MOTORISTS TO SUE PNCC (Bernardo V. Lopez, Business World, Feb.

21,2007)

The Road Users Protection Advocate (RUPA) is set to sue the Transportation Regulatory
Board (TRB) and Philippine National Construction Corp. (PNCC), the franchise holder for the
South Luzon Expressway (Slex), over a tollway contract which is predicted to result in toll
rates increasing tenfold in the next five years.

This is beginning to smell like the NAIA-3 contract which the Supreme Court declared null
and void for being disadvantageous to the government. Whether PNCC’s joint venture
partner for the SLEX expansion, Malaysia Thai Development Corp. (MTDC), will be included
in the Court case is not known. The issue revolves around a provision in the Slex expansion
contract under Section 2.03 of the Supplemental Tollway Operation Agreement
(STOA),which states, “Moreover, regardless of whether or not the PNCC Franchise is
renewed, the Concession granted to the investor and the Operator hereunder and this
Agreement shall remain valid and subsisting in the event of a change in ownership of
PNCC”.

In other word, the franchise holder can still operate the franchise even if it loses its
franchise, which is ridiculous. All it has to do is effect a change in ownership, whatever that
means.

RUPA claims the STOA is null and void because it was not signed by the President as
provided by the STOA itself under Section 2.04, which states, “This Agreement shall come
into effect upon the approval of this Agreement by the President of the Republic of the
Philippines….”. RUPA says it was only signed by the TRB executive director Manny Imperial
and PNCC chairman Art Aguilar.

The PNCC franchise expires on April 30 and there is no way for Congress to renew it with
the special session having concluded February 20. However, it does not operate the tollway
as explained above. The franchise will lapse, but franchise or no franchise, PNCC and its
partner MTDC still operate the tollway.

RUPA, together with an array of motorist organizations and federations – bus, jeepney,
truck, shuttle operators, homeowners’ association and Calabarzon chambers of commerce –
is a force to reckon with. This force was able to pressure the TRB to suspend an increase in
toll rates in the Alabang to Fort Bonifacio portion of the SLEX under the Citra franchise a few
years ago. When people started stoning toll booths, the TRB backed down. We hope this
does not happen in the protest against PNCC.

This huge motorist force wants the “STAR model” adopted in the Slex. The STAR
expressway in Batangas offers cheap toll rates for the riding public because the construction
of the expressway by the DPWH loan from Japan. Infrastructure construction, normally
corruption-prone worldwide, should never be the onus of the riding public.

The PNCC franchise is corruption-prone because a franchise does not require a public
bidding, which is a requirement for the DPWH. PNCC can unilaterally choose its contactor
without oversight. In the STAR model, not only was there a bidding by the DPWH but
construction was also not charged to motorists, only operations and maintenance.

The SLEX expansion comes from a World Bank IFC loan. The World Bank will have a bigger
loan and bigger profits if it supports PNCC, which is doing. The World Bank says it will now
give loan if PNCC does not get the franchise, say the motorists. It is therefore virtually
supporting an entity being investigated by the Senate for corruption. Perhaps we should
turn to the Japanese for the loan.

Meanwhile, the Senate has adopted Senator Franklin Drilon’s Resolution 618, directing the
Committee on Finance to investigate the so-called “Radstock deal”. Virgin Islands-based
Radstock Securities Limited, represented by Sonny Dominguez in the Philippines, is “an
unknown business entity with a capitalization of only $50,000,” according to Senate
documents. Radstock bought PNCC’s 50-million debt to Marubeni for $2 million.

The Senate hearings focused on a corruption issue involving PNCC and Radstock. Senators
Drilon and Serging Osmeña questioned PNCC for suspiciously resurrecting an expired bad
debt so that it could pay a stagerring P13 billion to Radstock with P10 million as attorney’s
fees. According to Senate documents, Radstock and PNCC then entered into a compromise
agreement for the latter to turn over assets worth of P6 million.

The assets were composed of “19 pieces of real estate properties, the bulk of which is 12.9
hectares in the Pasay City Financial Center…. 20% of the outstanding capital stock of
PNCC… and 50% of the PNCC’s share in the gross toll revenue of the Manila North Tollways
Corporation for 27 years.” MNTC grosses about P17 million a day, and Radstock’s share is a
windfall that can easily dwarf real estate and equity acquisitions. If the Radstock deal is
ruled illegal and null and void, all these billions may have to go into escrow and returned to
PNCC, including MNTC toll income shares. That is, if they have not been somehow
laundered. The Senate documents says the country stands to lose P36 billion owned by
PNCC and P3 billion in taxes.

