2003 business tax perks hit PhP229B

The government gave businesses tax incentives worth PhP229.4 billion last year, more than enough to cover its estimated budget deficit of PhP197.8 billion for this year, Finance Secretary Juanita D. Amatong told foreign business groups recently. This was the result of the government's review of 124 laws that provided for various types of tax perks for businesses, she said. She added that the large sum of foregone taxes was enough to justify a new law that would limit the grant of fiscal incentives. Data from the Department of Finance showed PhP159.45 billion in tax perks were approved by the Board of Investments (PhP1.6 billion) and the Philippine Economic Zone Authority (PhP157.7 billion). The rest were incentives provided under the Tariff and Customs Code (PhP780.8 million); incentives restored through the Fiscal Incentives Review Board (PhP827 million); tax credits from the Finance department (PhP1.596 billion); as well as sectoral incentives such as those given to the steel, jewelry, mining, overseas domestic shipping, footwear, leather goods, and tanning industries. The PhP229.4 billion in taxes waived was equivalent to about 5.33 % of the economy's total output or the Gross Domestic Product, Finance said. "Hopefully we would be able to rationalize that," Ms. Amatong told foreign business groups on Monday. Finance undersecretary Grace P. Tan said her department was responsible for reviewing tax perks provided under the tariff and tax codes, as well as those given in the form of tax credits (PhP55 billion of the PhP229.4 billion). Incentives from the Board of Investments and the Philippine Economic Zone Authority are being reviewed by the Department of Trade and Industry, she added.

In the last Congress, the Finance department unsuccessfully pushed for a bill that would establish parity between tax perks offered by different agencies. Ms. Tan earlier said Finance would also recommend the creation of a body that would exclusively handle applications and processing of tax exemptions. Ms. Amatong has called on Congress to impose a moratorium on tax exemptions, to help reverse the decline in tax collection. In a recent report, the International Monetary Fund reiterated the need for the government to reduce fiscal incentives granted to investors. The rationalization of fiscal incentives forms part of a package of reforms aimed at addressing the country's fiscal problems and ensure that the government can balance its budget by 2009. -- Karen L. Lema

Gardenia sets PhP700-M expansion

Multinational bread maker Gardenia Bakeries is investing PhP700 million to expand and modernize its manufacturing plant in Laguna, just south of Metro Manila, already the biggest in the country. Gardenia general manager Simplicio Umali, Jr., said in a statement the new investment would address "rapidly growing demand" for breads and buns, and would generate at least 300 new jobs. The expansion plan will result in additional production of 6,000 loaves of bread per hour, or a total capacity of 14,000 loaves per hour. This is equivalent to an annual capacity of 100 million loaves of bread and buns. Gardenia Philippines, which operates at the Laguna International Industrial Park, will have a new plant "equipped with advanced technology and an even higher level of automation."

Robotics will also ensure that "bread is produced untouched by human hands." Gardenia said it would acquire the machines from leading bakery manufacturing equipment firms in Germany, Holland, United Kingdom, Australa, and the United States. The expanded operation will have fully automated, computer-controlled integrated production process from ingredients handling to the mixing, proofing, baking, slicing and packaging of bread, with emphasis on "quality baking" in a "hygienic and sanitary environment." The existing operation has ISO 9001:2000 and Hazard Analysis and Critical Control Points (HACCP) certifications for food safety. Gardenia will likewise expand its fleet of delivery trucks, which, at 100, is also the biggest in the industry. Without providing specific numbers, the company said it expected further growth in revenues this year, given a strong 30% growth in the first half, followed by a 47% growth in July sales. Gardenia said it grew by 32% last year and by 65% in 2002. Gardenia, which also operates in Singapore, Malaysia, and Thailand, opened in the Philippines in 1998. -- F. F. Salvosa II

San Miguel extends China reach

San Miguel Corporation has acquired another facility in China as part of its thrust to expand its operations in Asia. The company's newest acquisition is a non-alcoholic beverage facility in Shunde, Foshan City, Guangdong Province, which will be named San Miguel (Guangdong) Foods and Beverages Co., Ltd. The facility, which has an initial cost of $45 million, will manufacture high quality beverages, including bottled water and fruit-based drinks, using locally sourced products. The facility, San Miguel's seventh in China, is expected to start operations by the third quarter 2005.

In a statement, San Miguel chairman and CEO Eduardo M. Cojuangco, Jr. said that the facility "underscores San Miguel's ever-growing confidence in China's economy and upholds our commitment to our business partners and the Chinese consumer." San Miguel's presence in mainland China began in 1991 through its first brewery, Guangzhou San Miguel Brewery Co., Ltd. The company operates two other breweries, San Miguel Shunde Brewery Co. Ltd., and San Miguel Bada Baoding Brewery Co., Ltd. Its brewery in Hong Kong, the company's first overseas venture, was established in 1948. San Miguel also runs two packaging ventures, Zhaoqing San Miguel Glass Co., Ltd and Foshan San Miguel Packaging Co., Ltd, in China.

Its operations, with the exception of its brewery in Baoding, Hebei province, are concentrated in China's Pearl River Delta. Mr. Cojuangco said that his company was "pleased" with the progress of its regional expansion. "San Miguel today is an international business with a significant presence in many regional markets. We are excited to open up our businesses to new horizons in terms of both products and reach," he said. Earlier this year, San Miguel broke ground for non-alcoholic beverage facilities in Thailand, Indonesia, and Vietnam. It also purchased brewery assets in Thailand. This month, it also acquired a 50% stake in Berri, Ltd, Australia's largest fruit juice company. The move, Mr. Cojuangco said, "better positions San Miguel to build on the many opportunities we see for convenient beverages throughout the Asia-Pacific." San Miguel's first-half consolidated net income totaled PhP4 billion, up by 31% from the same period last year. -- J. G. U. Rubrico

Central Bank keeps key interest rates steady

The Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) yesterday kept policy interest rates steady, saying that supply-side pressures on inflation were outside the influence of monetary policy. But the central bank also conceded that rising oil prices could push inflation -- the general rise in consumer prices -- to a range of 5.19% to 5.51%, above its target 4%-5% range. However, Bangko Sentral's policy-making Monetary Board said inflationary pressures were coming from the supply side, which monetary policy could not address. "Any monetary policy action would not be appropriate in addressing supply-side constraints," said Bangko Sentral officer-in-charge Amando M. Tetangco, Jr. Central bank's key policy rates, which it uses to siphon off inflation-causing liquidity from the financial system, has been at a 12-year low of 6.75% since 2001 for overnight borrowing, and 9% for overnight lending. Inflation has been creeping faster than expected since the start of the year. It was 6% in July, its highest in almost three years, mainly because of high oil prices. "Given this analysis of the inflation dynamics and the continuing increase in world oil prices, the [central bank] forecasts that actual inflation may exceed the targets for 2004 and 2005," Mr. Tetangco said. But while Bangko Sentral's hands remain tied against supply-side inflationary pressures, officials said that government agencies were already implementing measures to ease these. "Inflation can be mitigated by appropriate supply-side measures such as those that would facilitate timely importation, distribution and delivery of certain commodities," Mr. Tetangco said.

Bangko Sentral Assistant Governor Diwa C. Guinigundo said the government was already finalizing the rules on extending the duty-free importation of farm and fishery inputs and equipment, which could help improve the supply of agriculture products. The government is also setting up food lanes and truck routes that will help ease supply-side bottlenecks. He said the central bank was also supporting fuel-conservation measures of the Department of Energy, to mitigate the impact of rising oil prices. Aside from oil prices, other supply-side pressures are mounting. Power rates are expected to increase after Manila Electric Co. (Meralco) said it would charge its customers an additional 17 centavos per kilowatt-hour starting next month. Transport groups are also set to file another petition for a PhP1 jeepney fare hike on August 30.

In the long-run, however, Bangko Sentral also expects pressure from the demand-side, such as a possible wage increase by 2005. The central bank has assumed a 4% wage hike by July 2005, and this can prompt tighter monetary policy to control consumer demand. A higher-than-expected increase by the United States Federal Reserve in its own key rates later can also prompt the central bank to raise rates to prevent capital flight, which can happen if the interest-rate differential between peso and dollar denominated bonds narrows. "We need to continue monitoring developments including an adjustment in the US Fed rates," Mr. Guinigundo said. -- I. C. C. Gonzales

Petron raises oil prices

Major oil company Petron Corporation yesterday raised its prices for gasoline, diesel and kerosene by 35 centavos per liter, following increases imposed by its competitors Monday. Petron, which is partly government-owned, also hiked its liquefied petroleum gas (LPG) price by 20 centavos per kilogram. Prices of diesel and unleaded products have increased eight and nine times, respectively, for this year. The new price hike is the third this month due to escalating world oil prices. After hitting record highs last Friday, world oil prices dropped for four consecutive trading days as Iraq pumped more oil through its southern pipelines and Russia vowed to increase exports. The Department of Energy (DoE) earlier said the unstable situation in Iraq, the tax dispute over Russian oil giant Yukos and the unrest in Nigeria were the major factors that fueled the soaring oil prices. DoE data showed that, as of August 24, Dubai crude slipped to $39.51 a barrel after breaching the $40-a-barrel price. The August average stood at $38.91. Oil refiners like Petron and Pilipinas Shell Petroleum Corp. both use the Dubai crude as their basis for pricing their products.

