The U.P. Board of Regents turns down Ayala Land, Inc.'s current proposal to take over U.P. Integrated School, favors a development plan first

(Source: Facebook page of No to Ayala Land,

Inc.'s proposal to take over UPIS)

By Chanda Shahani

The University of the Philippines (U.P.) Board of Regents (BOR) has turned down Ayala Land, Inc.'s (ALI) unsolicited proposal to commercialize the U.P. Integrated School (UPIS) along Katipunan Avenue in Quezon City in favor of U.P.'s first coming out with a development plan for the UPIS site.

According to Faculty Regent Judy M. Taguiwalo, the BOR met on June 2 and discussed ALI's proposal as part of the agenda. During the meeting, the BOR instructed the UP Administration to come up with a development plan for the current UPIS site and call for a public bidding once this is approved. It turned down the unsolicited proposal of Ayala Land Inc. as not being in the best in the best interests of UP.

The Diliman Diary has previously covered this issue, where it was revealed that U.P. and therefore, the Filipino taxpayer may not necessarily have gotten the best possible deal under ALI's unsolicited proposal (See Diliman Diary, May 28 and May 26, 2010) since market forces or more competition were not given the best chance to operate. Regent Taguiwalo's revelation that the BOR's insistence that there be a development plan first before the private sector is allowed to enter the fray under competitive bidding conditions in the UPIS case effectively creates a precedent for the future development of other properties within the U.P. System.

Under Republic Act 9500 or the University of the Philippines Charter of 2008, U.P. President Emerlinda R. Roman is not only the chief academic officer of the University but also its chief executive officer. As such, it is her administration that will bear the chief responsibility to come out with a workable development plan for UPIS that faitfully follows the spirit and letter of R.A. 9500.

Section 22 of R.A. 9500 (http://tinyurl.com/2wbcmzn), entitled "Land Grants and Other Real Properties of the University" states that:

• Income derived from the development of all land grants and real properties, such as the UPIS property shall be used to further the end of the national university, as may be decided by the BOR;
• The Board may plan, design, approve and/or cause the implementation of land leases: Provided, That such mechanisms and arrangements shall sustain and protect the environment in accordance with law, and be exclusive of the academic core zone of the campuses of the University of the Philippines: Provided, further, that such mechanisms and arrangements shall not conflict with the academic mission of the national university;
• The Board may approve the implementation of joint ventures: Provided, That in the event real properties of the national university are involved, only the income derived by the University from the use of the real properties shall be the subject of its participation or obligation in the joint ventures: Provided, further, That no joint venture shall result in the alienation of the real properties of the national university; and
• Any plan to generate revenues and other sources from land grants and other real properties entrusted to the national university shall be consistent with the academic mission and orientation of the national university as well as protect it from undue influence and control of commercial interests: Provided, That such programs, projects or mechanisms shall be approved by the Board subject to a transparent and democratic process of consultation with the constituents of the national university: Provided, further, That funds generated from such programs, projects or mechanisms shall not be meant to replace, in part or in whole, the annual appropriations provided by the national government to the national university.

A very likely key point person to be tasked by President Roman to participate in the development plan formulation tasked to the U.P. Administration by the BOR is U.P. College of Architecture Assistant Professor Armin B. Sathou, who currently holds the rank of Vice President for Development for the U.P. System.

A detailed interview  given by Vice President Sarthou and posted on the U.P. website, and entitled, "U.P. Forum Roundtable on the University in the next 20 years" (July-August, 2009, http://www.up.edu.ph/upforum.php?i=275&archive=yes&yr=2009&mn=8) gives a glimpse of some of the elements of such a possible development plan. The interview, quoting Sarthou extensively, and given from a trained architect's perspective, shows his point of view, which could be incorporated in the development plan and which the BOR may either adopt, reject or even modify:

• Circulation. The campus, already known for its pleasant and green ambience, will now be characterized by even wider and pedestrian-friendly sidewalks and walkways, connecting the different nodes and clusters within the campus, cutting through landscaped lushness, with more defined spaces for reflection and meditation. Vehicular access inside the campus will be limited to those with infirmities, and walking will be the norm. Parking structures will be located at the outer edges of the campus to encourage walking and the use of the public transportation system, which by then will be characterized by electric-powered transport—battery-powered ikot jeepneys drawing their power from solar panels and strategically-located charging centers, or perhaps a well laid-out monorail system conveniently connecting all areas of the campus.
• Housing. Some of the single detached housing developments on campus will have to give way to low-rise (three-storey) residential buildings, in the process eliminating altogether the long waiting lists for faculty and staff housing on campus. The new developments will be less dense than the present walk-ups, and will contain amenities that will enhance the quality of life of its residents, including localized sports and recreation facilities and multi-functional clubhouses. These projects will be made possible either though the University’s own financing and management, or in collaboration with private developers.
• Resource Generation. The University will, with the help of government, the alumni and the private sector, successfully convert hitherto unproductive real estate into resource-generating assets, decreasing dependence upon government subsidy to just under 25%.of its funding requirements. Assets such as the Sierra Madre and Mindanao land grants will by then be fully productive, with agroforest plantations in some portions to fortify University finances, and rich biodiversity in other areas to serve the University’s teaching and research functions. In all CUs, assets closer to campus will be further developed with the construction of more academic buildings and support facilities, housing for faculty, staff and students, and science and technology centers.

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

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 (http://tinyurl.com/3yow9r8). 

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 (http://www.peza.gov.ph/) 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).

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).