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Shift to hybrid PPP worries FMIC

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Shift to hybrid PPP worries FMIC

/ 05:16 AM July 12, 2017

Investment house First Metro Investment Corp. (FMIC), a key player in local infrastructure financing, has expressed concern on whether the shift in the administration’s preference to “hybrid” public-private partnership (PPP) from the original PPP framework would be an effective way to meet the government’s aspiration for a “golden age of infrastructure.”

Under the hybrid PPP scheme, the government will use either its own funds or overseas development assistance (ODA) funds to build infrastructure projects. Only after the completion of the project will the government privatize the operations and maintenance of said project. This is similar to the scheme used for the Subic-Clark-Tarlac-Expressway (SCTEx) project.

“The hybrid PPP scheme involves the government anew and it backtracks from the global best practice. The introduction of ODA funding would require prolonged feasibility studies by government personnel and may eventually have to be ceded back to the private sector,” FMIC president Rabboni Francis Arjonillo said in a recent mid-year economic and capital markets briefing.

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This is in contrast to an outright PPP which allows the private sector to participate from the planning, designing and construction stages, as well as in the operations and maintenance phases. A contractual agreement between the government and a private firm is made, distributing project risks to both the public and the private sectors.

For private sector proponents like FMIC, the original PPP framework translates to an accelerated infrastructure provision and faster implementation.

“As we know, the original PPP has a proven track record in the developed world as the best model for executing big-ticket infrastructure projects,” Arjonillo said.

FMIC is hoping for a stronger execution of the government’s “build, build, build” program.

“We are quite concerned about that (hybrid PPP) because we see (that the) problem with ODA is not just about the money. When you do (PPP), the money comes from the private sector. (In) ODA, the money comes from a counter-party or with the approval of the government,” FMIC chair Francisco Sebastian said.

Sebastian also said the private sector would know how to build infrastructure facilities like bridges and where to get needed resources.

Arjonillo said ODA funds might even turn out to be very expensive. It was estimated that total costs could increase by 4 to 5 percent from the base figure of interest rates because ODAs would require counterpart financiers to provide foreign exchange cover.

The challenge now to the government is to bring down the costs of the projects under the hybrid PPP scheme, the FMIC officials said.

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“I also hope the government will finish the projects lined up during the previous regimes. I want to hear Mr. Duterte say, ‘from now on, we will pursue all the projects approved by President Arroyo and President Aquino),’ and then we will add more,” Sebastian said. —ODELINNE JAN LINA

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TAGS: First Metro Investment Corp. (FMIC), Infrastructure, public-private partnership (PPP)
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