Rehabilitating NAIA: Where do we go from here?

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Metro Manila (CNN Philippines, February 24) — The rehabilitation of Ninoy Aquino International Airport has faced numerous setbacks throughout the years, with proposals to upgrade the gateway consistently failing to take off.

Experts have painted bleak scenarios in light of the delays, ranging from dwindling confidence within the private sector on investing in public projects to foregone opportunities for a pandemic-hit economy.

We take a look at how efforts to improve the country’s main international gateway have progressed in the past years, the hurdles encountered along the way, and what could be done moving forward.

What happened in the last three years?

In February 2018, a super consortium of seven tycoons submitted a ₱350-billion unsolicited proposal to operate and maintain the Philippines’ busiest airport and increase its capacity following years of overcrowding. The NAIA was intended to cater to 31 million passengers, but this has been breached even as early as 2012 according to data from the Manila International Airport Authority.

The group, dubbed as NAIA Consortium, was composed of Aboitiz InfraCapital, Inc., AC Infrastructure Holdings Corporation, Alliance Global Group, Inc., Asia’s Emerging Dragon Corp., Filinvest Development Corporation, JG Summit Holdings, Inc., and Metro Pacific Investments Corp. The conglomerates also tapped Changi Airport International, the operator of Singapore's airport, for technical support.

Just a month after, listed construction firm Megawide, partnering with Indian company GMR Infrastructure, sought to challenge the NAIA Consortium with a $3-billion unsolicited proposal to overhaul the air hub. The pair was also behind the improvement and operation of the Mactan-Cebu International Airport or MCIA and the “model” Clark International Airport or CIA.

This influenced the Consortium to revise its bid, pulling the project cost down to ₱102 billion.

The Department of Transportation decided in April to still prioritize the NAIA Consortium’s offer as it followed the rules under the build-operate-transfer law, granting it the original proponent status for the project in September.

The consortium’s proposal, however, eventually hung in the balance as several negotiations and revisions got in the way. Transportation Secretary Arthur Tugade demanded to standardize unsolicited proposals for airport developments, with authorities modelling NAIA rehabilitation plans after the CIA as both airports must still maintain everyday operations while repair works are ongoing.

This forced the NAIA Consortium to submit a revised bid to retain its chance of leading the massive rehabilitation project. It eventually complied with Tugade’s order in July 2019.

The National Economic and Development Authority Board gave the green light to NAIA Consortium's multi-billion peso proposal four months after, meaning the group could finally gear up for the Swiss challenge.

In February 2020, Transportation Undersecretary Ruben Reinoso Jr. revealed during a briefing that the consortium has not yet ironed out issues on manpower absorption and provision of a people mover system at the gateway. This delayed the process again. MPIC likewise withdrew from the project a month after, with its chairman Manuel Pangilinan citing issues on the payment of real property taxes as a concern.

It was during this time that the COVID-19 pandemic finally broke out across the globe. Countries left and right locking down borders and declaring travel restrictions, effectively crippling local and overseas trips worldwide.

In July, NAIA Consortium released a statement saying it proposed changes to ensure the bankability of the project despite the pandemic. Negotiations, however, reached a dead end with the government rejecting the group’s fresh proposal on the airport’s rehabilitation.

In less than two weeks, the Megawide-GMR tandem bagged the preferential status for the NAIA upgrade.

However, the duo’s proposal also experienced its fair share of turbulence, with the government doubting its financial muscle to execute the project despite their insistence they can sufficiently fund rehabilitation efforts. Authorities eventually stripped Megawide-GMR of its status as project contractor in mid-December.

Around this time, MIAA general manager Ed Monreal revealed to lawmakers the two private companies who also submitted separate proposals to improve and run the country’s busiest gateway: San Miguel Corporation and Philippine Airport Ground Support Solutions, Inc.

SMC President and COO Ramon Ang told CNN Philippines in July that they were the first to hand in an offer to rehabilitate NAIA. However, the diversified conglomerate was told the project should be kept "for somebody else to compete with us at the time.”

Tugade likewise told lawmakers Megawide can still convince the MIAA board to reinstate its original proponent status for the project, which the construction giant did in late December. Its efforts were futile, however, as the government still rejected its formal appeal a month after.

