Can Duterte break the Iron Law of Megaprojects?

By Chemrock

Everybody loves mega projects. Engineers and technologists love it for pushing the envelope on designs, developers and contractors love the sound of the cash registers, dictators and politicians love it for the rapture and captured opportunities, the people love the pride in iconic structures.

We have long entered the era of greed where projects are on mega, giga and even tetra scales. Building condominiums is no longer sexy. Building a whole township is. Erap’s Manila Bay project is one that comes to mind easily. There are a couple of townships planned in Malaysia with Chinese money, and which the new Prime Minister, Dr Mahathir, is reviewing for the simple reason — there are no buyers, or rather, they are not priced for local Malaysians.

Bent Flyvbjerg, an Oxford business professor, said in a study he made in 2014, that 9 out of every 10 megaprojects are problematic. He coined the term ‘iron law of megaprojects”.

Iron Law of Megaprojects —- Over spent, under benefits, over time, all the time.

The biggest, the fastest, the tallest — most end up with huge cost overruns. Take for example the tallest building in the world, the Burj Khalifa in Dubai. In 2004, the Dubai Royal family had to bail out the project with US$20 billion.

There have been many megaprojects with astounding cost overruns in excess of 1,000% !!!.

  1. Suez Canal, Egypt                                                 > 1,900%.
  2. Scottish Parliament Building, Scotland            > 1,600%
  3. Sydney Opera House, Australia                         > 1,400%
  4. Montreal Summer Olympics, Canada              > 1,300%
  5. Concorde Supersonic Aeroplane, UK, France > 1,100%

Megaprojects that suffered budget overrun two, three, five, or even nine times original plan are one a penny. Eg:

  1. Troy and Greenfield Railroad, USA            > 900%
  2. Lake Placid Winter Olympics, USA             > 560%
  3. Medicare transaction system, USA             > 560%
  4. Furka Base Tunnel, Switzerland                > 300%
  5. Denver International Airport, USA            > 200%
  6. Panama Canal, Panama                               > 200%
  7. Minneapolis Hiawatha LRT, USA                > 190%
  8. Copenhagen Metro, Denmark                     > 150%
  9. London Limehouse Road Tunnel, UK        > 110%
  10. Shinkansen Joetsu high-speed rail, Japan > 100%

The world is full of such problematic megaprojects. They can be found in both 1st and 3rd world countries. As overflowing world financial liquidity chases fewer and fewer investment opportunities, more money has been and will continue to be poured into 3rd world country megaprojects.

Megaprojects can be commercial ventures or government initiatives. Failed commercial projects often end up with governments carrying the baby one way or another.

Bakun Dam lesson:

One such project vivid in my mind is the Bakun Dam in Sarawak (East Malaysia). I know this well because of the audacity of the project at the time. I had bet on its failure from day 1. It was too huge a project for a 3rd world country that was lacking in the engineering and absorptive capacity and was full of corruption. The studies were made as early as 1960, approved in 1986, and the project awarded in 1994. In between, all sorts of political intrigues went on that created go-stop-go moments. The project was awarded to a newly incorporated company Ekran Berhad that had zero experience in dam construction, much like Hermino Disini who undertook the Bataan Nuclear Power Plant project in the Philippines. Bakun Dam was supposed to be a 10 year project to cost MYR2.4 billion (a very huge sum in those days). Finally completed in 2010/2011, the cost ballooned to MYR8.9 billion. It was supposed to deliver 2,400 megawatts of electricity, but as of today, they are still trying to find consumers. The project went ahead at a time when East Malaysia power generation was in excess capacity.

The Bakun project has great lessons for the Philippines. It is mired in legal suits that are still in the courts. Contractors, developers, and ownership changed hands over the course of the project. Design and financing plan revisions were the bane of the project. All megaprojects in distress invariably suck the government in. The Federal Government took over ownership at one stage, and fairly recently, transferred it to the State Government. But there are no tears for the original project awardee. Erkan Berhad was owned by a timber businessman Ting Pek Khing. He was compensated handsomely. His game plan had always been the timber, not the damn dam. Flooding the dam required the clearance of 700 hectares of biomass. Ting got the job for a song and made money on the timber. Sarawak has always been about money from timber concessions. All Sarawak governors end up multi-billionaires from timber money. The Bakun Dam was an excuse for a colossal corruption machine.

When all the problems were getting solved or gleaned over, a revelation came in 2011 that one of the dam contractors was a Chinese company called SINOHYDRO. The company had used a flawed technique to build the dam. It involved excessive ratio of water-to-cement that put the whole structure under potential danger. So Philippines, good luck with your Chinese projects.

And hear this out. The Sarawak government has another 12 mega dam projects in various stages of planning. If they all go ahead, there will be unimaginable damage to the environment. It will make a couple of timber businessmen and governors tremendously wealthy. There are still no consumers for the huge electricity supply to come.

Filipinos do not need to look far to find failed megaprojects. Bataan Nuclear Power Plant and MRT3 come to mind immediately. Add to that the Piatco NAIA Terminal 3 fiasco.

Governments need to pay heed to statistics that are heaped against such projects. Sadly, they still are not learning. Why does the iron law of megaprojects always play itself out? Very simply because in order to sell the vision, proponents need to under-estimate the cost of the projects, provide unrealistic time-frames, and oversell on the benefits.

What is the attraction in megaprojects? Let’s leave corruption out of the discussion, although it is always prevalent in the corridors of power. Dictators and politicians want legacies in their names and iconic megastructures are the way. They just love the political rapture that such projects bring. Notice how DPWH Secretary Villar has a way of trumpeting project completion, even to the extend of credit stealing?

Naysayers get castigated as meek, unimaginative, and incompetent, without the courage to start things rolling. “If you sit back and worry about the cost, then nothing will get done!” “Bold plans are needed to get the country moving.” Does not that sound exactly the way the previous Pnoy administration was chastised?

