Government central planning leaves little or no autonomy or private arenas for alternative choices for the individuals of a socialist society. The government is the monopoly allocator of resources and producer of goods. It is the single employer for all those looking for work. It is the controller of all means and methods of communication and exchange of ideas. It requires the goals and purposes of the individual to be made subservient to those in “the plan,” and coercively if needed. Nor can new democratic choices be allowed to constantly challenge and change the coherence and implementation of “the plan” without causing societal instability—Richard M Ebeling
In this issue
Neo-Socialism Goes Full Throttle: The Raging War on Water Concessionaires and ABS-CBN, Is Dito Telecommunity the Agenda?
-The Escalation of Neo-Socialism: President Threatens Nationalization of Water Concessionaires, Closure of ABS!
-The PSE Wakes Up to the Smell of Neo-Socialism
-Is the Agenda Behind the War on Water Concessionaires and ABS Been About Dito Telecommunity?
Neo-Socialism Goes Full Throttle: The Raging War on Water Concessionaires and ABS-CBN, Is Dito Telecommunity the Agenda?
The Escalation of Neo-Socialism: President Threatens Nationalization of Water Concessionaires, Closure of ABS!
At its onset (May 2016), I warned about the impact on the economy from the socialist direction of this administration*.
the government will likely decrease participation of private sector in the economy through legislation. The government will likely resort to the substitution of private sector participation through nationalizations. Or that the government will increase regulations and mandates that will raise barriers to entry. So by picking on winners, the incoming administration may essentially endow the privilege of political protection from competition to select favored (rent seeking/crony) private entities or to state owned enterprises.
Recent events have only been magnifying this pathway.
Nota Bene: The latest events will be depicted from the mainstream’s viewpoint, ergo the excerpts from the news. Bold highlights are mine.
First, the political leadership’s crescendoing intimidation of ABS-CBN.
From the Inquirer (December 4, 2019): “President Rodrigo Duterte on Tuesday vowed that “he will see to it” that the franchise of broadcast giant ABS-CBN would not be renewed…“Your franchise will end next year. If you are expecting that it will be renewed, I’m sorry. You’re out. I will see to it that you’re out,” he said, addressing ABS-CBN…Republic Act No. 3846 requires radio and television broadcasters in the Philippines to obtain a franchise from Congress. It was the first time that the President had stated that he would personally ensure that the network’s franchise would not be renewed. ABS-CBN’s 25-year franchise expires on March 30, 2020.”
If upheld, will the National Government foreclose and nationalize, or will it commandeer ABS-CBN to a new administration friendly owner? The cessation of ABS is a doubtful option.
Next, the administration’s threat to nationalize water concessionaires.
From the Inquirer (December 10, 2019): “President Rodrigo Duterte on Tuesday threatened to take over privately-owned Maynilad Water Services, Inc. and Manila Water Company, Inc. for what he called the “onerous” 1997 water concession agreements they entered into with the government. Duterte said he would want to talk to officials of the water concessionaires as well as the government lawyers involved in the drafting of the contracts. “I will expropriate everything. I will seize everything. File charges until you want. Anyway, I will be out in two years,” Duterte said in a speech during the oathtaking of newly-appointed government officials in Malacañang. In separate decisions, the Singapore-based Permanent Court of Arbitration ordered the Philippine government in 2017 to pay P3.6 billion to Maynilad and in November to compensate P7 billion to Manila Water for losses suffered by the water firms due to disallowed water rate increases from 2013 to 2017.”
To mollify a fuming President, not only have these concessionaires announced the deferral of rate hikes, they declared the suspension of the compensation awarded them by an international arbitration court.
From the Inquirer (December 11, 2019): “Facing threats of imprisonment, charges of economic sabotage and even expropriation from President Rodrigo Duterte, officials of the country’s two biggest water concessionaires have finally backed down…On Tuesday, they said they would no longer seek to collect from the government close to P11 billion that an international arbitration court had awarded to them for foregone revenue from higher rates that they were unable to implement.”
Beaten into submission, the elite private sector owners also acceded to renegotiate the so-called onerous contracts.
From the Inquirer (December 13, 2019): “Water concessionaires Maynilad and Manila water agreed to renegotiate the “onerous” 1997 water agreement with the government. In separate letters to the President Rodrigo Duterte on December 10, Maynilad Chair Manny Pangilinan and Manila Water Chairman Fernando Zobel de Ayala, the two water concessionaires agreed for a renegotiation of their water deals with the government. Pangilinan assured Duterte of “its willingness” to cooperate with the Metropolitan Waterworks and Sewerage System (MWSS) ‘to have certain provisions of the Concession Agreement reviewed and amended.” He reaffirmed Maynilad’s “unwavering commitment” in nation-building, economic growth and stability of service to the people.”
To top it all, one of the water firms even issued a public apology!
Helplessly faced against a politically mandated coercive force who could subvert their investments, why not then?
