Sector Background and Potential
The Philippines is significantly underinvesting in physical infrastructure, with its public sector infrastructure budget consistently below 3% of GDP. Spending on social infrastructure for education and health is also inadequate at slightly over 4% of GDP.53
Polls of businessmen repeatedly show poor infrastructure as one of the top challenges facing the Philippine economy, second only to corruption. Like corruption, poor infrastructure severely weakens economic competitiveness.
In the last two WEF Global Competitiveness Reports, among the ASEAN-6 economies, the country’s overall infrastructure quality ranked below Singapore, Malaysia, and Thailand and about the same as Indonesia and Vietnam (see Figure 65).
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53 Based on calculations from the Asian Development Bank (ADB), as percentage of GDP, the Philippines spent about 2.9% on education, 1.2% on social security, 0.5% on health, and 0.1% on housing and community amenities in 2008. The 2009 DepEd budget of PhP 158 billion represents a per student spending of PhP 8,000 for each of the more than 20 million students in basic education, one of the lowest spending levels in Asia.
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Table 27 shows a similar pattern of the Philippines in comparison to the ASEAN-6 countries for measures of power quality, telecommunications, access to water and sanitation, and roads. The Philippines is ranked the lowest for fixed telephone lines per 100 inhabitants and percentage of total road network paved.54
The Philippines spends a lower percentage of GDP on infrastructure than competing ASEAN economies, as shown in Figure 66. After reaching a low of 1% in 2005, the percentage increased to 2.1% of GDP in 2009 (see Figure 67). If spending on infrastructure continues to remain low, efficient modern infrastructure will not be built fast enough to meet the challenge of being an archipelago with a high and rising urban population density.
Figure 66: Infrastructure spending, ASEAN-5, % GDP, 1980-2009 (annual average)
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54 While 70% of the national roads are paved, only 14% of the local roads, which comprise 85% of the total road network, are made of concrete or asphalt.
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Figure 67: NG Infrastructure spending, Philippines, 1990-2009
View updated figure here
Inadequate funding for infrastructure during the last decade contributed to the weakened competitiveness ratings for the country’s overall infrastructure as well as the continued listing of poor infrastructure as a major weakness in its investment climate. Despite the availability of external private and public sector financing, the government was unable to implement significant Public Private Partnership (PPP) projects nor could it avail of significant sums of low-interest loans for infrastructure from China. A lack of transparency and extraordinary levels of public controversy characterized what in most countries is routine infrastructure project development and implementation.
The administration of former President Macapagal-Arroyo in 2003 began a policy initiative to improve inter-island connectivity through the RORO Road Terminal System (RRTS). In her 2006 SONA former President Macapagal-Arroyo highlighted more than 400 projects (mostly related to air, ground, and marine transport) targeted for completion before the end of her term in 2010.55 Some of the projects were criticized as politically motivated to dissuade congressmen from supporting an impeachment motion against the president.
The overall infrastructure record of the outgoing administration is weak, considering it had almost ten years to complete projects. It neglected to start many major projects and to utilize several which were completed. The administration expropriated the privately-owned international passenger terminal at the national gateway airport in December 2004. The Philippine-German joint venture that built the terminal has not been compensated after more than five years, despite the assurances of the Philippine government that all issues would be settled expeditiously. There are new ports in Batangas and Subic which are hardly used. The Department of Transportation took seven years to approve a US$ 1 billion light rail project in Metro Manila. For ten years it was unable to decide how to bid and award another large light rail project. Manila residents paid a terrible price in lives and property when one typhoon’s torrential rains proved the high risk of neglecting flood control infrastructure and unregulated urban sprawl. Maritime safety remains a major issue, highlighted by many small and several large disasters. Power blackouts became frequent in the Visayas and Mindanao in 2010.
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55 Subsequently, the president issued several executive orders creating an Infrastructure Monitoring Task Force to oversee implementation of the projects and then renaming the Task Force as the Pro-Performance System Steering Committee and adding private sector representatives. The Presidential Management Staff serves as secretariat.
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The Philippines faces urgent infrastructure challenges. The most urgent is assuring an adequate supply of power, eventually reducing its cost through increased competition among generators. The second is improving the efficiency of transportation, by air, land, and sea, which is too crowded for a population growing in size and spending power. A third is the water supply, which is not enough for drinking and farming and too much during typhoon season, as well as poor sanitation and solid waste disposal systems. By contrast, telecommunications services, in the hands of competing private sector providers, are much improved following reforms initiated by President Ramos in the 1990s.
The three following tables list major infrastructure projects of both the public and private sectors. The projects in each are listed by category as airport, power, rail, road, seaport, telecommunication, and water. The tables cover three different time periods, with the later including several projects still at the conceptual stage.56
• Table 28: Completed projects (2001-2010)
• Table 29: Under construction or being financed in 2010
• Table 30: Priority future projects (2011-2020)
Table 28: Major infrastructure projects completed, 2001-2010
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56 Sources for the three tables vary but include media reports and government websites, data from the Pro-Performance System Steering Committee secretariat and industry experts. Project costs are approximated in dollar terms and may not reflect actual peso costs because of exchange rate conversion variations.
57 Expropriated by the Philippine Government in 2004; the final amount of compensation due to the German-Filipino joint venture owner ($64 million has been paid) has been undergoing arbitration at the International Chamber of Commerce International Court of Arbitration in Singapore for several years, with final approval to be made by a Philippine court.
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Table 29: Major infrastructure projects underway,58 2010
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58 Underway includes projects undergoing financing and under construction.
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Table 30: Major infrastructure projects to implement, 2011-2020
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59 Any policy to declare Coron and Puerto Princesa as pocket open skies airports should include upgrading each airport’s infrastructure to international standards including international flight rules (IFR) capabilities.
60 Unsolicited bids have been submitted.
61 Power generation cost estimates assume US$ 1 million per MW for coal and gas, US$ 2 million for hydro and wind, US$ 2.4 for biomass, and US$ 2.5 million for geothermal and nuclear.
62 Provincial bus operations to and from the North and South could start and terminate at these bus terminals. The light rail system will provide inter-modal connectivity to and from the metropolis.
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Arangkada Philippines 2010 does not analyze or make recommendations for the entire infrastructure of the Philippines.65 This policy paper focuses on major projects in Central Luzon and the NCR, where most of the country’s industry is concentrated and where one of the world’s largest urban mega-regions is rapidly expanding (see Table 31). Manila presently is the world’s 5th largest urban area with an estimated population of 20.8 million in 2010. By 2030 Manila is projected to be the world’s 3rd largest urban area (after Jakarta and Tokyo-Yokohama) with a projected population of 34 million inhabitants. An increase of 13 million residents will require very large investments, not just to maintain the current poor condition of infrastructure but to achieve substantial modernization to improve national competitiveness.
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63 US$ 190 million for Phase 1 6-lanes Quezon City to Baliuag, Bulacan; subsequent phases will traverse Nueva Ecija north to Tuguegarao, Cagayan.
64 Arangkada Philippines 2010 recommends a policy to decongest Manila Port by gradually shifting international container traffic to the ports of Batangas and Subic to utilize the completed facilities at both ports for international container shipping.
65 The World Bank’s extensive 2005 study “Philippines: Meeting Infrastructure Challenges” contains data and recommendations still valid. More recently, the Philippines-Australia Partnership for Economic Governance Reforms (PEGR) prepared the Draft National Transport Policy Framework document dated October 30, 2009.
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Table 31: Population of Urban Mega-regions, 2010 and 2030 (E)
Many of the recommendations made for the Seven Big Winner sectors require infrastructure in the country’s other urban centers and rural areas. The Agribusiness sector needs better farm-to-market roads and post-harvest facilities, including cold chain storage, and ports. Mining require better roads and ports. Interisland shipping needs to be safer, more efficient, and less costly. Most of the country’s most attractive tourist destinations need better air and sea access, improved roads, water, and sanitation. Increasing business processing investment at secondary and tertiary cities requires dependable telecommunication links, while reliable and lower-priced power is essential for the entire economy.
Turning this vision into reality in a decade can be possible if recommendations in the following sections are implemented. Funding in the tens of – perhaps as high as one hundred – billions of dollars will be needed (see Table 32). Such large amounts of funding are not available from the public sector and ODA, but can be provided by the private sector, both domestic and foreign, investing in PPPs. However, private investors will only participate in well-prepared projects in an investment climate that provides them contractual and regulatory confidence of fair returns on their equity.
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Table 32: Infrastructure funding gap (Bn PhP), 2003-2010
View updated figure here
In the following pages, Arangkada Philippines 2010 presents recommendations developed at three FGDs on infrastructure hosted by the American Chamber of Commerce: (1) Airports and Seaports, (2) Power and Water, and (3) Road and Rail. With some exceptions, recommendations focus on the geographic area from Batangas north to La Union province, an area with a population of over 36 million and the highest PCI in the country at about US$ 2,468.66
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66 Per capita income is computed using the 2008 Regional Gross Domestic Product (RGDP) of NCR and regions 1-4 divided by the 2008 population estimates of NSO covering the said regions. 2008 RGDP data are the latest figures available. The average exchange rate in 2008 which is PhP 44.4746 per US$ (BSP) was used to convert the value in current dollar terms. Total population of the area was computed by simply summing up the 2010 population estimates of NSO for the provinces of La Union, N. Vizcaya, Quirino, Pangasinan, Tarlac, N. Ecija, Aurora, Zambales, Pampanga, Bulacan , Bataan, NCR, Rizal, Cavite, Laguna, and Batangas.
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Reforming the Infrastructure Policy Environment
Legal issues
• Build-Operate-Transfer (BOT) Law
The BOT Law (RA 6957), enacted in 1990 and amended in 1994 (RA 7718), is the legal framework for BOT and PPP projects. However, there is no single government agency in charge of BOT/PPP planning and project preparation, and very little is said in the law about the role of the government for project planning and preparation, principles and policies on risk sharing, and risk allocation.
• Unsolicited Proposals
Too many contracts are awarded under the unsolicited mode. RA 7718 states that the government may accept unsolicited proposals provided that the project involves a new concept or technology, requires no government funding, and/or is not part of the list of priority projects. Projects have been removed from the priority list to qualify for unsolicited proposals. The timeframe for developing a proposal under Swiss challenge (i.e. 30 days) is too short.
• Joint Venture Agreements (JVA)
The head of a government agency has full authority to sign a JVA. This process lacks transparency and competition. The public becomes aware of the project only after the agreement is done, and terms of the agreement are not usually disclosed. Other government agencies (e.g. DBM, DOF) learn of the project only when funds need to be released. NEDA has no oversight role in the approval process. The JVA has become a preferred mode of private sector participation in infrastructure projects, as the approval process is significantly shortened, and oversight is almost nonexistent.
• Foreign Equity Restrictions
In the Government Procurement Reform Act (RA 9184), a 25% cap on foreign equity is imposed on some infrastructure projects. In some projects where security is an issue, foreign equity is reduced to zero. Some projects require advanced technologies that may not be locally available. Foreign companies can provide such technologies but their participation is limited and opportunities to partner with local companies are limited.
Project Planning, Prioritization, and Approval
• Long Term Planning
There is lack of long-term planning for infrastructure development. Usually, project duration is co-terminus with the term of an administration. New projects that cannot be completed towards the end of a presidential term are no longer implemented nor prioritized.
• Lack of Technical Capability to Plan and Prepare BOT Projects
The government has not demonstrated the technical capacity to plan and prepare documents for potential BOT and PPP projects. As a result, many projects encounter problems that delay implementation and sometimes lead to cancellation.
The government must have the capacity to determine which projects are commercially viable for the private sector. At present, there is a BOT office in the DTI, but it has very limited staff and inadequate technical capabilities and financial resources. Project preparation requires technical expertise, commitment, and an adequate budget for the preparation of feasibility studies, bid terms of reference, etc.
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67 Of the three FGDs devoted to infrastructure, the Road and Rail FGD spent considerable time discussing more general infrastructure policy issues applicable to most sectors. The recommendations are included here and the discussion specific to road and rail projects appears after the section on “Power.”
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The role of government is not limited to preparing the list of priority projects but extends to the preparation of necessary documents to make the BOT process work. For example, government hastily identified the Panguil Bay Bridge project in Mindanao for BOT financing without the benefit of a feasibility study. Three years later, the Department of Public Works and Highways (DPWH) determined it was not commercially viable for the private sector.
Senior government officials present brochures and power point presentations in meetings and conferences showing Potemkin-like projects “offered” to the private sector.68 When the private sector enquires about their details, including bidding schedules, answers are evasive.69 However, when projects are viable and well-prepared and the process is transparent, investors and lenders will come in (see “Transparency in Procurement and Implementation” below).
• Politicized Project Prioritization
The Office of the President has great discretionary power regarding the release of Countrywide Development Funds (CDF), which are often used to reward political support. A study shows that only 38% of CDF infrastructure projects came from Highway Development and Management Version 4 (HDM-4) generated projects.70 Most (62%) are politically determined. HDM-4 is a framework that allows for the systematic prioritization of infrastructure projects. The CDF originated after the 1987 elections with an allocation of one million pesos per representative and has increased to PhP 70 million. Each senator is allocated PhP 200 million. These amounts are usually budgeted annually.
Slow Project Approval
Infrastructure project approval in the Philippines is very slow. Investors have to wait a minimum of five years before a project is approved. Immense time and effort are needed from the start of the planning stage to approval. Inefficiency adds to project expenditure, raising the cost of doing business and the cost of the project itself. To prove that the GRP is serious in improving infrastructure, there is a need for a faster, yet still reliable, project approval process.
Infrastructure Budget and Release
• Congress re-allocates the DPWH budget
Congress inserts, deletes, and realigns some of the projects submitted under the president’s National Expenditure Proposal submitted to Congress each year. The list of approved projects in the General Appropriations Act (GAA) usually differs from the NEP. However, OP-DBM may impound the appropriated budget for some projects (listed in the GAA) and realigned to other projects (proposed by political allies).
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68 Potemkin refers to a pretentiously showy or imposing fa硤e intended to mask or divert attention from an embarrassing or shabby fact or condition (Random House Unabridged Dictionary, 1997).
69 The former Secretary of Finance and the former Acting Director General of NEDA presented projects at the April 2008 Philippine Development Forum (PDF) at Clark. The same projects were presented at the Wallace Business Forum in Makati by the DTI Secretary in December 2008. At both fora the private sector was asked to invest, but JFC members were unable to obtain details of the bidding schedule in follow-on enquiries with government agencies.
70 HDM-4 provides a powerful system for road management, programming road works, estimating funding requirements, budget allocations, predicting road network performance, project appraisal, policy impact studies, and a wide range of special applications. Its development was sponsored by international funding institutions and supported by national governments, and other organizations, particularly: Department of International Development, UK; World Bank; Asian Development Bank; and the Swedish National Road Administration (www.hdmglobal.com/AboutHDM4.htm).
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• Delayed submission of project requirements
Payment of claims by the government is subject to submission of complete supporting documents. In foreign-funded projects, submission of all required documentation must be completed within the loan period for the financial institution to release funding. When delayed, all payables are borne by the GRP. This imposes an additional burden to its limited budget.
• Delayed release of funds
A major cause of delayed implementation is the slow release of funds by DBM to implementing agencies.
Lack of Transparency in Procurement and Implementation
Transparency is a problem in almost all types of government infrastructure projects – whether JV, BOT, or government funded – and at all levels of government. Resources are misallocated. There were two large tollway projects where variation orders worth a few billion pesos were approved, and the public was not informed. Even the Congress in its oversight function has only very limited access to accurate information.
The Freedom of Access to Information Act (when enacted) will require disclosure of details of government transactions, such as infrastructure projects. It allows the public to request further information from the responsible government agency. In other countries, such as the US, there is a Federal Register where hundreds of government actions are published online for stakeholder input. If the government does not comply, its actions may be subject to post-hoc judicial challenge.
