1. PPP in the Philippines 12th Regional EFA National Coordinator Meeting
Increasing the private sector’s role in education through PPPs can have several benefits over traditional public delivery of education. This includes: greater efficiency, increased choice, and wider access to government services, particularly for people who are poorly served by traditional schools
12th Regional EFA National Coordinator Meeting
July 25-28, 2011
Seoul, Republic of Korea

2. PPP for School Infrastructure
Background
As of SY , the classroom shortage in public schools stands at 66,800.
SY 2010 Shortages
Classrooms
Teachers
Seats
Toilets
Kinder
14,924
27,852 NA
Elementary
28,344
27,270
1,510,805
78,415
Secondary
23,532
46,290
1,062,407
57,432
Total Shortages
66,800
101,612
2,573,212
135,847

3. Using more conservative parameters (single shift, 1:45 class ratio, and higher participation rates), the shortage could reach as high as 152,569.
REGIONS
Elem Schs
High Schs
TOTAL % 1
NCR
16,345
7,619
23,964
15.71 2
Region IV-A
12,014
6,494
18,508
12.13 3
ARMM
10,834
2,570
13,404
8.79 4
Region VII
8,514
3,666
12,180
7.98 5
Region III
6,421
4,061
10,482
6.87 6
Region V
7,365
2,639
10,004
6.56 7
Region VIII
7,205
1,811
9,016
5.91 8
Region XII
5,687
1,902
7,589
4.97 9
Region X
5,359
1,718
7,077
4.64 10
Region XI
4,935
1,836
6,771
4.44 11
Region VI
4,012
2,391
6,403
4.20 12
Region IX
4,608
1,382
5,990
3.93 13
Region IV-B
4,378
1,343
5,721
3.75 14
CARAGA
3,721
1,129
4,850
3.18 15
Region I
2,601
1,627
4,228
2.77 16
Region II
2,697
872
3,569
2.34 17
CAR
2,281
532
2,813
1.84
108,977
43,592
152,569
100.00

4. Why the need for PPP?
DepEd’s appropriation of PhP 11.3 billion for basic education facilities in 2011 can only address 15.60% of the current backlog.
DepEd Schoolbuilding Program – 8,997 units
Regular Program (DPWH-implemented) – 1,430 units
Enrolment grows every year, thus the requirements of schools are also increasing.
A total of 10,427 classrooms (excluding Counter-Parting Program with LGUs and Adopt-a-School) will be built using DepEd’s 2011 budget.
Classrooms
Teachers
Seats
Toilets
SY 2011 Incremental Requirements
39,767
44,487
1,814,348
36,286
SY 2011 Estimated shortage
75,986
73,902
2,298,912
121,334

5. PPP Modality
To plug the deficiencies in classrooms by 2013, DepEd is considering a PPP arrangement for school infrastructure.
Modality: Finance-Design-Build-Transfer
Contractor: project financing, design and construction
Government: repayment upon transfer of classrooms
Legal framework: BOT Law, solicited bid
Scale: nationwide roll-out; pilot in Regions III and IV-A; site appraisal on-going for Region I
Apart from financing, the DepEd sees the following advantages to undertaking a PPP scheme.
The DepEd is considering a Finance-Design-Build-Transfer scheme where the contractor undertakes the financing, design, and construction of classrooms and after completion, turns it over to DepEd, which shall pay the contractor its total investment plus a reasonable rate of return, based on an agreed schedule.

6. Core Objectives Scale: 10,000 units per contract (economic lot)
Cost savings: lower cost due to scale economies and use of technology
Timeliness/speed of delivery: completion of construction within 1-2 years
Quality: new technologies must meet minimum performance standard specifications of DepEd
Apart from financing, the DepEd would like to push for the adoption of a PPP for classroom construction to achieve the following core objectives:
On Scale: 10,000 units per lot to allow for value engineering and to help the proponent reduce its transaction costs. In terms of implementation, two modes are being considered. The first is 100% delivery of classrooms within a year and payment to commence upon transfer. The second is implementation of construction in phases and payment upon completion of lots.

7. Packaging the PPP Package:
Classrooms with blackboards, electrical system (and water system for 2-storey structures)
Classrooms with blackboards, chairs, desks, restrooms, electrical and water systems
In terms of packaging the PPP, the DepEd is also considering the possibility of bundling the provision of furniture and other school facilities (i.e. water and sanitation facilities) along with classroom construction. The advantage of doing so is that DepEd can be assured that once classrooms are turned over, they may be immediately used by the school for conduct of classes. In addition, this provision will also ensure the aesthetic and functional consistency of DepEd school facilities, i.e. school desks match the quality and look of the rooms in which they are housed.

8. DEPED MODEL SCHOOL BUILDINGS
Packaging the PPP
3 standard designs are chosen for the PPP.
DEPED MODEL SCHOOL BUILDINGS
DESCRIPTION
SINGLE STOREY
Type 1
1 classroom
Type II
2 classrooms
Type III
3 classrooms
TWO-STOREY
Type IV
Type V
4 classrooms
Type VI
6 classrooms
Type VII
8 classrooms
THREE-STOREY
Type VIII
9 classrooms
Type IX
15 classrooms
To simplify the evaluation process, the group decided to choose three main designs for the PPP based on DepEd’s 9 standard models.

9. Example of Economic Lot
Area: Region III, Sites A-D
Economic Lot: 10,000 classrooms
STANDARD MODELS
DEMAND
NO. OF CLASSROOMS BUILT
Type I – One storey, 2
classrooms
4,000 units
8,000 classrooms
Type II – Two storey, 4
500 units
2,000 classrooms
TOTAL
10,000 classrooms
This is an example of an economic lot for the PPP. It is possible to have one or two or three standard models in a lot.

