Cavite-Laguna expressway planned rebid to turn off investors

MANILA, Philippines – The planned rebidding of the Cavite-Laguna expressway (CALAX) could derail the momentum of the Aquino administration’s public private partnership (PPP) project, fund managers and think-tanks say.

President Benigno Aquino III said on Wednesday, October 22, that he is inclined to favor a rebidding of the P35.4-billion ($790.7 million*) CALAX project “to get the best deal for the people.”

The government’s dilly-dallying on CALAX could prove disastrous for the PPP scheme, CLSA Research said in its latest sector outlook on Philippine infrastructure entitled, “Shooting itself in the foot.”

“If ever the government decides to do this, it will be massively negative for the entire PPP program, as it reverses all the progress made in implementing a transparent bidding process,” CLSA’s Ignacio Gonzalez said in the report.

A decision to declare a failure of bidding and to rebid the project being undertaken by the Department of Public Works and Highways (DPWH) could turn off investors, for it could appear that the government is in favor of San Miguel Corporation (SMC), Gonzalez pointed out.

“This could easily have been construed as the government favoring SMC to give them another chance, despite the fact that their bid was found by DPWH to have been non-compliant with the rules,” he added.

Foreign and local investors would like to see a transparent bidding process of major infrastructure projects.

“While the nationalization option may seem more palatable from a legal standpoint, we maintain that rules should not be changed mid-stream. The government’s decision to dishonor the rules that they themselves wrote ruins the credibility of the entire PPP program,” CLSA warned.

Team Orion, a 50-50 joint venture between conglomerate Ayala Corporation and listed Aboitiz Land Inc. emerged as the highest bidder for the project last June with a bid of P11.66 billion ($260.23 million).

SMC’s Optimal Infrastructure Development Inc. was disqualified from the PPP project due to a non-compliant bid security. It has appealed the matter before the Office of the President.

Aquino said that when Optimal Infrastructure opened their sealed bid in a news conference following the disqualification, they revealed that their bid was P20 billion ($446.9 million) – P9 billion ($201.1 million) more than the highest bid of P11 billion ($245.7 million) made by Team Orion.

“While the government would lose out on P8 billion ($178.54 million) worth of SMC’s bid premium on the CALAX project, losing investor interest for the other projects in the pipeline would be a bigger loss for the government in the longer term,” CLSA said.

“The government’s inability to honor its own terms of engagement will turn off groups from further participation in future PPP projects, resulting in less infrastructure development and the perpetuation of very costly bottlenecks,” it added.

Depoliticize the biddings

There is a need to depoliticize the bidding of major infrastructure projects under the PPP scheme, New York-based think tank Global Source Partners said in a special report entitled “Philippines: Challenging Partnership.”

The Congress or the President of the Republic intervening in doing PPPs has become the rules of the game, Global Source said.

“Such politicization of the formal PPP processes tarnishes the program’s image and dulls investors’ appetites,” Global Source said.

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 and the Cavite Expressway.

The awarding of the CALAX expressway project is now pending after the disqualified bidder filed an appeal before the Office of the President.

The PPP Center earlier said the Aquino administration is set to roll out 18 PPP projects worth P407 billion ($9.08 billion) before June 2015 as part of the inventory of over 50 projects in the pipeline. – Rappler.com

*$1 = P44.81