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PPP: Pwede bang magsilbi sa sambayanan?

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Center for Labor Justice [1]

Partnership with the People or Partnership with Big Corporations?
The “Public-Private Partnership” (PPP) has a nice populist ring.  It can mean government partnership with the citizenry in governance and in shaping the future of society.  If such is the meaning of PPP, the program can be further fleshed out sectorally to define various government-people’s partnerships, e.g., government-farmer, government-worker, government-NGO, government-PO or government-Church partnership. A number of government agencies providing public service immediately labeled their programs as public-private partnerships AFTER hearing President Benigno Aquino mention PPP in the SONA 2010 and other forums as the country’s principal growth strategy in the coming years.

However, many in the broad civil society movement are perplexed and increasingly critical about PPP as the nation’s economic centerpiece program.

NEDA argues that the program is inclusive and will redound to the people’s benefits, but it is unclear how  it would involve the ordinary citizens. In November 2010 the Government held the international PPP marketing conference where it announced the list of  big-ticket PPP projects it would roll out  in 2011 and beyond -- airports, expressways,  power projects,  dams, sea ports, expansion projects for the MRT-LRT transport program and so on..  Going through the attendance list of the flashy event at the Resort World complex near the NAIA III made it clear that there is nothing ordinary or small in the private sector being targeted by PPP.

The PPP program is meant to entice big corporations get involved in building up the infrastructure of the country, with the government outsourcing the construction, development and, ultimately, operation of large and costly infrastructure to these corporations through the build-operate-transfer (BOT) scheme and its variants[2].  The “private” does not mean just anybody in the private sector.  It refers to those with the capital to invest in big-ticket infrastructure projects and have the capacity to wait 5, 10 or more years before recovering their full investments and earning handsome profits. Only they can bid for big projects, and comply with the stiff requirements for “corporate track records” specified in the government procurement law and its bulky implementing rules.

PPP: a formula for “inclusive” growth Or a reiteration of old trickle-down economics?
The recently-minted Philippine Development Plan (PDP) reiterated the PPP program as a formula for “inclusive” growth.    Inclusiveness is narrowly defined as opportunities for job creation and “human resource development” that the PPP is vaunted to create.  Long before the finalization of the PDP, NEDA had been proclaiming that the PPP program is a key to employment generation, and is projected to generate 6-7 per cent annual growth. Referring to the ADB’s “Growth Diagnostics” for the Philippines, NEDA explained that the main obstacle to growth and job creation is the sluggish flow of investment due to infrastructure constraints.  The PPP formula is seen as the solution to the problem of infrastructure finance.

NEDA’s claim that the ultimate beneficiaries of the PPP program are the people is a recycling of the old trickle-down argument for economic liberalization.  By opening up to foreign investments (FDI) and foreign trade, the economy will grow, attracting more investments flows and creating more jobs, resulting in prosperity for everyone.   The same argument underpinned the country’s privatization program, baptized as BOT in the 1990s, re-baptized and now finds full expression in the PPP program.

But, as the following assessment shows, the privatization program has hardly been a true growth and employment panacea for the country.

SCORECARD on Privatization
Privatization is now entering its fourth decade in the Philippines.  It was officially adopted by the government in 1980-81 as part of the policy conditionalities attached to the World Bank's $200 million structural adjustment loan (SAL). Subsequent SAL agreements with the World Bank and the IMF continued and expanded this policy conditionality. It has not stopped since.

Privatization under Different Administrations
No less than six Presidents have been involved in the promotion of privatization in the Philippines.

With his hold on political and economic power tottering in the early 1980s, President Ferdinand Marcos had no choice but to acquiesce to the WB-IMF’s SAP and privatization agenda.

In 1986, President Corazon Aquino jump-started the large-scale implementation of the privatization program by signing Proclamation Nos. 50 and 50-A, which created the Asset Privatization Trust (APT) and the Committee on Privatization (COP) in order to fast-track the disposal or sale of government corporations and assets. President Aquino placed 121 government-owned-and-controlled corporations (GOCCs) and 386 non-performing assets (NPAs) on the auction block.

