Local think-tank worried over government ability to bid out PPP projects

MANILA, Philippines - A prominent think-tank is backing President Aquino’s aggressive push for the Public-Private Partnership (PPP) program to fund big-ticket infrastructure projects, but raised concerns on whether Malacañang had done its homework well to ensure their viability and attractiveness to the private sector.

In a policy paper, Forensic Law and Policy Strategies Inc. (Forensic Solutions) said Malacanang’s initial list of PPP projects should have gone through an 11-point assessment stage to determine whether the government would get better value for its money and whether the projects would lead to better quality public service and more affordable prices and tariffs.

From an initial list of over 100 projects, the Aquino administration expects to bid out five of these PPP projects this March to June. These are the P6.3-billion Metro Rail Transit Line 3, the P7.7-billion Light Railway Transit Line 1, the P1.6-billion Daang Hari-South Luzon Expressway link road, the P10.6-billion Ninoy Aquino International Airport Expressway Phase 2, and the P21-billion North Luzon Expressway-South Luzon Expressway connector road.

According to former Justice Secretary and Solicitor General Alberto Agra, who heads Forensic Solutions, the public has the right to be informed about the policy choices that the government has made to come up with its list of PPP projects.

“PPP is not the only solution. PPP is not the magic bullet. It involves a wide range of difficult choices, and so far, the public has yet to know if real policy choices have been made and what the reasons supporting these decisions were, if there are any,” Agra said.

He said the government, through the National Economic and Development Authority, should have conducted a needs analysis which defines government’s goal relative to each of the five priority projects, outputs of the service, and standards to be met; and an affordability assessment, which identifies the current cost to government of providing the service, capacity of the government to run the service, and impact of proposed project on user fees or tariffs.

Besides these studies, Agra said the government should also carry out a value-for money-assessment, which justifies PPP over public sector initiative based on cost estimates using net present value approach if undertaken via PPP or public provision on risk-adjusted basis; and a preliminary risk assessment, which determines the risks that will be transferred, shared or retained by the public section, the value of each risk, and the capacity of the private stakeholders to manage and control the risks that will be shared or transferred to them.

Agra said the government should also undertake a stakeholder assessment, which identifies the stakeholders, supporters and oppositors to each of the PPP project and securing their feedback on the project; an institutional and human resources assessment to provide a plan to absorb employees of the public sector if needed, and creation of special purpose vehicles or asset holding companies; and a bankability assessment, requiring long-term investments, private financing, guarantees, subsidies, incentives , and security for cash flow.

The following studies are also necessary a legal viability assessment, which lists all legal and governmental requirements, PPP options and authorities of public units involved; market testing, which assesses the potential field of qualified bidders, domestic and international, their interests and appetite; a PPP option recommendation, to find out the best or appropriate PPP option — whether build-operate-transfer or any of its variants, joint venture, concession, lease, service contract, management contract or disposition, among others; and an indicative transaction implementation plan, which spells out the procurement process, and detailed implementation plan.

Agra said that carrying out this 11-point evaluation will clearly show what decisions were made by the government in connection with the PPP and will determine whether each flagship program is “founded on solid fundamentals, and not just hype.”

“The Philippine PPP policy should not promote partnership for mere partnership sake. Any PPP Project should be driven by two simple standards, “more” and “better:” Better quality public service, more affordable prices and tariffs, and better value for money for government,” Agra said.