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IBON asks: How much of Villar wealth is driven by BBB?

by IBON Media & Communications

Sen. Cynthia Villar has just been reported as the richest government official with a reported net worth of Php3.81 billion. Sen. Villar’s net worth is by far the biggest among the Senate, House of Representatives, and Cabinet. The Villar family is one of the largest property developers in the country. Because of this, IBON points out, it is among the biggest beneficiaries of soaring land values from transport projects under the Duterte administration’s flagship Build, Build, Build (BBB) infrastructure program.

Sen. Villar is the wife of the Philippines’ richest man – former senator Manny Villar who has a net worth of US$5.6 billion (about Php271 billion at current exchange rates). Similarly, their son Public Works Secretary Mark Villar has been reported as the second richest Cabinet member with a net worth of Php1.41 billion. The public works secretary’s personal wealth was even used by Presidential Spokesperson Harry Roque to argue that he is “above corruption”.

Corruption in public infrastructure projects is normally understood as referring to kickbacks or bribes from public works contractors. There are however also huge windfall profits to be made by well-placed real estate developers from public transport projects, IBON said.

The Department of Transport (DOTr) for instance has already pointed out how MRT-3 projects can cause residential and commercial land values within one kilometer of stations to increase four-fold, from Php3,700-6,300 per square meter to Php14,000-22,100 per square meter.

Likewise, real estate consultancy firm Colliers International Philippines sees residential land values around the planned Mega Manila Subway project’s stations rising by at least two-fold and commercial land values by at least three-fold from the start of construction to full operation of the subway. Another firm, Leechiu Property Consultants, meanwhile points out how real estate values around rail stations can even increase as much as thirteen-fold.

IBON noted that the Duterte administration’s BBB program has already increased public infrastructure spending nationwide from Php590.5 billion in 2016 to Php785.6 billion in 2019, increasing further to Php1,017.3 billion in 2021. Transport infrastructure projects include roads, bridges, rail, airports, sea ports and others. Out of the government’s 104 flagship infrastructure projects worth Php4.1 trillion, 70 are transport projects cumulatively accounting for Php3.7 trillion or 91% of the total value of projects.

IBON says that the huge windfall wealth for the country’s real estate developers including the Villar family is likely among the reasons for the Duterte administration’s stubborn insistence on its transport-heavy BBB program despite emerging pandemic-related needs for cash assistance, health systems development, and enterprise support.

The systematic use of public funds to support private oligarch wealth is among the reasons for 12 Philippine real estate developers to be counted among Forbes’ World’s Billionaires list, IBON noted. This raises huge conflict of interest issues around the Villar family’s direct involvement in government, IBON stressed, specifically in the Senate and Cabinet public works portfolio.

The dominance of real estate and related interests in the economy and their influence on economic policymaking also goes far in explaining the bias against developing domestic agriculture and Filipino industry, IBON said. #

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Kodao publishes IBON articles as part of a content-sharing agreement.

Four reasons why the Kaliwa Dam Project loan is onerous

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by IBON Media & Communications

The loan agreement for the New Centennial Water Source-Kaliwa Low Dam Project (NCWS-Kaliwa Low Dam) is onerous and should be cancelled. President Duterte has reportedly ordered a review of loan agreements to determine if any are onerous and disadvantageous to the Filipino people. Yet the Kaliwa Dam project which has come under fire for its unfavorable Chinese loan agreement has already started.

The Php10.2 billion (US$211.2 million) loan agreement financing most of the Php12.2 billion NCWS-Kaliwa Low Dam has the following questionable provisions:

1. Costly to pay. The commercial loan agreement has a 2% annual interest rate, commitment fee of 0.3% annually, management fee of US$633,600, and a 20-year maturity with a 7-year grace period. The nominal interest rate is higher than other recent loan agreements with Japan or Korea which range from 0.08-0.26 percent. The loan is also not necessarily the cheapest loan even if US dollar equivalent interest rates are used.

2. Project is exclusive to Chinese contractors. While a Philippine project,only Chinese contractors are qualified to bid and Philippine corporations were excluded from the process. The China Energy Engineering Company, Inc. (CEEC) bagged the project. The contract is between the Metropolitan Waterworks Sewerage System (MWSS) and Chinese corporations.

3. Loan agreement is biased for Chinese laws. Article 8.4 of the loan agreement stipulates that Chinese Law will govern disputes pertaining to the agreement. Meanwhile, Article 8.5 says that disputes will be dealt with under the auspices of the Hong Kong International Arbitration Court.

