Friday, October 29, 2004
Consumer confidence lowest for the year
Sin tax debate rages despite compromise
Bearish outlook from bullish earnings in the first half
NG won't assume Transco loans
NSC may get tariff cover once plant operations start
Green light on first cogeneration project
Metrobank auctions idle assets worth 165M pesos
Central bank, bankers' group drafting bill on credit database
Peso stronger by 6.5 centavos
Plantersbank's $25-M SME fund to start by yearend
Solidbank accuses Marcopper of avoiding payment
Globe 3Q net income drops 34.5%
IFC helping bourse revitalize stock trading
Stocks jump on favorable quarterly earnings

Thursday, October 28, 2004
Gov't, tobacco firms strike 'sin' tax compromise
Gov't firm readies to sell cocodiesel technology
Call center firm eyes local, foreign listing by next year
Customs sometimes in cahoots with smugglers
Govt mulls mining service contracts
Napocor starts small power utilities privatization
Economic managers defend medium-term plan
RP firms embark on China mission
Metrobank raises stake in PSBank to 74% from 64%
World Bank unit acquires 20% stake in local insurer
Peso weaker by five centavos
Banco de Oro reports 41% hike in income as of Sept
Meralco says finances still strained despite net rise
Ayala Land net jumps on rentals, residential sales
Globe mulling increase in public offer
Intel predicts growing demand for products
Stocks rise ahead of long weekend

Wednesday, October 27, 2004
House committee's 'sin' tax bill worries experts
Business cautions gov't vs favoring specific firms
Medium-term plan flaws noted
New foreign borrowings not ruled out
Finance dep't favors cut in corporate income tax
Eximbank notes power sector's weaknesses
Arroyo approves PhP3-B Metro Manila infrastructure project
RCBC sets $200-M senior notes offering next month
Five-year Treasury bond rate climbs by 50 basis points
Philippine bond spreads weaken
Industry groups back third-party custodian setup
Metrobank hires CB Richard Ellis to dispose 150 idle assets
Spanish firms keen in joining team to rehabilitate Luzon road project
Gov't delays first auction of Masinloc power plant
Outsourcing firm putting in PhP142M for operations
Entertainment PCs seen to boost Intel
Jollibee says it can hit 2004 net income target
Stocks regain footing, jump 1.9%

October 25- 26
October 21- 22
October 19- 20
October 15- 18
October 13- 14
October 11- 12
October 7 - 8
October 5 - 6




Consumer confidence lowest for the year


Consumer confidence, already low in August, further weakened last month and plunged to its lowest for the year on the back of rising oil prices and the lack of positive news from the government. The spectacle of another series of politically-related congressional hearings and investigations and the vision of increasing unpopularity of the Arroyo administration greeted consumers in September. "All of these undermined the confidence of consumers," said Unicapital Securities research head Elena Ponceca. Also, the threat of an impending fiscal crisis still cast a shadow, further raising consumer pessimism, as shown in the September 21-27 perception poll done for BusinessWorld by NOP World Asia (formerly Roper ASW Asia Pacific), which interviewed 300 Metro Manila consumers.

The consumer confidence index (CCI), a composite measure of how consumers perceive their present circumstance and prospects six months down the line, plunged to its lowest for the year at 81.6 points, from 87.5 points in August. "If we have a consumer confidence like that, it is not a good indicator because businesses thrive only when people are buying," Think Tank economist Bienvenido Oplas said. The similarly low consumer confidence in August was mainly due to higher oil prices, which resulted in lower income and higher expenses for many households.

In late September, allegations of corruption and misconduct by several public officials were revealed, such as the alleged failure of Government Service and Insurance System (GSIS) president and general manager Winston Garcia to liquidate cash advances, and alleged anomalies in the Smokey Mountain Development and Rehabilitation Project (SMDRP) involving former President Fidel Ramos. Aside from these, the country faced a $56.3-billion foreign debt and PhP1.1-trillion debts of government-owned and -controlled corporations (GOCC). More consumers believed that the government was doing a worse job, with 43% of the respondents saying so. Only some 23.6% still believed in the government's quality of governance. Those who felt that the government was doing neither better nor worse accounted for 33.4%. Similarly, more consumers (39.6%) said that President Gloria Macapagal-Arroyo was not doing a good job. The 52.2% in August who said the President was doing a good job declined substantially to 34.8% in September. Consequently, those who said the economy would prosper under Mrs. Arroyo's leadership declined to 31% from 45.3% in August. More consumers (40.3%) perceived the economy would not prosper during her term. However, even with this increased level of pessimism, there were as many consumers who did not believe in the President's sincerity as those who believed otherwise (37.1% and 37.6%, respectively). Mr. Oplas viewed this as really bad. "It means that the State has become uninspiring to the people."

Meanwhile, with solutions to the country's fiscal problem still to be ascertained, fewer than four out of 10 (36.1%) said the economy would worsen over the next six months, compared to 24.3% who believed it would improve. But 39.4%, or four out of 10, believed it would remain the same. Said Mr. Oplas, "When people hear of a fiscal crisis, they immediately think of taxation. People are thinking how much more will be taken from their pockets." In the September poll, consumers were asked whether they believed that new tax measures would solve the budget deficit. Half of the respondents (49.4%) said the measures would not solve the problem, while 30.5% said otherwise. Only two out of 10 (20%) were not sure. Ms. Arroyo earlier asked Congress to pass eight revenue enhancement measures. These, combined with administrative reforms like trimming the bureaucracy, are expected to earn the government some PhP100 billion in additional revenues yearly. The tax measures are the shift to gross income taxation, a two-step increase in the value added tax (VAT) rate, a tax on "windfall profits" of telecommunications companies, indexation of excise taxes on "sin" products to inflation, and a hike in the excise tax on petroleum. The government also considered tax amnesty, performance-based attrition, and rationalization of fiscal incentives. Among the eight measures lined up by the government, some consumers said the Arroyo administration should give priority to the indexation of sin taxes, which would involve the automatic adjustment of taxes every two years to prevent the value of sin (tobacco and alcohol products) taxes from being eroded by inflation. More than three out of 10 (35.1%) ranked sin taxes as the most important measure. This was so because these were taxes consumers could avoid, Mr. Oplas said. "It's an avoidable tax. If you do not want it, then don't smoke. People are relatively indifferent to a hike on these kind of taxes," the economist added.

The second to be prioritized, according to consumers, should be tax amnesty. Some 17% said taxpayers with unpaid national internal revenue taxes as of December 31, 2003 should be allowed to apply for amnesty and pay the equivalent of 3% of their net worth. Only 13.5% believed the government ought to prioritize the performance-related attrition system. This measure calls for the transfer or severance from government service of revenue officials for failure to meet collection targets. The measure likewise provides incentives for those who perform better than targets. It also provides for performance standards and review mechanism for revenue collection agencies. The fourth measure to be prioritized, according to consumers, should be the increase in the excise tax on petroleum products, except for LPG, followed by the phaseout of fiscal incentives that are inefficient, irrelevant, and redundant The measures that consumers think should be the least of government priorities are the shift to gross income taxation from net income taxation on companies; reimposition of a franchise tax on telecommunications companies; replacing the 10% VAT and a 2% increase in VAT by next year. This is understandable, Mr. Oplas said. "The 10% VAT now is actually high, that's why many sectors asked to be exempted," he said. Consumers are expected to lobby if the government goes ahead with raising it, he added.

Meanwhile, no improvement is seen in consumers' income as half of the respondents (50.9%) see their income remaining at the same level in the next six months, while jobs are seen to be more difficult to find. Even the stock market will not get better, said consumers. The September tally of people who believed that the bourse would worsen was at a new high, at 44.6%, from August's 36%. Pessimism was likewise felt in the currency market as confidence in the peso weakened. Almost six out of 10 (58%) perceived that the peso would weaken in the next six months, while only 11% believed otherwise. NOP World Asia now conducts the perception poll every quarter. BusinessWorld will publish the succeeding CCIs upon the release of the survey results



Sin tax debate rages despite compromise

The Department of Finance is not aware of any compromise between the government and the tobacco industry on excise taxes on cigarettes for next year, Finance Secretary Juanita D. Amatong said yesterday. "I do not know that," she replied when asked to comment on reports that Malacaņang and tobacco executives on Monday night agreed to cut to 12% the increase in cigarette taxes in 2005 from the 20% approved early yesterday by the House of Representatives. Finance previously lobbied for 30.1%. "What I know is what Congress has come out with," Ms. Amatong said. She also said her office was amenable to the 20% increase, but Congress should also raise taxes on cigarettes and liquor every two years based on cumulative inflation.

But Senate ways and means committee chairman Ralph G. Recto said the House-approved 20% increase in taxes for cigarettes and liquor by next year, and by another 3% in 2006 and again in 2007, would still be fine-tuned. "There are two choices -- index sin taxes to inflation, or adopt a specific tax increase all the way, at the very least to 2010," Mr. Recto told a press conference. He also said it was too early to conclude that a "compromise or watered-down version of the sin tax bill" was being worked out by the government to protect the tobacco industry. Yesterday the Senate heard the bill filed by Senator Juan Ponce Enrile that would remove the four-tiered tax classification system for cigarettes. "Why do we perpetuate this inefficient tax system?" Mr. Enrile said after he explained his bill during the hearing. "The taxation system in the country will worsen with what the House of Representatives did. I will oppose it." Mr. Enrile also asked the Bureau of Internal Revenue to detail the profits and tax payments of cigarette companies for every brand, "to determine whether the current taxes are equitable or not"

Senate Minority Leader Aquilino Q. Pimentel Jr. added the nine-man opposition bloc in the Senate would push for Mr. Enrile's bill. Also at the Senate, Fortune Tobacco Corp. president Antonio P. Abaya said his company was firm on a 6%-12% increase in excise taxes. "We are also proposing that after that, there will be a 3% increase," he said. A government source said the 12% and 3% increases were among the rates agreed on when President Arroyo privately met with tobacco executives at her Forbes Park residence on Monday night. Earlier that day, the House ways and means committee approved 20% and 3% increases. For his part, Philip Morris Philippines, Inc. managing director Chris Nelson reiterated his company's proposal for a unit specific excise tax rate increase. Fortune and Philip Morris hold market share of 54% and 35% respectively. British American Tobacco Philippines commercial director Dennis Belgira added, "We are fully supportive of the government's plan to index cigarettes to inflation in the future to help the government in raising additional revenues. However, we are extremely concerned that the House bill falls short by not establishing a level playing field for the industry."

At the House, Minority Leader Francis Joseph G. Escudero of Sorsogon said Malacaņang should give Congress a free hand in drafting tax legislation. "The President should not initiate, her roles are to sign or veto the laws passed by Congress," he said. Lidy C. Nacpil, secretary-general of the Freedom from Debt Coalition, added, "The fact that the Executive placed the interest of tobacco industry players above the interest of the public, who will bear the brunt of an economic crisis, makes it condemnable." The House passed yesterday House Bill No. 3174, which provided for a 20% increase in the tax on alcohol and tobacco products next year, a 3% increase in 2006, another 3% increase in 2007, as well as the retention of the multi-tier tax structure for these "sin" products. The bill also says any tax due from any brand "shall not be lower than the tax due as of the date immediately prior to the effectivity of this Act or the excise tax due as of December 31, 1999." Tarlac Rep. Jesli Lapus, ways and means committee chairman, said this provision removed he ambiguity in existing laws that led the Court of Tax Appeals and the Court of Appeals to grant Fortune Tobacco Corp. a PhP1.036-billion tax refund. The House bill promised additional taxes of PhP7.6 billion next year, PhP8.9 in 2006 and PhP9 billion in 2007, or a total of PhP25.5 billion over three years. Mr. Lapus said the reported compromise rates of 12% increase next year, 40 centavos in 2006, and 3% increase every year thereafter until 2010 would also raise the same amount of new revenues. -- Karen L. Lema, Carina I. Roncesvalles and Judy T. Gulane



Bearish outlook from bullish earnings in the first half

By JENNEE U. RUBRICO, Senior Reporter

The first half of the year was basically upbeat for the top companies, with most showing robust earnings growth. A report from research company Team Research Services estimates that in January to June, corporate earnings of the top 20 stocks grew 40% year-on-year on the back of spending in the run-up to the May national and local elections. Analysts said that the earnings spurt was led by companies in the consumer and telecommunications sectors, and the rest followed their lead. "Everybody performed well because there was election spending. Consumer groups, which include telecoms, all benefited," said Joseph Y. Roxas, president of Eagle Securities Inc. Astro C. del Castillo, managing director of First Grade Holdings, Inc., said the beneficiaries of the political exercise included food and beverage giant San Miguel Corp. (SMC) mainly due to higher beer consumption, and fast-food giant Jollibee Foods Corp.

In its second quarter report, telecommunications major Philippine Long Distance Telephone Co. reported a consolidated net income of PhP12.008 billion, for the first half. This represents a fivefold increase over the restated consolidated income of PhP1.785 billion in the first half of 2003, the company said. PLDT said that the increase was principally due to the net income of wireless subsidiary Smart Communications Inc., which contributed a net income of PhP11.635 billion, a 90% increase in its net income contribution of PhP6.124 billion in the same period in 2003. There was also a "substantial decline in other expenses," PLDT said. For its part, Ayala firm Globe Telecom Inc. posted PhP6.9 billion in net income -- up from 2003's PhP4.368 billion. The increase in profit was attributed to growing sales and distribution capability to top-up services such as Autoload Max, Family Autoload, and Share-a-Load, which were significant contributors to prepaid reload volumes. The company also introduced innovations to enhance service affordability and flexibility to a larger market segment, such as the Call and Text Collect service, the first service of its kind in the country that enables pre-registered prepaid subscribers to send SMS (short message service) or make a voice call to others in the network even when they run out of load credits. SMC sustained its strong performance in the first semester with consolidated net income reaching PhP4 billion, up 31% from last year. The improvement largely resulted from higher beer volumes, the fixed cost containment of the Coca-Cola Beverage Group, significant improvements of the food group and the recovery of SMC's beer international operations, the company said.

Jollibee, meanwhile, posted a PhP850.648 million net income, up 38% from PhP612.360 million last year. Total revenues grew 22.6% to PhP12.7 billion for the first half compared to the same period last year. Systemwide sales -- the direct sales to consumer from both company-owned and franchised stores -- increased by 28.7% to PhP9.2 billion during the quarter, with 6% provided by the Yonghe King business in China and 22.7% from established business, mostly in the Philippines, the company said.


The corporate earnings growth rate during the period, however, is not expected to be sustained in July-December. Analysts forecast that companies will continue to grow, albeit at a much slower pace. "There's no doubt that the corporate results later this year won't be as good as what we got in the first half," said AB Capital Securities Inc. senior manager Jose L. Vistan, who noted that the slowdown started in the second quarter. The factors for the growth slowdown are the tapering off of post-election spending, and the inflationary effect of increasing prices of crude oil in the world market. "Because of the continued uncertainty brought about by the price of oil in the world market, the inflationary effects of such movement are to be a major factor in slowing down the engine of our growth. That's why we're kind of cautious for the second half of the year Most investors and consumers of certain products will be cautious," First Grade Holdings's Mr. del Castillo said.

Some analysts noted a possible pressure on interest rates by President Gloria Macapagal-Arroyo's admission of a fiscal crisis, which, in turn, would increase the interest expense of corporations. "The government's fiscal crisis [pronouncement] is expected to dampen the country's credit rating. This could lead to a weaker peso and higher domestic interest rates as portfolio investments are going to be adversely affected," AB Capital Securities' Mr. Vistan said. Others, however, said the impact of the fiscal crisis would likely be more of a concern in 2005. "We've been saying that the budget deficit is really a major problem and we've seen how [Mrs. Arroyo] was able to cure such problem by enhancing revenue collection, putting in more competent people, and, if this is not properly resolved, if the government does not cut down on expenditures and improve revenue collections, it will continue to be a problem. But for now, we don't think it will be a major problem," Mr. del Castillo said.


Still, companies are expected to continue growing -- albeit conservatively. The Team Research report projects that even with the slowdown in the second half, corporate earnings for the whole year is expected to grow by 25% to 30% year-on-year. Analysts see that the telecommunications sector will continue to lead the growth, with PLDT and Globe Telecom continuing to "surprise" the market. "The telecommunications industry is leading the market right now and I think they will continue to lead the market for the rest of the year," Mr. del Castillo said. Analysts said PLDT is expected to match its first half performance, and to come out with "innovative ideas" that would attract more frequent use of its landline and mobile services. Globe is also anticipating an expansion in the market given the increased affordability of mobile communication products and services. The company has revised its market access rate projection of 40% from 33% to 50% from 40% by 2005. Globe noted that "real" subscriber penetration may be lower, as a portion of the market subscriber base may be SIM (subscriber identification module) cards that were activated for single use, and then abandoned or swapped anew in a rotational cycle.

While remaining committed to its post-paid market, Globe has also increased its focus on the mass market given the growth potential of this segment. The company also targets 1,000 additional cellular sites by yearend, which would bring its total count to 3,600. This is expected to increase Globe's geographic coverage to almost 70% and its population coverage to over 85%. Besides the telecommunications companies, export-oriented companies, in particular, transportation services firm International Container Terminal Services, Inc. (ICTSI) are seen to have a positive second half performance. "I think the company is starting to pick up after the start of operations of ports in Brazil and Poland. It's starting to bring income, because the profits are in dollars," Mr. Roxas said. ICTSI doubled its net profit for the first half of the year to PhP446 million from PhP222 million for the same period in 2003. For the second quarter, the company posted PhP119 million in profits, 135% higher than the PhP280 million a year ago. While Manila International Container Terminal still accounted for the bulk of the company's revenues at 64% of PhP4.2 billion for the first half of the year, ICTSI said revenues from subsidiaries Baltic Container Terminal (BCT) in Poland and Tecon Suape SA in Brazil increased by 22% to PhP1.4 billion, or 34% of total revenues. BCT revenues grew 78% for the period, ICTSI said, while Tecon Suape improved by 160%. This is the first time that the Brazilian subsidiary posted net earnings since it started operating in 2002.


The food sector is also expected to perform positively on improved consumer confidence. "This [consumer confidence] will spill over to Jollibee, San Miguel, and others," Mr. del Castillo said. SMC, which has been expanding in different countries in the region, is also expected to meet profit projections, analysts said. "I think they'll make it. They don't usually go very far off their range," Mr. Roxas said. SMC has been aggressively expanding to neighboring countries over the past six months in line with its thrust to have its international business increase the contribution to the revenue mix. In the past few months, it opened facilities in China, Thailand, Vietnam, and Indonesia. It also acquired a non-alcoholic beverage company in Australia. SMC projects its international business's contribution in the revenue mix to increase to between 40% and 30% from the current less than 15%. "The company will utilize its strengths in the domestic business and international orientation as it aggressively builds up its businesses in the region," it said. In addition, SMC is set to open its plastics bottle facility in the first quarter of 2005.

Meanwhile, analysts said Jollibee's growth would be driven by fast-food unit Chowking and by its Yonghe company. Some analysts noted that higher power costs might increase the expense of Jollibee, but income from the Yonghe operations will offset the higher expense. PROPERTYThe property sector is also "starting to bounce back," Mr. del Castillo said. Mr. Roxas said the SM group is expected to continue its steady growth, albeit at single digit rates. DMCI Holdings, Inc., the holding company of the Consunji group, also expects to double its profits to PhP400 million from PhP190 million in 2003 -- relying on its coal unit, Semirara Mining Corp., to bring in the revenues. DMCI reported a consolidated income of PhP168 million for the first half, up from PhP23 million posted in the same period in 2003, due mainly to increased activity and continuing improvement in the construction sector, "flourishing market" in the coal mining business, and sustained development in the real estate sector. Semirara is the country's largest coal producer. It used to supply coal only to the National Power Corp.'s power plants, but has since widened its market to include other privately owned power plants and cement plants. Coal prices have increased over the past year due to the limited supply from main source China. The Chinese government had recently prioritized supplying domestic consumption to back up its heating economy.


Meanwhile, the direct casualty of the oil price increase is the transportation sector. Aboitiz Equity Ventures Inc. (AEV), in particular, admitted that the oil price increases will affect Aboitiz Transport System Corp. (ATSC). "ATSC operates one of the more fuel-efficient fleets, but price increases in fuel and other costs will require some revenue adjustments to compensate," the company said. AEV President Jon Ramon Aboitiz said they have adopted cost-cutting measures. In the power sector, the outlook of Manila Electric Co. (Meralco) is uncertain. While it enjoyed a robust first half, and a net income of PhP1.416 billion from PhP66 million in 2003 from 2002, the income projections are threatened by a recent Court of Appeals (CA) ruling that barred the distributor from collecting a 17-centavo per kilowatt-hour average un-bundling rate increase. The ruling is under appeal. Meralco President Jesus P. Francisco said a rollback in power rates pursuant to the CA ruling will deal a blow the company's bottom-line. He noted that while Meralco was allowed to adjust rates by 17.37 centavos per kilowatt-hour under the generation rate adjustment mechanism -- a process which allows distribution utilities to pass on to the consumer higher costs from increases implemented by power generators -- this could not be considered additional revenue as it is only a recovery mechanism. Mr. Francisco said Meralco is pinning its hopes on increased activities among big customers. "If industry is really picking up maybe we can still make the gigawatt-hour sales target. But the expected megawatt demand is not attainable anymore. We are past the summer peak zone. Our distribution revenue is demand sensitive."

AEV, which is also into the power industry through Davao Light and Power Co. (DLPC), is more optimistic. In its second quarter report to the Securities and Exchange Commission, it noted that the adjustment of the National Power Corp.'s power rates should improve the profitability of power plants. It noted that DLPC was allowed to un-bundle its rate, or itemization of components in the bill, and increase by 19.27 centavos per kilowatt-hour. AEV expects the un-bundling petitions of Visayan Electric Co., Inc. and San Fernando Electric and Power Co., Inc. to be resolved soon. "We're very optimistic that it will be a good second half. The economy is growing. Our businesses are doing well. Our second half is normally stronger than our first half. We have our own targets and we are optimistic that we will be able to achieve them and we feel that it would be a good year," Mr. Aboitiz said.


In media, an official of ABS-CBN Broadcasting Corp., which posted an increase of 10% in its net income for the first half, to PhP560 million, said the company can still hit its 10% profit target for the year. "Barring any catastrophe, I think we can [attain this]," ABS-CBN vice-president for Finance Randolph T. Estrellado said. He said the company has allocated PhP1.5 billion for capital spending and acquiring film rights. He admitted, however, noted the external dampening factors to attaining the target -- higher interest expense and slowdown in advertising. ABS-CBN expects interest expense to increase in the second half when a $120-million loan, of which $100 million was drawn in June, would be reflected in the financial report.

As for Ayala Corp., it reported a consolidated net income of PhP2.64 billion for the first half , nearly double the PhP1.39 billion achieved in the same period last year. Its strong performance reflected of the robust earnings of its key operating subsidiaries and affiliates. Particularly, consolidated net income of property arm Ayala Land Inc. grew 7% to PhP1.18 billion with revenues up 25% to PhP8.1 billion. The company also said that rental revenues from retail operations were buoyed by the opening of Greenbelt 4 in Makati City in the first quarter, which brings more aggressive promotional efforts and continuous enhancement in merchant mix. "I think [the companies have] already shelved off their fats, they're now more focused on their core business. They will perform well except if the oil situation aggravates and if the fiscal problem deteriorates," Mr. del Castillo said.



NG won't assume Transco loans

Any foreign borrowing meant to finance the capital expenditure program of the National Transmission Corporation (Transco) will not be shouldered by the National Government, company president and chief executive Alan T. Ortiz yesterday said. He said the costs would be assumed by the concession that will eventually take over the operations of the country's network of high-voltage power lines. He also said Transco has been obtaining official development assistance from Japan's Miyazawa Fund for several of its projects. "Whatever is left or available, we would like to tap that. But we have been doing this ever since," he said. The Miyazawa fund, named after Finance Minister Kiichi Miyazawa of Japan, was created in October 1998 to help Asian countries through the crisis. The Finance department reportedly said it would raise $500 million for the medium-term capex program of Transco which would be funded mostly out of foreign borrowings in the form of project loans to be sourced from the Miyazawa Fund. Finance Secretary Juanita D. Amatong, however, said the government has yet to determine where it will source the $500-million capital requirement of the Transco for the next six years. Even the amount, she said, could still change depending on the decision of the inter-agency Development Budget Coordinating Committee (DBCC) next week.

The DBCC is made up of the Finance department, the Department of Budget and Management, the National Economic and Development Authority, and the Bangko Sentral ng Pilipinas. "We do not know [yet] where to tap...and the $500 million is an indicative figure," she said in a telephone interview. Meanwhile, a finance official justified the urgency of tapping the international market to finance the capital requirement of Transco, which serves as the conduit between companies that produce electricity and electric companies and cooperatives that distribute electricity to the public. "There is a need to fill the requirement capacity of Transco whether somebody is going to buy it or not. It is an urgent matter because there are projects that will be covered by this," said the official, who requested not be named. "We cannot wait, things have to be undertaken immediately lest you want brownouts," the official said.

The Leyte-Cebu transmission lines for instance need to be reinforced and upgraded to expand their capacity, the official added. The government is having a difficult time privatizing the power sector as investors are still awaiting the passage of a bill that would grant them a franchise in operating National Power Corporation's (Napocor) transmission assets. President Gloria Macapagal Arroyo, in her recent State of the Nation Address, vowed to prioritize the power sector and address Napocor's money-losing operations. The state utility remains a thorn in the government's side, with a funding requirement of $1.5 billion for 2004 alone. The government has been borrowing on behalf of Napocor because its financials make it difficult for the power firm to raise money on its own. In September, the Philippines launched the sale of $750 million in fresh debt to complete Napocor's funding needs. Economic managers earlier decided to cut Transco's capex from $1 billion to $500 million which would be spread over five to seven years while the company is undergoing privatization.

The Power Sector Assets and Liabilities Management Corp. (PSALM), the government firm tasked to privatize the government's transmission and generation assets, is preparing a new public bidding for Transco. Transco's privatization is part of the government plan to raise $4 billion to $5 billion to reduce its budget deficit. The winning bidder will operate Transco for 25 years. The contract will be renewable for another 25 years, subject to the concessionaire's performance. The government had said it would require the winning firm to pay at least 25% of the enterprise value of the Transco business upon the close of the transaction. As an incentive, investors have the option to pay the balance in installments over a period of up to 25 years. The winning bidder is expected to pay around $500 million, and assume about $1.5 billion of debts. PSALM first bid out the transmission assets in July 2003 but after only one party, Singapore Power, submitted a pre-qualification proposal, the bidding was declared a failure. A second bidding in Aug. 2003 also failed after the same company solely expressed interest to bid. -- Bernardette S. Sto. Domingo



NSC may get tariff cover once plant operations start

The government appears to be giving in to revived National Steel Corporation (NSC), which has been asking for an increase in the import duties on steel products. President Gloria Macapagal Arroyo is set to raise tariff rates on hot-rolled and cold-rolled coils but on condition that Global Steelworks International Inc., the new name of NSC, must first be able to show that it has already begun commercial operations, a government source said, requesting not to be named. While this is seen to be favorable to Global Steelworks, the executive order to be signed by the President will to retain zero tariff on tin plates in consideration of tin can manufacturers who have fought the wishes of the revived steel firm. For the increase in tariff rates to take effect, members of the Cabinet-level Tariff and Related Matters (TRM) will likely go to the Iligan plant for an ocular inspection, said the source who is a TRM member. It would be recalled that the Indian-owned company indicated June 2005 as the start of commercial operations in its application, but TRM members must first issue a certification. The TRM source said no guidelines or criteria have been set as basis in determining whether Global Steelworks has indeed started commercial operations.

The new tariff rate for hot-rolled coils and cold-rolled coils is 7%, from the current 3%. Under an executive order to be released by Malacaņang soon, the rate is 3% marked by an asterisk and explained in a footnote as follows: "To become 7% once [Global Steelworks] is in commercial operations upon certification of the TRM members," the source said. The source said the government decided not to touch tin plates, used to produce tin cans, since Global Steelworks is not yet producing them. "Hot-rolled coils and cold-rolled coils are their only products," the TRM source said. Hot-rolled coils are used for flat products like pipes and as base material for liquefied petroleum gas tanks. Cold-rolled coils, meanwhile, are used for galvanized iron sheets, household appliances, and cars.

Global Steelworks has so far spent PhP900 million for the rehabilitation of the steel plant and equipment. Work on the 40-hectare complex began last Feb. 1 and is nearly completed. The plant has a capacity of 1.5 million metric tons per annum and it could generate $750 million in revenues annually. The company announced a trial order shipment of 5,600 metric tons of cold rolled coils worth more than $3.9 million to China last month. Downstream steel players earlier urged Socioeconomic Planning Secretary Romulo L. Neri to stop the issuance of the executive order raising steel tariffs, arguing that Global Steelworks has not shown any ability to ensure the quality and delivery of its products. In a letter, Salvio D. Perez, president of the Filipino Galvanizers Institute, said the reliability of Global Steelworks has been put in question with its recent inability to deliver orders made by member-companies of his organization. "This tariff increase will aggravate the already distressed condition of the steel industry and burden users of these products in the form of higher prices for the sake of one foreign-owned company that has yet to prove its capability to supply the quantity and quality requirements of local industry," he said. -- Felipe Salvosa II



Green light on first cogeneration project

State-owned Philippine National Oil Company (PNOC) has signed a contract with two private companies to build a $60-million large-scale cogeneration plant that will make use of bagasse, or sugarcane waste product. In a statement, PNOC said it has committed $6 million to the project in Talisay City, Negros Occidental during the signing of a development agreement with Bronzeoak Philippines and Talisay Bioenergy Inc. Commercial operation of the plant is targeted to begin by August of 2006. PNOC said the bagasse would come from a host mill supplemented by cane residues and bagasse purchased from other mills. Of the estimated project cost, 30% or $18 million will come from direct equity infusion while the other 70% will be financed by banks.

PNOC said it would take on a 30% equity share and as a development investor, the firm would share the risks involved in developing the project. "I am proud to say that this is the first ever cogeneration project in the Philippines to take off. This project has readily passed the financial study of the PNOC Investment Appraisal Committee. We are very enthusiastic because it fits our new mandate of intensifying the utilization of renewable energy, which is one of the major thrusts of the government right now," company president Eduardo V. Maņalac said.

PNOC said a 30-year Power Supply Agreement has already been signed with the local distribution cooperative, Central Negros Electric Cooperative (CENECO) to serve Bacolod City and its suburbs. It added that total annual electricity to be delivered to the off-taker is estimated at 158 gigawatt-hours. Talisay Bioenergy is proposing to directly connect to the 69-kilowatt subtransmission system, which CENECO is planning to purchase, the state firm said. PNOC first entered into a Memorandum of Agreement last April 23 with Bronzeoak Philippines and Talisay Bioenergy Inc. for a possible equity infusion to the project. -- Bernardette S. Sto. Domingo



Metrobank auctions idle assets worth 165M pesos


Largest lender Metropolitan Bank and Trust Co. yesterday placed on the auction block foreclosed assets valued at PhP165.185 million based on their minimum bid price. "This is the first ever auction for Metrobank. We want to dispose properties that are slow-moving especially those PhP2 million and below," Adelo C. Brabante, Metrobank head of acquired assets marketing division, told BusinessWorld. "Apparently, we are able to sell on our own. Rather than keep them and maintain the carrying costs as far as the bank is concerned, we rather have it disposed through an auction sale," he added. Mr. Brabante said the bank is mulling more idle asset auctions catering to retail investors in its bid to clean its books. Based on its published statement of condition, the George S.K. Ty-owned bank as of September has foreclosed properties -- classified as real and other properties owned or acquired or ROPOA -- worth PhP34.18 billion.

In yesterday's auction dubbed "Auctionfest," Metrobank lined up 150 properties at prices it called "realistic" and requiring a flexible down payment, long-term payment scheme at competitive interest rates. "This is our own way of offering to the public affordable property investments. I think we will also be considering other properties for public auction. There are commercial spaces, vacant lots, residential, among others," Mr. Brabante said. Metrobank tapped real estate services firm CB Richard Ellis Philippines, Inc. as its auction manager for the disposal of its acquired assets. With a strong local and global network, CB Richard Ellis has been a key player on both property brokerage and investments. Those that wanted to avail of perks under Republic Act 9182, or the Special Purpose Vehicle Act of 2002, had until Sept. 18 to establish and register their special purpose vehicles or SPVs with the Securities and Exchange Commission before incentives offered to purchasers expire in April 2005. Incentives include tax perks and reduced transaction fees. Aside from selling to an SPV -- which would buy banks' nonperforming assets at substantial discounts, banks may dispose their idle assets through retail public auctions or negotiated sales. Jojo Romarx C. Salas, CB Richard Ellis director for investment and capital markets, earlier said most of the properties to be auctioned are developed, such as houses and lots, condominium units and commercial spaces. He pointed out that these are good investments as property values are expected to appreciate when the economy rebounds.



Central bank, bankers' group drafting bill on credit database


The Bangko Sentral ng Pilipinas and the Bankers Association of the Philippines are working on a draft bill creating the proposed credit information bureau, the bankers' group said yesterday. We still have to have a legal framework," said Leonilo Coronel, the association's executive director. In an interview, Mr. Coronel said although the Bangko Sentral will act as the bureau until Congress approves a legislation creating such entity, the central monetary authority still wants to have a law to institutionalize the borrowers' database in view of the bank secrecy law. He said the group is already working closely with the central bank to draft the proposed bill. The bureau will serve as a data bank for financial institutions on credit information about corporate and individual borrowers to protect the banking system from delinquent borrowers. The central bank has been pressing the banking industry to establish a credit information bureau, but banks were hesitant to share information among themselves, especially on good borrowers. Mr. Coronel said sharing of credit information is only voluntary at present, and banks are not required to share information on both delinquent and good borrowers. He said the bureau is necessary, given that consumer patterns have changed rapidly. It would lessen the risks for banks as the use of credit cards is becoming more popular. "In the US, consumerism is so advanced that the economy is being propelled by plastic cards," Mr. Coronel said.

Alberto V. Reyes, the central bank's deputy governor, has said that the Bangko Sentral will act as a credit information bureau until Congress approves a law on its creation. The central bank is looking at establishing a centralized credit information system in the first half of 2005. To make the database possible in view of the bank secrecy law, it will require banks to secure waivers from borrowers when they submit their loan application. Central bank officials said the proposed bill creating the bureau aims to address any conflicts with the bank secrecy law. Officials said a credit bureau would help banks and credit card companies fight delinquent card users. Mr. Coronel said there was no specific timetable yet on the proposed credit bureau but that Congress may tackle the draft bill after it concludes deliberations on proposed revenue measures.



Peso stronger by 6.5 centavos

A greater supply of US dollar provided enough liquidity at the electronic currencies exchange, strengthening the Philippine peso ahead of the long weekend. November 1, All Saints' Day, is a holiday. The peso closed 6.5-centavo stronger at PhP56.325 as remittances from Filipinos working overseas helped increase total volume of transacted dollars to $274.6 million from $183.9 million. "There were basically a lot of inflows. The market's jitters in the last two days was overdone even as there were a lot of speculative push towards a retest of PhP56.45 per dollar," said Rovic de Guzman, head of trading at the Union Bank of the Philippines. The peso slipped against the dollar in the last two days as the market reacted negatively to the scaled-down version of the "sin" taxes and discontent in the military over the alleged corruption at the Armed Forces of the Philippines. The market also traded long dollar positions in the absence of requirements from oil and other manufacturing companies, another trader at a local bank said. "A convention at the Philippine Dealing System, settlement comes in a day after the actual trade. Banks are borrowing pesos and lending dollars for three days. There will be a higher yield for the peso, and that will push for a negative carry for [dollar profits] due to some speculative performances," the trader added.

Meanwhile, the weakness of the US dollar against regional currencies also pushed up the peso. At the Philippine Dealing System, the peso averaged higher by almost four centavos at PhP56.351 from PhP56.39 the other day. Its intraday low was at P56.41, its opening value. Moving within a 10-centavo range, the peso closed at PhP56.325 against the greenback. Today, the local unit is expected to range-trade between PhP56.30 to PhP56.35. -- Ira P. Pedrasa



Plantersbank's $25-M SME fund to start by yearend

The $25 million equity fund to be set up by Tambunting-owned Planters Development Bank and Aureos Capital for small and medium enterprises (SMEs) will be launched by yearend. Maria Flordelis F. Aguenza, Plantersbank president and chief operating officer, said Aureos Capital -- a joint venture of the Commonwealth Development Corp. of the United Kingdom and Norfund of Norway -- has identified the local companies and SMEs that can avail of the fund. These include pharmaceutical, graphic technology and export-oriented firms, and call centers. "The minimum equity investment parameters will be within $400,000 to $1.5 million. That will be on the high side of small businesses and on the low side of the medium enterprises. There are companies that are highly leveraged already. The local investors or owners cannot generate anymore [since] they don't have the capacity to build up the capital. They cannot borrow anymore because their leverage ratio is high," she said. Leverage ratios measure long-term debt and the franchisor's ability to take care of the obligations associated with this type of debt.

