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

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.

PH minerals benefit foreigners not Filipinos

By IBON.org

Majority of Philippine minerals are exported and mainly benefit foreign corporations, research group IBON said. While ensuring environmentally safe and responsible mining methods, the Duterte administration should also ban the exodus of the country’s raw minerals. These should instead be efficiently reserved for and utilized to support and develop the country’s key industries towards national industrialization, said the group. Read more

On Consumer Welfare Month: 20 years of MWSS privatization, 20 years of violating the people’s right to water

By Water for the People NetworkThe 20th anniversary of the privatization of the Metropolitan Waterworks and Sewerage System (MWSS) in August was considered a milestone by privatization proponents. The MWSS has often been used to showcase the supposed benefits of turning over water supply services to private corporations. But the start of government-declared Consumer Welfare Month is an opportune time to note that two decades of MWSS privatization has harmed the interests of the consumers and the general public. While ensuring huge profits for Manila Water Co. Inc. and Maynilad Water Services Inc., it has violated the people’s right to water, the various ways by which are listed below:

  1. MWSS privatization has resulted in soaring water rates as private concessionaires rake in massive corporate profits

Between August 1997 and August 2017, the basic tariff of Manila Water has soared by 969 percent. The basic tariff of Maynilad, meanwhile, has ballooned by 596 percent. The all-in tariff, which counts the basic tariff plus add-on charges, for Manila Water has increased by 762% during the same period. For Maynilad, it has jumped by 548 percent.

This translated to enormous profits with a combined accumulated income of Php94.5 billion from 2000 to 2015. Such soaring rates and massive profits for Manila Water and Maynilad were made possible by the concession agreements (CA) they signed with MWSS. Tariffs reflected the impact of inflation, adjustments in the foreign exchange rate, and the concessionaires’ petitioned basic charge which would allow them to supposedly implement their business plan and achieve a guaranteed rate of return in the succeeding five years.

Privatization guaranteed the profits of Manila Water and Maynilad not only by allowing them to pass on all the risks of running a business to the consumers. Privatization also legitimized the collection from the consumers of onerous and questionable charges by MWSS concessionaires.

During the last rebasing in 2013, it was exposed that Manila Water and Maynilad had been including questionable items in their application for new rates. As in previous rebasing exercises (2002 and 2007), they passed on to clueless customers the costs of their corporate income tax (CIT), unimplemented projects, advertising, donations, and recreation.

  1. MWSS privatization has seriously undermined the power and mandate of government to regulate the private concessionaires to protect public interests and welfare

The last rebasing also exposed a key feature of MWSS privatization which is how the power of the state to regulate businesses to protect public interest is greatly undermined. When the Regulatory Office (RO) prohibited the concessionaires from passing on their CIT and other questionable charges to the consumers, Manila Water and Maynilad promptly challenged the decision through international arbitration. This is a mechanism provided by the CA to settle disputes between the concessionaires and MWSS on the interpretation and implementation of the contracts’ provisions, including on the setting of rates. It is a secretive and undemocratic process that includes only representatives of MWSS and the concessionaires and without any public participation. It is being chaired by an unaccountable foreign third party that also represents big business interests.

Filipino taxpayers now face the possibility of shouldering as much as Php82 billion in additional burden if the concessionaires are able to secure favorable decisions from international arbitration. Already, the arbitration panel that heard Maynilad’s case ordered government to pay Php3.4 billion. These amounts represent the supposed losses of the concessionaires when the RO disallowed the continued collection of the CIT and other questionable charges. As stipulated in the CA, government has committed to pay for these supposed losses through what is called sovereign guarantee.

As early as 1998 or a year into privatization, Manila Water had already sought international arbitration to compel the RO to increase the firm’s rate of return contained in its original bid. Aside from the arbitration mechanism, concessionaires also resort to blatant arm-twisting to force favorable decisions from government. In 2001, the original investors of Maynilad blackmailed government to amend the CA to allow it to increase rates or else it would terminate the contract.

