See - Duterte’s China Deals, Dissected
"x x x.
Duterte’s China Deals, Dissected
Kenneth Cardenas, Philippine Center for Investigative Journalism
Posted at May 08 2017 02:26 PM
(Kenneth Cardenas is a PhD candidate in Geography at York University in Toronto, Canada. To write this piece, he used corporate filings with the SEC’s online database as a starting point, and then cross-referenced names and addresses against news stories, Google maps, and publicly-available corporate profiles, as well as had addition research support from PCIJ.)
"x x x.
These 27 business-to-business deals along with several proposed government-to-government projects cover some US$9 billion in loans and US$15 billion in investment pledges, for everything from power plants, steel mills, and banana plantations to ambitious reclamation projects and inter-island bridge systems. Combined, these are worth five Bataan Nuclear Power Plants, or 66 National Broadband Networks. (Stories from 1986 report the BNPP’s total cost as $2.2 billion; adjusted for inflation, this amounts to $4 billion today. Similarly, stories from 2007 report the NBN-ZTE deals as being worth $329 million, which would be equal to about $378 million today.)
These of course have the potential for immense opportunities for wealth, legitimate or otherwise. Tellingly, our ambassador to China has reassured us that our government has learned from “past mistakes.”
But what lessons, precisely, might these mistakes offer?
From experience, we know that lopsided and rotten deals litter our government’s dealings with foreign capital, and that the next BNPP, PEA-Amari, or NBN-ZTE might be hiding behind the headline figures.
We also know that predatory foreign firms have relied on the intercession of middlemen who move in politically-favored circles, and that for every Westinghouse or ZTE, there is a Disini or an Abalos.
Finally, we know that news about large infrastructure deals should raise familiar suspicions: that the promises of badly-needed infrastructure, billions of dollars in new investments, and millions of new jobs should not be taken as speaking for themselves.
Applying these lessons should be easy and familiar enough: Who are the Filipino parties to these deals, and how did they build their wealth? How did they manage to secure these deals? From what we know about their track record, can we trust them to deliver?
Invisible, inexperienced, undercapitalized?
These questions have so far been difficult to raise, much less answer, because we know startlingly little about these firms. Many do not have a substantial public profile. Some have never been covered by the Philippine media; neither have they disclosed anything publicly about their ownership, management, or their past deals.
The absences extend even into government records. Information obtained by PCIJ through Freedom of Information requests show that many of the projects touted by Duterte’s China entourage do not even appear on the Philippine government’s priority infrastructure projects. When they do appear, such as on an “indicative list of pipeline projects” submitted by the National Economic and Development Authority (NEDA) to the Department of Finance (DOF) toward the end of last year, they appear as “projects without feasibility study/master plan proposals,” and their estimated project cost is indicated as “TBD" – to be determined.
Due public diligence, then, calls for turning to other sources. For the Philippine private companies, this means those such as the Securities and Exchange Commission (SEC)’s i-Report database, which provides access to corporate filings to the public for a fee.
But the information that can be gleaned this database leads to even more cause for concern. It shows that among the Filipino parties to business-to-business deals are firms with no track record in major infrastructure projects, no recent operating profit, and alarmingly small asset bases.
Of the 22 firms that returned from China with agreements, eight had a paid-up capitalization of less than PhP15 million. At least three firms report their annual results under accounting rules for small and medium enterprises. Seven had not turned a profit over the past two years. With a few exceptions, the reported value of their deals dwarfs the firms’ asset bases and turnovers by two or three orders of magnitude.
Alarmingly, absences from the record extend to this database as well. The SEC does not have any records for entities by the name of Philippine State Group of Companies and Zonar Construct. The Department of Trade and Industry (DTI), which maintains a database of registered business names, likewise has no record for either firm.
Two firms in Duterte’s entourage were registered with the SEC only after coming back from China: Zonarsystems Solutions, which registered with the SEC on Nov. 17, 2016, and MVP Global Infrastructure Ventures, which filed its papers last Jan. 25, or almost three months after Duterte’s China trip.
Combined, these four firms are party to some $7 billion in deals, including an ambitious interisland bridge system for the Visayas, and several infrastructure projects for Metro Manila.
Of course, these facts in themselves do not indicate any wrongdoing. They merely speak to the difficulty of investigating these companies, as well as to the opacity of these mammoth deals. But they also raise familiar questions:
How did virtually unknown firms with no track record in bidding for—much less completing—major infrastructure projects, rise to billion-dollar prominence with the change of the administration?
For the firms that have no records with the SEC: if they aren’t registered to do business in the Philippines, how could they be party to billion-dollar deals on our behalf? For freshly-registered firms how were their directors able to both anticipate Duterte’s turn to China, and secure influence with the new government so quickly?
Given the ambitious scope of these projects, can the smaller firms, some of which appear to be seriously undercapitalized, be trusted to deliver on time and within budget? Would any sensible lender take the risk of extending credit to these firms—or will their access to capital depend on intercession from on high?
Track and off-track records
For sure, answering that last question is not merely a matter of a firm’s asset base and turnover. It is also a matter of appraising a firm’s record.
If this is defined simply as matching the advertised project with corporate information and personnel, then certainly some of these firms pass the smell test.
For instance, SL Agritech, AVLB Asia Pacific, and North Negros Biopower, which are party to hybrid rice, banana, and biomass projects respectively, are all going concerns that have demonstrable histories in these sectors.
Greenergy Development, which seeks to build a fifth hydroelectric plant at the Pulangi complex in northern Mindanao, presently does not operate any power plants. But it does have some PhP248 million in assets—of which PhP244 million is in the form of pre-development cost for Pulangi V—and is helmed by a former vice president of the state-owned National Power Corporation (Napocor).
