By CARINA I. RONCESVALLES,
Reporter
The National Economic Development Authority (NEDA) yesterday admitted
that the imposition of new tax measures will result in a 3% to 4%
decline in the country's gross domestic product (GDP). "We state the
position that we [the NEDA] disagree with the proposed tax measures, all
of them, for the reason that we believe that these measures will
adversely affect the economy and will have an impact in the cost of
manufacturing business in the Philippines," NEDA deputy director general
Augusto Santos told a Senate committee hearing on the impact of the
government's fiscal plan on the general economy. "However, knowing that
such measures will provide [a] solution to the present financial
problems that we have ... we are willing to discuss them," Mr. Santos
said. The government expects GDP -- the measure of goods and services
produced by the country within its borders -- to grow within a range of
5.3% to 6.3% next year. Mr. Santos clarified, however, that he expects
the projected 3% to 4% GDP slowdown to occur in the long run.
CRACKS?
Mr. Santos's statements were also an apparent departure from
testimony last week by his boss, NEDA director-general Romulo L. Neri,
who said three of the proposed tax measures -- the indexation to
inflation of 'sin' taxes, increase in the excise tax on petroleum
products and an increase in the value-added tax (VAT) rate -- "will
increase GDP by 0.03 percentage points due to higher personal and
government consumption and total investments." Mr. Neri said an increase
in the prices of tobacco and alcohol products due to higher taxes will
have a "negligible" effect on inflation. Remarking on a prospective
increase in the excise tax of petroleum products, Mr. Neri said it will
result in 0.11% increase in GDP and a 1.13 percentage points increase in
inflation due to higher government spending arising from higher
revenues. "However, the effect of the measure on inflation is expected
to decay over time, resulting in tamer 0.15 percentage points increase
in inflation in the long run," Mr. Neri said.
NEDA said higher investor confidence resulting from the passage of a
bill on increasing taxes on petroleum products should result in a 1.08
percentage point increase in GDP in the long run. The initial increase
in VAT from 10% to 12%, Mr. Neri said, may raise inflation by 0.23
percentage points in the short run but will cause the economy to grow by
an average of 1.13 percentage points in the long run, especially if
investors gain more confidence. "[W]ithout an increase in investor
confidence, the estimate will yield a 0.01 percentage points decline in
GDP," Mr. Neri said.
REVIEW
Mr. Santos's testimony yesterday prompted the Senate committees on
trade and commerce and on economic affairs chaired by Sen. Manuel A.
Roxas II to ask the NEDA and the Department of Finance (DoF) to conduct
a more thorough study of the new revenue measures. "The economic
managers have to prove that if the money that will be collected from the
new measures will be used to spend only for servicing debt, then the
economic pain of [a] 3% to 4% [contraction] of GDP is worth it compared
to the stronger pain if we will not act on the fiscal problem," Mr.
Roxas told a news conference after the hearing. He said the admission of
the new tax measures' negative impact was another point against the
proposals cited by Mr. Neri. The three measures are expected to generate
additional revenues of
PhP14 billion ('sin' taxes),
PhP19.9 billion (higher VAT rate) and
PhP4.6 billion (petroleum excise tax), respectively.
The other measures are the rationalization of fiscal incentives,
lateral attrition system, tax amnesty, shift to gross income taxation
from net income taxation, and re-imposition of franchise tax on
telecommunication companies. "There will be a contractionary impact.
Now, the question for judgement is: will the economy carry it and will
the families carry the contractionary impact? This will be spread out
since each family will pay more and take home less ... The question is
not just of arithmetics, economics but also of social impact. We will be
asking the NEDA to determine the family income and expenditures model
and how will the contraction be distributed," Mr. Roxas said. He added
that the projected additional revenues of
PhP80 billion from the eight new tax measures might only go to waste
if the government does not address corruption within its ranks. "The
government has not proven itself to be a much more efficient or
productive user of money than those who earned it themselves," Mr. Roxas
said.
EXEMPTIONS
He proposed the lifting of value-added tax exemption of doctors,
lawyers and other professionals instead of increasing the VAT by 2%.
"Why not expand the coverage of VAT to include doctors, lawyers and
professionals. It might not be necessary to increase VAT if all will be
covered by the tax to include the exempted sectors." Fellow
administration Sen Ramon B. Magsaysay Jr. echoed the suggestion. "We
should look at the loopholes in our tax collection system first and
foremost. If we do not plug these loopholes, people will not believe us.
Our tax collection must be like a laser rifle approach and not a shotgun
blast ... Accuracy is the paramount concern," Mr. Magsaysay said during
the hearing. Opposition Sen. Juan Ponce Enrile, for his part, asked the
NEDA and the DoF to study the imposition of a uniform tax rate on
cigarettes instead of the proposed ad valorem tax.
SENATE CAUCUS
In a related development, the Senate yesterday held a caucus to firm
up the Upper Chamber's position on the looming fiscal crisis.Senate
President Franklin M. Drilon said legislotors would identify which
reform measures should be enacted into law. "All the senators, both from
the majority and minority, will discuss how the Senate views the present
crisis that we are looking at. We do hope that as a result of this
caucus, we can have a successful, one-day detailed briefing from the
economic managers and a freewheeling debate on our perception of the
crisis that is facing the country today," Mr. Drilon said prior to the
caucus. No agreement was reached but the legislators said they would
meet anew on Oct. 22-23 before the second regular session resumes on
Oct. 25. Congress goes on recess on Sept. 24. Mr. Drilon earlier said
four new taxes will likely be passed within the year. These are the
indexation to inflation of sin taxes, rationalization of fiscal
incentives, lateral attrition system and tax amnesty.
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Government economic managers have agreed to retain the four-tiered
system of taxing cigarettes and will recommend adjustments only on the
corresponding tax rates, a reliable source bared. The government's
economic team adopted the position based on a proposal by Trade
Secretary Cesar A.V. Purisima, said the source, who attended one of the
group's meetings. Prices under the four tax brackets will also be
retained, the source added. "This would be simpler and easier since only
the excise tax would be adjusted and not the price," the source said.
Currently, cigarette brands costing above
PhP10.00 per pack are taxed
PhP13.44 per pack. The three other brackets are:
PhP6.51 to
PhP10.00,
PhP8.96 per pack;
PhP5.00 to
PhP6.50,
PhP5.60 per pack; and below
PhP5.00,
PhP1.12 per pack.
An earlier proposal was to index both the brackets and the rates to
inflation. The brackets have not been adjusted since the National
Internal Revenue Code of 1997 took effect, while the rates were hiked by
12% in 2000. The source said the economic team has not yet decided on
how to adjust the rates. Tobacco giant Philip Morris is campaigning for
a
PhP1 across-the-board tax increase in all four brackets instead of
using percentages, warning that indexation would create "market
distortions" by forcing smokers to shift to lower-priced brands. This
was echoed last week by a visiting delegation of senior American
executives, whose recommendations included the removal of the top tax
tier which accounts for less than 0.2% of the market.
Lucio Tan-led Fortune Tobacco is opposed to a uniform tax increase
and is lobbying for a return to the old ad valorem scheme. Fortune
Tobacco accused Philip Morris of trying to phase out low-priced brands,
which the former claimed would suffer a price increase of as much as
250%. There are two pending House bills calling for a uniform tax
increase. Eastern Samar (eastern Visayas) Rep. Marcelino C. Libanan is
proposing a
PhP1 across-the-board increase, while Cavite (southern Luzon) Rep.
Jesus Crispin C. Remulla wants
PhP2. At an annual consumption of 4.5 billion packs, additional
revenues could reach
PhP4.5 billion for a
PhP1 uniform increase, and
PhP9 billion for a
PhP2 increase.
'VICE' PRODUCTS
At the House of Representatives, meanwhile, Finance undersecretary
Ma. Grace Tan said an additional
PhP18 billion will be added to government coffers should revisions
in the tax system for "vice products" push through. Ms. Tan made the
pronouncement during a House ways and means committee deliberation of
proposed tax measures aimed at addressing a looming financial crisis.
The ways and means committee insisted on the term "vice products" ,
rejecting the commonly used indexation to inflation of "sin" taxes.
The committee calendared bills filed by House Speaker Jose de Venecia
Jr., Danilo E. Suarez (3rd District, Quezon), Eric D. Singson (2nd
District, Ilocos Sur), Douglas RA Cagas (1st District, Davao del Sur),
Catalino V. Figueroa (2nd District, Western Samar), Exiquiel B. Javier
(Antique), Junie E. Cua (partylist, COOP NATCO), Marcelino C. Libanan
(Eastern Samar) and Jesus Crispin C. Remulla (3rd District, Cavite),
that seeks to revise the taxing measures for "vice: products --
cigarettes, alcohol and tobacco -- for deliberation. Committee chairman
Jesli Lapuz categorized the measures into three: the indexation to
inflation, an across the board imposition of additional taxes and a
return to the old system of taxation. Mr. de Venecia proposed an
increase in the tax rates on alcohol and tobacco products by 37.3% to
cover the cumulative inflation from 1997 to 2002. Subsequently,
indexation and reclassification must be made every two years, he said.
Messrs. Singson and Cagas moved for fixing the rate at 18% and a
subsequent increase of 15% after three years, while Messrs. Suarez and
Javier moved for a return to the ad valorem system. Mr. Suarez also
proposed the restructuring of alcohol excise tax and providing for a 20%
adjustment after three years. Lastly, Messrs. Libanan and Remulla
proposed an additional
PhP1 and
PhP2 per pack, respectively. --
Felipe F. Salvosa II and Ruelle Albert D. Castro
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By KAREN L. LEMA, Reporter
The National Government failed to collect
PhP144 billion in potential value added taxes (VAT) last year, the
Department of Finance said. Finance undersecretary Nieves L. Osorio told
a Senate hearing yesterday that out of the estimated potential VAT
revenue of
PhP279 billion during the 12-month period, tax collecting agencies
collected only
PhP135 billion. The foregone revenues, which were blamed on
collection inefficiency and numerous exemptions, have given lawmakers a
reason to frown on the Arroyo administration's proposed two-step
increase in the VAT rate to optimize VAT collections.
Under the proposal, the government will increase the VAT rate to 12%
in 2006 if a VAT effort of 3.6% in 2005 is not reached. The VAT rate
will be increased by another two percentage points in 2007 if the VAT
collection to gross domestic product (GDP) ratio in 2006 of 4.1% is not
met. The measure is expected to earn the government
PhP20-billion in annual revenues. Improving the VAT collection and
reducing exemptions granted under the VAT should be adopted rather than
increasing the VAT rate, Senators Juan Flavier and Ramon Magsaysay Jr.
said in the hearing. Otherwise, the government would be penalizing those
who have been religiously paying the VAT, the senators said.
While admitting that there may have been inefficiencies in VAT
collections, Bureau of Internal Revenue (BIR) Deputy Commissioner Kim J.
Henares said the real problem is in the numerous VAT exemptions provided
for under the National Internal Revenue Code. She said the government
would do well in maximizing the VAT system by reducing the number of VAT
privileges.
The Tax Reform Act of 1997 exempts more than 20 transactions from
VAT. These include the sale of nonfood agricultural products, cotton,
copra, marine and forest products; the sale or importation of
agricultural marine food products in their original state, livestock,
breeding stock and genetic materials; the sale or importation of
fertilizers, seeds, seedlings, fish, prawn, livestock and poultry feeds;
the sale or importation of coal and natural gas, petroleum products
subject to excise tax; importation of passenger or cargo vessels of more
than 5,000 tons; importation of professional instruments, wearing
apparel, and domestic animals, among others. Services rendered by the
following are also exempted from the VAT: persons subject to percentage
tax; agricultural contract growers; those engaged in medical, dental,
hospital, veterinary and educational services; and sale by the artist of
his art, literary works, and musical compositions. Recently, a law was
passed exempting doctors and lawyers from paying the VAT. Also covered
by exemptions are services rendered by regional or area headquarters of
multinational corporations in the country which act as supervisory,
communications and coordinating centers for their branches in the
Asia-Pacific Region and do not earn income from the Philippines.
Finance Secretary Juanita D. Amatong has said that the DoF would
propose that Congress scrap some exemptions in the VAT system to plug
loopholes. The move is seen to widen the base of VAT payers and raise
more revenues to help narrow the widening budget deficit. Ms. Amatong
admitted that the government is not able to maximize VAT collections
because of too many exemptions. The revocation of exemptions given to
certain transactions should result in higher VAT collections, she said.
Senator Manual Roxas II, chairman of the committee on economic affairs,
said he is amenable to lifting the exemptions granted to doctors and
lawyers. Asked whether he would be willing to initiate the proposal, he
replied: "We could."
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Failure to pass fresh revenue measures within the next few months
could lead to a credit downgrade for the Philippines, international
ratings agency Fitch Ratings warned yesterday. If Manila fails to pass
any of these proposed measures, "I think there would be material
implications to the ratings outlook," Brian Coulton, Fitch Ratings'
senior director for sovereign ratings, told ABS-CBN television. He said
the Philippines' sovereign BB rating, two notches below investment
grade, was "predicated on expectations that this package is put in
place."
A ratings downgrade would raise borrowing costs for the government,
which relies on debt to plug a national budget deficit expected to reach
PhP198 billion or 4.2% of gross domestic product (GDP) this year.
