By CECILLE S. VISTO, Sub-Editor
and FELIPE F. SALVOSA II, Reporter
In what could be considered as a preview of her State of the Nation
Address on Monday, President Gloria Macapagal-Arroyo yesterday sought
the approval of the business community for what she described as "the
most ambitious economic reform agenda in a generation." And topping that
agenda are eight new Palace-backed taxes designed to generate additional
revenues, cut government costs, and trim the budget deficit within her
six-year term. In a meeting with members of the Makati Business Club and
the Philippine Chamber of Commerce and Industry, the President asked for
business's support for the proposed tax measures, which include:
- the shift to gross from net income taxation for corporations and
self-employed individuals;
- the repeal of the Value-Added Tax (VAT) law;
- collection of a tax on the windfall income of telecommunications
companies;
- an increase in taxes on tobacco and alcohol products, as well as
petroleum products;
- limiting fiscal incentives;
- a targeted tax amnesty; and
- the creation of a performance-driven system for government
agencies.
"I need your support if we are to get the legislative actions
included in these packages passed by Congress. I also need your support
to ensure that the Philippine and international business communities
truly understand that these are serious reform measures designed to meet
the very serious challenges confronting the economy," the President
said. The Palace-backed tax proposals earlier met opposition from
business groups as well as members of Congress, who warned that these
would face rough sailing at the legislature. But the President insisted
on the new taxes, which she claimed would generate over
PhP80 billion in additional revenues annually, and would lead to as
much as
PhP100 billion in government savings.
These, she said, would be enough to balance the budget within six
years, and reduce the Consolidated Public Sector Deficit -- the
overspending of the entire public sector including those of state-owned
firms -- to not more than 3% of the Gross Domestic Product (GDP), or the
country's total economic output within its borders, within the same
period. The country's consolidated public sector deficit now stands at
6.7% of GDP. "The package [of legislation] is driven by a desire to
jump-start the economy, and generate sustainable momentum for faster
growth. But it will require sacrifice from all to achieve success for
all," the President said. "It is time to bite the bullet and take
fundamental action on the economy." But she also vowed to maximize the
efficient utilization of the nation's resources; reduce business costs;
increase specific fees, charges and duties on petroleum products; and
capture more of the revenue potential of selected government-owned and
controlled corporations. These, she said, should greatly enhance
business confidence, boost domestic and foreign investments, and
consequently, generate more jobs for the Filipinos. The President also
vowed to pursue an aggressive campaign to promote trade and investments.
Parallel to this, she said the government would also launch a
vigorous infrastructure development program through close coordination
between the Office of the President and the Department of Trade and
Industry. The President unveiled her plan to create the Philippine
Infrastructure Corporation, which would hasten the implementation and
approval of ongoing or pipeline infrastructure projects. She pointed out
that stepped-up infrastructure projects would provide vital road
networks that would open up arteries of new economic activities to areas
outside Metro Manila. At the same time, the President said the
intensified thrust for infrastructure projects would raise the revenue
base of the government, and pump prime the economy through job creation
and growth generation in the housing construction, agriculture business,
and mining sectors.
The President, meanwhile, wants to revitalize the mining industry by
streamlining its start-up process, privatizing government assets in
mining, and intensifying oil and gas exploration activities in the
country. Ms. Arroyo also reiterated her plan to establish the Clark
Special Economic Zone in Pampanga, and the Subic Freeport in Zambales as
the "best logistics hubs" in Asia, as well as triple government lending
to more than 800,000 small and medium enterprises all over the country.
"We want to mobilize capital at the grassroots level by continuing to
promote entrepreneurship and development of small and medium-scale
enterprises," the President said. "By focusing on this activity, we aim
to generate one to two additional jobs per enterprise per year," she
added. The President also called on government planners to make the
country a regional leader in healthcare services, given its "rich base
of qualified health professionals." She wants to emulate Thailand, which
made its "medical tourism" a $600 million industry. "We could be in the
forefront of a billion-dollar industry within a few years," she said. To
achieve all her goals, the President instructed Trade and Industry
Secretary Cesar V. Purisima to institutionalize public-private
partnerships that would help the government meet its employment and
income targets. "It will be private-sector driven, and
government-enabled. We must work together to develop real strategies to
unlock the tremendous advantages that we have," the President said.
SUPPORTIVE, BUT ...
Businessmen yesterday said they would support Malacaņang's proposal
for new taxes but asked President Arroyo to ensure that these would be
"fair and equitable." Makati Business Club vice-chairman Ramon del
Rosario, Jr. said businessmen were willing to bear the burden of
additional taxes to help the cash-strapped government. "We will bear
them if we must, but the President must not end up raising the burden of
honest taxpayers while giving more incentives to tax cheats," he
stressed. In his speech during Ms. Arroyo's meeting with businessmen,
the former Finance Secretary also called on the Chief Executive to jail
at least one prominent tax evader while she was in office. "Please jail
at least one prominent tax evader and you will be vividly demonstrating
that crime does not pay," Mr. Del Rosario said.
Bonifacio West Development Corp. president Carlos Rufino, meanwhile,
agreed with Ms. Arroyo that it was time for the country to make some
sacrifices. "What she had laid down [economic program] is pretty
ambitious. If she could achieve about 80% of what she said, then that
would be quite a feat," he said. "We're in a tough bind and for us to
move forward, we should all contribute our share." When asked whether
businessmen would willingly pay more taxes, he said traders were
generally cooperative and would not resist changes. "If we see that the
government and private sector are getting their acts together,
businessmen will be willing to comply," he said.
In his speech, Mr. Del Rosario also said businessmen have pledged to
create an fund that would aim to reduce corruption by at least 50%
within 10 years. "To demonstrate our support beyond mere words, Ms.
President, we are pleased to announce in your presence, a joint effort
of the business community under the initiative of the Makati Business
Club, and civil society through [the National Citizens' Movement for
Free Elections] and [the Coalition of Development NGOs] to create a Fund
for Good Governance, to be funded through donations from a percentage of
the earnings of participating corporations," Mr. Del Rosario said. He
noted that in the last four years, the annual survey of companies
conducted by the Transparency and Accountability in Government advocacy
of MBC "has indicated that business enterprises are increasingly willing
to participate in and fund an anti-corruption program if this is
believed to have the capability of reducing the level of graft and
corruption by at least half in the next 10 years" "In fact, the most
recent survey indicated that two or every three respondents were willing
to participate in such a fund. What we are really saying is that the
time has come to challenge the private sector to put up or shut up," he
said. Initial discussions have also been held with the Catholic Bishops'
Conference of the Philippines, Mr. Del Rosario said.
An advisory committee composed of "eminent citizens" will select
anti-corruption projects to be financed by the fund. Proposals include
the tracking of public service projects; assistance for administrative
reform programs of the Bureau of Internal Revenue and the Bureau of
Customs; the simplification of processes of local governments and other
frontline services of national agencies; lifestyle checks; greater
public participation on bids and awards committees; and assistance in
the prosecution of major tax evasion and smuggling cases, Mr. Del
Rosario said. "This is clearly a very ambitious undertaking, but we
believe it is high time we go beyond simply complaining about
corruption, and begin doing something concrete. And there is no better
time to launch this effort than today, at the start of your fresh
six-year term, Ms. President, so that together we can hopefully make a
meaningful dent against corruption in our country," he added. Mr. Del
Rosario said the President was among the "friends" of the business
community. "Our fondest hope is that we can all work together towards
the realization of the lofty goals you have set for your administration
and for our country. If at times we express our concerns and criticisms,
these are designed not to undermine but to help, not to repudiate but to
encourage positive policies. For true friends speak candidly and
honestly to one another, on the premise that we both seek only what is
best," he said.
Sergio R. Ortiz Luis, Jr., chairman of the Philippine Chamber of
Commerce and Industry (PCCI), however said many other things could be
done to stop graft without setting up an anti-corruption fund. Any such
fund, therefore, must be submitted to the decision of each individual
corporation since the proposal is to get a percentage of corporate
earnings as contribution, he said. PCCI, he noted, was already involved
in anti-corruption efforts such as monitoring of government procurements
and bidding procedures.
CONCERNED
Businessmen, meanwhile, said they would like to get more details on
the President's tax reform agenda. Federation of Philippine Industries
president Jesus L. Arranza said he was particularly concerned with the
shift to a gross income tax. He surmised that Ms. Arroyo was merely
issuing her "marching orders," saying the President did not need to
detail everything to the public. "But it is important to look into these
plans," Mr. Arranza said in an interview. He added that higher taxes on
fuel would also create a "domino effect." Mr. Arranza proposed, instead,
to tax imported finished goods rather than oil. To reduce production
costs, taxes on all raw materials not produced in the country must be
scrapped, he said. It was also unclear how the President intended to
reform the power sector and whether she planned to amend the Electric
Power Industry Reform Act, Mr. Arranza said. Mr. Ortiz Luis likewise
said PCCI was concerned with the "specifics." "We are awaiting the
specifics so we can [determine] if the [proposals] are equitable and
fair," he said. "If that is a decision already, we'd like to see the
details." Mr. Ortiz Luis also said he would like to know if the
President intended to impose a sales tax instead of a value-added tax
since she said in her speech that she wanted to repeal the value-added
tax law. "It seemed to be that there would be a new system," he added.
Peter Wallace of the Wallace Business Forum noted that the business
community's reception to the President was "good." "But I was whiffed
with the feeling that there was not enough dynamism. Many [of the]
things [she mentioned] have been said before. I would like to see more
dramatic plans and specific actions to take," he said. Mr. Wallace said
he was particularly concerned by the gross income tax proposal, which
was being implemented only in Hong Kong. "Why would the Philippines want
to implement a system that no one else is using?" he asked. He pointed
out that the fundamental problem was "too many people are not paying
taxes." Mr. Wallace claimed the tax leakage amounted to
PhP240 billion a year, more than enough to wipe out the budget
deficit. Mr. Wallace nonetheless said he applauded the resolve to index
"sin" taxes to inflation, saying there was a need to correct the tax
structure to reflect a bias toward "sin" products like cigarettes and
alcohol. But while the President said all the right things,
implementation was another matter, Mr. Wallace added. For instance, he
wanted the Build-Operate-Transfer Law fine-tuned to reduce the period of
project approval to one year from the current four to seven years. Mr.
Wallace noted that the Philippines was way behind neighbors in terms of
infrastructure.
Also yesterday, the Bangko Sentral ng Pilipinas (Central Bank of the
Philippines, or BSP) advised the business community not to shoot down
the government's economic program and instead support the proposed
additional tax measures. BSP Governor Rafael B. Buenaventura, one of
government's economic managers, urged businessmen to back the
government's plan to raise revenues. He said missing the deficit target
would hurt the economy more, and further raise the country's business
costs. "The business people have to know that if we will not be able to
correct the deficit, it would be harder for business," he said. He said
that missing the deficit target would also increase the risk of the
country getting a credit downgrade by international rating agencies,
which could make borrowings more costly for the government. The
government incurred a budget deficit of
PhP80.2 billion in the first semester, missing its
PhP79.6-billion deficit ceiling for the period.
Finance Secretary Juanita D. Amatong has urged Congress to pass at
least three tax measures before yearend. Mr. Buenaventura said the two
most important measures were higher excise taxes on alcohol and
cigarettes, and new taxes on petroleum products. Businessmen also
stressed the need for the government to properly collect whatever
additional taxes would be charged in the next six years. The Federation
of Filipino-Chinese Chambers of Commerce and Industry, Inc. added that
businessmen were convinced of the need for new taxes. "The new taxes are
okay as long as they are applied to all. The reasons some people are not
willing to pay is that they see some people are able to get away with
their tax obligations," said the chamber's executive vice-president,
Francis Chua. Mr. Chua also urged his fellow businessmen to fully
support the government's program. Unlike some of his peers, he supports
the shift to gross income taxation so long as government comes up with a
scheme to implement it effectively. "We have to come out with a formula
that all of us will agree to," he said. He also supports tax amnesty,
saying that this broadens the tax base as it will encourage previously
untaxed sectors to come out in the open. He said, however, that
indexation to inflation of excise taxes on alcohol and cigarettes should
be implemented fairly. He said that the government should also go after
the telecommunications sector and not only liquor and cigarette
companies as they were both strong sectors. Lucio Tan's Fortune Tobacco
and Asia Brewery have opposed higher excise taxes on alcohol and
cigarettes. Similarly, telecommunication firms also thumbed down
proposals to tax text messaging. "Both sectors don't like to be taxed
,so government should go after both of them instead of only one sector,"
Mr. Chua said.
-- Jeffrey O. Valisno, Cecille M.
Santillan-Visto, Felipe F. Salvosa II and Iris Cecilia C.
Gonzales
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Eight new tax measures being pushed by the government will generate
"in the long run"
PhP100 billion in additional revenues annually, Cabinet officials
yesterday said. The President's newly designated "economic
spokesperson," Trade and Industry Secretary Cesar A.V. Purisima, said
the goal was to reduce public sector debt by 90% within six years. By
that time, the consolidated public sector deficit, or national
government debt plus obligations of government corporations, will be no
more than 3% of gross domestic product. Mr. Purisima said the Arroyo
administration wanted lawmakers to pass four out of a total eight
proposed tax laws within 100 days from the opening of the 13th
Congress on Monday. "I think it is important to emphasize that this will
have to be approved by Congress and we will work closely with Congress,"
he said.
