On 15 September 2022, the Cabinet-level Committee on the Build-Operate-Transfer (“BOT”) Law Implementing Rules and Regulations (“IRR”) approved new revisions to the recently amended BOT Law IRR. The previous version of the IRR, which was passed on 31 March 2022, drew sharp criticism from several economists and business groups who posited that the rules compelled private proponents to shoulder more risks than the government.[1] In an effort to ensure that stakeholder concerns are addressed and perceived defects are corrected, the Committee on the BOT Law IRR conducted a face-to-face public consultation on 13 September 2022 and accordingly introduced new revisions on 15 September 2022. 

Salient points and key changes

The revised IRR has the following salient points and key changes:

• Material Adverse Government Action (“MAGA”) now applies to all acts of the government. Prior to the revisions, MAGA was specifically limited to acts of the executive branch of the government. However, under the updated IRR, MAGA applies to all governmental acts.
• Availability payments is now defined. Availability payments is defined as predetermined payments by the Agency/LGU to the Project Proponent in exchange of delivering an asset or service in accordance with the contract.
• Viability gap funding is now defined. Viability gap funding refers to a type of subsidy in the form of a financial support that the government may provide to a revenue-based Public-Private Partnership (“PPP”) Project with the objective of making fees affordable, while improving the commercial attractiveness of the project, excluding costs of right-of-way, resettlement, and real estate taxes.
• The scope of private sector infrastructure or development projects has been expanded. Private sector infrastructure or development projects now expressly include the following projects:
  • energy efficiency and conservation;
  • renewable energy;
  • electric vehicle charging stations with related infrastructure;
  • intermodal transport stations and terminals;
  • in-land cargo terminals;
  • park & ride facilities;
  • automated fare collection systems;
  • traffic management systems;
  • traffic monitoring systems;
  • traffic enforcement systems; and
  • congestion management systems.
• Project proponents[2] now have a clear remedy in case a regulator[3] disapproves the initial tolls, fares, fees, rentals, and/or charges stipulated in the contract. In case a regulator disapproves the initial tolls, fares, fees, rentals, and/or charges stipulated in the contract, the concerned government agency or Local Government Unit (“LGU”) may allow the project proponent to recover the difference between the tolls, fares, fees, rentals, and/or charges stipulated in the contract and the amount approved by the regulator through measures allowed in the contract and consistent with the Constitution and applicable laws.
• The concept of adjusted rate of return has been removed. The revisions removed the concept of adjusted rate of return presented by the previous IRR.
• Prior evaluation by a technical working group in projects requiring the approval of the Investment Coordination Committee (“ICC”) and/or National Economic Development Authority (“NEDA”) Board is no longer necessary. Previously, projects requiring the approval of the ICC and/or the NEDA Board were subject to evaluation by a technical working group composed of the NEDA, the Department of Finance (“DOF”) and the concerned government agency or LGU. The requirement of prior evaluation is now deleted.
• Independent property appraisers may now determine the value of the usufruct of government assets. Before the revisions, only government financial institutions were allowed to determine the value of the usufruct of government assets. However, under the revised IRR, a project proponent has the option of procuring the services of a government financial institution or an independent property appraiser for to determine the value of the usufruct of government assets.
• Acts and decisions of regulations may now be subject to arbitration. The revisions expressly remove the provision prohibiting acts and decisions of regulators from being subject to arbitration. As such, acts and decisions of regulations may now be subject to arbitration.

Conclusion

The revised BOT Law IRR aims to improve the investment climate of the Philippines in order to encourage greater private participation in PPP projects, especially in the area of infrastructure development. If successful, the IRR could significantly aid in addressing pressing national issues such as inflation, poverty and prolonged socioeconomic scarring from the COVID-19 Pandemic.[4]

If you have any questions or require any additional information, please contact Felix Sy and Dane M. Estepa of Insights Philippines Legal Advisors (a member of ZICO Law).

This alert is for general information only and is not a substitute for legal advice.

[1] Diego C. Robles, Marcos OK’s review of BOT Law rules, BusinessWord, available at: https://www.bworldonline.com/top-stories/2022/08/18/469130/marcos-oks-review-of-bot-law-rules/ (last accessed 13 October 2022).

[2] Project proponent refers to refers to the private sector entity which shall have contractual responsibility for the project and which shall have an adequate track record in the concerned industry as well as technical capability and financial base consisting of equity and firm commitments from reputable financial institutions to provide, upon award, sufficient credit lines to cover the total estimated cost of the project to implement the said project

[3] Regulator refers to refers to a department, bureau, office, instrumentality, commission, or authority of the national and local government, including Government-Owned and/or -Controlled Corporations (“GOCCs”), Government Instrumentalities with Corporate Powers (“GICP”), Government Corporate Entities (“GCE”), Government Financial Institutions (“GFIs”) that exercises a regulatory function over the Infrastructure or Development Project.

[4] Diokno bats amendments to Public-Private Partnership rules and regulations, Department of Finance, available at: https://www.dof.gov.ph/diokno-bats-amendment-to-public-private-partnership-rules-and-regulations/  (last accessed 13 October 2022).