Earlier, the Energy department warned the public about higher gasoline and diesel prices every week. Energy Secretary Vincent S. Perez Jr. said more frequent but smaller adjustments would help lessen the impact of high prices to customers. Meanwhile, reports said the International Energy Agency (IEA) had expressed confidence that soaring oil prices will not last long, as opposed to energy experts' worries about the continued world oil price hikes. The IEA was quoted as saying that if the situation does not change, the world will face a possible suspension of oil supply. It said with increased investment in oil production from members of the Organization of Petroleum Exporting Countries and Russia, oil production will rise, adding the situation in the Middle East is gradually stable and the oil supply and demand will not be intensified when oil consumption in some countries decreases. Local oil firms on Monday raised their prices for gasoline, diesel and kerosene by 35 centavos due to record high prices of oil in the world market. The country's top three oil firms -- Petron, Shell and Caltex Philippines, Inc. -- have about 80% market share, while the remaining 15% to 20% belongs to small industry players. Instability in major oil-producing countries such as Iraq, Russia and Venezuela has sent crude prices surging to all-time highs. In addition, the threat of terrorism continues to cast doubt on how the world will meet its energy needs. -- Bernardette S. Sto. Domingo

Seven-month garments exports tally down 4.3%

By FELIPE F. SALVOSA II, Reporter

Garments exports continued to decline in July, with receipts for the month of $278.769 million or a decline of 9.8% from last year's figure, government data yesterday showed. The Garments and Textile Export Board (GTEB) reported that this meant a 4.3% drop in year-to-date exports to $1.627 billion, from $1.700 billion in January to July 2003. Weaker sales in the United States, which account for 70% of the total, led to the decline in the January to July figures. US exports dropped by 9.69% to $1.135 billion from last year's $1.257 billion, largely due to a 9.46% drop in apparel sales at $1.014 billion from $1.119 billion. Non-apparel sales also decreased 13% to $85.537 million from last year's $98.431 million, while textiles dropped 7.8% to $36.424 million from $39.503 million. The only bright spots were in Europe and Canada, which posted 27% and 1.18% growth rates, respectively, for the seven-month period. Exports to Europe, which account for 16% of the market, increased to $264.467 million from $208.361 million. Canada, which is about 3% of the total, posted $42.375 million in exports, up from $41.882 last year. Higher exports to Europe were brought about by strong sales in Great Britain and Germany which comprise half of total European sales, as well as France and the Benelux (Belgium, Netherlands, Luxembourg) countries. Exports to Ireland and Italy, albeit less than 5% of the market, more than doubled as of July.

Exports to nonquota countries such as Japan, Hong Kong, and the United Arab Emirates, meanwhile, dropped by 4.12% to $184.849 million from last year's $192.785, GTEB data showed, due to a 6.54% and 18% drop in apparel and non-apparel exports, respectively. Textiles, however, grew 12.16% to $40.299 million from $35.931 million, but this was only 2.48% of the total. Nonquota countries account for 11.36% of total exports. While the July figures were negative, GTEB Executive Director Serafin Juliano said the month-do-date figures as of Aug. 21 were encouraging. Compared with the same period last year, exports grew 8.21% to $180.558 million from $166.856 million. "With 10 more selling days left in August, GTEB's forecast of increasing exports for the balance of the year to end at par versus last year appears to be achievable," Mr. Juliano said.

Bankard incurs net loss of 362M pesos in first half

By RUBY ANNE M. RUBIO, Reporter

Yuchengco-led Bankard, Inc. incurred a net loss of PhP362.11 million during the first semester, citing a slowdown in credit card acquisition and and a drop in finance charges. The credit card company posted a net profit of PhP46.22 milion in the same period last year. In its bid to stem further losses, Bankard said it has ventured into new, fee-based businesses that will provide new revenue sources and reduce reliance on the extension of credit. The move is expected to take the company into Web-based transactions as well as prepaid or debit cards. In a report to the Securities and Exchange Commission, Bankard said revenues went down by 14.52% to PhP1.06 billion from PhP1.24 billion as finance charges fell by 15.52% to PhP769.26 million while membership fees decreased by 25.23% to PhP129.31 million. In the second quarter alone, Bankard incurred a net loss of PhP185 million, bigger than the first quarter's PhP177 million.

During the six-month period, total cost and expenses surged 32.5% to PhP1.59 billion from PhP1.2 billion as losses on doubtful accounts jumped 87.45% to PhP768.21 million although interest and other financing charges dipped 1.24% to PhP170.78 million. However, excluding interest expense and losses on doubtful accounts, operating expenses dropped to PhP435 million from PhP517 million in the six-month period. "This behavior was caused by lower transaction volumes and increased efficiencies in operations," the company said. "Although debt level is flat since December 2003, funding cost which is the sum of losses on sale of receivables and interest and other financing charges was higher by 13% to PhP387 million from PhP342 million as of June last year basically because of higher interst rate on loans and discounts," it added. Bankard said total receivables increased by 20.93% to PhP5.2 billion this year from PhP4.3 billion last year. "Such growth in earning assets is a natural result of additional billings in the first and second quarters of the year," it said. However, total billings weakened 15% to PhP2.86 billion from PhP3.36 billion due to slowdown in card acquisition "as a result of stricter acceptance policy implemented by the company."

2004 a 'pivotal' year for idle asset sale -- Ernst & Young

This year would be a "pivotal year" for the disposal of the huge non-performing assets in the Philippines, said global consultancy firm Ernst & Young in a report. "Similar to other Asian economies, the Philippines needs foreign investment to stimulate economic growth and provide the catalyst for reform of the financial system. We expect 2004 to mark the beginning of the NPA [non-performing asset] disposition process leading to greater financial transparency and increased development of the country's capital markets," Ernst & Young said in its Global Nonperforming Loan Report 2004, a copy of which was obtained by BusinessWorld. "Unlike years past where private banks dominated the initial NPA activity, the Philippine government is expected to lead the charge in 2004. Many Philippine banks are beginning to develop a sense of urgency about 'going to market' with their NPA portfolio," it added.

Banks have until September this year to register with the Bangko Sentral ng Pilipinas (central bank) their planned sale before incentives offered to purchasers expire in April. Incentives include tax perks and reduced transaction fees. All transactions under the Special Purpose Vehicle (SPV) Act have to get the approval of the central bank's policy-making Monetary Board. Last May, state-run National Home Mortgage Finance Corp. sold PhP13.4 billion of its delinquent housing loans to an affiliate of German banking giant Deutsche Bank AG. This marked the first time that a local financial entity sold non-performing loans of such magnitude to a foreign investor. The mortgage firm hired financial adviser Ernst & Young Asia Pacific Financial Solutions in 2002 to prepare its loan restructuring and asset disposition program. "It now appears that at least four major transactions will come to market in the Philippines prior to Sept. 30. The face value of the assets offered for sale is expected to exceed $1 billion. Each transaction is planned to be conducted as an international NPA auction with the transparency and openness demonstrated by other markets in Asia. These transactions will come to market as indicators suggest that the Philippine economy may be beginning to rebound," Ernst & Young said.

In July, Ayala-led Bank of the Philippine Islands inked a deal with Morgan Stanley Emerging Markets, Inc. for the sale of PhP8.6 billion worth of bad loans. The transaction is expected to be completed within the year after complying with regulatory requirements. Yuchengco-led Rizal Commercial Banking Corp. is mulling more SPV transactions worth PhP10 billion to PhP11 billion worth of nonperforming loans (NPLs) in the near future after signing a sale and purchase agreement with Lehman Brothers for the sale of PhP3.9-billion bad loans. Ernst & Young said, "While the SPV Act's objectives are commendable, its final form is perhaps best described as a compromise. For NPA buyers, the Act's primary benefit concerns a delinquent borrower's voluntarily surrendering its collateral. As the vast majority of NPL borrowers are not in the business of voluntarily surrendering their collateral, the Act's ability to reduce resolution costs and thereby increase NPL prices was negligible." "The Act imposes restrictions on SPV-qualified transactions. In particular, it prohibits a seller's retaining more than 5% carried interest in the resolution of the transferred assets. Given the difficulties inherent in arriving at a consensus on fair NPA values, a key technique for reducing the ask-bid spread between NPA buyers and sellers is through the use of structured transactions. By preventing significant seller participation, the Act's ability to narrow the pricing differences is limited." -- Ruby Anne M. Rubio

Peso extends losses, closes at 56.055

By IRA P. PEDRASA

The Philippine peso extended its losses despite a half-day trading yesterday, closing one centavo weaker at PhP56.055 against the US dollar. "Trading was raw today, however. There are still the lingering concerns. The market is in a wait-and-see mode. That's why the sentiment [yesterday] was 'squarish.' Banks did not know whether to sell or keep their dollars. Corporate demands were present early in the morning but they got out after seeing that the dollar was a bit expensive," a currency trader said. Trading ended at 12 noon yesterday as offices closed early due to the heavy rains and flooded areas. Regular trading will resume today to "accommodate more dealers," regulators said. Recently, the peso slipped to new lows as the jittery market moved to assume risk measures after the President admitted that the country was in the midst of a fiscal crisis. "[President Gloria Macapagal Arroyo's] statement is still hanging. She just left her people to refute or explain everything. The budget deficit is still not impressive. The market is just being cautious and we are awaiting the implementation of the government's revenue enhancement plans; or else, we risk being downgraded again," the trader added.

The government said the budget deficit reached PhP19.29 billion in July, or PhP4 billion short of the target for the rest of the second quarter. The government hopes to cap its shortfall at PhP197.8 billion for the year. The trader also said moves from the government should start now as the Philippines is being left behind by countries such as Thailand and India. The trader also noted that credit ratings company Standard and Poor's recently upgraded the performance of both countries. At the Philippine Dealing System, the country's electronic currencies exchange, the peso averaged at PhP56.086, dropping more than five centavos from PhP56.032 previously. The local unit opened at PhP56.07 per greenback and slipped to as low as PhP56.11. Hovering within a 5.5-centavo range, the peso closed at its intraday high of PhP56.055. Total volume of transacted dollars reached $112 million from $105.50 million previously. The peso is expected to further weaken near the P56.10 level, as more corporate dollar buyers are seen to fill their month-end dollar obligations.

BPI justifies labor deal stand

CEBU CITY -- The Bank of the Philippine Islands (BPI) the other day justified its position on the collective bargaining agreement (CBA) negotiations with the rank-and-file employees union in Cebu. In a statement, the bank said its approach was based on inflation, industry settlements, business performance and the economic outlook. The bank also assured the public that there won't be any disruption in services due to the ongoing protest action. "The public is assured that there will be no business interruption and clients will continue to be serviced accordingly," the statement read. Members of the BPI Employees Union here in Cebu started wearing red armbands last Monday in protest of the collapse of the CBA negotiations. They were negotiating for adjustments in the provisions of a five-year deal. The adjustments were to be implemented in the last two years covered by the deal.

While the negotiations in Cebu ended in a stalemate, the BPI management said it has signed an agreement with the employees union in Iloilo for the remaining two years of the current five-year CBA. The management said it will continue to meet with the employees union before the National Conciliation and Mediation Board regional office to resolve the deadlock. The union has filed a notice of strike before the board after declaring a deadlock in negotiations. -- Jun P. Tagalog

PNB employees threaten to go on strike next week

About 3,000 Philippine National Bank (PNB) workers nationwide threatened to go on strike next week following a failure of collective bargaining negotiations between management and the union workers last August 24. The union officers of the PhilNaBa Emloyees Association are scheduled to file their notice of strike at the National Conciliation and Mediation Board today to demand for higher wages and to ask for retirement and fringe benefits that are at par with those of other banking institutions. According to union president Ed Serrano, the workers are demanding for an PhP8,000 salary increase for the first year of their collective bargaining agreement (CBA). Since the start of negotiations on the economic aspects of the CBA last June, Mr. Serrano said the offer from the management had remained at a P500 salary increase for the first year of the CBA, and a P600 and P700 increase for the second and third year, respectively. "We did not get any offer that was favorable to our demands. We are pushed to the wall to declare a deadlock on the negotiations," said Mr. Serrano.

