MANILA, Philippines – The government is working on the guidelines for hybrid public-private partnership (PPP) projects that would provide for the use of government-to-government financing and private sector management of operations, PPP Center executive director Ferdinand Pecson said yesterday.

A technical working group composed of the PPP Center, National Economic and Development Authority (NEDA), Department of Finance (DOF), Department of Budget and Management (DBM), private sector representatives and implementing agencies would be formed to create the guidelines.

“The group will review the possibility of having a combination of traditional procurement and procurement under the BOT law in which the construction would be financed through soft loans while operations and maintenance would be under PPP,” said Pecson in a briefing yesterday. “We hope to convene this group as soon as we start the new year.”

He said it would take at least three months to formulate the guidelines, which would have to be approved by the NEDA-Investment Coordination Committee (ICC).

This new modality in the country’s PPP program is considered in line with the strengthening of the country’s economic ties with China – entailing massive investment pledges in infrastructure from Chinese firms – and the ratification of the Philippine’s membership in the Beijing-led Asian Infrastructure Investment Bank (AIIB) that creates a new source of funding for projects.

Pecson said pursuing a hybrid mode of procurement would enable the government to build cheaper as loans provided through official development assistance (ODA) between governments as well as those extended by mutilateral lenders bear lower interest rates. At the same time, it can take advantage of the expertise of the private sector in operations, management and maintenance.

The pivot in the country’s foreign policy to strengthen ties with China, said Pecson, is one of the main drivers of change in the country’s PPP program among others.

“We are now looking at a number of infrastructure projects that can be supported by China and also through the AIIB,” said Pecson.

President Duterte came home from his official visit to China in October bearing around $24 billion worth of funding and investment pledges for transportation, infrastructure, power and agriculture, among others.

This also included a $3 billion credit line for small and medium enterprises from the Bank of China.

The two countries also signed 13 MOUs on various areas of cooperation covering agriculture, energy, infrastructure and ICT.

NEDA is now working on a list of more than 30 infrastructure projects proposed for funding by China through Chinese loans. To protect the quality of investments flowing into the country, it has designated its Investment Coordination Committee (ICC) as the clearing house for Chinese investments.

Socioeconomic Planning Secretary Ernesto Pernia said countries like Japan and Korea are also scouting for projects to invest in. The Philippines, he said, has received assurances of continued support from Japan-led Asian Development Bank and US-led World Bank in its massive infrastructure push.

“But it does not mean that every PPP project from now on would be following this model,” said Pecson.

“We are looking at this in its totality from financing to operations and maintenance. If it turns out that the government is better off constructing the infrastructure using financing from soft loans with lower interest rates, we would pursue this,” he added.

Projects in the pipeline, whose financing have not yet been finalized may reviewed for inclusion in the hybrid mode of procurement. Projects that are already under procurement would proceed as PPP projects.

Pursuing a hybrid PPP projects may seem like a more economical option in terms of financing but it also comes with a caveat.

For instance, countries providing ODAs may set conditions favoring their own companies in undertaking the contracts for operations and maintenance or as suppliers during the construction phase of the project.

“That is why we have to look at the totality and that is for the government to decide if it will accept the conditions or not,” said Pecson. “We’ve seen those (conditions laid down) before.”

17 December 2016
By Czeriza Valencia