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Revive PPP

/ 05:08 AM September 19, 2019

Some time back, the government decided to concentrate more on self-funding and using foreign funded assistance or Official Development Assistance (ODA) to implement its 75 major projects. That was going quite well until the disgraceful action of the House of (so-called) Representatives to delay the budget that, coupled with a two-month ban on starting new projects before the election, meant the government effectively lost the first half of the year — when there was no rain so construction could be continuous — to build.

That setback meant it must now scramble to catch up. Then, there’s another problem: personnel. The Department of Public Works and Highways and the Department of Transportation just don’t have enough experienced people. They do have good ones — just look at how much has been done already; but the workload is too heavy. Add to that a limit on the amount of funds immediately available, so turning some projects over to the private sector makes sense.

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Mind you, for me, it always did. I never did understand why you’d do something yourself when you could get someone else to do it — and pay for it.

Highlighting that PPP (public-private partnership) can work is the Mactan Cebu International Airport expansion project. There’s also the modernization of Clark International Airport, which is a hybrid PPP. That terminal is presently operating, with its expansion expected to be completed on schedule by mid-2020. It is, in fact, the first hybrid PPP project to be implemented under the Duterte administration. Even Finance Secretary Carlos Dominguez said the project is the fastest infrastructure project to be implemented by the government, “setting the template for all other projects under the ‘Build build build’ program.”

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Head-to-head comparison of similar types of projects—specifically airports, toll roads and mass transit systems—indicate that those executed through PPP were completed on time and with hardly any cost overrun. The private proponent absorbed whatever overrun there was. Projects financed by ODAs have been significantly behind schedule, and most exceeded their original costs.

Projects ideal for PPP are those facilities where the “user pays” principle applies, and where the private proponent gets reasonable returns that enable full recovery of costs and allows for a decent profit.

For PPP, the delay is principally — in fact, almost entirely — in the bidding process. I don’t think anyone questions that the private sector can build more efficiently and faster than the government can. It’s in the preparation of the terms of reference (TOR) and request for proposals (RFP) where the delays come in, as well as in the almost-inevitable temporary restraining order (TRO) filed by a loser in the bidding that the courts unconditionally grant and take forever to decide on.

The slowness in preparing TORs and RFPs is principally due to the fact that the line agencies, and even the National Economic and Development Authority, involved in the final evaluation have some good people (I’ve met many) but just don’t have sufficient expert staff to do the job at the speed required. Government salaries don’t attract them.

There are two possible solutions: 1) raise government salaries to match private ones; and 2) outsource the expertise needed. The first one is ultimately the best way to go, but that could take a decade or more to accomplish. The second can be done immediately. There are plenty of independent consultants and advisors qualified to do this work, and do it quickly. The cost is minor within the overall cost of a project. That can cut many months off the bidding process and tap into knowledge and expertise on international best practice.

As to the TRO: There’s already a law (Republic Act No. 8975) that allows only the Supreme Court to issue TROs for national infrastructure projects. So all the high court has to do is to exercise extreme discretion and accept a request only if there seems to be a very strong case for review. If it comes from a loser, grave suspicion and consequent reluctance to accept a TRO request should be the overriding determinant. If the Supreme Court puts the national good first, there should be very few, if any, delays due to TROs.

The government’s massive program to build infrastructure desperately needs all the help it can get. Asking the private sector to help just makes good practical sense. The World Bank/International Finance Corporation is willing to help in bringing PPP back into the equation.

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With less than three years to go, the Duterte administration should welcome all the help it can get. There seems to be a growing recognition that turning some projects over to the private sector is worth considering. Shifting to PPP should be revived to ensure that all 75 programmed projects actually get started before President Duterte bows out.

Email: [email protected]

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TAGS: Like It Is, Peter Wallace, PPP, Public-private partnership
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