ECC orders review of BOT rules

Still smarting from losses it had to absorb from independent power producers and the Metro Rail Transit project, government said it is revising the implementing rules on build-operate-transfer projects to make sure it will no longer absorb commercial risks.

The National Economic and Development Authority (NEDA) said government planners are aghast at the P350-billion losses it would have to absorb through the National Power Corp. (Napocor) from independent power producers, prompting internal revisions in the evaluation of future BOT projects.

NEDA Director General Felipe Medalla told reporters over the weekend that government would no longer accept projects where the national coffers would be forced to absorb losses when revenue projections made by private proponents fail to materialize.

According to Medalla, the Economic Coordinating Committee (ECC) directed the Investment Coordinating Council (ICC) to review its rules and make specific adjustments on the return-on-investment (ROI) of future BOT projects that would remove the insulation protecting private proponents.

Under existing BOT rules, the ROI of private sector proponents are protected by the government which guarantees their profits. Medalla said the new flexibility feature will adjust the ROI depending on the performance of the project.

"Right now, the proponents have no incentive to provide good service and attract consumers because revenue shortfalls do not affect their ROI, the government merely absorbs the difference," Medalla said. "This can not go on indefinitely. If the proponent makes a projection for a particular project, they better make sure that this projection is met or it would affect their income as well."

In the case of MRT, Medalla said the government wanted a direct translation into the ROI wherenever future mass transport project fail to perform as expected.

The $655-million MRT project has been reported to be losing some six million pesos a day since its inauguration last December due to lack of patronage. Under its contract with the government, however, the Fil-Estate-led consortium that built the MRT is assured of a P100-million payment annually for 25 years, or a staggering P101 billion at the end of the period.

MRT had a commitment to transport at least 400,000 commuters daily, but it is only averaging 40,000 commuters since it began operation last Dec. 15, 1999. With the reduction of rates in February 2000 and opening of the Buendia-Taft portions, commuters have more than doubled but the company is still behind its projections.

"The ECC wants, for example, that for every passenger that doesn’t show up, there would be a corresponding reduction in the ROI," he explained. "In the same vein, if the projection is surpassed, the ROI will go up. It’s only fair."

Medalla said government has repeatedly sustained losses due to failed projections in various major projects. "That’s what happened with MRT, the Casecnan irrigation project and almost all independent power projects," he said.

"Private proponents should not be insulated this way. Government and its private partners should take equal stake in the risks of any commercial project."

Medalla said the revision is still "largely internal" at the ICC level but he said new BOT projects will now be evaluated based on whether the project proponents would be willing to take equal responsibility for the success of the project.

The move is expected to make BOT projects less attractive to investors that have thus far been protected from losses due to revenue shortfalls but Medalla countered the point by saying that it should likewise force private proponents to make more attainable projections because they would be equally liable if these targets are not met.