Legal and Institutional Framework for PPPs
The legal framework for investment protection improved has been improving recently, however there remain large differences between ASEAN member countries in terms of the level of sophistication of the legal and regulatory frameworks. Member states are at very diverse levels of openness, economic development as well as political backgrounds, from market-based to socialist economic models. While some, such as Singapore and Brunei Darussalam, are endowed with very robust legal frameworks for the protection of investment, others are still developing their frameworks and business environments. Nonetheless, reform efforts undertaken (to varying degrees) by countries are gradually paving the way for a harmonised legal landscape in Southeast Asia.
|Country||Challenges||Legal Framework||Institutional Framework|
|Brunei Darussalam||In Brunei Darussalam there is no specific PPP legislation.||As of 2012, the Department of Planning and Development (DEPD) under the Prime Minister’s office has been designated to oversee the implementation of PPP projects. Two vehicles have been put in place to drive forward the PPP agenda: i) a steering committee to set the strategic direction and framework for PPP implementation, and ii) a central PPP unit to administer PPP policies and work with relevant ministries/agencies to implement projects.|
|Cambodia||In Cambodia there is no specific PPP law to date and a model concession agreement providing the detailed terms is still required. The Law on Concession provides a general framework, and a detailed enforcement decree or regulation is to be drafted.
Individual government departments and agencies are in charge of each project and would benefit from clear procedures, standards and criteria to be used in selecting, bidding, and negotiating a PPP project.
|The relevant legislation is the Law on Concession, enacted in 2007, which provides the basic legal framework for implementing PPP projects by defining the sectors in which PPP project agreements may be envisaged. These sectors include: power, transportation, water supply and sanitation, sewerage, telecommunication, tourism, gas and oil infrastructure, waste management and treatment, SEZs, irrigation and agricultural, social infrastructure related to health, education, housing and sport. The Law on Concession also defines the format for PPPs in the above sectors. Other relevant laws include the Law on investment (1994, amended in 2003) and the Sub-decree on BOT (1998).
PPPs in Cambodia are contractual arrangements between the government and the private sector, with the latter agreeing to provide infrastructure and related services in exchange for project revenues and government support.
|The two key players are the Council for the Development of Cambodia (CDC) and the Ministry of Economy and Finance (MEF). CDC is the one-stop service entity for obtaining authorization required to implement an investment project in accordance with the Law on Investment. It is in charge of coordinating and implementing the evaluation of private investments. The Cambodia Investment Board (within CDC) is in charge of investment issues except for SEZs. The MEF assesses and approves government liabilities for proposed projects.
The Private Sector Forum, a bi-annual public-private dialog, encourages private sector participation in the energy sector. The Public-Private infrastructure Advisory Facility also encourages this, and is based on transparent competition.
|Indonesia||Land acquisition is deemed to be one major challenge in the overall PPP transaction process (ERIA 2014). Despite improvements in regulations and institutions, there are still reports of persistent delays and implementation challenges.
Until recently, it seems that PPPs were considered in Indonesia primarily as a source of private sector finance with less consideration given to the bankability of the projects.
No single leading agency is in charge of PPP development: proliferation of players involved in the process and the lack of coordination among Ministries can constrain the implementation of PPPs. Establishing a stronger central PPP unit to plan and manage projects is therefore critical and has recently been established in the MoF.
Regulatory coherence remains a central issue. First, contradictions between various provisions are not unusual. For instance Presidential Regulation 13 (2010) stipulated that SOE/ROE may be allowed to act as contracting agency in PPP Projects while Government Regulation No. 50 (2007) did not stipulate this. Coordination and consistency could be improved between the national, regional and local levels.
Lastly, since regional and local governments are often the contracting authorities entering into a PPP concession and ensuring its delivery, insufficient capacity at the regional and local levels constitutes a further obstacle for infrastructure PPP projects.
|In the wake of the Asian Financial Crisis (1997-98), several new laws on infrastructure were passed, IPPs were renegotiated and the National Committee for the Acceleration of Infrastructure Provision (KKPPI) was established.
