Privatized, foreign-controlled elections: the original sin

“Comelec privatized our elections and allowed foreign firms to control it” (Representatives of US-based Dominion hand over a CD containing the PCOS source code to poll chief Sixto Brillantes; Photo from The Philippine Star)

The ever controversial source code is now finally available, so says poll chief Sixto Brillantes. The catch, however, is that the review can be finished only well after the elections on Monday (May 13). The review could last for as long as six months, meaning the results will be known by as late as November. This also means that we will indeed be forced to entrust our votes to an un-scrutinized computer program. If it had serious problems, we will know after the damage has been already done. Imagine the chaos it will create if the post-election review of the source code found loopholes a high-tech Garci can easily exploit to operate an electronic dagdag-bawas.

Beyond Brillantes and Comelec

Common opinion says that such predicament could have been avoided had the Commission on Elections (Comelec) simply followed what is required under the law. Republic Act (RA) 9369 or the amended Automated Election System (AES) Law mandates the review of the source code by political parties and interest groups. Poll officials failed to implement this. The primary author of the AES Law, senatorial bet Richard Gordon, has argued before the Supreme Court (SC) that such review is imperative. The elections could not proceed without it, he said.

Is it because of plain neglect of Brillantes and the Comelec that the pre-election review was not conducted? Maybe to a certain extent. But what really hostaged the availability of the source code is the fact that it is a private technology marketed for profits by a foreign company. And that’s the original sin, so to speak.  The Comelec privatized our elections and allowed foreign firms to control it through their patented software and technology. That’s where Comelec’s bigger accountability lies.

The basic issue of private and foreign control was not corrected when Comelec bought the precinct count optical scan (PCOS) machines from London (UK)-based Smarmatic International Corp. in March last year. In the first place, the decision to buy the machines was more about budget constraints. Leasing brand new units entails P6.2 billion. On the other hand, Comelec reportedly spent just P1.8 billion to purchase the 81,280 PCOS machines it leased from Smartmatic in 2010. However, the know-how and technology remained with the foreign vendors.

Indeed, the AES has made Philippine elections a multi-billion peso industry dominated by foreign companies. Aside from supplying the PCOS machines for P1.8 billion, Smartmatic also cornered five other contracts with the Comelec for the 2013 polls. One is the provision through a call center of operations and technical support services to field personnel of the Comelec who will man the PCOS machines. This contract is worth P111.6 million. The others are the P405.4-million election results (ER) transmission services; the P154.5-million transmission modems; the P46.5-million compact flash (CF) cards main; and the P46.5-million CF cards worm. All in all, these Smartmatic-Comelec deals are worth almost P2.6 billion.

Corporate dispute

But Smartmatic’s monopoly of Philippine elections (and in other countries as well) is being challenged by a fellow foreign vendor. As we discovered, Smartmatic only owns the PCOS machines but not the software to run them. The software is owned by Denver (US)-based Dominion Voting Systems which unilaterally terminated in May 2012 its license agreement with Smartmatic for the Philippine elections. It led to a legal dispute in a Delaware (US) court in September 2012. Corporate legal disputes between the two election vendors are also ongoing in Mongolia and Puerto Rico.

Thus, Brillantes and the Comelec could not release the PCOS source code owned by Dominion for public review because of possible legal issues. The situation was truly odd – the entire nation was held hostage by the conflicting private interests of multinational companies. It highlighted how under the current AES, elections as a supposed exercise of national sovereignty can be so easily undermined by foreign firms that are unaccountable to anyone except their profit-seeking investors.

Prior to the agreement between Smartmatic and Dominion to allow a public review of the PCOS source code, Brillantes has repeatedly assured AES critics that SLI Global Solutions has already certified the PCOS source code so we need not worry about its trustworthiness. SLI is the third party reviewer contracted by Comelec to scrutinize the PCOS source code. Like Dominion, SLI is also based in Denver and provides “software testing, quality assurance, and independent verification and validation”. IT firms from the same US state – and with presumably many business deals forged between them in the past (like this one) – are not exactly reassuring.

Note also that because of the dispute between Smartmatic and Dominion, the additional eight enhancements to the PCOS source code that Comelec asked have not been implemented. It is unclear what exactly these enhancements are, but we know for a fact that the PCOS machines showed insufficient accuracy in properly counting the votes, among other errors, as shown in the mock elections and in the final testing and sealing (FTS). Brillantes, however, kept telling us to just give our full trust to these unaccountable, profit-driven foreign companies. It does not help that in agreeing to give the PCOS source code for public review, Smartmatic and Dominion forged a deal riddled with confidential provisions. Brillantes was quoted as saying said that these terms are covered by a non-disclosure clause and are “personal” to the disputing companies; never mind if what is at stake is the national interest.

Canvassing source code

The PCOS software or source code is just one aspect. Seldom talked about is the source code of the Canvassing and Consolidation System (CCS), which Comelec also purchased from Smartmatic for P36.6 million. Unlike the PCOS source code, the CCS source code supposedly underwent review by the United Nationalist Alliance (UNA) and the Parish Pastoral Council for Responsible Voting (PPCRV). However, we have not tested the reliability of the CCS because the FTS of the Comelec did not include the transmission, canvassing and consolidation of votes. Furthermore, the enhancements to the CCS source code were apparently not implemented, again due to Dominion’s termination of its agreement with Smartmatic. Note that in 2010, grave concerns were raised on the security and reliability of the CCS that could have resulted in wholesale cheating.

One well-documented case of possible electronic fraud using the transmission server is Biliran. The Philippine Computer Society (PCS) identified the following instances as probable proofs of electronic fraud in the province during the 2010 automated polls: (1) The Municipal Board of Canvassers (MBOC) computer received transmission of two different elections results from two different internet addresses; (2) The MBOC received a successful transmission of results from a precinct where the PCOS machine was reported to have shut down without transmitting anything; and (3) The MBOC received transmission of results 29 hours after the polling place had already closed.

The PCS explained that the first instance shows that the MBOC computers could receive results for the same precinct from several PCOS machines. The second instance, meanwhile, shows that MBOC computers could receive results independent of the PCOS machine assigned to the precinct. These two instances demonstrate that a poll cheat with access to an unauthorized PCOS machine can transmit doctored results to the MBOC.  Finally, receiving results beyond what the PCS called as “common sense range of time for transmission delay” provides cheats a very wide window to alter the authentic elections results.

Comelec accountability

While privatization and foreign control are the underlying reasons for the numerous problems facing our elections, Comelec is accountable as well along with Smartmatic and Dominion. The poll body colluded with these foreign vendors of election technology in undermining our right to vote and our right to credible, democratic and transparent elections by instituting the type of flawed AES in 2010 and again this year. Because it entered into multi-billion peso contracts with foreign companies, it is hell-bent in defending the expensive AES despite the obvious and serious defects of the system.

Elections in the Philippines are structurally flawed; winners are determined by how much guns, goons and gold they have. It marginalizes the poor and powerless while legitimizing the domination of the political and economic elite and creating the illusion of democracy. Poll automation was seen as a step forward to address some of these issues. But with the type of AES we have, it appears that we have even taken a step backward. Modernizing our electoral process through the use of technology is not necessarily wrong. However, modernization should promote transparency, credibility, accountability and people empowerment, all of which are seriously being subverted by the privatized and foreign-controlled AES of the Comelec. (End)

Who cares about smuggled oil?

Petron Corporation, the country’s largest oil company, has alleged that about one out of every three liters of gasoline or diesel sold in the Philippines is smuggled. For the government that translates to P30-40 billion in lost revenues a year, said Petron boss Ramon S. Ang. For the company it means fewer profits because smuggled oil can be sold at extremely low prices and undermine Petron’s market share.

But why should ordinary Filipinos, who have been forever abused by Petron and other big oil firms, care? Jeepney, taxi and tricycle drivers, the small fishers and farmers do not mind buying smuggled oil if that’s the only way they can boost their meager income eroded by ever rising fuel costs. They simply can’t empathize with Petron’s predicament of seeing its profits fall to “just P2.3 billion” last year. They can’t appreciate the lost government revenues either since social services are hardly felt anyway. Just ask Kristel Tejada’s parents.

If there is one issue that matters to ordinary folks in the allegation of Ang is the huge tax burden imposed by government on a commodity as socially sensitive as oil. The claim of Petron is that smugglers are using the special economic zones to evade paying the 12% value-added tax (VAT) and the excise tax. This allows some retailers to sell cheap oil.

How much do government taxes add to the retail price of petroleum products?

As of April 2, 2013, the retail price of gasoline in Metro Manila ranges from P48.65 to P54.64 per liter, based on the monitoring of the Department of Energy (DOE). The VAT is about P5.84 to P6.56 per liter (12% of the retail price). The excise tax, on the other hand, is fixed at P4.35 per liter. Thus, the VAT and the excise tax comprise around 20 to 21 percent of the current retail price of gasoline.

Compare it to the percentage of government taxes to the pump price of gasoline in the US which is just about 12% (more details here). The Philippines, in fact, has one of the largest taxes as a percentage of gasoline retail price in the world, together with Hong Kong, Thailand, New Zealand, Cambodia and Singapore (read more here). The same thing is true for diesel, which is has zero excise tax but is also imposed with the 12% VAT.