DPWH and DBM are already required to post on their websites information on major projects (e.g. the project amount, releases, expenditure, information of contractors and suppliers, etc.). But this is not followed in practice, especially for Congressional infrastructure projects. When agencies such as the DPWH and DBM are asked about non-disclosure of their projects, they respond that the information is “sensitive.” Information on suppliers and contractors is also not disclosed with government agencies explaining doing so would infringe on their “privacy.”
Lump sum and Congressional Allocations
Some projects cannot be specifically identified ahead of time; thus the justification for “lump sum” budgeting. Emergency projects such as typhoon and flood control and subsequent infrastructure repair and maintenance cannot be predicted exactly (although the country experiences typhoons and floods every year). Lump sums also include budgets for right-of-way and preliminary detailed engineering.
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However, the largest amount of lump sums is classified under Various Infrastructure and Local Projects (VILP) where Congressional allocations are included. Legislators identify specific infrastructure projects for financing under this fund. The amount of lump sum in the 2009 DPWH budget was PhP 25 billion, out of a total capital program budget of PhP 86 billion.
Some projects are deliberately classified under the lump sum budget to make the spending non-transparent. Of the estimated CDF (PhP 70 million per congressman and PhP 200 million per senator), PhP 40 million is spent for hard or infrastructure projects (most of these come under the VILP of DPWH). There is no system that shows how and where money is spent. Sometimes money is spent on “ghost” or non-existent projects. Even within Congress, there is very limited transparency.
Cost overruns
Poor project preparation and implementation can lead to high cost overruns. A major source of additional and unforeseen costs is the non-cooperation of LGUs. In one case, a mayor threatened not to issue a permit for the LRT-1 north extension between Trinoma and Monumento if there would be no station in his city.
Risk sharing
Risk allocation must be defined at the beginning of a project in order to clarify the responsibilities of each party (public and private) in BOT, PPP, and JV projects.
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Recommendations (25)
A. Double infrastructure spending to 5% of GDP with PPP. Overcome the constraint of low tax collection and the high budget deficit by harnessing available resources and capacities of the private sector for infrastructure development.
(Medium-term action)
B. Prepare, bid out, award, and implement with full transparency several large PPP projectsthat are already viable. This can create a pipeline of PPP projectsto attract domestic and foreign investors. (Immediate action NEDA, DOTC, DPWH, DOF, DTI, and private sector)
C. Potential pilot PPP projects include two rail and three toll road projects: LRT-1 South Extension and LRT-2 East Extension and the Cavite-Laguna Expressway, C-6, Expressway and SLEX 4 Calamba-Lucena. Total estimated cost of these five projects is PhP 173 billion. (Immediate action NEDA, DOTC, DPWH, and private sector)
D. To speed the process, use foreign technical and financial assistance; bring in experts who can be “embedded” in line agencies to prepare project bidding, evaluate proposals, and rank proponents with project monitoring to be done at PMS and final decisions made by the cabinet and the president. (Immediate action NEDA, DOTC, DPWH, and DOF)
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E. Use available domestic capital for infrastructure investment. Interest rates are low and sustained growth in domestic liquidity indicates funds are available. Special Deposit Accounts and Reverse Repurchase Agreements total nearly PhP 1 trillion. (Immediate action private sector)
F. Create a coalitionof the Philippine Bankers Association, investment houses, and the Philippine Constructors Association and agree to promote good projects and good processes(transparent and competitive). Foster participation between local and foreign contractors, investors, and banks. (Immediate action private sector)
G. Amend the BOT Law. The role of the GRP in planning and preparing infrastructure projects for BOT should be more clearly defined. GRP should determine and identify projects it will undertake and projects to offer to the private sector under BOT/PPP. Increase Swiss challenge timeframe from 30 to 180 days. Pending passage of amendments, review again and issue revised BOT IRRs. (Immediate and medium-term action NEDA, DTI, Congress, and private sector)
H. Institute long range planning for infrastructure development. Plans should not be limited to one president’s six-year term of office. Infrastructure project planning should be depoliticized. NEDA should consider a 10-year plan, rather than encouraging plans, such as its MTDP and MTPIP, which are always for only a single presidential term. (Medium-term action NEDA, implementing agencies, and RDCs)
I. Government should minimize removing projects from its PPP priority list. All priority projects should be solicitedand awarded through public bidding. Require all major projects to undergo review by NEDA-ICC. (Immediate action NEDA and implementing agencies)
J. Study setting up a Philippine Infrastructure Facilitywith a World Bank (WB) loan, as Indonesia has done. Funds can be sought from donors, insurance companies, OFWs, and others. The fund could support project preparation and promote PPPs, as well as take equity and debt positions in projects. (Medium-term action NEDA and DOF)
K. Rescind or amend the EO on JVAs. Review all JV arrangements and ensure that they are consistent with NEDA Board policy that major projects (over PhP 500 million) should pass through the NEDA-ICC. (Immediate action NEDA and line agencies)
L. Require mandatory disclosure of projects under JVA prior to the signing of an agreement. Adhere to the principle “No decision is valid without pre-signing disclosure.” Review rules on risk sharing in the EO on JVAs. (Immediate action NEDA and line agencies)
M. Reduce cost overruns due to unsolicited inputs particularly from LGUs. Clarify the limits of LGU authority regarding national projects, but also include LGUs and local communities in stakeholder consultations to explain project benefits. Protect investors from political risks (TROs, LGU interference, right of way problems).(Medium-term action NEDA, DTI, DILG, LGUs, and line agencies)
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N. Review foreign equity restrictions on infrastructurewith a view to maximizing foreign participation. (Immediate action NEDA, DTI, and DOJ)
O. Implement the National Transport Policy Frameworkand the National Transport Plan(2011-2016) that were prepared with the support of Australian Agency for International Development (AusAID). (Medium-term action NEDA and line agencies)
P. Build technical and legal capabilities of government agencies to prepare BOT projects, to have technical expertise to determine viability of BOT projects, to prepare feasibility studies, and to better allocate risks. More funding and technical assistance should be made available for such capacity building. (Medium-term action NEDA, DTI, line agencies, and private sector)
Q. Government should create reasonable timetables to address the long registration period of BOT projects. Upon submission of a proposal, there should be a 90-day deadline for approval. Information should be on agency websites with credible explanations when deadlines are not met. (Immediate action NEDA and DTI)
R. CDF should be utilized for necessary infrastructure projects and not follow political considerations. Strictly use HDM-4, which identifies and prioritizes project funding using objective technical and economic criteria. (Medium-term action DBM, DPWH)
S. Process and submit supporting documents during the loan periodprior to expiration of loan, so the financing agency shares payment of obligations. (Medium-term action NEDA, DBM, DPWH, and private sector)
T. DBM should release funds on timeto meet contractual obligations and diminish the backlog of payment obligations. (Medium-term action DBM)
U. Continue and strengthen the Pro-Performance Teamthat monitors infrastructure project implementation. (Immediate action OP and PMS)
V. Pass the Freedom of Access to Information Act. There should be a complete commitment to transparency. Create penalties for non-compliance of disclosure requirements and implement thoroughly. (Immediate action Congress)
W. Develop an on-line registry for information on infrastructure projects. Require permanent and updated online disclosure for priority projects, including timeline, status of project, proposed and actual expenditure, variation orders, etc. Foreign technical assistance should be requested to create a website to track major projects. When the Freedom of Access to Information Act is passed, it will be mandatory for government to fully disclose transactions. (Immediate action NEDA, DBM, and COA)
X. The private sector can also create a website tracking the top 200-300 large infrastructure projects, or find an independent government agency to create such a website (e.g. NEDA) without a need for legislation or an EO. (Immediate action private sector and NEDA)
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Y. Lump sum budgets should be kept to a minimum, if not totally avoided, in order to promote transparency and accountability. (Immediate action DBM and DPWH)
Road and Rail FGD Participants, Moderator and Secretariat Members
November 12, 2009
Joint Foreign Chambers of the Philippines
FOCUS GROUP DISCUSSION ON ROADS AND RAIL71
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71 The FGD on Road and Rail spent much of its time discussing reforms in process, resulting in the recommendations listed above. It also discussed roads and rails, and its recommendations for these are described under the Road and Rail section below. Its members included several former senior officials and investors with considerable experience in the Philippines who made valuable contributions.
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Sector Background and Potential
With its archipelagic character, the Philippines depends on air and sea transport much more than countries with large continuous landmasses. Since a high percentage of domestic and international commerce and travel is by air and sea, the efficiency of aviation and maritime transportation has become increasingly critical to national competitiveness. There is much room to improve efficiencies and improve the logistics costs for goods and associated services. The high cost of domestic marine transport has long been questioned, while the enormous potential for tourism – both domestic and international – is greatly influenced by the quality of airports and seaports. Solutions to the numerous challenges involved in creating an efficient modern air and sea transportation system require addressing policy and regulatory impediments as well as upgrading and rationalizing airport and seaport infrastructure and networks.
Figure 68 shows the high rate of growth in passenger volumes for domestic air transport, tripling following the deregulation of the industry by former President Ramos in the early 1990s.
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For several years (e.g. 1996-1997 and 2006-2007) annual increases were roughly 20%. Filipinos are flying more than ever, as competition in the aviation sector has provided affordable alternatives to maritime travel. More affordable air fares since the mid-1990s have also stimulated the growth of domestic tourism. Similar high rates of growth can be expected in the next few years, which will require more investment in modernizing airport infrastructure. Not only new terminals are needed. Few airports are equipped for night operations and most need navigational and radar improvements. Policies that encourage more direct international flights to secondary cities are urgently needed to relieve congestion at the Ninoy Aquino International Airport (NAIA).
Figure 69 shows the WEF ranking of air transport infrastructure for the ASEAN-6 with the Philippines ranked lowest, slightly lower than Vietnam and Indonesia and considerably lower than Malaysia, Singapore, and Thailand.
The Philippines lacks a modern showcase international gateway airport. Currently, the country has no airport even close to the quality of new facilities as regional competitors such as Bangkok, Beijing, Guangzhou, Hong Kong, Incheon, Kuala Lumpur, Nagoya, Narita, Osaka, Shanghai, Singapore, and Taipei. First impressions of foreign visitors arriving at the leading international gateways Manila, Cebu, and Clark are that terminal facilities are modest (NAIA Terminal 2 and Terminal 3 and Mactan), small, or dilapidated (Clark and NAIA Terminal 1 and domestic).
At NAIA, the airport master plan of the early 90s for three new terminals has not been followed. The cargo terminal has yet to be built, while new domestic Terminal 2 (T-2) and international Terminal 3 (T-3) terminals were built but have not been used for their original purposes. The new GOJ-financed domestic terminal that opened in 1999 has been used exclusively for domestic and international flights of Philippine Airlines (PAL) despite not being designed for requirements of international aviation (customs, immigration, and lounges).
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The new international terminal, built by a Philippine-German joint venture, was expropriated by the GRP in 2004 when the owners were accused of corruption and overpricing. The two arbitration cases filed in the International Criminal Court in Singapore and International Centre for Settlement of Investment Disputes in Washington, have been decided in favor of the government in that the Anti-Dummy Law was violated. The DOF has given assurance that the government is committed to pay any amount the local Expropriation Court decides is due investors. Meanwhile, Cebu Pacific, the other major Philippine-owned airline, and Air Philippines and PAL Express have been allowed to relocate their NAIA flights from the ancient domestic terminal to T-3. International carriers, unwilling to move to T-3 until the ownership dispute is resolved, continue to operate from the very outdated Terminal 1 (T-1).
Full operation of T-3 will require the present taxiway to be closed so that only one runway will be available to all domestic, international, and general aviation flights. A fuel depot and lines must also be in place. Aside from T-3 being underutilized, the lengthy period since the government expropriation has created an irritant in RP-European relations and harmed the country’s investment image abroad. Expansion of NAIA beyond its current area of 600-hectares would require extensive demolition of business and residential areas.
The 1991 eruption of Mt. Pinatubo and subsequent erosion of Philippine political support for American military bases gave the GRP operational control of two extremely large installations at Clark and Subic in Central Luzon. Two decades later the special economic zones together host almost 145,000 employees and are becoming increasingly integrated, with Subic the international seaport and Clark the international airport serving the adjacent provinces.72 DMIA has room to build a 2nd and even a 3rd parallel runway adjacent to the two existing runways.
The Subic-Clark zone has tremendous potential for aircraft and ship assembly and maintenance, education, ITES, logistics, manufacturing, medical tourism, retirement, and tourism and could host many hundreds of thousands of more jobs with sound policies, promotion, and investment. Road connections from Manila to Clark and to Subic have greatly improved. In the decade ahead, the North Rail will become operational to San Fernando. A high-speed rail to link NAIA and DMIA has been proposed, and extension of rail service to Subic in the future should be considered, should the project be implemented (see Map 1).
Outside Central Luzon, airports in the various regions are being improved, although only a few have international service. Under the new National Tourism Act of 2009 (RA 9593), a province can be declared a Tourism Economic Zone, which could allow air or cruise ship service of any flag to operate with low taxes. Pocket open skies, which has stimulated tourism in several places in Asia, has not been tried in the Philippines, despite urging of such a policy for Clark from domestic business groups and foreign chambers.
However, the GRP negotiated bilateral air traffic rights agreements with 26 countries from May 2007 through February 2010, greatly expanding the potential number of flights between the Philippines and each country.73 These agreements are effectively bilateral open skies agreements since it will take many years to fully utilize the allowable inbound flights. Foreign airlines are burdened with the Common Carriers Tax (CCT) and Gross Philippine Billings (GPB), as well as customs, immigration and quarantine (CIQ) overtime charges, taxes and fees not imposed elsewhere and which make serving the Philippines less attractive for foreign airlines than more business-friendly regional destinations.
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72 Clark: 57,118 (2010) and Subic: 86,631(2010); total for freeports is 143,749.
73Australia, Bahrain, Brunei, Cambodia, Canada, Finland, Hong Kong, Iran, Japan, Kuwait, Libya, Macau, Malaysia, Netherlands, New Zealand, Oman, Qatar, Russia, South Korea, Singapore, Spain, Thailand, Turkey, United Arab Emirates, United Kingdom, and Yemen.
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Map 1: High-speed rail connecting NAIA and DMIA
Foreign airlines and international courier delivery firms are currently considered public utilities and cannot serve the domestic market except as minority partners owning no more than 40% of equity. The two foreign courier delivery firms with hubs in the Philippines have shifted their hub flight operations from Clark and Subic to China to serve the latter’s fast-growing market.
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Recommendations (15):
A. The GRP should prioritize investments in airport terminal, runway, and communication facilities. There is a need for an NCR/Central Luzon Transportation Master Planthat includes a strategy for development, until mid-century, of the major gateway airport(s) as well as minor airports. The plan should include ground rail and road transport infrastructure linking the airports and cities, including major ports. (Medium-term action DOTC and NEDA)
B. There should be only one international airport per region, with existing airports converted into international airports, in preference over building new airports. (Medium-term action by DOTC and NEDA)
C. Outside Central Luzon, priority should be given to Laguindinganin Northern Mindanao. At Mactan, the runway should be extended and high-speed ferry links to Tagbilaran increased rather than creating a new airport at Panglao. (Medium-term action DOTC and NEDA)
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74 There is another view that NAIA should remain the primary international gateway since transferring to a less convenient airport may curb the growth of carrier services through a decrease in demand and an increase in operating expenses. There will be a market for regional, domestic, and general aviation services in Clark but not a full scale international gateway, even with a high speed rail connecting the airport to the CBDs in Metro Manila. Instead, NAIA should be expanded by expropriating land around the airport, be improved through major upgrades, and be optimized through better terminal allocation and efficient airport use management.
