Infrastructure development continues to be a key focus of the government to sustain economic growth — and rightfully so as it enhances market access, attracts investments, and creates jobs. But with significant capital needed for infrastructure projects, the government by itself may not be able to fund the required expenditures.
Public-Private Partnership (PPP) with companies addresses this key challenge. In addition to private-sector funding, PPP arrangements share the risks involved and reduce cost to the government.
While the Philippines is regarded as the first Asian country to institutionalize the participation of the private sector in its infrastructure development projects, according to a publication by Asian Development Bank (ADB), a number of challenges abound in the implementation of PPP projects. These include a clear legal and regulatory framework, the efficient resolution of land acquisition and right-of-way issues in public transport projects, and time constraints in participating in unsolicited proposals.
This is the sixth article in our series following the 2nd SGV Tax Symposium, which focused on how a sustainable and effective tax ecosystem can advance the sustainability agenda for both the public and private sectors. This article will discuss the PPP landscape in the Philippines and ongoing government initiatives to improve it.
THE PPP LANDSCAPEIn the 2nd SGV Tax Symposium held on Oct. 25, the PPP Center speaker presented its policy initiatives to support PPPs which are sustainable and climate resilient. PPP Governing Board Resolution No. 2018-12-02 aims to facilitate the review process of the implementing agencies in PPP projects prescribing safeguards under prevailing laws. The Resolution aids the implementing agency in identifying requirements and ensuring safeguards are accounted for in a project’s feasibility study, ensuring the approved terms in the PPP contract consider the safeguards and measures to mitigate identified concerns, and prescribing monitoring, evaluation and feedback for the safeguards embedded in the PPP contract as described in Section 2.2 under the PPP Governing Board Resolution.
The speaker also discussed the Resilience Roadmaps and Investment Portfolios for Risk Resilience (IPRR) developed by the PPP Center together with ADB and the Urban Climate Change Resiliency Trust Fund. The IPRRs include PPP projects in localities which are susceptible to climate change impacts. As the infrastructure is expected to be long term, PPP projects should be resilient because these will essentially provide key basic social services.
ONGOING GOVERNMENT INITIATIVESIn June 2023, President Ferdinand R. Marcos, Jr. issued Executive Order (EO) 30, which changed the composition of the Public-Private Partnership Governing Board (PPPGB) to include a member from the private sector. The PPPGB is the overall policy making body on all PPP related matters, sets the strategic direction of the PPP Program, and creates an enabling policy and institutional environment for PPP. This addition seeks to empower the private sector to actively participate and help provide insights to the policy formulation and implementation by the PPPGB moving forward.
More recently, both the Senate and House ratified the Bicameral Conference Committee Report covering the PPP Code of the Philippines which reconciled House Bill 6527 and Senate Bill 2233. The proposed bill, which is awaiting the signature of the President, consolidates existing legal and regulatory framework governing PPP projects.
Among the highlights of the proposed PPP Code include:
• Allowing unsolicited proposals in the list of PPP projects without requiring new concept or technology, subject to reimbursement of the government’s development costs.
• Updating project approval thresholds for Build-Operate-Transfer (BOT) projects (previously fixed 29 years ago) and giving authority to the NEDA Investment Coordination Committee to review, evaluate, and update these threshold amounts.
• Upholding local autonomy while providing mechanisms to ensure harmonized investment programming between local government units and the National Government.
• Establishing a clear pathway for the issuance of franchise exacting toll fees, fares, rentals and other charges and allowing the private contractor to recover any shortfall consistent with the agreed PPP contract and prevailing laws, rules and regulations.
• Restricting provisional injunctive reliefs issued by lower courts subject to limited exceptions to ensure continuity in project evaluation and implementation.
• Strengthening the enabling institutions for PPPs particularly the PPP Center, which is granted additional powers and functions towards a more efficient and effective performance of its mandate.
PPPs AS A MEANS TO MANAGE INFRASTRUCTURE PROJECTSASEAN countries have shown increasing interest in PPPs as a way to fund and manage infrastructure projects. Studies show a direct correlation between infrastructure and gross domestic product (GDP) growth. According to a study by the World Bank, higher infrastructure growth generally equates to higher GDP growth, especially in developing countries.
The ADB projects that Asia will need to invest $26 trillion from 2016 to 2030 if it is to “maintain its growth momentum, eradicate poverty, and respond to climate change.” Comprehensively, it is important to meet the funding demand for infrastructure projects in the succeeding years to augment or stimulate the country’s production and protract its GDP growth trajectory.
The PPP Center has identified 106 PPP projects in the pipeline with total estimate project cost of P2.5 trillion from solicited and unsolicited proposals covering both local and national projects. Some of the notable ones include key infrastructure projects such as the NAIA PPP covering the rehabilitation, operation, optimization, and maintenance of NAIA airport, the Metro Manila Subway PPP covering operation and maintenance (O&M), North-South Commuter Railway O&M PPP, the Mindanao Railway project, the MRT 7 Project, and the Laguna Lake Rehabilitation and Development project. It is also promising to see proposed projects involving local government units covering bulk water supply and septage, waste to energy, subway and expressway, as well as reclamation and development.
The importance of PPP projects is emphasized by the fact that existing laws and regulations such as the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law, as implemented by the Strategic Investments Priorities Plan, grant tax incentives to qualified PPP projects. These incentives include income tax holidays with a maximum of seven years, enhanced deductions from gross income, enhanced net operating loss carryover, as well as duty and tax exemption on imports of capital equipment.
IMPROVING ECONOMIC GROWTH THROUGH PPPWhile the Philippines is trying to catch up with its neighbors in infrastructure development, ongoing initiatives of the government spearheaded by the PPP Center, legislation from Congress, and the support of both foreign and local institutions are set to help reel in funding from the private sector and drive future PPP projects.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co.
Jonald R. Vergara is a tax principal of SGV & Co., and Donelle Jay A. Quilates is a tax senior director of SGV & Co.