Archive for November, 2010


No Free Lunch
The ABCs of PPPs 

By Cielito Habito
Philippine Daily Inquirer
First Posted 05:16:00 11/23/2010

Filed Under: Government Contracts, Investments,Infrastructure

ASKED BY my wife what PPPs were and what the fuss about it was about, I thought a column to help demystify the topic to those among us who don’t even know what the acronym stands for (the great majority, I suspect) would help.The acronym stands for public-private partnerships, now the generic term used to refer to what we know through more familiar names like BOT (build-operate-transfer), BOO (build-own-operate), BLT (build-lease-transfer), and so on. In its narrow sense, PPP refers to the way public infrastructure facilities are provided by government without spending its own money up front, especially when it is strapped for cash as it is now. It does this by having a private firm build the facility, and then charge users for its use in order to recoup the firm’s investment and earn it (it is hoped)a reasonable profit.Under BOT, the private builder operates the facility once built, but must eventually transfer it to the government after recovering its investment plus reasonable profit, usually within a contract period of about 25 years. Under the BOO variant, the eventual turnover to the government need not even happen. Either way, government regulates the firm to protect the public interest and prevent it from charging excessive fees. The best known among the BOTs are the independent power producers (IPPs), private electric power generation companies that sold power to the National Power Corp. (Napocor) when the latter had nomoney to build its own power plants in the 1990s.

The EDSA MRT line is under a BLT arrangement, another variant wherein the private builder leases the facility to the government after its completion. Government thus operates the facility through a government corporation set up for the purpose. It pays the private builder a fixed lease (rental) every year throughout the contract period, by which the latter recovers its investment and due return. But here’s the catch: That fixed lease payment is guaranteed, whether or not the facility makes enough money (collects enough passenger fares and other revenues) to pay that lease. Alas, EDSA MRT does not—far from it, in fact. Thus, all of us taxpayers, whether or not we ride the MRT or live nowhere near it, end up helping pay that rent. But that is inevitably what happens when fares are kept too low to recover costs, left behind by years of rising prices everywhere else.

This is a current hot issue that merits a small digression. The government now faces the dilemma between implementing a substantial fare increase that is necessary but highly unpopular (to the MRT riders, at least)—or continuing to force non-MRT-riding taxpayers (including those living as far as Mindanao!) to pay a major part of the costs of running the facility. While the choice may be clear to many, it is a public policy decision that requires political will either way, and is more complex than meets the eye. Very much related to the issue is the management of buses plying EDSA, which the Metro Manila Development Authority (MMDA) now seeks to regulate more tightly after many years of lax enforcement of franchise rules. To the extent that too many of these buses have been allowed to congest EDSA traffic (with its attendant economic costs), demand for MRT rides is also reduced, affecting the facility’s financial viability.

In the BLT scheme governing the EDSA MRT, the fixed lease payment to the private firm eliminates all market risk, or the risk that there may not be enough demand in the market for its product—a standard risk any firm would normally face. The BOT scheme for the IPPs had a different way of guaranteeing such fixed return to the investors: through the controversial “take or pay” provision in their contracts. Here, government (through Napocor) guaranteed to pay the IPPs for an agreed amount of electric power, whether or not such power is produced given actual consumption in the market. Because of this guarantee, the private investors again face no market risk.

Herein lies a key policy question: Can one justify the government’s full assumption of market risk—a risk normally faced by any private investor—on top of the other risks it has already assumed (more on this below)? The answer is by no means obvious. One might argue that assuming market risk is the only way we could attract private investors to come in—a claim subject to debate, to be sure. One can also justify passing the burden to all taxpayers if the good or service involved has the characteristics of a public good. And so on.

Yet it is not guarantees against market risk that President Aquino is now being taken to task for. Rather, it is his recent public statement assuring potential PPP investors that the government will guarantee covered projects against all political, regulatory and judicial risk. This is the kind of risk involved when government reverses itself on an earlier contract commitment (as in the infamous case of Terminal 3 of the Ninoy Aquino International Airport). Indeed, incidents such as this could discourage a potential investor from getting into a PPP project at all. And these are risks that government should rightly assume, as forcing them on the private investor is decidedly unfair. In the end, the issue boils down to whether

P-Noy can rightfully guarantee against such risks, especially if projects are later proven to be anomalous.

The ultimate solution, then, should strike at the root: Let’s make sure all PPP projects are transparent and properly evaluated, so no such irregularities will ever arise. And I believe this government has the capability to ensure that.

* * *

E-mail: cielito.habito@gmail.com

For advice on forms, you may contact J.A.B. Bulao & Associates at jabblaw@yahoo.com or send a message to  Cell No. 09155205254. Our Address is at BSA Tower, 108 Legaspi St., Makati City (in front of Greenbelt 5).