The PNB management, said Mr. Serrano, is claiming to have no funds to sustain the salary increase that the workers are demanding since the bank is still under rehabilitation. PNB sources had confirmed the existence of the CBA deadlock but said they cannot issue an official statement as neither of the parties have informed the labor department of the situation. "The moment the notice of strike is filed and when the preventive mediation is issued by the labor department, then we will give our statement," said the source. The union president has explained that the last CBA between the PNB management and its workers had been in 1997. The CBA under negotiations was supposed to be the first CBA after PNB was privatized in 1996. The last salary increase of the workers had been in 1999 whereas banking industry workers, on average, get a PhP1,000 salary increase every year, the union said. PNB workers were also supposed to be given salary adjustments in 1996 under the Salary Standardization Law but it was pre-empted by the privatization of PNB in the same year. -- Beverly T. Natividad

PSBank declares PhP0.20 payout

Philippine Savings Bank (PSBank) declared a 20-centavo cash dividend per share and a special cash dividend of 20-centavo per share based on the outstanding capital stock. In a letter to the stock exchange, PSBank president Pascual M. Garcia III said yesterday this will be payable to stockholders as of a date to be fixed after the approval by the central bank. The second largest savings bank saw an 11% growth in net earnings to PhP197.2 million during the first half, resulting in higher earnings per share of PhP1.10 from PhP0.99 last year, the bank told regulators.

Equitable PCI tops fund survey

International consulting firm Watson Wyatt named Equitable PCI Bank as the leading asset management group in the Philippines based on the latest survey on the investment performance of retirement funds. Ranking first in the 77th Watson Wyatt survey, Equitable PCI said its trust banking group gave the best return on investment among fund managers handling at least five funds under the category Trusteed Funds Managed with Full Discretion. "We follow a strategy of understanding our clients' objectives and finding a fit between their needs and what opportunities the market offers. Calling on our vast accumulated experience and the expertise of our highly professional management team have allowed us to manage risks well and deliver very good returns to our clients," said Marvin V. Fausto, the bank's senior vice-president and trust officer, in a statement. Ranking first for the first quarter and over the last five years running, Equitable PCI said it has not only done well in the periodic surveys but it has also consistently outperformed industry benchmarks and, in most cases, bested its peer banks on multi-trusteed accounts. -- R. A. M. Rubio

Global Equities to settle PhP195.5M worth of debt to Equitable PCI

Global Equities, Inc. yesterday said its board had approved a deal to settle PhP195.5 million worth of debts to Equitable PCI Bank, Inc. using the assets of its cotton making unit. Global Equities said it had executed a dacion en pago or payment in kind agreement with the bank. In a disclosure to the stock exchange, Arsenio C. Cabrera, Jr., Global Equities' corporate information officer, said the agreement was executed by and among Equitable PCI Bank, absorbent cotton unit Adamson and Adamson, Inc. and Global Equities. A dacion en pago agreement allows a company to pay creditors using its assets instead of cash. Nora A. Bitong, Global Equities corporate secretary, who was elected as director yesterday, told BusinessWorld the deal was approved in April. She said Global Equities owed Equitable PCI Bank PhP169.3 million and Adamson and Adamson PhP26.2 million.

The deal allowed Global Equities to turn over to Equitable PCI machineries and equipment used by Adamson and Adamson in manufacturing absorbent cotton. "With the dacion en pago agreement, Global Equities transferred its machineries in Sta. Rosa, Laguna, which it used for modernization, to Equitable PCI," Ms. Bitong said. Mr. Cabrera said the shareholders approved "the grant of authority in favor of the company to negotiate and enter into dacion en pago agreements with creditor banks to reduce the company's and its subsidiaries' liabilities" during the stockholders' meeting yesterday. -- Roulee Jane F. Calayag

SEC upholds decision on annual Philcomsat meet

The Securities and Exchange Commission (SEC) has upheld a ruling that validated the stockholders' meetings of Philippine Communications Satellite Corp. (Philcomsat) and parent Philippine Overseas Telecommunications Corp. (POTC) called by the Nieto group. In a talk with reporters, SEC Chairman Lilia R. Bautista said the commission had confirmed the order of SEC general counsel Vernette Umali-Paco which validated the meetings called by the Nieto group because the meeting called by the rival Africa group did not have a quorum. On July 28, the group of Mr. Africa held a stockholders' meeting for Philcomsat and POTC. But the meeting was not validated by the SEC because the group allegedly failed to follow SEC rules.

On the other hand, the annual meetings set by the Nieto group for POTC on Aug. 5 and Philcomsat on Aug. 9 were said to meet SEC requirements. But the Africa group doesn't agree. The group asked Ms. Bautista to reverse the ruling validating the Nieto meetings, saying the order was issued "with grave abuse of discretion." Ms. Bautista said the SEC confirmed the order of Ms. Paco "for the reason that they [Africa group] had no quorum." She said while the Africa group claims the Presidential Commission on Good Government (PCGG), which controls a 35%-40% stake in POTC, joined the stockholders' meeting it had called, the Nieto group was able to show the PCGG had proxies during the meetings it organized. Ms. Bautista said the PCGG had given the proxies to the Nieto group. "Unfortunately, they [Africa group] cannot present the proxy. If the PCGG does not join them, then they're out." Ms. Bautista said while the Africa group had conducted the stockholders' meetings on the day the SEC had required, the Nieto group was able to conduct the meetings within the time frame the SEC had ordered. -- Jennee Grace U. Rubrico

Meralco says portion of rate hike to cover under-recoveries

The Manila Electric Co. (Manila) yesterday said a portion of its recently approved 17-centavo-per-kilowatt-hour rate increase will cover under-recoveries or costs that it hasn't recovered yet. The recent increase was done under the generation rate adjustment mechanism (GRAM), a recovery mechanism that replaced the purchased power adjustment scheme when the Energy Regulatory Commission (ERC) approved changes in the utility's billing last year. Meralco Vice-President Ivanna G. dela Peña said the increase in the generation charge largely resulted in an increase of 24.14 centavo per kilowatt-hour (kWh) in the deferred accounting adjustment (DAA), which covers under-recoveries and carrying charges. "This is due to the lag in passing on of generation costs to customers. When the generation charge went down from PhP3.4029 to PhP3.1886 billed to customers from February to May 2004, average generation cost was already PhP3.2767 per kWh resulting in under-recoveries," the firm said. The PhP3.1886 generation charge pertains to average generation cost from May to October 2003 and was only billed to customers from February to May 2004, it said. The 24.14 centavos increase in the DAA was tempered by the 6.71-centavos reduction in generation cost, it added. Meralco said the impact of the recent increase on residential customers will include the corresponding franchise tax and will vary depending on consumption. For lifeline customers, the impact is cushioned because of the lifeline discount which is also applied on the generation charge of customers, the firm said.

GRAM IMPACT

For those consuming up to 50 kWh, the GRAM impact is reduced by 50%, 35% for those using 51-70 kWh, and 20% for those with 71-100 kWh. Residential customers consuming 50 kWh will see PhP4.45 increase in their bills while those using 70 kWhs will have to pay an additional PhP8.10, Meralco said. Those with 100 kWh consumption will see an increase of PhP14.24 while those within the first 50 kWh consumption bracket or about 361,529 customers representing 14.9% of total residential customers, will see an average of 9 centavos per kWh increase. Those in the next 51-70 kWh bracket or about 302,470 customers will see a 12-centavo per kWh increase and those in the 71-100 kWh bracket will have a 14-centavo kWh increase. All others will have an 18-centavo kWh increase, Meralco said. -- Bernardette S. Sto. Domingo

Phisix up, takes lead from Wall St

By ROULEE JANE F. CALAYAG

There was no stopping the stock market from covering lost ground as it moved forward for the second day, inspired by Wall Street's overnight gains and improved manufacturing index. The Dow Jones Industrial Average rose 83.11 points, or 0.8% to 10,181.74, off an intraday high of 10,199.21. The Philippine Stock Exchange composite index (Phisix) was off to a strong close, up 13.25 points or 0.86% at 1,561.33, on 946.4 million shares worth PhP1 billion.

MANUFACTURING

Yesterday's gains came after the release of the country's June manufacturing data that showed output volume and value reaching their highest since September last year as political uncertainties, resulting from the May elections, eased. According to a survey conducted by the National Statistics Office, 18 out of every 100 factories operated at full capacity in June. This was higher than May figures where only 14 out of 100 factories operated fully that time. Elena Ponceca, research chief of Unicapital Securities, Inc., said the rise in Wall Street and the Philippines' improved manufacturing output lent inspiration to investors. "The market could be seeing an indication [of a recovery] as uncertainties wane down and production starts to normalize," said Ms. Ponceca. She added that with the elections over and uncertainties lifted, manufacturers will be replenishing their output levels.

BARGAIN HUNTING

Some analysts said an extended bargain hunting also boosted the market. Ms. Ponceca noted that this was observed since last week as the market focused on second- and third-liners such as Belle Corp., DMCI Holdings, Inc., and iVantage Corp. Taking advantage of the market's weaknesses, investors shifted their attention over the past trading sessions to stocks that have good fundamentals. Investors' imagination seemed to have been captured by "stocks that have potential for both speculative and value play," said Ms. Ponceca. At the stock market, all indices, except for oil, firmed up. Mining ran off with the largest gain of 60.56 at 1,843.04. Commercial-industrial followed as it rose 23.70 to 2,494.24. Property went up 4.96 to 515.76. Oil was marginally lower by 0.02 at 1.69. The all shares index advanced 9.60 to 1,011.61. Gainers were ahead of losers, 44-24 as 40 issues clung to their previous levels.

ACTIVE STOCKS

There was a special block sale of 540,471 shares of Acesite Philippines Hotel Corp. for PhP1.74 each amounting to PhP940,419.54. The country's second largest carrier, Ayala-led Globe Telecom, led the most actively traded stocks. It rose PhP15 at PhP850 as it traded 540,000 shares for PhP459.6 million. Conglomerate Ayala Corp. landed second, advancing PhP0.10 to PhP5.30. Over 27 million shares exchanged hands for PhP143.6 million. The remark of President Gloria Macapagal Arroyo on Monday that the country was treading a sensitive path toward a fiscal crisis reportedly paved the way for a technical correction. Some observers said this opened an opportunity for investors to hunt for cheaper share prices. However, the market seems unperturbed by uncertainties at this time. Not even an unstable weather could shake its stance. Trading continued and even ended higher yesterday although most offices were closed due to severe flooding in several areas in Metro Manila due to a typhoon.