It is unfortunate that the “sins” of a handful can bring down the entire institution itself to
the detriment of its many rank-and-file workers.

Let me quote a letter from motorists headed by RUPA, “Salamat po senators. Mabuti na lang
po may Senado (Thank you senators. It is fortunate we have a Senate).” Otherwise, House
Bill 5749 would have succeeded in making life difficult for the local economies of South and
North Luzon.

*lifted from tsikot.com

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The Case of the Construction and Development Corporation of the Philippines (CDCP)

GOVERNMENT EXPOSURE:

Records show that the total exposure of government banks in the CDCP and its subsidiaries
was a staggering PhP12.3 billion by 1989. These have been in various forms: from peso
credits and foreign loans relent to the group by government financial institutions, to unpaid
letters of credit, to performance bonds, to guarantees on debts incurred by CDCP.

OWNERS:

Then President Ferdinand Marcos and Rodolfo Cuenca

CASE SUMMARY:

Businessman Rodolfo Cuenca founded the Construction and Development Corporation of the
Philippines (CDCP) on November 22, 1966 primarily to engage in the construction of roads,
buildings and other infrastructure projects.

Then President Ferdinand Marcos swept CDCP to prominence through the grant of the
biggest construction projects of government. These included the North Expressway and
South Luzon Expressway.

With a handful of contractors, CDCP plunged into a frenzied round of construction work,
mostly for the government, outpacing all its competitors by leaps and bounds. It drew funds
from construction project revenues, toll fee collections, asset disposal, advances from
contract owners and interest on money-market placements. By 1974, it had evolved into
the biggest civil engineering contractor in the country. Its assets recorded at over PhP400
million.

The company soon launched an ambitious diversification program to grow even bigger.
Through a horizontal and vertical integration scheme, CDCP linked allied activities with
traditional construction lines. The result was a conglomerate of 34 companies with
subsidiaries and affiliates at home and overseas.

Private analysts estimate that by 1986 the Construction and Development Corporation of
the Philippines had incurred debts from foreign creditors at anywhere from a low $197.9M
(about PhP5.5B) to a high $650M (about PhP17B).

The Commission on Audit and the Central Bank, for their part, estimate CDCP’s total
outstanding foreign debt at $300M (about PhP7.1B). From both foreign and domestic
creditors, a COA report dated August 22, 1988 said CDCP’s indebtedness totaled in the
billions: PhP7.67B to be exact.

CDCP was able to secure the loans through government backing. It began with the
Philippine National Bank, the National Development Company, the Development Bank of the
Philippines, and the Philippine Export and Foreign Loan Guarantee Corporation providing
guarantees on all these loans. It ended with the national government itself providing
irrevocable guarantees.

Records show that the total exposure of government banks in the CDCP and its subsidiaries
was a staggering PhP12.3B by 1989. These have been in various forms: from peso credits
and foreign loans relent to the group by government financial institutions, to unpaid letters
of credit, to performance bonds, to guarantees on debts incurred by CDCP.

In the end, the Filipino people paid for the bulk of the debts. All this because in 1983 Marcos
transformed all CDCP debts into public sector debts with a $400M bail-out program. Marcos
– who, unknown to the public, co-owned CDCP – converted all exposures of government in
CDCP to equity. With this, the CDCP was renamed the Philippine National Construction
Company.

Effectively, this meant government – or the Filipino taxpayer – was now owner of the CDCP,
or owner, therefore, of all its staggering debts.

The CDCP was sequestered by the government after the EDSA uprising in 1986. Today, the
successor Philippine National Construction Corp. (PNCC) is 90 percent publicly-owned by
these agencies.

DISCUSSION OF ISSUES:

Businessman Rodolfo Cuenca founded the Construction and Development Corporation of the
Philippines (CDCP) on November 22, 1966 primarily to engage in the construction of roads,
buildings and other infrastructure projects.

