New joint venture rules allow little oversight, more abuse

Editor’s note: The first part reported on the apparent haste to push through with P52-billion Laiban Dam project in Rizal province, potentially the biggest infrastructure projects to be launched by the Arroyo administration.

Last of two parts

The proposed joint venture deal between San Miguel Corp. and the Metropolitan Waterworks and Sewerage System (MWSS) to build and run the P52-billion Laiban Dam project is emerging as the first big test case of new government guidelines on private-public joint venture agreements approved last year.

The water supply deal is now being put up for challenge in a process marked by lack of public information that is unusual for a project of this scale. By value, the project is the MWSS’s biggest single construction project in its 131-year history, and possibly one of the Arroyo administration’s largest infrastructure ventures.

Procurement experts are wondering if Laiban Dam will become the future template for infrastructure projects being carried out under new joint-venture guidelines of government that effectively lessen the oversight powers of the Investment Coordination Committee (ICC) of the National Economic and Development Authority (NEDA). Instead, the new guidelines concede more authority in the awarding of projects in favor of implementing agencies.

The lighter inter-agency scrutiny ostensibly aims to lessen bureaucratic delays in the project approval process that sometimes take years if subjected to the committee’s strict scrutiny.

The guidelines, which were approved by the Cabinet-level NEDA Board in April 2008, confer on heads of the government entities the authority to approve joint-venture deals, effectively exempting the projects from the rigorous review that the NEDA-ICC, an inter-agency body, typically applies to large government infrastructure projects.

“Under the Guidelines, the head of the government entity concerned is given the authority to approve the proposed joint venture agreement regardless of amount,” said a NEDA statement issued shortly after the guidelines were approved last year. “Clearances shall only be obtained from the Departments of Finance and Budget and Management when the joint venture agreement requires national government undertakings, subsidies or guarantees.”

Gap in oversight

The new guidelines mention no role for the NEDA-ICC, which is mandated to review and approve large infrastructure projects funded by official development loans, or ODA, and build-operate-transfer (BOT) and related financing schemes.

This could create a gap in central government oversight of large infrastructure projects. While projects funded by foreign loans and build-operate-transfer and related schemes are closely scrutinized to make sure they are economically viable and pose no or minimal fiscal and other risks to the government, joint-venture deals are not.

A NEDA official involved in the drafting of the guidelines explained that laws creating various government agencies, corporations, and other units usually grant the same state entities the power to enter into joint venture agreements with private parties. The guidelines merely reflected the existing legal framework, the official added.

According to the guidelines: “Accountability for the Joint Venture project ultimately devolves on the Head of the Government Entity involved in the Joint Venture Agreements and the implementation of the Joint Venture project. The private parties dealing with the Government are similarly held accountable for all their actions relative thereto.”

Long-running debate

The fresh concerns over the new joint venture guidelines is the latest twist in the long-running debate in government, non-governmental groups, and business and donor communities on how to hasten the approval of infrastructure projects without sacrificing good governance and oversight.

While many donors, investors, and business groups often complain about the delays in the Investment Coordination Committee approval process, they also look at it as a comparatively effective mechanism to ensure economic viability and soundness of key government projects.

On the whole, it is seen to promote checks and balances in the approval of government projects—though it sometimes fails, such as when it let through some projects of questionable value such as the National Broadband Network and Cyber-Education projects.

When the Arroyo administration proposed new implementing rules in early 2007 that would diminish NEDA-ICC’s powers in approving infrastructure projects funded and implemented under build-operate-transfer and related schemes, multilateral agencies and chambers of commerce raised a howl. In response, Malacañang put on hold the issuance of the new rules on build-operate-transfer.

Like the new joint venture guidelines, the scuttled new rules for BOT and similar financing schemes had sought to give the heads of implementing agencies, such as government departments, state-owned firms, and local governments, the authority to approve the projects.

Rebuffed by Cabinet

The Philippine Center for Investigative Journalism (PCIJ) has learned that the draft guidelines prepared by the NEDA in consultation with the Government Procurement Policy Board and the Office of the Corporate Government Counsel originally included provisions on the oversight role of the Investment Coordination Committee. But the Cabinet-level NEDA Board rejected these provisions because they could potentially introduce bureaucratic delays in approving projects, NEDA insiders said.

The issuance of the joint venture guidelines last year did not trigger a loud public debate similar to the one that greeted the proposed build-operate-transfer rules. A World Bank study on Philippine transport infrastructure projects released a few months ago made some critical comments about the joint venture rules.

“The principle of competitive bidding under these Joint Venture Guidelines has not been fully tested and not yet been validated. In this context, the rationale for having these Joint Venture Guidelines is not evident, given the fact that a mature [perhaps not perfect] BOT Law already exist,” said the World Bank paper “Philippines Transport for Growth: An Institutional Assessment of Transport Infrastructure” issued in February 2009.

