Sovereign guarantees

Last Monday, the National Economic and Development Authority (NEDA) Board, now chaired by newly installed President Rodrigo Duterte, approved its second batch of infrastructure projects. The NEDA Board, composed by all Cabinet members, approved seven project proposals that have long remained in the pipelines during the previous administration of former President Benigno “Noy” Aquino III.

With the NEDA Board giving the go-signal, these vital infrastructure projects would hopefully be implemented and completed within the six-year watch of President Duterte.

One of the seven approved projects by the NEDA Board included the long pending proposed construction of the New Nayong Pilipino at Entertainment City under the Public Private Partnership (PPP) project.

The six other NEDA Board-approved projects included the scaling up of the Second Cordillera Highlands Agricultural Resources Project (CHARMP2) under the Department of Agriculture; Expansion of the Philippine Rural Development Project; the improvement/widening of General Luis-Kaybiga-Polo Novaliches Road to Valenzuela City; New Cebu International Port; the North-South Railway Project (NSRP)-South Line; and the Malitubog-Maridagao Irrigation Project, Stage 2 under the National Irrigation Authority (NIA).

But only the New Nayong Pilipino project is under the PPP. Its approval was endorsed by the Investment Coordination Committee (ICC) of the NEDA headed by Secretary Ernesto M. Pernia as its director-general. The P1.47-billion PPP project is a tourism-oriented facility. It is envisioned “to be the top-of-mind destination for foreign and local tourists who want to experience what makes our nation and culture unique and more fun.”

According to the PPP Center, this project is a planned cultural theme park of the Department of Tourism (DOT) and Nayong Pilipino Foundation (NPF). Whoever wins the bidding, the private partner will build, operate and maintain the project with a cooperation period of 23 years which includes a three-year construction period. The project seeks to provide “an experiential and creative showcase of the various elements and dimension of the Filipino culture, identities and traditions spanning past and contemporary periods.”?

According to the website of the PPP Center, there are currently 15 awarded projects in the PPP pipeline: with 11 other projects in different stages of procurement; four projects for government approval; one project for evaluation; and three projects with ongoing studies as of Oct. 11, 2016.

The PPP is the centerpiece program of ex-president Aquino to entice investors to go into public infrastructure business. Supposedly, the PPP would help the government – due to lack of resources – veer away from heavy reliance on foreign loans and from official development assistance that, more often than not, are tied-donations.

But more troubling is the reported $2.5 billion worth of “contingent liabilities” incurred by the government from at least nine Aquino-approved PPPs granted with sovereign guarantees.

In simple terms, sovereign guarantees make it certain for investors not only to recoup their investments but also ensure profitability without worry of loss.

Finance Secretary Carlos Dominguez III was quoted earlier saying President Duterte would increase infrastructure spending, targeting around 5% of the country’s gross domestic product. Dominguez vowed the next administration would address bottlenecks in the previous administration’s PPP program. Many of these PPP projects ended up casualties to bidding wars, bureaucratic horrors, and other problems that forced proponents to abandon them.

Biddings for deals to modernize the aging Philippine Orthopedic Center, as well as the construction of an expressway between Taguig City and Los Baños, Laguna, and a flood-control dike, failed during Aquino’s last two years in office. Projects to develop five regional airports, build a modern jail facility, and construct the country’s first subway were also shelved by their implementing agencies.

So when the new administration took over, many of these infrastructure projects that have languished were brought out of the back burner and now lined up under the proposed grant of emergency powers for President Duterte.

Senator Grace Poe, the chairperson of the Senate committee on public services that was tasked to go over the proposed emergency powers, justified their decision to slow down deliberations on this bill. “With the emergency powers, we have to be careful. Because they want to spend P8 trillion, can you imagine how much money that is. I said, we will give it, but we need to put safeguards,” Poe argued.

Poe recalled the last time Congress granted emergency powers to the President to address the energy crisis in the 1990s, the entire country had to pay dearly for the consequences. She is, of course, referring to Electric Power Crisis Act of 1993 under Republic Act 7648 signed into law by former President Fidel V. Ramos (FVR). We, Filipino taxpayers bore the brunt of the consequences of RA 7648 in the amount of trillions of pesos of stranded costs passed on to our monthly electric bills.

The stranded costs represented the payment for government guarantee to entice the independent power producers (IPPs) to invest in power projects. Among other things, RA 7648 granted government guarantee against losses on power project contracts entered into during the period. On top of that, “take-or-pay” were provided for all the power supply they produce in excess even if not consumed.

“Until now, we have one of the most expensive power rates in the world and some people say it’s because of the emergency powers. The government gave so much sovereign guarantees. And who bears the cost of all of these? We all do,” Poe correctly pointed out.

The past experience with the IPPs, and now with these sovereign guarantees given to PPPs make it difficult to convince the 17th Congress to grant emergency powers even as many of them are allies of the four-month old Duterte administration.

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Department of Budget and Management (DBM) Secretary Benjamin Diokno is our guest today at the Kapihan sa Manila Bay at Café Adriatico in Malate, Manila.