Finally, the deals entered by the bigger firms, such as the joint ventures between Cavitex Holdings, ICTSI, and China Harbour Engineering for infrastructure at Sangley Point, or for hotel capacity expansion involving DoubleDragon, Hotel of Asia, and Jin Jiang, appear to square and scale neatly with their existing businesses.
Sometimes, though, a firm’s track record is not in demonstrable success in running businesses, but in its ability to bring connections with the right offices, infrastructure outlays, and politically-guaranteed credit into fortuitous alignments.
Take One Whitebeach Development Corporation, one of the smaller companies in Duterte’s entourage. It is the Philippine counterpart to a deal for a $325-million flood-control project in the Ambal-Simuay sub-basin of the Rio Grande de Mindanao, identified as a priority project by the Mindanao Development Authority.
In 2013, the last year for which an annual report for it is available, One Whitebeach reported a mere PhP1.3 million in assets and PhP19,640 in losses. Its registration papers describe its business as “resorts, hotel inns, all adjuncts, and accessories thereto.”
One Whitebeach’s registration papers also report a Jose Ciceron Lorenzo A. Haresco and an Anna Margarita A. Haresco as its two primary stockholders. Jose is the son of Aklan representative Teodorico Haresco Jr., and ran in 2013 as the third nominee of Ang KasanggaPartylist.
Ang Kasangga purports to represent ‘micro-entrepreneurs’ in Congress. It has also been tagged by groups like KontraDaya and Bayan as a vehicle for traditional politics, and for its links to Arroyos.
The elder Haresco had previously sat in the Lower House as an Ang Kasangga representative. He had also previously courted controversy over the President’s Bridge Program (PBP), an Arroyo-era, ODA-funded infrastructure program that Haresco touts, on his own website, to have built 526 bridges across the country. Haresco acted as the Philippine agent for Mabey & Johnson, a British firm that supplies modular structures for these bridges.
The PBP was the subject of investigations by Senators Panfilo Lacson in 2005, and Sergio Osmeña in 2012. It was alleged that not only were the contracts overpriced, the bridges themselves were underutilized. In at least one case, only a third of a bridge’s span had been built; in other cases, they were literally “bridges to nowhere,” with no roads leading to and from the structures.
An investigation by the U.K-based Guardian found that Mabey & Johnson charged substantially higher for, and earned an “exceptionally high rate of profit” from, their Philippine contracts. Mabey & Johnson had since been embroiled in improprieties elsewhere, and was convicted by a British court in 2009 for bribing politicians in Ghana, Madagascar, Jamaica, Angola, Mozambique, and Bangladesh.
(Incidentally, one of the Malacañang staffers for the Estrada-era version of the PBP now owns another company that snagged a deal during Duterte’s China trip. Antonio L. Montorio, who owns 96 percent of Zonarsystems, was a member of PBP’s special inspectorate team, and also served as the plans and communications officer of its technical working group. The special inspectorate team’s mandate was to “inspect and certify as to the quantity and quality of the bridging materials.”)
In yet another case, the track record is one of failure—which raises questions as to whether these firms were properly vetted.
These of course have the potential for immense opportunities for wealth, legitimate or otherwise. Tellingly, our ambassador to China has reassured us that our government has learned from “past mistakes.”
But what lessons, precisely, might these mistakes offer?
From experience, we know that lopsided and rotten deals litter our government’s dealings with foreign capital, and that the next BNPP, PEA-Amari, or NBN-ZTE might be hiding behind the headline figures.
We also know that predatory foreign firms have relied on the intercession of middlemen who move in politically-favored circles, and that for every Westinghouse or ZTE, there is a Disini or an Abalos.
Finally, we know that news about large infrastructure deals should raise familiar suspicions: that the promises of badly-needed infrastructure, billions of dollars in new investments, and millions of new jobs should not be taken as speaking for themselves.
Applying these lessons should be easy and familiar enough: Who are the Filipino parties to these deals, and how did they build their wealth? How did they manage to secure these deals? From what we know about their track record, can we trust them to deliver?
Invisible, inexperienced, undercapitalized?
These questions have so far been difficult to raise, much less answer, because we know startlingly little about these firms. Many do not have a substantial public profile. Some have never been covered by the Philippine media; neither have they disclosed anything publicly about their ownership, management, or their past deals.
The absences extend even into government records. Information obtained by PCIJ through Freedom of Information requests show that many of the projects touted by Duterte’s China entourage do not even appear on the Philippine government’s priority infrastructure projects. When they do appear, such as on an “indicative list of pipeline projects” submitted by the National Economic and Development Authority (NEDA) to the Department of Finance (DOF) toward the end of last year, they appear as “projects without feasibility study/master plan proposals,” and their estimated project cost is indicated as “TBD" – to be determined.
Due public diligence, then, calls for turning to other sources. For the Philippine private companies, this means those such as the Securities and Exchange Commission (SEC)’s i-Report database, which provides access to corporate filings to the public for a fee.
But the information that can be gleaned this database leads to even more cause for concern. It shows that among the Filipino parties to business-to-business deals are firms with no track record in major infrastructure projects, no recent operating profit, and alarmingly small asset bases.
Of the 22 firms that returned from China with agreements, eight had a paid-up capitalization of less than PhP15 million. At least three firms report their annual results under accounting rules for small and medium enterprises. Seven had not turned a profit over the past two years. With a few exceptions, the reported value of their deals dwarfs the firms’ asset bases and turnovers by two or three orders of magnitude.
Alarmingly, absences from the record extend to this database as well. The SEC does not have any records for entities by the name of Philippine State Group of Companies and Zonar Construct. The Department of Trade and Industry (DTI), which maintains a database of registered business names, likewise has no record for either firm.
Two firms in Duterte’s entourage were registered with the SEC only after coming back from China: Zonarsystems Solutions, which registered with the SEC on Nov. 17, 2016, and MVP Global Infrastructure Ventures, which filed its papers last Jan. 25, or almost three months after Duterte’s China trip.
