Local government infrastructure projects touted for PPP funding

Patrizia Paola C. Marcelo | September 8, 2017

TO GO WITH AFP STORY “Philippines-Investment-Infrastucture, FOCUS” by Cecil Morella A man works on a government project, a 300-meter flyover that will connect two main expressways in Manila on October 31, 2010. Businessmen say they want fair play and clear-cut rules as Philippine President Benigno Aquino prepares to ask them to plough three billion dollars of their money to modernise its infrastructure. AFP PHOTO/NOEL CELIS

THE PRIVATE SECTOR has been invited to explore local government infrastructure projects, particularly outside Metro Manila, after the national government decided to find other means of funding its projects.

“There’s also a lot of possibility for Public-Private Partnership (PPP) projects in the local governments… [The projects are] smaller… but many of the local governments are looking for PPP projects,” Socioeconomic Planning Secretary Ernesto M. Pernia said yesterday during the 2^nd Philippines Energy and Infrastructure Finance Forum.

President Rodrigo R. Duterte’s government has moved away from PPPs, which it claims are slow, in favor of overseas development assistance (ODA) or funding projects directly from the national budget.

Mr. Pernia added that the government could allow international investors to come in for projects deemed to be of “national significance,” with foreign investment rules for sectors like public utilities currently being loosened.

“[For projects of] national significance, we can allow international investors to come in, despite being in industries that are in the foreign investment negative list,” Mr. Pernia said.

Frances Yani P. Domingo of the legal office of the Public-Private Partnership Center said that transportation projects such as terminals in cities outside Metro Manila could be viable investments for the private sector.

“We’re looking for transportation projects for local government units (LGUs) as we do regionalization and urbanization…For the investment priority list, we will include LGU PPP projects as priority projects that are entitled to incentives. The private sector would want to start [investing] in viable transportation projects like terminals, roads for metro cities outside Metro Manila,” Ms. Domingo said.

Ms. Domingo added that rail assets can also be considered by investors: “Aside from transportation projects in cities outside Manila, there’s an urgent need to rehabilitate our rail assets. That’s when the private sector can come in.”

Eric T. Francia, president and chief executive officer of AC Energy Holdings and managing director of Ayala Corp., said the private sector is still searching for clarity regarding the funding schemes being pursued by the government.

“We’re still adjusting as the private sector, [regarding] terms of priorities of government. There is now a lot of emphasis on ODA… We need more clarity in which the private sector can take on. We’re looking for guidance,” Mr. Francia said.

Rommel Gavieta, former Undersecretary for Planning at the Department of Transportation said that the government must decide on the “timing” of when the private sector comes in: “At the end of the day, the private sector has to come in, during the design and planning…to maximize the benefit of the business model.”

RELIANCE ON ODA
With regard to funding strategies, John Walker, chairman, Infrastructure, Utilities and Renewables for Asia at Macquarie Group, said that there is danger in “relying too much” on ODA.

“I think it’s important to ensure that local companies have the ability to continue to grow. The solution to the on-going infrastructure challenge is [growing] the infrastructure sector… There’s a danger in relying too much in ODA,” Mr. Walker said.

Boo Hock Khoo, vice-president for Operations at Credit Guarantee and Investment Facility said: “ODAs won’t be there until 2030, 2040. ODA [funding] is fine, but the government has to think [in terms of] the next 20 to 30 years.”

Mr. Khoo added that the Philippines can look into project bonds, which are being widely used in Malaysia, for example, for infrastructure projects.

“What’s missing is institutional capacity to appreciate projects… Project bonds are beneficial. You de-risk projects when you have proper financing terms,” Mr. Khoo added.