MAGA
DEMAND AND SUPPLY - Boo Chanco (The Philippine Star) - April 24, 2019 - 12:00am

No. This is not about how to Make America Great Again. That’s none of my business.

The MAGA I have in mind is about material adverse government action. This MAGA is being used by our bureaucrats to delay action on private proposals to invest in public infrastructure.

In so many words, MAGA is that section of any agreement under PPP wherein government guarantees that it will compensate the private proponent if it makes a decision or takes an action that adversely affects the viability of the contract.

MAGA is always toughly negotiated. The private proponents and their bankers want assurance government will not change its mind on matters already agreed upon that shatters the business model. I think that’s fair.

Government bureaucrats, on the other hand, want to make sure that there are enough safeguards so that government is not made liable for changes in the business or political environment that is beyond anyone’s control. Investors must be able to take business risks.

President Duterte’s order to review the concession contracts of Maynilad and Manila Water may turn out to be a good example of MAGA. If government changes any provisions of the contract agreed upon more than two decades ago, that’s material adverse government action.

The proper route should be to go to arbitration or to get the concessionaires to voluntarily renegotiate the agreement. Otherwise, the word of our government will mean nothing to potential international investors.

Toll road concessionaires have been suffering MAGA for years. Toll road operators were denied scheduled toll rate adjustments for quite a long time.

Government always virtually changes the rules on when and how to give toll rate adjustments because of politics. Luckily for the toll road operators, the traffic count today is way over the original assumptions.

Maybe, the proper thing to do is to renegotiate because obviously, the initial assumptions are no longer valid. But for the Toll Regulatory Board to simply indefinitely delay toll rate increases provided for in the concession agreements is a material adverse government (in)action.

Then again, some of the early BOT contracts are obviously onerous. The MRT-3 contract is a good example.

There has to be a way to legally get out of such contracts. What government has done is to simply ignore the contract and that’s why MRT-3 service deteriorated to the point of endangering lives.

The private sector group behind MRT 3 can, however, say that it was MAGA in the form of an order from Erap to peg fares at P15 that destroyed the viability of the system. Political considerations make safeguards against MAGA essential.

Many government bureaucrats use MAGA discussions to delay giving up control of key infrastructure. But bureaucratic incompetence makes the shift to private management necessary.

Last week, an OFW from HongKong was held up by a taxi she took from NAIA. That was a tearful and horrifying experience, just the thing that makes potential visitors to this country think twice.

All that NAIA airport managers can say is to warn passengers when they take risks by taking taxi rides from the airport.

They should be able to do more.

I cite this example to stress the obvious that our airport authorities are sleeping on their jobs.

My wife was just in a place called Kuantan in Malaysia and she was telling me the airport there puts our Manila airport terminals to shame. The Kuantan airport is just a domestic airport.

I had a recent conversation with my op/ed colleague Ichu Villanueva last week and she observed that the Laguindingan Airport in Cagayan de Oro is showing signs of deterioration. Yet, it is a fairly new airport.

Ichu was hoping the brand new Panglao airport in Bohol would be turned over to private management before it suffers the fate of Laguindingan.

The obvious truth of the matter is that government cannot properly run our airports. Government doesn’t have the expertise to do it… its cumbersome procurement rules make them unable to properly respond to immediate needs.

I suspect NAIA authorities simply do not want to let go. But the public interest dictates otherwise.

Indeed, even President Duterte has expressed dismay at the way NAIA is being managed and has threatened to let the Air Force take over. That’s worse because what ails civilian government managers will ail the Air Force too.

The President should just order the DOTr to speed up the negotiations with the NAIA Consortium which includes Changi Airport managers. The Singaporeans know how to run airports. They are running the world’s best airport today. Our airport managers run some of the world’s worst airports.

Efficient management comes at a price. Investors put their money at risk based on assumptions mutually agreed upon with government.  It is not unreasonable to get government assurance that there will be compensation if and when government changes its mind.

Whether the MAGA happened because Congress passes a new law, a court rules adversely, or LGUs want to do something else, investors need protection. Insurance against MAGA shouldn’t just cover executive action.

But investors should take business and commercial risks. That is the other thing wrong with the MRT 3 contract… government guaranteed a high 16 percent return… smacks of a sweetheart deal with the FVR administration.

 It shouldn’t take too much time agreeing on what constitutes MAGA… it should be common sense… and what is just. Debating MAGA shouldn’t delay a needed infrastructure built and properly managed.

This is where the President should step in and declare enough is enough… let’s get this project going. Otherwise, the Duterte watch will have little to show in the next three years.

The first three years passed by quickly with nothing much for Duterte to show in Build Build Build. So will the next three year be gone before we notice it and we will still be arguing contract terms, including MAGA.

It is time to build build build. Or bust!

Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco

INFRASTRUCTURE MAKE AMERICA GREAT AGAIN
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