Source:  BusinessWorld

PLANNED CHANGES to the implementation of the 20-year-old Build-Operate-Transfer (BOT) law were presented yesterday by the government in a bid to move the centerpiece public-private partnership (PPP) program forward.

Rather than amend the law itself, the National Economic and Development Authority (NEDA) wants to lay down an administrative basis for the PPP scheme, officials said in a public hearing.

“The proposed amendments are part of a set of reforms to improve the business environment and also to make PPP more attractive and competitive,” NEDA Deputy Director-General Rolando G. Tungpalan said.

Proposed changes include the inclusion of three new PPP “variants”, which will allow private investors to enter into joint ventures, concessions and management contracts with the state, on top of the old BOT, build-lease-transfer, build-own-operate, and similar schemes. This will allow investors to build new projects or take over existing ones.

Regulators will be required to automatically grant franchises to winning project bidders. The government will also ensure that private investors recover the difference between rates approved by regulators and those stipulated under PPP contracts.

“This is to protect the interest of the private sector proponent since toll rate setting for adjustments are usually pre-determined in the contract based on the agreed parametric formula,” NEDA Infrastructure Staff director Kenneth V. Tanate said.

The rules propose a “risk allocation matrix” which will determine the extent of government financial support or contribution to a project.

“We are also addressing the concern of the private sector that the regulators might behave differently … by making an opener that the government will work towards getting those rates as agreed in the contract served,” Mr. Tungpalan said.

There will be no more indirect guarantees such as credit enhancements or legal and security assistance for unsolicited proposals.

The NEDA also wants to streamline the approval process by reducing the number of days needed to evaluate project proposals.

The BOT law, signed in 1991, provided the legal framework for the private sector to enter into agreements with the government to finance, construct, operate and maintain public infrastructure.

“The Philippine BOT law was one of the best and the first in the world among developing economies. However; the Philippines has neglected the BOT authority in the last decade, which is one of the reasons why infrastructure is so far behind,” said John D. Forbes of the American Chamber of Commerce in the Philippines.

Gilberto M. Llanto, senior fellow at the Philippine Institute for Development Studies, noted that three additional variants would provide “more avenues for private sector participation”.

The proposed changes also seek to ensure the rights of both the government and the private sector. A provision on “accession and divestiture” allows a change in ownership after a lock-in period if the new proponent has equal or better qualifications.

“This is a good addition because it clarifies the rules and recognizes the right of when a project proponent can walk away from a contract,” Mr. Llanto said.

The agency also proposed the deletion of the requirement that projects must recover at least 50% of the cost.

“This is to encourage non-traditional PPP projects such as projects for social purposes that may not have cost recovery of at least 50%,” Mr. Tanate said.

Mr. Llanto, who was at yesterdays hearing, said this would give “flexibility” in negotiations between the government and the private sector.

Mr. Tungpalan said the new rules should be finalized within the first semester.

The government has lined up five PPP projects for auction this year: the operation and maintenance contracts for Metro Manila’s Light Rail Transit Line 1 and Metro Rail Transit Line 3, Daang Hari-South Luzon Expressway link, Ninoy Aquino International Airport expressway and the North Luzon-South Luzon expressway link.
published May 12, 2011