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Tax bureau outlines 2020 priorities

THE BUREAU of Internal Revenue (BIR) has lined up priority programs and projects for next year which include a digital transformation program and its plan to develop a system for processing and storing electronic receipts and invoices.

For next year, the BIR plans to develop a system for real-time processing of e-invoices or e-receipts as well as an electronic platform for sales reporting where electronic invoices and receipts may be stored, according to its revenue memorandum Circular No. 123-2019.

“It (e-sales reporting system) will also generate reports on VAT (value-added tax) information of taxpayers for the processing of VAT refund applications under the enhanced VAT refund system of the BIR and for third-party matching on tax audits or assessments,” the circular read.

As part of digital transformation, the bureau will study the proposal to form its own data analytics unit next year.

“The priority programs… are undertakings that will significantly contribute not only to the attainment of the bureau’s revenue targets, but also to the implementation of the National Government’s new policy direction, particular with regard to the ease of doing business and data privacy,” BIR Commissioner Caesar R. Dulay said in the circular.

In compliance with Republic Act No. 11032, or the Ease of Doing Business and Efficient Government Service Delivery Act of 2018, BIR said it will simplify application forms and reduce the number of required documents in its frontline services, minimize processing time and limit the number of signatories to three, among others.

At the same time, it will continue its Run After Tax Evaders (RATE) program and the Oplan Kandado program to improve tax compliance “through an intensified enforcement action involving the closure of business establishments.”

The RATE program will enhance voluntary compliance by taxpayers as well as boost the public’s confidence in the tax system, it said.

For 2020, the BIR’s priority program list also includes a public awareness program, intensified audit and investigation of taxpayer’s compliance, as well as further broadening of the tax base.

It also said that it will prioritize upgrading of its national office building with modern facilities and infrastructure as well as aim for a 100% utilization rate of its budget. — B. M. Laforga

The Medical City chairman to appeal SEC decision

By Denise A. Valdez, Reporter

THE Medical City (TMC) Chairman Jose Xavier B. Gonzales will appeal the ruling of the Securities and Exchange Commission (SEC) which slapped a fine of at least P50.25 million on the hospital’s majority shareholders in relation to its ownership transfer.

In a text message to BusinessWorld on Tuesday, a representative of Mr. Gonzales said his camp “will appeal the ruling (of the SEC),” referring to the findings of the SEC special hearing panel that the shareholder group of TMC violated the Securities Regulation Code (SRC).

An emailed statement of Mr. Gonzales’ camp said he is dismissing the ruling of the SEC, saying the decision is “not in any way final and executory” and “maintains the status quo as they found no basis for criminal fraud.”

The SEC issued a press statement late Monday that its special hearing panel is charging Professional Services, Inc. (PSI) — the owner and operator of TMC — at least P50.25 million for what it called a surreptitious takeover” of the hospital’s ownership.

The shareholder group is composed of Viva Healthcare Ltd.; Viva Holdings (Philippines) Pre. Ltd.; Felicitas Antoinette, Inc. (FAI) and Fountel Corp.

The SEC said Viva Healthcare, Viva Holdings and FAI violated the SRC requirement that an entity buying more than 5% of a company must notify the issuer, the exchange and the SEC about such deal within 10 days.

It also said all three firms plus Fountel violated the SRC requirement that if a person or a group is buying at least 35% of a company, such plan must be disclosed and should initiate a tender offer to all shareholders.

The four companies likewise violated the requirement that the tender offer must contain all material facts, otherwise it will be considered “fraudulent, deceptive or manipulative.”

All these violations warranted a combined penalty that the SEC pegged at least P50.25 million.

The resolution outlining the details of the findings was issued by the SEC on Nov. 22. The shareholder group has 15 days from its receipt of the resolution to file a motion for reconsideration.

This development follows the SEC complaint filed by former TMC Chief Executive Officer Alfredo R.A. Bengzon, who is also the uncle of Mr. Gonzales, asking to suspend the company’s annual stockholders meeting last year due to issues arising from the company’s transfer of ownership.

Mr. Bengzon claimed his nephew was conniving with a group of foreign investors since 2013 to take over the hospital’s ownership without full disclosure to all stockholders.

In July this year, stockholders of TMC met to elect a new board of directors, going against Mr. Bengzon’s appeal, as the company gained favor from the Court of Appeals to do so in accordance to company by-laws.

FPH sells part of stake in MHE-Demag for P85M

FIRST Philippine Holdings Corp. (FPH) has divested a quarter of its stake in MHE-Demag (P), Inc. to its co-shareholder in Singapore.

In a disclosure to the stock exchange yesterday, the Lopez-led company said it raised P85 million from selling 175,000 shares in its operations of the materials handling equipment manufacturer to MHE-Demag (S) Pte. Ltd.

The shares were priced at P485.71 each and is equivalent to 25% of FPH’s stake in MHE-Demag (P).

It did not disclose the reason for the transaction, but noted it “does not foresee a material effect on its business with the disposition (of shares).”

The deal will be paid in cash and will close once the Deed of Assignment of Shares is completed.

On its website, MHE-Demag is described as an international joint venture of Jebsen & Jessen (SEA) Pte. Ltd. and Demag Cranes and Components GmbH and is based in Singapore. It is known for manufacturing and distributing industrial cranes and hoists, warehousing equipment, compact construction equipment and automated car parking systems.

It has presence across Asia Pacific, specifically in Australia, Brunei, Cambodia, Indonesia, Laos, Malaysia, Singapore, Myanmar, Papua New Guinea, the Philippines, Taiwan, Timor-Leste, Thailand and Vietnam.

In the Philippines, MHE-Demag operates under the manufacturing business unit of FPH through First PV Ventures Corp.

FPH is also involved in power generation through First Gen Corp.; power distribution through Panay Electric Co. and a minority stake in Manila Electric Co.; property through Rockwell Land Corp. and First Philippine Industrial Park, Inc.; and other ventures such as First Balfour, Inc. and First Philippine Properties Corp.

In the nine months to September, FPH posted an attributable net income of P9.6 billion to rise 35% from last year, driven by favorable foreign exchange rates and deferred income tax movements.

