Energy and infrastructure
At the successful 2nd Annual Philippines Energy and Infrastructure Forum held recently sponsored by PNB Capital, BPI Capital and PJS Law, topics included the Golden Age of Infrastructure, the new role of the Public-Private Partnership Center (PPPC), optimal financing strategies for energy and infrastructure projects, legal implications of the competition law on energy and infrastructure sectors, and the energy mix in the future. The forum also tried to provide answers to the question “is there life after the end of the feed-in tariff (FIT)?”
Socioeconomic Planning Secretary Ernesto M. Pernia discussed the Build! Build! Build! program, which would utilize P8.44 trillion within the next five years to complete the 75 game-changing flagship projects of the government. Some of these projects are Mindanao Railway, PNR North & South Railways, Bohol Airport, Mactan Cebu International Airport, Puerto Princesa Airport, Common Station and the Cavite Gateway Terminal, among others. These project, financed through a combination of official development assistance (ODA) and traditional funding via the General Appropriations Act (GAA), are expected to generate employment of 1 million and increase the country’s gross domestic product by 1.5%.
Secretary Pernia said the private sector can still participate in the operations and maintenance of the projects. One issue is the Philippines’ absorptive capacity to execute such large-scale projects. Undersecretary Karen Singson of the Department of Finance (DoF) says the issue will not be a problem as foreign contractors can augment capacity.
We are all looking forward to the “Golden Age of Infrastructure,” with optimism and hope that government can really execute its plans. This means the Comprehensive Tax Reform should pass.
In the past, large infrastructure and energy projects undertaken through private initiatives would usually raise up to 75% of the project cost through collaboration between banks. The Philippine financial market has been liquid, making it cheaper for private proponents to raise money from the loans market due to low interest rates and the scale of financing made available by banks. With the shift of funding strategy to ODA and GAA, can local banks still participate? Yes, by financing complementary industries which are direct beneficiaries of developed infrastructure like real estate, tourism, manufacturing and logistics.
Another interesting point is the possibility of raising money from the capital markets, particularly through a “project bond” instrument, but the eternal issue for project bonds is whether investors can take in certain risks coming from the construction phase.
Is the PPPC still relevant in today’s infrastructure environment? PPPC Executive Director Ferdinand Pecson says PPP still plays a vital role in finishing past PPP projects, and facilitating new joint venture projects between the private sector and local governments. The concern raised was “As the local government changes administration every three years, will the new administration honor the approved contracts?”