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An insight into the Logistics industry in the Philippines

(From the Manila Standard dated 18 May 2018)

Spurring the growth of the logistics’ industry

The country’s strong domestic economy and the growth of e-commerce have attracted local conglomerates to enter into the logistics’ industry.Pangilinan-led Metro Pacific Investments Corp., Henry Sy’s SM Investments Corp and Dennis Uy’s Chelsea Logistics Holdings Corp. are expanding their business into logistics for future growth. MPIC acquired a number of small logistic firms, while SMIC and Chelsea have taken in the 2GO Group Inc., the country’s largest shipping and logistics company.Metro Pacific ventured into the logistics and distribution business in May 2016 when it acquired the assets of mid-sized corporate logistics provider Basic Logistics as it saw a strong demand for logistics services in the country. It then formed a new company called Metro Pacific Movers Inc. in a joint venture with the shareholders of Basic Logistics to provide logistics, shipping, freight forwarding and e-commerce services.In January 2017, Metro Pacific through its subsidiary Premier Logistics Inc. acquired some of the assets and business of Ace Logistics worth P280 million.“We want to build up a significant substantial logistics group … I think it’s a very basic need of the country, to have a more efficient logistics’ infrastructure because the cost of moving goods back and forth between Manila and for example, Mindanao, is, we understand more expensive than moving the goods from here to Europe for example. That’s something we should cure,” Pangilinan said.In 2014, the World Bank reported a lower logistics performance index (LPI) for the Philippines, 57th out of 160 countries, down from 44 out of 155 countries in 2010. The country was behind Singapore, Malaysia, Thailand, Vietnam, and Indonesia in 2014.The logistics’ sector – part of transportation and storage under the Philippine Standard Industrial Classification (PSIC) – contributed 6.1 percent to the country’s economic growth during the third quarter of 2014. The sector’s impact on economic growth is certainly extensive considering logistics’ cost, according to the Department of Trade and Industry (DTI), accounts for 24 percent to 53 percent of the wholesale price of goods in the country.Pangilinan said its new venture will complement with its existing businesses.“The group as a whole moves quite a bit of goods and equipment throughout the country so this will help the group as well in facilitating how we operate. PLDT, Meralco, the tollways and to some extent, Maynilad and so forth,” he added.Metro Pacific committed to invest P5 billion in the logistics’ business over a five-year period.Chelsea, meanwhile, is working toward becoming the prime mover of vital goods, cargoes, and passengers in the Philippines and eventually a regional player by expanding organically and creating synergies with 2Go Group Inc. and affiliates within the Udenna Group.Udenna started its shipping business in 2006 through Chelsea Shipping Corp. to support the operations of the country’s leading independent and fastest-growing oil company, Phoenix Petroleum Philippines, Inc. It currently has the largest tanker fleet in terms of capacity with a total of 39,271.64 gross registered tonnages.Chelsea acquired a 28.15-percent indirect economic interest in 2Go Group in March and subsequently took over its management. Chelsea also acquired Worklink Services, Inc. (WSI) to expand its logistics business.“WSI will augment our logistics and manpower businesses as well as create additional synergy within the group,” Chryss Alfonsus V. Damuy, Chelsea president and chief executive said.“The acquisition will prove even more valuable in steering CLC to greater heights by bringing in an experienced and competent management and staff, who have been in the logistics business for more than 20 years,” he added.WSI was established in 1994 for the primary purpose of providing efficient, effective and reliable courier, forwarding, trucking, and logistics services to a growing domestic industry.“In every investment put into expanding our operations, we strive to ultimately provide better shipping and logistics services to Filipino businesses and consumers as well as create more jobs and support the economy’s growth,” Damuy said.REGULATION BARRIERSDespite optimism from local conglomerates, state think tank Philippine Institute for Development Studies (PIDS), in a study, said the government must reduce regulatory burdens in the logistics’ industry to boost the country’s export competitiveness.In 2016, the Philippines’ overall logistics performance index was “way below those of the older members of the Association of Southeast Asian Nations”, the study said, adding that it was even lower than Vietnam—one of the transition economies in Southeast Asia.

“In the field of logistics, the Philippines has one of the most restrictive set of regulations which, together with other factors, are responsible for its relatively poor logistics performance,” PIDS said.PIDS identified various regulatory issues and challenges in the sector, particularly in the implementation aspect. The study revealed that the lack of awareness about the importance of integration and coordination in the logistics’ chain has resulted in “inconsistent, overlapping, and sometimes contradictory policies”.This issue, according to the authors, has caused loss of major logistics providers and foreign investors in the country. Furthermore, the uncoordinated logistics’ system in the country can also be attributed to the absence of a single coordinating agency.At present, various agencies have different sets of regulations for the transport, logistics, and distribution sectors in the Philippines—Land Transportation Franchising and Regulatory Board and Land Transportation Office for road transport, Maritime Industry Authority and Philippine Ports Authority for maritime transport, and Civil Aviation Authority of the Philippines for air transport, among others.This remains to be a hindrance for prospective investors to do business in the country as “there are many regulations and business licenses covering all aspects of logistics services under the jurisdiction of different government agencies,” the authors explained.Maritime transport is one of the most important modes of transport in international trade especially for archipelagic countries like the Philippines. However, the poor quality of port management in the country has led to higher logistics’ costs on the part of service providers.In terms of the logistics’ industry, the authors noted the lack of effective enforcement of important regulations on the part of implementing agencies. An example of this is the continuous operation of old and outdated delivery trucks and vehicles in the country.The same issues persist in the local government level, with different local government units (LGUs) implementing “varied, inconsistent, and unpredictable regulations”, the authors pointed out.These regulations include the use of different stickers for passage to different areas, the inconsistency of operating permits, and different number coding schemes between cities and provinces.REGULATORY REFORMSTo address this regulatory issue, the authors proposed that the Department of Transportation, along with Congress, should disallow the collection of pass-through fees in LGUs to prevent abuse of authority from happening in the grassroots.The authors also suggested “introducing more foreign competition and improving access to the most efficient transport and logistics service providers” to accelerate the country’s overall trade performance.The study also recommended the creation of a lead agency to oversee the sector and ensure “that the flow of information between relevant stakeholders is maintained” and is responsible for getting the full cooperation and support from other government agencies involved.TRAFFIC CONGESTIONThe Export Development Council’s Networking Committee on Transport and Logistics also said a major logistics’ concern is the traffic congestion near Manila ports. Hence, the Terminal Appointment Booking System (TABS) is implemented by port operators in Manila to help ease port traffic.TABS regulates the number of trucks plying Metro Manila, going to and from the ports, avoiding the recurrence of port congestion and addressing corruption and extortion of some brokers/fixers. Trucks registered under TABS are exempted from the Metropolitan Manila Development Authority truck ban at limited hours.To further reduce logistics’ costs in the domestic shipping, the efficiency of the roll-on, roll-off (Roro) network will be enhanced by the recent approval of Executive Order 204, expanding the Roro network policies to chassis Roro (Charo).With Charo, the cost of cargo handling will be lesser by 15 percent to 20 percent. It will allow truckers to be more productive since their trucks will not go with the container in the Roro vessels anymore.For air transport, the Dual Airport Policy, such as Ninoy Aquino International Airport (Naia) and Clark Airpot, is very critical for the logistics’ industry.

The Professional services market in Australia

This article from the Australian Financial Review shows a changing market in Australia.

AFR dated 18 April 2017.

In the world of accountants, lawyers and consultants it’s suddenly become a client’s market.

