No Free Lunch

‘Build, Build, Bust’?

If the promised “Golden Age of Infrastructure” is at hand, it’s not exactly off to a good start. First-quarter GDP data showed an overall economic slowdown induced prominently by a dramatic slackening in public construction activity, which ground down to a mere 2 percent annualized growth from a zooming 38.5 percent in the same quarter last year.

I sincerely hope this is not a foreboding of yet another case of execution falling short of intention, of implementation defying plans. The previous administration was ribbed that PPP better stood for “PowerPoint presentations” rather than public-private partnerships, as projects were slow in getting off the conceptual stage. Expectations ran high when President Benigno Aquino III declared early on that PPPs were to be the cornerstone of his infrastructure development push. Yet it took most of his term to make a significant part of the listed PPP projects finally ready to be bid out, and when he stepped down, only 3 out of more than 50 projects listed had been completed.


But just as the PPP momentum had finally been mustered, the new administration decided to change course, opting to go for cheap government loans dangled by newfound friend and erstwhile adversary (and still so in the eyes of many) China. The policy from the top is now to fund much more of our infrastructure projects with official development assistance (ODA) from foreign partners (especially China), and from government funds (translation: taxpayer money). But there’s a basic issue here. One key virtue of PPPs is that users of the facility, such as toll roads and airports, are the ones who pay for it. If we use government funds or loans, which are ultimately paid for by general taxpayers, Mindanao or Visayas taxpayers will also pay for a highway in Luzon, even if they will never get to use that road. This is just one reason the PPP mode is widely seen worldwide as a good idea.

What’s more worrying, though, is that turning away from PPP in favor of government funding could undermine rather than bolster the government’s desire to build things fast, and build things well. We all know that our government’s track record in directly implementing projects doesn’t inspire much confidence. Five things come to mind, not necessarily in order of damage caused: long delays, huge cost overruns, fat kickbacks, shoddy maintenance, and large operating losses—and I hardly need to elaborate. Moreover, our past experience with China-supported projects—the scandal-ridden North Rail and National Broadband Network-ZTE projects—is anything but positive. Let’s not forget that we went for PPPs not merely to ease the financial burden on the government, even if that was the original compelling motivation. Besides the sound “user pays” principle they uphold, we also wanted to tap the private sector’s inherently superior efficiency in building, maintaining and running a revenue-earning facility.


In a Management Association of the Philippines forum last week, finance expert Vaughn Montes cited some contrasts. The ODA-funded Subic-Clark-Tarlac Expressway (SCTEx) took seven years from government approval to completion, two years delayed. It also cost nearly twice ($32.8 billion) the approved budget ($18.7 billion), at P341 million per kilometer. In contrast, the PPP Tarlac-Pangasinan-La Union Expressway (TPLEx) cost only P61 million per kilometer. The ODA-funded Iloilo International Airport took seven years from approval in 2000 to completion in 2007, at a final cost 42 percent above approved cost. In contrast, the PPP Mactan International Airport is on track for completion in 2018, four years after the government turned it over to the project firm—and it could have been three if not for a losing bidder’s court case that delayed it by a year.

Meanwhile, a proposal in Congress promises to throw yet another hurdle in the way of PPP, by requiring all bidders to secure a franchise from Congress first, when the current law sensibly grants it to the winning bidder outright. I’d worry about “Build, Build, Build” going bust, unless the government reconsiders its current stance on PPPs, and gets wary of overly depending on loans that could head us back toward financial instability, and more.

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