With just three session days left in the 16th Congress, experts, local executives and businessmen are keenly awaiting the final version of the proposed Public-Private Partnership (PPP) Act, which currently have provisions that can potentially disrupt existing local government PPP projects and ordinances, as well as diminish the power of cities and municipalities to raise revenues.
Former Justice Secretary Alberto C. Agra, a certified PPP specialist, said lawmakers must take a second look into the proposed measure, as it “recentralizes” the program instead of allowing local government units (LGUs) a free hand to it for better implementation. Agra, a BusinessMirror columnist, said solons should specifically be cautious of approving the repealing clause of the PPP Act, which basically institutionalizes the PPP Program for sustainability.
“There are two basic issues. One, the original draft wants to repeal all local government ordinances on PPPs—I see that as an attempt to recentralize rather than enhance the decentralization of PPPs,” he told the BusinessMirror via phone.
Both House Bill (HB) 6331 and Senate Bill (SB) 3035 state in the repealing clause that: “Joint Venture Guidelines issued by LGUs, and PPP Codes issued by LGUs, are hereby repealed.” The measure is among the administration’s priorities and is being pushed by business groups.
Back to ‘imperial Manila’
There are now about 62 LGU PPP codes and over 30 ongoing or approved PPP projects at the local government level. On the contrary, there are currently only 12 approved PPP deals at the national level, with some of them still being challenged in court for various reasons.
He said, by repealing these 62 LGU PPP codes, the initiatives that were introduced by local governments will deemed futile.
“It’s really a setback from the local
autonomy that is guaranteed by the Constitution. Why go back to the olden days of imperialist Manila, and instead empower LGUs?”
Agra lamented. The decentralization of the PPP Program allows for the development of infrastructure outside the urban centers.
“This gives LGUs the authority to adopt their own PPPs, allowing them to develop other centers outside Manila,” he said.
PPP modes
Another issue that lawmakers should look into is the limiting of the modes of implementation from 24 possibilities to 11.
“It will be a misnomer to call it a PPP Act if they will not include the possible 24 modalities,” he said.
Modalities include the build-operate-transfer scheme, joint-venture scheme and build-lease-transfer scheme, among others.
“If you repeal the ordinances, the status of contracts awarded under those ordinances will be under limbo,” Agra said.
Cities with PPP ordinances include Manila, Quezon City, Paranaque, Cebu, Davao, Batangas and General Santos, among others.
“By one sweep, all these will be deleted. There is an adverse impact on local economy,” he explained.
Agra said the move signals that the national government lacks trust in local governments. He clarified, however, that he supports the other amendments to the law.
‘Have no fear’
But PPP Center Executive Director Cosette V. Canilao disagrees. “While it has a repealing clause, there is also a provision that LGUs can enact their PPP Codes in accordance with the new PPP Act. They have the power to enact new laws. It doesn’t mean that it just repealed ordinances,” she explained via phone.
She also said contracts signed in the past will be honored.
“If there’s a new law, the application is prospective and not retroactive. Hence, they will be honored,” Canilao said, citing the Local Government Code as the basis for her claims.
Speaker Feliciano Belmonte Jr. said HB 6331 has been amended to allow all existing PPP projects of LGUs to continue even after the passage of the bill into law.
“HB 6331, as approved on second reading [on January 26], includes proposed amendments that the [proposed] PPP Act will not affect existing contracts, including LGU’s PPP contracts, procurement activities undertaken before [the passage into law of] PPP Act, and LGU authority to enact PPP ordinances not inconsistent with PPP Act and IRR [implementing rules and regulations],” said Belmonte, one of the main authors of the bill.
Under the committee report, or original version of HB 6331, all laws, rules and regulations or part thereof, including joint-venture guidelines and PPP Codes issued by LGUs, inconsistent with the provisions of this act are hereby repealed or modified accordingly.
House Committee on Ways and Means Chairman and Liberal Party Rep. Romero Quimbo of Marikina, also one of the authors of the PPP bill, said the measure will not affect existing contracts of local governments. “To redo and amend existing agreements will be looked at with disfavor by investors and will arguably violate the constitutional prohibition against the passage of laws that impair existing contracts.”
Nationalist People’s Coalition Rep. Sherwin Gatchalian of Valenzuela said while he agreed that PPP laws for both local and national should be harmonized “[still] the existing PPP of the LGUs should be respected as to not diminish the reputations of the LGUs.”
Sen. Ralph Recto also allayed concerns aired by some local officials over the bill’s repealing clause, which is feared could lead to abrogation of LGU-approved PPP projects already lined up for implementation prior to enactment of the pending bill.
