Graft court clears gov't officials in Naia-3 graft case


Posted at Nov 03 2010 10:36 PM | Updated as of Nov 05 2010 01:18 PM

MANILA, Philippines - The Sandiganbayan has dismissed on Tuesday the graft charges against 4 transportation officials who pre-qualified the consortium that built NAIA Terminal 3.

The anti-graft court's Second Division promulgated its decision late Tuesday, citing insufficient evidence by the prosecution to support allegations against former Department of Transportation and Communications Secretary Pantaleon D. Alvarez, former Undersecretaries Wilfredo M. Trinidad and Primitivo C. Cal, and former Manila International Airport Authority (MIAA) general manager Francisco E. Atayde.

The case was filed in 2004 by the Office of the Ombudsman, which claimed that the government officials unlawfully awarded the international terminal project to the consortium of Piatco forerunner People's Air Cargo & Warehousing Co., Inc. (Paircargo), the Philippine Air and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank) in 1996.

The prosecution said the consortium failed to meet all the qualifications, specially the required financial capacity to undertake the project. Excluding the capital contribution of Security Bank, which is subject to regulatory limits in its exposure per borrower, the consortium could only put up P558 million, or 15% of the total project cost.

Under the Build-Operate-Transfer law, which governed the award of the project, the consortium must have an upfront payment of P2.75 billion or 30% of the total project cost at prequalification stage.

At the time, Cal was an undersecretary of DOTC and chairman of the Pre-qualification, Bids and Award Committee (PBAC) while Assistant Secretary Trinidad was a member of the committee. Alvarez was then sitting as chairman of the PBAC technical committee and Atayde was MIAA general manager and PBAC vice chairman.

Not beyond reasonable doubt

The court held that there was no evidence to support the Ombudsman’s claim that members of the consortium did not meet the minimum amount of equity since the prosecution submitted incomplete audited financial statements of the 3 companies involved.

It noted that pre-qualification required audited financial statements for the past 5 years prior to pre-qualification in 1996 but prosecutors could present only 1994 and 1996 statements for Paircargo; 1994 and 1995 for Security Bank; and 1996 and 1997 for PAGS.

A copy of the minutes of the PBAC meeting on the Prequalification of Paircargo on September 27, 1996 showed a discussion on the legality of the Joint Venture Agreement as well as the financial aspect.

In the same document, Alvarez explained that the financial capability of the consortium "could support up to P12 billion project cost."

The ruling pointed out that prosecutors never even bothered to refute this assessment by Alvarez leaving the court no recourse but to ‘rely on its veracity’.

“After serious consideration, the Court finds that the evidence presented by the prosecution cannot sustain a verdict of guilt beyond reasonable doubt, and thus resolves to grant the demurrers to evidence filed by the accused,” the Sandiganbayan declared.

The anti-graft court also said that the construction and completion of NAIA-3 “should lay to rest any question of the financial capability of the Paircargo Consortium to undertake the project.”

Associate Justice Teresita V. Diaz-Baldos penned the 21-page verdict concurred in by Associate Justice Roland B. Jurado and Presiding Justice Edilberto G. Sandoval, division chairman.

Arbitration awards

The consortium, which eventually became Philippine International Air Terminals Corporation (Piatco) controlled by the Cheng family, challenged the bid of the project's original proponent, Asia’s Emerging Dragon Corp (AEDC), which was led by the country's tycoons: John Gokongwei, Andrew Gotianun, Henry Sy, Sr., Lucio Tan, George Ty, Alfonso Yuchengco, and Lucio Tan.

With its higher bid, Piatco was awarded the right to build and manage the third and supposedly most modern international passenger terminal in the country's main gateway.

Piatco/Paircargo, which has since partnered with German firm Fraport AG, claimed that the terminal was 98% complete in December 2002 when the Arroyo government nullified the contract.

The Supreme Court eventually affirmed the nullification of the contract, prompting Piatco and Fraport to seek compensation claims from international arbitration tribunals.

Fraport filed a US$425 million case against the Philippine government at the International Center for Settlement of Investment Disputes (ICSID) in Washington DC. citing breach of the Bilateral Investment treaty between Germany and the Philippines.

Piatco, on the other hand, filed an arbitration case at the International Chamber of Commerce (ICC) in Singapore for the reimbursement of some $565 million it claimed it spent on the terminal construction.

In 2007, ICSID decided in favor of the Philippine government. On July 2010, ICC did the same.

ICSID highlighted the secret shareholder agreements between Piatco and Fraport that effectively gave the operational and management control to the German firm.

This arrangement was not covered by protection under the bilateral investment treaty–and therefore outside the jurisdiction of ICSID–because it was made in violation of Philippine law. The Philippine Constitution requires that a public utility, such as an international airport terminal, should be under the control of Filipinos.

Both tribunals also recognized that, as construction went full blast, Fraport stepped up as the project's financial arranger since it has better access to financing than the Filipino partners.