• PPP program faces risks from ‘uncertain’ Duterte policy – BMI

    2

    Fitch-owned BMI Research sounded a warning on the short-term outlook for the Philippines public-private partnership (PPP) program, saying that ‘uncertainty’ about President-elect Rodrigo Duterte’s priorities with regard to infrastructure projects is likely to lead to “delays and frustration” for investors.

    BMI Research said in a report released on Monday that it remains ‘cautious’ in its the short-term outlook, as it is not certain which projects will be kept and how major bottlenecks in the PPP program will be addressed.

    BMI stressed that Duterte’s decision to maintain support for the PPP program is necessary to allow for more private investment into the sector, but that uncertainty about the incoming administration’s policies “Represents a salient risk to the Philippines’ construction and infrastructure outlook in the short term.”

    Lack of clarity
    While Duterte’s decision to maintain the PPP program bodes well for the sector in the long term, there is a significant potential for further project delays over the coming quarters as he has indicated that only essential projects would be continued, BMI said.

    It explained that while Duterte emphasized the necessity to expedite PPP implementation and initially said he would complete infrastructure projects planned or underway, he later stated that he would only continue those projects that are necessary.

    “This uncertainty, combined with a lack of clarity on plans to address PPP bottlenecks poses major risks to our infrastructure outlook,” it said.

    For example, BMI said several projects, such as the Laguna Lakeshore Expressway, Dike-Calamba-Los Banos Toll Expressway and five regional airports projects face delays because of the change in the government.

    A major hindrance to project implementation has been a lack of institutional capacity to set submission deadlines efficiently and to conduct pre-construction activities, it said.

    “This, coupled with uncertainty stemming from the new administration, is likely to lead to further delays and investor frustration over the coming quarters,” it concluded.

    “The lack of clarity over which projects will be prioritized and which might be cancelled has prompted us to downgrade our 2016 forecast for construction growth to 7.5 percent from the previous 8.5 percent,” it added.

    Potential growth
    BMI pointed out that Philippine’s construction sector is well positioned to maintain its strong growth trajectory over the coming years on the back of a large PPP pipeline, complemented by a robust property market and rising property prices, surging investment, and a stable monetary policy.

    “The PPP program has been critical in attracting private investment and making the country one of the infrastructure growth outperformers among its peers in the Asia-Pacific region,” it said.

    The think tank said there are currently 177 projects in its Infrastructure Key Projects Database with a combined value of more than $84.3 billion, out of which more than $47.4 billion is for PPPs, the majority of which are transport projects.

    The large PPP pipeline along with the proposed PPP law raises the huge potential of the Philippines construction sector, BMI said, adding that potential could be realized “if the PPP law is passed, the new government keeps infrastructure a priority, and the PPP program continues to be supported.”

    PPP law
    BMI said greater certainty and legislative support could be provided to the Philippines’ infrastructure sector and the PPP program through the proposed PPP law which outgoing President Benigno Aquino 3rd is hoping to push through before leaving office in June 30.

    The proposed law, which needs to be passed on third and final reading by Congress, would institutionalize and strengthen the PPP program, and would bode well for the long term growth of the construction sector by providing greater investor protection and incentives, as well as greater certainty that the PPP program would continue, it said.

    BMI also took note of the new government’s eight-point economic agenda, which includes measures related to infrastructure investment.

    The new administration aims to accelerate infrastructure spending by addressing major bottlenecks in the PPP program, and maintaining the target of spending 5 percent of the country’s gross domestic product on infrastructure.

    Another measure is to ensure attractiveness of the Philippines for foreign direct investments by addressing restrictive economic provisions in the Constitution and laws, and enhancing competitiveness of the economy, BMI added.

    Share.
    loading...
    Loading...

    Please follow our commenting guidelines.

    2 Comments

    1. BMI said several projects, such as the Laguna Lakeshore Expressway, Dike-Calamba-Los Banos Toll Expressway and five regional airports projects face delays because of the change in the government. – change in government? this is not the reason why these projects are delayed or cancelled, please do your own research right.

    2. Good! The PPP must go. It is unfair, unjust and a burden to the country and the people.