THE INSIDE MAN

Eliminating the arbitrary in the PPP

Eliminating the arbitrary in the PPP image

Text: Tito F. Hermoso / Photos: Brent Co | posted November 05, 2014 12:52

Government should fulfill the contract's obligations

The man has spoken

Goodbye guessing and second guessing. Now that the President has finally, or so we think, declared that he won't be seeking a 2nd term, he has made it clear that he still wants to ensure that the reforms he leaves behind will not be unravelled by the incoming 2016 administration. And one of these legacies is the PPP.

PPP is born

No one denies that the birthing pains of the PPP, good intentions and all, has not been without its debacles. As a work in progress, PPP continues to adopt and adjust as conflicts and problems arise. To be fair, the PPP's success is dependent on the proposing line department's technical competence. After all, the PPP is essentially a clearing house and bidding platform to invite private sector long term investment into major infrastructure projects. Being an improvement on the BOT Law, the PPP, as crafted and reformed by the Pnoy administration, seeks to “level the playing field” to produce “win-win” deals that would be advantageous to both the private and public sector.

Birth pangs

Having perceived poorly crafted BOT deals by former administrations, no doubt hamstrung by our country's poor investment image then, the Pnoy administration sought to rectify not only the BOT process but also the country's image with “Daang Matuwid”. As always, the cost and benefit to the overall national economy of each BOT is to ferreted and approved by the NEDA, the country's Economic planning and coordinating body.

BOT, like a Jollibee franchise

The Pnoy BOT a.k.a. PPP adds a new twist. The highest bidder to a PPP project essentially pays what amounts to a franchise premium. This is akin to the way the national telecoms agency assigns, to the highest bidder, limited radio frequencies to mobile phone, radio and TV companies. Infrastructure assets like radio frequencies, land and transport corridors are a finite resource that the country should maximize if a private company is to build and operate it for a long time.

Daang Hari Expressway

The first awarded project was the Daang Hari Expressway. Ayala, the winning bidder, bested the others by a clear PHP1.0B, about 33% more than the project cost. Not a bad deal for the government considering part of Daang Hari has already been built by the DPWH because it was originally begun as a budget appropriated government project, and not a BOT.

Design lags lead to snags

But then there came a snag when the specifications were not clear on the kind of junction for the SLEx. Moreover, the specifications should have considered that Daang Hari serves as a spur expressway to the SLEx, so that SLEx-Susana segment has to expand from 4x4 dual carriageway to 5x5 to accommodate the merging traffic of Daang Hari. This conflict not only added to the post award cost, but also as much as a year and a half's delay. So, lesson learned for the DPWH then.

NAIA Skyway; buying into the competition

The next road project awarded was the NAIA Expressway. This time San Miguel's infra unit bagged the project with a sizable premium over the other bidders. This project could have also hit a snag because the NAIA Expressway is actually part of Citra Skyway's franchise. Citra could have challenged the PPP bidding of the NAIA Skyway/Expwy, even as the DoJ already has a legal opinion affirming Citra Skyway's rights. Lucky for the PPP, San Miguel partnered with Citra for the buyout of the SLEx and later, the building of Skyway Stage 3, so no conflict between Citra arose.

Mactan mega-airport

The next big project was the Mactan Airport. Duly awarded to the highest bidder, the conflict raised by the 2nd highest bidder was the ineligibility of one of the partners of the consortium that won the Mactan airport project. It was alleged that one of the partners did not fully disclose its [failed] relationship to the other bidders and that it has been blacklisted in another country for some conflict in another infrastructure project. Being a technical-legal question on the persona of one of the partners of the bidding entity, it appears that such was a non-issue as per PPP rules, so the award was upheld.

Automatic train fare collection

The bidding for the automatic train fare collection project for all of the Metro's light rail transit systems was a tight contest. The winner won by what looked like a random amount vis-a-vis the 2nd highest bidder's rounded off figure. The losing bidder lodged a protest claiming that their technology was superior to the winner's technology but it would seem that the specifications laid out by the DoTC didn't make such a distinction so the project was awarded to the Metro-Pac-Ayala combine.

