By ROEL R. LANDINGIN
Philippine Center for Investigative Journalism

(Conclusion)

Alonzo, who uses Berkoff’s paper in his classes, says road projects fare somewhat better and tend to yield higher economic returns than initially estimated because of spillover effects. The EIRR on farm-to-market roads in the small sample of projects examined by PCIJ were generally higher after completion compared to appraisal.

But there are many exceptions, and one that easily comes to mind is the majestic but costly San Juanico Bridge that links Samar to former First Lady Imelda Marcos’s native Leyte island.

"San Juanico was constructed several decades too soon," says Alonzo who used to bring his students to the bridge for the annual field trip years after it was built with Japanese ODA loans in the early 1970s. "We’re in the bridge for several hours already but we don’t see any cars or jeepneys, only carabaos."

Public works engineers, he adds, used to joke among themselves that average daily traffic (ADT) was not measured in terms of vehicles but carabaos.

According to the project completion reports reviewed by PCIJ, lower-than-expected returns of completed projects stem from a variety of reasons, including extended delays in completing the project, hefty cost increases, or weak demand.

Various risks – economic, political and even security – could hobble a project, dragging performance well below expectations or even minimum standards. This is apparent from even a cursory look at the three lenders’ biggest project loans.

One of JBIC’s largest project loans in the Philippines was a 32-billion-yen package signed in 1982 to finance the construction of extra-high voltage transmission lines that would bring power from the geothermal power plants in Bicol and Leyte to Manila and Central Luzon.

Yet, after erecting more than 560 steel towers and stringing up almost 250 kilometers of transmission lines in May 1987, a year and a half behind schedule, the borrower, National Power Corp. (Napocor), left the facilities unused for over a decade.

Communist guerrilla attacks and pilferage, which downed 11 towers, hampered the project. A more serious problem was the unexpected cancellation or postponement of plans to build several geothermal plants in Southern Luzon and the Visayas.

"The original project design has become less relevant in conjunction with overall power development plan," JBIC said in a project completion report prepared in October 2002. It did not bother to recalculate the project’s financial return, which was likely to be very low or negative because of the delay in using the project.

Similarly, the World Bank’s single biggest project loan was a $203-million funding support in 1996 that went mostly to building transmission lines connecting the newly-built coal-fired power plants in Masinloc, Zambales, and Sual, Pangasinan, to the rest of the Luzon power grid.

According to the Bank itself, the economic rate of return for the project after completion in 2003 was likely negative compared to original estimates of at least 20 percent because of low power rates, the slump in demand for electricity in the wake of the Asian financial crisis, and excessive power capacity because of overcontracting with the independent power producers (IPPs).

The disappointing performance of the ODA-funded power projects eventually exacted a heavy toll on Napocor. Since 2001, the state power company had been incurring massive financial losses that hurt its ability to repay loans. In 2005, the government had to bail out Napocor, assumed P500 billion of the power firm’s foreign obligations, and sold off state-owned power assets to repay debts.

Politics also ruined many a good ODA project, such as the Second Subic Bay Freeport project, which was funded by a $60-million World Bank loan that became effective toward the end of the President Fidel Ramos’s term in late 1997. The project aimed to improve power and water services in the special economic zone and nearby Olongapo City.

In time, an extended political dispute, triggered by then President Joseph Estrada’s decision to replace Richard Gordon with Felicito Payumo as administrator of the Subic Bay Metropolitan Authority (SBMA), delayed and reduced the project’s scale.

Olongapo City, the Gordons’ political bailiwick, backed out of plans to merge the city’s public utilities department with that of the SBMA. A project to develop a bulk water source in a nearby municipality for the free port was delayed and eventually canceled.

Disappointing economic and financial returns on completed foreign-assisted projects should temper claims that ODA boosts economic growth and development in recipient countries, regardless of specific circumstances.

JBIC, for example, says that its foreign assistance in fiscal years 1996 to 2000 helped raise annual economic output by 0.71 percent in the Philippines, 0.5 percent in Indonesia and Thailand, and as much as 1.65 percent in Vietnam. JBIC adds that ODA had a positive impact on per capita gross domestic product "regardless of the differences of the policy and institutional environment."

The Japanese embassy in Manila says that in the Philippines, "13 percent of all national highways were improved through Japan ODA." It notes that 200 new bridges, including the Second Mandaue-Mactan Bridge and the San Juanico Bridge, were funded by Japanese aid money.

But a close reading of the JBIC’s own post-evaluation reports presents a more nuanced, if mixed, picture. For example, economic returns on the Mandaue-Mactan Bridge were lower after completion compared to appraisal because of higher construction costs. And even those who have yet to hear Alonzo’s carabao story remember the San Juanico Bridge primarily as one of the costliest white elephants built during the Marcos period.

The Japanese embassy also touts Terminal 2 of the Ninoy Aquino International Airport, along with the Cebu-Mactan International Airport, among the major airports built with Japanese ODA. These airports "cater to about 1.3 million passengers taking domestic flights and about 8.3 million taking international flights," says the embassy.

Yet JBIC’s post-evaluation report on NAIA 2 halved the estimated financial returns on the project to only 3.7 percent after completion. Said JBIC: "Owing to the increase in the investment cost in peso terms and the decline of the number of passengers to the Asian economic crisis, and to the current limited use of Terminal 2."

To be sure, development aid could potentially help poor and developing countries grow faster by adding to savings and investments, especially in social development projects that are not likely to get the interest of private investors. Regions that enjoy high levels of infrastructure investments, a big part of which is funded by ODA, grow much faster and have less poverty incidence.

But the value of aid is diminished if capital or investment projects such as roads, power plants or ports financed by ODA generate returns that fall below expectations or minimum benchmarks.

Still and all, the government has no way of knowing, in a systematic and comprehensive way, which projects are performing well and which are failing. NEDA keeps tabs on ongoing projects and carefully measures time and cost overruns, as well as disbursement and availment rates. The NEDA monitoring stops after a project is finished.

There is as yet no system in place to check how foreign-assisted projects are doing after completion although NEDA’s project monitoring staff say they are trying to build one.

In contrast, another agency, the Department of Finance, which continues to strictly monitor the status of ODA loans knows exactly when each amortization is due, and how much more payments need to be made.

It’s time the government paid equal attention to both ODA loans and the projects funded by those debts.