If public-private partnerships (PPPs) are left unchecked and mismanaged, the Philippines could see its public debt increase again, according to a recent study published by government think tank Philippine Institute for Development Studies (PIDS).
In its study, PIDS said that while such partnerships have been able to improve government services and help lower government infrastructure spending, some PPPs undertaken through the years have caused an increase in the government’s contingent liabilities.
PIDS added that in order for the government to attract private-sector investors to invest in a particular project, there is a possibility that the government would extend guarantees, whose risks, if left unchecked and misallocated, could lead to more debt.
“The misallocation of risks often entails the issue of contingent liabilities where the government may have to shoulder fiscal risks and thereupon incur possible increases in its debt burden. In order to encourage private-sector participation, especially in infrastructure projects, the public sector is sometimes forced to provide state guarantees. However, these guarantees create contingent liabilities that could spell financial trouble for the government if not properly managed,” the study said.
PIDS said the misallocation of risks is the reason the results of the government’s PPPs have been mixed. Some PPPs have been successful, such as the North Luzon Expressway (Nlex) and the concession of Manila Waterworks and Sewerage System (MWSS) water distribution services. But some have failed, such as the Ninoy Aquino International Airport 3 (Naia 3) terminal project.
Another drawback in pursuing PPPs, the think tank said, is that these are more complex transactions that have to be implemented and managed carefully. The PPP Center said this is why the country’s PPP projects have taken more time to roll out than expected.
The center has been able to bid out one project—the P1.96 billion-worth Daang Hari-Slex Link Road, which was eventually awarded to publicly listed conglomerate Ayala Corp.
“In comparison with purely public projects, PPPs are more complex transactions that need careful implementation and management. Proper distribution of responsibilities and terms of asset ownership between the partners over a long span of time are essential things in handling PPPs,” PIDS said.
As of April 29, the PPP Center said PPPs ready for rollout numbered 21. It added that it would be able to roll out at least eight projects this year.
Ready for rollout are Automatic Fare Collection System, Balara Water Hub, Cala Expressway (Cavite and Laguna Side), Cebu Bus Rapid Transit Demonstration Project, Establishment of Cold Chain Systems Covering Strategic Areas in the Philippines, Grains Central Project, Integrated Transport System (ITS) Project, LRT Line 1 South Extension and Operation & Maintenance and LRT Line 2 East Extension and O&M.
Other projects are Mactan-Cebu International Airport Passenger Terminal Building, Modernization of Philippine Orthopedic Center, Naia Expressway Project (Phase II), New Bohol (Panglao) Airport, New Centennial Water Supply Source Project, Nlex-Slex Connector Road and O&M of Angat Hydro Electric Power Plant Auxilliary Turbines 4 and 5.
Operation & Maintenance of Laguindingan Airport, O&M of Puerto Princesa Airport, PPP for School Infrastructure Project, Quirino Highway Improvement and Rehabilitation and Vaccine Self-Sufficiency Project Phase II.