Clark, Pampanga – The Clark Development Corporation (CDC) lost about P58.7 million in revenues due to its leniency and tolerating the actions of a locator that repeatedly violated its lease agreement with the government-owned corporation to operate a hotel and casino resort inside the Clark Freeport Zone.
This was disclosed recently by the Commission on Audit (COA), which asked the CDC president and chief executive officer and the board of directors to “explain why they should not be held liable” for the forgone income of P25 million in performance bond and P28,696,568 in minimum guaranteed lease the CDC should have earned from Blue Bonnet Amusement Corporation (BBAC).
In examining the accounts and expenditures of CDC for its 2015 Audit Reports, COA found a P25 million check issued by the CDC to BBAC on March 2, 2015.
Indicated in the disbursement voucher is the “return of the Performance Bond of BBAC amounting to P25,000,000 in exchange for the surrender of two properties leased by the BBAC.”
The COA found this to be irregular. It said the CDC should not have returned the performance bond because it was the BBAC that terminated its lease agreement with the CDC. It said the lease agreement signed by the two parties on December 16, 2005 specifically provided that the CDC shall forfeit BBAC’s performance bond in case the latter pre-terminates the lease agreement.
The state audit agency found out that since May 2010, BBAC already made known to the CDC its intent to end the lease agreement and return to the state-owned corporation the 17,200 sq. m. along M.A. Roxas Highway and Ninoy Aquino Avenue inside Clark Freeport Zone. In exchange, the BBAC wanted the CDC to return its P31.65 million performance bond and US$48,000 security deposit.
Then CDC president and CEO Benigno Ricafort did not act on BBAC’s proposal.
On December 3, 2014, the BBAC reiterated its proposal to the CDC, then headed by Arthur Tugade, the current secretary of the Department of Transportation.
The CDC Board approved the return of a portion of the performance bond to the BBAC during a special meeting on February 13, 2015.
The COA noted that the CDC received only a handwritten acknowledgement receipt signed by the wife of the BBAC president when it returned the P25 million on March 2, 2015.
“Based on the foregoing, management (CDC) has been lenient with BBAC despite its inability to develop the leased property. Further, it is apparent that pre-termination of the lease agreement was initiated by the BBAC through its letter dated December 3, 2014. This was later approved by the CDC Board during the Special Meeting on February 13, 2015,” the COA said in its report.
The COA added the CDC should have forfeited BBAC’s performance bond as specifically stipulated in the 2005 lease agreement entered into by the two parties.
State auditors also found several other grounds for the cancellation of the lease agreement and forfeiture of BBAC’s security deposit and performance bond:
It failed to pay the performance bond 15 days after the signing of the lease agreement on December 16, 2005
It paid the performance bond in tranches – from March to December 2007 – instead of paying it fully in specified time
It failed to execute its 5-year development plan. Only a fence was constructed around the leased property
Under the lease agreement, COA said the performance bond shall be forfeited in favor of the CDC in the event that BBAC “fails to perform any or all such obligations, undertakings, and project timetable.”
COA said BBAC did not inform or seek the CDC’s consent when it transferred one-third of its shares of stocks to Dain Innovation Corporation, Lt., a Korean company, in December 2006, which is contrary to provisions of the lease agreement.
COA also stressed that CDC had no obligation to return P25 million of the P31.65 million performance bond paid by BBAC to recover the leased property. It cited a provision in the lease agreement saying that at the expiration or termination of the agreement, BBAC shall deliver to the CDC “the leased property inclusive of all new constructions and improvements… in good and tenantable conditions.”
“Evidently, CDC was not obliged to return the P25 million to the BBAC as consideration for the surrender of the leased properties. The Cash/Performance Bond in the amount of P31.65 million should have been forfeited in favor of the CDC,” it said in the report.
COA also noted that the CDC had given BBAC more than one extension of the 2-year grace period to pay its financial obligations and did not bill the latter of minimum guaranteed lease from December 16, 2005 to March 3, 2013. It said the CDC and BBAC’s issues in height clearance for the planned hotel-casino and legal rift with Dain Innovation Corporation, Lt. should not have impeded the payment of minimum guaranteed lease which was US$0.50 per sq. m. per month.
“The CDC forgone revenues of substantial amount which per computation of the Audit Team amounted to P28,696,568.07 as of February 13, 2015. The amount was determined based on the assumption that minimum guaranteed lease was billed effective April 2010, after the issuance of the Civil Aviation Authority of the Philippines’ Height Clearance to BBAC on April 7, 2010,” COA said.
“If not for its leniency in granting BBAC extension of grace period, the CDC could have generated more revenues to fund significant development projects within the Clark Freeport Zone… CDC fell short in imposing its right to cancel the lease agreement and eventually forfeit the amount that could compensate as liquidated damages for BBAC’s failure to perform its contractual obligations,” it added.
Rappler on Wednesday, November 2, asked CDC Officer-In-Charge Noel Manankil to comment on the COA report.
On Thursday afternoon, Noel Tulabut of the CDC public affairs department sent CDC’s reply via email.
“The area, formerly leased to Blue Bonnet, has been part of the areas that were identified in the recovery program on lands that were either rendered idle or were not developed by locators. The return of a part of Performance Bond of BB was a necessary step in recovering that prime property that can be leased out to capable investors at a much higher rate. Given the prevailing rate for the said area, CDC would be earning more in return,” he said.
But COA said in its report that aside from failing to generate revenue from BBAC for more than 9 years, the CDC also “lost the opportunity to lease it out to new locators because of the leniency of management in allowing BBAC to retain the property for several years despite apparent inability to develop the area and violations of the provisions of the agreement.”
COA also took note of CDC ‘s earlier explanation that its Board of Directors had exercised sound business judgment in its dealings with BBAC – that the property can be leased at 5 times the amount it was leased to BBAC to new investors and avoid “apparent messy litigation.”
The CDC told COA that the forgone revenues can easily be generated once the property is leased out to a new locator.
COA, however, maintained that CDC should have enforced the provisions of the lease agreement and upheld the best interest of the government. – Rappler.com