CALAX rebid seen to turn off investors

MANILA, Philippines - Fund managers and think tanks warned yesterday that the planned rebidding of the P35.4-billion Cavite – Laguna expressway (Calax) could derail the momentum of the Aquino administration’s public private partnership (PPP) project.

In a report on Philippine infrastructure titled “Shooting itself in the foot”  CLSA said the government’s dilly-dallying on Calax could prove disastrous for the PPP scheme.

President Aquino told members of the Foreign Correspondents Association of the Philippines (Focap) on Wednesday that Malacanang is inclined to order a rebidding for the Calax project due to the appeal filed by San Miguel Corp. (SMC).

 “If ever the government decides to do this, it will be massively negative for the entire PPP program, as it reverses all the progress made in implementing a transparent bidding process,” CLSA’s Ignacio Gonzalez said in the report. 

Gonzalez pointed out that a decision to declare a failure of bidding and to rebid the project being undertaken by the Department of Public Works and Highways (DPWH) could turn off investors who would believe that the government is favoring SMC.

 “This could easily have been construed as the government favoring SMC to give them another chance, despite the fact that their bid was found by DPWH to have been non-compliant with the rules,” Gonzales said.

Acoording to Gonzales, foreign and local investors would like to see a transparent bidding process of major infrastructure projects.

 “While the nationalization option may seem more palatable from a legal standpoint, we maintain that rules should not be changed mid-stream. The government’s decision to dishonor the rules that they themselves wrote ruins the credibility of the entire PPP program. This will definitely deter foreign and local investors from participating in future biddings,” CLSA warned.

Team Orion, a 50-50 joint venture between conglomerate Ayala Corp. and listed Aboitiz Land Inc. emerged as the highest bidder for the project last June with a bid of P11.659 billion, better than the P11.33 billion submitted by MP CALA Holdings Inc. of infrastructure conglomerate Metro Pacific Investments Corp. (MPIC), and the P922 million bid of Malaysian-owned Alloy MTD Philippines.

On the other hand, SMC’s Optimal Infrastructure Development Inc. was disqualified through a June 11 resolution issued by the Bids and Awards Committee of the DPWH due to a defect in its bid. 

This prompted the SMC Group to elevate the case to the Office of the President. Malacanang, on the other hand, issued a stay order last June 30 preventing the DPWH to implement a resolution disqualifying SMC from the bidding.

 “While the government would lose out on P8 billion worth of SMC’s bid premium on the Calax  project, losing investor interest for the other projects in the pipeline would be a bigger loss for the government in the longer term,” CLSA said.

“The government’s inability to honor its own terms of engagement will turn off groups from further participation in future PPP projects, resulting in less infrastructure development and the perpetuation of very costly bottlenecks,” it added.

On the other hand, New York-based think tank Global Source Partners said in a special report titled “Philippines: Challenging Partnership” that there is a need to depoliticize the bidding of major infrastructure projects under the PPP scheme.

Global Source cited “the inherent difficulty and associated time lag of doing PPPs, especially in a developing country context such as the Philippines, where institutions remain weak and bidders take for granted that calling on the courts, Congress or the President of the Republic 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,” Global Source said.