The four priority bills include the repeal of the value-added tax
system, a tax on "windfall profits" of telecommunications companies, the
indexation of excise taxes on "sin" products to inflation, and a hike in
the excise tax on petroleum products, except the "socially sensitive"
liquefied petroleum gas, Mr. Purisima said. With the passage of these
four priority measures, the government expects to generate an additional
PhP60 billion in revenues for 2004 alone, Finance Secretary Juanita
D. Amatong said. Mr. Purisima also said that Malacaņang would issue
within the week an executive order increasing the duty on petroleum
products to 5% from 3%. He said the Cabinet Committee on Tariff and
Related Matters approved the tariff hike last Tuesday, and that only a
recommendation from the National Economic and Development Authority was
necessary for the executive order to be released.
On sin products such as tobacco and liquor, Mr. Purisima said the
government wanted to index the excise taxes to inflation every two
years. The proposal is to index the tax brackets based on the cumulative
inflation of 37.3% from 1997 to 2001, and the tax rates based on the
cumulative inflation of 22.6% from 2000 to 2001, he said. Mr. Purisima
noted that tax rates were increased by 12% in 2001, but the brackets
were still the same as those set in 1997. He cited the case of sparkling
wines and champagne. Under the 2000 rates, these products are charged a
tax of
PhP112 per liter if the price is below
PhP500, and
PhP336 per liter if the price is above
PhP500. If the indexation plan pushes through, the new rates will be
PhP137 per liter if the price is
PhP686.50 or less, and
PhP411.90 if the price is above
PhP686.50, he said. The Trade chief declined to specify how much in
additional revenues would be collected for each tax reform measure.
Other priority measures include the shift to the gross income tax,
restricting fiscal incentives to export-oriented companies, targeted tax
amnesty, and a lateral attrition system which will allow government
agencies to evaluate employees based on performance. "We need to
emphasize that these are preliminary figures [that] obviously need to be
fine-tuned. We need to sit down with Congress and their consultants, but
the important thing we need is to work together to make sure the deficit
situation is managed," Mr. Purisima said.
-- Felipe F. Salvosa II
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The Department of Finance (DoF) has started courting key legislators
to facilitate the approval of Palace-initiated tax bill. The 13th
Congress formally opens on Monday, July 26. Sources from the Senate said
Finance Secretary Juanita D. Amatong has already met with senators Ralph
Recto of the administration and Juan Ponce Enrile of the opposition to
secure their support for eight tax bills, which form part of a package
of policy reforms aimed at addressing the budget deficit. Messrs. Recto
and Enrile both chaired the ways and means committee in previous
senates. The source said Ms. Amatong might also meet with Senator Sergio
Osmeņa III, who chaired the committee on banks and financial institution
and currencies in the past 12th Congress. The source also
said Albay (southern Luzon) Rep. Jose Salceda has already signified his
willingness to sponsor the bills to tax corporations and self-employed
individuals based on gross instead of net income, on the franchise tax
on telecommunication companies, on the rationalization of fiscal
incentives, and the two-step increase in the value added tax rate. Mr.
Salceda will join Ms. Amatong on Tuesday when she meets with various
business groups to solicit their support and explain the wisdom behind
the tax proposals, the source said.
DoF wants Congress to pass at least three of the eight
Palace-initiated tax bills in the next six months, to prove that the
government is serious in fixing its financial woes. But Senator Joker
Arroyo has predicted rough sailing in Congress for Palace-proposed tax
bills. He said on Tuesday that Congress was not likely to pass new tax
bills until the Malacaņan presidential palace got the graft-prone
bureaus of revenue and customs to increase tax collection by at least
10% in six months. Camarines Sur (southern Luzon) Rep. Rolando Andaya
Jr. has said the national government would have to raise
PhP274 million in additional revenues a day, or approximately
PhP100 billion a year, to trim the growing fiscal deficit and
balance the budget within the next five years. Mr. Andaya, who chaired
the House of Representatives Committee on Appropriations in the previous
Congress, said that the country's ballooning debts would likely worsen
the current financial crisis of the national government. He said that
while new tax measures or adjustments in existing tax schemes were
needed, these new measures would still not be enough to solve the
deficit problem.
Negros Oriental (Central Visayas) Rep. Herminio Teves made the same
advocacy on Monday when he trashed the Palace's new tax proposals,
insisting that improving revenue collection, not the imposition of new
taxes, was the key to overcoming the deficit problem. But Finance
undersecretary Grace P. Tan argued that the government "could not only
rely on tax administration. We also need some legislation." Ms. Tan said
improved tax collection efficiency would not suffice if it was to
significantly reduce the budget deficit.
COMPROMISE SOUGHT
Congress would work out a compromise to pass the new taxes proposed
by the Palace if only to cut the ballooning budget deficit, Senate
President Pro-Tempore Juan M. Flavier said yesterday. The senator noted
that Congress would balance the government's need for more revenues and
the people's opposition to new taxes. "The time is right, because our
deficit of
PhP200 billion yearly is not diminishing, it is increasing. We have
to focus and study the proposals when we open Congress. We cannot escape
it anymore. We have to face it. We must bite the bullet," he told a
press conference. The lawmaker added that while the tax proposals would
face rough sailing in the two chambers of Congress, legislators would
fine tune them to make them acceptable to the public. "We must do
something drastic now. We will make it equitable, defined and
progressive, so the poor would not be affected," Mr. Flavier said. "At
the end of the day, I think as long as we have discussed the tax
proposals thoroughly and scrutinize them, being reasonable people, the
bills would be passed. The bottom line is the budget deficit," he added.
Mr. Flavier also appealed to the taxpayers to look at the merits of the
tax proposals. He noted that the Palace has been refining the proposals
in a bid to cushion their impact on the poor. But Mr. Flavier also noted
the need to improve tax collection using existing tax laws.
For his part, Acting Senate Minority Leader Aquilino Q. Pimentel, Jr.
said there was no need to enact new tax laws if revenue-collecting
agencies were inefficient. "All the government should do is collect the
taxes already imposed by existing laws and thereby reduce the incidence
of tax evasion," Mr. Pimentel said in a statement. The lawmaker also
said the government should improve efforts to go after tax cheats and
influence peddlers. "There must be dogged determination to implement tax
laws. The problem is some people have so much clout with the government
that sometimes there is a tendency to overlook what taxes are due from
them. It is important that we do away with this kind of attitude and,
therefore, political will is demanded from the administration," Mr.
Pimentel said. -- Karen L. Lema
and Carina I. Roncesvalles
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... if gov't cuts spending
Bank of the Philippine Islands (BPI) expects the economy to recover
this year, but stressed the need for the government to trim the budget
deficit and limit spending. The bank, the country's oldest, revised its
2004 economic growth forecast, as measured by the gross domestic product
(GDP), to 5% from 4.5% previously. BPI noted the 6.4% GDP growth in the
first quarter because of the strong agriculture sector performance and
the increase in exports. The government's economic growth forecast is
more optimistic at 4.9%-5.8%. Adelbert Legasto, BPI senior
vice-president, said the government would need do a lot to achieve its
GDP growth target.
The government is now pushing several tax measures si it can raise
revenues and balance the budget by 2009. These include the shift to
gross income taxation, higher value-added tax rate, tax amnesty, and
higher excise taxes oil, alcohol products, and cigarettes. The budget
deficit was
PhP81.9 billion in the first semester,
PhP500 million more than the limit for the period. BPI officials
said new tax laws should give the economy better chances of recovery.
BPI also expects the peso to appreciate to PhP55.50 to the US dollar by
yearend, from an earlier projection of PhP57, on expectations of more
dollar inflows from exports and overseas Filipino workers.
The government expects exports to grow by 10% this year with the
economic recovery of Japan and the United States. "More dollar inflows
could bring the peso to a full-year average of PhP56 and a yearend rate
of PhP55.50," said BPI economist Noni de Dios. BPI also expects the
stock market to improve, with the Philippine Stock Exchange composite
index rising to 1,900 points. The bank also sees consumer prices rising
at a faster pace because of rising crude prices, higher transportation
costs, and wage increases. Mr. Legasto said inflation would likely hit
5.5% by yearend, up from the government's yearend target of 4%-5%. BPI
also expects interest rates to rise because of market concerns over the
government's fiscal position and the general rise in global interest
rates. It forecasts the 91-day Treasury Bill rate to average around 7.3%
by yearend. BPI is the country's second-largest bank, next only to
Metropolitan Bank and Trust Company. It was founded in 1851. BPI has
more than 650 branches nationwide, as well as offices in Hong Kong and
New York. -- Iris Cecilia C. Gonzales
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By CECILLE S. VISTO, Sub-Editor
The government yesterday ignored the threat of a consortium of banks
that it would sue if state-run Metropolitan Waterworks and Sewerage
System (MWSS) were to insist on taking the $120-million performance bond
of Maynilad Water Services, Inc. Both the Department of Finance and the
National Economic and Development Authority said that in forfeiting the
bond, they would just be "abiding by the Supreme Court ruling." "There's
already an SC decision, and the withdrawal of the $120 million, as the
government intends to do, is consistent with that ruling," said
Socioeconomic Planning Secretary Romulo L. Neri. He reiterated that the
government has unilaterally abandoned the proposed exit of the Lopez
group from Maynilad via a government takeover.
Finance Secretary Juanita Amatong supported Mr. Neri, insisting that
MWSS was well within its rights to get the $120 million, instead of only
$50 million as provided under a compromise agreement with Maynilad and
its creditors. Ms. Amatong added that banks should not be alarmed,
because the $120 million would be withdrawn in tranches. "[Finance], in
consultation with MWSS, will schedule withdrawalsthe release will be in
installments," she said, but did not elaborate. Maynilad's $120-million
bond was renewed recently by the consortium of banks that guaranteed it.
The bond expires at the end of this month. The banks, led by Hong
Kong-based Citicorp International Ltd., rolled over the bond without
changes in premium and term.
BusinessWorld earlier reported that guarantor-banks hoped MWSS
would honor its earlier commitment to get only $50 million. Benpres
Holdings Corp., the parent firm of Maynilad, also said the government
could not easily renege on its promise of a limited draw. A Quezon City
Regional Trial Court will hear today Maynilad's rehabilitation case.
MWSS, through the Office of the Government Corporate Counsel (OGCC), is
expected to formally inform Judge Reynaldo B. Daway that it is
abandoning the government takeover agreement forged last March. "By
simply abandoning what was agreed upon, we wasted so much time and
effort in coming up with the compromise," a creditor representative
said. Aside from Citibank, JP Morgan and several Singapore and
Philippine banks are also among the 13 banks that guaranteed the payment
of Maynilad's $120-million performance bond. NEDA had advised MWSS to
just get the $120 million as well as withdraw its approval of the
proposed takeover of Maynilad. -- Iris
Cecilia C. Gonzales
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By IRIS CECILIA C. GONZALES,
Reporter
The International Finance Corp., the World Bank's private sector
investment arm, wants Bangko Sentral ng Pilipinas (Central Bank of the
Philippines, or BSP) to be more strict in regulating banks. IFC Country
Manager Vipul Bhagat said BSP has not done enough to discipline banks
and to consolidate the industry. "BSP should be a little bit tougher on
the banks," he told BusinessWorld in a recent interview. He said
the banking industry remained saddled with nonperforming loans because
regulators have not cracked the whip hard enough for them to take
advantage of the
Special Purpose Vehicle Law, which gave incentives to banks to sell
bad loans. Mr. Bhagat said BSP should also improve measures that would
encourage mergers and acquisitions in the industry, which BSP Governor
Rafael B. Buenaventura earlier described as "overbanked." "We would like
to see more consolidation. The Philippines has too many banks," Mr.
Bhagat added.
There are roughly 40 commercial and universal banks nationwide, BSP
data show. Mr. Bhagat said BSP should work harder in encouraging mergers
and consolidations, on top of its moratorium on bank branching that
started in 2000. Last year, BSP's policy-making Monetary Board approved
additional incentives for banks that would merge or consolidate. The
incentives included branch expansion and more leeway in raising required
capital, among others. Mr. Bhagat said BSP should further increase the
minimum capital requirements for banks as well as improve the capital
adequacy requirements, to encourage more mergers. "Regulators and the
government can encourage the process," he said. On banks' nonperforming
loans (NPLs), Mr. Bhagat said BSP should give banks deadlines on selling
bad assets. "We should tell the banks they have until this date to bring
down their NPLs. Banks simply have not done enough," he said. He cited
banks' failure to take advantage of tax perks under the
Special Purpose Vehicle Law. The law expires in April next year, but
banks have only until this September to register bad assets for sale.
