Using its hefty financial assistance as leverage, Germany is putting pressure on Manila to re-negotiate the 2007 takeover by the Philippine government of the Terminal 3 international airport project, which has been mired in a dispute with the German transport company Fraport AG. An international court recently asserted Fraport’s right to seek arbitration.
The Arroyo government had ordered the takeover of the project in 2007 after persistent questions about the original contract and charges of mismanagement. Talks between the government and Fraport led to an extortion complaint filed by the latter with the World Bank.
PIATCO, the Philippine company formed by Fraport and its local partners, and Fraport sought arbitration through various international bodies.
Terminal 3 has been partially open since 2008. Its full operation has been delayed for at least eight years.
Last month, the Washington-based International Center for Settlement of Investment Disputes' (ICSID) issued a decision asserting the right of Fraport, a Frankfurt-based company that builds and runs airports, to file an arbitration case against the Philippines.
That prompted the German government to increase its pressure to resolve the case and compensate Fraport.
'Facilitate fair solution for an inherited problem'
On Tuesday, Ambassador Christian-Ludwig Weber-Lortsch asked Malacañang in a statement "to bring the parties involved to the negotiating table in order to facilitate a legal, fair and timely solution for an inherited problem."
In the meantime, the German government has been reported to be withholding billions of pesos in aid until the airport dispute is resolved, presumably in Fraport's favor.
Sebastian Lesch, press officer of the Berlin-based German technical cooperation agency Gesellschaft für Technische Zusammenarbeit (GTZ), said at least €46 million (P2.8 billion) in financial assistance to the Philippines will be placed on hold until the Fraport-NAIA-3 issue is resolved, according to a report by Manila newspaper The Daily Tribune.
GTZ earmarked €21 million (P1.26 billion) for a loan program for Mindanao and €25 million (P1.5 billion) for the Debt2Health Initiative of the Global Fund for the fight against HIV/AIDS, tuberculosis and malaria in 2009.
"Both financial assistance programs will come into effect, once the Fraport issue has been settled," the newspaper reported, quoting Lesch in an email message.
"These funds are still earmarked for the Philippines and cannot be transferred to other Asian countries," Lesch said.
Germany funded technical assistance projects in the Philippines and committed €16 million (P960 million) in 2009 specifically in the areas of conflict prevention, environment, private sector promotion, and decentralization, according to the GTZ official.
"However, financial assistance will only be continued once a solution for the Fraport case has been found," he said.
The Department of Foreign Affairs is coordinating with the Office of the Solicitor General and the Justice Department for a solution.
"As a result of this impasse, Germany has informed the Philippine government that financial cooperation (ODA) with the Philippine government can only be resumed after a mutually acceptable resolution of the case," The Daily Tribune also said, citing a communiqué issued by the Foreign Affairs Department.
"Legal flexibility and creativity could hasten the resolution which will have positive economic repercussions to the country," according to report.
Re-negotiation spurred by ICSID decision
The possibility of a re-negotiation was spurred by a Dec. 23 decision of Washington-based International Center for Settlement of Investment Disputes' (ICSID) ad hoc committee restoring the right of Fraport, a German transportation company that builds and runs airports, to file an arbitration case against the Philippines.
Because of the committee ruling, present operations and tenant agreements on NAIA-3 are deemed illegal as "the parties involved including the German government reserve all rights and waive none," said Weber-Lortsch.
“The Philippine Supreme Court clearly stated that no acts of ownership are allowed until full payment of just compensation by the government to PIATCO and its investors," Weber-Lortsch said, referring to the expropriation of NAIA-3.
Expropriation is a State’s action that takes or modifies the property rights of an entity in the exercise of sovereignty.
On the other hand, Solicitor General Jose Anselmo Cadiz clarified the arbitration body's decision does not affect Fraport’s compensation claims over NAIA-3.
Cadiz said the ICSID decision did not indicate the Philippines is liable to anything surrounding the case.
"The decision merely provides Fraport the opportunity to commence a new arbitration and to present its claims again. Likewise, the [Philippines] is entitled to present the evidence against Fraport again," said Cadiz.
The government is still entitled to maintain its argument that Fraport violated Philippine anti-dummy and other anti-corruption laws, according to the Philippine government lawyer.
"The [Philippines] therefore retains the right to reassert all of its defenses against Fraport’s claims, including its arguments relating to Fraport’s violation of the Anti-Dummy Law and anti-corruption laws," Cadiz said.
Fraport is a major investor in Philippine International Air Terminals Co. Inc. or PIATCO, owner of the concession to build and operate NAIA-3.
"Should Fraport choose to refile its treaty claims, the Republic therefore will call upon Fraport to disclose the evidence of its expenditures on the [NAIA-3] and will call upon Fraport and the German government to produce all of the evidence relating to the project seized by German prosecutors from Fraport and from the offices and homes of its officials and former officials," Cadiz said.
Back to zero in arbitration terms
What the ICSID ruling did was put the Philippines “back to zero" in terms of arbitration as the previous decision favorable to the State was overturned, said Executive Secretary Paquito "Jojo" Ochoa Jr.
The decision does not impact on the ownership of the airport terminal and the airport's operations, he said.
"It has no effect as far as we are concerned. As far as we see it, as of today that decision has no effect in the operations of NAIA-3," Ochoa said in an ambush interview with Palace reporters.
The expropriation started during the term of President Aquino's predecessor, then President Gloria Macapagal-Arroyo.
Fraport then filed with the World Bank an extortion complaint against the Philippines. The firm alleged that three of Arroyo's aides demanded millions in kickbacks in exchange for favorable government action. Arroyo later aborted the contract with PIATCO.
The Philippine government then won an arbitration case involving NAIA-3 before the International Chamber of Commerce-International Court of Arbitration in Singapore.
In August 2007, an ICSID tribunal also dismissed Fraport's claims for compensation because it supposedly violated the Philippines anti-dummy law.
Fraport and PIATCO challenged these decisions before the ICSID ad hoc committee.
The ICSID committee last month annulled the August 2007 decision. It ruled that the tribunal failed to give Fraport the opportunity to review the Philippine Department of Justice special prosecutor ruling regarding anti-dummy law violations. — VS/HS
