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CO-SPONSORSHIP SPEECH
PUBLIC PRIVATE PARTNERSHIP (PPP) ACT
by Senate President Pro-Tempore Ralph G. Recto
15 December 2015
Mr. President:
I have purposely shunned using visual aids today in
order not to remind you of the moniker once given to
the Public Private Partnership program whose initials
was spoofed as PowerPoint Presentation.
But today that label is slowly being archived to history.
Since its inception, 10 projects have been awarded, 2
are up for implementation, 55 in the pipeline including
14 for procurement.
In the case of the Daang Hari-SLEX Road, what was
once flashed on the screens during roadshows as a
proposal is a completed road by now.
But if some PPP proposals get stuck as PowerPoint
presentations for a long time, and marinate in the sweat
of their proponents, then there must be something
wrong with the legal framework which makes their
birthing difficult.
That is true. If infrastructure projects crawl, the fix is not
always engineering or financial in nature. The remedy
can sometimes be legislative.
But before I explain why this bill is needed by the PPP,
let me first tell you why the PPP is needed by this
country.

Were grappling with a huge infrastructure deficit. Our

public works backlog is long while the patience of our
people inconvenienced by it is getting shorter.
One estimate pegs our infrastructure deficit at almost
P1 trillion. This, however, tallies only urgent
requirements.
The total cost is so astronomical that it has paralyzed
us from even quantifying it.
And each year that our population grows and our
economy expands, the deficit widens.
Two million Filipinos born every year means we have to
add 2,000 hospital beds to our public health system
annually, using the anemic 1 bed per 1,000 people
ratio.
Two million Filipinos born every year means we have to
increase our household water supply by 131 billion
liters of water annually.
On power alone, each of the two million new Filipinos
will consume an average 672 kilowatts of electricity a
year, which, in turn, triggers the unending search for
new power sources.
On this we cant fail nor falter, light being the best
contraceptive and defense against population boom.
On roads, 156,553 kilometers remain unpaved.
Concreting all of them would require P 1.88 trillion at a
bargain price of P12 million per kilometer.

To stop Metro Manilas gridlocked roads from turning

into parking lots, one master plan prescribes a bevy of
solutions with a hefty price tag of P 2.61 trillion.
Just one short subway line that will worm itself under
the clogged streets of the national capital was already
estimated to cost about P374.5 billion.
We need massive investments in mass transport to
take more people out of cars and more cars out of the
streets.
Already it has been reported that if all the cars sold in
Metro Manila in the first six months of this year will be
parked bumper-to-bumper, they would occupy all lanes
on both sides of EDSA from end to end.
Clearly, we need to provide our people with a
commuting option other than being behind a wheel or
behind a driver of a motorbike.
And it is not only on the ground that were seeing
congestion. Theres also one up in the skies, where
planes spend more time flying on a holding pattern
near Manila or queuing up in NAIAs runways.
Sadly government doesnt have the money to wipe out
all our infra backlog in one go. In fact, it doesnt have
resources to erase the deficit even in tingi fashion.
This is so because big-ticket items do not only burn a
big hole in the governments pocket. It will burn the
entire pocket together with the pants.
Consider this: Next years capital outlays budget is
P766.5 billion.

But if you take away the amount earmarked for

seedlings, laptops, police cars, military hardware, and
maintenance of rail systems, what is left for new
construction is about half that amount.
For comparisons sake, that is not even half of the
equivalent of P864 billion or so that Hong Kong will
spend to add one runway to its airport. Or the P749
billion the Communist rulers of Vietnam plan to spend
for a second airport in Saigon.
If GPH is short of cash, corporate Philippines is not.
The top 15 families who landed on the Forbes dollar
billionaires list this year have a combined net worth of
P2.67 trillion, using todays exchange rate.
The family who owns that famous string of malls,
including the one near us whose total toilet footprint
dwarfs the size of our session hall, has a daily net
income of P77.8 million in 2014.
The biggest telecoms company in the land makes a
clean profit of P97.1 million every 24 hours.
Every one of them accumulates a hoard of investible
cash. Their problem is where to reinvest their profits.
Every nook and cranny of the local economy is already
spoken for. With local opportunities dwindling, some
have opted to spend their surplus capital abroad.
Vineyards from Spain to Australia have been gobbled
up by Filipino moguls. Iconic global brands, like
Fundador, is now Filipino owned.

People from Uzbekistan to China to Mongolia to

Malaysia munch on chicherias produced by Pinoy
megapreneurs. Just last year, a Taipan bought a New
Zealand snack food company for a cool P26.4 billion.
Another purchased a Cambodian airline, while a
businessman of Spanish descent added another
foreign port to his growing global collection.
While they may have set their sights abroad, they
remain largely insular-looking when it comes to
investing their money.
And one area which has lured them on the promise of
fair returns are public utilities and infrastructure.
And I would like to surmise that it wasnt just good ROIs
which attracted them, but the idea to do some social
good by providing a service government is hardpressed to deliver.
In the process, they derive both real and psychic
income in solving some of the nations problems,
updating the adage of making money when theres
blood in the streets to making money when theres
traffic in the streets.
So a property developer now operates a toll road. An
airport operator built classrooms. San Miguel which
sells beer in bottles will soon be selling bulk water in
Bulacan.
A company which sells cellcards is now peddling train
beep cards but not before acquiring the train line itself.

