NEDA finally moves to repeal
Arroyo gov’t-private JVs edict

IT TOOK a while for them to take action but economic planners are finally moving to repeal the infamous guidelines on government-private sector joint ventures that exempted some of the former Arroyo administration’s large projects from high-level and strict scrutiny usually applied to big-ticket government infrastructure initiatives.

The guidelines have given rise to the proposed joint venture between the Metropolitan Waterworks and Sewerage System (MWSS) and San Miguel Corp. to build the Laiban dam in Tanay, Rizal, to boost water supply in Metro Manila.

The $1-billion proposed joint venture grew into one of the Arroyo administration’s most contentious projects, and at one point, even pitted the National Economic and Development Authority (NEDA) against the MWSS. Water officials refused to share copies of the project documents with the economic planning agency, insisting that NEDA officials read them only at a designated room at the MWSS.

NEDA also took the view that the “take or pay” provision in the MWSS-SMC agreement, which would require water companies to draw a fixed volume of water from Laiban dam whether or not they need it, constitutes a guarantee that is not allowed for unsolicited projects.

The initial joint venture agreement between the water agency and the food and drinks giant eventually ground to a halt in early 2010, amid mounting disagreements within the MWSS and the government on the fairness and legality of the agreement.

The joint venture guidelines, approved by the NEDA board under President Gloria Arroyo in April 2008, effectively exempted projects undertaken through joint ventures from the rigorous review of the NEDA Investment Coordinating Committee (ICC), a Cabinet-level body composed of several government agencies. The ICC typically evaluates and approves large government infrastructure projects financed by foreign loans or undertaken through build-operate-transfer (BOT) and related schemes.

But the guidelines also relaxed the tough terms that apply to unsolicited proposals, or projects that are not subject to competitive tendering. For example, the BOT law requires unsolicited proposals must be based on new concepts or technology, and should not be listed as a government priority project.

Direct government guarantees are disallowed, and NEDA-ICC clearance is required before negotiations. In contrast, there are no such strictures for unsolicited joint ventures, which are allowed for any project.

At least five other government projects were carried out under the terms of the joint venture guidelines but most involved property development or building of local infrastructures. None were as big as the Laiban dam, which would have been the MWSS’s single-biggest project in its over 130-year history. The project aims to shore up water supply in Metro Manila by 1,900 million liters a day (MLD), or half of the capital region’s existing supply.

A series of reports by the Philippine Center for Investigative Journalism (PCIJ) on the project drew attention to rush and secrecy that attended the MWSS’s search for challengers to San Miguel’s proposal. The reports also highlighted the worries of the water companies and economic managers that that the project may saddle Metro Manila water consumers with unusually high water rates because of “take or pay” provisions in the agreement that will require the water companies to buy water from San Miguel regardless of market demand.

The controversy triggered by the MWSS-San Miguel joint venture deal prompted the economic planning agency to consider a review of the 2008 joint venture guidelines even though it was just a little more than a year since the guidelines were issued.

A year after President Benigno Simeon C. Aquino III came to power, NEDA finally got a chance to actually do it. Section 15.4 of the proposed new implementing rules and regulations (IRR) on the build-operate-transfer law prepared by the NEDA explicitly “repeals the Guidelines and Procedures for Entering into Joint Ventures (JV) Agreements Between Government and Private Entities, otherwise known as the JV Guidelines of 2008.”

The new set of rules for the BOT law has gone through several public consultations since March. NEDA officials expect it to be issued by end-June, along with an executive order, to be signed by Aquino, that will recognize joint ventures as a variant of build-operate-transfer schemes, and repeal the joint venture guidelines of 2008.

The order will ensure that the BOT law’s strict terms particularly on unsolicited proposals will also apply to joint ventures, officials said. Indeed, the new implementing rules for the BOT law make it next to impossible for unsolicited proposals to be undertaken as a joint venture because direct government guarantees, subsidy and equity are disallowed for unsolicited proposals. Without government equity, a joint venture between a private company and a government unit is hardly possible.

NEDA officials say that the new implementing rules of the BOT law will help promote better governance in public-private partnerships that are at the heart of the Aquino administration’s strategy for building infrastructures. – PCIJ, May 2011