Gov’t win vs Fraport voided

Malaya | 4 January 2011

Gov’t win vs Fraport voided


The International Center for Settlement of Investment Disputes in Washington DC has vacated or voided its ruling made on Aug. 16, 2007, finding no cause in the complaint of Fraport, a German company, that the Philippine government violated a bilateral treaty with Germany when it voided Fraport’s contract to build and operate Terminal 3 of the Ninoy Aquino International Airport.

The reversal of the ruling, however, did not give Fraport an award which it claimed in its original request for arbitration filed with ICSID.

Fraport’s partner, Philippine International Airport Terminals Corp. (Piatco), filed a separate request for arbitration with the International Chamber of Commerce in Singapore. It lost the case.

Had the two arbitration request been granted in favor of Fraport and Piatco, the Philippine government would have paid the joint venture partners an estimated $1.2 billion in compensation and damages.

Sources in legal circles told Malaya Business Insight that Malacanang hardly knows anything about the ruling being vacated. Neither did it find any significance in the original ruling in favor of the Philippine government. (See story below)

The nullification was made by a new tribunal which reportedly held that the there was a procedural lapse when the Department of Justice refused to hear the side of Fraport before ruling that the German company did not violate the anti-dummy law.

The new decision can mean a new trial depending on Fraport. If Fraport so decides, evidence and testimonies will likely be resubmitted to ICSID. Or, lawyers said, the new tribunal can allow the testimonies of witnesses in the previous hearing to stand and review the transcripts.

It will be recalled that by its lawyers’ own admission, Fraport might have violated the Constitution that limits foreign ownership in public utilities such as the failed Terminal 3 when, by cascade, it ended up having slightly more than 60 percent equity in Piatco.

Sources have claimed that Fraport filed the arbitration request to cover the paper trail of $400 million supposed to have been contributed as its equity in the joint venture.

Assistant Solicitor Nestor Bellocillo had with him documents proving that Fraport could account for only $40 million as its share in the construction of the failed terminal.

While carrying the documents, Bellocillo and his son were murdered near the city hall of Paranaque City. The case is unsolved this day.

Earlier, Pasay City RTC Judge Hendrik Guingoyon who was trying a case involving Piatco was also killed near his home in Cavite. Like the murder of the Bellocillos, the killing of Judge Guingoyon also remains unsolved.

After Fraport announced that it was putting in $400 million in the new terminal claimed as world class by Cheng Yong, principal stockholder of Piatco, it made an initial public offering in Frankfurt.

The buyers of the shares became furious when they learned that German federal authorities raided the home of Wilhelm Bender, chairman of Fraport.

What emerged in the arbitration hearings in Washington DC was that Fraport did not spend all of the $400 million in the new terminal but it promised handsome profits to the buyers of its IPO in Frankfurt.

Later, the Anti-Money Laundering Council turned up documents indicating that some Fraport officials in the Philippines were keeping accounts suspected to contain laundered money.

The name of Lilia Cheng is in the list of names of Fraport officials. The Cheng family is now reportedly residing in Australia.

The new terminal which foreign airlines refuse to use has a long, sad, controversial history. Piatco was awarded the contract for the terminal on a build-operate mode after it challenged the unsolicited offer of Asian Emerging Dragons Corp., composed of taipans headed by Lucio Tan.

AEDC demanded that the terms of Piatco’s challenged be divulged so that it could try and make a better offer. Piatco refused.

This prompted the AEDC to file a case in a Pasig regional trial court. As the case was being heard, powerful officials in Malacanang summoned officials of the AEDC and asked them to settle with Piatco.

Thus, Piatco went ahead with the construction. The terms of the concession agreement were revised without the approval of the Investment Coordinating Council of the NEDA.

The "amended and re-stated concession agreement" allowed Piatco to bloat the cost of constructing the new terminal to more than $500 million although the award was for $30 million as against AEDC’s $35 million.

When the terminal was believed to be almost complete, independent assessors discovered so many structural defects that remained uncorrected up to now.

In spite of its failure to complete the new terminal and after spending hundreds of millions of dollars in what turned out to be a structurally unsound terminal, Fraport filed an arbitration request with the ICSID. Piatco filed a separate request with the ICC in Singapore. The joint venture partners lost their cases separately.

This is the victory from the ICSID which turned out to be pyrrhic as the new tribunal vacated the ruling promulgated in August 2007.

source: Malaya