Combined, these four firms are party to some $7 billion in deals, including an ambitious interisland bridge system for the Visayas, and several infrastructure projects for Metro Manila.
Of course, these facts in themselves do not indicate any wrongdoing. They merely speak to the difficulty of investigating these companies, as well as to the opacity of these mammoth deals. But they also raise familiar questions:
How did virtually unknown firms with no track record in bidding for—much less completing—major infrastructure projects, rise to billion-dollar prominence with the change of the administration?
For the firms that have no records with the SEC: if they aren’t registered to do business in the Philippines, how could they be party to billion-dollar deals on our behalf? For freshly-registered firms how were their directors able to both anticipate Duterte’s turn to China, and secure influence with the new government so quickly?
Given the ambitious scope of these projects, can the smaller firms, some of which appear to be seriously undercapitalized, be trusted to deliver on time and within budget? Would any sensible lender take the risk of extending credit to these firms—or will their access to capital depend on intercession from on high?
Track and off-track records
For sure, answering that last question is not merely a matter of a firm’s asset base and turnover. It is also a matter of appraising a firm’s record.
If this is defined simply as matching the advertised project with corporate information and personnel, then certainly some of these firms pass the smell test.
For instance, SL Agritech, AVLB Asia Pacific, and North Negros Biopower, which are party to hybrid rice, banana, and biomass projects respectively, are all going concerns that have demonstrable histories in these sectors.
Greenergy Development, which seeks to build a fifth hydroelectric plant at the Pulangi complex in northern Mindanao, presently does not operate any power plants. But it does have some PhP248 million in assets—of which PhP244 million is in the form of pre-development cost for Pulangi V—and is helmed by a former vice president of the state-owned National Power Corporation (Napocor).
Finally, the deals entered by the bigger firms, such as the joint ventures between Cavitex Holdings, ICTSI, and China Harbour Engineering for infrastructure at Sangley Point, or for hotel capacity expansion involving DoubleDragon, Hotel of Asia, and Jin Jiang, appear to square and scale neatly with their existing businesses.
Sometimes, though, a firm’s track record is not in demonstrable success in running businesses, but in its ability to bring connections with the right offices, infrastructure outlays, and politically-guaranteed credit into fortuitous alignments.
Take One Whitebeach Development Corporation, one of the smaller companies in Duterte’s entourage. It is the Philippine counterpart to a deal for a $325-million flood-control project in the Ambal-Simuay sub-basin of the Rio Grande de Mindanao, identified as a priority project by the Mindanao Development Authority.
In 2013, the last year for which an annual report for it is available, One Whitebeach reported a mere PhP1.3 million in assets and PhP19,640 in losses. Its registration papers describe its business as “resorts, hotel inns, all adjuncts, and accessories thereto.”
One Whitebeach’s registration papers also report a Jose Ciceron Lorenzo A. Haresco and an Anna Margarita A. Haresco as its two primary stockholders. Jose is the son of Aklan representative Teodorico Haresco Jr., and ran in 2013 as the third nominee of Ang KasanggaPartylist.
Ang Kasangga purports to represent ‘micro-entrepreneurs’ in Congress. It has also been tagged by groups like KontraDaya and Bayan as a vehicle for traditional politics, and for its links to Arroyos.
The elder Haresco had previously sat in the Lower House as an Ang Kasangga representative. He had also previously courted controversy over the President’s Bridge Program (PBP), an Arroyo-era, ODA-funded infrastructure program that Haresco touts, on his own website, to have built 526 bridges across the country. Haresco acted as the Philippine agent for Mabey & Johnson, a British firm that supplies modular structures for these bridges.
The PBP was the subject of investigations by Senators Panfilo Lacson in 2005, and Sergio Osmeña in 2012. It was alleged that not only were the contracts overpriced, the bridges themselves were underutilized. In at least one case, only a third of a bridge’s span had been built; in other cases, they were literally “bridges to nowhere,” with no roads leading to and from the structures.
An investigation by the U.K-based Guardian found that Mabey & Johnson charged substantially higher for, and earned an “exceptionally high rate of profit” from, their Philippine contracts. Mabey & Johnson had since been embroiled in improprieties elsewhere, and was convicted by a British court in 2009 for bribing politicians in Ghana, Madagascar, Jamaica, Angola, Mozambique, and Bangladesh.
(Incidentally, one of the Malacañang staffers for the Estrada-era version of the PBP now owns another company that snagged a deal during Duterte’s China trip. Antonio L. Montorio, who owns 96 percent of Zonarsystems, was a member of PBP’s special inspectorate team, and also served as the plans and communications officer of its technical working group. The special inspectorate team’s mandate was to “inspect and certify as to the quantity and quality of the bridging materials.”)
In yet another case, the track record is one of failure—which raises questions as to whether these firms were properly vetted.
Mega-Harbour and R-II Builders, Inc., two firms associated with controversial businessman Reghis Romero II, are party to port facilities and reclamation deals in Cebu, Davao, and Manila, worth a combined $1.26 billion.
R-II first rose to infamy with the Smokey Mountain Development and Reclamation Project, which the Ramos administration had touted as a “weapon of mass upliftment.” This consisted of a joint venture between R-II and the National Housing Authority (NHA) to redevelop the Smokey Mountain garbage dump in Tondo into a mass-housing project.
It was to be one of the first public-private partnerships of the post-Marcos Philippines. The government was not going to spend a single peso on the project, as R-II was supposed to shoulder all the costs. In return, R-II was to gain exclusive rights over 79 hectares of reclaimed land.
By 1994, however, R-II had run out of money. To save the project, the Ramos administration was forced to assemble funding in the form of bonds backed up by assets that were to be built by R-II, and guaranteed by the state-owned Home Guaranty Corporation (HGC).
