PPP eyed for Mindanao rail after China pullout

By Ashley Erika O. Jose, Reporter

THE Department of Transportation (DoTr) is considering enlisting the private sector for the Mindanao railway project as the government scrambles to put together funding after China bowed out of the project.

“We are also reviewing the feasibility study and the alignment of the rail line. We are talking to many (possible sources of funding) but we are not at liberty to divulge their identity yet. We need to do this project; that is why we are looking for other sources of funds. In fact, this project is also a possible PPP (Public-Private Partnership),” Transportation Secretary Jaime J. Bautista told reporters on the sidelines of the Transport Con 2024 last week.

Mr. Bautista said the government is still considering official development assistance (ODA) for the project, but it is now leaning towards a PPP arrangement.

“We are still open for ODA but if there’s PPP we will do that,” he said, noting the potential for private partners to move faster. He added that the DoTr is drafting the terms of reference for possible PPP.

The Philippines’ dropped China as funding source for the Mindanao Railway project and two more railway projects such as the South Long-Haul railway, and the Subic-Clark Railway project, due to lack of progress on a financing decision in Beijing.

Earlier this year, the Transportation department said that it is finalizing the feasibility study to overhaul the Mindanao Railway’s original study to make it more modern and environment-friendly.

“The feasibility study is ongoing now. We are not in a hurry, we need investor confidence. Investors need to know that their investments will be profitable and have a reasonable rate of return,” Mr. Bautista said.

“Government should be reminded that the Mindanao railway project is first and foremost a massive development undertaking, which seeks to improve regional economic outcomes and reduce poverty in the countryside,” Terry L. Ridon, a public investment analyst and convenor of think-tank InfraWatch PH, said in a Viber message.

Mr. Ridon said the objectives of the Mindanao railway project typically require ODA funding as the commercial case for these projects is not enticing to the private sector.

“In order for the government to have actual proponents, it should first make the commercial case as to why the private sector should take on the Mindanao railway project,” Mr. Ridon said.

Nigel Paul C. Villarete, senior adviser on PPP at the technical advisory group Libra Konsult, Inc., said the government needs to assess and understand the private sector’s appetite for PPPs. 

“Private proponents are after financial returns and they won’t enter into anything which is not profitable,” Mr. Villarete said.

The viability of adopting a PPP scheme for this project would depend on the project’s profitability and economic viability, he added.

Rene S. Santiago, former president of the Transportation Science Society of the Philippines, said PPP would be a solid option for railway projects, especially the operations and maintenance components.

“But it won’t address the fundamental deficiencies of the Mindanao railway: it is neither economically or financially viable. To be acceptable for PPP, huge subsidies in construction and operations are needed,” Mr. Santiago said. 

Libra Konsult’s Mr. Villarete said if the government is really leaning towards PPP for a project as massive as the Mindanao Railway, then the government should offer it as a solicited project.

“A railway requires right-of-way (RoW) over its entire length and stations will involve hundreds of small lots along its route,” he said.

“The possibility of delays due to RoW acquisition is much higher; these are responsibilities that can only be taken on by the government. Thus, it’s better that government to tender this in solicited mode, rather than wait for the private sector to submit proposals, which will entail substantial negotiation on RoW acquisition responsibilities later,” Mr. Villarete said.

The first phase of the Mindanao Railway project is valued at P83 billion. It will run from Tagum, Davao del Norte to Digos City, Davao del Sur. It is expected to carry 122,000 passengers per day and cut travel time between Tagum and Digos from three hours to one.