Wednesday, November 26, 2014

Battle for CALAX deal narrowed to Pangilinan, Ang groups

A MALACAÑANG order to reopen bidding for the Cavite-Laguna Expressway (CALAX) contract has left erstwhile qualified bidders on the periphery, watching how diversified conglomerate San Miguel Corp. of Ramon S. Ang and businessman Manuel V. Pangilinan’s Metro Pacific Investments Corp. (MPIC) would battle for the P35.42-billion public-private partnership (PPP) deal.

There were four bidders for CALAX the first time it was put on the auction block last June 2: San Miguel’s subsidiary Optimal Infrastructure Development, Inc.; MPIC-led MPCALA Holdings, Inc.; Team Orion of Ayala Corp.’s AC Infrastructure Holdings Corp. and Aboitiz Equity Ventures, Inc’s Aboitiz Land, Inc.; and MTD Philippines, Inc.

Team Orion -- the highest bidder -- and MTD Philippines are out of the race, BusinessWorldreported earlier this week.

Now, only two are expected to show up in the rebidding: the groups of Messrs. Ang and Pangilinan.

The MPIC group said on Monday it has renewed its bid bond for the CALAX project.

“We renewed our bid bond as we want to play safe, but we want to see the terms first before confirming our participation,” Metro Pacific Tollways Corp. President Ramoncito S. Fernandez told reporters on the sidelines of an event in Balintawak late on Monday, speaking on behalf of MPCALA Holdings.

That bid bond -- submitted as guarantee that the company has the financial muscle to carry on with the project should it bag the contract -- expired on Sunday, although two weeks ago the Department of Public Works and Highways (DPWH), through a letter, gave the bidders an option to renew it.

MTD Philippines President Isaac S. David said in a Nov. 23 interview that the bond was P355 million and was placed during the June 2 tender.

MTD Philippines opted not to renew the bid bond, Mr. David had said.

P20-BILLION PREMIUM
Ayala Corp. of Team Orion said on Nov. 24 it will not “stand in the way” of the government’s decision to rebid CALAX, and reiterated it will not participate.

Yesterday, Team Orion said in a statement that it is “disappointed” over the Office of the President’s order, but voiced hopes that the outcome of the rebidding would benefit the government.

“We expect the rebidding to be conducted swiftly, above board and in line with established bidding procedures in order to ensure that the government obtains the P20 billion it had assumed to gain,” Team Orion said in the statement.

The Ayala-Aboitiz consortium was referring to the P20.1-billion premium on top of project cost that the San Miguel group supposedly offered for the CALAX deal. That bid would have topped Team Orion’s offered premium of P11.66 billion, MPIC group’s P11.33 billion and MTD Philippines’ P922 million.

But San Miguel was disqualified on a technicality concerning its bid security, prompting it to seek Malacañang’s intervention.

A rebidding would give San Miguel a fresh chance to bag the contract, but that could also mean the floor price could be a premium of P20 billion. Public Works officials and PPP Center Executive Director Cosette V. Canilao did not respond to requests for comments.

The Public Works department’s bids committee will convene this week to ready the terms of the rebidding, Ariel C. Angeles, officer-in-charge of PPP Service of DPWH, said in a Nov. 23 phone interview.

The CALAX project involves a 35-year state contract to finance, construct and operate a 47-kilometer four-lane toll road connecting two growth areas south of the capital. The expressway will start from the end of Cavite Expressway in Kawit, Cavite and terminate at the South Luzon Expressway (SLEx)-Mamplasan Interchange in Biñan, Laguna.

CALAX is DPWH’s third PPP project after the Daang Hari-SLEx road link awarded to the Ayala group and NAIA Expressway contract that went to San Miguel group.

MPIC is one of three Philippine units of Hong Kong-based First Pacific Company Ltd., the others being Philippine Long Distance Telephone Co. (PLDT) and Philex Mining Corp. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld. -- report from Chrisee Jalyssa V. Dela Paz


source:  Businessworld

Four firms seek to bid for PPP transport terminal project deal

FOUR FIRMS have sought to qualify for the auction of the P4-billion contract to build an integrated transport hub near the Food Terminal, Inc. compound in Taguig City, the second of its kind to be rolled out under the public-private partnership (PPP) scheme.

