Partnership potential: The government is preparing to team up with the private sector on a range of new projects

Upon election the administration of President Benigno Aquino III announced it would invite bids worth up to $16.8bn for public-private partnership (PPP) projects over a two-year period, giving a boost to the construction sector. The government sees PPPs as the way to finance infrastructure improvements, providing value for money and efficient deployment of resources.

NEW PROJECTS: In March 2011 the PPP Centre was launched and the first set of projects announced. Large-scale works include airports in Bohol and Legaspi, extension of the capital’s light rail system and road building in the outer regions. Future projects also focus on transport and include expansion of several ports (Davao, Cagayan, General Santos and Zamboanga), extension of the Northrail line in Luzon, introducing the rail transportation of agricultural and fishery products utilising the Southrail line, as well as further road building.

Smaller PPP projects are also attracting attention. School building, upgrading and maintaining hospitals, irrigation systems and agriculture facilities have been identified. Bidding has already started to provide 10,000 new classrooms as part of an effort by the Department of Education (DoE) to reach its target of a classroom-student ratio of 1:45. The DoE plans to implement the project alongside a community-based public-private monitoring system to keep an eye on the construction of facilities to protect public funds from corruption. The government has addressed the previous cap that prevented financial institutions from overexposure to a single investment project. The Philippines’ Monetary Board will now authorise a limit of 25% of a bank’s equity for lending to a single borrower for PPP projects. On developments with large capital values it is likely several banks may join together to provide financing.

INVESTOR PROTECTION: In a speech at the country’s first PPP conference in 2010, President Aquino assured potential investors the government was willing to provide protection to ensure returns were safeguarded. “Infrastructure can only be paid for from users’ fees or taxes. If private investors are impeded from collecting contractually agreed fees – by regulators, courts or the legislature – then our government will use its own resources to ensure that they are kept whole.” Such protection, he added, would be agreed on a contract-by-contract basis and linked to regulatory risk, whereas commercial or market risk would be borne by investors.

However, the administration has not been in a rush to begin contracting, only awarding one PPP project in 2011, the Daang Hari road project. It has been first tackling another key election pledge: corruption. Keen to put its house in order, existing contracts are being reviewed before new procurement and PPP ventures are launched. Several contracts signed under the previous administration are thought to be overvalued.

UNDER REVIEW: The PPP framework has been under a lengthy review and was supported by government institutional development, which featured workshops and experience sharing by PPP experts, including representatives from the UK’s treasury department. In November 2010 the government unveiled 10 PPP projects but this had been reduced to five by the spring of 2011. In September 2011 the new secretary of the Department of Transport and Communication, Manuel Roxas, suggested a potentially more cost-effective plan involving “hybrid” PPPs. This entails using official development assistance from organisations such as the World Bank or foreign governments to build infrastructure and offering contracts for the operation and maintenance of the facilities to private parties. In October President Aquino ordered a review of PPPs to ensure the government achieved best value for money, and in December 2011 a bill to support existing build-operate-transfer legislation was filed to enhance the regulatory environment for PPPs. In 2012 the government hopes to expedite eight of the 16 PPPs due for bidding, according to Cosette Canilao, the executive director of the PPP Centre. The government is working to reduce the risk of contractual complexities before embarking on such an ambitious engagement with the private sector. Slowly but surely seems a smart long-term approach for PPPs.

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The Report: The Philippines 2012

Construction & Real Estate chapter from The Report: The Philippines 2012

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