Critique on PPP

1. The government considers as an issue the fact that GOCCs (which are the targets of the broadening scope of privatization as seen from several declarations of the Aquino administration and the Special Provisions in its National Expenditure Program) perform social functions such as the provision of utilities and basic social services, thereby diluting the resources of the government (1 September 2010 Presentation of the Department of Finance to the House Committee on Appropriations). However, this is precisely the function of GOCCs—they are public corporations which are “vested with functions relating to public needs whether governmental or proprietary in nature (Executive Order 292 or the Administrative Code of the Philippines).” By taking issue with the very concept of GOCCs and the services to the public they provide, the Aquino administration reveals its indifference to the law and insensitivity to the people, and its intention in the long term to diminish public governance to a mere rubber stamp for large businesses, with which he himself has similar interests.

2. Per the Philippine experience, privatization schemes render to the public substandard services—substandard considering the (1) inconsistent quality of services amid lax state regulation such as those in water and energy and (2) prohibitive rates which go higher with the least amount of public consultation (legitimized by the government through laws such as RA 9136 or the Electric Power Industry Reform Act and cases such as Freedom From Debt Coalition v. Energy Regulatory Commission [2004]). Along with these high costs borne by the public are the concessions given to the private proponents for taking on the projects—tax deductions and holidays, sovereign guarantees, and the fact that almost all risks save for those inherent in construction and operation are borne not by the proponent but by the government, which it later passes on to consumers in the form of taxes. (One reason for the creation of new taxes and the raising of old ones is the budget deficit, which increases year to year due to, among others, the diminishing national income [Revenues – Borrowings]. The national government cannot control the decline in its revenue even as it allows its borrowings, foreign and local, to bloat. Privatization figures in this equation viciously in two ways: it siphons off government resources due to the tax breaks and other concessions allowed to PPPs and swells government debt due to heavy financing agreements in favor of local and foreign proponents.)

3. The BOT law as amended:

a. relaxed the Filipino citizenship requirement in private sector construction contracts and in operation of infrastructure projects (60% minimum in both);

b. allowed implementing agencies to consider unsolicited proposals and to negotiate the same;

c. gave more power to the bureaucratic branch of the government (the Executive, which is headed primarily by businessmen-turned-politicians rather than constituency-minded politicians) in approval of infrastructure projects; and

d. broadened the field in which proponents may undertake projects in at least 2 ways:

i. there are 7 more options aside from BOT plus other variations per approval of the President and

ii. investments in “non-traditional areas” are included—in particular, housing, tourism, education, and health—thereby entering the Philippines into the “third wave” of privatization (Arturo Ortile for the ADB, on the history of privatization).

4. The CPBD in 2008 warned of some of the problems which arose in BOT projects. Since the system surrounding BOTs is the precedent for that of PPPs (in fact, the CPBD suggests the transformation of the BOT Law into the principal framework for PPPs, which suggestion was considered by Aquino with the issuance of Executive Order No. 8, series of 2010 to revitalize the BOT Center as the PPP Center), the following are also inherent in the latter:

a. creation of monopolies (renegotiations of contracts, which are held more often than not because such long-term contracts are necessarily incomplete, are done without the competition);

b. failure to increase efficiencies (citing the delay in 2002 of the LTO-IT’s computerized licensing system the contract for which it awarded to Stradcom Corporation in 1997);

c. rise of the government’s contingent liabilities (the government, because of its eagerness to bring in the private sector, keeps securing the proponents against the perceived risks of the investments through various and heavier credit enhancements), which would in the long run damage the state’s fiscal stability;

d. lack of capacity of the IAs at the identification and preparation stage (companies flock to the departments and other government agencies with unsolicited proposals, a practice designed to circumvent the laws on competitive public bidding, and the latter would endorse these projects to the NEDA);

e. lack of implementing agencies' (IAs’) technical capacity at project evaluation stage (another cause for delays); and

f. incomplete BOT Law (in financial terms and risk allocation, which private proponents use to deny responsibility in several obligations).

