GMA News, 29 August 2014
Gross domestic product growth rebounded strongly in the second quarter, to 6.4 percent year-on-year from 5.6 percent in the first quarter, above consensus expectations of 6.1 percent but closer to our 6.5 percent forecast.
The softening of GDP growth in Q1 therefore proved temporary, in line with our view. The rate of growth is even more impressive considering the base effects: last year growth was 7.9 percent in Q2, boosted in part by mid-term elections. Indeed, on a quarter-on-quarter seasonally adjusted basis, Q2 GDP was up 1.9 percent, the highest in five quarters.
The pick-up in Q2 was primarily led by net exports, which contributed 4.2 percentage points (pp) to headline GDP growth from 1.2pp in Q2 due to exports maintaining a double-digit expansion, but also imports slowing. The latter is consistent with a smaller contribution from domestic demand (from 6.8pp to 4.4pp), which in turn was due to slower investment spending. This may seem worrisome on the surface, but the drag came mainly from investment in durable equipment, and within that industrial machinery as well as transport equipment, particularly railway and air transport. We expect this to be temporary. Outside of that, construction spending actually rebounded and was encouragingly led by the private sector.
The growth outlook remains firmly positive, so we reiterate our full-year 2014 GDP growth forecast of 6.7 percent, within the government’s target of 6.5-7.5 percent. This implies growth will average 7.4 percent year-on-year in the second half versus 6.0 percent in the first half. Base effects are likely to turn more favorable, but more fundamentally, export growth should remain robust given demand from the G3 and a brightening electronics sector.
Regarding domestic demand, we believe those factors in Q2 that appeared to pose a drag will turn around. For instance, given the strength in the manufacturing sector (in line with exports), we do not expect the slowdown in industrial machinery to persist. Rising car sales, and further out, the LRT 1 project, which is about to be awarded under the government’s public-private partnership scheme, should boost investment in transport equipment. In addition, the strong focus on the implementation of public infrastructure projects should boost both government spending and continue to crowd in private sector investment.
The on-going rehabilitation of typhoon-hit areas should also accelerate in coming months, helping public construction further. The latest fiscal data already point to an acceleration in government spending, reinforcing our view that fiscal policy will likely remain expansionary. Indeed, Finance Secretary Purisima reiterated after the GDP release that there is plenty of fiscal space. We expect private consumption to continue to be supported by rising real wages and steady overseas worker remittances. Finally, with two quarters in a row of destocking, a build-up in inventory should boost headline growth further.
Against this backdrop, we reiterate our view that Bangko Sentral ng Pilipinas (BSP) will hike its key policy rates by another 75bp this year. The positive growth outlook will allow BSP to focus on containing inflation risks, which we believe are rising, and could exceed the central bank’s targets both this year and in 2015. While headline inflation ‚Äď which is now near the 5 percent target this year ‚Äď is being partly driven by supply-side pressures, BSP is well aware that core inflation is also edging higher, consistent with its most recent comments that it will continue to be watchful of signs of second-round inflation effects and will take ‚Äúpre-emptive‚ÄĚ action as necessary. ‚Äď Nomura
Malaya Business Insight, 29 August 2014
The Department of Public Works and Highway (DPWH) is bidding out the P1.204-billion construction of a 7.74-kilometer highway comprising package 4 of the Plaridel by-pass road project from Bustos to San Rafael, Bulacan.
DPWH Secretary Rogelio Singson said the bidding is open to local and foreign contractors.
Deadline for bid submission is on Oct. 20, 2014.
Meanwhile, construction activities for contract package 3 involving the 1.12-kilometer bridge crossing Angat River has commenced last July 2014
Both the contract packages 3 and 4 are components of Arterial Road Bypass Project Phase 2 funded by a loan from the Japan International Cooperation Agency .
Joint venture partners Shimizu and FF Cruz have¬† mobilized men and equipment at the 2.22 kilometers contract package 3 project from Km 47+400 to Km 49+625 in Barangay Bonga Menor, Bustos, Bulacan.
Present activities of the contractor include clearing, site development and construction of facilities for the engineer, and conduct of joint survey works and sampling of materials with the project supervision consultant Renardet S.A. Consulting Engineers and Nippon Engineering Consultants.
The Philippine Star, 29 August 2014
MANILA, Philippines – Clark Water Corp. and Clark Development Corp. recently inked a contract extending the concession agreement by another 15 years which will end in 2040. The sole water and used water services provider of the Clark Freeport and Special Economic Zones pledged to invest P3.93 billion for the whole duration of the concession agreement, with the P1.06 billion to be expended in the first four years alone.
The P3.93 billion capital investment pegged for the whole concession term will be used for various improvements of the company‚Äôs water and used water facilities in order to promote the freeport zone as an ideal business hub for multinational companies.
For the year 2014, Clark Water has completed three new deep wells, upgraded three booster pumps, and installed generator sets on its old water sources to improve and strengthen supply reliability.
