The coast is clear

It seems that the Department of Transportation and Communications, or the DOTC, is aching to push for its version of the “winner” in the bidding for the 25-year contract for the P17.5-billion international airport terminal in Cebu. And that, ladies and gentlemen, despite the valid issues raised by senators and congressmen regarding the bidding process being bungled by our beloved DOTC!

Word goes around that the DOTC boss, Secretary Joseph Emilio Abaya Jr., despite rumors that he is fronting for another Cabinet member in the DOTC, is pushing for the same tactic used by the DOTC in declaring the “winner” in another controversial bidding. And that tactic seems to be … well, ah, the coast is clear!

The other controversial bidding of course is the P1.7-billion project for a single-ticket system for the three existing light rail transits in Metro Manila, the one impossibly called AFCS, or the automated fare collection system. It seems the DOTC picked the “winner” in the AFCS that promised to pay the government for the lucrative contract in installment, even attaching certain hard conditions for the payment, as against the “cash upfront” offer of another group.

And word already goes around that, even within the Aquino (Part II) administration, certain factions worry that the DOTC would open itself to cases of graft and corruption in the AFCS project.

Anyway, both the AFCS and the Mactan Cebu International Airport (MCIA) terminal happen to be among the projects of the Aquino (Part II) administration in its infrastructure development program called PPP, meaning “public-private partnership.” With just about two years to go in the term of our leader Benigno Simeon, aka BS, the DOTC seems hard pressed to show some semblance of accomplishment, having done absolutely nothing so far in the PPP program.

Now the MCIA bidding, conducted by the DOTC last December in a much-delayed timetable, already harvested for the DOTC two crucial issues: One, conflict of interest and, two, the financial capability of the highest bidder. The highest bidder of course was the consortium of the Indian group GMR Infrastructure and the local construction firm Megawide, whose bid was contested by the second-highest bidder, Filinvest-Changi of Singapore, for conflict of interest.

According to the press statement issued by the PR group hired by GMR-Megawide, the consortium “clarified that the allegation of conflict of interest is completely baseless and without any substance whatsoever.” It said that the “pre-qualification bids and awards committee, or PBAC, already ruled that the mere presence of a director in the board of two or more prospective bidders does not constitute a conflict of interest.” It added that in the case of interlocking directors among the bidders, “the assessment of conflict of interest shall be based on specific facts of the case,” and not automatic disqualification.

According to Megawide, most of the big companies in the Philippines can no longer bid against each other for major government projects because many prominent business personalities hold directorships in many corporations. According to the Megawide-GMR statement, the “conflict of interest” clause in any bidding aims to prevent collusion between any two or more bidders, and in the Megawide-GMR case, there was absolutely no collusion.

Well and good—but in the last Senate hearing on the MCIA controversy, Sen. Sergio Osmeña III brought up another concern: The debt-to-equity ratio of the highest bidder Megawide-GMR. The executive director of the PPP Center, Cosette Canilao, who has been defending Megawide in the hearings, said that loans could cover up to 90 percent of the project cost, the norm is a 4-to-1 ratio of debt against equity.

Now, it was disclosed in the hearings that the principal GMR of India has a debt-to-equity ratio of almost 5 to 1, thus exceeding the level considered by the PPP director as the “norm.” According to our contacts in banking, most banks already frown upon projects in this country with 70-percent debt financing and only 30 percent covered by equity since most infrastructure groups here have debt-to-equity ratios of 2 to 1.

Now Osmeña pointed out other concerns, noting that in the past nine months, the debts of GMR of India further increased to $7.5 billion, thus even indicating a further financial weakening, particularly in its debt-to-equity ratio. Earlier, the senator cited a report in the New York-based Wall Street Journal that indicated that its creditors pressured GMR of India to unload some assets to reduce its debts.

While, according to Osmeña, GMR of India already sold assets worth more than $3 billion, its latest financial statements showed that its debts still increased, noting that the company’s losses doubled to 11.6 billion rupee, based on the FS in the GMR website. Sidharth Kapur, GMR president and chief financial officer, nevertheless declared under oath (i.e. during the Senate hearing) that “the group is very much profitable,” although he did say that the consolidated loss was 4 billion rupees.

Osmeña also hammered the point that the debt burden on GMR of India was draining its operating income, which was even 2 billion rupee short of what the group needed to pay for the interest on its loans. The GMR executive nevertheless noted that the group was not delinquent in interest payments.

Retorted the senator from Cebu: “You could always borrow some more,” adding that it was “very clear that you (i.e. GMR of India) spend more in interest than what you earn” from operations. And you can guess how expensive the interest would be on loans of over-leveraged companies!

For it seems to Osmeña that, in preparing for the key infrastructure project like the 25-year contract for the P17.5-billion MCIA terminal, the DOTC did not even bother to check on the qualifications of the potential bidders. For instance, about two years ago, or in 2012, the Comptroller and Auditor General (CAG) of India already cited “several irregular acts” of GMR, particularly the “airport development fee” that it charged travelers on top of the “passenger service fee.”

In other words, because the DOTC bungled the bidding for the MCIA terminal project, somebody would have to pay for the high cost of financing, and I could only put my bet that will be the public—yes, the Cebuanos, in particular, and all those tourists, including you and me.