GMA News, 29 November 2013
Healthy fiscal space and an accommodating financing environment allow elbow room to fund reconstruction.
Inquirer, 27 October 2013
PPP Center exec says other projects in the pipeline to go full blast
At least five major infrastructure projects will be completed under the public-private partnership (PPP) framework and several others likely to be in full blast of construction before President Aquino steps down from office in 2016, the chief of the governmentâ€™s PPP Center said.
Speaking during the 8th Philippine Forum organized by The Asset Magazine and the Fund Managers Association of the Philippines (FMAP) last week, PPP Center executive director Cosette Canilao said the five projects likely to be completed during this administration were Daang Hari tollroad, School Infrastructure project phases one and two, the modernization of the Philippine Orthopedic Center and the Naia Expressway.
Speaking to reporters after the forum, Canilao said itâ€™s also possible to complete the integrated transport fare collection system within Mr. Aquinoâ€™s term. â€śOnce this project is approved and rolled out, itâ€™s possible that this will be completed. Itâ€™s not too complicated,â€ť she said.
For his part, Transportation Undersecretary Rene Limcaoco said most of the infrastructure projects under his departmentâ€™s pipeline would likely take off, not just those to be bid out under the PPP framework but likewise those that would be undertaken by the government itself.
Canilao said the following projects would be at the height of construction within Mr. Aquinoâ€™s term: Light Railway Transit Line 1 extension, Mactan-Cebu International airport upgrading.
By year 2015, she said most of the big-ticket projects would be in full blast of construction while 2014 would, for some, be the year to raise funds.
Canilao is expecting the rollout of the PPP projects to be faster in these last three years of the Aquino administration, noting that â€ślessonsâ€ť had been learned from the first half of the Presidentâ€™s term.
â€śWeâ€™ve done already the setting down of the processes. Weâ€™re still improving it but the foundation is already there. During the remainder of the term, hopefully it will be faster. Weâ€™re looking at standardizing some of the bid documents so that the bidders, once they receive the drafts, they know what to expect,â€ť Canilao said.
During the forum, when asked by The Asset editor-in-chief Daniel Yu to assess the performance of the governmentâ€™s PPP program in the first three years, Canilao gave a score of six out of the highest possible score of 10. On rating his departmentâ€™s infrastructure program, Limcaoco gave a rating of five out of 10.
Canilao said the government was likewise working to amend the build-operate-transfer law to boost the PPP program for the longer haul, no longer for the current pipeline.
â€śWe donâ€™t need it (for this term) but nonetheless, weâ€™re rushing it, hoping that it will be passed by summer recess,â€ť Canilao said.
She said among the most important provisions would be to identify and set parameters for projects of â€śnational significanceâ€ť as well as to extend the mechanism for Swiss challenge, or the process of inviting counter-proposals to unsolicited projects.
Right now, rival bidders are given 60 days to make a counter offer. â€śWeâ€™re hoping for at least six months,â€ť she said.
At the same time, the amendments call for the creation of a PPP governing board and a legal framework for a PPP Center.
Flexibility is likewise sought on the contingent liability that the government can take in relation to projects in the pipeline, she said.
GMA News, 25 October 2013
Construction of 9,300 classrooms under the first phase of a public-private partnership (PPP) project of the Department of Education (DepEd) is likely to be completed by April next year, the top official of the state agency reviewing the flagship infrastructure program said Friday.
â€śThat’s the target and contractors are expected to deliver,â€ť Cosette Canilao, executive director of the PPP Center, said in an ambush interview in Bulacan province.,
The PPP for School Infrastructure Project (PSIP) Phase 1 involves the design, construction, maintenance, and financing of 9,300 classrooms in one and two-story buildings in Regions I, III and IV-A.
The 10-year contract under a build-lease-and transfer agreement also includes furniture, fixtures and toilets for 2,204 public elementary and secondary school.
The construction contract was bagged last year by two consortia: BF Corporation-Riverbanks Development Corporation, and Citicore Holdings Investment Inc.-Megawide Construction Corporation.
In a separate interview, Louie Ferrer, Megawide vice-president for Marketing and chief information officer, said some of the constructed classrooms were already being used by recipient-pupils.
On Friday, Megawide turned over 500 newly-built classrooms in Region 3 and 4-A to Education Secretary Armin Luistro.
â€śWith the help of the private sector we are confident that we can deliver our commitment to public school students,â€ť Luistro said.
