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As I See It

Don’t change rules in the middle of the game

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A brewing legal battle between two giant corporations in the Philippines and Indonesia is in the offing—a classic manifestation that in the business world, no matter how small or large the deal, there is what they say in local business parlance, “onsehan,” a situation where one party pulls a fast one on the other.

The looming legal battle is between PT Citra Marga Nusaphala Persa Tbk or CMNP (a former minority stockholder of Citra Metro Manila Tollways Corp. or CMMTC) and infrastructure, food and beverage giant San Miguel Corp. (SMC). CMMTC or Citra is a leading Indonesian infrastructure company whose core business includes expressway development and toll road operations.

Last week, the business newspaper Bisnis Indonesia published a story that the board of directors of CMNP is keen on forming an investigation team to look into its divestment-of-shares transaction at CMMTC.

Jusuf Hamka, president of CMNP, was quoted by Bisnis Indonesia that “there were unnatural transactions in the selling of 11 percent of CMNP shares to PT Mana Sarana Arsitama in the amount of US$3.25 million in July 20, 2010.”

Citra is the concessionaire and operator of the Skyway project, the elevated toll road that connects the capital to areas south of Metro Manila. The Skyway is a six-lane, elevated expressway built above the South Luzon Expressway (SLEx).

SMC holds a 46-percent stake in Atlantic Aurum Inc., the corporate vehicle of the Citra group that has control in CMMTC.  SMC has been building up its infrastructure portfolio, and it has the option to increase its stake in Atlantic Aurum to 51 percent at a later date. It has been aggressively moving away from its core food and beverage business and is going into heavy and high-growth sectors including telecommunications, oil refinery, power and infrastructure.

SMC and Citra have been building up a war chest worth some $1 billion for infrastructure projects in the Philippines and Indonesia, with the aim of becoming Southeast Asia’s biggest toll road player. SMC and Citra hope to develop Skyway stage 3 and 4, worth $590 million and $670 million, respectively; SLEx phase 4 which is worth $230 million; and potentially the widening of the Southern Tagalog Arterial Road, which the group intend to acquire before the end of the year. Skyway stage 3 will link the elevated highway to North Luzon Expressway while stage 4 will run from Buendia to Bulacan. SLEx phase 4 is a 57-kilometer road from Batangas to Lucena, Quezon.

According to Bisnis Indonesia, Jusuf revealed that the 25-percent shares owned by the Citra Group at CCMTC has been sold to SMC for $135 million. This is where, Jusuf said, the suspicion started, prompting them to conduct an investigation. The legal team will be composed of lawyers from the Philippines and Indonesia since the investment involves the two countries with different legal and business policies.

This possible legal battle should not be taken for granted by the current administration. Jusuf’s interview with Bisnis Indonesia sends a wrong signal to foreign investors looking into the Philippines’ PPP (public-private partnership) scene. The Philippines has been getting a lot of good news lately, even being put “among the emerging tiger economies in Asia. This positive news can turn sour when investors start whispering about shenanigans going on in big infrastructure projects managed by the Philippine government.” Jusuf’s statement to Bisnis Indonesia was that CMNP’s divestment from Citra (21 percent of shares in the toll road consortium) was done because the company believed that the toll road business was “not profitable.”

The President must look into this negative impression voiced by an investor. The government has lined up several big infrastructure projects on toll ways. In fact, the administration is on a roll when it comes to encouraging big and reputable local and foreign companies to participate in big ticket infra projects via its PPP scheme or ODA (official development assistance) funding. But the government has been weak in implementation. A repeated complaint: The government changes its rules in the middle of the game.

Examples:

• The Department of Transportation and Communications disallowed airlines to participate in the bidding for the Cebu-Mactan Airport project, due to a supposed “conflict of interest.” Later, the DOTC changed the rules and allowed two airlines to participate in the project.

• MRT 3 has been in the news due to its questionable ownership. A private company offered to maintain and operate the system, but the government opted for a buyout scheme that will cost taxpayers more than P40 billion.

• LTO license plates have not been delivered to buyers of new vehicles for almost six months now. The reason: The government awarded to different suppliers the deals for the material, production and car stickers. It would have been better had government awarded this project to a single entity via transparent bidding.

• Now, a foreign investor is saying that toll way operations have become unprofitable.

Besides the declining income, there are also claims by contractors of CMNP of losses reaching $40 million—a valid reason for the company to pull out of the toll-road consortium.


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