The Study On PPP Institutional Building in The Philippines: Final Report (Non-Disclosure Version)

THE STUDY ON PPP INSTITUTIONAL
BUILDING IN THE PHILIPPINES
FINAL REPORT
(Non-Disclosure Version)
September 2013
Japan International Cooperation Agency (JICA)
KRI International Corp.

Mitsubishi Research Institute, Inc.
CTI Engineering Co., Ltd.
Final Report (Non-Disclosure) September 2013
Table of Contents
Chapter 1. Policy Matrix Prototype.................................................................................................... 1

1.1 About this Report ....................................................................................................................... 1
1.2 Policy Matrix Prototype ............................................................................................................. 1
Chapter 2. Necessity of Integrated Master Plan for Strategic Infrastructure Development ......... 4
2.1 Issues of Existing Master Plans .................................................................................................. 4
2.2 Scope and Function of Integrated Master Plan for Strategic Infrastructure Development ......... 5
2.2.1 Functions and Coverage of Integrated Master Plan ............................................................. 5
2.2.2 JICA’s Support to Develop Integrated Master Plan .............................................................. 6
2.3 Example of Integrated Master Plans in Indonesia: MP3EI and MPA ........................................ 7
2.3.1 MP3EI (Masterplan for Acceleration and Expansion of Economic Development) ............. 7
2.3.2 MPA (Metropolitan Priority Area) Master Plan ................................................................... 8
Chapter 3. Back Analysis for Creation of PPP Enabling Environment ........................................ 12
3.1 Regulatory Framework ............................................................................................................. 12
3.1.1 Proposed Amendments to the BOT Law ............................................................................ 12
3.1.2 Latest Amendments to the BOT Law IRR ......................................................................... 13
3.1.3 Other Issues on PPP Legal Framework .............................................................................. 18
3.2 Organizational and Policy Framework ..................................................................................... 20
3.2.1 Creation, Evolution and Strengthening of the PPP Center ................................................. 20
3.2.2 PDMF Support for PPP Projects ........................................................................................ 22
Chapter 4. Back Analysis on Public Financial Framework for PPP ............................................. 24
4.1 Introduction .............................................................................................................................. 24
4.2 Current Public Financial Framework ....................................................................................... 24
4.2.1 Project Development and Monitoring Facility ................................................................... 24
4.2.2 Viability Gap Funding: PPP Strategic Support Fund ......................................................... 27
4.2.3 Public Guarantee Facility ................................................................................................... 28
4.2.4 Long Term Financing ......................................................................................................... 29
4.2.5 Summary of Review of the Four Facilities......................................................................... 30
4.3 Comparison with Other Countries ............................................................................................ 31
4.3.1 Contingent Liability Treatment .......................................................................................... 31
4.3.2 Guarantee Treatment .......................................................................................................... 34
4.3.3 Long Term Lending Treatment ........................................................................................... 36
4.3.4 Summary of Comparison.................................................................................................... 37
4.4 Feedbacks from the Philippines Side: Discussions at JICA PPP Workshop ............................ 38
4.5 Applicability of JICA’s ODA Loan and Other Financial Support ............................................ 40
Chapter 5. Quantitative Analysis on the Needs and Potential Benefits of Guarantee Function . 42
5.1 Introduction .............................................................................................................................. 42
5.2 CL Analysis Framework and Methodology.............................................................................. 42
5.2.1 Analytical Framework ........................................................................................................ 42
5.2.2 Calculation Methods of CL Fund Effect on Government Burden ...................................... 44
5.3 Setting Assumptions and Project Selection for the Analysis .................................................... 49
5.3.1 Assumptions of the Analysis .............................................................................................. 49
5.3.2 Selection of the Case Study Projects .................................................................................. 50
5.4 CL Analysis Results ................................................................................................................. 50
5.4.1 Results of the CL Quantitative Analysis............................................................................. 50
5.4.2 Expected Benefits of CL Fund to the GoP and Private Sector ........................................... 52
i
5.5 Discussion in the CL Workshop ............................................................................................... 52

Chapter 6. Capacity Development for Implementing Agencies ..................................................... 57
6.1 Introduction .............................................................................................................................. 57
6.2 PPP Capacity and Needs Assessment of IAs ............................................................................ 57
6.2.1 Target, Methodology, and Assessment Items ..................................................................... 57
6.2.2 Assessment Results: Road Sector (DPWH) ....................................................................... 58
6.2.3 Assessment Results: Railway Sector (DOTC and LRTA) .................................................. 61
6.2.4 Assessment Results: Airport Sector (DOTC, MCIAA, MIAA, and CAPP) ...................... 64
6.2.5 Assessment Results: Water Sector (MWSS and LWUA) ................................................... 67
6.2.6 Assessment Results: Energy Sector (DOE) ........................................................................ 69
6.3 Trial Implementation of PPP Capacity Development Training ................................................ 72
6.3.1 Planning and Implementation of Trial PPP Capacity Development Training .................... 72
6.3.2 Lessons and Feedback from the PPP Capacity Development Program ............................. 78
6.4 Ideas for Further PPP Capacity Development .......................................................................... 79
Annex ............................................................................................................................................... A-1
Annex 1. Complementary Discussion on IA’s Credit Worthiness ............................................... A-1
Annex 2. Possible Options for Establishing a Guarantee Fund .................................................. A-7
Annex 3. Legal Aspect of PIPFF............................................................................................... A-16
Annex 4. Case Studies on PIPFF .............................................................................................. A-19
Annex 5. Interview Results to Investors and Lenders Regarding CL ....................................... A-27
ii
List of Tables and Figures
Table 1.2-1 Relevance of the items of the matrix and the corresponding chapter of this report ............ 2
Table 1.2-2 Policy Matrix Prototype (Retrieved from JICA) ................................................................. 3
Table 2.1-1 Major Development Plan and Master Plan ......................................................................... 4
Table 2.3-1 Fast Track Project and Priority Project In MPA Master Plan .............................................. 9
Table 4.2-1 Projects with PDMF funding............................................................................................. 25
Table 4.2-2 Budgeted SSF Amounts (P billion) ................................................................................... 28
Table 4.2-3 Difference of GF and CL Fund ......................................................................................... 28
Table 4.2-4 Risks to be Covered by General Insurers .......................................................................... 28
Table 4.2-5 Summary of Public Financial Facilities ............................................................................ 30
Table 4.2-6 Summary of Case Study for long-term public financial facility ....................................... 30
Table 4.3-1 Outline of Infrastructure Development Fund in India ....................................................... 37
Table 4.3-2 the Outline of the Global Examples on PPP Financial Institutions ................................... 38
Table 5.2-1 Difference of GF and CL Fund ......................................................................................... 43
Table 5.2-2 Government Burden in a PPP Concession Agreement ...................................................... 43
Table 5.2-3 Projects Used for CL Quantitative Analysis ...................................................................... 44
Table 5.2-4 Example of Simple Cash Flow Model .............................................................................. 45
Table 5.2-5 Output Summary of the CL Fund Effect Calculation ........................................................ 48
Table 5.2-6 Output Summary of the CL Fund Effect Calculation ........................................................ 49
Table 5.3-1 Outline of Case Study Projects .......................................................................................... 50
Table 5.4-1 Summary of Case Study Results ....................................................................................... 51
Table 5.4-2 Payment Schedule for CLs in the Case Study Projects ..................................................... 51
Table 6.1-1 Contents of the Questionnaire ........................................................................................... 58
Table 6.2-1 Section and Position of Respondents (Road Sector) ......................................................... 58
Table 6.2-2 Capacity Assessment Results (Road Sector) ..................................................................... 59
Table 6.2-3 Needs Assessment Results (Road Sector) ......................................................................... 60
Table 6.2-4 Sections and Positions of Respondents (Railway Sector) ................................................. 61
Table 6.2-5 Capacity Assessment Results (Railway Sector) ................................................................ 61
Table 6.2-6 Needs Assessment Results (Railway Sector) .................................................................... 62
Table 6.2-7 Sections and Positions of Respondents (Airport Sector)................................................... 64
Table 6.2-8 Capacity Assessment Results (Airport Sector) .................................................................. 64
Table 6.2-9 Needs Assessment Results (Airport Sector) ...................................................................... 65
Table 6.2-10 Section and Position of Respondents (Water Sector) ...................................................... 67
Table 6.2-11 Capacity Assessment Results (Water Sector) .................................................................. 68
iii
Table 6.2-12 Needs Assessment Results (Water Sector) ...................................................................... 68

Table 6.2-13 Sections and Positions of Respondents (Energy Sector) ................................................. 70
Table 6.2-14 Capacity Assessment Results (Water Sector) .................................................................. 70
Table 6.2-15 Needs Assessment Results (Water Sector) ...................................................................... 71
Table 6.3-1 Findings from the Capacity and Needs Assessments ........................................................ 72
Table 6.3-2 Contents of Trial Capacity Development Training............................................................ 73
Table 6.3-3 Participants of the Trial Capacity Development Training ................................................. 73
Table A.1-1 Surveys Arangkada tracks .............................................................................................. A-2
Table A.1-2 Corruption Perception Index for the Philippines ............................................................ A-3
Table A.4-1 Summary of CAVITE Expressway Project................................................................... A-20
Table A.4-2 Summary of NAIA Expressway Project ....................................................................... A-21
Table A.4-3 Summary of SLEX Extension Project .......................................................................... A-22
Table A.4-4 Summary of Visayas Airport (Landside work) ............................................................. A-23
Table A.4-5 Summary of Zamboanga Airport (Landside work) ...................................................... A-24
Table A.4-6 Summary of Tacloban Airport (Landside work) ........................................................... A-25
Table A.5-1 Concessionaires’ Responses on the Effect of Guarantee Fund ..................................... A-27
Table A.5-2 Concessionaires’ Response for Probability and Impact of CL ..................................... A-29
Figure 2.2-1 Image of the Integrated Master Plan .................................................................................. 5

Figure 2.2-2 Mega Cebu Vision 2050: Development Strategy............................................................... 6
Figure 2.3-1 Infrastructure Development Plan of MP3EI (Extraction) .................................................. 8
Figure 2.3-2 Infrastructure Development Plan of Suma Tera Island in MP3EI ..................................... 8
Figure 2.3-3 Infrastructure Development Plan of MPA Master Plan ..................................................... 9
Figure 4.1-1 Functions and Relations of Public Financial Facilities for PPP ...................................... 24
Figure 4.2-1 PDMF Process Flowchart ................................................................................................ 27
Figure 4.3-1 Flow of sequential procedure for the Multi-Year Budget Appropriation under PFI
contract ................................................................................................................................................. 32
Figure 5.2-1 Framework and Flow of Analysis .................................................................................... 44
Figure 5.2-2 Diagram of CL Fund Effects ........................................................................................... 46
Figure 6.2-1 Capacity Assessment Results (Road Sector) ................................................................... 59
Figure 6.2-2 Needs Assessment Results (Road Sector)........................................................................ 60
Figure 6.2-3 Capacity Assessment Results (Railway Sector) .............................................................. 62
Figure 6.2-4 Needs Assessment Results (Railway Sector) ................................................................... 63
Figure 6.2-5 Capacity Assessment Results (Airport Sector) ................................................................ 65
Figure 6.2-6 Needs Assessment Results (Airport Sector) .................................................................... 66
Figure 6.2-7 Present Capacity Level (Water Sector) ............................................................................ 68
Figure 6.2-8 Needs Assessment Results (Water Sector)....................................................................... 69
iv
Figure 6.2-9 Present Capacity Level (Energy Sector) .......................................................................... 70

Figure 6.2-10 Needs Assessment Results (Energy Sector)................................................................... 71
Figure 6.4-1 Outline of PPP Capacity Development Training Program .............................................. 80
Figure A.1-1 Infrastructure Spending of ASEAN-5, % GDP, 1980-2009 (annual average) .............. A-1
Figure A.1-2 Governance Indicators and Investments, 1996-2011 .................................................... A-2
Figure A.1-3 The Most Problematic Factors for Doing Business in the Philippines ......................... A-3
Figure A.4-1 Cash flow profiles of Case 1 (100% commercial loan) & Case 2 (use of PIPFF loan)A-26
v
ABBREVIATIONS
ADB Asian Development Bank

ADMS Aerodrome Development and Management Service
ADR Alternative Dispute Resolution
AFCS Automatic Fare Collection System
AOI Articles of Incorporation
APG Algemene Pensioen Groep
ASEAN Association of Southeast Asian Nations
ATPD Air Transportation Planning Division
AusAID Australian Agency for International Development
AWUAIP Angat Water Utilization and Aqueduct Improvement Project
BAC Bids and Awards Committee, DOTC
BATMAN Natural Gas Pipeline from Batangas to Manila
BCDA Bases Conversion and Development Authority
BIWC Boracay Island Water Company
BLT Build-Lease and Transfer
BOT Build-Operate-Transfer
BROT Build-Rehabilitate-Operate-Transfer
BRT Bus Rapid Transit
BSP Bangko Sentral ng Pilipinas
BT Build-Transfer
BTO Build-Transfer-Operate
CAAP Civil Aviation Authority of the Philippines
CAOT Contract-Add-Operate-Transfer
Cavitex Cavite Expressway
CALAx Cavite-Laguna Expressway
CDCP Construction and Development Corporation of the Philippines
CFC Certificate of Final Completion
CHED Commission on Higher Education
CIDA Canadian International Development Agency
CIIP Comprehensive Integrated Infrastructure Program
CL Contingent Liability
CMMTC CITRA Metro Manila Tollway Corporation
CN Confirmation Note
CPC Certificate of Public Convenience
CW Civil Work
Daang Hari Daang Hari-South Luzon Expressway Link Road
DBL Design-Build-Lease
DBM Department of Budget and Management
DBP Development Bank of the Philippines
DED Detailed Engineering Design
DOE Department of Energy
vi
DOF Department of Finance

DOH Department of Health
DOJ Department of Justice
DOTC Department of Transportation and Communications
DPWH Department of Public Works and Highways
DSCR Debt Service Coverage Ratio
DU Distribution Unit
ECC Environmental Compliance Certificate
EDCF Korea’s Economic Development Cooperation Fund
EDSA Epifanio de los Santos Avenue
EPIRA Electric Power Industry Reform Act
ERC Energy Regulatory Commission
FS Feasibility Study
FM Force Majeure
GAA General Appropriations Act
GCG Governance Commission for GOCC
GCL Government Contingent Liability
GDP Gross Domestic Product
GF Guarantee Function
GFI Government Financial Institution
GFS Government Financial Support
GOCC Government Owned and Controlled Corporation
GOI Government of Indonesia
GoP Government of the Philippines
GPRA Government Procurement Reform Act
GSIS Government Service Insurance System
HB House Bill
IA Implementing Agency
IC Independent Consultant
ICC Investment Coordination Committee
IFC International Finance Corporation
IFG International Finance Group
IIGF Indonesia Infrastructure Guarantee Fund
IPO Initial Public Offering
IPP Independent Power Producer
IRR Internal Rate of Return
ITS Integrated Transport System
JICA Japan International Cooperation Agency
JV Joint Venture
KPI Key Performance Indicator
KOICA Korea International Cooperation Agency
LAWC Laguna AAA Water Corporation
LD Liquidated Damage
LGU Local Government Unit
LRT Light Rail Transit
vii
LRTA Light Rail Transit Authority

LRV Light Rail Vehicle
LWCI Laguna Water Company Incorporated
LWUA Local Water Utilities Administration
MAGA Material Adverse Government Action
MATES Manila Toll Expressway Systems Incorporated
MCIA Mactan-Cebu International Airport
MCIAA Mactan-Cebu International Airport Authority
MCWD Metro Cebu Water District
MERALCO Manila Electric Company
MIAA Manila International Airport Authority
MIWD Metro Iloilo Water District
MLD Million Liters per Day
MMUTIS Metro Manila Urban Transportation Integration Study
MNTC Manila North Tollways Corporation
MPIC Metro Pacific Investment Corporation
MPSS Minimum Performance Standards and Specifications
MRT Mass Rapid Transit
MTPDP Medium-Term Philippine Development Plan
MTPIP Medium-Term Public Investment Plan
MWCI Manila Water Company Inc.
MWSI Maynilad Water Services Inc.
MWSS Metropolitan Waterworks and Sewerage System
MYOA Multi-Year Obligational Authority
NAIA Ninoy Aquino International Airport
NAIAx Ninoy Aquino International Airport Expressway
NEDA National Economic and Development Authority
NESDP National Economic and Social Development Plan
NGA National Government Agency
NLEx North Luzon Expressway
NPC National Power Corporation
NWRB National Water Resources Board
O&M Operations and Maintenance
ODA Official Development Assistance
OGCC Government Corporate Counsel
OSG Office of the Solicitor General
PQ Prequalification
PDMF Project Development and Monitoring Facility
PEA Public Estates Authority
PFI Private Finance Initiative
PHILGEPS Philippine Government Electronic Procurement System
PhP Philippine Peso
PIATCO Philippine International Air Terminals Company Incorporated
PIC Philippine Infrastructure Corporation
PIDC Private Infrastructure Development Corporation
viii
PInAI Philippine Investment Alliance for Infrastructure

PIRR Project Internal Rate of Return
PNCC Philippine National Construction Corporation
PNOC Philippine National Oil Corporation
PNR Philippine National Railways
PMO Project Management Office
PMS Project Management Service
PPA Power Purchase Agreement
PPD Plans and Programs Department
PPP Public-Private Partnership
PSALM Power Sector Assets and Liabilities Management Corporation
PSIS Philippine Society for Industrial Security
PEATC PEA Tollway Corporation
PU Performance Undertaking
RA Republic Act
ROM Rehabilitate-Operate-Maintain
ROR Rate of Return
ROW Right of Way
RWCSRP Raw Water Conveyance System Rehabilitation Project
SB Senate Bill
SBAC Special Bids and Awards Committee
SCTEX Subic-Clark-Tarlac Expressway
SEC Securities and Exchange Commission
SEW System Enhancement Work
SIDC STAR Infrastructure Development Corporation
Skyway Metro Manila Skyway
SLEx South Luzon Expressway
SLTC South Luzon Tollways Corporation
SMC San Miguel Corporation
SMIG San Miguel Infrastructure Group
SOMCO Skyway O&M Corporation
SSF Strategic Support Fund
STAR Southern Tagalog Arterial Road
STOA Supplemental Toll Operation Agreement
TA Technical Assistance
TCA Toll Concession Agreement
TIEZA Tourism Infrastructure and Enterprise Zone Authority
TMC Tollways Management Corporation
TOC Toll Operation Certificate
TOP Toll Operation Permit
TOR Terms of Reference
TPLEx Tarlac-Pangasinan-La Union Expressway
TRA Toll Rate Adjustment
TRB Toll Regulatory Board
TTF Treasury Task Force
ix
TWG Technical Working Group

UMPC UEM-MARA Philippines Corporation
VGF Viability Gap Fund
WACC Weighted Average Cost of Capital
WTP Water Treatment Plant
WD Water District
WESM Wholesale Electricity Spot Market
x
Chapter 1. Policy Matrix Prototype
1.1 About this Report

The JICA Study Team conducted a Study on PPP Institutional Buildings in the Philippines from
August 2012 until September 2013. In the course of the study, the Study Team has produced various
outputs which may be helpful to JICA and ADB to develop a policy matrix, currently being discussed
between them. This report was edited explicitly to serve as the back analysis for discussion on the
formulation of the policy matrix.
This report starts with outline of “Policy Matrix Prototype”, which shows “Policy Matrix Prototype”
being discussed between JICA and ADB. Succeeding chapters provide back analysis and relevant
information regarding the items shown in the matrix.
It should be noted that the report does not deal with all the items written in the matrix because the
items in the matrix are the ones identified through the course of discussion of JICA and ADB and the
scope of the works of the JICA Study Team does not necessarily cover the whole items in the matrix.
1.2 Policy Matrix Prototype

The matrix of Table 1.2-2 is the “Policy Matrix Prototype”. This matrix reflects only preliminary
discussion with JICA and ADB. It is not authorized by any entity and even JICA and ADB are not
supposed to be responsible for this policy matrix prototype. However it is expected that this serves as a
basis for starting discussions about the policy matrix among stakeholders.
As can be seen, the matrix consists of two policy areas: “Public Spending for Infrastructure” and
“Public Private Partnerships”. The former addresses the infrastructure public spending in general and
the latter addresses specifically the items relating PPP.
“Public Spending for Infrastructure” consists of three items: “1.1 Master planning”, “1.2 Absorption
capacity of ODA-funded public investments” and “1.3 LGU Infrastructure Investments.” Chapter 2
provides relevant analysis and information for “1.1 Master planning.”
“Public Private Partnerships” consists of four items: “2.1 Improved Enabling Environment”, “2.2
Improved Financing Mechanisms”, “2.3 Pipeline Development and Monitoring”, and “2.4 Improved
PPP systems capacity at sector departments”. Chapter 3 provides relevant analysis and information for
“2.1 Improved Enabling Environment”; Chapters 4 and, for “2.2 Improved Financing Mechanisms”;
and Chapter 6, for “2.4 Improved PPP systems capacity at sector departments”.
1
Table 1.2-1 Relevance of the items of the matrix and the corresponding chapter of this report
Corresponding
Policy Area of
Items of the Matrix Chapter of This
Matrix
Report
Public Spending 1.1. Master planning Chapter 2
for Infrastructure 1.2. Absorption capacity of ODA-funded public -
investments
1.3.LGU Infrastructure Investments -
Public Private 2.1. Improved Enabling Environment Chapter 3
Partnerships 2.2. Improved Financing Mechanisms Chapter 4,5
2.3 Pipeline Development and Monitoring -
2.4. Improved PPP systems capacity at sector Chapter 6
departments
Source: JICA Study Team
2
Table 1.2-2 Policy Matrix Prototype (Retrieved from JICA)

Current Status Completed Achievements/ Indicative Achievements Indicative Achievements Target
Policy Areas Definition
(Analysis) On-going Activities by Dec 2013 by Dec 2015 by June 2016
Part I: Public Spending for Infrastructure → Please fill in→ADB Aziz.
Please fill in→ADB Aziz.
National Investment Planning: xx done by xx in YY aaa aaa
[Policies which will make] investment planning

Regional or Urban Investment Planning: xx done by xx in YY bbb bbb
integrated, such as master plans and upstream- Investment Planning Integrated.
1.1. Master There are numerous masterplans conducted by each agency, but few of them consider the roles of the private and public for each identified project. In some cases, such as mega city
sector or cross-sector studies in selected sectors (Quantitative)
planning urban planning, inter-agency or cross-sectoral palnning is cruicial for the projects to be rationally identified, planned and implemented. Sector or cross-sectoral Investment Planning:
covered by selected government agencies [need (Qualitative)
Road: xx done by xx in YY
to be implemented.]
Rail: xx done by xx in YY
Airport: xx done by xx in YY ccc ccc
Water: xx done by xx in YY
Energy: xx done by xx in YY
Others: xx done by xx in YY
[Policies which will make] ODA project Please fill in→ADB Aziz. aaa aaa
1.2. Absorption
preparation, processing and implementation ODA project sysytem streamlined.
capacity of ODA- ODA processing system among different Donors vary; however, the synchronization of each agencies' activities is considered key for efficient implementation of projets. Currently, DOF is
systems streamlined to ensure greater bbb bbb bbb (Quantitative)
funded public proposing relevant Donors to join its new ODA processing system, where DOF will have stronger leadership in coordinating Donor activities.
synchronization with the country’s development (Qualitative)
investments
strategy [need to be implemented.]
ccc ccc ccc
Please fill in→ADB Aziz. aaa aaa

1.3. LGU Please fill in→ADB Aziz.
[Policies which will make] ・・・[subject] [verb]・・・
Infrastructure Please fill in→ADB Aziz. bbb bbb bbb (Quantitative)
[need to be implemented.]
Investments (Qualitative)
ccc ccc ccc
Part II: Public Private Partnerships
Encompassing Laws, Rules, and Regulations: Encompassing Laws, Rules, and Regulations: Encompassing Laws, Rules, and Regulations:
- BOT Law and its IRR - BOT Law ammendment on xx (e.g. Technical bid parameter to be - BOT Law ammendment on xx (e.g. Technical bid parameter to be
- E.O. 8 considered in BOT Law) considered in BOT Law)
- BOT Law and JV guidelines convergence - adoption of PPP Governance Board - adoption of PPP Governance Board
- PPP Governance Board prepared - convergence of JV law with BOT Law by xx - convergence of JV law with BOT Law by xx
-
As result of below and other efforts, the government could meet its target of rolling out 8 PPPs in 2012.
Project Development to Financial Closure Stage: Project Development to Financial Closure Stage: Project Development to Financial Closure Stage:
(1) PPP Center became a true unit in the government in PPP quality assurance and project development
- PPP project selection (definition) - PPP project to be exlusively defined in the PPP list by xx procedure - PPP project to be exlusively defined in the PPP list by xx procedure
(2) Project Development and Monitoring Facility (PDMF) has become operational
2.1 Improved - PPP Roadmap - PDMF to enahnce monitoring assistance capacity to Ias by xx - PDMF to enahnce monitoring assistance capacity to Ias by xx
[Policies which will make] PPP governance and (3) BOT Law IRRs have been amended for better transparency in the bidding process and treatment of unsolicited proposals PPP Legal Framework streamlined.
- ICC Procedure - SSF to become CL Fund by xx - SSF to become CL Fund by xx
Enabling legal Framework streamlined enhancing further (4) sufficient funding has been allocated to line-departments for government share in PPPs through the strategic support funds (SSF) (Quantitative) e.g. PPP index from xx to xx
- Project Development Facility (PDMF)
Environment private investment [need to be implemented.] (5) Inter-agency contingent liabilities (CLs) working group has been set up by DOF for timely and sufficient estimation of CLs. (Qualitative) e.g. PPP investor's survey improves
- Assurance to bidders (e.g. Performance Undertakings, Government
Guarantee cap (BSP Circular No.79), MYOA, SSF, CL Fund, Dispute
In addition, there are recent progress in forming a PPP Governance Board, consisting of xx, xx, and xx, where xx becomes the chief of the Board, with the authority to decide on difficult
Resolution Mechanism (E.O. 78), etc)
issues regarding PPP such as xx, xx, and xx. It is also expected to be a permanent vehicle for betterment of the existing laws, rules, and regulation as well as operation.
Project Implementation to Completion/Termination Stage: Project Implementation to Completion/Termination Stage: Project Implementation to Completion/Termination Stage:
- PPP contract management - PPP contract sample formulated for all relevant sectors and disclosed - PPP contract sample formulated for all relevant sectors and disclosed
- Contingent Liability Management (SSF, CL Fund, etc) to public to public
- Dispute Resolution Mechanism/ ADR (E.O. 78, etc) - PPP Manual for IAs regarding Transfer of Assets/ Purchase of Assets, - PPP Manual for IAs regarding Transfer of Assets/ Purchase of Assets,
- Contract Termination Termination of Concession, etc Termination of Concession, etc
- Transfer of Assets/ Purchase of Assets - a fast-response consultation mechanism prior to turning to ADR - a fast-response consultation mechanism prior to turning to ADR
introduced introduced
Subsidy: Subsidy: Subsidy: Subsidy:
- current status of subsidy (for solicited and unsolicited): ROW cost is not provided to unsolicited projects, unless "rightfully compensated," - ROW acquisition assistance for unsolicited projects: xx - ROW acquisition assistance for unsolicited projects: xx - ROW acquisition assistance for unsolicited projects: xx
which might disencourage the investors to propose an unsolicited proposal, since one of the biggest hurdles for PPP project is securing the - permanent VGF concept: xx - permanent VGF concept: xx - permanent VGF concept: xx
land, which the investors will not be recieving extensive support from the government. - BOT Law ammendment/ operational guideline on 50:50 ratio issue, - BOT Law ammendment/ operational guideline on 50:50 ratio issue, - BOT Law ammendment/ operational guideline on 50:50 ratio issue,
- current VGF operations/idea of permanent VGF: it is considered case-by-case, so bidders are not sure whether such can be tapped. VGF including interpretation of ODA): xx including interpretation of ODA): xx including interpretation of ODA): xx
policy brief has been submitted to xx on MM YY, while xx has started to conduct xx; however, the importance of permanent VGF is still not
recognized in depth.
- BOT Law (50:50 ratio issue, including interpretation of ODA): it is not exlusively defined how ODA is considered in the law, especially for hybrid
projects, persuming that the concessionaire will pay back in the long run more than it has been subsidized in the start of the project (definition of
the project cost under life cycle cost vs. initial upfront investment)
Finance: Finance: Finance: Finance:

- current status of PPP project financing: xx million peso of project finance has been formulated in YY, which is expected to grow even more in VGF: not permanent - single borrower's limit: expanded from xx to xx - single borrower's limit: expanded from xx to xx - single borrower's limit: expanded from xx to xx
the coming years; however, the source of financing is generally limited to big business groups who can tap large amount of money from its SSF: introduced since 2011 - PIPFF concept : xx - PIPFF concept : xx - PIPFF concept : xx Financing Mechanisms becomes operational.
[Policies which will make] Financing
2.2. Improved subsidary financial institution taking into consideration the collateral from the company, rather than the project itself, whereas foreign investors CL Fund (as evolving system for SSF): (Quantitative) e.g. amount of PPP financing from the private
Mechanisms operational enhancing further private
Financing with international financial instituion trying to form a pure project financing will have difficult time on risk mitigation measures. On the other hand, non-existence and government (as well as utilization of concessional
investment, such as VGF, PIPFF, and others (SSF,
Mechanisms single borrower's limit has been raised from xx% of its asset to xx% in MM YY, which illustrates the concentration of bidders and its financiers. PIPFF: non-existence financing for non-commercially viable projects)
CL Fund) [need to be implemented.]
Considering that the Philippines will expect further growth on PPP project financing demand, openess to new comers and/ or foreign investors Others: Pinai Fund (PE fund) formed (Qualitative) e.g. PPP investor's survey improves
are crucial. utilizing GSIS fund since xx
- idea of PIPFF: concept considered at DOF; however, due to high liquidity of finance in local financial market, it is currently considered
unneccesary
Others (CL issues, Equity, etc): Others (CL issues, Equity, etc): Others (CL issues, Equity, etc): Others (CL issues, Equity, etc):
- current status of SSF/ idea of CL fund: DOF has formulated a CL management group in xx since xx, and have created SSF since xx to be - SSF/CL calculation method:xx - SSF/CL calculation method:xx - SSF/CLcalculation method:xx
utilized for xx, xx, and xx. DOF has extended the utilization purpose of SSF to CL as well, where DOF will calculate the neccesary budget - idea of CL fund: xx - idea of CL fund: xx - idea of CL fund: xx
allocation for each IAs for CL to be included in SSF budget allocation. However, the utilization of SSF is single year and is difficult to accomodate - Pinai Fund operation: xx - Pinai Fund operation: xx - Pinai Fund operation: xx
among the IAs , therefore, the investors will not fully be assured of its payments (be free from appropriation risk); therefore, the concept of - measures to broaden the potential investors and financiers: xx - measures to broaden the potential investors and financiers: xx - measures to broaden the potential investors and financiers: xx
revolving inter-IA CL fund which will not expire is proposed to DOF for future consideration.
- current status of Pinai Fund and other equity investors: Pinai Fund formed since MM YY, fully operational since MM YY, targeting investments to
projects such as xx; however, most of the target projects are for brown field projects, which does not fully support the enhancement of PPP
project development in green field projects.
PDMF: PDMF: PDMF: PDMF:

- current status of PDMF: please fill in → ADB Aziz - current status of PDMF: please fill in → ADB Aziz - current status of PDMF: please fill in → ADB Aziz - current status of PDMF: please fill in → ADB Aziz
- idea of PDMF evolving forward: please fill in → ADB Aziz - idea of PDMF evolving forward: please fill in → ADB Aziz - idea of PDMF evolving forward: please fill in → ADB Aziz - idea of PDMF evolving forward: please fill in → ADB Aziz
PDMF: introduced since xx, monitoring
function will need to be strengthened
[Policies which will make] pipeline projects Economic Infrastructure: Economic Infrastructure: Economic Infrastructure: Economic Infrastructure: Sufficient number of pipeline projects for PPP (solicited and/
2.3.Pipeline - Road: xx projects identified, total xx million php - Road: xx projects identified, total xx million php - Road: xx more projects identified, total xx% more - Road: xx more projects identified, total xx% more or unsolicited) developed sand maintained.
for PPP (solicited and/ or unsolicited) Increasing PPP Project Pipeline:
Development - Rail: xx projects identified, total xx million php - Rail: xx projects identified, total xx million php - Rail: xx more projects identified, total xx% more - Rail: xx more projects identified, total xx% more (Quantitative) e.g. number of identified projects implemented,
developed and maintained in sufficient number (2010) xx projects, xx million php
and Monitoring - Airport: xx projects identified, total xx million php - Airport: xx projects identified, total xx million php - Airport: xx more projects identified, total xx% more - Airport: xx more projects identified, total xx% more number of projects newly developed, etc
[need to be implemented.] (2011) xx projects, xx million php
- Energy: xx projects identified, total xx million php - Energy: xx projects identified, total xx million php - Energy: xx more projects identified, total xx% more - Energy: xx more projects identified, total xx% more (Qualitative) e.g. PPP investor's survey improves
(2012) xx projects, xx million php
Other Infrastructure: Other Infrastructure: Other Infrastructure: Other Infrastructure:
Agriculture: xx projects identified, total xx million php Agriculture: xx projects identified, total xx million php Agriculture: xx more projects identified, total xx% more Agriculture: xx more projects identified, total xx% more
Education: xx projects identified, total xx million php Education: xx projects identified, total xx million php Education: xx more projects identified, total xx% more Education: xx more projects identified, total xx% more
Health (Hospital): xx projects identified, total xx million php Health (Hospital): xx projects identified, total xx million php Health (Hospital): xx more projects identified, total xx% more Health (Hospital): xx more projects identified, total xx% more
Safety (Prison): xx projects identified, total xx million php Safety (Prison): xx projects identified, total xx million php Safety (Prison): xx more projects identified, total xx% more Safety (Prison): xx more projects identified, total xx% more
Economic Infrastructure: Capacity Building at Governing Agencies (DOF, NEDA, PPPC, DBM, Capacity Building at Governing Agencies (DOF, NEDA, PPPC, DBM, Capacity Building at Governing Agencies (DOF, NEDA, PPPC, DBM,
DPWH(Road): PPP Unit fomed since xx, xx projects have been implemented. Capacity is XX. as well as DBP/ LDP): tbc as well as DBP/ LDP): tbc as well as DBP/ LDP): tbc
DOTC(Rail): PPP Unit yet to be formed, xx projects have been implemented. Capacity is XX.
2.4. Improved DOTC(Airport): PPP Unit yet to be formed, xx projects have been implemented. Capacity is XX.
[Policies which will] improve line-departments MWSS/ LUWA(Water): tbc. Capacity is XX. Line-departments capacity in developing and managing PPP
PPP systems projects improve.
capacity in sustainably developing and DOE/PNOC (Energy): tbc. Capacity is XX. Capacity Building at Implementing Agencies (DPWH, DOTC, MWSS/ Capacity Building at Implementing Agencies (DPWH, DOTC, MWSS/ Capacity Building at Implementing Agencies (DPWH, DOTC, MWSS/
capacity at (Quantitative) e.g. numer of government agencies with PPP
managing PPP projects [need to LUWA, DA, DepEd, DOH, DOJ): tbc LUWA, DA, DepEd, DOH, DOJ): tbc LUWA, DA, DepEd, DOH, DOJ): tbc
sector unit, capacity index rating improves
beimplemented.] Social Infrastructure:
departments (Qualitative) e.g. PPP investor's survey improves
DA (Agriculture): tbc. Capacity is XX.
DepEd (Education): tbc. Capacity is XX.
DOH(Hospital): tbc. Capacity is XX.
DOJ(Prison): tbc. Capacity is XX. Capacity Building at LGUs:please fill in → ADB Aziz Capacity Building at LGUs:please fill in → ADB Aziz Capacity Building at LGUs:please fill in → ADB Aziz
3
Chapter 2. Necessity of Integrated Master Plan for Strategic

Infrastructure Development
2.1 Issues of Existing Master Plans

Currently, agencies such as NEDA, DPWH, DOTC, and NWRB develop national development plan
and master plans in each sector. Followings are some of the plans which relate with infrastructure
development:
Table 2.1-1 Major Development Plan and Master Plan

Title of Plan Agency in Charge
Philippine Development Plan 2011-2016 NEDA
Master Plan of High Standard Highway Development DPWH
National Transport Plan DOTC
Master Plan for Transport in Metro Manila DOTC
Philippine Water Supply Roadmap (2008, amended in 2010) National Water Resource
Board (NWRB)
However, those master plans are not explicitly intended to formulate PPP projects and relevant
agencies, including oversight agencies and implementing agencies are facing the following issues:
 Comparison and Prioritization of infrastructure projects are difficult.

