PPP: Government guarantees and the “Public-Private Plunder” of the economy

Posted: November 18, 2010 in Socio-Political
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Today the Aquino government will be hosting the Infrastructure Philippines conference which aims to jumpstart the Public-Private Partnership (PPP) program of the government. The conference will be held at the Marriot Hotel in Pasay. The PPP is just a repackaging of the discredit “privatization” policies of previous regimes.

Based on the website www.ppp.gov.ph, the conference aims to boost the PPP program of the Aquino administration by giving incentives to potential foreign investors. Many of the conference speakers are representatives of foreign banks and multilateral lending institutions like the Asian Development Bank, World Bank, Japan Bank for International Cooperation, HSBC, Standard Chartered Bank among others.

During his State of the Nation Address, Mr. Aquino hailed the PPP as a creative or innovative way of getting projects done even if government is facing a gargantuan budget deficit (which may reach P325 billion by yearend). He even cited leasing the facilities of the Philippine Navy Headquarters in Roxas Boulevard so that government can get P100 billion for the modernization of the Navy. The headquarters meanwhile will be relocated to Camp Aguinaldo in Edsa, quite far away from any body of water.

During his trip to the US and Japan, Mr. Aquino also sought foreign investors for his PPP projects. In his speech at the Council on Foreign Relations in the US, Aquino said that the Philippine was “wide open” for investments “particularly in tourism, business process outsourcing, mining, electronics, housing and agricultural sectors”.  In the same speech, he announced that there are 10 initial PPP projects amounting to some $4.5 billion (Aquino speech on CFR, US). Recently, the government unveiled its list of 10 PPP projects as:

Tourism Projects                                                                                              Cost

-MRT-LRT expansion                                                                                      US$1.56 billion

-LRT Line 2 East extension                                                                            US$251.10 million

-Puerto Prinsesa (Palawan) airport                                                          US$96.93 million

-new Bohol Airport                                                                                         US$167.62 million

Agri-business

Kabulnan-2 Multipurpose Irrigation and Power Project                 US$319.40 million

-Logistics Support on Agri-Fishery Products Supply Chain                               US$33.33 million

Renewable Energy

-Wind Farm Power Project                                                                          US$125 million

-Northwind Pamplona Project                                                                   US$75 million

-Northwind Appari Project                                                                          US$100 million

The 10 projects are part of the 83 infrastructure projects lined up until 2015. These projects are reportedly worth P740 billion. Of the 83, 43 projects worth P348.5 billion are in the power sector. (Bayan discussion guide).

Government guarantees

To attract investors, the Philippine government has prepared incentives and other conditions that would guarantee foreign firms their profits.

Under the new PPP program, the Aquino government is willing, “on a case-to-case basis, to protect investors from certain regulatory risk events such as court orders or decisions by regulatory agencies which prevent investors from adjusting tariffs to contractually agreed levels. Such regulatory risk insurance could take the form of make-up payments from the government to PPP investors, other guaranteed payments, and adjustments to contract terms.”

So if the Supreme Court issues a TRO on a toll fee hike of a private toll operator, the government will end up paying the toll way operator for its “losses”.

The “insurance” from the government covers court orders or decisions, issuances of regulatory bodies (ERC, TRB, MWSS etc), and even legislation. In one fell swoop, the executive renders all these institutions and agencies useless. Consumers, who are also taxpayers, will still end up paying the private operators. Such an arrangement is a surefire way to pile up public debt.

Not long ago, the Philippine guaranteed the profits of Independent Power Producers during the Ramos administration. The onerous “take-or-pay” provisions, where IPPs are assured of payment whether or not their plants go on-line, resulted in skyrocketing power rates and saddled the state-run Napocor with billions of debt. This became the infamous Purchased Power Adjustment or PPA. Meanwhile, the private investors of the MRT were also given sovereign guarantees on their loans as well as a guaranteed return on investment of up to 15%. The government ended up in debt as it tried to pay its obligations to the private operator.

