Pagcor cuts coffee cost, no charges yet vs suspects

Two weeks before President Benigno Aquino III is set to deliver his third state of the nation address in Congress, INQUIRER.net will be running a special report on how his administration performed in the past year and what reforms, if any, have been or would be enforced over the next four years to ensure that his vision of an honest government and of a people freed from poverty may be realized–Ed.

PART I

MANILA, Philippines—One of the bombshells dropped by President Benigno Aquino III during his second state of the nation address (SONA) in July 2011 was the P1 billion worth of coffee spent by the previous management of the Philippine Amusement and Gaming Corporation (Pagcor).

Making a quick computation, Aquino told the stunned joint session of Congress: “At P100 per cup, that would be 10 million cups of coffee over the last several years?”

“Where did all that coffee go? Who drank it?” asked the President, wondering if the people behind the coffee scam were “still able to sleep.”

Cristino Naguiat Jr., current chairman of Pagcor, in a statement a day after Aquino’s exposé last year confirmed the coffee tab, which he described as a “scandalous”, “outrageous”, “offensively excessive” misdeed of the previous management.

But a year passed after the nation sniffed the nauseating aroma of the prized drink, no one has yet been brought to court.

When pressed about what Pagcor has done, Naguiat, in an exclusive interview with INQUIRER.net, said that a plunder case, a non-bailable offense, would soon be filed in court against the culprits.

“Yes, I’m definite with that,” Naguiat, a close friend of President Aquino, said over the phone.

He refused to give other details but a statement issued by his office showed Pagcor was preparing a criminal complaint against Promolabels Specialty Shop, which ran a coffee concessionaire in seven casino branches during the term of the gaming firm’s former chairman, Efraim Genuino, an appointee of former president Gloria Macapagal-Arroyo.

Naguiat said he obtained documents showing that from August 2001 to June 2010 the previous management spent P1 billion pesos for coffee, with Promolabels allegedly cornering almost P700 million.

Naguiat also found out that Promolabels, owned by a certain Carlota Cristi Manalo-Tan, was not registered with the Securities and Exchange Commission.

But at the time President Aquino made the exposé, Naguiat admitted that Pagcor had just discovered the procurement of “overpriced coffee” by the previous management.

What was submitted to the President that became the basis of his exposé, Naguiat said in the phone interview, was not an initial report of the agency but “an expense recorded in the book.”

Further investigation by the agency showed,  “There’s solid evidence that they spent P1 billion for coffee.”

Two-in-one

Hurling an accusation is one, but ensuring you have a solid case that can withstand court scrutiny is an entirely different matter. In this case, the process of gathering data has proved to be a grueling task for Pagcor.

“It has taken Pagcor quite a long time to work back on all the documents pertaining to Promolabels transactions because our auditors had to validate and verify every invoice and receipt of Promolabels for the past 10 years,” the government-run gaming agency said.

“So that we can determine the overpricing, we have to look at all receipts. It’s like for every order, there’s one for brewed coffee, for frappe, they are all different, for us to be able to file a case of plunder … you have to look at every receipt,” he said.

“It’s not easy to say, ‘This is the voucher, this is your evidence.’ No. You have to look at all receipts. Do you picture how many those are?”

But to file a plunder case, Naguiat said Pagcor need not have to check all the P1 billion worth  of coffee bills. Plunder is already committed when a public official amasses ill-gotten wealth amounting to P50 million.

“We can no longer file that if we will chase the P1 billion. So we just reached for the threshold. To be safe, I think about P60 million or P70 million of the amount is what they earned,” he said.

Naguiat said he would want to file a case in court backed by solid evidence, and not by mere newspaper clippings.

A cup of prevention

To prevent a repeat, Pagcor said it has instituted various reforms.

Efraim C. Genuino INQUIRER FILE PHOTO

First, Pagcor did not ink fresh deals with coffee concessionaires.

“Before, the coffee was given for ‘free’ by the concessionaire to casino customers. But Pagcor in turn had to pay the coffee concessionaire at an average of over P100 per serving,” Pagcor said.

