Gov't, business pressed on new trade agenda

By CECILLE S. VISTO, Sub-Editor

Both the government and the private sector must now work closely to formulate the Philippine agenda for the continuation of the Doha Round negotiations of the World Trade Organization (WTO). Last Saturday's agreement in Geneva, which paved the way for the resumption of global trade talks following the failure of negotiations in Cancun last year, was generally welcomed. But there is a general consensus among agriculture analysts that much remains to be done to ensure Philippine interests would be served. The progress made, it was stressed, does not mean immediate gains for the country. Of particular concern to economists are moves to develop the local agriculture sector, given an agreement to eliminate trade-distorting subsidies, albeit at an unspecified date.

Some businessmen, for their part, said they were prepared to soften calls for a slowdown in tariff cuts given the developed countries' commitment to cut subsidies.

FIRST STEP

International trade expert Jeremy I. Gatdula said the decision of the 147 WTO member-states to slash billions of dollars in farm subsidies, create more open industrial markets and revive stalled world trade talks was a "major first step." "This is the time for the private sector to work with the government and formulate a stance to reflect the best interest of the country. Business should confer with government now and not complain later when everything has been ironed out," said Mr. Gatdula, who heads the Worldtrade Management Services Group of PricewaterhouseCoopers. This to prevent useless bickering and finger-pointing in the event the country is again placed at a disadvantage if the government fails to represent the interests of affected sectors, he said, adding that the government should make the initial move and institutionalize a process that will enable it to conduct serious dialogues. Arsenio M. Balisacan, former Agriculture undersecretary and now director of the Southeast Asian Regional Center for Graduate Study and Research in Agriculture, said it is too early for poor countries like the Philippines to rejoice over the development. "[W]e don't know yet how those commitments would be translated into action. [WTO member-countries] have yet to talk on the modalities of the reduction in subsidies," Mr. Balisacan told BusinessWorld.

FIRST TASK

Reductions in farm subsidies, he also said, will not benefit the Philippines if the government is not able to substantially improve the farm sector. "If we don't change the way we govern our farm sector, we will not benefit from this. The government should put more emphasis on reforming the agriculture sector," Mr. Balisacan said. "Our mistake is that we're pinning our hopes on these multilateral negotiations when in fact the problems we are confronting [in the farm sector] are very much domestic in nature," he stressed. Mr. Balisacan cited the need for the government to increase spending for research and development and put more money into programs that would improve farmers' productivity. "The reductions in subsidies will benefit only developing countries that are efficient producers of farm products such as Vietnam and China," he said.

For his part, University of Asia and the Pacific executive director for food and agribusiness Rolando T. Dy said the decision of WTO member-countries to slash farm subsidies has both upsides and downsides. "For developing countries, the decision has slightly improved the playing field, but I don't think the Philippines will immediately benefit from this," Mr. Dy said. He said reducing subsidies will make producers in developing countries become more competitive. "But the reduction will benefit more those developing countries whose producers are efficient," Mr. Dy said. "To fully benefit from the reduction, we must do our homework. We have to address supply chain issues, logistics cost, improve productivity and quality," he stressed. The downside, he said, is the possibility that farm products being imported by the country may become more expensive. "We may have to pay a higher price for wheat imports and maybe for soybean meal used for feeds," Mr. Dy said. For Think Tank, Inc. economist Bienvenido S. Oplas Jr., "[The slash in farm subsidies] is good news. At least there's a positive move to comply with the Doha Round. It's better than nothing." Mr. Oplas said.

MAJOR CONCERN

A Foreign Affairs official, meanwhile, expressed hopes that the talks in September will lead to protection for the Philippines special products, not oblige it to reduce tariffs and provide better markets for its exports. Foreign Affairs undersecretary for International Economic Relations Edsel T. Custodio, a former envoy to the WTO, said the Geneva agreement "means we will now be ready to have closer negotiations ... [after the] summer break. Everybody will have a positive attitude when they come back and they'll be willing to work on the modalities. When they come back, they will have closer engagement on the issue of modalities, have more specifics, more direct figures and some agreement on the final outcome." Mr. Custodio said that Saturday's deal pointed to the fact that developed countries like those in the European Union, the United States, and Japan want "very strong and ambitious market access". He said the Philippines, however, should push that further tariff cuts not be imposed. "Our average tariff rate on our agricultural products is something like 25% and industrial products is [at] 6.5%. If we reduce that farther, they would be vulnerable to foreign competition so we don't want to move. We want special and differential treatment," Mr. Custodio said. He said special and differential treatment of the Philippine products was adopted in the recently approved framework but Manila would also want to proceed on the basis of "special products and special safeguard measures".

NOT YET PREPARED

The Philippine Chamber of Commerce and Industry (PCCI), meanwhile, welcomed the revival of the Doha round, saying local businessmen may change their stance against greater market access for imported goods. PCCI chairman Sergio R. Ortiz Luis, Jr. noted that the business community has been calling for a deceleration of the Philippines' commitments to reduce tariffs, particularly on special sectors like agriculture, but said this will likely change given the subsidy commitment. He pointed out that the conclusion of the Doha development agenda is still years away but said the framework adopted by the 147-member WTO in Geneva last July 31 carried "value." "It is something positive," Mr. Ortiz Luis said. He recalled that after the failure to advance the Doha round in Cancun last year, businessmen began to gear themselves toward special trade agreements with countries such as Japan. However, he said multilateral and regional trade pacts are "superior" to bilateral agreements in protecting the interests of small countries.

For his part, Federation of Philippine Industries (FPI) president Jesus L. Arranza said the Philippines should continue to fight for the agricultural sector and the junking of an agreement on government procurement. Mr. Arranza said the issue is still on the table, citing industry briefings conducted recently by the government. He reiterated the FPI's appeal to President Gloria Macapagal Arroyo to issue an order requiring all government instrumentalities to procure only locally manufactured goods. Mr. Arranza said the FPI will oppose any move to further accelerate the reduction of tariffs, especially in agriculture. "We have to go into a selective scheme and not a general one. We are not yet prepared," he said.

MISTAKES

Mr. Arranza said he will propose three steps to give local industries a "breathing space":

• first is to reduce to zero all tariffs on raw materials not being produced in the country;
• second, all finished products produced in the country and considered as import substitutes should be charged with higher tariffs; and
• finally, the government should patronize local products except only when they do not meet the required quality standards.

In the past, cause-oriented groups like the Fair Trade Alliance have accused the government of "selling out" the country during trade negotiations and bowing to the wishes of industrialized countries like the United States, Japan and the European Union. Mr. Gatdula said that since the Philippines became a member of the WTO in 1995 and the General Agreement on Tariffs and Trade in 1979, the country may have committed a few mistakes along the way. He said these were all part of the "learning process." He noted that outgoing Agriculture Secretary Luis Lorenzo, Jr. and his successor, Arthur Yap, are sensitive to the plight of the farmers and may lobby for their causes.

FIRST ROUND VICTORY

Mr. Lorenzo yesterday claimed a first-round victory, saying "There is now greater chance of eliminating export subsidies, reducing trade distorting domestic support and opening developed markets ... although we are only talking of talking of the framework under which the WTO negotiations would proceed in September." "We only have to keep our eyes on our goal and that is to protect the welfare of our farmers. Our country will never achieve sustainable economic development unless we are successful in pulling our farmers out of poverty. This, after all, is the essence of the Doha Development Round," Mr. Lorenzo said.

For his part, incoming Agriculture Secretary Arthur Yap said the Geneva agreement means "there is now a chance for us to compete in the level of parity." "But the Philippines must take this initiative to sell more efficiently in the global market since others would also be selling," Mr. Yap stressed. "We expect the negotiations that will start this September to be protracted, but the directions have been set. We still have a long way to go and we should never be complacent," Mr. Lorenzo warned. Asked whether these rich nations will keep their commitment to farm and customs reforms, Mr. Gatdula said lapses can be expected but these affluent countries are also sincere in their "support of the principles on which the WTO was founded." But since contentious trade issues are not expected to be resolved until late next year, the gains that may be derived from the latest development will not be felt until "much, much later."

KEY ELEMENTS OF NEW TALKS

World Trade Organization (WTO) states sealed a deal early on Sunday aimed at slashing rich nations' farm subsidies, opening industrial markets and putting the Doha Round of free trade talks back on track. After failing to reach agreement in Cancun, Mexico, last September on an interim deal on parameters for negotiations in farm and industrial goods and other areas, WTO states had set themselves a new end-July deadline.

