John Hay to sign new lease pact with BCDA

BY JOSEFA LABAY CAGOCO, Reporter
Businessworld August 1, 2006

http://www.bworldonline.com/BW080106/content.php?id=041&src=1

Camp John Hay Development Corp. (CJHDevCo), the developer of the former United States rest and recreation base in Baguio City, expects to sign any time soon a revised lease agreement with the Bases Conversion and Development Authority (BCDA) that would restructure its obligations to the state-run body.

Negotiations are under way and Frederico Alquiros, chief operating officer of the Fil-Estate-led consortium, said that both parties have agreed in principle to make amendments to its current contract following setbacks the developer has suffered since it won the 50-year lease to the former base in 1996.

Disputes first arose in 2000 when the developer failed to settle rental dues with its lessor. BCDA estimated accumulated debt at P2.2 billion.

Under the existing lease agreement, CJHDevCo must pay BCDA P425 million annually for the first five years and P150 million or 5% of the gross revenues annually, whichever is higher, in the succeeding 20 years.

Meanwhile, Mr. Alquiros said they have paid BCDA P1 billion since 1996.
Market slowdown and a weakened economy following the Asian financial crisis in 1997 have caused at least five to six years setback to their timetable, noted Mr. Alquiros.

"The [property] market became very soft. It’s been in the doldrums in the Philippines since the crisis," he reasoned. "Had all things remained the same, in five years we would have recovered [investment] and built up all necessary structure."

Fifty percent of the development project, including the Camp John Hay Manor and Golf Club, has been completed while Mr. Alquiros said the other half should be finished by 2010.

CJHDevCo is also negotiating for amendments to its contract following the Supreme Court decision in 2003 that nullified tax exemptions and incentives granted to special economic zones. This may include possible compensation of taxes CJHDevCo has since paid.

The High Court ruled that Malacañang, under President Fidel V. Ramos, went beyond its power when it extended the privileges given by Republic Act 7227, or the Bases Conversion and Development Act, to the Subic Special Economic Zone to former bases such as Clark and John Hay.

BCDA spokesperson Lyssa Pagano-Calde declined to comment on the negotiations but said that they are trying to remedy the effects of the Supreme Court decision. She explained that John Hay Management Corp. (JHMC), a BCDA subsidiary, has applied with the Philippine Economic Zone Authority that Camp John Hay be registered as a special tourism economic zone under RA 7916.

"JHMC has likewise been supporting moves for the grant of tax amnesty and an amendment of RA 7227," she said.

The Lower House recently approved two priority bills: House Bill 4900 which grants tax amnesty to businesses in the Clark, John Hay, Morong and Poro Point ecozones for back taxes incurred due to the Supreme Court ruling, and House Bill 5064 which amends the BCDA law to include Clark, John Hay, Morong and Poro Point among the areas where locators can enjoy exemptions from internal revenue taxes.

The said measures are pending before the Senate.

Despite these issues, Mr. Alquiros said that CJHDevCo remains optimistic. Investors and joint-venture partners are just waiting for CJHDevCo and BCDA to reach an agreement, he added.

On top of the P2.3-billion assessed investment, Mr. Alquiros noted that the consortium would be infusing another P2.5 billion into the project over the next three years. In effect, CJHDevCo would be doubling the minimum investment it initially pegged at P2.6 billion or $100 million, when the foreign exchange was still at P26 is to $1.

Aside from Fil-Estate Management, Inc., the other members of the consortium behind CJHDevCo are College Assurance Plans (Philippines), Inc., and Penta Capital.