Stakeholders attempt to break Smokey Mountain deadlock
IT IS a dispute that was over two decades in the making.
In 1992, in the waning months of her administration, President Corazon Aquino ordered the National Housing Authority to implement an ambitious and innovative project that has since been called the Smokey Mountain Development and Reclamation Project (SMDRP).
This was meant to solve a problem that generated one of the most iconic images of the Philippines that was distributed globally in the wake of the Marcos years—a mountain of garbage near the Manila Bay shoreline in Tondo, several stories high with scavengers going through Metro Manila’s daily refuse, no thanks to their crushing poverty.
A few months later, R-II Builders Inc. won the bidding for the project, and the deal was given the green light by the administration of President Fidel Ramos in 1994.
Under the scheme—covered by a joint venture agreement between R-II and NHA—the former was to clear the sprawling dumpsite, and on the same land, build 2,992 temporary housing units and 3,520 medium-rise housing units.
In return for shelling out the money for this undertaking, R-II would be given the right to reclaim 79 hectares of land from the adjacent portion of Manila Bay. Proceeds from the sale of parcels of this reclaimed land would eventually cover R-II’s expenses for redeveloping Smokey Mountain.
But before R-II could reclaim land or even sell it, the company owned by businessman Reghis Romero II would first have to raise money to fund the redevelopment of the sprawling garbage slum. To do this, an asset pool (backed by the housing units in the project) was formed to sell to the public some P2.5 billion worth of bonds. The proceeds would then be used for the redevelopment scheme.
State-run Home Guaranty Corp.— in its role of credit guarantor for state-backed debts for housing programs—was paid a fee of P500 million (akin to an insurance premium) for providing creditors the comfort that the bonds would be repaid even if the borrowers defaulted.
“This was the original idea for asset-backed securities long before [the funding method] became popular,” Romero said, saying the scheme had since become standard practice under the country’s Securitization Law. “Few people could understand it then, but when we explained it to them, they realized it was novel.”
The first phase of the project was completed in May 2002, with no less than the NHA issuing a certification that R-II “accomplished works [in the project] amounting to P4.76 billion as per validation.”
Romero said NHA then defaulted on its obligations to bondholders prompting the asset pool to call on the guarantee provided by the guarantor, HGC.
The default prompted HGC to seize the assets held by the asset pool made up of the housing units (which explains why the residents of the development, to this day, hold no titles to their properties, according to Romero) as well as valuable portions of the adjacent reclaimed land which hosts several shipping and port operations.
The problem was that HGC was, for all intents and purposes, bankrupt, according to Romero who cited reports from the Commission on Audit, which had pointed to the agency’s net losses and deficits that had been running since the early 2000s.
A separate COA report noted that HGC had been operating on negative working capital since 2010, and its liabilities of P6.1 billion far exceeded the P4.3 billion in assets it held during the period.
“It’s like they sold you an insurance policy, but now they’re unwilling to honor the policy when it’s due,” Romero said.
To break the impasse, the businessman recently offered to pay HGC the P2.9 billion that NHA owes it, in an effort to reduce the number of parties involved in the dispute, and hasten its resolution.
“I will pay HGC what NHA owes it,” Romero said, explaining that paying HGC would result in the release of the remaining land in the asset pool held by the agency to R-II. “Then I will take care of collecting this amount from NHA later. It will be easier that way.”
But HGC has rejected Romero’s offer as being too low, saying that its exposure to the Smokey Mountain deal now stands at P5.2 billion.
Romero countered that his P2.9 billion offer was based on pronouncements made by HGC officials during recent Congressional hearings on the long-running dispute.
“First, they said the amount owed to them was P2.9 billion, so I said ‘ok’,” he said. “Now all of a sudden, it’s P5.2 billion.”
The businessman said, however, he was willing to negotiate with the state agency and would not mind adjusting his offer upward “as long as HGC can justify the amount it is demanding.”
“But P5 billion might be a bit difficult for them to justify,” he said.
So is this two decade-long dispute nearing its end? It seems the answer will ultimately depend on the price.
