Increasing private sector role in economic activity

IN MARKET economies, business activities are largely carried out by the private sector. Goods and services are produced by private firms for consumption by the households. The participation of government in economic life, on the other hand, is relegated to the provision of public goods and services (roads, parks and public health among others) as well as in performing regulatory functions to protect and promote public interest especially when there are market failures in certain industries.

Under the New Public Management (NPM) theory of governance, the role of government is now focused on “steering”—an enabler, regulator and provider of sound policy environment conducive to greater private investments. “Rowing” is undertaken increasingly by the private sector utilizing its vast resources and expertise—as implementor-manager, builder, capital provider, job generator and taxpayer. Private investments likewise generate multiplier benefits to the economy through its industrial (backward and forward) linkages.

The privatization thrust of the government, started in the late 1980s, paved the way for greater private sector participation and investments in majority of the economic activities that used to be within the realm of government. Moreover, the liberalization and deregulation policies likewise opened the door for the entry of more private players in many regulated industries (e.g., oil, telecoms and air transport). However, there remain areas where legislation and government regulations can be improved in order to align the interest of government with that of the private sector. First, the pressure to make “rates” (e.g., toll) socially affordable politicizes the rate-setting process and undermines the economic structure that allows private investors to recover their investments. Second, the conflict of interest (i.e., regulatory and developmental functions) prevalent in many GOCCs promotes “unfair competition.” In many cases, government utilizes its regulatory powers to disfavor competition from the private sector to protect its own interest even at the expense of public interest. In other cases, private proponents are subject to certain market standards while GOCCs are not. Third, equity restrictions limit the level of investments that can be made by foreign proponents in the country. To address these concerns, the government must move its policies and regulations toward the market mechanisms and standards, and private proponents must align their profit (ROI) motives with the developmental and social concerns of government.

In recent years, private sector activities have expanded to cover infrastructure development (energy, toll roads, rail and light rails, bulk water, ports and airports). Big business conglomerates have gone into project implementation, bringing with them substantial financial resources, management expertise and technology. And in order to further encourage private sector participation in infrastructure development, President Aquino made as his government’s centerpiece policy the promotion of public-private partnerships (PPP). The local financial sector (banking and investment houses) has considerable resources (almost a trillion pesos in special deposit accounts) that could be used to bankroll PPP infrastructure projects. The local contractors have likewise demonstrated their capacity to undertake big infrastructure projects like the Tarlac-Pangasinan-La Union Expressway (TPLEx) and MRT 3-LRT 1 link, among others.

Economic infrastructure is just the entry point of the private sector in PPP. But like in other countries, this participation will expand to social infrastructures such as schools, hospitals and even prison facilities. The challenge now is to make the process more open, transparent and competitive in order to attract both local and foreign private investors in the provision of infrastructure through the PPP framework. This approach will likewise correct our over-reliance in the past on unsolicited proposals, many of which have been marred with controversies. An open, transparent and competitive process definitely promotes good governance and assures the best deal for the government and the Filipino people.

To be effective, this approach must be complemented and supported by soft infrastructures (policy reform) that would address the major bottlenecks impeding the effective implementation of infrastructure projects—i.e., automatic grant of franchise to the winning proponent by the Toll Regulatory Board, amendments to the BOT and Right of Way Acquisition (Rowa) IRRs, create a 10th variant (JV) in the BOT Law in lieu of the Neda Joint Venture Guidelines. For starters, the government must only present to potential investors a short but credible list of “ready-to-go” projects that can be implemented within the year. The newly created PPP Center must work hand-in-hand with the line agencies (DOTC and DPWH) to develop a pipeline of bankable PPP projects that could be offered to the private sector.

I support the advocacy of the PPP Coalition organized by the private sector (Bankers Association of the Philippines, Investment Houses Association of the Philippines, Philippine Constructors Association and REID Foundation) to promote PPP in infrastructure development. As a guideline, the PPP Coalition recommends the following criteria for identifying ready-to-go projects: high economic impact, commercially interesting to the private sector (especially the financial sector), with existing feasibility studies, can be tendered publicly within a year, and can be implemented and completed within three to four years.

Rizalino S. Navarro is a senior adviser of Rizal Commercial Banking Corp., and chair of Clark Development Corp. and International Chamber of Commerce-Philippine National Committee. –Rizalino Navarro, Philippine Daily Inquirer