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REGULATORY
CAPTURE OF |
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Lately, Secretary Romulo Neri of the National Economic Development Authority (NEDA) has been very vocal in criticizing the state of "regulatory capture" of government regulatory agencies; the latest being zeroed in by Mr. Neri is the Philippine Ports Authority (PPA). This is not a recent discovery of the Secretary about big business and the regulatory agencies conniving to implement policies inimical to public interest. The “regulatory capture” of certain government agencies, including the PPA, which Secretary General of the NEDA has mentioned even in the heat of cabinet meetings existed even before the present President came into power. That there was drastic change in the personalities occupying the Presidency was not able to alter the power equation in the PPA Board. Lame representatives of the ex-officio members of the board, including the representative from the NEDA have not been up to arguing in favor of the public during board deliberations. That is why the present PPA GM can arrogantly claim that during PPA Board meetings the NEDA representative has not voiced any complaint. Sometime in 2000, during the heated controversy surrounding the issuance of Executive Order 59, "regulatory capture" was explained by then Congressional Planning and Budget Office (CPBO) Chief Neri, to a motley group of port modernization advocates in one of the meeting rooms at the Asian Institute of Management, to be at the core of the thrust to monopolize the whole ports system in the Philippines. The PPA was at the forefront of the effort and spared nothing to push it forward. Mr. Neri then, explained that "regulatory capture" of the agencies supposed to regulate mostly public service functions of government is one of the symptoms of a form of government which he has called "booty capitalism." Here's how he explains the symbiosis between the booty capitalists and the politicians in such a state: "According to Dr. Paul Hutchcroft, a scholar from Yale University who wrote his doctoral thesis on the political economy of the Philippines, “Booty Capitalism” exists where the state is dominated by powerful business groups who finance electoral exercises and use politicians and the machinery of government to further their economic interests. The vicious cycle of booty capitalism starts when vested interests including powerful business groups, finance their own candidates during elections. When their candidates win, the vested interest groups are able to add political power to their already vast economic power. This oligarchic elite is able to influence policies to the point of distorting them. And their very ability to distort policies allows them to capture economic rent, economic rent being extraordinary profits which make them extraordinarily rich. This gives them greater economic power which in turn allows them to finance our election. The impact of policy distortions and having weak state institutions make it very risky for investors to come and invest in the country. And if you have low investments, you have low economic growth. The impact on the poor is high unemployment, poor income, poor education, poor health, and low respect for law. On the State side, if there is a corrupt bureaucracy because of weak state institutions, the sale of rules occurs as well as the diversion of expenditures to graft and corruption. Social services are therefore limited and the bribery tax to the poor is very high. The cost of doing business here also becomes very high." See and more. It was only the removal of President Estrada from office which somehow thwarted the imminent move to have a consortium monopolize operations at the Manila North Harbor. However, and in spite of the change in administrations, while the monopoly ploy for the whole port system was completely aborted, the effort to monopolize port operations at the larger ports in the Philippines, like the Manila North Harbor, continues up to the present. |
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Capturing the PPA Board The attempted port monopoly in EO 59 is not the only issue against the PPA pertaining to the conflict of interest due to provisions in its Charter, which by the way, was conceived under the Martial Law regime. PPA officials have been so proud of their rising annual profits which have surpassed the 1.5 billion peso mark, without realizing that the institution has saddled the transport sector with charges leading to a ridiculous situation where sea transport has become more expensive than land transport. So ridiculous has the situation been that some reporters have claimed that the recent airfare wars in the deregulated airline industry is causing the demise of the shipping companies because they have brought down the rates so low that passengers now would rather fly than take the slow boat trip! The DOTC must look into this preposterous situation and confirm the proposition that the PPA has been the main cause of unduly high sea transport costs. This ought to have been easy had the MARINA followed the order of the President to unbundle the shipping costs. With much reluctance the MARINA did make a report to the President, but only to lamely claim that cargo handling costs in sea transport was only 20% instead of 40% which was presented by a group port modernization advocates. This was in 2003. MARINA officials lied in their report to the President. Even now, five years after the President gave her unbundling order to MARINA the agency is still unable to make these figures public. Instead of showing the agency head the pink slip, he was promoted and is now the General Manager of the PPA – there to continue with his service to the entities that placed him at the PPA Board the first time around. Today, the MARINA Administrator that lied to the President