The Gravy TRAIN is leaving and common sense isn’t in it

Business World Introspective

Dec 04,2017

By Romeo L. Bernardo

Otto von Bismarck once said that “laws are like sausages. Better not to see them being made.” No one would agree more than observers of the ongoing TRAIN legislation.

The just released Senate version illustrates the point. New ingredients surreptitiously found their way into the mix, diluting the DoF’s otherwise carefully thought-out recipe.

Package 1 of the reforms was intended to address the oppressive effects of inflation on taxable income — a phenomenon known as “bracket creep.”

To pay for the consequent revenue losses from raising taxable income thresholds and help fund the government’s ambitious Build, Build, Build Infrastructure program, oil and auto excise taxes were supposed to be raised to reflect current price levels, combined with the scrapping of VAT exemptions for 144 product categories that made our VAT system both unfair and low-yielding.

What has come out instead is a bit of a chop suey, due to the blatant accommodation of narrow-vested interests aiming to avoid paying their share of the tax effort or tilt the playing field against competitors.

Below are some of the more glaring examples.

EXPANDED TAX BREAKS FOR ECONOMIC ZONES, PEZA

Mind you, not just exemptions for the zones themselves but an expanded list for VAT zero rating for locators in the zones, including their suppliers, and tourism sites. Recall that some of these economic zones have been mired in controversy from birth, with reports of rampant smuggling of oil, automobiles etc.

LOWER TAX RATES ON LUXURY VEHICLES

The Senate version establishes two tax brackets for vehicles, 10% for those costing a million pesos or less and 20% for those costing more. Given where tax rates are today, this will have the effect of shifting the tax burden from buyers of high-end luxury vehicles to those of cheaper, everyday cars.
As one investor newsletter put it, “this new proposal looks like it was crafted specifically by and for luxury car dealers.” To illustrate, a Toyota Wigo (retail price of around P500,000) could see a price increase of around 8%. But a Toyota Land Cruiser (retail price over P5 million) could see a price decrease of over 20%.”

How does the Senate version hope to cover the revenue losses from these proposals? Some illustrations —

DOUBLING DOCUMENTARY STAMP TAXES

Taxing financial transactions is a last resort of the poorest African countries that possess few alternatives and weak collection agencies. This is not apt for our country — a supposedly dynamic emerging market economy trying to develop and promote its capital markets in a highly competitive region.

Such a tax raises the already high friction costs of transacting legitimate business in our country and diminishes our image as a center for investment. More fundamentally and over the long term, such costs impose a tax on savings and investment, on economic competitiveness, and on job-creation.
There has been no consultation on this and other measures, which were not meant for consideration until Package 4 of the DoF’s proposal covering capital income taxation. That the Documentary Stamp tax was brought forward way ahead of schedule reflects the size of the hole that will be created by the Senate’s generous exemptions and tax cuts.

COSMETIC SURGERY TAX

Purely cosmetic. A nuisance tax that will yield peanuts and burden revenue authorities and legitimate patients. Imagine every patient having to wait for his or her procedure to be certified as medically required before being allowed to undergo surgery free of tax? Inconveniences aside, this gives birth to new opportunities for rent-seeking and extortion, new income sources for less-than-scrupulous practitioners.

COAL EXCISE TAXES

From the current P10 per metric ton (MT) to P300 per MT — that’s a whopping three thousand percent increase. This measure comes out of nowhere, as it was neither in the DoF or Lower House version of Package 1.

Let me make the case against it.

First, a disclosure. I am an independent director of Aboitiz Power and Phinma, Inc., both of which have investments in coal power plants as well as in renewables. I am also the Private Sector representative in the Steering Committee of the University of the Philippines based Energy Policy Development Program (EPDP), co-chaired by the secretaries of NEDA and the Department of Energy.

The arguments of the proponents:

a) Coal needs to be taxed more due to the negative effect of its carbon emissions on the environment.
Whether this is true or not, the Philippines contributes less than 1% of world total CO₂ emissions. At the same time, 35% of all the power we produce comes from renewable sources — a mix that is much more favorable than that of most countries, indeed better than almost all countries at a similar stage of development in the ASEAN and globally. (See “Carbon Footprint, Inclusive Growth and the Fuel Mix Debate in the Philippines,” by Raul Fabella et al, EPDP, PHL Economic Society Conference, Sept 22). We are doing more than our fair share to arrest global warming, even at the expense of cheaper electricity (renewables like solar and wind enjoy tax-payer-funded government subsidies).

b) Gasoline, diesel, and natural gas are taxed more than coal.
My friend, esteemed economist, and columnist, Ciel Habito, estimates that the tax on motor fuels is 10%, on Malampaya gas, 43%. He advocates that coal be taxed at P600 per MT, arguing that at an effective 15%, this will still be lower than the tax on Malampaya gas and the proposed 18% for diesel in the Senate version.

Ciel seems to overlook two considerations. The tax on motor fuels has never been about CO₂ emissions and climate change, a recent notion. It is about the “user pay” principle — motorists should pay for the roads that the government builds and maintains. And there is the second reason — to discourage the excessive use of private cars that contributes to traffic and air pollution. In economics-speak, “negative externalities” from urban congestion.

As for the taxes on Malampaya gas, this too has nothing to do with CO₂ mitigation. These are royalty payments for the exploitation of the country’s natural resources. The government collects the same 60% share of profits from oil and, yes, coal producers.

Given this, why single out coal for a carbon tax? Why not a carbon tax on every fuel based on its impact on the ozone layer (which incidentally should also include LNG)? And why not throw in cattle-breeding, as cows emit ozone destroying methane with an aggregate impact similar to coal plants?

Regardless, using widely accepted global norms, EPDP Senior Adviser Prof. Jim Roumasset calculated the appropriate carbon tax for coal in the Philippines, given its contribution of 1% of the world’s CO₂ emissions — P60 per metric ton. Not P100. And certainly not P300.

The P300 per metric ton tax on coal will add P0.14 per kWh to our cost of generating electricity. This is on top of another measure climate change advocates and renewable energy developers pushed for — feed-in tariffs, a fancy term for what are just subsidies from the taxpayer. Combined, they will add P0.43 per KWh to our electricity bills or, at current consumption levels, a total of P40 billion for 2018.

This resulting 10% hike in generation cost comes at a time when our DoE is working hard to bring down power costs to attract investments and create jobs in manufacturing. Note that power costs represent the bulk of cement production costs, causing our local champions to struggle against foreign competition. High cement prices make it more difficult to provide low-cost housing for the poor.

But all is not lost.

