SMOKY MESS
The Philippine Star
07/16/10

An unfinished business that the new government needs to resolve involves the residual components of the Smokey Mountain Development and Reclamation Project (SMDRP). Incidentally, this was started by President Noynoy’s mom in 1992 in the last year of her term as president.

The people living in the project’s housing units deserve to get their certificates of ownership, but since the whole project is currently embroiled in several court cases, these residents may have to wait for awhile.

For the longest time, Smokey Mountain had been a dumpsite of Metro Manila’s garbage. It had earned notoriety not only as an environmental eyesore and problem but also as a testament to the deplorable plight of our poor countrymen forced to live on garbage pickings.

To solve the problem, former President Corazon Aquino authorized the National Housing Authority to enter into a joint undertaking with R-II Builders, Inc. to construct temporary housing units for the affected residents of Smokey Mountain, to clear the garbage for incineration, and subsequently to construct permanent housing within the area.

In addition, the first phase of the project also stipulated the reclamation and development of a 79-hectare area directly across Radial Road 10, now known as the Manila Harbour Centre, to serve as the enabling component for the whole project.

R-II Builders, by the way, is owned by real estate developer and project broker Reghis Romero II. Incidentally, he is also the same person with majority stake in Harbour Center Port Terminal, Inc. that won the concession to modernize Manila’s North Harbor.

Amendments

The first joint venture agreement signed in 1993, which allegedly stipulates that R-II Builders will reclaim 79 hectares from Manila Bay for the government’s social housing program in the Smokey Mountain area at an initial cost P6 billion, has been altered several times, and in the 10 years or so that the company was directly involved in the project, has lost most of its original content.

In 1994, the Home Guarantee Corp. (then the Home Insurance Guaranty Corp.) and the Philippine National Bank were engaged by R-II Builders (with NHA participation) to oversee a newly formed asset pool consisting of all properties under the SMDRP but held in trust to cover for the issuance of participation certificates.

By 1998, as the project’s original scope of work changed and expanded, a supplemental agreement needed to be drawn up since the additional work would increase the total contract price by more than 25 percent.

Under the draft supplemental agreement, R-II Builders was to be granted 220 more hectares for reclamation and development to enable the company to recover all the costs incurred and to be incurred including that for the additional work scope of the project.

President Ramos decided to pass on approval of the supplemental agreement to the incoming administration headed by President Joseph Estrada, who in turn reconstituted the SMDRP Executive Committee and directed it to review and submit its recommendation on what to do with the proposed supplemental agreement.

In 2000, the new executive committee, after months of deliberating on how best to find the funds to cover for the additional project costs, decided to reduce the reclamation and development of 220 hectares as proposed in the draft supplemental agreement to 150 hectares but adding the 17-hectare Vitas property owned by NHA.

By this time, R-II Builders claimed that their advances to the project already amounted to P1.8 billion; it also estimated that the total project expenditure level was already at P8.65 billion, of which P4.78 billion was in direct cost and P3.87 billion in indirect cost, although the latter was still to be validated by the NHA.

In 2002, the Office of the President under Gloria Macapagal-Arroyo, ordered the reclamation component as specified in the supplemental agreement opened for bidding instead of directly given to R-II, in effect removing the company from the project.

This move further caused delays for the project and stopped potential sources of income. In the end, maturing participation certificates covering the project worth P2.5 billion were not serviced causing the guarantee clause to kick in.

Court cases

Eventually, R-II Builders was notified that PNB had passed on its trusteeship of the asset pool to Planters Development Bank, which then later transferred this to HGC. On grounds that the moves were irregular, R-II Builders asked the court to intervene.

R-II Builders subsequently filed for a writ of preliminary injunction against HGC to prevent it from taking possession as well as managing, administering and disposing of all the assets in the pool. Even with the writ, though, HGC went ahead and sold parcels of Manila Harbour Centre and transferred the inventory of other lots to its name.

R-II Builders, even if entitled only to the residual assets of the pool, wanted to protect its interest in the project, even if at first glance there was nothing left that could be of any value, and even if it was said that the project had gone bankrupt.

With so many delays and costly court cases, this government project is characteristically incurring additional interest and financing charges, although currently, the Social Security System is the only remaining unpaid holder of regular participation certificates that made a call on HGC’s guaranty with an exposure of P1.2 billion.

It seems that the best way still to resolve the issue is to sell parts of the developed property as HGC had first started to do before R-II Builders filed a civil case, and to start paying off all government financial institutions and banks involved, as well as R-II Builders.

Smokey Mountain is no longer the worthless pile of junk it was two decades ago. It has been transformed into a property whose value is definitely something that could be put to productive use, either for housing or for commercial purposes.

And with the property now commanding much higher value, more interested parties are trying to cash in, join the party and share in the spoils, which, they hope, the new administration will dispense.

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Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, SalcedoVillage, 1227 MakatiCity. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net