November 23, 2017 | MANILA, PHILIPPINES

Impediments to the Golden Age of Infrastructure

For nearly 10 months, the Department of Transportation (DoTr), along with the Department of Public Works and Highways (DPWH), has whetted our appetites on its ambitious infrastructure program dubbed, “Build! Build! Build!.” At the heart of the program is the intention to spend eight trillion pesos in badly needed railways, ports and highways, fostering the country’s golden age of infrastructure.

So compelling is the multi-trillion infrastructure program that the Departments of Finance (DoF), Budget & Management (DBM), and NEDA made it the centerpiece of its medium-term development plan. It has since become known as “Dutertenomics” and presented to a plethora of business fora, here and abroad. “Dutertenomics” seeks to fire up investments, generate jobs and boost domestic consumption by spending five to 7.5% of gross national product on infrastructure. The effect on the economy should be an annual growth rate of 6.5% to 7.5% until 2022.

The promises made by “Build! Build! Build!” set the bar of expectation unrealistically high. While the DoTr succeeded to implement a number of projects left by the Aquino administration, many are frustrated that none of its much ballyhooed “big ticket” projects have gone beyond NEDA’s approval. This has caused many to accuse the DoTr of going the way of the DoTC where power point presentations were all it had to show.

I have had numerous interactions with DoTr Sec. Arthur Tugade and I can assure you, he is on our side. Nothing would make the Secretary happier than to see projects come to fruition. Unfortunately, his hard work and good intentions are negated by political interference and government’s penchant to change the rules of the game, mid-stream. This is where the problem lies. The situation has become so serious that four Undersecretaries and two Assistant Secretaries have resigned because of it.

Three projects, in particular, typify how political interference and policy flip-flops can derail projects.

The P108.9-billion contract to develop, operate, and maintain the airports of Panglao, Bacolod, Davao, Iloilo, and Lagundingan was already on its advanced stage in the PPP process when Sec. Tugade took over. If things were allowed to take its course, the contract should have been awarded last December and all five airports would be operational by 2019. This is no longer the case. Timetables have been pushed back by at least two years.

Sources informed us that it was Speaker Pantaleon “Bebot” Alvarez who allegedly demanded that the project be removed from being offered as a PPP undertaking. Instead, the Speaker proposed to have government develop all five airports using funds from the national budget. Government would then offer the contract to maintain and operate the airports, separately, to a private company. The mixed method of development is now known as “Hybrid PPP.”

The rationale is that government can develop the airports in a cheaper and faster way.

Theoretically, perhaps. But this has yet to be proven. I have yet to see government undertake a project with greater efficiency than companies in the private sector. It is also a loophole for corruption.

By financing the project through Government Appropriations Act (GAA), government officials can have a say in naming contractors and suppliers. This is why many feel ill at ease with the arrangement.

The Speaker also allegedly expressed his discomfort over handing control of five international gateways to a single conglomerate. The fact that the project was initiated by the Aquino government did not sit well either.

The DoTr resisted the interference of the Speaker given the advanced stage of the project. The Speaker allegedly threatened to file graft cases against DoTr officials should they pursue the PPP route. Pressured, the DoTr cancelled the PPP offer last May.

The move was a big turnoff to investors as government changed the rules in the middle of the game. As for the riding public, they will have to suffer through years of delays since the process must start from scratch.

The North-South Railway Project (NSRP) is a train line that connects Manila to Legazpi City. The project consists of two lines, a 56-kilometer commuter line between Tutuban and Calamba and a 653-kilometer long haul line onward to Legazpi. The P270-billion project secured NEDA approval with phase 1 scheduled for completion by 2021.

Not anymore.

After having agreed on using narrow gauge tracks, NEDA and the DoTr suddenly decided to change the type of tracks to what they call, “standard gauge” (which is nearly two feet wider). Their rationale is that standard gauge tracks are of newer technology and capable of handling train speeds above 200 kilometers per hour.

The decision is superfluous since PNR trains are not designed to go beyond 140 kilometers per hour. It is impossible to reach that speed given the number of intersections on the line.

The PNR already uses narrow tracks from Manila all the way to Naga City. All that needs to be done is to rehabilitate them. In contrast, to switch to standard gauge will require a complete reconstruction of the tracks and worse, require government to acquire additional right of way. We all know how long this process takes. All things told, the switch could cause years of delays, not to mention bloat the project cost to P360 billion.

Last year, Megawide and Filinvest submitted unsolicited proposals for the development, operation, and maintenance of Clark International Airport.

Megawide’s $5-billion proposal was superior among the two what with its plan to expand to four runways and build terminals sufficient for 100 million passengers annually. The mammoth airport complex was to be built in six stages over its 50-year franchise period. Upon award, Megawide was to undertake upgrades of the existing facility, just as it did at the Mactan Airport. In addition, a 4.5-kilometer rapid access road was to be constructed to connect the airport to SLEX.

Last May, however, the DoTr decided to reject the proposals of Megawide and Filinvest, with finality. Again, it announced that it would fund the project through the national budget instead.

The development plan has since been downscaled. The terminal will now be built for eight million passengers, the design of which follows the proposal of Aeroporto de Paris some six years ago. The public will have to contend with a much smaller airport and no direct access to SLEX. More delays are probable given government’s need to conform to tedious procurement laws in building this facility.

It has become clear that government prefers to finance projects through the national budget or official development assistance (ODAs) rather than tap private funds through PPP. It claims that this is the faster route as it will be free from law suits from losing PPP bidders.

While this may be true, it must also consider that availing massive ODA loans increases the nation’s debt to GDP ratio. This will erode the impeccable financial position we enjoy today. Weaker economic fundamentals will make foreign borrowing more expensive in the long term, not to mention raise red flags among foreign investors. The consequences are steep.

I still believe in PPP. Its beauty lies in the fact that it frees government from accumulating debt and assuming business risk. It allows government to use its limited resources to fund missionary projects.

Just as the DoTC was plagued with the cancer of indecision, political interference and sudden policy changes have become the Achilles heel of the DoTr.

I know that Sec. Tugade is being a team player by accommodating political demands and acceding to the recommendations of his colleagues in the Cabinet. But the time has come for him to do what he feels is best, regardless of political pressure. “Dutertenomics” will be judged by how much infrastructure it delivers, so there is no time to waste.

Andrew J. Masigan is an economist