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PPP program: Of 54 deals, 7 awarded; 20 more at P900B

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MANILA, Philippines–It has been battered and bruised but the Aquino administration’s public-private partnership (PPP) program, whose implementers admit is still a work in progress, remains committed to getting crucial infrastructure projects off the ground.

PPP projects have continuously drawn the spotlight given the crucial roles they play in driving economic growth today and in the decades to come. Reassuring the public and investors in President Aquino’s State of the Nation Address (Sona) on Monday, as the administration had done in the past, would help the program.

This reassurance is critical as the program has its fair share of critics—from impatient bidders to those who feel the process favors certain personalities—but the PPP Center that oversees the massive infrastructure drive says the criticism has not dampened investors’ interest thus far, according to its executive director, Cosette Canilao.

She said the lessons learned and reforms implemented over the last three-and-a-half years meant that the PPP deals could be ramped up until President Aquino steps down in 2016.

Going faster

“We are going faster now,” Canilao said. “We have a healthy pipeline of projects and everything is now moving.”

Canilao said a total of five PPP projects would be completed in two years.

These include the 4-kilometer Daang Hari-SLEx Road project, 7-km Ninoy Aquino International Airport (Naia) Expressway project, a smart-card system for Metro Manila’s railways and deals for the construction of new classrooms, she said.

The number of projects may seem small relative to the program’s overall scale and the administration has refrained from mentioning targets, preferring instead to mention specific projects and how they would benefit the public, based on last year’s Sona of the President.

Mactan Cebu International Airport FILE PHOTO

Aquino’s previous address noted key airport deals like the P17.5-billion Mactan-Cebu International Airport, which has been awarded to a Filipino-Indian consortium, Megawide Construction Corp. and GMR Infrastructure.

The government got a P14.4-billion premium payment for this project, meaning Aquino was expected to highlight this PPP deal in his Sona on July 28.

While bagging a significant premium payment was noteworthy, the government may also highlight the robust participation for the PPP by other groups, both local conglomerates and global airport operators.

Sanctity of contracts

This is also to underscore the growing investors’ confidence in a country, where there is still some concern over the sanctity of contracts.

The President made reference to this in last year’s Sona, when he said the public “seemed to have lost confidence in the contracts the government undertook.”

He assured the public that transparency was observed in awarding contracts to PPP projects.

“We have no plans of entering into questionable contracts today just to bequeath problems to the next administration. Each project has to go through the correct process to ensure that our taxpayers’ hard-earned money will be spent the right way,” Aquino said.

Despite the heavy criticism on the slow pace, some in the private sector said the seeds sowed in the current administration were important for future projects.

Roman Azanza III, Aboitiz Equity Ventures first vice president for business development, said the recent successful projects under the program signaled that the Philippines was a safe place to invest and he “hoped” this could be sustained even under future administrations.

“This administration and the people that devised the BOT [build-operate-transfer] law made real efforts, deal by deal, and project by project, to get to a state where a process can be run that attracts the confidence of not just local investors but foreign players,” Azanza said.

More PPP projects, meanwhile, were on the way.

Canilao noted that getting a steady pipeline was the key in ensuring the program’s sustainability and keeping investors interested.

Indeed, the sheer scale of the program highlights how much work still needs to be done for government and on the other side of the fence, for investors, the pool of potential opportunities.

POC as it now stands in Sta. Mesa Heights, Quezon City photo: ppp.gov.ph

7 deals so far

As of July 10, the government had awarded seven deals out of a total of 54 identified projects. Those seven, including a P17.5-billion contract to expand and operate Cebu’s main international airport, have a combined value of over P60 billion.

The amount, however, is relatively small compared with about 20 more projects valued at P900 billion ready for awarding or to be rolled out.

Part of these are a P135-billion “subway” project in Metro Manila, a P271-billion commuter rail in Luzon, both of which are under study, and a P24-billion bulk water project for Bulacan province.

The remaining 28 projects, which include more seaports, expressways and a natural gas pipeline, are in various stages of development, the agency’s data showed.

Canilao said the list did not include new projects being considered, including the privatization of the operations of Manila’s Naia, the country’s busiest air gateway.

15 more contracts by 2016

All told, she said the government was still aiming to have 15 PPP contracts signed by the end of Aquino’s term, with 10 turned over to the private sector. Over the next 12 months, the PPP Center is planning to roll out another 20 projects, she said.

“We are now at this sweet spot in the next 12 months,” she said.

Most of the deals are being implemented by the Department of Transportation and Communications and the Department of Public Works and Highways.

Strengthening the capabilities of the two agencies is important to the program’s success, according to Canilao. Timing is also an issue and as the 2016 deadline looms, the PPP Center is keen on what happens beyond Aquino’s term amid concerns the future administration would take a different direction from what was started.

Amend BOT law

 

“What we need now is to institutionalize the changes that we have started. Part of this is amending the BOT (build-operate-transfer) law to reflect these changes to make the program more sustainable,” Canilao said as she hoped lawmakers would approve these revisions within the year.

She said recent reforms included beefing up its project development and monitoring facility, crucial in ensuring “a steady deal flow.”

Government units and agencies are now more used to dealing with PPPs and processes have been “streamlined,” while measures have been taken to address risks through the creation of a contingent liability fund, Canilao said.

“All of that creates a good environment to attract investor participation,” she said.

This was very different from how the program started out, Aquino said in last year’s Sona as he shared that “studies on which the projects were based were outdated; and the bureaucracy lacked the sufficient knowledge to implement them.”

Controversy

The projects, given their large size and potentially lucrative nature, have also attracted some controversy.

Recently, the awarding of the 45-km Cavite Laguna Expressway deal has stalled after San Miguel Corp. sought the intervention of Malacañang last month to reverse its disqualification, which it said was due to a typographical error.

The front-runner for the project is a tandem between Ayala Corp. and Aboitiz Equity Ventures.

Canilao said that despite these issues, investors’ interest had not waned.

Local conglomerates like Ayala Corp., Metro Pacific Investments and San Miguel are PPP regulars. They said they would continue to bid for projects they found attractive.

Larger projects

But Canilao noted that drawing foreign groups would be crucial in the months and years to come as the PPP Center introduced ever larger projects like the planned subway and commuter railway.

Foreign participation, which also comes with expertise, has been limited, thus far.

Apart from the foreign groups that participated in the P17.5-billion Mactan-Cebu International Airport, only Malaysia’s MTD Group has consistently shown interest in Philippine PPPs. But this has not deterred the agency.

Marketing abroad

“We’re putting forward a system to deliver marketing abroad on our PPP projects,” Canilao said, adding that she was optimistic more international groups would participate.

“We have done our homework in making the process transparent. With the big projects we have conducted, those call the attention of foreign bidders. It says we are open for business,” she said.–With a report from Inquirer Research

 

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