The real problem with the PPP

The implications are scary.

If government cannot be trusted to deliver its end of the bargain, then who in his right mind would want to enter into a partnership with the public sector.

Contracts under the Public-Private Partnership (PPP) program have a long duration because of the nature of the projects. So it follows that a private entity enters into a contract with the government, say for a project with concession period of 35 years, without regard to the fact that elected officials for instance have three or six-year terms. Government is not synonymous to the people running it in the meantime so that any contract entered into by a previous administration should be honored by the next administration.

So when the Bases Conversion and Development Authority (BCDA) entered into a partnership with the Sobrepena group to develop and manage the Camp John Hay Special Economic Zone, and as part of the agreement, the Sobrepena group was allowed to sub-lease portions of the property to third-party investors for lease periods of 50 years. It goes without saying that government will honor this long-term contracts.

To cut the long story short, the relationship between BCDA and its private partner Camp John Hay Development Corp. (CJHDevCo) turned sour with each party claiming the failure of the other to deliver. An arbitral panel ordered the rescission of the original contract between the two. The panel likewise ordered BCDA to return around P1.42 billion in rentals that CJHDevCo has paid to the government agency and for CJHDevCo to return to its lessor the 247-hectare former American military facility.

But how about third parties who in good faith entered into these long-term contracts?

It is understandable that BCDA head Arnel Casanova, who for a long time wanted the Sobrepena group out of John Hay, demanded that the group immediately turnover the property to BCDA, notwithstanding the fact that what BCDA should do also is to return the P1.42 billion in rentals and that the courts have yet to affirm the arbitral panel decision.

But Casanova wanted more. He wanted all John Hay sub-locators, concessionaires and lot lessees who have in good faith acquired 50-year leases on properties to leave. According to Casanova and BCDA legal services chief Peter Paul Flores, the agency will not honor the sub-lease agreements on the ground that the agency was never privy to these transactions.

Then these two tell the concerned sub-locators and other lease-contract holders to run after their lessor, the CJHDevCo, instead and demand a portion of the P1.42 billion.

But CJHDevCo has maintained that the  BCDA simply cannot alter any part of the lease contracts for any and all properties leased by CJHDevco to third parties, and that homes, condotels and the Golf Club, which were clearly intended for third-party sales, were all issued building permits by the BCDA itself, through its wholly-owned subsidiary, the John Hay Management Corporation (JHMC).

CJHDevCo also pointed out that BCDA consented to all sub-leases within CJH when it expressly gave CJHDevCo the right to sub-lease various areas and real estate inventory. These sub-lease holders, it said, enjoy 50-year rights because from the very beginning, BCDA had committed to 25-year contracts renewable for another 25 years at CJHDevCo’s sole option. This makes third-party lease contracts good until October 2046.

Another argument goes in favor of CJHDevco’s contention. Article 1385 of the Civil Code of the Philippines states that an order for “mutual restitution” cannot include properties currently in the possession of third persons who have acted in good faith in acquiring them. As lawyers, Casanova and Flores should be aware of this.

CJHDevCo EVP and COO Alfredo Yñiguez ?III said that BCDA officials couldn’t claim to be clueless on the details of the third-party lease agreements, including their validity for 50 years and? not  just for 25 years, because BCDA has four members in the CJHDevCo Board of Directors, all of who have access to information, documents and contracts pertaining to CJH; and that BCDA officials were aware from the start that the contracts were bid out as 50-year leasehold accords—25 years renewable for another 25 years at CJHDevCo’s sole option—because BCDA in fact owns five log cabins and 26 condotel units, including those at the two hotels (the Forest Lodge and The Manor).

There are on record 118 business enterprises like business process outsourcing (BPO) firms, restaurants and retail shops along with 85 residential buildings owned by private sub-lessees at the CJHSEZ, according to JHMC president-CEO Jamie Eloise Agbayani.

A legal expert has also backed CJHDevCo’s position that third-party stakeholders are immune from the disputes of warring parties under arbitration by an independent tribunal like the PDRCI.

Gilbert Reyes of the Poblador. Bautista and Reyes law offices, said that, “The (arbitration) decision does not affect third parties… An arbitration case is not like a court case. It is a case between parties alone and affects only the parties involved. We trust that even with the issuance of the award, the parties will act in ‘good faith’ and with due regard for the rights and interests of innocent third parties who are not involved in the dispute between CJHDevCo and the BCDA.”

Because of all these, House Reps. Jonathan dela Cruz and Winston Castelo are urging Congress to investigate BCDA’s mismanagement of the JHSEZ and the reverse privatization that Casanova wants to implement following the PDRCI’s rescission of the agency’s lease accord with CJHDevCo.

According to Dela Cruz, from the time he assumed office in 2010, Casanova  made it a point to make life harder for the Sobrepeña Group even to the point of sacrificing the development of Camp John Hay and the attendant consequences thereof is beyond question.

The government’s PPP has “gone haywire resulting from the misguided, misplaced and high-handed management style of the current BCDA leadership,” he said.

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