PRESIDENT Rodrigo R. Duterte has given formal approval to initiate a review of an agreement to develop land owned by the University of the Philippines (UP), his spokesman said, adding to the list of allegedly one-sided deals entered into by past governments that has called into doubt the viability of long-term agreements undertaken by some of the country’s biggest firms.
Salvador S. Panelo, at a briefing in Malacañang Tuesday, said the President approved the review of Ayala Land, Inc.’s (ALI) contract to develop a 20-hectare site on Commonwealth Avenue opposite the UP Diliman campus in Quezon City, a site which became the UP Ayala Land Technohub.
Mr. Panelo first floated the idea of a Technohub contract review in a radio interview Sunday, citing rents that were below market levels.
The Technohub deal becomes the second Ayala Group contract currently under review by the government for “onerous” provisions, after the government questioned the privatized water contracts for Metro Manila agreed with two providers in 1997, including Ayala-controlled Manila Water Co., Inc.
The crisis of confidence among holders of government contracts has sent its economic team scrambling to defuse tensions with its private-sector partners.
The National Economic and Development Authority (NEDA) said that while the government should not tolerate deals with the private sector containing “onerous” provisions, it acknowledged that contract reviews need to strike a “balance” between obtaining fair terms from concession holders and respecting contracts.
“The bottom line is that it’s really a very delicate balancing act. We do want to send a strong signal that we will not be tolerating these onerous contracts,” NEDA Undersecretary Rosemarie G. Edillon said in a news conference in Pasig City Thursday.
“In fact, I think one of the lessons going forward is that there has to be some sunset clause, a review clause at least, in these contracts (to signal that) there will be changes… that far ahead into the future. But rest assured that government knows that this is really a very delicate balancing act,” Ms. Edillon added.
Socioeconomic Planning Secretary Ernesto M. Pernia said the government should also consider the input of other sectors such as business groups and credit rating firms in addressing issues on contracts with “onerous” provisions.
“We have been getting some comments from businessmen as well as the credit rating agencies. I guess those remarks, those comments need to be considered by the authorities,” Mr. Pernia said at the same event.
Fitch Solutions Group Ltd. and S&P Global Ratings declined to comment when approached by BusinessWorld.
Asked if NEDA has recommendations on the matter or plans to conduct a study on possible legislation, Mr. Pernia, who heads NEDA, said “If we are asked, then we will oblige and heed the request.”
The Palace on Thursday assured that the government’s plans to review onerous contracts made with various private entities should not dampen investor confidence.
Mr. Panelo said in his Palace briefing that “the government will not be reckless in stepping into any contract that is not contrary to law.”
“Any pronouncement that says that the government will examine, evaluate or review onerous contracts is not something that businessmen should be afraid of — because it is the duty of the government precisely to protect the interests of the Filipino people.”
Ms. Edillon said NEDA is not involved in the contract review process. She added NEDA only steps into the process when the contracts involved are for projects approved by the NEDA Board or if there are concerns on price escalation provisions.
In a report last month, Fitch Solutions Macro Research, a unit of Fitch Group, flagged the government’s sudden move to revoke its contract with two water concessionaires as a “high regulatory risk” for the private sector when contracting with the government.
Fitch Solutions said investor confidence will be affected in the short term but is expected to be mitigated over the long term as the country improves its public-private partnerships (PPPs) framework.
Following the review of “onerous” contracts with the two water contractors, Manila Water and Maynilad Water Services, Inc., the Department of Finance (DoF) announced that it found another “onerous” contract involving a lease held by Chevron Philippines, Inc.
Regulators have decided to terminate the corporate life of the property lessor, Batangas Land Co., Inc. (BLCI), with which Chevron Philippines agreed the contract. By shortening the corporate life to 2021, the government will then be able to exercise “full ownership, control, and rights” over a property in Batangas.
Chevron Philippines has occupied for more than four decades a 120-hectare or 1.2 million square-meter (sq.m.) property in Batangas. According to the DoF, Chevron pays the equivalent of 74 centavos per sq.m. monthly, well below the current fair-market rental estimate of P17.90 per sq.m.
In response, Chevron Philippines said it is open to further communication with the government.
Meanwhile, the Department of Justice and other agencies are still drafting the new water contracts without “onerous” provisions. — Gillian M. Cortez and Beatrice M. Laforga