Plantersbank chairman and chief executive officer Jesus P. Tambunting said the equity fund, a first in the Philippines, is intended to further help the bank's SME clients strengthen their equity base and boost their competitiveness. "This is something we have been thinking about the past few years. Coming up with an SME fund is something important. The SMEs will not be so dependent on borrowings. If they don't borrow as much, there will be more stability in their financial position. Our vision is to be truly the lead bank for the SME sector. What we want to do is provide as many services to the SMEs that will help them become more viable and compete," he said. Aureos Capital is a market-leading risk capital investor in emerging markets. -- Ruby Anne M. Rubio



Solidbank accuses Marcopper of avoiding payment

Solidbank Corp. has accused Marcopper Mining Corp. of trying to avoid payment of PhP52 million and has even accused it of embarking on an "alienation spree of all its properties lock stock and barrel with obvious intention of placing them beyond the reach of creditors." The bank said Marcopper executed a deed of assignment on December 28, 1997, after Solidbank filed a case against the firm at the Manila Regional Trial Court for the recovery of some PhP52 million. However, in an October 22 filing, Marcopper said the assignment it executed was a "bonafide and arms length commercial transaction."

The Marcopper properties subject to the deed were mining equipment and facilities worth $19.6 million or around PhP749 million. Marcopper further said that the deed of assignment was "made in good faith and for a valuable consideration," referring to the payment of its outstanding liabilities in the sum of $19.6 million as of December 21, 1997, inclusive of interest charges with MR Holdings, Ltd. -- Ma. Elisa P. Osorio



Globe 3Q net income drops 34.5%


Aggressive marketing expenditures and debt payments in the third quarter bruised the financials of Ayala-led Globe Telecom, Inc. as net income fell 34.5% to PhP2.048 billion against PhP3.13 billion in the year-ago period. Globe said revenues amounted to PhP13.66 billion, 9.28% higher than last year's P12.5 billion. Earnings, however, were offset by Globe's spending on marketing strategies to compete with mobile phone leader Smart Communications, Inc. "We're hoping that the financials will be better [in the fourth quarter]. We made some unusual marketing investments to boost specific services," said Globe President Gerardo Ablaza. Mr. Ablaza said Globe spent almost PhP1 billion for the promo on the AutoLoaD Max reloading service alone, an over-the-air prepaid reloading system which gives subscribers additional credit on their mobile phones. "We have more aggressively pursued our strategic imperatives this quarter, making both financial and marketing investments that provide Globe with long-term benefits. As a result, our company is better positioned to fully support mass-market initiatives going forward," Mr. Ablaza said. Globe also shelled out cash when it decided to prepay the balance of $220 million in 2009 senior notes on the premise that it would reduce interest costs on the loan. From January to September, Globe also redeemed bonds amounting to PhP795 million. "The retirement of notes is expected to lower interest expense by approximately PhP100 million per month. Had the company not exercised this option, net income would have been higher at PhP9.7 billion for the first nine months and PhP2.6 billion for the third quarter," Globe said.

Still, analysts expect Globe's performance to improve in the fourth quarter as people buy new mobiles with their Christmas bonuses. "The headline profit numbers look awful. However, the rest of the results actually do not look as bad," said Jojo Gonzales, managing director of Philippine Equity Partners. He noted that operating profits rose 8% and revenues were up 9% in the quarter. Globe's total expenses amounted to PhP11.29 billion from July to September from last year's PhP9.738 billion. As of Sept. 30, Globe's revenues stood at PhP41.28 billion, 13.75% higher than the PhP36.29 billion it booked in the same period last year. Net profit for the nine-month period amounted to PhP8.96 billion, 19.47% higher than the PhP7.50 billion reported in 2003. Earnings before interest, taxes, depreciation and amortization climbed to PhP24.9 billion.

As of end-September, Globe's total wireless subscriber base reached 11.7 billion, 45% higher than last year, with a gross subscriber additions of 3.6 million. Globe said that for the period, it had 1.2 million net additions, or the number of new subscribers to its service. The number would have reached 2.1 million if the firm did not change its policy in counting subscribers. According to Reuters Estimates, analysts expect Globe's net profit this year to rise to PhP14.2 billion from PhP10.3 billion in 2003. Globe shares jumped 33% in the third quarter, outperforming the stock market's 11.5% rise. -- with Reuters



IFC helping bourse revitalize stock trading

The Philippine Stock Exchange (PSE) received technical assistance from the International Finance Corp. (IFC) in the form of an independent third-party assessment. The IFC, the private sector arm of the World Bank, presented last Tuesday the findings of third-party consultant Alberto Cybo-Ottone, who assessed the current situation of the PSE. Mr. Cybo-Ottone reportedly presented measures that would revitalize the bourse and how the PSE can play a stronger role in pump-priming the economy. He also evaluated recent and planned changes and their viability in addressing the challenges the bourse faces.

BusinessWorld tried to get the details of the recommendations but the IFC said it has yet to finalize the results which should be disseminated by next week. The findings reportedly covered areas such as the PSE's market liquidity and investor demand, its management, financial strength, ownership structure and corporate governance practices. There was also an analysis of the country's corporate, legal and regulatory environment and their impact on the stock market. IFC Executive Vice-President Peter Woicke commended the PSE leadership "for improving the standing of the exchange and taking initiatives to implement several changes to try to reactivate the equity market". "I am very much aware that the PSE has witnessed a complete transformation -- strengthening the professionalism in its business operations, increasing transparency, improving the country's competitive global position, and optimizing its financial performance," Mr. Woicke told some 70 stockbrokers, officials of listed companies, investors and the Securities and Exchange Commission, who participated in the dialogue. -- R. J. F. Calayag



Stocks jump on favorable quarterly earnings


The Philippine stock market was off to a healthy close yesterday driven by stabilizing oil prices and satisfactory quarterly results of some blue chip companies. The benchmark Philippine Stock Exchange composite index (Phisix) rose significantly--six times its 5.56-point gain last Wednesday--as it leapt 33.15 or 1.87% to 1,807.89, breaching the 1,800 resistanc level. All the indices, except for the small and medium-scale enterprise (SME) counter, ended in positive ground. Dianne Sy, research associate at Unicapital Securities, Inc., said market worries were eased by positive developments in the global front as well as in the local corporate scene.


"The market's good performance resulted from a correction in oil prices in the world market and the positive results for the third quarter which signified good quarter-on-quarter growth," said Ms. Sy. Crude oil futures reached their lowest levels in a fortnight. An increase in inventories in the United States appeased consumers who were worried that a supply crisis may result from the cold Northern Hemisphere winter. The US Department of Energy reported that inventories of crude oil grew by four million barrels -- twice the increase expected by Wall Street -- to 283.4 million barrels last week. As this eased the tension over oil supply and stabilized the world economic outlook, the Philippine frontier also got some positive development that triggered heavy buying among investors.


Blue chip companies, such as Manila Electric Co. (Meralco), property developer Ayala Land, Inc., Ginebra San Miguel, Inc. and Banco de Oro Universal Bank, released quarterly reports that gained the nod of discerning investors. This development encouraged immense buying despite earlier reservations over the long weekend -- due to the All Saints Day holiday on November 1. Lopez-led Meralco, the country's biggest distributor of electricity, reported a 45% increase in its third-quarter net income to PhP831.8 million from PhP574 million during the same period last year. Meralco yesterday said quarterly earnings rose largely because of a 3.8% increase in sales, representing an annualized return-on-rate base of 4.16%. In spite of the double-digit growth for the quarter, Meralco said it continues to be weighed down by financial issues such as its refinancing plans, refund payments and other obligations.

Ayala Land also posted positive results as its net profit for the period climbed 13% to PhP684 million from PhP604 million last year. The property developer said its profits grew mainly because of higher rental revenues and improved take-up of its residential units. Its net profit for the nine months to September climbed 9% to PhP1.86 billion while its revenues improved 17% to PhP4.14 billion from PhP3.54 billion in 2003. Ayala Land is the sixth largest company in the country.

Another contributor to the positive market sentiment was Ginebra San Miguel, the hard liquor unit of food and beverage giant San Miguel Corp., which posted a 5% increase in its net profit as of September PhP1.31 billion from PhP1.25 billion last year. For the third quarter alone, its net income grew 10.2% to PhP356.4 million. Banco de Oro, the banking unit of retail tycoon Henry Sy, Sr., also drew attention as its nine-month net income advanced almost 41% to PhP1.36 billion from PhP965.17 million a year ago. The bank attributed its performance to improved lending and investment portfolios.


"The top picks are blue chips which released positive third-quarter results," said Ms. Sy. Only the price of one of the 20 actively traded stocks ended lower while two were unchanged. The rest of the issues were up. Ayala stocks blazed the way with Ayala Corp. snatching first place, finishing higher at PhP6.50. Ayala Land was second, which also closed higher at PhP7.20. Philippine Long Distance Co. (PLDT), the country's telecommunications giant, slipped one notch lower to third although it made a respectable close at PhP1,410, up PhP35. It will release its earnings report next week. Its American Depositary Receipts listed in New York were up $0.54 or 2.23% to $24.80. Ayala's Bank of the Philippine Islands, followed closely. It ended up at PhP47.

The Sy's SM Prime Holdings, Inc., however, closed lower at PhP7.50. The Philippines' leading fastfood chain, Jollibee Foods Corp., was upbeat as it finished higher at PhP30. Despite the initial disappointment over its single-digit third-quarter growth, Jollibee assured that this did not dent its whole-year target. The "B" shares of San Miguel Corp. as well as the shares of Petron Corp. and DMCI Holdings, Inc. also made it to the list with closing prices at PhP71.50 which was unchanged, PhP3.10 and PhP3.40. Globe Telecom, Inc., the Ayala Group's telecommunications subsidiary, completed the top 10, finishing higher at PhP1,055. The firm said its subscriber base grew 45% to 11.7 million as of September. Its net income for the recent quarter stood at PhP2 billion. Sentiment was bullish as advancers left behind decliners at 66-25. Unchanged issues totalled 28. "We expect the Phisix to rise week-on-week and for it to sustain the momentum," Ms. Sy said.



Gov't, tobacco firms strike 'sin' tax compromise


'It's an everybody happy compromise.'

The Executive, Congress, and cigarette companies have reached a compromise on "sin" taxes in a deal that will leave rivals Philip Morris Philippines and Fortune Tobacco Corp. both satisfied, a government source has bared. The new tax formula, which is different from that approved by the House of Representatives ways and means committee last Monday night, proposes only a 12% increase in cigarette taxes next year, followed by a uniform 40-centavo increase for all brands in 2006, and a 3% increase every year thereafter until 2010, a senior official said. "It's an everybody happy compromise," the source added. The source also said Tarlac Rep. Jesli A. Lapus, head of the House committee, and his Senate counterpart, Senator Ralph G. Recto, have agreed to push for the compromise, which was hatched after Monday night's meeting between President Gloria Macapagal-Arroyo and some officials with top executives of cigarette companies. Mr. Lapus's committe approved for floor deliberations a 20% increase in cigarette taxes for next year, followed by 3% in 2006 and another 3% in 2007. Taxes will then be adjusted every two years thereafter, depending on inflation or the increase in the price of cigarettes. The compromise formula and the Lapus committee's version departed from the Finance department's earlier proposal for a 30% increase in cigarette taxes.

Both Philip Morris and Fortune Tobacco opposed this, as well as the plan to set taxes according to price increases. Cigarette taxes were last adjusted for inflation in 2000. Philip Morris wants a uniform PhP1 increase in taxes for all cigarette brands, warning that a percentage-based increase will penalize higher-priced brands and result in market distortions and "downtrading" -- forcing consumers to switch to lower-priced brands. Philip Morris brands include Marlboro and Philip Morris. But Fortune Tobacco, which sells Hope, Winston, More, and Champion cigarettes, claim a uniform increase will kill its low-priced brands. Dave Gomez, Philip Morris spokesman, said the goal of the Monday night meeting at the President's Forbes Park residence was to find a middle ground "that will combine all the elements of both our proposal and our competitors' while weighing in the national interest." "[The President] explained the rationale why we need to increase the tax rates on sin products and we all agreed to that," he added. The consensus is that "percentage increases should be moderate [and] at the same time [for] the succeeding years there should be an element of specific fixed increases, so as not to widen further the gaps [between the tax classifications]," Mr. Gomez said.

Under the compromise formula, the current tax of PhP1.12 per pack for brands priced below PhP5 will be raised to PhP1.25. Mid-priced brands under the PhP5 to PhP6.50 bracket will be taxed PhP6.27 per pack from PhP5.60. High-end brands priced from PhP6.51 to PhP10 will be taxed PhP10.04 per pack from PhP8.96. Premium brands priced above PhP10 will be taxed PhP15.05 per pack from PhP13.44. Trade and Industry Secretary Cesar A.V. Purisima lauded the House ways and means committee for working "double time" in legislating the Arroyo administration's proposed tax-related measures. "We welcome the initiatives of the ways and means committee chaired by [Mr. Lapus], which has passed its version of the bill increasing the taxes on alcoholic beverages and tobacco for deliberation at the plenary level. This will facilitate an early transmission to the Senate for further action on the bill," he said. Mr. Purisima said he hoped the sin tax bill would be passed before yearend, "to address the growing concerns about the prospects of the country's fiscal situation."

Senators, meanwhile, expressed opposing views on the 20% across-the-board increase in taxes for cigarettes and liquor approved by the House ways and means committee. They noted the tax bill still has to go a long way before it becomes law. Senator Recto said Congress should legislate an increase in the excise tax on vice products until 2010, and not just for three years. He also said senators have no unified position yet on sin taxes, but the bill that would raise at least PhP7 billion in additional revenues for the government next year would likely get approved. "If we could generate PhP7 billion, then it will be okay. The target is PhP7 billion, based on the Executive's proposal to Congress. I have not seen the numbers, but my objective is to raise at least PhP7 billion incremental revenues. This seems to be the magic number requested by the President, reflecting the needs of creditors and ratings agencies," Mr. Recto told BusinessWorld. The senator also backed the House committee's retention of the current tax classification of vice products. "I don't know yet in the Senate what the pleasure will be, but I think that there should be classifications for it to be progressive," he said. Senator Sergio R. Osmeņa III also supported the sin tax bill approved by the House ways and means committee. "That is okay by me. That is what the House approved, nothing wrong with that," he said in a separate interview. The lawmaker, however, said the excise tax increase would not automatically result in substantial revenues for the cash-strapped government. "All these products are subject to the law of supply and demand. If you raise taxes, you raise prices. If you raise prices by so much, there will drop in demand, so total tax collection will be less. This happened in 1996, when we shifted from ad valorem to specific taxation and we raised the tax rates. There was a drop in the collection of the government," Mr. Osmeņa said.


But Senator Juan Ponce Enrile said he was disappointed with the bill approved by the House committee. "It is better not to pass that tax anymore and just continue with the present one. That is a big joke. The people who are supposed to be responsible to repair the financial crisis of this country are not really serious. These people are just fooling the country," Mr. Enrile said in an interview. He also criticized government officials who met tobacco executives Monday night. "Why are they talking to the taxpayers? Even the senators and congressmen had dinner with the taxpayers. Bakit pa kami mag-hearing dito ng mga tungkol sa buwis kung nagmamano ka sa mga tao na dapat magbayad ng tunay na buwis [Why are we conducting hearings on taxes when the Executive bows to those who should be paying the right amount of tax]?" Mr. Enrile said. The senator has filed a bill that will adjust the excise tax on cigarettes and peg the highest tax at PhP13.50 per pack for six years. He noted the current four-tiered tax system for cigarettes did not yield significant revenue gains as tax collection from the tobacco products accounted for only 0.46% of total economic output last year.

Meanwhile, Tarlac Rep. Jesli A. Lapus countered claims that his ways and means committee approved a "watered down" version of the Finance department's proposal for higher excise taxes on liquor and cigarettes. In his sponsorship speech to House Bill No. 3174 last night, Mr. Lapus said the 20% increase next year was higher than the 11.3% cumulative inflation for sin products between 2001 and 2003, and also the 16% cumulative inflation between 2001 and 2004, assuming a 4% inflation for liquor and cigarettes this year. He also reiterated that the 20% increase was the rate requested by the Department of Finance itself, down from the original 30.1%. The resistance level of tobacco firms, he said, was 12%, but they were convinced to accept the 20%. "We told them they were inside a sinking ship and when the ship does sink, then their businesses will be affected," he said. "We were able to convince them to contribute, to carry more taxes." Aside from the PhP7.6 billion the bill, once passed into law, will generate in 2005, there will be a "spillover on value-added tax collections, which uses selling price as tax base," Mr. Lapus said. A delay in the passing of the bill by the 13th Congress can result in a credit downgrading for the Philippines -- "a risk which has dire consequences on both our short- and long-term economic status...a risk we could not afford," he said. "The passage of this bill will send the much needed and much-awaited signal to the whole world that the 13th Philippine Congress, is indeed, responding vigorously to the demands of the difficult times," he added. The House of Representatives is expected to pass the Lapus committee's sin tax bill today.


British American Tobacco on Wednesday cried foul over proposed excise taxes on tobacco and alcoholic products in the Philippines, which the global cigarette giant charged discriminated against smaller players in the domestic market. The proposed law indexing excise taxes on these products for inflation is a centerpiece of President Gloria Arroyo's attempt to boost state revenues and avert a looming fiscal crisis. While supporting the proposed law on principle, the commercial director of BAT here, Dennis Belgira, said the emerging version of the legislation would perpetuate "the existing discrimination" against newer players like his company. The House of Representatives bill "allows the existing unlevel playing field to continue by classifying existing brands based on 1 October 1996 prices, whilst classifying new brands based on their current prices." He warned that this provision was against non-discrimination provisions of international trade agreements. "We sincerely hope that this vital point will be considered in finalizing the bill in the bicameral committee" made up of House and Senate representatives, Mr. Belgira added. Ms. Arroyo met representatives of the tobacco lobby on Monday to call on them to accept higher taxes for the sake of the national interest. Representatives of BAT, which has a small share of the local market for cigarettes, were not at the meeting, the company said. Ms. Arroyo's spokesman, Ignacio Bunye, said Wednesday that due to the meeting, the President "broke the impasse in the matter of taxes on alcohol and tobacco." He added: "Our economic managers will continue to work with lawmakers to optimize the terms and conditions of the proposed tax measure in the interest of fairness to business and maximum adherence to our revenue targets."


