The future of infrastructure

(First of two parts)

The arguments over who should build, operate and maintain infrastructure projects have grown recently, with four options being considered: Government funding, ODA funding, PPP and a mix of the first two and the private sector—hybrid.

The Aquino administration made a great fuss about moving to PPP as a way to do it—but accomplished little. The promise was far beyond achievement.

The Duterte administration has recognized the failure of previous administrations to build infrastructure. So it has put infrastructure at the forefront of its agenda: Build, build, build; the golden age of infrastructure. And has put its money where its mouth is. Some P891 billion, (5.4 percent of GDP) is to be spent this year. At least it has been budgeted, whether it actually gets fully spent is yet to be confirmed. This doubles historic spend.

Added to that can be grants and soft loans from other governments and international organizations, plus private sector funds. There’s more than enough money, the problem is in using it. And here’s where the problems are, delays are numerous, frustrating and wasteful. Almost all of them are man-made, so man can fix it, if the determination to do so is there.

“Damn the torpedoes, full speed ahead” must be the motto. Toes have to be stepped on, bureaucratic impediments broken and legal roadblocks removed. But the shift from PPPs to government- and ODA-led implementation, as the government is now proposing, raises the question, is this a better solution?

For me it depends on the project, rather than having an overall priority one or two modes, utilize all four. Some projects are better done one way, some by another way.

For PPP, the delay is principally, or almost entirely, in the bidding process. I don’t think anyone will disagree that the private sector can build more efficiently and faster than the government. It’s in the preparation of the terms of reference (TOR) and request for proposals (RFP) where the first delays occur. Further delays stem from the almost inevitable temporary restraining order (TRO) petitions filed by the losing bidders which the courts unconditionally accept and take forever to decide.

The slowness in preparing TROs and RFPs is principally due to the fact that the line agencies involved, and even the National Economic Development Authority (Neda) for final evaluation, have good people but not enough to do the job at the speed required and to handle the numerous projects planned.

What could help is to hire truly independent consultants to assist government staff. There are plenty of independent consultants and advisers qualified to do this work and do it quickly. The cost is minor within the overall cost of a project. That could cut many months off the bidding process and enable the government to tap their knowledge and expertise on international best practice.

As to TROs: There’s already a law (Republic Act 8975) that allows only the Supreme Court (SC) to issue TROs for national infrastructure projects. All the SC has to do is to exercise extreme discretion and accept a request only if there is a very strong case for review. If it comes from a loser, grave suspicion and consequent reluctance to accept a TRO request should be the overriding determinant. If the SC puts the national good first, there should be very few, if any, delays due to TROs.

Right of way (ROW) issues also cause delays but these affect both government/ODA and PPP projects equally. It just needs a strong government that is determined to exercise its right of eminent domain. And just do it paying those affected 1.5 times the market value. That would greatly soften if not eliminate land owners’ resistance. The cost would be a lot lower than the costs arising from the delays.

As to cheaper to build and operate, this would depend greatly on the project itself. Some projects may be cheaper if done by the government, others maybe cheaper under PPP. I think there’s little doubt the private sector can build cheaper, faster and better particularly where competitive bidding is involved (and in PPP it is). As long as it’s done by a reputable contractor. It’s then a matter of whether the cost of borrowing and the profit expected can be less than the inefficient cost of government doing it. This is the crux of a value-for-money analysis that is used in many countries to determine the mode of implementation for a project and is something that should be adopted here.

So there has to be a good reason why the government should go to self funding. To me, the primary reason would be the cost to the user. If the government does it, it can be lower. There’s no profit to achieve and government funds are cheaper. Maybe, PPP projects can be structured to access those same low cost government funds (ODA, etc.). The other reason is that it just can’t be made a commercial venture. Most roads must be free. Construction can be done by private contractors, but maintaining them must be government’s responsibility. Although it can contract that out too. (To be continued)