To bag these contracts, these businessmen nimbly

form alliances which make politicians rank amateurs in
coalition building. They may compete in one project but
collaborate in another.
However, this bill is not about protecting their
investments, it is about protecting the interest of the
Republic foremost.
It is about shielding the public from higher fees and tolls
when government-instigated bidding wars, for example,
jack up premium payments which in the end will be
passed on to end users for them to be recouped.
It is about putting safeguards in contracts so that the
government is not shortchanged through crafty
provisions which, like in previous problematic joint
ventures, will leave it holding the bag.
It is about ensuring that transparency attends the
drafting of agreements which are then vetted carefully
by experts whose allegiance is to the public so no term
is skewed against us like contingent liabilities
programmed to become assumed ones.
On the other hand, it assigns private partners their
rights.
Like to a rate of return which shall take into account the
prevailing cost of capital in the domestic and
international markets, the risks being assumed by them
and the prevailing tariff on similar projects.
This is pursuant to the State policy this bill lays down
which recognizes the indispensable role of the private

sector as the main engine for national growth and

development.
It mandates the provision of the most appropriate
incentives to mobilize private resources.
Three urgent issues bugging PPP implementation are
addressed here.
First, is that all real properties which are actually,
directly and exclusively used for activities deemed as
Projects of National Significance shall be exempt from
any and all real property taxes levied under Republic
Act 7160.
It also waives taxes associated with the transfer of
ownership of a PPP infrastructure project to the
government. These include Capital Gains Tax,
Documentary Stamp Tax, Donors Tax, and all national
taxes and fees.
Second, it prohibits the issuance of Temporary
Restraining Orders or Injunctions.
No TRO or preliminary mandatory injunction shall be
issued by any court, except the Supreme Court, against
any implementing agency, its officials or employees, or
any person or entity acting under the government
direction, to restrain, prohibit or compel acts such as:
Bidding, rebidding or declaration of
failure of bidding of PPP projects, either national or
local;
Qualification or disqualification of
bidders and awarding of PPP contract;

Acquisition, clearance, development of

the right-of-way, site or location of any PPP project;
Corollary to this is the mandatory inclusion of
Alternative Dispute Resolution in PPP contracts.
Third is on the matter of securing administrative
franchise, license or permit.
The regulator or licensing authority shall automatically
issue the project proponent an administrative franchise,
license, permit, or any other form of authorization
required for the implementation of a PPP project.
If a regulator fails to act on an application supported by
complete documents within 30 working days, the same
shall be deemed granted.
What are we avoiding here? The situation when the
ribbon-cutting ceremony for a completed project has
been done but it cannot be opened or operated yet
because someone forgot to cut the layers of red tape
tying down a permit.
Hopefully these would unclog PPP bottlenecks and at
the same time make our PPP menu attractive to foreign
investors because lets face it, no matter how many
beer barrels are sold or text messages are sent that
can fatten up corporate war chests, domestic capital
alone cant finance all our infra needs.
Let me walk you through the other salient features of
the bill.
We are limiting the roster of implementing agencies
which can implement a PPP.

These are the Department of Public Works and

Highways (DPWH), Department of Science and
Technology-Information and Communications
Technology Office (DOST-ICTO), Department of
Transportation and Communications (DOTC), National
Irrigation Administration (NIA), National Housing
Authority (NHA), Philippine Reclamation Authority
(PRA), and the GOCCs attached to these departments
such as Local Water Utilities Administration (LWUA),
Toll Regulatory Board (TRB), Light Rail Transit
Authority (LRTA), Philippine National Railways (PNR),
North Luzon Railways Corporation (NLRC), Philippine
Ports Authority (PPA), airport authorities Manila
International Airport Authority (MIAA) and Mactan-Cebu
International Airport Authority (MCIAA), and
Metropolitan Waterworks and Sewerage System
(MWSS).
Though they have been accredited as such they cannot
just implement any project they are simply infatuated
with.
The menu of PPP-able projects are listed in the
section which enumerates what falls under
infrastructure facility.
These are highways, railroads and railways, transport
systems, ports, airports, telecommunications,
information technology systems and infrastructure,
dams, water supply, irrigation, sewerage, drainage,
dredging, land reclamation projects, housing, markets,
slaughterhouses, warehouses and solid waste
management.

