PHILIPPINES: Poverty reigns in many of the country’s islands, and for economist Enrico Basilio of the University of Asia and the Pacific (UA&P), the problem lies not in productivity but in transport and logistics.

Basilio describes the Philippine archipelago as a sprawling giant jigsaw puzzle. As such, he said development has failed to touch many of the islands because the government has failed to efficiently connect them through an efficient and competitive transport system.

"Improving farm productivity is easy," he said in a recent forum at the Pasig University, stressing that this goal could be achieved through various measures, such as the use of high-yielding varieties, irrigation, fertilizer and the adoption of modern farming techniques.

"But all these gains will go down the drain because of inefficient logistics and distribution system," he lamented. "There is simply no incentive for farmers to produce more."

‘FLAWED REGULATORY FRAMEWORK’

Basilio traces these inefficiencies in transport and logistics to what he called a "flawed regulatory framework" that tends to foster a "monopolistic" environment for the shipping and port operations business in the country.

"The ports and shipping industry is saddled with problems," he said in a paper entitled "Poverty and High Price of Logisics: Port and Shipping Issues" distributed to the media during that briefing. "Both industries exemplify a case of monopoly wherein the Philippine Ports Authority [PPA] and the Maritime Industry Authority [Marina] act as the authoritative force controlling the players of their respective industries and the only solution to the inefficiencies caused by the dominance of these government agencies is to inject competition in the business environment."

Because of this policy environment, Basilio claimed that the transport and shipping business is afflicted with all sorts of woes, including multilayered marketing system, increasing cargo handling rates and inefficiencies in ports and shipping operations.

According to Basilio what’s really choking off a lot of business activities, however, are the increasing cargo handling charges. He observed that from 1998 to 2002 alone, cargo handling rates in arrastre and stevedoring in domestic shipping alone posted a compounded growth of 35.5 percent and 69 percent. In the same period, arrastre and stevedoring in foreign shipping rose 69 percent and 91 percent.

Last year, overall shipping rates again increased by 9.5 percent and Basilio expects another hike in rates as cargo handlers are again asking for another 5-percent rise in charges.

And it is likely that PPA will grant these increases because, Basilio pointed out, the agency is benefiting from its own regulation.

"Every time cargo handlers ask for higher rates, PPA officials would not think twice before approving them because it collects 10 percent to 20 percent from these charges," he said.

He added that each year, the PPA earns P5 billion in gross revenue and P1.2 billion in net income. About P900 million of this revenue come from cargo handling charges, he claimed.

FULL LIBERALIZATION

Basilio believes the root of this problem really lies with the immense power granted by the government to the PPA.

The PPA is the main port authority of the country that owns, develops, maintains, operates and regulates both public and private ports. It has the power to approve or disapprove petitions for port and cargo handling charges and pockets 10 percent (for domestic ports) and 20 percent (international ports) of these charges even in privately constructed or operated ports.

"The immense power of the PPA to control the operations of the ports give rise to monopoly," said Basilio. "The agency [PPA] collects and enjoys fees from cargo handling. With this benefit, they seek to increase the number of ports under their jurisdiction and at the same time protect it from competition."

He cited the case of the "landlord port model" when the PPA granted to a 25-year contract to the International Container Terminal Services as the private terminal operator of the Manila International Container Terminal (MICT) and a similar contract to Asian Terminals Inc. to operate the South Harbor.

Then in 1996, one private group established the Harbor Center in the North Harbor to compete with the other ports of Manila and offered rates that are 50-percent lower than the PPA rates. "As a consequence, 80 percent of the break bulk traffic that were normally handled at the South Harbor transferred to the North Harbor," Basilio noted.

"Harbor Center had injected competition among ports but PPA regulated it [by limiting its operations to break bulk and preventing it from handling containerized cargo]," Basilio claimed, stressing that full competition could undermine the income potential of MICT and South Harbor that are paying rent to the PPA.

What aggravates the situation, according to Basilio, is that government efforts to liberalize shipping have not produced a competitive environment for the shipping industry.

"Ten years after government liberalized the shipping industry, 50 percent of country primary routes and 70 percent of the secondary or tertiary routes have remained in monopolistic states," Basilio said, citing a study by Myrna Austria, an economist at the Makati-based Philippine Institute for Development Studies.

Basilio explained that for a long time, Marina, which regulates the shipping industry, has been subscribing to the "prior operator rule" protecting current ship operators from would-be competitors. He explained that this rule would mean that Marina would not allow competition in a shipping route if the existing ship operator could produce proofs that a new operator is "not warranted." He explained that in developmental routes, entry by a new operator would be denied if existing operators are losing or are in a breakeven state.

INTRODUCE COMPETITION

The solution, according to Basilio, is to introduce competition within the industry through a set of comprehensive policy reform initiatives, including an amendment to the charter of the PPA to separate the agency’s development and regulatory functions and remove conflict of interest, as well as the acceleration of the roll-on/roll-off (ro-ro) transport program and the establishment of independent port authorities to promote interport competition.

Strengthening the private sector’s participation in the ro-ro transport system would also introduce competition "to improve efficiency and reduce costs," he said.

Basilio estimated that using ro-ro facilities, for instance, could potentially reduce shipping costs by as much as 30 percent since shippers are not expected to collect cargo handling fees as vehicles just roll into the ship and roll off later upon reaching the destination.

He observed that the government has actually established the so-called Strong Republic Nautical Highway from Manila to General Santos City but there are complaints that the PPA continues to collect cargo handling charges, contrary to the original intent of the ro-ro system.

In January, President Arroyo issued Executive Order 170 promoting private sector investments in the ro-ro terminal system. The private sector has proposed six routes but as these projects have not taken off because of the delay of PPA guidelines in the establishment of these terminals. Basilio said the ro-ro system will compete directly with PPA-operated ports, and ventured to say this could be why the agency seems reluctant to support the private sector efforts.

Besides the ro-ro, Basilio said allowing the establishment of independent port authorities, such as the one being proposed in the port of Batangas by Rep. Hermenigildo Mandanas, will also help improve efficiency as this will enhance competition among ports.

"To promote interport competition and to decentralize port administration, independent port authorities must be established mainly by boards composed mostly of representatives from the private sector," he stressed.

Source:
ABS-CBN-News