Thursday, November 15, 2018

BWorld 265, Integrated PPP vs Hybrid PPP: The case of Kaliwa Dam

* This is my article in BusinessWorld last November 08, 2018.

Integrated Public-Private Partnership (PPP) means the construction then operation and maintenance (O&M) phases will be done by a single entity while Hybrid PPP means the construction is done by one entity, the O&M to be done by another entity. Funding of the former therefore will be fully shouldered by that entity while in Hybrid PPP, construction cost to be funded via ODA/foreign loan or Philippine government budget appropriation, O&M by a local private firm.

So if one will build a dam near Metro Manila, a Hybrid PPP route means taxpayers from Northern and Southern Luzon, Visayas and Mindanao will contribute to pay for that loan. In an integrated PPP, only the users and consumers of the water from that dam will pay, the users-pay principle works.

The Metropolitan Manila Waterworks System (MWSS) is pushing an important project, the proposed New Centennial Water Source Project (NCWSP). It will involve the construction of a dam at the Kaliwa River (Laiban Dam), and a smaller dam (Kaliwa Dam) downstream to maximize the water supply, give additional 600 million liters per day (MLD) to augment the 4,000 MLD from Angat Dam in Bulacan which provides potable drinking water. This is important not only because of rising water demand but also for backup, in case the old Angat Dam will be damaged by a strong earthquake.

A Japanese firm, Global Utility Development Corp. (GUDC), signed an MOU with MWSS in 2008 for an Unsolicited Proposal on Kaliwa Intake Dam Project, BOT scheme. The proposal was completed in November 2009.

Somehow plans have changed, MWSS has amended bid contracts, the integrated PPP later became hybrid PPP. I checked old BusinessWorld reports on the subject, I found these four stories.

1. San Miguel mulls legal steps as Kaliwa dam project to be funded by China ODA (Oct. 3, 2017).

2. MWSS expects three Chinese firms to buy Kaliwa dam project bid documents (Feb. 16, 2018).

3. China-funded Kaliwa dam, LGU surveillance projects seen making progress (July 19, 2018).

4. Manila Water flags risk of water shortage between 2021 and 2023 (Aug. 30, 2018).

So the original proponent GUDC, then San Miguel, Datem, other bidders were somehow lost in the process when the Duterte administration came.

Then GUDC was given consideration because its proposal is about 30% cheaper than the China-funded one. From various sources, I gathered these info and summarized them in this table.

So there. Not only that the cost is higher under China contractors because of its oversized design and other factors, the rest of Philippine taxpayers will be involved in paying this higher cost. This is anomalous because the users-pay principle under integrated PPP works just fine.

The MWSS website said that “Project Cost P18.7 Billion, to be funded from ODA from China. Loan Signing scheduled on the state visit of China President Xi Jinping on Nov. 19-21, 2018.” Wow, formalizing the anomaly.

Incidentally, public vs. private funding of infrastructure and other social services will be among the topics that will be covered by the various panels in the Philippine Economic Society (PES) annual conference today, Nov. 8, then the Federation of ASEAN Economic Associations (FAEA) conference, Nov. 9-10, 2018. Both to be held at Novotel Hotel, Cubao, Quezon City.

Economists have elaborate explanations on the beauty of users-pay principle, far superior than all taxpayers-pay policy under the Hybrid PPP scheme. This administration is compromising current and future taxpayers with this suspicious scheme, Kaliwa dam and other projects.

See also: 
BWorld 142, PPP vs ODA, Part 3, August 08, 2017
BWorld 156, Integrated PPP vs hybrid PPP, October 04, 2017

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