CONGESTED highways, clogged ports, an overcrowded airport, unreliable and expensive electricity, poor quality water and data networks that are embarrassingly slow and unstable – it is not news that Philippine infrastructure leaves a lot to be desired, and has deteriorated even further under the uncomfortable stewardship of the Aquino Administration.
Officials of the administration would, of course, disagree with that; from their point of view, infrastructure has been a key focus of the government of Captain Linger from Day One, they invariably argue, pointing to the odd project here and there (most initiated under the previous administration) completed during his term as proof of “progress.”
The real ace in the hole, however, is the Philippines’ vaunted Public-Private Partnership (PPP) program, which is so impressive that according to one newspaper (whom I won’t mention, to avoid shaming them for their questionable verb choice), the establishment of a regional PPP center here to serve all of the Asean now “looms.”
The Aquino Administration needs to disabuse itself of the conceited notion that just because it has a PPP program, that program is in any way effective or a suitable model for similar programs in other countries. The lack of a dedicated PPP Center prior to Aquino’s ascension to the throne was not the cause of the moribund state of the Philippines’ infrastructure he found when he got there, it has done absolutely nothing to solve the problem, and in fact has made the challenge of ‘catching up’ with the rest of the region much harder to meet.
As a development concept, PPP is only about 20 years old. It existed long before that, of course, but has in that time period rapidly shifted from a methodology applied to projects that were unusually large or complex to being a default choice for funding and completing any sort of infrastructure. It is a typical product of top-down, noninclusive, neoliberal economic thought; it worked well under governments with that particular orientation in the UK and Australia at the beginning of this century, and because of the influence of those governments on developmental efforts for lesser nations, PPP was assumed without much critical analysis to be a viable alternative for emerging economies.
That has not turned out to be the case, as the balance of the growing economic and policy research literature on the subject shows.
Granted, not all the research has reached disappointing conclusions, because PPP obviously has worked to provide infrastructure projects in many places. But in discussing these successes, even the biggest proponents of PPP—primarily the World Bank and the Public-Private Infrastructure Advisory Facility (PPIAF), a quasi-government body supported by the World Bank, International Finance Corporation, Asian Development Bank, European Bank for Reconstruction and Development, and the governments of about a dozen OECD countries—describe a number of specific conditions necessary for an effective PPP program:
· Effective political leadership and support.
· Strong institutional frameworks, in particular regulated capital markets and effective measures against corruption.
· The lack or elimination of friction and dysfunction among government agencies.
· The PPP agency must have an appropriate amount of expertise and legal authority to carry out the tasks expected of it, and
· The PPP agency should be a part of a central financial decision-making arm of the government; most studies identify this as the national treasury or ministry of finance. In a policy note published in May 2012, the PPIAF cautions against creation of a stand-alone PPP agency, pointing out that unless the agency has political support at the highest level, it can be easily be marginalized; the PPIAF specifically names Bangladesh and the Philippines as two examples of the problem.
Regardless of the particular make-up of the PPP agency and program, it must be able to effectively carry out systematic project evaluation; analysis of detailed business cases; identify, measure, and assign project risks; base bid evaluations on value for money; and carry out accurate life-cycle costing.
The Philippines’ PPP program has almost none of these necessary attributes, which is reflected in the embarrassing results of the effort so far; as of Feb 18, with just more than 16 months to go in President B.S. Aquino 3rd’s term, only nine of 59 projects in the PPP ‘pipeline’ have been awarded, only three of those have actually begun construction, and at least four of the remaining six are mired in controversies that will cause indefinite delays.
Yet the Aquino Administration continues to pitch the existence of a PPP program as prima facie evidence of superior policy, and assumes that an actual success rate of something between five and eight-and-a-half percent is worthy of emulation. So fixated is the Aquino government on the PPP concept that the level of infrastructure development and maintenance activity outside of the program has slowed even further from its usual glacial pace.
But even if the Aquino Administration’s cherished PPP program was everything it is not now—backed by a stable, corruption-free, and efficient government, and managed by an agency with Cabinet-level policy-making and budgeting authority, and with the staff expertise to wield that authority effectively—it would still be a fundamentally bad choice for a development model. An analysis by two urban planning experts from Chicago (one from DePaul University, the other from the University of Illinois-Chicago), published in the Public Works Management Policy journal in mid-2013, sums up the basic flaw of PPP rather neatly:
“If PPP revenues are used to finance operating expenditures, these practices represent a fundamental departure from the traditional principles of balanced budgets for governments. In financing capital projects they are an expensive alternative to traditional tax-exempt financing, and productive efficiencies in the private sector are unlikely to offset higher costs of capital. Furthermore, these practices are unlikely to improve infrastructure pricing and use and entail significant policy and economic risks as governments lose control of infrastructure for significant periods of time.”
The authors of the study, Thomas P. Snyder and Martin J. Luby, pull no punches in condemning the enthusiasm for PPP as a failure of government: “The adoption of these sales or leases [of infrastructure facilities]can be traced to political and institutional failures and inappropriate analysis.”
The next government—whether it takes its seat tomorrow or 16 months from now—would be well advised to spend more time on correcting those “political and institutional failures” and conducting appropriate analyses than it does cherishing a vain belief in its own superiority, and to relegate PPP to its proper place: A development modality that may have some use in specific circumstances, but in the ordinary course of things is a lousy way to run the railroad.