Aquino to protect big infra investors
Philippine Daily Inquirer
President Benigno Aquino III Thursday said that his administration would compensate investors prevented by the courts or Congress from collecting contractually agreed toll or user fees.
“If for some reason, a court decision threatens the adjustment, the government will compensate the private concessionaire for the difference between what the tariff should have been under the formula and the tariff which it is actually able to collect,” the President said at the opening of the public-private partnership conference in Pasay City.
Before some 500 foreign fund managers at the Marriott Hotel, Mr. Aquino unveiled this landmark policy that his economic team hoped would assuage overseas businessmen’s fears about their ability to recoup investments.
“If we are truly interested in a square deal for all, then what we shake hands on, should be what endures,” he said. “To this end, what we will be doing in so far as solicited projects are concerned is to minimize your risk in a meaningful and fair manner.”
Mr. Aquino said the government would provide investors with protection against so-called “regulatory risk” or the risk of being unable to recoup one’s investments due to changes in the local regulatory environment—a common complaint among foreign businesses operating in the Philippines.
“Infrastructure can only be paid for from user fees or taxes,” he said.
“When government commits to allow investors to earn their return from user fees, it is important that that commitment be reliable and enforceable. And if private investors are impeded from collecting contractually agreed fees—by regulators, courts, or the legislature—then our government will use its own resources to ensure that they are kept whole.”
Seeking to lure back foreign investors, many of whom have been personally burned by soured investments or deterred by tales about the perils of doing business in the country, he said: “You cannot deal with a government where the right hand is offering a handshake while the left hand is trying to pick your pocket.”
Mr. Aquino gave the example of a private firm that agreed with the government on a specific formula for toll increases for the public’s use of a road it rehabilitated.
Malaysian-backed South Luzon Tollways Corp. (SLTC), which holds the 30-year concession for the South Luzon Expressway (SLEx), was earlier stopped by the Supreme Court from implementing a new toll rate.
The new rate, which is 250-percent higher than the existing toll, is meant to help the company recover the minimum of P12 billion it spent to rehabilitate and modernize the road.
The additional funds will also allow the company to maintain world-class services at SLEx.
The delay caused by the restraining order, which has since then been lifted, has cost SLTC up to P1 billion in foregone revenues.
Market risk not covered
“Commercial or market risk, which you are in the business of determining, will be borne by investors, as it should be,” the President said.
Mr. Aquino said the guarantee he was giving was different from the “politically difficult guarantees” that past administrations had given.
He cited the power supply contracts that committed government to buying electricity “regardless of what the actual demand was”—known as “take-or-pay.”
Take-or-pay means that a company will still be able to collect payments even for energy it is not able to deliver due to lower-than-expected-demand from consumers.
Mr. Aquino said the contracting of projects under the public-private partnerships would be “clear, honest and transparent.”
He unveiled 10 rail, road and airport projects to be formally put out to tender at the end of next year and worth a combined $3.4 billion.
Break from past
In an interview with the Inquirer, Finance Secretary Cesar Purisima said the new regulatory risk guarantee marked a crucial break from policies of past administrations which guaranteed investors’ “commercial risk.”
“Back then, the government committed to pay a fixed amount whether the investors could sell [their product or service] or not,” he said.
“That is how we got saddled with expensive power rates from these IPPs (independent power producers, contracted at the height of the 1990s power shortage),” he added.
“Today, we will no longer guarantee commercial risk, but instead cover only regulatory risk for solicited projects.”
The finance secretary said the scheme would involve the creation of a funding pool, initially put up by government financial institutions, that will be, in turn, backed by guarantees from multilateral lending institutions like the World Bank and the Asian Development Bank.
“If the investors cannot collect their agreed return on investment—for example, because of a court-issued injunction on a toll hike—the government will pay them the difference of the existing rate and the rate that they should be collecting,” Purisima said.
He said this “regulatory” risk guarantee sought to preserve the sanctity of the contract.
This also ensures that there are no sudden changes in government policies that may hinder a company from recovering its investment.
Alistair Macdonald, head of the European Union delegation in the Philippines, said he welcomed the government’s pledges of fair play and transparency.
“I think it’s something that’s extremely important that I was delighted to hear. The President … addressed precisely this question, which will also be very encouraging for the business community,” Macdonald said.
Activists staged a rally in front of Marriott Hotel at the launching of the public-private partnership (PPP) program.
Senior Insp. Prudencio Lumapad said some 40 members of militant groups led by Bayan Muna held the demonstration at around 10:30 a.m.
Bagong Alyansang Makabayan (Bayan) secretary general Renato Reyes Jr. said policemen took away the streamer carrying the message “Philippines not for sale!”
Critics said the PPP program would bloat the country’s debt and speed up corporations taking over roles played by the government at the expense of public interest. With reports from Tina G. Santos and Agence France-Presse