4. Philippine patrimonial assets and property may be compromised in case of default on the loan. In the Article 8.1 Waiver of Immunity, the country “waives any immunity on the grounds of sovereignty or otherwise for itself or its property in connection with any arbitration proceeding”.

The loan agreement is financially disadvantageous, tied to Chinese contractors, and an affront to Philippine sovereignty. These issues are also on top of other issues raised by the Dumagats and Remontados, farmers and community folk, environmentalists, engineers, hydrologists, scientists, public servants, consumers, and many more. The dams projects will displace communities, inundate ancestral lands, and destroy the environment.

The Philippine government should not enter into loan agreements having such terms whether with China or any other sources of official development assistance (ODA). The Filipino people bear the burden of paying these onerous loans. This is even getting worse under the Duterte administration which is imposing new and higher consumption taxes while lowering taxes on the rich and on corporations. #

Real Duterte Legacy: Three years of slow growth sign of failing gov’t econ policies

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by IBON Media

Research group IBON said that the economy is on its third year of slowing growth under the Duterte administration, and the slowest in eight years. This shows that government’s market-oriented policies are failing and its claimed economic gains are myths, said the group.

The Philippine Statistics Authority (PSA) reported 5.9% annual growth in gross domestic product (GDP) for 2019, missing government’s revised target of 6-7% growth for the year. Government attributed this to the delayed 2019 budget and election ban on infrastructure in the first half of 2019 and slowing agriculture due to weather-related factors like El Niño.

IBON countered government’s claim that the budget delay and ban on infrastructure pulled back growth last year, noting that the economy was already slowing prior to this. From 6.9% in 2016, the country’s growth in GDP slowed to 6.7% in 2017 and 6.2% in 2018. The 5.9% in 2019 marks the third year of economic slowdown under the Duterte administration. This is also the slowest growth in eight years or since the 3.7% in 2011, the group said.

IBON said that the economic slowdown is really due to the lack of strong foundation in agriculture and Filipino industry – made worse by government’s faulty market-oriented policies.

Growth in the agriculture sector dropped from 4% in 2017 to 0.9% in 2018, then slightly increased to 1.5% in 2019, the group said. Yet government continues its neglect and low prioritization of agriculture as reflected in the national budget. Agriculture’s share in the 2020 budget is just 3.5% – the lowest since 2004 at 3.3 percent.

Meanwhile, growth in manufacturing drastically declined from 8.4% in 2017 to 4.9% in 2018 and just 3.8% in 2019. The group said this is because domestic consumption and exports have weakened amid a protracted crisis and increasing protectionism in the global economy. Manufacturing is low value-added and overly dependent on foreign capital and technology, and produces for the world market.

IBON said that instead, government has relied on temporary external factors to drive growth, but these are weakening. For instance, overseas remittances are growing at a slower rate, decreasing from 5% in 2016 to 4.3% in 2017 and 3.1% in 2018. This rose to 4.6% in the first ten months of 2019 but is not likely to surpass the 2016 growth rate. Growth in exports are also falling from 19.7% to 13.4% in 2018 and just 3.2% in 2019.

The consumer spending and real estate booms that for a time fueled growth are also losing steam. Household consumption registered 7.1% growth in 2016 but dropped to 5.9% in 2017, 5.6% in 2018 and slightly grew to 5.8% in 2019. Real, estate, renting and business activities decreased from 8.9% growth in 2016 to 7.4% in 2017, 4.8% in 2018, and further fell to 3.7% in 2019.

IBON said that government has been attempting to boost a lackluster economy through more government spending and its infrastructure program. But this was not enough to stimulate growth. For instance, construction drastically fell from 14.9% growth in 2018 to just 7.7% in 2019.

IBON said that the country’s economic situation will worsen as long as government pushes policies that favor big business interests. It should admit its failure and take on real reforms needed to strengthen and develop agriculture and domestic industries and turn around the country’s flagging economy, the group said. #

(Kodao re-posts IBON reports as part of a content-sharing agreement.)

Reclamation project tinututulan ng mga taga-Taliptip

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Isang kilos-protesta ang isinagawa ng mga residente ng Sitio Taliptip sa Bulakan, Bulacan sa harapan ng Department of Environment and Natural Resources Region 3 sa San Fernando, Pampanga.