There is still a bicameral committee that can hopefully inject some sense into the tax package. We implore the committee members: Pass the TRAIN but hold the gravy, please.

Romeo L. Bernardo is a Trustee of the Institute for Development and Econometric Analysis. He was Finance Undersecretary during the Corazon Aquino and Fidel Ramos administrations.
romeo.lopez.bernardo@gmail.com

On Globalization, Inequality, and Inclusive Growth

Introspective

Since Thomas Piketty came out with his book, Capital in the Twentieth Century (2013), it has become fashionable to blame globalization, open trade regimes, privatization, and other elements of “neo-liberalism” for inequality and many of the recent troubling political developments such as the rise of populist regimes like Donald Trump, even violent extremism.

Earlier this year, widely followed columnist Efren S. Cruz wrote “that the eight richest individuals own more wealth than the poorest 50% of the world’s population. Globalization and modern technology have increased global wealth which has been exploited by the rich to become richer; but the rest of the world has not benefitted from these two phenomena.”

Locally, calculations on the rise in net worth of the ten richest men/families (estimated by Forbes) against the country’s GDP growth — led to the glaringly wrong conclusion that the ten richest families own three quarter of the country’s wealth, i.e. inequality leads to poverty. And the culprit? Globalization and liberal economic policies.

Two weeks ago, UN Rapporteur Calamard blamed neo-liberalism and private sector (“Neoliberalism kills, says UN rapporteur,” PDI, Oct. 20) — “the restructuring of economies and the liberal vision for development is trickling down to every community and is a killer in many ways… creating much instability and much conflict.”

Writings of National Scientist and Economics Professor Raul Fabella (also my fellow Introspective columnist) and author Edward Luce help provide proper perspective on this issue.

Edward Luce (The Retreat of Western Liberalism, 2017) drew a pachyderm, an elephant, on a chart to emphasize his point.

Plotting the global income growth in the last generation by percentile, poorest to richest, we find that most of the world have benefitted from the wave of liberal economic policies established post WW II under the Bretton Woods institutions (IMF, World Bank, GATT/WTO).

With income growth of 45% to 80% for those in the tenth to seventieth percentiles, the big losers in this global picture are relatively rich in the 75-85 percentile — with incomes now being 10% lower than a generation ago.

The dramatic improvements in the lives of most of the people globally is evident in every statistic on lower rates of absolute poverty, longer life expectancy, higher literacy, access to water and other basic services, eradication of major diseases, etc. in World Bank development statistics and the Human Development Report. The most considerable upliftment in lives has been in Asia. Especially China after Deng introduced liberal market reforms. (see Raul Fabella, “Inclusion and Delusion in TRAIN,” Oct. 23. To read this piece, please visit this link http://bit.ly/trainde or use a smartphone to scan the QR code.)

With this generally favorable picture, why the strident rhetoric vs. inequality and liberal economic polices? Especially coming from the leadership of USA that championed this after WW II?

Well, 75-85% percentile losers are basically the Trump and Brexit constituencies. Their discontent and political activism are driven by resentment over the top 1% and the loss of jobs, erroneously blamed on the countries whose peoples are in the lower end of the global income spectrum.

In truth most of the job losses were due to technological advances, and failure to adjust to these. This deepening anger is fueled by polarizing social media and populists nativist leaders like Trump.

We and other developing countries have no common cause with the narrow band of rich country losers complaining of inequality and globalization.

The rest of humanity (10-75 percentile) have clearly benefitted from globalization — liberal trade and investment regimes, freer movement of technology and people. Including the Philippines whose two main drivers, BPO and OFW remittances, are enabled by it. Globalization has put us recently among the highest growing countries and with the best prospects, even in our high performance neighborhood.

Admittedly, here in the Philippines, historical progress in addressing the poorest (dropping only to 25% currently from 34% in 1990) has not been as substantial as with the rest of Asia. (e.g. in ASEAN, Indonesia and Vietnam have halved their poverty rates.)

But let us not blame globalization and liberal economic policies for this.

As Dr. Fabella underlines, “there are two flavors of inclusion: one is reduced income inequality; the other is reduced poverty incidence. They are not the same; nor does one necessarily follow the other. So they require different policy responses.”

Past policies in the Philippines have not favored investments and job creation that would have allowed us to participate with our neighbors in an export led growth and addressed the problem of joblessness and poverty. Unfavorable policies include national law that deters foreign investment, underinvestment in essential infrastructure.

Likewise, agricultural productivity has suffered from an inward looking bias — a failed land reform program that favored inclusive poverty over efficiency needed for modern agriculture. An anti-poor food security policy defined as self-sufficiency in rice at exorbitant cost, rather than affordability of food, and focus on crops where we can have global competitiveness. A high population growth rate is an additional factor.

With poor and recently deteriorating scores in ease of doing business in the Philippines, government’s efforts need to focus on making us globally competitive — more globalization, not less. A market friendly investment environment — e.g. investments in infra, liberalizing rules for FDI’s — will foster more jobs for the unemployed. Coupled with more expenditure for social programs in health, primary education and conditional cash transfers, these policies will help the poorest.

This is well recognized in the ten point agenda of this administration, and elaborated in the latest NEDA Philippine Development Plan. TRAIN is essential for this. Our Foundation for Economic Freedom urges Congress to approve the DoF sponsored bill with the minimum of dilution. (See FEF statement “FEF Appeals to Senate to Preserve the Revenue Goals for TRAIN.” To read the statement, please visit the link http://bit.ly/FEFTrain or use a smartphone to scan the QR code.)

Let us persevere in achieving the goals of these economic programs under a democratic setting. And pay no heed to calls for quick fixes under a revolutionary government. Such siren songs are at best, distracting.

Romeo L. Bernardo is a Trustee of the Institute for Development and Econometric Analysis and Vice Chair of the Foundation for Economic Freedom. He was Finance Undersecretary during the Corazon Aquino and Fidel Ramos administrations.

romeo.lopez.bernardo@gmail.com

http://bworldonline.com/globalization-inequality-inclusive-growth/

Bye bye, Build Build Build?

Introspective, Business World

The Tax Reform for Acceleration and Inclusion (TRAIN) has been billed as the administration’s flagship legislation for achieving sustainable seven percent growth, generating investments and jobs,and reducing poverty. If TRAIN is derailed — kiss Build, Build, Build, bye bye.