 It is difficult to see the justification of particular projects from wider view points.
 Infrastructure projects developments are done in a piecemeal (not strategic) manner.
 It often requires huge costs for adjustment when plural projects produce physical and
functional conflicts.
 The necessary budget cannot be estimated at once.
 There is no guide to identify potential PPP projects.
These issues seem to arise from the following factors.
 Philippine Development Plan does not articulate the basis of specific projects selection.
 The master plans are independently developed and not linked and adjusted with other plans or
sectors.
 The existence of master plan itself is not widely informed.
 The information exchange and sharing among ministries are not well conducted.
 The master plans have no binding power.
 Indicative viability analysis is missing.
According to ad hoc interviews to the current and ex officers of the relevant agencies, at present there
is not authorized platform or organizational vehicle to invite relevant agencies collect information,
adjust their plans and integrate them into single plan. However, in order to accelerate formulation and
implementation of PPP projects, such coordination and integration mechanisms, which are supposed to
improve the efficiency of decision making process, will be required. The Study Team considers that a
strategic master plan, which covers main infrastructure sector and enables prioritization, objective and
appropriate evaluation, and rational identification of potential PPP project, will be a great help for
relevant decision making agencies, such as DOF, NEDA, DPWH, DOTC, the PPP Center and even
LGUs. The concept and functions of such an integrated master plan will be elaborated in the following
4
sections.
2.2 Scope and Function of Integrated Master Plan for Strategic Infrastructure
Development
2.2.1 Functions and Coverage of Integrated Master Plan
Based on the recognition of the previous sections, the JICA Study Team proposes a master plan (it is
tentatively called as an “Integrated Master Plan for Strategic Infrastructure Development) which has
the following functions and coverage:
 Objective: The plan aims at prioritizing infrastructure projects and formulating their financing
methods.
 Agency in Charge: NEDA should assume the responsibility for development of the master plan.
They may require supports from the key IAs such as DPWH and DOTC.
 Sector Coverage: It should cover the entire transport sector of being as public goods, including
Road, Railway, Airport and Seaport sector. Other critical sector should also be covered which
include but not limited to Water, Flood Control, Waste and power plant /pipeline
 Project List: It should contain key infrastructure projects (long-list) and the information of project
list should be obtained from implementing agencies
 Project Evaluation Procedure and Criteria: It should show the evaluation procedure and criteria
for prioritization of infrastructure project.
 Role of DOF: Indicative commercial viability to inform the decision on finance.
Image of the integrated master plan is shown in the following figure:
Road Sector Transport Sector Water Sector

M/P (DPWH) M/P (DOTC) M/P (MWSS)
Integration
Philippines Coordination and Integrated Master Plan

Development Adjustment - Integrated Vision and Strategy
Plan - Project Long List
- Project Financing Method
- Project Prioritization
PPP Long List
PPP Short List

(Pipe Line)
Figure 2.2-1 Image of the Integrated Master Plan
The main differences of the integrated master plan from existing ones are as follows:
 The integrated master plan is applicable to multi-sectors (multi-agencies)

 The integrated master plan is made for strategically priority areas in the country.
 The integrated master plan contains prioritized project list and shows indicative commercial
5
viability.
2.2.2 JICA’s Support to Develop Integrated Master Plan

JICA has been contributing to develop this kind of master plan in various countries including the
Philippines. There are three examples of such trials in the Philippines.
The first example is Master Plan on High Standard Highway (HSH), which was completed in 2010.
The main objectives of the study were as follows:
 To formulate HSH (High Standard Highway) Development Strategies in three areas, Manila
200-km radius, Cebu, and Mindanao,
 To formulate HSH Master Plan in Manila 200-km radius and identify priority projects for future
feasibility studies, and
 To develop DPWH’s capacity on HSH planning, design, construction, maintenance, operation,
and management.
In this study, the project prioritization was made and their implementation schedule and the financing
methods were considered. This still serves as the basis for DPWH’s project development planning.
The second example is a support do develop “Mega Cebu Vision 2050 (Formulation of sustainable
urban development vision for Metro Cebu)” which aims at formulation of a collective suitable urban
development vision for Metro Cebu. The grand development strategy, created for Mega Cebu Vision
2050 is shown in the following figure:
Source: JICA
Figure 2.2-2 Mega Cebu Vision 2050: Development Strategy
The third example is “Study on Transport Sector Roadmap for the Sustainable Development of Mega
Manila” which is currently being conducted by another JICA Study Team (as of May 2013). This
study helps the GoP to develop its integrated vision and development direction, as well as to identify
prioritized transport projects and its development strategy in Great Manila. This exactly will serve as
6
an integrated master plan and it is expected that the GoP and the relevant agencies will take full
advantage of this study results.
2.3 Example of Integrated Master Plans in Indonesia: MP3EI and MPA

The examples of integrated master plans can be found in many countries and this section introduces
the examples of Indonesia. As of April 2013, GOI has been addressing the two master plans for
acceleration of infrastructure development: MP3EI and MPA Masterplan of which outlines are
described below. The JICA Study Team hopes the examples shown here will help the Philippine
counterparts improve their mater plans on their own.
2.3.1 MP3EI (Masterplan for Acceleration and Expansion of Economic Development)

MP3EI (Master Plan Percepatan Pembangunan Ekonomi Indonesia) is “the Masterplan for
Acceleration and Expansion of Indonesia's Economic and Social Development” in order to support its
national long-term development plan up to 2025. The plans identified 6 economic corridors in the
country and establish strategic plan for economic and social development of the region. In the plan
private sector will have an important role in implementing the Masterplan, in investment, production
and distribution, together with the Government who will act as the regulator and also as a facilitator,
and with strengthened coordination among related ministries and regional government.
MP3EI consists of three main elements:
 Developing six Indonesia economic corridors, by establishing centers of development within

every corridor and developing industry clusters and special economic zone based on advanced
commodities resources;
 Strengthening national connectivity, which includes intra and inter connectivity of centers
development, intra-islands (corridors), and international trade;
 National science and technology acceleration to support the development of the main program.
The development and implementation of the plan is managed by KP3EI (Committee for MP3EI) with
supports from the Coordinating Ministry of Economic Affairs (CMEA) and National Planning and
Development Agency (BAPPENAS). JICA is providing assistance to the secretary office of KP3EI
and the Corridor Working Group under KP3EI. The image of the MP3EI is shown in the following
figure:
7
Source: KP3EI
Figure 2.3-1 Infrastructure Development Plan of MP3EI (Extraction)
MP3EI identifies 6 economic corridors in the countries and set unique economic strategy for economic
corridors. It also shows the relations and linkage of those corridors. And based on the strategy,
infrastructure development strategy in each corridor is developed. This covers project from several
sectors and integrated analysis and prioritizations are made for selection of urgent projects. The image
of the integrated analysis is shown in the following figure.
Source: KP3EI
Figure 2.3-2 Infrastructure Development Plan of Suma Tera Island in MP3EI
2.3.2 MPA (Metropolitan Priority Area) Master Plan

MPA Master Plan Study (Jakarta Metropolitan Special Area and Investment Promotion (MPA) Master
Plan Study) is the study sponsored by JICA, for establishment of bilateral development framework
between the Government of Indonesia and the Government of Japan. This is the integrated master plan
for which focuses on Jakarta Metropolitan Area (JABODETABEK Area) and proposes comprehensive
development plan of the region. As the results of the study, Fast-Track Projects and Priority Projects ,
which should be developed with high priority, are identified. (See the table of the next page)
The master plan is made from multi-sector (ministerial) perspectives and covers a wide range of
sectors as shown in the following:
 City planning (Social, economic forecast, industry structure)

 Urban planning (Spatial planning vision for the city)
 Industrial Park Investment Promotion and Facilitation
8
 Urban transportation planning and logistics planning Highway planning

 Rail plan
 Airport Plan
 Port planning
 Power plan
 Water and sanitation project
 Waste plan
 Disaster prevention plan
The vision and the image of integrated analysis are shown in the following figure.
4. Vision toward 2030 - MPA Development Vision 2030 -
JABODETABEK MPA Development Vision 2030
WEST
Existing
Gateway
Soekarno NORTH
Hatta
Airport Tanjung
Priok
Port Existing
Tangerang Gateway
Tangerang
Selatan
Jakarta Proposed
Gateway
Cilamaya
New Port
Depok
Bekasi
Bogor
SOUTH Proposed
Gateway
Karawang
EAST 1
Source: MPA Development Vision 2030 approved by Steering Committee on 22 September 2011
Figure 2.3-3 Infrastructure Development Plan of MPA Master Plan
The identified Fast Track Project and Priority Project are summarized in the following table.
Table 2.3-1 Fast Track Project and Priority Project In MPA Master Plan
Project
Programs Projects
Type
A.1: Development (1) Jakarta Mass Rapid Transit (MRT): N-S Phase I, N-S Phase II, and E-W Phase
Public
of MRT-based 1 as FTP 3.1
New Urban (2) JABODETABEK Railway Capacity Enhancement Project (Phase I) as FTP 3.2
Public
Transport System and Further Improvement as Phase II
(3) Development of Jakarta Monorail PPP
(4) Station Plaza Development and Park & Ride System Enhancement PPP
(5) Introduction of Common Ticketing System (Smart Card) Private
A.2 :Development (1)a. Improvement of Road Network in JABODETABEK as FTP 4.1 Public
of Road Network (1)b. Improvement of Road Network in JABODETABEK as FTP 4.1
in and around Public
(Improvement of Intersection in DKI Jakarta)
Jakarta (2) Development of Outer Ring Road PPP
(3) Introduction of Intelligent Transport System (ITS) n JABODETABEK Public
9
A.3: Promotion of (1)a. A Pilot Project of Urban Development/ Redevelopment (Option I: Project for
Urban creating green open spaces of business and commercial area and development PPP
Re-development affordable housing in DKI Jakarta)
(1)b. A Pilot Project of Urban Development/ Redevelopment (Option II: Project
PPP
for development of housings in multiple purpose complex)
A.4: Improvement (1) DKI Jakarta-Bekasi-Karawang Water Supply (Jatiluhur) as FTP 6.1 PPP
of Water Supply (2) Rehabilitation of Water Supply Facilities in DKI Jakarta, Bekasi and
and Sewerage Karawang, with the integration of DKI Jakarta – Bekasi – Karawan Water Supply PPP
Systems (Jatiluhur)
(3) Development of Sewerage Works in DKI Jakarta (Zone 1, 6) PPP &Public
(4) Development of Water Supply Systems for Large-scale Infrastructure
PPP
Development
A.5: Solid Waste (1) Construction of the West Java Regional Solid Waste Treatment and Final
PPP
Treatment Disposal as FTP 7.1 (Legok Nangka)
(2) Development of New Landfill Site at Tangerang PPP
A.6: Flood (1) Reconstruction of East Pump Station at Pluit as FTP 8.1 Public
Management (2) Development of Urban Drainage System in DKI Jakarta Public
(3) Construction of East Banjir Floodway from the Ciliwung River Public
B.1: Development (1) Development of New Township PPP
of New Growth (2) Development of New Industrial Estate in the vicinity of New Airport PPP
Sub-Corridor for
(3) Development of New Administration Area PPP
Jabodetabek
B.2: Development (1) Development of New Academic Research Cluster
of New Academic PPP
Research Cluster
B.3: Development (1) Construction of Second Jakarta-Cikampek Toll Road PPP
of Road/Railway (2) Improvement of Road Network within the Industrial Area to the East of Jakarta
along New Growth Public
as FTP 2.2
Sub-Corridor for (3) Construction of Access Road to New Cilamaya Seaport as FTP 1.2 PPP
Jabodetabek MPA
(4) Construction of Freight Railway to New Cilamaya Seaport Public
(5) Construction of Access Road to New
PPP
International Airport
(6) Construction of Jakarta-Bandung High Speed Railway via New International
PPP
Airport
C.1: Development (1) Development of a New International Port as FTP 1.2 PPP
of Cilamaya Port (2) Development of a New Car Terminal at Cilamaya Port Private
(3) Development of Logistics/Industrial Parks at Cilamaya Port Private
C.2: Improvement (1) Improvement and Expansion of Container Terminal at North Kalibaru as FTP
Public (SOE)
of Tanjung Priok 1.1
Port (2) Development of New Car Terminal at Kalibaru Private
C.3: Development (1) Development of New International Airport (Phase I)
of New Int’l PPP
Airport
C.4: Improvement (1)a Expansion of Soekarno-Hatta International Airport as FTP 5.2 Phase 1 Public (SOE)
of Soekarno-Hatta (1)b Expansion of Soekarno-Hatta International Airport as FTP 5.2 Phase 2 Public (SOE)
International
Airport (SHIA) (2)a Construction of Access Railway to Soekarno- Hatta International Airport as
PPP
FTP 5.1 (Express)
(2)b Construction of Access Railway to Soekarno-Hatta International Airport as
PPP
FTP 5.1 (Commuter)
D.1: Low-Carbon (1) Development of Central Java Coal-fired Power Plant, proposed as FTP PPP
Power Supply (2) Construction of Indramayu Coal-fired Power Plant as FTP 9.2 Public (SOE)
Development
(3) Development of Banten Coal-fired Power Plant as FTP 9.3 Private
(4) Development of Gas-fired Power Plant and FSRU (Floating Storage
Private
Regasification Unit) as FTP 9.4
(5) Development of Rajamandala Hydroelectric Power Plant as FTP 9.5 Private
(6) Construction of Java-Sumatra Interconnection Transmission Line as FTP 9.1 Public (SOE)
(7) Other Renewable and Low-Carbon Emission Power Projects connecting to
PPP
Java-Bali- Sumatra Power Network
(8) Development of West Java Coal-fired Power Plant with Clean Coal
Private
Technology
10
D.2: Development (1) Smart Community (including a pilot project for the Smart Grid) as FTP 2.1 PPP
of Smart Grid (2) Optimization of Power Distribution System in DKI Jakarta Public
The project type or the financing methods are considered by the JICA Study Team based on the
discussion with oversight agencies, such as BAPPENAS, as well as implementing agencies, such as
the Ministry of Public Works and the Ministry of Transportation. The main criteria applied for the
analysis are as follows:
 Existing ODA Plan (Blue Book) and PPP Pipeline (PPP Book)
 Readiness of Implementing Agency including Maturity of Conventional F/S , PPP F/S
 Market Interest
 Business Plan of State Owned Enterprises
 Project Profitability (The Study Team’s Preliminary Analysis)
11
Chapter 3. Back Analysis for Creation of PPP Enabling Environment
3.1 Regulatory Framework

3.1.1 Proposed Amendments to the BOT Law
In this section, recent discussion on amendment of the BOT is explained. After twenty years since the
last amendment, the BOT Law is again the subject of several amendatory bills, in apparent response to
the call for legal reforms by the Aquino administration. One was filed with the Senate. Three others
were filed with the House of Representatives. The outlines of these four bills are summarized below.
(1) Senate Bill No.2710

Senate Bill (“SB”) No. 2710, which seeks to amend certain sections of the BOT Law and appropriate
funds therefor, was introduced by Senator Ralph G. Recto on 22 February 2011. The Explanatory Note
of SB 2710 provides that its aim is to further improve the BOT Law “by expanding its coverage and
providing more incentives to the private sector who become partners of the government in
infrastructure projects.” This is in line with the declared priority legislative policy of the Aquino
administration of “strengthening laws that provide incentives to PPP.”
SB No. 2710 was referred to the Committee on Public Works and has been pending with the
committee. SB No. 2710 seeks to make it clear that unsolicited proposals are not entitled to direct or
indirect government guarantees, subsidies or equity. In addition, SB No. 2710 provides that projects
classified by the President as “projects of national significance” are entitled to certain incentives,
among which is the exemption from all real property taxes for all real properties actually and directly
used for the project.
The most notable amendment proposed under SB No. 2710 is the creation of a PPP Guarantee Fund1,
designed to defray the cost of compensating private proponents in the event that the government
agency fails to comply with its obligations under a PPP contract. The PPP Guarantee Fund shall
initially be funded in the amount of Five Billion Pesos (₱5,000,000,000.00) to be charged against the
savings of the National Government. Further, replenishment of the fund shall come from General
Appropriation Act (GAA).
(2) House Bill No. 759, No. 4151, and No. 5238
House Bill (“HB”) Nos. 759, 4151 and 5238 are the bills pending before the House of Representatives
that seek to likewise amend the BOT Law.
HB No. 759, which was introduced by Representative Rodolfo W. Antonino on 05 July 2010, seeks to
“enunciate a clear-cut policy on government support, adhere to best practices on risk allocation, set the
reasonable rate of return for solicited or unsolicited or negotiated projects, institutionalize a fair,
honest and competitive procurement process, establish a BOT Authority to rationalize the program
implementation, and provide penal provisions.”2
1
The PPP Guaranty Fund proposed under SB No. 2710 refers to a fund which shall “defray the cost of compensation to
project proponents which enter into BOT contracts, concession agreements or other contractual agreements with any
national government agency or GOCC pursuant to the provisions of Republic Act No. 6957, as amended, in the event
that the government agency or GOCC fails to comply, or is prevented from complying, with its obligations under the
aforementioned contracts or agreements as a result of an act of another agency or branch of government.”
2
HB No. 759, Explanatory Note.
12
A notable proposal in HB No. 759 is the creation of a Project Development Facility, which is a
revolving fund to finance the proper identification, study, validation, development, and preparation for
public bidding of private sector infrastructure or development projects. In addition, perhaps to entice
more private investors in PPP projects, HB No. 759 also proposes that the President sign all contracts
for PPP projects and proposes to add a provision in the BOT Law expressly saying that the Republic of
the Philippines shall honor the validity and enforceability of a duly executed contract, unless it is
proven that the procedures under the BOT Law were not followed.
HB No. 4151, which was introduced by Representatives Feliciano Belmonte, Jr. and Neptali M.
Gonzales II in February 2011, appears to be but a counterpart of SB No. 2710, as HB No. 4151
contains the same provisions as the latter. The HB No. 4151’s Explanatory Note, which like SB No.
2710, similarly provides that it aims to broaden and tighten the legal and policy framework, and to
enunciate a clear-cut policy on government support.3
Lastly, HB No. 5238, which was principally authored by Representative Romeo M. Acop and filed in
September 2011, aims to address the decrease in the momentum of PPP projects owing to legal
problems encountered in the implementation of PPP projects, and controversial transactions. It notes
that, strategically, the effective implementation of BOT projects hinges on the followings:
 A legal and economic environment conducive to a mutually beneficial partnership

 Certainty of recovering investments and availability of mechanisms for dealing with risks and
unforeseen events
 Clarity in articulating the duties and responsibilities of the parties to the contract;
 Transparency and credibility of the government’s processes from project identification, review
and approval of proposed BOT projects to contract implementation.4
HB No. 5238 proposes to expressly include in the declared policy of the BOT Law that the incentives
which shall be provided to the private sector in the development and undertaking of PPP projects shall
include allowing a reasonable rate of return of investments and mitigation risks by ensuring that the
validity and enforceability of contracts are respected through due process of law. HB No. 5238 also
proposes to include a provision in the BOT Law to the effect that a private proponent shall not be
subsidized by the government for any loss in projected revenues. These amendatory bills however
were not passed into law before the adjournment of the 15th Congress. Thus, the aforementioned
amendatory bills would have to be re-filed at the 16th Congress after the May 2013 elections.
3.1.2 Latest Amendments to the BOT Law IRR

While the BOT Law itself had not been amended since 1994, its Implementing Rules and Regulations
(“IRR”) has been adjusted, modified or refined several times. The latest version of the IRR was
published in a newspaper of general circulation on 07 October 2012. The 2012 IRR then took effect
fifteen (15) days after said publication, or on 22 October 2012. Some of the more salient revisions
made in 2012, and matters that may be further improved, are discussed below:
(1) Notable revisions in the 2012 IRR

Improvements and clarifications to the IRR5 have been introduced in the 2012 IRR, particularly in
terms of providing a fairer and more efficient and transparent process for BOT projects, from the
proposal and negotiation stage, to the drafting of the contract, to the bidding, and right down to the
execution and implementation thereof. Some of the more notable changes are:
3
4
5
Prior to 2012, the BOT Law IRR was last amended in 2006.
13
a. Compulsory Contract Review
For a contract drafting procedure leading to fewer contests, the 2012 IRR, under Sections 2.8 (for
solicited proposals) and 10.9 (for unsolicited proposals), now requires that the draft contract be
reviewed by the Office of the Government Corporate Counsel (OGCC), the Office of the
Solicitor-General (OSG), or any other entity prescribed as the statutory counsel of GOCCs and LGUs,
and, if necessary, by the Department of Finance (DOF), before the draft contract may be approved by
the head of the agency. Prior to the amendment, a DOJ or OGCC opinion may be sought as a closing
opinion required to b e stipulated under a BOT agreement. The legal review therefore occurs at the tail
end of the process. The new requirement sets the review early on. Hopefully, this revision translates to
fewer contests on the validity of the BOT contract during the implementation stage.
b. Direct Government Subsidy or Equity
The 2012 IRR, still consistent with the BOT Law, highlights the requirement that no direct
government guarantee, subsidy or equity shall be allowed for unsolicited projects. Section 10.4 of the
2012 IRR now explicitly states that the grant of usufruct of government assets, including, among
others, right-of-way, to private proponents shall be considered as direct subsidy or equity, unless the
government receives appropriate compensation for such. Thus, while government may still contribute
to a project resulting from an unsolicited proposal, it may not support or assist such a project for free
or without receiving remuneration equivalent to what it contributes.6
c. Changes to Published Bidding Requirements
In order to promote transparency, the 2012 IRR now emphasizes that, for any change to the bidding
requirements previously published, the government agency must issue a bid bulletin to all bidders who
had purchased the tender/bid documents, informing them of such changes, and affording them
reasonable time within which to consider the same in the preparation of their submission/bids. This
promotes fairness in the bidding by keeping all interested bidders informed of all amendments to the
bidding requirements, allowing them to properly prepare and craft their bids. While this was already
the previous practice of implementing agencies, the 2012 IRR now expressly mandates the same,
thereby giving such requirements greater stability and permanence.
d. Formation of Special Purpose Company
Like the 2006 IRR, a private proponent is allowed by the 2012 IRR to create a special purpose
company to assume the rights and obligations of the winning private proponent under the BOT
contract. In addition however, the 2012 IRR provides that the implementing agency may now mandate
or compel the winning private proponent to register or incorporate such a special purpose company,
rather than keeping it optional. In either case, there is apparent recognition that a proponent (and its
partners or co-investors) need not organize as a company at the onset but shall do so only after it is
actually awarded a project.
e. Grant of Provisional Franchise
As regards the grant of provisional franchises, the 2012 IRR now clarifies that the government agency
empowered by law to fix the rates of a public service is required to automatically grant, in favor of the
private proponent, a franchise to operate the facility on a provisional basis and collect tolls, fees,
rentals, and other charges stipulated under the contract.7 The 2006 IRR formerly provided that the
government agency or regulator concerned shall issue the required franchise only after conducting a
public hearing. There was thus some uncertainty as to whether a winning project proponent could
actually operate and maintain the facility, including the collection of tolls, fees, rentals, and charges,
6
DOJ Opinion No. 32, Series of 2011.
7
Section “12.3”, 2012 IRR.
14
soon after the award of the project. This new provision under the 2012 IRR is more consistent with
Section 5 of the BOT Law, which provides that the winning project proponent shall be automatically
granted by the appropriate agency the franchise to operate and maintain the facility, including the
collection of tolls, fees, rentals, and charges.
f. Use of Parametric Formula in Toll Rate Fixing
Another notable improvement is with respect to the adjustment of tolls, fees, rentals and charges as the
2012 IRR now provides that the government shall ensure that the project proponent recovers the
difference between the amount of tolls, fees, rentals and other charges based on the contract and/or
approved parametric formulae and the amount approved by the government agency regulating such
tolls, fees, rentals and charges. This was not previously provided under the older version of the IRR. 8
Notably, the Department of Justice (DOJ) has rendered an opinion, as early as 1995, that there is
nothing objectionable to the use of a parametric formula in adjusting tolls, fees, rentals and other
charges.9 The track adopted by the 2012 IRR is more consistent with the aforementioned DOJ opinion.
(2) Points for Further Improvement in the 2012 IRR

Notwithstanding the foregoing beneficial additions, revisions, and amendments, the 2012 IRR still has
room for improvement. The Study Team has conducted a close review of the 2012 IRR, in comparison
with the IRR 2006, and has found that several provisions in the 2006 IRR, which were identified to be
deficient or required amendments, remain unchanged. The Study Team suggests that GoP continues
discussion and review of the 2012 IRR, particularly on the following points:
a. Unsolicited Proposals
With regard to the period for submission of a counter-proposal or “Swiss challenges” to an unsolicited
proposal, the 2012 IRR provides that the period for acceptance of said counter-proposals is sixty
working days from the date of issuance of the tender/bidding documents.10 This period has been
observed to be short and insufficient for other proponents to prepare and submit competitive bids, and
thus highly favors the original proponent and is thus not conducive to fair competition.
There looks like no provision in the 2012 IRR expressly saying that the contents of a BOT contract for
an unsolicited proposal will be opened to the public. This has been observed to lack transparency.
However, it is noted that the contract approved by the government agency for an unsolicited proposal
forms part of the tender documents provided to those interested to send comparative proposals to the
approved unsolicited proposal.11 Further, Section 11.4 of the 2012 IRR requires that the notice of
award and/or bidding results be posted in government websites within seven calendar days from the
issuance of the Notice of Award.
b. Governmental Responsibilities and Contractual Breach
The 2012 IRR has been observed to lack sufficient provisions mapping out governmental obligations
and responsibilities under a contract. For instance, there is no provision outlining the criteria for the
government’s provision of a subsidy in a BOT project. Secondly, the 2012 IRR does not mention the
consequences of any delay by the government in the acquisition and/or delivery of ROW as provided
in a BOT contract. Thirdly, remedies available to the private proponent in case of breaches by the
government of its contractual obligations are not expressly enumerated in the 2012 IRR. This is not to
say, however, that the parties (the government) to a BOT contract may not choose to stipulate and/or
provide remedies that may be resorted to by the private proponent. The only rule is that such a
8
Section “12.18”, 2012 IRR.
9
Opinion No. 97, series of 1995.
10
Sections “10.1” and “10.11”, 2012 IRR.
11
Section “10.10”, 2012 IRR.
15
stipulation (remedy) must not be contrary to law, morals, good customs, public order, or public
policy.12 Also, consistent with Executive Order No. 78, series of 2012, which expressly mandates the
inclusion of provisions on the use of alternative dispute resolution mechanisms in all PPP contracts,
the IRR may expressly provide for standard provisions therefore. The only rule is that such a
stipulation must not be contrary to law, morals, good customs, public order, or public policy.13
The 2012 IRR provides for contract drafting procedure, by requiring draft contracts to undergo
successive reviews by either OGCC or OSG, and DOF, if necessary. For this purpose, model contracts
may be developed to provide greater clarity on certain matters of PPP arrangement between the
Government and the private proponent. Provisions on issues such as risk identification and
quantification may be required to be inserted in PPP contracts, depending on the public sector
concerned, as well as on the BOT scheme. Also, consistent with Executive Order No. 78, series of
2012, which expressly mandates the inclusion of provisions on the use of alternative dispute resolution
mechanisms in all PPP contracts, the IRR may expressly provide for standard provisions therefor.
c. Development Assistance and Subsidies
Another matter which may benefit from further clarification in the IRR is the provision dealing with
projects financed with private funds and partly with direct government appropriations and/or from
ODA. A maximum of 50% of the total project cost is set for government or ODA, with the balance to
be provided by the project proponent. However, the 2012 IRR currently does not have specific
provisions in terms of the following items:
 Whether “financing” includes only the grant of subsidy (and not to the loan amounts)
 Whether the limit should cover the cost of acquiring ROW
 Clearly defined criteria for determining the difficulty of sourcing funds, and who determines the
same.
The foregoing matters may be expressly clarified in a new set of IRR of the BOT Law, because aside
from the lack of express provisions thereof in the 2012 IRR, no precedent has yet been made by the
Supreme Court and no opinion has yet been issued by the DOJ squarely interpreting the foregoing
provision.
Nonetheless, in interpreting the provisions of the BOT Law, an IRR must not run counter to, but rather
be in furtherance of the State policy behind the law/statute. As discussed earlier, by enacting the BOT
Law, the Philippine Congress “recognized the indispensable role of the private sector as the main
engine for national growth and development”. While the ideal scenario contemplates a complete
investment by the private sector in BOT projects, the Congress also recognized that there is a need to
“provide the most appropriate incentives to mobilize private resources” to attract more private sector
participation. Among others, the foregoing provision, which allows assistance in the form of direct
government appropriations and ODA at the maximum of 50% of project cost, may be said to
implement the national policy.
d. Joint Venture (JV)
A Joint Venture (JV) is contemplated under the Revised Guidelines and Procedures for Entering into
JV Agreements between Government and Private Entities issued by NEDA in 2013 (JV Guidelines)14.
JV is one form of partnerships between a private party and a government entity. More specifically, it is
described in JV Guidelines as “a contractual arrangement whereby a private sector entity or group of
12
cf. Article 1306, New Civil Code of the Philippines.
13
cf. Article 1306, New Civil Code of the Philippines.
14
The JV Guidelines were first issued in 2008, and were later revised in May 2013. The JV Guidelines, as revised, will take
effect fifteen (15) calendar days from its publication on 11 May 2013 (in the Philippine Daily Inquirer), or on 26 May
2013. (Sec. 11, JV Guidelines). The quotations in this section are all made from JV Guidelines.
16
private sector entities on one hand, and a Government Entity or 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 to undertake an investment activity.”
A JV is treated differently from other PPP or BOT contracts as it has its own set of guidelines. The JV
Guidelines and the BOT Law are similar in a lot of aspects, particularly in the processes adopted to
ensure transparency and accountability in the procedures for public tender. In fact, the procedures for
evaluating negotiated JV proposals were patterned after the process for unsolicited BOT projects,
particularly in the adoption of the “Swiss Challenge” method.
BOT projects may be differentiated from JV arrangements in the following points.
Firstly, in BOT projects, ownership of the business will stay with the government, while in the JV
projects, the private sector is allowed to take over the undertaking of the projects in its entirety, after
the government divests itself of any interest in the JV.
Secondly the JV Guidelines apply only to public or semi-public entities, such as GOCC, government
corporate entities, government instrumentalities with corporate powers, government financial
institutions, state universities and colleges, which are expressly authorized by law or their respective
charters to enter into JV agreements. On the other hands, LGUs are expressly excluded from its
coverage. And so are national government agencies, by implication. In contrast, the BOT Law
expressly authorizes “all government infrastructure agencies, including government-owned
and-controlled corporations and local government units” to enter into BOT contracts. Therefore, it can
be said that the coverage of the BOT Law is much broader.
Thirdly, the JV Guidelines allow the parties thereto to elect for a SEC registered/incorporated, or
un-incorporated, JV arrangement, provided that government’s interest or equity contribution in the JV
“shall only be less than fifty percent”. The BOT Law and the IRR allow for greater flexibility in
providing for a multitude of schemes or variants, such as BOT, BOO, BLT, and other variations. In fact,
the possibilities are broad enough to include even JV type arrangements since the law allows for the
adoption of “other variations as may be approved by the President”.
Fourthly, apart from the foregoing, probably the more problematic matter is the difference in
conditions for unsolicited proposal. Under the BOT Law, an unsolicited proposal may only be
accepted by government under certain conditions such as the projects involve a new concept or
technology and/or not included in the IA’s list of priority projects, no direct government guarantee,
equity or subsidy required, NEDA-ICC clearance before negotiations, and undertaking a Swiss
Challenge (BOT Law Sec.4-A). However, all these conditions are not required under the JV
Guidelines.
Fifthly, the JV Guidelines also provides that a “JV Company shall be permitted to derive income from
activities authorized under the JV Agreement”. It also specifies that the parties to the JV “shall be
entitled to receive dividends each year from the net profits that would constitute portion of the
unrestricted retained earnings of the company”. The JV Guidelines does not set a limit unlike for
certain BOT projects which have a cap on rate of return on rate base at 12% specifically for public
utility which are monopolies. Thus, a proponent seeking either direct equity and/or a higher return may
resort to a JV rather than a BOT arrangement.
As discussed, the issues of the JV Guideline are summarized below.
 It seems that the JV is preferred by IAs and private proponents since the guideline generally needs
few government approvals and requirements.
 The JV entails a shorter processing period (90 to 165 days) while the BOT Law does a longer
processing period from 250 to 410 days.
 There is less transparency in the procurement process undertaken under the JV Guideline.
17
In this regard, it is worth considering how the BOT Law may be revised to cover JV projects. Possibly,
the track may be initiated by including JV projects among the list of permissible BOT schemes or
variants. Unifying the JV Guidelines with the BOT Law will benefit private proponents as they will
only need to consider one set of regulations for PPP projects in the Philippines.
3.1.3 Other Issues on PPP Legal Framework
As one of other issues on PPP legal framework, the use of different modes of alternative dispute
resolution would be focused here. The use of different modes of alternative dispute resolution has been
perceived globally, not only as an acceptable substitute to ordinary court litigation, but also as a more
efficient and less costly option for resolving various legal disputes between and among the parties to a
contract. Ordinarily, resort to ADR may be made when the contracting parties have agreed that
disagreements related to the contract may be submitted to ADR.
In the Philippines, the use of the ADR system has been recognized and adopted through Republic Act
No. 9285, or the ADR Act of 2004. Said law sanctions various modes of ADR, including but not
limited to any, or a combination, of the following:
 Mediation - a voluntary process in which a mediator, selected by the disputing parties, facilitates
communication and negotiation, and assists the parties in reaching a voluntary agreement
regarding a dispute;
 Arbitration - a voluntary dispute resolution process in which one or more arbitrators, appointed in
accordance with the agreement of the parties, or the IRR of the ADR Act of 2004, resolve a
dispute by rendering an award;
 Mini-trial - a structured dispute resolution method in which the merits of a case are argued before
a panel comprising senior decision makers with or without the presence of a neutral third person
after which the parties seek a negotiated settlement;
 Mediation-arbitration - a two-step dispute resolution process involving both mediation and
arbitration.
Consistent with the policy of the promotion of party autonomy in the resolution of disputes, the ADR
Act of 2004, the parties to a contract are given the freedom to choose their preferred mode of dispute
settlement, as well as other incidents thereto, such as, in the case of arbitration, the place of arbitration,
the language to be used therein, and the arbitrator/s.
For arbitration, the ADR Act of 2004 expressly adopted the United Nations Commission on
International Trade Law (UNCITRAL) Model Law as the law governing international commercial
arbitration15 in the Philippines, and Republic Act No. 876, or the Philippine Arbitration Law of 1953,
for domestic arbitration cases.16
The use of ADR system has been institutionalized in the Executive Department under Executive Order
No. 523, series of 2006, which required all administrative bodies to promote the use of ADR such as,
but not limited to, mediation, conciliation and arbitration as part of their practice in resolving disputes
filed before them. Further, Executive Order No. 78, series of 2012 (“EO 78”), expressly mandates the
inclusion of provisions on the use of ADR mechanisms in all PPP contracts.
15
“International arbitration” is defined in the IRR of the ADR Act of 2004 as an arbitration where:
(a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in
different states; or
(b) one of the following places is situated outside the Philippines in which the parties have their places of business:
(i) the place of arbitration if determined in, or pursuant to, the arbitration agreement;
(ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with
which the subject matter of the dispute is most closely connected; or
(c) the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country.
16
Except for construction disputes, which shall be governed by Executive Order No. 1008, or the Construction Industry
Arbitration Law.
18
As specifically required by EO 78, the National Economic Development Authority is required to issue
the implementing rules and regulations for EO 78, which shall be binding on all government agencies
and shall guide local government units (“LGU”) that shall enter into PPP contracts.17 Said IRR may
provide for a uniform contractual clause on ADR mechanism and require the same to be inserted in all
PPP contracts. Moreover, it may provide for a standard default provision (which will set an ADR
mechanism) in PPP contracts in the event that the parties do not or fail to specify a dispute mechanism.
As regards the courts’ power of judicial review over matters relating to ADR where contractual parties
have agreed to resort thereto, the Supreme Court has promulgated the Special Rules of Court on
Alternative Dispute Resolution18, which took effect on 30 October 2009. Consistent with the policy to
promote the use of various modes of ADR, in accordance with said Special Rules, courts shall
intervene only in cases allowed by the ADR Act of 2004 and by the said Special Rules. While arbitral
awards may not be set aside by the courts based on mere errors of judgment (either as to the law or as
to the facts), an award may be vacated if the arbiter’s findings have no factual support or when the
award was made in “manifest disregard of the law” (i.e. when the findings clearly violate an
established legal precedent).19
Domestic arbitral awards may be confirmed, upon proper petition, by the Regional Trial Court having
jurisdiction over the place in which one of the parties is doing business, where any of the parties reside
or where arbitration proceedings were conducted. However, while the court may not overrule the
factual findings of the arbitrator/s, it may also vacate the domestic arbitral award based on certain
specific grounds (e.g. corruption on the part of the arbitrator, non-existence or invalidity of the
arbitration) or correct/modify the same based on specific grounds (e.g. evident miscalculation of
figures or evident mistake in the identification of a thing, omission of an issue submitted for resolution,
imperfect form).20 On the other hand, foreign arbitral awards may, upon proper petition, be recognized
and enforced in the Philippines by a decree of the court. However, the court may also set aside and
resist recognition and enforcement of a foreign arbitral award based on certain specific grounds (e.g.
incapacity of one of the parties, lack of proper notice to any of the parties, invalid appointment of
arbitrator/s).21
Given the foregoing, it may also be worthy to consider whether PPP contracts should be required to
include provisions that, in the event that a judgment is issued or an award is made by the arbitral body
through the ADR provision of the contract, the Government shall automatically draw from an
available standby fund to ensure the immediate payment of said award to a private party, pending the
court’s confirmation of the domestic arbitral award or recognition and enforcement of the international
arbitral award. Such payment should, however, be without prejudice to the right of the Government to
question such arbitral award (and recovery of wrongful payments) through available remedial
measures provided for by law, such as a petition to the proper courts to vacate or correct a domestic
arbitral award or a petition to set aside a foreign arbitral award, based on valid grounds.
By allowing the proponent some payments upon the issuance of the arbitral award but prior to the
confirmation or recognition and enforcement of the award by the courts, the burden of waiting for the
final resolution of the courts, as well as the concomitant costs therefor, is effectively shifted from the
private proponent (who holds on the burden from the commencement of the dispute up to the decision
or arbitral award) to the Government. In the interim, the compensation for any injury which the private
party may have suffered from a Government breach of the contract is not unnecessarily prolonged by
possible unexpected delays in the resolution of the courts. By so providing in the contract, the parties
give the arbitral award the presumption that the same shall eventually be confirmed or recognized and
17
Section 2 of EO 78.
18
A.M. No. 07-11-08-SC.
19
Equitable PCI Banking Corporation vs. RCBC Capital Corporation, 574 SCRA 858 (2008).
20
Rule 11.4 of the Special Rules of Court on Alternative Dispute Resolution.
21
Rule 12.4 of the Special Rules of Court on Alternative Dispute Resolution.
19
enforced by the courts, subject to the repayment to the Government of whatever it pays pursuant to the
award in the remote possibility that the same is vacated or set aside by the courts.
3.2 Organizational and Policy Framework

