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Concerns remain over draft rules for BOT Law

Construction workers are seen at a railway project in Bulacan, June 14, 2021. PHILIPPINE STAR/ MICHAEL VARCAS

By Diego Gabriel C. Robles

WHILE STAKEHOLDERS generally welcomed the draft revisions to the implementing rules and regulations (IRR) of the Build-Operate-Transfer (BOT) Law, there is still concern over some of its provisions.

“We’ve heard it loud and clear in the last public consultation. We’re doing away with the prohibition of arbitration for regulatory acts and decisions,” Public-Private Partnership Center Deputy Executive Director Jeffrey I. Manalo said during a public consultation on the draft revisions on Tuesday.

Mr. Manalo was referring to the removal of a controversial provision in the IRR which stated that “acts and decisions of regulators shall not be subject to arbitration.” This was previously criticized by the private sector for absolving the government of liability.

However, some stakeholders raised concern that the government might shoulder more risk than is necessary under the draft rules, particularly with the inclusion of “availability payments” and “viability gap funding” (VGF), as well as the legalistic wording of a sentence in the material adverse government action (MAGA) clause.

Under the draft IRR, availability payments refer to “predetermined payments by the agency/LGU (local government unit) to the project proponent in exchange of delivering an asset or service in accordance with the contract.”

“Availability payments shall not be construed as direct government subsidy,” the draft stated.

On the other hand, the VGF is described as a financial subsidy that the government provides to a revenue-based public-private partnership (PPP) project to make fees more affordable, as well as improve its commercial attractiveness, but excluding costs of right-of-way, resettlement, and real estate taxes.

Speaking during the public consultation, infrastructure expert and Foundation for Economic Freedom (FEF) member Rene Santiago said that availability payments not being considered a direct government subsidy “opens the floodway for a massive enlargement of the contingent liabilities that the Department of Finance (DoF) wanted to guard in [the current version].”

“Payouts from governments — in a build-and-transfer, build-lease-and-transfer, and similar modalities including VGF — are firm, [and] not contingent, liabilities,” Mr. Santiago added in a separate statement.

“In project finance, a performance undertaking by the DoF to guarantee the availability payments of line agencies is tantamount to a guarantee. While understandable and acceptable for solicited projects, such a provision is a can-of-worms for unsolicited projects.”

In the same event, DoF Undersecretary Cathy L. Fong explained that availability payments are not considered a government subsidy “because it is only paid when the service is made available.”

MAGA CLAUSEThe draft rules redefined MAGA as “any act of the government which the project proponent had no knowledge of, or could not reasonably be expected to have had knowledge of, prior to the effectivity of the contract; and that occurs after the effectivity of the contract, other than an act which is authorized or permitted under the PPP contract, which a.) specifically discriminates against the project proponent; and b.) has a material adverse effect on the ability of the project proponent to comply with any of its obligations under the approved contract.”

The current IRR defines MAGA as any act of the “Executive branch.”

Metro Pacific Investments Corp. (MPIC) Assistant Vice-President – Legal Francis Alvin V. Asilo requested the removal of the clause “specifically discriminates against the project proponent” as it treats an illegal act of the government as MAGA when it should just “contemplate on legal acts.”

“In any case, by providing the qualification that other an act which is authorized, that gives the government leeway to specifically include acts which are included in the definition of MAGA,” said Mr. Asilo. “It’s a very good revision because it allows the government to tailor fit specific acts on a per contract basis [and] on a per project basis.”

With regards to the definition of “private sector infrastructure or development projects,” Mr. Santiago pointed out that this may face a legal challenge since the listed infrastructure in the provision exceeded what is stated in the BOT Law.

In particular, the draft IRR added intermodal transport stations and terminals, in-land cargo terminals, park and ride facilities, automated fare collection systems, traffic management systems, traffic monitoring systems, traffic enforcement systems, congestion management systems, and parks.

“Not every project can be put on the PPP tract, and on this one it forgot that characteristic,” Mr. Santiago said. “Generally, a PPP should bring in investment from a private sector, and preferably have a revenue capture at the point of usage.”

Meanwhile, Mr. Asilo also raised a concern regarding section 12.3 or “grant of franchise” as the draft IRR stipulated that, in case there is an application for renewal of the franchise or concession, it shall be considered an extension of the pre-determined concession period.

“This is an opportunity for a forever contract because we are tying franchise and concessions together. Franchise and concession are two different things,” Mr. Asilo said.

“If we’re just concerned about consistency with the Public Service Act, then we can just stick to the franchise because an automatic extension of the concession period would mean that they can actually bypass the framework that we have in the BOT Law IRR,” he added.

Stakeholders and interested parties also raised the concern of a redundancy in submitting both a draft contract and a set of Parameters, Terms, and Conditions (PTCs), which are two very similar documents.

“I think what we can agree on here are the principles: anything that would lower transaction costs, make the process faster, and ensure that there is no duplication in terms of requirements being requested… it’s a very clear guidance on the part of the committee as we finalize this,” said Mr. Manalo.

The Marcos administration is looking to attract more investments in infrastructure through PPPs amid the fiscal challenges it is facing.

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