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Philippines: Using public funds to guarantee business profits, not social security

The days leading to the adjournment of the Philippine National Congress every three years have always been an uneventful political time.

At about this time, Congress is a picture of empty chairs and half-lit hallways as most legislators would have already been prematurely campaigning for their re-election or that of a family members’ new election bid rather than burdening themselves with attending sessions.

Last February 3, however, there was a different enthusiasm and an almost perfect attendance graced the halls of Congress on the very last day of the regular session.

A marching order from Malacanang (the Philippines’ seat of power) was conveyed for Congress to fast track House Bill (HB) 6331, a priority legislation amending the country’s decades-old Build-Operate-Transfer law that would institutionalize so-called sovereign guarantees for investors engaged in Public-Private Partnership (PPP) with the government.

Sovereign guarantees, under the proposed law, would ensure the recovery of investment of investors in case of “losses,” and is being justified to further boost the country’s attractiveness for infrastructure investments.

Under HB 6331, investors are even allowed to collect tolls, fees, rentals or charges, engage in commercial development, receive Viability Gap Funding (VGF), and receive direct government payments, among others, to recover investments. Viability Gap Funding is another financial support that the government would provide PPP concessionaires to improve the commercial attractiveness of the project.

Sovereign guarantees are provisions in government contracts that, the way they are foreseen in this bill, would ensure investor profitability and/or return on investments, regardless of effectiveness or efficiency.

As if this is not enough, PPP ventures of private investors will be exempted from paying real property tax and transfer taxes, such as capital gains tax and documentary stamp tax, and all local taxes in the case of projects of national significance.

To dodge delays in the PPP process, the bill also provides for the automatic granting of licenses and permits for winning bidders, alongside prohibitions against the issuance of temporary restraining orders, preliminary injunction or preliminary mandatory injunctions in the bidding, awarding and construction of PPP projects.

Congressional leaders were optimistic on the final approval of the PPP bill given the presence of a quorum.

Social justice remedies deplete public coffers. . .

But lo and behold, Congress abruptly and unceremoniously adjourned its session without approving the PPP bill. Adjournment was not part of the script, but a last minute response to quell attempts at a congressional override of the Presidential veto of a bill that would increase the Social Security System (SSS) pension.

The SSS bill would have raised the pension of SSS retirees by Philippine pesos (Php) 2,000 (USD 42) across the board, but President Benigno Aquino, vetoed the proposal, arguing that it would bankrupt the SSS in a matter of years.

According to President Aquino, the proposed pension increase per retiree, multiplied by the more than two million pensioners, is equivalent to a total payout of Php 56 billion (USD 1.17 billion) per year.

Proponents of the override claim, however, that that the ‘bankruptcy argument’ is exposed as baseless because the government, under the present SSS Law, has the obligation to appropriate funds should the SSS fail to replenish the projected Php 4 billion deficit resulting from the pension increase. There can never be a bankrupt pension system because the government will always intervene if necessary. No government would allow the bankruptcy of its pension system.

They also argue that the Php 2,000 pension can be sourced from foregone revenues from idle assets (Php 198 million); collections from delinquent employers (Php 13.5 billion); uncollected revenue as of 2009 (Php 325 billion) and the Php 447 billion in assets as of October 2015.

The drama that unfolded on the last day of Congress reflects the sad irony of how this government has come to see its social justice obligation as an unacceptable depletion of the public coffers on one hand, while wantonly putting state resources at the disposal of multi-billionaire investors on the other.

In a paradoxical twist, it was the threat of an override of the former decision to deny social security increases that prompted both Malacanang and the leaders of Congress to cut the session short, to the point of sacrificing the approval of its pet bill on investors’ recovery of investment.

It is so absurd to think that the Congress that blindly votes to preserve billions of pesos in tax breaks and sovereign guarantee for big corporations is the same Congress that would suppress attempts to increase the social security of its very constituents.

The increase in SSS pensions would have allowed retirees additional resources for maintenance medicines for their aging bodies, additional food on their dining tables and in most instances, additional funds for the schooling of their grandchildren.

But sovereign guarantees for business profit do not…

And for the longest time, this same government has been reimbursing the alleged losses of concessionaires with sovereign guarantees in their contracts to undertake government projects.

At least 17 firms, mostly foreign-owned or joint ventures with Filipino firms, have sovereign guarantees in their contracts.

Earlier projects covered by sovereign guarantee are: the 1998 Mindanao coal-fired power plant undertaken by San Roque Power Corp., with the consortium of Marubeni Corp., Sithe Philippines Holdings, and Italia-Thai Development Public Co. Ltd.; and the 1999 Caliraya-Botocan-Kalayaan power plant, contracted by Industrias Metalurgicas Pescamona S.A. or IMPSA.

At least three other foreign companies operating in export processing zones, aside from the privilege of not paying taxes and the privilege of perpetually hiring contractuals, have secured from the government the guarantee of paying for their electricity consumption bills, under an Industrial Competitiveness Fund authorized by the previous government.

The firms whose electricity bills are to be paid by the government as mandated in the 2016 national budget are: Texas Instruments (amount of Php 2.105 billion); Hanjin Heavy Industries (amount of Php 1.25 billion); and Phoenix Semiconductor Phils. Corp. (amount of Php 1.45 billion).

There were concessionaires that sought recourse to the government’s sovereign guarantee.  One water utility concessionaire, Maynilad, wrote the Finance Secretary of the country seeking reimbursement of its alleged monthly loss of Php 208 million from January 1, 2013 to January 1, 2015. Acting promptly, government approved in record time, an outlay of Php 3.5 billion for the reimbursement.

In one instance, even before the extension project on mass transit has started, the government is already being penalized more than Php 5 billion for structural defects in the train system and for failing to raise the fares to the agreed upon level. Under the concession agreement, the government allows the winning bidder to raise train fares every two years and to collect a deficit payment from the government should the government fail to approve the requested fare hike.

The government also pays for all right-of-way acquisitions and property taxes and penalized if the infrastructure and train system turned over to the concessionaires do not meet international standards. Public funds were further allocated for future penalty payments or in case government loses its case with the concessionaires.

The Php 2,000 increase on SSS pension is loose change as compared to the billions of pesos being granted to these concessionaires and that will, instead, absorb the very taxes paid by our senior citizens and pensioners all their lifetime.

The contrast between easy public compensations for big businesses and a Presidential veto on even a paltry increase on social security pensions represents the pinnacle of absurdity. The government’s abandonment of its primary task of ensuring the minimum human rights of its people while it directs a much larger envelope of public resources to benefit large corporations has rarely been in such outright display (public health care, development of public infrastructure and sound mass transportation).

Jayson H. Cainglet is the Executive Director of Philippines-based Rural Urban Peoples’ linkages (RUPeL).


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