Disincentive to private sector projects

The National Economic and Development Authority (Neda) issued recently the revised implementing rules and regulations (IRR) of Republic Act No. 6957, which authorizes the construction, operation and maintenance of infrastructure projects by the private sector.

Some business leaders had described some of its provisions as antimarket and may create higher business risks from a regulatory and political standpoint.

The IRR states that the “resolution of disputes between the contracting parties, whether through arbitration or litigation, shall be as mutually agreed upon by the parties to the contract, subject to applicable laws, rules and regulations.

“In default thereof, the venue shall be in the Philippines. Acts and decisions of Regulators shall not be subject to arbitration.”

The “in default thereof …” phrase is susceptible to two interpretations: first, if the parties fail to agree on the venue of the arbitration or litigation, it shall be in the Philippines; and second, regardless of the agreement of the parties, the venue shall (by default) be in the Philippines.

If the first interpretation is what the Neda has in mind, it means it anticipates that the high-caliber lawyers the private companies are expected to engage to assist them in multimillion-peso projects may fail, inadvertently or otherwise, to state the venue in the agreement.

In theory, that is possible. But that would hardly be the case because dispute resolution provisions are “templated,” meaning, there are long-standing internationally accepted provisions on who, how and where such resolution shall be conducted, that lawyers customarily use.

Except for the name of the venue, it is virtually “cut and paste” when it comes to dispute resolution provisions.

If it’s the second interpretation the Neda wants to apply, that may pose serious problems to foreign investors who may want to partner with Philippine companies.

The private contracting parties would, in effect, be barred from invoking the international trade agreements the Philippines has entered into that give contracting parties, especially if they come from different countries, the right to avail of the arbitration process of the International Chamber of Commerce (ICC) or any of its accredited arbitration tribunals.

‘Infallible’ regulator

Foreign companies that may want to invest in the Philippines cannot be faulted if they demand that any disputes that may arise with regard to their investments be resolved elsewhere in the world or through the auspices of the ICC to ensure fair and equitable treatment.

This is not to belittle the integrity of arbitration and litigation procedures in the Philippines, but it is common knowledge that local arbitrators and the courts are not immune from pressure from the government or private interests.

The prohibition on the acts or decisions of regulators (or any national or local entity that exercises a regulatory function over the infrastructure project) from being the subject of arbitration is also contentious.

The ban means that if the regulator does anything that violates or undermines, directly or indirectly, any of the parties’ contractual obligations, which in all probability would be those of the private party, its acts cannot be questioned or put in issue during arbitration.

The IRR, in effect, assumes that regulators can do no wrong, are omniscient or infallible that it would be an act of utmost heresy for their acts or decisions to be disputed, much less discussed, in arbitration.

It further theorizes that regulators are independent-minded and therefore are able to resist any attempts by third parties to influence their actions.

The reality on the ground, however, based on past experiences, is that the regulators get their signals from the government office to which they are attached or which exercises administrative supervision over them, more so if their action could invite adverse public reaction.

Given these circumstances, the business sector has every reason to complain for the IRR is depriving them of their right to avail of an equitable process in the resolution of disputes with the government on their self-funded projects. INQ

For comments, please send your email to [email protected].