With Cuenca, Onofre Banson, Quintin Calderon, Juan Carlos, Antonio Chaves, David
Consunji, Felipe Cruz, Eduardo Escobar, Ricardo de Leon, Honrado Lopez, Perfecto Mañalac,
Sixto Orosa Jr., Domindo Poblete, Feliciano Sarmento, Louis Sheff and Pedro Valdez
incorporated CDCP with a capital of PhP4 million.
With just this handful of contractors, CDCP plunged into a frenzied round of construction
work, mostly for the government, outpacing all its competitors by leaps and bounds. It drew
funds from construction project revenues, toll fee collections, asset disposal, advances from
contract owners and interest on money-market placements. By 1974, it had evolved into
the biggest civil engineering contractor in the country. By then, CDCP had completed
PhP190 million worth of projects, its assets recorded at over PhP400 million.

The company soon launched an ambitious diversification program to grow even bigger.
Through a horizontal and vertical integration scheme, CDCP linked allied activities with
traditional construction lines.

Instead of depending on outside supplies for its equipment and servicing needs, for
instance, the company formed a heavy equipment marketing subsidiary, Tierra Factors
Corporation. Rather then purchase its cement requirements from other firms, CDCP on a
lease basis acquired Midland Cement Corporation. And to service its insular and overseas
movement, CDCP bought Luzon Stevedoring Corporation and Galleon Shipping Corporation.

This was followed by diversification to fields outside its area of competence, and gave birth
to more allied firms engaged in agribusiness, mining, industrial refrigeration, hostelry.

The result was a powerful and all-pervasive conglomerate of 34 companies with subsidiaries
and affiliates at home and overseas. By the ‘70s, it had come to be known as Southeast
Asia’s biggest construction firm.

CRONY CAPITALISM

At the forefront of this meteoric rise was Rodolfo Cuenca. The CDCP president began his
business career in 1960. His company, Cuenca Construction, started as subcontractor to
developers doing business with the former Bureau of Public Works. At the time, Cuenca’s
father, Nicolas Cuenca Sr., had just retired as a district engineer of the bureau.
Cuenca and Ferdinand Marcos go back a long way, Marcos being the lawyer of Cuenca’s
mother right after the war. Their friendship, though, would evolve much later. Cuenca was
first a fund-raiser to Marcos in the 1965 presidential election, then a personal friend, and
later, an avid golf partner.
Ferdinand Marcos, as President of the Philippines for 20 years, would be responsible for
sweeping CDCP to prominence through the grant of the biggest construction projects of
government. These included the North Expressway and South Luzon Expressway, with
contract values of US$8.19 million and $10.68M (at the prevailing dollar rate then),
respectively.

The North and South Luzon expressways (linking Manila with the north and south of Luzon
Island) were constructed by government with a World Bank loan assistance. Project
mobilization started in early 1967. Both expressways opened in 1968.

Subsequently, on March 31, 1977, Presidential Decree 1112, otherwise known as the "Toll
Operations Decree", established the Toll Regulatory Board (TRB) and authorized “the
establishment of toll facilities on public improvements.” TRB was required to approve all toll
rates, following public hearings.

On the same day, Marcos promulgated Presidential Directive 1113, awarding CDCP a
franchise to operate, construct and maintain toll facilities in the North and South Luzon Toll
Expressways for a period of 30 years. CDCP was required to levy tolls, and maintain the
roads until the capital cost was amortized. The franchise also gave it the “authority to
construct, maintain and operate any and all such extensions, linkages or stretches from any
of these expressways.”

The tollways facilitated the transfer of rice and goods from central Luzon to the city and the
toll allowed CDCP to continue building and maintaining the road extensions.

CDCP won project upon project, and by 1979, it had assets of Php3.69 billion. The country’s
best engineers were in its employ, and it was able to forge arrangements with global
banking institutions. Not only was it into industrial and heavy construction, but it also made
forays into mining, trading, manufacturing, real estate, transportation, shipping,
agribusiness, resort hotels, insurance brokerage,
There followed other big contracts awarded to the CDCP, notably the Philippine Phosphate
Fertilizer Corp. (Philphos) project, the Philippine Associated Smelting and Refining (Pasar)
job, the Hydro-Magat ang Agus VII Hydroelectric power contracts, the Manila International
Airport Terminal project, and the crown jewel, the construction of the Light Railway Transit.

In its last 17 years until the 1986 snap elections, CDCP survived very largely on government
projects, which accounted for 60 per cent of the company’s total local contracts.

THE DICTATOR’S TAKE & CUENCA’S SHARE

After the ouster of Marcos in 1986, various documents fell into the hands of the Presidential
Commission for Good Government (PCGG), all of which showed that the CDCP grants were
veritable government concessions. Moreover, the documents revealed that holding
substantial personal stakes in CDCP was no less than Ferdinand E. Marcos.

In 1976, records of the Securities and Exchange Commission (SEC) listed the following
owners of the CDCP: R.M. Cuenca and Cuenca Investment, 31.2 percent; Pedro Valdez,
5.9%; Louis Sheff, 4.4%; Aurelio Bautista, 2.2%; Alfredo Asuncion, 1.5%; Ricardo de Leon,
0.8%; Quintin Calderon, 0.1%; and other stockholders, 4.8%.

Six years after, a major change in ownership of the company unfolded. Voting common
shares as of December 31, 1982 were Universal Holdings Corp., 40 percent; National
Development Co., 30%; Cuenca Investment, 4%; R.M. Cuenca, 1.2%; FEBTC Trust, 1.4%;
Hong Kong and Shanghai Bank Trust, 4%; and others, 19.3%.

The SEC records indicate that Universal Holdings was controlled by a known Marcos crony,
Jose Yao Campos. In turn, Marcos owned 60% of Universal Holdings, CDCP’s single biggest
stockholder. Cuenca owned the other 36%.

Between them, Marcos and Cuenca shared more than half the stocks of CDCP. Effectively,
Marcos had a 30% stake, and Cuenca, 22%.

That Jose Yao Campos was a front for Marcos in Universal Holdings was revealed in a “blind
report” on this firm dated September 28, 1978. The document was found in Marcos’s
possession when he arrived in Honolulu in February 1986, after he was banished out of
Manila.

Campos, in a testimony, further alleged that Universal Holdings was organized by Rolando
Gapud, Marcos’s financial adviser, to benefit Marcos and Cuenca on a 60-40 basis. The
original formula agreed upon by Cuenca and Gapud and/or Marcos was a 26-74 sharing
scheme, with an option for Cuenca to increase his share to 40 per cent.
Today the Marcos billions is still the object of an international inquiry being waged on home
ground and on Swiss turf. So precious is the amount stashed that despite the Marcos
family’s avowals of innocence, it has hired more than two dozens lawyers on Swiss turf
alone to defend its accounts.

In the meantime, the Cuenca take began to leak in the United States by March 1986 when
the San Jose Mercury News reported his real estate acquisitions there. The report said that
Cuenca owned several pieces of Bay Area real estate, including a condominium at 1177
California St., San Francisco, and half-interest in a home at 2741 Berkshire Drive, San
Bruno.

Cuenca also owned, the report said, a cooperative apartment at 700 Park Avenue, New York
and an office building at No. 625 Market St., San Francisco; including its $10.3M annex
property at 25 New Montgomery St., New York.

Another property located at No. 131 Devenshire Way, San Francisco, was purchased under
the name of his daughter, Mary Ann, on November 5, 1974.

Other companies suspect as Cuenca properties include: Sta. Ines-Sabah Melale in Malaysia;
a trading company in New York managed by his eldest son, Manuel; another trading firm in
San Francisco managed by Armando Bautista, eldest son of Aurelio Bautista, a Cuenca
associate; Constech, International, a Geneva-based company managed by Stephen Cattaui;
Dans Corporation based in Tokyo; Toros International, Ltd. With headquarters in Hong
Kong; and Asian international Hardware, Ltd. Also based in Hong Kong.

These items appear in a study on behest loans made by the PCGG dated July 20, 1989.

THE FINANCIAL SPIN: MAKING PRIVATE DEBT PUBLIC

The CDCP case reflects the complexity of the country’s foreign-debt situation, and indicates
how financial arrangements during Marcos’s reign served to conceal, or underreport,
obligations incurred by Marcos firms.

Private analysts estimate that by 1986 the Construction and Development Corporation of
the Philippines had incurred debts from foreign creditors at anywhere from a low $197.9M
(about PhP5.5B) to a high $650M (about PhP17B).

The Commission on Audit and the Central Bank, for their part, estimate CDCP’s total
outstanding foreign debt at $300M (about PhP7.1B).

From both foreign and domestic creditors, a COA report dated August 22, 1988 said CDCP’s
indebtedness totaled in the billions: PhP7.67B to be exact.

Certainly, the international – and local – lending systems would automatically have resisted
such outstanding amounts of loans being borrowed by only one parent company. But the
CDCP was able to secure them anyway because it boasted of a solid benefactor: the
Philippine government.

