Foreigners cite new flip-flop on how gov’t treats contracts

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The controversy arising from calls to rescind the agreements of the two water concessionaires in Metro Manila is yet another manifestation of how “difficult” it is to do business with the government, according to the European Chamber of Commerce of the Philippines (ECCP).


In a statement yesterday, Henry Schumacher, ECCP vice president for external affairs, said this issue adds to the growing list of projects entered into by the government with the private sector whose contracts the bureaucracy would not honor later.

This inability to respect the sanctity of contract has created a trust gap with government among investors that could have a chilling effect on investors, the ECCP said.

“The bashing that Manila Water and Maynilad Water went through recently in connection with their concession agreement with MWSS (Metropolitan Waterworks and Sewerage System) illustrates the difficulty in doing business with the government,” Schumacher said. 

He said the billings have been in place for more than 15 years , were agreed to by MWSS in the concession agreement it signed with them in 1997, and are effective up to 2022. He was referring to the terms of the agreement that allows the concessionaires to pass some of their expenditures to customers.

 “After all these years, the MWSS suddenly found something wrong with the water charges. This controversy, another midstream change, will certainly end up in the Supreme Court,” Schumacher said, referring to the usual fate of disputes that private entities have with the government.

Schumacher cited one which has taken the same route is the San Roque Power Corp.  whose case is now with the Supreme Court for resolution of its claim of  tax refund.

San Roque Power, he said is “an investor (which) fights to get from government what government granted more than a decade ago as an incentive (duty- and tax-free importation of capital goods) when invited to invest.” 

Schumacher said San Roque Power  stands for many investors who will be short-changed by the government if the Supreme Court does not change its verdict from “retroactive” to “progressive” or if the government understands the damage this case will do to investors (existing and future) and supports the change from retroactive to progressive.

 “Government has to understand that ‘trust’ is the asset it has to have. It’s precisely because of changing rules midstream that investors are more and more reluctant to invest long-term. Who guarantees that the rules agreed with this administration will be honored by successive governments?,” Schumacher said.

He hinted that the upcoming public-private partnerships in infrastructure whose contracts  would last for 25 years could go the way of these other projects due to the government’s propensity to change the rules in the middle of the game.

“These uncertainties are breeding a huge trust deficit,” he added.

Schumacher cited the review of the Mining Law and the attempt to change the mining fiscal regime as another example of government’s policy flip-flopping.

“Will new miners come? Unlikely. Will existing miners go? More likely,” Schumacher said on the impact of government’s move..

According to Schumacher, the case of the  coal-fired power plant of Redondo Peninsula  Energy Inc. in Subic is another example of contract disrespected. The project has been stopped by a court ruling due to opposition of some stakeholders.

“Infrastructure projects of national significance (given that) Luzon badly needs additional base-load plans) should be given priority and importance. They should be insulated from unfounded issues that only result in costly delays in the implementation of such projects,” Schumacher said..

According to Schumacher, as “executives expect to have to navigate the country’s bad infrastructure, the rigid labor market, red tape and remaining pockets of corruption, they are certainly not keen on tripping over the fine print of laws and implementing rules and regulations, and local power brokers with agenda at odds with Manila.” (Malaya Business News)