Nanawagan sila sa ahensya na ipawalang-bisa ang Environmental Compliance Certificate ng Silvertides Holdings na siyang sub-contractor ng San Miguel Corporation para sa pagtatayo ng New Manila International Airport o Aerotropolis sa nasabing lugar.

Tinatayang nasa 1,000 pamilya ang mawawalan ng tirahan gayundin na ang hanapbuhay ay pangingisda. Masisira din ang mga bakawan at ilang yamang tubig sa nasabing isla.

Ang Bulacan Aerotropolis ay isa mga proyekto ng pamahalaang Duterte sa ilalim ng Build, Build, Build Program. Bibigyan ng Department of Transportation ang San Miguel Corporation para pamahalaan ang konstruksyon ng Aerotropolis. (Music: news background. Bidyo ni Joseph Cuevas/ Kodao)

Research group: Davao businessmen may be benefiting from Duterte admin’s infra program

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Amid government hype of its Build, Build, Build program, research group IBON noted that there has been a conspicuous increase in public infrastructure spending in the Davao region that seems to have favored Davao-based businessmen.

The group observed that close allies of the president have benefited from the government spending surge by clinching a number of contracts.

IBON cited data from the Philippine Statistics Authority (PSA)  showing that the gross value of public construction in the Davao Region increased by 17.6% from 2016-2017.

The region had the highest increase of gross value in public construction among other regions during the same period.

Among the Davao-based businessmen is the family of former Special Assistant to the President and newly-elected Senator Bong Go who through CLTG builders secured 20 contracts in 2017 for road networks in Davao, said the group. These were worth around Php3 billion in solo projects and joint ventures.

In 2018, CLTG Builders also bagged Php116 million worth of projects in Davao. CLTG builders is owned by Bong Go’s father, Desiderio Go.

Another notable Davao-based businessman is Dennis Uy who, according to the president’s Statement of Contributions and Expenditures, donated around Php30 million to his presidential campaign.

Data from the Public-Private Partnership Center shows that Uy has three unsolicited proposals in Davao that include the Davao International Airport worth Php48.8 billion, Davao People Mover worth Php30 billion, and the Davao Sasa Port Modernization Project worth Php18.7 billion.

Another unsolicited proposal of Uy is the Pasay City Reclamation Project worth Php62 billion.

IBON meanwhile noted that other businessmen may also be gaining from the Build, Build, Build program.

For instance, Department of Public Works and Highways (DPWH) Secretary Mark Villar’s father, Manuel Villar, through Prime Asset Ventures Inc. (PAVI) is eyeing two unsolicited proposals worth Php213.3 billion.

These include the LRT 6 Cavite Line A project worth Php56.3 billion, and the Cavite LRT Line 6c and Sucat Line 6b Projects worth Php157 billion.

IBON reiterated that while the country badly needs infrastructure, genuine development from the Build, Build, Build program can only be achieved if it supports the development of domestic agriculture and Filipino industries.

The Duterte government should not be beholden to its backers and instead pursue an infrastructure program that is not profit-oriented and provides for the Filipino people’s welfare, said the group. #

It is offending China, not war, that Pres. Duterte is avoiding – IBON

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by IBON Media

Research group IBON said that Pres. Rodrigo Duterte’s stance on the West Philippine Sea (WPS) issue, as expressed in his fourth State of the Nation Address (SONA), is not about avoiding war with China, but is about avoiding offending the Chinese government and losing all its promised funds.

Last July 22, Pres. Duterte highlighted the possibility of China attacking the country if the government took a strong stance on its claims in the disputed WPS.

According to the president, “more and better results can be reached in the privacy of a conference room than in a squabble in public”.

IBON, however, said that the administration is only using the possibility of war to conceal the agreements reached “in the privacy of a conference room” between the Philippine and Chinese governments which seem to be at the expense of the Filipino people’s interests.

IBON noted that while other claimants to the disputed area, like Vietnam and Indonesia, are taking a more aggressive stance to defend their claims, China has yet to declare war against these two countries.

The group said that the administration should see this as an opportunity to foster unity between the Philippines and its other neighbors to defend their respective claims against China.

But the government is not doing this, nor is it asserting the July 2016 ruling of the international tribunal, the Permanent Court of Arbitration, that was in favor of the Philippines.

The decision upheld the country’s  rights over the 200-nautical miles exclusive economic zone (EEZ) under the United Nations Convention on the Law of the Sea (UNCLOS).

The President instead has claimed to be proud of his friendship with China, IBON said.

