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By Lakambini A. Sitoy, Karen Capino, Janice
Alonso
Second of three parts
The issue of whether R2 Builders breached its
agreement with the government has been raised by Sen. Miriam
Defensor Santiago.
“[Romero] promised in the contract that he
would transform the entire Smokey Mountain area from the filthy,
stinking, miserable area that it is, a black mark on Metro Manila
into, in effect, a Shangri-La for the poor, plus an institute where
the jobless squatters could be taught vocational training,” she
told The Manila Times. “If we want to assess whether the developer
deserves payment, all we have to do is go to Smokey Mountain and
look for those things that he promised. They’re not there.”
Jose Baer, whose family has lived in the area
since 1981 and scavenged off the dump, would agree.
The 40-something tricycle driver worked for R2
Builders, helping to vulcanize tires, but left when the company
assigned him to Surigao for a five-year stint, but without visits to
his family.
Baer is content with the accommodations, but
says “there are no training or livelihood centers in the area that
would help residents improve their capabilities to earn a decent
living.”
Senator Santiago has also raised the issue of
health hazards to the residents. Garbage dumped over the years has
settled into the marshy ground, gradually compacting to a depth of
some two meters.
“[Romero] did not remove Smokey Mountain, he
leveled it,” she said. “The understanding was that he would
remove it because [the dump] was full of toxic materials, garbage
over the years exuding poisonous fumes and gases. So when he simply
leveled it and built the houses over it, those houses became
inhabitable. Slowly, every day [residents] are poisoning themselves
by inhaling gases from the ground.”
Santiago’s concerns are echoed in Asorya’s
complaints: “Some children have been taken to San Lazaro Hospital
on account of dengue fever,” he said.
The question the senator now raises is why
taxpayers’ money should have been awarded to R2, to the tune of
some P3.1 billion, plus another P1.8 billion under a contract this
year with the Arroyo administration.
The series of joint-venture agreements between
R2 Builders and the government through the National Housing
Authority stipulated that the developer should fully finance the
project. But with only a few tenements built, R2 declared it had run
out of money.
A number of reasons were possible for this. On
its website, on a discussion on the upgrading of slum communities,
the Massachusetts Institute of Technology named the large increase
in costs as one of the failings of the Smokey Mountain project.
The website puts the cost of the project at an
estimated P488 million originally. By project completion, it pegs
the actual cost at P975 million, or a 100-percent increase.
“A large increase in cost occurred due to
delays associated with the massive size, complexity and experimental
nature of the project,” the website states. “Delays were
associated with project start-up, higher than expected land
acquisition and reclamation costs, petroleum price increases, and a
lack of detailed design and engineering on major civil work at
appraisal.
“Cost recovery was the weakest element of this
project,” the report continues. “Land and infrastructure costs
were to be paid through mortgages, but the lot price was set
prematurely at P95/sq. m. Four years later when completed, the
actual cost had risen threefold. In fact 90 percent of the residents
could have afforded the real cost of P300, but instead paid only P95
and the rest was subsidized.”
Creative financing
Relief was given in all three versions of the
contract in the event of delays. The Ramos administration, however,
chose a nonadversarial solution—it rescued the project and, of
necessity, R2 Builders, by devising an asset securitization plan for
financing. R2 entered into an Asset Pool Arrangement with the NHA,
the Philippine National Bank and the Home Insurance and Guarantee
Corp. Government agencies—the SSS, Pagcor, OWWA, LandBank—pooled
assets to finance the project. According to an OWWA fact sheet from
2003: “The PNB functioned as a special-purpose vehicle where
project properties and values were conveyed into the trust fund,
against which security instruments called the Smokey Mountain
Project Participation Certificates (SMPPCs) would be issued. These
were issued and sold to the institutional and individual investors
to obtain the required funds. The SMPPCs were to be redeemed or paid
with revenues from the sale of the reclaimed lots.”
According to the OWWA fact sheet, the investors
were the Social Security System (P1,039 million), OWWA Secretariat
and OWWA-Medicare (P835 million), Land Bank of the Philippines (P124
million), HGC Abot Kaya Pabahay Fund (P350 million), Pagcor (P6
million), Philippine National Bank (P300 million), HGC Provident
Fund (P30 million), and various private financial institutions with
aggregate investments of P473 million.
SMPPCs were considered government securities,
the OWWA fact sheet said. The certificates were insured and fully
guaranteed by the Home Guaranty Corp.
The OWWA fact sheet cites a Department of
Justice opinion of January 6, 1995, written by then-Justice
Secretary Franklin M. Drilon, that the guaranty obligations incurred
by the Home Guaranty Corp. by virtue of its charter carried with it
the unqualified guaranty of the Philippine government.
This is the justice department’s opinion that
former President Ramos has recently invoked in his defense, to seal
the legality of the financing plan.
Interestingly, Drilon has sought to clarify this
contention, explaining that the opinion he released was not on the
Smokey Mountain project, but was a response to a general legal
question posed by Wilfredo Hernandez, then-executive vice president
and general manager of the HGC.
The formation of the asset pool is one of the
most controversial aspects of the Smokey Mountain project. If the
joint-venture agreements held the developer responsible for funding,
why did the government intercede?
Plain old luck?
The fates seem to have smiled on R2 Builders,
giving it the ability to bounce back from controversy, or find
generous rescuers for its projects at the eleventh hour.
In 2000, for instance, R2 was among nine bidders
to build a landfill with a materials recovery facility. Although
disqualified from this bidding reportedly owing to deficiencies in
its technical proposal, it was awarded an interim contract by the
MMDA to dispose of Metro Manila’s waste on Semirara Island,
Antique, without a DENR-issued permit for the project. As a result,
R2 barges filled with garbage were stranded in the waters off
Semirara, following issuance of a temporary restraining order.
Santiago named other instances where the company
put in a questionable performance.
“Apparently, they were given a contract to
build low-cost housing units along the railway tracks, and that
turned out to be a failure. Apparently a contract was given for
development of an area near La Mesa Dam and [they] cut down lots of
trees, which was not included in the contract.”
In the wake of recent calls to investigate the
Smokey Mountain project, Sen. Sergio Osmeña 3rd started inquiries
and discovered that in 1988, R2 Holdings, mother company of R2
Builders, had a mere half a million pesos in paid-up capital.
“How could a company with a paid-up capital of
only P500,000 be given a project amounting to almost P5 billion?”
Osmeña asked last week on the floor of the Senate.
When funding proved to be inadequate, the NHA
conveyed more property into the asset pool. In August 2000 10
hectares were transferred to Harbor Center, a sister company of R2
Builders, under the umbrella group R2 Holdings. In exchange the
asset pool got 60 percent of the voting shares of Harbor Center.
Romero now owns the majority shares in Harbor
Center. Through a series of corporate transactions, he was able to
increase the shares of R2 Builders to 28 percent, and R2 Holdings to
40 percent.
Continued tomorrow
Part 1 |Conclusion
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