Marcos OKs Neda review of ‘antimarket’ BOT Law rules

The country’s chief economist expects more private sector funding for public infrastructure projects materializing soon, as President Marcos approved the plan to revisit the supposedly “antimarket” provisions of the guidelines of the Amended Build-Operation-Transfer (BOT) Law.

“We have already received the President’s directive to review the implementing rules and regulations or IRR of the BOT Law. We are presently awaiting the convening of the committee to review the rules,” Socioeconomic Planning Secretary Arsenio Balisacan told the 2022 economic forum organized by the Economic Journalists’ Association of the Philippines (EJAP) and San Miguel Corp. (SMC).

“We have received several private sector stakeholders’ comments expressing their concerns over specific provisions of the IRR. Of course, a careful review of the rules requires that we perform a balancing act: encouraging private investment to promote job creation, technological innovation, and product competition while protecting the public interest,” said Balisacan, who heads the state planning agency National Economic and Development Authority (Neda).

As the Inquirer earlier reported, Balisacan sought the President’s go-ahead to reconvene the BOT IRR committee, which last April came out with what the current Neda chief had described as “even more problematic” guidelines for public-private partnership (PPP) projects under Republic Act (RA) No. 7718.

“In light of the fiscal bind we find ourselves in, PPP has emerged as an essential mode of financing the infrastructure that the economy needs. PPPs are expected to upgrade the country’s infrastructure, boost the competitiveness of domestic industries, and further encourage investments in various sectors that will lower prices and improve the quality of goods and services,” Balisacan told EJAP members.

“In particular, we expect the infrastructure push to support present and future growth drivers such as manufacturing, tourism, IT-BPOs, and creative sectors. We will utilize PPPs to upgrade our land, energy, logistics, transportation, telecommunications, and water infrastructure,” Balisacan said.

In a subsequent interview, Balisacan said they were still awaiting President Marcos’ official order to review the IRR, likely in the form of a published executive order (EO).

The Neda chief said President Marcos was aware of the urgency to review the Amended BOT Law’s revised guidelines ” because we want to get the private sector already thinking about investments, and obviously they are waiting for” the improved rules.

While awaiting the official order from the President, Balisacan said Neda and the PPP Center were already consulting with the private sector on the issues they raised about the IRR.

Balisacan said business groups have expressed concerns on the IRR’s provisions on risk-sharing, material adverse government action (Maga), as well as arbitration. “There are many other things, but some of the revisions, I believe, are useful, are very good and they should be kept,” he said, but declined to specify them yet.

“We have to look at the economics, all the angles to make sure that in the end it is socially beneficial, it is economically beneficial, it’s financially viable…we don’t want projects that are quite risky for the government.”

To recall, the amended BOT law’s IRR zeroed in on minimizing contingent liabilities, which it defined as “liabilities that may be incurred from events specified in a contract, the occurrence, timing, or amount of which are uncertain.”

Contingent liabilities included Maga clauses, force majeure and failure to deliver contractual obligations.

The IRR defined Maga as “any act of the executive branch, which the project proponent had no knowledge of, or could not reasonably be expected to have had knowledge of, prior to the effectivity of the contract and that occurs after the effectivity of the contract, that specifically discriminates against the project proponent and has a material adverse effect on the ability of the project proponent to comply with any of its obligations under the contract.”

“For purposes of the contract, the provisions on Maga shall also provide for the rules on materiality or amount threshold, nature and compensation, cap on monetary compensation, conditions for termination and termination payment due to Maga,” the IRR stated.

Business groups like the Makati Business Club (MBC) have expressed concern that the definition of Maga in the revised IRR “creates higher risks for businesses from a regulatory and political standpoint. These , they said, would  discourage private sector participation in infrastructure projects “as extensive exclusions practically absolve the government of all blame and responsibility for any changes and foist all project risks, such as increased costs and difficulties on the private-sector partner.”

The IRR also protected the government as well as PPP projects’ implementing agencies by providing that  “acts and decisions of regulators shall not be subject to arbitration.”

The MBC and the Foundation for Economic Freedom (FEF)  were opposing the scrapping arbitration as a means to settle disputes arising from PPP projects, with the FEF pointing out that arbitration was an internationally accepted standard element in long-term contracts.

The FEF and the MBC also opposed prohibiting “onerous and one-sided” provisions in PPP contracts.

The previous administration had shunned PPPs, especially unsolicited projects, as it did not want disadvantageous provisions like government guarantees, subsidies, and Maga clauses.

Former Neda chief Karl Kendrick Chua had said the Duterte administration updated the Amended BOT Law’s IRR to protect Filipinos from contingent liabilities arising from PPP projects’ “high” return on investment (ROI), which private firms charge and the government shoulders, and ultimately paid for by consumers who use these infrastructure.

The Cabinet-level Development Budget Coordination Committee (DBCC) had estimated that the contingent liabilities stock arising from  PPP projects had risen to P456.2 billion last year from the estimated P311.8 billion in 2020.