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Thus, if theres a proposal to blanket the city with a

forest of tarpaulins or scatter trash cans around under
various PPP modalities, then these types will not
qualify.
Were also putting in the negative list the construction
of classrooms because more than a hundred years
after Gabaldon put up those elegant edifices, why
should we contract out the building of cookie-cutter 8meter by 8-meter rooms at a huge profit to investors
when government has the money and the people to do
it?
The idea is that PPP should not supplant the
government in doing run-of-the mill projects. Its focus
should be on high-impact projects.
Otherwise a PPP overreach that will make public
services profit centers may lead to a government
abdicating on its duty to provide even the simplest of
services.
For this reason, the bill orders the identification of a
priority projects of national significance whose direct
economic impact breaches the accepted threshold.
These projects and others under the PPP ambit can be
implemented through an assortment of PPP contractual
arrangements, such as: Build-and-Transfer, BuildLease-and-Transfer,Build-Own-and-Operate, BuildOperate-and-Transfer, Build-Transfer-and-Operate,
Contract-Add-and-Operate.

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Theres even a Develop-Operate-and-Transfer, Operate

and Maintain, Rehabilitate-Operate-and-Transfer, and
the classic Joint Venture.
If the PPP regime has more plan offerings than your
cellphone service provider then it is to broaden the
options investors can choose from and government can
offer.
This customized approach is in recognition of the
complex structure and challenges of public works and
services these days which a one-size fits-all approach
may not fully address.
In incubating these projects, the bill creates a Project
Development and Monitoring Facility or PDMF.
It shall be used for the procurement of advisory and
support services for the preparation, structuring, probity
management, procurement, financial close, and
monitoring of implementation of PPP projects.
The procurement of such consultancy services must
follow procurement laws and competitive bidding.
In fact, the unspoken first success story of the PPP
experiment is that it created a downstream industry of
consultants which has so far billed the government
P2.32 billion for 31 proposals reviewed.
The bill embeds FOI rules in all PPP dealings. Copies
of all PPP contracts are deemed accessible public
documents.
We are also expanding the composition of the PPP
Governing Board to make it a nine-person body, with

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five government representatives Secretaries of SocioEconomic Planning, Finance, Budget, Public Works
and Highways, and Transportation and
Communications and four from the private sector.
As I mentioned earlier, the bill safeguards public
interest.
Public consultation with all potential stakeholders,
including the users, in all stages of the PPP project, is
made mandatory.
The implementing agency shall assess the affordability
of fee or tariff, and conduct a genuine willingness-topay survey among the users of the infrastructure
facility.
Approved starting fare or user fee in a PPP project as
well as the approved parametric formula on fare
increases or adjustments, if applicable, must be posted
on government websites.
This bill also allows Viability Gap Funding or VGF
which is the financial support the government may
extend to a concession-based PPP project with the
objective of making user fees affordable and thus
retaining the commercial attractiveness of the project.
Hopefully, this will address in part the fee-setting and
the investment recovery issues associated with
premium payments which can inflate project cost.
Admittedly, a PPP project, or for that matter any
investment is not devoid of any risk.

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Minimizing and managing this is part of the contractual

arrangement between the implementing agency and
the project proponent.
A good PPP is one in which the reduced risks are
optimally allocated among all the parties.
This bill requires the optimal allocation of risks between
the implementing agency and the project proponent.
Meaning each risk in a PPP project shall be assigned
to the party that is best able to control the likelihood of
its occurrence, manage its impact on the project, and
absorb the risk at the lowest cost.
The language is clear: Risks must be shared.
Government cannot be left holding the bag alone.
But when it is time for the government to pay up, it
should be done in accordance with budgeting laws and
practices.
The original proposal we received was for the creation
of Contingent Liabilities Fund which will be financed
through dedicated budgetary appropriations,
contributions from the budgets of implementing
agencies, premium payments, and ODA. However, the
creation of such fund is an untried scheme which may
not be legally permissible.
It was proposed that funds therein be permanently
appropriated and, if not spent, the power to disburse of
which will be given to the Finance secretary, will not be
reverted to the General Fund.

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I cannot agree to this proposal unprecedented as it is

in public expenditure management on two grounds:
In this age of line-item budgeting, when lump-sums are
broken down, one cannot just appropriate what is
basically a stand-by reimbursement fund whose
recipients are not known, for amounts not yet
determined, for causes yet to be established.
A friend described it to me as a security blanket that will
comfort contractors. I call it for what it is a blank
check.
The Republics obligations will be honoured, but not in
a manner that will preposition public funds.
Secondly, the setting up of a Contingent Liabilities
safety net may lead to half-baked feasibility studies, not
well thought out projects, those whose financial
projections are off by a mile, and bloated user targets.
As I speak the amount of our Contingent Liabilities
arising from PPP projects is a whopping P81.1 billion.
Of this, some P13.7 billion is already due and
demandable. In one scenario, the probability of
occurrence for P34 billion worth guarantees is in the
realm of the possible.
Thus, this cannot be discounted: that the P33.66 billion
government collected in premium and concession
payments will be cancelled when contingent liabilities
become assumed obligations.
If such kind of slippage is not allowed in the private
financial sector, where one can get fired for projections

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way off the mark, then why should it be condoned in

the government?
This does not, however, in any way diminish the need
for a PPP.
On the contrary, these are the provisions that will
strengthen the PPP as a tool for national development
and progress, one that will uphold public interest
always.
It is still the way forward. And this bill ensures that it will
be fair to all those who will take the journey.
Thank you, Mr. President.