It began with the Philippine National Bank, the National Development Company, the
Development Bank of the Philippines, and the Philippine Export and Foreign Loan Guarantee
Corporation providing guarantees on all these loans. It ended with the national government
itself providing irrevocable guarantees. With that, the international lending system felt safe.
Indeed, records show that the total exposure of government banks in the CDCP and its
subsidiaries was a staggering PhP12.3B by 1989.

These have been in various forms: from peso credits and foreign loans relent to the group
by government financial institutions, to unpaid letters of credit, to performance bonds, to
guarantees on debts incurred by CDCP.

Of the PhP12.3B exposure, only PhP4B can be recovered by 1992. The remaining PhP8.3B
had to be shouldered by the Filipino taxpayer.
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All this because in 1983 Marcos transformed all CDCP debts into public sector debts with his
$400M bail-out program. Marcos – who, unknown to the public, co-owned CDCP – had
bailed out his own company by converting all exposures of government in CDCP to equity.
With this, the CDCP was renamed the Philippine National Construction Company.

Effectively, this meant government – or the Filipino taxpayer – was now owner of the CDCP,
or owner, therefore, of all its staggering debts.

THE ROLE OF FOREIGN BANKS

On the international banking front, there is basis to cast blame on the foreign creditors who
sustained by an infusion of loans what was by then an obviously mismanaged and
floundering company.

That these creditors were guilty of imprudence and culpability, at the very least, is evident
in the case of the $29M syndicated loan to CDCP organized by the Republic National Bank of
Dallas (RNBD).
On January 8, 1981, a $40M loan syndication for the CDCP was signed by seven banks led
by the Republic National Bank of Dallas. The amount was later scaled down to $29M.

The loan had an eight-year maturity, with an interest rate of 1-1/8 per cent over the London
Interbank Offered Rate (Libor) for the first three years, and 1-3/4 per cent over Libor, for
the following five years.

Apart from RNBD which extended $5M of the total, the syndication was put up by the
International Commercial Bank, $4M; Dai-Ichi Kangyo Bank, Ltd., $4M; First National Bank
in St. Louis, $3M; Girard Bank, $2M; Industrial National Bank of Rhode Island, $5M; and
National Bank of Canada, $5M.

Three months before the syndication was finalized, or October 1980, CDCP had already
drawn the $5M from RNBD on a clean-loan basis.

The balance of $24M was drawn on January 28, 1981. This was the same day when the
Philippine National Bank issued an irrevocable standby Letter of Credit, in behalf of CDCP, to
secure the loan.

Three years later, in 1984, the seven banks in the syndicate invoked this default provision
to force the PNB to assume payment of the entire loan.

The CDCP had negotiated the loan in late 1979 with a view to augmenting its working
capital for its Iraqi Expressway Project. The government of Iraq awarded the project to
CDCP for $286.3M.

Half a year passed before the CDCP actively pursued the loan.

In July of 1980, CDCP Senior Vice-President Salvador Hizon asked PNB Vice-President
Rosalinda Cajucom for a standby Letter of Credit to secure the loan.

Cajucom, in a letter to the CDCP dated August 4, 1980, noted that the loan value of CDCP’s
collateral was insufficient to cover its outstanding obligations if the Letter of Credit were
extended.

CDCP’s collateral was valued at P3.348B, or smaller than its obligations to RNBD alone that
then stood at P3.353B, Cajucom noted.

On this basis, she said the CDCP’s Letter of Credit application could not be approved.

But despite bad signals from PNB, CDCP accelerated its effort to secure the RNBD loan.

Two months later that September, the PNB board of directors approved CDCP’s application,
subject to certain restrictions. In particular, the PNB board required the CDCP to raise
additional collateral to “correct any collateral deficiency.”

This was to be a sham approval, however, since the CDCP never complied with the PNB’s
proviso.

On October 2, 1980, RNBD extended a $5M advance to CDCP. The loan agreement had
unique characteristics: it stipulated that the loan proceeds can finance CDCP projects
overseas other than that in Iraq; and that the amount be counted as part of the $40M RNBD
had planned to syndicate, pending issuance of the PNB letter of Credit.
By this time, CDCP’s credit standing had plunged. On September 22, 1980, or two days
after it deployed its work force for the Iraqi Expressway Project, war broke between Iran
and Iraq.

Not completely oblivious to this, RNBD issued the $5M advance but noted in its letter to
CDCP that the loan must be scaled down to $29M, from the original $40M, because of the
war’s impact.

RNBD and the other banks in the syndicate had specified a single condition to the loan
grant: The deal must be secured by a PNB standby Letter of Credit.