  1. MWSS privatization has further weakened the people’s right to water amid questionable claims by the concessionaires of improved water services

The soaring water rates and onerous charges being imposed by Manila Water and Maynilad have effectively marginalized poor households from enjoying the right to access water for domestic use. Amid depressed wages and chronic unemployment, water services along with other basic daily necessities, have put increasing pressure on ordinary families’ budgets.

While both concessionaires claim almost universal water supply coverage, poor communities in their service areas do not enjoy the same quality of service that well-off customers like richer households and commercial areas have. Instead of individual connections, poor communities have to make do with bulk meter connections. Aside from compromising the safety and quality of water, it is also not unusual that the water supply in these poor communities is not available 24/7.

Based on the latest available data, the number of persons per connection for Manila Water is seven, and nine for Maynilad, indicating the prevalence of bulk connections – mainly among urban poor communities – in the MWSS concession areas. Thus, while the concessionaires claim outstanding performance (which the RO apparently could not even independently verify), the truth is that many households, in particular the poor, are not individually connected to the water supply system, which is supposed to be the standard. The poor also end up paying more as block tariff rates apply on these bulk connections.

Aside from universal and 24/7 supply coverage, the concessionaires also promised to provide improved sewerage coverage, which they substantially failed to do amid limited investments despite skyrocketing water rates. In their original service targets, Maynilad committed to achieve 31% sewerage coverage by 2016 and 52% for Manila Water. As of December 2013 – the latest available data – Manila Water has only achieved 12% and Maynilad, 11 percent.

  1. MWSS privatization has deepened corporate and foreign control over vital infrastructure and key services in the country

From the onset, MWSS privatization has been an agenda of big corporate and foreign interests.  Foreign creditors World Bank, Asian Development Bank (ADB), and Japan Bank for International Cooperation (JBIC) pushed for the privatization of MWSS, which then owed them some US$800 million in debt. The World Bank’s International Finance Corp. (IFC) served as government consultant in MWSS privatization and designed the concession agreement.

The IFC is now an investor in Manila Water, raking billions of profits from a contract it designed itself. Manila Water is led by Ayala Corporation and United Kingdom (UK)-based United Utilities. Aside from the IFC, other foreign investors include Japanese giant, Mitsubishi Corp. as well as First State Investments of the UK, Singapore-based global fund manager Aberdeen Asset Management plc, and US-based equity mutual fund Smallcap World Fund Inc.

Meanwhile, Maynilad is currently controlled by Manny V. Pangilinan through the Metro Pacific Investments Corp. (MPIC) and DMCI Holdings of the Consunji family. MPIC , of course, is backed by  Indonesia’s Salim group. Other foreign interests in Maynilad are MCNK JV Corp., a unit of Japanese giant Marubeni Corp., and Lyonnaise Asia Water Limited, a unit of French firm Suez, one of the world’s largest water companies.

Water privatization is being challenged worldwide – from France where some of the first water privatization took place and where the world’s largest water firms are based – to Jakarta, Indonesia which privatized its water system the same year as Metro Manila and used the same model.

Water privatization must be reversed. There is no way out of the trap of exorbitant water rates and unreliable service for the poor unless the concession agreements with Manila Water and Maynilad are junked and the operation of the water supply system is taken over by a reformed public sector. # (Ibon.org)

PH should assert sovereignty vs China and US – Ibon

AS THE Philippines claimed victory against China over the West Philippine Sea due to a favorable decision at the arbitral court on sea disputes in The Hague, The Netherlands, research group IBON Foundation urged President Rodrigo Duterte to assert national sovereignty versus China and the United States.

IBON in their 2016 Midyear Birdtalk held at UP Diliman last Saturday said that the real conflict is between the two superpowers China and US.

Read more

ITANONG MO KAY PROF: Podcast on Mamasapano encounter

Panayam ng Kodao Productions kay Prof. Jose Maria Sison hinggil sa madugong sagupaan sa pagitan ng SAF at MILF sa Mamasapano, Maguindanao noong January 25, 2015.

