Under its Build Better More programme, the Philippine government aims to establish infrastructure critical to the country’s development. The significant and indispensable role of the private sector in delivering high-quality infrastructure and basic services to the public has long been recognised.
The Public-Private Partnership (PPP) Code of the Philippines (Republic Act 11966) was signed into law in December 2023, providing for a unified and comprehensive legal framework which investors can refer to in establishing PPP projects at both national and local levels. The approval of the PPP Code’s Implementing Rules and Regulations (IRR) on 21 March 2024 further streamlines the approval process of PPP projects to attract foreign investment and promote sustainable economic growth.
Associate in the corporate and special projects department
ACCRALAW
The PPP code seeks to address inconsistencies and ambiguities in previous laws. It expressly repeals, among others, the Build Operate and Transfer Law (RA 6957, as amended by RA 7718), local PPP codes and joint venture ordinances, and the 2023 Revised Guidelines and Procedures for Entering into Joint Venture Agreements between Government and Private Entities.
One of the PPP Code’s salient features is the express inclusion of joint ventures (JVs) in its coverage. Under this law, a JV refers to a national or local PPP contractual arrangement, whether solicited or unsolicited, where resources are pooled to jointly undertake a specific investment activity within a specific period of co-operation to deliver an infrastructure or development project typically provided by the public sector.
The PPP Code does not cover JVs involving purely commercial arrangements that neither provide nor include public infrastructure or development services, and which do not satisfy the elements of a PPP. In such cases, these JVs are implemented under their relevant governing laws. To clearly determine whether a project falls under the PPP Code, a request for a non-policy matter opinion may be submitted to the PPP Centre.
For PPP projects, a JV may be undertaken through a contractual JV or by creating a JV company. However, in cases of a contractual JV, the government’s contribution cannot exceed 50% of the project cost, or 50% of the outstanding capital stock of the JV company. All equity contributions are subject to fair valuation by a third-party appraiser.
The formation of a JV must not prevent the parties from entering into other JV PPP contracts, or from profitably entering into other business ventures or markets, provided that such other ventures do not compete with the first JV for the same product and geographical market.
The shares of the implementing agency and the private partner in the profits, losses, assets and other interests of the JV must be proportionate to their respective contributions, unless a higher return for the government or more favourable terms are agreed and set out in the JV PPP contract.
On the termination of a JV PPP contract, all properties covered by it must be transferred to the implementing agency. In cases where the government deems that divestment from the JV is in the best interest of the public, JV PPP contracts may allow the private sector to take over the project in its entirety. Such takeovers must be in accordance with the rules and regulations governing privatisation. The PPP Centre must be informed of such takeovers in writing.
Under the PPP code, three to six years of imprisonment and fines ranging from PHP1 million (USD18,000) and PHP5 million (USD89,300) are imposed on a private individual or a public officer who:
(1) Fails to observe the threshold requirements on the equity contribution of JVs;
(2) Creates a JV that competes for the same products and geographic market of any existing JV between the implementing agency and the private partner; or
(3) Creates a JV which alters the mandate of the implementing agency entering into the JV.
At present, investors must note that the rules and restrictions imposed on JVs for PPP projects are limited to those provided under the PPP Code and its IRR. In view of the express repeal of the above-mentioned national and local issuances, it has yet to be seen whether the National Economic and Development Authority or the PPP Governing Board will enact guidelines that specifically cater to JVs in accordance with the passage of the PPP code.
This article was first published in Business World, a newspaper of general circulation in the Philippines. The views and opinions expressed in this article are those of the author. This article is for general informational and educational purposes only and is not offered as, and does not constitute, legal advice or legal opinion.
Emma Rose R Tomaneng is an associate in the corporate and special projects department of ACCRALAW
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