A few months ago, TheEconomizer came across this article in the Manila Bulletin laying out the writer's suspicions about the strange turn of events attending the bidding for the PPP projects held by the Aquino Administration. The article is copied below for ease of reference; the opening line is its own banner: "Is our PPP program riding down 'Daang Matuwid' or do all roads lead straight to Ayala?"
Rats in the PPP Center
Is our PPP program riding down “Daang Matuwid” or do all roads lead straight to Ayala?
In the case of the recent bidding for the Cavite-Laguna Expressway (CALAX), it seems the PPP Center and the DPWH have gone down the Ayala superhighway again, causing the Filipino people to lose out on P8.45 billion pesos in royalties.
I have no problem with Ayala winning one PPP bid after another, albeit amid questionable circumstances. After all, it is a profit-driven corporation that must leverage whatever advantage it can get. However, I take exception when their victories come at the expense of the Filipino’s best interest.
But I’m getting ahead of myself here.
Last June 2, the PPP Center and DPWH held a public bidding for the multi-billion peso CALAX, a 47-kilometer four-land highway that would connect the Cavite Expressway and the South Luzon Expressway. Four parties participated in the bid, namely the SMC Group (through its subsidiary, Optimal Infrastructure Development, Inc.), the Ayala-Aboitiz consortium, the Metro Pacific Group, and MTD Philippines.
On the day of the bidding, the Ayala-Aboitiz consortium and the c flagged the bidding and awards committee on an apparent error on the SMC bid. You see, public bids of this sort call for a “Bid Security”—a document from a financial institution guaranteeing the availability and accessibility of the amount tendered over a certain period of time. In this case, the time frame required was 180 days, beginning June 2. This meant that the bid guarantee should have been valid until November 29, 2014.
ANZ Bank is the partner of SMC in this particular exercise, and, on its bid guarantee, the date of expiration stated November 25, 2014—four days short of what was required. However, if you review the entire context of the document, it clearly states that the guarantee is good for 180 days beginning June 2. The expiration date of November 25, 2014 was obviously a typographical error.
San Miguel and ANZ Bank quickly rectified the situation by submitting a formal letter to the DPWH and the PPP Center, dated June 4, affirming that SMC’s Bid Security was indeed valid for 180 days, ending on November 29, 2014. It submitted another letter of clarification on June 10 with the same message, upon the recommendation of the DPWH’s lawyers.
Given the pettiness of the issue, SMC should have been allowed to proceed with its bid—perhaps sanctioned with a penalty, at most. However, to everyone’s surprise, DPWH and PPP Center decided to disqualify SMC altogether. The notice of disqualification was handed down on June 13.
When the bids were opened, SMC proved to be the highest bidder, pledging P20.1 billion for the right to build CALAX, P8.45 billion more than the second highest bidder, the Ayala-Aboitiz Consortium, who bid only P11.65 billion.
A DISSERVICE TO THE REPUBLIC
As a tax-paying citizen, I am incensed at how government readily walked away from P8.45 billion in windfall revenues for a simple typographical error—one that had been clarified twice. In perspective, P8.45 billion would have been enough to build 7,000 homes for those affected by Yolanda. Enough to fund a full-blown expansion of NAIA 1…or even purchase a dozen or so new trains for the overcrowded MRT 3. P8.45 billion could have gone a long way towards easing the suffering of our people.
I reckon the DPWH and PPP Center has done a disservice to the nation. The whole point of privatization and public-private partnerships is to raise the most funds for the republic and/or build infrastructure at the lowest cost to government. Isn’t its mandate to serve the best interest of the Filipino?
The PPP Center’s executive director, Cosette Canilao, apparently speaking on behalf of the DPWH, justified their decision by saying that they are just implementing the bidding rules. Not to disqualify SMC, Canilao claims, would undermine the credibility of our PPP Program and the bidding process it is committed to uphold. She further asserted that to not enforce the bidding rules to the letter, no matter how petty, may dissuade investors from participating in future bidding exercises of the PPP Center.
But let’s look at the PPP Center’s track record in enforcing bidding rules…
In April 2012, the DPWH allowed the winning bidder, the Ayala Group, to alter its design for the Daang Hari-SLEX Connector Road. Not only was Ayala spared from disqualification for changing its plans mid-stream, even worse, government agreed to foot the P500-million bill for additional right-of-ways that resulted from the change. This came out of taxpayers’ money.
A second case in point is the recently awarded Automated Fare Collection System (AFCS), which, again, Ayala won over the second highest bidder—the SM Group of Henry Sy. While Ayala’s bid, per se, was P100,000 higher than that of SM, it came with conditions: it would pay government 28 percent upfront, with the remaining 72 percent paid in 2024 and 2025, only if certain conditional volumes were met. On the other hand, SM’s bid was an upfront payment with no conditions attached.