There is some concern that the Senate version of TRAIN passed two weeks ago, heavily diluted the original tax reform package proposed by the DoF. According to press reports citing the Legislative-Executive Development Advisory Council (LEDAC),the likely incremental revenue yield of the Senate bill is only around P55B, around 0.3% of GDP. Compare this to the target revenue yield of the original proposal of the DoF of P157B, (1% of GDP), or even the House version of P134B (0.8% of GDP). Or what the Philippine Development Plan aims: for infrastructure spending to ramp up to 7% of GDP by 2022 from last year’s 3.4%.

Moreover, as stressed by Foundation for Economic Freedom last Sept. 14, “Tax reform is particularly important in the face of new spending mandated by Congress — free irrigation, free tuition in SUCS (state universities and colleges), escalating pension benefits of uniformed personnel, and increases in SSS (Social Security System) pensions unmatched by increases in contribution.” The incremental yield of the Senate bill barely covers the estimated first year cost of the free tuition law. And with inordinate amount of earmarks to boot.

If government pursues its programmed five-year infrastructure spending on top of all these Congress-mandated new ones without the matching new revenues, the country courts an explosive public debt buildup.More immediately, we put at risk another “BBB” — the Philippines “investment grade” credit rating. Keeping an investment grade rating is essential. It makes the country attractive to investors and keeps borrowing cost low for both government and the private sector, including small businesses and first time homebuyers.

The major sources of dilution in the Senate version according to experts are —

1. Plugging VAT exemption loopholes. The Senate version only lifted 36 VAT exemptions from the 70 lines in the DoF bill. Moreover the Senate bill gives new exemptions to ecozones.

2. Fuel taxes, auto excise taxes were watered down and made more complicated.

3. The option to pay 8% on gross for all self-employed, in lieu of income taxes at the top marginal rate of 35%.

On the VAT exemption loopholes, the consequence of having too many holes is a VAT yield of only 4.3% of GDP, around the same as Thailand’s, even when their VAT rate is only 7%.

My favorite example of a bad tax exemption — seniors citizens’ VAT exemption on top of a legally mandated 20% discount. This is exceedingly regressive as government subsidizes in direct proportion to amount of spending, and gives minimal benefits to the needy elderly poor. Its other objectionable feature from a tax policy standpoint is the high administration cost, and its window for abuse by opportunistic taxpayers/establishments and crooked tax collectors. The DoF originally proposed to limit this exemption to medicines, and to instead provide annual cash transfers similar to the Pantawid Pamilya for the elderly poor.

There are dozens of similarly unmeritorious exemptions like this that the DoF tried to wholesale correct in their version of the bill. (At the same time, the DoF has shown flexibility in recognizing truly deserving cases. For example, with the BPO industry, one of two key drivers of the economy in terms of direct and indirect employment, foreign exchange, and economic activity. Both House and Senate versions provide for a formula that allows the industry to continue to significantly contribute to the economy in the face of anti-outsourcing rhetoric in the US, concerns of foreign clients over security concerns like Marawi/ISIS, and the accelerating negative impact of technological disruption/Artificial Intelligence.)

On the oil taxes,while the three versions converge to same rate after year 3, the Action for Economic Reforms has argued that the back loading, especially in the Senate version impacts on the ability of government to fund the compensating cash transfers needed in the early years.(Though one can also argue that timing actually dovetails with the J curve ramp up in infra spending, given government’s absorptive capacity/execution limitations.) There is also the risk to the planned revenue increase for the outer years due to the 2019 election.

Finally, on item 3 — the revenue losses from the overly generous eight percent gross option for the self-employed (initially only for smaller establishments), has been estimated by the DoF/AER to be upwards of P20 billion. While its Senate sponsors have argued that there will be more taxpayers who will pay with the much lower rate, I doubt that tax evaders now paying zero will find virtue just because the tax rate is lower. Especially since, surfacing previously hidden income stream may expose them to charges of evasion on past income.

Moreover, this measure severely fails the test of horizontal equity — as salaried people, especially at the higher tax brackets, will be subject to three to four times the burden of the self-employed.

In order to make up for the huge gap in revenue yield, the Senate version introduced new items that were originally programmed for future packages by the DoF. They have thus not been subject to full consultations. Some quick notes on these new items:

1) Increase in taxes on dividends and on FCDU dollar interest income to 20%.

Premature and piece meal in light of a comprehensive review being undertaken by a team of experts commissioned by the DoF/ADB for reform of capital income taxation (interest, dividends, capital gains) across institutions and financial instruments. The objectives of this capital income tax reform (package 4) include greater neutrality, fairness, simplicity, and efficiency — to be supportive of government’s capital market development efforts.

2) Coal tax dubbed a carbon tax.

The Senate bill proposed doubling the coal tax from the current P10 per ton. While even this higher level seems modest compared to what is being pushed by alternative fuel interests,this tax should have been left for fuller study under the DoF’s package 5, taxation of products with negative social externalities (which also includes tobacco and alcohol).

Advocates have argued for a much heavier tax on coal based on coal’s higher per unit contribution to global Co₂ vs. alternative fuels. They fail to consider that the Philippine Co₂ footprint is just 1% of world total,the lowest in ASEAN. Moreover, the renewable energy component of our power mix at 35%, is way above global average — thanks to forward looking investments done over decades in efficient hydro and geothermal plants.

The question we need to ask in levying higher taxes on coal is — given the country’s aim to promote manufacturing investments and job creation, can we afford to further add to our high electricity costs? Such have been made higher recently by compounding feed in tariffs subsidies for wind and solar.

3) Cosmetic surgery (or cosmetic products) tax. This and other similar small yielding tax measures are just administrative burdens.

One is tempted to say, purely cosmetic. But nonetheless valid considerations in Philippine politics, especially bearing in mind 2019 midterm elections. I trust that the bicam and Congress as a whole will find the right balance between short term politics and our country’s long term development imperatives.

http://bworldonline.com/bye-bye-build-build-build/

It ain’t Uber till it’s Uber

Introspective, Business World

The Uber-LTFRB controversy has highlighted, to our great inconvenience, what happens when modern technology clashes with antiquated laws and regulations. This is further complicated by the business conduct of a highly successful global upstart start-up confronting the dysfunctions of Philippine bureaucracy writ large in the DoTr agencies.

To be better educated on the subject, I turned to our eldest son, Ibba Rasul Bernardo. He is a net entrepreneur/geek with deep experience in tech start-ups and social enterprise.

After listening to him, I thought it best to relay it in his words. He also has written for a number of publications like Adobo Magazine, T3, and GamesMaster and co-hosts Ride PH TV.
“Gustavo Petro once said: “A developed country is not a place where the poor have cars. It’s where the rich use public transportation.”

