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Road to recovery: Philippines plans to lure foreign investors with return of PPPs

It is hoped the return of the public-private partnerships (PPP) program under President Ferdinand Marcos Jr may steer more foreign investors back to the Philippines, as the country’s fragile economic recovery in the aftermath of the COVID-19 pandemic braces for high inflation and rising interest rates.

The Philippines has a lengthy track record of PPP projects. The total value of infrastructure deals between 2010 and 2016 — when former President Benigno Aquino III relied on the flagship PPP program to augment infrastructure spending — accounted for USD 21bn, almost 63% of a total USD 33.6bn of infrastructure deals over the past 13 years, according to data from Dealogic.

The high point came in 2013 at USD 8.5bn, representing around one quarter of the total value, when the government awarded three PPP projects to the private sector.

Construction reduction: infra investment in Southeast Asia took a hit during pandemic

Much of Southeast Asia is seeing increasing infrastructure deal activity, as the region recovers from 2020 levels, when governments and the private sector held back on investment because of the pandemic. To date, infrastructure deals in the region have improved to USD 16.6bn, exceeding USD 13.97bn in 2020 and approaching USD 19.7bn seen in 2019.

Southeast Asia has increasingly been turning to PPPs to attract more foreign investment, as well as bringing in capital and expertise in some sectors. Vietnam passed a law on PPPs in 2021, while PPPs are playing a vital role in Indonesia’s infrastructure investment program under President Joko Widodo.

The situation in the Philippines changed in 2016, when President Rodrigo Duterte took over, as his government chose to use its own coffers and tap official development assistance (ODA) to finance infrastructure projects. In doing so, this spawned a long list of unsolicited PPP projects that the country’s biggest conglomerates and their international partners have been eager to take on.

Only a few infrastructure projects with private foreign partners pushed through between 2016 and 2022, causing a significant decline in actual foreign investment inflows in the sector compared with the previous six-year period.

Among the foreign players to enter the Philippine’s infrastructure program over the past six years are: China-based CCCC First Highway Engineering Group Co Ltd for a USD 12bn Laguna Lake Rehabilitation and Development Project and Japan-based Marubeni Corp for a Smart City ICT Project in New Clark City (less than USD 500m), according to the PPP Center, an agency that implements the country’s PPP projects.

In the pipeline: more projects for auction

Now that the Philippines is operating within a limited fiscal space given high debt levels incurred because of the pandemic, it has turned again to PPPs to free up resources for public social services such as education and healthcare. The country’s debt-to-GDP ratio in 1Q22 ballooned to 63.5%, a 17-year high and well over the internationally recommended threshold of 60% of the economy.

The government is thus considering unsolicited proposals for infrastructure projects, and may auction airport projects for unsolicited or solicited bidding, which would involve the private sector maintaining and operating them, according to a Mergermarket
report on 8 July.

However, the big challenge for the new administration is how to lure the private sector to participate in PPP after the latter’s tumultuous relationship with former President Duterte. This news service reported on 1 July that the private sector remains wary of participation in the PPP program after enduring the past administration’s flip-flopping policies.

The private sector is closely watching how the government will address the revised implementation rules and regulation of the Build-Operate-Transfer Law, approved by the economic managers of President Duterte, which shielded the government from arbitration and put more risk on project exponents.