DEPARTMENT OF THE INTERIOR AND LOCAL GOVERNMENT AND PUBLIC-PRIVATE ...

Draft for Discussion Only Version as of August 15, 2019

DEPARTMENT OF THE INTERIOR AND LOCAL GOVERNMENT AND PUBLIC-PRIVATE PARTNERSHIP CENTER JOINT MEMORANDUM CIRCULAR No. _____ Date: ___________

SUPPLEMENTAL GUIDELINES FOR THE IMPLEMENTATION OF PUBLIC-PRIVATE PARTNERSHIP FOR THE PEOPLE INITIATIVE FOR LOCAL GOVERNMENTS (LGU P4)

1. Background

Part of the socio-economic agenda of the Government is accelerating the annual infrastructure spending to account for five percent of gross domestic product, with PublicPrivate Partnerships (PPP) playing a key role. The current administration also declared1 its commitment to promote economic and social development not only in metropolitan areas, but also in the regions.

Following these pronouncements, the Department of Interior and Local Government (DILG) issued Memorandum Circular (MC) No. 2016-120, with the purpose of, among others, developing, creating, and strengthening the partnership between the local and private sectors in promoting the general welfare and providing better quality of life of the people.

Section 5.3 of DILG MC No. 2016-120 suggests a number of "LGU P4 modalities", among which local government units (LGUs) may choose from in implementing their PPP projects. Based on feedback that the DILG and the PPP Center received from LGUs since the issuance of DILG MC No. 2016-120, there is a need to provide further guidance regarding the LGU P4 modalities so that LGUs are able to properly implement their PPPs projects.

2. Purpose

This Joint Memorandum Circular (JMC) aims to provide LGUs further guidance on the modalities listed under Section 5.3 of said DILG MC. It also aims to provide an updated LGU P4 Code template that LGUs may adopt in undertaking PPPs in the form of Joint Ventures.

3. LGU Contracts with Private Sector Participation Pursuant to Section 5.3 of DILG MC 2016-120

Section 5.3 of DILG MC 2016-120 provides for a list of LGU P4 modalities that LGUs may enter into. This is anchored on Section 22(5) of RA No. 7160 (the Local Government Code or LGC) which provides that LGUs, in the exercise of their corporate powers, may enter into contracts with the private sector, subject to the requirements provided in the LGC and other applicable laws2.

1 President Rodrigo Duterte's first State of the Nation Address held in July 25, 2016. 2 In Alvarez v. People (G.R. No. 192591, dated June 29, 2011), the Supreme Court held that the local government unit should strictly follow the provisions of the BOT Law and its implementing rules and regulations which are designed to protect the public interest in transactions between government and private business entities.

Page 1 of 6

Draft for Discussion Only Version as of August 15, 2019

4. Scope/Coverage

This is policy applies to all Provincial Governors, City and Municipal Mayors, Punong Barangays, Local Sanggunian members, LGU League members, DILG Regional Directors, Field Officers and other concerned.

5. Policy Content and Guidelines

This JMC defines these LGU P4 modalities including: (a) PPP contractual arrangements, which can either be BOT Law variants or joint ventures; and (b) other contractual arrangements with private sector participation.

Prior to entering into such contractual arrangements with the private sector, the LGU shall determine the nature of the project by reviewing the draft contract based on the definitions provided in this JMC. Upon determination of the proper modality of the contractual agreement, the LGU shall proceed in accordance with the applicable procedure, as provided in this JMC.

5.1 BOT Law Variants and Joint Venture Agreements

5.1.1 BOT Law Variants

For any of the modalities provided and defined below, the LGU shall follow the project approval and bidding procedures provided in the BOT Law and its implementing rules and regulations (IRR):

a. Build-and-Transfer (BT) ? A contractual arrangement whereby the Project Proponent3 undertakes the financing and Construction4 of a given infrastructure or development facility and after its completion, turns it over to the LGU concerned, which shall pay the Project Proponent on an agreed schedule its total investment expended on the project, plus a Reasonable Rate of Return (ROR)5 thereon.

