By Raïssa Robles
While monitoring the Supreme Court hearing on the cybercrime law yesterday, I was drawn to this tiny business story that broke, which would have a strong impact on our tourism, millions of Filipinos flying in and out of the country and on the economy.
Transport Secretary Joseph Abaya announced he will soon sign a US$45 million civil works contract with giant Japanese construction company Takenaka to finish NAIA 3 – you know, the white elephant of a terminal at the Ninoy Aquino International Airport complex that was intended to be THE terminal for all international flights. Instead, the multibillion peso German-designed structure ended up servicing only local and budget flights.
Construction cost ballooned from US$350 million to over US$650 million and the project was marred by charges of payoffs and corruption. Ten years after it could have been fully operational, the terminal is only partly functioning.
The key was always Takenaka.
To understand what happened, I am providing a timeline below this article.
A tainted project
Briefly, the project was marred with changes in the contract that grossly benefited the project proponents to the detriment of the public; as well as allegations of payoffs to certain government officials.
When Joseph Estrada became president in 1998, the consortium Piatco secretly renegotiated the contract it had signed with the previous government of Fidel Ramos. But the late Josefina Lichauco, Estrada’s acting Transport and Communications secretary then, blocked the changes. “I froze the amendments because they are onerous and illegal,” Lichauco told me in 2001.
However, her successor Vicente Rivera approved them. I used to interview Rivera before that, he declined to be interviewed about Piatco. Among the changes Piatco obtained through Rivera were:
- A monopoly on cargo, handling, catering, aircraft repair and maintenance services which were then all handled by the companies of rival businessman Lucio Tan.
- The government not only agreed to shoulder Piatco’s debt in case of default.
- It also gave creditors “step-in rights” or the right to award the concession to another operator in case of default. The BOT allowed this provided the original contract stipulated it. In Piatco’s case, its 1997 contract did not.
Nothing came out of these revelations, however. Estrada was deposed from the presidency and Gloria Macapagal-Arroyo took over. A year later, another money scandal concerning Piatco and Naia 3 broke out when Norbert Loesch, a former consultant of Fraport – which was part of the Piatco consortium – told Philippine lawmakers that some government officials had been paid off in exchange for further concessions.
Arroyo had the Piatco contract reviewed and then junked it. Fraport had a falling out with its Filipino partners.
NAIA 3 was due to open over 10 years ago. Every few years after it was supposed to open, the government would keep announcing it would soon commence operations. It never did. Instead, it has only been used partially and most of the hi-tech equipment has deteriorated – maybe beyond repair – due to non-use and tropical heat. My sources in the airline industry told me this includes a luggage handling system with an ion scanner that will automatically match a departing passenger with his check-in baggage. If a piece of luggage is stowed aboard a departing plane but the passenger is a no-show, the system will flag the luggage. In addition, the system includes hi-tech anti-terrorist equipment with a computerized tomography x-ray machine able to detect minute particles of explosives and gunpowder in the luggage.
NAIA 3 was designed with the Filipino in mind. It has a large area where departing Filipinos can stay with their families before the flight.
I recall that the Arroyo government was confident it could get NAIA 3 fully operational once the Philippine Supreme Court ruled on whether or not Arroyo was right in voiding the NAIA 3 build-operate-transfer (BOT) contract awarded in 1997 to a consortium which later formed Piatco.
On February 26, 2004, the court voided the BOT contract with finality and the government thought it could take over the facilities and operate it without paying the Japanese contractor, Takenaka, which insisted that Piatco still owed it a tidy sum of money.
I remember asking Makati lawyer Eduardo de los Angeles in one news forum how the government could run NAIA 3 without Takenaka. I told him that I had attended a media tour of NAIA 3 terminal, sponsored by Piatco – which had spent US$55,000 just to turn on the lights and equipment to show foreign correspondents what a sleeping beauty NAIA 3 was.
Piatco officials then told me that Takenaka was key to operating the terminal because it held all the codes to the computer systems that operated the luggage handling, ion scanner and x-ray equipment. Without Takenaka, no one could run those facilities inside the terminal unless someone broke the computer codes.
Atty De los Angeles assured me that the government didn’t need Takenaka to run NAIA 3.
It turned out he was wrong and Piatco was right after all.
It’s interesting to note that Takenaka has come around shortly after the Japanese and Philippine governments signaled better relations in the light of China’s rising military aggressiveness in Asia. I don’t know if these two events are related, though.
Takenaka has a 400-year old history as a contractor, so presumably it is used to long term and delayed projects. It helped build Singapore’s Changi airport and to this day continues to do upgrades for it. It was also the contractor of Thailand’s US$3.7 billion Suvarnabhumi airport which is still unfinished after more than 40 years. Like NAIA 3, Bangkok’s new second airport was also plagued by allegations of corruption and cost overruns.
