Government cautioned against PPP saturation point

MANILA, Philippines - The Hongkong and Shanghai Banking Corp. (HSBC) has cautioned the Aquino administration against the saturation of major infrastructure projects with the launch of the public private partnership (PPP) program.

HSBC economist Joseph Incalcaterra said the government should continue to lay down the framework for the launch of major infrastructure projects under the PPP scheme to avoid reaching a saturation point.

“I am confident that PPP projects would be a good source of infrastructure growth,  but maybe one of the downside risks I see is that you get saturation point in infrastructure,” he said.

According to him, the government should be consistently congnizant the PPP pipeline should remain robust as infrastructure projects are major sources of potential growth for the country.

However, he explained the government should make sure the launch of these projects are timed properly to ensure the steady flow of funds from potential private sector partners. “It goes to a point wherein there are too many projects going on at the same time that the absorption capacity to carry forward these projects can be an issue on the government spending,” he added.

The Aquino administration is pushing to increase infrastructure spending to $18 billion or at least five percent of gross domestic product (GDP) by 2016 from $4 billion or 1.9 percent of GDP in 2011.

It has so far awarded 10 projects worth P189 after a slow start in the roll out of projects in 2010. These include the P64.9 billion Light Rail Transit line -1 Cavite extension; the P55.5 billion Cavite – Laguna Expressway; the P17.52 billion Mactan – Cebu International Airport passenger terminal building; the P15.8 billion Ninoy Aquino International Airport expressway; the P8.7 billion modernization of the Philippine Orthopedic Center; the P16.4 billion PPP for school infrastructure project (PSIP) phase 1; the P3.86 billion PSIP phase 2; the P2.5 billion integrated transport system – Southwest terminal’ P2 billion Muntinlupa – Cavite Expressway (formerly Daang Hari-SLEX link road project); and the P1.72 billion automated fare collection system.

“The government has to maintain the benefit of the PPP structure is that it is not just the government doing the heavy lifting with its expenditures. You also have the private sector tasked to raise more funds and also be equal partners pushing those infrastructure,” Incalcaterra said.

Incalatera said the Bangko Sentral ng Pilipinas (BSP) has approved an additional 25-percent single borrowers limit for companies involved in PPP projects.

“The BSP is confident this is working and is not creating any financial risks because this is clearly going to infrastructure. I think the BSP will ensure these funds are available to go to infrastructure projects,” he said.