R-II nonetheless failed to complete the project, and the incomplete assets were conveyed to HGC, which led to a back-and-forth of lawsuits between the parties. As of early this year, R-II was trying to settle with HGC for P5 billion, with HGC being “forced” by some members of Congress to accept what was, in its counsel’s view, an unacceptable compromise. By the estimation of a former president of HGC, the assets in question are now worth PhP9.5 billion.
There is a pattern that runs through these two cases: flagship infrastructure projects, with direct involvement of the Office of the President; the availability of guaranteed funding, whether in the form of soft-loan financing or a public-private partnership; a well-connected Filipino firm that just happens to be at the right place and the right time; and finally, projects that once delivered fall well short of the original promise.
Much of the Duterte government’s infrastructure plan hinges on Congressionally-granted emergency powers to hasten what is portrayed to be a slow public bidding process. Under the proposed Transportation Crisis Act of 2016, the President is empowered to use “alternative methods of procurement.”
Among these methods outlined in the bill are: limited source bidding, which involves a direct invitation to bid from pre-selected suppliers; direct contracting, where the supplier “is simply asked to submit a price quotation […] together with the conditions of sale”; and negotiated procurement, which would allow for the government to select a contractor without a competitive bidding process.
The bill also severely curtails the issuance of temporary restraining orders and injunctions against the awarding of bids for priority projects.
The last time that infrastructure investment was enticed by fast-tracked procurement was in 1993, when Fidel Ramos was authorized to enter agreements with independent power producers. These agreements were, in time, shown to be immensely disadvantageous to the government and the public, and likely contributed to Napocor ’s undoing.
Can the Duterte presidency be trusted to take a different tack?
R-II first rose to infamy with the Smokey Mountain Development and Reclamation Project, which the Ramos administration had touted as a “weapon of mass upliftment.” This consisted of a joint venture between R-II and the National Housing Authority (NHA) to redevelop the Smokey Mountain garbage dump in Tondo into a mass-housing project.
It was to be one of the first public-private partnerships of the post-Marcos Philippines. The government was not going to spend a single peso on the project, as R-II was supposed to shoulder all the costs. In return, R-II was to gain exclusive rights over 79 hectares of reclaimed land.
By 1994, however, R-II had run out of money. To save the project, the Ramos administration was forced to assemble funding in the form of bonds backed up by assets that were to be built by R-II, and guaranteed by the state-owned Home Guaranty Corporation (HGC).
R-II nonetheless failed to complete the project, and the incomplete assets were conveyed to HGC, which led to a back-and-forth of lawsuits between the parties. As of early this year, R-II was trying to settle with HGC for P5 billion, with HGC being “forced” by some members of Congress to accept what was, in its counsel’s view, an unacceptable compromise. By the estimation of a former president of HGC, the assets in question are now worth PhP9.5 billion.
There is a pattern that runs through these two cases: flagship infrastructure projects, with direct involvement of the Office of the President; the availability of guaranteed funding, whether in the form of soft-loan financing or a public-private partnership; a well-connected Filipino firm that just happens to be at the right place and the right time; and finally, projects that once delivered fall well short of the original promise.
Much of the Duterte government’s infrastructure plan hinges on Congressionally-granted emergency powers to hasten what is portrayed to be a slow public bidding process. Under the proposed Transportation Crisis Act of 2016, the President is empowered to use “alternative methods of procurement.”
Among these methods outlined in the bill are: limited source bidding, which involves a direct invitation to bid from pre-selected suppliers; direct contracting, where the supplier “is simply asked to submit a price quotation […] together with the conditions of sale”; and negotiated procurement, which would allow for the government to select a contractor without a competitive bidding process.
The bill also severely curtails the issuance of temporary restraining orders and injunctions against the awarding of bids for priority projects.
The last time that infrastructure investment was enticed by fast-tracked procurement was in 1993, when Fidel Ramos was authorized to enter agreements with independent power producers. These agreements were, in time, shown to be immensely disadvantageous to the government and the public, and likely contributed to Napocor ’s undoing.
Can the Duterte presidency be trusted to take a different tack?
The prevailing political wisdom is that Mr. Duterte is political will, embodied: that whatever one thinks of his means and his ends, this is a man willing to steer a brash departure from business-as-usual. Indeed, his state visit to China is held up by thought leaders as an amazing feat of presidential derring-do, proof positive of what The Punisher can accomplish on the global stage.
But is it? As the examples above show, the Duterte administration appears to be willing to consort with contractors with colorful histories, as well as contractors with zero histories. If Duterte, or a trusted aide, were personally involved in negotiating these deals, what might they tell us about how Duterte wields executive power, about his much-vaunted ‘political will’?
If these deals do materialize, who will materially benefit, and how are they connected to Duterte? Given their rather flimsy backgrounds in infrastructure, why were they granted a privileged place on his entourage?
China, the nickel ore trade, and the limits to an ‘independent’ presidency
It is perhaps the presence of two nickel-ore exporters, both of which had been implicated in controversies of their own, which provide additional clues to the interests that stand to benefit the most from a pivot to China.
These two firms are Mannage Resources Trading and Global Ferronickel Holdings, which both signed agreements for steel plants with SIIC Shanghai International Trade of Hong Kong and Baiyin International Investment, respectively.
Mannage was registered with the SEC in February 2015, with an address at Unit 1205, One Global Place, 5th Avenue, Bonifacio Global City, Taguig. The same address is registered as the addresses of Acelead Shipping, Dunfeng Shipping, Minecore Resources Philippines, Zambales Oyon Port Corporation, and Dunfeng International Philippines. All these firms also share incorporators, most notably a Dean Christopher Lee and an Eric Co, both Filipino citizens, and a British national by the name of Kwok Yam Chan.
Dunfeng International Philippines, Dunfeng Shipping, Zambales Oyon all reported losses in their latest filings with the SEC. Dunfeng Holdings and Dunfeng International are domestic subsidiaries of Hong Kong-based, British Virgin Islands-registered Dunfeng Holdings, Inc., which is one of China’s largest nickel ore importers.
