Money or integrity? The Cavite-Laguna road project case study

The controversial CALAx road project is a damn-if-you-do-damn-if-you-don’t issue. It’s a toss up, really, between money and integrity. The president chose money.

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The CALAx project, is a crucial road network linking Cavite and Laguna provinces, is in limbo. Map sourced from PPP.gov.ph

The CALAx project, is a crucial road network linking Cavite and Laguna provinces, is in limbo. Map sourced from PPP.gov.ph

 

(UPDATED) Either way, the Aquino govt is damned in the issue of who wins the Cavite-Laguna Expressway (CALAx) project, designed to decongest traffic along the road network that serves two of the economically active provinces south of capital Manila.

But today, October 22, 2014, President Benigno Aquino III said he’ll likely favor San Miguel Corporation and is considering a REBIDDING. (Read: Aquino gov’t ‘inclined’ to rebid CALAx)

He said the P20.1 billion bid of San Miguel, Philippines’ biggest business group that was once controlled and managed by his uncle, Eduardo Cojuangco Jr., will benefit Filipinos more than the P11.66 billion bid of partners Ayala Corp and Aboitiz Land. At stake is a 4-lane, 47-km closed-system toll expressway connecting the South Luzon Expressway and the Cavite Expressway.

Aquino explained why to the members of the Foreign Correspondents Association of the Philippines (Focap) during their annual forum:

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 P9-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.

The president’s announcement is a blow to the Department of Public Works and Highways (DPWH), which is overseeing this crucial PPP project and has decisively disqualified San Miguel due to technical issues. (Read: San Miguel disqualified from bidding for CALAx project).

The agency is also considered among the most efficient in the government bureaucracy and had been keen to award the project to the Ayala-Aboitiz team.

Money vs integrity

The project reached a deadlock after the Office of the President issued a stay order on DPWH’s move to disqualify San Miguel, which elevated its complaint to the boss of the boss of the agency in charge.

DPWH officials have been confident about their decision to disqualify San Miguel, banking on their reputation as an agency that sticks to the rules, as well as one that has the integrity when conducting bidding process of PPP projects they are in charge of.

The CALAx bidding was conducted way back in June 2014. The expressway is expected to be completed in 3 years—by September 2017 if construction could start by October 2015.

It’s a toss up, really: money or integrity. The president chose money — or actually, upfront money paid to the government.

Beyond the upfront money, however, comes another question: What is the impact on road users once Calax is ready for operation?

David Balangue had expressed an opinion, which I tend to agree with, in his Inquirer column:

What the winning bidder is going to pay to the government as premium on top of the estimated cost of constructing the toll road of P35.4 billion, as predetermined by the Department of Public Works and Highways, is nothing more than an advance payment of taxes which the toll road users will absorb by way of higher toll fees!

The PPP Center had played this down, stressing that fees these winning bidders get to charge passengers are highly regulated.

Just like NAIA-3

The question of what decision is best for the Filipino people — which redounds to whether it should be San Miguel or Ayala-Abotiz that should be awarded the road project — reminds me of the NAIA 3 airport terminal project saga. It also had a money-vs-integrity issue.

The original proponent, the country’s biggest conglomerates and eventually just tycoon Lucio Tan, offered payment to the government that was topped by the Piatco-Fraport consortium when the project was put up for a Swiss challenge. The transportation department officials favoured Piatco-Fraport, citing possible court cases that may be filed against them if they deprive the Filipino people of more money for the government.

The award of the airport terminal project to the Piatco-Fraport group triggered a lengthy and numerous cases filed by the Lucio Tan group against the government and the Filipino-German concessionaires. These cases and the points Tan’s lawyers had made would again be resurrected when the Arroyo government abrogated the NAIA-3 contract, citing wrongdoings not in the award of the contract but in amending it so the concessionaires could recoup their multi-billion investment the soonest.

This move by the government eventually resulted in lengthy and costly legal battles here and in arbitration courts abroad. The facility stood idle for about 6 years, and half-used for the next 6 years.

The Ayala-Aboitiz snub

Will the same or something similar happen to CALAx? Will the crucial infrastructure contract, which involves the financing, design, construction, operation, and maintenance of CALAx, get stuck in the courts, in bickering, in politicking, and more? We don’t know yet.

What we know now is that the Ayala-Aboitiz team up (who call themselves Team Orion) has announced that they will SNUB THE REBIDDING!

In a statement right after President Aquino’s announcement at Focap, Team Orion said:

“We are very concerned with the Office of the President’s current inclination to pursue a rebid of the Calax Project because of the severe negative impact this decision would have on investor confidence in the PPP Program and on the integrity of the entire bidding process.

“We will not participate if government decides to rebid the project because there is no legal basis for this course of action given the fact that the original DPWH-led process was conducted above board, transparently and within the framework of the BOT law.”

Here we go again. Another snub.

The last time this happened under the Aquino government, the Ayalas were on the other side of the fence. San Miguel and other interested bidders in the LRT-1 Cavite extension rail project decided to snub the auction, leaving the consortium of Ayala and Metro Pacific Investments Corp (MPIC) as the lone, and eventually winning, bidder.

San Miguel cited lack of economic sense in pursuing the LRT-1 project and that they’ll be hard press to recoup their investment given passenger traffic and financial projections of the project.

It’s funny how these big guys play the game and their changing — and exchanging — roles and sides.

No politics, please!

Beyond personalities, the realities and economics of a rebid are making other business groups scratch their heads. There’s a chorus of expressions of dismay, disappointment and disbelief.

In BusinessWorld, David J. Nicol, CFO of MPIC, which bid P11.33 billion and lost to Team Orion’s P11.66 billion, was quoted as saying:

These bids are very expensive to prepare…The Ayala bid seemed to be the best… within the defined process. It’s hard to see how the competitive process in a re-bid would really work.

Peter Wallace, an adviser to foreign investors, told ABS-CBNnews.com another auction round after every entity has done their math and submitted their bets is weird.

How can they do a new bid now that everyone knows everyone else’s pricing?…Will others even want to bid when SMC’s bid is so much higher? What precedent does it set for future projects.

Also on ABS-CBNnews.com, Makati Business Club head and Ayala Corporation director Ramon del Rosario said the government may contradict itself if it dismisses DPWH’s previous decision.

I also share the concern that a rebid will have a severe negative impact on investor confidence and the PPP Program and the entire bidding process. The government should uphold its own rules.

Greg Navarro, president of the Management Association of the Philippines, said it best: A rebid is a product of a political intervention.

Any intervention by Malacanan politicizes the matter and distracts investor confidence in the PPP [Public-Private Partnership] program of the government.

The saga continues!

 

 

  1. […] were many protests and eyebrows raised, including mine , when the Aquino administration ordered a rebid. Now, I nod in agreement. The P15.6 billion […]

    Reply

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