ADB outlines problems of past infrastructure projects

PAST public-private partnership (PPP) projects in the Philippines were “unsuccessful” mostly because of lack of transparency, competition and preparation, according to a study by the Asian Development Bank.

In a study titled, “Private Assessment Philippines,” the Manila-based lender said PPP outcomes in the country are “poor” and have been a disincentive for businesses.

The lender said this was apparent in the Ninoy Aquino International Airport Terminal 3 Build-Operate-Transfer contract.

The ADB said the poor PPP outcomes came as a surprise considering that the Philippines was the first developing country to have a BOT Center.

“Everything is available on paper but, in reality, is lacking. Processes are not transparent, not competitive, and not robustly prepared,” the lender said.

The ADB said businesses in the Philippines had shunned PPP projects because of unclear policy and regulatory frameworks, a cumbersome government approval process, and a lack of bankable projects.

Other impediments, such as controversial judicial decisions, also constrained PPP growth, the lender said, adding that problems surfaced when the projects were already operational.

Citing Maynilad Water Services Inc., the ADB said the cause of the concessionaire’s earlier bankruptcy was its inward looking corporate governance. The original winning bidder for the
West zone concession of state-run Metropolitan Waterworks and Sewerage System withdrew from the project, forcing the government to take over. The government has since re-privatized the concession to its current operator, a consortium between Metro Pacific Investment Corporation and DMCI Holdings Inc.

In the case of Metro Rail Transit Line 3 or the Metrostar Express, the problem pertained to inefficient and unsustainable level of subsidy, the ADB said. State-run lenders Development Bank of the Philippines and Land Bank of the Philippines took over the Metrostar Express from the private consortium led by the Sobrepena group.

The ADB said successful PPPs in the Philippines are the North Luzon Expressway Project and the concession of Manila Water Company Inc., which runs the East zone of MWSS.
The lender said the Indian PPP experience presents a good model for the Philippines.

“It emphasizes that availability of funds is not the only key factor to India’s PPP success but also sustainable, efficient asset management, and capacity and awareness building,” the ADB said.

As of January 2010, India had a total of 415 PPPs. In the Philippines, a total of 91 projects were under PPP with a total investment of $45 billion between 1990 and 2008.

To encourage partnerships, the government should improve transparency in PPP project selection, provide better accounting of revenues and expenditures, and have a higher-profile anti-corruption drive, the ADB said.

The study was prepared from September 2009 to June 2010 by Cayetano Paderanga Jr., who was then a consultant to the lender.

President Benigno Aquino 3rd has since appointed Paderanga as socioeconomic planning
secretary and director general of the National Economic and Development Authority.
In November last year, the Aquino administration promised to auction off at least two to three PPP projects in the first half of this year.

Bidding for the first such project, the P14 billion Operations and Maintenance of the Light Rail Transit Line 1 and MRT 3, was however suspended because of a change in the leadership of the implementing agency, the Department of Transportations and Communications.

Other PPP infrastructure projects lined up for this year are the P70-billion South Extension of the LRT 1, the P11.3-billion East Extension of LRT 2, and the P10.6 billion second phase of the NAIA Expressway.

The government estimated that the PPP would require up to P739.78 billion in investments in the next six years. –Darwin G. Amojelar, Senior Reporter, Manila Times