18 infrastructure projects deemed ‘high risk’ amid pandemic

by Krixia Subingsubing, 21 Jul 2020

MANILA, Philippines — Eighteen big-ticket “Build, Build, Build” infrastructure projects, including the Metro Manila Subway, the upgrade of Ninoy Aquino International Airport (Naia) and the Mindanao Railway, have been flagged as “questionable” and “high-risk” by economists, who warned that the pandemic could “severely impair their long-term viability.”

In a working paper, “Overhauling Land Transportation in the New Normal and Beyond,” published by the Ateneo Center for Economic Research and Development, economists Jedd Ugay, Monica Lavares, Jerome Cruz and Marjorie Muyrong urged the government to shelve or postpone these projects, and to “redesign the BBB portfolio of projects to adapt to the ‘new normal.'”

“A failure to stamp out the disease will mean that air travel—including for tourism purposes—will be dampened for years on end,” they wrote. “This will undermine the return of projects aimed at supporting the operations of these sectors.

They cited railway, air and tourism projects, including the P101.12-billion Naia upgrade, the P500-billion Sangley Point International Airport in Cavite City and the P81-billion Mindanao Railway Phase 1, which are touted as key transport infrastructure.

These projects were identified “based on sectors [that] are known to be especially affected by the coronavirus travel restrictions and physical distancing measures,” Cruz said in an interview with the Inquirer.

Subway years to develop

The economists pointed out that some of the 18 projects, like the P356-billion subway system in Metro Manila and the P50-billion Subic-Clark railway, were deemed “white elephant risks” even before the pandemic struck.

Should the coronavirus persist, the megaprojects would not be viable as anticipated, according to the economists.

“Even assuming the [projects are] on track, it will take years to develop a railway like the subway, whereas we can develop bus priority lanes within months, if not weeks, if the political will exists,” Cruz said.

He noted that railway projects generally “tend to be financially unviable to begin with, and these would become even more problematic under the context of the pandemic.”

The Department of Transportation (DOTr), in a statement sent to the Inquirer, said this conclusion “appeared to be the authors’ misunderstanding of the government’s decision-making process.”

All the projects listed in the paper, the DOTr argued, had undergone a “robust multilevel and multiagency process.”

The agency said long-term benefits of its projects are jobs generation, social impact, reduction in travel time, lower operational costs, and compatibility with the environment and health care.

“These benefits are quantified and assessed vis-à-vis the cost of the project, and if the economic return is at least 10 percent, then investment in the project is approved and the project is implemented,” the DOTr said.

Spending on pandemic

“Unless the unvetted paper has an alternative equally robust economic and financial model showing either an underestimation of cost or overestimation of benefits from the projects, their claim of a ‘white elephant’ risk is only as real as a literal chalk-white elephant itself,” the agency said.

The researchers also warned that debt payments for a number of official development assistance (ODA)-funded projects, such as the Metro Rail Transit 4 and the Light Rail Transit 2 East Extension, could “crowd out” domestic public resources, which could be allocated for pandemic-related investments.

While his group recognized that the BBB program was a “critical area of stimulus spending for the country’s recovery program,” Cruz said the government may need to “shelve these projects to expand budgetary space for more immediate spending priorities.”

But the DOTr said the authors “may be pleased to learn…[that] principal debt payments for most of these projects will not even start until after 12 years…[and] that the COVID-19 pandemic would have been 10 years over before we even start paying the principal for most of our current ODA railway projects.”‘Redundant’ projects

The department said, “The COVID-19 pandemic highlighted the amplified detrimental effect of the decadeslong backlog in our nation’s transport infrastructure, and the critical importance for the DOTr to step up its implementation, and not to fall back to the delays and excuses of the past, as apparently being recommended by the unvetted paper.”

According to the economists, other mega projects, such as the PPP-backed P736-billion New Manila International Airport (NMIA) in Bulakan, Bulacan province, and Sangley Point International Airport, could later prove “redundant,” given other Naia decongestion efforts even if the Covid-19 repercussions proved short-lived.

But the DOTr said Naia had already breached its 31-million passenger capacity as of 2012. With ongoing physical distancing requirements still in place, these decongestion efforts would expand Naia’s capacity to 65 million and that of Clark International Airport in Pampanga province from 4 million to 8 million.

The economists argued that, instead of focusing on the railway and airport sectors—which are “particularly vulnerable to more pessimistic scenarios” under the pandemic—the government should focus more on projects on road mobility such as the bus rapid transit projects in Metro Manila and Cebu City and the Edsa greenways project.

In response, the department said the paper’s recommendations “are already being undertaken [and] pursued along with city governments.”