Public private partnership

THE MOUNTAINEER
Edison L. Baddal
(First of two parts)

Public Private Partnership (PPP), the centerpiece of the Aquino Government’s economic program, is no doubt a step in the right direction. It is the right strategy to optimize private participation in governance as it aims to mobilize the private sector to share the burden of nation building. Incontrovertibly, this is crucial in upping the ante of economic growth of the country. All things considered, it might be the trigger that will precipitate the socio-economic advance of the country which at this time is sorely lagging behind its more economically aggressive neighbors, i.e. Indonesia, Malaysia, Vietnam, Thailand.

The country has a lot of catching up to do with its neighbors as it is now only ahead Cambodia, Myanmar and Laos, the cellar dwellers among Southeast Asian nations in socio-economic development.

But it is not far-fetched to consider that the three might still catch up with the Philippines if they properly leverage their strong governments to jumpstart their socio-economic advance. As things stand now, the comparatively weak political environment of the Philippines is proving to be its Achilles heel in attaining the same level of progress being enjoyed by its neighbors.

Nonetheless, the progressive SE countries leveraged their strong governments by nurturing advantages that factored much in their economic progress, among which are: better infrastructure, lower cost of doing business, lower power costs and manageable graft and corruption. Infrastructure-wise, said countries allocates a higher ceiling for infrastructure from their annual budgets which in effect results into a higher slice in their Gross Domestic Product (GDP).

Infrastructural projects and programs is equivalent to about 5% to 7% of their GDP compared to the Philippines which appropriates about 2.3% to 3.3% or less. The strong and no-nonsense leaders of those countries helped much in the effective prosecution of public work projects anchored on incisive measures that precluded massive commission of graft and corruption or if there are instances of graft (which most certainly there are), these are perpetrated to a tolerable, if, minimal, level.

Generally, graft and corruption per se is ingrained in the prosecution of public work projects in any country and as such could not be totally obliterated even in politically strong countries like China. The difference, though, is that the prosecution of graft and corruption cases in China and other politically strong countries is uncompromising, speedy, reliable and generally impartial. Their justice system is such that, although it may not be perfect, is obviously dependable and fairly disposed towards serving the satisfactory ends of justice.

Thus, foreign investors have more confidence in investing in those countries unlike the Philippines. In the Philippines, grafters usually enjoy the perks of keeping their loot by hiring the best lawyers, usually the pettifogging or shyster type, who manage to have their cases reversed in the Supreme Court through brilliant quibbling and oftentimes twisted arguments.

In the case of power costs, it is presumed that the Philippines has the highest electricity rate in Asia. It has a higher electricity cost than economic powerhouse China itself which is now the second largest economy in the world after it dislodged Japan in the third quarter of CY 2010. Vietnam, Thailand and Malaysia charges as low as 5-7 cents per kilowatthour of electricity which is a lot lower than the 23 cents that the Philippines charges.

This surely downgrades the investment competitiveness of the country as the add-on cost of high electricity will heavily nibble hard at the mark-ups of foreign investors in their enterprises. Aside from being less competitive, business operations become less cost-effective.

On the sidelight, there is a projection by the University of the Philippines’ National Engineering Center that by CY 2014 there will be an increase in demand over supply in electricity nationwide. At this point, it should be considered that the very high cost of electricity is what is preventing the Philippines from being number one in the Business Process Outsourcing despite the facility of Filipinos to speak English. China and India are the first and second, respectively, in terms of BPO investments in BPOs in Asia due to their comparatively lower electricity cost with the Philippines as the poor third.

Projections on electricity demand have it that demand would “grow by three percent annually” starting 2011. It thus firmly justifies “ further investments in the generation business by Independent Power Producers (IPPs) in the next five years .” The IPPs, which sprung up during Ramos’ presidency (that effectively demonopolized the stranglehold of the NAPOCOR on electric power generation), helped solve the crippling power crisis that beset the country during the first half of the decade of the 90’s.

The study estimates that there is a need to generate an additional 1,200 megawatts of electricity for a sufficient supply of electricity for Luzon at present on top of additional megawatts that should be further generated to avert a projected excess of demand over supply by CY 2014. Aggravating the power supply needs at present is the tight power supply in Mindanao in which the study rationalized that is the reserve energy margins of the electric providers there “remained below the targeted 21 percent.”

There is a disquiet that this power crisis in Mindanao will plunge the island into a rotating brownout for conservation purposes just like what happened there in 2010 during a damaging El Niño crisis. The El Niño greatly reduced and almost drained the water levels of the hydro plants there to critical levels that resulted in a rotating brownout and effectively stalled in the process the island’s economic growth.

With NAPOCOR still controlling 70% of electricity generation of the country and having a 100% control over the IPPs, there is an exigent need for IPPs to aggressively pursue electricity generation independent from NAPOCOR control so as to prevent the expected increase in demand over supply within the next two years.