A world-class infrastructure system?

THE AQUINO Administration launched its Public-Private Partnership program (PPP), which aims to put in place a world-class infrastructure system for the country, at the recently concluded international conference at the Marriott Hotel from November 17-19. The conference was jam-packed (at least during its opening) despite the $2,600 attendance fee charged each participant.

The Executive department, led by President Aquino, was on hand to welcome and handhold the participants. Even Congress, represented by Senate President Juan Ponce Enrile and House Speaker Feliciano Belmonte, was there to lend support to the program.

Conspicuously absent, however, was the judiciary whose non-participation was, of course, the subject of speculation by some participants.

There are 109 projects spread across various implementing government agencies. Ten projects have already been identified as ready for rollout in 2011 with another 71 in the medium-term from 2012 to 2016. On top of these, there are also 28 private initiative projects identified in the energy sector.

Problems

Despite initial successes in the 1990s, lack of credibility, rooted primarily in the absence of transparency and a level playing field, has become the bane of our infrastructure program. Addressing this concern, President Aquino and his cabinet secretaries repeatedly assured the participants that transparency and a level playing field will be the hallmarks of the PPP program. Of course, some doubting Thomases have commented—understandably so since the same assurances were given by previous Administrations—that this remains to be seen.

Another key problem in our infrastructure program is delay. Even before the start of the Conference, President Aquino tried to address this by issuing Executive Order No. 8, which transferred the PPP Center (formerly BOT Center) to the Neda and clothing it with a P300-million working fund. The center shall, among others, address impediments or bottlenecks in the PPP program; assist the implementing agencies, including GOCCs and LGUs, in project preparation and development (including feasibility studies and tender documents), and promote and market PPP projects.

In addition, the processing time from project submission to Neda/ICC to contract signing will be shortened to 69 days.

Financing

To jumpstart the PPP program, the BSP will authorize, for a limited period of 3 years, a 25-percent Single Borrower’s Limit (SBL), which will enhance the participation of banks in Neda-certified PPP projects.

In addition, the DOF shall establish, together with the GSIS, DBP, LandBank and SSS, a Philippine Infrastructure Development Fund (PIDF) with an initial commitment of P200 billion, not to mention a “PIDF bond offer” that may be undertaken to help finance the projects.

The administration has also proposed P14.94 billion in the 2011 budget to support its PPP program. This amount includes provisions for right-of-way, often identified in the past as a big stumbling block to the timely completion of infrastructure projects. Furthermore, the Department of Budget Management has undertaken to provide a predictable and sustainable payment scheme for PPP projects.

Regulatory Risk

Regulatory risk is another big issue for investors. For example, the courts or regulatory agencies may issue orders preventing investors from adjusting tariffs to contractually agreed upon levels. In this regard, Secretary Purisima announced that they are looking at providing some form of “guarantee” for PPP investors.

Conclusion

The devil, however, is in the details, so to speak. For example, there is a need for coordination between the national government and local government units to minimize issues in the implementation of PPP projects. There is also the “guarantee” mentioned by Purisima which, even at this early stage, has received some flak based on no less than constitutional grounds. In addition, the huge budget for PPPs, according to a key lawmaker, may still be reduced by the Senate. Most importantly, there is the on-the-ground execution to contend with. As Purisima has put it in the wrap-up session, the success of the PPP program lies in its execution since it is, after all, only 1-percent inspiration and 99-percent execution.

The proverbial political will at all levels is, indeed, essential. The initial projects will set the tone for the success of the PPP program. Only after this administration shall have convincingly demonstrated that it is “walking the talk” can we say that an honest-to-goodness infrastructure system for the country has arrived—at last! –Francis Ed. Lim, Philippine Daily Inquirer

(The author, formerly the president and CEO of the Philippine Stock Exchange, is now a senior partner of the Accralaw. He can be contacted through felim@accralaw.com)