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  • Writer's pictureBy The Financial District

Assessing The NAIA Rehabilitation Project

In a recent announcement by Philippine transport officials, the contract for the much-anticipated Ninoy Aquino International Airport (NAIA) rehabilitation project has been awarded to San Miguel Corporation (SMC) Holdings, led by tycoon Ramon S. Ang.


San Miguel Corporation Holdings (SMC) was awarded the NAIA Rehabilitation Project amidst scrutiny over past project setbacks, conflicting interests, and financial commitments.

The proposal presented an enticing 82.6 percent government share out of airport revenues, alongside an upfront payment of at least P30 billion.

However, as excitement brews over the prospects of revamping one of the country's busiest airports, questions linger regarding SMC's ability to deliver on its promises amidst a backdrop of ambitious proposals and past project setbacks.

Overpromising Strategy: A Cause for Concern

SMC's proposal, while promising substantial returns for the government, has raised eyebrows among financial analysts, citing particularly the project’s Internal Rate of Return (IRR) computation and its escalating burden on Passenger Fees.

Concerns have also been voiced regarding the feasibility of SMC's financial commitments, with the upfront payment alone rivaling the entirety of the group's P31.2 billion net income for 2023.

This overpromising strategy has sparked cautious skepticism, blurring the line between calculated risk-taking and reckless ambition, with some financial analysts even wondering, “Does their computation even take into account a potential Black Swan?”

(A Black Swan event in financial markets is a rare and unpredictable occurrence, like COVID-19 or the Russian-Ukraine War, that deviates significantly from expectations and causes widespread market disruptions.)

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Comparisons to Berlin Brandenburg Airport: Lessons in Delay and Disappointment

Airport industry experts have also drawn parallels to a more recent monumental airport project failure - the Berlin Brandenburg Airport - where delays and mismanagement resulted in billions of euros in losses for both the German government and its taxpayers.

This story highlights the critical significance of meticulous planning and execution vital in any major airport project. The airport, originally slated to open in October 2011, faced significant setbacks due to inadequate construction planning, implementation, oversight, and corruption issues.

Construction began in 2006, but Berlin Brandenburg Airport did not obtain its operational permit until May 2020 with commercial operations finally commencing in October 2020, marking a staggering 14-year delay from the start of construction and a 29-year delay from the beginning of official planning.

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This case study becomes even more relevant when considering that the delays in the construction of Berlin Brandenburg Airport reportedly yielded unexpected benefits for Berlin's neighboring airports, Tegel and Schönefeld, which interestingly also happened to be active stakeholders within the Brandenburg consortium.

This peculiar situation presented both airports involved with valuable economic opportunities, but exasperated travelers, as arriving flights were strategically redirected to each respective airport during the prolonged 14-year construction phase.

Therefore, the NAIA rehabilitation project's success hinges on avoiding any such pitfalls.

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Setbacks in Other SMC Projects Raise Eyebrows

As scrutiny intensifies, a critical examination of SMC's track record in airport development is imperative.

While projects like Boracay and Bulacan Airport showcase SMC’s ambitious plans for expansion, the realization of these visions has also been marred by many setbacks and opposition.

Environmental concerns and pushback from local stakeholders highlight the complexities now inherent in many of the conglomerate’s large-scale infrastructure ventures.

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For instance, Boracay Airport, managed by Trans Aire Development Holdings Corp., a subsidiary of San Miguel Holdings Corp., has faced delays with its expansion plans, leading to many unmaterialized improvements within its ongoing Boracay terminal construction – revealing disparities from its original tender.

In addition, connectivity to Boracay Island via its proposed toll bridge has been stalled due to opposition from local government units and environmental groups.

In contrast, proposed international flights have recently met resistance from Aklan's Provincial Board, with it passing a provincial resolution last December emphasizing Kalibo International Airport as the primary gateway to the region and Boracay Island.

On the other hand, Bulacan Airport, managed by San Miguel Aerocity, Inc., also another subsidiary of San Miguel Holdings Corp., with the aim of becoming the largest airport in the Philippines by 2027, now faces major setbacks amidst criticisms of conflicting interests with the government's (and now its own) NAIA rehabilitation bid.

To rub salt on its wounds, President Ferdinand Marcos, Jr., on his first day in office, vetoed the bill for the Bulacan Airport City Special Economic Zone and Freeport, disrupting San Miguel's proposed 50-year Build-Operate-Transfer (BOT) business model, which is somewhat reliant on future zonal tax breaks that would have vastly improved the property valuations throughout this development.

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Environmental concerns have also emerged around its construction reclamation, with advocates warning of threats to surrounding watersheds and fisheries, while attributing flooding in the Greater Metro Area and Bulacan Province to the project despite it securing an Environmental Compliance Certificate (ECC) from the Department of Environment and Natural Resources (DENR).

Moreover, ongoing setbacks in other SMC ventures, such as the MRT-7 project, which has entered its 5th year of delay due to right-of-way issues, and San Miguel Corp.

Global Power, which last year suffered a Fitch Ratings downgrade over concerns it could no longer tap into debt markets for financing, underscores the multifaceted challenges presently facing the conglomerate.

It is also noteworthy to mention at this point that the Fitch Ratings' downgrade of San Miguel Corp. Global Power was due to its inability to cushion increasing thermal coal input costs brought about by the Russia-Ukraine War, or what we earlier described as a “Black Swan” event.

These growing financial uncertainties and operational hurdles cast a shadow of doubt over SMC's capacity to effectively navigate the intricacies of its piling infrastructure projects, begging the question, “Is SMC taking on more than it can chew?”

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In a December report by Bloomberg, it was highlighted that San Miguel, the Philippines' largest company, stands as the most indebted entity in the nation. Data disclosed by the publication revealed that as of June 2023, San Miguel's outstanding debt amounted to 1.4 trillion pesos ($24.7 billion).

Notably, SMC is poised to grapple with its most significant debt redemptions in 2024, with over $3 billion of the total amount due within this fiscal year.

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Conclusion: The Stakes are High

The stakes are high for the Marcos administration, with the NAIA rehabilitation project symbolizing a pivotal opportunity to enhance the country's infrastructure and bolster its position on the global stage.

However, any setbacks or failures in this endeavor could deal a significant blow to the administration's legacy and hinder the nation's progress toward economic advancement.

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In conclusion, as the NAIA rehabilitation project moves forward under SMC's stewardship, continued vigilance and scrutiny from stakeholders are paramount.

The ramifications of this undertaking extend far beyond mere infrastructure development, shaping the trajectory of the Philippine economy and its aspirations for a prosperous future. The NAIA project is not merely a gamble to be taken lightly; it is a decisive step towards realizing the vision of a first-world Philippines.


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