Gov’t allots P30B as PPP backup kitty
With the contingency fund, referred to as “Risk Management Program” in the 2014 national budget, the government will have the available resources in the event of a breach in a PPP contract.
“This [P30 billion] will cover commitments made and obligations of the national government in the concession agreements for PPP projects,” Budget Secretary Florencio Abad was quoted as saying in a report on the 2014 national budget published by Global Source.
According to the New York-based think tank, private sector investors want certainty that the Philippine government can deliver on its contributions to PPP projects.
Under the PPP program, the government will invite private entities to invest in public infrastructure projects. Private entities will account for the bulk of the needed investments, while the government will participate in terms of either providing a partial investment or implementing relevant regulations.
Potential breaches are wide-ranging. These may include failure to promptly implement needed regulations as stated in PPP concession agreements, such as a hike in tariff on a public facility.
The contingency fund will guarantee compensation to private sector investors in case of a breach in agreement.
Government economic officials earlier stressed that the government would fulfill its obligations under the PPP program. And the contingency fund will make infrastructure projects more attractive to potential investors.
During deliberations over the P2.265-trillion 2014 national budget, Congress questioned the P30 billion earmarked for potential PPP breaches.
Legislators wanted to know why the government had to put up a fund to fulfill its commitment in concession agreements with the private sector.
But the economic officials explained that the contingency fund was not meant to be used, but was only intended to boost confidence of potential investors in PPP projects.
They said the importance of the PPP program was highlighted by the relatively low public infrastructure spending in the Philippines.
Public infrastructure spending in the country was estimated at about 2.6 percent in 2013, lower than the average of 5 percent in Southeast Asia.
The poor level of infrastructure in the country is one of the reasons why the Philippines failed to attract significant amounts of foreign direct investments.
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