Long term monitoring of Philippine elections development.

Sunday, February 14, 2010

Solita Monsod´s C-5 "Analyses" – Errors and consequences - Senator Manny Villar C5 Controversy

Like many Filipinos, seeing politicians throwing mud at each other has become a normal process during elections. However, this specific controversy, the C-5 project involving Senator Manny Villar is a very serious one.

The beauty of it though, as the discussion staled in the Senate, the public is now the one actively discussing it allowing us regular readers and citizens look at it outside the usual political color.

Here are some reading materials to get us started and be familiar:

Ricardo Barcelona has a follow-up reaction to Solita Monsod but not available online as of this time. I received a copy of it from Rene Azurin and got his go signal to post it here.


Solita Monsod´s C-5 "Analyses" – Errors and consequences

Solita Collas Monsod´s column[2] – Refuting Manny´s defenders – responded quickly to counter the points I raised in my article “C – 5 Sound and Fury: Is Monsod painting the full picture?” Contrary to her claim, I actually question the bases of her analyses and the “incontrovertible” evidence she presents.

Monsod started by acknowledging that she is “honored that he (i.e. Barcelona) considers his being my former student (albeit a rebuking one) more important than the rest of his professional achievements”. Well, this is news to me as I do not recall making any mention of this.

Yes, she was my professor at UP School of Economics in introductory economics and a course in project evaluation. Beyond this fact, I take no responsibility for Monsod´s conjectures – although I am glad that she finds my curriculum vitae impressive. Incidentally, I never shared my resume with her as it bears no relevance to C - 5.

So, what do I find erroneous with Monsod´s analyses and use of evidence?

The errors pertain to mis-application of economic and legal concepts, incorrect calculations, and a leap of faith in connecting “facts” to conclusions. Outright errors are easy to spot and disregard. However, “half-truths” not only mislead, they inflict serious injustice by wrongly apportioning guilt. Specifically: a) Incomplete evidence bias research results, limiting its usefulness as evidence; b) Assumptions, disputed data and allegations are presented as “incontrovertible facts”; c) Incorrect calculations and methodology on land and project values make comparisons meaningless; and d) opinions disguise as incontrovertible evidence support conclusions.

For this reason, I take to heart a legal luminary´s advice as my mentor on the fine art of argumentation. He said: When you are strong on facts, use the facts; When you have the law on your side, use the law to argue your case; But when you have neither, raise your voice!

Villar´s detractors have extended this advice in their practice of partisan politics: When yelling does not work, confuse the issues. This is the aspect of partisan politics that I am fighting against. Hence, for the avoidance of any doubt, I take my privilege of delivering my final rebuttal acting for the defense. I present both sides of the argument in the interest of balance debate. Hence, separating the facts from assumptions, allegations and omissions is the first step towards this goal.

Error 1: Official documents and testimony in the senate are given equivalence to “incontrovertible” facts

Monsod: “The A´s (i.e. answers) in my column can be verified by documents and uncontroverted statements from official sources … I am certainly glad Mr Villar aired his side on his website. That is his choice. It is mine to look at the government documents and the sworn testimony that are part of the Senate Record.

What´s wrong: The official sources that comprise the Senate Record include Villar´s privilege speeches in 2008 and 2009, and depositions disproving any wrongdoing. By ignoring evidence that refutes the detractors´ allegations, the validity of the research conclusions are at best incomplete – worse they become questionable.

The source data of Senate Report 780 is the subject of challenge. The transparency (or lack of it) and objectives (political vs establishing the facts) of the investigation are at the core of the dispute. For instance, 25 witnesses named by Senator Ana Consuelo Madrigal – Villar detractor - as key to the investigation were never given the opportunity to testify. Others include testimonies submitted to the senate, but ignored by Monsod, that I cited in my article (i.e. Atty Carmela Bacod on “no over-pricing”; and Atty Yolanda Doblon on “no double insertions”).

Consequences: Monsod is within her right to limit the documents she chose to review. However, contradicting evidence consciously excluded limits value her analysis. Precisely, official documents rely on due process and transparency to establish its credence. Senate Report fails this test as allegations are taken as “facts”.

Error 2: Allegations are used as “incontrovertible” facts to support conclusions

Monsod: “Since there was already an ongoing project (the MCTEP or Manila Cavite Toll Expressway) linking C – 5 to the Coastal Road, it was totally unnecessary to build a second one”.
To arrive at this conclusion, she used the interactive map published at www.gmanes.tv arguing that “technically there has been no realignment, because these are two separate roads linking C – 5 from SLEX (i.e. South Luzon Expressway) to the Coastal Road. But they are very close to each other and in some areas overlap as can be ascertained from a site map” (www.Inquirer.net, posted January 30, 2010).

