August 29, 2022

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Revised BOT rules out by end-Sept.

By Diego Gabriel C. Robles

AMENDMENTS to the controversial implementing rules and regulations (IRR) of the Build-Operate-Transfer (BOT) Law are expected to be released before the end of September, Finance Secretary Benjamin E. Diokno said.

“I’m not at liberty to divulge [yet] but there’s a committee and we plan to do this within the first 100 days of the president…  Maybe not later than the end of September, including the publication,” Mr. Diokno told BusinessWorld on the sidelines of the Development Budget Coordination Committee (DBCC) briefing at the House of Representatives on Friday.

President Ferdinand R. Marcos, Jr. took his oath of office on June 30. In his first State of the Nation Address (SONA) on July 25, he cited the amendments to the BOT Law as a priority legislation.

“Specifically, the amendments seek to address the ambiguities in the existing law; address the bottlenecks and challenges affecting the implementation of the PPP (public-private partnership) program; and foster a more competitive and enabling environment for PPPs,” Mr. Marcos had said.

Amid fiscal constraints brought on by increased borrowings during the pandemic, the Marcos administration is looking to attract more investments in infrastructure through PPPs.

Socioeconomic Planning Secretary Arsenio M. Balisacan earlier this month said Mr. Marcos already directed the National Economic and Development Authority (NEDA) to review certain provisions of the BOT IRR, albeit still waiting for an executive order.

Mr. Balisacan had hinted the discussions revolved around the Material Adverse Government Action (MAGA) clause and arbitration issues.

“We have received several private sector stakeholders’ comments expressing their concerns over specific provisions of the IRR. Of course, careful review of the rules requires that we perform a balancing act: encouraging private investment to promote job creation, technological innovation, and product competition while protecting the public interest,” Mr. Balisacan said then.

Since it took effect in April, business groups have criticized the BOT IRR, saying it compels private proponents to shoulder more risk while relieving the government of responsibility for delayed deliverables.

In a joint letter to Mr. Marcos dated Aug. 12, 2022, the Foundation for Economic Freedom (FEF), the Makati Business Club (MBC), and the Management Association of the Philippines (MAP) called the revised IRR “anti-market” and “unfair to the private sector,” citing Section 12.22 of the BOT IRR and the MAGA as their primary concerns.

“Leaving the 2022 BOT IRR as it is may lessen private sector interest in infrastructure, make bids less competitive, and ultimately make infrastructure more expensive for citizens,” the groups said in a joint statement.

According to Section 12.22 of the BOT Law’s revised IRR, the government cannot be taken to court for an impartial arbitration forum.

“Rather than rejecting arbitration, the government should accept it as an apolitical mode of dispute resolution that should free government and local courts from populist pressures. Such pressures may lead to expedient short-term benefits that hurt the country’s long-term reputation as an investment destination and as a partner,” the FEF said in a separate statement.

On the other hand, the BOT IRR defines MAGA as “any act of the Executive branch, which the project proponent had no knowledge of, or could not reasonably be expected to have had knowledge of, prior to the effectivity of the contract; and that occurs after the effectivity of the contract, that: specifically discriminates against the project proponent; and has a material adverse effect on the ability of the project proponent to comply with any of its obligations under the contract.”

“The less clear the terms of the Partnership, the more it encourages politically connected groups to capture regulatory agencies and change terms after awards. Such behavior cannot be in the national interest,” the FEF added.

The FEF also opposed the removal of the parametric formula because it can make long-term projects “non-bankable” as such formulas are an objective means of setting rates and returns.

“Reasonable people might disagree on what might constitute a ‘fair’ formula, but even an overly generous formula will translate into more attractive terms from the private sector, if the competitiveness of the process is protected,” the FEF said.

The business groups said that they are willing to participate in infrastructure development provided that the IRR is revised.