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Changing the rules of the concession game – the 3 kinds (conclusion)

Changing the rules of the concession game – the 3 kinds (conclusion)


Will the next administration respect the public-private partnership (PPP) arrangements entered into by the previous one, continue the concession franchise under the original parameters, or will it alter the tariff mechanism, cancel the contract or change the interpretation of provisions of PPP contracts?

Not being certain about the answers to these questions raises fears about the sustainability and integrity of PPP and concession contracts. Every time a new president, governor, mayor, general manager or administrator assumes his or her position, the anxiety escalates. This is successor risk.

The worst kind—contract cancellation. Early this year, as reported in the media, the International Center for the Settlement of Investment Disputes of the World Bank directed the Philippine government to pay P1 billion.

Why? After securing all the clearances from government agencies during the Arroyo administration, the contract for the P18-billion flood-control project along Laguna Lake was canceled under the second Aquino administration. The cancellation was effected through the nonacceptance of the grant from the Belgian government.

The worse kind—change in interpretation. For the two water concessions in Metro Manila, the recoverability of the corporate income tax became an issue. For 13 years, it was consistently held that Manila Water and Maynilad were classified as agents and contractors of Metropolitan Waterworks and Sewerage System (MWSS) who was the public utility.

But MWSS under the second Aquino administration modified the then prevailing opinion. It held that the concessionaires are the public utilities themselves. As a consequence, it reversed the practice and rejected the claim of the concessionaries that they could recover the information and communications technology (ICT).

The other kind—recall of some delegated functions. Another form of successor risk is the attempt of the government to assume functions that have been delegated to concessionaires. The plan of the National Transmission Corp. (Transco), as reported in newspapers, to undertake the completion of the Visayas-Mindanao grid interconnection may be construed as one such interference.

This function has been granted to the National Grid Corp. of the Philippines (NGCP) under its Congressional franchise. Under the law, NGCP has the exclusive mandate to construct, rehabilitate, finance, operate, manage and maintain the nationwide transmission system.

Harmful effects of successor risk. The likelihood of successor risk happening in the Philippines is, arguably, becoming “likely” and its impact and significance on existing PPP contracts and PPP policies is “major”, even “catastrophic”. The occurrence of this risk dampens investor confidence and, worse, it deprives the people of much needed facilities and services.

Laguna de Bay remains silted and lakeshore residents face flooding risk. The unrecoverability of the ICT heightens the possibility that future water and wastewater service obligations will not be met. Using government funds for a project already “conceded” to NGCP deprives the public of resources for social-development projects.

Why is this happening? Lack of trust is the culprit. The current administration simply does not trust the past. If the cycle continues, the future will not trust the current.

Admittedly, trust is not a given in politics. But trust is needed in any partnership, PPPs included. Meaningful dialogue and genuine openness are key to building trust. Every administration should start on the right foot.

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