“THESE projects promise so much for our economy and to our people and they will play a vital role in our administration’s fulfilment of its social contract,” Philippine President Benigno Aquino III declared on March 7.
The President was launching the first five of his government’s long-awaited public-private partnership (PPP) infrastructure projects designed to stimulate economic growth and provide much-needed job opportunities.
According to the government, the PPP is a scheme that allows the country to develop vital but expensive infrastructure projects using funds from a private partner. The idea is to reduce the financial burden on the government while offering to private investors (who are permitted to operate the project once it is completed) a reasonable return on their investment.
The problem, however, is that Mr Aquino’s PPP scheme reminds many potential investors of the disastrous build, operate and transfer (BOT) schemes of the past.
Take Manila’s new international airport terminal. A contract to build the facility was awarded in 1997 to Piatco, a cargo forwarding firm, by president Fidel Ramos. But president Joseph Estrada’s government amended the terms. Scheduled to open in late 2002, the project – by then partnered with German airport operator Fraport – became entangled in a further legal dispute after the newly-elected government of president Gloria Macapagal Arroyo sought yet another review of the contract.
Officials in her administration argued that the amended one was in violation of Philippine law. In 2004, the Supreme Court ruled the contract void and the government subsequently seized the terminal. Mothballed from 2002 to 2008 due to the court cases, the terminal is now only being partly used.
More recently, Malaysian investors operating the South Luzon Expressway have been prevented from implementing toll increases. In November last year, the Supreme Court upheld the increases. But it also referred them for review, declaring void and unconstitutional clauses in the contract covering compensation for the operator if the rises were not implemented.
Meanwhile, President Aquino’s administration has been engaging in the sort of contract breaking activities that have become a regular feature of the way incoming Filipino presidents deal with agreements entered into by their predecessors. In December last year, it emerged that Malacanang had cancelled an 18 billion peso (S$525 million) contract with a Belgian firm without first informing the company concerned. The contract, which was signed during the final days of the Arroyo administration, involved dredging the Laguna Lake to prevent water levels from rising and causing floods in nearby areas. The company, Baggerwerken Decloedt En Zoon, has since announced that it will seek international arbitration.
Speaking to the media late last year (after President Aquino made yet another pitch to potential investors), Mr Neeraj Jain, the Asian Development Bank’s country director for the Philippines, had this succinct advice: “Investors must trust that once you enter into contractual arrangements, these arrangements will be adhered to.”
Other problems concern the legislation which enabled BOT schemes to go ahead in the first place. A 1994 amendment to the BOT law allowed officials to consider unsolicited proposals on the grounds that the private sector might also come up with good ideas. Critics say that this has led to numerous abuses, as implementing agencies were induced to delist priority projects in order to ensure that unsolicited proposals could be submitted. In other words, it was an imaginative way of avoiding competitive bidding.
President Aquino says that PPP contracts will be different. He has also promised to compensate contractors if legal challenges prevent them from collecting agreed rates. “If for some reason a court decision threatens (rate) adjustments, the government will compensate the private concessionaire for the difference between what the tariff should have been under the formula and the tariff which it is actually able to collect,” he said at the opening of a two-day infrastructure conference in November. The legal basis for such an arrangement, however, has yet to be put in place, and there is much scepticism that things will change very much.
“The PPP is but BOT renamed,” declared Mr Felicito C. Payumo in an opinion article published by the Philippine Daily Inquirer late last month. Mr Payumo is a former chairman and administrator of the Subic Bay Metropolitan Authority, and one of the architects of the original 1990 BOT law.
New Philippine governments often spend the early months of their rule blaming their predecessors for various national problems and declaring their intention to change things. Yet they frequently propose solutions that do not seem that much different from those that have already been attempted. Mr Aquino may strive to be an exception, but he faces an uphill task.
Copyright © 2011 Singapore Press Holdings Ltd