Private investments in public projects

PUNCHLINE

Ike Seneres

I was surprised to find out that the public broadcasting systems in the United States of America (USA) is owned by the people, and not by the government. In line with that, I also found out that the American government is prohibited by law from broadcasting within the USA, and perhaps that is the reason why the Voice of America (VOA) is only broadcasting overseas. Perhaps the underlying principle to that is that in a real democracy, the government should not have a bigger voice than the people.

Some sectors would argue that government has no business to go into business, because business of any kind should be the exclusive domain of the private sector. When I was Director General of the National Computer Center (NCC), I grappled with this issue because I was also the concurrent head of the National Computer Institute (NCI). Even at that time, the private sector was already offering computer courses that were similar to, and therefore were competing with the offerings of the NCI.

At the outset, I considered the issue that the NCI should not compete with the private sector. Eventually, I decided that the NCI could continue offering computer courses, for as long as these are better and are cheaper when compared to the offerings of the private sector. Although I am a firm believer in free market economics, I also reckoned with the fact that some private computer school offerings are terribly overpriced, even if these are relatively of poorer quality.

Somehow, I found comfort in the thought that by offering better and cheaper courses, the NCI could set the higher standards for the private sector to follow.

Perhaps not too many people know that the Build-Operate-Transfer (BOT) scheme was actually invented in the Philippines, and it is also here where some of the best examples of BOT projects could also be found.

On top of that success however, the government has improved the BOT scheme by turning it into the Public-Private Partnership (PPP) program. Even if the name has changed, the principle is still the same, and that is to invite the investments of private companies in public projects.

As I understand it, government procurement rules would allow either joint venture agreements (JVAs) or joint venture companies (JVCs) in partnership with the private sector. A JVA would be like going steady with a girlfriend, whereas a JVC would be like getting married to a wife. In other words, a JVA is temporary, whereas a JVC is permanent, at least until the end of its corporate life. In a manner of speaking, a JVA is similar to a Memorandum of Agreement (MOA), wherein the contracting parties retain their own juridical entities, and no new corporate entities are formed.

On the other hand, a JVC would result in the formation of a new corporate entity that is distinct from that of the contracting parties. Under government auditing rules, JVCs that are majority owned by private sector investors are exempt from the jurisdiction of the Commission on Audit (COA). That should not cause us to worry, because the legal fiction is that these JVCs are subject to the principles of corporate governance, a set of rules that are probably more rigid than what are required by the government. Perhaps it could be said that the burden of watching over the JVCs would shift from the COA to the newly formed PPP Program Center that is now under the National Economic Development Authority (NEDA).

Comparing JVAs and JVCs, I would prefer the latter, provided that these are majority owned by the private sector. Even if I would still say that government has no business to be in business, JVCs that are majority owned by the private sector would be a good compromise, especially if their investments are into sectors that are socially oriented, and the investments needed are beyond what the government could afford.

This is a win-win solution, because the private investors could earn their profits, whereas the government could deliver its services.

Under the Local Government Code (LGC), local government units (LGUs) are now considered as corporations, and they could invest or go into contracts just like a private corporation. That being the case, the next best thing that could happen is for LGUs to go into JVCs with private corporations under the new PPP rules. This is really a huge window of opportunity for the LGUs, because the private corporations not only have the money, they also have the technology to build and deliver the public services that are much needed at the local level.

As it is now, it seems that many of the approved PPP projects are still public works related. My wish is that the national government agencies (NGAs) and LGUs would consider inviting private corporations to invite more investments in other projects that would give them the opportunity to make money, while also creating the means to deliver public services in cooperation with the government. The list of possible projects could go on and on, because there are many public needs that are already known, except that we do not know where to get the money to make it happen.

Among all other needs, it would be good to invest in tourism, because of the tremendous capability of that industry to generate new employment. As I understand it, there are new forms of tourism that could be developed, such as educational tourism, environmental tourism, historical tourism and medical tourism. All over the Philippines, there are many places that could be developed as tourist attractions, and that would be good for the LGUs.

For feedback, email iseneres@yahoo.com or text +639083159262