Public Private Partnerships (PPPs) defined - A formal relationship between public and private entities as an approach for economic, environmental and infrastructure development of a particular jurisdiction. This scheme involves processes of project identification, procurement, implementation, operation of government projects and services. The key element of this framework is privatization of governmental functions; It reduces state expenditure and encourage private finance initiatives (PFI). To have a sustainable PPP enterprise the contract requires continuous, long and uninterrupted terms until such period that the project or infrastructure operation is transferred to the state. It is a variant permitted under a Built-Operate-Transfer (BOT).
Development of private sector initiatives on sustainable environment. In the Philippines, the emergence of private financed forestry programs in the 1980s and the 1990s shifted the emphasis from the traditional approach of "getting the trees on the ground" to "getting the livelihoods of the people off the ground" through their involvement in reforestation and other forestry projects. The major programs believed to have boosted the country's reforestation efforts include the Integrated Social Forestry Program established in 1982, the Community Forestry Program in 1987, and the 1995 Community-Based Forestry Management (CBFM) program. Both project recognized the role of the private sector in the sustainable management of the country's forest. Other than providing additional sources of income through participation in the different reforestation activities, these programs also provided incentives and support to upland communities by providing tenure rights over reforested areas and livelihood support. Also for the first time, projects followed a deliberate and private sector participatory planning process in which the communities were involved starting from area identification to development planning, project implementation, monitoring and evaluation. The exact contribution of these programs to the overall rehabilitation effort is yet to be ascertained. However, with CBFM adopted as the national strategy for sustainably developing the country's forest lands, it would be safe to assume that most plantations established by the Philippine government from 1996 to 2002 were privately financed and managed. (Pulhin, et.al. 2002). In the year 2000, the Ecological Solid Waste Management Act of the Philippines was approved. This law provides for the privatization of solid waste management projects and the participation of the private sector in the management of solid wastes, particularly in the generation and development of the essential technologies for solid waste management. It was provided that private sector investment activity shall be identified and promoted with the establishment of private sector involvement in solid waste management in conformity with Section 45 of the said law. Section 45, of course provides for incentives.
In Indonesia, the National Mitigation Action Plan (NAMA) identified PPPs as one strategic policy for a sustainable climate change mitigation and adaptation. PPPs are expected to maximize the impact of climate change mitigation taking into account the resources and expertise of the private sector. In Thailand, the National Environmental Protection Act and the Royal Act Private Participation of State Affairs were approved and in effect in 1992 which provided groundwork for the privatization for treatment of sewerage and industrial waste water. Remarkable increase of environmental projects were noted from 1995 to 2000. South Korea had accelerated environmental infrastructure using private investments and management from 1993 to 1998.
PPPs INSTITUTIONAL DIMENSIONS
Since PPP initiatives are implemented as a formal relationship of both government and a private entity- it may be concluded that the private party is the more dominant sector. It may be a complicated process, given the presence of stakeholders and diversity of interests:
(a) Major groups of players such as stakeholders, investors, government entities, offtakers drive the process and outcomes of PPPs for a sustainable environmental development and as climate change adaptation mechanism;
(b) Legislative, regulatory supports in every jurisdictions;
(c) Every government's environmental requirements and limitations;
(d) The local governments like towns and cities
(e) Funding and financial institutions like World Bank and the Asian Development Bank;
(f) The technology and academe sectors;
(g) Institutions like the UNFCCC, the ASEAN
(h) Profit sharing and revenue scheme
(i) Fiscal and Non-fiscal incentives
(j) Political commitment and will and a strong leadership.
Since the PPP framework requires the involvement of government agencies like the Environment, Foreign Affairs, Finance and the local governments, political will and commitment coupled with strong leadership will be ensured for a sustainable PPP enterprise.
The political commitment for a sustainable PPP requires an approved legislation that enumerates the provisions concerning incentives, concessions, taxation benefits, permitting process, prioritization of projects, terms of agreements, biddings, value of investments and suitability of the projects. (Briones, 2010).
The PPP policy formulation should integrate the following:Land acquisition, tenure and limitations; Measures against risk: by exact terms, express provision of a policy that a private investment, and private operation and management will be protected and guaranteed political supports;The Contract Items: conditions of entrance to the mainstream business, regulations on ownership and limitation on foreign capitalization and equity, conditions on facility transfer, setting of treatment costs and fluctuations, measures to share costs in case of unaccomplished targets and goals, on waste-to-energy: recommendations from the offtakers, use of end products, compliance of environmental standards, penalties in case of breach, securing of incentives, compensation for losses because of losses.
Experiences gained in the Philippines on PPPs enhanced institutional capacity of these (government and private) two key players. (Briones, 2010).