She added in her subsequent column that “MCTEP was conceived precisely to create choices for motorists. There already exists a current road network, toll free, that will allow motorists to move from SLEX to the Coastal Road. MCTEP would give them the choice of going from point A to point B more quickly – as long as they are willing to pay for the convenience. Giving motorists a third choice, in the context of competing demands on scarce resources, cannot be – never mind, should not be – defended”.

What´s wrong: Waste is established after the fact when a project is completed. That is, a project becomes wasted investment if no socio-economic value is generated. Monsod dismisses Ma Nalen Rosero Galang´s explanation, Villar´s legal counsel, that the C – 5 roads are needed to ease traffic congestion. To wit: “To Ms Galang, where in urban Philippines are traffic conditions not worsening?”

If traffic volumes require additional road capacity, they need to be built once the case for investment is justified. A priori conclusion on waste takes the status of assumption-turn-doctrine. Reality debunks this “novel” economics:

  1. Skyway is Manila toll road built above toll free Sucat – Alabang road. Both are highly utilized by motorists.
  2. Light railways in Metro Manila are built on top of existing roads in major thoroughfares. All infrastructures are highly utilized.
  3. Multiple level toll and toll free roads co-exist in Boston, New York and other high traffic density US urban areas.
  4. Barcelona´s (Spain) prime beach resort community in Sitges is connected by toll roads, sharing common stretches with toll free roads, in addition to railways and marinas (i.e. access from sea).

Indefensible C – 5 waste of money as Monsod´s “doctrine” would argue? With at least six million beneficiaries that enjoy better travel, this is socio economic value not to sneeze at.

Monsod´s principal evidence is based on an interactive map of C - 5 drawn by journalists. GMA News´ interactive map is generally assumed to be from the Senate Report 780. In reality, this was drawn by journalists from GMA News allegedly based on a letter from DPWH CESO Regional Director Robert Lala to former DPWH Secretary Hermogenes Ebdane on October 15, 2008. However, this letter is not included in the Senate Report.

MCTEP is presented as the “original” C – 5 extension, while CX – 5 is shown as the rerouted road that was actually built. To quote: The map shows the “originally planned route of the road project and where the road actually passed after presidential candidate and real estate magnate Senator Manny Villar allegedly intervened”.

This is where the confusing part is – did Monsod herself not say these are two separate sets of road projects? If this was not included as part of the Senate official documents, does it fall under Monsod´s scope of admissible evidence after excluding Bacod and Doblon´s testimonies that I cited? Now, are there two links or three links as Monsod claimed? Not sure how much relevance this has except to highlight how selective use of evidence could lead to incorrect conclusions. The fact is, all roads are serving the communities they are built to serve (Galang letter to Inquirer, February 6, 2010).

Villar in his various privilege speeches at the senate in 2008, 2009 and 2010 presented evidence to refute arguments about “double insertions”. What happened to these supporting documents? Why are they ignored by the Senate Report 780? One of salient points of that debate precisely revolve around what the “original” road design was – MCTEP or CX – 5 that was claimed to have been part of the general road plan formulated by the Americans in the 1940s, according to Villar and DPWH (Senate Privilege Speech, February 2, 2010).

Clearly, official documents contain “facts” that are disputed. This requires inclusive evaluation of evidence to get to reality. However, Monsod may have taken the approach that use of evidence is a matter of preference. To quote: “It is mine (i.e. preference) to look at government documents and the sworn testimony that are part of the senate record”.

Consequences: If allegations are accepted as “incontrovertible” facts, and are then used to arrive at a “conclusive” case for censure and retribution, what has become of the Senate and the justice system? We are entering an era where no one is secure in life and property, where no one can expect due process. As a consequence, the Philippines is likely to join failed states such as Somalia once this logic is extended to policy and government. In fact, the Philippines is ranked below most of its ASEAN and Asian peers in surveys by Transparency International, Heritage Foundation and similar surveys. This is because of onerous legal framework made unpredictable by discretionary application of law and evidence. Applying “assumption-turn-doctrine” as an approach exacerbates this problem.

Error 3: Incorrect math and economic theory render comparisons meaningless

Monsod: To justify the discrepancy between what appeared on her Inquirer.net column and News on Q, she explained that “the P11,520 figure refers only to the properties that are directly Villar-owned. The P7,168 figure refers to the direct properties and those in joint-venture with Villar companies. Please note that I used the lower figures in my column”.

