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Tuesday, August 15, 2017

Construction sector is starting to express unease over DAO 17-02 implementation

DTI order to bloat cement prices, put construction industry in jeopardy

With its imposition of a burdensome requirements on pure importers of cement , the Department of Trade and Industry (DTI) is in a collision course with President Rodrigo Duterte, who vowed to reduce bureaucratic red tape to ease the process of doing business in the country.

Making matters worse, the DTI imposition will jeopardize the massive infrastructure projects under the Duterte administration's Build, Build, Build program through high construction cost by bringing prices of cement to stratospheric heights.

The President made the vow in his first State of the Nation Address (SONA) on July 25, 2016 and repeated it in his second SONA on Monday, July 24, 2017.

"A year ago, I also warned government officials and employees that I will never tolerate corruption in my administration, not even a whiff of it. Let the dismissal of several high-ranking officials — whom I myself appointed — serve as a warning to all that I will never back down on my commitment to cleanse this government," Duterte said in his second SONA to the applause of the audience.

Duterte is aware that corruption is still happening.

"Since we launched this hotline (8888), we have received numerous complaints from the public on government… slow government processing and clearance, of changing procedures and requirements, centralized issuance of clearances and permits in Metro Manila, and discourteous government employees, among others," Duterte said in his second SONA.

Also, speaking before an investment forum in Davao City recently, he said: “I would like to destroy government itself.... If I had my way, I would  reinvent (it). We can have less powers but more efficient organization...If there’s an ideal setup that we can follow, I’d be glad to put in place something of a bureaucratic authority that would move by itself automatically...”

The President also bared plans to summon officials facing complaints from the public. If proven they have committed irregularities, Duterte said, he would ask them to resign or else he would fire them. He said he was ready to give them another chance but they have to “kneel down” before the public and vow to improve their service.

In an earlier speech, Duterte had said: "The fight (against corruption) will be relentless and it will be sustained... I order all department secretaries and heads of agencies to remove redundant requirements and compliance with one department or agency shall be accepted as sufficient for all...(They should) refrain from changing and bending rules, government contracts, transactions and projects already approved and awaiting implementation... Changing the rules when the game is ongoing is wrong.”

But according to industry sources, those in the DTI have turned a deaf ear to the President's resolve to cut red tape in government as they have issued  an order that imposes an additional burden on small cement importers. This, it is feared, could only lead to the emergence of a cartel composed of giant cement manufacturers-importers who reportedly want to bring back cement prices to the P300 per bag level in 2015 from its present price of about P197 per bag.

While requesting anonymity, industry sources have welcomed the filing of a graft and corruption complaint against a DTI undersecretary before the Office of the Ombudsman for the official’s role in having the DTI’s Bureau of Philippines Standards issue Department Administrative Order (DAO) 17-02/05. At the same time, the source said that a separate case is being prepared against another  DTI official for approving the highly controversial order without going through proper public consultation. He also claims that the rush to cure the flawed order is being kept under wraps by the DTI.

The controversial DAO requires importers to secure an  Import Commodity Clearance (ICC) on top of the 'PS' or Philippine Standard mark for imported cement. The DAO, however, exempts from the ICC requirement the big cement manufacturers operating integrated cement plants in the country but also importing cement. 

Several reasons have been cited why the DAO 17-02 and subsequent DAOs should be suspended or totally revoked.

"The DTI order creates an environment which could threaten the stability of the cement prices in the market as the DAO 17-02/05 is a surefire formula for prices to spike uncontrollably and for supply to be manipulated,” said a source in the construction sector.

The source pointed out that in 2014, the cement price was around P300; when importers entered the picture, the price immediately fell to around P217; currently, the price hovers at around P197. 

This, the insider said, "offers solid proof that open competition augurs well for the public."

“If  DAO 17-02/05 was intended to protect the public by ensuring the quality of the imported cement, the industry group wondered why  both manufacturers-importers and small  importers get their cement from the same plant abroad:  So how could there be any difference in quality?” he asked.

“At the same time, if quality is the issue as announced by the DTI official recently in defending the order, why are the big manufacturers-importers trying to negotiate with cement plants abroad so they can exclusively sell cement in the Philippine market, thus removing  the pure importers from the equation?” he added.

The  DTI order could actually set back the implementation of the Build, Build, Build infrastructure development program of the Duterte administration as cement supply from local manufacturers may not be sufficient to meet the expected big demand for the commodity, the industry source said.

The insider lamented that the DTI "wittingly or unwittingly strengthens the stranglehold by a few giant cement manufacturers-importers that have been acting as a de facto cartel to dictate cement  prices in the domestic market."

Prior to the implementation of DAO 17-02, the release of covered imported cement was allowed by mere presentation of the PS mark.  An ICC was not required, whether the cement importer operated or did not operate an integrated cement plant in the country.

The DTI order, the source added,  is "arbitrary and capricious as this was issued without any proper public consultation." 

Moreover, the insider said that if this DAO is implemented, "the highly ambitious P9 trillion Build, Build, Build infrastructure program will be the first to feel the impact with skyrocketing cement prices and manipulated supply. At the same time, the public is expected to bear the brunt of such protectionist move."

As this develops, the construction sector is starting  to express unease over the order as such move will surely escalate prices and will throw their signed contracts in disarray.

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