Businessmen want Ms. Arroyo to start acting more like an economist than a politician as her government tries to avoid a looming Argentina-style fiscal crisis, the head of a prestigious business school said Wednesday. Former Finance Secretary Roberto de Ocampo, president of the Asian Institute for Management, remarked that "there has been more political maneuvering than actual economic measures," even though Ms. Arroyo is a US-trained economist. "People in the business community are really waiting for her to display a higher percentage of being an economist rather than...being a politician," Mr. De Ocampo told the Foreign Correspondents Association. He cited her populist decision in 2002 to cut power rates -- a move that caused the state-run National Power Corporation to incur huge losses, contributing to the worsening fiscal situation. Ms. Arroyo would have to do some "resolute nonpolitical whipcracking" to implement measures that would boost revenues, shrink the budget deficit, and attract foreign investment to convince the business community, Mr. De Ocampo said. Concern at the fiscal crisis had changed the country's mood so that "a strong call to minimize politics from the leadership...would be heeded" as long as the President sets an example, Mr. De Ocampo said. The President has been pushing for the passage of eight revenue measures to avert the fiscal crisis but only four are likely to be passed before year-end, Congress leaders say. Mr. De Ocampo warned that international credit rating agencies could give the Philippines a downgrade in two months if they do not see proof that the government is taking the necessary measures. "She will have to do something convincing," he said. -- with reports from Carina I. Roncesvalles, Judy T. Gulane, and AFP



Gov't firm readies to sell cocodiesel technology

PNOC-Energy Development Corp., a unit of state-run Philippine National Oil Co., yesterday opened its plant for the production of cocodiesel, an automotive fuel that could reportedly reduce the country's use of fossil fuel as well as pollution. Company president Paul A. Aquino also said his company would sell to farmers for PhP50,000 the technology to build their own cocodiesel plant. "This project has been carried out to demonstrate the viability of fabricating a small scale [coconut methyl-ester or CME] plant with a 200-liter output per day, which can be replicated in rural areas where coconut resources are abundant," the company said. Mr. Aquino said the production process would also yield by-products such as glycerine, which could be used for making soap. CME production uses coconut oil and methanol as major raw materials. It is made through transesterification -- mixing coconut oil with methanol in high temperature, and using catalysts to produce ester and glycerol. Transesterification products can match the properties of commercial diesel fuel, thus CME can be blended with diesel and then used without any engine modification.

PNOC-Energy Development Corp. claimed consumers could save at least 46 centavos per kilometer by mixing cocodiesel with regular diesel fuel. Other benefits include cleaner emissions, better power and acceleration, cleaner engine, and lower maintenance cost, the company claimed. "Based on increased fuel efficiency, there will be an estimated PhP13.51 billion worth of displaced diesel, which translates to a $239.82 million equivalent savings in dollar reserves," it added. CME will also contribute to the reduction of greenhouse emissions, the company claimed. Mr. Aquino said the use of CME as a blend for diesel fuel could also create additional demand for high-value coconut-based products, as well as generate livelihood opportunities in rural communities.

President Gloria Macapagal-Arroyo wants the country to reduce its dependence on imported fossil fuel. She has ordered the government to increase its use of alternative fuels such as compressed natural gas or CNG and cocodiesel. By 2005, the government expects about 60% of about 1,500 buses in Metro Manila to run on CNG. About 5% of all land vehicles are also expected to use cocodiesel by 2006. Government vehicles now use a 1% blend of cocodiesel. -- Bernardette S. Sto. Domingo



Call center firm eyes local, foreign listing by next year

eTelecare International, a call center company, wants to go public locally and in the United States possibly next year so it can raise more money for debt payment and acquisition of more call centers here and abroad. "We are positive to both. If we can do it [initial public offer] simultaneously, it will be better. But it's too early to say," eTelecare chairman Alfredo I. Ayala told reporters yesterday. He said listing at the local and foreign stockmarkets can raise about $50 million to $ 100 million for a company of eTelecare's size. "Proceeds will be used to retire debt and for acquisitions in the Philippines, India or the US, depending on where it makes sense to acquire," Mr. Ayala said. But he gave no details on his firm's debts.

eTelecare is a provider of call center services for technical support, customer service, and sales. Its 7,000 call center agents here and abroad serve 30 companies based in the US. Last June, it bought Arizona-based Phase Solutions, which employs 2,900 customer service agents in 10 call centers in the US. eTelecare said it expected revenues this year to reach PhP7 billion, with 40% to come from Philippine operations. Mr. Ayala said the listing of eTelecare shares was still under study. "We are first focusing on growing the business. Tapping the capital market will follow," he added. From 4,000 workers in the country today, eTelecare expects to grow this to 8,000 by 2006, and to 15,000 by 2009. Before the end of the year, eTelecare will open a 1,100-seat call center in Cebu City, which will be the biggest in the area. eTelecare used to be a subsidiary of SPI Technologies, Inc., a locally listed company, until it was spun off last year. Its equity investors include foreign firms Crimson, AIG, Electra, as well as local firm A. Soriano Corp. -- A. B. L. Lorenzo



PCIJ Report

Customs sometimes in cahoots with smugglers

Philippine Center for Investigative Journalism


Luxury vehicles are not uncommon at the Bureau of Customs (BoC), where officials and employees like to drive fancy cars, even if most of them cannot explain how they bought these, given the salary scales at the BoC. But assistant customs section chief Ildefonso Almero does not even have a car. Just five years away from retirement, he also does not own a house, but rents an apartment where he lives with his family. Mr. Almero also seems bent in making sure the government collects the right duties and taxes -- something that businessmen and Customs insiders alike say no longer interests many bureau personnel. For years, Mr. Almero has been calling the attention of his superiors to review the bureau's 1998 reclassification of two petrochemical products, low-density polyethylene (LDPE) and linear low-density polyethylene (LLDPE), as copolymers. Both had been classified as homopolymers for more than 20 years, he argued in a position paper. The 1998 reclassification, however, subjected the two kinds of imported petrochemicals, specifically the Dow Chemical Co. and Elite brands, to a lower tariff rate of 3%, instead of the 15% duty they merited under the original classification. As a direct result of this misclassification, wrote Mr. Almero, the government has run up huge revenue losses amounting to millions, if not billions, of pesos in the last six years. The resulting loss, he argued, is "so massive it has contributed to the impending collapse of our $1-billion local (petrochemical) industry." Jose Sereno, executive director of the Association of Petrochemical Manufacturers of the Philippines (APMP), and who read Mr. Almero's paper just recently, describes the Customs official's analysis as "excellent." Yet Mr. Almero's own agency seems less impressed and so far has been unmoved by his arguments.


Business groups are not surprised. They say they have had to endure the same lack of enthusiasm whenever they ask Customs to implement specific reforms to curb smuggling. "Very slow ang response time," complains an industry representative. "You cannot but suspect if delay is deliberate. You can't readily point an accusing finger. Administrative lapses, yes." Other observers, though, are more forthcoming in pointing out what they believe to be the real reason behind the bureau's foot-dragging. Says one: "They (smugglers) are always one or two steps ahead of us, and part of the syndicates are the personnel of the bureau. They are the ones advising importers what to do." Customs insiders themselves admit as much, adding that some technically smuggled goods are "packaged from the top," involving no less than powerful politicians or their cronies. This may help explain why it took the Federation of Philippine Industries (FPI) years before it gained access to the inward foreign manifests (IFMs), the shipping documents containing all the vital information about the cargo that comes into the country. The information in the manifests include the description of the goods contained, the names of the consignees, the ports of lading, and destination.

Access to these documents, the FPI believed, would enable it to assist the bureau in preventing smuggling, since it would allow detection of any irregularity in a foreign shipment even before the goods reach the Philippines. "FPI has contended that these documents are public and should be accessible. We submitted our legal arguments to the Bureau of Customs, but our request was turned down for the reason that access to these might give an undue advantage to some companies," wrote FPI secretary general Joseph Francia. "The reply to this argument is that if everybody had access to the shipping manifests, no one would have undue advantage over anybody else." Customs eventually did release the manifests to the National Anti-Smuggling Task Force (Nastaf), which was created last March. The task force headed by current local governments secretary Angelo Reyes promptly allowed industry organizations to view the electronic copies in its headquarters, since it needed their expertise to make sense of the data.

An industry representative says this proved to be a big help in their efforts to curb smuggling and protect local industries. Using the data from the IFMs, they were able to alert Nastaf about incoming vessels with questionable cargoes. But then, technical smugglers began diverting their shipments from the two Manila ports covered by the IFMs to other ports such as Subic. Volumes of resin shipments, for example, went down significantly in the Manila port even as, an industry representative says, "they were having a deluge (of resin) in Subic." Access to the IFMs meant that some of the affected industries no longer had to rely too much on insiders to get confidential information on irregular shipments. In the past, that information was obtained in exchange for an outright fee or some favors. The fee, says one businessman, amounts to "a few thousand pesos," which is handed out if the information is proved to be correct. Businesses also had to keep their contacts happy by small tokens of appreciation such as cellphone loads or pocket money if the Customs insider was traveling abroad.


But the industries' access to IFMs was short-lived, lasting only until Nastaf was dissolved last August upon President Arroyo's oral instructions for it to cease operations. "Now we have to rely again on our contacts inside the bureau," says an industry representative, acknowledging that Customs insiders providing them with information are not exactly doing it out of goodwill and probably have their own vested interests and other groups to protect. Industry groups hit hard by technical smuggling lost access to the IFMs when Nastaf was dissolved. They also lost the momentum brought on by the task force's efforts to bring about coordination among the various government agencies whose functions are vital in containing smuggling. "Before Nastaf (was created), we just wound up frustrated because everything was piecemeal," says an industry representative. "If the agency will not cooperate, nothing more can be done."

Indeed, some agencies sometimes act as if they are not part of the same government as the other state bodies. Earlier this year, for example, Columbian Grains Foods Corp. was found to have misdeclared 180,000 bags of iodized salt as natural salt. Yet it claimed to have secured an Authority to Release Imported Goods or ATRIG from the Bureau of Internal Revenue (BIR). The issuance of this authority exempts an importer from payment of VAT and facilitates the release of the shipment. When asked by the Anti-Smuggling, Intelligence, and Investigation Center (ASIIC), Nastaf secretariat, for a certified true copy of Columbian Grain's ATRIG, the internal revenues bureau invoked Section 70 of the National Internal Revenue Code in its refusal to release the document. "We will be able to affirm the authenticity of the ATRIG in a proper forum like a court of competent jurisdiction which subpoenas us to testify," BIR deputy commissioner Jose Mario Bunag said in a letter to ASIIC. A government official would later observe that the BIR had granted the ATRIG without first checking with Customs regarding Columbian's shipment. "Instead of protecting government's interest, it's compromising (it)," he said.

The accumulation of huge uncollected customs bonds (the figures vary: PhP5.7 billion as of September 2003, as reported by Customs to Nastaf; PhP1.27 billion covering the period 2000-2003, based on Customs-furnished data) also highlights the absence of coordination among government agencies. It was only recently that the Insurance Commission announced that it would issue a circular saying it would not renew the Certificates of Authority to issue surety bonds of companies with unsettled accounts of at least 70% of their outstanding obligations to the customs bureau. It was also only recently that the issue of getting the Commission on Audit to do an audit of all outstanding customs bonds came about.


It seems only now, too, that the Department of Finance, given its oversight functions over Customs, has seen it fit to look into the customs-bond issue through a subcommittee on unliquidated bonds headed by Undersecretary Emmanuel Bonoan. In addition, the finance official heads the subcommittee on customs-bonded warehouses, yet another source of massive technical smuggling at Customs. Both subcommittees were created as a result of the regular meetings of the Cabinet Oversight Committee on Anti-Smuggling. There is actually supposed to be a Congressional Oversight Committee for Customs, the creation of which is mandated by Republic Act No. 7650 to monitor the implementation of this law on the physical examination of cargo. The committee is supposed to be composed of the chairpersons of the committees on ways and means and both houses of Congress, plus four additional members from each house. A check with the two chambers indicated that the committee does not exist. RA 7650 was enacted in 1993. Such legislative aberration may also be seen in the newly enacted Republic Act 9280, which has not been fully implemented to this day in the absence of approved implementing rules and regulations. This after many legitimate brokers waited some 25 years, according to Vis-Min Customs Brokers Association president Felix Romano, before the law was finally passed last March.

The law, "An Act Regulating the Practice of the Customs Brokers Profession," is expected to professionalize the ranks of brokers, often tagged as principal accomplices in the commission of technical smuggling. Among others, it requires customs brokers to sign import entry declarations under oath. This measure is designed to put a stop to some of the malpractices among brokers, including signing of blank entries, and connivance with non-brokers to facilitate the irregular importation of goods, thus abetting technical smuggling. Mr. Romano says that because of the law, "brokers will have to think twice before conniving with importers" in making irregular shipments. Mr. Romano is among those actively pushing for the approval of the draft implementing rules and regulations for the law. Another legislative measure deemed vital to discouraging smuggling is a law that would declare smuggling, whether technical or outright, a heinous crime and an act of economic sabotage. As of September 3, three bills that would more or less do this have been filed in Congress. Similar bills had been filed in the previous Congress, though, and nothing ever came out of those.


Many industry representatives note that no one has been convicted of smuggling despite the damage it has wrought on local industries and the tremendous amounts of potential revenue the government has lost because of it. Recently, Customs released a list of 112 names of individuals it claims to have sued, including suspected smugglers. But a broker who claims to be an expert in "facilitating" the importation of "problematic" cargo scoffs at the list, saying that the number one "is not even a small fish." Conspicuously absent in that list at least is a name that an industry source recalls was mentioned specifically by President Arroyo in a 2002 meeting with the business groups. According to an industry source, the president told those present, "We know who the smugglers are," and cited one particular smuggler by name.

In the meantime, amendments to the Tariff and Customs Code are also being sought, since many believe it is no longer responsive to the needs of the times, especially where smuggling is concerned. But some industry representatives and government officials say other state agencies besides Customs to be stricter in issuing the various permits needed by traders to bring in goods, and to scrutinize more closely all the documents presented by importers. Last August, Mount Zion Cargo Express (Mozex) was found to have obtained import permits from the Plant Quarantine Service of the Department of Agriculture by using fake documents. Mozex had been regularly importing broccoli from Australia, supposedly from a company called Scholastic Australia Pty. Ltd. To facilitate the release from the port, Mozex presented phytosanitary certificates, which are guarantees issued from the exporting country that an agricultural product is free from pests and diseases. Acting on tips that the company was bringing in "questionable cargo," ASIIC wrote to the Australian Quarantine Inspection Service (AQIS) regarding the authenticity of 12 phytosanitary certificates supposedly issued to Mozex. AQIS denied having issued them and added that it had no record of Scholastic P/L exporting farm produce. Scholastic Australia turned out to be a children's book publisher.



Govt mulls mining service contracts


DAVAO CITY (Southern Mindanao) -- The government might resort to applying the service contract scheme if the Supreme Court stands pat on its decision to disallow foreign companies from wholly owning a mining firm in the country. Demetrio Ignacio, Department of Environment and Natural Resources (DENR) undersecretary for planning and policies, said this could be the scenario if the High Court will not rule in favor the petition of the National Government to reconsider its earlier decision. He said the government could implement a service contract agreement patterned after those that were signed with foreign companies in developing the power sector, particularly in exploring fuel deposits. However, Mr. Ignacio said he could not give any details of the service contract agreement offhand because this has not been discussed yet at the national level. "We will have to implement also the 60-40 sharing arrangement if the Supreme Court refuses to reconsider its decision," he added.

In January, the High Court ruled as illegal the provision of the Philippine Mining Act of 1995 that would have opened the mining industry to foreign ownership, particularly the provision on the Financial and Technical Assistance Agreement. On June 29, the DENR made an oral argument as to why the High Court should reconsider its ruling which the government viewed as a stumbling block to the revitalization of the mining industry. Mining industry leaders were worried the decision would scare some of the big foreign investors and that it would stop the growth of the industry considering that it is "cash intensive". Benjamin Philip Romualdez, who joined Mr. Ignacio as speakers in the First Mindanao Mining Technology Forum here, said the revitalization of the mining industry hinges on what the High Court will do with its earlier decision.

In his previous visit to the city last month to attend the Mindanao Business Council, Mr. Romualdez, Chamber of Mines president, said there is about $7 billion in investments waiting for the SC to reverse its decision over the issue of ownership. Mindanao business leaders have been batting for the rehabilitation of the industry because, according to Romeo Serra, Mindanao Business Council vice chairman, who said this will help the poor areas where mineral deposits are located. Another aspect needed for revitalizing the industry, said Mr. Ignacio, is for government to "streamline" its bureaucratic processes. Edgar Martinez, Mindanao Association of Mining Industry president, said at present a mining applicant needs at least 108 signatures for approval thereby significantly delaying flow of investments in a new mining project.



Napocor starts small power utilities privatization

Electricity bills should start reflecting lower rates once the government privatizes its 14 existing small power utilities group (SPUG) areas to meet the growing power requirements of large island provinces. State-owned National Power Corporation (Napocor) formally opened the first wave of SPUG areas to private sector participation with the signing of an agreement with the Marinduque Electric Cooperative, Inc., Tablas Electric Cooperative, Inc., and Romblon Electric Cooperative, Inc. Energy Secretary Vincent S. Perez stressed that the privatization would reduce the charges being subsidized by Napocor which are in turn passed on to the consumers. At present, Napocor-SPUG operations are funded by the revenues from electricity sales in missionary areas and from the universal charge, a component of the power bill charged to all electricity consumers. The subsidies granted by Napocor are in turn passed on to consumers.

Napocor-SPUG earlier announced that 14 out of the 74 missionary areas under its control are open for private sector participation. Marinduque, Tablas and Romblon emerged as pilot projects, the Energy department said. Records show that electricity requirements in these areas have been steadily growing. In Marinduque, current peak demand is at 9.4 megawatts (MW); Tablas, 3.2 MW; and Romblon, 1 MW. The newly inked agreement also formalized the assistance of the government to the electric cooperatives through the International Finance Corporation (IFC) as the transaction advisor. As a transaction advisor, IFC is expected to develop a best practice model for greater private sector participation that will protect and advance the interests of electric cooperatives and its members, Mr. Perez said. It will provide technical, financial and legal assistance to ensure the success of the project. The Energy chief also said the entry of new players will address the increasing power requirements of growing island provinces and cut down losses of Napocor.

The Department of Energy recently issued Circular 2004-01-001 setting the rules and procedures for the inflow of private capital in missionary electrification. He said private sector participation could take the form of a takeover of the supply of electricity to any existing Napocor-SPUG area, either through outright purchase or lease of existing Napocor-SPUG assets. The private sector could also install new power generating facilities including associated power delivery systems. Mr. Perez said a competitive bidding process would be conducted in the selection of new companies to ensure that prospective players have the financial and technical capability to supply electricity. In particular, new players are expected to pursue projects that would address the lowest long-term cost of power and services, environmental compatibility with the local area and the most advantageous implementation schedule, he said. Upon entry of a new player, Napocor-SPUG would cease operations in the area and dispose the particular assets in the area through competitive bidding process or redeploy them, Mr. Perez said. -- Bernardette S. Sto. Domingo



Economic managers defend medium-term plan

The government yesterday defended its 2004-2010 Medium-Term Philippine Development Plan (MTPDP), saying it will not cause the fiscal deficit to balloon. Socioeconomic Planning Secretary Romulo L. Neri also told critics of the 2004-2010 MTPDP to read the plan "carefully and thoroughly". "Maybe [the critics] see the Plan as a forecasting exercise. It's not. It [was drawn up] to articulate the government's visions and the strategies to attain those visions," Mr. Neri said. He also belied the critique of economists from the University of the Philippines (UP) that the plan will increase the assumed liabilities of the government. "I don't think the MTPDP will do that. In fact, the MTPDP includes detailed strategies on how the government can resolve its fiscal deficit," he said. Former National Economic Development Authority (NEDA) director-general and UP economist Solita C. Monsod said on Tuesday that the MTPDP has eight flaws, one of which will cause the assumed liabilities of the government to expand. The plan of the government to create more government-owned and -controlled corporation (GOCCs) that will implement the strategies of the MTPDP such as the social Housing Finance Corp. and the Philippine Infrastructure Corp., she said, may contribute more to the fiscal problem of the government. "These, plus the government's plan to triple loans to small- and medium-enterprises are disasters waiting to happen," Ms. Monsod said.