3.2.1 Creation, Evolution and Strengthening of the PPP Center
The PPP Center, as established by Executive Order No. 8, series of 2010 (“EO 8”), is the primary
government institution, tasked with enabling PPP projects in the Philippines. Prior to a series of
reorganizations in the past, the PPP Center started out as the Coordinating Council on the Philippine
Assistance Program (“CCPAP”), created in 1989 by Administrative Order No. 105 mainly to
implement the Philippine Assistance Program, to “mobilize the international community's support to
achieve the objectives of sustainable economic growth coupled with an equitable distribution of
income and wealth” and to “effectively mobilize the aid and to ensure its successful
implementation”.22 Not only was it tasked to formulate policies and guidelines for the implementation
of said program, it was also given the responsibility to monitor, review and evaluate the
implementation of programs and projects thereunder. Upon the passage of the BOT Law, the CCPAP
became the central body responsible for the coordination and monitoring of BOT or PPP projects.
In 1999, the CCPAP was reorganized as the Coordinating Council for Private Sector Participation
(“CCPSP”) under the Office of the President, through Administrative Order No. 67. The CCPSP’s
functions included coordination and monitoring the program of the Government on private sector
participation (“PSP”) in its infrastructure and other development activities and the formulation of
policies and guidelines which will ensure transparent and expeditious implementation of the PSP
Program.
The CCPSP was then converted to the BOT Center by virtue of Executive Order No. 144, Series of
2002, and became an attached agency of the Department of Trade and Industry (“DTI”). The BOT
Center was empowered to coordinate and monitor BOT and PPP projects and the BOT/PSP Program
of the Government, as well as to promote and market the same. As such, it was expressly designated as
an investment promotion body, and not a regulatory or approving authority. The BOT Center also had
the functions of formulating policies and guidelines for BOT/PSP project development and of
providing technical assistance to national agencies, GOCCs and LGUs. It also was tasked to establish,
manage and administer a revolving fund to be known as the Project Development Facility (“PDF”), a
technical assistance fund for the preparation of feasibility studies and bid documents. The seed capital
of PDF was funded from a grant, and was envisioned to be administered in such a way that would
allow for the recovery of said seed capital and to use the re-flows for other BOT/PSP project
preparation/studies.
EO 8 reorganized the BOT Center of the Philippines into what is now the PPP Center, and made the
same an attached agency of the NEDA. With the aim to fast-track the implementation of PPP programs
and projects, as a cornerstone strategy of the national development plan to accelerate the infrastructure
development of the Philippines, the PPP Center was given certain responsibilities over all PPP
programs and projects. Its powers currently include, among others:
 Conducting project facilitation and assistance, and providing advisory services, technical
assistance, trainings and capacity development to agencies and LGUs;
 Recommending plans, policies and implementation guidelines related to PPP;
 managing and administering the Project Development and Monitoring Facility (“PDMF”), which
was formerly the PDF, a revolving fund established for the preparation of business case,
pre-feasibility and feasibility studies and tender documents of PPP projects;
22
Whereas Clauses of Administrative Order No. 105, Series of 1989.
20
 Monitoring and facilitating the implementation of priority PPP projects of agencies and LGUs;
 Such other functions which may be critical in expediting and implementing effectively the PPP
projects of the Government.
As evidenced by the number of reorganizations of the PPP Center, the Government has indeed
recognized the changing needs of the PPP environment in the Philippines, including the need for a
centralized body in charge of formulating policies and guidelines, monitoring and evaluating the
overall implementation of PPP projects, with the view of achieving greater effectiveness and
efficiency therefor.
EO 8 may still benefit from further amendments in the future. For instance, it has been suggested that
EO 8 may expressly provide for a PPP Center Governing Board which may serve as a central
policy-making body in all PPP matters. Moreover, EO 8 may be amended to expressly include as one
of the purposes of the PDMF the monitoring of PPP projects to ensure their timely implementation.
Having undergone several changes in the past twenty (20) years, it is likely that the PPP Center will
continue to evolve, as its role changes, or even expands, as does the PPP paradigm. The PPP Center
would continue to seek a structure that will allow it to best deliver its services on PPP concerns.
The continuing evolution of the PPP Center is dependent however, on how it succeeds with its current
functions. The failure by the PPP Center to improve the development of PPP pipeline projects, as well
as to improve the capability of implementing agencies to roll out and implement PPP projects will
heavily weigh against any move to further expand the PPP Center. However, should the PPP Center
succeed in these roles, coupled with a continuing increase in PPP projects, then the PPP Center would
perhaps require expansion in the future, so as to obtain more powers, autonomy, and financial
self-sufficiency.
In line with this proposition, it was suggested in a study conducted by GHD, entitled Review of the
PPP Institutional Set-up in the Philippines, that the PPP Center evolve into a GOCC, offering project
development services to implementing agencies, in the form of consultancy services. The PPP Center,
as a GOCC, would be compensated by implementing agencies for consultations, not only on feasibility
study preparations, but also on drafting and negotiating project agreements, as well as on monitoring
and evaluation of PPP projects.23
It was noted in the same study however, that before the PPP Center could evolve into a GOCC, certain
factors must be present, such as sufficiency of PPP projects to sustain revenue generation, and the
availability of manpower and skills, such that the PPP Center organized as a GOCC, could replace
external consultants.24
In the interim however, that there appears to be insufficient impetus to transform the PPP Center to a
GOCC. Alternatively, it was likewise suggested that the PPP Center evolve into a Commission, as an
autonomous body under the Office of the President. The autonomy and attachment of the would be
PPP Commission to the Office of the President would provide it a perception of higher stature and
clout than the current PPP Center. Said PPP Commission would, theoretically, be more able to enforce
adherence by implementing agencies of the process flow timelines provided by the BOT Law IRR. It
could also improve access and communication with the private sector.25
23
GHD Pty, Ltd. Review of the PPP Institutional Set-up in the Philippines (19 September 2012), available at
http://ppp.gov.ph/wp-content/uploads/2012/09/Review-of-PPP-Institutional-Set-Up_09192012.pdf, (last accessed at 09
April 2013).
24
Id. at 40.
25
Id. at ¶ 127. The would be PPP Commission “should be able to identify policy needs; define procedural issues that are
lacking in the PPP process; coordinate with DOF, NEDA or DBM needed course corrections in the PPP program; extend
technical assistance in matters related to project preparation, evaluation of unsolicited proposals and procurement to
national agencies and LGUs; ensure that conflicts of interest in the processing of solicited, or unsolicited, proposals are
eliminated; and compensate for the weaknesses and gaps in knowledge related to the application of proper tools and
21
The PPP Center, as an enabler of PPP projects, has much room for improvement, whether it remains as
the PPP Center, or eventually evolves into a commission under the Office of the President, or even
perhaps into a GOCC. It cannot be gainsaid however, that the PPP Center will continue to be
reorganized, as the needs and requirements of the PPP paradigm evolves.
3.2.2 PDMF Support for PPP Projects

Philippine infrastructure planning and programming flows from the Medium-term Philippine
Development Plan (“MTPDP”) which lays down the broad policy framework of government for the
President’s six-year term. During the preparation of the MTPDP, line agencies also identify and
prepare a list of projects, consistent with the broad policy goals, that is submitted to the NEDA to be
included in the Medium-term Public Investment Plan (“MTPIP”), albeit it has been observed that
supporting studies for selected projects are usually limited, decisions to pursue projects via PPP are
based on subjective criteria and prioritization happens without a common analytical system 26 .
Together with the MTPIP is the Comprehensive and Integrated Infrastructure Program (“CIIP”) that
lists projects appropriate for purely private financing, PPP or joint venture, or purely public financing.
While the MTPDP 2011-2016 is already in place identifying PPP as a key program of the Aquino
administration, the PPP program itself is handicapped by the absence of accompanying MTPIP and
CIIP. Hence, projects that have been chosen so far for PPP are largely based on their readiness to go
to market in terms the necessary supporting studies and documents. Also, while the current
government has emphasized preference for competition associated with publicly-led solicitation of
PPP projects, there are a number of infrastructure projects that are not in government’s priority list that
are being actively proposed for PPP by the private sector through an “unsolicited” track in the BOT
law subject to various rules and limitations.
In light of current constraints related to the lack of national and sector plans as well as inadequate
technical, financial and legal capabilities in government agencies to prepare ready-to-tender projects,
there is currently greater attention placed on the PPP Center. The PPP Center’s capacity for
undertaking PPP projects is enhanced by donor assistance, notably from the Australian government
and the ADB, for the Project Development and Monitoring Facility (PDMF). The PDMF is a
revolving fund used for project preparation and tendering, including the hiring of consultants /
transaction advisors.
The PDMF system involves line agencies, typically the implementing government agencies for PPP
projects, continuing to be at the frontline of identifying projects. However, given capacity constraints,
line agencies have the option to submit project concepts for PDMF financing. A PDMF Board
consisting of government representatives from NEDA (chair), DBM, DOF and the PPP Center decides
whether or not submitted projects are eligible for PDMF funding. If approved, the PPP Center
handles selection of consultants from an existing pool of pre-qualified consulting firms (See Annex 4)
to conduct pre-investment studies, prepare draft tender documents and provide transaction advisory
services. Should the project be bidded out successfully, the winning bidder reimburses the PDMF for
all these costs.
While there is greater attention on the PDMF at this time, going through the PPP Center’s facility is in
fact not necessary if line agencies have the capability to develop their own projects or have access to
technical assistance from other donors.
forms evaluating/monitoring PPPs.” (Id. at ¶ 40). The PPP Commission would also “have more control over its budget;
access to higher levels of decision-making; more opportunity to interface with the market; freedom from the structural
conflicts of interest it faces in its present location; and the independence and flexibility to act when needed.” (Id.)
26
GHD Pty Ltd, ed 15 November 2012).2" Philippines. The BOT Law for inclusive growth, June 2012. Draft, September 4,
2012.
22
For instance, two major projects that are rolled out, the NAIA Expressway and the LRT Line 1
Extension, did not receive PDMF financing but were developed with the help of other donors,
including the IFC and JICA. In these cases, the projects similarly go through the BOT Law’s process
where projects have to secure approval of the NEDA – Investment Coordination Committee (ICC) and
for large ones costing over P300 million, the approval of the NEDA Board, which is chaired by the
President.
Hence, even as the medium-term policy framework is being drawn up, which will take some time,
government appears to be trying to learn by doing and show some early successes to drum up interest
and build investor confidence in its PPP program. While external consultants are presently doing the
heavy lifting, the objective seems to be that over time, public sector staffs will, with the help of donor
assistance, develop the technical expertise to identify projects that are suitable for PPP and prepare
ready-to-tender projects.
At the same time, these early projects provide lessons for government on what are the missing
elements in the current system that government needs to address and what the market looks for and
demands from government in order to participate in the bidding. These lessons help to strengthen the
medium-term framework moving forward.
23
Chapter 4. Back Analysis on Public Financial Framework for PPP
4.1 Introduction
The key issue in ongoing PPP projects is how to attract private sector efficiencies in the financing,
construction, operation and maintenance of infrastructure services at minimum cost (both on and
off-budget) to government, while at the same time achieving social objectives (service provision at
affordable rates). Since long-gestating infrastructure projects are inherently risky, the issue boils down
to what risks the private sector is able and willing to bear, and for risks that stay with government,
what mechanisms it can use to assure the private partner of its long-term commitment to the PPP
contracts.
In some countries where the environment for PPP is still in its developing stage and needs private
capital to finance catch-up infrastructure, government has introduced a number of financial facilities to
address gaps that may keep the private sector away. Depending on each country’s institutional features
and domestic market conditions, these may include dedicated facilities for (i) project development, (ii)
closing viability gaps, (iii) long-term domestic currency lending, and (iv) extending guarantees,
including mechanisms to ensure contingent liability obligations of government are complied with. In
the Philippines, the public financial framework currently consists of an assortment of formal and
informal facilities and mechanisms that tries to meet the requirements of a successful bid. The
functions and relations of those facilities are summarized in the following:
Facilities Functions
PDMF Enhance Project Formulation
VGF Facilities SecureFunctions

Project Viability
Guarantee including CL Improve Bankability
Long Term Lending Facility Improve Profitability

Figure 4.1-1 Functions and Relations of Public Financial Facilities for PPP
4.2 Current Public Financial Framework

4.2.1 Project Development and Monitoring Facility
The PDMF, lodged in the PPP Center, is a revolving fund charged with developing a robust pipeline of
bankable PPP projects. Initial funding for the PDMF was sourced from the government ($7 million)
and Australian and Canadian governments grant ($6 million) under the administration of the ADB. The
funds may only be used for: (a) preparation of project pre-feasibility and feasibility studies, (b) project
structuring, (c) preparation of bid documents and draft contracts, (d) transaction advisory, (e)
assistance in the tendering process, including bid evaluation and award, (f) activities required to
determine the feasibility and viability of potential PPP projects, (g) preparation of various project
24
documents as required for approval, and (h) hiring of consultants and advisors to assist the
implementing agency in the various aspects of the project preparation. The fund may be replenished
by (a) winning bidder if a project is successfully bidded out, (b) repayment by implementing agency if
it fails to bid out the project27 or (c) the PPP Center from its annual budget to augment estimated cash
deficiencies. [National Budget Circular 538, March 22, 2012]
As of April 2013, the PDMF has funded 18 projects, with only one awarded and funds reimbursed28.
Last April 2012, the Australian government and the ADB announced additional support amounting to
$15.5 million, $9 million of which will be used for the PDMF (the rest for capacity building activities).
Together with counterpart funding from the Philippine government, the PDMF currently has
unallocated funding estimated at $18.5 million.
Parallel with the PDMF is bilateral technical assistance being provided for project development for
PPP, of which JICA has been most prominent. The typical PPP projects assisted by JICA are i) CALA
Expressway Laguna Section, ii) NAIAx Phase-2, iii) LINE-1 South Cavite Extension and iv) LINE-2
Extension. The IFC has likewise been active in providing PPP advisory.
Table 4.2-1 Projects with PDMF funding
27
Percentage repayment depends on PDMF Board determination of fault/responsibility for failure to bid out the project
(100% if due to IA failure, 50% otherwise)
28
As of this time, the PPP Center only releases information on PDMF-approved projects. It does not indicate whether a
project has applied for such support.
25
Project Estimated Cost

Awarded
1 PPP for School Infrastructure Project (Phase 1) PHP16.42Bn | USD389M n
Projects with Live Bidding
1 Automatic Fare Collection System (AFCS) PHP1.722 Bn | USD 42.9 M n
2 M actan-Cebu International Airport Terminal Building (M CIA) Phase 1:(Initial Investment) PHP8.873 Bn;
Phase 2:(Future Expansion) PHP8.647 Bn
Project Structure Being Finalized
1 Enhanced O&M of New Bohol (Panglao) Airport USD 190.50 M illion
2 Operation and M aintenance of Laguindingan Airport USD 42.9 M illion
On-going Studies
1 Establishment of Cold Chain Systems Covering Strategic Areas in the PHP 1.50 Bn | USD 35.7 M n
Philippines
2 Integrated Transport System (ITS) Project To be determined (TBD)
3 New Centennial Water Supply Source Project To be determined (TBD)
4 Bulacan Bulk Water Supply To be determined (TBD)
On-going Procurement of Advisors
1 El Nido Water Supply and Sanitation System Project To be determined (TBD)
2 M anila-M akati-Pasay-Paranaque (M M PP) M ass Transit System No information
(M TS) Project
3 Regional Prison Facilities through PPP No information
4 Integrated Luzon Railway Project No information
For Procurement of Advisors
1 Plaridel Bypass Toll Road No information
2 Batangas-M anila (BatM an) 1 Natural Gas Pipeline Project No information
3 LRT-1 Extension to Dasmarinas No information
4 M anila Bay-Pasig River-Laguna Lake Ferry System Project No information
5 Operation and M aintenance of Iloilo, Davao and Bacolod Airports No information
Source: PPP Center
The PPP Center provides the PDMF Guidelines (October 2011) to operate and manage it. Its main
points are summarized below.
(1) Qualified projects

The projects that can be funded under the PDMF shall: (i) belong to economic and social infrastructure
sectors; (ii) be consistent with priority government infrastructure programs such as Comprehensive
and Integrated Infrastructure Program (CIIP), Medium-Term Philippines Development Plan
(MTPDP)/Medium Term Public Investment Program (MTPIP) and Regional/Provincial/Local
Development Programs; and (iii) be pursed under the PPP schemes allowed under the BOT Law and
its IRR. CIIP is to be approved by NEDA board every 5 years and the latest version is CIIP 2009-2013.
(2) Operating Process

The projects applied for PDMF support will be handled in the following steps as shown in the process
chart.
 An IA applies for PDMF financing to The PPP Center with applications including project concept
note, indicative TOR with cost estimates, etc.
 The PPP Center evaluates the application and the PDMF Board approves it.
 IA executes a Technical Assistance Agreement (TAA) with the PPP Center.
26
 The PPP Center establishes a Project Study Committee (PSC), a Special Bids and Award
Committee (SBAC), and a Technical Working Group (TWG).
 The PPP Center selects the Consultants/Transaction Advisors and signs the consulting contracts
with the selected ones in consultation with IA based on indefinite delivery contract assignment
(IDCA)
 The selected Consultants/Transaction Advisors engage the assigned work such as: conduct the
pre-investing studies; prepare draft tender documents; provide PPP transaction advisory services.
 The NEDA Investment Coordination Committee (ICC) approves the project for bidding.
 The approved PPP project is bid out and the contract is awarded to a winning bidder.
 The winning bidder reimburses all the project related cost from the PDMF.
Source: Project development and monitoring facility (PDMF) Guidelines

Figure 4.2-1 PDMF Process Flowchart
4.2.2 Viability Gap Funding: PPP Strategic Support Fund

In addition to the PDMF, government has provided budget to a number of implementing agencies
starting in 2011 under the line item “PPP Strategic Support Fund (SSF)” to defray costs assigned to the
public sector, including capital subsidies. Under National Budget Circular 538 (March 22, 2012), the
SSF may only be used for: (a) right of way acquisition and related costs (including resettlement),
government counterpart to be used for the construction and other related costs for potential and actual
PPP projects, and (b) cost of designing, building and otherwise delivering any part of a PPP project
which government decides to retain responsibility for, including public infrastructures such as rural
and access roads, utilities and other support facilities required for a PPP project to be viable.
The 2011 and 2012 SSFs were lump sum amounts in agency budgets with the two main infrastructure
agencies, DOTC and DPWH, having the largest SSF budgets. For these two years, the implementing
agencies were given two years to obligate their SSFs. However, given the slow progress in project
pipeline development, some agencies had trouble utilizing their budgeted SSFs. While the executive
branch was earlier considering pooling the SSFs into one fund that is open to any implementing
agency and avoids the problem of unutilized SSFs left idle in any particular agency, the legislature
decided in the opposite direction. That is, starting 2013, the SSFs are expected to be disaggregated to
specific, identified PPP projects in agency budgets with the sums having a one-year expiry.
As can be seen in Table 4.2-2, SSF in 2013 is significantly lower than its 2011 and 2012 levels. This is
because earlier appropriations are yet to be spent.
27
Table 4.2-2 Budgeted SSF Amounts (P billion)

2011 2012 2013
DA 2.50 1.00
DOH 3.00
DOTC 5.00 8.59 5.08
DPWH 5.00 3.00 3.00
Total 12.50 15.59 8.08
Source: DBM
4.2.3 Public Guarantee Facility

At the outset, it is important to distinguish the two functions under a guarantee facility: one that
guarantees direct liability (or, scheduled liability) and the other that guarantees contingent liability
(CL). The Public Guarantee Facility that we discuss here covers both Direct Liability and Contingent
Liability.
Table 4.2-3 Difference of GF and CL Fund
Coverage
Direct Liability (DL) Contingent Liability (CL)
GF ○ ○
CL Fund － ○
Currently, there is no dedicated guarantee facility for PPP beyond provisions in the contract itself. To
strengthen these and provide investors greater comfort, government may use two instruments available
to it: (a) the stronger of the two with tested bankability is the performance undertaking or
Confirmation Note, a letter issued by the Secretary of Finance to the project investor stating that
government obligations under the contract carry the Republic’s “full faith and credit”; or (b) the
multi-year obligational authority (MYOA), an authority issued by Department of Budget and
Management (DBM) allowing government agencies to enter into multi-year contracts and that
commits the executive to provide budget cover for these annually. Investors’ discomfort with this
instrument is that the MYOA does not bind Congress, the approving authority for government’s
budget. Performance undertaking or confirmation note can cover both direct and contingent liabilities
while MYOA covers direct liability only.
There is no public guarantee facility in the Philippines. Risks and damages occurred during project
implementation are compensated by private insurance companies. There are currently about 100
private general insurers (companies managing general/non-life insurance) out of which 11 foreign
companies operate. Private proponents basically insures against force majeure caused by natural
calamity, and third party liability during construction and operation but not for events caused by the
government side. The following is risks covered by private insurance based on a toll road project
contract on a BOT basis.
Table 4.2-4 Risks to be Covered by General Insurers

Stages Kinds of Insurance Coverage Fees/Conditions
Detailed Professional Indemnity Damage during For a toll road project,
design Insurance construction caused by foreign company
defects of detailed design. insuring professional
Insurance period is a few indemnity insurance is
years after start-up of employed in the
28
construction. Philippines.
Construction Contractors’ All Risks 1) Material damage Insurance fees:
Insurance 2)Third party liability 1) 0.35% of construction
cost
2) US$ 10,000 per
person
Marine Cargo Insurance Material damage/loss Insurance fees:
during marine or air About 0.2% of cargo
transportation value per one
transportation
Start-up delay insurance
Revenue loss/additional Delay in commencement
cost caused by delay in due to delay in land
construction due to natural acquisition is outside the
calamity, coverage
Operation All Risks Insurance Fire/Earthquake insurance, Insurance fees:
damage caused by About 0.15% of facility
maintenance works value at current price
Third Party Liability Damage of third party Insurance fees:
Insurance caused by maintenance About US$ 10,000 per
works insurance
Workers’ compensation Injures of workers during Insurance fees:
insurance O&M 2% of annual income of
workers
Source: JICA Study Team’s interview to the private insurers
Any damage/loss caused by political risk and delay in commencement of project implementation due
to delay in ROW (Right of Way) is outside coverage of general insurance.
4.2.4 Long Term Financing

While government initially contemplated the setting up of a dedicated long-term lending facility to
address likely market failure in providing needed long term project finance for PPP projects and
reduce demands for on-budget viability gap funding, initial work put into designing the facility has
failed to prosper and to date, no such facility is in place. Instead, one of the government financial
institutions, the Government Service Insurance System (GSIS) which manages the pensions of public
sector employees, that was supposed to participate in the lending facility has opted to set up its own
infrastructure fund. Called the Philippine Investment Alliance for Infrastructure (PInAI), the facility
has contributions totaling $625 million coming primarily from GSIS ($400 million), with the rest put
in by the ADB and two foreign groups, Australia’s Macquarie and Dutch pension asset manager
Algemene Pensioen Groep (APG). The fund seeks to invest in all types of infrastructure projects in the
Philippines. However, given GSIS’s mandate (it has an internal 12% target hurdle rate for investments),
it is expected that PInAI will be commercially-oriented and focused on projects with predictable
cashflows and good returns and hence, may not be able to serve a more catalytic role especially for
greenfield PPP projects.
At the time, institutions targeted to participate in the facility either as equity or debt holders included
from the government side, DBP, Land Bank, SSS and GSIS and from donor agencies, ADB, IFC and
JICA. Key criticism at the time included (a) the facility was being designed with both developmental
and commercial goals (giving rise to conflicts in performance targets and governance issues) (b) with
no government guarantees and (c) likely high startup and operating costs. At the same time, the
facility was being proposed at a time when the local financial market was highly liquid. Hence, the set
up to address a perceived gap in the PPP financial framework that has not been realized yet.
While initial efforts to set up a public lending facility were unsuccessful because of the above, the
29
JICA Study Team continues to find value in having such a facility in place to address long term
infrastructure gaps.
4.2.5 Summary of Review of the Four Facilities

In some countries where the environment for PPP is still in its developing stage and yet needs private
capital to finance catch-up infrastructure, government has introduced a number of financial facilities to
address gaps that may keep the private sector away. Depending on each country’s institutional
features
4. and domestic Financial
Public market conditions, these may includefor
Framework dedicated
PPP facilities for (a) project
development, (b) closing viability gaps, (c) long-term domestic currency lending, and (d) extending
guarantees, including mechanisms to ensure contingent liability obligations of government are
4.1 Similarly,
complied with. Typesthe ofWorld
PublicBankFinancial
identifies fourFacilities (PFFs)
types of government support (financial
facilities) to PPP projects: (i) funded products, (ii) contingent products, (iii) financial intermediaries,
WB development
and (iv) project identifies 4 funds.
types The
of government support
country-specific (public
facilities financial
are related to thefacilities)
WB definition and
for PPP projects: (i) funded products (VGF), (ii) contingent products
the current status is summarized below (This long-term financing is tentatively called PIPFF
(guarantees), (iii) financial intermediaries (long-term lending) and (iv)
(Philippinesproject
Infrastructure Public Finance
development funds.Facility) for the same of the case study in this report).
 Current status of development in PFFs in the Philippines are as follows.
Table 4.2-5 Summary of Public Financial Facilities
Type Facilities in the
Function Current status
(per WB) Philippines
Project Enhance project
PDMF already exists
development fund formulation
Secure project does not yet exist
Funded project VGF
viability (started with SSF)
Contingent product Guarantee for CL Improve bankability does not yet exist
Financial Improve profitability
PIPFF does not yet exist
intermediaries and reduce VGF

1 : Project Development and Monitoring Facility 4 : Philippine Infrastructure Public Financial Facility
2 : Viability Gap Funding 5 : Strategic Support Fund
3 : Contingent Liability
Out of the four facilities, PDMF is already existing and working. The needs for the remaining
1
not-yet-existing facilities are as follows.
The immediate need of the GoP is to address the issue of CLs. There is no dedicated CL Fund for PPP
beyond provisions in the contract itself. The lack of facility for CLs arising from the GoP’s
non-performance of its obligations causes poor response to bidding and results in slow progress of PPP
pipeline implementation. There is an urgent and pressing need for addressing the CLs. In the longer
run, there is a need to address the issue of guarantee for direct liabilities.
Regarding VGF and long-term public financial facility there are needs for medium and long term
perspectives. The PPP projects currently bid-out are commercially viable so that there is little need for
direct financial supports from the government. Coming projects, however, will be less commercially
viable than now, and there is a need for strong support from the GoP through the combination of VGF
and long-term public financial facility. The immediate need lies in establishing of a standalone
VGF and then application of long-term financing is explored to reduce the amount of VGF
required. This VGF reduction effect by the financing is shown below.
A case study was conducted using coming candidate project to clarify this point. The results of this
case study are summarized below (see Annex 1 for details).
Table 4.2-6 Summary of Case Study for long-term public financial facility
30
VGF required Cash flow for GoP

Project
FIRR (% of project cost) (NPV, Mn Ps)
Case study project cost
(%) Without With Without With
(Mn Ps)
PIPFF PIPFF PIPFF PIPFF
CAVITE Express way 22,652 11.2 39.2 26.7 ▲ 3,038 142
NAIA Expressway 13,608 10.2 43.9 26.2 ▲ 22,128 ▲ 535
SELEX Extension Road 13,835 9.2 42.8 20.6 ▲ 2,349 ▲ 333
Visayas Airport 2,197 13.7 16.7 0.0 298 400
Zamboanga Airport 2,387 10.4 38.7 24.4 182 4
Tacloban Airport 1,581 7.7 47.1 37.8 426 ▲ 316
The study indicates VGF ranging from 16.2% to 47.1%, averaging 38.1% of project costs is required
to make them viable in cases of without long-term public financial facility. In case of provision of with
long-term public financial facility (a mixed loan of 50% commercial loan and 50% public long-term
loan with half interest and double tenor of those in commercial loan) the required VGF is reduced to
37.8% to zero, averaging 22.6%. Provision of public long-term financing reduces VGF by 40.6% on
average basis. This is a great benefit for the GoP in terms of mitigation of fiscal burden.
The subsequent sections describe further analysis of the not-yet-exist facilities (VGF pool, guarantee
for CL, and long-term public financial facility).
4.3 Comparison with Other Countries

4.3.1 Contingent Liability Treatment
(1) Japanese Example
a. Contingent liability in Japanese PFI
Most of Japan’s PFI Projects are “Annuity Payment Type” and it requires long-term payment by
ministries and local autonomies. During such a long-term payment period, some contingent liabilities
can be expected to occur, i.e., price escalation and increase of bank loan interest rate which are almost
impossible to be predicted in advance. Also, there is a certain possibility, although it is very low, that
the Diet might disapprove the budget appropriation for annuity payment in a certain year. To mitigate
the above-mentioned contingent liability, the Multi-Year Budget Appropriation Commitment was
introduced and it has been properly performed
b. Multi-Year Budget Appropriation Commitment
“PFI Process Guideline”, which was issued by the Japanese Cabinet Office, requires “Multi-Year
Budget Appropriation Commitment” for projects both by Ministries and local autonomies. “Multi-Year
Budget Appropriation Commitment” requires Diet’s approval for national projects and local
assemblies’ approval for local projects. “Multi-Year Budget Appropriation Commitment” is legally
allowed by Japanese Financial Law, Local Autonomy Law, and PFI Law.
It is guided by PFI Process Guideline that “Multi-Year Budget Appropriation Commitment” shall be
set before announcement of tender (PQ). The following flow chart shows the flow of the process and
the timing of Multi-Year Budget Appropriation Commitment.
31
F/S Public Decision of Multi-Year Announcement

Hearing Adoption of Budget App. of Tender
PPP Commitment

Figure 4.3-1 Flow of sequential procedure for the Multi-Year Budget Appropriation under PFI
contract
When “Multi-Year Budget Appropriation Commitment” is set in either Diet or Local Assembly, the
approval is made for the following contents:
The government or local autonomy shall pay to the PFI Company, the designated amount over the
designated period as written in the PFI contract to be closed. The amount shall duly include the annuity
payment (service purchase payment), as well as the costs duly to be borne by the government/local
autonomy, as the results of the changes of agreed items, such as interest rate and CPI.
(2) Example of Colombia
a. Initial feature of the Government guarantee policy
Since early 1990’s, the Colombian Government introduced various guarantee policies and incentive
policies for promotion of private entities’ participation in infrastructure development business fields
through PPP scheme. With the purpose of encouraging private participation in electricity sector and
telecommunication sector, typical PPP related policy measures have been introduced such as minimum
revenue guarantee, availability payment scheme and so forth. The infrastructure concession projects
incorporated contingent liabilities primary related to guarantees of: 1) revenue risk (typically traffic
demand risk), 2) Geological hazard risk, 3)ROW delivery risk, 4)exchange risk and 5)natural disaster
related risk. At the beginning stage, such guarantees and incentives for private participation were not
recorded in the fiscal accounting framework since there were no instruments for assessment of
contingent liabilities.
b. Public body for Risk management
In 1998, the Risk Office was established within the general Directorate of Public Credit, of which
jurisdiction is identification, assessment, mitigation and control of the different sources of contingent
liabilities of the nation. The Law 448 was issued in 1998, by which action was taken with respect to
the management of contingent liabilities. The Law 448 stipulated that the Nation shall include debt
service appropriations in their own budget, which may be necessary to cover the potential losses
coming from contingent liabilities.
c. Contingency Fund of State Entities
Based on the Law 448 issued in 1998, Contingency Fund of State Entities was established to meet
contingent liabilities and risks of state agencies as a special account with no juridical persons. The
funding sources of the Fund come from: 1) contributions made by state agencies, 2)contributions from
national budget and 3)recovery product portfolio. The arrangement plan of such funding resources is
determined by the General Directorate of Credit and National Treasury, Ministry of Finance and
Public Credit, through the approval of the various contribution plans, in accordance of Decree 423.
d. Contingent Liability management bodies
The Law 448 assigned responsibility for approving and monitoring the valuation of contingencies to
the General Directorate of Public Credit and National Treasury, Ministry of Finance and Public Credit.
32
In 1999, the Decree 1849 stipulated that the first definition of contingent liabilities and general
procedure for disbursement of from the Contingency Fund for State Entities.
In 2001, the Decree 423 provided the guidelines for the management of the Contingency for State
Entities, and authorized that the general Directorate of Public Credit and national treasury, Ministry of
Finance to approve the plan of contribution of funding sources of the Fund.
e. Contingent Liability caused by litigation against the Nation
As for contingent liability brought about by litigation action against the nation, it also has been
seriously taken into consideration. The major factors for this kind of contingent liability were
considered as: 1) the lack of financial resources to strengthen prevention measures against unlawful
state damage, 2) increasing the unlawful damage caused by the State to individuals and therefore an
increase in the number of lawsuits against the Nation, 3) poor technical defense against state court
proceedings, 3) increasing the responsibility of the State to guarantees of fundamental rights, 4) lack of
uniform criteria to address litigation, 5) organizational deficiencies defense offices, 6) little use of
alternative dispute resolution and 7) the absence of information systems for the collection and analysis
of data regarding state litigation. In 2004, the Deputy Directorate of Risk performed the initial
assessment of for contingent liability lawsuits against the Nation. In 2007, Decree 1795 provided the
Unique System for Juridical Management Information, which was the only system of collection and
management of litigation related data and information. Based on the system, and the Deputy
Directorate of Risk conducted the assessment of lawsuits related contingent liabilities.
As for contingent liability generated in public credit operation, the sources were identified as: 1)the
public payment obligations based on PPP contracts, 2)court proceedings against the State,
3)guarantees public credit operations and 4)occurrence of natural disasters.
f. Contingent Liability in public credit operations
Since 1993, the 2681 Act empowered the Nation to provide guarantees to state agencies. There have
been a significant number of credit transactions held by different state agencies, in which the Nation
acts as a guarantor of credit agreements between lending institutions and organizations at the national
and regional levels. In general, the Nation’s guarantee is provided in a form of liquid collateral in
credit agreement. In this context, the Nation as a guarantor has continued to be exposed to public
credit risks. As hedging mechanisms against the above-mentioned credit risks are 1)
counter-guarantees and 2) payments to the Contingency Fund for State Entities.
1) Counter-guarantees
The General Directorate of Public Credit and National Treasury has established the counter-guarantee.
To ensure liquidity and easy performance, the Ministry of Finance has signed with the entities
concerned a contract of indemnity pledging that a revenue stream and management in a mechanism
being assured by the General Directorate of Public Credit and National Treasury to make effective.
2) Payments to the Contingency Fund of State Entities

In 2005, Decree 3800 stipulated that all beneficiaries of the Nation’s guarantee are forced to contribute
to the Contingency Fund of State Entities. When the state entities enter into a credit agreement secured
by the Nation, the entities are forced to commit to design and follow a plan of contributions to the
Contingency Fund. The procedure for making contribution plan is given by Resolution 2818 issued in
2005.
g. Contingent Liability caused by natural disasters
In 1998, Decree 93 stipulated the National Plan for Prevention and Attention of Disasters under the
following four risk management concepts: 1)Risk identification and monitoring, 2)Risk reduction,
3)Institutional strengthening and 4)Socialization of disaster prevention and care. In order to determine
the magnitude of fiscal exposure to the pecuniary loss of damage caused by natural disaster, the values
exposed of public and private property were estimated, and the potential losses were identified which
33
could occur due to natural disasters. Also such risk transfer mechanisms were discussed as insurance,
reinsurance and catastrophe bonds.
4.3.2 Guarantee Treatment

(1) Example of Mexico
In Mexico, the main entities which have been providing financial guarantees are BANOBRAS and
FONADIN. Traditionally PPP projects have been supported by standard long term credit facilities
provided by BANOBRAS, which is the development bank of the Mexican Federal Government. Since
2007, BANOBRAS added financial guarantee service to their portfolio. FONADIN is denominated as
the Mexican Government Infrastructure Fund, which was established as a guarantor with its own
patrimony consisting of portfolio of existing toll roads operated by the Federal Government.
a. BANOBRAS
BANOBRAS’ current guarantee services contain two types i.e., the one is Partial Credit Guarantee,
which is a guarantee of timely payment made by concessionaire to the lender, and the other is Contract
Payment Enhancement Guarantee, which is a guarantee of full and timely payment committed by the
Government to the concessionaire.
1) Partial Credit Guarantee

It is denominated as timely payment guarantee, which is unconditional and irrevocable guarantee of
timely payment of principal and interest of the loan. At the preparatory stage of this guarantee scheme,
it goes through a due diligence process, legal documentation process, provision of reserve account,
which are similar to typical project financing process. Above due diligence reports and legal
documents are submitted to the rating agencies. The rating agencies undergo interactive process with
BANOBRAS together with clients, advisers and financial professionals. Finally, BANOBRAS
together with the client and its advisers with a view of the rating levels determines the size of
guarantee. The size of guarantee is limited to 50% of the principal amount of the guaranteed obligation.
Under the guarantee, BANOBRAS becomes a sort of lender to the project when it disburses funds to
the lenders or investors to make debt service payment in case that project cash in-flow is insufficient.
2) Contract Payment Enhancement Guarantee

Under this type of guarantee, BANOBRAS guarantees full and timely payment committed by the
Government to a concessionaire under PPP contract. This guarantee is applicable to PPP projects
referred to in Mexico as “Service Rendering Contracts”. Under this PPP contract, the concessionaire
commits to construct, operate and maintain the infrastructure in exchange for fixed availability
payments paid by the Government. The purpose of this service product is to support the state agencies
and municipalities attract more private proponents to bid for the infrastructure development projects.
The possible tenor of the guarantee is up to 30 years.
b. FONADIN
FONADIN is denominated as the Mexican Government Infrastructure Fund operated by the Federal
Government. FONADIN is conceived the first and foremost tool of the Government of Mexico to
make PPP projects attractive for private proponents. The main forms of support FONADIN offers are
1) equity and 2) subordinated loan. In addition, FONADIN offers two types of guarantees: 1) financial
guarantees and 2) performance guarantees.
1) Financial Guarantees
Financial guarantees which FONADIN offers consist of the following types:
First loss guarantee: FONADIN makes the first disbursement of guarantee for insufficient debt
service payment before other guarantee would disburse.
34
Last payment guarantee: FONADIN disburses guarantee for insufficient debt service payment after
other guarantee have been honored.
FONADIN does not offer full scale guarantee, but the size of guarantee have a limitation of 50% of all
guaranteed obligation.
2) Performance Guarantees
The performance guarantees cover a portion of the construction risk of a project and are limited to
15% of the investment budget. They also cover the initial stage of operation of a project until revenues
have reached 40% of projected revenues.
(2) Example of Brazil

Brazil has some state-level guarantee scheme. The Federal Guarantee Fund is a federal-level
guaranteeing entity, and some state-level guaranteeing entities such as Paulista Partnership Company
of state of São Paulo, the guarantee fund of state of Minas Gerais and the guarantee PPP fund of
state of Bahia.
a. The Federal Guarantee Fund
In 2005, the PPP Law authorized the Federal Government to take part in the global limit of 6 billion
Brazilian reais, which is equivalent to 3.6 billion USD, in the Federal Guarantee Fund, of which
purpose is to provide guarantee of payment for money liabilities assumed by federal public partners by
virtue of PPP projects within a federal scope.
The major function of the Federal Guarantee Fund is to prevent public payment defaults, by way of
guarantee of payments to private proponents in a form of constant payment from the fund. The Fund
aims to reduce the risk of government insolvency and increase the liquidity by offering greater security
to private proponents and positively reflecting on its credit risk upon the raising of funding the project.
The guarantees provided by the Federal Guarantee Fund are:1) non-conditional surety, 2) pledges of
chattel rights integrating the Fund’s equity, 3) mortgage of real estate belongings to the federal
government’s entity, 4) chattel mortgage and 5) other agreements producing guarantee effect.
The Federal Guarantee Fund can also provide counter-guarantees to financial institutions, insurance
companies or multilateral organizations that guarantee shareholder’s obligations in PPP contracts.
b. Other State-level Guarantee Fund
In addition to the above-mentioned federal-level guarantee fund, some state-level guarantee funds in
state of São Paulo, state of Minas Gerais and state of Bahia are being operated.
1) Paulista Partnership Company (state of São Paulo)

