Peso fall may help solve fiscal woes

The national government can balance the budget by 2008 without necessarily passing all eight revenue measures proposed by the Arroyo administration, an economist from the University of the Asia and the Pacific (UA&P) said. The most drastic among the recommendations of Professor Victor A. Abola, program director of the UA&P's Strategic Business Economics Program, was allowing the peso to fall further, boosting the government's tariff collections. He admitted, however, that this proposal is inopportune, given rising world oil prices. But so long as it is able to implement the correct expenditure cuts, improve tax administration and increase power rates, the government can very well improve its finances even if only the indexation of six taxes, the proposed increases in petroleum taxes, excise tax on motor vehicles, and changes to the value added tax (VAT) are approved, Mr. Abola said. The combination of these administrative and legislative measures, Mr. Abola told a press conference, can already earn for the government PhP147.20 billion in annual revenues.

With respect to the peso, he said "[a] devaluation is positive to tax collection. For every 1% depreciation of the peso, the Bureau of Customs will be able to automatically raise PhP10 billion," he said. "[But] I would recommend the devaluation of the peso when prices of oil have already stabilized," Mr. Abola said, adding that the government may consider up to a 4% depreciation. "We should not worry about the impact of peso devaluation on our debt stock. You have to look at the amortization part. Usually, our debts are amortized over a certain number of years and any increases will likely be included in our amortizations," Mr. Abola said. He said it is imperative for the government to raise the necessary revenues now if it is to avert an impending economic collapse if it would not be able to resolve the fiscal crisis.

UA&P School of Economics dean Emilio T. Antonio earlier said devaluating the peso will raise tariff collections. Mr. Antonio also pushed for the devaluation to protect local industries from cheap imports. He said between a peso devaluation and raising tariffs, the former would be more advisable as it is "corruption-proof." Mr. Abola said freezing internal revenue allotments (IRA) for two years can mean an additional PhP10 billion. Cutting the pork barrel into half could earn the government another PhP10 billion and spending cuts among government agencies can account for another PhP5 billion, bringing potential revenues from expenditure cuts to PhP25 billion. Another PhP25 billion can be generated from improvements in the collections of the Bureau of Customs and Bureau of Internal Revenue. These, he said, can be made possible by curbing smuggling, full computerization of the revenue agencies' systems and the conduct of internal audits, among others. An adjustment in the power rates can account for an additional PhP43 billion, while the passage of the proposed indexation of sin taxes (PhP14 billion), increase in petroleum tax (PhP12 billion), restructuring the excise tax on cars (PhP3.2 billion), increase/improvement in VAT collections (PhP25 billion) could result to a total of PhP54.2 billion, bringing the amount of potential income from these reforms to PhP147.20 billion, Mr. Abola added.

NO MORE TIME

Mr. Abola said the government cannot wait until middle of next year before doing anything to solve its financial problems. Government inaction, he warned, could increase next year's deficit by PhP73 billion. The government's deficit cap for next year is PhP184 billion. "This could not wait until the middle of next year," he said. Mr. Abola said the country must be able to send a "strong signal to the financial market so we could get an upgrade." A 100 basis points upgrade, he noted could mean PhP20 billion in interest savings. "The IMF (International Monetary Fund) said we are not reducing our deficit fast enough ... markets will punish the Philippines if it does not act with clear political will to reduce the deficit and bring the deficit to zero sooner," he said. "If these are done, things would be okay but a do nothing scenario is very possible, considering that we are now beyond [the first] 100 days of [the] president['s term and not a single revenue measure has been enacted yet]." The problem, Mr. Abola said, is "all agree that there is a problem but nobody wants to contribute to the solution and they only want the benefit." "If the national government does not want to take the hit, then LGUs (local government units) would also say we should not take the hit," Mr. Abola said. Lawmakers who oppose new taxes should "answer for what will happen to all of us," he continued. -- Karen L. Lema and Jennifer A. Ng

Central Bank seen pressured to hike rates

The Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) may raise its key policy rates by 25 basis points by yearend if inflationary pressures continue to mount, the chief economist of ING Bank yesterday said. ING's Jose L. Cuyegkeng said that while the BSP continues to weigh its options, another increase in the US Federal Reserve rates may prompt local monetary authorities to finally take action. "If there's going to be another Fed hike, the BSP may have to implement a mild increase, just a symbolic one. A 25-basis point-increase is okay," he told BusinessWorld yesterday. He stressed, however, that any rate adjustments will depend on Bangko Sentral's expectations of an inflation buildup.

The BSP's policy-making Monetary Board has kept policy rates unchanged at a 12 year low of 6.75% for overnight borrowing and 9% for overnight lending despite a recent hike in the US Fed rates and skyrocketing inflation. The United States Federal Reserve System adjusted rates for the third straight time last September 21 to 1.75%. The BSP usually matches a move by the US Fed to prevent capital flight that could result when investors shift their funds to economies that offer higher interest rates. Philippine inflation, meanwhile, rose 6.9% in the year through September, its highest in five years, because of spiraling oil and food prices. The BSP increases rates to siphon off excess money in the local economy that could push inflation upward and slash the peso's purchasing power.

Mr. Cuyegkeng said that if the interest rate differential between peso and dollar denominated bonds narrows as a result of another US Fed rate increase, the Bangko Sentral may have to increase rates. "They may have no choice when the interest rate differential narrows," he said. BSP Assistant Governor Diwa C. Guinigundo, however, said the current interest rate differential is still at a comfortable level of 420 basis points. A narrow differential gives investors incentives to shift to dollar denominated bonds. Mr. Guinigundo also said the BSP will continue to look for demand side pressures on inflation before raising key policy rates. "Demand side pressures are not there yet," he said. He said monetary authorities will only act when demand side pressures are present, when the interest rate differential narrows to uncomfortable levels and when the inflation forecast goes beyond a certain level. "If nothing happens with these three factors, the policy rates can be kept unchanged now and in the foreseeable future," he said yesterday, following an economic briefing of the Financial Executives Institute of the Philippines. -- Iris Cecilia C. Gonzales

BIR to appeal Fortune Tobacco refund ruling

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

The Bureau of Internal Revenue (BIR) will ask the Supreme Court to reverse a Court of Appeals decision granting the Lucio C. Tan-controlled Fortune Tobacco Corp. a PhP1.036-billion tax refund. "We will use the same arguments because the case involves a question of law, of how to interpret that specific section of the code...this is not a factual but a legal issue," BIR Deputy Commissioner Kim J. Henares said in a telephone interview. The BIR has 15 days from the date of the promulgation of the case to file a motion for reconsideration before the High Tribunal. Mr. Tan has also been fighting a PhP25-billion tax evasion charge filed against him by the BIR in 1993,

The BIR yesterday found an ally in opposition Sen. Juan Ponce Enrile who said the Court of Appeals "erred" when it ordered the PhP1-billion tax refund. Mr. Enrile noted the collection of higher taxes from Fortune Tobacco was in line with the National Internal Revenue Code of 1997 which prompted the BIR to shift to specific taxation of cigarettes from an ad valorem system. "Nagkamali ang husgado [The judge erred]. What the law did -- particularly Sec. 45 of the National Internal Revenue Code -- was establish four levels of excise tax rates using four various classes of cigarettes of premium, high, medium and low cigarettes based on prices. This took effect on Jan. 1, 1997. And if there is any cigarette paying higher rates than what was established on Jan. 1, 1997 as of Oct. 1, 1996, the higher rates must continue to be paid. And then effective Jan. 1, 2001, the rates to be established on the four classes will be adjusted upwards by 12%. That is the law," he told a news conference.

In Malacañang, Press Sec. Ignacio R. Bunye made assurances that the government remained intent on going after tax evaders despite the court ruling, saying the BIR was filing more tax cases to prosecute more tax cheats. "We respect the decision of the court but the BIR is reviewing its legal options," Mr. Bunye said. "We will not be deterred by temporary setbacks," he added. The government currently implements a four-tier system of taxing cigarettes. Cigarette brands costing more than PhP10 per pack are taxed PhP13.44 per pack. The three other brackets are PhP6.51 to PhP10 taxed PhP8.97 per pack; PhP5 to PhP6.50 taxed PhP5.60 per pack; and below PhP5.00 taxed PhP1.12 per pack.

While the BIR has yet to receive a copy of the decision, Ms. Henares said BIR Commissioner Guillermo M. Parayno has convened his legal staff to an emergency meeting to discuss how the revenue agency could best convince the High Court to overturn the appellate court's Sept. 28, 2004 ruling. Ms. Henares said the intention of Republic Act (RA) 8240 -- which mandated a 12% increase in excise taxes on cigarettes packed by machines by Jan. 1, 2000 after a shift from the ad valorem (computed as a percentage of the price) to the specific tax (a fixed amount per unit of the product) system -- was meant to increase taxes. Therefore, she said, there was nothing irregular with the Revenue Regulations 17-99 issued by the BIR on Dec. 16, 1999 implementing an increase in the applicable tax rates on cigar and cigarettes.

The Court of Appeals upheld on Wednesday a ruling by the Court of Tax Appeals granting Mr. Tan tax refunds amounting to PhP1.036 billion. The appellate court, in its decision said the BIR erred in interpreting RA 8240, specifically in mandating that specific tax payments should be higher than what cigarette companies were paying before 2000. It also noted that Congress' intention was to impose the new rates of excise tax "which is to increase by 12% even if it may be lower than the amount being paid previous to Jan. 1, 2000." The revenue regulation covered Fortune Tobacco-made cigarette brands Champion M 100, Salem M 100, Salem M. King, Camel F King, Camel Lights Box 20's, Camel Filters Box 20's, Winston F. Kings, and Winston Lights. Mr. Enrile earlier proposed a PhP1 uniform tax rate on cigarettes regardless of their price tags. He bucked the other proposal to return to the ad valorem system of taxation, noting that a uniform tax rate would yield more revenues for the cash-strapped government of as much as PhP52.359 billion.

Fortune Tobacco has submitted a position paper to the Senate ways and means committee on the return to the ad valorem tax system. The firm noted a uniform tax increase would phase out the low-priced cigarette brands as this revenue measure would jack up the prices of cheaper cigarettes. Another tobacco company Philip Morris Manufacturing, Inc. has announced its preference for a PhP1 across-the-board tax increase in the four cigarette brackets to prevent "market distortions." Fortune Tobacco said a uniform tax increase on cigarettes would widen the tax burden gap between the two cigarette brands. The firm also dangled the Constitution to back up its call for the return to the ad valorem system of taxation for cigarettes. It noted Section 28, Article VI of the 1987 Constitution which states: "The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation." -- with Jeffrey O. Valisno

Services sector fast becoming RP's growth driver

The country is fast becoming an economy in which manufacturing will take a back seat and services will be an engine of growth, said economist Bernardo M. Villegas of the University of Asia and the Pacific (UA&P). Speaking before members of Financial Executives Institute of the Philippines (FINEX), Mr. Villegas cited food, fashion, furniture, fun (entertainment and tourism), transport, telecom, tourism, IT-enabled services as "sunrise industries."