Mr. Coulton said "there would be a major shock to market expectations"
if Congress were unable to enact new revenue measures because the budget
deficit would surely exceed the government target. He expressed concern
over President Arroyo's announced plan to absorb the debts of
loss-making state utility National Power Corporation, which exceeds
PhP500 billion. "In terms of credit fundamentals, we would be
looking at the deficit exceeding the target which (the government) set
out," he said. He said this year was the "best window of opportunity"
for Ms. Arroyo to raise revenues after winning a fresh six-year term in
May. "If they're not able to make progress in the relatively short term
right now, then we'll really become quite pessimistic. I think that's
the way to see it. There's a strong element of urgency here."
Mr. Coulton said Fitch Ratings expects Congress to pass the tax
increases on liquor and cigarettes as well as on petroleum products, as
well as for regulators to raise by 40% electricity rates charged by
National Power Corporation. "We need to see a good number of these taxes
put in place and actually passed within the next couple of months," he
said. -- AFP
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Government agencies owe the Government Service Insurance System (GSIS)
a little over
PhP6 billion in unremitted premiums, and not
PhP40 billion, as claimed by the state pension fund. According to a
Department of Budget and Management (DBM) circular letter dated last
June 8, unpaid social insurance premiums of government agencies to the
GSIS stood at
PhP6.464 billion. In her letter, Budget Secretary Emilia T. Boncodin
said the DBM and the GSIS have agreed to a scheme to settle the final
tally that may arise out of a confirmation. The DBM, however, said
nonpayment of the premiums should not be an excuse by the GSIS to
withhold the grant of loans. "Nonpayment of the above unremitted
premiums shall not, however, be used by GSIS as basis to withhold the
grant of loans to GSIS qualified members nor should it affect retirement
claims payable by GSIS," Budget Secretary Emilia T. Boncodin said in the
letter, addressed to all government agencies.
GSIS president and general manager Winston F. Garcia last week said
nearly all government agencies owe the agency some
PhP40 billion in premium payments. Mr. Garcia warned that unless all
obligations are settled, the state pension fund could collapse.
Education undersecretary Juan Miguel M. Luz denied GSIS' claims, saying
that the Department of Education (DepEd) has been the biggest client of
the GSIS. "We're their biggest client and the largest contributor the
GSIS in the amount of an average of
PhP12 billion annually in personal and government shares," he told
BusinessWorld. He said DepEd has already appealed to the
Department of Finance to discipline GSIS accordingly.
Of the
PhP6.464-billion amount, the DBM said life and retirement premium
payments account for
PhP2.699 billion while employees compensation and insurance premiums
stood at
PhP248 million. Premium payments owed by local government units (LGUs),
meanwhile, totalled
PhP3.515 billion. The
PhP6.464 billion in unremitted payments owed by agencies through the
DBM covered premiums payable prior to 1997. Prior to 1997, the DBM was
responsible for remitting to the GSIS the employers' share in the social
insurance premiums of national government agencies. The DBM also
deducted from the Internal Revenue Allotments of LGUs the unremitted
employers' share. Since 1997, however, DBM released to agencies the
amounts needed to cover the employers' share in the social insurance
premiums of government employees. It is now the responsibility of
agencies to remit the employers' share to the GSIS.
-- I. C. C. Gonzales
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By CECILLE S. VISTO, Sub-Editor
The government will not be able to withdraw the $120-million
performance bond of Maynilad Water Services, Inc. unless the Lopez-led
firm pays a
PhP47-million premium for the guarantee. In a hearing at the Quezon
City Regional Trial Court yesterday, lawyers of the banks that
guaranteed the bond payment told Judge Reynaldo B. Daway that their
clients will not release the money to the state-run Metropolitan
Waterworks and Sewerage System (MWSS) until they will have gotten hold
of the premium. "It is a pure administrative expense that should be paid
in the normal course of business and its payment does not hinge on the
approval of the rehabilitation court," said lawyer Angelito W. Chua,
representing Chinatrust Philippines Commercial Bank Corp. Mr. Chua noted
that insurance laws provide that "without a premium, there is no
effective insurance policy."
If Maynilad failed to remit the premium, which is required for
protection, then the government cannot expect to get even a single
centavo from the unpaid insurers. In this case, the MWSS will be unable
to service debts that should have been covered by Maynilad's concession
fees. Maynilad has not been paying government concession fees since
March 2001. Thirteen local and foreign banks and financial institutions,
led by Hong Kong-based Citicorp International Ltd., make up the
consortium that guaranteed payment of the $120-million performance bond.
The Manila offshore branch of Credit Lyonnais, recently renamed Calyon
Corporate and Investment Bank; the Singapore branch of Credit Industriel
et Commercial; Fortis Bank, and Rizal Commercial Banking Corp. are also
part of the consortium.
Another counsel said if the government insists on drawing the bond
without payment of the premium, the guarantor-banks will have no choice
but to revoke the standby letter of credit "and insist that the policy
is ineffective." This will leave MWSS without a recourse against the
cash-strapped Maynilad. Worse, it will have to wait for Maynilad to
improve its cash flow before it collects some
PhP7 billion in outstanding concession fees. "We should have been
paid by July 31 as the renewal should have taken effect Aug. 1. Maynilad
kept postponing payment and just recently, former Justice Secretary
Manuel A.J. Teehankee wants to extend payment from between seven to 15
years. That's preposterous," the source said.
In a hearing last Sept. 9, Mr. Teehankee said the payment of the
PhP47 million should be included in the revised recovery blueprint
for Maynilad "given the enormity of the amount." He said the government
is opposed to a onetime payment of the premium for standby letter of
credit (SBLC) banks. But in the same breath, he stressed that the MWSS
will withdraw the $120 million on Oct. 4, or shortly after trial court
approves the referral of the rehabilitation plan to receiver Rosario S.
Bernaldo for review. Based on the corporate recovery plan that Maynilad
submitted to the court early this month, the bank consortium will
collect $48 million from the French partner of Benpres Holdings Corp.,
Ondeo Services Philippines, which guaranteed the payment of up to 40% of
the bond. Maynilad will pay $39 million over seven years with one-year
grace period, while the remaining $33 million will be converted into
equity in Maynilad. There was no mention of the premium payment in the
recommendation as it was assumed that this will be paid up front. The
objection of the Office of the Government Corporate Counsel was thus a
surprise to guarantor-banks.
Also yesterday, a number of militant groups attended the hearing to
ask Mr. Daway to allow them to intervene in the corporate recovery case.
Groups such as Akbayan, Freedom from Debt Coalition and Action for
Economic Reforms filed a motion for intervention, mainly to ask the
court to disapprove Maynilad's revised rehabilitation plan. They noted,
among others, that an approval of the plan would mean higher water rates
for Maynilad's customers in the west zone. Maynilad and its creditors
which have been parties to the case since it was filed last November
objected to the delayed intervention. They noted that not all groups can
be included as parties, otherwise there will be no end to litigation.
Moreover, accommodating them will result in further delays in the case.
Meanwhile, creditors of Maynilad, in separate position papers, told
the trial court they do not object to the referral of the rehabilitation
case to Ms. Bernaldo. However, they stressed that this did not mean that
they already approve of the provisions of the rehabilitation plan. "How
could the case move forward if the plan is not referred to the receiver
for review? It will be the duty of the receiver to consult the creditors
on the most acceptable rehabilitation terms," Ms. Bernaldo said. Mr.
Daway had said he will rule on the issue on or before Oct. 4.
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Philippine carriers Smart Communications, Inc. and Globe Telecom,
Inc. lead telcos worldwide in reaping revenues out of cellular data
transfers. This proves that the Philippines remains the texting capital
of the world, as most of the data transferred via cellphone in the
country are through short message service (SMS). "The Philippines is a
country where data usage and GSM (global system for mobile
communications) is highest. Data transferred could be SMS, pictures,
data from internet surfing and chatting," a statement quoted Alfred
Ling, chairman of the Global mobile Suppliers Association in Asia
Pacific (GSA-APAC), as saying.
Data from EMCWorld Cellular Data Metrics showed that as of the first
quarter this year, revenue from data transfer for Smart Communications,
Inc. accounted for 41% of its profits while Globe Telecoms, Inc.'s stood
at 38%. Japan's NTTDoCoMo trailed in third spot with data transfer
contributing to 26% of its revenues. Philippine mobile carriers topped
the list of 32 operators worldwide whose revenues from data exceeded
15%. The other carriers on the list were KDDI and Vodafone of Japan, O2
in Ireland, United Kingdom, and Germany, and Telekoms in Indonesia.
EMCWorld also said that out of the 50 top operators in data revenue, 90%
use the GSM technology for data transfer. But while GSM is widely used
and 3G is coming in, Mr. Ling said these technologies will not overtake
voice services. "People will always use voice, but a lot of the voice
users will use more and more data using their handphones. But this is
not about voice taking revenues from data," Mr. Ling said.
Mobile phone users in the Philippines have adopted texting since it
is the cheaper mode of communication, pegged at 50 centavos to
PhP1 per message. "More than 90% of data is text, and this is
certainly more than before. Text messaging is a more affordable means of
communication and so this is widely acceptable in the Philippines,"
Smart spokesman Ramon Isberto said. Smart had 16 million subscribers,
while Globe had 10.5 million subscribers as of June. The local telecom
sector transfers an average of about 200 million messages a day. For the
first half, Smart's revenues reached
PhP30.9 billion, while Globe posted
PhP6.9 billion.
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Senators are open to the proposal of state-run National Power
Corporation (Napocor) to amend the Electric Power Industry Reform Act (EPIRA)
and pave the way for lower power costs by relaxing the conditions
necessary for "open access" to take place The open access scheme allows
industrial, commercial and residential customers to directly buy
electricity from power generators of their choice thus foregoing the
mark-ups imposed by power distributors like the Manila Electric Company
(MERALCO) on passed-on generation cost. But as mandated by the EPIRA,
power consumers could only take advantage of the open access scheme once
Napocor privatizes at least 70% of the total capacity of its generating
assets in Luzon and Visayas.
Napocor president Rogelio M. Murga believes that just by repealing
the "70% requirement provision," the open access scheme could be
implemented by the start of 2005 as against the 2006 schedule set by the
Energy Regulatory Commission (ERC). The ERC based the implementation
schedule on the assumption that the Napocor would be able to sell 70% of
its assets by the end of 2005, Mr. Murga said.
In a chance interview at the sidelines of a senate hearing yesterday,
Mr. Murga said that he will meet with Senator Miriam Defensor-Santiago,
chairman of the committee on energy to discuss how they could fast-track
the repeal of the "70% requirement provision." As suggested by Senator
Juan Ponce Enrile, Mr. Murga said Napocor could draft a bill that would
delete the 70% requirement provision. The repeal is also being pushed by
the the Semiconductor and Electronics Industries in the Philippines Inc.
(SEIPI) since the scheme would mean lower power costs. Expenses for
power consumption comprise 5% to 25% of a businesses' operating cost.
The Senate committees on economic affairs, and trade and commerce
backed the proposed amendment. Committee chairman Manuel A. Roxas II
said the proposal should be taken with urgency by the Senate. "I am very
concerned that we will lose our present competitiveness as exhibited by
the semiconductor industry," Mr. Roxas told a news conference after the
Committee hearing. Fellow Adminsitartion Sen. Ramon B. Magsaysay, Jr.
said he will file a resolution to express the urgency to amend the EPIRA
law which provides that open access to the electricty market will be
allowed only if 70% of Napocor assets will have already been privatized.
"I am willing to file a resolution to make it urgent to amend the EPIRA
law to implement a direct access system for electricity from the
Independent Power Producers to large consumers, especially exporters to
make them more competitive, thereby benefitting the economy," Mr.
Magsaysay said. The cost of power in the Philippines is three times
higher compared to its neighbors like China, Indonesia and Malaysia,
said Dan C. Lachica, president of First Sumiden Circuits, Inc.
-- Karen L. Lema and Carina I. Roncesvalles
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The Department of Transportation Committee (DoTC) may now accept bids
for Phase II of the Metro Rail Transit-3 (MRT-3) project after the
Cabinet-level Investment Coordination Committee (ICC) accorded it a
"national priority" status. Socioeconomic Planning Secretary Romulo L.
Neri said in an interview that with the conferment of the status, the
project is now subject to an open bidding. "[With the status] it
officially becomes subject to a public bidding," Mr. Neri said. Phase II
of MRT-3 will connect the existing Monumento Station of LRT Line 1 and
the North Avenue station of MRT Line 3.
National Economic and Development Authority (NEDA) assistant
director-general Rolando G. Tungpalan said the Phase II of the MRT-3
project will proceed under a build-operate-transfer scheme, with DoTC
evaluating all the bids it will receive. DoTC will then endorse the BOT
proposal of its choice to the ICC, which is under the NEDA, for
approval. "Any qualified firm can join the tendering process subject to
procurement regulations," Mr. Tungpalan said.
The conferment of the priority status ends the uncertainty over the
construction of Phase II of MRT-3 which has been hanging in the balance
due to technical disagreements between the DoTC and the consortium
running the MRT, the Metro Rail Transit Corporation (MRTC) over the
project. MRTC earlier insisted that it has the option to build the
project under a supplemental agreement it entered with the DOTC in 1999.
