$1.4bn Manila LRT1 PPP applies for rebidding

The first bidding round for the country's largest PPP failed to attract an appropriate proposal, and terms are now being revised.

After weeks of looking for alternative solutions, the Philippines Department of Communication and Transportation (DOTC) conceded that the bidding round for the PHP 60.6 billion (€1 billion; $1.4 billion) LRT Line 1 Cavite Extension public-private partnership (PPP) project has failed, and has applied to do a rebidding for the project.

Although the government department identified four prospective consortia after the pre-bidding process in October of last year, the bidding for the project has been consistently delayed as bidders and government have been unable to agree on certain terms and the timing.

Johan G. Martinez, project manager for the LRT1 project at the Philippines PPP Centre, told Infrastructure Investor that the major issue for this project – which is the largest in Aquino administration’s lineup – was that there were “too many moving parts”. There was the PPP itself, but then also several components not under the PPP structure that the private sector bidders would have to account for. Obtaining right of way permits for the entire extension was also a source of concern.

More specifically, the private sector bidders were uncertain how much they could rely on the quality of the government’s contributions, Martinez admitted. There were several components to the PPP that the government planned to provide through third-party partnerships, including buying the additional 39 train sets and some operations services.

Although this was intended to be an incentive for the private sector bidders, those that came forward were actually unsure about the quality, performance and price of the government’s portion, and therefore could not tell how it would affect their returns.

“We want to now make the bidders more comfortable with these components, in ways such as guaranteeing performance,” Martinez said. “For one component, the government will guarantee its performance and is willing to expand its liability.” Although many of the details are still being negotiated, the government has already promised to make sure local governments charge a consistent tax rate, he said.

The DOTC hopes to bring the rebidding proposal before the NEDA board within two weeks, and from there will proceed with a single-stage bidding process open to anyone who submits bids, rather than just the pre-qualified bidders. Although the government hopes to select the winner for the project by December, Martinez admitted that might be too soon. The project is still expected to add 11.7 kilometers to Manila’s Light Rail line 1, and the private sector will be given operating rights for 35 years, including construction.

When the Philippines launched its ambitious PPP programme, there were thoughts that a hybrid structure (with the government tendering one part of the project) was the better option.  However, Martinez said that so far hybrid structures like the LRT1 have been challenging to pull through.

“In fact, pure PPP model projects have experienced far fewer issues in construction and bidding overall,” Martinez said. He suggested that may be something the Philippine government should consider in future PPP projects.