The Philippines can give Thailand a run for its money on health, wellness and beauty, he said, noting Thailand has become famous for medical tourism. "Among the 10 million tourists who go to Thailand every year, a number have wisened up to the benefits of taking their executive check up, eye care, dental care or skin smoothened," he said. "They pay prices from one-fourth to one-tenth of what they have to pay in New York, Frankfurt, Tokyo or Osaka. That is the industry that is going to explode in the next five to 10 years." Mr. Villegas stressed that 20 million Japanese over 65 receive a monthly pension of $2,000 to $3,000. "If they come here and stay in a retirement village such as Tagaytay Highlands and many other villages, just imagine what we can do if we present the Philippines as health, wellness and beauty center of Asia." UA&P expects the services sector to outperfrom agriculture and industry. This year, it is forecasted to post a 5.9% growth rate and next year to 6.2%. The agriculture sector is estimated to grow by 5.1% this year while the industry at 5.2%.

SUSTAINABLE MOMENTUM

Mr. Villegas said market momentum is seen to remain positive for the rest of the year and continue until next year due to strong evidence of improved fiscal deficit management, strong corporate earnings growth, resurgence of foreign funds inflow in the local bourse and passage of revenue generating tax laws which is expected to improve the government's fiscal position. Another economist from UA&P is urging the government to enter into compromise agreements and out-of-court settlements on cases involving tax assessments pending in courts. This, Victor A. Abola, program director of the Strategic Business Economics Program (SBEP) of the UA&P, said is the better option than the proposed grant of tax amnesty.

In a press conference yesterday, Mr. Abola warned against the granting of tax amnesty at a time when the Bureau of Internal Revenue (BIR) has yet to complete its computerization program. Unless the BIR builds up on its capacity, Mr. Abola said the objective of the tax amnesty program to widen the tax base would be defeated because the tax agency could develop a comprehensive database only when it has the necessary technology. It would be impossible for the agency, which has only 4,000 to 5,000 examiners to verifiy and compare the statements of assets and liabilities filed by millions of taxpayers witthout the help of computers, he said. On the other hand, the government could collect at the very least PhP20 billion from some PhP60 billion in tax assessments currently being challenged in various courts, Mr. Abola said. The BIR and the parties involved could simply determine the amount of tax to be paid, depending on the number of years the tax assessments have been pending in court, he said. Compromise agreements usually result in the payment of only the basic tax, minus the annual interest charges and annual surcharges.

Under the tax code, the BIR can enter into compromise agreements to settle unpaid taxes. Only recently, it has allowed pawnshop operators to settle unpaid value added taxes (VAT) for the years 1996 to 2002 at a lower amount, pursuant to the memorandum of agreement it entered into with the Chambers of Pawnbrokers of the Philippines. The BIR also aims to issue a revenue regulation allowing banks to settle a portion of PhP31 billion worth of unpaid taxes on offshore banking unit (OBU) and foreign currency deposit unit (FCDU) income and transactions "under certain conditions."

BLUEPRINT

The government will formally unveil the Medium-Term Philippine Development Plan (MTPDP) on Monday, the National Economic and Development Authority (NEDA) announced yesterday. Socioeconomic Planning Secretary Romulo L. Neri said the MTPDP draft has been presented to President Gloria Macapagal Arroyo. She has also met with members of her Cabinet to finalize the 2005-2010 growth blueprint. "We made sure that the Cabinet followed the guidelines issued on the plan formulations, specifically content outline, planning process and organizational framework," Mr. Neri said in a statement. The MTPDP for 2004-2010 is substantially based on the 10-point agenda of the Arroyo administration. "This marks a distinct shift from the traditional sector-based approach to one that is more target-based and implementation-oriented," Mr. Neri said. He said the MTPDP provides specific targets, strategies, and action plans covering the five key reform packages which the President enumerated in her State of the Nation Address in July this year. "These packages include economic growth and job creation, energy independence, social justice and basic needs, education and youth opportunity, and anti-corruption and good governance," Mr. Neri said. NEDA said the 2004-2010 MTPDP will have an accompanying Strategic Planning Matrix (SPM), which identifies the measurable output targets of government agencies. The SPM will serve as basis of the Medium-Term Public Investment Plan (MTPIP), which will be released in December 2004.

TOUGH YEAR AHEAD

Investment bank ING Financial Markets has forecasted that 2005 will be a tougher year for the Philippines, although there is no doomsday outlook yet due to a resilient economy. It expects the economy to grow at a slower 5.5% to 5.7% next year from 5.3% to 5.7% in 2004. Next year's growth will be slowed by higher costs and tighter fiscal management. "Despite the political uncertainties and debt concerns, we got a good year this year," ING Bank Philippines chief economist Jose Mario Cuyegkeng said yesterday during an economic briefing sponsored by the Financial Executives Institute of the Philippines (FINEX). "It will be a tougher year next year because there are a lot of imbalances in the economy that we have to resolve. Therefore, the adjustment process will be more difficult," Mr. Cuyegkeng said. "The fiscal stimulus we saw this year will not be around next year," he said, noting that the government has to cut spending in the next six years. "It will be a tougher year next year but it is not a doomsday situation."

The government estimates the economy, as measured by the gross domestic product or GDP, to expand by 5.9% to 6.1% this year and 5.3% to 6.3% in 2005. Economic growth will continue to be led by consumer spending and service sector while trade and telecommunications service sector will continue to expand. Inflationary pressures are evolving as another round of power rate hike is expected next year, diesel fuel price increase will have a domino effect on transport fees and labor costs, he said. ING estimates inflation to hover between 5% to 5.3% this year and 5.5% to 5.7% next year. Expectations that the US Federal Reserve will raise rates by 175 basis points in the next 15 months is putting more pressure on the policy-making Monetary Board of the Bangko Sentral ng Pilipinas to tighten its monetary policy. "Eventually, if the Fed rate continues to rise in this agressive way, you will see the Monetary Board bring up benchmark rates," he said.

ING expects agriculture growth to "normalize" to 3% to 3.5% in 2005 against this year's 5.7% to 6.2% due to the likely recurrence of a dry spell. Taking into account that the government has a game plan for the country's fiscal situation, Mr. Cuyegkeng said there is a lot of house cleaning ahead. "We have to respond to the challenges of good governnance. These imbalances require a lot of good governance not only on the part of government but also at our end as well, making sure our companies improve in terms of productivity," he said.

As the National Government aims to achieve a balanced budget by 2009 through increased tax effort, it is now time to deliver those promises as the consequences of non-delivery are more painful, he added. "Fortunately for us, the road map has been set. It is now time to deliver. I am very hopeful that the road map will be developed and delivered," Mr. Cuyegkeng said. "Credit ratings agencies have warned if no tax measures are approved in the next two to six months, credit ratings downgrade is likely. It means if you go to your bank and borrow dollars, it will be more expensive; if you go to the bank and borrow pesos, that will be reflected in higher interest rates aside from inflation pressures," he explained. -- Ruby Anne M. Rubio, Karen L. Lema and Jennifer A. Ng

Gov't shortlists advisers in bid to privatize army pension fund

By CECILLE S. VISTO, Sub-Editor

The government is choosing between two appraisal companies and two financial consultants that will assist it in determining the true asset value of Retirement Separation and Benefit System (RSBS) of the Armed Forces of the Philippines (AFP) and possibly, privatizing the pension fund. The Privatization Management Office (PMO) said actuarial consulting firms FF Miravite, Inc. and Watson Wyatt Worldwide passed the technical evaluation stage alongside financial advisers Royal Asia Appraisal, an affiliate of KPMG Laya Mananghaya and Joaquin Cunanan & Co., the local arm of PricewaterhouseCoopers. Having met all the requirements of the PMO and the Department of Finance, the four companies and their representatives were able to attend the opening of financial proposals for RSBS yesterday.

Finance Assistant Secretary Roberto B. Tan, chairman of the special bids and awards committee, is expected to order a review of the preliminary proposals and thereafter, choose the appraisal company and financial consultant that will handle the multimillion-peso deal. The Finance department had secured a $200,000 grant from the World Bank to finance the review of RSBS' actuarial soundness. The department is supposedly waiting for the World Bank's "no objection" notice before it chooses which of the bidding proposals would be approved.

On Wednesday, military and defense officials announced that they have shut down five RSBS subsidiaries and plan to close down another because they were all losing money. This may be in preparation for the scheduled valuation. The five closed companies were RSBS Enterprises, Inc., a general trading company engaged in the buying and selling of supplies and general merchandises; Globan Fruits and Development, Inc., which handles a 400-hectare fruit farm in Mindoro; Goodfit Manufacturing Co., which manufactures combat boots; RSBS Land Inc., a real estate company; and CEMX, Inc., a cement firm. Resources and Investment Corporate House, Inc., an investment house, is already in the process of being closed.

To recall, Defense Sec. Avelino J. Cruz, Jr. had proposed the abolition of RSBS and that a new insurance body manned by an expert civilian head to address the welfare and benefit needs of military personnel be created in its stead. The Defense department is in the process of drafting the bill to be proposed to Congress. RSBS president Cesar Jayme earlier admitted that the fund has a total backlog of some PhP45 billion which includes the PhP22 billion needed for the adjustment of the retirees' monthly pay and the PhP19-billion pension fund of retired military personnel. The pension fund has been investigated concerning some questionable deals that led to its incurring billions of pesos in losses.

Presidential Decree 1656 issued in 1980 mandated that RSBS should grow its fund to be able to provide perpetually the cash requirement of the military retirement system. Until such time when perpetual self-sufficiency has not yet been attained as determined by an actuarial evaluation, the yearly requirement for retirement and separation benefits shall be included in and funded out of the annual appropriations of the Armed Forces. RSBS was expected to reach the so-called point of self-sufficiency in 2001 but the target was repeatedly revised. By January 1997, before the RSBS began losing money, the target was 2021. The financial losses in 1998 and 1999, along with pension pay increases, pushed this much further to 2037, according to actuarial valuations made in December 1999. RSBS is nowhere near attaining financial sustainability that would relieve the government of its obligations to shoulder the payment of military pensions. The government still pays the soldiers' pensions which are taken from the yearly defense-military appropriations.

Ratings warning jolts peso

The Philippine peso is in danger of touching its all-time low as the currency market belatedly reacted to warnings of a possible downgrade from rating agencies that brought the local unit to a tight spot at PhP56.37 against the US dollar. "The pressure just came in that, indeed, we might again be downgraded by credit agencies [such as Standard and Poor's and Moody's]. Plus, the Bangko Sentral [central bank] once again reiterated that it will hold off any increases in their benchmark rates. The peso rate differential is narrowing," a trader said. "Can't we get hold of our own fiscal issues?" another trader asked.

The peso moved within a wide nine-centavo range after the jolt from the possible effects of a ratings downgrade. Touching as low as PhP56.39 during intraday trading, the market only tried to trim its long dollar positions. The trader said the market might test the PhP56.40 resistance today and might touch its record low again. Last week, the peso slumped to its record low of PhP56.45, driven by seasonal dollar demand as well as market jitters over fiscal concerns.

At the Philippine Dealing System, the peso weakened by more than four centavos at PhP56.339. It hit its highest value at PhP56.30 after opening at PhP56.32 against the dollar. It closed at PhP56.37. Total volume of transacted dollars rose to $157.25 million from $135.5 million on Wednesday. -- Ira P. Pedrasa

Philippine bonds fall after S&P warning

HONG KONG -- Philippine dollar bond prices fell yesterday, undermined by the weakness in US Treasuries and a Standard & Poor's report warning the country's credit ratings could be cut in the absence of further fiscal reforms. The broader market opened just a touch weaker ahead of the Friday release of US September nonfarm payrolls data, which is expected to provide the latest snapshot on the health of the economy. "The market opened a little softer. The Hutch curve is one to two basis points wider and PCCW is also one or two wider," said a trader at a European bank in Hong Kong. "With jobless claims coming out of the US tomorrow I think there is a little bit of defensiveness in the market."

