The bid for Transco might have even been higher if Metro Pacific Corporation was not forced to withdraw hours before the bidding process began. We will never know.
On the night before the date for bidding, the competing bidders were working frantically to put together their financial packages and rework their appraisals of the asset up for sale. This is a complex process. For months, thousands of manhours of executive time were invested building the competing consortia, sealing partnerships and working out the financials.
Then, on the eve of actual bidding, the market was shocked that the consortium led by Metro-Pacific was forced to withdraw. Suddenly there was uncertainty about whether the bidding would succeed or fail.
Metro Pacific was shocked more than anybody else. Their strategic partner in the consortium, the Italian firm Terna-Rette Electrica Nazionale, suddenly withdrew for no clear reason.
Because of that nearly treacherous withdrawal, Metro’s position as a bidder simply collapsed. There was no material time left to rebuild a viable consortium with both the technical and financial muscle to credibly offer a bid.
To this day, the business and financial community is still wondering what happened. Terna-Rette has offered no explanation for suddenly abandoning its partners at the late point where nothing else could be done to save their consortium’s participation.
There is a lot of speculation, to be sure. Some of them unsavory. None of the probable reasons being speculated upon will heal the disappointment, the sense of betrayal and the shattered trust that happened because of Terna-Rette’s bizarre corporate behavior.
Unfortunately, our senators and congressmen do not conduct inquiries into the misbehavior of foreign corporations — even as there might be really great stories to tell in the case of Terna-Rette.
At any rate, the price fetched for the lease on Transco was not at all disappointing. Government stands to gain well over $3 billion for the deal.
For the clarification of everyone, the Transco deal is not a privatization transaction, although amount government stands to gain from this transaction is the largest on record. It is a lease. After two decades, government get back the facility after it has been rehabilitated and made more efficient by the private sector consortium that acquired the rights to operate this mammoth facility.
The Transco deal, like the MWSS privatization undertaken some years before by the Ramos administration, will surely be a model to be studied closely by other governments. The innovative MWSS privatization, which involves leasing out the water distribution franchises, was emulated by other countries in the years after that deal was sealed. It opened the way for private investments and expertise to be infused into our water utilities, providing better and cheaper service to our people.
After the lease period for Transco, the transmission facilities will revert back to the Philippine government. It will be a more modern transmission backbone operated with great expertise.
For this deal to be consummated, Congress will have to award a separate franchise for the transmission utility. Let us hope this almost ministerial process will not be unduly politicized by those seeking publicity at any price. By those who try vainly to score political points no matter how pointless the cause.
The Transco deal is most beneficial to the public — and not just because of all that cash that will flow into the national treasury. The deal opens the way for expertise from the private sector to repair our backward utilities, just as they did in the case of the water servers.
The privatization of PNOC-EDC done a few weeks earlier is, so far, the biggest privatization deal on record. This too, is a globally applicable model of privatization in its own right. The process began with an initial public offering of the corporation’s stock. That provided an initial inflow of earnings to government. Important, too, it provided a market-based benchmark for the bulk sale of the remaining shares, setting the stage for the proper pricing of the bulk sale of shares that happened last month.
Here too, it is not just the money that government makes. By passing EDC to the private sector, we open the doors to greater investment flows into clean power generation. That will help both out economy and our environment. If the new owners of EDC do their business well, they will not only increase the share of geothermal power in our energy generation profile by tapping more financing, they could also become a Filipino multinational by building geothermal capacities for our neighboring countries.
The PNOC-EDC deal is done and paid for. It was done with a minimum of trauma inflicted by politicians who might want to get into an already transparent process — for pure or impure motives.
Because of this deal, which brought about P47 billion into the public coffers, we will likely post a public sector surplus this year. That rarely happens in our case, given our chronic problems with tax evasion and the unwillingness of many of our politicians to court public rejection by improving our tax laws.
If we are able to finalize the franchise for Transco and consummate this highly beneficial deal, we will likely post a surplus next year. That will do wonders for our fiscal credibility.
Of course, our revenue agencies should shape up and deliver recurring revenue down the road. Of course, the windfall from deals such as the above will not happen all the time.
But in the meantime, as we improve on our tax administration and modernize our tax laws, privatization keeps us from borrowing. That is good enough.