According to the status report posted on the PPP website, construction of 3,200 classrooms has started, while notices to proceed for some 5,400 classrooms have been issued.
The PSIP was fielded in the PPP program two years ago to cut the public school system’s 66,800-classroom shortage as fast as possible.
Phase II of the PSIP â€“ which aims to construct 10,679 more classrooms â€“ was bagged by Megawide and Consortium of BSP & Co. Inc and Vicente T. Lao Construction this October.Â â€” DVM, GMA News
Business World, 24 October 2013
JUST FIVE public-private partnership (PPP) projects are expected to be completed by the end of Aquino administrationâ€™s term, an official yesterday said, but the infrastructure program will continue after 2016 given the groundwork that is being laid.
â€śWe will finish Daang Hari. We will finish the two school projects. We will finish the hospital. We will finish the Ninoy Aquino International Airport (NAIA) expressway … So we have five projects that will be finished in the remaining term of President [Benigno S. C.] Aquino [III],â€ť PPP Center Executive Director Cosette V. Canilao yesterday told a capital markets forum.
â€ś[The year] 2015 will be the height of construction for the projects that will be rolled out in the next few months, and whatâ€™s more important to us is to leave a very successful program to the next administration…,â€ť Ms. Canilao added.
Just four PPP projects have been awarded by the Aquino administration since it rolled out its centerpiece infrastructure program in late 2010. The P1.96-billion Daang Hari-South Luzon expressway project was the first, going to Ayala Corp. in 2011. The second, the P16.42-billion first phase of the PPP School Infrastructure Program (PSIP), was granted to two consortiums last year, while the P15.68-billion NAIA expressway and phase two of the PSIP were awarded this year.
The government is still reviewing the sole bid submitted for the P5.70-billion Philippine Orthopedic Center project.
Ronald L. Arambulo, executive director of the Information Technology and Business Process Association of the Philippines, said continuity was important to ensure the PPP programâ€™s success.
â€śWhen … you leave, you have to make sure that the next batch wonâ€™t start from zero again,â€ť Mr. Arambulo said.
Transportation Undersecretary Rene K. Limcaoco admitted that the government â€ścould have gone fasterâ€ť in the implementation of some projects, but said the process involved a â€ślearning curve.â€ť
â€śWe were starting off from scratch. When we came in, we had an empty cupboard and we basically had to start everything from scratch,â€ť he said.
But Ms. Canilao said: â€śWeâ€™re done already with setting the framework and the processes, although weâ€™re still improving it … We already have a lot of learnings from the private sector and the government so for the remaining term, hopefully, it will be faster.â€ť
The Aquino government has come under fire over the delays that have hit the PPP program. It has claimed that extensive reviews were needed to make projects foolproof, although recently prospective investors have complained of onerous contract terms.
GMA News, 22 October 2013
After the Aquino administration failed to bid out a rail rehabilitation jobâ€”the most expensive infrastructure project in the pipeline at P59.2-billionâ€”the government is scrambling to correct the doubts cast over its flagship public-private partnership (PPP) program.
Officials now acknowledge the need to shift to high gear by inserting changes in the rules and regulations concerning contracts, while the private sector waits the next invitation to bid on the Light Rail Transit Line 1 Rehabilitation project.
â€śWe have to do some structural changes on the PPP,â€ť Cosette Canilao, executive director at the PPP Center, told GMA News Online in an interview at her office.
The decades-old Build-Operate-Transfer (BOT) Law is a major problemâ€”as pointed out by the private sectorâ€”and a hindrance to the bidding process.
PPP Center wants to introduce new changes into the BOT implementing rules and regulations (IRR) by January 2014, just over a year after amended IRR was released.
â€śAn intermediate IRRâ€ť will cut the tedious multi-agency approvals needed in changing draft concession agreements of PPP projects, while the actual law amendment eyed within the current Congress is still in the works, Canilao said.
Big-ticket projects can help sustain P850 billion worth of infrastructure developments annually, which the Asian Development Bank (ADB) considers a must for the Philippines to keep growing at seven percent, attract foreign direct investments, and alleviate poverty.
But without an intermediate IRR, the PPP program seems doomed to stagnate. Revisions to concession terms willâ€”againâ€”have to be approved by an inter-agency committee before it is forwarded to President Benigno Aquino III, who has the final say.
This tedious process of amendments and approvals is what is keeping the government from bidding out the rehabilitation works on Southeast Asia’s first light rail transit, called LRT 1.
