Proponent San Miguel Holdings Corp. told to firm up concession agreement with DOTr after a Swiss challenge

Airport Masterplan

One major business event of 2018 has been the rise of San Miguel Corp. into a trillion-peso company in sales with profits of no less than P50 billion.

Reaching P1,000 billion in sales has been a dream of Ramon S. Ang, SMC’s visionary vice chairman, president and chief operating officer, since five years ago.  A P1-trillion revenue level reinforces San Miguel’s claim that it is the Philippines’ largest company. 

SMC is already the most profitable and the most diversified Philippine conglomerate, with more than half of its businesses coming from non-traditional core businesses. A P1 trillion sales represents an increase of P173.9 billion or 21% over 2017 revenues of P826.1 billion, a previous high.  SMC made P54.8 billion in consolidated profits in 2017.

San Miguel’s bragging right as the Philippines’ biggest company in sales is significant given that on Dec. 21, 2018, the Friday before Christmas, President Duterte’s cabinet acting as the board of the top policy-making body National Economic and Development Authority approved San Miguel Holdings Corp.’s P735-billion new airport in Bulacan, just 17 minutes by SMC’s Skyway north of the present NAIA. 

Said the NEDA press release on Dec. 24, 2018:

“The NEDA Board approved, on December 21, the report on the negotiation results of the Concession Agreement (CA) for the Bulacan International Airport project.”

“The CA is between the Department of Transportation (DOTr) and San Miguel Holdings Corp. (SMHC).

“The Bulacan International Airport project—an unsolicited public-private partnership (PPP) proposal—involves the construction, operation, and maintenance of the Airport on a 2,500-hectare land in Bulakan, Bulacan, north of Manila Bay.”

“The proposal entails a total project cost of P735.63 billion. The original proponent, through an Unsolicited Build-Operate-Transfer arrangement, will assume the total project cost.”  

“Key features of the Bulacan International Airport CA include no government guarantee or any form of subsidy.”

“These are substantial features, proving the project is adequately advantageous to the government,” said Socioeconomic Planning Secretary Ernesto M. Pernia. 

“They certainly raise the bar on unsolicited PPP projects,” he added.

Following the NEDA Board meeting, the DOTr will proceed with finalizing the Concession Agreement and convey the NEDA Board approval of the report to the proponent, SMHC.”

“The revised CA will go through a final review of the Office of the Solicitor-General and the Department of Finance before it is advertised to parties for a Swiss Challenge.”

The San Miguel airport is an absolute game changer. It will be built  on 2,500 hectares on mostly flat lands in Bulakan, Bulacan, 17 minutes by the Magallanes-Balintawak Skyway connector road that San Miguel will complete in late 2019.

The airport will have four runways with plans for another two later, to serve 100 million passengers, scalable to 200 million. It will also have a modern air cargo complex plus a seaside port nearby and an industrial and business complex.  It is called an aerotroplis—a city built around an airport.

With NEDA board approval, San Miguel’s airport has secured all the regulatory approvals at the highest levels. It is awaiting a Swiss challenge before an order to proceed is issued.

Double-bladed concession agreement

The NEDA approval is double-bladed.  The CA  carries no guarantees, which means San Miguel’s ambitious airport will not be guaranteed revenue, profitability, passenger volume, use by airlines, right of way rights, and other benefits usually given such a premium infrastructure project.  It also appears to me the SMC airport will not be compensated for damages in case a succeeding government makes a crazy decision adverse to the airport’s profitability—like ordering that the facility stops charging passenger fees for its use.  

Such a loss could be massive.  Imagine you are charging P500 per passenger as terminal fee and you have 100 million passengers a year.   Instantly, you lose P50 billion, a year, if a crazy administration says no more passenger fee.  So instead of recovering your P800 billion cost in 16 years (P800 billion divided by 50), you may never recover it.  

Megawide deal

Such a deal is so unlike the deal given by the unlamented Aquino administration to Megawide with its  contract to build and manage Cebu airport.  Aquino’s Finance chief, Cesar Purisima, agreed to pay P20 billion to Megawide in the event the government decides to put up another airport near Cebu—a very likely event given the tourism boom.

Still, RSA seems happy with the decision.  “I can make it the most beautiful airport that will bring in millions of tourists and provide so many business opportunities to everyone, in addition to easing vehicular traffic with a highway and a train loop from Bulacan to Manila and back,” he vows.

A brand-new airport like San Miguel will contribute up to 9% of total economic production or GDP.  Current GDP is P17 trillion and 9% is P1.53 trillion.  In three years or less, thus, the Bulacan airport pays for itself in terms of tremendous economic benefits.

