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Friday, September 22, 2006
Talk back: Ayala Consortium’s move
Pablo John Garcia
Consultant on Information, Organization and Management
Province of Cebu
This is in reaction to the news article “Water proponent to slash price, pay higher penalties” (Sun.Star Cebu, page 2, Sept. 21, 2006).
The timing of the release of the document to Metro Cebu mayors by the Metropolitan Cebu Water District (MCWD) in a recent meeting, which became the basis for the news story, is highly suspect and is clearly a diversionary tactic to evade the more substantial issues involved in the Carmen Bulk Water Supply Project.
Rate determined by law
In the first place, it is not entirely accurate to say that the Ayala Consortium “agreed” to lower its rates, because under the BOT Law, the price is determined by what is called a “reasonable rate of return on investment” (RROI).
The parties are not free to peg a price that is not within what the law determines as a “reasonable rate.The reduction, therefore, was not out of the goodness of the heart of the Ayala Consortium but was determined by law.
If at all, the decrease in the rate from P29.14 to P25.55 per cubic meter is an indication, and a clear admission, that the original rate offered by the Ayala Consortium was not reasonable. In layman’s terms, it was overpriced.
Crocodile tears
In the second place, the issue of penalties for “under-delivery” is, at best, peripheral to the real situation obtaining in this project, because there is even question whether the MCWD can absorb the water it guaranteed to buy from the Ayala Consortium.
Any tears, therefore, that Ayala Consortium has committed to shed in the event of “under-delivery” are, at best, crocodile tears. The real issue is reimbursement.
The revelations made by MCWD are clearly diversionary. At this stage of the transaction, the rate is not yet an issue. Given a level playing field, other players will compete by submitting a lower price.
That is, however, assuming that the playing field is level. Unfortunately, it is not.
The real issue – which the Ayala Consortium and the MCWD have evaded throughout this whole debate-– is the reimbursement of “development costs” of up to P200 million that any successful challenger would be required to pay the Ayala Consortium.
They have yet to answer the following questions:
--If in a solicited bid, a bidder is not reimbursed for expenses incurred in the course of making a proposal, why should a bidder in an unsolicited bid be so reimbursed? Why should the Ayala Consortium be paid for expenses incurred in making a proposal nobody asked it to make?
(Analogously, if a software developer – on his own and without being asked – were to propose a new software to be used in the Sun.Star newsroom, and Sun.Star rejects the proposal, should Sun.Star be made to pay the software developer for the expenses he incurred?)
--If MCWD claims that the reimbursement is for “just compensation” for the “water rights” of Ayala, the question is: How can a party claim compensation for what, under Section 6 of the Water Code, is a mere “privilege” granted by the state, and is conditioned upon “beneficial use”? If Ayala loses the bid, then it has no “beneficial use” of the water rights, and its permit is subject to revocation.
Not under-delivery but ‘take-or-pay’
As to the issue of “under-delivery,” this, too, is clearly diversionary. The real issue is not under-delivery but the provision that binds MCWD to pay for a specified and guaranteed volume of water, even if it does not actually use it.
This “take-or-pay” provision is not only obsolete; it has been scrapped as “onerous” insofar as the other utilities such as power are concerned. It is also illegal under the BOT Law, as it partakes of the nature of a “direct government subsidy,” which is prohibited in the case of unsolicited proposals.
It is a “direct government subsidy” because it binds the government to pay for something without actually receiving anything of value in return.
These diversionary tactics must have misled the mayors and other local officials to sign an “endorsement” of the project.
For Bisaya stories from Cebu. Click here. (September 22, 2006 issue)
Write letter to the editor.Click here.
Join the Sun.Star message board.Click here. |
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