Investing in Negros

ATTRACTING investors is never easy. Those with funds always have choices. It is regrettable when those who are prepared to invest are subjected to unexpected obstacles. These have the tendency to treat investors as supplicants, which is never a good idea. They can always walk as Ayala Land Inc. has done with the proposed Capitol development project. Who are the losers? We are.

At an international level we are less successful in attracting investments compared to our East and Southeast Asian neighbors. Our Foreign Direct Investments hover around 1% of GDP, compared to 3% for Vietnam and China.

The Public-Private Partnership (PPP) program which was announced in 2010 is flowing like mud. We believe that it has not been as successful as the government expected. This, we suggest, is that too much is required from the private sector from whom both the investment and a substantial, but an uncertain, level of risk is necessary. The government must find ways of reducing risk and uncertainly for its potential private sector partners who, currently, can find more advantageous investment projects from within the private sector.

Using the print media which seems unduly willing to publish ‘expect’ articles - as in the ‘government expects Australian investors to flock to the Philippines to contribute to infrastructure projects’ should be rationed. Boredom and cynicism set in very rapidly from both the investors and the reading public.

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Recently, US Secretary of State Hillary Clinton at a press conference with Indonesia President Yudhoyono, announced that the US is investing US$660 million (P27 billion) in Indonesia’s renewable energy program. What about the Philippines? Is it that we are too slow and introduce too many complexities and red tape to attract foreign investors? The nascent ‘feed-in tariffs’ (FIT) program for renewable energy is an example.

We believe also that the possibility of ‘U-turns’ with regard to incentives causes renewable energy investors to be wary of dealing with the Philippines. The FIT program is one such example. It offers large inducements to the fortunate few who may be able via wind, solar, hydro, biofuels to take advantage of the 760MW which will attract FIT. The scheme promises that FIT will increase with inflation for the next twenty years. But can the government impose this promise on succeeding governments, particularly when powerful entities such as Meralco are already raising objections? Also, consumerism is likely to continue to make advances and consumers are already balking at the high cost of electricity (as high as anywhere in the world and much higher than most places).

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If there is an impediment to a business deal being consummated, and if that impediment is not being dealt with timeously, then it is quite proper for one or both parties to disengage, thereby causing the deal to fail. If the impediment were caused by factors outside the control of both parties, then neither party can in any way be blamed for the deal not pushing through.

Therefore, I am somewhat uncomfortable with the term ‘pull-out’ when used in the context of Ayala Land Inc. and the Capitol properties project. ‘Pull-out’ is an implied criticism of the party that disengages. It suggests, wrongly, that Ayala is capricious or flaky.

I am surprised that Rep. Benitez said he was surprised that Ayala took the decision it did. At any time, Ayala has many potential projects and it cannot be expected to wait for an uncertain but lengthy amount of time to see whether its bid is ultimately accepted. Ayala cannot be faulted for taking its decision.

Last week, it was announced that Ayala is engaged in a P12 billion project to build a power station in Iloilo. Good for the economy of Iloilo Electricity co-operatives in Negros Occidental buy electricity generated by Kepco-Salcon in Cebu. Good for the economy of Cebu. Not good for the economy of Negros.

Iloilo and Bacolod both acquired new airports a few years ago. Iloilo’s old airport, a 54-hectare site at Mandurriao, was rapidly developed, thereby generating many jobs. Bacolod’s old airport is still languishing. Bad for the economy of Bacolod.

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Police the world over are accomplished at estimating crowd sizes. Their approach is to count the number of people in a small space, estimate the total space occupied by the crowd, and then do a pro-rata calculation to estimate the size of the whole crowd.

So if we find that during a dance demonstration, 40 people occupy a 10-meter length of runway, and if we are told by Rep Golez that the total number of people is 87,000, then a simple proportionality calculation indicates that we need a runway of almost 22 km to accommodate everyone. That must be the runway which joins Bacolod’s old airport to the new Bacolod-Silay airport.

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Most investments, sadly, have the effect of reinforcing urbanization. So it is gratifying when investment opportunities are created which help rural economies. One example, reported last week by the Bureau of Agricultural Research (BAR) suggests the potential viability of converting sweet sorghum to ethanol. We recall that San Carlos Bioenergy Inc. (SCBI) last May announced that it successfully undertook this conversion. So the chemistry works, but what about the economics? At the time of the SCBI experiment, Governor Marañon critiqued SCBI’s sweet sorghum yield data. Before investors can be attracted, the quantitative data must be accurate so that realistic land prices can be determined.

BAR seems to think that ethanol competes costwise with gasoline on a 1:1 basis. In fact, ethanol is 24% less efficient than gasoline by the miles per gallon criterion so that ethanol should be priced correspondingly lower than gasoline. Otherwise, the end-user will be penalized for the mandatory 10% ethanol in gasoline.

The mandatory 10% was introduced to help the ‘fledgling’ renewable energy industry and requires 400 million liters of ethanol annually in order to be implemented. But our renewable energy industry is only producing 80 million liters. Therefore, we suggest that it would help the end-user and not disadvantage the renewable energy industry, if ‘voluntary’ were substituted for ‘mandatory’ in the Biofuels Act.

According to Trinidad Lopez, Region VI focal person of the National Household Targeting System for Poverty Reduction (NTHS), a 2010 survey found that there are 138,664 poor households in Negros Occidental. There would be a lot less if Bacolod’s old airport site were developed. Also the Capitol development project, initially agreed between the Provincial Government and the successful bidder in July 2011, would have created many jobs, thereby helping the economy and alleviating poverty.

The substantial missed opportunities for attracting investors to Negros Occidental make poverty reduction difficult to achieve. It is heartbreaking that so many jobs are lost through missed opportunities for developing prime sites.

‘The destruction of the poor is their poverty.’ (Proverbs 10.15)