San Miguel Corporation (SMC) and South Korea's Incheon International Airport Corp. (IIAC) beat the other conglomerate groups in a bidding war for the P170.6 billion Ninoy Aquino International Airport (NAIA) rehabilitation project.
In a media briefing on Friday, Feb. 16, at the Manila International Airport Authority (MIAA) office in Pasay City, Transportation Secretary Jaime Bautista announced the winning bidder, affirming that SMC and IIAC won the months-long bidding rivalry for the operations and maintenance (O&W) of NAIA.
"Today, we are pleased to announce that we will award this project to the winning bidder-- the SMC-SAP group. It required a lot of hard work from the Technical Working Group of DOTr and MIAA, with the assistance of the Asian Development Bank (ADB)," said Bautista.
He also remarked that the privatization project was 30 years in the making, going back to former President Fidel V. Ramos' administration that started the privatization of Terminal 3, but did not push through.
Bautista said that the prequalification Bids and Awards Committee (BPAC) of DOTr finished their evaluation of the remaining bids and made their recommendation, which was approved by the MIAA Board this morning, Feb. 16.
The SMC SAP & Co. Consortium was the front-runner in the race for the highly coveted project as it proposed a revenue share with the government of 82.16 percent – more than double that offered by its two competitors.
SMC "honored" to win the bid
For its part, SMC said in a statement that the consortium is “honored to spearhead the long-awaited rehabilitation of NAIA.”
“Our proposal is designed not only to elevate NAIA to world-class standards but also to ensure that the government benefits from the most advantageous revenue-sharing agreement. This aims to secure a favorable outcome for our shareholders while prioritizing fairness and long-term sustainability over immediate profits,” it said.
“Recognizing the weight of the responsibility entrusted to us, we are committed to collaborating closely with the government and our various stakeholders, harnessing every resource available to us, to transform NAIA into a modern international gateway that Filipinos will be proud of,” it added.
The P170.6 billion NAIA project is part of the Public-Private Partnership (PPP) initiative of the national government.
The Notice of Award was sent to SMC on the same day. The losing bidders were also already notified by the agency.
The concession period for NAIA is 15 years, extendable to another 10 years.
By the eighth year, the concessionaire will be evaluated based on their performance to determine whether their concession period will be extended.
The SMC-SAP and Company Consortium is composed of four members namely the San Miguel Holdings Corp., RMM Asian Logistics, Inc., RLW Aviation Development, Inc., and IIAC.
One of the critical requirements asked of the bidders were their experience in operating an airport with at least 25 million passengers, within the last three years.
Bautista cited SMC's international partner IIAC, which has operated the Incheon Airport in South Korea.
RMM and RLW will be putting in equity into the special purpose company that will operate NAIA for the winning bidder, providing investments for the project.
Three out of four bidders submitted challenges to the BPAC regarding the qualifications of the other bidders, but they have all been resolved, said Bautista.
"The resolution of the disputes did not affect the earlier findings on qualifications, and did not affect the outcome," he added.
The other bidders were GMR Airports Consortium (GMR Airports International B.V., Cavitex Holdings, Inc. and House of Investments, Inc make up the GMR Airports Consortium), who made a 33.30 percent offer; and Manila International Airport Consortium (MIAC) (Aboitiz InfraCapital, Ayala’s AC Infrastructure Holdings Corp., Alliance Global-Infracorp, Filinvest, and JG Summit Holdings), who offered 25.91 percent.
Financing
The NAIA PPP is expected to generate P900 billion or P36 billion per year in the national government throughout the 25 years. This already covers the P30 billion upfront payment, P2 billion annual payment, and the 82 percent government share.
DOTr Undersecretary for Planning and Project Development Timothy Batan said the cost estimate for the capital expenditure (CAPEX) of the project is P122.3 billion or an average of P4.9 billion, covering the complete 25-year concession. However, this is not yet binding since capital spent may change depending on the delivery of requirements for the O&M.
The agency is also mobilizing around P88 billion in capital investments for the first six years, equivalent to P14.67 billion per year.
Last Feb. 8, DOTr announced SMC-SAP and Company Consortium as the highest bidders among the three qualified groups for the airport, offering to give the national government 82.16 percent of airport revenues.
DOTr Undersecretary for Aviation and Airports Roberto Lim clarified that the formula for the highest bid is the gross revenue excluding the passenger service charge, which comprises around 40 percent of revenues.
Thus, the revenues included in the 82 percent government share, among others, are aeronautical charges, and commercial revenues from duty-free, ads, parking, and kiosks.
Batan assured that the very high winning bid amount is achievable, noting the agency's "solicited PPP experience in the Philippines is filled with private sector efficiencies, ingenuity, surprising the government with solutions to government problems."
"There's a detailed evaluation that goes into the financial proposal. We look at whether it is consistent with the technical proposal, what they promise to deliver, considering whether there is alignment. We also look at the financing plan to see whether the funding sources make sense," he explained.
Looking ahead
The O&M of the airport by the consortium is expected to start in the coming three to six months, with the initial works felt by the public in 2025.
These initial works include improvements in parking, waiting times, queues for check-in and immigration, pre-departure seating, baggage retrieval, and rehabilitation of bridges and elevators.
Upon issuance of the Notice of Award to SMC, the concession agreement is expected to be signed by the winning group and the DOTr in the next 30 days. Afterwards, SMC-SAP will have to pay the P30 billion Upfront payment to the government.
Then, they are given three to six months to do the financial closing processes and implement the takeover, specifically pertaining to the reassignment of airport employees.
Employees who work on operational duties will be absorbed by the concessionaire, while those in regulatory roles will remain under MIAA as regulators.
Price changes at NAIA
In terms of prices, MMIAA General Manager Eric Jose Ines said the public can expect some increase in rental rates and navigation charges, for instance, as a result of the privatization on the airport.
However, he noted that these may be minimal based on their consultations and computations. They are also considering the effect of inflation in the pricing.
Ines said no changes will be imposed on the passenger service charge.
Regardless, he noted that MIAA has not raised its rates for 24 years since April 2000.
Fastest solicited PPP
Given the PPP was completed within a year, Batan said this was "one of if not the fastest solicited PPP projects of the Philippine government," citing "highest level policy directives of the agency, institutional reforms, and participation of the ADB as their financial transactions adviser."
He also cited the participation rate of four bidders, which include both foreign and local players, as contributors to the speedy process.
Starting in February last year, the DOTr signed the Transaction Advisory Services Agreement with the ADB. The National Economic Development Authority (NEDA) approved the PPP project in July.
The pre-bid conference began on September, followed by technical briefings with prospective bidderrs throughout October to November.
Finally, the agency opened the bids submission on Dec. 27, with four bidders, including the Asian Airport Consortium, which did not make the financial review round due to noncompliance.