Are we organizationally ready for PPPs?

Are our government agencies ready for public-private partnership (PPP) arrangements? Do we have the right leaders, partners and followers? Do implementing agencies undertake PPPs just to join the bandwagon? Do all stakeholders understand what PPP is and what it is not? Do partners share the same vision and trust each other?

PPPs are not just about technical and financials. Organizations must be ready to enter into PPPs. PPP is not for the technically unequipped, knowledge-dependent, innovation-averse, fainthearted and distrustful organizations.

According to Cameron and Quinn, there are four “competing” values in an organization. An organization may be focused just on itself or focused on the market and stakeholders. An organization may give premium to stability and control, or emphasizes flexibility
and discretion.

An organization that wants to have internal focus and remain bounded by rules and tradition is said to value the “hierarchy.” A culture that values itself yet encourages participation, and “we-ness” is said to be a “clan.” An agency, which desires to engage the market within the limits of the rules, is a “market” organization. An institution, which propels itself through innovation, pioneering initiatives and out-of-the-box strategies by partnering with others, is said to espouse the “adhocracy” culture. The organization, in this case, becomes a “network and market organization,” per Olsen.

For PPPs, adhocracy is an imperative. In order to be PPP-ready, agencies must go outside themselves, acknowledge the deficits, embrace partnerships and be driven by a shared vision. They must be flexible, not be contented with the status quo and not stymied by rules, tradition and run-of-the-mill strategies.

PPP requires agencies to partner with the private sector and civil-society organizations, and work with regulators. Agencies should look beyond the typical PPP modalities, and explore other ways of partnership
for the public good.

This does not mean that agencies should violate the law and dismiss itself, and treat its plantilla as irrelevant. On the contrary,  adhocracy  should coexist, and must complement the other values of “clan,” “hierarchy” and “market.” As part of the bureaucracy, agencies must follow the rule of law.

The organization, as a team, must be capacitated and nurtured. The agency must know its mandate and capitalize on its
competitive advantages.

The Metropolitan Waterworks and Sewerage System, by using the lowest tariff scheme for the Bulacan Bulk Water Supply Project; the Quezon province, in entering into a joint venture for bulk water, hydropower and wind power in a single project;  the City of Cebu and Municipality of Cordova, in banding together for the third bridge; the province of Bataan, in engaging the private sector for its capital redevelopment; the water districts of Lingayen and Tarlac, among others, for the rehabilitation
of the water system, all exemplify adhocracy.

To achieve and sustain this, the leaders, partners, followers and stakeholders must all be visionary, participative, goal-oriented, capable and able, and learned. They must be transformative, since the objective of PPPs is better quality of life and must practice technical leadership, since PPPs must be legally acceptable, technically compliant and
fiscally viable.

We need more. We can do more. But more is required of us.

source:  Business Mirror

Japan’s biggest bank sees opportunity in PPP projects

FOLLOWING THE central bank approval of its equity purchase in Security Bank Corp., Bank of Tokyo-Mitsubishi UFJ Ltd., (BTMU) Japan’s largest bank, is looking to get involved in infrastructure projects in the country, its chief executive officer said.

Go Watanabe, CEO of BTMU Asia & Oceania region, said the commercial banking unit of Mitsubishi UFJ Financial Group (MUFG) on Feb. 29 secured the green light from Bangko Sentral ng Pilipinas (BSP) for its 20% equity investment in the country’s fifth largest bank by market value in a deal valued at P36.943 billion ($782 million). This investment is the largest so far by a foreign entity in a Philippine financial institution.

“BTMU has no PPP (public-private partnership) investment yet but we have been thinking to participate in the projects included in the pipeline... PPP, particularly in infrastructure, is a necessary project for this country and Japanese companies are showing strong interest to participate in them,” Mr. Watanabe said in a media briefing Tuesday.

“BTMU is the best project finance bank. Together with the good peso liquidity from Security Bank, our team is the best team to support the PPP projects and encourage Japanese customers to participate in the program,” he added, noting that BTMU and Security Bank will likely serve as financiers to consortiums that will be involved and as financial advisers to interested parties.

“We haven’t decided yet [how we will participate in PPP projects] but maybe we could provide loans and be venture partners,” the BTMU official further said.

Security Bank President Alfonso L. Salcedo, Jr. earlier said “additional capital from the stake sale and the expertise of BTMU in project finance will facilitate Security Bank’s participation in big ticket infrastructure projects.”

