Smuggling’s alive in Daang Matuwid

Every time I bump into Ed Chua, the country manager of Shell, we end up talking about oil smuggling. And every time the story is the same. There has been no appreciable decline in oil smuggling. This is one activity that’s apparently exempted from Daang Matuwid.

In a way, I sympathize with Shell and Petron. They get hit in two or three ways that reduce their competitiveness against their more nimble independent oil product importers who don’t have to keep large inventories. Some but definitely not all, are probably into smuggling too.

Because Shell and Petron have refineries, they have to buy a month or two worth of crude for processing. In an era of declining oil prices, they end up buying their crude high, spend time and money processing the crude to finished products which they have to sell at a cost lower than even the cost of crude alone.

That is probably why Petron just reported alarmingly lower net earnings of P932 million in the January-to-September period. This is a shadow of the P7.6 billion net income they disclosed for 2011’s first 9 months.

Of course in Petron’s case, there is a new element in its financials this year... consolidation of the former ESSO Malaysian subsidiary it bought. That Esso operation had a reputation of being problematic before Petron acquired it. Could losses there be having an impact on Petron’s bottom line? Probably. But the inventory losses in a market with declining prices may be the major reason.

Then there is smuggling. Shell’s Ed Chua told my PhilStar colleague Wilson Lee Flores that “oil smuggling in the Philippines is a serious problem. We estimate that the government’s losses in tax revenues every year due to oil smuggling is P20 billion to P30 billion.”

That’s a lot of lost revenues… almost as much as P-Noy hopes to raise from sin taxes. It is easy to see why it is that big. Oil smugglers evade the 12 percent VAT on imported finished petroleum products, on top of the P4.35-per-liter for gasoline imports.

As Chua explained to Wilson, “They bring in tax-free oil via Subic or other free ports of the Philippines like Bataan, the Phividec in north Mindanao. They enter using coconut oil storage facilities of former coconut oil exporters all over the country. These are big-time oil smugglers.”

Smuggling is actually starting to become embarrassing for an administration that has set high standards of lily white governance. Bobi Tiglao’s column last week claims that smuggling is at its worst under the current administration. Say it ain’t so, P-Noy!

It is easy to dismiss Bobi’s claim as so much Ate Glue propaganda. But Bobi did cite numbers that came from pretty respectable sources. The current Customs commissioner should dispute those numbers or else do the honorable thing and resign. Just being clean of corruption is not enough if he is helpless in curbing corruption in his agency.

According to Bobi, the value of smuggling is now in the range of “$19.6 billion annually, an explosion from the comparable figures of $3.1 billion and $3.8 billion yearly during the terms of Presidents Joseph Estrada and Gloria Macapagal-Arroyo, respectively.”

Bobi makes the fantastic claim that “in Mr. Aquino’s first two years in office, the value of smuggling totaled $39.2 billion, more than the $35.6 billion during Arroyo’s nine years in office.” That is horrible, if true.

Bobi claims “these estimates are based on data from the International Monetary Fund’s Direction of Trade Statistics, which contains two sets of data. The first set has the value of exports as reported, for example, by China to the Philippines. The second set of data has the value of imports from China as reported by the Philippines.

“To compare the two sets of data, economists use various formulas, the simplest of which involves reducing the export value by 10 percent to account for the cost of freight, insurance and other shipment costs. To explain, China reported that its exports to the country from July 2010 to June 2012 amounted to $33.3 billion. On the other hand, the Philippines reported that its imports from China during the same period totaled only $14.7.

“To estimate the amount smuggled—either through under-declaration of the goods’ values or outright covert entry into the country—the export figure of $33.3 billion is reduced by 10 percent to reflect the cost of freight, insurance and other costs, to come up with a figure of $29.9 billion. This figure less the $14.7 billion imports reported by the Philippines yields a discrepancy of $15.2 billion, the estimation of the value of smuggled goods during the period.”

Bobi also claims that while China, Japan, and Korea account for the largest value of smuggled goods, there has been a surge of smuggled goods, from the United States, Indonesia and India. Hmm… India… I wonder if the attempted smuggling of Indian rice is just a case of mixed signals so it got caught.

Bobi cited numbers and the DOF must present numbers to dispute the impression that Bobi’s cited figures give. Ignoring it makes Bobi seem right in the minds of people. That tars P-Noy’s lily white reputation even if he remains lily white himself.  The failure of P-Noy to curb smuggling may lead people to think that some of his boys or some influential friends are benefiting from it even if we assume he and Ruffy are clean. After all, that was how it seemed in the past administration. Those smugglers must be sharing the loot or they can’t get away with it.

Actually, there is also something we can all do as decent citizens other than nagging P-Noy and his Customs chief to curb oil smuggling. We can choose to buy fuel only from reputable companies so they can be sure the proper taxes were paid to the government. That may also assure us of fuel quality to protect our car engines. That’s something an oil smuggler couldn’t care much about.

Smuggling must really be hurting local industries because I keep on getting information from local industry associations decrying government’s inability to curb this problem. Maybe we should go back to the SGS days when import documents and cargo are inspected prior to loading on a Manila-bound ship. We also need a ruthless law enforcer in Customs rather than an altar boy like Ruffy Biazon who would rather be in a beach resort scuba diving the whole day.

Right now, P-Noy is lucky all those foreign observers who laud his anti corruption drive are overlooking this serious smuggling problem. But in time, specially because Shell and other foreign investors are hurting, smuggling will be taken into account when rating agencies finally decide to give or not to give our investment grade rating.

Potential investors will also look at those same numbers Bobi cited and come to the conclusion that it makes no sense to do business here because the playing field is not fair due to smuggling. P-Noy should forget Bobi is Ate Glue’s loyal mouthpiece and just look at the numbers he cited and see why this problem is so serious.

Traffic

A reader, expat John, sent this reaction to last Monday’s column.

Thanks for raising the spectre of traffic gridlock!

I had dinner recently with a friend who resides in Jakarta and visits Manila every few months. He commented that the last two times he visited it took two hours to crawl from NAIA T-1 to his hotel in Ortigas.

A year ago he would say traffic in Jakarta is worse than in Manila but now Manila is getting to be worse than Jakarta.

CAAP

Here is a reader reaction to the columns on CAAP.

Greetings!

Hope you’re doing great. I’m a student pilot from Pampanga. I read your article today in PhilStar. I must say that I loved it and you nailed it!

I was supposed to have my check ride for my private pilot license some time ago. The thing is, the check pilot was asking money from me that’s unaccounted for - a clear indication of corruption. Of course, I refused.

These check pilots are traditionally bossy, they ask us to pick them up from Manila to Pampanga then back to Manila. I’m sure they have transportation allowance from CAAP, right?

I’m currently waiting for another schedule while still doing some ground school. I’ll see where it goes from there.

Thank you for citing CAAP for its totally incompetent standards (and personnel). The flying community knows this very well. It affects our economy greatly.

Hope to meet you in the future. More power to you and God bless you!

Crisis management

Here’s a nice observation from a reader.

He who smiles in a crisis has found someone to blame.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco