After showing preference for ODAs (official development assistance) to fund infrastructure projects, the Duterte administration wants the implementing rules and regulations on PPPs (private public partnerships) amended to be more advantageous to the public while freeing the government of scarce funds that can now go to vital sectors, instead of infra projects.
Socioeconomic Planning Secretary Karl Kendrick Chua has been designated by the President as chairman of the committee that would amend the implementing rules and regulations of the Build-Operate-Transfer Law to fasttrack the completion of mammoth infrastructure projects, which had been substantially stalled by the pandemic.
This committee is composed of the National Economic and Development Authority (NEDA), the Departments of Finance, Agriculture, Energy, Environment and Natural Resources, Information and Communications, Interior and Local Government, Public Works and Highways, Trade and Industry, and Transportation, and the Public-Private Partnership (PPP) Center.
The amendments aim to facilitate the development of well-structured PPPs that deliver high quality services to the people, protect the public from excessive payments and undue guarantees arising from PPP projects, and promote the interests of Filipinos, who ultimately pay for the costs and returns of private proponents of PPP projects.
“PPPs have the potential to help stimulate the economy, bring back jobs, and address our people’s urgent, present, and future needs. However, it is the government’s job, on behalf of the Filipino people, to ensure that private sector interests are aligned to the public’s interests, with the overall goal of providing the best services to the people,” said Chua.
Chua said PPPs with unwarranted guarantees, contingent liabilities, and other onerous contract provisions take up the government’s already-limited fiscal space and hamper the country’s development. These use up resources that could have been used to build other infrastructure or provide social services for the people.
“As PPPs are paid for by the public, the IRR should enable the provision of quality infrastructure and services that are delivered in a timely and cost-effective manner,” said PPP Center Executive Director Ferdinand A. Pecson.
Finance Secretary and Investment Coordination Committee Chair Carlos G. Dominguez emphasized the need for transparent and expeditious processes in evaluating PPPs to arrive at their real cost to the government, consumers, and taxpayers.
From PPP to ODA
It must be recalled that in 2017, after the country pivoted to China, the President (and Dominguez) declared their preference for projects to be financed by official development assistance, instead of PPP. But since the promised financing from China did not come, the government reverted to what it termed as hybrid PPP system and ultimately back to the original PPP systems.
He also stressed the importance of promoting competition, avoiding conflicts of interest situations, and ensuring that parties of PPP contracts can deliver on their commitments and running their facilities efficiently for the benefit of the public.
The BOT IRR Committee held its first meeting on October 26, 2021, and will begin its stakeholder consultations with the public, investors, civil society, and other partners in December 2021.
The BOT IRR Committee aims to approve and publish the amended BOT IRR by the first quarter of 2022.
For the long-term, the amendments to the PPP Charter are still being heard in both the House of Representatives and the Senate.
History of PPP
PPP was first introduced in the country under the late former President Corazon Aquino in 1986 as RA6957 or the Build Operate Transfer law and amended in 1992 by former President Ramos RA7718 or the amended BOT law and was placed under the Office of the President; later renamed by President Estrada as PSP or private sector participation (amending the BOT law); and reverted to its old name BOT and placed under the Department of Trade and Industry by former President Arroyo and in 2010 up to present PPP Center was created and placed under the NEDA by the late former President Aquino.
From a staggering 14 projects under procurement in the first half of 2016, data from the PPP Center now showed that there are only three deals up for bidding as of end-September, not because they were awarded to respective bidders but they were simply snatched from the pipeline and added to the Duterte administration’s BuildBuildBuild program.
Touted as the government’s “most ambitious infrastructure plan,” the BBB program of 70 priority infrastructure projects was born out of Duterte’s policy on increased infrastructure spending, where his predecessor failed by underspending that plagued government agencies from developing crucial infrastructure, such as roads, rails and ports.
Of the 70 deals, 39 were contracted either signed, implemented and started during the administration of President Benigno S. Aquino III, the BusinessMirror earlier reported. They were mostly funded through GAA (national budget) and ODA grants and loans and only partly by private sector financing.
“We find the PPP Program limited, as economic managers want to do it themselves,” said a high-ranking executive of a huge infrastructure company as he added, “it seems this administration is not keen on PPPs. This is a shame.”
Former PPP Center Executive Director Andre C. Palacios shared the same view, saying that there could have been more to infrastructure development and delivery if the key infrastructure program was tapped consistently.
Duterte even planned to allot more budget for infrastructure spending during his term, from 2.9 percent to 7 percent of the country’s GDP (gross domestic product).
Private funds
Palacios said the new infrastructure thrust needs to mobilize private funds to build airports, seaports and other projects where users can easily afford to share in the cost. In this way, the government can use scarce public funds and foreign funds for hospitals, school buildings, roads, bridges and other projects where users have no means to pay for the services.
Palacios defended PPPs’ capability to provide quick solutions to the infrastructure needs, as the private sector has the manpower and expertise, and is not covered by normal government procurement procedures.
Back then, an executive of an infrastructure company, a mainstay in the PPP Program, agreed, saying that tapping ODA and GAA to be more efficient and to offer better value for the public is a “fair argument in theory.”
“But in practice, there are some issues: the low-cost finance with ODA being offset by expensive equipment; slow execution in accessing the funding; a shortage of talent in the administration to process and contract. Of course, the administration has clever people, but perhaps not enough of them,” said the source, who asked not to be named.
‘Copped out’
Another source added that removing the PPP Program in the national infrastructure-development scene would put homegrown Filipino talents and companies out of the picture, as well.
“Letting foreigners do the job will cop out local firms, such a waste of talent and delay projects by three years,” said another executive of an infra company. “We hope that the PPP Program will also be given priority,” he added.
The government then planned to bid out the operations and maintenance (O&M) components of different facilities once they are completed, or what it called hybrid projects, to allow it to work at a faster pace without legal tussles and the complexity of auctions. But hybrids are not without risks also.
“The hybrid model, however, may create serious challenges during the operation and maintenance phases, as the government will be required to manage the conflict between developers and operators of the said infrastructure projects,” European Chamber of Commerce of the Philippines (ECCP) President Guenter Taus explained.
“PPPs are an indispensable component of the BBB program if we hope to quickly solve our infrastructure crisis and achieve the golden age of Philippine Infrastructure,” Palacios said.
He added that it is imperative for the government to tap private-sector funding to hasten infrastructure buildup.
“The government does not have enough funds and capacity to build and operate all the required infrastructure,” Palacios said. “The private sector has the funds, expertise and innovation, and yet, we do not tap the private sector.”
Significant advantage
Ferdinand A. Pecson, current executive director of the PPP Center’s executive director, agreed, saying that PPPs offer significant advantages in cases when a proposed project involves several components and can be integrated under one contract, thus, avoiding interface risks among several components.
“Likewise, PPPs are advantageous when the government wants to tap private sector’s expertise in operation and maintenance, which would require immediate day-to-day action by the private sector, something that cannot be done as quickly by the government on its own due to rigid procurement rules,” he said.
“I think that the PPP Program has its role to play. There are projects that I think can be privately initiated,” said PCCI president George Barcelon. “There are so many infrastructure projects in the pipeline that the government would be hard-pushed to tackle.”
Taus added that PPPs can be an alternative source of funding for infrastructure deals that the government cannot finance.
Sabin Aboitiz, who sits as president of Aboitiz Infra Capital Inc., noted that infrastructure procurement should not be viewed separately but in totality. Hence, PPPs should be viewed as one of the infrastructure-procurement options, alongside ODA and GAA, he said. The Aboitiz family is a mainstay in auctions for several PPPs.
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