The country’s oil products carry high government taxes despite the elimination of the 3% import duty on crude oil and refined petroleum by the Arroyo administration in 2010. Refusing to scrap the VAT and the Oil Deregulation Law, it was government’s attempt to mitigate the impact of soaring global oil prices.

But it was a futile move. Pump prices remained high and continued to increase exorbitantly in a regime of deregulated prices. The basic problem of monopoly control, overpricing and speculation remained, which even the so-called Independent Oil Price Review Committee (IOPRC) acknowledged. And compounding the consumers’ predicament is the oppressive 12% VAT on oil, in which government revenues increase as oil prices skyrocket.

Consumers need lower oil prices. Government must find ways to reduce them. One immediately doable step is to scrap the VAT. Government may retain the excise tax or re-impose the 3% tariff (except for the most socially sensitive oil products like diesel, kerosene and LPG) but the VAT should go. Government should also devise tax measures that will make oil firms, especially the biggest and most profitable ones, shoulder more tax burden.

As for smuggling, it must be addressed within the framework of deep reforms in the industry and with the aim of dismantling the oil monopoly and curbing price abuses. The problem of rampant smuggling can only be solved if the downstream oil industry is strictly regulated by government.

One possible measure is a system of centralized procurement wherein the Philippine National Oil Company (PNOC) or any relevant state agency will be the exclusive importer of crude and refined petroleum. Under this system, it will be easier to track or identify smuggled oil, e.g. anything not imported by the PNOC is automatically considered smuggled. It will also help minimize the overpricing of oil companies. (End)

Sabah crisis: Is Aquino siding with Malaysia to protect relatives’ business interests?

Presidential cousin and funder Tonyboy Cojuangco’s AirAsia business pals transport Malaysian army reinforcements to Sabah. (Photo from Borneo Inside)

The “journey home” to Sabah of some 200 followers of the Sultanate of Sulu more than a month ago has escalated into a full blown humanitarian crisis. More than a thousand Filipinos have fled Sabah that for decades they called home. Men, women and children took any boat available in a frantic and perilous voyage away from the brutality of Malaysian forces. The number of refugees in Tawi-Tawi from Lahad Datu and other affected towns in Sabah is expected to grow in the coming days.

Those who fled recounted the atrocities that Filipinos suffered in the disputed territory. “Malaysian policemen ordered Filipino men to run as fast as they could and shot them,” said a report by the Philippine Daily Inquirer. “Even pregnant women and children have been hunted down and killed as the Malaysians fire mortars and embark on a house-to-house search,” according to the Philippine Star. These people are not part of the armed followers of Sultan Jamalul Kiram III. They just happen to be Filipinos.

Some are baffled while most are enraged by the attitude of the Aquino administration towards the Sabah crisis. From the onset, President Benigno Aquino III took a hardline stance against the Sulu royal forces. Jamalul’s brother Rajah Mudah Agbimuddin Kiram and his men must surrender before any talks can happen, Aquino insisted. Charges are being prepared versus the Kirams, claimed the Justice department. They may also be turned over to Malaysian authorities to face prosecution. Malacañang sowed intrigues to cast doubt on the motive and legitimacy of the Sultanate. The National Bureau of Investigation (NBI) is probing the alleged conspiracy between the Kirams and certain politicians. All these even as Aquino ignored appeals by the Sultanate and the United Nations (UN) to stop the Malaysian military assault and for parties to talk.

Palace and Foreign Affairs spokespersons, of course, expressed concern over the reported human rights abuses in Sabah. But their statements are meaningless amid the brutal military offensive launched by Prime Minister Najib Abdul Razak that Aquino practically sanctioned with his reckless position. The public perception is that Aquino abandoned his own people, surrendered the country’s rightful claim to Sabah and sided with Malaysia. Thus Aquino, like Razak and his forces, is responsible for the carnage of Filipino men, women and children in Sabah.

But why is Aquino siding with Malaysia? One plausible explanation noted by analysts is the ongoing peace talks with the Moro Islamic Liberation Front (MILF) where Malaysia plays a key role as facilitator. Aquino does not want to displease Malaysia and risk undermining the negotiations.

However, it is also notable that since taking over in 2010, Aquino’s relatives who bankrolled his presidential bid have inked business deals with Malaysia. Could these business interests be another possible explanation for the administration’s handling of the Sabah crisis?

What are these business deals? One involves San Miguel Corporation (SMC) of Aquino’s uncle Eduardo “Danding” Cojuangco Jr. In August 2011, SMC acquired three subsidiaries of US oil giant Exxon Mobil’s downstream oil business in Malaysia. Worth $610 million, the transaction included the purchase by SMC of Esso Malaysia Bhd, Exxon Mobil Malaysia Sdn Bhd and Exxon Mobil Borneo Sdn Bhd. In its website, SMC said that the three companies form an integrated business engaged in refining, distribution and marketing of petroleum products. The physical assets include the 88,000 barrels per day Port Dickson refinery; seven fuel distribution terminals; and about 560 refilling stations.

SMC’s entry into the Malaysian downstream oil industry could be just the initial steps. Ramon S. Ang, president of the giant conglomerate, recently disclosed that SMC is eyeing big oil and natural gas field overseas. “If we were able to buy one of those, it would be like printing money forever,” Ang was quoted as saying. SMC is so serious about the plan that Ang said they are willing to let go of longtime core business San Miguel Brewery Inc. and new assets in power generation to raise funds. With its acquisition of Exxon Mobil’s downstream assets, SMC is in a strategic position to also corner upstream deals in oil-rich Malaysia.

The disputed state of Sabah itself is abundant in oil and gas resources. An article by the Philippine Star, quoting a 2012 study by Singapore-based FACTS Global Energy, reported that Sabah has reserves of about 11-12 trillion cubic feet of gas and at least 1.5 billion barrels of oil. The figures represent 12% and 15% of Malaysia’s natural gas and oil reserves, respectively, according to the report. Another article, by the Centre for Research on Globalization, noted that Sabah has 15 oil wells that can produce as many as 192,000 barrels a day. Also, four new oil fields have been discovered in its territorial waters in the past two years further increasing Sabah’s potential as oil producer.

Is Aquino avoiding displeasing Malaysia over the Sabah dispute so as not to undermine the grand multibillion dollar oil and gas ambitions of SMC and uncle Danding?

Another business deal involves AirAsia Philippines, the local affiliate of Malaysia-based AirAsia Bhd, the largest budget carrier in Southeast Asia. In November 2010, the Board of Investments (BOI) approved the formation of AirAsia Philippines as a joint venture between Malaysian investors and Filipino businessmen led by the President’s cousin Antonio “Tonyboy” Cojuangco Jr. Tonyboy and his Malaysian partners are aggressively expanding their operation in the Philippines with their recent acquisition of at least a 40% stake in local rival Zest Airways Inc.

Does Aquino fear that the contentious Sabah issue could somehow complicate the blooming Malaysian business partnership of his cousin Tonyboy?

Aquino could not just ignore the interests of his rich relatives. He won’t be President without their vital support.

Tonyboy was the biggest campaign donor of Aquino in 2010, based on the President’s official declaration to the Commission on Elections (Comelec). Out of the P440 million in campaign funds declared by Aquino, Tonyboy’s contribution accounted for almost a quarter with P100 million. While Danding was not officially listed as a campaign donor, it is widely known that the tycoon and Marcos crony also supported the candidacy of his nephew.

If these business interests of his relatives played a key role in Aquino’s handling of the crisis, then the slaughter of our men, women and children in Sabah becomes much more revolting and enraging than it already is. (End)

LRT 1 privatization: public to bear costs of guaranteed private profits

Photo from Bulatlat.com

It’s the same old story. We have seen it before in the privatization of the National Power Corp. (Napocor) where consumers are now being forced to pay more to shoulder stranded costs arising from sweetheart deals with private power generators. We have seen it in the privatization of the MRT where government has been insisting to hike fares to pay for financial obligations arising from guaranteed profits and debt payments. Both punish the public with exorbitant fees and drain the already scant resources of government.

The same fate awaits the Filipino people if the P60-billion privatization and line extension of LRT 1, the largest public-private partnership (PPP) project of President Benigno Aquino III to date, will not be stopped.

Those who are interested to look into the details of the LRT 1 privatization may download a copy of the draft 32-year concession agreement here. Scrutinizing the draft contract, we will see that despite the repeated denial by its officials, the Aquino administration will continue the usual practice of providing state guarantees to peddle its privatization program. And as you might expect, such guarantees will come at the great expense of the public.

Top-up provision

If the private operators of the MRT were granted with a guaranteed 15% return on investment (ROI) annually, the winning bidder for the LRT 1 privatization will enjoy a so-called top-up subsidy. The Department of Transportation and Communications (DOTC), the agency in charge of LRT 1 privatization, explained that the top-up provision will entail the government to shoulder the difference between the pre-approved fares contained in the concession deal and the actual fares that authorities will be able to actually implement.

This is essentially a profit guarantee for the private operator and can be found in Section 20 (on Concessionaire Revenues) of the draft concession agreement for LRT 1 privatization. Under the draft contract, the concessionaire will be entitled to a notional fare (Section 20.3.a) that shall be agreed upon by the government and the winning bidder to ensure the commercial profitability of the system. The notional fare would be periodically adjusted (read: increased) during the entire 32-year concession period. Section 20.4.a of the draft contract, meanwhile, states that: “In any period, where the Approved Fare is lower than the Notional Fare, the Grantors shall pay to the Concessionaire a Deficit Payment (“DP”), to reflect the difference between the Notional Fare (NF) and the Approved Fare (AF).” The Grantors refer to the DOTC and the Light Rail Transit Authority (LRTA).

