Understanding the impediments of NAIA’s rehabilitation

THE CORNER ORACLE - Andrew J. Masigan (The Philippine Star) - October 7, 2020 - 12:00am

NAIA processed 48 million passengers last year, 13 million more than its true capacity. Since 2013, the country’s premier gateway has been plagued with runway and terminal congestions which resulted to persistent flight delays, unpleasant passenger experiences and an unsavory image for the country.

Although passenger volume plummeted during the pandemic, the DOTr foresees air traffic recovering to 2019 levels by 2023. The pandemic has, in effect, given government a four-year window to expand NAIA’s capacity.

In 2018, the consortium of seven conglomerates (the NAIA Consortium) bagged the original proponent status to rehabilitate, upgrade, expand and operate NAIA for 15 years. It committed to invest P102 billion to increase NAIA’s capacity to 65 million and improve the airport’s facilities.

The consortium spent 24 months negotiating the terms of the deal. Among the contentious provisions the consortium had difficulty accepting were: the steep minimum guarantee for concession fees; no guarantees that terminal fees can be adjusted; the need to pay real property tax and the need to reimburse MIAA P8.2 billion for prior improvements.

While these issues were being fleshed-out, the pandemic happened which further complicated the situation.

In a letter to NEDA last July, the consortium proposed a new set of terms to maintain the project’s viability and bankability amid the pandemic. The Manila International Airport Authority (MIAA) rejected the proposal and revoked their original proponent status.

Now without a proponent, the plan to rehabilitate NAIA was dead. For the riding public, it meant indefinitely suffering through runway and terminal congestion. For government, it meant having wasted two years in a deal with nothing to show.

Desperate, the Department of Finance asked the Megawide group if they would be interested to assume the project. It will be recalled that Megawide was the second-in-time proponent back in 2018.

Being familiar with the terms of the deal, Megawide reviewed the project documents and in record time, decided to move forward with the project. Its experience in rehabilitating the Mactan Airport gave it confidence that it could do the same for NAIA despite the stiff conditions imposed by government. Days later, MIAA granted Megawide the original proponent status.

In one fell swoop, Megawide saved government from a loss of face whilst restoring hope that the Filipino could still have a world class airport.

MIAA has since endorsed the project to NEDA-ICC’s Technical Board. But more steps need to be hurdled before shovels can hit the ground.

NEDA’s Technical Board will have to elevate the project to the Cabinet Committee and subsequently, back to the NEDA Board for approval. Once approved, the Swiss challenge will commence. If there are no counterproposals or Megawide is able to match the terms of the best counterproposal, the project will be awarded to Megawide.

As an observer and analyst of government’s infrastructure projects, I consider it a positive development that Megawide is now the original proponent. Not only does the all-Filipino engineering firm have a track record of delivering project on time and within budget, it has always exceeded expectations in design, engineering, operations and maintenance.

The Mactan International Airport is a fitting representation of Megawide’s proficiencies. From an airport plagued with graft and inefficiency, the Visayan gateway has become a symbol of national pride for its design and operating efficiency. It has spurred business activity in the Visayas.

Megawide has also delivered the country’s first PPP deal, which involved building 10,000 classrooms for the Department of Education. It completed the Parañaque Integrated Terminal Exchange and operated it as if it were an airport. It built Clark Terminal 2 with neither delays nor budget overruns.

Despite the urgent need to rehabilitate NAIA, there are those seemingly intent on derailing the project. Certain officials from the DOTr have questioned Megawide’s financial capability, claiming that the company’s net worth falls short of the minimum 30 percent of project cost.

Section 5.4(c) of the BOT law says: The proponent “must have adequate capability to sustain the financing requirements for the detailed engineering design, construction and/or operation and maintenance phases of the project, as the case may be.”

The essence of the law is that the proponent must be able to financially sustain the project through its phases. It does not say that the proponent must have equity equivalent to 30 percent of the entire project cost at the onset.

Financing by phases has always been the norm. In the intended privatization of the Iloilo, Bacolod, Davao, Puerto Princesa and Bohol airports, the DOTr required equity sufficient only to finance the first phase.

Megawide already proved that it has enough equity to finance the first two of the four phases of the P107-billion project. As the rehabilitation works progress, the company’s balance sheet would reflect the asset value of the previous phases, thus making it no problem to meet the minimum net worth required to secure financing for the next phase/s.

The requirement to show equity of 30 percent of the entire project cost is new and stems from the fact that the NAIA Consortium was able to do so. Now the DOTr wants to impose this new standard on all proponents.

Look, different companies adopt different financial strategies. What’s important is that the proponent demonstrates its capacity to finance the various phases of the project as they become due, as the law mandates. Megawide’s intention to meet its financing requirements in stages is not an indication of financial incapability but rather of prudent use of resources. Besides, if Megawide proves incapable of financing certain phases, the entire NAIA complex, complete with improvements, will revert to government. Government bears no risk.

As it stands, Megawide is likely the only company willing to accept government’s stiff conditions on concession fees, reimbursements, etc. These conditions proved so rigid that even the seven largest conglomerates backed out.I fear that if government remains adamant in imposing severe equity requirements, Megawide too will back out, for which the ultimate loser will be the Filipino people. The last thing we want is to be left with no proponent and to have to start from square one all over again.

It is baffling how certain personalities are seemingly sabotaging NAIA’s rehabilitation.  Malicious minds would think that the syndicates who allegedly control NAIA’s food concessions, advertising spaces and ground handling are behind this campaign.

Rather than posting obstacles, government should instead show flexibility and act as an enabler of the project. The people deserve a better airport. The country deserves a proper premier gateway. And lest we forget, this a campaign promise that President Duterte has yet to deliver.

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