13th CONGRESS OF THE REPUBLIC ) 
OF THE PHILIPPINES 
1 
First Regular Session 
1 
Introduced bv Senator Raluh G. Recto 
EXPLANATORY NOTE 
This bill amends Republic Act No. 6957 or popularly known as the Build- 
Operate'Transfer (BOT] Law as amended by Republic Act No. 7718 by limiting 
direct government guarantees, and prohibiting contract amendments and/or 
revisions. 
Specifically, the bill proposes that the national government shall only 
assume responsibility for thirty percent (30%) of the debt incurred by the project 
proponent for projects located in Metro Manila; sixty percent (60%) for projects 
located in highly urbanized cities outside Metro Manila, and one hundred 
percent (100%) for projects located in areas other than Metro Manila and highly- 
urbanized cities. 
This amendment is seen to encourage BOT projects in the countryside. Big 
budgeted infrastructure projects have been concentrated noticeably in Metro 
Manila such as the Metro Rail Transit (MRT), the Skyway, the Metropolitan Water 
and Sewarage System (MWSS) concession agreements with Maynilad and 
Manila Water, the NAlA II and 111 airport terminals and on private power 
generation which has brought in huge costs to the consumers, particularly in the 
National Capital Region. 
A study by the Philippine Institute for Development Studies (PIDS] in 1999, 
entitled "Beyond 2000: An Assessment of Infrastructure Policies" indicated that 
there is indeed evidence of unequal distribution of public economic 
infrastructure (El), In the early 1990s an average region would have an El only 
31.7% that of NCR. Even to this day, the figures would not have varied that 
much. 
The study stressed that the disparity has repercussions for the long-term 
growth and development of the country. It cited a report which pointed out that 
the differences in infrastructure provision for electricity and road network. 
between Taiwan and the Philippines explain differences in rurai industrialization 
experienced by the two countries. 
Because of the non-viability of infrastructure projects in the rural areas, the 
private sector usually veers away from investing in the countryside. But with full 
government guarantee to be limited only to projects outside highly urbanized 
areas, a shift in the provision of infrastructure projects is expected. 
This bill also provides that the guarantees to be extended by the 
government shall only cover (a) fundamental risks, (b) foreign exchange 
convertibility risks; and (c) project specific risks. 


Economists like Dr. Gilbert0 Llantol of PIDS stressed that the risks absorbed 
by the government when extending comprehensive guarantees "expose 
taxpayers to potentially huge fiscal burdens that are not necessarily justified 
especially if the risks covered are commercial in nature." 
Dr. Llanto recommends that government should allocate guarantees 
efficiently to avoid fiscal shocks that may arise once private investors call on the 
guarantee. He says guarantees create undue problems on the government's 
fiscal position especially since government relies on cash budgeting and as such, 
there is no adequate provision on future calls in the national budget. And this has 
a direct impact on the allocation of resources for social services such as health 
and education. Whatever deficit the government may incur out of paying a 
guarantee will have to be covered by a decrease in government expenditures. 
Moreover, the bill also provides that all guarantees on foreign exchange 
convertibility shall be accompanied by a "fall-away'' provision that the 
guarantee for foreign exchange convertibility shall cease once the country 
attains an investmenf grade rafing in international capital markets for two 
consecutive years from Standard and Poor or Moody's or other internationally 
recognized rating agency of comparable standing. 
According to Dr. Llanto, such a provision will minimize the government's 
risk exposure and potential burden on its fiscal position. He said "the exit strategy 
will prevent perverse incentives and moral hazard in project management and 
implementation." 
Lastly, the bill provides that BOT contracts shall not be amended or revised 
except to reduce contract fees or to lift direct government guarantees or to 
reduce tolls, fees, rentals and charges or when the president deems necessary in 
the interest of the government and the general public. 
Recent experiences in the PIATCO fiasco and the concession agreements 
of MWSS and the water concessionaires taught us the hazards of revising or 
amending BOT contracts. It has not only cost the government and the 
consumers greater financial burden but more importantly it has raised ethical 
and accountability questions on government's propensity to enter into contracts 
with the private sector. 
In view of these compelling reasons, the immediate passage of this bill is 
thus earnestly sought. 
RgaIibZW4-BOT 
' Llanto, Gilbert M. 2000. Managing Government Guarantees and Contingent Liabilities. PIDS Policy 
Notes No. 2000-17. Makati City: Philippine Institute for Development Studies. 


