Private Funds, Utility Development, and Government Policy

Abstract

Between 1995 and 1997, the Clark Development Corporation (CDC) used the joint venture model, a variety of the built-operate-transfer (BOT) model, to attract private funds for utility development in the Clark Economic Zone in the Philippines, located on the site of the former Clark Air Base. The principle elements of the joint venture model were a capital investment by a strategic partner and eventual sale to the public of the CDCs share of the joint venture corporation. Gavieta states that the success or failure of such a program is largely dependent on the conduct of the bid solicitation and the contract award process. Lessons learned from the joint venture experience concerned the absence of construction completion guarantees, performance undertakings, and environmental insurance cover; minimum bid price; tariff caps versus IRR caps; valuation of the existing right of way and equipment qualitative evaluation of bidders; minimum term commitments by joint venture partners; independent third-party venture evaluation of joint venture performance; and corporate governance of joint ventures.