NPM 105-2004

Requesting Entity: Armed Forces of the Philippines

Issues Concern: Issuance of Letter of Credit to Joint Ventures



1. Whether or not a letter of credit may be issued in favor of a joint venture composed of a Philippine entity and a foreign manufacturer/supplier, or on any of the members thereof.

A reading of Section 42.5 of the IRR-A of R.A. 9184 will reveal that a letter of credit is not allowed to be issued in government procurement either in favor of the following: (i) a Philippine entity; or (ii) any of a Philippine entity's foreign manufacturers or suppliers.

2. Whether or not a letter of credit may be issued in favor of the foreign member of the joint venture in behalf of the members.

Accordingly, whether or not a letter of credit may be issued to a joint venture shall depend on the national treatment of such joint venture based on the interest of the foreign and Philippine co-venturers. This will be the indicia, whether in the eyes of law, the joint venture is treated as a “Philippine entity.” Hence if the Filipino interest over the joint venture is sixty percent (60%) or more, a letter of credit cannot be issued to such aggrupation under Section 42.5 of the IRR-A, as such association is given a Filipino national treatment. However, if it is less than said percentage, the joint venture is regarded as a foreign entity and a letter of credit may be issued to it subject to other conditions. But of course, the question on the issuance of letter of credit to joint venture with more than forty percent (40%) foreign interest is relevant only in exceptional cases under R.A. 5183 and Section 23.11.1 of the IRR-A.