Shares in FPH at the stock exchange inched up 0.05 point or 0.07% to P76 each on Tuesday. — Denise A. Valdez

It all starts with one book

ELEMENTARY STUDENTS from public schools in Manila and the Camanava areas lined up at the Main Lobby of the Cultural Center of the Philippines on Nov. 20 to each receive a children’s book titled Kwentong Karapat-Dapat. The children then went to the corners of the lobby and a buzz started filling the air as they read from the book aloud.

It was the 30th anniversary of the UN Convention on the Rights of the Child when the Center for Art, New Ventures & Sustainable Development (CANVAS) — a nonprofit organization that promotes children’s literacy and appreciation for Philippine arts and culture — held its regular book distribution program.

“Iba yung sound (The sound is different). There’s this buzz. Tapos lahat sila kasi binabasa nila [ang libro] sabay-sabay. Nakakatuwa. (All of them are reading the books at the same time. It’s amusing),” CANVAS founder and executive director Gigo Alampay told the press while the children were having lunch after the book giving activity.

Featuring artworks by Ang Ilustrador ng Kabataan (Ang INK), the book is inspired by the UN Convention on the Rights of the Child treaty which was adopted by the United Nations General Assembly in 1989. The articles were re-written in English and Filipino in child-friendly language.

CANVAS began its literacy programs in 2005 upon the publication of Elias and His Trees by Augie Rivera, an adaptation of French writer Jean Giono’s book The Man Who Planted Trees (1953) about a man who planted trees throughout his life.

Mr. Alampay said that seeing the film adaptation of Giono’s book when he was in college inspired him to create a Filipino adaptation in print.

“The success of that first book, however, led us to other books, which later led to more books, new programs, and to even bigger dreams,” Mr. Alampay said.

Last weekend’s book giving activity was part of Batang Karapat-Dapat, a mini festival on the rights of the child which was held from Nov. 20 to 23 at various areas of the CCP where dance, art, theater, and music workshops for children were conducted.

“We believe that art has a social developmental potential for them,” he said.

THE LITERACY PROGRAM
Alongside the book distribution, CANVAS holds a story-writing competition three to four times a year as part of its literacy program, with the books geared towards nine to 12 year old children.

“The [story] is based on an artwork, which we commissioned from [an] artist… we release the image on the Internet and then hold the story writing contest,” Mr. Alampay said. “The winning story will become a children’s book [to be] illustrated by the same artist.”

The organization has previously worked with National Artist for Visual Arts Benedicto “BenCab” Cabrera, Elmer Borlongan, Rodel Tapaya, Farley del Rosario, Roel Obemio, Plet Bolipata, Daniel dela Cruz, Manny Garibay, and Dex Fernandez.

Mr. Alampay likens the love for literature to the metaphor of throwing a pebble in a pond. “You don’t know where the ripples will end,” he said.

“If you throw a book out there, it can capture the imagination of children and maybe one child will be so inspired,” he added. “If they love books, they will keep reading. They will keep learning.”

In line with its program is the One Million Books for One Million Filipino Children campaign which “aims to inspire in children a love for reading by donating its award-winning books to public schools, hospitals, and disadvantaged communities throughout the country.”

To date, CANVAS has produced 30 titles and distributed 250,000 books in partnership with volunteers and partner organizations and communities from Ifugao to Basilan.

CANVAS has eight books lined up for 2020, as well as participation in public art exhibitions.

That afternoon, Mr. Alampay joined the children for a live storytelling of three CANVAS-published books done in collaboration with three arts groups: Anino Shadowplay Collective’s Mga Kuwentong Karapat-Dapat which is its interpretation of the book Tahan na Tahanan about a child who learns her family is moving house; a dance by Daloy Dance Company accompanying Nadia and the Blue Stars, about how a child shows her village how to recover after war; and Anima Tierra which accompanied the environmental tale of Inang Kalikasan’s Bad Hair Day with percussive beats, vocals, and traditional music.

For more information, inquiries, and donations, visit www.canvas.ph. CANVAS books are available at Fully Booked and through its website. Merchandise is available at www.lookingforjuan.com. — Michelle Anne P. Soliman

Who’s ready for PIFITA?

By Carmina Angelica V. Olano and Marissa Mae M. Ramos
Researchers

THE MEASURE TO SIMPLIFY the taxation of passive income, financial services and transactions was borne out of the need to be more competitive in attracting foreign capital and investments in order to finance infrastructure projects and promote inclusive growth through generation of more and higher quality jobs.

The Department of Finance (DoF) has been pushing a comprehensive tax reform program, whose fourth tranche involves the streamlining of taxes on passive income and financial products. Known as the Passive Income and Financial Intermediary Act (PIFITA), it has already passed the House of Representatives after its third and final reading in September and is currently pending in the ways and means committee in the Senate.

It was also among the priority bills itemized by President Rodrigo R. Duterte at his State of the Nation Address (SONA) last July.

Ultimately, the bill targets to reform the financial sector that would “increase and direct the movement of capital to where it is most needed, so that higher, sustainable, and more inclusive growth can be achieved,” according to the DoF’s briefer on PIFITA published on its website.

For one, PIFITA proposes to simplify tax rates and bases to 36 from the current total of 80 uniquely imposed on capital income, financial intermediaries and financial transactions.

Harmonizing the current tax structure will effectively neutralize tax treatment across financial institutions and instruments, and at the same time, decrease the sector’s “susceptibility to arbitrage” or leveraging of market players from differing tax treatments of financial instruments.

PIFITA also has equity considerations, noting that the current setup was observed to be unfairly distributed across the country’s income classes.

“[C]ommon interest income from regular savings deposits is taxed at 20%. These are typically the only types of investment that the poor have access to. Meanwhile, interest income from longer-term time deposits can have tax rates of as low as zero, and dividends are taxed at 10%. These are typically included in the portfolio of investments of the rich,” said the DoF in an e-mailed response to queries.

To address this, PIFITA proposes to harmonize and lower the tax rates on interest income to a uniform rate of 15%. Moreover, the tax on dividends would also have a uniform tax rate of 15%.

“The 15% proposed tax rate is within the ASEAN range, and the common tax treaty rate in 25 of 42 countries, including ASEAN, with which the Philippines has entered into. Thus, the proposed reduction in tax on interest income will help the country’s fixed-income securities be regionally more competitive,” the DoF said, referring to the Association of Southeast Asian Nations.

The bill also plans to impose a 2% premium tax on health maintenance organizations, pension and pre-need insurance products for the current 12% value-added tax.

