DOF bares 44-yr deal with Chevron in Batangas that pays 74 centavos per sqm for land worth P5.3B now

All deals with the private sector to lease public lands would now be under closer scrutiny following the discovery by the Department of Finance (DOF) of what it said was another onerous lease contract, one with the oil giant Chevron which pays only less than P1 per square meter for a parcel of government land in Batangas province.

Finance Secretary Carlos G. Dominguez III said the contract found disadvantageous to the government was between Chevron and the state-run National Development Co. (NDC).

In a statement on Tuesday (Jan. 21), Dominguez said under the 1975 deal that allowed Chevron (formerly Caltex) Phils to lease a 1.2 million square meter industrial park in San Pascual, Batangas from an NDC subsidiary, Batangas Land Co. Inc. (BLCI), the oil firm paid only 74 centavos per sqm per month in the last 44 years, a far cry from the current fair market rental rates of P17.90 per sqm per month.

Asked if the government would forgo a review and renegotiate a new deal with Chevron to reflect current market rates, Dominguez said: “Definitely we have to implement a transparent method of getting the best deal for the rental of all government property.”

Chevron is currently using the Batangas property as an oil depot and for “some offices” and had recommended to and requested the
interagency Privatization Council to renew the deal, the DOF said.

However, the council later on “found the contract grossly disadvantageous based on current fair values,” according to the DOF.

“At P10.66 million per year since 2010, the rent Chevron has been shelling out is only around 4 percent of the P257.76 million per year that current fair market rental rates in the area would suggest,” the DOF said.

Himself a member of the NDC board, Dominguez said the property rental deal with Chevon was “another government contract with onerous provisions.”

Last Monday (Jan. 20), Dominguez said he had “endorsed to review all contracts that may have onerous provisions.”

In view of this, the DOF said the Privatization and Management Office (PMO), a DOF-attached agency and a member of the Privatization Council, had “compared lease terms of the BLCI-Chevron deal with fair market value of the land in the Batangas areas using data from appraisal reports of NDC and asset pool of PMO.”

“It was during this assessment that the PMO discovered the onerous provisions of the deal favoring Chevron,” the DOF said.

According to the DOF, “based on documents submitted to the NDC board, the rentals paid by Chevron over the 44-year period covering 1975 to
2019 totalled to only P146.51 million or about P3 million per year, in addition to real property taxes paid by Chevron under the lease agreement.”

“This property’s current market value is estimated at about P4.9 billion to P5.3 billion—translating into a rental yield of only about 0.2 percent of the property’s value,” it added.

For Dominguez, “based on current standards that the State imposes on similar contracts, to have a rental yield of less than 1 percent is surely grossly disadvantageous to the government and the Filipino
people.”

“Despite the rental terms being subject to negotiation as early as 2000, it was not until 2010 that the lease rate was increased to the current rental amount of P10.66 million per year, which is still way below fair market rental rates in the province,” the DOF said.

“If the amount is adjusted to current fair market rates, the rental rate by now should be above P20 million a month or P257.76 million annually,” the DOF added.

Under the Bell Trade Act passed by the US Congress in 1946, then American company Caltex had acquired the Batangas property as American
firms had been granted “parity rights” allowing ownership of land in the Philippines—a condition for the US government to pay war damage claims to its former colony.

When parity rights ended in 1974, “Caltex, and now its subsidiary Chevron Philippines, was granted preferential treatment in continuing to occupy and use various real properties, including the Batangas industrial park,” the DOF said.

But the late dictator Ferdinand Marcos issued Letter of Instruction No. 276 which required the leaseback of the property occupied by Caltex for a maximum 50 years starting in 1975 at “minimum rates of 1.5 to 2.5 percent of the property’s valuation in 1974,” said the DOF.

In 2019, President Rodrigo Duterte ordered a review of all contracts with Manila Water and Maynilad, the two water concessionaires in Metro Manila, as concession agreements by the government with the two companies were allegedly reeking with “onerous provisions” disadvantageous to taxpayers.

Dominguez had defended the administration’s move to review contracts with private corporations, saying that “it should be a signal to everybody that the private sector and the government are working together for the benefit of the nation, of all the taxpayers.”

Edited by TSB