A series of letters from Cuenca and other CDCP officials, and finally from Deputy Presidential
Executive Assistant Joaquin T. Venus, forced the PNB to immediately issue the Letter of
Credit.

The PNB accepted CDCP’s application for a standby Letter of Credit on January 12, 1981,
four days after the loan agreement was signed.

The Letter of Credit was actually issued on January 24, 1981, still within the 90-day period
from the release of the RNBD loan advance. Had the PNB failed this deadline, the loan
syndication would have been scuttled.

How and why the PNB issued the Letter of Credit says much about just how fraudulent this
loan transaction was.

At the helm of the PNB then was President Panfilo Domingo, who also presided over the
PNB’s grant of billions of pesos in “behest loans” to many other Marcos crony firms.

In this instance though, Domingo initially, surprisingly, tried to block issuance of the PNB
Letter of Credit, or any guarantee, to the CDCP.

He recommended to the PNB board approval of the CDCP Letter of Credit application on
condition that the firm provides additional collateral to secure its loan. Also, Domingo
required the CDCP to comply with: applicable PNB standard loan conditions.”

On both counts, Domingo obviously knew that CDCP could not, or would not be able to,
comply. But on September 1, 1980, when the PNB board resolution on the CDCP application
was issued listing every condition Domingo had spelled out, the PNB chief moved to save his
skin.

On the same day, he reported to Marcos himself that the PNB had approved CDCP’s
application. Domingo qualified, however, that its implementation must obtain “parallel
approval by the Central Bank.”

Available documents indicate that the issuance of the Letter of Credit was rushed to meet
the de facto 90-day deadline for the loan syndication to push through. Given the
circumstances of the Christmas holiday, as well as the closeness of the dates of the events
cited, questions are now justifiably raised about the authenticity of the dates typed on the
documents.

It is possible that the documents had been antedated.

As late as Christmas Eve of 1980, PNB was not willing to issue the Letter of Credit,
prompting Cuenca to write Domingo that the PNB’s credit standing was being threatened.
“Some of our foreign loan maturities covered by PNB standby Letter of Credits will fall due
early January of 1981. We hope to satisfy these obligations from proceeds of the RNBD
loan,” Cuenca told Domingo.

Cuanca’s letter was transmitted to PNB VP Cajucom with the marginal note: “What is
holding up this Letter of Credit? For reply by (unintelligible).”

Another document showed that as late as January 7, 1981, or on the eve of the signing of
the syndicated loan, the PNB board had not acted on CDCP’s Letter of Credit application.
CDCP Treasurer Nora Vinluan, in a letter to PNB’s Cajucom on this date, again requested the
PNB to issue the Letter of Credit.

Whether or not the CDCP complied with the “conditions” contained in the PNB board
resolution of September 1, 1980 is debatable, too.

No documents exist establishing CDCP’s compliance.

An annex to the PNB report of 1987 showed that the value of existing collateral held by the
PNB as of June 1986 was P2.6B. On the other hand, PNB’s total accommodations by June
1986, including the Letter of Credit to cover the RNBD loan, amounted to P9.994B.

This redounds to a collateral deficiency of P7.37B.

It seemed like RNBD itself doubted the sufficiency, legality or authenticity of the PNB
guarantee for its loan. Thus, on January 27, 1981, RNBD required a CDCP subsidiary, CDCP
International Ltd., to execute a “Limited Guarantee and Pledge Agreement” in favor of
RNBD.

In this document, RNBD directed CDCP International to guarantee the principal payment in
full of CDCP’s loans to the syndicated banks.

Further, the pledge required the deposit into an escrow account of $385,000 which the
lenders would withdraw for amounts representing interest charges and penalties not
covered by the PNB letter of Credit.

Much later, RNBD became dissatisfied with CDCP International’s guarantee. The bank
pursued the extension of the PNB Letter of Credit – effectively making the PNB the creditor,
instead of CDCP.

PRESSURES FROM THE PALACE

PNB officials – who have requested anonymity – said that after RNBD required CDCP
International to guarantee the loan, the PNB board came under pressure to issue a revised
Letter of Credit according to RNBD’s preferences. The aim was to allow CDCP International
to end its guarantee and to withdraw the $385,000 in the escrow account.

