PPP is the way to go
The pandemic has drained the government of hard-earned taxpayer money as it had to spend hundreds of billions of pesos to contain the spread of COVID-19. Those pandemic-response funds were earlier earmarked for public infrastructure and services, and were augmented by official development assistance (ODA) loans bearing low-interest rates and long repayment periods. Faced with fund scarcity, however, the government cannot simply stop implementing vital projects, such as schools, hospitals, ports, roads, and bridges.
The previous Duterte administration’s “Build, Build, Build” program was the best mode for countries with surplus funds, but is not so for the Philippines, which has scarce funds.
The other viable option is a return to the public-private partnership (PPP), a long-term arrangement between a government unit and private companies. It involves using private capital to finance government projects, such as toll roads, hospitals, and airports, and then allowing the private financiers to collect fees from taxpayers or users over the duration of the PPP contract. Its main advantage is that it helps cash-strapped governments build much-needed public infrastructure at no money outlay on their part.
The Marcos Jr. administration’s economic team agrees. “In light of the fiscal bind we find ourselves in, PPP has emerged as an essential mode of financing the infrastructure that the economy needs. PPPs are expected to upgrade the country’s infrastructure, boost the competitiveness of domestic industries, and further encourage investments in various sectors that will lower prices and improve the quality of goods and services,’’ Socioeconomic Planning Secretary Arsenio Balisacan announced in an economic forum organized by the Economic Journalists’ Association of the Philippines last week.
Balisacan said PPPs can support present and future growth drivers, such as manufacturing, tourism, IT-BPOs, and creative sectors, as well as upgrading land, energy, logistics, transportation, telecommunications, and water infrastructure.
However, the prevailing implementing rules and regulations (IRR) for PPPs need to be changed if the government is to attract investors. These rules have been criticized by the private sector and deemed a deterrent to attracting private capital. Specifically, business groups have expressed concerns on the IRR’s provisions on risk-sharing, material adverse government action (Maga), as well as arbitration. The IRR defined Maga as any act of the executive branch, which the project proponent had no knowledge of, “that specifically discriminates against the project proponent and has a material adverse effect on the ability of the project proponent to comply with any of its obligations under the contract.” Business groups such as the Makati Business Club have expressed concern that the new definition of Maga “creates higher risks for businesses” and “practically absolve[s] the government of all blame and responsibility for any changes and foists all project risks, such as increased costs and difficulties on the private-sector partner.” The IRR also protected the government by providing that “acts and decisions of regulators shall not be subject to arbitration,” which is an internationally accepted standard element in long-term contracts.
President Marcos Jr., according to Balisacan, has already approved the plan to revisit the supposedly “antimarket” provisions of the guidelines. The Neda chief noted that Mr. Marcos was aware of the urgency to review the Amended BOT Law’s revised guidelines “because we want to get the private sector already thinking about investments, and obviously they are waiting for” the improved rules. Balancing the guidelines on the PPP scheme ties in perfectly with recent measures liberalizing the entry of foreign investors. The amended Public Service Act, for instance, now allows foreign capital in telecommunications, mass media, and private transportation vehicles, among others, which used to be exclusive to Filipino investors or companies.
PPPs also provide opportunities to push economic development in the provinces. As mayors and governors now have the challenging task of implementing programs and projects that otherwise should be done by agencies of the national government, Mr. Marcos earlier called on local government units (LGUs) to be open to PPP as a mode of financing undertakings in their provinces, cities, and towns. “I think this is the way forward, and I encourage all [LGUs] to be open to the possibilities of PPPs,” he said in a recent meeting with officials of the League of Cities in the Philippines in Malacañang.
While Balisacan said the Marcos Jr. administration was still open to any financing mode, whether PPP, ODA loans and grants, as well as internally sourced funds, experts believe that engaging private sector investors will be quicker in rolling out infrastructure projects. And the sooner the government addresses concerns about the unpalatable provisions in the PPP rules, the better for the economy moving forward to the post-pandemic era.
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