Too much hope, hype on PPP?

The website of Bulletin carried a picture of a man protesting the SLEX rate and he carried a sign that read: SLEX Dapat Serbisyo Hindi Negosyo. My reaction was simply, ano siya… sinuswerte?

The Malaysian investor that placed a lot of money on the project is a business entity, not an Official Development Assistance (ODA) agency. Of course the Malaysian company is here for negosyo… to make a good return or profits from their investment by delivering a tollway service.

In fact, potential foreign investors are looking at how we will handle the Malaysian investor in SLEX before they seriously consider P-Noy’s flagship program called Public Private Partnership or PPP. Right now it is not looking too good. The Aquino administration is all set to launch the program with a by invitation only conference of potential investors on Nov. 18-19. It seems they are banking on this conference to tell the world we are in business.

Nothing the Aquino economic managers and P-Noy himself will say here will be credible until that Malaysian problem is resolved… or the German problem in NAIA 3 even if the Germans are also to blame. The government should have used the first hundred days to clean up the mess that has soured the experience of the private sector in such partnerships under the old BOT programs. Seriously, PPP is just BOT renamed.

Official releases claim the PPP aims to accelerate the financing, construction and operation of key government infrastructure projects. It is supposed to be part of P-Noy’s program to address the three main issues that has held back the economic growth of the Philippines in the past 20 years: the infrastructure gap, corruption and bureaucracy policies. Honestly, government does not have the wherewithal to invest in needed capex, hence the need to tap private sector resources.

According to Finance Secretary Cesar Purisima, they have looked back at over 15 years of experience in PPP in the Philippines and they are making adjustments to ensure that moving forward, some of the problems that were faced in the past years will be avoided. Problem is… investors need a lot of reassurance, given our record.

There are already skeptics even among those who sympathize with the administration. The Filipino technocrats who write briefing materials for the New York-based Global Source Partners surmised that “although we applaud the intention of the new government to raise mean growth by encouraging greater investment via public-private partnerships (PPPs), we remain unconvinced results will be seen in this area in the near term even assuming that paperwork and physical execution can be fast tracked.”

As such, the think-tank is of the view that the Aquino administration’s public-private partnership (PPP) initiative is unlikely to boost economic growth in the near-term because of the “lack of quality” of the identified projects. “The country’s economic managers have already gone to great lengths to design an infrastructure fund precisely for this purpose, but the major constraint as we see it is not a lack of funding but rather a lack of quality and skillfully prepared projects to fund as well as perceived abundance of political and regulatory risks,” Global Source said.

It said the government’s current list of PPP projects “looks thin” and “not fully prepared at this time,” save for one or two mass transport projects. It warns that “unless fully thought out, there is risk that use of private finance and through an infrastructure fund at this time may be driven by or lead to disguising public expenditure and pushing it off budget… In that case, PPP projects may just lead to higher fiscal risks and hard-to-manage contingent liabilities down the road.”

The NEDA however maintains that the PPP initiative would accelerate the rate of infrastructure spending to economic output. Socioeconomic Planning Secretary and NEDA Director-General Cayetano Paderanga told reporters that a four percent to five percent infrastructure spending share to gross domestic product (GDP) is “achievable.” The country’s present infrastructure spending to GDP is around three percent.

Paderanga said the government is not depending on the PPP initiative to raise the country’s infrastructure spending, adding that a regular budget and official development assistance (ODA) were also available to finance such projects. “The PPP is only the direct projects that you can measure. We hope of course that there would be complementary and supplementary projects that would come up together with the PPP. In other words we are trying to leverage to the PPP but because of the strategic importance of these projects, they will also have given beyond that magnifying factor,” he said.

The National Economic and Development Authority earlier said the P70-billion Metro Rail Transit (MRT)-Light Rail Transit (LRT) expansion project, which was broken into three component-projects, is ready for implementation next year.

Other projects to be rolled out next year are the P11.3-billion MRT Line 2 extension project, the P7.54 billion new Bohol airport, the P4.36 billion Puerto Princesa airport, the P10.5 billion CALA Expressway- Manila-side Section, and the P3.08 billion Daraga International Airport. But with NAIA 3 still unresolved, I doubt if any investor in his right mind will take another airport project. Also included in the PPP list are the privatization of the operation and maintenance of the Laguindingan airport, and the supply of treated bulk water for Metro Manila, the costs for both of which have yet to be determined.

This early, the government should make it clear to the people that the private sector entities investing on these projects are there for the money. If they can deliver public service in the process, well and good! But they should not expect these business entities to risk pretty large sums of money out of the goodness of their hearts.

On the SLEX problem, it shouldn’t be too difficult to compare the deal the Malaysians got to the prevailing one at NLEX. It is a matter of crunching numbers and resolving it quickly. The delay is giving our investment climate a bad reputation… one that haunts the PPP now.

I realize the SLEX and the other loose end, NAIA 3 are already in our court system. The judicial branch should take note of the urgency of resolving these cases for the sake of our economy. We absolutely cannot argue about those cases forever.

Right now, I think it is wrong for P-Noy to put too much hope and hype on PPP. That’s bound to disappoint. –Boo Chanco (The Philippine Star)