German partner sues Piatco for $28-M

Piatco is putting up a happy face these days. The NAIA-3 contractor claims to have won last week’s first legal skirmish with the government at the Supreme Court. It also gloats that one of three Senate committees that perused its papers opts for renegotiation, not cancellation, of the contract to build and operate the new international passenger terminal.

Things aren’t what they seem, though. Quietly last Dec. 3 its German partner Fraport AG sued Piatco for payment of a $28-million loan, plus $610,811.28 in interest as of filing date. In the case filed in Pasay, Fraport asked the court to attach real and personal property of Piatco worth $28.6 million. The suit came five days after President Gloria Arroyo declared she can’t go on with Piatco’s contract because of its 26 onerous insertions. The Senate Blue-Ribbon and public works committees, meanwhile, will release their conclusion this week that the contract is void ab initio.

Fraport said that Piatco borrowed $28 million in Jan. 2001 to pay off suppliers and creditors. It was the fourth time the German airport operator advanced huge amounts for Piatco to build the terminal. Construction that started in 1999 was supposed to cost $350 million, but Piatco alternately claims to have spent $580 million to $657 million to date.

Piatco was supposed to pay back the $28 million by June 30, 2002, but missed the deadline. After several futile collection requests, Fraport sent a demand letter on Nov. 14.

Fraport said Piatco ignored its demand letter. It said Piatco broke the loan terms by paying new Japanese subcontractors Takenaka Corp. and Asahikosan Co. ahead of all other creditors, including Fraport. Too, Piatco assigned to Takenaka and Asahikosan the premium terms and security interests it obtained from banks by using Fraport’s cash advances to bolster its financial standing.

Mrs. Arroyo’s very declaration, Fraport said, constituted a default by Piatco. The terms specified default in case Piatco loses any of its licenses or concessions related to NAIA-3.

Fraport is publicly-listed, partly owned by the German federal government, the state of Hesse and the city of Frankfurt. It holds 30 percent of Piatco on paper. SB Airport Venture and Japan’s Nissho Iwai hold 10 percent each. The Cheng family, through PairCargo and three other firms, owns 50 percent. But sleuthing by presidential adviser Gloria Tan Climaco showed that Fraport owns shares in the three firms, thus giving it effective interst of 61.44 percent.

The Senate Blue-Ribbon and public works committees, in their forthcoming report, view this as a violation of the nationality clause of the Constitution. Companies that operate public utilities must be at least 60-percent Filipino-owned. The interlocking ownership could also be a breach of the Anti-Dummy Law and Corporation Act.

The report states that the Chengs contributed only $16.5 million to the project, while Fraport gave close to $400 million. "The Chengs have no technological expertise and financial capability to carry out the project," it says.

Piatco first signed a build-operate-transfer deal with government in 1997 under President Fidel Ramos. Before starting construction, it wangled favorable new terms in 1998 under President Joseph Estrada. Soon after the cornerstone laying, it again got three supplemental agreements, the last under Mrs. Arroyo.

The two Senate committees call the 1997 contract flawed because it was approved by only four of the 11 members of the NEDA investment coordinating council that passes B-O-T deals. Thus, they treat the 1998 amended contract as void, even if approved by the ICC seven months later, because it stems from the flawed original. None of the three supplements were approved by the ICC.

All five contracts substantially deviate from the bidding terms of 1996, the committees state: "What Piatco did was to initially present a generous unsolicited proposal which was not in conflict with the specifications. But the moment Piatco won the award, it turned around and pushed a string of changes which, in totality, practically changed the terms of its original award."

One such belated insertion was for government to assume Piatco’s debts in case of default. The committees say this is expressly prohibited by the B-O-T Law. "All (five) contracts contain onerous and disadvantageous provisos that would prejudice the public interest and the government," the report says.

Fourteen of 19 members of the powerful Blue-Ribbon committee and majority of the public works committee not only want the contracts voided but the airport opening also delayed. They cite numerous construction and security defects.

Opposition leader Edgardo Angara, who heads the third inquiring committee on constitutional amendments and revision of laws, claims to have seven of 11 members for mere renegotiation. In the heat of hearings in September, he had said Mrs. Arroyo shouldn’t enforce a disadvantageous contract. One onerous proviso alone makes it void, he argued. When Mrs. Arroyo did declare the contract null, Angara changed his tune. He now insists Mrs. Arroyo should respect it, but renegotiate 26 onerous insertions.

* * *

Catch Linawin Natin, Mondays at 11 p.m., on IBC-13.

* * *

You can e-mail comments to [email protected].