Commentary: Local PPPs as infrastructure driver amid pandemic

MANILA, Philippines —The coronavirus disease-2019 (COVID-19) pandemic has revealed the vital role of local government units (LGUs) in meeting the challenges of national importance. From acquiring medical equipment to cash assistance distribution, provinces, cities, and municipalities continue to aid the national government in carrying out various response and relief interventions. As Malacañang looks to jumpstart economic recovery from the outbreak's devastation, it can similarly rely on local agencies to step up on the colossal task of infrastructure building.

As discussed in the first part of this series, public-private partnerships (PPPs) are particularly appealing now that an increasing share of government budget is being reallocated for COVID-19 and related services. Indeed, the standard benefits of PPPs apply to local projects just as they do to national ones. With fair and competitive bidding as well as a favorable value-for-money assessment of the PPP approach, both parties stand to gain from the private sector taking on a variety of project risks and supplying its capital, expertise, and technology. 

Local-level PPPs come with a host of other benefits too. In this article, we shed light on specific reasons that LGUs are well-positioned and should therefore be urged to participate in PPPs alongside national agencies and government-owned or -controlled corporations (GOCCs). A slew of advantages also await private parties that choose to invest locally.

Go local

Even as the government has made infrastructure a focal point of its development strategy and has set aside significant resources to shore up its massive ‘Build, Build, Build’ agenda, we cannot depend on the national government alone to build out all the infrastructure that is needed. Small-scale projects such as local hospitals, post-harvest facilities, public markets, and housing facilities may be too small for national level agencies to prioritize yet are urgently needed by localities today. This is especially true amid the present pandemic, when many national agencies are not only streamlining their budgets, but are primarily focused on planning for the “new normal."

Second, LGUs often own or have rights to key assets within their respective jurisdictions, making them the appropriate and ideal state counterparty for local projects. These assets include not only the existing hard infrastructure, but also the land and water on which they sit. Considering that right-of-way issues are one of the most common sources of project delays, working with LGUs that either already own a bulk of land or have the ability to expedite administrative undertaking in its acquisition, can help investors avoid bottlenecks. Relatedly, the power to amend zoning and land use regulations for projects to proceed is also in the hands of local governing bodies.

Third, the onus to manage solid waste, source and supply affordable water, implement health safety measures, provide low-cost housing, and oversee local transportation, among other responsibilities, rests on local leaders, as stipulated on the Local Government Code. PPPs are essentially a way of supporting and relieving some of the burden faced by governors and mayors in carrying out their manifold functions and obligations. At the end of the day, it is also LGUs that best understand the needs of their communities. Even when a national agency or GOCC is in charge of a project, local leaders are critical stakeholders whose buy-in and insights are indispensable to project success.

Finally, experience has shown that LGUs are more than capable to undertake PPPs. Since the relaunch of the country’s PPP program, attention has mostly been paid to large-scale, national level projects. The buzz around these projects has overshadowed the success of smaller— but no less remarkable —PPPs that LGUs have been quietly implementing in the background. 

Learning from Bataan

Take the example of Bataan. Over the last several years, both Bataan province and its capital city, Balanga, have executed a number of pioneering PPPs and joint ventures (JVs). One of these projects is the Galeria Victoria, a commercial center that is characterized by unique colonial architecture and is notably generating revenues for the provincial government in the form of lease payments. Bataan’s new capitol compound is a PPP that features a one-stop government building fondly called “The Bunker”, owing to a design that pays homage to World War II veterans—for the provinces’ various offices. It will soon see the construction of ancillary business process and hotel facilities.

Not all LGUs may be as well-resourced as Bataan, but the fact remains that all LGUs, even the smallest of municipalities, are legally empowered to undertake PPPs and can take steps to make the procurement process more efficient in their localities. One such step is to pass their own PPP Code or JV Ordinance, which can streamline the PPP process by identifying local bodies as approving authorities and adopting criteria that are fitting and suitable for local requirements. Templates for such ordinances are readily accessible. If help is needed, PPP Center of the Philippines can also be tapped for support in this initial stage, as well as in other phases of project evaluation and tender transaction.

What's in it for the private sector?

Now that the benefits of PPPs for LGUs are clear, it is worth asking: desire to help the country aside, why should the private sector engage in local projects?

Underlying the prospect of business profits are access to new markets and geographic areas, the opportunity to expand products or services beyond the private partner’s established base, and the chance to enhance the private partner’s credibility and image in the market. Not to mention, these “smaller” local projects may not be so small after all. The Bunker and its adjacent business hub are estimated to cost P2.4 billion when completed.

In light of the current administration’s welcoming stance of unsolicited proposals, the private sector is also uniquely positioned to conceptualize and suggest visionary project ideas that it is keen and able to bring to fruition.

With dozens of local case studies to turn to, and a national government that is intent on spurring more balanced regional development across the country through its Balik Probinsya program, LGUs can intensify their efforts to harness the power of PPPs and do their part in the country’s infrastructure build out. It is only with the participation of LGUs that the country can hope to realize its elusive dream of ushering in a “golden age of infrastructure.”

Lea Odulio is a Managing Director at Polestrom and concurrently serves as a financial sector specialist to the Public-Private Partnership Center of the Philippines. Raya Buensuceso is an analyst at Polestrom. She was formerly a research fellow at the Asia Center of the Milken Institute, a US-based economic and policy think tank.

Polestrom provides advisory services for infrastructure projects in the Philippines and emerging markets.