Meddling In A Family Affair

It just got down and dirty.

The President launched the first salvo accusing a “presidential aspirant” of being a cocaine user, a weak son of a strongman with no accomplishments nor substance but his name. 

 “Who, me?” was the Marcos camp response to the accusation. “BBM does not feel alluded to” said his spokesman Vic Rodriguez which makes him the only one of 107 million Filipinos not to think so. This is the definition of an alternative reality. It is also the definition of whistling in the dark.

D30 is furious at Marcos. In his mind BBM & Co. “seduced” his one and only adult daughter, the heir to his legacy and franchise; with sweet little nothings to abandon a Presidential run which was hers to lose. Now she is not even assured of the VPship against a popular Tito Sotto. Understand this was a woman whom the father built up politically, whose name she carries and without whom she would not be who she is. She was his protection against the ICC and whatever else awaits him after May 2022. In one swoop BBM took all that away from him.

Sara had originally filed to run as Davao Mayor. The President believes Sara would not have gone to the dark side without significant prodding from malicious forces. Worse, the plot was hatched in the dead of night without prior notice to nor consent from the father. D30 had always a soft spot for BBM, had often called him deserving of the Presidency, was seen almost as a big brother or an uncle. This was a betrayal of trust. It was a brazen affront to his persona and the President does not like to be affronted.

The President was shamed and disrespected – the elements he is most sensitive to – not only publicly but to his peers and his people. He fancies himself as seeing and knowing all things political in this country. Now he is viewed as having been upended by an upstart and lesser being, as having lost control of his family, of having everything he built and cherish stolen from him behind his back. People have been killed or incarcerated for much less than this.

BBM is facing disqualification charges at the COMELEC for failure to file income taxes many years ago. The COMELEC is composed of seven Commissioners four of whom were appointed by D30 and the other three to be so by Feb. 2022. The COMELEC has recently allowed BBM some leeway when it controversially extended the deadline to file his defense even if the period for doing so had expired. One wonders if this was just a way for the body to display its impartiality before dropping the axe. BBM could appeal the COMELEC decision to a Duterte dominated Supreme Court at which point things could get messy. The COMELEC has to start printing its ballots by December which leaves little time to retain or erase BBM from the roster.

Life would be simpler for the President if BBM was not present. It would improve the chances of Bong Go by not splitting the Administration vote. It would mean D30 would not have to be hostage to a BBM presidency should the latter win.

What are possible scenarios?

One, the COMELEC does not disqualify BBM and the race is on.

Two, the COMELEC disqualifies him and the matter is appealed.

Three, the COMELEC does not disqualify him, the President keeps the heat on and BBM decides to fold.

Four, the COMELEC does not disqualify BBM, the latter’s poll numbers continue to hold and Bong Go’s to stagnate; prompting the President to reach out. Absent Bong Go BBM is arguably still D30’s best bet for future political cover. BBM will probably honor his word. 

Five, BBM is disqualified, Bong Go continues to tread water requiring D30 to approach say Isko for an arrangement in exchange for the President’s support. Isko has always maintained an open-door policy so that might work even if it is a stretch.

Six, BBM is disqualified or withdraws and Sara joins up with Isko or Manny to spite her Dad.

Seven, Sara withdraws to dial down the tension but the damage would have been done.

Eight, BBM is disqualified but replaced by Imee. Under Sec. 77 of the Election Code someone who is disqualified can be replaced by another candidate from the same party even after Nov.15 provided they have the same name. BBM filed under Partido Federal Ng Pilipinas (PFP), Imee is under Villar’s Nationalista party but she could change affiliation to PFP. I doubt Imee would jump in.

The Presidential fury is not only directed at BBM. Sara is running under GMA’s Lakas party which, in D30’s mind, could mean GMA is part of the conspiracy. Whether this then takes on a life of its own is interesting.

The non-Administration candidates are delighted at the unraveling of events. A disqualification of BBM would throw the race wide open. Bong Go would become more competitive but he is an easier target than BBM. Sara’s base could partly spill over to Isko and Manny.

The ground under the presidential race is still shifting. The critical factors to watch are the COMELEC decision on BBM, the latter’s reaction to an unfavorable ruling, Bong Go’s poll numbers with and without BBM, how aggressively the President will take on BBM and how the latter stands up to it; and how the “opposition” candidates react individually and collectively to the changes.

The Marcos/GMA team may rue the day they persuaded Sara to join their cause. BBM was polling well and looked a likely winner even without Sara. On boarding Sara as a junior partner, especially the manner in which it was done, was a public slap on the President’s face something he does not take lightly.

