P18B SRP joint venture: more questions

One of the reasons Mayor Tomas Osmeña is critical of the sale by his predecessor, Michael Rama, of a huge chunk of the the South Road Properties (SRP) to SM, Ayala and Filinvest is that such mode of disposal, he says, is disadvantageous to the city government. For Osmeña, the way to go is a joint venture. It must be mentioned though that he also sold substantial portions of the SRP during his previous term.

It is not surprising therefore that Osmeña chose to enter into a joint venture with the Robinson group of companies for the development of almost ten hectares of what used to be Kawit island into a world-class integrated resort and casino facility. Besides, I do not think John Gokongwei, for all his enormous wealth, would be willing to pay P110,000 for a square meter of the SRP, the price that the mayor has been boxed in by the city council.

I have read the draft of the joint venture agreement that Osmeña forwarded to the council through BOPK Councilor Eugenio Gabuya Jr. and which is now being reviewed by an ad hoc committee chaired by Councilor JunJun Osmeña. The council is waiting for Osmeña’s committee report before they will decide the fate of the mayor’s request for a resolution authorizing him to sign the agreement with Universal Hotels and Resorts, Inc., the designated Gokongwei company.

The city’s contribution to the joint venture company is the project site consisting of 97,768 square meters of the SRP. At P110,000 per square meter that’s roughly P10.75 billion worth of real estate. In addition, the Gokongwei company has exclusive right to reclaim all areas adjacent to the project site. On the other hand, the development cost estimated at P18 billion shall be borne solely by the Gokongwei group.

For its P10.75 billion contribution, the city will get a 10% share of the gross receipts. The remaining 90% will go to the private partner. Gross receipts is defined in the draft contract as net of VAT and other local and national taxes. So if the amount of rental revenues is P115 million and total taxes amount to P15 million, the gross receipts for purposes of sharing shall be P100 million from which the city will get P10 million.

Why the huge disparity? I can only surmise that it is because the city never really transferred ownership of the land, only its possession for 75 years. I assume that after that period, possession of the land, now fully developed, will revert to the city.

But why should the city consent to automatic renewal of the project term for another 25 years after the original period of 50 years has expired? Is 50 years not enough to allow the Gokongwei group to fully recover its P18 billion investment plus handsome profits? Shouldn’t Osmeña leave it to the next generation of leaders, as we will all be dead by then, to negotiate for more generous terms? Why should we bind their hands? Is the automatic renewal even legal?

And speaking of legality, is the city government even authorized to enter into an agreement to develop the old Kawit island into a casino and entertainment complex?

A lawyer, who is familiar with the history of Kawit, says that it cannot be done without violating the Memorandum of Agreement between the city and the island’s former owner, the Department of Health. Since the MOA says that Kawit can only be used for socio-commercial development, how could a casino be built there%?

But the more crucial question remains, will the joint venture be good for Cebu?