Likewise, Finance undersecretary Eric O. Recto said the government's medium term plan outlines a more realistic target than what is being suggested by some economists. "We desire to balance the budget sooner than what has been presented and this desire is shared by everyone in the economic team, however being foolhardy about setting too aggressive targets is not an activity that will benefit us at this time," Mr. Recto told reporters yesterday. In fact, Mr. Recto said the economic team's "internal targets" are really high but "collectively we have find a common denominator which manifest itself in the six year plan we have outlined." Mr. Recto said the government believes that PhP100-billion in additional savings and revenues yearly would be enough to achieve its fiscal policy objectives, foremost of which is to wipe out the budget deficit by 2010. Mr. Recto also contested claims that the creation of the Philippine Infrastructure Corp. will become another source of assumed liabilities. He explained that the Philippine Infrastructure Corp will be financed through "borrowings, hopefully non recourse borrowings and asset based financing."

The Philippine Infrastructure Corp. is supposed to be a wholly owned subsidiary of National Development Company, which will infuse PhP20 billion in capital partly from of the proceeds of the Economic Recovery through Agricultural Productivity or ERAP bonds sold during the Estrada administration, he explained. The new government corporation will reportedly undertake at least 10 major infrastructure projects through outsourcing, starting with the South Luzon Expressway (SLEx) to the Southern Tagalog Arterial Road (STAR). It will be tasked to "jumpstart certain projects which will be taken over at the very early stag by the private sector," Mr. Recto said. Aside from these two flaws, she noted six other flaws in the MTPDP. These include:

  • The large "disconnection" between the plans and actions;
  • failure to prioritize government programs in light of fiscal problems;
  • "internal inconsistencies" in the strategies and programs contained in the MTPDP;
  • ambiguity on the possible changes in the guidelines of NEDA's Investment Coordination Committee;
  • lack of articulation on the government's population policy to reduce population growth; and
  • use of the Plan as a "policy advocacy tool" where agenda such as constitutional reform has been included.

Ms. Monsod also said with the flaws in the 2004-2010 MTPDP, it is highly possible that the government will only "muddle through" and fail to resolve the fundamental economic problems of the country. -- Bernardette S. Sto. Domingo



RP firms embark on China mission

Fourteen Philippine companies are set to join the first China-ASEAN Expo next month in Nanning, China, the Center for International Trade Expositions and Missions (CITEM) said. Trade undersecretary Thomas G. Aquino said in a statement that the Philippine participation should "open up exciting prospects for both the Philippines and China in bilateral and multilateral cooperation." The Philippine mission will also join the China-ASEAN Business and Investment Summit. With Mr. Aquino in the business mission are 43 members of the Federation of Filipino Chinese Chamber of Commerce and Industry, Inc. and around 27 Mindanao businessmen. The expo aims to promote the China-ASEAN Free Trade Area expected to dramatically increase China-ASEAN trade volume, which has continuously exceeded the projected annual growth rate of 15% over the last 10 years. China is the Philippines' sixth major trading partner in 2003, accounting for 5.38% of Philippine trade, a significant increase of 58% over the previous year. It is the country's No. 8 export market, and accounts for 5.99% of total Philippine exports ($2.14 billion). Companies joining the expo are Oceanic Exports (Manila) Inc., AAMC Foods Corp., El Coco Mfg., Inc., Mabuhay 2000, Superstar Coconut, Camel Appliances Mfg. Corp., Euromed Laboratories, Inc., Philippine Coco Forest, Viviendo Philippines, Inc., Club Panoly Resort, Morning Star Travel and Tours, Inc., DOT Travel Service Philippines, Incorporated, Jeron Travel and Tours and Philippine Airlines.

Meanwhile, an economist from the Asian Development Bank (ADB) said the Philippines needs to identify its specializations and niches within manufacturing production chains if it wants to remain competitive against China. ADB director-general for its Southeast Asia Department Shamshad Akhtar said the manufacturing sector should show it could manage technology, improve productivity and skills of employees and enforce effective governance and rule of law if the Philippines want to bring back foreign investors. "China's very diverse domestic economy, with large coastal provinces that have achieved middle-income status, and a steady flow of labor from inland provinces that are still low income, poses challenge to virtually economies in East Asia," Ms. Akhtar said in a presentation entitled "East Asian Integration: Trends, Challenges and Opportunities." "To remain competitive in manufacturing vis-a-vis the PRC, middle-income ASEAN economies, such as Indonesia and the Philippines, will need to identify their specializations and niches within manufacturing production chains," she stressed.

Local economists earlier pointed to the search of manufacturers for cheaper labor as the reason behind the move of some companies to China. Bienvenido S. Oplas Jr., an economist from private research group Think Tank Inc. earlier said that labor in China and India cost only about one-third or one-fourth of what is being paid to workers here in the Philippines. Former National Economic Development Authority (NEDA) director-general and University of the Philippines economist Felipe Medalla also believes that the departure of some manufacturing firms from the country is mainly due to the high of cost of production. "We're not exactly a cost-competitive country," Mr. Medalla earlier said.



Metrobank raises stake in PSBank to 74% from 64%

Largest lender Metropolitan Bank and Trust Co. finalized yesterday the purchase of 18,360,686 shares of its thrift bank arm Philippine Savings Bank (PSBank) from First Metro Investment Corp., the bank told the Philippine Stock Exchange. This will increase its stockholdings in PSBank to 74.237% from 64.008%. PSBank president Pascual M. Garcia III said this was a good indication of confidence in its subsidiary and the prospects of the thrift bank. "There will be no change in our business strategy and program. There is no significant change in the ownership structure," he said.

PSBank, the country's second largest savings bank in terms of assets, posted an 11% growth in net income to PhP197.2 million during the first semester due to higher loan and deposits volumes, and higher average rates. As a result, earnings per share improved to PhP1.10 from PhP0.99 for the same period last year. PSBank reported a 27% drop in nonperforming loans for the third quarter to PhP1.19 billion from PhP1.63 billion in the previous quarter. It reported its bad loans comprised 4.67% of total loans as of September, down from 6.64% in the second quarter. General provisions for loan losses were at PhP214.7 million while specific provisions were at PhP659.91 million. -- Ruby Anne M. Rubio



World Bank unit acquires 20% stake in local insurer


International Finance Corp. (IFC), the World Bank's private sector investment arm, has invested $1.5 million in Filipino-owned Paramount Life and General Insurance Co. Peter Woicke, IFC's executive vice-president, said the investment -- equivalent to a 20% stake in Paramount -- would enable the insurer to become a major player in the local insurance market. Paramount is a Filipino-owned company, engaged in both life and non-life insurance businesses. Its principal shareholders include the Go family, the Chu family from Cebu and the Tahija family from Indonesia.

Patrick L. Go, Paramount's chief executive officer, said IFC's investment would help position the company among the country's top 10 insurance firms in the country. "The partnership with IFC will help us in consolidation. We would become bigger and hopefully, hit the top 10," he told reporters yesterday. Mr. Go said although it is not entirely focused on its ranking in the industry, the company is working to improve its place, currently at the 12th spot among 120 insurance companies in the Philippines. "The IFC partnership will provide critical support for our company to distinguish itself and to further strengthen our financial resources to continue its path of combined internal and external growth," he said. Mr. Go said the insurance industry still needs a lot of support both from government and the private sector, in terms of capitalization. "Essentially, what is needed is to strengthen the industry by increasing capitalization and by better monitoring what each company is doing," he said.

At present, the company has 27 branches in Metro Manila. It has focused its business principally on personal lines and on small and medium-scale enterprises in the provinces. Paramount's net worth stands at PhP300 million with assets of over PhP1 billion, latest company data showed. The gross premiums written for its general business stands at PhP515 million. IFC, for its part, has been investing in the Philippines in the past 40 years mostly to help spur private sector development. In its fiscal year that ended June 2004, IFC committed $90 million in loans and equity to five investment projects. These investments included infrastructure projects in the power, water and telecommunication sectors. Aside from helping the local insurance industry, IFC is also assisting in the development of the domestic capital market by providing third-party assessment and analysis of the bourse's current situation. Vipul Bhagat, IFC country manager for the Philippines, said IFC hopes to increase its investments in the country in the coming years, but this depends on government efforts to improve the business environment.



Peso weaker by five centavos

The Philippine peso once again buckled against the US dollar by five centavos as the market yielded to more economic jitters. Traders said the peso's weakness was triggered by the government's inability to clear revenue measures, making a credit downgrade more probable. The House ways and means committee voted for a compromise version of the "sin" taxes bill to the disappointment of Finance officials.

At the Philippine Dealing System, the country's electronic currencies exchange, the peso dropped by more than six centavos to average at PhP56.39 from PhP56.326. The local unit capped its intraday high at its opening value of PhP56.37. After trading within a four-centavo range, the peso finally settled at PhP56.39, five centavos weaker against the dollar. -- I. P. Pedrasa



Banco de Oro reports 41% hike in income as of Sept

Banco de Oro Universal Bank's nine-month net income surged by 40.9% on improved lending and investment portfolios. In a statement, the Henry Sy-led bank said income during the period reached PhP1.36 billion from PhP965.17 million a year ago. The country's eighth largest lender said net interest income grew by 26.52% to PhP3.53 billion from PhP2.79 billion due to higher level of loan and investment portfolios. Non-interest income went down by 4.71% to PhP1.82 billion despite improved trading gains, foreign exchange, trust and other fees. Operating expenses, however, grew by 4% to PhP3.53 billion, primarily due to higher manpower and occupancy costs of business expansion. Year-to-date return on equity hit 11.9% while the bank's capital adequacy ratio -- a measure of its ability to cover for risks -- hit 20.89%.

Total resources as of end-September stood at PhP158.27 billion, up by 18%. Deposits increased by 11% to PhP108 billion while bills payable grew to PhP27.8 billion due to the $150-million senior notes issued in October 2003. Banco de Oro set aside provisions of PhP548.6 million and its loan coverage ratio stands at 72%. Its nonperforming loans represented 6.7% of its total loan portfolio. Loans that were at least 90 days past due hit PhP4.73 billion. Net loans grew by 3.3% to PhP57.4 billion while capital funds amounted to PhP15.7 billion. -- Ruby Anne M. Rubio



Meralco says finances still strained despite net rise


Lopez-led Manila Electric Co. (Meralco) yesterday said third-quarter net income rose to PhP831.8 million, 45% higher than PhP574 million in the same period last year. Still, Meralco expressed concern on several financial issues such as its refinancing plans, refund payments and other obligations. In a disclosure to the Philippine Stock Exchange, the company attributed the profit rise to the 3.8% increase in sales volume. The figures represent an annualized return-on-rate base of 4.16%. "This is precisely the reason why, despite our net income which was achieved through prudent financial management, our financial obligations continue to put a financial strain on our overall fiscal situation," Vice-President for Corporate Communication Elpi O. Cuna, Jr., said.

In its report, the firm said the commercial sector posted the highest growth rate at 5.6% compared to the same period last year, logging 2,276 million kilowatt-hours (kWh) followed by the industrial sector with 1,852 million kWh for a 4.3% growth. The residential sector showed a slight 1.7% rise at 2,230 million kWh. Mr. Cuna said the estimated cash outlay for customer refunds until yearend of at least PhP1.3 billion and PhP3.5 billion in 2005 is another "financial burden" for the company. Phase 4 of the refund is still pending, the firm said. Meralco said it is in the final stages of a refinancing plan to enable it to manage debts for the coming years. Debts reached PhP23.8 billion as of end-September. Of this amount, some PhP8.2 billion is due in the last quarter of the year, including short-term debts amounting to PhP4.8 billion. Mr. Cuna stressed that apart from its financial obligations and refund payments, the firm has to contend with improvements in its system through much-needed capital expenditure program. For this year alone the company is expected to spend around PhP5.75 billion for its capital expenditures, he said.

Meralco earlier said its capital expenditure program is necessary since this will ensure the quality of service expected by customers. "To give the public a better appreciation of the efforts undertaken by Meralco to improve its overall service, our company during the period from 1994 to 2002, invested PhP60 billion in plant and equipment to keep up with the growth in customers and demand," Mr. Cuna said. "However, our net income for the same period of about PhP29 billion was wiped out by the retroactive rate rollback ordered by the Supreme Court when it decided to rule against us," he added.



Ayala Land net jumps on rentals, residential sales


Listed property developer Ayala Land, Inc. yesterday reported a third-quarter net profit of PhP684 million, up 13.3% from last year's PhP604 million mainly driven by higher rental revenues and take-up of residential units. Ayala Land said in the nine months to September net profit rose 9% to PhP1.86 billion from PhP1.7 billion in the same period last year. Revenues for the third quarter totaled PhP4.14 billion, up 17% from PhP3.54 billion the year earlier. Consolidated revenues from January to September totaled PhP12.21 billion from PhP9.99 billion a year ago. The country's sixth largest company, in a report to the Securities and Exchange Commission (SEC), said rental properties remained the firm's main revenue driver during the nine-month period, contributing PhP2.87 billion or 24% of total earnings. Rental revenues rose 8% year on year owing to higher sales by merchants in its shopping malls. It noted Ayala Center's occupancy remained high at 93% and that its merchant replacement program continued. "Pushing shopping center rentals up were additional spaces due to the opening of SM Makati's expansion area at the tailend of 2003, Greenbelt 4 (first quarter of 2004) and Market! Market ! (third quarter of 2004). As of end-September, Phase 1A of Market! Market! was 85% leased out. Its 45,000-square meter department store and supermarket, Metro Gaisano and additional merchants, will commence operations in the coming weeks," Chief Finance Officer Jaime E. Ysmael said.

Condominium and high-end residential unit sales reached PhP2.22 billion, 64% higher year on year and accounting for 18% of the top line for the period. High take-up of One Legazpi Park, The Residences at Greenbelt and Serendra was noted. Mass housing unit Laguna Property Holdings, Inc., meanwhile, contributed PhP1.36 billion to consolidated revenues. Land sales at the Ayala Westgrove Heights and Ayala Greenfield Estates in Laguna represented 15% of total revenues. The high revenue growth was partially offset by costs and expenses which rose 17.6% to PhP3.43 billion in the third quarter from PhP2.92 billion last year. Expenses increased to PhP10.37 billion for the first three quarters from PhP8.25 billion a year ago.


"The company remained highly liquid with cash reserves of PhP5.5 billion A total of PhP450 million worth of short-term commercial papers [SCTP] were issued in the third quarter, bringing year-to-date SCTP issuance to PhP815 million," Mr. Ysmael said. He said sales of nonstrategic assets enabled the company to pare debt. It earlier sold its 28% stake in Pilipinas Makro and a gas station site in Alabang, generating PhP1.1 billion. Profits are expected to improve further in the fourth quarter, when most buyers close real estate deals and rentals from shopping malls are boosted by Christmas spending. "Third-quarter growth is very encouraging because typically the fourth quarter is the strongest," said CLSA Philippines, Inc. Research Head Alfred Dy. "We saw across-the-board increases in rental revenues, property sales and hotel revenues. We're seeing strong topline growth. This is an indication of renewed interest in the property sector," he added.

Ayala and other real estate firms have gained from rising demand for property from the millions of Filipinos working overseas and a ballooning industry in call centers and back office operations serving American and European companies. But the prospects for recovery in an industry still suffering a hangover from the 1997 Asia financial crisis are clouded by concerns that soaring crude oil prices could dampen demand by pushing up interest rates. At the end of yesterday's trading, Ayala Land was unchanged at PhP7 per share, although 13.42 million shares changed hands. Meanwhile, Ayala Land director Francisco Licuanan III formally resigned from the company board. President Gloria Macapagal Arroyo recently appointed Mr. Licuanan, who was Ayala Land's president before his retirement, as the chairman of the Subic Bay Metropolitan Authority, replacing Felicito Payumo. -- with Reuters



Globe mulling increase in public offer

Ayala-led Globe Telecom, Inc. is mulling the increase of its public offering to increase its liquidity at the stock market as interest in equities is picking up. The firm currently has 20% of its shares available to the public at the Philippine Stock Exchange (PSE). "Globe is committed to increase the float to 30% from the current 20%. But this is a medium-term goal and not on the near term," said Delfin C. Gonzalez, chief finance officer. After a drought at the PSE, the equities market is regaining its composure with investors' interest coming back as they take on promising stocks. Telecom stocks like Globe have been among the drivers of positive performance for the PSE due to their profitability and sustainability of operations. "There has been a significant pickup in the RP market and our intention is to make sure we have access and our stock is liquid," Mr. Gonzalez said.

Globe initially floated 15% of its shares before European investor Deutsche Telekom AG sold its shares in 2004. Deutsche Telekom said it had to sell its shares to retire some debts it acquired after an expansion binge in the 1990s. Globe currently has 27 million shares available for public trading. "The increase in the float is always an option. We will do this at an appropriate time but there are no specific plans at this point," said Andrew Buay, Globe chief operating advisor. He also represents the Globe board Singapore Telecom, which owns 40% of the local telecommunications firm. Globe will announce the results of its third-quarter performance today. The firm banks on subscriber take-up, voice, messaging and other services for strong revenues. -- Anna Barbara L. Lorenzo



Intel predicts growing demand for products

TAIPEI, Taiwan -- Intel, the world's largest chipmaker expects to see continuous growth in demand for all its products over the next years. In a speech delivered at the Intel Developer Forum here, Anand Chandrasekher, vice-president and general manager for Intel's mobile platforms group, said the increased demand for Intel products will be driven by innovation. "We expect a surge in all the products what consumers measure is now shifting. Performance still matters, but there is a shift to value-added services," he said. Among these value-added services, Mr. Chandrasekher said, is greater wireless capability. To this end, Intel is set to incorporate the WiMax technology in Intel's Centrino branded chips by 2006, he said. "We are already shipping samples of the WiMax silicon."