The President is upset with BBM & Co. for barging in and exploiting what was a family affair. Will he pursue the drug charge or is this just a warning shot across BBM’s bow? Let us see how far his anger takes him.

The One That Got Away

The world of President Duterte just unravelled.

His head strong daughter filed over the weekend for Vice-President under the Lakas-CMD party of GMA. She will run with BBM as President. 

The original ticket was supposed to be Sara-BBM. At first BBM seemed prepared to be VP but raised his sights when Sara opted to run for Davao Mayor. After seeing his positive poll numbers (up to 68% in some surveys) and as I had written he might, he got used to the idea he could be president and dug his heels in.

D30 was blindsided by the announcement. He does not understand why Sara would give up the top slot when the race was hers to lose. She was polling eight points above everybody else. In a fit of anger he commanded a reluctant Bong Go to file for President and threatened to run with him for VP but it may be too little too late.

Rep. Joey Salceda, a Sara confidant, unequivocally confirmed, one, Sara has always wanted to be President but did not file for such because of “complications with her Dad” and, two, the VPship “was not an option for Sara”. Joey even presented Sara with a 15 point economic plan to launch her presidential campaign. So much for that. 

The losers and winners in this sudden turn of events are:

I. The Losers

A. Sara –

After all the drama about her candidacy Sara is now seen to have never had a real vision for the Presidency. In accepting the second slot she said she was going “half way” to please her supporters not understanding that being half pregnant does not count. Perhaps she was not sure she could carry off being President and needed time to learn the job.

  Sara is not a slam dunk for VP. She will be competing against Tito Sotto who is polling even better than her Dad for that position. Her followers could be disappointed with her decision with some dispersing to Isko or Manny for the presidential race.

Sara may have given in to BBM out of delicadeza to her friend Imee. She may also believe she could not win without her Dad’s support. D30 may have told her he would not back her presidential run unless she provided political cover for his buddies which she was not prepared to do.

The Marcos’ undoubtedly promised to back Sara in 2028. Some have speculated at a power sharing arrangement with BBM until then but I doubt he would agree. Sara is also not politically aggressive enough to have asked for it.

Sara’s move could be a knee jerk reaction to her father’s overbearing manner but if it is and she gave up an opportunity to lead the country just for that; suggests she is not be ready for the presidency.

B. The President –

The President is, if you believe the reports, fit to be tied. He prides himself as the political maestro who sees everything. Not this one so it was a public shaming which is why it hurts. All his scenarios did not include his daughter being the junior partner to BBM. The latter can probably be trusted to protect him against the International Criminal Court and the likes but that does not necessarily go for his team. Sara may even have extracted from BBM as a condition for their partnership that the President’s groupies including DOH Sec. Duque,  Energy Sec. Cusi and even Bong Go; not be spared from criminal investigations.

The President has few viable options. He must know Bong Go is not electable even with the President’s endorsement, his power over the COMELEC (all seven of whom by Feb. 2022 will have been appointed by him) and the dirty tricks at his disposal. He himself is not a shoo-in for VP given how popular Tito Sotto has turned out to be and how he will be splitting the vote with his daughter. Two Dutertes on the ballot will confuse many. That would leave PPRD with no #1 and 2 draft picks for Malacanang that he can fully count on. 

With the President’s blessing the COMELEC may still throw out BBM’s candidacy for the latter’s failure to file his income tax long ago. However that would leave D30 with no electable ally for President. In that eventuality the President might even have a quiet conversation with say Isko on some future arrangements. Stranger things have happened in this election and it is still not over. Even after Nov. 15 there is ample time for horse trading, candidates opting or being bought out; and the candidates’ skeletons brought out in public.

C. GMA

GMA would arguably have been better off in a Sara rather than a BBM presidency. GMA was reportedly forging a Sara-BBM ticket but may now have to settle for a smaller role in a BBM Administration particularly as Marcos gets confident in the position. GMA was allegedly eyeing the House Speakership and she may get it initially if only in name because of friendship and services rendered. However over the longer term BBM will probably hand that post to his cousin, Martin Romualdez, who is President of Lakas and on good terms with GMA.

II. The Winners

A. The Opposition

The opposition must be delighted with the turn of events. Sara is out as President. BBM may not be fully embraced by the Duterte base. BBM is still the leading contender but may have to deal with the ambivalence of D30 who now is labeling BBM, whom he often said deserved to be President, a “Communist”. But again that could just be posturing.

