Thoughts on the SRP controversy

Reflections fromPaseo de Coro

Cebu City Mayor Michael Rama wants to sell the South Road Properties or SRP lots now and use the proceeds for his projects. In response to Mike, former city mayor Tommy Osmeña says no! On this issue, I have another idea which is different from Tommy’s but not necessarily similar to Mike’s.

But before I proceed, let it be known that from 1988 to 1994, I was the assistant director of the National Economic Development Authority or Neda in Central Visayas where I also served as Secretary of the Regional Development Council (RDC) QQex-officio, the Neda regional office being the technical arm of the RDC. It was during this time when the Metro Cebu Development Project was put into motion with funding from the Japanese Yen Loan Package. Former governor Emilio Osmeña chaired the RDC from 1988 to 1992 and Tommy from 1992 to 1995 after which he opted to forego his last three-year term as mayor of Cebu City to devote more time to the MCDP in another capacity. From 1990 to 1999, I was also managing the AusAid assisted Central Visayas Water and Sanitation Project or CVWSP where the board was also chaired by whoever sits as RDC Chair.

Working under him, I knew how Tommy worked and how he treated people whom he can fully trust. As long as things were done properly, he did not interfere with my job. I also knew, however, that when Tommy fixes his mind on one thing, it is hard for anyone to change that position. I would not be surprised, therefore, if Tommy will not take positively what I have to say here now. But this is a free country and as a long time resident of Cebu City, I believe I also have my right to say my piece on matters of great importance to the people here.

Even before the new controversy I heard Tommy saying for some time already that to sell the SRP lots now is wrong because in the future the price of the SRP lots will rise as soon as the initial development by SM and Filinvest (in lots sold previously when he was mayor) will be completed. That is true but that is counting only the revenue side. There is also such a thing as opportunity cost of not selling.

First, when SRP lots are sold, there will be money available immediately which when invested in securities will also earn money for the city. That is, if the proceeds of the sale are kept intact and only the income from securities is used for whatever projects Mike wants to undertake. That is one income foregone if the sale is not done. Rational as we humans are, we always prefer cash today than the same cash tomorrow.

Second, when a sale is made, the buyer will now start paying property taxes to the city and that could be another big amount of money foregone if the sale is prevented.

Third, once sold, the property can be developed immediately for whatever purpose the buyers have in mind. That means creating more jobs during construction and when finished more jobs can still be created and income generated for ordinary workers aside from bringing in more business and real estate (from improvements) taxes to be collected by the city government once the projects are completed and start operating. Again more jobs, income and taxes being realized today are more preferable than what are still to come tomorrow.

Finally, once the projects in the newly sold lots at SRP are completed and starts operating, there will now be more multiplier effect coming as more business will also turn up and prosper elsewhere in the city in tandem with the progress of the SRP through backward and forward linkages.

Tommy also says that if the SRP lots are sold now it may just end up like the Cebu City North Reclamation that remains underdeveloped until now as the lot buyers are content mainly with the expected rise in value of their lots as the city continues to progress. Tommy need not worry about that because actual development within a certain period can be made as condition for the sale with penalty provision if the condition is not met.

Now which is greater, the expected bonanza that comes with higher property values when the sale is delayed or the immediate flow of income from investment in securities and the increase in employment, income and taxes and other multiplier effects foregone if the SRP lots are not sold? This we cannot tell easily but that is also precisely why local government executives should at least understand the concept of benefit-cost analysis and hire experts to do it before any important decision is made.

To be frank about it, local governments have nothing more to support their decisions (even for big projects like the Cebu International Convention Center, for example) than the drawing of the architect and the accountant or budget officer’s work and financial Plan (WFP). Without benefit-cost analysis or feasibility study to determine the project’s net present value (NPV), benefit-cost (B/C) ratio and financial and economic internal rate returns (FIRR an EIRR), and many other aspects of viability, making a decision on projects involving a lot of money is like going to casino. In the casino, the verdict is that the losers outnumber the winners.

But wait, what is my position on the issue? To me the best strategy is not to sell at all any of the SRP lots which should have been applied since the start. I am for no sale because the SRP, as a special economic zone, may just be leased by lot buyers to investors or if the zone management also sets up its own buildings, they can lease the building spaces to investors, particularly for footloose industries with foreign capital, in order to make it less expensive and attractive to investors.

I mentioned manufacturing industries because that was the SRP’s original intention-to house them as part of the overall strategy of the country to industrialize, the lack of which is now seen as one of the reasons we are left behind by our neighbors. It was not the original intention of the SRP to be developed into a first class housing and commercial center for the construction of condos and shopping malls for the rich.

These, my fellow Cebuanos, are my thoughts on the SRP.