Wednesday, May 16, 2012

Privatization 9: PAGCOR and Casino Operations

There is a bill by Sen. Ralph Recto, SB 3178 abolishing and privatizing the Philippine Amusement and Gaming Corporation (PAGCOR), and creating the Philippine Amusement and Gaming Commission (PAGCOM), a regulatory agency.

I support this move for two reasons: One, get the money from such privatization and retire some public debts. When the debt stock is reduced, interest payment will decline. And two, government should shrink somehow, get out of casino operations and not be a player and regulator at the same time.

Proceeds of privatization should as much as possible, go to retire some debts or the excesses and over-spending in the past. Whatever savings from principal amortization + interest payment should be larger than privatization proceeds to be allocated directly to certain sectors. Hence, the savings from the reduction in debt stock and annual interest payment is sustainable.

I hope that this bill, with revision on the proposed allocation of proceeds, will become a law before the next elections in May 2013. Meanwhile, here are the 3 short papers I wrote in 2010.
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Privatize PAGCOR
August 02, 2010

(This is my article for People's Brigada News this week)

The main function of the government is to protect the citizens’ right to life, right to private property, and right to liberty and self-expression. That is, the government should promulgate the rule of law – the law against killing and murder, law against kidnapping and carnapping, law against stealing and plunder, and so on. And then people can concentrate on productive economic activities that expand the country’s wealth and resources.

The country’s public finance has been in an ugly situation for many years now, where government profligacy as indicated by persistent budget deficit (expenditures are larger than revenues) is the norm. From 2001 to 2009, for instance, the budget deficit averaged about P140 billion per year. That means borrowings of P140 billion per year or more.

This year, the projected budget deficit is P300 billion. But about 60 percent of it has been reached already in the first six months of the year. Raising existing taxes is a bad option for the public.

Privatization of many if not all, government-owned and controlled corporations (GOCCs) has a big potential of reducing the fiscal bleeding. And the Philippine Amusement and Gaming Corporation or PAGCOR should be among the first to go. Why?

One, government can raise new revenues without raising existing taxes or creating new taxes. Two, operating a gambling facility is far out as a "government responsibility." Far out compared to operating a public hospital or a public high school. Three, reduce corruption in government as that corporation is known to be a major milking cow by previous administrations. Four, raise additional revenues through tourism. Gambling and related entertainment is a big tourism project. The best tourist drawers will be the international gaming corporations like those operating in Las Vegas, Macau, Hong Kong and Singapore.

By privatizing PAGCOR and selling it to private operators, government can use the proceeds to retire some of the public debt. Then government’s annual debt servicing (principal amortization plus interests) will decline, then there will be less need for more borrowings and/or more taxation to pay old debts.

How much money will the government earn if it will privatize PAGCOR now? Based on independent assessments, that corporation can easily fetch between P67 to P100 billion if it is privatized this year. Former PAGCOR President Raphael “Butch” Francisco agreed with such valuation.

Gambling is an unproductive activity for the government. Unlike spending time and effort in public education, devoting time and manpower to operate casinos, poker, black jack and other gambling activities is not a wise move for the government.

Government can keep its function of regulating casinos and gambling facilities by private enterprises. In which case, PAGCOR can be renamed as a Philippine Gaming Regulatory Agency or similar name.

Plugging the budgetary leak and fiscal deficit this year and the coming years is among the most urgent challenges for the new government of President Aquino. Privatizing PAGCOR and other state enterprises is an important step in the right direction.
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Privatize PAGCOR, Part 2
August 10, 2010


(Note: This is my article for http://peoplesbrigadanews.com/wpress/index.php, August 6, 2010)

Total public debt of the national government as of April 2010 was P4.44 trillion, up from P4.40 trillion as of end-2009. Last year, interest payment alone for both foreign and domestic debt was P279 billion, much bigger than the combined budget of many departments in the government.

So long as the public debt remains high, interest payment plus principal amortization will remain high and thus, the government will be constrained to keep the high and multiple taxes, to borrow more, just to pay the old debts. And there will be little money left for productive expenditures. This has become a bad, vicious cycle with almost no end in sight.

Raising existing taxes or creating new taxes to reduce those debts are bad options. Shrinking and abolishing certain agencies are good moves but they will not save enough money unless these are huge departments, which are not likely to happen.

Privatization of certain government corporations is the most practical option. Those enterprises will not be abolished, their ownership will simply be transferred from the government to private investors.

And this puts Pagcor’s privatization among the favorite moves. Pagcor though, has dual functions: regulatory and proprietory. Pagcor can retain its regulatory function, regulate all existing and new private gaming enterprises, while its proprietory and casino operations will be privatized.

Its privatization though does not mean that there will be only one business group that will own and operate all of its 13 casinos, 28 satellite casinos, 24 clubs, four arcades and 36 licensed poker rooms. There will be lots of gaming corporations from many countries and among local investors, that will be interested to bid and own those various gaming and entertainment units.

There is one misconception that seems to be repeatedly mentioned in various news reports and blog stories though. That Pagcor's P30 billion per year income is all remitted to the natinal government. No. The P30B/year is Pagcor's annual income in 2008 and 2009. Minus operating expenses and franchise tax, only P14 billion goes to the government while Pagcor keeps P1.6 billion as its net income.

While other government corporations need to be privatized because they have lots of debts that need lots of tax money just to service interest payment alone – like NFA, NPC and LRTA – Pagcor has a very small debt, less than P10 billion or only one-third of its annual income. Little liabilities means that it can be sold at a higher price, unlike other state corporations which have hundred billion plus pesos of debts and hence, have very little potential privatization proceeds.

