DUBIOUS PPP

THE cat is now out of the bag. The government had not been truthful on the character of Public-Private Partnership (PPP).

Finance Secretary Sonny Dominguez recently revealed the true color of PPP and the country’s big money is screwing up the poor Filipinos.

Dominguez said the Duterte administration is doing a rethinking of the PPP program, saying in the past some practices worked against the main purpose of the PPP which was to spur economic development.

 

Changing PPP Culture

According to Dominguez, the past administration used the PPP to raise funds. “We are changing the way we are looking at PPPs” he said.

“The past administration used to use the PPP to raise money by charging (an upfront fee from prospective private sector partners),” he said, adding “Frankly, I don’t think that’s fair because that’s like taxation without representation.”

This scheme, in which the party that pays the government the highest up-front fee for the right to build and operate a project, is to the detriment of the public, which will ultimately shoulder the cost, Dominguez explained.

The finance secretary also said that the program may look good on the government balance sheet but someone, or worse the public, will have to pay for it.

He also said that the previous administration also used incorrect borrowing cost scenarios for evaluating PPP projects, including the assumption that private sector firms would be able to fund infrastructure project more cheaply because of efficiency considerations.

“They were always assuming that the private sector will be 15-percent cheaper than the government,” he said. “Why should that be?”

 

Fallacy and Outright Lie

The finance chief cited the instance of a 28-kilometer road that the previous administration wanted to widen through the PPP scheme, with the rationale that a private proponent would implement it more efficiently.

However, the secretary pointed out, the project could have been built more cheaply if it was funded by the national government, whose funding costs are lower than any other Philippine private firm.

That the government is cheating itself if not the people could not be more correct in the PPP scheme in the Philippines.

PPP is sold as a scheme to accelerate infrastructure development in the country without the government or the people spending for it. “This is a fallacy and an outright lie by a government intending to cheat the people it is pledged to serve,” Road Users Protection Advocates (RUPA) said.

 

Example of PPP Scam

The best examples of PPP scam in our part of the world are the toll roads. Motorists pay big sums daily for use of toll roads like the South Luzon Expressway (SLEX).

The history of SLEX is an interesting study of government conniving with private developers to force a PPP project.

SLEX was South Super Highway built by the government and managed by CDCP, a government owned and controlled corporation.

Motorists using the superhighway paid CDCP toll fee for maintenance and development cost recovery which was to expire in a number of years. Towards the end of the term, motorists would be paying lesser toll fees for maintenance cost.

Maintenance of the road deteriorated, traffic buildup became a problem.

 

Traffic as Income Generator

There were suspicions that traffic problems were deliberately created to create demand for return to higher toll fees.

Farm animals were allowed to cross the superhighway, breaching fence enclosures leading to massive traffic build up. Response to clearing roads from traffic accidents appeared deliberately slow.

When the idea of having the superhighway rebuilt by a foreign company was offered, the people did not budge. So the SLEX came to life.

But nobody was telling the motorists how much the reconstruction will cost and how much toll fees the Malaysians will collect for toll. The Malaysians won the award for building SLEX. Before SLEX, use of SSH costs motorists P5.00, per pass, end to end. Today, it costs P290.00 for a trip between Binan and Makati, almost half of the end to end stretch of the SLEX and Skyway.

Like most of privatization schemes, the SLEX was negotiated behind closed doors and in secret, that when they submitted their final cut to a public hearing, there was strong opposition as to rates and costs.

 

RUPA’S Stand

RUPA, a consumers’ advocate, was one of the oppositors and explained the government was hard put in convincing the motorists that new toll rates were correct and fair.

Nobody was explaining about non-compete clauses, compensation and stabilization clauses in their agreements that in many countries have ended up the government losing hundreds of millions of pesos to the private investors. The fine prints were not explained.    

Transportation advocates reminded the government that the government was collecting taxes in billions of dollars, like the road users tax. It was also the duty of the government to build roads from taxes collected.

To RUPA, the toll fees were another form of direct taxation. “The worst part was the high if not unreasonable cost to motorists using the SLEX. The toll fees were for recovery of cost of rebuilding the SLEX, maintenance and operation and margins allowed. We were questioning cost of construct like cost of money borrowed by the developers from local banks. We asked cost of construction of SLEX if the government built it on its own. We got no sensible answers,” RUPA said.

 

Screwing the Public      

There was that feeling that the public was being screwed by their run-around answers to basic questions like cost. That corruption motivated the privitization than real and actual need for rebuilding the superhighway was almost clear to oppositors.

The government failed to show the move to invite private partner in rebuilding South Super Highway was to the best interest of the people.

“In fact the government forced this situation on the people by not building another free highway connecting Metro Manila with the south. The impression then was the SSH, after being fully paid by commuters, will become the national highway, not anymore a toll road,” RUPA said, explaining that toll roads are alternative roads.

“But in the case of the south, the SLEX is the only highway to reach Metro Manila. Other free lanes are the service roads of the expressway,” it added.

 

Breath of Fresh Air

It’s a breath of fresh air that under President Rody Duterte, the government sees the evils of PPP that only feeds on the greed of private businessmen and prone to corruption in the government at the expense of the people.  

This renewed approach by the current administration might be the signal that the Philippine government is starting to have a vision of standing on its own and not relying on the help of the private sector.

This is in keeping with Pres. Digong’s self-reliance dictum that is guiding our foreign relations policies.

Experiences in advanced countries over privatization are not encouraging to the economic growth of their countries and their people. This could be worse in the Philippines where corruption is normal.

 

What the Government Must Do

The DOF sees self-reliance as hurting the budget allotment of other priorities to give way to 100% government-funded infrastructure projects. But this will be worth it in the long run.

Government spending will be hurt for a while but after a few years, the public will ultimately benefit from all the government-funded infrastructure projects.

For example, public need not to pay expensive toll fees for toll roads built wholly by the government; as well as for other social services.

The investment will certainly improve our economy, now and in the future.  Higher-quality and more efficient infrastructure will boost productivity in the whole country that makes the needed investments, lifting long-term economic growth and wages. 

Key infrastructure investments would provide immediate job opportunities.

The government must turn its attention back to the type of infrastructure investments that will boost productivity, support business growth, create jobs, provide a healthier environment, and improve opportunities for the public – that is not at the expense of the people.

There is long list of privatization projects that demands examination as to its impact to consumers in particular and the government in general.  This list includes toll roads, power generation to distribution, water distribution and other basic services, conceived to save government funds but are actually serving income interests of private investors at the expense of consumers.  The end result of this scheme harms the economy as they contribute largely to poverty.   

 

Skeptics and Oligarchs

It is quite surprising to note that Progressive economists and liberal commentators in the US, for example, generally view the PPP with suspicion and with the impression that PPP projects enrich the private actors, create bad jobs and ultimately the worst, it rob the taxpayers blind.

The list of the private sector bidders for the PPP projects will also tell us that they are the wealthiest, most-connected oligarchs in the country. In fact, 90 percent of the bidders are in the list of Forbes magazine dollar billionaires.

There must be a question why the past administration has allowed this scheme to happen.

The validity of the main criticism against the PPP—that it enriches the private players first and foremost—is something that stands out even without the help of an in-depth evaluation.

But thanks to the Duterte administration, at least, their eyes are open to the risks that the public are now facing. That the devious scheme might be soon meeting its end and the public will soon experience real change.

Change is coming, indeed.

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Thursday, 19 October 2017
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