In the News: What are PPPs? (part 2)

The government’s Public-Private-Partnership (PPP) program has made the headlines again in recent weeks.  The administration has publicly stated that its PPP program is attracting much interest from local conglomerates and foreign investors.  A PPP “project menu” is reportedly being prepared and will be released in October 2010.  But which laws are relevant in the context of Philippine PPPs?

There is no single law or set of regulations which establishes a legal framework for Philippine PPPs.  The applicable law and regulations depend on the specific context of the project.  The common thread that runs through all of them, however, is that subject only to a few narrow exceptions, the government may not enter into a PPP contract without public bidding.

Here are some of the Philippine laws and regulations that relevant in a PPP context:

  • Executive Order No. 423 (2005) – This executive order attempts to consolidate the approval procedures for all government contracts.  Under this issuance, except for contracts which by specific provision of law must be approved by the President, the head of a government entity has full authority to enter into contracts on behalf of such entity.  (A private developer should also check if the charter of such entity authorizes the contract, however.)   If the exceptions to public bidding are believed to apply, prior clearance must be obtained from the National Economic and Development Authority (NEDA) and the Government Procurement Policy Board – unless the exempt contract involves an amount below P500 million, in which case, a certification under oath by the head of the procuring entity is sufficient.  EO 423 also provides that certain contracts which require Presidential approval must first be approved by the NEDA.
  • The BOT Law (Republic Act No. 6957, as amended by Republic Act No. 7718) – This statute and its implementing regulations apply to all “private sector infrastructure or development projects,” i.e., projects that are normally financed and operated by the government but which will be wholly or partly financed, constructed and operated by the private sector under any of the contractual arrangements recognized by the BOT Law and its regulations.  The recognized contractual arrangements include (but are not limited to) build-operate-and-transfer, build-lease-and-transfer and rehabilitation-operate-and-transfer arrangements. Generally, the private developer assumes the burden of developing and operating the project (with some support from the government).  At the end of an agreed cooperation period, the project assets are transferred to the government.  If the BOT project is being entered into with a local government unit as the counterparty, the requirements of the Local Government Code (Republic Act No. 7160, as amended), particularly section 302 thereof, must also be observed. There is also a separate set of regulations applicable to information and communication technology projects sought to be implemented under the BOT Law.
  • The Government Procurement Reform Act (Republic Act No. 9184) or GPRA – This statute does not focus on promoting PPPs or infrastructure projects, but aims to  ensure transparency and prevent corruption in all areas of government procurement.  Nevertheless, the GPRA contains provisions that apply to the procurement of infrastructure projects in general.  Hence, if for various reasons, the government and the private developer decide to implement or finance their PPP through a structure that does not fall among the specific contractual arrangements envisioned by the BOT Law, the requirements and procedures set out in the GPRA (and not the BOT Law) will have to be complied with.

  • NEDA Guidelines and Procedures for Entering into Joint Venture Agreements between Government and Private Entities (2008) – These guidelines were issued to encourage the pooling of resources between the government (except local government units) and the private sector, whereby the parties share risks to jointly undertake an investment activity.  The guidelines envision structures under which ownership of the investment activity will eventually be transferred to the private sector under competitive market conditions.  The guidelines authorize both corporate joint ventures (where the parties form and jointly own a separate joint venture company) and contractual joint ventures (where the parties perform their respective roles under contract, without forming a joint venture company).
  • There are also specific statutes applicable to projects involving a partnership with the government for the exploitation, development or utilization of natural resources.  These include the Mining Act (Republic Act No. 7942 [1995]) for minerals in general, the Oil Exploration and Development Act (Presidential Decree No. 87 [1972], as amended) for petroleum, crude oil, and natural gas, Presidential Decree No. 1442 (1978), as amended, for geothermal resources, and Executive Order No. 462 (1997), as amended by Executive Order No. 232 (2000), for ocean, solar and wind power.  The Renewable Energy Act (Republic Act No. 9513 [2009]) also provides incentives for renewable energy projects.

  • Private parties must also consider the implications of Executive Order No. 398 (2005), Revenue Regulations No. 3-2005 and Revenue Memorandum Circular No. 16-05, which impose the rather stringent requirement that before a party may enter into any contract with the government, it must first submit copies of its latest income and business tax returns, together with a tax clearance issued by the Bureau of Internal Revenue, confirming that such party has no outstanding final assessment notice or delinquent tax accounts.  These issuances also require that government contracts must contain a stipulation that a failure by the private party to make timely payment of its taxes shall entitle the government to withhold payment on the contract. 

The foregoing are only some of the laws and regulations that regularly crop up in the context of PPPs.  There is a bit of an overlap among several of these laws, and sometimes it is not entirely clear where one law ends and another law begins.

At the end of the day, however, the fundamental issue is how to best balance the objective of encouraging cooperation between the government and the private sector in developing infrastructure and other projects with the need to ensure good governance and oversight.  Hopefully the new administration will be successful in its attempts to drum up activity in the PPP sector.