Worse than the pork barrel scam

Public attention is now focused on the pork barrel scam, as well it should. That the people’s money is either being diverted into private pockets or is being used for projects whose net benefits have not been compared to, much less been found greater than, those that could accrue to alternative uses, is of fundamental concern.

How much has been diverted is the subject of a hopefully soon-to-be-released report by the Commission on Audit. How much is being used for projects, which although presumably not tainted with corruption, result in lower economic and social rates of return than other projects, has not been estimated at all, although one can presumably get an order of magnitude by comparing the lists of projects financed by the pork barrel with the lists of projects that have been prioritized by the development councils of the local government units in the areas where the projects are located.  In either case, the waste is enormous, with the Filipino people, particularly the poor, getting the short end of the stick—a raw deal.  A case of the rich getting richer, and the poor getting screwed—by their so-called public servants.

At the same time, there are government functionaries, such as the likes of Internal Revenue Commissioner Kim Henares, figuratively busting their gut trying to increase the government’s so-called tax effort ratio (the ratio of tax revenues to GDP).  One wonders how they feel when they see the fruits of their labors being thus dissipated.  And then there are those who use this dissipation as an excuse to justify the fact that they are themselves evading or avoiding their tax.  A vicious cycle, no matter which way one looks at it.

The bottom line is that there is absolutely no valid and/or non-self-serving reason for retaining that pork barrel, and yet only a handful of our legislators are pushing for its abolition. The term for the rest:   kapalmuks.

Alas, there is an even greater scam that is being perpetrated on the Filipino people, beside which, in terms of orders of magnitude, the pork barrel pales in comparison.  A scam that allows the rich to get richer, and the poor to get screwed coming and going. A scam that affects not just the present generation, but also generations to come. A scam that has the imprimatur of all branches of government: Congress, the executive branch, and the judiciary (Supreme Court). In total contravention of inclusive growth, social justice, sustainable development.

What humongous scam is this?  That foisted by the Philippine Mining Act of 1995 or Republic Act 7942.

Why is it a scam?  Because the Filipino people, as owners of  the minerals, receive, under RA 7942, only TWO Percent of the value of the mined ore, as their share of the proceeds from the mining development enterprise.  Period.  And for so-called FTAAs (financial and technical assistance agreements), our share would consist of 50 percent of the net income of the operation after taxes—from which would be deducted all taxes paid to the government. Which effectively  reduces that 50 percent to, as former Environment Secretary Angel Reyes commented, “zero or nil,” and which Supreme Court Justice Antonio Carpio termed a “sham.”

One way to understand how grossly disadvantageous this sharing arrangement is to the Filipino people (the Constitution, by the way, provides for equitable sharing) is to compare it with the sharing agreement that is now in place with respect to the Malampaya project (an agreement during the term of Cory Aquino). In the latter, the Filipino people get SIXTY PERCENT of the production value of the output, after exploration and production costs are deducted. In other words, 60 percent of the gross profit.  The other party (Shell) gets the 40 percent—from which it then pays the government income and other taxes. In other words, the government, as owner, gets its (60 percent) share of the profits, aside and distinct from the revenues that it collects arising from its sovereign power to tax.

What is the magnitude of this scam? Here’s one way of comparing the orders of magnitude involved:  About 10 or so years ago, the value placed on the metallic minerals in the country was something like $900 billion.  Assuming an exchange rate of P40=$1, we’re talking P36 trillion.  Subtracting development and production costs assumed to be 60 percent of that value, the gross profits before tax would be P14.4 trillion.

Using the Malampaya formula, the share of the government/Filipino people would come out to P8.64 trillion.  Using the 2-percent formula of the Philippine Mining Act, our share is P720 billion—or eight hundredths of one percent (0.08 percent) of what we would have gotten using Malampaya. In effect, if all those mineral resources had been extracted, under RA 7942, the loss to the Filipino people would be P7.92 trillion. And this does not even take into consideration the cost of the adverse environmental effects of mining.

Let us assume that the entire pork barrel is P50 billion a year (pork barrel for the legislature is actually P27 billion, and the executive pork barrel cannot possibly be P23 billion, but I just want a good round number), and that all this ends up in the pockets of the corrupt. It would still take 158 years of pork barrel scamming to match what is being cheated from the Filipino people by the Philippine Mining Act. That’s where the “pales in comparison” description comes from. (Up next: How the Philippine Mining Act of 1995 got past the executive branch and the Supreme Court)