Following are some key elements of the plan approved by the WTO's executive General Council after five days of talks:

• Subsidies -- The pact says that export subsidies, widely viewed as the most trade-distorting form of farm aid, will be eliminated, although the timetable is left for future negotiations. Export credit programs and state trading enterprises will also be subject to disciplines to eradicate any element of subsidy. On production subsidies, known as domestic support in WTO parlance and mainly used by rich nations, the text calls for the most trade-distorting forms to be cut substantially, with product-specific capping of spending. "Each member will make a substantial reduction in the overall level of its trade-distorting support from bound levels," says the text. Significant cuts will be made in the first year of a final deal under the Doha Round.

  The United States secured some easing of the rules for its so-called "counter-cyclical" payments to farmers, but with limits to assuage European Union and developing country fears that Washington might otherwise keep farm spending at current levels. The text also calls for a review of the so-called "Green Box" -- state aid to farming that is considered not to distort trade too much because it is mainly devoted to programs such as rural development. The review will ensure that the rules are not being bent. On market access, essentially import barriers, the text stops short of proposing a formula for a reduction but says there should be a "tiered" approach, with the deepest cuts for the highest tariffs. After fierce pressure from developing countries, the text drops language which would have given rich farm importers such as Switzerland, Japan and the EU a virtual free hand in identifying which products they could continue to protect with high barriers. It accepts rich nations have "sensitive" products but leaves the issue of how they will be identified for a later date.

  For developing countries, particularly those where farming is mainly subsistence, there will be no obligation to grant much increased market access.

• Cotton -- West African states dropped a demand that cotton be treated as a separate issue, but the text does give the crop special importance within the farm chapter.

  It says that it will be given "appropriate prioritization" and a special WTO panel will be set up to check progress in cutting rich nation subsidies.

• Tariff cuts -- The basic aim of the agreement is to find ways to reduce import barriers to goods as varied as cement, shoes, chemicals and calculators. This will be done by a formula under which the highest tariffs get cut the most.

  The text included a paragraph to allay some poorer country concerns they might have to cut tariffs too quickly. The new language says that while the blueprint "contains the initial elements for future work", it adds that "additional negotiations are required to reach agreement on the specifics of some of these elements". In general, the least-developed countries will not have to cut their industrial tariffs but will have to make them more transparent.

  Developing countries will also benefit from longer transition periods when making tariff reductions.

• Customs procedures -- This is jargon for making customs procedures easier and less expensive for business. It was one of the four so-called Singapore Issues, which were seen as making too great demands on poor nations and which finally caused the collapse in Cancun.

  The other three issues were jettisoned, but customs procedures were retained. The text includes much language intended to ensure that poor, developing countries adopt any new customs procedures when they are ready. Richer exporting nations got what they wanted in having negotiations on this area start at all.

-- with reports from Felipe F. Salvosa II, Jennifer A. Ng, Ma. Eloisa I. Calderon and Rommer M. Balaba in Manila, as well as Reuters in Geneva

Central Bank clarifies RP's status in dirty money blacklist

The Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) has asked the Paris-based Financial Action Task Force (FATF) if the Philippines can be removed from a list of dirty money havens sans amendments to the country's anti-money laundering law. BSP Governor Rafael B. Buenaventura wrote to FATF president Claes Norgren last week. seeking clarification on the FATF's requirements for the Philippines' removal from its blacklist. The FATF's Asia-Pacific review group last month said the country's interagency Anti-Money Laundering Council (AMLC) should improve its campaign versus money laundering. It wants the council to focus on cash transactions instead of including non-cash transactions in its monitoring of the local financial system, saying this focus would speed up investigations.

The Philippines' Anti-Money Laundering Act (AMLA), however, requires the council to focus its efforts on both cash and non-cash transactions. Mr. Buenaventura, who chairs the council, asked the FATF if it really wants amendment to the AMLA. "Please note that the AMLC could defer implementing the requirements of the law without amending it with respect to the reporting of non-cash transactions," he said. He said one option is for the council -- composed of the BSP, Securities and Exchange Commission and the Insurance Commission -- to just pass a resolution that would implement the FATF's recommendations. FATF's reply is expected this week. -- Cecille S. Visto

Fuel products up by 50 centavos

Oil firms warn of another round of price increases this month

By BERNARDETTE S. STO. DOMINGO, Reporter

Oil companies yesterday raised the prices of gasoline, diesel and kerosene by 50 centavos per liter even as they warned of another round of price adjustments later this month, citing the continuing rise of petroleum products in the world market. Independent Philippine Petroleum Companies Association (IPPCA) Chairman Fernando L. Martinez said a rate increase may have to be done more frequently. "I'm not discounting another rate increase this month at the rate world prices are going. It is not a farfetched possibility," Mr. Martinez said in an interview. Oil firms Caltex (Philippines) Inc., Eastern Petroleum Corp., Flying V, Pilipinas Shell Petroleum Corp. and Seaoil Philippines Inc. at 12:01 yesterday morning increased oil prices by 50 centavos a liter for gasoline, diesel and kerosene. Total Philippines Corp. and Flying V followed suit by midnight. Local oil refiner Petron Corp., for its part, has not announced whether it would increase its prices. Mr. Martinez said oil companies may have to implement hikes in a regular basis in a smaller increment to immediately pass on the cost to consumers and avoid under-recoveries from building up.

Businessman Raul T. Concepcion, for his part, said world petroleum prices were very volatile and that he could not see any decrease in local prices in the near future. As this developed, the Department of Energy yesterday renewed calls to oil consumers to revisit fuel conservation efforts. "For us oil consumers, I urge everyone to start fuel conservation. Any single centavo saved from planning trips or employing efficient driving tips will have a big contribution in the family's budget," Energy Secretary Vincent S. Perez said in a statement. He also reminded consumers to exercise their power of choice and be properly guided in their fuel purchases. He noted that several oil companies have not followed suit in raising their respective prices. Oil firms attributed the latest oil price hike to the continuous increase in international prices of finished petroleum products. Global oil prices have soared to a 21-year record high last July 29. Dubai crude hit to $35.96 per barrel. As of end July, Dubai crude jumped to $34.62 per barrel from $33.42 a month ago. MOPS-based unleaded gasoline rose to $46.52 per barrel end-July from $45.18 in June while diesel soared to $46.24 per barrel from $42.84. Industry players also blamed the increase on the Russian government's order to oil company Yukos not to dispose of its assets including crude oil. Yukos accounts for almost 20% of Russian crude oil production and is considered the world's second largest producer of crude after Saudi Arabia.

Manila invites bids for small hydro plant

SINGAPORE -- The Philippines is inviting potential buyers to bid for a small hydroelectric power plant as part of efforts to privatise the indebted National Power Corp. (Napocor), a privatisation official said on Monday. The government is seeking investors for the 1.2-megawatt Loboc hydroelectric power plant located in the central Visayas region, the official said by telephone from Manila. "It is a mini-plant. The plant is very old, more than 40 years old," said the official at the Power Sector Asset & Liabilities Management Corp., designated to privatise Napocor. The deadline for buyers to express their interest is August 12 and the sale is expected to be completed in September, she said.

The Philippines aims to complete the $4-$5 billion privatisation of Napocor's dozens of power plants -- with combined capacity of 5,200.7 megawatts -- and grids by the end of 2005 to reduce its fiscal deficit and boost foreign investment in its underfunded power sector. The first major power plant put up for sale by the country this year, the 600-megawatt, coal-fired Masinloc unit, has drawn interest from 17 companies, including six firms from Japan. Napocor's total liabilities amounted to 1.3 trillion pesos ($23 billion) at end-2003, a quarter of the country's total debts of some $90 billion, ratings agency Fitch said. Liabilities included the long-term power purchasing pacts Napocor signed with private-sector power producers in the country, Fitch said. -- Reuters

T-bill rates decline further

Treasury bill rates across all maturities further dropped yesterday after the Bureau of the Treasury fully awarded all bids for the government debt papers. Indicating strong investor appetite and a liquid market, the T-bill offering was oversubscribed as banks chose to park their excess funds in more government securities, traders said. The Treasury expressed its enthusiasm on the auction's outcome, which it said indicated positive investor sentiment on the economy. Debt yields started to drop two weeks ago. "We're happy [with the volume of bids], rates are all lower from previous auctions. There are indications of market interest. I guess they are assuming positive economic factors," said Deputy Treasurer Eduardo S. Mendiola. He cited the market's optimism over the steps taken by the government to achieve a healthy fiscal position.

The benchmark 91-day T-bill fetched a rate of 7.125%, down by 31.8 basis points from 7.443% two weeks ago. Tenders hit PhP9.81 billion against a public offering of PhP4.5 billion. The 182-day T-bill dropped by 28.6 basis points to 8.186% from 8.472% while the 364-day T-bill also dropped by 13.9 basis points to 9.176% from 9.315%. Combined bids for both instruments reached PhP10.06 billion versus an offering of PhP6.5 billion. "The participation was positive and it was good for the [government] as they are expecting funding for revenue enhancements," a bond trader said. The trader said the positive sentiment on the government's commitment to balance the budget is stabilizing the market. The government is targetting a balanced budget by 2009. "We're not looking at the specifics but the fact that they're doing something, that's enough good news," another trader said.

