‘Dutertenomics’: golden age of oligarchic and foreign interests in infrastructure?

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Duterte’s economic managers present “Dutertenomics” – a grand plan that they said will usher in a “golden age of infrastructure” (Photo by Marianne Bermudez/Inquirer.net)

Build, build, build” is said to be the foundation of the Duterte administration’s development plan, which his economic managers are packaging as “Dutertenomics”. The plan is supposed to usher in a “golden age of infrastructure”.

But despite the attempt at branding, Dutertenomics is neither new nor unique. Its cornerstone of massive infrastructure development is still built on the neoliberal agenda of opening up additional profit-making prospects for big local and foreign business, including through “development” lending, building and operating the infrastructure themselves and/or constructing facilities that would benefit their commercial interests.

Worse, the ambitious plan may not usher in a golden age of infrastructure but instead a golden age of oligarchic and foreign interests in infrastructure while the public bears more onerous financial burden arising from greater debts and taxes.

AmBisyon Natin

There is no denying of the urgent and huge infrastructure needs of the country, especially transport. The Philippines has the worst overall infrastructure and worst transport infrastructure (roads, railroads, port and air transport) among major countries in Southeast Asia, according to the 2015-2016 Global Competitiveness Report of the World Economic Forum (WEF). The intolerable traffic in Metro Manila and the state of disrepair of the public transport system illustrate the dismal shape of transport infrastructure in the country.

Thus, infrastructure, specifically the transport sector, has been made the cornerstone of Dutertenomics. It is a key component of AmBisyon Natin 2040, a vision to make the Philippines a “prosperous, predominantly middle-class society” that President Rodrigo Duterte has adopted as guide for long-term national development planning.

AmBisyon Natin listed priority sectors that include the development of infrastructure such as roads, ports, airports, bridges and communication (“Connectivity”) as well as housing and urban development. It also identified “investment in high-quality infrastructure to make the cost of moving people, goods and services competitive” as one of the policy instruments to make the aspirations of AmBisyon Natin a reality.

The Philippine Development Plan (PDP) 2017-2022 is the first medium-term plan anchored on AmBisyon Natin. Under this PDP, the Duterte administration aims to make its six-year term the so-called “golden age of infrastructure” with spending on infrastructure increasing substantially (i.e. 5.1% of gross domestic product or GDP in 2016 to 7.4% in 2022). Concrete and measurable indicators have been set for transport infrastructure (road, rail, air and water transport); water and power resources; and social infrastructure (classrooms, health centers, housing units).

(Download the PDP’s Chapter 1 – Introduction and Chapter 19 – Accelerating Infrastructure Development)

The “golden age of infrastructure” includes an initial list of 64 big-ticket projects for implementation or in the pipeline that are mostly transport infrastructure such as major road networks, railway systems, bus rapid transit systems, and airport and seaport modernization. These are on top of 15 ongoing infrastructure projects, which are either locally funded, with official development assistance (ODA), or through public-private partnership (PPP).

Hybrid and unsolicited PPP

PPP, which is essentially the neoliberal privatization of infrastructure development and commercialization of services, will continue to be the main program to meet the country’s infrastructure needs. The PDP will promote PPP by addressing “bottlenecks in PPP planning and implementation” and pursuing “reforms to enhance the business environment” to encourage investors. To do these, among the legislative agenda under the PDP is the amendment of the BOT Law and its implementing rules and regulations (IRR).

In the previous Aquino administration, such policy reform has taken the form of the PPP Act that will among others institutionalize state guarantees on financial and regulatory risks of PPP projects. (Read “Aquino’s PPP legacy”) In the current 17th Congress, bills to introduce the PPP Act and BOT Law amendment have already been filed in both chambers. At the Senate, Sen. Sonny Angara filed Senate Bill (SB) No. 951 (“PPP Act”) while at the House of Representatives Rep. Vilma Santos-Recto filed a counterpart proposal (House Bill or HB No. 1944). HB 2727 of Magdalo party-list Rep. Gary Alejano, meanwhile, aims to amend the BOT Law. There are also moves to introduce foreign investment liberalization through the PPP Act.

As of March 28, there are 15 awarded PPP projects worth Php310.51 billion, based on the latest status report of the PPP Center. Of these, four are completed and operational (Php31.77 billion); seven are under construction (Php150.01 billion); and four are under pre-construction (Php128.73).

The country’s richest and most influential oligarchs control these PPP projects. The San Miguel Corp. (SMC) group accounts for 45.9% of the total cost of ongoing and/or completed PPP projects as of March 2017. The Manny V. Pangilinan (MVP) and Ayala tandem, meanwhile, comprises 21.5% on top of MVP’s own projects comprising 18.9 percent. All in all, the SMC, MVP, and Ayala groups collectively control 10 of the 15 ongoing and/or completed PPP projects worth Php275.15 billion or equivalent to 88.6% of the total cost. (See Chart)

Blog 05 Dutertenomics infrastructure Chart

These same oligarchs are positioning themselves to corner more infrastructure projects as the Duterte administration promotes unsolicited projects and the so-called hybrid PPPs to push its grand infrastructure plan.

Unsolicited projects proposed by the big oligarchs now total Php2.6 trillion, mostly in the transport sector as they see opportunity in the traffic crisis. These big oligarchs take advantage of unsolicited projects to build infrastructure that they will not only profit from but would also benefit their other business interests (e.g. SM’s unsolicited proposal to build a Php25-billion toll road that will link its malls in Pasay and Makati). This further weakens the central role that government should be playing in rationally planning and deciding which key infrastructure projects are needed, where to put them, and how they serve the overall development plan.