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D. Make Clark an alternative gateway to Manila/NAIA.75 Eventually make Clark the primary international gatewayand NAIA the secondary, but still the primary domestic hub.76 Connect with a high-speed rail line(see Map 1). (Long-term action DOTC and NEDA)
E. The local Expropriation Court should quickly decide the amount due to NAIA T-3 investors. Subject to needed repairs and additional construction, begin to fully utilize the terminal for growing domestic traffic and for regional traffic using narrowbody aircraft. (If widebody aircraft are to use T-3, a new taxiway should be built separate form domestic runway 13-31.) (Immediate action DOT and DOJ with private sector)
F. Because T-1 is closest to international runway 06-24 and the international cargo terminals, T-1 should undergo phased renovationfor continued use by long-distance widebody aircraft. T-1 should eventually be connected to T-2 to allow domestic to international transfer between buildings.77 (Medium-term action DOTC)
G. A new fuel depot for NAIA is neededas the current depot leaks and is too close to T-1 and T-2. (Medium-term action DOTC)
H. If most international traffic is moved to Clark, there should be a second parallel runway, a terminal with a 20-million passenger capacity, and a high-speed railconnection.78 (Long-term action DOTC and private sector)
I. Quickly resolve the downgrading of the CAAPfrom Category 1 to Category 2 status by the US FAA and the 2010 EU decisionto prohibit Philippine carriers from European airports. (Immediate action DOTC and CAAP)
J. Improve the business and investment climate for international air carriers and enhance long-term connectivity, tourism, and trade competitiveness by setting the level of aviation taxes and charges to conform to international agreements and standards by removing discriminatory tax burdens such as the CCT and GPB.79 (Medium-term action DOF, DOT, and Congress)
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75 NAIA has a land area of only 600 hectares, while DMIA has 2,367 hectares. NAIA is hemmed in by roads and dense commercial and residential development; Clark is not. NAIA cannot expand; Clark can.
76 NAIA handles 90% of the country’s international and 75% of domestic traffic. Manila Domestic Terminal is the oldest. Terminal 1 is the second oldest (1980s) and in an advanced stage of dilapidation. Over 20 foreign carriers use its 16 gates. Terminal 2 was opened in 1999. PAL, using 7 gates for domestic and 5 for international, has outgrown T-2. Terminal 3 has 20 gates but was built along the domestic runway which cannot handle wide-body aircraft.
NAIA runways are currently operating at full capacity from 7:00 am to 7:00 pm. Tourism is growing steadily, increasing the need for more international flights at Clark.
77 For T-1 and T-2 to connect, the fuel depot and NAIA cargo terminal must be relocated; the fuel depot at its current location is a hazard to both terminals.
78 Other Asian countries have relocated international gateway airports outside congested capital city airports. Hanoi, Hong Kong, Incheon, Jakarta, Kuala Lumpur, Nagoya, Shanghai, and Tokyo are examples. In some cases (such as in Nagoya and Tokyo) the older inner city airports have subsequently been allowed limited international flights. For residents of northern parts of the NCR, Clark is closer than Manila because of better highway connections to DMIA.
79 These tax burdens often exceed profit margins of international carriers and are not imposed in other regional countries. In the past decade Air Canada, Air France, British Airways, and United Airlines ended service to the Philippines, and Northwest Airlines dropped one of its daily wide-body flights.
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K. Amend the Immigration Act of 1940, Tariff and Customs Code of the Philippines, and the IRRs of the Quarantine Act to relieve the burden from customs, immigration, and quarantine overtime, meal, and transportation charges for airlines and shippers. Declare 24/7 operations at all international airports and ports and make the State shoulder the overtime payments for CIQ personnel. (DOT, DOTC, DOF, DOJ, DOH, and Congress)
L. Revise take off and landing fees, make weight the main determinant, charge the same fees to international and domesticairlines.80 (Immediate action by DOTC)
M. Modify equity rules to allow Asian low-cost carriers to compete in the domestic market.81 (Medium-term action Congress)
N. Complete US$ 270 million GOJ-funded Communications, Navigation, and Surveillance/Air Traffic Management projectof the DOTC to modernize Philippine airports and improve air travel safety. (Medium-term action DOTC)
O. Make Palawan a Tourism Economic Zone, adopting pocket open skiessupported by infrastructure and a favorable tax regime (e.g. relief of taxes and fees such as GPB and CCT)82 (Medium-term action DOTC, DPWH, DOF, DOT, Congress, and LGU).
Airports and Seaports FGD Participants, Moderator and Secretariat Members
November 26, 2009
Joint Foreign Chambers of the Philippines
FOCUS GROUP DISCUSSION ON AIRPORTS AND SEAPORTS
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80 International airlines pay double the take off and landing fees charged to domestic airlines even for the same aircraft types, in effect subsidizing the domestic carriers.
81 ASEAN is moving towards complete open skies and may someday adopt unrestricted ownership of airlines operating within ASEAN. Indonesia, Malaysia, and Vietnam permit up to 49% foreign ownership of an airline. Most bilateral air service agreements (ASAs) specify that beneficiary national airlines have substantial if not majority local ownership.
82 Successful pocket open skies examples in Asia include Hainan province in China, Kota Kinabalu in Malaysia, and Siam Reap in Cambodia. In 2009, each received 750,000, 562,000, and 2.2 million international visitors, respectively.
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Sector Background and Potential
Electric power and water are essential needs for modern man, to survive, and to thrive. In the globe’s fastest-growing region – Asia – they are especially critical to economic growth and competitiveness.
The Philippines is approaching the end of a two-decade transition from a public sector power generation monopoly to a private-sector-led “open access” competitive environment with enhanced government regulatory oversight. Yet its electricity prices remain among the highest in Asia, and supply shortages are present today in the Mindanao and Visayas grids and are possible in two years in the Luzon grid. Unreliable and expensive electric power is a serious deterrent to foreign investment.
The main objectives of the open access policy in the Electric Power Industry Reform Act (EPIRA) that became effective in mid-2001 are (1) to build a sustainable and reliable power supply and (2) to lower electricity rates in the long run. To encourage new investment in power supply, electricity rates have to go up in the short-run (reflecting both the limited supply of power generation capacity and the need to dispatch oil-fired plants to meet the demand). Rates will go down only when new and more efficient generating plants are commissioned that are profitable at a much lower cost per kilowatt-hour, such as coal-fired plants, thereby creating an abundant and more competitive supply of power and minimizing the dispatch of oil-fired plants.
The conditions precedent to open access will have been met by year-end 2010: (1) the unbundling of generation, transmission, and distribution; (2) elimination of subsidies; (3) initiation of the Wholesale Electricity Spot Market (WESM); (4) privatization of at least 70% of the power plants owned and operated by the GRP; and (5) transfer of management and control of at least 70% of the contracts between Independent Power Producers (IPPs) and National Power Corporation (NPC) to IPP administrators. Conditions 4 and 5 were only met recently. The Energy Regulatory Commission (ERC) is expected to declare open access no later than 2011.83
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83 As of April 2010, 3,318 MW representing 88% of the government-owned generation plants had been sold yielding $3.47 billion which has been used to pay down NPC’s debt. National Transmission Corporation (TransCo) was privatized to a China-Philippine operating concessionaire in 2008.
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Eventually, open access should encourage more competition in the supply of electricity and lead to lower electricity prices. Electricity prices in the Philippines are the most expensive in Asia and harm competitiveness. Figures 70 and 71 show the cost of residential and industrial electricity in the Philippines and six other Asian economies.
Figure 70: Residential retail electricity tariffs, selected Asian economies, USc/KWh, 2010
Figure 71: Industrial electricity tariffs, selected Asian economies, USc/KWh, 2010
Figure 72 shows the percentages of installed generating capacity by type of power source. Hydrocarbon fuels (coal, gas, and diesel/oil) comprise 66% of the total. Figure 73 shows the percentage of the actual generation that comes from different fuel sources. Comparing Figure 72 to Figure 73 shows that the more expensive and more polluting diesel/oil capacity is not being dispatched by power regulators.
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Renewable energy sources (geothermal and hydro) constitute 33.6% of generation capacity and 32.5% of the power mix. Unlike Indonesia, the Philippines does not have large unutilized geothermal fields to develop. A Renewable Energy Act of 2008 (RA 9513) was passed in 2009 providing generous fiscal incentives to investors. When the feed-in-tariff (FIT) is announced some of the many potential projects licensed in the past year with the DOE may begin to become real power generators.84
The current Administration could be the first to experience the positive effects of the EPIRA, i.e. a reliable supply of less expensive power. The policy it follows in this new environment will be critical to the success of open access. Unfortunately, as of early 2010, a serious policy deficiency exists. Without a clear energy policy that indicates where the country should source future energy requirements, taking into account its current power situation and what it is prepared to spend (affordability) and/or guarantee (such as credit enhancements), there will be underinvestment in power. Only through a well-conceived master plan will investors know the areas in which they can invest with reasonable certainty.
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84 Feed-in tariff is the minimum price distribution utilities are required to pay, which will be passed on to consumers as a renewable energy (RE) charge. The FIT is required for RE power plants – because of their higher construction costs than conventional plants using hydrocarbon fuels – in order to assure that investors receive a reasonable return on their investments.
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There is a limited supply of power in the Philippines (see Table 33). Thailand has 40,669 MW power capacity serving 67 million people. South Korea has 79,859 MW serving 49 million. The Philippines has only 15,680 MW (and not all is considered reliable) for 90.3 million people. Electricity consumption per capita in 2008 in the Philippines (588 KWh) was close to Indonesia (591) and Vietnam (799) but much less than Malaysia (3,506), Singapore (8,185), and Thailand (2,079).
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• Luzon
The power situation in the Luzon grid has been relatively stable since the late 1990s. As of late 2009, there is a surplus in generation due to a slowdown in demand growth brought about by the global financial crisis. Yet there was still positive growth in kilowatt-hour sales during the entire year. According to the WESM, peak demand in Luzon grew 5.2% year-on-year reaching 6,886 MW. On a good day in late 2009, the power supply to the Luzon grid was only about 8,000 MW (15-20% of which came from oil), falling below the statutory reserve margin. Under open access, there are 5 to 6 generators in Luzon that have capacity that is not locked up or sold under contract, 55 distribution utilities, and 1,500 contestable customers. Having 5 to 6 generators with only 1,500 customers is not balanced.
The coal-fired GNPower 600 MW plant in Mariveles, Bataan, began civil works in early 2010 and is expected to become operational in late 2012 or early 2013. Other additional capacity is expected from the rehabilitation and expansion of the privatized NPC hydropower facilities. The construction of additional baseload plants is essential to provide adequate reserve and to avoid power blackouts. With piers, designated sites, and Environmental Compliance Certificates (ECCs) in place, Ilijan, Pagbilao, and Quezon Power plant expansions can be brought into operation considerably faster than new greenfield plants.
Figure 75: Power demand and supply outlook, Luzon, in MW
Figure 76: Required reserve margin and peak demand estimates, Luzon, in MW
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• Visayas
The Visayas grid suffers from long-standing problems in power supply. However, ongoing construction of coal-fired power plants scheduled to come on line in 2010 and 2011 will ease the supply shortage problem by adding some 600 MWs to the grid. Cebu Energy Development Corporation has constructed two of the three new 82 MW coal-fired power units in Toledo, Cebu, the third of which is expected to be commissioned in early 2011.85 Two of the partners in the same firm are constructing a 164 MW coal-fired plant in the Panay sub-grid in Iloilo City for completion in 2011. Another on-going development for the Cebu sub-grid is the 200 MW KEPCO-Salcon plant in Naga City to be operational in 2011.
Figure 77: Power demand and supply outlook, Visayas, in MW
Figure 78: Required reserve margin and peak demand estimates, Visayas, in MW
• Mindanao
Mindanao also has been plagued with power supply problems and transmission constraints. The latter are being addressed by the new transmission concessionaire, National Grid Corporation of the Philippines (NGCP). Too few generating projects are under construction in Mindanao, including the Sibulan hydropower project of HEDCOR Inc to serve the Davao Light & Power Company and the Conal Holdings Corporation (2 x 100 MW) coal-fired plant in Maasim, Sarangani.
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85 Since its groundbreaking on January 26, 2008, the first of the three 82 MW units was switched on March 5, 2010. The plant’s second unit has been providing power to the grid since May 21 (Global Business Power Corporation website: www.gbpc.com.ph).
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Figure 79: Power demand and supply outlook, Mindanao, in MW
Figure 80: Required reserve margin and peak demand estimates, Mindanao, in MW
Table 34: Expected new sources of electric power
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The Philippines should have an overabundance of supply for competition to work in lowering electricity prices. Is it realistic to expect that the new power capacity shown in Table 34 will be constructed in the near future (next five years)? Is it realistic to expect international financing absent take-or-pay contracts/guarantees?
It is difficult to find investors to construct a merchant plant. There is a very limited pool of deep-pocketed local investors who have made the effort to learn the Philippine energy market (e.g. Aboitiz, Ayala, First Gen, Metro Pacific, San Miguel, and SM) and limitations apply to foreign investment (e.g. the 40% minority public utilities and natural resources equity provision) for some forms of traditional and renewable energy projects. The poor reputation of Philippine courts and legal processes with respect to enforcing contract provisions on a timely basis further discourage investors.
Financial institutions conduct extensive due diligence investigations and do rigorous research to finance both merchant plants and those supported by off-take agreements. Banks look at creditworthiness (historical reliability in payment and sufficient cash reserves) and the ability of proposed power plants to produce reliable revenue and cash flows. In 2009 global credit markets shifted to short-term (5-7 year) financing. However, power plants require long tenors to make a project viable. Long-term (10-15 year) financing for generating projects with off-take agreements for a substantial percentage of their capacity is a challenge and becomes impossible if the merchant portion becomes too large.
Multilateral financial institutions such as the International Finance Corporation (IFC) and the ADB have been willing to finance merchant power plants under certain circumstances, if the technology is proven and operating risks are identified and mitigated. Both institutions emphasize climate change issues, making it difficult for them to finance coal-fired power plants. However, ADB is participating in financing the new coal-fired power plant in Naga, Cebu in light of the power crisis affecting the Visayas grid. At the same time, the ADB and the IFC are undertaking measures that would offset this decision, such as encouraging the development of renewable energy. The ADB is in discussions with the DOE to create a Clean Technology Investment Plan.
The creditworthiness of electric cooperatives as buyers of power is important for merchant plants for off-take. Cooperatives are being forced to be more disciplined in fulfilling their payment obligations now that Power Sector Assets and Liabilities Management (PSALM) has privatized much of the government-owned capacity serving the Luzon and Visayas grids. In their previous dealings with NPC, some cooperatives lagged behind in payments. Now dealing with the private sector, they risk being cut off if they do not pay their bills. Electric cooperatives face several challenges: (1) institutional preparedness to participate in WESM, (2) financial capacity or creditworthiness, and (3) technical capacity for power planning and maintenance.
Coal is a relatively inexpensive, plentiful, and reliable source of energy. If Europe, the US and other environmentally conscious countries still rely on coal to fuel their generating plants, then the Philippines should also be using coal to supply power to consumers. The main criticism of coal is it that is bad for the environment. To mitigate this, the Philippines can take advantage of its geography by choosing a small island that is not in close proximity with populous areas and make it a coal-fired power-generating island. For example, Semirara is an island with coal deposits and has very few inhabitants, making it easier to relocate affected families.
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Contrary to public expectations, the Philippines does not have extremely high potential RE resources (hydro, geothermal, wind, solar, and biomass). The maximum capacity that can economically be extracted from RE sources may only be around 3,000 MW. The country has numerous run-of-river small hydro sites, but has limited undeveloped large hydro sites with seasonal storage capacity and has limited major undeveloped geothermal resources.86 Renewable energy is not sufficient to address the energy needs of the Philippines. Restrictions on foreign equity in the RA 9513 IRRs – which are not specified in the law itself – that limit foreign ownership to 40% will discourage foreign participation and slow the development of RE projects, except for geothermal which falls into a separate category.
Table 35 shows estimated gigawatt capacity for biomass, geothermal, hydro, and wind for five Asian countries. While the Philippines already has significant current geothermal and hydro capacity and more potential to develop both resources, as well as biomass and wind, the potential resources are not sufficient to meet the country’s future generation requirements economically.