That is not to say that megastructures should never be attempted. Indeed megastructures may be what the country needs. The returns are immeasurable, but only if done right. The often cited benefits – they create jobs, improve transportation, money poured into the project increases GDP, the multiplier effect adds further to the economy. The catch is “IF DONE RIGHT”. Mega projects require mega financing, mega planning, and mega skill sets. Because of its sheer size, failure will be crippling for the companies involved, the government, and the entire population. The Philippines policymakers are gung-ho on undertaking not just one megaproject, but several, simultaneously. What is your level of confidence in Duterte’s infrastructure projects?

On mega financing:

I avoid getting into the finance part in detail as it’s not the purpose of this blog, but I would just like to comment on a few points.

  • The 6 years Age of Golden Infrastructure is projected to pump a colossal US180 billion into the Philippine economy; 20% of this will be raised from international creditors and 80% domestically.
  • The govt seems to have departed from the PPP model, so it will all be govt funded.
  • On the domestic front, US$148 billion will be sucked up by the govt for these projects. There has been no study on the impact on liquidity to fuel domestic businesses. Less liquidity means the cost of business borrowings will go up.
  • How much of those domestic funds will go to pay for overseas products and services? It means there will be outgoing capital, which puts additional pressure on the peso.
  • On international funding, the govt has totally rejected traditional funders and parlayed the hype on funds from good friend China. The public is totally unaware of the critical roles played by World Bank and Asian Development Bank in Philippines infra projects and the TRIP (three-year rolling infrastructure programs) of the USA. Government is telling Filipinos a lie that China is the only friend and source of funding.
  • Part of the domestic funding will come from tax reforms. The govt misled people when rolling out the tax reform packages. It never fully explained upfront that the objective was to collect additional tax for the infra projects. It is only when inflation quickly became a problem that noise got louder in the Legislative for the need to revise the tax reform. Petulant economic officials threaten no tax, no infras.

On mega planning:

  • All megaprojects take years to study and plan because of their sheer size, number of stakeholders involved, and environmental impacts. Both the Manila metro subway and the Mindanao railway projects were ready to swing in a matter of a few months. The public has yet to see any details. But what are the chances of Congressmen and senators and the admin’s inner circle of elites having invested in land where the metro and railway stations will be built?
  • All plans need to undergo rigorous stress tests. It is doubtful this is ever done with the way things seem to be railroaded. For example, policy makers never expected the high inflation because they never stress tested the impact of higher oil prices. Heck, they never even bothered to review Chinese contractors. They accepted a couple who have been blacklisted by World Bank and others for various reasons. When that was discovered, officials set about rationalizing the choices rather than selecting qualified contractors.
  • It’s relatively easy to build. The problem is the sustainability after project completion. The Chinese, Brazilian and Russian Olympics/World Cup stadiums are now white elephants. Manila metro subway would probably not be a problem, but the Mindanao railway needs scrutiny. What happens to the jobs after that.
  • Megaprojects offer great opportunities to capitalize on building support industries. What are the downstream economies that are required and needed to be built up. What component of domestic materials should be utilized? There is no planning and no spearheading of such activities.

Mega skill sets:

  • Megaprojects require special managerial professionals that are hard to come by. Please do not put a few attorneys in charge, which will certainly be the case. We all know the Philippines hasn’t really got much reputation of overseeing national project developments brilliantly.
  • “Build build build” requires years of training training training. A huge pool of workers needs to be trained first for the required skill sets. Are there 100,000 trained welders in the Philippines? If not, well, 2 years have passed by, enough time to have trained the necessary people. Secretary Villar is now boasting of 1 million jobs for Filipinos to sign up online on the DPWH website because “build build build” projects are in full-swing. Imagine DPWH as #1 employment agency. An agency that never planned for manpower needs. I million jobs indeed — what type? Are there the skill sets required for those huge numbers indicated? The answer is no, and it’s a perfect excuse to bring in a million Chinese skilled workers.

Overlooked Characteristics

McKinsey listed several characteristics of megaprojects that are typically overlooked or glossed over by policymakers:

  1. Megaprojects are inherently risky due to long planning horizons and complex interfaces.
  2. Often, projects are led by planners and managers without deep domain experience who keep changing throughout the long project cycles that apply to megaprojects, leaving leadership weak.
  3. Decision making, planning, and management are typically multi-factor processes involving multiple stakeholders, both public and private, with conflicting interests.
  4. Technology and designs are often non-standard, leading to “uniqueness bias” among planners and managers, who tend to see their projects as singular, which impedes learning from other projects.
  5. Frequently there is over-commitment to a certain project concept at an early stage, resulting in “lock-in” or “capture,” leaving analyses of alternatives weak or absent, and leading to escalated commitment in later stages. “Fail fast” does not apply; “fail slow” does.
  6. Due to the large sums of money involved, principal-agent problems and rent-seeking behavior are common, as is optimism bias.
  7. The project scope or ambition level will typically change significantly over time.
  8. Delivery is a high-risk, stochastic activity, with overexposure to so-called “black swans”; i.e., extreme events with massively negative outcomes. Managers tend to ignore this, treating projects as if they exist largely in a deterministic Newtonian world of cause, effect, and control.
  9. Statistical evidence shows that such complexity and unplanned events are often unaccounted for, leaving budget and time contingencies inadequate.
  10. As a consequence, misinformation about costs, schedules, benefits, and risks is the norm throughout project development and the decision-making process. The result is cost overruns, delays, and benefit shortfalls that undermine project viability during project implementation and operations.