DEED OF SALE WITH MORTAGE

 

KNOW ALL MEN BY THESE PRESENTS:

This DEED, made and executed in the _____________________ Philippines, by and between—

____________________________, of legal age, single/ married to ___________________________________ citizen, and with residence and postal address at ________________________, hereinafter the VENDOR,

— and —

____________________________, of legal age, single/ married to ________________________________  citizen, and  with residence and postal address at _________________________, hereinafter the VENDEE,

WITNESSETH: THAT—

WHEREAS, the VENDOR is the owner in fee simple of that certain parcel of land, together with all the buildings and improvements existing thereon, situated at ___________________, and more particularly described in Original/Transfer Certificate of Title No. __________ issued by the Register of Deeds of ___________, as follows:­­­­­­­­­­­­­­­­­­­

 

(Description appearing in the title)

WHEREAS, the VENDOR has offered to sell and the VENDEE has agreed to buy the above-described properly at a price payable under the terms and conditions herein set forth;

NOW, THEREFORE, for and in consideration of the total agreed purchase price of ________________________________PESOS (P_____________________), Philippine currency, part of which amounting to __________________________________ PESOS (P_________________) has upon the execution of this instrument been paid to the VENDOR by the VENDEE, the said VENDOR does hereby sell, transfer and convey unto the said VENDEE, his/her heirs and assigns the above-described real property, including the buildings and improvements existing thereon, free and clear of any lien or encumbrance, except such as herein  otherwise stated:

That to secure the payment of the aforementioned balance of the purchase price and such other obligations as may arise hereunder, the VENDEE does hereby constitute a first mortgage on the real property above described and object of this sale in favor of the VENDOR, his/her heirs and assigns;

That it is principal condition of this mortgage that if the VENDEE shall well and truly pay or cause to be paid to VENDOR the obligations set forth hereinabove on the dates therein stipulated, then this mortgage shall be of no further force and effect; otherwise, the same shall remain in full force and be subject  to foreclosure in the manner provided by law; and in the latter event, the VENDOR shall have the option to proceed judicially or extrajudicially and in the latter case said VENDOR shall be, as he/she is hereby, appointed attorney-in-fact of the VENDEE with special power of sale, and thereupon proceed to sell the mortgaged property at public auction in accordance with the procedure prescribed by Act 3135, as amended by Act 4118, and out of the proceeds thereof recover the obligations secure by this mortgage and other legal expenses incident to foreclosure, including attorney’s fees in a sum equivalent 10% of the obligations secured but in no case to be less than P___________________.

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands at the place first above written on this __________day of ___________________, 20____.

          ______________________             _______________________

                   Vendee                                                Vendor

          TAN ___________                                       TAN ______________

WITH OUR MARITAL CONSENT:

          ______________________             ________________________

                   Wife of Vendee                                 Wife of Vendor

SIGNED IN THE PRESENCE OF:

______________________________          ­­­­­­­­_______________________________

ACKNOWLEDGMENT

Republic of the Philippines                        ]

Province of _____________________________ |SS.

City/ Municipality of ____________________)

BEFORE ME, a Notary Public in and for _____________ City, Philippines, this _____ day of _________________, 20____  personally appeared:

          Name                             Res. Cert.             Date/Place Issued

_________________           ____________          ________________

                                                                             ________________

________________             ____________          ________________

                                                                             ________________

all known to me and to me known to be the same persons who executed the foregoing instrument and they acknowledged  to me that the same is their free and voluntary act and deed.

IN TESTIMONY WHEREOF, I hereunto set my hand and affix my notarial seal on the date and at the place first above written.

Doc No. _______

Page No._______

Book No. ______

Series of 19_____

SPECIAL POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That I, __________________________, of legal age, single, Filipino citizen and resident of ______________________________________________, do hereby name, constitute and appoint _______________________________, of legal age and resident also of __________________________________, to be my true and lawful attorney-in-fact, for me and in my name, place and stead, to do and perform the following special powers, to wit:

_____________________________________________________________

_____________________________________________________________

_____________________________________________________________

_____________________________________________________________

HEREBY GIVING AND GRANTING unto my said attorney-in-fact full power and authority to do and perform any and every act and thing whatsoever requisite, necessary or proper to be done in and about the premises as fully to all intents and purpose as I might or could do if personally present and acting in person; and

HEREBY RATIFYING AND CONFIRMING all that my said attorney-in-fact shall lawfully do and cause to be done under by virtue of these presents.

IN WITNESS WHEREOF, I have hereunto set my hand at ____________, Philippines, on this ____________ day of ________________, 20______.

____________________

                                                          Principal

Conforme:

______________

          Attorney-in-fact

SIGNED IN THE PRESENCE OF:

____________________________             ___________________________

ACKNOWLEDGMENT

Republic of the Philippines

Makati City                  ) S.S.

BEFORE ME, a Notary Public in and for Makati City, Philippines, this ______________ personally appeared:

Name                             Res. Cert.             Date/Place Issued

_________________           ____________          _________     _______

_________________           ____________          _________     _______

known to me to be the same persons who executed the foregoing instrument and they acknowledged  to me that the same is their free and voluntary act and deed.

IN TESTIMONY WHEREOF, I have hereunto set my hand affixed my notarial seal on the date and at the place first above written.

Doc No. _________

Page No._________

Book No. ________

Series of 20____.

For advice on forms, you may contact J.A.B. Bulao & Associates at jabblaw@yahoo.com or send a message to  Cell No. 09155205254. Our Address is at BSA Tower, 108 Legaspi St., Makati City (in front of Greenbelt 5).