Sunday , June 24, 2018

Malilong: P18 billion questions

THE P18 billion investment that the John Gokongwei conglomerate has proposed to pour into the development of an eight-hectare lot in the South Road Properties (SRP) could very well be the best thing that happened to the economy in Cebu in recent years.

The more immediate impact would be a dramatic rise in the value of SRP lots. Mayor Tomas Osmeña had earlier announced that he could sell SRP lots at no less than P110 thousand per square meter. One can imagine how much more money the remaining unencumbered property would fetch after the property is developed by JG Summit Holdings.

But the biggest plus would be the development itself and the income it would generate for the city in terms of taxes and its share in the profits, if any. Osmeña said that with the project, the city government would be able to provide free college education to all the city’s qualified poor residents. This is exciting.

There are certain issues that should be clarified, however, before the mayor is authorized to ink the dotted line in behalf of the city. Most of the answers can only be found in the terms of reference of JG Summit’s unsolicited proposal. Osmeña said he wants to be transparent and is encouraging the public to participate fully and actively in the discussion on the proposed deal. They should therefore publish the unsolicited proposal in the local newspapers.

Among the questions I’d like to be answered:

What exactly is the city going into with the Gokongwei group? Is it a lease or a joint venture? If it is a joint venture, what is the city’s contribution, the eight hectares? Will the title to the old Kawit Island be transferred to the joint venture company?

If it is a lease, how will the rentals be quantified? Remember that we’re talking of a property that is currently valued at P8 billion. Or are we waiving the rentals and allow free use of the property as our contribution to the business? And how long will the lease be? The maximum 50 years? Does the developer have any option to renew the lease at the end of the original term? For how long? Is the renewal automatic upon notice by the developer that it is exercising its option or will the terms have to be negotiated?

What is the share of the city from the development? Is it true that the sharing is 90-10 in favor of the developer? Is the sharing scheme equitable? What is the practice in the industry? Does 90-10 compare favorably to similar joint venture agreements entered into by other local government units with the private sector?

And finally, who is the city dealing with? Is it the mother company or a newly created subsidiary? If it is the latter, who are the officers and shareholders? What is the authorized and paid-up capital? And what about track record? Shouldn’t this come to play, too?

I am certain that the ad hoc committee created by the city council to study the proposal will look into these questions but it would be prudent, under the circumstances, to allow the public to put in their own observations.