An official of the Department of Transportation and Communications (DoTC) yesterday identified the prospective bidders that submitted pre-qualification documents for the project as: Ayala Land, Inc.; Datem, Inc.; Filinvest Land, Inc.; and MWM Terminals of Megawide Construction Corp.

Upon completion of preliminary evaluation, DoTC’s Special Bids and Awards Committee (SBAC) determined that only four out of six prospective bidders submitted pre-qualification documents on Tuesday.

“Only four of six interest bidders proceeded. Robinson’s Land Corp. and San Miguel Corp. -- through a letter submitted to us -- decided not to submit pre-qualification documents,” DoTC Spokesperson Michael Arthur C. Sagcal said at the sidelines of the event in Mandaluyong City.

Officials of San Miguel and Robinson’s could not be reached immediately for comment.

DoTC had called for parties interested in the ITS-South project in September.

The department will later announce a timetable for the second stage of the bidding process, involving a pre-bid conference and actual submission of bids for the ITS-South Terminal project, Mr. Sagcal told reporters. “The list of qualified bidders will be announced within the year,” he said.

A project brief of the PPP Center showed ITS-South involves the design, construction, financing, operation and maintenance of the facility that will give commuters from Laguna and Batangas access to other transport systems, such as the future North-South Commuter Railway project.

The ITS-South project will be executed under a 35-year build-transfer-operate (BTO) deal with the government, inclusive of construction period.

OTHER PROJECTS
Besides ITS-South, DoTC is also looking at building similar integrated transport hubs in northern and south-western Metro Manila.

Transportation Secretary Joseph Emilio A. Abaya told reporters last week that the department is studying a site near Veterans Memorial Medical Center for ITS-North. Apart from that site, other prospective locations are the former Manila Seedling Bank, the Philippine National Railways site in Caloocan City and the University of the Philippines Diliman campus.

Asked if these locations are still options, Mr. Abaya replied: “Yes, they’re still options. Adding to that is the Veterans.”

A look at the PPP Center Web site showed the hub in the northern part of Metro Manila is meant to serve long-haul provincial and short-distance city transport service providers. Project cost, however, has yet to be determined.

For the P2.5-billion ITS-Southwest Terminal project, deadline of submission of bids will be on Dec. 1. Firms that have bought bid documents for ITS-Southwest are Ayala Land, Inc.; D.M. Wenceslao and Associates, Inc.; Egis Projects Philippines; Expedition Construction Corp.; Filinvest Land, Inc.; Megawide Construction Corp.; Metro Pacific Tollways Corp.; Robinsons Land Corp.; San Miguel Corp.; States Properties Corp.; and Vicente T. Lao Construction Corp.

The ITS-Southwest project -- to be built on a 4.59-hectare site -- will give commuters from Cavite access to other systems such as the future Light Rail Transit Line 1 South Extension. It will be executed also under a 35-year BTO deal, inclusive of construction period.

More detailed timetables for the two ITS projects have not yet been released by the Transportation department. -- Chrisee Jallyssa V. Dela Paz


