The PNCC’s Legacy of Debt

by GEMMA B. BAGAYAUA, abs-cbnNEWS.com/Newsbreak

Posted at Jan 13 2009 12:15 PM | Updated as of Jan 14 2009 01:57 AM

Initially known as the Construction Development Corporation of the Philippines (CDCP), the Philippine National Construction Company (PNCC) was one of the many private companies which were favored by the late dictator Ferdinand Marcos.

A presidential decree issued in 1977 granted it the franchise to build all tollways from Lucena, Quezon to Carmen, Pangasinan, making it a virtual tollways monopoly in Luzon. Through his links with the dictator, company president Rodolfo Cuenca was able to borrow heavily from government financial institutions (GFIs) in behalf of CDCP and obtain from them letters of guarantee for further borrowings from other foreign creditors in order to finance various overseas projects.

When the company’s overseas projects sustained heavy losses as a result of war in the Middle East, Marcos came to the rescue once more by issuing a series of Letters of Instructions issued in 1983 which forced government financial institutions to convert their receivables from the company into equity.

The GFIs—the Philippine National Bank, Philguarantee, the National Development Corporation (NDC) and the Development Bank of the Philippines, complied with the order. But the sums the company owed them were so huge they greatly exceeded the Single Borrower Limit set by Central Bank regulations. Thus, only a portion of the liabilities were actually converted into equity in CDCP. A substantial portion of the company’s debts remained outstanding.

Even then, the amounts converted already resulted in the GFIs having a 76 percent stake in the company. The company subsequently acquired a new name (PNCC) and new status as a government controlled corporation. (Click here to view the list of the company’s current stockholders).

In 1986 and 1987, the GFI’s stake and receivables in PNCC were turned over to the Asset Privatization Trust (APT), which was created in 1986 in line with an effort to clean up the books of financial institutions of non-performing assets and prepare various government corporations for privatization.

Debt-ridden

At the time of the turn-over, total GFI assets in PNCC that were turned over to the APT amounted to P7.746 billion. This included receivables amounting to 7.117 billion and equity valued at P629.23 million. (Click here to get the breakdown of GFI assets and liabilities in relation to the PNCC at the time they were transferred to the APT. )

The PNCC refuses to carry this amount in its books despite having been admonished by the Commission on Audit (COA) repeatedly over this matter. Instead of recording the GFI accounts as obligations that continually incur interests and penalties, it has been recording them in its books under the heading of “Equity Adjustments Under Rehabilitation Plan.” In the Audit Certificate it issued for the year ended December 31, 2000, the Commission on Audit (COA) pointed out that this practice has resulted in “the understatement of liabilities and overstatement of stockholders’ equity” in the company’s balance sheet.

To date, the figure reflected in the PNCC books under this item has remained stagnant at P5.45 billion. (Click here to view the company’s audited financial statement for fiscal year ended December 2005.) But in the records of the Privatization Management Office (PMO), which took over the tasks and functions of the APT, this amount, including interest and penalties, has already ballooned to P41.39 billion as of December 31, 2002. 

Government regulations dictate that interest on these accounts will continue to accrue until the government’s interest in the company has already been fully privatized, an official of the PMO who is privy to these matters told NEWSBREAK.

Tax Payer’s Burden

On top of these amounts, the Bureau of Treasury also absorbed a total of P3.4 billion in contingent liabilities arising from the guarantees extended by the same GFIs to the CDCP (now PNCC) for loans it obtained from other foreign and local creditors.

The treasury continues to service some of these PNCC debts to date, according to Bureau officials interviewed by NEWSBREAK. The Bureau accordingly bills the PNCC every time it makes these advances. As of August 2006, the Bureau has already advanced at least P2.5 billion in payment for PNCC obligations.

Despite the income it gets from tollway operations, the company is so mired in other debts that it has failed to pay the Toll Regulatory Board (TRB) concession fees for 19 years.  As of 2006, this deficiency has already ballooned to P2.976 billion.

The company has not been paying taxes as well because it has been in the red all these years.

Lenient Terms

All combined, the PNCC’s obligations to national government now amounts to around P50 billion—almost half the annual budget of the Department of Education.

Still, months after the company agreed to cede all its hard assets to Radstock in a P6 billion compromise settlement, the Bureau of Treasury and the PMO—the government’s trustee for all the GFI receivables from PNCC—have yet to file any intervention in court.

While the company ceded a substantial portion of its assets to another creditor, the Treasury appeared only too willing to give the company lenient terms.

On August 22, 2007, PNCC President and Chief Executive Officer Ma. Theresa Defensor (sister of senatorial candidate Michael Defensor) sent National Treasurer Omar Cruz a letter offering to settle almost P5.6 billion in obligations to the treasury over a 25 year period.

The proposal, according to Defensor, “shall rank pari passu with terms proposed to the Philippine National Bank (PNB) at the ratio of ten (for the treasury) and one for PNB.”

Defensor said the proposal, which failed to mention the compromise agreement just concluded with the PNCC, is in accordance with the PNCC Cash Flow projection embodied in the company’s strategic plan.

Nothing was said of the agreement with Radstock. Neither was there any mention on how the company plans to pay its obligations to the GFIs which are held in trust by the PMO. – with research assistance from Aileen Clemente and Rey Santos