Government Investments News Analysis

Lessons from Laguna Lake

Another major blow to investor confidence in the Philippines – this one courtesy of former president Benigno “Noynoy” Aquino whose arrogance and petulance has made the country a laughing stock once more in the eyes of the international investment community. And back in the Philippines – he’s just cost the tax payers there close to PHP1 billion – the families of all those who perished in Manila floods in the last four years must be recounting the price they had to pay for the ex-president’s vindictiveness. But for Aquino’s spiteful and unlawful behaviour, many of those lives need not have been lost.

In November 2010, less than three months after his abortive handling of the Manila hostage crisis which left eight Hong Kong tourists dead, Aquino – determined to undo projects set in motion by his predecessor, Gloria Macapagal Arroyo – cancelled a two-year PHP18-billion flood-control scheme for Laguna Lake, east of Metro Manila.

This project had been prioritised by Arroyo to avert a similar flood catastrophe to the one caused in 2006 by Typhoon Xangsane (Milenyo) which struck the National Capital Region directly and left a trail of 197 dead and damage to property and agriculture totaling PHP5.9 billion. If Aquino had not cancelled the Laguna Lake Rehabilitation Project, as it was known, it would have reduced flooding in Manila by 2012, the scheduled completion date. But this project had Arroyo’s signature on it so it had to go.

No matter that it was being handled by one of the most-respected dredging firms in the world – the 150-year-old Brussels-based Baggerwerken Decloedt En Zoon (BDZ). No matter that the public purse would have been spared – French multinational bank, BNP Paribas, was ready to finance the bulk of the costs at concessional rates; the Brussels Government had pledged PHP7 billion to the project. More important to Aquino than any of that was that he able to remove another piece of Arroyo legacy, feeding on anti-Arroyo hate and boosting his own popularity into the bargain.

At the time, he was cheered and eulogised for his denouncement of all things Arroyo. Leftist organisations, such as Akbayan and Bayan Muna, rallied to his cause in Congress. His tame media did the same, as did Arroyo fans everywhere from academia to economics. Now in 2017 it’s the people who have to pay the bill for his spite.

On 23 January, the World Bank’s International Center on Settlement of Investment Disputes (ICSID) ruled that Aquino’s cancellation of the BDZ contract was unlawful and unfair. It awarded the Belgian company PHP0.8 billion plus monthly interest costs accruing back to 2011.

And then there’s that other cost. In 2012, the completion date for the Laguna project, Typhoon Saola, which battered Manila causing massive flooding, left 53 dead. And for every year since then tropical storms, typhoons and super typhoons have entered hundreds more names into the book of the dead.

What makes this even more abhorrent to foreign investors is the way in which Aquino unilaterally killed the Laguna Bay contract. BDZ was never officially informed; no notice was sent informing them of his decision. His finance secretary and close friend, Cesar Purisima, simply refused to accept the Belgian Government’s PHP7 billion funding grant, without which the project could not proceed. That was it; deal over.

The argument Aquino used for scrapping the project was twofold. First that it was a “midnight deal” – in other words, that the contract had been pushed through as Arroyo’s term was fading into the night. As such he claimed it was corrupt and had not been thoroughly scrutinised. Secondly, that the BDZ’s plan for flood control was flawed – in Aquino’s words it amounted to “a big joke”. So, let’s look at those two objections in turn.

Far from this being nodded through, it had passed a number of evaluations by no less than seven government departments and associated agencies – among them, Bangko Sentral ng Pilipinas (the central bank), the Department of Environment and Natural Resources (DENR) and the Department of Justice – all of which gave it their stamp of approval for immediate implementation in 2010. Justice Secretary at the time, Leila De Lima, categorically stated: “The project cannot be construed as a midnight deal since it is covered by official development assistance from the Belgian government.”

Elsewhere, Aquino rejected all professional advice cautioning him against the move. The general manager of the Laguna Lake Development Authority, a DENR-attached agency, appointed by Aquino was fired by Aquino for his insubordination in questioning the then-president’s decision. For his support of the project, then-Laguna governor, Jorge Ejercito, effectively lost his job following a campaign by pro-Aquino supporters. A resolution backed by Metro Manila and Southern Luzon congressmen, seeking a reprieve for the project, was outright ignored. Even the Cabinet was left in the dark.

Aquino’s arrogance knew no bounds. When then-Belgian Prime Minister, Yves Leterme, wrote to him asking that BDZ be permitted to respond to his misgivings about the flood-control scheme, Aquino never even bothered to reply. He simply snubbed a European head of state – Leterme went on to become deputy secretary-general of the Organisation for Economic Cooperation and Development – as if he was some annoying bellhop looking for a tip; a street beggar hoping for a few coins. Classy.

So all of that advice was wrong; Aquino knew better.

On the second point, Aquino’s criticism of BDZ’s dredging solutions, probably even better illustrates the power of this man’s ego. With zero experience in dredging, in announcing his decision to terminate the contract he appraised this global industry leader’s scheme thus: “What they wanted to do was move the mud from one section of the lake to another section of the lake, and that was supposed to enhance its water holding capacity … that’s what they wanted to do for flood mitigation, and obviously it’s a joke”.

Obviously. How could a company that’s been doing such work for one and a half centuries and doing so successfully with governments around the world possibly know better than Benigno Simeon “Noynoy” Cojuangco Aquino III. After all, given his lineage he’s practically Philippine royalty; he also has a Bachelor of Arts degree from Ateneo de Manila University. They don’t.

So again, they were wrong; Aquino knew better.

Unfortunately for Filipino taxpayers and the present administration of President Rodrigo Duterte – now left with sorting out this mess – the Washington DC-based court of the ICSID begged to differ and the Philippines now has to cough up. And that payout doesn’t take into account the millions of dollars that the Aquino administration spent employing local and international legal experts to build and present their case.

But the greater damage is what this has done to the country’s image as an investment destination. Most foreigners already know they have little chance of redress through the Philippine courts. But a contract like the one for Laguna Lake – forged with the government and given every green light – if that’s not secure then nothing is. And, sadly, that’s the moral of this tale for anyone thinking of investing in a project with the Philippine Government.

All that has created yet another wretched legacy problem which Duterte’s administration has to contend with when it tries to sell the Philippines as a safe and fair place for foreign investors to bring their money and their expertise. And guess who loses again? The people. And all because one man put his pride and his political bitterness above honour and the good of the nation.

141 Comments