Last April, I wrote a column about MAGA and how it has made negotiations for unsolicited proposals to build and manage vital infrastructure projects more difficult than it should be.
MAGA is Material Adverse Government Action. It is that section of any agreement under PPP wherein government guarantees it will compensate the private proponent if it makes a decision or takes an action that adversely affects the business model behind the contract.
On the surface, it seems simple. Government and private proponent agree on a deal, sign a contract. If government has a change of mind, it compensates the private party. Seems fair enough.
But ever since Finance Secretary Sonny Dominguez took office, negotiating MAGA became more contentious. More specifically, Sec Sonny wants to make sure that proponents will only be compensated for adverse government action from the Executive branch.
For instance, the Supreme Court makes a decision or a local government unit issues a new rule that goes against original contract… Sec Sonny is saying that’s a risk the private proponent should take.
But the banks that finance the private proponents think that government is government and MAGA kicks in if any government unit rules against the agreed contract.
What strengthened Sec Sonny’s hand was Clark airport. They were able to persuade the winning consortium to accept a limited MAGA. And the two conglomerates in the Clark airport consortium are also part of the NAIA Consortium.
Earlier, Sec Sonny was also able to extract from San Miguel an agreement to limit MAGA in their Bulacan airport proposal. I got the impression that Ramon S. Ang agreed to almost everything just so he could get started.
I am not surprised DOTr Sec Art Tugade announced they are returning the unsolicited proposal of the NAIA Consortium. He also gave the NAIA Consortium 60 days to revise the contract or they will lose their Original Proponent Status (OPS). DOTr can then entertain other proposals.
Sec Tugade said government wants to have the exact provisions of the Clark International Airport template. This is Sec Sonny talking through Sec Art.
Indeed, Sec Art already accepted the NAIA Consortium’s proposal, a precondition to it being taken up by the NEDA Board. I think Sec Art is now in a hurry, and rightly so, to show some progress in his many projects.
Also affected by Sec Sonny’s limited MAGA rule is the Panglao International Airport. Aboitiz has an unsolicited proposal to handle operations and maintenance.
While the JICA funded airport was already inaugurated, it needs more equipment to comply with ICAO standards for international airports. DOTr is banking on Aboitiz to shell out the capex. The delay is preventing international flights from coming to Bohol, causing a glut in hotel rooms.
The problem with the cookie cutter approach to airport rehab, construction and management contracts is that not all airport projects are created equal. Their risk profiles are different. The things that have to be done are different.
The contract agreed upon in Clark airport’s management by Filinvest and JG Summit is simply to manage one or two terminals that has already been built. The proposal of the NAIA Consortium involves building, redesigning and management of NAIA that is already operating way beyond design capacity.
It all now depends on the risk appetite of the other members of the Consortium. A market analyst noted that the NAIA Consortium-which includes Aboitiz InfraCapital, Inc., AC Infrastructure Holdings Corp., Alliance Global Group, Inc., Asia’s Emerging Dragon Corp., Filinvest Development Corp., JG Summit Holdings Inc. and Metro Pacific Investments Corp. – are not comfortable with the Clark template.
Then again too, not all conglomerates are created equal. Some may have a stronger appetite for a risky project with a strong cash flow. That’s why RSA agreed to take full commercial risk for his Bulacan project. Government did not commit to close down NAIA to ensure viability of RSA’s project.
As RSA once described his attitude, “eh di pagandahang lalaki na lang…” He is saying he is confident San Miguel can provide the best services so that airlines will choose to fly into Bulacan rather than any other airport in the area.
NAIA Consortium members like Lucio Tan’s Emerging Dragons and Gokongwei’s JG Summit, which both run major airlines, may view the risk worth taking.
And with Singapore’s ultra modern and totally impressive Jewel mall, Ayala and Alliance Global may also not want to let go of a chance to build the country’s mall of malls at the NAIA.
Actually, if Sec Tugade acted faster and implemented the already approved PPPs for NAIA rehabilitation and the bundle of southern airports, DOTr will already have something to show by now. Playing catch-up is more difficult.
On the other hand, Sec Sonny may just be able to negotiate a real tough bargain that drastically reduces the national government’s contingent liabilities and still get the infrastructure we need.
What I hope won’t happen is government undertaking these projects themselves. That would make NAIA improvement a lost cause. We know that leads us nowhere we want to be. We are losing competitiveness not just in tourism, but, also in other investments because of our lousy gateway airport.
I hope Sec Sonny also considers our very urgent need for a decent airport. In the end, he will not be remembered for being a tough negotiator but as the guy who lost us the chance to have Changi and the consortium develop a NAIA we can be proud of as Filipinos.
Correction
My apologies to Lisa Gokongwei Cheng who I mistakenly identified as a Pe in last Monday’s column. It is her sister Robina Pe who is married to my friend and colleague Perry Pe. I was horrified to see the mistake.
It’s because I rushed that column and then disappeared for the weekend abroad without doing a final edit. As one new senator puts it, sometimes sh-t happens.
Boo Chanco’s e-mail address is bchanco@gmail.com Follow him on Twitter @boochanco