Public Private Partnership in the Philippines Essay

Methodology The researcher used the historical research method that provided information on the value of Public-Private Partnership in Philippine Infrastructure Construction. The data provides an overview on how valuable, whether it be for the benefit or detriment of the country, PPP projects are in the socio-economic paradigm. The gathered data were from relevant books, research papers, government data, and thru papers released by relevant parties. What is Public–Private Partnership? Public–private partnership (PPP) describes a government service or private business venture which is funded and operated through a partnership of government and one or more private sector companies. These schemes are sometimes referred to as PPP, P3 or P3. 1 1 http://en.wikipedia.org/wiki/Public%E2%80%93private_partnership 1 http://en.wikipedia.org/wiki/Public%E2%80%93private_partnership One of the possible reasons why PPP is the format as to how the Philippine government is conducting most of its high budgeted infrastructure projects is clearly stated by Ferreira and Khatami â€Å"The private sector is playing an increasingly crucial role in the financing and provision of services that were traditionally the domain of the public sector. One of the key reasons is that governments are unable to cope with the ever-increasing demands on their budgets. Most infrastructure expenditures in developing countries have been funded directly from fiscal budgets but several factors such as macroeconomic instability and growing investment requirements have shown that public financing is volatile and, in many countries, rarely meet crucial infrastructure expenditure requirements in a timely and adequate manner.† PPP involves a contract between a public sector authority and a private party, in which the private party provides a public service or project and assumes substantial financial, technical and operational risk in the project. In some types of PPP, the cost of using the service is borne exclusively by the users of the service and not by the taxpayer. In other types (notably the private finance initiative), capital investment is made by the private sector on the strength of a contract with government to provide agreed services and the cost of providing the service is borne wholly or in part by the government. Government contributions to a PPP may also be in kind (notably the transfer of existing assets). In projects that are aimed at creating public goods like in the infrastructure sector, the government may provide a capital subsidy in the form of a one-time grant, so as to make it more attractive to the private investors. In some other cases, the government may support the project by providing revenue subsidies, including tax breaks or by providing guaranteed annual revenues for a fixed period. 2 2 http://en.wikipedia.org/wiki/Public%E2%80%93private_partnership 2 http://en.wikipedia.org/wiki/Public%E2%80%93private_partnership PPP in the Philippines The Philippines has a long history of public-private partnership (PPP) initiatives, which serve as a rich basis for future investments. As of now it is a priority of the Benigno Aquino III Administration probably due to its perceived socio economic benefits not only in the usual infrastructure projects like roads, expressways, bridges, transportation terminals etc., it is also going after sectors like information and communications, healthcare, etc. One of the forefront departments involved in Infrastructure development and PPPs is the Department of Public Works and Highways. As Infrastructures are means for our country to regain and sustain high economic growth, improve the social living standards of the people and remove the bottlenecks to international commerce and investment. Public-Private Partnership (PPP) is seen as â€Å"approach to invest resources for adequate road infrastructure. The Government has fewer resources to invest on Expressways. DPWH will undertake the reforms needed to create a more conducive environment for private business and help generate many more bankable projects.3† DPWH PROJECTS FOR IMPLEMENTATION IN 2011 1. NAIA Expressway (Phase II) 2. NLEx-SLEx Link Expressway (Unsolicited Proposal) 3. 3 Department of Public Works and Highways, PPP Projects 3 Department of Public Works and Highways, PPP Projects Daang Hari – SLEx Link | There were 10 PPPs announced for bidding in 2010, 4 were airport projects. The PPPs included: * the Cavite-Laguna Expressway project, * NAIA Expressway II, * LRT 2 East Extension project’ * Privatization of LRT-1 O&M, * Privatization of MRT-3 O&M, * LRT 1 Cavite Extension project, * Bohol Airport, * Puerto Princesa Airport, * New Legaspi (Daraga) airport, and * Privatization of O&M of Laguindingan airport. But some of these projects were shelved because the government wanted to be prudent about the structure and rules under which these would be bid out to private investors. Feasibility studies also took a lot of time. 4 4 Why the Initial 10 PPP’s were designed to fail by AYA LOWE 4 Why the Initial 10 PPP’s were designed to fail by AYA LOWE Rene Santiago, a transportation consultant said that opportunity losses due to delays in the PPPs are mounting. For the LRT-1 Cavite extension alone, he estimated the loss at P80 billion in the last 10 years. Santiago also estimated the losses for 2011 to 2013 to total P25 billion in economic costs. The value of the economic benefit loss of the LRT-2 east extension, which would not be completed until 2016, according to Santiago, is already P5.4 billion, more than half the cost of the project itself, which is P9 billion. According to Santiago, Manila was first among ASEAN countries to set up an urban railway — the LRT-1 built in the 1980s. â€Å"Many of ASEAN countries have now overtaken Manila,† he said, however.â€Å" From now until 2020, expect the Philippines to lag behind other countries in terms of railway projects,† he said. Based on the researched data Public Private partnership for infrastructures benefits are as follows: * It could increase and give greater infrastructure solutions due to private companies having more resources for research and development and use of innovative technology. * It will offer faster project completion and reduced delays because it skips most of the government red tape present in normal construction and funding is internal to the private sector so there are no projected delays due to budget release. * Its return of investment (ROI) is greater when compare to traditional methods, due to innovative design and financing approaches because of the experience of the private sector in marketing. * Risks are weighted from initial conceptual stages to determine the feasibility of a certain project * The operational and project execution risk is transferred totally to the private sector, leaving the public component on a win-win situation * It is a concept where early completion of the infrastructure is expected under expected budget, reducing the claims and change order process due to it being similar to a developers scenario. * It allows government funds to be re-directed to other important socio-economic areas because funding of projects are done by the private sector. * Reduces government budget and budget deficits, because the government is virtually getting an infrastructure for free. * Public Private partnership allows a reduce tax payment from users similar to the subsidies of the government in LRT, MRT. * Allows the government to direct the expected function of the project in accordance to their own interests But not everything is good about PPP, listed are some of the determined drawbacks: * PPPs have risks involved, and the government will the pay the price to transfer those risks to the private sector, risks like bankruptcy, possible failure of the project during operation. * Certain situations can affect the purity of the process due to specialized areas being improved, reducing the number of contractors available to perform the requested projects wherein sometimes monopoly of contracts happen. * Profits of the projects can vary depending on the assumed risk, competitive level, complexity and volume of the project being performed * Government representative must be highly specialized personnel and contracting experts mostly people from concerned agencies like DOT and DPWH have to have these kind highly trained personnel. CONCLUSION Based on the data gathered the proponent of the study has come to the following conclusion, the benefits of Public Private Partnership further outweighs its detriments as some of the drawbacks can be easily averted through proper project planning and control and preparation. For PPP to be successful, the government and the private sectors involved must do it in with careful urgency. The Philippines is a developing country as such progress and infrastructures needed to elevate our status would be beneficial if achieved in the shortest amount of time as possible, but these projects, if without ample considerations, may initially look promising but in the end may cause a lot of problems, and instead of helping become one of those elements that keep slowing the country down.