MBC opposes changes to BOT Law IRR

The Makati Business Club is opposing the National Economic and Development Authority’s (NEDA) proposed amendments to the Implementing Rules and Regulations of R.A. No. 6957 or the build-operate-transfer (BOT) Law.

In a letter to NEDA Secretary Karl Kendrick T. Chua, MBC Chairman Edgar O. 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.”

Chua said the MBC “would like to request more than the six working days given to more thoroughly consider all the proposals. As well, 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.”

The MBC cited some key provisions for amendment “which we believe will likely lead to increased transaction costs, delays and may discourage private sector participation.”

It noted 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,” said Chua.

He noted that, “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.”

Thus, the MBC recommended the deletion of page 8, lines 29-30 (as this may be discriminatory against the proponent) and page 9, lines 1-5 (list of acts excluded from MAGA) since, given the exceptions, no government act would qualify as MAGA if those clauses are retained.

It recommended that the MAGA provision should provide for rules on materiality, amount, threshold, nature and compensation, cap on compensation, 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) since “The involvement of GFIs may result in uncertainty as different GFIs may employ different criteria to calculate the RROR thereby resulting in a potential inconsistent evaluation of different proposals. Investors, as you will appreciate, prefer a uniform formula which will guide all PPP contracts.”

Regarding Parameters, Terms and Conditions (PTCs), the MBC said “We would like to take the position that the amendment to involve the NEDA ICC in the process of approval of PTCs should be reverted to status quo.”

“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,” said Chua.

He noted that, “in any event, contracts undergo a review by the Office of the Government Corporate Counsel (for GOCCs) and Office of the Solicitor -General (for agency/LGU) before they are finalized, which already serves as an existing safeguard.”

“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,” Chua pointed out.

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 “We believe this would exceed COA’s authority under the Constitution. 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.’”