Tito F. Hermoso / PPP Center | November 17, 2014 12:35
Technicialities, premiums and contract obligations of the PPP
Like any independent thinker, the President, will always listen to where the buck stops- himself. True, he always has recourse to his 'Bosses' or as his critics say 'Voces', no doubt a naughty play of words to their frequent accusation that the President only listens to 'voices in his head'. In return, the President has gamely criticized media as being 'negative'. It doesn't take rocket science to predict that this adversarial state of affairs will continue for so long as media refuses to treat the Palace's 'spin' as 'positive' news.
Fair to whom?
As for the CALAx impasse, the President has repeated his inclination for a rebid. Why? In his 'people's' logic, the people won't understand why the government cannot reconsider San Miguel's 20-B bonus just because of some 'technicality', as the PCCI also sees it. Lately, he added that a rebid is only fair. So we suppose that, logically, even if he has the power to override the PPP/DPWH decision, an outright award to San Miguel would not be fair.
To recap another contentious bid in the birthing pains of the PPP; the CALAx expressway bid was won fair and square by the Ayala-Aboitiz Team Orion, and again, like all PPP winners, 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'.
Now one's trivial detail, or legal technicality as PCCI infers, 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.
Support and influence
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], 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, patronage politics and rich relatives.
Desist and move on
Meantime, Team Orion has stated that they will no longer participate in a rebid, nor will they take legal redress for the government's failure to honor their winning bid. It is not also inconceivable that with San Miguel's 20-B premium, a floor or minimum bid for the coming rebid is implied. Scrambling to get the Palace out of this morass when San Miguel appealed, there were ideas floated around. One was to cancel the PPP and have the DPWH take on the CALAx as its own construction project, subject to the lowest bidder and to be financed with a new legal kind of PDAF or DAP.
Bid high or low?
If a rebid looms in the future, game theorists might find the assumptions interesting. For San Miguel, who will participate in a rebid, it is not sure that they will stick to their 20-B premium. If San Miguel treats this as a high stakes poker game, then it will certainly raise the premium. But it is also conceivable, specially if prudent business minds prevail, San Miguel can take the more appealing premium, which happens to be the PHP925.0million that Alloy MTD offered. Why? With Team Orion out of the way and other bidders like Metro Pac and Alloy MTD wary of the way the Palace overrides the rules, they may well not participate or if not, bid without the desperate need to best San Miguel. Alloy MTD's Malaysian Datu and his Gulf state investors are not in the infrastructure business for bragging rights.
Winner takes all
If this happens, and San Miguel wins with a lower premium, victory is handed to San Miguel's stockholders and its investor funds as they won't need to shell out that huge 20-B premium. And the loser? Well the government; tempted by San Miguel's 20-B premium, which it didn't really have, it discarded Team Orion's 11-B premium for a lot less.
What about other interested CALAx/PPP bidders? Megawide is far more prudent in bidding. Lack of O&M tollway experience is not a problem to them as there are many Australian, Korean, Japanese, French and Spanish toll road companies happy to partner with our local outfits that are bidding for PPP toll roads and other infrastructure. How about foreign bidders? Apparently, any foreign bidders for PPP projects are usually, and wisely, partnered with local conglomerates knowing how local bureaucratic culture can be so opaque to non-natives as evidenced by all the snags to most PPP awarded projects.
Ultimately, who will pay the premium?
With what seems to be a battle of the premiums, we again cite what, former SGV chief, David Balangue and Mr. Isaac David of infrastructure conglomerate Alloy MTD, opined regarding the huge PPP premiums the government is receiving - Team Orion's 11-B on top of the 35B for CALAx, San Miguel's 10-B over the 15.5-B for NAIA expressway and so on. These huge sums can only be recovered b-y charging higher tolls; a rather iffy proposition to the project proponent if TRB's record of behavior over the past few years is the consistent failure to act on toll fee increases to satiate the administration's tendency to appease anti-increase populist cries. This failure to deliver on contractual commitments presents another problem and this will drive away any investor interest in future PPP's or force current big bidders to reconsider. The threat of a rebid to the CaLax project, just like the SCTEx O&M - 4 years and counting - is not a good sign for a government who prides itself in being transparent and 'rules based'.
Lesson? The most important of all is that the government should prove to stay true and consistent in honoring contract obligations and bidding rules and not appear to be swayed by patronage politics, relatives, 'friendly' lobbies and 'friendly' pressure under the guise of listening to the 'bosses' [or 'voces'] if that is how one addresses the people at large.