source:  Businessworld

Monday, November 24, 2014

Phl to host forum on Asean PPP guidelines

MANILA, Philippines - The Association of Southeast Asian Nations (Asean) is looking at harmonizing the guidelines or principles on Public-Private Partnership (PPP) to further enhance the economic integration and global competitiveness of the region. 
The PPP Center of the Philippines said the proposed Asean Guidelines/Principles for PPP would be discussed during the first Asean PPP Networking Forum to be hosted by the Philippines next month. 
The proposed guidelines would harmonize policy, institutional, and regulatory frameworks of Asean member countries with the view to further enhance the economic integration and global competitiveness of the region.  
The guidelines would also establish a network of PPP units or similar institutions that will be a venue for regular interaction of Asean member economies. 
The PPP Center said the networking forum scheduled on Dec. 16 and 17 would also provide a venue for sharing experiences on PPP and challenges, opportunities, and innovative PPP practices as well as insights from the private sector.  
The forum would bring together members of the Asean Connectivity Coordinating Committee (ACCC), national coordinators, PPP focal points and officials responsible for infrastructure projects from the 10 Asean member states.  
The forum is being organized by the Permanent Mission of the Philippines to Asean led by Her Excellency Elizabeth Buensuceso, with support from ACCC, Department of Foreign Affairs (DFA) Asean Economic Community (AEC) Division and the PPP Center of the Philippines. The Economic Research Institute for Asean and East Asia (ERIA) and Asean Regional Integration Support from the EU (EU ARISE) are sponsoring the event. 
Representatives from the private sector, financing institutions, and development partners are expected to attend the forum that would serve as an opportunity for Asean countries to pitch in their pipeline of projects and development support requirements.  
Earlier this month, President Aquino announced at the Asean Business Advisory Council (ABAC) dialogue during the recently-concluded 25th Asean Summit in Nay Pyi Taw, Myanmar that the Philippines would host the networking forum. 
Prior to the forum, the Philippines is set to conduct a roadshow for close to 50 projects worth $20 billion in Melbourne on Nov. 25 and Sydney on Nov. 27. The roadshow in Australia is the last for the year after successful investment roadshows in North America, Europe, Japan and Singapore. 
The government has so far rolled out the biggest PPP project with the P123 billion Laguna Lakeshore expressway dike project; the P24.4-billion Bulacan bulk water supply project; the P18.7-billion New Centennial Water Source; the P4-billion Integrated Transport System (ITS) – South terminal; the P2.5-billion ITS-Southwest terminal; and the operation and maintenance of LRT-2. 
The roll out of PPP projects in the Philippines is in full swing after the award of eight PPP projects worth close to P133 billion. 
These include the Daang Hari – South Luzon expressway link road (P2 billion), PPP for School Infrastructure Project phase 1 (P8.86 billion), the PSIP-2 (P16.28 billion), the modernization project for the Philippine Orthopedic Center (P5.98 billion), the Ninoy Aquino International Airport expressway (P15.52 billion), the automated fare collection system project (P1.72 billion), the Mactan – Cebu international airport expansion project (P17.5 billion), and the Light Rail Transit line 1 Cavite extension project (P65 billion).
source:  Philippine Star

Thursday, November 20, 2014

Manila Hosts ASEAN Forum on PPPs

The Philippine Government is set to host the first ASEAN Public-Private Partnership (PPP) Networking Forum which will gather members of the ASEAN Connectivity Coordinating Committee (ACCC), national coordinators, PPP focal points and officials responsible for infrastructure projects from the ten ASEAN Member States (AMS).
The Forum will provide ASEAN member countries the opportunity to exchange information and share experiences about their PPP programs, establish a network of PPP units among ASEAN member countries and  pitch their PPP projects to prospective investors,  financing institutions, and development partners.
It will also tackle the proposed ASEAN Guidelines/Principles on PPP that will harmonize policy, institutional, and regulatory frameworks of the AMS and enhance the economic integration competitiveness of the region.
Ambassador Elizabeth P. Buensuceso of the Philippine Permanent Mission to ASEAN shared that,“Among the ASEAN member countries, the Philippines is said to be the one with the most advanced PPP legal and administrative structure.”
The Philippines has been ranked highest in terms of PPP readiness in the ASEAN Region in the Infrascope 2011 Study of the Economist Intelligence Unit commissioned by the Asian Development Bank.
  “There is room for improvement and we, together with our colleagues in ASEAN, would like to learn the best practices and guidelines of PPP in this workshop, as well as share our  experience with our ASEAN neighbors,” added Ambassador Buensuceso. 
The Forum will be held from December 16-17 at the Sofitel Philippine Plaza Hotel in Manila and is being organized by the Philippine Permanent Mission to ASEAN, with support from the ACCC, theOffice of ASEAN Affairs of the Philippines’Department of Foreign Affairs (DFA), and the PPP Center of the Philippines. The Forum is supported by the Economic Research Institute for ASEAN and East Asia (ERIA) and ASEAN Regional Integration Support from the EU (EU ARISE).
source:  Public Private Partnership Cernter

Monday, November 17, 2014

Singapore backs investment in Philippine infrastructure, food

THE PHILIPPINES has been endorsed by a Singapore government agency as an investment destination for the infrastructure and consumer sectors, among others, citing the country’s strong economic fundamentals amid robust investment inflows and solid domestic consumption buoyed by remittances.

