Government says it is committed to pay NAIA-3 builders

BRUSSELS — Justifying her administration’s unilateral takeover of the Ninoy Aquino International Airport Terminal 3 (NAIA-3), President Arroyo assured German Chancellor Angela Merkel that the Philippines would not renege on its commitment to compensate the German consortium that largely financed and constructed the facility.

In an unscheduled meeting that took place on the sidelines of the 6th Asia-Europe Meeting in Helsinki, Finland on Monday, Mrs. Arroyo informed Merkel that the Philippines does not allow onerous contracts and that the opening of the NAIA-3 was "hostaged" for so long by vested interests.

This was the first time that the NAIA-3 controversy has been discussed at the highest level since the tug-of-war over the facility began in 2003 when the Supreme Court ruled that the government contract with Philippine International Air Terminals Co. (Piatco) and its German partner Fraport AG in 1999 was onerous.

"This airport is a vital national asset and this is what I discussed with Chancellor Merkel also... it must be turned at last to productive use," Mrs. Arroyo said in a pool interview in her suite at the Hilton Hotel here.

She said her administration is determined to open the terminal as it is a matter of national interest.

"We respect international law, we respect contracts, we expect to compensate the appropriate parties, but that’s not the issue here, the issue here is not the compensation... (but) that the terminal has been hostaged for too long, by a very questionable transaction at the expense of the public good, now that this event has happened we look forward to the final resolution of this matter as soon as possible," she said.

Mrs. Arroyo’s move, which came on the same day the government paid Piatco an initial P3 billion as compensation, appeared to be an attempt to warm up relations again with Germany, which was very much upset over the facility’s expropriation in December 2004.

Fraport AG is one of the biggest airport operators in Europe and has strong ties with German political parties. Because of the expropriation, Fraport AG has written off as a loss its 60-million euro investment into the NAIA-3 and subsequently filed an arbitration suit against the Philippine government before the International Center for the Settlement of Investment Disputes in Washington, which remains pending up to now.

It was not clear whether Mrs. Arroyo’s explanation and initial payment of compensation would lead to a withdrawal of the suit.

Wilhelm Bender, Fraport’s chief executive officer, earlier warned that Fraport would not tolerate its business to be damaged by the Philippine government.

Bender said the Philippines’ image as an investment haven would be damaged over the issue of honoring contracts as he referred to the German-Philippine Investment Guarantee Treaty, which provides investor protection for Fraport.

Germany welcomed the Philippines’ partial payment of P3 billion to Piatco.

Charge d’Affaires Rolf Saligmann, of the German embassy in Manila, said in a press conference that the partial payment is a first step bringing back investor confidence to the Philippines.

"This is the first step and our government is confident that the Philippine government will finally honor its obligation and make a just compensation," Saligmann said.

Henry Schumacher, president of the European Chamber of Commerce of the Philippines, said Germany is seeking the involvement of World Bank (WB) in its future contracts with foreign entities.

Short of saying that the NAIA controversy and German firm Fraport’s failure to get compensation is a lesson, Schumacher said they want the WB help ensure parties honor contracts.

"Our argument with the World Bank is we would like to see them taking a supportive role from the point of view of the WB to take part in contract," Schumacher said. "And then maybe there is going to be more assurance that whatever has been agreed upon is going to be delivered. Otherwise, the environment is going to change things and the system is going to change."

Asked if German investors are skeptical that future contracts might not be honored by the Philippines, he said that "I think it goes beyond the Germans. I think it is a question that affects also other investors."

He stressed that the primary concern of German investors in the country is making sure that the party they deal with complies with contract obligations — not corruption.

"It is more on the question if we create transparent processes that we follow the information on the contract, the amendments that are visible and honor that. And that is the basis where we want to operate then the question of corruption becomes secondary," he said.

Oscar Lopez, chief executive of the Lopez group of companies and chairman of the Philippine-German Economic Council, said the NAIA-3 controversy has become the biggest thorn in Philippine-German economic ties. — With Rainier Allan Ronda