According to DoF, PIFITA would go hand-in-hand with the first package Tax Reform for Acceleration and Inclusion (TRAIN) law and the current version of the second package, which is the Corporate Income Tax and Incentives Rationalization Act (CITIRA) under House Bill 4157.

“The reduction in the [corporate income tax] under CITIRA and lower cost of capital as envisioned in the PIFITA will have a positive impact in business operation, which could result in business expansion and better employment opportunities,” the DoF said.

“On the other hand, under the TRAIN law, the reduction in the personal income tax and the retention of exemption of minimum wage earners add money in the pockets of said workers to sustain their basic needs which could propel business activities, or increase their savings or investments which in turn will buoy up the financial sector,” it added.

Moreover, PIFITA is seen to foster greater financial inclusion.

“PIFITA is also seen to lessen the implicit bias against ordinary savers achieved through the lowering of tax rates. A general reduction of interest income tax rate would help encourage ordinary savers and investors to continue saving and investing by allowing them to keep more of their gains, thus, encouraging them to participate more in the formal financial sector,” DoF said.

IMPACT ON THE BANKING INDUSTRY
For financial intermediaries, the measure proposes the adoption of a single gross receipts tax (GRT) on banks, quasi-banks, and nonbank financial intermediaries.

“All types of income will be taxed at five percent GRT except dividends, equity shares, and net income of subsidiaries, which will remain exempt. The distinction between lending and non-lending income as well as the maturity of the instrument will be removed,” the Finance department said.

A simpler GRT structure for these financial intermediaries would also serve to help improve tax compliance as well as lowering administrative costs.

“Currently, the GRT on net trading gains on foreign currency transactions of banks and other nonbank financial intermediaries performing quasi-banking functions is higher than those of other financial institutions at seven percent and five percent, respectively. Thus, banks, as major players in the foreign exchange market, will benefit from PIFITA’s proposal to adopt a single GRT rate of five percent,” it said.

“To some extent, reducing the GRT rate, which is a ‘pass-on’ tax, will also lower transaction cost that will eventually encourage greater volume of transactions,” DoF added.

Asked for comments, the Philippine National Bank (PNB) has welcomed the tax reform, which they said, would reduce the cost of raising capital and financing to their customers.

“The proposed reforms on withholding tax (WHT) on interest income; capital gains tax on the sale, barter, exchange, or disposal of domestic securities; documentary stamp tax (DST); and GRT are essential to reducing the costs of raising capital while deepening the local capital markets,” the PNB said in an e-mail.

“With the WHT on interest income from long-term deposits or investments exceeding five years down to zero percent (but not income tax), banks are able to encourage clients to issue debt securities with longer term maturities and to have these listed in the Philippine Stock Exchange (PSE). For many of our customers, this will help encourage them to save and invest their money,” PNB said.

For ING Bank N.V.-Manila Senior Economist Nicholas Antonio T. Mapa, one financial product that may be affected by PIFITA would be foreign currency bank deposits, which “will now be treated just like peso deposits.”

“In the past, such FCDU (foreign currency deposit unit) accounts were given particular treatment to encourage the build-up of balances given the fact that the Philippines had limited ability to generate foreign currency funding. Nowadays, the [country] boasts a steady and substantial stream of remittances as well as BPO (business process outsourcing) call center receipts all on top of our export earnings,” Mr. Mapa explained.

An FCDU refers to a unit of a local bank or of a local branch of a foreign bank authorized by the Bangko Sentral ng Pilipinas to engage in foreign currency-denominated transactions.

“These changes may cause a shift in preference in types of deposits but in the end, the harmonization of rates and moves to deepen the financial sector should benefit the banking sector and the economy in the long run,” said Mr. Mapa.

FOSTERING DEVELOPMENT IN FINANCIAL MARKETS
Furthermore, PIFITA proposes tax reforms that would list out perceived barriers to the development of the domestic capital market. One provision is the gradual reduction of the stock transaction tax (STT) from the current 0.6% to zero in 2026.

To recall, the PSE has increased the STT to 60 basis points (bps) or 0.6% from 50 bps or 0.5% of the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged, or otherwise disposed, as part of the TRAIN law in January 2018.

With the 0.6% rate, the PSE has the highest STT among regional markets, followed by the Bursa Malaysia Exchange with a tax of 30 bps of the transaction value. The Hong Kong Exchange charges a stamp duty of 10 bps of the transaction value, while the Singapore exchange have none at all.

“The gradual reduction of the STT…will help deepen the country’s equity market. Lower transaction costs will encourage market participation and result to greater volume of transactions,” DoF said.

The equities market would also benefit from the elimination of the initial public offering (IPO) tax.

The Finance department also noted that the Philippines and Indonesia are the only countries in the ASEAN region that collect tax on IPO, noting that its removal would “encourage public listing of corporations in the country.”

Likewise, the DST on non-monetary documents such as the sale or transfer of unlisted shares or certificates of stock will be removed under PIFITA in order to reduce friction costs and “would encourage trading activities that would spur positive economic growth.”

For debt instruments, the 0.1% transaction tax (TT) will also be removed by 2026 along with the STT.

“Just like dealers of equities, trading income of registered dealers in debt securities shall not be subject to the proposed TT but to regular income tax,” the agency said.

PNB noted that notwithstanding the favorable provisions in the bill, they said that they would have preferred a shorter timeframe in the STT’s gradual reduction.

“The timeframe for tax reforms to lower the capital gains tax among others to a zero-rated tax in January 2026 should be shortened to within three to four years from the effectivity of the PIFITA package. Waiting for the year 2026 timetable could confine the next Philippine administration, and thus, risk delaying more financial reforms if needed,” PNB said.

PNB also said that the proposed reform should have an “automatic trigger” such that when the Philippine economy attained a tax to gross domestic product ratio of 17%, the schedule of reaching a zero-tax rate on capital gains tax can be expedited.

Asked for provisions that legislators ought to have included in PIFITA, the PNB said: “All taxes on financial instruments that are publicly traded/exchanged and capital gains should be zero-rated specifically for those with maturity of five years or more. Taxes on quasi-banking functions passed on to the banks’ clients constitute double taxation on individuals and corporate entities even if the GRT is reduced to 1% for transactions beyond five years.”

