BIZ BUZZ: Misgivings about Naia auction

While all is set for Ninoy Aquino International Airport (Naia) rehabilitation concession bidding today, will the government get the most out of it if the beauty contest is based on whoever is willing to give the highest percentage of revenues?

The best case would have been to choose the concessionaire willing to shell out the largest capital expenditure (capex) to modernize the country’s main international gateway, a former government official who’s also an expert in infrastructure-building said.

“The objective of privatization is to improve the service to the customer; ergo, you want a new concessionaire to invest in it, grow the facilities, implement the best technologies and all that,” the source told Biz Buzz.

Without an incentive for the concessionaire to put in big money into the project, the source warned that from day one, the winning bidder could just take over the cash flow and later on invoke all kinds of excuses not to meet the capex commitment (something like “the assumed traffic volume didn’t come”).

But building an airport is like the chicken and egg question. Do you grow it once the passengers come or do you grow it first so that the passengers will come? Anywhere in the world, one has to build it for the passengers to come, the source stressed.

The source is concerned that the current bidding structure may favor those “who just want to play it” or “just want to control the market but not invest too much in it.”

Based on the bidding guidelines, anybody who doesn’t have P30 billion to pay upfront can’t join but this upfront fee is fixed, so the remaining metric would be the revenue share structure.

“But there are many who can afford P30 billion and the capex is much more than P30 billion,” the source said.

“For an airport project, I think that commitment to the capex is the most important. So the beauty contest should be on upfront fee, because if I shell out $2 billion, I need to recoup this and the only way for me to do that is to spend for capex, enhance the airport, increase the capacity so that revenue stream will increase.”

In other places in the world, like in India, the source said the revenue percentage formula had failed because it did not bring out the capex needed.

Under that scenario, it’s possible that the concessionaire will only use the existing cash flow instead of new money to invest, thus defeating the purpose of getting a private sector partner or concessionaire. — Doris Dumlao-Abadilla