Arbitrary

A tangle of reasons explains why the much-touted Public-Private Partnership program seems unable to take off. There is no clear menu of priorities, the bureaucracy seems to be uncoordinated, and the policy framework lacks clarity.

Most important, the investment environment in the country today seems highly uncertain, subject to the whim and arbitrariness of officials acting mainly on turf concerns. Business uncertainty, including uncertainty over contracts already perfected, is the main reason why surveys show our country has become the least desirable place for investments in the region.

Over the recent period, investor wariness about the country has been aggravated by a number of cases: the arbitrary decision to cancel the perfected contract concerning the operation of the SCTEX; the politicization of the PLDT-Digitel deal; the earlier decision of the Palace to cancel the perfected contract to dredge the Laguna de Bay which forced the exasperated Belgians to take our government to international arbitration (replicating the unhappy Fraport episode); the inexplicable reversal, at its final stages, of the deal to lease Philippine Navy land; and, now, the arbitrary suspension of Pacific Nickel Philippines Inc. (PNPI) operations on Nonoc island that leaves a billion-dollar investment in a lurch.

Two weeks ago, I dined with the visiting European CEO of a major mining investment in Mindoro. After going through a litany of problems confronting the large investment outlay, the CEO mocked stabbing his own chest. His shareholders were quite unhappy with the decision to invest in the Philippines. Our country is increasingly perceived abroad as a place where politics runs amuck and policy chaos rules.

Fortunately, when we dined, the visiting European CEO had not yet exchanged notes with his colleagues at the PNPI. He might have actually buried his steak knife in his chest.

PNPI is the company that acquired the rights to revive the nickel mining operation at Nonoc island, off Surigao province. When this mine was in full operation many years ago, the island community was the envy of everyone. The community was housed and a school was built at the mining company’s expense. Electricity was provided free of charge and there was full employment on the island. Surigao City itself is part of the economic fallout from the mine.

Some years ago, PNPI acquired the rights to revive the mining operation at Nonoc, a development understandably welcomed by the local communities that have fallen into hard times since operations ceased.

When PNPI acquired the mining rights, it paid the Privatization Management Office (PMO) $1.2 million as initial installment. In addition, a royalty tax of P102 million due government before the acquisition happened was paid.

Shortly after, PNPI decided to return to government the outdated Ammonia Leach Refinery whose acquisition cost was about $200 million. The new owner decided to switch to a more modern processing method that will extract the mineral in a safer and economical way. Had the new owner decided to sell the obsolete plant as junk, it could have made at least P100 million on scrap value.

Since acquiring the rights over the Nonoc mine, PNPI spent over $60 million conducting engineering and technical studies, protecting forest and watershed areas and doing a feasibility study for modern processing methods.

From 2007, PNPI paid the Mines and Geosciences Bureau a total of P88.34 million in royalties. During the same period, the company paid the BIR P35.35 million in excise taxes. In addition, Surigao City was paid P75.05 million in real property taxes.

All these payments were made even before full operations began. The company is still building the state-of-the-art High Pressure Acid Leach facility. Meanwhile, the PNPI has been exporting the low-grade ore accumulated by the previous operators and regarded as waste. That exportation allows some revenue flow, the basis of its tax payments the last few years.

The new operators of the Nonoc mine insist that their agreement with the PMO stipulates that the balance for the acquisition will be paid on installment basis once full-scale operations begin. In their view, since the new leaching plant is still being installed and no new quarrying is happening, then installments on the mining rights are not yet due.

Early this month, the Finance Secretary unilaterally decided that PNPI owes government the full amount of $263.8 million for the mining concession. On May 16, the DOF wrote DENR Secretary Ramon Paje urging the latter to suspend operations of the PNPI until the amount demanded was paid. On May 19, the DOF issued a press release containing its position on the matter. In the face of that press release, the DENR complied and revoked both the mining rights and the ore transport permits needed by PNPI to maintain its operations.

Because of the DOF’s action, operations of the PNPI are now suspended and 1,400 jobs are in jeopardy. The free power and water distributed to the local community has been stopped. The school, financed by company operations, is in a quandary.

The PNPI maintains that had the DOF consulted with them, the matter might have been clarified. But the DOF did not bother with consultations and instead leaned on the DENR to issue the suspension order.

What happened to PNPI is precisely the sort of nightmare that haunts investors in our economy. A major investment project with the potential of creating vast revenues for government in the years to come is now at a standstill.

With unhappy incidents such as this one, how might we attract investments into all the other areas of our economy where they are direly needed? No wonder our GDP growth projections appear to be adjusted downwards on a monthly basis.