Two critical shortcomings in the Philippines

In national project development, two critical aspects appear to be missing in the Philippine process :

  • Pre-project stage requires the establishment of some sort of protocol for project selection. There ought to be some established social and economic priorities and some sort of mechanism that can independently and robustly analyse all relevant data to understand true costs and benefits. With no big picture, we end up with bridges to nowhere, roads less traveled, or utilities that are over-capacity, etc.  Such was the case during pork-barrel days. South Korea, for example, has a Public and Private Infrastructure Investment Management Center that evaluates all projects systematically – ensure accurate data on costs and benefits, feasibility studies, conducts value-for-money tests, etc. Before, almost all projects received the green lights. With this vetting center, 50% of proposed projects failed the litmus test. In the Philippines, where do projects go to get their green lights? In Congress, who are the experts in everything?
  • Ongoing project stage requires timely control mechanisms. There ought to be robust risk-analysis or risk-management protocols and qualitative compliance tests. The mess that the 48 trains brought in by ex DOT Secretary Abaya tells the sorry state of project management. Piatco story is just another similar sad tale.

Will Duterte’s “build build build” fall victim to the Iron Law of Megaprojects? Well, statistics say there is a 90% chance of failure or going into distress. I would venture a higher percentage even, given the way projects are railroaded, lack of absorptive capacity of the admin, corruption, political infighting, Chinese reputation for poor quality in their delivery, and the curse of Filipino dictators.

Ferdie Marcos could have stayed in power a little while longer. The fact that he built up external debt wasn’t so much a problem in itself, but he was KO’ed or cursed by the double whammy of oil prices and US$ interest rates skyrocketing. The peso plunged and Filipinos found a strong dictator could not put food on their tables. We see history repeating itself in front of our very eyes. A dictator, endemic corruption, debt build up, oil prices rising, and interest rates increasing slowly but surely as peso value goes into a nosedive.

The day of cheap money is over as the Fed, EU and Japanese central banks all abandon quantitative easing and tighten their money supply. It may well be argued that the interest rate and oil price increase at the moment is miniscule compared to Marcos’ time. Hey, we are talking megaprojects, which means mega debts. A 1% increase in interest rates today is probably more painful than a 20% increase in Marcos’ time.

 

Comments
83 Responses to “Can Duterte break the Iron Law of Megaprojects?”
  1. Steve says:

    I agree with the points raised here, but I would add the need to consider opportunity cost. The cost of a multibillion peso inter-island bridge is not just the money you spend for the bridge. It has to include the gains you forego by not putting that money into a range of smaller basic infrastructure projects spread over a wider area. Basic infrastructure is less sexy and produces less political splash than megaprojects but it often produces superior ROI.

    I find it sad that so many people assess an administration by asking “what were their projects”. Ideally, Presidents don’t have projects, they have policies. A chief executive is an arbiter that evaluates everybody else’s projects and impartially selects those with the highest probability of success. When the chief executive adopts pet projects, that process is no longer impartial. The outcome is often not good.

    • Maybe Duterte should build himself a pyramid.. that would be big.

    • chemrock says:

      Infrastructure project decisions ought to be made within some strong frameworks that contain bullet points like — overall long term development vision, selection criteria, strategic relevance, some scoring system to select the most deserving, etc.

      ROI, whilst important in project selection, is not necessarily critical. A project may have lower ROI but has greater strategic importance. EG very long time ago in Singapore when we were faced with the loss of jobs with the British withdrawal due to East of Suez policy, our industrialisation programme were skewed towards high labour low tech industries. On the other hand, Indonesian VP Harbibie went for high tech heavy brains aviation industry at a time when they were faced with very high unemployment.

      ROI and things like opportunity cost has to be taken into consideration amongst a whole host of factors in project selection.

      In my opinion, strategic importance is the key. But before one understands what are strategic, there ought to be a big picture of the nation’s direction. If you don’t know where you want to go, how to define what’s strategic before you. For eg the Mindanao railway — what is the strategic importance of that. How does it score in terms of benefits compared to say improving power generation infra and grids.

      For that matter, the president has all along indicated he has no idea as far as the economy is concerned. He has no vision. Filipinos are great — go vote a guy who tells you he does not know how to improve your life.

      • edgar lores says:

        *******
        Surely, NEDA has a short-, middle-, and long-term plan? Or a 10-, 20-, 35-, and 50-year plan?

        And not only a project time plan but also a strategic plan?

        Broken down into areas: transportation, energy, communication, internet, etc.?
        *****

        • chemrock says:

          Indeed they do Edgar.
          But I perceive a big portion is just motherhood statements of ivory intellectualism. We don’t see it parlayed into real concrete plans and there is no framework that guides coordination with all the other departments of the govt. Eg Neda wants communication, internet — but Dep Ed is still churning out attorneys.

          Big framework gameplan is tade and economic policy — Agricultural or industrialisation. If industrialisation — import substitution or export, or domestic economy like what China is moving into. Once you decide on this big gameplan, subsidiary plans fall into place.

          • edgar lores says:

            *******
            Chemrock, thanks.

            What I seem to see in democratic countries like Australia is that the political parties decide on the strategy and prioritization of megaprojects through the lens of their respective philosophies.

            However, because of the election cycle and the need to show achievement, truly long-range megaprojects are not pushed through much less considered. In Australia’s case, there are no bullet trains. And the last megaproject — the National Broadband Network — was mangled through political maneuvers. Instead of delivering the promised100 Mbps, the average throughput is 25 Mbps.
            *****

            • chemrock says:

              Edgar, you are absolutely spot on with the underlying ailment of democracies. In a nutshell, the problem is continuity, or lack of. continuity in governance. It is the primary reason for the success of Singapore and China. I’m not saying the political systems in both these countries are enviable, far from that. The fact is political longetivity allows the govt the security and confidence to plan 20 or 30 years ahead, instead of the next election. Dictatorial powers and captive electorate allow the govt to roll out painful reforms and changes, like the one-child policy of China, and in Singapore, water tariff were recently increased by 30%. Both these actions would have started riots in most other countries.

              • NHerrera says:

                Wanted: continuous reign of Benevolent Dictatorships. The problem in most cases is that the two words are oxymorons of each other.

        • NHerrera says:

          edgar, chempo:

          Here is the link to the NEDA’s Philippine Development Plan 2017-2022. It is a 452-page downloadable document in pdf format.

          As is expected of such doc, it has introductory portions, using an “aspirational” section called Ambisyon Natin 2040. The latter is not a plan, neither does it give the strategy — except if you consider statements such as ‘xxx should yyy’ as a strategy — towards the 2040 ambition or desired goal.

          (I have not plowed through it, but googled in response to the post of edgar.)

          http://pdp.neda.gov.ph/wp-content/uploads/2017/01/PDP-2017-2022-07-20-2017.pdf

          • edgar lores says:

            *******
            NHerrera, thanks.

            A 5-year plan. Yikes! I don’t want to touch it considering the chaos right now.
            *****

            • NHerrera says:

              Yep, same here, especially since I am not an economist. Still, doc like that, if I have to guess, is still several notches above Justice Tijam’s ponencia on Sereno’s ouster, in my opinion. One can be used at least as a paper to wrap something with; the latter is useless except in the Toilet — even in that, it can be rough on one’s behind.

  2. Chempo: excellent article! Three comments:

    1) Luckily, hardly any Build Build Build so far – just Aquino PPP projects finishing. Or an unfinished bridge in Cavite collapsing, allegedly because it was overextended to pass by Villar lands.. (!?)

    2) the Philippines rarely manages to keep stuff for long. Pangasinan and Bikol railways, late 19th century and 1930s – just ruins, while similarly old stuff like Singapore-Bangkok Rail line still run. The attitude is consumerist and profligate – buy, neglect and build new as if one is Rockefeller.

    3) I posted some links a while ago on how the German Transport Ministry prioritizes its projects. There are general ideas one can derive such as the economic vitality of the areas to be connected, potential realized by the connection .. but I think many German Unity projects were more political , so you have lots of new Autobahns in the East passing modernized towns – full of jobless people.

    There are also those like historian Götz Aly who postulate that Hitler had to go to war because his projects had emptied the states coffers, that WW2 was basically a raiding trip. It isn’t unlikely..

    • chemrock says:

      Danke. Irineo, always welcome you historical and Germanic persoectives.

      Re (1) yes the build build build is slow in taking off. Whilst Diokno n the rest were quick to skin the previous admin for being slow on projects, they are no better. Projects should never be rushed and the take time to come to fruition. I don’t blame them and neither should they hv ever blamed the previous admin.

  3. Steve says:

    Another point… I suspect that the impact of that “double whammy of oil prices and US$ interest rates skyrocketing” was not really what knocked Marcos off his perch. The South Koreans were also deeply indebted at that time and entirely dependent on imported oil. They faced the same conditions and prospered. What doomed Marcos was the failure to invest the borrowed money productively. Projects were doled out to cronies on the basis of personal connection, as personal rewards, not rigorously evaluated for their ability to produce long-term economic returns. That was a fatal mistake.

    • chemrock says:

      Steve, you are correct the South Koreans prospered during that period of high interest rates and high oil prices. And Sorkor was’nt the only only. Sorkor, Hongkong, Taiwan and Singapore were the Asian Tigers that did very well back then. Marcos failed due to colossal mismanagement (corruption, questionable infras, cronies, high debt-no revenue, martial law that drove all foreign money and enterprises out of the country, nobody was investing in the country).

      • I think China is the Philippine savior, from Duterte’s standpoint. The Admin touts independence from the US as Chinese workers and investors flood in to take up the slack. And the Chinese ambassador attends tne revered Independence Day celebration. Sleight of hand, sleight of mind for the mindless.

        • chemrock says:

          Well, mindless people will just have to pray Chinese-built infras are reliable. My example of the dangers the Bakun Dam from Chinese contractors may be too remote to instill fear. The 48 trains for the MRT3 in the warehouse is a glaring warning.

          I recently wrote in to AVA Singapore (the agency that looks after all food matters) to raise a concern that a lot of foodstuff on shop shelves are not in compliance with a requirement to display the country of origin in their labels. They simply state produced for ABC (Spore) Ltd, or distributed by XYZ. I want to know if it’s from China, which I avoid as far as possible.

          • Unfortunately, awareness of the issues and disciplines you highlight is about zero in the Duterte government as far as I can tell. They just make stuff up, argue endlessly (the Cebu BRT, for example), have no Filipino executives with any knowledge (they all got their jobs as friends of friends), and no one stays in place during a contract period so Paul is not talking to Juan.

      • I was also wondering about how Indonesia managed to survive Suharto – who stole nearly as much as Marcos did according to all the world records. Some say it was because the family spent most of its money in the country – surely a factor, as money spent at home will remain in the country’s economic cycle and means local companies earn in turn – unlike the Marcoses who made Western luxury goods companies and real estate brokers rich.

        But come to think of it, there was also a bit of an industrialization drive with Yusuf Habibie and the Indonesian aircraft industry. This is by no means an endorsement of corruption. Nevertheless Indonesia and Korea show that certain paths do not necessarily lead to failure.

