Our Huge Infrastructure Backlog
Sponsorship Speech on the Public Private Parntership (PPP) Bill
by Senate President Pro-Tempore Ralph G. Recto
Mr. President:
I have purposely shunned using visual aids today in order not to remind you of the moniker once given to the Public Private Partnership program whose initials was spoofed as PowerPoint Presentation.
But today that label is slowly being archived to history.
Since its inception, 10 projects have been awarded, 2 are up for implementation, 55 in the pipeline including 14 for procurement.
In the case of the Daang Hari-SLEX Road, what was once flashed on the screens during roadshows as a proposal is a completed road by now.
But if some PPP proposals get stuck as PowerPoint presentations for a long time, and marinate in the sweat of their proponents, then there must be something wrong with the legal framework which makes their birthing difficult.
That is true. If infrastructure projects crawl, the fix is not always engineering or financial in nature. The remedy can sometimes be legislative.
But before I explain why this bill is needed by the PPP, let me first tell you why the PPP is needed by this country.
We’re grappling with a huge infrastructure deficit. Our public works backlog is long while the patience of our people inconvenienced by it is getting shorter.
One estimate pegs our infrastructure deficit at almost P1 trillion. This, however, tallies only urgent requirements.
The total cost is so astronomical that it has paralyzed us from even quantifying it.
And each year that our population grows and our economy expands, the deficit widens.
Two million Filipinos born every year means we have to add 2,000 hospital beds to our public health system annually, using the anemic 1 bed per 1,000 people ratio.
Two million Filipinos born every year means we have to increase our household water supply by 131 billion liters of water annually.
On power alone, each of the two million new Filipinos will consume an average 672 kilowatts of electricity a year, which, in turn, triggers the unending search for new power sources.
On this we can’t fail nor falter, light being the best contraceptive – and defense against population boom.
On roads, 156,553 kilometers remain unpaved. Concreting all of them would require P 1.88 trillion at a bargain price of P12 million per kilometer.
To stop Metro Manila’s gridlocked roads from turning into parking lots, one master plan prescribes a bevy of solutions with a hefty price tag of P 2.61 trillion.
Just one short subway line that will worm itself under the clogged streets of the national capital was already estimated to cost about P374.5 billion.
We need massive investments in mass transport to take more people out of cars and more cars out of the streets.
Already it has been reported that if all the cars sold in Metro Manila in the first six months of this year will be parked bumper-to-bumper, they would occupy all lanes on both sides of EDSA from end to end.
Clearly, we need to provide our people with a commuting option other than being behind a wheel or behind a driver of a motorbike.
And it is not only on the ground that we’re seeing congestion. There’s also one up in the skies, where planes spend more time flying on a holding pattern near Manila or queuing up in NAIA’s runways.
Sadly government doesn’t have the money to wipe out all our infra backlog in one go. In fact, it doesn’t have resources to erase the deficit even in tingi fashion.
This is so because big-ticket items do not only burn a big hole in the government’s pocket. It will burn the entire pocket – together with the pants.
Consider this: Next year’s capital outlays budget is P766.5 billion.
But if you take away the amount earmarked for seedlings, laptops, police cars, military hardware, and maintenance of rail systems, what is left for new construction is about half that amount.
For comparison’s sake, that is not even half of the equivalent of P864 billion or so that Hong Kong will spend to add one runway to its airport. Or the P749 billion the Communist rulers of Vietnam plan to spend for a second airport in Saigon.
If GPH is short of cash, corporate Philippines is not. The top 15 families who landed on the Forbes “dollar billionaires” list this year have a combined net worth of P2.67 trillion, using today’s exchange rate.
The family who owns that famous string of malls, including the one near us whose total toilet footprint dwarfs the size of our session hall, has a daily net income of P77.8 million in 2014.
The biggest telecoms company in the land makes a clean profit of P97.1 million every 24 hours.
Every one of them accumulates a hoard of investible cash. Their problem is where to reinvest their profits.
Every nook and cranny of the local economy is already spoken for. With local opportunities dwindling, some have opted to spend their surplus capital abroad.
Vineyards from Spain to Australia have been gobbled up by Filipino moguls. Iconic global brands, like Fundador, is now Filipino owned.
People from Uzbekistan to China to Mongolia to Malaysia munch on chicherias produced by Pinoy megapreneurs. Just last year, a Taipan bought a New Zealand snack food company for a cool P26.4 billion.
Another purchased a Cambodian airline, while a businessman of Spanish descent added another foreign port to his growing global collection.
While they may have set their sights abroad, they remain largely insular-looking when it comes to investing their money.
And one area which has lured them on the promise of fair returns are public utilities and infrastructure.
And I would like to surmise that it wasn’t just good ROIs which attracted them, but the idea to do some social good by providing a service government is hard-pressed to deliver.