The DoTC then sought the opinion of the Justice department on whether it
can proceed with the supplemental agreement and whether the project may
be exempted from public bidding pursuant to Executive Order 109 issued
in 2002.
Two recent legal opinions from the Department of Justice said the
supplemental agreement may no longer be implemented since it has already
lapsed and that the project may not be exempt from a public bidding. But
since the project will now be subject to an open bidding, MRTC may still
present its own proposal for DoTC evaluation. The existing LRT Line 1
runs from Baclaran in the south to Monumento in the north, traversing
Taft and Rizal Avenues for a total length of 14.5 kilometers, covering
18 stations. The existing MRT 3, Phase 1 traverses EDSA from Taft Avenue
in the south to the EDSA North Avenue intersection in the north for a
total length of 16.9 kilometers, covering 13 stations.
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By CARINA I. RONCESVALLES and IRIS
CECILIA C. GONZALES, Reporters
The Bangko Sentral ng Pilipinas and the Bankers Association of the
Philippines (BAP) yesterday asked the Senate to extend for at least two
more years the deadline to set up special purpose vehicles (SPVs) or
entities that buy idle assets of banks. In a hearing conducted by the
Senate committee on banks, financial institutions and currencies, Banko
Sentral Assistant Governor Nestor Espenilla and BAP president Cesar
Virata said the life of Republic Act 9182 or the Special Purpose Vehicle
Act of 2002 should be extended to allow the banks to unload their
nonperforming assets.
SPVs may be registered with the Securities and Exchange Commission
only until last Saturday to avail of tax perks and lower transaction
fees that will expire in April 2005. Mr. Espenilla noted that the
privileges provided by the law were not maximized by the banking
industry. He said banks' idle assets are "not necessarily worthless. We
just need to tap them." "We have no objection to a reasonable extension
of the law. Two years is okay," he told reporters yesterday. Mr.
Espenilla also reported that as of last Thursday, 55 certificates of
eligibility for idle asset disposal have been issued to 16 banks with
total book value of
PhP4.3 billion. He said 19 banks have pending applications valued
at PhP29.2 billion.
Mr. Virata, for his part, said an extension of the law is necessary
since the two-year period for the registration of SPVs was not entirely
used for its intended purpose. He noted that half of the period was
spent for the crafting of the law's implementing rule sand regulations.
"We would like at least an extension of another two years. It might be
better if it will be longer because we need an improvement in the
economy to be able to sell these properties. The amount involved
relative to the entire [nonperforming] assets of the banking system is
evident," Mr. Virata told reporters after the hearing. Committee
chairman Edgardo J. Angara backed the proposal from the banking industry
to extend the life of the law for two to five years. "We need time to
clean up the balance sheet of banks. There are PhP100 billion worth of
nonperforming assets," Mr. Angara said in a separate interview. He
remarked that a maximum of five years more could be given since the
banks need a holding period of at least five years to unload these
assets. Mr. Angara noted that the approved SPVs as well as the pending
applications will cover only half of the banks' idle assets.
The central bank expects banks to sell up to PhP100 billion worth of
bad assets through SPVs by next year. The number, however, is small
compared to the banking system's estimated PhP500 billion in bad loans.
Mr. Espenilla said an extension would help banks dispose more bad assets
comprising of soured loans and foreclosed properties. He said there are
already PhP33.5 billion worth of bad assets that are set to be offered
by banks to investors in the coming weeks. The SPV law was enacted in
2002 to help banks dispose of their bad loans to private investors, a
move preferred by the cash-strapped Philippine government rather than
state-sponsored bailouts done in other countries. It grants tax and
investment incentives offered to purchasers of these assets. Banks have
been seeking for an extension and are now drafting proposed amendments
to the law. But while the central bank supports an extension of the law,
Mr. Espenilla reminded banks that they can dispose of their bad assets
through other ways such as through an auction. "The resolution of
nonperforming assets is not only through SPVs," he said. He also said an
extension of the law will depend on Congress and on the support of the
Department of Finance as the measure involves tax incentives.
Lawmakers, meanwhile, are of two minds on the proposed extension.
Senate committee on economic affairs chairman Manuel A. Roxas said the
extension of the law might not be the right solution to banks' huge bad
assets. "I am generally less favorably inclined to the proposal. The
reason why the SPV law was not maximized is because of the discrepancy
in the valuation of the properties and not the period of
implementation," Mr. Roxas said in another interview. Mr. Angara further
asked the central bank and the bankers' association to submit a detailed
list of priority measures they want the 13th Congress to enact into law.
"We face a tough selection and prioritization. We will appreciate if you
present a well-prepared proposal. We want an ideal framework. We are
talking about the life and death of the industry," Mr. Angara said.
Fellow opposition solon Sen. Juan Ponce Enrile raised the same
suggestion. "We have so many bills in the Senate. You have to show us
which are for your great interest. Give us the description of the
problem sought to be solved by the proposed legislation. That way, you
shorten the thinking process for us," Mr. Enrile said.
Conchita Manabat, chairman of the Capital Market Development
Coordinating Council, told the hearing that the priority measures that
would help the financial market include the corporate recovery act,
revised investment company act, pre-need code, and personal equity
retirement account (PERA) act. The corporate recovery act has been filed
in the 11th Congress. It seeks to hasten the recovery of distressed
firms through rehabilitation and liquidation outside the courts. The
revised investment company act seeks to establish a conducive
environment for the development of the mutual fund industry by lifting
certain restrictions on the operations of investment companies. The
pre-need code seeks to transfer the supervision of the pre-need industry
to the Insurance Commission from the nontraditional securities and
instruments division of the Securities and Exchange Commission. The PERA
seeks to create a savings and retirement plan for public and private
workers.
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The Bankers Association of the Philippines yesterday asked for a
Congressional investigation on the reported nonpayment of PhP38 billion
in back taxes and penalties of foreign and domestic banks. Cesar Virata,
the association's president, wrote to Senate President Franklin M.
Drilon and House Speaker Jose C. de Venecia to determine how much was
the obligation of the banks. Mr. Virata also disputed the reported
amount of back taxes and penalties. "I do not know what they are
referring to because we would like to see that. We have written the
Speaker and the Senate President to see whether these matters could be
clarified in the oversight committee...," he said.
Senate President Franklin M. Drilon said the matter should be
investigated. "The back taxes should be paid, especially by the banking
industry which is supposed to lead the orderly management of our
finances. They are asking for discipline in spending so they should lead
this effort," Mr. Drilon said in the vernacular. Senate Committee on
banks, financial institutions and currencies chairman Edgardo J. Angara
said the matter should be investigated. Senate Committee on finance
chairman Manuel B. Villar Jr. also raised the need to determine the
actual amount of back taxes owed by the banks to the cash-strapped
government. Albay Rep. Joey Salceda was quoted earlier as saying that
the banking industry owed
PhP38 billion in gross receipts tax, documentary stamp tax and
branch profit tax since 1997 when the comprehensive tax reform package
was approved. -- Carina I. Roncesvalles
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By RUBY ANNE M. RUBIO, Reporter
State-led Land Bank of the Philippines registered an 8.87% growth in
net earnings to
PhP1.35 billion in the first seven months of the year. Margarito
B. Teves, Landbank's president and chief executive, said the bank's
earnings were boosted by prudent lending activities and investments in
government securities. Various innovations in bank services,
intensification of collection efforts and prudent management of
controllable overhead expenses also strengthened the bank's performance.
Julio D. Climaco Jr., Landbank's vice-president for strategic
planning, said loans to priority sectors expanded to PhP74.8 billion,
which is 59.8% of the bank's PhP125-billion loan portfolio. "Loans for
agribusiness had the largest share at 14.2% amounting to PhP17.8
billion, followed by loans to small and medium enterprises [SMEs] and
microenterprises at 13.3% at PhP16.6 billion," he said in a media
briefing. Gross revenues increased by 11% to PhP12.1 billion as loan
revenues posted a 15% growth at PhP5.72 billion. Total expenses went up
by 10.69% to PhP19.76 billion as interest on deposits hit PhP2.87
billion, up by 40% from PhP2.05 billion. Loan loss provisions went down
by 30% to PhP1.4 billion from PhP1.99 billion. Total assets improved by
16% to PhP289.6 billion driven by a 20% growth in deposits to PhP216.3
billion. Landbank toppled Equitable PCI Bank as the country's third
largest bank in terms of assets.
As of end-August, Landbank has installed additional 125 automated
teller machines (ATMs). "We are pursuing our mandate. We have the
highest and most agressive ATM rollout program. Our target this year is
to have 250 ATMs to be deployed nationwide. We shall have a total of 564
ATMs by end-2004," he said. Landbank continues to enhance customer
service through its phonebanking which has 73,768 enrollees as of
end-August. "There were 1,502 transactions per day in August. We will
expand in September and October to cover Pangasinan, Pampanga, Iloilo,
Negros Occidental, Misamis Oriental, and Lanao del Norte," he said. The
bank aims to expand credit assistance to LGUs to support local
infrastructure development. Mr. Teves said, "We want to convince LGUs to
use their resources for development. In a situation where we have a
fiscal crisis, there should be a group that will provide
counter-cyclical activities so the economy will not be in a slowdown
mode but will continue to grow." He emphasized that the institution,
despite being a state-run bank, has been politically neutral in dealing
with LGUs.
While bad loan ratio improved to 13.4% from 18.2%, better than the
industry average of 13.8%, the banks said it will intensify its efforts
further to dispose of nonperforming loans and foreclosed properties.
Landbank filed with the Securities and Exchange Commission the
incorporation papers of three special purpose vehicles (SPVs).
BusinessWorld earlier reported the bank has called on interested
parties to apply for prequalification to bid for PhP17.8-billion idle
assets scheduled for sale next month.
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By Ma. ELISA P. OSORIO, Reporter
Clark Development Corp. (CDC) has asked the Supreme Court to dismiss
the petition of Mondragon Leisure and Resort Corp. for the court to
block the state firm's bid to sell the Mimosa Leisure Estate in Clark
field, Pampanga. In a Sept. 16 filing, CDC said they have the right to
sell the property as the operations, management and ownership of the
Mimosa Leisure Estate has been transferred to the state firm. CDC, in
its 24-page memo, said the takeover of the property was pursuant to a
writ of execution.
Mondragon was forced to turn over the management of Mimosa to CDC for
failing to pay
PhP1.28 billion in debts to the state firm. The amount is
composed of back rentals under a compromise agreement which details the
following terms:
PhP325 million plus interest of
PhP213 million; minimum guaranteed rental (July 1999 to November
1999) of
PhP46 million plus a
PhP29-million interest; minimum guaranteed rental (December 1999
to July 2003) of
PhP495 million plus interest of
PhP115 million; and accounts payable of
PhP58 million. "Failure of Mondragon to pay the rental in
arrears, the current monthly rentals shall empower CDC [to] terminate
the compromise agreement wherupon Mondragon shall leave the leased
premises," CDC said. The compromise agreement, CDC said, further stated
that Mondragon "agreed that if it failed to comply with its terms, CDC
shall have the right to cancel and terminate the agreement upon which,
it shall leave, abandon any and all premises leased" to Mondragon by
CDC. "Petitioners [Mondragon] have completely relinquished all their
rights over the property by their failure to comply with their duties
and obligation as per several agreements," CDC said.
For CDC, Mondragon's petition "is only a vain attempt to further
frustrate good administration of justice." It added that Mondragon acted
on "bad faith or have completely and unjustifiably reneged on their
obligations." In February 1994, CDC entered into a lease agreement with
Mondragon for the development of the Mimosa Leisure Estate. The deal was
terminated four years later, in 1998, for "various and continuous
violations of [Mondragon] in the terms and conditions of the lease
agreement." Then in June 1999, a compromise agreement was inked. But as
Mondragon failed to pay the back rentals, return certain leased
properties and construct a water park, hotel and additional casinos, the
compromise agreement was terminated. Upon the termination of the
agreement, Mondragon was supposed to "leave, abandon any and all
premises" of the estate to CDC. CDC formed a special committee to handle
the privatization of Mimosa in November 2002.
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By IRIS CECILIA C. GONZALES,
Reporter
Land Bank of the Philippines (Landbank), the third largest creditor
bank of National Steel Corp., sees no more hitches in the sale of the
steel firm to India's Global Infrastructure Holdings Ltd. Landbank said
the long-delayed sale of National Steel could be closed by October as
concerned parties have already signed the asset purchase agreement, a
crucial document necessary for the sale. "It will be faster now because
the asset purchase agreement is in place," Landbank Executive
Vice-President Alfonso B. Cruz, Jr. told BusinessWorld in a
recent interview. To date, creditor banks of the steel firm led by the
Philippine National Bank (PNB) and Global Infrastructure have failed to
seal the
PhP13.25-billion transaction as two pre-closing documents have
yet to be signed.
On Sept. 10, both parties signed an asset purchase agreement but the
document is only one of two supposed pre-closing documents necessary to
conclude the sale. One of the supposed pre-closing documents is a
certificate of eligibility from the Bangko Sentral ng Pilipinas (Central
Bank of the Philippines, or BSP) indicating the deal has complied with
the Special Purpose Vehicle Law. The other is an agreement between
secured creditors and state-owned National Power Corp. on how
outstanding liabilities to the power firm would be paid. Mr. Cruz is
optimistic that the deal would be closed soon. He said creditor banks
are just being cautious because of the tremendous amount of money
involved. "Hopefully, it would be soon. Maybe at the latest in October,"
he said.
