The timid private sector

With evident pride of accomplishment, economic ministers announced a 6.2% growth in gross domestic product (GDP) in the July-September period (third quarter) compared to the disappointing second quarter growth of 5.5%. It was explained that the second quarter was weighed down by the late enactment of this year’s (2019) national budget and a ban on new public works 45 days before the May 13 midterm elections. “The Duterte administration’s catch-up (spending) plan is working,” enthused Central Bank Governor Benjamin Diokno, former Budget Secretary and chief crafter of the 2019 budget — which was delayed because of alleged “insertions” of reported certain allocations to some government officials’ interests.

But will the year-end GDP growth rate of 6% to 7% be met? “Year-to-date growth averaged 5.8%. A 6.7% expansion is needed to hit the low end of the target… this is very achievable as agencies are likely to spend more by year-end, given a lot of pressure to make up for delays,” National Economic and Development Authority (NEDA) Secretary Ernesto Pernia explained.

In an August press briefing, Pernia said that “for the remainder of the year, the government must speed up the implementation of infrastructure projects under the ‘Build, Build, Build’ program, as only 11 of 38 NEDA Board-approved project proposals out of the 75 infrastructure flagship projects are in the construction phase” (pna.gov.ph, Aug. 8). “And I guess the private sector has also to cooperate, the private sector has to respond in terms of participating in projects and never be discouraged in terms of the long process that usually takes for government, on our part, to process, especially obligated PPP (public-private partnership) projects,” he added.

It is curious that Secretary Pernia seems hot on the private sector to do more than it is already doing for the economy. At the PSA briefing on Nov. 7, he seemed to be using reverse psychology to prod action when he said, “Some may say the private sector is a timid participant in our economic growth. Nothing can be further from the truth. We know that the private sector is the main driver of the economy, with the government providing an enabling environment and the infrastructure.”

The “timid” private sector? Their voluntary and active enlistment in Public-Private Partnerships (PPPs) since Republic Act (RA) 6957, or the Build-Operate-Transfer (BOT) Law of 1990 (later to include Build and Transfer [BT], Build-Own-Operate [BOO], Build-Lease-Transfer [BLT]), shows no timidity, where they were even driven by selfish business profit, as they should be, being businesses. The Public-Private Partnership Center reports that as of September this year, there are 19 PPPs worth P1.064 trillion under implementation and 50 projects in the pipeline amounting to P2.941 trillion (ppp.gov.ph).

One of the more distinguished PPP projects was the privatization of the Manila Water and Sewerage System (MWSS), which is one of the largest PPP of public water utilities in the developing world. Another is the South Luzon Expressway (SLEx) PPP with San Miguel Corp. (SMC) through its South Luzon Tollways Corp. (SLTC).

SLEx was in the headlines before the happy news of increased GDP growth was announced on Nov. 7. “SMC rejects ‘unwarranted’ call to cut SLEX toll amid ongoing construction,” CNN Philippines reported, as other news outlets likewise published SMC President Ramon Ang’s public warning against the Toll Regulatory Board (TRB) technical working group’s threat to demand a “refund” of P44 in the toll collected from Metro Manila-bound motorists due to the kilometers-long traffic gridlock on SLEx. If approved, motorists will have to pay only P5 for the northbound 8.3-kilometer stretch between Susana Heights and Sucat exits, both in Muntinlupa. “It’s a populist idea. But I hope those pushing for this understand and see the bigger picture,” Ang said.

“Suspending toll now would be like punishing a company that, despite still having billions in receivables, has taken the initiative to invest another P10 billion to solve Alabang traffic, once and for all,” Ang said. The Skyway extension being built by SMC (that increases traffic on SLEx for now) will add capacity for 4,500 vehicles per hour on the northbound side, and 3,000 more vehicles per hour on the southbound section. He said the traffic on SLEx heading to Alabang was due to the toll road’s original design limitations when it was built by the former concessionaire.

Ang complained about some P7 billion in forgone revenues accumulated since 2012 for toll adjustments “that were never granted.” Any reduction of toll collection will be an outright violation of its concession agreement and damage its standing with lenders, which SMC taps to finance big-ticket infrastructure projects. “If banks see that government can just stop honoring concession contracts, they will also stop lending to local companies. Investor confidence will go down,” Ang was quoted as saying in the Philippine Daily Inquirer of Nov. 4.

On Thursday last week, the TRB decided to put on hold the proposal for a refund until there could be found a “very clear legal basis” for the reduction, the Inquirer reported.

So, is there a “very clear legal basis” for the government, similarly, to impose fines and penalties on the two private concessionaires for water distribution — Manila Water, a publicly listed company and a subsidiary of Ayala Corp., for the eastern half of Metro Manila, and Maynilad, the Metro Pacific Investments Corp. (MPIC) consortium with DM Consunji Holdings, Inc. (DMCI) for the western area — who signed up with the MWSS to “deliver uninterrupted water supply and compliance with drinking water and effluents standards” until 2037?

At the height of the people’s anger at the extreme water shortage in March, the MWSS publicly called out Manila Water and Maynilad for failure to deliver 24/7 uninterrupted water supply. Maynilad was ordered by the MWSS to rebate P2,500 per household in the severely affected areas, applicable to consumers’ succeeding water bills. In April, Manila Water was similarly told to pay a total of P1.13 billion in fines following massive service interruptions in Metro Manila’s east zone earlier this year.

But the problem is not distribution, but supply, both water concessionaires insist. Metro Manila cannot solely rely on the 40-year-old Angat Dam and needs an alternative water source. Businessman Enrique Razon wants to partner with Manila Water to refurbish Wawa Dam, which can be the nearest major source of bulk water to provide 80 million liters per day by 2021 and 540 million liters daily by 2024 (Bloomberg, March 14, 2019).

Both Manila Water and Maynilad have been pushing for alternative water sources as early as 2007. Wait for the completion of the Kaliwa Dam (approved in November 2018) — “We have an original timeline of 2023, but I want to finish the project by 2022 before President Duterte ends his term,” Reynaldo V. Velasco, MWSS administrator was quoted as saying by BusinessWorld on Dec. 20, 2018.

Rappler columnist JC Punongbayan said on March 13 at the height of the water crisis: “It is this (Kaliwa) project that the MWSS favored over the Laguna Lake project put forward by Manila Water despite warnings it could prove more expensive and already be too late to avert an impending water crisis… This P12.2-billion project is funded by a Chinese loan at interest rate of 2%, eight times higher than Japanese loans, and for which it is required that the dam be built by a Chinese contractor, China Energy Engineering Corp.”

Is the private sector “timid”? Or intimidated?

Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.

ahcylagan@yahoo.com