And yet another case: the MRT-LRT common station in North Edsa. This was overseen by the Department of Transportation and Communication. Despite SM having paid P200 million for the rights to name and host the station six years ago, the DOTC reneged on the deal after getting SM’s money and would now locate the station in Ayala’s TriNoma area.
THE REPUBLIC OF AYALA
To Colette Canilao: please don’t dumb down the Filipino by saying that you are just preserving the integrity of the bidding process. The examples above show that you have turned a blind eye to far more severe infractions in the past. If there’s anything that will undermine the credibility of the PPP program, it is the unpredictability of it all.
Is Ayala being favored? It sure looks like it. No wonder Ayala Land’s president for International Sales, Thomas Mirasol, bragged before the Singaporean Press that Ayala Land had become “the de facto Government.”
Filipinos are no longer willing to look the other way. Resentment is festering. The rats have definitely come out of the woodwork.
Andrew is an economist, political analyst and businessman. He is a 20-year veteran in the hospitality and tourism industry. For comments and reactions, e-mail andrew_rs6@yahoo.com. More of his business updates are available via his Facebook page (Andrew J. Masigan). Follow Andrew on Twitter @aj_masigan.
TheEconomizer cannot vouch for the character of Mr. Masigan, but today this blogger came across this article in the Philippine Star that was published two weeks ago. It reports that the Pasay City court has rejected the petition for TRO by the SM Group regarding the North EDSA terminal, but that the trial on the merits will continue. What is striking about the article is that it lays out very well the position of the Ayala Group, but that of the SM Group gets (relatively) short shrift. It may just be the native paranoia of this blog, but "methinks the gentleman doth protest too much."
Pasay court rejects SM Prime bid for TRO on MRT-LRT common station
MANILA, Philippines - The Pasay City Regional Trial Court (RTC) has denied SM Prime Holdings Inc.’s (SMPHI) petition for a temporary restraining order (TRO) that would have prevented the Department of Transportation and Communication (DOTC) and the Light Rail Transit Authority (LRTA) from “performing acts inconsistent with the terms of the memorandum of agreement (MOA) dated Sept. 29, 2009 for the construction of the LRT1-MRT3 and MRT7 common station in front of SM City North Edsa.”
According to SM Prime legal counsel Ryan San Juan, the Pasay RTC decision is “regrettable” and that SM Prime intends to pursue its case.
“To be clear, the TRO is merely an incident to the main case for Specific Performance. Trial on the main case will continue. DOTC has asked for an extension of time to file their answer,” he said.
“SM Prime will now focus on its main and more important case for specific performance, where it seeks to enforce its rights under the valid and legally binding MOA, the existence of which has been duly admitted by both DOTC and LRTA in court, and which MOA has neither been cancelled or terminated by the parties.”
SM Prime is questioning the decision of the DOTC and LRTA to renege on an earlier agreement that would locate the LRT1-MRT3-MRT7 common station in SM North Edsa.
SM Prime had paid P200 million to assist in the construction of the common station as well as for naming rights.
Instead, the DOTC-LRTA decided to locate the common station at the Ayala-owned TriNoma Mall following technical evaluation that the station would be better located at that area.
Reacting to the current dispute with SM Prime over the common station, Ayala Land Inc. (ALI) president Bobby Dy told The STAR that there appears to be a misperception that the Ayala Group is trying to wrestle the project away from the SM Group.
On the contrary, Dy said the Ayala Group was initially approached by the LRTA consultant for the LRT1 North Extension- MetroLink JV, as far back as Aug. 13, 2007 for a North Terminal station of the LRT1 at TriNoma.
The Ayala Group, through a letter dated Sept. 4, 2007 by the North Triangle Depot Commercial Corp. (NTDCC) to the LRTA, expressed agreement to the proposed location of the terminal station of the LRT1 North Extension project at TriNoma.
The LRTA acknowledged the NTDCC letter in March 14, 2009, whereby LRTA expressed appreciation for the agreement of the NTDCC to the location of the station at TriNoma.
However, Dy said that on March 30, 2009, the Ayala Group was surprised by an LRTA letter instructing MetroLink JV to stop work on the TriNoma LRT1 station and to transfer the location to SM North Edsa.
On April 15, 2009, MetroLink JV wrote a letter to contractors of LRT1 North Extension Project to cease work on the TriNoma LRT1 station and transfer the location of the station to SM North Edsa.
Dy stressed that the Ayala Group was approached first for the station and was surprised by the announcement that the SM Group had entered into an agreement with the DOTC-LRTA regarding the planned station.
He added that the Ayala Group is relying on technical experts to decide on the best location for the common station.
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