Public-Private Partnership (PPP)
Expressway (Phase II) wherein the Department of Public Works and Highways (DPWH)
Public-Private Partnership (PPP) can be broadly defined as a contractual agreement between
the Government and a private firm targeted towards financing, designing, implementing and
operating infrastructure facilities and services that were traditionally provided by the public sector.
It embodies optimal risk allocation between the parties minimizing cost while realizing project
developmental objectives. Thus, the project is to be structured in such a way that the private
sector gets a reasonable rate of return on its investment.
PPP offers monetary and non-monetary advantages for the public sector. It addresses the
limited funding resources for local infrastructure or development projects of the public sector
thereby allowing the allocation of public funds for other local priorities. It is a mechanism to
distribute project risks to both public and private sector. PPP is geared for both sectors to gain
improved efficiency and project implementation processes in delivering services to the public.
Most importantly, PPP emphasizes Value for Money focusing on reduced costs, better risk
allocation, faster implementation, improved services and possible generation of additional
revenue.
Elements of Public-Private Partnership
Strategic mode of procurement
A contractual agreement between the public sector and the private sector
Shared risks and resources
Value for Money
Outcome orientation
Acceleration of infrastructure provision and faster implementation
Generally, there are two common forms of PPP structure: availability and concession-based
PPPs. The two forms could be distinguished from each other based on what the public or private
parties assume within the partnership, e.g. rights, obligations, and risks.
1. Availability PPP
A form of PPP wherein the public authority contracts with a private sector entity to provide a
public good, service or product at a constant capacity to the implementing agency (IA) for a
given fee (capacity fee) and a separate charge for usage of the public good, product or service
(usage fee). Fees or tariffs are regulated by contract to provide for recovery of debt service,
fixed costs of operation and a return on equity.
While there are no usage fees in this project, an example is the PPP for School Infrastructure
Project (PSIP) Phase I wherein the private sector is responsible for making available
classrooms (consisting of design, financing, construction and maintenance) for a contract fee
with the Department of Education (DepEd).
2. Concession PPP
A form of PPP wherein the government grants the private sector the right to build, operate and
charge public users of the public good, infrastructure or service, a fee or tariff which is
regulated by public regulators and the concession contract. Tariffs are structured to provide for
recovery of debt service, fixed costs of operation, and return on equity.
An example of a concession PPP is the Ninoy Aquino International Airport (NAIA)
granted the private sector the right to build and operate the expressway. Under the contract, the
private sector was given the right to collect a toll (user charge) from the users of the
expressway.
There are various PPP contractual arrangements reflecting how risks are shared and the roles
between the government and the private proponent. Build-operate-and-transfer (BOT) projects
and its other variants can be structured as either a concession or availability agreement.
Partnership between the government and private sector for infrastructure and development
projects can be made possible through a broad spectrum of modalities. The following are the
contractual arrangements which may be undertaken under the amended Philippine BOT Law
and its Revised Implementing Rules and Regulation:
Build-and-transfer (BT)
Build-lease-and-transfer (BLT)
Build-operate-and-transfer (BOT)
Build-own-and-operate (BOO)
Build-transfer-and-operate (BTO)
Contract-add-and-operate (CAO)
Develop-operate-and-transfer (DOT)
Rehabilitate-operate-and-transfer (ROT)
Rehabilitate-own-and-operate (ROO)
The enumeration of contractual arrangements in the BOT Law is not exhaustive. Other forms of
contractual arrangements may qualify as a PPP under the BOT Law, provided that such
arrangement is approved by the President. Other contractual modes recognized as PPPs are
concession and management contracts.
The Revised IRR of the BOT Law enumerates the list of activities which may be undertaken
under any of the recognized and valid BOT contractual arrangements (PPP modalities). These
include, among others:
1. Highways, including expressways, roads, bridges, interchanges, tunnels, and related
facilities;
2. Railways or rail-based projects that may or may not be packaged with commercial
development opportunities;
3. Non-rail based mass transit facilities, navigable inland waterways and related facilities;
4. Port infrastructures like piers, wharves, quays, storage, handling, ferry services and
related facilities;
5. Airports, air navigation, and related facilities;
6. Power generation, transmission, sub-transmission, distribution, and related facilities;
7. Telecommunications, backbone network, terrestrial and satellite facilities and related
service facilities;
8. Information technology (IT) and data base infrastructure, including modernization of IT,
geo-spatial resource mapping and cadastral survey for resource accounting and
planning;
9. Irrigation and related facilities;
10. Water supply, sewerage, drainage, and related facilities;
11. Education and health infrastructure;
12. Land reclamation, dredging and other related development facilities;
 13. Industrial and tourism estates or townships, including ecotourism projects such as o In PPPs, the government focuses on providing quality infrastructure and services by
terrestrial and coastal/marine nature parks, among others and related infrastructure setting each projects minimum performance standards and specifications (MPSS).