Better access to information, a steady flow of professional-services escapees starting up their own businesses and new rivals such as Internal Consulting Group and Expert360 (so-called platform companies) means clients know what they want, they want more and they know all the tricks.

In short, it’s the clients who are in charge of the professionals. And there’s one important consequence.

“It’s increasingly a buyer’s market, where competitive panel arrangements, equal access to information and growing sophistication among clients is driving down the price of professional services,” said Paul Rubenstein, managing partner of the Sydney office of law firm Arnold Bloch Leibler.

Paul Rubenstein, the managing partner of the Sydney office of law firm Arnold Bloch Leibler: the relationship is the key factor to keeping clients and ensuring they don’t turn to lower-cost providers. Jessica Hromas
And just to add to competitive pressure the accounting and legal services industry is growing at less than the rate of GDP.

The local legal services industry is under the most pressure with growth tipped to be 1.4. per cent a year between 2017 and 2022, according to IBISWorld estimates. The researchers estimate that demand for accounting services will grow at 1.8 per cent a year in the same timeframe.

All this as the rest of the economy is ticking along at a comfortable 2.4 per cent.

The management consulting sector is doing a bit better in the growth stakes but that’s partly due to the seismic impact of the big four accounting firms.

Feeling the pressure

Diana Chang, the Sydney office managing partner of law firm Clifford Chance: “We provide hubs of up-to-date information where our clients can log on to pick up the most current and comprehensive insights.” Supplied
One way or another accountants, lawyers and consultants are all feeling the pressure, and their response has been to take a bite of each other’s lunch.

Law firms like Minter Ellison are moving into non-law consulting work, strategy firms like BCG, Bain and McKinsey are now helping clients carry out their grand plans and the big four – Deloitte, EY, KPMG and PwC – are in everything now, from law through to strategy and consulting work and even advertising.

All the firms are scrambling to play catch-up in the technology space, often by simply buying out smaller firms in the latest hot area, setting up digital divisions or by trying to emulate the high-tech firms that have so captured the public’s imagination.

One outcome has been the big four accounting and advisory firms have managed to post double-digit growth in the 2016 financial year, despite the flat market, as they continue their expansion into ever more diverse services.

Meanwhile, the entire professional services sector is splitting its activity in two, says Fiona Czerniawska of the UK-based research firm Source Global Research.

There’s the the high-end work that brings prestige and the big dollars, and then there’s the grunt work that clients see as a commodity to be automated or be doled out to the lowest cost operators or performed in-house,

“There’s still demand for highly experienced consultants and lawyers who are capable of innovative thinking and expert problem solving, but that part of the market is quite different to the more run-of-the mill, semi-industrialised work typically done by more junior people,” she said.

“Clients are increasingly saying that these two markets are distinct, requiring different skills and involving different price points. They are, in effect, different business models.”

Subtle changes

There are other subtle changes. Increasingly the firms are finding themselves training clients to do their work for them, in effect doing themselves out of future work for the sake of the relationship.

“We recently spent two days helping our client interview for three leadership roles that replaced the consulting roles we held,” said Ian Hancock, the lead partner of KPMG’s management consulting group.

“In another case, we trained our client project team with the latest project and change-management techniques to improve the likelihood of project success and in doing so reduce the reliance on us.”

Professional services firms may be adjusting to the demands of an IT literate industry but age-long habits die hard.

“Old school is often good. I’ll be talking to some clients and afterwards I’ll write a thank-you note,” Ian Hancock says. It might sound obvious to some people but in the IT-literate crowd pen, paper and stamps are something for the museum.

He may be on to something – all we’ve been hearing for decades is “it’s the relationship” that matters. What Mr Hancock and his cohort observe is that the human connection is still key.

“Before, you could get away with a really deep understanding of a technical area. And that could potentially forgive the sins of not being personal, not being consultative. That has changed,” he said.

“There are now far fewer website queries than we’ve had in the past. The brand opens doors and then they want to meet the individual. If you don’t have [people skills], people will say ‘I don’t want to work with you’.”

KPMG’s approach has seen it rewarded in this year’s Client Choice awards where the firm won for best large accounting firm and was a finalist for best management consulting firm.

The firms are also giving clients continual access to knowledge and services via online tools as a way of staying connected.

Range of tools

Diana Chang, the Sydney office managing partner of law firm Clifford Chance, highlighted a range of tools made available to clients on-demand.

“We invest heavily in our client portals online – we provide hubs of up-to-date information where our clients can log on to pick up the most current and comprehensive insights with regard to key issues influencing their businesses. On our website, for example, we offer up a Global M&A Toolkit, a Financial Markets Toolkit, Talking Tech, a technology portal and a Brexit Hub,” Ms Chang said.

A recent survey of more than 10,000 clients by Beaton Research + Consulting found the perceived value of consulting services had risen for clients of accounting, engineering, consulting and legal firms, while the perception of fee levels was steady or falling.

For Arnold Bloch Leibler’s Mr Rubenstein, the relationship is the key factor to keeping clients and ensuring they don’t turn to lower-cost providers.

“Last year, two clients I act for separately had a disagreement in relation to a deal they had both invested in,” Mr Rubenstein said.

“Given the history and relationship I have with each of them, they approached me and asked me to mediate. It was complicated and took a fair bit of time and energy but I managed to help them reach agreement.

“This is not something I charged for. It is simply something I was happy to do for people who have independently supported us over a long period and with whom we have a deep relationship.”

The relationship should be at the point where when the client is in trouble and “when it really counts, you are the person they know they can turn to and rely on”.

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In the Philippines, we tax energy not subsidise it

One interesting insight I got from this article of this economist is the reason why power in the Philippines is so expensive is it is not subsidise like other countries. Furthermore, the government has sought to levy taxes as well as impose a very regulated framework on the industry.

From BusinessWorld Philippines

By Bienvenido S. Oplas, Jr.

The Philippine electricity market: Monopoly and competition

ENERGY is development, and that includes electricity. It is not possible for an economy to grow fast and have sustainable development if its power supply and distribution are unstable and costly. Thus, having sufficient, stable, and affordable electricity is a necessary though not sufficient condition for economic development.

The Philippines remains to have among the most expensive electricity prices in Asia. Here are data with some breakdown also shown, including the cost of power generation, cost of grid/transmission, and value added tax (VAT) or gross sales tax (GST). Of the 14 major cities in North and Southeast Asia plus Australia and New Zealand listed below, Manila has the 3rd most expensive electricity prices — 3rd in overall residential tariff, 3rd in generation cost, 3rd in grid charges, and 3rd in tax rates. (See Table 1)

Some reasons why other Asian cities and countries have lower electricity prices than the Philippines are as follows:

One, their government subsidizes electricity while the Philippine government imposes multiple taxes, royalties, and fees on power. The VAT rates are shown above, and royalties alone for Malampaya natural gas are as high as P1.45/kWh, and this is ultimately passed on to the consumers.

Two, Philippines power generation capacity is low, with total primary energy supply (TPES) in 2012 for instance only 0.44 tons of oil equivalent (toe) per person per year. Indonesia has twice, Thailand has four times, Malaysia has six times, and Singapore has 11 times that amount.

So with these two factors — high electricity prices and low power generation — average electricity consumption is also low, only 668 kWh per person per year in 2012. (See Table 2)

The Philippine power and electricity sector is characterized by a mixture of competition and monopolies. Power generation is generally competitive with many generation companies (gencos) slugging at each other. Power transmission is a national monopoly via the National Grid Corporation of the Philippines (NGCP). And electricity distribution is reserved to geographical monopolies, mainly the 120 electric cooperatives (ECs) nationwide, the biggest of which, Manila Electric Company (Meralco), accounts for about 75 percent of total electricity sales in Luzon and about 55 percent nationwide.

