Public-Private Partnership

In the previous weeks, we highlighted and applauded the efforts of government agencies in working together to achieve the various administration goals. For this week's article, I thought of writing about the Public-Private Partnership or what is commonly known as PPP.

It is worth noting, as we say this, that government is not bound to only work with government agencies to benefit the public. No, the government is unfettered and free to work with anyone it wishes, provided its goal of promoting the common good is achieved.

For a better understanding of the PPP framework, let us briefly discuss its basics and advantages and follow it up with an example.

According to the PPP Center, PPP can be broadly defined as a contractual agreement between the government and a private firm targeted toward financing, designing, implementing and operating infrastructure facilities and services traditionally provided by the public sector.

Thus, the government constructed and financed roads and bridges, railways, and public markets. But this is no longer the case. In PPP, private firms vie with one another to build and sometimes even operate and own these infrastructures, using their expertise and money.

The current legal basis of PPP is the 1994 Build-Operate-Transfer Law or RA 7718 as amended. The law recognizes the indispensable role of the private sector in national growth. It provides incentives to mobilize its resources to construct, operate, and maintain public infrastructures that used to be undertaken by the government.

It was soon realized that PPP could embody optimal risk allocation between the parties involved (the government agency sponsoring the project and the private sector entity that won the right to pursue the project for the government), minimizing costs while realizing project developmental objectives. Thus, the project is structured so that the private sector gets a reasonable rate of return on its investment.

The government may tap private sector participation because of many advantages. Allow me to focus on some which are the most substantial and beneficial.

PPPs encourage the injection of private-sector capital. Infrastructure projects cost a considerable amount of money. The National Budget and Official Development Assistance are limited and are subject to government prioritization. Private sector funding, on the other hand, is readily available to augment the government budget to implement critical government projects. Budgeting for the country is challenging, so the contribution of private capital is crucial and welcome.

PPPs improve service. Under PPP, the quality of service by the private sector partner must be maintained for the entire cooperation period. In PPPs, project execution will be more rigorous as project ownership may belong to the project proponents during said period.

When these proponents recoup their investments, the government and the consuming public are protected because the public sector only pays when services are delivered satisfactorily. The situation where the government is left holding the empty bag is avoided. The private sector proponent must thus ensure that its output is of the highest quality and standards before it is paid.

PPPs deliver value for money. Value for money is achieved when the government and consumers obtain the maximum benefit from the goods and services they acquire. These may cost more but provide the best available outcome after considering all the benefits, costs and risks over the entire project life, which may not necessarily reflect the lowest cost or price.

In ordinary public bidding, the bidder awarded the contract is always the one who offered the lowest contract price. However, it only sometimes means it is the best person or entity to deliver the service or goods.  In such a case, the public suffers because they must settle for unsatisfactory service or a poor product.

PPPs encourage innovation. PPP projects maximize the use of private sector skills. It utilizes higher levels of private sector efficiency, specialization and technology. There is no shame in conceding that the private sector has a leg up on the government when it comes to innovating. The government is rightfully occupied in delivering its services to the public and fulfilling its broad governance mandate. Its openness to innovate may not be realized. In contrast, the private sector is motivated to innovate because innovation lessens costs and increases profits.

Finally, in June this year, we all heard that NAIA may be privatized by the first quarter of 2024 for an estimated P141-billion investment.

I gathered that the objective is to modernize NAIA under a PPP scheme. The project aims to upgrade the terminals, among other things, to accommodate up to 62 million passengers annually. The project will also improve the technology employed at NAIA to ensure reliable and safe operations.

According to Secretary Jaime Bautista of the Department of Transportation, the project offers an extensive opportunity for world-class transportation that will benefit millions of diverse travelers in and out of the country, the participating private investors, and the Philippine government itself.

This is an excellent example of a PPP that we should all support. As the country's premier airport, the NAIA should showcase what is best to be expected of Filipinos and our country.