Starting in the mid 2000s, further moves were made in order to establish a stronger legal foundation for PPP projects, including:
– The enactment of Presidential Regulation (Perpres) No. 67 of 2005 regarding cooperation between the Government and legal entities in providing infrastructure, which was later amended by Presidential Regulation No. 13 of 2010, Presidential regulation No 56 of 2011, and Presidential Regulation No 66 of 2013. These regulations provide the basis for PPP implementation in Indonesia (the “PPP Regulation”);
– The enactment of Presidential Regulation No 42 of 2005 establishing the Committee for Acceleration of Prioritized Infrastructure Development (KPPIP) to replace the KKPPI, which was later amended by Presidential Regulation No 12 of 2011;
– New laws passed by the Indonesian Parliament for specific business sectors: Law No. 23 of 2007 regarding Railways; Law No. 17 of 2008 regarding Shipping; Law No. 18 of 2008 regarding Waste Management; law No. 1 of 2009 regarding Aviation; Law No. 4 of 2009 regarding Mineral and Coal Mining; Law No. 22 of 2009 regarding Land Transportation; Law No. 30 of 2009 regarding Electricity;
– Law No 2 of 2012 on land procurement for Public Interest, complemented by Presidential Regulation No 71 of 2012 on Land acquisition for Public Projects, Regulation of National Land Agency No 5 of 2012, and Presidential regulation No 63 of 2013 on National Land Agency aimed to facilitate land acquisition;
– Ministry of Finance Regulation No 38 of 2006 on guidance for controlling and management of risks in provision of infrastructure, complemented by Presidential Regulation No78 of 2010 and MoF regulation No 260 of 2010
|No single leading agency is in charge of PPP development, rather a number of Ministries and government agencies:
– the National Development Planning Agency (BAPPENAS) which issues an annual PPP Book that contains the list of government projects that can be implemented through cooperation with private companies;
– The Investment Coordinating Board (BKPM), which is also involved in the process, primarily as a source of information for potential investors;
– The Ministry of Finance (MoF);
– The Coordinating Ministry for Economic Affairs (CMEA)
The Indonesian government has created several supporting bodies which are embedded in the ministries and agencies:
– The Public Private Partnership Central Unit (P3CU): under the Directorate for PPP Development within BAPPENAS provides guidance for project preparation, procurement and project implementation;
– The KPPIP (see above) is a steering committee at ministerial level co-chaired by the Minister of CMEA and the head of BAPPENAS;
– The Risk Management Unit (RMU) in the MoF assesses the conditions for government support for PPP projects;
– The Government Contracting Agency (GCA) cooperates directly with the company involved in the PPP project
|Lao PDR||Current procurement rules and regulations are not well adapted to PPP projects as they do not yet capture Value-for-Money over the whole PPP project lifecycle. The bulk of PPP projects were unsolicited and competitive procurement for PPP projects is not common practice.
There is no specific legal and regulatory framework to facilitate private domestic and foreign direct investment in infrastructure development, and PPPs are not officially defined in any sector.
There is no single institution that is fully accountable for facilitating and monitoring private infrastructure development and the lack of coordination between the relevant authorities.
To address these challenges, the Lao Government has thus engaged in developing the framework for PPPs under the leadership of the IPD with support from the Asian Development Bank. The initiative focuses on three main areas, namely (i) institutional capacity building, (ii) policy and legislation framework development, and (iii) demonstration of model/pilot projects in social sectors, namely education and healthcare.
|In Lao PDR, there is no specific legal, institutional and financial framework to facilitate private domestic and foreign direct investment in infrastructure development, and PPPs are not officially defined nor encouraged in any sector. As a result, infrastructure investment is regulated through the general legal framework:
– Business Law (1994, amended in 2009): allows investors to establish business enterprises in all economic sectors and ensures right and benefit of investors.
– Investment Promotion Law (1990, amended in 2009): provides investment incentives including (1) profit tax exemption in early state of investment, (2) reducing tax for import of machine, equipments, vehicles and raw materials which are necessary for project.
