THINK TANK URGES GOVT TO REVIEW 50 POTENTIAL RISKS OF PPP PROJECTS


MANILA, APRIL 7, 2011 
(STAR) By Mary Ann LL. Reyes - A private think tank is calling on government to review 50 potential risks in Public-Private Partnership (PPP) projects to avoid unreasonably high tariffs, finger-pointing, congressional probes and other possible obstacles in the future.

Forensic Law and Policy Strategies (Forensic Solutions) said such an exhaustive and complete risk assessment should include corruption risks arising from public officials getting bribes or favors; environmental risks concerning the project’s impact on the ecology; foreign exchange fluctuations and inflation surges; legislative risks brought about by new laws affecting the project; taxation risks arising from revisions in taxation laws and revenue rules; and succession risks brought about by change of policies by the next administration.

Former Justice Secretary Alberto Agra, who heads Forensic Solutions, said “no PPP project must be opened for private sector participation without doing a risk assessment,” which is “an integral and indispensable part of any feasibility study of a PPP project, especially project-finance based PPP like build-operate-transfer (BOT) mode, joint ventures, and concessions.”

Agra said this risk assessment process should also cover force majeure risks and weather risks causing project disruptions attributable to erratic weather patterns; economic risks resulting in a drop in revenues or project financiers suddenly pulling out; social or protester risks involving the opposition of certain host communities to projects; market competition risks that could erode the potential gains of the project; and credit risks induced by the possible default of the debtor or when the lenders or sponsors are not credit-worthy.

“If the relevant risks are not addressed and properly assigned to the party who can best manage and control the risks, one can expect high or unreasonable tariffs, an unaffordable PPP project, delay, failure, finger-pointing, penalties, defaults, litigation, congressional investigations, lost of confidence, and distrust,” he said.

From an initial list of over 100 projects, the Aquino administration said five of these PPP projects will be auctioned off in a month’s time. These are the P6.3-billion Metro Rail Transit Line 3, the P7.7-billion Light Railway Transit Line 1, the P1.6-billion Daang Hari-South Luzon Expressway link road, the P10.6-billion Ninoy Aquino International Airport Expressway Phase 2, and the P21-billion North Luzon Expressway-South Luzon Expressway connector road.

Agra pointed out that contrary to what the public had expected, the light railway projects, which are the first two PPPs of the Aquino administration, would not be implemented via the BOT mode that it had been espousing, but through four-year service contracts where funding will be drawn exclusively from the government.

He explained that unlike in BOT contracts where there is considerable funding and assumption of risks on the part of the private sector, winning bidders in service contracts perform the service for the least cost.

In BOT schemes, the private sector’s payment are to be taken from and linked with the tariffs, while in service contracts, the government assumes the risks in the funding aspect, Agra said.

FROM BUSINESS WORLD ONLINE

Philippines gets $8.5M for PPP capability

THE PHILIPPINES is getting grants totaling $8.5 million to improve the government’s capability to implement public-private partnership (PPP) projects, the Asian Development Bank (ADB) and the Australian Agency for International Development (AusAID) said in a joint press statement on Wednesday. The grants, consisting of $1.5 million from the ADB and $7 million from AusAID, will be used for projects that will strengthen the government’s capacity to develop, competitively tender and monitor implementation of PPP projects, the statement read further.

The government itself will provide counterpart funding totaling another $8 million.

The technical assistance project, to be administered by the National Economic and Development Authority (NEDA), will run from April 2011 to July 2013.

It is designed to help the government develop a stronger policy, legal and regulatory environment to ensure successful PPP implementation.

Objectives

Among others, it will:

•strengthen the PPP Center which NEDA supervises;

•provide support for the government’s Project Development and Monitoring Facility that serves as a revolving fund to help agencies develop viable PPP projects;

•help improve private sector access to long-term financing for infrastructure projects; and

•help develop risk guarantee mechanisms to reduce uncertainty for participating private investors. "The government recognizes the need to improve the systems and capacity for preparing bankable PPPs," the statement quoted Neeraj Jain, ADB country director for the Philippines, as saying.

"The goal of the project is to boost the public sector’s ability to promote and carry out successful PPP projects that will, in turn, provide better services to citizens and contribute to inclusive economic growth."

Key constraint

The statement cited the lack of investments in infrastructure as a constant development constraint for the Philippines.

It noted that private funding has been falling sharply due to insufficient state capacity to effectively develop projects.

"An unpredictable policy environment, right of way land acquisition issues, financing gaps and a lack of clarity regarding government support have all undermined the development of PPPs," the statement added.

AusAID Minister Counselor Titon Mitra said in the same statement that "in addition to building public sector capacity over time, this package will also support the Philippine government to fast-track its PPP reforms."

"Achieving some quick wins by taking a select few bankable PPP projects to market by open, competitive bidding will underscore the Aquino administration’s reform credentials and help attract foreign investors back to the Philippines," he added.

Jon Lindborg, PPP advisor at ADB’s Southeast Asia Department, noted that "ADB...sees substantial scope to increase competitively tendered PPP projects in the Philippines over the next several years."

The government has already started the bidding process for the first PPP projects, namely: the four- to five-year maintenance contracts for the Light Railway Transit Line 1 and Metro Rail Transit Line 3.

These projects are estimated to cost some P7.7 billion and P6.3 billion, respectively.

Other PPP contracts targeted to be auctioned off by June are the Daang Hari-South Luzon Expressway link, the Ninoy Aquino International Airport expressway and the North Luzon and South Luzon expressway link.


Chief News Editor: Sol Jose Vanzi

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