THE PPP PROCEDURE.
The BOT law in the Philippines provides for the procedure for the government and the private sector for PPP Projects for unsolicited proposals and public bidding process. The Bidding process can only be awarded to bidder who submitted the lowest bid and offer the most favorable terms for the projects. Specific levels of approvals and which authority is vested the power to approve them.
Solicited PPP Process- the initial step is project identification and preparation. The proponent agency prepares the development plan which shall identity priority projects which will be submitted to the Evaluation Agency. An interested private entity will review the proposals and will conduct an independent review or a Feasibility study. If the result is favorable, the private entity provides the resources and organize the development and funding for the project. The second step is the approval of the project, this is done by procuring the necessary clearances from government agencies who will also evaluate the proposal. (Zambrano,et al, 2011)
INCENTIVES FOR PPPs
Under the Philippine government's PPP program, pertinent incentives are provided to stimulate private resources for the purpose of financing the construction, operation and maintenance of infrastructure and development projects normally undertaken by the Government. With the recognition of the private sector as one key player for national growth and development, the policy framework for PPPs provides the most appropriate incentives in mobilizing private resources to fund the construction, operation and maintenance of infrastructure and development of projects which were under normally undertaken by the government.(Philippine BOT Law). (Zambrano, et. 2010)
Private initiatives will: operate the facility over a fixed period, not exceeding 50 years; charge facility users tolls and rentals; recover construction, operation and maintenance expenses and earn a reasonable return on investments, reflecting the prevailing cost of capital in domestic and international markets. The Philippine government's PPP projects, incentives have been committed such as:
- Incentives to attract private investors for the purpose of financing the construction, operation, and maintenance of sustainable infrastructure;
- Protection of investors in relation to solicited projects that undergo a competitive by bidding process from regulatory risks events, such as court orders or decisions by regulatory processes agencies that prevent investors from adjusting tariffs to contractually agreed levels;
- Select private sector investors through open competition under fair transparent terms. (Philippine BOT, 2010)
PROFIT AND REVENUE SHARING AND SHARED RESPONSIBILITY OF A PPP PROJECT
A Renewable Energy Developer who signed a 25-year PPP agreement with a local government unit for the development, implementation and operation of a Waste-to-Energy (WTE) Facility in the Philippines is given fiscal and non-fiscal incentives and is entitled to reasonable return of its investments, government supports and investment incentives. Reasonable return of investment is provided by allowing the private entity to collect tipping fees and enjoy the benefits under the Renewable Energy Law as private RE developer, to include a income tax holiday for seven years and 10% corporate taxation thereafter. (Briones, 2011)
Further, under the Philippine PPP policy, the government shares in the risk and cost of the project by providing support in the form of cost sharing and investing incentives.
SAFEGUARDS AND GUARANTEES FOR PPPs.
The risks for private investors involve in PPP Projects are expected. Under the Philippine BOT law, in order to encourage investors to transact business with the government, they provide support such as guarantees and subsidies. These supports are in the form of logistics, like raw materials, land, right –of- way, local accessibility to infrastructures. The government also assures a continuous flow of revenues to the project to make it viable and more investors will be attracted and also the guarantee the return of investments of the investors.
There are private investment friendly laws that were passed to push with the PPPs to encourage long term investments, which include tax incentive schemes, exemptions, tax holidays, tariff reductions, the grant of inflation and foreign exchange cover (price escalation clauses), protection from competition making the project more viable and the exclusivity in fixed terms to provide ample time for the investors to recover investments. ( Zambrano, 2010)
A SUSTAINABLE INTEGRATED WASTE-TO -ENERGY ADOPTING THE PPP APPROACH
Ruth P. Briones, in 2008 had drawn up a 25-year plan for an integrated waste management in the Philippines under the framework of Public Private Partnerships. The plan sets up Waste-to-Energy (WTE) Development Initiatives that apply proven solutions, leading edge information and comprehensive research. The PPP program substantiates the model for the development of economically viable and environmentally sustainable waste-to-energy projects for the commercial production of energy which provides municipalities privately financed, rapid construction program that allows them to accelerate Waste-to-Energy project development. Further enhancing the prospect for WTE solution was the signing of Republic Act No. 9513, the Renewable Energy Act of 2008, to boost the Philippines' bid to become 60-percent self-sufficient in energy by 2010. The law is also timely because it mitigates climate change and supports the government's efforts to improve the overall quality of life of the Filipino people. The law provides the legal and institutional framework for harmonizing policies on the development of geothermal, hydropower, solar, biomass & municipal solid waste, wind and ocean energy technologies. It seeks to encourage the use of such resources as a means to cut harmful emissions, and strike a balance between economic growth and environmental protection.