PESO

Meanwhile, the Philippine peso rallied by 17 centavos against the greenback on overall positive economic outlook, traders said. The lack of heavy dollar demand from corporations pushed up the currency, they added. At the Philippine Dealing System, the peso averaged stronger by more than 14 centavos to PhP55.853 from PhP55.996 last Friday. Opening at its intraday low of PhP55.90, the local currency steadily appreciated toward its closing at PhP55.78 per dollar. Total volume of transacted dollars dropped to $173.6 million from $203.74 million. -- Ira P. Pedrasa

US alert triggers Asian dollar bonds profit-taking

HONG KONG -- Asian dollar bond spreads succumbed to profit-taking yesterday after the United States announced heightened security because of fears of terrorist attacks against financial sector targets. "The market is in a profit-taking mode. We have lost much of the gains overnight in New York time. We are back to where we closed on Friday night here in Asia," a Manila-based trader said. Suspected al Qaeda threats to attack the New York Stock Exchange, World Bank and International Monetary Fund prompted the United States on Sunday to issue a "high" level threat alert for the financial sector in New York and Washington. The New York building of Citigroup, the world's largest financial company, and the Prudential Financial building in Newark, New Jersey, were included in the warning, announced by Homeland Security Secretary Tom Ridge at a news conference.

Philippine sovereign dollar bonds due in 2014 were quoted at 426 basis points (bps) over comparable US Treasuries, about four bps wider than Friday's levels. "The market initially started off very strong in the Philippines and has now started to sell off a bit," a Tokyo-based head of credit trading at an investment bank said. However, a Singapore-based derivatives trader said the security alert had no impact on the default swaps market. Five-year Philippine credit default swaps -- insurance-like contracts that offer bondholders protection against debt default -- were steady at 460/478 bps. Spreads on conglomerate Hutchison Whampoa Ltd.'s bonds due in 2014 were steady at 200/196 bps over comparable Treasuries. The JP Morgan Asia Credit Index (JACI) gained 1.7% in July, the best monthly performance this year, despite more than US$4.7 billion worth of dollar- and euro-denominated new issues during the month, JP Morgan said in a client note on Monday. "Into August, we remain constructive for Asian spreads given heavy coupon and redemption flows and an expected slowdown in issuance," JP Morgan said.

A planned US$200 million to US$250 million bond offering by Toronto-listed Sino-Forest Corp. could be the only issue this month as most fund managers and investment bankers take their holidays in August. Sino-Forest, which grows and harvests trees in China, is expected to price the Ba2/BB-minus rated bond later this week. Morgan Stanley is the sole lead manager for the bond sale. Sino-Forest said the net proceeds would be used to repay existing debt, acquire mature pine tree plantations in China's southern Guangdong province and for general working capital. South Korea has selected Barclays Capital, Citigroup, Deutsche Bank and JP Morgan to lead its planned US$1 billion sovereign bond issue, the finance ministry said on Friday. A senior finance ministry official has said recently the government aimed to issue the bond in September or October. South Korea last issued a US$1 billion sovereign bond in May 2003 at a spread of 92 basis points over comparable US Treasuries. Those bonds were steady at 77/73 bps over Treasuries on Monday. -- Reuters

Central bank now more involved in gov't debt auction

The Bangko Sentral ng Pilipinas (central bank) has increased the number of its representatives to the government's debt auction committee to improve coordination with the Treasury panel. The government's auction committee is tasked to decide on the cost of government borrowings done through electronic submission of bids for both Treasury bills and Treasury bonds. Amando M. Tetangco, Jr., the central bank deputy governor, has been named representative to the committee while Assistant Governor Diwa C. Guinigundo has been named as Mr. Tetangco's alternate representative. "This is for greater coordination," Mr. Tetangco said. He said there was also a reorganization in the auction committee which includes increasing the financial regulator's representatives in the group. Another central bank source said the move was meant to further enhance the coordination among fiscal managers and monetary authorities in managing the economy.

Market players said the increased representation will help arrest additional pressures for interest rates to move up. A rise in interest rates could exert pressure on inflation and consequently on the foreign exchange rate. A central bank official said the move was also meant to provide the auction committee advice on bids. The central bank used to have the power to steer the auction and other fund-raising exercises of government but it passed on the authority to the Bureau of the Treasury in 1998. -- Iris Cecilia C. Gonzale

Property firm faces revocation of SEC registration

Listed Universal Rightfield Property Holdings, Inc. may no longer be allowed to operate if it does not comply with the reporting requirements of the Securities and Exchange Commission (SEC). In an order which was disclosed by the Philippine Stock Exchange, the SEC said that if the real estate developer does not submit to the commission its 2003 annual report and first-quarter report the commission will revoke the company's registration of securities. "The Commission, in its meeting on July 22, 2004, resolved to suspend the registration of securities and permit to sell securities to the public issued to Universal Rightfield Property Holdings, Inc... The said suspension shall be effective for sixty days, or until the reporting requirements are complied with, otherwise the Commission shall proceed with the revocation of the company's registration of securities," the SEC said. -- J. G. U. Rubrico

San Miguel units to put up plants in Misamis Oriental

CAGAYAN DE ORO CITY in Northern Mindanao -- San Miguel Foods, Inc. and Beverage Packaging Specialists, Inc. of the San Miguel Group are among the newest locators at the Phividec Industrial Estate in the municipalities of Tagoloan and Villanueva in Misamis Oriental. Elvira Garcia, executive assistant to the administrator of the Phividec estate, said the plants are being built. She didn't provide details on the cost for the plants. San Miguel Foods main product in its plant here is feeds, while Beverage Packaging Specialists serves as the San Miguel expansion plant for polyethylene terephthalate used in packaging. San Miguel Group joins 36 other investors in the estate. The Phividec Industrial Authority, which has control over the estate, was established on Aug. 13, 1974.

In Manila, the Australian unit of San Miguel Corp. reported better revenues in the first half of the year as beer drinkers in Australia continued to shift to premium beer. In a statement, San Miguel said its Australian unit J. Boag and Sons posted a 5% growth in sales volume and a 29% increase in revenues for the first half of the year. The company's earnings contribution to its parent firm, meanwhile, increased 42% as profit margins continued to expand, the statement said. "This was made possible as the company enjoys the leverage power of the San Miguel group, thereby keeping production costs in check," it said. The statement also said that San Miguel is "committed to continue investing in both brand and distribution in order to further strengthen the long-term prospects of the company." It added that with the positive outlook for the year, the company would be putting up additional capacity to serve "pent-up demand." "Also, the company is looking into introducing new and exciting products both in the Tasmanian and Australian-mainland markets," the firm added. San Miguel acquired J. Boag & Son In May 2000. -- Ellen P. Red and Jennee Grace U. Rubrico

MCTP woes may turn off business

By JENNIFER A. NG, Reporter

The stalled operation of a PhP4-billion port project in Misamis Oriental may turn off potential investors and cause economic setbacks in Northern Mindanao, the PHIVIDEC Industrial Authority (PIA) yesterday said. A regional trial court (RTC) in Cagayan de Oro earlier issued a preliminary injunction against the Mindanao Container Terminal Project (MCTP). Due to the failure of PIA to fully operate the MCTP, the government-owned and controlled corporation (GOCC) has also admitted to encountering difficulties in paying the loan amortization of PhP10 million per month to the Japan Bank for International Cooperation (JBIC) which provided 85% of project cost. "The project is in danger of becoming another 'white elephant' if the case will not be resolved immediately. Worse, PIA's failure to operate the port will cause economic setbacks to Northern Mindanao," an official of PIA said in an interview. The MCTP has an annual capacity of 270,000 twenty-equivalent units (TEUs). PIA earlier said big companies such as Maersk Sealand and APL have expressed interest in availing of MCTP's facilities. The official said an administrative case has been filed against the local judge in Cagayan de Oro who issued a Temporary Restraining Order (TRO) and eventually a preliminary injunction against PIA's operation of MCTP. Full operation of MCTP was halted by a TRO issued by Judge Downey Valdevilla of the Cagayan de Oro RTC Branch 39 on April 27, 2004, three days after President Gloria Macapagal Arroyo inaugurated the port. The same court issued a preliminary injunction a few days prior to the lapse of the TRO it previously issued.

