Solon urges Congress to drop Public-Private Partnership schemes in 2012 Budget “PPPs will cost taxpayers more”



September 12, 2011


Representative Antonio Tinio of ACT Teachers Party-List urged members of the House of Representatives to remove funding from public-private partnership (PPP) schemes in the proposed 2012 national budget.

In his 2012 proposed budget, President Aquino believes the use of PPP approach on social services will finally resolve the shortages of infrastructure such as school buildings and hospitals. For the Department of Education, he proposes P5.0 billion for school building construction through the PPP scheme. The private sector will finance and build classrooms while government pays them an annual amortization over a period of several years.

“Public infrastructure projects financed by PPPs will end up costing the tapxpayers more,” said Tinio.

In the budget deliberations last week, Tinio faced Rep. Joseph Emilio Abaya, chairperson of Appropriation Committee, with questions on the practicality of using PPP schemes over the traditional government financing.  He claimed that financing public infrastructure thru PPP scheme may turn out to be more expensive, citing experiences of Canada and United Kingdom to support his point.

The ACT Teachers representative cited a recent report published by the House of Commons Treasury Committee last month which concluded that ‘we have serious doubts about such widespread use” of Private Finance Initiatives or PFIs (the UK nomenclature for PPPs).  The report found that the use of PFIs “has the effect of increasing the cost of finance for public investments relative to what would be available to the government if it borrowed on its own account. …The price of finance is significantly higher with a PFI. The financial cost of repaying the capital investment of PFI investors is therefore considerably greater than the equivalent repayment of direct government investment.”

Tinio explained that the UK government has been one of the most aggressive in promoting the PPP mode for provision of public infrastructure. Over 700 projects were funded through this scheme. But policymakers are now beginning to reconsider, he added. “The UK Parliament has declared that PPPs as a financing method for public infrastructure “is now extremely inefficient.”

The report also debunked claims that alleged private sector efficiencies could offset these higher financing costs: ‘We have not seen evidence to suggest that this inefficient method of financing has been offset by the perceived benefits of PFI from increased risk transfer.

“This is a damning indictment of PPPs from the very government which up to this point has been one of the most avid proponents of the scheme,” said Tinio. The solon scored the Aquino administration for including Php 19.6 billion for PPPs in its 2012 proposed budget, consisting of an Php 8.6 billion allocation for the Department of Transportation and Communication, Php 3.0 billion for the Department of Public Works and Highways, Php 5.0 billion for the Department of Education, and Php 3.0 billion for the Department of Health.

Tinio further cited a 2007 study by the Canadian Union of Public Employees that showed that “for every two schools financed through P3s in Alberta, an additional school could be built for the same cost, if all were built using traditional public sector contracting models.”

“The evidence is clear that projects funded through PPPs end up costing more. Malacanang must first make the case before the public that the taxpayers will get better value for money through PPPs. We challenge them, show us the numbers first.”

“It’s ironic that just as the Aquino administration is embarking on a big push for PPPs, the rest of the world is coming around to the fact that PPPs are a costly and ultimately inefficient method for funding public infrastructure. It’s private profit at the people’s expense,” concluded Tinio. #