BTMU Manila Branch General Manager Tadahiro Miyamoto said the foreign lender will help bring in more foreign firms in the country, particularly from the automotive and manufacturing sectors, following its strategic partnership with Security Bank.

“The challenge now is how to encourage overseas companies to go here. We will support this [but] we need more support from the government,” he said during the same briefing in Makati, noting that the government could look at providing more tax perks, improving infrastructure and lowering power costs to attract more foreign investors.

Mr. Miyamoto cited the country’s “very good” prospects with its population size and expanding middle class, as the good economic gains are projected to continue in the next few years.

“The Philippine economy has been growing. Among the ASEAN countries, the Philippines is the one with the biggest growth potential. It is the missing part in BTMU, that’s why we decided to make strategic partnership and it would contribute much to BTMU’s prospects. We would like to expand more business here,” Mr. Watanabe said.

Meanwhile, BTMU said it is ready to help Security Bank not just grow its size, but also in terms of technology transfer, as it aims to push the local lender to become one of the country’s top banks.

Mr. Salcedo earlier said that with the additional capital from the deal, the local lender is looking “at being at the top four, five banks in the industry sooner than later.”

As of end-September, Security Bank was ranked the sixth largest domestic universal lender with total assets of P482 billion.

The partnership, which will also allow Security Bank to leverage on the BTMU’s extensive relationship with Japanese corporates, global network and expertise to tap new niche markets, will raise P36.9 billion in capital for the Philippine lender, increasing its shareholder capital from P52.4 billion as of September to P89.3 billion on a pro-forma post-transaction basis.

Mr. Salcedo had said the transaction will help the local lender accelerate its expansion plans “at a faster pace and with more scale.”

The bank seeks to double its current market share in both loans and deposits to between 8-9% from the current 4% range, with aggressive expansion plans.

It will also scale up its branch network at a “much faster pace” to more than 500 by 2020 from around 262 currently.

Security Bank posted a net income of P7.7 billion in 2015, 7% higher than the P7.16 billion in earnings it booked the year prior, on the back of sustained growth in its lending activities.

Security Bank shares closed at P154.90 apiece yesterday, down by 10 centavos from the previous day’s P155-per-share close.

Meanwhile, BTMU is currently “very comfortable” with its 20% stake in Security Bank setting aside any plans to hike its interest in the local lender, at least for now.

“At this moment, BTMU’s 20% is very comfortable, at this moment we have no plans to increase the share. In the future, if we see opportunity, and both parties agree, then we might think about it but mutual agreement is very important,” Mr. Watanabe said.

Now that it has successfully found a partner in the Philippines, BTMU is eyeing Indonesia and India as its next targets, although the financial giant is “not in a hurry” and will continue to look at opportunities.

source:  Businessworld

Capital markets could be opened to PPP proponents

THE GOVERNMENT may adopt before its term ends a policy allowing concessionaires of public-private partnership (PPP) projects to tap the capital markets, pension funds and insurance companies for refinancing.

In an interview with reporters yesterday, new PPP Center Executive Director Andre C. Palacios said the interagency PPP Governing Board shall have approved the circular before the next administration takes over.

“I am hopeful that by June 30, the policy circular shall have been approved, meaning, the staff work, consultations and talks with the Philippine Stock Exchange (PSE) and Securities and Exchange Commission have been undertaken,” Mr. Palacios said in a mix of English and Filipino.

The PPP Center is currently drafting the policy circular, which involves the issuance of PPP securities or the “securitization” of the private-sector partner’s rights to revenues arising from their contract with the government.

“Since it is a right arising from the contract, the contract provides that you need approval of your government partner if you are going to mortgage it or assign it to another entity,” Mr. Palacios noted.

The policy could also pave the way for the government’s private sector partner to settle their existing debts with banks and avail of new loans from pension funds and insurance companies at lower interest rates.

“Usually, it’s the banks that finance the construction stage... Because they have a higher appetite for risk, they are more willing to lend but at higher interest rates, of course,” Mr. Palacios noted.

The risk profile improves once the concessionaires complete constructing and start operating the projects, making the case for loan refinancing, the PPP chief added.

“It’s expensive for a concessionaire to pay the bank interest rate when the risk profile has really improved. So, we’re exploring a refinancing policy,” Mr. Palacios said.

