GERMANS TO SUE RP GOVT OVER PIATCO NAIA3 DEAL

Manila, May 8, 2003 -- German aiport operator Frankfurt Airport Services 
Worldwide or Fraport AG, a major foreign stakeholder in the Philippine 
International Air Terminals Co. (Piatco) consortium, said yesterday it 
would pursue legal action against the Arroyo administration after the 
Supreme Court (SC) yesterday upheld the voiding of contracts for the 
construction of the Ninoy Aquino International Airport (Naia) Terminal 3 
project.

The legal actions, which take the form of an arbitration proceedings filed 
in Singapore and a possible plea for World Bank (WB) intervention, are 
expected to start a long legal tug-of-war for the right to operate the 
terminal project.

Airport service concessionaires, nevertheless, hailed the SC decision. "The 
Supreme Court ruling that the Piatco contract was null and void saved 
Philippine jurisprudence and kept a longstanding doctrine that third 
parties or complete corporate strangers cannot revoke existing and valid 
business contracts," Perfecto Yasay Jr., chairman of Manila International 
Airport Authority-NAIA Association of Service Operators, said.

He said a different decision would have thrown the country's legal 
precedents awry and created a nightmare scenario where existing legitimate 
claims could be ignored.
He said it was "a contract of the worst of kind and people should go to 
jail if the whole message and spirit of the court ruling were to be fully 
served both to mete out penalties and deter future Piatcos."

"Our existing contracts with airport authorities to service Terminals 1 and 
2 were to be revoked under the contract with Piatco, a third party and a 
non-party as far as we are concerned. It is like the business contract 
between Jose and Pedro to service a garage was given to Juan simply because 
Juan was building a new garage in the compound," he said.

"These contracts were signed in 1997 between the Philippine state and the 
Piatco concession consortium. On the basis of the reasons for the Supreme 
Court decision, which are expected to be available soon, the Piatco 
partners will coordinate in the coming days further steps to be taken. 
Fraport expects that Piatco  upon decision of the majority partner  will 
take legal action against this decision in Manila and, at the same time, 
will continue with its arbitration proceedings currently underway in 
Singapore," Fraport said in a press statement.

"If the Supreme Court decision becomes final and conclusive, then Piatco 
should be able to claim compensatory damages for the completed terminal. 
Simultaneously, Fraport will continue to make its own and direct claims 
against the Philippine state for compensation: for example, on the basis of 
the German-Philippine Investment Guarantee Treaty," it added.

Fraport earlier wrote off its entire investments in the project of some 
$300 million due to its officials' frustrations during its negotiations 
with Philippine officials over the project. The German firm, nevertheless, 
did not give details on the source of its officials' frustrations but there 
were allegations of mulcting by top-level government representatives during 
the talks.

Fraport's management remains optimistic and will continue to fight further 
for a solution to the problem through discussions with the existing 
partner, potential investors and the Philippine government, the firm had said.

"We will continue our major commitment to defend the company's interests in 
the Philippines. The write-down does not mean that Fraport will give up its 
claims, in whole or in part," said Fraport's executive board chairman 
Wilhelm Bender. After all, "according to an independent expert opinion, the 
terminal's value clearly exceeds the construction costs," said Bender. "We 
will also take legal action to assert our claims consistently," Bender added.

Therefore, Fraport's executive board will push ahead with its legal 
offensive. It is preparing an application for arbitration proceedings at 
the World Bank against the Philippine government, the firm stated.

The companies' contracts to service Terminals 1 and 2 were to be revoked by 
the Piatco contract once Terminal 3 became operational. Yasay said renewal 
was iffy at best since Piatco  which was given control over various airport 
services including some regulatory functions of the government  had to give 
its approval before any of these companies could operate again at the 
airport and compete with Piatco.

"Piatco was primed to be a monopoly at the airport. We have been operating 
there for decades and all of a sudden, we would be banned from it because 
Piatco was to take over. What about the sanctity of our contracts?" Yasay 
asked.

"The court ruling," he said, "sent a powerful message to local and foreign 
businessmen to take the straight path in doing business here. The Chengs 
and Fraport of German (Piatco's main shareholders) had it coming to them."

Fraport, he said, was part of the whole deal to "squeeze blood from us" and 
should not poise itself as a victim because "we are the victims here."

Yasay said the next move would be to speed up the opening of the airport, 
choose its expert operator with an international track record, and correct 
the 42 defects of the terminal, many of them concerning safety and security.

He also said the Chengs and Fraport will have to open their books to an 
audit if they want to be reimbursed for actual expenses minus those that 
are questionable, including the millions of dollars given the Alfonso 
Liongson for questionable purposes.

Reported by: Sol Jose Vanzi

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