LRT-1 extension

The Extension of the LRT-1 to Cavite and LRT-1 general rehab, after several postponements, was bided out twice. There was no winner in the first bid and in the second bidding, many of the interested bidders backed out because it didn't appear profitable to them. With some changes in the specifications for the 2nd bidding, the extension of the LRT-1 was awarded to the sole bidder, the Metro-Pacific-Ayala combine.

That SM City rail station

That story would have had a nice ending, but the spoiler now comes from a conflict between the DoTC and SM City. It appears that the DoTC, post Sec. Ping de Jesus, decided to renege on the paid [in advance] contract to site the common LRT-1-MRT station in front of SM City. The PPP extension of the LRT-1 to Cavite includes the construction of this station, which also incorporates access to the MRT-7, a franchise previously awarded and which San Miguel bought into. SM has taken the DoTC to court on this and this will affect the timetable of the LRT-1 extension to Cavite.

The CaLaX conundrum

The latest bid has also become the most contentious. For the record, the CALAx expressway was won fair and square by the Ayala-Aboitiz Team Orion, again at a hefty premium. San Miguel's Optimal unit participated but its bid was disqualified and hence, unopened by the bids committee for some technical detail inadequacies regarding the financial guarantee and “packaging”.

 

San Miguel, patron saint of toll roads?

 

Now one's trivial detail may well be another's critical issue. To San Miguel's Ramon S. Ang, the clarification on the validity of the ANZ bank guarantee and a promise to procure better tape and staplers to conform to the “packaging” issue were minor details compared to the 20B premium that they put on the table. Unfortunately for San Miguel, their bid was still disqualified as per the rules.

 

Who's the boss and whose boss?

 

Like any of the many businessmen, who support and believe in Pnoy, like Pnoy uncle, San Miguel chairman “Boss” Danding Cojuangco, it is not an unnatural motive to seek redress from the Palace, 20B premium [or a net 8B premium over the Team Orion winning bid] argument in hand. But what is at risk here is that Palace intervention causing a rebid will be read by all as a violation of the rules and fair play. It is a disingenuous lame excuse to claim that the “people” or Pnoy's “Bosses” will not understand why the San Miguel bid was rejected. The Palace should give more credit to the people or his “Bosses”, [other than San Miguel's Bosses' patronage politics], to understand why rules are rules, for they voted him to power to ensure the rule of law is supreme over a couple of billions and rich relatives.

Laguna Lakeshore dike and expressway

The most sought after PPP project, the Laguna Lake Expressway Dike is so big and complex that it was a wise move to defer bidding till later. It is a 12.5 m high dike and an expressway elevated 15 meters above Laguna de Bay's waters. It is designed to enhance the lakeshore for tourism and would also diminish the seasonal flooding that hits the lakeshore and Pasig River for the next 100 years.

Lots of land from the lake

This project replaces a hodge-podge of Laguna lakeshore infra projects that include dredging, building dikes, reclaiming parts of the shore for new commercial districts and the like. The dike and elevated expressway is to be built over the water 500m away from the lake shore's edge, beginning in Bicutan, heading south to Calamba and onward to Los Banos/Bay. The 65B cost for the LLED includes16 floodgates. Another 58B will be needed to reclaim 700ha. from the shores of Taguig to Muntinglupa, create/develop 7 islands and dig a wide channel separating the lakeshore from the reclaimed land.

Links with other expressways

This is no mere toll road project, as it encompasses flood control, reclamation and real estate development. This early, this project should already finalize the northern end link with the Skyway in Bicutan, a connecting spur expressway to the Mamplasan/SLEx end of the CaLaX and a link with the SLEx at Calamba.

Organized opposition to the Laguna lake project

The Laguna Lakeshore expressway dike will definitely have to face the opposition of organized stakeholders of Laguna Lake; namely PAMALAKAYA and SLLM [Save Laguna Lake Movement]. Depending on who is doing the counting, these two organizations represent anywhere between 300,000 to 3.9 million people. Its a mix of informal settlers and fisherfolk whose livelihoods depend on the lake and somehow entrenched for over several generations, or so they claim.

