Thursday, 2 June 2011

Honoring our contracts

Manila Standard Editorial

GIVEN the President’s campaign promise of change, the Aquino administration seems hellbent on obliterating all vestiges of the previous leadership. It is one thing, however, to lead a lynch mob to hound a constitutional officer from her post before her term is over, and something else completely to disregard legal contracts that were signed by the previous administration.

The first is a political act with a limited economic impact; the second is sheer folly that could sap investor confidence in this country.

Last month, the managing director of Hong Kong-based First Pacific complained that the state-run Bases Conversion and Development Authority had written its tollway arm, Metro Pacific Tollways Corp., to inform them that a contract they signed in November to build and operate the Subic-Clark-Tarlac Expressway had been invalidated.

“Contracts are sacrosanct especially if the fulcrum of your economic program is public-private sector partnership,” said First Pacific managing director Manuel Pangilinan. “The government has to honor contracts that are perfected.”

Pangilinan said his company was willing to renegotiate with the new managers of the Bases Authority, but insisted that the contract signed earlier had been above-board and transparent.

He also warned that the administration’s efforts to develop major infrastructure projects with the help of private companies would likely suffer if a bellwether investor such as First Pacific walked away from the expressway project.

Unfortunately, Pangilinan’s warning seems to have fallen on deaf ears.

Just this week, a French company that the Arroyo administration had contracted to build 72 ports for roll-on, roll-off ships, said it would seek international arbitration in case the government canceled its P11.8-billion contract.

“We want the Philippine government to immediately act ... We want them to honor the contract they signed with us,” a senior company adviser said.

Under the new administration, the Philippine Ports Authority now says the country needs only two ports to serve current demand, not 72. And it says it can build a port for much less than the consortium can.

In both cases, unless the government can prove there were serious defects in the contracts, it has a legal obligation to honor agreements, even if they were signed by the previous administration.

When Mr. Aquino’s mother, the late President Corazon Aquino, decided not to operate the Bataan nuclear power plant in 1986, the government sued the contractor Westinghouse for overpricing and bribery, an expensive and ultimately fruitless action. Since then, and until the debt was finally extinguished in 2007, it was the country’s biggest single obligation that we honored.

Companies that invest in government projects can only do so with confidence if they know without a doubt that the agreements they sign with one administration will be honored by the next. To inject so much uncertainty at a time when the country is seeking new private investments defies reason and good sense.

Reversing government failure

Business Mirror

Sometimes it is fun and enlightening to look back at what we were saying in the past. A year ago, this column was entitled “The underground economy,” where I discussed how difficult it was for the government and the private-sector watchers to understand what the economy was doing based on the information that is used to compile the “official” numbers.

I wrote then: “Read this from the first week of March 2010: ‘The domestic economy is projected to grow below 3 percent in the first quarter of 2010 with a 2-percent to 3-percent decline in agriculture output due to El Niño and a strong peso that would limit the stimulative effect of overseas Filipino workers.” This is from the “experts” at Metro Bank and the University of Asia and the Pacific Capital Markets Research and, honestly, those groups are not foolish or unintelligent. They just never asked one of the sari-sari storeowners who sell 85 percent of the beer in the Philippines how their businesses were doing.

As we all know, the economy grew by over 7 percent in the first quarter of 2010.

The government has a difficult time making accurate projections and often the data that are eventually released are suspect as being too rosy, tilted for political purposes. Honestly, I am inclined to believe that here in the Philippines, economic data and information gathering are inherently difficult and, therefore, usually a “best guess.”

The question that might be asked then is: Is it better for the government to do the best it can and not reach a high level of competence? Or is it better for the government to stand aside and let someone else do it? I wonder if the companies that count and measure data and numbers as a business would do a better job than the government? Would a company that measures television viewership be able to count economic activity equally, as well?

The reason I bring this issue up is that there is a storm of criticism over the President’s Public-Private Partnership (PPP) Program. I would think that it is difficult to criticize something that has yet to happen and is just an idea. However, in the weeks after this scheme was announced, there was detailed analysis on why it could not work because the government did not have the available funds, why there would be the opportunity for corruption, and a host of other objections.

I suppose the critics should be happy that their worst fears have not been realized as PPP is still at the idea stage since there have not been any PPP projects.

Every administration comes to office starry-eyed, with grand plans about what the government is going to do for the country. Yet, the grandiose plans put forward in the first few months never seem to happen, whether it’s nation-wide wireless Internet, massive new housing developments, or food self-sufficiency.

One member of the Philippine legislature was recently commended as hard-working because that person had written literally hundreds of pieces of legislation. I wonder how much wealth creation occurred because of all that “hard work.” It would be refreshing to hear from an important national leader a thought-provoking discussion on what the role of the government should really be rather than simply what the government thinks it can accomplish.

