• The source of PH infrastructure woes

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    Ben D. Kritz

    Ben D. Kritz

    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.

    ben.kritz@manilatimes.net.

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    5 Comments

    1. When news of the first attempt of CALAX project to be bidded came out with wide discrepancy between the winning bidder (San MIguel Group) and the next best bid, I’m quite baffled how these PPP project are tendered and the bids evaluated. I got my answer when I started to get involved in one of the other controversial PPP projects (let’s call it Project X). The major culprit: these PPP projects are very loosely defined. In Project X, for example, the concession agreement spent a lot of sections on the financial aspects (like 95% of sections of the concession agreement ) but very short on the baseline requirements (technical, operational, not even a specifications or reference or definition design included). In short, the government do not know what to get out from these future legacy projects. In turn, the winning bidders have free rein on what to do as long as you satisfy the bare minimum safety & functionality as prescribed in the concession agreement and statutory requirements such as the nat’l building code and their supplementary codes (eg. National Structural Code of the Phil., Philippine Electrical Code, etc.). Without reference design or specification as baseline, the variability of the project bids are expected to be high and evaluating bids would be like comparing apples to oranges. Because the PPP center did not focus much in preparing the reference design on the projects, it is bound to have a false start on each projects because losing bidders will file temporary restraining order or file a complaint to courts because their reasons may have some merit due to lack of baseline. Furthermore, in a PPP arrangement, the winning consortium has an incentive to keep costs as low as possible: the greater the difference between the project’s price tag and the revenue it ultimately generates the greater the consortium’s profit. With this objective in mind for the winning consortium, visual and aesthetic concerns tend to be neglected hence we don’t have beautiful PPP projects.

    2. Let us all face it. ZTE-NBN, Laguna de Bay, Roll-on Roll-off and Pier Improvements, Anti-flooding Projects, Mini-Dam Projects, more super highway projects, Airports improvement projects and many more were on the table during and after the Arroyo administration. These huge projects could have arrested so many problems which the PNoy administration is facing today, but PNoy’s hatred towards Mrs. Arroyo overwhelmed his mental capability of decernment and by suspicions of corruption and other flimsy reasons and with the help of the ever overnight working yellow propagandists led by PDI, ABS-CBN, SWS, Pulse Asia, MBC,and many more, succeeded in depicting the Arroyo administration as all evil. Had PNoy been a statesman and a true nationalists, he could have embraced and control these projects if he wanted and his headache will not be as much. Now with the PNP/SAF slaughter of the more than 44 commando’s adding more of PNoy’s headaches, his sisters better force him to see a psychologist or a psychiatrist pronto or he may go crazy all of a sudden.

    3. They can spin it anyway they wish to but the facts remain that in everything in infrastructure this country is a shambles. Its not just pnoys fault its the fault of consecutive governments. They have all been more interested in stealing the countries money than spending it on the country.
      Lets not mix words about this. We see these senators right now waiting for their cases to come to court, well i ask each & every one of you do you not think that every successive senator didnt know how easy it is or was to steal the countries money & also didnt help themselves to it after knowing that. They all knew all the others were doing it & they wanted their fair share. & make no bones about it, they all took their fare share. & its because of that that this country didnt spend on this country.
      So stop the waffle & say it as it is.

    4. victor m. hernandez on

      As they say, the devil is in the details. If it is not addressed or managed well it spells incompetence and bad governance. In brief, hubris is bad at anytime, since it ushers one to perdition – a lesson taught since the expulsion of Adam & Eve from paradise. God have mercy on us.