Privatization Lures Foreign Investors
There is still a misconception that selling certain government assets like those that provide essential public services is a mistake. Commonly referred to as privatization, this arrangement gives the private sector a hand at running certain state operations and allows non-government corporations to earn profits—when the state (as some critics argue) should be the one posting the revenues.
But privatization is more than revenues and profits. It is about rendering efficient services to the public—which the government is poor at for several reasons, including budgetary constraints.
To debunk the arguments of skeptics, there is no guarantee that tolls, fees and fares of essential services will not increase if their operations remain with the government. The state is not managing a charity. It, too, needs revenues to keep the bureaucracy afloat.
Many developing nations, and even the advanced economies, resort to privatization to raise the state coffers and save money at the same time. By disposing of the assets, the government improves its financial health by reducing the burden incurred in subsidizing the operations of the privatized operations. The exercise enables the government to free some of its financial resources and reduce its administrative burden. It also allows the government to fund more important sectors like health, education, mass housing and other infrastructure projects such as bridges and ports.
Privatization also aims to introduce efficiency. Private companies are driven to innovate and provide better quality to consumers because the government can always rescind the concession or contract awarded to them, if they run afoul of the terms or conditions of the agreement.
Letting the private sector run the operations of big infrastructure projects in the Philippines is a clear signal to foreign investors that the administration of President Ferdinand Marcos Jr. is serious in his promise to make the nation business-friendly.
I am pleased to learn that the government is pushing with the privatization program and inviting local and foreign investors to join the Philippine infrastructure program. The Department of Transportation just last week disclosed its plans to open the bidding for the operations and maintenance contracts of Metro Manila Subway and the North-South Commuter Railway projects in the fourth quarter of 2023.
These are two mega infra projects that surely will catch the attention of major investors, and which I believe the private sector can handle well. Per the statement of Transportation Secretary Jaime Bautista, the bidding for the MMSP would likely start in the fourth quarter and until the first quarter of next year. Worth P76.89 billion, the 36-km MMSP includes operations and maintenance of subway trains, stations, depot and other systems infrastructure for a concession period of 15 years of full operations.
Another item up for auction is the operations and maintenance contract of the North-South Commuter Railway Project that is also set in the fourth quarter until the first quarter of 2024.
The 147-km. NSCR system, worth P204.6 billion, includes O&M of trains, stations, depot and other systems and infrastructure for a 15-year concession of full operations in addition to the partial operations period.
The privatization of these two projects alone is enough to convince the foreign business community that the Philippines is, indeed, open for business.
Mr. Bautista’s announcement is in sync with what Finance Secretary Benjamin Diokno told the Indonesian business community last week. Mr. Diokno promoted the Philippines’ competitive investment ecosystem to his audience during the Philippine Investment and Financial Briefing on August 23, 2023 at the Philippine Embassy in Jakarta, Indonesia.
The Philippines, per Mr. Diokno’s statement, is wasting no time in building a fertile business and investment ecosystem for private players in order help foster the development of high quality, modern and sustainable infrastructure in the country.
President Marcos, in his earlier State of the Nation Address, committed to pursue high-impact investments in public infrastructure, digitalization and human capital development for inclusive and sustainable economic growth. The government has revised the implementing rules and regulations of the Build-Operate-Transfer Law to strengthen the financial viability and bankability of Public-Private Partnership projects.
Local and foreign investors are choosy and meticulous in their investment preference. But if they see a government intent on welcoming them and serious in privatization, they will readily embrace the host and place their bet on the Philippines.