The issue of high electricity prices in the country has resurfaced once again but in a different angle. In current practices, the various ECs and distribution utilities (DUs) have bilateral contracts with different gencos, and such bilateral arrangement is sometimes suspected of being “sweetheart deals,” wherein both the gencos and DUs benefit to the disadvantage of the consumers.

To address this concern, the Department of Energy (DoE), on the watch of then secretary Carlos Jericho L. Petilla, issued Circular No. DC2015-06-0008, “Mandating All Distribution Utilities to Undergo Competitive Selection Process (CSP) in Securing Power Supply Agreements (PSA).” The order was dated June 11, 2015, or about two weeks before Mr. Petilla’s resignation.

The general principles behind this circular are to (a) increase transparency in the procurement process, (b) promote and instill competition in the procurement and supply of electric power to end-users, (c) ascertain least-cost outcomes, and (d) protect public interest.

Entities that will be covered are ECs, private investment-owned distribution utilities (PIOUs), multipurpose cooperatives, entities within economic zones, and other authorized entities engaged in the distribution of electricity.

Aside from suspicions of “sweetheart deals,” some DUs and ECs have their own gencos. Cross-ownership of DUs and gencos is allowed in the Electric Power Industry Reform Act (EPIRA) of 2001. Two examples here.

One is Meralco, whose wholly owned subsidiary, Meralco PowerGen Corp. (MGen), is targeting a portfolio of 3,000 MW by 2020. MGen is planning or constructing two other big power plants, the 1,200-MW Atimonan, Quezon, coal plant, and the 500-MW San Buenaventura, Quezon, coal plant, both slated for 2018. Another consortium, the Redondo Peninsula Energy, Inc., is slated to open its $1.2-billion, 600-MW coal power plant in Subic in 2018.

Two are the three DUs of Aboitiz Power — Visayan Electric Co., Subic Enerzone Lima Enerzone, and Davao Light.

By forcing the ECs and DUs to undergo competitive bidding for their power supply contracts, the DOE hopes to break or minimize the practice, or at least minimize suspicions, of price-rigging.

This is definitely a welcome move for independent power producers (IPPs) which have little or no cross-ownership and control with ECs and DUs. They will have a fairer level playing field in getting supply contracts. But while the goal is laudable, the circular will be unable to address other problems and contributors to expensive electricity in the country. Among these are the following.

1. High and multiple taxes, royalties, and fees imposed on natural gas and other energy sources and on electricity generation/transmission/distribution businesses.

2. Expensive electricity is also being imposed recently by RA 9513 or the Renewable Energy (RE) Act of 2008, wherein wind, solar and biomass are given guaranteed prices via feed in tariff (FIT) for 20 years.

3. Monopoly characteristic of ECs and DUs because electricity distribution is considered a “public utility” and, hence, protected by the Constitution and franchise laws. Abuse of power is a possibility that is always second nature to any monopolist. This will require amending the Constitution.

A compromise will have to be made, like having a transition period to allow the maturity of existing power supply contracts.

The long-term measures to address structural problems that lead to expensive electricity is to limit government intervention, to step back. Like amending the tax code to reduce or abolish certain taxes on energy, amending the RE law to abolish the FIT provision, and amending the Constitution to remove economic protectionism.

Bienvenido S. Oplas, Jr. heads a free-market think tank, Minimal Government Thinkers, Inc., and is a fellow of the South East Asia Network for Development (SEANET).


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THIS is a continuation of an earlier discussion, “The Philippine electricity market: Monopoly and competition” (Weekender, August 14).

As noted in that article, Carlos Jericho L. Petilla had issued, before he resigned as energy secretary last June, DoE Circular No. DC2015-06-0008, “Mandating All Distribution Utilities to Undergo Competitive Selection Process (CSP) in Securing Power Supply Agreements (PSA).” That order aims to address, among other things, the suspicion of “sweetheart deals” between some big electric cooperatives (ECs) and distribution utilities (DUs), on the one hand, and the generating companies (gencos), on the other, resulting in expensive electricity prices in the Philippines.

Here is another data, a bit old, from a 2013 commissioned study by the US Agency for International Development (USAID). The first set shows the actual prices including taxes (in Philippines and Singapore) and subsidies (Thailand, Malaysia, and Indonesia), and the second set, adjusted prices if taxes and subsidies were minimized, next to zero.

The USAID report explained why the adjustment was done: “Several factors may explain these wide differences. One is tax: effectively 9% in the Philippines, as opposed to 6% in Malaysia and 7% in Singapore and Thailand, albeit 10% in Indonesia. But the bigger contributor to the price differences is the implicit subsidies to state-owned utilities. The International Energy Agency (IEA) estimated that the electricity subsidies in 2011 in Indonesia, Malaysia, and Thailand were at least 5.56, 0.94, and 5.67 billion US dollars, respectively….”

Thus, most if not all comparative electricity prices are based on artificial pricing. People blame gencos or the big DUs but not governments which intervene a lot in electricity pricing, resulting in either very high or very low prices.

The DOE Circular was the subject of discussion in a forum organized by the Energy Policy Development Program (EPDP) early this month. There were six speakers, led by OIC-Secretary Zenaida Y. Monsada of the Department of Energy (DoE), Director Mylene Capongcol also of the DoE, UP School of Economics professors Raul Fabella and Ruperto Alonzo, UP College of Engineering professor Rowaldo del Mundo, and Romeo Bernardo of LBT Consulting.

Mr. del Mundo is the lead technical adviser to the Central Luzon Electric Cooperatives Association-First Luzon Aggregation Group (CLECAFLAG) under the USAID COMPETE project. Twelve ECs in Central Luzon aggregated their total power demand of 300 MW, auctioned it off, and contracted for 20 years the winning supplier, won by GN Power (with expanded capacity of 1,200 MW in Bataan). In his presentation, Mr. del Mundo showed this table of comparative electricity prices in the ASEAN.

By pounding on the need for demand aggregation by DUs as shown in the CLECAFLAG experience, Mr. del Mundo concluded, “The mandatory CSP is the only antidote to [the] EPIRA’s [Electric Power Industry Reform Act] cross-ownership that will avoid temptation to parties with conflict of objectives.”

There is a problem in this conclusion of supporting mandatory or obligatory, instead of voluntary, CSP, based on specific circumstances among DUs and gencos. For the following reasons:

One, as shown in Table 1, we have high electricity prices because the government imposes many taxes on energy while other ASEAN countries subsidize their energy consumption.

Two, Mr. Bernardo noted in his presentation that “Growing pains from regulatory uncertainty, and contracting, approval, and construction bottlenecks have delayed new plants. The average time it takes to build a baseload power plant in the Philippines is probably double elsewhere. Just getting approvals, coupled with overcoming NIMBY opponents, is an ordeal.” And he showed this list of some 200 signatures and permits needed to put up one baseload plant.

Three, Mr. Fabella suggested market testing of PSA contracts instead of mandatory CSP. Market testing is easier to enforce because the Energy Regulatory Commission (ERC) only verifies and approves the market test (say, auction) employed, and is easier to defend in public. There are many modalities for market testing like the cases in Chile, Brazil, New England.

