How San Miguel-MPIC 'bidding war' led Aquino to rethink PPP

RAPPLER - President Aquino is not too hot about the promises of public-private partnership (PPP) program anymore.

In an interview aired July 18 on ANC, he said the difference between the expectations in 2010, when he first trumpeted the benefits of PPP mode for big-ticket projects, and the current economic environment has made him rethink his government's infrastructure and investment strategies.

"We started out with the expectation that there was nothing left in our coffers that would enable us to build the infrastructure necessary. Then the turnaround happened -- not in the first year but in the first 6 months -- [and] investors started coming in, [credit rating] upgrades started to happen, the stock market became very very bullish, and then there were increases in the revenues," he said in the interview.

"[These] changed the factors and the equations," he shared with Coco Alcuaz who conducted the interview.

Aquino highlighted the PPP strategy in his first State of the Nation Address (Sona) in 2010, when he assumed office. He will deliver his 3rd Sona on July 23.

San Miguel, Pangilinan groups

He cited the "bidding war" for a road project that links the toll roads south and north of Metro Manila: South Luzon Expressway (SLEx) and North Luzon Expressway (NLEx).

The "connector road" between SLEx and NLEx is eyed by two of the country's biggest business groups -- San Miguel Corp. and Metro Pacific Investments Corp. (MPIC)

INTERESTED. Since the two groups led by San Miguel's Ramon Ang (left) and Manuel Pangilinan (right) are clearly interested in the NLEx-SLEx connector road project, the government does not have to dangle incentives, President Aquino said. Photo by Malacanang Photo Bureau

"When you go PPP, there has to be incentive programs to tempt those that will join the PPP programs. Incentives translate to added cost to our people," the president noted.

Since the economic environment has become more favorable, "We may not have to give all of these incentives to achieve these infrastructure programs," he said.

He recalled the time guarantees were given to power plant investors to address the rolling blackouts in the 1990s. These guarantees proved costly.

"It's like the time that we had the power purchase agreements and the incentives then, versus the bidding war for the privilege to build the NLEx-SLEx connector road between two of the major conglomerates. Shouldn't that have given us pause and say, 'Are we getting the best bang for our buck? Is it the right project, the right time, right price, for the right reasons for our people?' We have to answer all of those," he said.

TWO ROADS. Metro Pacific and San Miguel-Citra propose to build separate roads connecting NLEx and SLEx. MPIC's proposal is the pink line, while San Miguel-Citra's is the shorter, dark blue line. Illustration from the SMC-Citra group

Bidding?
San Miguel is chaired by Aquino's uncle, Eduardo "Danding" Cojuangco Jr., while MPIC is the infrastructure arm of the conglomerate led by businessman Manuel V. Pangilinan.

On May 23, Aquino met with Pangilinan and San Miguel president Ramon Ang in Malacanang. The businessmen presented each of their proposals.

Actually, the two groups' are not vying for the same road. They are both proposing to link SLEx and NLEx but are planning to put two different roads with different routes.
(Check the map.)
Both are unsolicited proposals and will not be part of the PPP.

PPP: Solited projects only

When the Aquino government trumpeted the PPP strategy in 2010, only "solicited" projects would be included.

"Solicited" projects refer to those the government itself has identified and aligned with national goals, then offers these projects to private players and goes through a bidding process that guarantees the best bang for the taxpayers' buck.

In his 2010 Sona, Aquino cited the various cases of misuse of public funds by the Arroyo administration as a pretext to promote PPP. At the time, he said the PPPs will address the lack of resources due to a depleted government budget for the country’s infrastructure needs.

At the end of 2011, only one of the 10 infrastructure projects lined up for the year was bidded out. For this year, only the bidding for the LRT-1 Extension and the NAIA Expressway projects are moving.

The delays, which were attributed to governance checks, have made a dent in the pace of the country's economic growth. In 2011, the Philippines grew only 3.7% from 7.6% the year before.

The big-ticket infrastructure projects were supposed to stir economic activity and, therefore, help the economy grow.

For latest information on the Philippine Real Estate Industry and the Real Estate Service Act (RA9646), please visit www.ra9646.com.ph.

LRT-1 Expansion: San Miguel, Ayala-MPIC, 23 others eye project

RAPPLER - The country's largest business groups have expressed interest to participate in the bidding for the operations and maintenance (O&M) project of the Light Rail Transit (LRT) line 1 extension, which will connect Cavite and capital Manila.
This P55 billion infrastructure project will be the second project for bidding under the public-private partnership (PPP) scheme of the Aquino government. Transportation Secretary Manuel Roxas described this as the “largest single ticket in [the] infrastructure portfolio of President Benigno Aquino.”

