Complicated process

The delays faced by the P60-billion Light Rail Transit-1 extension project, the P35-billion Cavite-Laguna expressway, the Mactan-Cebu international airport expansion, and many other vital infrastructure ventures have exposed the complicated nature of the public-private partnership, the flagship program of the Aquino administration.

Only three PPP projects have been successfully auctioned since the program was launched in 2010. These are the P1.96-billion Daang Hari-South Luzon Expressway link won by Ayala Corp. in December 2011, the P16-billion first phase of a school infrastructure project awarded in September 2012 to two private consortiums, and the P15.8-billion Ninoy Aquino International Expressway project bagged by a unit of San Miguel Corp. last May.

Bidding for the LRT extension project last Aug. 15 failed after three of four prequalified groups backed out and the fourth made a conditional offer. Commercial concerns—real property taxes, guaranteed fare increases, and right-of-way issues—were reported to be the primary reason. These same concerns are also hounding other PPP infrastructure projects.

However, the government has blamed the delays on the need for extensive project reviews to ensure that the deals would not be detrimental to it and the public. At a House of Representatives hearing on the proposed budget of his agency, Transportation Secretary Joseph Emilio Abaya spoke of “a need to strike a balance between the interest of the bidders and that of the government.” While admitting that the Department of Transportation and Communications was responsible for the delays in the big PPP projects, he said this was only because it was being careful before plunging into ventures that had not been properly studied. He said government officials were also trying to accommodate the requests of private firms, but not without taking public interest into consideration. Pursuing PPP projects is a “very complicated process,” he added. “It is really a sophisticated negotiation process, but we’re learning from it.”

Just to show how difficult the process is, the DOTC noted that it had originally specified timelines for bidders to seek clarifications on the criteria for the three delayed PPP projects. Given the broad interest generated by the projects, prospective bidders submitted more than 1,000 questions for the three projects combined. The sheer volume of clarifications and the time needed to adjust their proposals accordingly made the bidders’ requests for extension reasonable.

There is no doubt that the government must balance the private proponents’ commercial concerns—mainly financial returns or profit—with consumer welfare. PPP Center executive director Cosette Canilao said the government had undertaken initial reforms to ensure that the projects would be “commercially viable for the bidders and bankable for the lenders.” For instance, she said, the DOTC had asked Malacañang to approve a plan to provide about

P2 billion to the winning proponent of the LRT-1 extension project as subsidy to cover real property taxes. Last week, the DOTC also announced revised terms in the Mactan airport project deemed attractive to private investors, including a longer concession period and a lighter tax burden for bidders.

But to the private sector, the learning process is taking too long, and half of President Aquino’s term should have been more than enough for this. Private-sector exasperation at the series of failures of the PPP is growing. “[The European Chamber of Commerce of the Philippines] feels that the PPP model designed by the [DOTC] obviously does not work. It is time to review the failures and design a new concept,” ECCP vice president Henry J. Schumacher was quoted as saying last week. He added: “[What is] important is that investors must be allowed to make a profit. Without profit, nobody is going to provide funds and take risk. The DOTC has to understand that making profit is not a sin.”

How to strike a balance between commercial viability and public interest? Three years ago, Britain offered to help the Aquino administration in drafting its PPP program. Being the acknowledged birthplace of the PPP, Britain can provide the expertise needed by the Philippine government to smoothly implement its own program. Again this month, after the series of delays in project bidding, it offered to lend its expertise on the PPP to the Philippine government. There is nothing wrong in accepting the offer now.