The São Paulo PPP program created the Paulista Partnership Company to provide guarantees to
private-sector participants. Public-sector assets are contributed to the company’s fund, which in turn
issues securities and performance guarantees. The Paulista Partnership Company is the state owned
enterprise which is managed by the state of São Paulo, and the state of São Paulo is the majority
shareholder of the company.
2) Guarantee Fund (state of Minas Gerais)

The Fund was established to provide financial support to the PPP program. It is managed by State
Secretary of Economic Development state of Minas Gerais, and its financial agent is Minas Gerais
Development Bank. Fund resources are: 1) the amounts allocated in the state budget and supplemental
appropriations, 2) income from bank deposits and investments of the Fund, 3) donations, contributions
and legacies for the Fund and 4) income from the Union. State-owned assets, chattels, and movable
35
properties owned by the public Administration can be allocated in the Fund. The Fund disburses
guarantee to the private proponents and offer real guarantees that could ensure the compensation by
the public Administration, according to the PPP contracts.
c. Guarantee PPP Fund (state of Bahia)
In state of Bahia, according to PPP Statute, the Bank of Brazil as the financial institution is responsible
for the transfer 12% of financial resources from the State Federal District Participation Fund to the
Development Agency of the State of Bahia. The above financial resources are maintained by the
Development Agency of the State of Bahia in a separate bank account, which has the specific aim of
guaranteeing PPP contracts where State of Bahia is the public partner.
4.3.3 Long Term Lending Treatment

(1) Example of India
In India, there exist several infrastructure funds as follows:
ILFS: Infrastructure Leasing and Financial Services

IDFC: Infrastructure Development Finance Company limited
VGF: Viability Gap Funding
IIFC: India Infrastructure Finance Company limited
IIPDF: India Infrastructure Project Development Fund
a. ILFS: Infrastructure Leasing and Financial Services
ILFS was established in 1987 for the purpose of financing infrastructure development undertaken by
private sectors. Investors are Central Bank of India, Unit Trust of India and Housing Development
Finance Corp. ltd. In 1993, additional investors such as IFC (International Finance Corporation) and
ORIX Japan involved with investment. In the past, ILFS financed development of such infrastructures
as airports, sea ports, subways in India.
b. IDFC: Infrastructure Development Finance Company limited
IDFC was established in 1997 as an India Development Bank. Major shareholder are Ministry of
Finance India, of whish share of stock holding is about 20%, commercial banks in India, IFC, ADB,
Government of Singapore Investment Corporation and Commonwealth Development Corporation.
IDFC plays roles of provision of long-term loan and guarantee for commercial risks.
c. VGF: Viability Gap Funding
VGF started to function in 2005 initiated by Indian Government. VGF aims at financially supporting
private sector companies being engaged in infrastructure development projects, which are not
financially viable. VGF is provided for private sector companies which are selected through a process
of open competitive bidding. VGF is provided in the form of a capital grant at the stage of project
construction. In order to secure VGF from the Indian Government, the candidate private sector
company must submit proposals of the financial support to the Indian Government and sanctioned
with the approval of Finance Minister on case-by-case basis. The limit of the grant is 20% of all
project costs including not only construction costs but also operation/management costs.
d. IIFC: India Infrastructure Finance Company limited
IIFC was established in January 2006 as a state owned enterprise. IIFC is functioning as a long-term
loan provider for infrastructure development project undertaken by private sector companies. Funding
36
sources come from the Government of India, the World Bank, ADB and commercial banks in India.
Conditions for the finance are as follows:
 Eligible projects are infrastructure development projects undertaken by private sector companies
and its financial viability must be secured.
 The amount of finance must be up to 20% of total project costs
 IIFC can provide loan directly or indirectly (via commercial banks) to the private company
e. IIPDF: India Infrastructure Project Development Fund
IIPDF was established by the Government of India, the Ministry of Finance in December 2007. The
funding sources of IIPDF come from the Ministry of Finance India and the multilateral and bilateral
agencies. IIPDF’s primary objective is to fund potential infrastructure PPP projects development
expenses including cost of engaging consultants and transaction advisors. More specifically, IIPDF is
available to the Sponsoring Authority including State Government and Local Authorities, who incur
the project development expenses with respect to conducting feasibility studies, environment impact
assessment, financial structuring, legal reviews and project documents development. IIPDF is
envisaged as a revolving fund and must be replenished by the reimbursement of investment through
fee earned from successful bid projects. However, in case of failure of the bid, the fund would not be
recovered. The fund assists up to 75% of the project development expenses to the Sponsoring
Authorities.
Summary of above-mentioned funds are as follows:
Table 4.3-1 Outline of Infrastructure Development Fund in India

Name of Year of
Funding Sources Major Functions
the Fund Establishment
ILFS 1987 Central Bank of India Provision of long-term loan for infrastructure
Unit Trust of India development undertaken by private sector
Housing Development companies.
Finance Corp.
IFC
ORIX Japan
IDFC 1997 Ministry of Finance India Provision of long-term loan and guarantee for
Indian commercial banks commercial risks
IFC
ADB
Government of Singapore
Investment Corporation
Commonwealth Development
Corporation
VGF 2005 Ministry of Finance India Provision of capital grant, of which amount is
up to 20% of all project costs
IIFC 2006 Ministry of Finance India Provision of long-term loan for infrastructure
Indian commercial banks development undertaken by private sector
The World Bank companies.
ADB
IIPDF 2007 Ministry of Finance India To finance the cost of project development e.g.
F/S costs undertaken by concerned authorities
4.3.4 Summary of Comparison

The comparison results are summarized in the following table:
37
Table 4.3-2 the Outline of the Global Examples on PPP Financial Institutions
Philippines Japan Indonesia India Colombia Mexico Brazil

Contingent Types  Diet’s disapproval of Public credit operation
Liability budget appropriation for an
annuity payment to a
concessionaire
Raise of interest rate or - - Litigation - -
price escalation more than
expected
Natural disaster
Manage-  Application of “M ulti-Year M agnitude of the risks are

ment Budget Appropriation identified and assessed
Commitment”
Seeking solution through The results of the risk
the consultation between a assessment is incorporated
state entity and a - - into the budget - -
concessionaire appropriation plan
M aking most of the
Contingency Fund of State
Agencies
Guarantee Types Guarantee of Public Credit Commercial Risk Revenue Guarantee for Partial Credit Guarantee: Guarantee of payment for
S cheme made by the Government Guarantee ensuring debt service Guarantee of timely money liability assumed by
payment made by federal public entities
concessionaire to the Bank through the Federal
Guarantee Fund
Exchange risk guarantee Contract Payment

Enhancement Guarantee:
Guarantee of full and timely
- payment committed by the
Government
Guarantee for geological Financing support in a form

hazard risk of equity injection and
provision of subordinated
loan
Guarantee for natural

disaster related risk
Manage- IIGF (Indonesian IDFC (Infrastructure The Nation plays a major BANOBRAS, which is the Guarantee disbursement is
ment Infrastructure Guarantee Development Finance role of guarantor development bank, provides performed by Federal
Fund) performs guarantee Company limited), which is Partial Credit Guarantee and Guarantee Fund and state-
disbursement a state-owned company, Contract Payment level guarantee funds
guarantees a commercial Enhancement Guarantee
risks since 2007
M inistry of Finance FONADIN, which is the

- functions as a counter- M exican Government
guarantor Infrastructure Fund,
provides equity and
subordinated loan as well as
financial guarantee, political
guarantee and performance
guarantee
Infrastructure Types Funding support for

Development infrastructure development
- - - - -
Fund
Manage- Operational bodies: ILFS:

ment Infrastructure Leasing and
Financial Services
IDFC: Infrastructure
Development Finance
Company limited
- - - - -
IIFC: India Infrastructure
Finance Company limited
IIPDF: India Infrastructure
Project Development Fund
4.4 Feedbacks from the Philippines Side: Discussions at JICA PPP

Workshop
Under JICA's sponsorship and with the cooperation of the Philippine government, the Study Team
conducted the workshop, "Government's risk management: enabling environment for PPP
infrastructure development," on March 7, 2013. The purpose of the workshop is to get the views of
the various parties involved in PPP on the question of further enhancing the attractiveness of PPP
investments for the private sector so that it can be a more potent instrument for government to achieve
its objectives of improving infrastructure. Workshop participants included government, development
partners and private financiers.
38
Highlights of the different presentations are as follows:
 There has been significant underinvestment in the Philippines in the past decade and a half,
including in vital infrastructure projects which various studies and surveys show have contributed
to the country's reduced competitiveness and low rankings in terms of investment climate vs.
other Asian countries, and have led to a vicious cycle of low and uneven economic growth.
 A catch-up infrastructure program requires indicative investments of over P3 trillion, with

planned financing almost evenly split between government budget / ODA and private sector
participation. (Note: latest internal information from ADB shows planned infrastructure
investments through 2016 of roughly P2 trillion.)
 In most cases, the private investor in infrastructure projects looks to the government to provide
some form of financial support to make the projects financially attractive (explicit subsidies or
guarantees, which in many cases do not have explicit mechanisms for computing default
payments ). Given the Philippine system where the budget process is exposed to political risk in
the form of failure of the executive or of congress to include these financial support (even for the
regular, known amounts) in the annual budget (termed "non-appropriation risk"), private investors
have tended to mistrust government promises under the long-term contracts and have either
attached a high risk premium to hurdle rates or completely stayed away from such projects.
 Because of this and other risks, local banks have provided financing on the basis of project
sponsors' balance sheet rather than on the basis of project cashflows. This has necessarily limited
the number of potential participants in PPP given that (a) on the side of lenders, banks have
prudential limits on lending to single borrowers and sectors and (b) on the side of borrowers, only
a few large companies have the balance sheets needed to support large infra projects. On the other
hand, for banks to rely more on project finance requires clearer assignments and management of
risks under PPP contracts and more definite assurances from government that it will deliver on its
promises under the contract, including timely payments of financial liabilities, timely delivery of
right of way and adjustments of tariffs as well as clearer rules for determining and accounting for
termination payments.
 As it is, not only do current PPP contracts require greater clarity in payment rules, government's
current budget instrument (MYOA) for assuring the private sector of its commitment to meet
future claims has not provided as much comfort to private proponents a it has hoped since the
MYOA does not commit congress. A key finding of the Study Team is the need for a dedicated
fund that can be structured in a variety of ways that will allow government to pay for contingent
claims under PPP contracts in a timely manner, can provide private parties more assurance and
thus, bring in more players/ bidders in PPP projects. Based on the Study Team's discussions with
private companies, removal of non-appropriation risk as well as other government-related risks
via such a fund can potentially reduce their required hurdle rates by as much as 2 percentage
points.
 Government reported on the Treasury's current efforts to set up a contingent liability fund
primarily to help government manage fiscal risks, noting three options with both pros and cons
- (a) actual cash can be set aside in a "true fund" but the key concern is the opportunity cost of
parked monies given competing uses for government's scarce resources, (b) a line item may be
included in agency budgets that will be funded as the need arises but this will compete for the
agency's fiscal space, and (c) a lump-sum budget can be centrally managed in DBM but will be
difficult to justify to congress . In any of these options, it noted that the key issue is to allow the
Treasury to "fund" the fund, i.e., for congress to approve a line item in the annual budget, with the
Treasury partial to putting a line item for contingent liabilities under the "unprogrammed fund"
item of the budget.
39
In several Q&As following the presentations, discussions dwelt on:
 Constraints on government. This included (a) openness of congress to lump-sum funds, especially
since it has already reduced the validity of appropriations from two to one year starting in the
2013 budget and (b) even if congress agreed, there are specific conditions for releasing funds
from the "unprogrammed fund" item, i.e., a) new revenue source b) loan contract signed with a
lender and c) availability of additional unprogrammed revenues. It was also noted that efforts to
work with congress in moving into a medium-term expenditure framework that will permit
multi-year appropriations have not been successful to date. Finally, the issue of how to quantify
how much to budget was also raised.
 Private sector demands on government, which officials noted may be too much considering that
non-appropriations risk is present in other countries as well and that over time, as budget
processes become more transparent, risks should go down as well, making contingent liability
funds unnecessary. In any event, officials noted that in the past, government had always paid,
albeit with lags as any amount will have to be appropriated by congress.
 Financiers' (a) assessment of risks which focuses on the proper allocation between the public and
private sectors (noting that demand risk should be shouldered by the public sector especially for
greenfield projects), and (b) willingness to go beyond plain vanilla debt financing into riskier
financing structures through e.g., subordinated debt (currently provided by project sponsors and
thus counted as equity) or buying project bonds. It was also noted that while banks are now
highly liquid and eager to find investment outlets, the liquidity does not directly translate into
bankability, which depends on specific project characteristics.
 Alternative structures for the proposed contingent liability (CL) fund, which as presented by the
Study Team included (a) using a GOCC to manage the fund, (b) expanding the scope of the
PDMF to include CL, (c) setting up a new trust fund within DOF, and (d) pooling the SSF within
DBM. Comments from government are (a) that the fund be managed by committee within the
central government, (b) that it be a special fund that will not lapse but if actual monies put in, will
be allowed to grow to minimize carrying costs, (c) that it will be a lump-sum fund so as not to
crowd out agency budgets, and (d) the need for spending authority for such a fund. On the
question of guarantee premiums, it was noted that the CL fund is essentially government
guaranteeing itself and so should not be passed on to the private sector. Rather, in other countries,
it was noted that it is the implementing agency shouldering the fees.
Participants appreciated much the frank and comprehensive sharing of perspectives. Knowing the
concerns of proponents and financiers should assist government authorities address these pro-actively
using available mechanisms considering limitations of law and fiscal prudence, so that PPP can
contribute more fully to infrastructure catch-up program of government. More structural solutions,
including those requiring legislation, will likewise be explored jointly with development partners.
4.5 Applicability of JICA’s ODA Loan and Other Financial Support

This section would expand the previous section, illustrated the four PPP financial systems in the world,
to consider how JICA is able to provide financial support to those PPP financial system in the
Philippines. The JICA Study Team has identified the following three as effective methods.
(1) Direct Financial Support to the Four Financial Systems

At the beginning, it has to be well considered how these financial facilities could finance to the PPP
projects. It is understood that while PDMF, VGF, and CL facility would provide subsidies, Long Term
40
Financial Facility would provide a loan to the project. This differentiation of providing loans or grants
is critical to pursue effectivity and manageability of the financial systems. Providing loan is
appropriate for Long-Term Financing Facilities, while providing grants is favored for PDMF, VGF,
and CL facility.
If JICA could support plural facilities among the four, necessary support amount would become larger,
and then JICA’s request to utilize its financial support to only Japanese enterprises could be negotiable.
Among the four financial systems, VGF and Long-term Financing Facilities shall be a good
combination for JICA’s financial assistance, because financial support from these two facilities is the
most crucial to be the winner of the bidding.
(2) Collaboration between ODA Loan by JICA to a project and to Financial System
could be enhanced
This collaboration could be recommended particularly for the case of huge project with hybrid system
which need definitely huge amount of money to be financed from various sources. In this case,
Japanese benefit could be reserved due to its expected huge amount of financial assistance.
(3) JICA’s ODA Loan as Policy Loan

The policy loan, based on Policy Matrix, is a possible candidate for JICA’s ODA loan to be used for
budget support. Although it was not turn out this time mainly due to the government concern on debt
increase, there would be a chance to be reconsidered when the government faces the difficulty to
implement its PPP policies. In that opportunity however, policy loan could be better provided together
with international financial organizations such as ADB in considering.
(4) Points to be Noted

Below are the points to take notes in the process of implementing the financial support above.
a. Incongruousness between Liquidity in the Market and Capital Necessary for

Infrastructure Projects
It should be noted that even though there are abandon liquidity in the market, this liquidity does not
necessarily match the needs of financing infrastructure projects. Infrastructure projects, therefore,
requires public financial facility which plays catalytic functions to extract financial source from the
market to the PPP projects.
b. Independency of Financial System from the Government
In order to implement the large number of infrastructure projects, an independent public financial
agency would be necessary as to bundle multiple financial sources and provide financing to each
project. Long-term financial institution would be especially valued in this regard. The government is
expected to consider the way of improvement of the financial institutions without paying so much
concerns the negative legacy of public financial institution.
c. Expected JICA’s Flexibility to Utilize its Financial Sources
These Public Financial Systems need various kind of funds for its efficient operations. In this concern,
JICA’s loan is very much expected. JICA is expected to finance to the single project from its various
financial sources with different conditions and terms so that the project could become more viable.
41
Chapter 5. Quantitative Analysis on the Needs and Potential

Benefits of Guarantee Function
5.1 Introduction
As mentioned in the previous chapters, the non-performance of the government of its obligations
specified in the concession agreement has been identified as an urgent issue to be addressed in the
Philippines. In particular, it was observed that appropriate compensation due to private proponents
(including compensation for CL) has not been sufficiently done. For example, as often seen in cases
such as, delay in land acquisition, delay in obtaining permission of a project, delay in the approval of
tariff structure, there is no information obtained wherein IA paid the private proponent compensation
in any form.
The GoP has created measures such as Public Undertaking (PU) and Multi-Year Obligation Authority
(MYOA) in order to carry out these obligations. The former is stipulated in the revised implementing
rules and regulations of the Build-Operate-Transfer (BOT) Law and allows the GoP to compensate the
private proponent when there is default in government’s contract obligation. And the latter allows the
GoP to fulfill the multi-year government’s payment obligations. However, the GoP requires approval
from the Congress by budgeting such compensations following a due process and there is no guarantee
that the Congress will always approve such budget item. Obviously, the government administration
cannot control the intention of the legislature, which means that as long as this approval process is
embedded in the law and there is no effective device to address this issue, private proponents will
always be exposed to “appropriation risk”. For private proponents, it effectually means that IA is not
actually shouldering the risks agreed in the concession agreement.
In order to solve these types of issues, the JICA Study Team has been considering the effectiveness of
creating a Contingent Liability Fund (CL Fund) in the context of PPP in the Philippines. This section
shows the methodology of quantitative analysis to verify the effectiveness and meaning of the CL
Fund).
Based on these background and recognition, the JICA Study Team conducted a quantitative analysis
on CL to verify the needs and effects of the CL Fund based on six PPP infrastructure projects, such as
toll road, railway, and airport projects. The following sections show the framework, methodology, and
the results of the CL quantitative analysis.
Note that the purpose of this analysis is to understand the effects of the CL Fund, using data of various
projects that have already been implemented. Such purpose is different from that of the CL analysis
conducted by DOF which aims to quantify expected CL burden for particular projects that are now
being prepared for bidding.
5.2 CL Analysis Framework and Methodology

5.2.1 Analytical Framework
(1) Assumed CL Fund
In this analysis, the JICA Study Team assumed the functions of the CL Fund, as follows:
 The CL Fund is created as a public or semi-public body.
42
 It will have some sort of agreement, such as a recourse agreement or a guarantee agreement,
between IAs and project proponents.
 The project proponent may claim the payment for CL damage from the CL Fund if CL payments
are not made by IAs.
 The CL Fund will independently and automatically advance with the procedure, including
assessment of proponents’ claim and disbursement.
 The payment for CL damage will be paid quickly to satisfy the needs of the claimants.
The CL Fund, which is assumed here, is one kind of guarantee fund which addresses the risks related
with contingent liabilities. However, it is assumed that the CL Fund does not address the direct
liabilities. Therefore, the CL Fund is different from a Guarantee Fund (GF) in the sense that the
coverage area is limited to CL risks. Table 5.2-1 shows the difference of coverage of GF and CL Fund.
.
Table 5.2-1 Difference of GF and CL Fund
Coverage
Direct Liability (DL) Contingent Liability (CL)
GF ○ ○
CL Fund － ○
(2) Government Burden in PPP

The effectiveness of the CL Fund was analyzed by comparing the government burden (government
obligation) without CL Fund, and with CL Fund. Table 5.2-2 shows the classification of the
government burden as well as examples of expenditure items.
Table 5.2-2 Government Burden in a PPP Concession Agreement

Classification Example
Land acquisition costs, government subsidy, purchase cost of service
a) Direct Liability (DL)
Public burden of contracting agency due to force majeure or accidental
b) Contingent Liability (CL)
failure of procuring entities
Of the above, the amount of DL is set in the concession agreement, and it is relatively easy to carry out
the computations. On the other hand, the amount of CL exposure could not be calculated from the
concession agreement alone. The following formula shows the definition of government burden in the
analysis:
Government Burden = DL ＋CL…....….............…….............................Formula 1
Obviously, there is a question on how to quantify the CL exposure. Here, “CL exposure” refers to the
amount of risk that IA has been exposed in a PPP concession agreement. The amount of CL exposure
of a project can be calculated, assuming the impact and probability of occurrence of related risks and
the government’s total exposure to PPP can be calculated as the summation of CL exposure in each
project, as shown in the following formula:
43
CL = ∑ Pr×Ir.....................................................................................................................................................................Formula 2
* Here, “P” refers to the probability of risk occurrence, “I” refers to the impact (debt) of the
risk occurrence, and “r” refers to the type of CL.
The JICA Study Team conducted the analysis using the abovementioned definition and formula.
(3) Framework and Flow of Analysis

The framework and flow of analysis is shown in Figure 5.2-1. The first step is to calculate the
government burden (DL + CL exposure) without CL Fund. Since the CL Fund does not currently exist,
the amount of government burden is supposed to be the same as the government burden at present.
The second step is to calculate the government burden with CL Fund. The third step is to calculate the
effects of reducing government burden by comparing between government burden without CL Fund
and with CL Fund.
Step1:
Quantification of the Government
Burden WITHOUT CL Fund
Step2:
Quantification of Government Burden
WITH CL Fund
Step3:
Calculation of Effect of CL Fund

Figure 5.2-1 Framework and Flow of Analysis
The effectiveness of the CL Fund on individual project is measured using actual project samples in
sectors such as roads, airports, and railways. In this analysis, six pipeline projects were selected. The
JICA Study Team conducted the financial analysis using the existing reports, other related documents,
and information acquired from interviews with private proponents and banks. The projects used in the
CL quantitative analysis are shown in Table 5.2-3.
Table 5.2-3 Projects Used for CL Quantitative Analysis

Sector Project
Road CALAx, and NAIAx
Airport Tacloban, Zamboanga, and Visayas
Railway MRT 7
5.2.2 Calculation Methods of CL Fund Effect on Government Burden

This section shows the procedure for calculating the concrete amount of government burden in a PPP
project. As mentioned in the previous section, it is necessary to estimate both with CL Fund and
without CL Fund in this analysis. The following items below show the procedure for calculating
government burden.
44
(1) Quantification of Government Burden "Without CL Fund" (Step 1)

The amount of government burden in a PPP project consists of DL and CL. Fixed debt may include the
costs for land acquisition, VGF, service purchase payment, depending on the project type and
conditions.
a. Calculation of DL
Without the CL Fund, the JICA Study Team assumed that the private proponents and banks require
their equity internal rate of return and interest rate which includes the cost of the CL. In order to
realize higher equity internal rate of return (IRR) and interest rate, the private proponents shall require
more VGF in case where the project cannot recover the capital and operation expenditure from the
business revenue.
Table 5.2-4 is an example of a simple cash flow model of PPP projects without CL Fund. The amount,
which IA pays as VGF to the private proponent, can be calculated using these assumptions and figures.
The model example shows that the required equity IRR is 15%, and the interest rate is 10%, which
reflect the CL costs. Since private proponents cannot achieve equity IRR of 15% by toll revenue alone,
a total amount of PhP 2 billion is paid as VGF to the private proponent.
Table 5.2-4 Example of Simple Cash Flow Model

Conditions and Assumptions:
Project period 12 years (2-year construction period, 10-year operating period)
Initial investment PhP 12 billion (1st year 50%, 2nd year 50%)
VGF (subsidy) PhP 2 billion (1st year 50%, 2nd year 50%)
Private funding PhP 10 billion
Equity ratio 30.0%
Debt ratio 70.0%
O&M costs PhP 500 million (First year of operation)
Borrowing repayment period 10 years (annuity)
Interest repayment of borrowings 10%
Inflation rate(Operating period) 5.0%/year
Request rate equity IRR 15.0%
WACC (Discount rate) 11.5%
Revenue management PhP 2.05 billion (First year of operation)
Simple PPP Cash Flow:

Classification Item 1 2 3 4 5 6 7 8 9 10 11 12 Total
Cash out Initial 60.0 60.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 120.0
Investment
O&M 0.0 0.0 5.0 5.3 5.5 5.8 6.1 6.4 6.7 7.0 7.4 7.8 62.9
Debt 0.0 0.0 4.4 4.8 5.3 5.8 6.4 7.1 7.8 8.6 9.4 10.4 70.0
Repayment
Interest 0.0 0.0 7.0 6.6 6.1 5.5 5.0 4.3 3.6 2.8 2.0 1.0 43.9
Payment
Subtotal 60.0 60.0 16.4 16.6 16.9 17.2 17.5 17.8 18.1 18.4 18.8 19.1 296.8
Cash in Investment 30.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 30.0
Borrowing 35.0 35.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 70.0
* Borrowing 35.0 70.0 65.6 60.8 55.5 49.6 43.2 36.1 28.3 19.8 10.4 0.0 -
Outstanding
VGF 10.0 10.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 20.0
Toll Revenue 0.0 0.0 20.5 21.5 22.6 23.7 24.9 26.2 27.5 28.8 30.3 31.8 257.8
Subtotal 75.0 45.0 20.5 21.5 22.6 23.7 24.9 26.2 27.5 28.8 30.3 31.8 377.8
Net cash flow (Dividends) 15.0 -15.0 4.1 4.9 5.7 6.6 7.4 8.4 9.4 10.4 11.5 12.7 81.0
Equity IRR 15% -30.0 0.0 4.1 4.9 5.7 6.6 7.4 8.4 9.4 10.4 11.5 12.7 -
45
b. Calculation of CL
The CL without CL Fund is assumed as zero because the CL, which is already borne by the
government, shall not be calculated as CL with CL Fund; furthermore, it will not affect the results of
the quantitative analysis of CL Fund effect.
(2) Calculation of Government Burden With CL Fund (Step 2)
a. Calculation of DL
If CL Fund exists, CL payment would be made surely to the private proponent. If this is realized, then
the exposure risks faced by investors and lenders will be smaller. Also there is a high possibility that
the required level of equity IRR and interest rates will be lowered. As a result, it may end with a
reduction of VGF to be provided by the government.
The following two ways are considered as practically possible to grasp the effects of decreasing rates
of required equity IRR and interest rates:
 Option 1): Interviews with investors and lenders.

 Option 2): Estimate the government’s risk exposure to CL based on the financial statements of
the private proponents.
As for option 1), the JICA Study Team conducted interviews with investors and lenders having records
of investments in PPP and related projects in the Philippines as well as abroad. And if these
investors/lenders have experiences of utilizing CL facilities and/or policies, the question was made on
the kind of effects that had been brought to the project’s financial procurement conditions.
As for option 2), the estimations were made in the amount of CL exposure by using the financial
statements of the private proponent. To be more concrete, an assumption is made that a private
proponent shoulders the CL risks where the government or IA is supposed to shoulder. This reflects
the costs of shouldering the CL risk on the private proponent’s financial plan or can be called as “risk
premium”. If the CL risk shouldered by the private proponent can be calculated, the private
proponent’s project costs and required returns when there is a CL Fund can reasonably be assumed and
the private proponent do not have to shoulder the CL risk. It can reasonably be assumed that the
required equity IRR and interest rates should be lowered if the investors and lenders are free from such
kind of CL risk and this will end with a decrease or reduction of VGF (fixed debt). Figure 5.2-2 shows
the effects of CL Fund. The figure also shows how dividends and interests are lowered, and subsidy
reduced by introducing the CL Fund.
Without
WithoutCL
GFFund WithWith
CL GF
Fund
Dividends Subsidy Dividends Subsidy

100 100 75 50
Interests Income Interests Income
300 800 275 800
Construction Construction
And O&M And O&M
500 500

Figure 5.2-2 Diagram of CL Fund Effects
46
In quantifying the risk, the most popular method is the Monte Carlo simulation. However, this requires
detailed statistical information about the amount of damage and the probability of occurrence of risk,
which are deemed not available in the analysis at this time. Thus, it is necessary to come up with
another method. The following sentences explain how the CL quantitative analysis can be carried out
in the Study.
Firstly, the detailed contents of the CL should be examined. According to the past practices in PPP
projects in the Philippines, the four risks listed below have relatively high possibility of occurrence
and significance of impacts. CL I listed below is the cause of delay in tariff adjustment (Effect A in
subsequent analysis), and CL I to III are the causes of delay in the commencement of operation (Effect
B).
 CL I: Delay in the issuance of tariff adjustment approval

 CL II: Delay in ROW acquisition
 CL III: Delay in the issuance of construction permit
 CL IV: Delay in the issuance of completion certificates
In order to calculate the CL exposure on those risks, the following information (data) are required (see
Formula 2) for the calculation of CL exposure:
a) Probability of risk occurrence,

b) Timing of risk occurrence, and
c) Impact of risk occurrence (liquidated damage (LD)) including direct cost and indirect cost (lost
profit).
Based on the above, the JICA Study Team devised with a calculation methodology, as discussed
below.
As for Effect A (delay in the approval of tariff adjustment), first, based on past experience of PPP
projects in the Philippines, data on probability of occurrence and length of delay in the approval of
tariff adjustment shall be collected and reasonable assumptions will be made. Timing of risk
occurrence can be estimated from the tariff adjustment plan in the concession agreement or feasibility
study. Impact of risk occurrence needs to be estimated as combination of direct and indirect costs (see
Formula 3). In order to calculate indirect cost (lost profit), the amount of income increased by the tariff
adjustment needs to be calculated through the financial projection model.
As for Effect B (delay in the commencement of operation), first, as mentioned in Effect A, information
and data for items a)~c) above will be collected from past PPP experiences in the Philippines and
analysis shall be made on the delay in the commencement of operation.
Impact of risk occurrence (LD) caused by the private proponent is calculated using the following
formula:
LD＝Direct Cost (Newly generated costs) + Indirect Cost (Lost of profit)…….Formula 3
The value of damage should depend on the extent, effects, and causes of damage. Thus, it is necessary
to have reasonable, logical, and practical support to estimate the values. The JICA Study Team based
on the practices observed in the Philippines and abroad, identified the following major costs as direct
cost (newly generated costs) due to the occurrence of CL risks (Note that these are not considered in
the quantification exercise of this study due to data constraints):
 Costs for the amendment of the operator's business plan (including financial planning),
 Costs for the amendment of various business-related contracts,
 Costs for the amendment of the loan agreement with financial institution/commission, and
47
 Costs for the attorney's fees in accordance with the above transactions.
“Lost profit” means profit that a private proponent should have received if the risk did not occur. This
can be calculated from the financial model of the future cash flow projection of a private proponent.
(3) Calculation of CL Fund Effect (Step 3)

The effect of the CL Fund is calculated by the following steps. First, the benefit of CL Fund (DL
(VGF) reduction) will be calculated by the following formula:
Benefit of CL Fund (DL (VGF) reduction)

= DL (VGF) without CL Fund – DL (VGF) with CL Fund…........................................Formula 4
Second, the cost of the CL Fund (CL payment) will be calculated using the following formula:
Cost of CL Fund (CL payment)

= CL without CL Fund – CL with CL Fund…......………........................................….Formula 5
Finally, effect of the CL Fund will be calculated using the following formula:
Effect of CL Fund
= Benefit of CL Fund (DL (VGF) reduction) + Cost of CL Fund (CL payment)..........Formula 6
A summary of the analysis output is shown in Table 5.2-5.
Table 5.2-5 Output Summary of the CL Fund Effect Calculation

(Case 1: The GoP does not shoulder CL risk without CL Fund)
DL (VGF) CL Amount of Government Burden
Without CL Fund (A) 100 0 100
With CL Fund (B) 90 8 98
Effect of CL Fund
10 -8 2
(A)-(B)
This case assumed that the government does not shoulder CL risk. Logically and theoretically, it is
assumed that the amount of the government burden will decrease in case of with CL Fund, because the
financial requirements needed by the private side is lowered (therefore DL (VGF) amount will
decrease) and the CL risk will be managed well by the government (therefore the CL risk itself will be
smaller).
It is also possible to assume that the government now shoulders certain CL risks. In that case, the
analysis result is shown in Table 5.2-6. As mentioned previously, the amount of CL without CL Fund
was assumed as zero because CL, which is already borne by the government, will not be calculated as
CL with CL Fund in the analysis.
48
Table 5.2-6 Output Summary of the CL Fund Effect Calculation

(Case 2: The GoP shoulders certain CL risk even without CL Fund)
VGF CL Amount of Government Burden
Without CL Fund (A) 100 2 102
With CL Fund (B) 90 10 100
Effect of CL Fund
10 -8 2
(A)-(B)
5.3 Setting Assumptions and Project Selection for the Analysis

5.3.1 Assumptions of the Analysis
The CL evaluation is done using the cost benefit analysis. The benefits and costs of the GoP are
estimated independently by making reasonable assumptions. The benefit is estimated by a contingent
valuation method (CVM) in which the JICA Study Team interviewed and asked prospective investors
on how much they are willing to push down costs of financing (interest rates and equity IRR) if
appropriate budget is provided for CLs. The cost is estimated by a risk valuation method in which
specific CLs are valued using three elements, i.e., scenario, probability, and impact.
First, the benefit side is considered. The interview survey conducted by the JICA Study Team revealed
the following factors: (i) the private investors are willing to lower the equity IRR by 2-4% for BOT
type of projects should conceivable CLs are certain and time guaranteed, and (ii) the lenders will
lower the interest rates by 0.5-1.0% for build-transfer-operate (BTO) (annuity) type and zero for BOT
(real toll). Accordingly, the JICA Study Team adopted the conservative figures of 2% and 0.5%,
respectively. The lower cost of finance eventually reduces the GoP’s expenditure for VGF. This
reduction in VGF is recognized as a benefit for the GoP.
Afterward, the cost side is considered. The CL Fund guarantees the private sector against adverse
impacts (losses) resulting from the GoP’s non-performance of its obligations (generally on payment).
This is defined as the CL realized. The CL Fund pays the private sector’s claims for CL if it occurs. CL
is a risk. Thus, the CL is determined by three elements, i.e., the scenario (risk event), probability of its
occurrence, and the size of its impact if it happens. This calculation gives the payment amount for CL
that is recognized as the cost for the GoP.
The CL risk is usually valued using either Monte Carlo simulation or expert’s opinion. The JICA
Study Team could not use the Monte Carlo simulation since data on probability distribution of each
CL scenario is not available; therefore, the second method (expert opinion) is used. Here, a single
value of probability is assigned to each occurrence scenario elicited from expert’s opinion for each
sector. The assigned values used are as follows: 100% for ‘certain to occur’ category, 50% for ‘very
high’ category, 20% for ‘high’ category, and 5% for ‘medium’ category. ‘Low’ and ‘very low’
categories are not considered because of their insignificance. This categorization is determined
considering the nature of the project (greenfield or brownfield) and/or track record of the scenario
identified.
The JICA Study Team identified four major CL scenarios that will likely or frequently occur in cases
of the GoP’s non-performance. These are: (i) delay in tariff adjustment, (ii) delay in ROW acquisition,
(iii) delay in the issuance of construction permits, and (iv) delay in the issuance of completion
certificates. These scenarios lead to adverse impacts of (a) increase in investment costs, and (b)
reduction of toll revenues. For example, the JICA Study Team assumed that scenario (i) occurs for 12
months every time there is tariff adjustment (2–3 years interval). This results to impact (b). Similarly,
49
scenarios (ii), (iii), and (iv) cause impacts (a) and (b). The sum-product of probability assigned (100%,
50%, 20%, and 5%) and impacts of each scenario give the cost of the GoP.
5.3.2 Selection of the Case Study Projects

The basic approach (methodology) of CL valuation proposed in Chapter 2 was applied to actual
pipeline projects. The JICA Study Team selected six projects – two expressways (CALAx, NAIAx),
three airport terminal projects (Tacloban, Zamboanga, and Visayas), and one railway (MRT 7). The
project features are shown in Table 5.3-1. All of these require positive VGFs (capital subsidy) ranging
from 16% (Visayas) to 54% (Tacloban) averaging 42% (MRT 7 which annuity payment method is
excluded from the average) based on the assumptions (the ratio is the subsidy divided by the total
project cost).
The data used in the case study are fictional and does not reflect the true values; this is only for case
study purposes.
Table 5.3-1 Outline of Case Study Projects

Type of
Project Costs in PhP Debt/Equity
Name PPP Concession Period (in years)
(excluding IDC*) Ratio (%)
Scheme
CALA(Cavite 36 years
Section Only) 27,159 million BOT (6 years construction, 30 years 70:30
Expressway operation)
34 years
NAIA Expressway 1,228 million BOT (4 years construction, 30 years 70:30
operation)
26 years
Tacloban Airport 1,581 million BOT (4 years construction, 22 years 70:30
operation)
25 years
Zamboanga Airport 2,387 million BOT (5 years construction, 20 years 70:30
operation)
2,198 million
33 years
(Phase 1: 1,505
Visayas Airport BOT (3 ys construction, 30 ys 70:30
million , Phase 2: 692
operation)
million )
71,621 million
29 years
(Government
Metro Line 7 BTO (4 years construction, 25 years 75:25
amortization: 97,438
operation)
million )
Note: *IDC- Interest during construction
5.4 CL Analysis Results

5.4.1 Results of the CL Quantitative Analysis
Comparing the base case (without CL Fund) and Case 1(with CL Fund), the net-benefit (net savings in
the GoP’s expenditure) is positive for all six projects, with a combined total savings of PhP 6,005
million (present value discounted by 12%). The benefit-cost (B/C) ratio ranges from 1.3 to 2.3. The
net benefit ratio to the total project cost (TPC) ranges from 1% to 8%. This concludes that CL Fund is
50
worth doing and the GoP with CL Fund is coherent.
It is interpreted that the net benefit (benefit minus cost) reflects the ‘option value’ for private investors,
taking the benefit as ‘option price’ and the cost as ‘expected compensation’. Provision of a reliable CL
Fund induces the private sector willingness to pay more than the CL risk revealed (cost). This is
recognized by private investors as the ‘option value’ which is surplus enhancement above the revealed
cost.
Table 5.4-1 Summary of Case Study Results