“Perhaps a minimum income tax deduction of x% should be granted to low-income individuals and small and medium enterprises (SMEs) to ease to the GRT effect.”

BSP sees P28B in fresh liquidity from deposit substitute tweak

THE CENTRAL BANK expects additional liquidity to find its way into the economy.

BANGKO SENTRAL ng Pilipinas (BSP) Governor Benjamin E. Diokno is positive that the change in the definition of deposit substitutes to exclude interbank borrowings so they are not subject to reserve requirements will help boost liquidity in the financial system.

“Ang implication ’nun (Its implication) is I think we released about P28 billion into the financial system,” Mr. Diokno told reporters on the sidelines of the Financial Education Stakeholders’ Expo held at SMX Convention Center in Pasay on Monday.

“Again, we will see how the financial market will respond to that,” he added.

The central bank last week said its policy-making Monetary Board adopted the new definition for deposit substitutes under Section 95 of its charter that has been amended by Republic Act (RA) 11211 or the New Central Bank Act enacted in February.

With RA 11211, the same provision now defines that the phrase “obtaining funds from the public” means those that involve borrowing from at least 20 lenders at any one time that are individuals or companies which are not financial intermediaries.

“This means that borrowings from banks, quasi-banks and other financial intermediaries are no longer considered deposit substitutes which are subject to reserve requirements,” the BSP said a statement last week, citing as examples interbank borrowings, repurchase agreements with financial counter-parties, as well as bonds issued to financial intermediaries.”

Sought for comment, the top official of the country’s largest bank said the BSP’s move to exclude these borrowings from its reserve requirements is positive for the economy.

“I’m quite positive with that move because I think the economy needs the liquidity now to support growth, so that will be a big help,” BDO Unibank, Inc. President Nestor V. Tan told reporters on the sidelines of an event by the Management Association of the Philippines (MAP) held in Makati on Monday, where he was named MAP Management Man of the Year 2019.

Latest BSP data showed domestic liquidity picked up 7.7% year on year in September to P12 trillion, compared to the 6.3% growth recorded in August.

On the other hand, bank lending was still flat in September despite the BSP’s moves to ease policy earlier this year. Data showed outstanding loans of universal and commercial banks increased 10.5% year on year in September, an expansion unchanged compared to the August print. Inclusive of reverse repurchase agreements, bank lending grew 10.2% in September, slightly picking up from the 10% seen the previous month.

Mr. Tan said he is bullish that loan growth will pick up in the remaining months of the year.

“Lending growth is actually based on demand, and I think because of budget delays, there’s just been a little bit of slowdown in loan activity. But I do believe it will pick up towards the latter part of this year, right about this time, and then going to next year,” he said.

The BSP is set to release liquidity and bank lending data for October this Friday, Nov. 29.

The reserve requirement ratio (RRR) of universal and commercial banks now stands at 15% following the effectivity of the 100-basis-point (bp) cut in RRR announced in September. Likewise, the RRR of thrift banks is now at five percent, while that for rural banks stands at three percent.

The BSP announced last month that the reserve ratio of universal, commercial and thrift banks will be slashed by another 100 bps effective December, bringing total reductions to their reserve ratios for this year to 400 bps. This cut will also apply to the reserve ratio of nonbank financial institutions with quasi-banking functions (NBQBs).

This will bring the reserve ratio of universal and commercial lenders to 14% by December, while the RRR of thrift banks will stand at four percent. On the other hand, the reserve ratio of NBQBs will be cut to 14% next month.

Meanwhile, the BSP’s Monetary Board this month kept its benchmark interest rates for the overnight reverse repurchase, overnight deposit and lending facilities at four percent, 3.5% and 4.5%, respectively.

The move was widely expected after Mr. Diokno hinted in separate television interviews that the central bank is “likely done” with rate cuts for the year.

The BSP has cut rates by a total of 75 bps this year, partially dialling back the 175 bps in hikes it fired off last year in the face of multi-year high inflation. — LWTN

Duterte taps more companies as he reboots Philippine infrastructure program

THE Duterte administration has included more private sector-led projects in its “Build, Build, Build” program. — REUTERS

WHEN Philippine President Rodrigo Duterte took office in 2016, he promised $165 billion in spending to “build, build, build” roads and railways in the Southeast Asian nation.

The program consisted of 75 key projects — including a railway stretching the length of Luzon, the country’s main island — along with thousands of smaller ones like schools, to be funded mostly from development loans and the government’s budget.

Halfway through the president’s six-year term, only two of those key projects have been completed. Most have run into bureaucratic delays, or faced problems like acquiring land and financing to get off the ground.

Now Mr. Duterte is revamping the plan and giving businesses a bigger share of the projects, after earlier shying away from privately led projects due to financing risks and delays. That’s a boon for companies like Megawide Construction Corp., which is already planning bids for rail and other infrastructure projects.

“It’s a good opportunity for us,” said Edgar Saavedra, chief executive officer of Megawide. “This is like a rebirth for the Philippines.”

PROJECT PIPELINE
Mr. Duterte’s new plan consists of 100 priority projects, nearly half of which will be funded from investments by companies like San Miguel Corp., which wants to build a P736-billion ($14.5-billion) airport north of Manila, and Udenna Corp., which proposed a monorail in Cebu.

The revamp could result in a more streamlined approval process, given “sufficient attention to fast-track implementation,” according to Cosette Canilao, chief operating officer at Aboitiz Equity Ventures, Inc.’s infrastructure unit. Ms. Canilao was head of the country’s Public-Private Partnership Center, which reviewed company-led infrastructure projects under Mr. Duterte’s predecessor, Benigno Aquino.

The infrastructure gap is large across emerging Asia, with the Asian Development Bank estimating the region needs $26 trillion worth of investment through 2030 to address bottlenecks and keep growth going. Political uncertainty has delayed infrastructure projects in Thailand, while in Indonesia, the government has offered tax benefits to get around funding constraints.

PORT PLANS
Philippine billionaire Enrique Razon, chairman of port operator International Container Terminal Services, Inc, said he’s looking at proposing more infrastructure projects to the government. Mr. Razon is a major shareholder in a venture that seeks to develop a new water source for the Philippine capital.

The government aims to start construction on all 100 projects on the new list before Duterte steps down in 2022, with one-third of the projects expected to break ground next year, said Vince Dizon, a presidential adviser on the infrastructure program, who was appointed to the post in September.