Most people understand that when Petro said this, he contemplated public transportation so convenient that it was preferable to private car rides and luxury vehicles.

The founder of Uber is not “most people,” however. Upon hearing this quote, Travis Kalanick probably heard the ka-ching of a thousand cash registers and thought “OK, Mercedes Benz S Classes for us and a hundred friends!” And Uber was born.

Let me share with you the following potentially controversial thoughts about our favorite ride-sharing app.

Why It’s Game Uber in the Philippines
1. Boob-er
Many things said about Travis Kalanick are not fit for publication: He is a misogynistic creep who has created a toxic company culture. Uber is rife with stories/allegations of managers groping women, cocaine done in company retreats, to name a few. Kalanick even joked about an app for women on demand, “Yeah, we call that Boob-er.”

Ironically, because of the tracking and safety features inherent to Uber, women feel empowered to drive for Uber. Ask any Pinay Uber driver.

Good news: reports say that a new CEO will be stepping in, Dara Khosrowshahi of Expedia, an immigrant from Iran and poster child of the American Dream.

2. God View
Uber created a backdoor in their app called “God View” where they can track — stalk? — specific users. They’ve been accused of allowing some employees access to this information to follow exes, spouses, celebrities, and politicians. After a 14-month investigation by the New York State Attorney, Uber agreed to pay a fine and to encrypt passenger data.

Another privacy violating function was active until Aug. 29. Uber didn’t only track you while you were in one of their cars. They tracked you even after you’d gotten off.

3. Endo
Uber’s life blood is contractual labor whom they lovingly call “Partner Drivers.” Their business depends on actively finding ways to minimize support for drivers. This has led to a string of lawsuits and settlements in the US (Google “Uber labor law suit”).

In the Philippines, many UBER “Partner Drivers” work 10 to even 15 hours, by choice. An Uber driver I spoke with told me he earns more than twice what he earned when he was driving a taxi. Another driver told me she was getting P1200 pesos a day from Uber as support while they were banned from plying the streets of Manila.

Why do drivers and riders in the Philippines and in many countries all over the world love Uber, despite its many faults? Simple: in many of these countries, the transportation system is broken. Normal people are sick and tired of lousy, inefficient, expensive, and dangerous taxis. Most of these countries’ regulatory agencies are rent seeking, corrupt, and worst of all inept.

In a country like the Philippines, the few options commuters have are bad ones.

Uber gives the driver the perception of becoming their own boss, and the ability to own (finance) a car. Uber also gives the riding public convenient, reliable, and safe transportation. Even with Uber’s many faults, to the average commuter, UBER is heavenly ride compared to the commuting Hell we had to endure before Uber.”

Our laws have understandably not kept up with accelerating advances in technology in our globally wired sharing economy. Allow me to conclude by sharing and echoing the statement of our Foundation for Economic Freedom on this (see http://bit.ly/FEFUber).
Our Congress needs to move fast on a wide front less we be left further behind. FEF and others are pushing for legislation that can help open up our economy to foreign investments and innovations.

A key one is the amendment of the Public Services Act which will redefine the present ambiguous description of what constitutes a public utility, expanding the sphere for the private sector to meet growing demand of the public and a growing economy, since government alone cannot. (e. g. mass transport, ports, toll roads, info tech/telecommunications, water, etc.)

This most forward looking initiative is sponsored in the Senate by Public Services Committee Chair Sen. Grace Poe and championed in the House of Representatives by lawmakers Arroyo, Salceda, and Yap. We are pleased to learn that this is now in the LEDAC priority list, thanks to Planning Secretary Pernia.
Meanwhile, we plead with the authorities to be open to new private initiatives, regulate with a light touch, and take a broad view when interpreting our laws, with improved and expanded provision of public services as the primary concern. Don’t be like old generals fighting the last war.

The Great Infrastructure Debate

Business World Introspective 

Romeo L. Bernardo

Posted on August 07, 2017

Our latest report for GlobalSource Partners (globalsourcepartners.com), a subscriber based global network of independent analysts, dove into the issue of projects funded via Public-Private Partnerships (PPP) vs. Official Development Assistance (ODA).

In our view, the sharp dichotomy is not warranted. There are clearly good grounds to pursue one vs. the other depending on the nature of the project, technical capacity of the government agency undertaking, and the terms and conditions of particular ODA and the donor country.

We concluded that given the huge infra requirements of the Philippines, it should not be PPP vs. ODA, but rather PPP and ODA.

The lively debate may have been driven by the sudden change in public policy, yanking without compelling reasons, several projects at advanced stages of preparation to an ODA or GAA mode after these have been studiously prepared for a PPP bid over many years. This has raised concerns over consistency and stability of government policies from many capable local and global players who have invested substantial resources to bid for these. Included in these are the five regional airports projects, the Kaliwa Dam (a new water resource for Metro Manila) and Clark Airport as a second national airport.

Moving forward, government should be able to proceed using both PPP and ODA tracks by developing a richer project pipeline based on coherent masterplans, strengthening the institutional capability of line agencies (notably the DoTr,), and tapping proven technical experts local and foreign. On the latter, government has asked the Asian Development Bank for a $100-million Infrastructure Preparation and Innovation Facility to help in preparing feasibility studies, project design and procurement.

Is there enough time?

We think the problem becomes more acute the more non-PPP projects are pursued since government will not be able to leverage its limited technically skilled manpower by off-loading project supervision and management to the private sector. This may just be the Achilles heel of Dutertenomics and argues for continuing to pursue PPP in parallel with ODA, particularly for projects that have clear commercial value that the private sector would find attractive.

In any event, even if the Duterte administration is able to do only 70% of what it is ambitiously targeting, this would still be a major gain for the economy, both in laying the foundation for future growth and in contributing to achieving its seven to eight percent growth target.

Sharing below a section of the report on the issues, the pros and cons of PPP vs. ODA.

ISSUE 1: WHO PAYS?
One source of contention is that users pay for PPP projects while taxpayers pay for ODA projects. Strictly speaking, whether users or taxpayers pay depends on the project’s cost vis-a-vis its revenue profile, not on the mode of implementation. Projects that can demonstrate high revenues from market demand are able to pass a bigger share of project cost to users.

In comparison, projects that hurdle the economic but not the financial viability test would need higher, if not wholly, taxpayer funding.

The issue is somewhat muddled by several factors.

