Sunday, June 26, 2022

Revised IRR of BOT law on MAGA

There is a big controversy in the recent move by outgoing leadership of NEDA (Sec. Karl Chua) and DOF (Sec. Sonny Dominguez) revising the implementing rules and regulations (IRR) of the Build Operate Transfer (BOT) law as implemented by the Public Private Partnership (PPP) Center. See these reports and articles.

The high price of (not) properly dealing with MAGA
Taxwise Or Otherwise
By Jose Patrick S. Rosales March 9, 2022

A hot topic on government undertakings is government liabilities arising from Material Adverse Government Action (MAGA). According to the World Bank’s Guidance on PPP Contractual Provisions (2019), MAGA may be defined as “any act or omission by the government contracting authority (GCA) or any relevant public authority, which occurs during the term of the PPP Contract and which directly causes the private sector partner (PSP) to be unable to comply with all or some of its obligations under the PPP Contract and/or has a material adverse effect on its costs or revenues....

If the above view is adopted, however, two consequences arise. First, MAGA becomes a form of support or contribution that may only be extended to solicited projects. This means that original proponents of unsolicited proposals cannot be compensated for MAGA events. Second, MAGA can at most only cover liabilities up to 50% of the total project cost, since it is merely an additional form of “support” along with other government undertakings in the project (if any). Perhaps a different view may be adopted. Section 13.3 covers various forms of support or contribution to the project, which a MAGA clause is not. Instead, it is more akin to a form of compensation by way of damages arising from a contractual breach (committed by the government), where such payment is meant to indemnify the injured party (i.e., the PSP) for the damage or loss caused by the breach. As such, MAGA is more a form of penalty on government, and not an undertaking by it, for failure to abide by its obligations under the PPP contract.

MBC opposes changes to BOT Law IRR
March 17, 2022 by James A. Loyola

In a letter to NEDA Secretary Karl Kendrick T. Chua, MBC Chairman Edgar O. Chua said “the timing and tenor of some of the proposed changes could offset recent gains and weaken the country’s chances of boosting infrastructure, investment, trade, and creation of jobs.”

Chua said the MBC “would like to request more than the six working days given to more thoroughly consider all the proposals. As well, with less than 60 days before the 2022 National Elections, the expected benefit of any changes may be discounted by the perception that they may be changed anew by the incoming administration.”

“A significant point of concern for us are the exclusions from what MAGA effectively covers. The BOT IRR exempts the following acts from MAGA coverage: acts of the executive branch, acts of the agency/LGU and approving body, acts of the legislative and judicial branches,” said Chua.

Why in the last two minutes?
By: Peter Wallace  / 05:03 AM March 24, 2022

The build-operate-transfer (BOT) law implementing rules and regulations (IRR) committee, chaired by the National Economic and Development Authority (Neda), has raised the wish to change the current IRR of the BOT law....

The one I particularly don’t understand is MAGA. MAGA is material adverse government action and, as I understand it, this is where the government makes a change—by law or executive action—that will have an adverse effect on the private sector proponent, yet expects the proponent to accept some of the consequent additional cost or increased difficulty imposed by the change. Why? Why should the affected party, the one who’ll be adversely affected yet has no say or control of the change, have to accept some of the risk imposed by the change?

BOT IRR seen forcing private partners to take on more risk
May 3, 2022

The government cannot be taken to court for arbitration, according to Section 12.22 of the BOT Revised IRR, or the Resolution of Disputes between the Contracting Parties. The IRR states that “Acts and decisions of Regulators shall not be subject to arbitration,” and that “in default thereof, the venue shall be in the Philippines.”

The revised IRR also includes a material adverse government action (MAGA) clause. It defines MAGA as “any act of the executive branch, which the Project Proponent had no knowledge of, or could not reasonably be expected to have had knowledge of, prior to the effectivity of the contract; and that occurs after the effectivity of the contract, that: specifically discriminates against the project proponent; and has a material adverse effect on the ability of the project proponent to comply with any of its obligations under the contract.

The article cited 2 cases, Manila Water sued the govt at the PCA and won. Then PIATCO sued the govt at ICC but govt won. Not mentioned there Malampaya consortium sued COA in a court in Singapore re huge tax extortion, P147 B as of 2018,

I think the consortium won but still needs SC ruling to be executory. When govt changes rules midway and affect big investors, often multinationals, intl arbitration is necessary, not limit to PH courts.

Chua: Amended BOT IRR to protect Filipinos from PPP contingent liabilitiesv
Ben O. de Vera -- May 12, 202

The private sector was jittery about the revised BOT law’s implementing rules and regulations (IRR) approved by Duterte’s economic managers, which not only shielded the government from arbitration, but also provided supposedly “anti-market” definitions of contingent liabilities arising from PPP projects.

“The last two years show that our contingent liabilities are also going up, so we have to find the best way to address the problem today, and that is why we pursued the BOT law IRR amendment,” the Neda chief said.

Contingent liabilities included material adverse government action (Maga) clauses, force majeure, breach of government warranties, as well as failure to deliver contractual obligations, the amended IRR said.

BOT Law IRR Committee approves 2022 Amended BOT Law IRR
May 12, 2022

To remove uncertainty in the rules on project variations, the 2022 IRR authorizes the Approving Body to set a cap on allowable variations during the project evaluation stage, which in no case shall exceed 10 percent of the original project cost.

Moreover, the 2022 IRR now requires the contract to define the materiality thresholds and compensation which the Project Proponent shall be entitled to, following the occurrence of a material adverse government action.

Nonetheless, for the benefit of the consuming public, regulatory acts of the Executive Branch are excluded from MAGA (material adverse government action).


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