The petition to restrain PIA from operating MCTP was filed by private firm Oroport Cargohandling Services Inc. (OROPORT), citing unfair competition and PIA's lack of authority to construct and operate the port. The official said that prior to construction of MCTP, OROPORT had virtual monopoly of stevedoring operations in Cagayan de Oro. As of press time, officials of OROPORT could not be reached for comment. "The TRO issued by the RTC is baffling to us since as far as we know, only the Supreme Court could issue such order under Republic Act 8975," the official said. RA 8975, which took effect last November 2000, seeks to ensure faster implementation of government infrastructure projects by prohibiting lower courts from issuing TROs, preliminary injunctions, or preliminary mandatory injunctions. MCTP is one of the three major infrastructure projects endorsed by the government for funding under the JBIC special loan package in 1999. PIA provided the 15% government counterpart fund. The port is considered one of the biggest and most ambitious port projects undertaken in the country, and is expected to boost trade and commercial activities not only in northern Mindanao but throughout the island. Due to its strategic location, MTCP was envisioned by the government to be a vital link between Mindanao's production centers and markets in the Visayas and Luzon, particularly Cebu City and Metro Manila.

Share prices dip on Meralco ruling

By ROULEE JANE F. CALAYAG

Contrary to expectations of a strong rally early this week, the stock market slid further yesterday, largely led by power distributor Manila Electric Co. (Meralco). Traders said the Court of Appeals ruling nullifying the power rate increase implemented by Meralco in June 2003 continued to pull down share prices. Jose Vistan, Jr., research director of AB Capital Securities, Inc., said the biggest factor that dragged the market was the unfavorable court ruling on Meralco's power rate hike. Shares of Meralco B, available to foreigners, were down PhP3.25, or 13.83%, to PhP20.25 on 7.17 million shares valued at PhP150.08 million. Meralco A shares also slipped, shedding PhP1.50, or 9.38%, to PhP14.50 on 326,400 shares worth PhP4.74 million. Mr. Vistan said the significant declines in the shares of Meralco weighed on the main Philippine Stock Exchange composite index (Phisix).

COURT RULING

The appeals court on Thursday ruled as void the order of the Energy Regulatory Commission (ERC) in June 2003, allowing Meralco to implement an increase of PhP0.17 per kilowatt-hour through the unbundling of rates. It noted that the ERC should have asked for the Commission on Audit to look through the books of Meralco before it approved the rate hike. "The damage [caused by the ruling] was not only limited to Meralco although it was centered on it. The ruling created ripple effects which affected the country's image as an investment site," said AB Capital's Mr. Vistan. "The judicial body has not made popular decisions for the business sector but I hope that investors will come to realize soon that Meralco is an isolated case," he added. He noted that the impact on the power firm will linger for some time compared to the short-term damage it has on the sector. Luz Lorenzo, analyst at ATR-Kim Eng Securities, Inc., said the sentiment on Meralco dragged the Phisix. "The decline was more [because] of Meralco," said Ms. Lorenzo. She added that it was difficult to ascertain how the power retailer will overcome a gloomy outlook resulting from the court decision. "The ruling does not look good only for Meralco but for the power sector," she added. Various groups had criticized the appeals court for handing down a ruling that apparently blurred the direction for the power sector. They said this represents a judicial weakness that will pull down the business sector because it sends a totally different signal on what direction the government and the investing sector should take.

FACTORS

The Phisix's slide dampened the optimistic outlook of some investors who were envisioning a bull run with the seemingly consistent rise in the main index until it slid on Friday. The index was moving at a strong pace for three days last week, buoyed by expectations of higher earnings growth in select companies. The market's weakness was also attributed to the warnings raised by the United States on threats of terror attacks by Al Qaeda on the International Monetary Fund (IMF) and the New York Stock Exchange (NYSE). The warning had scared off investors overseas who reacted by unloading their shares. Mr. Vistan said the effect of the warning on overseas markets had spilled over to Asian markets, including the Philippines. Although the ruling on Meralco's rate hike and the warning raised by the US were the biggest factors that dampened market sentiment, Mr. Vistan said the weakness was also due to other factors. "Technically, the weakness was also due to the market's failure to break the 1,600 level due to a bearish signal," said Mr. Vistan. The failure of some companies to meet expectations of higher growth earnings also pulled down the market.

PLDT, GLOBE

"Investors were hoping for positive developments. Hopefully, the results from Philippine Long Distance Telephone Company (PLDT) and Globe Telecom will ease the bearish tone," he added. PLDT will release its results today, followed by Globe tomorrow. Despite this, he said the market is still not "so optimistic." "The market is still unattractive because of its value turnover. It needs to see better earnings reports and developments on government's performance," said Mr. Vistan. The Phisix declined 20.23 points, or 1.28%, at 1,564.47 with 1.01 billion shares valued at PhP712.15 million. Losers gained the upper hand, beating gainers at 46 to 19. There were 35 stocks that were unchanged. Globe unseated PLDT from being the most actively traded stock. It was up five pesos at PhP860 on 269,760 shares worth PhP231.8 million, accounting for 32% of total turnover. Meralco came in second, followed by PLDT which dropped PhP15 to PhP1,235 on 112,550 shares worth PhP139.4 million.

A report that PLDT and its unit Smart Communications, Inc. may opt to swap roles drove share prices to end lower. The arrangement reportedly paves the way for Smart to take over as the parent firm, relegating PLDT as a subsidiary to avoid having to list the unit. Profit-taking ahead of the release of PLDT's first-half results also affected the stock. Meralco's parent firm First Philippine Holdings, Inc. (FPH) was down PhP1.50 to PhP23.25 on 1.59 million shares valued at PhP38.5 million. Benpres Holdings, FPH's parent firm, was also down PhP0.02 to PhP0.51 on 9.75 million shares worth PhP4.97 milion. Pilipino Telephone Corp. (Piltel) slipped PhP0.04 to PhP2.20.

INDICES

The market's gloomy sentiment after a few spurts of optimistic sessions last week was reflected in the indices which were generally down. Only the mining index stood firm as it moved up 6.90 at 1,688.19. The all-shares index slid 3.40 to 1,003.43. The commercial-industrial index was also down. It shed 26.57 at 2,468.96. Property dropped 12.10 at 527.53. Oil was unchanged at 1.58, while banking and finance declined 4.89 to 462.06.

1^st half foreign loans exceed borrowing mix

The government has put its fiscal position at greater risk by increasing its foreign borrowings in the first half of this year beyond the planned proportion, the House of Representatives' think tank said in its latest analysis of the government's cash operations. The Congressional Planning and Budget Department (CPBD) noted that the government's gross borrowings for the first semester totaled PhP228.1 billion, of which 37% or PhP83.3 billion were loans from foreign sources. This was not consistent with the programmed borrowing mix of 16% foreign sources and 84% domestic sources, it said. "Given the unstable position of the peso against the dollar, this exposes the government's fiscal position to greater risk," the CPBD warned. The CPBD further noted that 80% of the total foreign borrowings were long-term commercial loans which are subject to higher interest rates. Program or project loans, in comparison, are subject to concessional rates. "It is important, therefore, that [foreign] borrowings be put to productive use in order to generate sufficient revenues to repay debts as they mature in the future," the CPBD recommended, as it observed that 65% of the PhP228.1 billion gross borrowings was used on debt principal amortization. The CPBD's analysis of the government's cash operations for the first semester noted revenue collections from the Bureau of Internal Revenue, the Bureau of Customs and the Bureau of Treasury among others, as well as expenditures and borrowings.

The Departments of Budget and Management and Finance reported in mid-July that the government exceeded its programmed expenditures by PhP11 billion. The programmed expenditures for the first semester totaled PhP412.4 billion, but actual expenditures were PhP423.4 billion. Higher collections -- with actual revenues totalling PhP343.3 billion, exceeding the targeted PhP332.8 billion for the first six months of the year -- helped the government rein in the budget deficit close to its first semester target. The deficit, as of end-June, stood at PhP80.1 billion, which was PhP545 million higher than the targeted PhP79.6-billion cap. The government aims to keep the budget deficit below PhP197 billion at the end of the year, with the aim of wiping it out by 2009. -- Judy T. Gulane

Economic goals kept

An interagency body composed of the government's economic managers has decided to maintain macroeconomic targets for this year and next year, consistent with the medium-term development plan, despite a sharp rise in world crude oil prices that threaten to stunt the country's budding economic recovery. The Cabinet-level Development Budget Coordination Committee (DBCC), composed of officials from the Budget and Management department, DoF, National Economic and Development Authority, and the Bangko Sentral ng Pilipinas (Central Bank of the Philippines), met last Friday to review the country's fiscal and growth targets both for this year and the next. In that meeting, DBCC agreed to keep the 2004 deficit target of 4.2% of gross domestic product (GDP), notwithstanding the fact that the national government exceeded its deficit goal for the first semester by PhP544 million. For 2004 and 2005, the DBCC forecast a GDP growth rate of 4.9%-5.8% and 5.3%-6.3% respectively. The DBCC also agreed to retain the inflation target of 4.0%-5.0% for both 2004 and 2005 despite a series of oil price increases which led to higher production costs. "The medium term fiscal plan to be presented to the NEDA Board will incorporate the expenditure and the resource requirements of the 10-point agenda of the president, under a 2009-balanced budget scenario," Budget Secretary Emilia T. Boncodin said in a statement.