BSP is optimistic at least six banks can beat the deadline, and will
sell
PhP100 billion worth of bad assets and loans. Mr. Bhagat said IFC
would help one or two banks sell their bad assets, but he declined to
identify them. "We want to give the market some support," he said. Last
year, IFC was in talks with Bank of the Philippine Islands for the sale
of its bad loan portfolio. But the bank and its potential buyer did not
agree on the price. Latest BSP data showed banks' bad loan ratio
improved slightly in end-May to 13.55% of total loans, or
PhP257 billion out of
PhP1.667 trillion in loans.
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By BENNET S. STO. DOMINGO,
Reporter
The Department of Energy is looking to ink a deal with Australian
firm BHP Billiton Petroleum by September to develop two of the 46 oil
and gas exploration sites it put on the auction block. Energy
Undersecretary Eduardo V. Manalac yesterday said negotiations with the
consortium led by BHP Billiton is ongoing and both parties are expected
to sign a service contract in two months. "We're still finalizing the
terms of the service contract and we expect to finalize them by August.
The signing of the contract will be in September and after that, the
contract takes effect. What will follow is the exploration stage," Mr.
Manalac said.
The consortium, which also includes Unocal Corp., Amerada Hess, and
Sandakan Oil, bid for two blocks in the deepwater part of the Southern
Sulu Sea covering 8,000 square kilometers, the Energy department said.
Energy Secretary Vincent S. Perez, Jr. had expressed optimism that a
service contract will be finalized as soon as the government pursues
efforts to tap indigenous resources amid oil price hikes. He said the
Sulu Sea is one of the most prospective areas for oil and gas
exploration as cited in studies conducted by the Norwegian Agency for
Development Corp. Mr. Perez said the study showed that the area has the
same geology as the oil and gas producing fields in Indonesia, Malaysia
and Brunei. The government has been aggressive in developing and
promoting the country's energy resources through improved contracting
and bidding schemes and enhanced fiscal incentives aimed at increasing
the country's energy self-sufficiency.
New exploration blocks near the oil and gas discoveries and producing
fields were offered for public bidding. The government earlier signed a
service contract with Singapore firm Gas to Grid Pte. Ltd., covering
2,415 square kilometers within the Visayan petroleum basin in Central
Cebu. Based on drilling activities in the 1960s, the contract area
contains undeveloped natural gas and oil reserves. The government also
signed in January a contract with British firm Premier Oil Philippines
B.V., for the oil exploration over the Ragay Gulf in the Bicol region
and parts of Bondoc Peninsula in Quezon province.
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By ROULEE JANE F. CALAYAG
JG Summit Holdings, Inc. expects to post a net income of more than
PhP1.2 billion for the first half, lower than
PhP1.7 billion reported in the first half of last year. In an
interview with reporters at the sidelines of the the company's annual
stockholders' meeting yesterday, Lance Y. Gokongwei, president and chief
operating officer, said JG Summit forecasts a lower net income for the
first semester because its telecoms business was losing more money than
last year. The company ended 2003 with
PhP2.1 billion in net income.
LESS CASH
He said there is less cash due to investment in telecoms,
particularly its wireless phone services under the Sun Cellular brand.
JG Summit Holdings also paid a lot of debts, Mr. Gokongwei said. But
overall, JG Summit is optimistic of its prospects for the year. "All the
businesses are doing significantly well except for telecoms and
financial services subsidiaries," Mr. Gokongwei said. JG Summit's
financial services subsidiaries include 100%-owned JG Summit Capital
Markets Corp. and Robinsons Savings Bank. JG Summit Capital generated
revenues of
PhP249.5 million for 2003, slightly down by 4.3% from revenues of
PhP260.6 million in 2002.
Robinsons Savings Bank generated net earnings after tax of
PhP132.2 million last year, down 15.8% from
PhP157 million previously. "Operations-wise, we are doing better.
We have no current plans to divest because we did some cleaning up last
year with the shutdown of Manila Midtown Hotel and our small electronics
business," said Mr. Gokongwei, adding this year, JG Summit will
strengthen investments. JG Summit earmarked capital expenditures of
PhP15 billion for the whole year across all its interests, with
"at least 60% going to telecoms." The outlay will come from long-term
credit agency financing and internally generated cash. JG Summit's cash
flow is currently at
PhP10 billion. For the first quarter, JG Summit's capex is at
PhP3.1 billion.
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By JENNEE GRACE U. RUBRICO, Senior
Reporter
The Securities and Exchange Commission (SEC) said it is important for
College Assurance Plan Philippines, Inc. (CAP) to find investors that
will put in fresh equity to address the pre-need firm's trust fund
deficiency. It would be useless for CAP to have separate financial
statements for its trust fund and for the corporation itself since both
are deficient, the SEC said. SEC Chairman Lilia R. Bautista said if
CAP's problem is only a deficient trust fund, it could cover the
deficiency through assets in the corporation. However, since CAP also
has an equity erosion problem and not just a trust fund problem, the
company will have to look for investors, she said. CAP earlier said it
was mulling keeping separate books for the trust fund and the
corporation so the health of both could "be accurately reflected." It
was noted that since the trust fund is included in the corporation's
books, this may have an adverse effect on the company's financials.
CAP has a
PhP17.1-billion variance between the actuarial reserve liability
(ARL) -- or the projected total amount of school fees it will pay out in
the future -- and its trust fund equity -- or money it set aside to
service future needs of its planholders. As of December, CAP had
PhP8.4 billion in its trust fund compared with an ARL of
PhP25.5 billion. "The corporation and the trust fund both have
problems. If it was only a matter of the trust fund, maybe they can fill
up some of the assets. If the corporation is healthy, with excess funds,
they can just add to the trust fund. Ang problema, kulang din ang
corporation kaya wala silang pandagdag [The problem is the
corporation is also deficient so they have nothing to add]. It's the
company itself that should have enough to buttress whatever deficiencies
there are in the trust fund," Ms. Bautista said. If investors come in,
the equity erosion of the company, as well as the trust fund deficiency
will be erased, she said. She added if CAP could get an investor to put
in $100 million, this will cover the
PhP3.4-billion requirement of the pre-need firm for the year. CAP
had said it is in talks with three foreign investors for the possible
infusion of $100 million in equity. Of the three investors, two are
Asian while one is North American, CAP had said. Ms. Bautista said the
SEC expects CAP to complete negotiations by the end of the month.
Meanwhile, the SEC has given six other pre-need companies which have
problems with their trust funds regulatory leeway to meet their
deficiencies But these companies' deficiencies amount to less than a
billion each, and could easily be covered, Mr. Bautista said. She
declined to name the six companies. A regulatory leeway is intended
primarily to provide a reasonable transition for pre-need companies to
address the discrepancy between the actuarial reserve liability of
pre-need firms and their trust fund.
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The Court of Appeals has approved the settlement between Aboitiz
Equity Ventures, Inc. and Garcia-led Vivant Corp. on their dispute over
the control of Visayan Electric Co. (Veco), the second-largest power
distributor in the country. "The Memorandum of Agreement dated March 26,
2004 executed and signed by the parties together with its annexes having
been approved, judgment is hereby rendered on the basis of the same and
the parties are hereby enjoined to strictly comply in good faith, as
well as with sincerity and honesty of purpose, with the terms and
conditions and stipulations therein contained," the appeals court said
in a July 17 decision,
Last March, Aboitiz Equity Ventures and Vivant said they agreed "to
cooperate in respect of the management and preservation of Veco's
assets, franchise and business for the benefit of all stakeholders."
Under the settlement agreement, the two companies will share the
management of Veco, with the Garcias retaining control over the Veco
board. The chairman and the vice-chairman will rotate every year, with
the initial chairman to be nominated by the Garcias and the
vice-chairman to be nominated by the Aboitizes. The deal will take
effect on or before April 2, pending the finalization of shareholders'
cooperation agreements. An escrow account will also be set up to enforce
certain conditions of the deal and mutual settlement of the cases at the
Court of Appeals. The two business groups, among Cebu's most prominent
families, got into a rift after the Aboitizes filed in a Cebu trial
court a
PhP613-million damage suit against Vivant for allegedly diluting
its shares in Veco when it entered into a share swap agreement with the
power firm.
In Cebu, businessmen and other members of the Cebu Power Core Group
have expressed support for the interim agreement allowing independent
power producer Cebu Private Power Corp. to increase its selling rate to
Veco. The group said they found the provisions of the agreement "just
and reasonable." Power users in Metro Cebu and neighboring towns will
have to pay higher rates if the Energy Regulatory Commission approves
the petition of Veco for an increase due to the impending adjustment in
the power producer's selling rate. A public hearing on this is scheduled
for this afternoon here.
-- Leilani M. Gallardo and Jun P. Tagalog
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Philippine Geothermal, Inc., (PGI) the local arm of US energy firm
Unocal, has inked a compromise agreement with the government that
settled an eight-year old dispute over operations of the Tiwi and Mak-Ban
geothermal sites, the Energy department yesterday said. The settlement
provides for PGI to continue steam field production until 2021 under a
geothermal resource sales contract with the Power Sector Assets and
Liabilities Management Corp., (PSALM).
As this developed, reports said PGI yesterday received $50 million
from a total of $76 million in after-tax payments under the terms of the
settlement. The remaining $26 million is expected to be paid by July 30,
reports said. PGI inked the agreement with state-owned National Power
Corp. (Napocor) and PSALM, successor in interest to geothermal sites in
Tiwi in Albay province and Makiling-Banahaw (Mak-Ban) in Laguna and
Batangas. Energy Secretary Vincent S. Perez, Jr. said the settlement
will result in increased government revenue that will give the
Philippine power market a much-needed boost. "With Unocal's continued
presence, this will ensure a vibrant energy sector and serve as a
benchmark for other investors," Mr. Perez said in a statement.
Charles R. Williamson, Unocal chairman, chief executive and
president, said the agreement "symbolizes the beginning of a renewed
relationship and a stronger commitment to the Philippines." As part of
the settlement, Unocal agreed to bring in Philippine partners in
accordance with the Philippine Presidential Decree 1442, the law on
geothermal exploration and development, the Energy department said. The
National Economic and Development Authority said the new agreement could
translate into savings of approximately $256 million for the government.
-- B. S. Sto. Domingo
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Soft drink maker Coca-Cola Bottlers Philippines, Inc. posted a 28%
increase in its net income in the first half to
PhP942 million, from
PhP736 million. In a statement, the firm said net sales revenues
totaled
PhP14.2 billion, while operating income hit
PhP1.12 billion. "[This is] mainly due to fixed cost savings and
favorable sales mix, as well as pricing gains," the firm said. It said
fixed costs have been reduced by more than
PhP400 million, while operating income on percentage to net sales
continued to improve during the period.
The firm is the sole Coke licensee in the Philippines. It is a
subsidiary of food and beverage giant San Miguel Corp., which signed in
2001 a definitive agreement with the Atlanta-based Coca-Cola Co. to
jointly acquire the soft beverage firm from Coca-Cola Amatil. The local
firm operates 19 production facilities nationwide and is one of the top
10 bottlers of Coca-Cola in the world. It is also one of the top 20
corporations in the Philippines in terms of revenues. Cosmos Bottling
Corp. and Philippine Beverage Partners, Inc. are among its
subsidiaries.In the statement, the firm said it is "well on its way" of
fully implementing a going-to-market program to boost its sales. Under
the program, the company is rapidly reconfiguring selling territories
and putting new dealers in place, the company said."Sales growth and
margin improvement across all its territories are expected from new and
customized measures to address local competition and consumer
preferences," it added. -- J. G. U. Rubrico
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Ayala-led Globe Telecom, Inc., the second biggest player in the
wireless phone industry, posted a better performance in the second
quarter, officials said. "We had a very healthy second quarter compared
to the previous quarter and the [same quarter] in the previous year,"
President Gerardo Ablaza told reporters recently. He said the
performance was generally better, adding Globe's churn rate -- the
percentage of total subscribers that discontinue their service over a
particular period -- has improved. "We see a strong net adds since we're
coming from a weak first quarter," Mr. Ablaza said. He refused to
divulge figures, adding that official results of the second-quarter
performance would be out on Aug. 4.
For Globe, the churn rate more than doubled early this year due to
the delay in the launch of Globe AutoLoad Max, an over-the-air reload
service for prepaid subscribers. From January to March, Globe posted a
net income of
PhP3.1 billion, while revenues totaled
PhP12.8 billion, with a subscriber-base of 9.1 million. Globe
recently announced that its subscriber-base has reached over 10 million
by end-June. -- A. B. L. Lorenzo
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By ROULEE JANE F. CALAYAG
The Philippine Stock Exchange (PSE) yesterday broke its silence on
the issue concerning the threat of the Government Service Insurance
System (GSIS) to return its shares to the bourse. In a statement, PSE
chairman Alicia Rita Morales-Arroyo said the alleged dissension in the
board was not the cause for the state-led insurer's plan to return its
9.1% stake in the exchange. "I would like to address the issue on the
intention of GSIS to return its investment in the PSE apparently caused
by the dissension on the entry of new investors that led to the filing
of a case before the court," said Ms. Arroyo. "First of all, the case
has already been filed days before the PSE's Annual Stockholders Meeting
in March, where Mr. Winston Garcia, as General Manager of GSIS,
exercised the 9.1% voting right to elect himself as well as certain
broker-directors to the Board," she added. Ms. Arroyo also noted that
"the Exchange strictly followed the rules of the Securities Regulation
Code and resulted in a balanced representation in the Board whereby all
stakeholders have ample representation in the Board." She explained that
it is this balanced representation that allowed for diverse issues and
interests to be raised at the board level. "Debates and disagreements
are inevitable in a democratic Board," she added.