Among the opposition candidates Isko has the most to gain from any implosion of the Duterte base. Manny may reap some of the benefits but he will not know what to do with it. Leni, Duterte’s nemesis, will get none of the fallout. Still, the defections will not be enough to defeat BBM given a divided opposition.

B. BBM

BBM has pulled off a coup. However his candidacy is still not secure if the COMELEC disqualifies him or the President decides to take him on. On the other hand BBM is still the “friendliest” among the leading candidates so when the anger settles PPRD could well just arrive at an “entente cordiale (friendly understanding)” with him rather than lose all the marbles.

C. The President’s Men

They are relieved. Sara as President would have been gunning for them, BBM not.

The Sara affair is being termed a family feud but that is oversimplifying it. Sara has always said it is not personal with her Dad, it is just business. In truth my sources tell me the fight is not between Sara and her Dad as it is between Sara and Bong Go. She – and even her brothers – resent him for being PPRD’s self proclaimed gate keeper. D30 got dragged into the fray because of his insistence to impose Bong Go on her.

Ultimately this is a story of an authoritarian father trying to bend the will of a defiant daughter. It was a conversation gone bad complicated by family baggage. D30 may have overplayed his hand. He did not believe Sara would call his bluff. The result is, I think, a BBM presidency.

Behind The Curve, As Usual

This is not an article about crypto currencies but I will start with it. 

Warren Buffet and Charlie Munger, the world renowned investment gurus, have called cryptos a fraud. Incidentally their fund, Berkshire, did not buy into Apple until 25 years later and is now its biggest holding. They also missed out on Amazon.

Jamie Dimon, CEO of JP Morgan, the premier U.S. bank, has called Bitcoin useless even as he admits his bank has had to offer crypto services to clients because of the overwhelming demand. There are now 220 million crypto holders worldwide growing at 113% annually, twice the adoption rate of the internet at the same stage of development.

Gary Gensler, the U.S. SEC Chair, has said crypto is the “Wild West” yet Americans, especially the Millenials, are buying cryptos in droves through publicly listed exchanges, PayPal and Square. Europe, Canada, Japan and recently Australia approved crypto investment vehicles. Singapore announced it wants to be the crypto capital of the world adding thousands of jobs in decentralized applications that will sit on the Bitcoin and Ethereum platforms. Apple’s App Store is valued at over half a trillion dollars. El Salvador has approved Bitcoin as legal tender.

I mention all this not as a reflection on cryptos but as a commentary on how political and business leaders, even the Brahmins of industry, can get so embedded in their cocoons they fail to see the future even as it passes before them.

This is no more evident than in our country. Our leaders are always behind the curve but they do not know it. We are second to worst in reading, math and science; among the lowest in productivity and business competitiveness, the first to lock down from COVID, the last to emerge and yet the worst in COVID safety; and the slowest to recover economically.

We always seek the path of least resistance. Our so called miracle economic growth of the last decade was founded on low lying fruit – urban centric real estate development, retail services, banking – and protectionist measures rather than infrastructure, rural development, education and knowledge skills. As a result we lag behind the world in key metrics like inequality of wealth, absolute poverty, urban congestion, depletion of our natural resources and air and water quality.

We are slow to innovate. In a digital world our Government data base is analogue. As a result we are unable to target the poor for aid, deliver services and collect taxes efficiently. Government officials like it that way, it allows for corruption.

In banking our Asian neighbors are all in on technology and consumer experience. China is issuing  a yuan digital currency. India’s Supreme Court overturned a law banning banks from offering crypto services. Singapore is overhauling its laws and regulations on cryptos.

Our banks fear that financial technology – “fintech” – will disrupt their franchises, their branch networks, and cannibalize their lucrative remittance and credit businesses not realizing others will eventually do that to them. In China payment platforms like WeChat and AliPay have replaced credit cards and expensive money transfers as the protocols of choice. Decentralized finance where businesses and individuals can borrow and lend cheaply, safely and quickly among themselves is replacing financial institutions. Is it not strange that in the Philippines the fastest growing money remittance platforms, G Cash and Pay Maya, are owned not by banks but by telcos? Our bankers do not realize the train has left the station so they can either get on board or see their business disappear.

The BSP and AMLA prohibit bank clients from remitting funds to crypto exchanges because they simplistically believe this will curb illegal activity. The Monetary Authority of Singapore, the bastion of governance, freely allow it. We see cryptos as a menace, Singapore sees it as an opportunity.

