Two major infrastructure projects have been placed in succession in the pipeline to finally address the country’s airport congestions.
This month alone, the Clark International Airport in Pampanga, touted to be the biggest air access in Central Luzon, has been turned over to a joint venture of JG Summit Holdings, Filinvest Corp., and a unit of Singapore’s Changi Airport—the Luzon International Premier Airport Development (Lipad) Corp.—which will operate the facility for 25 years under the public-private partnership (PPP).
Also to commence under the PPP scheme and after a much-delayed notice of award from the Department of Transportation (DOTr) is the P734-billion Bulacan International Airport project of the San Miguel Holdings Corp. With the award, SMHC got the green light to take charge of the airport project’s financing, design, construction, supply, completion, testing, commissioning, and operation and maintenance.
Both the Clark and Bulacan airport projects are meant to free up the Ninoy Aquino International Airport (Naia) from the congestion hassle that air travelers have to endure.
I’m not sure if these developments signal the Duterte administration’s change of heart regarding PPP, which it views with derision. Nonetheless, I believe that this is a step in the right direction.
During its early years, the Duterte administration has scoffed at the protracted execution and lulls in PPP projects. Since the program commenced in the third quarter of 2010 under the Aquino administration, only four of the 56 PPPs that were initiated were completed as of end-2016. The delays were caused by funding, right-of-way acquisition, and contract changes.
But what really triggered Duterte’s aversion to PPPs is his infatuation with China’s money. In his visit to Beijing, he and Chinese President Xi Jinping agreed to 13 “mutually beneficial deals,” involving transportation and infrastructure projects.
Since then, the government has shifted to Official Development Assistance (ODA) for infrastructure projects, and less PPPs. Finance Secretary Carlos Dominguez III reasoned that avoiding the PPP route on certain infrastructure projects would fast-track completion and save on costs.
The BMI Research, a unit of Fitch Ratings, noted then that with the Philippines’s friendlier ties with China, the Duterte administration had taken a “government-centered investment approach,” in blunt contrast to former President Benigno Aquino III’s reliance on PPPs to finance big-ticket infra projects.
But has China delivered? So far, the only visible signs of Chinese money are the Chico River Dam project, which has yet to take off, and the expensive retrofitting of a bridge in Makati City. Instead, what China has given us are multitudes of Mainlanders engaged in Philippine Offshore Gaming Operators, which China itself deems illegal and the Philippine military with espionage-related suspicion. Chinese bureaucracy also stifles China’s pledged financial assistance to the Philippines.
With public spending on infrastructure expected to breach the P1-trillion mark next year to support the Duterte administration’s ambitious “Build, Build, Build” program, the Philippines could do well in entering into more PPP projects.
PPP is a predetermined deal between the government and a private firm, which is focused on financing, designing, implementing and operating infrastructure facilities and services that would otherwise have been taken cared of by the public sector. It minimizes costs while achieving project-evolving goals. It also tenders fiscal and nonfiscal benefits for the public sector since it solves the inadequate capital assets intended for the public sector’s infrastructure or development projects, and allows the provision of public funds for other local priorities. It’s an instrument to disperse project risks to both the public and private sectors.
PPP is meant to gain improved efficiency for both parties in delivering services to the public. Most important, the government gets more value for money. PPP is focused on reducing costs, better risk allocation, faster implementation, improved services and possible generation of additional revenue: It encourages the injection of private-sector capital.
The national budget and ODA are limited and subject to government prioritization. Private-sector funding, on the other hand, is readily available. It may be tapped to augment ODA funds and the government budget to implement critical government projects. PPPs give the government the leeway to take on fewer risks because of shared risk allocation. The private sector shoulders the project’s life cycle cost risks, while the government undertakes site risks, legislative and government policy risks, among others.
The Asian Development Bank is, in fact, pushing for PPPs in line with its priority to support infrastructure development. Mobilizing private resources for development was, along with infrastructure development, one of ADB’s five priorities.
“This includes promoting greater and more effective use of public–private partnerships, or PPPs. This approach is not new. In the late 19th century in Japan, for example, many railways and electricity services were started through innovative private companies under concessions granted by the government,” according to ADB President Takehiko Nakao.
ADB Private Sector Operation Director General Michael Barrow said he is seeing more and more countries open up to PPPs. “Every government, wherever I go, is talking about PPPs. It’s accepted, the modality is accepted. I hope in the Philippines it continues…it is important to continue pursuing PPPs in the Philippines, which is behind in infrastructure due to years of underinvestment, lagging behind neighbors like Thailand, Malaysia and Singapore.
ODA has its merits, but I believe that the government has to be extra cautious in managing the budget. In ODA, the country faces long-term repayments of fiscal burden. For me, it is more judicial to go though the PPP mode, most especially in commercially viable projects, to cash in on private capital flows and leverage private sector’s technical expertise.
For comments and suggestions, e-mail me at mvala.v@gmail.com