DOTC fast-tracks delays of PPP deals

Okay… that spoof headline was originally tweeted by journalist Dax Lucas.  It actually has a sub head: All projects deferred soon, officials vow. It was just too good for me to ignore. Dax captured the frustration of many over how DOTC has approached the vital infrastructure projects in its area.

Speaking of DOTC, another friend of mine who is also exasperated has renamed it the Department of Tendering and Cancellations. That’s all it has done during the more than three years of the P-Noy watch.

Failed or delayed bids… that is why we don’t have car plates, why LTO may soon end up with the mano-mano record keeping system again and why MRT riders will have to suffer pretty bad and dangerous service conditions indefinitely.

The private sector is starting to run out of patience. An official of the European Chamber of Commerce of the Philippines (ECCP) has called for a review of DOTC’s public-private partnership (PPP) thrust after three problematic auctions.

“It is time to review the failures and design a new concept,” ECCP vice-president Henry J. Schumacher told BusinessWorld in a text message. “ECCP feels that the PPP model designed by the DOTC obviously does not work,” he added.

It is not difficult to see why DOTC is a failure. There is an obvious attitude problem on top of a lack of ability to appreciate the technical and financial requirements of the projects. That’s what we get for having an all lawyer team on top of DOTC’s PPP projects.

The attitude problem was captured by the off-the-cuff remark of DOTC usec Timmy Limcaoco that they were making sure the private sector partner does not get too rich. There is also a DOF usec involved in the PPP negotiations, a former investment banker from Goldman Sachs, who is said to insist in drafting contracts so tough that private sector bidders aren’t sure it is worthwhile to participate.

“[What is] important is that investors must be allowed to make a profit. Without profit, nobody is going to provide funds and take risk. DOTC has to understand that making profit is not a sin,” Mr. Schumacher noted. That sounds very basic, but apparently the Aquino administration does not believe in this.

This could well be in reaction to the anomalous giveaway BOT contracts during the FVR era that brought us all the problems we now have with MRT 3 and NAIA 3. But why swing to the other extreme to the point that, as Ramon Ang commented on LRT1 extension project, the costs and potential benefits no longer justify taking the risks?

The Joint Foreign Chambers (JFC), of which the ECCP is a member, has also earlier expressed concern following the failed LRT-1 bidding. “JFC urges the government to ensure that this project and all PPPs are commercially attractive and viable, both in terms of risk and reward,” it said.

Management Association of the Philippines (MAP) has also weighed in. MAP president Melito S. Salazar, a former DTI Usec, said: “The government should pave the way for the proliferation of successful PPP projects in the country in order to send a positive signal to foreign investors that the Philippines is indeed a good investment destination.”

Commercial concerns are obviously the primary reason for the increasingly lukewarm attitude of potential investors to the PPP projects. That’s why the bidding for the P60-billion LRT-1 extension project -- the biggest PPP to date -- failed last Aug. 15. Three of the four pre-qualified groups backed out and the sole participant made a conditional offer that DOTC had to eventually reject.

Even P-Noy is apparently guilty of this anti-business bias. He was reported to have commented, “baka naman masyadong yumaman si Manny dyan” or words to that effect, after a presentation was made of Manny Pangilinan’s offer to take the MRT 3 problems off their hands and assume responsibility for its operation and rehabilitation.

That comment from P-Noy was enough to kill the offer and DOTC is taking the long and difficult road instead. It must now raise the billions of pesos to buy off the equity rights of the original MRT3 owners, buy the economic rights from DBP and Land Bank and buy new rail cars and rehabilitate the entire system that is now unsafe from years of overuse beyond design capacity and minimal maintenance.

DOTC also ended up with a corruption scandal from an alleged extortion attempt. There is also the questionable award of an interim maintenance contract for MRT3 to a group that could not be certified by the original manufacturer, forcing GSIS to refuse insurance coverage.

It will likely take more than the DOTC estimate to retire all MRT bonds and obligations and buy full ownership as well. In the meantime, it is legally questionable for DOTC to buy new trains for what is still on paper, a private company. Yet, DOTC has reportedly awarded the supply of new trains to a Chinese company, a lone bidder after every one else (reputable companies from Europe and elsewhere) were either disqualified or decided not to bid.

A legal challenge to DOTC’s award to the Chinese company will indefinitely delay everything. In the meantime, even if a really serious accident happens and many lives are lost, nothing changes government’s basic inability to do anything. MRT3 may yet end up a visible and ugly white elephant as commuters all go back to riding the EDSA buses.

Yet, Manny Pangilinan could have done something faster and more reliably… but they were worried he would make too much money. From what I know of the proposal, the commuters wouldn’t be paying that much more than what they will eventually pay after DOTC imposes a series of fare increases.

Speaking of MVP… he must be heaving a sigh of relief at the turn of events with SCTEX. Recall that the operation of the expressway was supposed to be awarded to MPIC. It is already running it on an interim basis. DOF wanted to extract much more than what was agreed upon before signing the contract. Manny gave in to all the additional demands just to get it over with. Still, government refuses to sign.

As a result, government had been amortizing the P32 billion loan from JICA for over two years now, at P1.27 billion a year, when Manny should have taken over the payments from the start. The demand for more money was not justified because the traffic count assumed was too high.

Now a major damage hits the SCTEX after the last floods. That overpriced expressway is now next to useless, waiting for DPWH to repair the extensive damage to a major bridge. And the public highway, the Olongapo-Gapan highway is now pretty good… making the need to pay toll for SCTEX superfluous.

The delay in the bidding of the P17.2-billion Mactan-Cebu International Airport (MCIA) rehabilitation project and the P1.72-billion automated fare collection system (AFCS) for Metro Manila’s light railways are just par for the course.

DOTC Sec. Jun Abaya told a congressional budget hearing that “in Mactan-Cebu and AFCS, almost all are requesting a longer period of time.” But that’s because the Terms of Reference (TOR) are not clear and a lot of technical questions must be answered before an intelligent bid could be made.

Sec Abaya insists it’s just that PPP involves a sophisticated negotiation process. Indeed, PPP deals are complex. That is why they hire transaction advisors who are supposed to bridge private and public concerns. In the LRT1 extension project, IFC, a World Bank subsidiary obviously failed its mandate as advisors.

But, as one source familiar with the DOTC told me, the negotiations became too complex because the DOTC lawyers saw their role as setting up as many hurdles as they could conjure.

My source observed: “Note that the delays (interminable) is occurring only with that agency. Despite the inexperience of DepEd, they managed to get one deal awarded and the next packages are in the pipeline. DOH is already set to award a PPP project, although it started much later in the game than DOTC. The score for the Department of Tendering and Cancellation (DOTC) is still zero.”

I am still hoping to be surprised that DOTC will be able to get even one major project off the ground before June 30, 2016. But frankly, I am no longer sure they can manage an award that is not questioned and stopped from the start. 

Dax may have been kidding around but he captures the situation extremely well: DOTC fast-tracks delays of PPP deals; All projects deferred soon, officials vow.

Sigh!

Term

 In the light of the strong anger arising because of the pork barrel scam, many citizens want their congressmen and senators to serve two terms: one in office and another in jail.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco