Copyright Inspiratia 2012 | All rights reserved 

By Ila Halai
Permission to publish granted to PPP Center by Inspiratia

The Philippines is a key Asian PPP market that has frustrated foreign players with its complexities, but the Aquino administration looks set to change this…

The Philippines track record of partnering with the private sector can be traced back to the 1990s when legislation was enacted to facilitate BOT projects. However, the Asian financial crisis combined with corruption, government inexperience, inconsistency as well as notable project failures severely impacted its ability to deliver infrastructure projects through PPP.

Previous governments have attempted to entice private capital into the country since the 2000s, encouraging investments into the power generation and transmission sectors, but the PPP model failed to gain traction.

That was until Benigno Aquino was elected as president in 2010 and set about validating the administration’s enthusiasm and commitment to the PPP model.

Since then, the president has aggressively driven an agenda that includes a new legal framework that was combined with the existing BOT law, set up a PPP Centre with experienced representatives and announced a fresh pipeline of projects. An important point to note about the PPP law is that contracts cannot exceed 50 years.

The BOT law allows for the government to process unsolicited proposals but it is the solicited proposals that will be actively promoted.

Most importantly, the Aquino administration has expressed a desire to overcome past problems that range from land acquisition to cost sharing and regulatory risks.

A new PPP programme announced in November 2011 is open to both domestic and foreign players with the realisation that while the country has a strong local banking and construction market – it is not adequate in the long-run.

The Philippine Government recognises the essential role of the private sector for national growth and development.

To provide a long-term fund structure to sustain and further promote PPP in the country, the government – together with various multilateral organisations (MOs) – established the Philippine Infrastructure Development Fund (PIDF) in 2010.

The projects

One of the mistakes many countries make is rolling out large, one-off deals when trying to encourage foreign players. An over-ambitious project or pipeline is bound to make them nervous in an emerging PPP market.

When looking across Asia – not including India – a few projects have been discussed, but most countries have failed to lay out a comprehensive pipeline. That has been one of the great criticisms the infrastructure sector has had about the region: lack of pipeline for companies to commit to.

While there are some interesting opportunities in the Philippines, the key is going to be making sure that a credible programme is in place as well as sticking to timelines – a problem that plagued many of the earlier deals.

Once a market starts losing credibility, it is hard to win it back – and this is all the more challenging for the Philippines as it is not the first time the country has attempted to use the PPP model.

The Philippines has so far come out with a sensible pipeline of deals, a good mixture of smaller deals to start with – moving onto larger ones going forward.

Projects at various stages (awarded, in procurement and announced) are:
♦  DaangHari – SLEX Link Road BOT, awarded to Ayala Corporation
♦  PPP for School Infrastructure Project (PSIP) BLT, awarded to comprising
consortium Citicore Holdings Investment, Megawide Construction, and BF Corp.-
Riverbanks Development
♦  Manila LRT Line 1 South Extension Project BTO, in procurement 
♦  Ninoy Aquino International Airport (NAIA) Expressway project, in procurement [News Story]
♦  Modernisation of the Philippine Orthopedic Center (MPOC) BTO, tender due
♦  Vaccine Self-Sufficiency Project Phase II (VSSPII) BOT, awaiting approval
♦  CALA Expressway (Cavite and Laguna Side) BTO, awaiting approval
♦  NLEX-SLEX Connector Road BOT, awaiting approval
♦  Angat Hydro Electric Power Plant (AHEPP) Auxilliary Turbines 4 & 5 ROT, awaiting approval
♦  Automatic Fare Collection System (AFCS) BOO, awaiting approval
♦  Mactan-Cebu International Airport Passenger Terminal Building (MCIA) BROT, awaiting
♦  New Bohol (Panglao) Airport, finalisation of project structure
♦  Laguindingan Airport, finalisation of project structure
♦  Talisay City Plaza Complex Heritage Restoration and Redevelopment,
finalisation of project structure
♦  Puerto Princesa Airport, preparation of feasibility study
♦  Manila LRT Line 2, preparation of feasibility study

While 2 projects have been awarded under this new programme, the biggest test will be the LRT project in Manila. The schools and road projects were awarded to domestic players simply because there was no scope for foreign players to get involved.