– The first Law on Foreign Investment Promotion and Management (1998) was amended to become the Law on the Promotion of Foreign Investment (2004).
– The Decree on Special Economic Zones (2009).
– The Public Investment Law: regulates public investment project planning, approving, implementing and managing in details.
A number of other laws may also be relevant for PPP projects, namely the Regulation on bidding, the Decree on competition, the Environmental protection Law (1999), the Environmental and Social Impact Assessment regulation.
A PPP Decree aims to promote and govern Public-Private Partnerships as a regular method of delivering infrastructure and services.
|The Ministry of Planning and Investment (MPI) is the key actor in managing investment projects and hosts a one-stop service to assist domestic and foreign investors with licenses, concession projects and the like. Within the MPI, the Investment Promotion Department (IPD) administers the foreign investment system and reviews investment applications under the Investment promotion Law.
The PPP Development and Knowledge Centre, located within IPD, seeks to facilitate PPP initiatives by initiating policy and legislation development, and piloting PPPs on education and healthcare.
Other ministries may also be involved in the management of infrastructure investment projects:
– The Ministry of Finance is also in charge of conducting affordability analysis and granting financial support to PPP projects.
– The Ministry of Industry and Commerce facilitates, approves and manages general investment projects.
– The Ministry of National Resources and Energy (MONRE – formerly WREA) is responsible for social and environmental impact management.
– Other ministries: Ministry of Public Work and Transportation, the Ministry of Agriculture and Forestry, as well as the Administration of SEZs.
|Malaysia||The private local or foreign investors can initiate the process of privatisation by submitting a proposal of privatisation project to the government.||In 1985, privatisation guidelines, which did not distinguish between privatisation and PPPs, were issued, detailing the objectives of the policy, the methods applicable and the implementation mechanism. In the early 1990s due to resource constraints, Malaysian Government decided to encourage private sector participation in infrastructure, leading to the Privatisation Masterplan. The Privatisation Action Plan (PAP) assists the implementation of the Masterplan.
In 2009, the government issued the PPP Guidelines which set out many key principles on how to procure and implement defined public infrastructure projects.
The 9th Malaysia Plan (2006-2010) aimed to streamline and enhance the efficacy of the privatisation programme by implementing public projects using the PPP or Private Finance Initiative (PFI) scheme. The 10th Malaysian Plan (2011-2015) provides a clear, robust, detailed and transparent framework for the concept and method of procurement.
The Facilitation Fund Guidelines were issued in 2011 with a view to encouraging implementation of private sector projects. The Guidelines detail the definition and objectives of the Facilitation Fund as well as the conditions to apply for its support.
Land acquisition is regulated in the Land acquisition Act (1960). An amendment in 1991 broadens the conditions under which the State may acquire private land to implement projects that are in the interest of the country’s economic development.
|A single dedicated PPP Unit facilitates implementing Malaysia’s PPP programme: Public Private Partnership Unit (3PU) or Unit Kerjasama Awan Swasta (UKAS). 3PU was established under the Prime Minister’s Office in 2009 and is responsible for screening, structuring, and negotiating PPP projects. 3PU also manages the Facilitation Fund, which is equivalent to a viability gap fund (VGF).
The PPP Committee supervises the evaluation of projects. It is chaired by the Director General of 3PU and made up of members from the Ministry of Finance (MOF), the Attorney General’s Chambers, the Economic Planning Unit, the Federal Land Commissioner and the Valuation and Property Services Department.
|Myanmar||Rapid progress has been made in appointing private sector counterparts, despite the absence of sector or national policy frameworks and processes, or institutional management functions dedicated to PPPs.
Over the past few years, PPP projects in Myanmar have largely been unsolicited and also primarily MoU-based. They have thus not gone through a competitive process.
