EIB, ADB threaten to cancel $167-M loan for airport project

The European Investment Bank (EIB) and the Asian Development Bank (ADB) are threatening to cancel the funding for the $167-million Third Airport Development Project due to government’s continuing failure to resolve certain issues regarding the pre-qualification of private contractors that would undertake the project.

Documents obtained by reporters show that both the ADB and EIB have repeatedly expressed concern over the pre-qualification of the joint venture led by Sum Cheong Construction Pte. Ltd and its local partner, Sunwest Construction Development Corp., which made the lowest bid for the project.

In separate letters to the Department of Transportation and Communications, the ADB and EIB raised "serious concerns" over the group’s financial capacity to undertake the project that will involve the upgrading of two regional and four domestic airports in the country.

The project was supposed to be funded jointly by a $93-million ADB loan and another loan from EIB amounting to $29 million. Government counterpart-funding would amount to $45 million and the project was supposed to have been completed in November last year.

The DOTC has pre-qualified the Sum Cheong group in the bidding for all five airport projects but it came under fire for not disqualifying several prospective bidders with questionable financial backgrounds.

Aside from Sum Cheong, the DOTC also pre-qualified Italian-Thai Development Corp. which had recently encountered financial problems that led to its disqualification from several projects funded by multi-lateral funding agencies.

In his letter, ADB director Patrick Giraud questioned the pre-qualification of the Sum Cheong/Sunwest venture which had submitted the lowest bid and was likely to win the project.

Sum Cheong, the group’s lead partner, was earlier abandoned by its own principal investor, China Development Corp. CDC held a 58-percent interest in the company which it sold to Sum Cheong chairman Albert Hong for one Singapore dollar (S$1).

CDC’s pull-out has created doubts on whether Sum Cheong is in a position to undertake a project in the magnitude of DOTC’s Third Airport Project.

Giraud said both Sum Cheong and its local partner, Sunwest, would be required to present the latest financial information that would be more reflective of their current financial position.

EIB rejected Sum Cheong outright, saying the company’s financial situation is "unsatisfactory."

"We regret that we cannot give our non-objection to the recommendation to award the construction contract to [Sum Cheong]," said S.W. de Vries, division head of EIB’s operations in Asia in a letter to DOTC project director Rodolfo Sanico.

According to De Vries, Sum Cheong simply did not meet the financial criteria outlined in the tender documents. He said Sum Cheong provided additional information about the provision of a new credit line certificate but this was not acceptable under the terms of the tender.

"[The new credit line certificate] represents a material change to the financial position of [Sum Cheong] but only after the deadline for the tender submission which is not acceptable under the terms of the tender," De Vries said. "Sum Cheong’s tender should thus be considered non-responsive."

Giraud also warned the DOTC for qualifying Italian-Thai Development Corp. which had already been disqualified from participating in other ADB-financed projects of because of its questionable capacity to finance the projects.

"Their financial capacity had seriously deteriorated," Giraud said, adding that the ADB had previously asked the DOTC to re-evaluate Ital-Thai’s qualifications based on its most recent financial statements.

According to Giraud, the difficulties of the DOTC are raising concerns on the possibility of starting the project implementation before the current loan closing date and even more on securing a loan extension.

Speaking on condition of anonymity, sources privy to ongoing negotiations between the DOTC and the EIB said the European bank has sent a mission to the country that ultimately recommended the outright cancellation of the loan.

The source said Malacanang has stepped into the mess in an attempt to sort out the controversy but the intervention might have come too late because EIB has lost interest in funding the project.

The ADB loan carries an interest rate based on the bank’s pool-based variable lending rate system for US dollar loans. It also carried a charge of 0.75-percent annual commitment fee.

The project would have covered the upgrading of five key domestic airports — Cotabato City, Butuan City, Dipolog City, Pagadian City and Sanga-Sanga in Palawan. — Des Ferriols