Dwindling assets

BY DENNIS GADIL

(First of two parts)

Asked to name the remaining government assets that could be sold to help shore up government’s revenues, a ranking cabinet official said in jest they may have to sell Malacañang Palace, the Pasig River, and even Luneta if worse comes to worst.

Luneta, he quipped, might have to go first but the government should first get the consent of Rizal’s kin.

JOKE TELLS IT ALL

The joke essentially sums up the desperation of the present administration to sell all the government’s "jewels" just to contain a widening deficit.

Finance officials have readily said that more state assets would be sold this year but not one of them has identified which ones. Some assets, however, have already been lined-up for auction.

The government was forced to adjust upward its budget deficit ceiling from the original target of P102 billion to P177.2 billion for this year, which could mean more borrowings and disposal of more state-owned assets.

Government sells assets to support the budget, especially since revenue targets are always not enough.

P194 BILLION IN AQUINO’S TIME

Since the first wave of privatization commenced during the time of President Aquino, 466 state-owned assets have been sold with total proceeds reaching P194 billion.

In 1991 alone or five years after the creation of the Asset Privatization Trust (APT), the body tasked to carry out the privatization efforts, the Aquino government sold 230 assets with net proceeds of P14.3 billion.

Another 74 public sector enterprises that were created with direct government investment were put up for sale while 57 enterprises were sold wholly or in part for P6 billion.

Since 2000, the gross receipts from the privatization effort were as follows: Bases Conversion Development Authority (BCDA), P39.2 billion; sequestered properties under the Presidential Commission on Good Government (PCGG), P25.5 billion; Government-Owned and Controlled Corporations (GOCCs), P78.6 billion; and non-performing assets (NPAs), P47 billion.

All in all, the privatization proceeds since 2000 have come up to P1.903 trillion, more than enough to cover the government’s funding requirements for 2009, which is pegged at P1.415 trillion.

INEFFICIENT ENTERPRISES

The first seeds of privatization, however, started in the last two years of the Marcos presidency when the government could no longer pay its international creditors because of the proliferation of inefficient and unprofitable public sector enterprises, which bloated the foreign debt to $28 billion.

Marcos, to please the World Bank, issued Presidential Decrees 2029 and 2030, which paved the way for the elimination of inefficient state-owned enterprises and declared a policy of privatization.

The privatization failed to take off as Marcos was toppled by People Power in 1986.

The Cory government then declared that it was continuing the privatization effort to raise revenues for the almost bankrupt state coffers, thereby also signifying to WB that it was honoring debts incurred during the Marcos regime.

The APT and the Committee on Privatization (COP) created under Cory’s Proclamation 50 as amended by R.A. 8758 was tasked to dispose of losing and debt-ridden state properties but this function was usurped over the years by new bodies created by succeeding governments.

PRIVATIZATION BINGE

Bulk of the privatization activities involving big-ticket items took place during the time of President Ramos.

Under Ramos’ watch, the 160-hectare Fort Bonifacio property was sold for P34 billion to the Metro Pacific consortium, which later sold to a Ayala-led group in 2003.

Early on, the ownership of the Philippine Air Lines (PAL), the country’s flagship airline, changed hands and landed on the lap of beer and tobacco magnate Lucio Tan who submitted a winning bid of P9.65 billion for a 67 percent stake in the airline.

Camp John Hay was also privatized in 1994 with property developer Fil-Estate as winning bidder under a long-term lease agreement, which would earn government an estimated P50 million a year in rentals.

Fil-Estate recently took in a strategic partner, Ayala Land, to help it pay its rental obligations, which have grown to about P2.3 billion since 2005.

The privatization of Camp John Hay ran into major hitches after the Supreme Court in 2003 rescinded the tax benefits granted by President Ramos to the leisure complex, affecting Fil-Estate’s income.

In 1995, the government put the cash-strapped National Steel Corp. (NSC) on the auction block and brought in the Malaysians as investors.

NSC is 82.5 percent-owned by two Malaysian companies -- Hottick Ltd., and a subsidiary of Renong Berhad, the investment company of the Malaysian government.

Hottick and the Renong Berhad subsidiary, however, have gone bankrupt and have been taken over by the Malaysian government’s asset privatization entity, which is now the owner of NSC.

The government and the Malaysian government are now discussing how to make the NSC profitable to meet its more than P15-billion debt.

WATER, HOTEL, MEDIA

Splitting the concession into two in August 1997, government also privatized the country’s water sector under the Metropolitan Waterworks and Sewerage System (MWSS).

The Ayala-led consortium, Manila Water Company Inc. (MWCI) was awarded the East Zone concession; while the Lopez-led consortium, Maynilad Water Services Inc. (MWSI), took over the West Zone concession.

