Santa Claus stuck in Manila port

So we have been warned not to expect Christmas goodies this year or be prepared to pay through the nose for the goodies that are available. It is because Santa Claus and his containers of goodies are stuck in Manila port and may not be able to get everything out in time for Christmas.

I guess Sec. Rene Almendras, the Cabinet official with the responsibility to solve the problem still has a lot of work to do. Rene can do a whole lot better by going to the roots of the port congestion. There are long festering problems at the Manila port and Erap’s truck ban is not the main problem.

For instance, I was about to praise Rene’s move to declare Subic and Batangas as alternate ports. Indeed I hear both ports are now getting more traffic. But Rene’s Executive Order should have been more explicit and daring.

In the future, the order says the declaration of a port congestion or emergency will be made by the DOTC Secretary upon the recommendation of the Philippine Ports Authority (PPA) board. But PPA is conflicted. While Batangas is under the PPA, Subic isn’t. Why would PPA make it possible for Subic to get some of the business? That’s the problem with government agencies performing regulatory and business functions and is also captured by private vested interests.

What Rene should have done is what the Thais did in Bangkok. They capped the volume in the old Bangkok port and declared all future volume will have to go to a new port about a hundred kilometers away.

I am hearing reports that they plan to put new berthing facilities in the Manila port. Even if the Manila port has enough space for that, the streets of Manila which must handle all that additional cargo doesn’t have the capacity to absorb anymore. We must cap the volume in Manila and build additional capacity elsewhere. Otherwise Erap and other city mayors in Metro Manila should reimpose the truck ban.

I realize it is difficult for government go against private vested interests. I bumped into Dick Gordon in a recent diplomatic function and got an earful on why this is so. He recalled what happened to Subic when ICTSI used its influence on the FVR administration to block the entry of Li Ka-shing’s Hutchison Whampoa.

I am aware of Dick’s vision to make Subic not just a Freeport but a major hub in the region. Subic was already a hub for supplying all US Navy ships and planes in the Western Pacific all the way up to the Indian Ocean. So it was logical to use Subic as a civilian logistical hub as well.

Dick also saw the opportunity arising from the high costs of port operations in Hong Kong, plus the then uncertainty of China’s take over in 1997. He thought Subic could be positioned as an alternative transshipment port.

When SBMA bidded out the operations of Subic port, it attracted many interested bidders including the Hutchison-Whampoa Group, one of seven bidders who responded to the published invitation.

Three were declared by the SBMA as qualified after passing the pre-qualification evaluation conducted by the SBMA’s Technical Evaluation Committee. The list included International Container Terminal Services Inc. (or ICTSI); a consortium consisting of Royal Port Services Inc. and HPC Hamburg Port Consulting GMBH (or RPSI); and Hutchison Ports Philippines Limited  representing a consortium composed of Hutchison, Guoco Holdings (Phils.) Inc. and Unicol Management Services Inc.

The services of three international consultants recommended by the World Bank for their expertise were hired by SBMA to evaluate the business plans submitted by each of the bidders. All the consultants, after review and evaluation, unanimously concluded that Hutchison’s Business Plan was “far superior to that of the two other bidders.” 

Why?  As between Hutchison and ICTSI, the latter was going to infuse $70 million in infrastructure improvements within the next four years, while ICTSI was going to do so only after 10 years.  The consultants also noted Hutchison’s 120-year track record in port operations; the amount of cargo they carried around the world; their ability to divert transshipment cargo to Subic.  

Even before the sealed envelopes containing the bidders’ proposed royalty fees could be opened, RPSI formally protested that ICTSI is legally barred from operating a second port in the Philippines based on Executive Order No. 212 and Department of Transportation and Communication (DOTC) Order 95-863. RPSI thus requested that the financial bid of ICTSI should be set aside.

This protest not only stemmed from the fact that DOTC’s own rules prohibited it, but also because there was an apparent conflict of interest.  Because ICTSI was locked-in in respect of its contract in Manila, Gordon believed it didn’t want Subic to succeed and only bidded for the Subic ports to ensure that their business position in Manila would not be compromised. 

This is why, Gordon told me, ITCSI bidded to make infrastructure improvements in Subic only after 10 years!  Why would it invest in Subic when it still had a lot of investments to make in Manila?  And why would it want Subic to succeed if the success of Subic would mean the downfall of its business in Manila?

Anyway, ICTSI did make the highest bid of $57.80/TEU; Hutchison $20.50/TEU and RPSI $15.08/TEU. On Aug. 15, 1996, the SBMA-PBAC issued a resolution rejecting the bid of ICTSI because “said bid does not comply with the requirements of the tender documents and the laws of the Philippines.”

At the outset, Gordon explained to me, it would seem ICTSI’s bid is supremely advantageous over the other two bidders.  However, ICTSI’s bid of $57.80 comprises more than 50 percent of its total cargo tariff.  That means it will pay government more than 50 percent of the total amount it collects. 

ICTSI filed a letter-appeal with SBMA’s Board of Directors. ICTSI also filed a similar appeal before the Office of the President. FVR approved the recommendation of the Palace legal counsel to among others reinstate ICTSI’s bid and to disregard all arguments relating to “monopoly”.

The SBMA Board of Directors reevaluated the bids as ordered by FVR but insisted in a unanimous vote to select the Hutchison bid as the winning bid. It cited Hutchison’s realistic Business Plan offering the greatest financial return to the SBMA.

Gordon explained they based their decision on the evaluations of the three consultants, and it made better business sense because Hutchison was in a better position to divert cargo to Subic from Hong Kong.

 But Malacañang insisted on a rebidding. Gordon observed that “if Li Ka-Shing saw the potential of building Subic up, he probably lost his respect for our leaders for their paucity of vision, for feathering their nest over the interest of our country and people.” Gordon said that during the historic handover of Hong Kong to China, he was asked by a Cabinet official why Li Ka -Shing seemed to snub FVR in one of the luncheons there.

Gordon recalled that “Li Ka-shing actually chided a red-faced FVR in front of other forum participants for ‘screwing’ his company on the Subic port deal.  Sources revealed that FVR feigned ignorance over the issue and even motioned Balong Arevalo to investigate the allegations of Li Ka-shing. The reason was simple, he was cheated by the National Government in Subic.”

“How sad,” Gordon sighed. “The Philippines had one of the world’s biggest port operators – a big fish on the line to be hauled in, if you will – but its leaders let it go because of patronage. Hutchison, which was quite ready and willing to invest in modernizing Subic Port, pay us rent, and bring in the transshipment operations that would have created so many investments, jobs, and development all over Luzon, was cheated out of the deal of the century and let our country and our poor down.”

“Worse,” Gordon explained, “we ended up with more debt and a well-endowed port but no shipping activity and no economic opportunities for the many who are poor. This is a classic case of the rich getting richer and the poor getting poorer.

“Later, the country was exposed to even more debt. The Estrada administration borrowed from the Obuchi fund of Japan to erect port cranes to build the Subic port which the winning bidder was required to do at no cost to the government plus payment of container moves and rental of land for the container yards.”

“Unfortunately,” Gordon said, “because ICTSI wielded its undue influence, a golden opportunity for the country slipped out of our hands.”

That, folks, is rent seeking by an entrenched vested interest allowed by a government that had been captured by elements of the same social elite behind our country’s inability to progress today. And to think it happened under FVR, supposedly the best President we have had in recent memory…

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