For instance, by their very nature, PPP projects need to hurdle some minimum financial viability test to be attractive to investors; and private investors would normally look for sources of cash flows independent of government. To the extent that commercial revenues are robust, investors would not require additional government subsidies. On the other hand, if investors find these cash flows insufficient or high risk, government would still need to step in to close “viability gaps.” In these cases, taxpayers pay part of the cost. One can argue that the same projects built with ODA financing can charge user fees as well. Realistically however, due to political reasons, government may not be able to impose the same level of fees that would otherwise be allowed if the facility were privately managed; in which case, ODA financing would mean that taxpayers shoulder a bigger share of the costs. On the other hand, there are also plenty of cases where government as regulator has failed to adjust user chargers as agreed under PPP contracts and would have to use the budget to compensate investors for any losses. In this and other cases related to realized contingent liabilities, taxpayers end up footing a bigger than expected portion of the bill.

ISSUE 2: WHICH IS COSTLIER?
In terms of investment costs, both PPP and ODA have their pros and cons, with overall costs also dependent on timely delivery. The case for PPP is the acknowledged efficiency of the private sector in managing whole-of-life project risks and costs, trading off its higher cost of capital against lower operating and maintenance costs. Moreover, completion risk that leads to cost overruns is seen to be smaller under PPP considering the private sector’s incentive to start operating sooner to generate cash flows early. Hence, done properly, PPP projects should deliver value for money to government in terms of total lower cost. The usual argument for ODA is its favorable financing terms, with interest charges that may be below market and long maturity periods of as much as 40 years. However, since ODA loans are typically denominated in the donor’s currency, it is arguable whether the loans remain concessional after factoring in currency risks. Also, limited competition for ODA-financed projects due to the “tied” feature of these loans has been observed to inflate project costs by about 15-30%.

ISSUE 3: WHICH TAKES LONGER TO PREPARE?
In shifting away from PPP, President Duterte’s economic managers repeatedly cited the lengthy preparation time for PPP projects of nearly 30 months. However, PPP defenders claim that at their fastest from project development to groundbreaking, ODAs take even longer, between 35 to 40 months depending on the donor agency. (This is according to Vaughn F. Montes who delivered a presentation entitled “The merits of ODA and PPP for Infrastructure Financing and Development” during the MAP Forum in May.)

Considering that all infrastructure projects are unique, project preparation time is likely influenced more by the projects’ complexity and less by the mode of financing. Likewise, experience shows that both PPP and ODA projects are equally vulnerable to right of way acquisition delays.

ISSUE 4: DOES ODA FINANCING THREATEN FISCAL SUSTAINABILITY?
Reacting to the shift away from PPP, the president of a local conglomerate active in the infrastructure space warned of the impact on fiscal sustainability of using ODA borrowings for infrastructure. This follows from government accounting where projects financed by ODA are added to the public debt at full cost from day 1 while PPP projects are largely treated off-budget (excepting any necessary upfront subsidy), with no budget provisions for contracted future payables (i.e., availability payments) nor contingent liabilities. But while public debt would indeed be higher if infrastructure were ODA-financed rather than PPP-financed, the assessment of fiscal risk goes beyond the headline number, with sovereign credit analysts digging into the terms and conditions of public debts as well as the risks from all types of contingent liabilities and their expected costs. The exercise would allow them to value the concessionality of ODA loans and apply some risk premium to unrecognized risks from PPP projects. In the end, what is important for fiscal sustainability is that projects are properly vetted for social and economic soundness and implemented well. Economically productive projects will pay for themselves over time.

ISSUE 5: HYBRID, BEST OF BOTH WORLDS?
Economic managers have touted the benefits of pursuing a hybrid structure to capture the best of both PPP and ODA (and/or government budget) schemes. Thus, to do away with lengthy PPP structuring and negotiations, government would build the facilities on its own, financing with own funds or ODA which reduces financing charges, then auction off the facilities to the private sector to benefit from the latter’s efficiencies in operations and maintenance. According to skeptics, aside from the equally lengthy if not lengthier ODA processes, what the hybrid structure fails to consider are (a) the efficiencies gained from a proper allocation of risks over project life to the party best able to manage them that minimizes projects’ whole-of-life costs, (b) the incentive to perform on the part of the private proponent who has skin the game and (c) the avoidance of inter-operability issues where operators are held accountable for facilities they did not design nor build.

(This column drew from GlobalSource Partners special report of Christine Tang and the writer, “The Great Infrastructure Debate,” July 14, 2017)

Romeo L. Bernardo is a board director of the Institute for Development and Econometric Analysis. He was undersecretary of Finance during Corazon Aquino and Fidel Ramos administrations.

romeo.lopez.bernardo@gmail.com

Will there be peace?

Posted on June 26, 2017

Business world Introspective

It has been one month since President Rodrigo Duterte declared martial law in Mindanao following what he said was an act of rebellion by a group of Muslim extremists that had pledged allegiance to the Islamic State (ISIS). Fighting between government forces and the extremists has been intense but limited to the small city of Marawi where military bombings to flush out the terrorists holed up in buildings are continuing. So far, reports indicate that casualties include 268 terrorists, 65 government soldiers, and 26 civilians; as well as hundreds of thousands of mostly Muslim residents driven out of their homes, with tens of thousands living in cramped refugee centers in nearby towns which in turn, has led to sickness and reports of deaths.

With government forces claiming control of over 90% of the city, there is talk that the fighting will end soon, perhaps as early as Monday which marks the end of the Muslim holy month of Ramadan. Should that target be missed, speculations are that the President would at least want to end the siege and proclaim victory before his State of the Nation Address in late July. Too, there is a 60-day deadline for martial law counting from the eve of May 23, which may only be extended by Congress.

While an end to the fighting and the refugee crisis would be a most welcomed development, there is nevertheless a gnawing fear among Muslims, remembering similar fierce government assaults against their communities in the past, that the end would come at too high a price -- the loss of more lives, with many civilians still trapped inside the city, some taken as hostages, and a flattened city, home to a predominantly Muslim population. The fear is that such an event will give rise to resentments that would breed more extremism over time especially among the more militant young, a case of government winning a battle but losing the war.

For now, despite the grief over Marawi, the Muslim leadership and communities are seemingly cutting the President a lot of slack, appearing to recognize the dangers of allowing ISIS ideology to take root in the country. There is apparently enough trust in the President, a fellow Mindanaoan, who from the start had professed understanding of the deep-seated nature of the country’s Muslim separatist movement and promised to give them autonomy through a federal form of government, a promise that unfortunately, is proving much harder to deliver on. Hence, the President is now talking of signing a new version of the Bangsamoro Basic Law (BBL), a proposed legislation crafted under the previous administration to create a new autonomous region in Mindanao that the previous Congress failed to pass.

