THE PHILIPPINES is in many ways a leader in public-private partnerships in Asia.
This is due to its high level of private sector participation in infrastructure and the country’s very effective tapping of private sources to finance important infrastructure projects.
This ability to access private finance is critical at a time when growing populations and outdated infrastructure are putting pressure on many developing countries.
About $2 trillion a year is needed to modernize infrastructure in the developing world.
Against this backdrop, the Philippines stands out as a model for how to use public-private partnerships, or PPPs, to pull together the best expertise and the ample financial resources of the private sector to meet the infrastructure needs of its people and its economy, notably in power, transport and water sectors.
By building on what it has already achieved, the Philippines can accomplish even more.
As of January 2016, the current Philippine government had awarded 12 PPP projects, worth a total of P197 billion (approximately $4.2 billion), with about 14 more projects currently in the process of procurement.
As many as 16 more projects are in the pipeline amounting to an impressive estimated P623 billion (approximately $ 13.3 billion) of potential investment. The Philippine PPP Center, which is tasked with facilitating the country’s PPP program and projects, estimates that 30 to 40 percent of the country’s transportation, roads, and social infrastructure could be funded through PPPs.
This continuing focus on PPPs is good news for a country that has already reaped many important benefits from the government’s PPP program so far.
A well-functioning private to private power sector market is proof that those early initiatives decades ago have paid off.
PPPs make the best use of the expertise and financial resources of private sector partners, freeing up limited government capital for other needs.
PATHAK
Taxpayers bear relatively less of the financial burden for funding projects that do not directly benefit them, as ideally, only users and beneficiaries are meant to pay for services.
The case of Manila Water Co., is another example of the benefits of partnering with the private sector.
Today, the people of Manila take their water service for granted.
But less than 20 years ago, Manila’s water system was in disrepair and nearly every other person in the city lacked access to potable uninterrupted water from the tap.
At the request of the government, the International Finance Corp., a member of the World Bank Group, helped the city find private partners, and today 99 percent of the population has 24 hour access to clean water, water-borne diseases have been reduced, and more than 11 million people are enjoying a higher quality of life.
This achievement was possible due to the perseverance and vision of the Philippine government.
This same perseverance is required now to lead the way in mainstreaming private sector participation in government investment decisions.
Under the current administration, 12 PPP projects have been procured on a level, transparent, and competitive playing field since 2010.
Though the government failed to achieve its ambitious plan of engaging in 10 PPP projects by 2011, PPPs are complex and require a careful combination of skills and disciplines to create the optimal distribution of risk and a sustainable partnership.
The following considerations can boost the already notable success of the Philippines in using public-private partnerships to fuel its economy and increase the opportunities and benefits to its people.
First, the government could institutionalize the PPP Center and enhance the capacity of key implementation departments. The PPP center was established by the President’s executive order, and requires legislation to establish it as a permanent institution to ensure continuity. Moreover, key implementation departments, like DOTC, are short of internal capacity to execute the projects and thus need training of existing staff members and recruiting experienced talents;
Second, the government could encourage the participation of new market players into the competitive bidding process.
The Philippines attracts one of the lowest rates of foreign direct investment, or FDI, in the Association of Southeast Asian Nations.
More FDI and foreign expertise is needed to address domestic capacity constraints and promote healthier market competition.
Limits on foreign ownership in some sectors has discouraged foreign investors to enter the market and should be reevaluated in the context of the Philippines’ growing infrastructure needs.
Finally, there could be a more visible and concerted effort to access international funding. The implementation of all PPP projects require significant amount of long-term funding and domestic banks and investors cannot act as the sole financing source in a sustainable manner.
Multilateral institutions such as IFC can play a key role in bridging the gap, not only by sharing the risk with domestic financiers but also by mobilizing financing from other international financers.
In 2007, the Philippine power sector underwent privatization on a large scale, and local banks were only willing to lend five to seven years money. When IFC supported this initiative and took some of the merchant off-take risk, the local banks were encouraged to lend for up to 10 to 12 years and prominent foreign investors entered the market.
I like to say PPPs are more an art than a science, where the art comes from the ability to cluster individual efforts from each stakeholders, the same way that the challenge of a great orchestra is to fuse the sounds of each individual instrument.
When it works, the whole is much greater than the sum of its parts. And it has worked in the Philippines.
Twelve awarded contracts in six years is a good start, the challenge now is to create scale and to build on these successes in both the infrastructure and social sectors across the entire country.
The time has come for the government to ensure continuity of the PPP program by strengthening its foundations to facilitate faster implementation of current and future projects.
(The author is the director for East Asia & the Pacific of the International Finance Corp.)