Four, there’s the big question of who are the “third parties” that will be recognized by the DoE, the ERC, and the National Electrification Administration (NEA) which will approve or disapprove the PSA between the DUs and gencos. Will they work for free? Very unlikely. Rather, the DOE and ERC will be forced to make extra budgetary requests to pay for these “third parties” including allowances for their meetings and public consultations.

It is also possible that NGOs, the media, and other sectors actively or silently supporting the “Repeal/Abrogate EPIRA” movement may position themselves as “third party” referees. The DoE circular is not about repealing or tinkering with the EPIRA.

In short, the DoE circular is barking at the wrong tree: By making the competitive bidding mandatory rather than voluntary, it will invite or create more problems than what it intends to solve. The circular should therefore be withdrawn. Or amended to make CSP voluntary, not mandatory. The DoE and other government agencies should instead address other problems and contributors to expensive electricity in the country. Like multiple taxes, numerous permits by the Philippine government, from the barangay to city/municipal, provincial, and national government offices and agencies. Requiring a firm to present up to 200 different permits would expose it to 200 different opportunities of corruption and extortion.

Government should simply learn to step back from too much intervention, regulation, and taxation.

Bienvenido S. Oplas, Jr. is president of the free-market think tank Minimal Government Thinkers, Inc., and a fellow of the South East Asia Network for Development (SEANET).


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Improving the track record of good government

Running the Philippine government based on good governance even in the current administration is far from ideal. Let’s hope the next one can improve on its track record instead of going backward.


From BusinessWorld Philippines

August 11, 2015

The Straight Path — bumpy and potholed

As I have written here before a number of times, I voted for Mr. Benigno S. C. Aquino III in 2010 because among the candidates for president, he was the one who promised to put an end to corruption in government and to infuse a culture of change in governance.
I was assured when he declared during his inaugural address that:
“The first step is to have leaders who are ethical, honest, and true public servants.”

“Let those who know of anomalous deals entered into by government officials expose them that they may be shamed and ostracized by society.”

He reaffirmed his campaign promise to put an end to corruption when in his first State of the Nation Address he said:

“Our administration is facing a forked road. On one direction, decisions are made to protect the welfare of our people; to look after the interest of the majority; to have a firm grip on principles; and to be faithful to the public servant’s sworn oath to serve the country honestly. This is the straight path.”

Eighteen months after his inauguration as President, he initiated action that led to the removal from office Ombudsman Merceditas Gutierrez and Chief Justice of the Supreme Court Renato Corona, the biggest roadblocks in the Straight Path. The new Ombudsman, Conchita Carpio-Morales, lost no time in shoving off the Straight Path Senators Juan Ponce Enrile, Jinggoy Estrada, and Bong Revilla.

But the Straight Path turned out to be bumpy and potholed.

The zealousness and earnestness that the President displayed in the cases of Chief Justice Corona and Ombudsman Gutierrez were sorely missing in the case of Commission on Elections (Comelec) Chair Sixto Brillantes.

The Comelec chair was accused by Automated Election System (AES) Watch of “supreme betrayal of public trust” by purchasing 80,000 Precinct Count Optical Scan machines when he knew about the highly-questionable performance of the Smartmatic-supplied AES in the 2010 elections and Smartmatic’s inability to correct the program errors in preparation for the 2013 mid-term elections.

The complaint was formally filed with the Ombudsman by AES Watch convenors led by former Vice President Teofisto Guingona, Jr. Not only did the President take no notice of the complaint against his former election lawyer, his office even released additional intelligence funds in the amount of P30 million to “help Comelec in urgent special operations.”

The President’s appointees to the Social Security System (SSS) board were each given a one million peso bonus in 2013 when the provident fund increased by P100 billion. But only P26.45 billion, or only a quarter of the total increase, was earned from private equities and government securities. Much of the increase came from the increase in the voluntary contributions of employers and employees, self-employed, and voluntary members.

The corporation code says that directors are not to receive any compensation except for reasonable per diems. The SSS per diem is set at P40,000 per board meeting and P20,000 per committee meeting. A maximum of two board meetings and two committee meetings are held in one month. That means a board member could get as much as P120,000 a month or P1,440,000 a year if the board member attends all board and committee meetings.

Other than SSS President Emilio de Quiros, Jr. the directors do not have substantive experience in investment banking nor are they involved in SSS’ operations. The P26.45-billion increase in the SSS provident fund can be attributed to Mr. de Quiros’ investment skills only. Therefore, the P1-million bonus given each of the other directors was not only unjustified but was immoral as well.

The President vacillated on the dismissal of Land Transportation Office Chief Virginia Torres, his province-mate and shooting buddy. Stradcom Corporation filed corrupt practices complaints against Ms. Torres for her refusal to pay P1 billion in overdue payments to Stradcom Corporation. Transportation and Communications Secretary Jose de Jesus thrice ordered Ms. Torres to sign the release order for the payment of Stradcom. She refused to sign the order, triggering the resignation of the DoTC secretary.

Philippine Amusement and Gaming Corporation Chair Cristino Naguiat, Jr. was named in a lawsuit filed in a district court in Las Vegas. The lawsuit said that Mr. Naguiat, his wife, three children, and nanny received free accommodations at a luxury suite in Wynn Macau; that they were assigned the casino’s best butler and that he requested and received a $1,878-Chanel designer bag for his wife.

The suit also claimed that Kazuo Okada, then-Wynn Resorts director, spent $50,000 on Mr. Naguiat’s visit in September 2010, including $20,000 in cash given to the Filipino delegation for shopping and gaming. Mr. Okada was alleged to be developing a business for his own Universal Entertainment Group in the Philippines. President Aquino saw no wrong in his former classmate’s conduct.

He showed no zeal in getting to the bottom of the unbridled smuggling of food commodities when he did not ask Agriculture Secretary Proceso J. Alcala, his party mate to go on leave like he did to Health Secretary Enrique T. Ona. The President asked Sec. Ona to go on leave to explain the alleged irregularities in the procurement of the Pneumococcal Conjugate Vaccine (PCV) 10 instead of the reportedly more cost-effective PCV-13 two years ago. Dr. Ona said purchasing the PCV-10 actually resulted in savings for the government. Dr. Ona, feeling the pressure, eventually resigned.

The President did not suspend or sack Philippine National Police Director General Alan L. M. Purisima, his bosom friend from way back, for accepting donation as much as P11 million from three construction firms for the construction of the official residence of the Police force chief. He has not seen fit either to inquire as to how Purisima was able to develop his sizable estate in Nueva Ecija when he had been a police officer all these years. He even stood by the PNP chief by saying him by saying he does not know Purisima to be “luxurious and greedy.”

Just last Friday, Ombudsman Morales ordered a preliminary investigation and administrative proceedings against Technical Education Skills and Development Authority Director General Joel Villanueva in connection with the alleged misuse of P10 million in lawmakers’ funds.

On the same day Justice Secretary Leila de Lima filed a complaint against Mr. Villanueva, the President’s political ally, for his alleged involvement in the Priority Development Assistance Fund scam. The Office of the President issued yesterday a statement that it is up to Mr. Villanueva to take a leave of absence or not.

The path may be straight but it is bumpy and potholed.

Oscar P. Lagman, Jr. is member of Manindigan!, a cause-oriented group that takes stands on national issues.

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Where’s the IRR for Renewal Energy Act of 2008?

