Why the delay in SMC’s airport?

posted September 12, 2018 at 12:20 am
by  Tony Lopez
Now it’s official. Finance Secretary Carlos Dominguez did indeed question the viability of San Miguel Corp.’s P750-billion airport in Bulacan, 27 kilometers north of the present Ninoy Aquino International Airport.

He raised the issue of viability (and therefore, stymied the new airport project) because Sonny was worried the government would suffer the consequences if it turned out the SMC project would be unprofitable in the long run—because of government actions.

Dominguez’s objections are anchored on two issues:

One, can San Miguel Holdings Corp., the airport proponent which is wholly owned by San Miguel Corp., afford the P750-billion airport when it has only P60-billion equity (capital put in by owner SMC). Sonny wants the mother company, SMC, to guarantee all the liabilities of subsidiary, SMHC. Done, says SMC president Ramon S. Ang.

SMC has P1.4-trillion resources (its food business alone is worth annually P650 billion, power business P270 billion, and Petron P266 billion), P420 billion equity, instant cash of P222.5 billion.

Two, exemption for the government from liabilities or compensation “for force majeure and material adverse government actions” if a good project turns out to be bad because of decisions, policies, and laws made by the government itself.

This is like saying San Miguel cannot run after or sue the government if government itself opts to be naughty later on and does all kinds of foolishness when the airport is operational.

Sonny thinks SMC is so big and so rich anyway to absorb the consequences if government turns bad.

RSA’s reaction: What! (expletive deleted).

The Finance chief was worried because in Mactan airport, the government made substantial and liberal commitments to its proponents, Megawide and its Indian partners. Those commitments were made by the unlamented administration of President Noynoying Aquino III.

Dominguez implied that the past administration made mistakes in making guarantees to the Megawide-Indian group now managing the Mactan Cebu airport.

So now, he wants to be “meticulous” with the SMC airport.

Interestingly, Dominguez allowed the superbody National Economic and Development Authority which is headed by President Duterte himself, to approve the SMC airport plan (last April 2018). Four months later, last August, with the XiamenAir accident, the DOF chief raised crucial questions that in effect negated the approval.

Dominguez elaborated on government commitments to Megawide when he appeared before the hearing of the combined Senate Committees of Public Services and Economic Affairs.

Public Services because an airport is a public service. Economic Affairs because an airport like the size that will soon replace the Naia contributes 9 percent to the economy, about P1.53 billion annually out of total GDP of P17 trillion.

Which means that if the Naia, which services 41-million passengers a year, were to shut down and there is no immediate replacement, as what happened when XiamenAir flight MF 8667 crash-landed midnight of August 1, 2018 disabling the Philippine gateway for nearly two days, the damage to the economy would be enormous—P5 billion or P2.5 billion per day.

“Meticulous evaluation is necessary since in several instances, projects that were approved in the past by the Neda Board were more profitable than projections during the appraisal stage,” Dominguez explained to the senators.

In the Mactan airport project, Sonny pointed out:

• The government made the commitment that there will be no other competing airports in Mactan and Cebu.

This, despite the fact that the Mactan-Cebu International Airport is actually earning more profits than projected. In 2017, it registered a net income of P1.1 billion. This is 48 percent higher than the P752 million forecast in the financial model of the project.

“This indicates that the actual returns of the concessionaire will be significantly larger than what was originally estimated,” noted Dominguez, himself a former banker and an astute businessman in his own right before joining the Duterte administration.

Explained Dominguez: “In the Mactan-Cebu International Airport concession agreement, the government committed that if it causes to operate any international or domestic airport in the Mactan and Cebu Islands, it is considered the grantor in default—that’s the government—making us liable for termination payments. Essentially, it will cost us a tremendous amount of money to build a new airport in these areas even if there is an unexpected increase in passenger demand.”

• “Should the government later on want to build a new airport in the area to serve OFWs and other tourists, we would be required to reimburse not just market value of the infrastructure assets, but also all the future profits of the commercial business until the end of the concession. This means that we would have to reimburse the concessionaire in Mactan around P20 billion just to build another airport,” Dominguez explained.

“While P309 billion is an alarming number, what is more worrying to us are the type of commitments we guarantee,” he said, talking about other projects.

• “There are potential claims by water concessionaires (Manila Water and Maynilad Water) against the government, estimated at P80 billion, just because a Performance Undertaking was executed by a former DoF secretary guaranteeing that the government will not interfere or question water utility rates.”

“These examples,” said Dominguez, “emphasize that the actions we do and documents we sign have ripple effects on the next generations.”

He added: “The burden is upon my office to ensure that future generations do not suffer consequences from poor decisions of previous governments.”

“Book IV, Title II, Chapter 1, Section 2 of the Administrative Code of 1987, and as reiterated in the Department of Justice Opinion Nos. 61 series of 2004 and 13 series of 2013, states that the issuance of the performance undertakings is within the discretionary power of the DoF, it being mandated by law to be primarily responsible ‘for the sound and efficient management of the financial resources of the Government, its subdivisions, agencies and instrumentalities’ and ‘for the formulation, institutionalization and administration of fiscal policies in coordination with other concerned subdivisions, agencies and instrumentalities of government.’”

Question: Why does San Miguel have to suffer the consequences of bad decisions by previous governments in other projects?

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Topics: Tony Lopez , SMC’s airport , San Miguel Corp. , Finance Secretary Carlos Dominguez
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