Senator Jinggoy Estrada of the Philippines has stated that no "ghost flood control project" in the country can prosper without the involvement of the Commission on Audit (COA). In an ambush interview with reporters on Wednesday night, Estrada also said that the Senate Blue Ribbon Committee should invite COA representatives to the next hearing on anomalous flood control projects.

“A ghost project will not prosper without the cooperation of COA,” Estrada said. His remark came after Senator Panfilo Lacson revealed in a privilege speech on Wednesday afternoon that funds for certain projects are divided based on “greed” from both the public and private sectors, leaving only crumbs for actual implementation. Lacson said that at least 0.5 to 1 percent of a flood control fund goes to the COA.

Estrada admitted he was not aware of how the so-called pie-sharing works but maintained that COA is involved in such a scheme. He also thinks the Senate Blue Ribbon panel’s investigation would still take a long time. “Maybe this will even reach 10 hearings because of the scope of anomalies,” he said. Earlier, President Ferdinand Marcos Jr. revealed the top 15 contractors that had secured most of the government’s flood control deals. Seven of these firms attended the hearing, while the remaining eight will be subpoenaed.

Market Signals

Sector-wide Implications: The ongoing investigations and admissions of "ghost projects" signal significant risks and potential overhauls in the flood control and infrastructure sectors in the Philippines. This could lead to a temporary slowdown in project approvals and disbursements as new oversight mechanisms are implemented.
Competitor Positioning: Companies with a history of reliable project execution and transparent dealings will likely gain a competitive advantage. Conversely, contractors with questionable track records or those linked to the ongoing scandals will face increased scrutiny and potential blacklisting.
Investment Signals: Investors in the Philippine infrastructure sector should exercise extreme caution. Funds allocated for flood control may be redirected or face delays.

Winners & Losers

The scandal indicates increased demand for independent audit firms and ethical contractors, while contractors involved in ghost projects, like Wawao Builders, face reputational damage and potential sanctions. The Department of Public Works and Highways (DPWH) is also facing significant reputational damage.

Action Timeline

Immediate: Review existing contracts, assess supply chain impact, and closely monitor Senate and COA developments.
Short-term: Enhance due diligence, focus on compliance and transparency, and build strategic partnerships with companies with proven integrity.
Long-term: Expect stricter regulatory regulations, potential restructuring of engineering offices, and structural changes in how public infrastructure projects are managed.

Risk Assessment

Regulatory Risk: Increased regulatory scrutiny and potential for new, stricter regulations governing public infrastructure projects.
Reputational Risk: Companies associated with any aspect of these scandals face severe reputational damage.
Project Delays and Cancellations: Ongoing investigations and the need for re-validation could lead to significant delays or cancellations of existing and planned flood control projects.

Key Indicators

What this signals for the market/industry: A signal for the urgent need to enhance financial and management oversight in government infrastructure projects, especially those related to flood control.
Leading Indicators: Continued Senate hearings, findings from COA's fraud audit, and presidential actions against involved parties.

Regional Perspective

Senator Jinggoy Estrada's direct accusation that "ghost" projects require the involvement of the Commission on Audit (COA) offers a unique angle. This suggests a potential need for deeper investigation into COA's oversight processes and possible collusion, highlighting the specific challenges facing the Philippine infrastructure sector.

Immediate Implications

What happens next: The Senate Blue Ribbon Committee is expected to continue its investigations, and more contractors may be subpoenaed. The findings from COA's fraud audit will be crucial.
Time-sensitive Opportunities or Risks: Companies should review their current contracts and ensure compliance for transparency. Firms with questionable track records may face increased scrutiny.

What to Watch

Leading indicators to monitor: Findings from COA's fraud audit, future subpoenas of contractors, and any legal actions taken by President Marcos.
Expected developments: Additional Senate hearings, potentially changes to government procurement regulations.
Key decision points: COA's decisions on financial reports and Senate decisions on subpoenaing witnesses and submitting reports.

Analysis

The alleged involvement of the Commission on Audit (COA) in ghost flood control projects in the Philippines points to a serious issue of oversight and accountability. Senator Estrada's statements cast a shadow on the effectiveness of existing control mechanisms, demanding a thorough investigation to restore confidence in the management of public funds.