When the Philippines' reform-minded government approved billions of dollars for joint public-private roads, railways and airports two to three years ago, shares surged in infrastructure companies like Metro Pacific Investments Corp.

Now those shares are languishing, as project delays and disputes raise doubts over their growth prospects - and over President Benigno Aquino's drive to rein in special interests and expand the private sector's role in the economy.

The Aquino administration's public-private partnership scheme for infrastructure, praised by the Asian Development Bank as the best in Southeast Asia, is showing signs of acrimony, revealing how a reform programme can falter as interests diverge between crusading bureaucracies and profit-driven businesses.

"This is a government that is supposed to be transparent, above board. Their strength has been on the governance side," said Jesse Ang, country representative for the Philippines at the World Bank's International Finance Corp.

"But the suspicion has gone a bit overboard," Ang said, pointing to wary regulators and their tough stance towards private water companies.

The government has awarded $4.2 billion in projects and has another $12 billion lined up for bidding under the public-private scheme, part of anti-graft and free-market reforms launched in 2010 that had helped to make the Philippines, until last year, the fastest growing economy in the region.

Some new projects, however, have been shunned by banks and potential bidders in the past several months, tarnished by risks both from a presidential election next year, which may usher in a less reform-friendly government, and from regulatory tussles.

Those perceived risks rose sharply after a May arbitration ruling that kept operators of privatised water projects from raising rates.

"Investors are very much cognizant of regulatory risks in the Philippines, and increasingly so given recent events," said John Eric Francia, president of AC Infrastructure Holdings Corp, builder of the first toll road under the Aquino scheme. He noted that while interest in projects was generally still strong, a cautious air had settled over those prone to regulatory inquiry.

PUBLIC-PRIVATE ACRIMONY

Signs of trouble emerged just a few years after the scheme's launch, when Manila Water Co Inc and Maynilad Water Services, partly owned by Metro Pacific, sought to raise water charges by 10 to 21 percent.

Regulators balked, leery that they might be seen favouring corporate interests over the public's, especially since the water contracts predated Aquino, who had sworn to fix corrupt deals by past administrations.

The result was a protracted series of regulatory and arbitration actions, as business leaders who enthusiastically embraced the administration's anti-corruption and free-market agenda suddenly found themselves locked in battle with the government, insisting that their contracts entitled them to rate hikes. May's ruling left them on the losing side.

"There was disappointment in the street," said Jose Erwin Balita, fund manager at BPI Asset Management, pointing to investors' reaction to the ruling.

"From there, it was all downhill."

Shares of Manila Water have dropped 14 percent this year and DMCI Holdings Inc, another partner in Maynilad Water, has lost over 23 percent. Metro Pacific, which also has an electric power business, is flat, against a 3.5 percent rise in Manila's benchmark stock index.

Similar snags have hit toll road companies owned by San Miguel Corp and Metro Pacific. Their petitions for double-digit increases in tariff rates have been under review by regulators for as long as three years.

The regulatory uncertainty is in some cases scaring away potential lenders and bidders for projects, especially among foreign companies, industry executives said.

With banks cautious on new projects, companies are now being called on to put in more equity, such that financing is moving towards nearly equal portions of debt and equity instead of the 70 percent debt ratio common for infrastructure projects, said David Nicol, Metro Pacific's chief financial officer.

Bidders are also growing wary on some projects. Government data shows that the last successful toll road bidding in May had no foreign bidders at all. In the Philippines' first public-private toll road project in 2012, one-fifth of the prospective bidders were foreign.

"For us to grow faster, we need the private sector," the IFC's Ang said. "And we need to make sure that if you set the rules on regulation, that you follow them and don't change the rules 15 years later."