President Rodrigo Duterte has ordered the immediate review of all government contracts, including the recent agreements with China, to strike down any provisions that might be onerous, unconstitutional, and detrimental to public interest, the Palace said Tuesday.
In a Palace press briefing, Presidential Spokesman Salvador Panelo said the President ordered the review during a Cabinet meeting after he found out an “onerous” provision in the government’s contract with Maynilad Water Services Inc.
Panelo said Duterte specifically tasked Solicitor General Jose Calida and Justice Secretary Menardo Guevarra to study the arbitration case with Maynilad, hoping to prosecute those behind the disadvantageous provisions.
Asked if the review would cover all government contracts, including those recently signed with China, Panelo said: “Definitely, any contract.”
Supreme Court Associate Justice Antonio Carpio recently warned the government that China could seize oil and gas deposits in the Reed Bank if the Philippines defaults on its $62-million loan for the Chico River Pump Irrigation project, an agreement that critics described as onerous.
Government officials have brushed aside the possibility as unlikely, pointing to the Philippines track record of always repaying its debts.
The contract with the water concessionaire Maynilad was signed during the Ramos administration and carried a provision that barred the government from interfering in the company’s operations.
This provision, Panelo said, cost the government P3.42 billion in October 2018, when Maynilad won its arbitration case against the government before the high court of Singapore, after suing over the delayed implementation of a water rate hike from March 2015 to August 2016.
“We were made to pay P3.5 billion because according to the ruling, the government intervened, and by reason of the intervention, Maynilad suffered damages. And the President could not believe that.
How can a contract like this… ban government action with respect to… water services?” he said.
“[So] we’ll have to examine every provision of the contract. Anything that is against public policy or against the law, or against the Constitution, we will have to strike it down,” he added.
In a message to GMA News Online, Gueverra said the President was upset about a provision in the Maynilad contract.
“The President was upset about a provision in the concession agreement that if the republic interferes in any manner that will reduce or delay the implementation of agreed water rates, the republic will indemnify the utility company for any losses suffered thereby,” Guevarra said.
Panelo, the President’s chief legal counsel, also reiterated that Duterte wants his legal team to review all contracts entered into by the government, including those that are already being executed and those that are about to be executed.
At the same time, he allayed fears that the review would scare away potential investors.
“It will forewarn them that they cannot enter into any agreement that is in violation of the Constitution or a public policy… They won’t do it because they’ve been forewarned,” he said.
Panelo said the President will not allow anything that goes against the interest of the Filipino people under his term.
Maynilad is one of the two private water concessionaires serving Metro Manila.
The water company, led by Filipino businessman Manny Pangilinan, serves Metro Manila’s west side, which includes Caloocan, Pasay, Parañaque, Las Piñas, Muntinlupa, Valenzuela, Navotas, Malabon, and parts of Quezon City, Makati, and Manila.
It also supplies water to its beneficiaries in Cavite City, Bacoor City, Imus, Kawit, Noveleta, and Rosario in Cavite province.
Guevarra said Tuesday the DOJ teams will conduct the review of contracts perceived to be grossly disadvantageous to the government, with the help of lawyers from the Office of the Solicitor General.
“Priority contracts for review include concession agreements on public utilities and foreign loan contracts. Target provisions are those perceived to be onerous, one-sided, disadvantageous to the government, and or contrary to public order or public policy,” Guevarra said, in an interview.
“We have organized teams to conduct this review but my office as attorney general will need a lot of help from the Office of the Solicitor General to perform and complete this task at the soonest time possible,” he added.
Guevarra said if onerous provisions are found, the first step would be to renegotiate the contract. If this proves unsuccessful, the government would resort to legal action.
“Contracts are subject to the will of the parties, but any stipulation, term or condition that is contrary to law, morals, public order or public policy may be abrogated or terminated,” Guevarra said.
Meanwhile, Finance Secretary Carlos Dominguez III said the Philippines has no history of defaulting on its loans, and those who fear this might happen with China have no faith in their own country.
“The Philippines has never, never defaulted on its loans. The Philippines has not done it even in the worst time and the worst time was right after Marcos,” Dominguez said in a statement.
He said even when the Philippines was cash-strapped, it had never defaulted on any of its loans, recalling that the country paid its obligations on the $2.2-billion Bataan Nuclear Power Plant project, even though it turned out to be a white elephant.
“The Philippines has no history of defaulting on its loans. So why people saying now that we will default? They have no faith in the Philippines?… That means to say those people have no faith in their own country,” Dominguez said.
Dominguez also reiterated that there was no collateral involved in the loans that the government has entered into with any country as he invited the public to examine the terms of all the loan agreements that the Philippines has signed with its development partners, which are available for viewing at the Department of Finance website.
Dominguez added that the government’s debt was carefully structured to ensure that it does not borrow without raising its own capital for infrastructure projects, while at the same time sourcing a significant portion of financing from the local debt market to minimize exposure to adverse external factors.
He said as of 2018, the government’s project debt exposure was only 0.66 percent to China and 9 percent to Japan in relation to the total debt.
He said by 2022, when most of the financing for the “Build, Build, Build” program would have been accessed, the country’s project debt to China would account for 4.5 percent, while that of Japan’s would be twice as large at 9.5 percent of the total debt.
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