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Wednesday, November 22, 2017 | MANILA, PHILIPPINES
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Date posted: Friday, December 11, 2015 | Manila, Philippines

The quest for a lean corporate sector

WHEN PRESIDENT Benigno S. C. Aquino III took office in 2010, government-owned and -controlled corporations (GOCCs) had become synonymous with extravagant waste.

The government had ponied up over P21 billion in subsidies to keep some of these firms afloat, even as they handed out generous pay and perks to their top executives -- all of whom were Presidential appointees. It would appear that the managements of these GOCCs were rewarding themselves even if their companies weren’t earning enough to pay the water bill.

In his June 30, 2010 inaugural address, President Aquino hinted at the lavishness of these “midnight appointments,” and in his first State of the Nation Address a month later, provided lurid details.

In his diatribe, the President took to task the Metropolitan Waterworks and Sewerage System (MWSS), where each board member received 30 months’ worth of salaries and perks, more than twice the 13 months earned by the average worker.

The range of perks was enough to put to shame blue-chip private firms. Besides the per diem they received for attending meetings, an MWSS board member also was given a mid-year bonus, productivity bonus, anniversary bonus, year-end bonus, a Christmas package on top of the Christmas bonus, grocery money, and a house-and-lot at scenic La Mesa Dam to boot.

All told, each of the eight board members pocketed P2.2 million or a combined P17.6 million, which was more than half the P33.9 million that MWSS lost in 2010.

And while the GOCC’s top brass enjoyed their sinecures -- after all, MWSS earned at least 90% of its revenue from concession fees remitted by its two private contractors -- the firm’s retired personnel had failed to receive on time their rightful share of pension support.

That’s how MWSS became the poster boy of GOCC extravagance.

Three months into office, the President ordered a revamp of GOCCs, freezing pay increases and suspending bonuses and allowances.

A law was passed creating the Governance Commission for GOCCs (GCG), which was tasked to review the mandates of all state-owned firms and recommend one of four things: keep the company in government hands, merge it with another, privatize it, or abolish it altogether.

The GCG also has put in place a performance evaluation system to ensure that GOCCs and their top executives are accountable to the public. The law also limited the terms of office of Presidential appointees to one year, with any reappointment vetted by the GCG.

With barely a year left in his term, President Aquino so far has abolished 20 non-performing or dormant state-run firms out of the 157 he inherited in 2010. Another 20 have been classified as inactive or inoperational.

The Commission on Audit lists 141 GOCCs at end-2014, excluding the 464 local water districts. The remaining number of GOCCs is less than half the 303 that the President’s late mother, Corazon C. Aquino, inherited when she assumed the presidency in the mid-1980s. Mrs. Aquino, who also opposed the excesses of GOCCs, had whittled this number down to 166 by the time she left office in 1992.

The ultimate test of strength in the government corporate sector is how state-run firms have addressed imperfections in the market, allowing the public -- both citizens and private firms -- to accomplish their objectives in the most efficient way.

For now, however, we’ll settle for a few financial metrics, as can be gleaned from the table found on this page. At the least, GOCCs should be financially viable so they don’t end up inflating the public sector deficit, a drop in which helped the country attain investment grade two years ago.

The sample of 23 GOCCs in the table pertains to those that earned at least P1.69 billion in gross revenue, which is the cutoff set for inclusion of any company -- whether private or state-owned -- in this year’s Top 1000 Corporations. This is not to say that all 23 made it to this edition’s ranking, but more on that later.

With a combined gross revenue of P558.5 billion, the 23 GOCCs in this table accounted for more than half the P945.8 billion posted by all state-run firms in 2014. Our sample’s combined net income of P232.6 billion also amounts to at least two-thirds of the P334.3 billion earned by the entire government corporate sector.

Since the start of the Aquino administration, the gross revenue of this sample of 23 GOCCs grew by 40%, exceeding the growth rate of the entire economy. The improvement in profitability was more astounding, surging by 5,731% over the same period.

Of course, there are a handful of nonperformers in this sample. Their poor results have been masked by the growth in the biggest of these GOCCs, such as the Government Service Insurance System whose topline accounted for half of the combined revenue of the firms in this sample. Dramatic turnarounds in the bottom line of many of these GOCCs also obscure the shrinking profit of less than a handful.

This brings us to the difference between this sample of GOCCs and the smaller number that made it to this year’s Top 1000 Corporations. From 16 last year, the number of state-run firms in this edition of the ranking has dropped to six.

In our quest to improve the methodology of the Top 1000 Corporations, we came across a 2009 decision by the Supreme Court (G.R. 163072) that clarified which GOCC is a stock entity. We also sought assistance from the GCG, which helped us narrow down our initial list of GOCCs grossing P1.69 billion each to only those that met the legal definition of a stock entity. Thus, our list of six. -- Arnold S. Tenorio

*Send e-mail to Mr. Tenorio at astenorio@bworldonline.com or follow him on Twitter.com @arnoldtenorio.

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