouseCoopers Consulting Services Philippines Co. Ltd., a Philippine member firm of the PwC network.
+63 (2) 845-2728 local 3086