Paying for ‘Build Build Build’

posted June 19, 2017 at 12:01 am
by  Orlando Oxales
While ostensibly a road safety initiative, the anti-distracted driving law became a hot topic in a seemingly endless discussion about the horrendous Metro Manila traffic. From U-turn slots and rotundas to removing the window hours of the color-coding scheme, everything is just a band-aid solution to the real wound that begs to be healed—infrastructure.

This is why the Duterte administration’s “Build Build Build” mantra got many excited. It was the awaited signal from government that it is ready to undertake the long-overdue initiative to transform our network of roads, our airports and seaports, and transportation systems into something that is at least at par with those of the region.

 But now there seems to be another complication. The Duterte administration and his economic team has announced a strategy shift from the Public-Private Partnership model to government funding, mainly through the General Appropriations Act or Official Development Assistance (ODA), or a hybrid of the two.

 Expediency in terms of time and cost seems to be the foremost reason of the incumbent economic team. It argues that it would be faster and cheaper to embark on the planned P8-trillion infrastructure projects, the operation and maintenance of which will be auctioned off to the private sector via contracts.

 However, funding via ODA often comes with strings attached, including procedures and protocols that could potentially diminish the avowed benefit of an infrastructure boom to the local economy. For instance, specifications of ODA-funded projects via China could include requirements to hire only Chinese contractors, suppliers, managers, and even workers. Local firms would thus be relegated to operations and maintenance.

 Moreover, the country’s experience with the PPP model has been mainly fruitful. It is hard to dismiss projects like the Mactan-Cebu Airport terminal building, the Naia expressway, the Tarlac-Pangasinan-La Union Expressway (TPLEX), and various school buildings and the automated fare collection system for the train systems. Despite some hiccups, these prove that the model can yield positive results.

 For side-by-side comparisons, the Iloilo Airport, funded via ODA, took longer to build and incurred cost overruns compared to its PPP-funded counterpart in Cebu. Elsewhere, PPP-funded TPLEX ended up costing P61 million per kilometer, drastically less than the ODA-funded Subic-Clark-Tarlac Expressway (SCTEx), which cost P341 million per kilometer, nearly twice the approved budget in addition to years of heinous delay.

 In general, the government’s PPP Center noted, most of the bids it received were in fact lower than the approved government costs. And in case the actual project ends up costing beyond what was approved, the private sector partner shoulders the overrun. In effect, private sector resources are thus tapped for the public good. This means the government is able to take advantage of the record liquidity in the local financial market instead of borrowing from foreign sources and, consequently, adding to the national debt. Foreign borrowing also exposes the country to foreign exchange risks, which, alongside the debt burden, could weaken our robust macro-economic standing.

 The PPP model also highlights the important and just user-pay principle. This means a tollway or an airport in northern Luzon is mainly funded by those who use those facilities, sparing the rest of the country from the unfair burden. Otherwise, if funded through GAA or ODA, both current and future taxpayers from all over the country will have to shoulder the cost of their construction.

 Implementation issues, in particular bottlenecks, that are leveled against PPP-funded projects are not inherent to the model. They reveal more about the chronically corrupt and incompetent state bureaucracy hereabouts, something that seems to survive changes in administration. Efficiency-wise, the private sector holds the infinitely better record in building and operating infrastructure projects.

 As such, instead of a wholesale termination of the PPP model, what government can do is take a firmer stance in terms of observing processes and timelines, both for itself and project bidders. A mechanism also needs to be put in place to facilitate collaboration and consultation between the public and private sectors, especially in the project development stage.

 Continuity in terms of government policy is also key, foremost maintaining the perception of minimal political and economic risk among investors. Proposed amendments to the Build-Operate-Transfer Law would have institutionalized the reforms achieved during the Aquino administration, including provisions that would improve the law to be at par with international standards. More independence for the PPP Center as a one-stop shop for infrastructure development will also translate to less tedious bureaucracy.

 Finally, the interest of the public who will use the projects should be at the core of any PPP strategy. This means the best lowest bid should always win, as this would translate to the lowest fees to be paid by the public. An advance payment by way of a premium also runs contrary to this principle. This means that there needs to be a fundamental shift in the way the government treats PPP projects. Instead of looking at them as a means of generating revenue, they should be seen as public service, the provision of which is its mandate in the first place.

Topics: Orlando Oxales , Paying for ‘Build Build Build’ , anti-distracted driving law , Metro Manila traffic , infrastructure
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