PPP may include even risky projects in agriculture

The much-touted but also much-delayed public-private partnership (PPP) may yet cover agriculture projects, but possibly with the much-maligned “take-or-pay” provisions, according to the Philippines’ chief economist.

Economic Planning Secretary Arsenio M. Balisacan warned that while the PPP scheme was potent with fiscal benefits, it could result in fiscal liabilities if structured poorly.

Balisacan, who is also director general of the National Economic and Development Authority, was keynote speaker on Monday at the Asia-Pacific Agricultural Policy (Apap) Forum’s annual roundtable held this time in Miyazaki, Japan.

The Apap Forum is a network of non-governmental groups and individuals engaged in agricultural development work in the region.

“There is a need to establish the guiding frameworks at the outset and ensure that concerned agencies and agents of government that would be involved in PPPs are capacitated” in areas such as finance, risk management and contract management, Balisacan told the forum.

“Sustainable PPP transaction structures or models need to be established first to take into consideration the distinct characteristics of the sector, particularly the attendant risks,” he added.

In order to attract private sector participation in agricultural projects, Balisacan said that inherent risks in the sector must be mitigated with the help of new innovations and technology as well as adaptive measures.

“Let me remind everyone that PPP is not automatically the right scheme or the default procurement mode to venture into,” he said.

Balisacan, who like most of his predecessors was a University of the Philippines economics professor, noted that uncertainties from threats of natural disasters and effects of a changing climate as well as the seasonality of production dominated the risk profile of agricultural projects.

This meant that potential PPP projects in agriculture, to be attractive to private investors, needed government subsidies, incentives or other means of assured funding or return on investment.

He said this could be done through “take-or-pay” provisions which, unfortunately, were not popular in the Philippines because such arrangements have been blamed for the high price of electricity in the country.

Balisacan cited an economics maxim that a project might be viable economically, but it might not be financially feasible.

This meant that incentives such as government subsidies—in the form of “viability gap funding”—would be necessary for agricultural PPPs, Balisacan said.

To ensure commercial viability, Balisacan said the government and businesses could undertake “optimal sharing of risks” or adopt a transaction structure that would ensure that a project has a net economic benefit and make it attractive to the private sector.