PPP: More Public Debt, Less Government Responsibility

Experiences show PPPs did not guarantee savings for the government but even bloated the public debt. And it can only get worse under the Aquino government’s new schemes for more of PPPs.


Manila — Aside from further bloating the debt burden, Aquino’s PPP thrust will also facilitate increased corporate takeover of government roles and at the expense of public interest

On November 17-19, Malacañang will host a major event called “Infrastructure Philippines 2010” or what is referred to in the media as the public-private partnership (PPP) summit. This is an important summit for President Benigno “Noynoy” Aquino III, who has made PPP the centerpiece of his administration’s development plan.

According to its website, the summit “will examine investment opportunities, profiles of PPP projects in the Philippines, as well as policy, regulatory, and legal concerns in developing the infrastructure sector in the Philippines”.

Apologists of neoliberal globalization argue that while the corporations and banks will profit from PPP projects, they will in return finance and build much-needed infrastructure, which the cash-strapped government cannot afford. Aside from reaping the gains brought about by more infrastructures, the people will also supposedly benefit from improved government services since limited public resources will now be more focused on the provision of social services.

But are PPP projects, just like in any partnership, a mutually beneficial setup?

At no cost?

With a population of more than 94 million and growing, and a government that is facing a record fiscal deficit of Php325 billion by yearend, the Aquino administration claims that there is no viable way to meet the tremendous and increasing need for infrastructure in the country other than the PPP route.

Meanwhile, compared to its Southeast Asian neighbors that are spending on infrastructure an average of 5% of gross domestic product (GDP), the Philippines is only spending 3 percent.

The logic is that PPP will allow the government to save its scant resources because the private sector will shoulder the financial burden of building, maintaining, and operating costly infrastructure. In his first State of the Nation Address (SONA) last July, Aquino keenly plugged his PPP thrust declaring that through such partnerships, “we will meet our needs without spending, and we will also earn”.

Protests against privatization while Aquino discusses PPP with prospective takers.(Photo by Arnold Padilla / bulatlat.com)

However, no capitalist will invest in big-ticket projects in a relatively small market like the Philippines without certain guarantees that will ensure the protection and profitability of his investment.

Consequently, PPP contracts are loaded with favorable terms for investors like guaranteed return on investment, guaranteed market and sales, fiscal incentives, full cost recovery including on inflation and currency fluctuation, and even unheard of sweeteners such as subsidies for production input (the fuel cost subsidy of Napocor’s independent power producers comes to mind) – all of which are borne by the people as consumers and as taxpayers.

This has been the case in past PPP efforts since the first Aquino administration, Noynoy’s late mother Pres. Cory, introduced the Build-Operate-Transfer (BOT) Law in 1990.

Not Manna From Heaven

But Aquino wants to outdo his predecessors including the Arroyo administration whose much-hyped “legacy” centers on supposed unprecedented achievements in infrastructure development. “I am very confident we will not only exceed (Arroyo’s achievements) but will beat it by a mile,” Finance Secretary Cesar Purisima boldy predicted.

How do Aquino and his economic managers plan to do that? Underneath all the talks about bureaucratic reform and fighting corruption to attract the best capitalists to invest in PPP, the harsh reality is that more investors will come only with more state guarantees and protection such as guaranteed investment return, access to loans backed by government guarantees, and in recent years, protection from risks arising from unfavorable court decisions that affect profitability.

PPP investments are “not manna from heaven”, as Purisima has recently admitted. Put more concretely, PPP will exact costs from the government and the people, contrary to Aquino’s earlier proclamation that we will not spend a single peso.

Regulatory Risk Insurance

To make its PPP summit more saleable, the Aquino administration has designed a new scheme to protect the interest of investors. Aside from the traditional state guarantees on profits, etc. the government is also offering “pertinent incentives” to further stimulate private resources for PPP projects.

One of them is a so-called “regulatory risk insurance” under which the government will protect investors from “certain regulatory risk events such as court orders or decisions by regulatory bodies which prevent investors from adjusting tariffs to contractually agreed levels”.

Aquino’s economic managers explain that such insurance could take the form of make-up payments from the government to PPP investors, other guaranteed payments, and adjustment to contract terms. The terms of protection will be included in the contract of each PPP project.

While the government assures us that the risk insurance will only be offered on a case-to-case basis, it is reasonable to expect every profit-seeking investor that will participate in PPP projects to ask for the said insurance.

But if the government is operating on a serious deficit, how can it fund the regulatory risk insurance? National Economic and Development Authority (NEDA) chief Cayetano Paderanga said that they will tap multilateral institutions to provide for the guarantees so that when PPP investors face risk, they can still “be paid fast and immediately”.

Ultimately, however, it will still be the taxpayers who will foot the bill of the risk insurance through debt payments – interest and principal – to the multilateral creditors. Likely sources include the Asian Development Bank (ADB) and the World Bank, two of the most aggressive lenders and active promoters of PPP projects. The latter has already indicated a willingness to provide funds for the PPP projects of the Aquino administration.

Thus, even if government claims that it is not providing notorious sovereign guarantees for PPP projects, the country may still end up more indebted than ever before.

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  1. The Aquino III government reasons that there are no funds available for much-needed infrastructure projects. One wonders why, despite the fact that the Philippines is a resource-rich country. It’s obvious that Filipinos are being stiffed in these one-sided deals for minerals extraction (mining) and gas-oilfield-geothermal projects. Add to that the woeful monitoring of just how much of these resources are taken out of the country, further defrauding Filipinos of their agreed-upon shares. Nationalization of these extractive industries won’t happen under this current political set-up. I have doubts as to Pnoy’s ability to: (1) Guarantee that the Philippines gets its just share from private exploitation of minerals and energy sources and (2) Use the government revenues from these extractive industries to fund much-needed infrastructure projects. PPPs are just “creative” ways of debt-financing, the servicing of which falls on the much-burdened shoulders of ordinary Filipinos.

  2. “Aside from further bloating the debt burden, Aquino’s PPP thrust will also facilitate increased corporate takeover of government roles and at the expense of public interest”

    Maraming mga banyaga ang magpapautang sa Pilipinas dahil mas malaki ang kita sa Pilipinas ng kanilang pera. Kung saan mas malaki ang kita, duon pupunta ang pera. Mataas ang peso dahil pinababa ng mga Kano ang kanilang pera. Mas dadalas na magpupunta sa Amerika ang mayayaman na Pinoy dahil mabigat ang peso. Samantalang tiis ang mga tumatanggap ng dollar galing sa mga OFW, tiis din ang mga “exporter” sa Pinas dahil mas mahal na ang ginagawang produkto sa Pinas, at hindi lang tiis dahil maaring magsara sila o magbawas ng mga trabahador. Maganda ang kita ng mga banyaga o Pinoy na may Kapital na gagawa ng mga Project sa Pinas. Garantisado pa ni Pnoy ang kita nila! Sa ganitong panahon na pinabababa ni Uncle Sam ang dollar, meron mga panalo sa Pilipinas at maaring meron din matatalo at maghihirap. Hi di ako ekonomista, mahilig lang ako magbasa. Eto ang sabi ni Keynes at binanggit niya si Lenin:

    “Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. – As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

    Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” …(JM Keynes, The Economic Consequences of Peace)

    Bigat ng Ingles, mahirap maintindihan! Pag bumagsak ang ekonomiya ng mundo, sino ang sasagip sa mga Pinoy? Si Pacman, si Pnoynoy, si Pokwang (PPP, hehehe), si Charice, si Willie, si Kris, si Boy Abunda? PPP—Pagpapahirap sa mga Pinoy Panghabangbuhay!

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