Foreign investment unlocked by PSA seen flowing first to airlines

L FILIPE C SOUSA-UNSPLASH

Arjay L. Balinbin, Senior Reporter

AIRLINES and telecommunications companies are likely to be among the first to benefit from the amended Public Service Act (PSA), which raised foreign ownership limits, an analyst said.

“The initial salvo of foreign investment, if they come given the current global uncertainty, will be in telecommunications and air carriers,” Rene S. Santiago, former president of the Transportation Science Society of the Philippines, told BusinessWorld last week. 

“Both sectors are far more internationalized than the other sectors, (and some) domestic companies (e.g., DITO Telecommunity and Philippine Airlines) are in dire need of rescue or equity infusion,” he added in a phone message

Republic Act No. 11647, which amends the 85-year-old Public Service Act, excludes telecommunications, domestic shipping, railways and subways, airlines, expressways and tollways, and airports from the definition of a public utility. This means such industries will no longer be subject to the 40% foreign ownership cap for public utilities under the Constitution.

Mr. Santiago noted that shipping and railways also “badly need foreign investment, but these sectors have too many imponderables at the moment.”

He said the privatization of the Ninoy Aquino International Airport could attract foreign investors if the public-private partnership (PPP) design is “solid and credible.”

“Regional airports aren’t attractive. Toll roads are doing fine even without foreign money,” Mr. Santiago added.

Transportation Secretary Jaime J. Bautista recently invited foreign companies, especially those in Europe, to invest in Philippine transport infrastructure projects via PPP schemes.

Mr. Bautista said more private sector participation is needed in various infrastructure projects, including the privatization of the EDSA Carousel, seaport operations, the privatization of provincial airports, and the Cebu Bus Rapid Transit project.

“The country must erase first its bad reputation from past PPP deals for the Infrastructure program in PPP modes to gain traction. Railways would benefit most from foreign investment, if the obstacles beyond the PSA are (removed),” Mr. Santiago said.

According to Mr. Bautista, the revised implementing rules and regulations (IRR) for the Build-Operate-Transfer (BOT) Law ensure that PPP projects are not disadvantageous to Filipinos “by providing a balanced sharing of risks between government and the private sector project proponents while allowing reasonable rates of return on investments, incentives, support and undertakings.”

The IRR, published on Sept. 27, sought to address concerns over the financial viability and bankability of PPP projects while clarifying ambiguous provisions that might have caused delays in the PPP process.

Mr. Santiago cited the recent arbitration case filed by Light Rail Manila Corp. (LRMC), operator of Light Rail Transit Line 1 (LRT-1), against the government for “non-compliance on key contract provisions, including fare adjustments.”

“DoTr is focused on building the railway assets, but has not indicated the institutional (arrangements) for the long-term O&M (operations and maintenance). No clear track on how much private money is needed, how will these be recovered,” he added.

“In other words, there is no PPP structure/modality — unlike in the Clark Airport where the government pays for the civil works, and the private sector adds the electromechanical systems and gets their RoI (return on investment) from O&M of the airport.”

For railways, Mr. Santiago noted, the signal is “totally different,” as “everything is government — loans for all components come from ODA (official development assistance).”

There is “no skin in the game for the private sector on all railway projects under construction. Unlike the structure for LRT-1 South Extension, which was awarded to LRMC,” he added.

Foundation for Economic Freedom President Calixto V. Chikiamco said “all transport sectors” are now ripe for 100% foreign Investment.

These are “shipping, transport network vehicles, airlines, railways, subways, airports, and tollways,” he said in an e-mail interview last week.

He also said that the amended IRR of the BOT Law “would be sufficient to make the Philippines attractive to foreign investors.”

“The patently anti-market provisions in the amended IRR under the Duterte administration have been amended and removed,” Mr. Chikiamco added.

The IRR was amended in response to concerns that the previous version of the rules compel private proponents to shoulder more risk while relieving the government of responsibility for delayed deliverables.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said “better economic recovery prospects and increased infrastructure spending to pump-prime/stimulate the economy also help attract more foreign investment.”

“These infrastructure projects help increase the country’s competitiveness over the long term in terms of improved movement of goods (exports, imports), workers, tourists (both foreign and local),” he said in an e-mail last week.

The Department of Budget and Management (DBM) reported recently that expenditure on infrastructure and other capital outlays rose to P73.7 billion in August, from P70.9 billion a year earlier. The August total was 4.4% lower than the P77 billion spent in July.