Government easing restrictions on foreign contractors

MANILA, Philippines - The government is easing restrictions imposed on foreign contractors to allow them to fully participate in big-ticket projects under the administration’s ambitious infrastructure development program, Socioeconomic Planning Secretary Ernesto Pernia said yesterday.

Speaking during the 2nd Annual Philippines Energy & Infrastructure Finance Forum hosted by Euromoney, Pernia sought to allay apprehensions in the private sector that options available to them would be severely limited with the shift in the financing mode for flagship projects from public-private partnership (PPP) to funding through official development assistance (ODA) loans.

The easing of restrictions for foreign contractors will be done in the course of the creation of the 2017 Foreign Investment Negative List (FINL) which is slated to be approved by the National Economic and Development (NEDA) board this month.

The FINL determines investment areas where foreign participation is prohibited or limited. The list, last updated in 2015, has been touted to be the most liberalized so far.

“There are a lot of possibilities for PPP projects in the local governments. Smaller amounts of financing but many of the local governments are looking for PPP projects. And also to answer the question of absorptive capacity, projects of national significance can allow international contractors to come in despite that thing still being in the negative list,” Pernia said.

“In the meantime, we are also liberalizing the negative list to take out this prohibition on international contractors participating in projects. For example, the Clark International Airport is being bid out to private bidders for construction as well as the Bohol International Airport. So there is a lot of opportunities for private sector participation,” he added.

This move, he said, is also in line with the goal to improve the country’s attractiveness as an investment destination amid the easing of the investment environment in the ASEAN region.

“We are trying to be more comparable to our ASEAN neighbors who have already liberalized their negative lists,” said Pernia.

Foreign contractors in the construction industry operating in the Philippines can only hold 40 percent equity in businesses in the Philippines. The European Chamber of Commerce of the Philippines (ECCO) has said this makes them reluctant to bring in technology and capital into the country.

Pernia considers this restriction on equity “still very restrictive” for foreign contractors.

Without going into details, he said some restrictions imposed on foreign contractors in the construction sector cannot all be lifted administratively as some need legislative action.

“Some need legislation There are also a number than can be done via approval of the NEDA board,” he said.

It also needs to be determined to what extent foreign companies can use foreign labor.

“I don’t think it’s specified. Americans for instance, prefer to use local labor. It’s the Chinese who are inclined to bring in their nationals,” he said.