SPECIAL REPORT

‘Conflict of interest’ raises need to sell casinos

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First of two parts

A GLARING conflict of interest in the operations of the Philippine Amusement and Gaming Corp. (Pagcor) has opened the possibility of privatizing casinos owned by state gaming agency, which for years has been functioning both as regulator and operator of casinos.

The sale of casinos operated by Pagcor, a wholly owned government corporation formed in 1977 by a Marcos presidential decree, could earn billions of pesos for the Duterte administration.

Pagcor, the government’s third largest source of revenues and operator of 11 “Casino Filipino” branches nationwide, recorded P32.7 billion in assets as of June 30, and just P18.1 billion in liabilities.


Pagcor has begun a study on the possible sale of more than 40 “productive assets,” said Maricar Bautista, assistant vice president for corporate communications.

But the study could take some time given the need to conduct a valuation of Pagcor’s assets, she said in an interview.

San Miguel Corp. President Ramon Ang offered to buy Pagcor for $10 billion in 2010 during the Aquino administration, but the Department of Finance deemed the offer “too cheap” and said it was not in a hurry to sell.

The new Duterte administration however is keen to undertake the sale of Pagcor casinos.

In August, Pagcor chief Andrea Domingo told a budget hearing at the House of Representatives her agency was preparing for the privatization process, following a directive from Finance Secretary Carlos Dominguez 3rd.

“We are now preparing the template for the planned privatization so we could maximize the benefits for the government,” Domingo told lawmakers.

Dominguez earlier told reporters at the sidelines of House budget hearings government agencies like Pagcor should be purely regulatory.

“We believe that government should only be in regulatory functions and not in commercial functions,” he said.

Nobody watching?
In previous years, billions in Pagcor revenues and earmarks for charitable activities mitigated against the sale of government casinos.

In 2015, Pagcor collected P47.2 billion in revenues, up P7.2 billion from the previous year. Out of this amount, P22.8 billion went to the government as “contributions,” an increase of P6.7 billion from 2014. Net profit reached P3.8 billion.

The recent money-laundering scandal involving the theft of $81 million in reserves of the Bangladeshi central bank, which were diverted to local casinos, has raised the need for tighter regulation of the industry.

Senator Sherwin Gatchalian, whose family owns the Waterfront hotels in Manila and Cebu that house Pagcor casinos, said practically nobody was watching the state agency’s operations.

“The casino there (Waterfront) is purely owned, purely operated, and purely regulated by Pagcor. In their casinos there are a lot of inefficiencies, a lot of question marks,” he told The Manila Times in an interview.

“We don’t know what kinds of people play there. For example, a government official comes in or money laundering is happening, we can’t detect that because Pagcor is the one operating it and Pagcor is the one regulating it,” he explained.

Gatchalian clarified that he was not seeking the privatization of Pagcor itself, but the “privatization of the gaming industry and strengthening the regulatory power of the government.”

In recent years, Pagcor’s operations has become even more high-profile with the opening of Pagcor Entertainment City at the Manila Bay Reclamation Area, in which two large integrated resort-casinos, Solaire and City of Dreams, were issued casino licenses by the state agency.

Two more casinos are set to open at Entertainment City – Okada Manila and Resorts World Bayshore.

Technically, Pagcor casinos are in competition with these large private sector players.

Gatchalian said casino operations and regulations should be separated, and handled by two different entities.

“The current situation right now is Pagcor is the operator and the regulator. So you’re the one guarding it but you’re also running it. So who’s guarding the operations at the beginning? It should be separate. The regulator should be purely government, the operator should be purely private,” Gatchalian said.

Macau example
Gatchalian said his stance was inspired by Macau’s strict regulations in its gaming industry.

“Macau government concentrated purely on regulating and developing the gaming industry. When you regulate, you have to make sure you also couple it with development. You can’t just squeeze the industry. You have to make sure it’s balanced, to allow it to grow. So you also develop it. So that’s why Macau now is Macau,” he said.

Boosting tourism should also be the goal of the gaming industry.

“The regulator has to make sure it’s not only promoting gaming but also tourism, the end goal here should be to promote a holistic tourism strategy … You also have family attractions,” the neophyte senator said.

House bill
A bill splitting Pagcor’s regulatory and commercial functions was filed in August by Bagong Henerasyon party-list Rep. Bernadette Herrera-Dy.

House Bill (HB) 2265, which seeks to establish the Philippine Amusement and Gaming Commission or Pagcom, has been referred to the House Committee on Government Reorganization.

The bill has the support of key members of the House party-list bloc, with four party-list members listed as co-authors, namely 1-Pacman Rep. Michael Romero, SBP Rep. Ricardo Belmonte, and Buhay Rep. Jose Atienza.

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