In the process, they derive both real and psychic income in solving some of the nation’s problems, updating the adage “of making money when there’s blood in the streets” to “making money when there’s traffic in the streets”.
So a property developer now operates a toll road. An airport operator built classrooms. San Miguel which sells beer in bottles will soon be selling bulk water in Bulacan.
A company which sells cellcards is now peddling train beep cards but not before acquiring the train line itself.
To bag these contracts, these businessmen nimbly form alliances which make politicians rank amateurs in coalition building. They may compete in one project but collaborate in another.
However, this bill is not about protecting their investments, it is about protecting the interest of the Republic foremost.
It is about shielding the public from higher fees and tolls when government-instigated bidding wars, for example, jack up premium payments which in the end will be passed on to end users for them to be recouped.
It is about putting safeguards in contracts so that the government is not shortchanged through crafty provisions which, like in previous problematic joint ventures, will leave it holding the bag.
It is about ensuring that transparency attends the drafting of agreements which are then vetted carefully by experts whose allegiance is to the public so no term is skewed against us like contingent liabilities programmed to become assumed ones.
On the other hand, it assigns private partners their rights.
Like to a rate of return which shall take into account the prevailing cost of capital in the domestic and international markets, the risks being assumed by them and the prevailing tariff on similar projects.
This is pursuant to the State policy this bill lays down which recognizes “the indispensable role of the private sector as the main engine for national growth and development.”
It mandates the provision of “the most appropriate incentives to mobilize private resources.”
Three urgent issues bugging PPP implementation are addressed here.
First, is that all real properties which are actually, directly and exclusively used for activities deemed as Projects of National Significance shall be exempt from any and all real property taxes levied under Republic Act 7160.
It also waives taxes associated with the transfer of ownership of a PPP infrastructure project to the government. These include Capital Gains Tax, Documentary Stamp Tax, Donor’s Tax, and all national taxes and fees.
Second, it prohibits the issuance of Temporary Restraining Orders or Injunctions.
No TRO or preliminary mandatory injunction shall be issued by any court, except the Supreme Court, against any implementing agency, its officials or employees, or any person or entity acting under the government direction, to restrain, prohibit or compel acts such as:
•Bidding, rebidding or declaration of failure of bidding of PPP projects, either national or local;
•Qualification or disqualification of bidders and awarding of PPP contract;
•Acquisition, clearance, development of the right-of-way, site or location of any PPP project;
Corollary to this is the mandatory inclusion of Alternative Dispute Resolution in PPP contracts.
Third is on the matter of securing administrative franchise, license or permit.
The regulator or licensing authority shall automatically issue the project proponent an administrative franchise, license, permit, or any other form of authorization required for the implementation of a PPP project.
If a regulator fails to act on an application supported by complete documents within 30 working days, the same shall be deemed granted.
What are we avoiding here? The situation when the ribbon-cutting ceremony for a completed project has been done but it cannot be opened or operated yet because someone forgot to cut the layers of red tape tying down a permit.
Hopefully these would unclog PPP bottlenecks and at the same time make our PPP menu attractive to foreign investors because let’s face it, no matter how many beer barrels are sold or text messages are sent that can fatten up corporate war chests, domestic capital alone can’t finance all our infra needs.
Let me walk you through the other salient features of the bill.
We are limiting the roster of implementing agencies which can implement a PPP.
These are the Department of Public Works and Highways (DPWH), Department of Science and Technology-Information and Communications Technology Office (DOST-ICTO), Department of Transportation and Communications (DOTC), National Irrigation Administration (NIA), National Housing Authority (NHA), Philippine Reclamation Authority (PRA), and the GOCCs attached to these departments such as Local Water Utilities Administration (LWUA), Toll Regulatory Board (TRB), Light Rail Transit Authority (LRTA), Philippine National Railways (PNR), North Luzon Railways Corporation (NLRC), Philippine Ports Authority (PPA), airport authorities Manila International Airport Authority (MIAA) and Mactan-Cebu International Airport Authority (MCIAA), and Metropolitan Waterworks and Sewerage System (MWSS).
Though they have been accredited as such they cannot just implement any project they are simply infatuated with.
The menu of ‘PPP-able’ projects are listed in the section which enumerates what falls under infrastructure facility.
These are highways, railroads and railways, transport systems, ports, airports, telecommunications, information technology systems and infrastructure, dams, water supply, irrigation, sewerage, drainage, dredging, land reclamation projects, housing, markets, slaughterhouses, warehouses and solid waste management.
Thus, if there’s a proposal to blanket the city with a forest of tarpaulins or scatter trash cans around under various PPP modalities, then these types will not qualify.
We’re also putting in the negative list the construction of classrooms because more than a hundred years after Gabaldon put up those elegant edifices, why should we contract out the building of cookie-cutter 8-meter by 8-meter rooms at a huge profit to investors when government has the money and the people to do it?
The idea is that PPP should not supplant the government in doing run-of-the mill projects. Its focus should be on high-impact projects.
