The Quest for an Elusive Development Framework

After unveiling his strategy for unblocking investments in public infrastructure, the policy statement of PNoy was drawing flak from all sides. The statement concerned his proposed method for mitigating regulatory risk which was to compensate private investors for any losses caused by legal or congressional action preventing them from charging fees in accordance with their agreements with the government.

This was the statement of Rep Edcel Lagman leader of the opposition in the house:

Government contracts are not inordinately sacrosanct so as to be immune from judicial review by the Supreme Court and police power legislation by the Congress. It is beyond presidential prerogative to shield contracts from final court judgments and valid legislative enactments.

Recalling perhaps the power purchase adjustments that gave power generators the right to charge unmet demand to power users after the Asian Financial Crisis, party-list member Rafael Mariano issued this statement:

It’s hogwash … just a tweak [of the] past administration’s marketing sell-out strategy at the expense of the Filipino people.

The problem with the president’s policy statement goes even beyond these issues alone. Most of these projects have a life of between 15 to 30 years. His administration will only last for the next five and a half. Given the amount of time devoted to the pre-feasibility phase all the way to construction, most of these might still be in the pipeline when PNoy steps down. So even assuming that it is able to defy the two other branches of government, how can it guarantee protection for private investors for the remainder of these projects’ lives?

Second, since the public projects being listed for private participation is based on the principle of user pay per use, they are entirely dependent on the ability to charge an appropriate fee. The fact that many projects such as the Metro Light Rail Transit and Southern Expressway have not been able to do so puts into question the business case that justifies the investment in the first place. In other words, the market for such goods cannot clear at the prices desired by the buyers and sellers.

This puts into question the project feasibility assessment process. All sorts of regulatory and administrative risk factors have to be priced into the project cost. If the government cannot justify them in this manner then it should not put it up for investment to begin with.

On the other hand, if the government sees the need to subsidize these projects in the long run based on some notion of public benefit, then it ought to build projections of its future obligations in forward multi-year budget estimates so that they can be subjected to congressional scrutiny. Such transparency is still missing.

Third, the 10 or so projects in roads, rail, and airports being characterized as “shovel ready” to be bid out next year are in metropolitan centers. The jobs to be generated during their construction are going to be centered there. If the PPP’s are meant to be the engine for development, then it appears to be development highly skewed in favor of city residents.

The problem of joblessness in the countryside won’t be addressed, not in the immediate future at least, not with the initial list of projects. If ever, it will lead to greater migration flows from the rural places to the cities. Somehow, what gets lost in all of this is a development framework wherein the needs of public investment are prioritized based on some holistic model of sustainability.

Despite all this, investor appetite seems to be there. One cannot discount the legitimacy issue that hounded the Arroyo regime which has now been effectively dealt with by a smooth transfer of power. PNoy is right to strike when the iron is hot. Conditions in the global village do support his thrust in leveraging private investment for public use.

Perhaps instead of searching for some quixotic fix to deal with all the bottle necks to our development, we need to take a long hard look at the system as a whole. I am not advocating a shift to a parliamentary system, although that would deal with the problem of congressional oversight since the executive and legislative branches would speak as one. What I am advocating is a roots to branch rethink of our assessment process.

A framework is still lacking in the PPP program. It needs to be more clearly articulated to the public. Beyond that, a strategy for bringing more equitable public and private investments in areas where they are sorely needed, such as in innovation, regional and rural development and natural and environmental conservation, remains elusive.

Doy Santos aka The Cusp

Doy Santos is an international development consultant who shuttles between Australia and the Philippines. He maintains a blog called The Cusp: A discussion of new thinking, new schools of thought and fresh ideas on public policy (www.thecusponline.org) and tweets as @thecusponline. He holds a Master in Development Economics from the University of the Philippines and an MS in Public Policy from Carnegie Mellon University.

  • UPnnGrad

    Malacanang terminates a contract with a Belgian Company after the PPP-rah-rah talk. Cool!

    —————–
    STA. CRUZ, Laguna—The Belgian firm that was awarded the dredging contract of the Laguna de Bay said it would pursue an international arbitration upon receipt of a formal notice of cancellation, after the Philippine government issued a press statement that the P18-billion Laguna Lake Rehabilitation Project was terminated.

    …a senior official from the Belgian embassy in the Philippines would also recommend to the Belgian government and to the European community “to suspend all investments in the Philippines, as it is an unreliable and unprofessional country to do business with.”

    http://newsinfo.inquirer.net/inquirerheadlines/nation/view/20101122-304603/Belgian-firm-in-lake-rehab-to-seek-intl-arbitration

  • UPnnGrad

    ON THE OTHER HAND…. it is good for Pinoys-in-Pinas the regular citizens to get agitated by the Malacanang photo-ops and “daylight summits” concerning, well, projects of national concerns.

    BUT these one- or 2-day photo-op meetings are very focused. For example, during the PPP show-and-tell, not a word about more public schools nor rice-self-sufficiency was mentioned (though Noynoy will of course take opportunity to showcase (in a negative light) the GMA administration).

    Pinoys in Pinas, heh heh heh, should be more trusting both of Malacanang (the one they elected and the inner-circle that Noynoy brought with him) as well as the senators and congressmen of their choice.

  • UPnnGrad

    ON THE OTHER HAND…. it is good for Pinoys-in-Pinas the regular citizens to get agitated by the Malacanang photo-ops and “daylight summits” concerning, well, projects of national concerns.

    BUT these one- or 2-day photo-op meetings are very focused. For example, during the PPP show-and-tell, not a word about more public schools nor rice-self-sufficiency was mentioned (though Noynoy will of course take opportunity to showcase (in a negative light) the GMA administration).

