People prefer progress

The much-touted Public-Private Partnership program did not take off last year. I put it down to “bureaucratic naiveté”. A new Cabinet whose expertise, in the main, was in successfully running private businesses. They had not come up against the lega l hoopla and bureaucratic inertia that pervades the Philippine government. Nor be involved in ensuring corruption was not part of the deal.

You can’t do anything without covering your a*s from possible (possible? probable is more like it) lawsuits from disgruntled losers or myopic non-government organizations. Or just someone with a grudge. Then you have an office that has been mired in mediocrity and corruption where moving swiftly, and cleanly is just too alien a concept to absorb.

Too harsh an indictment? Perhaps, it’s certainly far too general to be overall fair. But I think it applies more than often enough as to be an accepted norm.

The government really expected in November 2010 that they could implement 10 PPP projects in 2011. They couldn’t, and didn’t. Even the promise of just two that was made at two conferences recently (the Philippine Economic Society on November 11, and the FINEX on November 24) saw only one finally awarded—the Daang Hari —SLEX Link Road Project, and that wasn’t even in the list of 10.

Some out-of-the-box thinking is needed. And I’m glad to see that the National Economic and Development Authority, under Cayetano Paderanga, has used some out-of-the-box thinking and applied PPP to the preparation stage. A P700 million budget, of which P112 million is for 2012 spending, has been allotted for hiring consultants to advise on the best mode of accomplishment (whether PPP, ODA, government funded, or other), offer transactional guidance and prepare the bid documents for NEDA’s approval and release. It makes good sense, and can greatly speed the process. The fund is a revolving fund, reimbursed by the winning bidder (so he factors that in his bid, smart). There are currently nine accredited consultants, a few more advisors will be added in 2012.

What the Cabinet must do is have a consistency of policies. Are projects going to be PPP, as promised? Or ODA-funded? Or government-funded? Or some combination? Surely this must be a first decision, and one they stick with. This has not yet been finally done.

Businessmen are not going to spend the large sum (and it does cost a lot) of money, and time to put a proposal together only to find the government has decided another route. Nor are they going to wait inordinate amounts of time for a project to be approved and implemented. Time is money, and their money can’t just sit around waiting for someone to give a go ahead. They’ll use that money to do something else. Somewhere else.

One also has to question, why do all projects need NEDA-ICC approval? Surely the departments have the expertise for the job. In many cases involving NEDA just adds a step, and a delay. And I can’t imagine NEDA has enough of the experts needed to do an effective review. The Commission on Audit can monitor for honesty, what more do you need? Now don’t get me wrong, I have a huge respect for NEDA and, what really matters, its people. The ones I know are professional and competent. This is just an extra task I question the need for. I’m glad to see the House of Representatives’ Technical Working Group on BOT Law Amendments recognizes this and has it in a prepared bill (HB 759 principally authored by Rep. Rodolfo Antonino)that would transfer the authority to approve national projects from the NEDA to the BOT Authority. The BOT Authority would become a super entity that would be a one-stop-shop for anything to do with PPP—it would recommend projects for inclusion, and be a place where investors can secure licenses and permits, and facilitate and monitor PPP project implementation. But does moving it from NEDA to DTI solve anything. Certainly the BOT Authority needs much more power to crack heads and get active cooperation from all departments, agencies and importantly, local government units for early success. Whether it’s under NEDA or DTI, action is what is needed.

The problem I have with PPP is that projects need to be commercially viable if the private sector is to be involved, they need to be able to make a return on their investment. Many projects cannot be charged for, so why would you invest? A toll road is fine, a farm-to-market road is not. To build a school, maintain but not operate it, and have the government pay an annual fee makes good sense. Let’s see what response emanates from the private sector. The first offers are going out now let’s see what response there is. It could be quite good.

A secondary problem that this raises is that businessmen are in business to maximize the profit they can make. Public utilities are designed to be available at the least possible cost. This equates to an inevitable conflict, for which I see no easy resolution. But it must be resolved, and announced that it has been. As it now stands I’m not sure it’s even recognized.

A third problem is that public utilities are generally regulated, and that regulation could change. This puts an investment at risk beyond the investor’s ability to control. To counteract this, government can guarantee a minimum return, and subsidize if it goes below an agreed level. This was, I believe, initially agreed to (a suggestion I made at the start of the program, and one the World Bank agreed to underwrite), but there’s been little detail or confirmation since. This makes eminent sense, a subsidy costs far less than doing it yourself.

A fourth problem is maintenance. The Philippines has a very poor record of maintaining things, anything. Mind you, that applies equally to government and the private sector. I’m appalled by the ignorance of the need to look after things. So maybe not a PPP issue in itself, but certainly an issue that must be addressed. I wonder if this government can.

A fifth problem is government credibility. I can never understand why governments (not just this one) sugar coat or make unrealistic promises. When you say we’ll roll out 10 projects this year, then start only one, and not even one of the 10, no one believes you next time. Far better to say we’re not sure how many projects we can get started this year as there’s numerous problems to overcome, but we’ll do our best to get at least a couple started.

Then people will trust you. And you’ll get more co-operation and participation.

A sixth problem is consistency. It can be understood that when a new government comes in it wants to review projects, particularly given the reputation of the last administration. But when there’s been a change in Cabinet Secretary and he changes the policies, priorities, emphases that have already been established by the new government, this is just not tenable.

And when a committed, signed contract is suspended this creates considerable havoc within the business community. Contracts must be inviolate, unless corruption can be proved. No other reason can justify such action. This is now the case with the Air Navigation System where nine countries are involved. A concern that has reached ambassadorial level. The new DOTC Secretary questioned whether the new system was the right one, fairly priced so put it’s installation on hold. He may or may not be right, it doesn’t matter a contract has been signed the government must honor it.

Unless these things are fixed, you are not going to get the private sector interest beyond a very small group of businessmen. And this you do not want, you need widely dispersed participation. The seriousness and ability of the government to successfully implement PPP projects is now in question given the lack of performance to date. Some examples of success are needed to reassure potential investors their money won’t be lost, will result in a successful return. There are a couple of successful ones that should be more widely promoted to emphasize this point. Admittedly started by past administrations, but this new government has successfully continued them. One is the Unisys system that computerized all the records and processes of the National Statistics Office (NSO). It has worked smoothly for 10 years. Another is the LTO system run by Stradcom, although it had a major hiccup earlier this year. Plus, of course, NLEX and SLEX and the wonderful Skyway. South Luzon is blossoming—because there’s a road.

Some recommendations:

Stop changing the list, changing the priorities, changing the mode (PPP or ODA or government funded). Make up your minds, and stick to it. Now.

Concentrate on a maximum of five projects first. Get those done, speedily, then worry about the rest. Put all facilities, personnel, etc. into doing just those 5. Show results in the first half of 2012.

Don’t mix PPP with ODA or any other hybrid scheme.

Elevate PPP head to sub-cabinet rank, and fully support that head.

All involved agencies need to work better and more closely together. Active co-operation is needed. Under the guidance of the PPP office.

LGUs need to be on board and supporting the PPP project, particularly important for ROW and environmental issues.

Above all, do it—action, not words. And be consistent. –Peter Wallace, Manila Standard Today