Why in the last two minutes?
The Duterte administration is in its last three months, so it’s hard to understand why it would be seeking to make substantial changes in administration at this late date, changes that will affect the operations of the next administration. Politeness would say you don’t do that.
The build-operate-transfer (BOT) law implementing rules and regulations (IRR) committee, chaired by the National Economic and Development Authority (Neda), has raised the wish to change the current IRR of the BOT law. Worryingly to do so in a blinkered way that looks only at protecting, as they see it, the government without any analysis of the cost/benefit to everyone if they make these changes. It doesn’t seem to take into account what these changes would do to the feasibility of the project from the proponent’s point of view. Yet public-private partnership (PPP) is supposed to be exactly that, a partnership where both parties equally benefit.
At a COVID time when the government no longer has the financial resources it used to have, and needs to keep the admirable “Build, build, build” (BBB) program going is not the time to be turning off possible private sector partners to help in BBB. But that’s what the proposed overly restrictive amendments to the IRR would do.
When I look at the suggested changes, it looks to me like the government has misunderstood what PPP is. What it is is the private sector taking over something the government should normally do, but can’t afford to. Or realizes it doesn’t have the technical expertise or, if they’re honest with themselves, competence to do. Some things are just more efficiently done by the private sector.
But it’s still a public project. If the government were to do it, it would face financial risks, force majeure risks, etc. So on what grounds can it justify forcing those risks onto the private sector proponent? I suggest that’s a question they must first answer before introducing these impositions. The private sector proponent should only be required to assume the risks it’s directly responsible for.
The one I particularly don’t understand is MAGA. MAGA is material adverse government action and, as I understand it, this is where the government makes a change—by law or executive action—that will have an adverse effect on the private sector proponent, yet expects the proponent to accept some of the consequent additional cost or increased difficulty imposed by the change. Why? Why should the affected party, the one who’ll be adversely affected yet has no say or control of the change, have to accept some of the risk imposed by the change? The accepted first principle for PPP is that the party who can best bear the risk should do so to ensure the service is provided at the least cost.
Related to that are the sanctity of contracts and the proposed revisions in the IRR that does away with international arbitration. For emerging markets with high political and regulatory risks, this is needed to be able to attract the best companies globally. A contract is a document agreed to by both parties that bind them to all the terms of that contract. That’s what a contract is. Otherwise, why have a contract.
The changes also add the Neda ICC to the process. There’s also an agency I’d never heard of before called the Privatization and Special Concerns (PSC) office that’s become involved. Then there’s the PPP Center itself, and I don’t know who else. Why? It might—I stress might—be acceptable to have so many agencies all looking at the same thing, but only if there were strict time limits to reaching a decision. The PSC has an unconscionable 40 projects pending, 40 projects that could have benefited us all.
Then there’s a REASONABLE rate of return. Who is to determine “reasonable”? Unless this is strictly defined, which it’s not, I can readily imagine someone in Congress claiming the agreed rate is not reasonable, based on myopic beliefs, but able through their position to force amendment.
New, additional qualifications of the bidders are added that are questionable on their real necessity. And certainly, should be argued more with those who would do PPPs to justify their need.
There’s more, 106 pages of more, that add restrictions and difficulties to bringing the private sector into helping build the public infrastructure and services the country urgently needs. This is a time of great uncertainty in the world where governments will need even more to assure stability and consistency, and provide encouragement if they are to get hesitant private companies to invest in public endeavors.
The President, through Congress, has opened up the economy to wider investment so now, as the world suffers a war and a pandemic, is not the time to increase restrictions. Far more importantly, you don’t impose last two-minute changes on a new government. You write them a letter suggesting they consider them. And we suggest they don’t.