Table 35: GW power capacity of renewable energy resources, selected East Asian countries, thousand MW
Liquefied natural gas (LNG) is a viable power fuel solution for the Philippines. The LNG trade in SEA is a very large business – with Japan, South Korea, and China as the largest markets. The Philippines is close to the major LNG exporters (Papua New Guinea, Australia, and Brunei) whose tankers can pass by the Philippines. However, LNG requires a major investment in infrastructure – much more than any single power plant of a capacity suitable for the Luzon, Visayas, or Mindanao grids. No investor or lender is willing to risk a major investment in the billions of dollars without reasonable assurances of a stable investment climate and sufficient volume to support it.
The San Miguel purchase of the 620 MW Limay, Bataan combined-cycle gas-turbine asset offers the potential for LNG in the Philippines, provided other customers can be found (power, industrial, commercial, and institutional). Hundreds of millions of dollars are needed to create the initial plant, but the opportunities for gas are immense. The Dominican Republic originally started LNG in a power station, then it was extended to transportation, to other power stations, and to generation facilities burning heavy fuel. The country now has the most diverse fuel mix in the Caribbean/Central American region, generating high savings (US$ 160+ million after 3-4 years). To replicate this, the Philippines has to have clear policies to attract investment in LNG.
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86 In contrast, many undeveloped geothermal fields in Indonesia have capacities of 300 MW or more, while in the Philippines they mostly range from 30 to 50 MW. Indonesia, with potential for 22,000 MW of geothermal power, recently received a large World Bank loan to develop RE energy.
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Retail power prices in the Philippines are among the highest in the Asia-Pacific region. How can the Philippines lower its power rates? Tariffs will not go down immediately after the declaration of open access because spot market prices must exceed the marginal cost of a new plant to encourage more investment in supply.
As of November 2009, the price of electricity at the WESM typically is PhP 2 per KWh, while the long range marginal cost of a new plant is about PhP 4 per KWh. Based on market studies, electricity rates in Luzon will not cross the long range marginal cost of a new plant until 2013 or 2014. Hence, there is minimal incentive to commit to building a new plant unless much of the infrastructure is already in place. When this happens two expansions may be the first to be financed and constructed: the Quezon coal-fired plant where additional capacity of 300-500 MW can be created by adding an additional unit using the same common facilities and, similarly, the Pagbilao coal-fired asset (also in Quezon province), where a third unit of 350 MW can be added.
Hydropower projects that were designed for capacity additions include the CBK pumped storage asset, with provisions for additional units 5 and 6 for about 350 MW; the Pantabangan hydro asset with provisions for another 112 MW; and the Magat hydro asset with provisions for an extra 180 MW. On the other hand, the development of the 600-MW coal-fired project of GNPower in Mariveles, Bataan is well advanced after its project financing closed in early 2010.
From the point of view of lender participants in power generation project financing, the main requirement is sustainable cash flows to cover debt service. A power generation project must have sufficient and reliable revenues from bilateral power supply agreements and spot market sales to make debt service payments and yield a return to its equity participants. Tariffs can decrease after the loans are repaid.
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In the long run, nuclear technology offers the greatest prospect for cheaper power. But this option has been opposed by public concerns for the risk of accidents and the disposition of the wastes. However, experience around the world shows there are very few accidents. Furthermore, the technology for waste disposal is available and is only a small portion of overall operation costs. Both Japan and Taiwan have many nuclear plants and are considering building more. South Korea has 21 nuclear power plants serving 35 million people that account for 50,000 MW. Four more nuclear plants currently are under construction with two more planned within the next five years. China has nuclear plants and is building more in order to almost double its nuclear power capacity to 70 GW by 2020. Malaysia, Thailand, and Vietnam also have decided to introduce nuclear power in the next decade (see Table 36).
Table 36: Nuclear plants under construction, selected economies, 2009
KEPCO was scheduled to submit a feasibility study to NPC at the end of 2009 to determine whether the Bataan nuclear power plant can be rehabilitated. Nuclear is a viable source of power supply for the Philippines, but not for at least 10 years. The smallest viable capacity for a nuclear power plant is 1,000 MW. At this time, the Luzon grid can only accommodate a maximum unit size of about 600 MW. The Bataan nuclear power plant would have operated at only 400 MW had it commenced operations in 1985. Measures were introduced in the 14th Congress to encourage operation of the Bataan Nuclear Power Plant.
Experts estimate that at least 15-25% of the consumption of electricity is wasted. Wastage can be mitigated significantly by reducing the system losses of distribution utilities and the national grid, including losses due to theft, as well as by implementing a wealth of energy efficiency and conservation measures. These can save most consumers 10-15%, yet recover associated costs within one to three years. The DOE is preparing to introduce an energy efficiency bill in the 15th Congress that will encourage and provide incentives for such measures. There are also ODA programs available to assist the Philippines to become more energy efficient. The IFC is working with local banks via a Sustainable Energy Finance Program to provide relevant technical knowledge to lend to energy efficiency and renewable energy projects. The IFC hopes to create energy savings by encouraging demand side conservation at private sector facilities such as factories, large offices, and malls.
Insufficient power transmission capacity (the transmission line transformers, reactors, and capacitors) affects system reliability, security, and stability. The Grid should remain stable after any Single Outage Contingency and should also remain controllable after a Multiple Outage Contingency. There are instances when the outage of a single transmission line or transformer causes power interruptions or deloading of generators. Insufficient power transmission capacity forces generators to be constrained-off and unable to deliver full power because of limited capacity. This situation could allow a more “expensive” generator to be dispatched in favor of a “cheaper” generator, in effect increasing WESM prices. NGCP needs to ensure sufficient transmission capacity at all times, anticipating the load growth in each grid, to adequately serve Generation Companies, Distribution Utilities, and Suppliers requiring transmission service and ancillary services.
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Recommendations (21)
A. Ensure that EPIRA targets for open access are achieved and declare open access on schedule before the end of 2010.87 The ERC should promulgate the necessary and appropriate Rules and Regulations in a timely manner. (Immediate action DOE, PSALM, and ERC)
B. PSALM should solicit and award bids from the private sector for the Agus and Pulangi hydro facilities during 2010 so that ownership can be transferred in June 2011 as currently authorized by EPIRA.88 (Immediate action DOE and PSALM)
C. Formulate an integrated energy policy and master plan giving clear direction for sources of energy, locations of power plants, capacityeach source generates (accounting for future demand), transmission of energy supply, policies to attract large investors and lenders (into LNG, nuclear, coal, renewable energy, and others) and importation of energy. The master plan must take into account the threats and/or challenges of climate change, energy efficiency, and availability of new technology. The priority power sources (biomass, coal, gas, geothermal, hydro, LNG, nuclear, wind, and others) should be strategically located throughout the country taking into account maximum capacity of each source. (Immediate action DOE, NEDA, and private sector)
D. The National Renewable Energy Board should create a roadmapto complement the overall energy master plan of the DOE recommended above. (DOE with private sector)
E. The weak creditworthiness of most distribution utilities and electric cooperatives likely requires some form of credit enhancement to support project financing and power supply agreements of new generating projects withoff-take agreements with such parties. Revisit policy disallowing “take-or-pay” or sovereign guarantees, in light of what makes economic sense. (Immediate action DOE and DOF)
F. Strongly encourage industrial, commercial and institutional load customers, distribution utilities, and electric cooperatives to establish their creditworthiness. (Immediate action DOE, DOF, and private sector)
G. Remove all foreign equity restrictions for power projectsto create a level playing field and attract more foreign energy players to invest.89 (Medium-term action NEDA and DOE)
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87 PSALM achieved privatization of 83.3% of NPC generation assets and 34% of the IPP administrator contracts as of November 2009. The target is to declare open access before the end of 2010.
88 The hydro generation facilities in Lanao del Norte and Bukidnon provinces were excluded from privatization for a decade when EPIRA was enacted in 2001. The El Niñ¯ ¥xperience during late 2009 and 2010 has clearly tested the capacity of these plants. They are excellent assets that will be better managed, maintained and expanded by the private sector, as evidence by hydro generating assets already privatized within the Luzon grid.
89 Restrictions on foreign capital placed in the IRRs of the Renewable Energy Act will limit the pace of development of RE power, contrary to the apparent intent of the law, which contains no such provision. Interpretations that dams cannot be foreign-owned, but turbines within them can, should also be re-examined with a view to promoting needed investment.
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H. Ensure that contracts are strictly enforced. Rules and regulations must not changein the middle of project implementation or be reinterpreted retroactively. (Immediate action DOJ and DOE)
I. Partners such as ADB, IFC, and JBIC can help finance the longer tenor– the “tail risk” beyond 10-12 years – when international private banks are only comfortable with shorter tenor. (Immediate action ADB, IFC, JBIC, and private sector)
J. The RP must find ways to comply with the requirements of lending institutions in dealing with climate change issues. Create the Clean Technology Investment Planand implement thoroughly. (Medium-term action DOE, ADB, and private sector)
K. The DOE needs to implement a policy with assistance from the private sector to assist cooperatives in the transition to a privatized electric power industry. Power generation companies should be interested in the creditworthiness of their clients. Strongly encourage electric cooperatives to establish their creditworthiness. (Immediate action DOE, NEDA, and private sector)
L. Develop a power plant on an isolated island such as Semirarawith a supply of indigenous coal and deepwater access to international coal sources. Connect the island to a grid via submarine cables, for example to Mindoro and to Batangas. This will close the loop of Bicol, Samar, Leyte, Cebu, Negros, Panay, Boracay, Semirara, Mindoro, and Batangas. (Long-term action DOE, NGCP, and private sector)
M. Study the potential of LNGin the Philippines and create a comprehensive policy to attract investment in this sub-sector. LNG can be a greener alternative sourceof energy. Converting public transportation to LNG will generate large savings, have less negative effects on health, and reduce traffic congestion. (Medium-term action DOE and private sector)
N. Merchant plants cannot succeed without a mature spot market to establish the correct price. Investment will not occur in this market if the price is below the long-range marginal cost of a new plant or at or less than the variable cost of plant operations, including fuel. (Immediate action DOE and WESM)
O. Implement open access. EPIRA requires removal of cost subsidies to reflect the true cost of electricity. Over the short term, electricity prices are likely to increase. The only way to bring the price down is for new generators to enter the market with plants that are profitable at a much lower cost per kilowatt-hour, thereby creating an abundant supply of baseload, intermediate, and peaking capacity. This can happen only via open access.
P. The RP should include the development of nuclear power in the national power development plan. Preparations needed for this technology require at least 10 years, and infrastructure, power plant, and transmission require very large investments. The Philippines should come to a decision soon and then strategically prepare for the next 10 years. (Medium-term action DOE)
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Q. Congress should pass a resolution supporting consideration of the development of nuclear energy, including small-scale nuclear power options currently under development, while leaving disposition of the Bataan Nuclear Power Plant for the Executive to decide. (Immediate action DOE and Congress)
R. Congress should pass an Energy Efficiency Actafter full consultation with stakeholders. The RP should implement foreign donor and national projects to improve energy efficiency. Efforts of distribution utilities to reduce system lossesdue to theft must be strongly supported. Capital investment in the transmission and distribution systems to reduce systems losses should be incentivized. (Medium-term action DOE, Congress, and private sector)
S. Explore the possibility of WESM sales of freely-tradable forward power supply contractsin relatively small denominations (such as 5 or 10 MW) and applicable for specified timeframes (e.g. short, long, baseload, and peaking) for sale to load customers or investors. Investigate performance security options to protect parties to such forward contracts. (Medium-term action DOE, WESM, and private sector)
T. Interconnect the entire grid to enable producers to transport electricity to other parts of the country via the WESM. With a truly national grid, investors will be able to come in and take advantage of the growing demand for power supply. There must be an abundance of supply for the WESM to be effective in lowering costs of electricity. (Medium-term action DOE, WESM, and NGCP)
U. NGCP and the ERC should accelerate capital investments to resolve constraints limiting the flow of powerfrom Luzon to the Visayas and from southern Luzon to the NCR and from northern Luzon to Metro Manila. NGCP should continuously evaluate the technical and commercial feasibility of interconnecting the Luzon and Visayas grids via submarine cable with the Mindanao gridand/or various isolated grids, such as Mindoro. (Medium-term action NGCP, ERC, and DOE)
Power and Water FGD Participants, Moderator and Secretariat Members
November 17, 2009
Joint Foreign Chambers of the Philippines
FOCUS GROUP DISCUSSION ON POWER AND WATER
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Sector Background and Potential
Ground transportation infrastructure is essential for investment and job creation which are necessary to reduce poverty in the Philippines. It is a “catalyst” for area development and economic growth. Transport-logistics infrastructure such as roads and rail facilitate the efficient movement of goods and people. Absence of such vital infrastructure impedes the efficient movement of goods, increases transport cost, and ultimately impacts negatively on the country’s competitiveness.
Modern roads and rail support the high-growth sectors of BPO, manufacturing, and tourism. Modern toll roads and better farm-to-market roads provide tourists better access to destinations. In large urban areas particularly Manila a more extensive light rail system moves both employees and tourists more efficiently and eases traffic congestion on major thoroughfares.
The government allocated roughly PhP 889 billion to the development of transport infrastructure (roads, rail, light rails, airports, and seaports) under the 2006-2010 Medium Term Public Investment Program (MTPIP). For 2009, DPWH’s budget reached almost PhP 130 billion, the largest amount in the national budget and the highest level ever for the department (see Figure 82). The DPWH builds roads and bridges, school houses, and other public works. However, Figure 81 suggests that this increased spending has not raised the overall quality of roads.
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One reason for the continued low rating of roads may be that much of the increased DPWH spending is going into CDF roads that are usually barangay roads (see Figure 83). As a result, national roads have barely increased in the last two decades. However, traffic on national roads certainly has. Anyone stuck for hours on EDSA or who tries to navigate the old MacArthur Highway north of Manila or the pre-SLEX road passing through the Laguna hometown of national hero Dr. Jose Rizal knows government funds are not improving these roads.
Figure 83: Total road length (km) development, 1982-2007
National roads are needed for efficient interprovincial movement of goods and people. One reason Philippine intercity traffic is becoming more congested is that the Philippines has not been adding to its stock of national roads for many years (see Figure 84).
Figure 84: Length of national/state roads, in ‘000 km
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A result of this distorted spending pattern is that Philippine roads are ranked poorly in international surveys (see Figure 85). Table 37 shows the percentage of paved roads and road density for Asian countries, showing the Philippines has a great distance to go before it can be ranked near Indonesia, Malaysia, and Thailand.
Table 37: Road quality and density indicators
• Expressways
Modern efficient limited-access divided highways are essential for modern transportation around the world, some charge tolls, others do not. Some are owned by government, others by the private sector. We think of autobahns when driving in Germany and of interstate highways in the US. China has built the world’s second longest expressway system after the US in less than two decades, with a total length of 65,065 km. Japan and Korea have excellent expressways. While India has only approximately 200 km of expressways, the government has an ambitious plan to add 15,600 km during the next twelve years.90
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90 The figure was revealed by China’s Minister of Communications as reported by Xinhua News < http://news.xinhuanet.com/english/2010-01/15/content_12817685.htm>. India has some 10,000 kilometers of four lane highways which are not limited access and can be congested and dangerous (National Highways Authority of India.).
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Such modern efficient roads are new in Southeast Asia. Malaysia has set the gold standard for the region with 1,500 km of expressways in operation and 200 km under construction. Malaysian and Indian toll expressways were built and are operated using the BOT/PPP financing and operating model to avail of private sector capital and management.
Vietnam plans to build roads to get rich faster. In April 2010 Prime Minister Nguyen Tan Dung approved a US$ 18.4 billion plan to build a network of expressways by 2020. A total of 5,800 km of expressways, half of which running north-south and having 4 to 8 lanes, will be built. With its low labor and power costs, such an efficient highway system could make Vietnam the preferred economy in Southeast Asia for the China+1 strategy of multinationals locating additional factories in Asia.
