Terminal issues

Ben D. Kritz

Ben D. Kritz

In a decision that is certain to have caused some head-scratching in Malacañang, the Court of Appeals ordered the government to pay the Philippine International Air Terminals Co. Inc. (Piatco) nearly $240 million as base compensation for the 2002 expropriation of the ill-starred Terminal 3 project at Ninoy Aquino International Airport (NAIA 3), according to a July 31 ruling made public last week.

The appellate court decision modified a 2011 ruling by the Regional Trial Court (RTC) in Pasay City, which had awarded Piatco just $175 million, less the $66 million the government paid to Piatco in September 2006. The new amount set by the appellate court represents a base amount of just over $300 million as “just compensation” for Piatco’s construction of NAIA 3; taking into account the earlier payment by the government and the 6-percent interest per annum established by the appellate court ruling, the net amount due as of July 31 is now $371.4 million.

The award amount is far below the $846 million Piatco was claiming as the cost of NAIA 3, and is the lowest of the three appraisals provided by the court-appointed Board of Commissioners ($376 million), the construction subcontractors Takenaka and Asahikosan ($360 million) and the construction and development consulting firm Gleeds Worldwide ($300.2 million). The government, on the other hand, argued that Piatco should be paid only $90 million, due to depreciation, structural defects in the terminal and Piatco’s noncompliance with the terms of the original project contract. The government had been expecting a favorable ruling by the appellate court, one that either upheld the 2011 decision by the Pasay RTC, or preferably, dismissed the claim of Piatco entirely.

The assumption was based on the final ruling of the Singapore-based International Chamber of Commerce (ICC) Court of Arbitration of Piatco’s $564-million claim against the government in July 2010, which held that Piatco had illegally obtained the contract for the NAIA 3 project. The logic behind the appellate court ruling, however, seems to be that the value of NAIA 3 is a separate issue; regardless of how Piatco obtained the contract, the company did in fact build a physical structure and incurred costs in doing so, and are entitled to fair value for having it taken by the government.

Naturally, the issue will not end with the Court of Appeals ruling. Since the Philippine judicial framework is rather tolerant of claimants’ not being able to lose a case with any sort of dignity, the appellate court will first have to entertain a “motion for reconsideration” which the government is certain to file if it has not done so already; whatever the outcome of that petition, which is sure to delay the proceedings for several more months at least, whichever party finds themselves on the losing end of it will undoubtedly file for relief at the Supreme Court, pushing the issue well into 2014 if not beyond.

The ongoing saga of NAIA 3 is emblematic of one of this country’s biggest problems, the inability to resolve complex issues that fester for years. The controversy surrounding NAIA 3 dates back to at least 1996—during the term of President Fidel Ramos, who played a significant role in getting the idea of a third terminal for NAIA off the ground—when the consortium that would later become Piatco ambushed the bid of a Lucio Tan-led group for the project. Nearly 20 years and three administrations later, NAIA 3 is still the subject of unresolved disputes; not only has Piatco’s cause, which everyone assumed was dead after the ICC ruling three years ago, suddenly found new life, but the other major pending case—the claim of would-be NAIA 3 operator Fraport AG for $425 million (which has reportedly since been increased to around $800 million) at the World Bank’s International Center for the Settlement of Investment Disputes (ICSID) in Washington, D.C., is still unresolved, having been resurrected in December 2010, when the ICSID reversed its own 2007 decision in favor of the Philippine government. And there are other issues as well, such as the claim against the government by the Belgian engineering firm BDZ over the aborted Laguna Lake Reclamation Project, and several cases in the Philippine courts involving unrefunded tax exemptions to foreign investors in the mining and power industries.

What makes the problem terminal, a syndrome that the Philippines seems unlikely to ever recover from, is that the inability to resolve contentious issues is not simply a governance or management shortcoming, but a social one. Consider for a moment the other ongoing crises currently dominating the local news. The growing “pork barrel” scandal is not something that just happened, but the revelation of organized fraud that has been going on for at least 10 years, and to some extent since the highly questionable funding concept was first started during the President Cory Aquino era. The recent string of bombings in Mindanao which has befuddled a government who thought they had brought peace to the South is, tragic though the incidents have been, little more than the latest chapter of a low-grade war that has been going on for four decades. The recent furor over the traffic situation in Metro Manila for the most part conveniently overlooks the fact that much of that particular problem has been caused by a 60-year-old temporary solution to a post-war lack of public transportation.

There is a tendency in this country to sidestep the big issues; to paper over them, produce a quick temporary fix, stall even their partial resolution (e.g., via the much-abused “motion for reconsideration” and “temporary restraining order”), or to attempt to ignore them entirely. And as a result, the country is saddled with problems that never really go away. Unfortunately, there is no ready solution for it; problems are easy to solve, unless the problem is one of mindset—fixing that could take generations, if it’s even possible to fix it at all.

(Author’s note: At the risk of being perceived as being unreasonably self-promoting, I wrote an extensive case study on the NAIA 3 issue in November 2011, which has since become the go-to resource for those seeking background information on the case. It can be found on Slideshare at http://www.slideshare.net/bkritz/fraport-ag-and-the-naia3-debacle.)


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