A PhP100-billion package of revenue and savings measures cited by President Gloria Macapagal Arroyo in her State of the Nation Address (SONA) last Monday is incorporated in the medium term plan, said Ms. Boncodin, who also chairs the DBCC. The plan, she said, will affirm the government's commitment to achieve a balanced budget within six years, consistent with its deficit reduction strategy. "These deficit limits have been agreed upon, with disbursements being paced with the projected revenue inflows," she said. "The improvement in the fiscal outlook in 2005 will be brought about by maintaining expenditure level at the same level as in 2004." The government assumes a drop in budget deficit numbers to PhP161.769 billion or 2.9% of GDP by 2006 from 2005's target of PhP184.526 billion or 3.6% of GDP. The government hopes to trim the shortfall to PhP126.999 billion or 2.1% of GDP in 2007, to PhP79.032 billion or 1.2% of GDP in 2008 and finally to zero in 2009. Ms. Arroyo has asked Congress to pass eight new taxes and expenditure measures aimed at trimming the bloated bureaucracy. These measures, combined with administrative reforms, are expected to earn the government some PhP100 billion in additional revenues yearly.

An official who attended the DBCC meeting said the government aims to generate at least PhP50 billion in taxes this year to help it meet its yearend budget deficit of PhP197.815 billion. The official said the Cabinet-level committee agreed to keep the year-end deficit target but conceded the need for the implementation of new tax measures within the year. "Any of those eight measures which will yield PhP50 billion will help meet the 2004 budget deficit," the official said after the meeting. The official said it was up to Congress to decide which of the eight proposed tax measures will hurdle deliberations this year. The new taxes include a shift to gross income taxation, a two-step increase in the value tax (VAT) rate, a tax on "windfall profits" of telecommunications companies, indexation of excise taxes on "sin" products to inflation, and a hike in the excise tax on petroleum. The official conceded that government may not be able to meet its yearend deficit target without a minimum of PhP50 billion in additional revenues by yearend. "Hopefully, [the PhP50 billion] will come from the new taxes, but we will also improve tax admininstration," he said.

'100% SURE'

Ms. Boncodin, for her part, remained confident the government will meet the 2004 deficit. "I am 100% sure," she said. Another official said that, even in the worst case scenario that the government misses the target, it would likely be less than a billion -- similar to the excess deficit in the first half of the year. "If this happens, it won't affect the market," the official said. The government incurred a budget deficit of PhP80.1 billion in six months to June and exceeded by PhP544 million the period's budget deficit ceiling of PhP79.6 billion. The country has run budget deficits in 10 of the last 14 years, largely due to poor tax collection and corruption. The DBCC has also approved a 14.7% tax effort target for 2005, up from this year's revenue-to-GDP ratio of 14.4%, given expected improvements in tax and fee collections by the Bureau of Internal Revenue (BIR) and Bureau of Customs (BoC). Projected revenues for 2004 were earlier raised by the DBCC to PhP674.4 billion from the original level of PhP671.2 billion. The increase is anchored on higher BoC collections and Bureau of Treasury income. The BoC said it exceeded its July collection target by 9%, bringing its total seven-month revenue contribution to PhP71.291 billion, 13% higher that the PhP63.10-billion target for the period.

Customs Commissioner Antonio Bernardo said the agency collected PhP10.724 billion in July, compared to a PhP9.842-billion target, also 17.1 % higher than the PhP9.155 billion in collections for the same month last year. Collections for the January-to-July period, he said, were also 14.6% higher than the PhP62.189 billion recorded in the first seven months of 2003. With the recent figures, Mr. Bernardo said the agency is optimistic of meeting its full-year revenue goal of PhP112 billion. The July figures mean the agency has maintained its higher-than-expected collection performance for seven months in a row. The BoC was originally tasked to collect PhP105 billion for this year, but better-than-projected collections for the first few months of the year prompted the Department of Finance (DoF) to hike its target, first to PhP110 billion and then to PhP112 billion. The BoC, the second biggest revenue earner among government agencies after the BIR, attributed the revenue performance to improvements in its auditing systems, automation of its operations as well as intensified anti-smuggling drive. Spending, meanwhile, is expected by the DBCC to reach PhP874.23 billion, resulting in a PhP197.8-billion budget deficit for 2004.

For next year, revenues and expenditures were set at PhP730.5 billion and PhP915.04 billion, respectively. The government is also expected to increase annual expenditure targets to fund economic expansion and achieve a sustainable yearly growth of 7% up to 2010. Under the government's present medium-term schedule, revenue collection should improve and sustain the PhP1.163 trillion in expenditures in 2010. The current program by the DBCC sets the government spending targets at PhP915.041 billion for next year, PhP983.992 billion for 2006, PhP1.018 trillion for 2007, PhP1.063 trillion for 2008 and PhP1.048 trillion for 2009. -- Karen L. Lema

New House bill integrates fiscal perks

A bill seeking to integrate all laws granting fiscal incentives and to set clear guidelines for choosing businesses entitled to these perks has been filed at the House of Representatives. This developed as Trade Secretary Cesar A.V. Purisima said the Arroyo administration wants lawmakers to craft a new investment incentives law that will be "simple, time-bound, and performance-based." The House bill, filed by House Speaker Jose C. de Venecia Jr, aims to integrate some 72 laws and statutes into an Omnibus Investments Code which will be administered by the Board of Investments (BoI) of the Department of Trade and Industry. It will repeal Executive Order 226 or the Omnibus Investments Code of 1987. The bill also limits the industries eligible for fiscal incentives. Mr. De Venecia said in the bill's explanatory note that these "investment champions" must demonstrate high export potential; high domestic resource requirements, especially labor; high economic returns; and forward and backward linkages, among others. Mr. de Venecia said multiple claims, unauthorized transfer of tax credits, and fictitious claims, among others, have led to foregone revenues -- PhP18.5 billion in 1993 (1.3% of gross domestic product), PhP50.6 billion in 1997 (1.9% of GDP) and PhP170.75 billion in 2001 (4.7% of GDP). Rationalizing fiscal perks is one of eight measures proposed by the Palace to raise revenues.

Under Mr. de Venecia's bill, the BoI will present an investment priorities plan (IPP) every three years. It will also set a ceiling on incentives that can be given in a certain year, subject to Congressional approval. Mr. Purisima said the three-year IPP, instead of an annual one, is designed to "stabilize" the government's incentives program. He said a longer validity period for the IPP could be done immediately through an executive order and not necessarily through a law passed by Congress. Among various provisions, the House bill states double entry accounting will be employed in the recording of incentives for purposes of transparency. Thus, fiscal incentives will be recorded as government expenditure with corresponding foregone revenues. The investment promotion agencies -- the Philippine Economic Zone Authority, Subic Bay Metropolitan Authority, Clark Development Corp.n, John Hay Management Corp., Poro Point Management Corp., Bataan Technology Park Inc., Cagayan Economic Zone Authority, Zamboanga City Special Economic Zone and the Philippine Veterans Investment Development Corp. -- will implement and administer the incentives.

INCENTIVES

The following perks can be granted to industries registered with the BoI:

• income tax holiday ranging from four to 12 years;
• imposition of a 5% tax on gross income in lieu of local and national taxes;
• depreciation rate twice as fast the normal rate for plant machinery and equipment that are actually used in production and in transport of goods and service-s;
• exemption -- up to 100% -- from tax and customs duties on imported capital equipment, spare parts, production consumables, or those required for pollution abatement and control;
• tax credit on supplies, raw materials and semi-manufactured products used in the manufacture or processing of export products;
• exemption from taxes and duties of breeding stock and genetic material imports;
• deferred imposition of minimum corporate income tax;
• tax treatment of merchandise and service-s in export processing zones;
• exemption from local taxes and licenses; and
• employment of foreign nationals, who shall be exempted from clearances, permits and licenses.

