SCTEx deal sweetened for PNoy?

By Carmela S. Fonbuena, Newsbreak

Posted at Dec 08 2010 01:52 PM | Updated as of Dec 09 2010 12:59 AM

In a proposed agreement that has yet to be made fully public, Manuel V. Pangilinan's company is offering to pay the government about P1.2 billion a year for the right to manage  and collect revenues for up to 33 years from the Subic Clark Tarlac Expressway (SCTEX), the Philippines’ longest toll road completed in 2008.

However, the generous offer is only good until 2016, coinciding with the end of the term President Benigno Aquino III, whose officials are now reviewing the deal between BCDA and Manila North Tollways Corp. (MNTC), a unit of the Pangilinan’s Metro Pacific Investments Corp. The agreement was firmed up in June 2010, just weeks before then-President Gloria Arroyo stepped down from power. 

The payment allows the Bases Conversion and Development Authority (BCDA), the state corporation that built the expressway with a P26.9 billion loan from Japan, to fully cover its annual debt service payments. But the fixed payments are only good until 2016.

Beginning 2017, the payment scheme will shift to a variable mode where the government gets 20 per cent of the audited toll revenue. This represents a sharp departure from the bidding terms in October 2009 when BCDA last tried to hold a competitive tender to select a private operator for the SCTEX. At that time, the winning bidder was required to pay BCDA 20 per cent of toll revenues or the peso equivalent of the debt service payment, whichever is higher. 

The change in the payment scheme could potentially expose the BCDA to the risk that MNTC’s concession fee payments will not be enough to cover the debt service obligations to Japan if the volume of vehicle traffic remains below target.  

The risk looks real enough. As of 2009, the average daily traffic was only 18,000 vehicles, way below the 35,000 vehicles projected for that year. Total revenue was only P513.5 million in 2009, just half of the projected annual loan amortization and interest payments. 

Failed Biddings

For the next president in 2016, the fixed payment scheme from 2011 to 2016 may look like a sweet deal designed especially for Aquino if the government’s future 20 per cent share of toll revenues continues to fall below debt service costs.  Of course, if vehicular traffic exceeds break-even volumes, the BCDA under the next administration stands to earn more, apart from being able to cover its debt service payments. 

The complex but still-secret operations and maintenance agreement between BCDA and MNTC are examined more closely in Newsbreak's new book, The Seven Deadly Deals: Can Aquino fix Arroyo's Legacy of Costly and Messy Projects. Apart from the SCTEX, the book also looks at other troubled projects and contracts that were inherited by the Aquino administration from its predecessor: North Luzon Railway, Ninoy Aquino International Airport Terminal 3, the Metro Rail Transit 3, the  collapse of the Quedan and Rural Credit Guarantee Corp., the troubled tender for  Mt. Diwalwal gold rush area, and the problems besetting the Department of National Defense procurement of military equipment.  

The book tells how the huge cost of the SCTEX project complicated the BCDA’s attempts to look for a private sector investor who will take over the management of the tollway and pay concession fees that will allow the government firm, in turn, to repay the loan to Japan. The project is well-known not only for being the longest toll way in the country but also for having it incurred the biggest cost-overran among foreign-assisted projects, based on 2007 reports by the National Economic and Development Authority.  

The BCDA had to go through at least three failed biddings, the latest of which was in February 2010, before it succeeded it firming up negotiated deal with the MNTC in June 2010. Its officials are rather proud of the agreement with MNTC, looking at it as some sort of vindication against the various allegations of mismanagement and corruption leveled against the agency through the years. 

“For all the issues that have been raised against SCTEX, I think the fact that the private sector is willing and very able and even very aggressive to undertake the operation of the project and assume the obligation of BCDA for the project, that is vindication enough for us that the project is viable and feasible and above board,” the book quotes BCDA executive vice president Aileen Zosa.  

The BCDA official added that if the government’s future 20 percent share of toll revenues are below the debt service payment, MNTC will advance the difference. Though BCDA incurs a liability, she said the obligation is interest-free. Moreover, BCDA is obliged only to “pay when able,” according to Zosa.  

However, the terms of the deal between BCDA and MNTC could not be independently verified as both parties have refused to provide or show Newsbreak a copy of the agreement, saying it was still subject to review by the government. Apart from a four-sentence statement, MNTC has yet to respond to detailed questions on the terms of the proposed agreement between the company and BCDA. 

(Newsbreak’s newest book, The Seven Deadly Deals: Can Aquino Fix Arroyo’s Legacy of Costly and Messy Projects? will be launched with a forum on public-private partnerships on Dec. 10, Friday, 3-5:30 p.m., at the Global Distance Learning Center of the Asian Institute of Management, Makati City.)