OF all the presidential candidates, Sen. Grace Poe and former Interior Secretary Manuel “Mar” Roxas 2nd are seen as the most “investor-friendly” and presenting the least “political risk” to ongoing and future Public-Private Partnership (PPP) projects, analysts said.
Political risk, usually determined by the stability of an administration, directly affects the cost of projects.
PPP chief Andre Palacios said with high political risk, project costs are pulled up but if there is reduced political risk, costs go down.
“Political risk is really broad and often it is differentiated as regulatory risk [posed by] regulatory change in law,” Palacios pointed out.
Alexander Tiu, senior equity analyst at AB Capital Securities, said political risk could either attract or discourage investors.
Administrations that exhibit lower political risk attract investors. He added.
Political risk, which is quantified into a certain monetary cost set by banks and interested bidders, is based on leadership, governance, transparency, ease of doing business, legality, perception of corruption, safety, level of bureaucracy and historical performance and perceptions, according to Tiu.
“A higher risk translates to higher required returns, which translates to a higher cost for a project,” he said in an e-mail to The Manila Times.
“Lower political risk would attract more bidders from both local and international parties, translating to a more competitive pricing and bidding for the project,” Tiu added.
Under the Aquino administration, a handful of contracts was successfully awarded through the PPP Center, a facilitative body created when President Benigno Aquino 3rd assumed the presidency in 2010.
One thing that has helped the current administration has been the absence of legitimacy issues, Nicholas Antonio Mapa, research officer for market and strategy for the Bank of Philippine Islands (BPI), explained to The Manila Times.
“Aquino was not hounded like previous administrations by questions of legitimacy. It also helped that Aquino is in the good graces of the middle class and the elite, which usually help keep the political fabric in place,” Mapa said.
So far, 12 PPP projects costing P217.42 billion had been awarded.
These include the Daang Hari-SLEX Link Road, Mactan-Cebu International Airport Passenger Terminal Building, Cavite-Laguna Expressway and South Integrated Transport System Project.
But with a new administration about to take power, continuity and further success of the PPP program is somewhat uncertain, analysts said.
“The Philippines’ current level of political risk is hinged on who will win this year’s presidential elections. That said, the next administration should have consistency in governance, smooth transition, perception of cleanliness, and should ultimately continue the past projects of the current administration,” Tiu said.
“Of the current candidates, we feel that Mar Roxas and Grace Poe pose the least amount of political risk, and are the more investor-friendly,” he added.
Palacios said the next administration should be firm in honoring contracts that had already been awarded.
That way, he added, political risk would be kept at a minimum.
“The best situation is really [that] we [should] honor all the awarded contracts, then there is reduced political risk for [other] projects to be awarded,” Palacios said.
Emilio Neri, lead economist at BPI, explained that Palacios could be implying that the PPP could suffer if the quality of governance deteriorates after the elections in May.
There are still 14 projects in the PPP pipeline for procurement, of which 10 are slated to be awarded before the new administration steps in.
The PPP Center is looking to complete the bidding and award at least 10 projects including five regional airports, the Laguna Lake Shore dike and expressway project, the Department of Justice prison project, LRT (Light Rail Transit) Line 2 Operations and Maintenance and Land Transportation Franchising and Regulatory Board IT Road Map.
The LRT Line 6, connecting towns in Cavite to the LRT Line 1, is also among the top priorities of the PPP Center.