WiMax is a standards-based technology that allows the delivery of last mile wireless broadband access as an alternative to cable and DSL. It will provide fixed, nomadic, portable and, eventually, mobile wireless broadband connectivity without the need for direct line-of-sight with a base station. In a cell radius deployment of three to 10 kilometers, WiMax systems can deliver capacity of up to 40 mbps per channel for fixed and portable access applications, enough bandwidth to simultaneously support hundreds of businesses with T-1 speed connectivity and thousands of residences with DSL speed connectivity. Mr. Chandrasekher also said that Intel is pursuing parallelism, which will allow users "to drive more capability in a more seamless manner."

Meanwhile, he said Intel's desktop computer market segment will continue to grow with the entry of entertainment PCs in the market by the fourth quarter. The entertainment PC is a compact disc/digital video disc player and recorder, stereo and music server, and personal video recorder rolled into one. The product is based on Intel Pentium 4 processors supporting hyper-threading technology and the Intel 915 chipset. Mr. Chandrasekher said there are growth opportunities in the digital office segment, with companies becoming more dispersed. -- Jennee Grace U. Rubrico Mr. Chandrasekher said there are growth opportunities in the digital office segment, with companies becoming more dispersed. -- Jennee Grace U. Rubrico



Stocks rise ahead of long weekend


Philippine share prices ended higher yesterday, buoyed by the improved performance of major markets, particularly in the United States. Trading was brisk with the benchmark Philippine Stock Exchange composite index (Phisix) closing 5.56 or 0.31% more at 1,774.34. Rommel Macapagal, chairman of Westlink Securities, Inc., said the Phisix was higher at mid-session. "It broke through the 1,780 resistance but later pulled back," he said. The Phisix opened at 1,767.98 which was also its intra-day low. Its highest level for the day was 1,786.61.


Mr. Macapagal is optimistic that the market will be able to sustain its momentum in the last few trading sessions before a prolonged weekend. November 1, All Saints Day, is a holiday. "We hope to break that [the 1,780 resistance] before the long weekend," Mr. Macapagal said. But if the market pulls back to the 1,730-1,750 support level, he said investors could expect to see some month-end window dressing on expected earnings reports. "There may be some buying as well as selling ahead of the release of third-quarter results," he said, while assuring that the market has not deviated from general expectations of a bullish quarter. "The market is in line with the expectations." Continuing on the stock market's previous gains, the Phisix cruised to the positive side as it gained over five points. While this is not as big as the gains on Tuesday, it still indicates a return of positive investor sentiment.


Mining advanced 22.68 or 1.13% at 2,032.38. It reversed previous losses and made a turnaround, which is consistent with projections that investors will be snapping up mining stocks as a hedge for rising oil prices and other concerns weighing down the world economy. Property gained 8.99 or 1.36% at 670.34. The commercial-industrial rose 8.84 or 0.32% to 2,782.32. The banks and financial services shed 2.94 or 0.59% at 493.74. Oil was unchanged at 1.68. All shares went up by 12.82 or 1.17% to 1,110.20. Over two billion shares exchanged hands at the bourse for PhP1.5 billion. However, the market's breadth was bearish as decliners toppled advancers, 42-32. Unchanged issues totalled 58.


RFM Corp. rose 4.17% to close at PhP0.75. The food and beverage firm told BusinessWorld that it agreed to sell 69.2% of its shares in Integrated Global Low Temperature Operations (Iglo) Philippines, Inc. for PhP105 million to Malaysia's Iglo International Ltd. Iglo is in the business of multi-temperatured cold storage services. It is said to be the market leader in Southeast Asia for third-party temperature-controlled logistics. Losers were mostly of second-tier and mining stocks.


Meanwhile, Fil-Hispano Holdings Corp. yesterday completed its acquisition of Advanced Contact Solutions, Inc., a call center firm previously owned by Hong Kong's All-Asia Customer Service Holdings, Ltd. The acquisition makes Fil-Hispano the first listed call center operator at the Philippine Stock Exchange. With the completion of the acquisition, the firm also unveiled plans to have a secondary placement of up to 70 million of its shares at the bourse and conduct a stock rights offering next year to create liquidity and raise more funds for the continuing expansion of its call center business.


For the third day, banks overshadowed leading issues such as Philippine Long Distance Telephone Co. (PLDT), the second most actively traded stock. After Metropolitan Bank and Trust Co. (Metrobank) and later Banco de Oro Universal Bank wrestled the top spot in the list from heavyweight PLDT, Philippine Savings Bank (PSBank), a subsidiary of Metrobank, also had its day yesrterday. PSBank closed the day at PhP33 with a market share of 39.7%. PLDT was also up at PhP1,375 on 124,000 shares traded for PhP172.1 million. Its market share was 11.27%, less than a third of the pie held by the thrift bank. Banco de Oro followed in the list, higher at PhP19 on 7.6 million shares traded for PhP138.2 million. Ayala Land, Inc. was unchanged at seven pesos. The property developer released its third-quarter results yesterday. The fifth actively traded stock was SM Prime Holdings, Inc. of mall king Henry Sy. It was up at PhP7.70. Ayala Corp. bled at PhP6.30, and subsidiary Bank of the Philippine Islands also declined at PhP46. The "B" shares of San Miguel Corp., Southeast Asia's food, beverage and packaging company, rose at PhP71.50.


In other news, Vivant Corp., formerly, Inc., announced that it is withdrawing its bid for the proposed sale of the 1.2-megawatt Loboc Hydroelectric Plant in Loboc, Bohol. Bacnotan Conslidated Industries, Inc., on the other hand, said its directors resolved that the executive committee be authorized and empowered to approve an additional investment in Phinma Property Holdings Corp. in such amount as will raise its ownership to 35% of the expanded capital. Hence, the approval of additional investment by Bacnotan Industries in Phinma Property Holdings valued at PhP77.5 million.

In the same resolution, the executive committee was given authority to approve an investment of PhP181.4 million to acquire up to 50% of the Asian Plaza building at Sen. Gil Puyat Avenue in Makati City. With only two days before the long weekend, investors may be hunting for bargains as they take positions in stocks of companies that they expect to report robust earnings for the past quarter, especially as some leading firms already presented satisfactory reports.



House committee's 'sin' tax bill worries experts

The International Monetary Fund (IMF) hopes the government can still raise as much taxes as it previously expected from the "sin" tax bill, now that the House Ways and Means committee passed a compromise version of it. Similarly, the National Economic and Development Authority (NEDA) Investor Relations Office (IRO) said the version endorsed by the committee would be a temporary solution because it would not index taxes on alcohol and cigarettes to inflation. Securities analysts, for their part, said the committee's "watered-down" version of the bills was a "recipe for a credit downgrade." "This is a recipe for a downgrade. Investors looking at the Philippines will now lose their appetite with this first tax thing. They will no longer be excited with the next two bill with the railroading of the first legislation," said Astro del Castillo, head of the Association of Securities Analysts of the Philippines.

Former Finance undersecretary Milwida Guevarra, a tax expert, also said the new bill would raise only PhP5.7 billion a year, way below the previous estimate of PhP14 billion. IRO executive director Corazon Guidote said the bill was also a short-term solution to the fiscal problem. "I am surprised. This is really not a permanent solution. This bill will not address the intent of stabilizing the tax base," she said. Without any follow through, the bill can again cause the erosion of the tax base," she added. The Department of Finance plans to press the Senate to raise the taxes on cigarette and liquor every two years, based on cumulative inflation for these products for the two preceding years. A Finance official said department was unhappy with House ways and means committee decision to remove the provision on indexing "sin" taxes to price increases. Aside from raising the sin tax by 20% next year, the committee wants it raised by 3% in 2006, and another 3% in 2007. It will also be adjusted every two years thereafter, using the cumulative inflation for these products in the two immediately preceding years. "Allowing indexation of rates will ensure that the tax rate on said products is maintained at their original levels despite the impact of inflation. The process of indexation will be made transparent and clear to ensure that it is fair and equitable to all products, whether these are brands existing in 1997 or new brands that have emerged since then," the Finance department said.

Meanwhile, House ways and means committee senior vice-chairman Herminio G. Teves of Negros Oriental said his committee's bill would just make "cigarette smokers shift to low-priced and low-taxed brands." Hence, the percentage increase in taxes will not generate more revenues. A combination of increases in price cutoffs and in taxes will better ensure a level playing field for companies, he said. "This will avoid the misconception that Congress favors a particular player," he added. Instead of a 20% increase across all four tax brackets for cigarettes, he said the price of "premium" brands should be raised to PhP15 from PhP10, and their tax to PhP18.75. For "high-priced" brands or those with net retail price between PhP6.50 and PhP10, which are taxed PhP8.96 per pack, Mr. Teves proposes a price of PhP12.50 and a tax of PhP12.50. For "medium-priced" brands or those with net retail price between PhP5 and PhP6.50, which are taxed PhP5.60 per pack, Mr. Teves said the price must be raised to PhP10 and the tax to PhP7.50. And for "low-priced brands" or those priced below PhP5 and taxed PhP1.12 per pack, Mr. Teves said their price must be raised to PhP7 and the tax to PhP3.50. Mr. Teves also wants part of the excise tax collection to go the Department of Health's treatment of tobacco-related diseases and rehabilitation of smoking addicts. President Gloria Macapagal-Arroyo has certified as urgent the House committee-approved "sin" tax bill. -- Iris Cecilia C. Gonzales, Karen L. Lema, Judy T. Gulane and Jeffrey O. Valisno



Business cautions gov't vs favoring specific firms

Some businessmen yesterday cautioned the government from favoring any particular company or industry in its drive to raise more taxes, particularly from cigarette and liquor makers. The influential Makati Business Club, through its executive director, Guillermo Luz, noted that firms were very sensitive to tax increases. "The government cannot look like it is favoring any company on an issue as sensitive as tax. It certainly has to be careful; people would read into the signs," he told reporters. The club reacted to reports that President Gloria Macapagal-Arroyo and several government officials met with owners of the biggest cigarette and liquor companies at a private dinner at her Forbes Park residence on Monday night. This was hours after the House ways and means committee voted for just a 20% across-the-board increase in taxes for cigarettes and liquor starting next year, which was lower than what was earlier proposed by the Finance department. "[The] so-called meetings and dinners ongoing, these things become public knowledge. Eventually, people form perceptions around them, rightly or wrongly. But they are perceptions and you can't ignore perceptions," he added.


Former National Economic and Development Authority (NEDA) chief Solita C. Monsod said the Forbes Park meeting sent a wrong signal to the public. "Instead of speaking to the executives of cigarette and liquor companies, the President should have spoken to the congressmen because they are the ones who pass laws," Ms. Monsod said at the sidelines of the 5th Annual Philippine Business Outlook Conference in Makati City. "What is the message being sent when you are speaking with them [executives]? That the ones controlling Congress are the cigarette and liquor executives and not the solons themselves," she stressed.

University of Asia and the Pacific (UA&P) economist Victor Abola added that what was crucial was the discussion that transpired during the dinner. "What's important to find out is what the President got of out the meeting," he said in an interview. He said the meeting could have been a "useless exercise" if the President conceded to reduce the taxes that could be collected on cigarettes and liquor. But Jesus L. Arranza, president of the Federation of Philippine Industries, said there was nothing wrong with the President consulting with certain personalities and companies on policy from time to time. He also said his group would want Congress to immediately pass the "sin" tax bill since it would pose the least burden to consumers, and would discourage smoking. Bienvenido S. Oplas Jr., economist from private research group Think Tank Inc., said the meeting could have been okay if the government had managed to get the support of the executives for the "sin" taxes. "The meeting has its advantages and disadvantages. It would have been positive if both sides have been able to clarify their respective positions," he said. Press Secretary Ignacio R. Bunye defended the dinner meeting saying the President had to "personally explain" to Fortune Tobacco Corp., and Philip Morris International the need to adjust excise taxes on tobacco products. "The President met with officials of Fortune Tobacco and Philip Morris, which will be affected by the proposed taxes on tobacco and alcohol, to discuss the vital national interest involved in the revenue program of the government," Mr. Bunye told reporters in a press briefing at the Palace. "While the bill has been explained in the media, it is important for the President to personally explain to industry representatives the rationale and the importance behind the proposed measure being pushed by the President," he added in the vernacular. He also clarified that Fortune Tobacco owner Lucio C. Tan was not at the dinner.

The Press secretary also claimed that no concessions were given to the two tobacco companies in exchange for their support for the "sin" tax bill at the House. "The topic of the dinner meeting was about the tax measures being pushed by the government. No concession has been discussed," Mr. Bunye said in the vernacular. "The meeting was cordial and constructive and did not involve any legislation, which is best left to Congress." He also expressed confidence the President managed to secure the support of the tobacco firms for the bill.

Tarlac Rep. Jesli A. Lapus, House ways and means committee chairman, also confirmed President Arroyo's meeting with tobacco executives. Also at the meeting were Mr. Lapus himself, Senate President Franklin M. Drilon, House Speaker Jose C. de Venecia Jr., Senate ways and means committee chairman Ralph C. Recto, Trade and Industry Secretary Cesar A.V. Purisima, Finance Secretary Juanita D. Amatong, and Bureau of Internal Revenue (BIR) Commissioner Guillermo Parayno. Fortune Tobacco Corp. was represented by its chairman, Harry Tan Sr.; Philip Morris Philippines Manufacturing, Inc. by its president, Chris Nelson; and Asia Brewery Inc. by its chief operating officer, Michael G. Tan. Earlier news reports said also at the dinner was San Miguel Corp. Chairman Eduardo Cojuanco Jr., the chairman of Mr. Lapus' political party. Mr. Lapus said the tobacco companies reacted positively to the proposed 20% increase in taxes, although the discussion dwelled not so much on the rate of increase but how much the increase would generate. "We are fixed at PhP7.6 billion [in the first year of implementation of the bill]," Mr. Lapus said. "The Senate agreed to this figure as well." Mr. Lapus also said the meeting was proper, because a concensus on the tax was achieved. "A law will not pass if it is injurious to the [tobacco and alcohol companies]," he said. "At the end of the day, we must come up with a doable law, otherwise, the industry players will take extreme positions," he added. Quezon Rep. Danilo A. Suarez said the meeting with tobacco and beer companies was proposed by the so-called Economic Managers Group, the informal economic advisory body of the President reportedly composed of Mr. Suarez, presidential adviser Tomas Alcantara, Albay Rep. Jose Ma. Clemente Salceda, and Finance undersecretary Eric O. Recto. The meeting was important, Mr. Suarez said, so the companies could ask their allies in Congress to pass the "sin" tax bill. "Otherwise, members of Congress will just quarrel and we will have no law to pass," he said.


But House Minority Leader Rep. Francis Joseph G. Escudero of Sorsogon said the meeting was "improper, to say the least." "More so that there is a pending PhP1-billion reimbursement [to Fortune Tobacco]," he said. The Court of Appeals recently granted Fortune Tobacco a P1.037-billion tax refund -- a decision the government will appeal to the Supreme Court. "It further gives the impression that the passage of the sin tax bill is in accordance with the wishes and design of big business," Mr. Escudero said. "The President should be more circumspect to remove doubts as to her motives." For Bayan Muna party-list Rep. Teodoro Casino, a member of the House ways and means committee, it was inappropriate for the President to meet with tobacco executives. "It was inappropriate because Congress is now deliberating on the measure," he said. "It was not necessary either because the measure, as it is, is clearly meant to avoid stepping on either player." Mr. Casino noted that the "sin" tax bill failed to reform the most substantial issue on liquor and cigarette taxes -- their multi-tiered structure. "It was a compromise bill that is clearly meant to favor the players," he noted. Mr. Lapus admitted it was a compromise bill, but stressed that there was no more time to perfect the tax structure. "[After 2007], there will be leisurely time to debate on the players' positions," he said. "But now, we must pass a law and collect the taxes without risking the viability of the [tobacco and alcohol industries]," he stressed. -- Felipe F. Salvosa II and Jennifer A. Ng with Jeffrey O. Valisno and Judy T. Gulane



Medium-term plan flaws noted

Raising PhP81.7 billion annually from new taxes will not be enough to help the government avert an "economic disaster," an economist from the University of the Philippines said yesterday. Professor Solita C. Monsod, former National Economic and Development Authority chief, said the government needed to raise revenues or cut expenditures by at least PhP125 billion yearly so it could solve its money problems and at the same time fund its 2004-2010 Medium-Term Philippine Development Plan. The PhP125 billion represents about 2.9% of the country's total economic output or gross domestic product (GDP) last year, which was valued at PhP4.3 trillion. "The government needs a primary surplus of about 4% of [GDP] if it wants to avoid disaster," Ms. Monsod told the 5th Annual Philippine Business Conference Outlook at Makati City. Ms. Monsod was one of 11 economists from the state university who warned that the economy could collapse unless the government could fix its money problems in two to three years. The government must raise more taxes, she said, especially given the activities it wants to finance under its 2004-2010 development plan. "Even if the additional PhP80 billion was successfully raised, it will not be enough to fund all the additional programs and activities contained in the [plan]," Ms. Monsod said.

In her critique of the development plan, she pointed out its eight flaws, which could even result in more liabilities for the government. "Elements of the plan, if followed, may be the next biggest source of assumed liabilities," she said. These include the creation of more government-owned and -controlled corporations such as the proposed Social Housing Finance Corp. and Philippine Infrastructure Corp. "These, plus the government's plan to triple loans to small and medium enterprises are disasters waiting to happen," Ms. Monsod said. She noted other flaws:

  • The large "disconnection" between plans and actions;
  • Failure to prioritize government programs in light of fiscal problems;
  • "Internal inconsistencies" in strategies and programs;
  • Ambiguity on the possible changes in the guidelines of the Investment Coordination Committee;
  • Lack of articulation on the government's population policy to reduce population growth;
  • Use of the plan as a "policy advocacy tool" where agenda such as constitutional reform has been included.

Ms. Monsod said that with these flaws in the 2004-2010 development plan, it was possible the government would just "muddle through" and fail to solve fundamental economic problems.


Visibly irritated by Ms. Monsod's presentation, Trade and Industry Secretary Cesar A.V. Purisima said "it does not take a Ph.D. in economics" to solve the economy's woes. "I am not an economist, I am an accountant. But I have experiences in the real world with real economists," he said. Mr. Purisima was chairman of SGV and Co. before joining the Cabinet He defended the government's medium-term plan, saying it was a "valid plan." "I don't believe in the term[s] wrong assumptions and correct assumptions because they are all assumptions. What is important is we are pointing the economy and the programs of government in the right direction," Mr. Purisima said. "I don't think we should debate about the plans." "The challenge really is in execution. If you ask any successful businessman, it's 99% execution. That's why our challenge here is executing the program that we have and the President is committed to making things happening," he added. He also said the President has raised the fiscal situation to the national level, which is the "right signal to the investor and financial communities that we're going to work out this fiscal situation." "There is no shortcut," he said. "It's going to be a road to a better fiscal health. Taking the measures one at a time at the right direction is what's needed, rather than an effort to try and solve it overnight. Doing so would choke the economy than solve problems," he added.


