Philippines' Flip-Flop of Rules Leaves Foreign Firms Wary

Article excerpt

THE disqualification of the bid by Consolidated Electric Power Asia Ltd. to build the Philippines' first natural-gas-driven power plant has generated concern among foreign investors as to the stability of the country's investment rules.

In May, CEPA, a subsidiary of Hopewell Holding Ltd. of Hong Kong, won the bid to build and operate the 1,200 megawatt plant. The $1.5 billion bid edged out nine other prequalifiers. CEPA's technical partner was Japan's Mitsubishi Heavy Industries Ltd. Mitsubishi's technology is based on a gas turbine developed by Westinghouse Electric Corp. of Pittsburgh.

The problem is that the state-owned National Power Corp. (NPC) has banned Westinghouse products in the Philippines since 1992, after the Philippine government lost a lawsuit in New Jersey over allegations that the company bribed the late President Ferdinand Marcos to build a nuclear plant in Bataan in the mid-1980s. The case is under appeal.

CEPA denied a Westinghouse link, but the government rejected the company's claim and has set a rebidding for Oct. 26 open to all 27 consortiums that originally participated. The winner will be announced in January.

Despite pressure from American and Japanese governments not to rebid, the NPC says it is firm in its decision not to use Westinghouse technology. The prequalified bidders are threatening to sue.

Analysts say they consider the negative effect of reopening the bidding short-term if the bidders don't carry out their threats to sue NPC.

"In the long run, the effect is minimum," says a power-industry executive. "There is too much business around. The bidders will charge it off to experience and get on with business, as long as the NPC is not seen to make a habit of reversing itself too often."

A corporate, political mess

Still, the rebidding has all the ingredients of a corporate and political mess. All parties are unhappy, as everyone seems to have lost out. NPC also disqualified the second-highest bidder, AES Transpower Pte Ltd./Nichimen, because it proposed using the Westinghouse 501F turbine. It bid at $2 billion.

The United States and Japan have threatened to make this a trade issue against the Philippines if a rebid occurs.

US Commerce Secretary Ron Brown, a group of six US senators, and a group of 11 House representatives wrote separate letters to President Fidel Ramos, Energy Secretary Francisco Viray, and NPC President Guido Delgado warning of consequences if rebidding proceeded. …