Rather than defend his fellowmen, he has insulted Filipino fishermen by implying that they should be thankful that Chinese Pres. Xi Jin Ping allowed them to fish in the WPS.

He also reduced the ramming and sinking of the Filipino fishing boat Gem-Ver 1 by a Chinese ship in June to “a mere incident”.

IBON said that the reason for the Duterte administration being overly accommodating is most likely due to its desire for Chinese financing.

IBON estimates that the government is seeking as much as Php673.2 billion from China for its 75 flagship projects aside from Php204.7 billion more for infrastructure and other projects – for a total of Php877.9 billion.

According to the group, the terms of the loan agreements that the administration enters into with China for its infrastructure drive are onerous.

These include only using China’s goods and services, including for payment of Chinese contractors and even hiring of Chinese workers; stringent loan payment schedules; contracts being explicitly governed and construed in accordance with the laws of China and disputes having to be settled in the courts of China; and the Philippines waiving its sovereign rights over its patrimonial assets in connection with any arbitration proceeding.

The last is synonymous with the collateralization of  the country’s assets, like natural and strategic resources.

IBON said that instead of being concerned with stepping on China’s toes and losing financing, the Duterte administration should implement a truly independent foreign policy.

Such a policy should defend and uphold Philippine sovereignty, ensure  domestic development, and prioritize the welfare of all Filipinos, said the group. #

Slower economy affirms undue hype over credit rating upgrade

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Slower gross domestic product (GDP) growth during the first quarter of 2019 belies any claim of a healthy Philippine economy.

Research group IBON stressed that the Duterte administration’s enthusiasm over the recent credit rating upgrade that the country got is unwarranted.

Instead of hailing business-biased programs, government should look to more sustainable undertakings in order to push genuinely inclusive economic growth.

The Philippine Statistics Authority (PSA) reported that Philippine GDP grew at its slowest in 16 quarters at 5.6% in the first quarter of 2019 since the 2015 first quarter GDP growth rate of 5.1%.

This is slower than the 2018 first quarter GDP growth of 6.5 percent.

Trade and repair of motor vehicles, motorcycles, personal and household goods and financial intermediation were the drivers of the first quarter growth with faster rates, but the rest of the economic sectors slowed down.

Agriculture had stagnant growth in the last three years, while manufacturing and real estate registered the slowest first quarter growth in the past decade.

News of the economy’s slower growth came at the heels of a credit rating upgrade of BBB+ from Standard & Poor’s, which the Duterte administration attributes to its economic reforms.

The administration’s economic team is also hopeful that with the credit rating upgrade the country could encourage and attract more foreign investments.

IBON however said that the slowdown proves the Duterte administration’s economic centerpiece to be unsustainable, all the more rendering the credit rating upgrade to be meaningless.

The unsustainability of the infrastructure program, Build Build Build, IBON pointed out, was underscored by the slowdown of the construction and real estate sectors, which the National Economic and Development Authority (NEDA) attributed to the delayed enactment of the 2019 national budget.

Construction slowed significantly to 3.9% in the first quarter of 2019 from 10.2% in the same period last year.

A closer look reveals that public construction nosedived from 22.6% to -8.6% during the same period.

Private construction, meanwhile, was slightly faster from 8.1% to 8.6% within the same period, however registering a substantial slowdown from 19.3% in the fourth quarter of 2018.

Real estate, renting and business activities continued its slowdown from 8.7% in the first quarter 2016 to 4.1% in the first quarters of 2019.

IBON added that the budget delay, which reportedly stifled government spending as agencies were compelled to operate on a reenacted 2018 budget, even puts government’s determination for rapid growth into question.

Any government that is solid on its development vehicle, in this case, an ambitious infrastructure program, would not waste time to promptly allocate the needed budget for it, said the group.

IBON said that instead of focusing on the infrastructure program to boost GDP growth, loans, investments, and even employment, government should exert greater efforts towards sustainable sources of inclusive growth.

The group noted that contrarily, the country’s production sectors are stagnant or on a continuous slowdown.

IBON noted that growth in agriculture, fishery, and forestry fell to 0.8% in the first quarter of 2019 from an already negligible 1.1% in the first quarter of 2018.

Manufacturing slackened further to 4.6% from 7.3% in the same period.

Agriculture registered 1.7 million jobs lost from January 2018 to January 2019, the largest contraction of agriculture jobs across all January rounds post-Marcos administration.