Mannage Resources had previously been implicated in two controversies over the importation of deformed steel bars from China. In April 2016, the Bureau of Customs held a 5,000-metric ton shipment in Subic for being “potentially in violation of Section 2503 of the Tariff and Customs Code.” The Philippine Iron and Steel Institute (PISI) had also raised issue over the fact that the shipment was not subjected to the same quality controls as domestically-produced steel bars.
SteelAsia, one of PISI’s member firms, noted as well that only one sample from the shipment was tested by DTI’s Zambales office, instead of the required 250. SteelAsia also questioned how Mannage, a newly-incorporated firm with only P400,000 in capital and incorporated as trading in “food delicacies,” came to traffic in steel bars.
(It is worth noting that shortly before work began on this piece, Mannage had filed a modification to its corporate information, which amended its business as being “construction materials, such as rebars, cement, equipments, spare parts, and other merchandise.”)
An Interaksyon.com report alleged that “’well-connected’ Filipino-Chinese businessmen had lobbied DTI to give the shipment a clean bill of health and facilitate its release.” The steel bars were eventually released to Mannage.
In response, Mannage president Lawrence Daniel Sy filed graft charges against Customs personnel, including former commissioner Alberto Lina and deputy commissioner for revenue collection and monitoring Arturo Lachica. But then last Nov. 17, Lachica was murdered in an ambush on España Boulevard. The assailant has not been apprehended, and a motive has yet to be determined.
Sy himself had previously been the subject of a complaint with the Bureau of Immigration alleging that he is, in fact, a Chinese citizen. It alleged that the claims he submitted in an affidavit for a late birth registration, including parents for whom no record of marriage can be found, and an address in Novaliches that was found to be a vacant lot, do not stand up to scrutiny. Eventually, however, the Bureau of Immigration threw out the case.
As for Global Ferronickel, it was originally registered as Southeast Asia Cement Holdings, Inc. It was renamed in September 2014 after IHoldings, a firm owned by a Luis Yu, sold its shares in the company to a consortium of 13 shareholders. It is presently the second largest exporter of nickel ore in the country.
Global Ferronickel’s registered address is the 7th floor of 151 Paseo de Roxas. According to its 2016 General Information sheet, it shares this address with nine holding companies that collectively own 45.91 percent of its outstanding stock: Sohoton Synergy, Regulus Best Nickel Holdings, Blue Eagle Elite Venture, Ultimate Horizon Capital, Bellatrix Star, Alpha Centauri Fortune Group, Antares Nickel Capital, Red Lion Fortune Group, and Great South Group Ventures.
Now why might all these matter?
China is the biggest buyer of nickel ore worldwide. Based on data from the Observatory of Economic Complexity, China has been the biggest customer for Philippine nickel ore since 2006, when it overtook Japan as the country’s top client for the resource. Chinese demand had been key to the rapid growth of the nickel-ore mining industry in the Philippines, whose exports have grown from $101 million in 2005 to $2.9 billion in 2014.
The Philippines, meanwhile, has been the biggest supplier of nickel ore to China since 2014, when a ban on unprocessed ore by Indonesia led to increased dependence on Philippine suppliers—a ban that Indonesia lifted just last January.
This is an important, but often overlooked, dimension to the bilateral relationship between China and the Philippines. Nickel ore stands apart as the one commodity where China depends on the Philippines. As a key input to the production of stainless steel, electronics, and batteries, it is a raw material with high strategic value, particularly to the world’s foremost manufacturing economy.
And while the Philippines does not have a monopoly on its global supply and reserves, decisions made by its government and by its businesses do reverberate globally—as when uncertainty over the ongoing audit by the Department of Environment and Natural Resources (DENR) under Gina Lopez played into a rise in prices in 2016.
Understanding the role of nickel-ore miners, therefore, is crucial to understanding how the bilateral relationship between China and the Philippines develops under Duterte. As the backgrounds of Nickel Asia and Mannage demonstrate, local firms have so far played the role of handmaidens for Chinese investment in the sector, which limits foreign ownership to 40 percent.
The nature of their deals, which appear to involve processing of nickel ore into higher value-added products, might reflect a desire of these firms to move up the value chain, cost pressures on their partners’ China-based operations, or possibly both. In addition, the bundling of these deals with broader investment in infrastructure hints at parallels with China’s role in developing new resource frontiers, particularly in Sub-Saharan Africa—where state-led investment by China into roads and railways was designed primarily to facilitate the extraction of raw materials, and not necessarily the host country’s development needs.
The coming months might reveal whether these firms can provide a more extensive set of services for their partners, and to what extent nickel mining factors into the Duterte cabinet’s calculus. In particular, the outcome of the DENR’s mining audit, and whether Duterte defers to or vetoes Gina Lopez’s findings, will be worth watching. For the moment, Mannage appears to have emerged unscathed from DENR’s audit, while a subsidiary of Global Ferronickel, Platinum Group Metals, was ordered to cease its operations in Surigao del Norte.
Duterte in China: News Has a Kind of Mystery
Admittedly, all these additional details about the Filipino parties to Duterte’s China deals do not amount to a complete picture, and serve only to raise more questions than they answer. But they are perhaps questions that should have been raised in the first place.
The first set of questions involves the state of public procurement under the Duterte administration. Were these firms properly vetted? Is the Duterte government willing, or even able, to exercise the due diligence necessary for these deals? Can it be trusted to run negotiated procurements and restricted auctions under the emergency powers that it seeks?
The second set of questions deals with the Duterte administration’s relationship with China. To what extent can Duterte’s actions—from his geopolitical realignment with China’s “flow,” to his regulatory stances on foreign ownership, to mining—truly be “independent,” when very real material interests are at play? What role do Filipino firms with extensive interests in Chinese demand, or have significant levels of Chinese investment and management, play in his decision-making?
