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PABC Talking Points for PAMM 2011 - ATTACHMENT B



The PABC and the PPP Program.
The Philippine-Australia Business Council (“PABC”) seeks to encourage the flow of investments between the Philippines and Australia, and believes that the Public-Private Partnership (“PPP”) Program is an initiative that potentially enhances the accomplishment of this objective. Through the PPP Program, the Philippine Government aims to address the infrastructure gap and the lack of public funds by mobilizing private sector investments and resources to implement vital infrastructure projects. The PPP Program recognizes the indispensable role of the private sector as the main engine for national growth and development. However, policy reforms are needed to deal with private sector concerns effectively.

The PABC urges the Philippine Government to undertake the following measures to strengthen the PPP Program (in addition to the recommendations of the PPP Coalition):
establish measures to address uncertainties on the issuance of a public utility franchise; and re-evaluate policy behind foreign equity restrictions and clarify the control test;
concretize government protection of private investors from regulatory risk.

Foreign Equity Restrictions and Clarity of Control Test
Limitations on foreign participation in certain activities (e.g., operation of public utility, ownership of private and lease of public land, etc.), enshrined in the Philippine Constitution and other statutes, are applicable to PPP Projects. Restrictions on foreign participation hinder the maximization of foreign resources for the successful implementation of the PPP Program. It is, thus, recommended that the Philippine Government re-examine the policy underlying these restrictions and determine if these means are still necessary to achieve such policy; or if, the restrictions on foreign participation should be liberalized in areas that require massive capital investment, such as PPP Projects.

In the meantime, the rule to be used in determining a Philippine national in relation to compliance with nationality requirements should be clear. This issue is particularly significant to the foreign investors that are interested in participating in PPP, as in order to do so, they would have to comply with limitations on foreign participation. However, there is ambiguity as to the applicable rule in determining compliance with those limitations (i.e., control test or grandfather rule).

Franchise Requirement
The issuance of a franchise for the operation of a public utility is a prerogative of the Philippine Congress, but the Philippine Congress may, by law, delegate the same to the relevant regulator. The BOT Law provides that the winning proponent shall automatically be granted a franchise by the regulator. However, the BOT Law implementing rules provide that, subject to the Philippine Constitution and existing laws, the regulator shall grant in favor of the winning proponent a franchise on a provisional basis. Hence, there is uncertainty as to the issuance of a franchise, which adversely affects the private sector’s willingness to participate in PPP Projects that require a franchise.

Concretization of Government Assurances
There is a proposal to amend the implementing rules of the BOT Law to provide for the automatic issuance of a franchise. In addition to this proposal, the uncertainty could be further addressed by introducing a mechanism to compensate the winning proponent for costs, in case the franchise is not issued or declared void without fault on the part of the proponent, or is not consistent with the terms of the approved contract.

During the launch of the PPP Program in November 2010 at the Marriott Hotel, the Philippine Government assured the private sector of protection from regulatory risk, such as court orders or decisions by regulatory agencies. However, it is not clear what “regulatory risk” covers and how “protection” of the private sector will be achieved. To encourage private sector confidence and participation in PPP Projects, the PPP framework should be strengthened to include (i) measures that clearly identify the risks that the Philippine Government will assume and the protection granted to the private sector against such risks, and (ii) mechanisms for the enforcement of such protection.

For example, the PPP framework could be expanded to include structures that, in the relevant cases, ensure appropriation or access to public funds in respect of the obligations of the government party; guarantee approval of tariffs and adjustments that are consistent with the approved contract; mitigate delay in and uncertainty on the cost component, for the acquisition of rights of way, relocation and resettlement.