Manuel Pangilinan
MANILA, Philippines — “Certainly, we’ve taken a knock on our reputation. We pride ourselves on governance, on disclosures, and we’re gonna get a knock. We have a job in trying to recover our credibility.”
Thus said Manuel V. Pangilinan (MVP), who chairs PLDT Inc., after he detailed in an exclusive to the Inquirer how he learned of initially as much as P130 billion in undocumented purchase orders made in the last four years at the country’s largest telecommunications firm.
On Friday, the company said the latest estimate of these questionable deals — which it described as “budget overruns” — had been trimmed to P48 billion, representing 12 percent of PLDT’s P379-billion capital spending program of the last four years.
The 76-year-old billionaire businessman said a senior company executive had informed him about the problem with unrecorded transactions in early October.
This official had discovered that the company had been ordering and paying for billions of pesos worth of internet and phone network equipment without the documentation needed for accurate record keeping.
Without such controls, it becomes difficult to determine whether the deals are aboveboard or if unscrupulous corporate officials or vendors are committing fraud or earning kickbacks from multibillion-peso purchases.
“At that early stage, the numbers were very different from what we disclosed [on Friday],” he said. “They were closer to the numbers being quoted in those rumors: 128, 130 [billion pesos].”
Internal forensics
Pangilinan — who oversaw the transformation of PLDT from an analog telephone monopoly in the 1990s to the digital giant it is today — said he immediately ordered the assembly of an internal forensics team to assess the damage.
He also ordered the hiring of a third-party auditor that was not associated with PLDT’s external auditor, SGV & Co., to scour the company’s books from top-to-bottom to search for potential cases of fraud.
More importantly, the PLDT chair also ordered officials to renegotiate and, in many cases, altogether cancel these large supply deals with vendors, which he said had ballooned beyond expectations, all below the radar of the company’s top leaders and board of directors.
Thus, what was initially rumored in the vendor community to be irregularities worth P130 billion were cut to P48 billion, and may be “slightly” reduced further in the coming weeks.
Pangilinan said the company was preparing to mete out harsh sanctions to officials who are proven to be involved in or have had knowledge of the scheme.
“We have to set an example,” he stressed, “We have to send a message. We have to be firm.”
PLDT has already suspended, with pay, four key officials pending the results of a more in-depth investigation, Pangilinan said.
These included the firm’s heads of finance, procurement, and networks. Sources said a fourth suspended official was responsible for recommending the equipment suppliers and vendors to the company, which eventually turned out to be part of the questionable transactions.
Meanwhile, he has also been busy trying to buttress the company’s books from the financial fallout of this discovery.
In particular, the main impact will be on PLDT’s depreciation expenses, with P48 billion representing uncompleted capital expenditures carried over from 2020 and 2021, and fulfilled in 2022 and 2023.
Most of these, Pangilinan explained, are depreciated over a period of eight to nine years, which means PLDT’s depreciation level would rise by about P4.5 billion annually, starting 2023. If not addressed, this will reduce the company’s core income by about P3.5 billion each year.
Depreciation charges
This can be mitigated by writing down certain existing assets approaching obsolescence to take out their depreciation charges.
“The significant gain from the sale of [telecommunications] towers should give us the space to write off a significant amount of current assets to offset these unanticipated capex overruns,” he said.
Last Friday, management presented its latest findings to the board of directors, assuring them that the effects on the firm’s 2023 profits will be minimal, and that the year after that will be better.
“Give us a year to recover and 2024 should be good,” he said. “It will be better than 2022.”
“I’d like to assure everybody else that, when we heard about this problem, we addressed it right away,” he said. “It’s most unfortunate. I’m very sad and disappointed that this happened. But it is what it is. We just have to deal with it and put in tighter controls and better processes.”
“We have much work ahead but we will get through this one,” Pangilinan added. “We shall overcome.”
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