THE PNoy administration’s usual justification for resorting to Public-Private Partnership (PPP) to undertake major infrastructure projects is that the scheme supposedly allows government to deliver better and more efficient facilities and services to the public while at the same time, shifting the financing costs and project risks to the private sector partner.
To PNoy, the influx of investors queuing for infrastructure projects under PPP program was undeniable proof that his administration’s anticorruption campaign has raised the confidence of investors.
With this, he said, comes the offer to government of “premiums” (or up-front payments) from companies vying to secure the projects. “In total, the premium we have received from partner-firms for PPP has reached P64.1 billion. This will all go to the public coffers,” PNoy said in his nearly 4-hour long SONA.
What PNoy fails to mention, however, is that these companies will have to recoup these so-called “premiums” somehow. There is no such thing as a free lunch in this world. So who will end up footing the bill? Why, the public, of course! Yes, that’s you and me.
In the long term, Malacañang’s over reliance on PPP projects will prove more costly to both Filipino consumers and the public coffers.
According to a study by a British research group, PPP projects are often more expensive than publicly financed projects. Why? Because private companies borrow at higher interest rates than governments. The result is that financing and construction costs of PPP projects are usually four to six times higher. And in the end, it is the public sector (a.k.a. taxpayers) who ultimately pay for these costs.
Another major issue with PPP projects is the lack of democratic accountability. For-profit companies are generally accountable only to their shareholders and directors. On the other hand, the PPP facilities or services operated by these companies impact the lives of the general public. Yet, Filipino consumers have very little say on how these facilities are managed.
Moreover, in cases where the private sector partner fails to deliver on its commitment, neither the corporation nor its directors are held to account since its liabilities are automatically limited by the PPP contract.
One of the earliest PPP failures was the transfer of water services of the government-owned utility Metropolitan Waterworks and Sewerage System (MWSS) to a private concessionaire, Maynilad Water Services, Inc. (Maynilad), then owned by the Lopez family’s Benpres Holdings.
When the project was awarded in 1997, the Lopez-led Maynilad promised to assume the huge $880 million debt of MWSS and plunk in some $7-billion in additional investments over the 25-year lifespan of the concession contract.
Barely three years later, reeling from heavy financial losses, the Lopez-owned concessionaire stopped paying its concession fees to the government. Maynilad, after the July 1997 Asian financial crisis, saw its dollar-denominated loans double almost overnight. By 2002, a nearly bankrupt Maynilad announced that it was returning the concession back to MWSS.
MWSS tried to salvage the project, even giving Maynilad $31 million as “financial assistance” but in the end, MWSS took over the majority stake in Maynilad, allowing the Lopez-owned Benpres to exit from the deal. The government then rebid the failed PPP project, which was eventually awarded to the joint venture company of Metro Pacific Investments Corporation and DMCI Holdings, Inc.
The government never recovered its $31 million “financial assistance” to the Lopez-led Maynilad. Unknown to most Filipinos, the government also ended up paying another $31 million in interest for the loan that MWSS was forced to borrow from foreign banks when Maynilad failed to pay its concession fees.
So eventually, we Filipino taxpayers carried the burden of propping up a failed PPP project while the private sector partner walked away relatively unscathed.
The MRT-3 project is another example of how highly touted PPP projects can easily turn into a nightmare for Filipinos.
Under the 1997 Build-Lease-Transfer Agreement, the private sector partner, the Metro Rail Transit Corporation (MRTC) was responsible for the “design, construction, testing, commissioning and maintaining MRT-3.” When completed, MRTC would lease the whole system to DOTC who, in turn, would pay the former rental fees.
Here we are almost 20 years later and the original PPP project has turned into a monster headache for commuters. The train system has become dilapidated to the point of breaking down almost daily especially when the PNoy government took over the maintenance and operation of the MRT-3.
This after the taxpayers coughed up a total of P147 billion for MRT-3, broken down as follows: P85 billion in rental payments, P32 billion in private sector loans, which are state-guaranteed, P20 billion for the private partners’ taxes, and P10 billion for maintenance.
Like the original Maynilad deal, the PNoy government now wants to buy back the majority stake in MRT-3 for P53 billion in order to bid it out (again?!!) under a PPP scheme.
Clearly, there’s something very wrong with our PPP program when the welfare of the “public” in “public-private partnerships” always seems to be missing from the equation.