Private-sector participation alone doesn’t guarantee projects will get completed. Reforms are needed to speed up approvals, address corruption and prevent policy reversals, said James Su, an infrastructure analyst at Fitch Solutions Inc. in Singapore.

The scope of Mr. Duterte’s “Build, Build, Build” program is so large that “it was always going to be a challenge to implement the initiative in full,” he said.

Turning to companies also poses risk a of competing firms suing each other over contracts. And even when projects do get off the ground, the Philippines faces a shortage of construction workers.

“These are issues all countries face when they raise infrastructure,” Thomas Helbling, the head of the International Monetary Fund’s mission to the Philippines, said at a recent conference in Manila.

Speaking to foreign investors this month at the Clark Freeport special economic zone, Antonio Lambino, an assistant secretary in the Finance Ministry, said the country’s infrastructure drive goes beyond the list of high-profile projects. Public infrastructure spending made up a record 5% of the country’s gross domestic product last year, and should rise to 7% by 2022, he said.

“We go around to take a look at these projects on the ground, and we do see that ‘Build, Build, Build’ is making a difference in people’s lives,” Mr. Lambino said. — Bloomberg

20-40% salary rise seen for job movers in 2020

By Vincent Mariel P. Galang, Reporter

PROFESSIONALS who are planning to switch jobs in 2020 can expect to get a 20-40% increase in their salaries, according to London-based recruitment consultancy firm Robert Walters.

At the same time, higher salaries are no longer the “sole motivator” for most professionals, who are looking for career growth and learning opportunities when deciding to move to a new job.

These were the findings in Robert Walters’ Salary Survey for 2020 released Nov. 26, which surveyed about 400 professionals in the Philippines.

“Professionals looking to stay within their roles can expect salary increments of up to 10%. Those moving jobs can expect to receive 20-40%, depending on their seniority levels and skill sets,” the report stated.

However, this is lower than the projected 20-60% increase in job switchers’ salaries this year.

“The shift moved from salaries to opportunities like learning and development, career progression… It’s not just about big salary increments… we’ve seen candidates accept lower salaries, but because there is more flexibility in terms of work-life arrangement,” Robert Walters Philippines Country Manager Monty Sujanani said in a briefing on Monday in Makati City.

Professionals are looking for companies that can give them work-life balance, especially more time for family, as well as opportunities to develop one’s skills, which also encourages them to stay in their current job.

“That’s becoming really the focus going to next year… salary is not the sole motivator, but it’s also about non-monetary benefits,” Mr. Sujanani said.

“It’s now about being open about career progression and also how creative companies can be about benefits… Being open about what is next? How am I going to upskill myself? That is what the new generation of leaders are looking for,” he added.

The survey showed 29% said career progression was the primary motivation in switching jobs.

Professionals in the technology industry can get salary increments of 30-60% when switching jobs. Most in-demand jobs are for IT security professionals, data scientists and engineers, and DevOps (development and operations) engineers.

Mr. Sujanani noted that businesses across all industries are expected to “continue their digital transformations and transition towards becoming data-driven businesses.” This will fuel the strong demand for tech professionals and digitally-savvy professionals, he added.

Robert Walters identified jobs that are expected to be in high demand, such as finance business partners, enterprise architects, data scientists and analysts, digital marketers, human resources transformation professionals and heads of supply chain.

With the move to digitalize, Robert Walters said it is important to hire mid-level and senior managers to lead a the team when navigating change and adopting new technology.

This will also boost demand for risk and compliance professionals, who will be in charge of guiding the company in the transformation stage to meet the demands of the changing regulatory requirements and rules due to growth of digital banking, financial technology, and online payment solutions.

Meanwhile, for those in accounting and finance, professionals can see salary increments of 15-25% when moving jobs next year. Salaries of job switchers in banking and financial services can jump by 30%; human resources by 20%-25%; sales and marketing by 20%-30%; and supply chain, procurement and logistics by 20%-25%.

“Demand for Filipino talent with international experience will continue to grow. Companies are encouraged to look outside of the domestic market to meet their needs, tapping into channels such as Balik Bayan, a campaign that reaches out to skilled overseas-based Filipino professionals, to encourage them to move home in a bid to ease skill shortages,” Robert Walters said in the report.

Banking on electricity: the payoff of power-related loans

Mark T. Amoguis
Senior Researcher

ONE doesn’t tend to think about where the modern conveniences of life come from. Among the things we take for granted is the dependence on electricity in day-to-day living.

The importance of having a reliable and accessible power supply to the economy should be obvious: power outages and disruptions lead to inconvenience, businesses would incur higher costs by way of foregone revenue and reduced productivity; and investors would be hesitant to do business.

This also should not be surprising that banks are interested in lending their deposits to power projects, provided that the terms are satisfactory.

One is example is that in 2014 when Aboitiz-owned Therma Luzon, Inc. wanted to build a third 420-megawatt (MW) unit of its two-unit coal-fired power plants in Pagbilao, Quezon Province, expanding the capacity of its 735-MW facility. This was in response to the government’s call that time on the private sector to build additional capacity to help address the country’s power needs.

With initial estimates ranging from $600 million to $700 million (roughly between P26 billion and P31 billion), this project was to be financed through 70% debt and 30% equity.

To bankroll this expansion, Pagbilao Energy Corp., who will operate the additional unit, entered into an omnibus agreement on May 15, 2014 with a number of banks for a loan worth up to P33.309 billion (around $750 million) with a maturity period of 15 years. Banks involved in the deal include Bank of the Philippine Islands (BPI); BDO Unibank, Inc.; China Banking Corp.; Metropolitan Bank & Trust Co.; Philippine National Bank (PNB); Philippine Savings Bank; and Security Bank Corp.

Construction of the additional unit began in December 2014 and, after almost four years, the $976-million (approximately P51-billion) 420-MW unit 3 of Pagbilao coal-fired facility was unveiled in May 2018.

Similar projects were carried out by Maibarara Geothermal, Inc. Together with PNOC Renewables Corp. and Phinma Energy Corp. (then Trans-Asia Oil and Energy Development Corp.), they borrowed P2.40 billion from Rizal Commercial Banking Corp. (RCBC) and BPI in September 2011 to finance the 20-MW Maibarara geothermal power plant. It went online in February 2014.