A final question deals with the Duterte administration’s relationship with the public: As a public, could we have done a better job at following up on these claims of investments and jobs, at scrutinizing the parties to the deals, or at calling out repackaged press releases for what they are?
News, as observed by the fictitious Nixon portrayed in the opera Nixon in China, has a kind of mystery. In the case of Duterte in China, the mythmaking was helped along by the reliance by the media on Malacañang’s press releases, and the eagerness of thought leaders to cheer the prospect of billions of fresh investments and the millions of new jobs.
As a consequence, we may not have done a good enough job at following up on these claims of investments and jobs, at scrutinizing the parties to the deals, or at calling out repackaged press releases for what they are.
Except we should: Not only are these press releases almost always incomplete, but by presenting these deals as superhuman feats of whirlwind negotiation, they feed into a dangerously messianic view of the president’s roles and capabilities. By obscuring the role played by power brokers and vested interests, they also prevent us from being a meaningful check on bad deals done in our name, and with our money. – With additional research by Karol Ilagan, PCIJ, April 2017
---
But is it? As the examples above show, the Duterte administration appears to be willing to consort with contractors with colorful histories, as well as contractors with zero histories. If Duterte, or a trusted aide, were personally involved in negotiating these deals, what might they tell us about how Duterte wields executive power, about his much-vaunted ‘political will’?
If these deals do materialize, who will materially benefit, and how are they connected to Duterte? Given their rather flimsy backgrounds in infrastructure, why were they granted a privileged place on his entourage?
China, the nickel ore trade, and the limits to an ‘independent’ presidency
It is perhaps the presence of two nickel-ore exporters, both of which had been implicated in controversies of their own, which provide additional clues to the interests that stand to benefit the most from a pivot to China.
These two firms are Mannage Resources Trading and Global Ferronickel Holdings, which both signed agreements for steel plants with SIIC Shanghai International Trade of Hong Kong and Baiyin International Investment, respectively.
Mannage was registered with the SEC in February 2015, with an address at Unit 1205, One Global Place, 5th Avenue, Bonifacio Global City, Taguig. The same address is registered as the addresses of Acelead Shipping, Dunfeng Shipping, Minecore Resources Philippines, Zambales Oyon Port Corporation, and Dunfeng International Philippines. All these firms also share incorporators, most notably a Dean Christopher Lee and an Eric Co, both Filipino citizens, and a British national by the name of Kwok Yam Chan.
Dunfeng International Philippines, Dunfeng Shipping, Zambales Oyon all reported losses in their latest filings with the SEC. Dunfeng Holdings and Dunfeng International are domestic subsidiaries of Hong Kong-based, British Virgin Islands-registered Dunfeng Holdings, Inc., which is one of China’s largest nickel ore importers.
Mannage Resources had previously been implicated in two controversies over the importation of deformed steel bars from China. In April 2016, the Bureau of Customs held a 5,000-metric ton shipment in Subic for being “potentially in violation of Section 2503 of the Tariff and Customs Code.” The Philippine Iron and Steel Institute (PISI) had also raised issue over the fact that the shipment was not subjected to the same quality controls as domestically-produced steel bars.
SteelAsia, one of PISI’s member firms, noted as well that only one sample from the shipment was tested by DTI’s Zambales office, instead of the required 250. SteelAsia also questioned how Mannage, a newly-incorporated firm with only P400,000 in capital and incorporated as trading in “food delicacies,” came to traffic in steel bars.
(It is worth noting that shortly before work began on this piece, Mannage had filed a modification to its corporate information, which amended its business as being “construction materials, such as rebars, cement, equipments, spare parts, and other merchandise.”)
An Interaksyon.com report alleged that “’well-connected’ Filipino-Chinese businessmen had lobbied DTI to give the shipment a clean bill of health and facilitate its release.” The steel bars were eventually released to Mannage.
In response, Mannage president Lawrence Daniel Sy filed graft charges against Customs personnel, including former commissioner Alberto Lina and deputy commissioner for revenue collection and monitoring Arturo Lachica. But then last Nov. 17, Lachica was murdered in an ambush on España Boulevard. The assailant has not been apprehended, and a motive has yet to be determined.
Sy himself had previously been the subject of a complaint with the Bureau of Immigration alleging that he is, in fact, a Chinese citizen. It alleged that the claims he submitted in an affidavit for a late birth registration, including parents for whom no record of marriage can be found, and an address in Novaliches that was found to be a vacant lot, do not stand up to scrutiny. Eventually, however, the Bureau of Immigration threw out the case.
As for Global Ferronickel, it was originally registered as Southeast Asia Cement Holdings, Inc. It was renamed in September 2014 after IHoldings, a firm owned by a Luis Yu, sold its shares in the company to a consortium of 13 shareholders. It is presently the second largest exporter of nickel ore in the country.
Global Ferronickel’s registered address is the 7th floor of 151 Paseo de Roxas. According to its 2016 General Information sheet, it shares this address with nine holding companies that collectively own 45.91 percent of its outstanding stock: Sohoton Synergy, Regulus Best Nickel Holdings, Blue Eagle Elite Venture, Ultimate Horizon Capital, Bellatrix Star, Alpha Centauri Fortune Group, Antares Nickel Capital, Red Lion Fortune Group, and Great South Group Ventures.
Now why might all these matter?
China is the biggest buyer of nickel ore worldwide. Based on data from the Observatory of Economic Complexity, China has been the biggest customer for Philippine nickel ore since 2006, when it overtook Japan as the country’s top client for the resource. Chinese demand had been key to the rapid growth of the nickel-ore mining industry in the Philippines, whose exports have grown from $101 million in 2005 to $2.9 billion in 2014.
The Philippines, meanwhile, has been the biggest supplier of nickel ore to China since 2014, when a ban on unprocessed ore by Indonesia led to increased dependence on Philippine suppliers—a ban that Indonesia lifted just last January.
