PRIVATE SECTOR DEVELOPERS

DEFINITION
1 ) In real estate development, the private sector refers to private developers or housebuilders.
The private sector is responsible for constructing, financing, or operating responsibilities in
relation to the public facility of asset. The private sector is known for its innovations, capacity and
capability in project planning, designing, construction and completion of the projects without
involving any time-overrun and cost- overrun.

2) ROLE OF THE SECTOR AND ITS IMPORTANCE

The majority of infrastructure and development projects in the Philippines have always been undertaken
by the Government. However, given its limited resources, the government has grown more timid, if not
reluctant, in undertaking such projects.

3) Hence, the role of the private sector, both local and foreign, in infrastructure and development
projects is seen as crucial in sustaining the country’s economic growth and development in the
new millennium.

4) Thus, private sector participation in infrastructure and development projects has been actively
encouraged by the Philippine Government since 1990 with the passage of Republic Act No. 6957
otherwise referred to as the Build-Operate-Transfer or "BOT Law". In 1994, the Philippine
Government enacted an amendatory law, Republic Act No. 7718, which expanded the earlier BOT Law by
providing more project arrangements or schemes, enhancing the coverage of projects eligible for BOT
arrangements, and allowing direct negotiations and acceptance of unsolicited proposals for projects under
certain conditions.

5) The BOT Law authorized all government agencies, including those government owned and
controlled corporations and local government units ("LGU") allowed by law or by their respective
charters to undertake infrastructure or development project ("public sector"), to enter into
contracts with pre-qualified private proponents for the construction, rehabilitation, improvement,
expansion, modernization, operation, financing and maintenance of infrastructure or development
projects.

6) The list of projects which may be wholly or partly implemented by the private sector under the
BOT Law, includes but are not limited to -

 7) Highways, including expressway, roads, bridges, interchanges, tunnel, and related

facilities;
 Railways or rail-based projects packaged with commercial development opportunities;
 Non-rail based mass transit, navigable inland waterways and related facilities;
 Port infrastructures like piers, wharves, quays, storage, handling, ferry services and
related facilities;
 Airports, air navigation, and related facilities;
 Power generation, transmission, sub-transmission, distribution, and related facilities;
 8) Telecommunication, backbone network, terrestrial and satellite facilities and related
service facilities;
 Information technology and data base infrastructure;
 Irrigation and related facilities;
 Water supply, sewerage, drainage, and related facilities;
 Education and health infrastructure;
 Land reclamation, dredging and other related development facilities;
  Industrial and tourism estates or townships, including related infrastructure facilities and
utilities;
 9) Government buildings, housing projects;
 Markets, slaughterhouses, and related facilities;
 Warehouses and post-harvest facilities;
 Public fish ports and fishponds, including storage and processing facilities; and,
 Environmental and solid waste management related facilities such as collection
equipment composing plants, incinerators, landfill and tidal barriers, among others.

10) The contractual arrangements or schemes allowed under the BOT Law are:
1. BUILD-OPERATE-TRANSFER ("BOT") – A project proponent undertakes the construction, including
financing, of a given infrastructure facility, and the operation and maintenance thereof. The project
proponent operates the facility over the fixed term during which it is allowed to charge facility users
appropriate tolls, fees, rentals, and charges to recover its investment, and operating and maintenance
expenses plus a reasonable return. The project proponent transfers the facility to the government agency
or LGU concerned at the end of the fixed term.

The BOT arrangement shall include a supply-and-operate contract whereby the supplier of equipment
and machinery, if the Government so requires, operates the facility and provides technology transfer and
training to Filipino nationals.

2. BUILD-TRANSFER ("BT") — A project proponent undertakes the financing and construction of a given
infrastructure or development facility and after its completion turns it over to the government agency or
LGU concerned, which shall pay the proponent, on an agreed schedule, its total investments expended
on the project, plus a reasonable return thereon. This arrangement may be employed in the construction
of any infrastructure or development project, including critical facilities which, for security or strategic
reasons, must be operated directly by the Government.

3. BUILD-OWN-OPERATE ("BOO") — A project proponent will finance, construct, own, operate and
maintain an infrastructure or development facility from which the proponent is allowed to recover its total
investment, operating and maintenance costs plus a reasonable return thereon by collecting tolls, fees,
rentals or other charges from facility users. All such projects require the favorable recommendation of the
National Economic and Development Authority ("NEDA"), and the approval of the President of the
Philippines. Under this scheme, the proponent which owns the facility may assign its operation and
maintenance to a facility operator.

4. BUILD-LEASE-TRANSFER ("BLT") — A project proponent will finance and construct an infrastructure

or development facility and, upon its completion, turn it over to the government agency or LGU concerned
on a lease arrangement for a fixed period after which ownership of the facility is automatically transferred
to the government agency or LGU concerned.

5. BUILD-TRANSFER-OPERATE ("BTO") — The public sector contracts out the building of an

infrastructure facility to a private entity such that the contractor builds the facility on a turn-key basis,
assuming cost overrun, delay, and specified performance risks. Once the facility is commissioned
satisfactorily, title is transferred to the implementing agency/LGU. The private entity however, operates
the facility on behalf of the implementing agency/LGU.