The BSP is central to the policy inertia. It is afraid it will lose control of its powers as financial transactions go online and decentralized. Last year I wrote that if the BSP invested just one tenth of its dollar reserves in crypto, we might be able to wipe out our foreign debt in 3-5 years. It was probably a stupid idea then but that stupid idea would today be called visionary because since then Bitcoin jumped 3x in price and Ethereum, the second largest crypto, rose 10x. My point is not that the BSP should have bought crypto but that it never even asked itself why not. 

The BSP was afraid the IMF would look askance at us even if Bitcoin and Ethereum already have market valuations of $1.5 trillion and $500 billion respectively and institutions and sovereign wealth funds are looking to invest.  Today, the IMF is processing a loan to El Salvador notwithstanding the country accepts Bitcoin as legal tender. We are afraid of our shadow. Elon Musk, Jeff Bezos, Bill Gates, Steve Jobs and Singapore did not become successful by catering to the consensus and not challenging the norm.

In industry rather than educate ourselves on how we can compete internationally, we erect protective and nationalist barriers and so in an era of globalization we do not know how to react.

In education when we are unclear how to handle face-to-face classes, we just ban classes altogether.

When our leaders do not understand an issue be it COVID, cryptos, education or international trade they simply lock it down, ban it or ignore it hoping the problem will go away which it won’t.

We see the same narrow mindedness in our politics. The opposition all believe the existential threat to our nation is Duterteism in all its forms; that they cannot overthrow the current regime without banding together; yet even the most honest, intelligent and patriotic among them cannot see their way to joining forces.

Our problem is not only ignorance and selfishness. Ours is a failure of vision, an unwillingness to take risks, a fear of change and the disruption of vested interests. We do not appreciate that technology is the great income equalizer. Innovation favors the ordinary folk. It makes for cheaper OFW remittances, faster and more inexpensive credit and access for the unbanked. The internet allows small businesses to secure information so they can compete with the bigger boys in sourcing raw materials, serving demand and identifying new markets. 

Our country needs quantum changes. With a population growing at 2% and the rich taking up over 70% of income, our much touted economic growth of 4-5% will not bring our people out of misery. We will make mistakes along the way but we cannot even start on this journey if we continue to think small and narrow, if we refuse to understand and manage our problems rather than lock them down, ban them or over regulate them, if we do not accept that change is coming faster than we think, if we are not afraid of uncertainty, are not prepared to be bold and embrace big ideas.

The biggest problem in our country – other than corruption – is not our incompetence it is our frame of mind. 

The Mother Of All Crony Deals?

If it walks like a duck and talks like a duck it must be a duck.

This sums up the purchase by Udenna of the Malampaya gas field. Udenna is owned by Dennis Uy, an entrepreneur associated with the President and Mainland China.

Malampaya is a strategically important gas field that supplies some 40% of the energy requirements of Luzon. It was owned 45% by Chevron, 45% by Shell with a 10% carried interest by the Philippine National Oil Co-EC. Last year Udenna, through its subsidiary Malampaya Energy XP, bought the stake of Chevron for $565 million and is set to buy the Shell interest for up to $46o million raising its overall ownership in Malampaya to 90%. Under a Shareholders’ Agreement PNOC-EC had a right of first refusal and right to match the Udenna offer; but did not exercise it.

The Udenna deal has been called the mother of all crony deals. In truth the transaction stinks but not for the reasons cited.

DOE Secretary Cusi, Dennis Uy et al. have been sued for graft by concerned citizens citing, one, the sale was disadvantageous to Government depriving the country of some $42 million in annual revenues. 

Two, the Government had the option to buy Malampaya inexpensively. Malampaya is an operating field, the Government could have financed it through loans just as Udenna did.  It could have taken Malampaya public to spread the wealth to Filipino investors.

Three, Malampaya is a strategically important national asset that should not be controlled by one entity, especially not one with close business interests with China. The Mainland already controls our electricity grid, has a foothold in the telecoms sector allegedly with Udenna’s Dito, is a big lender in key infrastructure projects, is an important buyer of our agricultural exports, is said to be deeply entrenched in our political system, and has invaded our islands.  Malampaya is just another step in making the Philippines China’s political and economic vassal.

Let us look at the counter arguments. Sec. Cusi points out the deal was between Chevron, Shell and Udenna all of whom are experienced private companies. Government was not directly involved in the negotiations. He is technically correct.