Concretely, this means that if the DOTC or LRTA could not implement a certain fare level for LRT 1 as committed in the concession agreement due to strong public opposition and/or regulatory, legislative or judicial intervention, government is obliged to pay the private operator its expected revenues from such fare level. Government, of course, will be using public money. In other words, the public will not escape the greed of the private operator – whether as LRT 1 commuters (who will shoulder the fare hike) or as taxpayers (who will bear the top-up subsidy). Needless to say, prospective LRT 1 operators that include San Miguel Corp. Infra Resources, Inc.; Light Rail Manila Consortium of Manny V. Pangilinan and the Ayala group; DMCI Holdings, Inc. of the Consunji group; and the foreign consortium MTD-Samsung of Malaysia and South Korea are pleased with the deal that they will be competing to secure from the Aquino administration.

Regulatory risk guarantee

The top-up subsidy in LRT 1 privatization is a form of regulatory risk guarantee that the administration’s economic managers first disclosed in September 2010. The announcement was made ahead of the President’s working visit to the US where he promoted his PPP program to American investors. Two months later, Aquino officially declared the scheme as policy during the PPP Summit, which the government organized to jumpstart its privatization initiatives. In his speech, the Chief Executive said:

“The government will provide investors with protection against regulatory risk. Infrastructure can only be paid for from user fees or taxes. When government commits to allow investors to earn their return from user fees, it is important that that commitment be reliable and enforceable. And if private investors are impeded from collecting contractually agreed fees – by regulators, courts, or the legislature – then our government will use its own resources to ensure that they are kept whole.”

While providing profit guarantees is standard practice in privatization, the regulatory risk guarantee is unique to the Aquino administration. His economic managers designed the scheme so as to avoid criticisms that he is repeating the same disadvantageous perks given to PPP investors in the past that caused the financial bleeding of government such as in the case of Napocor and MRT. But the top-up subsidy or regulatory risk guarantee is essentially the same as the take-or-pay provisions in previous PPP deals. Government and the end-users will still assume all the risks associated with operating the infrastructure while the profits of the private operator are secured.

More public debts

Where will government get the funds for the LRT 1’s top-up subsidy? To be sure, it will not come from disposable funds or public savings as the national budget deficit is still huge at P127.3 billion while the national government remains heavily indebted with more than P5.38 trillion in outstanding debt as of November 2012.

Like his predecessors, Aquino will borrow more to finance his PPP program including the profit guarantee for participating private corporations.  The National Economic and Development Authority (Neda) had earlier announced that government will tap multilateral institutions to provide for the guarantees so that when PPP investors face risk, they can still “be paid fast and immediately”. One of the multilateral lenders that made a pledge to fund the government guarantees on PPP projects was the World Bank which issued the commitment during the 2010 PPP Summit. Incidentally, the World Bank through its investment arm International Finance Corp. (IFC) is the transaction advisor of the DOTC and LRTA in the LRT 1 privatization.

Undermining check and balance

Aside from the direct financial burden that will hit the people, the regulatory risk guarantee will also further undermine the already weak system of supposed check and balance through the use of regulatory authorities, courts or Congress as a venue to protect public interest. For example, to prevent the implementation of an LRT fare hike, the people may seek relief from the Supreme Court (SC) through a temporary restraining order (TRO). The DOTC and LRTA would then be prevented from implementing the fare increase. However, the private LRT 1 operator could still collect the revenues from the fare hike through government-guaranteed Deficit Payments thus effectively negating the intervention of the High Court.

The regulatory risk guarantee was designed precisely to protect the commercial interests of the private business undertaking PPP projects from such outside intervention. Economic managers behind the regulatory risk guarantee have cited the case of the South Luzon Tollway Corp. (SLTC), the private operator of the South Luzon Expressway (Slex), which the SC stopped in August 2010 from implementing a more than 250% toll hike already approved by the Toll Regulatory Board (TRB).  Bayan Muna party-list congressman Teddy Casiño also filed a House resolution seeking for a suspension of the toll increase pending a legislative inquiry.

In reality, while DOTC officials try to differentiate the LRT 1 privatization’s top-up subsidy from the controversial guaranteed ROI present in earlier PPP projects, it appears that the former is even more favorable to the private concessionaire (and therefore more disadvantageous to the public) than the latter. The 250% Slex toll hike, for instance, arose from the guaranteed 17% ROI for SLTC contained in its 2006 Supplemental Toll Operation Agreement (STOA) with the TRB. But such guaranteed ROI became meaningless when the SC issued its TRO (although eventually lifted after more than two months). With the top-up subsidy, such risk of fewer profits due to an SC TRO or any outside intervention is eliminated.

More profits through commercial development

On top of its revenues and profits from fares and guaranteed periodic fare hikes, the winning LRT 1 bidder will also enjoy additional cash flows from project land and commercial development as contained in the draft agreement’s Section 11.4. In Section 20.7.a on Commercial Revenue, the deal further stipulates that “The Concessionaire shall be entitled to make arrangements for and charge for and collect the Commercial Revenue generated from the Project subject to Relevant Rules and Procedures.”

The development and lease of commercial spaces on LRT 1 stations and depot as well as revenues from advertising could be a potential source of income for government that could be maximized instead of resorting to steep fare hikes and/or privatization. The country’s LRT and MRT system has very low non-rail revenues which include earnings from commercial development and advertising. According to a 2007 study by the Japan Bank for International Cooperation (JBIC) cited by Senator Francis Escudero, the non-rail revenues of the LRT is equivalent to a paltry 2.6% of total revenues while neighboring countries get more than 20% from advertising and commercial leases. Clearly, there is much room to generate more revenues from commercial development for government if it will retain the LRT 1. Unfortunately, such potential source of income will also be transferred to a private business under privatization.

No need for privatization

The Philippines is among the first Third World countries to implement massive privatization of infrastructure development and operation. Early efforts were set off by conditionalities attached to loans from the World Bank, International Monetary Fund (IMF) and the Asian Development Bank (ADB) in the 1980s and 1990s. Among the big-ticket items already privatized are the Napocor assets, the Metropolitan Waterworks and Sewerage System (MWSS), the MRT, super highways like Slex, etc. Through the years, the people have been subjected to soaring and exorbitant user fees charged by the private concessionaires. Meanwhile government debt and deficit continued to balloon ironically due to, among others, privatization deals that were pursued supposedly to ease the fiscal pressure on public coffers.

Unfortunately, the Aquino administration’s PPP program will continue the long discredited and proven flawed policy of privatization such as its ongoing efforts to privatize LRT 1. Government could not even find a compelling justification to push for LRT 1 privatization. Unlike the heavily indebted Napocor and MWSS, for example, the LRTA – government operator of the LRT system – is at least generating enough revenues to finance its operation and maintenance (O&M) requirements. In 2012, the LRT 1’s gross revenues even increased by almost 10% while its farebox ratio – the proportion of fare revenues to total O&M expenses – improved from 1.10 in 2011 to 1.31 last year.  A farebox ratio of 1.0 means that fare revenues can cover 100% of O&M costs. Certainly, improving, modernizing and extending the system to Bacoor, Cavite would require additional investments and this is where the national government should step in by generating the needed funds.

Aquino could not argue that the government does not have the finances to make such investment thus the need for privatization. But if government is willing to incur more debts and guarantee the profits of whoever will win the LRT 1 project, why can’t it make the necessary investments such as through bilateral loans under concessional terms? When Malacañang was insisting on increasing the fares for LRT and MRT, its core argument was that government could no longer supposedly subsidize the system. Yet it is willing to subsidize the profits of the LRT 1 operator?

LRT 1 as a mode of mass transportation is a public investment imbued with public interest. It was never designed and intended to squeeze profits from commuters but to provide a reliable, efficient and affordable system of transportation for workers and employees, students, the self-employed, etc. Its true measure of viability is the social gains it creates for the people and the economy and not the private profits for the Ayalas and the Pangilinans, the Angs and the Cojuangcos, and their foreign partners. There’s no need to privatize it. (End)

Tubbataha grounding: Expect more abuses as US pivots to Asia

Environmental advocates and activists protest the grounding of the USS Guardian on Tubbataha Reef, call for the junking of the Visiting Forces Agreement (VFA) and immediate pullout of US troops from the Philippines. (Photo from www.globaltimes.cn)

The grounding of the USS Guardian on the Tubbataha Reef shows one of the many dangers that increased US military presence in the country brings. Just several months prior to the destruction of a portion of the protected reefs by the 224-foot American minesweeper, which reports peg at about 1,000 square meters, the US Navy was also involved in the dumping of toxic waste in Subic Bay. Worse, the presence of American forces in the country has also meant the death of our people such as the fisherman who was hit by a US military speedboat in Basilan last year. All these incidents happened in a span of less than one year.

To be sure, these are not the first transgressions committed by US soldiers who are in the Philippines through the Visiting Forces Agreement (VFA). (See box at the end of this article for a summary of some of the human rights atrocities committed by US troops under the VFA.) The rape of Nicole by US Marine Daniel Smith in Subic is still fresh in our collective memory. But what is alarming is the increasing frequency of such transgressions and the impunity that the US forces enjoy. Daniel Smith was acquitted. The family of the Basilan fisherman opted for a settlement with the US military. The US Navy was absolved of any liability in the Subic toxic waste dumping.

