Frustration over Philippines’ delayed infrastructure

November 15, 2011 at 13:34

When Veronica Uy travels to work in central Manila, her journey takes up to three hours.

She lives in the province of Cavite, just 31km (19 miles) south of the Philippines’ capital, but the traffic is gridlocked for much of the route.

“It’s a real waste of time,” she says.

“In the middle of the night, when there are hardly any other vehicles, it’s a journey that only takes 20 or 30 minutes.”

What Cavite needs is a train network, or bigger roads – or better still, both. There are plans to build them.

When President Benigno Aquino came to office in June 2010, he promised to repair and replace the country’s flagging infrastructure.

Included in the plans were a toll road and an extended rail line to Cavite.

To pay for these projects, President Aquino championed a scheme to set up joint ventures between government and businesses.

These public-private partnerships (PPPs) became a key part of his economic policy.

It is a way in which the cash-strapped government could finance the infrastructure improvements so urgently needed.

Or, that was the plan. A year-and-a-half later, it still is the plan, but so far not a single project has got off the ground.

Key to growth

The initiative started well. The business community responded positively to President Aquino’s proposals as they widely viewed spending on infrastructure to be a key driver of growth.

There were a few issues though.

“Many surveys of investors in the Philippines show that corruption and infrastructure are the two main concerns,” says John Forbes, a senior adviser for the American Chamber of Commerce in Manila.

So President Aquino’s anti-corruption stance and honest reputation were welcomed and the issue of infrastructure spending became even more important, Mr Forbes said.

When President Aquino set up a special PPP centre, his target was contracts for 10 key projects to be put up for tender by March 2011, including the Cavite road and rail link.

However, only one project – the planned Cavite road – will now be auctioned off by the end of this year, according to director of the PPP centre Eleazar Ricote.

“The bureaucracy has not had the capacity to do these projects quickly.”

John Forbes
American Chamber of Commerce, Manila

Work is only expected to start in the latter half of 2012.

So what’s the delay?

“There’s need for due diligence, and that takes time,” says Mr Ricote. “We have to do this right. That’s the most important thing.”

No-one is denying that PPPs are difficult to set up, but there’s mounting frustration over how much time the government is taking to push these projects through to tender.

Mr Forbes insists the business community still has patience with the process, but he says that what happens next year will be critical.

The delay is “understandable”, he says. “The bureaucracy has not had the capacity to do these projects quickly, because of the neglect of previous administrations.”

Some have also questioned whether the Philippines is ready for such a complex process.

After all, several collaborations between previous governments and private companies have ended badly in the past.

One of the most high-profile failures was a project to build terminal 3 of the main international airport, which was meant to have been completed in late 2002.

It is still only partially open due to an ongoing dispute between successive governments and a consortium headed by the German company Fraport.

Mr Ricote, of the PPP centre, insists the Philippines is able to ensure that big-ticket partnerships reach fruition.

“We’ve learned some lessons – we’re trying to structure projects much better this time,” he says.

Mr Forbes from the American Chamber of Commerce adds that the country has a history of PPPs – even if they were not termed that at the time.

They date back to the administration of the current president’s mother, Cory Aquino.

Many of these ventures have proven successful.

Cheaper alternative?

However, there could be another delay to the PPP scheme on the horizon.

Last month the new transportation secretary, Manuel Roxas said he wanted to re-examine some of the 10 key projects earmarked for PPPs.

He said it might be more cost-effective to fund some of them through official development assistance (ODA) loans from the World Bank, Asian Development Bank or foreign governments.

One of the projects due to be reviewed is the Cavite rail link, as well as the construction of several regional airports.

Mr Roxas described this new plan as a hybrid public-private partnership, because once the facilities have been built, contracts for their operation and maintenance will be auctioned off to private firms.

The ODA loans may appear cheaper than PPPs due to the low interest rates on offer.

But they have disadvantages too.

Firstly, currency fluctuations can dramatically alter the final price tag.

Projects funded by these loans also tend to take longer than PPP projects because there is no business incentive to expedite the process.

“What Secretary Roxas is talking about is what’s the cheapest option,” says John Forbes. “But I hope he will take other factors into account too.”

Ultimately, though, there’s a growing feeling that whatever the government decides to do, it should just get on and do it.

Economists are optimistic that if more money – from any source – is spent on Philippines infrastructure projects, the move would stimulate growth and attract new business.

For Veronica Uy, the sooner the Cavite projects get started, the sooner she can start spending a bit less time stuck in traffic, and a bit more time with her family.
By: Kate McGeown
Source: BBC News, Manila, Nov. 14, 2011
To view the original article, click here.

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