The partnership in PPP

The rather ambitious infrastructure rollout goals of the Duterte administration will hardly be possible without investments from the private sector. Even the very bullish Budget Secretary Ben Diokno realizes his dream of a Golden Age of Infrastructure requires a very vigorous implementation of the PPP program.

Officials of the past administration couldn’t make up their minds what it wanted to do with PPP. They launched the PPP program in a very grand manner during the first month of the Aquino watch. But the roll out of projects quickly slowed down. Press release lang pala!

The first PPP Center head resigned a few months after the big launch, frustrated with the response he was getting from senior bureaucrats, including cabinet members. His successor, Cosette Canilao, an experienced investment banker, bravely fought her battles but also ended up frustrated enough to quit a few months before the end of the Aquino watch.

Many in the private sector who took official pronouncements at face value soon found the going very rough in their effort to bag PPP projects. In a conference of the construction industry the other week, they commonly complained government bureaucrats forgot the “partnership” in the public-private partnership concept.

One complaint aired: “there is a mindset to control the private sector’s actions, which actually assumes bad faith, in spite of the fact the private sector is putting up all the money and so far, the winning bidders for PPP projects have been the most reputable firms in the country. The government is not treating the private sector as a partner and, in the process, it is unnecessarily complicating the concession agreements.”

Thus, there is this tendency of bureaucrats to enumerate in the concession agreement all the activities that the private sector is obligated to do, the procedures that should be followed and impose corresponding penal provisions. This results “in tedious and convoluted agreements that, at times, border on the ridiculous.”

Example cited: “enumeration of 35 events of default for the concessionaire, including when certain reports are delayed. There is also a list of 25 performance standards for operations and maintenance, with penal provisions of up to tens of thousands of pesos, including when there are more than four accidents in a week.”

A reactor in the conference observed “the problem is, the government is treating PPP projects as ordinary government-funded projects and is applying the same tedious rules, even if it is the private sector that is providing the funds. PPP concessionaires are treated as if they are contractors, but they are actually partners with whom government shares many common objectives.”

Bureaucrats, it was suggested, should draft contracts based on fairness and balance. It will result in simpler negotiations. Government should maintain complete transparency in dealing with all bidders rather than wasting time on protracted one-on-one meetings with bidders simply because bureaucrats do not want the bidders to know the objections raised by other bidders.

It is also not fair, a contractor pointed out, to ask the private sector to bid for a project, to win the bid and then be required to still seek some form of operational permit or franchise from regulators. The regulator should be involved in the bidding process so that when the winning bidder signs the agreement, the regulatory permit is also granted as part of the agreement or as a separate document signed at the same time.

The point was raised that the average time from publication of bid notice to award is 29 months and there is a target to reduce this to 20 months, which is still too long. It was recalled the privatization of MWSS was one of the biggest and most complicated in the entire world, but took only 10 months from bid notice to award. It was also hailed as one of the most transparent.

The proposed amendments to the PPP Law should make the program more responsive to problems we now know through actual experience. Some suggested revisions I heard in my conversations with the industry include:

If a project is considered of national significance to qualify for PPP, there should be automatic approval of national and local permits conditioned on submission of relevant documents. This will supposedly cut three to four steps from things proponents have to do after award. Cutting red tape will facilitate executing and delivering the projects.

If already approved by the NEDA Board, the boards of attached agencies should have no more power to pose any opposition in the bidding and implementation of projects. Right now, it was observed that the boards of MWSS, LRTA and PPA among others are opposing biddings of already approved projects.

What’s not in the current PPP Law, but could be a game changer in the execution and delivery of projects, is to provide for only one government agency to do procurements for PPP projects and will only hand over the project to implementing agencies once construction and commissioning are done.

The Procurement Bids and Awards Committee for the projects will be composed of the involved agencies and chaired by the PPP Center and co-chaired by the implementing agency. This should help respond to the problems often blamed on the Procurement Act.

Bureaucrats often forget that the private sector is spending millions of dollars just in the preparation of the bid offers. Indeed, government should be more careful in the choice of technical and engineering consultants.

Experience showed the quality of consultants hired by government has been subpar. They often make serious technical errors that have material financial implications. When this happens, the whole process is delayed because each bidder has to conduct a duplicate technical due diligence instead of having the government consultant do it once.  

Congress is considering a revision to the PPP Law. Sen. Win Gatchalian is proposing a super PPP Center and it looks like the senator is right on track. Of course, the entrenched bureaucrats in NEDA and the various implementing agencies do not like losing turf.

But giving the PPP Center more power is unavoidable if we want to drum up more interest in PPP and realize that Golden Age of Infrastructure the Duterte administration is dreaming of. Bureaucrats who benefit from ODA and direct budget funded infra projects must be made to see the light in the interest of the nation.

The key thing to remember is the word PARTNERSHIP in the PPP concept.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco