SUMMARY AND CONCLUSION

The government is the major provider of public infrastructures. Government budget, private capital (both domestic and foreign) and funds from multilateral organizations are some of the sources for financing these infrastructures. However, the growing fiscal stress faced by the governments have led to considerations of alternative, mainly private, sources of funding to meet the rapidly growing demands for better quality infrastructures. The private sector brings not only financing for the project but also cost efficiencies together with operating know-how and technical advantage.

In many countries, including the Philippines, Public-Private Partnership (PPP) is considered by the government as the best option in attracting private investments. It involves private sector participation in any or all of the design, construction, finance and operation phases of public infrastructures which must be transferred to the government after the contract period or after the private sector recovered all of their costs in providing the infrastructure. PPP involves agreeing long-term contracts characterized by incompleteness in their specification, asset specificity and scope for opportunism because of asymmetric information. It should be noted however, that long gestation periods, high incremental capital output ratios, low return, and lumpiness of capital create financing risks for infrastructure that are serious disincentives for private investors. That is why, government must clearly specify in the PPP contracts the guarantee they will be giving to the private sector to proceed with the contracting.

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With this, the study analyzed two actual PPP contracts, namely: MWSS Concession Agreement and Metro Rail Built-Lease and Transfer, agreed between public and private sectors. The study found out that the two PPP contracts specify clearly the obligations and responsibilities of both parties, the targets that need to be attained, the penalties that are to be imposed if these are not achieved and some incentives for good performance and there was a fair deal that allows all stakeholders government, the private sectors, and consumers to reap benefits, and to change arrangements in a negotiated way in response to unforeseen circumstances. Secondly, the study also made a transaction cost analysis (TCA) in the design and content of the two PPP contracts including the project scope, implementation period and project completion date, cost recovery scheme, human resources, testing, event of force majeure, dispute resolution and arbitration. The results of TCA are consistent with Williamsons analysis of transaction where transaction costs increases with the intensity of asset specificity, uncertainty (both environmental and behavioral uncertainty) and frequency of transactions. Lastly, the study applied Rindfleisch and Heides (1997) TCA framework. The results are consistent with this framework where the sources of transaction cost, which are the nature of governance problems namely (1) safeguarding problem, (2) adaptation problem and (3) performance evaluation problem, intensifies the levels of transaction costs. Therefore, this study suggests one way of addressing the challenges of adopting PPP contracts for public infrastructures with problematic characteristics. That is,

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governments should consider the high operation and maintenance cost along with high transaction costs in the provision of PPP projects. As suggested by a growing body of literature on managing contracts, governments must maintain or develop sufficient contract management capacity to mitigate the risks of contracting. If possible, government must also clearly define performance measures to facilitate monitoring of the private sectors performance and devote sufficient resources to monitoring and execute contract incentives. Public sectors will likely benefit from extensive communication, coordination, and planning with the private sectors because it will help to reduce the chances of private sectors pursuing self-interest with guile (e.g. private firms may deliver a lower quality service to reduce their costs and raise profits). But, note that all of the aforementioned activities carry out high transaction costs.

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LIMITATIONS AND RECOMMENDATIONS OF THE STUDY

With the use of transaction costs analysis, this study was able to analyze the terms and conditions written in actual PPP Agreements. Although, there is no actual transaction costs estimated, it is recommended for other researchers to measure the costs involved in adopting PPP in delivering public infrastructures and services.

Likewise, the study relied on what is written in the original contracts signed by the parties therefore, any contract amendments were excluded. Also, this study depended on the secondary information provided by the said private proponents. Hence, this study suggests to: (1) take account of contract amendments and (2) gather actual monitoring reports from the specific sectors or any other agencies that are responsible supervising the PPP projects. These will clarify whether the infrastructures and services are delivered efficiently.

Moreover, the contracts between MWSS and Manila Water, and between MWSS and Maynilad, are considered as one contract since the study is concerned about the level of transaction costs between public and private sector.

This study shows that transaction cost theory is a powerful analytical tool for understanding a broad range of contracting decisions. But it is still crucial to address the limitations of transaction cost theory. The theory assumes the possibility of separating production and transaction costs, but in reality this is not often the case. Transaction costs can be defined clearly but quantifying it would be difficult to accomplish. Moreover, 72

although transaction costs are included in any account of PPP Agreements, it is clear that contracting is also influenced by trust and experience among government (public) and private sectors which develop between parties as they do business with each other. But these two factors are not considered in the analysis of transaction costs.

As subjects for future research, a more comprehensive examination may be done on how transaction cost considerations influence governments decisions about whether to contract, how they manage contracts, and whether the contracts are successful and must be undertaken.

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