From the Inquirer (December 12, 2019): Manila Water has apologized for upsetting President Rodrigo Duterte after an international tribunal ruled in favor of the country’s two water concessionaires. Manila Water president Jose Rene Almendras explained that the case was filed as early as 2015 but the ruling by the Singapore-based Permanent Court of Arbitration was only made earlier under the Duterte administration…It’s unfortunate the President got mad. We didn’t mean to give the President any problem. We don’t want to fight President Rodrigo Duterte because he is doing what is good for the people. We support him…We apologize if the arbitral ruling angered him. That’s why we waived the arbitral ruling because the President does not want it. We understand, that’s why we decided not that we will not push for it.”
Despite the proffered conciliatory actions, the unconvinced leadership initiated legal proceedings against them!
From the Inquirer (December 11, 2019): The Metropolitan Waterworks and Sewerage System (MWSS) has revoked the extension of concession agreements of both Maynilad Water Services Inc. and Manila Water Company Inc., the two firms distribute water in Metro Manila and adjacent provinces. The extension of the concession agreements until 2037 was approved by the MWSS in a board resolution in 2009. Due to the revocation, however, the water firms’ concession will end in 2022.
Rooted from the fundamental socialist precept that the interest of the collective reigns supreme, the administration's unilateral coercive actions represent a flagrant violation of the sanctity of contracts, undermining the basic property rights of the citizenry.
Do you know that we have a Bill of Rights? According to Article III of the 1987 Constitution’s Bill of Rights: “Section 1. No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws.”
Why would investments flow into the economy, if such rights can’t be secured, and or, if rules, regulations and contracts of voluntary exchanges are subject to the whims and caprices of the leadership?
And it doesn’t stop here.
Meanwhile, the media has floated a possible replacement to the incumbent concessionaires. The candidate: a firm owned by a staunch political ally!
From the Inquirer (December 10, 2019): “President Rodrigo Duterte’s endorsement of the Villars’ water utility firm PrimeWater Infrastructure Corp. could be because it came from Manny Villar’s hard work, Senator Cynthia Villar said Tuesday. The senator pointed out her husband did not inherit the business, unlike water concessionaires Manila Water and Maynilad…Duterte earlier lauded the Villars, and hinted their possible takeover of the capital region’s water supply system.”
So would a deal with the Villar group comprise “good for the people” than the existing suppliers?
Could a takeover of the water franchise have signified the administration's quid pro quo to the Villar group for pulling out of the race for the 3rd telco, at the close of 2018, paving the way for the China Telecom-Dennis Uy franchise?
However, concerned over a possible backlash, naturally, the representative of the politically favored firm and the Palace issued their respective public denials.
From MSN/GMA (December 11, 2019): “Senator Cynthia Villar on Tuesday denied that President Rodrigo Duterte is building up her family to take over the job of supplying water to Metro Manila from two water concessionaires…However, asked if her family's PrimeWater Infrastructure Corporation will vie for a concession agreement with the government once the present concessionaires' contracts expire, Villar said she does not know.”
From the MSN/Philstar (December 13, 2019): President Duterte’s pressuring the country’s top water distributors is meant to protect the interests of the people and not to pave the way for a takeover of the firms by his friends, administration officials said yesterday. “Oh no, definitely not,” Presidential Communications Secretary Martin Andanar said when asked in an interview on ANC about speculation that Duterte wanted to replace the “oligarchs” – the President’s description of the owners of the two water concessionaires – “with his own oligarch.”
So which is which, nationalization or expropriation in favor of an ally?
And haven't these been sufficient evidence of the imposition of rigid central planning and the tightening control by the administration on the most salient political-economic sectors of the nation?
Notwithstanding the record deficits, the net increase in taxes, surging bureaucracy and regulations, and other forms of socio-political-economic interventions, how could such blatant violation of property rights be supposedly representative of a ‘business-friendly’ administration?
Or, “friendly” applies to whose business interests?? The Xi-sponsored mainland Chinese enterprises, the Dennis Uy firms, the Villar business empire, and more??
Fundamentally, rent-seeking or crony relationships represent the political allocation of economic resources, which are prone to the accretion of imbalances.
As I wrote back in March of this year**,
Privatizing profits and socializing losses has been the implicit principle guiding the political framework behind such private water concessions. These are rent-seeking firms or private firms that benefit from political privileges (in this case monopoly concessions).
The National Government (NG) subcontracted or transferred to private sector agents the operation of such utilities to free the former from financial constraints in exchange for regulated profits of the latter through price controls.
Why should a new “for the people” contract be any different?
As demonstrated, all it takes is a foreseen event, such as the 2019 water crisis, to expose the siloed misallocation of resources.
The PSE Wakes Up to the Smell of Neo-Socialism
Interestingly, though mainstream media has diverted the blame and the impact from the heightening risks of nationalization elsewhere, or the escalating odds of the overhaul of the ownership of water concessionaires favoring the political allies, such imperious interventions have spurred an investor revulsion prompting a harrowing weekly plunge in the prices of stocks related to the controversy.
Even after a sharp Friday bounce, Maynilad’s owners DMC and Metro Pacific hemorrhaged 8.26% and 17.8%, respectively, while Ayala Corp shed 5.6% as subsidiary Manila Water crashed 38.5%. ABS-CBN fell 5%. Please note that Ayala Corp, Metro Pacific, and DMC are component members of the PSEi and that cascading prices are a demonstration of the sharp deterioration of the health of the broader markets.