facilities and utilities; 6. With PPPs, the quality of service has to be maintained for the entire duration of
14. Government buildings, housing projects; the cooperation period.
15. Markets, slaughterhouses, and related facilities; o In PPPs, project execution will be more rigorous as project ownership belongs to
16. Warehouses and post-harvest facilities; the project proponents. The public sector only pays when services are delivered
17. Public fishports and fishponds, including storage and processing facilities; satisfactorily.
18. Environmental and solid waste management related facilities such as, but not limited o During the implementation stage, an independent consultant is hired to ensure that
to, collection equipment, composting plants, landfill and tidal barriers, among others; both public and private parties adhere to the terms of the contract/ concession
and agreement. This is true in the case of projects presently undergoing construction
19. Climate change mitigation and adaptation infrastructure projects and related facilities. the PSIP Phase 1 and the Daang Hari- SLEX Link Road project.
Advantages 7. PPPs encourage innovation.
o PPPs maximize the use of private sector skills. It utilizes higher levels of private
In general, governments tap public-private partnership (PPP) for the following reasons: sector efficiency, specialization, and technology.
o In the case of the PSIP and the Daang Hari-SLEX Link Road projects, private
proponents were given flexibility in coming up with the project design that is most
1. PPPs encourage the injection of private sector capital. efficient, taking into consideration the MPSS set by the government.
o National Budget and official development of assistance are limited and are subject
to government prioritization. Private sector funding, on the other hand, is readily
available. It may be tapped to augment ODA funds and the government budget to Solicited proposal
implement critical government projects. A solicited proposal refers to projects identified by the implementing agency (IA) from the list of
their priority projects.
o In the case of big ticket infrastructure projects, PPPs utilize the financial capital of
the private sector. Through it, project construction and service delivery is
accelerated. For example, the NAIA Expressway Phase II project will be financed In a solicited proposal, the IA formally solicits the submission of bids from the public. The
through private sector funding. On top of this, the government has received an solicitation is done through the publication of an invitation for interested bidders to submit bids,
upfront payment of 11 billion pesos even before the actual project construction. and selection of the private proponent is done through a public competitive process.
2. PPPs make projects affordable.
o Government spending will be less if the project is undertaken as a PPP, since the Unsolicited proposal
private sector funds their share of the project (including operation and maintenance)
In an unsolicited proposal, the private sector project proponent submits a project proposal to an
during the duration of the concession. PPP projects consider the whole of life
IA without a formal solicitation from the government. An unsolicited proposal may be accepted
costing approach (whole lifecycle costing) which ultimately lowers capital and
for consideration and evaluation by the IA, provided it complies with the following conditions:
operating costs.
o All PPP projects undergo a competitive, transparent bidding. PPP project
proponents usually provide the most cost-effective capital goods necessary for the 1. It involves a new concept or technology and/or it is not part of the list of priority
project. projects in the Philippine Investment Program (PIP) [Medium Term Public Investment
3. PPPs deliver value for money. Program, Comprehensive and Integrated Infrastructure Program (CIIP)] and the
o Value for money (VfM) is achieved when the government obtains the maximum Provincial/Local Investment Plans;
benefit from the goods and services it both acquires and provides. It is the best 2. It does not include a Direct Government Guarantee, Equity or Subsidy;
available outcome after taking into account all the benefits, costs, and risks over the 3. It has to go to ICC for the determination of reasonable Financial Internal Rate of
entire project life, which may not necessarily be the lowest cost or price. Return (FIRR) and approval to negotiate with the Original Proponent; and
o For the PPP for School Infrastructure Project (PSIP) Phase 1, the PPP scheme was 4. After successful negotiation, proceed to publication and request for competitive
identified as the most optimal financing option available for the government to proposals according to Swiss Challenge Rules.
address the current classroom backlog in the country. Under this scheme, the
government will be able to deliver the needed classrooms in the shortest time
possible.
4. In PPPs, each risk is allocated to the party who can best manage or absorb it.
o In PPPs, risks are assumed by the party that is best able to manage and assume the
consequences of the risk involved.
o PPPs enable the government to take on fewer risks due to shared risk allocation.
Generally, the private sector takes on the projects life cycle cost risk, while the
government assumes site risks, legislative and government policy risks, among
others.
5. PPPs force the public sector to focus on outputs and benefits from the start.
o Project preparation activities are more rigorous in public-private partnerships. This
ensures that the project is highly bankable and can stand public scrutiny. Better
project preparation and execution will result in adherence to project design within
the agreed timelines.