NAIA Consortium Offer Declined Anew

5 July 2019

Agreement Must Be the Same As Clark template

The Department of Transportation (DOTr) has returned its unsolicited offer to rehabilitate the Ninoy Aquino International Airport (NAIA) after its proponent insisted on the MAGA Clause worded differently which has been declined by NEDA, a Transport Official said Thursday.

“They are required to pattern the concession agreement after the one signed with the North Luzon Airport Consortium for the operations and maintenance of the Clark International Airport,” Transportation Undersecretary for planning Ruben Reinoso said.

The National Economic and Development Authority (NEDA) returned the P102-billion offer of the Naia Consortium and required them to submit another round of revisions consistent with the draft concession agreements for operation and maintenance deal of Clark International Airport.

The government considers the Clark Airport contract, bagged by a consortium led by JG Summit, Changi Airports Philippines, and Filinvest Development Corp. last December, as a good template due to the risks that were assigned to the private sector.

One of its features was the condition that will trigger compensation for the private concessionaire, otherwise known as a Material Adverse Government Action (MAGA).

MAGA events are more commonly known as “political risk” or “political force majeure”. The purpose of a MAGA clause is to allocate certain agreed types of political risk to the Contracting Authority, address the consequences of such risks occurring and provide the Private Partner with appropriate relief and compensation.

In the Clark Airport contract, MAGA will cover only executive orders and not the impact of any change in future laws which the consortium surreptitiously included in their second proposal.

Reinoso said the previous submission of the group was accepted by the DOTr because they accepted all the clauses embodied in the Clark contract. What was submitted however is a MAGA Clause inconsistent with what the government wants.

“They just reiterated their old proposal for government guarantee. That is a no-no,” Reinoso said.

Consortium contends that the Clark Airport O&M had a different risk profile. For one, it is a hybrid Public-Private Partnership project where the capacity expansion was bid out separately from the O&M component. The Consortium also finds the Clark template risky and it also requires readjustment of profitability expectations.

The NAIA Consortium however said that they will revise the terms of the concession agreement for the third time to conform fully to the Clark template which is required by the government.

“The principles were aligned before. But what is asked of them is to have the exact provisions. The explanation of the proponent before was the configuration of NAIA with Clark is different so it cannot be exactly the same. But NEDA said it has to have the same, exact configurations and provisions,” Reinoso said.

The NAIA consortium is composed of some of the country’s biggest conglomerates, which are Aboitiz InfraCapital Inc., Ayala Corporation Infrastructure Holdings Corp., Alliance Global Group Inc., Asia’s Emerging Dragon Corp., Filinvest Development Corp., JG Summit Holdings Inc. and Metro Pacific Investments Corp. Its technical partner is Singapore’s Changi Airports International.

NAIA Consortium’s offer includes Terminal expansion to add capacity and interconnecting the existing terminals of NAIA, upgrading airside facilities, developing commercial facilities to increase airline and airport efficiencies, enhancing passenger comfort and experience and elevating the status of NAIA as the country’s premier international gateway. The duration of contract is 15 years.

The latest setback spells further delays for the project, which aims to increase capacity to the Philippines’ busiest air gateway to 65 million passengers in ten years. NAIA handled 45 million in 2018 and is expected to reach 55 million passengers in three years time.

Transport Secretary Art Tugade has said in May that he was targeting to award the project in 90 days, or by August this year so that it can be open in 2022.

That goal is now effectively postponed for another year as the NAIA Consortium will re-draft the legal and economic terms and re-submit its proposal to DOTr which will then be endorsed to the NEDA Board for their approval, after which their will be call for competitive challenge, which takes at least 60 days to complete.

Reinoso said award of the contract is expected to be made by second quarter of next year if proponent is fast enough to submit their third offer.

Reinoso also said that Sec. Tugade ordered last week the return to the respective proponents all other unsolicited proposals for regional airport projects which have been granted the original proponent status (OPS) to pattern their draft concession agreements after Clark international airport’s operation and maintenance contract.

This include proposals for Davao International Airport, Panglao International Airport, and Kalibo International Airport.

Since the start of the Duterte administration, five business groups have made unsolicited bids for nine existing provincial air gateways.

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