Why no FDIs

By DUCKY PAREDES
MALAYA

‘From 2010 to 2012, the Philippines received FDIs totaling only $5.9 billion, a measly amount compared to Indonesia’s $52.5 billion and Vietnam’s $23.5 billion.’

CONSIDERING the successive credit rating upgrades from various international agencies, long-term, capital-intensive investments ought to be coming in droves.

In March, Fitch Ratings upgraded the country’s credit rating to BBB minus — investment status.

The primary beneficiaries of these upgrades are our special economic zones (SEZs), particularly the Clark SEZ (CSEZ) in Pampanga and the Subic Bay Freeport Zone (SBFZ) in Zambales.

Enrique Razon, the president and chairman of International Container Terminal Services Inc. (ICTSI) says that ICTSI is “pushing hard” and “building the market” to transform Subic into a major port.

Subic is currently upgrading its port facilities through the Subic Bay Port Development Project, and plans to tie up with Clark to form the Subic-Clark Corridor via the 45-kilometer segment of Subic-Clark-Tarlac Expressway (SCTEX).

This is clearly not wishful thinking on the part of ICTSI as Subic has taken giant strides towards becoming a world-class port during the watch of Chairman Roberto Garcia of the SBMA.

Just recently, the SBMA secured a quality standard certification–ISO 9001:2008–that means Subic has reached the global standard for quality management systems.

The Bureau of Customs also notes that Subic Port collection posted a strong performance in April, reaching P1.09 billion or double that month’s target of roughly P529.65 million.

Two foreign shipbuilding companies–one Japanese and the other European plan to put up facilities beside Hanjin Heavy Industries. Says Garcia. “The SBMA already made talks with both companies and both are interested. If that happens, Hanjin will have a shipbuilding neighbor.”

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But, assessments coming from University of the Philippines (UP) economists Raul Fabella and Ben Diokno see the government as part of the problem.

Fabella says that the problems encountered by big-time investors like Sagittarius Mines Inc. (SMI) send this clear message: “regulatory fragility and hold-up are still rife in the Philippines!” This explains why the “FDI flow was a puny $1.5 billion in 2012.”

“Investment grade or not, FDIs would rather be elsewhere,” says Fabella, who notes that despite passing all national requirements, SMI was still unable to start its $6-billion Tampakan gold-and-copper mine but was, instead, stopped a provincial ordinance proscribing open-pit mining.

“I disagree with the assessment that the credit upgrade would result in a surge of FDIs into the Philippines. FDI inflows depend on a different set of variables such as cost of doing business, state of public infrastructure including existence of sufficient, affordable and reliable power supply, policy consistency and credibility,” says Diokno, a former budget secretary.

Diokno notes that although both Vietnam and Indonesia have speculative ratings of below investment grade, they received more foreign direct investments. From 2010 to 2012, the Philippines received FDIs totaling only $5.9 billion, a measly amount compared to Indonesia’s $52.5 billion and Vietnam’s $23.5 billion.

Pending energy projects like the Subic power project have to proceed at a much faster pace to ensure stable and adequate power by 2016, when the President steps down and when the Department of Energy (DOE) projects a supply shortfall of 600 MW arising from greater demand.

The Philippine Independent Power Producers Association (PIPPA) highlights the dire consequence of such a scenario as its president cites official data showing that the current consumption spike of 4.5 percent will require another 600 MW of power two years from now.

PIPPA is composed of 27 power-generation companies that account for a combined 12,323 MW or 75& of the grid’s installed capacity.

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SMI’s Tampakan project–the Philippines’ biggest single investment at $6 billion–is the best example why investors are on wait-and-see mode, even with the all those credit upgrades.

The Tampakan project suffered innumerable delays and snags in obtaining an Environmental Clearance Certificate (ECC) even as the Mining Act allows open-pit mining, and the project’s proponents have assured all stakeholders of the various safeguards it will put in place to protect the environment.

The delays continue even after Justice Secretary Leila De Lima herself already pointed out that national laws transcend local laws, even when it pertains to the mining sector.

An even worse case than the Tampakan mining project is the status of the Redondo Peninsula Energy, Inc., RP Energy’s coal-fired thermal power plant project in Subic.

Two months ago, a Court of Appeals (CA) division threw out a petition seeking a Writ of Kalikasan and a Temporary Environmental Protection Order (TEPO) against RP Energy’s Circulating Fluidized Bed (CFB) Coal-Fired Thermal Power Plant in Barangay Cawag in Subic, Zambales.

At the same time, the appellate court invalidated the ECCs issued by the DENR for the project, as well as the Lease and Development Agreement entered into by the Subic Bay Metropolitan Authority (SBMA) and RP Energy.

The CA division was correct in dismissing the ecological doomsday scenarios pictured by the petitioners. On top of raising fears over a project that is still in the implementation stage, the oppositors provided documentation plucked from the Internet to support their claims without any validation from experts, thus making their claims mere hearsay in the eyes of the court.

In contrast, the CA noted that the project proponents–RP Energy–presented documentation and expert testimonies proving that the project would use state-of-the art technology to ensure a safe and steady and affordable supply of power to the Luzon grid.

This January ruling by a CA division is a precedent because it stems from the first Writ of Kalikasan case against a power project.

The impact of the decision penned by CA Associate Justice Celia Librea Leagogo goes beyond RP Energy and the power industry.

The decision poses an unnecessary risk to investors and investments, especially for those that require ECCs and those in freeports and special economic zones across the country.

Why? Because the decision places a cloud of doubt over all ECCs issued by the DENR in the past. All issued ECCs may now be deemed invalid because of alleged wrong procedures as declared by the Court of Appeals.

This ruling on RP Energy’s Subic power plant project will scare away investors despite the rosy news about the Fitch upgrade because it reinforces the business community’s concerns over the Philippines’ unstable and inconsistent policies that hamper growth.

Moreover, if RP Energy is compelled to give up and pack its bags, it would mean scrapping an environment-friendly project that would have provided an additional 600 MW of power to the Luzon grid at a time when Mindanao-style blackouts are on the horizon.

In its Philippine Energy Plan for 2012-2030, the DOE reveals that the Luzon grid will need an additional capacity of 10,500 MW onwards to 2030.

The CA ruling opens the floodgates to a wholesale challenge to all ECCS issued to private companies, and all LDAs entered into by locators inside Subic and other special economic zones across the country.

The ruling essentially takes away SBMA’s power to approve projects within its sphere and effectively removes its autonomy to govern the zones SBMA governs.

More importantly, as with the case of the ECCs, the CA ruling effectively invalidates all the Lease Agreements between SBMA and its locators.

Yet, the LGUs ceded control over the territories covered by the SBFZ when they issued Sanggunian resolutions acknowledging the SBMA’s sole authority to manage the development of the SBFZ Zone.

Moreover, the powers of the SBMA are exercised by its Board of Directors comprising of, among others, representatives of the LGUs that agreed to join the SBFZ. Three representatives from the LGUs of Olongapo, Morong and Hermosa were members of the SBMA Board when the LDA was forged with RP Energy in 2010.

But, does not R.A 7227 prevail over the Local Government Code as provided under Sections 14 (b) and 23 of the bases conversion law? The approval of the LGU Sanggunians is not necessary.

Ruling otherwise defeats the very purpose of RA 7227, as well as the autonomy of special zones like Clark in Pampanga and Camp John Hay in Baguio.

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