in Serious stuff, my friend

The Wire and the coconut levy (mainly the second than the first)

If you haven’t seen The Wire yet, please do so as soon as you can. The dialogue and narrative are about the finest you can find—and, for that matter, see and hear—on television. [See: The Wire]
Of course, I’m biased.
I’m currently on the third episode of Season Four and if anything, the series teaches patience—exactly the same patience exhibited by Lester Freamon and Roland “Prez” Pryzbylewski.
After the special unit to which they belong was allowed to tap public phones used by hoppers (drug dealers), Freamon and “Prez” were able to decipher codes, enabling them to take note of drug pickups and deliveries. They were also able to match voices to identities and their cellphone numbers even though crooks and kingpins were expressly instructed not to mention names at all.
Later, Prez followed the money, tracking down how kingpins were able to invest in real estate and make contributions to political campaigns and, in effect, launder drug money.
Using publicly available financial documents, Freamon and Prez were able to help public prosecutor Rhonda Pearlman lodge cases against heavyweights, including some politicians.
But I should stop here lest I spoil the fun for those who haven’t seen the series yet.
Meanwhile, I mention patience as a lesson to be learned from The Wire because a consultant from the National Anti-Poverty Commission (NAPC) was patient enough to brief me further about the coconut levy. The levy was a tax collected from coconut farmers from 1971 to the mid-eighties to help them cope with fluctuating international vegetable oil prices.
My question was this: Exactly how much, percentage-wise, was the stake of coconut farmers in San Miguel Corp?
Short answer: 31 percent.
Long answer: It’s more complicated than the love lives of President Benigno Aquino III and his sister, Kris, combined.
How come?
That same stake is owned by a total of 14 holding companies, also known as the Coconut Industry Investment Fund (CIIF) block. These 14 companies are owned by the United Coconut Planters Bank, which, in itself, was also established by the coconut levy funds.
The stake has been whittled down on two occasions, converted into preferred shares from common, and has been bought back by the San Miguel Corp., whose management still remains affiliated with Marcos crony Eduardo “Danding” Cojuangco Jr.
For his part, Cojuangco owns a separate 20 percent stake in San Miguel, which he bought using loans from UCPB. How did he get approval to get those loans? Easy. He used shares owned by the CIIF block as collateral.
Simply put, Cojuangco—through several presidential decrees issued during the time of dictator Ferdinand Marcos—was able to monopolize the coconut industry.
First came a decree that mandated the Philippine Coconut Authority (PCA) to collect the levy from coconut farmers. At that time, Cojuangco was the PCA administrator.
Next came another decree allowing the PCA’s acquisition of First United Bank, which would later become the UCPB, the sole bank that kept the levy collected from coconut farmers. While he was PCA administrator collecting the levy from coconut farmers, Cojuangco was also UCPB President, storing the levy in the bank.
Another Marcos presidential decree had the effect of converting the coconut levy into a private fund which Cojuangco would claim to own.
With these powers, in 1983, Cojuangco used the levy to buy a 51 percent stake in San Miguel Corp.—31 percent representing the CIIF block and 20 percent for himself, paid for through a loan granted by the UCPB, a bank that he was president of.
Shortly after the first Edsa Revolution, the government—through the Presidential Commission on Good Government (PCGG)—took over that stake in San Miguel and held it in trust for coconut farmers.
A month later, the government temporarily lifted the sequestration on these same shares after it agreed to sell the 31 percent stake to a group, which eventually turned out to be a wholly-owned subsidiary of San Miguel International, another entity affiliated with Cojuangco.
Upon discovering this irregularity, the PCGG was prompted to impose sequestration on the same shares again.
But it was too late.
San Miguel International already transferred P500 million to the government as partial payment by using four percent of the CIIF block, thereby whittling the shares to 27 percent.
Since the agreement was failed to proceed, the government returned the four percent to San Miguel Corp. which the company still holds to this day.
In December 2001, a landmark Supreme Court ruling declared that the 27 percent San Miguel Corp. shares—also known as the CIIF block—were public funds.
The decision had very little effect on the activities that were later undertaken by San Miguel.
In 2005, the company decided to issue and sell additional shares through a stock rights offering. Those who had shares in the company had the option of buying more stock to preserve their current stake. (If you had ten shares, you were entitled to buy one more to preserve and protect your stake. Based on the transaction, if the company had a total of 100 shares, it issued and sold ten more, bringing total shares to 110. If you happen to have ten shares but refuse the option of buying one more share, your ownership in the company would be diluted since you only would have ten of the company’s total 110 shares after the stock rights offering.)
Since the government—which held the CIIF block in trust for the coconut farmers—was unable to raise money for the offering, the stake was reduced to 24 percent.
In September 2009, more than 25 years after the first coco levy was collected, the Supreme Court approved the conversion of San Miguel shares to preferred from common.
What was the effect of the conversion?
It allowed coconut farmers to lose their claim over the 24 percent San Miguel shares that were acquired using money they forked out.
While preferred shares theoretically earn more (its dividends are higher than common shares) and its owners are first to be paid (in case the company goes bankrupt), the conversion also allows the company to buy back the shares after a certain period (i.e., five years).
The MultiSectoral Task Force on the Coco Levy continue to maintain that the conversion was illegal—since ownership of the shares were in dispute—and the shares were converted and bought using lower prices.
More than three years later, those shares have been bought back by the San Miguel Corp. and proceeds from the share sale—worth P70 billion—are now at the National Treasury.
From then until now, no thanks to legal complexities, coconut farmers have yet to enjoy the benefits of the levy, forty years after they were first collected.
Now, that’s injustice, plain and simple. And I’m not even sure whether Freamon and Prez would have the patience to wait for the day when the coconut farmers get their deliverance.

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From The Give Credit Where It’s Due Dept. Most of the information in this entry were gleaned from A Long and Tortuous Road To Coconut Levy Recovery by Romeo C. Royandoyan and Cronycles on the Coco Levy Scam by Joey Faustino.

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