The BSP, for its part, is also waiting for the execution of the sale
before it certifies the transaction as eligible. BSP Assistant Governor
Nestor A. Espenilla, Jr. said in a separate interview yesterday that BSP
has not yet issued the certificate of eligibility. National Steel's
biggest creditor is PNB, with
PhP5.639 billion. The second biggest creditor is Calyon, formerly
Credit Agricole Indosuez, with
PhP1.687 billion. Landbank accounts for
PhP1.17 billion of the debts, with
PhP160 million in the form of long-term commercial papers. There
are 12 other creditor banks. Global, a unit of Indian steel giant Ispat
Industries Ltd. won the bid for National Steel for
PhP13.25 billion payable in eight years. The mothballed steel
plant in Iligan, Lanao del Norte opened in April even as the sale has
yet to be sealed.
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By BERNARDETTE S. STO. DOMINGO,
Reporter
The consortium working on the Malampaya natural gas project will put
up the first compressed natural gas (CNG) station to accommodate some
200 CNG-run buses expected to hit the roads next year. Facundo S. Roco,
Shell Philippines Exploration B.V. (Spex) deputy managing director, said
under a memorandum of understanding with the Energy department, mother
and daughter stations will be constructed to service CNG buses. "Our
commitment is to build a mother station in Batangas and Pilipinas Shell
Petroleum Corp., for its part, will build a daughter station," Mr. Roco
said in an interview. He said they are in discussions whether to put the
daughter station, which will function as the refilling station, in the
newly set up Shell post in South Luzon. "The mother station feeds the
daughter. We cannot just dispense natural gas from the pipeline. The
mother station will compress the natural gas and put it in tanks, like
gasoline tanks, but these are special," he said. The Department of
Energy has announced the first batch of CNG-run buses under the Natural
Gas Vehicle Program for Public Transport will be provided by China and
will run on Cummins Westport CNG-fueled engines.
Energy Secretary Vincent S. Perez, Jr. said the price of CNG is
pegged at half the price of diesel which is around PhP21 a liter. The
Department of Transportation and Communications will issue as many
franchises as long as buses are CNG-operated. "Initially, there will be
200 units that will arrive here early next year. After the pilot
program, the number of CNG buses arriving in the country is estimated to
reach 1,500," Transportation Undersecretary Arturo Valdez said. Mr.
Valdez said the move to allow the operation of CNG buses will encourage
other transport firms to follow suit. Bus operators who have committed
to participate in the CNG program are HM Transport, Inc., G-Liner,
Pascual, First CNG, MVB, RRCG, NGV Adbus, Vergara and others.
The main objective of government's Natural Gas Vehicle Program for
Public Transport is to develop and promote indigenous natural gas as a
clean, alternative fuel in the transport sector enhance energy supply
security and substantially lower pollutant emissions in densely
populated cities. The Philippines has 3.7 trillion cubic feet of proven
natural gas reserves. The Malampaya consortium and Shell have assured
the first 200 CNG buses of a price 50% lower than diesel for seven
years. Spex and Shell are members of the Royal Dutch Shell group. The
Energy department has committed to accelerate incentives such as income
tax holidays for CNG bus operators and preferential import duties as low
as 1% on all natural gas vehicles and engines, and natural gas
industry-related equipment. Cummins Westport, Inc. is a joint venture
between leading diesel engine manufacturer Cummins, Inc. and alternative
fuels engine technology company Westport Innovations, Inc.
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The Securities and Exchange Commission (SEC) said the city treasurer
of Tarlac could not seize assets of the Uniwide Group to settle back
taxes as the firm is under rehabilitation. Uniwide Sales Realty &
Resources Corp. sought the commission's decision after the treasurer of
Tarlac City issued last Aug. 5 warrants of levy on the firm's assets,
specifically machinery and building. Under existing rules, companies
with SEC-approved rehabilitation plans are given reprieve on the payment
of claims from creditors whether secured or unsecured. The city
treasurer wanted to take Uniwide Sales's machinery and building at
Barangay San Nicolas, Tarlac City in exchange for the real property
taxes due from the assets. The commission's hearing panel, chaired by
Vernette Umali-Paco, said the issuance of a stay order on the firm's
motion was "well-founded."
In a six-page hearing, the panel said the motion was granted "to
ensure a fair and equitable implementation of the approved
rehabilitation plan." Other petitioners include Uniwide Sales, Inc.,
Uniwide Holdings, Inc., Naic Resources and Development Corp., First
Paragon Corp. and Uniwide Sales Warehouse Club, Inc. The panel said the
suspension would "give enough breathing space for the management
committee or rehabilitation receiver to make the business viable again,
without hav[ing] to divert attention and resources to litigations in
various fora." It cited a Supreme Court ruling in the case of Rizal
Commercial Banking Corp. vs. Intermediate Appelate Court, et. al. which
ruled that: "All claims against corporations, partnerships, or
associations that are pending before any court, tribunal, or board,
without distinction as to whether or not a creditor is secured, or
unsecured, shall be suspended effective upon the appointment of a
management committee, rehabilitation receiver, board or body."
The SEC also said it has the original and exclusive jurisdiction over
proceedings for suspension of payments. Since all existing assets and
properties of the petitioners are effectively under the custody and
control of the rehabilitation receiver duly appointed by the SEC, the
firm's assets and properties are in effect, under custodia legis and
therefore exempt from levy, attachment and execution. The panel also
ruled the execution or enforcement of the warrants of levy will unduly
interfere with the powers and functions of the rehabilitation receiver
and hinder the firm's rehabilitation. -- Roulee Jane
F. Calayag
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By ROULEE JANE F. CALAYAG
The market yesterday regained its momentum with share prices back in
positive territory. Despite expectations of a prolonged profit-taking,
the Philippine Stock Exchange composite index (Phisix) defied
projections and jumped by 20.86 or 1.24% to 1,702.21. Most market
watchers projected the technical corrections to prevail for another week
or two, but the Phisix moved forward due to developments in government
and corporate fronts. Worries over the country's economic situation were
eased with the government's ongoing programs to curb the fiscal deficit.
"The government's international roadshow and increased activity in the
debt market were some of the reasons for the return of interest in the
market," said Dianne Sy, investment analyst at Unicapital Securities,
Inc.
SOVEREIGN BONDS
According to the International Financing Review (IFR) Asia,
the country's recent $1-billion bond offering was a hit. IFR is a weekly
publication for independent news and analysis on domestic and
cross-border capital markets. The publication said the cheap price of
the offering attracted market investors. On Sept. 9, the country sold
$300 million worth of sovereign bonds or ROPs at 8.875%. These are due
in 2015. Another set of sovereign bonds that will mature in 2025 was
sold for $700 million at 10.625% on the same day. Yesterday, Union Bank
of the Philippines told the Philippine Stock Exchange that it would
debut a $125-million loan due in 2007.
iBANK
The approval of the initial public offering (IPO) of International
Exchange Bank (iBank) by the Securities and Exchange Commission (SEC)
also lent some inspiration to the market. With the IPO scheduled anytime
until yearend, this heralds the possibility of more listings to come at
the Philippine exchange. iBank plans to sell 8.35 million shares of the
33.35 million it registered with the SEC. This leaves the bank's
outstanding shares at 25 million. The bank provides for an
over-allotment option that grants the issue manager and lead underwriter
the right to purchase a certain number of shares. Under the
over-allotment option drawn up by iBank and which is exercisable within
the offer period, the issue manager and the lead underwriter can
purchase up to 2.1 million common shares which shall come from the 8.35
million shares.
STILL CAUTIOUS
Trades at the stock market stabilized at 2,264 yesterday, with over
one billion shares that exchanged hands for
PhP658 million. The figures, indicating some caution among
investors, were not as strong as last week despite a downtrend. The
market has yet to put on some muscle to replicate the levels it reached
during a recent nine-day rally. The performance of the indices was not
solid, with dealers detecting some traces of caution among investors.
Except for mining which bled 16.95 at 1,840.23, the rest of the counters
closed positively. The all shares index raked in 2.55 at 1,083.12. Banks
and financial services rose 1.28 at 484.38. Commercial-industrial gained
33.1 at 2,715.13. Property climbed 11.98 to 577.16 while oil advanced
0.03 to 1.64. The gains, however, failed to recapture the levels reached
during a bull run the other week. Analysts are on the lookout for the
return of rally levels when trading value hovered close to PhP2 billion.
Gainers were ahead of losers yesterday although marginally at 34-27. But
unchanged issues were greater at 48.
BLUE CHIPS
The market's focus remained on blue-chip stocks such as Philippine
Long Distance Telephone Co. (PLDT), SM Prime Holdings, Inc. (SMPH),
Ayala Corp., First Philippine Holdings, Inc. (FPH), and Ayala Land, Inc.
"Major market movers were blue chips like PLDT, SMPH and Ayala Corp.,"
said Ms. Dy. Dealers said the market will just go with the flow for now
until such time that a new level is established.
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By CECILLE S. VISTO, Sub-Editor
After businessmen and executives of government-owned and -controlled
corporations, the government now wants retirees from the public sector
to help solve the country's fiscal woes. The Department of Budget and
Management (DBM) is seeking congressional approval for the suspension of
a provision in Republic Act 1616 that provides for lump-sum payment of
retirement benefits of qualified government employees. Budget Secretary
Emilia T. Boncodin said a law must be passed soon to allow government to
better control its expenditures. "We must rationalize government
retirement and pension schemes," Ms. Boncodin said in a recent Cabinet
presentation on the government's medium-term fiscal program.
RA 1616 prescribes two modes of payment of retirement benefits,
namely: a lump sum to be paid for by the National Government and a
pension-type release through the Government Service Insurance System (GSIS).
Ms. Boncodin said if approved, all retirement payments must go through
the government insurance arm. The GSIS need not reimburse the National
Government for this. Notably, between 1999 and 2002, the government paid
out some
PhP10 billion in lump-sum retirement funds to public sector
retirees. This, Ms. Boncodin noted, was a drain on government's
resources. To complement the strategy of suspending certain provisions
of RA 1616, the Budget chief also recommended that the government
immediately adopt a system where pension benefits are commensurate to
premium contributions. She cited the case of pensions from the Armed
Forces of the Philippines.
While military pension is still relatively lower than regular
military compensation, these will be at the same level at roughly
PhP39 billion by mid-2008. By 2015, the government will pay some
PhP91 billion in military pension even as regular military
compensation will amount to only some
PhP50 billion annually. The Supreme Court has ruled that prior to
retirement, an employee who has served the requisite number of years is
eligible for, but not yet entitled to, retirement benefits.
READY?
But it is unknown whether GSIS itself has enough funds to service the
retirement benefits of all its members. The GSIS last week warned of its
possible financial collapse unless all government agencies faithfully
and completely remit premium payments owed to it. GSIS president and
general manager Winston F. Garcia said nearly all government agencies
still owed his agency around
PhP40 billion, covering their share in the social insurance premiums
of government workers. The agency expects to raise
PhP62.33 billion in revenues this year, up slightly from revenues of
PhP60.02 billion last year. GSIS data showed gross revenues totaled
PhP51.56 billion in 2001. This increased to
PhP60.25 billion in 2002, but slightly dipped to
PhP60.02 billion in 2003. As of end-July, GSIS' net income was
PhP18.9 billion. Ms. Boncodin also moved for the selection of only a
handful benefits of veterans that can be "reasonably funded" by
government.
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By KAREN L. LEMA, Reporter
A Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or
BSP) official warned of a possible credit rating downgrade for the
Philippines if the government fails to convince the international
community that it is serious in fixing its financial woes. Crucial to
this is the enactment of at least one revenue measure before the year
ends to ensure that the government is able to meet additional
obligations that will arise from the planned absorption of the National
Power Corporation's (Napocor) debts, Cora Guidote, BSP Investor
Relations Office executive director, said in an interview last week. "If
nothing happens this year, we would be courting a downgrade," she said.
A credit downgrade makes it more expensive for the Philippines to
borrow as it reflects the country's ability to pay its debts. The
government, Finance Secretary Juanita D. Amatong said, has adopted a
"policy of opportunistic borrowing." "If there is very good price, then
we will borrow," she explained. Credit ratings agencies Standard and
Poor's (S&P) and Fitch Ratings' long-term rating on the Philippines are
at 'BB', two notches below investment grade.
Moody's, meanwhile, lowered the Philippine's long-term foreign
currency rating to Ba2 from Ba1 in January primarily due to concerns on
whether the government will meet its target of balancing the budget by
2009. A Ba2 rating is also below investment grade with a negative
outlook, which means that the debt issuer has substantial credit risk,
particularly as a result of adverse economic change. "It is important
that the government pass a revenue generating measure because we may
have an additional expense next year," Ms. Guidote said. Budget
officials said absorbing the cash-strapped utility's
PhP500-billion debts will mean an additional
PhP36.7-billion interest expense next year,
PhP45.5 billion in 2006,
PhP48.8 billion in 2007,
PhP53.2 billion in 2008,
PhP61.2 billion in 2009 and
PhP66.3 billion in 2010. The officials admitted the national
government's deficit reduction schedule may have to be extended in case
the government absorbs Napocor's debt and none of the Palace-proposed
revenue measures are passed by Congress. The government aims to wipe out
the fiscal gap by 2009. The additional interest expense for next year
will raise the government's deficit to
PhP220 billion from the
PhP184-billion target. The Arroyo administration's proposed
PhP907.6-billion budget for 2005 already covers
PhP301.69 billion in interest payments, excluding those of Napocor.
