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NAIA-3 opening on track (Palace says Piatco structure no hindrance
[January 25, 2006]

NAIA-3 opening on track (Palace says Piatco structure no hindrance

(Business World (Philippines) Via Thomson Dialog NewsEdge)Failed negotiations between Fraport AG of Germany and Manila Hotel Corp. will not affect the government's timetable of opening the Ninoy Aquino International Airport-Terminal 3 (NAIA-3) by the end of the first quarter at the earliest, Malacanang yesterday said.

Executive Secretary Eduardo R. Ermita, chairman of the Cabinet policy group on NAIA 3, said the government is concentrating on completing the terminal and opening it by the end of March or early April.

The government, he added, is prepared to make a downpayment on the airport in connection with its expropriation of the mothballed facility.

He also said the government is focused on resolving the claim filed by Fraport against the government at the World Bank's International Center for the Settlement of Investment Disputes in Washington D.C., and the claim filed by Philippine International Air Terminal Co. (Piatco) against the government at the International Chamber of Commerce-International Court of Arbitration in Singapore.

"As far as the government is concerned, we are following the official tracks," Mr. Ermita said. "I think the government is correct to pursue what it is pursuing and not get embroiled in the private transaction between Manila Hotel or Fraport, whether it was completed or not."

He admitted that Manila Hotel contacted the Palace last year "to tell us they were negotiating with Fraport," but said the policy group's position was to negotiate with Manila Hotel only after its deal with the German firm was consummated.

He did not discount the possibility of the government's entering into an agreement with Manila Hotel or other groups, however.

"There are other tracks we can pursue ... such as settlement on the sides with the parties concerned. The government is open to all offers, only the important thing is to finish the structure, to make sure it is safe and secure, and to open it according to our timetable," he said.

The policy group will meet at noon today to debrief Defense Secretary Avelino J. Cruz, Jr., Foreign Affairs Secretary Alberto G. Romulo and Solicitor General Alfredo L. Benipayo, who went to Washington early this month to attend the marathon trial on Fraport's claim.

Messrs. Cruz and Romulo acted as witnesses on the government's behalf: Mr. Cruz used to be the Chief Presidential Legal Counsel and Mr. Romulo, the Executive Secretary.

In other interviews, government officials said Takenaka Corp., the Japanese contractor tapped in June 2005 by the government to complete NAIA- 3, has pledged to complete the first phase of the project by the third week of March.

Last December, the Manila International Airport Authority (MIAA) said the opening of NAIA-3 may need to be moved to December 2006 at the earliest after Pacific Consultants Asia, Inc. (PCI-Asia), Piatco's consultant, had refused to give the government access to the engineering study of the terminal.

The value of unfinished construction work for NAIA-3 used to depend on PCI-Asia's engineering studies.

Takenaka, however, proceeded with construction works, relying mostly on a new engineering survey of its own.

Jun Montalbo, NAIA-3 operations head, said completion of the first phase would allow the government to operate all communications and navigation systems as well as cargo handling, immigration, and ground support equipment.

By June 2006, Takenaka should be able to finish construction works in the NAIA-3 mall area, where food outlets, boutiques, and mobile banking facilities will be leased to concessionaires.

International airlines have also been notified of a transfer to NAIA-3 by March and all, except for Philippine Airlines (PAL), have expressed willingness to move to the new facility at a date to be specified by MIAA, he noted.

PAL, which has exclusive use of NAIA-2 for both its domestic and international operations, said it would move to NAIA-3 only if the MIAA would allow it to integrate its domestic and overseas operations in the facility.

"Some airlines used to say they prefer to move to NAIA-3 once all legal issues between the government and Piatco had been settled. They feared that they may be held legally viable if they would move to NAIA-3 without government first compensating Piatco," Mr. Montalbo said over the phone.

"But now Solicitor [General] Benipayo has explained to them that the government, by virtue of the expropriation procedure, can now exercise rights of ownership over NAIA-3. We will also ask the Supreme Court to issue a clarificatory statement that MIAA has the authority to operate the terminal," he added.

On Tuesday, Fraport, the biggest foreign investor in Piatco, confirmed that it still had no deal with Manila Hotel for the purchase of the German firm's stake in the consortium.

The admission raised questions on how Fraport's admission would impact on the government's plans for NAIA-3 opening and compensation to Piatco.

The actual shareholdings of Fraport in Piatco is still undefined, as the government speculates that the company used dummies to circumvent the 60-40 local-foreign ownership structure required. Manila Hotel has said Fraport's stake amounted to 30% of Piatco.

Robert Uy, MIAA assistant general manager, said the ownership issues in Piatco have no legal bearing on the rights of the government to operate NAIA-3.

"The government is not privy to the deal between Fraport and Manila Hotel so any agreement entered into by them should not affect our plans for NAIA-3. The government will open NAIA-3 as scheduled and will compensate Piatco as a holdings company at an amount to be ordered by the Washington court," Mr. Uy said.

Another ranking government source who spoke on condition of anonymity said the government is beefing up the payment scheme for Piatco.

The source said that once the compensation amount is set, the government will negotiate for installment payments to be sourced from a $300-million loan from the Development Bank of the Philippines and MIAA revenues.

"The arbitration court will decide on the amount of the compensation so the government would have to negotiate for the payment. The amount of compensation had never been a problem for us because $300 million or $400 million is relatively not a big amount for critical government projects . But we would like to spread out the payment period because we believe that we can get very concessional terms from the consortium," the source said.

The NAIA-3 project was awarded in 1996. Its opening in 2002 was delayed after President Gloria Macapagal-Arroyo declared that the government would not honor its contract with Piatco. The Supreme Court ruled in the government's favor but said the projects proponents have to be compensated. As negotiations dragged on, the government took over NAIA-3 in December 2004.

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