The company took a P1.4-billion loan separately from RCBC to finance the 12-MW expansion of the Maibarara geothermal facility in May 2016 with the unit starting commercial operations in April 2018.

“Electricity is crucial for economic productivity and supporting power-related projects that are clean and affordable is vital for continued economic development for the country,” said Cenon C. Audencial, Jr., Executive Vice-President and head of the Philippine National Bank’s (PNB) Institutional Banking Sector.

According to Mr. Audencial, PNB has already “supported” 3,700 MW worth of power-related projects, which is equivalent to 22% of the country’s 21,000-MW installed capacity.

For Juan Carlos L. Syquia, BPI executive vice-president and head of corporate banking, banks “remain interested” in lending to “important capital investments” such as power projects as they are one of the vital infrastructure projects that facilitate economic growth.

“Since such projects involve significant amounts of capital and are subject to a broad mix of factors that determine the success of such projects, banks need to exercise extra due diligence when lending to power projects,” Mr. Syquia said.

“Banks are prepared to lend to a project where risks are manageable,” he added.

For BPI, Mr. Syquia said that they have been a strong supporter of power projects: “We have banking relationships with and significant lending exposure to all major industry players. We have been selective with smaller players with less experience in the sector,” he said.

“Our current power sector exposure is significant; it ranges between 12% to 17% of our total loan portfolio moving based on payments, drawdowns and utilization of working capital lines,” added the BPI official.

BDO Capital & Investment Corp. President Eduardo V. Francisco said that if the project is “well-structured,” then lending to power projects is not necessarily riskier compared to that of other industries.

Mr. Francisco said that BDO has a large exposure to power, but noted that “there are few new power financing in the last twelve months.”

“There is some refinancing of existing loans but very little new loans for projects as we are not seeing new power projects being built,” Mr. Francisco said.

Like any projects, however, there are risks and challenges that come with investing into power projects.

“[T]he power industry is heavily regulated, and developers of new power projects always encounter a number of challenges such as securing necessary government approvals and permits,” PNB’s Mr. Audencial said.

According to a September 2018 PowerPoint presentation of Senator Sherwin T. Gatchalian, who is chairman of the Senate energy committee, applying for a power plant project would require 359 signatures from 74 regulatory agencies and attached bureaus that involve 20 different laws and requiring 43 different contracts, certifications, endorsements, and licenses.

CONSIDERATIONS
Business groups have been calling for the construction of power plants to ensure ample supply of electricity in the long-term. However, the delay in the approval of power supply agreements (PSA), which is a bilateral agreement between a power generation company and a distribution utility for the purchase of power, has been hampering these efforts.

A PSA is typically a critical milestone for power projects as these are signed before construction of a power plant starts to reassure banks that the plant will have ready buyers for its output.

To recall, the Supreme Court (SC) ruled out in May this year that all PSAs submitted by distribution utilities to the Energy Regulatory Commission (ERC) on or after June 30, 2015 must undergo what is called a competitive selection process (CSP).

CSP requires contracts between power generation companies and distribution utilities to be subjected to price challengers in a bid to lower electricity cost.

“Considering the SC ruling on [the CSP], the Bank is focusing on the compliance of power plants with the CSP requirements… Compliance with regulatory requirements ensures that the PSA entered by the power plant and offtaker are valid and subsisting throughout the life of the loan and will be a source of stable revenue stream for servicing debt obligations,” PNB’s Mr. Audencial said.

Mr. Audencial added that PNB refrains from granting loans to “merchant plants,” that is, those without a PSA and power plants with high exposure in the Wholesale Electricity Spot Market due to “volatility of revenues.”

The lenders said that they also take in a number of considerations before deciding on whether to lend to power projects.

“BDO supports good projects with good offtake contracts, experienced and reputable sponsors, and proven track record of the technology being used,” BDO’s Mr. Francisco said.

Another consideration, according to bankers, is ensuring that borrowing companies are able to secure ready buyers for their electricity once it goes operational.

“The big hurdle of power generating companies now is the ability to get offtake contracts,” BDO’s Mr. Francisco said.

“The ability of large customers to choose who to buy power from, the backlog in the ERC, and the government’s review of even previously approved power purchase agreements (PPAs) have also made it challenging for power generating companies,” he added.

BPI’s Mr. Syquia was of the same assessment: “The industry best practice is to require an offtake agreement – a critical success factor — as a condition precedent to drawdown.”

“In cases where we agree to take on market risk, we size the loan based on financial projections that use spot prices as tariff and/or we require other credit enhancements such as a guaranty from the sponsor,” he said.

Other considerations, according to bankers, include the project proponents’ capability to fund the equity portion of the projects as well as their expertise in managing the power plants after completion.

“The reputability (track record) of projects sponsors cannot be under-emphasized,” BPI’s Mr. Syquia said.

As for PNB’s Mr. Audencial, other “deciding factors” include ERC approvals, the National Grid Corp. of the PhilippinesGrid Impact study as well as enhancements such as feed-in-tariff eligibility for renewable energy projects and “take or pay” provisions in PSAs.

WORTH IT?
In Luzon alone, there are 19 private company-initiated power projects expected to start their commercial operations between this year and 2023, according to Energy department data. These facilities are expected to have a combined committed capacity of 4,774.8 MW.

Despite the challenges and risks that come with lending to power projects, lenders recognize that there are still payoffs to these ventures.

“Although lending margins for such loans have declined significantly from the 1990s (when the power sector began to open up to private sector participation), we believe that our returns are fair,” Mr. Syquia said.

“BPI would like to continue to play a role in nation building and we will continue to pursue financing such projects — a reliable stable power sector is an imperative for continued economic growth. We look forward to an evolving sector where there will be increased focus on sustainable energy. While the technology and regulations will change, the basic tenets for evaluating project finance (i.e., cash-flow-based analysis) will remain the same,” he added.

Mr. Audencial shared this view: “PNB will have a continued presence in funding big ticket/priority power projects to support economic growth and nation building.”

 

[Note: All interviews were conducted via e-mail in August 2019.]

Gov’t partially awards T-bond offer

THE TREASURY made a partial award of the reissued 20-year bonds it offered on Tuesday.

THE GOVERNMENT made a partial award of the reissued Treasury bonds (T-bond) it auctioned off yesterday as rates increased, with investors opting for shorter tenors.