What went wrong?

With talks between authorities and private firms on the rehabilitation of NAIA repeatedly reaching a dead end through the years, transport economist Jedd Ugay points to the government’s dependence on unsolicited proposals as the main reason behind the project’s delays.

Ugay said the project has been “slow” because the state “did not proactively procure the necessary rehabilitation on its own.”

“So normally if I'm in government, I would already request for expansion, I will create my own terms of reference and bidding documents to ask for these. And I will ask for bidders to do this work,” the transport planner and economist further explained, citing how the Mactan-Cebu International Airport project was handled.

In 2012, the then-Department of Transportation and Communication along with the MCIA Authority invited prospective bidders for the construction of a new airport terminal. Megawide-GMR eventually was awarded the concession two years after, and Terminal 2 was opened to the public in 2018.

Had the state adopted a similar approach for NAIA, the airport’s rehabilitation would have been much faster, Ugay added.

“If it's a public tender, it normally follows the government timeline and if there are setbacks because there's a request for more time to draft the proposals, it wouldn't be like this,” he said, wherein the entire project goes back to step one once negotiations with proponents fall apart.

For airport planning expert Rommel Gavieta, however, this assumes that the state has unlimited resources to develop all projects, which he says isn’t the case.

“My premise is the government’s resources are finite,” the former Transport Undersecretary for Planning told CNN Philippines. This means authorities should allow the private sector to develop projects driven by market demand, the NAIA being an example.

The expert further argued that solutions to problems that can be solved by market forces must not come from the state, which is already in charge of development-driven initiatives.

“The job of the government when it comes to PPP (public-private partnership) projects, whether solicited or unsolicited, is the regulation of tariff rates" along with any adverse foreign exchange movements, he noted.

Also under authorities’ regulation is the economic return such projects generate proponents, according to him. “In railways, airport systems, toll roads, nire-regulate dapat yan ng government na di dapat excessive yung kita ng private sector. Dapat tama lang,” Gavieta explained.

[Translation: In railways, airport systems, toll roads, the government should regulate these in such a way that the private sector’s financial returns aren’t excessive. They should just be the right amount.]

Meanwhile, think tank Infrawatch convener Terry Ridon argued the Department of Transportation "threw the private proponent under the bus” when confronted with issues on Megawide-GMR's financial clout.

"As PPP partners, it was supposed to jointly work with the private proponent to ensure that all eligibility requirements were met prior to submission to the NEDA ICC,” Ridon told CNN Philippines. He noted both sides should have continued working together in the re-submission of a proposal after the body returned the initial one due to incomplete requirements.

"[The] government has compromised private sector confidence in future PPPs," Ridon added.

The bottomline is, this could have been the opportune time to execute any repairs and upgrades to NAIA, while demand for air travel is still low given current restrictions on mobility, experts said.

The Passenger Forum convener Primo Morillo noted the current administration in particular "failed to see the window of opportunity" to start the project during this period.

"The response is too slow, and lacks urgency...The government needs to decide where NAIA rehabilitation is in their infrastructure priority list," he added.

How do these setbacks affect the country?

Airports link not only people but goods and services, and with efforts to upgrade the gateway failing to take flight for the past years, the economy is deprived of opportunities it badly needs to bounce back.

For one, how an airport functions plays a role in strengthening economic activity and making the country more attractive to businesses in the international scene, said Gavieta.

Foreign investors, he said, “get a lot more confident if they see that when they come into a country…the airport they’re getting into is efficient” both in terms of arrival and departure.

Foreign direct investments are a key source of employment for Filipinos, with more capital placements generating additional job opportunities for them.

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“Of course there are a lot of factors to that,” said Ugay about winning investors’ confidence. “But definitely one of the things is how good is our international airport particularly NAIA.”

The state of a country’s gateway also affects demand for its tourism sector, he added. The industry is one of most gravely hit by the health crisis, with current demand a far cry from pre-pandemic levels.

