BUREAUCRATIC FUMBLES, LEGAL ISSUES SNAG GOVT'S PRIVATIZATION EFFORTS
Government officials, multilateral lending institutions, and private business analysts agree on one point: The sale of assets could provide badly needed funds to stance a budget deficit that hit P220 billion last year. Whether or not the administration of Mrs. Arroyo succeeds in pushing through with auctions or negotiated contracts is anybody’s guess at this point.
Last year, the government set a modest P2-billion target for revenues from privatization. However, it only sold P1.1-billion worth of assets – with P980 million representing belated receipt of proceeds from the previous sale of the Philippine Phosphate Fertilizer Co. Inc. (Philphos).
The Department of Finance (DOF), which oversees the privatization effort, blames the program’s delay on poor market conditions that stalled, among others, the sale of the state’s remaining 10-percent stake in Meralco. The government aims to dispose its Meralco stake with the help of American banking giant JP Morgan Chase and Co., which is angling for the privatization mandate. But now, the giant utility firm, which is also saddled with debts, has to contend with the Supreme Court’s order to cough up P30 billion in refunds for 3.9 million consumers.
Valuation issues also derailed the expected sale of the PNCC. The finance department has commissioned investment bankers RL Bernaldo and Unicapital Inc. to redo the valuation of PNCC, which is saddled by billions of pesos in debt and several pending suits, including one that involves the attachment of several prime assets and the toll fees from the expressways.
In San Miguel, the government must wait for the Supreme Court’s final decision on the coconut levy issue, which would determine once and for all whether or not businessman Eduardo Cojuangco Jr. acquired the company and United Coconut Planters Bank legitimately. The Presidential Commission on Good Government (PCGG), which is expecting a favorable ruling from the High Court, says the state could fetch generous offers from outside investors, compared to the buy-back tender dangled by San Miguel officials last March for the disputed shares.
The PNB sale in June, Recto says, will be followed closely by subsequent auctions and negotiations.
A senior executive of the Privatization Management Office (PMO) described the mood in Malacanang as "impatient." The official, however, pointed out that several major issues are hampering privatization plans. The PMO replaced the inutile Asset Privatization Trust (APT).
Last August, President Arroyo ordered members of her Cabinet to push through the sale of some government properties – even without mustering approval of the privatization body. The President complained about the PMO’s slow processing of privatization papers. The delay in the sale of government properties, she said, represented lost income to cover the country’s budget deficit.
"They’ve been very slow. So, I told them call it a project monitoring office, not a project management office," she remarked that time. "It should not do the privatization because it’s very slow." By December, she scrapped APT for the PMO under the DOF.
The President instructed departments and agencies to proceed with privatization, as long as they follow the rules of bidding. Privatization officers, however, say the charge is "unfair."
"Look, there’s a weak market. Most of these companies and agencies have monstrous debt problems, labor woes, and a convoluted interlocking of problems that need untangling," a senior PMO official said. "We’re moving as fast as we can but there are laws that need to be enforced."
Several major events following Mrs. Arroyo’s order also created more stumbling blocks or cast doubts on the viability of participating in Philippine privatization efforts. There is the Philippine International Air Terminals Corp. (PIATCO) mess that has left a modern, state-of-the-art airport useless six months after its scheduled launching.
While technically a new project, the PIATCO controversy, perhaps, has laid bare the Philippines‚ vulnerability to whims of political administrations. It also represents investors‚ worst fears – that painfully negotiated contracts do not represent a guarantee for business in this country. PIATCO has been accused of grave doings, including overpricing and fiddling with its contract to place the National Government at a gross disadvantage.
However, the Arroyo administration has not helped assuage investor concerns. First, Malacañang stood by former Transportation and Communications Pantaleon Alvarez, who was also instrumental in getting congressional approval for PIATCO’s dubious contract. Then, more recently, PIATCO’s allies revealed that one reason for the Palace’s delayed moves on the controversy – alleged efforts by the President’s personal lawyer to extort millions of dollars from the firm’s beleaguered German partner, Fraport.
The financial crisis faced by the Lopez clan’s Maynilad Water Service this year – and the earlier woes of Metro Pacific in the prime Fort Bonifacio growth area – also highlight the dangers of impressing the state with offers that are unable to hurdle the vagaries of an economy hostage to global upheavals. This, PMO officials say, could further dampen future offers.
