Questions fro Dentons Law Firm, Beijing on PPP in the Philippines

This columnist had the privileged of speaking about the Future of public-private partnerships (PPPs) in the Philippines before lawyers and clients of Dentons in Beijing on September 22. Dentons, a global law firm that has around 600 lawyers in its Beijing office, recently bagged the International Firm of the Year at the Lawyer Awards 2017.

Aware of the opportunities in the Philippines and the favorable PPP climate in the country, China state-owned and private corporations, and law firms, such as Dentons, would want to explore these. But like in any other investment venture, knowing the legal environment is a must. The seminar on PPP had this in mind.

Here are the questions the participants raised, and these could very well be the same ones foreign, even local, investors may ask:

Are there opportunities? Of course, there are. Under the “Build Build Build” program of the current administration, PPPs may be pursued for hard and soft projects —expressways, bridges, airports, reclamation, rail and water supply; and health care, socialized housing and rehabilitation centers. These projects may even be combined into one contract under the bundling approach.

Who can we partner with? Private-sector proponents (PSPs), both here and abroad, for as long as they are eligible, may partner with government agencies. PPPs may be entered into by national government agencies, government corporations or instrumentalities and local government units (LGUs).

Do we have a PPP law? To date, the Philippines has no single PPP law. We have PPP laws and regulations. The seminar participants requested copies of the build-operate-transfer (BOT) law and the template PPP ordinance. They recognized that our PPP policy is advanced and must be differentiated from other PPP policies elsewhere.

Can we own the land and operate the facility? The Philippine Constitution and statutes prescribe nationality requirements, i.e., limitations to foreign involvement. Foreign corporations cannot own land. Depending on the industry and type of public utility, there are limitations (zero percent, 30 percent, 40 percent, etc.) on the participation of foreign companies in the operations of PPP projects. There is no such limitation on supply of equipment and financing by foreign banking institutions.

Will policies change when President Duterte is no longer the Chief Executive? Successor risk is real. Changes in administration, either at the national, corporate or LGU levels, could or has led to cancellation of PPP contracts, and changes in interpretation and policies.

How can this risk be mitigated? Contract wise, the incorporation of clauses on Maga (Material Adverse Government Action), termination and arbitration may give comfort to PSPs. There is really a need to future-proof PPP projects that are envisioned to serve the people.

What else can the government promise? The government can make contractual commitments, and cash and noncash contributions. Revenue guarantees, direct government guarantees, subsidies and equities, legal and security assistance, performance undertakings and credit enhancements are allowed under the BOT law. In joint ventures, the government can allow its property to be used, issue a concession and provide tax holidays, among other noncash support.

The enthusiasm is there. Sustaining this, not merely on paper and well-crafted policies, is the key.