A report issued by International Enterprise Singapore (IES) and written by Huimin Liu and Yin Yin Lam said: “The Philippines holds significant economic growth potential and has begun to come into the investment spotlight as a result.”

“Although the country has in the past been hampered by political instability and poor investor perception, we believe President Benigno [S. C.] Aquino III has been able to make progress on both fronts,” it added.

IES specifically identified the infrastructure, private real estate, utilities, food, and retail industries as possible investment destinations for Singapore companies.

In the infrastructure sector, the IES recommended that Singapore companies participate in the Public-Private Partnership (PPP) program, which allows private firms to bid for various government projects that include road construction, water supply improvement, and government buildings.

In particular, the report said Singapore companies have competitive advantages in PPPs involving aviation, rail and water projects. They can also participate in renewable energy projects, particularly solar energy generation.

“Interested Singapore companies have to prepare the PPP project tenders thoroughly to avoid disqualifications, which are not uncommon, and partner with local conglomerates or complementary industry leaders with the necessary PPP track record for these tenders,” the report read.

The report also noted growing private infrastructure opportunities, and urged investors from Singapore to participate in residential, commercial and industrial real estate development projects.

The report said the remittances from Overseas Filipino workers are fueling the growth in the demand of housing projects, saying that 40-45% of the sales of residential development is being funded by funds sent from abroad.

Meanwhile, the report noted the increasing demand for office and commercial infrastructure due to the booming business process outsourcing (BPO) sector in the Philippines.

The IES said that despite the rising rental rates, office occupancy -- especially in key business districts in Metro Manila -- remains at 97%, indicating steady demand.

“This demand for office space generates opportunities for self-contained mixed use township developments, involving residential, retail, and other commercial spaces in these developments,” the report read.

In the industrial real estate development, the demand is being driven by the revival of the manufacturing sector, the report said.

“The government wants to create employment by revitalizing the manufacturing sector. Political instability and rising operating cost in other regional economies, coupled with cheaper labor cost in the Philippines have lead to more multinational corporations (MNCs) to consider relocating to the Philippines,” the report said.

The IES noted that the Philippines is an ideal investment site for MNCs because of the country’s talented work force, who are young and fluent in English.

Meanwhile, the report also recommended investors to take a look into the Philippine utilities sector.

In particular, the report endorses investments in the Philippine renewable energy, power generation, and water supply businesses.

Being one of the largest consumer markets in Southeast Asia, the report also sees great opportunities for investments in food, clothing and footwear retail sectors.

Driven by strong remittances, steady BPO income, and a growing middle-class population, the Philippines’ rosy consumer outlook should encourage Singaporean companies to invest, the report said.

It also said household spending in the Philippines is expected to increase annually by 10.5% to $322.6 billion (about P14.5 trillion) in 2018, from $210.5 (about P9.5 trillion) estimated for this year.

“The country’s demographics also boost consumer spending. About 3% of the population are well educated Filipinos between the age of 24 and 34. This demographic group accounts for more than 20% of discretionary consumption and is expected to contribute 50% of the country’s discretionary expenditure by 2020,” the report said.




“In general, the dual-income, middle-class families and young professionals who are willing and able to pay for what they want, coupled with a low lending rate as well as an increase in the number of foreign expatriates and tourists into the country due to the expansion of Manila’s gaming industry are key drivers of the Philippine consumer market,” it added.

The IES also sees huge investment potential in the food industry, with food and drink making up 53% of household expenditure, which is estimated at $171 billion (about P7.7 trillion) this year.

“Filipinos have a hearty appetite. It is typical for them to eat at least five times a day,” the report noted.

While consumers are becoming more health conscious by looking for products that are low in fat, or with reduced sugar content, Filipinos remain to be meat lovers and have a sweet tooth. But above all, rice would always remain as a staple food. “A meal without rice is deemed incomplete to Filipinos -- they eat rice even with Western cuisine such as burgers, pizzas, and other fast food,” the IES report noted.

The report said Filipino restaurant diners spend as much as $25 (about P1,126) per meal. “[This is] an indication of the viability of casual dining concepts, which is a strength of many of our Singapore companies,” the IES said.

