The Department of Finance is bracing for the likelihood of having to pay private companies tens of billions of pesos arising from bungled public-private partnerships dating as far back as the 1990s.
Two such bungled ventures included the Poverty Eradication and Alleviation Certificates (PEACe) Bonds and the Ninoy Aquino International Airport Terminal 3 (NAIA 3) that figured in legal debacles for the government.
The Duterte presidency faces the unenviable task of paying—literally—for the “sins of the past” administrations, courtesy of previous and possibly future court rulings favoring contractors or concessionaires that presumably have scores to settle with the state.
For starters, the government will likely have to cough up some P5 billion to pay RCBC Capital for the amount that the Bureau of Treasury kept back as final withholding tax —as so ruled by the Bureau of Internal Revenue (BIR)—when these 10-year zero coupon PEACe bonds that it had issued during the past Arroyo administration matured in 2011.
This is because the Supreme Court ruled that RCBC Capital was entitled to rely on a much earlier position issued by the Bureau of Internal Revenue in 2001, which stated that the PEACe bonds were not deposit substitutes, and thus not subject to the 20% FWT.
The BTr sold these notes with a 10-year tenor in October 2001 through a public auction that was won by RCBC on behalf of the Caucus of Development NGO Network (CODE-NGO).
In the case of the NAIA 3 project which got entangled in one legal dispute after another as an offshoot of the financial troubles that had buffeted the winning bidder Philippine International Air Terminals Co. (PIATCO), the SC ruled last April 19—entered in the book of entries of judgments on May 20 and upheld in a follow-up resolution on June 21—that the government must pay this contractor $326.93 million in just compensation.
The Supreme Court had nullified the PIATCO contracts but ruled that just compensation was incidental because of the structures already built by PIATCO before the deal was voided.
On top of this amount, the High Tribunal also directed the government to pay PIATCO an extra amount equivalent to a 12-percent legal interest from September 2006 to June 2013 plus six-percent interest from July 2013 up to the time the government will have made full payment.
Just recently, the BTr transferred some P20 billion to the Department of Transportation (DOTr) for payment to PIATCO’s just compensation for the NAIA 3 project as directed by the SC.
The government is liquid at this point, but paying for these pecuniary claims will mean setting aside for such possible court-ordered payments huge amounts of taxpayers’ money that should otherwise be used to augment the budget for the Duterte administration’s accelerated spending over the next six years on infrastructure, human capital and social protection for the poor and other vulnerable sectors.
The DOF is now looking at other cases that might similarly give the Duterte administration financial headaches in the near future.
In an open forum during a recent public engagement in Davao City, Finance Secretary Carlos Dominguez III said he has, for one, directed the BIR to review all tax-related issuances in the past to preclude potential legal challenges in the future that could cost taxpayers billions of pesos more in payments to claimant-contractors.
When the BIR decided to impose the 20 percent FWT on the bondholders in 2011, Dominguez said, “the banks did not take this sitting down and went to court. And recently, they won the case all the way up to the Supreme Court. The Supreme Court said that we have to return the P4.9 billion…we have to pay P1.4 billion in interest.”
“I think there are more cases of similar nature which will come up soon. So I asked the BIR to please review all the issuances so that we avoid burdening the public by collecting taxes that are not fair, that we are going to lose in court anyway and that we are going to burden our taxpayers by paying penalties and interest,” Dominguez said.
“Every time I sign a check for some mistake that has been made in the past, my hands almost bleed,” he added.
One possibility is that the Duterte administration may have to shell out money, too, to compensate other private concessionaires if and when the various international arbitral tribunals rule in their favor in the cases that they had filed against their government partners for alleged violations of their concession agreements.
The Maynilad Water Services Inc. (MWSI) and the Manila Water Co. (MWC) filed separate arbitration cases against the Metropolitan Waterworks and Sewerage System (MWSS) before the ICC International Court of Arbitration in Singapore in 2013 for MWSS’ inaction that year on their toll rate hike petitions, as provided for in their concession agreements that were both forged with the then-Ramos administration in 1997. (DOF)