S&P said yesterday that the Philippines' credit ratings could come under pressure due to slow progress on fiscal reform and the country's vulnerability to rising global interest rates and record high oil prices. S&P has a BB long-term foreign-currency rating for the Philippines -- Asia's most active sovereign debt issuer -- but cut its long-term local-currency rating to BBB minus in July with a stable outlook. "The next two to three months will be crucial in determining the country's near-term fiscal outlook," S&P's credit analyst Agost Benard said in a statement. "If key tax measures are passed and a tariff hike of state-owned National Power Corp. is made permanent, investors should breathe easier. On the other hand, the failure to pass these tax measures will risk a loss of momentum in the entire tax reform initiative."

A dollar bond trader in Manila said that Philippine sovereign dollar bonds were hit by the weakness of US Treasuries -- the benchmark 10-year US Treasury note fell 13/32 on Wednesday --and the impact of the S&P report. "So far we're off about half a point from where we closed yesterday," said the trader. Philippine sovereign dollar bonds due in 2014 were trading at 98.375/98.875 in price terms, while the ROP '25s were trading at 107.75/108.25.

In the wider market, spreads should find some support from a couple of CDOs (collateralized debt obligations) that are in the pipeline, the trader at a European bank in Hong Kong said. CDOs bundle together credit exposure to a number of companies in a single instrument. With an enormous amount of liquidity but a relatively small amount of new issuance, CDOs have become an increasingly popular way for investors to gain exposure to Asian bonds and have helped drive credit spreads in the region tighter. "Recently, it has played a very important role in the market," said the head of credit trading at a European bank in Hong Kong. "One of the major reasons behind the spread tightening has been because of CDO activity." Hutchison Whampoa bonds due in 2014 were trading a couple of bps wider at 175/170 bps over Treasuries, as were PCCW '13s, which were quoted at 137/133bps over. South Korean sovereign bonds due in 2014 were a touch weaker, trading at 85/84 bps over, while China '13s widened one to two bps to trade at 72/70 bps over. -- Reuters

New investor protection rules okayed

By JENNEE GRACE U. RUBRICO, Reporter

The Securities and Exchange Commission (SEC) has approved amendments to the implementing rules and regulations of the Securities Investors Protection Fund (SIPF). The rules, however, are still subject to the ratification of SIPF members, the SEC said. The SIPF is a non-stock, nonprofit corporation organized for the main purpose of creating, maintaining and administering a fund for the interest and promotion of the securities industry, and for aiding and protecting investors and securities and members of the Fund. It was created to protect investors against losses in the case of failure, insolvency, or frauds of a member-broker or dealer. The fund is also expected to effect an orderly distribution of the property and assets of the insolvent, and carry out measures that would promote a vigorous and effective market for securities. The fund is available for claims of customers of members securities firms that have been declared as legally solvent and have no more remaining assets to pay for the claims.

SEC Director Jose Aquino told reporters that the SIPF set of rules was amended because it was "no longer consistent" with the provisions of the Securities Regulation Code. He also said the SIPF board is scheduled to approve the new rules on Monday. "After the approval of the board, it will be submitted for the approval of the members," he said. Under the amended rules, the SIPF will compensate claims of customers arising from trading participants' obligations only if this was incurred when the participant was still a member in good standing of the investor protection fund. The qualification that the broker should be a member of good standing when the obligations were incurred was not in the original rules, Mr. Aquino said. "The clients will have to be conscious that they are dealing with a broker that is a member with good standing," he added.

CLAIMS

The rules also said "the Fund shall be available to satisfy such claims in an amount equivalent to the total claim of each customer but not to exceed PhP100,000." It added that if after the stock exchange applied the trading participant's liquid assets toward its customer liabilities, there would still be a balance on the liabilities, the SIPF would make an up front payment. For claims of PhP5,000 or less, SIPF would pay the customers in full, the rules state. For claims of more than PhP5,000 but less than PhP100,000, the customer will be paid 20% of this claim, or PhP5,000, whichever is higher.

Meanwhile, for claims of PhP100,000 or more, the customer shall be paid PhP20,000. The new rules also prohibit some people from making claims from the fund. Those who are not entitled to the claims are customers who are also directors, officers, or stockholders of the trading participant that incurred obligations; or dummies of directors, officers, or stockholders or customers that have been involved in the failure of the trading participant's trading business. It added that customers whose claim for cash or securities which are part of the capital of the firm or is subordinated to the claims of the creditors of the firm and those that have unsettled obligations to the trading participant also are not entitled to claims. Mr. Aquino said the new rules cover clients of Asian Capital Equities, Inc. The company ceased operations last Nov. 27 after the SEC found it to have deficient capitalization and to have violated provisions of the Securities Regulation Code. The SEC ordered the stock exchange to take over the operations of the brokerage firm to protect its clients.

Security Bank, Travelex in remittance partnership

Security Bank Corp. has tied up with London-based Travelex Money Transfer Ltd. to take advantage of the lucrative remittance market in the country. Jose A. Nuñez, president of Asian FX Money Exchange (AsianFX), said the partnership is expected to corner a substantial share of the market. AsianFX is the marketing arm of Travelex. "We are talking of eight million overseas Filipino workers and 114 Security Bank branches nationwide. After Mexico and India, the Philippines has a large market contributing $7 billion to $10 billion annually. This is an important source of livelihood," Mr. Nuñez said. "Security Bank is looking at this as a source of fee-based income but we are still in our infant stage," Security Bank's Joven Hernandez said. He said the bank recognizes the competition from other companies. He added that it will strengthen "relationships with the client base and niche market."

Travelex's chief executive officer Mohit Davar said the partnership is also a breakthrough as it will further strengthen his firm's presence in the country. "We foresee a speedy growth in this country in the coming years because of each of our organizations' proven expertise, dedication and commitment in satisfying our clients," he said. Recently, it has forged a remittance partnership with the Metropolitan Bank and Trust Co. Travelex Money Transfer is a member of Travelex Plc which claims to be the world's largest foreign exchange specialist. The partnership, in effect, will allow over eight million overseas Filipino workers in over 59 countries worldwide to remit money to the different Security Bank networks. Security Bank is the country's 12th largest lender. -- Ira P. Pedrasa

Agents, clients of BPI units gain access to phone banking

Ayala Life Assurance, Inc. and Ayala Plans, Inc. are leveraging the resources of the Bank of the Philippine Islands (BPI) by giving their clients and agents access to the BPI Express Phone Banking or "89-100" system beginning October 1. Ayala Life and Ayala Plans are wholly owned subsidiaries of BPI. Company officials said they hope to optimize operating synergies by directing the two firms' client and agent inquiries to the 89-100 Interactive Voice Response System. "All facilities and networks that can enhance various areas of customer servicing are continually being explored," said Aurora S. Soriano, BPI vice-president for insurance group operations. "We offer the full range of financial services, and we provide customer and agent support 24 hours a day, seven days a week," she added.

Customers and agents accessing information in connection with the BPI subsidiaries can simply key in 89-100, and press "0," other products and services, for their "life insurance and pre-need requirements "in the initial automated voice-delivered menu. Ms. Soriano explained that the first phase will have a BPI Phonebanker answer after the caller has keyed in "0" on the keypad. The second phase of the implementation will offer automated and interactive voice responses for increased convenience of all planholders and agents. Ayala Life offers term plans, whole life plans, endowment plans, dollar policies and special plans such as Aspire, Express Dollar Protector, Express Life Plus and Bancassurance products. Ayala Plans offers pension plans and educational plans.

Yuchengco firm wants to be a major player in mutual funds

Grepalife Asset Management Corp. is confident that it will become a major player in the mutual fund industry because of its wide network and distribution channel. The firm is a subsidiary of the Yuchengco Group of Companies. "In terms of client share as well as delivery, the network is no small network. We are just awaiting now the [Securities and Exchange Commission] on its approval of our capital requirements," senior vice-president and general manager Efren Ll. Cruz said.

The Yuchengco Group of Companies is made up of around 50 firms with combined assets of PhP211.9 billion as of June 2002, making it one of Southeast Asia's biggest conglomerates. The new firm was incorporated last May. "From 1991 to 2004, the mutual fund industry's average compounded assets reached 70%. The timing [of our company] is just right. Filipinos are fixated on fixed rate guarantees, and the best market so far is the retail market. The industry is still growing but changes in the horizon are being felt like some accounting standards," Mr. Cruz added. As of August 31, the industry's gross assets hit PhP51.2 billion, up by 34.14% from a year ago. "We are packaging this with a lot of benefits. It's not only an insurance coverage with hospitalization benefits. The company also maximizes better client servicing," he said. -- Ira P. Pedrasa

Court to Nenaco: fire CEO or rehab will be junked

By CECILLE S. VISTO, Sub-Editor

A Manila court yesterday ordered Negros Navigation Co. (Nenaco) to replace President and Chief Executive Sulficio Tagud Jr. if it wants to continue its corporate rehabilitation. In an order, Manila Regional Trial Court Judge Artemio S. Tipon directed the shipping arm of listed Metro Pacific Corp. to elect three new directors to its board to represent secured and unsecured creditors. "In choosing the directors to be replaced, priority must be given to Sulficio Tagud, Jr.," Mr. Tipon said. Mr. Tagud refused to comment on the court order. The judge said failure of Nenaco to abide by the order by Monday will terminate the rehabilitation case. "Should petition fail to comply with this order within the non-extendible period, the rehabilitation plan shall be ipso factor [automatically] considered disapproved and the stay order recalled and set aside," he added. The stay order refers to the debt payment suspension that Mr. Tipon granted Nenaco shortly after it filed the corporate recovery suit at the Manila court.

Last Monday, the tribunal said three directors representing secured creditors Development Bank of the Philippines (DBP) and Pilipinas Shell Petroleum Corp. and unsecured lenders must be included in the Nenaco board. Thereafter, DBP nominated Senior Vice-President Renato A. Castillo while Shell nominated Wellington Q. Aldemita. Unsecured creditors bat for lawyer Arlyn C. Soresca of Unique Machine Shop as its representative. Nenaco has a total of 11 directors. Notably, Mr. Tagud used to be the court-appointed receiver of Nenaco until it was discovered in one of the hearings that he was a former director of Bonifacio Land Corp.

Metro Pacific, which owns 51% of Bonifacio Land, also owns 85% of Nenaco. On Oct. 4, Mr. Tipon approved the 10-year corporate rehabilitation plan of debt-saddled Nenaco. Noting receiver Monico V. Jacob's rehabilitation map to be "exhaustive, impartial, and most reliable," the judge ruled the firm would be in a better position to pay its debts if it follows the 10-year plan rather than liquidating all its assets. He approved the recommendation that the company pay its creditors, both secured and unsecured, under equal terms and conditions to eliminate preferential treatment. Mr. Tipon said the liquidation scenario will only account for 80% of the shipping firm's debts, lead to the loss of more than 1,000 jobs, and permit one shipping firm -- the Aboitiz Transport System Corp. -- to monopolize the domestic shipping industry.

