Settlement of arbitration cases

The prospects for the amicable settlement of the arbitration cases filed by Metro Pacific Tollways Corp. (MPTC), the operator of North Luzon (NLEx), Clark-Subic-Tarlac (SCTEx) and Cavite (Cavitex) expressways, against the Department of Transportation (DOTr) for compensation for uncollected toll increases appear to be good.

According to reports, the DOTr is in talks with MPTC for the staggered implementation of the toll increases earlier disapproved by the Toll Regulatory Board, an agency under DOTr’s administrative supervision.

With the initial arbitration case dating back to 2011, the underpayment claims, as of June 30, 2018, stand at P7 billion for NLEx, P1.2 billion for SCTEx and P1.6 billion for Cavitex.

The gradual collection of the toll hikes will put an end to the arbitration cases that, according to Transportation Secretary Arturo Tugade, is costly to the government.

Although late in coming, the negotiation for the amicable settlement of those cases is a step in the right direction. They could have been avoided had the concerned government officials then adopted a common sense, rather than a populist, approach in the resolution of the issue.

Under the agreements entered into by the government for the construction and operation of the expressways, their operator has the right to make an upward adjustment of the toll rates every two years based on an agreed formula that takes into consideration the peso-dollar exchange rate and inflation rate.

The increase is aimed at providing the operator with the funds needed to efficiently operate and maintain the expressways and, at the same time, give its investors a fair return on their investments.

A successful businessman-lawyer before he entered the government service, Tugade must have realized that, for legal and business reasons, the odds are stacked against DOTr in the arbitration cases.

Aside from the fact the government agreed to the provision, rate adjustment is standard in infrastructure projects funded or operated and maintained by private capital. No business person worth his salt would agree to a different arrangement.

Arbitration cases of commercial transactions are not cheap. To minimize the intrusion of domestic or political influence, they are often heard outside the countries of the contending parties and chaired by a person who is not related by nationality or business interests to any of them.

The travel, lodging and other related expenses of the people tasked to defend the government’s side can run to seven figures every time the case is heard. This is on top of the honorarium and expenses of the arbitrator it nominates to the arbitration panel and the professional fees of the private lawyers or resource persons who may be asked to assist the government.

And if the government loses, it has to reimburse the arbitration expenses incurred by MPTC in filing the case, including the honorarium of the chair of the arbitration panel. Worse, it has to pay the millions (or billions) of pesos in compensation claims.

Commercial transactions that end up in arbitration are frowned upon in the business community. It means only two things: The terms and conditions of the agreement were not clearly spelled out to avoid ambiguities or loopholes, or one of the parties is dealing in bad faith with the other.

It is unfortunate that aside from the arbitration cases with MPTC, the government is also bogged down in similar cases with other Philippine companies that have foreign investors or partners.

Rightly or wrongly, this circumstance puts the Philippines in a bad light in the international financing community that puts a premium on word of honor and good faith in the performance of contracts. The perception that agreements entered into with the Philippine government are prone to winding up to arbitration could have adverse effects on its credit image or standing.

If only to stop throwing good money after bad or cutting losses, the DOTr should seriously pursue the amicable settlement of its pending arbitration cases.