PIATCO NAIA3 DEAL NULL AND VOID -- SUPREME COURT

Manila, May 6, 2003 -- The Supreme Court yesterday declared as null and void the Philippine International Air Terminals Co., Inc. (Piatco) concession contract and all its three supplemental agreements on the construction and operation of the Ninoy Aquino International Airport Terminal 3, ruling among others that it was not qualified to bid in the project in the first place.

In a 76-page decision, the Supreme Court, voting 10-3-1, granted the petition of the government to have the Piatco contract nullified on the ground that it was a disqualified bidder and that the supplemental contracts contained material deviations from the original contract that was forged in 1997.

Edgardo Manda, NAIA general manager, said the ruling paves the way for government takeover of the terminal.

He said the terminal can be opened in six months after curing the construction defects in the terminal and building unfinished facilities

Those who voted to declare the contracts as null and void were Chief Justice Hilario Davide Jr., and Associate Justices Reynato Puno, the ponencia, Josue Bellosillo, Artemio Panganiban, Consuelo Ynares-Santiago, Angelina Sandoval-Gutierrez, Ma. Alicia Austria-Martinez, Renato Corona, Conchita Carpio-Morales and Romeo Callejo.

Those who upheld the contracts were Associate Justices Jose Vitug, Leonardo Quisumbing and Adolfo Azcuna. Associate Justice Antonio Carpio took no part.

The tribunal said Piatco was not a qualified bidder to the unsolicited proposal submitted by the original proponent, Asia's Emerging Dragon Corp. (AEDC), because it did not meet the financial capability required under the Build Operate and Transfer Law and the bid documents.

The SC said when Piatco, then known as Paircargo, gave its bid, its net worth, including allowable contribution of consortium members, was only P558 million or 6.08 percent of the estimated project cost of $350 million or P9.1 billion, way below the 30 percent requirement.

"Considering that at the pre-qualification stage the maximum amounts which the Paircargo Consortium may invest in the project fell short of the minimum amounts prescribed by the PBAC (Pre-Qualification Bid and Awards Committee), we hold that Paircargo Consortium was not a qualified bidder," the court said.

The court furthered ruled that the concession agreement is also null and void because of substantial departures from the draft concession agreement in violation of public policy.

Dismissing the claim of Piatco that being a draft agreement, the parties were allowed to introduce modifications and alterations in the actual contract, the SC said this argument would destroy the rationale that all bidders must be able to bid on the same terms. "The rationale is obvious. If the winning bidder is allowed to later include or modify certain provisions in the contract awarded such that the contract is altered in material respect, then the essence of fair competition in the public bidding is destroyed," it ruled.

Among the changes introduced were on the public utility revenues and non-public utility revenues that may be collected by Piatco and the assumption by the government of the liabilities of Piatco in the event of default.

Siding with the argument of the government that the Piatco contract contained a direct government guarantee which is in violation of the Constitution, the SC said the wording of Section 4.04 of the concession agreement provides for such guarantee through the wording "attendant liabilities."

The direct government guarantee becomes more apparent in the Amended and Restated Concession Agreement (ARCA), according to the court, which "provides for a direct government guarantee by the government to pay Piatco's loans not only to its senior lenders but all other entities who provided Piatco funds or services upon Piatco's default in its obligations with its senior lenders."

"The fact that the Government's obligation to pay Piatco's lenders for the latter's obligation would only arise after the senior lenders fail to appoint a qualified nominee or transferee does not detract from the fact that, should the conditions as stated in the contract occur, the ARCA still obligates the Government to pay any and all amounts owed by Piatco to its lenders in connection with NAIA IPT 3," it said.

The court was silent on whether Piatco may be compensated for the money it has spent but it also declared as unconstitutional a provision in the contract which calls for compensation in case of temporary government takeover during an emergency.

The Court said Piatco cannot expect compensation in the event of a temporary government takeover because it is not based on the state's power of eminent domain, which provides for compensation, but on its police power.

"As such the government is not required to compensate the private entity-owner of the said business as there is no transfer of ownership, whether permanent or temporary. The private entity-owner affected by the temporary takeover cannot, likewise, claim just compensation for the use of the said business and its properties as the temporary takeover by the government is in exercise of its police power and not of its power of eminent domain," the court said.

It added, "Piatco cannot by mere contractual stipulation, contravene the Constitutional provision on temporary government takeover and obligate the government to pay reasonable cost for the use of the terminal..."

The NAIA Terminal 3 was proposed by President Fidel Ramos to John Gokongwei, Henry Sy and Lucio Tan, among other tycoons, as their contribution to Philippines 2000.

To comply with the provisions of the BOT law, the taipans' proposal, through AEDC, was subjected to the so-called Swiss challenge where any interested party can make a better offer.

Piatco came up with a proposal which claims to provide bigger revenues to the government.

AEDC claimed it was not given the opportunity to match Piatco's offer as provided in the BOT law. The AEDC claimed government officials denied it access to Piatco's offer.

AEDC went to court, but later decided to abandon its challenge.

President Gloria Arroyo earlier declared the contract null and void based on a recommendation by the Department of Justice that it cannot be honored because of material alterations and onerous provisions. (By CHELOY GARAFIL, Malaya)


Reported by: Sol Jose Vanzi

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