What´s wrong: Monsod stated that “I have – based on the documented prices and acreage of the lands purchased in connection with LPPLP – computed the weighted average prices that were paid for the Villar and related properties, and those paid for the non-Villar properties (www.Inquirer.net January 30, 2010)”.

In reality, the figures can be calculated as the simple average by dividing the price paid (P168.1 million as numerator) with the acreage (23,455 sq meters as denominator) to arrive at Monsod´s result of P7,168 / sq meter. Now, if we want to adjust for the Villar only property, both the numerator and denominator should be adjusted accordingly.

Although Monsod never substantiated her figures at News on Q, we can calculate this by fixing the price paid at P168.1 million (i.e. keeping numerator constant) and divide by 14,592 sq meters (i.e. as new denominator). The Villar only acreage of 14,592 sq meters is derived by dividing the total price (P168.1 million) by the price / sq meter (P11,520).

Word of caution: Simple averages are easily distorted by excessively high (or low) prices for small lots that are given the same weight as large lots.

Monsod went quiet on her “novel” economic argument on MCTEP joint venture vs CX – 5 / LPPLP. She argued that “MCTEP is a joint venture … with the government´s financial exposure limited to P2.68 billion for the purchase of the right of way … while CX – 5 / LPPLP is a toll free, wholly financed by government project costing P6.96 billion”.

Consequences: An English expression is appropriate – half truths, lies and statistics are taken in the same breath by skeptics. Hence, when meaningless statistics are presented as having credence of “incontrovertible facts”, we cannot attach much value to what passes as “analysis” supporting the “conclusive” case to convict.

Students of finance and decision theory will see through these comparisons as illogical and meaningless. Incorrect math combined with incorrect theory results in dubious comparisons. A Shakespearian farce – all sounds and fury signifying nothing!

By ignoring Bacod´s testimonies declaring “no over-pricing” on at least two instances in the Philippine Senate, what game is being played by flogging a dead horse? The only tangible contribution that I see is to reinforce doubts in investors´ perception of unpredictable legal framework. As a result, punitive interest rates on borrowings and onerous terms are what we can expect if we apply this type of “novel” economics.

Error 4: Tainted by association and presumption of conflicts of interest

Monsod: “Do not put words into my mouth. I was not suggesting that capital gains linked to public works should accrue to government. There is a world of difference between the Hda. Luisita issue and the Villar properties issue: (1) NoyNoy Aquino probably owns less than 2 percent of Luisita, Villar owns 100 percent of his companies; and 2) Villar conceived and initially funded CX – 5 / LPPLP; And Aquino has zilch to do with SCTEX”.

What´s wrong: There is a pattern of mixing allegations, unexplained assumptions and opinions passed as “incontrovertible facts” that raise questions about research rigor. Monsod´s arguments are non-sequiturs: (1) Ownership on its own hardly leads to “incontrovertible” fact that NoyNoy Aquino is subjected to less conflicts of interests than Villar, and vice versa; and (2) Sponsoring a project logically taints its benefits because the sponsor will only look after their own interests. Both are assumptions that bears little basis on specific facts. Specifically:

  1. Ownership share on its own neither guarantee conflicts of interest nor reduce temptation to plunder.
  2. Congressmen are mandated by law to represent and work for the interests of their constituency. Sponsoring projects of major impact is part of that role.

NoyNoy Aquino´s 2% stake (by Monsod´s reckoning) if applied to an estimated P60 billion value of Hda Luisita, once connected to SCTEX, is worth P1.2 billion (a massive increase from zilch). Using Aquino´s estimate of 3.125% share, this is P1.875 billion (www.gmanews.tv, February 9, 2010). Higher estimates place the land value at up to P450 billion – implying between P9.0 to P14.0 billion. Take your pick – still a nice fortune to inherit, rather than the small ownership share downplayed as insignificant.

In an ongoing investigation at Congress, records show SCTEX is fully funded by government. Precedents make Monsod´s logic untenable.

Using her own C – 5 “logic”, Cojuangco - Aquino´s 500 hectare industrial and residential estate is the principal beneficiary of the P32 billion SCTEX. There are existing roads and access to the site. Tai pan Lucio Tan, faced with similar quandary at his properties at Cabuyao, housing Asia Brewery and real estate developments, paid in full from his company´s funds. This is paid to the government to construct roads connecting his properties to existing road networks.

