In the News: What are PPPs?

(part 2)
Posted on September 3, 2010 by Philbert E. Varona The governments Publi !Private!Partnership "PPP# program has made the headlines again in re ent $ee%s. The administration has publi ly stated that its PPP program is attra ting mu h interest &rom lo al onglomerates and &oreign investors. ' PPP (pro)e t menu* is reportedly being prepared and $ill be released in + tober 2010. ,ut $hi h la$s are relevant in the onte-t o& Philippine PPPs. There is no single la$ or set o& regulations $hi h establishes a legal &rame$or% &or Philippine PPPs. The appli able la$ and regulations depend on the spe i&i onte-t o& the pro)e t. The ommon thread that runs through all o& them, ho$ever, is that sub)e t only to a &e$ narro$ e- eptions, the government may not enter into a PPP ontra t $ithout publi bidding. /ere are some o& the Philippine la$s and regulations that relevant in a PPP onte-t0

Executive Order No. 423 (2 !) 1 This e-e utive order attempts to onsolidate the approval pro edures &or all government ontra ts. 2nder this issuan e, e- ept &or ontra ts $hi h by spe i&i provision o& la$ must be approved by the President, the head o& a government entity has &ull authority to enter into ontra ts on behal& o& su h entity. "' private developer should also he % i& the harter o& su h entity authori3es the ontra t, ho$ever.# 4& the e- eptions to publi bidding are believed to apply, prior learan e must be obtained &rom the 5ational E onomi and 6evelopment 'uthority "5E6'# and the 7overnment Pro urement Poli y ,oard 1 unless the e-empt ontra t involves an amount belo$ P800 million, in $hi h ase, a erti&i ation under oath by the head o& the pro uring entity is su&&i ient. E+ 923 also provides that ertain ontra ts $hi h re:uire Presidential approval must &irst be approved by the 5E6'. "he #O" $aw (%epu&'ic (ct No. )*!+, as a-ended &. %epu&'ic (ct No. ++/0) 1 This statute and its implementing regulations apply to all (private se tor in&rastru ture or development pro)e ts,* i.e., pro)e ts that are normally &inan ed and operated by the government but $hi h $ill be $holly or partly &inan ed, onstru ted and operated by the private se tor under any o& the ontra tual arrangements re ogni3ed by the ,+T ;a$ and its regulations. The re ogni3ed ontra tual arrangements in lude "but are not limited to# build!operate!and!trans&er, build!lease!and!trans&er and rehabilitation!operate!and! trans&er arrangements. 7enerally, the private developer assumes the burden o& developing and operating the pro)e t "$ith some support &rom the government#. 't the end o& an agreed ooperation period, the pro)e t assets are trans&erred to the government. 4& the ,+T pro)e t is being entered into $ith a lo al government unit as the ounterparty, the re:uirements o& the $oca' 1overn-ent 2ode (%epu&'ic (ct No. +/) , as a-ended), parti ularly se tion 302 thereo&, must also be observed. There is also a separate set o& regulations appli able to in&ormation and ommuni ation te hnology pro)e ts sought to be implemented under the ,+T ;a$.

"he 1overn-ent Procure-ent %e3or- (ct (%epu&'ic (ct No. */04) or 1P%( 1 This statute does not &o us on promoting PPPs or in&rastru ture pro)e ts, but aims to ensure transparen y and prevent orruption in all areas o& government pro urement. 5evertheless, the 7P<' ontains provisions that apply to the pro urement o& in&rastru ture pro)e ts in general. /en e, i& &or various reasons, the government and the private developer de ide to implement or &inan e their PPP through a stru ture that does not &all among the spe i&i ontra tual arrangements envisioned by the ,+T ;a$, the re:uirements and pro edures set out in the 7P<' "and not the ,+T ;a$# $ill have to be omplied $ith. NE4( 1uide'ines and Procedures 3or Enterin5 into 6oint 7enture (5ree-ents &etween 1overn-ent and Private Entities (2 0) 8 These guidelines $ere issued to en ourage the pooling o& resour es bet$een the government "e- ept lo al government units# and the private se tor, $hereby the parties share ris%s to )ointly underta%e an investment a tivity. The guidelines envision stru tures under $hi h o$nership o& the investment a tivity $ill eventually be trans&erred to the private se tor under ompetitive mar%et onditions. The guidelines authori3e both orporate )oint ventures "$here the parties &orm and )ointly o$n a separate )oint venture ompany# and ontra tual )oint ventures "$here the parties per&orm their respe tive roles under ontra t, $ithout &orming a )oint venture ompany#. There are also spe i&i statutes appli able to pro)e ts involving a partnership $ith the government &or the e-ploitation, development or utili3ation o& natural resour es. These in lude the 9inin5 (ct (%epu&'ic (ct No. +*42 :/**!;) &or minerals in general, the Oi' Exp'oration and 4eve'op-ent (ct (Presidentia' 4ecree No. 0+ :/*+2;, as a-ended) &or petroleum, rude oil, and natural gas, Presidentia' 4ecree No. /442 (/*+0), as a-ended, &or geothermal resour es, and Executive Order No. 4)2 (/**+), as a-ended &. Executive Order No. 232 (2 ), &or o ean, solar and $ind po$er. The %enewa&'e Ener5. (ct (%epu&'ic (ct No. *!/3 :2 *;) also provides in entives &or rene$able energy pro)e ts. Private parties must also onsider the impli ations o& Executive Order No. 3*0 (2 !), %evenue %e5u'ations No. 3<2 ! and %evenue 9e-orandu- 2ircu'ar No. /)< !, $hi h impose the rather stringent re:uirement that be&ore a party may enter into any ontra t $ith the government, it must &irst submit opies o& its latest in ome and business ta- returns, together $ith a ta- learan e issued by the ,ureau o& 4nternal <evenue, on&irming that su h party has no outstanding &inal assessment noti e or delin:uent taa ounts. These issuan es also re:uire that government ontra ts must ontain a stipulation that a &ailure by the private party to ma%e timely payment o& its ta-es shall entitle the government to $ithhold payment on the ontra t.

The &oregoing are only some o& the la$s and regulations that regularly rop up in the onte-t o& PPPs. There is a bit o& an overlap among several o& these la$s, and sometimes it is not entirely lear $here one la$ ends and another la$ begins.

't the end o& the day, ho$ever, the &undamental issue is ho$ to best balan e the ob)e tive o& en ouraging ooperation bet$een the government and the private se tor in developing in&rastru ture and other pro)e ts $ith the need to ensure good governan e and oversight. /ope&ully the ne$ administration $ill be su ess&ul in its attempts to drum up a tivity in the PPP se tor.