By Denise A. Valdez
THE Department of Finance (DoF) questioned the financial capacity of San Miguel Holdings Corp., which hopes to build a proposed P735-billion airport in Bulacan as an alternative gateway to the Ninoy Aquino International Airport (NAIA).
In a Senate hearing on Monday, Finance Secretary Carlos G. Dominguez III said San Miguel Holdings, a unit of San Miguel Corp. (SMC), only had total equity of P60 billion in 2016.
“Considering the usual financial mix of 70-30, 70% debt and 30% equity, in a PPP (Public-Private Partnership) project, the construction of the Bulacan airport will require San Miguel Holdings to infuse around P200 billion in equity, which we are not sure is going to happen,” he said.
Mr. Dominguez said the DoF proposed to the Department of Transportation (DoTr) in April — when the project was conditionally approved by the National Economic Development Authority (NEDA) Board because of questions about its financial viability — that SMC throw its financial backing behind the project instead of proponent San Miguel Holdings.
“One of the helpful suggestions we made to the DoTr was to require the execution of a joint and several liability agreement, which should make San Miguel Corp., the parent company, stand behind San Miguel Holdings, the private proponent, which is financially, at this point, incapable of undertaking a P700-billion project,” he said.
This was, however, ignored following input from a representative from the Office of the President, who insisted the project be evaluated based on the financial capacity of the proponent.
In an e-mail to BusinessWorld, SMC said it heeded the proposal of Mr. Dominguez and had asked the DoTr in May to follow such a plan.
“San Miguel Corp. (SMC) agrees with Secretary Dominguez on his position that both SMC and San Miguel Holdings Corp., should undertake a Joint and Several Liability Agreement, for the New Manila International Airport project in Bulacan,” it said.
It added, the plan will be smoothened out when the concession agreement is finalized by the DoTr.
“The final (concession agreement) will form the basis of what SMC will be guaranteeing and (be) jointly liable for,” it said.
SMC also announced last week it enlisted Standard Chartered Bank and Sumitomo Mitsui Banking Corp. as co-financial advisors for the airport project.
Mr. Dominguez noted while negotiations on the concession terms between San Miguel Holdings and the DoTr are still ongoing, he is weighing the eventual cost to the government.
“The final cost of the airport, including our contingent liabilities, will be what will weigh heavily on us. There is no such thing as free. When they say at no cost to the government, that is not true,” Mr. Dominguez said.
He added, “Our role is to make sure that the contingent liabilities are manageable, that they are reasonable, and that at no point is there going to be a moral hazard that the proponent one day would just say ‘I quit’ and we are going to pay. There is no breach of the principle that nobody enriches himself in a contract.”
Transportation Undersecretary for Planning Ruben S. Reinoso, Jr. said the department is careful in screening for possible contingent liabilities that may be interpreted as a government guarantee in the draft contract.
“Contingent liability, that’s fine. Provided it does not turn into a real liability,” he said.
“We are careful that if we feel this is tantamount to a government guarantee, then we tell them. They have to give us something that we will accept as not a government guarantee.”
Contingent liabilities arise from negative outcomes of uncertain events, such as litigation, and must be provided for if the size of the liability can be reasonably estimated. PPP projects are undertaken without a government guarantee, and the ultimate structure of the Bulacan deal hinges on the government’s reluctance or willingness to take on contingent liabilities which might be construed as an effective guarantee.
Mr. Reinoso said some of the contents of the draft terms stood out, such as the provision on the change in law and material adverse government action.
“What would be the obligation of the government in the (event of a) change in law? What would be the obligation of the proponent?… We have to clarify the conditions for the change in law that would warrant government obligations,” he said.
He added San Miguel Holdings committed to submit by Friday a new draft of the concession terms, which the government will review with the proponent next week.
After the concession terms are approved by the DoTr, the project will be raised to the NEDA Board and an inter-agency committee for another round of evaluation.
Once NEDA Board approval is gained, the proposal will be subjected to a Swiss challenge, where other parties may present counter offers that San Miguel Holdings may match.
The proposal of San Miguel Holdings is for the construction, operation and maintenance of a 2,500-hectare airport in Bulacan that will have four to six parallel runways and a capacity of 100 million passengers. It also includes an 8.4-kilometer toll road linked to the Marilao junction of the North Luzon Expressway (NLEx).

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