August 20, 2007 | 12:00am
Now it can be told. The Department of Justice almost loused up the Philippine case against Fraport in Washington DC. Directly contradicting by actions the government’s line of argument against the German airport firm, the DOJ “undermined the official position. So it’s a miracle we still won.” two officials who helped build the case cheered the newsbreak.
The International Center for Settlement of Investment Disputes last week dumped Fraport’s bid to collect $425 million from the government. The firm had wanted to get back its alleged advances to local partner Piatco in erecting 97 percent of NAIA Terminal-3. But taking the Philippine side, ICSID declared no jurisdiction over a fight in which Fraport, as investor, violated the host country’s laws. In effect, the World Bank arbitral body upheld the Philippine line that Fraport had broken several laws — the Anti-Dummy Law notably — to snare the contract to build and run NAIA-3. Solicitor General Agnes Devanadera exalted it as a big diplomatic victory. There was only silence from affiliate DOJ.
Thru US lawyers, the Philippines proved that Fraport broke the 40-percent constitutional limit on foreign equity in public utilities like airports. Since original contractor Piatco was penniless, Fraport agreed to fund the construction, on condition of management and operational control. And so it bought 30 percent of Piatco and huge chunks of subsidiaries Pair Cargo, PATS and PAGS, to effectively own 61.44 percent. Under pain of contempt, Fraport during the ICSID hearings surrendered three secret shareholders agreements forged with Piatco to carry out and conceal the dummying.
While the government was raising the dummy issue in Washington, officials were doing the opposite in Manila. From the start of government reviews of the contract in 2001, investigators pointed to anomalies in the 1997 awarding and four subsequent revisions of terms. Private lawyers filed an Anti-Dummy suit. The DOJ junked it at the height of the ICSID hearings. Its absurd reason: there was no dummying if, as the Supreme Court had ruled, the NAIA-3 contract was void from the start. A source, while declining attribution due to ICSID confidentiality rules, said they thought they had lost last Dec. when Fraport made a big issue out of the DOJ ruling.
Devanadera skirted the topic in an interview Saturday, but said the lawyers later convinced prosecutors to pursue the Anti-Dummy case against officials of Fraport and Piatco. Still the lawyers weren’t happy, though. For, the Securities and Exchange Commission had given ICSID a wrong old definition of dummying, long overtaken by the grandfather rule of determining not just nominal but effective ownership. Even then, good simply triumphed over evil. “The documents on the dummies were too compelling to be ignored by ICSID,” another source said.
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Dummying was not Piatco-Fraport’s only sin. Also broken were the Build-Operate-Transfer Law, the General Banking Act, and the Anti-Graft and Corrupt Practices Act. The Supreme Court declared the deal void from the start due to the breaches, and lack of NEDA approval for later revisions. Proceeding from this strong position, government could have confiscated the voided project. Determining the many reported flaws of the unfinished structure, it can then deduct renovation costs from any final reimbursement to Piatco-Fraport. Bribes paid to officials of three administrations, from 1996 to 2001, must be subtracted too, along with fines for the lawbreaking.
Instead the government opted for expropriation.
In expropriating, government has let a Pasay court determine a “just compensation” for Piatco-Fraport. Already the court has made government pay P3 billion. Excluded from compensation hearings are the kickbacks that Piatco-Fraport men took from subcontractors and suppliers — which led to major construction flaws. There is no more talk of Alfonso Liongson, the bagman contracted by Piatco-Fraport in June 2001 to bribe Arroyo officials. There is no talk even of the petition to open the Piatco-Fraport accounts in two banks, which reportedly can show that only half of the P3 billion went to them. And certainly not mentioned anymore is how the NAIA-3 saga has cost four lives to date.
Why, there is no talk even of the very dummying that has just been proved in international adjudication. And government does not want to consider alternatives to expropriation — as if it’s hurrying to recompense lawbreakers who hold an ace up the sleeve.
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Give credit where due. BIR acting chief Lilian Hefti has managed to raise tax collections by improving the agency’s Large Taxpayer Service. As a result, the Regular Large Taxpayer Unit, under Atty. Charlie Lim, has raked in P18.3 billion as of July, exceeding its target by P2.3 billion. Deputy Commissioner Gregorio Cabantac also has been assigned to concentrate on big-ticket fraud, tax credit scams, and liabilities of at least P50 million.
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