While the Philippines has been slow to build and improve its limited network of expressways, it has had some success. There are seven limited-access toll roads operating or under construction in the country, all in Central Luzon.
1. The Subic-Clark-Tarlac Expressway (SCTEX), the newest tollway, financed with a US$ 425 million Japan Bank for International Cooperation (JBIC) loan, opened in 2008. SCTEX, operated by a private concessionaire, is owned by Bases Conversion and Development Authority (BCDA). The road unites the two former American military bases and greatly reduces the travel time from Manila to both, as well as improving connectivity with Tarlac province, Region 1, and the Cordillera.
2. The Manila-Cavite Expressway (also known as the Coastal Road) is a 6.6 km tollway under the Public Estates Authority Tollway Corporation (PEATC), a GOCC under the Office of the President. It extends from Roxas Boulevard in Para񡱵e to General Emilio Aguinaldo Highway in Bacoor, Cavite.
3. The Northern Luzon Expressway (NLEX) was the first limited-access tollway in the Philippines, built by the Philippine National Construction Corporation (PNCC) formerly owned by a businessman close to president Marcos. Granted a broad franchise for all toll roads on Luzon, PNCC built limited-access tollways north of Manila to San Fernando, Pampanga and south to Calamba, Laguna in 1968 and the early 1970s. The owner of PNCC fled the country when Marcos fell in 1986, leaving behind a bankrupt company taken over and held by the government since.
During the Ramos Administration, the Lopez Group was awarded a negotiated concession with PNCC to rehabilitate and operate the NLEX. Former president Ramos implemented a 2-lane extension by PNCC from San Fernando north to Dau, Pampanga in time for the 1998 Centennial Exposition at Clark. However, the Asian financial crisis delayed project financing until the US$ 371 million project was closed in 2003, and the rehabilitated and widened 84-kilometer tollway was opened in 2005 under the Manila North Tollways Corp (MNTC) with a 25-year franchise.91 In late 2008, the Lopez Group sold its 98% ownership of First Philippine Infrastructure, which owned 67% of MNTC to Metro Pacific Investments Corp, a Philippine subsidiary of First Pacific (Hong Kong), for US$ 278 million.
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4. The Manila Skyway was built to relieve heavy traffic on the SLEX in the crowded southern suburbs of Metro Manila, after President Ramos during a 1993 visit to Jakarta arranged a joint venture between PNCC and Indonesian company PT Citra, owned by a daughter of President Suharto. PT Citra held a concession to build elevated expressways in Jakarta and a construction technology for building elevated freeways above crowded surface roads while allowing traffic to flow.92 Phase 1 of the project (Nicols to Sucat) cost some US$ 450 million and was financed with the AIG Asian Infrastructure Fund as the lead debt syndicator. Financing closed shortly before the onset of the 1997 Asian financial crisis. Citra Metro Manila Tollways Corporation also rehabilitated the portion of SLEX under the Skyway.
Financing for Phase 2 to Alabang was not arranged until a decade later, when local Philippine banks subscribed to US$ 400 million in loans. Philippine construction firm DM Consunji Inc (DMCI) expects to complete the Phase 2 project by the end of 2010.
Metropacific Tollways Corporation in April 2010 submitted an unsolicited proposal to construct and operate a 13 km expressway from the northern end of the Manila Skyway to Tondo, where it would connect with an expressway connecting the port of Manila with NLEX.
5. The 30-year old Southern Luzon Expressway (SLEX) waited a decade for the implementation of the planned upgrading after completion of the Manila Skyway. Proposals by local and foreign proponents, government, and the private sector were made but abandoned. Finally, the SLEX Upgrading and Rehabilitation Project started in mid-2006 led by MTD Capital Bhd of Malaysia through MTD Manila Expressway Corporation in joint venture with franchise-holder PNCC in the South Luzon Tollway Corporation (SLTC). The SLEX upgrading project is near completion and will eventually connect to the STAR Tollway. Phase 1 of the project retrofitted and widened the Alabang Viaduct. Phase 2 rehabilitated and widened the Alabang-Calamba segment of SLEX. Construction of the Phase 3 Calamba-Santo Tomas segment will connect to the STAR Highway. When complete, the SLTC will take over management and operation of SLEX and STAR. Driving time from Makati to Batangas should be cut in half to only 90 minutes.
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91 Four shareholders came together to put up MNTC: First Philippine Infrastructure Development Corporation (FPIDC), the infrastructure arm of the Lopez Group; Egis Projects S.A. of France, reputedly the world’s biggest tollway operator; Leighton Asia Ltd. of Australia, a civil works specialist with an extensive track record in toll road construction; and Philippine National Construction Corporation (PNCC), the state-owned company that holds the franchise for the operation of the expressway. (From MNTC website www.mntc.com)
92 The concrete elevated roadbed supports were cast in the center divider parallel to traffic using the existing surface road, then raised hydraulically and rotated 90 degrees.
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6. The Southern Tagalog Arterial Road (STAR Highway) was the third tollway project initiated by former president Ramos and connects SLEX to Batangas Port. A 4-lane section of the Star Highway built by the DPWH was opened in the late 1990s but right-of-way challenges prevented full completion during the subsequent decade. Two lanes were opened from Lipa to Batangas. STAR will eventually be a 4-lane 42 km expressway from Santo Tomas to Batangas City and is being completed by the DPWH.
7. In 2008, a BOT contract for the 85-kilometer Tarlac-La Union Expressway was awarded to the Private Infrastructure Development Corp (PIDC) following a reportedly solicited bid. Phase 1 (NEDA estimate PhP 17 billion) should start construction in 2009 to build two lanes; the remaining two lanes are to be built under Phase 2 by 2013.The government will provide the right-of-way. After the project is built, the GRP will grant the proponent a franchise to operate and maintain the road, and the Toll Regulatory Board (TRB) will issue a certificate to operate a toll road under a long term concession agreement.
A mixture of Philippine and foreign equity investors in tollway operating firms, Philippine government agencies, JBIC loans, and commercial debt have contributed to the significant activity in the construction and rehabilitation of toll roads over the last decade in Central Luzon. An estimated US$ 2 billion has been invested in these projects.93
Due to the scale, number, and complexity of the infrastructure investments in the Philippines, a relatively small group of people and institutions understands how infrastructure investment decisions are made and implemented. As a result, at times, infrastructure investments can be misallocated and delayed. At worst, leakages from infrastructure projects sap the country of much-needed infrastructure investments.
• Rail Transportation
The geography of the Philippine archipelago does not lend itself to an extensive rail network. Only a few routes in heavily-populated regions would justify the expense of a railroad instead of a road system. Railroads require an considerable traffic of goods or passengers between stations and their place of origin or destination. However, light rail for passenger transport in large urban areas is an ideal investment in public transportation. No other system can carry more people in less space on a dependable time schedule at less cost.
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93 Author’s rough estimate of US$ 400 million each for SCTEX, NLEX, SLEX-STAR, and Skyway.
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Figure 86 shows comparative railroad infrastructure rankings of the ASEAN-6. The ratings measure intercity rail service, which has long been extremely poor in the Philippines. Indonesia has managed to maintain its passenger service across Java, although crowded, and Vietnam has rebuilt its service from the Chinese border to Ho Chi Minh City that was destroyed during 40 years of war. Malaysia and Thailand have had reputable rail systems for many decades. Only in the last decade has the Philippines begun to improve its intercity rail service and to use more of its installed but abandoned right-of-way. However, the projects are not yet implemented and their benefits for the public not yet realized.
China has become not only the world leader in building railroads but also has leapfrogged in high-speed rail technology. Although the country had 86,000 km of rail at the end of 2009, much is overcrowded in light of China’s huge population, carrying a quarter of the world’s rail traffic on a mere six percent of the world’s railroad tracks. In reaction to the global financial crisis, the government accelerated its plan to increase rail lines to 120,000 km, and six million new jobs were created under a massive program that has 33,000 km under construction. China is emphasizing high-speed rail. It has rapidly built the longest high-speed rail network in the world, which it hopes to double to 13,000 km by 2012. For example, the high-speed rail line under construction between Beijing and Shanghai will cut travel time to 4 hours from 10 hours.94
Korea has only introduced high-speed rail in recent yearswith a 240 km line from Seoul to Busan and Mokpo. Closer to the Philippines, the Taiwan High Speed Rail(THSR) runs 336 km from Taipei to Kaohsiung which carried more than 10 million passengers in 2007, its first year of operations. The THSR is one of the largest privately funded transport schemes; total project cost has reached US$ 15 billion.
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94 “Inside Asia” by Alan Wheatley, IHT, April 13, 2010
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The race to be the first country in Southeast Asia to build a high-speed rail has begun. Five countries have solid plans or proposals for high-speed rail:95
• Indonesia:The Hydrogen Hi-Speed Rail Super Highway (H2RSH) train to the Jakarta Soekarno-Hatta International Airport is under constructionand due for 2012 operation. Caedz LLC a San Francisco-based economic re-engineering firm led by a consortium of multinational investors signed a Memorandum of Agreement with the Indonesian firm Kadin in December 2009 in Los Angeles, USA.
Indonesia has expressed an interest in high-speed rail linking Jakarta, Bandung, and Surabaya. The Department of Transportation announced it was seeking investors for a 683 km high-speed line between Jakarta and Surabaya, expected to cost US$ 6 billion. Proposals had been submitted by Chinese, French, and German firms.
• Malaysia and Singapore:A high-speed rail to link Kuala Lumpur and Singapore was proposed in 2006 by YTL Corporation. It would cut travel time to 90 minutes, compared with 4 hours driving and 7 hours on the current rail line. A Bangkok – Kuala Lumpur – Singapore line has also been suggested. Siemens has expressed interest in being the technology provider.
• Thailand:The Thai Ministry of Transport has plans for several high-speed rail lines. In October 2009, it was reported that funding was being sought for four lines, linking Bangkok to Chiang Mai (711 km), Nong Khai (600 km), Chanthaburi (330 km), and Padang Besar (983 km). In November, the Thai cabinet approved the plan, with the shorter route to Chanthaburi intended for construction first. The total cost of all routes is US$ 25 billion.
• Vietnam:Vietnam Railways is planning a 1,555 km high-speed link from Hanoi to Ho Chi Minh City, costing US$ 33 billion and cutting current travel time from 30 to less than 9 hours. Funding is expected to come from Japan and would most likely involve Shinkansen technology.
• Philippines:The Department of Transportation has no plans for high-speed rail.96 San Miguel Corporation has proposed a bullet train system connecting Laoag City to Manila to the Bicol region.
Despite some talk about high-speed rail, intercity rail in the Philippines remains closer to its 19th century origins than the 21st century. Philippine National Railways (PNR) originated in a Spanish privately owned rail line running north from Manila to Dagupan in Pangasinan and nationalized in 1916. Service was extended in 1938 to Legazpi in Bicol. After 1946, the US Army, which was rehabilitating the destroyed system, transferred the railroad to the Philippine Government. It remained a GOCC and only operated service on its southern Manila-Legazpi route, named the Bicol Express, but anything but that.
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95 Information on Korea, Taiwan, and SEA are from Wikipedia’s numerous entries under High-speed Rail especially “Planned high-speed rail by country.”
96 Transportation Secretary Mendoza at a forum on airport and rail transportation in November 2008 pointed to the Northrail project as sufficient to connect Manila to Clark and said he did not believe high-speed rail would be possible in the Philippines.
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The DOTC has sought to restore rail service north of Manila since early in the Ramos Administration. A project with Spanish and Filipino investors was pursued in the 1990s but eventually abandoned for lack of financing. Subsequently, former House Speaker Jose de Venecia facilitated a People’s Republic of China (PRC) loan of over US$ 400 million for the first Phase. The PRC has also financed Phase 2 of North Rail. There have been many allegations that corruption and overpricing were involved in the project, which has progressed slowly.
PNR’s North Rail commuter rail project is designed to serve eight stationsbetween Caloocan (Manila) and Clark (Pampanga). However, in October 2008 there were reports that the Chinese partners proposed a change in engine technology from diesel to electric and considerable cost increases that require NEDA ICC approval. Meanwhile, the COA determined government procurement bidding procedures were not followed.
All light rail lines in the Philippines are located in Metro Manila. While intercity rail in the country is extremely minimal, three lines currently operate giving the NCR a solid basic network. One additional line is approaching financial closure. There also are additional lines planned which can be financed and built whenever the government’s slow transportation bureaucracy acts more decisively.
• The Light Rail Transit Authority (LRTA) operates the government-owned LRT-1(Yellow Line from Baclaran to Monumento) and LRT-2(Purple Line from Santolan to Recto). Some 30 years old, LRT-1 was financed with Belgian government trade credits and later received new JBIC-financed equipment.97 LRT-2 (or Line 2) was built through a concessional loan of some US$ 1 billion from the JBIC. Line 2 began operations in April 2003 and became fully operational by October 2004. The DOTC is financing construction of a short line in the northern part of Metro Manila with four stations to link LRT-1 and MRT-3 (which are connected in the south at the intersection of EDSA and Taft Avenue) to begin operating in 2010.
• The only light rail line built as a BOT project, Metro Rail Transit-3 (MRT-3) (Blue Line from Taft to North Avenue) began operations in December 1999. MRT-3 was initially owned by a consortium of Filipino companies that lost the bid for the US$ 1.5 billion Fort Bonifacio land privatization and decided to invest in the rail project for its real estate potential. Its original Israeli proponent and American project manager held small equity positions. The original partners sold out and most equity is held by foreign private equity investors in London and New York. The public utility part of the MRT-3 project (which must be at least 60% Philippine equity) interacts with the public by ticket selling, scheduling, and the like. The foreign-owned company owns and operates the actual light rail system, for which it receives an annual fee from the DOTC at a rate of return of 15%. A 1995 Supreme Court decision supports this ownership distinction. The DOTC is in the process of acquiring the line from its investor-owners.
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97 LRT-1 has sometimes carried over a half million passengers in one day. On January 9, 2009 582,989 passengers took Line 1 during the Feast Day of the Black Nazarene.
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• A second BOT project, MRT-7light rail project on Commonwealth Avenue was contracted in mid-2008 by the DOTC after seven years of negotiation by its foreign developer. At US$ 1.2 billion, MRT-7 is the most expensive BOT project yet undertaken in the Philippines. Its present equity structure is majority Philippine.
• The long-delayed LRT-1 South Extension Projectservicing fast-growing Cavite province is an excellent candidate for a solicited BOT to foreign operators and developers. For several years, a prominent Canadian company tried to undertake the project as a joint venture with the LRTA but eventually abandoned it because of lack of progress. Then the World Bank/IFC offered a loan for public works and technical assistance for an international bid. While the DOTC was considering this proposal, a PRC construction firm China Shanghai Corporation for Foreign Economic and Technological Cooperation (SFECO) proposed building the LRT-1 project under a government-to-government arrangement with Chinese concessional trade credits. LRTA chairman DOTC Secretary Mendoza, failed to decide which financing scheme to use, despite strong recommendations from foreign and Philippine business groups, foreign embassies, and NEDA to bid out the project. Such indecision demonstrates the adverse effect of PRC ODA on Philippine development plans and has been a disservice to Philippine citizens who otherwise could ride a modern transport system.98
LRT lines 1 and 2 are under LRTA, an attached agency of DOTC, while the MRT-3 is directly under the DOTC. The LRT-1 to MRT-3 connection is not seamless (due to technical issues, i.e., differences in signaling system, etc.). Also, differences in accounting systems prevent the issuance of one ticket that would work on all lines.
Figure 87 show the steady increase in ridership on the Metro Manila light rail lines. Over 350 million passengers traveled on the system in 2009, with MRT-3 nearly equaling the much older LRT-1 line. The most expensive line – LRT-2 – carries fewer passengers. The rate of growth in ridership has been strong. If the additional planned lines are constructed, annual ridership could reach one trillion within the decade.
