Republic of the Philippines

Bouse of Representatives
Constitution Hills, uses City

Fifteenth Congress
Second Reguier Sexsion

House @im No. 9238

Introduced by HON. ROMEO M. ACOP

EXPLANATORY NOTE

The function of modem and efficient infrastructure in the economic development of the
country is crucial and all-important. These goods and services generate benefits which justify
their traditional provision by the govemment. However, chronic budgetary deficits have
compelled the govemment to tum to the private sector for the funding and supply of public
infrastructure. Republic Act No. 6957, better known as the ‘Build-Operate-and Transfer (BOT)
Law, as amended by Republic Act No. 7718, serves as the statutory basis for these private-
public partnerships (PPP).

Following the enactment of the law, the BOT program, through increased private
investments, generated a number of projects mostly in the power and transport sectors in the
1990's. However, the program's momentum slowed down after the tum of the century due to
legal problems encountered in the implementation of the projects, controversial transactions
and owing to their generally low quality at entry tevel. These recent experience with the
implementation of the BOT Law necessitates the need to address various issues retating to the
legal framework of the law and to the responsibilities and functions of the participating
institutions involved in the project cycle.

Strategically, the effective implementation of BOT projects hinges on the following :

1) A legal and economic environment conducive to a mutually beneficial partnership. Policy
reforms which uphold the parties’ commitment to the enforcement of contracts must be
in place to restore confxtence in the BOT law.

2) Certainty of recovering investments and availability of mechanisms for dealing with risks
and unforeseen events. The govemment should allow the private proponents a
reasonable retum commensurate to the opporturity cost of its invested funds to ensure


project viability. While the proper allocation of cost and risk-sharing in the partnership is
vital, the government must move toward project financing structures which will minimize
the provision of direct and indirect subsidies and guarantees.
3) Clarity in articulating the duties and responsbilities of the parties to the contract. The
law, as a primary statute, should establish the govemment’s policies and provide the
enabling framework which clearly defines the roles, functions, powers and duties among
government agencies involved in the project cycie in implementation of the policies.
‘Transparency and credibility of the government's processes from project identification,
review and approval of proposed BOT projects to contract implementation. Signed
contracts and related documents, being imbued with public interest, should be made
available to the approving bodies and to the implementing agencies, as well as to the
general public.

4)

Hence, to strengthen the Public-Private-Partnership (PPP) program and to enhance the
utilization of the Buiki+Operate-and-Transfer (BOT) scheme and its. variants in the development
undertakings of the government, this bills proposes that the policy declaration in the law must
explicitly state and recognize the important role of the private sector and its investments in the
provision of public infrastructure and services.

In line with such policy, the State should facilitate the mitigation of risks attached to the
investments by ensuring that the validity and enforceability of contracts involving BOT projects
are respected through due process of the law. Moreover, the goverment should secure private
investments through open and competitive bidding procedures permitting non-competitive
procedures only in exceptional circumstances allowed in the law and consistent with the
provisions of RA 9184 or the Goverment Procurement Act. Unsolicited projects or direct
contracting do not go through regular consultative and planning procedures and are more prone
to comuption. Resort to non-competitive procedures shouki be adopted restrictively and only
Upon full compliance with the requirements of the law.

To further encourage the private sector to invest in public infrastructure or services, the
‘State shall allow a reasonable rate of retum on its investments. The rate of ratum should reflect
the prevailing weighted average cost of capital for investments of equivalent risks m the
domestic and international markets. The weighted average cost of capital (WACC) is the
investor's opportunity cost of taking on the risk of putting money into a project and is a foremost
barometer in valuing and selecting investments. For this purpose, a redefinition of the concept
of a ‘reasonable rate of ratum’ is sought in the bill.

Public infrastructure projects cary various risks that may discourage private sector
financing. To encourage private sector participation, the government has given guarantees to
minimize or eliminate these risks. The provision of guarantees, however, is not without cost to
the govemment. They create contingent Kabilities which imply guarantee claims for payments
which burden the fiscal standing of the government. Given a renewed confidence of the private
sector to risk its capital in infrastructure projects, future project financing structures must
decrease goverment exposure and increase private sector share of the risks of financing.
While the government and the private sector may agree on project specific risks-sharing
schemes, commercial and market risks that appropriately belong to the private sector,
specifically revenue losses or shortfalls, must no longer be covered by government guarantaes.
This bill seeks to enunciate such a policy prohibition.

