Expressway-dike deal a ‘hot potato’ for now

Tension rose steeply on Monday inside a packed conference room at the headquarters of the public works department in Manila. Five minutes into the 2 p.m. deadline of the submission of bids for the P122.8-billion Laguna Lakeshore Expressway Dike deal, none of the three qualified bidders seem to be keen on presenting their offers.

Two minutes passed and San Miguel Corp., the only group that brought its bid documents during the tender, decided to submit its proposal. But after a few seconds or so, it withdrew its bid, and government officials declared the auction process terminated.

His face flushing, and his eyes pleading, Department of Public Works and Highways (DPWH) Public-Private Partnership (PPP) Officer in Charge Ariel C. Angeles declared the process a “failed bid.”

“There are no bidders that submitted a bid. Right now we have to assess and check on everything as to the reasons of the failed bidding,” he said. “The bidding process was terminated because of a failure to bid. One party submitted, but they withdrew.”

San Miguel officials present during the bidding refused to give a comment on their group’s decision to back out of the tender process; but the two other parties were more vocal as to their reasons. Team Trident—composed of Ayala Corp., Aboitiz Equity Ventures Inc., SM Prime Holdings Inc. and Megaworld Corp.—has three key issues on the deal: economic viability, problems with connectivity and the complexity of the deal.

“We looked at the overall economic viability and risks. We took some of those to see if we can get this financed. But we couldn’t get to a sufficient level of comfortability with the economic viability and risks and our ability to take it to the banks,” he said. Connectivity to different growth areas in Metro Manila was also an issue for the so-called megaconsortium. “You have to have a guaranteed access to other central business districts,” Azanza said. “Connectivity is crucial, as it is a 700-hectare development.”

The deal’s complexity, he added, made it more commercially unviable. “The other one is the complexity of the deal. Consequently, the technological solutions for this project were so challenging that the cost implications almost doubled than what the government initially had,” Azanza said.

The project involves the construction of a 47-kilometer flood-control dike—on top of which will be a six-lane expressway—on an offshore alignment 500 meters away from the western shoreline of Laguna Lake. It includes interchanges, bridges, floodgates and pumps from Taguig to Los Baños in Laguna. It also involves the reclamation of 700 hectares of raw land adjoining the expressway-dike.

The thoroughfare-cum-dike project will help mitigate flooding along the western coast of the Laguna Lake running from Taguig to the town of Bay in Laguna. It will also serve as an alternative transport route to the congested South Luzon Expressway and enhance the hydrology for the ecosystem of Laguna Lake.

“The government also wants this rolled out in seven years. So, its complexity, less connectivity and a very tight time frame to roll this project out. So just imagine how the risk-reward balance was clearly not in the favor of the bidders,” Azanza said. Alloy-Pavi Hanshin LLEDP Consortium of Alloy MTD Capital Bhd., Prime Asset Ventures Inc., and Hanshin Engineering Constructions, on the other hand, believes that the bidding process itself was illegal.

“We believe that the bidding process is illegal and is unenforceable and is risky,” MTD Philippines Inc. President Isaac S. David said. “It is risky, as the signing of the contract, which mandates that we have to pay 20 percent of the premium up front, was set on April 6, a few months before the entry of a new administration.”

He said that his group is not too comfortable with the changing of the guards of the Philippines, as the new set of leaders may choose not to respect the contract that was signed during the last administration. “They can delay or cancel the contract,” he added. The group also submitted its position on the “illegality” of the bidding process.

In its letter to the public works department, the company said that the lack of a presidential proclamation “reserving the reclamation area for purposes of procurement transaction” made the tender illegal. “Second, the legal personality of the procuring entity is questionable. It has to be the Philippine Reclamation Authority, not the public works agency, nor the Laguna Lake Development Authority,” David said in explaining the contents of the copy of the letter that was furnished to the BusinessMirror. San Miguel bigwig Ramon S. Ang said the government has to reassess the implication of the project for the private sector before offering it again as a PPP deal.

“The project is just not feasible. The government will have to reexamine its assumptions and redesign a mutually beneficial contractual structure best suited for a deal as large and complex as this one, given its potential to create opportunities that will generate the greatest benefit to a lot of people,” he said in a text message.

PPP Center Executive Director Andre C. Palacios said that it will be impossible for the current administration to rebid the deal, but said that his camp will continue to support the public works agency in crafting its game plan for the development of the facility.

