In 1990, Republic Act (RA) No. 6957 or the Build-Operate-and-Transfer (BOT) Law institutionalized the private sector’s participation in financing and developing government infrastructure projects. For the last decade, the BOT Law and its Implementing Rules and Regulations (IRR), the National Economic and Development Authority (NEDA) Joint Venture (JV) Guidelines, PPP Codes of Local Government Units (LGUs), and issuances from the PPP Governing Board made up the overall regulatory framework for PPP. The constantly evolving infrastructure sector called for amendments to the BOT IRR in 2006 and in 2012, and then twice in 2022. On April 25, the 2023 NEDA JV Guidelines were released a decade after its previous version took effect. On the local level, LGUs are championing their own PPP/JV Codes.
This momentum pushed our legislators to consolidate all the rules into one law. And so on Dec. 5, the Public-Private Partnership Code of the Philippines (RA 11966) was signed into law and took effect yesterday, Dec. 20.
PPP, while inferred from the modalities in the BOT Law, was never specifically defined. Finally, Section 3 (cc) of the PPP Code defined PPP as any public infrastructure or development project and service implemented under the law. This must be read in conjunction with Section 4 which expounds on the covered projects of the law, namely: “contractual arrangements between an Implementing Agency and a Private Partner to finance, design, construct, operate, and maintain, or any combination or variation thereof, infrastructure or development projects and services which are typically provided by the public sector, where each party shares in the associated risks.”
Aside from the straightforward definition, the law enumerates arrangements which qualify as PPP: (a) JVs; (b) toll operation agreements; (c) lease agreements involving participation of a private partner in an existing land or facility owned by the government; (d) lease agreements as components of a PPP project; and (e) all other arrangements akin to PPP.
Clearly, it is a one-stop shop for all your PPP needs.
THRESHOLDS AND APPROVERS
The law updated the approval thresholds for national and local PPP projects.
For projects costing at least P15 billion, the NEDA Board is now the designated approver, on the recommendation of the NEDA Board-Investment Coordination Committee (NEDA ICC). For projects below P15 billion, the head of the Implementing Agency or the NEDA Board-ICC may approve depending on the circumstances.
Meanwhile, LGUs are given authority to approve local PPP projects within their jurisdiction, as such projects only require approval of the legislative bodies of LGUs to proceed to tender, unless such projects require financial undertakings by the National Government or they physically overlap with another approved government project. Thus, this eliminates the need for LGUs to structure projects as JVs just to avoid the tedious approval process of the NEDA ICC.
BEST MANDATES, ONE LAW
Years of experience paved the way for best practices to ripen into law. The PPP Code takes the best provisions from the BOT Law, NEDA JV Guidelines, and further assimilates them, namely, (a) risk management fund (RMF); (b) alternative dispute resolution; (c) contract management and risk mitigation; (d) procurement of independent consultants; and (d) public disclosure of tender documents and PPP contracts.
Zeroing in on RMF, the law distinguishes between the National PPP RMF and the Local PPP RMF. While both serve as payment for contingent liabilities arising from PPPs in accordance with its terms, the National PPP RMF is to be managed by the PPPC while the Local PPP RMF is subject to the guidelines of the PPP Governing Board of the LGU.
The PPP Center (PPPC), which is the government agency tasked with facilitating the growth of PPPs, can now draft policy opinions and issue non-policy opinions on PPP matters. This is especially beneficial as key players often seek clarification on PPPs from the agency.
The law also adopted new concepts such as the claw-back provision on excessive returns, streamlined processes for unsolicited proposals, green financing, and land value capture strategies, among others.
EFFECT ON THE STATUS QUO
What happens now to the existing contracts or upcoming PPP projects?
• Existing contracts will be governed by their respective agreements. The PPP law applies in a suppletorily manner only if no rights are infringed upon.
• PPP projects with notices of award but with no executed contracts on or before Dec. 20 will be governed by the new law only if no rights are infringed upon.
• Solicited PPP Projects which have commenced bidding or Unsolicited Proposals which have commenced with the Swiss Challenge stage (also known as the comparative bidding process) will be governed by the Act only if no rights are infringed upon; otherwise, the rules in effect at the commencement apply.
• Proposed PPP projects which are either pending approval or approved but have not undergone bidding or Swiss challenge will be governed by the Act except for the project approval provisions.
Several provisions of the law are not self-executing and will require an IRR before they become implementable. Under the law, the IRR will be promulgated within 90 calendar days from the effectivity of the Code. The IRR will further expedite procedures for PPP project approval, processing of unsolicited proposals, bid evaluations, protests, supervision and monitoring of PPP projects, and setting the reasonable rate of return. The IRR will also provide a list of government undertakings that may be granted to a PPP project.
With the administration’s focus on building more (and better) infrastructure, the PPP Code must embody practices that fulfill the demands of this fast-moving sector. Indeed, the new law will balance all interests with the welfare of the people (the ultimate end-users) as a compass.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Joelle Mae Garcia is a senior associate at the Tax Services group of Isla Lipana & Co., the Philippine member firm of the PwC network.