1. Philippines
  2. Local government PPP landscape

Local government PPP landscape

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  • Overview

    local gov fig

    Number of SNGs

    • Municipalities
      42028
    • Intermediate
      1594
    • Regional/State
      81
    • Total Number of SNGs
      43703

    SNG Expenditure (% of GDP)

    • Total SNG Expenditure
      12.3 %
    • SNG Current Expenditure
      11.3 %
    • SNG Staff Expenditure
      ----
    • SNG Investment
      ----

    SNG Expenditure (% of govt. expenditure)

    • SNG Expenditure
      16.2 %
    • SNG Current Expenditure
      ----
    • SNG Staff Expenditure
      ----
    • SNG Investment
      ----

    SNG Revenue (% of GDP)

    • SNG Revenue
      14.8 %
    • SNG Tax Revenue
      3.6 %
    • SNG Grants
      9.6 %
    • Other SNG Revenue
      1.5 %

    SNG Revenue (% of govt. revenue)

    • SNG Revenue (% of govt. revenue)
      22.7 %
    • SNG Tax Revenue (% of govt. tax revenue)
      6.3 %
    • SNG Grants (% of govt. grants)
      ----
    • Other SNG Revenue (% of other govt. revenue)
      ----

    SNG Debt Profile

    • SNG Debt (% of GDP)
      N/A
    • SNG Debt (% of govt. debt)
      N/A

    Transfers to SNGs from National Government

    • SNG Transfers Score
      A
    • Score for Transfer Allocation System
      A
    • Score for Info Transfer Timeliness
      A
    • Score for Collection and Reporting of Fiscal Data
      N/A

    GDP = gross domestic product, govt. = government, N/A = not applicable, SNG = subnational governments.

    Note: The Public Financial Management and Accountability Assessment report, developed by the World Bank and other development partners, comprised scoring of various indicators by rating them from A to D. These ratings, as per criteria stated in the Public Expenditure and Financial Accountability (PEFA) framework, are broadly interpreted as follows:
    A = good performance that meets international standards (i.e., the criteria for the indicator are met in a complete, orderly, accurate, timely, and coordinated way);
    B = a level of performance ranging from good to medium by international standards;
    C = a level of performance ranging from medium to poor; and
    D = a process or procedure that is either nonexistent or not functioning effectively.

    Source: UCLG. 2016. Subnational Governments around the World—Structure and Finance. https://www.uclg.org/sites/default/files/global_observatory_of_local_finance-part_iii.pdf; PEFA. 2016. Republic of the Philippines PFM Strategy Implementation Support.

  • Local Governance System in Philippines

    The Philippines has a decentralized system of government, with three tiers of local governance: (i) 81 provinces; (ii) 1,489 municipalities and 105 cities; and (iii) 42,028 barangays (villages). The province is the highest tier of local governance and is made up of a cluster of municipalities and/or cities. Some cities, which are highly urbanized, are considered independent from the province. Municipalities and cities are made of barangays, which is the lowest tier of decentralization. In addition to these jurisdictions, the Philippines also comprises the Autonomous Region in Muslim Mindanao (ARMM).1

    The legal and regulatory provisions for the local governments operating framework are set in the Local Government Code of 1991. The local government autonomy is combined with a supervision of higher level of government, especially regarding the budget approval process and local government legal accountability (footnote 1).

  • Infrastructure Development Plan of Local Governments

    In the Philippines, development planning and investment programming follows a dynamic and iterative process whereby the national, regional, and local levels of governance adhere to support and reaffirm each other’s priority development thrusts and objectives.1

    The national government provides guidance and directions for the preparation of sector- and lower-level plans in terms of policies and macroeconomic targets, taking into account the prevailing development issues and concerns affecting national, regional, and local conditions at the planning stage. From these national planning guidelines, regional- and local-level development plans and investment programs are then prepared with consideration of the local development needs and service delivery gaps.

    The local government development plans contain programs, projects, and activities (PPAs) responding to the development needs and gaps of the local governments. The local government investment plans outline a set of prioritized PPAs, their specific timeframes of implementation, and their budget requirements.

