Biz Buzz: Withdrawal symptoms

ONE of the winners of a big-ticket government project is supposedly having second thoughts after a closer examination of the deal’s structure—which became possible only after the company had bagged it—revealed less than stellar returns on equity.

Which project are we talking about? Well, let’s just say it’s a long-delayed multibillion-peso (and -dollar!) transaction that calls for the private sector to improve the facilities of an old facility built many years ago. So important is this deal that local and foreign bidders even teamed up for it, anticipating the large capital expenditures and the high level of technical expertise that would be required of them.

Anyway, this company, we hear, was rushed into joining the deal by its partner, which has a reputation in business circles for studying and poring over projects carefully before committing to them. So once it was invited, the company felt reasonably certain that the returns on its investment would be more than sufficient to cover its costs (the cost of shouldering a bigger portion of the financial burden compared to its partner, in fact).

But a few months later—voila!—it’s turning out that the project is not as viable as the proponents had initially hoped.

The principals of the winning bidder communicated its displeasure to the government last month, resulting in an emergency meeting being called three weeks ago to try to mollify the disappointed company officials (who understandably felt that the government had pulled a fast one on them).

What was the bone of contention? The project calls for the private sector proponent to keep funding the project for up to 15 years, without any guarantees from the government that it would allow the tariff increases necessary for the company to recover its cost of capital. Ouch. (This is aggravated by the fact that the old phase of the project isn’t delivering returns to be proud of, in the first place.)

Now, some officials on the government side are worried that the private proponent is trying to find loopholes that would allow it to wiggle out of the deal (leaving its partner of convenience holding the bag, perhaps).

Well, given how unattractive the financial component of this deal is starting to look, perhaps few in the business community would be surprised if this publicly listed firm would indeed pull out of it. Daxim L. Lucas

Generous with cars

THE UNIVERSITY of Cebu is on a roll in terms of having its graduates land in the top 10 rankings of the country’s annual bar exams.

This year, UC law graduate Michelle Liao was ranked fifth among 1,126 bar passers in results released by the Supreme Court last week. That feat earned her a brand-new car—a base model Toyota Vios—as a reward from the school, which is owned by the Gotianuy family, and run by its chancellor Candice Gotianuy (she announced the prize in a tweet, minutes after the results were announced).

This is, of course, not the first time that UC has rewarded its bar topnotchers with cars. Last year, the university—which is, incidentally, more famous for the quality of its maritime school program—also produced another bar topnotcher (in sixth place), who also earned for himself a new car.

All told, the school has given out eight cars over the years, according to Gotianuy, including one to the university’s dean (as a reward for helping the school improve its academic performance) and another vehicle that was converted to cash.

How can the school afford to be so generous? Well, the family that runs it owns what can only be described as a small conglomerate with interests in real estate, mall operations, health care and education, among others. And, oh, they also own a Cebu franchise for Toyota Motors… which probably explains the generosity with cars. Daxim L. Lucas

Royal education

THE HEAD of one government agency is raising eyebrows among peers, many of whom are wondering about their family’s seeming affluence.

No, this agency head does not have a “showy” lifestyle. In fact, it’s quite the opposite.

But what tickles the curiosity of peers is how this agency head could afford to send one offspring to study in a prestigious (and expensive) university overseas.

Of course, having a child study abroad is less and less of a big deal nowadays. But what makes this a big deal is that the school in question is an old institution that is a favorite among the younger generation of one particularly well-known European royal family.

In fact, one younger member of this royal family—someone who is set to wear a crown on his head one day—matriculated at this school.

Needless to say, an educational institution of this reputation would be very expensive, indeed—perhaps more so for a government employee.

Some peers of this agency head are now wondering whether this family is indeed as affluent as the educational affiliation of the offspring suggests.

These peers are especially intrigued because even one Filipino regional head of a foreign bank chose not to send his own son to that school on account of its prohibitive costs—prohibitive even for a high-flying banker. Hmmmm. Daxim L. Lucas

Much ado about Malampaya

THE SAN Miguel group recently urged the government to bid out the Malampaya gas operation in offshore Palawan, expressing interest in the project. No less than San Miguel Corp. president and COO Ramon S. Ang said so.

Will the government bite? Energy Secretary Carlos Jericho Petilla confirmed the government could take over the gas platform, bid out its operation, or keep the current consortium. But that depends, Petilla said, on the attractiveness of proposals from the private sector.

The consortium of Shell Philippines Exploration B.V. (SPEx), Chevron Malampaya LLC and state-owned PNOC Exploration Corp. has expressed interest in extending their operatorship of Malampaya after 2024. SPEx general manager Sebastian Quiniones Jr. has confirmed as much.

Given the situation, there are those who question—or at least wonder about—Ang’s early expression of interest.

Is it a bid for fuel security? Industry experts noted that the 1,200-megawatt Ilijan plant administered by San Miguel—through San Miguel Energy Corp. or SMEC—as well as two other natural gas facilities of the Lopez group, sources its fuel from Malampaya.

The three, which supply more than 40 percent of Luzon’s power, are running on alternative fuel while Malampaya is on a 30-day temporary shutdown until April 14 to install a new platform that will maintain output.

It so happens that San Miguel is set to take over Ilijan when Korea Electric Power Corp.’s operatorship under a build-operate-transfer contract expires in 2022. Kepco Philippines president and CEO Hyang-Reol Lyu confirmed the facility would be turned over to San Miguel. That is two years ahead of 2024 when Service Contract 38 (Malampaya) lapses.

Is San Miguel’s interest in anticipation of a potentially lucrative gas market? Quite a number of investors have either expressed interest in or started working on putting up gas-fired power plants, which can start up quickly and fill the current power gap in the country.

Petilla himself said he was not sure of Ang’s interest in Malampaya, noting San Miguel has not made formal representations on the matter. “They must have their own reasons. The only reason I can think of is that he believes there is still gas even after the current contract expires,” Petilla said. Riza T. Olchondra

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