MBC nixes proposed changes in BOT Law

MANILA, Philippines — The Makati Business Club (MBC) is opposing the National Economic and Development Authority’s proposed amendments to the Build-Operate-Transfer (BOT) Law, saying some provisions could increase transaction costs, result in delays and discourage private sector participation.

In a letter to Socioeconomic Planning Secretary Karl Chua, MBC chairman Edgar Chua said the timing and tenor of some of the proposed changes could offset recent gains and weaken the country’s chances of boosting infrastructure, investment, trade, and creation of jobs.

“With less than 60 days before the 2022 national elections, the expected benefit of any changes may be discounted by the perception that they may be changed anew by the incoming administration,” Chua said.

The MBC said the proposed definition of Material Adverse Government Action (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.

“A significant point of concern for us are the exclusions from what MAGA effectively covers. The BOT IRR exempts the following acts from MAGA coverage: acts of the executive branch, acts of the agency/LGU and approving body, acts of the legislative and judicial branches,” Chua said.

“This raises the question of what MAGA actually covers. Given that there is a broad range of government acts not covered by the MAGA clause, this may result in putting the burden of risks to the private sector when a PPP project is undertaken,” he said.

The MBC recommended that the MAGA provision should provide for rules on materiality, amount, threshold, nature and compensation, cap on compensation and conditions for termination.

“Since the proposed amendments do not clearly state any specific rules on particular cap or condition. Through defining these, the parties involved can retain the flexibility to negotiate this in the contract,” Chua said.

The MBC also wants the retention of the original parametric formula provision on reasonable rate of return (RROR), noting that the involvement of government financial institutions (GFIs) may result in uncertainty as different GFIs may employ different criteria to calculate the RROR, which may result in a potential inconsistent evaluation of different proposals.

It stressed that investors prefer a uniform formula which will guide all PPP contracts.

Chua pointed out that granting NEDA the authority to approve PTCs can substantially be a bottleneck for the project and may cause further delay as the involvement of NEDA-ICC will serve as an additional bureaucratic layer.

“We are of the position that the review of PTCs best be left to the implementing government agency and/or LGU involved as they would have more technical and background expertise in the project vis a vis the NEDA ICC given its current role in the approval process,” Chua said.

“In any event, contracts undergo a review by the Office of the Government Corporate Counsel and Office of the Solicitor General before they are finalized, which already serves as an existing safeguard,” he said.

Moreover, the MBC also said that additional pre-qualification requirements for bidding in the BOT Law IRR “appear to be onerous, restrictive and/or premature.”

On the provision that gives the Commision on Audit jurisdiction over compliance with the contract, the MBC said this would exceed the COA’s authority under the Constitution.

The group stressed that the Constitution limits COA’s power to audit accounts ‘pertaining to the revenues and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the government.’