PPP hoped to finally gain momentum in ’14

A lot has been said about the government’s cornerstone public private partnership program since it was launched three years ago, with much of the focus placed on the slow pace in getting crucial infrastructure deals off the ground, but recent events may prove to be a turning point.

The final stretch of 2013, the Aquino administration’s halfway mark, was seen as an added boon to the program given the high level of interest in two major projects—a smart card system for Metro Manila’s railways and Cebu’s main airport.

These projects could also be an effective endorsement for PPPs and the PPP Center that oversees it—proof that the system of transparent and open bidding was key in ensuring competitive bids, the program’s top official said.

The P17.5-billion Mactan-Cebu International Airport PPP, the largest deal auctioned off by the administration so far, did more than attract the big guns of Philippines business and their international partners—all world-class airport operators.

With Megawide Construction Corp. and India’s GMR outbidding six others, mostly established conglomerates, the auction on Dec. 12 showed that even those without big-name branding had a shot at big-ticket projects.

“The process is fair and open. Not only conglomerates but others that can meet the financial and technical criteria for our bidding (can participate),” PPP Center executive director Cosette Canilao said in a briefing before the Christmas holiday.

Megawide, partly owned by the SM Group’s Sy family,  has won at least three PPP deals—two classroom building projects from the Department of Education and more recently, the upgrade of the Philippine Orthopedic Center.

But unlike in those projects, Megawide went against some of the country’s largest business groups like San Miguel, Metro Pacific-JG Summit, Ayala-Aboitiz and the Lopez group in the case of the Mactan-Cebu Airport deal. GMR-Megawide’s offer was also P400 million more than that of the second-highest bidder, Filinvest Group and Changi.

The Filinvest-led consortium later called for the disqualification of GMR-Megawide, alleging that the Indian company had a poor track record overseas. Canilao said such calls for disqualification were not unusual and noted that GMR-Megawide had complied with the bid requirements “to the letter.”

A final decision here has not been made as awarding is set for this month. Nevertheless, she hoped that the exercise would draw other players with the proper qualifications not yet on their radar.

“The success of Megawide should serve as an example and inspiration. We have a lot of low-profile companies in the Philippines. This should encourage them to partner with those with technical skills to participate in our infrastructure projects,” Canilao said.

Regular deal flow

Canilao and other PPP Center executives discussed how they now have a “regular deal flow”—a situation expected when the PPP Program was launched in 2010 but not achieved until recently.

“What supposedly should have happened in 2010 is here now—we’re at that stage,” she said.

Given the big number of projects—as many as 50 in the pipeline worth more than $4 billion—she said it was important to get new players to participate.

“The challenge, now that we have a regular deal flow, is to be able to market these [PPPs] not only to foreign players but also to other local players,” Canilao said. “That is one of the thrusts we are going to focus on next year.”

It was not always this optimistic for the program, which dealt with various issues, including a situation where there was a high level of private sector interest but with the government unable to deliver what bidders thought were well-structured deals.

The most prominent instance was the Aug. 15 failed auction of the Light Rail Transit Line 1 extension to the Cavite province. After several delays, the auction date arrived with much fanfare but the bid exercise did not go as the transportation department, which was implementing the project, had hoped.

Three groups—San Miguel, DMCI Holdings and MTD Group and Samsung of Malaysia and South Korea—withdrew while Metro Pacific (without its partner Ayala Corp.) submitted a noncompliant offer that was eventually rejected.

The transportation department and PPP Center went back to the drawing board. It postponed auctions for the railway smart card system and Mactan-Cebu International airport, which were originally scheduled later in August. What came up were refined versions and successful auctions for both deals.

The smart card system, also known as the P1.75-billion Automated Fare Collection System and Mactan-Cebu International Airport are expected to be awarded next month.

The LRT-1 extension deal was also revised, with changes including government absorbing property taxes and other regulatory risks. The deal will be auctioned off again in April next year, with the four original groups saying they remained keen.

Skepticism remains

There also remains a broad level of skepticism over PPPs, especially with heavily regulated tariffs like water and tollroads, two active bidders said.

This is in light of recent moves by the government to cut water rates after Metro Manila’s two concessionaires sought an increase and delays over applications for a rate hikes for tollroads.

PPP Center deputy executive director Emmanuel Reverente said this was why PPP deals were crafted meticulously to “remove vagueness.”

Safety nets

Another safety mechanism for bidders was an arbitration provision, Canilao said.

“But this has to be tested still,” she added.

As reality checks were made since its ambitious launch, the PPP Center was still optimistic 15 deals would be awarded by the time President Aquino steps down in 2016, Canilao said.

She said 10 operations contracts would be turned over to the private sector while seven projects would have been completed.

These are the 4-kilometer Daang Hari and the 7.7-km Naia Expressway tollroads, two school building deals, upgrade of Philippine Orthopedic Center, automated fare collection system and integrated transport system (bus terminals) in Metro Manila.