Building the level of knowledge and expertise in public authorities to procure and implement PPP projects. For example, the government needs to build the expertise to evaluate proposals on quality, fair terms and conditions, and delivery sustainable of commercial, financial, and economic value (ADB, 2014). Thus, project selection and negotiations lack a unifying approach, making it difficult for the government to determine and ensure value for money. The establishment of a clearer legal framework should be a priority.
|There is no PPP specific law in Myanmar but a number of the recently enacted laws intended to promote investment into Myanmar contain provisions relevant to PPP projects. This includes the New Foreign Investment Law (FIL) enacted in 2012 and the Myanmar Special Economic Zone Law (MSEZL) enacted in 2014. The new FIL grants greater tax incentives, like up to 5 years of tax holiday, for investment in infrastructure and the creation of SEZs.
In 2013, the Ministry of National Planning and Economic Development (MPED) and the Myanmar Investment Commission (MIC) issued detailed regulations of the new FIL, setting out in particular the permitted activities for foreign investors and the activities which require a joint venture.
BOT rules are also contained in FIL as well as in Foreign Investment Rules (2013).
Further relevant laws are: Myanmar companies Act (1914), and the Myanmar citizen investment law (1994) amended into New Myanmar citizen investment law (2013).
|The main public authorities involved in PPP policy are the Ministry of National Planning and Economic Development (MNPED), the Myanmar Investment Commission (MIC), which appraises and approves investment proposals and the Directorate of Investment and Company Administration (DICA), which issues permits for investment proposals.
Around 15 percent of these projects are managed by the Ministry of Construction, Public Works.
|Philippines||Historically, challenges included the clarity and consistent application of regulations and competencies of contracts.||Two laws, together with the Implementing Rules and Regulations (BOT IRRs), provide the basic legal framework for PPPs: In 1990, Congress enacted Republic Act No 6957 (BOT Law), which authorizes the private sector to enter into agreements with the government (through BOT and BT schemes) to finance, construct, operate and maintain public infrastructure. The BOT Law was amended in 1994 (Republic Act No. 7718), allowing for new types of PPPs in developing infrastructure (e.g. BOO, BLT, BTO, DOT) and expanding the incentives granted to private contractors. Overall, the revised law provides clearer guidelines on how PPPs are to be executed, improved project processing mechanisms and clearer governance and accountability measures. The PPP Center is working on further proposed revisions to the PPP law.
The Joint Venture Guidelines issued by the National Economic Development Authority (NEDA) in 2008 and revised in 2013 provide the rules and procedures for the competitive selection of private joint venture partners. Under the guidelines, the private partner can entirely take over the joint venture project after the government divests itself of any interest in it.
Other related laws and regulations include: Republic Act No 7160 (1991), known as the Local Government Code of the Philippines. Republic Act No 8974 (2000) facilitates the acquisition of Right-of-Way, site or location for national government infrastructure projects and for other purposes. Republic Act No 8975 (2000) ensures the expeditious implementation and completion of government infrastructure projects by prohibiting lower courts from issuing temporary restraining orders, preliminary injunctions or preliminary mandatory injunctions in particular. Republic Act No 9184 (known as the Government Procurement Act) sets the rules for the approval of government contracts. Executive Order No 78 provides alternative (out of court) dispute resolution mechanisms for conflicts that may arise during the contract lifetime of a PPP project.
Following the rebidding of the Cavite Laguna Expressway (CALAX) in 2014, the PPP Centre decided to pursue amendments to the BOT Law. A series of amendments are currently being examined by the Philippines Congress. The passage of the BOT Law Amendments or the PPP Act (expected in 2015) will define standards, further encourage private sector participation, reduce red tape and improve transparency.
Other proposed amendments include the institutionalization of the Project Development and Monitoring Facility (PDMF), the PPP Governing Board and the contingent liability fund. The proposed amendments also include the separation of regulatory and commercial functions of government-owned and -controlled corporations and create a list of projects called “Projects of National Significance.” By virtue of being included on the list of projects of national significance, projects will be “insulated” from local laws, among others by local government units.
|In 2010, under Executive Order No 8, the Build-Operate and Transfer (BOT) Centre has been reorganized and renamed as the Public-Private Partnership (PPP) Centre and is located now at the National Economic and Development Authority (NEDA). The PPP Centre is involved at each stage of the project cycle, including: providing advisory services, facilitating the development of PPP projects, managing the project development and monitoring facility, capacitating national implementing agencies and LGUs; advocating policy reforms and monitoring implementation of PPP projects. The PPP Centre also publishes a “PPP Investment Brochure” listing all PPP projects in the pipeline.
