Common Use Service Area (CUSA) Fee

Let me throw in a disclaimer before I proceed. The CUSA fee issue is still under study and deliberation by the Subic Chamber directors. Everything below, at this time, is just personal opinion but which purpose is to provide more information about the issue.

Okay, so what’s the CUSA fee about? The SBMA is having net losses primarily due to foreign exchange losses, depreciation expense, and debt servicing and wants locators and residents to pay fees for use of common service areas to alleviate its financial woes. That’s the short of it.

Paying fees for services provided is obviously not unheard of. SBMA is quite unpretentious, too, when it mentioned that it is relying on the “civic mindedness and spirit of cooperation of its locators and residents to help shoulder the cost of law enforcement, fire fighting, street cleaning and street lighting in order to, at the minimum, sustain the quality of these services and in the immediate future, look into further improving them, all for the betterment of the Freeport.”

But . . .

Two general comments from locators and residents: 1) The fees are outrageously high, and 2) Are we not already paying this fee?

Okay, are the proposed CUSA rates really that high? Let me put it in perspective for you. SBMA’s 2011 revenue from all leases is P793.3 million. Its projected revenue from CUSA less discounts is P354.8 million. On average, that’s a 45% additional expense for us on top of lease costs. Let me ask it again, are the CUSA rates really that high? All together now . . .

Are we not already paying the fee? No, according to the SBMA. It said, “Since its inception in 1992, the SBMA has shouldered the full cost of providing all municipal services within the Subic Bay Freeport Zone…” I have to fully agree with SBMA that it has shouldered all municipal services within the Freeport since the beginning.

Are we not already paying the fee? You’re not having a déjà vu. I still think that we are already paying for it. How? It goes back to the rationale of what taxes are. We pay taxes to the government—the government provides services. Is it silly to assume and expect that the 5% tax on gross income we pay comes with it municipal services? By the same token, shouldn’t the almost 90,000 Freeport workers who are paying individual income taxes to the government expect municipal services as well? I think it is a reasonable expectation.

The problem it seems, therefore, is that since the national government is not allotting back to the SBMA part of its revenue from the Freeport, the SBMA has to shoulder the municipal expenses out of its own coffers. But how much revenue is the national government receiving? In the past four years alone, the total remittance by the BOC and BIR from the Subic Freeport collections was—tadaa—P25 billion!

Shouldn’t SBMA be getting a slice of that humongous pie? The SBMA has to make its case to Malacañang that it need back some of the money that the Subic Freeport has transmitted to the national government. SBMA’s income from leases, port operations, and others is not enough. It was never enough, and never will be until such time that the port operations really, really take off; or if the peso depreciates to unimaginable lows against the US dollar.

Consider, SBMA’s depreciation expense from its assets alone is almost equal already to its revenue from Land & Building leases. Add debt servicing and you will have an amount that is insurmountable even if all SBMA employees, from the highest to the lowest ranking suddenly work for free. The SBMA is simply not set up, in at least its first 25−30 years of life, to have a black bottom line. It would not be a big surprise if there are only very rare occasions, if any, when SBMA has made a net income since 1992. The CUSA forum showed SBMA was in red since 2005. It incurred a P1.1 billion loss just last year.

Some Chamber members are asking how SBMA is able to get by over years of losing money. If I recall right, SBMA has something like a P20 billion paid-in capital. Any losses, therefore, would be simply reflected as deficit in retained earnings. Obviously, SBMA won’t be able to do this indefinitely.

Many are asking, too, about the ginormous depreciation expense. No details are available but looking at SBMA’s Balance Sheet for 2011, their PPE (property, plant, and equipment) is P27.2 billion. That’s huge! Obviously, it includes assets that SBMA paid for including the container terminals and airport renovation. What about the buildings that the US Navy left behind? The SBMA did not pay for them so should those be depreciated as well? I think yes. The SBMA must have done a revaluation of all those properties at the start of the Freeport in 1992, which they obviously accounted as property assets and, thus, must be depreciated.

Here’s a suggestion to the SBMA: Do a fresh valuation of its old US Navy assets and simply write off those that are barely or no longer leasable. The land would still be an asset anyway. It can even do it somewhat aggressively (wink, wink). This action would instantly decrease its depreciation expense. Sure, its PPE asset would decrease but that’s not too bad; the entire Subic Freeport is not for sale anyway.

Back to the CUSA fee. Even if by the grace of heaven (to SBMA), all locators and residents agree to the CUSA fee, that’s only a P350 million additional revenue for SBMA. Assuming a net loss of P1 billion for 2012, where is the rest going to come from?

The CUSA fee will certainly help in SBMA’s financial problems. But will it be acceptable to locators and residents?

The Subic Chamber sent out a survey to members last May 22 where the choices are:

1. No, I do not approve of the CUSA in any shape or form

2. Maybe, but in a form that is reasonable to locators and residents

3. Yes, I approve the CUSA as presented by SBMA

We haven’t had too many responses yet but on what we already got, 77% have chosen #1, 23% picked #2, and nobody voted for #3. As director and President of the SBFCC, it is my fiduciary duty to follow what the majority wants.

I personally would like to help SBMA but like others, would really like to see SBMA do its share of belt tightening and improving efficiency. Chairman Garcia has already declared that SBMA will no longer act with the mentality of a landlord but that of a business partner. It’s a step in the right direction.

The Subic Bay Freeport is not just the SBMA but the totality of all of us in the first place. Its success or downfall will affect each one of us. Perhaps there is another way out of the SBMA’s predicament. Perhaps we can help some other way. Perhaps.

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For more info about the CUSA, go to the SBFCC Online Forum (member access only).

(SBFCC Newsletter Volume 17 Issue 6)