Manufacturing created only 110,000 jobs in the same period, only a fourth of the seasonal jobs created in construction.

IBON reminded that government’s bid for the pro-business Build Build Build and for foreign investments will not bring long-term benefits to the country unless accompanied by a solid agriculture and industry centered development plan.

Without boosting the country’s production base, sustainable and inclusive economic growth will remain elusive, said the group. #

Beware of onerous China ODA – IBON

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In its eagerness to raise billions of pesos in funds for its hyped infrastructure program, the Duterte administration is brokering questionable deals with China that could threaten Philippine sovereignty, research group IBON warned.

IBON said that agreements between both governments include China’s official development assistance (ODA) loans for Build, Build, Build infrastructure project like the Php12.2 billion New Centennial Water Source-Kaliwa Dam, which will be 85 percent funded by China.

The Duterte administration needs Php8.4 trillion for its whole term to bankroll Build, Build, Build, said the group, and is apparently counting on China to provide a substantial amount of this.

IBON said the size and value of China investments, loans and interest is not yet as extensive as those of other countries like Japan and the US, or financial institutions like the International Monetary Fund (IMF) and World Bank (WB).

However, Filipinos should be particularly wary of the onerous conditions China imposes, which could result in the Philippines virtually giving up its sovereignty, said the group.

For instance, China ODA has been known to stipulate the collaterization of resources and state assets should a country default on its loan payments, noted the group.

The Sri Lankan government, for instance, was forced to lease its strategic Hambantota Port for 99 years to a Chinese company when it was unable to pay back its debt to China.

IBON also noted that another lopsided condition terms of reference in China loans that require the agreement as well as the rights and obligations of both parties be put beyond the scope of Philippine laws and transparency in the public domain. China apparently prefers disputes to be settled at the China International Economic and Trade Arbitration Commission (CIETAC).

These conditions are included in the Chico River Pump Irrigation loan agreement.

Additionally, IBON questioned the provision in the loan agreement stating that it “shall be governed by and construed in accordance with the laws of China.”

The group expressed concern that this could mean that Chinese law will supersede Philippine law in case there is a conflict between the two.

Also of concern is the Duterte administration’s willingness to give up its territorial resources in the South China Sea to secure China investments and loans, the group said.

In line with this is the administration’s efforts to be a part of China’s Belt and Road Initiative (BRI), which supposedly gives access to coveted infrastructure investments.

In exchange, the Philippines has been easing the way for China’s interests in the disputed waters.

IBON said that instead of prioritizing the attraction of one-sided foreign investments and loans for its infrastructure program, the government should put national interest and public welfare first over local and foreign big business interests.

To be beneficial to the country, foreign investments and loans that are being considered should be planned in accordance with the genuine development of domestic agriculture and industries, with close monitoring and regulation by the government. #

Protest greets Xi Jinping visit

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Various groups held a mass action at the Chinese consulate in Makati City last Tuesday (November 20) to denounce the visit of Chinese President Xi Jinping as they expressed outrage against the Rodrigo Duterte government for its subservience to the Chinese government.

The Pilipinong Nagkakaisa Para sa Soberanya o P1NAS called Duterte a traitor to the Pilipino people as it pointed out that his government is virtually surrendering Philippine territory in the West Philippine Sea to China.

Even after losing in an international tribunal that determined the disputed areas are part of the Philippine exclusive economic zone three years ago, China refuses to recognize the decision  proceeded to militarize some islands.

China’s presence in the area includes so-called “ joint development” schemes with the Duterte government seen as a  weakening of the Philippine claims.

In the said rally, Bagong Alyansang Makabayan (BAYAN) expressed concern that Duterte’s economic deals with China may push the Philippines under deeper debt.

In his visit to the Philippines, Xi took home 29 agreements, including an understanding on joint oil exploration in the West Philippine Sea and the construction of mega dams, including the Chico River Pump Irrigation, the New Centennial  Water Source Kaliwa Project, and the Agus-Pulangi Mega Dam project.

Indigenous peoples earlier raised fears that the China-ODA projects will cause their displacement from their lands and livelihood.

“Pawning our lands to an imperialist country like China is a serious crime that may lead to ethnocide,” Kalipunan ng Katutubong Mamamayan ng Pilipinas said. # (Joseph Cuevas)

Unsolicited projects for favored business interests to rise under Pres. Duterte?

