Implications of winning Terminal 3

By Perfecto R. Yasay Jr.

August 4, 2010

I fully understand why President Aquino expressed intense delight when informed about the dismissal of the case filed by Philippine International Air Terminals Corp. (Piatco) against the government before the International Court of Arbitration (ICA) in Singapore. He saw what this unexpected break brings to the cash-strapped government he inherited as a result of the fiscal excesses of his predecessor.

To begin with, our hard-pressed taxpayers will not be burdened with the $1.1-billion payment that was sought by Piatco as a result of the cancellation by the government of the contract to construct the Naia Terminal 3 under a build-operate-transfer (BOT) arrangement. Furthermore, the President would be given the opportunity to pursue vigorously the prosecution of corrupt officials and their conspirators associated with the anomalous contract.

In 2003 the BOT contract for the terminal facility was invalidated by the Supreme Court because of terms that violated the Constitution, the law and public policy and also because of grave irregularities concomitant to its award. However, Piatco sought redress, invoking a provision in the nullified contract, through arbitration before the ICA of the International Chamber of Commerce. On the other hand, Fraport AG, the German partner in Piatco, filed suit before the International Court for the Settlement of Investment Disputes in Washington, D.C., for reparation of investment losses in accordance with a treaty between Germany and the Philippines.

But while two of the three main legal obstacles to the final takeover by the government of Naia Terminal 3 have been overcome, the third and most troublesome, which is the expropriation proceeding pending before the Regional Trial Court in Pasay City, can further delay the full operation and eventual privatization of the Terminal 3 project.

The expropriation of the facility, by itself, is another scandalous abnormality. The terminal building was erected on government land. As a general rule, a house or building constructed on real property belongs to the owner of the land. Naia Terminal 3 is no exception. Even the provisions of the BOT contract to build the facility make this unmistakably clear.

Expropriation is a judicial proceeding that allows the State, in the exercise of its Eminent Domain powers, to take private property (usually land) for a public purpose, upon payment of just compensation. Why then-President Arroyo allowed the expropriation of Terminal 3 is perplexing, although not surprising. But what is even more disturbing and unsettling is why the Supreme Court did not strike down this expropriation for being anomalous and prejudicial to the public interest.

Piatco is merely the builder of the terminal complex on government land. As such, its entitlement to compensation should be determined under the provisions of the Civil Code, with respect to the rights of a builder on property belonging to another, and not as owner.

The invalidation by the Supreme Court of the BOT contract for Terminal 3 and its award because of corruption makes Piatco a builder in bad faith. For this reason, it should only be compensated for what it deserves, just like anyone who builds on the property of another without the valid consent of the owner. A builder in bad faith can only be paid the actual costs of improvements made, less damages suffered by the owner of the land.

And yet, the taking by the government of private property in expropriation proceedings is different because payment for just compensation is made to the owner and not to a builder. Moreover, in determining “just compensation,” consideration is given to the market value of the property, its replacement costs including reasonable profits or opportunity losses to the owner.

Because of the expropriation of Naia Terminal 3, Piatco can still be paid a staggering compensation approximating $1.1 billion because Piatco is deemed the owner of the property when, in fact, it is not.

The two arbitral cases in Washington, D.C., and Singapore were dismissed by the International Center for Settlement of Investment Disputes and the ICA, respectively, on the findings of graft and corruption participated in by both Fraport and Piatco. But the expropriation proceedings over Naia Terminal 3 were purposely instituted by the government to cover up the anomalies that accompanied the BOT project.

According to some experts, the money plowed into the actual construction of Terminal 3 has not exceeded $200 million. The government already spent around $150 million to complete the project that was estimated to cost around only $350 million. Given this situation, Piatco deserves to be paid not more than $200 million, less damage that the government has sustained.

The President should not allow the payment of what would essentially be unjust compensation to Piatco if the expropriation proceeding prospers. He must order the Department of Transportation and Communications and the Solicitor General to withdraw immediately the case. It can still be done because Piatco has never agreed to be bound by determination of the expropriation judge.

Only then would our people see the proper closure of this scandalous BOT project and the opening of Naia Terminal 3 for full operation, hopefully in December 2010.