A PPP project goes bust

As I was watching ANC’s APEC coverage, there was this news crawler about a PPP project going bust. Totally appropriate that they were talking about what a country should do to be competitive.

I recall the Asia Society head saying earlier in the coverage that more than tariffs or free trade, it is important for countries to make it easy for entrepreneurs, specially the SMEs, to do business. The ease to start and do business is critical in encouraging investors to risk capital in a country. So is consistency of government action.

Lagot na, I told myself. We have been pouring investment incentives for years and wondering why our FDIs remain dismal compared to regional competitors like Vietnam. Early this week, I caught a story quoting Finance Secretary Cesar Purisima saying our economy is doing marvelously even with our relatively low FDIs.

That’s not the attitude I was hoping for. It is like saying we don’t need to do anything more because we are doing well... we don’t have to remove Constitutional restrictions on investments and ease the red tape investors must deal with to start and run a business here.

Indeed, the complexity of government regulations is a big turn off to prospective investors, be they small, medium or large investors. Just getting started means more than a few hundred steps from the barangay to the city/municipality and national agencies.

DTI proudly says they have reduced the steps to register a business and made it possible to do that online. Well and good. But complying with the BIR rules has become more complicated than ever. Even for individual taxpayers, the reporting forms are so daunting to anyone but a tax accountant. Simplification should be a virtue in the bureaucracy if we want to be more than we currently are.

Going back to that PPP project that went bust… how totally ironic it happened on the first day of the APEC business meetings. Megawide, the winner of the project to modernize the orthopedic hospital, got tired of waiting over two years for a signal to go ahead. I remember the PPP Center had been rather proud of that awarded project.

The government awarded the orthopedic hospital project before the land where the new modern hospital will be built was secured. That’s nothing new. In Mactan, DOTC didn’t inform the Philippine Air Force to move out because the new terminal will be built where they are.

The land earmarked for the ortho hospital supposedly belongs to the National Kidney and Transplant Institute. That shouldn’t be a problem because the Secretary of Health is chair of the NKTI Board of Trustees. But it became a problem.

The Health Secretary who signed the PPP contract resigned and the new one wasn’t quite sold on the project. She cited some legal opinion that would make the use of NKTI land for the ortho hospital questionable.

One would think that because PPP is a flagship project of P-Noy, his Cabinet members would all be on the same page. Wrong assumption to make, it turns out. So that’s it… the project is dead and prospective PPP investors will wonder if it is even worthwhile to talk with government on any project.

Private investors have front end costs when they consider a PPP project. Project study costs are quite significant and so are financial closure costs. Abandoning a project is a pretty drastic decision to make, which explains why Megawide waited two years before quitting in frustration.

I bumped into Cosette Canilao, PPP Center head, in a recent social function and I remarked they shouldn’t award half baked projects because it delivers a wrong message. She resented my comment and said the staff works hard to cover all grounds and problems like what happened in Mactan are normal, daw. She said that even ODA projects are awarded before things like right of way issues are resolved.

Two weeks after we talked, this ortho project goes kaput. Ms Canilao explained to me “that piece of property was bought from NHA, together with the NKI land specifically for this project.” So now, she said, they are “preparing a memo for the President and the econ managers on the process, remedies and consequences. It’s up to the DOH how they will move this forward.”

It is so typical of government. The left hand doesn’t know, nor care what the right hand is doing. The President should be orchestrating all these, but we all know he doesn’t. He keeps his hands off until something blows up and even then, he may still do nothing.

That is so unfortunate. Why even waste the staff time of so many capable and dedicated people like Cosette’s PPP Center group, if in the end they will just abandon it?

As for all the talk about supporting SMEs during the APEC business meetings, I got this e-mail from one such SME entrepreneur that speaks for itself.

“President Aquino praised his government for supporting the SMEs and having raised the standard of living of over five million people during his term, all because of SMEs.

“I really can’t understand what he is talking about. We see the opposite. Our laws are such that all the small businesses are at a huge disadvantage today as compared to 20 – 40 years ago.

“In the past, a new enterprise had a better level playing field with the bigger players. Today, you just cannot compete with the bigger boys…

“Example: You want to put up a small hotel or a small commercial building or even a mini mall. You have to pay all the taxes, and import duties and VAT up front for materials that you will use to build and pay higher interest rates for financing of the project.

“For the big boys, they get a) tax exemption for importation of materials because the hotel/building qualifies for PEZA and tourism incentives; b) City hall grants them special privileges such as no real estate taxes for five years; c) lower interest rates (they may likely own the banks as well where they get the funds); d) BIR grants income tax exemption for five years and thereafter a special five percent income tax rate.

“The bigger the project, the more the concessions. So what does the SME have in terms of a level playing field and equal opportunity?

“Even in having our income tax rates adjusted and made more realistic, we have to beg the powers that be to come down to earth and understand the common man’s plight. And yet, big businesses have the privilege of tax exemptions.

“If you are in the retail business and wish to put up a store in a mall, chances of getting a space (good location) is nil… it is reserved for the big boys and foreign brands.

“Just look at our malls now. All the local players are in the upper floors.  Even those who have been in the mall for over 20 years are being moved to upper floors to give way to foreign brands.

“If the government is serious in promoting SME’s, they have to level the playing field. Doesn’t our Constitution provide that everyone should be treated equal? Isn’t the selective incentive a form of discrimination?

“I’m not saying that there have been no local success stories. Those exceptions came about not necessarily because of government support but happened in spite of the lack of it.

“What I’m saying is that if the government really wants to push and promote SME’s, then they need to do things other than talk.

“Even Megawide (a member of the big business club) has thrown the towel and gave up a PPP contract because the government cannot get its act together.

“Thank you for your patience in hearing out my frustrations. You are right, the Philippines has a lot of potential but all of that is going to waste for now.”

Hopefully after this expensive talkfest we hosted this week, the bureaucrats and our high officials who attended it got some good ideas. They have to go beyond the big words, the grand concepts and get some action, if government wants to win some credibility among the people.

Hay naku… umasa pa ako!

Proud moment

It was a proud moment for all of us when Filipino engineer Aisa Mijeno, CEO of SALt (Sustainable Alternative Lighting), shared the APEC stage with President Obama and Alibaba’s Jack Ma. It showed not just world class talent but the heart that beats for those in the bottom of our social pyramid.

No big words, no promises of long term benefits, just a simple workable solution to an everyday problem in our hinterlands available now… lighting. I thought the spotlight on Aisa made our hosting of APEC worthwhile.

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