Challenges for new PPPs
A very busy year awaits the government offices that will handle or supervise the public-private partnership (PPP) projects that are lined up for approval by President Aquino for public bidding.
In the pipeline, among others, are the rebidding of the P354-billion Cavite-Laguna Expressway project, the Swiss challenge for the P18-billion NLEX-SLEX connector road and the P374.5-billion Mass Transit System Loop that will connect the central business districts of Makati, Taguig and Pasig.
Also under consideration are the 15-kilometer extension of Light Rail Transit Line 1 to Cavite, and the P177.2-billion North-South Railway project from Metro Manila to Legazpi City in Albay.
The new PPP projects will cost, give or take a few million pesos, a whopping P625 billion.
Barring any court challenge or political intervention, the bidding for the new PPP projects may be completed before the end of the year. The awarding and signing of the contracts will probably take another three to six months.
Considering their long gestation period, the completion of these projects will go beyond the end of the President’s term in 2016. Whoever succeeds him will have the honor [and bragging rights] of inaugurating these projects.
Participants
This early, it is safe to predict that the competition over these projects will revolve around the country’s top business conglomerates, i.e., Ayala, San Miguel, Megaworld, First Pacific, SM Investments Aboitiz and Robinsons.
They have the resources needed to provide for and sustain on a long-term basis the financial requirements of these projects.
Capital intensive as they are, only companies with “cash cows” or assured sources of revenue have good chances of being awarded these projects.
If the “single borrower’s limit” or DOSRI (directors, officers, stockholders and their related interests) rule in the banks that these conglomerates own or control will pose some problems, then they can easily tap the international market for funding support.
With the recent upgrade of the country’s international credit rating, there will be no dearth in hedge, equity or sovereign funds that will be attracted into entering into joint ventures for these projects.
The results of the bidding on earlier PPP projects have also shown that well-known international financing and construction companies are willing to tie up with local business conglomerates for big ticket projects.
Economic impact
There are mixed feelings about the dominance of the country’s business tycoons or their companies in the bidding contests of past PPP projects.
Except for one or two instances, the winning bids mostly came from or were identified with the companies owned or controlled by Ayala, San Miguel or the First Pacific Group.
Nothing wrong with that because they competed and won under terms and conditions that were applied equally to all the participants. Their pre- and post-bidding activities met the requirements of the respective bids and awards committees.
Some concerns though have been raised that, through these projects, these companies and their stockholders are able to gain dominating influence in our economy.
The PPP projects that have been awarded to them (and the others they are expected to bag) affect, directly or indirectly, substantial facets of our daily lives.
For one, the decision of their boards of directors on how much to charge for the use of their facilities or services will have an impact not only on the wallets of their customers but also on the national economy.
The government regulatory agencies can only do so much in seeing to it that the rates and charges imposed are fair and equitable. At the end of the day, the financial and operational decisions will be made by the companies.
Consequences
But they cannot be faulted for making business decisions that may not sit well with the public or their target market. Their stockholders have a right to a fair return on their investments.
Private companies are primarily organized for profit, not to act like charitable institutions, much less assume certain economic responsibilities that properly devolve on government.
Ideally, the government should bankroll the PPP projects, in particular those that relate to infrastructure or provide for the people’s basic necessities.
The problem is, the government is perennially short of funds. Worse, a substantial portion of the revenues allocated for that purpose find their way into the pockets of corrupt lawmakers, government officials and their cohorts.
To aggravate matters, the government does not have the expertise to efficiently manage the activities subject of the PPP projects. And partisan politics has a nasty way of rearing its ugly head in the decision making process.
Under these circumstances, the national leadership has no choice but invite private business, in consideration for financial rewards, to assume the responsibility of providing certain services that the government is unable to give to the people.
Waiting for the government to raise the funds needed to construct and operate these projects will be like expecting chicken to grow teeth.
Thus, from a practical point of view, it is more expedient to let those who have the money and expertise to take on that task.
Of course, there are attendant “risks” in business tycoons lording it over PPP projects, but do we have a choice?
Until our elected officials get their act together, we are better off with the approach taken by the government in addressing some of our problems through the PPP system.
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