Letter of credit not needed: solons-A A +A
Thursday, July 5, 2012
THE Cebu City Council will not grant authority to Mayor Michael Rama to open a foreign letter of credit for the purchase of a P4.4-million mini payloader.
The Council called for an executive session yesterday in relation to the resolution of Councilor Eduardo Rama Jr. to allow the mayor to open the credit as well as apply for tax exemption.
It was the Bureau of Customs (BOC) that “enlightened” the Council, with Customs representative lawyer Max Reyes explaining there is no need for the City Government to apply for a foreign letter of credit with the Land Bank of the Philippines (LBP) because the deal has been consummated.
“The transaction is already finished. The local supplier will just deliver, there is no more importation,” said Reyes.
He explained that a company already won the bidding, which means that the City Government will just wait for the delivery of the payloader, which will be imported from Italy by Macro Enterprises.
In essence, it would be the supplier that will open a letter of credit and pay for importation fees.
A letter of credit is a bank-to-bank guarantee on the transaction.
According to LBP, the letter of credit is one-fourth of one percent of the total amount good for 60 days.
According to the resolution of Councilor Rama, the mayor will have to apply for authority to import with the Bureau of Import Services, apply for tax exemption with the Department of Finance, open a foreign letter of credit and sign all documents necessary for the transaction to follow through.
Reyes explained that the City Government only applies for authority to import if it is a direct buyer. The same goes with opening a foreign letter of credit.
But the local government unit can apply for tax exemption as an end user.
The proponent, though, did not attend the executive session.
The Council also questioned how Macro Enterprises learned about the bidding when there are local suppliers. Macro is based in Quezon City.
Lawyer Marie Velle Abella of the bids and awards committee (BAC) technical working group (TWG) said the committee publishes the bidding in the local dailies and the website.
“This is not the first time that a Manila supplier won when there are many suppliers in Cebu,” said Councilor Noel Wenceslao.
No cash out
Councilor Margarita Osmeña said that under the resolution, Macro does not have to shell out cash because it will be the City Government that applies for a foreign letter of credit and it was not even subjected to background check.
Abella explained that the BAC-TWG conducts background checks for Manila-based suppliers, but she does not know if there was a check on Macro Enterprises.
Councilor Augustus Pe Jr. commented that the supplier may be practicing “dawat limpyo.”
Councilor Nida Cabrera, the presiding officer of the executive session, said there is a need to go deeper into the matter because, last year, there was about P78 million in similar transactions wherein the City Government had to apply for a foreign letter of credit for local suppliers.
Published in the Sun.Star Cebu newspaper on July 05, 2012.