World Bank body junks Fraport’s complaint over NAIA3

BY JOSEFA L. CAGOCO, Senior Reporter/BusinessWorld The government has scored a major win in the protracted legal battle for the Ninoy Aquino International Airport (NAIA) Terminal 3 after the arbitration arm of the World Bank ruled that it did not have jurisdiction over Fraport AG’s complaint. Solicitor General Agnes VST Devanadera announced in a press conference at the Palace that the International Centre for Settlement of Investment Disputes (ICSID) has dismissed the claim of Fraport AG Frankfurt Services Worldwide against the Philippine government, alleging breach of the latter’s obligation under the Bilateral Investment Treaty on the Promotion and Reciprocal Protection of Investments. In a statement posted on its website Friday, Fraport acknowledged ICSID’s decision "denying its jurisdiction to hear FRAPORT AG’s claim for compensation against the Republic of the Philippines." "Fraport AG is investigating the decision as well as further actions in this matter," the statement read. Fraport filed the case on September 17, 2003, right after the Supreme Court ruled that the pre-qualification and award of the project and the concession agreements were null and void ab initio for violating the Constitution, Build-Operate-Transfer law, and the rules on public bidding. The high court then ordered the government to expropriate the airport terminal. Ms. Devanadera said Fraport, the principal investor and lender of NAIA 3 builder Philippine International Air Terminals Co. (Piatco), sought to recover its $425 million investment. Fraport also contended that "the Philippine government and its institutions were unfair and gave inequitable treatment on these investments and there was a violation of minimum standards of justice," Ms. Devanadera explained. "The government challenged the tribunal’s jurisdiction on the ground that before any foreign investor can ask for the protection and seek relief under a treaty, the Philippine government said that there must be no violation of the laws of the Philippines," she explained. Agreeing with the government’s argument, Washington-based ICSID said in its ruling Friday morning that the investment dispute is not within its jurisdiction. Momentary Vindication Ms. Devanadera said "[This] is a victory of sovereign state, of a Philippine government, of the Philippine institutions who were maligned and who were accused of being unfair, of being corrupt." The government likewise evaded coughing up as much as P27.6 billion, which includes the P19.5 billion ($425 million) direct investment of Fraport, interest and cost of arbitration, she added. President Gloria Macapagal Arroyo said the "hard-earned legal victory...has vindicated us in the eyes of the world." Fraport has stated in its request for arbitration that it owns 61.44% direct and indirect equity in Piatco through cascade companies, in violation of the nationality requirement limiting foreign ownership in Philippine-registered companies. Ms. Devanadera said the decision also affirms the government’s allegations of irregularity in awarding the contract to Piatco, which the Supreme Court upheld in 2003. She said the Department of Justice is in the process of filing criminal cases against Piatco officials for violating the Anti-Dummy Law. Ms. Devanadera said ICSID’s ruling is final and any further action to be taken by Fraport will be independent of this case. The ICSID tribunal that heard the case was led by L. Yves Fortier (Canada) while the arbitrators were Bernardo Cremades (Spain) and W. Michael Reisman (United States). Far From Over The legal battle is far from over, however. A separate suit filed by Piatco against the Philippine government is pending before the International Chamber of Commerce Arbitration Tribunal [ICC] in Singapore. Deputy Executive Secretary Manuel Gaite said Piatco is claiming that its contract should not have been voided in the first place. Ms. Devanadera said the government is set to submit a 350-page argument to ICC on August 30. Hearings are scheduled in November. The two officials believe ICSID’s decision will give the government a stronger case against Piatco. "While Fraport’s issue is different from Piatco’s issue, in a way 80% of other issues remain the same," Ms. Devanadera said. Asked whether she thinks the Singapore tribunal will also be favorable to the government, Ms. Devanadera answered, "I can’t see any basis for the Singapore court to rule otherwise." Mr. Gaite said ICSID’s decision will also bode well with ongoing negotiations with Takenaka Corp., Piatco’s general contractor with whom the government is in talks for remediation works of the airport facility. "It would be a little better for us because now at least Takenaka would be more confident of dealing with the Philippine government. They were always afraid [of] Piatco getting back on them because they have their own relationship as contractor with Piatco," he remarked. Mrs. Arroyo vowed that the government will pursue the opening of NAIA 3 more vigorously than before. "Work on NAIA Terminal 3 will continue with more vigor and sharp focus on safety and convenience," she said. Mr. Gaite, also a member of the Manila International Airport Authority board, said they are "near agreement" with Takenaka on the scope and cost of work on the terminal. Mrs. Arroyo’s year-end deadline might not be met however, since Takenaka has declared that it needs six months to finish repairing defects on the terminal, said Mr. Gaite. Meanwhile, Ms. Devanadera said all claimants of the NAIA 3 project have to "queue" with the assigned expropriation court, Pasay court Branch 117. The government had already made an initial payment of P3 billion to Piatco late last year. The expropriation court has yet to determine the balance the government has to settle with Piatco.