Bernardo M. Villegas
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Build Bigger Better Bolder Before (Part 2)

         Whether they be the top management and board of directors of the Maharlika Investment Corporation, foreign infrastructure companies interested in owning and managing large-scale infrastructures such as those from Spain and Japan or domestic infrastructure and construction enterprises, the highlights of a recent Philippine Infrastructure Summit would be of great interest in understanding the economic environment in which their businesses will be operating in the next five or more years.  In the introduction and keynote speech of Senator JV Estrada, he mentioned that the new Public Private Partnership (PPP) Code will efficiently fast track all the processes for key infrastructure projects.  The National Economic Development Authority (NEDA) will limit itself to approving projects greater than P15 billion.  Below this amount, even LGUs may give its approval.  Senator Estrada expressed the hope that most of the 197 Infrastructure Flagship Projects will be funded by FDIs.

            In an advisory of PWC, the new legislation to which Senator Estrada referred consolidates all laws and regulations on procurement of public assets through PPP arrangements.  In addition to the Build-Operate-Transfer (BOT) arrangements under the old BOT law (one of the game changers in the golden economic era ushered in by former President Fidel V. Ramos), the new PPP Law now covers:

1.     Joint Ventures (JVs)

2.     Toll operation agreements (TOAs)

3.  Lease agreements providing for the rehabilitation, operation, and/or maintenance, including the provision of working capital and/or improvements to, but the Private Parter of an existing land or facility owned by the government for a period of time covering more than one year.

4.     Lease agreements when such lease is a component of a PPP project.

5.    All other contractual arrangements which possess characteristics or element of a PPP.

The new law makes very clear the manner in which Local Government Units can be very active in the implementation of PPP projects.  A good number of the foreign infrastructure companies who attended road shows in which I have participated in the past few months have expressed great interest in infrastructure projects that can be implemented in partnership with such LGUs as Batangas, Bataan, Oriental Mindoro, Siquijor, Palawan, Baguio, etc.  This is a very healthy trend of decentralizing decisions to build regional infrastructures.  Under the new law. LGU projects, regardless of project costs, will be approved by the local Sanggunians.  Local universities and colleges (LUC) projects are to be approved by the respective boards.  This provision will be very relevant once the proceeds from the National Government revenues to LGUs are finally transferred to LGUs under the so-called Mandanas-Garcia ruling.  I hope President BBM will see to it that this very important decentralization move is fully implemented, despite some hesitation of some top finance officials

NEDA-ICC, with the endorsement of Regional Development Council (RDC), shall approve any Government Undertakings (GUs) using National Government funds for Local PPP projects within 60 days from submission of complete documents.  Local PPP projects affecting national or sectoral development plans and national projects shall likewise secure the endorsement of the national government through the respective Regional Development Councils (RDCs).  Endorsements must be made within 30 days from submission of complete documents; otherwise, the project is deemed approved.  PPP projects shall be approved within 120 calendar days from receipt of complete documents; otherwise the project is deemed approved.

In the road shows to which I referred above (and there will be more road shows in 2024, especially to Japan, South Korea and Taiwan), there was a wealth of proposals from foreign investors about what they perceive are the infrastructures lacking in the Philippines, especially in transport, energy, telecom and water facilities.  The idea of submitting unsolicited proposal was brought up very often.  I am glad that the new Law makes very clear the procedures for unsolicited proposals.  These proposals are allowed for projects included in the list of PPP Projects solicited by the Implementing Agency (IA), provided that there will be reimbursement of development costs incurred by the IA on the project during the last three years as well as reimbursement of less than or equal to 6 % of actual Project Cost (excluding the cost of Right of Way Acquisition or ROWA). 

We should try to attract FDIs to both nationally funded projects as well as those at the LGU levels. This will enable us to hit a target that I have set for the BBM Administration:  FDI flows of $15 to $20 billion annually, mostly in the three strategic areas of infrastructures, renewable energy (including nuclear) and large-scale agribusiness projects.  As Senator Estrada mentioned, the Philippines has been receiving more or less $9 billion of FDIs annually on the average in the last few years, with the exception of 2021 when FDIs breached $10 billion.  The comparable economy of Vietnam has attracted more than double that average.  In fact, at this point of 2023, Vietnam has already received $25 billion of FDIs.  These FDI inflows should complement the Government’s infrastructure spending which continue to be at 5 to 6 % of GDP which can hardly meet the requirements for improving much needed rural infrastructures such as farm to market roads, irrigation systems, post-harvest facilities, and other public works direly needed by the small farmers to improve their meager incomes.  These funds from the Government budget on infrastructure are also badly needed in increasing the number and improving the quality of public schools buildings as well as health-related facilities.  We are still far from hitting the desired target of spending of 6% of GDP each on education and health, the average spent by our ASEAN neighbors.  That is the reason why as much as possible all the big-ticket items of infrastructures, renewable energy and large-scale agribusiness projects should almost be singlehandedly funded by FDIs in partnership with domestic enterprises (including the Maharlika Investment Corporation) who are now legally allowed to take a minority ownership as a result of the amendment of the Public Service Act, which in effect creatively amended the Constitution without the need for a CONASS or a CONCON, as some members of the Lower House are advocating and as President BBM seems to be encouraging.

As the Chairman of the Committee on the National Economy of the Constitutional Convention of 1986 that drafted the Philippine Constitution of 1987, I can speak with authority that there is no need at this stage to spend precious time and effort on charter change.  The most onerous restrictions against foreign investments have already been removed through the amendment of the PSA.  The only remaining restrictions have to do with the ownership of land and foreign investments in education and mass media and advertising.  These restrictions do very little harm to the national economy.  In the first place, foreigners who invest long-term capital in agribusiness ventures (like those who have made the Philippines a major power in the export of bananas and pineapples) are not interested in tying up capital in land.  They prefer to lease land as in the case of Del Monte and Dole.  Foreigners who want to own residential units can already own them in the thousands of condominium projects spread out all over the country. As for advertising and media, there is enough local capital and talents to restrict these sectors to Filipinos.  Lastly, there is not much harm done to the economy by prohibiting foreigners to own educational institutions.  It would be very counterproductive at this stage to insist in distracting the whole country from some urgent objectives like food security, the improvement of the quality of basic education and the delivery of quality health services by pushing for an amendment of the Constitution in whatever way being proposed by the House of Representatives.  Any change in the Constitution can wait for the next Administration once the present BBM Administration has delivered on its most important short-term objectives of growing the agricultural sector at an average of 2to 3 yearly, increasing the investment to GDP ratio to at least 30 % and reducing significantly the leakages due to corruption.  Attaining substantially these three objectives will go a long way to accelerate the GDP growth rate in the remaining years of the BBM Administration to 8% or more annually, thus increasing the chances that the Philippine poverty rate can be reduced to single-digit level by 2028 from its present 22% as recently announced by the Philippine Statistical Authority.  To be continued.