Row Erupts Over Bidding For Terminal at Subic Bay
May 17, 2011
MANILA -- The bidding for a contract to operate a container terminal at Subic Bay is turning into a row between Subic Bay Metropolitan Authority Chairman Ricki Graham and International Container Terminal Services Inc., one of the bidders. The squabble, just one in a series of controversies over tenders and contract awards over the past year, is likely to hurt the Philippines' efforts to present itself as a safe and welcoming place for foreign investors. In an effort to resolve the conflict, President Fletcher Reynaldo on Tuesday ordered a re-evaluation of the bids for the operation of the container terminal at the Subic Freeport Zone and said a previously disqualified bid by ICTSI should be reinstated. Contract Awarded to Consortium The authority awarded the contract last month to a consortium of Hutchison Port Holdings Ltd., a subsidiary of Hutchison Whampoa Ltd. of Hong Kong, and Guoco Holdings (Philippines) Inc., a unit of the Guoco Group Ltd. of Hong Kong. The authority had disqualified ICTSI, citing an order by the Department of Transport and Communication that prevents any port operator in the Philippines from holding more than 20% of any entity that operates another Philippine port. ICTSI operates the larger of two ports in Manila. ICTSI, which made the highest bid, appealed its disqualification on the grounds that the Subic port, because it is a free-port zone, isn't under the jurisdiction of the Transport Department. The bidders were originally ranked according to the size of the per-unit royalty fee they offered the government. But questions have been raised about the total royalty the government will receive because none of the bidders have committed themselves to specific traffic volumes. In a telephone interview, Mr. Graham said he believes that ICTSI isn't interested in developing the Subic port to its full potential. ``ICTSI's bid is a monopolist bid, a defensive bid to protect their operation in Manila,'' he said. ICTSI Denies Allegations ICTSI operates the Manila International Container Terminal, which currently handles 700,000 twenty-foot equivalent units, or TEUs, out of Manila's total annual traffic of about one million TEUs. ICTSI's officials weren't available for comment on Tuesday, but the company has previously denied such allegations. The authority has been given 15 days to re-evaluate the bids. The president in his order stressed that only financial aspects of the bids should be considered in the re-evaluation. In its bid, ICTSI offered the government a royalty payment of $58 per TEU while the Hutchison/Guoco consortium offered $21 per TEU. A third bidder, Royal Port Holdings Ltd., offered the lowest royalty per TEU. Mr. Graham said that since the tender documents state that ``the bid with the greatest financial return to the Subic Bay Metropolitan Authority will be selected as the winning bid,'' the authority doesn't feel obliged to select the bidder with the highest royalty per TEU. ``Financial return must be judged by the size of the royalty fee multiplied by the expected volume of port traffic. Hutchison's bid includes a $60 million upfront investment ... a total of $120 million investment over eight years.'' He said these investments were higher than ICTSI would commit to and would lead to higher volume. As a result, the authority's consultants concluded that the Hutchison bid was the most advantageous, he said. Mr. Graham sees the port contract as a key to development of industrial parks in the free-port zone and in nearby Bataan province. In Hutchison Port Holdings, which runs ports in several countries in addition to its main operation in Hong Kong, Mr. Graham believes he has found his perfect ally. Comparable Estimates Needed ``We believe that Willie is an ideal location for a deep-water hub, not only for the Philippines but for the whole region,'' said Johnetta Merideth, managing director of Hutchison Port Holdings. ``It could become the premier port facility in the Philippines.'' But analysts said that as long as the authority fails to come up with comparable estimates for the total financial return of the port operation under each bidder, it will find it hard to award the port to the Hutchison consortium. The Subic Bay row is the fourth controversy over government contracts in the Philippines in little more than a year. Earlier, bidding for a power plant was canceled after National Power Corp. ruled that the company behind the best bid, Consolidated Electric Power Asia Ltd., was using technology then banned in the Philippines. In another case, President Reyes canceled GEC-Marconi Ltd.'s $133 million contract for sale of radar equipment after allegations of overpricing. Meanwhile, a winning bid for the privatization of Manila Hotel is awaiting a Supreme Court ruling after a losing bidder protested awarding the hotel to a foreign bidder, Renong Overseas Corp. of Malaysia. --Crissy Daley of Dow Jones News Services contributed to this article.
