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Investors may sour on future PPP projects in PHL

THE government faces another international arbitration claim, this time stemming from the delayed implementation of fare adjustments for the Light Rail Transit Line 1 (LRT-1).

Analysts said investors might sour on public-private partnership (PPP) projects in the Philippines after seeing the government fail to implement the automatic fare adjustment under the contract entered by Light Rail Manila Corp. (LRMC). This shows that the government “doesn’t play fairly,” transport expert Rene S. Santiago said.

“Message to investors is don’t get enmeshed with PPP (projects) of the Philippines,” he said. Terry L. Ridon, convenor of public policy thinktank Infrawatch PH, said that automatic fare adjustment was one of the features of PPP projects under the Aquino administration.

“While this has been met with resistance by the public, it has been included as a PPP feature to entice the private sector to invest in public services.”

Ridon also noted that while this favors the public, it affects the PPP entity’s financial projections since investments in public services were under the premise that they can implement fare increases.

LRMC, the private operator of LRT-1, seeks to recover P2.67 billion in compensation claims and costs resulting from delays in the fare adjustments for 2016, 2018, and 2020, Metro Pacific Investments Corp.

(MPIC) said in a May 6 disclosure to the stock exchange. Ridon said the government should “renegotiate automatic fare increase provisions with its PPP partners and determine whether it is a provision that can truly implement instead of subjecting contracts to arbitration, in order to guide the private sector on how to proceed with PPPs in the future.”

“But we nonetheless maintain that there should be no automatic fare increases in public services and utilities, and all increases should be subject to public consultation and government approvals.”

Sonny A. Africa, executive director of think tank Ibon Foundation, said that arbitration cases are an intrinsic risk whenever the government privatizes public utilities and goes into big-ticket partnerships with private investors.

The alternative to PPP, Mr. Africa said, is public financing through government bonds and “progressive taxation,” which is “cheaper than relying on private financing for for-profit operations.” BUSINESS WORLD