Picking up the pace in infrastructure development

MANILA, Philippines - With an infrastructure gap that threatens to slow down the country’s economic growth, the business community is rife with talks of accelerating the roll out of vital structures that will support progress and improve the living standards of Filipinos.

Infrastructure development in the country has not kept pace with an economy growing around six percent every year. This is reflected in the rush hour hell experienced daily by most Metro Manila workers who endure long queues and a sweaty crush in the capital’s dilapidated train system and motorists who frequently get stuck in epic traffic jams.

So decrepit is the state of Philippine infrastructure that the country currently ranks 90th among 140 economies surveyed in the 2015-2016 Global Competitiveness Report by the World Economic Forum in the adequacy of infrastructure. The country’s ranking in infra also pales in comparison to those of neighboring ASEAN nations. Malaysia ranked 18th, Thailand 32nd and Indonesia 37th.

Pernia and Palacios

The  Asian Development Bank (ADB) estimates that between 2010 and 2020, the Philippines needs to invest $127 billion in infrastructure to stave off an infrastructure crisis that would be an offshoot of growing population and rising incomes.

Banking on PPP

The Duterte administration — which has signified early on that it would build on the gains of the previous administration— promises to pick up the pace of the public-private partnership (PPP) program by streamlining the approvals process and opening its doors to more unsolicited proposals under the PPP scheme, therefore maximizing the expertise of the private sector and freeing up government funds for other use.

The PPP program, launched by the Aquino administration in 2010, aims to attract more private sector investments in public infrastructure through competitive bidding.

In the five years of implementation, however, it went through terrible birth pains, with slow project approvals and several failed biddings, resulting in only 14 projects being awarded out of the 53 in the pipeline. Cited as bottlenecks were the enormous sizes of the projects and legal impediments.

Socio-economic Planning Secretary Ernesto Pernia has said the Duterte administration wants to attain tangible results within the first 100 days of governance by laying down a national budget 30 days after the President’s first  State of the Nation Address (SONA) on July 25 and putting in place mechanisms for shortening the approvals process for projects in the PPP pipeline.

He noted the average time it took to implement the 12 projects under the PPP scheme in the past six years was 29 months. This, he said, can be whittled down to between 18 to 20 months.

PPP Center executive director Andre Palacios said discussions are now ongoing at NEDA, its parent agency, on the streamlining of the approval process at the ICC level where projects tend to stagnate.

“We already have a streamlined ICC approval process but what we need to do is to streamline it further because it is in the ICC level where the technical issues are threshed out,” he said. “But we also need to strengthen the streamlined process to keep the integrity of the projects.”

Under the new administration, unsolicited proposals for infrastructure projects under the PPP scheme — or those proposed by the private sector to the government — would also be given equal treatment in the review process as solicited ones. The Aquino administration shied away from such projects because of legal ramifications, preferring instead to pursue infra projects studied on its own.

Finance Secretary Carlos Dominguez has said the execution of the PPP program would be reviewed to accommodate more unsolicited proposals, especially those that would help ease Metro Manila traffic.

Palacios believes this would not be a problem for the program as the Build-Operate-Transfer (BOT) Law provides for unsolicited proposals but noted that agencies endorsing such proposals must carefully review those.

There was a preference for solicited proposals under the previous administration. Under the current administration, there is no bias for or against unsolicited proposals,” he said. “These would be given the same amount of attention in the review process.”

Among the unsolicited proposals having difficulty getting past the procurement process is the North Luzon Expressway and South Luzon Expressway Connector Road, of Metro Pacific Group which would be subjected to a Swiss challenge this month.

A new unsolicited proposal, in fact, was lodged at the technical working group (TWG) of the Investment Coordination Committee (ICC) on July 5, the first for the new administration. The proposal of East West Rail Corp and Alloy MTD Group to build and operate for 30 years a nine-kilometer, 11-station elevated Light Rail Transit (LRT) line that would traverse Diliman, Quezon City to Lerma, Manila was endorsed by the Philippine National Railways (PNR).

The proposal would be reviewed for 15 days from the date of submission after which the proposal would be forwarded to the cabinet-level ICC for approval. The committee would convene on Aug. 2.

The ICC-TWG is composed of the National Economic and Development Authority (NEDA) Secretariat, the Department of Finance (DOF), Department of Environment and Natural Resources-Environment Management Bureau (DENR-EMB) and the PPP Center undertakes specific aspects of the appraisal of a proposed PPP projects. These cover socio-economic appraisal, financial appraisal and risk allocation evaluation, environmental appraisal, commercial viability and bankability and value for money analysis, as well as legal and institutional appraisal.

Palacios thus enjoins government agencies to review unsolicited proposals with tact.

“On our part, we are reaching out to agencies to strengthen their capacities to evaluate unsolicited proposals to determine if it meets the criteria of the law. In the past administration, agencies were not too familiar with unsolicited proposals so we need to help one another,” he said.

The government is determined to complete by 2017 the procurement of around 17 stalled PPP projects collectively valued at $580 billion. Many of these projects still lack the requisite approval of the National Economic and Development Authority (NEDA) Board while some that have made it to the auction stage were snubbed by bidders and sent back to the drawing board. These comprise airports, seaports, dams and dikes among others.

