RP’s commitment problem
The Philippine Star
September 23, 2002

By now, word is out in the international investing community that the Philippine is a country with a commitment problem.

Investors’ oft complaint is that we’re too fond of changing the rules in the middle game. Lately, not only are we wishy-washy, we also cannot be trusted to remain true to our word.

The problem with the hundreds of contracts entered between the government and the private sector is they are today fair game to all kinds of inquiries. Our venerable lawmakers have become overpaid investigators, quick to instigate any investigation "in aid of legislation."

Contracts come in many forms. But for a cash-strapped government like ours, the most popular type is the build-operate-transfer (BOT) arrangement. With BOT projects, the private sector designs, finances, construct and operate the facility; and after the specified project time frame, transfers it lock-stock-and-barrel to the government.

Persecuted BOTs

The most popular BOT projects are those of independent power producers (IPPs). A decade ago, the Philippine begged investors to bring in their capital and expertise to build power generation plants to stave off the recurring brownouts.

To make it attractive, we offered all kinds of perks and guarantees. And so IPPs came, built, and operated. Today, they find themselves the subject of political bombshells, unceasing congressional inquiries and the object of hate campaigns.

Now that we have electricity flowing our of our ears, we start calling the IPP contracts "onerous," "disadvantageous," and "anomalous." These are today’s most abused words.

There are other BOT projects that have become equally infamous. The almost completed Ninoy Aquino International Airport’s Terminal III contract of the Philippine International Airport Terminal Co. (PIATCO), majority financed by the German Fraport AG, is the latest.

Which leads us to some soul-searching questions: Is something wrong with how we award our contracts or is corruption so deep-seated that we can see ghosts whenever a new project is announced or completed?

Of course, the other naughty thought is that by questioning a contract and labeling it "onerous" makes it fair game for more "facilitation" fees in order for the project to be "washed clean" and eventually declared as valid.

BOT projects are for the Philippine government an opportunity to construct usually much-needed public service facilities without putting in a single centavo. No tax money is being spent for this, although the taxpayer who will use the facility will in all likelihood have to pay for it over time.

Many projects, even before these are subjected to bids, already have studies that estimate their cost, feasibility, and overall positive impact to the economy. That is what our economic managers are being paid to do.

Based on the evaluation process, various agencies composed of several staff members are involved. Using economic mumbo-jumbo equations and computations, and applying the parameters set by appropriate laws, they determine whether project proposals are worth signing on the bottom line. No one man is in complete control.

A cynic, of course, would say they can all be influenced, pressured or bought. But that does not mean that the evaluation process is flawed. Staff integrity then becomes a separate issue.

But with the series of "exposes" that have hit broadsheet and tabloid headlines, our government’s credibility in dishing out contracts is at the least tarnished, if not ridiculed. So don’t expect new investors to even look at new proposed BOT projects unless we straighten up our act.

Lost sanctity of government contracts

We must remember that a contract is a contract, no matter how badly it was negotiated by the parties. The only caveat is that there are no provisions that are contrary to existing laws.

Yes, there is a system of check and balance and agreements with the government are vetted not just by one, two or three government agencies, but as many as even a dozen. This is aimed against the big C of contracting: corruption. If it doesn’t work, don’t blame the system. Pin down the responsible persons and prosecute them fully. But the contract that passed through the system must be respected.

The role of our legislative – both the Senate and the House – is to look at whether the laws, such as the BOT, have any loopholes that prejudice the Filipino people. Of course, plugging the holes quickly reduces media mileage.

Amending without reneging

Certain conditions exist when parties shake hands on a contract. When these conditions drastically change, contracting parties have options available to amend the agreement. Until then, a valid contract must be respected.

For some contracts, renegotiation is an option open to the government if the other party is willing. Buying out a multi-billion peso contract may not be, given the current distress of the government treasury.

Sorry but the threat to abrogate is not just an alternative. Our image is already tarnished enough by the news stories of kidnapping, coups, and corruption. And to be an Argentina in this part of the world is certainly not going to improve this.

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