Michael Raeuber, president of the European Chamber of Commerce of the Philippines (ECCP), stressed at the recent EU-Philippines Business forum in Makati the need to honor the sanctity of contracts entered into by the government and the private sector.

Raeuber cited the need for a clarification from the Supreme Court on these contracts. While ECCP officials noted of several contracts affected by changes of policies midstream, the group noted the unfinished business between German airport contractor Fraport AG and the government over the NAIA Terminal 3 contract.

ECCP Vice President Henry Schumacher stressed, “Terminal 3 is now widely used but (the contractor) has not been paid.”

In the case of the water contracts issue between MWSS and water concessionaires Manila Water Company, Inc. and Maynilad Water Services, Inc., Schumacher said this reflects how government would treat projects under the Public-Private Partnership program.

Officials stressed that contracts not being honored must be based on concrete proof that onerous or with criminal liability, but allegations of wrongdoing would not suffice to have a contract rescinded.

Schumacher, however, cited that diligence and thorough studies and the long amount of time being poured int the various PPP projects and contracts should ensure that future contracts are fool proof and there will be no reason for a new administration to have it reviewed and eventually dumped.

“We are watching the (water issue) carefully. If we want European businesses to come and then you change rules after 10 years, you cannot (attract these investments). That inconsistency should not be repeated in the future,” Schumacher added.

The ensuing court battle now on the water contracts stemmed from MWSS’ re-interpretation of major provisions of the concession contracts without the consent of the concessionaires.

This led to arbitration proceedings with two world bodies.

An arbitration committee declared east zone concessionaire Manila Water a public utility, a ruling which it said differs significantly from government’s original representation during the 1997 bidding for private sector participation in the operation of MWSS – that Manila Water will be an agent and contractor of MWSS which will continue to be the public utility.

The decision has fundamentally changed the concession agreement as this disallowed the concessionaire Manila Water to recover its corporate income tax.

In the case of Maynilad, the arbitration court ruled in its favor but allowed the water concessionaire a reduced water rate hike from its original asking water rate hike. Manila Water’s petition for water rate increase was denied.

Following the arbitration ruling, MWSS allowed Maynilad a lower rate hike.

This has also led Raeuber to ask government to properly define the term “public utility” to also resolve the issue on

To help resolve the issue on foreign equity ownership on certain industries where foreigners are limited to a minority 40 percent share in favor of Filipinos with 60 percent.

“The simplest definition is all business where the public has a right of service like taxi, bus or airport are public utilities because people have right to demand service, anything business to business is generically not,” said Raeuber.

Schumacher also said that MRT, rails and the running stock of MRT are not public utility just like airports and terminals. As indicated, there have been quite a number of EU businesses with interests in the public utility sector.

“Airport and terminal building is not a public utility but a structure for passengers to get to the plane and so that kind of interpretation would help in order to be very clear if the whether the 60-40 comes in and where 60-40 is not coming in,” said Schumacher noting that the government and the private investors have less problem if they are going to distinguish what is public utility and what is not.

“The trains, running stock and rails are not public utility because everybody can have it, but selling tickets that’s where you engage with the public that is where the 60-40 comes in. We’ve been asking government to distinguish that, and distinguishing that would be a big step forward and that makes life easier,” he added.

Source: Manila Bulletin