Balisacan says PPP projects must outperform ODA in cost-benefit analysis

By Diego Gabriel C. Robles

THE public-private partnership (PPP) mode of financing major projects will be subjected to cost-benefit analysis to determine whether such an option is more beneficial than tapping official development assistance (ODA), Socioeconomic Planning Secretary Arsenio M. Balisacan said.

In chance remarks delivered to reporters on the sidelines of a Gross Domstic Product (GDP) briefing on Tuesday, Mr. Balisacan said: “The most important consideration is you do a cost benefit analysis, and if the PPP is a better mechanism for this type of project than ODA, then so be it.”

“I’m not inclined to pre-identifying the mechanism but I think that our job is to ensure that whatever we choose as a modality, that’s the most beneficial modality for society,” he added.

In his first State of the Nation Address (SONA), President Ferdinand R. Marcos, Jr. cited the role of PPPs in his administration’s ambitious infrastructure spending target of 5-6% of GDP, with the government currently lacking the fiscal space to fund projects on its own.

Mr. Balisacan acknowledged that PPPs introduced innovations and hold the potential for improving the quality of services.

In the SONA, Mr. Marcos also cited amendments to the Build-Operate-Transfer (BOT) Law as a legislative priority.

“Specifically, the amendments seek to address the ambiguities in the existing law; address the bottlenecks and challenges affecting the implementation of the PPP Program; and foster a more competitive and enabling environment for PPPs,” he said.

The current iteration of the BOT Law, particularly its implementing rules and regulations (IRR), is viewed negatively by economists and the private sector as it compels private proponents to shoulder more risk while relieving the government of responsibility for delayed deliverables.

“There is a need to have mutually (acceptable) returns and risks for both the private sector and the government, especially based on global best practices in able to encourage the private sector to pour in more investment in infrastructure,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

On Tuesday, Mr. Balisacan pinpointed contingent liability or Material Adverse Government Action (MAGA) clauses in the BOT Law as the most critical to resolve.

The BOT IRR defines MAGA as “any act of the executive branch, which the Project Proponent had no knowledge of, or could not reasonably be expected to have had knowledge of, prior to the effectivity of the contract; and that occurs after the effectivity of the contract, that: specifically discriminates against the project proponent; and has a material adverse effect on the ability of the project proponent to comply with any of its obligations under the contract.”

“You have to examine what can be justifiably or reasonably seen as MAGA. If there are changes in the rules of the game during the implementation of the project, obviously the private sector will not go there. Obviously, that would discourage investment and engaging with government projects, if that’s the environment. We have to strike a balance,” Mr. Balisacan said.

Asked whether canceled infrastructure projects with China can be turned into PPPs, Mr. Balisacan said his agency, the National Economic and Development Authority (NEDA), is looking at other options.

Last month, the Beijing funding commitment for the Calamba-Bicol, Clark-Subic, and Mindanao railway projects were deemed canceled as China has been unresponsive to the government’s loan application since 2019.

“I think we’ll keep that open,” Mr. Balisacan said.