Gov’t urged to share in PPP risks

Posted on September 26, 2012

PROSPECTIVE investors called for a balanced sharing of risks in the public-private partnership (PPP) program, as the government revealed that it is already formulating its pipeline of projects for 2014.

"There is no right or wrong answer to risk-sharing. It depends on the objectives and the funds of the government. But there will be a trade-off: will you get competitive bids?" Manila North Tollways Corp. (MNTC) President and Chief Executive Officer Rodrigo E. Franco told BusinessWorld at the sidelines of the Philippine Energy and Infrastructure Business Meeting yesterday.

Mr. Franco outlined several risks prevalent in infrastructure projects. More than the acquisition of rights of way, another question is who will be liable if there are delays in procuring them, he said. Moreover, for toll roads, a significant volume of traffic is not guaranteed in some areas.

"Some countries offer an availability payment. As long as the road is constructed and available, the contractor will be paid a certain amount," Mr. Franco said.

"The government is hesitant to do this, but this will mean greenfield risks. Companies will also be hesitant to develop toll roads far from city centers."

Bid results, he pointed out, will reflect the private sector’s perception of the fairness of the risk-sharing agreements. He specifically cited the PPP for School Infrastructure Project (PSIP), which has sparked concerns among interested bidders about the payment scheme.

In its project terms, the government will source the lease payments from the national budgets, staggered from 2013 to 2023. A Multi-Year Obligation Authority will be issued by the Budget department to authorize the Education department to enter the contract and allocate appropriations over the 10-year period.

However, Mr. Franco explained, these funds are not guaranteed, since they are subject to the political process of budget legislation. A change in administration could suspend or even remove these provisions from the national expenditure plan. "Companies are uncomfortable that their payment for the construction could be affected if the national budget is not passed. As a result, there were only two bids," he said.

The consortia of Citicore Holdings Investment, Inc.-Megawide Construction Corp., Inc. and BF Corp.-Riverbanks Development Corp. bagged the build-lease-transfer contracts last month. The P16.28-billion deal involves the construction of 9,301 classrooms, with toilets and furniture, in the Ilocos, Central Luzon and Calabarzon regions.

Macquarie Capital Managing Director Michael T. de Guzman also weighed in on the issue, urging the government to look at the most successful PPP models around the world.

"It is difficult to assess the fairness of risk-sharing agreements in the current PPP projects, since the deals have been small so far," Mr. de Guzman said.

The critical point will be the P59.2-billion Light Rail Transit (LRT) Line 1 Cavite Extension and Operation and Maintenance (O&M) Project, since it will be the biggest deal so far under the Aquino administration.

"But the terms of reference for the LRT project are not known yet. Once revealed, this could be template for other projects," he explained.

PPP Center Executive Director Cosette V. Canilao told reporters in the same event that the pipeline for 2014 is currently being formulated. "The PDMF (Project Development and Monitoring Facility) will meet on Friday, and there will be a lot of projects up for discussion," Ms. Canilao said. -- Diane Claire J. Jiao