Photo slideshow, Privatization

Photo slideshow: people’s protest vs PPP summit

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Activists from various people’s organizations under the umbrella group Bagong Alyansang Makabayan (Bayan) today (November 18) trooped to the Manila Marriot Hotel in Pasay City where a summit aimed to promote the Aquino administration’s public-private partnership (PPP) scheme is being held. In his speech to officially open the summit, President Aquino, as expected, promised to guarantee PPP projects in a bid to attract more investors. Read more about the PPP summit here and why the people should denounce it.


PPP summit: A grand party of the biggest compradors and finance oligarchs hosted by a haciendero President

(Click here for the official website of the PPP summit)

Senior government officials led by President Aquino himself, some 150 to 200 foreign and local investors, and high-level representatives from the World Bank, Asian Development Bank (ADB), Japan Bank for International Cooperation (JBIC) as well as private financial institutions like the Deutsche Bank AG, HSBC, Standard Chartered, and ING Bank N.V., among others are expected to attend the so-called “Infrastructure Philippines 2010” or better known as the public-private partnership (PPP) summit.

The PPP summit, which will officially open today (Nov. 17) at the posh Manila Marriot Hotel, is like a grand party organized by the haciendero President for the biggest local compradors, foreign finance oligarchs, and multilateral creditors to discuss how they can further squeeze profits from the Filipino people through PPP projects in infrastructure.

Who benefits from PPP?

Private investors participate in infrastructure development with the clear goal of making and maximizing profits, according to the ADB itself. The job of government, as a consequence, has been reduced from ensuring that the infrastructure needs of the people and of the economy are met to ensuring the most favorable investment climate for the private sector. Infrastructure development has become a lucrative business because of captive markets and state guarantees.

The country’s largest businesses, owned by the richest and most influential families in the Philippines like the Lopezes, Cojuangcos, Ayalas, Aboitizes, Pangilinans, and Consunjis have thus taken advantage of the PPP and now control the biggest and most strategic infrastructure such as power generation, toll roads, water utilities, rail transit, etc.

In many cases, they have also partnered with investors from the US, Europe, Japan, and other foreign countries in these PPP projects. Multilateral lending institutions like the World Bank through its various units – International Finance Corp. (IFC), Multilateral Investment Guarantee Agency (MIGA), and the International Bank for Reconstruction and Development (IBRD), as well as the ADB and others have also provided them with loans. At the end of the day, all the costs of the PPP ventures are shouldered by the people through user fees and debt servicing. (See Table below)

More guarantees

The ambitious PPP campaign of Aquino will not take off unless more guarantees, incentives, etc. are provided to the private investors. Thus, to make its PPP summit more saleable, the Aquino administration has designed a new scheme to protect the interest of investors. Aside from the traditional state guarantees on profits, etc, the government is also offering “pertinent incentives” to further stimulate private resources for PPP projects.

One of them is a so-called “regulatory risk insurance” under which the government will protect investors from “certain regulatory risk events such as court orders or decisions by regulatory bodies which prevent investors from adjusting tariffs to contractually agreed levels”.

Aquino’s economic managers explain that such insurance could take the form of make-up payments from the government to PPP investors, other guaranteed payments, and adjustment to contract terms. The terms of protection will be included in the contract of each PPP project.

While the government assures us that the risk insurance will only be offered on a case-to-case basis, it is reasonable to expect every profit-seeking investor that will participate in PPP projects to ask for the said insurance.

More debts

But if the government is operating on a serious deficit, how can it fund the regulatory risk insurance? National Economic and Development Authority (NEDA) chief Cayetano Paderanga said that they will tap multilateral institutions to provide for the guarantees so that when PPP investors face risk, they can still “be paid fast and immediately”.

Ultimately, however, it will still be the taxpayers who will foot the bill of the risk insurance through debt payments – interest and principal – to the multilateral creditors. Likely sources include the ADB and the World Bank, two of the most aggressive lenders and active promoters of PPP projects. The latter has already indicated a willingness to provide funds for the PPP projects of the Aquino administration.

Thus, even if government claims that it is not providing notorious sovereign guarantees for PPP projects, the country may still end up more indebted that ever before.

Undermining the courts

In addition, the risk insurance guarantee may also have the effect of undermining the system of check and balance and the use of courts to protect public interest.

For example, people who will turn to courts to question and stop the implementation of disadvantageous and harmful PPP contracts – like those that will lead to an astronomical increase in toll rates, MRT fares, water and electricity bills, etc; or those that will result to physical displacement, environmental degradation, etc – may get a favorable ruling.

But this favorable ruling will be negated, if not become practically meaningless, because the private operator will still be compensated through the risk insurance, which the people themselves will ultimately pay for to the World Bank, ADB, or whichever multilateral bank is funding the risk insurance.

Infrastructure fund

Aside from the risk insurance, the Aquino administration is also working with the multilateral banks for the establishment of the Philippine Infrastructure Development Fund (PIDF). This new entity is being patterned, according to the Finance department, after India’s Infrastructure Development Finance Co. Ltd. (IDFC) and Indonesia’s PT Indonesia Infrastructure Finance (IIF).

In its website, the IDFC is described as “India’s leading infrastructure finance player providing end to end infrastructure financing and project implementation services”. On the other hand, the IIF was officially launched just last August as a private infrastructure financing company with an initial capital of $170.3 million from the Indonesian government, the World Bank’s private lending arm International Finance Corp. (IFC), and the ADB on top of a 2 trillion rupiah loans from the same multilateral banks.

There is no official and final announcement yet on how the planned PIDF will raise resources (the PPP summit is expected to produce such detail). But it is likely that similar to the IIF of Indonesia, the Philippine government will shell out funds for the new entity’s initial capital, which is also expected to be beefed up by loans from the World Bank, ADB, and other foreign creditors.

In earlier statements, Finance officials also disclosed that the PIDF may engage in issuing 25-year bonds domestically, targeting pension and insurance companies. The money borrowed will then be re-loaned to investors involved in PPP projects. Thus, in effect, the PIDF will become a mechanism of the Aquino administration to guarantee funders and creditors that the money loaned to PPP investors will be repaid.

Anti-development, anti-people

Creating an environment conducive to private and foreign capital, based on the country’s experience from past PPP initiatives, entails government assurance that investors will make handsome profits through guarantees on investment, protection from risks, and other incentives, and ultimately of showing bias against the poor that these PPP initiatives are supposed to benefit.

And let me reiterate that the heavy focus on profitability which is inherent in any private enterprise instead of net economic and social gains make infrastructure projects pursued through PPP ultimately anti-development and anti-people.