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Highlights of the Public-Private Partnership Code of the Philippines

The groundbreaking Republic Act No. 11966, also known as the Public-Private Partnership (PPP) Code of the Philippines (the “PPP Code”), was signed into law on December 5, 2023 and took effect on December 23, 2023. It codifies all prior statutes related to PPP under a comprehensive law and clarifies the ambiguities in the previous legislations. The overarching goal of the PPP Code is to create an environment for the private sector to mobilize resources for financing, designing, constructing, operating and maintaining infrastructure or development projects and services.

The PPP Code introduces several key features, including a broader scope of covered agreements, a standardized threshold for PPP projects, recognition of the autonomy of local government units (LGUs) in approving PPP projects, a streamlined framework for solicited and unsolicited proposals, delineation of investment recovery schemes, institutionalization of the PPP Governing Board, strengthening of the PPP Center, establishment of the Project Development and Monitoring Facility (PDMF), and the creation of a Risk Management Fund (RMF).  The PPP Code is further guided by a policy aiming to finance infrastructure and development projects through all available means, leading to the introduction of alternative financial instruments.

Coverage                                                                                             

The PPP Code encompasses all forms of contractual arrangements between an Implementing Agency[1] and a Private Partner[2]. The scope of the law is expanded to include joint ventures, toll operation agreements or supplemental toll operation agreements, lease agreements for the rehabilitation, operation and/or maintenance by a Private Partner of an existing government-owned land or facility for over a year, lease agreements that are components of a PPP Project, and any contractual arrangements possessing characteristics or elements of a PPP.

However, the law expressly excludes certain infrastructure projects like those under Republic Act No. 9184 or the “Government Procurement Reform Act,” management contracts, service contracts, divestments or dispositions, corporatization, incorporation of subsidiaries with private sector equity, onerous and gratuitous donations, and joint venture agreements involving purely commercial arrangements without public infrastructure or development services.

Approval of PPP Projects and Recognition of Local Autonomy

The threshold for approving both national and local PPP projects has been standardized under the PPP Code.

National Projects costing over PhP 15 billion require approval from the National Economic and Development Authority (NEDA), upon a favorable recommendation from the NEDA Board-Investment Coordination Committee (NEDA-ICC). Projects below PhP 15 billion will be approved by the head of the Implementing Agency or its governing board, whichever applies. The NEDA-ICC may still approve projects below PhP 15 billion in specific instances provided by law.

Local governments are also empowered to approve PPP projects to further enable them to become self-reliant communities. Local PPP projects shall be approved by their respective local Sanggunians in the case of Local Government Units (“LGUs’), or by the boards in case of local universities and colleges. Prior to approval, local PPP projects implemented by LGUs shall be confirmed by the respective local development councils.

To ensure alignment with national development plans, local PPP projects that affect national or sectoral development plans and national projects shall secure the endorsement of the National Government through the respective regional development councils.

Streamlined Process for Solicited and Unsolicited Proposals

Solicited proposals refer to submissions by the Private Proponent[3]  in response to a public bidding process initiated by the Implementing Agency. Unsolicited proposals, in contrast, refer to project proposals made by a Private Proponent to undertake a PPP project.

The process for solicited proposals, as outlined in the Implementing Rules and Regulations of the Build-Operate-Transfer Law, remains unchanged. However, for unsolicited proposals, they must first be endorsed to the PPP Center for determination of their completeness before being forwarded to the appropriate government implementing agency. The decision of the Implementing Agency is final and non-appealable. If the Implementing Agency fails to act within a period of 90 calendar days, the project is deemed approved. Subsequently, the unsolicited proposal will undergo a comparative challenge using a right-to-match mechanism, wherein the original proponent may match the proposal submitted by a challenger.

Delineation of Investment Recovery Mechanisms

            In undertaking PPP Projects, the Private Partner is allowed to recover its investments and earn reasonable profits through schemes provided by law, such as charging and collecting reasonable tolls and fees or receiving predetermined payments by the Implementing Agency. Other schemes include commercial development rights or the grant of a percentage in reclaimed lands, subject to constitutional requirements and fair valuation. This approach aims to further encourage private investors to engage in PPP projects.

Institutions for PPPs

The PPP Code institutionalizes the PPP Governing Board, PPP Center, PDMF and creates the RMF.

The PPP Governing Board serves as the overall policy-making body for all PPP-related matters. The Board is composed of the Secretary of NEDA as the Chairperson, the Secretary of the Department of Finance as Vice-Chairperson, and the Secretaries of the Department of Budget and Management, Department of Justice, Department of Trade and Industry, Department of the Interior and Local Government, and the Department of Environment and Natural Resources. It also includes the Chairperson of the Commission on Higher Education, the Executive Secretary, the Executive Director of the PPP Center, and one private sector representative from the infrastructure sector to be appointed by the PPP Governing Board.      

Under the PPP Governing Board is the PPP Center, which is also institutionalized with powers and functions to ensure the efficient and effective performance of its mandate.

Additionally, the Code strengthens the PDMF, which shall be used for the procurement of advisory and support services related to the preparation, structuring, evaluation, procurement, probity management, Financial Close, and monitoring of implementation of PPP Projects. To oversee this process, a PDMF Committee is institutionalized to approve applications for PDMF Support submitted by the Implementing Agencies.

Lastly, a PPP RMF is created to ensure fiscal sustainability and negotiate better financing terms for PPP Projects. The fund serves the purpose of payment of contingent liabilities arising from PPPs in accordance with contract terms.

Alternative Financing Schemes

The PPP Code explores alternative sources of financing such as Green Financing and Land Value Capture Strategies.

Green Financing, as defined under the Code, involves investments that create environmental benefits in support of green growth, low-carbon, carbon avoidance, sustainable development, and the use of alternative assets. This financial instrument is in addition to Private Partner equity and debt.

Land Value Capture Strategies are mechanisms to recover and re-invest land-based value increases that arise in the catchment area of public infrastructure investments. They may be employed to optimize the financial and economic efficacy of a PPP Project.

Corporate or project bonds, securities, and other forms of capital market financing may also be allowed for PPP Projects, subject to the approval of relevant regulatory bodies.

Overall, the PPP Code aims to address challenges affecting PPP implementation to encourage private enterprises to invest in and promote quality infrastructure projects in the country. In fact, the continuity of PPP projects is further ensured through the limitations set by law against seeking certain judicial provisional remedies. These changes brought about by the enactment of the Code will help achieve better quality PPP projects at lower costs to promote sustainability and advance public welfare.

[1] Implementing Agency refers to a department, bureau, office, instrumentality, commission, authority of the national government, state university and college (SUC), local university and college (LUC), LGU and GOCC.

[2] Private Partner refers to the private sector entity determined to be financially, legally, and technically capable to undertake obligations under an awarded PPP contract.

[3] Private Proponent refers to the private sector entity which has submitted bid in relation to a Solicited Project, or a private sector entity which has submitted an Unsolicited Proposal. The Private Proponent may be Filipino or foreign-owned, and may engage the services of a foreign Contractor or foreign Facility Operator, subject to requirements and limitations provided under the Constitution, existing laws, rules and regulations.

 

This article is only for informational and educational purposes.  It is not intended as a legal advice or opinion.

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