Two, the Government will not lose whatever revenue it now derives from Malampaya since the sale is between its shareholders with Government’s interest unimpaired. Check.

Three, the Government not exercising its right to buy the Chevron/Shell stakes is not a crime even if it is a huge lost opportunity at a time when the country needs such opportunities.

Four, Udenna will bring in an experienced operator maybe even a Chinese one. Dennis does not invest $1 billion without knowing he needs good management.

In short the arguments cited by the civic petitioners do not seem to rise to the level of graft. Which is not to say the deal is not fraught with mischief. 

The key to the Malampaya deal, where it starts to get murky and scary, lies not in the allegations of the complainants but in the extension of the operating contract. Let me explain.

The current operating contract between Shell/Chevron and Government expires in 2024. Now it takes 5 years, many risks and millions of dollars (Rigs typically cost $100 million each) to explore and develop a gas field. Shell, the operator, has been asking the DOE since 2019 and earlier to extend the contract on the same terms for another 10-15 years to enable it to recoup the investment needed to further develop the field. The DOE has been non-committal. 

With only a few years left in the contract Chevron and Shell therefore decided to sell their stake rather than let it expire. Udenna jumped on this opportunity to buy out Chevron and Shell cheaply. 

Now Udenna would not have paid $1 billion to buy Shell/Chevron with only 2-3 years left in the contract. It must have some assurance from the DOE that the contract would be extended making the transaction very lucrative. Was there a conspiracy between certain officials in the DOE and Udenna in this regard? This is where the plot thickens.

Another thing: The BIR under a previous Administration had assessed the Malampaya consortium P50 billion for unpaid taxes, now over P100 billion with penalties and interest. The consortium filed for arbitration in Singapore and won. However the consortium needed PNOC-EC to file a petition with the Philippine Supreme Court to uphold the Singapore ruling (Shell and Chevron seemingly could not file the petition since they had chosen Singapore jurisdiction in the case). Although a favorable ruling would have benefitted the consortium in which PNOC-EC is a 10% partner, the latter has not done so leaving a tax cloud over the consortium. This may have been another lever to motivate Shell and Chevron to sell.

The questions that might be asked therefore are:

1. Why did  the Government not exercise its right through PNOC-EC to buy or at least retain a controlling interest in Malampaya given the strategic nature of the gas field? The deal could have ben easily financed.
2. Did the Government not exercise its right to allow Udenna to come in on the cheap?
3. Why did the Government not solicit other parties to buy the Chevron/Shell stakes who were more qualified and more geo-politically independent?
4. Did the Government skew the deal in favor of Dennis Uy by not extending the contract with Shell/Chevron?
5. Will the Government now extend the contract with Udenna in place and on what terms?  We have seen instances – reportedly in Saudi Aramco’s “forced” sale of Petron some years back and arguably in the Manila Water deal – where Government induced local and foreign investors to sell their stakes to favored business interests by using its regulatory powers. This behavior will discourage new investment in the country.
6. What is Udenna’s source of financing for the acquisition? Is the Malampaya interest mortgaged and so a Udenna default will effectively transfer ownership of the Philippines’ biggest gas field to lenders who may include Chinese banks and/or a foreign Government with questionable intentions for our country?
7. What is the assurance Udenna will not flip all or part of its Malampaya stake to unfriendly foreign interests? The Legislature might pass a bill that would prevent such machinations.
8. Did DOE officials and higher ups personally benefit from the deal?

Weighing the arguments it is unclear a civil and criminal suit can prosper: One, Udenna, Chevron and Shell are all experienced private entities. The civic petitioners are not party to the sale and therefore have no standing in court nor do they seemingly have a cause of action.

Two, the courts are unlikely to determine whether the DOE acted in concert with Udenna to “motivate” the Sellers to sell by not committing to a contract extension and not filing for a tax ruling in the Supreme Court.

Three, the courts will not opine whether the Government should have solicited other parties who are better qualified. Courts do not typically adjudicate national security issues, that is the responsibility of the Executive and Legislative Branches.

The DOE probably did not violate the letter of the law but did its spirit by allowing a transaction that puts our national security at risk. It failed to take advantage of a commercial opportunity to cheaply buy the Shell/Chevron stakes possibly to pave the way for Udenna. It did not solicit more experienced and independent parties to run the business. The DOE may have conspired to induce the Sellers to sell to the disadvantage of the country and the advantage of a private individual.

The Udenna/Malampaya deal is officially not a duck even if it walks and talks like one. It smells crony but unfortunately in this town cronyism is not illegal.