Two months ago, bidding for the LRT 1 was stunted after government received a conditional and non-compliant bid from Metro Pacific Investments Corp., the lone bidder, who went for it without partner Ayala Corp.
Three other bidders, mainly high-profile conglomerate their their foreign partners, backed out the last minute, and pointed out the expected returnsâ€”under government’s own termsâ€”will not suffice in making up for the economic and political risks the project entails.
Lessons from the past?
In an e-mail to GMA News Online, Transportation Department spokesperson Michael Arthur Sagcal noted that coming up with the terms that are mutually acceptable to both government and prospective partners from the private sector is a great hurdle.
â€śOur main challenge is balancing the interest of both government and the private sector… Not wanting to leave behind a legacy of questionable projects, we are doing our best to make sure that public money is spent wisely, prudently, and in the best interest of the people,â€ť Sagcal said.
How risks are spread is a common ground for disagreements hounding most PPP projects. In the end, concession agreements had to be revised stretching out the bidding time frame in the process.
The irony is that both the government and the private sector use the supposed lessons from past failed biddings in defending their respective positions on the matter, with the government arguing on the need for caution to avoid awarding contracts that would later be criticized as disadvantageous to the public.
Nightmares of â€śflawedâ€ť undertakings like the Metro Rail Transit 3 (MRT 3) prompt government to view contracts under a microscope and sprinkle it with stringent performance indicators the private sector must meet, said a government officialâ€”who asked not to be named due to the controversy of the subjectâ€”to GMA News Online.
A 2010 World Bank publication noted that in 1993, the Philippines accepted foreign exchange, demand, and revenue risks while guaranteeing a 15 percent return on equity for the MRT 3â€”a mass rail transit system that plys through the Metro Manila’s main thoroughfare, EDSA.
MRT 3, however, attracted lower-than-expected passengers and required billions of pesos in government subsidies. The latter had to be raised because petitions for higher fares were unapproved in the face of stiff public opposition.
The government is now mulling over a complete buy-back of the concession to avoid shelling out money for the subsidy.
Still, â€śa long list of historical contracts shown to have overly favored the private sector… should not be an excuse for their inability to reach positive deals with the private sector,â€ť noted Bank of the Philippine Islands (BPI) economists Nicholas Antonio Mapa and Emilio Neri Jr. in an e-mail to GMA News Online.
In the case of LRT 1, government stood firm on its position that real property and income tax risks should be borne by the winning bidder. As a result, companies backed out to avoid getting caught in a financial squeeze.
In an ambush interview a week after the Aug. 15 LRT 1 bidding, which was declared a failure, Ayala Corp. managing director John Eric Francia shared his fears. â€śMy concern was the risk was real from where I sit,â€ť he said.
The government has since agreed to shoulder some of the risks originally assigned to the private sector.
For what they were worth, such lessons from the past were part of the â€śbirth pains phase,â€ť said Tala Fernando, managing director at BF Corp., part of the group of consortia that bagged the P16.28-billion contract to build 9,300 classrooms for the Department of Education under the PPP initiative.
â€śBoth the government and investors are trying to find comfort levels,â€ť she noted in an e-mail, saying the disagreements with government over design and building methodology took time until these were ironed out before the project was finally awarded last year.
A major concern by the private sector is the uncertainty about whether or not future administrations would honor the contract. The fear stems from an ongoing international arbitration over the Ninoy Aquino International Airport Terminal 3 with a German contractor.
â€śThe private sector needs to be afforded a higher rate of return for possible changes in the rules of the game along the way,â€ť Mapa and Neri said.
The economists noted the private sector needs â€ścompensation for the risk that contracts will not be honored every six yearsâ€ť or when a new administration assumes office.
To address regulatory risks, including â€śany breachesâ€ť by future administrations, the government has earmarked P30 billion in next year’s budget to set up a contingent liability fund, said PPP’s Canilao.
A separate fund for feasibility studies and manuals on processes will be drafted into the proposed amendments to the BOT Law that is now being reviewed by economic managers, she said, adding that an Executive-approved bill for consideration by the 16th Congress should be out in the summer of 2014.
â€śThe institutionalization is very important,â€ť the PPP official noted.
Despite a history of â€śfailedâ€ť contracts, the institutional problem seems odd as the current PPP flow is actually viewed as one of the best in the world.
