“Irrepairable damage”

Michael Alan Hamlin

Posted on August 18, 2010

Supreme Court administrator and spokesperson Midas Marquez announced Friday that Chief Justice Renato Corona issued temporary restraining orders (TRO) blocking the implementation of a long-delayed toll rate increase for the Southern Luzon Expressway (SLEx) and the levying of 12% value added tax (VAT) on the toll. The reason cited for the imposition of the TROs was “irreparable damage to the public.”

I tweeted soon after the announcement that the move would have a chilling effect on the investor community, which President Benigno S. Aquino III has said he wants to assure that everything works in the Philippines. Mr. Aquino wants to improve the Philippines’ dismal record attracting foreign investment when compared to its Asian neighbors. Indeed, it’s fair to ask whether the Chief Justice considered the damage already done to the Southern Luzon Tollway Corporation (SLTC), the SLEx operator. SLTC is contractually authorized but has been repeatedly inhibited by nervous government officials from raising toll rates, and for a while, from collecting them at all.

As a result, the Toll Regulatory Board (TRB)-which forged the agreement with SLEC-says the developer has foregone P230 million in toll collections following completion of the rehabilitated-or rather, rebuilt-highway. It’s not just the potentially irreparable damage to SLTC that is at issue here. In the event that the Supreme Court extends the TRO prohibiting the increase-or worse, suspends the contract authorizing the increase-irreparable damage will result to the Aquino Administration’s efforts to resuscitate the Philippines’ tarnished country brand in the perception of investors.

Incidentally, the toll rate increase is intended to provide a 17% return to the SLEX developer. It can be reasonably argued that 17% is somewhat steep for a return on a public road project, and that 12% would be fair. However, the agreement was made in good faith at a time when the Philippines could not-and it still cannot-afford to shoulder the capital outlay required to rebuild the highway. The higher promised return was apparently offered-and accepted-to encourage the SLEX developer to agree to work with the Philippine government, which has struggled to attract infrastructure investments.

So far, SLTC has fulfilled its obligations, investing P11 billion financed by Malaysia’s MTD Capital Berhad to rebuild SLEx. Critics claim that the costs are exorbitant, but no independent evaluation of the investment has been made. SLTC says it can justify costs. In the meantime, motorists continue to enjoy use of a world-class highway for which government has paid nothing and the motorists themselves pay a fraction of its cost.

As a result of the difficulty implementing the toll hike to which it is entitled, the SLEx developer has stopped work extending the highway to Lucena in Quezon, whose residents would greatly benefit from modern transportation infrastructure. SLTC president Isaac S. David cited the delay in implementation of the toll rate increase as the reason. Who can blame him? If government consistently refuses to comply with its contractual obligations, it would be madness to continue building an expensive, new highway for that government.

Populist politicians are celebrating the Chief Justice’s action, and lobbying the court to suspend TRB’s agreement with SLTC. If they are successful, it’s appropriate to ask who the real, long-term losers are. Sure, motorists will continue to enjoy faster travel times on the rebuilt SLEx, and the investor will pay the price for believing that a government agency would-or could-live up to an agreement freely entered into that was meant to-and has-benefited the people.

But who is going to build that road to Lucena? And how about other infrastructure projects that the Philippine government can’t afford, but the people desperately require to enhance their quality of life and the capacity to earn an income? Then there is the matter of investors who require world-class infrastructure to operate their businesses. How will they be persuaded to create jobs in the Philippines sans the basic requisites of doing business here?

The answers to these questions are stark. The infrastructure won’t get built, farmers in Lucena and other provincial areas will struggle to get their produce to market, and significant numbers of potential jobs will go unrealized. So who are the irreparably damaged in this scenario? Investors will go elsewhere. Government agencies will continue to regulate, if not sign apparently meaningless contracts, and Filipinos will continue to largely go without the infrastructure that their neighbors enjoy.

That’s quite a price to pay for the short-term palliative that reneging on a deal provides.

(Michael Alan Hamlin is the managing director of TeamAsia and a Manila-based author. His latest book is High Visibility: Transforming Your Personal and Professional Brand . Write him at mahamlin@teamasia.com and follow him on Twitter, Facebook and LinkedIn.). Copyright © 2010 Michael Alan Hamlin. All Rights Reserved.)

2 Comments

  1. Philip Brookes says:

    Michael,
    I’m pleased that you’re highlighting this issue – not only is it bad for investor confidence, it’s also exactly the type of Government intervention that Aquino criticized the previous administration for during his first SONA. He was right during the SONA to lambast Arroyo’s administration for forcing various organisations into a loss-making situation by forceably restraining price rises, so he is in a situation where he must now be consistent in his approach.

    • Michael Alan Hamlin says:

      Philip, thanks for your comment, and feedback. Given the events of this week, whether real leadership will or can be demonstrated by the administration has become an issue.

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