Like It Is

Meeting a promise

/ 12:38 AM October 27, 2016

Last week I suggested four immediate actions President Duterte could take. I covered tax reduction last week and grant of emergency powers and contractualization in recent columns. There’s one more left.

Around Christmas last year the Inquirer published a 5-part series I wrote on sanctity of contracts and how the Aquino administration had changed contracts or their interpretation, or not honored its commitments. It responded with indefensible arguments and excuses, and nothing was done.


In his inaugural speech, President Duterte ordered “all department secretaries and heads of agencies to refrain from changing and bending the rules of government contracts, transactions and projects already approved and awaiting implementation.” He added: “Changing the rules when the game is ongoing is wrong.”

Energy Secretary Al Cusi, agreeing with the President, challenged and objected to the Commission on Audit’s strange decision that Shell must pay tax on the Malampaya project. Strange? Read this: “Share of the government including all taxes shall not be less than 60 percent of the difference between the gross income and the sum of the operating expenses and such allowances as the secretary of energy may deem proper to grant.” What does “including all taxes” mean other than “all taxes”? How on earth can the COA interpret it any other way?


If that exclusion hadn’t been granted, Shell, along with Chevron, would not have taken the high risk of exploring for gas offshore. It just wouldn’t have been viable. Ferdinand Marcos understood this, so he issued two presidential decrees to grant tax exemption. Today we have 2700 MW of clean power; that’s about half of the current consumption of Luzon coming from Malampaya.

But that will run out around 2024. More exploration is essential but it won’t happen if the COA demand holds. So, kudos to Cusi. As he said, “The foremost consideration in the mind of foreign investors in deciding where to invest is the predictability, certainty and consistency of investment rules and the regulatory regime of a country.”  Also: “It is therefore of fundamental importance that we observe the sanctity of contracts in our commercial transactions.”

Indeed it is. Sanctity of contracts is absolute. One hopes that the COA just misunderstood and that it will quickly reverse the decision. And abide, as Mr. Duterte has promised, with the contract as written.

Next, Transport Secretary Art Tugade should kick Busan out of maintaining MRT3, and put Sumitomo back. Breakdowns are still occurring almost daily due to poor maintenance. Busan has a contract, but is it legally defensible? If it is, then pay out Busan.

Mr. Duterte must next cancel the Aquino administration’s demand that Maynilad and Manila Water not be allowed to recover their income taxes for purposes of determining the water tariff, contrary to what their contracts with MWSS provide. The contracts are quite clear on this, and yet the interpretation was revised 16 years after they were signed. Mr. Duterte should honor the contracts.

The courts ordered the Aquino administration to pay Piatco $530 million, but it ignored the ruling. The German ambassador has expressed optimism that the Duterte administration would implement the ruling and pay the full amount.

Companies have invested here on the promise they’d not be VAT-liable. But in an idiocy of bureaucracy they had to pay, with immediate refund promised. But no refund as yet. There are other claims that haven’t been honored. Finance Secretary Sonny Dominguez should get these resolved as a priority.


As I’ve said innumerable times, the Philippines gets the lowest foreign investments in the region. These broken promises are certainly one reason why. Mr. Duterte should continue with his promises, act now, and correct all these violations.

E-mail: [email protected]   Read my previous columns: www.wallacebusinessforum.com

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TAGS: contracts, contractualization, emergency powers, Rodrigo Duterte, tax reduction
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