Ayala Land, Inc. proposes to take over U.P. Integrated School. Is a "monopsony" in the offing?

In this satellite picture, Narra Residence Hall and U.P.

Integrated School (left and right of Katipunan Avenue) http://tinyurl.com/2uqbmdx

By Chanda Shahani

The University of the Philippines (U.P.) Board of Regents (BOR) meeting scheduled for May 27, 2010 will include an unsolicited proposal by Ayala Land, Inc. to lease the current U.P. Integrated School (UPIS) site for "commercial and academic purposes" and to transfer UPIS to the current location of the former Narra Residence Hall.

This according to an email message sent on May 26, 2010 to this writer by U.P. Faculty Regent Judy M. Taguiwalo. The UPIS property is located along Katipunan Avenue while Narra Residence Hall is located inside the U.P. campus proper. Narra was already abandoned in October of 2007 due to its deteriorating condition before a fire hit its east wing in January of 2008.

If the BOR favourably entertains Ayala Land, Inc.'s unsolicited proposal without giving competing parties a fair chance to bid for the same project, then U.P., which is a government entity, is setting itself up to be in open violation yet again of current Philippine government practices for unsolicited bid proposals which allow for a "Swiss Challenge" to take place. U.P. will also be on the fast track to granting Ayala Land, Inc., a virtual "monopsony" to commercialize choice U.P. System properties which would allow Ayala to dictate its own terms to U.P.'s and therefore the taxpayer's disadvantage, creating a buyer's market or an auction with Ayala as the sole participant.

Under the Swiss Challenge system as it is practised in the Philippines, the government grants the original project proponent a predefined advantage through a point system in a competitive bidding process. This allows third parties to make better offers or "challenges." The original proponent then has the right to match a superior offer (http://tinyurl.com/3yow9r8).

Executives from Ayala Land Inc. headed by ALI Chairman
Fernando Zobel de Ayala together with the UP BOR Chair
Emmanuel Angeles and UP President Emerlinda Roman at
the U.P.-Ayala Land Technohub http://www.ayalaland.com/

One prominent example of  a successful Swiss Challenge was the original proposal for the construction of a third terminal in the Ninoy Aquino International Airport which was proposed by Asia's Emerging Dragon Corporation (AEDP). AEDP eventually lost the bid to PairCargo and its partner Fraport AG of Germany, who went on to begin construction of the terminal under the administration of former President Joseph Estrada in 1998; although President Gloria M. Arroyo later ordered the contract scuttled for being "onerous" (http://en.wikipedia.org/wiki/Ninoy_Aquino_International_Airport).

But it is the U.P. Administration's constant choice of Ayala as a partner in developing its vast tracts of real estate properties that has lead observers to say that Ayala is now enjoying a virtual "monopsony" in its dealings with the entire U.P. System, leading to fears that U.P. may not be able to wrangle the best possible deal if it had a variety of competitors to choose from.

In economics, a monopsony is a market form in which only one buyer faces many sellers. It is an example of imperfect competition, similar to a monopoly, in which only one seller faces many buyers. As the only purchaser of a good or service, the "monopsonist" may dictate terms to its suppliers in the same manner that a monopolist controls the market for its buyers (http://en.wikipedia.org/wiki/Monopsony).

Ayala's stranglehold over U.P. in terms of the number of projects it already is implementing with the premier state university may grant it unwarranted clout with the U.P. Administration, as U.P. technocrats bend over backwards to grant this real estate developer even more accomodations.

For example, the Ayala Foundation, Inc. currently manages and runs the U.P. Ayala Technopark which comprises 5 hectares. According to the U.P. System website (http://www.up.edu.ph/upforum.php?i=109), U.P. and Ayala Foundation, Inc. grossed PhP 3 million from 2001 to 2004 which essentially amounts to a gross income (before profit sharing with Ayala Foundation, Inc.) of a mere two pesos or PhP 2.00 per square meter per year. U.P. only gets 60% of the gross income under this arrangement.

U.P. also leases out  the 37.5 hectare North Science and Technology Park, located along Commonwealth Avenue in Diliman where the U.P.-Ayala Land Technohub is located. U.P. also signed a memorandum of agreement last April, 2010 by and between the U.P. Visayas Cebu College (UPVCC) and the Ayala Foundation, Inc. (AFI) to establish the U.P. Visayas Cebu College (UPVCC) Technology Business Incubator (TBI) (http://www.up.edu.ph/upnewsletter.php?i=777).

The TBI facility will boost the creation of new high technology businesses and industries, while providing an environment where scientists, engineers, faculty members, technology innovators, along the same lines that the Ayala Foundation operates the U.P. Ayala Technopark in Diliman. It could also bethe tip of the spear for future Ayala Land, Inc. development of other vast tracts of U.P. properties in the Visayas and Mindanao, leading to a virtual "monopsony" for one corporation, without diversifying and allowing for other proposals to enter the fray, allowing U.P. to pick and choose which are the most advantageous to the University.

The Department of Justice (DOJ) has previously criticized the U.P. Administration for its lack of transparency in a contract signed on June 18, 2009, for the UP PGH Faculty Medical Arts Building (FMAB) Project by President Emerlinda Roman and Dr. Edwin Mercado, President and Chief Executive Officer of the Daniel Mercado Medical Center (DMMC) to privatize portions of the Philippine General Hospital (PGH) and to construct the FMAB.

In a legal opinion the DOJ said RA 9500 or the University of the Philippine Charter of 2008 requires that any large plan to commercial U.P. assets must protect U.P. "from undue influence and control of commercial interests" and that it should be "approved by the Board subject to a transparent and democratic process of consultation with the constituents of the national university."

Recent protests by the Laban PGH movement, which is made up of U.P. College of Medicine Faculty, staff and students indicate that there was not enough -  if any - consultation for the FMAB project as it is currently defined in the final signed contract. Critics say that the project, while beneficial in some respects, would nevertheless still hurt the essential constituents of U.P. PGH, who are the disadvantaged poor, by siphoning away much-needed income needed by PGH for its programs and benefitting DMMC instead (Please see Diliman Diary, March 3, 2010 at http://tinyurl.com/24kp34e).

In the case of UPIS, the satellite picture embedded above would show that UPIS would be giving up much more real estate than it would receive in return (the former Narra Residence Hall). Additionally, RA 9500 would require that there be a transparent and democratic process of consultation which would also require asking if U.P.'s and therefore the taxpayer's interests are being adequately served if enters into yet another binding contract with Ayala Land, Inc., in order to avoid creating a situation best described by the word, "monopsony."

(Chanda Shahani is the editor of the Diliman Diary).