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John Hay developer demands BCDA comply with its obligation

By Benjamin B. Pulta
12/23/2011 [ ]

A formal demand has been sent by developers of the Camp John Hay Special Economic Zone in Baguio to the Bases Conversion and Development Authority (BCDA) for the latter to comply with its obligations under an agreement signed three years ago.

In its letter to BCDA president and chief executive officer Arnel Casanova, the CJH Development Corp. (CJHDevCo) through its president Ferdinand Santos said it will continue suspending payment of rental obligations to BCDA pending the latter’s compliance with its obligations under their Restructuring Memorandum of Agreement (“RMoA”).

In reply to an earlier demand by the developer, BCDA had sent a letter requesting CJHDevCo to “settle” “immediately” P 581,504,549 allegedly represent(ing) CJHDevCo’s arrears in current lease rentals, principal and interest on past due obligations and all applicable interest and surcharges.

CJHDevCo insisting that the BCDA should comply with its undertakings as clarified that in the meantime it (CJHDevCo) has deposited in escrow at the Philippine Veteran’s Bank the amount “representing the proportionate rentals.”We hereby formally demand that BCDA should fully comply in good faith with its obligations under Article V, Section 1 of the RMoA, “ Santos said.

The said provision refers to BCDA obligation to put up a one stop action center (OSAC) for the economic zone.

The OSAC was planned to have full authority to process and issue all business, building and other developmental permits, certificates and licenses, local and national, from all government agencies necessary to facilitate construction and commercial operation in Camp John Hay.

“We further demand that, within five days from date hereof, BCDA causes the approval of all the applications currently pending and overdue and deliver to CJHDevCo within the same period, all the corresponding permits, licenses and certificates covered thereby, “ CJHDevCo said. “Failure to comply with the foregoing demands will be considered by us as a confirmation of BCDA’s fundamental breach of the RMoA, which will entitle CJHDevCo to avail itself of the rights and remedies under contract and under the law, without further notice or demand.”

In 2005, a dispute arose between BCDA and CJHDevCo primarily as a result of the Supreme Court’s nullification of the tax and financial incentives in the John Hay Special Economic Zone.

The nullification was a breach of a fundamental warranty given by BCDA in its 1996 Lease Agreement with CJHDevCo, and caused tremendous losses and adverse impact on CJHDevCo.

On July 1, 2008, BCDA and CJHDevCo entered into a compromise which was called a “RMoA.”

In the RMoA, CJHDevCo agreed to several substantial concessions, including the assumption of Prior Rental Obligations amounting to more than P2.69 billion and current Annual Rental of P150 million.

In consideration thereof, the BCDA undertook to establish an effective mechanism that would facilitate CJHDevCo’s development of the JHSEZ, and enable it to meet these massive financial obligations.

Under the RMoA, CJHDevCo and its locators through the the OSAC could supposedly rely on a single office to process and issue all national and local governmental requirements for developmental work and the conduct of business within JHSEZ.

The BCDA undertook to ensure that the OSAC would have representatives from “the appropriate government agencies, i.e., DTI, LGU, BIR , and BOC” to carry out its functions. Needless to say, the very nature of the Project area also requires the presence of representatives from the DENR.

At the start of the implementation of the RMoA, BCDA fell short of its obligation to establish the OSAC envisioned in the RMoA.

BCDA was unable to directly issue the relevant certificates, permits and licenses, including business permits, building permits, tree-cutting permits and earth-balling permits. BCDA repeatedly failed to ensure the issuance of these certificates, permits and licenses within the 30-day period mandated in the RMoA.

Despite BCDA’s failure to comply with its OSAC-related obligations, CJHDevCo dutifully complied with its own obligations under the RMOA, including payment of its financial obligations. However, CJHDevCo could not indefinitely continue since its ability to generate revenues and attract investments is being hampered by BCDA’s continuing failure to set up a fully functional OSAC and to issue the necessary permits and licenses within 30 days.

In October 2009 and until the present, CJHDevCo decided to suspend the payment of its rental obligations, pursuant to the RMO.

CJHDevCo’s Santos said it has repeatedly exerted efforts to reach out to BCDA and find an amicable solution to the dispute between them.

“It has repeatedly requested BCDA to perform its OSAC-related obligations under the RMoA, but to no avail. Up to the present day, there is still no fully functional OSAC and the much-needed permits and licenses still cannot be issued within 30 days as promised. In its 29 December 2009 letter and 28 May 2010 letters, CJHDevCo called for the formation of the Joint Committee to resolve the dispute, but BCDA ignored such call and has adamantly rejected such call. “Santos reminded the BCDA in his letter.

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