A first look at Public-Private Partnership (PPP)

It’s considered the centerpiece program of the Aquino administration.  And coupled with the “Matuwid na Daan” battle cry, it has gained the impetus necessary in moving the economy forward.  Never has investor confidence been this high, the country’s financial health is robust to say the least, both in economic and fiscal terms.  And that’s something significant, since oftentimes, fiscal and economic healths are not on the same wavelength.

We’ll reserve the discussion on the dichotomy of fiscal and economic situations for now, and focus on Public-Private Partnership (PPP).  Firstly, it’s not something new – countries all over the world had been embarking on this mode for decades.  In fact, the Build-Operate-Transfer (BOT) scheme, popularized during the term of President Ramos is a PPP, or specifically, a variant and subset of it.  In simplest terms, PPP means harnessing the capital, expertise, and efficiency of the private sector in the provision of public infrastructure and services.

But the important issue here, and where most of the misconception arises, is that this is not “new” money, nor is this a donation or an act of philanthrophy.  Sure we have to be grateful to the private investors who pour money into these PPP projects, but we have to realize also that to them, this is business as usual, the bottom line being their return on investment.  In fact, to a certain extent, government maybe is at the losing end since it gives up the opportunity to such a return, though this is compensated by the fact that it can’t make such gains due to inherent internal inefficiencies.

Government is supposed to spend to improve the economy and allow its citizens to improve their income and hence, their quality of life.  But government can only do this with whatever taxes it can collect, which is constrained by policy, collection inefficiency and other leaks such as operational inefficiency and corruption.  The more government can spend, the faster it can fuel the economy and move us forward to better times.  That’s why the reasoning for poor services is always “lack of money.”  The alternative is to borrow.  I know that people feel bad about the word “debt” but that’s how countries develop and even become great – both Japan and Germany were devastated by WWII but look at them now.  Do you think they became what they are solely on taxes?  By the way, Australia has a higher debt than the Philippines.

Come now the private sector.  They have the money – especially now!  We read in the newspapers about these business tycoons who diversify and look around for anything to spend on.  There is excess capital and liquidity around, and this really fits in with the PPP thrust.  We have to be careful, though.  Business is always for getting the highest returns, what private investors pour in PPP projects, they have to recover, which means government has to pay, eventually, or give up claims to whatever monies generated which could have entered the coffers of the state.  That’s why, regardless of its novelty, the PPP procedure is a tedious process and a difficult balancing act, accepting the generous offer of the private sector while not compromising the interests of the people.

And we have to contend with the fact that not all projects are “PPP-eable.”  Many projects attract investors, but there are more projects that they will shun away from.  It is best to remember that government generally improves the economy by building infrastructure and services, most of which do not generally generate financial returns.  Public welfare still prevails as the governing principle.  And for infrastructure, which are “financially viable,” there’s a wide spectrum of feasibility and an equally wide range of PPP structures.

All things considered, we are in for better times.  The private sector has excess money and their trust in this government is improving.  A number of projects are being rolled-out, many more are in incubation.  Hopefully with this renewed partnership between government and the private sector, we can propel ourselves to better quality of life for our people.