Thursday, 2 June 2011

Honoring our contracts

Manila Standard Editorial

GIVEN the President’s campaign promise of change, the Aquino administration seems hellbent on obliterating all vestiges of the previous leadership. It is one thing, however, to lead a lynch mob to hound a constitutional officer from her post before her term is over, and something else completely to disregard legal contracts that were signed by the previous administration.

The first is a political act with a limited economic impact; the second is sheer folly that could sap investor confidence in this country.

Last month, the managing director of Hong Kong-based First Pacific complained that the state-run Bases Conversion and Development Authority had written its tollway arm, Metro Pacific Tollways Corp., to inform them that a contract they signed in November to build and operate the Subic-Clark-Tarlac Expressway had been invalidated.

“Contracts are sacrosanct especially if the fulcrum of your economic program is public-private sector partnership,” said First Pacific managing director Manuel Pangilinan. “The government has to honor contracts that are perfected.”

Pangilinan said his company was willing to renegotiate with the new managers of the Bases Authority, but insisted that the contract signed earlier had been above-board and transparent.

He also warned that the administration’s efforts to develop major infrastructure projects with the help of private companies would likely suffer if a bellwether investor such as First Pacific walked away from the expressway project.

Unfortunately, Pangilinan’s warning seems to have fallen on deaf ears.

Just this week, a French company that the Arroyo administration had contracted to build 72 ports for roll-on, roll-off ships, said it would seek international arbitration in case the government canceled its P11.8-billion contract.

“We want the Philippine government to immediately act ... We want them to honor the contract they signed with us,” a senior company adviser said.

Under the new administration, the Philippine Ports Authority now says the country needs only two ports to serve current demand, not 72. And it says it can build a port for much less than the consortium can.

In both cases, unless the government can prove there were serious defects in the contracts, it has a legal obligation to honor agreements, even if they were signed by the previous administration.

When Mr. Aquino’s mother, the late President Corazon Aquino, decided not to operate the Bataan nuclear power plant in 1986, the government sued the contractor Westinghouse for overpricing and bribery, an expensive and ultimately fruitless action. Since then, and until the debt was finally extinguished in 2007, it was the country’s biggest single obligation that we honored.

Companies that invest in government projects can only do so with confidence if they know without a doubt that the agreements they sign with one administration will be honored by the next. To inject so much uncertainty at a time when the country is seeking new private investments defies reason and good sense.

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