Partnership

Finance Secretary Ben Diokno has said that private sector participation is crucial to our economic recovery prospects.

“This will be key in our bid to unlock the many benefits of public-private partnerships (PPP),” Diokno said. In the near term, Diokno explained, the Build-Operate-Transfer or  BOT Law will allow the Philippines to sustain its momentum in infrastructure spending despite budgetary constraints. “Over the medium term, it will reap high-multiplier effects for the economy,” he said.

The renewed commitment to PPPs and the newly enacted economic liberalization laws will support the government’s infrastructure program, Diokno added.

This is a change from Diokno’s previous stance as Budget Secretary of Duterte. Together with other members of the Duterte economic team, Diokno was more confident the Build Build Build program funded by the government minimizes the importance of any partnership with the private sector. Indeed, they toughened PPP rules that all but obliterated any interest potential private investors may have in helping public infrastructure development.

The change in attitude was brought about by the realization that the government is operating in a tight fiscal space and there are so many pressing concerns on inflation, poverty, and the lingering socioeconomic effects of the pandemic. In other words, the government realizes it cannot do it all.

Diokno said President Marcos ordered the revision of the rather restrictive IRR of the BOT Law inherited from Duterte. This has been accomplished within the administration’s first 100 days in office.

“The revised Implementing Rules and Regulations of the Build-Operate-and-Transfer Law will allow us to mobilize private sector resources as an engine for capital and a catalyst for growth,” Diokno said.

The amendments are intended to address stakeholder concerns about the financial viability and bankability of PPP projects, as well as clarify ambiguous provisions that have caused delays in the PPP process. Centered on transparency and accountability, the revised IRR determines the true cost of infrastructure or development projects to the government, consumers, and taxpayers.

But more than six months after, there seems to be little interest in new PPP projects outside of privatizing the operations of a few airports. Perhaps it is the uncertain investment climate worldwide or maybe investors are still watching and waiting to see the true colors of the Marcos administration.

The only really new and major project that will start construction under the current administration is the 15.56 kilometers long MRT4 that will link parts of Quezon City, San Juan, Mandaluyong, Pasig, Cainta, and Taytay. But it will be funded by a $1 billion loan from the Asian Development Bank.

Discussions about MRT4 had been going on for years. Construction was supposed to start in 2021, and was expected to go into service by 2025. As always, it is delayed. Even now, they are still in the technical design stage. No timetable for completion has been released, but it is not likely to be operational before the term of Marcos ends.

Nevertheless, DOTr Secretary Jimmy Baustista is confident “Once operational, more than 400,000 passengers expected to ride the MRT4 would be more than grateful for solving the perennial traffic issue along the stretch of Ortigas Avenue.”

The only truly PPP projects that will be inaugurated during the term of Marcos are two San Miguel projects, MRT-7 that goes from the common station at North EDSA through Novaliches and ending in San Jose del Monte, Bulacan, and the Bulacan International Airport. The LRT1 extension project to Cavite should be operational too, within the Marcos’ term, but no firm date has been announced.

A consortium of conglomerates has renewed a proposal to operate NAIA. DOTr Secretary Bautista seems excited by the prospect, given the many recent glitches in the airport’s operations.

But there has been conflicting messages on NAIA going private. The President sounds ambivalent about the prospect. But he met with the operators of the UK’s Gatwick Airport for a potential contract to run NAIA. Gatwick also has the same cross runway design of NAIA, but is handling a lot more airplane movements.

The potential PPP projects involving airports only involve a transfer of operational responsibility from CAAP to a private sector entity, mostly Aboitiz Infrastructure. The Aboitiz Group has already bought out Megawide and its partner, GMR of India, in the PPP contract to manage the Mactan Cebu International Airport. I understand that an experienced Greek-German airport manager hired by Aboitiz has taken over from Megawide-GMR’s Andrew Harrison who has gone back to Singapore.

Aboitiz is waiting for the approval of their bid to take over operation of Panglao Bohol International Airport, as well as Cagayan de Oro’s Laguindingan, Bacolod’s Silay, and Albay’s Bicol International Airport.

The record of PPP projects has been a mixed bag. The most successful recent one is the Cordova-Cebu bridge, but it is a PPP with the two LGUs, Cordova and Cebu City, and not with DPWH. The other successful PPPs are the toll roads, NLEX, TPLEX, NAIAX, and South Luzon Expressway, including the STAR Tollway that goes to Batangas.

The MRT3, an early PPP project, had been a big disappointment. That’s because the contract was lopsided in favor of the private consortium members and its financial viability was severely damaged when Erap intervened and prevented the imposition of a fare that would have assured proper maintenance of the system, at the very least.

The privatization of the national power grid is turning out to be another problematic attempt to make private investors responsible for modernizing a dilapidated system. It is turning out that the concession agreement was a sweetheart deal that gave too much to the private concessionaire who is not giving enough back in terms of better service.

Anne Estorco Montelibano, president of the Philippine Independent Power Producers Association, Inc. (PIPPA) shared during a PIDS webinar that “Our main highways (of electricity) first need to improve, so when they traverse our local grids, energy delivery also improves. From Luzon to Visayas and vice versa, the lines are utterly congested. Energy Undersecretary Guevara said that without the congestion of the transmission lines, we may see a vast improvement and a decrease in power interruptions.”

More on our experience in power sector partnerships between government and private investors in a future column.

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