Philippines hopes new infrastructure fund will stop the rot

Speaking in Manila at FinanceAsia’s Infrastructure Philippines Conference 2010 earlier this month, Francisco Del Rosario, chief executive of the Development Bank of the Philippines (DBP), discussed plans for the country’s new infrastructure development fund.

The fund is being seeded with a $280 million (Ps12.5 billion) contribution from the government budget. That will be supplemented by $4.5 billion in 10- to 15-year bond funding from the DBP, Government Service Insurance Scheme, Land Bank of the Philippines (LBP) and the Social Security System. The money will then go to the National Development Co, the investment arm of the government, and will be allocated to buy land and rights of way. Private capital will also be sought at that point.

LBP and DBP, as well as other institutions, will also provide loan finance at project level. Funds and technical assistance are also expected from the Asian Development Bank, World Bank and Japan International Cooperation Agency.

Infrastructure in the Philippines is not in good shape. While it improved exponentially under US rule over a century ago – with the construction of a telegraph and cable communications network, steel and concrete wharves in the port of Manila and large public parks – it hasn’t come a long way since independence and is something of a national joke.

Featured at the conference was an encyclopaedia containing a wish list of around 100 mooted infrastructure projects. Ten urgently prioritised projects – for road, rail and airport provision – are slated to be rolled out in 2011. AsianInvestor will examine these projects in a separate story.

Some investors voiced concerns that the scope of the wish list might be over-ambitious, even the initial list of just 10 projects. “I’d support a smaller list to start with,” said Jim Cameron, head of project finance for Asia-Pacific in HSBC’s resources and energy group. “That would help maintain focus.”

Interest by local investors in the projects has already been expressed by Filipino companies with infrastructure investment arms, such as Metro Pacific and San Miguel.

As reported by AsianInvestor recently, the President of the Philippines has promised that these new public-private partnership deals would not be tainted by corruption on the part of the national government. Since he is new to the job, people may give him the benefit of the doubt until it’s proved that nothing has changed.

However, there are worries that international investment funds are going to be embezzled and siphoned off by people seeking backhanders and kickbacks, irrespective of the good intentions expressed by the head of state.

International infrastructure investors would therefore like to see a modest track record of success and a proven ability to administer this programme before they make significant commitments, even if that is based on the evidence of just a couple of honestly and effectively managed projects that can be held up as good examples.

“The public-private partnership infrastructure programme needs to see a few early successes,” says Conor McCoole, head of project and export finance for Asia at Standard Chartered. “Trying to apply it to complex sectors will result in disappointment. Also, there has to be a realistic risk allocation, and it is a dangerous idea to try and foist it all on to the private sector.”