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13th CONGRESS OF THE REPUBLIC 
1 
OF THE PHILIPPINES 
1 
First Regular Session 
1 
~ 
introduced by Senator Ralph G. Recto 
AN ACT 
SEVEN (R.A. NO. 6957), ENTITLED "AN ACT AUTHORIZING THE FINANCING, 
CONSTRUCTION, OPERATION, AND MAINTENANCE OF INFRASTRUCTURE 
PROJECTS BY THE PRIVATE SECTOR, AND FOR OTHER PURPOS€S," AS 
AMENDED 
AMENDING REPUBLIC ACT NUMBERED SIX THOUSAND NINE HUNDRED FIFTY- 
Be it enacted by the Senate and the House of Representatives of the 
Philippines in Congress assembled: 
SECTION 1. A new section is hereby added after Section 6 of Republic Act 
No. 6957, as amended and numbered as Section 7, to read as follows: 
"SEC. 7. DIRECT GOVERNMENT GUARANTEE. - IN EXTENDING 
DIRECT GOVERNMENT GUARANTEES, THE NATIONAL GOVERNMENT 
SHALL ONLY ASSUME RESPONSIBILITY FOR THIRTY PERCENT (30%) OF 
THE DEBT INCURRED BY THE PROJECT PROPONENT FOR PROJECTS 
LOCATED IN METRO MANILA; SIXTY PERCENT (60%) FOR PROJECTS 
LOCATED IN HIGHLY URBANIZED CITIES OUTSIDE METRO MANILA, AS 
CERTIFIED BY THE NATIONAL STATISTICS OFFICE (NSO) AND THE 
DEPARTMENT OF FINANCE (DOF); AND ONE HUNDRED PERCENT 
(100%) FOR PROJECTS LOCATED IN AREAS OTHER THAN METRO 
MANILA AND HIGHLY-URBANIZED CITIES: PROVIDED, THAT 
THE 
GUARANTEES TO BE EXTENDED BY THE NATIONAL GOVERNMENT TO 
PROJECT PROPONENTS SHALL COVER ONLY THE FOLLOWING: 
(A) 
FUNDAMENTAL RISKS CONSISTING OF SOVEREIGN AND 
POLITICAL 
RISKS 
SUCH 
AS 
EXPROPRIATION 
BY 
GOVERNMENT, NATIONALIZATION, CHANGES IN LAW, 
AND FORCE MAJEURE; 


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(BJ 
FOREIGN EXCHANGE CONVERTIBILITY 
RISKS WHICH 
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(i) 
PURCHASE FOREIGN EXCHANGE IN THE OPEN 
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MARKET; 
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(ii) 
TRANSFER 
ITS 
FOREIGN 
CURRENCY 
FUNDS 
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ABROAD; AND 
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(iii) 
MAINTAIN FOREIGN CURRENCY BANK ACCOUNTS 
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PROVIDED, 
THAT 
SUCH 
GUARANTEE 
SHALL 
BE 
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ACCOMPANIED BY AN EXPLICIT PROVISION THAT THE 
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GUARANTEE FOR FOREIGN EXCHANGE CONVERTIBILITY 
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SHALL 
CEASE 
ONCE THE COUNTRY 
ATTAINS 
AN 
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INVESTMENT GRADE RATING IN INTERNATIONAL CAPITAL 
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MARKETS 
FOR 
TWO 
CONSECUTIVE 
YEARS 
FROM 
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STANDARD AND POOR OR 
MOODY’S OR 
OTHER 
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INTERNATIONALLY RECOGNIZED RATING AGENCY OF 
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COMPARABLE STANDING; AND 
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(C) 
PROJECT SPECIFIC RISKS WHERE THE GUARANTEE SHALL 
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BE LIMITED TO THE SENIOR LENDER AND FOR THE 
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ORIGINAL TERM OF THE LOAN EXCLUDING RETURNS TO 
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EQUITY HOLDERS. 
SHALL GIVE THE PROJECT PROPONENT THE RIGHT TO: 
IN THE PHILIPPINES OR ABROAD, 
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GUARANTEES COVERED UNDER SUB-PARAGRAPH (A) SHALL BE 
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GRANTED 
FREE TO 
ALL 
PROJECT 
PROPONENTS 
WHILE 
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GUARANTEES COVERED UNDER SUB-PARAGRAPHS (B) AND (C) 
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SHALL HAVE GUARANTEE FEES TO BE DETERMINED BY THE DOF.” 
SEC. 2. Section 7 of the same Act is hereby renumbered as Section 8. 
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“SEC. 9. CONTRACT AMENDMENTS AND/OR REVISIONS. - ALL 
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DULY SIGNED CONTRACTS ENTERED INTO BY THE GOVERNMENT OR 
SEC. 3. A new section is hereby added after Section 7 of the same 
Act and numbered as Section 9, to read as follows: 


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ANY OF ITS AGENCIES OR LOCAL GOVERNMENT UNITS COVERED 
UNDER THIS ACT SHALL NOT BE AMENDED OR REVISED EXCEPT TO 
REDUCE CONTRACT 
FEES OR 
TO 
LIFT DIRECT GOVERNMENT 
GUARANTEES OR TO REDUCE TOLLS, FEES, RENTALS AND CHARGES 
OR WHEN THE PRESIDENT DEEMS NECESSARY IN THE INTEREST OF THE 
GOVERNMENT AND THE GENERAL PUBLIC.” 
SEC. 4. Sections 9 and the succeeding sections of the same,Act are 
hereby renumbered accordingly. 
SEC. 5. Implementing rules and regulations. - The DOF, the National 
Economic Development Authority (NEDA), the Department of Public 
Works and Highways (DPWH), and other appropriate government 
agencies shall promulgate rules and regulations necessary for the 
effective imolementation of this Act. 
SEC. 6. Repealing Clause. - All laws or parts of any law inconsistent 
with the provisions of this Act are hereby repealed or modified 
accordingly. 
SEC. 7. Separability Clause. - If any provision of this Act is held 
invalid, the other provisions not affected thereby shall continue in 
operation. 
SEC. 8. Effectivity Clause. -This Act shall take effect fifteen (15) days 
after its publication in at least two (2) newspapers of general circulation. 
Approved,