In the Tubbataha grounding incident, which dealt the protected reefs its worst damage on record, it is perturbing that our officials seem content in just seeking financial compensation for the damaged reef, worth a paltry $300 per square meter. (If the damage is 1,000 sq. m, that makes us entitled to $300,000 or about ₱12 million. Certainly, a measly sum compared to the importance of Tubbataha as a World Heritage site.) President Benigno Aquino III was also emphatic on the need of the US to pay in accordance with our laws. While imposing financial penalties and demanding an official apology from the US are legitimate demands, their importance should not be overemphasized. They should be treated as a given and should be implemented as a matter of policy. But the Philippines must take a more decisive stance on this issue, one that goes beyond demanding compensation and apology from a supposed friend and partner.

Sadly, no administration official, including Aquino, has raised the need to pursue the criminal liability of the US forces, particularly the USS Guardian commander (identified as Lt. Commander Mark A. Rice) who ignored the warnings of the Tubbataha park rangers and ordered his men to be in “battle position” when local authorities tried to exercise their rightful jurisdiction over the vessel. The special treatment being accorded to the US troops is evident in the decision of the Tubbataha Protected Area Management Board (TPAMB) not to include jail time in the penalties it is seeking for the grounding incident despite clear provisions in the Tubbataha Reefs National Park Act (TRNP) of 2009 or Republic Act (RA) 10067. No administration official has raised the need to at least review the VFA given the circumstances surrounding the suspicious presence of the USS Guardian in the Tubbataha area (worse, the US Navy and US government’s failure or refusal to explain such presence more than 10 days since the incident) and the actions taken by the ship’s officials. On the contrary, defense and military officials assert that regular port visits by US warships and joint military trainings with the American troops under the annual Balikatan exercises will continue, as if the Tubbataha incident did not happen. Aquino himself absolved the VFA, claiming that the ever controversial military deal has “nothing to do with the Americans’ going to Tubbataha” and that the issue is simply “a question of violating certain ecological laws.”

Aquino is wrong. The USS Guardian and numerous other US warships, aircraft and troops have been going in and out of, and around, the country via the VFA. Thus questioning the VFA and raising the political issues, beyond the environmental aspect of the controversy, is crucial in asserting our sovereignty as a nation, which is the crux of the matter in the Tubbataha incident. This becomes more important in the light of the announced pivot to Asia Pacific of US military forces. Concretely, the pivot takes the form of deploying 60% of US’s naval fleet in the region. The US Navy is the world’s largest (its tonnage is said to be greater than that of the next 13 largest navies combined) and includes, among others, 11 aircraft carriers (out of the 21 active carriers worldwide) and 71 submarines. Six out of the 11 US carriers are currently already deployed in the Asia Pacific but the US also plans to deploy more of its most advanced warships and jet fighters in the region as part of the pivot. Certainly, their increased presence in our seas will make us more exposed to incidents like Tubbataha and other abuses even as Defense Sec. Voltaire Gazmin vainly attempts to distance the frequent and unhampered entry of US warships in the country to the grounding incident, swallowing hook, line and sinker the flimsy excuse by the captain of the USS Guardian about a faulty navigation system.

In the Philippines, one of the immediate and obvious effects of the US pivot is the drastic increase in the frequency of so-called “routine port calls” of American warships. In 2012, for instance, a total of at least 10 supposedly regular port visits have been reported in the media, with the US warships docking at mostly at Subic and Manila bays. The port visits involved 12 warships of varying sizes that included the nuclear-powered super carrier USS George Washington (escorted by two other military vessels); four nuclear-powered submarines which included the most technologically advanced in the world – the USS North Carolina, USS Louisville, USS Hawaii and USS Olympia; and a host of guided-missile destroyers, submarine tender and amphibious assault ship. On the other hand, in 2011 there were only three reported port visits involving six ships.

2012 partial list of PH-US bilateral military exercises & “routine port calls” by US military warships
Date	Summary
Mar. 3	Port visit in Iloilo of USS Chafee, a guided-missile destroyer, to participate in the US Embassy’s program “showcasing American culture, US businesses & embassy services”
Mar. 5-10	Operation Pacific Angel 2012 – Some 99 US military members (US Air Force), along with members of the PH military, NGOs and LGUs conducted medical, dental, optometry & engineering programs in Legazpi, Albay
Apr. 16-27	28th Balikatan exercises involving 4,500 personnel from the US Pacom & 2,300 AFP personnel conducted command post exercise (which also included about 20 participants from Asean & 15 from other partner nations), multiple field training exercises & engineering, humanitarian & civic assistance projects (also supported by 385 local health professionals); exercises were held in Metro Manila, Tarlac, Pampanga, Nueva Ecija, Palawan, Zamboanga, Jolo & Basilan
May 14	Routine port call in Subic of the USS North Carolina, a Virginia class fast attack submarine, also described as one of the “stealthiest, most technologically advanced” nuclear-powered submarines in the world
Jun. 25-30	Routine port call in Subic of the USS Louisville, a Los Angeles class nuclear-powered attack submarine, to restock & R&R for its crew
Jul. 2-10	18th Cooperation Afloat Readiness & Training (Carat) involving some 500 members of US Navy & Coast Guard & about 450 personnel from the PH Navy & Coast Guard; exercises were held in General Santos City & Saranggani
Aug. 19-20	Routine port call in Manila of the USS Millius, an Arleigh Burke class destroyer
Sep. 3	Routine port call in Subic of the USS Frank Cable, an L.Y. Spear class submarine tender; ship repair, maintenance and training under the PH-US Acquisition Cross Servicing Agreement (Acsa) between sailors of USS Frank Cable & BRP Greogorio del Pilar
Sep. 7	Routine port call in Subic of the USS Hawaii, one of the most advanced nuclear-powered submarines in the world; capable of transporting special operations forces, unmanned undersea vehicles & US Navy Seals
Oct. 4	Routine port call in Subic of the USS Olympia, a Los Angeles class nuclear-powered submarine
Oct. 5	Routine port call in Subic of the USS Bonhomme Richard, a Wasp-class amphibious assault ship, for R&R of its sailors & to offload US Marines from the 31st Marine Expeditionary Unit (MEU) who were participating in the Phiblex 13
Oct. 8-18	Amphibious Landing Exercise (Phiblex 13) involving some 2,600 personnel from the US Pacom & over 1,200 from the AFP; exercises, held in Zambales, Palawan, Tarlac, Cavite & Nueva Ecija included staff planning exercise, a static aircraft display, multiple field training exercises & humanitarian & civic assistance projects
Oct. 24-28	Routine port call in Manila the USS George Washington, a nuclear-powered Nimitz class aircraft carrier with about 5,500 personnel; it carries about 80 aircrafts of various purposes, primarily F-18 Hornets, helicopters & E-2 Hawkeye airborne early warning turboprops; it was escorted by two other vessels – the USS Cowpens (a Ticenderoga-class guided missile cruiser) & USS McCampbell (an Arleigh-Burke class destroyer)
Nov. 19	Routine port call in Manila by USS Gridley, an Arleigh-Burke class destroyer & part of the US Pacific Fleet
2011 “routine port calls” & PH-US bilateral military exercises: USS Essex, an amphibious assault ship (Manila, Dec. 1-4); Cooperation Afloat Readiness & Training (Sulu Sea, Palawan; Jun. 28 to Jul. 8); USS Carl Vinson aircraft carrier group, which also includes guided-missile destroyers USS Shiloh, USS Bunker Hill & USS Gridley (Manila, May 15-19); 27th Balikatan exercise (Pampanga, Tarlac, Nueva Ecija, Zambales, Palawan, Cavite, Cebu; Apr. 5-15); USS Blue Ridge, command & control ship of the US 7th Fleet (Feb. 13-16)
Data as of Nov. 26, 2012 onlyData culled from the Embassy of the United States, Manila, Philippines, press & photo releases for 2011 & 2012, http://manila.usembassy.gov/media-resources.html, and from various online media reports

The table above does not represent an exhaustive list of all the “port visits” by US warships in the Philippines as it merely enumerated what’s reported in the media. A statement attributed to the Department of Foreign Affairs (DFA) claimed that in 2012, US ships made 197 port calls (aside from 444 US aircraft that were cleared to land) in the Philippines. Residents of Olongapo City claim that different US warships dock at Subic Bay almost weekly. When I visited Olongapo during the New Year break, I counted at least five large US ships docked at the bay. The presence of these US military ships was not reported by the media. And I’m pretty sure that many other abuses and transgressions by American troops also went unreported.

