Think-tank urges government to review potential risks in PPP projects

MANILA, Philippines - A private think tank is calling on government to review 50 potential risks in Public-Private Partnership (PPP) projects to avoid unreasonably high tariffs, finger-pointing, congressional probes and other possible obstacles in the future.

Forensic Law and Policy Strategies (Forensic Solutions) said such an exhaustive and complete risk assessment should include corruption risks arising from public officials getting bribes or favors; environmental risks concerning the project’s impact on the ecology; foreign exchange fluctuations and inflation surges; legislative risks brought about by new laws affecting the project; taxation risks arising from revisions in taxation laws and revenue rules; and succession risks brought about by change of policies by the next administration.

Former Justice Secretary Alberto Agra, who heads Forensic Solutions, said “no PPP project must be opened for private sector participation without doing a risk assessment,” which is “an integral and indispensable part of any feasibility study of a PPP project, especially project-finance based PPP like build-operate-transfer (BOT) mode, joint ventures, and concessions.”

Agra said this risk assessment process should also cover force majeure risks and weather risks causing project disruptions attributable to erratic weather patterns; economic risks resulting in a drop in revenues or project financiers suddenly pulling out; social or protester risks involving the opposition of certain host communities to projects; market competition risks that could  erode the potential gains of the project; and credit risks induced by the possible default of the debtor or when the lenders or sponsors are not credit-worthy.

“If the relevant risks are not addressed and properly assigned to the party who can best manage and control the risks, one can expect high or unreasonable tariffs, an unaffordable PPP project, delay, failure, finger-pointing, penalties, defaults, litigation, congressional investigations, lost of confidence, and distrust,” he said.

From an initial list of over 100 projects, the Aquino administration said five of these PPP projects will be auctioned off in a month’s time. 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.

Agra pointed out that contrary to what the public had expected, the light railway projects, which are the first two PPPs of the Aquino administration, would not be implemented via the BOT mode that it had been espousing, but through four-year service contracts where funding will be drawn exclusively from the government.

He explained that unlike in BOT contracts where there is considerable funding and assumption of risks on the part of the private sector, winning bidders in service contracts perform the service for the least cost.

In BOT schemes, the private sector’s payment are to be taken from and linked with the tariffs, while in service contracts, the government assumes the risks in the funding aspect, Agra said.