This week’s plunge signified an acceleration of the weakening prices of all five issues since 2017-8 or before the outbreak of the 2019 water crisis. ABS has been in a freefall since the aftermath of 2016 Presidential election.
Recent political interventions had only exacerbated the attenuation of prices caused by the dissipation of financial liquidity.
Looking at those charts may draw the impression that the headline could be below the 7,000 levels. But this has not been the case.
Despite such turmoil, the headline index soared .97% this week on SM Prime (+2.45%), Ayala Land (+3.08%), Banco De Oro (+2.3%), and JG Summit (+3.8%) carried the weight of Friday’s steep 1.76% advance.
As a reminder, % changes are not the same for component members of the index. That's because the free float weights of these firms ultimately determine the scale of contribution to the index.
Hence, this week’s performance entrenches further the trend of the SY group’s record dominance of the headline index. The result of such index manipulation has been to skew the distribution of the PER towards these (and some of the published eps are inflated).
Imbalances have been growing everywhere!
The good thing is, the PSE has partly awakened to the fact that neo-socialism and the capital markets or the market economy are disharmonious.
And despite the constant rigging, the markets ultimately clear!
More importantly, seeing the cluelessness of the mainstream/establishment experts about the underlying risks has just been incredible! From their ken, because economics is all about statistics, changes in governance structure have no bearing on it! Surprised at the gravity of the impact, they end up rationalizing the event and putting a glossy spin on the likely outcome from a ‘renegotiated’ deal. Good luck with that!
Oversold conditions may prompt for a bounce alright, but whether they are sustainable or not ultimately depends on the state of financial liquidity and the underlying political conditions driving perceptions, and consequently, actions expressed through prices.
Is the Agenda Behind the War on Water Concessionaires and ABS Been About Dito Telecommunity?
Despite the headlines, I propound a different angle from the unfolding controversy. If the plan is not to nationalize, then what could be the alternative agenda?
Let us start with a question. What is the common ground or denominator of listed firms Metro Pacific, Ayala Corp, and ABS-CBN? Answer: These firms are affiliated to, or have companies with existing telecom and media infrastructures, as well as substantial market shares.
In spite being awarded the third telco franchise, President Duterte’s gift to China’s President Xi, via China Telecoms through politically favorite businessman Dennis Uy, Dito Telecommunity (formerly Mislatel) would require massive amounts of money and time to roll-out infrastructure and facilities, as well as, obtain a critical market share to render their firm viable. Though theoretically, as a Chinese state company, money shouldn’t be such a problem.
Last July, the firm pushed back its roll-out schedule to the 2Q of 2020, according to the CNN (July 9), “While commercial operations were initially targeted to begin as early as September this year, Dito spokesperson Adel Tamano said they have moved the target to the second quarter of 2020.”
And to accelerate this, it announced partnerships. According to the Inquirer (October 4), “DITO announced a partnership on Thursday with SkyCable Corp., owned by the Lopez family’s ABS-CBN Corp., and the group of politician Luis Chavit Singson, who last year launched a failed bid for the third telco slot.”
That’s because Dito has committed to the National Government several targets: “Under its commitments to the NTC, the company promised to cover at least 37 percent of the population on its first year—a period that would end on July 8, 2020. Over its five-year commitment period, it promised to cover 84 percent of the Philippines and offer internet speeds of at least 55 megabits per second.”
Unless the constitution is amended to allow an extended tenure, or should martial law will be declared or both, the Duterte regime ends on 2022 or about two years from now.
What if the opposition snares the political helm from this regime?
What if the targets for infrastructure and market share won’t be fulfilled, wouldn’t Dito’s interests be in jeopardy?
As such, wouldn’t it be a more viable option to just buy-out a firm with existing facilities and markets? Wouldn’t PLDT and Globe become tantalizing and convenient targets for a cheap M&A that galvanizes Dito’s foothold in the telco market?
Despite its partnership with Skycable, wouldn’t ABS’s market share in television, cable, fiber, and radio systems provide the critical mass in reaching voters in the electoral campaign that may help the regime and their allies cement their stranglehold over the political system in 2022?
Given the evolving transition towards a neo-socialist political-economic system, wouldn’t these politically sensitive facilities provide both socio-economic and political benefits to the incumbent leadership to exercise surveillance and command of the population?
In the old school, socialism involved the state’s nationalization or taking control of the factors of production. In the alternative version, the fascist, crony, or state capitalist model, a semblance of private property is allowed but operates under the strict supervision of the state.
So why not take command of these facilities? How? By applying political pressure on its owners, through different fronts, that may compel its liquidation at fire-sale prices!
Hence, could the war on water concessionaires and ABS been about leveraging for an M&A in telecom and media?
Or why not have the government, if not its allies, control ALL, if not most of the critical utilities necessary to sustain the legacy of the Duterte’s regime?
From this perspective, the agenda behind the war on water concessionaires and ABS-CBN becomes clearer.
As I have been saying, because utilities are easier to nationalize or commandeer, please avoid them. As history shows, utilities have signified the most nationalized sector in the world!