about the unbundled cost of port charges is at the helm of the PPA. Atty. Oscar Sevilla, started his service to "booty capitalists" when he was appointed to be the public sector representative at the PPA Board. He replaced Mr. Philip S. Tuazon, formerly MARINA Administrator. The replacement was perceived to have been caused by Tuazon's obstinate objection to promoting a monopoly in port operations. When another member of the PPA Board proved to be recalcitrant, Mr. Agustin Romulo Bengzon, then MARINA Administrator was "promoted" Undersecretary at the DOTC. Replacing him was Atty. Sevilla, who in turn was replaced by Ms. Noemi Saludo (mother of Ricardo Saludo at the President's Office). It is significant to note that both Atty. Sevilla and Ms. Saludo were prominent leaders of the Port Users Confederation (PUC), an organization that has consistently batted for rate increase in cargo handling at the South Harbor, before they ended up at the PPA Board. The 'musical chair' reshuffles become significant if one considers that the positions all involved seats at the PPA Board. The appointments of persons to the positions of PPA GM, MARINA Administrator, and Private Sector Representative to the PPA Board has been strategic to the regulatory capture of the agency. These persons also compose the PPA Board-Com that decide on the issues to be passed on to the Board for approval. All the other memberships to the Board have Department Secretaries as ex-officio members. Invariably, these seats are filled up by minor department officials that are not even qualified to seat on the Board as prescribed in PPA's own charter. |
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Let us now examine the effects of regulatory capture on other government policies such as encouraging private sector investments, promoting competition and keeping transport rates low. Last 1 February 2007 the NEDA chief once again pleaded with the port authorities to open up the operation of ports in the Philippines to competition. He claimed that the "lack of competition in the ports industry was to blame for the high cost of sea transportation in the Philippines." Mr. Neri has been prodding the PPA to allow another port operator a complete permit to operate a facility which was the result of a government project to solve the blight that was a mountain-high pile of garbage called the "Smokey Mountain." |
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HARBOUR CENTRE TERMINALS, INC. |
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All told, it has taken PPA twelve long years to debate on whether or not to give Harbour Centre Port Terminal, Inc. (HCPTI) full status to operate as a private commercial port. If ever the issue will be settled in favor of HCPTI soon, it will only have a few more years remaining with which to benefit from its port operations and realize the economic contribution to the whole endeavor. This is grossly unfair since, the port operations was supposed to be the enabling component of the entire Smokey Mountain Development Project. Without the full economic benefits of operating this enabling component, the whole project is being jeopardized in that the investments used primarily to provide for the housing needs of the Smokey Mountain dwellers will not be fully recovered or paid for. It is sad to note that the agency tasked to act on the matter has become engrossed in its own interests as owners and developers of ports resulting in its inability to decide on the matter after long and expensive deliberations as shown by the chronology below and in the attached minutes of the PPA BoardCom and Board deliberations. |
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DATES |
ACTION/INACTION |
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April 24, 1995 |
Approved the application of the HCPTI to develop and operate a private commercial port at the northern end of the Manila North Harbor, identified then as the Smokey Mountain Port Project. The development of the port component eventually became the Manila Harbor Center (MHC). |
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December 16, 1997 |
"RESOLVED, That on motion duly made and seconded, and as recommended by Management, the application of R-II Builders, Inc. for the development and construction of a 250-meter additional berth at the southwest corner of the 79-hectare Reclamation Area of the Harbour Centre Port Terminal, Inc. for the dedicated use of the Harbour Centre Industrial Park locators and accommodation of foreign vessels and cargoes (primarily imported bulk cement), be, as it is hereby approved, subject to pertinent PPA rules and regulations." |
| July 19, 2001 |
Subject to submission of the proper technical plans and construction schedules and to rationalize the authority of HCPTI in operating the MHC, the following amendments to its present permits were proposed: 1. To operate as a private domestic commercial port by allowing it to cater to all types of domestic vessels and cargoes; 2. To cater to the foreign vessels and cargoes of its duly authorized locators, whether registered with PEZA or not, and whose areas of operations within the MHC are covered by titles of ownership or long-term lease or lease-purchase agreements duly submitted to PPA; and 3. To cater to the vessels and cargoes which have been refused accommodations or services at MICT or South Harbor. The BoardCom extensively discussed the proposed amendments. There was consensus that MHC may be allowed to operate as a private domestic commercial port without restrictions. On the other hand, there were opposing views on whether a locator within the MHC should still be registered with PEZA or not. Likewise, the BoardCom also felt that there was a need to qualify or identify the specific situations and procedures when vessels/cargoes may be refused accommodation at South Harbor and MICT and allowed to call at Manila Harbor Center. |