Seven years after a law was passed giving renewal energy developers fiscal/ tax incentives to support their work, the essential Implementing Rules and Regulation (IRR) have yet to be issued by the Bureau of Internal Revenue (BIR). One wonders what would take the BIR seven years (and still counting) before issuing the IRR. Even more interesting is the apparent lack of priority given by the current administration to fast track this document in the light of the growing demand for power and the need to use more climate friendly energy to protect the environment. I am afraid to say and admit this is one of the things that moved very slowly in the Philippines. Its good despite this, developers continue to do their work with over 1,000 contracts awarded or pending approval. Let’s hope the current administration can redeem itself by getting this done before its term ends next June. Maybe 8 years is sufficient time to complete the task.


From Businessworld Philippines

July 13, 2015

RE Developers: Protecting the Environment with Tax Issues

Sadly, it is typhoon and habagat (monsoon) season again. It is usually at this season that our country suffers the brunt of some of the strongest typhoons to make landfall. Typhoons, according to the experts, are getting stronger as a result of climate change. Thus, in an effort to reduce the effects of climate change, renewable energy (RE) sources are highly encouraged by the government. Currently, RE sources available in the Philippines include hydro power, ocean energy, geothermal, wind, solar, and biomass, such as bagasse and palay husk.

More than six years from the issuance of the Renewable Energy Act of 2008 and its implementing rules and regulations (IRR), the Department of Energy (DoE) has already awarded a total of 664 renewable energy contracts, as of the end of April 2015. Some 240 contracts are still pending approval by the department.

Aside from the business potential of RE sources, most companies are also entering into RE development due to the fiscal/tax incentives available under the RE Law. Under the IRR of the said law, the Bureau of Internal Revenue (BIR) shall, in coordination with DoE, Department of Finance, Bureau of Customs, BOI and other concerned government agencies, promulgate revenue regulations governing the grant of fiscal incentives. Unfortunately, several years from the issuance of the IRR, the BIR has yet to issue the guidelines for the implementation of the tax incentives under said Act. Thus, with the rising number of RE contracts being awarded, the government must look into the long overdue revenue regulations implementing the fiscal incentives.

Among other things, implementation of the following tax incentives available to RE developer must be clarified in the said revenue regulations:

Income Tax Holiday (ITH) incentive on additional investment. Under the law, new investments in RE project shall be entitled to seven years ITH from start of commercial operation. Additional investment shall be entitled to not more than three times the period of initial availment. The ITH for additional investments in an existing RE project shall be applied only to the income attributable to the additional investment, which may or may not result in increased capacity.

Thus, the revenue regulations must provide the formula to compute that income attributable to the additional investment. For increased capacity, how should the base figure be computed? Is it based on the highest sales in the last three years, or just based on the last year’s capacity? For additional investments that do not result in increased capacity, how should the income attributable to that investment be computed? Should it be based on increase in net income?

Corporate Tax Rate of 10%. After the allowed period of availment of the ITH, the registered RE developer shall pay a corporate tax of 10% on its net taxable income, as defined in the National Internal Revenue Code (Tax Code) of 1997, as amended by Republic Act No. 9337. However, the said RE developer shall pass on the savings to end users in the form of lower power rates, pursuant to a technical study by the DoE.

Yet no results of any technical study to determine the extent of savings and how the pass-on mechanism would work has been presented by the DoE. Since there may be RE developers whose ITH incentive period has or shall already expire, mechanisms or guidelines on how to implement this incentive should already be in place. Among other things, the mechanism must provide the basis for the lower power rates. Should it be determined based on the current period’s rates? Or should it be based on previous period rates charged to end users?

Tax credit on domestic capital equipment and services related to the installation of equipment and machinery. Subject to certain conditions, a tax credit equivalent to 100% of the value of the value-added tax (VAT) and customs duties that would have been paid on imported RE machinery, equipment, materials, and parts shall be given to a registered RE developer who purchases these from a domestic manufacturer, fabricator or supplier.

As provided in the IRR, the BIR shall promulgate a revenue regulation governing the granting of tax credit on domestic capital equipment. But again, no issuance has been issued yet. Thus, issues on how and where the application shall be made — can this be utilized against any tax due? — among other things are not clear yet.

Zero-percent VAT on sales and purchases; duty free importation. Sale of fuel from RE sources or power generated from RE, as well as local purchases needed for the development, construction, and installation of the plant facilities of RE developers, shall be subject to 0% VAT. However, for imporations, the law provides that importation of machinery and equipment, and materials and parts thereof, including control and communication equipment, shall be exempt only from tariff duties within the first 10 years from the issuance of a Certificate of Registration to an RE developer. The law does not provide VAT exemption for importation.

Thus, input tax from importations of RE machinery or equipment shall be an additional cost to the RE developer. Being attributable to zero-rated sales, such shall be available as tax credit or be applied for refund. However, with the current trend now on the applications for refund, RE developers must still weigh the cost and benefit of such an application.

These are just some of the issues that the issuance of the revenue regulations can very well address. To further tap the unending potential of renewable energy sources available in our country, our government must provide clear implementing revenue regulations on the availment of tax incentives. Having this in place shall mean protecting the environment and assuring our country of additional sources of energy.

Ma. Lourdes Politado-Aclan is a senior manager with the Tax Advisory and Compliance division of Punongbayan & Araullo.

Article location : Developers: Protecting the Environment with Tax Issues&id=111549

Growing the Australian economy through Outsourcing

This article may be 2 years old, but the opportunity continues to be present today. Get ready Australia, Philippine BPO and other companies in general are coming to help you grow the economy.

From the Sydney Morning Herald

Outsourcing to grow

October 11, 2012
By Christopher Niesche

Outsourcing is usually associated with businesses cutting costs as they struggle to stay afloat, such as when Pacific Brands cut 1850 local jobs and outsourced its manufacturing overseas.

But it can also prove a valuable tool for an expanding company to help it manage its growth.

Known as business process outsourcing, the practice involves a company paying another organisation to carry out a function for it. For instance, rather than having its own pay office, a firm might decide to outsource its payroll function to a specialist.

Services that are typically outsourced include IT software and hardware management, network and server management, property maintenance, transport and logistics, recruitment, training, payroll and document management. It’s likely that many small to medium enterprises are already outsourcing some business processes without ever considering it to be outsourcing, such as legal or accounting services.

David Fincher, a partner in Ernst & Young’s advisory practice, says that outsourcing can bring a range of benefits, including access to new talent, a broader skill base, access to new technology, added flexibility and allowing the company to focus on its core business.

“Organisations should focus on what they’re good at and what they need to be good at. Potentially anything else which isn’t core or differentiating for that organisation could be delivered by someone else,” he says.

An outsourcer will have far more ability to scale and to service a bigger organisation than an in-house operation will.

“If you are a growing business you don’t want your support functions, your non-core functions to grow at the same rate,” says Fincher.

“As you grow you want to take advantage of scale to increase the difference between your revenue and your support costs.”

Fincher says there is no “right or wrong answer” on when a company should consider outsourcing. “But you need to think about the benefits of outsourcing more broadly and the applicability of each of the benefits to your organisation,” he says.

Martin Conboy, president of the Australian Business Process Outsourcing Association, says SMEs can help improve their cash flow by outsourcing the chasing up of outstanding payments. “Other areas that are not core to an SME are marketing and online support, including IT, web design and SEO activities,” he says.

It’s best to consider outsourcing when the business is running smoothly and not to leave the decision until it’s really critical, says Conboy. For instance, with IT outsourcing, a company is better not to wait until its current IT systems are struggling with its workload and so have to make a rushed decision on outsourcing.

The first port of call for a business considering outsourcing should be a trusted advisor, such as an accountant, who will be able to steer them in the right direction, says Conboy.

