Public-Private Partnership (PPP)

FREQUENTLY ASKED QUESTIONS

Q1: How does the Philippines government feel about public-private partnerships in general?

The Public-Private Partnership (PPP) Program is one of the key strategies identified by the Aquino administration to achieve inclusive growth through infrastructure and development projects. PPPs bring in the advantages of private sector initiatives such as the efficient and accelerated provision of public goods and services. These ensure that public needs are addressed effectively. Moreover, it encourages the collaboration of both the public and the private sector in achieving a shared goal of growth and development.

Q2:How receptive is the Philippines government to partnerships with foreign companies?

The Build-Operate Transfer Law which governs the PPP allows participation of both local and foreign companies in PPP projects. Regardless of nationality, anyone is encouraged to invest in the Philippines. With the liberalization of the foreign investment law, 100% foreign equity may be allowed in all areas of investment except those reserved for Filipinos by mandate of the Philippine constitution and existing laws. Nonetheless, foreign companies are welcome to participate in the competitive bidding of projects and in providing transaction advisory for projects under the Project Development and Monitoring Facility.

Q3: Where does the Philippines government think public-private partnerships are headed in the future?

Through collective efforts of the government and the invaluable support of the private sector, we are positive that the PPP program will take off and be one of the main drivers that will fast-track the development of quality infrastructure projects and delivery of quality government services. As the PPP program is anchored on good governance, it will not just address the country’s infrastructure deficiency and accelerate delivery of services but it also supports PNoy’s anti-corruption and straight path advocacy.  Under the PPP program, the projects will be implemented in a transparent manner, under a level playing field thru open competitive bidding and with full accountability.

Q4: Are there reforms which NEDA will implement in the investments programming process? What are the reforms that will make the process faster?

The government is committed to facilitate the approval and implementation process of PPP projects. Solicited proposals will be processed within six (6) months and unsolicited proposals will be processed within nine (9) months. Qualified PPP projects should have the complete documents that are necessary to facilitate the approval process.

Q5: What specific provisions in the BOT Law IRR and Joint Venture Guidelines will be amended?

The BOT Law, the IRR of the BOT Law, the JV Guidelines, as well as the Procurement Law shall be revisited to propose amendments that would ensure competition, efficiency, and speed in the PPP process.

Specifically for the JV Guidelines, proposed amendments are currently being formulated. Among the main proposed amendments are the provisions for ICC/NEDA Board Approval of the JV project, and timeline for the submission of comparative proposals in the case of an unsolicited JV proposal

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Q6: If the PPP Center is under NEDA, would there not be a conflict of interest since NEDA is the ICC secretariat in charge of evaluating projects? What is the relationship between the PPP Center, NEDA and the Investments Coordination Committee?

The PPP Center, while attached to NEDA, has its own independence. As mandated by Executive Order (EO) No. 8 dated 9 September 2010, the BOT Center was renamed as PPP Center of the Philippines and was transferred from the Department of Trade and Industry (DTI) to NEDA as an attached agency, providing technical/advisory assistance to the implementing agencies, local government units (LGUs), monitoring of PPP projects, recommend plans, policies, and implementing guidelines, among others, with DTI however retaining the promotional and marketing functions of the Center.

The independence of NEDA Staffs, which are in charge of project evaluation, will be rigorously maintained.

With respect to the ICC on the other hand, all PPP programs and projects will have to go through existing ICC approval processes, as required by pertinent rules, guidelines, and legislations.

Q7: Is the government open to allowing winning bidders to advance the costs of acquiring ROW? What mechanisms will be put in place for these advances to be paid back?

Yes, the government may include in the concession agreement provisions for the winning bidder to advance ROW costs. Under the concession agreement, the manner of repayment of the advances shall be indicated. The advances can be paid back by ensuring that the IA/LGUs shall have budget allocation for ROW in the next fiscal year.

However, while the winning bidder may advance the costs for ROW acquisition, the ideal scenario is still for the government to acquire ROW before tendering projects.