February 1, 2015

Ano ang inyong masasabi sa pahayag ng FBI na walang kinalaman ang US sa naganap na Mamasapano encounter?

JMS: Nasa katangian at papel ng FBI na magsinungaling tungkol sa covert operations o lihim na operasyon nito. Mahaba at malalim ang pakialam ng FBI sa proyekto na hulihin o patayin si Marwan at Usman. Nahahalata naman ito sa lantarang pagtanggap ng FBI na sila ang bahala sa reward money at sa DNA analysis. Pero may kinalaman din ang FBI sa pagsasanay sa Special Action Force, sa intelligence at pagsasagawa ng Oplan Wolverine.

May papel ang FBI sa porma ng bilateral police cooperation. Pero kasangkot din ang iba pang ahensya ng Amerikano,tulad ng US Army Special Forces. US Army facility ang GPS surveillance at real-time monitoring sa communications gadget na ipinain kay Marwan at mga aide niya. At malamang na si US Ambassador Goldberg o ang CIA station chief ang nag-utos kay Aquino.

Ayon sa mga tao sa baryong pinangyarihan ng sagupaan, may blue-eyed na Amerikanong sundalo na nakita nilang patay. At nakunan naman ng retrato ang Amerikanong sundalo mula sa Joint Staff Special Operations Task Force. Kasama sila sa pagtingin, pag-usisa at pagkuha sa mga bangkay ng mga sundalong SAF. Lumabas ang mga retrato sa mga peryodiko.

2014 IBON Yearend Birdtalk

2014 IBON Yearend Birdtalk
Political and Economic Briefing
UP College of Education, Diliman
January 23, 2015

More news at www.ibon.org

LRT-MRT FARE HIKE WILL NOT GO TO TRAIN IMPROVEMENTS, GROUP REITERATES

The argument that the fare hikes for LRT 1 and 2 and MRT 3 are justified because it will go to the much-needed improvements for the train system is erroneous, research group IBON reiterated. It added that this claim is meant to appease growing opposition over the unreasonable and unjust fare hikes.

No less than the Department of Transportation and Communication (DOTC) admitted that the MRT fare hike would go not to the much-needed improvements of the infrastructure, amid glitches and breakdowns, but to serve government’s questionable financial obligations to the MRT Corporation (MRTC).

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The DOTC announced the fare increases over the holiday break, which has sparked public outrage. IBON has stressed that the current fares are enough to cover the operation and maintenance (O&M) costs of the light rail transport systems.

According to the group, low fares are not the reason behind bloated government expenses for the LRT/MRT. In the case of MRT, the costs swelled because of the onerous financial obligations of government arising from its build-lease-transfer (BLT) contract with the privately owned MRTC. Under the BLT, government agreed to pay for the guaranteed annual 15% return on investment (ROI) of the MRTC in the form of equity rental payments (ERP), as well as the settlement of MRTC’s tax liabilities.

Based on latest available data, these financial obligations under the BLT comprise about 81% of total MRT 3 expenses, while only 19% go to O&M. It should be noted that half of the projected Php2-billion ‘savings’ that government expects to generate from the fare hikes will come from the MRT.

For LRT 1 and 2, bulk of the expenses goes to  their debt servicing with more than 47%, based on latest available data. Government, through the taxpayers’ money, shoulders these expenses since the LRT system is a public investment.

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But what makes the fare hike more unjust, particularly in the case of LRT 1 that has been recently privatized, is that the people will bear an increasing share of the debt-servicing burden even as the system generates private profits for the consortium of the MVP-Ayala group and their foreign partners. The consortium won the LRT 1 public-private partnership or PPP project last year.

According to IBON, it is clear that there is no need for a fare hike if government will fulfill its mandate of providing a reliable and affordable mass transportation system. The group stressed that mass transportation should be measured not in terms of commercial viability but on its contribution to citizens and the economy. (end)

 

(IBON Media Release/Photos by Reggie Mamangun)