POSTSCRIPT / December 28, 2004 / Tuesday


Philippine STAR Columnist

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Gov't hands are equally dirty in failed Piatco deal

NOT BLAMELESS: One weak point in the government takeover of Terminal-3 of the Ninoy Aquino International Airport (Naia-3) is that Malacanang was not entirely blameless when it rescinded the contract with Piatco to build and manage the terminal.

(Piatco, or the Philippine International Air Terminals Co., is a corporation with around 60 percent of its stock owned by Filipinos [Cheng group] and a big part of the remainder by the German group Fraport AG.)

The takeover was based on the Supreme Court ruling in May last year that the Piatco build-operate-transfer (BOT) contract was null and void from the very start because it was riddled with fatally illegal provisions.

It seems to me, however, that while the government had legal reason for suing to invalidate the contract, it did not go to court with clean hands. It was partly responsible for the mess.

It takes two hands to forge a contract. If the Naia-3 deal is legally flawed, it could not have been solely the fault of Piatco. The government, or at least the officials who represented it, are equally to blame.

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REFUND DEMANDED: After negotiations to save the contract bogged down, and after Piatco failed twice to convince the Supreme Court to reverse its adverse decision, the government moved to expropriate (pay for and take over) Naia-3 and put it to good public use by next year.

Naturally, Fraport and the Filipino stockholders led by the Cheng group are objecting. The Chengs are saying that they had invested some $500 million, while the German group claims to have spent $425 million on this its first major overseas investment.

If takeover is inevitable, the Chengs and Fraport are demanding a refund of everything they have put in. The government says, however, that some of the claims are bloated and that it is ready to pay only the correct amounts.

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QUESTIONS: Even while it denounced the Piatco contracts that it had inherited from the Ramos and Estrada administrations, Malacanang did not immediately move to void the deal.

Instead of saying outright that it could not accept an illegal transaction, the Palace sent its agents to explore the possibility of compromise — offering a formula that would mean the Chengs and Fraport throwing in more millions.

It was reported that part of the money would pay for the services offered by some of the parties who would help arrange a compromise with Malacanang.

Government’s hands are not clean. How come it is going after Piatco only, and not also after the officials who revised and signed the contract — and reportedly received huge sums for delivering the goods?

Why is the government silent about well-connected Palace runners who had met Fraport executives to work out a settlement requiring the Germans to cough up some more millions?

How come no charges are being filed against a shadowy Alfonso Liongson who allegedly collected $100,000 monthly for running errands between Piatco and some government bigwigs who had the power of life and death over the contract?

How come the family company of then Transportation and Communications Secretary Pantaleon Alvarez that had a contract related to Naia-3 was allowed to collect payments for allegedly fictitious ground works and spared from criminal charges?

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HOW MUCH?: The central issue in the expropriation of Terminal-3 is “just compensation” or how much Piatco should be paid after government takeover. The terminal, btw, is sitting on public land in Pasay City.

The government has said that it was ready to hand over to Piatco a P3-billion down payment while the parties talked. That amount has been deposited with the Land Bank.

The figures being mentioned by the parties keep changing, so nobody knows for sure what the correct price tag of Naia-3 is. We have not heard of an independent audit having been completed.

The project cost was initially placed at $350 million, but Piatco was later talking of having spent $600 million. This was pruned to $525 million when the Senate Blue Ribbon committee looked into the deal (and also found the contract seriously flawed.) Piatco lawyer Frank Chavez once said that his client must be reimbursed $500 million.

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ARBITRATION: On the matter of tossing the dispute to an international arbitration body instead of a local court, we received an email from Mario E Valderrama, resident representative to the Regional Sub-Committee, Chartered Institute of Arbitrators East Asia Branch.

Reacting to last Sunday’s POSTSCRIPT saying among other things that all avenues must first be exhausted in Philippine courts before the matter is referred for arbitration outside the country, Valderrama said:

“It is not correct to say that the Supreme Court ruling on the mess is under review by the arbitral tribunal in Singapore. ‘Ignored’ is more descriptive.

“Piecemeal judicial declarations is not the answer if we believe that certain disputes should only be litigated or arbitrated in the Philippines. The better way is for our legislature to pass the necessary law. Doing so will also give notice to foreign investors who would know what to expect when they enter into the specified contracts.

“Of course, we also have to consider the adverse impact to the local investment climate. More so as, even without such law, we already appear to be getting only the crumbs.

“In the meantime, we have to brace ourselves to the possibility that the international community may recognize a foreign arbitral body and foreign courts as the bodies with better claims to jurisdiction over the Piatco mess.

“This is so because parties to transnational contracts enter into arbitration agreements precisely to prevent court intervention.

“The enforceability of those agreements and the resultant arbitral awards are protected by the ‘Convention on the Recognition and Enforcement of Foreign Arbitral Awards,’ also known as the New York Convention of 1958. Virtually all commercial nations in the world, the Philippines included, have adhered to this Convention.

“In certain cases courts may intervene in the arbitral process, such as in contractual or arbitration agreement validity issues on the ground that they violate public policy. Still, as a general proposition, these are raised before the courts in the seat of arbitration, which is Singapore in the Piatco arbitration.

“Unfortunately for us, international public policy standards are lower compared to domestic standards. Hence, there are decisions upholding the enforceability of contracts tainted with corruption, more so if the country involved has a corruption tag. For instance, in a decision rendered in London allowing enforcement of an arbitral award rendered in Geneva, it was observed that: ‘Ministers and government officials are, in certain parts of the world, customarily bribed to procure lucrative contracts for the supply of arms and the providers of building and construction projects.’

“Re the government takeover, though it may already be too late at this point, perhaps the better move was to take over the facility as an ‘interim or conservatory measure of protection,’ which describe the gist of the government’s arguments as released through the media. To expropriate means that local courts will have to determine ‘just compensation.’ And, once more, there may be issues as to which body has the better claim to jurisdiction in determining ‘just compensation.’

“The ICSID arbitration involving Fraport is a different matter. This is covered by a Bilateral Investment Treaty between the Philippines and the Federal Republic of West Germany and by the so-called Washington Treaty, the ‘1965 Convention on the Settlement of Investment disputes between States and National of Other States.’ I don’t suppose that you are suggesting that we withdraw from these treaties.

“Please note that an international arbitral award may be enforced almost anywhere in the world where the defeated party has leviable assets. This is by virtue of the New York Convention of 1958 and, with respect to ICSID arbitration, by the ICSID Convention.

“Thus, the participation of our government in the arbitration, the Supreme Court ruling notwithstanding.”

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(First published in the Philippine STAR of December 28, 2004)

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