The ICC Review and Evaluation Process

In our last article, we said that the NEDA ICC (Investment Coordinating Committee) has very specific guidelines and procedures in project evaluation designed to ensure the country gets the best economic gain of our meager resources. For the country to prosper, everything that we do should be for economic gain and not economic loss. This does not simply mean increases in money but really the accruing of social and economic benefits for the people, in how they live and improve their standard of living.

Big-ticket projects proposed and funded by internal generation (taxes), Official Development Assistance (ODA), or by the private sector through PPP, need to ensure substantial economic benefits and that’s why there is a certain metric to be “hurdled.” We should also keep in mind the primary difference between economic benefits versus financial benefits. The latter refers to profitability and is the concern of money-generating endeavors, usually by the private sector (through PPP), and by some government-owned and controlled corporations. Economic feasibility is the government’s concern.

The NEDA-ICC technical review process doesn’t actually refer to the decisions on a project’s specific technical viability or preferability – these are determined by the agencies concerned. The ICC review refers to the holistic screening of all projects under its jurisdiction, competing for limited resources. That’s why there is a hurdle rate, which is an economic internal rate of return (EIRR) of 10%, scaled down in 2017 from the previous 15%. That’s the passing rate. On the financial side, the financial internal rate of return should be more than the weighted average cost of capital. But this refers to revenue-generating projects only, not used projects intended entirely for economic gain.

What does this mean? It means projects actually compete among themselves within a sector and agency and against different sectors and agencies. To achieve balance, economic investments are of course co-related so that no one sector or agency would be left behind. But the ICC review does not look only at whether or not a project passes the hurdle rate, it also considers as one of the factors, the marks themselves in deciding which of two projects to approve, in cases where the available financing is limited to only one.

This is also the main reason why projects may not be changed also in the middle of the game – if you change the scope or cost, you need to recompute the EIRR because this might fail against the hurdle rate. In the case of the Cebu Bus Rapid Transit before, the NEDA-ICC re-evaluated it when the cost was increased from P10B to P16B because a new law changed how the right-of-way is priced. Fortunately, it passed. The ICC Guidelines and Procedures dictates review and approval of ongoing ICC-approved programs/projects involving changes in scope; change in cost above established sensitivity parameters and budgetary allocation relative to original or prior ICC approval. Not to mention getting the ODA funding agencies to agree and approve, too, in cases involving foreign loans. (To be continued)