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Infrastructure projects highlighted

Philbert E Varona

One of the items highlighted by President Benigno S Aquino III in his first state-of-the-nation address was his administration's focus on public- private partnerships (PPPs) as a possible means of addressing the country's needs.

There is no Philippine law or regulation that pigeonholes PPPs into a strict legal definition. 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.

Some of the Philippine laws and regulations that are relevant in a PPP context are the following.

  • Executive Order No 8 (2010) – In this executive order, the administration declares that there is a need to fast-track the implementation of PPP programs and projects as a cornerstone strategy of the national development plan to accelerate the infrastructure development of the country and sustain economic growth. To help achieve this, the former Build-Operate-Transfer Center is renamed the PPP Center and is transferred from the Department of Trade and Industry to the National Economic and Development Authority (NEDA). Although it does not appear that the PPP Center is not vested with any new, real powers, it is supposed to coordinate and monitor all PPP programs and projects. Perhaps more importantly, the PPP Center is directed to complete the processing of all qualified solicited PPP proposals within a period of six months.
  • 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 however check if the charter of such entity authorises the contract. If the exceptions to public bidding are believed to apply, then generally, prior clearance must be obtained from the NEDA and the Government Procurement Policy Board.
  • The BOT Law (Republic Act No 6957, as amended): 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 recognised by the BOT Law and its regulations.
  • Local Government Code (Republic Act No. 7160, as amended): If the BOT project is being entered into with a local government unit as the counterparty, the requirements of the 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.
  • NEDA Guidelines and Procedures for Entering into Joint Venture Agreements (2008): These guidelines were issued to encourage the pooling of resources between the government and the private sector. 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 authorise both corporate joint ventures and contractual joint ventures.
  • There are also specific statutes applicable to projects involving a partnership with the government for the exploitation, development or utilisation of natural resources. These include the Mining Act (Republic Act No 7942 [1995]) for minerals in general and the Oil Exploration and Development Act (Presidential Decree No 87 [1972], as amended) for petroleum, crude oil, and natural gas. Others include the Presidential Decree No 1442 (1978), as amended, for geothermal resources, and Executive Order No 462 (1997), as amended, 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 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. At the end of the day, however, the fundamental issue is how to 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.

Philbert E Varona

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