Requesting Entity: National Power Corporation

Issues Concern: Financial Swaps: Selection of Counterparty Covered by R.A. 9184; Limited Source Bidding


Whether financial swaps constitute a procurement activity thereby falling within the purview of Republic Act No. 9184.

[P]rior to execution of a financial swap, NPC or PSALM needs to select a counterparty or an investment bank which will propose the appropriate derivative strategy and execute it when approved. Under the set of procedures submitted by PSALM, the counterparty or investment bank renders the following services: (i) prepares and proposes the appropriate derivatives strategy considering the underlying financial obligations to be hedged, (ii) submits a quotation on the price and other terms and conditions of its proposal, (iii) presents its proposal to NPC or PSALM, (iv) if approved by NPC or PSALM, executes the derivative transaction.

[T]he GPPB had occasion to state that procurement involves the expenditure of public funds the regulation of which is the primary consideration for the passage of R.A. 9184. National Treasurer Omar Cruz confirmed during the GPPB meeting held last 30 March 2007 that financial swaps entail disbursement of public funds, including, it seems, payment for services rendered by the counterparty or investment bank.

Consequently, the GPPB resolved that the engagement of a counter party for the execution of a financial swap constitutes a procurement activity and, therefore, falls under R.A. 9184.