Nenaco, the country's second largest shipping firm, filed for corporate rehabilitation on March 29. The shipping firm's debts had hit PhP2.5 billion and the firm said its financial woes could be traced to a decrease in passenger volume and to the 1997 Asian financial crisis, which increased interest rates and operating costs.

Shipping firm forecasts PhP400M in losses this year

Debt-saddled Negros Navigation Co. (Nenaco) is looking at another year of losses as it prepares for the first year of its rehabilitation program. Sulficio Tagud Jr., president, said net losses this year may reach up to PhP400 million, from last year's PhP8.2-million loss. "This year I think we will have a significant net loss of between PhP350 million to PhP400 million." He said the firm is expecting to incur losses this year due to weaker operations as five of Nenaco's nine vessels are dry-docked, resulting in a 35%-37% decline in trips.

Previous reports to the Philippine Stock Exchange showed that Negros Navigation has already booked losses amounting to PhP220.8 million in the first half. This was a reversal from PhP67.35 million in profit in the same period last year. "We're cleaning up our balance sheet this year so we will be in a better position to move forward," Mr. Tagud said. For the six months ending June, Nenaco said revenues dropped to PhP964.681 million, 36.06% lower than last year's. The firm attributed the decline to dry-docking of four passenger and cargo vessels in the first half, and the grounding of five major vessels following a court order. The court grounded the vessels on the request of Tsuneishi Heavy Industries, Inc. who was trying to collect PhP120.8 million from the shipping firm for dry-docking services. The shipping firm is also trying to source some PhP130 million to finance the dry-docking and repair of three other vessels. -- Anna Barbara L. Lorenzo

Shell says sole refinery 'struggling' but not in red

Oil major Pilipinas Shell Petroleum Corp. is still undecided if it would continue operating its refinery in Batangas as the company weighs its options. General Manager Roberto S. Kanapi said Shell is pushing to sustain the operations of the refinery, but at the same time, he noted that it has not been giving the company the expected returns. "We're giving it our best. We're really pushing to sustain the operations of the refinery. People inside the refinery are doing their best. But we're struggling," he said. He said the refinery's financials are "not exactly rosy," but that it is surviving. "It is not really in the red, but it is struggling," he said. He qualified that Shell determines the profitability of its refinery "from a bigger picture." "Earnings is relative. There are two ways of looking at it. You could compare it with cost of import. But we are looking at it in a different way. Is it more efficient than refineries? We're looking at it from a bigger picture," he said. He said other issues that need to be taken into consideration include issues on tariff differentials of crude importers and importers of finished products. "There's zero differential so that is an issue because we would have wanted to have tariff differential," he said.

Mr. Kanapi said Shell has not been investing significantly on its refinery pending the decision on whether it would continue its operations or not. "There is no major capex as of yet. There are maintenance capex, but no major capex," he said. He declined to say when the company will decide on the possible shutdown of the refinery, but sources said that Shell would decide early next year. Shell is one of only two oil companies in the country that operates a refinery, the other one being Petron Corp. The Tabangao refinery is Shell's sole refinery in the country, although it has other refineries in the region, including Singapore and Thailand. The Tabangao refinery has a capacity of between 80,000 and 100,000 barrels a day. This, Shell officials earlier said, is "just a drop in the bucket" compared to the production capacity of refineries in the region. Earlier, oil company Caltex (Philippines) Inc. shut down its refinery in San Pascual Batangas, citing overproduction of finished products in the region. It said that it was cheaper to import finished products than it was to refine crude. -- Jennee Grace U. Rubrico

Robinsons Land secures $1-B loan

Robinsons Land Corp. yesterday said it had secured a PhP1-billion loan to be used for general corporate purposes. BJ Sebastian, director of corporate planning of JG Summit Holdings, Inc., the holdings firm of the Gokongwei Group of Companies, told BusinessWorld that they had just signed the loan deal. "We signed the agreement already. [The loan facility] will be used for general corporate purposes and capital expeditures. [Robinsons Land hopes to obtain the loan] probably tomorrow [Friday]," he said. He declined to identify the financial institutions that will grant the facility, noting he still needed to clear with the concerned organizations before disclosing their identities. "I cannot disclose yet," he said.

Corporate secretary Rosalinda Rivera, in a disclosure to the stock exchange, said Robinsons Land's board had authorized the company to secure the PhP1-billion loan from accredited financial institutions under the wholesale lending program of the Development Bank of the Philippines (DBP). The DBP program enjoins banks and financial institutions to lend to industrial enterprises. Last year was considered a banner period for the bank's wholesale lending operations, with total wholesale loan approvals reaching PhP10.53 billion, 70% higher than 2002.

Robinsons Land is the real estate arm of the JG Summit Holdings conglomerate which has interests in real estate, hotels, airline, banking, electronics, foods, petrochemicals, power generation, printing, telecommunications and textile. Robinsons Land's core businesses include commercial center development and operation, hotel operation and management, upscale and mass housing development, and high-rise office and residential buildings development. Its high-rise buildings division is currently working on the Gateway Garden Ridge and Fifth Avenue Place projects. -- Roulee Jane F. Calayag

ERC orders Veco to refund PhP273.9-M excess collections

as unbundled rates approved

CEBU CITY in Central Visayas -- The Energy Regulatory Commission (ERC) has approved the unbundled rates of Visayan Electric Co., Inc. (Veco) and ordered the utility to refund customers excess collections of PhP273.87 million over a period of six years. "A comparison made between Veco's income tax payments and income tax recoveries showed that Veco recovered more than what it paid for the period 1993 to 2002," the ERC decision read. In its May 8, 1992 decision on the case of Cotabato Light and Power Co., Inc., the commission authorized Veco to implement a tax recovery clause for the recovery only of income tax payments. But the clause was modified to operate strictly on a "no payment, no recovery" basis. "This means that under the said clause, what can only be collected from customers is the amount representing income tax actually paid, as evidenced by tax returns and/or assessments, tax payment orders and confirmation receipts," the ERC said.

At the same time, the ERC also allowed Veco to recover from consumers a total of PhP217.82 million in local franchise tax arrears, or an amount equivalent to PhP0.0330/kilowatt-hour over a five-year period. The ERC decision, issued on Aug. 30, also approved Veco's adjusted revenue requirement of PhP6.39 billion. The commission also ordered Veco to refrain from using the tax recovery adjustment clause and fix the currency exchange rate adjustment at PhP0.0034/kilowatt-hour.

Veco, the second biggest power distribution utility in the country, serves about 250,000 residential, commercial and industrial users in Metro Cebu and neighboring towns. Management has scheduled a press conference today on the unbundled rates. The ERC had ruled on Veco's unbundled rates petition in July last year. But Veco filed a motion for reconsideration. Beverage conglomerate San Miguel Corp. and the Napocor Industrial Consumers Association, Inc. also asked the ERC to suspend the implementation of the decision.

Garcias' Vivant raising interest in Veco

CEBU CITY in Central Visayas -- Vivant Corp., the listed holding company of Cebu's Garcia family, is increasing its direct stake in the Visayan Electric Co., Inc. (Veco) through a property dividend from Hijos de F. Escaño, Inc., another Garcia-owned holding company. Ramontito E. Garcia, who was recently elected as Vivant chairman, said their direct shares in Veco will increase to 21.5% from the current 8.15% if the Securities and Exchange Commission (SEC) approves the application of Hijos to issue property dividends. "This is in compliance with the EPIRA [Electric Power Industry Reform Act]. We are just waiting for SEC approval," Mr. Garcia said.

Vivant Chief Operations Officer Arlo G. Sarmiento said Hijos filed last month an application with the SEC to issue property dividends. He declined to elaborate pending the decision of the SEC. Mr. Garcia said the deal will "further solidify Vivant's position as a major stakeholder of Veco." Vivant is the largest stockholder of Veco, after Hijos and Aboitiz Equity Ventures, Inc. (AEV). Vivant acquired 8.15% of Veco for PhP239 million last year. A share-swap agreement with Hijos would have given Vivant a 30% stake in Veco, but AEV questioned the transaction. Hijos and Vivant rescinded the agreement in April last year as part of the Aboitiz-Garcia compromise settlement.

Meanwhile, Mr. Garcia said the compromise agreement has made a positive impact on Veco's performance. Veco is now jointly managed by the Garcias, with Dennis Garcia as president, and by the Aboitizes, with Alfonso Aboitiz as chief operations officer. Mr. Aboitiz is concurrently the president of the Davao Light and Power Corp. in Davao City. "The partnership is already paying off. Since the new management has taken over, our labor costs have been reduced by almost 30% as a result of a voluntary retirement program," Mr. Garcia said. The new management has also rationalized Veco's cost structure. Because of this and the increase in energy sold, Mr. Garcia said Veco has projected a 63% increase in net income for 2004. "This will translate to forecasted earnings per share of PhP25.36 compared to last year's PhP15.49 per share," he said. -- Marites S. Villamor

National Steel ships $3.9-M steel to China

While various interest groups are raising questions about the sale of National Steel Corp. assets, the buyer, Global Steelworks International, Inc., is swinging into full operation and exploring export markets for steel from the Iligan mill. On Sept. 4, it sent a trial shipment of 5,600 metric tons of cold-rolled coils worth more than $3.9 million to China. Since it began rehabilitating the Iligan mill early this year, Global Steelworks has provided employment to more than half of the work force rendered jobless as National Steel shut down operation in 1999. An estimated 2,000 workers were then laid off, but more than 1,000 of them are now back working at the Iligan mill.

Speaking about the shipment to China, Global Steelworks President Sushant C. Das stressed that it was only a trial shipment, hinting that China, though the world's largest steel producer, could become a potential market for Philippine steel when the Iligan mill goes into commercial production. Global Steelworks, a member of the Indian-owned Ispat Industries, acquired the Iligan steel mill in an internationally contested bid.

Phisix up despite profit-taking

By ROULEE JANE F. CALAYAG, Reporter

Profit-taking marked yesterday's trading at the Philippine stock market but the benchmark index still ended up in positive territory. The Philippine Stock Exchange (PSE) composite index (Phisix) opened at 1,832 and hit an intraday high of 1,843.89 and a low of 1,826.91 before closing 1.01 or 0.05% higher at 1,842.68, some notches away from the next resistance level of 1,861. The mining and commercial-industrial indices failed to sustain their upward momentum after clinching the biggest gains in the past trading sessions. Mining slipped 20.90 to 1,946.62. The commercial-industrial dropped by 7.88 at 2,925.69. All the other counters, except for the small and medium enterprise, were up.

TECHNICAL CORRECTION

Dianne Sy, research associate at Unicapital Securities, Inc., said the slow rise in the Phisix could herald the beginning of a correction that is expected to last for a week. "We have been expecting the market to correct from [yesterday] until next week. It could be the start of the corrections," said Ms. Sy. But she said the technical correction will not affect the bullish expectations for stocks this quarter. "It is only in the midterm. After the corrections, the market will continue on a bullish trend," added Ms. Sy.