Under President Fidel Ramos, the privatization program went into high gear. Total privatization sales or proceeds registered at P174 billion by 1996.  Nr. Ramos also expanded the privatization program by enacting the BOT law (RA 7718), which spurred huge power sector investments by independent power producers (IPPs). These IPPs helped solve the power crisis that disrupted the economy in the early 1990s.  However, the IPPs were also given “the sweetest” terms, e.g., guaranteed payments for unused or excess power generated. BOT investors are allowed to collect “users’ fees” for a fixed period, the maximum being 50 years.

The BOT law also opened up the whole country to private-sector-led infrastructure development, even encouraging the private sector to submit unsolicited proposals.  It covers wide sectors:  power plants, highways, railroads and railways, ports and airports, information and communication technology, canals, dams, irrigation, water supply, land reclamation, sewerage, drainage, dredging, solid waste management, markets, slaughter houses, warehouses, government buildings and others.  It covers as well facilities for the social sectors such as tourism, health and education.

Under the short-lived term of President Joseph Estrada, the work of the COP and APT was extended with the creation of the Privatization Council (PC) and the Privatization Management Office (PMO).   The PC is the policy-making body for privatization, while PMO serves as the marketing arm or the privatization auctioneer.

The Administration of Gloria Macapagal-Arroyo deepened and intensified the privatization program further. The wholesale privatization of the power sector -- generation, distribution and transmission – was implemented through the Electricity Power Industry Reform Act (EPIRA).  The GMA administration also aggressively pursued the private sector-led infrastructure development nationwide.  For this purpose, the country was  divided into five development areas -- North Luzon Agribusiness Quadrangle, Luzon Urban Beltway, Central Philippines, Agribusiness Mindanao, and Cyber Corridor – and identified supporting infrastructure requirements for each area.

Status of BOT projects
As of December 2010, there are 40 operational BOT projects, including 16 power, 5 transport, 3 information technology, 5 water, and 6 property development (public market construction) projects. There is one project in health, and one in housing (Pabahay sa Riles). The MWSS project is reported as the most expensive BOT project, at $7000 million; and the least expensive is the NKTI-Hemodialysis Center Project, at $1million.

Transnational companies dominate BOT, accounting for almost half of all BOT participants, and forming joint ventures with local companies for the rest.

Government procurement. BOT projects are also affected by the Government Procurement Reform Act or RA 9184, signed in July 2002, which governs private transactions in the procurement of goods and services needed by government agencies.    Some policymakers are questioning whether foreign-funded projects, especially those funded through BOT and/or ODA, should be covered by RA 9184.  In fact, had the Northrail project and NBN-ZTE projects pushed through, they would not have complied with the terms of RA 9184.

Priority PPP projects. The government has announced that the priority list under PPP will have an estimated cost of $150 billion.  The priority PPP projects include the following:

·       MRT/LRT expansion project

·       MRT line 2 east extension

·       Panglao airport

·       Laguindingan airport operation and maintenance

·       Puerto Princesa airport

·       Daraga international airport

·       Kalibo airport

·       NAIA Terminal 3 upgrade fuel operationalization

·       Cavite-Laguna expressway (Manila side)

·       NAIA expressway phase II

·       Central Luzon Expressway phase I

·       Supply of treated bulk water for Metro Manila

PPP “Reforms” by the Aquino Administration
President Noynoy Aquino Administration has announced that it is pursuing reforms in the program.  From media reports and the PDP, the following issues are being addressed:

  • inconsistencies in  regulatory policies,

 

  • tedious processes in putting up business, and

 

  • corruption.  In relation to this, some government officials have promised not to enter into contracts which give guaranteed returns to investors such as the take-or-pay provisions in IPP contracts.  Also, DOF Secretary Cesar Purisima said that the government will no longer entertain unsolicited proposals and will instead invite investors for projects identified as priority by the government[3].

