Chambers Global Practice Guide on Project Finance 2023: Philippines
November 2, 2023
Law and Practice
1. Project Finance Panorama
1.1 Sponsors and Lenders
Local conglomerates typically act as sponsors for infrastructure projects. These include San Miguel Corporation, Metro Pacific Investments Corporation, Aboitiz Equity Ventures, Ayala Corporation and other groups. Local sponsors may also form consortia with foreign or local partners that have the technical expertise to undertake a particular component or phase of the project. However, given the relaxation of restrictions on foreign equity in public services and renewable energy ("RE") (see Section 1.3 Structuring the Deal), foreign investors may be inclined to take a more active role and not limit themselves to acting as minority investors or technical partners.
Local banks play a major role in arranging and financing infrastructure projects. Multilateral institutions (such as the Asian Development Bank) and other international financial institutions (such as the Japan Bank for International Cooperation, Korea Export-Import Bank and China International Trade and Investment Corporation) also participate in financing infrastructure projects.
1.2 Public-Private Partnership Transactions
Public-private partnerships (PPPs) are governed by the Build-Operate-and-Transfer Law (Republic Act. No. 6957; the BOT Law) and its 2022 implementing regulations (the BOT Rules).
Under this framework, the private sector may participate in the construction, rehabilitation, improvement, expansion, operation, financing and maintenance of projects which are normally undertaken by the public sector.
PPP projects may include infrastructure or development projects, such as the following and their related facilities: highways and roads; port infrastructure and related services; airports; power generation, transmission and distribution; renewable energy and related infrastructure; telecommunications; IT networks and infrastructure; irrigation; water supply, sewerage, and drainage; and others.
The principal contractual arrangements for PPPs include build-operate-and-transfer (BOT), build-and-transfer, build-own-and-operate (BOO), build-lease-and-transfer and other variants. Contractual schemes not expressly contemplated by the statute may also be undertaken, subject to approval by the President.
PPP projects may be structured as either availability PPPs or concession-based PPPs. In an availability PPP, the implementing agency (IA) contracts with a private entity to provide a public good or service at a constant capacity for a given fee (capacity fee) and a separate charge for usage of the public good or service (usage fee). Fees or tariffs are regulated by contract to provide for the recovery of debt service, fixed operating expenses and a return on equity. In a concession PPP, the IA grants a private entity the right to build, operate and charge the public for the use of the good or service, a fee or tariff that is regulated by the government.
Generally, the BOT Law also provides that for BOT and similar arrangements, the private proponent will be repaid by collecting reasonable tolls, fees, rentals and/or charges for a fixed term, which must not exceed 50 years. (The private proponent in other contract variants may be compensated using a different structure.)
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