LONG WAY TO GO
Of the eight Palace proposed tax proposals, only the tax amnesty bill
has so far passed deliberations at the House of Representatives ways and
means committee. The House has yet to complete discussions on the use of
a performance-related attrition system in government, rationalization of
fiscal incentives and indexation to inflation of the excise taxes on
tobacco and alcoholic drinks. It has yet to start debates on the
proposed two-step increase in the Value Added Tax ( VAT) rate;
reimposition of a franchise tax on telecommunication companies; adoption
of gross income taxation for corporations and self-employed individuals;
and adjustment in the excise tax and tariff on petroleum products.
The Palace-proposed tax measures as well as the government's
solutions to address Napocor's financial difficulties are expected to
top the agenda of the economic managers as they meet with foreign
investors during a two-week road show that will cover Asia, Europe and
the United States, Ms. Guidote said. Ms. Guidote said the government's
economic managers will also highlight President Gloria Macapagal
Arroyo's economic program, particularly the four priority areas of her
government, during the road show which will start today. The government
team includes Finance Secretary Juanita D. Amatong, Trade Secretary
Cesar V. Purisima and BSP Governor Rafael B. Buenaventura.
The Philippines faces tough competition among its fellow Asian
countries in attracting foreign investors due to factors such as high
power and labor costs, poor infrastructure and rampant corruption. Ms.
Guidote earlier explained that the Philippine team will focus on four
areas: stabilizing the country's macroeconomic fundamentals, improving
the investment climate, reforming the power sector and restructuring the
financial sector.
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By IRIS CECILIA C. GONZALES,
Reporter
Market investors snapped up the Philippines' latest $1-billion bond
offering because it was cheap, a report of International Financing
Review (IFR) Asia said. IFR Asia is a weekly publication for
independent news and analysis on Asian domestic and cross-border capital
markets. It gives insights into who is issuing, plans for forthcoming
issues, and capital market and investment banking trends.
In its September 11th issue, the IFR said that
while investor confidence is coming back and the Macapagal-Arroyo
government has convinced fund managers it is "finally getting real about
its poor fiscal position," the cheap offer price was one that had
investors scrambling for a deal. The Philippines on Sept. 9 sold $300
million worth of sovereign bonds or ROPs due 2015 at 8.875%, and $700
million worth of bonds maturing in 2025 at 10.625%. The government set a
price guidance of 98 for the 2015 bonds and 106 for the 2025 series.
"Investors also piled in because they were offered another cheap deal.
The money was raised via taps of the ROP due 2015 and 2025 bonds and
both came a couple of price points or so below where the paper was
trading the week before. "Once again, hedge funds and prop desks who
caught wind of the taps early have made money from shorting bunds in the
run up to pricing," the IFR report said. The borrowing was
underwritten by Credit Suisse First Boston, Deutsche Bank and JP Morgan
Chase. It was four times oversubscribed, which meant that orders for the
bonds reached as much as $4 billion.
Based on the prevailing price at that time, the government gave a
discount of about a point when it sold the bonds. The next day, the
prices of 15 and 25 year ROPs went up by as much as two percentage
points. This means that the Philippines lost about $20 million from the
deal. The IFR said plenty of real money came in from hedge fund
investors, which are also considered low-quality or short-term
investors. "For the 15-year bonds, funds, pension managers and insurers
took 51%, banks 23%, hedge funds 14% and 12% to retail. For the 25s, 57%
went to pension funnds, other funds and insurers, 22% to banks, 18% to
hedge funds and 3% to retail," the IFR said.
Finance undersecretary Eric O. Recto has defended the timing of the
borrowing, saying that had the Macapagal Arroyo administration issued
the bonds at a later time, it would have to compete with Turkey, Brazil,
China, Korea, Malaysia, Indonesia. "Despite the cheapness, the country
can take comfort from the fact that it has raised a chunky $1 billion
for an average of 21 years at a yield under 10%," IFR said. A
government official, however, believes that prices could have been
better had the Philippines offered the bond after a road show, to be
conducted by members of the economic team, that would start this week.
"The government usually sells bonds after a road show as investors'
appetite is stronger," the official said.
... AND MORE BONDS
In fact, the Philippines, Asia's largest sovereign debt issuer
outside Japan, may issue more bonds during a two-week economic road show
by senior officials starting on Wednesday. "Our policy has always been
to do opportunistic borrowing. If the price is good, then we will
borrow," Finance Secretary Juanita D. Amatong told reporters. Ms.
Amatong will lead the economic road show in Hong Kong, Singapore,
London, New Yorkand Washington. Other officials in the economic
briefings for investors included central bank Governor Rafael
Buenaventura and Trade and Industry Secretary Cesar Purisima.
The Philippines sold $1 billion of reopened bonds last week, of which
$750 million would go to state-owned firm National Power Corporation (Napocor)
and $250 million for the government's projected budget deficit in 2005.
Manila has completed its foreign funding requirement for its budget and
for Napocor this year, officials have said. The government aims to cap
its budget deficit at
PhP184.5 billion, in 2005 or 3.6% of forecast gross domestic product
(GDP). This year, it wants to limit its deficit to
PhP197.8 billion or 4.2% of GDP. --
with a report from Reuters
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While the country's fiscal situation has reached alarming
proportions, two former Socioeconomic planning secretaries said the
Philippines is not headed for the same financial disaster that befell
Argentina. Former National Economic and Development Authority (NEDA) and
now Ateneo de Manila University economist Cielito F. Habito said it
would be "premature" to liken the situation of the Philippines to
Argentina at this point. "Likening ourselves to Argentina at this time
is at least premature, if not unfounded. There may indeed be some
similarities between our situation now and that of Argentina at the
onset of its crisis, but there are more glaring contrasts," Mr. Habito
said.
Unlike the Philippine peso, Argentina's currency has been fixed at
one peso to one US dollar since 1991. This is in contrast to the
Philippines, whose currency, Mr. Habito said, is now even considered
undervalued. "Our exchange rate is market-determined and is now even
undervalued as it has pushed down by political apprehensions in the
market," he said. Prior to the economic fallout in Argentina, he said
that country was suffering an "externally-induced" recession that
snowballed and were earning less from their exports. "Our economic
growth is actually accelerating and we were earning more from our
exports at [an average of] $36 billion a year compared to Argentina's
$26 billion," Mr. Habito said. "Their government debt amounted to about
$141 billion, mostly with short- to medium-term maturities; ours is
about $28 billion with maturities averaging 13-16 years," he added.
Also, he said that Argentina's foreign exchange reserves were not
enough to finance one month's worth of imports while the Philippines
consistently had enough to fund about three to four months' worth of
imports. "These dramatic contrasts should reassure us that we are in no
way about to slip into an Argentina-style economic crisis. Not yet,
anyway," Mr. Habito said. He said the government should reconsider its
plans to severely cut down on capital expenditures. "Ideally, we would
like to see more of demand growth coming from investment expenditures as
these directly lead to further increase in the productive capacity of
the economy." He also noted that instead of the six to 10 million jobs
being targetted by the government, it should increase its target to two
million jobs a year or 12 million jobs for the next six years as an
average of 1.9 million people enter the labor force each year.
For his part, former NEDA chief and now University of the Philippines
economist Felipe Medalla agrees that the Philippines is not yet headed
towards the way of Argentina. "No, I think we're not yet going the way
of Argentina. There is hope as we have some officials who are now saying
the right things. Even the President is now saying the right things,"
said Mr. Medalla, who was one of 11 authors of a UP paper which raised
the possibility of an Argentina-type economic crisis in the Philippines.
To address the consolidated public sector debt, Mr. Medalla pushed for
an immediate increase in the tariffs of the National Power Corporation (Napocor)
and for the government to absorb its debts. "We now have to bite the
bullet. Raising tariffs may raise the value of NPC's (Napocor) assets.
If necessary, the government should absorb its debt. The government ends
up absorbing it anyway. We might as well make it more transparent and
cut our losses."
Napocor -- a government-owned and controlled firm -- is considered
the largest contributor in the country's total debts as it owes more
than
PhP500 billion. Energy undersecretary Cyril C. del Callar said in a
presentation in Makati City on Friday that the valuation of Napocor's
assets has been declining due to increasing debts, partly due to its
failure to collect the real cost of producing electricity.
-- Jennifer A. Ng
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By JUDY T. GULANE, Reporter
Increasing the value-added tax (VAT) rate, as proposed by the
Department of Finance (DoF), will not generate as much revenues as will
improvements in tax administration. The Congressional Planning and
Budget Department (CPBD) of the House of Representatives noted that a 2%
increase in the VAT rate in 2005 will yield only an additional
PhP3.1 billion, which will be equivalent to a VAT effort of only
3.1%. VAT effort is the ratio of VAT collections to the gross domestic
product (GDP). "VAT collection for 2004 is estimated at
PhP152.9 billion, assuming a 13% growth from 2003. A one-time 2%
adjustment in the tax rate will yield an additional
PhP3.1 billion. This will keep the VAT-collection-to-GDP-ratio at
3.1% as in 2003," the CPBD said in its "Q&A on VAT Rate Increase."
"Apparently, increasing the VAT rate alone is insufficient to achieve a
3.6% VAT effort by 2005 as projected by DoF," it added. "Much of the
revenues will certainly have to come from improvements in VAT
administration."
The DoF has proposed to increase the VAT rate by two percentage
points in 2006 if the VAT effort will not reach 3.6% next year, and by
another two percentage points in 2007 if VAT effort will not reach 4.1%
in 2006. It hopes to collect around
PhP20 billion from the two-step increase. The two-step increase in
the VAT rate is one of four revenue measures that DoF wants Congress to
pass within the year. The other three are the indexation of the excise
tax on sin products, a general tax amnesty with submission of statement
of assets, liabilities and net worth (SALN), as well as rationalization
of fiscal incentives. The congressional think tank noted there are
several ways VAT collection can be improved without increasing VAT
rates. "The Bureau of Internal Revenue (BIR) needs to intensify its
efforts at detecting and eliminating revenue leakages through the
Reconciliation of Listing for Enforcement (RELIEF) Program, Tax Mapping,
and use of Third Party Information (TIP)." These programs help the BIR
identify patterns and discrepancies in taxpayers' records, particularly
discrepancies in the sales and purchase reports submitted to them.
For hard-to-tax groups, the CPBD suggested using a presumptive VAT
using industry benchmarks. VAT-able industries like hotels and
restaurants can pay a minimum 3% net VAT, while wholesalers,
distributors and retailers of VAT-able goods can pay a minimum 1% net
VAT. CPBD also suggested removing the VAT-exempt and zero-rated VAT
status of some individuals and groups. Zero-rated VAT status is a
privilege accorded to exporters. They are exempt from paying output VAT
but can claim input VAT credits. Among those exempted from VAT are sales
involving 27 classes of products and services. "There is a need to
review special (VAT) treatments which cooperatives, independent power
producers (IPPs) and professionals have enjoyed for some time," the CPBD
said. "By removing the VAT-exempt status and zero-rating of these
entities/individuals, the National Government can increase its tax
collection, minimize distortions and improve overall tax efficiency."
Increasing the VAT rate will only widen the tax differential between
among VAT, VAT-exempt and zero-rated VAT members, the CPBD said. "While
non-VAT members like lawyers and electric cooperatives are totally
exempt from paying 10% VAT, zero-rated members like IPPs are not
required to impose 10% VAT on their sales or output VAT, yet they claim
tax credit or input VAT on their purchases, which non-VAT members do not
enjoy," the CPBD explained. "Considering that practically 30% or about
PhP41 billion of potential VAT collection is lost every year,
plugging leakages in the VAT system would be sufficient to cover the
additional revenues that government expects to collect from the rate
adjustment," it noted. "Critics say there is a need to improve VAT
monitoring to address under-reporting of sales and abuses in input tax
credit claims. Otherwise, whatever additional revenues resulting from
the rate adjustment will only tend to further increase the level of VAT
evasion," it added.
Along with the high rate of tax evasion, the CPBD noted that VAT
effort has been declining in previous years, except for last year. VAT
effort was 4.5% in 1997 and 2.9% in 2002. Then it improved to 3.1% in
2003. The increase in 2003 was attributed to increased collections by
the BIR. But this increase was not because of improvements in VAT
administration but due to VAT imposition on banks and financial
institutions. CPBD said the imposition of VAT on banks and financial
institutions was deferred for several years "because of intricacies that
[needed] to be resolved." The law that granted the deferment expired in
2003, but another law has been passed which now imposes a gross receipts
tax on banks and financial institutions retroactive January 2004.
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Legislators in the House of Representatives yesterday asked Senators
not to pre-judge the tax amnesty measure. In a statement, Davao City
(Southern Mindanao) Rep. Prospero C. Nograles, the chairman of the House
committee on rules, and Tarlac (Central Luzon) Rep. Jesli A. Lapus,
chairman of the House committee on ways and means, said legislators in
the Upper Chamber should "keep an open mind" and wait for the House to
finish crafting the tax amnesty bill. The committee report of the House
ways and means body on House Bill No. 2933 or tax amnesty bill is
scheduled for floor deliberations tomorrow. The committee approved the
bill Tuesday last week.
