Burdened by financial woes, SBMA asks locators to pitch in
(First of two parts)
SUBIC BAY FREEPORT—Burdened by loans for major projects that are mired in financial quicksand and unable to improve its services due to a shortage of funds, the Subic Bay Metropolitan Authority (SBMA) is restructuring its finances and turning to its locators for help to avert bankruptcy.
SBMA Chairman Roberto Garcia said the agency was on the brink of financial ruin, and if financial restructuring and measures to generate revenue would not be implemented, it might default on its loans, amounting to more than P10 billion, that were falling due soon.
“Right now, the implication is that we may get into a situation where we can’t pay the salaries (of SBMA workers) and provide services (to locators and residents),” he said.
P12B in debts
Garcia said the SBMA was hobbled by two big loans that had put the agency deep in the red.
He said the agency was not entitled to a share in the 5-percent tax that it was collecting from every locator here due to a “structural flaw” in the SBMA charter.
The loans were negotiated by the previous SBMA management. These are the $28-million (P1.168 billion) loan taken out to modernize and prepare the Subic International Airport for courier FedEx and the P10-billion loan for the construction of a new container port.
“What has happened over the years is that the SBMA has never made any money. The accumulated loss of SBMA is P7 billion. Last year, the loss was P1.2 billion,” said Garcia.
He said that between P400 million and P500 million of last year’s losses represented “unrealized foreign exchange loss” due to fluctuations in the exchange rates.
Garcia said the projects funded by these loans had turned into white elephants. The container terminal, in particular, is operating at only 4 percent of its capacity.
“It has a capacity of 600,000 TEUs (20-foot equivalent units) but last year, the SBMA shipped only 25,000 TEUs. That’s the problem. If you’re operating at 4 percent of capacity, you’re bound to have huge losses,” he said.
As for the airport, Garcia said that since FedEx left for China in 2008, it had earned almost nothing. In the meantime, the SBMA’s debt servicing requirements for the airport amount to P150 million a year, he said.
Asked how the SBMA was able to survive if it had been racking up billions of pesos in losses in previous years, Garcia said that out of the P1.2-billion loss last year, about P700 million was depreciation charge.
“So if you remove that, we’re just about break even. However, the 10-year grace period for the P10-billion loan ended last year. So if you were break even last year, then how are you going to pay for the amortization and municipal services this year?” he said.
To ensure that the SBMA will not default on the loans and continue to provide services to locators and residents of the free port, Garcia said the SBMA must take on more debts and turn to its locators to generate income.
“We have to make a substantial loan from a local government bank and (look for) several revenue generating measures,” he said.
While he was almost certain of acquiring the necessary bridge loan, he said SBMA must still come up with several revenue-generating measures.
Among these is the imposition of what the agency calls the common use service area (Cusa) fee from every locator and resident of the freeport.
Under the Cusa scheme, the SBMA will charge locators and residents for the municipal services it provides, including law enforcement, fire protection, and street cleaning and maintenance.
Garcia said the Cusa fee was not a new tax but a “cost recovery mechanism.” “It’s a payment for common services and common area usage, which was subsidized by the SBMA for 20 years. It’s time to pay,” he said.
The planned imposition of Cusa is anchored on Republic Act No. 7227 (Bases Conversion and Development Act of 1992), which empowers SBMA to “undertake and regulate the establishment, operation and maintenance of utilities, other services and infrastructure in the Subic Special Economic Zone and to fix just and reasonable rates, fares, charges and other prices therefore.”
In a June 11 letter to Garcia, Jeff Lin, president of Subic Gateway Park which hosts more than 20 locators, said when locators signed up in the freeport, they thought the costs of doing business would be competitive and the rules stable.
“The propensity of the SBMA to change policies anytime, particularly those which are financially burdensome to locators, will seriously affect its credibility to attract future investments and capability to sustain a healthy and stable business environment in the freeport,” Lin said.
He said the SBMA was supposed to provide an environment conducive to growth, “instead of crippling the locators’ businesses.”
“The seemingly unstoppable changing of policies of the SBMA can be distressful to locators as they have to deal with these issues instead of focusing on their business operations,” Lin said.
Lin said the imposition of the Cusa fee was not in their lease agreements with the SBMA. “This policy, therefore, is another unilateral act of SBMA which would effectively amend the master lease agreement without the consent of Subic Bay Development and Management Corp. (SBDMC).”
As for the SBMA’s suggestion that developers pass on the Cusa fee to their locators, Lin said: “SBDMC cannot simply pass on the Cusa fee to the Subic Gateway locators in the absence of SBDMC’s right or basis under the industrial or commercial lease agreements it entered into with locators.”
Garcia said the SBMA had to resort to this measure because the charter that created the agency is “structurally flawed.”
While the charter says the agency should be self-sustaining, it does not provide for the SBMA’s share in the 5- percent tax that it collects from locators, he said.
Instead, it remits 3 percent of its collection to the government and the remaining 2 percent to local governments around the free port.
This, Garcia said, had resulted in the SBMA not being able to fund capital expenditures or maintenance of infrastructures while it had been subsidizing the cost of services.
“It has come to the point that even the rug in my office is only held together by masking tape,” he said.
But once the plans are implemented, the SBMA’s financial situation will likely improve, Garcia said. “It will give us a breathing space to improve Subic Freeport and make it profitable.”
He said the Cusa fee should have been imposed since the inception of SBMA.
“I’m not pointing to anyone, but the original vision for the Subic Freeport was to turn it into (another) Hong Kong. But it never happened, and everybody forgot that these things have to be paid for. And in times like this, we have to do this (in order for SBMA to survive),” Garcia said.
“Everybody here has to contribute. No exceptions,” Garcia added.
(To be continued)