More private investments needed for public infra

As public infrastructure projects become more complex, more investments from the private sector are needed especially on the financing side, the PrivatePublic Partnership (PPP) Center said.

PPP Center executive director Andre Palacios urged the private sector to work with the government in crafting regulations that would provide for the use of alternative financing schemes for infrastructure projects, among which are project bonds and listing of shares of specific projects.

“Public infrastructure is necessary for government to deliver services. It’s important for the Philippines to achieve this growth and sustainable development but we also know that government finances, taxpayers’ money, is not sufficient to fund public infrastructure. And therefore we need private investments. Most of the PPP projects we have are financed primarily by local banks. And as we roll out bigger PPP projects, we need to be able to attract other types of investment,” he said in his closing remarks during Friday’s PPP Forum on Accessing the Philippine Capital Markets for PPP’s.

Panelists during the forum noted the size and complexity of PPP projects make it difficult to finance these projects through traditional debt alone.

“The PPP program has so far been successful. We’ve been able to attract private investments and this is due to the collective blood, sweat and tears of many in government, bidders, lenders and consultants. And so this is the final session of our forum but this is not the end of the dialogue to building an environment that is more conducive to private investments, particularly to project bonds and listed shares,” Palacios said.

Palacios said the PPP Center is in active discussions with the Securities and Exchange Commission and the Philippine Stock Exchange for the crafting of regulations that would allow the floating of project bonds and listed shares for PPP projects.

“We need to create rules with the SEC and the PSE which would allow the floating of (project) bonds and listing of shares of project companies,” he said in a separate interview on the sidelines of the forum.

Palacios said the rules for the issuance of project bonds may be established without the need for additional legislation.

“These are subject to regulatory rules. Legislation will cut through the red tape but (changes in) regulation is sufficient,” he said.

Palacios said that while project bonds may not be floated before the end of the Aquino administration due to lack of time for development this would be a “welcome initiative” for the future of PPP projects.

The use of project bonds for financing massive infrastructure projects is gaining popularity worldwide because it allows institutional investors to participate in the investment process, hence distributing the risks and expanding the source of funding.

These listed and tradable securities offer superior returns, although not without risks as the source of repayment would be the cash generated by the project company.

In a presentation yesterday, Valery Tubbax, head of power and infrastructure advisory of Sumitomo Banking Corp. in Asia, said the use of project bonds is an excellent fit for projects involving power, oil and gas and infrastructure as these provide long terms (typically 30 years).