Pay your bills

This is a government that is building a reputation of not paying its bills and not meeting its obligations.

The most common is VAT refunds. Most of these shouldn’t be paid in the first place because the corporation has been promised VAT exemption if it invests. The investor calculates the viability of his project based on not paying this tax. And so, believing the word of a government, he invests. However, he finds that he isn’t exempted; he must pay, but with a promised reimbursement. And as he is forced to pay something he shouldn’t pay anyway, reimbursement should be made immediately.

Among the people I’ve talked to, it takes three to four years (not weeks or months) to get a promised refund. This is totally unacceptable and inexcusable. And, of course, no interest is added to that delayed payment. When you don’t honor your word, you lose credibility. And you lose job-creating investment.

The one that really got me was the one I reported in my July 24 column, where San Roque Power was denied a whopping P483 milion in VAT refund because it failed to comply with the prescribed 120-day waiting period before it could file its tax refund claim with the Court of Tax Appeals. I agree that San Roque Power can be faulted for not filing within the time specified, but paying your bill isn’t a matter of pedantic adherence to legal niceties. A promise was made: You are not liable for VAT, we will reimburse you. Time should have nothing to do with it. Quite frankly, you shouldn’t even have to apply for the refund, it should be automatic.

Another one I raised two weeks ago was Piatco. I still vividly remember President Gloria Arroyo seeking our support the day before she was to take over Naia 3 because of all the anomalies and suspected corruption involved. We agreed we would not object provided Piatco was paid its legitimate expenses to date. She assured us that the government would pay. Eight years later, payment had not been made.

President Aquino came in, promising a government that would operate cleanly, ethically, morally. And personally, he has done his best, along with his administration. The Philippines’ improvement in Transparency International’s Corruption Perception Index shows this. It has risen from 139th out of 180 countries (bottom quartile) to 85th out of 175 (upper half of countries surveyed).

So why is Mr. Aquino putting this improvement at risk by following in Arroyo’s footsteps and finding all kinds of excuses to still not pay Piatco? The Court of Appeals has ordered that payment be made. It’s a court order. Is the Aquino administration above the court? It made its case in that court, the judge listened—and decided. In questioning the court order, the government is as bad as the losing bidders for public-private partnership projects that it complains about. The amount seems fair to me. Whatever reduction may be achieved cannot compensate for the loss of reputation. I actually wonder how the government can now be using Naia-3 when it hasn’t paid for it.

Then there’s Thales, a company that was hired to build and install a new air navigation system to ensure that planes don’t crash into each other in the sky—rather important, wouldn’t you think? The government stopped paying halfway through the manufacture of the equipment which, under the terms of the agreement, meant Thales had to stop production. It warned the government that there’d be extra cost.

But the Department of Transportation and Communications wanted to review the contract. It could have done that while the manufacture continued; instead, eight months were lost. Thales made a claim for those extra costs, as the contract allowed. But it was ignored; not one of its many letters was answered. Japan International Cooperation Agency, which funded the project, even added its voice to the claims. Still the government didn’t pay, and 21 months later, it still hasn’t. Thales is losing money on this project. It won’t bid for any new project in the Philippines with that kind of attitude.

Then there’s the mess at the Land Transportation Office. Stradcom won the contract in 1997. By 2003 it was up and running, at no cost to the government. Then in February 2012 the infamous DOTC decided not to renew a contract that was working and to bid it out again. And that’s when the chaos started. The promised bidding—which shouldn’t have happened in the first place—didn’t occur within six months (the period committed). The LTO conducted two bid activities, but both failed. More than two years has gone by. Meanwhile, Stradcom hasn’t been paid; over P5 billion is now owed.

And we mustn’t forget MRT-3, which I wrote about on Nov. 12. I’m told that P10.5 billion is owed to MRT Corp., and that the DOTC has not even had the decency to reply to its letters. I wonder if Secretary Jun Abaya, whom I respect, is aware of this.

I have no doubt that the government will offer all kinds of excuses, but there is none. I’m sure there are many, many more examples of excessively delayed payments of sovereign commitments. It’s a government that seems unable to look beyond the front-line numbers to the ramifications of the decisions it makes, ramifications that can cost far, far more than any small saving today.

Foreign direct investment at $4 billion is the last among the major Asean countries by a significant factor (Indonesia received $18.4 billion in FDI in 2013, more than four times the Philippines’ FDI in the same year). NOT meeting your promises is one of the reasons.

The Philippine government is becoming known for doing all it can to avoid or delay meeting its commitments. You make a commitment, you must stick to it regardless of the cost. That’s what honorable people do.

A reputation is built over years of dealings. It is destroyed in minutes of inappropriate action.