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Hanjin could be naval base, government supplier of ships–Lorenzana

Hanjin Shipyard, located in Redondo Peninsula, Subic Bay Freeport Zone, is seen from across the bay. The free port’s biggest investor and employer is seeking rehabilitation, under the weight of hundred of millions of dollars in loans to some of the country’s leading banks.

THE Department of National Defense favors the proposal for the government to take over the shipbuilding facility in Subic of the Hanjin Heavy Industries and Construction Co.-Philippines (HHIC-Phil) Inc. so that it can use its site as a major naval base while supplying the government’s requirement for military and civilian ships.

A court in Olongapo City this week granted HHIC-Phil’s petition for receivership, which it filed last January 8 in a bid to seek protection from creditors to which it owes a total $412 million.

Local economists, however, sounded a warning against any government takeover of the facility, saying the state had no business taking over an enterprise that can be efficiently run by the private sector.

“Wholly, the government will take over. We will settle their liabilities with the banks and then after that, we will bid it out to interested parties for them to assume as majority [owners] and the government becoming a minority owner so that we will have control [over the facility],” said Defense Secretary Delfin Lorenzana on Thursday.

The government’s takeover of Hanjin was the most feasible solution seen by Lorenzana and even by some senators in order to ensure that it will not fall to China, which reports said was very interested in acquiring Hanjin.

Lorenzana said the takeover was among the options that he and the country’s economic managers, including Finance Secretary Carlos Dominguez III, discussed when they met with President Duterte and Hanjin’s case was raised.

Another option was to offer it to other countries, including the United States, Japan, South Korea and Australia.

“But I said, I still have one suggestion, we have a suggestion from the Navy—why not let the Philippines take it over?” Lorenzana said.

“We will have a naval base there, and then we will have shipbuilding capability to build our ships. Anyway, [Vice] Admiral [Robert] Empedrad said we are ordering 20 ships in the next 10 years, and it does not still include the Coast Guard there, which also needed ships,” the secretary said.

Lorenzana said that even the Bureau of Fisheries and Aquatic Resources will also benefit once the government operates the Hanjin shipyard.

“BFAR is buying patrol boats from France, so I think there are enough jobs for this shipyard for the Philippines,” he said.

Lorenzana said that while Hanjin owes local creditor banks $432 million, a debt that forced it to declare bankruptcy, the amount only translates to roughly about P22 billion to P23 billion, which the government can cover.

“Senator [Panfilo M.] Lacson [Sr.] said we have money, the one that we got from the DPWH, which is P75 billion,” he said.

The defense chief said the takeover is already being studied by a technical working group, which is rushing in order not to lose the 33, 000 Filipino workers who are considered shipbuilders.

“We don’t want to lose them,” he said.

Takeover shunned

The government’s poor track record in taking over firms makes the takeover of embattled HHIC-Phil a bad idea, according to local economists.

Local economists such as Action for Economic Reform Coordinator Filomeno Sta. Ana III said the government has no business running a company that can be easily be operated by the private sector.

A government takeover, Sta. Ana said, is not the answer, even if there are sectors that say the troubles of Hanjin was also caused by market failures. He stressed that “shipbuilding is not a public good.”

“The question is: Why should government take over a business that can be capably run by the private sector? If the industry is crucial or strategic for development, government can still help in other ways [responsive industrial policy] without taking over the business,” Sta. Ana added.

Unionbank Bank Chief Economist Ruben Asuncion said taking over Hanjin will also lead to lost revenues, especially given the government’s poor track record in taking over firms.

Asuncion said having white knights is the best option for Hanjin right now. The government does not have experience in running a shipbuilding facility, and such could potentially lead to “regrettable results.”

One such company is Philippine Airlines (PAL), which was sequestered by the national government in the 1970s. It was seized by the late dictator Ferdinand E. Marcos from businessman Benigno Toda Jr.

The GSIS acquired 92 percent of PAL shares from majority PAL owner Benigno Toda, returning ownership and control back to the government. Capital increased from P25 million to P250 million.

However, in 1999, the Securities and Exchange Commission approved a rehabilitation plan designed to return PAL to financial viability, following a capital infusion of $200 million by Chairman Lucio C. Tan. PAL exited receivership in 2007.

“[There is a] long history of bad outcomes from government mismanagement of firms. I would rather continue to leverage foreign investment and know-how,” Ateneo School of Government Dean Ronald Mendoza told the BusinessMirror.

At the very least, National Economic and Development Authority Undersecretary for Regional Development, Adoracion M. Navarro—currently the agency’s officer in charge—said the government can use the facilities of Hanjin to modernize the Philippine Navy.

Some economists, however, recommend that if the government takes over the shipyard, this should not be a long-term arrangement to allow a good investor to come in and take over the facility.

“It’s [government takeover] okay as long as it’s for a limited period of time, e.g., one to three years until a new investor comes in. Ideally, it should be auctioned off, [at the] soonest possible [time]. It’s an important manufacturing facility where the Philippines has a future,” University of Asia and the Philippines economist Victor A. Abola told the BusinessMirror.

Navarro said there is a need to examine measures that the government can take on the matter of Hanjin because if workers will be out of jobs, this could increase unemployment.

The local government is also challenged to not only provide employment opportunities to those affected by Hanjin but also improve the business environment that will be conducive for new investors.

“No, the DND proposal is not a takeover but to look at the shipyard as an opportunity for responding to Philippine Navy modernization needs. They are looking at partnerships with [the] new investor, whoever that is. the government [will be a] shareholder only,” Navarro told the BusinessMirror.

Feasible option—Ibon

In a forum on Thursday, Ibon Foundation Inc. executive director Sonny Africa said a government takeover of Hanjin is a feasible option to minimize the damage of the troubled firm on the economy.

Africa said this can pave the way for the Philippines to industrialize. However, the “takeover” should not only mean a bailout of the firm from its debts to local and
Korean banks.

He said the government should look at this takeover as a chance to introduce government intervention in manufacturing to usher in a real manufacturing resurgence in the country.

Africa said that while it was true that manufacturing has been growing and there seemed to be a resurgence, the growth is still shallow and still not on a par with the manufacturing growth in the 1970s.

“In principle, it [takeover of Hanjin] can help, but the devil’s in the details. Hopefully, its not just a bailout for creditors including foreign creditors and is not just being done for show but should be part of a plan for a major industrialization drive,” Africa said.

On Wednesday, Federation of Free Workers Vice President Julius Cainglet said the Nagkaisa labor coalition presented two options to address the Hanjin issue. The first would have to involve a government takeover where the government can work closely with the worker’s union.

Under this takeover, the Department of Labor and Employment, the Department of Trade and Industry and the labor union will come up with the best way to operate the facility.

The second option, Cainglet said, is for the government to negotiate with shipbuilders in countries that do not have security concerns or territorial disputes with the Philippines.

This includes firms in countries like Norway or The Netherlands.

 

Image credits: Nonie Reyes

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