Philippines government to guide local PPPs

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Manila wants to see more local-level PPPs. A new bulk water project in Cebu is leading the way.

The city of Cebu signed an investment agreement with metro Manila concessionaire Manila Water Company at the end of March for the joint development of a bulk water supply project. The 30-year agreement to deliver 35,000m3/d of water to the local utility is one of the first local government- led PPP projects in the Philippines.

 
Most prospective PPP activity in the Philippines is taking place at the national level, although interest among provincial and local governments is growing. Several provinces – Cavite, Camarines Sur, Northern Samar, Nueva Ecija, and most recently Pangasinan – have passed their own PPP codes, and the central government issued a new manual for local government-led PPPs at the end of March.
 
The manual, which provides examples of project structures, risk allocation and a step-by-step guide to designing projects, is part of a broad effort to push private investment in infrastructure. “Central government policy is a key driver for the development of regional and local projects,” commented Giles Ashman of law firm Ashurst.
 
Cosette Canilao, executive director of the Philippines PPP Center, which was set up in 2010 to support the implementation of the government’s PPP policy, is optimistic that the pipeline of local-level projects will fill up. “Local government interest is very high,” she told GWI.
 
The PPP Center can support projects under the Project Development Monitoring Fund, a revolving pool for feasibility studies and transaction advisory services. The PDMF has an initial allocation of PHP550 million ($13 million) from the central government and a trio of international donors (CIDA, ADB and Ausaid), and a further PHP160 million ($4 million) is expected to be added later this year.
 
Guarantees for PPPs can also be provided by the LGU Guarantee Corporation (LGUGC), a private risk guarantor in the Philippines. To date, however, the LGUGC has only been used to cover LGU debt default risks and off-take agreements.
 
According to the newly drafted manual, local government units can make PPPs more commercially attractive through a number of channels. These include equity participation, investment and operating subsidies, take-or-pay arrangements, exclusivity rights, and allowing private service providers to earn revenues from ancillary sources. The shared equity approach adopted in Cebu will allow the government to see some of the upside of a successful contract, and could prove to be a popular model for future local PPPs.
 
“Water will be a big part of our forthcoming PPP programme,” asserts Canilao. “The first water project we are working on is a new water supply source for Manila.” This ‘New Centennial Water Supply Source’ project is being proposed by MWSS, the public agency responsible for water resources in the capital region. MWSS envisages that the first of three phases in the project will require at least $500 million, and is targeting October to publish specifications. Other local water projects on the PPP Center’s pipeline list include a 125,000m3/d bulk water supply facility in Davao, and projects in Majayjay (Laguna) and Sariaya (Quezon).