The PSE board, said the chairman, has been focused and has
implemented several reform measures in the last two years. One of the
important issues the Board has addressed is succession or the election
of a president. The PSE by-laws require a majority of the Board,
regardless of any vacancies. The Board has now 14 seats occupied out of
15. "Our newly elected president, Atty. Francisco Ed. Lim, garnered
eight votes and no negative votes. The candidate himself made an
abstention. There does not seem to be any infraction among the Board in
this case. The Board is united on this major issue of leadership and
succession," said Ms. Arroyo. She also dismissed reports that the Board
was not addressing the issue. "To ensure unity and reconciliation, I
have personally invited Mr. Garcia thrice either for breakfast or lunch
but the meeting had been constantly postponed," she said. After the
successive postponements of the meeting between Ms. Arroyo and Mr.
Garcia, GSIS senior vice-president and chief operating officer Reynaldo
Palmiery reportedly sent the Board a letter signifying the institution's
intention to withdraw its PSE investment. "The actions of GSIS seem to
be unclear. Before the statements to the press were made on this issue,
Mr. Garcia stated that he would secure a resolution from the GSIS Board
on the proposal to withdraw its PSE investment," she said. Although the
PSE Board has yet to receive a copy of the resolution from the GSIS
Board, Ms. Arroyo said the letter of intent from Mr. Palmiery will still
be discussed in the board meeting next week.
The stock exchange's chairman expressed sadness over the threats of
GSIS to withdraw its investments in the stock market as quoted in the
press. "It is saddening to hear such statements. If true, the effect of
this move will only be minimal to the PSE, which is just the
marketplace, compared to the more important stakeholders such as the
investing public and the listed companies. This reported pullout of
PhP38 billion in investments in equities would not help in the
development of the local capital markets," added Ms. Arroyo. The threat
of the state insurer had caused investors to be jittery. An analyst
earlier said that it would be "critical" for the local stock market if
GSIS pushes through with its threat. Trading yesterday, however, showed
that investors ignored the threat and instead continued to hunt for
bargains and take positions ahead of the release of first-half corporate
reports and the President's State of the Nation Address on Monday.
Instead of hitting another decline in a series of bumpy trading
sessions, the stock market kept the upward momentum as it closed higher
yesterday, doubling its gains on Wednesday.
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Ayala-led Bank of the Philippine Islands (BPI) yesterday said it sold
PhP8.6 billion worth of bad loans to Morgan Stanley Emerging
Markets Inc. (MSEMEI). In a disclosure to the Philippine Stock Exchange,
BPI said the transaction, which will be structured under the Special
Purpose Vehicle Act of 2002, is expected to be completed within the year
after complying with regulatory requirements. "BPI's aggressive loan
provisioning policy and MSEMEI's positive outlook for the Philippines
have enabled the landmark deal to be realized," the second largest bank
said. Banks that want to avail of the perks under the special purpose
vehicle (SPV) law have until Sept. 18 to establish and register their
SPVs with the Securities and Exchange Commission. BPI was the first bank
to successfully unload its nonperforming loans after the passage of the
SPV law. BPI earlier said it planned to sell PhP5 billion to PhP10
billion of nonperforming loans (NPLs) to foreign buyers who may try
getting tax perks through the SPV law. Banks have until September this
year to register with the Bangko Sentral ng Pilipinas their planned sale
to avail of the incentives which will expire in April next year.
Last year, BPI was in discussions with foreign investors for the sale
of foreclosed properties. The talks -- which covered properties worth an
estimated PhP10 billion -- bogged down due to the large difference in
the valuation of the bank's properties. As of end-March this year, BPI's
nonperforming loans (NPLs) stood at PhP13.75 billion or 1.9% lower than
December's PhP14.01 billion. NPLs are loans classified as over 90 days
past their due date for payment. BPI is the Philippines' fourth biggest
listed company with a market capitalization of $1.58 billion. BPI, a
unit of Singapore's DBS Group and Philippine conglomerate Ayala Corp.,
said its total loan loss reserves amounted to PhP7.74 billion, or a
55.70% coverage ratio. BPI president Xavier P. Loinaz earlier said the
bank would only sell NPLs and would not include nonperforming assets or
those classified as real and other properties owned or acquired (ROPOA)
due to the large difference in the valuation of the bank's ROPOAs by
investors when it initially entertained the possibility of selling the
assets last year. He also said the bank is now talking to a different
set of investors from last year's. Since Republic Act 9182 or the
Special Purpose Vehicle Act of 2002 was passed, only a few banks have
signified their intention to avail of the tax incentives and other perks
embodied in the law which will expire on April 8, 2005.
--
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By RUBY ANNE M. RUBIO, Reporter
State-run Development Bank of the Philippines (DBP) is tapping
PhP54.26 billion worth of funds which will be available through
various new facilities starting this year. In a press briefing, DBP
president Simon R. Paterno said various multilateral and bilateral
institutions support its various development programs and projects in
line with the Arroyo administration's priority thrusts as laid out in
her 10-point agenda. Japan Bank for International Cooperation (JBIC)
assistance will be made available starting next year through DBP's
environmental development program -- a PhP10-billion facility for
private sector borrowers, local government units (LGUs) and
government-owned and -controlled corporations (GOCCs); and the
PhP16-billion infrastructure and logistics assistance facility which
will be used to finance investments of private sector borrowers, LGUs
and GOCCs in power generation and distribution, road infrastructures,
cold chain and grains bulk chain. The PhP17-billion facility JBIC 6 is
intended for private sector investments in manufacturing, information
technology (IT), utilities, transportation, tourism, education, and
health care. "The first two facilities will tend to be longer term at 15
to 25 years, you can get the amount. But for JBIC 6, it will be shorter
in maturity since it is more akin to commercial lending," he said.
European Investment Bank will lend PhP1.7 billion for projects
involving infrastructure, environment, small and medium enterprises (SMEs),
large industries, housing, power, agri-industries, and private sector
borrowers. Swedish International Development Cooperation Agency (SIDA)
is funding a PhP560 million program for environmental projects. Mr.
Paterno said this will be available in the next six months. These new
funds are on top of DBP's available fund of PhP29 billion from current
facilities funded by JBIC, World Bank, Asian Development Bank, German
financial institution Kreditanstalt fur Wiederaufb au (KfW), and
Exportfinans ASA of Norway and the Norwegian Agency for Development
Cooperation. "DBP's current priority programs continue to be aligned
with the government' programs," he said. The bank has released PhP1.25
billion in loans under the road terminal system for roll-on, roll-off
sea vessels for the purchase of eight shipping vessels to serve the
following connections: Ozamis-Mukas, Lucena-Marinduque, Batangas-Calapan,
Cagayan-Cebu, Mindanao-Luzon.
Aimed at re-engineering the logistics system for perishables to
reduce wastage and spoilage, 19 cold chain projects were approved worth
PhP568 million. This includes ice plants, seafood processing, cold
storage facilities, tin can manufacturing, meat processing, fruit juice
manufacturing, manufacture of dry ice, and fish food processing. DBP
approved 74 projects for grains bulk highway amounting to PhP460.5
million, entailing investments in corn processing centers, bulk
terminals and bulk carriers. Net income of DBP during the first six
months fell by 10.1% to PhP899 million from PhP1 billion the in same
period in 2003. "DBP has been very conservative in the way it has
handled its financial affairs. Instead of reporting large income, we
have been putting away money in loan loss provisions so the bank becomes
stronger. I think DBP probably has the biggest coverage ratio in the
industry at 72%," Mr. Paterno said. Net income before loan loss
provisioning is PhP1.53 billion. "The bank is continually finetuning its
operations to increase its relevance to economic development and at the
same time maintain its financial strength. The DBP will continue to
ensure that the institution is protected by increasing its loan reserves
that will provide cushion that will balance the additional risks it
takes on as it pursues its development banking mandate," he said. "We
will continue to maintain a more balance loan portfolio that caters to
SMEs and large, strategic industries such as transportation and power
while providing program-type funds to priority sectors and industries
that are critical in fostering economic growth particularly in the
countryside."
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SINGAPORE -- Standard & Poor's Ratings Services sees a "positive
bias" in sovereign credit quality and credit rating actions in the
Asia-Pacific region, according to a report released yesterday. The
rating outlooks on five sovereigns are positive, namely: China,
Thailand, Pakistan, Indonesia, and the Cook Islands. The report,
entitled "Asia-Pacific Report Card, August 2004" also provides updates
on credit developments in each of the 18 rated sovereigns in the region.
The region's economic recovery, which began in mid-2003, has continued
into 2004. Revival in domestic demand--both consumption and
investment--has occurred across most of Asia Pacific. This comes on top
of ongoing robust export growth, partly stemming from intra-Asia trade
from a booming China. Recent global and regional developments, however,
have cast a shadow on the region's growth prospects. "A worsening
security situation in the Middle East could sustain high oil prices,
affecting trade, cost, and inflation in Asia Pacific," said Standard &
Poor's credit analyst Ping Chew, Director in the Asia-Pacific Sovereign
& International Public Finance group. "Growth could decelerate, but is
unlikely to be derailed," Mr. Chew noted.
Uncertainty over economic policies still exists in India, Taiwan,
Korea, Sri Lanka, and the Philippines, where elections have already been
concluded. Some polls have yet to be conducted, including that for
Taiwan's parliament. Results could also affect economic and political
stability. Nevertheless, Mr. Chew noted that so far this year, the
electoral processes in emerging Asia have proceeded remarkably smoothly.
"At the beginning of the year, we feared that the elections in a number
of Asia's democracies would give rise to civil disturbances that might
derail consolidation of economic and fiscal conditions. So far, however,
the democratic process has been orderly, such as in Indonesia, even if
there have been some surprising or contentious outcomes, such as in
India and Taiwan," he said. Since the previous report was published in
February 2004, Standard & Poor's has raised the ratings on China, and
revised the outlooks on Indonesia to positive from stable, and Japan and
Hong Kong to stable from negative. -- Reuters
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Worried over possible revenue losses, the Department of Finance (DoF)
yesterday said it will oppose a bill seeking the extension of income tax
holiday to 12 years from the current six years.
The Finance department said it is instead looking at reducing the
duration of the tax perk to five years or even less depending on the
type of sector. "We cannot be whimsical about it and we should have a
reasonable basis to say whether it is appropriate to (reduce or extend
it)," Finance Undersecretary Grace P. Tan said. Senate Bill 513 is
expected to intensify a long-running debate between the DoF and the
Department of Trade and Industry (DTI), with the latter batting for the
extension of incentives to lure investors while the former wants the
system rationalized to stem the bleeding from government coffers. The
Finance secretary's approval is essential before a project is granted an
extended tax holiday.
The proposed bill filed by Senator Manuel Villar, which provides for
the extension of income tax holiday period to 12 years and a net
operating loss carry-over (NOLCO) applicable up to five years instead of
three years, sets at $25 million the minimum investment requirement to
obtain the tax holiday. These pioneering firms should also manufacture
products that are distinctly and completely new in the Philippines, 70%
of which should be exported from the country. Under the new NOLCO
provision, company losses incurred during incentive period can be
deducted from gross income for the next five years. The DoF is in
continuing discussions with DTI and the National Economic and
Development Authority (NEDA) on how the fiscal incentives system can be
re-configured with the primary goal of making the Philippines more
competitive and attractive to foreign investments. The review of the
fiscal incentives system has also been guided by the objective to make
the system clear and simple to administer, harmonious, time-bound, and
performance-based. At present, there are many tax incentive laws and
more than 100 laws containing tax exemption provisions that extend
diverse types of tax breaks. There are also a number of tax incentive
administering agencies. Streamlining of procedures, harmonizing the tax
perks, and identifying promotable activities where the country has high
comparative advantage are the objectives of the ongoing rationalization
effort. The International Monetary Fund sees the state's fiscal
incentives as "inefficient" and has been pressing for an overhaul to
prevent further losses. -- Karen L. Lema
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Case vs local telcos far from over
A US court order exempting Globe Telecom, Inc. and Eastern
Telecommunications Phils. Inc. (ETPI) from the submission of pertinent
documents in relation to an antitrust case is not an indication of the
lawsuit's eventual dismissal. Industry sources said the court case in
Hawaii could still go anywhere despite the recent ruling. The Hawaii
court's decision, they said, touches only the issue of the submission of
documents and does not affect the antitrust case. Globe and ETPI had
filed a motion to quash an order compelling them to submit pertinent
documents in relation to the court case. The court ruled in favor,
citing jurisdictional issues: the Philippine carriers had minimal
contact with the US and the acts complained of were done in the
Philippines.