Likewise, goverment approving authorities need to be facilitative without compromising
their mandates, ensuring the consistency of their decisions with the requirement and conditions
of the law and existing policies of the government. Before the awarding of contracts to the


private proponents, implementing agencies and approving bodies must satisfy themselves that
the terms and conditions agreed upon by the proponent on project specifications and
parameters have been faithfully observed, and that the rules and regulations on contract
variations, if any, have been compked with. With this objective, the bill proposes that the
approval of any contract shall be strictly subject to review and shail be primarily in consideration
of the draft contract, feasibility study and similar documents submitted for the purpose. As
deterrent for any violation of this provision, concemed reviewing officers may be held
administratively jiable for any dereliction of duty thereof.

Finally, the implementing agencies and approving bodies of the govemment must be
accountable for the successful commissioning of the projects. They must ensure that the private
‘entities to which the contracts have been awarded comply with their obligations and deliver the
project specifications that have been agreed upon. Officials of these agencies and bodies, as
well as parties representing the private proponents should be held criminally liable in cases
where investigation is warranted by circumstances indicated and proposed in this bill,

For the foregoing reasons, the early passage of this bill is eamesty sought

Al (OMEO M. AC NSA,


Republic of the Philippines

Bouse of Representatives
Constitution Hills, neson City

Fifteenth Congress
Second Reguiar Session

House Bit Mo, 9258

Introduced by HON. ROMEO M. ACOP

AN ACT
STRENGTHENING PUBLIC-PRIVATE PARTNERSHIP (PPP) IN INFRASTRUCTURE
AND DEVELOPMENT PROJECTS, FURTHER AMENDING FOR THE PURPOSE
REPUBLIC ACT NO. 6957 AS AMENDED BY REPUBLIC ACT NO. 7718,
OTHERWISE KNOWN AS ‘AN ACT AUTHORIZING THE FINANCING,
CONSTRUCTION, OPERATION AND MAINTENANCE Of INFRASTRUCTURE
PROJECTS BY THE PRIVATE SECTOR’

Be it enacted by the Senate and the House of Representatives of the Philippines in
Congress assembled :

SECTION 1, Section 1 of Republic Act No. 6957, as amended by Republic Act No.
7718, is hereby further amended to read as follows ©

SECTION 1. Declaration of Policy - tt is the declared policy of the State to
recognize the indispensable role of the private sector as the main engine for
national growth and development and provide the most appropriate incentives
AND SUPPORT to mobilize privata resources for the purpose of financing the
construction, operation and maintenance of infrastructure and development
projects normally financed and undertaken by the Goverment. Such incentives,
aside from financial incentives as provided by law, shall include ALLOWING A
REASONABLE RATE OF RETURN ON ITS INVESTMENTS, MITIGATION OF


RISKS BY ENSURING THAT THE VALIDITY AND ENFORCEABILITY OF
CONTRACTS ARE RESPECTED THROUGH DUE PROCESS OF LAW, AND
providing a climate of minimum govemment regulations and procedures and
Specific government undertakings in support of the private sector. IT SHALL
ALSO BE THE POLICY OF THE GOVERNMENT TO SECURE PRIVATE
INVESTMENTS THROUGH TRANSPARENT AND = COMPETITIVE
SELECTION PROCESSES AND BIDDING PROCEDURES: PROVIDED, THAT
NON-COMPETITIVE PROCEDURES SHALL ONLY BE PERMITTED IN
EXCEPTIONAL CIRCUMSTANCES AS ALLOWED UNDER THIS ACT.