The pressure came from Malacañang itself. Marcos’s deputy executive assistant, Venus,
wrote to PNB boss Domingo on May 4, 1981: “The President directs that you immediately
take action, as you have promised, on the problems of the CDCP to avoid delay which is
financially prejudicial to both CDCP and PNB as well as the government.”
Venus’s letter raised a threat that no one working in government could have missed. “This
behavior of the PNB,” he stated, “has compelled the President to inquire whether you are
aware of the inefficiency of the bank and its personnel.”

“As the President repeatedly told you,” the Venus letter continued, “the PNB should not go
out of its way to prejudice government projects and cause undue delay in the release of
funds already transferred to its for specific projects.”

Finally, the letter fired a directive: “Please submit immediately (sic) on the non-
implementation of this agreement.”

While the Venus letter made no mention of the PNB Letter of Credit, it nevertheless noted:
“The President understands that instead of Mr. Maramag handling the case as you informed
him by telephone, a certain Miss Cajucom has taken over the case and frozen all the
papers.”

“Miss Cajucom” was of course the PNB VP for accounts management who had pointed out
CDCP’s collateral deficiencies.

Only Cuenca was in a position to inform Marcos that “Miss Cajucom” had been blocking the
issuance of the Letter of Credit since 1980.

Venus’s letter achieved its purpose. On May 25, 1981, the PNB board of directors passed a
resolution approving CDCP’s request for a Letter of Credit, without any conditions.

However, a copy of this Letter of Credit remains mysteriously unavailable. The only
reference to it is in a report made by a team of the Presidential Commission on Good
Government which it submitted to a higher official, Jose T. Apolo.
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TAXPAYERS SQUEEZED

When Corazon Aquino took over as President, the taxpayer was not to find relief. Her
concern was to rehabilitate the PNB, the NDC, the DBP, and the PEFLGC, and did so by
converting in 1987 their liabilities totaling PhP5.4B into obligations of the national
government.

Moreover, she made debt servicing for these loans part of the government’s budget. Today
what remains is a huge portfolio of unpaid loans guaranteed by the Marcos government
then, and which the Aquino government has sworn to pay to the last centavo.

In brief, here was a case of private company owned substantially by the President himself,
accommodated by government financial institutions whose executives, of course, served at
the pleasure of the President.

In July of 1987, the Aquino government filed a civil complaint against Cuenca and 16 other
defendants, including Ferdinand and Imelda Marcos, involving CDCP for “misappropriation,
theft of public funds, plunder of the nation’s wealth, extortion, blackmail, bribery,
embezzlement, and other acts of corruption.”

But the Aquino government insists on paying all the local and foreign debts incurred by
CDCP.

UPDATE
Cuenca was in Hong Kong when the EDSA Revolution broke out, and did not realize, until
much later, on a return trip to Hong Kong from Malaysia, that Philippine authorities had
cancelled his passport.
Cuenca and Marcos continued to keep in touch even when the strongman was in exile in
Hawaii. Cuenca got himself a Paraguay travel document and traveled a number of times to
the US before being arrested by authorities in 1988, to be a material witness in the Marcos
case, under the Racketeer Influenced and Corrupt Organizations (Rico) law. As it would
happen, the PCGG would grant him immunity from suit in exchange for testifying in the case
against Marcos. Just the same, despite the cloak of immunity, he faces two cases before the
Ombudsman today.
From the looks of it, the government never really got to convert CDCP’s loans into equity,
as it should have. This is now the subject of litigation.
In a recent interview (printed January 2003), Cuenca continues to deny any wrongdoing.

He reiterated statements earlier made before the Sandiganbayan that CDCP contributed to
the growth of the construction industry. He said it was a “pioneer” in bringing Filipino labor
to the Middle East, claiming that CDCP was the only construction company with size,
capability, sophistication and expertise to compete with giant American, European and
Japanese construction companies.

In Sandiganbayan hearings, he had asserted that the company provided a “wide avenue for
employment generation,” hiring 27,000 workers directly and about 19,000 through
subcontractors. This included employment opportunities extended to auxiliary workers such
as manufacturers, and truckers.

He also denied accusations that CDCP ever obtained “accommodations” from the President
for the maintenance of its operations. The PCGG, he charged, was mistaken in its belief that
direct requests to the Office of the President for assistance – whether granted or not –
connote illegality and impropriety. He explained that the practice of appealing to the highest
authority -- the President – when dealing with government institutions, has long been the
practice in the Philippines.

Cuenca attributed the collapse of the company to government’s non-payment of its

obligations on the contracts undertaken by CDCP. Government, Cuenca complained, never
settled its obligations on time, paying about two and half years late. These, he said, were
compounded by soaring interest expenses, including world events such as the oil crisis and
global recession.

