Sunday, June 26, 2016

The future of PPPs is written on the wall

IS public-private partnership (PPP) the only solution to the infrastructure deficit? Is PPP truly a priority program of the incoming Duterte administration? What is its relevance and importance in achieving the 10-point socioeconomic agenda? Is there a future for the PPPCenter? What could be the role of the PPP Center moving forward?
From all indications, PPP will be a priority program and a key change strategy of the incoming administration. Recent events will show that President-elect Rodrigo R. Duterte is not just paying lip service.
In the recently concluded two-day business summit in Davao City, the 10-point socioeconomic agenda of the incoming administration was presented and discussed. The fourth agenda includes PPPs. The President has committed to “accelerate annual infrastructure spending to account for 5 percent of the gross domestic product, with PPP playing a key role.” At the sidelines of the event, incumbent City Mayor Duterte signed a 50-year joint-venture agreement with the private sector, selected through the unsolicited proposal route, for the Davao Coastline and Port Development Project worth close to
P39 billion.
Here are five suggested actions points on the fourth agenda:
1.  From PPP to PPPP. The current tag of this program only highlights the parties (i.e., public and private) and the relationship between them (i.e., partnership). The purpose or “true north” of the arrangement is, however, deemphasized. It must be underscored that any PPP should be for better, not just good, quality of life. PPP may, therefore, be rebranded as PPPP or PPP for the People.
 2.  PPP is a part of a whole. PPP cannot be the end in itself. It is should not even be viewed as a panacea or the only solution to the infrastructure and public-services deficit. As discussed in the two-day summit, “PPPs are not a quick fix for financing and delivery, but can be an important part of infrastructure delivery.” It must be pursued as a program and a change strategy.
3.  Expanding the PPP definition and reach. To be an effective change strategy, adaptive innovation must be encouraged. Alternative PPP modalities should be advanced. Confining PPP to the modalities under the build-operate-transfer law stymies innovation. More options is better.
To facilitate inclusive growth in the whole country, PPPs should be implemented outside Metro Manila and nearby areas. Local governments all over must be empowered and encouraged to adopt their own PPP frameworks.
4.  Strengthening and decentralizing the PPP Center. The need for a central technical and advisory agency on PPPs under the National Economic and Development Authority, or possibly under the Office of the President to underline the priority, cannot be understated.
The PPP Center should continue to be the repository of expertise, data and learning. However, the expertise should not be monopolized under one roof. Horizontal and vertical decentralization must be promoted. Satellite PPP Centers in Northern Luzon, the Visayas and Mindanao may be established. Implementing agencies at all levels—i.e., national, state corporations and local governments—should have their own PPP units. The PPP Center can, thus, serve as institutional mentor and coordinating agency of these units.
 5.  Future-proofing PPPs. Successor risk or changes in policies and interpretations and unilateral amendments or rescission of PPP contracts entered into by previous administrations should be avoided. Stability, trust and participation by stakeholders motivated by the fourth “P” are critical in sustaining PPP. Ethical standards must be in place.
PPPs must promote human rights, climate and gender justice. Citizens’ participatory audit must be institutionalized.
We are looking forward to a brighter and comfortable future. We hope that PPP, among other change strategies, can bring
us there.
source:  Business Mirror
Alberto Agra 2

‘Brexit’ lessons for the Philippines

THE recent referendum vote held in the United Kingdom seems straight forward enough. The ballot had two choices: “Remain a member of the European Union” and “Leave the European Union.” The final result of last Thursday’s voting was 51.9 percent to “Leave” and 48.1 percent to “Remain.”
The outcome was fairly close, but still decisive, with the Leave getting 7.8 percent more votes than Remain. However, those numbers are deceptive.
The vote for Remain won in an absolute landslide victory. The vote for Leave won in an absolute landslide victory. It all depends on where you look.
 The United Kingdom is composed of England, Northern Ireland, Wales and Scotland, through centuries of treaties and to a certain extinct kingly conquest. And like every diverse nation, there are many viewpoints and biases.
In a postmortem of the vote, the Remain-inclined press pointedly mentioned that in an area of England with higher education, Remain was a big winner. London, for example, voted 60 percent to 40 percent in favor of Remain, a landslide. However, London is also home to the financial institutions that have a vested interest in staying part of the EU. Obviously, multinational banks tend to employ higher-educated people. So, of course, London would vote Remain, but not as a result of being “smarter,” but because it was in their financial interests.
The West Midlands region of England voted the opposite way—60 percent for Leave. The city of Birmingham is in the West Midlands and is England’s second-largest city. Birmingham used to be a manufacturing and engineering center. Today, its economy is dominated by the service sector, which in 2012 accounted for 88 percent of the city’s employment. Economic inequality within Birmingham is greater than in any other major English city.
The North East region of England also voted 58 percent for Leave. Thirty percent of the people there consider themselves in the “D” or “E” segment of the UK’s economic classes. England’s eastern area also went heavily—57 percent—for Leave. Here, youth unemployment is 33 percent.
This referendum was about an issue that significantly affected every citizen of the United Kingdom and a critical national policy. Yet, when you look at the results, the voters cast their ballots exactly as people always do: Based on their own personal interest. London bank employees voted for what was best for London banks. Lower-income classes in depressed areas voted for a change from the current situation, which they believe has failed them.
 In a short time, the Philippines will face deciding about some critical issues from the status of Muslim Mindanao, perhaps, a change to a parliamentary or federal form of government to changes in the Constitution regarding foreign ownership of businesses.
Will Filipinos push for a decision that they think will be best for the entire nation or for what will be best for their own personal interests?
source:  Business Mirror

