Is change about to come for govt’s PPP program?

By Vince Alvic Alexis F. Nonato, Reporter

Within less than a month of President Rodrigo R. Duterte’s presidency, his economic managers have buckled down and began throwing around ideas to improve the flagship infrastructure program, which has been criticized for its slow pace and unenthusiastic response to unsolicited proposals.

Even before Mr. Duterte formally took office, Finance Secretary Carlos G. Dominguez III already issued a pronouncement that marked a reversal from the government’s previous stance.

“We will welcome unsolicited proposals. Government does not have a monopoly over innovative ideas,” Mr. Dominguez said in a June 29 forum organized by the Rizal Commercial Banking Corp.

This was in stark contrast to the position adopted by the government of President Benigno S.C. Aquino III, which had been unexcited about unsolicited proposals.

In fact, only one has so far been approved by the National Economic and Development Authority Board — the Metro Pacific Tollways Development Corp.’s P23.2-billion pitch to build a 13.4-kilometer, four lane road connecting the North Luzon Expressway and South Luzon Expressway.

Mr. Dominguez in the said forum also said the new administration will encourage local government units to “initiate their own development partnerships,” citing the recent inauguration of the P38.9-billion mixed-use reclamation project in Mr. Duterte’s hometown of Davao City.

The following week, National Economic and Development Authority Director-General Ernesto M. Pernia issued another pronouncement addressing the languid pace of the PPP program under the Aquino administration.

“We plan to reduce the time… from the start to bidding,”  said in a briefing after the administration’s first Development Budget Coordinating Committee meeting on July 5. “The average length of time spent from the consideration of project proposal to bidding is about 29-30 months. We will try to cut that down to a third maybe, so things will move faster,” he said.

Focusing on the expenditure aspect, Budget Secretary Benjamin E. Diokno in his first briefing on July 14 said that the government aims to eventually increase the threshold of infrastructure spending to 7% of the gross domestic output. The first Duterte budget, for one, will spend 5.2% of the GDP, or a record P891 billion in 2017.

This was in contrast to the 5% infrastructure-to-GDP ratio committed by the previous administration, which Mr. Diokno claimed was more like “around 2-3% only,” as data was “fudged” by adding capital outlay on top of “pure” infrastructure.

Mr. Diokno added that plans for 24/7 construction on major public works projects in urban centers would also boost expenditure.

Change would not likely come at the expense of stability in the infrastructure sector, with Mr. Dominguez assuring “there will be no hiatus with the PPP projects that are coming up.”

“We’ll go ahead with all of them; we’ll just assume the administration did the right thing and we will push ahead,” he said during the BusinessWorld Economic Forum 2016 on July 12.

PPP Center Executive Director Andre C. Palacios, during the same forum, said the sector was “very happy to hear the new President is saying that the PPP will be playing a key role in the infrastructure program of the Duterte administration.”

“We should understand not only is strong political support needed — sustained political support is necessary,” Mr. Palacios said. “We should understand that the average PPP contract has a life of 25 years, and will involve at least five Philippine presidents in the life of the project.”

Stain on Aquino govt’s infrastructure program

The PPP program basically taps into the third way of financing infrastructure projects — the private sector, as an alternative to direct government funding or foreign loans.

Mr. Palacios in his presentation before the BusinessWorld Economic Forum noted the “huge gap” between the $57 billion that the government of President Benigno S.C. Aquino III was able to budget and the $127 billion needed to address infrastructure needs according to the Asian Development Bank.

“The gap is filled by $5 billion in foreign loans and grants, and $35 billion in private-financed infrastructure PPPs,” he said. “There is still a gap of $30 billion. Now, government could either raise the money and put it in its budget or further tap the private sector.”

The PPP was pitched by President Benigno S.C. Aquino III during his first State of the Nation Address as “our solution” to the country’s pressing infrastructure needs, at a time when “our funds will not be enough to meet them.”

By the end of his term, however, his administration was criticized for various delays, culminating in the failure to reach its target of awarding at least 15 projects.

