P17.5 Billion Mactan Cebu International Aiport Upgrades Doomed By Dysfunctional Pinoy Competition Culture

Or The Thirds’ Word War

If there is one key take away from one of Sen. Sergio Osmeña the Third’s hearing on the President Benigno Aquino the Third’s Administration’s failure to get any of the Private Public Partnership (PPP) projects on the ground and running, it’s that there’s a pretty good chance that some if not most of these projects will be prevented from hitting the ground by the dysfunctional Pinoy Competition Culture.

Summed up with as few words as possible, the main dysfunction in the Pinoy’s culture of competition is that in any contest there are no winners or losers, just people who cheated and were cheated – and the judges are almost always crooks.

I used to think that the dysfunctional pinoy competition culture could only be found in electoral contests or elections. But after coming across the long running feud between Filinvest and Megawide over the P17.5 Billion new terminal building project for the Mactan Cebu International Airport, I was reminded that the dysfunction can also be seen whenever the government opens bidding for a project.

Megawide and its foreign partner GMR placed the highest bid for the project at P14.404 billion and the second highest bid was submitted by Filinvest – CAI Consortium at P13.999 billion.  If you didn’t know how the dysfunctional Filipino competition culture works, you’d expect the bid to be awarded immediately.  But that’s not how it goes at all and as expected, the second highest bidder Filinvest-CAI raised serious disqualification issues against the company with the highest bid.  Megawide-GMR, being so close to clinching the deal, protests that the disqualification issues are without merit.

(Oddly enough, we rarely see this happening in our country’s beauty contests, singing competitions, or the UAAP.)

With Megawide-GMR and Filinvest-CAI locked in a dispute that the DoTC seems unable to resolve by itself and it looks like the issues raised will have to be settled in the court.  But of course, when it comes to the Filipino way of resolving a legal dispute, it’s practically a tradition to take the case all the way up to the Supreme Court and then the Court of Appeals.

Needless to say, the implementation of the MCIA’s upgrades may be delayed indefinitely.

Not that we should be a bit worried that the MCIA might not be able to handle more passengers without the major upgrades or that once things start breaking down, Pinoys won’t have a major case of butthurt when the country gets the worldwide distinction of not having one but TWO of the world’s worst international airports.

What the heck! For all we know, maybe Aquino The Third’s real plan is to make our bad airports, awful traffic, floods, and pollution as the country’s major selling points.  Perhaps being the only third world country in Asia will be our country’s truly Unique Selling Proposition.

You’d think that President Benigno Aquino The Third’s daang matuwid or straight path of the Pnoy administration would be the fastest way towards getting anywhere or getting things done.  But it seems that while the road appears straight, the driver (in this case, the DoTC) can’t seem to decide on whether to work the steering wheel, brake, clutch, or gas.  Also, it doesn’t help much that the vehicle being driven on this straight path is almost exactly like a jeep (a Frankensteinish testament to road unworthiness) and the path, while straight, has a number of huge pits as well as bumps.

It’s really no wonder that the major PPP’s, that would have been vehicles of meaningful economic growth on Aquino the Third’s straight path, have almost all suffered failures to launch.  (Not that a fifty-plus-year-old-man-who-lived-with-his-mom-till-she-died would know anything about failing to launch.  What else are those blue pills and Chinese herbs for, by the way?)

Slowly but Surely?

It has taken the DoTC all of two years of careful and deliberate action to get to the point where the two highest bidders for the MCIA upgrade are now feuding over who really won.

Bidding for the MCIA New Passenger Terminal Project was opened in 2012 with a cost pegged at P17.5 Billion.

After a few stalled starts and bouts of decidophobia as has been the newly instituted custom at the DoTC, its PBAC finally found a way to get together long enough to receive bids.

As we’ve mentioned, Filinvest-GMR’s bid was P14.404 billion and Filinvest – CAI Consortium’s bid was P13.999 billion.

