Philseco row takes new twist

To settle the dispute over the Philippine Shipyard and Engineering Corp. (Philseco), the Asset Privatization Trust (APT) will have to prove that government‘s joint venture agreement with Kawasaki Heavy Industries (KHI) included a provision for the right of first refusal.

Documents disclosed by JG Summit indicated that the conversion of KHI’s right of first refusal into the right to top was never cleared by the Commission on Audit (COA).

In a 1994 letter to JG Summit counsel Perry Pe, the COA said there was no prior approval of KHI’s preferential option to top the highest bid by five percent when Philseco was privatized in 1994.

The state-owned National Industry Development Corp. (NIDC) had an 87-percent stake in Philseco that it put on the auction block for a minimum indicative price of P1.3 billion.

The bidding was won by the consortium composed of JG Summit, Jurong Heavy Industries and Sembawang Shipyard Corp. which made a bid of P2.03 billion.

The dispute erupted when KHI exercised its right to top and made a bid of P2.13 billion. On its own, JG Summit sued the government and alleged that there was no provision in its joint venture with KHI for the right of first refusal. Consequently, KHI did not have the basis for the exercise of its right to top.

In an attempt to stave off a legal crisis, Solicitor General Ricardo P. Galvez filed a motion asking the High Tribunal to set aside its decision promulgated on Nov. 20, 2000. Galvez said such decision will have a wide-reaching impact on the government’s entire privatization program.

According to Galvez, the Supreme Court erred when it upheld JG Summit’s claim that Kawasaki Heavy Industries (KHI) did not have the right to top the consortium’s bid for the Philippine Shipyard and Engineering Corp. (Philseco).

The court ordered the government to accept the JG Summit consortium’s P2.03-billion bid and return KHI’s P2.131-billion bid for the shipyard. JG Summit contested the award to KHI, saying KHI’s right to top was not valid.

According to Galvez, JG Summit could not contest the award since its consortium and all the other bidders that vied for government‘s 87.67-percent holdings in Philseco knew about KHI’s right to top from the outset since it was contained in the asset specific bidding rules (ASBR).

Galvez said KHI’s right to top was made known in the ASBR and during a pre-bidding conferences conducted by the APT prior to the actual bidding. Galvez also pointed out that there should not be any apprehension against allowing a foreign corporation to operate a public utility for an unlimited period. He said the government shares would be conveyed not to KHI but to Philyard which is only 40-percent owned by KHI.