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Government softens on PPPs as private sector angles for bigger role

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“The shift in policy back to a heavier reliance on PPPs is likely to be positive news for the private sector, but potential investors may still be deterred due to the presence of other risks in the Philippine construction market.” -- James Su, infrastructure analyst for Fitch Solutions -- PHILIPPINE STAR/MICHAEL VARCAS

By Beatrice M. Laforga
Reporter

MIDWAY through the government’s term, the list of key infrastructure flagship programs has been revised, signalling a rethinking of priorities, not the least of which is a politically-driven decision to complete a significant number of works by the time the President steps down in 2022.

The revision also features more public-private partnerships (PPPs), which were initially shunned as too slow off the bat, perhaps an acknowledgement that the private sector must have a bigger role or cannot be held back from proposing projects the government did not conceive of. Or perhaps the government is running up against the limits of projects it can finance with aid or its newfound fiscal strength.

The revision of the flagship list in October raised questions and drew out opposition allegations that as few as nine key projects are under way. The revamp of the list sounds like a good occasion to take stock of a government that staked its reputation on closing the infrastructure gap.

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In 2016, President Rodrigo R. Duterte promised a “golden age of infrastructure” by unveiling an P8-trillion “Build, Build, Build” program, with 75 big-ticket works designated flagship projects.

The initial list has since been upgraded to 100 projects, with some dropped for being unworkable and others added to give the government a better completion average by 2022.

In a letter sent to Representative Jose Ma. Clemente S. Salceda of the second district of Albay, Vivencio B. Dizon, the presidential adviser for flagship infrastructure projects, said that projects deemed unfeasible were put on hold after they failed to satisfy the economic internal rate of return (EIRR) criteria prescribed by the National Economic and Development Authority (NEDA).

Mr. Dizon, who is also the president and CEO of the Bases Conversion and Development Authority (BCDA), said that the “evolving list” will continue to be updated as more projects are rolled out and evaluated for various parts of the country, especially in the Visayas and Mindanao.

NEDA Secretary Ernesto M. Pernia has assured that the process of reviewing and updating project lists is normal.

In an interview, Mr. Pernia said all plans, including those that involve infrastructure development, will have to be reviewed from time to time and are always subject to revision.

“Any plan always undergoes an update at some time during the planning period because no plan, especially infrastructure projects, is cast in stone. They are always subject to change,” Mr. Pernia said.

The Philippine Development Plan (PDP) 2017-2022 is also being updated midway through the term, along with its accompanying document, the 2017-2022 Public Investment Program (PIP), which contains the rolling list of priority programs and projects to be implemented within the plan period of 2017-2022.

Mr. Dizon called the list an evolving document that will be presented to the public at regular intervals to ensure everyone has an accurate picture of the progress.

“A good exercise for us with the media is to put everything on the board, what projects are you interested in… the best is to do it that way so there’s no room for misrepresentation,” he said

The business sector took the news positively.

“Business stays positive. We understand and in fact applaud government for reviewing and proceeding with caution in approving infra projects as these are imbued with so much public interest. Those that are not viable at the moment should be deferred,” Philippine Chamber of Commerce and Industry (PCCI) President Alegria Sibal-Limjoco said.

PPPs
One of the topics of interest when the revised list was first announced was that it included more projects funded through PPP.

The list now has 29 PPP-funded projects out of 100, up from the nine projects on the previous list of 75.

Economic managers were quick to assure that they will be more cautious on the matter of state guarantees, subsidies and material adverse government action (MAGA) clauses in evaluating PPP agreements.

Finance Secretary Carlos G. Dominguez III has said his main concerns are that negotiations with the private sector not take long, and to keep the state’s exposure to contingent liabilities to a minimum.

In the early years of the government, PPP took a back seat in favor of official development assistance (ODA) and internal funding.

The initial backlash against PPPs stemmed from contracts from the past administrations that featured automatic rate increases, non-compete clauses, commitments of non-interference, judicial intervention in the form of temporary restraining orders, and concessionaire-required government guarantees, according to Finance Undersecretary Karen G. Singson.

James Su, an infrastructure analyst for Fitch Solutions, said well-executed PPP projects are generally implemented faster compared to those funded through foreign loans “as it is in the best interest for private entities to minimize disruptions and delays to avoid cost overruns.”

“The shift in policy back to a heavier reliance on PPPs is likely to be positive news for the private sector, but potential investors may still be deterred due to the presence of other risks in the Philippine construction market,” Mr. Su said.

SOURCES OF FUNDING
The 100 projects under the revised list are estimated to cost around P4.25 trillion, significantly larger than the P2.41 trillion costing of the original list of 75.

Of the 100, 49 projects will be funded through ODA loans worth P2.31 trillion, followed by the 29 PPP-funded projects worth P1.77 trillion. The remaining 22 projects will be funded out of the national budget and are worth P167.95 billion.

Some 56 of the list of 100 have been set completion targets of 2022 or earlier. Mr. Dizon said all projects will be started before the government steps down. His own estimate is that about 35 projects will be completed before the President steps down in mid-2022.

“In the new list, 35 are already ongoing, meaning shovels and equipment are on the ground, 32 will commence construction in six to eight months, 21 are at the advanced stages of approval, and 12 are at the advanced stages of feasibility studies,” he said in his letter to Mr. Salceda.

The projects fall under five categories: transport and mobility, power, water, information and communications technology, and urban development and renewal, he added.

Among the projects that were scrapped from the initial list were some proposed bridges since they were deemed not doable due to lack of appropriate technology.

This includes the proposed bridge from Matnog, Sorsogon to Allen, Samar as well as the proposed bridge linking Leyte to Surigao.

The transportation works that were added to the new list were the P1.4-billion Sangley Airport project, the P10-billion Light Rail Transit West Extension, the P9.73-billion EDSA Greenways as well as the Bataan-Cavite Interlink Bridge which is now in the advanced feasibility study stage.

Some PPP-funded projects that were included are the New Manila International Airport in Bulacan, and the rehabilitation of the Ninoy Aquino International Airport (NAIA).

PCCI’s Ms. Limjoco said the chamber expects the approved projects to break ground as soon as possible to meet the targeted completion dates.

European Chamber of Commerce of the Philippines (ECCP) President Nabil Francis said prompt execution of projects is the most important part of the drive to develop infrastructure but “when it comes to flagship projects, continuity is key from one administration to another.”

Mr. Dizon said with input from economic managers and the implementing agencies, projects that made it to the flagship list are deemed urgent with the highest possible impact on their potential users.

“The advantage there is the entire structure of the NEDA Infrastructure Committee (INFRACOM) and Investment Coordination Committee (ICC) all rallies behind these projects because they are the most urgent and they are the most important projects so we want to be able to move them as fast as possible in order to build momentum. That’s the advantage,” he said.

The “Build, Build, Build” program, Mr. Pernia said, seeks to highlight projects with the highest impact on people’s quality of life, especially in the outlying regions.

He said the project list was geared towards the most feasible and doable with the best chances of being completed within the administration’s term.

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