When Mr. Aquino bowed out of office, only 12 projects with a cumulative project cost of P191.2 billion were awarded.

Already completed were the P2.23-billion Daang-Hari SLEX Link Road (Muntinlupa-Cavite Expressway) Project, the P1.72-billion Automatic Fare Collection System (AFCS), and the P9.89-billion PPP for School Infrastructure Project Phase I.

Other awarded projects are the P17.93-billion second phase of the NAIA Expressway Project, P3.86-billion PPP for School Infrastructure Project Phase II, P5.61-billion Modernization of Philippine Orthopedic Center project, P17.52-billion Mactan-Cebu International Airport Passenger Terminal Building, P64.9-billion LRT Line 1 Cavite Extension and Operation & Maintenance project, P2.5-billion Southwest Integrated Transport System (ITS) Project, P35.43-billion Cavite-Laguna Expressway, P5.2-billion ITS South Terminal Project, and P24.41-billion Bulacan Bulk Water Supply Project.

It was the Philippine Orthopedic Center project that stained the Aquino infrastructure legacy, as winning bidder Megawide Construction Corp. rescinded the contract in November 2015 over the government’s failure to turn over the possession of the project site.

Former Health Secretary Janette P. Loreto-Garin told reporters in March that there were no qualified proposals from interested service providers to take over the project, effectively shelving it.

This was because of the government’s commitment on allotting 70% of the specialty hospital’s capacity to indigent patients or those enrolled under the state-run Philippine Health Insurance Corp. program, with the remaining 30% going to paying private patients.  Private developers have not found the setup profitable enough to pursue.

One project was supposed to have hurdled the bidding stage already, but it ultimately ended in an auction failure.

None of the three qualified groups offered their bids for the P122.8-billion Laguna Lakeshore Expressway Dike Project in March. The developers have withdrawn from the project over qualms about the project’s viability.

Whether the project will have to go back to square one will depend on the feasibility review being done by the Department of Public Works and Highways, Mr. Palacios explained. If the original parameters that turned off developers are kept, the NEDA Board approval would still apply.

Registry project poised to be Duterte govt’s first PPP?

The awarding of the P1.59-billion Civil Registry System Information Technology Project Phase II narrowly missed being wrapped up by the Aquino administration. Instead, it is poised to be the first to be awarded by the Duterte government.

Only one bidder had submitted an offer and the Investment Coordination Committee would have to approve the lone bid first for compliance. Mr. Palacios said this was targeted for the first ICC meeting on Aug. 2.

Meanwhile, the submission of bids for ten projects remained pending. Five of these involve the development of regional airports: New Bohol (Panglao) Airport (P4.57 billion), Laguindingan Airport (P14.62 billion), Davao Airport (P40.57 billion), Bacolod Airport (P20.26 billion), and Iloilo Airport (P30.4 billion).

The other five were: the operation and maintenance of the LRT Line 2, the P18.99-billion Sasa Port modernization project in Davao City, the P298-million Road Transport IT Infrastructure Project, the P18.72-billion New Centennial Water Source-Kaliwa Dam Project, and the P50.18-billion Regional Prison Facility project.

Still in an equivalent stage is the aforementioned NLEx-SLEx Connector Road unsolicited proposal, which would be subject to a Swiss challenge this month.

These pending projects were not free of problems either, with several being beset by delays. For one, the regional prison facility, which will accommodate convicts to be transferred from the congested New Bilibid Prisons and Correction Institute for Women, has been postponed for almost a year over delays in the handover of land at the Fort Magsaysay military reservation.

Meanwhile, the P65.09-billion LRT Line 6 Project and the P170.7-billion North-South Railway Project are in the process of attracting prospective investors for prequalification.

Before the procurement for a PPP project takes off, a feasibility study would have to be prepared first and then evaluated by the concerned agency. Next, the ICC reviews and threshes out technical issues before it is submitted to the NEDA Board for approval.

When the Aquino administration ended, three projects P4.21-billion Integrated Transport System-North Terminal Project, the Rural Dairy Industry Development Project, and the Judiciary Infrastructure Development Project are undergoing feasibility studies. The P536.03-billion Manila Bay Integrated Flood Control, Coastal Defense and Expressway Project, meanwhile, is being evaluated by the DPWH.