The bill will allow industries to carry their net operating loss in the first five years from start of commercial operation, which has not been previously offset as deduction from gross income, to the next five years as deduction from gross income. Tax credits issued under the new Code, once approved, will not be transferable and will form part of the gross income of industries to which they are granted. They will be valid for 10 years from date of issuance. A brief on the government's incentives rationalization plan provided by the Trade department, meanwhile, showed that tax perks, except those on imported capital equipment and raw materials, would be limited to a 20-year period. Particularly targeted by the 20-year cap is the 5% special gross income tax that registered businesses may opt to pay. Mr. Purisima said a "sunset provision" was only appropriate since businesses were expected to have "matured" after a time. A document said the income tax holiday scheme would be redesigned to encourage businesses to set up shop outside Metro Manila. Incentives will also be tied to the number of workers an investor will hire. As such, investments will no longer be classified as pioneer or non-pioneer, foreign or local, and a new or expansion project. Also, incentives will no longer depend on production capacity or volume. -- Judy T. Gulane and Felipe F. Salvosa II

DHL eyeing Manila airport ecozone?

By FELIPE F. SALVOSA II, Reporter

Global logistics company DHL wants the government to declare part of the Ninoy Aquino International Airport (NAIA) as a special economic zone where businesses will be entitled to various incentives, a reliable source said over the weekend. DHL Worldwide Express (Philippines), Inc. aims to convert a property close to the airport into an ecozone, but "it is not big enough to qualify" under Philippine Economic Zone Authority (PEZA) rules, the source said. Because of this legal limitation, authorities are considering various options, first of which is to combine an airport lot owned by the Manila International Airport Administration or MIAA and the DHL property. Officials of both the MIAA and DHL were not immediately available for comment. The combined property will then be annexed to an existing private ecozone near the airport, MacroAsia Ecozone, which covers 22.69 hectares at Nichols Field, the source said.

The new special ecozone will cover more than 60 hectares, the source added. To "relieve" the MIAA of the costs involved in developing the property, member-developers of the private sector-led Philippine Industrial Estates Association (PHILEA) are being eyed to undertake the development. "The MIAA property is undeveloped, but it is believed to be of a flat grade" capable of hosting logistics operations, the source said. The source, however, noted that the DHL property and MacroAsia Ecozone are not contiguous, and "it is being figured out to connect the DHL lot with the MacroAsia lot." DHL does not want to waste its recent investment on its logistics handling facility, the source added. DHL last year launched its DHL Gateway Facility at NAIA. The source also said the jewelry industry has expressed interest in locating in an ecozone close to the airport for stone-setting operations. MacroAsia Ecozone, operated by MacroAsia Properties Development Corp., already has one locator -- Lufthansa Technik Phils., Inc. -- a 51% German-owned firm engaged in aircraft maintenance and repair. The source said the model used in designating information technology buildings as ecozones is also being explored for the airport proposal.

Money supply up in June

By IRIS CECILIA C. GONZALES, Reporter

The country's domestic liquidity grew by 5.7% year-on-year to P1.74 trillion as of end of June. It was, however, slightly lower than the 6.1% year-on-year growth posted in May. Domestic credit to the private and public sector contributed to the growth but credit to the private sector still has enough room for improvement as government remained the major borrower. Domestic liquidity -- also called M3 -- is the total amount of cash and "near cash" items such as savings and time deposits and marketable securities circulating in the local financial system. Declining liquidity growth rates signify a weakening demand for cash due to sluggish economic activity. On the other hand, rapidly rising M3 indicates renewed demand for cash brought about by higher investments and purchases. Preliminary data from the Bangko Sentral ng Pilipinas revealed that liquidity growth after seasonal adjustment as of end June was 0.3% month-on-month, a decline from the 1.4% rise in May.

The growth in the demand for money was lower compared to the previous years. Average year-on-year liquidity growth from 1999 to 2003, for example, was higher at 8.6%. The Bangko Sentral attributed June's liquidity growth to the increased net foreign assets of the monetary system, which rose by 2.8% in June due to the hike in the central bank's gross international reserves and a decline in its net foreign liabilities. Improved net domestic credit to the public and private sectors also helped fuel liquidity growth. Borrowings by the public sector, which rose by 21.6% in June, helped domestic credit activity to remain active. Government, however, remained the largest borrower. Corporate demand for new loans has been held back by companies' need to manage cash flows to finance maturing obligations rather than undertake expansion plans. Credits to the private sector stood at 3% in April compared to the 3.1% rise in the previous month, latest BSP data showed. The slight improvement in credit activity of the private sector is due to the continued spare capacity in manufacturing, the central bank said in a statement. It observed, however, that economic activity has been driven by the less credit-intensive sectors, which include agriculture. "Subdued credit conditions have also been associated with structural conditions in the banking sector," the BSP statement said, adding that bank lending continues to be partly dampened by prevailing levels of non-performing loans among banks. BSP, however, expects at least six banks to sell PhP100 billion in nonperforming loans under a special purpose vehicle law and beat the deadline to avail of the law's tax incentives. The law expires next year but banks have until September this year to register with the BSP the assets to be sold.

Semirara to sell 25% interest to meet listing rule

Coal producer Semirara Mining Corp. will sell a 25% stake by next year to meet the requirements of the Philippine Stock Exchange (PSE) for publicly listed companies. But officials of parent DMCI Holdings, Inc. said they still need to finalize plans for the stake sale. Semirara is the country's largest coal producer. DMCI currently owns 98% of the company, while the remaining 2% is held by the National Development Co., the government's investment arm. "Under PSE rules, 25% minimum of your equity must be owned outside. [We have to] float new issues or sell some of ours otherwise we will lose our right for this [Semirara] to be a public company. And I think natapos na ang painful years niya (its painful years have ended), it's in demand. Maybe it's a good time to sell the 25%," DMCI President Isidro Consunji said. He said that among the options being considered by DMCI in diluting its stake in Semirara are selling the shares through a primary or secondary offering at the PSE, or selling them through private placement.

Mr. Consunji said with the stake sale, Semirara should be able to pay down P1 billion worth of preferred shares which were converted into debt. The shares, Mr. Consunji said, were supposed to have been redeemed in April 2002. Because of the Asian crisis, however, Semirara was able to redeem only half of the shares. "The other half was converted to debt. May naiwan pang 3%-4% na hindi namin nakausap, mga government institutions (We haven't spoken to government institutions who own 3% to 4%. But I think we already have an agreement in principle, we're just putting it in writing," he said. The 3%-4% stake held by the government, covers 93,000 shares worth PhP150 million, Mr. Consunji said.

DMCI Holdings Chief Financial Officer Herbert Consunji said Semirara has to divest the 25% stake by next year, when the six-year suspension of the PSE rule would lapse. He said there have been parties that have approached DMCI for the 25% stake in Semirara, but that there have not been any serious talks yet. "We have not really sat down. What we want to do first is to get our acts together. Madali na 'yong benta (The sale would be easy)," he said. He added that DMCI is preparing for the sale as early as now because the process takes time. "You have to build it up now. You have to talk to them already. If you do a private placement, gagawa ka pa ng prospectus (you have to make a prospectus). All of these take time," he said.

Semirara was incorporated to explore, develop, and mine the coal resources in Semirara Island. The company, which used to supply coal only to the National Power Corp.'s coal-fired power plants, has widened its market to include other privately owned power plants and cement plants. As of 2003, the firm supplied 23% of the country's total coal requirements. For the first six months of the year, Semirara's revenues hit PhP1.8 billion and net income of PhP140 million. PhP260 million from last year's PhP138 million, on revenues of PhP2.6 billion. The firm is also looking at increasing its production for next year to three million tons from this year's two million tons. It is also increasing its output for the cement industry this year to 725,000 metric tons from 64,000 metric tons last year. -- Jennee Grace U. Rubrico

DMCI bags PhP1.7-B AFP housing project

DMCI Holdings, Inc. is to start this year a PhP1.7-billion housing project for Armed Forces of the Philippines (AFP) personnel. At the same time, the company is in talks with Crown Equities, Inc. and a consortium of banks for two real estate projects in C5 and Pasig. DMCI Holdings is the holding company of the Consunji Group. It is engaged in general construction, coal mining, infrastructure, real estate development and manufacturing. DMCI Holdings President Isidro A. Consunji told reporters the AFP had already given its go-signal on the housing project. "We already have the notice to proceed We won the contract for this in December. It was actually delayed because of the elections. Now that the elections are over, hopefully, we can carry it out." The project would involve the construction of 17 to 19 five-storey buildings, or 1,700 residential units. He said the units, which would be built on a seven-hectare property behind Dasmariñas Village in Fort Bonifacio, will be sold at PhP25,000 per square meter. Mr. Consunji said the project would raise revenues of PhP1.7 billion over a period of three years. He said if the group can start with the project before the end of the year, it will be completed in two and a half years.

