Regressive BOT amendments

Instead of attracting investments that the country desperately needs to revive its pandemic-battered economy, the Duterte administration may end up doing the exact opposite.

This as the National Economic and Development Authority (Neda) has proposed game-changing amendments to the implementing rules and regulations (IRR) of the build-operate-transfer (BOT) law that economists and business leaders have sharply criticized as being “antimarket.”

Neda was pushing for a slew of revisions to the 10-year-old IRR of Republic Act No. 6957 or the amended BOT law ostensibly to improve the investment climate and encourage more private firms to finance, construct, operate, and maintain big-ticket infrastructure projects that will, in turn, create more jobs and put the Philippines back on a high-speed growth path.

But the Foundation for Economic Freedom (FEF) emphasized in a March 3 letter to Neda Secretary Karl Kendrick Chua that while it agrees that the existing BOT law “needs refinement,” the proposed revisions contained in the 106-page draft were “regressive” and would accomplish “the opposite” of what the government wants to achieve.

“We find the general tenor of the proposed changes as anti-market,” said FEF president Calixto V. Chikiamco, pointing out that given the heavy public debt burden brought on by needed expenses to fight COVID-19, the case for implementing projects through public-private partnership (PPP) has become even stronger.

But with the proposed amendments, Chikiamco said the “essence of ‘partnership’” had been ignored and the private sector was painted as “untrustworthy.” Thus, instead of enticing partners who can bankroll these big-ticket infrastructure projects, the proposed amendments would likely drive them away.“To recover from the pandemic and the aftermath of Russia’s invasion of Ukraine, the Philippines will need more investments—public and private. Instead, these changes will discourage investments and negate recent and laudable reforms,” Chikiamco stressed.

The Makati Business Club (MBC) echoed the FEF’s grave concerns, saying in a separate March 15 letter to Chua that the “timing and tenor” of the proposed changes to the BOT law could “weaken the country’s chances of boosting infrastructure, investment, trade and creation of jobs.”

Cause for serious concern for the MBC was the long list of proposed exclusions from the so-called material adverse government action (Maga), referring to government moves after a contract has been signed that would, for example, affect the proponents’ costs and revenues or ability to comply with their contract obligations—adverse effects for which they should be able to seek redress.

The extensive exclusions practically absolve the government of all blame and responsibility for any changes and foist all project risks, such as increased costs and difficulties on the private sector partner.

“We believe that the proposed definition of Maga in the revised IRR creates higher risks for businesses from a regulatory and political standpoint which would discourage private sector participation in infrastructure projects,” the MBC said.

Another “egregious change” to the current rules was the removal of the formula currently used to determine “reasonable” rates and returns, on which adjustments to fees, tolls, and other charges are based.

The MBC said different agencies may have a different idea of what “reasonable” is, resulting in potentially inconsistent evaluation of different project proposals, which is frowned upon by investors who want a uniform, objective formula to guide all PPP contracts.

The FEF was also deeply concerned about removing arbitration as a means of settling contract disputes, which was perhaps brought on by the case involving private water concessionaires Maynilad Water Services Inc. and Manila Water Co.

And as if these were not enough, Neda proposed even more layers to the already long drawn out approval process and adding what appears to be “onerous, restrictive and/or premature” prequalification requirements for biddings.

There is no questioning the government’s motive to amend rules and regulations to bring in more investments. It has indeed already made significant inroads into doing just that through the recent landmark reforms, such as liberalization of the retail industry and opening up more sectors to full foreign ownership.

But amending the BOT law rules this way, where objectivity and transparency are in danger of being sacrificed, thus opening up the process to “politically-connected groups,” is clearly not a step in the same direction.

Thus, it will do well for the Duterte administration who may want to leave behind a positive economic legacy to heed the concerns of the private sector and not rush headlong into amending the rules in what Inquirer columnist Peter Wallace described as a “blinkered way that looks only at protecting, as they see it, the government without any analysis of the cost/benefit to everyone.”

The Duterte administration can instead use what is left of its term to further study the proposed rule changes or, better yet, leave it to the next administration with a fresh mandate from the people do so.