On Tuesday, July 10, San Miguel Corp. as wells as the joint venture of Ayala Corp. and Metro Pacific Investments Corp. (MPIC) were among the 25 firms that purchased pre-qualification documents for the P55-billion rail project, which the Transportation Department is spearheading.

The project is meant to "capture a large population base that regularly travels between Cavite and Manila,” said Transportation Secretary Manuel Roxas. When completed, the estimated travel time from end-to-end would be one hour and 10 minutes.

“There is a possibility that we may bring in another member with technical expertise in the railway project. We are currently discussing it. We will make the proper announcement soon,” said MPIC president Jose Ma. Lim. The law firm Sycip Salazar Hernandez & Gatmaitan reportedly represented the Ayala-MPIC joint venture.

The 25 firms that bought the pre-qualification documents were:

1. San Miguel Infra
2. Macquarie Group
3. Mitsubishi Corp.
4. D.M. Consultant, Inc.
5. Hanjin Heavy Industries & Construction Co. Ltd.
6. Sumitomo Corp.
7. Leighton Contractors
8. Sycip Salazar Hernandez & Gatmaitan
9. FSG Capital Inc.
10. EFC Enterprises
11. FF Cruz & Co. Inc.
12. Marubeni Corp.
13. BPI Capital Corp.
14. ING Bank
15. Jorgman Planning & Development Corp.
16. RATP Development
17. Benchtel Overseas Corp.
18. Comm Builders & Technical Philippines Corp.
19. Lenvoisa Construction Inc.
20. APT Global Inc.
21. Makati Development Corp.
22. Tranzen Group
23. SERCO Group
24. Cathay Energy Service Corp.
25. SYSTRA Group

The project

Discussed during an investors’ briefing and pre-qualification conference held Tuesday morning, July 10 are the project's two components.

First, the operation and maintenance of the existing 20.7 kilometer (km) LRT line 1 from Baclaran to Quezon City. It had transported 69 million passenger-riders as of June 30, 2012. Over 500,000 passengers ride the rail line daily.

Second component is the construction of an additional 11.7-km elevated railway system from Baclaran station of Line 1 all the way to Bacoor in Cavite City. It will have 8 stations inclusive of 3 intermodal facilities, with an option for two future stations. A satellite depot in Zapote will also be constructed.

Below are the expected timelines for the project:

• August - The government will hold a series of roadshows in London, Madrid, Japan and South Korea to entice more foreign investors to take part in the project. “We want the countries in Europe and Asia to know about this project. How many projects worldwide amount to about US$ 800 million?” said Roxas, adding that the cost of the project is expected to go down as more investors bid for it. He said foreign firms are welcome to partner with local groups to participate in the auction.
• August 22 - Deadline for those that have purchased the pre-qualification documents worth P10,000 to submit their requirements. That is also the time the parties reveal what are the parties or the members of of a concessionaire that are vying for the contract.
• October - Schedule for the pre-qualification of interested bidders and the issuance of bid documents to those who will pre-qualify. The pre-qualification process ensures that the companies or the consortia to be formed have the required financial, technical, and management capability to carry out the project.
• 1st quarter 2013 - Deadline for submission of bids.
• 2nd quarter 2013 - DOTC will issue notice of award.

This project was initially planned to be bidded out last year. After a long wait, the Transportation Department issued an invitation to interested private sector players to pre-qualify and bid on June 4.
Roles of government and contractor

The government and private contractor will equally split the estimated P55 billion project cost. The government will spend its P27.5 billion share to purchase up to 39 new car train sets, construction of the satellite depot, among others.

Roxas said the government’s obligation include the

• turn-over of the existing line 1 assets for rail operation and maintenance
• acquisition and delivery of right of way
• implementation of the automated fare collection system (AFCS) project
• ensure the application of periodic fare adjustments

The winning bidder, on the other hand, is responsible for:

• the finance, design and construction of the Cavite extension
• the immediate operation and maintenance of existing system and the integrated system upon completion of the extension project
• undertaking the future system maintenance and upgrades
• assuming ridership risk
• receiving fare box
• undertaking an approved commercial development

Automated fare collection

Roxas said the government will hold another auction for the centralized AFCS. “For the LRT fares, we will move from zone-based fare to boarding-plus-a-distance fare scheme. There will also be a periodic fare adjustments over the concession period. But the government will hold a separate bidding for the AFCS. This project shall be tendered parallel to line 1."

The Transportation Department has taped the International Finance Corporation (IFC) as its transaction advisor. IFC, in turn, has tapped URS and Pinsent Masons as its technical and legal specialists.