“I doubt if we can do another bidding within this administration. But the PPP Center and the transaction advisors remain committed to support the implementing agencies in whatever steps they will take for the project,” he said. This is not the first time that the Aquino administration declared a failed bidding for a key infrastructure deal. Two other deals—the expansion of the Light Rail Transit (LRT) Line 1 and the construction of the Cavite-Laguna Expressway—saw their first auctions failing, but were later awarded to their private proponents after a second try.

source:  Business Mirror

Are we organizationally ready for PPPs?

Are our government agencies ready for public-private partnership (PPP) arrangements? Do we have the right leaders, partners and followers? Do implementing agencies undertake PPPs just to join the bandwagon? Do all stakeholders understand what PPP is and what it is not? Do partners share the same vision and trust each other?

PPPs are not just about technical and financials. Organizations must be ready to enter into PPPs. PPP is not for the technically unequipped, knowledge-dependent, innovation-averse, fainthearted and distrustful organizations.

According to Cameron and Quinn, there are four “competing” values in an organization. An organization may be focused just on itself or focused on the market and stakeholders. An organization may give premium to stability and control, or emphasizes flexibility
and discretion.

An organization that wants to have internal focus and remain bounded by rules and tradition is said to value the “hierarchy.” A culture that values itself yet encourages participation, and “we-ness” is said to be a “clan.” An agency, which desires to engage the market within the limits of the rules, is a “market” organization. An institution, which propels itself through innovation, pioneering initiatives and out-of-the-box strategies by partnering with others, is said to espouse the “adhocracy” culture. The organization, in this case, becomes a “network and market organization,” per Olsen.

For PPPs, adhocracy is an imperative. In order to be PPP-ready, agencies must go outside themselves, acknowledge the deficits, embrace partnerships and be driven by a shared vision. They must be flexible, not be contented with the status quo and not stymied by rules, tradition and run-of-the-mill strategies.

PPP requires agencies to partner with the private sector and civil-society organizations, and work with regulators. Agencies should look beyond the typical PPP modalities, and explore other ways of partnership
for the public good.

This does not mean that agencies should violate the law and dismiss itself, and treat its plantilla as irrelevant. On the contrary,  adhocracy  should coexist, and must complement the other values of “clan,” “hierarchy” and “market.” As part of the bureaucracy, agencies must follow the rule of law.

The organization, as a team, must be capacitated and nurtured. The agency must know its mandate and capitalize on its
competitive advantages.

The Metropolitan Waterworks and Sewerage System, by using the lowest tariff scheme for the Bulacan Bulk Water Supply Project; the Quezon province, in entering into a joint venture for bulk water, hydropower and wind power in a single project;  the City of Cebu and Municipality of Cordova, in banding together for the third bridge; the province of Bataan, in engaging the private sector for its capital redevelopment; the water districts of Lingayen and Tarlac, among others, for the rehabilitation
of the water system, all exemplify adhocracy.

To achieve and sustain this, the leaders, partners, followers and stakeholders must all be visionary, participative, goal-oriented, capable and able, and learned. They must be transformative, since the objective of PPPs is better quality of life and must practice technical leadership, since PPPs must be legally acceptable, technically compliant and
fiscally viable.

We need more. We can do more. But more is required of us.

source:  Business Mirror

Japan’s biggest bank sees opportunity in PPP projects

FOLLOWING THE central bank approval of its equity purchase in Security Bank Corp., Bank of Tokyo-Mitsubishi UFJ Ltd., (BTMU) Japan’s largest bank, is looking to get involved in infrastructure projects in the country, its chief executive officer said.

Go Watanabe, CEO of BTMU Asia & Oceania region, said the commercial banking unit of Mitsubishi UFJ Financial Group (MUFG) on Feb. 29 secured the green light from Bangko Sentral ng Pilipinas (BSP) for its 20% equity investment in the country’s fifth largest bank by market value in a deal valued at P36.943 billion ($782 million). This investment is the largest so far by a foreign entity in a Philippine financial institution.

“BTMU has no PPP (public-private partnership) investment yet but we have been thinking to participate in the projects included in the pipeline... PPP, particularly in infrastructure, is a necessary project for this country and Japanese companies are showing strong interest to participate in them,” Mr. Watanabe said in a media briefing Tuesday.

“BTMU is the best project finance bank. Together with the good peso liquidity from Security Bank, our team is the best team to support the PPP projects and encourage Japanese customers to participate in the program,” he added, noting that BTMU and Security Bank will likely serve as financiers to consortiums that will be involved and as financial advisers to interested parties.

“We haven’t decided yet [how we will participate in PPP projects] but maybe we could provide loans and be venture partners,” the BTMU official further said.