Alongside the extension of the concession agreement, Clark Water formulated a business plan which will serve as its project roadmap until the end of its concession period.
‚ÄúThe biggest chunk of our investment is allocated to source development for water projects and collection of used water. Source development includes the construction and commissioning of new water sources through the construction of new deep wells and infiltration wells.
‚ÄúThis also includes our on-going feasibility study in the possibility of tapping surface water. On the other hand, our used water collection project involves the replacement, reinforcement, and construction of new sewer lines,‚ÄĚ said Jesus D. Laigo, general manager and chief operating officer.
Clark Water is the sole provider of water and wastewater services in the Clark Freeport and Clark Special Economic Zones and is a wholly-owned subsidiary of the Ayala-led Manila Water Co.
Malaya Business Insight, 29 August 2014
Business welcomed the economic performance in the second quarter but Malaca√Īang sees the need to step up government spending.
President Aquino has directed his Cabinet to work ‚Äúwith a sense of urgency‚ÄĚ in clearing the administrative bottlenecks that brought about a slowdown in government spending during the first half of the year.
The increased spending is expected to sustain economic growth along with the continued investments on the programs on people development and social protection, Malaca√Īang said.
Budget Secretary Florencio Abad expects that disbursements will be ramped up in the third and fourth quarters. Government consumption registered flat growth in the second quarter.
‚ÄúThe second quarter has been particularly instructive for us and our major implementing agencies, some of which had struggled to comply with the new requirements in the GAA (General Appropriations Act),‚ÄĚ Abad said.
Abad said that the national government continues to work very closely with key implementing agencies to make sure that construction projects are rolled out quickly and efficiently.
Alfredo Yao, president of the Philippine Chamber of Commerce and Industry (PCCI) yesterday said the performance of the economy is indicative that a lot of public private partnership projects are moving, the port congestion is easing and operations are normalizing.
‚ÄúHopefully, we can turn around in the fourth quarter,‚ÄĚ Yao said.
But Yao said it might be difficult to grow faster than 6 percent in the current quarter due to the port congestion.
He said the impact of port congestion will be felt the most in the third quarter although the backlog started to build up in May and June.
Yao said the country may still be able to hit 6.5 percent full year but will have a hard time reaching 7 percent, like last year.
Greg Navarro, president of the Management Association of the Philippines, said the GDP growth is good considering the challenge posed by the controversial Disbursement Acceleration Program and the gloomy outlook everyone was projecting.
Navarro said is confident the port issue may be offset by infrastructure and agriculture.
Dan Lachica, president of the Semiconductor and Electronics Industries of the Philippines Inc., said the port congestion will be a major risk towards achieving the full-year 6.5 to 7.5 percent growth target.
‚ÄúIt‚Äôs very possible for the port congestion‚Äôs impact to kick in in the third quarter,‚ÄĚ Lachica said.
Roberto Batungbacal, chairman of the Manufacturing and Logistics Committee of the American Chamber of Commerce of the Philippines (AmCham), said the second quarter growth figure is good news given that¬†¬† manufacturing grew 10.8 percent in the quarter.
Batungbacal said even better good news is¬†¬†¬† the growth of the food and beverage subsector, which grew by 19 percent since this is the biggest sub-sector in manufacturing.
Cid Terosa, economist at the University of Asia and the Pacific, said that the 6.4 percent growth in the second quarter is close to his 6.3 percent forecast.
‚ÄúI think the momentum will be sustained. It will be driven by both household and government spending, remittances, and hopefully sustained export growth. The resolution of the port congestion problem can fuel domestic production,‚ÄĚ Terosa said.
However, Terosa said that the 6.9 percent growth needed in the second half of the year to hit the lower end of the 6.5 to 7.5 percent 2014 target is not feasible.
‚ÄúAt best the average GDP growth for the last two quarters would be about 6.6 to 6.7 percent. Of course, the last quarter can spring surprises because of strong seasonal consumption demand,‚ÄĚ Terosa said.
Manila Bulletin, 28 August 2014
By Chino Leyco
Infrastructure projects in Asia‚Äôs emerging economies like the Philippines are still struggling to attract institutional investors due to uncertainty during their implementation, one of the three major international credit rating genies said.
In a report by Standard & Poor‚Äôs (S&P) said yesterday that many infrastructure projects in Asia are not currently commercially attractive to institutional investors even if they offer long tenors and stable, predictable cash flows.
‚ÄúAlthough pension and sovereign funds see infrastructure‚Ä¶ many infrastructure projects aren‚Äôt currently commercially attractive to institutional investors,‚ÄĚ the debt watcher said in a report entitled ‚ÄúInstitutional Investors Struggle to Find Investable Infrastructure Projects in Asia.‚ÄĚ
Thomas Jacquot, S&P credit analyst said the challenging economic and political risks, nascent credit culture and legislative frameworks; and low bank financing costs render the rewards of investing in the infrastructure projects of Asia‚Äôs emerging economies insufficient for capital-market investors.
