Press Release
January 30, 2011

End state guarantees in big-ticket govt projects

Sen. Ralph G. Recto yesterday said government and big business should take cue from a leading industry voice that the era of reckless and unbridled government guarantees should end under the new government.

Recto said he welcomes the recent statement of San Miguel Corp. (SMC) president Ramon S. Ang urging the government not to extend guarantees under its Public-Private Partnership (PPP) program.

"This is what we've been saying all along. Big companies or proponents would participate anyway in government contracts with or without the usual built-in ROIs (rate of return) as long as these are viable and the bidding process is transparent," Recto, Senate ways and means chair, said.

"In the previous years, we have lured investors by offering them tax perks and other guarantees and, in the process, sank us deeper into debts. The era of 'sugar-coated' guarantees is now obsolete," he added.

Recto said government should reconsider giving guarantees to PPP proponents or private investors undertaking big-ticket projects since this would be repeating the same mistakes of the past.

Recto cited the case of Metro Rail Transit (MRT) system, which was constructed and managed by a private consortium. The government later took over its operations after the guaranteed ROI or profit was not being met.

"We don't want a repeat of many more MRT templates," he said.

"No more 'take or pay' provisions. No more state cash for services or goods that the public did not use or consume," the senator added.

A take or pay provision essentially obligates one party to take delivery of goods from other party or pay a specified amount in exchange for not buying the goods.

To lure private investments, previous governments extended guarantees to consortium or contractors undertaking big-ticket projects such as income tax holidays, guaranteeing their foreign loans and protecting them from losses due to currency devaluation.

In the case of MRT system, the project proponent was assured of a fixed profit regardless if the modern train system runs or earns money or not.

Recto said pronouncements from economic officials about possible guarantees to be given to PPP contractors were alarming.

"Di pa nga magaling ang bukol natin sa ulo dahil sa MRT, kukuha na naman tayo ng ipu-pukpok sa atin," the senator said.

The Aquino government is banking on its PPP program with the private sector to finance vital government projects needed to boost the economy and create more jobs.

Multi-billion projects involving railways, tollroads, airports and seaports would be bidded out to the private sector starting this year under the government's PPP program.

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