It was a case, he said, of being squeezed on both sides by government. Cuenca explained
that to sustain its operations and fulfill its contractual obligations with government, CDCP
had to borrow from PNB and DBP “despite their high interest rates.” These government
lending institutions required prompt payment on their loans and did not allow offsets by
government obligations on CDCP contracts.

On the other hand, government would not pay its obligations involving CDCP contracts. Yet
President Marcos urged CDCP to continue work on these projects, Cuenca argued.
Meanwhile, the 74-year old Cuenca claims to busy helping fix up Manila Golf and seeing to
the needs of Urdaneta Village, where he lives in the house he constructed 40 years ago. He
still plays golf.
As for the CDCP successor, the Philippine National Construction Corp. (PNCC), continues to
maintain the lucrative toll ways. It is scheduled for privatization this year.

Venus Cajucom, a member of the privatization council that formulates policies for the
finance department on disposal of state assets, says they are still looking for the right price
tag for PNCC. He admits that "debt issues" cloud PNCC’s privatization, saying the
government is valuing the firm as if it was still an ongoing concern. The sale may involve
prime properties, with the government keeping control of PNCC and its toll way franchise.

In Malacañang, other voices say the President wants to sell the whole venture, stock, lock
and barrel, given the continued hemorrhage of the company.
According to Presidential Commission on Good Government Commissioner’s (PCGG) Ruben
Carranza, the PMO holds about half of the PNCC. The Government Services and Insurance
System owns 24 percent, the Land Bank of the Philippines 8 percent, and the PCGG 5
percent, with another five credited to Marcos crony Rodolfo Cuenca.

Cuenca has questioned the legality of foreclosure proceedings on his properties and a High
Court judgment favoring him could revert the firm into private hands.

But an attractive price tag on a firm that faces attachments of its properties due to unpaid
debts, is a contradiction. A regional trial court in 2001 issued an order allowing Radstock
Securities Ltd. to attach a number of real estate properties of the PNCC, as well as its
interests in various toll-road joint ventures. The case stems from a PNCC guarantee, in the
days it was known as CDCP, for debts of CDCP Mining to Japan’s Marubeni Corp., which has
operated in the Philippines for almost a hundred years. Marubeni later sold its receivables to
Radstock, a legally accepted practice worldwide, when it grew tired of failed efforts to
collect. The debt, originally valued at ¥5.6 billion or around PhP2 billion in 1980, has been
pushed up by interest charges and penalties to PhP13 billion.

The PNCC lost its petition for certiorari at the Court of Appeals, prompting it to seek succor
from the Supreme Court, where it is still pending.

Privatization officials say the case would not stop the sale of PNCC assets.
While the administration tries to downplay the debt problem, there are indications of its
gravity. For instance, the Commission on Audit, noted that PNCC’s financial report since
1999 has included "unbooked liabilities," referring to accounts that are either liabilities,
unrecognized losses and uncollectible accounts and reporting certain assets at appraised
values although the depreciation recognized on them is based on cost. The COA also
reprimanded PNCC in December 2001 for not presenting a real picture of its finances that
year and in 2000. On October 2002, COA report warned PNCC about its joint venture
projects. Noting that the toll ways are PNCC’s bread and butter, a COA official said the joint
venture agreements might have almost wiped out PNCC’s value to prospective bidders.

OTHER ISSUES:
1. Twenty years ago, Malaya’s Angel Alcala wrote about a case of local animal extinction in
an area in southern Negros where CDCP operated a copper mine. The CDCP threw its mine
tailings into the Pagatban River destroying, turning the river to mud for some 10 kilometers
and destroying livings things. In addition, the large mass of sediment destroyed much of the
coastal and marine resources at and near the mouth of this river. Marcos friend Cuenca, he
said, “enjoyed protection by the local and national officials that we at Silliman were
powerless to do something about the wanton destruction of aquatic resources.” The mine
operated for three years.
References:
The CDCP Sting, or how the Marcos-Cuenca construct built a highway to haven, Freedom
from Debt Coalition, 1992.
Marcos Man, Marie Antonette Cruz-Reyes, MZone, January 2003
Local animal extinctions on Negros, Malaya, August 31, 2003
Flip-flops, Politiking mark RP’s privatization efforts, Ted P. Torres, Star, June 25, 2003.
(Star