Countrywatch: Philippines

With national elections on the horizon, Dan Colombini reports on how the Philippines PPP pipeline is facing a new and uncertain dawn

At the beginning of March, it was announced that Andre C. Palacios had been installed as the new head of the Philippines PPP Centre.

His appointment came following Cosette Canilao’s unexpected decision to step down the previous month, after being the face of the Philippines’ PPP programme for several years. Her decision to leave due to “pressing family concerns” left a large hole at the heart of the country’s programme, but she put Palacios forward as her successor, with him having worked as a consultant at the centre for over a year.

Although unrelated to political events in the Philippines, the change comes at a pivotal time for the country’s PPP market, which has made big strides over the past few years as it seeks to establish itself on the global stage.

Under incumbent president Benigno Aquino, the country has undoubtedly achieved a lot in improving its implementation of the PPP program, resulting in a varied pipeline of over 50 projects.

Importantly, this includes three completed deals: Muntinlupa-Cavite Expressway, PPP for School Infrastructure Project Phase I and the Automatic Fare Collection System. In total, 12 deals have been awarded to private teams, with a further 14 currently under procurement.

As the pipeline began to grow, one of the key objectives under the Aquino administration has been to expand interest in its work and seek recognition and support from the international investment community. And the country has certainly worked hard to achieve these goals, specifically targeting world leading PPP countries such as Canada to obtain the necessary support and advice.

But with Aquino stepping down in June and the figurehead of the country’s programme already gone, the pipeline is facing a degree of uncertainty – despite Palacios demonstrating impressive experience and credentials as the replacement for Canilao.

Palacios is, however, fully aware of this issue and extremely forthright in acknowledging the short-term problems facing the Philippines.

“The change of government is certainly one of the barriers to investing in the Philippines, especially at this point in time,” he admits. “Past experiences have shown us that new administrations sometimes do not continue programmes that have been successfully implemented.

“Many of our partners and stakeholders are now asking about the sustainability of the PPP programme, especially due to the upcoming national elections. We hope that the next administration will just continue all the positive developments that we already started in implementing our PPP programme.”

Palacios will clearly have his work cut out as he begins his new role, and will no doubt be keen to educate incoming administrations on the benefits that PPPs can offer.

After all, for all the progress made over recent years, the country’s programme has certainly not been without its issues. Just a few weeks into his tenure, Palacios was forced into defending the centre’s success, insisting that seven deals will be awarded by the end of June, despite bid submissions having been delayed over the preceding weeks.

Schemes such as the regional prison project, the five regional airport projects and the Davao seaport scheme are now facing a race against time to appoint preferred bidders by 30 June, when Aquino leaves office.

Unfortunately for the Philippines, such delays to tenders are nothing new. This has resulted in a common view among many investors that the country is trying to run before it can walk.

Part of the problem here is that the centre’s work continues to be hindered by a lack of dedicated legislation. Sources close to the programme have long called for changes to the decades-old build-operate-transfer (BOT) law, which has been described as a major hindrance to the bidding process. As a result, calls for improved language and dedicated PPP regulations for contracts continue to grow louder. 

“We are strongly pushing for the enactment of the PPP Act,” says Palacios. “The proposed amendments to the BOT law will help sustain the gains of the current PPP programme and further enhance the legal and policy environment for private sector participation.”

Canilao also pushed hard to see the centre made part of the President’s Cabinet, in order to build on the work achieved under Aquino, but time is now running out before the general election.

Whoever succeeds Aquino will be inheriting a vast pipeline of deals, which have all been designed to boost an ailing economy.

“The Aquino administration’s strong political will and support have helped us accomplish more than what we expected,” explains Palacios.  “Because of the president’s commitment to boost the infrastructure development in the country, we successfully awarded more PPP projects than the past three administrations.”

To ignore this last point would be rash of any incoming president. But the fear is that a new president will want to stamp their own authority on the country, and the PPP programme has been so closely linked to the legacy of Aquino that a new incumbent may be less keen to pursue the model with the same vigour. Take away the hefty political support that has been seen over recent years, and the Philippines’ fight to court international money will be much harder.

At the PPP Centre at least, though, confidence remains high at this stage. Palacios continues to oversee business as usual: an Integrated Flood Control project is the latest to be added to the pipeline, alongside a new multi-million dollar Supreme Court development.

And Palacios sees no reason to hang around. “We cannot provide a tentative timeline at the moment but hopefully after the evaluation process of the implementing agencies with the PPP Center, these projects will be endorsed immediately to the Investment Coordination Committee- Cabinet Committee,” he says.

The scale of these projects, and the size of investment needed, means that the Philippines will almost certainly need international investors to put their money into these projects if they are to get off the ground.

There is some promising news in this regard, though. Go Watanabe, chief executive of BTMU’s Asia & Oceania region, has said the Japanese bank is looking hard at the Philippines PPP market. He spelled out the bank’s plans for the country, saying it is looking at debt, equity and advisory roles.

Such comments will be welcomed by the Philippines PPP Centre, especially at a time of such change. BTMU has a long experience of PPPs, so its publicly stated ambition to target the Philippines market should make others sit up and take notice.

For the time being, then, the centre is riding the crest of a rather turbulent wave. Come the summer, it will be much clearer as to whether they have managed to stay afloat.