Training of Trainers for the DILG

Regional Project Concept Note

Workshop Rollout
September 13 & 18, 2019
Joint Venture Arrangements

2
Joint Venture Arrangements

A business undertaking by 2 or more

corporations engaged in a single defined
project.

Modality of Public-Private Partnership*

Joint Venture Arrangements for Local Government Units

Legal Basis:
1991 Local Government Code (R.A. 7160) and IRR
Sec. 35. Linkages with People's and Non-governmental
Organizations. — Local government units may enter
into joint ventures and such other cooperative
arrangements with people's and non-governmental
organizations (or the private sector) to engage in the
delivery of certain basic services, capability-building
and livelihood projects, and to develop local
enterprises designed to improve productivity and
income, diversity agriculture, spur rural industrialization,
promote ecological balance, and enhance the economic
and social well being of the people.
Joint Venture Arrangements for Local Government Units

Legal Basis
 No National Law on Joint
Ventures

 Applicable Provisions of the Civil

Code

 DILG and DOJ Opinions

affirming LGUs can enter into
Joint Ventures

 Local Ordinances
Joint Venture Arrangements

Elements of an LGU Joint Venture

 A contractual arrangement
 Between an (LGU) and a Private Sector Partner (PSP)
 Specific and Defined purpose (business undertaking)
 The parties contribute money/property/services
 Sharing in the Profits and Losses generally in proportion
to its respective share.
 LGU shall be a minority equity shareholder, PSP
majority
Joint Venture Agreements (JVAs)

Joint Venture
Jointly undertakes (directs and governs) an
investment activity

Government Private Sector

Pools money/capital, services, and/or assets

Shares risks & rewards

Joint Venture Arrangements for Local Government Units

What can the LGU contribute

X PUBLIC X
• Land of the Public
Dominion
• Public Plaza
• Public School
• Provincial Roads, City
Streets, Municipal
Streets
• Public Works for Public
Service
• Public Waters
✓ PROPRIETARY ✓
• All Other Property
• Alienable and Disposable
Land
• Property Acquired By
Purchase, Grant, or any
other mode of acquisition
• e.g. public markets,
cemeteries, ferries,
waterworks
Joint Venture Arrangements for Local Government Units

What can the PSP contribute

SHARE CAPITAL LOAN CAPITAL
• Tangible • PSP borrows money from
o Money a financial institution
o Land • Financial institution is
o Furniture or creditor of the PSP but
o Stock-in-trade, etc. not of the LGU
• Intangible o Unless incorporated
o Intellectual Property JV where JV company
o Managerial skills borrows money from
o Know-how financial institution
o Goodwill
Joint Venture Arrangements for Local Government Units

Why JV?

Enables LGU to minimize risks  Limited to its

contribution to the joint venture

Allows LGU to leverage its own capital/assets

Allows LGU to have a voice and control over how the

project is performed and managed

Enables LGU to share in profits of the entire project

Joint Venture Arrangements for Local Government Units

Risk Allocation

Design & Construction Risks Commercial Risks

Financial Risks Legal Risks

Operation & Maintenance Force Majeure Risks

Risks
Termination Risks
Demand Risks
Joint Venture Arrangements for Local Government Units

Risk Allocation

Risks must be properly allocated to LGU and PSP.

The party who can manage the risk better shall

shoulder/cover the risk.

Guidance may be taken from the Risk Matrix used

by the NEDA ICC.
 Joint Venture Arrangements:
Incorporated vs. Unincorporated

13
Forms of Joint Venture Arrangements

Incorporated Unincorporated or
 Forms a Separate Contractual
and Distinct Juridical  Parties retain
Entity separate
 Has own Legal personalities
Personality
 Can own  Joint Venture
properties Agreement
 Incur obligations
 Enter into
contracts
 Corporation Code
Forms of Joint Venture Arrangements - Incorporated

JV Company
- Also referred to as “JV
Company”

Concession
Agreement JV Company

Government Joint Venture Private Sector

Agreement
Forms of Joint Venture Arrangements - Incorporated

JV Company
 A stock corporation
incorporated and
registered in
accordance with the
Corporation Code and
based on the prevailing
rules and regulations of
the Securities and
Exchange Commission
 Shall be registered by
the JV partners that
shall perform the
primary functions and
obligations of the JV
stipulated under the JV
Agreement

 Government ownership of outstanding capital stock.

Government equity contribution may be through assets,
equipment, land IP, subject to a third party valuation
Forms of Joint Venture Arrangements - Incorporated

The JV Agreement:

JV Company -JV Company

Concession
Agreement -Defines the relationship
between PSP and the
LGU in running the JV
Company.
Government Joint Venture Private Sector
Agreement
Forms of Joint Venture Arrangements - Incorporated

The Concession
Agreement:
JV Company
-Project Related Concession
Agreement
-Defines the Project
Scope, responsibilities
between Government and
Private Partner,
termination, etc. Government Joint Venture Private Sector
Agreement
Forms of Joint Venture Arrangements - Unincorporated

Government
Unincorporated JV

- Also referred to as
“Contractual JV”

- JV Partners shall
Joint Venture
Agreement
perform the primary
functions and
obligations under the
Private Sector
JV Agreement without
forming a JV
Company.
Forms of Joint Venture Arrangements - Unincorporated

The JV Agreement:

Defines the Project Scope,

responsibilities between
Government and Private
Government Joint Venture
Agreement
Private Sector Partner, termination, etc.

