PPPs: myths vs facts

The government recognizes the valuable contribution of the private sector in attaining national development goals through public-private partnerships (PPPs), as enshrined in the 1987 Constitution. To encourage further private-sector participation, the Build-Operate-Transfer (BOT) Law was passed in 1990, and amended in 1994. Today, under the Duterte administration’s 10-point socioeconomic agenda, PPPs are identified as a key strategy to accelerate infrastructure development.

But even with the success of PPPs in the Philippines, certain misconceptions continue to undermine the program’s accomplishments. A common misconception is that PPPs are equivalent to privatization. In a PPP project, the government retains ownership of the facility, defines the extent of private-sector participation and continues to hold regulatory oversight and control of the facility. In privatization, the government relinquishes its ownership of the asset to the private sector, who now owns and operates it. Some examples of privatization are the power and water projects implemented under the Epira Law and the Water Crisis Act, respectively.

Another false impression is that the PPP Center of the Philippines structures and approves the projects. The PPP Center, which is attached to the National Economic and Development Authority, is tasked to serve as the central coordinating and monitoring agency for all PPP projects nationwide. While it provides technical advice to the implementing agency (IA) throughout the course of the project lifecycle, it is the IA that identifies the infrastructure project, an interagency Investment Coordination Committee (ICC) Technical Working Group (TWG) that evaluates it, and the ICC-Cabinet Committee (ICC-CC) and the Neda board, as chaired by the president of the Philippines, that approves it.

Another myth is that the government provides guarantees to PPP projects awarded to the private sector. While the BOT Law provides for several forms of government support or contributions such as guarantees or direct subsidies to a PPP project, none of the PPP projects awarded since 2010 provided guarantees.

There is also an observation that the PPP scheme is more expensive compared to other procurement options. A PPP project is not necessarily more expensive especially since it undergoes value-for-money assessment during the development, evaluation and approval stages. It is said to achieve value for money if it costs less than a public-sector comparator (i.e., a same or similar project delivered under the traditional procurement method). Also, most PPP bids received in recent years are lower than the approved government costs. If in the instance that actual project costs turned out higher than approved government costs, the private-sector partner assumes the cost overrun risk.

PPPs can be more cost-efficient overall if one considers the project’s lifecycle cost, including operations and maintenance, and the transfer of risk to the private sector.

In the Philippines, most of the signed PPP contracts were awarded to big conglomerates, prompting criticism that the process tends to favor only the major players. On the contrary, the PPP framework encourages open competition and ensures a level playing field for all PPP players through transparent and credible processes. Local or foreign investors and large or small companies that take part in PPPs are properly scrutinized through their legal, financial, and technical capacities to ensure that they are able to finance, construct and implement large, complex infrastructure projects.

There are also allegations that unsolicited proposals such as the recently awarded NLEx-SLEx Connector Road do not undergo a competitive and transparent bidding process. On the contrary, unsolicited projects are subject to a Swiss challenge: The government invites other private-sector parties to match or exceed the unsolicited proposal or bid. In the case of the NLEx-SLEx Connector Road, the Department of Public Works and Highways   advertised in a newspaper of general circulation an invitation to other interested parties to submit comparative proposals. Details of this process are posted in the PPP Center website for transparency. Understandably, there are persistent concerns surrounding the treatment of unsolicited proposals both internationally and locally. Policy efforts to institutionalize PPP best practices in this aspect are underway to further strengthen the unsolicited-proposal framework.

PPPs free up much needed fiscal resources that can be used to fund immediate needs such as in health and other social services. PPPs also offer alternative financing solutions to the country’s massive infrastructure needs. For instance, the PPP for School Infrastructure Project of the Department of Education has contributed in immediately addressing the classroom shortage, with Phase 1 supplementing the existing initiatives on classroom building nationwide. The PPP track served as a viable option apart from the traditional procurement using government funds or Official Development Assistance (ODA), which were both not available at the time the project was being developed.

In pursuit of the Duterte administration’s goal of accelerating infrastructure spending, there is a need to take stock of all available procurement options and determine the optimal solution that serves the interest of the government and the public. PPPs remain a significant and relevant player in attaining the Philippines’ vision of the “Golden Age of Infrastructure,” complementing the current thrust of using traditional procurement and tapping ODA.

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Ferdinand A. Pecson is the executive director of the PPP Center of the Philippines. For more information, visit ppp.gov.ph.