Public-Private Partnerships Could Help Improve Competitiveness and Prospects for Sustained Growth – World Bank

MANILA, November 18, 2010—Recognizing the Philippines Public-Private Partnership (PPP) expansion’s potential to resolve the country’s difficult challenges including infrastructure development and poverty reduction, the World Bank today identified a variety of financing options and strategies that the government can avail of to propel such initiative.

Speaking before participants of the Infrastructure Philippines 2010 conference at the Manila Marriott Hotel in Pasay City, World Bank Country Director Bert Hofman said public-private participation in infrastructure development not only fills a critical financing gap for the government, but also improves the delivery of services.

“PPP has clear linkages to the country’s competitiveness and prospects for sustained growth,” Mr. Hofman said, after citing business leaders’ sentiments that the overall quality of infrastructure service delivery in the Philippines remains a concern and has emerged as a key impediment to the country’s economic competitiveness.

“We are prepared to work with the government in some important areas for accelerating the PPP program,” Mr. Hofman said at the conference organized by the Philippine Government as a forum with the private sector and development partners in evaluating investment opportunities, profiles of PPP projects, as well as policy, regulatory, and legal issues concerning the infrastructure sector.

Mr. Hofman added that the World Bank welcomes the government's plans presented at the conference, with emphasis on transparency and competitive processes in project selection and bidding. "It's encouraging to see that the government is putting considerable resources into bringing bankable projects to the market," he said.

The conference is a follow-up to President Aquino’s recent Executive Order No. 8 that created a Public-Private Partnership Center of the Philippines. The new agency is expected to spur the implementation of PPP programs by seeking ways to accelerate the financing, construction, and operation of key infrastructure projects.

Mr. Hofman explained that the World Bank Group’s partnership with the Philippines in supporting PPP has come in two ways: 1) policy advice, technical assistance, and program lending to foster changes in the enabling environment needed to foster private sector growth and robust partnerships in the various infrastructure sectors; and 2) credit enhancement instruments through the Bank’s partial risk and partial credit guarantees to strengthen the Bank’s catalytic role for mobilizing private capital financing to the infrastructure sectors.

Mr. Hofman listed a number of World Bank financing products and services that the Philippines could tap to accelerate PPP projects. For instance, while the Bank offers 30-year loans to middle-income countries with repayment schedules that address specific needs of projects, such loans can also be blended with private finance to cut amortization costs and ease pressures to shore up tariffs to make projects viable.

“The use of such hybrid schemes is becoming more and more common in an effort to reduce the total cost of financing for poor communities,” Mr. Hofman said.

Noting the Philippines’ successful 10-year global Peso bond issue as an example of progress in mobilizing long-term and local-currency financing, Mr. Hofman said such gain is “essential in PPP given the currency risk exposure through traditional foreign exchange financing.”

The World Bank Group, Mr. Hofman said, can “mobilize long-term Peso financing through currency swap facility for financing projects that do not have the capacity to earn foreign exchange and as such are exposed to currency risks.”

He added that the World Bank can help the Philippines set up a viability gap facility that could support projects needing public subsidy.

“We have been involved in designing a project with such a funding support, and how such a design could be applied to other projects should be very interesting. The objective will be to ensure that government’s financing support to a project will be ready in a timely manner acceptable to the private sector,” Mr. Hofman said.

Other available World Bank financing services cited by Mr. Hofman include:

  • Guarantee and risk management instruments to stimulate private-sector investments through, for example, partial risk guarantees that the Bank can extend to assure private sector investors that concession terms would be honored.
  • Assistance to the government in structuring, marketing, and tendering model transactions that are sustainable and bankable, as a way of ensuring there would be a pipeline of transactions for private investment attractive to investors and lenders.
  • Assistance in looking at emerging transaction models (such as hybrid PPP structures, output-based and performance-based road contracts) in other developing countries that the Philippines could adopt.
  • Specialized assistance in addressing constraints at the local government level, or specifically provinces and cities that have their own demands for infrastructure but tend to have serious limitations in their knowledge of PPP.

“The World Bank Group is ready to work with the government and development partners in further developing some of these products and services to suit the objectives and requirements of the government’s PPP program,” Mr. Hofman said.

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