NEW YORK TIMES SCORES GMA ON CRONYISM, PIATCO

Manila, May 15, 2003 -- The handling of President Arroyo of the Philippine 
International Air Terminals Co. Inc. (Piatco) as well as her 
administration's penchant for corruption and cronyism as the cause of the 
drying up of foreign direct investment in the Philippines was scored by the 
New York Times (NYT).

It spoke of Frankfurt AG (Fraport)'s Wilhelm Bender flying out of Manila 
some weeks back after a "fruitless week of negotiations," feeling he had 
"no other choice." A few days later, Fraport wrote off its entire 
investment in the Philippines.

The NYT quotes Bender as saying in an interview, "It's a terrible personal 
experience to have to write down so much money."

"But we have learned our lesson. We are more cautious in looking at the 
political stability of a country."

The report added: "Fraport, a German company that operates the Frankfurt 
airport, one of the world's busiest, built the new terminal in Manila along 
with a Philippine partner. Today, it closed the books on the venture, 
taking a $318 million charge that wiped out its profits and left it with a 
$132 million net loss for 2002."

The NYT said: "As cautionary tales go, Fraport's misadventure in Manila has 
all the elements: a confident, well-financed Western investor; a 
little-known local partner with political connections; and a revolving-door 
regime, with officials who thought little of meddling with, or even 
annulling, a contract."

Fraport is still trying to recoup its investment. It has filed an 
arbitration claim against the Philippine government with the World Bank. 
The Supreme Court in Manila has ruled that the contract is null and void 
from the start, saying the consortium, PairCargo, which is essentialy 
Piatco today, did not have the financial capability to build the Ninoy 
Aquino International Airport (NAIA) Terminal 3 project. Yet the project is 
almost finished, and would have been finished on time if Fraport and its 
partners, the Vic Cheng Yong famiily, were not blocked by the Arroyo 
administration at every turn.

"We are fighting for every cent," said Bender, the chairman of the 
company's executive board, NYT quotes him as saying. "We're not giving the 
government in Manila the terminal as a wonderful gift."

But Fraport is already shifting its sights from ambitious forays overseas 
to more prudent investments at home. It is planning a major expansion of 
the Frankfurt airport, ranked second in Europe after Heathrow in London. 
And it is benefiting from a surge in traffic at Hahn, a converted military 
air base in southwestern Germany now served by the Irish discount airline 
Ryanair.

Fraport, which went public in 2001, also operates airports in the German 
cities of Hannover and Saarbrucken, as well as Antalya, Turkey, and Lima, 
Peru. It had sales of nearly $2 billion last year.

  "There was a time a few years ago when they wanted to be the No. 1 hub 
operator around the world," said Andrew Light, an airline analyst at 
Salomon Smith Barney in London. "The problem with building airports is that 
you have to pay a premium. There are no economies of scale."

Fraport learned this the hard way as it poured money  $384 million in 
equity and loans  into a sprawling edifice with a saw-toothed roof known as 
Terminal 3 at Ninoy Aquino International Airport. It was due to open by 
2003, which the Philippines has declared as the year of tourism.

The NYT says: "Part of the problem, people involved in the deal said, is 
that the Piatco, as the joint venture that built the terminal is known, is 
chronically short of capital. The Cheng family, with 60 percent of the 
venture, is one of the smaller and less prominent of the ethnic-Chinese 
trading families that play a central role in the Philippine economy.

"Moreover, the contract awarded to the venture by President Fidel Ramos had 
provisions that have been disputed by the current president, Gloria 
Macapagal-Arroyo. The deal gave the partners exclusive rights to run 
duty-free shops in the new terminal, and mandated that all airlines serving 
the airport move to the new terminal even though its fees would be higher 
than the old ones.

"As power changed hands in the Philippines, the contract was amended, 
swelling its size and scope. But officials of the current government say 
that some of the money was siphoned off as bribes to officials in the 
administration of Joseph Estrada, who succeeded Mr. Ramos."

Estrada was disgraced and driven from power in a popular uprising in 2001 
and was succeeded by Mrs. Arroyo, who has made fighting corruption her 
hallmark.

But in a tapped conversation between Fraport officials and their American 
lawyers, Dietrich Stiller, a Fraport German lawyer, is quoted as saying, 
"(Mrs. Arroyo's personal lawyer and trouble-shooter Pancho) Villaraza was 
strongly connected to the Ramos administration. They (Carpio, Villaraza, 
Cruz) were out of politics and therefore out of remuneration during the 
time of Estrada, because they were not politically connected at that time 
to Estrada's commercial team; It's difficult to pay off Estrada. And two 
lawyers from Carpio, Villaraza Cruz helped Macapagal-Arroyo to get Estrada 
out of office, and therefore, they are now again in the center of politics."

Bender, the NYT said, insisted that Fraport had negotiated in good faith, 
and that the disputed provisions, including the duty-free rights and the 
higher departure fees, were necessary to finance the project.

"If you are investing in a foreign country, you need the comfort and safety 
that a contract signed by one government will be valid for other 
governments, too," he said. "That was really a surprise to us."

Now, Bender is trying to extract reasonable compensation. He said an 
outside study found the terminal was worth at least $350 million, the bulk 
of it put up by Fraport.

When he visited the Philippines recently to try to work out a settlement, 
he got no satisfaction. Mrs. Arroyo, who has pledged to compensate Fraport 
for its "legitimate investment," did not even meet with him, delegating the 
matter to her Transportation minister.

For Bender, the whole experience symbolizes why German and other foreign 
investors should steer clear of the Philippines. The dispute has even 
tinged diplomatic relations between the countries after the German 
government lobbied unsuccessfully for Fraport.
Still, some Filipinos argue this is not a black-and-white story of a 
Western investor being bilked in the murky East. "The Germans have a right 
to complain, but they went into this with their eyes open," said Sheila 
Coronel, executive director of the Philippine Center for Investigative 
Journalism (PCIJ). "They were playing the game."

The PCIJ never bothered to do an investigative report on the Arroyo aides' 
mulcting of Fraport. (Tribune)

Reported by: Sol Jose Vanzi

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