A legal and binding agreement under which JV Partners

shall perform the primary functions and obligations
under the JV Agreement without forming a JV Company.
Forms of Joint Venture Arrangements

Joint Control
JV Company Contractual
• Operations • Operations (sometimes)

• Assets • Assets (sometimes)

• Company

• *By the Corporation • *Depends on the JV

Agreement
Forms of Joint Venture Arrangements

Voting Rights
JV Company Contractual
• Voting rights as • Business Decisions
shareholders
• Day-to-Day Operations

• Based on JV Agreement
Forms of Joint Venture Arrangements (JVAs)

Sources of Rights and Obligations

JV Company Contractual
• JV Agreement • Joint Venture Agreement

• Ancillary Agreements • Ancillary Agreements

• Service Agreements • Service Agreements
• O&M Agreements • O&M Agreements
• Supply Agreements • Supply Agreements
• Lease Agreements • Lease Agreements

• Corporation Code
• Articles of Incorporation
& By-Laws
Forms of Joint Venture Arrangements

JV Company or Contractual JV

Legal implications

Commercial objectives

Tax issues

Political climate

Preference or demands of
other stakeholders (e.g.
constituency)
Infrastructure and Development Projects for JVs

power plants, hydropower

projects land reclamation projects,
industrial estates or townships,
commercial/real estates,
housing, government buildings,
highways, railroad and railways, tourism projects, public markets,
ports, airports transport slaughter houses, warehouses,
systems solid waste management,

education and health facilities

canals, dams, water supply
irrigation, sewerage, drainage,
dredging
other infrastructure and
development projects as may be
telecommunications, authorized by the government
information entity.
technology networks and
database infrastructure,
Forms of Joint Venture Arrangements (JVAs)

Components of a JV Agreement
(Incorporated or Unincorporated)

General Information

Percentage of profit, revenue, and

Effectivity date
risk- sharing
Description of each JV member
Governing board and officers of the JV
Term of the JV
Milestones and reporting
JV Vehicle
Definitions of costs of the JV for
Cost of the JV activity
purposes of determining Profit/Loss
Forms of Joint Venture Arrangements
Components of JV Agreement
(Incorporated or Unincorporated)
Scope, Contributions,
Sharing of Risks and
Rewards and Governance
JV specifications and features
Relationship between parties &
management roles
Amount, kind, description, timing &
valuation of contributions of each
party
Procedure for additional capital
infusion
Penalties, Dispute
Resolution, Termination
and Divestment
Indemnification and liquidated
damages
Dispute resolution and arbitration
Compliance with laws, rules, &
regulations
Grounds for and effects of default
and termination
Procedures for divestment
Joint Venture Arrangements vs.
Procurement

28
Joint Venture Arrangements vs. Procurement

JOINT VENTURE PROCUREMENT

• Pooling of resources • Acquisition of Goods,
(valued contributions) to Consulting Services, and the
undertake an investment contracting for Infrastructure
activity Projects by the Procuring
Entity.
• Partnership: each party
shall have the right to • Includes the lease of goods
direct and govern the and real estate.
policies in connection
therewith with the • RA No. 9184
intention to share both
profits, and risks and
losses.
Joint Venture Arrangements vs.
BOT Law-Variants

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Joint Venture Arrangements vs. BOT Law-Variants

Item BOT Law-Variants Joint Ventures

NEDA Guidelines/
Governing
BOT Law Special Guidelines/
Law
Local Ordinances
Modalities 9+ 2
Role of Implementing
Co-Venturer/Sharing
Gov’t Agency/Policy/Regulatory
Role of Design, Finance, Build
Sharing
PSP and Operate
Infrastructure and
Projects Development, JV Purpose
Social Projects
Joint Venture Arrangements vs. BOT Law-Variants

Item BOT Law-Variants Joint Ventures

Priority Projects Only solicited Priority or not
(unless new tech)
Period 50 years maximum No maximum (per
New Corporation
Code)
Financing PSP (or gov’t Joint (cash or non-
subsidy) cash)
PSP Revenues Reasonable Rate of Generally,
Return (or 12%) proportionate
Sharing
Risk Allocation Function-Risk Sharing
Joint Venture Arrangements vs. BOT Law-Variants

Item BOT Law-Variants Joint Ventures

Role of NEDA Project, Financial LGU: None
Review
Bidding Highest Revenue or Highest Percentage
Parameter Lowest Share
Subsidy/Tariff
Incorporation PSP SPV Incorporated or
Unincorporated
Selection Solicited, Solicited, Unsolicited
Procedures Unsolicited or or Limited
Direct Negotiations Negotiations
Joint Venture Arrangements vs. BOT Law-Variants

Item BOT Law-Variants Joint Ventures

Contents of Cover Letter, FS, UP, Cover Letter, Study,
UP Draft Contract, UP, Draft Contract,
Eligibility Documents Eligibility Documents
New Required if Priority Not required
Technology Project
Multiple 1st in time approach 1st in time approach
Proposals (or best)
Rule on Upon acceptance, Upon Successful
Exclusion PSP becomes OP Negotiations
Right of OP Right to Match P4: Right to Match
(Possibly, Right to
Outbid)
Joint Venture Arrangements vs.
Lease

35
Joint Venture Arrangements vs. Lease

 No sharing of profits

 LGU has no control over business of Lessee

 Income of LGU is limited to lease rentals

 Thank You!
For further information, please visit:
www.ppp.gov.ph
For inquiries, kindly e-mail:
capacitybuilding@ppp.gov.ph

PPPCenter.Philippines

@PPP_Ph

Public-private-partnership-
Center-of-the-Philippines

PPPPinas 37