Human rights abuses and US troops

The presence of American soldiers in the country has invited grave abuses and violations of Filipinos’ human rights. This has been the case since the US occupation of the country and continued when they still had military bases in Subic and Clark. Under the VFA, attacks on human rights perpetrated by the US troops persist and worse, even covered up by the authorities. These abuses include the mauling of a certain Marcelo Batesil in Cebu City; the shooting of suspected Abu Sayyaf suspect Buyung-Buyong Isnijal in Basilan province; the reported massacre of three Muslim civilians in Barangay Sipangkot, Umapoy Island in Tawi-Tawi and four others in Maimbung, Sulu; and the killing of a certain Arsid Baharon in Barangay San Roque in Zamboanga City. But the biggest and most controversial case of abuse so far is the rape of Nicole in Subic involving four American Marines in 2005. In December 2006, a local judge convicted one the Marines, Lance Corporal Daniel Smith, of raping Nicole. The Court of Appeals (CA), however, reversed the decision in April 2009. But one month before the CA ruling, Nicole had issued a controversial affidavit which claimed that she “can’t help but entertain doubts on whether the sequence of events in Subic… really occurred”. This affidavit was apparently the result of pressure from the US and Malacañang with the lawyer assisting Nicole in the second affidavit reportedly from the same law firm of Smith’s counsels. While it carries no legal implication, its intention was to influence public opinion so that the CA acquittal of Smith will be easily accepted by the people. Nicole was also reportedly given P100,000 in “moral and exemplary damages” by the camp of Smith aside from a US visa that allowed her to fly to the US “for good”. US troops staying in the country were again dragged into another controversy in 2010, this time involving the death of an interpreter they hired for an elite unit of US Special Forces called the Liaison Coordination Elements (LCE). Gregan Cardeño was found dead inside a Joint Special Operation Task Force (JSOTF) facility in Camp Ranao in Marawi City on Feb. 2, 2010 after allegedly committing suicide. Less than two months later, Capt. Javier Ignacio of the Philippine Army – a friend of the Cardeños helping to shed light on his death – was shot dead by unidentified gun men. Before his death, Cardeño separately called his sister and wife and told them that his job was “hard and not what he expected”. Ignacio, meanwhile, was killed while on his way to meet human rights groups to execute an affidavit on what he discovered about Cardeño’s death.

Sources: Sworn statement of Nicole, Mar. 12, 2009 (http://www.gmanews.tv/story/153159/Sworn-Statement-of-Nicole); GMA News Online. “Smith camp’s hand seen in Nicole ‘recantation’ bared”. Mar. 18, 2009 (http://www.gmanews.tv/story/153150/Smith-camps-hand-in-Nicole-recantation-bared); The Philippine Star. “’Nicole’ leaves for US, settles for P100,000”. Mar. 18, 2009. Retrieved Mar. 25, 2011; (http://www.philstar.com/Article.aspx?articleId=449575&publicationSubCategoryId=63); Lacorte, Germelina. “Group demands junking RP-US Visiting Forces Agreement over death of Filipino interpreter”. Davao Today. Jul. 15, 2010. Retrieved Mar. 25, 2011 (http://bulatlat.com/main/2010/07/15/group-demands-junking-rp-us-vfa-over-death-of-filipino-interpreter/)

Read more articles on US military presence and intervention in the Philippines:

• US agenda in Asia and the risks that Aquino is courting
• Obama’s dreaded drone war arrives in PH
• 2+2 equals more secret US bases in PH
• Obama’s victory: the fallacy of lesser evil and the illusion of choice

Download a PowerPoint presentation on US military presence and intervention in the Philippines

Prepaid electricity, anyone?

Imagine yourself engrossed in your favorite teleserye one night. As a plot-twisting revelation was about to be told by one of the main characters, power was suddenly shut off. It wasn’t a brownout because all your neighbors still had their lights on and only your unfortunate household was engulfed in darkness. You reached for your cellphone and sent an SMS. Within seconds, you received a text message that read: “Your Meralco prepaid balance as of 1/18/13 20:45 is P0.00. Please reload soon to restore electricity services in your household.”

Using SMS

Welcome to the era of prepaid electricity.

The Manila Electric Co. (Meralco), the country’s largest power distributor, has started the first leg of its pilot tests to determine the viability of the prepaid electricity retail scheme in the residential sector. An initial 100 households in Rizal province are covered by the pilot tests, which will eventually expand to 2,000. If the scheme proved to be feasible, Meralco will put some 40,000 households in its franchise area under the prepaid mode of payment.

Meralco, however, is not the first distribution utility (DU) to implement the prepaid scheme. The Batangas I Electric Cooperative Inc. (Batelec I) already launched its prepaid system last Jan. 16 covering around 295 residents in Barangay Camastilisan, Calaca, Batangas. Batelec would later clarify that it’s not yet a commercial operation but only a pilot test. Another cooperative, the Bohol II Electric Cooperative Inc. (Boheco II), has also sought consent from the Energy Regulatory Commission (ERC) to employ the prepaid scheme.

Under the Batelec I system, which is also the same scheme favored by Meralco and Boheco, consumers will use the SMS network to load prepaid electricity credits and check their remaining balance. Consumers can buy prepaid cards denominated in ₱100, ₱200 and ₱300 and send an SMS to 2861 (for Globe users only) to load their prepaid electricity. If they want to check their remaining balance, they can send “kwbalance” also to 2861.

The SMS system may be used too for registration, threshold warning, advice of disconnection and reconnection, and remote disconnection and reconnection. Meralco said that using the SMS system is more practical and viable than installing an in-home display (IHD), which will entail more costs on the utility firm and its customers. An IHD is a prepaid electric meter that loads the purchased energy, display real time information on load consumption and give a warning signal that the load is nearing zero.

Benefits?

The ERC first released the draft rules of the Prepaid Retail Electricity Services (PRES) in 2008. Initially, the PRES covers only residential customers but the coverage was expanded this year to include industrial and commercial establishments as well. Regulators also allowed the use of all available technologies (e.g., SMS, IHD) in the implementation of the prepaid system. When fully realized, the country will join South Africa, Indonesia, India, Australia and New Zealand which are already using prepaid electricity.

According to the ERC, it introduced the PRES so that consumers supposedly can have more power to control their electricity bills. Meralco, meanwhile, claimed that based on a survey it conducted with global conglomerate General Electric (GE) more consumers prefer the prepaid system. Meralco and GE last year signed an agreement on advanced metering infrastructure integrated solution project where the American giant will serve as system integrator.

A Meralco official explained: “Prepaid and buying tingi or sachet is ingrained in the Filipino lifestyle. Many wage earners receive daily or weekly pay, so they would prefer that their expenses from mobile to Internet and — yes — to electricity be also on a tingi basis. This enables them to bridge the timing of their cash outflows.” The utility giant also maintained that the prepaid system will make electricity more affordable for the poor: “If this (prepaid electricity) can be made possible, (consumers) will avoid the monthly experience of having to pay a one-time big amount. With the prepaid scheme, electricity, thus, becomes more abot kaya for some segments of our customers.”

Anti-consumer

These claims by the ERC and Meralco are hogwash; that consumers can really manage better their electricity bill and that the prepaid system will make electricity services more affordable are outright lies. Worse, the prepaid scheme would merely further expose poor households to marginalization while protecting the profits of DUs like Meralco.

Unlike in prepaid mobile phone credits wherein charges are fixed, electricity rates vary monthly (often upwards) because of deregulation under the Electric Power Industry Reform Act of 2001 (Epira). Under ERC rules, unconsumed credits in a given month will be charged with the prevailing rates in the following month. The fluctuating rates will make it difficult for a household to effectively monitor and regulate their consumption and accordingly plan their use of electricity based on prepaid credits. Furthermore, the increasing monthly power rates will offset efforts by a household to cut their electricity bill even if they shift to the prepaid system. No matter how much kilowatt-hour that a household tries to reduce in their monthly consumption, the end result is still an onerous electricity bill (the highest in Asia!) because of ever increasing rates due to automatic adjustments in the generation charge as well as other periodic adjustments allowed under Epira.

Indeed, the overall impact of a prepaid system is the further marginalization of the poor from accessing electricity as an essential service. When the provision of electricity is made prepaid, the cruel neoliberal principle of those who can’t pay can’t use fully comes into play. This creates a serious problem because while many can tolerate not loading their cellphones for a couple of days, not having electricity for running out of prepaid load affects a household’s quality of living. Poor households which rely on a very tight monthly budget that could hardly afford the basic necessities are especially vulnerable. It must be emphasized that depriving people of access to electricity because they have no money to afford it is inhuman, oppressive and exploitative.

But under the prepaid system, the lack of load means automatic disconnection of a household’s power supply. It violates the people’s basic human right to decent living. It also violates the rights of consumers against unfair disconnection of service such as those outlined in the Magna Carta for Residential Electricity Consumers. In the said Magna Carta, consumers have the right to due process prior to disconnection (Article 18); right to a notice prior to disconnection (Art. 19); right to suspension of disconnection (Art. 20); and right to tender payment at the point of disconnection (Art. 21). Under ERC rules, prepaid customers are supposed to be notified (e.g. through SMS) three days before the remaining load is estimated to run out. The warning shall be based on the average consumption of the household. But what if the household suddenly used more electricity than their average consumption and consumed the load in two days instead of three?

Clearly, the only party that will substantially benefit from the prepaid system is Meralco and the other DUs. Consumers, in particular the poor households which are the main target of the scheme, are obliged to pay in advance the DUs for electricity that they have yet to use. This effectively and easily eliminates “bad accounts” or users that could not pay on time and/or could not pay in full due to a limited household income. Furthermore, the system also allows the DUs to cut costs because they will no longer require additional workforce to read the monthly billing or perform the physical reconnection and disconnection of electricity services. Thus, the profits of Meralco and other DUs are firmly secured and guaranteed but at the great expense of poor consumers.