Before the pandemic, NAIA catered to tens of millions of arriving and departing domestic and local passengers. MIAA's 2019 data revealed the number of flyers the airport had accommodated breached 47 million, over half from overseas. Inbound tourism generated receipts worth ₱482 billion during the year.

Given travel restrictions, the number of passengers the gateway had accommodated plummeted to 10.7 million as of November last year. Less than half of this number are foreign nationals, reflective of tighter rules on entry into the country including the prohibition of tourists from overseas.

The nearly 84% nosedive in foreign tourist arrivals this 2020 likewise resulted in a plunge of over 80% in expenditures of visitors from abroad, according to the Tourism Department.

Even airlines weren’t spared from the wrath of COVID-19. PAL Holdings, parent company of Philippine Airlines, incurred a net loss of ₱28.85 billion as of end-September last year while Cebu Air saw losses deepen to ₱5.54 billion.

What happens next?

With the government counting on tourism as part of the key industries eyed to bounce back from the pandemic, all the more should officials include a better NAIA in their plans according to Morillo.

"They should see this project as a possible pump priming for the economy hit hard by the pandemic," he said.

One of the components of a comprehensive rehabilitation of NAIA is by also beefing up infrastructure used by people who travel to and from the gateway.

“It’s not just developing the airport,” said Gavieta. “It’s developing the linkages needed to make the airport accessible to the public and to businessmen.”

For instance, the transport system linked to airports in countries like Hong Kong, London and France, where one can easily take the train after landing to get to their target destination in time, he added.

Ugay likewise underscored the need to make NAIA well-connected with the metropolis, and this can be achieved by better public transport in the form of buses and a railway linking the gateway to the metro.

Ultimately, a multiple airport strategy will immensely help in addressing congestion problems in the country’s main gateway, according to experts.

For instance, Gavieta suggested developing NAIA in conjunction with Sangley Airport, which will raise the former’s operating capacity to about 75 million. This is cheaper than constructing a high-speed rail link between Manila and Clark, he added.

The rail link corresponds to his other suggestion: the establishment of a system assigning NAIA as a check-in terminal and CIA as a take-off point for travelers, similar to a check-in airport in Hong Kong.

“Option #1 is consistent with most of the PPP proposals...yung isang [the other] option is a purely government option,” explained Gavieta.

At the end of the day, the government must decide which model it will employ, he said, adding they must view the initiative as “not just an airport development, but as an airport and supporting infrastructure development kind of project.”

President Rodrigo Duterte in mid-2019 first floated the idea of using Sangley Point as an alternative airport for the greater Manila area as NAIA faces years of worsening congestion. Earlier this February, the Cavite government released its second invitation for bidders for the airport project after pulling the plug on its deal with the consortium of Lucio Tan’s MacroAsia Corp. and state-owned China Communications Construction Company Ltd.

Morillo and Ridon both said that while they are supportive of the current administration's push for a multiple airport strategy, the government should not brush off the NAIA as the main gateway.

"As the country’s main gateway to the world, we cannot allow NAIA to rot while waiting for the new airport in Bulacan to be built," Ridon said, this time referring to the New Manila International Airport. The gateway, which SMC will be constructing from scratch, also aims to decongest the country’s busiest gateway.

While Morillo and his colleagues reserve the right to scrutinize future plans related to NAIA’s rehabilitation, he said they hope an “above board” proposal to improve will be processed before it’s too late.

Gavieta, meanwhile, emphasized the need for both the state and private firms to trust each other when linking up for PPP projects.

“The government should trust the projection of the private sector, and the private sector should be truthful also in making its projections sa [on] demand,” he said, noting proponents must also be transparent on how much they stand to gain from the project they’re pitching for.

It would also be helpful if authorities exercise a bit more of understanding given the pandemic and how infrastructure spending could drive private expenditures, added the airport planning expert. Household consumption fell by 7.2% year-on-year this 2020, which also saw the Philippine economy contract full-year by an all-time low of 9.5%.

A “little flexibility” on the government’s end as far as concession periods, foreign exchange support and possible cooperation with the private sector should there be any shortfall on passenger projection could also help move such projects forward, he further explained.

"They should learn how to work together for the good of the public," Gavieta said, adding this is especially needed amid the pandemic.