10. Proposed Business Model
FINANCING
Loan
Bond Floatation
Project Loan - Securitization
Funding requirement
(PhP Billion)
Amortization (PhP 5 Billion x 5-10 years) via MYOA
Performance Undertaking
Proponent
(Private Sector)
Government DepED, DPWH
The contract is between the private sector (proponent) and government (DepED) based on FDBT (and possibly Maintain) modality (in purple font)
Contract to be awarded through solicited bidding: bidding is based on a pre-defined “economic lot” and specific site.
(In red font) Private proponent secures financing either through loan, bond floatation, or a combination of both.
Private proponent designs/constructs the classrooms within months and turns them over to government after completion for operation
Private proponent issues performance bond to the government.
Government issues a MYOA to ensure that financing of the PPP project will be covered by annual budgetary appropriations (in orange font). DepEd proposes an annual appropriation of PHP 5 billion. Based on our initial computations, using a 5 year tenor and discount rate of 8%, the net present value of the project is P20 billion. Assuming that proponents can build at 15% lower than government’s cost, the PPP project can build about 30,000 classrooms.
It was suggested that the tenor of the PPP be extended to 10 years instead of 5 years
Advantages: more funds for the project, faster reduction of backlog, longer repayment and maintenance period
Disadvantages: higher cost of money, spread of private proponent (6.5% for 5-7 years; 6.5% for 10 years)
From our consultations with potential proponents and financing institutions, there is a need to strengthen the MYOA. It was recommended that government issue a Performance Undertaking. This will also will also enhance credit worthiness of proponent and translate to better cost for government
ADB has proposed a performance undertaking similar to a lending contract. This addresses the concerns on the timing of MYOA release.
Standby letter of credit to cover annual availability fees to private proponent (similar to bridge financing)
Not a direct guarantee, subject to performance standards or ADB’s definition of PPP (per DepEd’s meetings with ADB, it is more ideal to include maintenance in the PPP package so that the private proponent is “more involved”, i.e. share risk of operations/management and not just financial risk. Longer term engagement through maintenance makes it a real partnership with the private sector and this can be the basis of the performance contract).
FROM ADB PPPs present a framework that—while engaging the private sector—acknowledge and structure the role for government in ensuring that social obligations are met and successful sector reforms and public investments achieved. The structure of the partnership should be designed to allocate risks to the partners who are best able to manage those risks and thus minimize costs while improving performance.
WORLD BANK: There are various modes of PPPs depending on the degree of involvement or risk that is shared by the private and public partners. An example or a “more involved” type of PPP is private management and supervision of public schools. On the other hand, a “less involved” type of PPP is contracting out the construction of school infrastructure such as classrooms and furniture.
Operate
Performance Bond
Finance
Design
Build
Maintain
Transfer

11. Timetable 2011 2012 Stage 1: Pre-Project Launch
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Stage 1: Pre-Project Launch
Task 1:
Site Assessment/Appraisal
Task 2:
Private Sector Consultations
Task 3:
Prepare Business Case and FS
Task 4:
Survey of Available Technologies
Task 5:
Secure NEDA ICC approval
Stage 2: Project Launch
Finalize Invitation to Bid, Info Memo and draft Contracts
Publication/Release Invitation to Bid and Info Memo
Stage 3: Pre-qualification
Stage 4: Negotiation/Dialogue
Stage 5: Submission of Final Proposals
Stage 6: Selection and award of Final/Preferred Bidder
Where are we now?
Task 1: Ongoing finalization of sites to be included in PPP. Site appraisal completed for Regions III and IV-A. Region I on-going. So far, 1,603 schools are in the shortlist, with a requirement of 7,700 classrooms.
Task 2: Completed two consultation sessions with potential proponents and financing institutions. Inputs were considered in developing the PPP program.
Task 3: Ongoing preparation of the Business Case, which is supported by the Research, Education and Institutional Development (REID) Foundation through USAID and The Asia Foundation financing. The business case will include the computation of the PPP’s internal rate of return via Public Sector Comparator method. DepEd believes the financial yield curve is very critical in the decision to undertake classroom construction via PPP over traditional government procurement or ODA.
Task 4: Upcoming survey of technologies will be undertaken to help develop the bid evaluation criteria and process. Given the FDB modality of the PPP, it is expected that various new technologies (in terms of construction, design and materials) will be proposed. A critical question that the group faces is how to evaluate different technologies against DepEd’s minimum technical standards. The idea of pre-qualification was raised. But it was later on agreed that a survey of technologies will suffice (to support the development of the business case) and that a formal pre-qualification process will be undertaken upon NEDA ICC approval. A technical committee from DepEd and DPWH will conduct an initial survey of technologies.
Project launch is expected to commence in October-November this year so that awarding can be done in March 2012.

12. PPP: Education Service Contracting (ESC)
Main objective of this PPP is to increase access and improve quality of education;
The government contracts with private high schools to enroll student in areas where there is a shortage of places in public schools;
Assistance is given only to students at institutions that charge low fees and serve low-income families;
Another type of PPP being implemented in the Philippines is the ESC. The main objective of this PPP is to increase access and improve quality of education.
The government contracts with private high schools to enroll student in areas where there is a shortage of places in public schools. Assistance is given only to students at institutions that charge low fees and serve low-income families. The program also includes certification aspects.

13. PPP: Education Service Contracting (ESC)

14. Thank You