Political, too

Aside from economic gains, DUs and the government could also benefit politically as the social conflict or tension created by unpaid bills and the resulting disconnections are somehow eased by the prepaid system. This is achieved by eliminating the need for the consumers and the DU to transact physically or directly as payments, disconnections, reconnections, etc. are already done through SMS. In a prepaid system, Meralco no longer has to send its people to implement disconnection orders in a community and thus minimize the public visibility of a greedy and heartless corporation that takes away a household’s access to a vital service for failure to pay.

It will also take away the people’s option to use payment boycott as a form of protest against questionable and unjust electricity bills like what the late labor leader Crispin “Ka Bel” Beltran did against the purchased power adjustment (PPA) in 2002. In the book Electric capitalism: Recolonising Africa on the power grid, one of its writers Peter Van Heusden looked at the development of the prepaid electricity scheme in South Africa, which was the first to implement such system through prepaid meters. He noted that prepaid electricity was developed to counter the payment boycotts in the 1980s which was used in Soweto in Johannesburg, South Africa as a political weapon against local authorities and the apartheid regime.

Prepaid electricity does not answer the problem of onerous power rates. It will simply further shift the burden to hapless consumers while making life much easier and more profitable for Meralco and other DUs and absolving government and its flawed neoliberal policies like Epira of accountability to the people. Without electricity because of inability to pay, it’s not only your favorite teleserye that you will miss but also your right to decent living. ###

“Growth” for big business, at the people’s expense

The Ayala and Pangilinan groups team up in a bid to bag the ₱60-billion LRT 1 privatization project, so far the biggest PPP initiative of the Aquino administration. San Miguel Corp. of presidential uncle Danding Cojuangco is also bidding for the contract. These groups, which enjoy close ties with Aquino, have made a fortune by cornering privatization deals that burden the people with high user fees. (Photo from www.ppp.gov.ph)

Read first part

Structural issues

With the rapid and steady decline of the domestic labor market, labor export has further intensified under Aquino who deploys an average of 1.58 million OFWs a year, a significant jump from the 1 million during Arroyo’s term. If you stretch the comparison to the 1980s, the country is exporting about 3-4 times more OFWs today. In addition, OFW deployment relative to the number of domestically employed workers has steadily increased through the years – from just 2.9% in 2001 to 4.5% in 2011 – indicating the deepening reliance on labor export of the Philippines.

Their remittances (which for the first time breached the $20-billion mark in 2011 and as of September 2012 is reported at $15.57 billion but expected by the World Bank to reach a new record high of $24 billion for the full year) have been keeping the economy afloat in the past three decades by providing means for domestic consumption and payments for our import-dependent production (trade deficit stood at $6.8 billion as of October) and massive foreign debt (pegged at $61.72 billion as of September, which is also the quick and straight answer to one of the favorite 2012 highlights of the administration – the Philippines supposedly being a creditor nation).

In fact, while exports and FDI inflows have increased this year, OFW remittances, the third largest in the world behind remittances from Chinese and Mexican migrant workers, remained the single largest source of dollars for the economy. In the past 10 years, annual OFW remittances are almost 90 times the size of net FDI while the trade balance, as in previous decades, remained perennially in the red, meaning that the neocolonial import-export sector continues to take out invaluable resources from the country, while others in the region like Indonesia, Malaysia, South Korea and Singapore are posting trade surplus of between $25 to $43 billion. Like neocolonial trade, labor export actually takes away more from the economy than the remittances it brings as highly-skilled and trained Filipino workers render their productivity to foreign economies instead of ours. The social costs of labor export such as disintegrating families, issues left unmeasured by statistics, should not be ignored as well.

While actually symptomatic of the permanent and structural crisis that forever besets the Philippines, labor export and remittances drive “growth” as measured by the GDP. This is perhaps one of the biggest anomalies of our maldevelopment. The surprising third quarter expansion, for instance, was mainly driven among others by the 24.3% growth in construction gross value-added (GVA) and 24.8% growth in construction expenditure as record-breaking inflows of remittances fuel demand for residential property. The so-called real estate boom is also being pushed by the BPO sector that according to industry insiders has been driving up demand for new office space which is expected to hit a record 400,000 to half a million square meters this year, or an increase of as much as 25% from 2011.

Like labor export, growth stimulated by BPO is an aberration because its predominance in economic production is actually indicative of the country’s continuing failure to develop and industrialize. Both are the results of the domestic economy’s longstanding structural inability to generate sustainable and productive jobs from vibrant local industries including the manufacture of consumer and industrial goods and modernized agriculture. Without a national industrialization plan, we are forced to rely on what the US and other rich countries require us to do for their advanced economies, whether as production workers in their global assembly lines and factories or as call center agents to service the various needs of their clients. Certainly, they do create some (low-paying, insecure) jobs but just enough to meet their needs while the jobs generated are totally detached from our own development needs.

Furthermore, the so-called resilience amid the global crisis is not because the economy is internally-driven by sustainable, job-generating domestic industries but because our main drivers of growth – BPO and labor export – are precisely useful cost-cutting schemes for the crisis-hit economies of the First World to cope with the economic crunch. In other words, we may continue to “grow” amid the global crisis, but at the great expense of our workers who will be forced to accept further exploitative arrangements in the form of more depressed wages and lack of social protection whether as an irregular call center agent here or an undocumented migrant worker in the US.

At our expense

“Growth” indeed has been at our expense. Not only is the supposed growth not creating enough jobs, it is also being pushed by skyrocketing costs of basic needs and vital economic services. At current prices, electricity, gas and water grew the second fastest in the third quarter among all major industries, just behind construction as the year as usual saw the regular rate increases in privatized electricity and water. While this meant additional burden for the public, it meant more profits for the private corporations that control them.

The nine-month profits of the Manila Electric Co. (Meralco), for instance, increased by 7.9% to ₱12.89 billion, which the company expects to hit ₱16 billion for the full-year. Similarly, In the first nine months of 2012, Maynilad Water Services Inc. has amassed more than ₱5 billion in profits (13% higher than last year) while Manila Water Co. has raked in ₱3.9 billion in profits (26% higher than last year). Due to the never-ending surges in user fees, Manila already has the most expensive electricity rates and the fifth most expensive water rates among major Asian cities.

These utilities are controlled by the country’s richest clans and individuals who are closely associated with Aquino such as presidential uncle Danding Cojuangco and political supporters Manny Pangilinan and the Ayala family. Aside from electricity and water utilities, they also control other key infrastructure such as toll roads, telecoms and power generation. Together with other close Aquino allies like the Lopezes, Aboitizes and Consunjis, among others, these groups have positioned themselves to further expand their business empire through Aquino’s PPP scheme.

The Ayalas have already bagged the ₱1.96-billion Daang Hari – Slex Link Road project earlier this year; Pangilinan/Ayalas, Cojuangco’s San Miguel Corp. and the Consunjis are all vying for the ₱60-billion LRT 1 extension and privatization project, which is also tied to government’s adamant plan to raise LRT/MRT fares by next year; even hospitals are not spared such as the ₱5.6-billion privatization of the Philippine Orthopedic Center which Pangilinan is eyeing to add to his growing list of hospitals.

The much ballyhooed credit rating upgrades are also being achieved at the people’s expense. Credit rating agencies cite the fiscal reforms being undertaken by Aquino that tame the national budget deficit. This includes, among others, raising government fees and imposing new charges through Administrative Order (AO) No. 31 and imposing more taxes like the newly-signed Sin Tax Law to generate additional revenues. Most of these revenues, however, will go to debt servicing as Aquino needs to gain favorable reviews from creditors and credit rating agencies.

Since Aquino took over up to September this year, government has already shelled out ₱1.59 trillion for debt servicing, equivalent to 70.2% of total revenues and 53.3% of total expenditures plus principal amortization. For comparison, debt servicing under Arroyo was equivalent to 65.8% of revenues and 41.5% of expenditures. These belie claims that the national budget under the Aquino administration is now being redirected towards social services to empower and benefit the poor. The expenditure program from 2011 to the recently signed ₱2-trillion 2013 national budget shows that the budget for debt servicing (including principal amortization) is equivalent to an average of 2.5 times that of the budget for education; 6.4 times, health; and 11.2 times, housing.

For elite interests

While the Aquino administration is harping on good governance as being behind the supposed drastic economic turnaround, much of the so-called reforms it is undertaking – with substantial backing from the US government and multilateral institutions like the World Bank – have been more about protecting elite and big business interests and less about curbing big-time systemic corruption or democratizing government. The reforms are all about creating a more conducive atmosphere for investors, i.e. stable and predictable policy environment, less business risks and reduced costs, etc. to reinforce liberalization, deregulation and privatization. The false assumption is that when business is thriving, the people will ultimately benefit through more jobs and income opportunities and improved living conditions. But clearly, this is not happening as the gains from a supposedly expanding economy have remained monopolized by a handful of big local businessmen and their foreign partners and funders.

On top of promoting the interests of big business, the good governance rhetoric is also being used to advance the agenda of the Aquino clique of the political elite. The successful ouster of Renato Corona as Supreme Court (SC) Chief Justice and the appointment of Ma. Lourdes Sereneo, for instance, were more about the consolidation of the political power of the ruling Liberal Party (LP) than making Mrs. Arroyo accountable. Executive hegemony over government branches that formulate policies (Congress) and review the legality of such policies (Judiciary) makes an even more ideal political setting to push for retrogressive economic programs that promote certain big business interests.

