A clear legal right

It would be interesting to find out how the Supreme Court will decide on a petition filed by businessman Lucio Tan’s Asia’s Emerging Dragon Corp. (AEDC) that seeks to command government to award to it the operation of the controversial NAIA Terminal 3 project.

AEDC is after all simply asking the High Tribunal to give teeth to its ruling two years’ back which declared as null and void the award to Piatco of the NAIA IPT 3 project as well as the concession agreements entered into between Piatco and government, through the transportation department.

In its 2003 decision, the SC ruled that in the absence of the requisite capacity of the Paircargo consortium, predecessor of Piatco, the award to the former of the contract for the construction, operation, and maintenance of the NAIA IPT3 is null and void. The Court also declared that the 1997 concession agreement is null and void for being contrary to public policy, not to mention that the direct government guarantee which is expressly prohibited by the BOT law and its implementing rules is also null and void.

And in a decision promulgated just last Oct. 17, the SC ruled that the Ombudsman committed grave abuse of discretion when it in effect declared in a resolution that the concession agreement between Piatco and government is valid. The assailed resolution of the Ombudsman found no probable cause to warrant the filing of an information against certain government officials and officers of Piatco, which the MIAA-NAIA Association of Service Operators accused of violating the Anti-Graft and Corrupt Practices Act, the Plunder Law, and the Code of Ethical Standards for Public Officials for acts committed in connection with the Terminal 3 project.

The Court’s decision on Oct. 17 quoted substantially the narration of facts and ratiocination in its 2003 ruling.

AEDC asserts in its petition filed last Oct. 20 that the nullification by the SC of the award to Piatco restored the former to its preferred status as the unchallenged original proponent of the IPT 3 project, a right recognized by the BOT law and its implementing rules.

It will be recalled that AEDC in 1994 submitted an unsolicited proposal to the government for the development of the NAIA IPT 3 project under a build-operate-transfer arrangement. The proposal was subjected to the requisited Swiss challenge wherein competitive proposals are accepted. If the original proponent matches the submitted lower price within the specified period, then it is immediately awarded the project.

Paircargo submitted its competitive and comparative proposal. AEDC objected to the proposal citing the former’s financial incapability and it is precisely because of this objection that AEDC failed to match Paircargo’s proposal within the 30-day period. The DOTC awarded the project to Paircargo’s successor Piatco.

In 2003, the SC declared the award to Piatco null and void and inspite of this decision, the government refused to honor and recognize the automatic entitlement of AEDC to the project as the unchallenged original proponent.

Fraport has since then sold its shares in Piatco to the Manila Hotel Corp. of businessman Emilio Yap. And according to GSIS sources, Yap borrowed funds from GSIS to pay for the Fraport shares. GSIS as we all know owns part of Manila Hotel. Yap now claims that because it has acquired Fraport’s shares, it can now validly take over the NAIA IPT 3. Curiously enough, government seems to take Yap’s claim hook, line, and sinker despite the absence of any legal basis for the claim. I may not be a rocket scientist, but isn’t allowing Yap’s group to take over IPT 3 a circumvention of what the Supreme Court declared as illegal and null and void in the first place?

There are reports that government is also contemplating on expropriating the property for a whopping $650 million, or double the actual cost of constructing the project. That’s a clear violation of the anti-graft and corrupt practices act because it would in effect be a contract prejudicial to the government. Here is AEDC more than willing to pay for the actual cost which is a little over $300 million. On the other hand, we have government which either wants to spend money unwisely and inappropriately or which is contemplating on awarding operations to the Manila Hotel group which has neither the legal basis nor the funds to operate the IPT 3.

Scaring investors away

The Manila North Harbor where the biggest volume of cargoes and passengers pass through daily has become not only obsolete, but worse, a high risk area that is endangering thousands of lives and millions of pesos in property everyday.

The depth of Manila North Harbor is so shallow that most of the time, ships operating out of the area have to wait for the tide to rise in order for them to be able to dock or undock at its piers without touching bottom.

With depths of only 5.5 meters at its deepest, the North Harbor has become unsuitable for the present day ships which require depths of at least seven to eight meters at full load. To overcome this handicap which has caused shipping operators to be unable to fully utilize the cargo decks of their ships, it has become the rule rather than the exception for these ships not to carry their full load capacities. As a result, these operators are forced to spread their costs for reason of the unused spaces.