However, the report puts in a caution, saying that affordability remains the key for the mainstream market.

“Singapore companies looking at the Philippine market should keep in mind their pricing strategy, and consider options, such as offering bundled deals or individually packaged sachets as compared to large packets,” the report said.

Aside from the food sector, the IES sees bright investment prospects in the Philippine clothing and footwear market, which growth is being driven by the young population aged 20 to 39.

The report said clothing and footwear, which currently account for a modest slice of the overall household spending pie, is forecast to see strong growth, with the retail category expected to increase by an average of 9.4% to $8.6 billion (about P387.5 billion) in 2018, from $5.8 billion (about P261.3 billion) estimated for this year.

Based on consumer insights that IES collected from the Philippines, foreign brands are considered aspirational purchases for most Filipinos. It also noted that clothing and footwear companies would have a strong chance in the local retail market if they have popular celebrity endorsers.

The report said retailers in the Philippines like the Filipino lifestyle brand Bench are strong in their marketing campaigns, and visual merchandising.

“Therefore, it is important for Singapore brands to invest in advertising and promotion; and to not only position themselves as a foreign brand, but also include the use of celebrity endorsers, television commercials, giant billboards, and attractive visual merchandising as part of their marketing strategy,” the report read.

It added that Singapore brands can participate in the local retail sector either by joint ventures, leasing, franchising, distribution, or by partnering with local multi-brand operators like Store Specialists Inc. (which carries a variety of brands from Gucci to Marks and Spencer), and Robinsons Retail (which carries Top Shop, Top Man, and Dorothy Perkins, among others.)

While the report paints a rosy picture for investment in the Philippines, it cautions Singapore investors to consider that national elections are scheduled in 2016, when the current administration steps down.

“Major policy flip-flops from one government to the next can undermine confidence in contract durability,” the report warned. “Without political continuity, private investor interest will be dampened,” it added.

However, the report also believes that the government has “put in legislation to institutionalize these polices, such as the ‘pocket open skies’ policy.”

It also noted the consumption-driven nature of the Philippine economy, making it relatively more resilient to external shocks, unlike export-driven economies.

The report advises Singapore companies to build key relationships in the business sector, since 40 wealthiest Filipino families practically control trade and commerce in the country.

The report also advises Singapore companies to allow adequate time in getting business permits and licenses since they may take long, and delay operations. It cited that it took five steps and 42 days to obtain a new electricity connection.

The IES also recommended that Singapore companies to look for investment opportunities beyond Manila. It cited Cebu and Davao to be potential locations for the next big central business districts in Visayas and Mindanao respectively.

“Singapore companies can consider going beyond Manila to tap these emerging market opportunities,” the report said.
source:  Businessworld

Monday, November 3, 2014

The PPP promise, a work in progress

AFTER A FALSE START back in 2010, the Aquino administration’s flagship public-private partnership (PPP) program finally roared to life. Several large projects have been auctioned off under seemingly competitive conditions that, contrary to model forecasts, yielded substantial revenues for the government. Moreover, the government, with the help of a donor-sponsored project development fund, has built up a pipeline of about 50 projects for PPP that it has taken on international road shows to attract more foreign investors.

However, as the government exhausts the first batch of projects -- which featured revenue streams that appealed to private investors -- and moves to more complicated greenfield projects, there is a high risk of another stall. Having observed closely the problems the government encountered in the newly awarded projects, we’ve identified some policy, institutional and political issues that, left uncorrected, will make it hard to sustain the winning streak.

After a false start and a few years limping along, the Aquino government’s flagship PPP program finally roared to life. In relatively quick succession, the government bid out or awarded four projects worth P125 billion and rolled out six more costing about P170 billion. What was particularly surprising was that the auctions yielded substantial concession fee payments to the government, as against pre-bid financial model results showing that the government would have to provide subsidies to enhance project cash flows.

Encouraged by the successes, the government through the PPP Center has lined up another seven projects worth about P180 billion for approval by the National Economic and Development Authority (NEDA) board, and is preparing feasibility studies for 10 other projects. In all, there are about 50 projects in the PPP Center’s pipeline which the government is also actively marketing to foreign investors through a series of international road shows.