Tuesday, June 21, 2016

Duterte inks first PPP deal of Davao

By Alberto C. Agra / Special to the BusinessMirror
Davao City—Before he steps down as city mayor, incoming President Rodrigo R. Duterte signed a landmark contract with the private sector on Tuesday worth about P39 billion.
On the sidelines of the end of the two-day business summit in Davao, the President-elect signed a public-private partnership (PPP) contract with a proponent on port development. This is one of his last acts as mayor of Davao City.
As local chief executive, Duterte—joined by representatives of the City Council and the members of the Davao City PPP Board (DCPPPB)—signed a 50-year joint-venture agreement (JVA) with Mega Harbour Port And Development Inc. This is the first PPP contract entered into by the Davao City under its 2015 amended PPP ordinance.
The Davao Coastline and Port Development Project aims to spur the economic growth of the city. Davao envisions to be the premier socioeconomic and tourism center in Mindanao, as well as in the East Asia-Pacific region. The project will support the city’s plan of becoming the gateway of commerce and trade in the Davao Gulf area, even for the whole of Mindanao region.
The project, which will be situated on a 214.61-hectare land to be reclaimed by Davao City as project owner and the proponent as project developer, shall accommodate a modern and state-of-the-art commercial port for containerized and noncontainerized shipments, with cargo-handling equipment and information-technology infrastructure. An industrial park, a commercial complex, and residential lots and houses will also be constructed thereon.
According to the project study submitted by the proponent, the unprecedented demand due to increased economic activity in the region requires better infrastructure and logistics support for its industries and services sectors, which the region’s main public seaport and secondary seaports cannot fully accommodate, especially bigger cargo-movement requirements.
Under the JVA, the reclamation and vertical development will be undertaken by the proponent at no cost to the city. The proponent shall also provide the relocation site for the affected residents at the commencement of the project. The informal settlers shall be tapped as source of skilled and unskilled laborers during the construction phase of the project.
The project, to be jointly undertaken by the city and the private sector, shall contribute to the government’s efforts to reduce the high underemployment rate by helping attract multinational business-process outsourcing companies and call-center operators to set up shop in Davao City through the provision of an industrial park.
Aside from these benefits, the city government is expected to increase its income, in anticipation of the new establishments and business enterprises to be catered in the industrial park and commercial areas. The city’s increased income will consequently translate into increased tax revenues for the city government. With more revenues, the city will be less dependent on the internal revenue allotment from national government and will have more funds for basic and social services.
This first PPP of the city truly advances the true north of PPPs —to promote the general welfare and provide for better quality of life of the people. The City Council and the multisectoral DCPPPB, in approving the terms of the JVA and recommending approval to the mayor, respectively, made sure this mandate and the pro-people and pro-change stance of the city will be respected and advanced.
After the signing of the JVA, the city government will forward the documents to the Philippine Reclamation Authority for its study and recommendation to the board of the National Economic and Development Authority for its approval.
Davao City joins 70 other local governments in pursuing PPPs using their own PPP ordinances. The provinces of Bataan and Nueva Ecija, and Calamba entered into JVs for their government center and capitol redevelopment, the province of Quezon on bulk water, hydropower and wind power, and the cities of Pasay, ParaƱaque and Manila, and Cordova Municipality on reclamation. Manila and Valenzuela cities entered into JVs for their markets, Iloilo City and Batangas City on terminals, and Cebu City and Cordova Municipality together for the third bridge in Cebu.
The message of the incoming President is clear. He believes in the importance and criticality of PPPs to plug infrastructure deficits. Dramatic change can be brought about through PPPs. He has demonstrated that local governments can be trusted and that they possess the competencies to pursue iconic and high-impact PPP projects. By signing the JVA, where the proponent was chosen through the unsolicited proposal route, he subscribes to this alternative route of selecting the proponent.
The future of PPPs in the country is bright. The nation is hopeful that under the Duterte administration, Filipinos will see a new international airport, waste-to-energy projects, more expressways, more water-related projects, monorail and subway systems, more socialized housing units, health-care facilities, more land development, more economic zones and more renewable-energy arrangements.
The signing of this JVA could not have come at a more auspicious time. It signals the “warm-up” to the realization of the 10-point socioeconomic agenda, the fourth agenda being to “accelerate annual infrastructure spending to account for 5 percent of GDP, with PPP playing a key role.” This showcases “Sulong Pilipinas: Hakbang Tungo sa Kaunlaran.” This is definitely a good first step not just for Davao, but also for the whole country.

