PPP rule changes eyed to cap rising contingent liabilities

The economic team remains on the lookout for rising contingent liabilities to be borne by the government from public-private partnership projects (PPP), estimated to reach P456.2 billion this year.

In a text message, Socioeconomic Planning Secretary Karl Kendrick Chua said moves to amend the implementing rules and regulations (IRR) of the Build-Operate-Transfer (BOT) Law will help minimize contingent liabilities arising from PPPs.

Contingent liabilities included guarantees of revenue and returns on investment which the government will shoulder, as well as fees and charges which consumers will pay.

The Development Budget Coordination Committee’s (DBCC) Fiscal Risks Statement 2022 report said this “stock”—the aggregate amount of contingent liabilities—would further increase from the estimated P311.8 billion in 2020.

It was on top of the P60.4-billion “flow” of contingent liabilities or the amount which “may materialize within a specific interval of time taking into consideration a project’s risk factors.”

“The increases in valuation are attributable mainly to newly awarded projects. Sizeable contributions to the increase are from big-ticket projects such as the Metro Rail Transit Line 7, Light Rail Transit 1 Extension and New Manila International Airport which are projects under construction,” the DBCC said.

The DBCC said these contingent liabilities arose from a total of 18 national PPP contracts which were signed between the years 2008 and 2020.

Chua, who heads the state planning agency National Economic and Development Authority (Neda), said the ongoing tweaking of the BOT Law’s guidelines was aimed at ensuring that all PPP proponents were fully qualified.

Clearer parameters

The forthcoming amended rules would also put in place clearer parameters as well as terms and conditions for PPP projects, Chua added.

The Duterte administration had previously shunned unsolicited PPPs as it did not want disadvantageous provisions such as government guarantees, subsidies and material adverse government action clauses.

But the pipeline of flagship infrastructure projects in the ambitious “Build, Build, Build” program included 20 unsolicited PPP projects worth P1.5 trillion, which will be financed by the private sector.

Chua had been designated by President Duterte to chair the interagency BOT IRR committee, which was pursuing amendments “to facilitate the development of well-structured PPPs that deliver high quality services to the people, protect the public from excessive payments and undue guarantees arising from these projects, and promote the interests of Filipinos, who ultimately pay for the costs and returns of private proponents of PPP projects,” Neda said in a statement in November.

Consultations with PPP stakeholders for the BOT Law IRR amendments started this month. The committee led by Chua was eyeing to come out with the amended rules within the first quarter of next year.

Balance interests

“PPPs have the potential to help stimulate the economy, bring back jobs, and address our people’s urgent, present, and future needs. However, it is the government’s job, on behalf of the Filipino people, to ensure that private sector interests are aligned to the public’s interests, with the overall goal of providing the best services to the people,” Chua had said.

“PPPs with unwarranted guarantees, contingent liabilities, and other onerous contract provisions take up the government’s already-limited fiscal space and hamper the country’s development. These use up resources that could have been used to build other infrastructure or provide social services for the people,” according to Chua.

Finance Secretary Carlos Dominguez III, who chaired the Investment Coordination Committee in-charge of green-lighting big-ticket projects, had wanted “transparent and expeditious processes in evaluating PPPs to arrive at their real cost to the government, consumers, and taxpayers.”

Dominguez had also sought “promoting competition, avoiding conflicts of interest situations, and ensuring that parties of PPP contracts are capable of delivering on their commitments and running their facilities efficiently for the benefit of the public.”