Senator Aquilino Q. Pimentel, Jr. has been quoted as saying that the
Senate will block the passage of a tax amnesty bill, but will support a
measure that will slap 'sin' taxes on alcohol and tobacco products. Mr.
Lapus said he is confident the Senate will appreciate the tax amnesty
bill's merits, since this was carefully crafted by the committee on ways
and means in collaboration with the Department of Finance. The bill will
grant amnesty to taxpayers with unpaid national internal revenue taxes
as of December 31, 2003. Those who will avail themselves of the amnesty
will be required to submit their statement of assets, liabilities and
net worth, pay an amnesty tax equivalent to 3% of their networth, and
file an amnesty return with the Bureau of Internal Revenue (BIR). Mr.
Lapus said he expects the House to approve the tax amnesty bill before
this Christmas.
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The Department of Finance has rejected Senator Miriam Defensor
Santiago's proposal to repeal the Automatic Appropriations law to
prevent the National Government from absorbing the huge debts of
government-owned and-controlled corporations (GOCCs), particularly that
of the National Power Corporation (Napocor). "If they want the country
to sink, bahala sila [it's up to them]," Finance Secretary
Juanita D. Amatong told reporters late last week. Ms. Santiago,
vice-chairman of the Senate Committee of Finance, is pushing for the
strict scrutiny of the budget allocations and vowed to block the
"automatic debt service appropriations." She said she wants a repeal of
Presidential Decree 1177 that mandates "all expenditures...for principal
and interest on public debt...are automatically appropriated."
Budget Secretary Emilia T. Boncodin has also cautioned lawmakers
against the proposal to stop the automatic annual budget allocation for
debt service, saying it would make it more difficult for the country to
borrow for its financing needs. "Hindi kami payag na alisin ang
automatic allocation dahil baka wala nang magpautang sa atin [We
won't agree to remove the automatic appropriation provision because, if
that happens, nobody would lend to us]," she was quoted earlier as
saying. Presidential Decree 1177 mandates the automatic appropriations
on debt servicing. The law guarantees repayment of loans, making the
country a desirable client to creditors. But as a result, funds that
could have been used to finance social services and government projects
meant to spur the domestic economy are being diverted to service debts.
A good portion of these debts consist of off-budget items. These are
the deficits of GOCCs that have been assumed by the government. It is
called "off-budget" since the debts are excluded from the General
Appropriations Act or the annual budget. Presidential Decree 1177 or the
Automatic Appropriations Law, however, makes the government liable for
the GOCCs' deficits. For 2005, the government has allocated
PhP301 billion for interest payments alone out of the
PhP907.6-billion proposed budget. The figure does not include
additional obligation that may arise from the planned absorption of
Napocor's
PhP500-billion debts.The public sector deficit climbed to a high of
PhP244.6 billion last year, up from
PhP218.7 billion the preceding year. It also rose to 5.6% of gross
domestic product from 5.4% previously. MoPhP315.97 billion or 6.7% of
gross domestic product (GDP) by yearend.
MATURING DEBTS
An economic adviser of the President also highlighted the need for
the government to present a credible fiscal road map to its foreign
creditors so they will agree to roll over some debts that are maturing
next year. Albay Rep. Jose Clemente S. Salceda, chairman of the House
committee on economic affairs and vice- chairman of the House committee
on appropriations, said loans totaling
PhP687 billion will mature next year. "A Mt. Everest of debt will
only suffocate growth, but it is an avalanche of maturities that will
kill you," he said during a forum at the University of the Philippines'
School of Economics in Quezon City. "We are in that kind of a
situation."
Of the
PhP687 billion alloted for the country's debt obligations for 2005,
PhP302 billion will go into interest payments while
PhP385 billion will go into principal amortization. A total of
PhP207 billion will be devoted to foreign debt servicing, "bringing
the total foreign refinancing requirements to $4.5 billion, which is so
much higher than the average annual $3 billion foreign fundraising from
2001 to 2003," Mr. Salceda said. "The Philippines must submit a credible
fiscal road map to justify why foreign creditors should roll it over,"
he said. "And they would demand more than the usual promises. Planned
spending cuts and proposed revenue streams should not only be
substantial, they also need to be firm: that is, legislated and
forthcoming."
This road map will consist of vigorous fundraising between 2005 to
2007 using new taxes, power rate hikes, government spending cuts, tax
collection efficiency measures and the privatization of Napocor. A total
of
PhP215 billion is to be raised, of which
PhP166 billion will come from a "pain package" of new taxes such as
the tax on sin and petroleum products, government spending cuts and
hikes in Napocor rates. Of the
PhP166 billion,
PhP76 billion needs to be invested by 2005,
PhP57 billion in 2006 and
PhP33 billion in 2007. The
PhP166 billion "pain package" will deliver a "credibility shock" to
the National Government's foreign creditors, leading to credit upgrades
for the Philippines.
The National Government has about
PhP52 billion out of the
PhP76 billion required next year already in place, Mr. Salceda said.
This amount will come from a Napocor rate hike, interest savings from
the privatization of Napocor, incremental organic economic growth, cuts
in the pork barrel and government spending cuts. "With
PhP52 billion in place, plus possibly sin taxes by October, we could
easily convince foreign creditors to refinance maturing $4.5-billion
obligations in 2005," Mr. Salceda said. The National Government has
reached a "maturity mix" of loans that gives it very limited options, he
pointed out.
Short-term loans presently comprise 29% of domestic debt, while
medium-term and long-term loans comprise 44% and 26% of domestic debt,
respectively. There are no short-term loans among the National
Government°s foreign debts; most of the loans are long-term in maturity.
Mr. Salceda said the National Government policy in the past -- what he
called as the "Camacho legacy" after former Finance Secretary Jose
Isidro Camacho -- has been to push back the maturity of short-term
loans. The maturity mix now requires higher interest rates for medium-
and long-term loans, in lieu of short-term loans that would have
presented a cash flow problem for the National Government. Debt
repudiation or debt restructuring, as some groups have suggested notably
the Freedom from Debt Coalition, is difficult to do since over 50% of
foreign debts has been securitized, Mr. Salceda said. Repudiation or
restructuring are also non-options with multilateral creditors such as
the World Bank and Asian Development Bank (15%) and bilateral creditors
(31%). These options, however, can be explored with commercial banks,
but they account for only 2.7% of the National Government's foreign
loans. -- Karen L. Lema and Judy T.
Gulane
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The relaxation of restrictive economic provisions should be the focus
of efforts to amend the Constitution instead of a change in the current
political structure, economists from the University of the Philippines
said. In a paper, entitled: "An International Comparison of
Constitutional Style: Implications for Economic Progress," economists
Gerardo P. Sicat and Loretta M. Sicat said nationalistic provisions in
the Constitution that impede the entry of investments in the country
should be removed. "The critical problems of the Philippine case are
rooted in the need to relax the restrictive economic provisions that
prevent economic actors from expanding the economy, and not necessarily
along the political directons that those seeking constitutional change
want," the paper said.
The authors said the nationalistic provisions contained in the
Constitution have hampered the flow of investments into the
country."This provision has been in existence for seven decades and has
been most difficult to question because it is maintained by an alliance
of the ruling classes and many nationalistic elements that favor
restrictions," the paper noted. "In today's more constrained
environment, lifting these impediments would constitute a major advance
in constitutional reform," it stressed.
The 1987 Constitution limits foreign ownership in land and companies
engaged in strategic industries to only 40%. Among the industries
covered are mining, telecommunications, media, education and public
utilities. The study conducted by the UP economists compared the various
constitutions of some Asian countries and industrialized economies. It
was found that in economies where constitutions contained mostly general
principles and was not long and detailed, economic progress had been
attained with relative ease. Economies under this category include
Australia, Canada, Chile, France, Singapore, South Korea and Hong Kong.
"In countries that proceeded from simpler constitutional premises,
factors of production were allowed greater movement because they omitted
the issue of dealing with their labor and control," the paper said.
Bernardo M. Villegas, dean of the University of Asia and the
Pacific's School of Economics, had earlier said the decline in the flow
of foreign direct investments into the country is due mainly to the
highly protectionist and anti-market provisions that are still enshrined
in the 1987 Constitution. "Because of the rather emotional state of the
nation after the so-called EDSA revolution which contained a
not-too-subtle resentment against the US for coddling the Marcos
dictatorship, many restrictions in the form of Filipino ownership
requirements found their way in the Constitution," Mr. Villegas earlier
said. President Gloria Macapagal Arroyo had, however, called for a
moratorium on charter change talks until next year to give the
government time to focus on the country's fiscal woes. Her call was
supported by the business sector, which has expressed more concern over
the country's ballooning budget deficit. But despite the President's
moratorium, the House of Representatives committee on constitutional
amendments started charter change hearings last week. --
Jennifer A. Ng
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The Philippine National Oil Company (PNOC) is optimistic a planned
review of the viability of the abandoned oil reserves of the Malampaya
natural gas project will yield results by mid-2005. PNOC-Exploration
Corporation (EC) president Rufino B. Bomasang said his company is in
talks with a local group for the conduct of an independent and more
exhaustive study on the oil leg. He said they are looking at concluding
negotiations with the group by the end of the month. "We're talking to
prospective partners, a local group, for the re-assessment. We want to
take another look if it is viable. We hope to do that (study) in six to
eight months," he said. PNOC-EC was tasked to handle talks with
prospective firms to explore for oil in Malampaya. PNOC president
Eduardo V. Mañalac said the government wants to exhaust all means to
make sure if the Malampaya oil leg is viable or not. The government is
offering the oil leg to the industry after the consortium working on it
gave up on developing the site's oil reserves.
The Malampaya project is a joint venture of Shell Philippines
Exploration BV (Spex), Chevron Texaco and the government through
state-run PNOC, which has a 10% stake in it. The Energy department
earlier said it would allow other companies to explore for oil in
Malampaya if the consortium drops the plan. The site is said to have oil
reserves of around 25 million to 30 million barrels. The government said
the consortium abandoned the oil leg because the reserves were small.
Spex's and Chevron's contract with the government allows it to abandon
the project upon its discretion, especially if they no longer find it
financially beneficial.
As this developed, PNOC-EC wants a consortium led by Korea Gas Corp.
(Kogas) to submit a new, higher offer for half of the government's
stake, or 4.9% of its 10% share, in the Malampaya project. Mr. Bomasang
said Kogas' last offer was lower than expected and government wants to
negotiate for a more acceptable price. The Malampaya consortium is
undertaking a $4.5-billion gas-to-power project involving natural gas
discovered in northwest Palawan. Located in the South China Sea off
Palawan, Malampaya is estimated to contain an estimated 2.6 trillion
cubic feet of natural gas. -- B. S. Sto. Domingo
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By JEFFREY O. VALISNO, Reporter
Chinese President Hu Jintao has confirmed his attendance as the
special guest of the Philippine government during the 30th anniversary
celebration of the establishment of diplomatic relations between Beijing
and Manila in June next year, Malacañang announced yesterday. President
Gloria Macapagal-Arroyo personally invited Mr. Hu during her three-day
state visit to China on Sept. 1-3. Mrs. Arroyo said she was looking
forward to a successful return visit to the Philippines of the Chinese
leader. On her return from China, the President brought with her PhP1
billion worth of agreements and private contracts between Filipino and
Chinese business groups.
In a speech at the golden anniversary celebration of the Federation
of Filipino-Chinese Chambers of Commerce and Industry, Inc. (FFCCCII) at
the Manila Hotel Friday night, the President said she was counting on
the federation to help ensure the success of the Philippine visit of the
Chinese official. Mrs. Arroyo recalled that during her meeting with the
Chinese president he remarked that their previous agreement to increase
Philippine-China trade from "practically nothing to $10 billion has been
fulfilled." This time around, the new agreements will "increase total
(Philippine-China) trade to $20 billion in the next five years," she
quoted the Chinese president as saying. In her address before the
FFCCCII, the President lauded members of the federation for making the
"Philippines your home, both for good times and bad." Mrs. Arroyo said
FFCCCII has contributed much to social justice through its donations of
school buildings and charitable contributions to worthy causes. "You
have much to contribute as well in terms of the traditions and values
that the Chinese race is identified with, like business acumen, thrift,
hard work, and humility," she added. "These are the same values that
have propelled China as the economic powerhouse of our time," Mrs.
Arroyo said. "These are the values that have propelled the Chinese
community in the Philippines to the very top of our economic ladder.
You, the Filipino-Chinese leaders of the business community, are the
personification of the thousand-years-old bonds between the Philippines
and China." To show the government's gratitude to the Filipino-Chinese
community, the President vowed an intensified crackdown against
kidnapping and smuggling.
In a radio interview yesterday, Press Secretary Ignacio R. Bunye said
Malacañang would closely monitor the Bureau of Customs following the
President's two-month ultimatum for newly-appointed Customs Commissioner
George Jereos to stamp out smuggling. "The President would be forced to
revive the Inter-Agency Anti-Smuggling Task Force if [Mr.] Jereos fails
to come up to her expectations. Revival of the task force would mean
that she is not satisfied with the performance of the customs
commissioner," Mr. Bunye said.
