From a bias on deals developed under the Public-Private Partnership (PPP) Program, the government has taken a different leaning on infrastructure growth, with its eyes now keen on building more infrastructure through bilateral loans and taxpayers’ money.
Economic managers agreed that the key to ushering in the Philippines to the vaunted “golden age of infrastructure” is political will. Just recently, the Duterte administration decided to pursue its own key infrastructure program called Build, Build, Build (BBB).
This is the heart of President Duterte’s first State of the Nation Address in 2016, when he vowed to increase the spending on public infrastructure to 7.4 percent of the country’s GDP through 2022.
The program, which was launched a few days ago, was met with support from the general public and the private sector.
“This administration appears thoroughly focused on building up the country’s infra because it is a prerequisite to our transformation from an exclusive and uneven growth path toward an economy that is truly inclusive,” Finance Secretary Carlos G. Dominguez III said.
Over the next six years, the government will spend roughly P8.4 trillion to build, modernize and rehabilitate new and old infrastructure, as the country plays catch-up with its neighbors in terms of adequacy of transportation facilities, energy and water supply, and other socioeconomic needs.
From 2018 to 2020, the government will undertake its P3.6-trillion Three-Year Rolling Infrastructure Program, which is mainly focused on the development of transportation facilities throughout the Philippines.
Bias on ‘hybrids’
Despite being gift-wrapped with an intergenerational pipeline of 53 projects worth P1.5 trillion, Duterte’s economic team is now more keen on pursuing its own infrastructure development program.
Dominguez explained that the apparent shift in bias was borne out of the nature of PPP deals, which he described as too slow in movement, when compared to projects that are under official development assistance (ODA) and General Appropriations Act (GAA) funding.
“The past admin ‘PPP-ed’ the projects out. But to get a project from an idea, it takes around 30 months to do so. So we decided to take the projects ourselves, then, upon completion, bid out the operations and maintenance,” he said.
In a nutshell, these so-called hybrid deals are infrastructure whose construction will be shouldered by the government, but their operations and maintenance components will be tendered to the private sector.
“Projects will be financed by our taxes, ODA funds and commercial loans. We plan to start projects ourselves, then bid out operations and maintenance once completed,” Dominguez said.
Hybrids, however, are downgraded forms of partnership between the government and the private sector, at least for American Chamber of Commerce Senior Advisor John D. Forbes.
“There appears to be a fundamental change to downgrade the potential of PPPs and replace them with so-called hybrid PPPs, with such projects focusing on awarding the operations and maintenance of assets paid for with domestic or foreign ODA financing and probably built by the public sector with domestic or foreign construction firms,” he said.
‘No one size fits all’
Despite this, stakeholders in the PPP arena vowed to continue on supporting the government in its endeavors to deliver quality infrastructure to common Filipinos.
They agreed that it doesn’t matter which mode of project development the administration will undertake or be leaning toward to, what matters is that infrastructure will be delivered in a timely and corruption-free fashion.
“PPP, ODA and GAA are simply different modes to build infrastructure. As builders and partners, we fully support the development of the country’s infrastructure in the most cost-effective and quickest ways possible,” GMR-Megawide Cebu Airport Corp. President Louie B. Ferrer told the BusinessMirror.
Megawide Construction Corp. holds the title with the most number of PPP deals bagged during the course of the Noynoy Aquino administration.
“The country’s main concern is infrastructure investment, and these three provide avenues for this. That being said, there is no ‘one size fits all’ mode for infrastructure investment, so we believe a combination of all three would be to our advantage,” he added.
For instance, Ferrer said, PPPs can bring private-sector efficiency and money into a project. On the other end, GAA gives the government independence to develop infrastructure on its own terms, from financing to development. ODAs, on the other hand, are low-interest loans that require the government to hire contractors from the benefactor’s home country.
Aboitiz Infra Capital Inc. Chief Operating Officer Randall C. Antonio likewise aired his group’s support to the new infrastructure thrust, but noted that private-sector cooperation is still needed in order for development to be sustainable.
“We support all of the administration’s efforts to establish and operate physical infrastructure vital to the country’s economic development and prosperity. We believe that the private sector’s capital and expertise still can continue to play a role in this effort,” he told the BusinessMirror.
Risky endeavor
Integrity Initiative Inc. Vice President Henry J. Schumacher added that the government must ensure that it has the capacity to take on projects by itself in order to ensure that they are sustainable.
“We all want infrastructure. I believe all three systems—PPP, ODA and GAA—should be used. My concerns are in the area of implementation and regulation,” he said.
Schumacher explained that in implementing projects, there is the risk of too much projects being undertaken by an agency or a local government unit (LGU) that it will be hard to manage them.
“There will be severe bottlenecks to manage the projects in government agencies and LGUs. Much more capacity building will be needed,” he said.
Aside from right-of-way issues, Schumacher also cited the “unfair” regulation against foreign companies, as this hinders the entry of new technologies to infrastructure projects.
“The unfair policies against foreign contractors, as executed by the Philippine Contractors Accreditation Board, will hinder the entry of new infra technologies at the BBB,” he said.
Antonio added that the government must be transparent and fair throughout the bidding process, as a significant portion of its program will be funded by taxpayers’ money.
“Guiding principles of transparency and fairness should remain at the forefront of the procurement process, regardless of funding modality, so that Filipino taxpayers and facility end-users still get the best value for money not only when the infrastructure is built, but also when it is operated in the future,” he said.
