Defining moment

On Friday, the Philippine government announced that it has chosen the consortium that includes San Miguel Holdings Corp. to rehabilitate, operate, optimize and maintain the country’s premier gateway and inarguably one of the world’s worst – the Ninoy Aquino International Airport (NAIA).

To be signed within the next 30 days, the concession agreement between the government and the San Miguel Corp. (SMC)-led consortium to rehabilitate, operate, optimize and maintain the Ninoy Aquino International Airport (NAIA) is one good test case that can show how a good public and private partnership can be beneficial for the country and how it can turn a next to impossible mission of improving NAIA and making it world-class, into a reality.

SMC president and CEO Ramon Ang has previously said that they aim to elevate NAIA to world-class standards and ensure an exceptional experience for all travelers with first-rate services and facilities.

Last Dec. 23, Republic Act 11966 or the Public-Private Partnership (PPP) Code, a landmark legislation that unified the fragmented PPP legal framework in the country under one governing law, took effect. The PPP Code was signed into law on Dec. 5, 2023 and repealed or modified RA 6957 as amended by RA 7718 or the Build-Operate-Transfer (BOT) law.

RA 11966 provides that for solicited proposals, the PPP contract shall be awarded to the bidder who has satisfied all pre-qualification and eligibility requirements and has submitted the most responsive bid to the bid parameter proposed by the implementing agency and set forth in the parameters, terms, and conditions (PTC) approved by the appropriate approving body.

The law also provides that the most responsive bid would be the bid that conforms, in all material respects, to the bid solicitation requirements and approved bid parameters and the one that is most advantageous to the government.

The P170.6-billion NEDA Board-approved NAIA PPP project covers all facilities of the country’s main gateway, including its runways, four terminals, associated facilities.

According to the Manila International Airport Authority (MIAA), the project is expected to increase the current annual passenger capacity of NAIA from 35 million to at least 62 million. The concession period is 15 years, extendible by another 10 years.

Of the original four bidders, only three were found to have complied with the technical requirements for the airport project. These groups are the SMC-SAP Consortium, the Manila International Airport Consortium (MIAC), and the GMR Airports Consortium. The Asian Airport consortium led by businessman Lucio Co did not make it to the next round of evaluation.

The SMC-SAP Consortium includes San Miguel Holdings Corp., Rmm Asian Logistics Inc., Rlw Aviation Development Inc., and Incheon Airport Corp., the developer of the world-class South Korea airport.

The MIAC is composed of GIP EM MIAC Pte. Ltd. and some of the biggest names in Philippine business including Aboitiz InfraCapital, AC Infrastructure Holdings Corp., Alliance Global Infracorp. Devt Inc., Asia’s Emerging Dragon Corp., Filinvest Development Corp. and JG Summit Infrastructure Holdings.

GMR consortium meanwhile includes India-based GMR Airports International BV, Cavitex Holdings Inc., and House of Investments of the Yuchengco Group.

Of the three bidders, the SMC-SAP Consortium submitted the highest bid, offering to give 82.16 percent of future gross revenues, excluding passenger service charges (PSC), to the government. This in addition to the fixed upfront fee of P30 billion and annual fee of P2 billion, both payable to the government.

The PSC accounts for around 33 percent of total revenues.

On the other hand, the GMR Airports and MIAC offered to share 33.3 percent and 25.9 percent of future revenues excluding PSC to the government, respectively.

Nobody expected what would happen next.

In effect, including passenger service charges, the SMC-SAP consortium will keep about 39 percent of total revenues and the government, around 61 percent.

On the other hand, the GMR Airports and MIAC offered to share 33.3 percent and 25.9 percent of future revenues excluding PSC to the government, respectively. Including PSC, the private sector share of profits becomes even larger at around 80 percent and that of the government, even much smaller at about 20 percent.

According to the bidding parameters, the highest percentage gross revenue share will determine who will win the NAIA concession.

Clearly, the SMC-SAP consortium is the most responsive bid and is the most advantageous not only to the government but to the country more importantly. The big surprise on the faces of the ones who opened the sealed bids was very evident. Who could have expected the results to be this lopsided?

SMC’s superior bid did not escape unscathed.

Soon after news of the financial offers came out, both traditional and social media were bombarded with reports questioning and undermining SMC-SAP’s bid. Some say that it was too good to be true and could not possibly be feasible. There are those who hinted that there must be a miscalculation somewhere.

Remember, however, that the disqualified Asian Airport Consortium of Lucio Co and Jeff Cheng was going to offer the government at least a 75 percent share, or closer to SMC-SAP’s bid. Unfortunately, the Co-Cheng group failed to pass the technical evaluation stage and was dropped from the bidding even before it could present its financial offer.

So it is not because the 82.16 percent share that was offered by SMC-SAP was too high. It just so happened that the 33.3 and 25.9 percent offered by GMR and MIAC were too low. And remember, including passenger service charges, the SMC-SAP and government sharing is actually 61-39 percent which will still give the private consortium a good ROI though it might take longer to recover.

Remember how in 2013, the SMC Group offered the winning P11 billion upfront cash payment to build and operate the NAIA Expressway or NAIAX for 30 years, way above the other bidder’s P305-million bid? There were those who were laughing, saying the SMC’s bid was ridiculous. But who had the last laugh? NAIAX is now making money for SMC and the government got the best deal that it could ever get.

One rival bidder for the NAIA rehabilitation project reportedly submitted a 200-page manifestation seeking to disqualify the SMC-SAC consortium on the ground that some of the group’s members have questionable qualifications.

There are those who are questioning SMC’s bid for conflict of interest saying that SMC if successful will control two vital gateways to the Philippines, namely NAIA and the Bulacan Airport. But of course this has already been addressed by the bidding rules when it provided that no bid member may own more than 33 percent of NAIA if it controls another major airport, which is not what SMC owns of the consortium.

Some say that the fate of NAIA will be decided not by economics but by political considerations. But there was really no way for SMC-SAP not to bag the contract. Because to do otherwise would not only be against the spirit and intent of the new PPP Code but could also subject those concerned to possible prosecution under the anti-graft law and other laws as well for entering on behalf of the government into any contract or transaction manifestly and grossly disadvantageous to the government, whether or not the public officer profited or will profit thereby.

SMC-SAP gave the best possible offer it could give to the government for the NAIA rehabilitation project while considering their respective shareholders’ best interest and that of the country’s in mind. NAIA has consistently been voted as one of the worst, if not the worst airports in the world. Privatizing NAIA and allowing the country to benefit from SMC-SAP’s superior bid can change all that.

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