6. CONTRACT-ADD-OPERATE ("CAO") — This is a contractual arrangement whereby the project

proponent adds to an existing infrastructure facility which it is leasing from the government. It operates the
expanded project over an agreed franchise period. There may, or may not be, a transfer to the
government in regard to the added facility.

7. DEVELOP-OPERATE-TRANSFER ("DOT") — This is a contractual arrangement whereby a private

proponent of a new infrastructure project is also given the right to develop adjoining property, and thus,
enjoy some of the benefits the investment creates such as higher property or rent values.

8. REHABILITATE-OPERATE-TRANSFER ("ROT") — This is a contractual arrangement whereby an

existing facility is turned over to the private sector to refurbish, operate and maintain for a franchise
period, at the expiry of which the legal title to the facility is returned to the government.

The term is also used to describe the purchase by a project proponent of an existing facility from abroad,
importing, refurbishing, erecting and consuming it within the host country.

9. REHABILITATE-OWN-OPERATE ("ROO") - This is a contractual arrangement whereby an existing

facility is turned over to the private sector to refurbish and operate with no time limitation. As long as the
operator is not in violation of its franchise, it can continue to own and operate the facility in perpetuity.

11) The BOT Law allows variations of the foregoing project arrangements subject to the approval
of the President of the Philippines.

Project proponents may engage the services of foreign and/or Filipino contractors to build or
construct the project facility. In the case of foreign contractors, Filipino labor shall be employed or
hired in the different phases of the construction where Filipino skills are available.

A list of the projects to be undertaken under the BOT Law by government agencies and LGUs (in case of
LGU projects worth more than P200 Million) is required to be submitted to the NEDA for its approval.
Approved projects shall be subject to public bidding. Direct negotiation may be resorted to when there is
only one qualified and complying bidder.

12) For projects which are not on the list of approved projects, and/or involve a new concept or
technology, unsolicited proposals may be considered by the government agency or LGU
concerned provided (i) no direct government guarantee, subsidy or equity is required, (ii) approval
from the NEDA (or the concerned local development council for LGU projects costing less than
P200 Million) is obtained, and (iii) the government agency or LGU has invited comparative or
competitive proposals and no other proposal is received within sixty (60) working days from date
of issuance of the tender documents. In the event another proponent submits a lower price
proposal, the original proponent shall have the right to match that price.

If a project requires a public utility franchise, the winning proponent shall be granted by the appropriate
government agency or LGU a franchise to operate and maintain the facility, including the collection of
tolls, fees, rentals, and charges.20 However, the facility operator, whether or not it is the proponent, must
be a Filipino or, if a corporation, must be duly registered with the Philippine Securities and Exchange
Commission and at least sixty percent (60%) Filipino-owned.

For the construction of these projects, the private proponents may obtain financing from foreign and/or
domestic sources. Projects which would have difficulty in sourcing funds may be financed from direct
government appropriations and/or from Official Development Assistance (ODA) funding from foreign
governments or institutions to the extent not exceeding 50% of the project cost. Government may also
provide support through cost-sharing, credit enhancements, direct (except for unsolicited proposals) and
indirect subsidy, and government equity.
13) To cover their investments, operating costs, and reasonable return, private proponents shall
be authorized to collect reasonable tolls, fees, and rentals for the use of the project facility, as
specified in the contract, for a fixed term not exceeding 50 years. The tolls, fees, rentals, and
charges may be adjusted based on a predetermined formula using official price indices and as
indicated in the contract. For negotiated contracts, and for projects which have been granted a natural
monopoly or where the public has no access to alternative facilities, the appropriate government
regulatory bodies shall approve the tolls, fees, rentals, and charges based on a reasonable rate of return.
Where applicable, the proponent may likewise be paid in the form of a specified share in the revenue of
the project or other non-monetary payments, such as, but not limited to, the grant of commercial
development rights or the grant of a specified portion or percentage of the reclaimed land, subject to the
constitutional requirements with respect to the ownership of land. In BT and BLT arrangements, where the
public sector operates the facility, the private proponent will receive amortization payments from the
government agency or LGU concerned.

14) To further encourage private sector participation, certain incentives such as income tax
holidays, tax and duty exemptions and credits, and employment of foreign nationals are available
under the Omnibus Investments Code upon registration of the project with the Board of
Investments. In projects costing 1 Billion Pesos or less, the incentives are available only if the
project activity or sector is included in the current Investments Priority Plan. Projects may also be
entitled to incentives as are provided by other existing Philippine laws.

References:
https://www.alakedreaming.com/post/public-vs-private-sector-is-there-a-difference-between-the-two-
sectors-property-development
https://mchi.net/role-of-private-sector-in-making-value-addition-to-housing/
https://www.mondaq.com/investment-strategy/9061/private-sector-participation-in-infrastructure-and-
development-projects-in-the-philippines