Filipino property developers anticipate golden age of infrastructure

More public and private money promises to transform the infrastructure of the Philippines from this year. Foreign investors interested in the sector need to be aware of critical legal provisions if they want to participate in new projects, such as the need to have a local partner and the stipulation that construction disputes must be resolved in the Philippines.

Since coming into power in 2016, President Duterte’s administration has approved 11 public-private partnership (PPP) deals worth Php264 billion ($5.3 billion). Another Php891 billion in investment is earmarked for 2017, representing 5.2% of the GDP. Within the next six years, the government plans to increase infrastructure spending to 7% of the GDP. Projects and infrastructure lawyers Asialaw spoke to are eagerly waiting for the government’s move on the planned projects and the investment boost, and observe the rise in popularity of consortia involving foreign investors, and private entities taking the initiative to submit their proposals to the government.

To facilitate infrastructure investment, the National Economic and Development Authority (NEDA) is creating a public investment programme which will serve as a blueprint for the nation’s infrastructure plans from 2017 to 2022. President Duterte has also asked for emergency powers to allow him approve selective bidding, direct contracting and negotiated procurement, and bar lower courts from issuing temporary restraining orders or injunctions against projects.

Jaime Gatmaytan

However, Duterte has yet to take action on the planned projects. “With the change in administration in mid-2016, projects have been put on hold as the new administration's appointees are still considering how to progress on these projects,” says Jaime Gatmaytan, partner at C&G Law.

Popularity of consortia

The new wave of projects is also likely to see the continuing use of consortia, which have been gaining popularity in the projects and infrastructure space. “We are seeing in the bidding process that a three-way consortium consisting of a Filipino owner, a foreign operator and a passive investor has been popular,” says Aris Gulapa, a partner at Gulapa Law Office. “Under Philippine law, the operator of a public facility, such as an airport, has to be 60% owned by Filipinos. To enter into agreement with a Filipino member, there also needs to be a transfer of technology.”

Attracting foreign contractors

One of the barriers to speeding up the implementation of projects is getting the know-how from foreign contractors. “Under the contractors’ licence law, a regular licence with annotation is needed from the Philippine Contractors Accreditation Board (PCAB) for both local and foreign contractors. Before this law came in, a special licence was issued to joint ventures, consortia and foreign contractors which allowed the licensee to engage only in a single specific project,” says Gulapa. “In addition to technology transfer when hiring foreign labour, there is a capitalisation requirement of Php1 billion.”

Private entities submitting proposals

Another trend being observed by legal practitioners is the increase in proposals submitted by private entities to the government. “Instead of going through a tendering process set up by the government private entities are submitting unsolicited proposals to the government to subject,” says Gulapa. “Other parties may still participate in these.”

Construction disputes

Aris Gulapa

As well as requiring a local partner if they want to invest in infrastructure, foreign investors also need to be aware that any construction disputes must be resolved by a specific arbitration commission in the Philippines. “Construction disputes have to be resolved by the Construction Industry Arbitration Commission (CIAC) as long as there is an agreement to arbitrate,” says Gulapa. “Despite there being arbitration clauses, if the construction dispute is in the Philippines. If a party wants to bring a dispute to Singapore for arbitration for example, it won’t be able to and will need to go to the CIAC. There are a lot of objections but CIAC is resisting.”

“One of the Bills being discussed is a new mechanism to elevate build-transfer-operate disputes to the office of the President,” says Gatmaytan. “This would allow further appeal and a fuller venue for appeals.”

Encouraging data

With increased foreign interest in the Philippines’ infrastructure development, low steel prices and the government’s prioritising of spending on the sector, signs are encouraging for 2017.

“There are lots of opportunities in the infrastructure space,” says Gulapa. “We are seeing European contractors in bids, especially French and Spanish bidders. With the current low steel prices especially from China, the Philippines can take advantage of that and tap into the overabundance of steel.”

“Infrastructure spending is an important part of Duterte’s agenda to improve transportation, increase GDP and consumer spending,” he adds. “With the government expected to resuscitate suspended projects in the second quarter, the biggest projects will be the five regional airports in Panglao, Laguindingan, Davao, Bacolod and Iloilo, and the north south commuter and cargo rail system from the North Island to Manila,” says Gulapa.

“There is a preference for projects outside of Manila to benefit communities outside of the urban centre and to spread the wealth in the country,” says Gatmaytan. “The expectation for the President to deliver on his promise to push for infrastructure is there and is building up.”

The Duterte administration is keeping the Filipino infrastructure industry on the edge of its seat as it awaits the implementation of new projects. The extent to which Duterte may exercise his emergency powers in fast-tracking projects will be watched with interest.