Business process outsourcing has grown rapidly in recent years and is now seen as a normal part of a company’s operations rather than a radical alternative.

The International Data Corporation (IDC) forecasts global revenues for business process outsourcing to rise from $US147 billion in 2010 to $US191 billion in 2015.

While outsourcing has been increasingly adopted over the past 10 to 15 years, Australia lags behind the rest of the world a little. Just 34 per cent of local companies say outsourcing is a standard practice in their organisation, compared with 60 per cent globally, according to a Deloitte survey last year.

Donal Graham, a Sydney-based partner at Deloitte who leads the firm’s shared services practice, says growing businesses can make good use of outsourcing.

“Medium-sized business sometimes have quite a unique opportunity because if they’re a growing business they very often don’t necessarily have the fixed cost investments in infrastructure or people resources that larger businesses have,” says Graham. “We’ve certainly seen organisations that as they grow, rather than spending a lot of money building bigger technology systems, they’ll actually engage with an outsourcer to provide that.”

An outsourcing relationship is usually enshrined in a contract that will set out the service levels required and key performance indicators.

But Ernst & Young’s David Fincher says that rather than rely on the contract, the two parties should enter into their agreement in the spirit of partnership, rather than seeing it merely as a truncation.

“The contract cannot be the basis on which the relationship is established,” he says.

“The contract is just a legal construct. But if you try to manage a relationship through a contract I guarantee you’ll fail. It becomes the letter of the law rather than solving problems or providing opportunity jointly.”

The challenges of attracting foreign investments to the Philippines

Reading this article just gives you the huge challenges in promoting the Philippines as a preferred investment destination. Despite the abundance of talent and college educated labor, a business culture focused on customer service, and a robust domestic economy fueled partly fueled by overseas remittances by 10 million Filipinos working abroad, there are many things the country has change in order to win over a foreign investor. Let’s hope if the current administration cannot make the needed changes to make it happen, we need to work on finding the right candidate we will elect for the next one. Let the games begin!

From Businessworld Philippines

May 05, 2015

Limited FDI inflows show that the Philippines is uncompetitive

It’s crunch time. ASEAN integration is upon us. We have reasons to rejoice for the potentially large markets and higher investor interests that ASEAN economic integration offers. But the harsh reality is that the Philippines is the least attractive investment destination among the ASEAN-6 economies.

The Aquino administration, in its final year, and the next administration, has to move heaven and earth to drastically reform the Philippine economic landscape.

The World Bank defines Foreign Direct Investment (FDI) as “net inflows of investment to acquire a lasting management interest (10% or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments.” Net FDI inflows are new investment less disinvestment.

In 2013, total FDIs as percentage of global output averaged 2.3% while FDIs in East Asia and the Pacific as percentage of their economic output averaged 3.6%. This much higher FDI-to-GDP ratio for Asia and the Pacific compared to the world average reflects the confidence of direct foreign investors on the region’s present and future growth.

Foreign direct investors have voted with their feet. They are attracted by the region’s high and sustained growth.

The Philippines belongs to this fast-growing region. It is part of the ASEAN region that will be integrated by the end of this year. Shouldn’t that be a cause for celebration? The answer should be yes and no.

Yes, the integration will bring about greater interest from direct foreign investors on ASEAN because of the much larger market and the region’s huge investment possibilities.

But no, since the Philippines suffers in comparison with its ASEAN-6 peers. It is the least attractive investment destination of foreign investors. FDIs would rather go to the other ASEAN-6 countries other than the Philippines in order to take advantage of the bigger market.

Past experiences have revealed the preferences of foreign investors. Among ASEAN-6 peers, Singapore is the top choice. In 2013, Singapore’s FDIs was a whopping 21.4% of its GDP.

But the newest member of the ASEAN-6 club, Vietnam, ranked second in terms of its ability to attract foreign direct investors. The Philippines, on the other hand, is stuck at the bottom, with FDIs as percentage of the island republic’s GDP at 1.3%. Foreign investors would rather invest in the other ASEAN-6 economies than in the Philippines. They must know something that the Philippine economic managers are not telling us.

Philippine authorities take pride in the triennial peak in the country’s economic performance, supported by the midterm and presidential elections. Why can’t the Philippine economy grow on a sustainable basis, even without the disruptive, consumption-based, election spending? Put differently, there has to be a more solid bases for sustained economic growth other than election spending every three years.

The moral of the story is clear: success in a competitive world requires hard work. We cannot leave it to chance. Yes, the Philippines is growing, but so are our competitors. And our competitors are many years, even decades, ahead of us. Yet, they don’t rely on national elections to boost their economies.

Let’s get real and fix our broken system. Let us fix our uncompetitive tax system. Part of Singapore’s success is its low corporate and personal income tax system. An ideal tax system is one that does not penalize corporate success and does not become a disincentive to hard work.

In the Philippines, the government takes away about one-third of the corporation’s net profit and one-third of personal income. The tax bases have been virtually untouched for the last 17 years.

Let’s get real and fix our crumbling public infrastructure. The country’s airports and seaports are the most decrepit in this part of the world. The frequent breakdowns of the MRT system are signs of an inept and uncaring administration.

The power system is not only extremely expensive, it is also unreliable. The regulatory framework ought to be revisited. The appropriate role of the government in noncompetitive industries has to be crafted with an eye both on the long-term profitability of the regulated firms and the welfare of the consuming public.

The general consuming public suffers when government regulators end up in the pockets of the regulated.

The restrictive economic provisions in the Philippine Constitution have become anachronistic in today’s fast-changing world. There are limits to foreign equity in the exploration, development and use of natural resources, public utilities, build-operate-transfer projects, operation of deep-sea commercial vessels, and others.

The Philippine Constitution disallows foreigners from owning land and equity in mass media and the practice of professions.

With ASEAN economic integration, these restrictive provisions in the Constitution magnify the Philippines’ unattractiveness as an investment destination.

We need a government that is effective and globally competitive. We need to streamline rules and procedures, making the task of doing business with the government swift, predictable and open. Most procedures should be rules-based rather than discretionary or at the whim and caprices of corrupt and indecisive bureaucrats and government decision-makers.

Realistically, all these needed reforms cannot be accomplished during the waning days of the current administration. This puts the burden on the next President, who should be forward-looking and more committed, adept and willing to undertake the needed reforms.

Benjamin E. Diokno is a former secretary of Budget and Management.

Article location : FDI inflows show that the Philippines is uncompetitive&id=107391

P2P lending should be also best practice in governance and risk management

This article gives us an idea of what peer-to-peer lending does in the marketplace and its ability to disrupt the lending market. While there is great need for this type of lending in a country like the Philippines, it is important like what is mentioned that good governance as well as risk and compliance practices are observed in the conduct of its business.


What you need to know about peer-to-peer lending

Monday, 30 March 2015 | By Kevin Davis

Peer-to-peer (P2P) lending is a fast developing market for individuals andsmall businesses looking to lend or borrow money. It has the potential to challenge the dominance of traditional financial institutions like banks, but involves new risks for both lenders and borrowers.

In its simplest form, P2P uses a web platform to connect savers and borrowers directly. In this form, the saver lends funds directly to the borrower. Few providers offer such a “plain vanilla” product. A P2P platform matches individuals using proprietary algorithms. It works like a dating website to assess the credit risk of potential borrowers and determine what interest rate should be charged. It also provides the mechanics to transfer the funds from the saver to the borrower. The same mechanics allow the borrower to repay the money with interest according to the agreed contract.

