Uneven playing field

Striking a balance between the interest of consumers and producers is easier said than done.

Consumers want value for money. They want the best quality at the lowest price possible. Producers, on the other hand, want to earn as much profit as possible, taking into account their cost of production and best possible rate of return. But profits, of course, are tempered by competition. One cannot price its products too high because another producer can offer a lower price.

But market forces do not work if some of these products, though produced at a certain cost, are sold at lower than cost, or worse, are subsidized. Not even the most efficient producer can compete against a product whose selling price does not reflect the actual cost.

This is the situation of the domestic cement industry. Imported cement was coming in in huge quantities at very low prices. While this may appear to be good for the consumer, the government also has to take into consideration the interest of a local industry that cannot compete fairly in an uneven playing field.

After conducting its own investigation, the Department of Trade and Industry last February imposed a provisional safeguard duty on imported cement of P210 per metric ton or P8.40 per bag. It is provisional since it is only the Tariff Commission (TC), after hearing the matter, that can impose a permanent dumping duty on imported cement.

Cement importers are making too much money that an additional P8.40 per bag was not enough to stop them from bringing in the construction material. Despite the provisional safeguard duty, data from the DTI showed that cement imports still increased by 64 percent in the first quarter of 2019 compared to the same period in 2018, or from 1.06 million metric tons to 1.74 million tons.

Local cement manufacturers lost their market share from 2013 to 2017, the capacity utilization of their plants declined, and their earnings cut by almost half.

After concluding its own investigation, the TC validated the DTI’s findings of serious injury to local cement manufacturers caused by the sudden, sharp and significant increase in cement importation starting in 2016.

With imported cement prices undercutting locally produced cement by as high as 15.36 percent, practically all of the local cement manufacturers were forced to slash prices to compete, reducing revenues and compromising their capability to modernize their facilities and expand production.

The TC should heed the local cement industry’s plea not only to make permanent the safeguard measures levied against imports, but also to peg it at a higher rate.

Upholding public interest should be the paramount consideration of the TC in resolving the issue of the safeguard measure.

Far beyond the interest of domestic cement manufacturers, the matter of a safeguard measure on imported cement pending before the TC encompasses the broader and more important concern of national interest.

The decision of the commission on the issue would be vital not only to the future of the local cement industry, in particular, but also to the country’s economy in general. It would determine whether our domestic cement industry would be able to grow and modernize to compete globally and satisfy future demands of the local market.

Even if the imports do not come in, the DTI has given assurances that there will be no cement supply shortage since the domestic capacity of 34.5 million metric tons annually can meet the current demand of 32.5 million tons.

This is looking at things in the short term. In the long term, the DTI believes that it is risky and irresponsible to rely on imports and be at the mercy of global supply and demand conditions, thus the need to support a viable and competitive domestic cement manufacturing industry that can compete globally.

DOF supporting NMIA project

Is the Department of Finance blocking, if not delaying the proposed New Manila International Airport (NMIA)  project  of San Miguel Holdings Corp. (SMHC) in Bulacan?

Contrary to some reports, people at the finance department insist the DOF Secretary Carlos Dominguez is in fact very supportive of the project.

They said as a result of DOF’s support and the rest of the NEDA Board, the Swiss Challenge process for the NMIA project, which is an unsolicited proposal, was set in motion in April this year. The Department of Transportation (DOTr) published the Swiss Challenge documents last May 6, and  has scheduled a pre-bid conference this month, with the submission of the comparative proposals for the project scheduled in July. 

They also pointed out that last September, Dominguez told  a joint hearing of the Senate committees on public services and economic affairs that the DOF had even assisted SMHC and offered  a few suggestions in accelerating the approval of the project. 

Among these suggestions was for the DOTR to require SMHC to come up with a joint and several liability agreement with its mother company, San Miguel Corp.  (SMC) to ensure that the latter would stand behind SMHC in building the project since SMHC’s total equity in 2016 was only  P60 billion and the company would need to shell out at least P200 billion from equity financing to implement the P735-billion NMIA project.

During the hearing, they said that Dominguez even pointed out that the DOF wants airport projects to be swiftly implemented, but there were initial concerns that needed to be addressed such as the financial capability of the proponent, the effect of the project on traffic, and its effect on the real estate value of New Clark City in Central Luzon, which is being funded with government money. 

But the initial concerns raised by Dominguez about the NMIA project have been adequately answered because the NEDA Board approved the concession agreement for it last December, which means the project is a go. 

These DOF insiders insist that it is wrong for some people to think or say that Dominguez or the department has anything personal against SMC or its president Ramon Ang. They said that in fact, the DOF is not insisting on SMC paying now what the finance department is claiming are debts owed by SMC’s South Premiere Power Corp. to the Power Sector Assets and Liabilities Management Corp.  (PSALM) since many of the claims by PSALM against independent power producer administrators like South Premiere are still with the courts or arbitral tribunals. 

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