The decision is also expected to affect the cases of two other telcos
involved: Digital Telecommunications Phils. Inc. (Digitel) and Bayan
Telecommunications Philippines Inc. (BayanTel). Digitel had joined
Globe's appeal while BayanTel filed an amicus brief, in effect
supporting the issues raised by Globe. In any case, sources said, this
is a positive development on the court case in Hawaii as the six
carriers are no longer bound to submit company documents. For now,
however, they are still waiting on the US Justice Department's next move
as an appeal for a reversal may still be in order.
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By CECILLE S. VISTO, Sub-Editor
and FELIPE F. SALVOSA II, Reporter
The Philippines is now the ninth least competitive country in the
world, slipping three notches to No. 52 from No. 49 last year in the
World Competitiveness Yearbook of Switzerland-based Institute for
Management Development (IMD). The decline was attributed to lack of
basic infrastructure, government inefficiency, and weak economic
performance because of poor fiscal management. Adding to the country's
woes are low productivity, poor international image, and the attitudes
and values of the business community -- which were all considered in
measuring business efficiency.
In presenting the results of the 2004 State of Philippine
Competitiveness report yesterday, Asian Institute of Management
president Roberto F. de Ocampo said the government must to "do something
concrete" to end the deterioration of the country's performance over the
last five years. "Countries like India and Russia are now ahead of us...
And we are absolutely kulelat (last) in the category of
infrastructure. We're steadily declining and we should do something
about it," he said. The Philippines was No. 35 in 2000, No. 39 in 2001,
No. 40 in 2002, No. 49 in 2003, and now No. 52. The US topped the
competitiveness scoreboard of 60 emerging and industrialized countries,
followed by Singapore, Canada, Australia and Iceland. Brazil, Romania,
Turkey, Mexico, Poland, Indonesia, Argentina, and Venezuela were the
only countries tailing the Philippines.
Among Southeast Asian countries, Malaysia and Thailand were way ahead
of the Philippines at No. 16 and No. 29, respectively. The rankings were
published in IMD's World Competitiveness Yearbook. AIM conducts
the annual survey for the Philippines. Economic performance, government
efficiency, business efficiency, and infrastructure were the main
factors considered in determining competitiveness. Of these four
categories, the Philippines fared the worst in infrastructure, since it
failed to meet the needs of business in this area.
It was No. 60 in terms of basic infrastructure, No. 43 in
technological infrastructure, No. 58 in scientific infrastructure, No.
58 in health and environment, and No. 57 in education. No other country
turned in lower marks in pupil-teacher ratio, pollution problem, and
distribution infrastructure. The low health expenditure of the
government was next only to Indonesia. The only strengths of the country
in this category were its huge energy consumption and the information
technology skills of its labor force. Mr. De Ocampo said the government
move to form a new company that would undertake at least 10 major
infrastructure projects within the new six-year term of President Arroyo
was "a step towards the right direction." The proposed Philippine
Infrastructure Corp., which will administer a pooled infrastructure fund
projected to reach
PhP200 billion, is expected to open by next month.
The United States, Japan, and Switzerland have the best
infrastructure facilities in the world, the competitiveness survey
showed. Based on AIM's macroeconomic evaluation of the economy, although
the Philippines had an edge in low prices and vibrant international
trading, international investment and employment left a lot to be
desired. It was also weak in per capita income and direct investment of
stocks locally and abroad. "The small amount of foreign direct
investment in the country inhibits technology transfer, thus, dampening
the business environment. Extensive and effective steps must be taken as
regards this the soonest possible time," Mr. De Ocampo said.
As to government efficiency, the country also performed dismally
because of the weak institutional framework and business legislation.
The government policy on public finance, AIM noted, failed to foster
competitiveness. The low tax collection was deemed to have favored the
Philippines, but only because IMD looked at tax collection "very
differently," Mr. de Ocampo said. High tax collection supposedly crowds
out private sector investment, hence, the higher the tax collection of a
country, the lower the ranking.
In terms of government efficiency, the country was No. 42 this year
from No. 38 last year because of the seemingly higher risk of political
instability. The inability of foreign investors to have more direct
control of domestic corporations, the failure of government to implement
its decisions, and the increasing squabbles among political parties were
also deemed hindrances. Business efficiency even ranked lower, despite
the advantages of having a wide labor force pool, low labor cost, and
the availability of competent senior managers. These were weighed down
by the country's negative image abroad, the low overall productivity,
the presence of high-skilled foreigners, and even the slow trading in
the stock market. India, which was No. 51 in 2003 in business
efficiency, climbed to No. 22 this year.
AIM recommended that the government address poverty concerns through
clear and consistent population policy, upgrade quality of and access to
basic infrastructure, and strengthen government revenues to curb the
rising budget deficit. It also stressed the importance of reinforcing
anti-corruption initiatives and improving the business environment to
encourage domestic and foreign investment. But Mr. De Ocampo said that
the most immediate change should be the removal of bureaucrats who have
failed to meet performance targets. "Those not performing well should be
taken to task...Contracts must also be respected and the rules must not
be changed in the middle of the game. We should also foster a business
environment that will allow us to grow a larger middle class," he said.
Meanwhile, European Chamber of Commerce Executive vice-president
Henry Schumacher said the Philippines was also behind its neighbors in
terms of the 30-year average economic growth rate, with only 3.1% as
against Indonesia's 5.3%, Malaysia's 5.9%, and Thailand's 5.7%. The
Philippines also attracted only $6.8 billion in net foreign direct
investments between 1998 and 2002. Also among the reasons why European
investors have bypassed the Philippines were politics, unpredictability
of investment rules, the judiciary, inadequate infrastructure, security,
and poor state finances. "Infrastructure has to be improved, the cost of
doing business has to come down, especially power. Manufacturing in the
country is getting more and more uncompetitive," he said. But Mr.
Schumacher also said the Philippines had a future by focusing on the
services sector, noting the country's advantage as a provider of call
center and outsourcing services. "The medical transcription side has
been doing well, and I think will continue to do well. In this business,
like in any other business, we will [succeed] as long as we are
competitive. We have a big advantage in being almost the 52nd
state of the United States, so that makes it easier," he said.
However, the Philippines must attract big-ticket outsourcing projects
and "move up the value chain," he said. "We will have to understand that
we have to move up the value chain...call centers are great to have, but
that's not all there is to it," Mr. Schumacher said. Because the country
also has competitive health care personnel, another bright spot was the
"importation" of patients instead of exporting doctors, nurses, and
caregivers. Nonetheless, Philippine Chamber of Commerce and Industry
vice-president Raul Hernandez said overseas workers presented an
"opportunity," and that the exodus of Filipino experts should not be
viewed as a threat. "We have to train more and more here. And get
ourselves prepared to compete outside. If they can compete, then they
[should] go out. The market is not limited to local market. The local
market is the global market. If we cannot compete in the local market,
it is difficult to compete in foreign markets," he said.
Dr. Serafin Talisayon of the Knowledge Management Association of the
Philippines described overseas workers as "deposits of growth." "The
next step is train them to become entrepreneurs...Perhaps their
experience abroad can be can asset in the kind of business that they
will start here," he said. The country should also move to export
businesses, such as online services, and through electronic commerce.
Mr. Talisayon said this was advantageous, considering the capital was in
pesos but the earnings were in dollars. But Arthur Alvendia of the
Center for Transformational Nation-Building of the Alejandro Melchor,
Jr. Foundation argued that the Philippines should transcend capitalism
to achieve economic growth. "For a long time, the universality of this
economic religion has never been questioned," he said, citing
"Washington-dictated" policies of free markets, fiscal discipline,
separation between government and business, and the avoidance of direct
credits and subsidies. Capitalism can bring up incomes but "will not
solve the poverty problem," he added. "The tendency of the leadership is
to [cater to] the few who have capital," Mr. Alavendia said. Hence, he
noted, the "grave income imbalance has only worsened." Mr. Alvendia said
this should be solved by harnessing government as an "enabler" and
"equalizer," and allow it to mobilize Filipino private sector
investment.
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State-run Government Service Insurance System (GSIS) yesterday
threatened to withdraw all its investments in the stock market, adding
that it would also put off any additional investments in equities this
year. GSIS senior executive vice-president and chief operating officer
Reynaldo P. Palmiery told reporters yesterday that it would be useless
for GSIS to invest in the Philippine Stock Exchange (PSE) if "vested
interests" of the latter's officers would continue to block capital
market reforms. He also said GSIS could junk all its equities
investments, inlcuding its 9.1% stake in PSE itself, if the exchange
would continue to treat its minority shareholders "unfairly."
GSIS has invested
PhP39 billion in various stocks, including blue chips like Ayala
Corp., Ayala Land, San Miguel Corp., Philippine Long Distance Telephone
Co., Globe Telecom Inc., Manila Electric Co., Equitable PCI Bank, and
the Bank of the Philippine Islands. For this year alone, it has so far
invested over
PhP1 billion in equities. It has also bought a 9.1% stake in PSE
(1.4 million shares) for
PhP166 million. "We really planned to be more active in the stock
market. But if the situation is like this, it's useless...Why put at
risk the investment?" Mr. Palmiery said. "Respect for the minority is
not there. Minority shareholders are not treated fairly. If this
continues to prevail, we might as well get out of the market. If reforms
are stymied by conflict of interest, capital market reform is useless,"
he added. Mr. Palmiery said GSIS could invest its funds elsewhere: the
debt market, in government securities, or even foreign stock markets. He
also said that GSIS' actuarial group required a return on investment of
at least 12%. If not for factionalism at PSE, equities would have been a
good investment choice, he said. Mr. Palmiery also said that GSIS, as
one of the biggest investors at PSE, should be heard. "GSIS is one of
the biggest investors in the exchange, yet they don't want to listen to
us. The PSE is not just a stock market of certain groups. If it suffers,
we suffer also. We have a big stake because we're one of the biggest
investors. Brokers only mediate," he said. He added that if the
situation at PSE would not change, "we will not be surprised if other
private investors, whether domestic or foreign, would likewise pullout."
GSIS has told PSE that it would return the 1.4 million PSE shares it
purchased last February. This was after GSIS was included in a court
case that a faction of brokers filed against other PSE officials. In a
letter to the PSE, GSIS said it wanted to return the shares, worth
PhP166 million, because it did not want to be part of the
"intramurals" at PSE. It also said that it had wanted to participate in
of reforms in the stock exchange, but added that the "dissention" among
officials of PSE made implementing reforms impossible.
The PSE board will meet on July 28 to discuss the GSIS issue. PSE
officials have said GSIS could not return the PSE shares. Mr. Palmiery
said that when 40% of PSE was offered to nonbrokers through a private
placement, GSIS thought that aside from reasonable yields for its
investment, it would also participate in reforming PSE. "We thought we
were welcome. But when we came in, we were met with court
suits...although we heard things, we didn't realize that the dissention
was so deep, and [there's a] strong personality complex. How can an
organization move forward with the reform agenda?" he said. He noted
that with the exception of PSE, stock exchanges in the region were
"growing robustly." He also said that if PSE would not allow GSIS to
return the shares, GSIS would "exhaust all means to have these withdrawn
from the market." "We can always sell it but we want this returned
because expectations were not met. PSE can buy it back as treasury
shares for the same rate," he said. But PSE chairman Alicia Rita M.
Arroyo is unfazed by GSIS' threat to withdraw some
PhP39 billion in stock investments. "They bought listed shares and
they are free to sell the in the market," she said.
Meanwhile, an analyst said GSIS investments were critical to the
market, and thus any withdrawal would be bad for it. Meanwhile, a lower
maintaining balance has prompted GSIS to transfer about
PhP1 billion in bank deposits to Union Bank of the Philippines (Unionbank)
from state-run Land Bank of the Philippines (Landbank). GSIS senior
vice-president for Finance and Investments Omelita V. Tiangco told
BusinessWorld that Landbank required a maintaining balance of
PhP7 billion, while Unionbank's was only
PhP1 billion. "From what I know, we merely deposited maintaining
balance required. If you look at it, we can invest the
PhP6 billion in higher-yielding instruments. Hindi lang 'yung
matutulog sa bangko [That will not just sleep in the bank]," she
said. Mr. Palmiery added that Unionbank was also accredited by the
Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) as
a depository bank, aside from Landbank. He also said GSIS still
maintained an account with Landbank. "You can just invest in Treasury
notes, where you can earn around 12%, which is more than the 2% to 3%
the banks offer. Where else can you go? Dapat pakitain mo ang pondo.
We are growing almost
PhP1.5 billion a month. Hindi ka nagde-deposit more than what
is necesary to fund your daily disbursement," he said. "Unionbank is
also servicing our disbursements. Our requirements for payments normally
are
PhP1 billion. Our disbursement is actually
PhP250 million to
PhP300 million a day. These include loans and expenses, payments of
benefits, claims, and operating expenses," he added.
-- Jennee Grace U. Rubrico, Roulee Jane F. Calayag and
Ruby Anne M. Rubio
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Despite the Philippines's poor showing last year in the World
Competitiveness Yearbook of Switzerland-based Institute for
Management Development, both Philippine-based Japanese traders and
businessmen surveyed by the Makati Business Club (MBC) have become
upbeat on the country's prospects. With President Arroyo back in office
and political and economic reforms seemingly forthcoming,
Philippine-based Japanese traders are upbeat on business prospects in
the next quarter.
In fact, the Japanese External Trade Organization (Jetro) said its
July business sentiment survey showed Japanese businessmen in the
Association of Southeast Nations (ASEAN) were optimistic only in the
Philippines. "The outlook diffusion index for two to three months ahead
declined in all [ASEAN] countries, except for the Philippines," Jetro
said. Its latest survey was done in the first week of this month,
shortly after Ms. Arroyo took her oath of office in Cebu City. Business
sentiment in July, compared with June, also generally improved except in
oil, chemicals, steel and metals; non-manufacturing; construction and
real estate; and other non-manufacturing businesses. But there was
considerable improvement in transportation machinery manufacturing as
well as transport, communications, commerce and services segments. It
was the non-traditional manufacturing sector, categorized as "other
manufacturing businesses," which made the most headway last month.
The construction and real estate segment was still in the doldrums.
After a slight improvement in June, it reverted to its May level. April,
which is traditionally a good month to start new projects, holds the
worst record year-to-date. "Among the five ASEAN countries, current
outlooks, compared with June, improved in all countries, most noticeably
in Thailand. In China and North Asia, current indices soared in East
China and remained almost unchanged in the Republic of Korea. However,
indices were lower in all other locations, which caused the overall
current outlook to be slightly lower this month," Jetro said. The
Philippine July survey turned in the best results this year. Japanese
businessmen's assessment of Philippine operations had recovered since
falling to its worst last April because of political uncertainties.
Jetro, together with Japan's Ministry of Economy, Trade and Industry,
conducts the monthly survey to provide updates on business conditions in
Asia. The goal is to help companies develop more effective business
strategies. There were 929 respondents in Southeast Asia: 150 in
Indonesia, 144 in Malaysia, 226 in the Philippines, 254 in Singapore,
and 155 in Thailand. There were 370 replies in China, 165 in Hong Kong,
40 in the Republic of Korea, and 181 in Taiwan.
Japanese businessmen predicted that companies engaged in the electric
and electronic machinery would maintain their good performance in the
short term, or from August to October. Also seen turning in modest gains
in the next three months are the "other manufacturing businesses" and
manufacturing sectors. Local consumer demand for Japanese electric and
electronic machinery continued to be robust this month, but there was a
sharp decline in demand for transport, communications, commerce and
services, which was notably in very high demand in June. Inventory-wise,
the firms surveyed said they have cut inventory in almost all sectors at
the beginning of the month, particularly oil, chemicals, steel and
metals, most probably due to rising prices. As with Japanese companies
in other Southeast Asian countries, 72% of Philippine-based Japanese
manufacturers surveyed said they would rather keep "appropriate"
inventory levels. Only about 9.6% said they would either have excess or
slightly too much in the coming months. But 17.8% said they would either
have shortage or slightly too little stocks in place.
ALSO UPBEAT
Moreover, big business is upbeat as a result of the recent
presidential election, the Makati Business Club's (MBC) most recent
Executive Outlook survey showed. In fact, almost seven in every 10
respondents (or 69%) for the July survey expect economic growth this
year to be higher than last year's 4.7% gross domestic product (GDP)
growth rate. "Economic prospects are at its most bullish since 2000 in
the eyes of the country's top business executives," MBC said in a
statement.
While MBC interpreted the results as "early signs of post-election
bullishness and optimism," it noted that first-quarter GDP had already
grown by 6.4%. MBC's survey also showed that less than a third (30%) of
respondents expected GDP to grow in 2004 at a pace similar to 2003. MBC
members' positive outlook is offset by threats of higher inflation and
rising interest rates. More than eight in 10 respondents (86%) expect
prices to increase faster than previously expected, and more than seven
in 10 (72.4%) also expect a rise in interest rates. Inflation was 3% in
2003. It rose to 4.1% in the first quarter because of rising costs of
fuel in the world market, among others. Also, the 91-day Treasury bill
rate, considered as the country's interest rate bellwether, rose to
6.93% in the first half of the year from 6.034% in 2003.
MBC survey results also showed that just over four out of 10 (43.7%)
respondents expected the peso to depreciate to PhP57 against the dollar
by yearend. About a third (32.2%) see the currency appreciating to
PhP52.61. MBC also said, "Unparalleled since the 1997 Asian financial
crisis, 86.7% expect growth in gross revenues and 75% forecast increased
net incomes this year." Moreover, 60.9% of respondents expect higher
investments this year, from
PhP63.6 billion in 2003. And 71.3% said they would make additional
investments this year and in 2005, at an average of
PhP180.3 million. Last January, 76.8% said they would make
additional investments this year, at an average of
PhP269.4 million. MBC also said the labor picture should improve
marginally in the next few months. It noted that 31.8% of the
respondents said they were hiring or expanding their work force this
year. The number of respondents whose firms' were laying off or
downsizing fell to a nine-year low of 4.7%.
Over a quarter of respondents also identified President Gloria
Macapagal Arroyo's victory last May as the top positive development in
the first semester, MBC said. Close to a fifth, however, gave no
response or cited no positive development at all in the last six months.
The latest survey was done from June 25 to July 16, with 87 business
executives or 11.7% of MBC members. Around three quarters of the
respondents were in top management positions, while fewer than a sixth
were in middle management. Nearly 80% of the respondents were Filipino
citizens. -- Cecille M. Santillan-Visto
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The consortium working on the Malampaya natural gas project in
Palawan is giving up on developing the site's oil reserves, Energy
undersecretary Eduardo V. Maņalac said yesterday. The Malampaya project
is a joint venture of Shell Philippines Exploration BV (Spex), Chevron
Texaco, and the government through state-run Philippine National Oil
Company (PNOC), which has a 10% stake in it. "We met [Tuesday] and they
[consortium members] said they will issue me a letter that they will no
longer develop the oil leg. The government will have to do its duty to
see whether it can find somebody else to develop it," Mr. Maņalac told
BusinessWorld.
The Department of Energy (DoE) earlier said it would allow other
companies to explore for oil in Malampaya if the consortium would forego
it. The Malampaya site has oil reserves of around 25 million to 30
million barrels, which the government has offered to the consortium for
development. "The consortium has declared it noncommercial, so they will
not develop it. From the point of view of the government, we feel that
we must try to exploit all available energy sources," Mr. Maņalac said.
"We will see if we can find a way to do it. It might turn out
commercially unviable, but the government wants to review its option and
find other ways to make it commercial," he added. Mr. Maņalac said the
consortium gave up on developing the oil leg of the project because the
reserves were too small for it.
SPEX's and Chevron's contract with the government allows it to
abandon the project upon its discretion, especially if they no longer
find it financially beneficial. The Malampaya consortium is undertaking
a $4.5-billion gas-to-power project involving natural gas discovered in
northwest Palawan. Located in the South China Sea, off the northern
island of Palawan, Malampaya is estimated to contain an estimated 2.6
trillion cubic feet of natural gas. Malampaya is the largest natural gas
development project in Philippine history, and one of the largest
foreign investments in the country. --
Bernardette S. Sto. Domingo
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Bank of the Philippine Islands (BPI), the country's second-largest
lender, said on Wednesday it sold
PhP8.6 billion worth of nonperforming loans to Morgan Stanley
Emerging Markets Inc. The bank, owned by Singapore's DBS Group and the
Philippines' Ayala Corp., said in a statement it expected to complete
the transaction within the year after complying with regulatory
requirements. "BPI's aggressive loan provisioning policy and Morgan
Stanley's positive outlook for the Philippines have enabled this
landmark deal to be realized," the bank's statement said.
BPI's board of directors approved the sale on Wednesday and the bank
signed a memorandum of agreement with Morgan Stanley shortly after. The
deal came more than 10 months after BPI ended talks with US investment
bank Merrill Lynch on the sale of about
PhP10 billion worth of bad assets due to differences in valuation
assessments. Lehman Brothers and Goldman Sachs also bid for BPI's bad
assets last year. Philippine banks are rushing to sell their bad loans
before tax and investment perks offered to investment firms buying these
soured assets lapse after April 2005, as provided under the
Special Purpose Vehicle Act. BPI, with one of the lowest bad loan
ratios in the country, reported that its nonperforming loans stood at
7.08% of its total loan portfolio in March. Its rival, top-ranked
Metropolitan Bank and Trust Co., signed a deal to sell around
PhP16 billion worth of nonperforming assets to Dutch cooperative
Rabobank. The deal has yet to be approved by the Philippine central
bank. Metrobank said recently its bad loan ratio had been 13.05% on June
23, not counting its subsidiaries. --
Reuters
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The Department of Finance (DoF) is considering the scrapping of the
PhP1.4-billion EDSA rehabilitation project due to disagreements
among several agencies on its implementation. A government report
obtained by BusinessWorld stated that DoF was inclined to request
the cancellation of the project's financing from the Asian Development
Bank, so it could avoid paying additional commitment fees. A source from
the National Economic and Development Authority (NEDA) confirmed that
the Department of Public Works and Highway (DPWH) has already endorsed
the cancellation. "DoF may still be evaluating the endorsement. There is
no word yet from DoF," the source added. But a NEDA senior official said
the government might salvage the project if it could renegotiate ADB's
financing terms. "There is no finality yet as to whether the government
will cancel the project. There are initiatives to redesign the project
and to renegotiate with ADB," said NEDA assistant director-general
Rolando G. Tungpalan.
EDSA's rehabilitation is a component of the Metro Manila Air Quality
Improvement Sector Development Program of the Department of Environment
and Natural Resources (DENR), which is funded by ADB. BusinessWorld
earlier reported that the project has been stalled because agencies
could not agree on whether to use concrete or asphalt in fixing EDSA.
ADB earlier called on implementing agencies to "immediately resume the
presently suspended procurement process...with its original design of
asphalt concrete overlay, or request cancellation of this component from
the program." "This concrete re-blocking proposed by DPWH is
economically far less viable than the original design of asphalt
concrete overlay. Therefore, ADB will not be able to finance this
component unless DPWH reverts to the original design...," an ADB letter
to DPWH undersecretary Manual M. Bonoan read. Earlier, DENR officials
said that while there has been no Cabinet decision on the cancellation,
there was an informal consensus among DENR, NEDA, Metro Manila
Development Authority, nor DPWH to recommend it, so the government could
save on commitment fees. -- Jennifer A.
Ng
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By JEFFREY O. VALISNO and IRIS
CECILIA C. GONZALES, Reporters
Malacaņang yesterday issued assurances that it is taking steps to
address the growing budget gap following the government's failure to
keep its
PhP79.6 billion-deficit goal for the first half of this year.
This developed as a Bangko Sentral ng Pilipinas (BSP) official expressed
confidence the Philippines will not get another credit downgrade
following the latest deficit tally. "Nothing much has changed. There are
not enough reasons for us to get a downgrade," a BSP official who
requested anonymity said.
Presidential Spokesperson Ignacio R. Bunye said the government will
curb the deficit, which hit
PhP80.1 billion for the first six months of 2004, by adopting a
two-pronged approach of properly implementing existing tax laws while at
the same time pushing for new revenue-generating measures. "We assure
the public that every ounce of sacrifice that will be levied out of new
tax measures will be matched with vigorous steps in revenue collections
and in cutting waste in government," Mr. Bunye said in a statement.
Malacaņang has announced plans of imposing at least eight new tax
measures aimed at keeping the budget deficit below
PhP197.8 billion this year as well as balance the budget by 2009.
These include an increase in the value added tax rate to 12% from 10%;
reimposition of a 3% franchise tax on telecommunication companies;
adoption of gross income taxation for corporations and self-employed
individuals; rationalization of fiscal incentives; indexation to
inflation of the excise taxes on tobacco and alcoholic drinks; grant of
general tax amnesty; use of a performance-related attrition system in
government; and adjustment in the excise tax and tariff on petroleum
products. "Our economic team has already laid down sound, concrete, and
equitable proposals to address the budget deficit and these are being
worked on with Congress," Mr. Bunye said. But the Palace-backed tax
measures expect rough sailing in Congress following statements from
administration Sen. Joker P. Arroyo demanding improved revenue
collections in the next six months before Congress considers the new tax
measures.
To this, Mr. Bunye said: "We are bent on doing our share in terms of
sacrifice and responsibility." He said among the sacrifices that the
government will bear would be the implementation of cost-cutting
measures in "agencies not living up to their mandate". He declined to
elaborate, saying Mr. Arroyo's proposal would be better fleshed out when
the President calls a meeting of the Legislative-Executive Development
Advisory Council (LEDAC) after she delivers her State of the Nation
Address (SONA) on Monday. "The economic managers are coming up with
realistic plans, and these will be fleshed out in LEDAC that will be
called after the SONA. We believe that there is enough time to thresh
this out, and we are also optimistic that the proposed measures will be
favorably acted upon," Mr. Bunye told a press briefing.
