2008 - Philippines - Transport for Growth: Institutional Assessment of Transport Infrastructure

Infrastructure needs in the Philippines must be addressed to ensure long term economic growth. After several years of fiscal pressure, the Philippines is now in a position to address these needs. Despite the current international financial situation, the country is now in a position to commit resources to improve transport infrastructure. To this effect, it is necessary
to i) make resource allocation more effective and ii) improve governance in the coordinating departments and in implementation agencies. The suggested actions that follow address these two fundamental needs within four groups of recommendations.

First, focus should be on improving infrastructure quality and service delivery. While the quantity of transport infrastructure in the Philippines in network and facility density compares well with other countries in the region, its capacity and quality does not. Some critical transport costs are higher in the Philippines than in its neighbouring and competing countries. Substantial extra public and private expenditure is required to bring the quality of transport infrastructure up to an acceptable standard. This need applies to funding the maintenance of road and railway assets as well as to the capacity and quality of ports and airports.

Second, the processes for allocating public resources could be improved. With additional public resources available, project preparation, planning and budget processes need to ensure that expenditures are well focused on areas that offer the best value for money in improving service quality. The government has taken important initiatives to achieve this end.
But much remains to be done. The quality of multiyear planning and the quality of project preparation and selection in the annual budgetary process could be improved. Allocating
resources by default to the funding of deficits of Government owned and controlled corporations could be discontinued. Better preparation of transport infrastructure projects is required—whether projects are funded by the government, international financial institutions, donors or the private
sector. Contingent costs of public-private partnerships need careful analysis beforehand, which will require criteria for assessing public contributions.

Third, higher public spending on transport infrastructure will be effective only if accompanied by a program to confront institutional and policy distortions. In national budgeting and planning processes, this means improving the quality of planning documents and project appraisal and strengthening of prioritization in the national planning. It also means developing a multi-year multi modal transport infrastructure plan as a basis for project selection and national planning. For Government Owned and Controlled Corporations this means separating the regulatory functions from operational responsibilities so that free and fair competition can work to benefit consumers. Those steps require reforming several public operating agencies and government owned and controlled corporations. For local government units this implies increased access to financing through greater autonomy and effectiveness in raising local taxes and getting access to private sector financing.

Fourth, the private sector could be encouraged to continue its important role in transport infrastructure investment. Public resources alone will not meet the financing needs. In the mid-1990s the Philippines experienced a rich supply of proposals for private finance, mostly unsolicited. Often poorly coordinated with other facilities, these initiatives met with mixed success. Unsolicited proposals need more careful scrutiny than they receive. Recent experience suggests that the days of private sector eagerness to invest in public transport infrastructure are over. Improved processes and a stronger public sector institutional context are needed if private
sector financing is to play a role in the future.