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New JV rules signal government intent to assert control over tolls


By Luisa Maria Jacinta C. Jocson, Reporter

THE revised guidelines for joint venture (JV) agreements between government and private entities risk dampening investor sentiment but will ensure better regulation, analysts said. 

“This is a positive development reestablishing a clear regulatory regime to govern public-private partnerships (PPPs). It sends a message that public utilities and services remain within the ambit of government’s regulatory powers to protect the public interest,” Terry L. Ridon, a public investment analyst and convenor of think tank InfraWatch PH, said in an e-mail.

“This may reduce the private sector’s appetite to participate in PPPs, but the government is putting its foot down to ensure that the public will not be subjected to exorbitant fees and charges,” he added.

The National Economic and Development Authority (NEDA) recently released the revised guidelines for JV agreements between the government and private entities.

One of the major changes under the revised guidelines is that tolls, fees, rentals, tariffs and charges that a JV may collect for the use or availment of a facility or service will be subject to the approval of the appropriate regulatory body, as provided by the law.

In the previous version of the guidelines, joint venture agreements may designate a formula to guide the adjustment of tolls, fees, rentals, and charges.

“The tolls, fees, rentals, tariffs, and charges may be subject to adjustment during the life of the JV agreement, based on an approved formula/adjustment schedule in the approved JV agreement,” according to the new guidelines.

The agency or local government unit involved must also secure the advice of the regulatory body or a green light from the approving authority, or both, for the formula.

“The monitoring of the consistency of the proposed adjustments of tolls, fees, rentals, tariffs, and charges with the prescribed rate of return, if any, shall be undertaken by the appropriate regulatory body or the government entity,” it added.

Mr. Ridon said that as the government contributes assets and resources into these projects, it is “well within its authority to assert its regulatory powers in these projects.”

“The approval of regulatory fees is in order, because tolls and fees, unlike taxes, are intended to be temporary, meaning once the cost intended to be recovered has been served, then such tolls and fees may be reduced if not totally eliminated, so regulating should include monitoring too,” Antonio A. Ligon, a professor of law and business at De La Salle University, said in a Viber message.

On the other hand, Mr. Ligon said that the revised guidelines will not be a “big issue” for the private sector. 

“What is important is parties agree to comply with existing rules and regulations in line with their objective of accomplishing their venture. It’s timely that parties in the JVs are made conscious and compliant,” he said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that apart from the need for regulatory approvals, investors are also looking for “greater certainty” in JVs for more predictable investment returns. 

“(This serves as a) basis for them to become more decisive in view of other alternative investment options available for them locally and overseas; as well as the need for the government to have more diversified investors and funding for the country’s various infrastructure projects,” he said in a Viber message.

The guidelines came into effect on April 25. They were last revised in 2013.

Another new provision under the revised guidelines is that any increase that exceeds 10% of the project cost would be subject to new approvals. 

“Any addition to the scope of the project that is separable from the existing scope and costs more than 10% of the original project cost shall be treated as a new project and would be subject to the approval and tendering process under the guidelines,” it added.

The guidelines also do not allow the splitting of government contracts or division or breaking up government contracts into smaller quantities and amounts.

It also prohibits dividing contract implementation into artificial phases or sub-contracts to circumvent any provision or procedure under the guidelines including the approval by the NEDA Board Investment Coordination Committee.

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