ECONOMIC OUTLOOK

Meanwhile, an economic outlook presented by wires services XFN-ASIA said the country's second-quarter growth was likely to have slowed down to 4.5% to 5.7% year-on-year. The agency said economists attributed this to "a weak agricultural output and sluggish performance in the manufacturing sector." The economy grew by 6.4% during the first quarter. The main driver of growth, the report said, will still be the services sector where telecommunications remains the star.

OIL PRICES

However, the significant adjustments in prices of oil which reached record levels during the past weeks could hurt the country's second-half growth. For the second semester, economists see a bleaker outlook, noting that incessant oil price increases resulted in inflationary pressures which could likely raise interest rates. And while the government was bent on managing the situation, oil companies had launched a relentless campaign to adjust their prices in keeping with world prices. Barely a week after a major oil price increase of PhP0.30 per liter was announced, a group of oil companies rattled the country anew as they adjusted their prices on Wednesday. The latest to implement an increase was oil giant Petron Corp. which announced a PhP0.35 per liter adjustment effective yesterday morning. These adjustments are adding to the burden on Juan de la Cruz's shoulders, rendering the Filipino unable to solidify whatever advances were achieved earlier. But there could still be hope for the 80 million Filipinos fighting tooth and nail to jumpstart their ailing economy. Government and the private sector cooperation is reaching new levels, helped by the continuing commitment of monetary and economic authorities to ensure a healthy environment for investments. With the Bangko Sentral's assurance that it would keep key interest rates unchanged at 6.75%, investors may decide to stick with Philippines, Inc. and help steer the economy to a healthier level.

June factory output highest since Sep '03

By EHDEN M. LLAVE, Researcher

Manufacturers posted last June produced their highest production in terms of volume and value since September last year as political uncertainties waned with the proclamation of president Gloria Macapagal-Arroyo, and export markets picked up as the United States and Japan ordered more locally made goods. A survey of industries done by the National Statistics Office (NSO) showed that 18 out of every 100 factories operated at full capacity that month, up from 14 in May. "That's good news," said economist Bienvenido S. Oplas, "but the sector could have performed better." He noted that high crude oil prices and changing world trade rules have lately become major impediments to industry growth.

Another analyst said the price of Dubai crude, the regional benchmark for oil price, actually fell in June, to an average of $33.43 per barrel from $37.74 in May. "But the prices locally were not adjusted. This could have a big impact on production in the coming months -- manufacturers might produce less," the analyst added. The impending removal of the quota system is also hurting the garments sector, one of the major manufacturing industries. The 30-year-old quota system, which expires by yearend as required by the World Trade Organization, guarantees access by garment-exporting countries like the Philippines to major markets like the United States, Canada, and Europe. In the first semester, earnings from garment exports fell by 7.4% year on year to $1.04 billion. In June it fell by 15.9% to $199.196 million. The analyst said the results of the most recent industry survey did not truly reflect the manufacturing industry's performance. "You have to look at other indicators to have an overall assessment of the industry. It's hard to make judgements and projections based solely on the survey, when you know that they will revise it later," said the analyst, who added that manufacturing has actually been improving in previous months. "In the first semester, almost 90% of our exports earnings were from manufactured goods. It has always been the top export earner," the analyst added.

In June, export earnings from manufactured goods rose by 12.3% year on year to $2.995 billion from $2.668 billion. Manufacturing accounted for 90.4% of total export receipts that month, from 88.3% in May. In its report yesterday, NSO said the overall output volume of the manufacturing industry in June rose by 2.7% year on year, with rubber products and electrical machinery leading in growth. Other top performers that month were furniture and fixtures, fabricated metal products, machinery excluding electrical, transport equipment, beverage, and publishing and printing. But the volume of production index (VoPI) of petroleum fell by 22.8%, although this was an improvement from the previous month's drop of 32.4%.

Value of Production Index in June rose by 8.5% from the revised 3.8% growth for May, as 12 of 20 manufacturing industry subsectors monitored by NSO posted higher output value during the period. Sectors that posted double-digit increases were rubber products, electrical machinery, furniture and fixtures, beverage, fabricated metal products, publishing and printing, and machinery excluding electrical. Value of net sales in June rose by 11.6% from 8.1% in May. And despite double-digit declines in sales volume in nine of 20 manufacturing industry subsectors, net sales volume still rose by 1.2%. In June, average capacity utilization in manufacturing industry rose slightly to 79.6% from 79.5% in May. Capacity utilization measures the extent by which industry resources are being used in the production of goods. About 18% of respondents operated at full capacity, while 46.9%, operated at 70%-89% of rated output. The remaining 35.2% operated below 70% capacity utilization. Sectors with capacity utilization of more than 80% were machinery excluding electrical, leather products, electrical machinery, miscellaneous manufactures, petroleum products, paper and paper products, rubber products, chemical products, basic metals, and food manufacturing. Results of the June survey were based on the response of 476 sample firms that comprised 88.5% of the total number of sample enterprises that were covered. Data for non-responding establishments were estimated based on previous records and other available resources, government statisticians said.

Meanwhile, economists said the 2.7% increase in the production of factories for June was enough to indicate increasing confidence of businessmen and consumers in the outlook for the economy. "I think businessmen and consumers have started to veer away from their wait-and-see attitude and that it's now back to 'business as usual'," Mr. Oplas said in an interview. He also said manufacturing's growth sector could be sustained for the rest of the year, despite recent increases in oil prices. "More or less, the macroeconomic outlook continues to be positive. Many sectors that are petroleum dependent may be affected, but the recent oil price increases may not result in drastic economic contraction for 2004," he said. Erico Claudio, research adviser at private investment firm Unicapital Group, said the higher output of factories was also partly due to their need to replenish inventory. "If you have a decline in the previous month, you have to replenish your inventory. Also, the increase in the output of the manufacturing sector can be attributed to the reduction in political uncertainty," he said. He also expects the manufacturing sector to sustain its growth for the rest of the year, given indications that the global economy will recover. Exports can grow, which can result in an increase in production.

Sought for reaction, Philippine Chamber of Commerce and Industry chairman Sergio R. Ortiz Luis, Jr. said he would not be surprised if the growth in production volume and value was actually driven by the 8.5% increase in exports in six months to June. "Part of this can be attributed to the increase in exports. Exports have shown a good upturn recently," he said in an interview. Federation of Philippine Industries president Jesus L. Arranza said companies indeed recorded higher production particularly in fabricated materials and furniture. "Furniture exports are, in fact, experiencing growth," he added. Mr. Arranza, however, expressed alarm over what he said was a drastic change in importation patterns. Before, he said, 30% of imports were for domestic consumption and another 30% for "warehousing entries" for reprocessing into export goods. This has changed to 60% for warehousing entries and 40% for domestic consumption. "But we have not seen any substantial increase in production activities for export," he said. Mr. Arranza noted that an increase in warehousing entries without a corresponding increase in exports only meant that imported products intended for reprocessing have found their way into domestic production. He said raw materials such as yarn, supposedly for garments exports and which are stored in customs bonded warehouses, do not pay the corresponding taxes and duties. This illegal activity is unfair to regular importers who pay the correct taxes, Mr. Arranza said. -- with a report from Jennifer A. Ng and Felipe F. Salvosa II

STI to deepen presence in Asia in next 2 years

By JENNEE GRACE U. RUBRICO, Senior Reporter

The Systems Technology Institute (STI), the country's largest network of colleges, is set to expand to other countries in Asia, an official of the company yesterday said. In a talk with reporters, Senior Vice-President Peter K. Fernandez said STI plans to expand to Indonesia, Vietnam, Singapore, China and Saudi Arabia within the next two years. STI has a total of 103 branches. It also has two schools in Indonesia. STI also used to have schools in Taiwan and Hong Kong, but these have been closed. "Our expansion efforts [are now geared towards] the international market." Mr. Fernandez said that two more schools will be opened in Indonesia within the year. The schools, he said, would be a joint venture with Indonesian information technology company Metrodata and would cater to Indonesian nationals. The Indonesian company is also STI's partner in the two existing schools in the country. He said the school in Vietnam will be opened in the first quarter of next year. STI has given a Filipino partner the master franchise for opening STI schools in the country, Mr. Fernandez said.

STI's Filipino partner in Vietnam is the same company that was given the rights to operate American IT firm Sybase in the Philippines, he said. "The talks have been completed. We're just waiting for the Vietnam government to give us the permits," he said. He added the school would also cater to Vietnamese. For Singapore, Mr. Fernandez said STI is in talks with two firms for the STI franchise in the city state. He declined to identify the firms, but said the companies are involved in businesses that cater to overseas Filipino workers. The Singapore branch, Mr. Fernandez said, would likely start operations next year and would cater to OFWs and the locals. Mr. Fernandez said STI's Saudi Arabia school, which is also set to open next year, will cater to families of OFWs. "There are already several Filipino grade and high schools in Saudi Arabia. The school will be offering diploma courses," he said, adding the school would also be a franchise. In China, the official said that it is in talks with American and Filipino partners for the operations of a school to be set up near Shanghai. Unlike the schools in Indonesia, Singapore, Vietnam and Saudi Arabia, the school in China will not just be an IT school but will be a "full-scale school," Mr. Fernandez said. He said all of the branches abroad will use English materials.

LOCAL FRONT

At the local front, STI is looking at opening a branch each in the Bicol region, in Bulacan, and in Mindanao. He did not give a time-frame. Mr. Fernandez said STI is looking at increasing the number of branches that offer nursing courses. He said while the demand for IT workers abroad is still heavy, the Philippines has an edge over other countries when it comes to nurses. He said that headhunters for nurses said Filipinos are a priority because of their proficiency in speaking English and because "they don't smell." Around 20 of the 103 schools of STI offer nursing courses. These schools have a total of 4,000 enrollees for nursing, of which half are enrolled in STI-Delos Santos (the hospital), Mr. Fernandez said. He said STI forecasts that in five years, it will be known as a nursing school. However, he said STI is having difficulty securing permits for opening nursing courses in its schools because the Commission on Higher Education is planning to issue a moratorium on new nursing schools. Mr. Fernandez said that besides strengthening its nursing courses, STI aims to strengthen its engineering, education, and business courses. STI operates under an enrollment to employment system, which assures students of getting applicable education, job market skills, job preparedness and job placement assistance. Under the system, STI graduates are supported in looking for jobs through the Global Resource for Outsourced Workers, Inc., the company's job placement assistance program.

