Agriculture Reference
In-Depth Information
whole will create a very large private operator, against which it will be difficult
for the smaller private groups to compete.
Second, NFA is far from being an attractive investment opportunity to the
private sector. It is a corporation whose financial performance is undermined
by its mandate to protect both producers and consumers. This mandate trans-
lates into a “buy high-store long-sell low” formula that contradicts the profit-
maximization objectives of private corporations. Although NFA tries to fulfill
its mandate without incurring unreasonably high losses, financial records attest
that losses covered by government subsidies and increased debts have been a
normal occurrence.
Third, there is a proposal for the private sector to own at least 51 percent
and the government to own at most 49 percent of NFA. This idea is not an at-
tractive investment proposition for the private sector, which will be apprehen-
sive about the possible use of the corporation for political purposes. However,
as a recent study indicates, such an arrangement is also likely to create prob-
lems (ADB 1999). One such potential problem is the possibility of a “swing
vote,” as when a private investor with an equity stake of, say 2 percent, can vote
with the government, thus allowing the latter to control the company. There-
fore, even if a group of investors intends to exercise control over the company,
the fact that any investor with a 2 percent equity stake can give control back to
the government will discourage such attempts. Another potential problem is as-
sociated with appointments of political cronies to senior positions in the new
corporation, a relatively common practice in the Philippines.
Finally, given the investment characteristics of private corporations and the
level of development of capital markets in the Philippines, potential investors
will be large private investors rather than retail investors. These investors will
likely be interested in the new corporation only if they are able to acquire a con-
trolling majority, which will entail a significant level of investment. Based on
the appraisal of the NFA's assets, the potential market value of assets located in
168 out of the 500 NFA sites (with storage and other logistic facilities) is more
than Php 6 billion. Thus, to acquire a 51 percent equity stake in the new corpo-
ration, an investor would need to pay more than Php 3 billion, an investment
level only a few, large private investors can manage.
CREATION OF NEW AND SMALLER PRIVATE CORPORATIONS WITH GOVERN
-
MENT EQUITY
. The fixed assets of NFA can be bundled for outright sale based
on the estimated value, taking into account the characteristics of the locations
and the availability of infrastructure. The same parameters can be adopted in cre-
ating several new corporations out of the present NFA. Under this option, the
levels of government intervention and fiscal burden would also be minimized.
DIVESTMENT BY SALE OF INDIVIDUAL ASSETS
. If NFA's fixed assets are
sold on an individual basis, the policies on the sale and the selling process can
be as simple as currently practiced by NFA through its Committee on the Eval-
uation of Peripheral Projects and the Non-Performing Capital Assets and Di-