For latest information on the Philippine Real Estate Industry and the Real Estate Service Act (RA9646), please visit www.ra9646.com.ph.

AIRPORT: Gov't may start NAIA expressway bid process next week

RAPPLER - - The Aquino government is on a roll.

Two days after putting the P60-billion Light Rail Transit (LRT) 1 extension project on the auction block, it announced it will now open the bidding process for the Ninoy Aquino International Airport (NAIA) Expressway II, another major infrastructure project under the Public-Private Partnership (PPP) program.
PPP Center Executive Director Cosette Canilao told Rappler in a phone interview they may issue the invitation to pre-qualify and bid for NAIA expressway II as early as next week.

"We will start the bidding process within June. Actually, the DPWH's (Department of Public Ways and Highways) target is to issue the invitation within next week."

Asked when the actual bidding will take place, Canilao said, "Most probably in November."
The project was approved by the National Economic and Development Authority on May 30, giving DPWH the green light to bid it out.

"The PPP Center congratulates the DPWH for rolling out one of the country’s mega infrastructure projects under the PPP program of government. This is indeed an achievement for the DPWH and the program itself. We knew that it could work and now we are seeing projects being rolled out. We are confident that we will hit our target of 8 projects for 2012."

The project involves the maintenance and improvement of the existing NAIA expressway phase I, and the construction of phase II and the extension road leading to Pagcor's casino and tourism complex on Manila Bay, the Entertainment City.

The total length is 9.37 kilometers, consisting of 7.15 kilometers elevated portion of phases I and II, and 2.22 kilometers road to the Pagcor development.

This is the third big-ticket infrastructure project under PPP that the Aquino government rolled out since it launched the economic program in 2010. The first was the P2-billion Daang Hari-South Luzon Expressway (SLEx) road link that was awarded to the Ayala group. The second was LRT-1 extension to Cavite province.

Canilao said NAIA expressway II will help link and ease traffic going to and from the 3 NAIA terminals in Manila. She said it will also seamlessly link the SLEx-Skyway to the Manila-Cavite Toll Expressway and both Roxas and Macapagal boulevards.

The government had initially listed 10 PPP projects for bidding in 2010.

The contract to operate and manage LRT-1 and another major railway, the Metro Rail Transit 3, was supposed to have been the first to be bid out, but then newly appointed DOTC Secretary Manuel Roxas decided to shelve it to review if it was more beneficial for government to keep it. The government ended up bidding out the Daanghari-SLEx road instead.

Between 2010 and 2012, the government opened the bidding process for two projects that were not originally in the list: the P10-billion classroom building program of the Department of Education, and the P453-million vaccine self-sufficiency project of the Department of Health.

The government is banking on the rollout of the big PPPs to help the economy grow beyond its target of 5% to 6%.

The economy grew 6.4% in the first quarter, much faster than the 3.9% growth registered in 2011. Underspending on infrastructure and weak exports dragged down the growth last year.

For latest information on the Philippine Real Estate Industry and the Real Estate Service Act (RA9646), please visit www.ra9646.com.ph

NLEx-SLEx Connector: Road link construction to begin in 2013

Long-delayed? NLEx-SLEx road link construction to begin in 2013

RAPPLER - The government's plan to free up Metro Manila thoroughfares by building new tollways that will connect the north and south Luzon expressways will happen in 2013 as it has yet to finalize the terms of the projects that were proposed by two rival companies.

Metro Pacific Tollways Development Corp (MPTDC), led by its chairman Manuel V. Pangilinan, and San Miguel Corp-backed Citra Metro Manila Tollways Corp (CMMTC), headed by San Miguel President Ramon Ang, have presented their proposals to President Aquino on Wednesday, May 23, on their respective NLEx-SLEx connector road projects.

The road projects will link Makati City to Caloocan and Balintawak.

"Both of the projects can be given formal awarding, final approval before the end of the year, so that by the end of this year or early next year, they can begin," said Communications Secretary Ricky Carandang in a press briefing in Malacanang.

The projects, worth a combined P45 billion, must be approved by the National Economic and Development Authority-Investment Coordination Committee first before they can be awarded to the proponents.

Linking NLEx and SLEx has been in the pipeline since 2010, when MPTDC submitted an unsolicited proposal for it. It was supposed to be just one project until CMMTC submitted its own proposal, claiming it has the right to develop the project as an extension of its Skyway. The two proposals covered different routes for the proposed link.

