Deal between Cevron, NDC subsidiary illegal
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 P 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 P 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 BLCIChevron 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 P 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 P 10.66 million per year, which is still way below fair market rental rates in the province.