The proposed Public-Private Partnership (PPP) Act passed by the lower house on third and final reading last week, will help close an infrastructure investment gap of P7.3 trillion.
House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district), principal sponsor of the measure, and technical working group chair of the PPP Act proposal, said “PPPs matter now more than ever.” The House voted 254 against three on the measure at the plenary on December 12.
Salceda said the PPP Act (HB6527) is meant to provide an enabling environment that would foster the growth of public-private partnerships for large infrastructure and other development projects.
The measure defines PPP as a “contractual arrangement between the implementing agency and the private sector proponent for the financing, designing, constructing, operating and maintaining, or any combination thereof, of infrastructure or development projects which are typically provided for by the public sector, where each party shares in the associated risks.”
“Our national government debt stands at 62.1 percent of the Gross Domestic Product (GDP), and is expected to remain elevated to around 52% at the end of President Marcos’s term. The implementation of the Mandanas-Garcia ruling has also reduced the national government’s fiscal space,” the lawmaker said.
“Borrowing costs are also expected to remain elevated as central banks continue to fight global inflation. Limited fiscal room forces us to be more creative in looking for funding sources for the country’s infrastructure investment gap,” Salceda explained.
The PPP Law is among the priority legislations announced by President Marcos during his first State of the Nation Address.
Quoting the G20 Global Infrastructure Outlook, Salceda said the Philippines “needs US$559 billion in investments in key infrastructure sectors until 2040 to meet its Sustainable Development Goals.”
“Optimistic trends bring us to US$429 billion, with an investment gap of US$131 billion, even considering national government investments in infrastructure. In other words, we need to search for funding for around P7.3 trillion in infrastructure projects to meet the Sustainable Development Goals,” Salceda explained.
The national government, he added, “cannot realistically raise P1.047 trillion in taxes every year to meet this gap. As Ways and Means Chair, I can already tell you that we cannot raise this much. The government, however, can leverage the resources of the private sector to ensure that these projects are undertaken in some form and under some arrangement.”
He noted that in 2021 alone, “the capital expenditure budget of the largest conglomerates was P585 billion. Some P27.2 trillion in resources is available for accessing in the country’s financial system. The private sector, in other words, can easily bridge the gap. Thus, a strong framework for public-private partnerships is essential.”
Salceda said the key features of the proposed PPP Law include: 1) the institutionalization of a PPP project pipeline; 2) clarity in the proper approving body for each PPP project; 3) clarity in defining solicited and unsolicited proposals, parameters and guidelines in negotiated procurement of PPP projects; 4) clearer and stronger safeguards in the case of unsolicited projects; 5) stronger rules on competition for procurement of PPP projects;
6) Clearer rules on joint ventures, redress and risk management mechanisms to ensure the fair allocation and proper management of risks; and 7) provisions on the regulation of tariffs and rates, and institutionalization of PPP governance mechanisms, including the PPP center, the PPP governing board, the Project Development and Monitoring Facility, and a PPP unit per agency.
The proposal also includes a clearer definition of material adverse government action (MAGA), which is often the most contentious or litigious aspect of PPP contracts, because it is the basis for payment of contingent liabilities by government.
President Marcos’s economic team recommended the urgent passage of the PPP Act as it will “greatly enhance private sector participation in infrastructure development and will aid in the country’s post-pandemic recovery and long-term economic growth,” according to a letter jointly signed by Socioeconomic Planning Secretary Arsenio M. Balisacan, Finance Secretary Benjamin E. Diokno, and Budget Secretary Amenah F. Pangandaman.