The NEDA Investment Coordination Committee, the central socioeconomic planning and policy development and public investment programming and monitoring agency, is tasked with project approval ADB (2011). A lack of clarity persists of the delineation of responsibilities between the PPP Centre and NEDA’s PPP Group and the delineation of responsibilities between the PPP Centre, and central and local levels government agencies is unclear. The revised JV guidelines (2013) define the NEDA- ICC as the approving authority for all JV proposals involving infrastructure projects and public utilities.
Under Executive Order No 136 (2013), the PPP Governing Board was established as the country’s overall policy-making body for all PPP-related matters, including the PDMF (see below). The mandate of the PPP Centre expanded to cover: BOT Law, Joint Venture arrangements, as well as other PPP arrangements.
The Project Development and Monitoring Facility (PDMF) is a revolving pool of funds made available to enhance the investment environment for PPP and to develop a robust pipeline of viable and well-prepared PPP infrastructure projects. To that end it supports implementing agencies in the conduct of pre-investment studies, and project monitoring.
Regulators provide sector-specific regulatory rules, such as those relating to prices, routes, standards or operating parameters. These regulators include the Toll Regulatory Board, Maritime Industry Authority, Energy Regulatory Commission, Civil Aviation Authority of the Philippines, and National Water Resources Board (Navarro and Llanto 2014).
|Singapore||Singapore has no separate PPP-focused body or PPP specific legislation.||There is no PPP specific legislation but Singapore has a very conducive environment for PPP projects thanks to its stable and transparent legal framework that provides a sound architecture for efficient and corruption-free public procurement.
The MoF officially launched its PPP initiative with the publication of the PPP Handbook in 2004 (revised in 2012) which provides the private and public sectors with the guidelines for successful structuring and management of PPP projects in Singapore.
|In Singapore there is no separate PPP-focused body or institution. The Ministry of Finance (MOF) is the central coordination agency for PPP projects and oversees the role of each relevant Government department in its implementation of PPP projects. The PPP Advisory Council, located in the MOF, is tasked to strengthen PPP skills in public and private sectors along with resolving cross-agency issues.|
|Thailand||Historically, regulations lacked details on procurement methods, on selection criteria or risk allocation. The PPP Act includes a number of improvements: In particular, agencies have to consider PPP alternatives and justify non-PPP options, thereby forcing government agencies to seriously analyse whether they will be getting ‘value for money’ from PPP proposals. The new mandatory use of consultants is another significant change aimed at optimizing the use of PPPs.||Since 1992, PPPs have been governed primarily by the Private Participation in State Undertaking (PPSU) Act B.E. 2535, also known as the “Joint Venture Act”. The main rationale for the PPSU was to prevent corruption by transferring project approval to the Cabinet and create ex-ante check and balance procedures, curbing discretion of the project agency. The 1st and 2nd Ministerial Regulations 2537 (1994) provided details on procedure and details of bidding process.
In 2013, a new Act, aptly titled the Private Investment in State Undertaking Act B.E. 2556 (“PPP Act”), replaced the PPSU Act, providing greater specificity in definitions, procedures, and time frames. According to the MOF, “the PPP Act represents a fundamental change by introducing clear systematic guidelines and proper risk allocation and management to implement PPP projects, enhancing national competitiveness and fiscal discipline.” An important feature of the new PPP Act is that it sets clear timelines for the conduct of PPP projects, reducing in particular the PPP approval process time from 20+ to 10 months.
Eight organic laws (2014) and five in 2015 define mainly the method to calculate project value, procedures to invite private firms into joint investments, the screening process, contract standards and joint investments by private firms in projects worth less than 1 billion baht.
|The PPP Act (2013) established the PPP Committee to take primary responsibility for PPPs in Thailand. The PPP Committee will be supported by the State Enterprise Policy Office (“SEPO”) at the MoF which will function as the secretariat of the PPP Committee and as a central PPP unit. The SEPO will be responsible for drafting guidelines for PPPs, providing recommendations on project feasibility to the PPP Committee, assessing projects, preparing a draft PPP Strategic Plan or PPP Masterplan for approval of the PPP Committee.
