Regardless of the government strategy, whether procurement, work by administration, loan, public financing or public-private partnership (PPP), we all pay. Citizens bear the cost of development. In all possible PPP approaches, we either pay as end-users or as taxpayers. In certain cases, we even pay twice, as consumer for availing ourselves of the service and as contributor to government coffers when it supports a PPP project.
Under any of the build-operate-transfer (BOT) law-variants, concession arrangements and joint ventures, the more popular PPP modalities, private-sector proponents (PSPs) who invest and assume most of the risks must be kept “whole”. Defined by the PPP contract, they should recover what they invest; what they pay for operations; what they obtain as loan from financial institutions, interests included; and what they
remit to government as taxes.
Thus, Manila Water and Maynilad must be able to recover costs pertaining to the acquisition and installation of new sewerage systems. The National Grid Corp. of the Philippines must be able to recoup expenses for the reconstruction of bombed or destroyed transmission towers. San Miguel Corp. and Ayala Corp. must be able to raise revenues to pay for debts incurred for the Naia Expressway and Daang Hari-Slex Link Road, respectively.
In addition to these, depending on the tariff scheme, the PSPs are allowed to earn revenues and make profit. PSPs, unless it is a donation, will not enter into a PPP if they cannot expect or actually yield returns. This is the financial viability requirement of PPP projects.
To be financially viable, there must be a revenue stream. There must be strong and steady “waterfall of cash flows,” wherein all the mentioned items are answered for. To sustain the project and provide the service jointly promised by the parties to a PPP, sufficient funds are needed.
In PPP projects, there are two payors. We pay or government pays. But in reality, there is only one payor. All payments come from us.
For the Naia Expressway, Daang Hari-Slex Road, Cavite-Laguna Expressway, and Bulacan Bulk Water projects and Metro-Manila water concessions, those who use the roads and consume the water, the end-users, pay.
For toll charges, we pay when we enter or exit the tollway. For water, we pay when billed for our monthly consumption.
For the School Infrastructure/Classroom and South Integrated Transport System, the government shall make annual payments from the general appropriations. During the life of said PPP contracts, all taxpayers will shoulder the costs of the projects. In this case, we, indirectly, pay whether we use the facilities or not.
Payments by, or participation of, government also come in another form. When government extends a subsidy, contracts a loan, provides a viability-gap funding, guarantees a project and infuses equity, all Filipinos bear the burden. A portion of our hard-earned income, even without our formal consent, goes to these government
undertakings.
Our support for PPP projects should also be recognized when the government grants a tax holiday, or when a city or province exempts PSPs from paying real-property tax. In these instances, the general public is “deprived” of unrealized revenues. In exchange, we will or should benefit from the service the PPP project is projected to deliver.
We all bear the burden of public service and PPPs. Nothing is free. There are capital and operations costs to all government projects. As direct or indirect payors, we must, therefore, be vigilant. We must know where our money goes. We must constantly inquire if public funds—our funds—are being used for projects that serve the general welfare.
We must demand information about PPP projects, about the necessity and prudency of expenditures, about the margins of PSPs, about key performance indicators, and about the benefits and potential harmful effects of PPP arrangements.
We must, at the minimum, be consulted. Ideally, we should be allowed to witness the whole
selection process and be allowed to vote in the award of the project to a PSP.
We should not be fence sitters. We are stakeholders. We should be part of policy- and
decision-making.
We are affected by these PPP projects. We pay for them. PPP projects must be responsive to the people’s needs and to ensure this, we must hold government officials and their PSP-counterparts responsible
and accountable.
So let us not sit idly by and just let things happen. Let us get up, take a stand for our rights, constructively engage the government, watch over and audit PPP projects.
PPP Learn No. 7
Waterfall of cash flows
The “waterfall of cash flows” shows the hierarchy of revenue distribution and need for a PPP project to be viable so that the revenues of the project can be utilized for all necessary and prudent costs and to provide for a reasonable margin for the PSP.
The Institute for Public-Private Partnerships based in Virginia, USA has aptly depicted this scheme in this illustration: