The Public Is Marginalized in Private Sector Infrastructure or Development Projects

Malaluan is a trustee of Action for Economic Reforms, co-convenor of the Access to Information Network, and steering committee member of Global Transparency Initiative. This article was published in the Opinion Section, Yellow Pad Column of BusinessWorld, May 28, 2007  edition, page S1/4.

On 10 May 2007, the BOT-IRR Committee conducted a public hearing on proposed amendments to the Implementing Rules and Regulations (IRR) of Republic Act 6957, as amended by Republic Act 7718, more commonly referred to as the Build-Operate-Transfer Law (BOT Law).

Under the proposed changes, authority over project and contract approval (whether solicited or unsolicited), subsequent material deviations from the draft contract, contract variations after contract execution, and coordination and monitoring of ongoing projects, shall rest solely with the contracting agency or local government unit. The Investment Coordination Committee of the National Economic Development Authority (NEDA ICC) and local development councils, which under the present IRR have approving authority over BOT projects and contracts as well as over deviations and variations thereto, shall have the authority of approving only the list of priority projects under the amendments. The only exception is with respect to contractual arrangements that require the approval of the President for which the NEDA ICC/NEDA Board retains recommendatory authority. The BOT Center which under the present IRR is tasked with the coordination and monitoring of BOT projects will be abolished under the proposed arrangements.

In sum, the proposed amendments strip to the barest the oversight functions of the NEDA ICC and local development councils, purportedly with the objective of fast-tracking the approval and execution of BOT projects and contracts.

In the public hearing, it became clear that the proposed amendments did not have the support of representatives from key stakeholders, including the private sector, the donor, policy and academic communities, and non-government organizations. Representatives from the private sector and donor community emphasized that the major source of the delays in project closure has been the low level of expertise in project preparation at the agency level. There was consensus among the stakeholders that removing the oversight functions of the NEDA ICC would only aggravate the capacity problem, and would also likely result in excesses at the agency level.

In my reaction to the proposed amendments, I approached the issue by looking at how the change relates to problems that have confronted consumers, taxpayers and public interest advocates in the private sector infrastructure and development projects made possible under the BOT law. Our experience has been that the BOT law and its implementation have in general resulted in the marginalization of public access to information and to mechanisms for participation and redress. Indeed these matters are hardly considered in the BOT Law and in the present IRR, and expectedly, even less so in the actual private sector infrastructure and development projects and contracts. More specifically, the policy declaration in the BOT law refers exclusively to private sector concerns: the recognition of the indispensable role of the private sector as the main engine of national growth, and the provision of incentives such as financial support, minimum government regulation and various government undertakings to encourage private financing, construction, operation and maintenance of infrastructure and development projects.

The fact that private sector infrastructure and development projects are affected with public interest is indisputable: the terms of such contracts, the amendments of such contract, and the resolution of disputes in such contracts have direct effects on tariffs, rates and tolls; on service obligations and performance; on the grant of special privileges; and on fiscal matters such as subsidy, debt, and guarantees. Yet there is no balancing policy on public access to information, participation and redress on projects traditionally financed and operated by the public sector. Concretely:

  • There is no mechanism in the BOT law or in the IRR for access to information and public consultation in the project development phase.
  • In the project solicitation phase, there is a requirement for publication and notice of the list of priority projects, and of the invitation to pre-qualify and bid, but this is clearly intended for private project proponents. Often there is a fee to access of pre-qualification documents, which discourages public access.
  • In the bidding phase, the hurdle to public access to information and participation becomes insurmountable as the issuance of bid or tender documents is made available exclusively to the pre-qualified bidders. There is only token non-voting observer representation by a facility user in the Pre-qualification, Bids, and Awards Committee (PBAC), who may even be replaced by a representative from duly recognized accounting associations.
  • The concluded contracts in general make the public strangers thereto. There is no access to consultation, and no recognition of any right to intervene in contractual processes such as contract amendments or revisions and dispute resolutions.
  • There is no provision on right and procedure of access to concluded contracts, reviews thereof, and amendments thereto.

The proposed amendments do no attempt to address these concerns.

A response to the above concerns of consumer, taxpayer and public interest groups goes this way:  it is difficult to have everyone on the table in such contracts, and in theory the government agencies already represent the interest of the general public. I find it hard to go along with such reasoning. For one, even when the projects were undertaken by the public sector, the theory is also that the government represents public interest, and yet the rights to information, consultation and redress get far greater recognition than in the private sector participation framework. For another, private sector participation proponents often claim that it can serve to address in part the reality of corruption and lack of capacity on the part of government. The appreciation of such reality is somehow lost when, in the context of private sector participation, the assumption becomes good government.

It is high time the government considered addressing the marginalization of public access to information, participation and redress in private sector infrastructure and development projects. Certainly amendments in the BOT IRR should be a viable place to start.

Just to give some examples of what can be done: There can be a public hearing requirement in the project development phase within the agencies and local government units.  There can be a clear procedure for public access to pre-qualification and bid or tender documents.  And there can be a mandatory requirement of express recognition of the interest of taxpayers and consumers within the contracts, and of providing clear remedies and relief also within the contract terms.

In addition to the IRR, the other area for reform is to address the grave institutional problems in the regulatory institutions in areas of private sector participation. The regulatory standards vary among the different sectors. In power, there is a fairly advanced regulatory infrastructure, which may not be said to exist in water and transportation.

It would be interesting to see whether the BOT-IRR Committee will insist on its proposed amendments in the face of the overwhelming opposition from all stakeholders.

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