The new law also provides for the establishment of a “Project Development Fund” to support PPP projects. The MoF plans to establish a venture fund worth 2 billion Baht to be used as seed money for private companies to conduct feasibility studies.
|Viet Nam||Historically, there has been a lack of clarity in PPP regulations and a perceived lack of experience of local authorities.||The 2007 BOT Decree 78 stipulated the sectors, conditions, procedures and incentives applicable to infrastructure development investment projects through BOT, BTO, BT and similar contractual forms. The Decree 24 (2011) “BOT Decree” expressly encourages investment in infrastructure facilities, including roads, rail, airports, ports, water and waste plants, and power plants; no restrictions exist on the infrastructure sectors which are open to foreign investors.
The prevailing legislation governing PPPs in Viet Nam is the current law found in Decision 71 (2010) promulgating the regulation on pilot investment under the PPP model. Under Decision 71, (a) the goal of PPP is to secure investment from domestic and overseas public sector companies to develop and improve infrastructure and public services; (b) the total state participation portion must not exceed 30 percent of the total investment in any project except in cases specially decided by the Prime Minister; (c) private investors' equity capital in a project must represent at least 30 percent of the private sector capital in any project; and (d) private investors may raise commercial loans and capital of other sources, without government guarantee up to 70 percent of the private sector capital in a project.
Viet Nam is finalizing a much improved legal framework for PPP projects with the goal to revitalize investment in infrastructure projects (“New PPP Law”). In early January 2015, the Ministry of Planning and Investment (“MPI”) sent a final draft PPP Decree to the Prime Minister for consideration and approval. The new PPP Decree seeks to bring those developments under one decree and provide more clarity and incentives for private investors.
The new Investor Selection Decree (October 2014 draft) guiding the Law on Public Procurement specifically provides incentives for investors who propose smaller PPP projects. It further includes more PPP projects forms (e.g., BOO), fiscal incentives for investor-proposed projects, choice of foreign law and dispute settlement, government guarantees and publication of PPP project status.
In addition, the list of important laws and regulations that may apply to PPP projects are:
– Law on Construction: governs the construction permits, site clearance, and building of construction works and supervision of construction;
– Law on Land and its implementing regulations govern the ownership and use of land. The state is the owner of all land in Viet Nam and private ownership of land is not permitted. However, the government may allocate or lease land to individuals, organizations and businesses by granting land use rights;
– Law on Investment (Law 59/2005/QH11): provides the legal framework for investment projects implemented by companies under the law on Enterprises or specific types of contracts (e.g., BOT contracts) and regulates the licensing of investment projects, the rights and obligations of investors, and the projection of the investors' legal rights, to name a few;
– Law on Enterprises (Law 60/2005/QH11): the Law on Enterprises provides the framework for Viet Nam's corporate law.
– Anti-Corruption Law: the Vietnamese government enacted Decree 74 in order to fight against money laundering, and activities under the PPP Pilot Program must be structured to ensure transparency and compliance with Decree 74 and other anti-money laundering regulations;
– Law on Tenders: provides the framework for tending activities to select contractors for the provision of consultancy services, procurement of goods, construction and installation.
|The Ministry of Planning and Investment (MPI) coordinates the implementation of PPP projects and is in charge of the overall investment activities and the licensing of private sector projects. The MPI organizes training and capacity building on PPP for other government agencies. Located at the MPI, the Government of Viet Nam recently created a PPP office (under the Public Procurement Agency) as a focal point for all PPP activities. It is a one-stop-shop in charge of national coordination of PPP projects. The Prime Minister also approved the establishment of an inter-ministerial steering committee.
Selected line ministries have also been designated to oversee and implement various PPP projects, including: the Ministry of Finance, the Ministry of Industry and Trade, the Ministry of Construction, the Ministry of Transportation and the State Bank of Viet Nam.