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September 27, 2001 |
Retained conditions 1) and 3) but modified item 2) as follows: 2. To cater to the foreign vessels and cargoes of its duly authorized locators, which are registered with PEZA and whose areas of operations within the MHC are covered by titles of ownership or long-term lease or lease-purchase agreements duly submitted to PPA; and Issues raised: 1. Will MHC give as much to PPA as ATI and ICTSI? 2. Should the request be granted in view of the deteriorating volumes? 3. Is it timely considering world economic conditions? |
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November 28, 2001 |
BoardCom defers again action on the HCPTI request, returning the matter to Management and TWG for further review. |
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October 21, 2003 |
Stiff opposition by ATI and ICTSI even for foreign cargo of locators was duly noted. The issue was not resolved and to be subjected for further study. |
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July 25, 2003 |
Board action was again deferred due to: 1. Negative effects on ATI and ICTSI 2. If granted, ATI and ICTSI are bound to sue PPA. 3. PPA would loose revenues 4. If not granted, PPA would be inconsistent in its competition policy. 5. Possible effect of HCPTI on Batangas port |
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October 10, 2003 |
Board Resolution No. 1967 "RESOLVED, That on motion duly made and seconded, the Consolidated Permit issued by Management to the Harbor Center Port Terminals, Inc., in particular: COR/PTO No. 318, hereto attached and incorporated by reference, granting it a 15-year operating permit on its tow (2) berth facilities, to wit: 1. Foreign Berth (250 l.m.) - to be limited to foreign vessels and cargoes of HCPTI's authorized locators and where such vessels are chartered to carry only cargoes of such authorized locators, or such other vessels as PPA may assign from time to time; and 2. Domestic Berth (865 l.m.) - open to all types of domestic vessels and cargoes. be, as it is hereby confirmed." |
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November 13, 2003 |
"WHEREAS, under its Certificate of Registration/Permit to Operate (COR/PTO) No. 381, the Harbor Center Port Terminals, Inc. (HCPTI) has been granted a 15-year operating permit authorizing the Manila Harbor Center (MHC) to: handle all types of domestic vessels and cargoes, and handle foreign vessels with cargoes consigned to or shipped by authorized locators inside the MHC; WHEREAS, under Presidential Memorandum Order No. 415 dated 17 January 1992 and other subsequent and related issuances, the reclamation area of the MHC was originally conceived as part of the Smokey Mountain Development Program and intended to undertake port-related activities; WHEREAS, under Board Resolution No. 1473, dated 21 April 1995, the application of HCPTI (formerly R-II Builders, Inc.) to develop and operate the MHC as a private commercial port was approved in principle; WHEREAS, on 12 November 2002, 6 June 2003 and 3 July 2003, HCPTI wrote PPA requesting the latter to modify it’s COR/PTO No. 381 into a full private commercial port; WHEREAS, upon initial review by Management and due deliberations by the Board as well as taking into consideration OGCC Opinion No. 207, dated 10 November 2003, there is no legal impediment on the part of PPA to authorize HCPTI to operate as a private commercial port; WHEREAS, initial findings indicate that both Asian Terminals, Inc. (ATI) and International Container Terminal Services, Inc. (ICTSI), the existing contractors at the Manila South Harbor and the Manila International Container Terminal, have substantial investments and financial commitments in their respective areas of jurisdiction as provided for in their contracts with PPA, which will directly affect their respective areas of jurisdiction as provided for in their contracts with PPA, which will directly affect their financial obligation to PPA should a third party or port be authorized to accept containerized cargoes; WHEREFORE, taking into consideration the above premises, HCPTI's COR/PTO No. 381, be, as it is hereby amended, to allow MHC to accept or accommodate only foreign non-containerized cargoes and non-containerized vessels. The authority granted to HCPTI or MHC to operate as a commercial private port for all types of domestic vessels and cargoes shall remain. Further, HCPTI's application for containerized operations shall be subject to review particularly on its capability to undertake cargo handling services based on international standards and practices." |
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When speaking of economic benefits, the PPA records show that the men and women running the affairs of the agency were so myopic in discussing cause and effect of the decisions that were asked of them. Focus was merely on what revenues PPA would loose and what possible liabilities it might incur out of complaints from ATI and ICTSI, HCPTI’s competitors. Notwithstanding directives for lower managers to study the contracts, their conditions and implications relative to the decision of allowing HCPTI full operations as a private port, the entire exercise failed to appreciate that the Smokey Mountain Project was destined to become an example of what private investments can accomplish, given enough elbow room to operate properly. It cannot be said that the Smokey Mountain Project was ill conceived or poorly implemented. The private investors and managers were able to come across with their deliverables under their contract with the government. It was very clear from the start that the port operations would be the “enabling component” for the whole project. It would be the port operations and the ancillary activities that would spur the demand for adequate