Base Case (Without GF) (Present Value, Mil P)
Total Project Cost Subsidy/Total Benefit of GoP Net Benefit of GoP
Case GF PIPFF VGF Pool Subsidy Cost of GoP (C)
(A) Project Cost (B) （D)=(B)-(C)
CALAX - - - 7,135 17,566 41% - - -
NAIAX - - - 4,155 8,646 48% - - -
Tacloban - - - 649 1,198 54% - - -
Zamboanga - - - 619 1,582 39% - - -
Visayas - - - 206 1,300 16% - - -
MRT 7 - - - 42,021 58,279 72% - - -
Total/Average - - - 54,784 88,571 62% - - -
Case 1 (With GF) (Present Value, Mil P)

Total Project Cost Subsidy/Total Benefit of GoP Cost of GoP (C) Net Benefit of GoP NB/TPC B/C
Case GF PIPFF VGF Pool Subsidy
(A) Project Cost (B) *1 *2 （D)=(B)-(C) =(D)/(A) =(B)/(C)
CALAX ● - 5,284 17,566 30% 1,850 1,009 842 5% 1.8
NAIAX ● - 3,307 8,646 38% 848 431 417 5% 2.0
Tacloban ● - 585 1,198 49% 64 47 16 1% 1.3
Zamboanga ● - 507 1,582 32% 111 81 30 2% 1.4
Visayas ● - 56 1,300 4% 150 64 86 7% 2.3
MRT 7 ● - 33,835 58,279 58% 8,186 3,572 4,614 8% 2.3

Total ● - 43,574 88,571 49% 11,209 5,204 6,005 7% 2.2
*1: Benefit of GoP (Amount of Subsidy Reduction) = Subsidy of Base Case - Subsidy of Cases 1
*2: Cost of GoP (Cost of GoP to Gurantee CL) = Cost for Delay of Tariff revision + Delay of Commencement of Operation
Table 5.4-2 shows the payment schedule for CLs of the six projects. As can be seen, the total payment
varies yearly, and during peak times the annual amount reaches as high as the project cost of typical
airport terminal projects (around PhP 2 billion). The table may help the GoP to identify a budget for
payment for CLs and assess the fiscal impact and burden in terms of the GoP's overall budget for
contingency funds.
Table 5.4-2 Payment Schedule for CLs in the Case Study Projects
Contingent Liability
PV Total 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
CALAX 1,009 11,049 0 0 0 0 0 0 526 0 203 0 284 0 333 0 389 0
NAIAX 431 3,852 0 0 0 0 173 0 72 0 107 0 110 0 128 0 150 0
Tacloban 47 296 0 0 0 0 4 0 13 0 16 0 18 0 22 0 27 0
Zamboanga 81 377 0 0 0 0 0 71 0 0 26 0 0 37 0 0 43 0
Visayas 64 112 0 0 0 86 0 10 0 0 0 0 15 0 0 0 0 0
MRT 7 3,572 25,474 0 0 0 0 976 248 297 351 410 473 542 617 698 784 879 980
Total 5,204 41,161 0 0 0 86 1,153 330 909 351 761 473 969 653 1,180 784 1,487 980
(Mil P)
2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046
456 0 534 0 619 0 708 0 811 0 928 0 1,062 0 1,215 0 1,390 0 1,591
175 0 205 0 240 0 278 0 322 0 373 0 433 0 503 0 584 0 0
29 0 35 0 42 0 44 0 47 0 0 0 0 0 0 0 0 0 0
0 53 0 0 65 0 0 83 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
1,028 1,080 1,134 1,191 1,250 1,313 1,378 1,447 1,520 1,596 1,676 1,759 1,847 0 0 0 0 0 0
1,689 1,133 1,908 1,191 2,215 1,313 2,408 1,530 2,699 1,596 2,976 1,759 3,342 0 1,718 0 1,974 0 1,591
51
5.4.2 Expected Benefits of CL Fund to the GoP and Private Sector

Besides the effects of the reduction in government expenditure, it is expected that the CL Fund will
bring the following benefits to the GoP, project service users, and the society as a whole.
(1) Increase in the number of bidders in PPP biddings

If the CL Fund is created, the confidence of business entities could be strengthened, and probably the
number of bidders would increase. That will enhance more competition, and IAs might receive more
advantageous proposals from the bidders.
(2) Decrease in tariff level (Results of more competitive biddings)

More active competitions result in making the bidders exert more efforts to squeeze the project costs,
such as construction cost, operation cost, and financial cost. Because of these efforts, it might be
possible to decrease the current tariff level.
(3) Improvement of business services (Results of more competitive bidding)

Same as the previous item, more competition will encourage active participation from the bidders to
do more technical proposals, which might contribute in improving the service level of the projects.
Also, in order to decrease the amount of VGF, bidders might seek all possible ways to maximize their
revenues. This also may result in the increase of service level.
(4) Reduction of the possibility of risk occurrence (CL Fund is expected to provide
stronger incentives to Implementing Agencies to manage well the risks)
If the CL Fund is created and eventually works very well, compensation to project proponents would
be made and most probably, the payment amount will be coursed to IAs. It means that IAs will
eventually be responsible in shouldering the compensation. It may work as incentive for IAs to avoid
the risk occurrence or minimize the impact of the risk occurrence in order to mitigate IA’s financial
burden.
(5) Economic effects (As a result of an early and stable delivery of the project
service)
If the CL Fund works well, then the construction works would go smoothly and the project would be
operated steadily. It will support a stable business environment and activities, and it will eventually
promote further economic growth in the surrounding regions.
5.5 Discussion in the CL Workshop

Under JICA's sponsorship and with the cooperation of the Philippine government, the Study Team
conducted the workshop, "Government's risk management: enabling environment for PPP
infrastructure development," on March 7, 2013. The purpose of the workshop is to get the views of
the various parties involved in PPP on the question of further enhancing the attractiveness of PPP
investments for the private sector so that it can be a more potent instrument for government to achieve
its objectives of improving infrastructure. Workshop participants included government, development
partners and private financiers.
Highlights of the different presentations are as follows:
52
 There has been significant underinvestment in the Philippines in the past decade and a half,
including in vital infrastructure projects which various studies and surveys show have contributed
to the country's reduced competitiveness and low rankings in terms of investment climate vs.
other Asian countries, and have led to a vicious cycle of low and uneven economic growth.
 A catch-up infrastructure program requires indicative investments of over P3 trillion, with

planned financing almost evenly split between government budget / ODA and private sector
participation. (Note: latest internal information from ADB shows planned infrastructure
investments through 2016 of roughly P2 trillion.)
 In most cases, the private investor in infrastructure projects looks to the government to provide
some form of financial support to make the projects financially attractive (explicit subsidies or
guarantees, which in many cases do not have explicit mechanisms for computing default
payments ). Given the Philippine system where the budget process is exposed to political risk in
the form of failure of the executive or of congress to include these financial support (even for the
regular, known amounts) in the annual budget (termed "non-appropriation risk"), private investors
have tended to mistrust government promises under the long-term contracts and have either
attached a high risk premium to hurdle rates or completely stayed away from such projects.
 Because of this and other risks, local banks have provided financing on the basis of project
sponsors' balance sheet rather than on the basis of project cashflows. This has necessarily limited
the number of potential participants in PPP given that (a) on the side of lenders, banks have
prudential limits on lending to single borrowers and sectors and (b) on the side of borrowers, only
a few large companies have the balance sheets needed to support large infra projects. On the other
hand, for banks to rely more on project finance requires clearer assignments and management of
risks under PPP contracts and more definite assurances from government that it will deliver on its
promises under the contract, including timely payments of financial liabilities, timely delivery of
right of way and adjustments of tariffs as well as clearer rules for determining and accounting for
termination payments.
 As it is, not only do current PPP contracts require greater clarity in payment rules, government's
current budget instrument (MYOA) for assuring the private sector of its commitment to meet
future claims has not provided as much comfort to private proponents a it has hoped since the
MYOA does not commit congress. A key finding of the Study Team is the need for a dedicated
fund that can be structured in a variety of ways that will allow government to pay for contingent
claims under PPP contracts in a timely manner, can provide private parties more assurance and
thus, bring in more players/ bidders in PPP projects. Based on the Study Team's discussions with
private companies, removal of non-appropriation risk as well as other government-related risks
via such a fund can potentially reduce their required hurdle rates by as much as 2 percentage
points.
 Government reported on the Treasury's current efforts to set up a contingent liability fund
primarily to help government manage fiscal risks, noting three options with both pros and cons
- (a) actual cash can be set aside in a "true fund" but the key concern is the opportunity cost of
parked monies given competing uses for government's scarce resources, (b) a line item may be
included in agency budgets that will be funded as the need arises but this will compete for the
agency's fiscal space, and (c) a lump-sum budget can be centrally managed in DBM but will be
difficult to justify to congress . In any of these options, it noted that the key issue is to allow the
Treasury to "fund" the fund, i.e., for congress to approve a line item in the annual budget, with the
Treasury partial to putting a line item for contingent liabilities under the "unprogrammed fund"
item of the budget.
In several Q&As following the presentations, discussions dwelt on:
53
 Constraints on government. This included (a) openness of congress to lump-sum funds,

especially since it has already reduced the validity of appropriations from two to one year starting
in the 2013 budget and (b) even if congress agreed, there are specific conditions for releasing
funds from the "unprogrammed fund" item, i.e., a) new revenue source b) loan contract signed
with a lender and c) availability of additional unprogrammed revenues. It was also noted that
efforts to work with congress in moving into a medium-term expenditure framework that will
permit multi-year appropriations have not been successful to date. Finally, the issue of how to
quantify how much to budget was also raised.
DBM: I share DOF’s concern on the funding on this. If we just go back to that slide on “True
Fund”…Yes, on our side, we’re discussing it…In the past, the validity of our appropriations were
good for two years; starting 2013 it is only for 1 year…If agencies do not obligate within the
fiscal year, the budget will lapse. Given that, this lump sum budget only have 1 year validity if
there is no claim on it or if the claim is not processed on time, for which the proponent will have
to wait for the next fiscal year. What if Congress will not approve budgeting of CL even in the
unprogrammed fund? Unprogrammed funds are released subject to: a.) new revenue source b.)
loan contract signed with a lender, and; c.) additional revenue like a surge in the price of
oil…Still, this is contingent on Congress putting a budget annually. “Within the budget”…this is
the most difficult thing because you’re locking up precious resources…
“True Fund”, I understand is a special account in a general fund (SAGF)…It will require a law to
set up a SAGF…The apprehension is that if there is a SAGF and there is appropriation for it, the
amount will be have a negative carry.
I would like to suggest an innovative way…It is in the concept of a bank account …You have in
your account an amount but the bank may not actually have cash in its vaults when you need to
withdraw some money but that the bank has to come up with the cash...Conceptually, NT of the
Philippines will have to raise the money if there is need…Right now, we have a of funds in Land
Bank supposedly for loaning operations but they are not used…If that special fund can be
swapped in, then you have no fear of idle cash carrying costs…Then you have a true fund…
Mr. Bernardo: Thank you DBM…The other consideration is the mismatch between the timing
of pursuing PPP projects and the government component that is coming late…Do you see that
the Philippines has more durable funding mechanism like a multi-year appropriation by
Congress?
Bureau of Treasury: The closest to that is the medium-term fiscal or expenditure framework.
We have already committed a fiscal space over a 3-year period…We do estimates and make
proposal to Congress when the time comes. Selling this to Congress and making it more
permanent is quite difficult…If we are not going to lock them up in a 3-year budgeting regime, a
fiscal accord, then we have to agree with NEDA on a medium term plan.
NEDA: It is really a question of credibility…Even if it is annual but credible, I think people will
judge over time…Nowadays, we have greater transparency and greater respect for contract…I
think observers would re-affirm that there is less and less risk in the budget process. In the US,
they would say that Congress would not allow them to commit…Why do we have a different
standard? The world is demanding too much from us…
DPWH: Our concern is that if the fund is in the budget, it will compete in our capital
outlays…The difficulty, I think, is not with Congress…The problem is that it will sum up to the
absorptive capacity of the department…The other concern is how do we estimate the lump sum
amount? Do we have a formula? We’ve been discussing with the Bureau of Treasury about the
likelihood of events happening…We don’t have a good formula how to estimate on the default.
This is another concern…The suggestion of DBM (the concept of a bank) is good but it should
not be in the name of the agency because it will compete with the capital outlays…It should
remain with DOF or DBM that the agency can draw from…Maybe it can be through the
PDMF…The agency would reimburse later and then budget it for the next fiscal year…That for
sure, we can utilize in our budget…
54
Bureau of Treasury: I completely agree with you…We don’t want to tie hands of agencies…As
for the lump sum, I think your point is that there is a lot of quantifications…While we don’t have
actual figures, the quantification will give us an idea of the magnitude involved…As long as
there is an item in the budget, I’m sure there are several ways DBM can do as the need
arises…The preparations we do will make our job a lot easier and make the payments much
faster…
 Private sector demands on government, which officials noted may be too much considering that
non-appropriations risk is present in other countries as well and that over time, as budget
processes become more transparent, risks should go down as well, making contingent liability
funds unnecessary. In any event, officials noted that in the past, government had always paid,
albeit with lags as any amount will have to be appropriated by congress.
Bureau of Treasury: (Slide 5: CL Management) It’s an achievement to have agencies talk about
this. We have a lot of roles to fill in as regards CL management. Line agencies, since they are in
the first in line, are the first to know, among others, what events are going to be triggered. It is
crucial for us, BTr and DOF, to make the necessary calculations…NEDA and the PPP Center
take charge of monitoring of the PPP projects…We’ll be relying on you to get the information
from the agencies concerned. BTr will be primarily concerned about the number and finding
ways to come up with the cash. Finally, it is important that DBM find some space in the budget
so we actually pay for those obligations on time. The most important thing now is to have a
mechanism for us to pay for those obligations as they arise…We don’t want claims to be
dragging on for years before we compensate the private proponent. While financiers would love
to have automatic appropriation, similar to the treatment of debt obligations…Well, the private
sector would just to assume that risk and they have to trust us just as we trust them.
Appropriation risk is also a problem in other countries…
The purpose here is not to establish guidelines on managing CL but to start a line of
communication.
 Financiers' (a) assessment of risks which focuses on the proper allocation between the public and
private sectors (noting that demand risk should be shouldered by the public sector especially for
greenfield projects), and (b) willingness to go beyond plain vanilla debt financing into riskier
financing structures through e.g., subordinated debt (currently provided by project sponsors and
thus counted as equity) or buying project bonds. It was also noted that while banks are now
highly liquid and eager to find investment outlets, the liquidity does not directly translate into
bankability, which depends on specific project characteristics.
 Alternative structures for the proposed contingent liability (CL) fund, which as presented by the
Study Team included (a) using a GOCC to manage the fund, (b) expanding the scope of the
PDMF to include CL, (c) setting up a new trust fund within DOF, and (d) pooling the SSF within
DBM. Comments from government are (a) that the fund be managed by committee within the
central government, (b) that it be a special fund that will not lapse but if actual monies put in, will
be allowed to grow to minimize carrying costs, (c) that it will be a lump sum fund so as not to
crowd out agency budgets, and (d) the need for spending authority for such a fund. On the
question of guarantee premiums, it was noted that the CL fund is essentially government
guaranteeing itself and so should not be passed on to the private sector. Rather, in other countries,
it was noted that it is the implementing agency shouldering the fees.
Participants appreciated much the frank and comprehensive sharing of perspectives. Knowing the
concerns of proponents and financiers should assist government authorities address these pro-actively
using available mechanisms considering limitations of law and fiscal prudence, so that PPP can
contribute more fully to infrastructure catch-up program of government. More structural solutions,
including those requiring legislation, will likewise be explored jointly with development partners.
Bureau of Treasury: … (Slide 4: CL-Funding) I make distinction between funding and

financing. The former pertains to putting a line item in the budget. The latter is coming up with
55
the money…The problem with a fund is that there are opportunity costs—while there are social
projects that can be done, resources are locked up in a fund…
IFC: Just following up on that one…That CL fund…I was wondering if the government was
able to exploit how it can work…It is a guarantee facility to guarantee political risk…My
concern is that you have projects being rolled out…I don’t know if JICA will have a facility…In
IFC, we have MIGA…
Bureau of Treasury: For the guarantee facilities…in the past, to my understanding, guarantee
facilities were not really taken because they hit our borrowing envelope for each individual
institution…We prefer loans to guarantees…Considering the current thrust, we are going to more
domestic financing…
ADB: The premium in CL fund in Colombia is paid by IA. Since it is government, it is not
passed on…This is to give more comfort to investors…May I just ask DBM Can a CL fund be a
revolving fund? Can the agency pay the premium and budget for the premium?
DBM: In our budgeting system, there are two kinds of appropriations: a.) the annual which lasts
for the fiscal year and the automatic until revoked by Congress, and; b.) that which continues
until the fund is exhausted…All of them have to be passed by Congress. Whether the fund is
revolving or continuing, it is up to Congress. A revolving fund subsists on its own, to our
definition. You put in the seed money and it generates more money so there is no need for more
appropriation. If so, then BTr has to manage it such that the seed capital will earn enough to
meet CL eventualities…What we are just looking at is a special fund, whether revolving or not.
The more important thing is that it should not lapse…It should not carry cost if cash is there…
Agencies may not budget it because it will kick out some budgetary space…So put it in a lump
sum fund, instead…
56
Chapter 6. Capacity Development for Implementing Agencies
6.1 Introduction
The government’s institutional capacity is currently being strengthened in order to effectively promote
and implement public-private partnership (PPP) projects in the Philippines. The Asian Development
Bank (ADB) with AusAID and CIDA have been implementing jointly the capacity development
technical assistance (CDTA), which aims to achieve a) capacity building of staffs to improve the
government’s PPP systems and capacity to manage PPP projects, and b) funding of the Project
Development and Monitoring Facility (PDMF) for i) PPP project preparation, ii) financial analysis, iii)
preparation of bidding documents, and iv) support to bidding process and contract negotiations. Item
a) above consists of the following four components: 1) strengthened PPP enabling framework, 2)
strengthening the capacity of the PPP Center, and 3) capacity building of PPP-involved staff members
of the National Economic Development Authority (NEDA), the Department of Finance (DOF) and
line agencies in PPP processing.
Almost one and a half years have passed since the inception of CDTA in November 2011. The
consultants of the technical assistance (TA) have been engaged in capacity building for the
management as well as funding of the PDMF. During an interview with the PPP Center on December
4, 2012 in the course of the Study, it was reported that the training of IAs staff would be conducted in
the form of training of trainers (TOT) based on the national government agency (NGA) manual, which
is now under preparation. There seems to be no clear guidelines on capacity development for IAs staff.
Under such circumstances, the previous JICA Study entitled the Study on PPP Institutional
Improvement in the Philippines (Phase 1), which started in April 2011, recommended capacity
development of IAs in the area of PPP project preparation for the key sectors (toll road, airport,
railway, water supply, and energy). Then in August 2012, “The Study on Institutional Building in the
Philippines (Phase 2)” has started. In this study, a capacity and needs assessment survey and trial
training courses for IAs in the key sectors were conducted. One of the special topics included in the
training courses was on mitigation of risks including CL. The input of JICA in this trial training was
successful in terms of direct benefits to IAs staff in the key sectors. This chapter discusses the capacity
and needs assessment, trial training courses, and way forward for further capacity development.
6.2 PPP Capacity and Needs Assessment of IAs

6.2.1 Target, Methodology, and Assessment Items
The JICA Study Team collected the assessment of IAs officers-in-charge of PPP regarding the capacity
and needs of PPP related operations. This was an important step in planning the appropriate PPP
capacity development programs for the key IAs in the course of the Study. The assessment was mainly
conducted through the form of questionnaire complemented by interviews. The assessments were
conducted for the following IAs based on the terms of reference (TOR) of this Study:
 Road sector (Department of Public Works and Highways (DPWH));

 Railway sector (DOTC) and Light Rail Transit Authority (LRTA));
 Airport sector (DOTC, Mactan-Cebu International Airport Authority (MCIAA), Manila
International Airport Authority (MIAA), and Civil Aviation Authority of the Philippines (CAPP));
 Water sector (Metropolitan Waterworks and Sewerage System (MWSS) and Local Water Utilities
Administration (LWUA)); and
 Energy sector (Department of Energy (DOE) and Philippine National Oil Corporation (PNOC)).
57
Questionnaires were provided to management level officers (sub-directors and managers) who are
supposed to have experiences in project preparation, such as study, formulation, planning, transaction
or monitoring, of PPP projects. The positions of the officers who answered the questionnaires are
indicated in the following sections in the analysis results of each IA.
The questionnaire consists of three parts: (1) Present Capacity Level (Self Evaluation), (2) Needs for
Capacity Development, and (3) Current Issues. The questions in (1) and (2) involve the following ten
items, all of which are deemed essential for the formulation, planning, transaction, and implementation
of PPP projects:
Table 6.1-1 Contents of the Questionnaire

1 Knowledge on principles of partnerships, PPP Project Selection/Identification
appropriate risk sharing, project financing
2 Knowledge on PPP project Business Case Study, Knowledge and skills on
selection/identification process, objective, study items, and methodologies of
methodologies, and criteria business case study
3 Financial Analysis Knowledge and skills on financial statements,
financial analysis, and value for money (VFM)
analysis
4 Risk Analysis Knowledge and skills on risk allocation,
quantification, and mitigation
5 Project Scheme Analysis Knowledge and skills on PPP modality and
modality selection criteria
6 Bid Document Preparation Knowledge on necessary bid documents, their
contents and preparation process
7 Proposal Evaluation Knowledge on appropriate proposal evaluation
procedure and criteria
8 Project Monitoring (Construction) Knowledge and skills on monitoring during
project construction stage
9 Project Monitoring (Operation) Knowledge and skills on monitoring during
project operation stage
The assessment results of each agency are shown in the successive sections.
6.2.2 Assessment Results: Road Sector (DPWH)

In the road sector, the capacity and needs assessments were conducted by means of questionnaire and
interview survey of six staff from the Project Management Office-Build-Operate-Transfer
(PMO-BOT) and Project Management Office-Feasibility Study (PMO-FS) of DPWH. The sections
and positions of the respondents are shown in 6.2-1.
Table 6.2-1 Section and Position of Respondents (Road Sector)

Agency Section Position
DPWH PMO-BOT Head
DPWH PMO-FS OIC Planning Office II
DPWH PMO-BOT Project Management
DPWH PMO-BOT PM-1
DPWH PMO-BOT Engineer V
DPWH PMO-BOT Engineer V
The results of the capacity and needs assessment of the road sector are discussed below.
58
(1) Present Capacity Level

The JICA Study Team asked the respondents to score the present capacity level of the road sector staff
regarding the ten check items. The results are shown in Table 6.2-2.
Table 6.2-2 Capacity Assessment Results (Road Sector)

Respondents (Six Persons)
Check Item Average Rank
A B C D E F
General Principles of PPP 2 2 3 2 2 2 2.17 1
PPP Project Selection/Identification 2 2 2 2 2 2 2.00 3
Business Case Study 2 2 2 2 2 2 2.00 3
Financial Analysis 1 1 1 2 1 1 1.17 8
Risk Analysis 1 1 1 2 1 1 1.17 8
Project Scheme Analysis 1 1 1 2 1 2 1.33 10
Bid Document Preparation 2 1 2 2 2 2 1.83 5
Proposal Evaluation 2 1 2 2 2 2 1.83 5
Project Monitoring (Construction) 3 1 2 2 3 2 2.17 1
Project Monitoring (Operation) 2 1 2 2 1 1 1.50 7
Note: High Level = 3.0, Middle Level = 2.0, Low Level = 1.0
A graph of the capacity assessment results is shown in Figure 6.2-1.
General Principles of PPP

3.0
PPP Project
Project Monitoring (Operation)
Selection/Identification
2.0
Project Monitoring (Construction) 1.0 Business Case Study
0.0
Proposal Evaluation Financial Analysis
N=6
Bid Document Preparation Risk Analysis Legend
3.0 = High
Project Scheme Analysis
1.0 = Low

Figure 6.2-1 Capacity Assessment Results (Road Sector)
The capacity levels of the following were rated as middle level: business case study (for selection of
the best PPP modality), bid document preparation, bid evaluation, and project monitoring
(construction). This reflects that the PMO-BOT basically has well-trained staff responsible for works
from the study to the monitoring stages. On the other hand, their knowledge and understanding in the
three areas (financial analysis, risk analysis, and project scheme) were low mainly because these areas
are usually carried out by consultants.
(2) Needs for Capacity Development

The JICA Study Team asked the respondents to check the top three items necessary for the
improvement of PPP capacity. The results are shown in Table 6.2-3.
59
Table 6.2-3 Needs Assessment Results (Road Sector)

Respondents (Six Persons) Total Rank
A B C D E F Score (Needs)
General Principles of PPP 1 1 5
PPP Project Selection/Identification 1 1 5
Business Case Study 1 1 5
Financial Analysis 1 1 1 1 4 2
Risk Analysis 1 1 1 1 1 5 1
Project Scheme Analysis 1 1 1 1 4 2
Bid Document Preparation 0 -
Proposal Evaluation 0 -
Project Monitoring (Construction) 1 1 2 4
Project Monitoring (Operation) 0 -
Note: Five respondents checked the top three needs for PPP capacity development according to them. In the figure, a higher
score indicates higher need.
A graph of the needs assessment results is shown in Figure 6.2-2.

Project Monitoring
(Operation)
General Principles
Project Monitoring
of PPP
(Construction) PPP Project
Selection/Identific
Proposal Evaluation
ation
Bid Document
Preparation Business Case
Study
Project Scheme
Analysis
Financial Analysis
N=6
Risk Analysis
percentage indicates higher need.
Figure 6.2-2 Needs Assessment Results (Road Sector)
Clearly, the needs of respondents for capacity development were high in the three areas where their
capacity levels were low. Financial analysis of PPP projects from investors’ viewpoint appears to be
complex, demonstrating equity internal rate of returns (IRRs) of the different cash flows based on a
combination of amount of equity and subsidy, financial impact on IRR by lending condition of debt
portion. As such, a comprehensive financial analysis is quite new to staff members of the PMO-BOT.
There turns out to be no need for i) bid document preparation, ii) proposal evaluation, and iii) project
monitoring (operation). This is because bid documents preparation and proposal evaluation are being
fully assisted by DOF and the PPP Center, while project monitoring is under the responsibility of the
Toll Regulatory Board (TRB).
Aside from the needs for capacity development in PPP processing, DPWH, as the agency responsible
for road development, exposes and takes the risks of CL caused by delay in right-of-way (ROW)
acquisition, issuance of construction permission and final completion. This agency, including the
PMO-BOT, requires efforts to reduce occurrence of CL and must quantify the cost of government
60
guarantee to compensate liquidity damages, which are otherwise burdened by private proponents.
(3) Issues
The respondents raised the following issues:
 Inadequate know-how on financial analysis and tools (risk analysis software and financial
model);
 Legal interpretation of government subsidy, undertakings and variations;
 Lack of traffic demand software and simulation model;
 Not enough knowledge on BOT scheme;
 Insufficient number of staff members; and
 Not enough knowledge on risk analysis and inadequate parameters for project monitoring.
6.2.3 Assessment Results: Railway Sector (DOTC and LRTA)

In the railway sector, the capacity and needs assessments were conducted by means of questionnaire
and interview survey of two staff from DOTC and three staff from the LRTA. The sections and
positions of the respondents are shown in Table 6.2-4.
Table 6.2-4 Sections and Positions of Respondents (Railway Sector)

DOTC Rail Transport Program Division Sr. Transportation Development Officer
DOTC Railway Transportation Planning Division Chief of Division

LRTA Planning Department Planning Dept. Manager
LRTA Planning Department Corporate Planning and Research Division
LRTA LRTA - PMO Principal Engineer
The results of the capacity and needs assessment of the railway sector are discussed below.

The JICA Study Team asked the respondents to score the present capacity levels of the railway sector
staff regarding the ten check items. The results are shown in Table 6.2-5.
Table 6.2-5 Capacity Assessment Results (Railway Sector)

Respondents (Five Persons)
A B C D E
General Principles of PPP 1 3 2 2 3 2.2 1
PPP Project Selection/Identification 1 3 2 2 2 2.0 2
Business Case Study 1 2 1 1 2 1.4 9
Financial Analysis 1 2 1 1 3 1.6 5
Risk Analysis 1 2 1 2 2 1.6 5
Project Scheme Analysis 1 2 1 1 2 1.4 9
Bid Document Preparation 1 1 1 2 3 1.6 5
Proposal Evaluation 1 3 1 1 2 1.6 5
Project Monitoring (Construction) 1 2 1 2 3 1.8 4
Project Monitoring (Operation) 1 2 2 2 3 2.0 2
Note: High Level = 3.0, Middle Level = 2.0, Low Level = 1.0
61

3.0
PPP Project
2.0
0.0

N=5
Legend
Bid Document Preparation Risk Analysis
3.0 = High
Project Scheme Analysis 1.0 = Low

Figure 6.2-3 Capacity Assessment Results (Railway Sector)
The capacity level was rated as low level in the stages of PPP processing from project identification to
project evaluation. This is because majority of the respondents are from the Railway Planning Division
(RPD), which is primarily responsible for the sector plan. The capacity level in project monitoring is
comparatively high because staff of the RPD currently conducts monitoring of railway projects. The
problem is the weak capacity of staff of the Project Development Team (PDT) in terms of railway
sector specific PPP processing because the current PDT staffs working in the project development
stage have little knowledge about any specific sector such as railway. The assessment of the present
capacity of respondents is shown in Figure 6.2-3.

Table 6.2-6 Needs Assessment Results (Railway Sector)

Respondents (Six Persons)
Total Rank
A B C D E
General Principles of PPP 0 -
Risk Analysis 1 1 1 3 2
Project Scheme Analysis 1 1 1 3 2
Bid Document Preparation 1 1 2 4
Proposal Evaluation 1 1 2 4
Project Monitoring (Construction) 0 -
Project Monitoring (Operation) 1 1 6
62

General Principles
of PPP
Project Monitoring PPP Project
(Operation) Selection/Identific
Project Monitoring ation
(Construction) Business Case
Proposal Evaluation Study
Bid Document Financial Analysis

Preparation
N=6
Project Scheme
Analysis
Risk Analysis
Figure 6.2-4 Needs Assessment Results (Railway Sector)
According to the results of the capacity and needs assessments of staff of DOTC and LRTA conducted
in October 2012, DOTC has little experience of PPP project implementation in the railway sector. As
observed in Figure 6.2-4, the items that are highly needed for capacity development in the railway
sector are in the areas of business case study, financial analysis, risk analysis, and project scheme
analysis. Besides that, there is a high demand for capacity development programs on practical contents
such as parametric formula, penalties, minimum standards, termination payments under concession
agreement, etc.
(3) Issues
Among the issues to be listed below, the survey revealed the discontinuity by the changes in the
administration and the absence of in-house capacity as urgent issues.
Therefore, in addition to securing and developing human resources, the establishment of a consistent
organization and a definite procedure for PPP project promotion in DOTC are needed. The followings
are the main issues on PPP project implementation in DOTC Railway sector.
 Change of administration
 No continuity in project planning and implementation.
 Lack of in-house capacity in all aspects
 Difficulty of ROW acquisition
 Re-evaluation of ROW claimants, expropriation proceedings on ROW, and resettlement of
informal settlers
The demarcation of responsibilities among sectors in the railway division of DOTC appears to be
unclear. As clarified in the comment made by the Assistant Secretary for Planning in the Study, the
agency intends to strengthen its project development functions (PDT). More important is the
consistency of PPP processing from entry (planning) to preparation (project development). The key
point will be the clarification of the roles of organizations in the railway division with respect to PPP
processing.
63
The railway sector encounters delay in ROW acquisition and high ridership risk. The former is
exemplified by the LRT 1 South Extension Project wherein it was difficult for the private sector to
qualify for bidding as heard from private sectors during the Team’s hearing survey. Meanwhile, the
latter is stressed on by a private investor saying that revenue lower than what was originally estimated
brings about a serious drawback to investors. It implicates the government compensation for minimum
revenue guarantee (direct liability).
6.2.4 Assessment Results: Airport Sector (DOTC, MCIAA, MIAA, and CAPP)
In the airport sector, the capacity and needs assessments were conducted by means of questionnaire
and interview survey of seven staff in total from: i) the Air Transport Planning Division (ATPD) of
DOTC, ii) MCIAA, iii) MIAA, and iv) CAAP. The sections and positions of the respondents are
shown in Table 6.2-7.
Table 6.2-7 Sections and Positions of Respondents (Airport Sector)

DOTC Air Transport Planning Division Chief, Transport Development Officer (TDO)
DOTC Planning Service - Air Supervising TDO
Transportation Planning Division
MCIAA Legal and Finance Legal Manager and Finance Dept.
MCIAA Legal Office Corporate Attorney
MIAA Plans and Programs Division OIC-PPP
CAAP Admin and Finance Service OIC, Admin and Finance
CAAP Engineering Department Accounting Department Manager
The results of the capacity and needs assessment of the airport sector are discussed below.

The JICA Study Team asked the respondents to score the present capacity levels of the staff of the
relevant agencies regarding the ten check items. The results are shown in Table 6.2-8.
Table 6.2-8 Capacity Assessment Results (Airport Sector)

Respondents (Seven Persons)
A B C D E F G
General Principles of PPP 2 2 3 3 2 1 2 2.1 1
PPP Project Selection/Identification 1 2 2 2 2 1 1 1.6 2
Business Case Study 1 1 1 1 1 1 1 1.0 4
Financial Analysis 1 1 1 1 1 1 1 1.0 4
Risk Analysis 1 1 1 1 1 1 1 1.0 4
Project Scheme Analysis 1 1 1 1 1 1 1 1.0 4
Bid Document Preparation 1 1 1 1 1 1 1 1.0 4
Proposal Evaluation 1 1 1 1 1 1 1 1.0 4
Project Monitoring (Construction) 1 2 1 1 2 1 1 1.3 3
Project Monitoring (Operation) 1 1 1 1 1 1 1 1.0 4
Legend: High Level = 3.0, Middle Level = 2.0, Low Level = 1.0
64

3.0
PPP Project
2.0
0.0

N=7
Legend
3.0 = High
Project Scheme Analysis 1.0 = Low

Figure 6.2-5 Capacity Assessment Results (Airport Sector)
The capacity level was rated as low level in all stages of PPP processing. This is because majority of
the respondents are responsible for national aviation planning (ATPD) and monitoring of project
construction, and operations and maintenance (O&M) (other institutions).

Table 6.2-9 Needs Assessment Results (Airport Sector)

Respondents (Seven Persons) Total Rank
A B C D E F G Score (Needs)
General Principles of PPP 1 1 6
PPP Project Selection/Identification 1 1 2 5
Business Case Study 1 1 1 1 4 1
Risk Analysis 1 1 1 3 3
3Project Scheme Analysis 1 1 1 3 3
Bid Document Preparation 1 1 6
Proposal Evaluation 1 1 6
Project Monitoring (Construction) 1 1 6
65

Project
Project Monitoring
Monitoring (Operation)
(Construction)
General
Principles of PPP
Proposal
Evaluation
Bid Document PPP Project

Preparation Selection/Identifi
cation
Project Scheme
Analysis
Business Case
Study
N=7
Risk Analysis
Financial Analysis
Figure 6.2-6 Needs Assessment Results (Airport Sector)
The need for capacity development was high in the areas of business case study, financial analysis,
risk analysis, and project scheme analysis, while the need was low for bid document preparation,
project evaluation, and project monitoring (construction and operation) because most of the
respondents are engaged in such works. The skills and expertise on PPP projects preparation,
particularly in the early stage (business case study, PPP feasibility study, and financial analysis) are
needed.
A typical PPP modality of an airport project would be separation of airport services between landside
(private proponent) and airside (government). Staff members in the airport sector are looking for
successful PPP projects, such as an international airport handling millions of passengers that is
expected to receive ample revenue that may be suitable for a build-operate-transfer (BOT) scheme.
The respondents answered the following airport projects in connection with training of relevant staff
for PPP processing.
 Mactan-Cebu International Airport Passenger Terminal Building;

 O&M of Laguindingan Airport;
 O&M of Puerto Princesa Airport;
 Kalibo International Airport; and
 Caticlan Airport.
(3) Issues
The airport sector in the Philippines has undertaken only two PPP projects in the recent past. These are
the NAIA Terminal 3 BOT Project in 1997-2008, and the Caticlan Airport Project in 2008. The NAIA
Terminal 3 Project, which is the first PPP airport project in the country, encountered numerous
problems. This project left various lessons related to concession agreement. On the other hand, the
66
second PPP airport project, the unsolicited Caticlan Airport Project, has less legal and technical issues
so far.
DOTC has learned lessons from these two PPP projects. Currently, however, the progress of the
promotion and implementation of PPP airport projects is still slow. Capacity development appears to
be necessary in the area of selection and identification of PPP airport projects, including business case
studies.
The two different sets of PPP rollout airport projects in 2011 and 2012 also gives an indication that
there is no established selection system for airport PPP projects in DOTC. The results of the capacity
building assessment survey also attest to the necessity for PPP project selection and identification.
Of particular interest and significance to DOTC are topics involving business case studies, financial
analysis and risk analysis, and project scheme analysis toward PPP project development and
implementation.
Considering the long gestation period of PPP projects based on the project cycle, i.e., from project
identification to preparation of proposals and draft concession agreements, the JICA Study Team
recommends that appropriate sector specific capacity development programs for selected DOTC staff
should be developed and implemented. Participants to these training programs should involve not only
members of the Project Development Team (PDT) under the Office of the Assistant Secretary for
Planning but also staff from DOTC’s ATPD and Project Management Service (PMS), CAAP’s
Aerodrome Development and Management Service (ADMS), MIAA’s Plans and Programs Department
(PPD), and an appropriate department of MCIA .
6.2.5 Assessment Results: Water Sector (MWSS and LWUA)

In the water sector, the capacity and needs assessments were conducted by means of questionnaire and
interview survey of four staff from MWSS and five staff from LWUA. The sections and positions of
the respondents are shown in Table 6.2-10.
Table 6.2-10 Section and Position of Respondents (Water Sector)

MWSS Engineering and Operations Deputy Administrator
MWSS Engineering and Project PMO-A
Management Dept. (EPMD)
MWSS EPMD PMO-A
MWSS EPMD PMO-A
LWUA AG Operations, Division Manager
Planning/Design
LWUA Area G Acting Manager
LWUA Special Project Officer Acting Department manager
LWUA Loans and Water Rates Acting Manager Area 1
Evaluation - Luzon Area 1
LWUA Area Operations Visayas Project Planning Division Acting Division Manager

The JICA Study Team asked the respondents to score the present capacity level of the water sector
staff regarding the ten check items. The result is shown in the Table 6.2-11
67
Table 6.2-11 Capacity Assessment Results (Water Sector)

Respondents (Nine Persons)
A B C D E F G H I
General Principles of PPP 3 2 2 3 1 1 2 2 1 1.9 1
PPP Project Selection/Identification 2 2 2 3 1 1 1 1 1 1.6 3
Business Case Study 3 1 2 2 1 1 1 1 1 1.4 5
Financial Analysis 3 1 2 2 1 1 1 1 1 1.4 5
Risk Analysis 3 1 2 2 1 1 1 1 1 1.4 5
Project Scheme Analysis 2 2 2 3 1 1 1 1 1 1.6 3
Bid Document Preparation 2 1 2 2 1 1 2 1 1 1.4 5
Proposal Evaluation 3 1 3 3 1 1 1 1 1 1.7 2
Project Monitoring (Construction) 2 2 2 2 1 1 1 1 1 1.4 5
Project Monitoring (Operation) 2 2 2 2 1 1 1 1 1 1.4 5
A graph of the present capacity levels of respondents is shown in Figure 6.2-7.

