The Philippines is the first country in Asia to institutionalize private sector participation in infrastructure and development projects. In 1990, it enacted the build–operate–transfer (BOT) law (Republic Act 6957), which was amended and replaced by the Revised BOT Law and its Implementing Rules and Regulations (IRR) in 1994 (Republic Act 7718). The IRR was further revised in 2012, and the Revised BOT Law and its Revised IRR of 2012 form the legal and regulatory framework governing public–private partnerships (PPPs) in the Philippines. The Government of the Philippines also passed the Local Government Code in 1991 (Republic Act 7160) which encourages local government units (LGUs) to procure and implement infrastructure and development projects through PPP.
The Philippines is the first country in Asia to institutionalize private sector participation in infrastructure and development projects. In 1990, it enacted the Build–Operate–Transfer (BOT) Law (Republic Act 6957), which was amended and replaced by the revised BOT law and its implementing rules and regulations (IRR) in 1994 (Republic Act 7718). The IRR was further revised in 2012, and the revised BOT law and its revised IRR of 2012 form the legal and regulatory framework governing public–private partnerships (PPPs) in the Philippines. The Government of the Philippines also passed the Local Government Code in 1991 (Republic Act 7160), which encourages local government units (LGUs) to procure and implement infrastructure and development projects through PPP.
Over the last 3 decades, PPPs have been a key component of the overall strategy and development agenda of the Government of the Philippines for inclusive growth. The government has introduced many governance reforms to the BOT framework governing PPPs. These reforms include establishing the PPP Governing Board (PPPGB), a PPP Center, and the Project Development and Monitoring Facility (PDMF) to provide financial support for preparing PPP projects.
Executive orders and PPP-specific policy circulars have been issued clearly defining and detailing the PPP processes and mechanisms including the roles, responsibilities, and functions of various parties involved in a PPP. One such critical policy was Executive Order 136 of 2013, which reorganized the PPP Center and attached it to the National Economic and Development Authority (NEDA).
In 2016, the new government included the PPP program in its 10-point economic program highlighting the Philippines’ commitment to facilitate private sector participation in infrastructure investment. The government adopted the 2017–2022 Development Plan with infrastructure as a top priority, and targeted spending on infrastructure projects to reach $180 billion between 2017 and 2022. PPPs at the LGU level is a priority investment area in the 2017–2022 Development Plan, consistent with the current administration’s directive to accelerate infrastructure development in the countryside (footnote 1).
The PPP Center has proved to be working efficiently in facilitating PPP project preparation and development, building capacity of government contracting agencies, advocating policy reforms, monitoring implementation of PPP projects, and building up a PPP knowledge system. It also builds partnerships with organizations that aim to accelerate infrastructure development in the countryside, such as the Mindanao Development Authority, the Development Academy of the Philippines, and the League of Cities of the Philippines. The project preparation and bidding are generally carried out using experienced, international transaction advisers from the PDMF (footnote 1).
While much has been achieved in developing the PPP market in the Philippines, challenges still prevail. One of the critical impediments is the existing cap of 40% for foreign ownership in the PPP Project Special Purpose Vehicle for infrastructure PPPs, wherein the operation requires a public utility franchise. This may restrict competition and, as a result, may inhibit Philippine infrastructure development. According to the incumbent government, this issue is expected to be addressed through amendments to the 1987 Constitution.
The project financing scenario in the Philippines is dominated by local banks due to their aggressive lending backed by the very liquid debt market. The banks are uniquely positioned to lend to infrastructure PPPs on relatively attractive terms as compared to foreign loans, given their strong relationships with local conglomerates, and the requirement for loans to be in local currency. Furthermore, domestic banks do not require any political risk guarantee, unlike the international lenders, and they offer terms which are light on covenants.
The Philippines’ bond market is another source of long-term financing for PPPs. In 2016, the Asian Development Bank (ADB) provided support for the issuance of the Philippines’ first peso-denominated green project bond for the refinancing of the Tiwi and Makiling–Banahaw (Tiwi–MakBan) geothermal facilities (footnote 1).
In late 2016, the Securities and Exchange Commission (SEC) approved the listing of PPP Project Special Purpose Vehicles on the stock exchange, which is expected to widen the source of equity funding for PPPs (footnote 1). Today, however, no PPP company has ever been listed on the stock exchange.
The other critical challenges in implementing PPPs in the Philippines are that PPP contracts are not required to be published, and the absence of an independent dispute resolution body. Contractual arrangements that include the operation and maintenance of infrastructure and require regulatory authorization are also a challenge.
