Key takeaways

The Amended 2022 IRR introduced, among others, the following key changes: 

• Material Adverse Government Action (MAGA), which subjects the Philippine government to liabilities in PPP arrangements, now covers acts of all three branches of government. The Amended 2022 IRR no longer makes any express distinction among acts of the executive, legislative, or judiciary. 

• The clause in the 2022 IRR, which provides that "[a]cts and decisions of regulators shall not be subject to arbitration," has been removed. It appears that the public sector partners would now be open to arbitration proceedings arising from PPP disputes, provided that it is mutually agreed upon in the contract. 

• The private sector partner may recover funds from the public sector partner in accordance with the terms of their PPP contract, in instances where: 
  • A government regulator approves a franchise that results in a decrease in the amount of tolls, fees, rentals, charges under the PPP contract.
  • The initial toll, fee, rental, or charge stipulated in the PPP contract is disapproved by a government regulator.
  • The proposed adjustment of toll, fee, rental, and charge in the PPP contract is disapproved by a government regulator. 
     
• An unsolicited proposal need not undergo initial evaluation by a Technical Working Group (TWG), prior to the evaluation of the Investment Coordination Committee (ICC).
   
• The definition of "Private Sector or Development Projects" has been expanded to include intermodal transport stations and terminals, in-land cargo terminals, park and ride facilities, automated fare collection systems, traffic management systems, traffic monitoring systems, traffic enforcement systems, congestion management systems, and parks. Certain concepts such as "availability payments" and "viability gap funding" have now been expressly defined.

In more detail

The 2022 IRR was criticized by stakeholders on the ground that it subjects private sector participants to assume more risk, and is therefore "anti-market" and "unfair to the private sector." Discussed below are some of the reasons raised by the stakeholders, and how they are addressed by the amended 2022 IRR. 

1. Narrow definition of MAGA 

The definition of MAGA in the 2022 IRR excludes the regulatory acts of the executive branch, and acts of the legislative and judicial branches of government from the scope of MAGA. This was interpreted to transfer regulatory risk and change-in-law risk to the private sector partner. 

The Amended 2022 IRR now cover acts of all three branches of the government in the definition of MAGA. 

2. The uncertainty of user charges in PPP arrangements 

An issue said to be affecting profitability of private sector partners in PPP arrangements is the lack of transparent policies for the setting and adjustment of user charges. As a matter of practice, this was addressed and/or mitigated by expressly including the initial user charges and the formula for future adjustment of user charges in PPP contracts. While 2022 IRR still allows the setting of user charges and adjustments in PPP contracts, these provisions would not be enforceable unless approved by a government regulator, leaving the private sector with no speedy recourse in case of denial or adverse decision. Notably, the 2022 IRR provides that the public sector partner would not be liable in case the government regulator issues an adverse decision on the contemplated user charges or adjustments. The 2022 IRR also provides that these matters may not be submitted for arbitration.  

The Amended 2022 IRR now allows the private sector partner to recover funds from the public sector partner where the initial toll, fee, rental, or charge stipulated in the PPP contract, or an adjustment thereto, is disapproved by a government regulator. The Amended 2022 IRR also removed the restriction that acts of regulators shall not be the subject of arbitration. 

3. Red tape 

The 2022 IRR adds another layer of approval in unsolicited proposals by creating a TWG consisting of, among others, the NEDA, DOF, and the prospective public sector partner. It may be viewed that the TWG essentially performs a similar function as the ICC, which results in redundancy and even risks of conflicting findings on the part of NEDA and DOF (which are members of both the TWG and the ICC). 

The Amended 2022 IRR no longer requires an unsolicited proposal to be approved by a TWG.

Why the Amended 2022 IRR is relevant to you

The Amended 2022 IRR appears to address some private sector concerns on: (i) the distribution of risk between the private and public sector partners, (ii) enforceable remedies for private sector partners in relation to acts of the government regulators, and (iii) expediting approval processes for unsolicited proposals. For these reasons, project proponents are advised to consider the impact of the Amended 2022 IRR in the PPP projects they look to participate in.

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