Puerto Princesa airport moving, at last!

At long last, the construction of the Puerto Prin-cesa International Airport is apparently about to move with the awarding of the project to a Korean contractor, Kumho. The airport project was the first of many big ticket airport projects to be approved by P-Noy after he assumed office. But it took DOTC quite a bit of time to get the project off and running.

It was then DOTC Sec Mar Roxas who announced Malacañang’s approval of the project in late 2011. “P-Noy just OK’d our P4.5-billion Puerto Princesa airport project,” Roxas said in a “tweet” on social networking site Twitter.com. He said his target for the start of construction of the project is late 2012. “(I) feel big responsibility to deliver this. Tuloy-tuloy na ’to.”

Tuloy tuloy turned out to be teka teka. The project was supposed to be a PPP project and some of our local conglomerates have expressed interest. But Mar had second thoughts about PPP and shifted his preference for ODA financing instead.

I am glad the airport project is finally moving. But it will not be completed until first quarter of 2017, too late for P-Noy to inaugurate it and claim credit for it. Maybe that’s how life really is because P-Noy inaugurated and claimed credit for the Arroyo initiated but still to be really completed Laguindingan airport in Cagayan de Oro.

Interestingly, Laguindingan was also funded by Korean ODA. It took seven years from the time when then President Arroyo broke ground in January 2006 to the time when President Aquino inaugurated it in June 2013. It wasn’t even really complete when the ceremonies opening it was held. It lacked  such key things as lights for night operations and instrument landing system. A little rain and the airport is closed. Hopefully the Koreans do a lot better this time.

Hopefully  the Puerto Princesa airport project is not delayed by some investigation or legal problems. Luckily, Hanjin, the losing Korean bidder, decided to stop going after the project after the DOTC bidding committee ignored its protests. I suspect the Koreans settled this issue among themselves in Seoul.

But DOTC still owes us some explanations on how they awarded the project to Kumho in seeming violation of the bidding rules the DOTC bidding committee promulgated.

Two things stand out: 1) there is clear conflict of interest with DOTC’s project consultant (Incheon) favoring the award to its partner, Kumho; 2) there is question on the financial capability of Kumho to carry out the project since it is in financial rehabilitation (a violation of DOTC’s rules).

For background, DOTC hired Incheon to be its consultant for the preparation of tender documents for the bid and assist in the evaluation of bids including the technical aspects for the Puerto Princesa airport project. Problem is, Incheon is associated with Kumho. Both companies are together in a consortium that made a bid with San Miguel for Mactan and in an international airport project in Myanmar.

This situation was recognized by Atty Gerald L. Chan of DOTC’s legal office who warned the Bids and Awards Committee (BAC) who pointed out that there may be a conflict of interest between Kumho and Incheon, as evidenced by their involvement in the Mactan-Cebu project and another construction project outside of the country. Atty. Chan wrote in a memorandum that the relation of Kumho and Incheon might be a violation on the prohibition of conflict of interest provision under the bidding documents of Puerto Princesa Airport Project.

Kumho is also undergoing financial rehabilitation since 2009. DOTC, on advice of its conflicted consultant, Incheon, awarded the Puerto airport project to Kumho, Incheon’s partner. Kumho should have been disqualified outright for conflict of interest and questionable financial capacity.

Worse, Hanjin actually submitted the lower bid but DOTC awarded it to Kumho anyway. When Sen Serge Osmena asked about this case during the hearing on the Mactan project, DOTC officials told him that they are following Korean award rules.

I found that explanation strange. Even if the Korean loan charges very low interest rates, we are still paying for it and our own procurement rules should apply. It would be a different story if it was an outright Korean grant.

Hanjin raised very early during the pre-qualification process, the issue of conflict of interest of Kumho based on its existing relationship with Incheon, the consultant hired by DOTC for the project.

Hanjin pointed out that based on Clause 4.3 of the Instruction to Bidders of the bidding documents for the Puerto airport project, a bidder is disqualified if: (1) it has a relationship which places it in a position to influence the decision of DOTC or (2) if it is affiliated with someone engaged or hired by DOTC for the project.

It did look unfair. Incheon, a firm affiliated with a bidder (Kumho), was hired by DOTC as its consultant for the project. Second, Incheon was hired to evaluate the technical aspect of the bidding process, as well as the submissions of the bidders. It cannot be clearer that there is a conflict of interest which arises from the relationship of Incheon and Kumho.

DOTC did not bother to rule first on the request of Hanjin to determine if conflict of interest does exist between Incheon and Kumho before continuing with the bidding.  DOTC proceeded with the bidding process, and even declared that Kumho is qualified to join the bidding.

Hanjin gave the lower bid of $82,923,000 against the bid of Kumho of $83,257,000. This represents a difference of $334,000 or roughly P15,000,000.

DOTC should have spotted early on the financial capacity of Kumho. Kumho has been undergoing rehabilitation since 2009 but has not been able to recover as of yet. In fact, its own external auditor, Samjong KPMG, expressed serious doubts about the future financial viability of Kumho.

In its audit report, KPMG stated that it found “material uncertainty on the presumption of going concern.” Stated in layman’s terms, the independent auditor seriously questioned the capability of Kumho to continue its own business.

A simple computation of net worth would reveal that it will not pass the minimum financial capacity requirement for the project as provided in the bidding documents. Concretely, the average net worth of Kumho for the past four (4) years, or from 2009 to 2012, is negative. This alone should have been enough to disqualify Kumho.

Hanjin pointed out to DOTC that under 3.3.3.1 Historical Performance, under Evaluation and Qualification Criteria of the Bid Documents, the individual members of the joint-venture bidders must have a positive net worth. It is alarming to note, as the Senate hearings revealed that in both the Mactan-Cebu and Puerto Princesa Airport Projects the DOTC seemed to have been clueless about the financial condition of the bidders of their choice. 

Sen Osmena in fact, castigated DOTC for poor due diligence during the hearings for Mactan which also briefly took up Puerto Princesa. It is easy to suspect that the DOTC turned a blind eye when it saw the bid documents submitted by the favored bidder. Or, there was misrepresentation in the papers submitted to conceal the true condition of the bidder. 

But, as I have said, the important thing now is to make sure the Puerto Princesa project gets done soonest. Indeed, with Incheon’s participation, there is perhaps a better chance that this airport will be delivered with the world class standards Incheon is known for. I still doubt the Indian GMR company can do as well for Mactan, based on their airport projects so far.

But DOTC owes us, the taxpayers of this country, an explanation. DOTC officials claimed during the Senate hearings that they are just following Korean rules, implying our own procurement rules are subordinate to the Koreans. This seems wrong and DOTC officials may have even lied to the Senate on this point. It is bad enough bidding was limited to Koreans even as aid donors are supposed to be committed to open international bidding.

For one thing, under Clause 1.4 of Section X embodied in the General Conditions of the Bidding Documents, it is provided that the Contract shall be governed by the law of the country or other jurisdiction stated in the Contract Data.  Part A of the Contract Data, which forms part of the Bidding Documents, clearly provides that the governing law is Philippine Law.

In addition I am told the Korea Eximbank stated as early as 6 January 2014 that they will not be involved in the other issues or controversies regarding the bidding process and therefore, it will be Philippine rules or bidding that will govern the issues regarding conflict of interest and financial conditions of Kumho.

So, what happened here? Maybe the Ombudsman and/or the appropriate congressional committee should look into this matter.

But let the project proceed since the aggrieved party, Hanjin, already conceded. It is just that something stinks and it could eventually contaminate the corruption free image of P-Noy.

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