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The National Telecommunications Commission (NTC) wants to be an
independent regulatory body free from political pressures. The
commission needs to be reorganized and should wield more police power to
be able to operate more efficiently, according to NTC chief Ronald O.
Solis. "We are proposing to expand the NTC into a collegial body with
one chair and four commissioners with a fixed tenure to insulate the
commission against any political pressures, and so the body could
function more efficiently," Mr. Solis said.
Under its current setup, the NTC has one commissioner and two deputy
commissioners. Mr. Solis was appointed by President Gloria Macapagal-Arroyo
in January. The NTC is already working with Cebu Rep. Simeon Kintanar, a
former head of the commission, to work on a bill for its reorganization.
Aside from the structural changes, the NTC also wants to spend part of
the money it generates for the development of the information
communications technology. "The NTC would also like to have a natural
independence so it would be allowed to use a portion of the revenue it
generates," Mr. Solis said.
The NTC earlier said revenues for the first half reached
PhP487.7 million, 30.4% higher than the collection it made in the
same period last year. It made PhP399 million in the first quarter and
PhP88 million in the second quarter. Mr. Solis said the commission
expected to generate PhP1.02 billion in revenues for 2004. The NTC is
also expecting more than PhP1 billion overdue in supervisory and
regulatory fees from telecommunications, broadcast, radio and other
communications company. The changes in NTC's plans, according to Mr.
Solis, also includes limiting the number of telecommunications carriers
in a certain service area to three due to "oversaturation" of lines in
many urban centers. This, he says, leaves rural areas underserved when
it comes to opening fixed lines.
In 2003, there were 6.5-million telephone lines available while only
3.2 million were subscribed. Regulators said the problem rose following
the Service Area Scheme policy which required telecommunications
operators to roll out fixed lines in given service areas. To meet
deadlines for putting up fixed lines, operators concentrated in urban
areas, while the infrastructure was not duplicated in rural areas.
Manuel V. Pangilinan, chairman of leading telecommunications firm
Philippine Long Distance Telephone Co., said the deregulation only
benefitted foreign players, who were free to compete directly with local
players. Mr. Kintanar was earlier quoted saying it would "be difficult"
to go back to deregulation, but the least the Congress could do was to
make regulators more effective by giving the NTC more powers.
-- Anna Barbara L. Lorenzo
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By ANNA BARBARA L. LORENZO,
Reporter
The Department of Transportation and Communications (DoTC) has
awarded 52 airlines landing rights to the Diosdado Macapagal
International Airport in Clark Field, Pampanga, which will undergo
improvement in the next two years. Aside from the Clark airport,
Transportation and Communications Secretary Leandro R. Mendoza said
airports at Panglao Island in Bohol, Coron Island in Palawan, and San
Fernando in La Union would be developed into regional airports to
accommodate flights from Southeast Asia. "In Clark, we have given 52
airlines rights to land. This has been the subject of talks facilitated
by the CAB (Civil Aeronautics Board)," Mr. Mendoza said. He did not
specify the origins of the airlines awarded with landing rights. So far,
only Asiana Airlines is using its landing rights to Clark as it charters
passengers from South Korea. "Kaya hindi sila nagla-land sa Clark
dahil walang facilities plus ang connection sa Manila mahirap [The
reason they don't land in Clark is because there are no facilities plus
the connection in Manila is hard]," Mr. Mendoza said.
Clark will undergo a
PhP2-billion expansion to turn it into a first-class
international airport. The expansion will be in two phases, which would
include the upgrading of passenger tubes, air bridges, ramps, and cargo
conveyors. The airport improvement is seen to be completed in two years.
Mr. Mendoza said by this time, the construction of the North Rail
project would also be completed, giving passengers landing in Pampanga
better access to Metro Manila. "We are already starting the construction
of the North Rail. In two to three years, it will be completed, it time
for the total utilization of the airport," Mr. Mendoza said.
The DoTC said the completion of the rehabilitation of the North Luzon
Expressway by November would also help improve the connection between
Metro Manila and Central Luzon. Meanwhile, Mr. Mendoza said the
development to be made in three other airports would be done without
local or foreign loans. The PhP2-billion airport in Panglao will be
funded by the Philippine Tourism Authority, while the same amount for
the Coron airport will be sourced from the Malampaya natural gas income.
Mr. Mendoza said there was still no estimated cost for the San Fernando
airport, which would just be upgraded, since the study was still
on-going. "These are regional airports. International standards but not
as big as the international airports. All these will be completed in six
years," he added. The Philippines has eight international airports,
including the Ninoy Aquino International Airport and the Diosdado
Macapagal International Airport. Others are in Laoag, Subic, Cebu, Davao,
General Santos, and Zamboanga.
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A couple of dollar boosts and pulls will keep the Philippine peso
from leaving its usual range this week, traders said. "The dollar boosts
are riding on domestic [Philippine] financial woes. The dollar bears,
meanwhile, is offset by the United States' own fiscal deficiencies," one
trader said. The peso is expected to open today at around PhP56.20 but
the market will be aware of the PhP56.25 resistance. "This will be
critical this week. If we see a continuous dollar demand from corporates,
the barrier will finally give way and a test of the historical low of
PhP56.45 may be felt, not this week but in the very near future again,"
a trader said.
Still reeling from the effects of high inflation and budgetary woes,
the peso thread unstable ground after the resignations of key finance
officials. By Monday, the peso hit PhP56.21 against the greenback as
National Treasurer Mina C. Figueroa tendered her resignation. Finance
Undersecretary Inocencio C. Ferrer on Thursday also quit his post,
saying he wants to spare the department from allegations thrown agaisnt
him. Mr. Ferrer is the alternate chairman of the Special Presidential
Task Force 156 which was accused of not doing its job in investigating
the multi-billion tax credit scam. "While their reasons were not
connected to policy disagreements, you can't help but come up with
speculations. So, let's move on. But who will take over their posts?," a
trader asked. Traders said the peso tracks regional currencies' rise but
only to some extent. -- Ira P. Pedrasa
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Aboitiz-led Union Bank of the Philippines raised $125 million during
its first foray into the international debt markets last week, slightly
lower than the original issue size. Victor B. Valdepeñas, UnionBank
president and chief operating officer, said the senior debt issuance
fetched a coupon rate of 7.25% due on Sept. 24, 2007. "We are satisfied
at that level. The proceeds will be used for several lending purposes,"
Mr. Valdepeñas told reporters. UnionBank tapped Swiss banks Credit
Suisse First Boston and UBS as lead managers. International ratings firm
Moody's Investors Services has assigned a Ba2 rating to the senior
unsecured debt. "The negative outlook is in line with the revised
outlook for the country's sovereign ceilings and is not reflective of
bank-specific issues," Fe B. Macalino, UnionBank first vice-president
and corporate secretary, said earlier.
Moody's cited the following strengths of the bank: extremely strong
capitalization, above average profitability, lucrative cash management
and payment services franchise providing underlying stability to
earnings, low funding costs, and progressive and professionally managed.
Early this month, UnionBank told the Philippine Stock Exchange its
$150-million senior debt issuance will be used for lending and to
refinance maturing obligations. Mr. Valdepeñas said the bank is on track
in meeting its targets this year."The numbers are showing that it is
achievable. The economy has shown signs of improvement. We have seen the
stock market perking up while banks are having beter bad loan ratios,"
he said. -- Ruby Anne M. Rubio
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By BEVERLY T. NATIVIDAD, Reporter
General Milling Corp. has pegged losses of more than
PhP18 million due to the ongoing labor dispute at its Pasig
plant. The dispute between the 190 unionized workers and the management
has remained unresolved for five days now and is losing the food company
millions in potential earnings for flour alone. Director for corporate
affairs Ric M. Pinca said the Ugong, Pasig City plant produces about
180,000 bags of flour a month, or about 6,000 bags a day. At about
PhP600 per bag, the food company has already lost about PhP18
million in possible earnings for flour alone with the unresolved strike
that has been running for five days."The plant has stopped working, the
plant is not operating, it is costing us so much," he added.
Apart from flour, General Milling also produces feeds, corn snacks,
soybean oils, meat, pasta, yeast, and coffee products. General Milling's
plant in Pasig supplies flour, feeds and corn snacks to the Luzon
market. The firm has another plant in Cebu producing flour and corn
snacks. The management has not attempted to disperse the picket lines of
the 190 striking workers. Mr. Pinca said they are leaving the matter to
the Department of Labor and Employment (DoLE). "We don't want to do a
violent dispersal. We'd rather DoLE do something about it," he said. "We
hope DoLE would take action already and tell them to go back to work."
National Conciliation and Mediation Board (NCMB) conciliator Leonida
V. Romulo said the meeting between the management and the workers at the
NCMB last Thursday did not resolve any of the issues. She said, another
conciliation meeting is scheduled today. On Sept. 15, about 190 workers
mounted a strike at the Pasig City plant to protest alleged unfair labor
practice of the management. Union President Jun Balmeo said the
management had dismissed 25 union workers, suspended 25 more and served
memos to 115 other workers after the failure of collective bargaining
negotiations. The workers had seized some forklifts and had closed the
company gates preventing about 400 other workers from entering the
premises. Mr. Pinca said the management is readying to file charges of
theft, attemped theft and malicious mischief against the union workers
for the damage the strike caused in the plant's facilities. Mr. Balmeo,
on the other hand, said the workers will not leave the picket lines
until the management returns to the negotiating table.
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By ROULEE JANE F. CALAYAG
The Securities and Exchange (SEC) has approved the initial public
offering of International Exchange Bank (iBank). With the go-signal from
the commission en banc last Thursday, iBank can now push through with
its planned initial public offering (IPO) next month with net proceeds
seen at
PhP846.1 million after offer expenses estimated at
PhP78.2 million are deducted. In line with the requirement under
the Securities Regulation Code Rule 8 (1) which signals the commencement
of the offering within two days after the registration is declared
effective, the SEC will issue a pre-effective letter to iBank. After
receiving the pre-effective letter, iBank is required to submit the
final prospectus containing the timetable of the offering and duly
executed underwriting agreement including the affidavit of publication
for it to be granted an order of registration. Through the IPO, iBank
will sell 8.35 million shares of the 33.35 million it registered with
the SEC. This leaves the bank's outstanding shares at 25 million. The
shares will be listed on the first board of the Philippine Stock
Exchange. The bank provides for an over-allotment option that grants the
issue manager and lead underwriter the right to purchase a certain
number of shares.
Under the over-allotment option drawn up by iBank and which is
exercisable within the offer period, the issue manager and the lead
underwriter can purchase up to 2.1 million common shares which shall
come from the 8.35 million offer shares. The offer shares will be issued
out of the authorized but unissued capital stock of iBank. These will
represent 15%-20% of iBank's issued and outstanding common shares once
the IPO is completed. However, the representation will be adjusted to
25.04% of the bank's issued and outstanding common shares if the issuer
exercises the over-allotment option. Without the over-allotment option,
iBank estimates gross proceeds at
PhP924.3 million, assuming that 5.34 million common shares will
be issued initially at the mid-point offer price of
PhP175 per share. But in case 8.35 million shares including the
over-allotment of 2.1 million primary shares will be offered, the bank
expects gross proceeds to reach
PhP1.45 billion. iBank was incorporated on Aug. 17, 1995 as a
commercial bank. Its major revenue sources include interest income from
loan products, fixed income securities and money market placements;
trading revenues from proprietary positions in fixed income securities
and foreign exchange; and fee-based income from various services and
brokerage activities.
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Nongovernment organizations, party-list groups, and a number of
taxpayers are asking the Quezon City Regional Trial Court to deny the
petition for a new rehabilitation plan for Maynilad Water Services, Inc.
In a seven-page comment, it was argued the petition for rehabilitation
was insufficient in form and substance as it lacked a liquidation
analysis as required by interim rules. Petitioners also said the court
has no jurisdiction to approve the rates that Maynilad is seeking under
the revised plan. Maynilad, under its revised rehabilitation plan, wants
to increase rates to PhP26.98 per cubic meter from PhP19.92.
"Jurisdiction to approve the water rates sought to be implemented in the
substituted rehabilitation plan is vested with the state-run
Metropolitan Waterworks and Sewerage System Regulatory Office (MWSS-RO)
after due notice and hearing, and not with this honorable court," the
petitioners told the court, citing provision of the concession agreement
and the MWSS charter.
Petitioners include Action for Economic Reforms, Akbayan, Freedom
from Debt Coalition, Focus on Global South, Alliance for Progressive
Labor, and Tala Estates Settler's Federation. Also among the petitioners
are Loretta Ann P. Rosales, Emmanuel Joel J. Villanueva, Del R. De
Guzman, Marikita Bugarin, Bernadette Lopez, Ma. Teresa D. Pascual,
Patrocinio Jude Esguerra III, Mary Ann B. Manahan, Lawrence Dorado, Noel
Frontuna, Edwin Delantar, Valentin Beltran, Jr., Mario C. Mendoza, Oscar
P. Reyes, Jerry V. Justo, Noel Casimpoy, and Apolonio T. Sanchez, Jr.
The petitioners said Section 2(e), Rule 4 of the Interim Rules of
Procedure on Corporate Rehabilitation requires that the petition be
accompanied by a rehabilitation plan that conforms to the requirements
set in Section 5, Rule 4 of the rules.
