(Third of three parts)
Jose Ma. Lim can barely contain his frustration. As the president of Metro Pacific Investments Corp.—one of the country’s largest infrastructure and utility conglomerates—he was one of those businessmen excited about the prospect of rebuilding the Philippines into a first-world nation only three years ago.
His excitement was boosted by the influx of cheap funds into the local economy, aided by the quantitative easing program of the US Federal Reserve that pushed down borrowing costs to levels never seen before in Philippine—or world—history.
Along with other conglomerates eager to build new airports, highways, seaports, bridges and power plants, MPIC added its name to the roster of enthusiastic supporters of the Aquino administration’s Public-Private Partnership program when it was launched in November 2010.
Today, halfway into the term of the present dispensation, Lim laments that the outcome has been less than ideal.
One of MPIC’s biggest proposals under the PPP scheme—the elevated “connector road” project that would cut across Metro Manila on a north-south axis and decongest the heavily clogged Edsa artery—has yet to break ground.
Exasperation
According to the MPIC chief, the government’s slow approval process is the result of its “unclear position on the [infrastructure] sector itself.”
“Take our connector road. It was delayed for one year because the Department of Transportation and Communications wanted a provision for the high-speed train,” he said. “At that time, it was unclear whether the [government’s] strategy was to have one airport or two [servicing Metro Manila]. We said, if you want us to proceed, we’ll provide for it. But there was a debate as to how much space provision [for right of way] was needed for future requirements.”
Pending the government’s decision, the conglomerate headed by businessman Manuel Pangilinan could not finalize the road alignment because it could not finalize the cost estimates.
“Eventually, the DOTC gave the approval, one year delayed,” Lim said, adding that the government imposed fresh requirements that entailed more time and additional costs, all of which were met by the company.
“In spite of that, wala pa rin (we still don’t have it). It’s been three years. What else do they want from us?” he said, throwing his hands up in exasperation.
And it was not just MPIC’s new infrastructure proposals that have slowed to a crawl under the weight of the bureaucracy. Contracts entered into under the auspices of previous administrations—like the Subic-Clark-Tarlac Expressway and the Maynilad Water Services Inc. concession—had also been called into question, with the present administration saying these had been too generous in favor of the conglomerate, to the detriment of consumers.
MPIC’s experience is not unique. Other conglomerates like San Miguel and the SM group have experienced similar delays in the government’s approval or project implementation processes.
All these are happening when cheap funds are already in the local economy, waiting to be tapped at costs that have never been this low at any other time in history.
And not only is the cheap capital not being tapped, unclear policies and government indecision are also adding to the future costs of prospective infrastructure projects.
“There is the cost of preparing all those studies for these projects,” Lim said. “The technical studies will have to be updated. Estimates of right of way will probably go up. Your cost of capital will rise. The markets change.”
The result—assuming that the airports, tollroads and power plants will be built, in the first place—is that the higher costs will be shouldered eventually by consumers.
“It’s the uncertainty of the timetable that will, one way or the other, figure into the cost of capital, because it adds a dimension of risk,” he said. “By the time you’re finally going to launch the project, you’ll have a certain set of market conditions. If those conditions had been present on day one prior to the delay, you’ll probably have a lower cost.”
Risk-averse
A government consultant—speaking to the Inquirer on condition of anonymity—said the bureaucratic delays are being caused, to a large degree, by the prevailing mentality of risk aversion “at all levels of the government today.”
“For government officials now, the thinking is: ‘It’s better to do nothing than to sign a document, and be sued later on for it,’” he said.
“Everyone saw what happened in DBP where even clerks taking notes at meetings were included in the complaint,” he said, referring to alleged anomalies at Development Bank of the Philippines supposedly committed by the previous administration.
“Nowadays, before government officials sign documents, they ask: ‘Is this COA-ble?’” referring to the Commission on Audit. “So no one signs anything, and nothing happens.”
These factors contribute to the fact that—despite glowing reviews about the Aquino administration from the international community—foreign direct investment flows into the Philippines remain paltry.
Despite the clear promise of investment returns brought about by a large upside in the infrastructure scene, FDI inflows hit only $2.8 billion in 2012, out of the $111 billion that went to the six largest economies in the Asean.
Does MPIC’s Lim feel a tinge of regret for all the wasted opportunities?
“Of course. We could’ve locked in the long-term funds,” he said.
It is not too late yet, though. The Aquino administration still has three years left in its term. At this point, it looks unlikely that any big-ticket infrastructure project will be completed by 2016. However, the groundwork can be laid down now and projects can be started.
Most importantly—with the US Federal Reserve signaling that interest rates are set to rise by the end of the year—cheap funds have to be tapped now.
Opportunities are fleeting. And time is short.