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By Dave L. Llorito, Research Head
Conclusion
Who really made a killing from the toll-crushing
agreement between Liga Magniniyog and Legazpi Oil?
Certainly, neither the small coconut farmers nor
the government, which has yet to collect the P23.7-million
value-added tax due from the deal. Hili Morandarte, president of
Liga, and his partner made a few millions. But the ones who really
made a pile were the copra traders who raked in about P312 million
in profits in just about three months.
Why did this mess happen when the deal was
supposedly for the farmers’ welfare? It’s because, according to
the special investigating committee formed by the board of directors
of the United Coconut Planters Bank (UCPB), the toll-crushing
agreement (TCA) and the memorandum of agreement (MOA) entered into
by Morandarte and Antonio R. Ng, Legoil president, were “mere
pretenses of toll-crushing transactions.”
Industry sources say the deal can be traced to
the proposed “farmers’ trust agreement” in 1998 which was
designed to put idle oil mills of the Coconut Industry Investment
Fund (CIIF) back into operation and give farmers groups the chance
to make money from them. An option considered was a “wet lease
agreement” under which farmers’ groups would lease the idle
mills at a fixed rate and run them to produce coconut oil and other
byproducts.
The mills would need a stable supply of copra
from farmers’ organizations. Many of these groups admit, however,
that they do not know much about copra trading. They have no
experience in running a mill either. So they decided that
partnerships with private management groups would be necessary.
At that time the CIIF management was wary of the
wet lease agreement, fearing that farmers or their designated
managers would run the mills to the limit without observing
maintenance procedures. The negotiations, however, eventually
collapsed when the farmers’ groups, one of them Liga Magniniyog,
could not agree on the sharing of profits with their would-be
private partners. The deal being proffered was a 60-40 sharing
arrangement in favor of farmers’ groups.
Sources said that after the negotiations
collapsed, a certain Willie Chua, who runs coconut-related
businesses and was formerly employed by Legoil, came into the
picture and teamed up with Liga Magniniyog to propose a “toll-
crushing agreement” with Legoil in Arimbay, Bicol. Liga agreed to
the deal because Chua demanded only 10 percent of the profits. By
September 2002 a memorandum of agreement was signed between Hili
Morandarte, representing Liga Magniniyog, and Antonio R. Ng,
representing Legoil.
Good deal for farmers
Supposedly, there are several ways for small
farmers to benefit from the TCA and the MOA. Being “toll
crushers,” farmers’ cooperatives would have higher incomes
because they would be selling to Legaspi Oil crude coconut oil and
copra cake from their own crushed copra at higher margins. This is
especially because Legoil has given them favorable toll fees at P850
a metric ton if they could deliver at least P4,000 a metric ton.
This is a huge concession, since the prevailing market rate is
P1,000 per metric ton. The toll fee would be reduced further to only
P650 a metric ton if the farmers’ cooperatives could deliver 6,500
metric tons or higher. Furthermore, farmers’ organizations would
easily have money for consolidating copra stocks from their members
because the TCA allowed them to have interest-free “cash
advance” from Legoil equivalent to 80 percent of the value of
their copra based on prevailing mill-gate prices.
This is radically different from the traditional
practice in which traders buy copra from farmers at lower farm-gate
prices, consolidate the copra stocks into large volumes and deliver
the required volume to the mill. Traders get their money from the
differences in mill-gate and farm-gate prices, factoring in their
transport and trading costs.
Under the TCA, farmers or their cooperatives own
the copra delivered to the mill and also the output, crude coconut
oil and copra cake, which they could sell within 30 days or more,
depending on the trends in prices. They store their stocks of
coconut oil and copra cake in Legoil mills, free of storage fee for
30 days, until prices are attractive enough for them to sell the
stocks. So it’s a win-win situation for both farmers and Legoil.
Farmers or their organizations will have higher incomes while
Legoil’s Arimbay plant will again be back in business after a long
shutdown for lack of reliable supply of copra. Before to the TCA,
the Legoil Arimbay plant had been losing P1.5 million a month for
being idle.
Hijacked by traders
But it turned out to be a win-win situation for
traders. Sources within the coconut industry are now raising the
possibility that some parties may have conspired to make huge sums
at the expense of the poor coconut farmers.
The TCA and MOA between Liga Magniniyog and
Legoil actually allowed Liga to accredit copra traders to supply
some of the copra required by the Legoil Arimbay plant. But they
were shocked to learn that in just three months (October to December
2002) after the September 2002 signing, only two people—Nestor
Tanzo, a copra trader from Camarines Norte and Panfilo Go, another
big copra trader from Leyte—delivered copra equivalent to 20,000
MT. There was nothing at all from the farmers as originally
envisioned.
Being “accredited suppliers” of Liga, Tanzo
and Go were also demanding interest-free cash advances from Legoil,
equivalent to 80 percent of the value of their copra delivered at
mill-gate prices. For that volume of copra delivered, they were able
to advance almost P300 million. The same group of traders now had
the privilege of storing their stocks of crude coconut oil and copra
free of charge for 30 days.
