The administration of President Benigno Aquino III’s plan to secure private sector funding for transport projects – with an estimated price tag of P565bn ($12.83bn) to 2016 – is ambitious, but as the country struggles to overcome the stigma of past corruption and cronyism, reform efforts have piqued investor interest.
NEW LAWS: The government is confident that legislative reforms pursued through Build-Operate-Transfer (BOT) Law RA 7718’s implementing rules and regulations, the guidelines and procedures for entering into joint venture agreements between the government and private entities, and RA 9184 (the General Procurement Reform Act) will help build confidence by streamlining the regulatory environment.
Although the sector’s role was highlighted in President Aquino’s first State of the Nation address in July 2010 and enshrined in BOT Law RA 7718, it also remains a matter of economic necessity. Limited collection of tax revenues over the past quarter century – dipping to just 12.8% of GDP in 2009, the lowest in the ASEAN region at that time – have seen swingeing cuts across national budgets in 2011, the same year that the government aimed to reduce its debt-to-GDP ratio to 55.5%.
The government does not expect the private sector to go it alone. The Philippine Infrastructure Development Fund was established in 2010 and furnished with more than $100m from several state-owned financial institutions: the Development Bank of the Philippines, the Land Bank of the Philippines, Government Service Insurance System and the Social Security Service. Providing long-term financing support for public-private partnerships (PPPs), this fund is intended to help minimise exposure to currency appreciation in foreign loans and reassure investors of the government’s commitment to the programmes as a partner. Combined with capacity building programmes and $17m in technical assistance from the Asian Development Bank (ADB), the government seems confident that it can garner private sector participation by improving oversight and streamlining project approval procedures via the PPP Centre.
PPP COALITION: Formed in 2010 by Philippine construction, banking and investment houses alongside the Research, Education and Institutional Development Foundation, the PPP coalition is geared toward assisting the Aquino administration in implementing PPP projects for infrastructure, as well as providing funding, resources and expertise to help local governments in their respective infrastructure projects.
According to the Philippine National Statistical Coordination Board, 77.1% of total investment commitments during the first half of 2010 came from domestic investors. The government’s stipulation that bidders must have successful experience in running a similar project has kept the door open for foreign companies and their backers in some sectors. In 2011, the government dismissed bids from Philippine firms for Manila’s Metro Rail Transit and Light Rail Transit projects, stating that no bidding company had sufficient experience – a consequence of the government’s long-held role as operator and regulator.
CONCERNS: Given a past wariness of Philippine banks, the need for foreign companies (and therefore financing) has prompted criticism from some industry players, which have complained about the higher costs of foreign companies, their preference for their own national technologies and the dangers of currency appreciation. This is unlikely to deter the government from seeking to partner with them, however.
The Department of Transport and Communications recognises these concerns, but remains insistent about the lack of domestic technical capabilities, arguing that foreign firms are critical for Philippine companies in terms of technology transfer and capacity building.
The release of eight delayed PPP bids and terms of reference in 2012 will test the government’s reforms. Initial signs are encouraging with regard to the government’s ability to achieve its targets, but given the Philippines’ track record in the past, it remains uncertain whether the country will be able to sustain this enthusiasm beyond the term of the Aquino administration.
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