Time to revisit PPP
BIZLINKS - Rey Gamboa (The Philippine Star) - September 13, 2018 - 12:00am

It’s time to give public-private partnership (PPP) projects a bigger push.

The government has had enough time to be able to put its act together and get the ambitious P8-trillion Build Build Build (BBB) infrastructure projects up and going.

Unfortunately, over the last 24 months, nothing much has happened to appease people’s growing impatience about traffic, the airport mess, floods, and overcrowded seaports.

Rubbing salt into the wound, the tax reform regime ushered in by the TRAIN Law has unleashed inflation that has driven fuel and food prices to rise to levels that Filipinos had not seen for a long, long time.

When the current government’s economic team announced in 2016 that it would favor official development assistance (ODA) financing for the 75 flagship projects identified under BBB instead of going the public-private partnerships route, business held its peace.

Pros and cons of ODAs

The argument for ODAs was the low interest rate (as soft as 0.1 percent per annum), and an extended period of repayment (as long of 30 years with a grace period of 10-12 years). Now who could argue against at?

There was small talk about the risks of relying on ODAs for the BBB, given its magnitude, foremost being the flaring up once again of big-time corruption between government officials and contracting parties, both foreign and local.

Other concerns centered on the government’s ability to move big projects, taking into consideration the normal problems associated with bureaucratic approvals from the national government level down to the local government level, and in clearing right of way disputes.

Still, people believed that the newly elected government could muster the necessary muscle to smoothen bureaucratic creases, come up with counterpart funding for ODAs, and keep a tight lid on corruption.

Pros and cons on PPPs

The aversion of the current economic team on PPPs, on the other hand, has been mainly because of costs. Loans drawn by private contractors for projects that are given the green light by government planners usually come with stiffer commercial interest rates.

On the other hand, the private sector contractors are more efficient in getting projects off the ground, and completed sometimes even ahead of schedule. Corruption is also limited because of tighter financial controls by companies and their debtors.

The government also does not need to allocate precious taxpayers’ money on PPP projects, and the build-operate-transfer scheme that comes with PPP projects allow for a more equitable taxation scheme, i.e., those who benefit from the projects are the ones who ultimately pay for them.

Looming threats

The ODA route is not going as well as planned, causing massive delays in the start-up of many BBB flagship projects. To date, you can count with your fingers the number of projects that have actually started; and there is talk that more will be delayed.

A big part of the problem has been linked to the slow processing of ODAs from China, which unfortunately, is expected to finance a large number of the BBB projects.

Recently, the Chinese ODA in many developing countries regarded as integral to the country’s Belt Road Initiative has been criticized as predatory, particularly because of poor financial planning and high interest rates.

Other threats shaping up, though, are the weakening effect of inflation on the economy and the continuing increase in fiscal spending. The peso is now also one of the worst performing currencies in the region, and this is adding pressure for foreign investors to seek other markets.

Thankfully, ODA funds from Japan are coming in at a faster pace, although this is way below what BBB needs. Among the big ticket items that have started are the Malolos-Clark Railway Project, the PNR South Commuter and South Longhaul project, and the highly anticipated Metro Manila Subway Project Phase I.

More projects need to take off, and this is why the PPP route, and not just its hybrid version, must be reconsidered and given more importance.

Private sector initiatives

There are so many infrastructure projects that Filipinos, especially those in Metro Manila and its suburbs, want to see started or completed. Apart from the much-needed repairs and upgrades on the existing elevated trains, new lines like the underground subway that will run from Quezon City to Taguig City are most welcome.

The Department of Transportation must be able to sort out its current paralysis of not being able to facilitate the start-up or completion of a number of big projects because of right of way issues. Point in case is the much-delayed Metro Manila Skyway Stage 3 project.

There are several good examples of PPP projects that need to be given more importance. San Miguel Corp.’s four-runway airport complex in Bulacan, north of the metro, is one. It can be completed in six years, and can handle 100 million passengers a year.

Let’s face it, we need a new air gateway for Metro Manila that can handle more flights well into the future, something that the existing NAIA international terminals will be hard put to deliver no matter how much more money is spent to upgrade it.

The expansion of the existing Clark International Airport will also not be enough, for the simple reason that it will serve only an additional eight million passengers every year. NAIA is already bursting at the seams, taking in 45 million passengers a year when its full capacity is only at 32 million.

The Philippines has a healthy private sector, one that is willing to invest in the country. Let’s not dampen this initiative.

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Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net.

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