Majesty of law in Piatco ruling

Despite its myriad woes, the country has many things to be proud of. It has a replacement President who humbly can ignore the perks of power to wisely forgo a full term. It has a tourism boss quietly restoring a blighted area to its old glory as Intramuros. Its Metro chief is leading a return to basics, driving big and poor squatters alike from sidewalks and railways since they’re not supposed to be there in the first place. And now this: A Supreme Court that ponders the dire economic consequences but upholds the majesty of the law just the same.

The Court’s nullifying of the Piatco contract can scare away much-needed foreign investors. Fraport AG, Piatco’s 30-percent German partner, had cried as much when Gloria Arroyo also voided it in November. Thus, the justices admitted, the issues were complicated, further "made difficult by intersecting legal and economic implications."

But then, the Germans did not come with clean hands. After the Chengs bagged the deal via PairCargo with dubiously insufficient capital in 1997, Fraport flew in to buy into the many family firms that eventually formed Piatco. The Chengs ended up owning 50 percent on paper but only 28.5 percent in reality; Piatco picked up the rest and pretended to own only 30 percent. Security Bank Ventures threw in more than its legally allowable investments for another 10 percent. Fraport then connived with the Chengs to amend the original contract thrice - the first to raise the proposed fees, the second to get illegal state guarantees for their loans, the third to delete some of Piatco’s construction obligations. Only then did Piatco proceed to build a NAIA Terminal-3 using Fraport’s money in a big dummy play.

The Germans thought they could manipulate the Chengs, but the dummies ended up pulling the strings. The Chengs proceeded to overprice supply subcontracts by asking for commissions. They also built a public mall in lieu of an exclusive duty-free shop. The Germans wisened up a bit when word spread that international authorities might not license the airport for security reasons. But the game went on. The Chengs wheedled the Germans for more and more cash until what should have been a $350-million project hit $560 million – and still it was not finished. Only then did the Germans realize they’d been had, and decided to come clean.

The Court must have taken cognizance of these events. For, in assessing the legal and economic backlash, it came to the only logical conclusion: with the deal void but with a 96-percent completed structure, government can now come in to set things aright. How it does is the executive’s play. That is the law on separation of powers.

It can’t be denied that Piatco – that is, the Chengs and the Germans – owns a structure that is almost ready for use. Since that structure is sitting on government property, Piatco must pay lease for it. But it has no lease contract; the Court voided it. Then again, the structure was designed and built as a passenger terminal. Government cannot let it go to waste. The Germans can lay claim to it – in the proper venue – because they paid for it. But they cannot operate it as a passenger terminal because they have no contract; the Court voided it as well.

And so the option offered by the Germans as far back as July comes into play anew. That option falls within the law on temporary government takeover that the Court prescribes.

When the Germans at last learned they were screwed, they confessed everything to presidential adviser Gloria Tan Climaco. They also offered a way out of the mess. Fraport would write off part of its total $375-million investment and ask for reimbursement of only $300 million. It will also complete the construction, correct the flaws, and buy out the Chengs, for an additional $100 million. In short, government will get for $400 million a structure for which the Chengs claim to have spent $560-$657 million, depending on who wrote the press release. Since the government doesn’t have money to spare, Fraport will itself look for a foreign lender. It will also work for easy terms: 15 years to pay, three-to-five years grace period, at an indicative interest rate of 6.2-6.5 percent. In effect government will not pay out any cash. It will take over the structure and pay Fraport and the Chengs only $400 million in borrowed money. It can then use the grace period on loan repayment to rebid the terminal operation, this time under lawful terms. Fraport may itself bid, subject to fair terms. Piatco’s creditors will be assured of payments.

Will they all live happily ever after? Not quite. For the Court decision pointed out the laws that were broken in the making of the Piatco mother contract and its three amendments. There’s the Anti-Dummy Law and the Foreign Investments Act that limit foreign equity in public utilities to 40 percent. There’s the General Banking Act that limits to 30 percent of its assets what a bank may invest in business. There’s the Public Bidding Law and the Anti-Graft and Corrupt Practices Act that require full transparency and forbid major deviations after a bid has been won and awarded. There’s the Build-Operate-Transfer Law that bars state guarantees for awardees’ loans. There are rules on construction specifications and building safety. (The Chengs, in one of many overpricings, had installed an underpowered, second-hand generator that exploded on its test run.) Whoever broke all these laws and rules must be held accountable. More so the public officials who let it happen, from the flawed bidding under the Ramos tenure to the contract revisions during Estrada and Arroyo administrations. That is the majesty of the law that the Court seeks to uphold.

And what of the lawyers who advised the Chengs and the Germans on the shady deals and even drafted the patently crooked contract and its amendments? That includes the $10-million consultancy of Cheng cousin Alfonso Liongson to pay off public officers upon approval of certain project stages? Will they be indicted along with the principal players? Or will they be allowed to go free and teach in law schools the tricks of the trade?

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