facilities, infrastructure and business support systems. Because of this demand, the real estate value of the entire project appreciated due to prospects of more efficient port operations. The poor implementation by PPA has jeopardized the Smokey Mountain Project. Instead of supporting an ideal example of private participation, PPA has stymied its realization by putting imagined issues before it. Rather than asking what revenues HCPTI could give to PPA, the proper question would have been “What contributions would a successful Smokey Mountain Project contribute to government?” Perhaps, because of the inherent conflict of interest built into the PPA Charter, the men and women in it have failed to make a wider perspective of the problem posed to them. Their concern was basically upon the institution they have learned to love; loosing sight that there is a much wider concern outside of their organization that also needs their attention. Surely, PPA has been unable to see that without the full port operations the whole financial plan of Smokey Mountain Project, the whole effort, would be wasted and a lot of investments made by government institutions and the public would go down the drain. Hopefully, someone can knock some sense into their heads and make them realize that on the other side of the equation, their imagined losses and inconveniences would far be outweighed by the benefits of a successful Smokey Mountain Project that has removed an ugly icon of Philippine governance and provide decent houses to former garbage dump dwellers. |
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This preoccupation of PPA to protect ATI and ICTSI against the competitive threat from HCPTI has been there since before the advent of the Arroyo administration and becoming more virulent up to the present. What follows are official acts of the PPA Board which clearly indicates the preferential treatment given these two companies, compared to how HCPTI has been denied by the PPA its right economic space to prove that indeed, private sector investments in port facilities have become competitive as alternative investments owing to the high costs derived from operating government-owned ports and facilities. Allowing HCPTI to operate would only show this gapping discrepancy and would prove once and for all that competition will always redound to the benefit of the end users. What follows under are chronologies surrounding the operating contracts of the favored operators of PPA - they that account for more than 60% of PPA revenues. |
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ASIAN TERMINALS, INC. |
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Instead of demanding that ATI fulfill its contract obligations relative to the pledge to invest $300 million, PPA has rewarded the company with rate concessions and even entertaining the idea of granting another extension on the 25-year contract before its expiration. |
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ISSUES |
DOCUMENTS |
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Negotiated Contract between PPA and Manila Port Services, Inc., the fore-runner of ATI |
Contract for Cargo Handling Services between PPA and MPSI
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First Supplemental Contract
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The PPA Board passes Resolution # 2002-821 amending the fees collectible from ATI:
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Letter to the President, May 29, 2003 (see "Gateway to Perdition" below) |
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Second Supplemental Contract, February 6, 2004 |
The Supplemental contract allows ATI to:
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Batangas Port operations of ATI |
PPA has never replied directly to concerns that the cargo handling contracts for the ports of Batangas and General Santos were acquired by ATI when these contracts were expired or expiring. The following communications and news items shows how PPA has refused to consider bidding out the said cargo handling operations.
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INTERNATIONAL CONTAINER TERMINAL SERVICES, INC. |
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The contract for the operation of the Manila International Container Terminal (MICT) with ICTSI was signed on 25 May 1988 for a period of 25 years. Even with still about eight years to run, the PPA has inordinately rushed the extension of the contract for another 25 years. Reviewing the original contract, it seems that ICTSI has defaulted on a major condition for the award of the contract which obligated ICTSI to "attract and encourage foreign transshipment cargo at the MICT. Thus, instead of the PPA calling the attention of ICTSI to this gross violation of the contract to operate the MICT, it has been generously giving this operator (together with ATI) very generous rate escalations and an undue advantage to operate the facility interminably. The extension perhaps negates the requirement to have contracts imbued with public service considerations bided out through public bidding rather than by negotiation. In order to be assured that PPA continues its "good performance" as a high income GOCC, it has shown bias and favoritism towards the two companies which account for over 60% of its total revenues. This bias has been translated into higher transport costs and also puts a large burden on the importers and exporters, products of whom have no choice but to pass the Port of Manila. |
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MICT Contract extended for another 25 years, 8 years before the current contract expires in 2013. |
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THE MARINE SLIPWAY CONTRACT |
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CAPTURE OF MARINA |
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