The first semester deficit figure, despite breaching the cap, was
seen as better than expected as analysts had figured a deficit of around
PhP85 billion. Given this, the BSP official said investors are
more optimistic with respect to the government's fiscal management
program. A report by London-based Fitch Ratings last month said
President Gloria Macapagal-Arroyo must commit to raising taxes and
address the money-losing operations of state-owned National Power Corp..
"Failure to exploit the improved political backdrop by making headway on
fiscal policy tightening could see the Philippines' rating strengths
start to wither again, following the downgrade in 2003," Fitch said.
Aside from Fitch, Standard & Poor's Ratings Services has also not ruled
out the possibility of another credit rating downgrade in case of
adverse political developments. S&P said a widening of the budget
deficit and further deterioration in the quality of banks' loan
portfolios could trigger a downgrade. A government official said S&P
officials are scheduled to visit the Philippines in the coming months.
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The Department of Finance (DoF) may raise the Bureau of Customs' (BoC)
annual collection target beginning this year until 2010 following the
agency's outstanding performance during the first half of 2004. The DoF,
in a July 14, 2004 memorandum, said the Customs bureau's
PhP112.6-billion collection target for the year is now under
review after it unexpectedly surpassed its January to June goal due to
higher excise tax collections. "The higher assessment can be justified
by an upward adjustment of the projected excise tax collections of the
Bureau," the memorandum said.
As of May, the BoC topped its revenue goal by
PhP6.7 billion. This means the BoC can still achieve its yearend
target even if it misses June to December targets by
PhP1 billion, the DoF said. "Assuming that BoC would just meet
the monthly targets from June to December, the likely collection outcome
is
PhP119.2 billion," the memorandum said. The BoC aims to collect
PhP1.9 billion in excise taxes this year. As of April, however,
excise tax collections had already reached
PhP6.1 billion. Last year, the BoC collected a total of
PhP11.5 billion in excise taxes. "Adjusting the actual tax
collections from 2001 to 2003 and using the same growth rates of
imports, the 2004 projection would be
PhP12.5 billion. This is enough to pull up the annual BoC
projected collections to
PhP119.7 billion. These adjustments would mean correspondingly
higher projections for 2005 to 2010," the DoF said.
Assuming that the BoC will be able to collect
PhP12.49 billion in excise taxes in 2004 against its original
target of
PhP1.9 billion, its yearend target could be adjusted to
PhP119.69 billion from
PhP112.58 billion, initial DoF projections showed. If it sustains
its performance and collects
PhP13.84 billion in excise taxes from the original
PhP2.1-billion target for next year, expected BoC collections in
2005 could reach
PhP129.44 billion versus the original target of
PhP121.52 billion. In 2006, the DoF hopes to raise the excise tax
collections target of BoC to
PhP15.62 billion from
PhP2.3 billion to allow it to increase the collection target for
the year to
PhP177.27 billion from
PhP135.06 billion.
In 2007, 2008, 2009 and 2010, the BoC is expected to collect PhP17.41
billion, PhP19.08 billion, PhP20.83 billion and PhP22.75 billion in
excise taxes, respectively, from the original goal of PhP2.6 billion,
PhP2.9 billion, PhP.1 billion and PhP3.4 billion. If achieved, BoC
collections are expected to reach PhP158.06 billion from the initial
target of
PhP147.78 billion in 2007; PhP171.58 billion from PhP160.30 billion
in 2008; PhP185.72 billion from PhP173.39 billion in 2009 and PhP197.173
billion from
PhP183.81 billion in 2010. BoC surpluses over the last six months
have helped offset shortfalls incurred by the Bureau of Internal
Revenue. DoF data showed the BoC contributed PhP60.6 billion in the
first half. The
PhP343.3 billion collected overall from January to June, however,
was not enough to help the government keep the deficit under the
PhP79.6 billion cap. The government spent about PhP80.1 billion more
than it earned in the six months to June, exceeding the cap by PhP544
million. -- Karen L. Lema
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A bill extending the maximum tax holiday for pioneer firms to 12
years from six has been filed at the Senate. In the bill's explanatory
note, Sen. Manuel B. Villar, Jr. said the Philippines trails behind
other Asian countries in the provision of tax holidays that will serve
as an incubation period for new companies. "Most investors and
export-oriented establishments observe that the [Philippines' tax
holiday] periods are too short for them to attain a certain degree of
financial stability," Mr. Villar said. Senate Bill 513 is aimed at
amending the Omnibus Investments Code of 1987. It also seeks to
restructure the fiscal incentives regime in response to a Department of
Finance proposal to adopt a single incentives law.
Once enacted into law, registered pioneer companies will get a
maximum income tax holiday of 12 years subject to approval of the
Finance Secretary and their compliance to several conditions: a new
investment of at least US$25 million and the manufacture of new
products, 70% of which should be exported. New registered enterprises
engaged in information technology, information technology-related
projects, breeding and genetics can also avail of the 12-year tax
holiday. The proposed law also provides that the net operating loss
carry over of pioneer firms incurred during the incentive period can be
deducted from gross income for the next five years. Total expenses
incurred for local training of employees and research and development
and 50% of expenses for fixed assets could be deducted from taxable
income in the year in which the investments were made. Non-fiscal
incentives include: assistance in the preparation of investment
opportunity studies, joint venture matching and sourcing of financial
support; promotion of intra-sector linkages; technical assistance from
the Board of Investments; business consultancy and legal services; and
entrepreneurial assistance to overseas contract workers. The bill also
sets sanctions for firms and government officials violating the law.
-- Carina I. Roncesvalles
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Japanese firms interested in 10 geothermal sites have been given more
time to evaluate information on the areas they wish to bid for, the
Department of Energy yesterday said. Energy Undersecretary Eduardo V.
Maņalac said Japanese firms Kyushu, Kansai, Marubeni, and Mitsui were
allowed to further study data about the sites before submitting bids.
"We are delaying the deadline indefinitely to allow the companies ...
more time to evaluate data and information before they submit their
bids," Mr. Maņalac said.
Apart from the Japanese companies, no other firm has signified
interest, he said. But Mr. Maņalac said the sites are not really
unattractive but are just "more risky", he said. "There's exploration
... you have to know and confirm if there are steam reserves. Some of
those areas will require more drilling as opposed to some areas where
drilling has been done and reserves ascertained," he said. The
government is aiming to bid out service contracts for geothermal sites
in Albay, North Cotabato, Sorsogon, Southern Leyte, Biliran, Compostela
Valley, Bataan, Batangas, and Mindoro Oriental. The sites' potential
capacity totals 300 to 475 megawatts. The 10 sites are among 35 that the
government has identified as geothermal resource areas. Five of the 10
have existing service contracts awarded to Philippine National Oil
Co.-Exploration and Development Corp.
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The foreign currency deposit units (FCDU) of commercial and thrift
banks lent out a smaller amount in the first quarter compared to the
previous quarter, the central bank said yesterday. Loan releases during
the period amounted to $4.660 billion, or 4.57% lower than
end-December's $4.883 billion. Central bank chief Rafael B. Buenaventura
said the drop in the FCDU loan portfolio was because of net repayments
worth $225 million. This was after $607 million worth of disbursements
by the system were outpaced by repayments of $832 million. Dollar loans
were one of the main reasons behind corporate distress in the period
following the 1997 Asian financial crisis as the peso's devaluation
dramatically increased companies' obligations to their creditors.
On the other hand, FCDU deposit liabilities expanded by $908 million
or 7%, reaching $14.33 billion during the same period, with about 96%
pertaining to residents. The central bank noted that the overall
loans-to-deposits ratio remained essentially unchanged at 37% at the
close of the first quarter. Private sector accounts represented the bulk
or 65% of total loan portfolio. Exporters and public utility firms
accounted for a combined 45% share of these accounts. In terms of
maturity, medium and long-term loans comprised 73% of the total loans.
The central bank said loan releases during the quarter at $607 million
had a weighted average interest rate of 4.38%, reflecting an
87-basis-point increment from the average in the earlier quarter.
-- Iris C. Gonzales
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The Philippine peso was little changed against the US dollar
yesterday on lack of fresh leads. "The market is sluggish at the moment,
even in the past few days; it was only [range-trading]," said Rovic De
Guzman, head of trading at the Union Bank of the Philippines. The peso
closed weaker by almost four centavos, reversing Tuesday's four-centavo
rise following the release of a better-than-expected budget deficit
figure of PhP80.1 billion, or just 0.5% shy of the first-semester
target. Moving in ranges, regional currencies proved their resiliency
despite hints from the United States Federal Reserve that interest rates
were bound to rise amid a sustainable economic growth. "Others bid up
for the dollar since they are our top trading partner. Others were
optimistic of a fiscal stability ahead so they supported the peso. So
the movement [yesterday] was really sideways -- a tug-of-war," a trader
said. The source added that the market is on the lookout for leads that
could support the peso ahead of the President's State of the Nation
Address on July 26.
At the Philippine Dealing System, the country's electronic currencies
exchange, the local unit averaged PhP55.922 from PhP55.911 previously.
Opening at a low of PhP55.94, it went to as high as PhP55.905 against
the greenback. It settled at PhP55.935 against the previous close at
PhP55.90. Total dollar turnover slipped to $115.20 million from $154
million the other day. -- Ira P. Pedrasa
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State-run Development Bank of the Philippines (DBP) has earmarked
PhP5.3 billion for relending through its various environmental
investment facilities this year. DBP president Simon R. Paterno said the
bank continues to look for funds for future investment needs as it
strives to sustain its environmental lending activities. "We realize
that with the implementation of the Environmental Consent Agreements,
the issuance of the Joint Implementation Circular for health care waste
management, the pursuit of commitments under the Kyoto Protocol, and the
urgent need to conserve and protect our water and forest resources, PhP5
billion will not be enough," he said in a statement.
In the last four years, DBP has extended
PhP10.4 billion for natural resource development and
environmental protection projects, namely: the Environmental
Infrastructure Support Credit Program (EISCP), Industrial Pollution
Control Lending Program-Phase II (IPCLP), Credit Line for Solid Waste
Management (CLSWM), Urban Water and Sanitation Project, and Rural Power
Project. "The amount represents the total loan availments out of the
bank's PhP15.7 billion current total credit for the environment sector,"
Mr. Paterno said. These projects involve pollution abatement and
control, clean technology, solid waste management, natural resources
conservation, new and renewable energy, rural electrification/power,
water supply and watershed management, and carbon investment banking."
The EISCP supports, among others, investments in clean technology and
pollution control projects as well as projects that promote efficient
management of natural resources and improve occupational health and
safety. -- Ruby Anne M. Rubio
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By ROULEE JANE F. CALAYAG
A technical rebound saw share prices closing higher yesterday,
reversing the downward trend for the past few days. Bargain hunting on
select blue chip stocks boosted trade in third-liners, packing the
volume to over three billion shares. Analysts said the hefty volume did
not lead to a higher value, which was only at
PhP579 million because the market was still looking for support.
MINING AND TELECOMS
Rommel Macapagal, analyst at Westlink Global Equities, Inc., said the
significant increase in the trading volume showed a shift in investors'
focus. "Investors concentrated on stocks that have stories to tell," he
said. Mining and telecom stocks are among the stocks currently favored
by investors because of the fresh developments in these areas, such as
the reopening of mines, resumption of mining operations and higher
wireless subscriber base. But the value was still not strong considering
the market's upside move. Mr. Macapagal said the upside was merely a
"technical rebound" in a continuous decline. "The market is still moving
within the range of 1,520 and 1,550. It is looking for support at 1,530
which was reached [yesterday]," he said.
The Philippine Stock Exchange composite index (Phisix) recouped its
previous losses as it advanced 6.32 to 1,539.32. There were 2,856 trades
and 3.4 billion shares that exchanged hands. Value turnover was at
PhP579.4 million, almost twice the PhP294.1 million on Tuesday.
Gainers beat losers, 46 to 19, while 59 issues were unchanged. Mr.
Macapagal said it would be favorable to the market if the Phisix breaks
the 1,550 level since this will help the market's bid to break the
downward trend that had been going on for a week. "The upside was only a
bounce. The market cannot go down continuously," he added.
FOLLOW THROUGH NEEDED
For the market to reverse its downhill trek, it has to continue the
gains it made yesterday, traders said. "Hopefully, the pickup will go
on," said Mr. Macapagal, adding that the market needs more incentives as
the budget deficit and the anticipated State of the Nation Address (SONA)
of President Arroyo were already factored in. Ron Rodrigo, analyst at
Accord Securities, Inc., said he is hoping for a continuity of the
market's positive performance yesterday. "There is always the tendency
for the market to go up during the short term and it just did. We hope
to see the upward trend to continue through the rest of the week," said
Mr. Rodrigo, adding that the market's stamina need to be sustained. He
noted that most of the blue chip stocks had reached their oversold
levels, paving the way for bargain hunters to come in.
