Competitiveness risk from CALAX mess

November 5, 2014 at 13:41

Posted on November 04, 2014 11:35:00 PM
By Chrisee J. V. Dela Paz, Reporter

THE PHILIPPINES could fall in annual global competitiveness rankings if the government mishandles the auction row delaying the award of the P35.42-billion Cavite-Laguna Expressway (CALAX) deal, the head of a state-private sector body that tracks the country’s performance in relevant surveys said in a text message yesterday.

“I don’t agree that a re-bid is more practical,” Mr. Luz said yesterday.

“In fact, I think it is more impractical because a re-bid would take more time and further delay this project.”

He then expressed fears that “our ranking (in global competitiveness) may drop if investors begin to lose trust in the process.”

“Trust is important. This is what brought back investors in the first place,” Mr. Luz said.

To recall, San Miguel Corp. (SMC) unit Optimal Infrastructure Development, Inc. was disqualified on a technicality concerning its bid security after submitting the highest bid — involving an offer of a P20.1-billion premium on top of project cost — early in June. The company formally sought Malacañang’s intervention later that month.

That left Team Orion — the consortium of Ayala Corp.’s AC Infrastructure Holdings Corp. and Aboitiz Land, Inc. — as the highest bidder with an offered premium of P11.66 billion that bested the premium offers of P11.33 billion of Metro Pacific Investments Corp.’s MPCALA Holdings, Inc. and P922 million of MTD Philippines, Inc.

In an order dated June 30 issued by the Office of the President, Malacañang suspended implementation of the Department of Public Works and Highways resolution to disqualify San Miguel’s Optimal Infrastructure.

President Benigno S.C. Aquino III announced at an Oct. 22 forum of the Foreign Correspondents Association of the Philippines that he was “inclined to think that a re-bid will be the proper course of action on this particular issue.”

“Accepting the winning bid at this time when there is an allegation that there was a much superior bid will mean having to explain the P9-billion difference that the government will forego,” Mr. Aquino had explained then.

The Philippines saw its ranking rise against competitors in at least two key competitiveness reports this year.

The World Economic Forum’s Global Competitiveness Report 2014-2015 saw the country climb “seven places” to 52nd spot out of 144 economies this year — when assessed against 12 “pillars of competitiveness” that drive productivity — from 59th out of 148 in the previous survey.

Under the institutions pillar, where the Philippines placed 67th, the country ranked 105th in terms of “strength of investor protection”, 73rd when it comes to “burden of government regulation”, 68th in “efficiency of legal framework in settling disputes”, 66th in terms of perceived “favoritism in decisions of government officials”, and 56th when it comes to “efficiency of legal framework in challenging regulations”.

The Doing Business 2015 report, which the World Bank Group released on Oct. 29, put the Philippines in 95th spot among 189 economies — a 13-notch rise from 108th last year using an old methodology but down nine notches from a recalculated 86th place in last year’s report using new criteria. Among the 10 key indicators tracked for this annual survey, the country ranked 124th when it comes to “enforcing contracts”.

Mr. Luz’s reaction came after the PCCI said in a statement that it “favors a re-bidding of the Cavite-Laguna Expressway to maximize economic benefits of the government from the PPP project.”

“Government stands to gain at least P8.45 billion from the re-bidding because bids to build the CALAX will start from the floor price,” PCCI said, adding the difference could be used to fund rehabilitation of Leyte which was devastated by supertyphoon Haiyan, locally named Yolanda, on Nov. 8 last year.

The country’s biggest business chamber then proposed that the government “review and reform the bidding process of PPP projects to finally remove technical disqualifications that tend to favor one bidder over the other.”

PCCI said the basis for Optimal Infrastructure’s disqualification “was a minor technicality that should not lead to disqualification”, adding that it “should be the government’s own lookout to determine if it was to the country’s best interest to consider a technicality as not material to the financial bid.”

It also cited more substantial changes in bidding rules and procedures allowed in this and a few other PPP projects.

On Oct. 28, eight business groups — American Chamber of Commerce of the Philippines, Australian-New Zealand Chamber of Commerce of the Philippines, Canadian Chamber of Commerce of the Philippines, Employers Confederation of the Philippines, European Chamber of Commerce of the Philippines, Japanese Chamber of Commerce of the Philippines, Makati Business Club, and the Management Association of the Philippines — issued a joint statement, saying “we believe that there is no legal basis for rebidding the project” and warning “that a disregard of the present rules through a re-bid will adversely impact investor confidence in the PPP program and in our bidding procedures…”

“In light of this, the proposed rebidding of the Cavite-Laguna Expressway would be an inopportune and ill-advised decision that would surely have a negative impact on our improving standing in the investor community,” the groups said in their statement.

But even private analysts do not agree on this case.

Sought for comment, Benjamin E. Diokno, University of the Philippines economist and a former Budget chief, said via text: “The government stands to lose P9 billion, perhaps more, if it were to stick to the decision to disqualify SMC on the basis of mere technicality. Let’s get on with the rebidding as soon as possible. Time is of the essence. The President’s term is down to a little over 600 days.”

But University of Asia and the Pacific economist Victor A. Abola said in a separate text: “I agree with the other chambers of commerce… that bidding rules have to be adhered to and award made after qualifying bids were opened.”

“Every bidder knows all the bidding requirements and terms of reference, so there’s no such thing as technicality,” Mr. Abola explained.

“The process is extremely important for PPP to succeed.”