ABS-CBN recently cited an article on Public Private Partnerships
There is uncontainable exuberance over five (5) PPP projects having been prioritized and which will be subjected to bidding within the year.
These are the P6.3 billion Metro Rail Transit Line 3, the P7.7 billion Light Railway Transit Line 1, the P1.6 billion Daang Hari-South Luzon Expressway link road, the P10.6 billion Ninoy Aquino International Airport Expressway Phase 2, and the P21 billion North Luzon Expressway-South Luzon Expressway connector road. The selection process for the service contractor for the first two (2) projects – MRT3 and LRT1 has already commenced.
Note that all these projects – Metro Rail Transit, Daang Hari-South Luzon Expressway, Ninoy Aquino International Airport Expressway Phase 2, North Luzon Expressway-South Luzon Expressway connector road are in the nature of public works.
The implication is that any investor who would like to particiate must first comply with the constitution and the implementing rules and regulations provided for in the Foreign Investments Negative List. What are these regulations?
8th Regular Foreign Investment Negative List A
Up to Twenty-Five Percent (25%) Foreign Equity
14. Contracts for the construction and repair of locally-funded public works (Sec. 1 of CA 541, LOI 630) except:
a) Infrastructure/development projects covered in RA 7718; and
b) Projects which are foreign funded or assisted and required to undergo international competitive bidding (Sec. 2a of RA 7718)
Up to Forty Percent (40%) Foreign Equity
17. Exploration, development and utilization of natural resources (Art. XII, Sec. 2 of the Constitution) *4
18. Ownership of private lands (Art. XII, Sec. 7 of the Constitution; Ch. 5, Sec. 22 of CA 141; Sec. 4 of RA 9182)
19. Operation and management of public utilities (Art. XII, Sec. 11 of the Constitution; Sec. 16 of CA 146)
20. Ownership/establishment and administration of educational institutions (Art. XIV, Sec. 4 of the Constitution)
21. Culture, production, milling, processing, trading excepting retailing, of rice and corn and acquiring, by barter, purchase or otherwise, rice and corn and the by-products thereof (Sec. 5 of PD 194) *5
22. Contracts for the supply of materials, goods and commodities to government-owned or controlled corporation, company, agency or municipal corporation (Sec. 1 of RA 5183)
23. Project Proponent and Facility Operator of a BOT project requiring a public utilities franchise (Art. XII, Sec. 11 of theConstitution; Sec. 2a of RA 7718)
24. Operation of deep sea commercial fishing vessels (Sec. 27 of RA 8550)
25. Adjustment Companies (Sec. 323 of PD 612 as amended by PD 1814)
26. Ownership of condominium units where the common areas in the condominium project are co-owned by the owners of the separate units or owned by a corporation (Sec. 5 of RA 4726)
Obviously, the news that “A lot of countries have signified support for the Philippine PPP initiative. These are China, U.S.A., United Kingdom, Singapore, Japan, India, Korea, Qatar, UAE, Doha, and Abu Dhabi. Foreign governments and investors have manifested their desire to invest in the Philippines. International donor and financing agencies have likewise extended their technical and financial support for the flagship program of President Aquino” sounds good. This signifying support, however, is something that we have heard since the founding of the Republic. Yet, not much has changed.
Peter Wallace of the EIU raised this question in his recent speech “Perception Decides” at the Trade Union Congress of the Philippines. He said:
Do you see a pattern here? We all suffer the same problems, so why is the Philippines getting so much less investment? Just look at the numbers: Over the past six years the Philippines struggled to attract $11.9 billion in foreign investment. Vietnam, a country fast overtaking the Philippines, got over double that at $29.8 billion. Indonesia was three times at $36.3 billion, and Thailand, four times at $48.2 billion.
So I ask the question again: The problems of working in each of these countries are much the same, so why is the Philippines so far, far behind in attracting interest? If I were P-Noy, I’d be asking that question as the top question I’d demand an answer to. I suggest he put some bright people in a room, close the door, pass food and drink (red wine works for me) around and don’t let them out until they have the answer.
Given the reality that the Philippines is no worse than the others in the constraints imposed on business, is it just a matter of degree? For instance, infrastructure is inadequate everywhere, but worse here than over there. We’ve spent less than half (as a percentage of GDP) what the other countries have over the past 20 years. And it shows, fly into the worst airport in Asia and you know it immediately. Or is it perception?
As far as am concerned Peter Wallace’ question gives an indicator where this PPP agenda of Aquino is headed – NOWHERE. Why? Here’s why.
BEFORE THE FACT (before business registration)
South Korea, Japan, Taiwan, HK, Singapore, Vietnam, Thailand, Malaysia – allows investors to own up to 100%
The Philippines only allows foreign investors up to 40% equity.
****
Given:
1. You have a business idea.
2. You have capital of $1M to roll out your idea
3. To realize your idea in the Philippines – you can only spend $400K, you have to find a local counterpart who has $600K – to meet the constitutional 60/40 requirement for a project that’s worth $1M
4. The only Filipinos who can raise $600K to match your $400K are who?
What’s the probability that you will invest? Or that a foreigner will invest in this scenario?
The Philippines suggests getting dual citizenship for the foreigner in order to avail of 100% equity – Question is who would like to become a Philippine citizen just so he can own 100% in the Philippines – only the desperate ones.
We lose out – the foreigners just go elsewhere where they don’t have to put up with the 60/40 bullshit
When are PPPs advantageous?
The use of PPPs work in scenarios involving public monopolies as government uses industrial management principles to leverage economies of scale. The caveat as applied to the Philippines is that due to constitutional restrictions, we may not be getting the optimum offers from the private sector.
In underdeveloped or corrupt economies or like the Philippines, pursuing the PPP can wind up doing more harm than good.
In a society with substantial corruption, privatization allows the government currently in power and its backers to siphon a large portion of the entire net present value of state assets away from the public and into the accounts of their favored power brokers (BV: remember Meralco, NLEX, SLEX, PAL, etc). Without privatization, corrupt officials would have to slowly harvest their corrupt earnings over time. As such, efficient privatization depends on their being a very low of current corruption among the current government officials since it allows for far more ‘efficient’ extraction of corrupt rents.
Of course, corrupt governments can also extract corrupt rents quite efficiently in other ways – particularly by borrowing extensively to engage in spending on overly favorable contracts with their backers (or on tax shelters, subsidies or other giveaways). Generations of subsequent taxpayers are then left with paying back the debt incurred for corrupt transfers made decades previously. Naturally, this may lead to the sale of public assets….
In the end, the public is left with a government that taxes them heavily, and gives them nothing in return. Debt repayment is enforced by international agreements and agencies such as the IMF. Infrastructure and upkeep is sacrificed – leading to a further decay in the economic efficiency of the country over time.
http://en.wikipedia.org/wiki/Privatization
Without liberalization – don’t expect new results from the same old privatization or PPP for that matter. Let’s get our priorities straightened out – first things first – remove the 60/40.
About the Author
BongV has written 389 stories on this site.
BongV is the webmaster of Antipinoy.com.
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