        • chemrock says:

          Irineo, Marcos’ amassed all those wealth out of sheer personal greed. All the stolen money ended up in their Swiss or offshore tax haven accounts. Suharto’s corruption has to be looked at from a different perspective. Just like Philippines, Indonesia is an archipelago. The far flung provinces made control difficult and thus stability was a national pre-occupation. Provincial power lies in the hands of regional military commands. Suharto needed to keep these generals in line, Previously, the Army were left alone to muscle their way into some economic activities as a way to sustain themselves. But some economic reforms diminished the military’s business enterprises thus affecting their well being. Suharto had to get his hands on vast amount of money to placate the generals and sustain the peace in the regions,

          In additional to Suharto’s ill-gotten wealth, his children all amassed great wealth through camouflaged legal means. Like privileged accessed to projects, cornering the cloves market (cloves are used excessively in Indonesian cigarettes), uncollected debts, etc, The last of which I have a personal story, I helped develope a software that supported a treasury product called non-delivery foreign exchange, This was used in a few Indonesian banks to manage their customers’ portfolio. Because we were called a few times to support that software, we had privileged access to customers’ info. So I was aware one of Suharto’s children had a huge portfolio with unrealised losses of mind blowing magnitude. He took huge positions on the wrong of the Duetschemark. But all these losses never got paid, somehow it wound up as bank’s losses. The bank I worked for in Singapore, we had to write off about US$30 mm from this episode.

          Of course corruption in whatever form is not to be moralised.

  4. edgar lores says:

    *******
    Epic and Ongoing Fails

    o Bataan Nuclear Plant
    o NAIA
    o MRT
    o Agrarian reform
    o Catholicism
    o Executive
    o Congress
    o Judiciary
    o Democracy
    *****

  5. Francis says:

    An excellent article, @Chemrock.

    The problem with statistics, with spreadsheets is that they sometimes lull people into overestimating capabilities; in the end, a statistic is only an abstract representation of concrete things—an abstract representation of the real material conditions.

    And like all models—there are limitations that ensure that the “full” image is not seen.

    It is easy to angrily blame the previous administration (as some have done) for “underspending” but I guess it is worth emphasizing that money doesn’t automatically transmute into buildings and services. That money exists and flows in the real world, with real people and real institutions.

    The issue of absorptive capacity is something that is not often brought up. Thank you, Chemrock for highlighting this.

    • Francis says:

      Addendum:

      For absorptive capacity—perhaps we can roughly measure this by asking two questions:

      1. What are the “hard” limits of the hardware and software of the institutions implementing the projects—the training level and education of the staff, their amount of experience, the number of said staff, the state of their organizational systems and technology i.e. networks, computers, etc.

      2. How corrupt are the implementing institutions? A high level of corruption implies not only that a lot of wastage occurs—but that the very capacity to direct and strategize (especially in the long-run) is compromised.

      By this logic, one can say it is possible that the previous administration could not help its inability to rapidly raise infrastructure spending immediately like what some wanted (1) and that there was a rational justification for the administration to carry out its admittedly stringent review of projects from previous administrations (2).

      • chemrock says:

        Your last para is absolutely correct. That was exactly what happened. Very few people understand that. Having completed their reviews, they did the next correct thing — institutionalise budget reforms to ensure that going forward, future admins will avoid the pitfalls and traps that allow scumbags to insert and embed themselves into the budgetary process.

        Absorptive capacity will always be with the Philippines because the country puts attorneys on the pedastal and downplay contributions from engineers and professional managers. Just take a look at what’s happening at the Marawi reconstruction projects, even at this stage, look at the types of people they put in charge.

        • edgar lores says:

          *******
          Is the transfer of technical knowledge for the purpose of sustainability part of absorptive capacity? I believe this is one of the main reasons for the failures of the nuclear plant and the MRT. It’s crazy to me that they would embark on the MRT and rely on foreign firms to do the maintenance of the railway lines. Even the maintenance and the building of new rolling stock should be local.

          If the planned new railways in Luzon and Mindanao do not factor in local maintenance, forget about it. They will just be toy trains.
          *****

          • chemrock says:

            In megaprojects like MRT there should be a few things we want out of it :
            – local contents
            – parts fabricated locally (rolling stocks?)
            – local support industry build up
            – technology transfer
            – maintenance arrangement where locals will take over in due course
            – local contractors acquire the skills to contribute to future similar projects. (We would want proper local engineering/construction companies involvement so these can spin off and undertake future similar projects or export their expertise. Take Singapore’s MRT projects. We have build several lines by now. The first project were mostly foreign contractors, but eventually, local companies dominate. Furthermore, tunneling skills learnt now contribute to developing a few huge underground projects.

            In other words, there must be vision to look further ahead.

            • Sup says:

              Jarius bondoc june 8 2018

              In the news now: State auditors discover in warehouses unused, rotting, defective equipment for transport security and disaster response. In the news sometime soon: State auditors discover in MRT-3 depot unused, rotting, defective train coaches.

              The Dept. of Transportation can’t explain why it’s still keeping the 48 inoperative coaches from China. Japanese evaluators have advised to return the units for repair to Dalian Co. Serious design and weight flaws obstruct proper upkeep, in breach of contract specs. Fifteen critical tests, covering 94 components, had been left undone in-factory and post-delivery. The trains are un-certifiable for safety, reliability, or durability. German engineers hired for P53 million had found the same faults, and told DOTr to act fast.

              DOTr officials must heed the techs, better sooner than later. None of them wish to sign for product acceptance and satisfaction – and risk imprisonment for graft. Of Dalian’s P3.8-billion price, 15 percent or P565 million was paid upon order in 2013. The trains arrived late and lacking in 2016-2017. Now the Chinese firm and embassy are pressing for the balance. MRT-3 ex-general manager Al Vitangcol has exposed a five-percent or P190-million kickback in the purchase.

              The idle trains are taking up precious little space at the MRT-3 depot-repair yard. That facility and power supplies along the 17-km tracks are on P827-million upgrade, for four-coach train sets from the present three. Without 48 working coaches, that project of Sec. Arthur Tugade would end up a white elephant.