Otherwise a PPP overreach that will make public services profit centers may lead to a government abdicating on its duty to provide even the simplest of services.
For this reason, the bill orders the identification of a priority “projects of national significance” whose direct economic impact breaches the accepted threshold.
These projects and others under the PPP ambit can be implemented through an assortment of PPP contractual arrangements, such as: Build-and-Transfer, Build-Lease-and-Transfer,Build-Own-and-Operate, Build-Operate-and-Transfer, Build-Transfer-and-Operate, Contract-Add-and-Operate.
There’s even a Develop-Operate-and-Transfer, Operate and Maintain, Rehabilitate-Operate-and-Transfer, and the classic Joint Venture.
If the PPP regime has more plan offerings than your cellphone service provider then it is to broaden the options investors can choose from and government can offer.
This customized approach is in recognition of the complex structure and challenges of public works and services these days which a one-size fits-all approach may not fully address.
In incubating these projects, the bill creates a Project Development and Monitoring Facility or PDMF.
It shall be used for the procurement of advisory and support services for the preparation, structuring, probity management, procurement, financial close, and monitoring of implementation of PPP projects.
The procurement of such consultancy services must follow procurement laws and competitive bidding.
In fact, the unspoken first success story of the PPP experiment is that it created a downstream industry of consultants which has so far billed the government P2.32 billion for 31 proposals reviewed.
The bill embeds FOI rules in all PPP dealings. Copies of all PPP contracts are deemed accessible public documents.
We are also expanding the composition of the PPP Governing Board to make it a nine-person body, with five government representatives – Secretaries of Socio-Economic Planning, Finance, Budget, Public Works and Highways, and Transportation and Communications – and four from the private sector.
As I mentioned earlier, the bill safeguards public interest.
Public consultation with all potential stakeholders, including the users, in all stages of the PPP project, is made mandatory.
The implementing agency shall assess the affordability of fee or tariff, and conduct a genuine willingness-to-pay survey among the users of the infrastructure facility.
Approved starting fare or user fee in a PPP project as well as the approved parametric formula on fare increases or adjustments, if applicable, must be posted on government websites.
This bill also allows Viability Gap Funding or VGF which is the financial support the government may extend to a concession-based PPP project with the objective of making user fees affordable and thus retaining the commercial attractiveness of the project.
Hopefully, this will address in part the fee-setting and the investment recovery issues associated with premium payments which can inflate project cost.
Admittedly, a PPP project, or for that matter any investment is not devoid of any risk.
Minimizing and managing this is part of the contractual arrangement between the implementing agency and the project proponent.
A good PPP is one in which the reduced risks are optimally allocated among all the parties.
This bill requires the optimal allocation of risks between the implementing agency and the project proponent.
Meaning each risk in a PPP project shall be assigned to the party that is best able to control the likelihood of its occurrence, manage its impact on the project, and absorb the risk at the lowest cost.
The language is clear: Risks must be shared. Government cannot be left holding the bag alone.
But when it is time for the government to pay up, it should be done in accordance with budgeting laws and practices.
The original proposal we received was for the creation of Contingent Liabilities Fund which will be financed through “dedicated budgetary appropriations”, contributions from the budgets of implementing agencies, premium payments, and ODA. However, the creation of such fund is an untried scheme which may not be legally permissible.
It was proposed that funds therein be “permanently appropriated” and, if not spent, the power to disburse of which will be given to the Finance secretary, will not be reverted to the General Fund.
I cannot agree to this proposal – unprecedented as it is in public expenditure management – on two grounds:
In this age of line-item budgeting, when lump-sums are broken down, one cannot just appropriate what is basically a stand-by reimbursement fund whose recipients are not known, for amounts not yet determined, for causes yet to be established.
A friend described it to me as a security blanket that will comfort contractors. I call it for what it is – a blank check.
The Republic’s obligations will be honoured, but not in a manner that will preposition public funds.
Secondly, the setting up of a Contingent Liabilities safety net may lead to half-baked feasibility studies, not well thought out projects, those whose financial projections are off by a mile, and bloated user targets.
As I speak the amount of our Contingent Liabilities arising from PPP projects is a whopping P81.1 billion.
Of this, some P13.7 billion is already due and demandable. In one scenario, the probability of occurrence for P34 billion worth guarantees is “in the realm of the possible.”
Thus, this cannot be discounted: that the P33.66 billion government collected in premium and concession payments will be cancelled when contingent liabilities become assumed obligations.
If such kind of slippage is not allowed in the private financial sector, where one can get fired for projections way off the mark, then why should it be condoned in the government?
This does not, however, in any way diminish the need for a PPP.
On the contrary, these are the provisions that will strengthen the PPP as a tool for national development and progress, one that will uphold public interest always.
It is still the way forward. And this bill ensures that it will be fair to all those who will take the journey.
Thank you, Mr. President.
