UNATTRACTIVE: The Aquino administration is furiously beating the drums for its vaunted Public-Private Partnership (PPP) program, but appears having a hard time attracting investors for heavy infrastructure projects that do not generate their own revenue.

Many foreign businessmen grumble that the investment climate is not attractive enough under the Build-Operate-Transfer Law (RA 7718) covering PPP projects.

Transportation and Communication Secretary Mar Roxas may have found the way out of this PPP box when he suggested that Overseas Development Assistance (ODA) be tapped for big infra projects instead of relying solely on the usual BOT arrangement.

The BOT formula might be good enough for investors eyeing such revenue-generating projects as tollways and light rail systems in the cities, but for such non-revenue infra items like bridges, ODA appears to be the better alternative.

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TAPPING ODA: One problem, however, is the government’s sour relations with previous ODA sources, including Belgium (on the desilting of Laguna de Bay) and Germany (one of whose state firms invested in the Ninoy Aquino International Airport Terminal 3).

The Aquino administration may have to clean up first the mess left in these failed engagements to be able to move forward along the ODA line.

With the world watching how its loans are used, ODA appears to offer a more transparent financial scheme than PPP under the BOT law. The specter of the aborted ZTE national broadband project still haunts the premises.

No wonder Secretary Roxas proposes tapping ODA for heavy infra projects.

Under Section 2 of RA 7718, projects that have difficulty sourcing funds may be financed partly from ODA of foreign governments or institutions not exceeding 50 percent of the project cost, with the balance to be provided by the project proponent.

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CHEAPER TO END-USERS: Sectors favoring ODA loans point out that these come out cheaper than commercial loans, nominally anywhere from two points above the prevailing cost of capital.

Pegged to the current US interest rate, which is .25 percent, what ODA will charge recipient countries is much lower than what financial commercial institutions will. That translates to savings for the government on specific, high-value, heavy infra projects.

Another point is that ODA loans typically have long terms, from 10 to 30 years (or more). Again, coupled with the low interest rate, the financing is less of a drain to the business model of a specific infra project.

They also have a grant component of not less than 25 percent, which greatly lightens the borrower’s burden.

This increases the project’s chances for financial success. Since the cost of money for the project is lower, the savings can be passed on to the end-user.

Typical heavy infra projects rely on tolls to recoup costs. The cost of money under ODA is lower and longer-term, so tolls need not be raised exorbitantly during the life of the project.

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ONEROUS RATES: The current BOT law, which applies to PPP projects, is outmoded in that sense. It guarantees the rate of return to private investors under PPP, pegging it at around 12 percent to 32 percent.

This was okay when the cost of capital in 1989 was hovering between 7 and 10 percent, leading to perhaps conservative interest rates of 10 to 13 percent, for a 3-5 point spread.

Today the cost of capital is effectively .25 percent, and a guaranteed rate as above would mean a spread of 11.75-31.75 points!

That is onerous, considering that the guarantee allows private entities in PPP to increase prices and institute practices that ensure that rate of return. This would allow them to recoup their investment in too short a time (two to three years).

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COMPETITION: Theoretically, proponents need only pour in a minimal investment to maintain the project until they can sell their stake in the asset back to the government or another entity, earning on the back of their fully paid-up investment.

Who loses? The Filipino, who must contend with high prices, poor maintenance, and additional costs shouldered by the government. Sound familiar? Think MRT/LRT.

A good alternative is ODA. Cheaper, and with terms matched to the life of the project, this scheme requires private entities in PPP more than an investment, but a commitment.

Without guarantees, the business model must face true competition. A level playing field opens itself to competition, and players must offer service the customers expect, or else lose money.

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PAJE IN TROUBLE: With problems plaguing the Department of Environment and Natural Resources, DENR Secretary Ramon Paje appears headed for more trouble involving an illegal mining issue in Zamboanga del Sur.

Secretary Paje reportedly sided with a foreign group whose operation has been questioned by indigenous peoples and the province’s chief executive.

The confirmation of Paje by the Commission on Appointments may have been imperiled also by Justice Secretary Leila de Lima’s legal opinion that the DENR secretary had no power to issue special permits, such as the Special Ore Extraction Permit (SOEP). The power, she said, lies with the director of the Mines and Geosciences Bureau.

Paje had said in a letter to the DoJ that the SOEP was valid since both RA 7942 and RA 8371 (Indigenous Peoples’ Rights Act of 1997) recognized the priority rights of indigenous people in mining their ancestral domains.

Zamboanga Del Sur Gov. Antonio Cerilles also opposed Paje’s confirmation because of his failure to stop the operations of Lupa Pigigetawan under a SOEP issued by then DENR Secretary Lito Atienza.