Word from a passing cigarette vendor last night at Skippy’s at The Forum in BGC has it that the DoTC verbally communicated with Megawide-GMR saying it won the bid.  Word of caution though, I didn’t see champagne corks flying out of their office windows and that’s probably because the Department of Transportation and Communication (DoTC) hasn’t given them an actual piece of paper that officially says “YOU WIN!”.  This is beside the fact that I suspect the cigarette vendor whom I interrogated over the matter looked a little sun-stroked from selling cigarettes under the blazing summer sun while wearing a hoodie to protect his chemically bleached skin.

Apparently, what kept the DoTC from awarding the bid is the fact that Filinvest-CAI, the second highest bidder, moved to have Megawide-GMR disqualified for violating the bidding rule on conflict of interest and raised doubts over GMR’s financial capability.

Word of Filinvest-CAI’s allegations against Megawide-GMR has made the rounds of almost all the business news pages and opinion columns.  But the issue remained seething up until Senator Serge Osmeña the Third made it explode — presumably because his love for Cebu, his home province, compelled him to champion the need for a major upgrade for its airport.

In fact, most of the people in my cirlce didn’t take notice of the MCIA controversy up until Osmeña the Third took it up in a hearing. Being the pure Manilenyo (if ever there is such a thing) and being only concerned with things happening in Manila, I didn’t really care about the P17.5 Billion MCIA New Terminal Project as much as long delayed improvements in the MRT/LRT or any of the transportation projects that would improve traffic congestion in the National Capital Region.

For fellow Manilenyo’s who can’t be bothered to Google it, the Mactan-Cebu International Airport (MCIA) in Bgy. Ibo, Lapu-Lapu City is the second largest airport in the Philippines in terms of passenger traffic. It evolved from the Mactan Air Base, the runway of which was built by the United States Air Force in 1956 as an emergency airport for Strategic Air Command bombers.  In the 1960’s it was opened as a civilian airport to take over traffic from the airport in Lahug which was overcome with safety problems.

Consequent improvements have allowed the airport to handle about 4.5 million passengers, but this capacity has been exceeded.  In 2011, it serviced some 6.2 million passengers and based on the 13 percent average annual expansion in passenger traffic, the Department of Tourism expects about 10 million passengers to go through MCIA by 2016 – just two years away.

The MCIA currently services 19 airlines and functioned as the central hub for relief operations in the Visayas regions in the aftermath of super typhoon Haiyan.

But that doesn’t mean diddly-squat to most people in Manila and the challenge is how to get Manila-minded people to take heed of what’s happening to the Queen City of the South.

And by golly, you have to really hand it to Senator Osmeña the Third when it comes to getting people to pay attention to an issue – which is perhaps one of the reasons why perhaps he played a central role in Pnoy’s campaign in 2010, especially in the areas of media coordination and fund raising.

The Thirds’ Word War

If Osmeña the Third had just come out of absolutely nowhere with the MCIA bidding controversy, which started coming out in business news as early as January 2014, most people wouldn’t have listened.

An old but valuable insight when it comes to communications is that most people don’t listen to what is said as much as who is saying it and if people don’t care much about who’s talking, you can bet that there’ll be a few people listening.

So how did Osmeña the Third get people to care about him and what he had to say? Perhaps other people can explain it better, but if you asked me I’d explain it using a social psychology term and saying that Osmeña the Third used “reciprocity” on a large scale.

“Reciprocity in social psychology refers to responding to a positive action with another positive action, rewarding kind actions. As a social construct, reciprocity means that in response to friendly actions, people are frequently much nicer and much more cooperative…”

In simpler terms, it’s like ‘I’ll scratch your back if you scratch mine” or “smile and the world smiles with you”, you know, that kind of thing.  So, if you want people to care about something, it really matters that you start by showing that you care about them or care about the things they care about.

For simple things involving a one on one interaction or an interaction with a small group of people, reciprocity can be achieved using simple actions and results can be seen almost immediately.  But to employ reciprocity on a larger scale, the actions are more complex and the time period involved may be much longer.