NET FOREIGN BUYING

The market pegs its optimistic outlook on the level of net foreign buying. "One of the indicators we are looking at is the level of net foreign buying. For several trading days, most of the activities in the market came from foreign trade which affects the Phisix," said Ms. Sy. She explained that the net foreign trade moves accordingly in relation to various factors, such as concerns on the financial condition of the government. "The [measures to address] the fiscal concerns and the improvement in the 2004 GDP [gross domestic product] outlook for the country are supporting the upward movement in the market," said Ms. Sy.

The confidence of foreign portfolio managers have returned yesterday with net foreign buying at PhP174.7 million. Previously, net foreign selling prevailed at PhP8.9 million. Total foreign buying rose to PhP522.2 million against total foreign selling of PhP347.5 million yesterday. Main board cross transactions involved 30.3 million shares valued at PhP295 million. There was a special block sale of 15 million "B" shares of San Miguel Corp. at PhP72.50 amounting to about PhP1.1 billion. This accounted for 51.56% of the total trade for the day.

INDICES

Stocks whose prices were unchanged accounted for the lion's share of the 127 traded issues, numbering 48 in all. But the bullish sentiment prevailed as advancers continued to beat decliners at 46-33. There was a total of 4,838 trades for 1.6 billion shares worth PhP2.1 billion. The all-shares index jumped 6.34 to 1,128.14. The banks and financial services index ran away with relatively high gains of 8.46 at 513.39. Property gained 3.90 at 647.36 and oil was up 0.06 at 1.77. Ms. Sy said she was unaware of news that particularly affected the commercial-industrial and mining indices which slipped after posting banner gains in the past sessions. "Either it was speculative trading or some relatively small-cap stocks were playing although there may be an underlying reason [for the twin and simultaneous dips in the two indices]," said Ms. Sy.

GAINERS VS LOSERS

The "A" shares of Apex Mining Co., Inc. led the gainers as it closed at PhP0.21, up 50%. The company told the stock exchange that it was unaware of any material information that caused the unusual movement in the price of its stock. The big losers, on the other hand, included A. Brown Co. which slipped 22.22% to PhP0.35 and United Paragon Mining Corp. which lost 13.33% at PhP0.13. The most actively traded stocks included the banking arm of the Ayala Group, the Bank of Philippine Islands, which rose to P49; Gokongwei's Digital Telecommunications Philippines, Inc., which was up at PhP1.58; Philippine Long Distance Telephone Co., which dropped to PhP1,470; Sy's SM Prime Holdings, Inc. that was unchanged at PhP6.80; and property issue Empire East Land, Inc. which rose to PhP0.43.

CORPORATE NEWS

In other corporate news, First Philippine Holdings, Inc. told the exchange that Bernardo R. Abes, one of its directors, resigned as he assumed his duties as the chairman of the Government Service Insurance System. Mr. Abes is replaced by Thelmo Y. Cunanan. Listed racing firm Manila Jockey Club, Inc. reported that an additional 83,443 common shares have been fully paid pursuant to an approved rights offering, bringing their number to 3.9 million. The partially paid shares were placed at 176 million as of Sept. 30. The exchange approved on Wednesday the reduction in the number of listed shares of Manila Jockey Club by 330 common shares, which represent the fractional shares that resulted in the stock rights offering held in 2001. The reduction will take effect today.

Property developer Robinsons Land Corp., a subsidiary of the Gokongweis family's JG Summit Holdings, Inc., expects to obtain a PhP1-billion loan today from accredited financial institutions under the wholesale lending program of the Development Bank of the Philippines. BJ Sebastian, director of corporate planning division of JG Summit, told BusinessWorld that they should receive the loan probably today since they had just signed the agreement.

IMF sees $700-M BoP surplus in '05

The country's balance of payments (BoP) is projected to hit a surplus of $700 million next year because of stronger investment and trade inflows as the global economy improves, International Monetary Fund (IMF) projections showed. This year, however, the IMF projects the Philippines' BoP to hit a deficit of $600 million because of sluggish inflows from investment, coupled with expected outflows because of maturing obligations. The IMF projections are in line with the estimates of the Bangko Sentral ng Pilipinas (BSP). The BSP expects the country's balance of payments position to hit a surplus of $570 million next year on account of higher inflows as the economy improves. This is a turnaround from Bangko Sentral's projected BoP deficit of $505 million this year. The BoP is the record of the country's transactions with the rest of the world. It is closely watched by investors as it mirrors the country's ability to settle its obligations. IMF projections also show that the country's gross international reserves (GIR) may dip to $15.1 billion this year, $1.7 billion lower than last year's $16.9 billion.

The Washington-based Fund said the expected GIR decline takes into account the country's $500 million maturing obligations to the IMF this year as well as $700 million in loans of the Philippine central bank also due this year. The Fund's projection is in line with BSP estimates of a $15-billion GIR by yearend. For next year, the IMF expects the country's dollar reserves to improve to $15.7 billion, slightly lower than the BSP's projection of $16 billion.

Latest BSP data show that dollar reserves inched up by $11 million to $15.96 billion as of end-August from a month ago, buoyed by proceeds from the government's fresh foreign borrowings. The GIR consists of the BSP's gross foreign currency holdings, gold reserves, special drawing rights from multilateral institutions and foreign investments. It is an indicator of the country's ability to service the economy's foreign exchange requirements. Like other central banks, the BSP dips into the GIR when it defends the local currency against speculative attacks. The latest GIR figure is enough to cover 4.3 months' worth of imports and payments of services. -- Iris Cecilia C. Gonzales

Business summit presses for power, wage reforms

Businessmen yesterday passed resolutions, urging the Arroyo administration to push major reforms in the power and labor sectors, two of the highest cost components in production. Two of six priority resolutions presented to President Gloria Macapagal Arroyo last night at the 30th Philippine Business Conference and Exposition centered on calls to reexamine the minimum wage law and amend the Electric Power Industry Reform Act or EPIRA.

The Philippine Chamber of Commerce and Industry (PCCI), organizer of the conference, likewise urged the President to certify as urgent a bill creating a Housing department, speed up the transfer of the Department of Agriculture to Mindanao, and allocate funding for tourism development. Lastly, the influential business group also called on local government officials to lessen red tape in the issuance of business permits. Arguing that an "attractive, level playing field" must be created to attract investments in power generation, transmission, and distribution, the PCCI said an EPIRA provision imposing a universal levy on businesses equipped with their own power generation facilities must be deleted "unless the same is used to sell or for commercial purposes similar to utility distributors." It also urged the government to hasten the privatization of the National Power Corp. by allowing "true and correct" power rates based of fair market competition to prevail and ensuring that distribution utilities are "financially and operationally bankable." The group asked Congress to grant the National Transmission Corporation (Transco) a 50-year franchise so it can finally be privatized, and to strengthen the regulatory powers of the Energy Regulatory Commission (ERC) by giving it fiscal autonomy.

The PCCI noted that Transco reaped a 16.5% return on rate base or RORB last year with ERC's approval of "unbundled rates," which it said is "contrary to the provisions of the EPIRA." The RORB set by law is 12%. "A great number of private investors are shying away from the privatization program of the government because of, among others, the continuing failure to address and resolve all pending proposed resolutions in Congress affecting the EPIRA," the PCCI said. The business group pointed out that a power shortage is imminent in the next two years in Luzon, while Mindanao, Cebu, and Panay are already experiencing rotating power outages. And because of the anticipated power rate hikes, "most manufacturing operations have either stopped, downsized, and/or transferred operation[s] outside the country," leaving only service and marketing activities.

Meanwhile, the PCCI complained that the minimum wage in the Philippines "is among the highest in the Asia-Pacific region" while production levels "are among the lowest." Including emergency cost of living allowances, workers in Metro Manila receive at least PhP300 a day. It said the minimum wage law should be reexamined "such that any increases as may be proposed in the future must necessarily be productivity-based." "It may well be anticipated that labor groups will again demand an increase in the minimum wage" as a result of austerity measures being implemented by the government, new tax proposals in Congress, petroleum price hikes, increases in power and water rates, and rising costs of basic commodities. To help reduce the country's housing shortage, the PCCI said the President must certify the Department of Housing bill as urgent, saying that numerous housing agencies should be streamlined to conserve resources.

The PCCI also supported a plan to transfer the Agriculture department to Mindanao, noting that it provides 30% of food output and contributes more than a third of the gross value added in agriculture, aside from the need to promote countryside development. "Among the top ten commodities exported by Mindanao, six are agricultural products, which include coconuts, bananas, pineapple, tuna, shrimps and prawns, and other fruits ... given its existing and budding capabilities, Mindanao can well become the food basket of the country." Moreover, there is a need to spur economic activity in the local government, but "too much red tape often discourage[s] prospective business ventures." The business group urged local executives to institute "transparent, speedy, and efficient system[s]" in the processing and issuance of business permits. Lastly, "sufficient funding" should be allocated to tourism, with funds generated by the tourism industry utilized for its further improvement. "The tourism industry continues to be a major contributor to the growth of the Philippine economy, ensuring billions of dollars worth of visitor receipts and serving as one of the top foreign exchange generators for the country ... the Philippines is well-endowed with natural resources suited for unique tourism experience as well as human resources equipped with appropriate tourism-related skills and expertise," the PCCI said. -- Felipe F. Salvosa II

BIR files PhP81B in tax evasion cases

Pay up for face charges in court. The Bureau of Internal Revenue (BIR) issued this warning yesterday as it filed eleven tax evasion cases against businesses and individuals found to have been cheating on their tax obligations. The tax agency estimates uncollected revenues from the eleven delinquent taxpayers at PhP81.308 million, bringing to PhP369 million its estimated collectibles based on cases filed in the past 30 days. Last month, the BIR filed 14 criminal cases against Manila-based firms and individual taxpayers for unpaid taxes estimated at PhP288 million.

Yesterday, the agency filed cases against individuals and businesses based in the Cavite, Laguna, Batangas, Rizal and Quezon (or Calabarzon) area. Charged were owners of trade and manufacturing firms Silver City Trading Corp., Process Technologies, Inc., MC Silva Enterprises, M-Green Products International, Inc., Cubit Construction and Development Corp., Homeowners Photocenter and Jomancel Marketing. BIR commissioner Guillermo L. Parayno, Jr. said the owners of the seven firms were found to have been cheating on their returns or declarations by underdeclaring their value added sales tax. He said that the BIR's Automated Relief System has made tax evasion schemes easily detectable. The Relief or Reconciliation of Listings for Enforcement System double checks a company's tax declaration with third party information. Aside from the seven small business, the BIR also filed criminal charges against the Batangas-Laguna-Tayabas Bus Co. and St. Peter Security and General Services. Two individuals, Mariben A. Mercado and Susan A. Pagcaliwagan were also among those charged criminally by the BIR. These four taxpayers owe the government unpaid or delinquent taxes resulting from assessments that have become final.