5. Privatization schemes also provide for less transparency. From the proposition stage thereafter, the deals are characterized by confidentiality of the collusion between public officials (those in the departments or in the LGUs) and the proponents. This confidentiality defeats the transparency provisions in the Constitution and in other laws, because much of what the public is apprised of about the contracts is aired only after the fact—that is, when negotiations are closed, the construction is ongoing, or the price or toll rates start soaring. Anyone who seeks to take a look at negotiations must first go to the respective companies and be rebuffed on the ground of contractual confidence, or untangle the bureaucracy of the BOT Center, the LGU, or any other government agency concerned. Negotiations therefore occur behind closed doors, allowing proponents and the government officials to agree on contracts grossly disadvantageous to the government and the public.

6. The negative trade-offs of the PPPs considered by the Aquino administration as “success stories” (the privatization schemes relating to the Northern Luzon Expressway, the Metro Manila Water and Sewerage System, the Civil Registry System Information Technology, and the 200 MW Mindanao Coal-Fired Thermal Power Plant) far outweigh their impacts:

a. the alleged infusion of at least $318 B (in the MWSS and Mindanao coal-fired thermal plant PPPs) into the national economy, versus the tax holidays accorded to Maynilad, Manila Water, and the SPDC, the skyrocketing water and energy rates, and the virtual deregulation of these industries and

b. the concession fees to the MWSS are shifted to end consumers (thus, the national government, through the GOCC, may receive additional income but it is still the public who pays for it in the end).

7. The government alleges that the PPPs in the energy and water sectors provided “uninterrupted supply.” This is belied by the realities:

a. as recently publicized in media reports and the 28 July 2010 Privilege Speech of Lanao del Norte Representative Aliah Dimaporo, there is an energy crisis already looming in Mindanao and

b. as revealed by the recent water shortages in both east and west zones, the concessionaires cannot insulate supply against the fluctuations of the water levels in the source—an assurance supposedly subsumed in the concessionaires’ obligation to manage, repair, and refurbish the facilities.

8. A question on the constitutionality of the BOT Law: On the citizenship requirement—There is a standard provision in PPP contracts by which the National Government through the IAs declare that the latter retain ownership to the assets of the investments concerned. However, the wide scope of the concessionaires’ rights (for instance, Manila Water and Maynilad’s sole right to manage, operate, repair, decommission, and refurbish the facilities in their respective zones, including the right to bill and collect for water and sewerage services) is tantamount to a relinquishment by the government of all rights flowing from its supposed title. This event is more dangerous in cases where the project proponent or award holder is a company the ownership of which is less than the required 60% Filipino limit (such as the Harbin Power Engineering Co., Ltd. for the Mindanao Thermal Power Plant and the 3 out of 4 east zone proponents of MWSS).

9. Regardless of the country’s negative experience as to privatization in general and PPPs in particular, the Aquino administration still plans on extending it to the most basic of services such as health, education, and housing. Instead of proposing higher allocations for the Department of Health and other agencies conducting programs relating to health, and providing for stronger and more sustainable insurance systems (National Health Insurance Program, Government Service Insurance System, and Social Service System), Aquino ordered the DOH the fast-track the PPP for the health facilities program, which is “in the process of studying and packaging projects” until 2016. He slashed the subsidies for state colleges and universities (zero capital outlays in majority of the SUCs and cuts in maintenance and other operating expenses) “to push them toward becoming self-sufficient and financially independent, given their ability to raise their income and to utilize it for their programs and projects,” even as the DepEd under his directive studies possible PPP projects for the construction of elementary and secondary classrooms nationwide. Mere months into his administration, he directed, through a ostensible order of suspension, the “orderly” demolition of the homes of about 16,000 families, to pave the way for the joint venture between the Ayala Land Inc. and National Housing Authority. Fishermen and farmers along with consumers (practically the entire country) will also suffer high prices of agricultural products, with the planned establishment of grain centrals with bulk handling facilities and cold chain systems—both with nationwide coverage—to be awarded by the Philippine Center for Postharvest Development and Mechanization to “interested investors.” These PPPs are to be the lucky recipients of chunks of the Public-Private Partnership Support Fund (P 5 billion for the Departments of Agriculture).