Hybrids

This is a re-posted opinion piece.

On Wednesday next week the Ayala group will sign an agreement with Samsung and Korea Airports Corp. to form a consortium that will bid for the operation of the Laguindingan International Airport in Cagayan de Oro. KAC, a private company, operates all airports in South Korea except the main one, the state-owned Incheon International.

The Laguindingan project was financed largely by the South Korean government and construction of the airport undertaken and completed by Korean companies. By April next year, the flight navigation equipment, also procured with Korean government funding, will be operational. The airport, which will serve the Cagayan de Oro-Iligan corridor and become the gateway to Northern Mindanao, will replace the old Lumbia airport.

If needed for the airport, the Philippine government can draw additional funds from a $500-million soft loan facility from South Korea’s Economic Development and Cooperation Fund.

The $500 million, up from the $300 million that was originally proposed, is available for three years from 2011. Only 20 percent of the amount must be paid back, and that can be done over 40 years, with a grace period of 10-15 years, at an annual interest of 0.15 percent. Seoul has a separate agency handling grants.

With the third phase of the Laguindingan project, involving the entry of the private sector for operation and maintenance, this becomes an example of a “hybrid PPP” or public-private partnership with foreign funding component.

Maybe Transport and Communications Secretary Mar Roxas has heard of the project and was partly inspired by it to start pushing for hybrid PPP to undertake major infrastructure projects.

He may want to dust off a hybrid PPP proposal, made five years ago to the Philippine government by the World Bank and International Finance Corp. The WB and IFC spent $3.5 million to come up with the proposal for the south extension of the Light Rail Transit-1. Under the proposal, the WB would provide a multimillion-dollar loan for the public works while the Department of Transportation and Communications (DOTC) would bid out to private companies the rolling stock, signaling, maintenance and operation of the LRT-1 extension.

The buzz at the time was that the DOTC was indeed interested in tapping official development assistance (ODA) for the project, but from another source without World Bank scruples, in hopes of swinging another ZTE-type deal.

With a corruption scandal eventually killing the broadband deal with ZTE plus noise from some pesky foreign investors, the LRT Authority, which was chaired by the DOTC chief (who signed the ZTE deal), just sat on the extension project.

So commuters will have to wait a couple more years for the LRT extension. Maybe the Koreans or Japanese will be interested in it? Roxas said the Japan International Cooperation Agency (JICA) had expressed openness to participate in the hybrid PPP.
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The Japanese seem more interested in building roads under the hybrid PPP. They don’t seem too hot about seaports either, since they’re still waiting for full utilization of the international ports whose development they financed in Subic and Batangas, where several major Japanese companies have set up plants. They wonder why business in Manila’s crowded international port cannot be diverted to those two others nearby.

Even if Japanese ODA is readily available, it could take some persuasion to make more of their private investors put their money in the Philippines.

A Japanese official told me that the top concern of their investors is personal safety in the Philippines. In a society where private gun ownership is illegal, the Philippines must look like the OK Corral. Japanese mining executives were in the offices raided this week by the New People’s Army in Surigao.

Personal safety, incidentally, is also a key concern of Koreans visiting the Philippines. Private gun ownership is also banned in South Korea.

Another concern of Japanese investors, I was told, is the unpredictability of tax policies. Then there’s the wild card in all investment matters in this country: the judiciary.

When I told the Japanese official that the judiciary was beyond the control of the executive, he countered that it was a matter of leadership. President Aquino, no longer the “diffident, unassertive” public official that the former US ambassador found under-whelming, might want to take note of that.

The Japanese also want transparent rules in case they participate in hybrid PPP. No foreign donor wants a ZTE-type scandal, or to see its private companies end up with investments stuck in litigation, which in this country could take a lifetime to resolve.

Then there are those other concerns that have been raised for years by investors both foreign and local: the highest power costs in Asia, shaky rule of law, unpredictable business policies, red tape and, yes, corruption. As for inadequate infrastructure, that’s what the PPP is seeking to address.
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The Philippines will be competing with other developing countries for ODA. We’re not the only one seeking foreign assistance to bankroll major infrastructure projects.

Recently the ADB approved a $293-million loan to support a $1-billion rail project connecting the main railway station in Vietnam’s capital Hanoi to a district 12.5 kilometers to the west. This is on top of another loan approved earlier this year by the ADB for a metro line in Ho Chi Minh City.

The Hanoi rail project, one of four priority metro lines for the city, is also financed in part by the French government and the European Investment Bank.

When the rail line is completed in 2015, an initial 150,000 people are expected to use it daily. Like the Chinese who ditched their bicycles for cars on the road to economic prosperity, Vietnamese are replacing their motorcycles with cars, causing traffic jams and pollution. Vietnam hopes to have 50 percent of Hanoi’s population using public transport by 2020.

A similar target could be achieved in Metro Manila if sufficient railway systems are in place. But many things move at a leisurely pace in this country. It took a decade to build the Metro Rail Transit-2, and a change of administration before MRT-3 became operational. An unsolicited proposal to undertake the MRT-7 on Commonwealth Avenue is waiting for approval after 10 years, with the Department of Finance seeking a performance guarantee.

In September last year, 10 potential PPP projects were presented by Malacañang to the business community. If P-Noy wants the projects completed by the end of his term in 2016, he must get them started within a year or two.

Skeptics say PPP stands for Probably Problematic Projects. Investors want Properly Prepared Projects.
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By: Ana Marie Pamintuan – Sketches
Source: The Philippine Star, Oct. 5, 2011
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