Gov’t urged to turn to PPP for infra program as absorptive capacity issue remains

With the Duterte administration’s “Build, Build, Build” program seen at risk of failing to meet its goals as major infrastructure agencies continue to underspend their budgets, an economist urged the government to turn to the traditional public-private partnership (PPP) mode of rolling out big-ticket projects.

“The absorptive capacity of infrastructure agencies need to be given an earnest look. ‘Build, Build, Build’ seems to be at risk if we can’t make it work,” Ateneo de Manila University economics professor and senior fellow Cielito F. Habito told an Ateneo Eagle Watch forum Thursday.

While the decline in public construction activities at the start of the year was mainly attributed to the delayed approval of the 2019 national budget, the infrastructure agencies’ inability to spend their budgets fully could also be a contributing factor.

Habito pointed to Commission on Audit reports that showed that the Departments of Transportation (DOTr) and of Public Works and Highways (DPWH) had been having difficulty in spending their annual budgets.

The DPWH spent only one-third of its allocated budget in 2017, while the DOTr spent only 26 percent in 2017 and even lower, at 21 percent, in 2018, Habito said citing the COA report.

“There’s something wrong with the absorptive capacity of infrastructure agencies. If we trust these two agencies, we need to worry,” he said.

Habito believes tapping the PPP framework will boost the Build, Build, Build program.

The Duterte administration, however, had been shunning the PPP mode as its economic team claimed that the process—from project approval to rollout—had been slow during the term of the previous administration, which implemented only 10 projects during its six-year term.

Duterte’s economic managers were instead pushing for a “hybrid” PPP model wherein the government would roll out the projects and bid out operations and maintenance (O&M) contracts to the private sector.

“If you look at the entire landscape, the PPP performance has been good,” citing high-profile projects such as the Mactan Cebu International Airport.

“Right now, the fact that San Miguel (Corp.) has been given the go-signal to proceed with the Bulacan airport is telling us already that the government is open [to PPPs]. That’s not the pronouncement about it, but the body language is telling us there’s a move back toward PPP. Why? Because they have no choice. If DPWH and DOTr cannot deliver, nothing will happen with ‘Build, Build, Build.’ We have to rely more on PPP,” he said in an interview.

It would also help that local conglomerates and corporations were awash in cash, that they have big war chest for infrastructure projects, he added.

“That was the initial rationale for PPP—the government had no money. Sure, the government now has more money and it can also borrow from China but the question is implementation—capability is the problem,” he pointed out.