In an earlier interview, Insurance Commissioner Emmanuel F. Dooc said the commission is working on encouraging insurance companies to finance infrastructure projects.

Mr. Palacios said the PPP Center already discussed the refinancing policy with the Insurance Commission. The agency also continues to engage in talks with the PSE for the issuance of PPP securities.

“We’re talking to them [PSE] on how we can contribute to the development of the market. PPP Center can contribute by providing in our PPP contracts that the concessionaire can refinance it or securitize their revenue,” Mr. Palacios said.

The PPP Center plans to reflect the proposed policy circular in the contracts covering PPP projects to encourage involved government agencies to allow refinancing.

“We are exploring this, we could allow concessionaires to securitize or to issue a bond to borrow money from the public and pay them using revenues arising from the contract,” Mr. Palacios said.

source:  Businessworld

Aquino in $6.5-B infra legacy push

THE PHILIPPINES plans to solicit bids for $6.5 billion worth of projects from roads to airports before President Benigno S.C. Aquino III’s six-year term ends in June, seeking to leave his successor a robust pipeline of infrastructure deals.

Eleven projects, including a $2.6-billion highway and land reclamation, will be up for grabs in coming months, from a list of 50 deals that will be handed to the next administration, said Andre C. Palacios, 45, the new head of the agency overseeing big-ticket infrastructure projects.

“We already have a good number of investors who are prequalified as bidders, and they have put their money where their mouth is,” Mr. Palacios, executive director of the Public-Private Partnership Center, said in an interview Monday in Manila. “We are gift-wrapping these projects for the next administration so they can hit the ground running.”

Mr. Aquino has awarded 12 projects worth $4.2 billion since 2010, including the expansion and operation of a railway in Metro Manila and a toll road connecting the provinces of Cavite and Laguna. The improvements aim to draw investors, who have identified poor infrastructure as a deterrent to putting money in the Philippines. All five politicians vying to succeed Mr. Aquino have pledged to make infrastructure a priority.

The agency also will work with Congress to pass the proposed PPP Act that aims to minimize risks to investors, make joint ventures more transparent and create a contingent liability fund for unexpected costs in cases where the state can’t meet its commitments, Mr. Palacios said.

Projects under the PPP are not included in the election ban on procurement starting this month. The elections and policy uncertainty after Aquino are among risks related to PPP projects, BMI Research said in a Dec. 2 note.

The 11 projects Mr. Aquino intends to bid out before stepping down are: Operation and maintenance of LRT Line 2 in Manila; regional prison facilities, P50.18 billion; Davao Sasa Port modernization, P18.99 billion; New Bohol Airport operations, maintenance, development, P2.34 billion; Laguindingan airport operations, maintenance, development, P14.62 billion; Davao airport operations, maintenance, development, P40.57 billion; Bacolod airport operations, maintenance, development, P20.26 billion; Iloilo airport operations, maintenance, development, P30.40 billion; Laguna Lakeshore road/dike project, P122.80 billion; Road Transport IT Infra project, P298 million and civil registry system information technology project, P1.59 billion.

“These projects are long overdue, urgently needed and will have a great impact on Filipinos,” Mr. Palacios said.

“Every day of delay will inconvenience the public.” -- Bloomberg

Civil registry PPP draws three interested parties

THE GOVERNMENT has drawn interest from three groups for a P1.59-billion public-private partnership (PPP) aimed at upgrading the country’s civil registry services.

The Morpho-Filmetrics-Frey Consortium, Unisys Public Sector Services Corp. and PNJ Partnership Consortium attended the pre-bid conference for the Civil Registry System Phase II Project on Feb. 26, Dorcas Ann O. Ho of the PPP Center’s Project Development Service said in an e-mail.

Morpho-Filmetrics-Frey Consortium is composed of security and identity solutions providers Morpho (Safran) and Filmetrics Corp. along with construction firm Frey-Fil Corp.

PNJ Partnership Consortium comprises Japanese system integration firm NTT DATA Corp., Pointwest Technologies Corp., property developer Filinvest Land, Inc., Magellan Capital Holdings Corp. and Fleetwood Holdings, Inc.

The interested groups will have to submit their bids “sometime” in May, said Ms. Ho, noting the PPP Center has yet to finalize the timeline.

The winning bidder will finance, design, develop, operate and maintain the civil registry system for the Philippine Statistics Authority.

The system will collect, access, store, maintain and manage civil registry documents and the specimen signatures of all city and municipal registrars using imaging technology.

