Will German warning scare Noy on Naia-3?

SEVERE TEST: There are many points in the controversy over Terminal-3 of the Ninoy Aquino International Airport where the balancing skill of President Noynoy Aquino will be put to a severe test.

But the pressure could be less for the President since he and his team were not yet in the ballgame when previous administrations were having a field day milking the $650-million project.

Malacañang had no problem saying with a straight face that its plan to fully operate Naia-3 will not be derailed by the decision of a US-based arbitration body favoring the German firm Fraport AG that had sued the government to recover lost investments.

Executive Secretary Paquito Ochoa pointed out that the Washington-based International Center for Settlement of Investment Disputes (ICSID) merely said that Fraport may press collection but did not rule that the Philippines has to pay.

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GO AFTER PIATCO: In my readings on the case, I have not encountered any citation or allegation that the Philippine government and Fraport had entered into a contract for the building or operation of Naia-3.

The Philippine government has no direct legal obligation to Fraport, which is only a creditor of the Philippine International Air Terminals Corp. It is Piatco that has a government contract to build and operate the new terminal in Pasay City.

In pursuing claims, the German firm should go after Piatco and its officials, who were/are the ones dealing with the government.

Fraport, which has 40-percent equity in Piatco, reportedly advanced money that its Philippine partners needed to satisfy the 60-percent Filipino capitalization requirement. It should not involve the government in this money problem.

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RESPONSIBILITY: There is a rule that one should pay what he owes. Sure, but if the government owes anything for the building of the terminal, it is to Piatco, not to Fraport.

If Car A is rear-ended by Car B behind it after B was bumped from behind by a third vehicle (Car C), logically the owner of A should go after the owner of B while the owner of B goes after that of C.

While the owner of Car C may eventually answer for everything (minus the insurance coverage), he is not directly responsible to the owner of Car A.

(Of course a lawyer is likely to advice the owner of Car A to sue both the owners of Cars B and C, making the case more complicated and therefore more rewarding for the lawyers.)

This is not a perfect analogy, but it can give an idea of the hierarchy of obligations.

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NO CLEAN HANDS: The US-based ICSID told Fraport in its decision that it may make a fresh bid to go after the Philippine government to collect costs, fees and damages.

But while the firm can present documents again, the Philippine government also has its own evidence that Fraport had violated certain laws, a fact that can open it to damaging countersuits and prolong the dispute.

It appears that Fraport is not going to court with clean hands. That is quite risky, considering that it is attempting not only to recover losses, but also to conserve its name and reputation.

The Naia-3 was the first major foreign investment of Fraport, a firm of the state of Hesse. Imagine its embarrassment, not to mention its contortions explaining to irate stockholders, when corruption ruined its ambitious Philippine venture.

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LESSON #1: The big lesson for foreigners in this scandal is that unless they have the stomach for unmitigated graft or are themselves thieves masquerading as investors, they should keep off the minefields of Philippine business.

This may well be Lesson No. 1 that German Ambassador Christian-Ludwig Weber-Lortsch was hinting at when he called on the administration to banish the “ghosts of the past” and agree to settle with Fraport.

The diplomat chose for his line of attack the issue of compensation. Citing the Supreme Court, he said that no acts of ownership are allowed until full payment of just compensation by the government to Piatco and, he added, its investors (meaning Fraport).

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JUST COMPENSATION: The core issue in the expropriation case is valuation. How much should Piatco (not Fraport) be paid?

The government has documents showing overpricing, ghost works, unexplained fees and padded costs — with dirty millions going to officials (and runners)of past administrations.

If you were President Aquino, would you allow the use of scarce public funds to pay for the cost of graft that had padded the claimed cost of the project?

But until the grafters are prosecuted and made to return the loot, how can expenses be sorted out and just compensation determined? The claimants may have to wait - unless settlement as suggested by the German envoy cuts the bargaining time.

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VEILED THREAT: Weber-Lortsch, who has been posted in Manila for three years, knows the situation on the ground, including the intricacies of dealing with officials with sticky fingers.

A court collision may not bring a satisfactory resolution fast enough before he moves on to another post, so the ambassador’s next best option is to convince Malacañang to take the conciliation route, or call the parties to sit for a settlement.

We may forgive Weber-Lortsch for making veiled threats. “Since my arrival in August 2007,” he said, “I have committed myself to bring business and jobs to the Philippines.”

He warned: “Unfortunately, the largest impediment to this day remains the unresolved expropriation case of Naia-3. Not only for German, but also for European and other international investments. The German government, through its partial investment guarantee, suffered the biggest loss of its kind in the last years.”

Will that scare our President Aquino?

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