Philippine LRT1 terms revised, prepares rebid

The failed bidding for the country’s largest PPP project has prompted the government to revise its terms.

The Philippine government has finished revising the terms for the PHP60.6 billion (€1 billion; $1.4 billion) LRT Line 1 Cavite Extension public-private partnership (PPP) project following consultation sessions with interested investors, and has aimed to make the project’s parameters more “certain”.

The first round of bidding for the country’s largest PPP project, which started in 2012, failed to attract an appropriate proposal by September of last year, so the PPP Centre applied for a rebidding. Before the process could start, however, many changes had to be made to the project’s terms, since private sector bidders found the project too complicated and rife with too many uncertainties to be worthwhile.

Firstly, and arguably most importantly, the central government has agreed to shoulder the entirety of the local property taxes that might be imposed on the LRT line, according to PPP Centre deputy executive director Jose Reverente. In the previous terms, there was essentially no limit on the property taxes local governments could impose on the private bidder, and the uncertainty became a deal-breaker for potential investors.

The government has also added a fixed warranty for the LRT. Since the project involves the operation of the existing LRT system and the construction of an extension, the government has promised to pay for the repair of any structural defects for two years from the concessionaire’s signing.

“We’ve noticed that the private sector places a higher value on certainty relative to cost,” Reverente told Infrastructure Investor. “They prefer options with predetermined details, even if it entails higher cost, over an option that has potentially lower projected cost but has no cap or has uncertainty with respect to timing, etc.”

The PPP Centre has held several one-on-one consultations with private sector bidders, and so far responses have been more positive, Reverente said. Questions are becoming technical rather than commercial, and two more participants have decided to enter the process: Madrid-based Globalvia Inversiones and domestic conglomerate Megawide Construction Corporation.

The four original pre-qualified bidders were the Filipino construction company DM Wenceslao & Associates consortium (which included Samsung C&T); the Light Rail Manila consortium (with Metro Pacific Investment Corporation, the Ayala Corporation; Metro Pacific Light Rail Corporation; AC Infra Holdings; Macquarie Infrastructure Holdings and RATP Developpement S.A.); SMC Infra Resources, a subsidiary of San Miguel Corporation; and domestic construction conglomerate DMCI Holdings. All four have chosen to remain in the bidding process.

Even as the government has been finalising the revisions, it has continued to secure land rights and right-of-way permits along the planned extension route, Reverente added. The right-of-way permissions are now about 80 percent secured, he estimated.

After a few more consultations, the PPP Centre expects to receive bids by April 28, and issue the notice of award by late May or early June. With the signing scheduled for around June or July of this year, Reverente said that construction on the Line 1 extension should be complete by December 2018.