Fight for Philcomsat control rages

The fight for control of Philippine Communications Satellite Corp. (Philcomsat) continues to rage as the group of Victor V. Africa asked the Securities and Exchange Commission (SEC) to nullify an order validating the stockholders' meetings of Philcomsat and parent Philippine Overseas Telecommunications Corp. (POTC) where representatives of its rival Nieto group were elected as board members. The meetings were called by the Nieto group, enabling them to position representatives as board directors.

In a letter to SEC Chairman Lilia R. Bautista, Mr. Africa said the order issued by SEC legal counsel Vernette G. Umali-Paco, supporting the Philcomsat and POTC meetings organized by the Nieto group is "arbitrary." "A case has been filed against the usurpers supposedly elected in the unauthorized meetings held on Aug. 5 and Aug. 9," Mr. Africa said in the letter. On July 28, the group of Mr. Africa held a stockholders' meeting for Philcomsat and POTC. But the meeting was not validated by the SEC because of the following: the group did not constitute a commission on elections; proxies were not validated; the list of stockholders, and stock and transfer book were not presented; and the meeting was called by the board of directors and not by the SEC. The Nieto group then held annual meetings for POTC on Aug. 5 and Philcomsat on Aug. 9.

Following the meetings, on Aug. 20, SEC's Ms. Paco validated the stockholders' meeting on the following grounds: a committee on elections was consulted to supervise the election of the board members; the proxies and the list of stockholders were presented during the meeting; and the presiding officer had declared that the meeting was conducted pursuant to the order of SEC. "With all due respect, we believe that the said order is arbitrary, unjust, and unfair to our corporations," Mr. Africa said He said the order was "replete with incorrect statements." He said the POTC stockholders' meeting called by the Nieto group did not comply with an SEC order which required that the company hold the meeting on July 28. He said the SEC was informed of the Africa group's intention to hold the POTC stockholders meeting on July 28. He added the POTC bylaws do not require the constitution of a poll body for the holding of the meeting. "Inasmuch as a Comelec is not a requisite of a valid meeting, it appears unusual that this commission would take into account the Comelec of the Nieto group," he said.

As regards the validation of proxies, he said that this was done before the meeting. "Surely there is no law that requires that proxy validation should take place during the meeting itself. Had we known in advance that your representatives would want to see the proxy validation, we would have advised them to come earlier," he said. He said that no stockholder questioned the proxies submitted and the certification of quorum of the corporate secretary. As to the Philcomsat meeting called by the Africa group, which was not validated due to the lack of SEC representatives in the meeting, Mr. Africa said the group had informed the commission of its intention to hold the meeting on July 28. "We do not see any reason why the lack of SEC representatives should be taken against us. If the commission wanted its representatives to observe our meeting, it would have so instructed them as it knew that we were going to conduct the Philcomsat annual meeting after the POTC annual meeting. Unfortunately, immediately after the POTC annual meeting, your representatives hurriedly left," he said. He said Philcomsat bylaws do not require the constitution of the poll body for the holding of a meeting. He added the group "deplores" the act of the SEC in imposing conditions for the POTC and Philcomsat meetings. "We believe that this commission should not have substituted its judgment over that of the board of directors of POTC and Philcomsat, especially when these boards of directors are functioning and in full control of the operations of the corporations," he said. -- Jennee Grace U. Rubrico

Waterfront Phils. not worried about Pagcor plan

Waterfront Philippines, Inc. is unfazed by the plan of the Philippine Amusement and Gaming Corp. (Pagcor) to operate gaming areas in other hotels. Waterfront President Patrick C. Gregorio told BusinessWorld that Pagcor's plan will not affect Waterfront's operations because Pagcor merely leases space in Waterfront hotels for its casinos. He said the stronger advertising may even benefit Pagcor's outlets in Waterfront hotels. Waterfront, which operates the Waterfront Cebu City Hotel and Casino, Waterfront Airport Hotel and Casino Mactan, and Waterfront Insular hotel Davao, used to exclusively lease out space to Pagcor's casinos. However, the exclusivity clause in the lease has recently been removed, allowing Pagcor to operate gaming areas in other hotels, including the Cebu Plaza Hotel. "This will not have an adverse effect on us. It will be good for Pagcor, and indirectly, with more promotions budget, it will help their outlet in Waterfront," Mr. Gregorio said. He said Waterfront is not concerned about the possible encroachment of the market for the casino, since its income from Pagcor's lease would not change. "We are just paid on fixed rental.

The number of players in the casino won't affect rental fees," he said. He added that it is unlikely that Pagcor will pull out of Waterfront, as the gaming firm had only planned on expanding its casinos. "They are very lucky to be leasing space in Waterfront, why would they leave? We have a very good lessor-lessee relationship." Also, Pagcor's lease contract with Waterfront also ensures that state-run casinos will remain in Waterfront hotels in Cebu until 2008. It was earlier reported that Pagcor has made a downpayment for space in Cebu Plaza. Pagcor sources said the firm is planning to start operations at Cebu Plaza soon. The lease contract of Pagcor in Waterfront was amended in 2002. Under the amended contract, Waterfront's exclusive right to provide venues for Pagcor's casinos in Cebu was revoked. -- Jennee Grace U. Rubrico

Shell to remain in RP in long haul

Pilipinas Shell Petroleum Corp. yesterday said it has no plans of moving out of the country as opposed to reports that it will close its refinery due to imminent policy changes in the oil industry. Roberto S. Kanapi, general manager, said there is no immediate plan to shut down its refinery business. "That is not true. We are expressing our formal denial that we are moving out. We're here to stay. And we intend to remain in the Philippines for long," Mr. Kanapi said. Reports said Wednesday that Shell is mulling over the closure of its refinery and leaving the Philippines if the government implements sudden policy changes. "There's no immediate plan to shut down the refinery. We will exert all efforts to viably support the refinery business," Mr. Kanapi said.

Shell is a subsidiary of the Royal Dutch/Shell Group. It is one of two remaining oil refiners in the country following the shutdown of Caltex Philippines, Inc.'s 49-year-old refinery in Batangas last year. Mr. Kanapi said Shell was never compelled to offer 10% to 15% of its shares at the Philippine Stock Exchange. "It's provided for under the Oil Deregulation Law, but we were never compelled. We will list but not now," he said. Shell Country Chairman Edgar O. Chua was quoted as saying the firm is in the midst of instituting measures to improve operations and avoid a possible closure of its refinery in Batangas. The final assessment will be done next month. -- B. S. Sto. Domingo

West Africa project to boost PetroEnergy's net income

After a successful debut at the stock market early this month, PetroEnergy Resources Corp. stands to gain added income from the completion of a fourth well in West Africa. The listed firm is a partner of Vaalco Energy, Inc., the operator of the Etame Marin Permit in Gabon, West Africa. Vaalco, as a leader of the consortium, recently completed the development of ET-5H, a well in Etame Field in Gabon. Its partners include PetroEnergy, PanAfrican Energy Gabon Corp., Sasol Petroleum West Africa (ltd.), Sojitz Ltd. and Energy Africa Gabon. A company official told BusinessWorld that as a partner of the consortium, PetroEnergy hopes to benefit from this development especially with the increases in the prices of oil in the world market. Chief information officer Arturo B. Maulion told the stock exchange in a disclosure that Vaalco Energy "successfully completed the ET-5H development well in the Etame Field."

In a disclosure which was also submitted to the US Securities and Exchange Commission (SEC), Robert L. Gerry III, chairman and chief executive of Vaalco, said they will "slowly raise the production level as the well cleans up." Vaalco said oil was flowing to the floating production storage and offloading facility at the rate of 6,400 barrels per day. "It is currently anticipated [that] we should stabilize production over the next few weeks of the ET-5H well at around 6,500 to 7,500 barrels of oil per day thereby bringing the total field production to over 21,000 barrels of oil per day," said Mr. Gerry in the statement. This is expected to translate to increased revenues for Vaalco and its partners. The only Filipino company operating in West Africa, PetroEnergy earns around PhP160 million annually from its oil operations there. It was the first company this year to list by introduction at the Philippine Stock Exchange (PSE). The Etame field in Gabon is estimated to be able to produce about 46 million barrels of oil.

PetroEnergy discovered this year two sites outside of Gabon this year. These are the Ebouri discovery which could contain 21 million barrels of recoverable oil and the Avouma discovery which is estimated to have 17 million barrels of recoverable oil. Its timely oil production in Gabon and the spike in world crude prices had helped it recover from the Asian financial crisis in 1997. As it was in the past, the completion of the fourth well under Vaalco's leadership will bode well for PetroEnergy. -- Roulee Jane F. Calayag

Meralco rate hike spurs Phisix rise

By ROULEE JANE F. CALAYAG

The stock market was back on track yesterday, helped by the return of investors scouting for bargains. It seemed that investors had overcome initial jitters on concerns that the Philippines was in the midst of a financial crisis. The issue temporarily spooked the market but this did not cripple trading. After sliding to a four-week low on Tuesday, the Philippine Stock Exchange composite index (Phisix) rose 6.07 points or 0.39% to 1,548.08. Fresh from a major loss resulting from market reaction to threats of an impending crisis, investors made a gambit yesterday by taking new positions. This led to a healthier turnover of one billion shares worth PhP601.9 million. Gainers outranked losers, 35-20 while 49 issues remain unchanged.

INDICES

Even the indices improved and looked balanced yesterday with only two counters down. The banks and financial services index recovered, rising 4,36 to 454.25. Commercial-industrial stepped forward as it climbed 7.01 to 2,460.54. Mining made a stellar comeback, up 21.83 at 1,782.48. Property and oil lagged behind, sliding 0.61 to 510.80, and 0.03 to 1.71, respectively. The all shares index was up 3.55 at 1,002.01.

