Why I Believe 100% Shares Ownership of Public Utilities Will Help Benefit Filipino Businessmen

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Accru Melbourne

Typhoon Odette certainly blew another serious blow in the Philippines, didn't it? I could remember the Typhoon Ruping when I was only in Kinder 2. Memories in kindergarten may fade over time but a few don't--such as how some people may mention that they failed kinder for sleeping in classes. The passage of the bill that allows 100% ownership of shares in public utilities has been condemned by certain Filipino organizations such as the League of Filipino Students, Kabataan Partylist, and Bayan Muna. The same old cry of "imperialism" is funny since these groups are using American made social media (such as Facebook and Twitter), they may be ordering meals from Grab which is from Singapore, they are using gadgets made from other countries (such as iPhones which were most likely assembled in China), and other stuff which were obviously not Filipino in origin.

A heavy lesson from Odette and other previous disasters

The reason why Odette restoration couldn't be done fast is due to the power of supply and demand. I can't demand VECO to work "fast enough" in the restoration of our electricity. VECO was doing the best it could. However, like every power company in the Visayas--demand outweighs supply. If electricity is in high demand but in low supply--prices will naturally go up. If there are too many customers then can you expect the company to perform at the best effectiveness and efficiency? It would be an insane demand for anybody to demand the electrical companies to provide lower cost and better services if they have to deal with too many customers at a time. The power companies will need to raise up their prices so they can hire more workers, buy better equipment, and provide better service. Yet, we have those know-nothings demanding this and that because they know nothing about running a business. 

The same could've been true for Typhoon Ruping during the late Corazon "Cory" Sumulong Cojuangco-Aquino's administration. Fidel Valdez Ramos has faced with the challenge of frequent brownouts--something that I'd dare say traumatized me during the 1990s. Too many brownouts! The only advantage was that they made me have less TV screen time. However, it would also distract the work of other people. I just knew nothing about economics from my late tens to my teen years. I even wonder why in the world was economics only taught in 4th-year high school back when it was the K+10 program? It feels quite as insane as learning mathematics without learning its practical applications. It's like calculus seems to make no sense until I realized it's used in operations management, computing profits, economic planning, and finding the break-even point. I only learned that in college. 

The price of protectionism or limiting foreign direct investments (FDI) to only a few shares showed its results. Yolanda, for one, showed the devastation in Tacloban. Fortunately, I wasn't in Tacloban last 2013 but the results of heavy disasters were there. There was foreign aid given but what about more foreign investments? In my opinion, I think the problem of the late Benigno Simeon "Noynoy" Cojuangco Aquino III's foreign investment reforms lacked public utilities. Noynoy prioritized the use of infrastructures, manufacturing gas, steam, airconditioning, finance and insurance, transportation, and scientific and technical activities. It would be of no avail if the liberalization of utilities weren't done. Manuel Araneta "Mar" Roxas II could've also tried to push for it last 2013. I believe the early Duterte Administration years should've been devoted to liberating the public utility sector too. For any good the second Aquino Administration and the Duterte Administration did--the liberalization of the public utilities should've been in high priority.

The opportunity behind liberalization of public utilities

I'm getting tired of hearing whiny people who give in all their excuses such as "imperialism" and "only foreign investors will get rich". I find it stupid that the Malaya Business Insight had a caricature by the late Neil Doloricon saying that only FDIs will get rich. Far from it as provided by the history of first world countries. We have the late Lee Kuan Yew from Singapore. Kishore Mahbubani of the Lee Kuan Yew School of Public Policy even dared to say Singapore used FDI to get better. Mahbubani constantly heard negative lies about FDI. Instead, he said, "No! We're not giving in to those lies!" Mahbubani stressed out that FDIs will provide jobs for Singaporeans. Deng Xiaoping did the same thing for the People's Republic of China (PRC) launching a real great leap forward. 