    The Provincial Development Council undertakes the formulation of medium-term, long-term, and annual socioeconomic development plans for the province.

    At the city/municipal level, the City/Municipal Development Council is tasked with the formulation of long-term, medium-term, and annual socioeconomic development plans and public investment programs;.

    The provincial, city, and municipal government development and investment plans present opportunities to engage the private sector, identify projects for private investment, and offer incentives for the private sector (footnote 1).

  • PPP-Enabling Framework for Local Government Projects

    PPP Legal Framework for Local Government Projects

    The Local Government Code (LGC) of 1991 (Republic Act 7160) has institutionalized decentralization from the national government to local government units (LGUs). It provides the legal basis for the participation of the private sector in local governance, particularly in the delivery of basic services. The LGC allows LGUs to enter into joint ventures and other forms of cooperative arrangements with the private sector to deliver basic services such as health care, social welfare, agricultural extension, and other revenue-generating infrastructure facilities eligible under the LGC. Cooperation with the private sector could be for financing, construction, maintenance, operation, and management of infrastructure projects.

    PPP Policy Framework for Local Government Projects

    The Department of Finance (DOF) and the National Economic Development Authority (NEDA_ have formulated a robust policy framework to rationalize the use of available financial resources and help achieve the vision and goals of the LGC with respect to the roles and responsibilities of LGUs in helping achieve national objectives.

    LGU Financing Policy Framework

    In 1996, the DOF, in consultation with key stakeholders, formulated the LGU Financing Policy Framework to wean off LGUs from the national government and promote their effective partnership with the private sector. The ultimate objective of the framework is to step up the more creditworthy LGUs to private sources of capital, at least for their revenue-generating or self-liquidating projects.

    National Government–LGUs Cost-Sharing Policy Framework

    In 1996, the NEDA Board approved a policy framework for financial assistance from the national government for LGU projects with social and/or environmental objectives. This framework provides for national government support to projects with social and/or environmental objectives in the form of matching grants.

    The framework also specifies the percentage of the project cost that could be given by the national government as capital grants and the types of projects and income classes of LGUs that would be eligible for the grants.

    Performance-Based Incentive Policy for LGUs

    The Municipal Development Fund Office (MDFO) Policy Governing Board approved the Performance-Based Incentive Policy (PBIP) in 2008. This policy was subsequently reaffirmed by the Development Budget Coordination Committee of the NEDA Board in 2009. The PBIP aims to rationalize intergovernmental fiscal transfers from the national government to LGUs to improve overall LGU governance and delivery of basic services.1

    The maximum subsidy for a municipality is ₱1 million ($19,740 as of April 2020); for a city is ₱3 million ($59,220 as of April 2020); and for a province is ₱7 million ($98,700 as of April 2020). LGUs are required to put up at least the same amount as their counterpart fund.

    PPP Institutional Framework for Local Government Projects

    Along with the various institutions responsible for PPPs at the national level, specific institutions responsible for PPPs at the local government level include: (i) regional development councils, (ii) provincial legislative and development councils, (iii) city/municipal legislative and development councils, and (iv) PPP subcommittees in LGUs.

    Financing Institutions for Local Government PPP Projects

    Municipal Development Fund Office

    The Municipal Development Fund (MDF) is a special revolving fund for re-lending to lLGUs. The Project Technical Assistance and Contingency Fund (PTACF) provides optional financing with low interest rates (0% to 1.5% interest payable in 3 years) for LGUs (except for highly urbanized cities in Metro Manila) in funding the contingency requirements and technical assistance needed for LGU projects financed by MDFO.1

    Cities Development Initiative for Asia

    The Cities Development Initiative for Asia is an initiative that provides assistance to medium-sized cities to bridge the gap between their development plans and the implementation of their infrastructure investments.

    Asia Pacific Project Preparation Facility

    The Asia Pacific Project Preparation Facility or AP3F aims to assist ADB developing member countries and their public sector agencies in preparing and structuring infrastructure projects with private sector participation, including PPP modalities, and bring them to the global market.

