Crunch time

Pope Francis arrives later today. Millions of devout Catholics will be on the move in and around the metropolitan area and in that tenuous corridor between Tacloban and Palo.

It is crunch time. We hold our breath. Will our rotten infrastructures hold?

Already, scores of flights using our decrepit airport have been cancelled. It is not possible to move around regular flights to accommodate the no-fly periods when the pontiff’s plane comes and goes. Our airport facility is simply too crowded to allow any flexibility in schedules.

I could not imagine how four or five million people could transport themselves through Manila’s streets and unreliable commuter rails for the Luneta mass. I cringe at the thought of it.

There is no specific terrorist threat, thank heavens. The real things to fear are potential failures in infra. What if the Pope is stranded in the substandard Tacloban airport because equipment broke down or rains made use of the airport risky?

The Tacloban airport was due for an upgrade years ago. But the budget for that was declared savings and siphoned into the notorious DAP. Since Typhoon Yolanda, repairs on the airport have been largely cosmetic.

In the first year of the Aquino administration, major foreign assisted projects were unilaterally and arbitrarily scrapped. This included the French-assisted modernization of inter-island ports and the Belgian-assisted dredging of Laguna de Bay.

Instead of focusing tightly on the urgent need to build infra, Aquino and his LP allies pursued an agenda of political vendetta. That agenda subordinated everything else, including economic investments. In 2011, our economic growth fell to just over 3% because government underspent on infra. It turned out funding for government infra was diverted to the DAP and used to fuel a coup against the judicial branch.

In the third quarter of the last year, economic growth dropped steeply. All analysts blamed this fall on this government’s chronic inability to execute the public spending plan. The public-private partnership program remains largely on the drawing board. A major part of that program includes necessary road projects for the metro area.

The hijacking of public funds through the DAP, the old pork barrel program and the various lump sums controlled by the Office of the President was driven mainly by the dictate of political patronage. The outlawed DAP, the supplemental pork awarded cooperative legislators, the reliance on conditional cash transfer (that is a means for buying public support), the concentration of lump sums at the DILG and many other examples underscore this obsession with using public funds to perpetuate LP dominance.

That dictate undermined our ability to close the infra gap. This is why we are now all fretting over the possibility of mishap as we prepare to welcome the Pope in the flamboyant manner we have always done.

EVBO

President Aquino is getting very bad advice from his Transport Secretary (and LP secretary-general) Jun Abaya.

Abaya and his gang succeeded in getting Aquino to sign Executive Order 126 that authorizes the equity value buyout (EVBO) of the MRT-3. About P54 billion was originally included in the 2015 budget for this purpose – although the Senate struck that out. Still, Abaya declares he is determined to carry out the EVBO – with what nobody knows. The MRT is valued at over $2 billion.

Although the DOTC is filled to the rafters with lawyers, none of them appears to have realized that an EVBO is an option open only to the private investors in the original contract as a means to protect their interests. It is an option the private investors may take in the event government fails to fulfill its rental obligations to the investors. It is not an option government may unilaterally take.

An EVBO, a mechanism for protecting private investors against government default, is triggered when 66% of shareholders decide to take the option.

For EVBO to happen, government should have defaulted on its rental obligations. That, in turn, triggers a general default situation — meaning government is deemed to have lost the capacity to meet all its other obligations. An event of default will torpedo our credit ratings immediately.

If this government wants to force through the EVBO, all the gains in our credit ratings (achieved by overtaxing the whole population and curtailing economic investments) will be wiped out. This is analogous to the strategy of a suicide bomber.

In 2009, Goldman Sachs and Elliot and Associates (who controlled the bulk of MRT bonds issued by the original shareholders) filed an arbitration case in Singapore to force an EVBO. To avert costly arbitration proceedings, then President Gloria Arroyo ordered the DBP and Land Bank to buy up the MRT bonds in the open market. This is the reason the two GFIs now hold a majority of the bonds (but not the shares) of the MRTC.

Although government now controls the MRTC board, the arbitration case in Singapore somehow remained live.

President Arroyo issued EO 855 that outlines a plan for the National Development Corp. to eventually buy up the DBP-LBP bonds, the rest of the bonds still in private hands and the shares to that government acquires full ownership and control of the MRT. Aquino’s EO 126 repeals Arroyo’s EO 855, although the former contains no specific plan for a buyout.

With Aquino’s EO 126, no buyout can possibly happen – simply because it is such a terribly flawed order. The private owners cannot be compelled to sell their shares (a large part of which were already sold to Metro Pacific). Government cannot single-handedly make EVBO happen.