Thursday, May 27, 2010

U.P.'s Staff Regent says "Swiss Challenge" rules will apply to Ayala Land, Inc.'s proposed privatization of the U.P. Integrated School Property

Staff Regent Clodualdo "Buboy" Cabrera
(Source: Facebook page
of Laban PGH Movement)

By Chanda Shahani

It's confirmed. "Swiss Challenge" rules will apply in the evaluation by the University of the Philippines (U.P.) Board of Regents (BOR) of the unsolicted proposal by Ayala Land, Inc. (ALI) to take over the U.P. Integrated School (UPIS) along Katipunan Avenue, Quezon City and transfer UPIS to the now non-operational Narra Residence Hall located inside the U.P. Diliman Campus, also in the same city.

According to U.P. Staff Regent Clodualdo "Buboy" Cabrera, the proposed conversion of the 20 hectare UPIS property was an unsolicited proposal submitted by ALI and discussed as part of the agenda of the May 27, 2010 BOR meeting held at Quezon Hall at U.P. Diliman.

Under the Swiss Challenge system as it is practised in the Philippines (See Diliman Diary, May 26, 2010), 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 ( 

Cabrera said the proposal was still in its preliminary stages, and thus not enough time had elapsed for other interested competitors to submit their own proposals; given that the BOR was still in the process of evaluating and reacting to the original ALI proposal.

Here are some of the details of the ALI proposal as it currently stands: 
  • ALI is proposing a 25-year lease agreement for the UPIS property
  • U.P. will get 10% of any commercial building lease revenues
  • U.P. will also get 15% of any land lease revenues
  • Total leasable office space areas would equal 12,000 square meters
  • Total gross leasable retail areas would equal 50,000 square meters
  • All told, the entire leasable area under consideration equals 62,000 square meters
  • ALI is proposing an overall compensation package to U.P. of PhP 177 million over the entire 25-year period
Regent Cabrera said that he did the math, and found out that the revenue accruing to U.P. came to a measly PhP 9.00 per square meter per month. The Diliman Diary validated the math by dividing PhP 177 million by 25 years and further dividing the product by 62,000 square meters to get a total compensation of PhP 114.00 per square meter year for U.P. Dividing that figure by 12 to get the monthly figure, we got PhP 9.52 per square meter per month for the coffers of U.P.

By way of comparison, Philippine Economic Zone Authority (PEZA) accredited properties in Libis, Ortigas and Makati City charge anywhere from a low of PhP 250.00 per square meter per month to a high of PhP 600.00 per square meter per month. If ALI wins the Swiss Challenge, ALI as the building developer, with U.P. concurring, is expected to apply for PEZA accreditation as it has already done so for the the 37.5 hectare North Science and Technology Park, located along Commonwealth Avenue in Diliman where the U.P.-Ayala Land Technohub is located. Even the U.P. Ayala Technohub, which is run by the Ayala Foundation, Inc., and located along C.P. Garcia Avenue, enjoys PEZA status.

According to the PEZA website ( PEZA benefits include income tax holidays for up to four years, a special 5% tax on gross income (after the income tax holiday), payment exemptions.. Foreign investors will also be granted a permanent residency status upon initial investment of USD 150,000 to any sustainable, local enterprise. These are particularly attractive to business process outsourcing (BPO) companies, given the proximity to quality graduates from U.P. Diliman and elsewhere which will help drive the need of BPOs for comparatively cheap but skilled knowledge economy-based human resources. Since BPO workers are given comparatively higher starting salaries than their counterparts in other industries, ALI's business model hopes to capture back some of the disposable income spent by call center agents and their bosses by ensuring that there enough restaurants, convenience stores and other retail outlets. This is why a mixed-use site is being envisioned, and not just office spaces.

But the bottom-line, said Regent Cabrera, is that U.P. can do much better than the ALI proposal as it now stands, in terms of revenues obtained by U.P. He said that he is not even in favor a Swiss Challenge as he thinks that the UPIS property can be put to better use by constructing dormitory facilities for students or other essential university structures. In fact, a huge secondary market for bedspaces, apartments, houses, etcetra exists now precisely because of the university's inability to provide safe, decent and affordable housing to the entire population of students who needs this service.

Other critics have criticized U.P.'s decision to mimic the overall outsourcing boom in the country by attracting facilities that cater to the low-end call center and outsourcing market which represents a "dumbing down" of the job offerings being promoted by U.P. to U.P. graduates within U.P.'s vicinity. By way of comparison, India, which is the world leader in outsourcing, has already made the shift from BPO development to Knowledge Process Outsourcing (KPO) development. KPO are processes that demand advanced knowledge, analytical interpretation and technical skills as opposed to BPO work which typically entail standardized routine processes and data entry kind of work or sales or order fulfillment work. Given the high level of capabilities of the typical U.P. graduate, there is clearly a mismatch between the types of jobs being offered and the students' capabilities.

In other developments:

The search process for a new U.P. President to replace U.P. President Emerlinda Roman may be said to have already begun by way of Faculty Regent Judy Taguiwalo's recent submission to the BOR for  a proposal to initiate the search process for a new UP President as President Roman's term ends on February 2011. During the 2004 search, the BOR members were already provided relevant documents related to the search process as early as February 2004, Regent Taguiwalo said in an email message to the Diliman Diary. Based on the search process in 2004, the search for a new U.P. President should commence this June and the election should be in November, she added.

(Chanda Shahani is the editor of the Diliman Diary. He has a master's in entrepreneurship (M.E.) from the Asian Institute of Management and is a former business page reporter from the Philippine STAR).

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