Here are a few things to think about how FDIs can be restricted or regulated within reason even if they have 100% shares without a Filipino partner:
  1. FDIs are still required to be registered at the Department of Trade and Industry (DTI), the Securities and Exchange Commission (SEC), and the Bureau of Internal Revenue (BIR) to name a few. They will still be required to pass through inspections such as the City Health, Department of Health (DOH), and other offices that regulate the private businesses. For example, an Arabian restaurant owner is still required to make sure that his restaurant isn't filthy like many of the local, unlicensed halal restaurants that tend to shut down eventually. 
  2. Land ownership isn't necessarily part of the deal. Personally, I think the Philippines has the right and duty to refuse to sell land to foreigners. It's like how shopping malls will never sell their spaces to their tenants. Lessors tend to prefer a leasing system since it gives them better money cycles than if they sold the spaces at a one-shot deal. I prefer not to sell the spaces for that reason too. 
  3. Filipino landlords are still in control of the foreign tenants. There are contracts to follow which is applicable to both Filipino and foreign tenants. Rules such as no subleasing without permission, no usage of the space for illegal or immoral activities (such as online gambling), property damage, and not paying rent for two (2) consecutive months will require immediate eviction. A foreigner who violates these rules is just as liable as a Filipino tenant.
  4. Any profits generated for the month will be monitored by the BIR. The chances are FDIs will be availing of local accounting services nearest to them. However, even foreign accounting services must comply with being registered with the BIR too. The accounting firm then reports the income of all businesses (whether foreigner or Filipino) to the BIR. Chances are the multinational corporations (MNCs) will really enter the Value Added Tax (VAT) zone. They will be paying a huge 12% VAT, they would still be subjected to the quarterly taxes, and the annual Income Tax Return. Failure to pay these taxes can result in penalties. If negotiation fails then any legal course of action can be done. FDIs are not exempt from paying taxes either. 
  5. So, even if a firm will have the intention to steal information--that would be a direct violation of the law. If a telecommunications company provides good Internet then good. However, if the foreign telecommunications company decides to start stealing confidential information then that's a good reason to sack that firm. The agreement with every FDI is that they are to subject themselves to Philippine laws even if they have 100% shares without a Filipino partner.
Are we clear now that the FDIs are still considered players? Well and good! Business analytical tools will always go with the basic SWOT analysis. If there are threats then there are opportunities. The PESTLE analysis shows what political and economic policies can influence business. Porter's Five Forces involves the bargaining power of the buyers. We need to think positively about the use of public utilities. The opportunity is there for growth of the Filipino business. Public utilities such as airlines, telecommunications, oil, natural gas, electricity, trucking, waste management, water, electricity, and the like are in demand as the Philippine business environment needs more of it! If there's more supply to fill the demand--expect lower prices of services at a better quality as a result of competition. Who doesn't want lower-priced but better quality services? 

Here are a few examples of how I think liberalization of public utilities will help benefit Filipino businessmen:
  1. The world today is a global and digital village. Internet was once viewed as a luxury back in high school. However, it has become a necessity. It became a problem between my parents' generation and mine when we needed better Internet. It can become a source of quarrel especially when college students need it to communicate with their professors and do their homework. Parents do have the right to be suspicious about it if their children will just use it for nonsense. However, the Internet is now a needed tool. Better Internet services will mean Filipino businessmen can now do Internet business better. A Shopee seller will no longer have to worry about too many interruptions. A call center will have better connections. The rise of Food Panda and Grab in the Philippines means better Internet is needed. Better Internet can only be achieved if demand is met by supply. If the local telecommunications want to remain relevant then they need to provide better services. It will also mean that local communications won't be exhausting themselves with too many customer complaints.
  2. Having a better price for water and electricity can help Filipino businesses do better. I remembered how Odette caused many businesses to come to a standstill. Some businessmen were forced to use generators which can be very annoying due to the smog. However, having plenty of power suppliers can mean power outages can be easier to deal with so there will be much lesser excuses not to meet deadlines. It will also mean schools will have teachers who will have better reasons to fail students to fail to meet deadlines.
  3. Disaster preparedness would be better done as well. The great bottleneck holding back the Filipino utility providers is with supply and demand. One reason why the clearing done after Odette was slow was due to that bottleneck of supply and demand. The local public utility providers just can't hurry it up. If VECO (or any power company) did that then they could end up damaging properties with fires. VECO's advice not to leave the power supply on during the work was to avoid accidents. People had to wait for the safety signals. However, the power suppliers were, again, faced with the bottleneck of overly heavy demand that slowed them. If there were more power suppliers and the like--the bottleneck can be greatly reduced. One area can be dominated by a local utility supplier. Meanwhile, far-to-reach areas can be where FDIs can choose to establish their services as long as they don't damage the environment and follow rules. With that, the bottlenecks can be lessened to a greater extent if the supply and demand gap is brought closer by FDIs providing public utility services.
  4. Do I need to mention the money that they will bring? So much for the claim that only FDIs will get rich. These public utility FDIs can be the newest customer for Filipino businessmen. FDIs will want to buy local food supplies so they will naturally end up eating at Mang Inasal or Jollibee instead of importing their food from their home country. The number of revenues they produce will end up in the Philippine banks since they will need direct sources of funding for their local operations. A portion of the income goes back to the mother company. However, a certain portion will end up in the banks, which in turn, will end up financing projects such as bank investments like the Retail Treasury Bond (RTB) and the Unit Investment Treasury Fund (UITF) which may benefit more local businessmen. Bank accounts are taxed to a certain percentage after interest. 
  5. If an FDI generates millions per month--12% will go to VAT payments. Quarterly taxes and the ITR will also have additional sources. All that taxable income that they have and the taxes they must pay will benefit local businesses too. The government needs all that money to pay debts and build public infrastructures. I don't see any reason why FDIs involved in utilities are exempted from the great necessity of taxation. Taxation is an absolute necessity because printing more money than necessary is highly inflationary. What is needed is not to print more money but more sources of money. 

References


"The legacy of Philippines President Benigno Aquino" by Laura Southgate (August 25, 2015)

"The Philippines Readies Public Services for 100 Percent Foreign Ownership" by James Guild (December 29, 2021)
https://thediplomat.com/2021/12/the-philippines-readies-public-services-for-100-percent-foreign-ownership/

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