Private-sector investors, especially foreigners, have grown hesitant to enter public-private partnership (PPP) projects in the Philippines due to political interference in contract pricing and delays in government compensation to private partners, according to the Asian Development Bank (ADB).

Despite efforts to address issues that have hampered PPPs in the country, the ADB said “further legal, regulatory, and institutional reforms” are still needed to fix the remaining setbacks.

Among foreign investors, “the imposition of the nationality requirement in areas of activity affected by PPP projects is one of the challenges of the PPP program as it restricts competition,” the Manila-based multilateral lender said in a report published Thursday, April 10.

It was referring to the 60:40 rule enshrined in the 1987 Philippine Constitution, which mandates 60-percent Filipino equity in public utilities; exploration, development, and utilization of natural resources; ownership of private lands and lease of public lands; education services; and agricultural activities relating to corn and rice.

“The nationality requirement continues to be a challenge to the sectors still considered as public utilities where development is also most needed,” the ADB said.

According to the ADB, the major challenges faced by the Philippines’ PPP program include “political and regulatory risks occasioned by political interference in the rate-setting and adjustment mechanisms of PPP contracts.”

The ADB also cited “lack of clarity and efficiency in the payment of government compensation or financial support to the concessionaire.” These payments need budget approval and review by the Commission on Audit (COA), which handles money claims against the government.

Another problem is that these contracts sometimes are not able to survive changes in government leadership.

These are among the “major deterrents in attracting investors, especially international entities, to participate in the country’s PPP program,” the ADB noted.

The ADB added that “major changes to the project structure, terms, and conditions of PPP projects after they are already launched for bidding cause delay to procurement or even result in bidding failure.”

Within implementing agencies or government agencies handling PPP projects, challenges include “lack of capacity to review and appraise projects and related contracts,” and poor coordination between different teams in the agency. The ADB also pointed to “limited capacity and lacking guidelines for monitoring and evaluation (M&E) of projects.”

Delays in the implementation of critical reforms and “weak absorptive capacity of implementing agencies and LGUs [local government units]” pose risks to the growth of the Philippine economy, the ADB warned.

Other than these, the ADB also cited geopolitical tensions and conflicts, alongside the severe impact of “strong typhoons that hit the country every year,” as major risks to the growth outlook.

What would drive growth, meanwhile, are investments in infrastructure and PPP projects, coupled with government spending and “timely implementation of programs and projects” funded by the national budget, according to the ADB.