Justification.docx

Date: January 14, 2019 To: Atty. Gladys Velasco From: Amapola Bulusan Subject: Justification for Remedies in case of Grantor’s Delay under the Draft CA

I. Remedies of the Concessionaire in case of Grantor’s Delay Event The Concession Agreement provides that in case of Grantor’s Delay, the concessionaire is entitled to a Project Timeline Extension and to Grantor’s Compensation. These remedies are cumulative in nature in order to protect the parties’ rights as provided in the agreement. II. Justifications for the Remedies provided in the Concession Agreement a) Project Timeline Extension is not a remedy in all cases of breach under the Concession Agreement The Grantor has obligations under the Concession Agreement which, in case of breach, shall entitle the Concessionaire to Grantor’s Compensation. By the nature of these obligations, breach thereof may cause damage to the Concessionaire which cannot be compensated by an Extension of the Project Timeline. Consequently, Grantor’s compensation may not be removed as a remedy under the Concession Agreement, otherwise, it would render futile other Grantor’s obligation provided in the Agreement. The following are Grantor’s obligations which, in case of breach, cannot be remedied by Project Timeline Extension: 1. Grantor grants the concessionaire the exclusive right to finance, design, develop and undertake the Project (Section 2.2; 2. Grantor represents and warrants the following: a. Grantor can sue and be sued in relation to its dealing with the Concessionaire; b. Grantor has all the requisite legal power, authority and right to execute and deliver this Agreement, and to perform its obligation hereunder; c. Grantor has taken all appropriate legal and/or other required or appropriate actions to authorize the execution, delivery, and performance of this Agreement and any or all other agreements, instruments or documents contemplated hereunder;

d. This Agreement constitutes the legal, valid, direct and binding obligations of the Grantor, enforceable against the latter in accordance with its terms. This Agreement is in satisfactory and proper legal form under the laws of the Republic of the Philippines (3.2). 3. Grantor undertakes that the warranties and representations made on the signing date shall continue and remain true and correct for the duration of the Concession Period (Section 3.3). 4.Grantor shall cooperate and coordinate with the Concessionaire in relation to the arrangement for its financing of the Project by assisting in the due diligence to be conducted by the Finance Parties (Section 5.3). b) New Civil Code Article 1179 of the New Civil Code states that those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. In line with this, Grantor’s Delay is defined under the Concession Agreement as delay caused by an (a) interruption of the possession of the Project Site and/or Project Assets, and/or reasonable access to the Project Site, regardless of the period; (b) acts or omissions of the Grantor that results in the interruption of the Concessionaire’s right to possession of the Project Site or any of the access roads and related properties / sites, to the extent that the interruption of possession or the prevention of such access materially affects the implementation of the Project in accordance with this Agreement; or (c)failure of the Grantor to comply with their other obligations under this Agreement. Therefore, in any of these cases, the Grantor should be held liable for damages in accordance with Article 1179 of the New Civil Code. III. Other Supporting Materials As provided in the Concession Agreement, the Grantor/Government shall be liable in case of interruption of the possession of the Project Site and/or Project Assets, and/or reasonable access to the Project Site, regardless of the period; (b) acts or omissions of the Grantor that results in the interruption of the Concessionaire’s right to possession of the Project Site or any of the access roads and related properties / sites, to the extent that the interruption of possession or the prevention of such access materially affects the implementation of the Project.

The provision is supported by Generic Preferred Risk Allocation Matrix dated 2 August 2016 which states that risks arising from permits, approval, and site preparation shall be borne by the party responsible for the delay. Also, risk arising from the availability of the site shall be borne by the Government unless the site is provided by the private party. In this case, the Project Site will be provided by the PCSO, the Grantor. Therefore, any interruption of the possession or availability of the Project Site shall be for the account of the Grantor. Furthermore, in a handbook released by NEDA, it is stated that risk must be allocated to the party who has the most influence over it so that such party will bear the cost of such risk or its benefit, as the case may be (Structuring PublicPrivate Partnerships 2009). Consequently, the Government/Grantor should bear risk which they have control or strong influence (Government Guarantees: Allocating and Valuing Risk in Privately Financed Infrastructure). IV. References 1. Generic Preferred Risk Allocation Matrix as of August 2, 2016 Risks to be assumed solely by the Government or to be shared with Private Partner: Type of Risk Allocation/Rationale 1. Permits, approval, site Each party shall bear the preparation (1.3) risk of the delay for which it was responsible.

Rationale Government will file an application for Environmental Compliance Certificate (ECC) pre-bid since implementing agencies prepare the Feasibility Study and design (in case of solicited), but private will have the primary responsibility of obtaining and complying with the ECC, with the help of the Government. Government is better informed and positioned so that the necessary approval, particularly in situations that are

2. Availability of Site (1.7)

complex or sensitive, is secured. Solely by the Government has a Government unless the better understanding of site is provided by the procedures, has special Private Party powers of acquisition and use of land for infrastructure and is usually in the best position to manage.

Reference: (https://ppp.gov.ph/wp-content/uploads/2017/02/GPRAM_2Aug2016.pdf) 2. Structuring Public-Private Partnerships 2009; Philippine- Australia Reform for Economic Governance Reforms (National Development Authority and Australian Government – AusAID) Allocate the risk to the party best able to control the likelihood of the risk occurring event. The risk must be allocated to the party who has the most influence over it so that such party will bear the cost of such risk or its benefit, as the case may be (Principle 1, page 59). Reference: (http://www.neda.gov.ph/wp-content/uploads/2014/01/Structuring-PublicPrivate-Partnerships-PPPs-Handbook.pdf) 3. Government Guarantees: Allocating and Valuing Risk in Privately Financed Infrastructure by Timothy C. Irwin. Washington D.C.: The World Bank. 2007 Risk should be allocated to the best party that can effectively manage such risk. Consequently, Government should bear risk which they have control or strong influence (pp 5-6). Reference: (http://siteresources.worldbank.org/INTSDNETWORK/Resources/Government_Gu arantees.pdf)