The key question is, will the Marawi crisis provide impetus to hasten BBL and bring lasting peace to Mindanao or will it just feed unrest that will radicalize the major separatist groups (MILF, MNLF) that government is negotiating peace with?

The answer, it seems, depends on the President’s next moves.

With P10 billion in rehabilitation funds, will he be able to quickly and effectively rebuild Marawi, overcoming bureaucratic constraints that have left Leyte still in shambles nearly four years after typhoon Yolanda/Haiyan made landfall? And will the President be able to focus attention away from drug addicts and communist insurgents to the peace process?

Peace is a necessary condition for unlocking Mindanao’s vast potentials. The island is rich in natural resources, its climate condition is conducive to agriculture, and historical and cultural ties will allow it to forge closer economic linkages with neighboring ASEAN communities in line with the aspirations of the ASEAN Economic Community. Can the President from Mindanao rise to the occasion?

(This article features excerpts from a post for GlobalSource Partners written by Christine Tang and the columnist.)

Romeo L. Bernardo served as Finance undersecretary during Corazon Aquino and Fidel Ramos administrations. He is a board director of Institute for Development and Econometric Analysis.

Corporate governance in the Digital Age

Posted on June 12, 2017

Business World Introspective  

Romeo L. Bernardo

Thursday, June 8.

As I write this column, the dust has yet to fully settle on perhaps the most challenging 24-hour day for the management of the Bank of Philippine Islands (BPI) in its over 165 years of existence. I hope to write a future column on lessons from this when all is done.

Still, it is not too early to congratulate its management and staff for how they have pulled together to resolve this in record time. And preserve the trust and confidence of its stakeholders, most importantly depositors and the regulators.

In today’s digital age where data information base and service delivery are predominantly electronic, banks and similar institutions and their regulators should assume that debilitating computer system glitches, cyber attacks, and natural disasters will happen.

We thus need to ensure we have robust IT systems and take all protective and preemptive measures including a providing for redundancy and quick recovery.

Equally important in this age of social media and instant connectivity is keeping stakeholders informed on a round the clock basis using all forms of communication. (And protecting them from predators; an SMS received -- “Does BPI have a branch in Lagos?”)

And not the least, a crisis management structure and plan that can be triggered swiftly.

“Any system in which humans are involved will at some point be disrupted by human error. Organizations distinguish themselves not by stamping out the possibility of error, but by handling the inevitable mistake well.” (As quoted in my Foundation for Economic Freedom Viber group.)

At this time, I will just note that BPI President Cezar Consing at the first hour yesterday reached out to the leadership of the Bangko Sentral ng Pilipinas (BSP) and the public. Both he and Acting Governor [Nestor] Espenilla sought to assure via early morning television interviews that this was: 1) a computer glitch and no hacking was involved; 2) being addressed and that the system should be back up within the day; and 3) that no one will lose money.

There were subsequent round the clock updates ending in one late last night, in both traditional and social media, that the problem was fully addressed and all electronic channels will soon be accessible. (And apologizing once again for the inconvenience and thanking clients for their patience.).

I dare say, BPI is passing the test. Though I should quickly add that I am an independent director at the Board, and unashamedly have my biases.

As I am along this road, you will forgive me for flying the colors some more by excerpting remarks at a forum on corporate governance last month organized by the BSP and the International Finance Corp. I will make the self serving assumption that BSP asked BPI to precisely present because we are among the best pupils in class. (For my full presentation, please refer to my blog entry, which can be read by visiting this link http://bit.ly/RBblogentry.)

1. We join the applause of the financial community and the broader Filipino public, on the recognition of a job superbly done by Governor Say [Amando M. Tetangco, Jr.] And the jubilation on the appointment of Deputy Governor Nesting [Nestor A. Espenilla, Jr.] a vote for continuity and an affirmation of the quality of monetary policy and banking supervision of the BSP and all its dedicated men and women over the years.

2. At BPI, when we speak of “corporate governance,” we go beyond the formal rules that sets out the Board’s oversight and its policy setting responsibilities. For us, it is all about imbibing and nurturing a culture of integrity, fairness, accountability and transparency cascaded from the Board, its management, and to all our employees.

3. In line with this, the Board ensures, first and foremost, that BPI’s corporate governance practices are consistent with the guidance of the BSP, Securities and Exchange Commission, and the Philippine Stock Exchange in strengthening corporate governance. And in October 2016, BPI was recognized as one of the awardees of the inaugural Institutional Investors’ Award for Corporate Governance.

4. We recognize that good corporate governance is ultimately, the responsibility of the Board. As is often rightly said: “Companies do not fail, boards do,” an observation I may have first heard from SEC Chair Herbosa.

5. The presence of Independent Directors on the Board helps ensure the exercise of impartial judgment on corporate affairs and proper oversight of managerial performance, related party transactions, and potential conflicts of interest.

Today, in our 2017 Board, seven (7) out of 15 directors are classified as independent, exceeding the minimum regulatory requirement to have at least 20% of board membership and the recommendation for publicly listed companies to have at least 33%.

6. We bank with all of the country’s major conglomerates and while Ayala is the bank’s single largest shareholder, they are not our largest client. There are a number of conglomerates with whom we have more substantial dealings.

7. The Nomination Committee ensures that there is diversity in the board -- in terms of gender, age, cultural background, education, professional experience, skills, knowledge, length of service. Our 2017 board is made up of three former bank presidents, a former member of the Monetary Board, a former assistant governor of the BSP, the representative of the Roman Catholic Archdiocese of Manila, a top regional officer of a global IT company, a retired founder/CEO of a top securities brokerage firm, a top CFO of major Philippine corporations, a topnotch corporate lawyer and a former Finance undersecretary, to name a few.

8. Equally important in our diversity policy is the representation of women. To date, we have four women directors, comprising 27% of our board membership, the highest among our peer banks. In 2016, we had 5 women directors. (In our management of 3000 plus managers, 67% are women.)

9. We take risk management and internal audit and control very seriously. Indeed as Governor Tetangco said in his keynote remarks, risk management is at the heart of corporate governance of a bank. Both our risk management committee and our audit committee are chaired by independent directors who have had distinguished banking careers culminating in being CEO’s in their respective banks.

10. The Board and its committees are regularly and actively involved in providing strategic guidance, risk appetite and risk metrics (operational, market, liquidity, regulatory, reputational, etc.) regular audits, capital adequacy reviews as well as oversight over pressing and urgent “issues of the day,” e.g., anti-money laundering, IT, cyber risk, consumer protection, etc.