This is an important, but often overlooked, dimension to the bilateral relationship between China and the Philippines. Nickel ore stands apart as the one commodity where China depends on the Philippines. As a key input to the production of stainless steel, electronics, and batteries, it is a raw material with high strategic value, particularly to the world’s foremost manufacturing economy.
And while the Philippines does not have a monopoly on its global supply and reserves, decisions made by its government and by its businesses do reverberate globally—as when uncertainty over the ongoing audit by the Department of Environment and Natural Resources (DENR) under Gina Lopez played into a rise in prices in 2016.
Understanding the role of nickel-ore miners, therefore, is crucial to understanding how the bilateral relationship between China and the Philippines develops under Duterte. As the backgrounds of Nickel Asia and Mannage demonstrate, local firms have so far played the role of handmaidens for Chinese investment in the sector, which limits foreign ownership to 40 percent.
The nature of their deals, which appear to involve processing of nickel ore into higher value-added products, might reflect a desire of these firms to move up the value chain, cost pressures on their partners’ China-based operations, or possibly both. In addition, the bundling of these deals with broader investment in infrastructure hints at parallels with China’s role in developing new resource frontiers, particularly in Sub-Saharan Africa—where state-led investment by China into roads and railways was designed primarily to facilitate the extraction of raw materials, and not necessarily the host country’s development needs.
The coming months might reveal whether these firms can provide a more extensive set of services for their partners, and to what extent nickel mining factors into the Duterte cabinet’s calculus. In particular, the outcome of the DENR’s mining audit, and whether Duterte defers to or vetoes Gina Lopez’s findings, will be worth watching. For the moment, Mannage appears to have emerged unscathed from DENR’s audit, while a subsidiary of Global Ferronickel, Platinum Group Metals, was ordered to cease its operations in Surigao del Norte.
Duterte in China: News Has a Kind of Mystery
Admittedly, all these additional details about the Filipino parties to Duterte’s China deals do not amount to a complete picture, and serve only to raise more questions than they answer. But they are perhaps questions that should have been raised in the first place.
The first set of questions involves the state of public procurement under the Duterte administration. Were these firms properly vetted? Is the Duterte government willing, or even able, to exercise the due diligence necessary for these deals? Can it be trusted to run negotiated procurements and restricted auctions under the emergency powers that it seeks?
The second set of questions deals with the Duterte administration’s relationship with China. To what extent can Duterte’s actions—from his geopolitical realignment with China’s “flow,” to his regulatory stances on foreign ownership, to mining—truly be “independent,” when very real material interests are at play? What role do Filipino firms with extensive interests in Chinese demand, or have significant levels of Chinese investment and management, play in his decision-making?
A final question deals with the Duterte administration’s relationship with the public: As a public, could we have done a better job at following up on these claims of investments and jobs, at scrutinizing the parties to the deals, or at calling out repackaged press releases for what they are?
News, as observed by the fictitious Nixon portrayed in the opera Nixon in China, has a kind of mystery. In the case of Duterte in China, the mythmaking was helped along by the reliance by the media on Malacañang’s press releases, and the eagerness of thought leaders to cheer the prospect of billions of fresh investments and the millions of new jobs.
As a consequence, we may not have done a good enough job at following up on these claims of investments and jobs, at scrutinizing the parties to the deals, or at calling out repackaged press releases for what they are.
Except we should: Not only are these press releases almost always incomplete, but by presenting these deals as superhuman feats of whirlwind negotiation, they feed into a dangerously messianic view of the president’s roles and capabilities. By obscuring the role played by power brokers and vested interests, they also prevent us from being a meaningful check on bad deals done in our name, and with our money. – With additional research by Karol Ilagan, PCIJ, April 2017
---
The SEC's i-Report database
AS PART of its mandate to supervise and monitor corporate activity in the Philippines, the Securities and Exchange Commission (SEC) maintains the i-Report database, which contains electronic copies of publicly available corporate filings with the agency. The most readily accessible registry of business entities in the Philippines, the database is indispensable for the everyday work of regulators, lenders, and investors—and was a crucial source of data for this story.
But outside a limited circle of researchers, the database has remained largely underused. This may partly have to do with its relative obscurity, or with the content and format of the documents that may seem inscrutable to lay eyes.
In practice, the system can be frustratingly clumsy at times. For instance, payment for the online access requires buying prepaid cards at the SEC main office; the SEC does not offer the option for online payment. Charges are meted out on a per-pageview basis, which means that thumbing through reports for crucial bits of information—reports that are sometimes several hundred pages long—can quickly deplete one’s account. The database also requires the user to run an outdated version of Java, and negotiating the security warning pop-ups every time a new document is loaded quickly becomes tiresome.
(Apart from SEC i-Report, records may also be obtained through the SEC Express System, another facility that allows for access of corporate or partnership documents without having to personally come to the SEC. The SEC Express System is available online, via a call center, or through an appointment.)
With that said, the database is a unique window into the world of money and politics in the Philippines.While much of the documents may seem opaque to those who are not accountants or lawyers, they are nonetheless meant to be public disclosures. They are fairly standardized documents that offer a reasonable amount of information accessible to an average person with above-average patience.
It is as comprehensive a record of aboveboard business entities that we can hope for. Once understood in the context of other data, it even offers occasional glimpses of what goes on beneath the tables.
The following is a brief guide to how two documents available on the SEC database can be used for public due diligence.
General Information Sheet (SEC Form 20-IS). This form is a solid starting point for any investigation. It provides:
A firm’s corporate name, business/trade names, its date of registration, and the declared primary purpose of the business;
A one-page summary of the firm’s capital structure, indicating the number of shareholders, their nationalities, and types of shares they hold;
A list of the firm’s directors, including their addresses and nationalities; and
A list of the firm’s major stockholders, again including their addresses and nationalities, along with the number of shares they are subscribed to, and their percentage of ownership.
