THE National Economic and Development Authority (NEDA) has released the revised guidelines for joint venture (JV) agreements between government and private entities, which set the rules for approving proposed adjustments to tolls and fees.
Under the revised guidelines, tolls, fees, rentals, tariffs that a JV may charge for the use of a facility or service will be subject to regulatory approval, guided by a formula agreed upon in the joint venture contract.
“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 regulator or local government unit must also consult the regulator or seek approval, 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.
In case the regulator does not approve the toll or fee adjustment, the agency or local government unit may allow the project proponent to recover the difference between the tolls or fees stipulated in the JV agreement and the amount approved by the regulator through measures allowed in the JV agreement and consistent with the applicable laws.
NEDA Secretary Arsenio M. Balisacan said that the revised guidelines will improve the regulatory environment for investment.
“The amendments have been designed to enhance competition for projects under joint ventures, enhance the performance of private sector participants, and strengthen checks and balances to ensure the technical and financial viability of government projects. These changes aim to address recurring issues that have been observed in past JV projects,” he said in a statement.
The guidelines came into effect on April 25. In March, the NEDA Board approved the latest revision. The rules were last revised in 2013.
The amendments are also aligned with the amended implementing rules and regulations of the Build-Operate-Transfer (BOT) Law and the proposed amendments to the BOT Law, according to NEDA.
Under the revised guidelines, a government entity may enter a JV if it is deemed better value for money for the government than if the project were pursued via other modes of delivery.
“Open and fair competition will be observed during the JV selection process and award,” it added.
The guidelines also note that the formation of the JV between government entity and private entity does not prevent other potential entrants or JV partners from profitably entering into business ventures or markets.
Under the rules, JV agreements allow sharing of profits and losses between the government entity and the private sector partner.
“JV agreements also allow the private sector partner to take over the infrastructure or development project undertaken for a single and specific goal, after the government divests itself of any interest in the JV, provided that such divestment by the government entity is allowed under existing rules and regulations,” it added.
Previously, the rules only stated that “where generally ownership of the asset/business will stay with the government, JV Agreements allow the private sector to take over the undertaking of the projects in its entirety after the government divests itself of any interest in the JV.”
Another new component of the guidelines is not allowing the splitting of government contracts into smaller quantities and amounts.
It also does not allow 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.
The guidelines also note that entering into a JV does not change the nature of the government entity.
“In no instance may the government entity transfer or divest its primary or regular functions, whether directly or indirectly, to the private sector partner through the JV,” it added, noting that the government entity will continue to adhere to its regular statutory, oversight, and regulatory requirements during the life and implementation of the JV.
The amendments also expanded what items do not fall under the coverage of the JV guidelines.
Previously, the guidelines did not cover transactions of government financial institutions in the ordinary course of business as part of their normal and ordinary banking, financial or portfolio management operations; JVs of government entities in the exercise of their primary mandate to dispose of government assets or properties; and JVs of local government units.
Under the rules, the JV agreement should stipulate a term of existence not to exceed a 25 years, renewable for not more than 25 years, with a total maximum period of 50 years.
It also noted that mining JVs must be undertaken through competitive public bidding or relevant procurement modes. — Luisa Maria Jacinta C. Jocson