Synergy is the secret sauce here.
Because of that, it will be tough for the competition to overcome San Miguel’s bid to rehab and operate the Manila International Airport complex. None of them have the synergies to bid any better.
To say that San Miguel overwhelmed the competition might even be an understatement. When the bids were opened last week, San Miguel offered government a generous 82.16 share of revenue during the contract period. This is on top of the upfront fee of P30 billion and the annuity of P2 billion government earns from privatizing operations of an airport that has deteriorated into a national embarrassment.
The second best bidder, GMR Airports Consortium, offered government a measly 33.3 percent share of revenues. A consortium of taipans offered an almost hideous government share of 25.91 percent.
A number of issues have yet to be settled before the final award of the contract – including an appeal by a disqualified bidder to be re-qualified. This particular issue seems academic considering the vastly superior San Miguel offer.
By privatizing rehab and operations, government rids itself of a long-standing headache. Government also – especially with the generosity of San Miguel’s offer – opens an ample revenue stream.
Everyone expected San Miguel to turn in an awesome bid, considering how this conglomerate bid for the right to build the NAIAX. In that bidding, San Miguel put in an offer of P11 billion. Metro Pacific’s second best offer of P305 million was miles behind.
I was serving on the DBP board at that time. The bank was underwriting the NAIAX bidding. When San Miguel’s bid was flashed on the electronic board, jaws dropped to the floor. There was a hush in the hall.
The late Reynaldo David, then DBP president, had a brilliant record in putting together deals. Even he was shocked at the size of the San Miguel bid. He whispered to me that Ramon Ang had “overbid.” That was the standard wisdom of nearly the entire business community.
Too bad Rey did not live long enough to see the standard business assessment of that time was wrong. The NAIAX is a most profitable business for San Miguel today. Vehicular traffic using the NAIAX is very much more than previously estimated. In addition, this expressway feeds into the SLEX which is also owned and operated by San Miguel.
San Miguel president Ramon Ang bid on something no one else could: the synergy between NAIAX and SLEX. Today, the conglomerate is building additional lanes on the SLEX to accommodate traffic volumes.
Ramon Ang obviously saw the same synergy in his persistence to build the Skyway even as bureaucratic resistance delayed this particular infrastructure project by at least a decade. The Skyway is today the only new road space added to help relieve congestion in Metro Manila. The number of motorists who want to use this facility is over twice what was originally estimated.
I recall conversations with Ramon Ang a few years ago when he was considering building a transport hub in the Pandacan stretch of the Skyway to attract road users. Today, San Miguel Infrastructure is grappling with the problem of adding entry/exit ramps to the Skyway to ease vehicular flow. That is a healthy problem.
Plans are now being laid to extend the Skyway to connect to the sprawling San Miguel airport being built in Bulakan – and loop back to the Port Area. Eventually, the LRT-7 will also be extended to connect to the new air hub.
This is what synergy means. In the case of San Miguel, this synergy brings business sense to the massive capital the private sector needs to raise to help solve the basic logistics problems of Metro Manila. Eventually, the roads (and rails) need to connect to air transport.
The Bulacan airport, too, is an unsolicited proposal. Bureaucrats, anxious to make the Clark airport facility viable, resisted the San Miguel airport project to the hilt. This too resulted in the delays the project suffered.
When it becomes operational later in this decade, the new airport will match the best and the largest in the world. It will pave the way for the Philippines to emerge as an aircraft maintenance hub in the region as well as attract cutting edge technology industries into the industrial zone astride the air facility.
It is futile trying to attract investors to the country if we do not have the logistics backbone for modern businesses. All we will attract are low-grade investments. That will not improve our miserable 4 percent share of total investment flows to Southeast Asia.
The effort to liberate us from the restrictive constitutional economic provisions might fail. But if we build world-class facilities, we might still be able to hack it.
Potential synergies also inspire the awesome San Miguel bid for the decrepit Manila Airport. The old airport will still benefit from synergies with the new airport. Only San Miguel can make that happen. The outcome of this bidding is inevitable.
When I last conversed with Ramon Ang, I asked about bidding for the old Manila airport, considering that it only has one-and-a-half runways. In his usual understated manner, he said San Miguel needs to participate at the very least to keep everyone honest.
And what honesty this bidding reveals! The second best bidder offered government less than half of what San Miguel imagines it can afford to offer – for an upgrade already three decades delayed.