Q8: How will the government pay for ROW acquisition?

ROW acquisition may be financed through GAA/corporate funds, depending on the sponsoring agency (i.e., whether NG or GOCC) and/or through ODA. A PhP12.5 billion budget for 2011 was distributed to DOTC, DPWH, and DA primarily to help address these concerns.

Q9: What qualifications will bidders be required to have to bid for toll road projects?

In general (not only toll road-specific projects), the following sections of the BOT Law and IRR lay out the minimum requirements for bidders:
Sec. 5.4 (Pre-Qualification Requirements):

• Legal Requirements
• Experience or Track Record (Firm Experience, Key Personnel Experience)
• Financial Capability (Equity and Debt)

Sec. 7.1 (Requirement for Bid Submission):

• Qualification Requirements
• Technical Proposal
• Financial Proposal

Sec. 4.2.h (Parameters and criteria for evaluation of financial component of bids):

• Lowest proposed toll, fee, rental or charge at the start of project preparation, if a pre-agreed parametric tariff adjustment formula is prescribed in the bid document;
• Lowest present value of proposed tolls, fees, rentals and other charges for the period covered by the contract;
• Lowest present value of government subsidy to be provided for the period covered by the contract;
• Highest present value of proposed payments to the Government, such as: concession fees, lease/rental payments, fixed/guaranteed payments, and/or variable payments/percentage shares of revenue for the period covered by the contract; or
• Any other appropriate financial bid parameter as may be approved by the Approving Body.

Q10: You’ve said you will provide protection against regulatory risk. What exactly do you mean?

Regulatory risk arises when there is a statutory regulator involved and there are changes in regulations affecting pricing or other changes imposed on the private proponent, which do not reflect its investment expectations (as reflected in the Financial Model).
For PPP Projects, the concession agreements between the government and the project proponent may indicate a pre-agreed parametric formula or whatever mechanism dealing with changes in prices to maintain predictability of project cashflows during the concession period. The regulatory risk normally arises when government intervenes with price setting that deviates from what is contemplated in the contract. Since this is entirely within the government’s control, it has to take on the difference. Moneys may have to be set aside for this (contingent liability).

Q11: How will the government ensure that projects are viable and bankable even before they are bid?

Given that the government is keen on supporting priority PPP projects, it will closely review the project’s financial cashflow to ensure its sustainability and a reasonable rate of return is flowed back to the project proponent.

The review of a project proposal’s viability and bankability is foremost, a responsibility of the implementing agencies (IAs). IAs should ensure realistic feasibility study-grade and detailed engineering design-grade financial assumptions.

Further, major capital project proposals of IAs are thoroughly evaluated by the NEDA as Secretariat to the ICC especially in terms of demand, technical, financial (including risk), economic and institutional viability.

Prior to FS preparation and bidding, it is imperative that IAs/LGUs conduct proper business case/pre-FS including land packaging of PPPs.

To create greater certainty for undertaking business case or pre-feasibility/feasibility studies, the government constituted a Project Development and Monitoring Facility (PDMF), which the PPP Center is managing. The PDMF is a revolving fund available for the procurement of consulting services, which will conduct the pre-investment activities for potential PPP Projects.

Q12: How much money is the government prepared to spend on project development per project? Per year? Where will this money come from?

The revitalized PPP Center is lodged with a Project Development and Monitoring Facility, with a working fund of PhP300 Million to be used for the conduct of project preparatory studies (e.g., business case, F/S) for selected (possible) PPP programs and projects. Aside from this, several external donor agencies are already extending technical assistance in PPP project development process.

Q13: What will the role of external advisors be in the project development process?

