Defending CALAX at Plaza Miranda

As I was telling friends, I expected P-Noy to decide exactly the way he did on the CALAX bidding controversy. My technocrat friends, many of them working for the biggest conglomerates, have been insisting that San Miguel technically lost the bid with that typographical error.

I have been telling them that P-Noy cannot politically ignore the P8.45 billion difference in the bids of the Ayala-Aboitiz consortium and San Miguel.  The masa will not appreciate the technicality of a typographical error that was reasonably explained. The masa will see a decision for the Ayala-Aboitiz bid as a sweetheart deal P-Noy made with his Makati big business backers.

The fight for CALAX became our version of a fight between Wall Street and Main Street. The Makati Business Club, where the Ayala and Aboitiz business interests reign, together with all the big business associations and foreign chambers issued a strong warning to P-Noy about the consequences of deciding against the Ayala-Aboitiz bid. They threatened the President with a loss of investors.

The PCCI, which represents the local Main Street, the medium to small scale businesses nationwide, had a different take. PCCI, headed by Zest Air founder Alfredo Yao, argued that rebidding CALAX would maximize the “economic benefits” of this project under the PPP.

PCCI took the position that the technicality disqualifying San Miguel would deprive the government of the P8.45 billion difference between the San Miguel bid of P20.1 billion and the Ayala-Aboitiz bid of only P11.65 billion.

PCCI observed that the San Miguel technicality was minor compared to the changes in the bidding rules in the past. PCCI cited changes in the Daang Hari-South Luzon Expressway project to accommodate Ayala.

I checked my files and indeed, it turns out that DPWH thru Bulletin No. 8 allowed a design change to accommodate Ayala despite the written objection of South Luzon Tollways. The new design resulted in DPWH incurring an additional P500 million in right of way expenses.

PCCI said the CALAX rebidding could start from a floor price of P20.1 billion because the market value of the CALAX project has already been established by SMC’s disqualified offer.

P-Noy told reporters covering the APEC in Beijing that he favors a rebidding of the P35.4-billion CALAX project. Asked about the warning of Makati Big Business groups that a rebidding will sap investor confidence, P-Noy said he would rather face criticism from them than deprive Filipinos of what is best for them.

“Eh, wala namang tatabi sa akin sa Plaza Miranda na sasabihing tama ‘yung ginawa ko. Wala namang tatanggap ng batikos kasabay ko. Mamimili na ako kung sino ang magagalit sa akin. Siguro maganda nang magalit sila (Makati Big Business) kesa ‘yung taumbayan.”

That’s exactly what I was saying from the start… the political implications of giving up P8.45 billion is too much to ask any President. P-Noy told reporters the P8.45 billion difference in the offer of the winning bidder and the disqualified company is significant. He added that the amount could be used to fund the construction of government socialized housing.

Those who appreciate the technical aspects of the PPP bidding processes can argue that P-Noy is wrong because DPWH disqualified San Miguel already. But even that argument is well… arguable. San Miguel claims that they were asked to explain and with that is the understanding that a reasonable explanation would be accepted.

P-Noy explained that the fundamental issue was that the bid documents submitted by San Miguel Corp. had a typographical error. “The Department of Public Works and Highways asked for a clarification – a clarification by the ANZ Bank (Australia and New Zealand Banking Group) – and San Miguel itself stated that their bid security was good for 180 days as opposed to 176,” P-Noy explained.

San Miguel claims that they did not prematurely open their bid documents because those were with DPWH. “But we did reproduce and showed media the exact same copy of the bid document which showed the amount of our bid before all the bid documents were officially opened. We did not know what the bid price of the other participants. They returned our sealed bid documents immediately after the winning bidder was declared, which we then opened in front of the media and was captured by the camera of ANC.”

P-Noy cited the company’s argument that their bid is over P20 billion… “Now, if we accept the winning bid at this time when there is an allegation that there was a much superior bid, then we will have to explain to the people the P8.4 billion difference that we forego.

“We get the infrastructure; we get a premium of P20-billion allegedly from one bid, or an P11-billion premium from another bid. Now, at the end of the day, we have to protect the people’s interests,” P-Noy insisted.

P-Noy further explained that “the proposal for government to actually undertake the project defeats the whole purpose of the PPP project to free our resources for other infrastructure needs. There are private sector individuals or companies that are willing to provide us the infrastructure we need and to deliver a premium to us. So how do we meet the attainment of the goal of getting the best deal for our people? So I am inclined to think that a re-bid will be the proper course of action on this particular issue.”

Entrepreneur Ed Yap, who is also active in some of the Makati Big Business groups, differed with his colleagues. Ed thinks that “P-Noy was thrown a bad deck of cards by the DPWH BAC. It invited trouble by asking for an explanation instead of outright declaring the bid as non-compliant. Politically, P-Noy can’t just let go of that fat premium. It’s a bonanza in the short term for the government but, eventually, the public will pay for it thru higher toll fees.”

Indeed, maybe the bidding instructions were wrong. Instead of a premium, they should have asked the proponents to bid the lowest toll rate to be charged. It doesn’t seem right for government to make money on PPP infrastructure projects it should be spending money on and opening the people to a higher toll. The real purpose of the program is to put private sector resources to work in public infrastructure government doesn’t have the resources to build… at the least cost to the people.

Even if the proponents say that the high premiums don’t matter because government will regulate toll fees anyway, it would be unbelievable for a private business to not seek to recover those outsized premiums somehow. Their toll rate petitions will likely factor the high premiums as well.

For background, the CALAX project involves the financing, design, construction, operation, and maintenance of a 4-lane, 47-kilometer closed-system toll expressway connecting the South Luzon Expressway (SLEX) and the Cavite Expressway.

Team Orion, the 50-50 joint venture between Ayala’s AC infrastructure Holdings Inc. and Aboitiz Land’s accepted bid is P11.65 billion. San Miguel Corporation’s (SMC) Optimal Infrastructure Development Inc. submitted a P20.1 billion bid but was disqualified despite what it claims is its substantial compliance with bidding rules.

The threat of the Makati Big Business bidders to boycott the rebidding is unfortunate. It may not even be in their best business interest. CALAX will open up for development large tracks of raw land and the business prospects outside of the PPP contract may be even more compelling.

In any case, it may take quite a while to realize the project. I understand that DPWH is still in the process of acquiring the right of way (ROW) and that’s a tedious process.

There are those who say that P-Noy’s handling of the CALAX project rebidding issue showcases his personality--- single minded, not open to criticisms, brat-like, determined. But I say it also shows it is difficult to tag him as a captive of one interest group or another. He does have his own mind.

You have to admire how P-Noy stood against his supposed patrons in the Makati business elite who launched an all out campaign to pressure him on the issue. All the chambers with the exception of PCCI wanted P-Noy to award CALAX to the Ayala-Aboitiz consortium.

But P-Noy did what an accountable politician would do... decide in a way that makes it easy for him to explain his decision at Plaza Miranda, in terms common people can understand. The technicalities are difficult to explain to non technocrats and may even subject him to an anti graft case after his term.

P-Noy’s supposed allies in the business community should allow him enough room to be President not just of Big Business but of every Filipino. And next time, DPWH and other government agencies bidding out PPP projects should not put P-Noy in this difficult predicament. They should handle future biddings a lot better than the handling of CALAX.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco