Gift wrapper

Whether you’re talking with private businessmen or reform-minded public officials, you can get a headache listening to the problems they must hurdle when doing business in this country.

Last week the head of the private cooperative that distributes electricity in Negros Occidental explained the three-decade-long mess that led to the energy crisis in the province.

This week I chatted with the heads of certain government agencies, who gave a glimpse of the travails in trying to get anything done in the Philippines.

Competitive bidding for a government supply contract requires terms of reference. The distribution utility in Occidental Mindoro said it was not given any template by the Energy Regulatory Commission for the TOR for its supply contract. So the cooperative had to draw up its own TOR, which it tossed back and forth over several months with the ERC for comments and amendments.

The agency heads I talked with recently said that in the absence of a TOR template, an agency can contract a consultant. But this can also require bidding and its own TOR.

Close scrutiny is needed in a TOR because this is where bidding can be rigged to fit a favored supplier and allow massive kickbacks.

A defective TOR can earn officials a graft indictment. And there are agencies that lack the expertise to draw up a proper TOR, which can be quite technical and detailed.

Assisting such agencies is the reason for the creation of the Procurement Service of the Department of Budget and Management. Unfortunately, after the multibillion-peso Pharmally scandal, the PS-DBM has become associated with plunder, but the office has yet to be dismantled.

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Some months ago, an official of the Department of Education had lamented that procuring even ball pens for their offices can be a tortuous process.

Rodrigo Duterte, from Day One of his presidency, made cutting red tape an avowed priority. He set specific timeframes for completing transactions with the government, from the simplest (three days to complete) to complex big-ticket transactions.

Under his watch, his allies passed Republic Act 11032, the Ease of Doing Business Act of 2018 – an enhancement of RA 9485, the Anti-Red Tape Act of 2007.

Private businessmen, however, pointed out that Duterte’s order setting timeframes was applied to each step in dealing with the government. Meaning, with each step taking up to three days before completion of the transaction, a process requiring dozens of steps can in fact drag on for a year or more.

Barangays alone can impose layers of redundant requirements, with each layer entailing a fee that goes to the barangay, before a project can even reach the higher levels of local government.

Lawmakers should take a second look at the wide discretion given to the barangays for fund raising. They are among the biggest causes of red tape that discourages investments.

Red tape and redundancy encourage the payment of “facilitation fees” or grease money that can cost more than the actual fees required.

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The barangays can say that they are only small fry and are simply inspired by the big fish – those who earn billions from cartelized sugar importation and trading, which is pushing up food-driven inflation. Confectionery and sweetened processed items are the biggest drivers of food inflation these days.

To temper inflation, which surveys have shown is deemed by the public as the weak point of Marcos 2.0, the administration has suspended long-delayed fare hikes in the light railway services in Metro Manila.

The Public Service Act of 2022 or RA 11659 opens public utilities to 100 percent foreign ownership. Inviting foreign investors to the Philippines is the go-to excuse of all profligate revenge junketers in this administration.

One look at the fate of public utility companies in this country, however, can be enough to send prospective foreign direct investors to more business-friendly destinations in the region such as Thailand and Vietnam.

Political considerations – such as concerns about inflation pulling down survey ratings – often make the government stop increases in utility rates, even if the order goes against provisions specified in the contract.

Investors have cited the need to enforce the sanctity of business contracts. Because of the notoriety of the Philippines in treating contracts like gift wrapper – attractive when presented, but torn at will – contracts of most foreign companies doing business here include clauses for international arbitration in case of perceived breaches or defaults.

Even this clause, however, cannot be enforced when political pressure enters the picture.

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Considering how deeply entrenched the culture of corruption has become in our weak republic, you can understand why government procurement rules are so stringent.

Yet even with the stringent rules, Pharmally Pharmaceuticals still bagged a questionable multibillion-peso deal, at the height of the country’s worst public health and economic crisis.

Accountability in this scandal is in limbo. Investors have long complained about the inefficient and corrupt justice and regulatory systems in the Philippines.

Consider how long it took Shell Pilipinas Corp. to get a favorable ruling on its protest against excise taxes slapped on its alkylate imports. The Court of Tax Appeals ruled last April 27, over a decade after the Bureau of Internal Revenue and Bureau of Customs sought to collect the excise taxes in 2012.

The judiciary is supposed to be an independent and co-equal branch of government. But its members, all the way to the Supreme Court, can be influenced by Malacañang through the promise of promotion or appointment even upon retirement to another key government post or sinecure on the board of a state corporation.

Some officials simply find a way to go around the rules to allow plunder. One department in the previous administration, for example, passed a board resolution allowing the head of one of its attached agencies to green-light contracts worth even billions. The threshold for a plunder indictment is a project cost of P50 million.

The rules are also designed for rent-seeking. Agencies can’t procure supplies, such as spare parts that are not available in the Philippines, directly from a foreign company, even if the deal is advantageous to the government; the company must have a local partner to secure a supply contract.

These problems are on top of the inadequacy of the infrastructure, unreliable and high power costs and cronyism in varying degrees.

In every foreign trip of this administration’s jetsetters, there is always an announcement of foreign investment commitments. You wonder how many of those commitments will actually be pursued, once the investors conduct due diligence on the Philippine business climate.