The Bureau of the Treasury awarded just P12.271 billion of the P20 billion programmed for the reissued 20-year papers even as the tenor attracted P28 billion worth of bids.

This, as the bonds fetched an average rate of 5.341%, climbing 32.6 basis points (bps) from the 5.015% quoted when the tenor was last awarded in July. At the Sept. 24 auction, the Treasury rejected bids worth P30.7 billion for this tenor as the market asked for higher rates.

At the secondary market on Tuesday, the 20-year papers were quoted at 5.247%, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

Following the auction, Deputy Treasurer Sharon P. Almanza told reporters that its offer was met with healthy demand from investors, but not much compared to the previous offering.

Ms. Almanza said there is not much appetite for longer tenors as the market prefers shorter-dated securities following the central bank chief’s remarks on the possibility of another rate cut within this year.

“They opt to stay on the short given ’yung (the) uncertainty sa (on) rates. ’Di ba the BSP (Bangko Sentral ng Pilipinas) Governor said there might be another possible cut in December but it will be data-driven, so depending on what the data will show in December. So there’s still a possible cut,” she said.

Despite higher returns sought by the market, Ms. Almanza said the auction committee still decided to make a partial award to accommodate investors in the long tenor and in an attempt to reprice the bonds so its rate will be “not that high.”

A bond trader interviewed yesterday shared the same view, saying investors are choosing to put their money in shorter tenors with the upcoming liquidity from maturities.

“For the auction today, it’s at the higher end of market expectation. Medyo weak ’yung appetite ng market for the long end kasi (The market’s appetite for bonds at the long end of the curve is weak because) there will be liquidity coming from the maturity [of some government securities], which will be invested in the short end. They mostly invested in the short tenor,” the trader said on Tuesday.

BSP Governor Benjamin E. Diokno told reporters on Monday that the Monetary Board’s policy meetings will always be data-dependent.

Asked if another 25-bp cut will be possible towards the end of 2019 as projected by a report of S&P Global Ratings, Mr. Diokno said it is not off the table.

However, he clarified that they will avoid any drastic adjustments in policy rates as they do not want to be misinterpreted by the market as “desperate.”

Currently, benchmark interest rates stand at 3.5% for the overnight deposit facility, four percent for overnight reverse repurchase and 4.5% for overnight lending.

The trader added that investors may be expecting higher rates next year — hence they opted for shorter tenors.

Meanwhile, Ms. Almanza said uncertainties overseas, such as the ongoing trade negotiations by US and China in bid to end the prolonged trade dispute, might have affected investor sentiment on the auction.

The government is set to borrow P220 billion from the local market this quarter, broken down into P100 billion in Treasury bills and P120 billion via T-bonds.

It is looking to raise P1.189 trillion this year from local and foreign sources to fund its budget deficit, which is expected to widen to as much as 3.2% of gross domestic product. — Beatrice M. Laforga

Why Jessica Zafra gave up writing for newspapers

THE COVER of Jessica Zafra’s latest book which is a collection of previously published short stories, unpublished work, and an excerpt from the novel she is working on.

FICTION WRITER, columnist, and radio and TV host Jessica Zafra routinely writes 1,000 words a day — a working method inspired by one of her favorite authors, Graham Greene, who wrote in his novel The End of the Affair (1951): “Over 20 years I have probably averaged 500 words a day for five days a week.”

Some of Zafra’s 1,000 words ended up becoming short stories, some of which can be found in her new book, The Collected Stories of Jessica Zafra under the Bughaw imprint of the Ateneo de Manila University Press.

The book cover, by artist Jason Moss, shows the author’s favorite cat, Saffy, peering over an exhibit of works by Leo Abaya as Zafra, dressed in her trademark Doc Martens and a backpack, studies the art.

The book gathers 27 stories, some of which were published in her previous collections Manananggal Terrorizes Manila (1992) and The Stories So Far (2014), some unpublished stories, and an excerpt from an upcoming novel.

“I just put everything in it, except for a couple [of stories] I took out because I do not like them anymore.” she told BusinessWorld during one of a series of book launches on Nov. 2 at the Nexus Center in Makati City.

Ms. Zafra said that the short stories were based on her friends’ experiences, her cats, and conversations with readers she meets at book launches.

“They don’t have to be exact. The plot came from them but all other elements change. I just get the premise from the story and I run with it,” she said.

Zafra, in a talk given during the launch, explained why she gave up writing newspaper columns — she had, at various times, written columns for Today, The Philippine STAR, and BusinessWorld — in favor of concentrating on her fiction writing. When writing a column, “The deadline is the inspiration,” she said deadpan. “The difficulty in writing fiction [and a column] is that when your momentum is going, then you remember that it’s your deadline [for the column piece] five minutes ago, you have to stop and write your column,” Ms. Zafra said. She decided to drop column writing three years ago when she realized that she had not yet written a novel. “Now I think of myself more as a fictionist not a columnist.”

Asked if she had a favorite among her stories, she said: “Not really. I feel that my best work is ahead of me. I haven’t written it yet.”

Ms. Zafra will be giving a book talk and sign books on Nov. 30, 3 to 6 p.m., at Fully Booked in BGC, Taguig City. The Collected Stories of Jessica Zafra is available at Fully Booked, Solidaridad Book Shop, Popular Bookstore, the AdMU Press bookshop, Loyola Bookshop, and on Shopee at P345. — Michelle Anne P. Soliman

Q&A: Pag-IBIG — UCPB eMoney Card

By Edwin C. Aruta, Jr.

IN AUGUST THIS YEAR, the United Coconut Planters Bank (UCPB) partnered with government-run Home Development Mutual Fund or Pag-IBIG Fund to lend its digital platform in disbursing loans and benefits to about 14 million members.

Through the Pag-IBIG – UCPB eMoney card, Pag-IBIG will be able to release the proceeds of short-term loans, provident benefit claims, calamity loans and other amounts due to its members or member-borrowers.

In response to the current administration’s call for public agencies’ faster transactions, offering e-money options for its members is one of Pag-IBIG’s many ways to simplify and hasten the delivery of its services. Currently, cash card service providers partnered with Pag-IBIG includes Land Bank of the Philippines, Development Bank of the Philippines, Union Bank of the Philippines, and Asia United Bank Corp.

