MANILA, Philippines – The P11-billion deal of the Bases Conversion and Development Authority (BCDA) to build the New Clark City’s sports facilities in Capas, Tarlac should have undergone public bidding, a document from the Office of the Government Corporate Counsel (OGCC) showed.
The OGCC emphasized two points, namely:
- The agreement between the BCDA and Malaysian firm MTD Capital Berhad was not a joint venture, but a build-and-transfer scheme
- Build-and-transfer scheme projects are subject to public bidding
What happened? The BCDA entered into a joint venture agreement (JVA) with MTD Capital Berhad to build the New Clark City and its two major components: government offices called the National Government Administrative Center (NGAC) and the sports facilities consisting of a 20,000-seater athletic stadium, a 2,000-seater aquatic center, and an athletes’ village.
“As such, the sports facility segment is, as a rule, subject to public bidding,” the OGCC said in Contract Review No. 068 dated January 30, 2018, a copy of which was obtained by Rappler. It was a contract review for the draft JVA at the time.
In an email sent to media on Friday, November 22, the BCDA said it was eventually able to obtain a separate opinion from the OGCC which affirmed the legality of its JVA.
“The Office of the Government Corporate Counsel (OGCC), in its Opinion No. 182, s. 2018, confirmed that the ‘provisions of the executed JVA and the legal framework of the Project are in compliance with the existing laws, rules and regulations,” said the BCDA in its statement.
The New Clark sports facilities will be used for the 30th Southeast Asian Games (SEA Games).
What was the agreement? The JVA was borne out of an unsolicited proposal by MTD Capital Berhad in 2017, which was subjected to a Swiss challenge that the Malaysian firm also won.
Under the agreement, MTD Capital Berhad would shoulder the construction cost of the sports facilities, with BCDA contributing 40 hectares of the project site as equity capital.
MTD Capital Berhad, through BCDA’s assistance, secured a P9.5-billion loan from the Development Bank of the Philippines (DBP). The cost stipulated in the JVA was P8.5 billion.
The agreement provided that BCDA would own the facilities following an annual installment of P2.2 billion for 5 years. The BCDA would have paid P11.1 billion to MTD Capital Berhad by the last installment.
The excess is MTD Capital Berhad’s “reasonable costs and returns,” seen as a return of investment.
According to the contract review, the structure of the agreement is not a joint venture but a build-transfer scheme.
“The proposed structure under Section 8 falls squarely in the definition of the build-transfer because while its construction will be funded by the Winning PSP [MTD Capital Berhad], the cost thereof will be reimbursed in five annual installments by BCDA. As such, the sports facility segment is, as a rule, subject to public bidding,” said the contract review.
What’s the difference? In the construction of the NGAC, MTC Berhad will foot the cost but BCDA will come to own the facilities “without any cost.”
The agreement over the NGAC was the real joint venture, according to the OGCC.
“It should be noted that the joint venture should cover the entire project and not only NGAC. In other words, the joint venture should include every component of the project, and not to carve out a certain portion thereof under a different framework, i.e build-transfer under Republic Act 6957,” said the review.
In a joint venture, parties undertake an investment by pooling together money, services, assets or a combination, “and eventually transfer the activity to either the private sector under competitive market conditions or to the government.”
In contrast, a build-and-transfer scheme is an agreement “where the project proponent undertakes the financing and construction of a given infrastructure” and then turns it over to the government.
The government “shall pay the proponent on an agreed schedule” in the said scheme.
“It is our view that this is a build-transfer scheme embedded in the joint venture,” said the contract review.
The review added that “the legal effect brought by the difference in the frameworks cannot be overemphasized.”
According to the review, in a joint venture, what is being chosen is the partner regardless of the cost, whereas in a build-transfer-scheme, “the prime consideration is the cost.”
“Clearly, there is no parallelism between the two approaches. The differences between the two approaches make them impossible to combine in a single project such as the one at hand,” the review said.
What did the BCDA do? The contract review was dated January 30, 2018.
BCDA president and CEO Vivencio “Vince” Dizon got the BCDA’s authority to enter into the JVA on February 2 of that same year. The JVA became effective February 22.
The JVA, which is 67 pages long, went ahead with the original framework for the sports facilities.
In its statement on Friday, the BCDA reiterated that what it did was a joint venture.
“BCDA can undertake the Project including the development of the Sports Facilities using any of the above enumerated Public Private Partnership frameworks. According to Asian Development Bank (ADB), a joint venture was the best mode, to which the OGCC concurred,” said the BCDA.
The JVA also added a profit sharing scheme, where MTD Capital Berhad is entitled to 50% of the profit from the sports facilities for 25 years, and which can be extended to another 25 years.
Dizon appeared publicly before SEA Games athletes on Friday afternoon, November 22, to apologize over what he said was “politicking” of the games.
“Mga pambato po natin sila (they are our bets), we have to insulate them from all the politics. They don’t deserve this. They all deserve one thing – our support,” Dizon said.
The SEA Games will open on November 30 with controversies still hounding the Games’ budget and expenses. (To be concluded) – with a report from Ralf Rivas/Rappler.com
READ: Conclusion: How BCDA’s multi-billion New Clark deal slipped through