My personal feeling is that the government should confine its efforts to areas and projects where the private sector cannot do as good a job.

We complain that public transportation in Manila. Metro Manila is one of the minority metropolises where buses are not government- owned and -operated. And yet, Manila has some of the cheapest public-transportation costs and highest penetration of service around.

We look at what happened when the government monopoly of air transportation was eliminated and how fares and service improved dramatically when the government got out of the airline business. Yet, it keeps its hold on the Philippine National Railway when rail transportation in Luzon and beyond could be a huge boon to the country.

The National Food Authority (NFA) is ineffective and costly. And here again, the government keeps its hold on the NFA like a mother clinging to her child. Instead of selling National Power Corp. (Napocor), absorbing the loans like it did for the Bataan Nuclear-Power Plant, letting the private sector take over and moving on, succeeding administrations hold on, refusing to admit Napocor is a huge failure. Meanwhile, whenever the government allows it, the private sector is building power-generation facilities to keep the country from going dark, which is what the government allowed to happen in the first Aquino administration and is moving toward today.

Many other countries have privatized their prisons systems. What country would be better to do that than the Philippines, where the government cannot afford to properly feed and house the prison population or even, sometimes, keep them inside the cells? The government worries so much about how to raise the money to do all the things that it thinks it can do better than the private sector, but does not. Wouldn’t it make more sense to let the private sector do the job and provide the services that the government has failed at doing?

Government successes are so rare that when they do happen, it is front-page news. Private-sector successes are just ordinary, business-as-usual day-to-day occurrences.

On a personal note, once again as we prepare for the launching of our web site in a few weeks,, a Twitter account has been set up. If you would like to follow mangunonmarkets on Twitter, please join. Once the web site is launched, the Twitter updates will only be available to subscribers of the Premium Area.

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Tuesday, 31 May 2011

Ignorance behind Lagman's "'fertilization' is not synonymous with 'conception'" claim

We wonder what kind of book the Congressman is using for his claims. (

Wikipedia says: "Fertilisation (also known as conception, fecundation and syngamy) is the fusion of gametes to produce a new organism. In animals, the process involves the fusion of an ovum with a sperm, which eventually leads to the development of an embryo. Depending on the animal species, the process can occur within the body of the female in internal fertilisation, or outside (external fertilisation). The entire process of development of new individuals is called reproduction." (

It also says: "Human fertilization is the union of a human egg and sperm, usually occurring in the ampulla of the uterine tube. The result of this union is the production of a new individual of the human species (homo sapiens), complete with a unique set of the 23 pairs of chromosomes that genetically specify a human organism, the sperm and the egg each providing 23, for a total of 46 chromosomes. It is also the initiation of prenatal development. Scientists discovered the dynamics of human fertilization in the nineteenth century." (

See also:


Monday, 30 May 2011

French contractor may sue Aquino govt

Manila Times

A FRENCH contractor signed up by the previous administration for its roll-on roll-off (RORO) ports project has threatened to sue the Aquino government for contractual violations.

“We will go to international arbitration” if the Philippine government cancel its P11.8 billion contract to establish 72 modular RORO ports nationwide, Patrick Azanza, senior adviser to the Eiffel-Matiere Consortium told reporters.

One of the two consortium member-companies, Eiffel, is a French government owned corporation and contractor for the Eiffel Tower in Paris and for various oil rig/platforms around the world.

Azanza said Eiffel-Matiere may file cases in Geneva and in the US.

He said Department of Transportation and Communications (DOTC) Undersecretary Ruben Reinoso informed the consortium that the review committee has endorsed to President Benigno Aquino 3rd the cancellation of the Greater Maritime Access (GMA) Ports Project.

The committee report was prepared by DOTC, Philippine Ports Authority (PPA) and Maritime Industry Authority.

The review came on the heels of a report made by PPA that the project was overpriced.

Azanza said the company has yet to receive a copy of the report, but insists the P83 million cost per modular port is cheaper than the P400 million traditional port of PPA.

The project would use prefabricated steel ports composed of five interdependent modular parts, such as pier or causeway connecting to shore, mooring platform, manual ramp dolphin, and passenger terminal with solar power utilities.

“We would want the President to make a decision that is good for the country. We want the government to honor our contract. We hope he will consider the project,” Azanza said.
He said the consortium is amenable to an amendment of the contract.

“We are flexible, in fact we are saying that the government may use part of the loan to other projects like bridges,” Azanza said.

He said the loan from BNP Paribas has been effective since 2009.

Azanza said the supply contract was signed by then PPA general manager Oscar Sevilla, as well as by representatives of the DOTC, the Departments of Finance, and of Budget and Management, and the Bureau of Treasury.