Optimistic on PNB
The PNB privatization effort is helped by the bank’s spectacular turnaround after five consecutive years of financial hemorrhage. At the sidelights of the PNB annual stockholders‚ meeting last May, bank president Lorenzo Tan said the financial institution could rake in a net income this year of between P29 to P100 million. This is a far cry from the situation in 2001, when the finance department tried to regain control of PNB amid doubts that it could successfully dispose of its remaining 45-percent stake in the ailing bank, through a joint sale with taipan Lucio Tan.
The situation was so bad the government was studying to "re-nationalize" PNB, despite directives of the World Bank, the Asian Development Bank (ADB) and International Monetary Fund (IMF) to fully divest from the institution The government’s basis for a "re-nationalization" of PNB was the P25-billion loan exposure of two state institutions in the bank, an amount more than double the equity that Lucio Tan pumped into the bank in September 2000.
Following negotiations, the government and Tan ended up both with 45-percent stakes, with the rest of the shares held by the public. The bank is listed on the Philippine Stock Exchange.
Recto notes that a return to profitability four years ahead of the rehabilitation blueprint’s target could boost investor confidence and provide a genuine bidding war for the government shares. Investment analysts, however, hint that taipan’s reputation for exerting a rigid control on companies – and his tenacity in fighting corporate battles – could scare off some big spenders with the same hands-on management style. Tan – like San Miguel’s Cojuangco – could not be expected to just step aside after rebuilding the corporation.
And, while the PNB president sounds optimistic, he also admits that general economic problems could wreak havoc on the Tan group’s plans. A worst-case scenario involves the loss of P400 million a year. Though this represents a huge improvement over the P4.13-billion losses in 2001 and the P1.95-billion red ink figure last year, it could worsen the mood in an already jittery market.
The bank and the government are also expected to clean up PNB’s balance sheet through the sale of real and other properties owned and acquired (ROPOA) and the resolution of outstanding debt issues. PNB’s biggest debtors include the shuttered National Steel Corp. (P5.6 billion), sugar giant Victorias Milling Corp. (P900 million), and Bonifacio Land Co. (P1 billion).
The first two companies have so far defeated state efforts for a permanent takeover that could also ease the bad loan problems of a slew of banks, including the government-owned Land Bank of the Philippines. Bank officials have been holding talks with several foreign investors on a set of special purpose vehicle (SPV) initiatives that would cover the sale of P15-billion to P30-billion worth of bad loans and foreclosed properties.
PNB officials expects the SPV deals, falling into different categories of assets, to be finalized before the yearend, with an auction for its assets by the fourth quarter or early 2004.
Several issues dog the government’s selling binge at the PNB and elsewhere. First is the continued global economic malaise, compounded by continuing terror attacks worldwide, anarchy and unrest among newly liberated Iraqis, and the lingering fallout from the Severe Acute Respiratory Syndrome (SARS) outbreak.
The combination of these factors has sent several rich economies into a tailspin. The IMF even lowered its growth forecast for the Philippines this year to four percent versus the National Government’s 4.5 to 5.5 percent.
The national market has shown impressive resilience in the face of problems directly linked to factors that underscore the worldwide economic malaise. Manufacturing output increased 17.6 percent in March, with across-the-board growth in 16 of 20 manufacturing sub-sectors, including those indicating a recovery in construction and property development. Despite the Philippines‚ good showing, officials admit the specter of recession looms over big-ticket projects.
The latest bad news shows the European ratings firm, FitchRatings, could follow the lead of Standard & Poor’s in downgrading the country’s credit rating. Analysts trace the downgrades to rising public debt and the deterioration of the country’s dollar reserves. "Fiscal consolidation" in the face of a P212.7-billion budget deficit – 5.3 percent of the gross domestic product - is behind the impetus for the new round of privatization.
While the government has introduced some reforms in revenue collection, experts say the impact is "marginal" – at around P10 billion against the monstrous budget deficit. The downgrade could make it more expensive for the government to borrow funds needed to provide social services to a fast-growing population.
Bangko Sentral ng Pilipinas Governor Rafael Buenaventura says the way out is long-term foreign borrowings. Short-term loans, especially from local sources, could jack up the Balance of Payments deficit to $500 million by yearend, he pointed out, affecting purchases of crucial imports for industries. (To be continued)
Reported by: Sol Jose Vanzi
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