The Thai airport today can handle 45 million passengers yearly. In comparison, Naia 3 was built to handle only 13 million passengers yearly, according to PIATCO in 2004. In fact, NAIA 3 reminds me of the medium sized airport in Hamburg back in the first half of the last decade. Still, though, 13 million passengers is a big jump from the five million passengers that the dilapidated NAIA Terminal 1 can handle yearly.
I will hold Secretary Abaya to his announcement and hopefully the next time I travel I will be passing through NAIA 3 and not NAIA terminal 1 which sucks big time.
NAIA 3 TIMELINE
September 15, 1993 – Six taipans – Lucio Tan, Henry Sy, John Gokongwei, Andrew Gotianun, Sr., George Ty and Alfonso Yuchengco – form Asia’s Emerging Dragon Corporation (AEDC) after President Fidel Ramos urges them to build a new airport terminal.
September 20, 1996 – A consortium that later formed Piatco submits a competitive bid. The consortium consists of People’s Air Cargo and Warehousing Co., Inc. (Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank) – collectively called Paircargo Consortium. Paircargo and PAGS are owned by the Cheng family.
The consortium offers to build and operate NAIA 3 for 27 years, and guaranteed to pay government at least P17.75 billion, compared to the Lucio Tan group’s grudging offer of P135 million during the entire period.
July 9, 1997 – Piatco wins despite an AEDC suit questioning its financial capacity.
November 26, 1998 – Piatco gets the newly-elected President Joseph Estrada to amend the original contract and insert a government guarantee in case of loan default.
July 8, 1999 – Frankfurt Airport Services Worldwide buys out the 30% stake of German airline owner Lufthansa in Piatco for US$90 million. To kick start the project, Fraport agrees to provide bridge financing, with the understanding this would be repaid once the anticipated bank loan came through. Fraport’s advances would later balloon to US$409 million.
The project is Fraport’s biggest investment outside Germany.
The Cheng family and their business associates hold 50% of the company and call the shots even if they collectively put in only US$16.5 million of the consortium’s US$150 million paid equity. Nissho Iwai of Japan and Philippine firm SB Airport hold 10% each.
Later, Fraport is forced to write off US$60 million of the bridge financing amount and its relations with the Cheng family sour.
August 27, 1999 to September 4, 2000 – President Estrada agrees to “supplements” amending the contract in Piatco’s favor.
January 18, 2000 – Estrada presides over groundbreaking of NAIA 3.
June 5, 2000 – Takenaka Corporation starts construction.
August 2, 2001 – Piatco gets a $440-million syndicated loan from an Asian Development Bank-led consortium. The loan wins four awards.
June 22, 2001 – The newly-installed government of President Gloria Macapagal-Arroyo signs a third “supplement” amending the contract.
September to December 2002 – Workers of international airline service providers, concessionaires of the present airport terminal and lawmakers file suits before the Supreme Court protesting the amendments.
January 2002 – Mrs Arroyo’s presidential adviser on strategic project, Gloria Tan-Climaco, reviews the Piatco contract and asks for a breakdown of costs.
Climaco estimates that given Fraport’s sizable advances, its stake in the project has in reality reached 61.4%, as against 18.6% of the Chengs and other shareholders. She warns this might be in breach of the 40% constitutional restriction on foreign equity in strategic industries.
March, 2002 – Fraport admits in a media release it had to write down about US$60-million “on loans and shareholder advances” to Piatco. Some of Fraport’s creditors stop releasing money until contract terms are clarified and scandals are settled. Fraport comes under fire for this investment, partly because it is 31% owned by the German state of Hesse. The Piatco-Fraport case also sours relations between Germany and the Philippines and scares European firms from investing in Manila.
June 4, 2002 – Norbert Loesch, a former consultant of Fraport, claims in Congress that Arroyo’s acting Transport and Communications Secretary Pantaleon Alvarez received a bribe in connection with Piatco.
Loesch also claims in a separate congressional probe that a consultant hired by PIATCO for US$2.1 million to do “crisis pr” was part of a ploy to pay off some government officials.” Loesch explains he was required to disclose this by German law “lest I be accused of conspiring in the commission of a crime.”
November 29, 2002 – President Arroyo declares she will not “honor” the Piatco contracts.
February 26, 2003 – Piatco files arbitration request before the International Chamber of Commerce, International Court of Arbitration (ICC).
September 17, 2003 – Fraport files arbitration request before the World Bank’s International Center for Settlement of Investment Disputes.
February 26, 2004 – Supreme Court voids “with finality” Piatco’s BOT contract. It concludes that compared to Piatco’s 1996 bid offer – which helped it land the project – the contract it finally signed in 1997 bore “substantial amendments…that directly translates concrete advantages to Piatco that were previously not available during the bidding process.” – raissarobles.com