TWO ROADS. Metro Pacific and San Miguel-Citra propose to build separate roads connecting NLEx and SLEx. MPIC's proposal is the pink line, while San Miguel-Citra's is the shorter, dark blue line. Illustration from the SMC-Citra group

This sparked a debate on which of the two should be approved by the government, which later on decided they can co-exist.

In the Malacanang briefing, Transportation Secretary Manuel "Mar" Roxas said the projects will be "undertaken independently and simultaneously."

However, unlike CMMTC's, which will be "undertaken as a continuation of its existing franchise (for Skyway)," MPTDC's proposal will be subjected to a Swiss challenge.

President Aquino said: "The Swiss challenge is mandated being an unsolicited proposal. That's a necessary process."

Long-delayed
The plan to link NLEx and SLEx has been delayed several times.

MPTDC had proposed as early as 2010 to build a 13.4-kilometer, 4-lane elevated road connecting the two over the railway from Makati to Caloocan.

It said the road was important for a number of factors:

• It will decongest traffic within Metro Manila by providing an alternative route to existing roads Edsa and C-5;
• It will cut by an hour the travel time from NLEx to SLEx and vice versa;
• It will provide unhampered flow of goods from south Luzon to the ports in the north, addressing concerns about the truck ban in the metro;
• It will hasten the travel of passengers between the Manila and Clark airports.

The Department of Public Works and Highways (DPWH) had accepted MPTDC's proposal that same year. But the project was hit by delays when: first, the government included the project as one of those that will be bid out under its public-private partnership program (PPP), then San Miguel-CMMTC submitted what was initially perceived as a competing proposal.

MPTDC is an affiliate of Manila North Tollways Corp (MNTC), which operates the 83.7-kilometer NLEx. MPTDC and MNTC are owned by Metro Pacific Investments Corp (MPIC), a unit of Hong Kong-based First Pacific Co. Ltd. The companies are headed by Pangilinan.

MPIC owns a small indirect stake of 2% in CMMTC.

BUSINESS RIVALS. San Miguel president Ramon Ang and Metro Pacific Investments Chair Manuel Pangilinan exchange views on the NLEx-SLEx connector roads they proposed to the government in a presentation at Malacanang. Photo taken by Malacanang Photo Bureau

San Miguel's entry
MPIC rival San Miguel entered the picture when it bought a 46% stake in Atlantic Aurum Inc., the majority shareholder of CMMTC, which operates the Skyway projects from Alabang, Muntinlupa to Buendia, Makati.

San Miguel and the Citra Group also acquired a controlling stake in South Luzon Tollway Corp, which holds the concession to operate the 35.9-kilometer SLEx from Sto. Tomas, Batangas to Alabang.

Shortly after the deals, San Miguel-backed CMMTC proposed a 14-kilometer, 6-lane NLEx-SLEx connector from Makati to Balintawak. But unlike MPTDC's proposal, CMMTC's road will have exits to 6 major areas in Metro Manila.

This prompted a discussion on which proposal must be accepted by the government. The DPWH however decided to push through with both projects, saying they are different and will be servicing "different corridors."

Prior to San Miguel's entry in CMMTC, MPIC was in talks with the Skyway operator to increase its stake. No deal materialized.

PPP over unsolicited deals
The NLEx-SLEx connector road was one of the PPP projects the government was eyeing to bid out when it first announced the infrastructure building program in 2010.

The PPP was adopted by the Aquino government as part of its good governance campaign to do away with unsolicited proposals from private investors that are highly susceptible to corruption.

Ironically, the NLEx-SLEx connector road came about because of an unsolicited proposal.

Roxas said to maintain transparency in the project, since it was a good one, the government will open it for a Swiss challenge where offers of other interested groups will be entertained. If uncontested, the project will be awarded to the original proponent.

"I therefore urge those who want to compete in the Swiss challenge to start preparing because MPTDC has already done all the work, the detailed engineering, the financing and the environmental side," he said.

MPIC - San Miguel rivalry
Aside from the NLEx-SLEx connector road, San Miguel and MPIC groups have chased after the same businesses -- both have interests in power distribution and generation, telecommunications and toll roads.
They were in a battle for control of then Lopez-owned Manila Electric Co. and bid out for the Sublic-Clark-Tarlac Expressway (SCTEx), which MPIC later bagged.

Prior to these, they went head to head to acquire another Lopez asset, NLEx-operator MPTC. MPIC again sealed the toll business deal.

In telecommunications, San Miguel's entry, through Liberty Telecommunications Holdings Inc., was seen to give competition to MPIC affiliate Philippine Long Distance Telephone Co, the country's largest telecommunications firm.

For latest information on the Philippine Real Estate Industry and the Real Estate Service Act (RA9646), please visit www.ra9646.com.ph.