External advisors may be hired to assist in the structuring of PPP projects, and in giving transaction advice throughout the PPP process.
There is no prohibition against outsourcing of project development services to external advisors or consultants. Hiring their services is demand-based or as deemed necessary by the IAs/LGUs. However, one of the usual problems with external advisors is weak transition and transfer of capabilities to the IA/LGU personnel themselves after the term of contract by the consultants.
External advisors shall assist IAs/LGUs in conducting business case or pre-FS of PPPs, FS preparation, contract preparation and detailed engineering. Business case shall include initial study of project’s potential financial and economic viability. External advisors shall further assist until a project is bid out or awarded for implementation.

Q14: Will the government hire external advisors during the bidding process? What will their role be?

It is possible for IAs to hire external advisors during the bidding process as may be deemed necessary.
Given the complexity of PPPs, external advisors need to be hired during the bidding process specifically for preparation of bid docs and re-hired (hiring may not be all throughout the process) upon opening of bids to assist IAs/LGUs evaluate the bid submissions. This is to ensure that the bidding rules are strictly followed by all.

Q15: What criteria will the government use to determine whether to bid projects out on a PPP basis?

These basic principles are considered:

• excludability/non-excludability of project benefits (generally and theoretically, the public sector should provide goods which are non-excludable such as national defense because it is difficult to charge end-users; the private sector may provide excludable goods such as private goods and club goods because it is reasonably priced and possible to prevent other potential consumers (e.g. those who have not paid for the good or service) from actually consuming the good or service;
• competition and price contestability (if prices to end users are cheaper when provided by the private sector (PS), then PS may finance the project); and
• Cost recovery components/bankability of the project – if fees, charges and tolls may be imposed, it is a general indication that private sector may provide the service.

On the above efficiency gains, PPP may be pursued.

Q16: Based on what criteria will the government prioritize the selection of certain projects over others?

The selection criteria includes consistency with the sector’s development plan/masterplan, prospects for bankability/viability, readiness of the project in terms of completion of studies, and level of government support required for the project.

The projects identified for bidding are those that the IAs considered as highly implementable. This means that the project feasibility studies have been recently updated, the IA’s identified these as their priority projects, there is not much issue on government funding, and the projects are initially determined as financially viable for private financing.

Q17: What is the process going to be for projects to be bid out?

Rules 3 to 8 of the BOT Law IRR details the bidding process from preparation to evaluation of bid documents. Currently, the government is reviewing the applicable legal instruments to streamline the approval process.

The BOT Law and its IRR, the JV Guidelines, as well as the Procurement Law shall be revisited to propose amendments that would ensure competition, efficiency, and speed in the PPP process.

For hiring of consultants/external advisors (for the preparation of pre-FS, FS, bidding docs, etc), the governing law is the GPRA or Republic Act No. 9184.

Q19: How long will the process take?

Processes that are within the government control shall be undertaken within six months reckoning from the project approval upto the notice of award. This presupposes that complete and qualified documentation shall be submitted to the appropriate approving body. The great responsibility therefore is lodged to the IAs.

However, the revitalized PPP Center shall actively assist the IAs with the endview of facilitating the PPP process up to project implementation.

Upon approval of a project proposal by approving body, if an IA/LGU shall hire external consultants for preparation of bid documents, the timeline for hiring shall range from 34 to 170 calendar days based on GPRA. This timeline excludes the actual time the hired consultants shall render its service (prepare the bid docs).

Under the BOT Law/IRR, the processing ranges from 260 to 290 days (approximate). This covers from approval of the project proposal up to issuance of notice to commence implementation. Please take note that this approximation excludes the 34-170 days for hiring of consultants (of GPRA).

Q20: There are still projects approved several years ago which have yet to start. What is causing these delays, and what is the government doing about these?

One major factor is failure of the private sector to have financial closure, which is typically a condition precedent to the effectivity of the concession agreement. This could be within the control of the private sector and the government could assist on a best effort basis in facilitating the financial closure.
Other factors include ROW issues and resettlement issues, which could involve judicial intervention.

Q21: The government is committed to approving projects within 6 months. Is this feasible, given the complexity of some of the projects and the time required to prepare decent bids?

