In the News: Aquino Reassures Investors Against Regulatory Risks

Posted on December 8, 2010 by Philbert E. Varona The Philippine government sponsored the In rastr!ct!re Philippines con erence held on "ovember 18#1$, 2010 as part o its e orts to dr!m !p investor interest in Philippine in rastr!ct!re pro%ects and p!blic#private partnerships. The con erence &as generally met &ith optimism rom both potential pro%ect sponsors and inanciers. This &as d!e at least in part to the government's promise to ins!late in rastr!ct!re pro%ects rom reg!latory ris(. In his (eynote address delivered on "ovember 18 )copy available or vie&ing here*, President +enigno ,. -.!ino III stated that/ The government &ill provide investors &ith protection against reg!latory ris(. In rastr!ct!re can only be paid or rom !ser ees or ta0es. 1hen government commits to allo& investors to earn their ret!rn rom !ser ees, it is important that that commitment be reliable and en orceable. -nd i private investors are impeded rom collecting contract!ally agreed ees 2 by reg!lators, co!rts, or the legislat!re 2 then o!r government &ill !se its o&n reso!rces to ens!re that they are (ept &hole. 3 4et me provide yo! an e0ample o ho& reg!latory ris( protection may &or(/ - contract bet&een the government and a private entity b!ilding a road or a bridge may speci y a orm!la or rate ad%!stments. I or some reason, a co!rt decision threatens the ad%!stment, the government &ill compensate the private concessionaire or the di erence bet&een &hat the tari sho!ld have been !nder the orm!la, and the tari &hich it is act!ally able to collect. )Emphasis s!pplied.* President -.!ino and the members o his 5abinet stressed, ho&ever, that the commercial or mar(et ris( o any in rastr!ct!re pro%ects !nderta(en by the -.!ino administration &o!ld be borne by the investors. ,igni icantly, %!st a month earlier, the ,!preme 5o!rt had prom!lgated a decision in the case o Francisco v. Toll Regulatory Board )6.7. "os. 188$10, 18$$19, 19:8:0 and 18:;$$< =ctober 1$, 2010* )copy available or vie&ing here*, &hich co!ld very &ell give potential investors pa!se. =ne o the iss!es involved in that case &as &hether a contract!al stip!lation bet&een the government and the operator o a toll&ay, &hereby the Toll 7eg!latory +oard )T7+* agreed to pay the operator the di erence bet&een a pre#agreed amo!nt o toll ees and the amo!nt act!ally approved or collection rom the p!blic, &as valid. )In other &ords, the T7+ had agreed that i the toll rates approved by the reg!latory body &ere less than the amo!nt o toll ees set or as ad%!sted in accordance &ith the contract 2 say, or the sa(e o disc!ssion, an approved toll rate o P:0.00 vers!s a contract!ally#set toll rate o P;0.00 2 then the T7+ &o!ld pay the operator the P20.00 short all.* -ccording to the ,!preme 5o!rt, this type o contract!al stip!lation is void, beca!se/

)a* it amo!nts to a >g!arantee ?by the government@ o a sec!rity in the inancing o the toll operator,A &hich is e0pressly prohibited by ,ection :)e*);* o Presidential Decree "o. 1112 )the charter o the T7+*< and )b* it violates -rticle VI, ,ection 2$ o the 5onstit!tion, &hich provides that >?n@o money shall be paid o!t o the Treas!ry e0cept in p!rs!ance o an appropriation made by la&,A and ,ections 8B and 8; o Presidential Decree "o. 1BB; )&hich impose the same re.!irement as the 5onstit!tion*, and here, there &as no s!ch 5ongressional appropriation. In other &ords, the ,!preme 5o!rt has recogniCed that there are 5onstit!tional and stat!tory h!rdles that need to be overcome be ore pro%ect proponents may be ins!lated rom reg!latory ris(. -ltho!gh the Francisco decision is not yet inal and e0ec!tory and it remains to be seen &hether the oregoing prono!ncements &ill attain precedential &eight, once the administration's in rastr!ct!re program act!ally gets o the gro!nd, it &o!ld be interesting to see ho& the -.!ino administration &ill implement its !nderta(ing to protect investors rom reg!latory ris(.