Public-Private Partnership Philippines: Guide for Foreign Investors

Foreign investors may participate in Philippine public-private partnerships (PPPs), but the rules on ownership and public utility franchises matter. Under the PPP Code of the Philippines (Republic Act No. 11966) and its Implementing Rules and Regulations (IRR), a Private Proponent — the entity that submits a bid for a solicited project or an unsolicited proposal — may be Filipino or foreign-owned, and may engage a foreign Contractor or foreign Facility Operator. That permission is expressly subject to the requirements and limitations in the Constitution, existing laws, rules, and regulations. In practice, this means a foreign investor can take part, but must check sector-specific ownership rules before committing capital.

What counts as a PPP in the Philippines

The IRR of the PPP Code defines a PPP as a contractual arrangement between an Implementing Agency and a Private Partner to finance, design, construct, operate, and maintain — or any combination of these — infrastructure or development projects and services typically provided by the public sector. Each party shares in the associated risks, and the Private Partner's investment recovery is linked to performance.

An Implementing Agency may be a national department, bureau, office, commission, or authority, a state university or college, a local university or college, a local government unit, or a government-owned or -controlled corporation.

Covered projects include highways, railways and other land transport systems, ports, airports, power generation and transmission, water supply and sewerage, telecommunications, irrigation, health and educational infrastructure, and similar facilities.

Who may invest: the foreign ownership rules

The IRR states that the Private Proponent may be Filipino or foreign-owned, and may engage the services of a foreign Contractor or foreign Facility Operator — subject to the Constitution, existing laws, rules, and regulations. That caveat is where the real work lies for a foreign investor.

Republic Act No. 7718, the earlier build-operate-transfer law, supplies the clearest statutory limit. For the construction stage, the project proponent may obtain financing from foreign or domestic sources and engage a foreign or Filipino contractor. However, where the operation of a facility requires a public utility franchise, the facility operator must be Filipino, or if a corporation, duly registered with the Securities and Exchange Commission and owned up to at least sixty percent (60%) by Filipinos. The same sixty percent Filipino ownership requirement applies to the proponent of a build-operate-and-transfer project whose operation requires a public utility franchise.

Foreign contractors also face a labor condition: Filipino labor shall be employed or hired in the different phases of construction where Filipino skills are available.

Solicited and unsolicited proposals

A Solicited Project is one identified by an Implementing Agency as part of its List of PPP Projects and subjected to public bidding. Under RA 7718, projects are published once every week for three consecutive weeks in at least two newspapers of general circulation and at least one local newspaper circulated in the region, province, city, or municipality where the project will be built.

An Unsolicited Proposal is a project proposal made by a Private Proponent to undertake a PPP Project. Under RA 7718, unsolicited proposals may be accepted on a negotiated basis only if all of the following are met:

• The project involves a new concept or technology, or is not part of the list of priority projects;
• No direct government guarantee, subsidy, or equity is required; and
• The agency has invited comparative or competitive proposals by publication for three consecutive weeks in a newspaper of general circulation, and no other proposal is received for sixty working days.

If another proponent submits a lower price proposal, the original proponent has the right to match that price within thirty working days.

Bidding and award basics

For a build-operate-and-transfer arrangement, the contract is awarded to the bidder who meets the minimum financial, technical, organizational, and legal standards and submits the lowest bid and most favorable terms, based on the present value of proposed tolls, fees, rentals, and charges over a fixed term.

For build-and-transfer or build-lease-and-transfer arrangements, award goes to the lowest complying bidder based on the present value of the proposed amortization schedule. A Filipino contractor who submits an equally advantageous bid — exactly the same price and technical specifications as a foreign contractor — is given preference.

Bidding follows a two-envelope, two-stage system: the first envelope holds the technical proposal, the second the financial proposal. A consortium must show that its members have bound themselves jointly and severally for the project, and withdrawal of a member before implementation may be a ground for contract cancellation.

Key contract terms foreign investors should note

Under RA 7718, the term for imposing and collecting tolls, fees, rentals, and charges is fixed as proposed in the bid and incorporated in the contract, but in no case may it exceed fifty years. Rates may be adjusted during the contract life based on a predetermined formula using official price indices.

If a project is revoked, cancelled, or terminated by the government through no fault of the proponent, or by mutual agreement, the government compensates the proponent for actual expenses incurred plus a reasonable rate of return not exceeding that stated in the contract. If the government defaults on major obligations and the failure is not remedied, the proponent may terminate the contract after prior notice, and shall be reasonably compensated.

Projects in excess of One billion pesos (P1,000,000,000) are entitled to incentives under the Omnibus Investments Code upon registration with the Board of Investments.

Frequently asked questions

Can a foreign company own a PPP project in the Philippines? It depends on the sector. The PPP Code IRR allows a foreign-owned Private Proponent, but RA 7718 requires that where a facility's operation needs a public utility franchise, the facility operator must be Filipino or at least sixty percent Filipino-owned.

Can foreigners submit unsolicited PPP proposals? Yes. The rules on unsolicited proposals apply to Private Proponents generally, but the proposal must meet the conditions in RA 7718, including no direct government guarantee, subsidy, or equity.

How long can a PPP contract run? Under RA 7718, the fixed term for collecting tolls, fees, rentals, and charges may not exceed fifty years.

Practical takeaways

• A foreign investor may participate in Philippine PPPs, but ownership limits apply where a public utility franchise is required.
• Expect the sixty percent Filipino ownership rule for facility operators in franchise-requiring projects.
• Unsolicited proposals are allowed only if the statutory conditions are met, including the sixty-working-day publication period.
• Bid evaluation favors the lowest complying bid, with a preference for equally advantageous Filipino bids.
• Contract terms, including the tariff period, are capped and must be built into the bid.

Primary sources

The rules discussed above are drawn from the following primary sources. Where the firm's library holds the document as a PDF it is embedded here in full; the rest are cited by title.

RMC No. 45-2017 — Publishes the full text of Executive Order No. 19, entitled "Reduction and Condonation of Real Property Taxes and Interests / Penalties Assessed on the Power Generation Facilities of Independent Power Producers under Build-Operate-Transfer Contracts with Government-Owned or -Controlled Corporations" Digest | Full TextOpen in Law LibraryDownload PDF

• IRR of REPUBLIC ACT NO. 11966 - IMPLEMENTING RULES AND REGULATIONS OF REPUBLIC ACT NO. 11966, "AN ACT PROVIDING FOR THE PUBLIC-PRIVATE PARTNERSHIP (PPP) CODE OF THE PHILIPPINES"

• REPUBLIC ACT NO. 7718 - AN ACT AMENDING CERTAIN SECTIONS OF REPUBLIC ACT NO. 6957, ENTITLED "AN ACT AUTHORIZING THE FINANCING, CONSTRUCTION, OPERATION AND MAINTENANCE OF INFRASTRUCTURE PROJECTS BY THE PRIVATE SECTOR, AND FOR OTHER PURPOSES"

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.