Under the National Internal Revenue Code of 1997, the BIR can file criminal cases against erring taxpayers who refuse to settle their obligations despite final assessments by the agency. If convicted and found guilty of the charges, the erring taxpayers face heavy fines and imprisonment in addition to the closure of their businesses. "The BIR is preparing more cases against erring taxpayers. Filing all cases will be a matter of time," Mr. Parayno said as he warned taxpayers to pay the right taxes or face charges in court. -- I. C. C. Gonzales

Opening RP media to foreign ownership easier said than done

By KARL WILSON, AFP

The idea of opening the Philippine media to foreign ownership may sound good in theory but in practice it would come only at the cost of a fiercely nationalist and constitutional debate. At the same time as being divisive, there are questions too over whether there would be that much overseas interest in a very competitive industry. "I honestly can't see it happening," said Luis Teodoro, journalism professor at the University of the Philippines (UP). "Even if the Constitution is changed I doubt we would be inundated with foreign buyers apart from television, where is the value?" The government recently announced it would consider opening the media to foreign ownership, which was banned in 1986 by then President Corazon C. Aquino in a popular nationalist gesture after the overthrow of late dictator Ferdinand E. Marcos. Mr. Marcos had declared martial law in September 1972 and proceeded to destroy what many had seen as the freest press in Asia over the next 14 years.

There are now dozens of English-language and Filipino newspapers in Metro Manila -- but none has a circulation over 400,000 -- while there are about 50 radio stations and six television networks, three owned or controlled by the state. With so many firms competing for readers and viewers, some argue ownership is not the real issue. "The ownership of the media in this country is not a national issue. The media is market orientated whether it is in the Philippines or anywhere else in the world for that matter," said Sheila Coronel, executive director of the Philippine Center for Investigative Journalism. "It doesn't matter who owns it because it is aiming for the same audience at the end of the day ... the mass market. "Quality has been sacrificed in all sections of the media ... and that is not unique to the Philippines. Around the world you are seeing the dumbing down of newspapers, television and radio (to secure) market share," Ms. Coronel said.

The proposals to open media ownership were outlined in a draft of the Medium-Term Philippine Development Plan 2004-2010 published by the National Economic and Development Authority. According to the plan, the protectionist provisions of the Constitution are to be removed to liberalize ownership of media, telecommunications and digital infrastructure facilities. Amending the Constitution would require an elected constitutional convention or the legislature convening in a special session to introduce changes to the country's basic law.

Socioeconomic Planning Secretary Romulo Neri said "it is a good idea because once media operators come to the Philippines then the Philippines could be a center for media distribution throughout the world because we have very good media people here. "We can become a global media player," he said. According to UP's Mr. Teodoro, however, "any move to open the media to foreign ownership would be divisive. Not only on nationalist lines but also on constitutional lines as well. "The issue about ownership was inserted into the Constitution in 1986 to protect the media from foreign ownership in the belief that local owners would help foster nationalismit didn't happen."

WB investment arm eyes stake in MRT project

The International Finance Corporation (IFC), the investment arm of the World Bank, could be eyeing a stake in the Metro Rail Transit 3 (MRT3) extension project, an official of the Department of Transport and Communications (DoTC) yesterday said in an official statement. The IFC has offered to raise $700,000 to finance a feasibility study and advisory services for the extension of MRT3, DoTC assistant secretary for Planning and Development Robert R. Castanares said. "The IFC is offering its services as adviser for the extension," he said, adding it is "interested in the project." He said the IFC and the government are still in the initial stages of exploratory talks on the study. Transport Secretary Leandro Mendoza met with IFC officials yesterday. If plans push through, the study will take about six to eight months, Mr. Castanares said.

The MRT3 extension will increase the number of MRT stations from the current 13 to 16. This is expected to increase ridership to 750,000 daily and result in a PhP180-million monthly revenue. The existing MRT3 line from North Avenue in Quezon City to Taft Avenue in Pasay carries about 400,000 passengers everyday and yields revenues of PhP120 million/month. The initial study pegs the cost of the MRT3 extension at $198 million. Expenses will include the acquisition of 48 new coaches with each car costing roughly $1.2 million. The government is putting up for bidding the contract for the MRT3 extension after the DoTC said last month that the Sobrepeñas' MRT Corporation has lost exclusive rights to bid for the project. The Justice department ruled that the contract of the Sobrepeñas does not cover the extension work because it is an entirely new project. "They can make an appeal, but the decision is already there," Mr. Mendoza said. -- Anna Barbara L. Lorenzo

Higher tax on used cars to get Cabinet-level approval

The days of big-engined cars and imported used vehicles seem to be numbered with the technical group of the Cabinet-level Tariff and Related Matters (TRM) committee set to approve a PhP500,000 additional tax or surcharge on used vehicles entering the country's freeport zones. It is also set to approve a 40% Most-Favored-Nation or MFN tariff on cars with 2.1-liter engines and above. Trade Secretary Cesar A.V. Purisima said in a statement that these measures would generate additional revenues for the government aside from encouraging the use of fuel-efficient cars, which has become the trend in other countries, particularly in Europe. To encourage the entry of small cars, Mr. Purisima said the technical committee would recommend the reduction of MFN tariffs on vehicles, with one-liter engines and below, to zero. MFN rates are imposed on members of the World Trade Organization, and the prevailing MFN rate for imported vehicles is 30%.

After approval by the TRM technical group, public hearings will be conducted by the Tariff Commission. The Tariff Commission's findings will then be reviewed by the TRM committee, prior to the President's final approval. Mr. Purisima said local car assemblers participating in the Automotive Export Development Program (AEDP) would be exempted from the MFN rate increase on big-engine cars, as long as they are assembling the models in the Philippines. The exemption will encourage the production and export of more cars, considering the local automotive market is small compared to neighbors much of Southeast Asia, he said. Production reached only 80,000 units last year, Mr. Purisima noted. The Cabinet official also said the exemption would hopefully encourage other car assemblers to join the AEDP, in which Ford Motor Philippines is the lone participant. Mr. Purisima said the PhP500,000 surcharge on imported used vehicles -- which would be on top of MFN tariffs and the 10% value-added tax -- is designed to eradicate once and for all the rampant entry of used cars which the local automotive industry claims is responsible for the "market erosion" experienced in recent years.

Meanwhile, small cars, which cost anywhere from PhP300,000 to PhP400,000, will lessen the country's dependence on oil, Mr. Purisima said. The Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) earlier opposed the plan to hike the MFN rate on big-engined cars, saying this would be "discriminatory" and "inconsistent" with existing tax policies. It would still be possible to import big cars within ASEAN, since tariffs in the ASEAN Free Trade Area are as low as 5%, said Elizabeth Lee, CAMPI vice-president. Car assemblers do not expect to meet their 2004 sales target of 100,000 units and are set to revise this figure downwards, as rising electricity rates and retail prices of oil have eroded the purchasing power of consumers. "Rising costs of doing business" have also hampered car assemblers from enhancing profitability, Ms. Lee said earlier. -- Felipe F. Salvosa II

SALN bill tagged as crucial to tax collection

The passage of the bill that mandates the filing of statements of assets, liabilities and networth (SALN) is more urgent than providing tax amnesty, the Finance department said yesterday. In a hearing of the Senate ways and means committee, Finance undersecretary Grace Pulido-Tan said the mandatory submission of SALN would provide the revenue-collecting agencies the necessary audit trail that will aid collection efforts. Ms. Tan added that the PhP9 billion projected revenue from the imposition of tax amnesty could be attained if the Bureau of Internal Revue (BIR) will step up collection. "Our preference is the mandatory submission of SALN. But PhP9 billion is still PhP9 billion, especially in the present time. The PhP9 billion plus in revenues could be taken from the usual collection," she said, noting that the BIR collected PhP426 billion in 2003. "The House saw it fit to separate the two [bills]. The tax amnesty which will raise revenues has been certified as an urgent measure by the President who herself declared that we are in a fiscal crisis.

The mandatory filing of SALN will be a management tool since this will be expanded to include the individual taxpayers which could be in the form of lifestyle check," Committee chairman Ralph G. Recto said Ms. Tan agreed. "The tax amnesty is not something that we want to propose. We might as well crack the whip a little more and make the BIR do more job," he said. Mr. Recto also said the projected revenues of PhP9 billion from the tax amnesty is too low since the measure will free the taxpayers from their unpaid internal revenue taxes from the taxable year 2001 and prior years. "If you can convince us that the tax amnesty will generate revenues and this will allow the management to have this tool to improve tax collection, we might consider your proposals," he said as he asked the Finance department to do a more detailed study on the tax amnesty proposal to get as much as PhP100 billion in additional revenues.

Committee vice-chairman Joker P. Arroyo also said the PhP9-billion expected revenue from the tax amnesty is too low in exchange for the "moral hazard" as the government will free the delinquent taxpayers from their revenue liabilities at a lower rate. "It has so far been indicated that the tax amnesty will yield about PhP9 billion. I think the consensus here is if it is only PhP9 billion, why are we talking about amnesty? It does not make sense. It represents only 2% of the total collection of the internal revenue. Unless they give a figure that is more encouraging, the position of the Finance department is very weak," Mr. Arroyo said. Mr. Recto has also filed a bill for the grant of tax amnesty on all unpaid internal revenue taxes for the taxable year 2001 and prior years. The tax amnesty bill is the first revenue measure that has been passed by the House ways and means committee. President Gloria Macapagal Arroyo has certified the bill as urgent. The finance official further said the mandatory submission of SALN will be expanded to include corporate and individual tax payers with at least PhP100,000 net income or properties. "Our proposal is to require every person with an annual income of PhP100,000 to file SALN. The mandatory filing of SALN is a management tool," Ms. Tan said, adding that the PhP100,000 ceiling was the same threshold provided in the existing tax law that defines "marginal income earners."

Mr. Recto asked the Finance department to increase the threshold which will replace the present ceiling of PhP600,000. "The mandatory filing of SALN is not really new because at present, corporations and individuals with a threshold income of PhP600,000 and above are already required by law to file financial statements and balance sheets. That is the same thing as the SALN which will also show the net worth. In effect, we will just change it to PhP100,000 from PhP600,000. This may be too low," he told reporters after the hearing. For his part, opposition Sen. Juan Ponce Enrile bucked the proposal for mandatory filing of SALN. "Do we have enough jails for people who will not comply? The basic requirement of legislation is its implementability," Mr. Enrile said.

BIR COLLECTION

Tax collection for September increased to PhP33.96 billion, exceeding the target of PhP33.4 billion, BIR reported yesterday. It is the third consecutive month the BIR has exceeded its monthly-collection target, the agency said. The latest figure brings the tax revenue for the first nine months of the year to PhP345.17 billion, just slightly lower than the PhP349.31-billion target. The bureau's target for the full year is PhP476.3 billion. "We still have a big fight, that's why we're fighting hard," BIR Commissioner Guillermo M. Parayno, Jr. said. The agency is hard-pressed in its tax collection efforts amid the slow start in the early part of the year. Revenue-raising agencies have been stepping up efforts to boost collections as government tries to rein in the budget deficit.

The government aims to balance the budget by 2009. Last year it incurred a deficit of PhP199 billion and hopes to contain the deficit at PhP197 billion this year. Mr. Parayno has presented to Ms. Arroyo and her Cabinet some administrative measures the bureau wants to introduce next year to improve collection. Proposed measures include the creation of a task force to monitor tax evasion cases against tobacco tycoon Lucio Tan, a plan for assessment of telecommunication companies and a move that will require the Philippine Stock Exchange to assume document stamp payments of stockholders. -- Carina I. Roncesvalles and Iris Cecilia C. Gonzales

New taxes said to ease pain of rising interest rates

Revenues from new taxes will help mitigate the impact of rising global interest rates and ease the burden of a government plan to absorb the debts of state-owned National Power Corporation (Napocor). Finance undersecretary Eric O. Recto said that while rising interest rates could increase borrowing costs, the passage of new tax measures should help mitigate this problem. "We could even be looking at a reduction [in the borrowings for Napocor] if we are successful and the taxes are passed," he said. Credit rating agencies have warned that the Philippines is vulnerable to pressures caused by rising interest rates given its fragile fiscal position and its plan to absorb the PhP500-billion debts of Napocor.