The way I see it, Osmeña the Third’s first act of reciprocity was when he grilled government officials for allowing Meralco to over-charge its customers.  (Was it coincidence that Osmena started piping up right about the same time that word got out about Megawide-GMR winning the MCIA bid?)

Meralco’s high power rates are somewhat of a core issue among people in Metro Manila and there’s reason enough to think that it was Osmeña the Third’s inquiry that acted as the additional pressure that got Meralco to relent, somewhat, on imposing an enormous power rate hike.

After scoring some brownie points with Metro Manila’s power consumers, Osmeña the Third scored more points with Aquino the Third III’s detractors by taking him to task for his cabinet’s phlegmatic performance.

Aquino the Third was actually the one who provided Osmeña the Third with the opportunity to criticize his administration.  That was when Aquino The Third advised impressionable high school students not to vote for a leader in 2016 that was like the ‘ampaw’ (or a ball of sweetened rice puffs), a pejorative referring to people who lack accomplishment or substance.

Osmeña the Third took Aquino the Third to task, saying that he was an awful manager and in one article, Osmeña the Third piled the insults high:

“…I think that the Aquino the Third administration might also be called ‘ampaw’ sapagkat marami silang hindi ginawa na magagawa nila.” (Translation of the Tagalog part: “…because there are many things that they could have done but haven’t done yet.”)

 “Ang tawag ko sa kanila, ang dami nilang NPAs diyan sa Gabinete, Non-Performing Assets. Eh palitan naman ninyo. Nagmamadali na tayo kasi last two years na eh.” (I call them, there are many NPAs in the Cabinet, Non-Performing Assets. Please replace those people. We are in a hurry because we’re in the last two years.)

“Kung gagawa po tayo ng Report Card niya, makikita mo na napakaraming projects that should have been ongoing by this time or last year or two years ago na hindi naumpisahan hanggang ngayon. This is the performance of the PNoy administration, and any delay in any infrastructure means the people cannot proceed because hindi pa rin in existence, diba?”

(If we were to come up with his Report Card, we will see that there are so many projects that should have been ongoing by this time or last year or two years ago that have not yet been started.)

Osmena the Third’s words (being quite controversial for someone identified as an ally of Aquino The Third) resonated through several Facebook groups and pages, spreading like wildfire.  Pretty soon, it may have seemed to him that his audience had been primed up enough to be receptive to his message, prompting him to reveal his real target:  The 17.5 Billion MCIA New Passenger Terminal Project.

The Bone of Contention

As I’ve mentioned, despite the importance and urgency of the MCIA New Passenger Terminal Project, it has apparently hit a snag.

The Filinvest Group-Changi Airports (CAI) partnership, second-highest bidder for the project, asked the DoTC to disqualify the highest bidder Megawide-GMR as well as the third highest bidder First Philippine Airports Consortium and the Malaysia Airports Holdings Berhad (MAHB).

Filinvest president and chief executive officer Josephine Gotianun Yap alleges that the conflict of interest arises from the fact that:

1)      GMR and Malaysia Airports are or were partners in all of GMR’s airport affiliates – a violation of Article 5.6 of the bidding rules.

2)      The managing director of MAHB sits as a director in all 4 GMR airports, namely Delhi International Airport Private Ltd., GMR Hyderabad International Airport Ltd., Istanbul Sabiha Gokcen International Airport Group, and GMR Male International Airport (Maldives).

 News of the snag in the awarding of the P17.5 Billion project was projected to an even larger audience when it reached the Senate where Senator Serge Osmeña the Third took the DoTC to task for what appears to have been a major oversight.  Below are portions of a transcript of Osmena the Third’s inquiry into the MCIA that appeared in Boo Changco’s column:

Sen. Osmeña the Third: You did discuss these rules, right? And they were challenged during the pre-bids. But you insisted on keeping them in.

