Manage expectations, gov’t told

INVESTORS ARE WILLING to wait for government to finish a fresh round of reviews of the much-delayed public-private partnership (PPP) program, since the need for caution is understandable, top executives of financial firms said late last week.

But they warned that this should be the last stumbling block for the Aquino administration’s centerpiece economic project.

“This government ran on the platform of good governance, so it’s right that it should put everything in place first before it launches the PPP program again. Investors would rather be safe than sorry,” Gregorio S. Navarro, chief executive officer of Deloitte Touche Tohmatsu Limited member firm Manabat Delgado Amper & Co., said at the sidelines of the economic briefing held late last week by the Financial Executives Institute of the Philipines.

Businesses do not want to be investigated in the middle of a project because of irregularities, especially since infrastructure deals entail a lot of investment, Mr. Navarro explained.

Delays in the PPP program are also “in a way, expected,” Interpacific United Strategies, Inc. managing director Anton D. Mauricio added. “There was no way they (government) could finish feasibility studies in time, after they announced it in the State of the Nation Address last year. It was not humanly possible to fast-track them. Financial markets have known that all along,” he said.

Comprehensive feasibility studies usually take a year to complete, and the government initially lined up 10 big-ticket infrastructure deals for the PPP pipeline, Mr. Mauricio noted.

“The delay is part of the pioneering risk. Businesses understand that. If you release a huge amount of money in the system haphazardly, it can leak out into corruption,” he explained.

Economic managers must now manage investor expectations after it launched the PPP program too soon, Messrs. Mauricio and Navarro added.

The government launched its flagship PPP program late last year, pledging that 10 infrastructure deals would be auctioned off to local and foreign investors this year.

So far, though, only the P1.956-billion Daang Hari-South Luzon Expressway link has been rolled out.

It earlier opened the P15-billion four- to five-year maintenance and operations contract for the Light Rail Transit Line 1 and the Metro Rail Transit Line 3 to investors, but this was shelved in the wake of a leadership change at the Department of Transportation and Communications.

Now, the list has been trimmed to only five projects, with only three of the original big-ticket infrastructure deals included.

President Benigno S.C. Aquino III also ordered a review of the entire PPP program to ensure that the financing arrangement will ensure the lowest cost and the highest quality for the projects.

One of the options floated by economic managers is for the government to finance the projects by itself, tapping low-interest, long-term development loans.

“That is a valid study. If I can secure development funding of 1% interest for 30 years, why would I tap the private sector who would borrow at 6%, 7%, 8%? That has to be repaid by somebody,” Mr. Navarro said. “The question is, why only study that now?”

While the use of official development assistance (ODA) could be practical for the government, it should not discount the option of PPP financing, BDO Capital and Investment Corp. President Eduardo V. Francisco said via e-mail.

“Only when no private sector financing is available should ODA financing be the choice. Governments, in general, do not do as good a job in getting the price down and on time as the private sector,” Mr. Francisco explained.

Having different options would be to the advantage of the government, he added.

“With the benefit of hindsight, it looks like the PPP program could have been better prepared before the government announced it since it built up a lot of expectations,” Makati Business Club (MBC) Chairman Ramon R. del Rosario, Jr. said.

“I think that cannot be disputed, even by the government.”

Now that the government is reviewing the program, economic managers should make sure they are well-prepared this time around, Mr. del Rosario said. Project terms should be watertight to avoid further delay.

“If they’re going to fix it, they’d better fix it very well, so the next time they roll out the PPP program, they’re really ready,” Mr. del Rosario said. “Otherwise, it would create confusion or worse, disappointment in the marketplace.”

Current delays are not expected to dent investor interest, though, since the administration still enjoys goodwill, he added.

“There’s some disappointment, but I think people are willing to wait. It’s not a foregone opportunity,” Mr. del Rosario said.

“On the other hand, this goodwill does not last forever. So do as you say you will do, so people believe what you will say.” –DIANE CLAIRE J. JIAO, Reporter, Businessworld