Insurance, not sovereign guaranee?

Palace allays fears of sovereign guarantee for investors
By Aurea Calica (The Philippine Star) Updated November 21, 2010 12:00 AM Comments

MANILA, Philippines – MalacaƱang clarified yesterday that it was not offering any sovereign guarantee to investors when President Aquino assured businessmen that they would be protected from regulatory risks.

“A sovereign guarantee protects you from market risks and debts while protection from regulatory risks is like an insurance policy. For example, if the investor gets a temporary restraining order from the court because of a petition, the government can shoulder whatever will be lost under a specific contract,” Presidential Communications Development and Strategic Planning Office Secretary Ricky Carandang explained.

President Aquino gave the assurance during the launch of the public-private partnership (PPP) projects.

Presidential spokesman Edwin Lacierda, for his part, said the granting of sovereign guarantee was precisely what the administration was trying to avoid in encouraging investors to come to the Philippines.

Carandang said the government, for instance, would shoulder the cost if a proponent of an expressway project was stopped from increasing toll fees by the courts.

“Until such time that the case is pending, the government will have to pay what the company is supposed to be making. And once the case is resolved, we can get back the money,” Carandang said.

Carandang said a sovereign guarantee would entail payment of products or goods, such as electricity, without the company worrying whether it could sell everything or not.

“That is totally different because there is no risk involved at all because the company is guaranteed full payment
even if the products are not sold. Here it’s different, if a company loses money, then it loses money,” Carandang said.

He added that protection from regulatory risks would involve the courts, local government units and the legislature, among others.

Carandang said the Aquino administration only wanted to assure investors that it would honor contracts and not change policies in the middle of the game.

When he was president, Joseph Estrada ordered the removal of all sovereign guarantees on contracts for public projects.

European Chamber of Commerce of the Philippines (ECCP) president Hubert D’Aboville said some members of the ECCP were already part of past PPP projects of the government.

“Some members of the ECCP have already been involved with the PPP in the past,” D’Aboville said.

“ECCP formally commits to supporting the government and the PPP. We were extremely happy to see government secretaries working together as a team. They made strong presentations and have given solutions to problems,” he said.

In the “Infrastructure Philippines 2010” forum on Thursday, Mr. Aquino said the country is “at the threshold of being able to say to our respective stakeholders, here is a Philippines that has the clarity of vision and firmness of mission, to accomplish what we all desire. The darkness is dissipating and what has brought us all together today is a palpable sense of optimism in the country’s future and the affirmation that the Philippines is open for business.”

Meanwhile, Department of Trade and Industry Secretary Gregory Domingo said the success of PPP hinges on integrity, honesty, transparency, and predictability.

“The government intends to further strengthen the Philippines’ image by implementing initiatives that will dramatically streamline the process of infrastructure project development, review and approval, financing, risk allocation in project structuring, project execution and monitoring,” he said.

House Minority Leader and Albay Rep. Edcel Lagman earlier said that Mr. Aquino could not disregard the power of the Supreme Court and the Congress to scrutinize huge government contracts.

“While it is salutary to protect investors from regulatory risks, government contracts are not inordinately sacrosanct so as to be immune from judicial review by the Supreme Court and police power legislation by the Congress,” Lagman said.

“It is beyond presidential prerogatives to shield contracts from final court judgments and valid legislative enactments,” he said.

He said Mr. Aquino gave investors “an errant assurance” when he declared that if private investors were impeded from collecting contractually agreed fees – by regulators, courts, or the legislature – then the government would use its own funds to compensate them.

“If, for some reason, a court decision threatens the adjustment, the government will compensate the private concessionaire for the difference between what the tariff should have been under the formula, and the tariff which it is actually able to collect,” Mr. Aquino had told fund managers. – With Elisa Osorio
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