INSIDER VIEW: Is the MAGA clause enough to protect PPP investors?

MAGA stands for Material Adverse Government Action. Under the Public-Private Partnership (PPP) Code of the Philippines and its Implementing Rules and Regulations (IRR), every PPP contract is required to include a MAGA clause.  

This provision is designed to safeguard the private partner from specific government actions that negatively impact project implementation and financial viability.

According to the IRR, the occurrence of MAGA results in a contingent liability potentially requiring monetary compensation, among other relief mechanisms.

Under the PPP Code, MAGA is defined as:

“Any act of the government which the private partner had no knowledge of, or could not be reasonably expected to have had knowledge of, prior to the effectivity of the PPP contract, and that occurs after the effectivity of the PPP contract, other than an act which is authorized or permitted under the PPP contract, which (1) specifically discriminates against the sector, industry, or project, and (2) has a significant negative effect on the ability of the private partner to comply with any of its obligations under the approved PPP contract. MAGA may include unanticipated regulatory risks.”

The MAGA clause is intended to insulate the private partner from political and regulatory risks – the most feared risks in the Philippine context. 

MAGA may be triggered when:

• Permits, approvals, or clearances are revoked
• Laws, regulations, or policies are changed to the detriment of the project
• Government undertakings, subsidies, or incentives are breached or withdrawn
• Regulatory approvals are cancelled or withheld
• Government action is unreasonably delayed—or worse, completely lacking

Beyond protection, the MAGA clause is designed to preserve the risk allocation agreed upon in the PPP contract. Relief mechanisms such as compensation, contract extension, or tariff adjustment ensure the project’s financial viability is maintained.

Does this mean that the inclusion of a MAGA clause is sufficient and the private partner has nothing to worry about?  Unfortunately, it may not be enough on its own.

What else could be done to future-proof PPP contracts against the dreaded successor risk? At least six measures can help:

• The MAGA clause must be clear and specific. “Material” must be defined and “adverse” delineated.
• Implementing Agencies and regulatory bodies must commit to contractual sanctity. Political will and adherence to the rule of law are essential.
• Alternative dispute resolution mechanisms must be in place and credible. Tribunals must be neutral and trusted.
• MAGA should be complemented by guarantees, performance undertakings, insurance, letters of comfort, or multi-party agreements.
• Public officials who are responsible for or complicit in causing MAGA must be held accountable.
• The PPP contract and the project itself must lead to a better quality of life for Filipinos. When the people feel and receive the benefits, they will help shield the project from risk.

This author remains hopeful that the private sector will not be deterred from partnering with the government. The government and the private sector need each other.