3.0
PPP Project
2.0
0.0
N=9
Legend
Project Scheme Analysis 3.0 = High
Source: JICA Study Team 1.0 = Low
Figure 6.2-7 Present Capacity Level (Water Sector)

Table 6.2-12 Needs Assessment Results (Water Sector)

Respondents (Nine Persons)
Total Rank
A B C D E F G H I
General Principles of PPP 1 1 1 1 1 1 6 1
Risk Analysis 1 1 1 1 4 3
Project Scheme Analysis 1 1 1 1 4 3
Bid Document Preparation 0 -
Proposal Evaluation 1 1 1 1 1 5 2
Project Monitoring (Construction) 1 1 2 6
68
Project
Monitoring
Project (Operation)
Monitoring
(Construction)
General
Principles of PPP
Proposal PPP Project

Evaluation Selection/Identifi
cation
Bid Document
Preparation
Business Case
Study
Project Scheme
Analysis
Financial Analysis N=9
Risk Analysis

Figure 6.2-8 Needs Assessment Results (Water Sector)
The need for capacity development was recognized for each field in PPP processing, which implies
that MWSS is ready for strengthening the capacity of their staff on PPP project preparation. Under
such circumstance, a seminar on studying new bulk water supply projects involving existing reservoirs
under BOT contract scheme would help them in the preparation of upcoming PPP water supply
projects. This could contribute to business expansion of MWSS, and enhancement of their capacity
development. The needs assessment results are shown in Figure 6.2-8.
(3) Issues
A growing demand for new bulk water supply projects, including dam construction, highlights the role
of MWSS as an implementing agency under BOT scheme; however, private proponents are reluctant
to commit themselves to such greenfield projects mainly because of financial infeasibility. MWSS
needs very concessional loans (i.e., ODA loan) particularly for financing dam construction; however,
MWSS has been constrained by a government policy aimed at reducing its borrowing of ODA loans
from donors. Under such circumstance, a hybrid type of water supply project comprising dam
construction, financed by ODA loan, and water transmission facility, financed by private proponent,
would be preferable as a pipeline project in the water sector.
6.2.6 Assessment Results: Energy Sector (DOE)

In the energy sector, PPP or its projects are not in the mainstream so that the target to be interviewed is
not DOE but its affiliate organ where the likely PPP project is to be implemented. The capacity and
needs assessments were conducted by means of questionnaire and interview survey of five staff from
PNOC. The sections and positions of the respondents are shown in Table 6.2-13.
69
Table 6.2-13 Sections and Positions of Respondents (Energy Sector)

PNOC Corporate Planning Manager
Department
PNOC Engineering Manager
PNOC Treasury Department Deputy Manager
PNOC Management Service Vice President
PNOC Legal Department OIC-Manager

The JICA Study Team asked the respondents to score the present capacity levels of the energy sector
staff regarding the ten check items. The results are shown in Table 6.2-14.
Table 6.2-14 Capacity Assessment Results (Water Sector)
A B C D E
General Principles of PPP 2 1 1 1 2 1.4 1
PPP Project Selection/Identification 2 1 1 1 1 1.2 4
Business Case Study 1 1 1 1 1 1.0 9
Financial Analysis 3 1 1 1 1 1.4 1
Risk Analysis 1 1 1 1 2 1.2 4
Project Scheme Analysis 2 1 1 1 1 1.2 4
Bid Document Preparation 2 1 1 1 2 1.4 1
Proposal Evaluation 2 1 1 1 1 1.2 4
Project Monitoring (Construction) 1 1 1 1 1 1.0 9
Project Monitoring (Operation) 2 1 1 1 1 1.2 4

3.0
PPP Project
2.0
0.0
N=5
Bid Document Preparation Risk Analysis Legend
3.0 = High
Project Scheme Analysis
1.0 = Low
Figure 6.2-9 Present Capacity Level (Energy Sector)

The results of the needs assessment are shown in Figure 6.2-10. The fundamental issues regarding the
needs for capacity development on PPP are the following:
70
First, PNOC is preparing the Batangas-Manila Natural Gas Pipeline (BATMAN) 1 Project. For
instance, PNOC, as the implementing agency, would be responsible for the ROW acquisition needed
for the installation of gas pipelines along national roads from Batangas to Metro Manila. However,
PNOC has no experience of ROW acquisition, thus DPWH may assist it in such.
In addition, gas development in the country is not an issue of project but that of industry. The DOE
will need the following information and expertise in establishing a gas industry suited for the
Philippine business environment:
 Regulations (private companies entering gas business and prices) on gas industry (DOE);
 Organization and tasks to be entrusted to a special company for gas industry under PNOC; and
 TOR of the FS of the BATMAN 1 Project particularly detailed financial analysis of the PPP
model for BATMAN and other projects.
Table 6.2-15 Needs Assessment Results (Water Sector)

Total Rank
A B C D E
General Principles of PPP 1 1 2 2
PPP Project Selection/Identification 0 -
Financial Analysis 1 1 2 2
Risk Analysis 1 1 1 1 4 1
Project Scheme Analysis 1 1 6
Bid Document Preparation 1 1 2 2
Proposal Evaluation 1 1 2 2
Project Monitoring (Construction) 1 1 6
Project
Monitoring
Project (Operation)
Monitoring
(Construction) General
Principles of PPP
PPP Project
Selection/Identifi
Proposal
cation
Evaluation Business Case
Study
Bid Document
Financial Analysis
Preparation
N=5
Project Scheme
Analysis
Risk Analysis

Figure 6.2-10 Needs Assessment Results (Energy Sector)
71
(3) Issues
The country is still facing chronic problems such as: i) combined market power across power
generation and distribution in the Luzon grid, ii) energy insecurity particularly in Mindanao, and iii)
high level of debt of the National Power Corporation (NPC). Accordingly, DOE is expected to take a
leadership role in solving these issues. The fundamental approach is to determine up to what extent the
government should be responsible for such issues under the Electric Power Industry Reform Act
(EPIRA).
6.3 Trial Implementation of PPP Capacity Development Training

6.3.1 Planning and Implementation of Trial PPP Capacity Development Training
According to the prior surveys, the current PPP trainings provided by ADB are mainly focused on
oversight agencies, such as the PPP Center and DOF. The JICA Study Team identified that IAs has
potentially great needs for PPP capacity development.
Based on this finding and recognition, a trial PPP capacity development training for selected IAs, i.e.,
DPWH, DOTC, MWSS, and LWUA, was planned in the Study. The objectives of the training are (1)
to answer the urgent needs for PPP capacity development of each IA, and (2) to grasp IA’s real
capacity and needs with regard to PPP.
The JICA Study Team tried to plan “tailor-made” programs that would specifically meet the needs and
expectations of each agency. The findings regarding the capacity and needs of the selected agencies, as
taken from the needs and capacity assessments conducted by the JICA Study Team, are shown in Table
6.3-1.
Table 6.3-1 Findings from the Capacity and Needs Assessments

Agency PPP Capacity Training Items of High Need
DPWH Relatively High 1) Risk Analysis including CL
2) Financial Analysis
3) Project Scheme Analysis
DOTC Middle 1) Financial Analysis
2) Risk Analysis including CL
3) Project Scheme Analysis
MWSS and LWUA Relatively Low 1) General Principles of PPP
2) Proposal Evaluation
3) Financial Analysis, etc.
The training programs were prepared to meet those levels and needs. Also, in the process of
preparation, further discussions and consultations were made among the following key persons of each
agency:
 DPWH: Head of BOT-PMO

 DOTC: Undersecretary and Assistant Secretary
 MWSS: Undersecretary and Deputy Administrator
After going through these processes, the JICA Study Team arranged the tailor-made training programs,
as shown in Table 6.3-2, and carried them out as planned. Generally, members of the JICA Study Team
served as lecturers of each course; however, officers of DPWH also conducted some parts of the
program such as the workshops for the road sector.
72
Table 6.3-2 Contents of Trial Capacity Development Training

Sector/ Training Contents
IA Date Program Contents
Road DAY 1 (1) Toll road PPP modality (1) PPP modalities with respect to
(DPWH) March 12, 2013 (2) Project profitability and public sector
implementation/monitoring involvement
(3) Issues/problems encountered (2) Responsibility of DPWH at each
(workshop) stage of project preparation
(3) Various issues raised during
trainees’ group discussion.
DAY 2 (1) CL of the Government of the (1) How is CL specified in Toll

March 13, 2013 Philippines (the GoP) and TCA Concession Agreement?
(2) Impact of government risk to (2) Simulation of the government
financial conditions of proponent Payment for CL risks.
(3) Measures to reduce CL risks (3) Trainees’ group discussion about
(workshop) how to reduce costs caused by delay
in ROW acquisition.
DAY 3 (1) Financial basics and exercises (1) Basic financial analysis
March 14, 2013 (2) Exercise of financial models for
case studies (road projects)
Railway DAY 1 (1) PPP modality and BCS (1) Modality selection examples
and March 14, 2013 (2) PPP project risk management (2) Revenue risk management.
Airport (3) Appropriation risk undermining
(DOTC) CL payment
DAY 2 (1) Financial basics and exercises (1) Basic financial analysis
March 15,2013 (2) Exercise of financial models for
case studies (railway and airport)
Water DAY 1 (1) Global trend of PPP in water (1) Water PPP project trend by
(MWSS March 19, 2013 sector and good practice region and modality
and (2) PPP project cycle management, (2) What to do at each stage of
LWUA) (3) PPP modality (bulk water supply) project preparation
(4) Financial analysis (3) Water PPP modality options
(5) CL analysis (4) Basic financial analysis/Exercise
of financial models for case studies
(5) Quantification of CL
Note: BCS means business case study, and TCA means toll concession agreement.
A three-day course was held for the road sector staff because their capacity level was relatively high
and there was a strong request to DPWH to conduct three-day training. A two-day course was jointly
held for the railway and airport sectors, and a one-day course was held for the water sector. These also
reflected the current needs of related agencies.
Table 6.3-3 shows the number of participants from each agency.
Table 6.3-3 Participants of the Trial Capacity Development Training

Sector Number of Participants Participating Agencies
Road Sector 27 DPWH and the PPP Center
Railway and Airport Sectors 22 DPWH and the PPP Center
Water Sector 35 MWSS and LWUA
Some excerpts of the materials used for the training are shown below.
73
(1) Materials Used for CL Analysis at MWSS (Excerpt)
Process of CL(Risk) analysis Risk Allocation
Risk Identification Identified Risks

Risk Allocation
Clarification of Risk Effects
Public Private
 Risk should be allocated to the party who can manage the risk better.
Risk Allocation Risk Mitigation  Appropriate risk allocation bring highest VFM
Completion of Risk Matrix Methods for risk allocation:

 Refer to risk allocation model / existing concession agreements
 Benchmark of other section’s or country’s experiences
 Internal discussions
Quantification of CL(Risk)  Market sounding / Public hearing
7 11
Risk Mitigation Risk Quantification

Risk mitigation measures
• The measures can be classified as “Transfer”, “Mitigation”, and “Acceptance”
• Analysis is made “from the viewpoint of Contracting Agency” Principle of Risk Quantification
Risk Allocation Analysis

FEEDBACK
Risk Cost = Probability x Impact
Probability = Probability of risk occurrence during project period
Risks GoP should bear Mitigation Measures (Output) Impact = Impact of risk occurrence
INPUT
Example Category Detailed Measure
- Land Acquisition Risk Mitigate Early negotiation
- Long-Term Demand Risk Transfer Risks to Customers Example:
- Policy Change Risk Mitigate Good Communication The probability of delay in ROW acquisition is 10% and the risk
- Political Risk Accept - impact is 50 million Pesos.
- Service Availability Risk Transfer Private Insurance
- Service Quality Risk Mitigate Effective Monitoring 10% x 50 million Pesos = 5 million Pesos = Risk Cost
- Force Majeure Mitigate Counteraction Manual
12 14
(2) Materials Used for Financial Analyses at MWSS (Excerpt)
1. Key Points FIRR Calculation

Bulacan Water Supply Project
General
Treatment capacity 150MLD
Sales quantity 125MLD
 The purpose of financial analysis is to produce results that can be used

Transmission system 71km
Study year 2013 Inflation (%)
Construction period 5 years (2013-17) 2013 4.1%
Operation period 30 years (2017-46) 2014+ 4.0%
to make or confirm decisions about the financing of a given project.

Construction
Annual investment (Real terms at 2013 price, million Ps.)
Item 2013 2014 2015 2016 2017 Total
1. Land/ROW acquisition 260 260
2. Treatment facility (TF)
Engineering & design 89 89 4% of base cost
 The conditions to be met for viability

Construction work 668 890 668 2,225 30%(1st), 40% (2nd), 30% (3rd)
Construction supervision 40 53 40 134 6% of base cost
Sub-total 0 89 708 943 708 2,448
3. Transmission system (TS)
Engineering & design 136 136 4% of base cost
Construction work 1,019 1,358 1,019 3,395 30%(1st), 40% (2nd), 30% (3rd)
For private sector

Construction supervision 61 81 61 204 6% of base cost
Sub-total 0 136 1,080 1,439 1,080 3,735
Total 260 225 1,787 2,383 1,787 6,442
Annual investment (Nominal terms, million Ps.)
Condition 1 : Project IRR  WACC

Item 2013 2014 2015 2016 2017 Total
Land/ROW acquisition 260 0 0 0 0 260
Treatment facility 0 93 765 1,061 828 2,747
Transmission system 0 141 1,168 1,619 1,263 4,191
Total 260 234 1,933 2,680 2,091 7,198
Condition 2 : Equity IRR  cost of equity

Operation and Maintenance (2013 price, million Ps)
Item 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047
Treatment facility 178 178 178 178 178 178 178 178 178 178 178 178 178 178 178 178 178 178 178 178 178 178 178 178 178 178 178 178 178 178
Transmission system 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120
Total 298 298 298 298 298 298 298 298 298 298 298 298 298 298 298 298 298 298 298 298 298 298 298 298 298 298 298 298 298 298
Condition 3 : DSCR  1.0  loan is repayable

Operation and Maintenance (nominal price, million Ps)
Item 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047
Treatment facility 217 225 234 244 253 263 274 285 296 308 321 333 347 361 375 390 406 422 439 456 475 493 513 534 555 577 600 624 649 675
Transmission system 146 152 158 164 171 178 185 192 200 208 216 225 234 243 253 263 273 284 296 308 320 333 346 360 374 389 405 421 438 455
Total 217 225 234 244 253 263 274 285 296 308 321 333 347 361 375 390 406 422 439 456 475 493 513 534 555 577 600 624 649 675
For government Sales revenue

Item
Water sales (1,000 m3)
(2013 price, million Ps)
2018
45,625
2019
45,625
2020
45,625
2021
45,625
2022
45,625
2023
45,625
2024
45,625
2025
45,625
2026
45,625
2027
45,625
2028
45,625
2029
45,625
2030
45,625
2031
45,625
2032
45,625
2033
45,625
2034
45,625
2035
45,625
2036
45,625
2037
45,625
2038
45,625
2039
45,625
2040
45,625
2041
45,625
2042
45,625
2043
45,625
2044
45,625
2045
45,625
2046
45,625
2047
45,625
Sales price (Ps/m3) 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0
Gross revenue from operation 593 593 593 593 593 593 593 593 593 593 593 593 593 593 593 593 593 593 593 593 593 593 593 593 593 593 593 593 593 593
Condition 4 : Government support (VGF, guarantee) to be Sales revenue

Item
Water sales (1,000 m3)
(nominal price, million Ps)
2018
45,625
2019
45,625
2020
45,625
2021
45,625
2022
45,625
2023
45,625
2024
45,625
2025
45,625
2026
45,625
2027
45,625
2028
45,625
2029
45,625
2030
45,625
2031
45,625
2032
45,625
2033
45,625
2034
45,625
2035
45,625
2036
45,625
2037
45,625
2038
45,625
2039
45,625
2040
45,625
2041
45,625
2042
45,625
2043
45,625
2044
45,625
2045
45,625
2046
45,625
2047
45,625
Sales price (Ps/m3) 15.8 15.8 17.1 17.1 18.5 18.5 20.0 20.0 21.6 21.6 23.4 23.4 25.3 25.3 27.4 27.4 29.6 29.6 32.0 32.0 34.7 34.7 37.5 37.5 40.5 40.5 43.9 43.9 47.4 47.4
Gross revenue from operation 722 722 781 781 844 844 913 913 988 988 1,068 1,068 1,155 1,155 1,250 1,250 1,352 1,352 1,462 1,462 1,581 1,581 1,710 1,710 1,850 1,850 2,001 2,001 2,164 2,164
provided if GoP has an incentive (VFM) to do so: Financial Feasibility
Cashflow Million Ps.

Item 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042
PV (tax revenue)  PV (cost of support)

1. Cash outflow
Construction cost 271 234 1,933 2,680 2,091
Operation and maintenance 217 225 234 244 253 263 274 285 296 308 321 333 347 361 375 390 406 422 439 456 475 493 513 534 555
2. Cash inflow
Toll revenue 722 722 781 781 844 844 913 913 988 988 1,068 1,068 1,155 1,155 1,250 1,250 1,352 1,352 1,462 1,462 1,581 1,581 1,710 1,710 1,850
3. Net cashflow ▲ 271 ▲ 234 ▲ 1,933 ▲ 2,680 ▲ 2,091 505 496 546 537 591 581 639 628 691 679 748 735 809 795 875 860 946 930 1,023 1,006 1,107 1,088 1,197 1,176 1,295
FIRR (nominal terms) 8.4%

35
23
Cashflow for Government Work Portion (1/2) Graph 1
Cashflow Projections for Government Work Portion of Bulacan Water Supply Project
Funding during construction (Nominal terms, million Ps)
Item 2013 2014 2015 2016 2017 Total
Uses
Land & ROW acquisition 260 0 0 0 0 260
Construction work 0 0 0 0 0 0 Bulacan Water Supply Project
Interest duing construction (IDC) 0 0 0 0 0 0
ODA loan 0 0 0 0 0 0
Cash-Flows Cascade in the Operating Period for Private Work Portion
Total 260 0 0 0 0 260
Sources 1,600
Budget 260 0 0 0 0 260
ODA loan 0 0 0 0 0 0 1,400
Total 260 0 0 0 0 260
Budget-loan ratio Temporary ratios Revenue share
Budget 100.0% Ratio 1 85.0% Private 100.0%
1,200
Loan 0.0% Ratio 2 GoP 0.0% (VAT, LG tax)
1,000
Million Ps
Profit & Loss account (million Ps)

Item 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
800
1. Revenue for GoP 0 0 0 0 0 0 0 0 0
2. Interest payment 0 0 0 0 0 0 0 0 0
3. Net revenue 0 0 0 0 0 0 0 0 0 600
Cashflow Waterfall (million Ps) 400

Item 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
1. Revenue 0 0 0 0 0 0 0 115 133 200
Tax from revenue (VAT, LG tax) 0 0 0 0 0 0 0 0 0
Income tax 0 0 0 0 0 0 0 115 133 0
2. Capital costs 260 0 0 0 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
3. Subsidy to cover debt service shortfall 0 0 0 0 0 0 0
Operating cashflow before financing ▲ 260 0 0 0 0 0 0 0 0 0 0 0 115 133
4. Loan drawdown 0 0 0 0 0
Years from the first year of construction
5. Budget expenditure 260 0 0 0 0
Cash available for debt service 0 0 0 0 0 0 0 0 0 0 0 0 115 133
6. Debt service 0 0 0 0 0 0 0 0 0 Operating costs Corporate tax paid Other tax Debt service Dividend paid Revenue f rom opration
Cash available for distribution 0 0 0 0 0 0 0 115 133
7. Dividend paid 0 0 0 0 0 0 0 0 115 133
Net cashflow for Project IRR ▲ 260 0 0 0 0 0 0 0 0 0 0 0 115 133
Net cashflow for Equity IRR ▲ 260 0 0 0 0 0 0 0 0 0 0 0 115 133
Debt Service Cover Ratio (DSCR) #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!
20 19
74
The following are some photos taken during the training (All the pictures are taken by the JICA Study
Team).
(1) DPWH
(2) DOTC
(3) MWSS

At the completion of training for each sector, the JICA Study Team conducted a simple questionnaire
survey, asking the participants’ opinions and feedback about the program. The following are the
opinions obtained from the participants.
75
DPWH (Road Sector)

Comments:
1. The topics on PPP capacity development were well-appreciated.
2. Gained enough understanding on BOT law.
3. The topics were good but there was limited time.
4. Financial analysis should be separated from other topics due to wider coverage.
5. The workshop (capacity building) was a big help to the participants to learn ideas.
6. We now have a better understanding on financial analysis. By using the trial and error in the
financial model provided, we are able to determine the relationship of the viability gap fund (VGF)
and the IRR, thus, we can analyze which financial model will meet the requirements of PPP
projects.
7. This type of seminar is recently the most interesting as such has become a more and more popular
project concept thrust by the government.
8. The seminar was very interesting and informative.
9. Thanks a lot to JICA for conducting the capacity development program.
Suggestions:
1. The JICA Study Team should have provided exercises on how to quantify/value CL.
2. Capacity building with regards to quantification of risks is also necessary.
3. Needs further capacity building on the following:
a. Traffic study,
b. Minimum performance standards and specifications (MPSS) and key performance indicators
(KPIs),
c. Toll system including toll plaza, and
d. Concession agreement.
4. Thorough discussion on the following:
a. Limitation of VGF to be provided,
b. Financial evaluation from scratch using sample infrastructure projects (no values yet indicated
in the excel worksheet),
c. Recommendations from consultants on how to avoid CL,
d. Risk management,
e. STRADA, and
f. Traffic simulation.
5. At least one week before the seminar, it may be better to furnish participants the handouts/topics for
discussion, or a brief summary of topics to be tackled.
6. Furnish in advance (at least one week before) to participants a glossary/definition of
terms/acronyms for easier comprehension.
7. Since it takes time to create/understand scenario of the financial model, maybe a longer time is
needed for understanding.
8. Topics dealing with different subject/s such as financial, technical, etc., should be conducted
separately for different participants per subject.
9. Regarding risk management, maybe a systematic approach on how to lessen a stakeholder’s risk
could be provided by showing some values or quantitative analysis.
10. More demonstrative/illustrative examples must be considered for every details being discussed.
11. Financial terminologies should be adequately explained in layman’s terms.
12. Ample time should be given for exercises.
13. If we could have instructional guidelines on computations in financial analysis.
14. Further financial model application through more seminars.
15. Prepare and provide the participants instruction manuals on how to use the model.
16. Even it took time to learn how to run the financial model, the model was created but clueless where
the figures came from.
17. A more detailed and probably longer session for the financial analysis is needed.
18. Discussion on standard provisions for PPP contracts.
19. Capacity development on contract negotiation management.
76
DOTC (Railway and Road Sectors)

Comments:
1. The training was very interesting and educational.
2. The staffs were very friendly and accommodating.
3. The resource persons were good and have demonstrated their knowledge in the subject.
Suggestions:
1. Two days is very short to make a significant impact on the improvement of PPP capabilities
of the agencies.
2. The JICA program seemed to focus on financial modeling, which is not bad, but [I expect to
have trainings on] risk sharing, transaction structuring, and skills in contract drafting and
negotiations.
3. I am looking forward that more training and seminars will be conducted, especially in the
field of rail operations and project management.
MWSS/LWUA (Water Sector)

Comments:
1. The topics presented were very useful for the proposed PPP projects of MWSS.
2. The training gave additional insights on PPP which helped us appreciate it better.
3. As a Bids and Awards Committee (BAC) member of a PPP project, I want to learn more on
this topic especially.
4. The seminar was brilliant and very helpful.
5. Presentations were very clear.
6. It was quite interesting.
Suggestions:
1. Topics to Cover:
a. There should be further discussions/leaning sessions on CL analysis. I would like to learn
more about CL.
b. There should be a seminar on risk allocation.
c. International experiences and/or standards regarding CL should be discussed.
d. Discussion on VFM and risk allocation should be included.
e. Should cover monitoring, such as compliance with KPIs.
2. On the Financial Model Exercise
a. The “goal seek” function in excel should be used to determine equity internal rate of
return (EIRR) (like in the case study) instead of “find and error”.
b. I would like to know the specific locations of projects where the financial models were
applied.
c. Limitations of the financial models should be discussed.
d. Wish there were more clarifications and clear explanations especially on the financial
analysis topic.
3. Duration
a. Duration of the seminar was not enough.
b. The seminar covered a lot of topics but the time was limited.
77
6.3.2 Lessons and Feedback from the PPP Capacity Development Program
This PPP capacity development training was taken as a trial demonstration, from which lessons are
learned and the feedback applied for more effective capacity development of IAs.
The trial training prepared based on the needs assessment survey was successful to some extent in
terms of i) enhancement of knowledge and expertise and ii) active communication between trainees
coming from the different sections. The more positive outcome expected from the capacity
development training would be the direct benefits on the current task of staff members engaged in PPP
project preparation in terms of the following: i) improvement of PPP processing tasks, ii)
establishment of risks mitigation method, and iii) communications network with the PPP Center.
Based on the trial PPP capacity development program, the JICA Study Team realized the following
areas which need to be improved with high priority at present for better planning and implementation
of PPP projects.
(1) PPP Projects Preparation Knowledge and Skills
a. Business Case Study (PPP Modality Selection)
The significance of the selection of the best PPP modality was acknowledged by all trainees, but a
business case study (BCS) for modality selection has not been institutionalized in the process of PPP
project preparation in IAs except DPWH. Accordingly, the target of the training should include staff
members at the management level (directors) in order to institutionalize a BCS in the process of PPP
project preparation. A BCS may lead to a PPP feasibility study (FS) financed by the PDMF under the
management of the PPP Center. In this respect, training should include staff members of the PPP
Center to discuss linkage with PDMF.
b. Financial Simulation
Many comments from the trainees are concentrated on financial analysis and the model applied in the
case studies presented in the training course. The reason for it is supposed to be the peculiarity of
financial analysis of PPP projects, which is VFM, equity IRR, quantification of risks anticipated, and
amount of subsidy. Moreover, financial analysis of PPP projects is different by sector or project
because of the different modality selected and sectors’ characteristics.
A short-day training on financial simulation of PPP projects is not enough for trainees to understand
the basic of PPP financial analysis. An appropriate guidebook used mainly for training of staff
members of IAs even those of the PPP Center will be necessary for trainees to understand the financial
analysis of PPP projects.
(2) Risk Management Knowledge and Skills

Effective training on risk management would be possible only if trainees are involved in active
discussion on how to reduce or mitigate risks (including CL) anticipated. The group discussion was
conducted about problems/risks at the stages of ROW acquisition, detailed design, construction and
O&M in the training course of the PMO-BOT of DPWH. Such discussion results would be useful in
the compilation of a manual on risk management.
(3) Contract Development and Management Skills and Knowledge

A PPP agreement is the key document which is agreed upon by the government agency and private
proponent regarding major clauses such as duties and obligations owed by contractors. The contracting
agency (IA) is particularly sensitive to direct and contingent liabilities owed by IA, but there are few
78
standard models of contract so far. Under such circumstance, the preparation of a model contract was
part of the scope of works of the FS of a PPP toll road project (DPWH).
The request for training of staff in IAs regarding specific issues (i.e., penalty, compensation for CL,
and termination payment) stipulated in the contract was actually made by DOTC and DPWH in the
course of the Study; however, all of IAs’ requests were not met due to the short duration of training
and the limited number of trainers (the JICA Study Team). Legal advisors working at each IA could be
appropriate target for training of trainers (TOT) to give instructions on making improvements in model
contracts so that donor financed PPP FSs would emphasize the subject of a model contract for which
foreign consultants cooperate with local legal advisors.
6.4 Ideas for Further PPP Capacity Development

Based on the results of the capacity and needs assessments and trial capacity development training, the
JICA Study Team verified that there is strong necessity for PPP capacity development of IAs,
particularly, DPWH, DOTC, and MWSS. The following are descriptions of the proposed capacity
development programs to be organized in the near future.
(1) Target Agency

According to the results of the Study, it was found out that DPWH, DOTC, and MWSS have high
interests and needs for PPP capacity development. Therefore, these three agencies as well as other
related agencies can be candidate target agencies for PPP capacity development. The JICA Study Team
recognizes that ADB has been providing PPP TA, which is mainly aimed at oversight agencies such as
the PPP Center and DOF. It is important to avoid overlapping with ADB’s TA but rather try to create a
synergy through good coordination and consultation with ADB, as well as other related entities.
(2) Training Component

The JICA Study Team considers that the following ten items, as used in the capacity and needs
assessments, correspond to basic knowledge and skills on PPP:
 General Principles of PPP

 PPP Project Selection/Identification
 Business Case Study
 Financial Analysis
 Risk Analysis
 Project Scheme Analysis
 Bid Document Preparation
 Proposal Evaluation
 Project Monitoring (Construction)
 Project Monitoring (Operation)
The program shall be organized specifically for each agency, choosing the prioritized theme from
among the abovementioned items.
(3) Training Methods

There are several methods of training, such as the following:
 Basic Training (e.g., provision of lectures to gain/improve knowledge and basic skills on PPP)
 On-the-Job Training (OJT) (e.g., support studies and preparation of transaction documents)
79
 Overseas Training (e.g., visit Japan and/or other countries to learn their experiences and lessons)
 Technical Training (e.g., conduct detailed financial analysis, VFM analysis, and quantitative risk
analysis using specific software)
 Support for Guideline/Manual Development (e.g. provide advice and comments on drafts)
It is worth noting that OJT is the most effective and efficient way to acquire necessary knowledge and
skills. Therefore, the JICA Study Team strongly recommends to include this in the program. Also,
none of IAs has developed its own operations manual for PPP projects. It would greatly help if the
training can support the development of such guidelines or manuals.
(4) Training Terms

It is considered that it requires approximately two years for trainers to truly acquire necessary
knowledge and skills, and apply them into practice.
An outline of the PPP capacity development training is given in Figure 7.4-1.
Target Agency Selected key IAs (e.g., DOTC, DPWH, MWSS, etc.)
Period Two years
Target Staff (Main) Head and staff of PPP Section and Planning Section
Target Capacity Project formation, F/S and transaction preparation
Main Component Necessity TA Contents
Support for Currently, no PPP specific - Sector Guideline

Development of PPP guidelines and manual for IAs - Operation Manual as
Guideline/Manual a “PPP Bible”
Basic Training Currently, no comprehensive and - Lectures on PPP
tailor-made training for IAs - Sector specific workshops
and discussions
On-the-Job Training Most effective training for - Planning of actual project
capacity development - Preparation of prequalification
(PQ) documents
Training in Japan and/or Learn the experiences of Japan - Training in Japan
Third World Country and/or other countries regarding - Training in third world
PPP countries
Tools and Software Strong needs for analysis software - Risk analysis software
Provision and Exercise and tools - Excel model for
financial analysis
Figure 6.4-1 Outline of PPP Capacity Development Training Program
80
Annex
Annex
Annex 1. Complementary Discussion on IA’s Credit Worthiness

The literature is replete with analysis on why the Philippines has lagged behind its peers in
development. A key factor has been the low level of infrastructure development, with government
under spending (2 to 3 percent of GDP, versus over 5% by its peers) explaining much of it. In 2011,
government infrastructure spending as percent of GDP is 2.6%, going down slightly to 2.4 in 201229.
Figure A.1-1 Infrastructure Spending of ASEAN-5, % GDP, 1980-2009 (annual average)
In an official press release, the government expressed optimism that the recently earned
investment-grade status by the country will drive infrastructure spending to 5% of GDP by 2016 30. To
achieve this objective, government infrastructure spending in that year may have to reach about 720
billion pesos31. The government’s proposed infrastructure spending in 2013 is 404.6 billion pesos32 (or
roughly USD9.6 billion) which could translate to 3.54% of GDP33.
Constraints in government’s fiscal situation explain the current government’s thrust to leverage off its
resources by promoting private sector investment in infrastructure through PPP. However, these
same diagnostic studies on Philippine underperformance have likewise identified underinvestment by
the private sector (in infrastructure, as well as other industries) to be linked to the low confidence in
government’s ability to provide an enabling legal, political and regulatory environment.
29
Arangkada Philippines, 05 March 2013, Government eyes increase in infrastructure spending to 5% of GDP,
http://www.investphilippines.info/arangkada/govt-eyes-increase-in-infrastructure-spending-to-5-of-gdp/. The
report states that government’s infrastructure spending in 2011 is 250 billion pesos; 2012, 249 billion pesos. The
National Statistical Coordinating Board estimates that the nominal GDP in 2011 is 9,736 billion pesos; in 2012, 10,568
billion pesos, an 8.6% growth vis-à-vis its 2011 level.
30
The Official Gazette, 31 March 2013, DBM: Fitch upgrade to drive infra spending to 5% of GDP,
http://www.gov.ph/2013/03/31/dbm-fitch-upgrade-to-drive-infra-spending-to-5-of-gdp/
31
The base year is 2012. Nominal GDP in 2012 is 10, 568 billion pesos. Assuming 8% annual growth rate, 2016 nominal
GDP will be around 14, 378 billion pesos. Infrastructure spending by has to reach 720 billion pesos if the 5% ratio is to
be achieved.
32
Reuters, 09 July 2012, UPDATE 1-Philippines plans record infrastructure budget for 2013
http://www.reuters.com/article/2012/07/09/philippines-budget-infrastructure-idUSL3E8I919H20120709
33
Same assumptions as in footnote 3.
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Capital Formation/GDP Control of Corruption Gov't Effectiveness

Political Stability Regulatory Quality Rule of Law
Voice & Accountability
70 30
60 25
50
Percentile Rank
20
Ratio (%)
40
15
30
10
20
10 5
0 0
1996 1998 2000 2002 2004 2006 2008 2010 2011
Source: World Bank and NSCB
Figure A.1-2 Governance Indicators and Investments, 1996-2011
These impediments to investment have been well identified and studied, see for example, Arangkada
Philippines (http://www.investphilippines.info/arangkada/home.php). Printed below are the 17
surveys Arangkada tracks that covered a wide range of subjects on investment environment including
governance, investment climate, political stability, legal and regulatory environment, etc., which
shows the Philippines did poorly in almost all of them (scoring last or second to the last among
ASEAN 6 in most cases)34.
Table A.1-1 Surveys Arangkada tracks
Source: Adopted from Arangkada Philippines [2010]
Improvements in governance, however, are evident with the assumption of the new administration.
34
http://www.investphilippines.info/arangkada/growth/living-in-the-high-growth-neighborhood/
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Corruption Perception Index (CPI) of Transparency International35, for example, shows this. In 2012,
out of a population of 176 countries and territories, the Philippines ranked 105th, a stride from 129th of
2011.
Table A.1-2 Corruption Perception Index for the Philippines