              Read more
              https://www.philstar.com/opinion/2018/06/08/1822528/japan-lending-mrt-3-smacks-zte-scam

          • Francis says:

            One day—I managed to come across this:

            There’s a fair bit of passionate (but ignored) R&D lying around. Given the fact that our somewhat liberalized and privatized economy lacks state corporations to directly channel this R&D—there should be at least public-private research pipelines allowing local businesses to benefit from local R&D and apply it in their functions and services.

            • edgar lores says:

              *******
              Take your pick:

              1. Filipinos don’t trust Filipinos.

              2. Filipinos prefer foreign products.

              3. No. 1 and 2 are the same thing.
              *****

            • sonny says:

              The absence of research-to-engineering pipelines and corporate underwriters has been the bane of the many a putative Filipino technological engine. Researchers and engineers know this discreteness of transitioning from the lab to the manufacturing floor. This is a chicken and the egg question, viz “show us the money.” Hence Filipino technology is in an inchoate state.

  6. Andres 2018. says:

    I am not in favor of BuilidBuildBuild. Infrastructure projects funded by external loans will surely fail.

  7. I think DSWD should be DPWH?

    Thank you for the awesome article Chempo

    • chemrock says:

      Thank you Gian, for pointing that out. I’ll get the post edited.

      • I’d also like to put my inputs.

        The Skyway project, the LRT 2 extension are being done by DMCI. The new airport in Cebu mactan is a PPP project by MegaWide. One big issue is that procurement law requires multiple projects of at least 20 to 30 percent of the contract price or one big project of at least 51 percent of the contract price. The side effect of this is that foreign companies partner with local companies and if the leadership of those companies are dynamic then like MegaWide and DMCI they go on and learn and become the local Giants.

        • chemrock says:

          “…those companies are dynamic then like MegaWide and DMCI they go on and learn and become the local Giants.”

          That’s exactly what I was referring to in my comment above re absorptive capability. In such national megaprojects we should take the opportunity to help our local companies take a big leap forward. Of course we eye only those with capabilities, not people like Hermino Disini. But to do all these, policymakers need to be hv visions.

  8. NHerrera says:

    Thanks for the article, chempo. At the very least: it is timely; and I hope, the PH economic managers read this, and do something that may still avert the catastrophic implication of the Iron Law of Megaprojects —- Over spent, under benefits, over time, all the time.

  9. NHerrera says:

    The relentless downward trend in the value of the Peso. Note that what is displayed in the diagram below is USD per PHP. The inverse is what we normally view, PHP per USD. Thus the beginning of the two-year chart which is about 0.0215 corresponds to 46.5PHP/USD and the end point taken 13 June at about 2:45PM corresponds to 0.01883 or 53.1PHP/USD.

    • chemrock says:

      NHerrera
      In banking terms we call it direct or indirect rates.
      Indirect quote is a currency quotation in the foreign exchange market that expresses the amount of foreign currency required to buy or sell one unit of the domestic currency.
      From Philippines point of view – 0.01883 is indirect quote, 53.1 is direct quote.

      FX always involve a pair of currencies. By trading convention, given any specific pair, one of the currency is always considered the base currency, ie, the quote is always expressed as how much of the other currency is required to exchange for 1 unit of the base currency. The US$ is predominantly the base currency. So for USD/PHP the quote is mostly 53.1. In accounting we call this the reciprocal rate. The non-reciprocal rate would be 0.01883.

  10. NHerrera says:

    An eulogy to Roilo Golez, a public servant exemplar, by Manuel L. Quezon III. He is an example, I believe, of a public servant who should have been one of the planners or implementers of the Philippine Mega-Projects.

    I, too, salute you Roilo Golez.

    The Philippine still has a few very good men/ women, as exemplified by the late Golez.

    http://opinion.inquirer.net/113898/goodbye-roy

  11. Sup says:

    O.T. as usual…..

    PTV…Philipino payed tv

    State-run PTV to air shows promoting Chinese history, culture

    The Philippines’ flagship government television network will soon be airing shows that will promote Chinese history and culture.

    People’s Television Network (PTV), operated by the Presidential Communications Operations Office (PCOO), will soon be airing Chinese language television series, documentaries, cartoons and movies that will be dubbed in Tagalog.

    The new foreign programming was introduced on Wednesday during the inauguration of “China TV Theatre” at the New World Hotel in Makati City.

    This is the first time that Chinese language television shows would be aired over the country’s state-run television network.

    Zhao Jianhua, Chinese Ambassador to the Philippines, said he would rather call the newly-introduced Chinese programming on PTV “DreamWorks made in China.”

    “A new window is opened to millions of people in the Philippines to better understand China, its people, their long history, their rich culture, their daily lives, their endeavor and their dreams,” Zhao said during the inauguration ceremony.

    Filipinos, Zhao said, could now share stories “about how (China’s) reform and opening up in the past 40 years have helped realize a steady economic growth of China and better off the well-beings of its people.”

    “Reform and opening up really represented a strategic move to mobilize each and every Chinese striving for his or her personal happiness, for his or her family welfare, and for his or her national development. This is known as the ‘Chinese Dream,’” Zhao said.

    “Please stay assured, in this grand cause, China was, is and will always be standing together with the Philippines as friend and partner, in realizing the Dream of the Philippines,” he added.

    Martin Andanar, Secretary of the PCOO, and Ma Li, Director General of the International Cooperation Department of Chinese State Administration of Radio and Television, were present during the inauguration.

    As the state-run television network, PTV was mandated to “develop the broadcasting industry as a medium for the development, promotion and advancement of Filipino nationalism, culture and values that serve as an instrument in the struggle for Filipino sovereignty, identity, national unity and integration.”

    http://newsinfo.inquirer.net/1000538/state-run-ptv-to-air-shows-promoting-chinese-history-culture

    • I figure that about 10 Filipinos will watch that dog each day, and 200,000 Chinese workers who are here stealing Filipino jobs. Andanar is a full-fledged dolt whereas I am a genius. Hahaha, feeling uppity today.

