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PPP Projects will bring progress

August 04, 2015News

The Philippines is clearly Asia’s present economic star. But, the Institute of International Finance (IIF) says our domestic economy failed to soar to its full potential due to the slow rollout of projects under President Aquino’s pet program Public Private Partnership (PPP).

IIF’s assessment–weeks before Mr. Aquino’s final State of the Nation Address (SONA)–carry a lot of weight. IFF is an organization with 450 of the world’s largest banks, insurance companies and investment management institutions.

The IIF Dispatch: Philippines Update reports: “The Philippines is well-placed to outperform its emerging market peers if EM [emerging markets] stress picks up in the context of Fed liftoff, thanks to a solid current account surplus, very low fiscal deficit and little foreign participation in local markets.”

But it adds: “Government underspending is still a major issue with no quick fix available. The fact that there is no consensus on why spending continues to surprise on the downside as the money gets stuck in agencies’ accounts tells you that there is no easy solution.”

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Foreign and local business observers amplify IFF’s concern in their reactions to President Aquino’s last SONA. All agree that Malacañang’s failure to put the PPP and infrastructure development on the fast track stymied the economy from growing at a much faster pace than it did.

Clearly, the delayed rollout of PPP and other big-ticket infrastructure projects has hamstrung Malacañang from creating a lot of jobs and stimulating the domestic economy to a level that would have truly made a difference in the lives of Filipinos.

President Aquino boasted in his SONA : “Under our watch, the number of solicited PPP project: 50. Of this number, 10 have been awarded; 13 are being bidded out; while 27 are still in the pipeline. You can judge the difference for yourselves.”

Actually, more PPP road projects had originally been targeted for completion or could have been in varying stages of construction by the end of his term, but there is doubt if any could take off at all by the time he steps aside on June 30 next year.

Blame this on a litany of woes, including the government’s failure to resolve simple right-of-way (ROW) issues; inaction by, or in-fighting among, the concerned agencies; and the way the Palace has taken its own sweet time approving PPP and other infrastructure projects.

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The state of infrastructure projects under the Aquino presidency is evident in the Muntinlupa-Cavite Expressway or MCX, which, as the Chief Executive himself pointed out in his last SONA, had its ceremonial opening just the previous Friday.

MCX, which used to be called the Daang Hari-SLEX Link Road, was built by the Ayala Corp.’s AC Infrastructure. Although Mr. Aquino boasted 50 PPP projects on his watch in his speech, MCX is actually the only PPP road project thus far completed since 2010.

Its completion had been delayed by a year, as this PPP venture was also hobbled by right-of-way (ROW) issues and unexpected changes in project design.

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Former DPWH Undersecretary Rafael Yabut said that the P25.6-billion Metro Manila Skyway 3 (Skyway 3) by the consortium of San Miguel Corp. and Citra Mentro Manila Tollway Corp. (SMC-Citra) and its parallel NLEX-SLEX Connector Road being pushed by the Metro Pacific Investments Corp. (MPIC) as an unsolicited proposal are both delayed, because of the need to redesign alignments.

This is because of the National Economic and Development Authority (NEDA) Board’s recent approval of the North-South Railway Project (NSRP), which will also use the same route as the railroad tracks of the Philippine National Railways (PNR).

While SMC-Citra has started building Skyway 3, it had to move back its target completion to 2017. MPIC’s NLEX-Connector Road has yet to take off because the involved agencies took years to finally decide to hold a Swiss Challenge.

This was after the government toyed with the idea of having this project carried out through a Joint Venture (JV) with the Philippine National Construction Corp. (PNCC), which holds the franchise to both NLEX
and SLEX.

SLEX is the South Luzon Expressway run by SMC with Citra Metro Manila Tollway Corp. (SMC-Citra).

Only after the NEDA Board confirms the Swiss Challenge can the Invitation to Bid be published in newspapers to allow interested parties to submit counter-offers that must be better than MPTC’s unsolicited proposal.

To address this concern, Aquino could have immediately solved the administrative and operational snags bugging quite a number of PPP and other major infrastructure projects, notably ROW issues, inaction by the overseer-agencies, and delays in the issuance of the necessary government permits for these ventures to take off.

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The P17.52-billion Mactan-Cebu International Airport (MCIA) terminal being built by the GMR Infrastructure Ltd. and Megawide Construction Corp. (GMR-Megawide) consortium has been delayed for six months, and Phase 1 construction work was moved back from Jan. 30 to June 30.

This delay was caused by the government’s failure to immediately provide the Philippine Air Force (PAF) an alternate site for its MCIA operations.

GMR Megawide Cebu Airport Corp. (GMCAC) president Louie Ferrer said construction work started following a six-month delay only after the government finally agreed to hand over the second and final parcel in December, after which the consortium finally commenced construction of the second phase of the project.

It is unlikely that the consortium can complete the project before the original 2018 target date.

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The P15.8-billion Ninoy Aquino International Airport Expressway (NAIAX)–a PPP project to connect the four NAIA terminals, is already a year behind schedule and might not be completed in time for November’s Asia-Pacific Economic Conference (APEC) summit in Manila.

