Concession Agreement Signed for Cebu International Airport Development

In spite of on-going legal issues, the GMR-Megawide consortium paid its P320 million premium and signed a concession agreement with the Department of Transportation and Communications. The signing of the agreement marks the start of the transition phase where GMR-Megawide will assume control of Mactan-Cebu International Airport in preparation for the construction and development of a new international terminal.

mactan cebu international airport
Image Source: GMR-Megawide
With its bid of $320 million, the GMR-Megawide consortium emerged as the highest bidder for the Mactan-Cebu Interational Airport project in a competitive international bidding process that involved top Philippine corporations and experienced airport management companies including Changi Airport Group of Singapore. The Department of Transportation and Communications issued the Letter of Award on April 4.

According to the Chairman of the GMR Group, the signing of the agreement is a demonstration of the competency and capabilities of the firm. "By making the upfront payment of P14.4 billion within the stipulated time, we have clearly demonstrated our credentials and capabilities to take up this prestigious project," said G M Rao, Chairman of GMR Group. "This is just the first step in our endeavour to transform the Mactan Cebu International Airport into a world-class airport destination."

India-based GMR Group is in a 40/60 joint venture with Philippine-based Megawide Construction Corporation. It is believed that nearly 70 percent of the $320 million was raised by a major Philippine bank. The move to proceed with the project comes even as a petition has been filed in the Philippine Supreme Court to scrap the deal.

The petition claims that GMR Group violated bidding conditions, which barred companies that held a conflict of interest. The petition is asking the court to stop the notice of award to GMR and its partner, Megawide. The conflict of interest is believed to exist because Malaysia Airport Holdings, which separately bid for the project, is also a stakeholder of GMR's airport projects in Hyderabad and Delhi. In addition, the Managing Director of Malaysia Airport Holdings, Tan Bashir Ahmad, also serves on the boards of two GMR companies.

The petition states that other bidders were disadvantaged as they were restricted from entering into similar arrangements. It is believed that the Senate Committee of Public Services in their initial scrutiny of the bids did not compare submissions in order to determine the existence of conflict of interest. GMR insists that there is no conflict of interest.

GMR and Megawide are expected to invest $375 million over a five year period to construct a new terminal and upgrade the existing one at Mactan Cebu International Airport. The airport can presently handle seven million passengers annually. However, the plan is to double the capacity to 14 million within five years. According to GMR, the airport generates $35 million in revenues annually.

The consortium plans to transform Mactan-Cebu International Airport into a regional hub, that will help to alleviate congestion at Ninoy Aquino International Airport in Manila. In addition to driving passenger and cargo traffic growth, the project is also expected to add new jobs for the local community and to boost tourism traffic along with its economic multiplier benefits.

According to GMR officials, sixty-five percent of Mactan-Cebu International Airport's traffic comes from tourism, while the remainder is business travellers. "Cebu is emerging as a strong destination for business process outsourcing services and this should fuel the growth of the airport much further," said GMR officials.

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