DMCI is also in talks with a consortium of banks for the development of a property in Pasig which was mortgaged by Mariwasa to the banks. The consortium is composed of seven banks and is led by Equitable PCI Bank, Mr. Consunji said. "The land is four hectares, but we are looking at developing 2.8 hectares," Mr. Consunji said. He said a third project would be a joint venture between Crown Equities, Inc. involving a property in C5. Both projects, he said, are now in the final stages of negotiations. He said that as with the AFP project, the Crown Equities and Mariwasa projects would be for the construction of residential units. "People want houses, they want it to be near Makati, and they can't afford too much. That's what we are doing -- units with amortization of less than PhP20,000 a month, but with amenities," he said. "We develop the products, and replicate them in different areas. If you see one of our products, we try to replicate it in one area with site specific changes. We have demonstrated success in the walk-ups in the last few years, so people are in talks with us. We're getting to be able to replicate it," Mr. Consunji said. DMCI is set to pay PhP1.2 billion in loans falling due this year through internally generated funds. "We don't want to borrow. It will be internally generated funds," DMCI Holdings Chief Financial Officer Herbert Consunji said. He said the cash flow of Semirara Mining Corp., the coal producing unit of DMCI, is strong enough to meet the obligations. He added the company has PhP542 million in free cash. The finance boss said DMCI is also proposing to have Universal Rightfield Properties Holdings, Inc. pay its obligations to the holding company partly through dacion en pago. -- Jennee Grace U. Rubrico

Meralco asks court to junk consumer group plea on rate

The Lopez-led Manila Electric Co. (Meralco) has asked the Supreme Court to throw out the petition of the National Association of Electricity Consumers to render as illegal the utility's revision of power generation rate. In a comment filed before the high tribunal on July 29, Meralco warned the grant of the consumer group's petition may mean an increase in the generation rate to PhP3.4029 per kilowatt-hour (kWh) from PhP3.3213/kWh. "With regard to respondent Meralco's second GRAM [generation rate adjustment mechanism] application, the revised generation rate of PhP3.3213/kWh is still beneficial to the consumers as the same is much lower than the original generation charge of PhP3.4029/kWh," Meralco said.

According to the consumer group, the move was void as it lacked the requisite of publication. However, Meralco said that only due notice to the public is necessary as a petition for GRAM is covered by separate implementing rules from those of the Electric Power Industry Reform Act. -- M. E. P. Osorio

Trans-Asia keen on buying major Napocor power plants

By BENNET S. Sto. DOMINGO, Reporter

Oil exploration firm Trans-Asia Oil and Energy Development Corp. yesterday expressed interest to bid for any of the three major power plants of the National Power Corp.'s (Napocor) up for sale. Trans-Asia President Francisco L. Viray, former Energy chief, said they are looking at the 600-megawatt (MW) Masinloc coal plant in Zambales, the 600-MW Batangas coal plant in Calaca and the 425-MW Makiling-Banahaw (Mak-Ban) geothermal power plant in Laguna. Mr. Viray said they will bid for the 110-MW Pinamucan power plant in Dingle, Iloilo. "We're just hoping to participate in the privatization of Masinloc, Calaca or Tiwi-Makban, plus Pinamucan. Any of the three, if we get one, then we'll stop. We're interested in getting one, plus Pinamucan," Mr. Viray said. He added Trans-Asia will join a consortium but it has yet to conduct talks with one. "We submitted our letter of intent for Masinloc. They [government] don't have the bid documents yet," he said. Mr. Viray said Trans-Asia is interested in bidding for Masinloc, Calaca or Tiwi-Makban power plants because these are among the three large plants. He said Trans-Asia is keen on the Pinamucan, noting "we're already in Guimaras, we might as well grow in the Panay area." "We already developed a market there. It would be a waste to let go of that market," Mr. Viray said.

Trans-Asia is also putting up a 3.4-MW bunker coal-fired power plant in Guimaras which will mainly benefit the Guimaras Electric Cooperative. The project is seen to be completed by February. The investment is priced at PhP600,000 per MW. "We're also looking for financing, both equity and loan," Mr. Viray said. The Department of Energy earlier said four out of the 17 foreign investors keen on Masinloc are "serious bidders." Energy Secretary Vincent S. Perez, Jr. said companies from India, Japan, Korea, the US and Southeast Asia have submitted letters of intent to participate in the sale. Masinloc is to be sold as a merchant plant without any power sale contract.

Transco tops income target for first half

The National Transmission Corp. (Transco) yesterday said it expects better performance in the next six months after it registered a net income of PhP7.7 billion for the first half of the year, 25% higher than the PhP6.56-billion target. "It's very satisfactory but we are not satisfied. We think we can do better than PhP7.7 billion in the next six months," President and Chief Executive Alan T. Ortiz said. The increase is attributed to better reliability and new projects. "We are able to serve an increasing demand for electricity in all areas," Mr. Ortiz said. The firm earlier reported that it reduced by about 50% its unserved energy by replacing wooden poles with steel poles, better right-of-way management and more effective maintenance of its transmission facilities. Transco data showed the company has shown enhanced efficiencies in all of its four regional centers in North Luzon, South Luzon, Visayas and Mindanao.

Transco, a spin-off from state-owned National Power Corp. (Napocor), registered a full-year net income of PhP15.38 billion in 2003. From January to June, Transco registered gains in system reliability including 64.82% improvement nationwide in its sustained average interruption frequency index, defined as the average number of times that a customer is interrupted during a specified time period. "We're very happy about this development, which means we are on track, we may not only meet our target this year but we will exceed it by anywhere from 20-25% over last year, which would make us an attractive proposition to any would-be concessionaire," Mr. Ortiz said. The government, through the Power Sector Assets and Liabilities Management Corp. (PSALM) earlier said it is targeting a new round of negotiations with prospective investors this month on the proposed 25-year concession contract for Transco. Mr. Ortiz said while it remains viable, Transco still needs to expand more. The firm earlier said it will push for expansion in the Visayas and Mindanao despite a planned cut in its capital expenditure over the next six years. -- Bennet S. Sto. Domingo

SC issues rules on bonds

The Supreme Court (SC) recently laid down new guidelines on corporate surety bonds to fast-track the execution of money judgments, and to ensure that courts are dealing with legitimate insurers. In a resolution, the court en banc said the new rules will take effect after these are published. "In order to preclude spurious and delinquent surety companies from transacting business with the courts, no surety company or its authorized agents shall be allowed to transact business involving surety bonds with the Supreme Court, Court of Appeals, the Court of Tax Appeals, the Sandiganbayan [antigraft court], regional trial courts, Shari'a district courts, metropolitan trial courts, municipal trial courts in cities, municipal trial courts, municipal circuit trial courts, Shari'a circuit courts and other courts which may thereafter be created, unless accredited and authorized by the Office of the Court Administrator," said the court.

Before the setting of the rules, fly-by-night surety firms were able to penetrate all court levels, making it difficult for winning litigants to collect even if they obtain favorable judgment. Surety companies are commissioned to ensure that monetary judgments are executed regardless of whether the case is civil or criminal, or a special proceeding like a case for adoption. The Supreme Court said the new guidelines will "institute a systematic procedure in the issuance of certificates of accreditation and authority to surety companies, ensure the efficient and effective collection of liabilities under surety bonds and expenditure the administration of justice." A surety firm may either apply as bond providers for criminal or civil and special proceeding cases.

In either case, the court administrator of the Supreme Court is required to review its application form. If approved, the company will be required to make a PhP10-million cash deposit with the financial management office of the office of the court administrator, under a fiduciary account with the Land Bank of the Philippines. Another PhP1 million in security should also be posted if the same company wants to engage in transactions involving civil cases or special proceedings. "The cash deposit shall answer for the liabilities of the accredited surety and its authorized agents in case of nonpayment of its obligations pertaining to surety bonds," the SC said. Unlike in the past when delinquent surety companies were still able to offer their services to litigants, the Supreme Court said it will closely monitor the performance of sureties, and the certificates of accreditation of erring firms will either be subject to suspension or cancellation.