“Moreover, the business given by the previous Pagcor administration to the coffee concessionaire – Promolabels in particular – did not comply with the requirements of government procurement laws.”

“Today, the different Pagcor casinos serve free coffee to all its customers at prices ranging from P9.36 for a cup of brewed coffee to P14.99 for a cup of premium flavored coffee,” it added.

To reduce cost, Naguiat said Pagcor would now buy the local beans, grind them and then serve to casino customers.

As a result, he said, the gaming firm would now spend only about P40 million to P50 million a year for coffee compared to an average of more than P100 million during Genuino’s time.

This anomalous coffee deal is the second plunder case and fifth of the complaints that will be filed since the present management assumed office in 2010.

And Pagcor, Naguiat pointed out, was the only government-owned and controlled corporation (GOCC) that has so far filed this number of cases.

“Tell me if there is a GOCC that has filed four cases during the previous administration. We were the only one. Tell me of a GOCC whose percentage of increase in revenue is high. We’re the only one,” he said.

From coffee to water

But even before the issue on the billion-peso coffee could get cold, Pagcor was again linked to another controversy – this time over the purchase of more than P8 million worth of bottled mineral water without public bidding.

On July 3, 2012, INQUIRER.net reported the findings of the Commission on Audit (COA) which showed that Pagcor bought a total of P8.2-million worth of bottled mineral water and another P1.79 million worth of five-gallon water last year for its three casino branches – Pavillion, Heritage, and Paranaque.

“The procurement of bottled mineral water at the three CF (Casino Filipino) branches  was made through shopping notwithstanding the amount involved exceeded the threshold provided under Section 10 of the Revised Implementing Rules and Regulations of Republic Act No. (RA) 9184,” COA said in its 2011 annual audit.

Section 10 of RA 9184 provides that “All procurement shall be done through competitive bidding, except as provided for in Article XVI, which comprises the various alternative methods of procurement…”

“Our audit disclosed that  the casino branches  purchased bottled mineral water and  five gallon water  thru shopping and  thru canvass from three suppliers, while the total cost for these  items  procured during the year reached more than the threshold for small value procurement of P500,000,” the report  added.

For its branch in Pavillion, COA said Pagcor spent P3,850,127.42  for bottled  mineral water  and  P1,289,779.20 for five-gallon water;  P2,818, 636.80 million and P507,343.68  in Heritage for bottled mineral water and  five-gallon water, respectively;  and  P1,577,779.11  million for bottled mineral water for its  branch in Paranaque.

“We are concerned that the current practice of the Branch may have provided undue advantage and competitiveness in the procurement process,” COA said.

The commission then recommended the gaming firm to justify the chosen mode of procurement for drinking water. At the same time, it told Pagcor to include the procurement of bottled water in its Annual Procurement Plan (APP) and comply with Section 10 of RA 9184.

“If the total amount in the APP is more than the threshold amount of P500,000, procurement should be through competitive bidding,”  it said.

On March 22, 2012, COA said Pagcor’s Procurement and Planning Review Committee met and agreed that “since the procurement of bottled drinking water in the casinos exceeds the threshold of P500,000,  public bidding will be conducted.”

“They have requested all branches to submit a report on their 2011 procurement of bottled water and gallons to determine the total quantity and cost of drinking water being consumed in the branches,” COA said.

But the Commission said the centralized procurement of bottled drinking water by the corporate office should only commence after the new design and labels have been approved. In the meantime the bottled water will be procured in the casinos.

COA said Pagcor promised to ensure compliance with the required public bidding if procurement exceeded the threshold of P500,000.00.

“We did not issue Notice of Disallowance or Notice of Suspension because the audit finding and observations pertains to operational matters which do not involve pecuniary loss as provided under Section 5.3 of COA Circular No. 2009-006,” COA added.

Naguiat breaks silence

Almost a week after INQUIRER.net posted its story, Naguiat broke his silence on the issue.

Naguiat clarified that the price of bottled water was not overpriced as claimed by his critics and reported in some newspapers after the controversy broke out.