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98 There were reports that influential private persons with strong connections to Malaca񡮧 favored a PRC government-to-government loan. The JFC wrote DOTC Mendoza on October 3, 2008 urging a transparent international BOT/PPP bidding
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Map 2 shows present and future light rail lines in the NCR. LRT-1 (yellow) now connects to MRT-3 (blue) at North Avenue, although passengers have to walk to transfer between the two lines, as they also have to do at Taft Avenue and EDSA. LRT-2 (purple) will have extensions to the east and the west. LRT-1 will extend south into Cavite (dotted yellow). Proposed MRT-4 (light blue) connects downtown Manila to MRT-7 along Commonwealth Ave in Quezon City. Proposed MRT-8 connects downtown Manila with the eastern suburbs of the megalopolis.
Map 2: Present and future light rail lines, NCR
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Recommendations (9)
A. Start to build expressways and national roads twice as fast, using PPPs as well as DPWH funds. Extend expressways North to La Union, North East to Nueva Ecija and South to Batangas, Lucena, and Cavite; extend Manila Skyways and build C-6 in NCR; also Davao to GenSan; Trans Cebu (Danao to Talisay); 3rd Cebu-Mactan bridge; consider Cebu-Bohol bridge (see Table 36). Relieve congestion on national roads by building more and through widening. Cost: US$ 3+ billion (not including national roads). (Immediate, medium and long-term action by NEDA, DOTC, DPWH, NEDA, DTI, and private sector).
Table 38: Targeted expressway and bridge projects, 2011-2020
B. Build large intermodal provincial bus terminals north and south of Manila, near expressways and light rail. Bid out the project as PPP. Prohibit provincial buses from entering the NCR and close their present terminals which congest traffic. (Medium-term action NEDA, DOTC, and private sector)
C. The final national government budget should focus on the core road network. These are highly travelled roads with great economic and social impact. 85-90% of the total road infrastructure budget must be aligned to core roads and only 10-15% to other various projects. (Immediate action NEDA, DBM, DPWH)
D. Major road and rail projects which government decides to be funded as PPPs should be bid out competitively and evaluated and awarded transparently. Unsolicited proposals should be minimized. (Immediate action DOTC, DPWH, NEDA, DTI)
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99 Provincial bus operations to and from the North and South will start and terminate at these buses terminals. The light rail system will provide inter-modal connectivity with the metropolis.
100 US$ 190 million for Phase 1, 6-lanes Quezon City to Gapan, Nueva Ecija; subsequent phases will traverse Nueva Ecija north to Tuguegarao City, Cagayan.
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E. Strictly use the modern planning tool known as HDM-4in the identification and prioritization of road infrastructure projects for funding (using objective technical and economic criteria). HDM-4 should be strictly followed in determining amount budgeted for lump sum utilized for rehabilitation, construction, and upgrading of roads. (Immediate action NEDA, DPWH, and line agencies)
F. GRP agencies should post on their websites the list of road and bridge projects programmed for funding, based on HDM-4. They should also post the list of projects actually funded, actual releases, disbursements, and other project milestones on the web. (Immediate action NEDA, DBM, DPWH, and other line agencies)
G. Build intercity rail and urban light rail, especially on Luzon, twice as fast. Accelerate rail construction on Luzon, using PPPs as well as DOTC funds. Complete the MRT-7. Build the LRT-1 south extension, the LRT-2 west and east extensions, complete the Northrail and Southrail projects and their interconnection. Build the MRT-4 and the MRT-8 and a Cebu light rail. Build a high-speed connection between Manila business hubs and Clark airport by 2020. Cost US$ 12+ billion (see Table 37). (Immediate, medium and long-term action by NEDA, DOTC, NEDA, DTI, and private sector)
Table 39: Targeted Intercity and urban light rail projects, 2011-2020
H. Correct the different gauges of the Northrail-Southrail linkage, which is not congruent with the gauge of both Northrail and Southrail projects. The former uses standard gauge, while the latter uses narrow gauge. To go to Southrail from Northrail, commuters will have to transfer trains twice on the linkage line. (Medium-term action DOTC, NEDA, and PNR)
I. Enact an EO to create a single government agencyto manage operations, maintenance, and planning of all light rail projects within Metro Manilain order to ensure a seamless rail system. (Immediate action DOTC and LRTA)
Road and Rail FGD Participants, Moderator and Secretariat Members
November 12, 2009
Joint Foreign Chambers of the Philippines
FOCUS GROUP DISCUSSION ON ROADS AND RAIL
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Sector Background and Potential
With its archipelagic character, the Philippines depends on seaports much more than countries with large continuous landmass. Since a high percentage of domestic and international commerce and travel is by sea, the efficiency of maritime transportation has become increasingly essential to national competitiveness. The high cost of domestic marine transport has long been questioned, while the enormous potential for tourism (both domestic and international) is greatly influenced by the quality of seaports (as well as airports). Improving maritime safety is an important issue given the high loss of life from negligence of ship owners and government agencies, terrorism, and weather.
Figure 88: Container traffic per country, in Mn TEUs, 2004-2008
The volume of international container shipments in and out of the Philippines is low in comparison to Asia’s major export economies (see Figure 88). Total Philippine container traffic is less than 5 million TEUs and is growing very slowly. Singapore, Hong Kong, and Kaoshung ports handle over 20 million TEUs/year; Laem Chabang (Thailand) and K’lang (Malaysia) ports each handle about 5 million TEUs/year. The terminals at Manila (MICT and South Harbor) handle about 3 million TEUs/year. Manila is ranked 90th in the world in tonnage volume and ranked 36th in container traffic (see Table 40).
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Table 40: World Port Rankings, 2008
Over the last decade, there has been significant investment in the development of the international ports of Batangas, Cagayan de Oro (PHIVIDEC), Davao, and Subic. Their combined capacity has almost doubled. GRP agencies have borrowed from JBIC to develop the new ports in Batangas, Subic, and Cagayan de Oro and will need to generate substantial port revenues to pay these loans and to avoid the new facilities becoming white elephants.
Historically traffic has grown around 5% annually, but volume is projected to increase by only 2-3% until world trade has fully recovered from the financial crisis. While the new ports have considerable capacity for future growth, the volume share of the main NCR ports is not spread efficiently.
Table 41: Cost of Exporting a Container, US$
Table 41 shows costs of exporting a 20-foot container at ports in Indonesia, Philippines, Thailand, and Vietnam. Studies have shown both international and domestic shipping costs can be reduced by efficiency improvements and reduction or removal of unnecessary charges lacking added value, especially those by government.
In Manila there are two ports owned by the Philippine Ports Authority (PPA) – International Container Terminal Services Inc (ICTSI) and Asian Terminals Inc (ATI) – with operations awarded to private operators and one privately-owned and operated (Harbor Center). Harbor Center only handles non-containerized cargoes. Batangas and Subic handle very low TEU volumes. The present NCR port usage has created traffic problems, adding to the extreme congestion of Metro Manila, and a contributor to passenger and cargo traffic as well as industrial concentration in the capital (see Figure 89). Competition among port operators is limited, especially in foreign containerized cargoes.
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Figure 89: Truckers, motorists in private vehicles, and drivers of passenger jeepneys on their way to North Harbor
As Figure 90 shows, the quality of port infrastructure rank for the Philippines in the WEF Global Competitive Report is the lowest among the ASEAN-6. As an archipelago with a very large number of ports, the Philippines faces a challenge, only shared with Indonesia in Southeast Asia, to undertake reforms and large investments to modernize as many ports as possible.
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As it expands, the Ro-Ro transport system introduced by President Macapagal Arroyo is increasingly giving passengers and shippers an alternative to traditional air and marine shipping (see Map 3).
Map 3: RO-RO Network
Domestic shipping can be divided into three categories with different port and infrastructure requirements: (1) pure containerized lift-on/lift-off (LOLO) shipping for long-haul routes between main ports; (2) large Roll-on/Roll-Off (RORO) ferries with passengers on long-haul routes; and (3) bulk (dry and wet), break bulk, and small container shipping.
The Philippine constitution limits foreign equity in public utilities (e.g. transport) to 40% maximum. The concept of consortium shipping (foreign ships can carry each other’s foreign cargoes within the Philippines) has been proposed as a means of increasing competition and lowering shipping costs.
Philippine ports suffer from a structural regulatory problem. The DOTC has limited jurisdiction over Special Economic Zone (SEZ) ports including Subic Bay Freeport Zone, Poro Point, and PHIVIDEC. Also, there is no uniform administration of RORO ports; some are under PPA, while others are under LGUs, and fees are not uniform. PPA is subject to political pressure to allocate funds for all ports, dissipating limited resources rather than developing major ports in a hub-and-spoke system.
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Recommendations (20):
A. The recommended NCR/Central Luzon Transportation Master Planshould include a strategy for future utilization and development, until mid-century, of the major international seaports in Central Luzon, the Visayas, and Mindanao. The plan should include ground transport infrastructure linking the seaports to airports and cities. The plan should set the capacity of ports in relation to the adjacent road networks and to overall domestic and international shipping demand. It should also include a seamless, integrated inter-modal transport system. (Medium-term action PPA, MARINA, DOTC, DPWH, NEDA, and private sector)
B. A hub-and-spoke system is idealwith major ports highly developed for larger ships with cargoes delivered from smaller production centers by truck or small RORO. (Long-term action PPA and DOTC)
C. Major ports should include all needed infrastructureincluding container terminals, cranes, truck marshalling areas, and weighing scales, which are not present at many ports.101 (Medium-term PPA, DOTC, and private sector)
D. Major RORO ports should have modern passenger terminalswith connected bus terminals, security systems, and berthing spaces with good road access.102 (Medium-term action PPA and DOTC)
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101 A ship’s crane adds as much as 30% to capital cost of the vessel and increases operating costs. Shipping companies in the Philippines usually have to provide infrastructure that in other countries is provided by the port operator. Some ports (e.g. Iloilo) have draft limitations preventing larger ships from servicing them.
102 Currently, shipping companies at many ports have to provide passenger terminals and luggage screening equipment and berthing spaces may be shared with freighters.
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E. Port infrastructure should also include facilities to accommodate bulk and break bulkcargoes (e.g. silos, discharging equipment, and discharging areas).103 (Long-term action PPA, DOTC, and private sector)
F. Adopt a firm policy to gradually shift international container shipment volume from Manila (South Harbor and MICT) to Batangas and Subic.104 (Immediate action PPA and DOTC)
Map 4: Decongesting the Port of Manila
G. As part of the recommended Master Plan, PPA should take the lead in a transport study to identify the ideal capacity ports should have in relation to its adjacent road networkto avoid and to reduce congestion. A cap on TEUs per port should be established, with cargo above the limit moved to other ports. The study should also plan for the development of an inter-modal system with rail, roads, and waterways. (Immediate action PPA, DOTC, MMDA, and private sector)
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103 Bulk wet services for oil distribution are privately owned and operated. Bulk dry and break bulk cargoes require separate facilities and discharge areas.
104 Manila South Harbor and MICT handles about 60% of the total Philippine international container shipment volume, while Batangas and Subic have very low volumes. When the Bangkok port in Thailand was overcrowded, congesting the city’s urban core, the new port of Laem Chabang was constructed in an area 90 minutes away from the city. To decongest the Bangkok port, a container volume limit of one million TEUs was enforced. Anything beyond that cap were required to pass through Laem Chabang.
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H. Retain North Harbor as a domestic port, shift foreign cargoes to Batangas and Subic and make Manila a cruise port.105 This will decongest Manila and make it unnecessary to invest as much in road infrastructure for Manila port.106 There should be a timetable for implementation and incentives for shippers to move.107 Private port operators should creatively market the ports. (Immediate action PPA, DOTC, NEDA, SBMA, and private sector)
I. PPA should consider creating a private corporation to develop ports and privatize the ports through an IPOto create broad ownership.108 (Medium-term action PPA, DOF, and Congress)
J. Container shipping costs should be reduced by(a) eliminating the double charging of separate stevedoring and arrastre charges by rationalizing them into one cargo handling charge;109 and (b) no arrastre fee should be charged for RORO and LOLO which discharge directly onto the truck bed. (Immediate action PPA and DOTC)
K. PPA must find innovative ways to cut costs and increase revenue aside from continuously increasing fees, which make Philippine ports less competitive and adds to costs for cargo owners. (Immediate action PPA and DOTC)
L. Domestic shipping costs can also be reducedby the port modernization recommendations in B, C, D and E above.110
M. The practice of extorting illegal fees from truckers should be stoppedby LGUs; lighted, safe and secure rest areas should be providedalong the nautical highway. (Immediate action DPWH and DILG)
N. MARINA must have greater political will to impose higher standardson quality, safety, and environmental protection following international practices, which will help create a more mature and efficient Philippine shipping industry.111 (Immediate action MARINA, DOTC, and private sector)
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105 Cruise ship operations in Southeast Asia and Southern China are increasing, with two international cruises already visiting Manila in the first quarter of 2010.
106 When the new Cavite coastal road is completed, cargo coming from the south could reach the Manila port through a tunnel under Roxas Boulevard. However, this proposal which was submitted to the DPWH in 2001 has not been acted on. DPWH and NEDA should undertake to study the proposed project if international cargo traffic stays at Manila. Also, a review of the truck ban in areas covered by the route of container trucks should take place when this project becomes final.
107 Challenges that need to be considered include: (1) existing contracts of PPA with ICTSI and ATI, (2) cooperation of the two port authorities – PPA for Batangas and Manila, and Subic Bay Metropolitan Authority (SBMA) for Subic, the later potentially gaining revenue from cargoes formerly handled at PPA ports, and (3) the needed road infrastructure (e.g. the additional two lanes of the STAR Tollway to Batangas should be completed as well as the road connection to the SLEX).
108 Creating competition among port operators has proven difficult because of low TEU volume and the perception that politics may overturn bid awards, as happened to one of Asia’s largest port operators which was awarded the operation of the Subic port in the early 1990s. Thus few foreign port operators have participated in biddings. Port development is expensive, with a container berth costing more than US$ 100 million. The low volume, even in Manila where there are two operators, seemed unlikely to attract interested competitors, but a third operator (a Metropacific joint venture with Harbor Center) for privatization of the North Harbor operation has been approved.
109 A single charge is the common practice in other countries, which do not make a distinction between land and vessel cargo handling.
110 A foreign ship at ICTSI discharges at 30 moves per hour compared to even 50 moves in other countries, while a ship using its own cranes can discharge at 7 TEUs per crane per hour. The many inefficiencies of port operations, inadequate road infrastructure resulting in truck bans, illegal fee collections, inadequate infrastructure at ports all combine to increase domestic operating costs.
111 Because of high operating costs, many older ships are brought into the Philippines but are more costly to run. BOI incentives for newer ships are usually not enough to outweigh these costs.
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O. Amend the RORO policy to include chassis ROROas part of the service. (Immediate action PPA, MARINA, and DOTC)
P. Remove unnecessary (as well as unauthorized) feesaffecting RORO traffic.112 (Immediate action DPWH, DOTC, and DILG)
Q. RORO bills of lading should be more transparent; currently they are prepared on ships and do not show port of origin, commodity, and value. (Immediate action MARINA and DOTC)
R. Cabotage restrictions require further discussion but should probably be easedthrough Consortium Shipping. The Philippine Inter-Island Shipping Association argues that, because almost every country imposes cabotage, the Philippines should as well. The counter-argument is that removing cabotage will increase competition, improve service and safety, and reduce domestic shipping costs for exporters and consumers. (Immediate action DOTC and private sector)
S. Pass and implement the new Marine Law, which came close to final passage in early 2010.113 The Marine Law addresses several areas intended to raise Philippine law to a level competitive with other flag states.114 (Immediate action DOTC, Congress, and private sector)
T. Solve a serious structural regulatory problem by separating the policy-making body from port operations. Create a National Port Advisory Councilthat would define the policies of the ports and put jurisdiction of all ports under the DOTC. (Immediate action DOTC and OP)
Airports and Seaports FGD Participants, Moderator and Secretariat Members
November 26, 2009
Joint Foreign Chambers of the Philippines
FOCUS GROUP DISCUSSION ON AIRPORTS AND SEAPORTS
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112Provinces where trucks pass through require their own stickers, each cost as much as PhP 1,000 per year. In some areas, illegal toll fees are collected by LTO, highway patrol, PNCC and Coast Guard causing delay and adding cost to operators.