â€śThe Philippines stands out very well in setting up a PPP standard,â€ť ADB president Neeraj Jain said in a telephone interview. â€śYour ASEAN neighbors have long wanted to push for a standard PPP format and for a center handling PPPs. They have not achieved that much.â€ť
Projects under Aquino’s PPP program took no more than 18 months to reach financial closure from when invitations to bid were released. This was on a par with Canada and Australia, and deemed faster than the 22-month minimum for the UK and India to seal a deal.
â€śI cannot say in a clear-cut manner that there are delays. Yes, expectations of both private sector and government have not been met, but we know that necessary blocks are there,â€ť said Jain.
An understandable dilemma
The fear boils down to this: Not enough number of projects will be awarded while funds are there, or investors’ interest will fizzle out once the most popular president steps down less than three years from now in 2016.
â€śThe accommodative financing environment should embolden investors, both the private and public sectors to take advantage while the tap is flowing,â€ť said BPI economists Mapa and Neri.
The dilemma on the part of government is understandable, but the danger of sliding back remains a threat to infrastructure development.
â€śI understand the government’s teething problem, but it’s disappointing… I hope things don’t get pushed back again,â€ť Eduardo Francisco, president at BDO Capital Investment Corp., said in an interview.
Decades of neglect by past administrations have made simply obvious the fact that Philippines needs to improve its decrepit infrastructure, and the clamor is there to pursue that path of development.
â€śWe’re willing to finance, but there are no projects to bid for now,â€ť Francisco said.
From the current pipeline of at least 47, only four projects worth a combined P43 billion were actually awarded three-years after the program was unveiled. 12 of the proposed projects were in advanced-approval stagesâ€”and likely to be awarded during Aquino’s term.
â€śIn a fight or flight situation, we choose to fight despite bruises from criticisms, because we believe that what we do will change the way the government does business,â€ť PPP Center’s Canilao said. â€“ VS/VC, GMA News
Business World, 24 September 2013
THE GOVERNMENT is looking to entice a new group of players — insurers — to join its vaunted public-private partnership (PPP) program.
â€śWe have to develop infrastructure as an asset class that market players can invest in,â€ť Finance Secretary Cesar V. Purisima said following last weekâ€™s government briefing on the economy.
â€śThis is why we have been working to boost the capitalization of insurance companies, because their money is the better match for infrastructure projects,â€ť Mr. Purisima added.
While the insurance sector has held key roles in funding infrastructure development in other countries, here it is still not the first choice among project proponents. Those who may be interested, meanwhile, have no formal system to find partners.
Industry officials noted that they need investments to park the premiums they collect.
Rizalina G. Mantaring, president and chief executive of Sun Life of Canada (Philippines), Inc., estimated that the average liability duration of insurers is 19 years. The average duration of assets like stocks and bonds, however, is only 10 years.
Big-ticket infrastructure projects like toll roads, railways and airports, in contrast, are constructed, developed and operated over much longer terms.
The Organization for Economic Cooperation and Development calls insurance money â€śpatient capitalâ€ť. It warned in a June 2013 paper that the financial system was running short of such in the wake of the 2008 global crisis.
Michael T. Rodriguez, Macquarie Infrastructure and Real Assets managing director, painted a different problem in the Philippines. â€śThere is so much wealth in the economy right now, but there is nowhere to put it. That is why the money keeps going to the short-term market which is more volatile,â€ť he said.
Sun Life, the countryâ€™s largest insurer, amassed P20.06 billion in premium income in 2012 alone. â€śWe are actively looking at PPP projects right now, since they can offer the better yield and duration for us,â€ť Ms. Mantaring said.
â€śIn Canada, Sun Life is the biggest individual investor in infrastructure programs.â€ť
Despite the money on offer, Ms. Mantaring said Sun Life was having difficulty attracting proponents of infrastructure projects.
â€śBanks are thought of more naturally when people think of loans or funding,â€ť she noted.
Some project proponents also look to the debt markets but the long-term bonds they issue typically have a tenor of 10 to 15 years since investors donâ€™t have the appetite for anything longer. Insurers can lock up funds for 20, even 25 years, she said.
Mr. Purisima said one way of bringing insurers into the PPP program was to issue infrastructure-linked bonds, which are currently being considered by the government.
PPP Center Executive Director Cosette V. Canilao said that over the next two to three years, the government could issue the long-term bonds and allow insurers purchase the bulk. The proceeds will be used to finance projects.
