Philippines: Public-Private Partnerships by Local Government Units

By Asian Development Bank

The Philippine infrastructure gap is prominent at the local government level. This study looks at past experiences of public-private partnership (PPP) projects of local government units (LGUs) in the Philippines. It reviews international experiences of PPPs at the local level and draws lessons from the successful revival of the Philippine PPP program at the central government level. The study then suggests ways forward to help LGUs prepare bankable PPPs, ensure efficient project procurement, enhance financial viability of PPPs, and strengthen LGUs' PPP legal and institutional frameworks to enable leveraging more private investment in local economic and social infrastructure.

• Language: English
• Publisher: Asian Development Bank
• Release date: Nov 1, 2016
• ISBN: 9789292575960

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PHILIPPINES: PUBLIC–PRIVATE PARTNERSHIPS BY LOCAL GOVERNMENT UNITS

Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO)

© 2016 Asian Development Bank

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Some rights reserved. Published in 2016.

Printed in the Philippines.

ISBN 978-92-9257-595-3 (Print), 978-92-9257-596-0 (e-ISBN)

Publication Stock No. RPT168509

Cataloging-In-Publication Data

Asian Development Bank.

Philippines: Public–private partnerships by local government units.

Mandaluyong City, Philippines: Asian Development Bank, 2016.

1. Public–private partnership.      2. Local government units.      3. Philippines.      I. Asian Development Bank.

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Contents

Figures and Tables

FIGURES

TABLES

Acknowledgments

This paper was prepared by a team comprising Aziz Haydarov, public–private partnership (PPP) specialist, Southeast Asia Department, Asian Development Bank (ADB), and staff consultant Cecilia Soriano, international public sector management specialist.

The study is part of ADB’s analytical and advisory partnership with the Philippines. It informs the next phase of PPP reforms in the country supported through ADB’s technical assistance on strengthening PPPs in the Philippines (second phase) and the Expanding Private Participation in Infrastructure Program.

The team greatly appreciates the guidance of and support extended by Cosette Canilao, executive director of the Philippines PPP Center; Eleazar Ricote, deputy executive director of the Philippines PPP Center; and other staff of the PPP Center during the preparation of the study. The team is also thankful for the support and inputs provided by the various officials of the national government agencies, local government units, private sector, and development partners as part of consultations for the purposes of the study.

This report reflects information as of end 2014.

Abbreviations

Currency Equivalents

(as of 31 December 2014)

Weights and Measures

Executive Summary

BACKGROUND

As local government units (LGUs) have strived to carry out the responsibilities and activities devolved to them by the 1991 Local Government Code, they have explored and availed of various financing options including grants, loans, bonds, and public–private partnership (PPP) arrangements. The Local Government Code specifically authorized LGUs with financially viable infrastructure projects to enter into build–operate–transfer (BOT) agreements subject to the 1990 BOT Law and its Implementing Rules and Regulations (IRRs). The first PPP project of an LGU was the construction of a seven-story commercial building-cum-public market in Mandaluyong City in 1991. Other PPP projects that soon followed were some public markets, a slaughterhouse, a city hall, information and communication technology projects, and joint ventures for electric power distribution and water supply. Some other PPP projects were also contracted or attempted but were not started or completed for various reasons, including two public markets, an administrative and commercial center, regional government centers, several information and communication technology projects, transport terminals, and hospitals.

Two big PPP projects met many obstacles along the way but were implemented after more than 9 years. The transfer of the electric power distribution functions of Olongapo City’s Public Utilities Department to a private entity was first studied in 2004. In May 2013, it was finally taken over by the Olongapo Electricity Distribution, an affiliate of the Cagayan Electric Power and Light Company which had been serving Cagayan de Oro City for more than 50 years. In May 2012, the Province of Cebu and the Manila Water Consortium formed a joint venture, the Cebu Manila Water Development, to provide bulk water to the Metro Cebu Water District. The district had previously considered two unsolicited bids for bulk water supply, one in 1996 and the other in 2002.

In the past decade, some specialized local entities formed by LGUs such as water districts and electric cooperatives entered into PPP arrangements for bulk water supply and electric power generation, respectively. Cagayan de Oro Water District, Tagaytay City Water District, and San Fernando City Water District have water purchase agreements with private companies. Power supply agreements were signed with private companies by the Marinduque Electric Cooperative, Romblon Electric Cooperative, Tablas Island Electric Cooperative, Masbate Electric Cooperative, and Basilan Electric Cooperative.

LGUs in other developing countries have successfully embarked on PPP projects. Septage treatment or sewerage projects and solid waste management (SWM) projects have been successfully implemented in Indonesia, Viet Nam, and the People’s Republic of China under PPP arrangements, with the support of the Global Environment Facility and the United Nations Development Programme. With the support of the International Finance Corporation, PPP models were developed for hospitals and diagnostic services, tourism, and SWM projects in Brazil, Mexico, India, Moldova, Romania, South Africa, and the Maldives. The Philippines can learn from these international experiences.

Lack of technical and financial resources for project preparation, monitoring, and implementation has always been cited and continues to be a major impediment to LGUs undertaking PPP projects. These needs have to be addressed simultaneously and comprehensively by technical assistance (TA) and financing facilities.

A. On Opening the Project Development and Monitoring Facility to Local Government Units

a.bulk water supply;

b.water supply distribution system;

c.sewerage system;

d.SWM facilities;

e.power generation limited to waste-to-energy, minihydropower;

f.power supply distribution system;

g.transportation terminals (cargo or passenger);

h.government-cum-commercial centers;

i.hospitals or diagnostic services; and

j.tourism facilities or attractions.

B. On Designing the Proposed Project Development, Monitoring, and Implementation Facility for Local Government Units

a.preparation or review of business cases, prefeasibility, and feasibility studies;

b.preparation and evaluation of bidding documents;

c.preparation, finalization, monitoring, and enforcement of contracts;

d.technical and financial regulation;

e.maintenance and operation of turned-over facilities; and

f.project monitoring and evaluation.

a.Intensive consultations with local governments and communities and potential private investors and funders during the design and initial operations of the facility.

b.Applicant LGUs need to meet the criteria for Good Financial Housekeeping (formerly the Seal of Good Housekeeping) and Business-friendliness and Competitiveness defined in the Department of the Interior and Local Government’s Seal of Good Local Governance program.

c.Performance of LGUs in preparing, bidding out, monitoring, and implementing projects will be closely monitored and regularly evaluated.

d.LGUs that perform well can get additional grants or other financial incentives.

e.LGUs that need to improve in certain areas will be provided TA.

f.LGUs will choose and work closely with their consultants whose compensation shall be based on preagreed performance indicators.

g.Performance of local, regional, and national bodies tasked to review and confirm PPP projects of