Monday, March 17, 2014

Reckoning Approaches for one of Aquino’s Worst Decisions

The Manila Times, Saturday, February 22.

“Irony” is an overused word, but here in the Philippines there are times when it seems one cannot even turn around without tripping over a real-life example of it. In a week in which the Aquino Administration launched its all-too-predictable last-minute rush of largely cosmetic infrastructure projects – in the process, rendering approximately every road in Metro Manila completely useless due to unmanageable traffic – it just as hastily began preparing for a major arbitration hearing over another infrastructure project it did not pursue, thanks to an arrogantly ignorant decision from a President who misinterpreted “being elected by a plurality vote” as “earning an advanced degree in civil engineering.”

Ironic, too, is the unfortunate situation that one of the government’s key personalities in the impending case, Presidential Advisor for Environmental Protection and General Manager of the Laguna Lake Development Authority (LLDA) Nereus Acosta, had to begin his preparations for the hearing to be held at the International Center for Settlement of Investment Disputes (ICSID) in Washington, D.C. by petitioning the Sandiganbayan for travel permission. Acosta is prohibited from leaving the country because he is currently under indictment on four graft counts stemming from his alleged misuse of Priority Development Assistance Funds while he was a Congressman.

The case, of course, is the P 6-billion ($134.5 million) suit filed by the Belgian marine engineering firm Baagerwerken Decloedt en Zoon N.V. (BDZ) over President B.S. Aquino 3rd’s arbitrary cancellation of the P 18.7-billion Laguna Lake Rehabilitation Project (LLRP) in November 2010, and scheduled to be heard by the ICSID in Washington from March 3 to March 14. That project would have involved dredging Laguna de Bay to improve water flow and flood control capacity, with the dredged material being treated and reused to create about 100 hectares of artificial wetlands at the lake’s northern end as a further pollution- and flood-control measure. Despite reviews – ordered by Aquino himself – of the contract by both the Department of Environmental and Natural Resources (DENR) and the Department of Justice finding no anomalies and endorsing it as a worthwhile project, Aquino unilaterally abrogated the contract, saying he “was allergic” to dredging projects because of their risk of corruption, and declaring that “Even a Grade 5 student will easily see that this project is illogical,” a gutter-level insult coming from a former shoe salesman, given the comparative expertise of a marine engineering firm from one of the Low Countries (where they know a thing or two about dealing with water) which has been in business since 1876, not to mention the trained engineers, environmentalists, accountants, and attorneys within his own government.

Last August, before departing the Philippines at the end of his tour of duty, former Belgian Ambassador Christian Meerschmann described the President’s reasoning and the manner in which notice of the cancellation was given – Meerschmann first heard of it from the local news – as “a bit insulting,” saying that it appeared the only reason for the abrupt withdrawal of the project was that it had been signed during former President Gloria Arroyo’s term. The Aquino Administration, however, had other ideas at the time; faced with vehement protest of the unilateral decision from both BDZ and Meerschmann’s office, Aquino responded by ordering the Office of the Solicitor General to investigate BDZ for “possible tax evasion and graft” and accused the firm of contributing to allies of former President Arroyo in the May 2010 election campaign.

In another one of those amazingly common real-life ironies one encounters here, just about a week after dropping the axe on the LLRP contract, Aquino was telling attendees at a FinanceAsia investment conference in Makati that, “the Philippines was open for business,” and acknowledging that “Over the years, investors have progressively lost confidence in the government’s ability to stick to its word – or even to its contracts. ‘I can very well imagine your apprehension,’ Aquino assured the assembled investors. ‘You cannot deal with a government who offers a handshake with its right hand, while the left hand is picking your pocket.’”
After several months of futility in trying to discuss a settlement with the Aquino Administration – an effort that even included the intercession of the Belgian Prime Minister, whose letter, like so many other letters and phone calls to Casa Noynoy, was apparently lost in the shuffle – BDZ with the backing of the Belgian government filed for arbitration at the ICSID in April 2011. 

Among the approximately 50 million Euros  in costs incurred by BDZ as a result of the cancellation were the scrapping of about a half-dozen brand-new, purpose-built vessels specifically designed to travel in and out of Laguna de Bay under the Pasig River’s low bridges, and the layoff of approximately 500 BDZ employees and contractors – Belgian as well as Filipino – who had been assembled for the project.

The Philippine government was also hit with several million dollars in commitment charges for not accessing the development loans made available for the project by BNP Paribas Bank, despite Finance Secretary Cesar Purisima’s confident (and completely erroneous) assurances to the President that the government would incur no costs for cancelling the contract. The loan-refusal issue was quietly settled for an undisclosed amount, unofficially estimated at somewhere between $4 and $7 million, sometime last year.

Nereus Acosta’s travel difficulties may be one bad omen, but an even bigger one may be that the LLRP case is the second of two pending large-scale cases involving the Philippines at the ICSID; the other, of course, is the apparently endless drama involving NAIA Terminal 3 and the $400 million suit brought against the government by jilted contractor Fraport AG. While the latter case is of a completely different nature and is sufficiently confusing that an eventual decision could go either way, it is difficult to see how the Solicitor General and the 22-person party slated to present the Philippines’ case versus BDZ will accomplish anything without resorting to lame tricks like “losing documents” or “having a small lady drop off new evidence in a brown envelope.”

No one relishes the thought of the Philippines losing a case that will cost, when it is all said and done, close to a quarter-billion dollars, but that’s what needs to happen; the costs in lost investment and general mistrust of the country’s leadership and institutions are far greater, and will only continue to add up until this embarrassing and unjustifiable issue is brought to a conclusion.

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