In the run-up to the 2013 midterm polls, the LP further heightened their political consolidation under the guise of daang matuwid. Aquino appointed Grace Padaca to the Commission on Elections (Comelec) while LP President and 2016 presidential wannabe Mar Roxas is leading the campaign to unseat non-LP governors in the vote-rich provinces of Cebu and Pangasinan through his powerful post as Secretary of the Department of Interior and Local Government (DILG). The LP is obviously laying the groundwork for their prolonged rule and continued imposition of their brand of elite governance and economics beyond the 2016 term of Aquino.

However, contradictions will surely heighten as the crisis gripping the great majority of Filipinos intensifies. The deception of good governance is good economics and the popularity of Aquino will certainly reach their threshold if joblessness, poverty and hunger continued to deteriorate. The significant 12-point drop in Aquino’s latest satisfaction rating despite the scorching speed of GDP growth could be a portent of things to come. ###

Economy in 2012: Rising joblessness, poverty amid Aquino admin’s claims of growth

Joblessness, poverty and hunger are reaching record highs under the Aquino administration amid claims of growing economy (Photo from www.flickr.com)

In 2012, the dominant theme peddled by the Aquino administration was “good governance is good economics”. The main propaganda line of Malacañang is that the “daang matuwid” (straight path) has created a favorable environment for economic growth that is inclusive. From being the sick man of Asia, the country now brims with vitality, declared President Benigno Aquino III in his State of the Nation Address (Sona).

To the uncritical, such assertions would seem hard to doubt. For one, the national accounts do show rosy numbers. The Philippines is beating expectations and has been one of the supposed few bright spots amid a gloomy world economy. International banks, local and foreign investors, credit rating agencies and multilateral financial institutions are one in saying that the prospects are indeed upbeat for the country. There are even claims that we are the new tiger in the region, joining the likes of Singapore and South Korea.

Good news for big business

After growing by 7.1% in the third quarter, way above the market’s media forecast of 5.4%, the gross domestic product (GDP) has now expanded by 6.5% for the year. The strong third quarter performance prompted economic managers to revise upwards their 2012 full year GDP growth projection with the National Economic and Development Authority (Neda) claiming that the GDP will likely grow by 7% this year, well beyond the earlier official forecast of 5-6 percent. Many share the same optimism like the World Bank which also raised its projection to 6% from the previous 4.2 percent.

Meanwhile, Standard and Poor’s (S&P) upgraded the credit rating of the Philippines from “stable” to “positive” following the GDP report which put the country on track to make investment grade by next year. Officials say this means lower borrowing cost for government and lower cost for doing business in the Philippines. Prior to the S&P upgrade, the country has already posted eight credit rating upgrades since 2010. These developments continued to feed optimism in the market with trading at the Philippine Stock Exchange posting 38 record highs this year, making it one of the most vibrant equities market worldwide.

Other economic data, as culled by the Christmas Day Inquirer editorial, also seem encouraging. In the first nine months of the year and amid the global crisis, exports grew by 7.2% and foreign direct investments (FDI) by 40% compared to the same period in 2011. Consequently, as of November, the country has an all-time high of $84.1 billion in gross international reserves (GIR) and a balance of payments (BOP) surplus of $2 billion, five times its value during the same month last year.

The country’s big business groups share government’s high optimism, citing the so-called good economic fundamentals in 2012 that can lead to a “super-year” in 2013. They see more opportunities to further boost profits with the anticipated investment grade rating, the implementation of public-private partnership (PPP) projects and the upcoming midterm elections.

Big business, of course, has every reason to be upbeat. High GDP growth, robust stock market and favorable credit rating all reflect not the state of the ordinary people but of how lucrative the economy is for the moneyed few. Further, past and present policies of privatization and deregulation have allowed them to monopolize and greatly profit (through generous perks, incessant hikes in rates and user fees, and exploitation of workers) from key economic activities including public utilities and infrastructure development.  This small group of the super-rich has seen their wealth balloon in recent years. In 2009, the Forbes magazine reported that the 40 richest Filipinos had a combined wealth of $22.4 billion and in 2011, the amount more than doubled to $47.43 billion. The economy is growing but that’s good news only for big business.

Hard realities

Because amid the purportedly stellar growth of the economy, series of credit rating upgrades, streak of stock market highs and favorable reviews by banks, fund managers and investors are the hard realities of rising joblessness, worsening hunger and deteriorating poverty. Social indicators which are most vital to the people have been deteriorating in the past three years amid the record-high profits and wealth of elite families, high investor confidence and positive market sentiment.

Official unemployment rate as measured by the National Statistics Office (NSO) averaged 7% in 2011 and 2012 from 7.3% in 2010. We are supposed to be the second fastest growing economy in the region just behind China but the official jobless rates of our neighbors are much lower. Thailand’s is 0.7%; Singapore, 2.1%; Malaysia, 3%; South Korea, 3.8%; China, 4%; and Taiwan, 4.2 percent. To be sure, like in the Philippines, these official unemployment figures understate the true extent of domestic joblessness in the respective countries. But we cite them for the simple comparison of official data on the labor markets in the region. (Data on Asian countries are as of first quarter 2012 as compiled by the Bangko Sentral ng Pilipinas or BSP. During the same period, our official unemployment rate was 7.2 percent.)

And we have not even looked at the quality of available jobs. A quick peek at the NSO’s preliminary October 2012 Labor Force Survey shows that underemployed workers – those who are employed but are still looking for additional work – numbered 7.2 million; self-employed without any paid employee, 10.7 million; and unpaid family workers, 4.1 million. That’s easily 22 million out of the reported 37.7 million employed workers (more than 58%) with disputable quality of jobs.

Then for wage and salary workers, there’s the issue of extremely low pay amid a very high cost of living (made even worse by Aquino’s enforcement of the two-tier wage system which imposes a floor wage that is even lower than the minimum wage) as well as job insecurity amid widespread labor contractualization. The last time the National Wages and Productivity Commission (NWPC) issued its estimate of family living wage (which could approximate the amount needed by a regular family to live decently) it pegged it at ₱917 per day as of September 2008 in Metro Manila. More than four years later, Metro Manila’s daily minimum wage is still a measly ₱419-456.

To have an idea of how massive job scarcity in the Philippines could be, we may refer to the regular surveys of the Social Weather Stations (SWS). In 2010, 22.5% of Filipino workers said they were jobless which increased to 23.6% in 2011. This year, it ballooned to 30.1 percent. In absolute terms, there were about 9.5 million unemployed workers in 2010 and 2011; this year, it climbed to 12.1 million workers. In Aquino’s first three years in power, the number of workers who said that they were jobless increased by 2.6 million based on SWS surveys.  (Results of SWS surveys cited in this article all refer to annual averages.)

With the economy not producing enough jobs and livelihood opportunities even as wages become even more depressed, poverty and consequently hunger have been at their worst. Again using the SWS surveys, 47.5% of Filipino families considered themselves poor in 2010. Since then, the percentage has steadily climbed to 49.3% in 2011 and 51% this year. There are now around 10.3 million families who consider themselves poor, up from 9.9 million in 2011 and 8.9 million two years ago. Thus, in the first half of Aquino’s term, the number of poor families ballooned by 1.4 million. This means that some 7 million Filipinos have been added to the number of poor in the past three years. Note that between 2009 and 2012, the budget for the controversial conditional cash transfer (CCT) program swelled from just ₱5 billion to ₱39.4 billion (a whopping 688% increase) but apparently failing to make a dent on poverty.

Hunger incidence, still as surveyed by the SWS, follows the same path. In 2010, the percentage of families who reported to have experienced hunger was at 19.1 percent. It climbed to 19.9% the next year and to 21.1% this year. In absolute figures, there were 3.6 million hungry families in 2010; 4 million in 2011; and 4.3 million in 2012. Under Aquino, the number of Filipino families who experience hunger has so far grown by 700,000 or about 3.5 million people as measured by the SWS.

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PH water rates among Asia’s highest

Because of privatization, don’t be surprised if soon the Philippines will have not just  the most expensive electricity rates in Asia but the most exorbitant water rates as well (Photo from gmanetwork.com)

We already know that power rates in the Philippines are the most expensive in Asia. What we do not know yet which will certainly make our collective blood pressure rise is that water rates in the country are also among the highest in the region. Using the same 2011 survey conducted by the Japan External Trade Organization (JETRO) on power rates in major Asian cities, I found out that the water rates in Cebu City and Manila rank fourth and fifth, respectively behind Sydney, Singapore and Jakarta. Yes, we are paying more expensive water than more developed cities like Hong Kong, New Delhi, Beijing, Seoul and others. (See Chart 1, click on image to enlarge) (Download the JETRO survey here)

I bring this up after hearing the news that the private water concessionaires of the Metropolitan Waterworks and Sewerage System (MWSS) have been allowed again to jack up their rates next year. A report by the BusinessWorld said that by January 2013, the ordinary customers of Maynilad Water Services Inc. or those with a monthly consumption of 30 cubic meters will see their bill increase by ₱22.52. Meanwhile, the customers of Manila Water Co. Inc. with the same level of monthly consumption will bear a ₱6-spike in their water bill. What a way to greet the New Year for some 13.3 million people in Metro Manila and nearby provinces who get their water from Maynilad and Manila Water.