The more fundamental issues are: (1) If SCTEX at P32 billion is a major project that impacts Noy Noy Aquino´s constituency when he was Congressman for Tarlac, should he be at the forefront championing the project?; and (2) If Hda Luisita is the major beneficiary, should he not take a more active interest to ensure that SCTEX follows utmost transparency that is deem as fundamental for good governance? By showing apparent disinterest, was NoyNoy Aquino derelict in his duties as Congressman for Tarlac?

Zilch to do with SCTEX ? Interesting … but let Congress complete their work before we pre-empt their findings. In the meantime, Daily Tribune´s article on “SCTex was Gloria´s gift to Aquinos” previews the unfolding saga that has all the making of a “bigger than C – 5” controversy.

Putting words into Monsod´s mouth? Let us face it - What is the point in belaboring that Villar wrongfully gain from C -5 because his company´s property values rise after the road projects are completed?

Consequences: If issues are debated without separating facts from fiction or allegations, we get the results that we have. The senate debates on the C – 5 controversy, conducted in an obvious partisan manner (i.e. senate divided along party alliances or personal grudges), is a classic example of this outcome.

If SCTEX follows the path C – 5 took in congressional investigation, the greater loser is Philippine development. With Congress and the Senate lock in partisan politics, rather than producing legislation that facilitates development, the Philippines can be condemned to prolong under-development – at the Filipino´s expense.

Conclusion – Villar is innocent of any wrong-doing
The errors contain in Monsod´s “analyses” on C – 5, and their consequences, lead me to question her methods and conclusions. To complete the partial picture Monsod paints, this contrasting view allows readers to weigh evidence to aid their decision.

I conclude that the case against Villar, and Monsod´s evidence to support conviction, cannot stand scrutiny in a court of law.

In the court of public opinion, clarity of facts and a balance treatment of evidence is what I aim to achieve. I trust that I have achieved this goal with rigor, transparency and fairness – clearing Villar of wrongdoing.

Reflections and way forward
Monsod close her arguments by providing a moral of the story that is curious, if not irrelevant: “Do not rebuke your teacher using insinuations and without knowing full knowledge of the facts. My fault is that I didn´t teach him any better”.

Again, I take no responsibility for Monsod´s conjectures. On deeper reflection, perhaps being a former student of Monsod that “did not get it”, who she could have taught better but did not, has its own benefits.

After UP School of Economics, I am fortunate to be given the opportunity, and the wisdom to accept advice from wiser people. As a result, I pursued farther education in world class institutions such as IESE Business School, Spain and Cranfield School of Management, United Kingdom. This is complemented by courses taken at Wharton / University of Pennsylvania and Harvard, both while serving at Royal Dutch Shell in The Netherlands. In the process, I manage to enrich my education, update my knowledge and enhance my formation, thanks to the guidance of great minds and peers.

Sitting on shoulders of intellectual giants, I benefited from their insights and personal qualities. To name a limited number: Bernardo M Villegas´ (University of Asia and the Pacific) lessons in humility and personal integrity serve as foundation; Florian Alburo´s (UP School of Economics) mantra to go see the world when introspection was UP´s prevailing wisdom; late Harry Hansen´s (Harvard and IESE Business School) mentoring on strategic foresight; Carlos Cavalle´s (IESE Business School) openness in seeing challenges to arguments as intellectually stimulating; combines with Pedro Nueno´s (IESE) focus on the practical use of knowledge; and David Parker´s (Cranfield) pursuit of evidence with rigor to inform policy and debate. Their company makes the journey worthwhile as we find inspirations from the works of Porter, Ghemawat, Markowitz, Sharpe, Rubinstein, Dixit, Pindyck, Arrow and many more …

They share common traits: By embracing dissenting views, pursuit of knowledge is undertaken in service of truth and common good – tempered by humility that we do not have a monopoly on wisdom but possess sufficient sense to shape it.

Had I been “taught better” by Monsod, would I end up in a better place? A curiosity – but then I trust my European sojourn prepares me well to continue serving our people, as I am doing in my private capacity.

For partisans who instinctively react to stamp out dissenting views like a “yellow fever”, all I can say is this: Let us shake hands, enjoy our drinks, and depart as friends agreeing to disagree!

[1] Senior adviser on energy and infrastructure investments, competition and regulation. In investment banking, voted top rated analyst (European utilities) and adviser (privatization). In industry, served in senior roles in mergers & acquisitions and large scale investments. Doctoral candidate, Cranfield School of Management, United Kingdom; MBA, IESE Business School, Spain; and BA Economics, School of Economics, University of the Philippines.

[2] Inquirer.net, posted February 5, 2010.

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