[A-List] Philippines: airport terminal nationalised

["Michael Keaney" <michael.keaney@xxxxxx>]

Philippine state seizes airport terminal
By Roel Landingin in Manila and Richard Milne in Frankfurt
Financial Times: December 22 2004

The Philippine government has seized an international airport passenger
terminal built by Germany's Fraport and its Filipino partners at the cost of
US$650m. The move comes after almost two years of talks that failed to yield
an agreement on the pricing for the facility.

It is the first time the Philippine government has expropriated a large
foreign investment, but business leaders, who were apparently briefed about
the move, said they were not unduly worried because the government promised
it would pay for the asset after the courts and arbitrators had settled the
price.

Fraport, the German airport operator, reacted angrily, saying it would seek
damages. "Fraport considers the actions of the Philippine government as a
blatant breach of the law," it said.

Cesar Purisima, the trade and industry secretary, said the government would
take over the terminal so it could finish the construction and open it to
air traffic in six months. "We cannot allow a vital infrastructure to rot
and render useless billions of pesos of investments," he said. He added that
the government intended to reimburse Fraport and its Filipino partners after
arbitrators in Washington and Singapore decided how much it took to build
it.

The government deposited 3bn pesos (US$53m) with a Manila court as
downpayment for the facility.

Fraport and its local partners entered into an agreement with the government
in 1997 to build the facility and manage it for 25 years.

However, the supreme court declared the contract illegal in 2002, prompting
the government and Fraport to begin talks on compensation. Last year,
Fraport and its Filipino partners asked international arbitrators to settle
the commercial dispute after the two sides could not agree on the pricing of
the facility.

The investors were said to be asking for at least $650m but the government
was insisting on a much lower figure.

Peter Wallace, an Australian business consultant and one of the spokesmen
for the foreign business community in Manila, supported the government
takeover, saying it was necessary so the facility could be completed.

"We don't see it as a precedent. It's a very unique case that needed to be
resolved in the public interest," he said.

However, Harry Roque, an expert on international commercial law, said the
government was not following due process. The law professor said the down
payment of only 3bn pesos was below the legal minimum, which should be
equivalent to 100 per cent of reconstructing the facility.