Department of Finance | October 10, 2019
In reply to an article recommending the shift to Public-Private Partnerships (PPPs) and engagement of external consultants to expedite the Build Build Build program, the DOF issued a statement to clarify its policy guidelines on Public Private partnerships (PPPs).
In her statement, DOF Undersecretary Karen Singson “ask(ed) whether ‘Regulation by Contract’ in PPPs promote public interest.” Singson mentioned that PPP contracts in the past contained provisions which stripped the Government of its regulatory authority and increased Contingent Liabilities of Government. “The fund used by Government to pay Concessionaires are sourced from taxpayers’ money – money of the Filipino People which Government is mandated to judiciously manage,” she added.
Singson made reference to the following provisions, which she considered detrimental to Regulators, Government and Filipino People:
1) Automatic Rate Increases, where Government is forced to approve required rate increases proposed by Concessionaires without Regulators ability to determine whether the increases are just and proper.
2) Non-Interference Commitments, where Government promised not to interfere with provisions such as rate-setting mechanism provided in the contract
3) Non-Compete Clauses, where Government ensures a monopoly during the entire term of concession.
According to Singson, “these types of provisions restrict the power of Government to perform its functions and address the needs of the Filipino People quickly and efficiently, leaving public infrastructure to the unregulated control of companies fueled primarily by profit motive. Government simply will not subsidize private sector interest to the detriment of serving the public.”
In spite of the presence of these provisions in PPP contracts, Singson clarified that the Duterte Administration is not closing its doors on PPPs. She advocates for the roll out of PPPs that are Public-Private Partnerships FOR the People”. As “PPPs for the People”, Singson emphasizes that Private Proponents must be willing to accept terms imposed by Government in order to hasten evaluation and implementation of PPP Projects, since actual returns of Private Proponents have already significantly surpassed projected returns. She also highlighted that “the private sector is allowed to engage in commercial activities in the infrastructure project.” Taken together, she adds:
“Government has taken the position that it can no longer accept advice to continue to provide guarantees for a significant portion of project risk, when the private sector makes more than adequate returns for taking on limited share of risk.”
Singson also warned against the engagement of external consultants who have actual and potential conflicts of interest. She uses as an example, the International Finance Corporation (IFC), who served as consultant to the Metropolitan Waterworks and Sewerage System (MWSS) in the drafting of water contracts where the Non-Interference Commitment of Government was found. According to Singson, IFC subsequently invested in Manila Water which entailed a clear conflict of interest.
In the first Hybrid Project of the Duterte Administration, the Clark Operations and Maintenance Project (Clark O&M), Singson also disclosed that IFC advisors insisted in the removal of certain guarantees would be “deal breaker(s)” and result to a failed bid. However, contrary to IFC’s advise, the bidding proceeded and turned out to be successful despite the absence of the guarantees. According to Singson, the Clark O&M Project, which transferred risk to the private sector and limited Government guarantees, was awarded without delay to the Private Proponent and adopted terms and conditions set by Government. “This is what we believe to be a true PPP for the People and we will encourage projects that fit this mold,” Singson added.
Singson also debunked the allegation that PPPs can be implemented faster than ODAs by citing the Muntinlupa-Cavite Expressway (MCX), which was proposed as early as 2009 but was approved only in 2015. According to Singson, “it took (the previous) Government six (6) years, from 2009 to 2015, to build a road that is only four (4) kilometers long just to structure it as a PPP. The Department of Public Works and Highways is more than able to construct a road and can do so quickly.” She also highlighted the difficulty in shifting PPP Projects to ODA, which is much harder than shifting ODA Projects to PPP. To address this, the DOF had called for the creation of Transport Masterplans and Roadmaps delineating the relationships of one infrastructure project to another. “In the absence of Masterplans, and with increased submissions of Unsolicited Proposals, the evaluation of Implementing Agencies and NEDA will continue to be bogged down,” she added.
The full statement by Undersecretary Karen G. Singson can be viewed in the DOF website https://www.dof.gov.ph/index.php/ppp/.
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Source: https://www.dof.gov.ph/index.php/regulation-by-contract-a-challenge-for-ppps/