MERALCO

"There was a rebound because of Meralco [Manila Electric Co.] although not much," said Joseph Roxas, president of Eagle Equities, Inc. He said bargain hunting lifted the Phisix. The approval of the Energy Regulatory Commission (ERC) for Meralco's application for an increase of PhP0.1737 per kilowatt-hour (kWh) boosted sentiment among investors. This prompted heavy buying after a major sell-off. An analyst said this gave investors an opportunity to accumulate gains from the market's weakness. But Mr. Roxas stressed that the public is becoming skeptical of Meralco, the ERC and the courts. This growing skepticism springs from a recent bitter experience with the Court of Appeals that ruled against a rate hike implemented by the power retailer with the ERC's approval in June last year. "Blue chips like Meralco and Philippine Long Distance Telephone Co. (PLDT) are the ones we offer to clients entering the market. The high price of PLDT shares and [the skepticism over] Meralco are the biggest stumbling blocks," said Mr. Roxas.

ERC Chairman Rodolfo Albano, Jr. yesterday approved the rate increase for the largest power distributor in the Philippines which will be effective in September. The power rate increase will be the second in three months. But Mr. Albano said in a statement that Meralco was "merely collecting from its customers the reasonable costs imposed upon it by its power suppliers." He explained that Meralco does not get additional income from the increase which covers the higher costs of electricity Meralco has purchased from the National Power Corp. and other independent power producers.

BUDGET DEFICIT

In other developments, The Bureau of the Treasury issued preliminary data showing the country's budget deficit in July at PhP19.3 billion. This further bloated the cumulative gap to PhP99.4 billion from about PhP80 billion for the first semester. Revenue last month was only PhP59.3 billion, significantly lower than expenditures amounting to PhP78.6 billion. The government's revenues for January to July totalled PhP402.6 billion against expenditures of PhP502 billion. Overspending pushed first-half deficit to surpass the target of PhP79.6 billion. Amid assurances by government economic managers that the country's fiscal situation is still manageable, the new set of data may trigger another knee-jerk reaction that could send the stock market crunching to a new low.

OPTIMISTIC

But some traders are optimistic that this would not happen as the market still searches for a new resistance level. They are also confident that with the ghost month nearing its end, investors will be coming out in droves and start snapping up shares. An analyst who declined to be identified said the market is looking bullish and this is going to happen during the last three months of the year. As the stock market readies for the last leg of the year, some surprises may unveil along the way, said the analyst. "We are confident that we will hit a bull run by the end of the year. The signs are showing. Early this year, we started off high. Now we are completing the cycle after hitting the bottom," the analyst explained. The scare over the fiscal crisis proved to be temporary because investors are gradually building up positions as they poise for the projected bull run. Jolted by the threat of the possibility of an Argentina-like crisis, market players are wisening up, fortifying their stakes in the volatile bourse. "The stock market will soon be seeing billions of pesos traded daily," said the analyst, "that is, with the proper system in place". The Philippine Stock Exchange is intensifying its campaign to improve trading at the bourse and attract local and foreign investments. Analysts said this will generate more opportunities in the equities market. But more than ever, investors want to see results before they plunge their money into the market, warned traders.

Seven-month deficit hits PhP99.4B

The government's budget deficit went up in July to PhP19.292 billion, from PhP15.819 billion last year and PhP2.8 billion last month. The seven-month deficit, meanwhile, totaled PhP99.412 billion, up by 3.4% year on year from PhP95.395 billion. "So long as the government is able to keep its average monthly deficit to not more than PhP15 billion, then it would definitely be able to meet its deficit ceiling for the year," a Finance official said. Revenues for seven month to July totaled PhP402.636 billion, while expenditures hit PhP502.048 billion, with PhP149.505 billion or anout 30% having gone to interest payments on debts. Based on Department of Finance data, the government must raise PhP676.41 billion in revenues and limit spending to PhP874.225 billion so it can meet its deficit ceiling for PhP197.8 billion for the year. Officials were unavailable to comment on the deficit figures as of presstime. -- Karen L. Lema

Palace proposes 'austere, almost skeletal' 2005 budget to Congress

By JUDY T. GULANE, Reporter

The Malacañan presidential palace yesterday submitted to Congress its proposed PhP907.6 billion national budget for 2005, which is 12% higher than this year's PhP811.5 billion budget. Budget Secretary Emilia T. Boncodin presented the proposed budget to House Speaker Jose C. de Venecia Jr. at his residence in Dasmariñas Village in Makati City -- a change of venue from the Batasan Complex in Quezon City because of heavy rains in the metropolis. In a statement, Mr. De Venecia promised that Congress would work fast to pass the budget bill. He also turned over the proposed budget to Camarines Sur (southern Luzon) Rep. Rolando G. Andaya, Jr., chairman of the House of Representatives committee on appropriations. In a statement, president Gloria Macapagal-Arroyo said the PhP907.6-billion proposed budget symbolized her commitment to reform and responsible development. But a congressman at the House criticized Malacañang's proposed budget as contractionary, since it would provide "little fiscal impetus to economic growth."

Next year's budget, Ms. Arroyo said, was crafted based on 2005 macroeconomic assumptions of:

• gross domestic product (GDP) growth of 5.3%-6.3%;
• inflation rate of 4%-5%; and
• a budget deficit of PhP184.5 billion, which is 3.6% of GDP -- from this year's PhP197.8 billion budget deficit or 4.2% of GDP.

Next year's deficit will be financed mostly through domestic borrowings, Ms. Arroyo said. Under the proposed 2005 budget, revenues are projected to reach PhP758.5 billion, of which PhP677.7 billion will come from existing tax measures, and PhP80.8 billion from non-tax sources like charges and fees and foreign grants. Tax effort, or the ratio of tax collections to GDP, is projected to improve from 14.5% this year to 14.8% next year. Additional revenues projected from eight new taxes the Arroyo government proposes will be the subject of a supplemental budget. Some of them are:

• the increase in the rate of the value added tax (VAT) from 10% to 12% and then to 14% (to generate PhP19.9 billion);
• tax on telecommunications companies (PhP5 billion);
• adoption of gross income taxation (PhP16.8 billion);
• indexation of excise tax on tobacco and alcohol products (PhP7 billion);
• increase in the excise tax on petroleum products (PhP29.7 billion); and
• rationalization of fiscal incentives (PhP5 billion).

All in all, these measures are expected to yield a total of PhP83.4 billion.

TELLTALE

Albay (southern Luzon) Rep. Jose Clemente S. Salceda, senior vice-chairman of the House committee on appropriations, called Malacañang's proposed budget "austere, almost skeletal," noting that only 18% was appropriated for social services and capital outlays. He also said the proposed budget was contractionary, because its proposed 5.33% increase was lower than a projected 6.5% inflation next year. The most notable feature of the proposed 2005 budget, he said, is how interest payments were given principal budgetary priority. Interest payments next year will eat up 33.24% of total allocations, putting it ahead of personal services (31.87%), and internal revenue allotments (17.17%). Maintenance costs are allocated 9.77%, and capital outlays, 7.94%. Allocations for interest payments have been increasing since 2003, Mr. Salceda noted, from 27.44% in 2003 to 31.51% in 2004, and to 33.24% next year. Allocations for personal services, meanwhile, have been falling from 33.87% in 2003, 33.35% in 2004, and 31.87% next year. "That interest payments rank number one as budgetary priority is a headline manifestation of an evolving fiscal crisis," he said. "While this is principally the result of inherited debt, this equally reflects the collected consequence of the inability of the government to pass new taxes and its inefficiency to collect existing ones," he added. As a consequence of increased interest payments, share of national government agencies in the budget will shrink from 43% this year to 42% next year, he said, although in real terms, the budget for national agencies will increase by PhP4.4 billion.

The national line agencies that will get the biggest allocations are:

• the Department of Education gets the biggest allocation with PhP111 billion;
• followed by the Department of Public Works and Highways with PhP49 billion;
• the Department of National Defense with PhP46 billion;
• the Department of Interior and Local Government with PhP44 billion;
• The Department Tourism is allocated a total of PhP1.13 billion, which is a substantial increase over this year's budget, reflecting the prioritization of this sector.

The budget, however, is a "small investment compared to the requirement," Mr. Salceda said. The Autonomous Region in Muslim Mindanao is allocated PhP7 billion, which represents a 29% increase over this year's allocation. This reflects the Arroyo government's commitment to improve the region, he said, which presently registers a 57% poverty incidence. Mr. Salceda also noted that pork barrel for members of Congress has been cut to PhP40 million each for congressional and sectoral representatives, and PhP120 million each for senators. Representatives receive PhP70 million and senators, PhP200 million, under the present budget. He noted with alarm, however, that the allocation for capital outlays has fallen from 10.5% this year to 7.9% next year, which in nominal terms translates to PhP72 billion from PhP87 billion. "This compromises the future capacity of the economy for growth, which is in turn the basis of the government's revenues," he said. "The underlying economic logic or government strategy of the 2005 budget is to restrain deficit by limiting public spending in the hope that if global conditions will remain benign, the private sector will take up the slack in investments needed to drive overall economic growth," he said. "That hope is beginning to look like a dream, given rising US interest rates and global oil prices staying at $46 per barrel."

Ayala Land gives up 28% Makro stake to SM group

Ayala Land, Inc. yesterday sold all its interest, totaling 28%, in Pilipinas Makro, Inc. for PhP1.02 billion. Jaime E. Ysmael, Ayala Land senior vice-president and chief finance officer, told the stock exchange in a disclosure that it closed the sale yesterday with companies affiliated or related to the Sy family's SM Investments Corp. as well as Dutch firm Orkam Holding Asia N.V. (formerly Makro Holding Asia N.V.) Ayala Land, the property arm of Ayala Corporation, could not elaborate on the details of the sale as of press time. It has been a stockholder of Pilipinas Makro, which is into warehouse retailing, since 1995. SM Investment Corp. is part of the SM group, a major developer of shopping malls as well as an operator of large retailing shops. "The sale of Ayala Land's Makro shares reflects the intention of the company to refocus its strategic thrust to its main line of business to take advantage of the expected upturn in the real estate market," Mr. Ysmael said in the disclosure. Ayala Land's consolidated net income for the first semester grew by seven percent year on year to PhP1.18 billion. Revenues were up by 25% to PhP8.1 billion. Ayala Corp. officials have said that Ayala Land's brisk sales across all product lines fueled its revenue growth.

