BIZ BUZZ: PLDT budget overrun what? (We explain)

We interrupt normal Biz Buzz programming—which is to say, our normal fare of corporate world gossip—with something less gossipy, but no less interesting.

It is, of course, about the P48-billion “budget overrun” that telecommunications giant PLDT Inc. disclosed on Friday. A lot of people still don’t understand just exactly what a budget overrun is and how it happened.

With the company still mum on the exact details of the anomaly, Biz Buzz went snooping for you, our dear readers, to provide greater clarity in this time of confusion.

According to our authoritative source, the P48 billion in question refers to capital equipment (mostly telco network equipment) that is already in use by PLDT. However, this equipment has not yet officially been accepted by the company. As such, they are not recorded on its books. And if these assets haven’t been officially accepted, it also means that they haven’t been paid for yet.

How that happened and why that happened remains a mystery. Was it just sloppy record keeping that went on for several years? Or was someone in the company, or someone in the supply chain (or both?) making a quick buck? (or a quick billion bucks)? It’s hard to tell at this point.

But here’s the thing: because these assets are not recorded in PLDT’s books, they aren’t being depreciated in accounting terms the way they should be. Whoopsie.

On the average, capital equipment like PLDT’s would be depreciated for up to 10 years (or nine, conservatively).

At the average depreciation period of a decade, depreciation expenses should have reduced operating income by P4.8 billion annually.

The good news is that PLDT has a lot of one-time gains from the ongoing effort to sell off its telecommunications towers. The proceeds from this will offset most of the losses from the so-called budget overruns. And because of this, the good news for shareholders is that their cash dividends will almost certainly remain intact.

The bigger problem, really is this: How could all of this happen to a blue chip firm that supposedly puts such a high premium on governance and transparency. In fact, PLDT’s chief financial officer, Annabelle Chua, was even awarded CFO of the Year for 2021 by the Financial Executives Institute of the Philippines.

The main question of investors is the credibility of PLDT’s books and the reports that management has been putting out.

To address this, PLDT chair Manuel Pangilinan will have to take strong action to signal changes in management. How strong? How many heads will roll beyond the four officials already implicated? Abangan!

— Daxim L. Lucas