International credit rating agency Standard and Poor's Ratings Service said the Philippines can absorb an increase in the yield of the 10-year US Treasury bonds, on which most Philippine treasury bonds are benchmarked, to as high as 5.8% in 2008. A 7.3% increase in the 10-year US Treasury bonds, however, may find the Philippines in a tight spot. S&P reviewed the debt profiles of eight key governments -- the Republics of Hungary, Poland, South Africa, Colombia, Philippines, Turkey, the Republic of Brazil and the United Mexican States.

Likewise, the Japan Credit Rating Agency Ltd. said the government should reduce fiscal deficits steadily toward 2009 to be able to hold public debts at manageable levels. "The government must attain this, given its commitment to undertake the Napocor debt. At the same time, a restructuring of the Napocor and the privatization of its power generation and transmission units will also be imperative," it said. Mr. Recto said absorption of the Napocor's debts will depend largely on the passage of new taxes. "We are working on certain assumptions and nothing is definite yet until it becomes clear that there will be new taxes," he said. The Arroyo administration is asking Congress to pass eight new tax measures that will raise PhP83 billion yearly. These include a two-step increase in the value added tax rate, rationalization of fiscal incentives, a general tax amnesty and higher excise taxes on sin products. Mr. Recto said the government is optimistic that the measures will hurdle deliberations in Congress. The government aims to balance the budget deficit by 2009. The government incurred a deficit of PhP199 million last year and hopes to contain the deficit at PhP197 billion this year. -- Iris Cecilia C. Gonzales

Inflation lower than 5% next year?

The government yesterday expressed confidence that price increase next year may slow down to between 3% to 5% as economic managers pin hopes on the possibility that oil prices stabilize in 2005. Socioeconomic Planning Secretary Romulo L. Neri said it is possible that the inflation rate for next year may be lower than 5% since prices have already reached their peak this year. "We (think) that the prices of oil have already reached their maximum this year, so hopefully, next year, inflation will be within the range of between 3% to 5%," Mr. Neri said at the sidelines of the 30th Philippine Business conference and Exposition at the Manila Hotel. "Using this year as base year, inflation for 2005 may (slow down) to possibly less than 5%," he stressed.

The government on Tuesday revised the inflation target for 2004 from 4% to 5% to at least 5.4% due largely to the increase in oil and food prices that are expected to continue exerting pressure on the inflation until yearend. The National Economic and Development Authority (NEDA) earlier said inflation for October to December this year may average 7% mainly because of the sharp increases in the price of oil. The 2004 target was revised by the government after the September inflation hit a near four-year record high of 6.9%. "To keep the inflation rate more under control, we can look at reducing food prices. We can do this by improving the country's logistics system," he said.

Meanwhile, NEDA deputy director-general Augusto B. Santos yesterday said that the rising inflation would not affect the country's growth prospects for the rest of the year. Mr. Santos said the NEDA is still keeping its adjusted Gross Domestic Product (GDP) target of 5.9% to 6.1% for 2004. He said the increase in the prices of food items was a result of typhoons and flooding two to three months ago. Meanwhile, the Malacañan presidential palace assured the public that the government is taking steps to ensure that prices of basic commodities would remain stable. Press Secretary Ignacio R. Bunye reiterated that the Department of Agriculture has coordinated with suppliers, producers, and distributors of basic goods to be able to peg their prices at reasonable ranges. "This interaction with various stakeholders would continue and we are confident that the goal to achieve stable prices of prime commodities would be met," Mr. Bunye told reporters. -- Jennifer Ng and Jeffrey O. Valisno

Peso unmoved by threats of ratings cut

The Philippine peso barely moved against the US dollar yesterday as the market fended off talk of a possible downgrade by foreign credit ratings agencies. "We just ignored that one. We remain hopeful of the government's ability to pass tax measures [to generate additional revenues]," a trader said. Socioeconomic Planning Secretary Romulo L. Neri said credit ratings agencies such as Moody's and Standard and Poor's (S&P) Ratings Services might again give another lower grade for the Philippines if it fails to enact more tax measures.

In July, S&P said the country's long-term foreign currency sovereign rating was still at "BB" but the long-term local currency rating was downgraded to "BBB-minus" from "BBB." The government targets a PhP100 million collection annually with the implementation of the different tax measures filed in Congress.

Yesterday, the peso moved within a tight three-centavo range as the market adopted a wait-and-see position. While regional currencies were trading on unsteady ground following the new round of oil increases at the world market, the peso was supported by dollar remittances from overseas Filipino workers, traders said. "It was a balancing act. It's the start of the remittance season ahead of the holidays even if oil price is reaching new highs," the trader added. NYMEX crude oil prices is now at around $51 a barrel. At the Philippine Dealing System, the country's currencies exchange, the peso averaged weaker at PhP56.298, down by more than three centavos from PhP56.266. Opening at PhP56.305, it gained half a centavo to cap its lowest at PhP56.31. The local unit hit a high of PhP56.28 and closed at PhP56.295 to the dollar. Total volume of transacted dollars fell to $135.5 million from $141 million. -- Ira P. Pedrasa

DBP expected to list securities worth 1B pesos

By JENNEE GRACE U. RUBRICO, Reporter

Development Bank of the Philippines (DBP) is set to register up to PhP1 bi1lion worth of securities at the Securities and Exchange Commission (SEC), a director of the corporate watchdog said yesterday. In a talk with reporters, SEC Director Emilio Aquino said the securities that the state-run bank would register are those that would be traded in its alternative trading platform. DBP is seeking SEC approval for the operation of a system that will provide a venue for buying and selling small and medium enterprises' receivables from big companies, such as San Miguel Corp. DBP needs to register the securities it will be trading in compliance with the provisions of the Securities Regulation Code. "They need to apply for the registration of the securities they will have to trade. It is the bank that will apply for it... From what I was told, PhP1 billion worth of securities will be registered," Mr. Aquino said. Another SEC official said the initial implementation of the trading system would only service a portion of the PhP1 billion that it is set to register. The official added that the PhP1 billion in securities will likely be traded over a three-year period.

Under DBP's alternative trading system, SMEs can sell their receivables from big companies through the new platform after these IOUs are validated by the issuing firms. DBP will then sell these to a ready market, such as banks. The debts would be sold at a price lower than their actual value. Allowing SMEs to sell the receivables would give them funds for operations and capital, the SEC source said. SMEs could get more money for their receivables than they ordinarily would because these would be validated by their issuer companies. Effectively, the big companies would be lending their reputation to the SMEs. Buyers of the receivables would earn from being able to collect the full value of the receivables when they fall due. DBP, for its part, will earn from fees that would be imposed for the use of its trading platform. Mr. Aquino said DBP was in talks with the SEC for other requirements that are needed for the approval of its alternative trading system. He said the bank is asking for exemptions on certain requirements, but these could not be granted by the SEC since the trading system will be dealing with trade receivables that are not the usual products being sold in the market. "We believe the exemptions for the requirements are not appropriate given the nature of these securities. The exemptions are not applicable to the securities," he said. However, he refused to specify what exemptions the DBP was asking for. He also said certain "disclosure issues" are still being settled by the SEC and DBP.

The disclosure issues, he said, involves requirements from San Miguel Corp., which the firm does not want to give. "They don't want to produce the information," he said. DBP is expected to start the operation of its alternative trading system before the end of the year. Initially, DBP will trade the collectibles of SMEs that do business with San Miguel. Eventually, the system will include receivables of other big companies that would be able to lend SMEs the reputation they need to get higher value for their collectibles. DPB's proposal is the first of its kind that was filed before the SEC.

San Miguel to build new distillery

In bid to boost hard liquor output amid strong overseas demand

By JENNEE GRACE U. RUBRICO, Senior Reporter

Food and beverage giant San Miguel Corp. is building an alcohol distillery in Misamis Oriental as a response to demand for hard liquor abroad. In a statement, San Miguel said the distillery, which will be built on a 100-hectare property that the firm will lease from the Phividec Industrial Estate, will produce up to 75,000 liters of hard liquor a day. "Production from the distillery will largely support the export operations of San Miguel's hard liquor subsidiary, Ginebra San Miguel, Inc.," the company said. The company said there was a 2,200% increase in exports for Ginebra during the period of January to June. This pushed up the hard liquor unit's income for January to July by 5%, or to PhP1.086 billion, the company said.

San Miguel said that to support increasing demand for hard liquor in the local market, it will expand its existing distillery in Negros Occidental. The distillery is run by Ginebra's subsidiary Distilleria Bago, Inc. San Miguel declined to say what its current capacity is or by how much its capacity would be increased by the expansion. San Miguel also did not say how much would be spent for the construction of the new distillery in Misamis Oriental and for the expansion of the Negros Occidental plant, but said the two initiatives are part of its plan to allocate PhP15 billion over the next three years to build new plants and modernize and expand existing facilities. The bulk of the PhP15 billion, San Miguel said, will be allocated to domestic operations as the company anticipates significant growth in the domestic economy and higher consumer demand.

BULLISH

"We are definitely bullish about the domestic economy and these investments that we are making, specifically on our local operations, reflect that confidence," Chairman and Chief Executive Eduardo M. Cojuangco Jr. said in the statement. The company said its domestic expansion program is aimed at "pursuing new opportunities within its core business" and "stimulating" the economy. "San Miguel is expanding its capacities and rolling out new products because we believe in the economy We'd rather do our part in stimulating growth than worrying about the economic problems facing the country or just doing nothing at all," Mr. Cojuangco said.

San Miguel is Asia's largest food and beverage conglomerate. The company is also aggressively expanding in the Asia Pacific Region, with its acquisition of, among others, facilities in Thailand and its purchase of a 50% stake in Australian juice firm Berri Ltd. in August. The company reported a consolidated net income of PhP4.76 billion for the period of January to August, up 28% from PhP3.72 billion in the same period last year. The company also reported an operating income of PhP10.1 billion for the period, up 55% from last year, and consolidated revenues of PhP107.9 billion, 12% higher than last year. The firm attributed its robust performance to higher sales volumes of beer and fixed cost containment of the Coca-Cola Beverage Group.

Gov't urged to reject Maynilad rehab plan

Advocacy group Freedom from Debt Coalition yesterday urged the government to reject the court-approved rehabilitation plan of Maynilad Water Services, Inc. and terminate the firm's concession agreement. In a statement, the group said the revised rehabilitation plan spelled a government bailout. A Quezon City judge last month approved the petition for the financial rehabilitation of Maynilad. All Maynilad creditors, including state-run Metropolitan Waterworks and Sewerage System (MWSS), opted for rehabilitation so the firm could return to profit. "An early contract termination will necessitate MWSS to pay Maynilad PhP4.5 billion (75% of depreciated value of its assets) -- a small amount compared to what it will lose when it blindly concurs with the rehabilitation plan. An early contract termination will mean that MWSS would own 100% of the west zone concession without assuming Maynilad's liabilities," the group said.