This arrangement may be employed in the construction of any infrastructure or development projects, including critical facilities which, for security or strategic reasons, must be operated directly by the Government.

b. Build-Lease-and-Transfer (BLT) ? A contractual arrangement whereby a Project Proponent undertakes the financing and Construction of an infrastructure or development facility, and upon its completion, turns it over to the LGU concerned on a lease arrangement for a fixed period, after which ownership of the facility is automatically transferred to the LGU concerned.

In the lease part of a BLT arrangement and of any other arrangements that have lease-transfer components following Section 3(A)(i)(j) below, the LGU is the lessee and the Project Proponent is the lessor. During the lease period, the LGU pays the Project Proponent lease payments.

3 The private sector partner; See also Section 2(k) of the BOT Law and Section 1.3(y) of its IRR. 4 See Section 2(p) of the BOT Law and Section 1.3(h) of its IRR. 5 See Section 2(o) of the BOT Law and Section 1.3(a.a) of its IRR.

Page 2 of 6

Draft for Discussion Only Version as of August 15, 2019

c. Build-Operate-and-Transfer (BOT) ? A contractual arrangement whereby the Project Proponent undertakes the financing, Construction, and the operation and maintenance of a given infrastructure or development facility. The Project Proponent operates the facility over a fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals, and charges not exceeding those proposed in its bid or as negotiated and incorporated in the contract, to enable the Project Proponent to recover its investment and operating and maintenance expenses in the project. The Project Proponent transfers the facility to the LGU concerned at the end of the fixed term, which shall not exceed fifty (50) years.

In cases where the operation of the infrastructure or development facility requires a public utility franchise, the Project Proponent must be Filipino or, if a corporation, must be duly registered with the Securities and Exchange Commission (SEC) and owned up to at least sixty percent (60%) by Filipinos.

This BOT arrangement shall include a Supply-and-Operate scheme which is a contractual arrangement whereby the supplier of equipment and machinery for a given infrastructure or development facility, if the interest of the Government so requires, operates the facility and in the process provides technology transfer and training to Filipino nationals.

d. Build-Own-and-Operate (BOO) ? A contractual arrangement whereby a Project Proponent undertakes the financing, Construction, ownership, operation and maintenance of an infrastructure or development facility from which the Project Proponent is allowed to recover its total investment, operating and maintenance costs plus an ROR thereon by collecting tolls, fees, rentals or other charges from facility users. Under this arrangement, the Project Proponent who owns the assets of the infrastructure or development facility may assign its operation and maintenance to a Facility Operator6.

All BOO projects shall, upon recommendation of the Investment Coordination Committee (ICC) of the National Economic and Development Authority (NEDA), be approved by the President of the Philippines.

e. Build-Transfer-and-Operate (BTO) ? A contractual arrangement whereby the LGU contracts out the Construction of an infrastructure or development facility to a Project Proponent such that the Contractor7 builds the facility on a turnkey basis, assuming cost overruns, delays, and specified performance risks.

Once the infrastructure or development facility is commissioned satisfactorily by the Project Proponent, the legal title for the same is transferred to the LGU. The Project Proponent, however, operates the facility on behalf of the LGU under an agreement.

6 See Section 2(m) of the BOT Law and Section 1.3(k) of its IRR. 7 See Section 2(l) of the BOT Law and Section 1.3(h) of its IRR.

Page 3 of 6

Draft for Discussion Only Version as of August 15, 2019

f. Contract-Add-and-Operate (CAO) ? A contractual arrangement whereby the Project Proponent adds to an existing infrastructure or development facility, which it is renting from the Government, and operates the expanded project over an agreed Franchise8 period.

