Friday, December 30, 2016

Privatization 13, Firesale of GOCCs, notes in 2005

Cleaning my old emails, I found these notes interesting, about privatization plans of government-owned and controlled corporations (GOCCs) in the Philippines.

(1) Let's have a fire sale!
By Peter Wallace
January 26, 2005

The President, in her State of the Nation address, said National Power Corp. and Transco must be sold, but not at fire sale prices. I had earlier suggested that, if necessary, they should be sold at fire sale prices…

Get these massive debts off the government's books and operating efficiently. This is far more important than maximizing cash returns now, even if the government is desperate for funds…

Simple calculation would show that a 30 percent discount from market value so as to sell NPC quickly could be recovered within two years just from stopping the hemorrhage of NPC (assuming a conservative asset value of P200 billion for the Generating Companies (Gencos) and an annual average loss of P30 billion). But, more importantly, the urgently needed capital for expansion, upgrading, modernization would become available in these companies.

What the President should do is sell everything. Every government-owned or -controlled corporation (GOCC) except maybe, a very select few, such as GSIS, DBP and Land Bank), every share in every corporation, every piece of land not being actually used by government where government has no business being. Every asset of every sort — at bargain basement prices. Do it like they do in the retail business announce: FIRE SALE, EVERYTHING MUST GO. Even businessmen can't resist a bargain.

Government has no business being in San Miguel, or competing with the private sector to import rice (it can ensure there is honest, open competitive dealing instead). I do not buy the argument, for example, that the National Food Administration (NFA) is necessary to stabilize prices and ensure supply in case of shortages. A truly open market with minimal duties on imports would draw enough players to ensure supply — at competitive prices. I would argue that it was the controls and interference of NFA that have led to the oligopolistic nature of this sector.

It's the same with so many of government's other agencies. What really are they doing, and is it really necessary? I'd argue that they have no role, no role the private sector can't do better. Government's role should be to regulate them, where regulation is really necessary. And this should be minimal, too. The countries that succeed best are the ones where the government intervenes the least in business.

No one seems to know the real numbers, but, just off the top of my head, there are something like 60 GOCCs competing with or can be run more effectively by the private sector. There are also, government shares in a number of major private companies (e.g. Philippine National Bank, Petron, Philippine Airlines, etc.) and about 50 pieces of valuable real estate.

P1 trillion worth to sell

A very rough calculation indicates that there could be at least P1 trillion that could be sold, assuming a conservative average of P10-12 billion per non-Napocor asset. P1 trillion would not only wipe out the P190 billion budget deficit in one fell swoop, it would also allow some massive infrastructure development…

February 2005

(2) Me:
I Agree with these proposals. I would also argue that ALL govt. corporations and banks, devt. bank (DBP) and land bank (LBP) should be privatized. And both state-managed private pension funds SSS and GSIS, be deregulated if not privatized.

The philosophies are simple:

a) The state should concentrate on its core function -- protection of lives and properties. Catch most of those killers, rapists, akyat-bahay gang, kidnappers, carnappers, drug pushers, gun smugglers, bombers and terrorists, out there. Prosecute them if caught, shoot if they fight back.

b) If the state cannot do the above functions, why is it running banks, tv stations, real estate companies, agri trading and shipping companies, petrol firms and private pension funds? 

c) Get the money quick, and retire a big portion of the public debt, and do not burden the citizens with additional taxes and fees. If the state can raise just P1 trillion from such fire-sale, at 8% interest rate, that's P80 billion savings from interest payment ANNUALLY. It's like finding a Yamashita gold and spending the interest earnings to public infra and strengthening the justice system to protect lives and properties.

(3) From Marcial: Why does the government INSISTS on holding on to these corporations? The advantages of divestment should be obvious to them now. The man-on-the-street answer usually revolves around words like 'greed', 'corruption', and 'inefficiency'. but we don't believe that. why then?

(4) From Joseph: Any sale of government assets should be held under the most transparent conditions.  We certainly do not want a repeat of how the sale of PNB and of PAL to Lucio Tan went through.  Sales like these are equivalent to behest loans.

We do have some statists who insist on some government involvement so as to "balance" the so-called "greed" of corporations.  As to what will make GOCCs profitable without profit incentive, I just don't see it.

As to the so-called "nationalists" who insist on controlling our patrimony, all to the good if on one hand law enforcement really works, and on the other, if "national" priorities are straight.  Otherwise,
it's just one big hypocrisy.

(5) From Cynthia: All the reasons government gives, the noble reasons such as government's role in catalyzing development, the provision of essential services, are just cover-ups. GOCC's and government shares in corporations are just the means of expanding the delicious pie that the parties in power can divide among themselves.  Anybody who has witnessed the posturings of the clowns appointed as directors and senior officers in GOCCs (why do GOCCs, which have only one shareholder- the government, have a Board of Directors anyway? All the better to accommodate all political debts, the more available appointive seats, the happier the appointing authority!), and the panic that ensues when elections are near and everybody is scrambling to keep their seats.  The advantages of divestment are not obvious to these people because nobody will willingly give up their turf and gravy train.

For example, I'm involved in the valuation of one of those companies mentioned for privatization, but the senior officers insist on moving very, very SSLLOOWWLLYY, ostensibly in the interest of transparency, following correct procedure, etc.  But the real reason, I think, is if they're
successful, their jobs are also gone. That simple.

See also:
Privatization 10: More on Selling PAGCOR, June 12, 2013
Privatization 11: Presentation in Hawaii in 2007, June 08, 2013 

Privatization 12: PH government corporations sold, retained as of 2007, February 07, 2016

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