11. In all cases, the oversight by the Board go well beyond the letter of the regulations in order to uphold depositors’ and other stakeholders’ interests, and protect the Bank’s reputation. Just to cite an example for our zero-tolerance policy for fraud and financial crime, whether external or in-house. Recently, we worked with government agencies in the first successful prosecution of international criminals involved in ATM skimming and card fraud. We do this beyond the value of the losses of the bank from specific instances, as a matter of principle and for deterrence.

12. Another example of this high level of diligence and risk management mind-set that has saved the bank from losses, where others have been blindsided. It is a matter of record at the BSP that in the global financial crisis a decade ago, BPI was the only big local bank that had zero holdings of international subprime securities. A quote from that period from a key board director on a proposal to purchase Lehman securities -- “I don’t care if it is triple A rated, if we don’t understand it, we are not buying it.”

13. The Bank has a Code of Conduct derived from the BPI Credo and Core Values. These are aligned with key global initiatives that promote responsible business practices. We have detailed rules on conflict of interest, insider trading whistle-blower policy, and related party transactions. (We were among the first banks to set up a related-party transactions committee, before a formal circular by BSP on it was issued.) While these codes are important, what is critical are internalizing these as values and culture.

14. I view my presence as a presentor here as BSP’s recognition of BPI’s efforts in promoting effective corporate governance. The high quality and professionalism of management and staff and the corporate culture that has been nurtured through the decades make the job of the Board members relatively easy.

15. As observed by the previous speaker from IFC, good corporate governance also provide bottom line yields. For BPI, it has contributed to a price to book valuation and an ROE that has consistently led the industry.

16. Finally, thank you to the BSP and SEC for all the work and effort done to build world-class financial institutions capable of meeting the challenges posed by the other FI’s in the region. We at BPI will continue our governance commitment for the long haul.

Romeo L. Bernardo is a board director of the Institute for Development and Econometric Analysis. He was undersecretary of Finance during Corazon Aquino and Fidel Ramos administrations.

romeo.lopez.bernardo@gmail.com

CG Practices of BPI: Ceremonial MOU Signing and Mini Forum on Enhancing Environmental and Social Governance (ESG) and Corporate Governance (CG) Practices in Philippine Banks

May 26,2017

Narra Room 19 floor Multi-Storey Building BSP Mabini st. Malate Manila

Remarks of Romeo Bernardo

Opening:

Governor Tetangco,  Deputy Governor and Governor designate Espenilla, SEC Chair Herbosa,  IFC Country Director Ms Yuan Xu,  World Bank Economist Ms. Birgit Hans, dear Officers and staff of the BSP, SEC, World Bank, fellow workers in the financial community, friends:

The Board and Management of BPI thank the BSP for inviting us to this forum and giving this opportunity to share what we are doing in this field.

  Allow me first of all to join the applause of the financial community, and the broader Filipino public, on the recognition of a job superbly done by Governor Say. And the jubilation on the appointment of Deputy Governor Nesting; a vote for continuity and  affirmation of the quality of monetary policy and banking supervision of the BSP  and all its dedicated men and women over the years.

