BOT vs ODA revisited: The case of SCTex and NLEx-SLEx Connector
In the debate on whether government should finance its infrastructure projects through Official Development Assistance (ODA) or Build-Operate-Transfer (BOT) scheme (renamed Public-Private Partnership, or PPP), we must go back to the rationale of the BOT Law.
The BOT Law was passed because there are limits to what government can borrow, not to mention that revenue collections are never enough and public assets for sale are not inexhaustible. There is also no reason infrastructure development must remain the sole responsibility of the State when the resources of the private sector can be tapped. Under the BOT scheme, “the contractor operates the facility over a fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals and charges sufficient to enable the contractor to recover its operating expenses and its investment in the project plus a reasonable rate of return thereon.”
The problem is, not all projects are financially viable although they may give high economic benefits. The Subic-Clark-Tarlac Expressway (SCTex) was an example. A foreign construction company was interested in doing a BOT project and has in fact identified the road alignment. But the projected traffic volume on what was considered a missionary east-west road project would not make it feasible using bank loans at commercial interest rate and short repayment period. Thus, an ODA financing was resorted to by the government at 0.75 percent interest rate and a 40-year repayment period with a 10-year grace. Those were the same terms contracted for the Subic Container port and other projects such as the Iloilo Airport, PHIVIDEC Container Port, CAMANAVA Flood Control and other projects secured during President Estrada’s term from the Obuchi Fund. The 94.7-kilometer SCTex was completed on a P34-billion loan from JBIC (now JICA). It has reduced travel time between Subic and Clark from 1.5-2 hours to 30 minutes. And since a Filipino consortium of contractors (PIDC) is undertaking a PPP project on the extension of the SCTex from its endpoint at La Paz, Tarlac, to Rosario, La Union, (TPLex) for another 88 km, motoring time from Manila to Baguio will be reduced to at most 3 hours using the NLEx-SCTex-TPLex connection. It can be said that the SCTex has begot the TPLex.
Of course, in certain instances, the BCDA-MNTC SCTEx Agreement can serve as a PPP model. In this case, the Bases Conversion and Development Authority (BCDA) built the expressway from an ODA loan and upon completion signed a Business and Operating Agreement with Manila North Tollways Corp. (MNTC) for the management, operation and maintenance of the project. Under the agreement, MNTC would pay BCDA’s debt service obligations from revenue sharing and agreed on advances during shortfalls, plus extra profit to BCDA. Thus, the P34-billion expressway project has become, effectively, cost-free to the government, while a private sector company has availed itself of ODA financing of a project without any construction risks.
The question is why is the TPLex a viable PPP scheme while the SCTex was not? The answer is a group of Filipino contractors was daring enough to form a consortium and secured a loan from local banks to undertake the project believing that the north-south mainstream traffic would make the project viable. They are taking the construction and market risks and are saving the Government an estimated P25 billion in building the expressway.
NLEx-SLEx connector
In the same manner that the Government welcomed PIDC’s TPLex, it should also welcome Metro Pacific Tollways Corp.’s (MPTC) unsolicited offer to construct the elevated expressway connector above the Philippine National Railways (PNR) alignment from the North Harbor to the Skyway at Buendia. MPTC has submitted an unsolicited offer to build the 13 km 2×2 lanes connector that will cost P20 billion. It will connect to MNTC’s 11-km harbor-link road project which will link up to NLEx-Mindanao Avenue junction. The harbor-link will cost another P7 billion.
Two things are worth mentioning about this link project:
1. As a strategic project that will connect four highly populated regions—Southern Luzon, Metro Manila, Central Luzon and Northern Luzon—its impact will be greater than that of the SCTex. The seamlessly connected SLEx, NLEx, SCTEx and TPLex wil make travel from Manila to Baguio an easy three hours. The connector will reduce driving time between NAIA and DMIA, a distance of 100 km, a mere 70 minutes, instead of two or even three hours that it takes at present. It will make the construction of a Low-Cost Carrier (Budget) terminal in DMIA viable.
2. The project will be constructed at no cost to the government since it will be borne by the private sector with all the attendant construction and market risks. There will be no government direct guarantee on loans or against market risks. (An example is the market risk that MNTC is taking in the BCDA-MNTC SCTex O&M contract. The increase in fuel price, imposition of VAT on toll fees, the widening of the Gapan-San Fernando-Olongapo (GSO) road and construction of the bypass road at Sta. Cruz, Lubao, were unforeseen developments.)
Unsolicited offer
The unsolicited offer of MPTC qualifies under the BOT Law (RA 6957 as amended by RA 7718), which added variants such as Build and Transfer (BT), Build-Own and Operate (BOO), Build-Lease and Transfer (BLT), etc. and allowed unsolicited offers. Unsolicited offers must involve new concept (design or technology), should not be included in the list of priority projects, and not require direct government guarantee, subsidy or equity. An unsolicited offer is also subject to a Swiss Challenge. Certainly, a proposal to build an elevated connector in the air space above the PNR alignment could only come from someone keenly interested in connecting the two expressways. Bureaucrats can hardly be expected to include it in the list of priority projects because government does not have a monopoly of ideas, expertise and foresight in planning for what the public needs. Very often, it is the public itself that knows better its own needs. And the private sector is a rich resource of ideas and technology that Government can tap.
And what could be more important, strategic and game-changing than decongesting NAIA by effecting the link-up with DMIA at Clark while helping solve the horrendous traffic problem of Greater Manila?
There are, of course, issues on split operations in a dual airport system as pointed out in a JICA study, but these are details that should not prevent the link up that is meant to decongest the air traffic problem at NAIA where airline movements (take offs and landings) have already exceeded the scheduling limit of 36 movements per hour. A blog has described NAIA as the worst airport in the world for the “sleeping convenience of passengers.” This can be addressed by renovating and sprucing up the Terminals. But more than convenience, it is the safety of passengers that is of paramount importance. Only decongesting the airport operations will address it.
This is what will be addressed by the NLEx-SLEx connector.
(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is chairman of BCDA and former member of the House of Representatives, representing the First District of Bataan. He was principal author of the BOT Law. Feedback at [email protected]. For previous articles, visit www.map.org.ph,)