Palacios said the PPP program “requires strong and sustained political support” across several administrations as most projects would be operating between a period of 25 to 30 years under the BOT law.

With the experience gained by the center in the previous administration, he believes the government can easily iron-out snags in the program.

“We have sufficient experience in the procurement and implementation of these projects so we now have a basis for policy reforms that will fully enhance the program,” he said.

Economic managers have also said that awarded contracts would be respected so as not to derail the implementation of the projects.

Agenda outside infra

Infrastructure may be the hottest topic tied to development but not to be overlooked are other items in the economic agenda which the new administration is pursuing at a more deliberate pace.

To recall, the 10-point economic agenda comprises the following: continuance and maintenance of current macroeconomic, fiscal, monetary, and trade policies; institution of a progressive tax reform and a more effective tax collection; increasing the competitiveness of businesses and improving the ease of doing business; accelerating annual infrastructure spending; promoting rural development; ensuring security of land tenure to encourage investments; investing in human capital development; promoting science and technology; improving social protection, as well as strengthening the implementation of the Responsible Parenthood and Reproductive Health Law.

Economic managers expect the Philippine economy to grow by six percent to seven percent this year; by 6.5 to 7.5 percent in 2017; and by seven to eight percent in 2022.

Among the other policy issues raised recently is the provision of greater support for rural and regional development to reflect the poverty-and-inequality-reducing components of the economic plan.

Pernia said the economic agenda of the administration would build on the gains of the past administration but would deviate in such a way that macroeconomy would not be its sole focus.

“The theme of our economic program is poverty-and-inequality reducing economic growth. It is clearer than just saying inclusive growth and so that is what we are trying to achieve,” he said.

The current administration is inheriting a country experiencing strong economic growth with sound macroeconomic fundamentals, the benefits of which are not felt by the poor.

“Of course we give credit to the achievement of the previous administration. It has done a lot of good in terms of the macroeconomy. We will continue the good macroeconomic policies but at the same time, we would like to make a big push towards regional and rural development which I think was not given much emphasis in the previous administration,” said Pernia.

“Given that many of us in the Cabinet are from Visayas and Mindanao, we are going to make that push for investments in Visayas and Mindanao,” he added.

Dominguez has said Mindanao has a potential to be a “major food basket” with the right investment infrastructure. Davao City, the hometown of President Duterte has also been receiving a lot of attention, causing businesses to “boom.”

Manila-based Asian Development Bank (ADB) is heeding this call and is preparing $770 million in additional loans to the Philippines this year. The multilateral lending institution is giving high priority to peace and development projects in Mindanao through the rehabilitation of roads; promotion of small-and-medium-sized enterprises; and capacity building in local government units. It is already collaborating with the Mindanao Development Authority and other regional development agencies for these endeavors. 

In the first half of 2016, the development bank approved $583 million worth of loans for various projects covering conditional cash transfers, water transmission improvement in Metro Manila and surrounding areas, as well as water supply development in municipalities.

Pernia said the administration is keen on reducing by one percent to 1.5 percent annually in the next six years the present poverty rate of 26 percent. He noted that the poverty rate has only decreased minimally from a rate of over 30 percent in the 1990s because not enough attention was given to the development of human capital.

“The reason for that is we always focused on economic growth and not on the labor supply side and the population side,” he said.

Speaking of population, the socieconomic planning chief is strongly batting for the faster and more effective implementation of the Reproductive Health Law and bridging the gap in healthcare and education.

Pernia, an economist whose area of expertise include development economics, demographic economics, human resource development, health and education and regional economic cooperation, said the existing TROs on several provisions of the law should be immediately lifted because the country cannot reap demographic dividends in the future if Filipino women today continue to be restrained by economic and social complications brought about by early and unplanned pregnancies.

Two TROs have so far been imposed on provisions of the RH Law by the Supreme Court last year. The first is the TRO on the use of subdermal implants which effectively prohibits the DOH from procuring, promoting, distributing and administering the contraceptives.

Subdermal contraceptive implants facilitate the delivery of the hormone progestin steroid from capsules or rods placed under the skin.

Another TRO prohibits the Food and Drugs Administration (FDA) to renew licenses and to issue licenses for the sale of all family planning commodities and devices by the government and the private sector.

The United Nations Population Fund (UNFPA) has said that despite its young population, the Philippines is still decades away from realizing demographic dividends as its youth, young women especially, are still deprived of access to family planning tools, full education, and gainful employment.

Demographic dividend occurs when a country’s working age population is larger than the population that is dependent and younger. But to maximize the dividend, countries must ensure their young working-age populations are able to seize work opportunities and other income generating opportunities.

A study conducted by UNFPA, states that unlike most of its Southeast and east Asian neighbors, the Philippines failed to achieve a proper demographic transition, defined as a change from a situation of high fertility and high mortality to a situation of low fertility and low mortality.

Investments critical to helping the youth are those that protect rights, reproductive right included. Others are improvement of health and gaining of skills and knowledge. Assuming all of these conditions are met, the Philippines would be able to reap demographic dividends by 2050.