Among the grounds for cancellation or suspension are the commission of fraudulent or illegal acts in bonds transaction of sureties, failure to pay the amount of the forfeited bond within 15 days from the notice of payment from the sheriff, and noncompliance with any of the provisions of these guidelines. Non-renewal or cancellation of the certificate of authority by the Insurance Commission, failure to maintain the PhP1-million deposit despite notice, and violation of court orders on the bond are also bases for disqualification. The Supreme Court has also devised a way to ensure that surety transactions are evenly spread. For instance, five criminal cases will be assigned to companies ranked one to five in the court list. If the first litigant fails to strike a deal with the first insurer, the second highest rated insurer shall have the next priority to negotiate with the litigant in need of a surety. The justices noted that all accredited surety companies must be registered with the Securities and Exchange Commission, Insurance Commission, and Bureau of Internal Revenue. "In no case shall staggered payments of forfeited bonds be allowed," the SC said. Bonds are required in cases involving forfeiture of property, recovery of land and personal property, and at the Supreme Court, cases that seek the issuance of temporary restraining order (TRO). In TRO cases, the bond will answer for damages that may be suffered by the adverse party if it is later found out that the restraining order was erroneously issued. -- Cecille S. Visto

HSBC, Citibank to serve as third-party securities custodians

The Bangko Sentral ng Pilipinas (BSP) (central bank) has accredited two foreign banks as third-party custodians of traded securities, as part of efforts to strengthen the financial system. BSP Deputy Governor Armando L. Suratos said the policy-making Monetary Board approved last week the application of London-based Hongkong and Shanghai Banking Corp. (HSBC) and United States-based Citibank N. A. as independent securities custodians. The accreditation is in line with a BSP circular issued in April requiring banks and non-bank financial institutions under its supervision to entrust to accredited custodians the registration and safekeeping of "all securities sold, borrowed, purchased, traded and transacted in the Philippines." BSP's move to have independent securities custodian seeks to avoid double or multiple sales as what happened in the 1994 Bancap scandal -- where a single set of Treasury bills was illegally sold three or four times to separate clients -- that led the financial system to a virtual collapse. Mr. Suratos said a repeat of the scandal will be prohibited with the accreditation of two banks as independent custodians. "Hopefully, this will encourage more people to invest in securities," he said over the weekend.

Independent custodians mean they should be third parties with no subsidiary or affiliate relationship with the issuer, owner and/or seller of securities. Mr. Suratos said aside from the two banks, the Monetary Board may accredit more banks as third-party custodians so long as these meet certain requirements. A qualified bank and institution must comply with the minimum capital accounts, and must have a risk-based capital adequacy ratio of not lower than 12%. The bank must also have a CAMELs' rating of least "4" to qualify as a custodian bank. The CAMELs rating system, used by the Federal Reserve System, assesses banks based on management and financial conditions and compliance with regulations. CAMELs stands for capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk. The applicant must also have a comprehensive risk management system approved by its board, and with adequate technical expertise to ensure the protection, safety, and integrity of client assets. It must also have complied with the ceilings on credit accommodation to directors as well as the single borrower's limit and without reserve deficiencies. It must also have past due loans of less than 20% and prescribed allowances for probable losses. BSP Governor Rafael B. Buenaventura has said having independent custodians will also help strengthen the capital market, which is in need of reforms. -- Iris Gonzales

UCPB windfall from idle assets hit 1.4B pesos

United Coconut Planters Bank (UCPB), the 13th largest bank in terms of assets, has sold PhP1.4 billion worth of idle assets. In an interview with BusinessWorld, Sonia Tanaka-Ureta, UCPB vice-president for head of sales for asset management and disposition division, said the banks earned PhP500 million through retail auctions, and PhP900 million from direct sales. "Our auctions were successful because of the marketability of the property and the market know how of the auctioneer, which is Property Forum. Also, we offer financing wherein we have a fixed rate for so many years. We do have an excellent after-sales service since selling is word of mouth," she said. In the second quarter, UCPB had two retail auctions in Metro Manila. The bank aims to hold auctions in the provinces. UCPB is targeting to dispose of PhP15 billion worth of foreclosed properties or real and other properties owned or acquired this year via the special purpose vehicle route. -- Ruby Anne M. Rubio

Lower ratings will not affect market liquidity

A recent downgrade in local debt rating will not hamper the downtrend of interest rates as the bond market assumes more liquidity measures. "We have a very liquid market. There's around PhP15 billion of fresh bonds coming in to the market (today). So these funds will eventually find its way back to the domestic market... [If not,] where will they park the funds?" a trader said. Debt paper maturities, which include fixed-rate promissory notes over the weekend, will fuel banks' cash position, the trader said. Standard and Poor's (S&P) downgrade pushed debt yields up on Thursday, but these corrected on Friday as the market awaited the inflow of excess funds. The ratings agency said the long-term foreign currency sovereign rating was at "BB," but the long-term local currency rating was downgraded to "BBB-minus" from "BBB." Traders expect the benchmark 91-day T-bill rate to go down by at least 10 basis points in today's auction.

PESO

Meanwhile, the currency market assumes more range-tracking performance from the Philippine peso this week. After touching PhP56:US$1 on Thursday, it rallied by eight centavos on Friday. Week-on-week, the local currency was stronger against the greenback by 0.20% at PhP55.95. The close below the PhP56 level offered new hope for the ailing peso, said Jonathan L. Ravelas, market strategist at Banco de Oro. -- Ira P. Pedrasa

Telcos to boost market this week

By ROULEE JANE F. CALAYAG

A five-day rally is in sight this week with earnings reports of telecommunication companies expected to bolster activity in the stock market. The market closed lower on Friday after staging strong gains for three consecutive sessions. But analysts are keeping an optimistic view this week. Having prepared long enough for the earnings reports of telcos, investors are ready to pounce on the market as they take positions in select stocks. The telecoms sector is still considered the most profitable segment nowadays.

MERALCO

Astro del Castillo, managing director of First Grade Securities, Inc., told BusinessWorld that although investors were "electrified" on Friday with the decision of the Court of Appeals nullifying a power rate increase by Manila Electric Company (Meralco), there will be more participation in the market this week. On Thursday, the appeals court ruled that the Energy Regulatory Commission (ERC) should have first asked the Commission on Audit (CoA) to audit the books of Meralco before it allowed the power retailer to unbundle or itemize its power rates. This news shattered the sentiment of investors who played safe by dumping their shares on Meralco and its parent firm, First Philippine Holdings, Inc. (FPH), which eventually dragged the Philippine Stock Exchange Composite Index (Phisix) to end the week lower.

An analyst had earlier said the appeals court's ruling highlighted the continuing regulatory risks confronting investors in the energy sector, especially with questions on who is in charge of the sector and how it should be run. But Mr. Del Castillo maintains a positive outlook, saying this will not be the case in the next five trading days. "The investing public will be positioning ahead of the release of the reports of specific companies as they focus on those that have sustained earnings," said Mr. Del Castillo. Telcos, he added, will be leading the pack in the market's run-up this week as they make public their earnings for the second quarter.

1,600 LEVEL

The main Phisix is expected to easily breach the 1,600 level any time this week. The Phisix managed to hover near this level last week with strong foreign buying but it ended a few points shy. As early as July, there were speculations among investors and market players that telecom giant Philippine Long Distance Telephone Company (PLDT) will be reporting tomorrow hefty gains for its April-to-June operations. Subsidiary Pilipino Telephone Corp. (Piltel) was also expected to gain from a share-swap deal with sister company, Smart Communications, Inc., which acquired PLDT's share in Piltel. An analyst said over the weekend that Piltel's earnings for the second quarter may likely be between zero and PhP1 billion due to the share swap deal but he declined to support this projection. Another company that will be closely watched is Globe Telecom, Inc., the country's second largest mobile company, whose second-quarter earnings report will be out on Wednesday. If these telcos show formidable gains in the second quarter, investors may be spurred to concentrate on blue chips which, in turn, will boost the market's value turnover. Aside from telcos, market players will likely be trooping to companies that have performed well over the past months.

ONE BILLION PESOS

Trading recovered from lackluster sessions in the past weeks as the value turnover consistently breached the PhP500 million mark last week, even reaching almost PhP1 billion in two sessions. Mr. Del Castillo said with increasing investor interest, it is possible that the stock market will be trading at least PhP1 billion in the short term. "The market is headed toward this direction [trading at PhP1 billion] in the latter part of the year," he added. But with a slew of positive developments that will be rolled out in the next few days, the market is seen to trek upwards as investors temporarily put behind their worries over the decision of the appellate court on the Lopez-led Meralco.

LOWER S&P RATING

The court ruling dampened the investors' sentiment more than the downgrading of the government's local debt rating which was also announced on Thursday. Standard & Poor affirmed its long-term foreign currency sovereign rating of BB for the Philippines. But the international credit rating agency lowered its long-term currency rating to BBB- from BBB as it took account of the country's "shallow capital markets, which have a limited capacity to absorb more debt." The Philippines has a pile of public debt equal to around 120% of annual gross domestic product (GDP). Interest payments take up about a third of the annual budget. S&P said despite the downgrade, its outlook for the country remains stable, reflecting its "expectation that the new administration will slowly reverse the erosion of public finances witnessed in recent years." The ratings agency affirmed its confidence in the leadership of President Gloria Macapagal Arroyo. While it stressed that improving the Philippines' finances would be politically difficult, S&P said Mrs. Arroyo is capable of resolving the country's fiscal woes and the impending crisis in the power sector.