In line with these developments, BusinessWorld has sought UCPB Vice President and Marketing Group Head Charina D. Balanquit to shred an in-depth information about the Pag-IBIG – UCPB eMoney card. Below are excerpts of the interview:

HOW DOES THE PAG-IBIG – UCPB E-MONEY CARD WORK? HOW CAN PAG-IBIG FUND MEMBERS AVAIL OF THIS SERVICE?
The Pag-IBIG – UCPB eMoney card is a co-branded, reloadable cash card which can be used by Pag-IBIG Fund member-borrowers to receive the proceeds of their short-term loans from Pag-IBIG Fund.

The member may go to any Pag-IBIG Fund branch (initially available in National Capital Region branches only) [and]:

• fill-out and submit the Pag-IBIG Fund loan application form and required documents;

• choose Pag-IBIG – UCPB eMoney card as the disbursement option;

• receive the card kit from the Pag-IBIG branch personnel; and

• wait for an SMS notification when the funds are credited before activating the card.

WHAT ARE THE ISSUES THAT THE PAG-IBIG – UCPB EMONEY CARD AIMS TO SOLVE? WHAT ARE ITS ADVANTAGES?
The Pag-IBIG – UCPB eMoney card aims to provide Pag-IBIG Fund members an additional alternative in conveniently receiving their loan proceeds, while also providing greater security, convenience and flexibility.

• Ease of card application

Pag-IBIG Fund members simply need to indicate that they are opting for the Pag-IBIG – UCPB eMoney card in their Pag-IBIG Fund Multi-Purpose Loan application form. There’s no need to fill out separate bank forms to avail of the card which makes time more convenient.

• Speed in getting their loan proceeds and benefits

The loan proceeds are credited the next banking day or within 24 hours from application date.

• Affordability

The Pag-IBIG – UCPB eMoney card only costs P50 against other alternatives which cost more than P100.

WHAT IS THE VALUE PROPOSITION OF THE EMONEY CARD AS WELL AS ITS OTHER USE CASES?
Speed, ease and affordability.

This card is as good as cash. Members can use their card not only to withdraw cash from any local automated teller machines (ATMs) but also to directly pay for purchases at merchants with POS (point-of-sale) terminals like groceries, department stores and restaurants.  They can also pay bills, buy load and transfer funds to other banks real-time through UCPB and BancNet ATMs.

The card has a 5-year validity. It has no inactivity penalty and members can even reuse it for additional loans or re-availment with no additional fee as long as the card has not yet expired.

WHY PARTNER WITH PAG-IBIG? WHAT ARE THE BENEFITS OF THIS PARTNERSHIP TO CONSUMERS AND THE GOVERNMENT-RUN FUND?
UCPB is one with Pag-IBIG in its desire to continue providing its members with faster, more secure and convenient ways to receive their benefits and to deliver more responsive government service to Filipinos.

Pag-IBIG Fund has provided its members with a number of cash card options in the past. Meanwhile, UCPB launched the UCPB eMoney Card in 2012 as a reloadable ATM card for various disbursing needs:

• distribute commissions;

• credit professional fees;

• pay contractual employees;

• transfer loan proceeds;

• send remittances; and

• disburse cash advances and allowances.

It was only a matter of time before both institutions would partner and come up with this card.

IN WHAT WAYS WOULD THIS PRODUCT CONTRIBUTE TO THE BANK’S BUSINESS? DOES THIS ALSO OPEN OTHER OPPORTUNITIES FOR THE BANK? IF YES, WHAT ARE THESE?
We are very excited and thankful to serve the banking needs of Pag-IBIG Fund members through the Pag-IBIG-UCPB eMoney card. This partnership will significantly grow the bank’s cardholder base and increase UCPB brand awareness among the millions of Pag-IBIG Fund members.

WHAT ARE THE VITAL PREPARATIONS/ARRANGEMENTS THE BANK HAS MADE TO ENSURE THAT SERVICES ARE SUCCESSFULLY AND PROPERLY RENDERED (IN TERMS OF TECHNOLOGY, BACK-OFFICE, ETC.)? 
This [product] uses the same technology used in ATM card transactions. The bank’s system was simply customized to conform with the technical requirements of Pag-IBIG Fund.

We also conduct AML (anti-money laundering) briefings for Pag-IBIG frontliners in compliance with BangkoSentral ng Pilipinas for the Know Your Client process.

The biggest preparation made was in the production and delivery of the cards to the Pag-IBIG branches.

WERE THERE ANY CHALLENGES THAT UCPB AND PAG-IBIG FACED IN IMPLEMENTING THE CONCEPT?
UCPB continues to work closely with Pag-IBIG Fund to ensure seamless and integrated back-end operations and frontline services for all Pag-IBIG Fund members who will avail of the card for their loan proceeds and benefit claims.

HAS THE PRODUCT BEEN GAINING TRACTION SINCE ITS LAUNCH? WAS IT WELL-RECEIVED AMONG YOUR CLIENTS?
The Pag-IBIG-UCPB eMoney card was initially made available to Pag-IBIG Fund branches in the NCR starting November 18, 2019.  So far, there has been a steady increase in the number of card issuances and disbursement volume being coursed through the cards.

WHAT IS YOUR TARGET FOR 2020; HOW ABOUT THE NEXT 5 YEARS? HOW DO YOU PLAN TO ACHIEVE THESE TARGETS?
We are targeting at least 500,000 cards issued in 2020 and every year thereafter…We plan to increase our market share through marketing communication and continuous enhancement of the product offering.

WHAT ARE OTHER PRODUCTS OR SERVICES WE COULD LOOK FORWARD TO IN THE COMING MONTHS?
For Pag-IBIG Fund, we will also implement our collection service soon so Pag-IBIG Fund members can also remit their mandatory and MP2 savings through our branches and electronic banking channels.

 

CORRECTION:

An earlier version of this article erroneously reported that the Pag-IBIG UCPB eMoney Card was launched in 2012 for the following disbursement needs (distribute commissions; credit professional fees; pay contractual employees; transfer loan proceeds; send remittances; and disburse cash advances and allowances). UCPB has since clarified that the UCPB eMoney Card was launched in 2012 for various disbursing needs. The co-branded, reloadable Pag-IBIG UCPB eMoney Card is available to Pag-IBIG members (initially in Pag-IBIG Fund Metro Manila branches) starting mid-November of this year for the disbursement of Pag-IBIG short term loan proceeds.

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