The Philippines is a country that highly values education. But a mix of widespread poverty and an infrastructure prone to damage from natural disasters, such as typhoons, can make providing that education difficult. With a growing population of school-age children seeking an education, the country was challenged with delivering on that demand.
So in 2011, the recently elected government of the Philippines decided that one of its top priorities was to address the country’s critical shortage of school classrooms — a growing backlog of 67,000 classrooms. But it had to consider not just the cost of delivering on its electoral promises, but the risks and shortcomings that have dogged past efforts to improve essential social infrastructure in the Philippines. The government had its first, tough question to answer.
Would a large infrastructure investment in education pay for itself in future economic and social prosperity?
Bill Banks, EY Global Infrastructure Leader, says: “The initial work we performed in support of the business case for the Philippine government showed that the wider economic benefits of educating children and the wider social benefits to the country were phenomenal. This therefore meant that as a result of this work there was a very compelling argument for why the government should go ahead and build these proposed schools.”
That answer led to a much tougher question, on very different scale …
In a country prone to extreme weather, with a government short on funds but not on capacity challenges, how do you build 9,332 new classrooms in less than three years?
Banks says: “The government recognized that within the education department and wider public sector authorities they didn’t really have the capacity to organize the necessary contracts and provide the overall oversight to build schools at the rate they would require them,” he says. “Nor did they have the design capacity or the staff they required to actually deliver these schools.”
The Philippines needed a new and innovative funding and delivery model for social infrastructure, one that would be fast and cost-effective, but without compromising on quality.
Choosing the right delivery model
After EY and the Philippine government considered different delivery models, we recommended public private partnership (PPP). Not only would a private sector partner address the government’s funding shortfall and low credit rating by drawing on financial resources of large domestic and foreign companies, it would also be able to bring in private sector technical and risk management expertise, and the capacity to meet delivery deadlines.
Another important advantage of the proposed PPP model, notes Banks, was that the government didn’t have to pay the full USD 250 million cost of building and maintaining the schools and classrooms up front. Instead, it could pay over the long term through more manageable quarterly lease payments that were directly linked to service quality standards.
“This way, the government was able to fund the concession over 10 years, whereas it would normally have to pay for them during the year in which the schools were built,” says Banks. This gave the government the opportunity to make the most of its existing budget in the short term, rather than commit it all straightaway for a long-term outcome.
The service quality standards set within the PPP contract also meant the government was able to futureproof the schools and eliminate the possibility of any backlog of maintenance at the end of the concession.
Banks says: “This was viewed as a significant advantage of this PPP procurement. It built in the continuity of supply of fit-for-purpose classrooms for the education department in the future.”