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By Arnold Padilla / IBON Features

When President Duterte said last month that “all projects of the Philippines would be something like a Swiss Challenge”, media attention has focused on the Swiss Challenge and its implications. But what the presidential statement implied was that in order to supposedly fast track his ambitious Build Build Build program, the administration may encourage more unsolicited proposals and negotiated contracts.

And there lies the real and bigger problem. Unsolicited proposals and negotiated contracts are the worst form of public procurement of infrastructure under the public-private partnership (PPP) scheme. These negotiated deals are the most prone to bureaucratic corruption and to patronage for favored business interests.

Close ties

San Miguel Corporation (SMC) president Ramon Ang, for instance, is among the closest to Malacañang. He is publicly known as one of the (unofficial) major campaign contributors of Pres. Duterte and patron of the Chief Executive’s controversial anti-drug campaign. SMC, a Php255-billion diversified conglomerate and known to cultivate close ties with whoever is in power, is currently implementing theunsolicited Php62.7-billion MRT-7 while awaiting government approval of two more unsolicited mega infrastructure projects.

Based on the revised (2012) Implementing Rules and Regulations (IRR) of the Build-Operate-Transfer (BOT) Law, unsolicited proposals are “project proposals submitted by the private sector, not in response to a formal solicitation or request issued by an Agency/LGU (local government unit) and not part of the list of priority projects as identified by Agency/LGU, to undertake Infrastructure or Development projects.”

A third party could challenge the offer of the original proponent of an unsolicited proposal through what is called the “Swiss Challenge”. In order to bag the contract, the original proponent should match the counter-offer of the third party. In practice, however, all unsolicitedprojects concluded in the Philippines since the 1990s were clinched by the original proponent except in the case of the controversial NAIA Terminal 3 where the challenger (Philippine International Terminals Co. Inc. or PIATCO) won but the contract was declared null and void by the Supreme Court (SC) due to irregularities.

At the start of its term, the Duterte administration’s economic managers already announced that the government is open to unsolicitedproposals aside from its so-called hybrid PPP – i.e. mobilizing official development assistance (ODA) to build infrastructure and later bidding out its operation and maintenance (O&M) to the private sector. Ang, however, called hybrid PPP as “complicated” and expressed preference for unsolicited proposals for supposedly faster delivery of projects.

Following the President’s pronouncement of openness to unsolicited projects, the latter flooded the government, with project proposalsreaching a total of as much as Php3 trillion in the first year of the Duterte administration according to a news report last year. But most of these are just concepts or ideas, with actual proposals under evaluation by the Investment Coordination Committee (ICC) reaching only three as of the latest (January 2018) projects status report from the PPP Center.

But these three unsolicited proposals are among the just five PPP projects that the PPP Center said could probably be rolled out this year. Two of these unsolicited proposals have SMC as the original proponent – the Php700-billion New Manila International Airport and the Php338.8-billion Manila Bay Integrated Flood Control, Coastal Defense and Expressway Project. The third one is the Php51.17-billion East-West Rail Project of Megawide Construction Corp.

A separate news report said that SMC has an unsolicited proposal to the state-run Philippine National Construction Corp. (PNCC) to expand the Metro Manila Skyway and the South Luzon Expressway (SLEX) for Php554 billion.

Combined, the indicative cost of SMC’s reported unsolicited proposals (Php1.59 trillion) already account for 53% of the cost of all unsolicitedproposals (Php3 trillion) reportedly being pitched to the Duterte administration. To get a better grasp of how huge these two projects are, note that the total amount of all (16) PPP projects that have been awarded since the Aquino administration is “just” Php323.06 billion.

Beyond transparency and corruption

Even PPP advocates while recognizing that the presence of unsolicited proposals is on the rise warn governments to use them with caution and within a strict regulatory framework. In a review of unsolicited projects worldwide, a study commissioned by the Public-Private Infrastructure Advisory Facility (PPIAF) of the World Bank noted that among the common concerns on unsolicited proposals are: (1) lack of transparency in selection and implementation of projects; (2) avoidance of competition; (3) avoidance of due diligence processes; (4) opportunities for corruption and political patronage; and (5) acceptance of poor quality projects (design and/or execution) that do not even meet minimum requirements of any sort, in the name of expediency. The World Bank reportedly prohibits the use of unsolicited proposalsin projects that they fund.