    Project Development and Monitoring Facility

    The Project Development and Monitoring Facility is a revolving fund managed by the PPP Center. It is used to engage consultants for Project Preparation and Transaction Support to conduct feasibility studies, structure projects, prepare tender documents, manage the bid process, and provide assistance until financial closure.

    Asia Infrastructure Center for Excellence

    The Asia Infrastructure Center for Excellence assists ASEAN countries in (i) building capacity to identify, screen, and prioritize projects for private sector participation, and develop a pipeline of financeable PPP projects; and (ii) funding project structuring support to prepare PPP transactions for financing (footnote 1).

  • Sectors for Potential PPPs with Local Government Projects

    According to the Constitution and the Local Government Code (LGC) of 1991, local governments are mainly responsible for basic public services provision.

    Section 17 of the LGC provides a list of eligible sectors under which PPP projects can be implemented by local governments.

    Source: Section 17 of the Local Government Code of 1991

     

    Sectors Where Local Governments Can Implement PPP

    Infrastructure Sectors Eligible Projects
    Agriculture and Fisheries

    Agricultural development facilities, such as agricultural produce storage and warehousing facilities; agricultural produce processing and post-harvest facilities; livestock facilities

    Fisheries and aquatic resources facilities, such as public fish ports, fish ponds, fisheries storage facilities, and fisheries processing facilities
    Commercial and Industrial Development Local trading support infrastructure, such as markets and slaughterhouses; business district development facilities, such as business district establishment, expansion, and revitalization/rehabilitation
    Education School buildings, dormitories, hostels, hometels, and student centers
    Environmental and Solid Waste Management Solid waste collection equipment, sanitary landfills, composting plans and facilities, tidal barriers
    Government Buildings Government buildings and operations centers
    Forestry Community-based forestry projects
    Healthcare Hospitals, clinics, health centers, lying-in centers, emergency medical stations, pharmacies, drug stores, animal bite centers
    Housing Housing projects
    Information and Communication Technology (ICT) Systems and Facilities IT modernization, cadastral survey for resource accounting and planning, geospatial resource mapping
    Land Use Land reclamation and dredging
    Roads and Bridges Provincial, city, and municipal roads and bridges
    Social Welfare Day-care centers, social welfare distribution centers, emergency response units
    Transportation Transportation facilities and infrastructure, such as transport management system and transport terminals
    Water and Sanitation Local water supply systems, septage management or sewerage systems; drainage facilities

    Source: Government of the Philippines. Local Government Code of 1991. Section 17. https://www.officialgazette.gov.ph/1991/10/10/republic-act-no-7160/#:~:text=SECTION%2017.,functions%20currently%20vested%20upon%20them.

    Pipeline of Local Government PPP Projects

    Project Name Implementing Agency Estimated Project Cost Status
    ($ million) (₱ million)
    Integrated Waste Management Project (Marikina City) (Unsolicited) Marikina City Government 26 1,300 Under evaluation – Proposal received by implementing agency
    Ormoc City Water Supply System Project City Government of Ormoc TBD TBD Development – Undergoing studies
    Puerto Galera Sewerage and Wastewater Treatment Plant Project Local Government of Puerto Galera (Mindoro Oriental) TBD TBD NA
    Cauayan Mega Market (Unsolicited) Local Government of Cauayan City 6 300 Pre-construction
    Iloilo City “Triple A” Slaughterhouse Project City Government of Iloilo TBD TBD Development – Undergoing studies
    Iloilo City Central and Terminal Public Markets City Government of Iloilo TBD TBD Development – Undergoing studies
    Iloilo City Integrated Solid Waste Facility Management Project City Government of Iloilo TBD TBD Development – Undergoing studies
    Bislig City Bulk Water Supply and Septage Project Bislig City Water District TBD TBD Development – Project conceptualization
    Cebu City Solid Waste Management Project City Government of Cebu TBD TBD UA
    IT Project for LGU City of Naga – Unlad Bayan Local Government Information System (Unsolicited) Naga City Local Government TBD TBD Technical Board deliberation / endorsement
    Baggao Water Supply Project Municipal Government of Baggao 1.6 84 Procurement
    Unsolicited Proposal for the Redevelopment of Panabo Town Local Government of Panabo City (Davao Del Norte) TBD TBD UA

    IT = information technology, LGU = local government unit, NA = not applicable, TBD = To be decided, UA = unavailable.

