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Duterte for business

In a series over Christmas I detailed how the Aquino administration had violated contracts and not paid its bills to the business sector. Its officials responded with nonsense explanations and motherhood generalities that stand up to no scrutiny at all. And a coward hiding behind the nom de plume “Joe America” lambasted me. What’s an “American” doing attacking me? (I know who he is; he’s a Filipino lackey of the administration.)

Anyway, here’s a chance early on for President-elect Rodrigo Duterte to show that he supports business and will stand for no hanky-panky from bureaucrats, and that he’ll honor contracts the Philippine government has signed as these are a sovereign commitment. He could ask Vitaliano Aguirre II, his justice secretary, to make this a first task: to look into these contracts and, if he agrees with me there’s violation, cancel the arbitration and court cases and abide by the contracts as originally written.

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Duterte can instruct Cesar Dulay, his internal revenue commissioner, to make as a first task a review of all unpaid value-added tax refunds—and pay them, ignoring the minor technicalities upon which the Aquino administration loves to play. And meet the promise made that encouraged investment. Pay the overdue bills.

He should also pay the Philippine International Air Terminals Co. the $510 million that a court of law ordered after more than a decade of exhaustive evaluation and appeal. Whatever reason President Gloria Macapagal-Arroyo had for canceling the contract did not include nonpayment of what had been legitimately spent. Arroyo, in fact, assured us that cancellation did not mean not meeting financial obligations. No wonder foreign investment is so low in the Philippines.

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As to the contract violations, this is what needs to be done. First, cancel the anomalous contracts for MRT 3 maintenance and give the contract back to Sumitomo who had proven its competence. Also, withdraw the arbitration case in Singapore. Then talk to the private-sector owners of the MRT Corp. as to how best to invest in the capacity expansion of the MRT 3 system, as they have been trying to all these years.

The collapse of the MRT 3 system is entirely due to the foolish decision of the transportation department to “save money” with a cheaper contract. Well, just look at the result. MRT 3 is in the final stages of collapse, and more than half a million commuters suffer each day.

Then there’s the Metropolitan Waterworks and Sewerage System (MWSS) violating the contract with Manila Water and Maynilad. The contract had been faithfully adhered to by all parties. Then the MWSS arbitrarily changed the formula for computing water rates, saying they can no longer include income tax as a recoverable expense in determining the tariff—even though the contract gave that as a condition of investment.

The National Water Resources Board, adopting the recommendation of a technical working group composed of representatives of the justice and finance departments and the National Economic and Development Authority, agreed with the companies in a board resolution issued in 2005 on how the return on rate base should be computed. The MWSS disagreed 11 years later—a suspiciously long time. Pandering to the public for political reasons seems a likely justification for this action.

As I mentioned in a report that I issued to my clients: “Before 1997 when MWSS was a MESS only about 50 percent of Metro Manila residents were connected to the MWSS system, of which only 26 percent had 24/7 water service, and system losses stood at an incredible 63-67 percent of total water supply. You can’t do much worse than that.

“Today two private-sector companies are managing the system. Manila Water and Maynilad. They have expanded water coverage to 93 percent and 92.9 percent of their respective service areas, 100 percent and 99.8 percent, respectively, of which are experiencing 24/7 water service. You can’t do much better than that.

“The privatization of water supply to Manila has been one of the very few public-private partnership successes in the country. A report released by the International Finance Corp., the private-sector arm of the World Bank Group, confirms this.”

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The Malampaya consortium of Shell, Chevron and Philippine National Oil Co. also came under fire. They were enticed to take the high risk and huge cost of exploring for natural gas by agreeing they’d be tax-exempt, as an incentive to come. They found gas, and we’ve benefited tremendously— some 2,700 megawatts of clean power.

But the Commission on Audit has now decided that tax should be included in the company’s share of the revenues, despite the contract saying it wouldn’t be. The clamor today is, as it should be, for clean power. Malampaya will run out in 2024, plus we need more power for growing demand due to a growing economy. Exploration is urgently needed. With decisions like this, it won’t occur. The government won’t attract the much-needed investments in the power sector.

The Bases Conversion and Development Authority was ordered by the courts to pay Camp John Hay Development Corp. (CJHDC) P1.4 billion for failure to meet its obligations. CJHDC would then turn over the remaining undeveloped assets.

Thales was contracted to provide a new navigation system. Halfway through the project implementation, then Transportation Secretary Mar Roxas put it on hold. The company incurred great losses. It applied for reimbursement, as the contract mandates. Three years later, there’s not even a response from the government. Pay it; it’s legitimately due.

Finally, VAT refunds due run into the billions. They were the promise of a sovereign state, and they’re due.

So there: Pay what’s due, restore the original intent of mangled government contracts and commit to honoring these in the future. These actions alone will go a long way in restoring private-sector confidence in government dealings and deliver a clear signal that President-elect Duterte supports business nationally, as he has supported local business in Davao City.

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E-mail: wallace_likeitis@wbf.ph. Read my previous columns: www.wallacebusinessforum.com.

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TAGS: Bases Conversion and Development Authority, business, Camp John Hay Development Corp., Cesar Dulay, Chevron, Commission on Audit, contracts, Gloria Macapagal Arroyo, Malampaya consortium, Manila Water, Maynilad, Metropolitan Waterworks and Sewerage System, MRT-3, National Water Resources Board, Philippine International Air Terminals Co., Philippine National Oil Co., Rodrigo Duterte, Shell, Sumitomo, value-added tax refund, Vitaliano Aguirre II
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