The Briones' Blue Print provides a Public Private Partnership Agreement for development of WTE Facilities involving a private developer becoming the majority owner of a Joint Venture Company undertaking the role of designing, building, operating, financing and owning WTE Facilities. Its minority municipal public partner is responsible for contributing suitable land for the development of WTE facility; providing right of way and security for the facility; guarantee supply of long term waste feedstock, including the payment of tipping fees for disposal of waste feedstock at the facility; and facilitating, where necessary, community involvement and education, and the procurement of local permits and licenses.
The Public Private Partnership Arrangement is expected to create economic, environmental and educational opportunities for the community it serves and the participating investors. The Private finance initiative program represents a "green" solution that has the potential to generate millions of dollars to municipalities throughout the Philippines. The combination of innovative technology and marketing approach employed thru a private finance initiative provides a rapid return of capital and profits from the acceleration of the entire WTE facility design and investment process.
There are now twelve (12) PPP contracts under development in the Philippines which are expected to be operational by 2014 that will dispose about 6,000 tons of Municipal solid waste in twelve towns and cities nationwide and will generate renewable energy that will be sold to the national grid. Private stakeholders are local and international funding groups, technology developers and engineering companies.
PPPs AS REGIONAL STRATEGY FOR SUSTAINABLE ENVIRONMENT
During the Seoul Declaration in 2007, the heads of the ASEAN had adopted Public-Private Partnerships (PPPs) scheme as means to complement efforts of governments in the development and provision of infrastructure facilities and services.
As a result, a number of governments in the Asia-Pacific region, considered PPPs key priority in the infrastructure development and have enjoin private sector investments and participation. Regulatory frameworks and policy are now approved to encourage private sector involvement in major infrastructure and services development. Also, PPPs are considered as a tool for sustainable environmental development especially relative to efforts in climate change mitigation and adaptation.
Noeleen Heyzer of the United Nations and Executive Secretary of Economic and Social Commission for Asia and the Pacific noted during the Seoul Ministerial Conference that infrastructure demands public-private shared approach in the delivery of Financial and Technological resources to aid developing countries in sustainable climate mitigation which measures are estimated to reach $250 billion a year in 2020. This is important with the current state of the Coastal cities, Bangkok, Jakarta, Manila and Shanghai is increasingly vulnerable to sea-level rise, as well as flooding and storm surges due to unpredictable weather patterns. (ADB, 2011)
Mitigation and adaptation to climate change by reducing greenhouse gas (CHGs) may not be enough that to cope with serious environmental impact. Southeast Asian economies could lose as much as 6.7 percent of combined gross domestic product yearly by 2100, more than twice the global average loss, due to global warming. (ADB PPP Handbook , 2010). Over time, human beings and ecosystems have adapted to different environments and conditions. The current challenge lies in keeping up with the rapidly increasing need for adaptation measures as a consequence of climate change, ensuring that adaptation is considered in political and economic decision-making and is translated into action. (UNFCCC, 2009).
Private sector involvement in the adaptation of climate change is a sustainable development strategy. Private sector financing of adaptation in the forestry, land use agriculture sectors and urban environmental infrastructure in the less-developed world started, and there are opportunities.( UNFCCC, 2010) There are a number of options for involving private sector investors in adaptation that help to combat the impact of the environmental phenomenon.
IMPLEMENTING PPPs
Increasing private sector involvement in adaptation activities thru the public-private partnerships (PPPs) framework should be encouraged. This aims to harness private efficiency and resources to meet goals that benefit the public. The establishment of such partnerships may help to identify and use synergies to finance and implement adaptation projects that not only support the public good but also result in economic returns for private investors.
The development of climate-resilient crops through a PPP aiming will combat desertification and help protect the biophysical foundations of agriculture, such as forests, soils and water.
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Related Reading:
- Asian Development Bank Handbook on Public Private Partnerships
- Juan M. Pulhin, et al, One Century of Forest Management in the Philippines, University of the Philippines, January 2008
- Bautista, Janet A., Streamlining the Philippine BOT Process, January 2011
- Zambrano & Gruba, Public-Private Partnerships in the Philippines, January 10, 2011,
- Briones, Ruth P., The Blue Print for An Integrated Waste Management In the Philippines, May 2008; A paper presented during the Zero Waste Philippines Forum in Manila, October 2010.(www.greenergyph.com)
- Briones, Ruth P., Public Private Partnerships on Renewable Energy- a Paper presented during the 20th Mindanao Business Conference, Pagadian City, Philippines, September 2011, (www.greenergy-solutions.com)
Briones, Ruth P. PPPs as Corporate Environmental Responsibility, a Paper Presented during the First Philippine Environmental Journalist Forum, October 2010 (www.greenergyph.com)