The Philippines is losing the tourism race in the region largely because Manila continues to operate the NAIA, an airport that it should have discarded five years ago, or converted its  space into an entirely new business district.  

The Philippines attracts only seven million visitors, half of whom are Filipinos, meaning not tourists.  With 110 million population, the Philippines should be able to attract 100 million visitors easily. 

Singapore, an island you can sink in the middle of Laguna Lake and still have 24,000 hectares more to spare, has 5.6 million people.  It gets 20 million tourists, 3.0 times its population, meaning they don’t even have enough people to attend to or service their visitors.

With one attraction, Angkor Wat, Cambodia also gets seven million visitors. Cambodia is new to the tourism game. 

Long headstart

The Philippines has had a 45-year headstart, since Margie Moran won the 1973 Miss Universe, hosted the 1974 Miss Universe in Manila, built the cavernous Philippine International Convention Center that can sit 5,000 delegates, and hosted the 1976 World Bank-IMF meeting that prompted the feverish construction 14 new five-star hotels in just two years. 

With those efforts, tourism flourished.  Arrivals hit a record 1.008 million in 1980, from only 243,000 in 1973.  In 1980, Vietnam was still reeling from 20 years of war against the colonial powers, from 1955 to 1975, and the reunification efforts after that.  Included in that war were the Cambodian Civil War and the Laotian Civil War.  Today, Vietnam and. Cambodia have overtaken Philippine tourism in arrivals.  Vietnam drew 12.92 million tourists in 2017; Cambodia 5.6 million—which is actually bigger than Philippine arrivals of

From. 1981 to 1987, tourism arrivals in the Philippines would collapse, falling to 773,000 in 1985, the height of the Philippine political crisis spawned by the Aquino assassination.

From 1981, it will take another eight years before arrivals return to one million level —1.043 million in 1988.  It would take another eight years before arrivals reach a new high – 2.049 million in 1996.  And 11 years to reach the three-million level – 3.092 million in 2007, under President Gloria Macapagal Arroyo, then five years to reach four million – 4.273 million in 2012, also under Arroyo, three years to make it to five million – 5.361 million in 2015 (still under Arroyo).

Finally, the Philippines would need  just two years to reach six million – 6.62 million in 2016, despite the illegal drugs killings under President Duterte.

In the 1980s thru 2000s, the Philippines was attracting only 2% of the about 180 million tourists who visit the Asia Pacific yearly.

China was No. 1 with 29%; Malaysia No. 2 with 12%, Hongkong No. 3 with 10%, Thailand No. 4 with 8%, and Macao No. 5 with 6 percent.  The Philippines has been a poor No. 14 among Asian destinations.

The world has one billion tourists.  China alone sends out 100 million tourists a year.  Manila captures only one million of them and half of them are gamblers.

In the last 10 years, RSA has redefined San Miguel’s business.  It is not beer, it is not hotdogs, it is not chicken, it is not carton boxes, it is not gasoline stations.  It is development.

San Miguel Corp.’s strategy is to help people enjoy and make progress in their lives through the many products and services San Miguel offers.

San Miguel aims to make the world better. “We are enabling people by investing in industries that will make the biggest difference in their lives,” says its website.

With 100 factories nationwide, San Miguel is more than a manufacturing behemoth.  It is an even bigger infrastructure company. Its infra portfolio is the largest in the country.

SMC is completing its 89.2-km Tarlac-Pangasinan-La Union Expressway.  . It plans to extend TPLEX by 58 kms to be near Baguio.

Its 14.82-km Skyway Stage 3 (from Makati to Balintawak, connecting the South and North Expressways), 22-km MRT-7(from Quezon City to San Jose del Monte, Bulacan), Boracay Airport expansion, and Bulacan Bulk Water Supply projects, are all on track. 

SMC’s newest infrastructure projects—the 58.09-kmSouth East Metro Manila Expressway, or Skyway 4 (from FTI to San Jose del Monte, Bulacan); and the 56.86-km SLEX-TR4 (from Sto. Tomas, Batangas to Lucena) are in the early stages of development. 

San Miguel is also modernizing the 52-ha. Manila North Harbor.

Can Ramon Ang deliver the San Miguel airport despite the constraints?  RSA has seven simple principles of business.  They are:

1.   Be a man of your word;

2.   Know how to keep a secret;

3.   Work harder than anybody else;

4.   Be decisive;

5.   Be a risk-taker;

6.   Remember that nothing is impossible; and

7.   Believe in a bigger purpose.


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