IF the Philippines were to decide to open its procurement market to foreign players in Trans-Pacific Partnership (TPP) countries, Filipino taxpayers will be able to save P76 billion a year for various construction projects.
This was according to a study released by the Philippine Institute of Development Studies (PIDS), which found out that the entry of foreign players in the local procurement market could increase competition and cut costs.
In the paper authored by University of the Philippines Professor Ramon L. Clarete and UP School of Economics student Gerald Gracius Y. Pascua, the option would lead to a cost reduction of 10 percent per year.
“The data and analysis in the previous section support this paper’s argument that opening up the procurement market to foreign suppliers belonging to TPP countries to increase competition in the local procurement market would confer net benefits to the Philippine government and Filipinos in general,” the authors said.
The authors added the estimates are based in the 2015 GDP nominal value of P15.192 trillion on the assumption that public infrastructure spending would amount to P760 billion, or 5 percent of GDP.
They said that assuming a farm-to-market road or other last-mile access road costs around P20 million per kilometer, the 10 percent savings in cost can pay for 3,800 kilometers for similar kinds of roads.
In terms of classrooms, the authors said the Public Private Partnership Center estimates P1 million to pay for a one- or two-story school building. With the savings, the government can build around 76,000 more classrooms.
“The lack of competition, in turn, can make road infrastructure procurement vulnerable to corruption. The cost of collusion and cartels in the road sector is large and ranges from 8 [percent] to 60 percent of the total road cost,” the authors, citing the World Bank, said in their study.
“To accommodate the bribes, contractors resort to the use of substandard materials in road projects, thus resulting in higher maintenance costs due to poor road conditions and traffic-flow congestion. Allegations of collusion and corruption have been found in 25 percent of World Bank-assisted road projects,” the authors stated.
Data obtained by the authors from PhilGEPS showed that most bidders for local projects were composed mostly of Filipino companies.
The authors said that, of over 12,000 local bidders for national projects between 2006 and 2014, there were only 13 foreign bidders in the eight-year period.
However, they said, the Philippines is among the countries with relatively high unit costs of road projects. In 2006 a kilometer of road costs $60,800, and $94,800 in 2005.
Further, the authors said the Office of the Ombudsman already estimated the country lost P48 billion to corruption over the last 20 years.
They added that the Commission on Audit reported that on a year-to-year basis, the country might have lost about P2 billion due to corruption.
“The fact remains, however, that in relative terms the country remains roughly where it used to be when the GPRA (Government Procurement Reform Act) was passed into law despite gains from competitive selection of suppliers in public procurement,” Clarete and Pascua said.