Senate Hearing Committees of Public Service and Economic Affairs
September 10, 2018
Thank you for inviting us to today’s Senate hearing, your honors, and for giving us an opportunity to answer your questions on the Department of Finance’s involvement in the approval of the airport projects. For us, the message in the last hearing and today also is clear – the government should accelerate the approval and implementation of airport proposals to ensure that tourists and our kababayans do not suffer should an incident similar to the Xiamen Air mishap recur.
On the call of this honorable committee for government to fast-track the implementation of airport proposals, we completely agree. We understand that as early as 2011, a Japan International Cooperation Agency report was already released discussing the problems of NAIA’s capacity, which incidentally was not acted upon by the past administration. One of the first acts of this administration was to begin the rehabilitation of the Clark International Airport to partially address the NAIA capacity problem. We were the first ones to take action. However, we simply cannot wave the magic wand and fix the problem overnight.
This is why we at the DOF were puzzled when we heard that we were being invited today by the honorable chairperson of this committee to a hearing on the modernization and expansion of airports. In the last hearing, it was stated that the DOF “needs to answer why they are hampering or delaying the approval of these projects.”
Before we share with this committee our role in the approval of airport projects, let us first go back to the time the Bulacan International Airport proposal was presented.
In a meeting in January 2018, the following questions came to our mind: First, how will the Bulacan Airport affect the Clark International Airport, given the government’s investments in Clark? Your honors, all airport projects are real estate projects. The real estate value of the New Clark City is currently $14 billion and government has committed an additional P12 billion. We wanted to know how the Bulacan Airport, which is just 65 kilometers away from Clark, will affect the value of the New Clark City, which is by the way, the property of the Filipino people.
Second, how will the Bulacan International Airport affect traffic in the area? Do we need additional lanes in the North Luzon Expressway to be constructed? Do we need to change the alignment of the proposed rail system to Clark?
Third, who is the proponent and what is its actual financial capability? We wanted to know whether the proponent, San Miguel Holdings Corporation, actually had the financial capacity to undertake the project. Initially, the Department of Transportation (DOTr) reported that San Miguel Holdings had a total equity of P60 billion in 2016. Considering the usual financing mix of seventy percent 70 percent debt and 30 percent equity in a Public-Private Partnership (PPP) project, the construction of the Bulacan Airport will require San Miguel Holdings to infuse around P200 billion inequity, which we are not sure is going to happen.
In order to answer these questions, among others, a second meeting was required. In April of 2018, the project was approved by the NEDA Board. As a condition for the approval, we were required to submit our inputs. Even though we thought it was not proper for us to submit our comments as the Implementing Rules and Regulations of Republic Act No. 6957, or the “BOT Law,” provides that the DOF shall review the draft contract once negotiations are completed, nevertheless we compiled the issues discussed at the NEDA-ICC and Board meetings.
Contrary to statements made in the last hearing, we guarantee that there were no new comments added that were not already discussed before the NEDA Board approval. We take this opportunity to categorically say we have not caused the delay in the Bulacan Airport.
As a matter of fact, we are even providing assistance to accelerate the approval and implementation of the project. One of the helpful suggestions we made to the DOTr was to require the execution of a joint and several liability agreement, which would make San Miguel Corporation, the parent company, stand behind San Miguel Holdings, the private proponent, which is financially at this point incapable of undertaking a P700-billion project. However, in page 5, Item P of the draft minutes of the meetings of April 25, 2018 6th NEDA Board meeting, a representative from the Office of the President stated that “the financial capacity of the proponent corporation should be the one evaluated and not the financial capacity of the mother company backing the proponent corporation.” That’s not my comment ma’am, that is somebody else’s.
As regards the DOF’s role in the approval process of airport projects, Book IV, Title II, Chapter 1, Section 1 of Executive Order No. 292 series of 1987, or the “Administrative Code,” provides that the mandate of our department is to ensure the sound and efficient management of financial resources of the government. It is my responsibility to not only look after all of government assets, but also manage our contingent liability, which for the information of this body, is estimated now to be at least P309 billion as of 2018 for PPP projects.
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. Let me give you a concrete example. 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 forecasted 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. And yet, government still made the commitment that there will be no other competing airports in Mactan and Cebu.
Now, 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.
While P309 billion is an alarming number, what is more worrying to us are the type of commitments we guarantee. Let me give you another example. There are potential claims by water concessionaires 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. Moreover, as I mentioned, 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.
Your honors, these examples emphasize that the actions we do and documents we sign have ripple effects on the next generations. The burden is upon my office to ensure that future generations do not suffer consequences from poor decisions of previous governments, as 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.”
Let me ask you a question: why don’t we compare a farmer with a company investing in an airport? The farmer has no access to financing. He does not even own the land. In fact, he is the one who needs a subsidy or government guarantee. But these corporations who are making tremendous profit, with access to banks, require a guarantee even if it is their own fault that an airport is not operational. These government guarantees for force majeure and material adverse government actions can make a project tangible, but it will not turn a bad project into a good one.
Thank you.
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