113 The bill consolidates maritime functions into a single government agency. Currently, there are many agencies regulating the maritime industry. The bill also: shifts registry from income taxation into tonnage dues (following other neighboring countries); turns the maritime agency into a fiscally-independent authority (which will raise its revenues through the collection of tonnage dues); gives better salaries to technical experts; creates a Marine Transport Safety Board (an independent investigating body reporting to the president with joint prosecutorial powers with the Department of Justice (DOJ) and able to file charges in courts); and creates a GOCC to lend money to ship owners at an interest rate 3% below market.
As the largest supplier of seafarers, the Philippines has potential to develop its overseas shipping industry as a cross-trader but has been held back by a faulty mortgage law which has not been accepted by international banks. Future development of the industry depends on cross-trading because of limited domestic cargo and trade, although growth of mining exports could provide new opportunities.
114These include: (a) ownership at 51%-49% for overseas shipping; (b) an annual tonnage tax instead of income tax because most flag states provides tax incentives; (c) correction of the faulty mortgage law to conform with international convention; (d) adoption of international safety and marine environment protection standards; and (e) other provisions that will put the country at par with other flag states.
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Sector Background and Potential
Modern telecommunications and information technology infrastructure are vital to the economic growth of the Philippines, serving multifarious purposes in daily life and enabling the rapid growth of the BPO sector, as well as enhancing the economy’s overall efficiency.115 Land lines, mobile telephones, Internet, and various cable and satellite technologies that carry voice and data connect Filipinos and foreigners alike, within the archipelago and around the globe. In recent years, Filipinos – including presidential candidates – have even become heavy users of social media communications.116
In a country where change comes slowly, reform in telecommunications during the last 15 years has occurred very quickly. In only a decade, Philippine telecommunications advanced from a backward, monopolistic, high-cost, and inefficient public utility to a sector with considerable competition, enabling a majority of the population to communicate at home and abroad at much reduced cost.
Almost 18 years ago former Singapore Prime Minister Lee Kuan Yew, addressing the annual PCCI business conference in Manila, commented “in the Philippines, 98% of the population is waiting for a telephone, while the rest are waiting for a dialling tone.” More than a decade later, a majority of Filipinos have both.
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115 An FGD for Telecommunications and Information Technology was not held, although issues and recommendations relating to the BPO sector were discussed in the FGD on BPO. The Telecommunications and Information Technology section was drafted by the principal author of Roadmap 2010 and commented on by telecommunication experts in AmCham.
116 Over 80% of the Philippine internet population uses social media networking sites. In Universal McCann’s 2008 Wave 3 study on social media, the Philippines had the highest penetration of social networking among Internet users at 83%, compared with the global average of 58%. In the 2010 election buildup, a politician expected to be a presidential candidate advertised heavily on Yahoo, the most popular email browser for Filipinos at home and overseas.
There were 93.6 million Facebook users in Asia on August 31, 2010 (162.1 million in Europe and 149.1 million in North America). The top five Facebook countries in Asia are: Indonesia (27,338,560), Philippines (16,235,000), India (13,188,580), Malaysia (8,163,300), and Taiwan (7,052,660).
Source: www.internetworldstats.com
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In one of the most consequential reforms initiated by former President Ramos, the control of Philippine Long Distance Telephone Company (PLDT) of Philippine domestic and international telecommunications was broken in 1993 by two executive orders, one mandating interconnection and the other requiring phone companies (in addition to PLDT) to install specified numbers of landlines and cellphones in their assigned areas. The executive orders were followed two years later by Congressional passage of a telecommunications reform law.
Today two large and two smaller companies are active in the local telecommunications market. All four companies provide mobile and landline telephone service as well as Internet broadband. Each holds a public utility franchise granted by Congress, as required under the colonial era Public Utilities Act. Their foreign partners have invested substantial equity in the sector.
In addition to increased competition and consumer choice, another critical factor in the country’s improved telecommunications infrastructure has been rapid technological change. Landlines have been overtaken by mobile phones, and postpaid telephone accounts by prepaid. Today Filipinos have twenty times as many mobile subscriptions as landlines. The Philippines, called the text message capital of the world, is the world leader in Short Messaging Service (SMS) with almost one billion daily messages.117
While the country lags in many competitiveness indicators, mobile phone penetration is not among them. In 2009 the penetration rate per 100 inhabitants of the Philippines (81) was higher than China (56), India (44), and Indonesia (69), while lower than Malaysia (110), Singapore (140), Thailand (123), and Vietnam (101) (see Table 42).
Table 42: Mobile phone subscriptions, ASEAN-6 + 2, Mn, 1995, 2009
Digital fiber connects the Philippines inexpensively to the far corners of the globe, providing what American columnist Tom Friedman once termed the equivalent of an oil pipeline moving services of skilled Filipino workers to North American markets. The newest Voice over Internet Protocol (VoIP) telephone service via computers has brought the cost of communicating on the Internet almost to zero.
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117 Source: Acision’s Press Release, “The Future is Messaging Growth,” September 7, 2008 (www.acision.com)
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As the cost of accessing the Internet falls, the next new technology for the Philippines is the high-speed wireless broadband revolution. Although less than 5% of mobile phones in the Philippines have 3G today, within a few years many millions more could have cheap Internet access on their cellphones. In Asia, 3G penetration already exceeds 50% in Australia, Hong Kong, Japan, Korea, and Singapore.118 One presidential candidate in 2010 suggested providing Filipino students with mobile digital reading devices, a visionary yet highly practical proposal.119
The benefit for national competitiveness of these changes will be enormous. Most Filipinos will be able to avail of global SMS and email communications on mobile devices. They will “leap over” the relatively low household computer penetration in the Philippines of 13% (see Figure 91).
The following provides a brief overview of the four major telecommunication companies in the country. The public sector role in the sector is limited to regulation through the National Telecommunications Commission (NTC).
Philippine Long Distance Telephone Company
Established by an act of Congress in 1928, 80-year old PLDT is the country’s largest telecommunication company, measured by its annual revenue (PhP 147 billion in 2009) and subscribers (41 million cellphone subscribers with Smart and 1.8 million landline subscribers).120 PLDT is one of the country’s largest firms in terms of total revenue. In addition, PLDT is one of the largest BPO providers in the Philippines, with smaller operations in China, Europe, India, the US, and Vietnam.121
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118 Frost & Sullivan briefing, “Moving Beyond Messaging in the Philippines,” November 6, 2009
119 Senator Richard Gordon authored this proposal. At least $2 billion could be required, a reasonable sum over a number of years if high-speed broadband wireless service is available.
120 PLDT 2009 Annual Report
121 Call center services are provided by ePLDT Ventus and BPO services by SPi Technologies, which together have more than 11,000 employees. Illustrative services include Content Editorial and Production, Content Coding, Abstracting and Indexing, Electronic Data Discovery, Content Transcription, Transaction Processing, Inbound Customer Care, Inbound Technical Support, Inbound Sales, Outbound Sales, Email support, and Website Maintenance.
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Over a half-century, ownership of PLDT has changed from majority American then Filipino and now Filipino-Hong Kong-Japanese. Its shares have been traded on the New York Stock Exchange (NYSE) since before WWII. The current principal owner, First Pacific Company Ltd (Hong Kong), whose shares trade separately on American stock exchanges, is principally owned by the Salim family, once Indonesia’s largest business conglomerate. PLDT lists its ownership structure as including the First Pacific Group (26%) and NTT (Japan) (21%).122
Since WWII, the style of management of PLDT and the business environment in which the company operates have changed significantly. First, PLDT was an American-owned public utility. In the mid-1960s, ownership and management became closely allied with the interests of business allies of then-president Marcos. Since 1998, new ownership has changed PLDT into an Asian-owned joint venture company. Management behavior has shifted from rent-seeking to dynamic competition, following sectoral reforms initiated by former president Ramos. The wait for a new landline is now weeks, not years, and most subscribers no longer want this older technology.
Globe Telecom Inc.
The second largest Philippine telecommunications firm, Globe, with revenues of PhP 62 billion in 2009 and over 23 million subscribers, is a joint venture between Ayala Corporation (Filipino) and Singapore Telecommunications.123 SingTel currently owns 47% while Ayala Corporation holds 31% with the remaining 22% shared by public investors.124 SingTel, one of the largest telecommunications company in Asia outside the PRC, is majority-owned by Temasek Holdings, the investment company of the Singapore Government, whose total assets exceed US$ 100 billion.
Like PLDT, Globe’s franchise originated before WWII, in a 1928 law which granted a California-based American investor a franchise to operate wireless long distance message services, first named Globe Wireless Limited and later Globe Mackay Cable and Radio Corporation. In 2000, Globe merged with Islacom, and its principal foreign shareholder, a subsidiary of Deutsche Telekom AG, exited the country.
Beginning in the early 1990s, Globe began to grow market share by aggressively lowering prices. When Globe stopped lowering its prices, tariffs for all international calls had fallen to US$ 0.40 a minute from over US$ 3.00 a minute. Globe steadily gained market share through its price lowering strategy.125
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122 PLDT Notice and Agenda of Annual Stockholders Meeting, 2010
123 Revenue and subscription data are from the Globe Telecom 2009 Annual Report. Ownership structure information was obtained from Globe Telecom’s website: www.globe.com.ph 124 Asiacom owns all of the 158.5 million preferred shares (www.globe.com.ph)
125 Sun, a late entrant mobile phone competitor, has gained substantial market share by following the same price lowering strategy.
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LiveIt, a sister company in the Ayala Group, invests in IT service providers. Its largest acquisition in October 2008 took NASDAQ-traded eTelecare private for US$ 270 million.126 In 2009 eTelecare merged with Stream Global Services (US), one of the largest global call center operators with 50 sites and nearly US$ 1 billion in annual revenue. Integreon, another unit of LiveIt, in May 2010 signed a 10-year contract worth US$ 852 million to provide legal research and related office services to a UK law firm.
Digitel Telecommunications Philippines
The third firm Digitel commenced operations in 1992 to take advantage of the opening of the sector under President Ramos. By 2009, Digitel earned PhP 14 billion in total revenue from 13 million subscribers. Digitel’s primary shareholder is JG Summit Group of the Gokongwei family (48%), one of the largest Filipino-Chinese conglomerates. TeliaSonera AB, the dominant telephone company and mobile network operator in Sweden and Finland, owns 9%.127
The Gokongwei group acquired and expanded an existing poorly-managed government telephone network, later obtaining a national franchise from Congress and adding mobile services. The DOTC awarded Digitel a 30-year contract to manage telecommunications systems owned by DOTC on Luzon. Later the contract was converted to a lease with the right to eventually own the government network. Digitel launched its wireless mobile services in 2003 under the Sun Cellular brand. It sought to gain subscribers with a 24/7 unlimited call and SMS set price subscription for Sun-to-Sun connections. Its two larger competitors responded with similar but higher-priced plans.
Bayan Telecommunications
BayanTel, the telecommunications sector venture of the Lopez Group, was first incorporated in 1961 as International Communications Corporation. It holds a public utility franchise and operates largely in Metro Manila and Bicol. BayanTel is 85% owned by the Lopez Group and sister firm Benpres with Asian Infrastructure Fund (AIF) – a foreign private equity fund – as the other major shareholder.128 The company has struggled to gain market share. Its senior officer is a foreign national who carries the title Chief Executive Consultant (CEC). Philippine law requires that senior officers of public utility corporations be Filipino.
Currently, the Philippine telecommunication sector is highly competitive. Foreign capital needed to expand and modernize the sector has readily been available from equity, corporate debt, and bank loans. Exceeding the 40% limit on foreign equity by the two largest providers (while observing the Control Test) could be a precedent for future formal lifting of this limit should the current constitutional restrictions be removed. More entrants into the market should bring some additional downward pressure on prices to the benefit of consumers and reduced business costs.
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126 eTelecare is an excellent example of the growth of IT in the Philippines. Barely a decade old, it was started by two American consultants from Los Angeles who picked the Philippines over India to establish their first call center, joining with a company headed by a New Zealand entrepreneur. eTelecare was eventually bought by Ayala after it was spun off from SPI (which was eventually bought by PLDT). The cost of the two fast-growing firms was almost US$ 400 million in total, in light of their rapid, successful expansion in the Philippines. In 2009 eTelecare merged with Stream (US).
127 Sources: Financial information – Digitel Telecommunications Philippines Inc’s SEC 2009 Annual Report; Number of subscribers – Lectura, Lenie. “Sun Cellular Subscribers top 13 million.” BusinessMirror. 25 May 2010.; Ownership structure (www.digitel.ph).
128 Source: www.bayan.com.ph
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Meanwhile, the Internet has greatly reduced telecommunication, postage, and courier costs for businesses. Email and VOIP allow voice communication, document, and other data transfer at little or no expense. Given the high capital costs required for market entry, future new entrants may find takeover of an existing operator an attractive option.
Table 43 shows four indicators of access to information and communication technology for the ASEAN-6 economies plus China and India. The table shows the Philippines was able to skip over the great expense of installing large numbers of landlines (where its penetration remains low) going straight to mobile telephones (where penetration is relatively high). The Philippines has a low level of Internet penetration (6.5 per 100 inhabitants) and a comparable level of computer penetration (21% of households) relative to Indonesia (8.7% and 6.4%) and Vietnam (27.3% and 10.2%) but not Malaysia (57.6% and 38.7%) and Thailand (25.8% and 19.6%). There is a tremendous upside for growth in both.
Table 43: Access to information and communication technology indicators, selected countries, 2009
Figures 92, 93, 94, 95, 96, and 97 present data on fixed and mobile telephone lines for the ASEAN-6 through 2008. The Philippines has the lowest penetration of fixed line subscribers per 100 inhabitants, while Vietnam has made a great leap upward increasing its penetration rate by around 1,000 percent in five years (see Figure 92). However, the Philippines did well with mobile phone penetration staying close to all the ASEAN-6 except Singapore and Malaysia. Penetration is Vietnam is rapidly increasing and has passed the Philippines (see Figure 95).
While billions of dollars have been invested by the private sector in mobile telephone infrastructure, there are still remote areas where coverage is weak or nonexistent or only covered by one provider. Some of these areas, such as Palawan, are popular tourist destinations, but are not commercially attractive to telecommunication companies. Fiscal or other incentives for capital investment for new cell sites can be used to encourage needed investment in these areas.
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Figure 98 presents data on Internet use in the ASEAN-6. The Philippines has a low Internet penetration at 6.5 per 100 inhabitants, behind Indonesia (8.7) and far behind Thailand (25.8) and Vietnam (27.3), Malaysia (57.6), and Singapore (77.2).
Figure 99 shows the number of Internet users in the ASEAN-6 and Figure 100 shows the number of Internet users in the Philippines. Only Singapore with its small population has fewer Internet users than the Philippines (6 million), and the rate of growth in the Philippines is much lower than the other ASEAN-6, except Singapore. The growth rate of Vietnam is extremely high; Vietnam now has almost four times as many Internet users as the Philippines.
The low Internet penetration in the Philippines could be a function of poverty and poor education. Discussions by CICT and telecommunication providers with counterparts in the ASEAN-6 economies with higher penetration rates could learn more about programs that might be applied in the Philippines.
