Unexpected policy shift

A policy shift in the Duterte administration’s massive infrastructure program is causing concern in the private sector, which is worried that vital projects such as airports, seaports and highways will either be delayed unduly or done haphazardly.

The government is spending P8.4 trillion for its “Build, Build, Build” initiative. This will raise the share of infrastructure spending in the gross domestic product from 5.4 percent this year to 7.1 percent in 2022. This is intended to help grow the economy, starting next year until the end of President Duterte’s term, by 7-8 percent annually from 6.9 percent last year and slash poverty incidence to 13-15 percent from 21.6 percent in 2015. But of this huge budget, 66 percent will be implemented with funding from the national budget. Only 18 percent of the projects will be carried out through the public-private partnership (PPP) program and 15 percent through official development assistance (ODA). In short, the private sector will be directly handling less than a fifth of the infrastructure projects under the current regime.

Economic managers refer to this as a “hybrid PPP,” in which some infrastructure projects will be funded by the government—partly using ODA—reportedly to facilitate the quick start of construction. The PPP component will come later when the operations and maintenance of the project are bid out to the private sector. Finance Secretary Carlos Dominguez III explained it thus: “Our priority is to start the project immediately. We don’t want to wait for the public to benefit from new projects, so we’re willing to take the initial steps and spend the funds available to the government both through loans and tax collections.” The problem with the PPP, he pointed out, was that negotiations with private concessionaires took about 30 months before a project could break ground.

The private sector, on the other hand, is of the view that it would be unfortunate if the government did away with private-sector-led projects. Eric Francia, who heads the Ayala Group’s energy unit, thinks that the government might not be the best stakeholder to lead the infrastructure development. He notes that historically, the government has not been in the best position to execute complex infrastructure projects, and cites the delayed completion of such projects as the Subic–Clark–Tarlac Expressway (SCTEx) and the bidding of light railway trains as examples.

The Philippines also has had a “bad experience” with ODA, adds economist Calixto V. Chikiamco, president of the Foundation for Economic Freedom, who observes that such loans are exposed to foreign exchange and security risks. He likewise cites the SCTEx project—the “hybrid PPP” model adopted by the Duterte administration—that saw its original budget double and suffered long delays.

Indeed, a lot of important PPP projects are being set aside, and not a single PPP project has been bid or carried out under the Duterte administration. Among those removed from the PPP list are the operation and modernization of five regional airports—in Davao, Bacolod, Iloilo, Laguindingan, and Bohol. After attracting a number of unsolicited proposals to operate and modernize the Clark International Airport—which was in the PPP pipeline during the Aquino administration—the government has also chosen to handle its development “rather than risk delays” in the event auctions to the private sector lead to litigation.

The PPP may have had a very slow start during the previous administration. But the delay was part of the birthing pains of a novel scheme in the country. After six years, both the government and the private sector have learned lessons on how to speed up the projects’ pace. Perhaps the Duterte administration could have just picked up from where its predecessor left off? The private sector had expected the PPP momentum in the last two years of the Aquino administration to pick up steam starting in 2017. It seems this will not be the case.