Philippines Finance Secretary Carlos Dominguez (DOF Photo)
The Department of Finance (DOF) has uncovered a lease contract with onerous terms between Chevron Philippines (formerly Caltex Philippines) and a subsidiary of the National Development Co. (NDC) that allowed the former to pay a monthly rental fee of just 74 centavos per square meter (sq. m.) on a 120-hectare or 1.2 million sq. m. state property in Batangas. Comparative data from NDC appraisal reports and other official sources show that the current fair market rental value in that area should be around Php 17.90 per sq. m., per month.
Under the terms of its lease contract with the NDC subsidiary Batangas Land Co. Inc. (BLCI), Chevron has been paying a miniscule rental fee to the government for the 1.2 million sq. m. industrial park in San Pascual, Batangas that it uses as an oil import terminal. At P10.66 million per year since 2010, the rent Chevron has been shelling out is only around 4% of the Php 257.76 million per year that current fair market rental rates in the area would suggest.
Finance Secretary Carlos Dominguez III, who is an NDC Board member, described the lease deal as “another government contract with onerous provisions.”
Dominguez said the request for renewal of the deal was recommended by some offices to the Privatization Council, which found the contract grossly disadvantageous based on current fair values.
In compliance with the guidelines set by the Privatization Council, the DOF-attached Privatization and Management Office (PMO) compared the lease terms of the BLCI-Chevron deal with the fair market value of the land in the Batangas area, using data from appraisal reports of NDC and the asset pool of the PMO. It was during this assessment that the PMO discovered the onerous provisions of the deal favoring Chevron.
Based on documents submitted to the NDC Board, the rentals paid by Chevron over the 44-year period covering 1975 to 2019 totaled to only P146.51 million or about Php 3 million per year, in addition to real property taxes paid by Chevron under the lease agreement.
This property’s current market value is estimated at about P4.9 billion to P5.3 billion--translating into a rental yield of only about 0.2 percent of the property’s value.
Dominguez said that “based on current standards that the State imposes on similar contracts, to have a rental yield of less than 1 percent is surely grossly disadvantageous to the government and the Filipino people.”
Despite the rental terms being subject to negotiation as early as 2000, it was not until 2010 that the lease rate was increased to the current rental amount of Php 10.66 million per year, which is still way below fair market rental rates in the province.
If the amount is adjusted to current fair market rates, the rental rate by now should be above Php 20 million a month or Php 257.76 million annually.
The American firm Caltex was able to acquire the Batangas lot and other prime properties owned by the government under the 1946 Bell Trade Act passed by the United States Congress.
Under this law, American entities were granted “parity rights” on land ownership in the country as a condition for the US government`s payment of USD 800 million war damage claims to the Philippines.
Parity rights had allowed American companies to own land in the Philippines just like Filipinos.
These parity rights were extended for 20 years through the Laurel-Langley Agreement signed in 1955 by then-Senator Jose Laurel and Sen. James Langley. Such parity rights ended in 1974.
With the expiration of the 1946 Bell Trade Act, Caltex, and now its subsidiary Chevron Philippines, was granted preferential treatment in continuing to occupy and use various real properties, including the Batangas industrial park.
Issued by then-President Marcos, Letter of Instruction (LOI) No. 276 required the lease-back of the properties occupied by Caltex for a maximum of 50 years from 1975, at minimum rates of 1.5 to 2.5 percent of the property’s valuation in 1974.