Beyond transparency and corruption issues, however, the greater impact of unsolicited proposals involve how such procurement method further weakens the mandate and capacity of the state to design and implement a rational infrastructure program that is responsive to the long-term needs of the people and the economy. Unsolicited proposals also represent how corporate interests that are mainly driven by profit motivation take over infrastructure development and operation, often at the expense of the country’s overall development and social agenda.

Ideally, infrastructure projects are determined by and consistent with the development plan of a country, meaning projects are initiated and prioritized (including in terms of resource allocation) by government based on such plan. Government’s role goes beyond identification, resource mobilization and construction, and extends to operation and maintenance of the infrastructure.

This has been the practice in many countries including the Philippines until the advent of neoliberalism in the 1980s and its rapid expansion in the 1990s. Government’s role has been reduced to listing down of infrastructure projects and soliciting private investors to build and operate them through bidding or direct negotiation. This is already problematic by itself as it essentially privatizes the infrastructure and distorts its economic and social purpose as commercial viability becomes the primary consideration.

Tailor-made public infra for private interests

Unsolicited proposals thus further detach infrastructure development from specific public needs and interests. With the private proponent initiating the process of identification and conceptualization, unsolicited projects are often not reflective of priority infrastructure needs. In addition, unsolicited proposals reinforce the undue concentration of infrastructure development in urban centers and more developed regions at the expense of poorer regions or areas that need more infrastructure, but where commercial prospects or interests are less for private sector proponents.

There are cases where big business proposes infrastructure projects that are not just meant to supply public needs (and directly profit from it) but are also tailor-made to bolster its other private commercial interests. One example is the unsolicited proposal jointly submitted by SM and Ayala groups to build a Php25-billion 8.6-kilometer elevated toll road that will supposedly help decongest traffic along EDSA. But the project will actually benefit the two conglomerates’ property development interests as the proposed toll road would also increase access to the SM Mall of Asia complex and Ayala’s Makati business district. SMC is questioning the SM-Ayala proposal because it will allegedly duplicate the existing SMC-operated NAIA Expressway and affect traffic volume (and profits).

But while SMC is questioning the need for the SM-Ayala’s unsolicited toll road, the wisdom of its own unsolicited New Manila International Airport is also questionable. Under its proposal, SMC will build a massive Php700-billion airport spanning thousands of hectares along Manila Bay in Bulakan, Bulacan with six parallel runways and an initial 100-million passenger capacity (thrice of NAIA’s). But it will also just duplicate the recently awarded Clark International Airport Expansion Project (a solicited PPP deal bagged by Megawide) whose further expansion has lower social (as a new infrastructure, the Bulacan airport could potentially displace more communities) and financial costs (e.g. there are three separate unsolicited proposals to develop Clark airport from JG Summit, Megawide, and Manny Pangilinan’s group with costs ranging from Php187 billion to Php337 billion).

For SMC, the agenda is not just to build and operate an airport that would be an alternative to the highly congested and inefficient NAIA. What SMC wants to build is an “aerotropolis” or a metropolis revolving around an airport. Aside from the 1,168-hectare airport, the plan includes a 2,500-hectare city complex which gives the giant conglomerate additional potential profits from property development as well as a toll road that will link with NLEX, on top of running the airport.

No guarantees

According to the BOT Law and its IRR, unsolicited projects are not entitled to direct government guarantee, subsidy or equity. Nonetheless, like solicited PPP projects, they are still eligible for other perks including investment incentives under the Omnibus Investment Code and performance undertaking (i.e., a government guarantee that it will assume responsibility for the performance of an agency’s obligations under the contractual arrangement including the payment of monetary obligations, in case of default) such as what SMC’s unsolicited MRT-7 project enjoys. They even enjoy “security assistance”, or the deployment of police or military forces in the vicinity of the project site to provide security during the implementation of the project up to completion.

The BOT Law requires as well that proposals be innovative and offer a new concept or technology. But it is unclear what is particularly innovative in an airport in Bulacan or an MRT along Commonwealth Avenue to pass as unsolicited projects. Indeed, a 2012 assessment ofunsolicited projects prepared for the PPP Center (with support from the Asian Development Bank or ADB) concluded that “most (unsolicited)proposals did not really offer new technology”.

What is clear is that there are no guarantees that the country’s chronic infrastructure crisis, which is being used to justify more unsolicitedproposals and negotiated deals, would be solved with more unsolicited projects. On the contrary, undue public burden could increase as numerous but disjointed or impractical networks of roads, airports, and other infrastructure are built through self-serving unsolicitedprojects by big business interest.