Mactan Airport, NCR water deals reviewed for contingent liability

THE Department of Finance (DoF) said the contracts for 12 major public-private partnership (PPP) projects have been reviewed to evaluate the risk of contingent liabilities which may arise later, possibly forcing the government or the projects’ users to pay more than initially agreed.

The DoF said in a statement on Tuesday that it reviewed the contracts for the Mactan-Cebu Airport Project, the Cavite-Laguna Expressway, the Clark International Airport Expansion Project and the Metro Rail Transit Line 3, as well as the concessions to supply water to the capital region held by Maynilad Water Services, Inc. and Manila Water Co.

Also reviewed were the contracts of the LRT1 Cavite Extension and Operations and Maintenance Project, MRT Line 7, the Muntinlupa-Cavite Expressway, the NLEX-SLEX Connector Road, the Bulacan Bulk Water Supply Project and the Southwest Integrated Transport System Phases 1 and 2.

The DoF said its privatization and special concerns office conducted the review. The office has recommended the creation of a specialized risk management office.

“Such extensive review of PPP projects, which we hope to be institutionalized for the ultimate benefit of our people, would ensure that the government is free from undue risks or contingent financial liabilities,” Finance Secretary Carlos G. Dominguez III said.

These risks, he said, “have to be shouldered by the public in the form of more taxes or higher fees charged by the concessionaires for the use of their facilities until such time that these are turned over to the state.”

The office is also evaluating 40 PPP proposals submitted to the National Economic and Development Authority (NEDA) which have not yet been acted on, and its input was considered in amending the implementing rules of the Build-Operate-Transfer (BOT) law. This law authorizes the private sector to finance, build, operate, and maintain infrastructure projects.

The NEDA and the PPP Center earlier this month detailed the proposed changes to the implementing rules and regulations of Republic Act No. 6957, or the BOT law.

Under the draft rules, projects to be considered will need a complete feasibility study, along with economic and financial models based on recent data.

Finance Undersecretary Grace Karen Singson said that the government should make the assessment of risk, government guarantees, and contingent liabilities a permanent feature, such as a specialized risk management office at the project proposal level.

Risk management has thus far only been performed on an ad hoc basis by technical working groups without resources, she said.

“Currently, the provisioning for contingent liabilities is based on estimated termination payments, a low probability event, and does not account for actual claims that are frequently demanded by concessionaires during the implementation of their PPP projects,” the DoF said.

The proposed risk management office will evaluate contingent liabilities and risks the government may be exposed to, recommend risk mitigation measures, and help the Development Budget Coordination Committee implement a risk management program.

The proposed office would also evaluate proposals that need sovereign guarantees, the DoF said. — Jenina P. Ibañez