Security Bank President Alfonso L. Salcedo, Jr. earlier said “additional capital from the stake sale and the expertise of BTMU in project finance will facilitate Security Bank’s participation in big ticket infrastructure projects.”

BTMU Manila Branch General Manager Tadahiro Miyamoto said the foreign lender will help bring in more foreign firms in the country, particularly from the automotive and manufacturing sectors, following its strategic partnership with Security Bank.

“The challenge now is how to encourage overseas companies to go here. We will support this [but] we need more support from the government,” he said during the same briefing in Makati, noting that the government could look at providing more tax perks, improving infrastructure and lowering power costs to attract more foreign investors.

Mr. Miyamoto cited the country’s “very good” prospects with its population size and expanding middle class, as the good economic gains are projected to continue in the next few years.

“The Philippine economy has been growing. Among the ASEAN countries, the Philippines is the one with the biggest growth potential. It is the missing part in BTMU, that’s why we decided to make strategic partnership and it would contribute much to BTMU’s prospects. We would like to expand more business here,” Mr. Watanabe said.

Meanwhile, BTMU said it is ready to help Security Bank not just grow its size, but also in terms of technology transfer, as it aims to push the local lender to become one of the country’s top banks.

Mr. Salcedo earlier said that with the additional capital from the deal, the local lender is looking “at being at the top four, five banks in the industry sooner than later.”

As of end-September, Security Bank was ranked the sixth largest domestic universal lender with total assets of P482 billion.

The partnership, which will also allow Security Bank to leverage on the BTMU’s extensive relationship with Japanese corporates, global network and expertise to tap new niche markets, will raise P36.9 billion in capital for the Philippine lender, increasing its shareholder capital from P52.4 billion as of September to P89.3 billion on a pro-forma post-transaction basis.

Mr. Salcedo had said the transaction will help the local lender accelerate its expansion plans “at a faster pace and with more scale.”

The bank seeks to double its current market share in both loans and deposits to between 8-9% from the current 4% range, with aggressive expansion plans.

It will also scale up its branch network at a “much faster pace” to more than 500 by 2020 from around 262 currently.

Security Bank posted a net income of P7.7 billion in 2015, 7% higher than the P7.16 billion in earnings it booked the year prior, on the back of sustained growth in its lending activities.

Security Bank shares closed at P154.90 apiece yesterday, down by 10 centavos from the previous day’s P155-per-share close.

Meanwhile, BTMU is currently “very comfortable” with its 20% stake in Security Bank setting aside any plans to hike its interest in the local lender, at least for now.

“At this moment, BTMU’s 20% is very comfortable, at this moment we have no plans to increase the share. In the future, if we see opportunity, and both parties agree, then we might think about it but mutual agreement is very important,” Mr. Watanabe said.

Now that it has successfully found a partner in the Philippines, BTMU is eyeing Indonesia and India as its next targets, although the financial giant is “not in a hurry” and will continue to look at opportunities.

source:  Businessworld

Capital markets could be opened to PPP proponents

THE GOVERNMENT may adopt before its term ends a policy allowing concessionaires of public-private partnership (PPP) projects to tap the capital markets, pension funds and insurance companies for refinancing.

In an interview with reporters yesterday, new PPP Center Executive Director Andre C. Palacios said the interagency PPP Governing Board shall have approved the circular before the next administration takes over.

“I am hopeful that by June 30, the policy circular shall have been approved, meaning, the staff work, consultations and talks with the Philippine Stock Exchange (PSE) and Securities and Exchange Commission have been undertaken,” Mr. Palacios said in a mix of English and Filipino.

The PPP Center is currently drafting the policy circular, which involves the issuance of PPP securities or the “securitization” of the private-sector partner’s rights to revenues arising from their contract with the government.

“Since it is a right arising from the contract, the contract provides that you need approval of your government partner if you are going to mortgage it or assign it to another entity,” Mr. Palacios noted.

The policy could also pave the way for the government’s private sector partner to settle their existing debts with banks and avail of new loans from pension funds and insurance companies at lower interest rates.

“Usually, it’s the banks that finance the construction stage... Because they have a higher appetite for risk, they are more willing to lend but at higher interest rates, of course,” Mr. Palacios noted.

The risk profile improves once the concessionaires complete constructing and start operating the projects, making the case for loan refinancing, the PPP chief added.

“It’s expensive for a concessionaire to pay the bank interest rate when the risk profile has really improved. So, we’re exploring a refinancing policy,” Mr. Palacios said.

In an earlier interview, Insurance Commissioner Emmanuel F. Dooc said the commission is working on encouraging insurance companies to finance infrastructure projects.

