THE Public Private Partnership (PPP) Center currently doesn’t have mechanisms to include sovereign wealth fund investments in its projects should the country create the Maharlika Investment Fund.
At the sidelines of the Inaugural Ruperto Alonzo Memorial Lecture Series at the University of the Philippines School of Economics late Wednesday, PPPC Executive Director Ma. Cynthia C. Hernandez said investments from a sovereign wealth fund can be used for PPPs if these are set up as subsidies or guarantee financing from the government.
If the government is bent on creating a fund and using it for infrastructure projects such as PPP projects, Hernandez said the government can consider making adjustments in the proposals or in the laws governing PPP initiatives.
“As generically defined sovereign wealth funds are, you want to generate returns. If you use that as viability gap funding, saan yung return mo? [where’s the return?] Your return is economic development? [Because] you want to do this [to] help the government,” Hernandez told the BusinessMirror.
Needs tweaking
IN her personal opinion, Hernandez said the MIF “will need tweaking.”
“[I’m not saying there’s no room] in the PPP space for that (sovereign wealth fund) but as it is currently designed, medyo wala [there’s none] unless they set it up as a fund to provide subsidies or guarantees or participation in equity in PPP projects,” Hernandez told the BusinessMirror.
She said one way to tweak the laws or guidelines is to pass the PPP Act. The PPP Act can join the Build Operate Transfer (BOT) Law, which currently governs the PPP Center’s activities and the guidelines for joint ventures (JV Guidelines).
She said the BOT Law provisions currently exclude financing through sovereign wealth funds such as the Maharlika Investment Fund. However, these kinds of funds may be accommodated under the JV Guidelines.
The JV Guidelines were created to encourage the pooling of resources and expertise between the government and the private sector.
The JV Guidelines cover all government owned and controlled corporations (GOCCs), government corporate entities (GCEs), government instrumentalities with corporate powers (GICPs), government financial institutions (GFIs) and state universities and colleges (SUCs).
Not practiced
UNDER the guidelines, the government’s equity in a JV company shall be 50 percent or less of the outstanding capital stock. Its contribution may be through assets such as money, equipment, land, intellectual property or anything of value.
“We can say okay, [we have here a] rail project; [offer a] bid and, to help reduce the project risk, government itself will participate, will take on 20 percent of equity,” Hernandez said. “So if you’re the private sector, [you’d be funding only] 80 percent [and] with government there, baka makatulong siya [maybe it can help] in managing certain risks.
“So ang benefit to the government is kung halimbawa ang equity return ng project is 15 percent, then the government will also be getting the benefit of the 15 percent equity return. So yun yung nakikita kong way na pwedeng gawin,” Hernandez explained. [So the benefit to the government is if for example the equity return of the project is 15 percent, then the government will also be getting the benefit of the 15 percent equity return. So that’s the way I see how that can be done.]
“But currently, we don’t do that. We don’t bid out projects and say bid for 80 percent of the project and 20 percent will be owned by the government,” she added.
‘Wild cards’
IN a separate forum last Thursday, former Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said creating this fund is untimely and could limit the government’s resources.
Guinigundo said in a video message at the ADR Stratbase Economic Outlook for 2023 that the country faces a lot of “wild cards” and the creation of the fund may be one of them.
He said it may be better to focus on the government’s Philippine Development Plan (PDP) than entertain the idea of creating the Maharlika Investment Fund.
“It is self-defeating in terms of its fund sources. Anything taken from GOCCs or government owned and controlled corporations, GFIs (or) government financial institutions and the Bangko Sentral ng Pilipinas (or) BSP deprives the government of funding the budget deficit either the national government borrows more or imposes higher taxes or do both. To me that is not going to be optimal,” Guinigundo said.
Guinigundo invited the government and legislators to use a “fine tooth comb” on the Maharlika investment fund (MIF) before it is even passed in Congress. This is especially the case since the government does not have any surplus funds to invest in such a fund.
‘Seed fund’
EARLIER, the President announced that private money may be used for the proposed MIF.
Additionally, President Ferdinand R. Marcos Jr. gave assurances that safeguards will be in place so that the MIF cannot be used for money laundering.
Marcos made the remarks amid concerns by some lawmakers that the MIF can be misused or could drain the government of much-needed funds.
He said the use of the fund will be project-specific to ensure it will be properly used. During the interview, he also explained that the MIF, which will be created via a new law, will only serve as “seed fund” for the country’s sovereign wealth fund (Full story: https://businessmirror.com.ph/2023/01/24/private-money-will-fundmif-but-safeguards-vslaundering-built-in-pbbm/).