‘Economic restrictions hampered PPP projects’

Public-private partnership (PPP) has significantly developed the country’s energy industry, but other sectors, such as transport, telecommunications, water and social infrastructure, remain untapped by the private sector due to the constitutional restriction on foreign ownership.

According to the PPP Monitor of the Asian Development Bank (ADB), the Philippines ranks lowest among eight countries in terms of allowable foreign stake in greenfield projects due to the constitutional provision limiting foreign ownership to 40 percent. The report showed this is far behind surveyed countries Bangladesh, India, Indonesia, Kazakhstan, China, Thailand and Vietnam.

The report said the country was able to complete a total of 119 PPP projects, amounting to $56.9 billion, from 1990 to 2016. Out of the 119 PPP projects that have reached financial close, 77 were energy infrastructure, 27 were transport, seven were information and communications technology (ICT), six were water and two were social infrastructure.

The report also noted that foreign-sponsor participation was always available in recent years, like in 2016, when 52 percent of the 62 PPP projects were backed by foreign entities.

However, the report noted that  “while much has been achieved in developing the PPP market in the country, there remain challenges,” one of which is the constitutional restriction on foreign ownership that has apparently discouraged entry of foreign players in public utilities.

“One challenge is the current limit of 40-percent foreign ownership in the PPP project company in infrastructure projects, where the operation requires a public-utility franchise. This may restrict competition and, in some ways, can inhibit Philippine infrastructure development,” the PPP Monitor said.

According to the report, the country has posted modest number of shares of PPP projects that have reached financial close in transportation (23 percent), ICT (6 percent), water (5 percent) and social infrastructure (2 percent). Among the surveyed countries, excluding Papua New Guinea, the Philippines ranked fourth in number of PPP projects completed in transportation and ICT, fifth in water and third in social infrastructure. The country ranked fourth in number of PPP projects that have reached financial close in the energy industry.

Aside from the constitutional restriction on foreign ownership, the country has a “notorious” record on dispute resolution and enforcement mechanism.

“Although the dispute-resolution mechanism is transparent, it is still considered not efficient and time-consuming, aside from costly court processes. Typically, the resolution of disputes is left to the discretion of parties, including the use of alternative dispute resolution with agreements citing international arbitration as a mechanism of choice,” the report read. 

Turning Points 2018
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