Wednesday, November 07, 2007

Reforming the PPA, invigorating Mindanao

THE other day, the Mindanao Federation of Shippers Association called on the Philippine Ports Authority (PPA) to speed up the expansion and redevelopment of three major ports in the Mindanao, namely, the ports of Davao, General Santos and Zamboanga City. We support this call, given its tremendous positive impact not only on Mindanao but also on the entire Philippine economy.

There has been a continuing call for spreading the benefits of growth from all sectors. Even the government has been mounting similar objectives. But if our policymakers are serious about this, heeding the Mindanao shippers’ call is one of the surest bets, especially as it came following observations that the volume of cargo traffic in and out of Mindanao cities is on the upsurge. It means economic activities in the country’s second-biggest island are probably improving as well.

It’s probably a better investment than the so-called “national broadband network” which addresses nothing but the desires of lazy government bureaucrats for easy and faster access to Internet porn. Right now, Mindanao serves as the country’s food basket (producing rice, corn, sugar and livestock) as well as a major foreign-exchange generator through the production and export of agricultural and natural resource-based products, including bananas, rubber, pineapples, tuna, coconut products, mangoes, asparagus and other high-value crops. Given bigger and more efficient ports and related infrastructure, Mindanao has the potential of becoming a major growth driver for the country.

Mindanao shippers say since PPA funds are probably not enough to finance the development of these ports, the government might need to tap overseas development assistance, assuming of course that government could ensure transparency. For instance, government could tap funds from the Asian Development Bank, World Bank or the Japan Bank for International Cooperation. We cite these organizations because they seem to be sticklers for transparency and strict good governance rules, thus forcing local-government implementing agencies to behave properly.

Tapping overseas development assistance, of course, has it own limitations. If government couldn’t provide counterpart funding—not only because it doesn’t have money, but also because decision-makers in “Imperial Manila” have different priorities—nothing will happen. The best way to address the problem of funding for port infrastructure, therefore, is reforming the existing policy on port management and development to mobilize private-sector resources. If government can’t generate public money quick and fast, it can at least tweak policy and achieve the same end.

Right now, the country’s ports system—according to Gilbert Llanto, an economist from the Philippine Institute for Development Studies—is dominated by the PPA. A government agency, the PPA serves as the developer, operator, owner and regulator of ports, including those of the private sector. It also regulates cargo handling by awarding contracts to private cargo-handling services, and issues permits for the construction and operation of ports.

And how does the PPA finance its operations? From concession fees from the lease of the South Harbor; port charges such as wharfage, berthing and pilotage; and share of cargo-handling revenues from private cargo-handling operators and port charges of privately operated ports.

In other words, the PPA—according to Llanto—is suffering heavily from conflict of interest, being both owner and regulator. Since it earns money from its own ports, it has no incentive to grant permits for the construction and expansion of privately operated ports that may compete directly with PPA-owned ports. This is why there is practically no competition in the port-operations business. And since the PPA dominates the port business, it doesn’t also have the incentive to move quickly on requests for port upgrading. Mindanao shippers’ requests for upgrading the ports in Davao, General Santos and Zamboanga City have been there more than a decade ago, but the PPA and government in general has been slow to respond.

The PPA also regulates and approves tariff-rate increases in cargo handling and gets a 10-percent share from cargo-handling revenues. It, therefore, has the incentive to approve requests for tariff-rate increases since it’s going earn more money from such increases. No wonder, we have the highest shipping and port-handling costs in the Asia-Pacific region, making a lot of our exporters less competitive in world markets.

Solution? Llanto says there is a need to review and amend the PPA’s charter to separate its regulatory role from its ownership, development and operations functions. The government should consider the establishment of an independent port regulator. The ideal situation should be that the state serves as an enabler while the private sector owns and operates the ports under a competitive policy environment. The entry and exit of the private sector in this business should be wide open and transparent.

Under such an arrangement, the private sector could easily be relied upon to upgrade the ports and expand their operations once they sense there is a growing volume of cargo coming in and out. Their response to market demand would be fairly automatic. That way, shippers from Mindanao or other parts of the country don’t have to beg from PPA overlords once they suffer shipping bottlenecks. (Note: drafted as editorial for BusinessMirror, Nov 8 2007)

Related posts
1. Scandal in Philippine ports
2. Is PPA a fixer for port monopolists?
3. Reaping the whirlwind
4. Marshall Plan for Mindanao
5. Solving the Mindanao problem
6. “Disconnectedness defines danger”
7. Dysfunction in Philippine shipping policy

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