	Slide No.
1.      BPIs CG PRACTICES Let me start by saying that at BPI, when we speak of “corporate governance”, we go beyond the formal rules that sets out the Board’s oversight and its policy setting responsibilities. For us, it is all about imbibing and nurturing a culture of integrity, fairness, accountability and transparency cascaded from the Board, its management, and  to all our employees. It sets the standards on how we as a Bank, deal with various interests of, and relationships with all our stakeholders.	2
In line with this, the Board ensures, first and foremost, that BPI’s corporate governance practices are consistent with the BSP, SEC and PSE guidance in strengthening Corporate Governance as a financial institution with fiduciary responsibilities  and as a publicly listed company, including the best practices espoused by the ASEAN CG Scorecard. And in October 2016, BPI was recognized as one of the awardees of the inaugural Institutional Investors’ Award for Corporate Governance.  The award is given by Institutional Investors to listed companies based largely on their ASEAN CG Scorecard rating.	4
a.      Board of Directors We recognize that good corporate governance is ultimately, the responsibility of the Board. It is thus incumbent upon us directors, to step up and recognize our accountability to our shareholders and stakeholders.  As is often rightly said, “Companies do not fail, boards do", an observation I may have first heard from Chair Herbosa.	5
Board Composition. What drives the structure of our Board of Directors? We look at factors that influence stewardship such as board composition.  We ensure that the Board is composed of directors who individually and collectively have knowledge, expertise and  experience relevant to our industry and can drive our strategy moving forward. For this reason, board membership is also reinvigorated regularly. We saw the election of new directors in the past years, most recently in 2017. Our board is made up of fifteen directors, of which fourteen are Non-Executive Directors who are not part of the day-to-day management of the Bank.  Our only Executive Director is the President and Chief Executive Officer. With a board composed almost entirely of Non-Executive Directors, there is better assurance that interests of all shareholders are protected and that no director or small group of directors, can dominate the decision-making process.	6
Independence. The presence of Independent Directors on the Board, helps ensure the exercise of impartial judgment on corporate affairs and proper oversight of managerial performance, related party transactions and potential conflicts of interest. Today, in our 2017 Board, seven (7) out of 15 directors are classified as independent, exceeding the minimum regulatory requirement to have at least 20% of board membership and the recommendation for publicly-listed companies to have at least 33% but not less than three independent directors  on its board. The independence of our Board and its adherence to the principle of fair dealing is clearly manifested in the conduct of our business relationships with our many depositors and retail customers as well as  our corporate customers.  We bank all of the country’s major conglomerates and while Ayala is the bank’s single largest shareholder, they are not our largest client. There are a number of conglomerates with whom we have more substantial dealings.	7
Diversity. The Nomination Committee likewise ensures   that there is diversity in the board—in terms of gender, age, cultural background, education, professional experience, skills, knowledge, length of service.  Our 2017 board is made up of three former bank presidents, a former member of the Monetary Board, a former Assistant Governor of the BSP, the representative of the Roman Catholic Archdiocese of Manila, a top regional officer of a global IT company, a retired founder/CEO of a top securities brokerage firm, and a former Finance Undersecretary, to name a few.  Our directors hold academic degrees from here and abroad, and specialized training straddling various fields -- finance, accounting, economics, law, business management, international relations, political science, engineering and yes, banking. Equally important in our diversity policy is the representation of women. To date, we have four women directors, comprising 27% of our board membership, the highest among our peer banks, if I recall right. In fact, in 2016, we had 5 women directors. Gender diversity is even more pronounced in the Bank’s management where currently, we have 3,000 plus women officers, make up an impressive 67% of the total number of bank officers.		8
Board Committees. To heighten the efficiency of board operations, the Bank also established committees that assist in exercising board authority for oversight of internal control, risk management, and performance monitoring of the Bank. The committees afford the Board organized and focused means for the directors to achieve specific goals and address issues. The Board  currently has eight (8) committees. These are: the Executive, Audit, Risk Management Corporate Governance, Related Party Transactions, Nomination, Personnel and Compensation, and Retirement/Pension Committees. We take risk management and internal audit and control very seriously. Indeed as Governor Tetangco said in his keynote remarks, risk management is at the heart of corporate governance of a bank.  Both our risk management committee and our audit committee are chaired by independent directors who have had distinguished banking careers culminating in being CEO’s  in their respective banks. The Board and its committees are regularly and actively involved in providing strategic guidance, risk appetite and risk metrics,  capital adequacy reviews as well as oversight over pressing and urgent “issues of the day”, e.g., anti-money laundering, cyber risk, consumer protection, etc. In all cases, the oversight by the Board go well beyond the letter of the regulations in order to uphold depositors' and other  stakeholders’  interests, and  protect the Bank’s reputation. Just to cite an example: our zero-tolerance policy for fraud and financial crime, whether external or in-house. Recently, we have worked with government agencies in the prosecution of criminals involved in cybercrime such as ATM skimming and card fraud. And have invested much resources not only in their prevention, but in persecuting fraud of all types. We do this beyond the value of the losses of the bank from specific instances, as a matter of principle and for deterrence. Another example of this high level of diligence and  risk management mindset  that has saved the bank from losses, where others have been blindsided.  It is a matter of record at  the BSP that in  the global financial crisis a decade ago,  BPI was  the only big local bank that had zero holdings of  international subprime securities.  A quote from that period from a key board director on a proposal to purchase Lehman securities -- " I don't care if it is triple A rated, if we don't understand it, we are not buying it."	9
Induction and Director Education. The Board, through the Corporate Governance Committee, works to create numerous opportunities for directors to update and refresh their knowledge and enable them to fulfill their roles as members of the Board and its Committees.   These opportunities include internal meetings with senior executives and operational or functional heads and dedicated briefings on specific areas of responsibility within the business group. We consider the annual training mandated by the the SEC as genuine learning opportunities to deepen knowledge on various aspects of corporate governance such enterprise risk management and global best practices. These are conducted together with other companies of the Ayala group to promote constructive exchange across industries, and taps local and international experts in the relevant field.	10
Performance Evaluation. The Bank also measures the performance of the Board on the basis of what it delivers and how it delivers, how it meets its responsibilities to all BPI stakeholders, and how it addresses issues that impact the Board’s ability to effectively fulfill its fiduciary duties. Under the guidance of the Corporate Governance Committee, the Board conducts the annual self- assessment to ascertain the alignment of leadership fundamentals and issues, and validate the Board’s appreciation of its roles and responsibilities in the context of the operations of BPI and its subsidiaries and affiliates. Our self-assessment uses a 360-degree feedback report, which is a widely advocated, standard evaluation method of self-assessment and feedback review. These are survey forms where we rate our past year performance at four levels: (1) the Board as a body; (2) as Committees, and; (3) as individual directors. The fourth (4) is an assessment of the President and CEO, by the Board. Key evaluation criteria used are based on the respective Board or Committee Charter and duties and responsibilities of directors and of the President and CEO	11
Succession Planning and Talent Management.  Our Board understands that the Bank must continually evolve, adapt, and even restructure the business to remain ahead of such strategic, market, technology and regulatory shifts. And so, the Board, through its Personnel and Compensation Committee (Percom), manages the talent pipeline and assembles the required personnel with competence and qualifications capable of navigating such changes. Taking guidance from the Percom, the Bank instituted a program by which promotions to the SVP and VP ranks are vetted by a collective vote of a senior management committee whose membership varies from year-to-year.	12
Group Oversight. Relatedly, considering the Bank’s role in the BPI group as parent and publicly listed company, the Board of directors also ensures that BPI management maintains an effective, high-level risk management and oversight process across other companies in the group. We balance our oversight responsibility with the independence required by our subsidiaries in managing their specific businesses. This is most evident in the spin-off of our asset management business to the stand-alone Trust company in February this year. While it is a wholly-owned subsidiary, we place greatest importance on the conduct of its fiduciary responsibilities and the maintenance of its arms-length dealings with the Bank.	13
b.      Code of Business Conduct and Ethics.  The Bank’s has a Code of Conduct and its standards of behavior are derived from the BPI Credo and Core Values. These are  aligned with key global initiatives that promote responsible business practices. We have detailed rules on conflict of interest, insider trading whistleblower policy, and related party transactions.  As mentioned earlier, while this codes are important, what is critical are internalizing these as  values and culture. And  the  example set by the Board and management. A few words on Related Party Transactions. BPI has a Related Party Transactions Policy which guards against internal conflicts of interest between the company and/or its group and their directors, officers and significant shareholders and ensures that transactions are made in the normal course of banking activities with terms and conditions that are generally comparable to those offered to non-related parties or to similar transactions in the market. The Bank has established in April 2014 the board-level Related Party Transactions Committee to provide guidance and vet  related party transactions of significant amounts. BPI was one of the first banks that created an RPT committee to ensure compliance with the related party circular of the BSP prior to its release in 2015. Finally, let me talk briefly about Sustainable Energy Finance, the other topic for this afternoon's mini forum sponsored by the IFC. BPI through the sustainable energy finance program ( a partnership with IFC) is a pioneer mover in this space. BPI SEF started in 2008 and has been a leader in SEF with the largest market share. We have funded 260 projects in energy efficiency, renewable energy and climate resilience reaching an accumulated portfolio of P 35 billion to date.	14
CLOSING STATEMENT I view my presence here today as the BSP’s recognition of BPI’s efforts in promoting effective corporate governance. The high quality of management and staff and the corporate governance culture that has been nurtured through the years in BPI make it easy for the Board, including this independent director,  to perform its oversight responsibilities.  Finally, allow  me to thank the BSP and SEC for all the work and effort done to build world-class financial institutions capable of meeting the challenges posed by the other FI’s in the region. We at BPI will continue our governance commitment for the long haul, and strive to  be a leading provider of financial services and a most trusted advisor to our clients, colleagues, business partners and other stakeholders.  (And yes, as observed by the previous speaker from IFC, good corporate governance also provide bottom line yields. For BPI, it has contributed to a price to book valuation and an ROE that has  consistently led the industry.)    Thank you and good day!