Yes, this is possible, if an IA/LGU has already done its due diligence, completed all requirements for project evaluation/approval, and prepared all the bid documents prior to approval of a project. Given these, a project may be awarded to the winning proponent/PS within 6 months.

Q22: Please clarify what the government’s policy will be toward unsolicited proposals. Under what conditions will the government accept unsolicited proposals?

While the government is promoting the solicited track, unsolicited proposals may still be accepted under a stringent application of the requirements set in the BOT Law and its IRR.

Under Sec. 10.1 (Requisites for Unsolicited Proposals), an IA/LGU may accept unsolicited proposals provided: (a) the project involves a new concept or technology and/or is not a part of the List of Priority Projects, (b) no direct Government Guarantee, subsidy or equity is required, and (c) the project should be subject to Swiss Challenge.

Investors are not discouraged from giving the government their ideas. The government is willing to listen to them, study their proposals, and possibly develop them to determine how they would fit into government priorities as outlined in the MTPDP and the MTPIP.

Q24: The MRT-7 was an unsolicited proposal, and has yet to start implementation. Will the government proceed with this project, and why?

The MRT7 Concession Agreement has already been signed by the private proponent and DOTC (as sponsoring agency), but is yet to become effective pending fulfillment of conditions precedent to contract effectivity such as financial closure of the private entity with its lenders.

Q25: The BOT law says that unsolicited proposals are not supposed to enjoy any government financial support. Yet the law is vague on what can and cannot be considered financial support. What is the government’s policy on this?

Under Section 10.4 of the BOT Law IRR, the general rule is that the Government may grant investment incentives and government undertakings to unsolicited proposals as enumerated under Rule 13 of the IRR. Direct government guarantees, direct government subsidy or government equity are, however, clearly not allowed.

Sale, lease or grant of usufruct shall not be considered as direct subsidy or equity if made with consideration.  This, however, shall be also revisited.

Q26: Will the government consider unsolicited proposals which require guaranteed payments from the government in some form? (example: MRT-7)

Unsolicited proposals shall be processed according to the requirements of the BOT Law and its IRR.

Q27: Under the current law, any unsolicited proposal must be put to a Swiss challenge, but this is allowed only for a maximum of 60 days. Do you plan to make this longer? Can it legally be done?

Unless the BOT Law is amended, the period to prepare comparative proposals will have to be up to 60 working days. This too shall be revisited.
Q28: Will JVs be explicitly allowed under the BOT Law IRR?
Currently, the government treats JV as a contractual arrangement separate and distinct from the modes allowed under the BOT Law. If the current JV Guidelines will be the basis, the main distinction between the two is the role of the government. Under JV’s early government divestment is encouraged unlike in BOT where partnership between government and the private proponent lasts until the expiration of the concession period. After the concession period, facility may even be transferred to the government.
The BOT Law, the IRR of the BOT Law, and the JV Guidelines are currently being reviewed to propose amendments.

Q29: Local governments haven’t always been cooperative with the national government in the implementation of infrastructure projects. What will the government do to ensure that local governments don’t hamper the implementation of infrastructure projects?

This requires close coordination at different levels of the government, and ensure that stakeholder participation is considered in the consultation process.
The PPP Center shall assist along these lines and immediately bring the issues to the attention of key policy decision makers.

Q30: Many infrastructure projects involve more than one local government unit. What can the government do to ensure that there is coordination and consensus among different LGUs and the national government?

This requires close coordination at different levels of the government, and ensure that stakeholder participation is considered in the consultation process.
The PPP Center shall assist along these lines and immediately bring the issues to the attention of key policy decision makers.

Q31: Local government support is critical to the acquisition of ROW and resettlement. What will the government do to ensure that the needed local government support is actually given?

A mechanism that will ensure better integration and coordination with the LGUs has to be considered to foster local government support to national projects. The PPP Center shall review LGU-related concerns to come up with a sound policy recommendation that will address these concerns.

source: http://ppp.gov.ph