Malampaya sale must be more transparent

When the Koreans announced in Singapore last week that they are "the preferred bidder" for the 4.9- percent interest of PNOC-EC in the Malampaya Natural Gas project, it was clear they were sure they had the inside track. I wondered what made them sound so sure they had it in the bag.

There had been no official announcement that the Koreans were indeed "the preferred bidder" nor had there been any announcement that government is negotiating with anybody at all. In fact, the rules for such negotiations had not been made public, as called for in transactions of this nature.

The Korean pre-emptive announcement forced Energy Secretary Vince Perez to admit a few days later, that the Department of Energy was indeed, "in advanced negotiations" with a consortium led by Korean Gas Corp. The admission of Secretary Perez confirmed my own fears that they are fast-tracking the sale of government‘s Malampaya interests under circumstances that could hardly be called transparent.

For one thing, what are the rules? Did the PNOC board issue any guidelines? How did Korean Gas become so favored? Is a negotiated sale the best strategy to get the most value for government? Why has there been no effort to test the attractiveness of the Malampaya interests to local investors? Pinoys should have the right of first refusal for a privatization of this nature.

If the numbers quoted by Reuters in its Singapore-datelined report is correct, the sale value is just in the vicinity of $200 million. Maybe some of the locals can be enticed to bring back money stashed abroad to something as attractive as this.

Since Malampaya constitutes about 90-percent PNOC-EC’s income, why not just re-introduce PNOC-EC in the stock market and give the local bourse a much needed shot in the arm? Privatization through a public offering is just about the most transparent way of doing it.

I asked around and what I found out convinced me that Ate Glo must order Energy department officials to put extra effort to make the Malampaya sale a lot more transparent. For one thing, the investment banker advising Korean Gas for the deal is Lazard Freres.

Lazard is the same New York firm where the young Vince Perez worked for many years as a trader and where he earned his hundreds of millions (dollars not pesos). While it would be wrong to think that there is anything automatically irregular because of the association, total transparency is the only antidote to suspicions of a sweetheart deal in the making.

I still think it is wrong to even consider selling that 4.9-percent interest in Malampaya. The proceeds won‘t even begin to dent the fiscal deficit problem in a meaningful way. Malampaya is also the rare government asset that is also earning and able to amortize the debt incurred in purchasing it. It shares in the profits from the exploitation of the natural gas field.

In the context of the cocksure announcement of Korean Gas that they have the deal practically sewn up, and their investment banker being Secretary Perez’s alma mater, this is one transaction that seems destined to be investigated by the Ombudsman. The seeming indecent haste adds to the perception of irregularity, justified or not.

Given that Ate Glo is trying so hard to regain public confidence in her avowed anti-corruption crusade, she needs this Korean Gas deal like a hole in her head. She already has the controversial bidding of the Subic-Clark highway project to worry about, as it is.

Taxing Thoughts On Taxes

Gerardo Garcia a PhilStar reader from Taguig, e-mailed this comment on our column last week on the need to assure the equity of tax laws before considering any new taxes or tax rate increases.

Your article on "Make taxes fair and equitable first" printed on July 28th is full of common sense, and is easily understood and appreciated by this reader. I hope those tax experts in government who have been making life miserable for most of us, listen to you.

Another reaction came from a former Finance Undersecretary who shared a comment he sent to the e-group of the Foundation for Economic Freedom. He called the Gross Income Tax – a zombie idea that refuses to die.

We have exhausted ourselves trying to put to rest this Zombie of an idea that refuses to die. We observed that this will increase discretion and rent seeking, will adversely and inequitably affect the dynamic services sector, will lead to lower task collections at a 15-percent rate, is untried anywhere and will raise fiscal risks at this time due to learning curve.

We said this in the mid 90’s when a DOF convened task force that included Sec. Neri first looked at it; we said it in 2001 when an AIM convened task force that included then ex-Customs Commissioner Parayno looked at it. And we are saying it again now. Yet the creator of the Zombie is still attached to it.

Let me try from another tack. The Gross Income Tax is really a tax on the gross revenue of firms, less its direct costs, or what one may refer to as its inputs. In short it is a tax on its "value added". While we compute for the VAT as output vat less input VAT paid, this is really numerically equivalent to the tax directly applied on value added, or our Gross Income Tax.

So now it is clear why the VAT has to be scrapped. Otherwise after we put in the GIT we will have the two VATs. Makes sense???!!

Downsizing Bureaucracy

Dodo Galindo, who was one of the top technical experts at Petron when I was working there, sent me an e-mail to express his thoughts on Ate Glo’s promise to cut down the size of the bureaucracy. Here’s Dodo.

For a long time, the government has become the dumping ground of political inepts and their followers and has become the biggest employer of non-qualified people. Since there are over a million employees in the government, there should be at least 30,000 who retire every year. So, why not just hire people from inside the government to fill up those vacant positions that really need replacements like schoolteachers and policemen. This way, the reduction will be painless. The government must, of course, mount a re-education program to make these replacements suitable for the new positions.

Thought For The Day

Here’s Dr. Ernie E.

No one is ever completely worthless.

He/she can at least be used as a bad example!

Boo Chanco’s e-mail address is [email protected]