Finance Secretary Carlos Dominguez III has said at a foreign media forum that although inviting investors to the domestic economy is on top of the Duterte administration’s concerns, it has been doing so without turning a blind eye to what it sees as onerous provisions in the state’s contracts with private businesses that are detrimental to the public interest.
Dominguez pointed out that the national government has been reviewing its contracts with private companies as part of President Duterte’s commitment to protect taxpayers and ordinary Filipinos from onerous provisions of these transactions that subvert the common good.
He also assured the business community that while the government is undertaking this review, the process would be fully transparent and would “follow the law to the letter.”
Dominguez, at the same time, allayed fears that the ongoing review of contracts has been rattling the business community, saying that the successful float just recently of Premyo and ‘Euro’ bonds indicate the deepening investor confidence in the Philippine economy on the Duterte watch.
“You think this administration should sit down and say, well it was the way it was done in the past, then go ahead? You forget the basis on why this administration was elected. We said we wanted to change. And our change is for the better of the ordinary taxpayer,” Dominguez said when asked Thursday at the open forum of a Foreign Correspondents Association of the Philippines (FOCAP) event on the government’s decision to review existing contracts or concession agreements.
When told by one journalist about the supposed investors’ concerns over the ongoing review of contracts, Dominguez said: “Our bond market is oversubscribed and our interest rate keeps on dropping. That is also an investment community, is it not?”
“People doing investments in our future and they invest–the Europeans bought 2 sets of bonds. 3 years and 9 years. What better confidence can you ascribe than that?” he stressed at the FOCAP’s “Prospects for the Philippines 2020″ Forum, which was held Thursday morning at the Peninsula Manila Hotel in Makati City.
Earlier, in his speech at the FOCAP event, Dominguez said that “confidence in the quality of our fiscal management is indicated not only by the Philippines’ unprecedented credit rating upgrade to ‘BBB plus’ last year. “The wider public patronized the first-time sale of Premyo Bonds, enabling us to raise 4.96 billion pesos or over 65 percent more than the initial issue size of 3 billion pesos. These bonds open yet another channel for ordinary Filipinos to be included in the financial mainstream,” he said.
“More recently, the Philippines issued its first ever zero-coupon Euro Global Bond in the international capital markets,” he said. “The overwhelming response from the market for our 3- and 9-year global bond issuance worth 1.2 billion Euros underscores the international investor community’s deepening confidence in the Philippine economy.”
“Meanwhile,’ he said, “the continuing review of government contracts is an effort to protect taxpayers and ordinary citizens from onerous provisions.”
“The review of government contracts, we hope, will deliver a clear message that while the government is interested in inviting businesses to our economy, we are also telling the investment community that the interests of the whole nation should be a primary consideration,” he added.
During the open forum, Dominguez said it was the duty of the Duterte administration to review the government’s contracts with private corporations with the end goal of ridding them of onerous provisions that do not protect or advance the Filipino people’s interests.
In the government’s contracts with the water concessionaires, for instance, he said one apparent lopsided provision that favored the contractors is the one that, in effect, surrendered the state’s regulatory powers in empowering these companies to seek arbitration abroad to challenge or oppose policies enforced by the government.
This is not normal practice, he said, because neither energy companies overseen by the Energy Regulatory Commission (ERC) nor financial institutions falling under the jurisdiction of the Bangkok Sentral ng Pilipinas (BSP) are empowered to contest policies enforced by the ERC or BSP, respectively, through arbitration in international arbitral tribunals.
‘If you are in a regulated industry, for instance, banking …. you are regulated by the Central Bank …. If the Central Bank issues a regulation that you don’t agree with, can you go to Singapore for arbitration? Of course not! You have to follow the regulation here,” he said.
“If you are invested in a power public company and you are regulated by the ERC …. (and the ERC) issues a regulation that you don’t agree with, can (the company) go to Singapore and ask somebody there to decide for you? No! You follow the regulation here,” he added.
He said: “(So) why is it (then that) in the water concessions, (they) can go to Singapore and ask to challenge a regulation here in the Philippines? Now isn’t that onerous?”
When asked about the move by the Metropolitan Waterworks and Sewerage System (MWSS) Board to issue a resolution on the future of the concession agreements of Manila Water Co. (MWC) and the Maynilad Water Services Inc (Maynilad), Dominguez noted that while such an action could have been taken by the MWSS Board, what matters is that there has not been any change in the current contracts of these two water service providers.
“But really, have we cancelled the contracts?” he stressed. “There was a board resolution issued by the MWSS. Has it been acted upon? No,” he said.
As for the lease contract of the National Development Co. (NDC) subsidiary—Batangas Land Corp. Inc. (BLCI)—with Chevron Philippines (formerly Caltex Philippines), Dominguez said that the government has committed no violation because, rather than pre-terminate the contract, it has merely decided to close down in 2021 the company that is the second party to the deal. This is the legal option exercised by the government to put an end to the onerous provisions in the contract.
The onerous provisions of Chevron’s lease contract for the use of the 120-hectare industrial park in San Pascual, Batangas came to the Department of Finance (DOF)’s attention because the firm had asked for a renewal of the agreement.
While the NDC eventually decided to close down BLCI next year to enable the government to take back the property in Batangas and get better terms for it, Dominguez said NDC has assured Chevron that it would be fully compensated for the 40-percent shares it owns in BLCI.
Dominguez said the decision to close down BLCI is a valid legal option that the government had opted to exercise to protect the interests of government and the Filipino taxpayers.
He said at the forum that among the onerous provisions of the lease contract was the renewal of the agreement in 2010 based on the old valuation of the property in 1975—equivalent to 74 centavos per square meter (sq. m.) when the current market value should be about P18.00 per sq. m.
“That lease is about to expire and that’s why they came to us for renewal and we said we don’t want to renew. They said, well we still own 40 percent of the company, in that case we will close the company. And we will pay you, we will pay you and we are allowed to close the company after 25 years,” he said.
‘We are following the law to the letter. We have not terminated that contract …. We are just saying, we are not going to renew it, we are going to buy you out of that contract, buy you out of your share in the company,’ he said. “You wanna bid? You’re free to do it. But don’t take advantage of us for another 25 years. You already had 44 years of a good time. Enough is enough.”
Under the terms of its lease contract with BLCI, Chevron has been paying a miniscule rental fee to the government for the 1.2 million sq. m. industrial park in San Pascual, Batangas that it uses as an oil import terminal.
At P10.66 million per year since 2010, the rent Chevron has been shelling out is only around 4 percent of the P257.76 million per year that current fair market rental rates in the area would suggest.
Based on documents submitted to the NDC Board, the rentals paid by Chevron over the 44-year period covering 1975 to 2019 amounted to only P146.51 million or a measly P3 million per year, in addition to real property taxes paid by Chevron under the lease agreement.
This property’s current market value is estimated at about P4.9 billion to P5.3 billion.