UP FRONT

The group claimed the revised plan will allow MWSS to receive up front only 80% of the PhP8.538 billion that Maynilad owes the government as of end-2003 which will be done through a full draw on Maynilad's $120-million performance bond. Apart from that, only fractions of concession fees due and demandable for 2004 up to 2007 will be paid on time, 50% in 2004, 65% in 2005, 70% in 2006 and 70% in 2007, while the balances will be restructured at 9% yearly interest rate on a staggered basis starting 2008 to 2010, the group said. "MWSS will have to resort to new borrowings at a time when the nation is currently smarting from a looming fiscal crisis," it said. The advocacy group said Maynilad's nonpayment of its dues since 2001 has already forced MWSS to be deeper in debt -- $21 million in 2001, $260 million in 2003 and $150 million in 2004. -- Bernardette S. Sto. Domingo

SEC defers decision on Uniwide rehab proposal

The Securities and Exchange Commission (SEC) has deferred action on a proposal to amend the rehabilitation plan of retail and property firm Uniwide Group of Companies to allow the parties to settle the matter. In a talk with reporters, Marie-Rose Lim, member of the SEC hearing panel for Uniwide, said the commission decided to defer action on the amendment proposal upon the request of Uniwide and its creditors, Philippine National Bank (PNB) and Allied Banking Corp. "The motion to alter the second amended rehabilitation program is pending because we are allowing the parties to settle this among themselves first. They asked that it be deferred for the meantime," she said. There was a proposal to alter the second amendment to the rehabilitation program as the company, PNB and Allied failed to agree on some of the details for a dacion en pago or payment in kind arrangement. The details that have to be reconciled, Ms. Lim said, pertain to interest rates and valuation of properties. The arrangement is part of the SEC approved second amendment to the rehabilitation plan, which allows the company to enter into the dacion en pago scheme to settle debts with secured creditors, mostly banks.

The Uniwide group owes banks some PhP3.68 billion. The debts had been trimmed as the company paid almost half of its debts to banks by assigning its properties to them. Uniwide is seeking to restructure PhP2.15 billion owed to unsecured creditors. Under its plan, half of the exposure or about PhP1.08 billion would be settled by issuing convertible notes while the remaining balance would be paid through cash flows from retail operations. Uniwide's unsecured creditors include trade suppliers, contractors, non-trade creditors and private lenders. The Uniwide group suffered from liquidity problems as a result of the economic crunch and filed for suspension of debt payments and rehabilitation with the SEC in June 1999. In December 2002, the SEC approved the second amendment to the rehabilitation plan. The Uniwide group is composed of Uniwide Sales, Inc., Uniwide Holdings, Inc., Naic Resources and Development Corp., Uniwide Sales Realty & Resources Corp., First Paragon Corp., and Uniwide Sales Warehouse Club, Inc. -- Jennee Grace U. Rubrico

Manila Water considering bulk water supply ventures

Ayala-owned water concessionaire Manila Water Co., Inc. is looking at business opportunities outside Metro Manila, particularly in the area of bulk water supply. Chief Financial Officer Sherisa P. Nuesa said the company is looking at bulk water supply projects in Laguna, Bulacan, and Cagayan de Oro. Manila Water, which services the east zone concession of the Metropolitan Waterworks and Sewerage System, currently has a bulk water supply project in Cebu. As a bulk water supplier, Manila Water is tasked to source the water, treat it, and deliver it to the water districts for distribution to end users. "We have gained sufficient experience in the water sector and we want to take advantage of water opportunities and help the government," she said.

Ms. Nuesa said Manila Water has been in discussion with the government and that it was advised to prioritize bulk water supply projects in tourism areas. She said Manila Water decided to expand in the area of bulk water supply rather than in water distribution because the company does not have a franchise to operate outside Metro Manila. "We have experience in distribution as well but the priority is still bulk water supply because the franchises are already in the water districts. We don't have the franchise for it," she said.

Manila Water took over the east zone concession of the MWSS in 1997. It delivers 1,600 million liters of potable water in the east zone, a 1,400-square kilometer area that covers 24 cities and municipalities in Metro Manila and Rizal. These include Mandaluyong, Marikina, Pasig, Pateros, San Juan, Taguig, Makati and parts of Quezon City and Manila as well as Angono, Antipolo, Baras, Binangonan, Cainta, Cardona, Jala-Jala, Morong, Pililla, Rodriguez and San Mateo in the province of Rizal. Last year, the company generated PhP1.2 billion in income. It is expecting to exceed this amount for 2004. The firm is planning to tap the capital market next year through an initial public offering. Although it is yet to finalize plans, the firm is looking at raising between $60 million and $80 million from the listing. -- Jennee Grace U. Rubrico

2 foreign firms ink deal to explore Galoc reserves

Two foreign oil companies have inked an exploration deal with the members of the consortium that holds the exploration rights to offshore oil reserves in Galoc, northwest of Palawan. In a disclosure to the bourse, consortium member, Oriental Petroleum and Minerals Corp., said the consortium signed the deal with Team Oil Ltd. of England and Cape Energy Pty. Ltd. of Western Australia. "The [deal] covers the Galoc area, which will be developed by the [firms] at their own cost in exchange for 80% equity," Oriental Petroleum Executive Vice-President Jaime L. Ledesma said. Other consortium members are: Alcorn Philippines, Alcorn Gold Resources, Linapacan Oil, Gas & Power, The Philodrill Corp., Altisima Energy, Basic Petroleum and Minerals, Petroenergy Resources, Phoenix Energy, and Perth-based Nido Petroleum.

Under the deal, Oriental Petroleum's interest will be reduced to 7.58% from the original participating interest of 30.29%. Mr. Ledesma was not available for comment as of press time. In 2002, Unocal Sulu Ltd., a wholly owned subsidiary of US-based Unocal Corp., signed an agreement with the consortium to carry out a phased study of Galoc and eventually develop it should it be economically feasible. Last year, however, Unocal decided not to proceed with the Phase 2 of the development after completing Phase 1, which consisted of 3D seismic reprocessing and interpretation, geological and reservoir engineering studies as well as preliminary facilities analysis. -- B. S. Sto. Domingo

SEC incorporates joint-venture firm to run oil depot

The Securities and Exchange Commission (SEC) has approved the incorporation of the joint-venture firm formed by the three oil majors to run the Pandacan oil depot. In a disclosure, Petron Corp. yesterday said the Pandacan Depots Services, Inc. "was incorporated with the Securities and Exchange Commission last Sept. 29." It said the joint-venture firm "is equally owned" by Pilipinas Shell Petroleum Corp., Caltex Philippines, Inc. and Petron. Petron said Pandacan Depots will operate and manage the shared facilities and run its day-to-day affairs.

"In line with the memorandum of understanding dated June 26, 2002 signed with the Department of Energy, Petron and other oil companies have embarked on the Pandacan Scaledown Project," the firm said. The project has provided for a buffer or green zone to address the perceived risk posed by the oil depot's proximity to surrounding communities. Under the agreement, the scaled-down facilities will be operated and managed by a third party independently of the interest of any one affected oil company. -- B. S. Sto. Domingo

Stocks rebound on positive data

By ROULEE JANE F. CALAYAG

Share prices bounced back yesterday after a brief technical correction. Strong technical indicators coupled with a positive mood among investors and a promising fourth quarter all converged to buoy the Philippine stock market anew. These factors enabled the market to return to profitability and continue on its drive to clinch better gains in the remaining months of 2004. "[Share prices improved because of] strong technical indicators, a positive mood among investors arising from expectations of better corporate reports and optimistic fourth-quarter outlook," said Ron Rodrigo, senior analyst at Accord Securities, Inc. "Investors will jockey in as they await better corporate reports," he added.

Positive third-quarter results may also spill to the fourth quarter, considered as the strongest period in the equities market based on cyclical formation. Mr. Rodrigo said a follow-through may be expected in the first quarter of 2005 if the listed firms keep to their targets. "With positive sentiments from investors and good corporate earnings, there are a lot of reasons to buy into the equities market," he added. Investors are warned of some readjustments in the revenue forecasts of companies in case of unexpected developments. In retrospect, the financial crisis that swept through the Asian region in 1997 came undetected. But Mr. Rodrigo sees the Philippine stock market cruising to bullish sessions as it just recovered from a bout of technical corrections observed last Tuesday.

INFLATION

"The market was moving up again after some profit-taking. [Last Tuesday's performance was] basically a technical correction. The CPI [consumer price index] September triggered the sell-off [previously]," said Mr. Rodrigo. The CPI, referred to as "headline inflation," is a measure of price changes in basic consumer goods and services such as gasoline and food. It is one of the frequently used statistics to identify periods of inflation or deflation and usually has a big impact on stocks the day it is released. The National Statistics Office released the other day the country's headline inflation rate which exceeded expectations for September due to relentless oil price increases that drove average consumer prices to an almost four-year high. Based on 1994 prices, year-on-year inflation went up to 6.9% in September from 6.3% in August. It even climbed to 7.2% from 6.8% when the new base year, which is 2000, was used.

Accord's Mr. Rodrigo described the performance of the local bourse yesterday as "a continuation of the breakout" observed last Friday when the benchmark Philippine Stock Exchange composite index (Phisix) breached the 1,763. The next resistance is seen at 1,861. "We are slowly creeping to that level," said Mr. Rodrigo. The main index gained 8.32 or 0.45% at 1,841.67. The Phisix opened at 1,838.05, reached a high of 1,843.59 and a low of 1,834.70 before settling at 1,841.67. The all-shares advanced by 3.88 at 1,121.80. The commercial-industrial blazed the way with gains of 24.43 or 0.84% at 2,933.57. Mining soared 9.72 or 0.50% to 1,967.52. Oil rose by 0.04 or 2.4% at 1.71. On the other hand, the banks and financial services slipped 2.64 or 0.52% to 504.93. Property was not spared, falling 1.41 to 643.46. Trades improved slightly at 4,573. Bulls wrestled the fort from the bears with advancers outranking decliners at 45-32. But there were more issues, whose prices were unchanged, at 44. The volume of traded shares declined at 1.4 billion but the volume packed some punch at PhP5.3 billion.

SMC

However, out of the total amount, PhP4.3 billion resulted from cross sales of the "A" and "B" shares of San Miguel Corp. (SMC). "The bullish signs are there, especially with the big value turnover with [over] PhP4 billion of which from cross sales of SMC," he said. But foreign investors' confidence slipped slightly with foreign net selling at PhP8.9 million. Total foreign buying dipped to PhP538.9 million compared to total foreign selling of PhP547.7 million. The price of "A" shares of SMC, the top traded stock, went up to PhP59.50 with 41.7 million shares that exchanged hands for PhP2.5 billion. It cornered a market share of 46.31%. Class "B" shares of the food, beverage and packaging conglomerate was the second most traded stock, down at PhP71 but with 26 million shares worth PhP1.8 billion. Its market share reached 34.45%. The interest in SMC may have been driven largely by the conglomerate's announcement that it was conducting due diligence on Del Monte Pacific, which is listed at the Singapore Stock Exchange.

Philippine Long Distance Telephone Co. (PLDT), which appointed former Bureau of Internal Revenue Commissioner Rene Bañez as its chief governance officer, was the third most active. Its price was up at PhP1,495 on 268,000 shares traded for PhP401.5 million. It managed to corner 7.5% of the market.