In this arrangement, there may or may not be a transfer arrangement with regard to the added facility provided by the Project Proponent.

g. Develop-Operate-and-Transfer (DOT) ? A contractual arrangement whereby favourable conditions external to a new infrastructure or development facility, which is to be built by a Project Proponent, are integrated into the arrangement by giving the Project Proponent the right to develop adjoining property, and thus, enjoy some of the benefits the investment creates such as higher property or rent values.

h. Rehabilitate-Operate-and-Transfer (ROT) ? A contractual arrangement whereby an existing infrastructure or development facility is turned over to the Project Proponent to refurbish, operate and maintain for a Franchise period, at the expiry of which the legal title to the same is turned over to the Government.

This arrangement is also used to describe the purchase of an existing facility from abroad, importing, refurbishing, erecting and consuming it within the host country.

i. Rehabilitate-Own-and-Operate (ROO) ? A contractual arrangement whereby an existing infrastructure or development facility is turned over to the Project Proponent to refurbish and operate with no time limitation imposed on ownership. As long as the operator is not in violation of its Franchise, it can continue to operate the facility in perpetuity.

j. Other variations of the abovementioned contractual arrangements, as may be approved by the President of the Philippines.

The LGU may request the assistance of the PPP Center in developing and implementing projects that follow any of the abovementioned BOT Law variants.

5.1.2 Joint Venture Agreements

For purposes of this JMC, a Joint Venture (JV) is defined as an arrangement whereby a private sector entity or a group of private sector entities on one hand, and an LGU or a group of LGUs on the other hand, contribute money, capital, services, assets (including equipment, land, intellectual property or anything of value), or a combination of any or all of the foregoing, to undertake an investment activity. The JV involves a community or pooling of interests in the performance of an investment activity, and each party shall have the right to direct and govern the policies in connection therewith with the intention of sharing both profits, risks, and losses, subject to agreement by the parties.

The goal of the JV's investment activity shall be specific and shall facilitate private sector initiative in a particular industry or sector. The activity shall

8 See Section 1.3(l) of the BOT Law IRR.

Page 4 of 6

Draft for Discussion Only Version as of August 15, 2019

eventually be transferred to either the private sector entity or group of private sector entities, under competitive market conditions, or to the LGU or group of LGUs.

A JV may be undertaken either through: (a) the formation of a JV company, incorporated and registered under the Revised Corporation Code of the Philippines (RA No. 11232), its IRR, and Securities and Exchange Commission rules and regulations; or (b) a legal and binding agreement under which the parties shall perform rights and obligations without the need to form a JV company.

For JV agreements, the LGU may follow the process and procedures set forth in the following, whichever is applicable depending on the nature of the JV agreement:

a. For solicited joint venture projects or those joint venture projects identified and developed by the LGU, and for which the LGU and will formally solicit or request private sector participation, see Rule 2, Chapter 3 of Annex A of this JMC;

b. For unsolicited joint venture proposals or those joint venture project proposals submitted by the private sector to the LGU on the former's own initiative (not in response to a formal solicitation or request issued by the LGU), see Rule 3, Chapter 3 of Annex A of this JMC; and

c. For those joint venture projects where the LGU is beset with limited time, resources, and/or capacity in terms of development of solicited JV projects, or in terms of negotiating unsolicited JV proposals with the private sector, see Rule 4, Chapter 3 of Annex A of this JMC.

The LGU may request the assistance of the PPP Center in developing and implementing joint venture projects as defined above.

5.2 Other Contractual Arrangements

Apart from BOT Law variants and joint ventures defined above, LGUs may also enter into concessions, leases or affermage, management contracts with or without use of LGU funds, service contracts with or without use of LGU funds, divestments or dispositions, corporatizations, or incorporation of subsidiaries with private sector equity, onerous donations, and gratuitous donations.

If these contracts do not demonstrate the necessary characteristics or elements of any of the BOT Law variants or JVs as defined in the previous sections, the LGU shall implement the same in accordance with the provisions of RA No. 11232, the Civil Code of the Philippines (RA No. 386), the Government Procurement Reform Act (RA No. 9184), and other existing laws, whichever may be applicable.

6. References

a. BOT Law and its IRR b. DILG Memorandum Circular 2016-120 dated September 7, 2016

Page 5 of 6

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download