The study warned against unsolicited proposals, which it said “can also be open to corruption, or the public perception of corruption, if not reviewed properly,” based on the experience of various countries.

Speaking more specifically about the Philippines, the World Bank study said: “It appears that many of these unsolicited proposals are attempts to circumvent competitive bidding and to delist projects from the original list that were originally planned for competitive bidding.”

Good, bad results

Compared to other mechanisms for private participation in public infrastructure projects, such as build-operate-transfer and its variants, joint venture deals are still relatively few. Of the nearly 80 projects completed, operational, and planned public-private partnership ventures, only eight are joint ventures, according to a listing by the Department of the Budget and Management in the 2009 Budget of Expenditures and Sources of Funds.

Some are relatively small projects costing less than $100 million, such as the $5-million Bohol provincial electric system, the $14-million Bohol water supply system and the $15-million Samal Island Resort Estate Development.

The bigger ones include the $419-million Metro Manila Skyway (Stage 1), the $400-million Pabahay sa Riles, the $370-million Manila North Luzon Tollway, the $131-million Manila-Cavite Toll Expressway, and the $120-million Subic Water and Sewerage Water System.

At $1.1 billion, the price tag of the Laiban Dam project is almost thrice that of the most expensive project so far.

The record of joint ventures in infrastructures is mixed. The Manila North Luzon Tollway, today’s North Luzon Expressway, is clearly a financial success, allowing the Lopez family, the original proponents, to sell their rights to the project at a hefty profit to the Metro Pacific group. Others, such as the Skyway project and Pabahay sa Riles, are struggling.

People involved in some of the projects cannot exactly remember if the joint venture contracts and plans were approved by the NEDA-ICC. A lawyer for the North Luzon Expressway project recalled, however, that it took various government agencies, including the NEDA, Department of Public Works and Highways, the Department of Finance and Department of Justice, among others, around three years to scrutinize the project and issue the approvals in the mid-1990s. From birth to final rollout, controversy also hounded the project. (Click www.pcij.org for the 1996 story “Squeeze play on the North Luzon Expressway” by Sheila Coronel and the 2005 story “Nightmare at Northrail” by Alecks Pabico.)

Transparency is key

Yet in spite of the controversy attending some of the joint ventures, it is possible that the projects may still work and help the government address the country’s massive requirements.

But everyone agrees that for this to happen, joint venture projects must be attended by robust competition and public transparency. Even more important, the projects must still be subjected to strict government oversight and be carried out by professionally managed implementing agencies.

In the case of the MWSS’s latest foray into a big-ticket project like the Laiban Dam, the recipe for good, successful joint ventures may not yet exist.

For one, the recent frequent changes in the composition of the seven-person MWSS Board of Trustees do not inspire much confidence in fostering good governance by the state water agency. Of the seven trustees, the MWSS’s revised charter mandates the president to appoint four.

A representative of the Department of Finance, a career undersecretary, no longer sits on the MWSS Board. President Gloria Arroyo’s appointees to the board are mostly people perceived as close to her and her husband, Jose Miguel “Mike” Arroyo.

One such new MWSS board director is Ferdinand Mahusay, a presidential adviser for Region IX and the brother of Eugenio “Udong” Mahusay, who had his 15 minutes of fame in July 2003 for blowing the whistle on the supposed secret identity of the Mike Arroyo as “Jose Pidal,” a man with a fat bank account.

Udong Mahusay, an office messenger, had a change of heart soon after. He was “rescued” by the president’s then Chief of Staff, Michael Defensor, after which Mahusay recanted his story. He also said that the affidavit he had issued earlier was just a plain act of vendetta against the president’s spouse.

Months later, Malacañang announced the appointment of Udong Mahusay’s brother Ferdinand as presidential adviser, and later, as MWSS board member. Ferdinand’s name does not appear as a trustee on the MWSS’s website, which is apparently not being updated regularly.

Mired in conflict

Other instances in MWSS’s recent history show it to be an agency mired in intermittent conflict and legal scuffles, not just change.

In August 2008, the present Administrator Jose Allado filed graft charges before the Department of Justice against his predecessor Lorenzo Jamora, a provincemate of then Justice Secretary Raul Gonzalez.

Allado said that without MWSS Board approval, Jamora caused the pre-termination of MWSS time deposit accounts to be able to purchase P791-million worth of Home Guarantee Corp. debenture bonds and National Power Corp. bonds.

Then again, it was Jamora who reportedly triggered a joint investigation by the Civil Service Commission, Commission on Audit and Office of the Government Corporate Counsel into an alleged P136-million payroll-padding scheme for 104 ghost employees. Jamora supposedly drew the ire of the water agency’s rank-and-file because he had suspended those implicated in the scheme. –Roel Landingin, PHILIPPINE CENTER FOR INVESTIGATIVE JOURNALISM