SECTION 2. Section 2, paragraph (0) of the same Act is hereby further amended to
read as follows

SECTION 2. Definition of Terms - The following terms used in this Act shat
have the meaning stated below :

(a) xx
200K

(0) Reasonable rate of retum on investments and operating and
maintenance costs - The rate of retum that reflects the prevailing
WEIGHTED AVERAGE cost of capital FOR INVESTMENTS OF
EQUIVALENT RISKS in the domestic and intemational markets: Provided,
that, in case of negotiated contracts, such rate of raturn shall be determined
by the ICC of the NEDA prior to the negotiation and/or call for proposals:
Provided, further, that for negotiated contracts for public utility projects which
are monopolies, the rate of retum on rata base shall be determined by
existing laws, which in no case shall exceed twelve percentum (12%).

SECTION 3. Section 4 of the same Act is hereby amended to read as follows :

SECTION 4. Priority Profects - All concemed govemment agencies,
including goverment-owned-and controled corporations and local goverment
units, shall include in their development programs those priority projects that may
be financed, constructed, operated and maintained by the private sector under
‘the provisions of this Act tt shall be the duty of all concemed goverment
agencies to give wide publicity to al projects eligible for financing under this Act,
including publication in national and, where applicable, Intemational newspapers
of general circulation once every six (6) months and official notification of project
proponents registered with them.

The lists of all such national projects must be part of the development programs
‘of the agencies concemed. The list of projects costing up to Three Hundred
Mittion pesos ( P 300,000,000) shall be submitted to the ICC of the NEDA for its
approval and to the NEDA Board for projects costing more than Three Hundred
Million Pesos ( P 300,000,00 ). The fist of projects submitted to the ICC of the
NEDA Board shall be acted upon within thirty (30) working days.

The ist of tocal projects to be implemented by the local goverment units
concemed shall be submitted for confirmation to the municipal development


council for projects costing up to Twenty Miffion Pesos; those costing above
‘Twenty up to Fifty Million Pesos to the provincial development council; those
costing up to Fifty Million to the city development council; above Fifty Milion up to
Two Hundred Million Pesos fo the regional development councils; and those
above Two Hundred Million Pesos to the ICC of the NEDA.

THE CONFIRMATION OF THE PROJECT BY THE LOCAL DEVELOPMENT
COUNCIL CONCERNED SHALL BE BASED ON A REVIEW OF THE
PROJECT DOCUMENTS SUBMITTED TO IT BY THE LOCAL GOVERNMENT
UNIT CONCERNED, WHICH, IN PARTICULAR, SHALL INCLUDE BUT NOT
UMITED TO THE FEASIBILITY STUDY AND THE DRAFT CONTRACT ON
THE PROJECT, AND SHALL ENSURE THAT SUCH PROJECT DOCUMENTS
UNDER THIS ACT AND {TS IMPLEMENTING RULES AND REGULATIONS.
ANY CONCERNED REVIEWING OFFICER/S FOUND IN VIOLATION OF THIS
PROVISION SHALL BE ADMINISTRATIVELY LIABLE WITH GRAVE
NEGLECT OF DUTY AND SHALL BE DEALT WITH IN ACCORDANCE WITH
EXISTING LAWS.

FURTHERMORE, ANY ACT ON THE PART OF THE LOCAL GOVERNMENT
UNIT CONCERNED AND ITS RESPONSIBLE OFFICIALS, OR CONCERNED
OFFICERS OF THE PRIVATE PROJECT PROPONENT, WHICH RESULT TO
OR 1S AIMED AT DOWNGRADING THE CATEGORY OF THE PROJECT
BASED ON ITS TOTAL COST UNDER THIS SECTION FOR THE PURPOSE
OF EVADING REQUIREMENTS FOR APPROVAL UNDER THE
APPROPRIATE CATEGORY SHALL BE DEALT WITH CRIMINALLY AND
ADMINISTRATIVELY UNDER EXISTING LAWS: PROVIDED THAT, SUCH
ACTS COMMITTED BY ANY PRIVATE PROJECT PROPONENT AND ITS
CONCERNED OFFICERS SHALL CAUSE THE REVOCATION OF ITS
CONTRACT FOR THE SAID PROJECT WITHOUT COMPENSATION AND
SHALL BE PERPETUALLY DISQUALIFIED FROM PARTICIPATING IN ANY
BIDDING, OR OTHER CONTRACTUAL ARRANGEMENT, FOR ANY
GOVERNMENT PROJECT.