Other details on the SEC Form 20-IS, such as the firm’s SEC registration number, business address, and phone numbers, can be used for cross-referencing against other publicly-available information:
Shell companies, subsidiaries, and affiliates are often (but not always) registered at the same time, and will be assigned sequential SEC registration numbers. In situations where a firm’s incorporators are known to use corporate layering, or have related businesses, it is worth checking if the firms within the same sequence of SEC registration numbers involve the same personnel.
Business addresses and phone numbers can be run through search engines to see if news stories and/or corporate profiles return information of interest.
In some cases, business addresses can also be looked up the street view of Google Maps, which can sometimes give an indication of related businesses—and in some instances, reveal evidence of fraudulent registration.
Financial Statement-Annual (SEC Form 17-A). This form is perhaps the most comprehensive record of a firm’s activities. It includes information about:
A firm’s declared business activity;
Its properties;
Legal proceedings it is involved in;
Matters that have been submitted to a vote among security holders. assets and liabilities,
Its financial position, i.e. assets and liabilities;
Key performance indicators, e.g. current and debt-equity ratios, revenue and net income growth;
Operating results: revenue and income;
Management’s plan of operation;
Expansion plans;
Executive control and compensation information, including relationships between executives, executive positions in other firms, and ownership attributable to the company’s board of directors; and
Segment information
Form 17-A is submitted to the SEC annually, and can thus form the basis of a historical analysis of a firm's performance.
Information on assets and liabilities, operating results, and business segments are useful for determining the interests and track record of a firm.
For larger firms, a substantial portion of this document will be a thorough discussion of the above information.
Particularly useful for studying the holding firms at the heart of the Philippines’ family-owned business empires is an item that is typically included as an exhibit called “Segment Information,” which will outline the relative importance of different parts of the company’s portfolio.
AS PART of its mandate to supervise and monitor corporate activity in the Philippines, the Securities and Exchange Commission (SEC) maintains the i-Report database, which contains electronic copies of publicly available corporate filings with the agency. The most readily accessible registry of business entities in the Philippines, the database is indispensable for the everyday work of regulators, lenders, and investors—and was a crucial source of data for this story.
But outside a limited circle of researchers, the database has remained largely underused. This may partly have to do with its relative obscurity, or with the content and format of the documents that may seem inscrutable to lay eyes.
In practice, the system can be frustratingly clumsy at times. For instance, payment for the online access requires buying prepaid cards at the SEC main office; the SEC does not offer the option for online payment. Charges are meted out on a per-pageview basis, which means that thumbing through reports for crucial bits of information—reports that are sometimes several hundred pages long—can quickly deplete one’s account. The database also requires the user to run an outdated version of Java, and negotiating the security warning pop-ups every time a new document is loaded quickly becomes tiresome.
(Apart from SEC i-Report, records may also be obtained through the SEC Express System, another facility that allows for access of corporate or partnership documents without having to personally come to the SEC. The SEC Express System is available online, via a call center, or through an appointment.)
With that said, the database is a unique window into the world of money and politics in the Philippines.While much of the documents may seem opaque to those who are not accountants or lawyers, they are nonetheless meant to be public disclosures. They are fairly standardized documents that offer a reasonable amount of information accessible to an average person with above-average patience.
It is as comprehensive a record of aboveboard business entities that we can hope for. Once understood in the context of other data, it even offers occasional glimpses of what goes on beneath the tables.
The following is a brief guide to how two documents available on the SEC database can be used for public due diligence.
General Information Sheet (SEC Form 20-IS). This form is a solid starting point for any investigation. It provides:
A firm’s corporate name, business/trade names, its date of registration, and the declared primary purpose of the business;
A one-page summary of the firm’s capital structure, indicating the number of shareholders, their nationalities, and types of shares they hold;
A list of the firm’s directors, including their addresses and nationalities; and
A list of the firm’s major stockholders, again including their addresses and nationalities, along with the number of shares they are subscribed to, and their percentage of ownership.
Other details on the SEC Form 20-IS, such as the firm’s SEC registration number, business address, and phone numbers, can be used for cross-referencing against other publicly-available information:
Shell companies, subsidiaries, and affiliates are often (but not always) registered at the same time, and will be assigned sequential SEC registration numbers. In situations where a firm’s incorporators are known to use corporate layering, or have related businesses, it is worth checking if the firms within the same sequence of SEC registration numbers involve the same personnel.
Business addresses and phone numbers can be run through search engines to see if news stories and/or corporate profiles return information of interest.
In some cases, business addresses can also be looked up the street view of Google Maps, which can sometimes give an indication of related businesses—and in some instances, reveal evidence of fraudulent registration.
Financial Statement-Annual (SEC Form 17-A). This form is perhaps the most comprehensive record of a firm’s activities. It includes information about:
A firm’s declared business activity;
Its properties;
Legal proceedings it is involved in;
Matters that have been submitted to a vote among security holders. assets and liabilities,
Its financial position, i.e. assets and liabilities;
Key performance indicators, e.g. current and debt-equity ratios, revenue and net income growth;
Operating results: revenue and income;
Management’s plan of operation;
Expansion plans;
Executive control and compensation information, including relationships between executives, executive positions in other firms, and ownership attributable to the company’s board of directors; and
Segment information
Form 17-A is submitted to the SEC annually, and can thus form the basis of a historical analysis of a firm's performance.
Information on assets and liabilities, operating results, and business segments are useful for determining the interests and track record of a firm.
For larger firms, a substantial portion of this document will be a thorough discussion of the above information.
Particularly useful for studying the holding firms at the heart of the Philippines’ family-owned business empires is an item that is typically included as an exhibit called “Segment Information,” which will outline the relative importance of different parts of the company’s portfolio.
-- Kenneth Cardenas, PCIJ, May 2017
x x x."
x x x."