The huge cost of interest payment of the country’s public debt, averaging about P275 billion per year from 2005 to 2009, should give quick privatization moves more justification.
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Privatize PAGCOR, Part 3
August 31, 2010

(This is my article for the People's Brigada News last week)

As of end-May 2010, total public debt of the national government – local governments’ debt not included yet – was P4.55 trillion. This is about P330 billion larger than end-May 2009 public debt of P4.22 trillion. See data here,http://treasury.gov.ph/news/news/NGdebtMay10.pdf.

On top of such public debt, there is another debt called national government’s “contingent debt”, representing various government guarantees. This debt is another P616 billion as of end-May 2010, or P28 billion larger than end-May 2009 level of P588 billion.

Interest payment alone for the government’s public debt, both foreign and domestic debts, from 2005 to 2009 was averaging P285.8 billion per year.

At the current 2010 public debt, reaching the P5 trillion debt is easy by around mid-2011. And paying interest payment alone of at least P300 billion is highly probable.

Now, can anyone tell us how to reduce the ever-rising public debt and contingent debt, and the corresponding ever-rising interest payment, without further raising taxes? Or without abolishing big departments and throwing out of jobs tens of thousands of government employees?

We have argued before and we repeat the argument, that the only viable solution is to privatize many government corporations, get the money and slowly retire or pay those debts. Lower debt stock means lower interest payment and principal amortization. Very elementary logic.

There have been a few offers from certain sectors, to buy Pagcor from the government. The valuation range from $1.4 billion to $10 billion, like the reported offer by Mr. Ramon Ang and his supposedly Malaysian “big guys”.

While other sectors think that Mr. Ang’s offer is just a bluff, one DOF official said that the $10 billion offer is still “low and cheap.” So who is bluffing whom here?

The government should rush Pagcor privatization, preferably within the year or early next year, as there is rush need for new revenues. Raising taxes is a big NO-NO. Reducing expenditures like shrinking or abolishing some agencies is also a good move but the savings from that move will be small unless we abolish really huge departments like the DPWH and DepEd, which are almost impossible moves..

Of all government corporations that are good candidates for privatization, it is really Pagcor that has the biggest promise of producing really big revenues for the government. And such revenues we need rush, we need quick, this year and next year.

Some people object to the "foregone revenues" of P14 B per year “government share” like the President’s Social Fund, if Pagcor is privatized. But note that currently, Pagcor does not pay corporate income tax, VAT, other taxes. Why do sick and dying people pay VAT for their essential medicines, but gamblers are exempted from paying VAT. And why do ordinary enterprises like internet shop, bakeshop, dress shop, etc. are obliged to pay corporate income tax, while Pagcor that earns tens of billions of pesos is exempted from paying the said tax?

When Pagcor is privatized, the private investors will pay corporate income tax, franchise tax, VAT, entertainment tax, and so on, and it should amount to several billion pesos per year, that will also go to government coffers every year.

Note that we never discussed the issue of corruption here. We are only looking at the fiscal side, the need to spare our pockets from paying huge interest payment from various public debt and contingent debt.
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4 comments:

Jerry Bunz said...

Mr. senator recto, sir the idea to privatized Pagcor to solve the national debt.the President have not yet solve the corruption in our country, you are just about to feed the corrupt people of the Government. do you think all the proceeds and billions you get from the sale of pagcor well all go to the national debt? after selling it, and you have not solve the national debt, do you have any other suggestion or options to earn billions what pagcor has been earning.sir, as you said that pagcor is a milking cow of the corrupt people.it is the people placed in a higher position in the system of the government and most are politically connected that steal what is for the people.Pagcor earns billions in a decent way.if only the income of pagcor are spent wisely their is a lot of money in it. instead of using the income feeding the wrong people,why not chair a commission of good visions something to correct the views of the church and other conservative people.those income should go the the right people what are they,not in sports commission,not in the national treasury,but a program to uplift the life of the poor people.spend the money to teach our people how to live in the right directions.pagcor earns from the rich and over rich people why not spend them to our lowly people, educate them, teach them how to live,guide them, gave them hope. maybe someday it will be nice to live in a peaceful and decent society, we envy the other nation that surrounds us how their government correct and produce quality citizenship.

Anonymous said...

MR.Senator,
The idea to privatize PAGCOR may be good on one hand,but please be more sensitive to the employees of this corporation who have spent all their lives working to attain PAGCOR's goal to bring giant revenues to help keep this nations economy afloat. Most of them work day and night even during storms and even on christmas days being away from their families and have been loyal to the company all these years and by dissolving the company you will not only be responsible for the thousands of new unemployed citizens of this nation but for the children who will stop school and add to the out of school youths because their parents lost their jobs. If it is really inevitable to privatize the casinos do make an alternative plan for those who will lose their jobs.Bigyan mo sila ng ikabubuhay. Maawa ka naman sa mga PAGCOR employees...wala silang kasalanan sa iyo.

Anonymous said...

MR.SENATOR,

By privatizing PAGCOR,you may be helping government get new funds for it's numerous programs but, papaano naman ang mga taong nawalan ng trabaho? Ang mga PAGCOR employees? their should be a program for those who will be displaced.12,000 po ang mga empleyado ng PAGCOR for your info Sir. ilan ba ang i aabsorb ng PAGCOM at ilan ang aalisin? kung may aalisin at least dapat bayaran man lang sila ng tama yung maari sila magsimula muli. at least 65-75k for every year of service will do.Have a heart Sir!! Please!!

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