Dissecting PPP contracts # 5: Grant of rights

Dissecting PPP contracts # 5: Grant of rights

By what authority can a private-sector proponent (PSP) in a public-private partnership (PPP) arrangement operate a project that is traditionally government’s? By what right can that PSP charge and collect fees from the consumers or public? What does government get in return under the scheme?

In a PPP, let us say, for water supply, power transmission, public market, toll road or bridge, airport, reclamation or telecommunications, how can the PSP undertake these? In order for the PSP to do these, there must be a “grant of rights”.

Indispensability. No grant, no project. Without this grant, concession, license, or vestiture of authority by government, the PSP cannot supply water, transmit power or operate a public market, charge fees and earn from the project. The PSP, on its own, cannot do these “public” projects without an express grant.

Grantor. The relevant government agency—national government agency, government corporation or instrumentality, regulatory agency or local government unit—which, under its mandate, has the responsibility to pursue or regulate a particular PPP project, must accede and make such grant.

Grantee. In a PPP, the grantee is the winning PSP. After going through competition for the market, the PSP secures the award.

Object. By reason of the grant, the grantee-PSP, under the terms of the PPP contract or grant instrument, is empowered and becomes responsible and accountable for
financing, designing, constructing and operating the project. Under a build-operate-transfer modality, the PSP assumes these, while in a joint venture, these functions are shared.

Exclusivity. Depending on the sector, project, relevant law and terms of reference, the grantee-PSP, to the exclusion of others, could be vested the exclusive authority to provide the service.

Period. The extent of the concession or grant of right normally coincides with the period of the effectivity of the PPP contract. At the end of the grant period, the grantee loses its right and the right returns to the source, i.e., the grantor. If there is a termination of the arrangement, then the grant is, likewise, canceled.

Form. The grant of rights can be embodied in the main PPP contract or contained in a separate agreement, typically if another agency will be the grantee. The contract or license is the enabling instrument and proof of the grant.

Consideration. Government does not make the grant for free. Government expects payment of a grant or concession fee. This amount can be the floor or reserve price in a competitive process. The grant can also take the form of government participation in a PPP arrangement, like a joint venture, where the grantor-government gets, at the minimum, the equivalent value of the grant.

Subject to regulation. The grant comes with a condition, payment included. The terms of that condition are intimately connected with the terms of the main PPP contract. A grant of rights does not result in the abdication of government’s power to regulate, set policy and determine the rates.

For us consumers and end-users, we must make sure that the grant is not abused or unused or wasted. After all, the reason the government makes such a grant is for our own benefit.

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