The NEDA Board is currently evaluating five projects: the NAIA Development Project (P74.56 billion), the Plaridel Bypass Toll Road (P9.33 billion), the Philippine Travel Center Complex Project (P1.75 billion), the Batangas-Manila 1 Natural Gas Pipeline Project (P14.72 billion), and the New Nayong Pilipino at Entertainment City Project (P1.58 billion).

Delayed projects became political ammunition

In his last SONA, Mr. Aquino simply asked his constituents to “calm down” as the procurement process is long.

Instead, he defended the program by noting that his government has awarded more projects than the six accomplished by the preceding three administrations. Still, he did not elaborate how he planned to prevent further delays in the projects’ implementation.

“It doesn’t matter if I am unable to preside over the groundbreaking or ribbon-cutting. What is important is that these projects are well-planned and legal, so that when they are approved, construction can proceed quickly; the quality of the structure will withstand anyone’s scrutiny,” he said instead.

Perceived delays in the PPP program ended up providing ammunition for presidential candidates in decrying the inefficiency of the government. Opposition leader and former Vice-President Jejomar C. Binay even played with the acronym and repeatedly called the program a “Powerpoint presentation” that has been crippled by “paralysis by analysis.”

By the time Mr. Duterte has emerged as Mr. Aquino’s successor, his economic managers continued to echo the sentiment that the government fell short of reaching its PPP goals. Mr. Dominguez even used the “Powerpoint presentation” term to describe what had transpired under the previous government.

“This is first and foremost an opportunity to bring private sector participation in nation-building,” Mr. Dominguez said in June 29. “The PPP program will, in the new dispensation, no longer be merely a PowerPoint presentation.”

He assured the business sector that the implementation of the PPP program will be reviewed.

Mr. Palacios in a July 12 interview disclosed that the review is already underway, as the PPP Center started discussing with the NEDA how to streamline processes.

He explained that the PPP process tends to be slowest at the level of the ICC, because of its task to thresh out the technical issues before the NEDA Board evaluates a project’s policy implications.

Sustained political support necessary for infrastructure dev’t

On the issue of snail-paced processes, Mr. Palacios pointed out during the BusinessWorld Economic Forum on July 12 that momentum would have to be first built by the Aquino government, to be sustained by the succeeding administrations.

“We should understand PPP programs require strong and sustained political support. We have been successful so far over the past six years and we look forwarded to continuing these good experience of having speedy implementation while maintaining integrity,” he said.

Saying “the challenges to the program really started with the capacity of the agencies,” Mr. Palacios noted the government would have to adjust from a traditional mindset in which it decided the design of the project and took over the operation of the asset once it is built.

“We needed to build the capacity of the agencies to understand they have a different role when undertaking infrastructure with a private partner in the long term. So that took a while,” Mr. Palacios said.

“But, I think the idea of the private sector being a long-term partner for infrastructure has caught on already. So we are there. If we have sustained and strong political support, the momentum can be continued.”

Mr. Dominguez said as much during BusinessWorld’s July 12 forum. “To start with, they were just starting with a new system,” he acknowledged.

At the very least, the Duterte government will pick up on 17 projects that have not been finished when the Aquino administration bowed out.

“We will try to do all of those between now and the end of 2017, maybe even earlier,” Mr. Pernia said on July 12. “Unless there are problems with those projects, I think most of them can go.”

For Mr. Palacios, he looked back at the “sufficient experience in procurement and implementation which are then the basis for proposing policy reforms.”

“What we need to make sure is as we speed up the process we’re also ensuring the integrity of it, because at the end of the day, the cost will be shouldered by the Filipino people,” said Mr. Palacios.

Vince ALVIC ALEXIS F. Nonato (@VinceNonato on Twitter) is the court reporter for BusinessWorld. He breaks down court decisions and rants about anime on Twitter. MARGARITA GONZALES (@famamfa on Twitter) designed and updated the charts.