Oliver Tan — Megawide

(Below is the speech delivered by Mr. Oliver Y. Tan, Chief Financial Officer of Megawide Construction Corporation. He was one of the speakers in “Fueling Future Growth,” the fourth session of the BusinessWorld Economic Forum.)

Good morning honorable secretaries, distinguished guests, ladies and gentlemen.

We are living in exciting times, aren’t we? [We are in] the golden age of infrastructure, from PPPs to BBB, we don’t like puro power point presentations, we want action, that is why it’s “Build, Build, Build”.

Megawide is a publicly listed diversified engineering conglomerate focused in construction and infrastructure development, in particular, transport infrastructure. The company is one of the largest building construction company in the country, and the largest private airport operator in the Philippines.

Megawide was one of the more active participants in the Public-Private Partnership (PPP) projects of the previous administration. We won five out of 10 PPP Projects, awarded during the past administration namely: Public School Infrastructure Project Phases 1 & 2, the Mactan Cebu International Airport Project, Southwest Integrated Transport System, and the Modernization of the Philippine Orthopedic Center.

The company took over the operation and maintenance of the Mactan Cebu International Airport terminal 1 last November 2014, and construction of the brand new terminal 2 is 57% complete and expected to be 100% completed and operational by June next year.

Early this year, the company broke ground and commenced construction of the Southwest Integrated Transport Terminal in Cavitex, and is expected to be 100% completed and operational December next year. And lastly, the company completed the detailed engineering design for the modernization of Philippines Orthopedic Center but was forced to terminate the contract due to failure of the previous government to turn over the site to us.

For our first case study, let us compare these two airport projects in terms of delivery period and project cost.

On one hand, the New Iloilo Airport Development Project was funded via overseas development assistance by JICA. On the other hand, the Mactan Cebu International Airport Project was funded by the private sector via PPP.

A report was prepared by Castalia Strategic Advisors last 2009, entitled Review of ODA and BOTK Studies: A Report for the Philippines-Australia Partnership for Economic Reform and the National Economic and Development Authority of the Philippines. Castalia is part of the worldwide Castalia Advisory Group with offices in Washington D.C, New York, Paris, Sydney, Wellington, and Bogota. The report covered three ODA Case Studies namely the New Iloilo Airport Development Project, The Subic-Clark-Tarlac Expressway or the SCTex Project, and the Metro Manila Strategic Mass Rail Transit Development Line 2 Project.

In the said report, the New Iloilo Airport Development Project took total of nine years and two months from NEDA ICC submission to project completion. This was in January 1998 to March 2007. The size of the new passenger terminal was 13,700 square meters while the financing cost is significantly lower compared to commercial loans, the final all-in project cost ballooned by 42% due to cost overruns and variation orders.

Compare the New Iloilo Airport Development Project with our Mactan Cebu International Airport Project, the delivery period is three and a half year shorter from NEDA ICC submission to target completion in June 2018. Take note, that the delivery period includes almost one year of delay in the awarding of the project due to the complain of a sour losing bidder, and six months of delay in the turnover of the land occupied by the Philippine Air Force, where the new passenger terminal 2 will be built. Moreover, the size of our new passenger terminal 2 is 3.75 times larger than the New Iloilo Airport.

In terms of the cost overrun risk, the government is protected as defined in the concession agreement, project cost overruns are solely shoulder by the private proponent. And lastly, the private proponent paid the government upfront premium of 14.4 billion pesos for this project.

The next slide are key performance indicator statistics since we took over the Mactan Cebu Airport last November 2014. Checking-in time has been reduced from 10.5 minutes to 6.85 minutes. Getting your luggage from the plane, reduced from 11 minutes to 6.5 minutes. Getting through airport security from pre check-in, reduced from 9 minutes to 3.9 minutes. And, final security check, reduced from 6 minutes to 2.76 minutes.

Part of our KPI imposed by the government is to achieve a minimum score of 3.5 by end of 2018 for airport service quality (ASQ) from Airport Council International or ACI. ASQ is the world renowned and globally established global benchmarking program measuring passengers’ satisfaction and our current score is at 4.3.

For the past three years, we have received awards and citations for operating Mactan Cebu Airport.

We were the 14th best airport in Asia 2016 by the Guide to Sleeping in Airports and we also got several awards: CAPA Aviation Awards for Excellence, Asia Pacific Regional Airport of the Year 2016, and Routes Asia Marketing Awards 2017 for excellence in airport marketing.

For our second case study, let us compare the number of public classrooms built via the GAA [General Appropriations Act] and PPP.

From year 2005 to first half of 2010, a total of 17,305 classrooms were built over five and a half years through GAA and other donations while from year 2014 to 2016, a total of 13,663 classrooms were built over three years through [PPP for School Infrastructure Project 1 and 2] alone. PSIP 1 was a build-lease-transfer model with cooperation period of ten years. It enables the government to build more classrooms to address the classroom deficit, at the same time without sacrificing its fiscal space. Moreover, it enables the government to navigate through its procurement bureaucracy and processes while still adhere to R.A. 9184.

In closing, I’d like to suggest four key take aways.

First, Megawide continues to support the government’s infrastructure development as a roadmap for nation building. Second, there is no one size fits all funding mode for implementing the government’s infrastructure build-up. Thirdly, focus on the forest, not the tree alone. Funding is just one of the many critical steps to implement the government’s infrastructure build-up. And lastly, there are unique inherent risks and liabilities that come with the various funding options of the government and these must be analyzed diligently before choosing a particular funding mode.

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