NEDA proposes changes to arbitration and MAGA clauses in revised rules for BOT Law

THE NATIONAL Economic and Development Authority (NEDA) proposed new revisions to the implementing rules and regulations (IRR) of the Build-Operate-Transfer (BOT) Law, which reflect the government’s willingness to share the risk in public-private partnership (PPP) projects.

The draft rules, which were uploaded on the NEDA website, showed changes to the provisions on arbitration and material adverse government action (MAGA), which were criticized by some business groups as “anti-market.”

Under the draft, the controversial provision which stated that “acts and decisions of regulators shall not be subject to arbitration” has been removed.

This implied the government is now open to arbitration, provided that it is mutually agreed upon by both parties in the contract.

“In the absence of a mutually agreed upon venue for arbitration in the contract, the venue shall be in the Philippines,” Section 12.23 of the draft rules stated.

The draft rules also changed the definition of MAGA to refer to any act of the “government,” from “Executive branch” in the current version.

“(MAGA) refers to any act of the government 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, other than an act which is authorized or permitted under the PPP contract,” the draft rules stated.

Also removed from the MAGA definition was the provision that excluded acts of government agencies, local government units, as well as acts of the Executive branch made in the exercise of regulatory powers, legislative and judicial branches.

“For purposes of the contract, the provisions on MAGA shall also provide for the rules on materiality or amount threshold, nature and manner of recourse, and cap in case of monetary compensation,” the rules read.

Since it took effect in April, business groups have criticized the current version of the BOT IRR, saying it compels private proponents to shoulder more risk while relieving the government of responsibility for delayed deliverables.

The Foundation for Economic Freedom (FEF), the Makati Business Club (MBC), and the Management Association of the Philippines (MAP) had previously called the IRR’s provisions as “anti-market” and “unfair to the private sector.”

“Leaving the 2022 BOT IRR as is may lessen private sector interest in infrastructure, make bids less competitive, and ultimately make infrastructure more expensive for citizens,” the groups said.

Of the current MAGA clause, the FEF previously said that “the less clear the terms of the partnership, the more it encourages politically connected groups to capture regulatory agencies and change terms after awards.”

The Marcos administration is looking to attract more investments in infrastructure through PPPs.

The NEDA is set to hold a public consultation on the draft IRR on Sept. 13. — Diego Gabriel C. Robles