The project also includes production of vital statistics and will make the civil registry services available nationwide.

The National Economic and Development Authority Board, chaired by President Benigno S. C. Aquino III, approved the project on July 15, 2015. It forms part of the 55 projects included in the government’s PPP pipeline. -- Keith Richard D. Mariano

source:  Businessworld

Manila Water presses for indemnity

THE CURRENT ADMINISTRATION is winding down with still another contractual dispute under adjudication, this time as Manila Water Company, Inc. said yesterday that it has gone to an international arbitration court to compel the government to pay it P79 billion for losses projected from 2015 to 2037 resulting from recently approved lower-than-sought tariffs.

“In relation to our disclosure letter, dated April 23, 2015, please be informed that the Manila Water Company, Inc. has filed a notice of arbitration with the Permanent Court of Arbitration in Singapore,” the company said in a Dec. 10 letter to the Securities and Exchange Commission (SEC) and the Philippine Stock Exchange, Inc. (PSE) that was attached to a disclosure yesterday.

Manila Water cited as basis the April 23 notice of claim it submitted to the Finance department (DoF) that called for implementation of the July 31, 1997 Letter of Undertaking that guaranteed the obligations of the Metropolitan Waterworks and Sewerage System (MWSS) under their Feb. 21, 1997 concession agreement.

“In the Letter of Undertaking, the Republic, through the DoF, undertook to indemnify Manila Water against any loss caused by any action on the part of the Republic and/or the MWSS, resulting in the reduction of the standard rates ‘below the level that would otherwise be applicable in accordance with the concession agreement,’” according to the letter that was signed by Manila Water Chief Legal Counsel Jhoel P. Raquedan.

Manila Water’s main concession area covers the Metro Manila cities of Makati, Mandaluyong, Pasig, Pateros, San Juan, Taguig, Marikina; most parts of Manila and Quezon City; as well as some parts of Rizal province. It has also expanded operations to cover Boracay, Clark in Pampanga and parts of Cebu. Outside the Philippines, it holds substantial stakes in Thu Duc Water BOO Corp. and in Kenh Dong Water Supply Joint Stock Co., which are both water suppliers in Vietnam.

Last Apr. 21, an appeals panel ended a year-long government-Manila Water dispute over the latter’s tariff for the 2013-2017 rate-rebasing period. Manila Water originally proposed a P5.83-per-cubic meter (/cu.m.) increase in its 2012 basic water charge of P25.07/cu.m., but MWSS instead ordered the company in September 2013 to cut tariffs by P7.24/cu.m. after excluding tax payments from tariff computation. That regulatory decision prompted Manila Water -- which argued it was entitled to such treatment under its concession deal -- to take its case to the International Chamber of Commerce that same month for arbitration. The final award resulted in an 11.05% cut -- about P2.77/cu.m. -- to the basic water charge.

“As a result of certain actions by the MWSS and the Republic, which are covered by the provisions of the Letter of Undertaking, the company demanded indemnification from the Republic by reimbursing its losses in operating revenues to be realized for each remaining year of the concession as such losses are realized, which losses are estimated to amount to P79 billion for the period 2015 up to 2037,” Manila Water explained in its letter. “Since the filing of the Notice of Claim on Apr. 23... the Republic has not responded... which prompted the company to avail of its remedy under the Letter of Undertaking; hence, the Notice of Arbitration in the Permanent Court of Arbitration in Singapore.”

In its filing with the Singapore court, the company said that even as it continues to pursue its claim, it has started to implement the new rates set by MWSS that “incorporates a reduction” of P1.66 per cubic meter in the basic charge.

The latest move on this matter by Manila Water -- whose shares yesterday lost 55 centavos or 2.15% to end P25 apiece, compared to a 0.40% drop each of the PSE index and of the industrial index to which the firm belongs -- comes in the wake of similar action by Maynilad Water Services, Inc. that holds the concession for Metro Manila’s so-called “west zone”. Maynilad last March 27 haled the government before the International Chamber of Commerce to compel payment of P3.44 billion for estimated losses -- covering the first two months of this year -- from deferred implementation of a tariff increase it won under arbitration. Maynilad had said then that it continued to incur “revenues losses averaging P208 million for every month of of additional delay in 2015.”

source:  Businessworld

PPP thrust stained by canceled deal

THE PUBLIC-private partnership (PPP) thrust of the government has suffered a blow just as it was trumpeting economic gains at this year’s Asia Pacific Economic Cooperation meetings, as Megawide Construction Corp. canceled an P8.69-billion contract for the country’s first hospital PPP deal after the Department of Health (DoH) took “too long” to fulfill its part of the deal.

