Bottom line: Is Piatco deal fair?

The action was unfolding at the Senate, where the Blue-Ribbon Committee was investigating last week the controversial contract for a multibillion-peso Manila International Airport third terminal. All of a sudden five ruling members of the House of Representatives screamed at the testimony of presidential adviser Gloria Tan Climaco. The latter had opined that Piatco’s contract to build and run the terminal was onerous. Ditching parliamentary interchamber courtesy, the congressmen took Climaco to task for playing superwoman in suggesting that Malacañang rebid the project that is 97-percent completed. President Gloria Arroyo ran to Climaco’s rescue and said she herself did find certain contract revisions disadvantageous to the government interest, and thus was contemplating renegotiation. The congressmen howled louder, this time with apparently dazed businessmen, that Malacañang is plotting to take over the private firm and hand its ownership to an unnamed favorite. One of them even asked Speaker Jose de Venecia to order an investigation. "By ruling as onerous the Piatco concession agreement-found valid by no less than two House committees-she has insulted the dignity of 220 congressmen," Rep. Prospero Pichay said. It wasn’t clear which Gloria he was referring to.

Only one congressmen stood up to hush his colleagues. Suspicious of their seemingly orchestrated "one chorus," Rep. Monico Puentebella advised them to hear Climaco out before hooting her down.

What, really, did Climaco find objectionable about the Piatco deal that two House committees had let pass? Seventeen items, to wit:

(1) Build-operate-transfer projects must have a ceiling on costs, so government regulators can compute the return-on-rate base, in this case, what Piatco can reasonably charge for cargo handling, passenger terminal fees, aircraft parking and the like. Piatco’s contract provided only for a floor price. Thus, its claimed expense of $350 million in 1996 has reached $675 million so far. Yet Terminal-3 is still unfinished.

(2) It awards Piatco a monopoly of international passenger terminal operations in Luzon. It thus restricts the erection of an international airport at Clark Field, Pampanga. Residents in Mrs. Arroyo’s home-province have long cried that it goes against national policy of bringing development outside Metro Manila.

(3) It gives Piatco a monopoly of operations within Terminal-3, and does not prescribe parameters so that sub-contractors (eg., cargo handlers, food caterers, etc.) may fairly and transparently bid for services. Present sub-contractors at the old NAIA Terminal-1 and the Centennial Terminal-2 had raised this matter in the confirmation hearings of Transportation and Communications secretary Pantaleon Alvarez.

(4) It gives Piatco sole right to impose whatever fees it desires in Terminal-3, except for four regulated public-utility fees, ie., aircraft parking and tacking, check-in counter and passenger terminal fees. Other fees could run skyhigh if Piatco slaps fees in the name of return on capital.

(5) It allows Piatco to stick up outbound international passengers with an initial terminal fee of $20, with provisions for future increases. This could drive away tourists. Equally modern airports charge $7.20 in Indonesia, $8.60 in Taiwan, $9 in Singapore, $10.30 in Hong Kong, $11 in Malaysia and Thailand, and $11.50 in Vietnam. Terminal2-1 and -2 presently charge $10 or P500.

(6) An Amended and Restated Concession Agreement (ARCA) was granted by the Estrada administration months after it took office in Nov. 1998. Aside from allowing Piatco to charge the initial $20-terminal fee, the ARCA removed the government’s right to intervence in case Piatco charges exhorbitant fees for non-public utilities. These include subleases for diners and passenger services, VIP lounges, airport taxis, porterage, parking fees, areas for well-wishers and greeters, and advertising displays.

(7) The ARCA restricted government’s right to develop adjacent lots. It may not set up duty-free shops or entice investors to build hotels or malls nearby.

(8) The ARCA belated required government to issue loan and other guarantees in case Piatco defaults on payments to lending banks. This is banned under the B-O-T Law’s provision on unsolicited proposals, which is what the Piatco 1996 offer was.

(9) The contract does not require Piatco to absorb present employees of the Manila International Airport Authority. Yet it requires all airlines to land and take off from Terminal-3 (under Item 2).

(10) It does not require Piatco to honor sub-contracts at Terminal-1 whose concessions are valid beyond the inaugural of Terminal 3.

(11) It does not require Piatco to honor rights granted to Philippine Airlines and international carriers at Terminals-1 and -2.

(12) It exempts Piatco from state audit, contrary to the B-O-T Law.

(13) It exempts Piatco from putting up an operations bond, a usual guarantee of faithful compliance with contracts.

(14) It does not require Piatco to put in escrow amounts blocked off for repairs, against the B-O-T Law’s implementing rules and regulations.

(15) It does not require the assignment of a government quality-assurance inspector to monitor smooth operation of Terminal-3.

(16) It assigns insurance policies solely to the project’s "senior lenders." Despite its guarantees, government is left out as beneficiary in case of default.

(17) Liquidated damages to be paid by the government to Piatco are grossly disproportional to similar damages Piatco in turn must pay.

Climaco zeroes in on ten items that the ARCA granted late in 1998, two years after Piatco submitted its unsolicited proposal and one year after government awarded the contract. Former president Joseph Estrada’s Partido ng Masang Pilipino is likewise assailing supposedly for scaring away investors with her belated findings. But Climaco is adamant about the onerous amendments:

(1) the replacement of the initial P500-terminal fee with $20 (P1,100 by today’s peso);

(2) government’s obligation to pay Piatco’s senior lenders despite unexplained increases in project costs from the initial $350 million to $657 million to date;

(3) government is bound to grant all concessions that Piatco will need to build and operate Terminal-3;

(4) government is required to order any third party within its direct or indirect control to comply with Piatco’s obligations and needs;

(5) additional special obligations were imposed on the government;

(6) insurance policies are assigned solely to the senior lenders;

(7) Piatco is no longer liable for cash deficiencies in case the proceeds of insurance outlays prove insufficient to cover repairs and restoration work during the construction phase;

(8) Piatco suddenly got the option to terminate the contract in case government failed to deliver on any of its original and new ARCA commitments, with government liable for exhorbitant liquidated damages;

(9) government liabilities are payable on demand by Piatco; and

(10) usual performance testing was dropped as a pre-requisite for government to issue Piatco a Certificate of Project Completion.

Her detractors howl that Climaco is favoring Fraport AG, the German conglomerate that owns 30-percent of Piatco, against the Cheng family, the 50-percent Filipino owner. Yet records show that Fraport, despite its minority share, put up more than $550 million of the capital. But that’s another story altogether.

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