Why Europeans will not rush into Aquino’s PPP

With the President speaking before European companies and financial institutions, I am optimistic that the conference will help bolster interest on PPP [public-private partnership] projects … we will be able to relay to potential European foreign investors that the country enables business that cultivates fair and transparent dealings.

— Trade & Industry Secretary Gregorio Domingo in Belgium, September 16, 2014

One of the plans I inherited was for a body of water south of Metro Manila called Laguna Lake. … what they wanted to do was move the mud from one section of the lake to another section of the lake, and that was supposed to enhance its water holding capacity. … that’s what they wanted to do for flood mitigation, and obviously it’s a joke.

— President Benigno Aquino 3rd in 2011 on why he scrapped a Belgian project

If one goes knocking on a company’s doors to get big money, it doesn’t help to call its executives jokers and crooks. Which is what President Benigno Aquino 3rd pretty much did in cancelling the P18.7-billion Laguna Lake dredging project of Baggerwerken Decloedt en Zoon (BDZ or Belgian Dredging Company) and the P11.8-billion undertaking of France’s Eiffel Matiere to build 72 roll-on roll-off ports.

Aquino claimed the contracts were anomalous, though no official communications ever formally canceled them or detailed exactly where there were irregularities. In fact, both projects underwent rigorous review by the National Economic and Development Authority, the Bangko Sentral, and the Department of Justice for financial viability, economic benefit, technical feasibility, and legal soundness.

Those two meticulously vetted yet arbitrarily cancelled contracts with European infrastructure giants would make President Aquino’s investment-seeking roadshow in Europe a very hard sell.

Sure, there would be photo-ops and positive pronouncements during his swing through the continent. But unless the government resolves several contractual disputes involving giants of European business in a manner seen as fair, reasonable, transparent and lawful, we should not hold our breath for the continent’s investors to take up big chunks of Aquino’s $20 billion in infrastructure public-private partnership projects.

If we want deals, we should honor them
Besides the cancelled Belgian and French deals, also riling Europeans is the 12-year-old gripe over the Ninoy Aquino International Airport Terminal 3, built by a joint venture of the local Philippine International Airport Terminal Co. (Piatco) and Frankfurt Airport Services (Fraport), controlled by a leading German political party.
After a thorough review, the Arroyo government found the NAIA 3 deal disadvantageous and took over the terminal in 2001. The following year the Supreme Court agreed that the deal was not in the government’s interest, due to radical revisions during the Estrada administration. Fraport sued for $425 million compensation with the International Center for the Settlement of Investment Disputes (ICSID) in Washington DC.

Then there’s last year’s scandal over an alleged $30-million bribe demanded from the Czech company Inekon for its bid to supply rail cars to the Metro Rail Transit to win. No less than Czech Ambassador Josef Rychtar backed the accusation, even as he wrote Aquino absolving his sister Ballsy and her husband Eldon Cruz of complicity.

The matter remains unresolved, even though MRT General Manager Al Vitangcol 3rd was ousted—a scapegoat for higher-ups, say Aquino critics.

The wrong and right ways to cancel contracts
What aggravates Aquino’s contract cancellations is its utter lack of due process and transparency. Take the BDZ dredging deal. As reported previously by fellow columnist Rigoberto Tiglao, Justice Secretary Leila de Lima back in 2010 pronounced the Laguna Lake project above board. So did the House Committee on Ecology, which evaluated environmental, legal and financial aspects of the project.

No dice: Aquino still told Finance Secretary Cesar Purisima to deny the Belgian firm the go-ahead to proceed. A 150-year-old company renowned for dredging worldwide, including a P5-billion ahead-of-schedule Pasig River project, BDZ sued the government in ICSID.

Potential cost to taxpayers: P1 billion in legal fees and P6 billion in claims, if the company wins. But the bigger loss is the flood relief denied the lake region and Metro Manila, which the dredging would have provided, according to extensive government and expert studies.

Also dubious was the scrapping of the Eiffel Matiere ports construction contract. Aquino claimed that the country did not need 72 more RO-RO docks, so only six would be built. Then-Department of Transportation and Communication Secretary Mar Roxas said the French builder would be paid for steel pipes and other materials already delivered, which could be used for public works construction or sold.

Former senator Aquilino Pimentel Jr., a staunch advocate of local government and development, disputed the DOTC report. “It is sheer folly to base decisions on such disinformation,” Pimentel argued, citing past assessments by the government, the Japan International Cooperation Agency, and the Asian Development Bank that the country needed as many as 243 RO-RO ports.

In contrast to the BDZ and Eiffel Matiere deal breaking, the NAIA 3 contract voiding went through careful study and full due process. A Cabinet-level committee with expert advice from leading accountant Gloria Tan Climaco, pored over project parameters and investigated Piatco’s multilayered ownership structure.

Among disadvantageous provisions reported to then-President Gloria Arroyo and her Cabinet was the shifting to the government of the consortium’s commitment to build the rail line linking NAIA 3 and other terminals. Climaco also detailed how Piatco’s corporate structure masked the controlling interest held by Fraport, in violation of the Constitution’s 60-40 ownership rule for public utilities. And the contract scrapping was upheld not only by the Supreme Court, but also by ICSID, which ruled that Piatco and Fraport violated the Anti-Dummy Law.

So will European investors snub Aquino’s PPP? There would be some takers. And in 22 months, the next leader will hopefully have the good sense to right his predecessor’s wrongs. Then European companies can finally do PPP deals with the confidence that they won’t be scrapped without due process, just because the new regime doesn’t like the old one.

source:  Manila Times Column of Ricardo Saludo