In a statement released last month, Ayala Corp. also said the opening of Greenbelt 4 in the first quarter, as well as aggressive promotions and enhancements in merchant mix buoyed Ayala Land's rental revenues from retail operations. Its office buildings also sustained higher-than-industry average occupancy rates. Strong take-up in high-end residential projects also pushed up residential unit and land sales by 92% and 15%, respectively. Similarly, strong demand was reflected in the middle and mass housing market segments, with a combined 45% growth in revenues. -- Roulee Jane F. Calayag

Meralco rate hike just cost recovery

The Manila Electric Company (Meralco) is going to charge its customers at least 17 centavos more per kilowatthour of electricity starting September, but the company insists this is not its rate increase. In fact, even government regulators who have approved the price change have said it was not Meralco's increase. Just the same, however, a Meralco customer can expect his electric bill to go up beginning next month, even if he doesn't actually consume more. So, if it is not Meralco's price increase, then whose is it? And where will the money from the additional charge go? Based on the statement Meralco spokesman Elpi Cuna, Jr. issued yesterday, the money would actually go to Meralco, the country's biggest electricity distributor. After all, it is collecting the additional 17 centavos starting next month. But he also argues that the money simply settles what consumers already owe Meralco, for the higher cost of electricity it bought for them from government-owned and privately-owned power plants from February to May. (Incidentally, even Meralco is partly owned by the government, with several government representatives now on its board.) In short, the 17-centavo price increase would cover the higher cost of electricity (as a result of rising fuel prices and the peso's fall) already consumed by Meralco customers from February to May. It's just that they have not paid for it yet, as Meralco paid the bill for them for the meantime.

Under the law, everytime state-run National Power Corporation and privately-owned power companies raise their prices, Meralco cannot just pass on the increase to its customers immediately. And while power companies bill Meralco monthly for electricity sold, Meralco must wait at least three months after before it can ask permission from the Energy Regulatory Commission (ERC) to pass on this cost to its customers. But with Meralco getting ERC approval recently, it can now collect the additional 17 centavos also over a period of three months, or until the next time it can again petition for a price adjustment as allowed by law. By then, its rate can either go up anew or even go down, depending on how much government-owned and privately-owned power plants (some of which it owns) have charged it from June to August. As Mr. Cuna puts it, "I would like to reiterate that this is not a Meralco rate hike and that the 17-centavo adjustment approved by the ERCis to recover the average generation cost for the February to May 2004 supply months which we already paid in advance to our suppliers," he said. He noted that Meralco paid its suppliers monthly, and that it already advanced the difference in the cost of electricity from February to May. This was done under the Generation Rate Adjustment Mechanism (GRAM), a recovery mechanism that replaced the purchased power adjustment or PPA when ERC approved changes in Meralco's billing last year.

Instead of automatically adjusting its charges to reflect fluctuations in generation costs due to movements in fuel prices and the exchange rate, Meralco is required by law to apply for a rate increase with ERC, which should state how much the company needs to recover for a particular period. "I also would like to inform the public that this is really just a cost-recovery mechanism and revenue neutral in so far as Meralco is concerned. We don't gain a single centavo from it, and absolutely nothing goes to Meralco's pocket," Mr. Cuna added. He said the cost of generation or the price of electricity bought from Napocor and other power plants changed depending on such factors as cost of fuel, peso-dollar exchange rate, as well as changes in Napocor prices, as determined by ERC. "We have seen the rise in the cost of fuel in the world market and this may be a major factor in the increase in the cost of generation," he said. For its part, cause-oriented group Bagong Alyansang Makabayan (Bayan) expressed concern that ERC has become a "rubber stamp of big distributors and generators that have constantly raised power rates, to the detriment of the consuming public." "Underneath all the mumbo-jumbo of revenue neutrality and cost recovery is the sad fact that we are still paying for undelivered and ungenerated electricity coming from independent power producers, whether Meralco's or Napocor's. Records at the ERC will bear this out. Up to now the government has not summoned the will to resolve this issue of the onerous charges," said Bayan secretary general Renato M. Reyes, Jr. The group also scored Napocor's pending application for a PhP1.87 per kilowatthour increase in its electricity price, saying this was the biggest increase sought in the last 10 years.

Meanwhile, the Senate energy committee will hold hearings next week on ERC's approval of the 17 centavos per kilowatthour increase sought by Meralco. Committee chairman Miriam Defensor Santiago invited ERC chairman Rodolfo Albano and Meralco chief executive officer Manuel M. Lopez to a public hearing. "The law allows Meralco to avail of the generation rate adjustment mechanism. However, we want to be sure that the increase in the monthly electricity bills of households throughout the country is justified. Even though Napocor has increased its rates, best efforts should be done by the Congress to prevent or reduce the passing on of the rate hikes to the consumers," Ms. Santiago said in a statement. Senator Manuel A. Roxas II, for his part, said the Department of Energy should explain whether the price adjustment was reasonable. But Senator Sergio R. Osmeña III downplayed the impact of the price adjustment on residential consumers. "That is just a refund of what [Meralco] will pay its suppliers. It has no net gain for them. The big increase is the PhP1.99 per kilowatt increase in the power rates of Napocor for Luzon," said Mr. Osmeña. But he also said the high cost of electricity was a stumbling block to luring more investors. "We have the second highest rates in Asia for the industrial sector. This will affect expansion plans, many [investments] have already been cancelled and brought to Thailand and China," Mr. Osmeña said. -- Bernardette S. Sto. Domingo with Carina I. Roncesvalles

Congress moves on tax measures

Hearings set, pledge made by ways and means committees

By KAREN L. LEMA and CARINA I. RONCESVALLES, Reporters

The President's declaration of a fiscal crisis may or may not have been a factor, but both houses of Congress are moving to tackle proposed revenue measures aimed at improving the country's finances. The House of Representatives ways and means committee yesterday said it aims to prioritize three measures when it begins deliberations on tax proposals filed in Congress. The Senate ways and means committee, meanwhile, has scheduled a public hearing on Tuesday as a prelude to legislative discussions on tax measures proposed by the Executive. Officials from the departments of Finance and Budget and Management; Internal Revenue, Customs and Treasury bureaus; and the National Economic Development Authority have been asked to attend. The 11 economists from the University of the Philippines who sounded alarm bells have also been invited.

At the House, ways and means committee chairman Rep. Jeslie Lapus (Tarlac) yesterday pledged to pass, at least at the committee level, three of eight Malacañang-proposed tax measures before Congress goes on recess on September 11. These are the Indexation of Sin Taxes Bill, a measure that would rationalize fiscal incentives, and the Tax Amnesty Bill. "We are considering already the filed bills and awaiting the Department of Finance's position paper and own version of the bill," Mr. Teves said. Bills already filed in Congress include a proposed shift to gross income taxation, rationalization of fiscal incentives, a tax amnesty, indexation of sin products, a value added tax (VAT) hike, reimposition of the franchise tax on telecommunication firms, increase in the excise tax rate on petroleum products and the lateral attrition bill. The Department of Finance (DoF), however, has yet to come out with its own version of the revenue measures as well as its official position and reaction to the tax bills filed in Congress. Told of the commitment, a Finance official who attended yesterday's meeting between Finance officials and Mr. Lapus said "It is a happy compromise". The official said that the DoF would have wanted the inclusion of the VAT hike. The proposal will allow the government to increase the VAT rate if VAT collections goals are not met.

The Indexation of Sin Taxes bill, which Mrs. Arroyo has included on her list of priority bills, has been languishing in Congress for four years. Observers have pointed out that owners of cigarette and liquor firms are known to be major campaign contributors. Alcohol and cigarette manufacturers account for a large chunk of the government's revenues. As of August last year, the government had collected some PhP22 billion from excise taxes on alcohol and tobacco products. It expects to lose some PhP1.7 billion annually if taxes on liquor and cigarettes are not tied inflation. Likewise, streamlining the grant of fiscal incentives is seen as crucial because it is expected to earn some PhP5 billion in annual revenues. The government is looking at fiscal incentives not only in the Board of Investments and Philippine Economic Zone Authority but also tax perks falling outside Executive Order 226 or the Omnibus Investments Code.

At the Senate, ways and means committee chairman Sen. Ralph G. Recto said "The country is facing a fiscal crisis of unprecedented proportions thereby posing an immediate threat to political and economic stability. There is an urgent need for a multi-pronged response to avert the political and economic instability that may arise out of the current fiscal crisis." Committee member Sen. Manuel A. Roxas II said that while the proposed taxes are the only solution that has emerged so far, the more urgent issue that needs to be addressed is corruption in the government. "We have a fiscal problem. It has elements of a crisis if we do not do anything about it. But we still have a positive window to resolve it. We just have to take the time to resolve it," the senator said. Committee member and opposition Sen. Sergio R. Osmeña III said "We are going to ask them to give the total picture. What is the problem? How did we get to this idiotic situation? What do you recommend we should do to get us out of this? How do we make sure the persons who brought us here are penalized or removed from office? We cannot give you money because you will just do these things all over again." He said revenue-collecting agencies should step up collection efforts before seeking new tax laws. He noted that the public hearing will be tied to the recent declaration of a fiscal crisis by President Gloria Macapagal Arroyo. "It is ... a truth that we might be having a fiscal crisis in two to three years time ... [given] the rate that we are borrowing," Mr. Osmeña said. However, he said "We cannot declare a financial crisis. She [Mrs. Arroyo] made a mistake." Fellow opposition Sen. Edgardo J. Angara echoed the same sentiment. "As a President, she did more harm than good by proclaiming the fiscal crisis herself. Although that may be the reality, there are some things that a President should not say publicly," he said.

Stock market analysts say foreign sentiment still bright

Despite a knee-jerk reaction to the country's reported "fiscal crisis", analysts said foreign investors' outlook on the Philippine capital market remains stable. Stock market analysts said that while there was some foreign selling after President Gloria Macapagal-Arroyo declared that the country is in the midst of a fiscal crisis, it was minimal and within acceptable levels. Foreign selling was mild on Friday at only PhP183.2 million. It improved on Monday, tapering off to only PhP171.8 million but climbed almost twice to PhP330.8 million the following day as the market reacted to the President's remarks. It further slumped to PhP403 million yesterday. Westlink Global Equities, Inc. chairman Rommel Macapagal said there was only some foreign selling on Tuesday and that there is no reason to panic. "It was only an immediate reaction. We will see if it will stabilize," said Mr. Macapagal.

