This article from NYTimes.com has been sent to you by psa188@xxxxxxxxx /-------------------- advertisement -----------------------\ Explore more of Starbucks at Starbucks.com. http://www.starbucks.com/default.asp?ci=1015 \----------------------------------------------------------/ A Bitter Exit From a Philippines Airport April 30, 2003 By MARK LANDLER FRANKFURT, April 29 - When Wilhelm Bender flew out of Manila last month after a fruitless week of negotiations, he felt he had no other choice. A few days later, Mr. Bender's company, Fraport A.G., said it would write off its entire investment in the Philippines. Mr. Bender needed only to gaze across the tarmac at Manila's ramshackle airport to see the concrete evidence of his torment: a gleaming new passenger terminal, standing idle and unused in the tropical haze. Fraport, a German company that operates the Frankfurt airport, one of the world's busiest, built the new terminal in Manila along with a Philippine partner. Today, it closed the books on the venture, taking a $318 million charge that wiped out its profits and left it with a $132 million net loss for 2002. "It's a terrible personal experience to have to write down so much money," Mr. Bender said in an interview. "But we have learned our lesson. We are more cautious in looking at the political stability of a country." As cautionary tales go, Fraport's misadventure in Manila has all the elements: a confident, well-financed Western investor; a little-known local partner with political connections; and a revolving-door regime, with officials who thought little of meddling with, or even annulling, a contract. Fraport is still trying to recoup its investment. It has filed an arbitration claim against the Philippine government with the World Bank. The Supreme Court in Manila is reviewing the government's decision to cancel the 1999 contract with Fraport to build and operate the terminal. "We are fighting for every cent," said Mr. Bender, who is the chairman of the company's executive board. "We're not giving the government in Manila the terminal as a wonderful gift." But Fraport is already shifting its sights from ambitious forays overseas to more prudent investments at home. It is planning a major expansion of the Frankfurt airport, ranked second in Europe after Heathrow in London. And it is benefiting from a surge in traffic at Hahn, a converted military air base in southwestern Germany now served by the Irish discount airline Ryanair. Fraport, which went public in 2001, also operates airports in the German cities of Hannover and Saarbrücken, as well as Antalya, Turkey, and Lima, Peru. It had sales of nearly $2 billion last year. "There was a time a few years ago when they wanted to be the No. 1 hub operator around the world," said Andrew Light, an airline analyst at Salomon Smith Barney in London. "The problem with building airports is that you have to pay a premium. There are no economies of scale." Fraport learned this the hard way as it poured money - $384 million in equity and loans - into a sprawling edifice with a saw-toothed roof known as Terminal 3 at Ninoy Aquino International Airport. It was due to open by 2003, which the Philippines has declared as the year of tourism. Part of the problem, people involved in the deal said, is that the Philippines International Air Terminal Company, as the joint venture that built the terminal is known, is chronically short of capital. The Cheng family, with 60 percent of the venture, is one of the smaller and less prominent of the ethnic-Chinese trading families that play a central role in the Philippine economy. Moreover, the contract awarded to the venture by President Fidel Ramos had provisions that have been disputed by the current president, Gloria Macapagal Arroyo. The deal gave the partners exclusive rights to run duty-free shops in the new terminal, and mandated that all airlines serving the airport move to the new terminal even though its fees would be higher than the old ones. As power changed hands in the Philippines, the contract was amended, swelling its size and scope. But officials of the current government say that some of the money was siphoned off as bribes to officials in the administration of Joseph Estrada, who succeeded Mr. Ramos. Mr. Estrada was disgraced and driven from power in a popular uprising in 2001 and was succeeded by Mrs. Arroyo, who has made fighting corruption her hallmark. The airport contract came under immediate scrutiny, with the government demanding 28 changes. Then, last November, Fraport was told the agreement was null and void. "We think they knew full well that the contract they entered into was flawed," said Rigoberto D. Tiglao, the chief of staff to President Arroyo. "The contract was fraught with anomalies." Mr. Bender insisted that Fraport had negotiated in good faith, and that the disputed provisions, including the duty-free rights and the higher departure fees, were necessary to finance the project. "If you are investing in a foreign country, you need the comfort and safety that a contract signed by one government will be valid for other governments, too," he said. "That was really a surprise to us." Now, Mr. Bender is trying to extract reasonable compensation. He said an outside study found the terminal was worth at least $350 million, the bulk of it put up by Fraport. Mr. Tiglao said no settlement could be made before the Supreme Court rules, adding, "the valuation of everything that went into the airport is not clear." Until the court decides, the terminal cannot open. When Mr. Bender visited the Philippines recently to try to work out a settlement, he got no satisfaction. President Arroyo, who has pledged to compensate Fraport for its "legitimate investment," did not even meet with him, delegating the matter to her transportation minister. For Mr. Bender, the whole experience symbolizes why German and other foreign investors should steer clear of the Philippines. The dispute has even tinged diplomatic relations between the countries, after the German government lobbied unsuccessfully for Fraport. Philippine businesspeople concede that the dispute could give the country a black eye. "Any time you have a highly visible project, it's a problem," said Guillermo M. Luz, executive director of the Makati Business Club. Foreign direct investment in the Philippines sagged last year, not least because of concerns about corruption and cronyism. Still, some Filipinos argue this is not a black-and-white story of a Western investor being bilked in the murky East. "The Germans have a right to complain, but they went into this with their eyes open," said Sheila Coronel, executive director of the Philippine Center for Investigative Journalism. "They were playing the game." http://www.nytimes.com/2003/04/30/business/worldbusiness/30PHIL.html?ex=1052712331&ei=1&en=9158f71801f8fe60 HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@xxxxxxxxxxx or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@xxxxxxxxxxxx Copyright 2003 The New York Times Company