PPP is NOT Privatization
By Atty. Sherry Ann N. Austria*
Protests against the so-called privatization of state-owned assets, particularly government hospitals, are heating up with a wrong notion that privatization is the same as that of Public-Private Partnership (PPP). Public infrastructure delivery services are traditionally within the domain of the government. Since the government is cash-strapped, it turns to the private sector as an alternative approach to meet its massive infrastructure requirements. This strategy draws significant benefits like efficiency in service delivery, innovation, access to private capital, cost savings, among others.
The private sector involvement in the delivery of public goods or services makes PPP indisputably and confusingly similar to privatization. Despite this similarity, both concepts differ in various ways.
The vital distinction between PPP and privatization relates to ownership of an infrastructure asset or facility. When a publicly-owned asset or facility is privatized, the ownership is permanently transferred to the private sector together with the concomitant attributes thereof like operation and control. This asset or facility is viewed as better managed or owned by the private sector. However, regulatory control remains with the government. In PPP, ownership is retained by the government save in cases of Build-Own-and-Operate and Rehabilitate-Own-and-Operate contractual arrangements. In privatization, the ultimate objective is to shift the responsibilities to the private sector. This is not the case of PPP projects. Government retains ownership of the projects as well as defines the extent of private sector’s participation in a PPP project.
The government remains accountable to its citizenry for the provision of a particular service in a PPP project. In privatization, accountability to provide service is oftentimes transferred to the private sector while the public sector gets paid for selling its assets. In in the case of PPP, the private sector gets paid for delivering an asset or facility.
Another difference between PPP and privatization is on how risks are being allocated to both the government and private sector. In PPP, risks are assumed by the party that is best able to manage and assume the consequences of the risk involved. The same does not apply in a privatized asset because the private sector assumes all risks associated with the project.
The PPP Program of the Philippine government covers infrastructure projects implemented under the Build-Operate-and-Transfer (BOT) and Joint Venture (JV) contractual arrangements. BOT schemes are governed by the provisions of Republic Act 6957, as amended by Republic Act 7718, otherwise known as the BOT Law while JVs are governed by the NEDA JV Guidelines for Government-owned and/or Controlled Corporations and separate guidelines that may be adopted by different local government units. The PPP Center acts as the main implementing arm of the PPP Program.
On the other hand, the Philippine Privatization Program is governed by Proclamation No. 50 (Proclaiming and Launching a Program for the Expeditious Disposition and Privatization of Certain Government Corporations and/or the Assets Thereof, and Creating the Committee on Privatization and the Asset Privatization Thrust), as amended, and Executive Order No. 323, series of 2000, (Constituting an Inter-Agency Privatization Council and Creating a Privatization and Management Office Under the Department of Finance for the Continuing Privatization of Government Assets and Corporations). The Privatization Council serves as the central agency of the government responsible for oversight of its privatization program, with Project Monitoring Office as the one in charge for the implementation of actual marketing or disposition program of government corporations, assets and idle properties of the government.
The distinction between PPP and privatization is quite explicit: ownership. In the case of the Modernization of the Philippine Orthopedic Center (POC), this is clearly and distinctly a PPP project. What this means is that the POC is and will always remain as a government-owned hospital. It will however be built and operated by a private company who will bring in its vast expertise and resources to make POC a more reliable and efficient government hospital.
By undertaking its modernization plans through PPP, the iconic Philippine Orthopedic Center will now have a new lease on life— reenergized by the private sector’s capital and competencies. Government undertakes PPP projects to make sure that our people will get the best possible service it deserves from its government at the least cost to the Filipinos.
* Atty. Sherry Ann N. Austria is the Director of Policy Formulation, Evaluation, and Monitoring Service (PFEMS) of the PPP Center.
This article is also published in the PPP Talk, January-March 2013 Issue.