SMC Tollway Projects head Alec Cruz traced the delay to the DPWH’s failure to deliver the full ROW for the project in April last year.

After winning the contract via a public tender in April 2013, the SMC-led group targeted its completion for October 2015 in time for the APEC summit. However, it is only 40% finished as of now.

“We are doing everything we can to increase the chance of substantial completion before the APEC in November,” Cruz said. “We have called the DPWH’s attention to this several times, and I’m hopeful that they will exert extra effort to acquire the necessary ROWs. We are ready to build, but we can’t do so unless we have somewhere to build on.”

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The operators and concessionaires of North Luzon Expressway (NLEX), SLEX, Manila Cavite Toll Expressway (CAVITEX), Subic-Clark-Tarlac Expressway (SCTEX) and Southern Tagalog Arterial Road (STAR) had pending petitions for toll increases since January this year.

But the DPWH and TRB are now considering the possibility of letting them raise additional revenues, not through a rate increase, but either by extending their concessions or reimbursing their expenses for road improvements.

DPWH Secretary Rogelio Singson said another option was for the government to pay the operators for funds used to improve their roads.

But both proposals were immediately shot down by MNTC president Rodrigo Franco, who said: “We prefer a toll rate increase since we need cash now to fund repair and maintenance work.”

MPIC is spending P1.5 billion in the next three years to rehabilitate SCTEX through civil works and upgrades, and P650 million more to integrate SCTEX with NLEX to ensure fast and hassle-free travel for motorists.

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The government has yet to award the operation and maintenance (O&M) contract for SCTEX) to the Metro Pacific Tollways Corp. (MPTC) five months after this firm won in the Price Challenge staged by the BCDA.

BCDA issued a Notice of Award last Feb. 4 to MPTC’s subsidiary MNTC after the latter won in last January’s Price Challenge with its offer of an upfront payment of P3.5 billion and a 50-50 gross revenue-sharing formula.

This could have been awarded except that the Supplemental Toll Operation Agreement (STOA), approved by the TRB is awaiting final action by the Office of the President (OP).

“We are hopeful that the SCTEX can be finally turned over to us,” said MPTC president Ramon Fernandez.. “The road is deteriorating with continuous rain and our team is currently implementing the NLEX-SCTEX toll integration. Our motorists are looking forward to this.”

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ROW problems are also causing headaches for MNTC’s NLEX Harbor Link project and another one extending NLEX from Mindanao Avenue to Commonwealth Ave. in Quezon City.

MPTC president Fernandez told reporters that the government should deliver full ROW acquisition within the year so MNTC can finish the construction of Segments 9 and 10 of the NLEX Harbor Link by December 2016.

Segment 9 connects Mindanao Ave. to MacArthur Highway in Valenzuela City while Segment 10 connects MacArthur Highway to Circumferential Road 3 (C3) or 5th Avenue in Caloocan City.

Because of the ROW delay, Segment 10’s completion target is some seven (7) months behind schedule.

MNTC is also poised to spend P10.5 billion on a 7.85-kilometer road extension from Mindanao Ave. to Commonwealth Ave., but this project is similarly delayed by ROW problems.

MNTC president Franco said MNTC is ready to implement the C-5 Link project, subject to full delivery of the road ROW.

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The Philippines has just been cited by the Economist Intelligence Unit (EIU) as the most improved Asia-Pacific economy in terms of PPP, having jumped last year to No. 7 among 21 states as a “developed” PPP market like Japan, South Korea and India, from being a mere “emerging” market in 2011.

In a press statement, the PPP Center said this EIU study “validated” the PPP program of the Aquino administration and “affirmed” its efforts to tap the private sector in addressing the huge infrastructure and development requirements needed to accelerate Philippine growth.

Canadian Ambassador Neil Reeder, who co-chairs the APEC PPP Experts Advisory Panel, said in an Iloilo City forum that the Philippines’ PPP Center has become the model for APEC and ASEAN (Association of Southeast Asian Nations).

John Forbes, senior adviser at the American Chamber of Commerce of the Philippines (AmCham), and Henry Schumacher, vice president for external affairs of the European Chamber of Commerce of the Philippines Inc. (ECCP), found the SONA wanting in discussions regarding ongoing and future national challenges.

“We still encourage the administration to implement the recommendations in the May 15 letter of the Joint Foreign Chambers and the Philippine Business Groups (PBG-JFC) to the President,” Forbes and Schumacher told the media after the SONA.

PBG-JFC is the umbrella group of nearly all of the country’s largest and most active business organizations such as AmCham, ECCP, Philippine Chamber of Commerce and Industry (PCCI), Makati Business Club (MBC), Management Association of the Philippines(MAP) and the Employers Confederation of the Philippines (ECOP)

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Of course, if the next president continues on the path that PNoy has taken and continues the PPP, the finished projects in his first few years will already bring the rewards of PNoy’s efforts to improve the economy. What the next one should not do, as most incoming governments have done is to start afresh and abandon the PPPs started by the present administration. That would be suicide for this country. 

Source: Malaya Business Insight