2008 2009 2010 2011 2012*
Corruption Perception Index (CPI) 2.3 2.4 2.4 2.6 34
Rank 141 139 134 129 105
Number of Countries & Territories 180 180 178 183 176
Source: Transparency International
Note: Until 2011, CPI scale is from 0 (perceived to be highly corrupt) to 10 (perceived to have low levels
of corruption)
*In 2012, scale is from 0 (highly corrupt) to 100 (very clean)
The marked improvement in governance aspect is also felt by the business sector. In a 2008 survey by
the World Economic Forum (WEF) 36 about the most problematic factors for doing business 37 ,
corruption and inefficient government bureaucracy are the two factors that received the most response.
While they still are the two main factors come 2012, their corresponding percentage of responses
significantly decreased.
2008 2012
25
20
Percent of Responses
15
10
Source: World Economic Forum
Figure A.1-3 The Most Problematic Factors for Doing Business in the Philippines
With the improvements in governance indicators, the business sector now considers inadequate supply
35
www.transparecy.org
36
www.weforum.org
37
The WEF conducts the survey in the following manner: From a list of 15 factors, respondents were
asked to select the five most problematic for doing business in their country and to rank them between
1 (most problematic) and 5. The bars in the figure show the responses weighted according to their
rankings.
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of infrastructure as the new serious issue to be dealt with. Indeed, in 2012, while the percentage of
responses of corruption and inefficient government bureaucracy declined, that of inadequate supply of
infrastructure significantly increased. Despite the improvements, the Philippines still ranks poorly
compared to its ASEAN peers.
Investors and creditors to PPP projects are particularly vulnerable to such risks as infrastructure
investments are huge, generally immobile/captured, and are financially exposed for as long as 20 years
or even longer.
Annex 2 of this report describes legal cases whereby court action has had adverse impact on the
private investor and investment climate for PPP.
 Agan vs. PIATCO (2003) —The Supreme Court ruled that the $ 350 million contract with a
consortium involving German investment for the development of the NAIA International
Passenger Terminal III is null and void. The Court invalidated the contract on the grounds of lack
of required financial capability of the consortium and the existence of subsequent significant and
material substantial amendments thereto that are contrary to public policy and that were not made
in accordance with legally prescribed procedure.
 Francisco vs. Toll Regulatory Board (2010) - The Supreme Court invalidated the provision in the
Supplemental Toll Operation Agreement for the extension of the North Luzon Expressway in
which the Toll Regulatory Board agreed to pay monthly the difference in the toll fees actually
collected by the concessionaire, MNTC, and that which it could have realized under said
agreement. The Court ruled that said provision violates the very constitutionally guaranteed
power of the Legislature, to exclusively appropriate money for public purpose from the General
Funds of the Government.
 NPC vs. Province of Quezon (2009) - Notwithstanding the provision in the Energy Concession
Agreement between the NPC and Mirant Pagbilao stating that the real property taxes due on the
improvements on the power plant site shall be the responsibility of NPC, the Supreme Court
upheld the Province of Quezon real property tax assessment against Mirant Pagbilao. The Court
reasoned that statutory liability of Mirant Pagbilao as legal owner of the improvements during the
concession period (as opposed to the mere expectancy of NPC to obtain ownership after the
concession period) is not negated by said contractual provision, which at best could only operate
to allow Mirant Pagbilao to demand reimbursement for said taxes from NPC.
The Arangkada document also cites other cases, as described below38
 Meralco— In 2003, Supreme Court disallowed a 20 year old accounting practice, ordered
retroactive refunds that impair credit worthiness of the country’s largest distribution utility,
discouraged foreign bank lending to power projects;
 Pandacan Terminal Spot Zoning—Supreme Court sustained an LGU decision rezoning an oil
storage area from industrial to commercial and forcing its relocation in 2008.
(See Table 69 ‘Supreme Court decisions with negative impact on business”39 and also Table 77,
“Instances where LGU actions harmed investment climate”40 in Arangkada document).
Ideally, if all costs and risks in a PPP project can be properly priced, and if government is not
constrained either fiscally or by institutional dysfunctions in the legislative budgetary processes,
Government need only provide an upfront cash subsidy to close any viability gaps resulting from
decisions to impose tariffs below cost-recovery rates. However, in a developing country like the
Philippines, where the political, legal and regulatory environment may be a source of uncertainty,
38
http://www.investphilippines.info/arangkada/a-dysfunctional-court-system-conclusion/
39
http://www.investphilippines.info/arangkada/climate/judicial/#table69
40
http://www.investphilippines.info/arangkada/climate/local-government/#table77
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private investors typically demand stronger assurances by way of government guarantees to enter into
risky, long-term PPP contracts.
More specifically in the Philippines, there is a problem of the Government not being able to make
good on its obligations under various types of PPP contracts even when Government is in clear breach
of a payment obligation and recognizes such without dispute or even when there may already be an
enforceable court or third party judgment in favor of the private contracting party from bodies which
the Government has agreed to be governed by within the terms of the PPP contract (e.g., arbitration in
Singapore-based International Chamber of Commerce (ICC) under the MWSS concession
agreement).
In many situations, the Government is not legally able to make good on a payment obligation in the
absence of enabling budget appropriation for it.
Basically, there are two categories of the problem. The first involves certain payments that
Government needs to make but which requires multi-year budget authority under a Philippine
budgetary system that only provides for annual authority, thus exposing the private proponent to
non-payment due to lack of Congress appropriation for the payment.
Examples of PPP contracts with these types of budget appropriation risk include the take-or-pay
contracts of the National Power Corporation, capacity fee payments for MRT Line 3 and more recently,
the amortization/lease payments for the Department of Education's PSIF. In some of these cases,
government is the only source of revenue for the private sector thus making this its key project risk.
The second involves true contingent liabilities involving government guarantee of various risks that
the private proponent will need to be covered against for the PPP project to be bankable.
The most common examples of government failure to deliver on its commitments include failure to
deliver right of way, failure to adjust tariffs by formula, changes in law that may affect project finances
and an assortment of construction related disputes. While the contract may provide for formula-based
compensatory mechanisms in case of breaches (e.g., rate adjustment), in most cases, there is
uncertainty on trigger mechanisms and actual computation government payment giving rise to
further delays in arriving at what is "fair" compensation.
Based on past experience, under more friendly cases government breaches have commonly been
remedied by an extension of the contract period or extraordinary adjustments in tariffs to compensate
for income losses, but under major dispute cases have also ended in the private proponent demanding
termination payment
In the past, government has generally structured its PPP contracts by having a GOCC, like the
National Power Corporation (NPC) for IPP contracts; PNCC, Philippine National Construction
Corporation (PNCC), Bases Conversion and Development Authority (BCDA) and Public Estates
Authority (PEA) (now the Philippine Reclamation Authority), for toll road contracts; Metropolitan
Waterworks and Sewerage System (MWSS), for water concession, National Irrigation Administration
for a water cum power project; etc., which can legally be guaranteed by the national government as the
implementing agency. Where there is default by these corporations, the national government can
immediately make good on the default as such is converged by automatic appropriation since Section
26, Chapter 4, Book VI of the Administrative Code of 1987, includes national government guarantees
of obligations that are drawn upon in the items that are covered by automatic appropriation. Indeed
DOF has a fair record of making good on its guarantee commitments. This is more clear-cut for loan
agreements than for PPP contracts where there are usually more areas for contention.
This is an important reason why this structure was adopted where feasible in the past even when a
national agency could have likewise been the designated agency (e.g. PNCC, PEA and BCDA instead
of DPWH), and why this has provided sufficient comfort for the bankability of these projects to
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investors and creditors alike. Where this structure was not or could not have been adopted,
i.e. where the implementing agency is a national agency and not a corporation, the issue has arisen of
how to make good on payment obligations when budget appropriation may not be secured with
certainty and in a timely manner. In the case of the MRT Line 3 contract, there has been actual
failure to make direct liabilities to investors in accordance with the contract a number of times.
The following factors are relevant to consider in providing clarity and certainty in assurance of
government's ability to discharge its contract commitments:
 Importance of generating more projects and investor interest to address the large infrastructure
backlog in the past as mentioned earlier, especially as limited fiscal resources become more of a
constraint with government’s enhanced institutional capability to develop PPP projects.
 The need for more competition, as this impacts on cost to the government/public, and the
quality of execution.
 Need to develop "bankability" of projects to broaden and deepen pool of financing for projects,
especially of the non-recourse, non-balance sheet type, from both domestic and international
financial markets, and thus lower cost of project financing and project costs.
High risks relating to government's inability to discharge contract obligations may of course be
compensated by other project features—e.g., healthy existing revenue stream not too dependent on
government action, as characterized by many of the “brownfield projects” in the pipeline, and
varying risks appetites of bidder. Moreover, consideration needs to be given to unintended advantage
given to players who may have unduly high risk appetites or can maneuver through
regulatory/budgetary/legal opaqueness better (adverse selection).
As government’s pipeline of projects becomes fuller, with more greenfield projects being developed,
and as fiscal space becomes more constrained, there would be greater need to provide a high level of
certainty and clarity in its ability to fulfill its obligations. Consideration may need to be given to
mechanisms for doing so, including having a dedicated specialized institution for such.
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Annex 2. Possible Options for Establishing a Guarantee Fund

Two options are being studied and considered for the establishment of the envisioned guarantee
facility:
 A guarantee facility as a GOCC, whether the same shall be newly created or one that is already
existing, with some modifications in its charter, if necessary; or
 A guarantee facility as a special trust fund directly administered by DOF.
As a corporate entity or GOCC, the guarantee facility may be patterned after the IIGF, which, as
explained in the World Bank project document (Indonesia Infrastructure Guarantee Fund, August 21,
2012), addressed concerns of private investors in the following ways:
“a) Facilitate PPP deal flow by providing GOI guarantees to mitigate risk to private sector
stemming from government actions (or inactions) in well prepared PPP projects;
b) Improve the quality of PPPs by establishing a single window for appraising all PPP’s
requiring GOI guarantees and providing guidance to contracting agencies on how to prepare
bankable PPPs.
c) Provide clear and consistent rules for how CAs can take advantage of guarantees
vis-ầ-vis the IIGF for well prepared PPPs;
d) Ring-fence GOI liability vis-ầ-vis guarantees to PPPs.”
However, while the basic concept and functions of the guarantee facility may be patterned after the
IIGF, establishing the guarantee facility on the same scale as the IIGF might not be necessary at the
outset considering that there are other government agencies which already play key roles in enabling
PPP in the Philippines (i.e., The PPP Center, Project Development and Monitoring Facility).
To be effective, the guarantee facility will have to be adequately funded. Funding for a GOCC may
come in the form of equity directly from Government or another GOCC (in the case of a subsidiary).
Support may also come in the form of debt from multilateral agencies. In this regard, it would be
important that the guarantee facility is, by its charter, empowered to borrow and issue debt instruments,
and is able to obtain a guarantee from DOF or possibly another GOCC with guarantee functions such
as the Philippine Export-Import Credit Agency (“PHILEXIM”).
The guarantee facility, as a GOCC, may be effective as it will be able to more readily make guarantee
payments without the severe restrictions of annual budgetary appropriation. A GOCC’s board of
directors is charged with the management of its resources and may so disburse its funds as it may see
fit. It may be noted that the same result may possibly be achieved by establishing the guarantee facility
as a DOF-administered trust fund similar to the Municipal Development Fund. The mechanisms and
characteristics of a guarantee facility as a GOCC may well be mimicked by a specially-constituted
office within DOF. The essential difference between the two approaches, however, is that setting up
the trust fund (to be administered by DOF or some other office) has to be legislated while establishing
a GOCC need not.
What follows is a more detailed explanation of the benefits as well as the steps that may be undertaken
to establish the guarantee facility through either of the above-mentioned two options.
(1) The guarantee facility as a GOCC

A GOCC is legally defined as “an agency organized as a stock or non-stock corporation, vested with
functions relating to public needs whether governmental or proprietary in nature, and owned by the
Government of the Republic of the Philippines directly or through its instrumentalities either wholly or,
where applicable as in the case of stock corporations, to the extent of at least a majority of its
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outstanding capital stock.”41
A GOCC, much like any corporation, has a juridical personality separate and distinct from its
shareholders, including the Government.42 Moreover, a GOCC has all the powers of a corporation as
enumerated in its enabling statute, whether the same is a special law or the Corporation Code of the
Philippines. As incident to a GOCC’s having a juridical personality of its own, it has the express
power to hold and possess assets and properties of its own43 and to transact business outside direct
interference of its shareholders. As such, a GOCC enjoys greater independence and flexibility in its
operations than government agencies, because, unless otherwise specifically provided in law, only the
approval of its Board of Directors is required in order for it to enter into ordinary business
transactions.
As opposed to the foregoing, certain stringent legal requirements have to be met with respect to
government agencies. For instance, the funds of a government agency form part of the pool of funds of
the National Government, no part of which may be disbursed out of the National Treasury without a
corresponding appropriation made by law.44 Thus, if the guarantee facility shall be established under
the administration of a government agency like DOF, amounts to be disbursed out of the same, or at
least amounts which may be necessary to replenish the same, may have to be (as a general rule)
included in the annual General Appropriations Act.
Establishing the guarantee facility in a GOCC may help avoid the restrictions resulting from the
budgetary process and afford it some flexibility enjoyed by private enterprises so that it may meet its
payment obligations as and when they become due.
a. Newly Created GOCC
The guarantee facility may be established through the enactment by the Congress of a law specifically
creating a GOCC which will handle its envisioned functions, and appropriating public funds (which
may be sourced from official development assistance loans) for that purpose. However, establishing a
GOCC through legislation will be long and tedious as the measure will have to go through the
mandatory processes of both Houses of Congress.45 The legislative procedure will be arduous, and the
41
Section 3(o) of RA No. 10149, or the GOCC Governance Act of 2011.
42
National Electrification Administration vs. Morales, 528 SCRA 79 (2007).
43
See National Development Company vs. City of Cebu, 215 SCRA 382 (1992).
44
Section 29 (2), Article VI of the 1987 Constitution.
45
The passage of a law in the Philippines goes through Congress, which is composed of two Houses – the Senate and the
House of Representatives. First, any Senator or a Member of the House of Representatives must agree to sponsor a bill
proposing a law. Said sponsored bill shall then undergo three readings in the originating House (i.e. Senate or House of
Representatives). After the first reading of the bill, it shall then be referred to the appropriate committee/s for deliberation and
conduct of public hearings, if necessary (i.e. the Senate Committee on Government Corporations & Public Enterprises, the
House of Representatives Committee on Government Enterprises and Privatization). Based on the result of the public
hearings or Committee discussions, the Committee may introduce amendments to the proposed bill, consolidate it with others
on the same subject matter, or propose a substitute bill. The Committee shall then prepare a Committee Report for the
Plenary. During the second reading at Plenary, there shall occur the period of sponsorship and debate, the period of
amendments, and actual voting. All amendments, if any, are consolidated in the bill which shall undergo third reading, during
which no more amendments shall be allowed. If the bill is approved by majority vote of the Members present, it shall be
transmitted to the other House, in which the same legislative process shall be followed. If the bill is not approved, the bill is
transmitted to the Archives.
If there are certain differences to the versions of the bill approved by either House, a Bicameral Conference Committee is
constituted and is composed of Members from both Houses of Congress to settle, reconcile or thresh out differences or
disagreements on any provision of the bill. The Conference Committee may also introduce new provisions germane to the
subject matter or come up with an entirely new bill on the subject. The Conference Committee Report is then submitted for
consideration and approval of both Houses.
Copies of the bill, signed by the Senate President and the Speaker of the House of Representatives and certified by both the
Secretary of the Senate and the Secretary General of the House, are transmitted to the President. The President shall have
thirty (30) days from date of receipt thereof within which to approve or veto the bill. If the bill is approved or is not vetoed
within said thirty (30) days, the bill is assigned a Republic Act number and transmitted back to the originating House.
If the bill is vetoed, the bill is transmitted to the originating House with a message citing the reason for the veto. The
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result uncertain.
A new GOCC may instead be created by going through an administrative, rather than legislative
process, by registering the same with the Securities and Exchange Commission (“SEC”). In said case,
the government agency seeking to establish a GOCC must, prior to SEC registration, submit its
proposal to the Governance Commission for GOCCs (“GCG”), recently created under Republic Act
(“RA”) No. 10149, or the GOCC Governance Act of 2011. The GCG is tasked to review such proposal
and thereafter determine whether to recommend the same for the President’s approval.46 Prior to
making its recommendation, the GCG shall require the submission of various documents47, evaluate
the same and thereafter conduct formal consultation with the proposing agency as well as other
stakeholders affected, if any. In evaluating such a proposal, the GCG seeks to establish that the
establishment of the new GOCC is necessary and is germane to the current policy of government,
among others. The SEC shall not register the articles of incorporation (“AOI”) and by-laws of the
proposed GOCC unless the application for registration is accompanied by an endorsement from the
GCG stating that the President has approved the same.48
The SEC shall likewise require various documents49 and conduct its own evaluation procedure.
Assuming an applicant passes the process, the incorporation of the GOCC through SEC registration
shall be effective, and the corporate existence and juridical personality of said GOCC shall commence,
upon the issuance by the SEC of a Certificate of Incorporation under its official seal.50
Based on an inquiry with the Insurance Commission (“IC”), an endorsement from the IC is also
required in order to register a corporation whose primary functions include guaranteeing the
obligations of another entity. We have been informed that, based on practice, the IC requires a
secondary license to be obtained before a corporation may engage in the business of guaranteeing
obligations.51
b. “Evolving” an Existing GOCC
As an alternative to the creation of a new GOCC, a number of current and existing GOCCs are
available to be utilized as a corporate vehicle for the guarantee facility. An existing GOCC may be
used by organizing a facility or specialized office under the said GOCC, or by having a GOCC, so
Congress may override the veto if, upon separate reconsideration of both Houses, the bill is passed by a vote of two-thirds
of the Members of each House. In such case, the bill shall then become a law.
46
Section 27 of RA No. 10149, or the GOCC Governance Act of 2011.
47
Attached as “Appendix (Documents Required by GGC)” is a list of documents ordinarily required by the GCG in its
evaluation of the proposed creation of the GOCC.
48
Sections 5 and 27 of RA No. 10149, or the GOCC Governance Act of 2011.
49
Name Verification Slip (may be secured online or from SEC Name Verification Unit ); AOI and By-laws; Treasurer’s
Affidavit; and Joint affidavit of two incorporators undertaking to change corporate name, as provided in its AOI or as
amended thereafter, immediately upon receipt of notice or directive from the SEC that another corporation, partnership,
or person has acquired a prior right to the use of that name or that name has been declared misleading, deceptive,
confusingly similar to a registered name, or contrary to public morals, good customs or public policy. The Joint Affidavit
shall not be required if the AOI has a provision on this commitment.
50
Section 19 of Batas Pambansa Blg. 68, as amended, or the Corporation Code of the Philippines.
51
It must be noted that while a contract of suretyship is expressly deemed to be an insurance contract, and is expressly
covered by Presidential Decree No. 612, as amended, or the “Insurance Code”, no other mention of a guaranty agreement
is made under the Insurance Code. Instead, the provisions of the Civil Code govern ordinary contracts of guaranty.
In this connection, while suretyship agreements and ordinary guaranty agreements are similar in that both agreements involve
a party (called the guarantor or surety) guaranteeing the performance by another party (called the principal or obligor of
an obligation or undertaking) in favor of a third party (called the oblige), the guarantor in an ordinary guaranty agreement
binds himself to fulfill the obligor’s obligation only in case the latter should fail to do so, the surety in a suretyship
agreement binds himself to be jointly and severally liable with the obligor and as such may be held primarily liable by the
creditor. [Article 2047 of the Civil Code and Section 2 of the Insurance Code] Thus, the benefit of excursion generally
enjoyed by guarantors of ordinary guaranty agreements, which protects said guarantors from being compelled to pay the
creditor unless the latter has exhausted all the property of the debtor, and has resorted to all the legal remedies against the
debtor,51 is not applicable in suretyship agreements.
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authorized under its charter, to create a subsidiary – another GOCC that shall be separate and distinct.
As mentioned earlier, all GOCCs are monitored by the GCG. The GCG has the power to assess the
performance of a GOCC as well as the GOCC’s relevance to the Philippines and recommend the
reorganization, even abolishment, of GOCCs.52
For purposes of this report, several GOCCs that already have an existing power to guarantee
obligations of another entity have been identified as possible candidates for conversion as the
guarantee facility, namely: (1) National Development Company (“NDC”); (2) Philippine
Export-Import Credit Agency (“PHILEXIM”); and (3) Government Service Insurance System
(“GSIS”).
c. National Development Company
Presidential Decree (“PD”) No. 1648, which was later amended by PD Nos. 1787, 1846 and 1891 (the
“NDC Charter”), provides that the NDC has a broad power to, among others, extend guarantees to
commercial, industrial, mining, agricultural, and other enterprises, which may be necessary or
contributory to the economic development of the country, or important to public interest.53 In addition,
the NDC has the power to make contracts and enter into such arrangements as it may consider
convenient and advantageous to its interests. Clearly, not only is NDC empowered by its Charter to
issue guarantees, it is also allowed to enter into contractual arrangements, such as the envisioned
Recourse Agreement, akin to the contemplated guarantee facility.
However, some concerns regarding the finances and track record of the NDC have been aired in some
conferences we conducted with several public officials. Concerns on finances, including capital
inadequacy were identified. In this connection, the possibility of reorganizing the capital structure of
NDC has been suggested. Of course, NDC or its subsidiary may be capitalized with cash. It may also
be capitalized with other properties. However, if real property is considered to be infused as capital of
NDC’s subsidiary, the SEC will also have to conduct an evaluation of the valuation of said assets to be
infused to ensure that no watered stocks are issued.54
Based on an inquiry with the GCG, we have been informed that while the GCG is expressly given the
power to reorganize GOCCs under the GOCC Governance Act of 2011, 55 said power of
reorganization relates only to the objectives and purposes of GOCCs and does not include capital
52
Based on an inquiry with the GCG, it is the position of the GCG that the amendment of the mandate of any GOCC,
whether the same be a chartered GOCC or a SEC-registered GOCC, may be done through the GCG, subject to the
approval of the President, as formalized through the issuance of an Executive Order. Following this theory, the charter of
any existing GOCC may be amended through the submission of a proposal to the GCG, subject to the favorable
recommendation of the GCG and the issuance by the President of an Executive Order approving the amendment of the
primary purpose/s of the GOCC.
53
Section 4, NDC Charter.
54
For this purpose, the following documents must also be submitted to the SEC:
(1)Description of the property showing the name of its registered owner, location, area, Transfer Certificate of Title (“TCT”)
No., tax declaration number and the basis of the transfer value (market value/assessed value/ zonal value or appraised
value), signed by the treasurer of the corporation;
(2)Copy of TCT and tax declaration sheet, as certified by the Register of Deeds and the Assessor’s Office, respectively;
(3)If transfer value is based on zonal value, latest zonal valuation certified by the BIR;
(4)If transfer value is based on appraised value, appraisal report by a licensed real estate appraiser (not more than six [6]
months old);
(5)Deed of assignment with primary entry by the Register of Deeds;
(6)If property is mortgaged, mortgagee/creditor’s certification on the outstanding loan balance and his consent to the transfer
of property;
(7)For assignment of a building where the assignor is not the owner of the land, lease contract on the land and consent of the
land owner to the transfer;
(8)Affidavit of the transferor that the building/condominium unit is existing and in good condition; and
(9)Affidavit of undertaking by any incorporator or director to submit the proof of transfer of the property within the
prescribed period.
55
Section 5 of RA No. 10149, or the GOCC Governance Act of 2011.
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reorganization. The GCG is of the position that anything that has to do with the finances of a GOCC
and any item in its balance sheet is within the jurisdiction of DOF.
Aside from capitalizing the NDC through equity, the NDC can also seek financing through its express
power to contract loans. Another important characteristic of the NDC, apart from its power to
guarantee and to enter into contracts, is the guarantee which it, in turn, receives from the National
Government for indebtedness it incurs. It may incur debts from financial institutions, including
multilaterals on the strength of a sovereign guarantee which is deemed automatically issued under the
NDC Charter.56
The NDC also has the power to organize subsidiary companies to undertake the same powers and
engage in the same activities as the NDC.57 Moreover, the NDC has the power to guarantee the loans
and other evidence of indebtedness issued by such subsidiaries. 58 The President is expressly
authorized to guarantee the guarantees issued by the NDC for the loans of its subsidiaries. Further, in
its Opinion No. 16, series of 1982, the Department of Justice has affirmed that obligations of the NDC
are backed by the full faith and credit of the Government.
Thus, instead of the NDC being utilized as the guarantee facility, the NDC may establish a subsidiary
that can act as the guarantee facility considering that subsidiaries of the NDC, so organized, may
similarly exercise the same powers granted under the NDC Charter. Using an NDC-subsidiary as the
guarantee facility may insulate the National Government from further exposure from contingent
liabilities if the guarantee facility is adequately capitalized and if the guarantee agreement limits the
guarantee obligation to the guarantee facility. This may effectively ring-fence the risk in the
NDC-subsidiary. The subsidiary is also a fresh company with a clean slate and thus, need not be
burdened by NDC’s previous track record. Although new, it may likely avail of the expertise of some
of NDC’s officers and staff until it is able to organize its own workforce and develop the requisite
know-how and competence.
d. Philippine Export-Import Credit Agency
Under PD No. 550, as revised by PD No. 1080 (“PHILEXIM Charter”), PHILEXIM has the power to
guarantee investments of any entity, enterprise or corporation organized to engage in business in the
Philippines.59 Hence, there is basis to believe that PHILEXIM can act as the guarantee facility by
guaranteeing the investments of the private proponent in the PPP contract by ensuring that the
National Government fulfills its obligations under the PPP contract.
However, the flexibility of the PHILEXIM Charter is limited. A main function of PHILEXIM is
issuing guarantees for loans or credit accommodations.60 Since a PPP contract is neither a loan nor a
credit contract, there may be question as to whether the PHILEXIM Charter allows PHILEXIM to
issue guarantees for obligations under a PPP contract. Because of said limitations identified in the
mandate of PHILEXIM, the PHILEXIM Charter may have to be amended through the GCG in
accordance with the procedure earlier discussed in order that the PHILEXIM may perform the
envisioned functions of the guarantee facility.
It may be argued that obligations of the Government under a PPP contract to pay sums of money are,
or at least akin to, loans from the private proponent. Should this view be taken, then PHILEXIM may
arguably be able to act as the guarantee facility by guaranteeing the Government’s payment
obligations under a PPP contract. PHILEXIM representatives we have discussed the matter with have
56
Section 12, NDC Charter.
57
Section 4(16) of the NDC Charter specifies that the NDC can “organize subsidiary companies to undertake any of the
activities” that NDC is empowered to do under Section 4 of the NDC Charter.
58
Section 4 (11) and (16), NDC Charter.
59
Section 2 (d), PHILEXIM Charter.
60
Section 2 (a) and (b), PHILEXIM Charter.
A-11
taken the latter or more liberal view that is that PHILEXIM’s mandate under its Charter allows it to
cover contractual obligations.
The PHILEXIM Charter also limits PHILEXIM’s guaranteeing power by providing that PHILEXIM is
not allowed to guarantee a single borrower in an amount exceeding PHILEXIM’s subscribed capital
stock, nor may PHILEXIM’s aggregate outstanding guarantee obligations exceed fifteen (15) times its
subscribed capital stock plus surplus.61 To increase PHILEXIM’s guarantee power, it may also be
necessary to increase PHILEXIM’s authorized capital stock to increase the limits to its guaranteeing
power. Notably, under the PHILEXIM Charter, increasing PHILEXIM’s authorized capital stock only
requires approval from the PHILEXIM Board and the President of the Philippines (and thus, does not
require legislation).
Obligations of PHILEXIM are also fully guaranteed by the National Government. However, unlike the
NDC, PHILEXIM does not have an express power to create subsidiaries, nor guarantee obligations of
such subsidiaries.
e. Government Service Insurance System
The GSIS has also been suggested as a possible candidate for the guarantee facility. Basis for the
suggestion is found in Section 7 of the BOT Law which provides:
“SECTION 7. Contract Termination. — In the event that a project is revoked, cancelled or

terminated by the government, through no fault of the project proponent or by mutual agreement,
the Government shall compensate the said project proponent for its actual expenses incurred in
the project plus a reasonable rate of return thereon not exceeding that stated in the contract as of
the date of such revocation, cancellation or termination: Provided, That the interest of the
Government in these instances shall be duly insured with the Government Service Insurance
System or any other insurance entity duly accredited by the Office of the Insurance
Commissioner: Provided, finally, That the cost of the insurance coverage shall be included in the
terms and conditions of the bidding referred to above.
In the event that the government defaults on certain major obligations in the contract and such
failure is not remedied or if remediable shall remain un-remedied for an unreasonable length of
time, the project proponent/contractor may, by prior notice to the concerned national government
agency or local government unit specifying the turn-over date, terminate the contract. The project
proponent/contractor shall be reasonably compensated by the Government for equivalent or
proportionate contract cost as defined in the contract.” [Emphasis supplied]
However, it is unclear whether the interest to be insured with the GSIS in the above-quoted provision
only refers to the assets of the project or whether it pertains to the payment obligation of the
government because of the contract termination.
In any event, it must be noted that under RA No. 8291 (the “GSIS Charter”), the funds of the GSIS
may not be used for purposes other than what are provided under the GSIS Charter.62 In this regard,
the GSIS Charter provides that aside from the GSIS Social Insurance Fund which shall be used to
finance the statutorily provided benefits of government employees, the GSIS shall also administer the
government employees’ optional insurance fund, the government employees’ Compensation Insurance
Fund created under PD No. 626, and the General Insurance Fund created under RA No. 656.
RA No. 656 created and established the Property Insurance Fund (renamed as the General Insurance
Fund by PD No. 245) in order to indemnify or compensate the Government for any damage to, or loss
of, its properties due to fire, earthquake, storm, or other casualty.63 RA No. 656 requires that all
61
Section 6(f) of the PHILEXIM Charter.
62
Section 34 of the GSIS Charter.
63
Section 2 of RA No. 656.
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Government property be insured by the GSIS against all insurable risk,64 and authorizes the GSIS to
engage in the business of all types of insurance using the said General Insurance Fund, expressly
including the issuance of surety and/or performance bonds both in Philippine peso and/or in any
foreign currency, provided that the amount of the bond to be issued on any one risk or undertaking
shall be limited to 10% of the net worth of the General Insurance Fund, and that the excess over said
limit be reinsured with domestic and/or foreign insurance and reinsurance companies.65
The foregoing may serve as basis for the GSIS to issue an insurance product (e.g. a surety bond) that
will serve to guarantee payment to a private proponent in case the Government fails to fulfill its
obligations in a PPP project. Through the issuance of said insurance product, the GSIS may perform
the functions of the guarantee facility.
Based on an inquiry from the GSIS Insurance and Legal Departments, the GSIS has never issued such
type of insurance before. What the GSIS normally issues, consistent with the GSIS Charter, is a surety
bond in favor of a government agency, to compensate the same in the event of default of the private
party under the PPP contract, and not the other way around. Nevertheless, it is the GSIS’ position that
the GSIS may issue such type of insurance, since the GSIS may issue an insurance product as long as a
government agency requests for the same. For instance, if the terms of reference or bid documents of a
BOT project issued by the implementing agency shall provide that such an insurance (i.e. one that
shall insure payment to a private proponent in case the Government fails to fulfill its obligations in a
PPP project) should be obtained from the GSIS, said provision in the terms of reference or bid
documents shall serve as sufficient basis for the GSIS to issue said insurance product. Although said
insurance product is one that ultimately redounds to the benefit of a private party and not the
Government, and technically does not cover any property of the Government, the same may be viewed
as a liability insurance obtained by the government agency to insure against its own liability in the
event that it fails to fulfill its obligations in the PPP contract. In this regard, a “contract of insurance”,
as statutorily defined, expressly includes an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent event.66
Notwithstanding the foregoing, even if there is basis for the GSIS to issue said insurance product on
the argument that it covers insurable risks belonging to the Government, it is highly plausible that the
same may be met with objections, considering that the GSIS funds which are originally meant only to
secure the pension benefits of government employees, are sought to be used for other purposes, no
matter how socially desirable said purposes are.
(2) Establishment of guarantee facility as a Special Fund Administered by DOF

Another option available for creating the guarantee facility is to establish a special fund directly
administered by DOF (or any other office) similar to the Municipal Development Fund (“MDF”),
which is currently administered by the Municipal Development Fund Office (“MDFO”) under DOF.
A special fund, such as the one referred to above, must be distinguished from the general fund of the
National Government. Section 136 of the Government Accounting and Auditing Manual (“GAAM”)
defines the General Fund as:
“…that fund which is available for any purpose to which the legislative body may choose to
apply it, and is composed of all receipts or revenues which are not by law or by contractual
agreement applicable to specific purpose or purposes. It is used to finance the ordinary
operations of a government unit.”
All revenues or receipts of the Government accrue, unless otherwise provided by law, to the general
64
65
66
Section 2 of the Insurance Code.
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fund.67 It is the pool of funds annually allocated or apportioned by Congress through the General
Appropriations Act for use in the ordinary course of running government. Balances of appropriations
authorized in a General Appropriations Act that are unexpended also revert back to the general fund.68
However, Section 45 of the Administrative Code of 1987 provides that receipts of the government may
not accrue to the general fund if a law has authorized the recording of such receipts as income of
special funds:
“SECTION 45. Special, Fiduciary and Trust Funds. — Receipts shall be recorded as income of
Special, Fiduciary or Trust Funds or Funds other than the General Fund, only when authorized
by law and following such rules and regulations as may be issued by a Permanent Committee
consisting of the Secretary of Finance as Chairman, and the Secretary of the Budget and the
Chairman, Commission on Audit, as members. The same Committee shall likewise monitor and
evaluate the activities and balances of all Funds of the national government other than the
General fund and may recommend for the consideration and approval of the President, the
reversion to the General fund of such amounts as are (1) no longer necessary for the attainment
of the purposes for which said Funds were established, (2) needed by the General fund in times
of emergency, or (3) violation of the rules and regulations adopted by the Committee: Provided,
that the conditions originally agreed upon at the time the funds were received shall be observed
in case of gifts or donations or other payments made by private parties for specific purposes.”
[Emphasis supplied]
A special fund covers funds that have, by law, been designated for a specified or special purpose. It “is
a fund which by legislative action, segregates specified revenues for limited purposes.”69 On the other
hand, trust funds refer to “funds which have come officially into the possession of any agency of the
government or of a public officer as trustee, agent, or administrator, or which have been received for
the fulfillment of some obligation.”70
Another type of special fund that can be established is a revolving fund:
“Revolving funds shall be established and maintained only where said funds are expressly
created and authorized by law.
Receipts derived from business-type activities of departments, bureaus, offices or agencies which
are authorized by law to be constituted into a Revolving Fund shall be separately recorded and
deposited in an authorized government depository bank. This may be made available for
operational expenses of the said activity of the agency subject to the conditions prescribed under
the special provisions of the agency concerned and the rules and regulations as may be
prescribed by the Permanent Committee created under Section 51 of PD 1177. The Revolving
Fund shall be self-perpetuating and self-liquidating and all obligations or expenditures incurred
by virtue of said business-type activities shall be charged against the Revolving Fund:
PROVIDED, That interest and other income earned shall be deposited with the National
Treasury and shall accrue to the Agency’s General Fund pursuant to Section 65 of PD 1445 and
Sec. 29(1) of Article VI of the 1987 Constitution.”71
Parenthetically, the MDF mentioned earlier was created as a revolving fund capitalized and funded
from proceeds of foreign loans, assistance or grants made available to local government units for
specific purposes, project components and activities set forth in international agreement with foreign
government and international organizations pursuant to a law, PD No. 1914.
Based on inquiries with the Department of Budget and Management (“DBM”), the only difference
67
Section 44, Chapter 5, Book VI, Title II, Administrative Code of 1987.
68
Section 28, Chapter 4, Book VI, Title II, Administrative Code of 1987.
69
Section 136, GAAM.
70
Section 136, GAAM.
71
Section 121, GAAM.
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between trust funds and revolving funds is that the latter earn income, which income is deposited in
the same revolving fund for future use. Technically, a trust fund may become a revolving fund if the
trust fund earns income, which income is deposited back to the trust fund.72
In any event, either type of fund provides certain flexibility with respect to the disbursement of money.
As confirmed by a representative of DBM, once a special fund is set-up by law, the money that is
placed into such a fund is excluded from the general fund. Thus, there is no need for further
appropriation by Congress to be able to utilize such fund because Congress already “appropriated” the
money for the special fund through the law creating the special fund. This is consistent with the
Constitutional mandate that “no money shall be paid out of the Treasury except in pursuance of an
appropriation made by law.”73 As previously discussed, the “law” mentioned by the Constitution is
not limited to the General Appropriations Act but includes other laws, such as those providing for
automatic appropriation.
The law creating the special fund can also specify the sources of the money to be deposited in the
special fund. As an example, PD No. 1914 specifically provides that the MDF shall be funded from
foreign loans, assistance and grants. As such, in case a loan is extended to the MDF, the money loaned
is directly deposited to the MDF and does not go through the general fund.
Considering the foregoing, establishing the guarantee facility in a special fund, such as a trust fund or
a revolving fund, will also provide the same benefit of establishing it in a GOCC – greater flexibility
to disburse and to borrow funds. However, creating such a special fund has to be done by statue, which
will have to undergo a lengthy procedure.74
72
Note, however, that the income deposited back to the revolving fund only pertains to income that is specified under the
law creating the revolving fund. Interest (from the fund being deposited in a depositary bank) and other incidental
income of the revolving fund not specified under the law creating the revolving fund will accrue to the general fund.
73
Section 29, Article VI, 1987 Constitution.
74
cf. Note ix.
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Annex 3. Legal Aspect of PIPFF

As discussed in Annex 2, GOCCs may be created by the National Government either through
legislation, or through incorporation or registration with the SEC of a corporation at least majority or
51% of its capital stock is owned by the Government through any of its instrumentalities or agencies,
including other GOCCs.
The other option in establishing the PIPFF is to use an existing GOCC by organizing a facility or
specialized office under the said GOCC, or by having a GOCC, so authorized under its charter, to
create a subsidiary – another GOCC that shall be separate and distinct. However, relevant processes
with the GCG must be followed.
The following GOCCs may be considered to be utilized to handle the functions related to the
operations of PIPFF:
 The Philippine Infrastructure Corporation (“PIC”), a wholly-owned subsidiary of the NDC may
manage the PIPFF and directly lend funds from the PIPFF to qualified private proponents; and
 The PHILEXIM may guarantee the ODA loan to be extended to PIC for the establishment of the
PIPFF.
(1) Necessary Steps Related to PIC and PHILEXIM

Before PIC and PHILEXIM may validly perform the foregoing functions, an amendment to the charter
of PIC and an increase in the capital stock of PHILEXIM, which both do not require legislation, are
necessary for the reasons discussed below.
In the Philippines, the functions of corporations, including GOCCs, are limited by their Articles of
Incorporation (“AOI”) or Charters. Under the current AOI of PIC, it is not expressly authorized to
borrow nor to lend money.75 An amendment of PIC’s AOI is necessary before PIC may validly obtain
an ODA loan for purposes of establishing the PIPFF and lend the funds to private proponents.
Currently, PIC’s authorized capital stock amounts to Eighty Million Pesos (80,000,000.00 pesos).76 In
addition, we were advised by officials of the National Development Company, the owner of PIC, that
PIC maintains a ten times (10x) gearing ratio of its debt and equity levels, for prudential reasons. For
illustrative purposes, say an ODA loan in the amount of Twenty Five Billion Pesos (25,000,000,000.00
pesos), PIC’s authorized capital stock must be increased to Two Billion Five Hundred Million Pesos
(2,500,000,000.00 pesos), in order to maintain the 10:1 debt-equity ratio. Moreover, depending on the
leverage requirement which may be imposed by the ODA loan provider, the capital of PIC may have
to be increased further.
a. Approval by the Board of Directors and Shareholders of the PIC
In order to amend the AOI of PIC, the Corporation Code of the Philippines requires: (1) the majority
vote of the board of directors; and (2) the vote or written assent of the stockholders representing at
least two-thirds (2/3) of the outstanding capital stock of the corporation.77
75
The current Articles of Incorporation of PIC provides for the following purpose:
“To promote the overall economic development by developing, packaging, structuring and/or managing investments in
infrastructure projects and commercial ventures related to the development of infrastructure in which the National
Development Company wishes to participate/invest; and to engage only in activities and transactions that are directly
related, necessary or incidental to accomplish the primary purpose. The Corporation shall not engage in any other activity
or transaction outside or beyond its primary purpose.”
76
Based on PIC’s Articles of Incorporation and General Information Sheet for the year 2012.
77
Section 16 of Batas Pambansa Blg. 68, or the Corporation Code of the Philippines.
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b. Notification to the Governance Commission for GOCCs (“GCG”)
Being a GOCC78, PIC is covered by the provisions of RA No. 10149, or the GOCC Governance
Act of 2011. While the said law does not expressly require that the approval of the GCG be
obtained for the amendment of the AOI of a GOCC,79 it may be prudent to at least notify the
GCG of any amendments to PIC’s AOI, especially considering that the amendments involve an
increase in capitalization and a change in the purpose of PIC.80
c. Approval of the SEC
Before the amendments to PIC’s AOI can take effect, the approval of the SEC must first be
secured.81
In addition, should assets, instead of cash, be infused to PIC in the course of increasing its capital,
the SEC will also have to evaluate the valuation of said assets before the infusion can be recorded
in the books of PIC.
(b) Increase in Capital Stock of PHILEXIM