However, our sources say that dredging the North Harbor to attain the required depths is out of the question because the pier structures are designed to reach levels of only 5.5 meters. Going beyond that limit would mean running the real risk of piers collapsing due to weakened structures.

The danger likewise of ships getting caught in the middle of North Harbor’s fairways when low tide sets in, is even more frightening. Imagine a ship carrying more than a thousand passengers (never mind the millions worth in cargo) running aground or touching bottom while navigating towards a North Harbor pier. As the tide recedes, the law of gravity comes into play and the ship will most likely list and worse, fall onto its side. We can just imagine the resulting deaths and injuries and damage to property.

So what has the Philippine Ports Authority, which is tasked with overall management and operation of our country’s ports and which knows these facts all too well, done?

There were proposals to modernize the Manila North Harbor beginning from the time of former President Aquino during the incumbency of then Transportation Secretary Oscar Orbos which were carried on when Secretary Jesus Garcia assumed the DOTC portfolio during President Ramos’ term. However, nothing concrete really came out of their plans.

Considering that government did and does not have the needed capital to embark on such an ambitious but much needed project, the PPA in 1998 during the Estrada presidency commissioned a study that will identify ways by which the private sector can come in and invest to totally modernize the North Harbor.

The PPA commissioned the consultancy firm Halcrow International which opined that the only way to encourage big businesses to invest in North Harbor was to ensure a realistic return on their investments with a winner take all scheme – a single terminal/port operator.

Halcrow reasoned that with this set-up, a modernization bid winner which most likely would be comprised of several investors therefore giving it the needed financial leg room, would realize an assured ROI having operational management of the entire area. Subdividing the North Harbor into two or more terminals which arguably would allow smaller investors to participate would not necessarily mean enticing the best in the business to participate. Much smaller ROIs with several terminals when a single terminal which could generate a more realistic return for an investor was obviously not the way to go.

Modernization specs of Halcrow specified international standards which included depths or drafts of 12 to 14 meters along the piers/wharfs and its approaches, fully mechanized cargo handling equipment for more efficient cargo/container operations, modern passenger terminals and much, much more.

By the early part of 1999, all was set for one of the most ambitious projects to not only modernize the obsolete Manila North Harbor but more importantly, to revive an anemic economy with the introduction of a more efficient port infrastructure to spur it forward – until the PPA started listening to other experts.

A small but very noisy and influential clique within the Philippine Chamber of Commerce and Industry (PCCI) and Employers Confederation of the Philippines (ECOP) then, sensing and realizing that the single terminal modernization concept for the Manila North Harbor would entirely dash their hopes of being port operators themselves, decided to raise a ruckus.

Creating a front which would do their bidding, the Coalition for Ports Modernization was born (later renamed Coalition for Shipping and Ports Modernization) with Vicente Gambito as its spokesperson. Gambito was officer of Sulpicio Lines when the M/V Doña Paz disaster struck in the mid-80s, claiming the lives of more than 2,000 passengers. Gambito was reportedly responsible for the shipping line’s having gotten off the hook with only a slap on the wrist from the maritime agencies investigating the incident.

The coalition through Gambito raised the specter of a monopoly if and when the single terminal concept was done and that the winning bidder would do nothing but raise port fees to unreasonable levels for it to realize a quick ROI.

In short, the Halcrow study was scrapped and up to this day the consultancy firm is still claiming payment for its services rendered to the PPA.

In 2001, realizing that the situation in North Harbor was just getting worse by the day, the PPA started reviving the project. This time though, it was doubly careful in stirring another hornet’s nest and took in the coalition as part of the study group. The coalition made sure that the single terminal operator concept was scrapped and a revised three terminal plan was drawn up.

The plan according to the coalition was to entice more investors with the much smaller terminals and allow them to compete with one another. Sadly, even on paper there have been no keen takers. A capital intensive project (even with a smaller terminal/port) would mean a longer ROI period and this did not sit well with would be investors.

The PCCI board passed an urgent resolution during its 31st Philippine Business Conference that the Manila North Harbor needs to be finally modernized through privatization. There should be no excuses this time for the PPA under the incumbent general manager Oscar Sevilla from moving and giving the public a definite framework and timeline for its implementation.

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