Joseph Roxas, president of Eagle Equities, Inc., said "I did not see a lot of foreign selling." The press, he added, had covered the issue about the country's fiscal crisis "well enough". "When the reports came out, opinions by government officials tempered the [reaction]," Mr. Roxas said, adding that investors had understood Mrs. Arroyo's statements as "more of a lack for a better word". While others criticized the President's remark as a deliberate political ploy to convince Congress to pass additional revenue generating measures, Mr. Roxas said it also did some good. "It is good that there is a realization of a problem," he said, adding that when she said there is a crisis, she may have just been stressing a "sense of urgency". -- Roulee Jane F. Calayag

Bangko Sentral may keep interest rates unchanged

The Bangko Sentral ng Pilipinas (BSP) may keep interest rates steady in its policy meeting today despite the rapidly rising prices of crude oil products and an electricity rate hike next month. BSP officer-in-charge Amando M. Tetangco, Jr. yesterday said the present price environment does not warrant tighter monetary policy as pressures are mostly supply-side. "Monetary policy may not be the appropriate tool to address these pressures," he said. He stressed, however, that the BSP's policy-making Monetary Board has yet to assess the situation based on the recommendations of the central bank's advisory committee. The Bangko Sentral's key short-term interest rate, which it uses to siphon off inflation-causing liquidity from the financial system, has been at a 12-year low of 6.75% since 2001.

Inflation, or the general rise in consumer prices, has been creeping faster than expected since the start of the year. Inflation stood at 6% in July, its highest in almost three years, mainly because of rising oil prices. The BSP said that if Dubai crude -- the benchmark for local oil prices -- stays at $40 per barrel, inflation may breach BSP's target range of 4%-5% by yearend. Previous BSP estimates only factored in a Dubai crude price of up to $33 per barrel. Aside from oil prices, other supply-side pressures are mounting. For one, power rates are expected to increase after Manila Electric Co. (Meralco) said it will charge its customers an additional 17 centavos per kilowatt hour starting next month. Transport groups are also set to file another petition for a PhP1 jeepney fare hike on August 30. Observers believe the BSP may be forced to raise rates if the United States Federal Reserve resumes its monetary tightening and raises rates higher than expected. -- Iris Cecilia C. Gonzales

Peso slips past 56 per dollar

The country's fiscal woes continued to upset the money market as premium risk rates further increased and the Philippine peso sunk to a month-low PhP56.045 per dollar. "The peso slipped further because the market is also partly testing the central bank to provide liquidity. For two consecutive days, the local unit's resistance was taken out," a currency trader said. The jittery market, which was still reeling over the President's remark that the country is in the midst of a fiscal crisis, saw key rates move up. "The market is adapting a wait-and-see mode. We're in a situation right now where economic numbers are turning less favorable," Banco de Oro Universal Bank market strategist Jonathan L. Ravelas said.

Yesterday, the government released its July budget report, which registered a deficit of PhP19.29 billion, or PhP4 billion below target. For the January-July period, the shortfall reached PhP99.41 billion. The government is aiming to cap the budget gap at PhP197.8 billion for the year. "At this point, however, it's still manageable if the government plays its cards right. We're looking at a comfort level until December but Congress right now is [entering] into a one-month recess; so far, there are no definite takes on their agenda," Mr. Ravelas said. At the Philippine Dealing System, the peso further weakened against the US dollar, slipping by more than 10 centavos to an average of PhP56.032 from PhP55.93 the other day. The local unit opened at PhP56.02 and inched stronger towards PhP56 during the day. Hovering within a five-centavo range, it settled at PhP56.045 coming from its intraday low of PhP56.05 per dollar. "While the budget deficit report is still tolerable, it's not really outstanding to warrant the rally of the peso," the currency trader said.

Meanwhile, interest rates continued to rise on several factors besides the budget deficit report, traders said. "The market is doing a forward computation that if inflation rate registers a [negative impact], there's a high possibility that the government's outlook will be exceeded and may reach up to 6%, with all the high crude oil prices and the United States' move to increase their benchmark rates," said Roberto Juanchito Dispo, First Metro Investment Corp. executive vice-president. At the auction the other day, the government's four-year Treasury Bond fetched a coupon rate of 11.75%, up by 75 basis points when it was last auctioned on July 27. At the secondary market, the instrument fetched 12.0442% from 11.935% previously. "While there is a recognition of a potential crisis, the outlook for government securities at higher premiums is now hinted by the secondary market," Mr. Ravelas added. He also said if the government does not act now, the crisis will become a reality. -- Ira P. Pedrasa

RCBC eyes deals after Lehman SPV signing

Yuchengco-led Rizal Commercial Banking Corp. (RCBC) is mulling more special purpose vehicle (SPV) transactions in the near term after it signed a PhP3.9-billion idle asset sale and purchase deal with Lehman Brothers. "We are looking forward to NPLs [nonperforming loans] being subject of additional deals. Lehman Brothers, I think, is open to discussions after this deal," said Rizalino S. Navarro, the bank's chairman, after the deal's signing yesterday. The bad loans in the said deal will be transferred to Philippine Investments One Inc., an SPV to be established and wholly owned by the global investment bank, top officials of RCBC said. Francisco S. Magsajo, Jr., RCBC's president and chief operating officer, said the bank is looking at putting up a "couple or three" special purpose vehicles. "As Mr. Navarro said, what we are doing is putting up individual SPVs because of the deadline," Mr. Magsajo said, referring to the date set by regulators within which SPVs may be set up for these to enjoy tax incentives and reduced transaction fees. Mr. Magsajo said although banks can set up as many SPVs as they want, the cost can be prohibitive. "You're supposed to capitalize it at least PhP31 million, which is the requirement. We are thinking about two or three SPVs," he told reporters.

Aside from disposing bad assets via an SPV or an entity that acquire bad assets of financial institutions, RCBC is also looking for other means to find value in soured loans either by restructuring and entering into a joint venture. "It all depends on the kind of asset we are selling. They can be categorized into industrial, commercial and residential. It depends on the strategy -- whether it is easier to sell in bulk or separately," Mr. Magsajo said. Last May, RCBC and Lehman Brothers signed an acquisition financing term sheet outlining the parameters of the proposed SPV's acquisition of RCBC's bad loans. The bank said it thought of selling its NPLs as early as 2001 when legislators began considering passing a law to address the banking sector's bad loan problems. "This would certainly go down in Philippine banking history as one of the very first completed sale transactions involving the bank's NPLs to a very prestigious foreign financial institution such as Lehman Brothers. The structure for this sale and purchase agreement would be something that is truly worth emulating by the rest of the local industry players, especially as it is the very first major SPV sale transaction approved by the Bangko Sentral ng Pilipinas [central bank]," Mr. Navarro said.

While other countries in the region have instituted measures and legislation to curb the rising tide of idle assets in their respective jurisdictions, RCBC vice-chairman Cesar E.A. Virata noted that the Philippines, with its more than PhP400 billion worth of bad assets, took longer to formulate a law. "RCBC, wanting to be among the first local banks to consummate such transaction has forged this deal. We feel that this transaction could serve as a model for many future transactions involving the sale of NPAs [nonperforming assets] in the country. What this transaction will achieve for the RCBC, among others is enable us to avail of the various incentives of the SPV law. We also expect significant improvement in our NPL ratio, our capital adequacy ratio and our loan loss provisioning stock through the sale," he said. -- Ruby Anne M. Rubio

AMLC warns of Irish group with terror link

The Anti-Money Laundering Council (AMLC) has told institutions that are covered by the dirty money law to check for assets of an Irish group that has been tagged as a foreign terrorist organization. In a resolution, the council asked banks, brokers and investment houses to check for offices and financial assets belonging to the Continuity Irish Republican Army and its aliases, the Continuity Army Council and the Republican Sinn Fein. It told the covered institutions to freeze the group's assets should any be found. "The provisions of the United Nations Security Council Resolution (UNSC) 1373 require UN member states to freeze terrorist assets without delay and to prohibit their nationals or persons in their territories from financing terrorism. As a charter member of the United Nations and as part of the international coalition against terrorism, the Philippines, through the Anti-Money Laundering Council, must actively support the actions required under the subject UNSC resolution," it said.

The resolution said the Irish group has been involved in terrorism since 1994, and has reportedly been carrying out terrorist bombings and shootings in Belfast and Northern Ireland. The group's terrorist activities, the resolution said, "seek to thwart the peaceful resolution of the Northern Ireland conflict." -- Jennee Grace U. Rubrico

Allied Bank income down 28% as of June

First-half earnings of local universal bank Allied Banking Corp. and its subsidiaries went down by 28.26% to PhP419.99 million from PhP585.422 million in the same period last year because of a drop in other income and a surge in expenses. In a filing with the Securities and Exchange Commission, the Lucio Tan-led bank said interest income rose by 17.81% to PhP3.77 billion from PhP3.2 billion, driven by investment and trading account securities, which surged by 54% to PhP1.4 billion from PhP906.23 million. In the second quarter, net profit dropped 25.41% to PhP274.92 million from PhP368.56 million the previous year. Although provision for losses fell by 84.31% to PhP51.13 million from PhP326.04 million, this was negated by a nearly 30% slide in other income to PhP780.65 million from PhP1.11 billion and a growth in overhead and interest expenses. The surge in the level of deposit liabilities by 15.54% to PhP1.72 billion resulted in an 11.25% increase in interest expenses to PhP1.78 billion. "Increment in other expenses is traceable to taxes and licenses that swelled to PhP206.98 million from PhP86.31 million with the shift in taxation from value-added tax to gross receipt tax," the bank said.

Other operating expenses jumped 28.67% to PhP590.37 million from PhP458.82 million while compensation and fringe benefits rose 15.19% to PhP947.6 million. Miscellaneous income plunged to PhP307.99 million from PhP507.43 million while commission, gains on exchange and other charges went down by 21.78% to PhP472.66 million. Provision for income tax grew 45.5% to PhP39.32 million from PhP27.02 million. Minority interest in net income of subsidiaries reached PhP52.38 million, reversing losses of PhP79.38 million previously. The bank recorded return on assets of 0.59% from 0.89% and return of equity of 5.36% from 8.29% during the same period. With 27 years of banking experience, the group said it is committed to offer innovative products and excellent service to its clientele to keep up with its thrusts of growth, profitability and soundness. -- Ruby Anne M. Rubio

Bancommerce income rises 30% as of July

Bank of Commerce (Bancommerce), the country's 15th largest lender, reported a 30% increase in net income before provisions for the seven months of the year to PhP498.9 billion, it said in a statement. It also said net interest income grew 54.8% to PhP952 million because of "higher funding levels and an expansion in discretionary investment portfolios of high-yield sovereign debt especially at the foreign currency deposit unit." The bank also said non-interest income slipped by 14.3% to PhP635 million due to lower peso fixed income trading opportunities in a rising interest rate scenario. Non-interest expenses were up at PhP910.6 million against PhP872.3 million in the same period last year after the increase in revenue-driven employee incentives and collective-bargaining agreement benefits, it added. Raul de Mesa, the bank's president, said PhP454 million in additional reserves was set aside during the period, higher by PhP244.1 million over last year's. -- I. P. Pedrasa