The mood has not always been this upbeat due largely to unmet expectations following the government’s high publicity launch of the program back in 2010. Then, the much-hyped “PPP is the solution to the infrastructure shortage in the country” failed to consider that in the wake of controversies surrounding failed PPPs in the past, both sides of the partnerships had their guard up and were distrustful of each other. In particular in the aftermath of the Asian crisis, the public sector had to grapple with and absorb some of the liabilities in PPP contracts, and for years leading up to 2010 preferred to manage the risks from contingent liabilities by avoiding them altogether. In turn, the private sector was particularly leery of government contract promises that the latter had time and again failed to keep, notably delays in tariff adjustments in most sectors -- power, water, rail, toll roads -- particularly during politically sensitive periods.

Moreover, there were very few market-ready projects in the pipeline at the time and fast-tracking last-mile adjustments to ready projects was constrained by technical limitations in implementing agencies. It was thus a slow process of learning by doing on a per-project basis, tentatively delineating risks among the parties involved, with the government deftly testing what risks the market could bear through actual biddings of smaller projects.

These included (a) a small 4-kilometer (km) toll road in December 2011 that very soon became stuck in right-of-way (ROW) disputes, and (b) a project to build classrooms, awarded in September 2012, that was the first of its kind in that it relied solely on government payments for its cash flows and thus was not able to attract more bidders willing to assume congressional appropriations risk. Critics also pointed out that this project and its second phase the following year lacked features of true PPPs in that the private sector merely handled construction of the schools and were not exposed to market and operating risks.

The first major win for the Aquino government was the P15.5-billion, 7.75-km, four-lane elevated NAIA Expressway project that had been in the drawing board for decades and was finally brought to market with donor technical assistance. Albeit it attracted only two bidders, the auction, won by a consortium led by one of the large domestic conglomerates (SMC) in May 2013, yielded P11 billion in concession fees to the government and by early 2014 had already broken ground. Another win six months later was a five-way bid in November to install a P1.7-billion single-ticketing system for Metro Manila’s rail system, where the winning bid was a P1.1-billion payment to the government.

But it has not become easier. The latest auctions, involving three multibillion-peso transport projects, have been uphill struggles for both the government and the private sector. The challenges that have emerged during the bid stage are reminders of the inherent difficulty and associated time lag of doing PPPs, especially in a developing country like the Philippines where institutions remain weak and bidders take for granted that calling on the courts, Congress or the President to intervene on their behalf is part of the rules of the game. Such politicization of the formal PPP processes tarnishes the program’s image and dulls investors’ appetites. Here are a few of the project holdups:

LRT LINE 1 EXTENSION
The biggest and the most complicated one to date, it has been subjected to repeated feasibility studies. The first bidding in August 2013 failed due to misallocation of risk (shifting to the private sector the uncertainty of real property taxes) and the insufficiency of allowed subsidy. It was rebid in May this year with the lone bidder (out of seven prequalified) winning. The award was delayed to September by a still ongoing legal tussle involving the location of a “common station” shared with another rail line.

MACTAN-CEBU AIRPORT TERMINAL
Seven bidders showed up in November 2013, with the consortium of Megawide Construction Group, which partnered with India’s GMR Infrastructure, winning the bid. Citing conflict of interest, the losing bidder challenged the qualifications of the winning group, which was then subjected to a Senate inquiry. Even with a legal challenge filed before the Supreme Court, the project was awarded in April, delayed by a few months.

CAVITE-LAGUNA EXPRESSWAY
Four groups vied in the June bidding, with the SMC consortium disqualified based on a noncompliant bid bond. Of the three remaining, the Ayala-Aboitiz consortium offered the highest premium, amounting to P11.66 billion. The SMC group claimed that it would have won with a P20 billion had it not been disqualified on a “technicality.” It appealed to the President to overturn its disqualification and the Palace issued an order in late June suspending the awarding of the project. The issue has yet to be resolved.

(Next week: Moving forward)
This piece is based on a GlobalSource report by Christine Tang and Romeo Bernardo

Romeo Bernardo was finance undersecretary during the Cory Aquino and Ramos administrations, and board director of Institute of Development and Econometric Analysis Inc.

romeo.lopez.bernardo@gmail.com
source:  Businessworld