German investors remain lukewarm until Fraport is ‘fairly compensated’

Manila Bulletin

German investors remain lukewarm until Fraport is ‘fairly compensated’

29 September 2008

Until the Philippine government and Fraport AG (Frankfurt Airport Services Worldwide) have resolved all the legal issues and Fraport fairly compensated, the NAIA Terminal 3 is unlikely to attract long term locators, according to German ambassador to the Philippines Christian Ludwig Weber-Lortsch.

Lortsch told reporters during the recent launch of the Mabuhay Germany by the German-Philippine Chamber of Commerce and Industry that most locators in the NAIA 3 would choose to be on short term contracts only because the facility is operating on a gray zone.

"It cannot run fully, it is operating on a gray zone because the legal situation is unclear," Lortsch said.

Under the rules, Lortsch said, the Philippine government is not allowed to operate the airport unless Fraport is fully paid.

Under this situation, the facility even if it has been opened for public use does not provide security to both Filipinos and international investors.

"That is the tricky thing," he added.

Among the airlines, only two have operations in the NAIA 3 - all Filipino-owned Philippine Airlines and Cebu Pacific while all the other foreign airlines have remained at the old NAIA 2 terminal.

Cebu Pacific has transferred its entire operations at the NAIA 3 but Philippine Airlines has a very limited operation there for its PAL Express flights, which caters to shorter domestic routes.

PAL’s international and most of its local flights are still using the Centennial Terminal.

"We are hoping for the best, the amount has to be settled," he said noting that the Fraport investor claimed to have lost $ 450 million in that venture.

"They have to be compensated somehow but the figures have to be settled by both parties," he said.

Lortsch also noted that the Philippines-Germany Investment Protection Agreement provides for protection of up to a certain level only of the entire Fraport investments.

Lortsch further said the German government also incurred loses in the Fraport venture because it provides insurance cover on a certain portion of German companies investments abroad.

"That is quite substantial, it’s a problem and we just cannot look away," he added.

It could be recalled that Fraport initiated investments in 1999 in the Philippine International Air Terminals Corp. (PIATCO), which gotten the concession to construct the airport. But the project became controversial on questions of fraud.

Subsequently, the Supreme Court declared the concession and related contracts null and void.

In 2003, Frapport sought International Centre for Settlement of Investment Disputes (ICSID) of the United Nations Conference on Trade and Development arbitration against the Philippines alleging violation of the Germany-Philippines Bilateral Investments Treaty.

In December 2004, the Philippine government moved to expropriate the property and deposited P3 billion with the Bank of the Philippines as part of the compensation package to PIATCO.

In 2007, the ICSID said it had no jurisdiction over the claim. It concluded that Fraport had not made an "investment" in accordance with Philippine law that was required to enjoy protection under the BIT.

In January this year, Fraport initiated an annulment proceeding with ICSID.