AS my fellow Manila Times columnist Rigoberto Tiglao revealed yesterday, on January 23 the World Bank’s International Center for the Settlement of Investment Disputes (ICSID) ruled that the November 2011 cancellation by then-president Benigno Aquino 3rd of the P18 billion Laguna Lake Rehabilitation Project (LLRP) was improper, and ordered the Philippine government to compensate the Belgian dredging firm Baagerwerken Decloedt En Zoon (BDZ) P800 million plus interest costs.
The figure represents the amount the ICSID deemed BDZ was entitled to recover from their investment in preparations for the project before it was arbitrarily canceled, which Aquino didn’t even have the grace to do in writing. His Finance Secretary Cesar Purisima simply refused to sign the papers accepting a P7 billion development grant from the Belgian government.
Tiglao makes a strong argument that Aquino and Purisima personally, and not the current Philippine government or people’s tax money, should be held liable for the sum owed to the 150-year-old, globally-respected Belgian marine engineering firm, as well as for the human misery and property damage suffered since 2012 – when the project would have been finished – due to floods it would have prevented or lessened.
Everything Tiglao related in his column is accurate, but there is far more to the fallout from Aquino’s stupid early-term decision, which, incidentally, flew in the face of multiple positive assessments of the project from his own government and a couple of third-party organizations.
First of all, no significant flood control or other rehabilitation work has taken place at Laguna Lake. The grand replacement for the LLRP, the P122.8-billion Laguna Lakeshore Expressway Dike Project (LLEDP), which was considered the centerpiece of Aquino’s ultimately disappointing public-private partnership drive, was canceled early last year after the bidding failed, and it faced strong opposition from environmental groups, fishermen, and some lakeshore communities. It has only been this year that any sort of work on Laguna Lake has started with the demolition of the lake’s fishpens.
The Department of Public Works and Highways (DPWH) has said it would like to resurrect the dike component of the original project, which would carry an expressway 47 kilometers from Muntinlupa to Los Baños, Laguna, but the same interests who were against the project originally still are, and it is uncertain whether it will be able to go forward.
The second issue is that the ICSID ruling in favor of BDZ, the second high-profile loss for the government in the last two years in a contractual dispute, exposes the government as vulnerable to litigation. The first big loss was last April, when the Supreme Court reaffirmed its September 2015 ruling ordering the government to pay Philippine International Air Terminals Co. (PIATCO) over $500 million for expropriating NAIA’s problematic Terminal 3 back in 2006. One significant feature of multilateral trade agreements – it was a particular issue in the now apparently dead Trans-Pacific Partnership, and is part of the China-backed Regional Comprehensive Economic Partnership (RCEP) – is that third-party arbitration (such as through the ICSID) is a preferred dispute resolution mechanism. Whether it’s fair or not, the Duterte administration has to sell large-scale projects to investors with the albatross of the Philippine government’s reputation for being a bit faithless in contractual matters around its neck.
At best, that is going to cost the government more to achieve its infrastructure aims, and will limit its sovereign prerogatives to some degree, because future contractors are going to insist the dispute resolution mechanism be a part of the deal. At worst, the higher probability that a deal will end up in some sort of litigation – which bears an undesirable cost in time and resources even for the eventual winner – will discourage some investors from taking a chance on a project here.
The valid claim the Philippines has against its former President, and possibly against former Finance Secretary Purisima as well, is something that should be pursued, but if it is, the Duterte administration should take care to keep that at arm’s-length from the process of contracting investors in new projects, where the focus should be on establishing consistency and reliability in terms and procedures. One would think that would not be too difficult to manage, but this is the Philippines; making things harder than they need to be sometimes seems like a national pastime.