CONCLUSION: TOO MAY 'PRIVATIZERS', TOO MANY FINGERS IN THE BOWL
Privatization efforts are always hounded by valuation disputes. The Philippine government faces a dilemma common to "privatizers" or privatization hunters around the world: Firms offered at high prices – such as the transfer price – are completely uninteresting to prospective buyers. This has been shown in the past failure of the PNCC and FTI auctions.
However, low prices that accurately reflect the financial straits and low level of investment in GOCCs invite criticism and have led to congressional inquiries on alleged fire sales of assets.
That remains the chief problem of the PMO, Cajucom acknowledges. Any effort to hide encumbrances and other problems would still be unearthed during due diligence studies by investors.
And, according to Finance Undersecretary Eric Recto, the recent experience of the Lopez-led Maynilad Water Services Inc. (Maynilad) could prompt more intense studies by investors who would not want to find themselves trapped in conditions that negate sustainable operations of the new venture.
With a big number of assets still up for sale, the government cannot afford to see another slow slide of privatized utilities into bankruptcy.
In the case of Maynilad, its inability to manage its finances was seriously hampered by the alleged failure of government to provide the promised additional sources of water, which kept operational costs high.
The Philippines privatized its water utility sector in 1997, the world’s largest of its kind, involving service to 11 million residents of Metro Manila. The awards went to Maynilad for the west sector and the Manila Water Corp. of the Ayala group for the east sector.
It was also a happy arrangement for the Metropolitan Waterworks and Sewerage System (MWSS) whose debts with the World Bank, Asian Development Bank and other lending institutions were passed on to the new concessionaires – 90 percent to Maynilad and 10 percent to Manila Water.
Five years later, the Lopezes are throwing in the towel, while the Ayalas say they’ve made money – P553 million in 2002.
Aside from El Nińo and the Asian currency crisis that has hit other concerns of the Lopez group, Maynilad Water also blames MWSS for "breaches of its obligation under the concession agreement," including failure to complete vital concession projects involving the daily supply of millions of liters of water. The issue is now under arbitration.
What devastated Maynilad, however, was its absorption of 90 percent of MWSS debts that were denominated in US dollars. These loans were obtained at a time when the foreign exchange was P26 to a dollar. After the Asian crisis, the peso slipped to P40 versus the dollar, and eventually to over P50. This resulted in the rise of its debts, said to reach $800 million.
In the cases of utilities, the government has to weigh its needs for funds with the public’s clamor for affordable services.
In the sale of properties, the government also has to deal with people – squatters long ensconced on government lands and the relocation of institutions occupying the land.
Nevertheless, the National Government still intends to conduct "the country’s biggest property deal in history" through the privatization of the 550-hectare New Bilibid Prisons reservation in Muntinlupa City.
Preliminary estimates show that the developed property can fetch as much as P110 billion, dwarfing the P34 billion paid for the 160-hectare Fort Bonifacio property just as the 1997 East Asian financial crisis broke out.
Recto says President Arroyo made the privatization of the New Bilibid Prisons a top priority and the justice department is expected to present its plans for the prison reservation.
"The President has made it known that this shouldn’t take too much time," Recto says. "There is a written directive for us to do it."
However, the government property also houses, aside from inmates and staff of the prison, a squatter community with a conservative estimate of 50,000 people. How it will negotiate their relocation with a winning bidder remains to be seen.
Recto says the government will sell the property outright and is not open to joint venture development agreements, explaining that the government should not be in the business of developing.
"Partnerships generally take a long time to put together and the bottom line is we have taken so much time," he notes.
The prison facility shares a wall with the posh Ayala Alabang Village where property prices currently stand at P17,000 to P20,000 per meter. Thus, the New Bilibid Prisons Reservation will likely fetch a high of P93.5 billion to P110 billion.
Conservative estimates place potential proceeds from the entire privatization exercise at P22 billion. Finance officials though expect something midway.
Since it started the privatization program under the administration of former President Corazon C. Aquino, the government has always set ambitious goals. But the failure of some privatized industries, the continuing controversies over other contracts like that of PIATCO, social issues, and global economic woes has drastically trimmed proceeds from the program.
With legal suits pending and hostile legislators waiting to pounce on any missteps, the President may just end her term still in dire need of deficit funds, or start a new term with the same uncompleted privatization program? Or will the National Government ever learn the rudiments of privatizing bad assets?
Reported by: Sol Jose Vanzi
© Copyright, 2003
by PHILIPPINE HEADLINE NEWS ONLINE
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