The loan agreement was also approved by the Monetary Board.

In 2003, the government of then President Gloria Arroyo issued a policy to promote RORO, a system designed to carry rolling stock cargo that does not require cranes for loading or unloading.

The Strong Republic Nautical Highway was one of Mrs. Arroyo’s priority programs to ensure fast and economical movement of goods and people, and to boost domestic tourism and trade. The project called for a RORO port system to lin the country’s islands.

Special Report: Time for a Phl wealth fund


In a little more than a decade, gross international reserves (GIR) has shot up from $15.06 billion at the end to 2000 to $678.8 [sic -- it should be 67.88] billion as of end-April as the remittances from the country’s unsung heroes, the overseas Filipino workers (OFWs), steadily increased.

This more-than-quadrupling in the level of the GIR has resulted in a very comfortable margin of safety for the gross reserve management thrust of the Bangko Sentral ng Pilipinas (BSP) since the end-April level accounts for 10.4 months of imports.

Usually, a country’s reserve level should be able to finance three months of imports. For prudent levels, a central monetary authority sets aside six months worth of imports in its reserve level.

The continued surge in the country’s reserves, no doubt fueled not just by the rise in the number of OFWs but the shift from less skilled to skilled personnel, has given rise to suggestions for the country to have its own sovereign wealth fund, to come from the excess GIR hoard.

One senior banker told the BusinessMirror that the time is up for the Philippines to have its own country fund with the seed money to come from the BSP. The banker said the country could initially have $20 billion as a start-up fund for the contemplated sovereign wealth fund.

A $20-billion sovereign wealth fund will mean that the country will revert back to its end-May 2010 reserve level of $47.689 billion, enough to finance 7.2 months of imports, which is way past the prudent level of six months of imports.

This $20-billion start-up wealth fund for the Philippines can be used to fund some of the so-called PPPs, or Public-Private Partnership Projects, that the government has identified to jump-start the economy. More than 15 PPPs are in the pipeline and ready for bidding from local and foreign investors from China to Australia, and Thailand to the United Kingdom.

The buzz for a sovereign wealth fund for the country started with the continued surge in remittances that now average $1.5 billion a month. The rise is due in part to the deployment of engineers, IT technicians, nurses and even oil drilling personnel, who now account for more than half of the OFWs that get jobs abroad.

It is this marked shift in the composition of the deployed OFWs that accounted for the heartwarming rise in remittances. With their higher earnings, the BSP’s reserve swelled by leaps and bounds.

BSP data showed that it took seven years for the reserve level to double from $15.06 billion in 2000 to $33.75 billion by the end of 2007. However, it just took half that time for the reserve level to double anew to $67.8 billion as at end-April this year.

The reserves topped $40 billion in July 2009 and it raced to $53.75 billion in September 2010. Two months later, the BSP reserves hit another milestone at $60.58 billion.

The need for the Philippines to have its own sovereign wealth fund is premised on the judicious utilization of its excess reserves to fund economic activities that would key in substantial economic growth as in the case of financing, say, a new roadway that opens up economic opportunities in the countryside.

In Asia there are sovereign wealth funds that are used to prod economic growth or otherwise maximize earnings out of the reserves.

Indonesia’s own fund, the Government Investment Unit, known locally as Pusat Investasi Pemerintah, is now financing ports and land acquisitions for its 1,800-kilometer Trans-Java toll project. This tollway will induce economic activity and nudge Indonesia’s gross domestic product. The fund was set in 2007.

In Malaysia the Khazana Nasional, established in 1993, was primarily focused on investments in Malaysia’s companies but has since then expanded overseas. Khazana’s investments include the Kerpan shrimp farm, Malaysian Airport Holdings, Bank Lippo, Apollo Hospital Group and Oriental University. It now has $25 billion in assets and has set aside 12 percent for overseas investments.

Vietnam’s State Capital Investment Corp, which was started in August 2006, now has a portfolio of $420 million. Its wealth fund is intended primarily to improve efficiency of the state capital utilization for which it can be a partner in privatization and in various types of business areas.

One thing going for a Philippine fund is that it gets access to various sovereign wealth funds too and that it can tap the bond market to finance some of its avowed objectives, such as PPP funding.

In the case of Vietnam, for instance, it was able to sign several memoranda of understanding with the Qatar Investment Authority and Temasek Holdings of Singapore for the purpose of identifying possible investment areas.

Thus, the Philippines can benefit tremendously from the setting up of its own country fund, sourced from the BSP reserves, as the said cash hoard can not just finance the PPPs but even serve as bridge-financing tool for capital-intensive projects that can later on be sold to the private sector at a profit.