First question, how do you disqualify somebody who is already constructing a terminal? It’s just something that boggles my mind. You gave me the award— Mr. Trillanes who used to be with the opposing bidder joins me in six months, ergo, I’m now to be disqualified. How could you do that physically when I started digging my hole?

Usec Lotilla: Your Honor, if I may explain, Your Honor? You see, this provision started as a conflict of interest provision because that is a standard provision that’s put in concession agreements for purpose of preventing conflict of interest. Now—

Sen. Osmeña the Third: Juju, don’t explain to us why it’s there. Explain to me how you’re going to disqualify somebody one year after… For example, this is awarded to Megawide-GMR and somebody from Filinvest resigns six months from now and joins Megawide, this now disqualifies Megawide. How is that possible? I myself, would be the first one to stand up kasi they have nothing to do with that. (Laughter)

—

Sen. Osmeña the Third: Megawide-GMR, if they are awarded, well, sunk about P10 billion already in the project and you’re gonna come up and knock on their doors and say, “Oh-oh, by the way, you are disqualified.”

Usec. Limcaoco: When we were looking at this, we are — the whole- — looking at the project finance from the award and signing, a company might take even longer than one year to reach financial close. So, they might not even start digging. That was our frame of mind. But then, that—

—

Sen. Osmeña the Third: Okay, So, they still hadn’t dug a hole in the ground and you can still disqualify? You know, that is pretty strict, that you can disqualify. But it is a very strict that even two years before, hindi pwede. So now, you have a problem wherein you have Bashir who is a current director of an affiliate and you have not disqualified or you have not used that provision. You still haven’t decided?

Usec. Lotilla: Your Honor, may we beg to be excused from answering that question because it’s actually one of the issues that’s still being tackled by the BAC, Your Honor.

Megawide-GMR was quick to dismiss the issues raised in Osmena The Third’s hearing as having been rehashed from previous discussions at the DoTC PBAC and in article in Sunstar (http://www.sunstar.com.ph/cebu/local-news/2014/02/28/senator-rehashed-old-issues-330631_, the company reiterated:

4) GMR has no connection to the Fraport/PIATCO saga in the Philippines. Fraport is a minority partner in GMR’s Delhi International Airport and has no connection with the bid for the Mactan-Cebu airport project.

The bidding entity for Mactan airport is GMR Infrastructure and Delhi Airport is one of its subsidiary companies.

5) GMR holds a 40-percent stake in the consortium that bid for the Mactan airport, which is the maximum shareholding allowed for the foreign investor in the project. And

6) GMR-Megawide Con-sortium has proven beyond doubt that there is no conflict of interest with the First Philippine Consortium as Tan Sri Bashir is not a board member of GMR Infrastructure, the bidding entity, and he had no role to play in the bid.

Fellow GRP writer and Manila Times Columnist Ben Kritz validated Megawide-GMR’s statement on the conflict of interest issue:

As far as can be determined from corporate filings here and in Malaysia and India, MAHB’s Bashir, indeed, does not have anything to do with GMR’s Mactan bid; he is not listed as a board member or executive within GMR or any of its various offshoots.

Nevertheless, it seems that Filinvest-CAI is determined in pursuing its bid to disqualify Megawide-GMR as can be seen in the transcript printed in Boo Changco’s column:

Mr. Yap: Now on SBB (Special Bidding Bulletin) 11, there was a proposal by one of the bidders to clarify the Rule on Conflict of Interest to make clear that, in fact, active participation in both bidders was necessary to constitute conflict of interest. So they had the proposed rewording… So if this phrase had been inserted in the bidding rules, then it would be clear that it must be required.

Sen. Osmeña the Third: The phrase there that is operative would be “in any capacity”?

Mr Yap: yes, but also “who is directly involved in the bidding process for the project with respect to a bidder.”

Sen. Osmeña the Third: And that was rejected?

