By Ferdinand A. Pecson

PPPs in the Philippines: Myths vs Facts

Posted on April 27, 2017

THE GOVERNMENT recognizes the valuable contribution of the private sector in attaining national development goals through public-private partnerships (PPPs) as enshrined in the 1987 Constitution. To encourage further private sector participation, the Build-Operate-Transfer (BOT) Law was passed in 1990, and amended in 1994.

Today, under the Duterte administration’s 10-point socioeconomic agenda, PPPs are identified as one of the key strategies to accelerate infrastructure development.

Even with the success of PPPs in the Philippines, certain misconceptions continue to undermine the PPP program’s accomplishments.

One common misconception is that PPP is equivalent to privatization. In PPPs, government retains ownership of the facility, defines the extent of private sector’s participation, and continues to hold regulatory oversight and control of the infrastructure project or facility. In privatization, the gov’t relinquishes its ownership of the asset to the private sector, which now owns and operates the asset. Some examples of privatization are the power and water projects implemented under Electric Power Industry Reform Act (EPIRA) and the Water Crisis Act, respectively.

Another false impression is that the PPP Center of the Philippines structures and approves the projects.

The Center, which is attached to the National Economic and Development Authority (NEDA), is tasked to serve as the central coordinating and monitoring agency for all PPP projects in the Philippines. While the Center provides technical advice to Implementing Agencies (IAs) throughout the course of the project life cycle, it is the IA which identifies the infrastructure project, an interagency Investment Coordination Committee (ICC) Technical Working Group (TWG) which evaluates it, and the ICC-Cabinet Committee (ICC-CC) and the NEDA Board, as chaired by the President of the Philippines, who approves it.

Another myth is that the government provides guarantees to PPP projects awarded to the private sector. While the BOT Law provides for several forms of government support or contribution such as government guarantees or direct government subsidies to a PPP project, none of the PPP projects awarded since 2010 provided guarantees.

There is also an observation that the PPP scheme is more expensive compared to other procurement options. PPP projects are not necessarily more expensive especially since these undergo value for money assessment during project development, evaluation, and approval stages. A PPP project is said to achieve value for money if it costs less than a public sector comparator (i.e. a same or similar project delivered under the traditional procurement method). Also, most PPP bids received in recent years have come at lower than the approved government costs.

If in the instance that actual project costs turned out higher than approved government costs, the private sector partner assumes or shoulders cost overrun risk. PPPs can be more cost-efficient overall if one considers the project’s life cycle cost, including operations and maintenance, and the transfer of risk to the private sector.

In the Philippines, most of the signed PPP contracts were awarded to conglomerates, prompting criticisms that the process tends to favor only the major players. On the contrary, the existing PPP framework encourages open competition and ensures a level playing field for all PPP players through transparent and credible processes. Local or foreign investors and large or small companies that participate in PPPs are properly scrutinized through their legal, financial, and technical capacities to ensure that they are able to finance, construct and implement large, complex infrastructure projects.

There are also allegations that unsolicited proposals such as the recently awarded NLEx-SLEx Connector Road do not undergo a competitive and transparent bidding process.

On the contrary, unsolicited projects are subject to a Swiss challenge -- whereby the government invites other private sector parties to match or exceed the unsolicited proposal or bid. In the case of NLEx-SLEx Connector Road, the DPWH advertised in a newspaper of general circulation, an invitation to other interested parties to submit comparative proposals. Details of the unsolicited proposal process are posted in the PPP Center Web site for transparency.

Understandably, there are persistent concerns surrounding the treatment of unsolicited proposal process both internationally and locally. Policy efforts to institutionalize PPP best practices in this aspect are underway to further strengthen the PPP unsolicited proposal framework.

PPPs free up much needed fiscal resources that can be used to fund immediate needs such as in health and other social services. PPPs also offer alternative financing solutions to the country’s massive infrastructure needs.

For instance, the PPP for School Infrastructure Project (PSIP) of the Department of Education has contributed in immediately addressing the classroom shortage throughout the country. The PSIP-Phase 1 supplemented the existing initiatives on classroom building nationwide. The PPP track served as a viable option apart from the traditional procurement using government funds or Official Development Assistance (ODA), which were both not available at the time the project was being developed.

In pursuit of President Duterte administration’s goal of accelerating infrastructure spending, there is a need to take stock of all available procurement options and determine the optimal solution that serves the interest of the Government and the public. PPPs remain a significant and relevant player in attaining the Philippines’ vision of the Golden Age of Infrastructure, complementing the current thrust of using traditional procurement and tapping ODA.

Ferdinand A. Pecson is the Executive Director of the PPP Center.