But other economists from the University of the Philippines yesterday said the government's plan to achieve an economic growth rate of 7% to 8% may not be doable, given the emerging problems confronting the country today. "Among these emerging problemas include the deterioration of the world environment and the mounting pressure of public sector debt and deficits," UP economist Emmanuel S. de Dios said in a presentation yesterday at the 5th Annual Philippine Business Outlook Conference held in Makati City. "The 7% to 8% growth target were pinned on assumptions when global conditions were better," UP economist Solita C. Monsod said. Mr. De Dios said the "modest performance" of the economy for the past three years was due largely to a number of favorable global conditions. "Circumstances were favorable between the years 2001 and 2004," he said. "[At that time], global interest rates were low, oil prices were at their historical low coupled with high overseas remittances." These caused inflation and interest rates to remain at low levels and ensured the stability of the country's foreign exchange, Mr. De Dios said. But he said the sharp increases in oil prices recently, the increase in global interest rates as well as the mounting debt problems of the government could slow down the country's economic growth.

Under the 2004-2010 Medium-Term Philippine Development Plan (MTPDP), the government plans to grow the country's gross domestic product (GDP) to 6.3%-7.3% by 2006. By 2008, the government expects the economy to grow to 7%-8%. The government said that the growth will be "export- and investment-led" to support industry and services. In the 2004-2010 MTPDP, the government plans to increase exports to more than $50 billion in two years, increase investment to GDP ratio to as much as 28% by 2010, balance the budget by 2010, and reduce to 1% by 2010 the ratio of the consolidated public sector deficit to GDP.


For this year, the country is on track in attaining a 6% economic growth due to sustained recovery in agriculture, resurgence of exports to Japan, the US, and China; and the resiliency of the service sector, Bank of the Philippine Islands (BPI) said yesterday. Herbert Glen P. Arabelo, head of equity investments unit of BPI Asset Management, said the list of positive factors such as greater chances of long-term fiscal reforms, improved political outlook, recovering economies of trading partners outnumber the negatives. Thus, maintaining business and investor sentiment in the financial markets. "We view the admission of the President of the country's fiscal difficulties as an opportunity to address the issue squarely with concrete measures rather than applyin g mere palliatives as had been the practice in the past. For next year, we believe that the P184 billion deficit target is also realizable, especially if new revenue measures are passed and come on line," he said.

Recognizing the threat if measures are not undertaken, BPI believes Congress will muster the required statesmanship and recognize the dire needs of the present. "Thus armed with new laws to stave off a real fiscal crisis, implementation will then require creativity and political will on the part of the Executive to plug the leakages in the system and finally resolve the chronic fiscal deficit," Mr. Arabelo said. BPI expects inflation rate to remain moderate, averaging around 5.8% for the rest of the year and 6.5% in 2005. The bellwether 91-day Treasury bill rate may average around 7.3% this year, and about 8.3% in 2005 as a result of monetary policy intervention on the part of the Bangko Sentral ng Pilipinas by the first semester of next year. "As a result of the spurt in inflation, the fiscal issue, and rising US interest rates, we are looking at a higher interest rate environment. Market liquidity is still seen as a mitigating factor in tempering the uptrend in interest rates," he said. BPI is standing by its forecast average exchange rate of about P56 to the dollar and close at the same level of P55.50. However, it sees a slight depreciation in 2005 with a full-year average of about P56.50 to P57.00. Performing much better this year, the peso depreciated by only 1.5% as of mid-October compared with 4.4% for the whole of 2003. Mr. Arabelo attributed to the resolution of political uncertainties that had clouded the investment picture in the months leading to the elections last May. He added, "It may be noted that neither the fiscal crisis nor the surge in global crude oil prices made a significant impression on the forex market."

The Ayala-led bank is looking at 2,000 as the target for the Phisix by year-end or by the first quarter of 2005, having already broken above our original target of 1,700. Investors in the stock market appear to share this optimism and have been buying up the market since the second half of last year despite current uncertainties. "Looking at the long-term chart of the Phisix, the bullishness becomes more evident. For the first time in seven years, the index has broken above the bear market trendline. This is a positive development as it strengthens the view that the long downtrend has ended and the market now has plenty of upside potential. Any price corrections, such as the one currently taking place, may thus be viewed as opportunities to position and accumulate investments in the equities market for the lo nger term," he said. -- Felipe F. Salvosa II and Jennifer A. Ng with inputs from Ruby Anne M. Rubio



New foreign borrowings not ruled out


Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) officials are not ruling out the possibility of tapping anew the international debt market to refinance an estimated $400-million loan that will mature next month and to pre-fund requirements for next year. The question now is when. "There is no final decision yet," BSP Deputy Governor Amando M. Tetangco, Jr. said yesterday. Another BSP official, however, said the monetary authority may borrow $400 million next month to finance the maturing loan. "It will most likely be in November. It is not a matter of borrowing at the right time but it is a matter of servicing a need," the senior BSP official said. The local and foreign markets expect the Bangko Sentral to borrow before the year ends despite its claim of having already completed its borrowing requirements for the whole year. Early this year, the central monetary authority raised some $500 million from the debt market to finance its maturing obligations but data showed that BSP has to settle $830 million dollars in maturing loans this year.

BSP Governor Rafael B. Buenaventura had earlier ruled out any more borrowings, at least for the remainder of the year. "Most likely, we will no longer borrow [this year]," he earlier said. However, he added that if the country's dollar reserves fall at an uncomfortable level, the BSP may have no choice but to tap the market again. Latest BSP data showed that the country's gross international reserves (GIR) had dipped to $15.908 billion as of end-September from $16.001 billion in August due to the debt service requirements of the government. The latest figure is still within the BSP's dollar reserves projection of $14 billion to $15 billion for the year. Dollar reserves consist 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 foreign exchange requirements of the economy. Sought for comment, market traders said it would be "relatively good" for the Bangko Sentral to borrow at this time despite investors' concerns on the country's fiscal health. "The market had already priced in uncertainties," a treasurer at a foreign bank said. Another trader at a local bank said that it may be easier for the BSP to tap the debt market compared to the National Government, which has yet to resolve its fiscal crisis. "There's really no problem for the BSP at this time," the trader said. International Financing Review Asia, a publication analyzing capital markets, debt issuers and bond issuances, expects Bangko Sentral to borrow some $500 million by yearend.



Finance dep't favors cut in corporate income tax

By KAREN L. LEMA, Reporter

The Department of Finance wants to reduce the income tax rate for self-employed individuals and corporations to 28% from the current 32%, but at the same time limit allowable deductions. This proposed simplified net income tax system is meant to simplify tax administration and reduce potential harassment by tax examiners, Finance Secretary Juanita D. Amatong told a gathering of business groups in Makati yesterday. At present, corporations are levied a 32% tax on net income -- gross income less allowable deductions. But the state allows the taxpayer to deduct such expenses as travel and recreation expenses from taxable income. Self-employed individuals are taxed on a graduated tax rate where the maximum rate is 32%. The DoF has said business expenses are being "overstated", which has "unduly narrowed the income tax base."

In 2003, Bureau of Internal Revenue (BIR) data on large taxpayers showed that total deductions (both direct and indirect costs) across all industries reduced gross revenues by 98%, leaving only 2% as taxable income. According to Ms. Amatong, the DoF's proposal will also specify allowable deductions for different businesses. Analysts earlier warned against this practice saying it would complicate the present way of taxing business and net income of professionals. Under the DoF's simplified net income tax proposal, self-employed individuals will also be given an option to deduct a maximum of 40% from their gross income without having to substantiate it with receipts. With the proposed revenue measure, tax compliance will be improved because of a simple structure and business in the underground will be encouraged to toe the line, Ms. Amatong said.


Meanwhile, Ms. Amatong said the Executive would be pushing for a 7% franchise tax on gross receipts of telecommunication, radio and television companies, higher than its original proposal of 3%. The reimposition of a franchise tax on telecommunication firms has been suggested by the government's economic managers and is part of a tax reform package that is estimated to yield P80 billion. Before telecommunications companies were covered by value added tax (VAT), they used to pay a 5% franchise tax equivalent to 5% of gross revenues. This was replaced by a 10% VAT on gross sales in 1994 when Congress passed Republic Act 7716 which expanded the coverage of the 1988 VAT law. Lawmakers said the franchise tax is more acceptable than a tax on text. It it will also yield more revenues for the government since it will be easier to collect than VAT. These are all part of a package of reform measures that the Macapagal-Arroyo administration is pushing for to raise additional revenues needed to address the chronic budget deficit.



Eximbank notes power sector's weaknesses

as well as ROBERT LEONORAS and SARWELL Q. MENIANO, Correspondents

The United States' Export-Import Bank (Eximbank) has raised two conditions for sustaining investments in the Philippine power sector and expressed uncertainty on the strength of the Philippines on both counts. Eximbank is an independent agency that supports financing of US exports through loans, guarantees, and credit insurance programs. It loans and guarantees an average of $2 billion a year, with almost $1 billion allocated for the Philippine power sector. In a position paper, Eximbank said that historically, there are two solutions to sustaining investments in the power sector -- strong private sector or strong government support. "The Philippines wants to minimize government support but can't do so without strong off-takers [distribution utilities]," the bank said. It said its initial observation on the Philippine scenario is the government wants to lessen subsidies but could not move on due to weak off-takers. In the same paper, Eximbank said if the government wants to lessen government interference and subsidies, then it should have a strong private sector composing of distribution utilities or off-takers for power. The government, however, cannot continue giving subsidies given its fiscal situation.


For his part, First Gas Power Corporation chief executive officer Peter D. Garrucho, Jr. signaled the need to reinvigorate distribution utilities. He said distribution utilities have suffered judicial and regulatory setbacks which have weakened their creditworthiness and limited their capital expenditure projects. "If a utility's credit ratings are substandard, it becomes more difficult and expensive to finance a power plant that would serve the utility's market. Magnify that problem over the Philippines as market demand grows and you have a scenario for shortages," he said in a position paper. Mr. Garrucho said that with the passage of Republic Act No. 9136 or the Electric Power Industry Reform Act of 2001, state-owned National Power Corp. has been prohibited from generating or contracting for new power.

Distribution utilities were envisioned to contract and buy the power from generators for sale to their markets. "The road to recovery for the distribution utilities has to be paved with improved rates and regulatory stability. The distribution utilities have been weakened and they have to be fortified for the industry to move forward with new investments," Mr. Garrucho said. In the same paper, Eximbank also identified key off-taker considerations such as volume, price, credits and government support. Among others, the bank raised questions on who will make off-take commitments and what regulatory clarity will be needed to encourage these commitments. On price, the bank expressed concern on how to formulate the best method to achieve competitive prices while on credits, it raised queries on what needs to be done to enhance creditworthiness of off-takers and if too much was being asked of the Manila Electric Company. On government support, Eximbank raised questions on what type of government support is needed to support "most disadvantaged parties."


Meanwhile, a report from Ormoc City, Leyte in Eastern Visayas quoted President Gloria Macapagal Arroyo as blaming inefficient electric cooperatives for the high power rates in some parts of the country. She said she would ask concerned government agencies like the National Electrification Administration (NEA) to look into the management of these cooperatives. "We will have to look [into this] case by case. We do not have one formula for all [electric cooperatives]," Ms. Arroyo said in a press conference held on the sidelines of the 57th charter day celebration of this city last Wednesday.

Studies have shown that systems losses in the Philippines, caused by inefficient management, are the highest in East Asia. Power consumers in Leyte and Samar islands have been complaining of high power rates. Ironically, Leyte is a major source of geothermal power. Some 60% of the total power generated in the Tongonan Geothermal Power Plant in Kananga, Leyte is exported to other provinces. The Cebu-Negros-Panay grid, for instance, gets 200 megawatts from the Tongonan plant. At present, the National Power Corporation (Napocor) charges PhP2.0837 per kilowatt-hour (kWh) to electric cooperatives in Eastern Visayas. Some 21 electric cooperatives in the Visayas, however, have asked the Energy Regulatory Commission (ERC) to allow them to increase their rates to recover the taxes that they pay to local government units (LGUs).


In a related development, power users in the northern towns of Negros Occidental province are bracing for higher power rates. The Victorias-Manapla-Cadiz Rural Electric Service Cooperative, Inc. (VRESCO) has announced a 29-centavo/kWh increase in power rates that will be reflected in the October 2004 billing period. The cooperative services the cities of Cadiz, Sagay, Escalante and Victorias and the towns of Toboso, Calatrava and Manapla. The electric cooperatives used to enjoy tax breaks, but the Supreme Court ruled last year that they pay local taxes as provided in Republic Act 7160, or the Local Government Code. Only the five electric cooperatives that are registered under the Cooperative Development Authority (CDA) continue to enjoy tax exemption.

Antonio Magno, VRESCO finance manager and assistant general manager, said they would impose a PhP0.2214 increase in rates, following the removal of a third of the interclass subsidy from commercial entities as well as an increase of PhP0.3539/per kWh in the generation charge and PhP0.0092/per kWh in the transmission charge. But VRESCO will also implement the final rate reduction of 29 centavos as a result of the condonation of their loan. "Our rate increase on generation and transmission plus the PhP0.2214 interclass-cross subsidy total PhP0.5845, minus the rate reduction of PhP0.2922, the actual power rate increase is PhP0.2923 per kWh," Mr. Magno said. VRESCO filed before ERC an application for approval of rates reduction in compliance to Sec. 60 of RA No. 6139. ERC then issued a provisional authority for VRESCO to reduce its rates due to loan condonation.



Arroyo approves PhP3-B Metro Manila infrastructure project

President Gloria Macapagal-Arroyo yesterday approved the proposed PhP3.02-billion Integrated Infrastructure Development Project in Metro Manila aimed at reducing traffic and decongesting the metropolis. During the 3rd joint National Economic Development Authority (NEDA)-Cabinet group meeting in Malacaņang, the President instructed the Metro Manila Development Authority (MMDA) to immediately begin construction of foot bridges, waiting sheds and urinals. The project, financed through official development assistance from Japan, would be simultaneously implemented in seven major thoroughfares including Commonwealth Ave., Radial Road 10, Circumferencial Road 5, Epifanio delos Santos Avenue, Quezon Avenue, Marcos Highway, and McArthur Highway. Aside from constructing foot bridges, waiting sheds, and urinals for pedestrians, the MMDA would also construct overhead signs or gantries to guide motorists, and emergency bays to remove obstructions or stalled vehicles on the road. The MMDA would also construct sidewalk fencing to keep people off the road, and loading and unloading bays to control commuters and public utility vehicles.

Meanwhile, the President ordered the MMDA, as well as other government agencies to fast-track the relocation of informal settlers along the rail road tracks to pave the way for the implementation of the North Rail project. Vice-President Noli L. de Castro, chairman of the Housing and Urban Development Coordinating Council, said 926 out of the estimated 38,206 families along railroad tracks from Caloocan City to Clark Field, Pampanga have been relocated. Out of those relocated 626 families were moved to the government resettlement project in San Jose del Monte, Bulacan, while 300 were transferred to Barangay Bignay, Valenzuela City. To encourage informal settlers to transfer, Mr. de Castro said the government was offering PhP50,000 for each family as "housing assistance grant" to allow affected families to pay for land equity in their provinces, or for livelihood assistance. The Vice-President said the government has earmarked PhP912.5 million for the program, coming from the financial assistance of China for the North Rail project. -- Jeffrey O. Valisno


RCBC sets $200-M senior notes offering next month

Yuchengco-owned Rizal Commercial Banking Corp.'s (RCBC) board of directors approved the issuance of $150 million to $200 million in senior notes next month. In a letter to the Philippine Stock Exchange, RCBC corporate information officer Cynthia P. Santos said the issuance is subject to central bank approval. The bank did not say where it will use the proceeds of the issuance. Bank officials were unavailable for comment as of press time. Senior notes are owed money that rank first in claims on the borrower's assets. These rank below secured debt but above subordinated debt in the repayment hierarchy. The seventh largest bank will also infuse an additional capital of PhP400 million in RCBC Capital Corp. It also approved the provision of call center support services to RCBC Savings Bank. RCBC will release PhP189.9 million in cash dividends to shareholders as it declared a fixed cash dividend of 30 centavos per share. RCBC and subsidiaries' net earnings registered a 13.33% growth during the first six months at PhP1.19 billion from PhP1.05 billion a year ago.

Reversing a decline during the first quarter, the bank's profits accelerated in the April-June period by 70.5% to PhP832.14 million from PhP488.05 million the earlier year. "The bank's overall performance continued to show marked improvement from a year ago... It reflected the gains achieved from its efforts to strengthen its balance sheet, improve efficiencies and concentrate on profitable market segments," it said earlier. Net interest income rose 9.33% to PhP2.45 billion during the first semester from PhP2.241 billion due to better market yields and higher volume of deposits available for earning loans and other investments. -- Ruby Anne M. Rubio



Five-year Treasury bond rate climbs by 50 basis points

Bids for the government's newly issued five-year bonds fell short of expectations in yesterday's auction even as traders said the market remains very liquid. The new issue of the five-year Treasury bond fetched a coupon rate of 12.375% or up by 50 basis points from 11.875% last August 10. The Bureau of the Treasury offered five-year zero coupon bonds on August 31 at a higher rate of 12.75% due to their special feature. At the secondary market, the five-year debt instrument was traded at 12.4633%. Traders said although the issuance was oversubscribed at PhP4.357 billion against a PhP4-billion public offering, this still fell short of estimates because of the market's liquidity. They said they estimated around PhP11 billion of debts maturing as of today. A week ago, tenders for the four-year Treasury bonds reached PhP8.595 billion at a coupon rate of 11.875%. "It was really disappointing. There were so much maturities and then all of a sudden it went low like this? The current rate is already irrelevant. We should think of the bids," a trader at a foreign bank said. The auction committee accepted only PhP1.937 billion of the total bids.

Deputy Treasurer Eduardo S. Mendiola said the bureau "had a long discussion on balancing the requirement for funding at the same time the cost of funding, or the interest rate we're paying, as well as the money we're getting." "A 50-basis-point increase was already quite a jump from the last, but liquidity is still there that we can tap," Mr. Mendiola said. Another trader said the market was just realigning yesterday's rate with that of the four-year paper last week. "Of course, there are still indications that the market is still uncertain over the fiscal scenario," the trader said. While the government is rushing to pass at least three tax bills in Congress, speculations again arose on its ability to clear such revenue-generating measures. As such, the trader said the market would remain on a wait-and-see mode and banks would stay excessively liquid.