Mr. Palacios said the PPP Center already discussed the refinancing policy with the Insurance Commission. The agency also continues to engage in talks with the PSE for the issuance of PPP securities.

“We’re talking to them [PSE] on how we can contribute to the development of the market. PPP Center can contribute by providing in our PPP contracts that the concessionaire can refinance it or securitize their revenue,” Mr. Palacios said.

The PPP Center plans to reflect the proposed policy circular in the contracts covering PPP projects to encourage involved government agencies to allow refinancing.

“We are exploring this, we could allow concessionaires to securitize or to issue a bond to borrow money from the public and pay them using revenues arising from the contract,” Mr. Palacios said.

source:  Businessworld

Aquino in $6.5-B infra legacy push

THE PHILIPPINES plans to solicit bids for $6.5 billion worth of projects from roads to airports before President Benigno S.C. Aquino III’s six-year term ends in June, seeking to leave his successor a robust pipeline of infrastructure deals.

Eleven projects, including a $2.6-billion highway and land reclamation, will be up for grabs in coming months, from a list of 50 deals that will be handed to the next administration, said Andre C. Palacios, 45, the new head of the agency overseeing big-ticket infrastructure projects.

“We already have a good number of investors who are prequalified as bidders, and they have put their money where their mouth is,” Mr. Palacios, executive director of the Public-Private Partnership Center, said in an interview Monday in Manila. “We are gift-wrapping these projects for the next administration so they can hit the ground running.”

Mr. Aquino has awarded 12 projects worth $4.2 billion since 2010, including the expansion and operation of a railway in Metro Manila and a toll road connecting the provinces of Cavite and Laguna. The improvements aim to draw investors, who have identified poor infrastructure as a deterrent to putting money in the Philippines. All five politicians vying to succeed Mr. Aquino have pledged to make infrastructure a priority.

The agency also will work with Congress to pass the proposed PPP Act that aims to minimize risks to investors, make joint ventures more transparent and create a contingent liability fund for unexpected costs in cases where the state can’t meet its commitments, Mr. Palacios said.

Projects under the PPP are not included in the election ban on procurement starting this month. The elections and policy uncertainty after Aquino are among risks related to PPP projects, BMI Research said in a Dec. 2 note.

The 11 projects Mr. Aquino intends to bid out before stepping down are: Operation and maintenance of LRT Line 2 in Manila; regional prison facilities, P50.18 billion; Davao Sasa Port modernization, P18.99 billion; New Bohol Airport operations, maintenance, development, P2.34 billion; Laguindingan airport operations, maintenance, development, P14.62 billion; Davao airport operations, maintenance, development, P40.57 billion; Bacolod airport operations, maintenance, development, P20.26 billion; Iloilo airport operations, maintenance, development, P30.40 billion; Laguna Lakeshore road/dike project, P122.80 billion; Road Transport IT Infra project, P298 million and civil registry system information technology project, P1.59 billion.

“These projects are long overdue, urgently needed and will have a great impact on Filipinos,” Mr. Palacios said.

“Every day of delay will inconvenience the public.” -- Bloomberg

Civil registry PPP draws three interested parties

THE GOVERNMENT has drawn interest from three groups for a P1.59-billion public-private partnership (PPP) aimed at upgrading the country’s civil registry services.

The Morpho-Filmetrics-Frey Consortium, Unisys Public Sector Services Corp. and PNJ Partnership Consortium attended the pre-bid conference for the Civil Registry System Phase II Project on Feb. 26, Dorcas Ann O. Ho of the PPP Center’s Project Development Service said in an e-mail.

Morpho-Filmetrics-Frey Consortium is composed of security and identity solutions providers Morpho (Safran) and Filmetrics Corp. along with construction firm Frey-Fil Corp.

PNJ Partnership Consortium comprises Japanese system integration firm NTT DATA Corp., Pointwest Technologies Corp., property developer Filinvest Land, Inc., Magellan Capital Holdings Corp. and Fleetwood Holdings, Inc.

The interested groups will have to submit their bids “sometime” in May, said Ms. Ho, noting the PPP Center has yet to finalize the timeline.

The winning bidder will finance, design, develop, operate and maintain the civil registry system for the Philippine Statistics Authority.

The system will collect, access, store, maintain and manage civil registry documents and the specimen signatures of all city and municipal registrars using imaging technology.

The project also includes production of vital statistics and will make the civil registry services available nationwide.

The National Economic and Development Authority Board, chaired by President Benigno S. C. Aquino III, approved the project on July 15, 2015. It forms part of the 55 projects included in the government’s PPP pipeline. -- Keith Richard D. Mariano

source:  Businessworld