POSTSCRIPT / April 30, 2013 / Tuesday


Philippine STAR Columnist

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SMC out on a limb in P11-B NAIAX bid?

BIG, BOLD OFFER: We were having coffee last Sunday with a finance man (FM) and we got to talking, among other things, about San Miguel Corporation’s whopping P11-billion bid for the Ninoy Aquino International Airport Expressway project.

Many industry observers are still reeling from the news of the P11 billion offered upfront by San Miguel for the Public-Private Partnership (PPP) project, beating Manuel V. Pangilinan’s Metro Pacific whose P305-million bid suddenly looked like petty cash.

That P11 billion will be plunked into the government coffers. In addition, San Miguel will foot the P15.5-billion cost of NAIAX that it will operate for 30 years. That totals some P26.5 billion for approximately five kilometers of tollable road, FM noted.

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WINDFALL: If everything turns out right, this will be an unprecedented windfall for the Aquino administration in search of blue-chip PPP projects.

The happiest people in government now are the hard-working engineers and officials of the Department of Public Works and Highways. Many of them could not contain their jubilation last week upon the announcement that those billions will be spent soon on a five-kilometer sliver of highway.

Curiously, FM said, the SMC camp seemed subdued over their victory, a stark contrast to the whoops of joy, high-fives and backslapping in the DPWH.

Was there a miscalculation somewhere, considering the 30-times-bigger bid of SMC’s P11 billion over Metro Pacific’s pitiful P350 million? Or, in the excitement, were they bidding for two entirely different projects?

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HARDLY PROFITABLE?: Scribbling figures on the napkins, FM tried to show that even at full capacity, NAIAX would be hard pressed to turn a profit given the huge investment.

He pointed out that project cost of almost P27 billion for a little more than five kilometers of tollable road is way above the, for instance, P1.5-billion/km. construction cost for Stage 2 of the Skyway. That is roughly P5 billion per kilometer.

At full capacity, he said, the road will generate P500 million/km/year (P2.5 billion/5 kms). That means that the project cost, before financing and O&M (organization and management), will be recoverable only in 10 years.

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NET LOSS: Let me share FM’s mathematics on the upfront bid of San Miguel to build and operate the NAIAX:

The total expected amount to be spent is roughly P26.5 billion. As SMC offered P11 billion, the project cost will be P15.5 billion.

Given these computations, maximum revenue from the project is P2.7 billion if there is maximum traffic of 163,000 vehicles at 24 hours of full utilization of the expressway, with a toll fee of P45/entry — an aggressive assumption given the two-tier traffic structure.

The EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is about P1.8 billion based on a 65-percent margin equal to best performers in the industry.

Bank interest is around P1.4 billion for a P18.6-billion loan at 7.5 percent, assuming 70 percent of the total amount spent is borrowed.

The cash return is about P0.4 billion over 66 years to pay back project cost and approximately 47 years to pay back debt beyond the concession period of 30 years.

The amortization of concession asset is placed at P0.9 billion for this P26.5-billion project amortized over 30 years. The net loss, FM said, could run up to P0.5 billion on very aggressive assumptions for road utilization.

Given the huge investment involved, NAIAX has to operate at full capacity 24/7 just to make marginal returns. Note that the at-grade road will remain free and that DPWH is also improving the alternative route with the flyover crossing Taft Ave. expected to be completed ahead.

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MISCALCULATION?: No wonder the financial sector is abuzz with questions. Infrastructure analysts, and even bankers, are whispering that that there is just no way SMC will earn from the project.

Did SMC boss Ramon S. Ang’s accountants and/or consultants err on their numbers when they bid for the project?

San Miguel’s pronouncements after winning the bid were just as odd. Company spokespersons, for example, immediately justified the aggressive bid for the NAIAX, saying it has strategic value “to ensure a smooth flow from the airport since they own Philippine Airlines.”

But the NAIA expressway will not be used only by motorists who fly PAL. Southern Metro Manila residents from Alabang, Sucat and Bicutan will use it as well to get to and from the heart of the metropolis. Even CAVITEX and the yet to be completed Daang Hari will benefit from the NAIAX.

The proposed road is strategic for them as well, but none of the owners/operators of these toll roads are falling over themselves to blow P11 billion as an upfront bid just to build it.

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BACKPEDAL: As the winner, San Miguel has 37 days from the bid opening to hand over P11 billion to the government to seal the deal.

Meanwhile, some of the questions being kicked around in corporate boardrooms and government offices are:

• Will SMC push through with the handover of the P11 billion for a project that looks like a losing proposition?

• Will SMC save face, fail to pay the P11 billion upfront and come up on the 11th hour with excuses for backpedalling?

• Would a reputable banking institution act as the “white knight,” and grant SMC the loan for this project despite the enormous financial risk?

With the looming obstacles, if San Miguel pursues the NAIA Expressway project, FM says the next administration may have to shift gear and revise the structure of payment, or adjust the toll fee schedule at the expense, again, of Filipino commuters and taxpayers.

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(First published in the Philippine STAR of April 30, 2013)

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