    Note: ₱1 = $0.01974.

    Source: Public–Private Partnership Center. List of Projects. https://ppp.gov.ph/list-of-projects/ (accessed 28 August 2020); Public–Private Partnership Center. 2019. Investment Opportunities. Manila. https://ppp.gov.ph/investors-corner/investment-opportunities-2/.

  • Revenues for Local Governments

    The local governments have three sources of revenue: tax revenues; grants and subsidies, including intergovernmental transfers and shared revenues from national tax collection; and other revenues.

    • Tax revenue. Principal local government tax revenue includes basic real property tax (43% of tax revenues), business tax (51% of tax revenues), and a few other local taxes, such as the special education tax. Provinces and cities have to share some of their revenues with the municipalities and barangays, and are restricted on the set of taxes they can collect.1
    • Grants and subsidies. In addition to the local taxes, local governments also receive a share of national tax collection through a formula-based grant, the Internal Revenue Allotment, which varies according to the type of local government: 23% to provinces, 23% to cities, 34% to municipalities, and 20% to barangays.
    • Other revenues. These include regulatory fees, receipts from economic enterprises, and diverse fees and charges.

    The revenue surplus after meeting the revenue expenditures from the above sources of revenue is typically used for financing capital investment and infrastructure projects, including PPPs.

  • Borrowings by Local Governments

    Local governments can borrow through government mechanisms to finance local infrastructures based on the approved local development plan and public investment program. The local debt should not exceed 20% of the regular income of the LGU concerned. The Bureau of Local Government Finance certifies debt service ceiling and net borrowing capacity of local governments.1

    Borrowings of local governments are limited to the following purposes:

    • Construction, installation, improvement, expansion, operation or maintenance of public facilities, infrastructure facilities, and housing projects; acquisition of real property; and implementation of other capital investment projects.
    • Establishment, development, or expansion of agricultural, industrial, commercial, house financing, and livelihood projects; and other economic enterprises.
    • Acquisition of property, plant, machinery, equipment, and the necessary accessories.
    • Financing of self-liquidating, income-producing development or livelihood projects.

    Average Lending Rates for Local Governments

    Year Bank Average Lending Rates Interest Rate per BLGF Certificate GFIs PFIs
    2015 5.58% 5.75% 5.74% 5.84%
    2016 5.64% 5.46% 5.50% 5.10%
    2017 5.63% 5.00% 5.10% 4.60%
    Average 5.62% 5.40% 5.45% 5.18%

    BLGF = Bureau of Local Government Finance, GFI = government financial institution, PFI = private financing institution.

    Source: ADB. 2019. Credit Financing for Local Development: The Subnational Debt in the Philippines. Manila. https://www.adb.org/sites/default/files/publication/506931/adbi-wp966.pdf.

  • Budgetary Allocation to Local Governments

    Budgetary allocation to local governments follows a medium-term expenditure framework based on their budget requests as per their annual investment plans.

  • Credit Rating of Local Governments

    The Bureau of Local Government Finance is setting up the LGU Creditworthiness Rating Index (CRI) to be issued to all provinces, cities, and municipalities on a regular basis to improve planning and resource mobilization strategies. The CRI will serve as a rating mechanism for the fiscal health and credit viability of LGUs.

    Once established, the CRI would be able to expand further the vision of the LGU Financing Framework to (i) identify the status of LGUs in terms of credit financing, (ii) aid the lending institutions by supplementing their risk assessment tools using government-issued creditworthiness ratings, and (iii) enable LGUs to plan and strategize on resource mobilization using debt performance rating and related metrics.1