Think tank pushes lease, corporatization for PPP projects

MANILA, Philippines - A private think tank is pushing for the adoption of two proposals to further boost the Aquino administration’s heightened efforts to entice investors to sign up for Public-Private Partnership (PPP) arrangements in big-ticket government projects.

Forensic Law and Policy Strategies Inc. said lease contracts and corporatization of certain state institutions should also be seriously considered for PPP projects, which President Aquino believes to be the primary tool for the government to mount a cash-intensive public infrastructure buildup without the need to raise needed funds by imposing new taxes.

In its policy paper titled “PPP: The Lease Option for Publicly Owned Realty,” Forensic Solutions said government can explore lease agreements for large-scale undertakings such as PPP projects without undergoing tedious processes, while, at the same time, ensuring mutually beneficial terms and conditions for the parties involved in these deals. 

It likewise pointed out in a separate policy paper that corporatization should also be tapped as another feasible alternative for implementing PPPs, “particularly when the government wants to take advantage of this option’s primary goal, which is to guarantee efficiency, productivity and financial sustainability for government-owned or controlled corporations (GOCCs) and local government units (LGUs).”

Through this option, the study said government could establish a distinct legal entity for a company under which its role is clearly identified as the owner, while segregating the company’s assets, finances, and operations from state operations, then later on sell the company.

At the same time, corporatization would also enable the company to exercise managerial independence while remaining accountable to the government or the electorate.

Besides lease agreements and corporatization, the other modes for PPPs are BOT, joint venture, procurement, concession, and disposition or divestment, the think tank said.

Forensic Solutions noted that “the Aquino administration appears to be focusing only on the BOT, when there are six equally viable routes in implementing PPP that the government should also explore because not all projects can fall under the BOT option.”

“The government must realize that there are other modes for the PPP,” Forensic solutions said. “GOCCs and the LGUs, under their respective mandates and charters, should be allowed to choose from the other options available to them, whichever is the most feasible and most advantageous for the government.”

In presenting the lease agreement option as a viable PPP alternative to the BOT, Forensic Solutions noted that the Government Procurement Policy Board (GPPB) had already ruled that this route is not covered by Republic Act 9184 – the Procurement Law – because it does not involve public expenditures when the government is the lessor (vendor). 

When the government is the lessee, though, the process is considered a procurement and falls within the ambit of the GPPB, it said.

It stressed, though, that if the arrangement is not a straight lease but a lease as a mode of PPP, “negotiation is the exception, not the rule.”

“Open competition or the conduct of a Swiss challenge is required for: lease with the option to purchase given to the private proponent in joint ventures where the equity of government is the advanced rentals on its properties; grant of concessions of government rights coupled with lease; and built-lease-transfer under the Build-Operate-Transfer Law,” it noted.

Another exception is when the lease involves baselands properties and facilities, which, under Republic Act 7227, should be done after a public bidding proces.

“Lease as a PPP option for a large-scale undertaking is worth considering. The rules on lease are straight-forward, the approval process less cumbersome, and the period of negotiating the lease contract is very reasonable,” the paper said.

“More importantly, because lease is fundamentally a contractual undertaking, the government entity (be it as lessor or as lessee) and the private sector must craft mutually beneficial terms and conditions to further their respective interests,” it added.

As for corporatization, Forensic Solutions said this viable PPP option would help the government bridge the funding gap in implementing projects for which it does not have sufficient resources, by inviting private capital initially through equity participation.