Proposed JV guidelines may turn off investors

By Luisa Maria Jacinta C. Jocson, Reporter

A PROPOSAL to require joint ventures (JV) between the government and private entities to secure regulatory approval for any adjustments in tolls, tariffs and other fees may discourage investors, according to stakeholders and economists.

“There may be a risk. Will it be implemented in accordance with what is agreed? That’s the crux of the investors’ decision, less about the regulator coming in before the bidding, it’s more of whatever is agreed will be implemented in accordance with the agreement,” Romulo S. Quimbo, Jr., NLEX Corp. senior vice-president for communications, said in a phone interview last week.

“Otherwise, it becomes uncertain for the investor, it puts them at risk. If every three years they need to ask for approval, that’s an uncertainty,” he added.

The National Economic and Development Authority (NEDA) last week held consultations on the proposed amendments of its JV guidelines between the government and private sector. 

Under the draft rules, tolls, fees, tariffs, and other charges to be imposed by JVs will require regulatory approval. These can be adjusted during the life of the contract, based on an approved formula or adjustment schedule in the approved contract.  Prior to the bidding, the agency or local government unit (LGU) should secure the advice of the regulator or the approval of a relevant body, or both, on the formula for rate adjustments, which will also be monitored by an appropriate regulatory body.

Mr. Quimbo noted it is important for investors to be assured that the agreed-upon tariff adjustments will be implemented.

“When the tariff is set in a project, the investor looks at the certainty that it will be adjusted regularly, whether one or two years, it doesn’t matter. The point is that JVs should also adapt that measure, that whatever tariff settings should be certain,” he added.

In NLEX’s case, Mr. Quimbo said periodic toll adjustments are allowed for its concessions. For example, NLEX tolls are to be adjusted every two years, while Subic-Clark-Tarlac Expressway has a yearly toll adjustment.

“Most concession agreements are long-term investments. The logic there is that the return has to be agreed before the project starts… It anticipates the predictability and the regularity of toll adjustments,” he said.

“From time to time, the adjustments called for by the agreement are not implemented on time for many reasons…that kind of affects the financials of the company. It creates uncertainty, whether you’re going to meet your return or not,” he added.

In May, NLEX Corp. hiked its toll rates by P2 in the open system and P0.34 per kilometer in the closed system. According to the firm, the increases were part of the approved periodic adjustments of NLEX due in 2016 and the completion of the new Subic Freeport Expressway in 2021.

TRANSPARENCY
Meanwhile, a public investment analyst said requiring regulatory approvals for any rate or tariff adjustments would ensure accountability and transparency in JVs and public-private partnerships (PPPs).

“PPPs are either public utilities or businesses imbued with public interest, and as such, regulatory approval ensures that the public good and interest will be considered in the determination of tolls, fees, tariffs and other charges,” Terry L. Ridon, convenor of think tank InfraWatch PH, said in an e-mail.

“Regulatory risk should be appropriately considered by the private sector before undertaking any PPP with the government, but the government should not surrender its obligation to safeguard the public interest,” he added.

Mr. Ridon also noted that investment risk can be managed through longer project time frames, stiffer penalties for material adverse government action and reducing government concession fees.

Antonio A. Ligon, a law and business professor at De La Salle University, likewise said that the regulation is a welcome development so that adjustments in tolls and fees can be properly monitored.

“Toll fees, unlike taxes, are set for collection to users of the road to recover the cost of road development…the regulators should also monitor when the toll fees should be removed particularly if the cost or investment on road development has been recovered by the developer or the builder,” he said in a Viber message.

“While the companies might have apprehension on regulating the toll fees, the overall advantage of safeguarding public interest should be prioritized. I believe this move is in line with transparency and good governance, which is a responsibility of both public and private sectors,” he added.

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