FILIPINO HOSTAGE RELEASED
The upbeat mood of the market, said Mr. Rodrigo, showed that
investors welcomed the government's intervention in the release of
Filipino truck driver Angelo de la Cruz who was kidnapped by Iraqi
militants. Mr. de la Cruz was freed on Tuesday following negotiations
between the government and hostage takers which led to the withdrawal of
a small Filipino humanitarian contingent detailed in Iraq. While the
move was not welcomed by the international community, Mr. Rodrigo said
this would bear only a slight impact on the economy. He said the
"boldness" of Mrs. Arroyo in saving the life of a Filipino abroad "spoke
volumes." Some sectors say the show of independent and decisive action
on the part of the government in the midst of a stifling international
crisis would translate in a stronger vote of confidence in her
leadership especially when she delivers her SONA on Monday.
At the stock market, most of the indices rallied. The all-shares
index was up 2.79 at 995.3. Banks and financial services advanced 4.35
to 463.96. The commercial-industrial index climbed 8.69 to 2,416.81.
Mining advanced 3.64 to 1,617.69. Oil and property indices shed 0.04 at
1.4 and 0.42 at 518.61, respectively. Mr. Rodrigo said first-semester
earnings reports and economic indicators will chart the market's
direction over the short to medium term. Meanwhile, Harry Liu, president
of Summit Securities, Inc., sees the market hovering by a consolidation
window between a resistance level of 1,600 and support level of 1,500.
"The market is waiting for further developments on the side," said Mr.
Liu. He expects trading to move sideways over the short to medium term.
He sees an upside for the medium to long term. The investing public,
said Mr. Liu, is waiting for positive news to set in.
ACTIVE STOCKS
Philippine Long Distance Telephone Co. was up at PhP1,170 on 162,000
shares valued at
PhP189.1 million. It cornered 32.64% of the market. ISM
Communications advanced to PhP0.04 on 2.3 billion shares worth PhP82
million. This was after PhilWeb Corp. sold its shares in ISM to SIIS
Investment Holdings Ltd. of Hong Kong. The 2.3 billion shares of ISM
were sold for 3.5 centavos per share. The shares constitute
approximately 7.6% of the subscribed and outstanding shares of ISM.
Prior to the sale, PhilWeb owned 40% of the subscribed and outstanding
shares of ISM. PhilWeb's ownership of ISM is reduced to approximately
32.4% of ISM after the sale. PhilWeb's gain from the sale is
approximately PhP57 million. Other actively traded stocks were Salcon
Power Corp., Globe Telecom, the B shares of Manila Electric Co.,
Pilipino Telephone Corp., Petron Corp., DMCI Holdings, Inc., SM Prime
Holdings, Inc., and San Miguel Corp.
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By BENNET S. STO. DOMINGO,
Reporter
The Energy Regulatory Commission (ERC) has approved the application
of nine electric cooperatives seeking to have their loans condoned by
the National Electrification Administration, a move which could result
in the reduction of power rates. With the decision, North Cotabato
Electric Cooperative will reduce its rates by 8.99 centavos per
kilowatt-hour (kWh), while Bohol Electric Cooperative will slash its
rates by 20.57 centavos. Rates being collected by Sorsogon II Electric
Cooperative will be cut by 41.24 centavos per kWh while rates of
Pampanga III Electric Cooperative will go down by 20.55 centavos.
The Ilocos Norte Electric Cooperative will cut its rates by 15.90
centavos; Leyte II Electric Cooperative by 80.1 centavos; Negros
Oriental Electric Cooperative by 64.16 centavos; Busuanga Island
Electric Cooperative by 56.08 centavos; Camarines Sur Electric
Cooperative 77.74 centavos and Camiguin Electric Cooperative by 43.64
centavos. "The commission is working hard to fast-track the evaluation
of loan condonation applications knowing that both the electricity
consumers and the electric cooperatives will benefit from the write-off
provided under the Electric Power Industry Reform Act [EPIRA]," ERC
Chairman Rodolfo B. Albano, Jr., said in a statement.
REPRIEVE
"The reprieve granted to electric cooperatives will either result in
a downward adjustment in the electricity rates or cushion the impact of
the removal of cross-subsidies as mandated by law," he added. Some 54
loan condonation requests from electric cooperatives are pending before
the ERC while 15 are with the Private Sector Assets and Liabilities
Management Corp. (PSALM) for the final audit of their deferred loans.
With their loans condoned, the ERC advised electric cooperatives to
divert freed up funds to improve services and supply electricity at
reasonable rates. The condonation of the loans is mandated under Section
60 of Republic Act 9136 otherwise known as EPIRA.
It states that "upon the effectivity of this Act, all outstanding
financial obligations of electric cooperatives to NEA [National
Electrification Administration] and other government agencies incurred
for the purpose of financing the rural electrification program shall be
assumed by the PSALM Corporation in accordance with the program approved
by the President of the Philippines within one (1) year from the
effectivity of this Act which shall be implemented and completed within
three (3) years from the effectivity of this Act. The ERC shall ensure a
reduction in the rates of electric cooperatives commensurate with the
resulting savings due to the removal of the amortization payments of
their loans."
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By JENNEE U. RUBRICO, Senior
Reporter
The state-owned Government Security Insurance System (GSIS) said it
is looking at paring the number of brokers that it employs in trading at
the stock exchange. At the start of the year, GSIS used to have 44
brokers, but this was pared down to 35 in January. GSIS Senior Executive
Vice-President and Chief Operating Officer Reynaldo P. Palmiery said
that the number would further be reduced to 24. "Pipiliin ang
pinakamatibay, mahusay, at 'yong hindi tatakbuhan ang GSIS (We will
choose the most stable and effective brokers and those that won't
disappear). There have been cases in the past na tinakbuhan ang GSIS,"
he said. He said brokers with whom GSIS has had "problem transactions"
will be dropped, and would likely be replaced with other brokers.
This developed as GSIS defended its purchase of shares of stock in
the Manila Electric Co. (Meralco) through First Resources Management and
Securities Corp., saying it was necessary to prevent market speculation.
Mr. Palmiery told reporters that when it comes to "critical
acquisitions," GSIS usually taps just one or two brokers to handle the
transaction. His statement was in reaction to a text message, accusing
First Resources of conspiring with GSIS officials to corner GSIS deals
in the stock market. First Resources is owned by PSE director Vivian
Yuchengco, who is reportedly a friend of GSIS head and PSE director
Winston Garcia.
The Securities and Exchange Commission (SEC) is currently looking
into the allegations against First Resources. Particularly, SEC is
looking into First Resources' purchase of shares of stock in Meralco for
GSIS in November to December 2004. SEC data show that for Nov. 1 to 30,
First Resources bought for GSIS a total of 5.74% of Meralco shares,
while for Dec. 1 to 31, the firm acquired for the state insurer 33.48%
of Meralco shares. Instead of buying the shares at one go, First
Resources purchased the shares for GSIS on a staggered basis. "The
general policy is to spread the business to accredited brokers. But
there are of course instances when we don't want the market to
speculate. To prevent this, we let only one or two brokers handle that,
especially for critical acquisitions," Mr. Palmiery said. He said that
critical acquisitions pertain to acquisition of stocks that are
considered blue chips, or transactions involving block trading. He said
the Meralco shares were bought on a staggered basis because GSIS did not
want to distort the price of the shares. He said GSIS was not amiss in
the reporting requirements, as it submitted a report to the SEC when its
shareholdings in Meralco reached 5%. Mr. Palmiery said GSIS bought the
Meralco shares because it believes that the yield on the investment will
be reasonable in the long term. Ms. Yuchengco said First Resources
"welcomes" the SEC probe. "For the sake of transparency, SEC should look
into the allegations against First Resources This will give us the
opportunity to ventilate our side and show that our transactions are
above board and in accordance with current regulation," Ms. Yuchengco
said.
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Globe Telecom, Inc. yesterday said its bondholders gave the go-signal
to amend provisions on agreements made in a previous bond offering. In a
disclosure to the Philippine Stock Exchange, Globe said it obtained the
required number of consent from bondholders of $200 million worth of
9.75% senior notes maturing in 2012. "The proposed amendments will
change certain covenants and other terms in the indenture, including
covenants related to the provision of financial statements and reports,
limitations on restricted payments and designation of restricted and
unrestricted subsidiaries," Globe said in the disclosure.
The Ayala-led telco said the amended and restated agreement has been
executed and delivered. Globe sought to amend certain provisions of the
bond offering agreement early this month to allow the company more
flexibility in paying dividends and raising funds. "We want to put in
place some amendments that would give us some flexibility. There is a
provision restricting us from paying more than 50% of our net income as
dividends. If we want to increase our dividends, we have to have the
terms amended. This should benefit all our shareholders including the
public holding Globe shares," said Delfin Gonzalez, chief finance
officer. Restriction on dividends was applied to protect bondholders.
Revising the agreement would also allow Globe to raise the limit of its
saleable bonds to $200 million from the original $125 million. Globe set
a consent fee of $2.50 for every $1,000 in principal amount of notes
held by bondholders.
Meanwhile, Globe said its mobile phone subscribers grew nearly 10% to
over 10 million by the end of June from three months earlier. Globe,
which accounts for about 40% of the market, trails Philippine Long
Distance and Telephone Co. (PLDT), which has over 58%. PLDT, through its
mobile phone firms Smart Communications, Inc. and Pilipino Telephone
Corp., had over 16 million users at the end of June. Globe, jointly
owned by conglomerate Ayala Corp. and Singapore Telecommunications, said
in a disclosure to the stock exchange it would announce its financial
and operating results for the first half of 2004 next month. In the
second quarter of 2003, Globe had a net income of
PhP2.396 billion ($42.86 million), which brought its first-half
profit to
PhP4.4 billion. Globe's net income grew more than 50% in the
first quarter to
PhP3.1 billion from the same period last year, due to strong
demand for mobile phone services. The company has said its expects its
net income to grow 46% to
PhP15 billion this year versus
PhP10.3 billion in 2003. -- Anna Barbara L.
Lorenzo with Reuters
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By Ma. ELISA P. OSORIO, Reporter
Telecommunications giant Philippine Long Distance Telephone Co., Inc.
(PLDT) challenged the imposition of franchise tax by the Province of
Cebu, saying it should be exempt from the tax like other telecom firms.
On a July 14 filing at the Supreme Court, PLDT also asked that the court
order the Cebu province to cease and desist from assessing and
collecting franchise, business and other local taxes. In an 81-page memo
to the Supreme Court Third Division, PLDT said since rival Globe
Telecom, Inc. and Smart Communications, Inc. were not paying taxes, it
is unfair for the local government to compel them to pay. According to
Section 23 of Republic Act 7925, or the Public Telecommunications Policy
Act, telecommunications franchisees must be accorded equal treatment.
"Any advantage, favor, privilege, exemption or immunity granted under
existing franchises, or may hereafter be granted, shall ipso facto
become part of previously granted telecommunication franchises and shall
be accorded immediately and unconditionally.
According to the memo, the Department of Finance has confirmed the
exemption from local taxes of Globe and Smart. Therefore, by invoking
the law, the memo said "the franchises of Globe and Smart are
automatically incorporated or written into the franchise of PLDT and are
in effect amendments to the charter of PLDT." According to the memo, the
province of Cebu may not impose a franchise tax on PLDT as the franchise
of Globe and Smart include the clause "in lieu of all taxes" which
exempts it from taxes of any kind other than the national franchise tax
imposed on its franchise.
LOCAL GOVERNMENT CODE
Also, Section 137 of the Local Government Code which provides for the
imposition of a franchise tax and Section 193, which contains the
withdrawal of tax exemption privileges do not apply to PLDT as special
provisions in the telecom law prevail over general provisions. PLDT also
asked the court to place "persuasive weight" on the Finance department's
ruling that PLDT is exempt from local franchise and business tax. If it
paid the franchise tax, PLDT said it would have to pass on the cost to
consumers. And since customers would shoulder the extra burden, the
increase in the rates would make the telecom company noncompetitive and
less attractive. The case stemmed from the refusal of the province of
Cebu to return to PLDT PhP72,044.80 in franchise tax, paid by the phone
company for the third quarter of 1998.
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Lopez-led Bayan Telecommunications, Inc. (BayanTel) is looking at a
PhP5.7-billion full-year revenue on continuous growth of its
voice and data business. For the first half, BayanTel said revenues hit
PhP2.66 billion, 7% higher than
PhP2.47 billion it made for the same period last year. In the
last six months, BayanTel reported revenues from voice services grew 7%,
international long distance improved 29%, while internet revenue growth
jumped 226%. BayanTel said earnings before interest, taxes, depreciation
and amortization rose 18% to
PhP931 million, as against
PhP787 million from January to June last year.
Chief consultant Tunde Fafunwa said with the court's approval of
BayanTel's rehabilitation plan, it can now focus on revenue generation
and on attracting new investors. "We expect that with the completion of
the restructuring, there are more opportunities for a broader category
of investors," Mr. Fafunwa told a press conference. The Pasig regional
trial court on June 28 approved the rehabilitation plan covering the
telco's $325-million debt which will be paid for a period of 19 years.
Under the plan, all creditors will be on equal footing. BayanTel's
actual debt amounts to $477 million, but creditors earlier sought the
payment of $471 million over a 12-year period. The court said, however,
that all BayanTel debts that would not be covered by the restructuring
should be converted into "an appropriate instrument that shall not be a
financial burden" to the firm. -- Anna Barbara L.
Lorenzo
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