An efficient way to build infrastructure


Not so govt can scrimp on budget
DURING his campaign, presumptive President-elect Rodrigo Duterte’s take on infrastructure was: “There is no silver bullet to solve the traffic problem now. I will improve MRT, LRT, and build another railway.”

Specifically, he wants to enter into public-private partnership (PPP) program the development of the country’s main gate, the Ninoy Aquino International Airport; the Clark Airport; and Manila’s troublesome Metro Rail Transit.

Simply put, PPP is an infrastructure project funded and operated by a partnership of government and one or more private companies. Although it also stands to benefit from it, the private party assumes substantial financial, technical, and operational risk in the project. That is why many oversimplify PPP as a solution to government’s budgeting problem, according to Juan Alberto Mercado, project director at the Philippine government’s PPP Center, the agency tasked to oversee projects under the scheme.

“The idea of PPP is probably one of the most misunderstood concepts in contemporary public governance,” says Mercado in the agency’s website. “It is widely considered as nothing more than an alternative procurement mechanism for government to deliver the assets that a nation needs to function properly, only without as much public funds being spent.”

Mercado explains that without PPP, the government traditionally builds public infrastructure using public funds, either from tax revenue or from external borrowing. The government thus spurs economic growth by providing assets that generate economic activity, which make the people productive and earn wealth.

But PPP is not just a scheme for government to save on providing public assets, according to Mercado.

He said PPP is done to ensure that the public asset being provided serves the public well.

“It is no longer a case of whether the asset is physically there,” Mercado stresses. “It has become more about whether what can be put there can actually be relied upon.”

He explains that unlike governments, private firms are exposed to the full brunt of economic forces and need superior management, innovation, and luck to survive. Governments, on the other hand, can fall back on things like sovereign police power, taxation, and monetary solutions, which all dull efficiency for the sake of continuity.

Mercado says PPP uses competitive advantage in taking a private entity as a partner in providing infrastructure.

“A private firm must prosper or perish given the limitations,” he points out. “This is distinctly different from government-sponsored performing entities because their mandates will not allow them to ‘die’ regardless of how poorly they perform. They are players in a competitive economy without a market-developed survival instinct to muster.”

Then, of course, Mercado adds, the private entity must be given its fair chance to recover its capital and gain, too, if it has to take on risks of capital loss.

“The idea of public goods being made to financially benefit private interests is fodder for public criticism and political grandstanding,” he says. “But this goes against the simplest concept in civilized society: anything of true value will cost something.”

Mercado concludes: “PPP is not simply a way to wriggle out of a tight budget situation. It is a solution framework for particular infrastructure challenges, where opportunities exist in the market to deliver superior service levels at rational costs.”

Going by this line, Duterte’s target PPP projects will not be easy, but surely beneficial to the public if done fairly and efficiently.

* * *


Knowledge Sharing Session on Right-of-Way-Acquisition (ROWA) Part 2

When : May 27, 2016

Where : PPP Center Board Room

About the Event : State Solicitor Omar M. Diaz of the Office of the Solicitor General (OSG) shall serve as the resource person for the second part of the Knowledge Sharing Session on Right-of-Way-Acquisition (ROWA) which covers: 1) Process in undertaking ROWA, and 2) RA 10752 [new ROWA Act]status and probable issues.…

PPP 101 Briefing for Commission on Audit

When : May 25 to 26, 2016

Where : To be determined


Please follow our commenting guidelines.

Comments are closed.