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San Miguel’s massive expansion

$29 billion.  That, in today’s dollars, is the cost of the largest expansion program ever undertaken by San Miguel Corp. in its 128-year history. 

It ensures that San Miguel remains the country’s biggest single corporate investor in the coming decade. It will make San Miguel the country’s biggest employer, bar none and the biggest contributor to the economy, up to 14 percent of the national output or GDP.

SMC has been the Philippines’ biggest domestic investor in the past 10 years.

The scale and cost of San Miguel’s expansion dwarf anything it has undertaken in the past 20 years and will probably exceed anything San Miguel itself and any other Philippine company, for that matter, will do in the coming 20 years.

The expansion consists of two parts. 

One, 18 new factories, including six breweries, six feed mills, a new hot dog processing plant, and an export-oriented spam factory.  The 18 facilities or factories will cost P742 billion or $14 billion.  All the factories will be on stream by 2020, according to SMC vice chairman and president Ramon S. Ang.

The three-year (begun in 2017) and organic food, beer and beverage expansion will enhance San Miguel’s dominance as the largest beer and food company in the Philippines and one of the largest in Asia.  Average capital expenditure of San Miguel’s beer and food expansion alone is P248.3 billion per year.

Each new brewery alone will cost $250 million; so six easily will take up $1.5 billion worth of investments. The breweries will be located in La Union and Pangasinan in the north; Santa Rosa, Laguna, near Manila; Quezon-Bicol area, and in Cagayan de Oro and Zamboanga in Mindanao.   The idea is to cut logistics or distribution cost (now a third of operating costs) by 30 percent which means beer profitability improves by 10 percent per year.

Each brewery will have a capacity of two million hectoliters and quench the thirst of Filipinos and foreigners for what is considered to be one of the best—and cheapest—beers in the world. “Beer profits will keep on growing at 20 percent every year,” toasts Ang, implying that the business doubles every five years.

Two, a brand-new, built from the ground up, $15-billion international airport in Bulacan province, 27 kilometers north of the present Naia. 

The proposed airport on 2,500 hectares of bayside flatlands will include four runways, with space for a fifth and sixth, capacity for 100 million passengers (up to 200 million, if warranted) and gates for up to 200 jet planes at the same time, especially the high-volume, high–load-factor, fuel-efficient, mostly self-flying aircraft of the  Airbus 320 and the Boeing 737 variety, the current workhorses of civil aviation.

The airport will affirm San Miguel’s status as the largest infrastructure company in the Philippines, and also one of the biggest in the region.

San Miguel has an awesome portfolio of infrastructure projects and properties.

Ten years ago, SMC began its foray into infrastructure when hardly any other company was looking and when most Philippine companies thought infra was money-losing or not worth their while, buying up or building roads, highways, tollways, skyways, bulk water facilities, harbors, and airports or airport projects.  Today, the company easily has 55 percent of the tollways business in the country. 

The returns from infra still cannot match the huge margins from beer or petroleum refining and marketing but they range from high single digit to a heartwarming double digits.

More importantly, San Miguel’s aggressive thrust into infra has made it a development-oriented company, one whose projects are sure to propel job creation and progress at a frenzied pace.

This has enabled SMC to conduct business profitably, while achieving three kinds of responsibility—economic responsibility, social responsibility, and environmental responsibility.  No other company does better on those three fronts simultaneously.

“Our vision is how to build projects that can create more jobs, and also create more economic growth for our country,” says SMC president Ang with pride.

He hastens to ask rhetorically, “if we can undertake 18 projects at a cost of P742 billion in three years, don’t you think we can easily do an airport project worth just as much or P750 billion in five years?”

RSA—Ang’s initials—first thought of the airport project in late 2013 and presented it to then Aquino government in 2014.  Had President Aquino approved it then, the country, the Filipino people, and indeed, the world, would be using at least two of the four proposed runways, decongested the present NAIA magically, and made the Philippines a major tourism destination in Asia. 

Ang reckons the new Bulacan mega airport will bring tourist arrivals to 20 million a year (from a measly 6 million at present), enabling the Philippines to catch up seriously with Thailand (35 million arrivals) and Malaysia (26 million). 

In a five-star hotel, each guest needs four people to service him.  Ang believes with 20 million arrivals, job creation could easily reach 40 million workers. An airport of the size of San Miguel’s will contribute $30 billion a year to the national economy.  Aviation’s share of the GDP is as high as 9 percent.

San Miguel has already obtained at least five regulatory approvals for its airport—two at the Department of Transportation, two at the cabinet level National Economic and Development Authority, and one at the Office of the President.

Still, it is unclear when SMC can proceed because the airport is subject to a Swiss challenge to open the bid to other claimants provided they can match the metrics of the San Miguel airport.  After that, San Miguel will face grilling again by the Department of Transportation for terms, conditions, and financing.

Ang feels the airport should have been built yesterday and every day is a lost opportunity (at least P4.4 billion a day to the economy).  Think of the 40 million workers that should be servicing 20 million tourists by now.

Ang is unfazed. “President Duterte is a strong leader.  He has political will,” he says.

biznewsasia@gmail.com

Topics: San Miguel Corp , Rodrigo Duterte , Department of Transportation , National Economic and Development Authority
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