Did we have to import face masks?

I had been wondering since the Pharmally scandal broke out if we really needed to import face masks. Maybe initially while our producers geared up, but not in the quantities that we imported from Pharmally.

We don’t need rocket science to produce a face mask. And in a pandemic when businesses are down, locally producing face masks will save a few thousand jobs.

As it turned out, Trade and Industry Secretary Ramon Lopez had the same thought. In early March 2020, he reached out to local manufacturers to see if they can manufacture surgical masks and PPEs.

Doing so made sense. Other than saving jobs, we keep our money within the local economy and have some level of self-sufficiency for products that are badly needed during a pandemic.

Lo and behold, a group of local manufacturers came forward and offered to produce face masks and PPEs.

Electronics assembly company EMS Components Assembly was a Filipino company that repurposed its factory to produce badly-needed PPE items. I checked out EMS with friends in the industry and I was assured it was capable of installing a production line for these products because of their “clean  rooms” and connections with Taiwanese suppliers of equipment and raw materials.

Here is their sad story as told by Sofia Tomacruz of Rappler and confirmed in a Senate hearing last Wednesday.

EMS and five other companies formed the Coalition of Philippine Manufacturers of PPE (CPMP) to create a new industry in the face of the pandemic’s requirements. They had the capability to ramp up production in a few months. Producing such products requires highly automated equipment. No big deal for them.

EMS invested about P200 million to renovate and prepare parts of their factory to create a medical-grade production area to produce quality surgical face masks. They ordered machines to make masks, coveralls, and medical gowns, among others.

Foreign technicians from firms where they had purchased the machines could not make their way to the Philippines to set up the machines. But “with the ingenuity of the Filipino, we were able to set up the machine – and run it – without any help from anyone.”

They even bought raw materials like filters for medical-grade masks at prices of between $91 to $100 per kilo, far from its current value of about $4.8 as of June 2021.

The group secured the required certifications from the Philippine government and PPE testing labs in Taiwan to be able to supply medical-grade surgical masks by the end of May 2020.

EMS had the capacity to provide at least 8.5 million masks per month and had pledged to provide 100 million masks to the government after the PS-DBM awarded it one contract in late April 2020.

They thought they had government support through DTI. But they didn’t count on the Duterte friendship with the owners of Pharmally. We know what happened next. The Procurement Service of the Department of Budget and Management (PS-DBM), largely ignored them.

EMS secured just one contract, worth P1.35 billion for medical grade face masks, throughout the entire pandemic. Actual earnings from the contract fell to P523.5 million after they were forced by PS-DBM to cut their price.

EMS initially sold its masks at P13.50 per piece, which it said was the cheapest price early in the pandemic and half the price of Pharmally. The PS-DBM had asked EMS to sell the masks at that price because doing so would be a “big service to the Philippines.”

EMS was later forced by PS-DBM to drop the price for the bulk of its shipments to just P2.35 per piece.
Rappler continues its story:

“Yet days before asking local manufacturer EMS for 50 percent off, it turned out PS-DBM had purchased some of its most expensive masks from Pharmally, with three orders placed on April 16 and 20. Prices revealed in the COA’s report on PS-DBM showed that for two of its purchase orders to Pharmally on April 16, it paid P22.50 and P27.72 per face mask, respectively, and P22 per piece under the April 20 contract.

“Because the health crisis allowed the government to undertake emergency procurement, bidding was not competitive at the time, meaning firms that sought to supply to the PS-DBM were not aware of offers made by other competitors.

“Despite offering the lowest prices to the government at that time, EMS also faced difficulties in getting their masks delivered... the PS-DBM did not allow the company to deliver 8.5 million masks monthly as agreed upon.”

PS-DBM claimed it didn’t have enough warehouse space to keep the masks ordered.The firm was only able to finally complete its delivery of its 100 million masks in July 2021, but mostly at a loss.

Of the 100 million, a fourth or 25 million were supplied at P13.50 from June to November, while the remaining 75 million were priced down at P2.35 per piece.

In February 2021, PS-DBM asked EMS to match market prices at the time of delayed delivery. Quite unfair because deliveries were mostly put on hold by PS-DBM despite being ready and available for months.

Obviously, PS-DBM prioritized Pharmally’s delivery, but didn’t ask the Chinese trading company to lower their prices. And the Chinese trader was allowed to use Philippine Air Force planes, Philippine Navy boats, and government chartered flights to bring their masks from China to Manila, the Senate hearing revealed.

EMS brought in their raw materials at their own expense. We ended up importing and using foreign exchange for something that could have been produced locally.

I had no doubt we Filipinos are capable of producing these items. We created a new industry. But our government treated these Filipino investors badly, a disincentive for foreign investors to come here. The Duterte regime placed national interest secondary to theirs and their friends.

We also have to disabuse Duterte’s mind that Pharmally is a foreign investor we must attract. It is not. It is a trader that thrives on close personal relationships with powers that be. That is our sad story.

Boo Chanco’s email address is [email protected] Follow him on Twitter @boochanco.