SECTION 4. Section 6 of the same Act is hereby amended to read as follows ;

SECTION 6. Repayment Scheme - For the financing, construction,
operation and maintenance of any infrastructure project undertaken through the
Build-Operate-and- Transfer arrangement or any of its variations pursuant to the
provisions of this Act, the project proponent shall be repaid by authorizing it to
charge and collect reasonable tolls, fees and rentals for the use of the project
facility not exceeding those incorporated in the contract and, where applicable,
the proponent may likewise be repaid in the form of a share in the revenue of the
project or other non-monetary payments, such as, but nat limited, to the grant of
@ portion or percentage of the rectaimed land, subject to the constitutional
requirements with respect to the ownership of the land: Provided, that for
negotiated contracts, and for projects which have been granted a natural
monopoly or where the public has no access to altemative facilities, the
appropriate government regulatory bodies, shail approve the tolls, fees, rentals,
and charges based on a reasonable rate of retum: Provided, further, that the
imposition and collection of tolls, fees, rentals, and charges shall be for a fixed
term as proposed in the bid and incorporated in the contract but in no case shall


this term exceed fifty (50) years: Provided, furthermore, that the tolls, fees,
rentals, and charges may be subject to adjustment during the fife of the contract
based on a predetermined formuta using offiaal price indices and included in the
instruction to bidders and in the contract Provided, aiso, that all tolls, fees,
rentals, and charges and adjustments thereof shall take into account the
reasonableness of sak rates to the endusers of private sector-built
infrastructure: Provided, finally, that during the lifetime of the franchise, the
project proponent shall undertake the necessary maintenance and repair of the
facility in accordance with standards prescribed in the bidding documents and in
the contract. in the case of a Buildand-Transfer arrangement, the repayment
scheme is to be effected through amortization payments by the government
agency or local government unit conoemed to the project proponent according to
the scheme proposed in the bid and incorporated in the contract.

IN NO CASE SHALL THE NATIONAL GOVERNMENT AGENCY OR LOCAL
GOVERNMENT UNIT CONCERNED GUARANTEE AND COMPENSATE OR
SUBSIDIZE ANY LOSS OR SHORTFALL IN THE PROJECTED REVENUES.
OR INCOME OF THE PROPONENT AS INDICATED IN THE APPROVED
CONTRACT OR AS ADJUSTED IN ACCORDANCE WITH THE PROVISIONS
OF THIS ACT.

SECTION 5. Anew section to be numbered as Section 13 is hereby added to read as
follows:

SECTION 13. PENAL PROVISIONS - ANY PERSON WHO COMMITS ANY
OF THE ACTS HEREUNDER PROSCRIBED SHALL BE PUNISHED WITH
IMPRISONMENT FROM A MINIMUM OF THREE (3) YEARS TO A MAXIMUM
OF SIX (6) YEARS :

1) REPRESENTATION IN BEHALF OF A PROJECT PROPONENT THAT IT
HAS THE NECESSARY CAPITALIZATION TO COMMENCE, COMPLETE
AND IMPLEMENT THE PROJECT WHEN THE SAME IS FALSE IN
MATERIAL RESPECTS;

FALSIFICATION OR INSERTION OF CERTAIN PROVISIONS IN THE
FINAL CONTRACT WHICH ARE MATERIALLY AND SUBSTANTIALLY
DIFFERENT FROM THE APPROVED DRAFT CONTRACT WHICH FORM
PART OF THE AGENCY’S / LGU'S REQUEST FOR CONFIRMATION.

2

SECTION 6. Sections 13, 14 and 15 of the same Act are hereby renumbered Sections 14, 15
and 16 respectively

SECTION 7. Separability Clause - If any provision of this Act is held invalid, the other
provisions not affected thereby shall remain valid and effective.

SECTION 8. Repealing Clause - Alt laws or parts of any taw inconsistent with the
provisions of this Act are hereby repeated or modified accordingly.

SECTION 9.  Effectivity Clause - This Act shall toke effect fifteen (15) days after its
publication in at least two (2) newspapers of general circulation

APPROVED.