Friday, 11 February 2011

Another foreign policy mess

What a fine mess; $1-B penalty seen
Business Mirror

I was both surprised and amused to learn that the Aquino administration is in the midst of efforts to draft a proposed accord with Belgium on a variety of issues, including a common stand on international questions before the United Nations and other international bodies.

Apparently, such an accord—if it can be struck at all, which I seriously doubt—is intended to ensure smoother bilateral ties between the Philippines and Belgium.

I am afraid, however, that before the Philippines can even begin to dream of having smooth bilateral ties with that country, it must first iron out a diplomatic wrinkle it had unwittingly created. That wrinkle, sad to say, came about when the Aquino administration unilaterally, unceremoniously, and unjustifiably refused to honor the perfectly valid P18.7-billion Laguna de Bay rehabilitation contract with a Belgian dredging company, the Baggerwerken Decloedt En Zoon (BDC).

(It was the BDC that volunteered to undertake the lake’s rehabilitation with no other purpose than to make the 94,900-hectare lake a showcase of what its technology can do to clean up similar water bodies rendered useless by pollution. Its unsolicited proposal, which it submitted to the Arroyo administration after completing exhaustive hydrological and environmental studies, enjoyed the full backing of the Belgian government. Thus, the funding of the project was never a problem, having been made under an official development assistance program, or ODA.)

In fact, the Belgian foreign ministry has already formally advised Foreign Secretary Alberto Romulo that it wants to see a satisfactory resolution to the problems created by the whimsical cancellation of that contract. And now, with that issue still in the way, the Philippines has the gumption to expect Belgium to pretend that everything’s just fine and dandy?

For some reason, however, the Department of Foreign Affairs (DFA) says the proposed accord—actually a Joint Plan of Action, or JPA, would be signed as schedule in Brussels on February 23. The expected signatories are Romulo and Belgian Foreign Minister Steven Vanackere. Presumably, the JPA would be the basis for further talks to cover trade and investments, the repatriation of convicted persons and greater collaboration on other matters of mutual interest to Brussels and Manila.

I just don’t know where the DFA is getting all that optimism. What could be of mutual benefit to both countries at this juncture than the reactivation of the canceled LLRP contract?

Belgium happens to be the Philippines’s 18th-biggest trading partner with the latest trade figure at $639.8 million. About two decades ago, Manila signed an investment treaty with the Belgo-Luxembourg Economic Union. This stimulated the entry into the Philippines of private companies from Belgium and Luxembourg. One of those companies was the BDC, whose dredging expertise had long ago protected Belgium (situated below sea level) from being swallowed up by the sea. Soon its fame spread throughout the world. Its services have since been tapped for various mammoth dredging jobs in Hong Kong, South Korea, China and other Asian countries.

The BDC has been known to bring back to life water bodies and waterways that had long been pronounced ecologically “dead.” In the Philippines, the BDC made short work of the dredging of the Pasig River. It completed the job two months ahead of schedule to the delight of the Pasig River Rehabilitation Commission (PRRC), including no less than its head, Gina Lopez, an environmentalist whose chief advocacy is the restoration of the integrity of Metro Manila’s esteros.

And so you can imagine the stunned reaction of the Belgian government when President Aquino announced the scrapping of the LLRP contract of the BDC. I am told that the announced cancellation immediately gave rise to speculations in Brussels that some other business group—most probably from China—had wormed itself into the good graces of the newly installed President. There were other, nastier, speculations. One of them even linked the cancellation to a hefty campaign contribution that was allegedly arranged by a member of Aquino’s campaign team. But that’s neither here nor there.

Right now, as I said, there is no reason to be optimistic in expecting the outcome of the scheduled signing of the JPA in Brussels on February 23.

For a clearer understanding of what the country is up against, it should be pointed out that Belgium is the current president of the European Union, which counts among its members 27 European countries. Needless to say, it has a big say on whether the EU should continue to support development projects in the Philippines.

The Fraport fiasco has already resulted in a substantial reduction in German assistance to the Philippines. The unjustified cancellation of the BDC contract, for all we know, has already damaged whatever remains of the goodwill coming from that continent. That’s very sad, considering that Finance Secretary Cesar V. Purisima had mentioned Europe as one of the expected major investment sources for the administration’s ballyhooed public-private partnership (PPP) program. (Now you don’t hear him mentioning Europe among the scheduled destinations of a “road show” he would lead around the world. He did mention Japan in his latest pronouncements, but Tokyo, I’m afraid, had long committed to invest in the Philippines.)

To its credit, however, the Aquino administration now seems to have embarked on a damage-control offensive to assuage the hurt it caused on the Belgian government and the BDC. There was a meeting that took place the two Fridays ago, but the outcome of that meeting was not less than “bloody,” according to my sources.

How could it be anything less? Consider the fact that the President wants the BDC service contract scrapped “without penalties,” as what Purisima had been promising to his colleagues in the Cabinet.

Problem is Aquino actually believes it can be done. Already, the BNP-Paribas, which owns the Fortis Bank, the bank that secured a concessional yen-denominated loan to fund the lake-rehab project, has rejected the preposterous idea. The bank had expected a drawdown from the loan in the first quarter of the year pursuant to the terms of the loan contract.

Purisima actually wants the loan contract canceled, but BNP-Paribas insists he has to scrap the service contract first before the bank even begins to consider his outrageous proposal. Purisima should have known better. Of all people, he very well knows that banks go strictly by the book, and the rules say one must pay a penalty in the form of commitment fees for not using an approved loan. The latest figure is that the commitment fee has gone up to over P60 million for our failure to draw from the loan proceeds.

And what is the BDC’s position on the service contract? It stands firm on the contention that scrapping it is out of the question. It believes the contract is binding and must be enforced.

This, of course, has complicated the issue in more ways than one. It places the Philippine government in a sort of stalemate that only an international arbitration court can resolve.

Thus, unless the Aquino administration reconsiders its position, the Philippines might end up paying penalties to the aggrieved parties (the BDC, BNP-Paribas) of up to $1 billion. The amount would cover not only the P400 million already spent by the BDC in the Philippines for the preliminary studies and equipment mobilization, the bank penalties, plus the unquantifiable damage to the BDC’s international reputation.

What a fine mess we’re in! Meanwhile, Laguna de Bay languishes untended. It continues to die a little every day, with no hope of ever being resuscitated as devoutly wished by the millions of families around the lake.


  1. The Philippines should build it's own dredgers and to the job it's self. they need to maintenance dredging all the time anyway. (LESS $$$$)

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