ODA vs PPP

As Deng Xiaoping wisely observed, it doesn’t matter if a cat is black or white so long as it catches mice. As I listened to the presentations at a Management Association of the Philippines meeting on ODA vs PPP, I felt exactly the same way. It shouldn’t matter so long as the people get their long awaited infrastructure projects soonest.

The biggest justification for PPP is the length of time it takes government to execute projects. There are the usual excuses of strict procurement rules and the technical deficit of bureaucrats. There is also the intrusion of politics in conceptualization and awarding of projects. Lack of money is no longer a problem, or so they tell us.

As one astute observer puts it: “My take on the PPP and ODA issue is that the overriding problem is poor implementation and execution due to corrupt/incompetent bureaucracy. They persist despite all the changes in political leaders.”

More politely, the big thing going for PPP is the ability to tap private sector resources for public good. There is so much liquidity in the local financial market that it makes little sense to borrow large sums of money from foreign sources including ODA, add to the national debt load and take foreign exchange risk in the process.

There is also the greater efficiency of the private sector in building and operating infrastructure projects. Private sector investors in infra must deliver service to recover their investments. If NAIA was privately managed, it wouldn’t take months to procure new air conditioning units unlike under government management.

Let me cite a personal experience in Mactan Cebu International Airport last Sunday. My flight back to Manila was delayed by over an hour and it seems so were many other flights of both PAL and CebPac. The waiting areas in the terminal were packed with so many warm bodies the air conditioning system is proving inadequate.

I sent a text message to an official of Megawide. He immediately replied they have actually added more air con units already and ordered some more.

Indeed, he said, the first cooling coil was installed in the North Wing that covers the CebPac area last Friday evening. The next coil is being delivered and installed this week. The next two coils to cover South Wing will be installed in two weeks as these are being fabricated in Manila. Another four coils will be installed by July 7th to cover all check-in and 70 percent of boarding gates.

In fact, he pointed out, they started rehabilitating Terminal 1 as soon as they took over in November 2014 even if under the contract, they are not supposed to improve the old terminal until after the new terminal is operational. The private operator wants to avoid a reputation risk arising from the old terminal’s inadequate facilities.

Mactan T1 is operating beyond its design capacity of 4.5 million passengers. Last year they handled 8.9 million passengers and are expecting to handle 10 million this year. The new terminal will be completed a year from now.

Compare that kind of proactive management of Mactan Cebu with NAIA and the advantage of PPP becomes very obvious. Remember how P-Noy’s cousin running NAIA didn’t even know maintenance of back up generator units is necessary until a disastrous power blackout happened.

Megawide hired an experienced airport manager, one who has worked at the JFK in New York and other international airports. If he fumbled the way the last NAIA manager who is close to P-Noy did, he would have been fired right away.

What bothered me with the presentation of a NEDA official at the MAP meeting was the amount of intellectual dishonesty in an attempt to present ODA in a better light than PPP. Undersecretary Rolando Tungpalan repeated what he previously said to a BusinessWorld reporter and cited examples of PPP problems without admitting that it was government’s faults that caused those problems.

“The Daang Hari-South Luzon Expressway (SLEX) link, there was a cost overrun of over P300 million that the government absorbed and the NAIA 2 expressway tollway, the government incurred an (additional) cost of about P2.5 billion,” Tungpalan told BusinessWorld and the MAP meeting too.

The Daang Hari link was actually haphazardly awarded to the Ayala Group in December 2011. It was targeted for completion in June 2014. It opened to the public in July 2015. The Aquino economic managers were eager to have an easy project to complete and PNCC had already more than half completed the project.

But DPWH failed to properly coordinate with SLEX and some right of way issues with the Villar group. Of course SLEX sought TRB intervention because it didn’t want to lose one lane to allow Daang Hari to merge into SLEX. It required a redesign which took time and cost overrun of over P200 million.

The other project Tungpalan cited to show PPP projects can have delays and cost overruns is the P17.9-billion Ninoy Aquino International Airport (NAIA) Expressway concession of San Miguel Corp. with construction done by DMCI starting in July 2013. The second phase was opened to motorists in September 2016 after construction started in January 2014.

Tungpalan said the NAIA Expressway had delays and significant cost overruns absorbed by government. He didn’t say that the delay was caused by government agencies (the Air Force and LRTA) which refused to give right of way.

The original alignment had to be changed, causing delays and additional cost, amounting to P2.5 billion. That is not due to the project being a PPP, but due to poor DPWH planning of the alignment. San Miguel paid P11 billion for the right to do the project so government had more than enough to compensate for their bureaucratic mistakes.

Indeed, there are also pretty bad cases of ODA going over budget the NEDA official should have acknowledged. Reacting to the BW’s interview with NEDA’s Tungpalan, PPP Center head Ferdinand Pecson cited the ex-post evaluation done by Japan Bank for International Cooperation on the Japan ODA funded SCTEX project:

“The originally estimated project cost at appraisal was 49.33 billion yen, of which the total Japanese ODA loan was 41.931 billion yen. During the project implementation, the supplemental loan was provided, and the newly estimated cost became 82.166 billion yen, of which the Japanese ODA loan was 59.037 billion yen.

“The actual project cost was 71.734 billion yen and the Japanese ODA loan disbursed was 58.138 billion yen. The actual project cost was higher than the planned cost, which is equivalent to 145 percent of the planned cost.

“However, if the foreign exchange rate (1 peso is 2.4 yen) at the appraisal stage and the average rate (1 peso is 1.95 yen) during the implementation, which covers about 75 percent of the project cost, are taken into account, yen appreciated by about 20 percent. It is considered that the project cost was higher than planned by about 100 percent in Philippine peso.”

Thus, Pecson rightly pointed out, it cannot be said PPP projects by default have a higher risk of cost overruns than ODA funded projects.

So the question shouldn’t be whether it is ODA or PPP. Rather, it is who can deliver the services faster and more efficiently, government or the private sector? For government to relegate more PPPs to the back burner as the NEDA official announced, may even result in a failure to deliver on a very ambitious Build Build Build program.

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