PNOC-EC shows way to other GOCCs

I read in the newspapers that the national government is pouring another P40 billion to P50 billion (that’s billion pesos) as subsidies to government-owned and -controlled corporations (GOCCs). That’s P40 billion to P50 billion taken away from funds for services such as infrastructure projects, food and health aids, housing and jobs for Filipinos who need them.

Whenever the government falls short of services it is supposed to give to the people, its usual answer is: “No funds.” Yet here it is throwing away billions of scarce resources to GOCCs that are supposed to be earning for the government, instead of siphoning money away from it. Not only that, Congress has unlimited funds when it allocates pork barrel (a major cause of corruption), million-peso bonuses, bloated and redundant MOOEs, allowances, bonuses and representation expenses to its own members, as well as intelligence funds to public officials—expenses that escape the eagle eyes of the Commission on Audit.

That is why it is happy news when you read that a GOCC has remitted money as dividends to the national treasury from profits it had earned from its own operations. One such GOCC is the Philippine National Oil Co.-Exploration Corp. (PNOC-EC), which last year gave to the national government a dividend of P5.01 billion from its 2011 gross revenues of P10.04 billion. That’s 50 percent of gross earnings, a rate of return that is very high even for the top private corporations. It made the PNOC-EC the most profitable GOCC and the No. 3 entity in terms of dividends remitted to the treasury. The first and second were the Bangko Sentral ng Pilipinas and the Development Bank of the Philippines, respectively. Among nonbank government corporations, PNOC-EC is the top moneymaker.

Yet in 2010, PNOC-EC delivered only P1 billion in dividends to the treasury. What happened, how did they do it?

The answer: A new chief was appointed to PNOC-EC by President Aquino. He is former Manila Mayor Mel Lopez who immediately plugged the leaks in financing, stopped wanton spending and curbed corruption. He is only working true to form.

When he was mayor of Manila (1986 to 1993, seven years), Lopez inherited an administration with P1 billion in debts. By the time his term ended, he not only wiped out the debts but left City Hall with an unprecedented P1.2 billion in cash surplus. Bravo! And I am writing about Lopez to show other GOCC executives that government corporations do not always have to lose money but can earn loads of it simply by cost-cutting, lessening wasteful spending and, most of all, stopping corruption. GOCCs are supposed to earn, not to lose, money.

Not many people know what the PNOC-EC is. It is a little-known subsidiary of the PNOC but which is now a veritable cash cow. From a mere department of the PNOC engaged in petroleum exploration in the 1970s, PNOC-EC is now a major corporate and financial player in the energy field with a gross income of more than P10 billion in 2011. It has expanded its operation to oil, gas and coal exploration, development, energy production and trading. It is engaged in partnerships with both foreign and local investors in its exploration and development activities.

PNOC-EC now holds eight petroleum exploration contracts throughout the archipelago, aside from operating two coal mines in Zamboanga Sibugay in Mindanao, and in Cauayan, Isabela. Other coal projects are in the offing.

Its most profitable project thus far is the Malampaya Deepwater Gas-to-Power Project off Palawan, in partnership with Shell Philippines and Chevron. Registered with the Securities and Exchange Commission, the corporation is 99.78 percent owned by the Philippine government and 0.22 percent by public shareholders.

Lopez believes in the great financial potential of all these exploration contracts. He is confident that the Philippines will eventually realize its goal of being self-reliant in indigenous fuel supply for electricity generation, such as coal, gas and oil.

At its 35th anniversary in April 2011, Lopez handed President Aquino a check for P4.997 billion as dividends from its operations. It was the biggest revenue contribution yet to the treasury.

Asked how he did it, Lopez, instead of giving a longwinded answer, gave me a clipping of a magazine article which showed how the unprecedented feat was achieved.

“It was made possible,” the article said, “by the company’s … increase of 14 percent over gross revenues in the previous year amounting to P8.82 billion.

“Net income in 2011 rose to P3.002 billion compared to P2.476 billion in 2010, an increase of P526 million, or a hefty 21 percent jump.

“In his 20 months as CEO of PNOC-EC, Lopez gave the government P8 billion in dividends.”

Additionally, the PNOC-EC “has no outstanding loan obligations and (has) a positive cash balance of P1.85 billion as of Dec. 31, 2011.”

To curb corruption, Lopez “appealed to the officers and employees to practice honesty, integrity and transparency in the performance of their duties.”

A major source of graft is procurement, so Lopez immediately reformed its procurement process by “directing the formation of three bids and awards committees, (BACs) ” to prevent collusion.

“When a bid is made for a contract or procurement of supplies advertised in the newspapers, a raffle is held to determine which of the three BACs shall conduct the bidding.

“In this way, no BAC has the opportunity to contact prospective bidders and to engage in the usual collusion…

“Since collusion between BACs and bidders is avoided, PNOC-EC has saved substantial amounts of money through the honest and transparent awards of contracts and purchases of supplies and equipment.”