Mr. Yap: In the response, it was just referred back to the actual wording of the Conflict of Interest Rules as it finally appeared in the instruction to bidders. Therefore, the conclusion would be the PBAC rejected that clarification. Therefore, it is not their intention to require an active participation in both bidders. Plus, the fact — something that you earlier brought up, Your Honor, that the member of the board was a member two years prior. How could there be such a requirement that he be actively involved if he was prior board member?

Tit for Tat

However, if indeed Megawide-GMR should be disqualified for conflict of interest, it doesn’t necessarily mean that Filinvest-CAI is in the clear.

Against Filinvest is the spectre of an old controversial land deal it made with the Cebu City government which has resurfaced recently in a number of columns.

Cebu City and reclamation go a long way back.  When Sergio Osmena, Jr. (who was later on a congressman, a senator and candidate for President) was Mayor of Cebu City. Serging started what was the first massive land reclamation project in the country.

Garcia slammed the deal as questionable, that it would give Filinvest titles to the land even without fully paying for them. He also scored Mayor Tomas Osmena, son of Serging for circumventing government bidding requirements.

Garcia said that the terms of the Filinvest-Cebu City deal violated a Supreme Court ruling in the Piatco case, which says that in a negotiated bidding, the parties may not substantially depart from the original terms of the bid.

Garcia pointed out that the deal did not just depart from the bid parameters, but also from the original published agreement of the two parties.

The original deal was for Filinvest and Cebu City to go into an unincorporated joint venture in which Filinvest would pay P1.5 billion within the first three years as it builds a “central business district type development” in 50.6 hectares of the SRP.

But then Cebu City decided to sweeten the deal some more for Filinvest by agreeing to its purchase of the 10 hectares, by giving the company P112 million in “hidden illegal discount” as the city agreed to spend for the road network, and by agreeing  to shoulder the cost of registration and transfer of ownership of the 10 hectares.

—-

“The evil here is that there is no penalty for default. In ordinary real estate transactions, if a buyer fails to pay any installment, the sale is cancelled and he forfeits all his payments,” said Garcia.

Then recently, Cebu City threatened to sue Filinvest for not fulfilling an agreement to pay P1 Billion for a joint venture land deal .

PAY up by Friday or we’ll see you in court.

This was the stern message addressed to the management of Filinvest Land Inc. as the Cebu City government yesterday ramped up efforts to collect its share of the revenue from their joint venture in the development of 10.6 hectares of the South Road Properties.

“We humbly appeal that hopefully they will pay what is due to the city. We don’t want to go to these legal options,” City Legal Officer Jerone Castillo said.

The city government is expecting to get P1 billion from the joint venture this year as stated in its budget for 2013.

In an opinion column by Mary Ann Reyes, Filinvest seems to have answered the allegation :

In response to an earlier report by this columnist that a real estate company may be missing out on its payments to the Cebu city government as part of its joint venture arrangement for the former’s Citta de Mare project at the South Road Properties in Cebu, lawyers for Filinvest Land Inc. (FLI) have clarified that for the period from Jan. 1, 2010 to Dec. 31, 2013, FLI had already remitted to the city government of Cebu a total of P1.735 billion, which includes the P309.1 million revenue share of the LGU and P1.42 billion for the purchase of certain properties.

They emphasized that FLI does not have any obligation to pay the city of Cebu P500 million by the end of 2013 and that in fact, FLI had advanced its payments. They also quoted a report from SGV & Co. which stated that for Jan. 1, 2010 to Sept. 30, 2013, FLI is required to remit to the LGU only P78.84 million, while actual remittances by FLI amounted to P159.7 million.

At this point, it is still basically the Cebu City government’s word against Filinvest and if Cebu City insists on its claim, it has no choice but to file a case in court.

I am not at all sure if such a case would affect Filinvest’s bid for the MCIA project and it isn’t clear if Megawide-GMR can use this as a grounds for asking the DoTC to disqualify Filinvest-CAI in case it gets awarded the bid.