Philippines joins list of most promising FDI destinations

THE PHILIPPINES has emerged as among the world’s most promising destinations of foreign investments in the next three years, according to the United Nations Conference of Trade and Development (UNCTD).

In its World Investment Report 2016, UNCTD said the US, China and India remain the top destinations of investments by multinational enterprises (MNEs) between this year and 2018. However, the US, which since last year has shown signs of economic recovery, displaced China in this year’s UNCTD survey among executives belonging to the 100 biggest non-financial MNEs.

China was the top choice when the UNCTD last held its survey in 2014, or before the world’s second largest economy showed signs of slowing down.

The Philippines joined the top 15 destinations, placing eighth, along with Australia, France and Malaysia, which in the previous survey round ranked 14th.

The report recognized the “noteworthy measures” of the Philippines to liberalize foreign investments, particularly in removing the foreign ownership restriction on lending firms, investment houses, and financing companies, as well as reducing the number of professions reserved for nationals.

Another Southeast Asian economy new on the list is Myanmar, which ranked ninth along with Vietnam, which in turn rose from the 18th spot during the 2014 survey round.

Seven of the top 15 choice locations belong to emerging Asia, of which 5 came from Southeast Asia, with Indonesia steaming ahead on seventh place, and like Malaysia was on the 14th spot in 2014.

FDI FLOWS SURGE IN 2015
Global foreign direct investment (FDI) flows in 2015 surged by 38 per cent to $1.76 trillion, the world’s highest level since the global economic and financial crisis of 2008 -- 2009, UNCTD said, adding that the growth rode on the increase of cross-border mergers and acquisitions (M&As) to $721 billion, nearly 67% higher than the $432 billion in 2014.

Inward FDI flows to developed economies reached $962 billion, the UNCTD said.

“As a result, developed economies tipped the balance back in their favour with 55% of global FDI, up from 41% in 2014. Strong growth in inflows was reported in Europe. In the United States FDI almost quadrupled, albeit from a historically low level in 2014.”

Developing economies drew $765 billion of FDI inflows, or 9% higher than in 2014, as said economies continue to compose half of the top 10 destinations of FDI flows.

Developing Asia remains the largest FDI recipient region globally, with inflows amounting to $541 billion, or a 16% increase.

Going forward, UNCTD expects FDI flows to decline around 10%-15% this year, mirroring the “fragility of the global economy, persistent weakness of aggregate demand, sluggish growth in some commodity exporting countries, effective policy measures to curb tax inversion deals and a slump in MNE profits.”

Growth is expected to get back on track in 2017, with UNCTD predicting FDI flows to go beyond $1.8 trillion in 2018. -- Roy Stephen C. Canivel


source:  Businessworld

Monday, June 20, 2016

PDI Editorial: When rivals cooperate

IN THE local corporate scene, few business leaders can match the rivalry—and sometimes, outright antagonism—between tycoons Ramon S. Ang and Manuel V. Pangilinan.

In their respective efforts to expand the country’s biggest conglomerate (San Miguel Corp.) and the country’s largest telecommunications empire (the PLDT Group), the two gentlemen have been tenacious competitors over the last decade.

This rivalry became even more pronounced in the last six years, when the Aquino administration unveiled the landmark public-private partnership (PPP) program, which was marketed to the private sector as a corporate gold rush: Companies that would sink in billion-peso investments in infrastructure projects would be rewarded with handsome financial returns.

And plunge into this PPP scheme the two conglomerates did. But their infrastructure projects have suffered frustrating bureaucratic and policy delays at the hands of the outgoing administration. After six years, they appear to have ended up with a mixed bag of results that left many wondering whether it was worth all the effort to outdo each other.

The good news is that Ang and Pangilinan seem to have discovered the virtue of cooperating with each other (in addition to the value of competing against each other). The latest pronouncement from the SMC side is that it is in talks with the PLDT Group for a possible joint undertaking to build a new—and sorely needed—international airport, possibly on reclaimed land along Manila Bay. And from all indications on the PLDT side, the talks are being taken seriously and will likely lead to other areas of cooperation between the corporate behemoths.

