This column was originally entitled “Travails of privatization: The Philippine experience” but a friend said it was too long and one piece may not be able to capture all the drama and, yes, the heartaches that characterize the country’s experiment in ceding control of government assets to private hands. It has been a long and frustrating tale of good intentions gone bad, of taxpayer-paid assets auctioned at bargain prices on a whim and, worse, without being fully paid for.
Think Philnico. Or, of the well-connected “black hearts” taking hold and making money out of government-owned or -financed assets, also on ridiculous terms at the expense of the lowly taxpayers as in John Hay, or travelers, producers and logistics companies as in South Luzon Expressway (Slex). So, I decided to simply headline these three companies as epitomizing the mess that the past administrations have made out of privatization. These are, in a very real sense, the worst-ever poster boys, as it were, of the travails of this once responsive and economically compelling initiative called “privatization.” It is good Finance Secretary Cesar Purisima finally got a handle on Philnico last week, otherwise the 11-month-old Aquino administration was already well on its way of getting sucked into the whole mess and disappoint our people yet again.
Philnico’s case
Last week Purisima finally wrote a letter to acting DENR Secretary Ramon Paje to look into the operations of Philnico Industrial Corp., accusing the company of not having fully paid the government the amount it contracted to pay when it acquired the mining rights and assets of Marinduque Mining and Industrial Corp. (MMIC) in the mid-1990s while continuing to make oodles of monies out of its illegal operations on nickel-rich Nonoc Island in Surigao. We laud him for this. It is about time companies like Philnico are brought to their senses and start complying with their obligations. We cannot afford to have sacred cows here, especially since these people have fed and continue to feed on the blood, sweat and tears of our people and exploiting the nation’s patrimony. Purisima noted that Philnico only gave a down payment of $1.25 million out of the $263.8 million it owed since taking over the state’s interest in 1996 in Nonoc Mining and Industrial Corp. (NMIC), which holds title over the mining rights of 25,000 hectares on Nonoc island. We recall that NMIC was set up in 1987 by the then-government-owned financial institutions Philippine National Bank (PNB) and Development Bank of the Philippines (DBP) to secure their assets and ownership of the moribund MMIC, a Cabarrus family-owned corporation that had the original mining rights on the island but which owed the PNB and DBP at least $300 million.
In 1988 or thereabouts, the PNB and DBP organized NMIC and later turned the entire company over to the Department of Finance’s Asset Privatization Trust (APT), which proceeded to auction the same afterward. It was then that the “Jun” Narvaez-owned Philnico entered the picture and purchased the state’s share. After paying the down payment, Philnico proceeded to exploit the mineral reserves, subcontracting part of the operations to various subcontractors, such as Hinatuan Mining, which has been exporting a lot of ores since. The continued failure by Philnico to pay up left the government no other recourse but to cancel its original agreement, which included the mining rights. After much lobbying, Narvaez managed to wangle a renegotiation, which ended in his entering into an amended agreement (ARDA) with the government, which enabled it to enjoy the fruits, as it were, without fulfilling its obligations. After years of demanding payment of its obligation, the APT’s successor, the Privatization Management Office (PMO), finally advised Philnico that it was “constrained to exercise its remedies under the ARDA” and proceeded to do so. It was at that point in 2003 that Philnico filed a complaint against PMO enjoining it from exercising its available remedies. That complaint remains pending in court, which is, of course, totally condemnable. Is Narvaez that powerful that he can delay resolution of such a critical case? It appears so.
Which is why Secretary Paje should give this matter utmost consideration. As Purisima noted “…the efforts of the PMO will all go to naught if Philnico and its subcontractors are allowed to continuously deplete the mineral resources while at the same time tying us [PMO and DOF] up in court.” Indeed, this is the kind of privatization we have all been railing against since, where the “winning bidders” go around the law and make a mockery out of the very contracts they are obliged to honor and implement, or else. What took Secretary Purisima and his boys so long to go after Philnico? But all is not lost. Now that he has started to flex his muscles, then Secretary Paje and other officials should do all they can to get this case resolved. If that will need a friendly reminder from Chief Justice Corona to the judges (or justices?) involved to expedite the resolution of the case, Purisima should not hesitate to request such. If that will mean putting in a police and/or military detachment on the island to ensure that no illegal mining is taking place, then that should be resorted to, as well. We note that the Nonoc mining reservation has one of the biggest nickel and cobalt deposits in Asean and is one of 24 priority mine sites identified for full production in the next few years. We cannot afford to have the likes of Narvaez and his ilk stand in the way of such an undertaking, especially since he has reneged on his clear obligation to the government. In fact, if only to reinforce Purisima’s position, we are informed that Philnico’s mining-service agreement, it’s MPSA, on a complaint filed by a certain Jose Luis Vasquez who has a claim on 768 hectares of the 25,000-hectare mining area, has been ordered revoked by RTC Judge Folripina Buyser for failure to follow basic application requirements. That should give Paje and his boys an additional legal leg to stand on quite apart from those mentioned by Purisima and the DENR’s right to “oversee and ensure” the protection of our resources and the interest of our people.
Deceit and maneuverings at Slex, John Hay
If Philnico is guilty of absconding on its multimillion-dollar obligation to the government for years and using our courts to dribble and insulate it from fulfilling its obligations while, at the same time, exploiting our resources using the same agreement it has refused to fulfill, it has found kindred spirits in the concessionaires of the Slex and Camp John Hay, i.e., South Luzon Tollways Corp. (SLTC) which is majority owned by Malaysian firm MTD Capital Bhd. and the Sobrepeña group’s John Hay Development Corp. (JHDC). Like Philnico, these two companies bidded and won in the privatization of these two undertakings and have entered into concession agreement to rehabilitate, operate and manage the same. Also like Philnico, they outmaneuvered and continue to run circles around the government’s efforts to get them to do what their agreements said they should do: provide services and preserve the assets in as efficient and proper a manner as possible in the most cost-efficient way. Well, as things stand, they have not only been sloppy in their services; they have reneged on their commitments and, in the case of SLTC, was more interested in screwing the public than anything else.
The Slex case is instructive. To justify its overcharging on the construction works for the Alabang-Calamba section of the Slex, SLTC, with instructions from its Malaysian partner, MTD Capital Bhd., broke down, excavated and otherwise grinded the original expressway to the ground, despite expert advise from known consultants that 70 percent of the road was still in good shape in accord with international standards. Had it heeded the experts, the cost of construction would have been drastically reduced. What made matters worse is that it scrimped on its “reconstruction” works and if the experts (does TRB have any?) are given enough lead time and freedom, they will surely attest to the fact that the so-called new construction is inferior to the good portions of the old road. What these experts are saying is that instead of tearing up the road, the SLTC should have done construction sectioning. That would have meant less cost, less downtime and less trouble for the motorists.