The Manila LRT has a number of technical complexities that will require foreign expertise though so far the project has failed to stick to its timeline – with the bid deadline delayed twice. The Department of Transportation and Communications (DOTC) has extended the deadline to allow more private firms to submit requisite documents and pre-qualify.

The deadline for the NAIA Expressway has also been delayed, though the following firms have already expressed interest:

♦  San Migual Corporation
♦  DM Consunji
♦  Macquarie Capital Securities
♦  EGIS Projects
♦  Metro Pacific Tollways
♦  M/S IL & FS Transportation Network
♦  Ayala
♦  Megawide Construction
♦  EEI
♦  Alloy MTD Phils
♦  DAELIM Philippines
♦  JE Manalo Construction
♦  CM Pancho Construction

Foreign players

It is an obvious consequence that if all projects end up going to local players, it will discourage foreign infrastructure players from bidding on projects.

But with more foreign players active in the country, opportunities will open up to non-national advisory firms. International advisers are needed to lend credibility to the process as it will result in the private sector seeing a sensible set of documents and risk allocations.

Transaction advisers that have been pre-qualified under ADB procurement guidelines to conduct pre-investment studies include:

♦   Allen & Overy
♦   Allens Arthur Robinson
♦   Arup
♦   Ashurst
♦   Deloitte
♦   Ernst & Young
♦   Grant Thornton
♦   Hill International
♦   Hogan Lovells
♦   KPMG
♦   Minter Ellison
♦   Mott MacDonald
♦   Pinsent Masons
♦   PwC
♦   Royal Haskoning
♦   Société Générale

Ultimately there will be a role for foreign banks. One of the challenges that international lenders face is that a lot of the domestic banks are strong. Not only do they have liquidity, they are hiring experienced people and actively developing project finance teams.

However, the domestic banks will soon hit their exposure limits and when this happens alternative funding sources will have to be identified..

The main challenge facing foreign banks will be whether they can fund in Philippine pesos, so solutions will need to be found to do so.

Multilaterals like ADB and the IFC are already active in the Philippines alongside ECAs like Kexim and JBIC. Just this week [3 October], the ADB said it would be willing to extend more funds for the pre-feasibility studies of PPP projects.

In the short-term, this may not help the foreign banks; but it will help the Philippines to diversify its funding mechanisms.

However, investors are showing signs of commitment to investing in infrastructure. Macquarie this year closed the first infrastructure fund dedicated to infrastructure in the region – raising US$625 million (£388m €484m) for its Philippine Investment Alliance for Infrastructure.

Other investors in the fund included the:

♦   Government Service Insurance System – Filipino pension fund
♦   APG – Dutch pension fund asset manager
♦   Asian Development Bank

The fund’s mandate is to invest equity and equity-link instruments directly in infrastructure projects in sectors like transport, renewable energy and telecoms.


The current PPP programme in the Philippines is championed by the president who is serving a 6-year term. The building blocks are in place and the country is carefully considering projects before announcing them – rather than wheeling them out on an ad hoc basis.

The challenge now is can they deliver? The current administration has put together a robust framework so there is legislative back-up to the PPP programme and a PPP Centre which is taking an active role in coordinating the process.

There has been a slight reset as of 2010. The Macro story in the Philippines is encouraging in terms of GDP and there has been a positive reaction from the private sector about the approach of the government to addressing corruption issues.

This time the government has the chance to recalibrate the market view, but ultimately there are only so many times one country can reset so caution based on experiences is the norm.

There are still issues surrounding land acquisition where previous projects have been built, however the government is working on this.

There are shifting sands in the Philippines, but there are also opportunities with immediate prospects for strong contractors, O&M and technology providers.

As is the case with any new market, a strong local partner helps and there are domestic players that have a good understanding of infrastructure and are seeking more depth for the large-scale projects.

In the early stages, it is a good way to get a foot in the door but a sensible way to go forward.

Politics is interlinked with PPP programmes and there are still questions about whether the programme will survive with the current administration only to fall with the next government. For now, Aquino has a few more years to ensure the current programme is well progressed