“No. It won’t,” Recto told the BusinessMirror over the weekend.
Recto, who cosponsored Senate Committee Report 339 with Sen. Ferdinand Marcos Jr. endorsing passage of the PPP legislation, clarified that the bill’s repealing clause cannot undo prior acts by local governments to carry out PPP projects in their localities.
“The Senate PPP bill is prospective,” Sen. Recto pointed out. Recto added: “In fact, it strengthens local governments who undertake PPP projects. They no longer need to get Neda Board approval; only concurrence of their Sanggunian.”
‘Prejudicial’
Meanwhile, Party-list Rep. Neri Colmenares of Bayan Muna said the PPP bill is prejudicial to LGUs, as the measure prevents local governments from collecting real-property taxes and other fees.
“Under Section 20 [of the bill], or on the projects of national significance, all PPP projects are exempted from real-property tax. Local tax and fees and all necessary business permits will be automatically granted or issued to all projects of national significance. To sum up, the [PPP bill is] prejudicial because it removes the power of the LGUs to collect fees from PPP projects,” Colmenares said.
Under the bill, upon certification and recommendation by the Investment Coordinating Committee, and prior consultation with the Department of the Interior and Local Government, the President may classify certain projects, such as energy, toll road, mass transit, water, sewerage and such other projects undertaken under this act as projects of national significance, which shall be entitled to the following incentives:
■ All real properties, which are actually and directly used for the project, shall be exempt from any and all real-property taxes levied under RA 7160, or Local Government Code.
■ All projects of national significance shall, likewise, be exempt from any and all local taxes, fees and charges.
■ Automatic grant or issuance of the necessary business permits, including renewals thereof, in favor of the winning proponent.
Colmenares also questioned the mandatory approval of administrative franchise and license permit.
“Under Section 13, once a PPP contract is duly executed, LGUs shall automatically grant in favor of the project proponent an administrative franchise, license permit. They have no more power to deny [permits],” Colmenares added.
Section 13 of the bill provides that once a PPP contract is duly executed, the regulator, licensing authority or LGUs shall automatically grant in favor of the project proponent an administrative franchise, license permit, or any other form of authorization required for the implementation of a PPP project subject to submission by the project proponent of the requirements by the regulator, licensing authority or LGU.
Also the bill said any provision of law to the contrary notwithstanding, it shall be mandatory on the part of the regulator, licensing authority or LGUs to accept and approve the application for administrative franchise, license or permit, saying failure to act on a proper and complete application thereof within 30 working days from receipt of the same shall be deemed as
approval thereof.
Viability-gap funding
Colmenares also questioned a provision under the bill providing the viability gap funding.
The bill refers to viability-gap funding as financial support the government may provide to a concession-based PPP project with the objective of making user fees affordable while improving the commercial attractiveness of the project, excluding costs of right- of-way, resettlement and real-estate taxes.
“The viability-gap funding is a sovereign guarantee, that’s why the national government would be the preferred partner by private corporations,” he said. A sovereign guarantee is an incentive to attract private companies to enter into partnerships for projects and varies between projects.
Private-sector support
European Chamber of Commerce of the Philippines External Vice President Henry J. Schumacher said the new law changes the principle of PPPs from the “highest bidder wins” to the lowest bidder who fulfills the “technical requirements wins.”
“This is a very important change which benefits the public users of infrastructure. That’s the reason the PPP ordinances need to be repealed. This makes sense and we fully support it,” he said.
American Chamber of Commerce Senior Advisor John D. Forbes said repealing clauses are but normal for new laws.
“The PPP is a comprehensive reform bill in which such repeal clauses are standard. The PPP bill captures the policy that PPP projects must be transparent, bid through competitive procedures, and must provide the most efficient public service at affordable rates to the consumer, and it applies to both national and local projects,” he said.
Hence, the passage of the law should be deemed both as “urgent” and of “extreme importance.” “It institutionalizes the reforms that we have already initiated, and lessons that we learned from the past five years. There are provisions that will fast- track not only preparation and bidding, but also execution,” Canilao explained.
When approved, the PPP Act would institutionalize the Project Development and Monitoring Facility, the PPP Governing Board and the contingent liability fund. The proposed amendments include the separation of regulatory and commercial functions of government-owned and -controlled corporations and create a list of projects called “Projects of National Significance.”
By virtue of being included on the list of projects of national significance, projects will be “insulated” from local laws, among others by local government units.
The proposed amendments also include allowing time-bound temporary restraining order and the extension of the period for Swiss Challenge to six months from the current two-month period.
The amendments are expected to be approved within the last three sessions in Congress.