STRAIGHT FROM THE BIG CITY

Ike ‘Ka Iking’ Seneres
Private, public partnerships

MANILA -- It goes by many names, but the bottom line is the same, and it is the partnership of the private sector and the government in providing public services. Sometimes it is called outsourcing, sometimes Build-Operate-Transfer (BOT). As a bit of trivia, the BOT scheme was invented here, and is now a business model that is copied worldwide. The full name of outsourcing is Business Process Outsourcing (BPO), and it is a large industry now that includes the call center business.

The logic behind BOT and BPO is very simple. These are schemes that enable the government to provide services or to build infrastructure without any investment on its part. Although private business is supposed to serve the public interest in the first place, its participation in BOT and BPO is strictly business- because it earns money even as it provides business services.

For the record, the Local Government Code (LGC) provides the legal basis for Local Government Units (LGUs) to enter into contracts with BOT and BPO providers. This is based on the legal fiction that the LGC has in effect turned the LGUs into virtual corporations, meaning that it could practically do anything that private corporations could do.

For the most part, many LGUs are heavily dependent on their Internal Revenue Allocations (IRAs) for their budgets. The problem however is that the LGUs do not always get their IRAs on time. Either that, or their IRAs and their other incomes are not enough to fund the provision of services or the construction of infra. This is where the funds of the private sector come in handy, through the BOT and BPO schemes.

As an alternative to private investments, several banks are now offering development loans to the LGUs, using the IRAs as their collateral or guarantee. This way, the LGUs are able to earn revenues from their profit generating projects, enabling them to pay back the amortization of their loans.

Combining private investments and bank loans, entrepreneurial LGUs could now plan to go into projects that would improve or expand the service areas of their choice. The priority areas would really depend on the local needs of their respective jurisdictions. The general idea however is to earn revenues while providing services, therefore enabling them to sustain whatever facility it is that they would build.

Another aspect of outsourcing is the fee based method or the “user pays” method as it is also known. For example, one private company is now offering the installation of internet cafes to LGUs, at their expense, wherein the LGU and the private company share the income from the services. The LGU provides the location and the electricity, while the company provides the machines and connectivity.

In the case of public housing, the government provides the lot, while the private company constructs the building. In the meantime that the cost of the building is not yet recovered, the company shares the rental income with the government, until it is turned over later on to the government once the investment is fully recovered.

The idea of building inter-modal transport terminals provides us with a good example of the usefulness of outsourcing. The costs of building these huge facilities are too much for the LGUs to bear, but there is no project that is too big for private investors or lenders as long as the return of investments or the interest incomes are good. The building of these terminals provides the LGUs with a win-win solution. The problem of vehicular traffic is solved, the transport service providers are happy, the passengers are happy, and the LGUs are even happier because they earn extra revenues.

Rather than be dependent on IRAs forever, it is a bright move for the LGUs to leverage on these assets by borrowing against it. This way, they could add to their sources of income, at the same time reducing their IRA dependence. I could provide tips on this to interested LGUs.

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