If the talks crystallize around the existing SMC proposal (which was all but ignored by the Aquino administration), the Filipino people will soon enjoy a $10-billion aviation facility with four runways that can accommodate all the flights local and international airlines want to operate in or out of Manila. To be built on an estimated 1,600 hectares of reclaimed land, such an airport would be able to accommodate up to 250 aircraft movements in an hour, dwarfing the 40-aircraft-movements-per-hour capacity of the Ninoy Aquino International Airport. That would be enough capacity to meet the country’s growing international aviation requirements for the next half century, at least.

Regarding the environmental debate surrounding the issue of land reclamation, what do the international airports of Hong Kong, Seoul, Osaka, Nagoya, Macau and Doha have in common? All these First World aviation hubs were built wholly or partially on reclaimed land, while managing the adverse effects on the surrounding marine environments.

In the case of Hong Kong’s Chek Lap Kok, two mountains on two adjacent islands were leveled, and the waterways between those islands filled with earth to come up with what is now one of the best airports in the world, again while limiting the impact on the area’s diverse and fragile ecosystem. It goes to show that reclaiming land to build large-scale infrastructure projects can be done in a way that mitigates the project’s environmental impact.

The talks between SMC and PLDT for the airport project are likely to open avenues for further cooperation between them. It may even set a trend for the other business conglomerates owned by the country’s wealthiest families to start cooperating in order to build key infrastructure—roadways, ports, mass transport systems, in addition to other international airports—that the Philippines needs to sustain its economic growth.

After all, the taipans have jostled for greater economic benefits during the last six years, with precious little to show for it (sometimes to the detriment of the public, while the administration sat on its hands, hesitant to use its political capital to break the deadlock).

Indeed, competition in business is good. But where the benefits of competition are limited, perhaps cooperation is a better alternative. Anyway, the ultimate goal is the same: to use the massive resources at the disposal of the rich not only to enhance their own wealth but to improve the lives of the Filipino people as well.

PPP: Infra program or fiscal measure?

In 2014, the national government posted a budget deficit of P73.1 billion, less than half the P164-billion deficit incurred in 2013. The reason: revenues grew faster than expenditures. In December 2014 alone, the Department of Finance said the deficit dropped by 12 percent to P46.3 billion  from P52.6 billion in 2013 because revenues increased by nearly twice the pace of spending.
That’s good news, from the perspective of the finance people, whose goal is to keep the amount the government spends as close as possible to the amount it earns in terms of taxes. The bad news: the country and the people must pay the price in the form of slow economic growth, which affects the lives of Filipino families.
In contrast to the government’s healthier fiscal condition, the economy grew by a disappointing 6.1 percent in terms of gross domestic product (GDP) in 2014, down from the record-high 7.2 percent posted in 2013 and short of the official GDP growth target of 6.5-7.5 percent for 2014.
Even before the official report on the economy came out, analysts were predicting a lower-than-target performance, mainly because of underspending by the government.
The Asian Development Bank (ADB) also blamed weak public spending as a contributor to the dismal GDP growth. Underspending continued in 2015, as a result of which GDP growth further slowed down to 5.8 percent, the slowest pace in four years.
Among the programs adopted by the government to reduce the deficit is the Public-Private Partnership (PPP) program. The PPP is supposed to be the flagship program to accelerate infrastructure development, but it was also used to rein in the fiscal deficit by spending less and keeping government borrowings low.
Thus, the outgoing administration has succeeded in establishing a healthy financial record for the government, but has failed to sustain GDP growth at the 7-percent pace, which is what is needed to spread the benefits of economic gains down to the socio-economic ladder.
With the incoming administration’s commitment to pursue infrastructure development, I believe it is time to review the PPP program. The primary objective of the government is to provide free basic services, such as roads, to the people. If that’s not possible, at least provide the services at the lowest possible cost.
The new administration has to decide whether to use PPP as a means to raise money for the government or to achieve its primary objective.
The PPP program will help accelerate infrastructure development but the government should not rely on it heavily because the profit motivation of private sector participants will mean more costly services to the public.
According to the PPP in Infrastructure Resource Center (PPPIRC) of the World Bank, the development, bidding and ongoing costs in PPP projects are likely to be more than for traditional government procurement processes, so the government must determine whether the greater costs involved are justified.
The PPPIRC also points out that there is cost attached to debt, referring to loans that PPP proponents will incur to finance their projects. “While private sector can make it easier to get finance, finance will only be available where the operating cash flows of the project company are expected to provide a return on investment (i.e., the cost has to be borne either by the customers or the government through subsidies, etc.),” the PPPIRC says.
Another problem with up-fronting all the big projects is that it limits the playing field to a few, the two or three biggest players, to the exclusion of the mid-size players.
Thus, it is creating an oligopoly, which I think runs counter to President Rodrigo Roa Duterte’s promise to level the playing field for businessmen.
That’s the problem when the government allows the finance people to run the infrastructure program.
(For comments/feedback e-mail to: mbv.secretariat@gmail.com or visitwww.mannyvillar.com.ph)
source:  Business Mirror