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Having previously been involved in a foreign chamber of commerce in
the Philippines, and also being involved with Epira in my working
life, it is difficult to resist commenting on the recent happenings
in the Philippine Senate which tie these two matters together.
I have, over the last few years, spent quite
some effort in trying to raise the profile of the Philippines as a
viable destination for foreign direct investment because I think
that this is what will most benefit the Filipino people; it creates
jobs, it introduces new money to the economy, and, in some cases,
saves on the need for importation. The Philippines would benefit
from foreign direct investment, wouldn’t it? Against this, there
are nationality and sovereignty issues, to do business here is by
definition to do business by the rules of the host nation; this is
the case in all countries.
Foreign business associations as represented in
this case by the Joint Foreign Chambers of Commerce have a right to
make suggestions to the government on changes to legislation, which
in their opinion would improve the business environment in which
their members operate; but they cannot expect them always to be
acceded to. This right should be sensitively used, and rather more
to change the environment for newcomers than to amend business
conditions in which investment decisions have already been made. If,
however, a foreign company has already decided to invest in a
certain regulatory environment and there is a likelihood that new
legislation will be enacted which will be detrimental to the
investment, then better that investors challenge rather than just
“walk away” (if they can afford to, and as they did in the
Indonesian power sector).
Epira is not perfect, and I have commented
before that it is probably too advanced in its privatization
concepts for a country at the stage of development of the
Philippines. Take-or-pay contracts are harsh ways of dealing with
things, albeit they may be a critically necessary justification for
making major investment decisions. I saw it suggested the other day
that revenues from Malampaya gas should be subjected to a windfall
profits tax, given the linkage of the gas price escalation formula
to coal and oil prices—this is the other side of the coin where a
foreign investor has indeed been lucky in agreeing an escalation
formula which has paid better than planned dividends. Should these
be subjected to an extra tax, for the benefit of the Filipino
people, or is it an acceptable extra return to shareholders?
Most international contracts involving major
foreign investment contain provisions in the case of major economic
changes or disruption to the national business environment in which
the investment decision was made, and allow for recompense to the
investor if these changes are detrimental. These are contract
administration issues, not necessarily things on which you engage
the president of the nation. Forced sequestration of assets or
nationalization is another matter (as happened to the international
oil companies in Venezuela) and deserves more high-level
attention—on things like that it may be right to engage the
legislature.
In the Philippines, access by foreign investors
to senior members of the government is much easier than it would be
in most other places. It is hard to imagine a group of foreign
business associations being granted an audience by the House of
Commons in Britain or even by the Prime Minister to air their views
on potential changes in legislation.
It is the role of the Philippines legislature to
determine the business rules for foreign (and domestic) investors in
the Philippines, and it is incumbent on foreign investors to analyze
properly before making an investment decision and take their
business risks—some you win, some you lose, that’s business. It
should only be in extreme circumstances that you seek as a body, to
engage the legislature. Are potential changes to EPIRA extreme
circumstances? I think not . . . but then again, neither do we want
to be scaring away the potential foreign direct investment so
important to the Philippines.
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Mike can be contacted at mawootton@gmail.com
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