Palace rethinking sanctity of contracts?

WHAT happens if a successor of President Duterte questions contracts entered into on his watch for being lopsided or even traitorous? The blame game for onerous deals could be played in an unending political cycle.

Such a review, with possible revamp and revocation, could result in the sanctity of contracts in these parts becoming more fragile than the paper they are written on.

President Duterte fulminated days ago when an arbitration court in Singapore ordered the Philippine government to pay P7.39 billion in losses to Manila Water Co. Inc. that operates one of two water concessions in Metro Manila.

It is interesting that some contracts entered into by the Duterte administration with China, for comparison, also provide for arbitration (in a Chinese-majority tribunal in Beijing) in case a dispute arises.

Manila Water claimed losses allegedly arising from the government’s interfering and suspending since 2015 the water rate increase allowed under its contract. It asked for a refund of the unrealized revenue.

Duterte threatened to file economic sabotage charges against officials of Manila Water and Maynilad Water Services Inc., the other concessionaire in the west half of the metropolitan franchise area.

He said in a speech last week: “I will file economic sabotage and I will arrest them, all of them... I will let them experience how it’s like to go to jail. If they drag me, I will join them in prison… I will expose the rich who made money at the expense of the nation.”

He went on to curse and denounce some opposition leaders who he claimed helped draft what he described as lopsided contracts.

We think Duterte has more reason to go after the government officials who negotiated and signed the contracts. After all, he has not produced proof that the private firms had coerced or bribed the officials to approve the deals.

It is a given that businessmen will seek the most advantageous (to them) arrangement within reason and the law. It is not their fault if the government agrees to grant the favorable terms they seek.

Unless the businessmen used subterfuge, coercion, blackmail and such shady stratagem, the government side is – in our layman’s opinion – mostly at fault.

Instead of venting his ire on the public officials behind the questioned deals. Duterte chose to go hammer and tongs after the private businessmen – even adding the dramatic threat of slapping them.

Duterte is stretching the facts in blaming his predecessor President Noynoy Aquino. The contracts were originally signed during the term of then President Ramos and then extended beyond 2022 by then President Arroyo.

The private concessionaires appear to have their own violations, such as failing to connect their 14 million customers to a sewerage system despite their collecting billions in sewerage fees for the job. They have to be penalized and forced to take immediate remedial measures.

The President has instructed the Solicitor General and the Finance Secretary to draft a new contract, presumably to replace the existing one whose sanctity may end in tatters.

Meantime, what to do with the award handed down by the arbitral court in Singapore aside from moving for reconsideration and taking parallel steps in local courts?

It might turn out that Malacañang’s moves would merely delay the inevitable, with the contracted rate increases eventually falling on captive consumers in one big splash when Duterte is gone.

Anyway, the owners of Maynilad and Manila Water have expressed their being open to renegotiating the contracts instead of engaging in a prolonged legal and political dispute.

• Hilbay clarifies facts on water rates

IN FAIRNESS to Florin “Pilo” Hilbay who as Solicitor General from 2014 to 2016 is being blamed by partisans for the move to raise water rates, we run these excerpts from his statement:

“In 1997, President Ramos entered into water concession agreements with Maynilad and Manila Water. In 2009, President Arroyo extended these contracts. President Noynoy Aquino had nothing to do with the drafting of the contracts.

“The Finance secretaries of both the Ramos and Arroyo administrations issued so-called Letters of Undertaking promising to indemnify the concessionaires in case it interferes with the rate-setting mechanism. Also, in case of a dispute, they agreed that an arbitration shall be held under UNCITRAL Rules mandating that the proceedings be confidential.

“When Maynilad decided to sue the Republic on these Letters of Undertaking in 2015, the OSG insisted on inserting ‘public interest exceptions’ to these confidentiality rules. We were able to relax the rules. This will be found in Par. 26 of the Procedural Order of the arbitral panel dated March 17, 2016.

“Whereas the water concessionaires are accountable only to their private shareholders, the Republic, as a party and as an entity, is accountable to the Filipino public.

“My role as SolGen during the arbitrations was very limited, as my term expired before the proceedings went under way. All the arbitration hearings happened during the present administration.

“The fundamental question is whether Maynilad and Manila Water can transfer to the consumers – the public – their corporate income taxes.

“My position as SolGen was that they cannot pass on to consumers their corporate income taxes because there is no law or contract that allows the transfer. They should pay their taxes, like everybody else.

“Furthermore, I believe that the Letter of Undertaking issued by the Finance secretaries of both the Ramos and Arroyo administrations were either unconstitutional or issued without proper authority.

“If the Duterte administration is serious about protecting the public, it should question the enforcement of these contracts in Philippine courts or find a way to renegotiate them, instead of simply threatening to transfer these concessions to another set of ‘oligarchs.’”

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NOTA BENE: All Postscripts can be accessed at manilamail.com. Follow author on Twitter as @FDPascual. Email feedback to [email protected]