Favila's foil to risk aversion: guarantees

By Mia Gonzalez, Business Mirror

Posted at Feb 18 2009 11:01 AM | Updated as of Feb 18 2009 07:13 PM

Trade Secretary Peter Favila is proposing a "simpler way" of getting private-sector participation in public-infrastructure development—allow project proponents to secure financing directly from participating institutions, with a sovereign guarantee.

Favila, who was at the Palace Kalayaan Hall for a microfinance event led by President Arroyo, said his proposal seeks to address the risk aversion of  private- sector financial institutions interested in funding government infrastructure projects, and get the process moving within the first half of the year.

Favila made the statement when asked for an update on the proposed P100-billion private-public infrastructure fund—a component of the government's P330-billion economic stimulus package—which has reportedly drawn little interest from private financial institutions.

"It has changed from a purely fund concept to a direct guarantee....We are addressing the issue about credit exposure by way of a government guarantee. So hopefully this will settle once and for all their concerns and we hope to get to see some of the projects taking place within the first semester," he said.

Favila said he broached the proposal to Finance Secretary Margarito Teves during the weekly meeting of the economic team on Monday.

"I proposed a simpler way of getting it done to speed it up, subject to the President's approval. That is to get the project proponent to go directly to the institution, a GFI or a private bank, and say, 'Look I have a project here that would cost about a billion pesos, I need financing.' That accommodation, that facility will be backed up by a Philexim guarantee which is the NG," he said.

Favila said that setup would address the risk aversion of private banks.

"Of course, we are also suggesting that as in any project financing, the project proponents should have equity, so we're looking at an 85-15 percent ratio. Meaning to say, 85 percent of the project cost [will be covered] with a Philexim guarantee, 15 percent equity will be the infusion of the project proponent," he said.

Asked what safeguards would be put in place to ensure that the government would not be at a disadvantage as projects obtain sovereign guarantee, Favila said all projects would have to be under the Medium-Term Philippine Investment Plan (MTPIP), and vetted by the National Economic and Development Authority (Neda).

He said priority projects would be those that are "ready to go" or without problems on right of way, among others.

The Philippine Chamber of Commerce and Industry (PCCI), the proponent of the P100-billion infrastructure fund concept, informed him that "private sector financial institutions would look for a comfort level" in terms of lending, which he believed is "understandable in light of the meltdown that's taking place" as "they are averse to risk."

He said President Arroyo and the Cabinet have decided that projects under the MTPIP are eligible, though "not automatic," for a sovereign cover.

The original plan, as conceptualized by the PCCI, was for government and the private financial institutions to contribute equally to a P100-billion fund that would finance the government's infrastructure projects.