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Sisyphus’ Lament

Why is no one answering Peter Wallace?

12:26 AM January 11, 2016

SINGAPORE—Inquirer columnist Peter Wallace’s five-part series criticized how the government handles key agreements. His Christmas Day opening piece was provocatively titled: “This gov’t does not honor contracts.” Sadly, no public debate has emerged.

Wallace is a lawyer’s sobering litmus test. We agree that law must uphold human rights and good governance. We also agree that law applied to business must be predictable, pragmatic and straightforward. But Wallace approaches law with pure utilitarianism.

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For example, Wallace believes that someone convicted of plunder should not run for mayor of Manila. He blames the Supreme Court for not blocking former president Joseph Estrada when his pardon’s wording was challenged (“What has the Supreme Court done?” Opinion, 2/19/15).
How should a pardon’s clear wording weigh against an allegedly higher principle? I countered that the Supreme Court’s authority is limited, and Wallace should decry the president who issued the pardon, not the Court.

With a smile, Wallace answered that he is not a lawyer, not restricted by such frameworks and can rally before the Supreme Court anytime.

Development debates may likewise be viewed through different lenses.

Take the Cavite-Laguna Expressway. Last year, a San Miguel subsidiary bid P20.1 billion for this key project, while an Ayala-Aboitiz consortium bid P12.7 billion. San Miguel’s bid, however, had a technical deficiency in its security.

One readily appreciates calls to apply the stated rules. One also appreciates how the gap in bids gave our government pause. What happened? Months later, President Aquino ordered a rebid, which Metro Pacific won with P27.3 billion.

Take my American professor voicing his contempt for defaulting debtors such as Argentina. I described how my peers are repaying national debt taken before we were born. I asked whether there might be some point where a lender earning high interest from the likes of the Marcos administration should assume the risk of not being repaid. An Iranian, then a Nigerian classmate voiced agreement.

We must discuss difficult legal questions in economic policy as publicly as we debate human rights.

Wallace opined on Manila’s Metro Rail Transit, water concessions and its airport Terminal 3 and radar systems, Camp John Hay’s lease in Baguio City, the Poverty Eradication and Alleviation Certificates or PEACe bonds, value added tax refunds, and even driver’s license cards and car plates. (See story on BCDA’s response to Wallace’s claims about the agency’s failure to deliver fully its commitments to CJHDevco on Page 1 of today’s issue.—Ed.)

A presidential spokesman quipped to the Inquirer’s Dax Lucas that Wallace criticizes court action, not the executive branch. Anonymous blogger Joe America, who was specifically thanked in the President’s last State of the Nation Address, expounded on this point at length last Jan. 7. He went off on a tangent, arguing that Wallace should not focus on multibillion-peso contracts and ignore thousands of ordinary contracts, and colorfully accused him of bias.

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It is certainly misleading to say Wallace was criticizing courts. For example, in 2001, the government issued the P35-billion PEACe bonds. These were marketed as tax-free, as certified by three Bureau of Internal Revenue rulings in 2001.

However, in 2004 and 2005, the BIR issued four contrary rulings. The PEACe bonds were structured to make only one payment after 10 years, after these new rulings. The BIR thus attempted to collect taxes in 2011, though the Supreme Court later disallowed this.

The government clearly broke a contract—in public securities markets at that—before the high court intervened. One cannot nitpick that the BIR changing regulations midway is different. It is crucial for a government to honor contracts to promote investor confidence, precisely because of its power to change regulations.

Wallace also criticized how Manila Water is not allowed to include income tax in expenses under its contract, thus reducing its overall return. Manila Water argues this is contrary to the Metropolitan Waterworks and Sewerage System’s original interpretation that its operator is not a “public utility.” On its website, the MWSS cites higher considerations of public interest beyond the contract.

The other operator, Maynilad, won its arbitration and was allowed to include income taxes. MWSS refuses to implement the arbitral award, citing equal protection and the need to apply the same rules applied to Manila Water.

Wallace argued that what is paramount is how the government framed its terms and that the operator receives its projected return if it meets these terms. Abstract notions of public interest must be secondary to this understanding. Otherwise, no one could invest because no one could fairly gauge the risk of investing. Manila Water initiated new arbitration in Singapore last December in effect to pursue this idea.

Wallace criticized how the contracts are administered and why this led to multiple arbitrations, not the arbitrations themselves. I would add that equal protection is an oft-miscited human rights doctrine in the Philippines. We can evaluate separate utilities contracts, including separate results of separate arbitrations, with separate operators without mixing in judicial frameworks primarily intended to police racial and religious persecution.

Law is an important tool for building the countless power plants, roads and airports we sorely need. It must transcend glorified memorization exercises.

One hopes Wallace sparks richer debate. There are rarely easy answers to complex issues among equally conscientious men. But this is precisely why we need to discuss how law underlies national development. Wallace the ultrapragmatist surely welcomes lawyers willing to go through the character-building experience of trying to convince him that they have a place in business after all.

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React: [email protected], Twitter @oscarfbtan, facebook.com/OscarFranklinTan.

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TAGS: contract, contractualization, expressway, highway, MRT, opinion, Peter Wallace, Supreme Court
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