Hybrid PPP, on the other hand, is a worse form of PPP because it puts even heavier load on the public sector than the already onerous burden it shoulders under a regular PPP. In a regular PPP, the private sector will raise funds to build the infrastructure, and then operate and maintain (O&M) it in a fixed period to recover investments and earn profits. In a hybrid PPP, the public sector will finance the construction of the infrastructure through official development assistance (ODA) loans and then give the O&M to the private sector. The public will thus be burdened with direct debt servicing for the ODA loans (in a regular PPP, debt is often a contingent liability), profit guarantees and other perks for the private operator, and high user fees.

With preference for unsolicited projects and hybrid PPP, and the pending Traffic Emergency Bill – supposedly meant to address the traffic crisis – the stage to favor certain big oligarchs is set. With emergency or special powers, the Executive could fast track the implementation of transport infrastructure projects through negotiated contracts in the pretext of solving the urgent traffic crisis.

Increased foreign role

Meanwhile, as bilateral relations with China warm up under Duterte, the administration is actively seeking Chinese financing for big-ticket infrastructure projects through bilateral ODA loans, as well as multilaterally through the China-led Asian Infrastructure Investment Bank (AIIB), to fulfill the so-called “golden age of infrastructure”.

Reports say that China is set to finance Php172.4-billion worth of infrastructure projects this year. This is part of the 15 projects identified for Chinese financing under the Duterte administration estimated at a total of $6.96 billion (Php349.92 billion). Earlier reports indicated that one of the projects that China will finance is the South Line of the North-South Railway Project (NSRP) for $3.01 billion (Php151.33 billion). China also expressed initial interest in bankrolling “Duterte’s dream” of Php218-billion, 830-kilometer Mindanao railway system.

Aside from China, other imperialist financial institutions are also lining up to fund Duterte’s “golden age of infrastructure”, also mostly in the transport sector. The Japan International Cooperation Agency (JICA) has committed to finance three mega-transport projects with a combined cost of $8.8 billion (Php442.42 billion). Eleven other projects are being pitched as well to Japan for possible funding including irrigation and flood control projects. These projects are: $4.3-billion initial phase of the Mega Metro Manila subway system connecting FTI in Taguig City to the SM North EDSA and Trinoma malls in Quezon City; the $2.7-billion commuter line extending to Los Baños, Laguna, the south line of the North-South railway project, and the $1.9-billion high-speed rail extending to the soon-to-rise Clark Green City of the North-South Commuter Railway connecting Tutuban in Manila and Malolos, Bulacan.

The US-controlled World Bank, on the other hand, is providing $64.6 million (Php3.25 billion) for the first line of the Metro Manila bus rapid transit (BRT) system.

With increased ODA borrowing to fund infrastructure development, Duterte’s economic team has been pushing for a package of tax reforms that would be shouldered more heavily by the poor and ordinary income earners. The tax reform package entails additional burden that includes higher value-added tax (VAT), expanded and higher excise tax on all petroleum products, as well as the sugar excise tax. While the poor bear the brunt of these reforms, the rich get tax benefits such as lower corporate income tax as well as tax cuts in real estate and property-related transactions. And these rich include the oligarchs that corner the infrastructure projects (including those to be funded by ODA) the costs of which the taxpaying public will shoulder.

In addition to financing PPP projects, increased role for foreign interests is expected as the push to further liberalize infrastructure development continues. The US, for instance, has renewed calls to lift constitutional restrictions on foreign investments to allow and encourage American firms to participate in the Duterte administration’s PPP program. Another route being promoted by the US for American involvement in PPP is through the relaxation of limits set under the Foreign Investment Negative List (FINL). Meanwhile, Duterte himself has said that he is supportive of lifting constitutional limits on foreign investments through Charter change (Cha-cha).

Already, the PPP Center under the current administration has launched a UK-funded (Php4.35 million) Development of Foreign Investment Framework Project that “will facilitate the legal and institutional push to further build a favorable PPP business environment for foreign investors”. The output of this project will be translated into inputs to the PPP Act and its IRR.

Another pending legislative proposal to allow full foreign participation in key infrastructure sectors is HB 446 that seeks to amend the Public Service Act and redefine public utility. When passed, it will open telecommunications, transport and power industries to 100% foreign ownership.

Policy issue of profit-driven infrastructure

Ongoing PPP/infrastructure/transport projects continue to burden the people. The Php62.7-billion MRT-7 project (SMC) – the second largest among active PPP projects – for instance, is fraught with onerous contractual terms that are disadvantageous to taxpayers (state guarantees on private debt, amortization payments, etc.) and end-users (guaranteed fare adjustments) while causing massive displacement among urban poor and farmer communities. The same thing is true with the LRT-1 (MVP-Ayala) PPP project. (Read “How MVP-Ayala will squeeze LRT 1 commuters dry”)

Ultimately, it all goes back to the policy issue of private sector and profit-driven infrastructure development that the so-called Dutertenomics promote. The country needs to urgently address its infrastructure crisis but as IBON has repeatedly raised in the past, infrastructure development for transport as well other key sectors carried out with profit-driven agenda contradicts and undermines the role of infrastructure in improving the living condition of the people and serving the overall economic development and general public interests of the country. ###

This article was first published as IBON Features

(Exchange rate used: Php50.2752 per US dollar, March 2017 average, BSP – http://www.bsp.gov.ph/statistics/spei_new/tab12_pus.htm)

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