Wednesday, January 12, 2011

Public-private partnership schemes for local governments

In a recent interview, Philippine President PNoy said, “There is a need to fast-track the implementation of the Public-Private Partnership programs and projects as a cornerstone strategy of the national development to accelerate the infrastructure development of the country and sustain economic growth.”

This could not be truer in the local government front where lack of funds is a perennial concern, and is the usual excuse for below par delivery of basic services to the local government units’ (LGUs) constituents.

While the Local Government Code of 1991 has granted them so much autonomy, the LGUs have yet to maximize their full potentials as the backbone of the nation. LGUs rely basically on their internal revenue allotment (IRA) shares, collection of real property taxes, business permit fees, building permit charges, and some other minor, miscellaneous sources of revenues, e.g., market rents, boat and bicycle registrations, occupational permit fees. Lucky are those LGUs friendly with their congressmen for they will have a share of the pork barrel.

With an ever burgeoning population and increasing cost of delivering basic services on health, education, environment and sanitation, and infrastructure development, LGUs are hard put to make both ends meet. Salaries and wages of employees and workers alone already make up 40% of their annual budget.

Yet, the Local Government Code itself offers the solution: partnering with the private sector. Under Section 18, it provides that LGUs have the power to generate and apply their own resources. Among others, they have the power to create their own sources of revenue and to levy taxes, fees, and charges which shall accrue exclusively for their use and disposition; and to develop, lease, encumber, alienate, or otherwise dispose of real or personal property held by them in their proprietary capacity and to apply their resources and assets for productive, developmental, or welfare purposes.

Such unprecedented grant of power to LGUs by law remains untapped. Harnessing the opportunities offered by Section 18 is vast.

To name a few, roads, ports, markets, beaches, terminals, slaughterhouses, garbage collection, as well as all the idle lands of LGUs belonging to them in their proprietary functions, maybe subject of public-private partnerships or PPPs.

There are various modes of accomplishing such partnership.

The Amended Built-Operate-Transfer (BOT) Law gives several variations/schemes. Focusing primarily on infrastructure projects, the BOT Primer on Republic Act No. 7718 shows the following:     

Build-Operate-and-Transfer (BOT)
Build-and-Transfer (BT)
Build-Own-and-Operate (BOO)
Build-Lease-and-Transfer (BLT)
Build-Transfer-and-Operate (BTO)
Contract-Add-and-Operate (CAO)
Develop-Operate-and-Transfer (DOT)
Rehabilitate-Own-and-Transfer (ROT)
Rehabilitate-Own-and-Operate (ROO)
Other variations as may be approved by the President

In BOT projects, ownership of the subject property stays with the LGUs.

On the other hand, LGUs may also consider a joint venture scheme. In an opinion, the Department of Interior and Local Government (DILG) affirms the power of LGUs to enter into a joint venture agreement with the private sector pursuant to its corporate powers.

The National Economic Development Authority (NEDA) defines joint venture as, “A contractual arrangement whereby a private sector entity or a group of private sector entities on one hand, and a Government Entity or a group of Government Entities on the other hand, contribute money/capital, services, assets (including equipment, land or intellectual property), or a combination of any or all of the foregoing. Parties to a JV share risks to jointly undertake an investment activity in order to accomplish a specific, limited or special goal or purpose with the end view of facilitating private sector initiative in a particular industry or sector, and eventually transferring ownership of the investment activity to the private sector under competitive market conditions. It involves a community or pooling of interests in the performance of the service, function, business or activity, with each party having a right to direct and govern the policy in connection therewith, and with a view of sharing both profits and losses, subject to agreement by the parties. A JV may be a contractual JV, or a corporate JV.”

JV Agreements must be distinguished with BOT schemes as the former allows the private sector to take over the undertaking of a project in its entirety after the government divests itself of any interest in the JV.

Similar in the sense that ownership of the property stays with the LGUs, lease schemes may also be considered. Pursuant to their corporate powers and subject to applicable Commission on Audit (COA) circulars, LGUs can enter into lease agreements with the private sector. Generally, in a contract of lease, there is a subject matter, the use of a property of the LGUs; a cause or consideration which is the amount of rental that shall be paid by the lessee; and consent among the parties.

In a case, the Supreme Court upheld the Ombudsman’s findings that the mere provision in the contract that the building shall belong to the city government at the termination of the contract will not be sufficient to classify the transaction under the BOT scheme. This kind of provision is ordinary in long-term lease agreement.

In all instances, the modes of selecting a partner and awarding a contract are either through public bidding or unsolicited proposal, with the latter always subject to a challenge.

A common noble vision, strong political will and harmonious relations can help the LGUs become self-reliant, progressive and confident. In these instances, political and personal differences ought to be set aside. At stake is the future of their towns, cities, provinces, at the backdrop of globalization and international competitiveness. 

Indeed, with the initiative already coming from Malacanang through Executive Order No. 8, and the requisite synergy and cooperation between the local chief executive and the local sanggunian (legislature), including the civil society, the LGUs would be in a proper position to maximize their full potentials as a vital partner in nation-building.