Private capital for public good (by Boo Changco, Infrastructure Summit Philippines 2017 Moderator)

An infrastructure summit organized by the local constructors association is ongoing as I write this column. The summit is being held in an atmosphere marked with anxiety and frustration on the part of the local constructors. They can’t figure out the administration’s build build build program, where it is going… or not.

The original conference program looked more promising with Cabinet members making presentations. The final program, however, lists a lot of lower level substitutes. Perhaps the Cabinet secretaries are truly busy or are afraid to answer questions about their programs. Hangang glitzy PowerPoint presentation lang sila. 

The private construction companies are worried about the abrupt change of plans from PPP or Private Partnership Program to ODA or official development assistance. The sudden shift delayed the launch and completion of projects during the Aquino watch.

Now, with Japan and China likely to get most of the really big projects via ODA, local construction groups fear they will also be locked out of the projects. ODA financed projects usually specify hiring a contractor from the donor country. At best, Filipino contractors can only hope to be subcontractors.

 It doesn’t matter that many of our local contractors have proven their capability to undertake large infra projects according to world class standards. Indeed, GAA financed projects or those financed by our national budget have been undertaken by some highly capable local contractors like DMCI, EEI and First Balfour. The Balintawak to Trinoma LRT1 and the LRT 2 extension to Antipolo superstructures come to mind.

 PPP projects are open to local and foreign contractors. As we can see in the case of the NAIA Expressway undertaken by San Miguel, DMCI once again proved high capability of a local contractor.

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The NLEX-SLEX connector road project, also of San Miguel, is being undertaken by DMCI on the southern approach and EEI from the north. Using two capable contractors working from both ends at the same time shortens the construction time and will enable San Miguel to open the roadway sooner.

TPLEX or the Tarlac Pangasinan La Union Expressway is another example of a totally home grown project done at world class standards.

It is unfortunate the government bureaucracy, notably NEDA, is very biased against PPP. Some sources tell me that is because through the years, a mafia of feasibility study makers have entrenched itself in the bureaucracy. For PPP projects, such studies are undertaken by the winning proponent at their cost rather than government’s.

Sayang. We have through the years developed the concept of using private capital for public good through the PPP to the point that other countries and development institutions look to us for guidance.  Our PPP program has gone a long way from the BOT concept pioneered by Tong Payumo during the FVR watch.

Cosette Canilao, who headed PPP Center during the Aquino watch, is now considered an international authority on PPP.  Cosette is now based in Singapore advising many countries on how to implement their PPP programs. It is ironic that Cosette is more appreciated abroad than in her own country.

The other thing about PPP that our economic officials are disregarding has to do with using excess liquidity in our financial system.  Because of our inequitable economic system, the economic gains of the past few years accrued more to the nation’s one percent at the expense of the 99.

PPP would have been a good way of recycling all that excess wealth of our economic elite to finance massive infra development construction that would benefit all of us. Otherwise, all that excess wealth would find its way abroad.

The big local conglomerates are investing heavily in infrastructure abroad. As one of them quipped, it is easier and friendlier to do such big projects in our neighboring countries.

The Ayalas, Metro Pacific, Alliance Global, among many other local conglomerates are investing capital earned here abroad in building tollways, power plants and water systems.  That is alright for their stockholders. It diversifies risk, political and economic, across more countries. But we are losing capital already here.

In shifting from PPP to ODA, our economic officials are only looking at the low interest rate of loans from countries like China and Japan without accounting for other costs. ODA project costs are usually higher and lack transparency. PPP project costs are competitive as it is to the interest of proponents to keep costs down.

I have read accounts of some studies that warn of hidden costs (like currency losses) inherent in foreign denominated ODA financing. 

PPP involves local borrowings that create a bigger multiplier effect – local banks get their funds moving, and local content of project cost are larger. Indeed, government can partner with PPP proponents and create a fund for OFWs to finance government infra projects as a risk free investment option that would give returning OFWs an income stream when they return.

The point simply is, government shouldn’t minimize the contribution of private capital for public good. This also gives Filipinos a sense of ownership for infra projects funded by their own money.

LRT 2 extension 

Lito Madrasto, who has represented the Philippine Constructors Association as an observer in DOTC biddings, made additional comments on the LRT 2-extension project (another horror story of the Abaya DOTC) in reaction to my Facebook post.

“When the Senate asked for projects/contracts to be covered by the requested emergency powers to ease traffic in Metro Manila, those left behind items of LRT2 East Extension should be included. They could also have included LRT2 West Extension (from Claro M. Recto to Port Area).

“An LRT2 line from Masinag to Port Area would have eased traffic considerably for Marcos Highway, Aurora Blvd, Ramon Magsaysay Blvd., Claro M. Recto and Divisoria.

“Commuters can then connect to MRT3 at Cubao and to LRT1 at Claro M. Recto. Hence, commuters from the eastside of Metro Manila will find it easy to go to all directions using the light rail system.”

 

Source: Philippine Star 

*Note: Mr. Boo Changco is a business columnist in the Philippine Star.