At most, it can shake the confidence of people in Filinvest.

MCIA’s Champion in the Upper Chamber?

At this juncture, it would appear that the DoTC would have no choice but to disqualify Megawide GMR and award the project to Filinvest-CAI or have the whole project consigned to years of deliberation in court.

This is a very real threat as Osmena the Third already threatened to sue the Department of Transportation and Communications (DOTC) if the agency awards a P17.7-billion contract to upgrade the MCIA to Megawide-GMR .

“If the DOTC gives this to GMR, I’ll take them to court. What can I do, the DOTC did not do its job,” Osmeña said in a news briefing at the Senate on Thursday.

—

“If the DOTC makes a wrong decision, yes (there’s no other recourse but to take them to court). But right now, the DOTC has not yet made a decision.   And I am questioning why they did not undertake, exercise proper due diligence, that now, after the process is almost ending, now we find out that these are the skeletons in the closet,” Osmeña said.

In an interview on DZRH, Osmeña the Third appeared to bat for Changi:

Q: Magkano aabutin ang kontrata kung magpapatuloy ito?

Serge; 2 parts po yan. Ang construction cost is P17.2 billion. ‘Yung upfront cost, payment, ‘yung highest bidder, P14.4 billion ang ibabayad sa gobyerno. At babawiin po nila ‘yan dun sa mga fees na kokolektahin nila sa mga pasahero, sa mga turista na gagamitin ang Mactan Cebu International Airport.

Serge: ‘Yung number 2 po, nag-bid ng P14 billion, ‘yung Changi Airport of Singapore, in partnership with Filinvest Development Corporation. ‘Yung Changi Airport of Singapore, taon-taon po sa lahat ng contest, Number1 airport in the world.

—

Q: Itong isang consortium mukhang paborito ito, ang daming projects ang na-corner niya… PPP projects na ipinatutupad na ngayon? Itong Megawide?

Serge: Marami po, marami silang nakuha na PPP projects. Megawide has already won 4 PPP projects, 2 projects magpapatayo ng schoolbuildings. 1 project, ‘yung National Orthopedic Hospital… Very attractive po ‘yung bidding nila.

—

Serge: …Sapagkat itong GMR, talagang napakabaho ang background nila sa India.

3 years in a row, operating loss iyan. Malaki, malaki ang kumpanyang iyan. Pero 3 years in a row operating loss! Lahat ng mga bangko sa India, nagbigay ng instructions sa GMR na magbenta kayo ng mga assets ninyo sapagkat sobra na yung debt-equity ratio ninyo.’Yung relasyon ng utang sa invested money dun sa GMR. Parang out of line na ‘yung relation nun. Kaya nagbenta pa sila ng mga assets -$800M, $1.2B, $144M…siguro they sold about 10-15 assets in order to bring their debt-equity ratio more aligned with what is considering normal and not dangerous.

On GMR’s financial status, the company responded in an article on Sunstar saying:

GMR-Megawide issued the following clarifications:

1) GMR Airports is the third largest private airport operator in the world.

Their airport assets–Delhi, Hyderabad and Istanbul Sabiha Gocken Airport– are among the best run airports in the world. Delhi Airport is ranked second in the world in the 25- to 40-million passenger category, while Hyderabad Airport is also second in the world in the five- to 15-million passenger category.

2) GMR is a financially-sound company with a long-term debt rating of BBB+ and a short term debt rating of A2 given by international rating agencies. GMR has arranged for financing of more than US$10 billion for its various infrastructure projects.

Several banks, including the Asian Development Bank (ADB), International Finance Corp. (a World Bank entity) and Standard Chartered Bank, have already given testimonial letters on the good financial standing of GMR and Megawide in context of project-financing requirements.

No matter which way this is resolved, I wonder what the Indian firm GMR or the Singaporean CAI think of doing business in the Philippines? Do our Filipino companies look like poor porters at the pier fighting tooth and nail over who gets to carry a passenger’s baggage?