Home » Aviation, Ports/Terminals » DOF says it’s not cause of delay for ok of Bulacan airport project

The Department of Finance (DOF) has not caused delays in approval of an airport complex in Bulacan proposed by San Miguel Holdings Corp. (SMHC), Finance Secretary Carlos Dominguez III told a Senate Committee on Public Services hearing on September 10.

He said DOF even made “helpful suggestions” to accelerate the project’s implementation but insists that such should not adversely affect the sound management of government’s financial resources.

One of these suggestions, he said, is for the Department of Transportation (DOTr) to require a joint and several liability agreement” be executed to ensure that San Miguel Corp. (SMC), the parent company, would stand behind the “financially incapable” SMHC in building the airport.

A joint and several liability agreement refers to an agreement in which two or more parties are held liable for the same act and are all held responsible for paying for any restitution or damages.

Dominguez said DOF recommended this because SMHC, the proponent of the unsolicited proposal, had a total equity in 2016 of P60 billion, insufficient given that the usual financing mix (70% debt, 30% equity) for public-private partnership (PPP) projects would require the company to infuse some P200 billion into the project.

Checking financial capability

Dominguez said that based on the draft minutes of the 6th meeting of the National Economic and Development Authority (NEDA) Board held last April 25, a representative from the Office of the President pointed out 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 up.”

The project, which has a development cost of P735.63 billion, was approved by the NEDA-Investment Coordination Committee-Cabinet Committee on March 28, but is subject to resolution of pending issues.

The project involves construction of a terminal, parallel runways, and an airport toll road. Once completed, the Bulacan airport can accommodate 100 million passengers per annum by its opening year of 2023.

In his statement during the hearing, Dominguez explained that private firms undertaking big-ticket projects usually extract several concessions from the government even though these corporations have a wide array of financing options at their disposal. This is unlike a farmer who has no access to financing and does not even own the land he tills and is the one who clearly needs the subsidies and guarantees provided by the government, he said.

“But these corporations who are making X percent profit, with access to banks, require guarantees. These government guarantees can make a project tangible, but it will not turn a bad project into a good one,” Dominguez said.

He assured senators that DOF fully agrees with their call for the speedy implementation of airport proposals to prevent a recurrence of the mishap last August 16 when a Xiamen Airlines plane skidded off the runway at the Ninoy Aquino International Airport, causing operations to be temporarily paralyzed atthe country’s main gateway.

Dominguez explained that DOF needs to take into account several considerations before it can give the go-signal to unsolicited proposals offered to the government to ensure tthe country does not incur financial liabilities that would unnecessarily burden the Filipino people in the future.

Issues studied

In the case of the Bulacan airport, Dominguez said the following concerns had to be thoroughly studied:

  • How the airport would affect Clark International Airport, which is a government project, and how it would affect the real estate value of New Clark City, which is only 65 kilometers away. Dominguez noted the real estate value of New Clark City is estimated at US$14 billion, and the government, which is developing it, has committed to pour in an additional P12 billion;
  • How the airport would affect traffic in the area. Will the project require the construction of additional lanes onthe North Luzon Expressway? Will the project change the alignment of the proposed rail system to Clark?; and
  • Who the proponent is and what its actual financial capability is.

Dominguez said these considerations had to be carefully studied by DOF, given its job “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 liabilities, which for your information, is estimated to be at least P309 billion in 2018 for PPP projects,” Dominguez said.

He noted that several of these liabilities were incurred as a result of past acts by previous administrations.

Citing an airport as example, Dominguez noted that the concession agreement for the Mactan-Cebu International Airport commits the government to a termination payment amounting to around P20 billion if it causes to operate any international or domestic airport in the islands of Mactan and Cebu even if there is unexpected increase in passenger demand in these areas.

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