Fitch: PH faces wary private sector in infra policy shift

The Philippine public-private partnership (PPP) market for infrastructure is set to become “moderately favorable” now that President Duterte is more open to taking this route instead of just relying on official development assistance (ODA).

This, according to think tank Fitch Solutions, which noted, however, that the past track record of government interventions continued to contribute to a high degree of regulatory risk for investors.

“The Philippines’ established PPP framework will facilitate PPP transactions and lend support to growth of the infrastructure industry, which we expect to expand by 8.2 percent year-on-year, in real terms from 2021 to 2025,” Fitch Solutions said in a research note dated April 16.

“However, we highlight a high degree of political risk associated with long-term contracts in the Philippines that could result in difficulties postcommercial and financial close,” the think tank said.

A massive infrastructure gap in the Philippines would require substantial investments over the next decade, Fitch Solutions said. Like with other emerging markets, the research firm noted that given the Philippine government’s limited capacity to fund its infrastructure needs, support from the private sector through PPPs was imperative.

Fitch Solutions noted ODA-funded projects hit seve­ral roadblocks in the past years. The administration made the U-turn beginning October 2019, reaching out to the private sector to solicit capital.

As of November 2019, the list of projects under the “Build, Build, Build” program has expanded from 75 to 100, of which PPP projects have increased from nine to 26.

The proportion of PPP pro­jects is seen to increase from 12 percent to 26 percent, creating more opportunities for private sector participation.

The research cited cases where government intervention affected key PPPs, including the revocation of the water concession extension agreement with Manila Water Co. and Maynilad Water Services Inc.

“The sudden revocation of the concession agreements had derailed any long-term plans which these companies have devised, and in the short term, created a high degree of financial difficulties, in aspects such as borrowing and attrac­ting new capital, due to revenue uncertainty,” Fitch said. —DORIS DUMLAO-ABADILLA