Lessons on PDMF Implementation
Contrary to popular belief, there is no shortage of private sector funding for infrastructure development. The private sector maintains that availability of private capital is not the challenge, but rather the dearth of well-prepared and bankable investment opportunities.
Cognizant of this constraint, the Government of the Philippines established the Project Development and Monitoring Facility (PDMF), a project preparation facility for public-private partnership (PPP) projects. The PDMF facilitates development of well-prepared and, bankable PPP projects by engaging experienced and internationally-recognized project preparation and transaction support consultants. The PDMF is a revolving fund that initially shoulders the cost of consulting services for PPP projects. Upon successful PPP tendering, the winning private proponent reimburses/pays the actual cost of consulting services plus a fixed percentage cost recovery fee.
Since its creation in September 2010 through President Aquino’s Executive Order No. 10 until June 2016, the PDMF has successfully facilitated roll-out of PPP projects. Out of the 12 awarded PPP projects, nine projects valued at USD 2.35 billion that have been developed and successfully tendered with PDMF support.
The PDMF has also enhanced private sector confidence in the PPP Program. The credible pipeline of PPP projects, which are mostly PDMF-supported, encouraged not only local players but also international investors to participate in the PPP tendering process.
Despite the gains made possible by the PDMF, a number of projects that are prepared have yet to be rolled out. Implementation of said PDMF-supported projects was affected by changes in project design and scope; limited absorptive capacity of implementing agencies; delays in project implementation; and change in administration, among others.
There are key lessons learned in the implementation of the PDMF that will help enable practitioners to gain insights that can be applied to enhance performance of similar project preparation facilities and avoid “reinventing the wheel”.
It is critical that funding for a PPP project preparation facility be complemented with a program-based capacity building initiative to strengthen government’s ability to successfully develop and implement PPPs, and to pursue improvements in the PPP policy, legal, and regulatory framework. There is an increased likelihood of PDMF-supported projects in the PPP portfolio being successfully tendered and implemented if there is private sector confidence in the PPP investment environment.
The perceived moral hazard associated with a bundled contracting approach (i.e., single contract covering conduct of feasibility study, transaction structuring, support in obtaining government approvals, preparation of bidding documents, management of the bidding process, and support in obtaining financial close) can be addressed by incorporating safety nets such as creation of an entity responsible for reviewing consultants’ deliverables and establishment of “borders” in the contract. Since the consultant/advisor has an inherent commercial interest to undertake all tasks, there is a tendency that viability will be justified to enable consulting services to proceed to next stages.
Considering that the current performance of the consultants is expected to have a significant impact on future consulting opportunities, the perceived moral hazard posed by having a single contract is minimized. Future business opportunities are considered important incentives for the firms to align behavioral response to the interest of the government (i.e., ensure completion of well-structured PPP projects).
Based on experience, adopting a bundled approach is considered better than having multiple contracts in terms of timing (consultant selection and completion of required consulting tasks is expected to be faster), cost (consulting contract value for a bundled contract is expected to be lower), contract management (easier coordination with the consultant due to single point responsibility), and interface risk (multiple contracts tend to involve validation of the findings of the previous phase).
It is also significant to take note that ownership and commitment of implementing agencies (IA) is important in achieving optimal impact of PDMF. To facilitate timely and successful tendering of PDMF-supported PPP projects, engagement with all concerned decision-makers at the outset, including GOCC Board members (if applicable), needs to be undertaken. To strengthen IA ownership and commitment, consultative/participatory rounds of review and revisions is indispensable.
We also need strong project management capacity of the government, particularly in implementing agencies, to ensure expeditious project development process and successful tendering and implementation of PDMF-supported projects. Even if PDMF-funded consultants/advisors will conduct pre-investment studies, prepare transaction documents and help manage the bidding process, inadequate IA capability to manage a growing number of PDMF-supported projects combined with high staff turnover and declining support for the project associated with political cycles caused disruptions and created considerable inefficiencies in PPP transactions. The IAs need to recognize that delivering a few good examples of successful PPP projects within a reasonable time, rather than focusing on quantity of projects, is a more effective strategy to encourage private sector interest.
The drafting of the terms of reference (TOR) is also critical to address scope-related issues and avoid dispute with the consultants/advisors. TOR for consulting services should be very clearly formulated and that the expectations are properly managed. Those managing or supervising consulting assignments are frequently different individuals from those who were involved in the development of the TOR. The project documents need to be self-explanatory, as much as possible.
We also need to recognize the uniqueness of each PPP project. Pursuing succeeding phases of a project previously supported by PDMF does not necessarily mean that less PDMF resources will be needed even if there are seemingly minor changes on contract mode (e.g., BLT to BT) or technical elements. Careful review of the timeline and cost should be undertaken to ensure adequacy and appropriateness of PDMF support.
Lastly, to foster sustainability given the growing demand for support in PPP project preparation, the PDMF should only high priority projects or those which can transcend administrations. Otherwise, there is a risk that even those projects with ongoing PDMF support may not be pursued due to new priorities of the new administration. A change in leadership even at the implementing agency level will have a significant impact not only on the continuity of a PPP project but also on the level of support and commitment to the PPP Program.
RINA P. ALZATE
Former Director of Project Development and Monitoring Facility Service