At the same time, the government promised “reforms” to encourage more PPP investors to come in.  Aside from the faster processing and evaluation of PPP project proposals through the strengthened PPP Center under NEDA, the government is looking into ways of minimizing litigation risks and better assistance to investors in securing rights-of-way in various infra projects.

Grading privatization: A question of pluses or minuses?
How has the country fared under privatization and BOT/PPP? Let us measure this against the original objectives of  privatization.

As articulated by the WB-IMF economists and the government technocrats in the 1980s, the objectives of privatization are as follows:

  • To enhance economic competitiveness by creating  a favorable investment climate

  • To improve the efficiency and financial performance of GOCCs

  • To broaden the ownership base in the country and develop the capital market.

  • To assist government in infrastructure development and improve the delivery of basic services to the public.

  • To generate revenues for priority government expenditures.

  • To lessen or reduce corruption.

After 30 years, there is yet no official assessment of whether the above objectives have been met.  One usually gets a generally positive picture of privatization from the , but the space for discussion is limited to corrective measures, to speed up the process of privatization and minimize the risks and moral hazards associated with it.

This DRTS  would like to raise a few major points.

First, on general economic competitiveness. The Philippines is one of the world’s leading privatizers. It  ranks No. 10 (in the 1990s up to the first decade of the millennium) in the world in BOT/PPP implementation.

Yet, privatization has failed to transform the country into an economic dynamo in the last 30 years.  Compared to other East Asian countries, it has failed to entice FDI flows except into the lucrative PPP projects with guaranteed returns such as the IPPs.

The 2010 World Competitiveness ranking of the country for the last decade mirrors stagnation rather than acceleration.  It is ranked 39th out of 58 countries in the 2010 World Competitiveness Yearbook (WCY). While we climbed four positions higher than in 2009 when we ranked 43rd, we still lagged behind our neighbors Singapore (1st), Hong Kong (2nd), Taiwan (8th), Malaysia (10th), China (18th), Thailand (26th), and Indonesia (35th).   In infrastructure development, a priority privatization area, the country ranked 56th out of 58th in the same list.

The outstanding debt of the national government had continuously increased from 1980 to 2010.  A large portion of these are obligations due to privatization, for examples, government profit guarantees for the IPP power developers.

Privatization has a role in subverting the nation’s competitiveness.

One, it has made the cost of doing business more expensive. For example, EPIRA, has failed to lower power rates as promised; instead, electricity rates have gone up by over 60 per cent from 2000.  Similarly, the privatization of the water sector was premised on the need to lower water rates; today, water rates have gone up by a whopping 500 per cent (Maynilad) and 845 per cent (Manila Water).  The   privatization of Petron was supposed to help restrain unchecked price gouging by the oil majors; today, it is difficult to check the oil companies because the government has lost a major countervailing asset.   The NLEX-SLEX expressways are much wider now, but toll rates have become too restrictive.

Two, privatization has abetted, not curbed, corruption. The biggest corruption scandals had been related, one way or the other, to privatization and BOT/PPP.  They include the Macapagal Avenue (reportedly one of the most expensive highways in the world), PEA-Amari, fertilizer procurement scandal, and the Northrail-Southrail Project (where the Chinese investors bring in their own workers, cement and other supplies). The incomplete and half-functional NAIA 3 project, hatched during the Ramos Administration and the construction agreement concluded during the Estrada Administration; was bugged by scandalous contract changes, misrepresentations by the contractors and so on, all of which eventually forced the GMA Administration to suspend the contract and seek litigation.

Dangerous exclusivist trajectory. A ree hand for corporations to develop and manage large chunks of infrastructure is likely to lead to the exclusion of the poor and marginalized. PPP investors will have an influence on who gets to use privately-developed infrastructure. For example, if public markets are built and managed by PPP investors, they are likely to exclude from the operations of the public markets the small and marginal shop vendors.