In effect, the Legoil ended up subsidizing the
operations of copra traders. These privileges were supposedly
intended to shore up the operations of Liga. With all these
privileges, one CIIF official estimated that traders as a whole
could have earned at least P312 million within three months of the
TCA!
These traders—who because of their deal with
Morandarte became toll crushers—made money by buying copra at
farm-gate prices and by selling them as coconut oil and copra cake
to Legoil, thus giving them higher margins that were unimaginable
when they were still purely copra traders.
CIIF investigations later showed that Liga—or
Morandarte and company— was actually working with Willie Chua,
Liga’s consultant, who developed an elaborate network of copra
traders to source out copra from Southern Tagalog and the Visayas.
This copra network includes Nestor Tanzo, Gary Cheng and Panfilo Go.
Using the TCA and the copra trading network,
Morandarte was able to get an interest-free cash advance of P1
million from Legoil. Morandarte and company also made P7.1 million
as their brokerage fee from the delivery of the P20,000 MT of copra.
That amount should have accrued to Liga, but it indeed up with the
Coco Invest Company, a private partnership between Morandarte and Al
Lopez, a former official of the Philippine Coconut Authority. Up to
now that amount has not been properly audited.
How did Morandarte and company earn the
P7.1-million commissions? Simple: Legoil charged Nestor Tanzo and
Panfilo Go P1,000 per MT of copra crushed at the mill. In return,
Legoil remitted the P350 a MT to Liga as commission. This in effect
transformed Liga Magniniyog into a broker.
This development appears to be a deviation from
the TCA or MOA which directs Liga to pay the toll fees for its copra
brought to the Legoil mill. What was envisioned was for Liga or its
member cooperatives to earn money only from the sale of its coconut
oil and copra cake. As it turned out, Liga made its money by acting
as a broker between copra traders and Legoil. In return, Legoil has
become a collector of commissions for Liga.
Did Legoil lose money? Sources within the CIIF
said that in just three months Legoil actually made P10.112
million from copra traders Nestor Tanzo and Panfilo Go. The source
noted that Legoil could have earned a lot more if it charged for the
storage fees.
Who are the losers? Definitely the farmers, who
appeared to have delivered not a single kilogram of copra to Legoil.
And neither the government, because, according to CIIF sources, the
total amount paid to Nestor Tanzo for the initial 10,700 MT of crude
coconut oil sold to Legoil at 24.5 a kilogram in December 2002
included P23.7 million in VAT that Tanzo should have remitted to the
Bureau of Internal Revenue. Since March 20, 2003, Tanzo has not
submitted to Legoil proof of the accumulated remittance to the BIR.
TCA is a traders’ game
Industry sources belied the claim that small
farmers had benefited from the TCA through high copra prices. They
explained that traders could never accumulate 20,000 MT of copra in
just two or three months.
“This means that the traders have been
accumulating those stocks of copra for months before the signing of
the TCA and MOA,” one source explained. “Naka-umang na yung
stocks … for them to deliver after the signing. It was
deliberately planned.”
This also means that traders have bought the
bulk of the 20,000 MT of copra at cheaper farm-gate prices.
“In the first place, most of the coconut
farmers are poor, and depend on copra traders to finance their
production costs,” an industry source said. “Naturally, indebted
farmers could not command high prices for their copra.”
In an honest-to-goodness toll-crushing
arrangement, farmers’ cooperatives own the copra and the output
(crude coconut oil and copra cake) that are stored in the oil mill.
They would make money only after the coconut oil is sold. Selling it
may take several weeks or months, since the cooperatives may have to
wait for favorable prices before unloading their stocks. In reality,
most of the coconut producers are small farmers, farm workers or
tenants who can’t afford to wait for months to get their money.
The toll-crushing agreement, therefore, can work
well only if farmers have other sources of income besides coconuts.
Or their cooperatives should be financially strong enough to engage
in a trading game on their behalf. But developing that capability,
UCPB sources said, takes a lot of time.
“A toll-crushing arrangement, therefore, is a
traders’ game,” a source from UCPB told The Manila Times.
“It’s not a farmers’ game.”
Unanswered questions
But why did the TCA and the MOA push through
despite the weaknesses of the deal?
The results of the Special CIIF Investigation
Committee organized by the board of directors of UCPB, shows that
both Antonio R. Ng, Legoil president and chief executive officer,
and Hili O. Morandarte, president of Liga Magniniyog, and
government-designated member of the Legoil board, “executed the
agreements without authorization from the board of directors of
Legoil and the board of trustees of Liga which they represent.”
“In fact, neither Mr. Ng nor Mr. Morandarte sought their
respective board’s prior consent,” says the committee report.
Why? It’s a big puzzle even to UCPB officials.
The UCPB, which manages the CIIF, has looked
into the issue twice. But so far the reports have failed to answer
other lingering questions: Who is Willie Chua and what was his role
in the entire scheme? What is his relationship with Ng and traders
like Nestor Tanzo, Gary Cheng and Panfilo Go?
Part 1
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