Next government to inherit fewer PPP headaches

A LEGISLATIVE MEASURE meant to end the problems that dogged President Benigno S.C. Aquino III's key infrastructure program is expected to be passed by Congress by the first semester of 2015, an official of the Public-Private Partnership (PPP) Center said.

A successful passage of that law -- sponsored by Mr. Aquino's key allies in Congress -- may prove to be of little use to a presidency left with only a few months in office by then, but still, Mr. Aquino would be leaving a framework that will help the next government pick up from where he left off, and with fewer headaches.

Sustaining the PPP


A staunch advocate of the proposed “Public-Private Partnership (PPP) Act of the Philippines” is the PPP Center, which pitched the bill as something that would ensure the PPP program would be a continuing legacy.


“Now our main challenge is ‘how do we sustain the PPP program?’ The first identified step is to amend Republic Act No. 7718 or the BOT [Build-Operate-Transfer] Law,” PPP Center Deputy Executive Director Sherry Ann N. Austria said at a July 18 economic forum hosted by BusinessWorld.

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Sustaining the Philippine PPP program, hailed by global institutions as a model other economies should emulate, is crucial to drawing direct investments, creating jobs and consequently, greasing the economy that has graduated from being the “sick man of Asia” to being the “next Asian miracle.”


Aquino's departure meant unfinished business -- either because the projects have yet to hurdle the complex layers of the approval process or because they face legal questions.

Already, the incumbent government has trimmed its target list of completed PPP projects to just five before Mr. Aquino steps down from power, from a goal of seven 100% done, as existing regulations were unable to shield some contracts from administrative cases or even lawsuits.

Those five projects -- already broken ground and expected to be fully complete by 2016 -- according to PPP Center Executive Director Cosette V. Canilao, are the following:


• The P16.28-billion School Infrastructure Project (Phase I);
• The P3.86-billion School Infrastructure Project (Phase II);
• 
The P15.5-bilion Ninoy Aquino International Airport Expressway;

• The P2-billion Daang Hari-South Luzon Expressway; and
• 
The P1.7-billion Automatic Fare Collection System

Removed from the original list were the P5.7-billion contract to modernize the Philippine Orthopedic Center, and P17.5-billion project to upgrade the Mactan-Cebu International Airport (MCIA).

Both contracts were already awarded but the Orthopedic Center’s modernization project hit a roadblock when activist groups, health workers and party-list organizations filed a petition questioning the hospital’s privatization.


The Mactan airport project, meanwhile, stalled when losing bidder Filinvest-Changi consortium filed a complaint against winning bidder GMR-Megawide consortium, alleging conflict of interest.

Ms. Canilao told BusinessWorld, in an interview in Makati City in May
, that the orthopedic hospital and MCIA projects should instead be halfway done by the time the next administration steps in.

The proposed PPP law hopes to address the loopholes existing regulations failed to plug.

“Certain policy gaps can only be addressed by legislative amendments,”
Ms. Austria said at the forum.


“The amendments to the BOT law have been identified as one of the
 priority bills, and hopefully, we'll be able to have it passed by 
first semester of next year,” Ms. Austria added.

“Except the Supreme Court”

The proposed bill inserts a provision that bars trial courts from stopping PPP projects, raising a few eyebrows.

“The proposed amendments of the bill include the following: … (i) Prohibiting the issuance by courts of temporary restraining orders, preliminary injunction or preliminary mandatory injunction against all PPP projects, except the Supreme Court but with a validity period on only six months,” the bill read.

Political analyst Ramon C. Casiple has misgivings over blanket provisions for PPP deals.

“The rationale is for PPP projects to be shielded from nuisance lawsuits. If you go to the Supreme Court, you must have good arguments or the SC will just ignore your petition. That will avoid challenges to the PPP bidding process and also to implementation,” Mr. Casiple said in a phone interview.

“But this is a blanket immunity. It should be limited only to those projects considered by the NEDA [National Economic and Development Authority] of national importance. Otherwise, you're talking of possible abuse by those in power or businessmen going into PPP,” he pointed out.

Right of way, property tax issues niggle

Two sticky issues the bill targets to resolve are right of way and property taxes.

Those two were the main concerns raised by investors that tried to compete for the P64.9-billion Light Rail Transit Line 1 Cavite Extension project -- the largest PPP deal so far bid out.

The government failed in its first attempt to bid out the LRT-1 project, and attracted just one bidder the second time around.

The legislative measure dictates that valuations for property that will be affected by a PPP project be based on updated estimates by the Bureau of Internal Revenue, the Assessor’s office of the municipal government and a government bank.

“One of the major bottlenecks in implementing a PPP project right now 
is the acquisition of right of way (ROW),” Ms. Austria said, although she and government officials could not immediately give information as to how much it would cost government to buy out affected landowners.

“The major deterrent is under the existing RA [Republic Act] 8974, wherein the default mode is negotiation but, on the part of the government, we
 cannot offer a huge amount because under the law only the zonal value
 can be offered,” she explained, noting that “owners will not
 accept [the offer] because it's very low and the zonal values are not
 updated.”

Data from the PPP Center showed that 92.3% of the right-of-way acquisition requirement for the railway’s Baclaran-to-Dr. A. Santos segment was completed; 69.2% for the Dr. A. Santos-to-Zapote segment; and 84.2% of the Zapote-to-Niog segment.

The P35.4-billion Cavite-Laguna Expressway project, put on ice after rivaling bidders filed an appeal before Malacanang, also faced right of way issues, according to Special Bid Bulletin 14 issued by the Public Works and Highways department.

The bill pushes for the exemption of projects “of national significance” from all local and real property taxes as a sweetener that will lessen the bitter taste of risks tied to PPP projects.

“There are certain provisions that can only be cured or can only be
 addressed by legislative amendments. For instance, most of the local
 government units have been imposing local or real property tax and
 another local taxes on projects of national significance,” Ms. Austria
 said at the forum.

Projects of national significance, as defined by the PPP Center, are those that are able to “generate employment opportunities and follow the Investment
 Coordination Committee (ICC) prescribed parameters.”

Beyond 2016

Other provisions of the proposed PPP law include: treatment of unsolicited proposals, institutionalizing a pool that the government can tap for financing, and amending the franchise of the Philippine National Construction Corp. as the operator of the Nlex and Slex.

The bill also prohibits regulatory bodies from entering into any PPP contract that they regulate.

That jibes with a recommendation by the World Economic Forum (WEF) for the Philippine government to separate the functions of the agencies involved in PPP projects.

“The point here is to establish entities with separate authorities (i.e. policy-making, contracting, monitoring, and dispute resolution) with a clear governance structure in order to avoid any conflict of interests, and to have clear responsibilities and competencies,” Hanseul Kim, associate director and head of engineering and construction industry of the WEF, said in an e-mail interview with BusinessWorld in May.

The wisdom in that statement is obvious.

“This way, authorities can be independent from the political influence or other externalities, and be able to carry out long-term infrastructure plans, often over 10-20 years, that generally exceeds more volatile political duration,” Mr. Kim added.

The PPP bill may be an afterthought since the Aquino administration failed to deliver on its promise to boost the economy with its centerpiece program.

But its passage also means the next administration won't inherit the problems that Mr. Aquino's PPP program struggled with.

With the passage too, Mr. Aquino has made sure his centerpiece program would outlast his term.
 
source:  Businessworld