The challenge to PNoy: Overhaul the PPP program
We support Government efforts towards social and economic reforms.

We hail the Aquino Administration’s courage and political will in suspending three PPP projects (Laguna Lake dredging, Northrail and Ro-Ro projects) found fraught with weaknesses and contract anomalies, despite objections and campaign by foreign chambers of commerce. This demonstrates capacity for realreforms and will to stamp out corruption.

We hope that the President Aquino will follow this up with a thorough assessment by an independent body of scholars, industry experts and civil society representatives of  the privatization and the PPP program.  Without careful assessment and guidelines, privatization can do more harm than good.

We believe in inclusive development.  This requires inclusive development strategies involving full implementation of asset reforms, e.g. the completion of CARP and massive re-building of urban and rural poor communities, and a re-visioning of the development blueprint.  Government should account for the failures of past policies and their disastrous impact on domestic manufacturing, agriculture and employment.

The PPP should  be transformed into a people’s program. One P for people. Such a PPP will mean consultation with the people on what their development priorities are and how these priorities can be addressed. This should be done right where the people are, not in glitzy venues.  The government should adopt a more balanced approach in the identification and development of public infrastructure and in strategizing how people’s welfare can be served by them.

The government should widen the definition of PPP by encouraging partnership with civil society groups and social enterprises, both also private entities, in developing projects for the marginal sectors in society.  The country needs more housing projects, school buildings, health facilities and so on. If the private sector can do it in the style of Gawad Kalinga, if they can build more school buildings out of recycled softdrink bottles and indigenous materials, if they can teach children using mobile carts, and evolve other out-of-the box ideas that address old problems with the help of PPP, then PPP shall have a better and concrete meaning to the poor and marginalized.

PPP should also be re-focused on how to re-build the stagnating or eroding Philippine industrial and agricultural base.  Here PPP can mean tie-up with local industrialists, entrepreneurs and the network of micro and small enterprises.

The possibilities for a reformed PPP are endless. Let this be the focus of development discourse in the country. Let us make real debate and participation happen. n

Acronyms

ADB Asian Development Bank

APT Asset Privatization Trust

BOT Build Operate Transfer

CARP Comprehensive Agrarian Reform Program

COP Committee on Privatization

EPIRA Electricity Power Industry Reform Act

FDI Foreign Direct Investments

GMA Gloria Macapagal Arroyo

GOCCs Government-Owned-and-Controlled Corporations

IMF International Monetary Fund

IPPs Independent Power Producers

LRT Light Rail Transit

MRT Metro Rail Transit

MWSS Metropolitan Waterworks and Sewerage Sytem

NAIA III Ninoy Aquino International Airport

NBN-ZTE National Broadband Network-

NEDA National Economic Development Board

NKTI National Kidney and Transplant Institute

NLEX North Luzon Expressway

NGO Non-Government Organization

NPAs non-performing assets

ODA Official Development Aid

PC Privatization Council

PMO Privatization Management Office

PO Peoples Organization

PPP Public-Private Partnership

PDP Philippine Development Plan

PEA-Amari Philippine Estates Authority

SAL Structural adjustment loan

SLEX South Luzon Expressway

SONA State of the Nation Address

WB World Bank

WCY World Competitiveness Yearbook

 


[1]This paper is an abridged version of a full paper prepared by Dr. Rene E. Ofreneo and Leian Marasigan, Center for Labor Justice, UP SOLAIR, for the DRTS TWG on Trade, Industrial Policy and Privatization

[2] BOT variants: Build and Transfer (BT); Build-own-and-operate (BOO); Build-lease-and-transfer (BLT); Build-transfer-and-operate (BTO); Contract-add-and-operate (CAO); Develop-operate-and-transfer (DOT); Rehabilitate-own-and-transfer (ROT); and Rehabilitate-own-and-operate (ROO)

[3] In 2010, however, NEDA announced that unsolicited proposals shall be given shorter evaluation periods.

 

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