      • NHerrera says:

        THE EVOLUTION

        Spanishization
        Americanization ( not c/o JoeAm) 🙂
        Chinesization (c/o Andanar)

        • sonny says:

          NH, right now I’m thinking asymmetry vs symmetry. Seriously.

          Also, thinking FORCES, viz secular forces, spiritual forces, moral forces, religious forces, multi-cultural forces;

          am even thinking geographic topology, viz peoples of archipelagos vs those of land masses.

          Evolution? definitely yes.

          Our regional peoples have internal symmetry; our national identity is most definitely asymmetric. Ilocanos understand Ilocanos; Tagalogs, Tagalogs; Visayans, Visayans, etc. Our national identity is most definitely asymmetric, IOW archipelagic: each language division brings its own set of resources whose dynamisms must be worked in-phase with the other divisions; subsidiarity principle comes to mind.

          This is the landscape from whence the EVOLUTION must take place. For good and bad, this is the evolutionary soup the Filipino identity must evolve and develop. Time is the arbiter.

          • NHerrera says:

            Sonny

            Thanks for the comment: internal symmetry among the people in the islands/ regions, as against national (i.e. external to the islands) asymmetry — which I agree with you will be a significant factor that will drive the Evolution of PH as a country. And yes, time is a big factor too.

            By the way, on a national-international level Friedman’s article on Asymmetry of Interests which we referred to earlier in the previous blog article is illustrated well by North Korea, through KJU, being able to sit with the US, through Trump, without loss from — in fact, a gain to — North Korea. But we will see.

  12. Sup says:

    Is the Chinese state TV now also broadcasting Filipino movies and culture to promote the better relations between the 2?

  13. Andres 2018. says:

    Link for BuildBuildBuild Project:

    http://build.gov.ph/

    • chemrock says:

      Thanks Andres.
      I have seen this site before. It’s a good idea, but currently the contents are too scant to be useful. I hope they put in features like activity timelines, events and forums for citizens to comment and add their observation. Also as much info as participating contractors (major ones). If I were heading this, I would want to have a feedback or complaints loop back to me.

    • chemrock says:

      All those projects look beautiful, we just don’t know how they were evaluated. A couple of stray thoughts from me :

      – The New Clark City — I mean, who determined to build a city there and why? There was no national discourse was there?
      I see a need to decongest Manila and a bold move is to be applauded. It seems New Clark City will be the administration city of the future. However, NCR will still remain the economic powerhouse for many more years to come. Will we see the highway congested with people who need to commute from the NCR to NCC for govt business purposes. Will there be an MRT to connect NCR to NCC?

      Great asset build up will take place at NCC. Will land grab follow?

      Hope the govt learns lessons from the Burmese new city of Naypyidaw. They build a new city out of the jungles and shifted the seat of govt to the new city not too long ago. Some say it was a vanity project, some say, like Manila, the capital city Rangoon has no more space for expansion, some say it improves the security of their central regions. There are good lessons to be learnt there because the economic impact is still anybody’s guess at the moment.

      – Re Manila subway — the Japs got the contract, and whilst we have better confidence in the Japs I was wondering what immense problems the project will encounter, tunneling in a land that is constantly under floods. I’m not sure of the geophysics, but I guess the subsurface soil will be mostly silty clay type. When you hit this in the tunneling, expect big time delays.

  14. Micha says:

    Thanks for the NEDA link Joe.

    If that is how this build build build scheme is being funded – mostly loan grants from other countries and a couple of PPP’s – it is not going to be economically stimulative nor make lives any better for the average folks; in fact it is the average Pinoy who will ultimately shoulder the costs of those projects in the form of higher taxes. higher cost of living, and reduced public welfare spending.

    On the other hand, it will make very few individuals (contractors, suppliers, corrupt gov’t officials) handsomely wealthy as they laugh their way to the bank and the international bankers themselves will be the ultimate crocodile who will swallow all that money.

    • I have a hard time understanding why Philippine companies don’t object to being cut out of these large projects. Some have developed the capacity and expertise to do them. Then there are the stricter terms from China, versus, say, Japan. Who in their right mind would deal with China, unless there are ‘commissions’ for doing so?

      • chemrock says:

        Actually, Ramon Ang initially sang praoses. He famously said “This country will fly” when he alluded to Build Build Build. Of course he got his reward — PDI. But subsequently he was greatly disappointed in the no-bidding process for many projects and he publicly said that;s a way to corruption.

    • chemrock says:

      Actually from many announcements of policymakers regarding the golden infras, the impression I get is that they are more interested from the perspective of boosting GDP metrics from expenditure on build build build.

      • Micha says:

        Yes sure, there will be spike in GDP but because those are funded by dollar loans it will be unsustainable and temporary. It’s no different when mom and dad took out credit cards to build a backyard pool. When the funds get exhausted and the loans need to be repaid (plus interests), it’s easily predictable what will happen to the family finances.

        But its encouraging that policy makers (cabinet level, I suppose) do acknowledge the fact that gov’t spending boosts GDP. The way to do it then to be more sustainable and permanent is through direct sovereign spending mandated by congress.

  15. Popoy Del R. Cartanio says:

    Albert O Hirschman’s DEVELOPMENT PROJECTS OBSERVED was my favorite focus of discussion in P.A. 245 (Project Planning and Management). Now after cursory reading of Chemrock’s piece, Hirschman’s Principle of the Hiding Hand is pediculus capitis, Chemrock’s worthy of a MUCH NEEDED convocation for UP System Faculty and students. During M Law, I was asked to write on FAPs (Foreign Assisted Projects) can’t find the file now. Did write too on JICA’s Aforestation Project in Pantabangan, and the PADAP (Philippine-Australian Assisted Project) in Zamboanga Del Sur.

