Localizing PPPs

Before government promotes PPP… economists together with experts from other disciplines have to do the Gestalt and not some rather myopic job.

August 8, 2022

When the President raised the call for local government units (LGUs) or mayors and governors to brace and open themselves to public-private partnerships (PPPs) as the “way forward,” it cuts both as a question and an answer. Scholars of economics or public administration using their disciplinary lenses could gauge what the clarion message really meant.

On the other grid, the vast world of business and commerce out there, call it Private Sector Inc. — their contractors, sub-contractors, investors, financiers, creditors and the like — needs to hear more beyond the sweet bureaucratic rhetoric. Fact is, as soon as local chief executives respond, fiscal decentralization of approximate proportion or front-loading has to take place.

There are serious implications when PPPs begin to gain traction from city to city and province to province in terms of economies of scale, inter-local relations, national-subnational interface and the fiscal burden itself. Financial downloading raised to the nth power must follow if the President wants PPPs to cascade to cities and provinces, and thereby shape a regional growth configuration,

It just might be a faux pas to assume that every city or provincial government or region (a non-entity actually) has enough fiscal wiggle room managing their funds or venturing into PPPs requiring large capital infusion. Presumably, investments of typical PPP magnitude cannot be left to mayors or governors alone. Few reasons why this is so are worth mentioning.

One, the three-year term of a mayor or governor hardly warrants continuity of the project, unless he wins in the next election cycle and so on. For one, the construction timetable of a typical PPP is five years.

Two, cities or provinces have varying income classification, which means some LGUs are more affluent than others who can venture into PPP. Besides, government banks (i.e., LBP, DBP) can loan only so much.

Three, administration after another has become fixated with directing PPPs on roads, hospitals and airports under either of two modes: Via end-user fees or general taxation. In end-user’s fees or taxes, how indifferent or unwilling would people bear the fiscal burden? Come to think of it, these are infrastructure projects normally expected to be built through state funding.

Otherwise, seen from above, government PPP thrusts go in the direction of full privatization in such areas as water supply, power, or more roads that are traditionally managed through public provision.

The United States is a classic example of a country less oriented on doing PPP unlike most countries of Europe.

It’s little wonder that PPP is called many names like “private funding initiative, a Trojan Horse, a difficult marriage, private means for public ends, commercializing the public sector and best of both worlds.” Otherwise, the flipside of PPP is one of failure, which is not far remote.

Studies show how a number of countries went bankrupt that thought PPP was the silver bullet or panacea of all their development woes. It is a tricky game with a variety of risks moving in constant flux never-before predicted, however well-thought out the project was. In other words, it’s a fragile gambit at either a blessing or a curse.

Thus, before government promotes PPP, front and center, as if there will never be any “incongruence of objectives of the public and private sectors,” economists together with experts from other disciplines have to do the Gestalt and not some rather myopic job.

In the end, two must perfectly match, namely, the prevailing policy environment and the business landscape. The Indonesian model, in fact, involves the academics, policy makers and the business sector in an ideal trifecta. Localizing PPPs for 81 provinces, 105 cities and 1,489 towns runs for the long haul.

Even if we can label them a success, present PPPs largely involved toll expressways and transport projects. On whether these types of infrastructure benefit the greatest good of the greatest number over the long term would be a matter of conjecture if not characteristically anecdotal.


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