Reforming the PPP model

Weslene Uy, Deputy Executive Director for Research of the Stratbase ADR Institute

Responding to concerns of alienating the private sector, Secretary Dominguez III said the administration welcomes unsolicited proposals, since the private sector would have a better grasp in identifying potential problems and offering better solutions to these problems. Unsurprisingly, the more welcome attitude towards unsolicited proposals has led to a surge in submissions from the private sector.

Since the Duterte administration assumed office, the PPP Center has already reviewed 64 unsolicited projects. Some of the more high-profile proposals include the San Miguel Corporation’s proposal to build, operate, and maintain an airport in Bulacan, the Alliance Global Group’s “skytrain” from Guadalupe to Bonifacio Global City, and Metro Pacific’s proposal to take over the MRT-3. Seven leading conglomerates have also banded together to form the Ninoy Aquino International Airport (NAIA) consortium, with the aim to redevelop and upgrade our main international gateway.

With the increasing interest in unsolicited bids, it is only timely to clarify the framework and the rules governing these proposals. On October 15, independent think tank Stratbase Albert del Rosario Institute (ADRi) hosted a roundtable discussion in partnership with the PPP Center where the current rules of the game were explained and potential reforms were discussed.

PPP Center Executive Director Ferdinand Pecson underscored that PPPs are the answer to the government’s lack of capacity to develop projects. With regards to unsolicited proposals, however, what the government wants has turned into a guessing game.

Through the PPP Act, the PPP center continues to push for legislative reforms in Congress to allow for faster processing of projects, he said. One of its proposals is to address the fragmented legal framework in the current system.

Another issue is the lack of flexibility for implementing agencies to accept projects that are not part of their priority list, alongside the requirement that a new technology must be employed. The PPP center’s remedy is to allow unsolicited bids for priority projects. The private proponent must compensate the implementing agency if it has already incurred development costs for the project in the last five years. The proposal will also allow unsolicited bids to be converted to solicited projects, subject to reasonable compensation to the proponent. Another proposal is to extend the current 60-day competitive challenge period to at least 6 months, giving more time to interested parties to submit their bids.

Dr. Epictetus Patalinghug, ADRi Trustee, said unsolicited projects have their own drawbacks, including the lack of competition and transparency, leaving room for corruption. He explained that the proponent may lobby for the development of the project, and such pressure may interfere with proper urban planning.

Dr. Patalinghug offered an alternative approach to unsolicited proposals: separate the proposal stage from the award stage. NEDA-ICC should choose a small number of proposals each year, and the selected proponents should receive a fixed prize. Such approach gives incentives for competition in unsolicited proposals, without altering the competitiveness and transparency of the award process.

Using the NAIA rehabilitation proposal as an example, former National Economic Development Authority (NEDA) Secretary Romulo Neri questioned why unsolicited proposals were allowed for a national priority project. He remarked that we seem to be surrendering to the private sector when it should have been a government initiative.

Citing the PhP 735-billion Bulacan airport project as another example, he said that its huge cost poses risks to the banking system. Mr. Neri’s proposal was for the government to present the problem as part of its investment plan and ask the private sector to offer their best solution to the problem. For his part, NAIA consortium spokesperson, Jimbo Reverente, emphasized that upgrading NAIA is in everyone’s best interest and added that the seven-group consortium backs the multi-airport strategy. Reacting to the PPP Center’s proposal to extend the competitive challenge period, Mr. Reverente remarked that six months is too long.

In the era of Build, Build, Build, our government officials must explore and exhaust different options to speed up project implementation. Of course, different project financing schemes have their own strengths and weaknesses. As such, it would be unwise to dismiss the PPP model as inferior.

Each project should be carefully evaluated to determine which mode of financing is most appropriate. Our top officials must instead rally behind the efforts of the PPP Center to address the ambiguities and weaknesses in the current system. After all, the government cannot do it all. We still need the private sector to fill a gap that the government cannot.

 

 

Image Source: BusinessWorld

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