Chilling effect

The significant contribution to the economy and to improving the lives of its people through the country’s Public-Private Partnership (PPP) program is beyond doubt.

PPPs are defined as a contractual agreement between the government and a private firm targeted toward financing, designing, implementing and operating infrastructure facilities and services that were traditionally provided by the public sector, especially given the limited funding for infrastructure or development projects available to the public sector.

According to the World Bank, from 1990 until the first half of 2022, total private sector investment in the Philippines’ PPP program amounted to $53.2 billion or about 85 percent of total private sector investments in the infrastructure sector.

In a policy paper by the Senate Economic Planning Office, it was emphasized that most of these infrastructure projects would not have been accomplished without private sector participation.

But the same paper observed that while the Philippines was one of the first among developing countries in Asia to use the build-operate-transfer scheme (meaning upon the end of the contract, these projects would be turned over to the government) or PPP schemes for infrastructure development, it is increasingly being eclipsed by its ASEAN neighbors in attracting PPP investments.

It warned that across the region, the Philippines still has the second-highest PPP capital stock compared to Indonesia, Malaysia, Thailand and Vietnam, but it is in danger of losing this position as more PPP investments have been going to other countries in recent years. At 6.7 percent of GDP in 2019, the PPP capital stock of the Philippines has not yet recovered from its slow decline beginning in 2010 when it was 8.13 percent of GDP.

Notable PPP projects in the Philippines include the recently awarded contract for the rehabilitation and operation of the Ninoy Aquino International Airport (NAIA), which was one of the fastest-approved PPP proposals in the country, the Metro Manila Subway operations and maintenance, and the North-South Commuter Rail O&M. Other areas of opportunity for PPPs include those for healthcare, education, energy, transportation and water, according to the PPP Center.

Without the PPP program, the public would not be benefiting from projects like the Cavite-Laguna  Expressway, the NLEX-SLEX Connector Road Project, TPLEX, Muntinlupa-Cavite Expressway, NAIA Expressway, the SLEX Extension project, the Metro Rail Transit, the New Manila International Airport in Bulacan, the Mactan-Cebu International Airport, Clark International Airport and the improvement of other international and domestic airports in the country such as those in Davao, Kalibo, Iloilo and Zamboanga, to name a few.

Republic Act 11966 or the PPP Code was signed in December 2023 by President Marcos, unifying the fragmented legal frameworks on PPP among other reforms with the aim of boosting both domestic and foreign private sector investments in the program.

But if Congress succeeds in passing a law (proposed Revised Government Auditing Act) that aims to modernize state audit, reorganize the Commission on Audit and update the 46-year-old Government Auditing Code, but at the same time expands the jurisdiction of COA to include private companies engaged in PPPs with the government as well as public utilities, then we might as well say goodbye to the PPP program and private sector investments in general.

No less than the 1987 Constitution created COA, which has the power “to examine, audit and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the government or any of its subdivisions, agencies, or instrumentalities, including GOCCs with original charters.”

Senate Bill 2746 inserted an unconstitutional provision (because Congress has no power to pass a law that will amend the Constitution) that will give COA authority to examine and audit books and records of private entities in connection with their contracts, agreements or dealings with the government for which they receive counterpart funding, are allowed to use government properties or facilities or are required to pay revenue share.

The proposed bill also allows COA to conduct a special audit of the books, records and accounts of non-government entities that have contracts with the government under a PPP agreement or any of its variants to determine the existence of value-for-money in procurement through PPP, compliance with the terms and conditions of the contract or agreement, reasonableness of the sharing of the risks and rewards between the private sector and the government, or the absence of disadvantage to the government in the agreement relating to the operation, maintenance and handover of the public infrastructure or project.

It likewise gives COA the power to conduct a special audit of the books, records and accounts of all public utilities to determine the reasonableness of the rates charged to the public or in relation to the proceedings of the proper regulatory agencies for the purpose of determining franchise taxes and other fees.

Similar provisions can be found in House Bill 9674, which has already been approved in the Lower House and transmitted to the Senate.

The Constitution limits COA’s role to auditing only state enterprises and does not give it audit jurisdiction over private corporations, which are audited by their own private external auditors unless such private firms receive government subsidy or equity infusion.

Both bills will give COA the power to override  determinations made by the Office of the President, NEDA, the sponsoring agency and the Department of Justice regarding the design and parameters as well as the proper implementation of PPP projects. It will also allow the body to override the private company’s normal decision-making and operating procedures if awarded the project.

These bills likewise disregard and usurp the decision-making power of the different administrative agencies of the government, which have regulatory and supervisory powers over public utilities, including fixing of rates and in effect unconstitutionally interfere with the power of the judiciary to review on appeal such rates.

Meanwhile, in a letter to the Senate committee on constitutional amendments chair Senator Robin Padilla, PPP board private sector representative Ferdinand Tolentino pointed out existing laws that ensure that the PPP evaluation and approval process as well as executed PPP contracts contain measures to ensure transparency and accountability in the use of government funds and resources for PPP projects.

Tolentino added that existing laws such as the Revised Corporation Code, Securities Regulation Code and relevant SEC rules also ensure transparency and accountability of private corporations.

He warned that the proposed bills will bring about disastrous consequences for the PPP program.

What is definite is that if this becomes law, it will discourage both local and foreign investments, close the tap on PPP project financing pipelines and kill the infrastructure program of the government.

While the Marcos administration has identified PPP as an engine of growth, it should not allow these proposals that will shoo away private sector investments in Philippine infrastructure projects to come into fruition. Its chilling effect on our country’s future is unimaginable and daunting.

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