Philippines' Canilao Says Government Can Save Megawide Project

  • Megawide Construction sought to terminate hospital project
  • Health department has three options to pursue under contract

The Philippines can resurrect a public-private partnership project to upgrade an orthopedic hospital despite the winner of the bid, Megawide Construction Corp., seeking to end the deal, said Cosette Canilao, the head of the government’s PPP Center.

"We can actually save it," Canilao said in a phone interview Wednesday. "There is still an opportunity."

Public-private partnerships are the cornerstone of President Benigno Aquino’s drive to boost infrastructure. The program took a hit after Megawide last month sought to terminate the 8.69 billion-peso ($184 million) hospital PPP deal, citing the health department’s failure to deliver the site for the project among reasons. If the deal falls apart, it may put into question the viability of the PPP program where more than $22 billion of projects are lined up, Canilao said.

Under the contract, the health department has three options: contest the notice of termination of the deal, allow the deal to end, or convince Megawide to proceed with the project, Canilao said in a Nov. 23 memo to the president, a copy of which was obtained by Bloomberg and confirmed by her.

Bad Publicity

“The news of Megawide-World’s Notice of Termination was publicized by the media at a very bad time,” according to the memo, a 33-page document that included attachments. “It came while His Excellency was hosting country leaders of the Asia-Pacific Economic Cooperation and seeking to attract more foreign investments to the Philippines.”

The deal was signed in March 2014 and Megawide was scheduled to start construction in September 2014, according to the memo, which was addressed to the president through the secretaries of executive, finance, economic planning, cabinet and justice.

Health Secretary Janette Garin wasn’t immediately available for comment. Megawide spokesman Louie Ferrer declined to comment.

The health agency can assert that the notice of termination did not conform to procedural requirements, according to the memo. Any dispute will need to be resolved through either amicable means, a project dispute resolution board or arbitration, the memo said.

Elections Risk

The stalled Megawide project underscores the challenges Aquino faces in his infrastructure drive, a key plank of his economic agenda. Scope for delays on big-ticket PPP projects will be “further exacerbated” by elections in May next year, BMI Research said in a Dec. 2 note. Another risk is the lack of institutional capacity to conduct pre-construction activities such as documentation, spatial planning, feasibility studies, public consultation, permit issuance and land acquisition, it said.

Megawide had already spent more than 400 million pesos as of February this year on hiring consultants and mobilization of contractors, according to the memo. Its shares fell a third day in Manila on Thursday.

The health agency and Megawide said in a Nov. 17 joint statement that issues with the project are an isolated case. Megawide had won other PPP projects including the upgrade of Cebu airport, construction of schools, and a transport hub in Manila.

The possible termination of the hospital PPP deal underscores the need for lawmakers to pass the PPP Act, which would help minimize risks to investors, Canilao said. To help protect investors, the bill would create a contingent liability fund to finance unexpected costs in case the government is unable to fulfill its commitments, according to the PPP Center.

"Now that this happened, we now have the opportunity to strengthen the program through the PPP Act," Canilao said.

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