The Aquino government clarified that such a guarantee will only be made available on a “case to case basis” and that there will be no guarantees for commercial risks, no take-or-pay provisions in the new PPP. Finance Secretary Cesar Purisima was saying they want to break with the past practices.

Secretary Rick Carandang meanwhile was quoted as saying that Leftist critics of the PPP have done nothing but “oppose and oppose”. He said:

“They (critics) are concerned that it will lead to more debt but let’s take a look at what the debt to GDP ratio is going to be at the end of all of this. Let’s take a look at what the debt servicing ratio is gonna be at the end of all this. Let’s take a look at what kind of projects, what kind of infrastructure we’re going to be able to build at the end of all this and then we’ll know if it was worth it,”

Well, we shall take up Sec. Carandang on his challenge. We doubt it if Sec. Carandang can guarantee that debt spending will not go up after this PPP spree. Yes we will have tangible projects, as we did have the IPP’s and the MRT during the Ramos administration. In some cases, it will probably be some time before the negative effects will be felt. The IPP contracts were entered into in 1990’s but the outrage over the PPA erupted only during the following decade. Almost a decade passed before the government decided to drastically increase the MRT fares (which are set to take effect next month).

The Aquino government has said that guarantees or incentives are necessary to attract investors. Private investors need protection from certain risks, says the government. But who will protect consumers from the risk of high prices and mounting debt if the authority of regulatory bodies, the courts and congress can be circumvented by private firms armed with government guarantees?

Can we build infrastructure without the aid of foreign investments? Yes we can, but it would take a restructuring of the economy in favor of addressing people’s needs rather than global market demands. It would require government investing in basic and heavy industries and encouraging national industrialization to address basic needs and promote stable employment. It would require land reform which will increase purchasing power in the countryside and stimulate domestic consumption. It will involve an economic outlook that fosters self-reliance and sovereignty and allows the domestic accumulation of wealth, rather than the repatriation of profits. It cannot be achieved overnight but when it happens, there will be balanced growth and the people will not be left behind in “progress”.

No, we don’t just “oppose and oppose”. Ours is an economic alternative to privatization, liberalization, deregulation and unbridled profiteering. ###

P.S. – The PPP Cabinet:  A review of the cabinet appointments of Pres. Aquino will show us several representatives of big business strategically positioned in departments that would take on PPP projects. Many of the PPP projects are in tourism, transportation, public works and energy. Could it be mere coincidence that the secretaries of these departments all come from big business? Could there be potential conflicts of interest?

Tourism Secretary Alberto Lim was the Executive Director the Makati Business Club. Energy Secretary Jose Rene Almendras was the former president of the Ayala-owned Manila Water. DPWH Secretary  Rogeliio Singson was former president of Maynilad, a company conncected with DM Consunji. Transportation and Communications secretary Jose “Ping” de Jesus was the former president and chief operating officer of electricity distributor Meralco and also former PLDT executive vice president.

Appointees like Singson and De Jesus may have conflict of interest issues. Singson was connected with DM Consunji Inc., one of the biggest construction firms in the country and which has lucrative infrastructure contracts with government. DOTC’s De Jesus on the other hand, being a former executive vice president of PLDT, may find himself in a similar conflict of interest situation when dealing with his former employer.

Similarly, DOE’s Almendras will have to deal with his former employers in the Ayala Corporation since the company is also interested investing in the energy sector. News reports say that Ayala is keen in investing in renewable energy and had also partnered with Metro Pacific in a previous attempt to acquire the Angat power plant. Almendras will also have to deal with his former employers in Aboitiz and Co. which is considered one of the biggest firms investing in power generation and distribution in the Visayas and Mindanao.

Business with government is made so much easier when representatives of big business are running the government, as if it were a business. In the 70’s, they called it “bureaucrat captalism”. ###

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