Misinformation and attempts to derail NAIA’s rehabilitation

THE CORNER ORACLE - Andrew J. Masigan (The Philippine Star) - October 28, 2020 - 12:00am

Last week, the Department of Transportation (DOTr) issued a statement advising the public to disregard the “misinformed reports” circulating regarding the proposed rehabilitation of NAIA.

Evidently, a misinformation campaign is underway to discredit the company that has the original proponent status for the project, Megawide, and to derail the rehabilitation of NAIA altogether.

Misinformation mongerers allege that DOTr Secretary Arthur Tugade extended special treatment to Megawide by lifting the minimum equity guarantee for the project. (A minimum equity guarantee ensures government that the proponent has enough funds to fully implement the project.) They went on to question Megawide’s financial capability. And in an attempt to paint the company as mercenary, it was purported that Megawide would terminate all of NAIA’s existing employees when it took over the facility. None of this is true. All of this is fake news.

Setting the record straight, the DOTr said that no special treatment was extended to Megawide. In the first place, Section 5.4 (c) of the Build-Operate-Transfer (BOT) Law states that the proponent only needs to sustain the financing requirements of the different phases of the project. The law does not specify a specific amount of minimum equity requirement. How can an amount that is not specified be “lifted”? Besides, the proposal is no longer in the hands of the DOTr but now under review by the Investment Coordinating Committee of NEDA.

As for Megawide’s financial capability, misinformants allege that the company’s equity of P17.998 billion falls short of the 30 percent minimum equity required by NEDA for the P107-billion project. Again, we need to refer to the BOT Law for context. The law says: “The prospective project 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.”

Nowhere in the law does it say that the project proponent must show equity of no less than 30 percent of the entire project cost. What the law says is that the proponent must have adequate financial capacity to sustain the project through its various phases when they become due.

The equity requirement of 30 percent of project cost was purposely imposed by the technical working group of NEDA-ICC. It is a drastic departure from the usual minimum equity requirement of previous airport developments such as that of Iloilo, Laguindingan, Puerto Princesa, Bacolod and Davao. In these projects, the minimum equity requirement was based only on the project phases and pegged only at some 20 percent of the phase cost.

Any financial analyst will agree that NEDA-ICC’s requirement is both severe and excessive. After all, there is no sense in requiring equity capabilities upfront since the development phases of the project need not be funded today. It is like a real estate developer asking a buyer to produce proof of income today on a condominium unit that will be purchased 15 years later.

As it stands, Megawide’s audited financial statements show that it has a net worth P17.998 billion. It can raise another P3.6 billion through the issuance of treasury shares and P5 billion through the issuance of preferred shares, both of which are financing options typically employed by companies embarking on high-CAPEX projects. So without even counting the increase in the company’s cumulative retained earnings throughout the NAIA development period, Megawide can easily present some P26.6 billion in equity today representing 24.8 percent of entire project cost. Again, this is over and beyond the equity required by NEDA for its privatization projects in the past.

Clearly, the company’s finances demonstrate its capacity to finance the first two phases of the project, even the first three, if the value of the treasury and preferred shares are considered. The project is spread over four phases spanning five years.

The unreasonably rigid equity requirement raises red flags. Are certain policy makers purposely blocking NAIA’s rehabilitation? If not, why is it arbitrarily imposing such a severe minimum equity requirement? Remember, if Megawide proves incapable of financing certain phases of the project, the entire NAIA complex, complete with improvements, will revert back to government. Government bears no risk.

As to the rumor that Megawide plans a mass termination of NAIA employees, we can refer to how the company handled the human resources of Mactan-Cebu International Airport when they took over. Rather than terminating, the existing staff were re-trained, up-skilled and many were promoted. Those who chose to retire were replaced. In the end, more jobs were created than lost.

As I said many times before, we can no longer delay NAIA’s rehabilitation. The effect of runway congestion to the country’s logistic chain has already caused the economy hundreds of billions in losses. Airlines waste billions in fuel as aircraft must circle the runway several times before they can land. And since the four ageing terminals are operating at 40 percent beyond their true capacity, passenger experiences are often unpleasant. We have all suffered enough.

NAIA pales in comparison with other airports in the region by a long margin. As the nation’s principal gateway, it is an unbefitting representation of what the country is all about and what our people are capable of. Being rated one of the worst airports in the world from 2011 to 2016 was a national embarrassment.

Megawide was given the original proponent status (OPS) since it was the second in-time proponent of the project back in 2018 and because it was willing to accept government’s stiff terms and conditions. It obtained its OPS fair and square. More importantly, it has proven capable of building and operating a world class airport. The Mactan Cebu International Airport is a multi-awarded airport for its design and efficiency and a source of pride for the country. No other Filipino company can boast of the same experience and track record in airport operations.

The coordinated misinformation leads me to think that the move to derail NAIA’s rehabilitation and/or move to discredit Megawide is motivated by conflicting business interests. Civil society should be vigilant. We should not allow policy maneuverings to interfere with the fair process of privatization. We should not allow grafters in government to manipulate policies to benefit their “principals.” We should not let vested interests deprive us of the airport we deserve.

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