The Government issued an updated PPP rule in September 2023 pursuant to the Minister of National Development Planning/Head of the National Development Planning Agency Number 7 of 2023 on the Procedure for the Implementation of Public-Private Partnership Scheme in the Provision of Infrastructure ("Regulation 7/2023"). Regulation 7/2023 revoked the previous PPP rule under Regulation of the Minister of National Development Planning/Head of the National Development Planning Agency Number 4 of 2015 ("Regulation 4/2015").
Below are key changes or new features under Regulation 7/2023:
Expansion of scope
The type of infrastructure that may be procured under a PPP scheme is broadened to include, among others, battery-powered electric vehicle infrastructure, industrial ecosystems and conservation/national parks. Industrial ecosystem covers industrial areas, small-medium industrial centers, testing and development laboratories, packaging services and industrial labor training units.
Timeline for financial close
The previous requirement that the financial close must be achieved within 12 months from the signing of the PPP agreement does not change, however, the ground and mechanism for seeking an extension if the 12 month-deadline is not achieved is now changed:
- Previously, the ground for extension was strictly limited to the absence of negligence/fault of the awarded entity to achieve the financial close. Now, such ground has been eliminated and the GCA may, after evaluating the cause of delay, be able to approve the request for an extension (even if the delay is attributable to the fault of the awarded entity) provided that the awarded entity has issued performance bonds having the value of at least 5% of the investment cost.
- GCA may grant up to two times-extension, each for a maximum of six months. Previously under Regulation 4/2015, there is no limit as to how many times such six months-extension may be granted by the GCA.
- Regulation 7/2023 clarifies that the source of financing to achieve the financial close of a PPP project may be from borrowing or other sources. In the case of borrowing, financial close is achieved when the loan agreement is signed and some of funds may be withdrawn to commence construction or (if construction is not in the project scope) operation and maintenance works. If the source of funding is not from borrowing, financial close is achieved when the awarding entity provides to the GCA a statement that the funds is available and that it may be fully utilized for the project, and some of the funds are ready for disbursement.
Conversion from a solicited project to an unsolicited project, and vice versa
It is now possible to convert a PPP project from a solicited one to an unsolicited one, and vice versa, subject to a prescribed mechanism and criteria. Such conversion mechanism did not exist in the previous Regulation 4/2015.
Conversion from solicited to unsolicited PPP project
A PPP project cycle is divided into planning, preparation and transaction stages. A project designed as solicited may be converted into unsolicited in any of these stages. However, conversion of a project that is already in the transaction stage may only be permitted if the previous procurement under the solicited process has failed and the government contracting authorities ("GCA") has confirmed the procurement is terminated.
Further, if the project is already in either the preparation or transaction stage, the conversion must satisfy the following elements (based upon comparing the pre-feasibility study prepared by the government contracting authority and the feasibility study prepared by the initiating entity):
(a) innovation;
(b) more optimum value for money; and
(c) higher economic and financial feasibility.
Conversion from unsolicited to solicited PPP project
The conversion may occur:
(a) during the preparation stage, provided that the initiating entity withdraws from the project; and
(b) during the transaction stage, provided that (i) the initiating entity withdraws from the project prior to the commencement of the procurement process, or (ii) the procurement process has commenced but failed and the GCA has declared the termination of the procurement process.
Under the unsolicited PPP rules in general, an initiating party may be compensated by the GCA by way of purchase of the project. Regulation 7/2023 provides that to the extent that the initiating party was awarded such compensation from the GCA (prior to the conversion) and if the project is converted to solicited for the reason set out in paragraph (b)(ii) above, then the initiating entity may be entitled to reimbursement of documentation costs.
Delegation of GCA authority
Under Regulation 4/2015 the Minister/head of governmental agency/head of regional government as GCA may delegate their respective authority. Regulation 7/2023 now clarifies that the delegation of authority can be given (a) by the Minster/head of governmental agency to a head of an organization unit at the relevant ministry/governmental agency, and (b) by the regional government head to the secretary of the region or head of regional apparatus who is responsible for the infrastructure sector, or to the board of directors of the regional-owned company.
Grandfathering
Projects that are already ongoing prior to the issuance of Regulation 7/2023 are allowed to carry on based upon the requirements set out under the previous Regulation 4/2015.
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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
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