Under Section 5, Rule 4, the rehabilitation plan should have a
liquidation analysis that estimates the proportion of the claims the
creditors and shareholders would receive if the debtor's properties were
liquidated. However, the petitioners argued the liquidation analysis in
the new rehabilitation plan does not include these facts but only an
estimated proportion of the recoverable assets. In addition, the
substituted rehabilitation plan is contrary to public policy because it
absolves Maynilad from the duty of posting a bond in order to secure the
performance of its obligations. "The substituted rehabilitation plan
does away and absolves the petitioner from such duty. This is evident
from its table of operational expenses as [set forth in the new plan],"
the petitioners said.
Under the new rehabilitation plan, the government may take over
debt-saddled Maynilad from the Lopez family only if MWSS will not find a
suitable operator to run it. The Lopez-led Benpres Holdings Corp.,
following the revised rehabilitation plan submitted to the court last
week, will exit as Maynilad's biggest stockholder to pave the way for a
new operator. It will need to write off its entire paid-in capital and
advances totaling PhP3.4 billion and consequently, its 60% control of
the firm. But it will also be completely relieved of all its Maynilad
guarantees.
Former Government Corporate Counsel and Justice Undersecretary Manuel
A.J. Teehankee earlier said the government was more concerned with
getting Maynilad's $120-million performance bond, and whether Maynilad
could convince its banks to convert at least $60 million in debts into
equity in the company. He said he expected the government to get the
money shortly after Judge Reynaldo B. Daway rules on the merit of the
revised rehabilitation plan on or before Oct. 4. --
Bernardette S. Sto. Domingo
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By JENNEE GRACE U. RUBRICO, Senior
Reporter
Liquigaz Philippines Corp., a supplier of liquefied petroleum gas or
LPG, is set to double the capacity of its LPG terminal in Bataan in line
with its expansion plans. In an interview, President and Managing
Director Dipankar Pal told BusinessWorld Liquigaz is looking at
increasing the capacity of its $50-million LPG terminal to between
20,000 and 25,000 tons from 12,000 tons. He said Liquigaz is looking at
spending between $10 million and $15 million over the next two years for
the expansion. Liquigaz is a bulk seller of LPG to retailers, oil
companies, industries and commercial establishments, and filling
stations. It is among the top three suppliers of LPG in the country in
terms of market share. The company is a wholly owned subsidiary of the
Netherlands-based SHV Group of Companies, the world's largest downstream
marketer of liquefied petroleum gas. The group also owns the Makro trade
stores. "The investments we have already made are good enough to sustain
our current level of business. But although we are among the top three
in terms of volume in the Philippines now, there is still a long way to
go. We have plans of expanding out storage capacity," Mr. Pal said. The
expansion is in line with Liquigaz' plans to expand its market for LPG.
Mr. Pal said the company is looking at expanding its market by supplying
LPG to malls and various "small time entrepreneurs who we want to
support with our product and strike a long-term relationship." He said
Liquigaz also plans to deepen its retail business. Currently, the
company's retail operations are centered in Luzon and Cebu.
For 2004, Liquigaz projects that it would sell 250,000 tons of LPG to
the retail sector. It aims to increase this by 2%-3% in the next two
years, with the goal of selling 300,000-350,000 tons to the retail
market in 2006. The company is targetting areas in Northern Luzon as its
market for the retail operations. "Right now, our volumes are small. But
we are planning to [expand] that also over the next two years. We are
waiting for some initiatives of the government particularly the LPG bill
which will create stability in the cylinder business in the
Philippines," he said. He said that if the company ventures into the
retail segment, it will put in $4 million-$5 million in investments. The
amount would cover the purchase of cylinders and the construction or
acquisition of filling centers, Mr. Pal said. "In the Philippines we
already have a large number of filling plants which are under utilized.
We can always acquire a few of them and upgrade it to our standards," he
said. He added, however, the company is still studying if LPG retail
sales would compensate for the costs to be incurred in venturing into
the retail segment. Mr. Pal said among the investment opportunities the
company is studying is the construction of refilling stations for
autogas, or LPG used as fuel for motor vehicles.
SHV, the parent company of Liquigaz, sells autogas in Europe. "It is
under consideration but right now, we need to see a little more of
legislation on autogas and how the market behaves with respect to
autogas. We're going to wait and watch. We don't want to be the first
initiator on this," he said. Mr. Pal said Liquigaz expects to see a
turnaround in its finances this year. Like most independent petroleum
players, Liquigaz has been incurring losses since it started operations
in 1997. In 2001, the company incurred a net loss of PhP153 million,
while in 2002, it incurred net loss of PhP3 million. Last year, the
company posted a net loss of PhP12 million. "The outlook for this year
is quite positive. We are not thinking of losing anymore," he said, and
noted the company is no longer paying for the LPG terminal that it put
up in Bataan.
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CEBU CITY in Central Visayas -- The Metro Cebu Water District and an
Ayala-led consortium are close to finalizing a water supply deal that
will provide an additional 50,000 cubic meters of water per day to Metro
Cebu households starting 2008. The project will, however, further raise
water rates in Cebu, said Ruben D. Almendras, chairman of the Metro Cebu
Water District. But he also said it will prevent a water crisis in Metro
Cebu. General Manager Armando Paredes said they will need to further
raise rates by 15% on top of the rate increase that they will seek
starting next month. The group is proposing to increase its rates by 15%
next month, another 15% in January and an additional 4.5% in January
2006 to offset projected losses. Mr. Paredes said they will incur
additional expenses with the completion of the Carmen project in 2008
because they will have to install an estimated 20-kilometer pipeline
from the town of Liloan, the receiving point, to Cebu City. "There will
be investment to make before the Carmen project will come in," he said.
The Carmen bulk water supply project, estimated to cost
PhP1.86 billion, is an unsolicited build-own-operate proposal
from a consortium of Ayala Corp. and Stateland, Inc. The project will
extract, treat and deliver 50,000 cubic meters of water per day from the
Cantumog-Luyang River in Carmen town, about 40 kms. north of this city,
to Metro Cebu households. It is seen to increase the district's water
supply by 35%. The Ayala-led consortium earlier expressed hopes that
they will be given the contract by the end of the year and construction
will start early next year. Components of the proposed project include
the construction of a rubber dam, a water treatment plant, booster
pumping stations, reservoirs and a 27-km transmission line that will
deliver potable water to the group's distribution network. The
Environment department had already issued an environmental compliance
certificate for the project. Metro Cebu Water District's production
capacity from existing raw water supply sources is about 140,000 cu.m.
per day. There's still an unserved demand of about 35,000 cu.m. per day.
The Carmen water supply project is expected to fill in the supply gap.
-- Jun P. Tagalog
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Small- and medium-scale enterprises (SMEs) can soon avail of lower
financing cost once an alternative trading system is put in place before
yearend. The Development Bank of the Philippines (DBP) filed an
application with the Securities and Exchange Commission (SEC) last Aug.
12 for the registration and licensing of its alternative trading system
dubbed Marketplace for SME Receivables Purchases. DBP's proposal is an
electronic infra-based marketplace designed for the trading of SMEs'
receivables from Big Brothers or highly rated companies like San Miguel
Corp. It also allows SMEs to sell their receivables outright through a
document hub which serves as clearing house where electronic trade
documents are passed, authenticated and digitally signed converting such
into securities.
The E-Commerce Act of 2000 allows digitally signed documents as
equivalent of signed paper documents. The SMEs/trustees are the sellers,
big brothers the issuers, and investor participants as buyers. Although
SMEs comprise 90% of the domestic economy, DBP said they are usually
hard pressed in securing formal financing. Securing financing is
difficult for most SMEs because they lack credit history and banking
relationships. In turn, banks could not rely on the information
presented by SMEs and they could not risk incurring costs just to
authenticate credit information. SMEs also are not too familiar with
other financial products and they face the risk of repudiation by
corporate obligor. Financing of their trade receivables usually comes in
the form of short-term, secured, high interest bearing bank loans. DBP
is optimistic that with the trading system, SMEs can secure financing at
lower cost.
Big firms' electronic authentication of SME trade document commit
them to unconditionally pay trade receivables at maturity. DBP told the
SEC that this feature will enhance the credit aspect of SME receivables.
Upon the SEC's approval of DBP's application, the bank, as market
manager, will own, manage and operate the system. Based on a press
statement, the alternative trading system will serve as "an electronic
venue for the orderly registration and secure trading of digital
financial instruments using state-of-the-art technology and
straight-through processing". It also aims to reduce financing costs of
SMEs by granting easy access to credit. With the system, DBP expects to
attract the participation of nontraditional institutional and retail
investors. It also hopes to develop "a deeper, more liquid and more
secure domestic market for short- and long-term capital". Financial
innovations coupled with a deluge of foreign investors in the capital
market are expected to result in the development of the system.
-- Roulee Jane F. Calayag
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By ROULEE JANE F. CALAYAG
It may take some time for the benchmark index to change gears as the
trend leans more toward consolidation. Corrections are expected to
continue for another week or two after the market dwelled in the
doldrums over the past four trading sessions. Although the shift to
positive territory may be slower, optimism prevails. Philippine Stock
Exchange (PSE) president Francis Lim said the market is going to see
active participation from investors in the coming days. "Fundamentals
look good despite the technical corrections after bullish trading for
nine straight [trading] days," he said. On his third day as exchange's
president, Mr. Lim believes that the reforms they will be implementing
in the coming months will redound to a revved-up market that will be
attractive to both local and foreign investors. For his three-year term,
Mr. Lim said he will prioritize the establishment of a market integrity
board to make the PSE "trustworthy." He also plans to put in motion a
set of reforms to "invite quality listed companies and strengthen the
[exchange's] experience."
CONSOLIDATION MODE
But these bright prospects may have to take a backseat for now as the
market goes into a consolidation mode. "The market moved a little too
fast at 1,700-1,750 [referring to a nine-day rally early in the month]
so consolidation may last for at least another week or two," said Joseph
Roxas, president of Eagle Equities, Inc. The market, he added, will try
to "test" the 53-month record close. "I do not think it will break the
old high." Benson Te of MDR Securities, Inc. analyzed the technical
corrections over the past week as healthy. Other dealers and analysts
believe that the spate of profit-taking recently was positive for the
market as it looks for a new base to launch a rally. "The market needed
those healthy technical corrections so it can keep moving and establish
a new momentum," said an analyst.
The PSE composite index (Phisix) lost 70.25 or 4.01% last week. BPI
Securities, Inc. said the sell-down was broad-based. Philippine Long
Distance Co. (PLDT) led most of the index issues that suffered a price
cut. Ayala stocks such as telecommunications firm Globe Telecom, Inc.,
Bank of the Philippine Islands (BPI), the group's banking arm,
conglomerate Ayala Corp. and property developer Ayala Land, Inc. closed
lower. Mall developer and operator SM Prime Holdings, Inc. of tycoon
Henry Sy was not spared from profit-taking. Even the A and B shares of
the Lopezes' Manila Electric Co. (Meralco) and First Philippine
Holdings, Inc. experienced a sell-down.
FOREIGN BUYING
Foreign net selling replaced foreign net buying in the past week,
which was observed particularly on Globe stocks. A spurt of foreign net
buying was noted in International Container Terminal Services. Inc., BPI
and Ayala Corp. Dealers are confident that foreign buying will improve
over time, boosted by the government's single-handed approach to wipe
out its fiscal woes. Some observers said belt-tightening measures should
be thoroughly assessed to gauge its immediate effect on the economy. The
Phisix reached a 10-year high recently but even this does not seem
enough to convince some market watchers that the bourse is headed for a
bull run. They likened the market's spectacular performance early this
month to a dough "with plenty of yeast in it." Although the Phisix
attained a new closing high, this was dismissed as an upward movement
with no substantial gains. They expect the market will plummet just as
fast as it launched into a rally.
WAKE-UP CALL
The stock exchange's Mr. Lim believes otherwise. He said the market
is on the road to a bullish session because the admission of President
Gloria Macapagal Arroyo of the country's sensitive fiscal situation
served as a wake-up call. "It was a good step," he remarked. But he also
admitted that if the government's focused approach to address its
problems falters, its repercussions on the stock market would be
significant. "The repercussion will be a downward trend," said Mr. Lim.
Only the right mix of policies will encourage investors to consider
investing in the Philippine market. These may include tighter monitoring
of firms listed with the Board of Investments (BOI) which have not yet
complied with the requirement of Executive Order 226 or the Omnibus
Investments Code of 1987. The code requires BOI-listed firms that have
been operating for at least 10 years to list 10% of their capital stock
at the exchange. However, only a handful have reportedly complied. The
exchange hopes that with the Department of Trade and Industry as well as
the Department of Energy, it can lure these firms to list soon. These
measures and more, said analysts, may take some time before results
could be seen but are steps in the right direction. Gradually these
could produce positive results. For this week, however, the market is
going to move slowly. "The market is likely to continue with the
sideways movement as it is now in consolidation mode," said BPI
Securities in its online analysis. The securities firm said the market
needs positive corporate news to prop up sentiment among investors.
"Investors may wait for the main index to move closer to the 1,600-1,650
range before it comes in for more aggressive bargain hunting," it said.
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