Maynilad, however, had to abandon the 25-year concession five years after it faced mounting dollar-denominated debts that it inherited from MWSS.

State-owned Manila Hotel was also put in the auction block in 1997 with the Malaysians winning the bid for the hotel’s 15,300,000 shares or 51 percent ownership.

The Malaysians, however, were booted out after the Supreme Court ruled that the hotel, being part of national patrimony, could not be sold to foreigners.

Businessman Emilio Yap who runs the Manila Bulletin now controls Manila Hotel.

LIFE UNDER ERAP

Under the short-lived presidency of Joseph Estrada, the focus shifted to privatizing sequestered media companies like the IBC-13, RPN-9 and the Journal Group which publishes the People’s Journal, People’s Tonight, Taliba and Women’s Tonight.

The privatization did not take off as previous owners succeeded in wresting control of the media firms as in the case of the Journal Group. IBC-13 and RPN-9, on the other hand, continue to scout for a good buyer.

IBC-13 was almost sold in 1996, when the PCGG put it up for sale at a P2 billion floor price.

But the network’s ex-general manager Jose Jalandoon went to court laying claim to 20 percent of the shares.

THE END OF APT

Estrada issued Executive Order 323 creating the inter-agency Privatization Council and the Privatization Management Office (PMO) as the corporate life of APT was about to come to an end in 2000. The PMO, which acted as the privatization arm of the Privatization Council, officially replaced the APT.

Estrada’s EO directed the Privatization Council’s PMO to take over and oversee the privatization program of the government.

He also ordered the APT to surrender all the assets it had accumulated and identified for sale to the national government or back to the state agency concerned.

The corporate demise of APT practically threw the privatization process into confusion as state agencies involved in the privatization effort adopted different and separate directions.

Former APT chair Gonzalo T. Santos Jr. noted: "In the Philippines, 11 different government entities have a hand in the privatization process. The result, inevitably, is a lack of uniformity in approach. The Cabinet-level Committee on Privatization oversees the process but, by itself, can neither undertake the marketing of assets nor negotiate sales."

Even with the shift to the PMO, the same problem existed.

OVERDRIVE

Also during Estrada’s reign, a move snowballed in Congress for government to privatize the state-owned Philippine Phosphate Fertilizer Corp. (Philphos), the country’s main producer of chemical fertilizer.

Congressmen urged Estrada to fast-track the privatization, starting with the sale of 50 percent of Philphos to private buyers to reduce its $40 billion debt. Philphos remains state-owned.

The "fire sale" of more big-ticket assets, however, went into overdrive when President Arroyo assumed office in 2001.

The country’s premier bank, the Philippine National Bank (PNB) was fully privatized in 2005 after tycoon Lucio Tan completed his acquisition of the bank by buying the remaining 12 percent stake of the government at P43.77 a share worth about P3.1 billion.

Tan’s purchase of the remaining PNB shares brought his shareholdings to 77 percent.

That year in 2005, government earned a total of P8.3 billion in the sale of non-energy assets such as the two properties in Japan and its stake in the PNB.

JAPAN PROPERTIES

The two Japan properties were part of the parcels of lands that the government had been trying to dispose of as early as 2003. Two properties are in Tokyo and while the other two are in Kobe.

The government projected earnings from rental and leasing fees of the properties were placed at $576.9 million during a 20-year period.

The Supreme Court prevented the Cory government earlier from disposing its Roppongi property in Japan in late 1980s.

The 3,179-square-meter Roppongi property is one of four parcels of land acquired by Manila in 1958 as part of the Japanese indemnity for Philippine loss of life and property during World War II.

State-owned Development Bank of the Philippines (DBP) also sold P9.56 billion worth of bad assets to a unit of US investment bank Lehman Brothers under the Special Purpose Vehicle framework in 2006.

The sale brought down DBP’s non-performing assets to 1.92 percent of total assets from 8.45 percent.

Sold were P5.8 billion in non-performing loans and P3.7 billion in "real and other properties owned or acquired" -- mainly foreclosed assets.

NBP FOR SALE

Government also tried to duplicate its windfall from the sale of Fort Bonifacio by putting up the 550-hectare New Bilibid Prisons (NBP) property for sale with a possible asking price of P110 billion.

The prison facility shares a wall with the posh Ayala Alabang Village where property prices currently stand at P17, 000 to P20,000 per meter; the property will likely fetch P93.5 billion to P110 billion.

The plan to sell the NBP property, however, ran into delays as the government dilly-dallied in looking for a transfer site for inmates of the prison facility.