Meanwhile, the Philippine peso slipped by almost five centavos against the US dollar yesterday despite an early rally following the regional currencies' movement. "There were dollar requirements from oil companies, more or less," a currency trader said. With the heightened dollar demand, the total volume of transacted dollars increased to $153 million from $109.8 million. At the Philippine Dealing System, the country's electronic currencies exchange, the peso averaged lower by almost five centavos to PhP56.326 from PhP56.279. The peso opened at PhP56.32 but strengthened toward PhP56.305 against the dollar. After hovering within a four-centavo range, the peso closed a half centavo stronger from its intraday low to PhP56.34 per dollar. -- Ira P. Pedrasa



Philippine bond spreads weaken

HONG KONG -- Most benchmark Asian dollar bonds were trading steady yesterday, but Philippine spreads widened on concerns the sovereign is facing a ratings downgrade and due to a sell-off in other emerging markets. South Korean subordinated bank debt tightened around five basis points (bps) in response to strong demand for Chohung Bank's $400-million sub-debt issue which was priced on Monday. However, South Korean sovereign bonds due in 2014 were trading steady at 81/79 bps over comparable Treasuries. The Chohung deal, aimed at replenishing the bank's capital base, attracted an order book of some $4 billion and was the first subordinated bond offered by a Korean lender since National Agricultural Cooperative Federation and Industrial Bank of Korea tapped the market in June. The 10-year issue comprised $200 million each in upper tier 2 and lower tier 2 securities, with both tranches having call options after five years. The lower tier 2 tranche was priced to yield 4.55% or 133.5 basis points over five-year US Treasuries, while the upper tier 2 tranche carried a yield of 4.7%, or 148.5 bps over.

Philippine sovereign credit spreads widened about five to seven bps reacting to a sell-off in global emerging markets as investors looked to move out of high-risk assets on fears that near record high oil prices would threaten global growth. Emerging market debt spreads moved out sharply on Monday, with country spreads on the JP Morgan Emerging Markets Bond Index Plus (EMBI+) widening nine bps to 428 bps over US Treasuries. Total returns fell about half a percent. Traders said the belief that a downgrade of the country's credit rating is all but inevitable was also undermining demand for Philippine paper. "I think [the widening's] still driven by offshore sentiment on the possible ratings downgrades and the slow movement on the tax measures," said a trader in Manila. Standard & Poor's, which has a BB long-term foreign currency rating on the Philippines, hinted earlier this month that unless key reforms aimed at increasing government revenues were passed by the year's end it would likely cut its stable outlook. Moody's Investors Service, which rates the Philippines Ba2, already has it on negative watch and is due to visit the country as part of its credit review process next month.

Philippine sovereign bonds were down about one percent from the Asian close on Monday, although much of that move occurred during New York trading hours, traders said. The ROP '14s were trading at 95.25/95.75 in price terms yesterday, while the ROP '25s were quoted at 103.625/104.375. Elsewhere, Hutchison Whampoa bonds due in 2014, among the most liquid of Asian dollar bonds, were trading steady at 180/177 bps over, as were PCCW '13s which were quoted at 144/139 bps over. China bonds due in 2013 were also roughly unchanged at 66/61 bps over Treasuries. State-run Export-Import Bank of Korea is expected to price a 300 million euro, five-year floating-rate note later yesterday or today at a spread of 40 bps over the Europe Interbank Offered Rate. -- Reuters


Industry groups back third-party custodian setup

The Money Market Association of the Philippines or MART said it supports the central bank's objectives relating to circulars on third-party securities custodians despite comments from some bond traders that such rules would restrict capital market growth. A statement issued by the association's board of directors said MART has been working with the central bank, "highlighting and resolving operational concerns and limitations, as well as investor concerns and rights, to ensure a smooth implementation" of said circulars. The rules in question -- Circular 392 and 428 -- required banks and nonbank financial institutions under central bank supervision to entrust to accredited third-party custodians the registration and safekeeping of all securities sold, borrowed, purchased, traded and transacted in the Philippines. Some traders have earlier questioned the legal and operational implications of creating third-party custodians.

In its statement, MART said the association shares the regulator's thrust to "raise capital markets to the level of global standards." MART is the umbrella organization of government securities eligible dealers, or financial institutions that are allowed to buy debt instruments from the Bureau of the Treasury. Separately, the local banking industry yesterday urged bond traders to give the third-party custodian setup a chance to work, saying that it would be good for investors. The Bankers Association of the Philippines said banks are amenable to the regulation, which will be implemented on November 16. "There are some sectors out there saying a different thing but for us, this is finished. There has been a lot of discussions and not everyone reached a consensus. But banks have agreed to give it a chance and move forward with it," the association's executive director Leonilo Coronel said in an interview.

Bangko Sentral is pushing for the securities registry as it would serve as a check-and-balance mechanism for government securities and debt instruments currently traded in the secondary market. The measure seeks to prevent a repeat of the BanCap scam in the 1990s, which involved the secondary but double sale of Treasury bills. This affected several banks and institutions. Some securities traders, however, have said that the rules would just restrict capital market growth. They said the central bank should let investors decide who they want as guardians for their securities. Mr. Coronel said any reform meets resistance but he said concerned parties and the central monetary authority had already engaged in several discussions and debates in the past. "The banks already agreed. What we're saying is that we should now move forward with it," he said, alluding to traders who are reportedly opposed to the new rules. Bangko Sentral has already eased its stance on the issue and gave banks some flexibility in dealing with clients who do not want to place their securities with a third-party custodian. According to the revised rules, banks may maintain custody of existing securities of their clients who declined to deliver their securities to a custodian. Bangko Sentral, however, said this would only be allowed provided that banks and other financial institutions meet certain requirements such as if the custody arrangements with clients have been in existence prior to the new rules. Bangko Sentral said the dealing bank or nonbank financial institution must have been "informed in writing by the client that he is not willing to have his existing securities delivered to a third-party custodian." -- Iris Cecilia C. Gonzales and Ira P. Pedrasa



Metrobank hires CB Richard Ellis to dispose 150 idle assets

Largest lender, Metropolitan Bank and Trust Co. (Metrobank), tapped CB Richard Ellis Philippines, Inc., a real estate services firm, as auction manager for the disposal of acquired assets. Jojo Romarx C. Salas, CB Richard Ellis director for investment and capital markets, said public auctions have been scheduled to attract institutional and private investors. Metrobank will auction 150 properties on Thursday at realistic prices, flexible downpayment, long-term payment scheme, and competitive interest rates in what has been dubbed as "Auctionfest." "Most of the properties to be auctioned are developed, such as houses-and-lots, condominium units and commercial spaces. As such, they are good investments as property values are expected to appreciate when the economy rebounds. They are also suitable for end-use purposes," he said in a statement. With its local and global network, CB Richard Ellis has been a key player in property brokerage and investments. Having a strong track record in managing public auctions, it was also appointed by Security Bank Corp. in unloading over PhP100 million of acquired assets in two auctions this year. The bank disposed approximately 40 properties and is now considering more auctions.

Security Bank appointed CB Richard Ellis as its auction manager to gauge the viability of a public auction as a sustainable property disposal method. "While public auction is becoming a popular disposal method among the local banks, Security Bank tries to differentiate its products and positioning in the market. It is tapping the PhP5-million to PhP20-million segment and is adjusting its offering accordingly. Apart from attractive interest rates, Security Bank is giving additional discount for cash payers," Mr. Salas said. Those that want to take advantage of perks under Republic Act 9182 or Special Purpose Vehicle Act of 2002 had until Sept. 18 to establish and register their special purpose vehicles or SPVs with the Securities and Exchange Commission before incentives offered to purchasers expire in April 2005. Incentives include tax perks and reduced transaction fees. Aside from sale to an SPV -- a firm that would buy banks' nonperforming assets at substantial discounts, banks may dispose their idle assets through retail public auctions or negotiated sales. With the acquisition of Insignia ESG, CB Richard Ellis was recently named the largest real estate service provider in the world with annual revenues of approximately $1.6 billion. -- Ruby Anne M. Rubio



Spanish firms keen in joining team to rehabilitate Luzon road project


Aside from Hong Kong's First Pacific Co. Ltd., a number of Spanish firms have expressed interest in joining the consortium that will rehabilitate and connect three major highways in Southern Luzon. Jose Miguel Cortes, Economic and Commercial Counselor of the Embassy of Spain, said most of the Spanish businessmen, who are now in Manila to participate in the trade show "Espaņa Exporta," are considering investing in infrastructure projects particularly in the South Luzon Expressway (Slex). "Some of those 25 companies are interested in forging BOT [build-operate-transfer] contracts. They are actually discussing with the local counterparts. They are looking into investing on Slex and other infrastructure," he told BusinessWorld.

State-run Philippines' National Development Co. (NDC) earlier approved "in principle" a plan to rehabilitate and connect Slex, Skyway, and STAR to cut the travel time from Metro Manila to the Batangas Port. The integrated highway will have a single toll system, which would be run by a single operating authority. Finance officials had said NDC would sell bonds to finance the highway project which is said to cost about PhP12.5 billion. The Spanish government, in terms of per capita, is said to be the largest investor in infrastructure worldwide with an average of 8 billion euros every year. Over the last two years, Spanish firms, Mr. Cortes said, have renewed their interest on build-operate-transfer projects in road, water, and waste management in the country. Trade relations between the two countries, he added, has been improving as it hit an all time high of $340 million in 2003, making Spain the 29th largest trading partner of the Philippines. Mr. Cortes said Spanish engineering firms would be holding seminar on innovations in infrastructure as part of the first ever trade show Spain has launched in Asia. But while Spanish firms had been investing in the Philippine's business sector, the Spanish official said there had been no build-operate-transfer contracts yet forged between the two countries.



Gov't delays first auction of Masinloc power plant

The government has postponed by a month the first auction of a major power plant owned by debt-strapped National Power Corp. (Napocor), part of a sale the government hopes will raise up to $5 billion to cut its ballooning deficit. The delay in public bidding for the 600-megawatt coal-fired plant would allow prospective buyers more time to conduct due diligence, a privatization official yesterday said. Bidding for the Masinloc plant on the northern island of Luzon had been scheduled for today. Sources said foreign firms interested in Masinloc include YNN of Australia, Malaysia's YTL Power, Japan's Marubeni Corp., US power firm Mirant Corp. and Korea Electric Power Corp.


The government, which is struggling to cut its budget deficit, hopes to raise $4 billion to $5 billion from the sale of dozens of Napocor power plants and its nationwide power grid. It has so far sold four small hydroelectric power plants. "The Masinloc bidding was moved to November 25 to accommodate investors' request for more time to conduct due diligence," Froilan Tampinco, vice-president at the state-run Power Sector Assets Liabilities and Management Corp., told reporters. Mr. Tampinco said the 14 foreign firms and four local ones that have expressed an interest in bidding for Masinloc have yet to complete their due diligence. The power plant initially drew interest from 22 groups but four of them had dropped out for unknown reasons, he said.

The Philippines needs to attract private capital to the power sector to stave off electric shortages forecast to hit some parts of the country as early as next year. Early this month, the government said it would no longer allow Filipino-owned firms to match the winning bids of foreign firms in the sale of the Napocor plants. Foreign firms had complained about the original rules, under which a local bidder could secure a contract by matching the winning bid of a foreign company. Sources said the local bidders were expected to include First Gas Power Corp, Aboitiz Power Corp. and Trans-Asia Power Generation Corp. Despite the resolution of the right-to-match issue, there are still obstacles to a smooth sale, an official at a local power firm said. -- Reuters



Outsourcing firm putting in PhP142M for operations

A Filipino-owned outsourcing operation plans to invest PhP142 million for a venture that will serve as an offshore facility for North American, Japanese, and European clients, the Trade department yesterday announced. Pointwest Technologies Corp. started commercial operations this month at the Citibank Corporate Center. At full capacity, it can employ 478 information technology or IT workers. Services include application development through combinations of onsite, offsite, and offshore project management and development activities, in a portfolio consisting of software development and code enhancements. The operations are designed to "rapidly improve the efficiency and effectiveness of the applications development environment" of clients "by leveraging its investment in methods, processing tools, architecture and its people."

Trade and Industry Secretary Cesar A.V. Purisima said the Philippines is already considered one of the largest offshore destinations for business process outsourcing or BPO, due to advantages such as cultural affinity with the US and English language proficiency. He said the country is on the way to becoming Asia's "e-services hub" as a major outsourcing services provider for American, European and Japanese firms. -- Felipe F. Salvosa II



Entertainment PCs seen to boost Intel


TAIPEI, Taiwan -- The world's largest chip maker expects the entry of entertainment PCs in the market to boost revenues. In a talk with reporters yesterday, Tim Bailey, regional marketing manager for desktop and mobile platforms for Intel Asia Pacific, said the entry of the entertainment PC is "gaining momentum." The entertainment PC is a compact disc/digital video disc player and recorder, stereo and music server, and personal video recorder rolled into one. The product is based on Intel Pentium 4 processors supporting hyper-threating technology and the Intel 915 chipset. "The momentum for entertainment PC has started now. It will continue next year. We put a major effort for this year and next year and we're investing a lot in the technology," Mr. Bailey said. He said as use of digital devices, such as digital cameras, increases, demand for entertainment PCs will also grow. Mr. Bailey said the product is designed for content consumption and that its target market would be "consumers who keep digital photos, and have children that are interested in games and music." He said the product would give consumers flexibility, since it allows them to do several things from a single product. "The consumers want that type of flexibility," he said.

Anand Chandrasekher, vice-president and general manager for Intel's mobile platforms group, said the entertainment PC will also boost demand for desktop computers. The product is available in selected countries, including Taiwan, China, Korea, and some countries in Southeast Asia. Mr. Bailey said that each unit is sold at $800 and above. Intel, the largest chip maker in the world, manufactures computer, networking, and communications products. Intel officials are in Taiwan for the two-day Intel Developer Forum for the Asia Pacific Region. The forum, which is held in multiple locations around the world, aims to serve the systems and solutions communities. Each conference is tailored to provide region-specific technical content and includes a technology showcase that features participants from local, regional, and multinational companies.



Jollibee says it can hit 2004 net income target

Fastfood firm Jollibee Foods Corp. is on course to hit its 2004 net income estimate of around PhP1.5 billion ($27 million) despite pressure from high oil prices, a senior company official yesterday said. "It's still achievable," Ysmael Baysa, chief finance officer, told Reuters on the sidelines of a business meeting. The company, which vastly outsells McDonalds and KFC in the Philippines, said earlier this year it was likely to post 10%-15% growth in 2004 net income from PhP1.255 billion in 2003. Consumer spending related to the May 2004 elections boosted the firm's profits in the first half. But Jollibee recently said its third-quarter earnings -- up just 6% to PhP317 million from a year earlier -- were dampened by increased operating costs as oil prices hit new record highs. For the January-September period, Jollibee's net profit reached PhP1.17 billion, up 28% from a year ago. Jollibee shares climbed PhP1 or 3.64% to PhP28.50 on Tuesday as the main index gained 1.91%. -- Reuters



Stocks regain footing, jump 1.9%


Interest in the market was back yesterday, causing share prices to end higher, after the benchmark index on Monday recorded one of its biggest losses in a day. Renewed bargain hunting spurred a technical rebound that helped the Philippine Stock Exchange composite index (Phisix) recover more than what it lost the other day. The Phisix was up 33.09 or 1.91% at 1,768.78. The market was expected to recoup its losses after a major slump last Monday. Some analysts said a move up was the only way to go for the market which had been down for a period.


Mylene Crucena Mercado, investment analyst at, said it was renewed bargain hunting that lifted the bourse. "The bourse regained composure [yesterday] after declining for two straight sessions in a row. Market gauges finished 33 notches higher at 1,768.78, up 1.91% day-on-day," said Ms. Mercado. Concerns over the oil price increases and rumors of a coup plot, and fears of an interest rate hike and credit downgrades fizzled out and left the fronts quiet for a while. This encouraged investors to step out of the sidelines. Forsaking their earlier decision to hold on to cash in view of the long weekend (Nov. 1 is a holiday), investors snapped up shares and froze a selling spree that packed some weight on the day's trading value. Over 1.5 billion shares were traded at a healthy level of PhP1.8 billion, more than twice the PhP731.8 million made the other day. Advancers gained back their lead over decliners at 48-24. Issues that clung to their previous levels totalled 28. Most of the indices were up. The commercial-industrial rose by 55.77 or 2.05% to 2,773.48. Mining advanced 25.37% or 1.28% to 2,009.70. Property was up 15.38 or 2.38% to 661.35. Oil kept to 1.68. The small and medium enterprise (SME) counter was also unchanged. All-shares slipped 4.81 or 0.44% to 1,097.38. Odd lot transactions saw 174,022 shares traded for PhP210,156. Most of the transactions were in the main board where 148.1 million shares worth PhP1.3 billion were traded.


Confidence of foreign funds in the Philippine stock market spiralled to a new high as net foreign buying amounted to over PhP1 billion. Total foreign buying rose to PhP1.4 billion against total foreign selling of PhP312.3 billion. Banco de Oro Universal Bank cornered the biggest share of the market at 58.79%. The issue closed unchanged at PhP18.25. Philippine Long Distance Telephone Co. remained the second most actively traded, up PhP20 to PhP1,360. Ms. Mercado said the stock's rise may have something to do with the release of the analysts' projections of a 50% earnings growth for the third quarter. The Bank of the Philippine Islands slid from first to third place. Its price rose PhP0.50 tp PhP46.50. Digital Telecommunications Philippines, Inc. was higher by PhP0.08 at PhP1.30. Other gainers included DMCI Holdings, Inc. which advanced PhP0.40 to PhP3.25; Ayala Corp. which gained PhP0.20 at PhP6.40; and Globe Telecom, Inc., an Ayala subsidiary, up PhP45 to PhP1,030. Property developer Ayala Land, Inc. closed higher at seven pesos on possible healthy third-quarter profits. The firm will hold a media briefing on its third-quarter results this afternoon.


Meanwhile, Rizal Commercial Banking Corp. (RCBC) declared a cash dividend of PhP0.30 per share. It has not yet announced the record and payment dates. Since Monday, banking issues were leading the market. The optimism from the banking sector and the cash dividend declaration of RCBC may signify a slowly stabilizing outlook for the industry as it moves toward the last leg of the year, raising speculations that it may yet end the year with a bang. The stock portal expects follow-through buying today. "Follow-through buying might spill over [today], following the market's recovery from a base of 1,730 above the 1,750 level," it said, citing expectations that the bourse may have already discounted some pressing anxieties.

The belief thus far, noted the stock portal, is that the bourse may have already discounted much of earlier anxieties associated to crude prices' unabated rise, as focus reverts to the expected release of favorable corporate earnings for the third quarter. "The only question over the near-term is whether positive psychology can be maintained to boost gauges near its most recent high at 1,850," it added. But in case this will not pull through, said activity could stay range-bound between 1,750 and 1,800. It advised investors to trade selectively and start looking into promising counters that would do well in rising commodity prices. Some say, however, that investors may base their decision on developments that may come up over the long weekend.