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Finance Secretary Carlos Dominguez III.

Government still intent on PPP sans subsidies – execs

By Luis Leoncio

The government has assured the business sector is open to team-ups on big-ticket infrastructure under the “Build, Build, Build” program through solicited and unsolicited proposals for public-private partnerships (PPP) or joint ventures (JV) under terms that would prove most beneficial to the Filipino people.

Finance Secretary Carlos Dominguez III, who led a government dialogue with the country’s top business leaders and their representatives, assured them that the Duterte administration is not abandoning the PPP mode in implementing its ambitious infrastructure program, but is merely exploring ways of how PPP can be most advantageous not only to the government in terms of costs, but also to people in terms of how soon they can get to benefit from the fastest roll-out of major projects either under the public investment program or those proposed by the private sector.

Dominguez said the Duterte administration is open to unsolicited proposals for so long as these do not entail government subsidies or guarantees.
For solicited proposals, he added, the government is open to such PPP arrangements with private entities as long as these are consistent with legal conditions such as the 50 percent limit of government undertakings on total project cost.

“The past administration relied on (the traditional PPP) exclusively to finance the projects. The situation has changed a bit because our President is beginning to tap a lot of financial commitments, and thanks to the last administration, we have a big headroom for debt and they left us quite a bit of money. It’s incumbent upon us to use that, use those to push the projects ahead,” Dominguez told business leaders in a dialogue held at the Bangko Sentral ng Pilipinas (BSP) office last Monday morning.

Besides Dominguez, also present at the dialogue were Secretaries Ernesto Pernia of the National Economic and Development Authority (NEDA), Benjamin Diokno of the Department of Budget and Management (DBM), Arthur Tugade of the Department of Transportation (DOTr), Mark Villar of the Department of Public Works and Highways (DPWH); and Vince Dizon, President-CEO of the Bases Conversion and Development Authority (BCDA).
“People have been questioning us why we are supposedly ‘abandoning PPP.’ We are not abandoning PPP. For us it is just another way of financing projects,” Dominguez said.

He added the private sector “won’t be out of the loop” in taking part in large-scale infra projects because the government would still need private contractors to continue implementing them.

“Some banks are telling us they cannot grow their loan portfolio. Quite frankly, we tell the banks, that’s not true because if we go to the project, we will still need contractors to do it. We can start the projects quickly, they won’t be out of the loop because the projects will still go on,” Dominguez said.

Among the business leaders and their representatives at the meeting were Michael Tan and Ismael Gozon of the LT Group; John Eric Francia of Ayala Corporation; Josephine Gotianun-Yap of Filinvest Corporation; Sabin Aboitiz of Aboitiz Equity Ventures; Lance Gokongwei of JG Summit Holdings; Edgar Saavedra of Megawide Corporation; Kevin Tan of Megaworld; Giles Puno of First Gas Corporation; Ricky Delgado of Citadel Holdings; Joey Lim of Metro Pacific Investments Corp.; Leonides Virata; and Joey Concepcion of the ASEAN Business Advisory Council.

Finance Undersecretary Karen Singson, who heads the Department’s Privatization Group, presented at the BSP meeting the various approaches in which the private sector can take part in the government’s “Build, Build, Build” program.

The approaches presented focus primarily on solicited PPPs, unsolicited proposals and negotiated JVs.

“Contract terms on demand guarantees and fare increases will be tighter, especially for unsolicited proposals,” Singson said. Also, more equitable risk sharing in contracts is further sought with non-compete clauses removed.

Singson said for unsolicited proposals, the project should involve a new concept or technology or should not be part of the government’s list of priority projects.

Unsolicited proposals are subject to comparative bidding or the Swiss Challenge, with the original proponent having the right to match the subsequent offers of other proponents for the same project.

Unsolicited proposals, Singson said, “allow the government to take advantage of the efficiency and technological innovations while freeing the Government from providing subsidies or guarantees to infrastructure projects.”

Singson also stressed the need to submit complete proposals to avoid having their ideas rejected or, worse, used by competitors for their own proposals.

For solicited PPPs which cover projects in the government’s priority list, the process of procurement would undergo public bidding, and government support cannot exceed 50 percent of the total project cost, said Singson who is familiar with helping the private sector implement big-ticket projects.

Negotiated JVs, on the other hand, can be initiated by the private sector or by the government “if it fails to identify an eligible private sector partner through competitive selection,” Singson said.

According to Singson, this mode, which can either be a contractual JV or corporate JV, would be subjected to a competitive challenge, in which the original proponent—unlike in the Swiss challenge— has no right to match new bids presented by its challengers.

What the original proponent can do is offer a new bid that is better than its rivals’ bids, all of which are opened at the same time during competitive challenge. Hence, the original proponent has no way of knowing what the offers of the other bidders are.

“With joint ventures, negotiations are held prior to conferring original proponent status and approval,” Singson said.

Dominguez pointed out again that pursuing a new mode of PPP would avoid the protracted negotiations and disputes among private sector entities that often delayed the implementation of previous PPP initiatives.

“Some (of these PPP projects) took 50 months, some took 60 months, primarily because the private sectors are arguing with each other. Our President doesn’t want to wait that long,” Dominguez said.

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