    Anyway, I would recommend Chemrock to do MUCH NEEDED roving seminars on this particular piece alone to all Colleges of Engineering and all School of Economics in the Philippines–when the TIME comes.

    In Urban and Regional Planning PhD Course (by UPSURP) I attended the seminar by the Architect who built the Australian Parliament House in Canberra. The structure would have been covered by earth material to make it bomb safe.

    • Popoy Del R. Cartanio says:

      Hmmm. I remember for NAPOCOR, I did even write a proposal for a seven storey NAPOCOR Power Education and Training Center (for Asia) in Caliraya, Laguna to be funded by the World Bank. When building estimates cost only P2,000 per sq. meter. Those were the days when Development Projects were Phaseolus Aureous.

      • Hehe, MWSS (or was it NAWASA(K) ) got a lot of World Bank money, I think it was to improve water supply in Metro Manila. They built a shiny new HQ in Balara just behind UP College of Economics, and in most of UP flowing water was still only 2 hours a day.

        Those were the priorities in the Golden Age of White Elephants called Martial Law. The white elephants had false teeth. The gold went only to select persons not into Buddhas.

        • Popoy Del R. Cartanio says:

          Hahah hah. After NAPOCOR consultancy, Ii’s laugh now Don’t ask me we were asked by NAWASA to do a management improvement study “WB funded) to the tune of P3 million because allegedly the no, one Acctg Firm in Asia did not do very well.

          Our proposal was okay so I was asked to see the Gen Manager several times and he regaled me how Ayala was able to siphon free water for its villages and their great problem of water meter. After three meetings and nothing was happening only coffee and small talk and I had to remind him there seems to be a lot of people waiting to see him,

          I told my Boss my boss I am not coming back because I sense something I do not like. Not a two hundred thousand project that will earn us awesome millions. I think you know the guy, he comes from your or nearby province and might already have passed by now. .

        • sonny says:

          Ah, yes. When the age of bottled water was not yet come over Manila & QC,I used to wince when drinking NAWASA water that had gone through the pre-war pipes of the system. 🙂

          • NHerrera says:

            Tried boiling and filtering the pre-bottled water? The negative part, though, is that the taste of boiled water is not good. Ah, life’s choices. 🙂

            Good morning to you from the PH, sonny.

            • sonny says:

              Greetings to you too, NH. It’s 7:30 pm and I’m scurrying over materials on Hoover Dam, the Bay Area Rapid Transit (Oakland-Frisco), Elon Musk’s Rapid Transit Taxi O’Hare Int’l-downtown Chicago. All these showing why Civil Engineering is alive & well. Yay! (compliments to Google and the descendants of the UNIVAC). 🙂

              Thanks especially to chempo and Joe’s TSH!!

          • Our local water is piped untreated from the mountains. Locals drink it with no problems but those of us with dilettantish digestive systems have trouble. Our mountains are a precious resource, cranking out their life-saving juice year-round, and occasionally enough to wash out bridges, roads, homes, and the lives of those living under their slippery slopes. Living in the Philippines is like that. Dynamic, real.

            • sonny says:

              Joe, too bad we the Filipino emigres have already lost beneficial tropic microscopic fauna in our guts. 😦 (Miss those stimulants to life)

            • NHerrera says:

              Yes, like that brand of US bear that’s advertised as coming from mountain spring water? Surely even your dilettantish digestive system will not object to that beer. 🙂

              • NHerrera says:

                Oops, beer = bear

              • Coors Beer, Golden, Colorado. They had to drop the “spring” from the slogan because they needed rivers of water to keep up the pace of sales. But it is still from the mountains! Back in my day, Coors manufactured 3.2 beer (3.2% alcohol) that we could drink at age 18. College had a “Friday Afternoon Club”, that basically meant cutting classes that afternoon to head to the Red Garter (Ft Collins) or The Sink (Boulder) to start swilling 3.2 beer. It was a most delightful club.

                We also had “woodsies” that required a keg or two of the beer, a loud portable sound system, and a campsite in the mountains. Some 20 or 30 people would gather around the campfire generating such laughter as is hard to believe. The laughter would slowly get quieter as people fell asleep (passed out) or disappeared into the bushes in pairs to look for wildlife.

              • NHerrera says:

                Ah, brings back memories of yore. I laughed at the last phrase:

                … people fell asleep (passed out) or disappeared into the bushes in pairs to look for wildlife.

                I won’t be surprised if you are in one of those pairs looking for wildlife. 🙂

              • I was neither a wildlife seeker in those days, nor passed out. More just a watcher.

  16. NHerrera says:

    Off topic

    MODERN VARIATIONS OF “Blessed are the meek: for they shall inherit the earth”

    On the spate of killings of Catholic priests:

    * Archbishop Cardinal Antonio Tagle — Continue with the tolling of the church bells.

    * Senate Present Vic Sotto — Opposed Senator Risa Hontiveros’ proposal for a Senate probe on the killings of Catholic priests in the country.

    (Those sure lighten up the works and stresses of both Tagle and Sotto.)

    • Thanks. I like the “In the know” headline banner. Really like it. Also, the Leyte Tide Embankment project is new to me, and welcomed. Tacloban has been totally rejuvenated since Yolanda, and there are a lot of hotels and other commercial establishments rising. But they are all vulnerable. The Tacloban airport terminal was rebuilt and expanded after having been pretty well destroyed by the storm surge. Low sea walls are still a problem, I think, although they have been re-built.

      I’m skeptical about the bridge-building and hope there is some effort made to analytically measure the traffic and economic benefits. Otherwise, the program might be labeled “The most massive effort of building bridges to nowhere on the planet.”

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.