The BOT Law and the Local Government Code of the Philippines allow the provision of fiscal support and financial incentives to PPP projects. This task of approving such support is allocated to the local sanggunian.
Key principles to incorporate in any PPP policy are the following:
1. Government support shall be given to PPP projects that are economically feasible and viable commercial propositions;
2. Government support should be minimized with great attention given to evaluating the risk, estimating its true cost to the national budget, and setting up a management system to monitor the risk; and
3. Provision of government support should be made in a transparent manner.
Principle (1) imposes a limit on the amount of support. Economic feasibility implies that the amount of support may not exceed the economic benefits to be derived from the project, after taking into account the cost of the support. Principle (2) underscores the fact that LGU funds are scarce and should be used efficiently. This means that support will be provided to the most appropriate projects and within each infrastructure facility provided in the most efficient fashion, both as regards the overall amount of support provided, and the mix of support instruments chosen. Bid procedures may be designed to minimize a particular form of support. This is the case, for example, when a public tender requires the bidder to identify the lowest tariff subsidy that is acceptable to it.
Public tenders for PPP projects are sometimes structured so that the amount of direct subsidy is the key bidding criteria in the financial proposals received from bidders. This is a useful way of minimizing a particular subsidy, but it is not sufficient to ensure that the overall package of support is structured so as to provide sufficient incentive to the private sector at the minimum total cost to the LGU.
Principle (3) provides that government support shall be provided by means of a transparent process. It should be noted that any PPP project requiring support must be subject to competitive tender and, therefore, sole source uncontested contracts should not be eligible for government support. Where financial support is required, a clear description of the nature of that support is required, and the amount of required support becomes one of the project ranking criteria.