As guarantor of the ODA loan to be extended to PIC for the establishment of the PIPFF, the team
evaluated the extent of PHILEXIM’s power to guarantee. Under its current Charter, PHILEXIM is not
allowed to guarantee a single borrower in an amount exceeding PHILEXIM’s subscribed capital stock,
nor may PHILEXIM’s aggregate outstanding guarantee obligations exceed fifteen (15) times its
subscribed capital stock plus surplus. 82 In this regard, the PHILEXIM Charter provides that
PHILEXIM’s subscribed capital stock is Ten Billion Pesos (10,000,000,000.00 pesos). However,
PHILEXIM has also disclosed that instead of computing the guarantee limits in its Charter based on its
subscribed capital stock, they compute the guarantee limits based on PHILEXIM’s net worth, which
currently stands at P1.5 Billion.
Thus, considering the limitations on its guarantee powers, for PHILEXIM to be able to guarantee for
example an ODA loan to PIC in the amount of Twenty Five Billion Pesos (25,000,000,000.00 pesos),
its authorized capital stock, and ultimately, its net worth, must be increased to at least Twenty Five
Billion Pesos (25,000,000,000.00 pesos). In this regard, the PHILEXIM Charter provides that its
authorized capital stock may be increased by its Board of Directors, subject only to the approval of the
President of Philippines, without the necessity of Congressional approval.83
(2) PIC Obtaining a Secondary License from the SEC

Aside from the amendment to its AOI, PIC must also obtain a secondary license from the SEC to be
able to engage in lending activities. It may secure a secondary license either as a lending company or a
financing company.
Basically, a lending company is a “corporation engaged in granting loans from its own capital funds or
78
A GOCC is defined under Section 3(o) of the GOCC Governance Act of 2011 as “any agency organized as a stock or
non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and
owned by the Government of the Republic of the Philippines directly or through its instrumentalities either wholly or,
where applicable as in the case of stock corporations, to the extent of at least a majority of its outstanding capital stock.”
79
However, it must be noted that GCG endorsement is required for the creation of a new GOCC [Section 27 of the GOCC
Governance Act of 2011].
80
It is among the powers and functions of the GCG to reorganize, merge, streamline, abolish or privatize any GOCC based
on its evaluation of the relevance of the GOCC’s functions [Section 5(a) of the GOCC Governance Act of 2011].
81
Section 16 of the Corporation Code of the Philippines.
82
Section 6(f) of the PHILEXIM Charter.
83
Section 7 of the PHILEXIM Charter.
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from funds sourced from not more than nineteen (19) persons”84, while a financing company is a
corporation “primarily organized for the purpose of extending credit facilities to consumers and to
industrial, commercial, or agricultural enterprises, by direct lending or by discounting or factoring
commercial papers or accounts receivable, or by buying and selling contracts, leases, chattel
mortgages, or other evidences of indebtedness, or by financial leasing of movable as well as
immovable property”85. Thus, while both a lending company and a financing company may engage in
direct lending activities, a financing company may also engage in other activities, such as discounting
of commercial papers and receivables, trading of contracts, leases, chattel mortgages and other
evidence of indebtedness, and financial leasing of movable and immovable properties.
While securing a secondary license from the SEC as a financing company will allow PIC to engage in
other functions aside from direct lending, this will also subject PIC to the supervision of the Bangko
Sentral ng Pilipinas (“BSP”). Thus, since what is envisioned under the PIPFF is merely the lending of
funds, it may be simpler if PIC secures a secondary license as a lending company, and not a financing
company, to avoid additional regulations from BSP. 86
(3) Possible Establishment of guarantee facility and PIPFF in a Single GOCC

The process involved in establishing the PIPFF through a GOCC is similar to that required for
setting-up the guarantee facility, which is discussed in Annex 2. Thus, it appears that both processes
may be undertaken simultaneously to create one GOCC that will serve as both the guarantee facility
and the PIPFF, provided that the required authorities for the functions of both institutions are duly
obtained. It is well to note that, in the quantitative analysis discussed in the earlier portion of this paper,
it was also established that combining the guarantee facility with the PIPFF provides for far greater
incremental benefits for the government.
84
Section 3(a) of Republic Act No. 9474, or the Lending Company Regulation Act of 2007.
85
Section 3(a) of Republic Act No. 5980, as amended by Republic Act No. 8556, or the Financing Company Act.
86
In this regard, one concern that might crop up is the nationality restrictions applicable. Note that lending companies can
only have foreign equity of up to forty nine percent (49%) while financing companies regulated by the SEC can have
foreign equity of up to sixty percent (60%). See Section 6 of Republic Act No. 9474 and Section 6 of Republic Act No.
5980, as amended.
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Annex 4. Case Studies on PIPFF

The purpose of this appendix is to verify the usefulness and benefits of PIPFF through case study of
potential projects. Candidate projects are chosen from two sectors (expressways and airport) mainly on
the grounds of availability of reliable F/S data. The sector report of Chapter 5 mentions briefly outline
of the candidate projects. The case study is conducted by rigorous financial analysis technique using
reliable F/S data.
(1) Assumptions and Criteria

The projects chosen are mostly of BOT type in which the project cost is basically funded by the
private sector. The government support is minor in contribution in kind (provision of land) and/or cash
(construction subsidy).
The project cost is funded by two sources: equity and loans. The equity/loan ratio is 25/75 to 30/70.
There are two types for loan: commercial loan and PIPFF loan.
The commercial loan terms are tenor of 10-12 years at 200-300 bp over PHIBOR87 (7-8% based on
current market). Here it is assumed the tenor is 12 years (including grace period of 5 years) and the
interest rate varies from 9% to 11% depending on project riskiness: 9% for low risk, 10% for medium
risk and 11% for high risk considering current market responses.
The PIPFF loan terms are assumed at tenor of 25 years (including of 10-year grace period) and the
interest at 50% of that of the counterpart commercial loans: 4.5% for low risk, 5% for medium risk
and 5.5% for high risk.
Then the following requirements are set as the financial conditions to be met.
For financial viability of private investment
Debt service cover ratio (DSCR) >= 1.0

Equity IRR >= Cost of equity required
Project IRR >= Weighted Average of Cost of capital (WACC)
Condition 1 is for loans to be repayable. Condition 2 is for provision of equity with a reasonable return.
Here E-IRR required is assumed as 15% for low risk, 16% for medium risk and 17% for high risk
based on current market demands. Condition 3 is for basic requirement of financial feasibility (return
> cost). WACC is calculated by the formula:
WACC=PD x CD + PE x CE
Where, PD: proportion of debt (70-75%)

CD: cost of debt
PE: proportion of equity (25-30%)
CE: cost of equity
Tax effect is not considered in calculation of WACC for conservatism.
Here CD is calculated at 100% of commercial loan rate for only commercial loan cases; and average
of commercial loan rate and PIPFF loan rate for PIPFF loan cases. The hybrid loan assumes 50%
commercial and 50% PIPFF.
87
Philippines Inter Bank Offered Rate
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For government support limitation
VGF (in cash/kind) <= 30% of project cost
This 30% hurdle ratio is desired for the GoP to maintain a positive cash flow (the tax revenue minus
government expenditure) based on the anecdotal evidence.
The results of case study for the selected projects follow.
(2) CAVITE Expressway

The CAVITE Expressway is the Cavite section of CALAX (Cavite-Laguna Expressway). Reliable data
are available from JICA F/S conducted in 2012. The project cost (base cost) is estimated at
Ps.22,652m. The project riskiness is assumed as ‘low’ since the ROE acquisition is likely to go easily,
and cost estimation and traffic forecast is robust. The debt/equity ratio is at 70:30. The FIRR is
calculated at 11.2%.
Thus, the viability conditions are set:
Project IRR >= 10.8% (commercial loan only) and 9.2% (hybrid loans)
Equity IRR >= 15%
DSCR >= 1.0
The results of financial analysis are summarized below.
Table A.4-1 Summary of CAVITE Expressway Project

Case 1 (use commercial loan only) Case 2 (use PIPFF loan) Case 3 ( commercial loan with VGF)
Work sharing Work sharing Work sharing
GoP work portion ROW GoP work portion ROW GoP work portion ROW, VGF
Private work portion Construction Private work portion Construction Private work portion Construction
Project cost (M.Ps) Project cost (M.Ps) Project cost (M.Ps)
24,761 24,406 24,500.0
Fund source ((M.Ps) Share Fund source (M.Ps) Share Fund source (M.Ps) Share
Private 19,147 77.3% Private 17,895 73.3% Private 14,903 60.8%
ODA loan 0 ODA loan 0 ODA loan 0
22.7% 26.7% 39.2%
GoP budget 5,613 GoP budget 6,511 GoP budget 9,597
Total 24,761 Total 24,406 Total 24,500
Revenue share Revenue share Revenue share
Private sector 86.0% Private sector 86.0% Private sector 86.0%
Government 14.0% Government 14.0% Government 14.0%
Debt service subsidy ((M.Ps) Debt service subsidy (M.Ps) Debt service subsidy (M.Ps)
for private loan 0 for private loan 0 for private loan 0
Financial indicators Financial indicators Financial indicators
Indicator Private Portion GoP Portion Indicator Private Portion GoP Portion Indicator Private Portion GoP Portion
Project IRR (before tax) 12.1% 9.0% Project IRR (before tax) 12.7% 8.1% Project IRR (before tax) 14.4% 6.0%
Project IRR (after tax) 10.4% 9.0% Project IRR (after tax) 10.9% 8.1% Project IRR (after tax) 12.4% 6.0%
Equity IRR (after tax) 11.7% 9.0% Equity IRR (after tax) 15.0% 8.1% Equity IRR (after tax) 15.0% 6.0%
DSCR (Average) 1.00 DSCR (Average) 1.17 DSCR (Average) 1.04
DSCR (Minimum) 1.00 DSCR (Minimum) 1.00 DSCR (Minimum) 1.00
VFM indicators VFM indicators VFM indicators
NPV of gov't cashflow ((M.Ps) 1,137 (12% discount) NPV of gov't cashflow (M.Ps) 142 (12% discount) NPV of gov't cashflow (M.Ps) ▲ 3,038 (12% discount)
PI of gov't cashflow 1.16 (12% discount) PI of gov't cashflow 1.02 (12% discount) PI of gov't cashflow 0.74 (12% discount)
Unacceptable for private Acceptable both for private and GoP Acceptable for private, but not for GoI
G
o
The study reveals:
P
1) Case 1 (commercial loan only) will not be doable since the equity IRR are less than the hurdle
rate (15%).
2) Case 3 (commercial loan with VGF) will not be doable since VGF is needed at 39.2% of
project cost.
3) The only solution is Case 2 (use of PIPFF loan). There is no VGF (subsidy for construction
cost) required for this case except for payment for ROE acquisition.
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Therefore, the usefulness of PIPFF loan is proved for this project.
(3) NAIA Expressway

Reliable data are available from JICA F/S conducted in 2012. The project cost (base cost) is estimated
at Ps.13,608m. The project riskiness is assumed as ‘medium’. The debt/equity ratio is at 70:30. The
FIRR is calculated at 10.2%.
Equity IRR >= 16%
DSCR >= 1.0
Table A.4-2 Summary of NAIA Expressway Project

Case 1 (Commercial loan without VGF) Case 2 (PIPFF loan with VGF) Case 3 (Commercial loan with VGF)
GoP work portion ROW GoP work portion ROW, VGF GoP work portion ROW, VGF
Private work portion Cosntruction Private work portion Cosntruction Private work portion Cosntruction
14,111 13,805 13,910
7.9% 26.2% 43.9%
GoP budget 1,113 GoP budget 3,612 GoP budget 6,111
NPV of gov't cashflow ((M.Ps) 658 (12% discount) NPV of gov't cashflow (M.Ps) ▲ 535 (12% discount) NPV of gov't cashflow (M.Ps) ▲ 2,128 (12% discount)
Unacceptable for private Acceptable for both private and GoP Acceptable for private, but not for GoP
The study reveals:
1) Case 1 (commercial loan only) will not be doable since the project IRR and the equity IRR are
less than the hurdle rates.
project cost.
3) The only solution is Case 2 (PIPFF loan with VGF). The VGF required is 26.2% of project
cost.
(4) SLEX Extension Road

Reliable data are available from JICA F/S conducted in 2010. The project cost (base cost) is estimated
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at Ps.13,835m. The project riskiness is assumed as ‘low’ since the ROW has been mostly acquired, and
cost estimation and traffic forecast is robust. The debt/equity ratio is at 70:30. The FIRR is calculated
at 9.2%.
Equity IRR >= 15%
DSCR >= 1.0
Table A.4-3 Summary of SLEX Extension Project

GoP work portion ROW GoP work portion ROW, VGF GoP work portion ROW, VGF
Private work portion Cosntruction Private work portion Cosntruction Private work portion Cosntruction
14,624 14,309 14,290
3.1% 20.6% 42.8%
GoP budget 454 GoP budget 2,943 GoP budget 6,114
NPV of gov't cashflow ((M.Ps) 1,005 (12% discount) NPV of gov't cashflow (M.Ps) ▲ 331 (12% discount) NPV of gov't cashflow (M.Ps) ▲ 2,349 (12% discount)
Unacceptable for private Acceptable for both private and GoP Acceptable for private, not acceptable for GoP
The study reveals:
1) Case 1 (commercial loan only) will not be doable since project IRR and equity IRR are less
than the hurdle rates.
project cost, which exceeds 30% limit.
3) The only solution is Case 2 (PIPFF loan with VGF). The VGF required is 20.6% of project
cost.
(5) Visayas Airport (Landside work)

Reliable data are available from JICA F/S completed in August 2012. The project cost (base cost) is
estimated at Ps.2,197m. The project riskiness is assumed as ‘medium’. The debt/equity ratio is at
75:25. The FIRR is calculated at 13.7%.
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Equity IRR >= 16%

DSCR >= 1.0
Table A.4-4 Summary of Visayas Airport (Landside work)

Case 1 (Commercial loan without VGF) Case 2 (PIPFF loan without VGF) Case 3 (Commercial loan with VGF)
GoP work portion None GoP work portion None GoP work portion VGF
1,647.3 (Phase 1) 1,609.4 (Phase 1) 1,621.8 (Phase 1)
Private 1,647.3 100.0% Private 1,609.4 100.0% Private 1,350.8 83.3%
MoF loan 0.0 MoF loan 0.0 MoF loan 0.0
0.0% 0.0% 16.7%
GoP budget 0.0 GoP budget 0.0 GoP budget 271.0
Total 1,647.3 Total 1,609.4 Total 1,621.8
for private loan 0.0 for private loan 0.0 for private loan 0.0
Project IRR (before tax) 13.0% Project IRR (before tax) 13.2% Project IRR (before tax) 14.9% 14.1%
Project IRR (after tax) 11.1% Project IRR (after tax) 11.4% Project IRR (after tax) 12.9% 14.1%
Equity IRR (after tax) 12.9% Equity IRR (after tax) 16.3% Equity IRR (after tax) 16.0% 14.1%
NPV of gov't cashflow ((M.Ps) 409.1 (12% discount) NPV of gov't cashflow (M.Ps) 400.0 (12% discount) NPV of gov't cashflow (M.Ps) 198.1 (12% discount)
PI of gov't cashflow #DIV/0! (12% discount) PI of gov't cashflow #DIV/0! (12% discount) PI of gov't cashflow 1.90 (12% discount)
Unacceptable for private sector Acceptable for both private and GoP Acceptable for both private and GoP
The study reveals:
Case 1 (commercial loan only) will not be doable since the equity IRR are less than the hurdle
rate (16%).
Case 3 (commercial loan with VGF) will be doable and the VGF is needed at 16.7% of project
cost.
Case 2 (PIPFF loan without VGF) will also be doable since the conditions on project IRR and
equity IRR are cleared.
Use of PIPFF pushes down the VGF from 16.7% of project cost to zero (no need of VGF).
Therefore the usefulness and the benefit of PIPFF loan are confirmed for this project.
(5) Zamboanga Airport (Landside work)

We reviewed and updated the data of DOTC F/S (2010). The project cost (base cost) is estimated at
Ps.2,387m. The project riskiness is assumed as ‘medium’. The debt/equity ratio is at 75:25. The FIRR
is calculated at 10.4%.
Equity IRR >= 16%
DSCR >= 1.0
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Table A.4-5 Summary of Zamboanga Airport (Landside work)

GoP work portion None GoP work portion VGF GoP work portion VGF
2,571.7 2,488.3 2,496.8
Private 2,571.7 100.0% Private 1,882.1 75.6% Private 1,530.2 61.3%
0.0% 24.4% 38.7%
Project IRR (before tax) 9.7% Project IRR (before tax) 12.9% 7.6% Project IRR (before tax) 15.3% 4.8%
Project IRR (after tax) 7.9% Project IRR (after tax) 10.9% 7.6% Project IRR (after tax) 13.0% 4.8%
Equity IRR (after tax) 7.9% Equity IRR (after tax) 16.0% 7.6% Equity IRR (after tax) 16.0% 4.8%
NPV of gov't cashflow ((M.Ps) 350.7 (12% discount) NPV of gov't cashflow (M.Ps) 4.2 (12% discount) NPV of gov't cashflow (M.Ps) ▲ 181.5 (12% discount)
PI of gov't cashflow #DIV/0! (12% discount) PI of gov't cashflow 1.01 (12% discount) PI of gov't cashflow 0.70 (12% discount)
Unacceptable for private sector Acceptable for both private and GoP Acceptable for private, but not for GoP
The study reveals:
Case 1 (commercial loan only) will not be doable since project IRR and equity IRR are less than
the hurdle rates.
Case 3 (commercial loan with VGF) will not be doable since VGF is exceeding 30% limit.
Case 2 (PIPFF loan with VGF) will be doable since VGF needs is below 30% limit.
So Case 2 is the only option which brings win-win solution.

(6) Tacloban Airport (Landside work)
We reviewed and updated the data of DOTC F/S (2009). The project cost (base cost) is estimated at
Ps.1,581m. The project riskiness is assumed as ‘medium’. The debt/equity ratio is at 75:25. The FIRR
is calculated at 7.7%.
Equity IRR >= 16%
DSCR >= 1.0
A-24
Table A.4-6 Summary of Tacloban Airport (Landside work)

GoP work portion None GoP work portion VGF GoP work portion VGF
1,738.6 1,637.2 1,643.5
Private 1,738.6 100.0% Private 1,017.8 62.2% Private 869.3 52.9%
0.0% 37.8% 47.1%
Project IRR (before tax) 6.9% Project IRR (before tax) 11.7% 1.7% Project IRR (before tax) 13.4% 0.6%
Project IRR (after tax) 5.7% Project IRR (after tax) 10.3% 1.7% Project IRR (after tax) 11.9% 0.6%
Equity IRR (after tax) 5.5% Equity IRR (after tax) 16.0% 1.7% Equity IRR (after tax) 16.0% 0.6%
NPV of gov't cashflow ((M.Ps) 119.4 (12% discount) NPV of gov't cashflow (M.Ps) ▲ 315.6 (12% discount) NPV of gov't cashflow (M.Ps) ▲ 425.5 (12% discount)
PI of gov't cashflow #DIV/0! (12% discount) PI of gov't cashflow 0.32 (12% discount) PI of gov't cashflow 0.26 (12% discount)
Unacceptable for private sector Acceptable for private, but not for GoP Acceptable for private, but not for GoP
The study reveals:
Case 1 (commercial loan only) will not be doable since project IRR and equity IRR are less than
the hurdle rates.
Case 3 (commercial loan with VGF) will not be doable since VGF exceeds the 30% limit.
Case 2 (PIPFF loan with VGF) will also not be doable since VGF exceeds the 30% limit.
Therefore this project is no longer PPP-able. This is because the FIRR is as low as 7.7%. This implies
the projects with FIRR 8% or less should go to the traditional public procurement route.
(7) Findings from the Case Study

We can summarize key points from this case study as follows.
The PPP-able projects case-studied (leaving Tacloban) are low profitable one with FIRRs ranging
from 13.7% (Visayas) to 9.2% (SELEX), averaging at 10.9%. In order for such low profitable projects
to pay back loans for as long as 30-year operation periods, it is obvious that long-term loan financing
like PIPFF is required to avoid the liquidity problem.
The basis of this finding is illustrated below by comparing the cash flows for commercial loan only
case (case 1) and those for hybrid loans (Case 2: 50% commercial and 50% PIPFF) for two typical
projects: CAVITE Expressway and Visayas Airport.
The charts indicate the debt service shortfall for Case 1 (commercial loan only) is clearly disappeared
by providing the PIPFF loan (Case 2) which enables to repay the debt and to provide equity with a
reasonable return simultaneously. The finding helps in confirming the necessity of soft loans
represented by PIPFF loans for coming pipeline projects most likely with low profitable projects taken
up here. The case study also stresses the need for introducing the PIPFF mechanism in the medium
and long-term perspectives.
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CAVITE Expressway Case 1 CAVITE Expressway Case 2

Cavite Expressway Project Cavite Expressway Project
Cash-Flows Cascade in the Operating Period for Private Work Portion Cash-Flows Cascade in the Operating Period for Private Work Portion
6,000 6,000
5,000 5,000
4,000 4,000
Million Ps
Million Ps
3,000 3,000
2,000 2,000
1,000 1,000
0 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Years from the first year of construction Years from the first year of construction
Operating costs Corporate tax paid Other tax Debt service Dividend paid Revenue from opration Operating costs Corporate tax paid Other tax Debt service Dividend paid Revenue from opration
Visayas Airport Case 1 Visayas Airport Case 2

New Bohol Airport Project (BOT)
Cash-Flows Cascade in the Operating Period for Landside Portion New Bohol Airport Project (BOT)
Cash-Flows Cascade in the Operating Period for Landside Portion
800.0 800.0
700.0 700.0
600.0 600.0
500.0
Million Ps
500.0
Million Ps
400.0 400.0
300.0 300.0
200.0 200.0
100.0 100.0
0.0 0.0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Years from the first year of construction Years from the first year of construction
Operating costs Corporate tax paid Other tax Debt service Dividend paid Revenue f rom opration
Operating costs Corporate tax paid Other tax Debt service Dividend paid Revenue f rom opration

Figure A.4-1 Cash flow profiles of Case 1 (100% commercial loan) & Case 2 (use of PIPFF
loan)
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Annex 5. Interview Results to Investors and Lenders Regarding CL
The following shows the results of interview to investors and lenders regarding the effects of CL Fund.
A.5-1 Guarantee Fund to Cover Contingent Liabilities

To encourage greater private investments in PPP Projects, the feasibility of establishing a Guarantee
Fund (GF) to cover Contingent Liabilities (CL) of the Government is being studied by the JICA Team.
The GF is considered as a possible facility to mitigate the risks associated with the ability of the
Government to fulfill its basic obligations under the Concession Agreement (CA).
For PPP Project, the GF Fund is envisioned to be used by the Government to promptly pay just
compensation to the concerned Concessionaires to cover their financial losses arising from any of the
following CL events attributed to the Government’s fault:
 Delayed delivery by the Government of the Right-of-Way (ROW) for the Project beyond the
deadline set in the CA.
 Delayed issuance by the Government of the Construction Permit (CP) despite the Concessionaire
having completed the requirements for such Permit.
 Delayed issuance by IA of the Certificate of Completion of Construction (CCC) despite the
Independent Consultant (IC) having certified that the Concessionaire has complied with all the
requirements for such Certificate.
 Delayed approval by the Authority of Tariff Adjustments.
A.5-2 Private Sector’s Comments on Guarantee Fund / Probability & Impact of CL

The JICA Team interviewed three concessionaires in toll road, airport and railway sector and two
domestic banks and one foreign bank. Firstly, the JICA Team asked the effect of Guarantee Fund
through the following questions:
“Assuming that the Guarantee Fund can be legally set up and used by the Government to
promptly and adequately pay just compensation to the Concessionaire for any or a
combination of the above cases, we would like to know by how much you would be willing to
reduce the following financial indicators:
Equity Internal Rate of Return (Equity IRR)
Borrowing Rate for Loan”
The responses to this questionnaire from Concessionaires are shown in Table A.5-1:
Table A.5-1 Concessionaires’ Responses on the Effect of Guarantee Fund

Proponents Equity IRR Borrowing Rate
Toll Road A Decrease by 2-3% Decrease by 1-2%
B Decrease from 16% to 12% No answer
C Decrease from 15% to 12% Significant decrease for
foreign loans
Airport D Decrease but % is unknown No answer
Railway D Decrease but % is unknown No answer
Banks E N/A Will not decrease
F N/A No clear answer
G N/A Possibly decrease
A-27
Aside from the specific replies summarized in Table above, the Respondent-Concessionaires made the
following comments:
 Delayed ROW Delivery and Tariff Rate Adjustments are very real and big risks. It seems,
however, that the objectives of this (Guarantee) fund are essentially the same as those of MIGA,
with its political insurance…You don't really even need a fund, as long as you have an agency
such as MIGA issuing the guarantee… MIGA very rarely has to pay out. They talk to the
government and sort things out, long before a "default" occurs. On the other hand, the problem
with MIGA is that they have so many conditions that their guarantee becomes tedious to obtain.
 Minimal risks on the part of investor would definitely translate to reduced markup. On an almost
no risk investment, investors would be happy to a net of 6%. If the guaranty fund can be
facilitated this would be a major departure from the current rules but will definitely attract
investors.
 The Government Guarantee Fund (GGF) will induce significant improvements in borrowing
terms mainly for foreign loans, stating that foreign banks may have a more positive view on the
GGF as it may reduce the cost of political risk insurance (e.g., MIGA covers breach of contract).
Consequently, the overall cost of foreign borrowings will go down while the tenor is expected to
lengthen. Local banks, however, may already be comfortable with the Concessionaire’s ability to
manage Government risk and the robustness of the project’s cashflows. The GGF may be
viewed as nice to have but not an absolute necessity. It is possible that the local borrowing rate
and tenor will not improve significantly but the lenders would be more willing to relax the
covenants, such as the minimum DSCR requirement, if the GGF would be available.
 GF should have the concept of “Oil Price Stabilization Fund” which automatically allocates the
fund based on the rule without political interventions. If GF will not be under the control of the
government, we are not relay on GF and will not reduce the acceptable Equity IRR.
 For the bidder, there will be more benefit for them because the risks will be less. All delays will
have impact on their income. But from bank’s assumptions, if these are slight delays, they will
still be able to cover their debt services and we will still be paid. Because we have no upside. We
get re-paid anyway. As for ROW acquisition, we don’t even lend if it is not 100% acquired. The
one that really affects us from a financing perspective is the first one: toll rate adjustment. The
logic is if the project has enough cash flow—let’s say that the minimum debt service coverage of
1.2 times—as long as they have 1.2 or better and they continue to pay us, there is no problem. If
there is delay in toll way increase, DSCR will not improve as planned and they cannot dividend
out. That impacts equity return. That’s why it gives them more comfort by having this GF. From
our perspective, if the toll increase will keep the DSCR at 1.3, we don’t care because we’re still
being paid.
 Price will be dependent on prevailing market conditions. I take this as more theoretical and
scientific assessment on equity. Impact is really on the number crunching of the proponent. Banks
will vet on their assumptions. If it is a simple guarantee, then that’s the real benefit, not different
from a bank stand-by LC. If it is hard to draw from the GF, it diminishes the benefits.
 In order to reduce interest rate with GF, you have to prove that GF is very much stable. For
example, it has to be proved that GF will exist during a 20-year-project period, GF will have
sufficient source even when the number of projects increases, and future government will not
close down GF. Legal basis and additional fund sources have to be stated clearly to prove the
stableness of the fund. If those conditions are met, we can expect that GF would bring down
interest rate. Additionally, GF’s effect on interest rate would differ depending on the GF
structure – focused on CL in construction stage or CL in O&M period. If GF is designed focusing
A-28
on CL in construction stage, GF does not affect interest rate much because Financial Institutions
have almost no risk from the beginning (when contractor is a super general contractor or other
large companies, they absorb all these risks).
Secondly, the JICA Team asked probability and Impact of CL occurrence. Since the four CLs listed in
A.1 can be categorized into two; 1) delay in commencement of operation; 2) delay in approval of tariff
adjustment, the JICA Team asked the concessionaires for the probability and Impact of
above-mentioned two CLs. Table below shows the result of concessionaires’ response on this issue.
Table A.5-2 Concessionaires’ Response for Probability and Impact of CL

Proponent Delay in Commencement of Delay in Approval of Tariff
Operation Adjustment
Probability Length Probability Length
Toll Road A High Depend on 100% 6 months to 3
project years
Airport A -ditto- -ditto-
Railway A -ditto- -ditto- 100% 6 months to 3
years
 When ROW delay, it’s a double hit. If you’re borrowing for your capital expenditure as a
company, then you have to bear the cost of capital. Also, if you have invested it in another activity,
you could have earned some income. This is opportunity cost.…. Probability of delay in tariff
adjustment approval 100%. There will always be delays. In fact, railway is never on time. All toll
highways are currently pending. And they disrupt all our projections. Timeframe is from 6 months
to 3 years.
A.5-3 Government Incentives to Decrease CL Probability

The following measures may be considered to reduce the probability of CL events as well as to avoid
the associated moral hazards.
(1) Clear and Specific Provisions on Government Obligations in the Concession

Agreement (CA)
The CA should define, in clear terms, the specific contractual obligations of the Government and other
provisions related to CL events. These should include the following, among others:
 Key deliverables by the Government - e.g., those mentioned under the four items in Section A
above – with their specific measurable performance indicators in terms of concrete outputs (scope,
quality and quantity) and firm deadlines.
 Triggers for CL events in case the Government’s obligations for these deliverables are delayed or
breached.
 Alternative remedies to offset the Concessionaire’s losses in case of CL events due to the
Government’s fault, including (i) liquidated damages/just compensation to be paid to the
Concessionaire according to pre-set formulae, (ii) extension of the concession period, and (iii)
adjustment of Tariff Rates.
 Provision for a standby GF to be used in compensating the Concessionaire for CL events, with
firm and adequate sources of funds and appropriations cover.
 Mechanics for making prompt payments out of the GF.
A-29
(2) Advance Acquisition of ROW

Preferably, as a preventive measure to preclude delays in Project implementation due to delayed
delivery of the ROW, the Government should acquire, pay for, and secure the required ROW before
bidding out the Project.
At the time of bidding, the Government should see to it that the ROW is clear of any liens, claims,
obstructions, and occupants, including informal settlers, utilities, and other structures, and suitable for
Construction.
(3) Close Project Supervision and Monitoring thru Full Use of the IC
IA should undertake rigorous and sustained monitoring and supervision of the Project in all its stages
to achieve efficient Project implementation according to the approved plan and schedule, and to
decrease the likelihood of CL events.
During the Project implementation stage from ROW delivery to Construction, IA should make
effective use of the IC, as its expert representative (as well as that of the Concessionaire), to perform
the following activities in order to closely supervise and monitor the implementation of the Project in
accordance with the Minimum Performance Standards and Specifications (MPSS) and schedules, and
thus minimize the probability of CL events, aside from avoiding unnecessary time-consuming
duplication by IA in-house staff of the review/supervision work:
a. ROW Delivery
 Monitor the progress of IA in acquiring the ROW and determine whether it will be delivered in
accordance with the schedule.
 Verify and certify to both Parties that the ROW is clear of all liens, occupants including informal
settlers, utilities and other structures, and ready for the Concessionaire to carry out the
Construction.
b. Design Review and Certification
 Review the Detailed Engineering Design (DED) submitted by the Concessionaire and, within say,
15 days, issue a notice to IA and the Concessionaire which (a) certifies that the DED conforms
with the MPSS through a Certification of DED Conformity, or (b) states that such DED does not
conform with the MPSS and must be revised, through a Notice of DED Non-Conformity.
 In the case of (b), repeat the same process for the Concessionaire’s revised DED, until the IC is
satisfied that the revised DED conforms to the MPSS.
 Recommend to IA the approval of the IC-certified DED.
c. Construction Supervision
 Undertake periodic inspections to monitor compliance of the Construction of the Project with the
MPSS, which includes the IA-approved DED.
 Attend all Tests required during Construction and certify and verify to IA that the Tests have been
carried out according to the requirements.
 Advise on any matter or issue that a Party has requested the IC to consider, and to make
recommendations in relation to a Variation, a Test or the mitigation of a delay.
 Notify IA if, in its view, the rate of progress of the Construction is significantly behind the
Construction Schedule.
 Advise IA and the Concessionaire if the Construction does not conform to the MPSS and specify
the defects and deficiencies that must be corrected by the Concessionaire.
 Verify and certify that the Construction of the Project has been completed in accordance with the
A-30
MPSS and issue to IA a report that advises that all defects and non-conformance with the MPSS
have been duly corrected, that all required Tests have been properly carried out, that all
requirements for the issuance of a Certificate of Completion of Construction have been met and
that, therefore, IA may issue the said Certificate.
During the Operation stage, IA should likewise undertake close supervision and monitoring of the
Project, using their in-house personnel, supplemented by Operation and Maintenance (O&M)
consultants as needed. They must regularly check the actual performance by both Concessionaire and
the Government of their respective contractual obligations as against the set performance standards
and indicators, flag any imminent or actual deviations from the requirements, especially potential CL
events – e.g., delays in approving periodic Tariff Rate Adjustments (TRAs) - and carry out immediate
preventive and remedial measures.
(4) Streamlining of Process for Approval and Adjustment of Tariff Rates

Before bidding out the Project, IA should clear with the Tariff Approval Authority such as TRB, and
get the latter to officially concur in, the provisions of the draft CA and other Bidding Documents
which, among other things, call for the automatic adoption of the initial Tariff Rates based on the bids,
as well as of the formulae for the periodic TRAs.
The Tariff Approval Authority should simplify the rules and procedures for evaluating and conducting
hearings on applications for periodic TRAs based on the provisions in the approved CA, and decide on
such applications within a fixed period of, say, 15 days, subject to appropriate
remedies/compensation as mentioned above in case this period is breached under a CL event.
a. Sanctions and Incentives
The Government should set up an accountability system of sanctions (penalties) and incentives
(rewards) that is linked to the quality of the performance of the Projects being handled and
overseen by IA and its key personnel, including, among other things, the management of CL
events. The objective is (a) to discourage IA and its officials/units from being negligent, lax, or
incompetent in supervising the Projects, particularly in dealing with substandard performance by
the Concessionaire and by the Government especially to avert CL events, and instead (b) to
motivate these Agencies/officials/units to be duly diligent and efficient in Project supervision to
ensure that both the Concessionaire and the Government properly discharge their contractual
obligations.
 Sanctions shall be calibrated according to the nature, gravity, and frequency of the sub-par
performance by those concerned, e.g., late ROW delivery, delayed issuance of CCC, and inaction
on TRA applications by the government, which could lead to CL events. The sanctions shall be
imposed, as applicable, on the underperforming and accountable Agency, officials and/or units
after due process. They may range from reprimand of the erring officials, demerits in their
promotion opportunities, and suspension from supervising projects, to monetary penalties and
reduction of the budget of the Agency/units/officials to offset actual GF payments incurred, and
dismissal of the concerned officials from the service.
 Incentives may include recognition, merit points for promotion opportunities, assignment to
larger/more challenging projects, and monetary performance bonuses. These shall be extended to
the good performing Agency/ personnel/units.
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The Study On PPP Institutional Building in The Philippines: Final Report (Non-Disclosure Version)

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THE STUDY ON PPP INSTITUTIONAL

BUILDING IN THE PHILIPPINES

Japan International Cooperation Agency (JICA)

KRI International Corp.

Chapter 1. Policy Matrix Prototype.................................................................................................... 1

5.5 Discussion in the CL Workshop ............................................................................................... 52

List of Tables and Figures

Table 6.2-12 Needs Assessment Results (Water Sector) ...................................................................... 68

Figure 2.2-1 Image of the Integrated Master Plan .................................................................................. 5

Figure 6.2-9 Present Capacity Level (Energy Sector) .......................................................................... 70

ADB Asian Development Bank

DOF Department of Finance

LRTA Light Rail Transit Authority

PInAI Philippine Investment Alliance for Infrastructure

TWG Technical Working Group

Chapter 1. Policy Matrix Prototype

1.1 About this Report

1.2 Policy Matrix Prototype

Table 1.2-2 Policy Matrix Prototype (Retrieved from JICA)

Please fill in→ADB Aziz.

National Investment Planning: xx done by xx in YY aaa aaa

[Policies which will make] investment planning

Please fill in→ADB Aziz. aaa aaa

Part II: Public Private Partnerships

Finance: Finance: Finance: Finance:

PDMF: PDMF: PDMF: PDMF:

Chapter 2. Necessity of Integrated Master Plan for Strategic

2.1 Issues of Existing Master Plans

Table 2.1-1 Major Development Plan and Master Plan

 Comparison and Prioritization of infrastructure projects are difficult.

These issues seem to arise from the following factors.

Image of the integrated master plan is shown in the following figure:

Road Sector Transport Sector Water Sector

Philippines Coordination and Integrated Master Plan

PPP Long List

PPP Short List

 The integrated master plan is applicable to multi-sectors (multi-agencies)

2.2.2 JICA’s Support to Develop Integrated Master Plan

2.3 Example of Integrated Master Plans in Indonesia: MP3EI and MPA

2.3.1 MP3EI (Masterplan for Acceleration and Expansion of Economic Development)

MP3EI consists of three main elements:

 Developing six Indonesia economic corridors, by establishing centers of development within

2.3.2 MPA (Metropolitan Priority Area) Master Plan

 City planning (Social, economic forecast, industry structure)

 Urban transportation planning and logistics planning Highway planning

4. Vision toward 2030 - MPA Development Vision 2030 -

JABODETABEK MPA Development Vision 2030

Figure 2.3-3 Infrastructure Development Plan of MPA Master Plan

Chapter 3. Back Analysis for Creation of PPP Enabling Environment

3.1 Regulatory Framework

(1) Senate Bill No.2710

 A legal and economic environment conducive to a mutually beneficial partnership

3.1.2 Latest Amendments to the BOT Law IRR

(1) Notable revisions in the 2012 IRR

a. Compulsory Contract Review

b. Direct Government Subsidy or Equity

c. Changes to Published Bidding Requirements

d. Formation of Special Purpose Company

e. Grant of Provisional Franchise