Dole outs for a lifestyle change

These folk should realize that the degraded nature of the lake can no longer sustain their traditional livelihoods. Rather than giving them dole-outs, drastic change in the way the live and where they live is paramount. Needless to say, a good number of these people are repeat victims of the annual flooding that besets this Lake as five decades of neglect and abuse has turned it into a shallow cesspool, a severe toxic danger for the 20 million or so who live in the Metro and Calabarzon area.

PPP for non-PPP projects

The business of the PPP encompasses also other projects. For example, the Plaridel bypass highway to Nueva Ecija, like the original Daang Hari expressway, is a DPWH project but it lends itself to conversion into a toll expressway BOT under the PPP. San Miguel's unsolicited proposal for the Laiban Dam is another candidate, as well as the subsidiary Kaliwa river project.

Keep off the awarded

As a rule, the PPP should keep its hands off projects that have already been awarded. Hence, the Skyway Stage 3, a franchise of Citra is not subject to PPP. Neither is Citra's C-6 Metro Manila Expressway from Bicutan, to Montalban, Batasan, San Jose del Monte and Philippine Arena by the NLEx. Another awarded contract that cannot be subject to a rebid as a PPP is the BCDA-SCTEx O&M contract with Metro-Pac.

Unsolicited proposals

The NLEx metro-link connector is an unsolicited proposal which normally is be subject to a Swiss Challenge. But with the extension of the corporate life of the PNCC, it has become legal and possible, despite DoJ's opinion, to consider then metro-link connector under the PNCC's NLEx franchise.

Buy-out as remedy

MRT-3 becomes a different story if and when the government buys out the BOT private consortium that built it, as they will now be free to bid the O&M as a PPP.

Casualty to friendly fire

But the biggest hurdle to these projects being implemented in time with, of course, the Pnoy signature “Daang Matuwid” trademark, is, unfortunately, an “own goal” for this Administration. Perhaps in appealing to populist pressure, this Administration has been unilaterally ignoring price adjustment obligations in awarded utilities and tollway contracts. Witness Meralco, Manila Water and Maynilad's fates about these unfulfilled obligations, forcing them to seek International Court arbitration.

Government, fulfill the contract's obligations!

The same applies to toll hikes on all the nation's privately financed and operated tollroads, save for Kennon Road as TRB [Toll Regulatory Board] has frozen several toll rate adjustments for the past 4 years. Ironically, TRB is the same agency that will approve any of the new projects [C-5 Cavitex link, the Merville interchange, the Central Luzon East Expressway, the NLEast Expressway and the Calamba-Los Banos/Bay Expressway, etc. ] that integrate to the Laguna Lake Expressway Dike and C-6/Skyway Stage 4. Moreover, road right of way acquisition for on-going projects like the NLEx segment 8.2 link from Mindanao Ave. through Luzon Ave. to Katipunan should be expedited to allow linkage to section 3 segment 2 of C-6 Phase 2 of the Skyway Stage 4 at Batasan.

Recover the premium, keep to the rules

Relative to this, former SGV chief, David Balangue and Mr. Isaac David of infrastructure conglomerate Alloy MTD, opined that with the huge PPP premiums the government is receiving – 11B on top of the 35B for CALAx, 10B over the 15.5B for NAIA expressway and so on – the project proponent may need to charge higher tolls to recover this premium. If the TRB hews to the anti-increase populist cry and stonewalls on the country's contractual obligations- said toll fee increases- then it will drive away any investor interest in future PPP's or force current big bidders to reconsider. The same applies to a CaLax rebid to favor the intervention appeal of San Miguel's Bosses.

Hindsight, the basis for foresight

With hindsight, our administration's managers should prepare for possible snags. They should have the foresight to simulate possible conflicts. Once conflicts happen, they should be decisive in effecting resolution. Thus to ensure the success and effectivity of the PPP, the integration and approval of several other related and unstarted projects should also be acted on this early, lest we end up with such snags that affect the PPP and other projects. Even if late, the President should already impress on the public that reneging on contractual obligations is as dead as the DAP and PDAF. Perhaps this is more than enough to do the trick.