Training of Trainers for DILG
PPP Focal Persons
The Linden Suites, Ortigas
August 28, 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 ✓ PROPRIETARY ✓
• Land of the Public • All Other Property
Dominion • Alienable and Disposable
• Public Plaza Land
• Public School • Property Acquired By
• Provincial Roads, City Purchase, Grant, or any
Streets, Municipal other mode of acquisition
Streets • e.g. public markets,
• Public Works for Public cemeteries, ferries,
Service waterworks
• Public Waters
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 Shall be registered by
incorporated and the JV partners that
registered in shall perform the
accordance with the primary functions and
Corporation Code and obligations of the JV
based on the prevailing stipulated under the JV
rules and regulations of Agreement
the Securities and
Exchange Commission
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, Penalties, Dispute
Sharing of Risks and Resolution, Termination
Rewards and Governance and Divestment
JV specifications and features Indemnification and liquidated
Relationship between parties & damages
management roles Dispute resolution and arbitration
Amount, kind, description, timing & Compliance with laws, rules, &
valuation of contributions of each regulations
party Grounds for and effects of default
Procedure for additional capital and termination
infusion 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
30
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:
[email protected] PPPCenter.Philippines
@PPP_Ph
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