Beggars should be choosers

DOTC the other day reported that the roll on-roll off ports project of the previous administration was overpriced by more than 138 percent. I am not surprised. I have heard enough stories of so called official development assistance that assist the businesses of the donor more than the receiving country. Yet we take it on the principle that beggars cannot be choosers.

This ro-ro project is funded by an overseas development assistance (ODA) loan from French bank BNP Paribas. A condition for the loan was that no bidding would be held to choose a contractor. Instead, BNP Paribas would have the freedom to choose its own contractor. The bank picked a fellow French company, Eiffel Matiere, to implement the project.

Each of the 72 ports would cost P143.5 million to build but the DOTC said that based on its studies, if built locally, each port with the same quality would cost the government only P60 million. The overprice would negate the supposedly lower than commercial interest rate that would be charged on the financing.

Many of the ports were also found to be over designed for our purposes. Some are too big and too expensive for the areas that they were intended to serve. A DOTC official said there are a lot of potential “white elephants”.

Another nightmare case of an ODA project I was recently told about is the case of the Japanese funded train cars of PNR. The cars were designed by Japanese contractors who gave no regard to existing PNR railcars. Even the couplings to connect cars to each other are located far from where the couplings of the original cars are. So the new cars cannot be connected to the old cars.

That’s not the end of it. I am told most of the Japanese cars can no longer be used because the air conditioning system no longer works. And we cannot have it fixed at the PNR motor pool or by a local contractor. Only a Japanese company that provided the system can fix it at an uneconomic cost for the cash-strapped PNR. The glass windows are also not standard and so are the headlights.

One more ODA horror story needs to be told. This has to do with NorthRail. Because the Chinese funded it, they also retained the right to name the main contractor. Unfortunately for us, the contractor they chose apparently selected another contractor that had no experience in constructing railroads. We have spent $200 million on that project with absolutely nothing to show for it. The Aquino administration is at a loss on what to do with it.

I thought I read something about ODA agencies agreeing that their principal objective is to help the receiving country and not sell their industries. An international tender that is transparent should be required so that we avoid sweetheart deals that results in countries like ours having to pay more than we should.

This is sheer neo imperialism. It also negates the development objective for which a low interest long term loan is granted to a developing country. ODA with strings attached are so yesterday already. Or is it? Beggars can and should be choosers.

DBP

Former DBP chair Rey David e-mailed me his reaction to last Friday’s column item. Here are the relevant portions of his letter.

First of all, the loan transactions that you allude to, in no way violated the precepts of prudent lending (thus, there is no issue whatsoever regarding “unsafe and unsound banking practice”). The loans were fully secured by marketable securities whose value gave the Bank a collateral cover of more than 2:1.

The loans pricing was well within the standard interest rate structure levied by the Bank. The loans also underwent the same process as any other loan. The loans were approved by the Credit Committee and the DBP Board of Directors. The Bank was never unduly at risk at any point in time. Moreover, there were other similar share financing transactions that were approved by the Bank previous to these transactions.

In fact, both loans were actually paid by the Borrower even before maturity, generating for the Bank a substantial interest income of some Php. 4.6 million. In this regard, I am proud to state that during my watch there were no behest loans granted.

Your allegation of insider trading is totally out of place. As you well know, insider trading refers to situations where individuals take advantage of information not available to the general public, and, use such information to take profits for themselves. While I was, in fact, a Director of Philex at that time, there was never any discussion in the Board of private and confidential information regarding a potential take-over or changes in management. And even if there were, the benefits certainly redounded to the coffers of DBP and not to my personal benefit.

AS A MATTER OF FACT, THE TRADING PROFITS DERIVED BY DBP FROM ITS PHILEX SHARES PORTFOLIO WAS A HEFTY P1.3 billion. Consequently in 2009, DBP generated a historical all time high in profits of P6 billion.

Secondly, DBP is chartered both as a “development bank” and a “commercial bank.” As such, it has all the eligibilities to engage in the whole gamut of commercial and investment banking activities. The Development Bank supplies loans, be it short-term or long-term, engaging likewise in deposit taking activities, trade finance activities (supporting imports and exports transactions), issuance of L/Cs, both foreign and local, and Treasury activities such as the money market transactions, the trading of financial instruments, foreign exchange, and trading of marketable securities be it treasury bills, bonds, notes, and equities.

DBP’s Treasury trading activities during my watch were very profitable and were one of the main drivers of its net income. Trading income in foreign exchange, bonds and equities have yielded substantial accumulated profits for the institution. The income derived from these trading initiatives, in turn, enabled the Bank to increase the intensity and volume of its developmental banking activities.

While the Bank had unfortunately some Lehman portfolio in its books in 2008, the Bank was able to trade out of its position. The trading profits which were accumulated in the form of reserves during the previous years allowed the Bank to have a cushion against extreme extraordinary situations. In fact, the Bank had more than enough reserves and cushion to meet the adversities brought about by the Lehman debacle.

It is unfortunate that the so-called Audit Report which you allegedly summarized did not present a true and accurate factual background of what actually transpired. It is unfair to state that that there was “complicity of other officers” in the alleged loan transactions.

All of the officers of the Bank followed the proper credit process and acted with prudence, foremost of which was to ensure that the Bank’s interest was always secure and held sacred. Needless to say, that the managerial cadre of DBP is astute, disciplined, professional, highly qualified career individuals, and of, integrity.

My reaction

Mr. David misses the point. My concern was more in terms of whether it is the business of a development bank funded by the taxpayers to lend money to Arroyo administration cronies to speculate in the stock market. The fact that the bank did not lose money and in fact made oodles of money on the transaction is beside the point. Also, its commercial bank license should only be to facilitate its transactions because otherwise, it provides unfair competition to the private commercial banks.

And what was DBP’s business investing in exotic Lehman papers? Was it to show how savvy Mr David is as a funds manager? Even if DBP made money on that, which it didn’t, I am sure it still wouldn’t be what the framers of the DBP Charter had in mind when they organized DBP.

My idea of a development bank is something like what Ambassador Jesus Tambunting has done with Planters Development Bank. It essentially supports small and medium scale entrepreneurs, an endeavor which Planters, a private entity, found enriching in more ways than one. In the case of DBP, maybe it can go beyond SMEs to help those with huge job creating potentials.

Maybe the charter of DBP has outlived its usefulness. Maybe Congress should revise it to allow the profitable innovations Mr. David has introduced in his watch. Maybe the bank should be called something else but that would likely make government equity in it questionable.

Professional decision

When Manny Pacquiao entered politics there were those who said it will damage his boxing career.

On the contrary. The PacMan entered politics to enhance his boxing career.

He entered politics para kumapal ang mukha niya.

Boo Chanco’s e-mail address is [email protected]. He is also on Twitter @boochanco