How to build infrastructure

The Duterte administration has recognized the failure of past administrations to build infrastructure. So it has, wisely, put infrastructure at the forefront of the President’s agenda: Build, build, build. Some P1.1 trillion (6.3 percent of GDP) is to be spent this year. At least it has been budgeted; whether the funds actually get fully spent is yet to be confirmed. This doubles average spending over the past five decades.

What can be added are grants and soft loans from other governments and international agencies, plus funds from private players. There’s more than enough money; the problem is using it. And here several problems arise; delays are numerous, frustrating and wasteful. Almost all of the delay is manmade, so man can fix it.

“Damn the torpedoes, full speed ahead” should be the motto of implementing agencies. Toes have to be stepped on, legal roadblocks removed. But the shift from implementation under public-private partnerships (PPP) to government- and ODA (official development assistance-led implementation, as the government has proposed, raises the question: Is this a better solution?

For me, it depends on the project. Rather than having an overall priority to one or two modes, utilize all four. Some projects are better one way, some another.

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. The first delays come in the preparation of the terms of reference (TOR) and request for proposals (RFP). And then in the almost inevitable temporary restraining order (TRO) filed by a loser in the bidding which the courts have unconditionally accepted and taken forever to decide.

The slowness in preparing TORs and RFPs is principally due to the fact that the line agencies involved—and even the National Economic and Development Authority for final evaluation—have good people but not enough to do the job at the speed required, and handle all the numerous projects planned and necessary.

Hiring truly independent consultants to assist government staff could help. There are plenty of them, and advisors, qualified to do this work, and do it quickly.

As for TROs, there’s Republic Act No. 8975 that allows only the Supreme Court to issue such orders for national infrastructure projects. All the high court has to do is exercise extreme discretion and accept a request only if there seems to be a very strong case for review.

Another delay concerns right of way, but this affects government/ODA and PPP projects equally. Here it just needs a strong government determined to exercise its right of eminent domain. And just do it. Paying, if I can be listened to, 1.5 times the market value.

As for the idea that it’s cheaper to build and operate, this will depend greatly on the project itself. I think there’s little doubt that the private sector can build cheaper, faster and better, particularly where competitive bidding is involved (and in PPP it is). A reputable contractor is imperative. But the government can borrow at a much, much lower cost. Value-for-money analysis is used in many countries to determine the best way to implement a project. It’s something that should be adopted here.

For me, what should be a primary reason is cost to the user. Where the government comes out ahead is that it needs no profit. But the rate of return is fixed, and is not high. It used to be that the government could borrow cheaper, but with the banks awash with cash… A recent project borrowed at 4 percent—that’s not much over government sourcing.

So much work has been done through PPPs, with many at an advanced stage, that to change the policy now would seem a waste. I don’t think the government has the manpower or capability to take on all the PPP projects that were in the pipeline. And I hope we don’t agree to bring in foreign governments and foreign workers (under ODA) with tied loans, in which they’re the supplier and builder—except in exceptional cases.

The Duterte administration’s economic team should sit with the major PPP players and the line agencies for a lengthy, freewheeling discussion of what’s best for the government’s massive infrastructure program. For me, each project should be evaluated for what is the best way to go.

Email: [email protected]. Read my previous columns: www.wallacebusinessforum.com.