    Pinoys in Pinas, heh heh heh, should be more trusting both of Malacanang (the one they elected and the inner-circle that Noynoy brought with him) as well as the senators and congressmen of their choice.

  • It’s a trust issue. There have been scores of investments and infrastructure projects like the South Luzon-Star Toll connection which links Batangas and Manila that hasn’t gone online even when the site is ready for use. Apparently, there is a legal impediment— the contractors naturally need to get paid, and so a toll increase is required. The toll increase is being questioned. The skyway is another. MRT faced a similar thing. NAIA-3 shares similarities to these projects. When the Filipinos don’t want to pay up, how can an investor come in and do business? It is this wishy-washy thing at the end of the deal that screws both investor and the public.It is this that Aquino needs to fix and set in stone. If it takes a law to ensure that all these things are crystal clear, it should be done first.

    -Cocoy

    • Bert

      “When the Filipinos don’t want to pay up, how can an investor come in and do business? It is this wishy-washy thing at the end of the deal that screws both investor and the public.”-Cocoy

      I have to disagree with that, ‘Coy. I see nothing to indicate that the Filipinos don’t want to pay up. We’ve been using those infrastructures for a time and willingly paying the toll without much ado since we know and understand that the investors have to recoup their investments. It is this proposal to increase by 350% (is it 350%) that the Filipinos wants to clarify whether it is arbitrary or not because however we want the investors to earn their living we however also don’t want to be screwed by them unnecessarily, :).

      I agree though that the law should be clear and “set in stone”, such that the implementing and regulatory agencies, in coordination with the investing concerns be able to agree and determine the amount to be charged is equitably fair to both the public and the investors then disseminated publicly, and not resort to questionable and sudden seemingly exorbitant increase when the project is already in place and functioning.

  • It’s a trust issue. There have been scores of investments and infrastructure projects like the South Luzon-Star Toll connection which links Batangas and Manila that hasn’t gone online even when the site is ready for use. Apparently, there is a legal impediment— the contractors naturally need to get paid, and so a toll increase is required. The toll increase is being questioned. The skyway is another. MRT faced a similar thing. NAIA-3 shares similarities to these projects. When the Filipinos don’t want to pay up, how can an investor come in and do business? It is this wishy-washy thing at the end of the deal that screws both investor and the public.It is this that Aquino needs to fix and set in stone. If it takes a law to ensure that all these things are crystal clear, it should be done first.

    -Cocoy

    • Bert

      “When the Filipinos don’t want to pay up, how can an investor come in and do business? It is this wishy-washy thing at the end of the deal that screws both investor and the public.”-Cocoy

      I have to disagree with that, ‘Coy. I see nothing to indicate that the Filipinos don’t want to pay up. We’ve been using those infrastructures for a time and willingly paying the toll without much ado since we know and understand that the investors have to recoup their investments. It is this proposal to increase by 350% (is it 350%) that the Filipinos wants to clarify whether it is arbitrary or not because however we want the investors to earn their living we however also don’t want to be screwed by them unnecessarily, :).

      I agree though that the law should be clear and “set in stone”, such that the implementing and regulatory agencies, in coordination with the investing concerns be able to agree and determine the amount to be charged is equitably fair to both the public and the investors then disseminated publicly, and not resort to questionable and sudden seemingly exorbitant increase when the project is already in place and functioning.

  • UPnnGrad

    Edcel Lagman says :Government contracts are not inordinately sacrosanct so as to be immune from judicial review by the Supreme Court and police power legislation by the Congress. It is beyond presidential prerogative to shield contracts from final court judgments and valid legislative enactments.

    Noynoy Aquino says “Nope, not true. I am special!”

  • UPnnGrad

    Edcel Lagman says :Government contracts are not inordinately sacrosanct so as to be immune from judicial review by the Supreme Court and police power legislation by the Congress. It is beyond presidential prerogative to shield contracts from final court judgments and valid legislative enactments.

    Noynoy Aquino says “Nope, not true. I am special!”

  • UPnnGrad

    With regards infrastructure projects in Visayas and Mindanao, Noynoy is probably just waiting for more foreign aid like USA’s Millenium Challenge corporation funding the highway in Samar or EU, Japan and USA-money for projects in Mindanao.

  • UPnnGrad

    With regards infrastructure projects in Visayas and Mindanao, Noynoy is probably just waiting for more foreign aid like USA’s Millenium Challenge corporation funding the highway in Samar or EU, Japan and USA-money for projects in Mindanao.

  • Bert

    I agree with Doy in these 100%, more particularly in the aspects of regional and rural developments, and natural and environmental conservation. I think that these have to be given top priority in this PPP program in order to ease up on the prevailing lopsidedness of the distribution of wealth severely affecting the rural folks that forced them to migrate to city centers causing congestion in the urban areas.

    There must be more concentration on regional infrastructure development such as roads, ports/piers, airports, development of tourist spots, and strict implementation of laws against forest degradation and illegal fishing.

    All of these will hasten the realization of the trickle-down-effect to the poor everyone is aiming but missing.

  • Bert

    I agree with Doy in these 100%, more particularly in the aspects of regional and rural developments, and natural and environmental conservation. I think that these have to be given top priority in this PPP program in order to ease up on the prevailing lopsidedness of the distribution of wealth severely affecting the rural folks that forced them to migrate to city centers causing congestion in the urban areas.

    There must be more concentration on regional infrastructure development such as roads, ports/piers, airports, development of tourist spots, and strict implementation of laws against forest degradation and illegal fishing.

    All of these will hasten the realization of the trickle-down-effect to the poor everyone is aiming but missing.