Local players in the P2P market (not all yet operational) include Society One, RateSetter, Direct-Money, ThinCats and MoneyPlace.

There are many ways that the basic framework can differ. This affects the types of risk faced by both lenders and borrowers. Protecting the borrower’s identity from the lender is important. What if the lender is a violent thug who takes umbrage if payments aren’t met? Protecting the borrower brings another risk. The lender must rely on the operator to select suitable borrowers and take appropriate action to maximise recoveries.

The operator can provide a wide range of services. For example, lenders might have a shorter time frame than borrowers, or discover that they need their funds back earlier than they thought. The operator may provide facilities to accommodate that. Or, rather than lenders being exposed to the default risk of a particular borrower, the operator may provide a risk-pooling service, whereby exposure is to the average of all (or some group of) loans outstanding.

The further these services extend, the more the P2P operator starts to look like a traditional bank – but not one reliant on bricks and mortar, nor on the traditional mechanisms of credit analysis relying on customer banking data. The explosion of alternative sources of information (including social media) about an individual’s behaviour, characteristics, and contacts for instance, provide new opportunities for credit assessment analysis based on applying computer algorithms to such sources of data.

While the traditional three C’s of loan assessment (character, collateral, cash flow) remain important, new data and ways of making such assessments are particularly relevant to P2P operators. Indeed P2P operators go beyond the credit scoring models found in banks in their use of technology and data, unencumbered by the legacy of existing bank technology and processes. It is partly this flexibility which explains their growth overseas and forecasts of substantial market penetration in Australia. Much of that growth can be expected to come from acceptance by younger customers of the technology involved – and about whom there is more information available from social media to inform credit assessments.

But also relevant is, of course, the wide margins between bank deposit interest rates and personal loan rates. With – arguably – lower operating costs and ability to match or better bank credit assessment ability, P2P operators are able to offer higher interest rates to lenders and lower rates to borrowers than available from banks.

For lenders, higher interest rates are offset to some degree by the higher risk to their funds. Unlike bank deposits, P2P lenders bear the credit risk of loan defaults – although P2P operators would argue the risk can be relatively low due to good selection of borrowers and mechanisms for enabling lenders to diversify their funds across a range of borrowers.

For borrowers, the main risks arise from the consequences of being unable to meet loan repayments. There is little experience available in the Australian context to understand whether P2P operators will respond to delinquencies by borrowers in a different manner to banks.

It’s important that P2P isn’t confused with payday lending where low income, high credit risk, borrowers unable to meet repayments can quickly find themselves in dire straits by rolling over very short term loans at high interest rates.

The two business models can overlap – with payday lenders offering loan facilities via web based platforms. One challenge for P2P operators is to ensure the community and regulators accept their model as one of being responsible lenders to credit worthy clients. They also need to convince regulators that these unfamiliar business models do not pose unacceptable risks to potential customers.

P2P lending could have major benefits to individuals who want to invest, lend or borrow money. Hopefully regulators will be able to distinguish between good and bad business models. If they can’t, they could prevent a profound challenge to traditional banking.

A waste of government revenue opportunity

Reading this article gives an idea that as much as PHP20 billion is not being collected in real estate taxes in many cities and provinces in the country. When you consider the value of taxes in supporting the proper delivery of public services, one wonders why. Its unfortunate, the national government has no control in compelling local governments to update the values used in collecting these taxes. And to think, various local governments keep on introducing new forms of taxes for its residents to pay (in my case, I now have to pay a garbage tax for my home in Manila), the basic property taxes like these are being ignored. Let’s see how we can improve the situation.

From BusinessWorld Philippines

March 11, 2015

Cities with outdated property valuations targeted by Tax Watch

THE FINANCE department’s weekly Tax Watch advertisement yesterday put local governments in the spotlight again, this time flagging cities with outdated schedules of market values (SMVs) for real property that result in billions of pesos in foregone revenue.

“Cities miss up to P20.3 billion in real property taxes when they use outdated schedules of market values and are not aggressive in tax collection,” the advertisement said.

“About P15.9 billion of which are foregone in 51 metropolitan areas and highly urbanized cities alone,” it added.

The estimates were computed based on the incremental revenues to be generated from local government units with outdated SMVs, the Finance department said.

Despite the boom in the construction, housing and real estate industries, the Finance department said a total of 112 of the 144 cities in the Philippines use outdated SMVs contrary to the Local Government Code.

Malabon and Navotas have the most outdated SMVs, with taxes pegged at 1993 prices or more than 20 years overdue, followed by Gapan, San Fernando, La Union, Tanauan, and Valencia (1994 or 19 years overdue); Tuguegarao (18 years); Baguio, General Santos, Mabalacat, and Quezon City (17 years); and Makati, Oroquieta, Parañaque, Pasig, Pateros, San Juan and Toledo (16 years).

Guihulngan and Tanjay’s SMVs were outdated by 14 years, followed by Calbayog, Danao, Kidapawan, Malolos, Mandaue, Ormoc, Tabaco and Tacloban (13 years); Mandaluyong (12 years); Bogo, Carcar, Lucena, Marikina, Naga City in Cebu, Pasay (11 years); Alaminos, Bais, Cebu City, Las Piñas, Mati, Olongapo, Roxas City, San Carlos in Pangasinan and Tayabas (10 years).

A total of 68 other cities have outdated property valuations below 10 years.

Meanwhile, 30 cities have updated schedules of market values, the ad noted.

The Finance department said P20.3 billion can fund 2,929 low-cost resettlement projects, 298 landfills, 451 transport terminals and 1,015 satellite health centers.

“If fully enforced and properly administered, real property tax is a progressive and stable source of revenues to be shared to municipalities, barangay and local school boards,” the advertisement said.

“Pay your real property tax. Make your local governments accountable. Sustainable local finance begins with correct valuation and efficient tax collection,” it added.

Last week, the Finance Department tagged 52 provinces with outdated property valuations, resulting in foregone revenues of up to P9.4 billion. — Imee Charlee C. Delavin

Article location : with outdated property valuations targeted by Tax Watch&id=104170

Agribusiness opportunities in the Philippines

Looking for an investment opportunity in the Philippines. Read this article for your background reference. There are more opportunities available in the two other regions mentioned but unfortunately not covered in this article. Still, there is enough here to wet your appetite to invest in the country.

From BusinessWorld Philippines

March 09, 2015


THIS IS A follow-up to an article published on Dec. 16, 2014, with the same title that focused on the Visayas and Mindanao. This time, the focus is on Luzon.

Luzon is the country’s largest island. It hosts many agribusiness clusters and account for about 55 million out of 103 million of the Philippine market. Metro Manila, Laguna, Cavite, Rizal and Bulacan (“Expanded Metro Manila”) have some 24 million consumers.

Central Luzon and Calabarzon supply food to over 12 million Metro Manilans. The regional firms are mostly domestic market-oriented in contrast to Mindanao’s agribusinesses. Central Luzon accounted for 13.7% of the total national agriculture production in 2013, followed by Socsksargen 9.3%, and Calabarzon 8.8%. Similar rankings apply for the fisheries subsector. (Note: Data came from the Philippine Statistical Authority.)

Calabarzon has 40% of the country’s total manufacturing output, Metro Manila 21%, and Central Luzon 13%. No breakdown for food manufacturing, but Calabarzon should be leading other regions like the Central Visayas and Davao. The four leading agribusiness provinces are Bulacan, Laguna, Batangas and Pampanga. Outward expansions are in Cavite, Rizal, Tarlac, Pangasinan and Quezon.

