From oil pipeline to P-noy style budget

We will give way today to two reactions to past columns. The first is from Ireneo A. Raule Jr., senior vice president of First Philippine Industrial Corp., on letters from readers that we had featured. The following was sent by mail:

“We would like to share with your readers some facts about FPIC), the company which operates the pipeline that transports petroleum products from Batangas Province to the Pandacan Oil Depot.

“As in other countries, the pipeline is the most efficient mode of transport for petroleum products. At present, this pipeline transports more than half of Metro Manila’s petroleum needs 24/7, transporting more than 150 billion liters of petroleum since 1969.

“This effectively removes the need for about 500 to 1,000 trucks daily to supply Metro Manila’s demand for petroleum products. (Imagine the traffic congestion that would happen if about a thousand oil trucks were to ply the streets of Metro Manila daily, not to mention its emission of harmful carbon dioxide into the air.)

 “FPIC has been operating the pipeline for about 41 years. For oil pipelines, 41 years in operation is relatively young. Other countries such as the US have 100-year old pipelines.

Foremost concern

“The integrity of the pipeline has always been the foremost concern of FPIC. As such, it was designed by Pipeline Technologies, Inc. of Houston, Texas and operated and maintained using the United States Department of Transportation (US DOT) standards for liquid petroleum pipelines.

“The pipeline is made of special steel that is 2.5 times stronger than the structural steel that is used in bridges and high rise structures. Much of the pipeline is buried underground as per US DOT standard. The pipeline is protected against corrosion by two-layer external coating and by using an impressed current cathodic protection system with anode beds. This means that corrosion attacks the anode materials thereby protecting the pipelines.

“To ensure its integrity, an in-line inspection is conducted every five years by international contractors to validate the effectiveness of the anti-corrosion system. An additional cost and effort to FPIC but a measure the company feels is vital to ensuring the safety of the pipeline.

“In addition, patrol teams roam the pipeline as frequent as a dozen times a day in busy sections. FPIC proactively coordinates with other companies which normally conduct excavations near the pipeline.

“The satisfaction of FPIC’s customers, based on their monthly ratings using ten stringent parameters, is at 99.9 percent.”

Rice subsidies

From Manuel Q. Bondad, we received this lengthy response to our last column. This is his take:

“This is a reaction to the reduction in the NFA (National Food Authority) subsidies by some P8 billion, as reported in your column, 2011 Reform Budget, P-Noy Style (Sept. 6, 2010).

“Finally, the DBM (Department of Budget and Management) and the NFA have taken concrete steps to address recurring issues of huge rice subsidies, and the NFA’s long-overdue restructuring, owing to the grain agency’s precarious financial condition in a manner like holding the bull by its horns!

NFA drains finances

“Two years ago, the Department of Finance (DOF) acknowledged that the NFA accounts for one of the biggest drains in state finances; $62 million in 2007, to $1 billion in 2008. Also in 2008, the government conceived of eliminating its direct role in subsidizing expensive rice imports, as the NFA then was selling ‘at half its actual cost’!

“Once more in 2008, the government thought of reducing the price of subsidized rice to be replaced with a cash handout to the poorest families. There is nothing new in the present government’s position on rice subsidies, which position elicited howls of protest from some sectors of late.

“Finally, the government announced ‘it would be good economics to look at producing more of it (rice) ourselves.’ Has NFA reduced its debts? Has the agency reduced our rice importation which will breach the ceiling at $1.5 billion this year? The figures are already astonishing for 2009, with NFA debts at P177 billion. The figures for 2010 could be colossal once the much-awaited reports are out!

Remained in the drawing boards

“Obviously, blueprints to tackle gargantuan problems to overhaul the grains agency and to cut multi-billion peso rice subsidies in view of leakages never took off, and for years only remained dusting in the drawing boards.

“Let’s look at the situation some 10 years ago.

“In mid-April 2000, the Philippines was a beneficiary of loans from the ADB amounting to $175 million to fund an ambitious Grains Program, to restructure the NFA, to reform the rice subsidy program, and to ensure farmers’ all-year-round profitability.

“To address institutional measures relating to the NFA, $100 million was set aside, and $75 million to fund the rehabilitation and construction of irrigation systems, and to strengthen the DA’s grain technology capacity.

“After some initial loan releases, the government requested the ADB in April 2003 to cancel further releases, and in June 2004, the ADB notified the government of the official cancellation of the undisbursed loans.

NFA restructuring discontinued

“Why was the program to restructure the NFA discontinued?

“A perusal of the ADB report stated that ‘the Government soon intimated that it wanted vital components of the policy and institutional reform program to be changed or in effect, shelved indefinitely.’ More pronounced is the opposition of ‘interest groups who wanted to preserve the status quo…despite the large drain on the budget….’

“Is the NFA now insolvent? Based on COA reports, liabilities of P69 billion in 2007, from only P20 billion in 2000, (grew) to P177 billion in 2009. Capital deficiencies swelled from P1 billion in 2000 to P45 billion in 2007, a banker’s nightmare!

“Is this considered a public service function? The capital deficit for 2008, 2009, and 2010 could be staggering.

“Worse, the grains agency’s inventories were bigger at P9 billion in year 2000 than in year 2007 at only P6 billion, despite the liabilities’ magnitude in 2007 three times bigger than in 2000. Where have all the sacks of rice gone?

“According to reports, the issue of rationalizing the NFA is now in the hands of lawmakers. When is the appropriate time to act? Was it yesterday, will it be today, or never!”

Should you wish to share any insights, write me at Link Edge, 25^th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.