Bernardo M. Villegas
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The Responsible Financing of Dutertenomics (Part 3)

          As a long-time investment banker, Mr. Sebastian could give very specific examples of how the private sector has been a major source of funding infrastructure projects through the years.  He identified success stories in the financing of water distribution (Manila Water and Maynilad Water) and toll roads (Metro Pacific and San Miguel).  He himself had been very much involved in the energy sector.  To quote from his speech:  “The Philippine power crisis in the 1980s was solved by private capital, and the experience of investors—global and local—have been generally positive.  GT Capital and Metrobank Group have been involved in the Visayas where EPIRA is alive and well.  Generation capacity in this region was built solely by private funds.  And there’s competition too.  Other than Global Power, there are KEPCO and Aboitiz Power in Cebu; and Palm Concepcion, Trans Asia and Greencore in Iloilo.  Remember the Mindanao power crisis?  It has been solved by the private sector, without a bit of investment or loan or any form of financial support from the government.”  From his rich experience in financing infrastructure projects, Mr. Sebastian is optimistic that more investors, even on a smaller scale, will be drawn to infrastructure projects, including institutional investors like insurance companies and investment funds.

         To further assuage the fears of those who were alarmed by the unrealistic projections of Mr. Corr, let us consider the new funding initiatives that Mr. Sebastian enumerates.  Capital for infra projects can be raised in the stock market.  The Philippine Stock Exchange is studying the feasibility of amending the rules to encourage the listing of infra companies, infra projects and PPPs.  The Government Service Insurance System (GSIS) has a US $625 million infra fund, partly financed and managed by Macquarie, with ADB and an overseas fund as investors.  Sunlife Insurance has announced its intentions to participate in infra projects.  There are overseas investors who are actively pursuing Philippine infra projects, both greenfield or operational ones.  Mr. Sebastian has a word of advice to the Government:  All these initiatives are anchored on the government continuing to ensure that the terms of PPPs are complied with and adhered to, that obligations under PPPs are upheld throughout by agencies and government bodies and that the regulatory framework of existing PPPs is kept firm and stable.

         Finally, Philippine banks themselves can be sources of funding for infra projects.  A case in point is First Metro Investment, the investment banking arm of Metrobank.  It raised almost a billion US dollars in Philippine pesos to finance for 15 years a 500-megawatt power plant.  Even by global standards, this is a huge project finance transaction which illustrated how local banks are able to finance increasingly large long-term infra projects in local currency.  In 2016, a syndicate of local banks arranged the financing of the Light Rail Transit One extension to Cavite, which broke ground a few weeks ago.  This was for 24 billion pesos (half a billion US dollar), also for 15 years.  All participating banks are local ones and all in Philippine pesos.

         There are ongoing plans to develop new financial products like project or infrastructure bonds and securitization of infra projects that are in full operation and cash generating.  This would involve the cooperation of government agencies like the Securities and Exchange Commission, the Bangko Sentral ng Pilipinas, institutions like the Philippine Stock Exchange and PDex, and long-term funders like insurance companies, pension funds—both private and public like GSIS and SSS—multilateral agencies and local commercial and investment banks. More recently, the Development Bank of the Philippines (DBP), was tasked by its Chairman, Secretary of Finance Carlos Dominguez, to transform itself into an infrastructure bank.   There is no question that funding for the Build! Build! Build! program of the Duterte Administration is available without having to bring  the Philippine Government to  the brink of  bankruptcy through reckless borrowing from the Chinese at 10% per annum.  I can confidently tell the Filipino parent who immigrated to the U.S. that his children will not have to face a debt of $452 billion from the Chinese.  With our local resources supplemented by a host of foreign investors and foreign lending agencies, we need not put all of our eggs in the Chinese basket.  For comments, my email address is bernardo.villegas@uap.asia.