It is the first time a contract under the government’s flagship PPP program has been canceled.

“Megawide has terminated the contract for the Modernization of the Philippine Orthopedic Center (POC) with the DoH,” the company said in a statement yesterday.

“The DoH has not yet given us the Certificate of Possession for the project site,” Megawide Corporate Information Officer Manuel Louie B. Ferrer said in a telephone interview yesterday.

“It’s been too long. It’s been two years already.”

The project involves a 25-year contract to design, finance, build, operate and maintain a 700-bed orthopedic hospital within the National Kidney and Transplant Institute (NKTI) Compound along East Avenue in Quezon City, and transfer the facility to the DoH after the concession period.

Megawide Citi Consortium, Inc. -- a subsidiary of listed Megawide whose shares ended flat yesterday at P6.34 apiece even as the industrial sectoral index to which it belongs edged up 0.94% -- was awarded the contract in December 2013. It then entered into a P2.9-billion syndicated loan in October 2014 to help finance the project and had expected to start construction within that quarter in order to make the facility operational within the first three months of 2017.

A DoH-Megawide statement e-mailed to media later in the day pinned the blame squarely on the department.

The statement noted that former Secretary Enrique T. Ona failed to convince the board of the NKTI -- a government firm under the department that directly owns the land on which the new facility was to rise -- to allow such use of the area. Janette P. Loreto-Garin, who succeeded Mr. Ona in acting capacity in October last year after the latter resigned amid a controversy over vaccine acquisitions, did not fare any better.

“While DoH sits in the board of NKTI, it failed to convince the management of the said hospital to allow the use of their [sic] land for the proposed PPP project,” the statement read, adding that Ms. Garin “also failed to secure the consent of NKTI management for the use of its land for the proposed PPP project.”

The same statement cited other hurdles that were under the government’s purview -- including displacement of current POC employees as well as difficulty and delay in appointing an independent project consultant -- “all of which were unanticipated by the DoH and which negatively affected the implementation of the project.”

“Furthermore, the proposed rehabilitation hospital that will house the displaced employees of the Philippine Orthopedic Center is still being deliberated in Congress,” the statement read further.

“All of these contributed to the decision of Megawide to terminate the… agreement…”

The statement quoted Ms. Garin as saying: that “DoH cannot abandon its duty of ensuring care for our indigent patients in the Philippine Orthopedic Center if their place of transfer cannot be ensured”.

“Furthermore, it will be unfair to expect Megawide to shoulder the cost of caring for our indigent patients and be obligated to absorb all displaced employees pending approval of a new law in Congress to create the rehabilitation hospital.”

It went on to say that “DoH and Megawide assure the public and all investors that this is an isolated case”.

“Megawide looks forward to other PPP agreements that the DoH will offer.”

Besides this hospital project, Megawide has bagged four other PPP deals out of the 10 the government has awarded, so far: the P2.5-billion Southwest Integrated Transport System Project, the P16.43-billion first phase of PPP for School Infrastructure Project (PSIP), PSIP’s P3.86-billion second phase, as well as the the P17.52-billion Mactan-Cebu International Airport Passenger Terminal Building.

Sought for comment, Peter Angelo V. Perfecto, executive director of the Makati Business Club, said in a mobile text message yesterday: “Is the DoH willing to accept the responsibility for the failure of this PPP that could deliver better services to our people?”

Despite the DoH-Megawide explanation, he said “it still remains their [department’s] problem though and their commitment. Megawide -- or any private sector partner -- cannot be made to wait indefinitely.”

“It would be wise for government, particularly the DoH, to deliver on its commitment in connection with the project site.”

John D. Forbes, senior adviser of the American Chamber of Commerce of the Philippines, said in a separate text that the “repeated review” of projects by successive secretaries and administrations creates “policy inconsistency.” He warned this case could “undermine other PPP projects in process when the next administration takes over.”

PPP Center Executive Director Cosette V. Canilao said via text that she was “preparing a memo” to President Benigno S. C. Aquino III and economic managers on the “process, remedies and consequences” of this development.

“It’s up to the DoH how to move this forward.”

source:  Businessworld