Ms. Canilao also urged investment banks to arrange infrastructure project bonds.
â€śLocal banks will commonly lend for 12-15 years, so there will be refinancing risks for the project proponents. Investment banks should tap insurers to make sure there are no refinancing risks. On the fifth or seventh year of a project when cash flows stabilize, they can issue project bonds,â€ť she said.
Antonio G. de Rosas, president and chief executive of Pru Life UK — the countryâ€™s second-largest insurer with P15.59 billion in premium income last year — said investment banks could arrange and underwrite the bonds and then invite insurers to the primary offer.
Until then, insurers are working by themselves to meet project proponents and offer their funding. â€śHere there appears to be no interestâ€ť in bringing the two parties together, Ms. Mantaring said.
â€śPerhaps the government can help by more actively working with insurance companies when projects are bid out to put them together with interested bidders,â€ť she added.
Ms. Canilao offered: â€śWe have held infrastructure summits. We are also thinking of holding some sort of networking and business-matching event. We will keep in mind the Insurance Commission and insurers.â€ť
Mr. de Rosas was more optimistic, saying: â€śAs more and more projects are approved, credit arrangers will get around to requesting funding requirements not only from banks but also from insurance companies.â€ť
Business Mirror, 7 September 2013
THE Public-Private Partnership (PPP) Center is eyeing to roll out around seven more PPP projects before the end of 2013.
Rolling out PPPs, according to the PPP Center, involves the publication of the Invitation to Prequalify to Bid. This means that the PPPs have already been designed and passed the evaluation process of concerned government agencies.
In a briefing on Friday, PPP Center Executive Director Cosette Canilao said these projects are either being evaluated by the National Economic and Development Authority through the Investment Coordination Committee (ICC) or will be submitted to the ICC for evaluation.
Canilao said these projects include the Integrated Transport System (ITS) Project, Grains Central Project, the New Centennial Water Supply Source Project and Bulacan Bulk Water Supply Project, which are currently undergoing evaluation.
She added the list includes the Enhanced Operation and Maintenance of the New Bohol (Panglao) Airport, Operation and Maintenance of the Laguindingan Airport and the regional prison facilities project of the Bureau of Corrections (BuCor).
The P5.06-billion-worth ITS involves the establishment of three mass-transportation intermodal terminals at the outskirts of Metro Manila. Two terminals in the South of Metro Manila will serve passengers to and from Laguna/Batangas side and those to and from the Cavite side and another one will serve passengers north of the city.
The P285-million-worth Grains Central Project involves the rehabilitation, upgrading, expansion and operation and management of 11 existing Post-Harvest Processing and Trading Centers.
These are currently managed and operated by the National Agribusiness Corp.Â located in different regions in Luzon and Mindanao.
The New Centennial Water Supply Source Project, whose cost has yet to be determined, involves the building of potential dams; head works and appurtenant facilities; conveyance structure from the diversion point to the water-treatment facility; water- treatment facility; and hydropower facility.
The Bulacan Bulk Water Supply Project involves the construction of treated water transmission mains, including line appurtenances from water treatment plants (WTPs) to the agreed delivery/interconnection points of the municipalities.
It will also construct WTPs and ancillary facilities; treated water reservoirs; pumping stations; installation of flow metering devices after the WTPs, pumping stations, transmission branch points and at the agreed delivery/interconnection points; and installation of appropriate pressure monitoring stations.
The Panglao airport project involves the operation and maintenance of the greenfield airport facility in Bohol to replace the existing Tagbilaran Airport within a 230-hectare spread.
The planned facility to be constructed by the Department of Transportation and Communications (DOTC) is designed primarily to meet the initial requirements for domestic flight operations and possibly accommodate international flights during off-peak hours/nighttime.
The Laguindingan airport project involves only the operation and maintenance of the airport in Misamis Oriental. The DOTC is constructing the new airport in Misamis Oriental as well as airside civil works (runways, apron, taxiway, etc.) and air navigational facilities.
The DOTC is also undertaking landside building works and terminals (passenger and cargo terminals and other associated facilities) and all other facilities as per international Civil Action Organization standards.
The BuCor project aims to address the dire jail conditions faced by existing penal facilities such as the New Bilibid Prison and the Correctional Institution for Women.
The Department of Justice and BuCor envisions to create a â€śhumaneâ€ť prison condition that will provide adequate living spaces, facilities and basic needs aimed to curt the occurrence of crimes while in custody.