PPP concerns raised

A STRING of credit rating upgrades will attract more investments to the Philippines but the government’s much-touted public private partnership (PPP) program may not be able to keep up, consultancy GlobalSource Partners yesterday said.

With Standard & Poor’s following Fitch Ratings in raising the Philippines to investment grade, there will be a gradual pickup in investments, especially in public works, GlobalSource said.

"Our best-case scenario would see inflows channeled into productive investments in infrastructure and tradeable goods that create local jobs and sustain economic growth over the long term."

"Conversely, in the worst case, the economy would be ill-prepared to absorb the inflows which end up distorting investment decisions and creating asset bubbles that raise the economy’s vulnerability to external shocks...".

S&P raised the Philippines’ credit rating to BBB- last week, following an identical move by Fitch in March. Both moves took the country to investment grade -- a category where an economy is deemed to have "adequate capacity" to meet financial commitments.

With many investors required to tap only investment grade entities, the upgrades are expected to spark renewed interest in the Philippines and its companies.

However, GlobalSource said the country may have limited opportunities to offer with the Aquino administration’s centerpiece infrastructure development program continually hit by delays.

"Despite the flurry of activities, many well-informed observers continue to doubt that government can in fact proceed to bid out anytime soon some of the bigger projects..." it noted.

For deals that can be bid out, it added, questions remain on whether these can be completed by 2016 and whether the activity generated will contribute to economic growth.

The government has had to appease investors after "seemingly unending postponements of critical milestones" in the PPP program, which was launched with much fanfare in 2010.

Only two projects have been awarded so far: the P1.96-billion Daang Hari-South Luzon Expressway Link to Ayala Corp. and the P16.42-billion PPP School Infrastructure Project Phase One to the Citicore Holdings Investment, Inc.-Megawide Construction Corp., Inc. and BF Corp.-Riverbanks Development Corp. consortiums.

The P15.86-billion Ninoy Aquino International Airport (NAIA) Expressway Project, meanwhile, will formally awarded to Optimal Infrastructure Development, Inc., a unit of San Miguel Corp., this month.

"In the case of the NAIA Expressway, apart from the usual bottlenecks common in toll road projects (e.g., timely delivery of right of way) that can lead to delays, the perplexing bid results have doused some of our pre-bid enthusiasm for a likely PPP takeoff," GlobalSource noted.

San Miguel offered an upfront P11 billion on top of the project cost, almost double a P6-billion interest-free loan offered by the government. It was also well above the P305 million proposed by Manila North Tollways Corp.

"The numbers we have seen suggest that the project will be difficult to fund on a project finance basis and has analysts guessing what game plan San Miguel has in mind..." it said.

source:  Businessworld