Prior to these latest increases, Maynilad has already increased its average tariff from ₱4.96 per cubic meter when it first took over the MWSS’s west zone service area in 1997 to ₱32.92 this year. During the same period, Manila Water which services the east zone has hiked its average tariff from ₱2.32 per cubic meter to ₱27.44. This means water rates have already ballooned by 564% to 1,083% since the MWSS was privatized 15 years ago. (See Chart 2, click on image to enlarge)

Like in the case of the power sector, privatization and the numerous anomalous perks granted to corporations are behind the incessant rise in our water bills. The concession agreement between the MWSS and the private water concessionaires allows automatic adjustment to protect the profits the Manny V. Pangilinan group (Maynilad) and the Ayala group (Manila Water). In case you did not know, these big business groups with close ties to President Benigno Aquino III do not only control our cellphone networks, roads, electricity, hospitals and soon our LRT and MRT, but also our water.

Anyway, what are some of these automatic adjustments? Take the case of the most recent water rate hike. Maynilad and Manila Water are increasing their basic charge to reflect the movement in the inflation rate as provided under their respective concession agreements with the MWSS. The said agency’s Regulatory Office allowed a 3.2% adjustment in the consumer price index (CPI) to be applied to the private water concessionaires’ current basic charge. What does this mean? It’s a double whammy. Inflation rises because the costs of basic goods and services like food and utilities have gone up. And then water rates will further rise because of higher inflation. Another is the foreign currency differential adjustment (FCDA), which covers fluctuations in the exchange rate and affect the foreign-denominated loans of the concessionaires.

That’s what the water privatization contract stipulates. It doesn’t make sense to us poor consumers but it makes perfect sense for the Pangilinans and the Ayalas. Just look at their soaring profits to see why. In the first nine months of the 2012, Maynilad has amassed more than ₱5 billion in profits (13% higher than last year) while Manila Water has raked in ₱3.9 billion in profits (26% higher than last year).

Meanwhile, the water distribution system in Cebu City which has the fourth most costly rates in Asia is being managed by the Metro Cebu Water District (MCWD). Though not yet privatized, MCWD like the rest of the other 860 water districts nationwide has also been under constant threat of privatization. This was the intention of Senator Edgardo Angara’s Senate Bill (SB) 2997. Fortunately, the proposal has been effectively derailed by the strong campaigning of the Water System Employees’ Response (WATER), a national federation of water district employees. But the bill will certainly be revived after the midterm elections.

In the meantime, the water privateers continue to make inroads through other means. Earlier this year, the provincial government of Cebu has privatized its bulk water system through an agreement with guess who? Manila Water. Manny Pangilinan Manila Water has been on a buying spree of potable water systems around the country. Aside from the MWSS east zone and the Cebu bulk water project, his group it also controls the Boracay Island Water Co., the Laguna Water Co. (servicing the towns of Biñan, Cabuyao and Sta. Rosa) and the Clark Water Corp. in Pampanga.

The bad news is that the buying spree of our potable water systems and even water resources itself by the Pangilinans, the Ayalas, etc. and the consequent soaring user fees and marginalization of the poor will not end any time soon. In fact, the direction is the further expansion and consolidation of wealth and power of these big business groups through more privatization under the public-private partnership (PPP) of Mr. Aquino.

Just recently, the PPP Center announced that the administration’s first PPP water project – the New Centennial Water Source Project – is already in progress. This mega-project costs about ₱25 billion and is seen to provide an additional water source for Metro Manila. Needless to say, a project this big to be undertaken by a profit-oriented consortium will translate to even higher user fees for us under the privatization principle of full-cost recovery. Government has lined up a total of 14 PPP projects that could affect our access to water including four multi-purpose projects or the construction of dams for hydropower, irrigation and domestic water uses which cost some ₱50.75 billion; three hydropower projects, ₱39.24 billion; and three projects for potable water; ₱26.47 billion. The costs of the four other PPP projects have yet to be determined. (See Table at the end of this article)

These are big-ticket items that will surely provide a bottomless well of profits for those who will bag them, which are most likely the same elite families and their foreign funders and partners that have been taking advantage of past privatization projects and Aquino’s current PPP program. For us, it simply means even further exploitation and marginalization as most of us will find it increasingly harder to afford our basic human right to water for domestic use, for our livelihood and decent living.

Don’t be surprised if soon we will have not just the most expensive electricity rates in the region but the most exorbitant water rates as well. ###

Click on table to enlarge

“Growth” built on maldevelopment

BPO and labor export as growth drivers is an aberration because their prevalence is symptomatic of the economy’s continuing failure to industrialize (Photo from callcenterphilippines.com)

Written for The Philippine Online Chronicles

The National Statistical Coordination Board (NSCB) reported that the Philippine gross domestic product (GDP) grew by 7.1% in the third quarter of 2012. The expansion was beyond the general expectation of 5.4% and second only to China’s 7.7 percent. Encouraged by the “surprising growth”, government chief economist Arsenio Balisacan is predicting that the country will surpass its 5-6% growth target for 2012. Earlier, the International Monetary Fund (IMF) also forecast that the Philippines will grow faster than projected and could become the only economy in the world that will beat expectations.

It’s not every day that the economy outperforms forecasts and ranks behind the region’s largest economy so this must be good news, right? But if you are assuming that we are finally on the path toward sustained and inclusive growth thanks to the good governance reforms of the Aquino administration, you might want to rethink your optimism.

Because the hard truth is that our supposed economic growth is an aberration, a result of our maldevelopment. It is “growth” that is being spurred by volatile foreign capital and markets and not by dynamic and reliable domestic productive sectors. It is growth that underlines the structural defects of our economy. Thus, it could never be banked on to produce long-term jobs and curb poverty, much less jumpstart national industrialization. (For a discussion on job creation and inclusive growth, read this earlier article on GDP growth.)

Let us look at the latest national accounts released by the NSCB. The 7.1% expansion in the GDP was mainly the result of the extraordinary performance of the construction sector both in the production and consumption sides. NSCB data show that by industrial origin, the gross value added (GVA) in construction grew by 24.3% in the third quarter, the largest among all sectors. Manufacturing, on the other hand, expanded by just 5.7 percent. Meanwhile, construction expenditure expanded by 24.8% during the same period, easily the fastest growth rate among all types of expenditures that contributed to the GDP growth. (See Table)

What’s driving the scorching growth in construction? Is the country constructing new infrastructure and factories to support the building of national industries? Is the economy producing domestically sourced surplus income that spurs the demand for residential construction?

Sadly, no. The high growth in construction, and consequently the acceleration in the GDP growth, is mainly attributable to the inflows of funds from external sources, in particular the foreign direct investments (FDI) for the business process outsourcing (BPO) sector and the remittances of overseas Filipino workers (OFWs). These externally driven funds are fuelling the so-called “construction boom” in the country, which in turn pushed the substantial GDP growth.

BPO, according to industry sources, has been driving up demand for new office space which is expected to hit a record 400,000 to half a million square meters this year, or an increase of as much as 25% from 2011. Such expansion in BPO commercial space is extremely limited to the country’s BPO hubs. Of the 2.2 million square meters in additional office space for BPO up to 2015, 69% are in Quezon City, Makati, Mandaluyong and Manila while the rest is in other major urban centers like the cities of Davao and Cebu. Certainly, this isn’t inclusive growth both geographically and in terms of the demographic of the domestic labor market. Meanwhile, OFWs continue to stimulate residential construction, with foreign buying of property increasing by 61% this year, according to industry sources.

Why is growth stimulated by BPO and OFWs an aberration?  Because their predominance in economic production is actually symptomatic of the country’s continuing failure to develop and industrialize. Both are the results of the domestic economy’s longstanding structural inability to generate sustainable and productive jobs from vibrant local industries including the manufacture of consumer and industrial goods and modernized agriculture.

Without a national industrialization plan, we are forced to rely on what the US and other rich countries require us to do for their advanced economies.  Since the 1970s, they made us production workers in their global assembly lines and factories. Since the 2000s, they made us call center agents to service the various needs of their clients. In both cases, the rationale has been the same – for American and other foreign firms to exploit our cheap labor in order to cut costs and maximize their profits. To be sure, they do create some jobs but just enough to meet their needs while the jobs generated are totally detached from our own development needs. They are just squeezing dry our labor and human resources while the economy is left with crumbs in the form of several million dollars in investments and several hundred thousand jobs amid tens of millions in employment needs.

The same thing is true with labor export that deprives the economy of the productive capacity of its own work force. Certainly, the remittances keep the economy afloat and provide the much needed boost for consumer spending. But when measured against what is being taken away from us when millions of our skilled workers, scientists and engineers, health workers, teachers, etc. use their invaluable skills to serve the needs of other countries instead of ours, the net impact is far more disastrous economically (not to mention the social costs of labor export).

The maldevelopment of our economy is further emphasized when Malacañang and the IMF boast that the Philippines will continue to grow and be resilient amid the global economic crisis. The reason behind such resilience is not because the economy is internally-driven but because our main drivers of growth – BPO and labor export – are precisely useful cost-cutting schemes for the crisis-hit economies of the First World to cope with the economic crunch. In other words, we may continue to “grow” amid the global crisis at the great expense of our workers who will be forced to accept further exploitative arrangements in the form of more depressed wages and lack of social protection whether as an irregular call center agent here or an undocumented migrant worker in the States.

A country of call center agents and exported workers will just never industrialize. ###