No less than COA, he said, informed Pagcor that there was no issue of overpricing.

“It’s because they saw the price and the low cost at which it was bought,” Naguiat pointed out.

“I think the price of each bottled water is a little something over P4. How much is that in 7-11?”

Following COA’s findings, Naguiat accepted the commission’s recommendation to bid the purchase of water if the amount exceeded the P500,000 limit  although he warned that if this will be the procedure, the gaming firm has to find a big warehouse to store the items and at the same time make sure that the beverage would not been served to casino customers beyond their expiration date.

Another option, he said, would be, on top of the bidding, to get the water from the supplier only when stocks run low.

“But the problem there is when you bid it out for one year, their prices won’t move. What if the cost of plastic bottle increases? What if the cost increases, what if the cost of electricity increases?” he said.

“That’s why I told COA that they will be my partner, you’d be the one to protect my BAC [Bids and Awards Committee] because I could not see everything…” Naguiat added.

‘Isolated and ongoing practice’

AFP PHOTO

In its reaction that was posted on the INQUIRER.net, Pagcor said in a statement that the multimillion-peso purchases were “isolated” but an “old practice”.

During the annual audit exit briefing conducted by the COA, Pagcor said the concerned branches explained why they resorted to the “shopping method of procurement.”

Pagcor said the procurement of bottled water, among other consumable supplies, had been previously decentralized to the branches for practicality and expediency due to their different locations.

This means that the branches were authorized to undertake their procurement activities independently of the corporate office.

“Consequently, the procurement requirements at the branch level resulted in smaller quantities which did not breach the threshold amounts provided for under the IRR of RA 9184,” Pagcor said.

“Although admittedly, if the quantities were consolidated Pagcor-wide, the resulting amounts would breach the above-mentioned threshold amounts,” it added.

But Pagcor pointed out that the procurement of bottled water through “shopping” or canvassing of prices “had been the ongoing practice since the last decade.”

Out of 13 casino branches, the gaming firm also noted that only three were mentioned in the COA findings.

“The deviation was therefore isolated. In fact, COA has commended Pagcor’s current management for exercising fiscal responsibility particularly in the area of procurement,” it said.

‘No sanction’

Pagcor was quick to find an ally in Malacañang.

At a press briefing also on July 4, presidential spokesman Edwin Lacierda came to the rescue of Pagcor, saying the gaming firm had stopped the procurement after its attention was called by the COA.

“Pagcor is not in the water business. But it has to provide services to its patrons so these things will have to be ironed out and fixed. So they are now making a mechanism by which we comply with the procurement, at the same time, making sure that the water will be safe—because water has an expiration,” Lacierda said.

This is why Lacierda believes that there is no need to impose sanctions on Pagcor.

“There’s no sanction,” he said.

“Number one, the amount to purchase was less than 500,000 because you cannot buy the bulk. What COA did was to audit the entire amount in an annual basis. All the purchases detailed in retail purchases were less than 500,000.”

Critics’ favorite

With the twin controversies hanging over his head after only two years of being at the helm of Pagcor, Naguiat wonders why he has been the favorite target of critics.

“Why are you so angry with me . . . it’s as if I’m the only one in government. But that’s life. That’s why I’m here so I’ll accept it.”

“Tell me who among those in government have the most number of scandals in the newspaper, just me.”

Even before the scandals on the alleged overpriced coffee and water broke out, Naguiat, a former classmate of Aquino at the Ateneo de Manila University, had been embroiled in a controversy when he was named in a US lawsuit as among Pagcor executives who allegedly accepted $110,000 worth of hotel accommodations in Macau and illegal payments from Japanese businessman Kazuo Okada.

The accommodations and other perks that  he and his family (wife, children and their nanny) and other Pagcor officials allegedly received from Okada was  meant to ensure the implementation of the businessman’s plan to push for a $2-billion casino in Manila.

The Pagcor chief vehemently denied the allegation.

And Malacañang also defended Naguiat’s pricey trip, saying the Macau accommodation was “standard industry practice.”