Philippine ports have seen a “systematic increase in cargo-handling rates happening almost annually” over the years, and this has extended even through the pandemic, affecting the country’s logistics cost, efficiency and competitiveness.
This was one of the observations shared by Dr. Enrico Basilio, chief of party of the University of the Philippines Public Administration Research and Extension Services Foundation, Inc.-Regulatory Reform Support Program for National Development, in a recent online presentation.
In his talk on public enterprise reform, Basilio said cargo-handling rates in the country have been on the rise since 1989 up to 2021, which he linked to issues of conflict of interest and competitive neutrality surrounding the Philippine Ports Authority (PPA) in its dual role as both a regulatory body and a public enterprise.
He said that there has been “a systematic increase in rates” implemented by PPA almost every year. “And during this pandemic, especially in 2020 and 2021 when trade, both domestic and foreign trade, dropped, rates have been increased, and new rates have actually been introduced.”
This, he said, has led to the Authority being able to generate a lot of income, which has through the years been outstripping expenses in port operation, maintenance and development.
Citing PPA data, he said that during the previous administration “the ratio of port expenses relative to the port revenue generated is on the average about 45% to 50%.” On the other hand, under this administration, the ratio of expenses against revenue earned has averaged between 20% and 25%.
“Either the Authority is generating a lot of income or the Authority is not spending enough for port development and operations and modernization reforms,” he said.
Basilio added that the “business sector argues that any revenue PPA generates over and above what is needed to operate, maintain and develop the ports can be construed as a tax burden—it’s a deadweight cost to the economy.”
Not surprisingly therefore, he said, PPA is among the top government-owned and controlled corporations or GOCCs that remit billions of pesos in corporate dividends to the national treasury. In 2020, when both domestic and foreign trade fell by more than 30%, “the income of the authority increased, and to a large extent that is explained by the rate increases that had been implemented,” Basilio said.
The implication on Philippine competitiveness, he continued, is that “we are the most expensive in terms of cargo-handling costs in ASEAN, which makes our costs high and therefore undermines our global competitiveness.”
Basilio, meanwhile, said the competitive neutrality issue centers on PPA’s power to regulate against competition to protect its commercial interest, sometimes at the expense of public interest.
He cited as an example the case of Harbour Centre, a private port in Manila, that until now does not have a permit to handle the more lucrative containerized cargoes, only handling non-containerized cargo, with a share of 75% of the traffic.
Basilio pointed out, too, that the PPA port network consists of 120 public ports nationwide, while only a handful of private commercial ports are operating in the country, “and this tells us that the authority uses its regulatory power not to promote competition so it can protect its commercial interests.”
This, he stated, leads not just to public port monopoly but also to port inefficiencies and high costs.
To resolve these issues, Basilio called for addressing the conflict of interest stemming from PPA’s rate setting mandate by rescinding Letter of Instruction (LOI) No. 1005-A, which allows PPA to have a share in cargo-handling revenues. “An executive order is needed to do this, and this can be done by the executive branch of government,” he said.
PPA’s regulatory and commercial functions should also be decoupled through legislative action by Congress to address the competitive neutrality issue, he said. This calls for amending Presidential Decree No. 857, the law that converted PPA into a public enterprise which obliges it to generate its own revenue.
In addition, Basilio underscored that calls have been growing to resolve these issues. The Export Development Council (EDC), chaired by Trade Secretary Ramon Lopez, in 2017 issued EDC Resolution No. 3 recommending the rescission of the LOI. Moreover. the EDC late last year endorsed a draft executive order removing PPA’s cargo-handling revenue share.
The business community has also been seeking the repeal of LOI 1005-A to improve port efficiency and reduce costs, sending a letter of appeal to the government in April 2020 to act on the matter.
A bill has also been filed—House Bill No. 4317 or the Philports Bill—that recommends the transfer of PPA’s port regulatory functions to the Maritime Industry Authority. PPA would remain a GOCC but would no longer be an authority, being converted into the Philippine Ports Corporation.
Finally, Basilio said the updated Philippine Development Plan 2017-2022 also seeks the enactment of a law creating independent regulatory bodies for railway and maritime sectors. This, the plan said, will eliminate the existing dual roles of some agencies acting as both operator and regulator of transport facilities, increase the efficiency and competitiveness of ports, allow inter-port competition, and encourage more private sector participation in ports.
All this comes even as local stakeholders have also been forced to contend with unprecedented setbacks such as record-high shipping freight rates, a shortage of vessel space, congestion at major global ports and other supply chain disruptions as a result of the impact of the current pandemic.