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Expanded and higher speed broadband and higher computer penetration will bring a wealth of benefits to Filipinos and efficiencies for the economy, reducing business costs and helping the economy to become more competitive and meet its Millenium Development Goals. With mobile phone penetration in the country approaching 80%, new technology is available to link new generations of phones to the Internet on cellphones. This hybridization of mobile phones with computers is already happening in developed countries, where consumers are rapidly changing to reading digital books, magazines, and newspapers. Financial transactions are similarly facilitated over the Internet. Investing in such infrastructure is one of the most important actions in the near-term to increase Philippine competitiveness and move towards a knowledge-based service economy.
Wireless Internet service is increasingly commercially available in most Philippine cities at various “hot spots.” A program to make free Wi-Fi available at national high schools and in densely populated urban areas can be considered as a means of encouraging greater use by Filipinos of new mobile technologies.
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While the telecommunications industry in the Philippines has expanded considerably since deregulation, paving the way for local information technology related services to flourish, global ICT metrics suggest the country still has far to go to stay competitive in telecommunications with other developing countries in Asia.
The 2010 WEF Networked Readiness Index rankings show the Philippines ranks below 60% of more than 130 countries surveyed in terms of ICT infrastructure and preparedness in embracing a more technologically sophisticated system (see Table 44).129 It is also the only economy in the ASEAN-6 group to be ranked lower than over half of the total respondents according to the report. In particular, the country fared very low in terms of infrastructure environment and readiness of the government to modernize its entire structure. Burden of government regulation, length of procedures in starting a business, performance of legal institutions, education investment, and quality of research institutions are cited as major dampeners to its relative global position.
Table 44: Networked readiness of selected Asian countries, percentile ranks
Another survey conducted by the United Nations showed that the Philippine world rankings concerning technological development to promote ease in government transactions and public service delivery have been declining in recent years (See Figure 102). Of the ASEAN-6, the Philippines ranks only above Vietnam and Indonesia, after being ranked just behind Singapore in 2002. The report showed the Philippine ranking is lower due to a poor telecommunications infrastructure component, while the human capital component was rated the highest.
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129 The framework aims to measure: (1) the degree to which a national environment is conducive to ICT development and diffusion, by taking into account a number of features of the broad business environment, some regulatory aspects, and the soft and hard infrastructure for ICT; (2) the extent to which the three main national stakeholders in a society (i.e., individuals, the business sector, and the government) are inclined and prepared to use ICT in their daily activities and operation; and (3) the actual use of ICT by the above three stakeholders. The NRI builds on a mixture of hard data collected by well-respected international organizations, such as the International Telecommunication Union (ITU), the United Nations, and the World Bank, and survey data from the Executive Opinion Survey, conducted annually by the Forum in each of the economies covered by the Report.
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Figure 102: UN E-governance readiness, percentile rankings
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Recommendations (11):
A. Pass important legislation to update telecommunications policy with an overhaul of R.A. 7925 (Public Telecommunications Policy Act), updating it to authorize full convergence(telecommunications and broadcast) and make amendments strengthening the pricing methodologies and competition-related provisions. (Immediate action DOTC, CICT, Congress, and private sector)
B. Pass the long-overdue bill to create a DICTin order to deliver the full benefits of information technology and the Internet to Filipinos. (Immediate action CITC, Congress, and private sector)
C. Develop a national plan to double computer penetration in Philippine households and triple Internet penetration(see Table 43). Study how other ASEAN-6 economies have raised their penetration data more successfully than the Philippines. (Immediate action NEDA, CICT, and private sector)
D. Such a national plan should include a National Broadband Roadmap. (Immediate action NEDA, CICT, and private sector)
E. Establish targets to upgrade the speed of broadband and expand coverage. Provide fiscal or other incentives to private firms in order to accelerate achievement of targets and develop and implement a public sector program for last mile service in remote, missionary areas of the country. Any government procurement of broadband infrastructure should be transparent. Achieve targets for faster and expanded broadband. (Medium-term action DOTC, CICT, and private sector)
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F. Create a plan for free wireless Internet services in public high schools and in densely populated areasof the country’s largest cities. This will enable future digital access for students with laptops, Internet-enabled mobile phones, and mobile digital reading devices. Implement the plan expeditiously. (Immediate action NEDA, CICT, DEPED, and private sector)
G. Create a national government data center and websiteto improve storage of and public access to government information and to centralize the growing number of government websites, creating more uniformity, and improving their quality. Digitally link the databases of government agencies. This will enable the government to be more efficient and effective. (Immediate action CICT, DOTC, and private sector)
H. Make e-governance a reality for most Filipinos. Enable easy access via the Internet for as many interactions with government as possible and many other government services now requiring inefficient paper processing.130 Appoint by executive order a public-private sector Task Force reporting to the Executive Secretary that will make recommendations within six months and issue the recommendations by executive order. (Medium-term action OP, NEDA, CICT, all government agencies, Congress, and private sector)
I. As part of the e-governance report and program, study and use digital fund transfer technology for various government payments to citizens, such as conditional cash transfers, GSIS, SSS, and Philhealth benefits, as well as payments to the government, such as immigration, licensing, permit fees, duties, and taxes. (Medium-term action same as H above)
J. Install a national GPS mapping and information systemto enable Filipinos using the next generation of wireless-equipped mobile phones, as well as tourists, to quickly obtain directions and practical information. A land traffic data capability should be included. (Medium-term action DOTC, CICT, NAMRIA, and private sector)
K. Expand mobile phone service in remote areas with more cellular sites to benefit economic development and tourism. Provide fiscal or other appropriate incentives to accelerate installation in areas that are not commercially profitable. (Medium-term action by DOF, DOTC, DTI, and private sector)
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130 Possible e-governance services include voter registration, school registration, paying taxes, business registration, obtaining birth and death certificates, land titles, passports, and NBI clearances.
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Sector Background and Potential
The dependable supply and distribution of water for urban living as well as agriculture is critical to economic growth and the everyday life of Filipinos. Fortunately, the Philippines has not been threatened by severe drought. However, the country is challenged to store and deliver sufficient water to its fast-growing population and to dispose of wastewater without damage to the environment or public health. Urban water supply has been privatized in Metro Manila and few other cities.
Prospective investors in the water supply sector have noted the lack of an economic regulator and the inadequate capacity and resources of the current resource regulator. This discourages foreign investors from entering the field. The absence of an independent regulator forced the Metropolitan Waterworks and Sewerage System (MWSS), Manila Water Company, and Maynilad Water Services to establish one by contract. While the arrangement is novel and apparently works, establishing an independent regulator via legislation will afford greater comfort and long-term stability.
Currently, the water resource developer (MWSS) is also the regulator. The regulatory office is under the supervision and management of the MWSS Board of Trustees. There is a need for a separate and independent Water Regulatory Commission.
More than a decade ago, the Senate Technical Committee on Energy introduced three bills to reform the power and water sectors in the Philippines: the Electric Power Industry Reform Act (EPIRA), the Water Reform Act, and the Electric Cooperative Reform Act. Of the three bills, only EPIRA has been passed. There is an immediate need to revisit the proposal for a Water Reform Act, an EPIRA for water. Currently there is no institutional and legal framework to guide private and public cooperation in developing water sources throughout the country.
Most of the country is dependent on separate local water districts each with its own plans, regulations, and policies. A private investor has to deal with individual local water districts to develop water supply projects to serve local communities. The present legal framework has some 30 governmental agencies (e.g. DENR, DILG, DOH, DPWH) with varying scopes and limited jurisdictions, in the water sector and also must be rationalized. The fragmented nature of regulation and policies diffuses focus and confuses and dissuades new entrants.
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The water supply situation in Metro Manila and 8 other urban centers (Metro Cebu, Davao, Baguio, Angeles, Bacolod, Iloilo, Cagayan de Oro, and Zamboanga) has been described in various studies as critical. Immediate solutions to cope with the anticipated water deficit should be identified and implemented.
In Metro Manila, the two concessionaires source water at a subsidized rate enabling them to distribute it to consumers at a very low price. How much are consumers willing to pay to have a reliable and sufficient water supply? Wholesale water rates must be sufficient to pay for the development of new water sources to meet existing and future demand, which means at least PhP 18 per cubic meter, probably more.
Angat Dam currently supplies 97 percent of Metro Manila’s water supply. In addition, the dam is used to supply irrigation water, together placing a serious strain on its capacity. Power is generated using the separate discharges for water supply to Metro Manila and to the 30,000-hectare Angat-Maasim Rivers Irrigation System and is not a factor in the consumption of water. In 2010 there is a shortage of 500 million liters per day (MLD) in Metro Manila, which is expected to increase to 2,000 MLD by 2015. The consensus is that (1) Angat is not capable of supplying the water supply needs of Metro Manila and (2) a new source for bulk water supply is essential. Another concern is the security of supply, as Metro Manila relies solely on a single source of bulk water vulnerable to damage from earthquakes.
MWSS continues to develop plans to increase the water supply to Metro Manila, albeit slowly due to political interventions. Four major projects have been identified:
(1) Wawa with a capacity of 50 MLD,
(2) Laguna de Bay with a capacity of 300 MLD,
(3) Sierra Madre with a capacity of 500 MLD, and
(4) Laiban with an initial capacity of 1,900 MLD, plus the option of an additional 3,400 MLD via a future transbasin diversion from the Kanan River.
The major obstacle for all four projects is financing, which depends on the creditworthiness of the buyer, MWSS, which in turn requires credit enhancement in the form of a GRP performance undertaking. The government of the Philippines has considered the Laiban proposal several times over the past 30 years and already spent substantial funds for physical data collection, engineering and environmental studies, and socio-economic surveys of the affected communities and indigenous peoples.
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A financially viable solution for proponents, equity sources, lenders, and government must be found. The government’s aversion to “take-or-pay” arrangements, sovereign guarantees, and performance undertakings, while understandable, must be reconsidered in light of what realistically is essential to finance new water sources and also makes economic sense. The question is not so much if the country can afford such projects, but rather whether it can live without them. The longer their development is delayed, the more costly the solution is likely to be, not only in terms of price but also in terms of socio-economic impact.
MWSS recently elected to consider public-private joint ventures under guidelines developed by NEDA, the Government Procurement Policy Board (GPPB), and the Office of the Government Corporate Counsel (OGCC). Recent administrations have not been willing to fund water supply projects. The private sector – in this case San Miguel Bulk Water Company – provided this proposal (or another) is implemented must finance the entire project, estimated to cost US$ 1.1 to 1.4 billion. The project as initially conceived 30 years ago has been studied thoroughly.
When Laiban was initially proposed in the early 1980s, there were only about 1,200 families living in the reservoir area upstream of the proposed dam and its immediate vicinity. Today, there are 4,500 families living in this area. After San Miguel Bulk Water Corporation submitted its unsolicited proposal these families formed a cooperative that passed a resolution demanding each be paid PhP 3 million to relocate. The relocation cost alone is estimated to be at around PhP 400 million, which MWSS insists be borne by the private sector. In a JV scheme, unsolicited proposals are subject to a competitive challenge by other proponents.
The ideal option is to bid out such major infrastructure projects, but to do so the government (MWSS) must collect extensive physical and environmental data and conduct technical studies that are costly and require several years to complete. The GRP lacks the resources and in-house expertise, moreover, to manage such a program. But without competitive bidding, how can the proposed cost be justified to consumers and taxpayers as reasonable and necessary? Under the JV approach, it is the implementing agency (MWSS) that decides. That agency should base its decision solely on the national interest, which in this case means a company that can most efficiently develop quality infrastructure that will result in an affordable, reliable supply of water for the long term. The success of this arrangement depends on good governance.
MWSS also has allowed the two concessionaires to develop minor new water sources. Both Maynilad and Manila Water currently are developing 100 MLD from various sources, such as treating water obtained from Laguna de Bay.
The Philippines has been myopic in its water policy over the last decade, focusing only on Metro Manila. MWSS only covers Metro Manila and portions of Bulacan, Cavite, and Rizal. What about the water supply to cities and communities not served by its two concessionaires? Even a major project like Laiban is not sufficient to service the requirements of other Luzon cities and towns. There is an urgent need for a national policy.
To address the water supply needs of local government units, particularly cities and towns, a water supply company must deal with countless local officials and organizations. Working with so many small administrative units is inefficient compared to dealing with a central agency.
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The two Metro Manila concessionaires have prioritized their resources into upgrading the water distribution network. Their capital improvements have focused on improving the antiquated piping system. There is a great need to invest in wastewater treatment to reduce the problem of discharging sanitary wastes into flowing streams and other bodies of water, such as fresh water lakes and Manila Bay, polluting the environment. Targets on sewage and sanitation are laid out in the concession agreement drafted by the IFC.
Despite being the biggest consumer of water, the agriculture sector does not pay irrigation fees. Similar to other countries, almost 80% of the water supply is used in the agriculture sector, while the other 20% is spread among other sectors. Public sector irrigation systems (e.g. Angat-Maasim River Irrigation System, Upper Pampanga River Integrated Irrigation System, and Agno River Irrigation System) are poorly maintained and inadequate for the food requirements of a fast-growing population.
Heavy monsoon rains and severe typhoons have long caused flooding in Metro Manila and other low-lying areas of the archipelago. The rising ocean caused by climate change will increase the threat of flooding in coastal and river mouth areas where Filipinos have traditionally developed their towns and cities. Furthermore, urbanization has been accompanied by disruption of natural drainage systems through improper location of roads and buildings and poor disposal of solid waste. This has caused the lowering of the water-holding capacities of cities, resulting in more rainwater flooding low-lying areas accompanied by slower runoffs and increased flood damage.
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Recommendations (9):
A. The NWRB’s efforts towards adopting an integrated water resource management framework should be pursued and encouraged. Central to this is the establishment of an independent water regulator. A Department of Water(similar to the DOE) should be created to develop the country’s water system. (Medium-term action NWRB and Congress)
B. Legislate a Water Reform Actthat will establish the institutional and legal framework to guide cooperation by on private and government entities in developing water sources throughout the country as well as a separate government agency for water regulation. The proposed industry regulator ideally should be empowered to set water tariffs; set and monitor compliance with service levels; set policies, rules, and standards; enforce competition policy; and approve proposed investment in the sector. The proposed legislation would include the institutional framework for sustainable water resource development, require the formation of a long-term management plan, establish river basin organizations. The budget should provide funding for a realistic capacity building program. (Medium-term action NWRB and Congress)
C. The Water Reform Act should lead to a master plan and integrated water policy on how to develop each water source, the capacity each source creates taking into account future demand supported by technical feasibility studies, as well as policies to attract large investors and lenders. The Water Reform Act should clarify the limits of LGU authority regarding national projects. (Immediate action. OP, NEDA, NWRB, and Congress)
D. Until such legislation is enacted and implemented, the executive branch should continue its current policy of strengthening the NWRB. The agency’s capacity to address water pricing or tariff issues and to establish and safeguard service standards should be supported. The present direction and mandate of the Local Water Utilities Administration (LWUA) should also be revisited. (Immediate action NWRB and OP)
E. Allow the market to determine the wholesale price of water. (Immediate action NWRB)
F. For PPP water projects, the GRP should revisit its policy disallowing “take-or-pay” or sovereign guarantees, in the light of what makes sound economic sense. Various PPP models (BOT, JV, or concession) may be used. A publicly tendered or solicited project is usually preferable. Whichever model is chosen will depend on the government’s policy to attract investments and ensure contractual stability. (Immediate action DOF and NEDA)
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G. While the GRP remains unable to resolve issues relating to developing the Laiban project, it must begin working on plans for other alternatives – such as the water supply projects of Sierra Madre and Wawa, which can be completed at reasonable cost. (Immediate action NWRB and NEDA)
H. To better maintain and improve irrigation systems, encourage private sector investment through privatization of irrigation. (Medium-term action NWRB and NIA)
I. Implement measures to reduce silt and garbage in waterways and prevent flooding, including better drainage, sewage, dikes, spillways, and planting trees. (Immediate action LGUs, NDCC, DPWH, and private sector)
FGD Participants, Moderator and Secretariat Members
November 17, 2009
Joint Foreign Chambers of the Philippines
FOCUS GROUP DISCUSSION ON POWER AND WATER
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