‘Continue PPP’
Stakeholders are still confident that the government can continue or even surpass the momentum that the previous administration has achieved in terms of infrastructure development.
“Megawide remains optimistic despite the delays currently being experienced by projects. We also hope for its acceleration so that these projects can be finished within this term. President Duterte has been very sincere in his promises for the people; while BBB seems to be an audacious move, it is nevertheless this administration’s vehicle to deliver on projects that have long been needed and awaited,” Ferrer said.
While the BBB program is a commendable plan, Forbes said, the government must ensure that it will be rolled out as planned.
“BBB is a great slogan and will be a great program if implemented as planned. Who wouldn’t welcome it as something everyone agrees is badly needed?” he said.
Currently, the country’s infrastructure portfolio is far behind its neighbors in the Asean, no thanks to the government’s underspending on infrastructure over the course of three administrations.
During the entire 16 years of the Estrada, Macapagal and Aquino administrations, only four new light-rail stations were completed, despite the increasingly serious traffic congestion.
The Ninoy Aquino International Airport (Naia) is also bursting at the seams, with congestion levels peaking at 40 percent above capacity.
“It has been taking much too long to build many major projects, despite the strongly increased infrastructure spending in 2015 and 2016 to 5.1 percent of GDP. Also, the goal or raising total public-sector spending on infrastructure to 7.4 percent of GDP by 2022 from 5.1 percent in 2016 represents an enormous amount of increased spending on infrastructure,” Forbes said.
“Since investors have identified poor infrastructure as the biggest constraint on the Philippine economy, investors will strongly welcome the completion of the projects included in the BBB program,” he added.
Hence it is extremely crucial for the PPP program to persist, as private-sector investment will help the government in realigning its budget to other needs, such as education, housing, food production and health.
“It is important to continue the PPP program as it can add many billions of dollars in needed infrastructure projects to those to be accomplished with ODA and government funds. PPP was never the main way of doing projects, but is an important complementary method that can achieve good results,” Forbes said.
Supplement
Former PPP Center Executive Director Andre C. Palacios noted that it is imperative for the current government to view the Aquino administration’s flagship infrastructure program as another viable and sustainable means to build infrastructure.
And because the Philippines is in the middle of an infrastructure crisis, he believes that a healthy combination of projects funded by bilateral loans, government budget and private investment would help ease the burden that the common Filipino experiences on a daily basis due to the dearth in infrastructure.
“PPP is not the magic antibiotic that will cure us of our infrastructure sickness. Rather, it is an important supplement that we need, so that taxpayers’ money and ODA funds can be used for large infrastructure projects that are urgently needed but are not commercially viable, like roads, bridges, mass transportation, hospitals and school buildings,” Palacios told the BusinessMirror.
Ideally, the government should raise the money to build public infrastructure that will provide free public services, he said. But the present situation is very far from the ideal.
“For PPP to succeed, it should be viewed as a comprehensive program, not as a stand-alone project. It should be seen as a long-term relationship, not as a single transaction,” Palacios said.
He explained that companies will not invest their money in expensive infrastructure projects to provide public services when a government is unsure, unreliable and unpredictable.
“A successful PPP program needs four Ps from the government: political support from the top; policies and procedures that are fair and transparent; personnel who have competence and integrity; and projects that are commercially viable,” Palacios said.
Viable pipeline
PPP Center Deputy Executive Director Eleazar E. Ricote assured that the program will continue despite being sidetracked by the broader BBB initiative.
“We can then view PPPs as an alternative or complementary financing option. The government has a very viable pipeline of PPP projects,” he said. “Even as there is a general leaning toward other modes of procurement, the PPP pipeline continues to be highly viable, relevant and attractive to our investors.”
PPP projects, he said, remain viable, and will continue to attract investors throughout the course of the Duterte administration.
“It remains viable because these PPP projects emanated from the implementing agencies themselves and can withstand scrutiny, as these are well-structured projects,” he said.
The two, he said, will support each other, and will not, in any way, “cannibalize” the other.
“We do not see this shift to ODA or GAA as contrary or unfavorable for PPPs. There will always be a keen interest for PPPs as long as the projects remain feasible for both the government and the private sector,” Ricote said.
To date, only nine PPP deals are up for procurement, the bulk of which are being undertaken by the transportation department and its attached agencies.
According to the PPP Center’s database, a total of 15 deals have been awarded to their respective proponents since the agency started handling the development of projects in 2010.
Before the PPP Center came into being, there were 49 PPP deals completed, the legal basis of which is the Build-Operate Transfer Law.
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WHAT IS BBB?
COINED after President Duterte mentioned the phrase during his first State of the Nation Address, the Build, Build, Build (BBB) program is the government’s “most ambitious infrastructure plan,” which is deemed as the solution to traffic congestion, the high cost of prices, the demand for efficient mass transport projects, and the need for more jobs.
It requires the cooperation of the following agencies to be a success: the Departments of finance, budget, public works, transportation, National Economic Development Authority and the Bases Conversion and Development Authority.
Currently, there are 36 infrastructure projects are listed in a Web portal (www.build.gov.ph). These are “envisioned to increase the productive capacity of the economy, create jobs, increase incomes, and strengthen the investment climate leading to sustained inclusive growth.”
Included in the pipeline are the Connector Road, the Mega Manila Subway, the North-South Railway Project, the New Clark Green City, and the Regional Airports Development Program.
A huge portion of the projects may sound all too familiar, as they were jumpstarted by previous administrations, but were not pursued due to time and legal constraints.
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