DOF extensive review of PPP contracts abates gov’t fiscal risks

Pursuant to the directive of President Duterte to review all contracts “with the end in view of abrogating or revising the provisions that are prejudicial and onerous to the Filipino people,” the Department of Finance (DOF) has conducted a thorough review of about a dozen big-ticket public-private partnership (PPP) contracts to minimize the State’s risks and exposure from contingent liabilities.

Spearheaded by its Privatization and Special Concerns (PSC) Office, the DOF’s extensive review was undertaken on the contracts of, among others, the Mactan-Cebu Airport Project, Maynilad Water Services Inc. (MWSI) and Manila Water Company (MWC), Cavite-Laguna Expressway (Calax), Clark International Airport Expansion Project and the Metro Rail Transit Line 3 (MRT3).

DOF Undersecretary Grace Karen Singson, who heads the PSC Office, said her office also studied the provisions of the contracts for the LRT1 Cavite Extension and Operations and Maintenance Project, MRT Line 7 (MRT7), Muntinlupa-Cavite Expressway (MCX), NLEX-SLEX Connector Road, Bulacan Bulk Water Supply Project (BBWSP) and the Southwest Integrated Transport System (SITS) Phases 1 and 2.

In addition to the review of existing PPP contracts, the PSC Office is currently evaluating around forty (40) PPP proposals submitted to the Investment Coordination Committee (ICC) of the National Economic and Development Authority (NEDA) during the Duterte Administration, which have not been acted upon yet.

These PPP proposals were awarded Original Proponent Status (OPS) by various Implementing Agencies (IAs).

In a Resolution issued on November 2021, the ICC mandated the evaluation of information submitted by the respective IAs to the ICC, and the financial, technical and legal capability of the private proponents to undertake their respective proposals.

The PSC Office also made substantial contributions to the amendments to the implementing rules and regulations (IRR) of the Build-Operate-Transfer (BOT) Law, with the goal of managing fiscal risk and provide transparency in Government contingent liabilities from PPP projects that could unnecessarily burden taxpayers, said Singson in her report to Finance Secretary Carlos Dominguez III.

Dominguez has cited the thorough review by the DOF’s PSC of these PPP projects as a trailblazing feat that has not been done before by Government on transportation and other big-ticket ventures undertaken by the private sector.

“Such extensive review of PPP projects, which we hope to be institutionalized for the ultimate benefit of our people, would ensure that the government is free from undue risks or contingent financial liabilities that would, in the end, have to be shouldered by the public in the form of more taxes or higher fees charged by the concessionaires for the use of their facilities until such time that these are turned over to the state,” Dominguez said.

Singson said her office also recommended that the NEDA Board issue a resolution to institutionalize the assessment of risks, government guarantees and contingent liabilities in the evaluation of project proposals brought before it for approval.

To strengthen the government’s capability in evaluating contingent liabilities, the PSC has recommended the creation of a Risk Management Office (RMO) to undertake such assessments of risks, government guarantees and contingent liabilities in the state’s joint ventures with the private sector under the PPP model.

Singson made the recommendation after an evaluation of the current risk management program bared that this was being done only by an ad hoc technical working group (TWG) without the necessary mandate and resources to review PPP contracts.

Currently, the provisioning for contingent liabilities is based on estimated Termination Payments, a low probability event, and does not account for actual claims that are frequently demanded by concessionaires during the implementation of their PPP projects.

As proposed, the RMO shall identify and evaluate contingent liabilities and other risks assumed by the government through National Government Agencies (NGAs) and GOCCs in relation to PPP projects; recommend risk mitigation measures; provide assistance to the Development Budget Coordination Committee (DBCC) in the implementation of the risk management program; strengthen the evaluation of proposals requiring sovereign guarantees, and provision for concessionaire claims.

Apart from PPP contract evaluation, the PSC Office also pushed the enactment of a Coconut Industry Law that would directly benefit the country’s 2.5 million small coconut farmers and shield the multibillion-peso coconut levy fund from abuses through the creation of a Trust Fund Management Committee (TFMC).

Under Republic Act (RA) No. 11524, or the “Coconut Farmer and Industry Trust Fund Act,” the TFMC is responsible for setting the Investment Strategy of the Trust Fund and ensuring that funds are prudently managed for the benefit of the coconut farmers.

The PSC Office also contributed to the preparation of the Implementing Rules and Regulations of RA No. 11524, which became effective on 25 June 2021.

The Coconut Farmer and Industry Trust Fund Act also resulted in the crafting of the Coconut Farmers and Industry Development Plan, which has been endorsed to the Office of the President for approval.