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Rediff.com  » Business » Philippines signs airport pact with GMR despite legal issues

Philippines signs airport pact with GMR despite legal issues

April 23, 2014 12:30 IST

T3 terminal at New Delhi International Airport.Various ongoing legal issues notwithstanding, the GMR-Megawide consortium on Tuesday signed the concession agreement with the Philippines’ Department of Transportation and Communications (DOTC) and Mactan Cebu International Airport Authority (MCIAA) for expanding the Mactan Cebu International Airport (MCIA).

The concession agreement was signed after the consortium paid $320 million as upfront premium.

According to a statement from GMR Infrastructure, this marks the beginning of a transition phase before the operations of MCIA are formally handed over to GMR-Megawide later in the year.

After giving a bid of $320 million, the GMR-Megawide consortium had emerged as the highest bidder for the MCIA project in the international bidding process, which culminated in December. DOTC had formally issued the Letter of Award to the consortium on April 4.

Commenting on the signing of the concession agreement, G M Rao, group chairman of GMR Group, said: “By making the upfront payment of P14.4 billion ($320 million) within the stipulated time, we have clearly demonstrated our credentials and capabilities to take up this prestigious project. This is just the first step in our endeavour to transform the Mactan Cebu International Airport into a world-class airport destination.”

GMR is in a 40:60 joint venture with the Philippines-based Megawide Construction and as much as 70 per cent of the $320 million has been raised from a major bank in that country.

This move by the Philippine government comes even as a prominent Philippine politician, Serge R Osmena III filed a petition in that country’s Supreme Court to scrap the deal.

The petition said the GMR group had violated bid conditions that barred companies with a conflict of interest from bidding. He asked the court to stop the notice of award to GMR and its local consortium partner, Megawide. It outbid seven global competitors, many of which had earlier raised questions about GMR.

The conflict of interest arises because Malaysia Airport Holdings Berhad, which separately bid for the Mactan Cebu project, is also a stakeholder in GMR’s airports in Delhi and Hyderabad. Tan Bashir Ahmad, apart from being managing director of Malaysia Airport Holdings, is on the boards of the two GMR airport companies.

The petition said the other bidders were at a disadvantage because they were restricted from entering into similar arrangements. It also said the Senate Committee of Public Services had conducted two hearings on the issue and had concluded the pre-qualification bids and awards committee did not compare the submissions of the bidders in order to determine the existence of a conflict of interest. GMR has been maintaining that the company that bid for the airport was GMR Infrastructure, in which Malaysia Airport Holdings has no stake or director representation.

“The government gave us the contract only after looking into this issue, after we became the highest bidder in December,” GMR said.

The consortium of GMR Infra and Megawide Construction, a publicly held Philippine firm, will invest $375 million over five years in building a new terminal and upgrading the existing one.

At present, the Mactan Cebu International Airport can handle seven million passengers a year. The plan is to double the capacity to 14 million in the next five years. According to GMR, the airport reported $35 million in revenues in the last financial year.

Deal in hand
* GMR Infra’s 40:60 joint venture with the Philippines’ Megawide Construction to expand and modernise the Mactan-Cebu international airport
 The venture on Tuesday made the upfront consession payment of $320 million
* GMR’s equity share $50 million
*The venture plans to invest $375 million in building a new terminal and upgrading old one
* The airport’s capacity to be doubled over five years from 7 million passengers a year now

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