The provinces around Metro Manila have benefited from large local markets as well as good logistics. However, prices for land and labor are rising. The rising cost of property and the encroachment of subdivisions could mean that owners of hog and poultry farms in Bulacan, Batangas and Laguna will sell out and look for other locations, or altogether get out of the business. Expansion to other areas faces bureaucratic red tape from the barangay officials who have the major say in approvals. There are already cases of fishpond expansion in the South whose permit takes over one year to secure. Local governments have become stumbling blocks to investments and job creation.

Pampanga has a population of about 2.5 million. Its dominant crop is rice. It is the country’s top producer of chicken (surprisingly!) with 9% of production, and the third-largest egg producer. The province is the leader in aquaculture production with 20% of national farm value. It supplies 40% of total tilapia and 8.5% of bangus. The province is known as a meat-processing center. Some 365,000 hogs were slaughtered there in 2013.

The province is home to leading food firms, such as Pampanga’s Best, Mekeni Food, Roel’s Food, Mother Earth, Minalin Poultry and Livestock Coop, Sweet Crystal Sugar Mill, Grupo Agro, Coca Cola, Invictus Food, RBest Food, Premium Food, Sino Food, Tollhouse Service Inc, Metro Shanghai, Samsuan Delicacies, Aiza’s Sweets, TGA Foods, Nan Foods, Malows Meat Products, and Navarro Food Intl.

Scorecard: Over 20

Bulacan has a population of about 3.4 million and is one of the most populous provinces in the country. It is the major rice-processing center. Intercity Industrial Estate in Bocaue has over 100 rice mills. The top five mills are: TL3MJ, R&E, RKR, JEM, and Car-Jenn.

The palay for milling comes from Ilocos, Cagayan-Isabela and Nueva Ecija. Rice is brought to Metro Manila to feed its 12.2 million people plus about three million day-time transient population.

Bulacan is the largest producer of hogs. In 2013, it produced almost 12% of national production of two million tons, live weight. According to an industry player, there are about 25 farms with sow-level of 1,000 or more (about 10,000 pigs in each farm). Robina Farms is among them.

Bulacan is also the second-largest producer of chicken, after Pampanga. Bulacan is the fourth-largest producer of aquaculture products by value. It is the leading producer of bangus.

In food industries, the province is the largest producer of dressed chicken, 82 million out of 481 million in 2013. It also accounted for 524,000 hogs slaughtered out of the total 10.3 million in 2013, the country’s third largest after the National Capital Region (NCR) and Rizal.

The province is home to major animal-feed firms like Cargill Feeds, Cheil Jedang (Korea), Feedmix Specialist, Santeh Feeds, Sunjin Philippines, and Vitarich. It also hosts farm inputs supply companies such as EastWest Seed, Compania JM, Calata, and Monsanto.

The swine breeders include: Daily Harvest, IMI Farm, Pacific Breeder, and Pig Philippines.

Bulacan also boasts of many processed-food firms: Agrinurture, AFPC, Agrisolutions Inc., Big E Food, Bulacan Dairy Coop, Bounty Fresh Food, Centennial Food, Cereal Food, Fisher Farms, Inc., Flavor Food, Foster Foods, Jockers Food, Ilustrados Premium Cacao, JNRM Int’l, Jasoncu Food, Joyful Heart Food, JSD Food, Kian Sun Corp, LCD Food, Komeya Food, Multi-rich Food, Pollen Food, Profood, Marby Food, MJB Food, KSK Food, Markenburg Foods, Royale Cold Storage, R. Lapid, RL Marine, See’s Int’l, Sevilla Sweets, Sham Na Food, Sucere Food, Vina’s Food, VWA Food, and W.L. Food.

Scorecard: Over 60

Cavite has a population of about 2.3 million. It has the fourth-largest number of slaughtered hogs (513,000) in 2013, after Metro Manila, Rizal and Bulacan.

The major companies are Liwayway/Oishi, Monterey Farms, Nissin-URC, Magnolia Inc., Philippine Dairy Products, Phil-Malay, Purefoods-Hormel Co, Sustamina and W Hydrocolloids. The others include Alfonso Tablea, Annie Candy, Caffmaco Feeds, Candyline Food, Don Roberto’s Winery, Gourmet Farms, Jacobina Biscuits, KLT Fruits, Newborn Food and Yan Hu Food.

Scorecard: Over 25

Laguna has a population of about 2.6 million. Its main crops are rice and coconut but production is declining due to rapid urbanization. It ranks among the top 10 hog and chicken producers and among the top five in tilapia production. Some 409,000 hogs were slaughtered in 2013.

The province hosts the longest list of well-known food processing locators. They include Alaska Milk, Asia Brewery, Cargill, Coca-Cola Bottlers, Doughnut People Inc, Emperador Distillers, Franklin Baker, Gardenia Bakeries, General Milling, Ginebra San Miguel, Mix Plant Inc, Monde Nissin, Nestle, NutriAsia, Pacific Meat, Pepsi-Cola Far East, Philippine Health Food, Ram Food, RC Cola, Rebisco, Ritz Food, San Pablo Manufacturing, Tanduay Distillers, Universal Robina, Yakult, Zenith Foods (Jollibee Commissary), and Zesto Corp.

The small and medium firms are Amcor White Cap Asia, Delicious Food, Escaba Food, Erlybelles Food, First Choice Food, FitgloCorp, F&M Foods, Frescano Food, Fresh-Baked Products, Garanfood, Glomus Gourmet, LG Foods, Leslie Corp, LIIP Food Processing, Lorenzana Food, Portion Fillers, Philfoods, Renaissance Foods, Royal Cargo, SL Agritech, Soriano Dairy Farm, Sugoku Foods, Sun Valley Food, 3J Foods and Tropicana Food.

The swine breeders include: Agoncillo Farm, Creek View Farm, Holiday Hills Farm, Infarmco.

Scorecard: Over 60

Batangas has a population of about 2.6 million. It is the second-largest producer of hogs after Bulacan (6.5% of national production). It is also the fifth-leading supplier of chicken, and the largest producer of chicken eggs. It had the third-largest output of dressed chicken, 28 million out of 481 million in 2013. It also slaughtered some 270,000 hogs during the year.

The province ranks fourth in aquaculture products centered in Taal Lake. It is the second-biggest producer of tilapia after Pampanga.

Batangas hosts leading firms in food processing such as Asia Bestfood, Balayan Sugar Mill, Bounty Agro Venture, Central Azucarera Don Pedro, CDO Foodsphere, General Milling, Minola Refining, Nestle (two plants), San Miguel Mills (flour), and Uni-President Foods.

The swine breeder farms include: Luz Farm, Mikaela Farm and Ramos Farm.

The province is also home to big farms like Family Hog Farms, Robina Farms, Batangas Dairy Coop, Batangas Egg producer Coop, Soro Soro Ibaba Coop (SIDCI), Pilipinas Kaneko Seeds, Milk Joy Corp, and Tarnate Dairy. It also has feed companies which include Banner Development, Blue Diamond Feed Mills, Lincoma Producer Coop, Nutrimeal Agribusiness, Tower Feeds.

Batangas is also the base of logistics provider San Miguel Golden Bay Grain Terminal.

Scorecard: Over 30

Rolando T. Dy is chair of the MAP AgriBusiness and Countryside Development Committee, and the executive director of the Center for Food and AgriBusiness of the University of Asia & the Pacific.

Article location : OF AGRIBUSINESS 2: LUZON&id=104025

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