It can be done. Local government units (LGUs) can dispose of their assets in a public-private partnership arrangement, either as a distinct or component of another PPP modality, through unsolicited proposals (UPs). The rule under Circular No. 89-296 issued by the Commission on Audit (COA Circular) on January 27, 1989, requiring a public auction is not the only rule.
Divestment defined and scoped. Under the COA Circular, a PPP regulation, divestment shall refer to the manner or scheme of taking away, depriving, withdrawing of an authority, power or title of property and other assets of LGUs. For purposes of PPPs, whereby an LGU partners with a private sector proponent (PSP), the property must be held by the LGU under its patrimonial capacity.
COA Circular requires public auction. Public auction or bidding or solicitation is the preferred procedure under the COA Circular. There must be adequate publicity, confidentiality of sealed envelopes, fair evaluation of tenders and posting of proposal guarantees. In case of failure, the LGU can enter into a negotiated sale with the PSP. Under said Circular, this is the only instance where an LGU can negotiate with a PSP.
Divestment as a component of four PPP modes. There are PPP modalities that include divestment of disposition of assets. Under the build-operate-transfer law, the PSP can own the asset under two variants—build-own-operate and rehabilitate-own-operate. In BOO, the PSP is authorized to finance, construct, own, operate and maintain an infrastructure or development facility. In ROO, an existing facility is turned over to the PSP to refurbish and operate, with no time limitation imposed on ownership.
Under the template PPP ordinance attached to Circular 120-2016 issued by the Department of the Interior and Local Government, an LGU can enter into a joint venture or a lease contract with a PSP whereby the latter can own the asset. The difference lies in the timing. In a JV, the transfer of ownership can happen anytime, while in a lease, the purchase option is at the end of the lease period.
In these cases, divestment as a feature of these four modalities can be part of a PPP award obtained through solicitation or UPs.
Straight divestment. What is not popularly known is a decision of the COA rendered in 2009 (No. 2009-64), promulgated 20 years after the issuance of the COA Circular, whereby the government audit agency did not interpose any objection and thus permitted the sale of government property via a Swiss or competitive challenge. Here, divestment is independent of any PPP modality.
For as long as the competitive challenge process approximates the nature and requirements of a public bidding, which are essentially transparency and competitiveness, and COA approval is secured pursuant to Section 380 of the Local Government Code of 1991, then straight divestment through UPs can be done.