PPP in the Philippines-
The Philippines’ public-private partnership (PPP) programme, unveiled by the Aquino administration to investors in November 2010, has become one of the most high-profile and ambitious PPP programmes in the Asian region. The programme was launched to provide solutions to closing the country’s wide infrastructure gap in the context of a heavy government deficit. A dedicated PPP centre was established to facilitate and monitor the implementation of this bold initiative, in coordination with various implementing agencies.
During its early roll-out, however, the programme was plagued by delays, and came under criticism, with the government successfully granting only a few of the many PPP projects initially identified. In the year of its introduction, the administration boldly announced a target of 10 projects.
However, the Aquino administration has been criticised for slow implementation; bidding for several projects suffered delays after only five projects were awarded in the period 2010 to 2013. In the final years of the Aquino administration, however, the programme seems to have regained momentum with a current total of nine awarded projects.
Improved capacity and increased experience among the implementing agencies have resulted in a more aggressive and efficient roll-out of projects. In addition, proposals to amend applicable legislation in this area, the Philippine Amended build-operate-transfer (BOT) Law R.A. 7718 and its Revised Implementing Rules and Regulations (BOT Law), are currently before the Congress. These amendments seek to address some of the concerns expressed by public and private stakeholders in past projects, and, if passed, will further strengthen the foundation of the programme.
Notwithstanding its critics, the programme has been relatively prolific, especially considering its youth. Today, the PPP Centre website lists nine projects awarded with a notice of award, two projects under implementation, 13 projects under procurement, three projects for roll-out and 21 projects awaiting approval from the relevant authority.
Among the big-ticket PPP projects are the Manila-Makati-Pasay-Paranaque MRT project (estimated to cost $8.22 billion), the North-South commuter railway (South Line) project (estimated cost $3.79 billion), the Bulacan-Laguna rail project (estimated cost $4.5 billion) and the Laguna Lakeshore Expressway and Dike PPP project (estimated cost $2.73 billion). A first package of regional airports has just been released for bidding, with a second package of regional airports and the much-anticipated Ninoy Aquino International Airport (NAIA) projects expected to follow.
A regular concern expressed by foreign investors is the sustainability of progress and the risk of political continuity. The proposed BOT Law amendments attempt to respond to those concerns, by institutionalising potential solutions.
Among the proposed BOT Law amendments are inclusion of “concession”, “joint venture” (JV) and “management contract” as variants of PPP contractual arrangements; allowing the accession/divestiture of ownership, rights, or interest to projects; allowing the government to take over facilities in progress should the private partner default; providing for a process on how to deal with “unsolicited proposals”; providing incentives for “projects of national significant importance”; and prescribing that the Congress shall automatically appropriate funds for PPP projects. These amendments seek to make the processing of PPP projects more transparent and efficient, and are expected to make the bidding process more certain.
One uncertainty concessionaires and their financial partners are concerned about is the feasibility and length of time to obtain the necessary right of way, consents and permits, when multiple agencies and LGUs with potentially conflicting concerns are involved. For example, the proposed amendment to introduce an identification of “projects of national significant importance” could have the effect of diminishing these risks, and increasing the efficiency and predictability of the permit and consent process, which in turn lowers the risk for both concessionaires and their financial partners. The inclusion of “joint ventures” as variants of the PPP contractual arrangements may generate stronger commitment from the private sector by offering broader long-term partner opportunities in such projects while earning an adequate rate of return and gaining access to new markets.
Despite various changes to streamline the system and make the process more efficient, there remain concerns regarding the politicisation and lack of transparency between public and private parties resulting in delays in closing PPP projects. One such example is the construction of the new terminal at the Mactan-Cebu International Airport. Originally scheduled to begin operations in August 2013, bidding for the $765 million project was postponed due to the authorities’ need to fine-tune the tender documents following concerns raised by interested private parties. The project was finally awarded to the GMR-Megawide consortium in April 2014 but was again subjected to a further delay of 10 months.
The Line 1 Cavite extension ($992 million) was also subject to serious delays after the DOTC declared the bidding a failure when only one of the four interested parties submitted a bid. Further, the government ended up rejecting the lone offer due to unacceptable conditions requested by the sole bidder. This project has since been successfully rebid, and has been awarded to the Light Rail Manila Consortium. The reason behind the recent presidential order to rebid the Cavite-Laguna Expressway project has also been shrouded in mystery and created widespread concern within the business community. Team Orion had topped the bidding for the project after it offered $1.23 billion for the project. Such delays contribute to wavering commitment from private sector investors since such uncertainties prolong the processing of PPP projects, increasing the cost to private participants.
While challenges remain, the way forward for the Philippines’ young but ambitious programme looks promising. The proposed legal amendments along with the increased experience of public and private players should contribute to the programme’s continuity and improved implementation. Further, the programme serves as an example of what may be possible for other countries in the region through a PPP programme. With gross domestic product growth averaging 7 per cent per annum since 2012, a recent investment grade rating of Baa2 by Moody’s, and the rating of the Philippines as the second fastest growing economy in the world after China, the Philippines PPP programme may well become a model for neighbouring countries to follow. Already Indonesia, Vietnam and Cambodia, for example, are revisiting the potential of such programmes to address their own infrastructure demands.
Maria Tan Pedersen is an experienced international projects, finance and commercial attorney, with an extensive and diverse background in international and US domestic commercial, M&A, joint venture, and financing transactions; contracts; and international arbitration, crossing multiple sectors and involving governmental, public and private clients. Pedersen has counselled clients in more than 35 countries on high-profile deals in the US, Asia, Europe, the Middle East and Africa and has previously served as international counsel for a Fortune 500 electronics multinational entity.