S&P said participation from capital-market investors can lift credit standards in infrastructure projects.
‚ÄúThat‚Äôs because investors tend to impose greater scrutiny on the feasibility of the project itself rather than on the borrower. Unlike Asian banks that lend mainly based on relationships with companies,‚ÄĚ S&P said.
‚ÄúAnd¬† there is room for institutional investors to play a role, now that banks and governments are less keen to shoulder the burden of funding every possible project. Further, projects that offer social, economic, and environmental benefits to the wider community can attract capital-market investors with ethical mandates,‚ÄĚ the rater added.
Earlier, the World Bank Group said the Philippines needs to raise its infrastructure spending to 5 percent of its economy, or gross domestic product (GDP).
‚ÄúGoing forward, the Philippines can sustain high growth by accelerating structural reforms and increasing investments in infrastructure and in the health and education of the Filipino people,‚ÄĚ Karl Kendrick Chua, World Bank senior country economist for the Philippines said.
In the last four years, the government has doubled spending on social services and has provided more money for developing the country‚Äôs infrastructure.
Sustaining these efforts, World Bank said will close the remaining gaps brought about by decades of lagging public investment.
‚ÄúThe country‚Äôs spending on roads, bridges, ports, airports, as well as machines and equipment has generally been declining since the 1970s, and is now well below that of its peers,‚ÄĚ the bank noted.
‚ÄúThe Philippines spends 30-50 percent less in infrastructure, health and education compared to its fast-growing neighbors,‚ÄĚ the lender added.
InterAksyon, 28 August 2014
By Darwin G. Amojelar
MANILA – (UPDATE 3, 11:14 a.m.) The Philippine economy grew faster in the second quarter of the year on the strength of manufacturing.
In a press briefing, Economic Planning Secretary Arsenio Balisacan today said the economy grew 6.4 percent in the April to June period, rebounding from the 5.6 percent in the first quarter of this year, but slower than the 7.9 percent in the second quarter of last year.
“This higher growth rate, coming from a high base a year ago shows that the economy is back on the higher trajectory of growth registered in 2012 and 2013 and bodes well for economic growth for the rest of 2014,” Balisacan, who is director-general of the National Economic and Development Authority (NEDA), said.
Industry led this year’s second-quarter growth, expanding by 7.8 percent, followed by services’ 6 percent. Agriculture output registered a 3.6 percent increase year-on-year (see table below).
Source: Philippine Statistics Authority
Fueling the increase in industry was manufacturing, which expanded by 10.8 percent.
On the demand side, exports and household consumption led economic growth in the second quarter, picking up the slack from government spending and investment. Public spending was flat, whereas capital formation contracted by 2.4 percent year-on-year.
“Net exports contributed 4.2 percentage points and household consumption contributed 3.6 percentage points.¬† This profile is in line with a more positive global economy, favorable business sentiment, and robust inflows of overseas Filipinos remittances,” said Balisacan.
“The strong household spending in the second quarter of 2014 reflects the still upbeat consumer sentiment in the country. However, the slowdown in disbursements in Personal Services and Maintenance and Other Operating Expenditures or MOOE led to the nil growth in government consumption,” he said.
The second-quarter growth figure means the Philippines’ gross domestic product (GDP) expanded by 6 percent in the first six months of the year, well below last year’s 7.8 percent and the 6.5-7.5 percent target range that the government set for the entire 2014.
“We remain as a bright spot in the region, the second fastest growing economy among major Asian countries for the period. We are tied with Malaysia, but topping other Asian countries like Indonesia and Thailand,” Balisacan said.
“Overall, we can see that the country still has a strong likelihood of achieving the full-year growth target of 6.5 to 7.5 percent,” he said.
Economics professor Benjamin Diokno said the second-quarter GDP results point not to a slowdown, but to the economy’s return to a normal growth track.
“Rather than seeing the economic result as slowing down, it is more realistic to see it as normalizing. Last year’s growth rate was unusually high. It included election effect. Note that the economy peaked in 2004, 2007, 2010, 2013 — all election years,” Diokno, a former budget secretary during the Estrada administration, said.
“I think the long-term growth of the Philippine economy would be in the neighborhood of 5 to 6 percent. Major risks in the second half of the year are El Ni√Īo, power shortage, delays in public infrastructure spending, including PPP projects,” he said, referring to the Aquino administration’s public-private partnership program.
By Lorenz S. Marasigan
First of two parts
THE¬†government plans to takeover the most-congested railway system in the country by 2016, an ambitious venture that would pave way for the complete overhaul of the train line.
But is the government, which earmarked roughly P54 billion for the complete buyout of the corporate owner of the Metro Rail Transit (MRT) Line 3, confident of executing this venture despite uncertainties hounding the plan?
Transportation Assistant Secretary Jaime Fortunato A. Caringal believes so, citing the government‚Äôs lion‚Äôs share in the board of the MRT Corp. (MRTC), the corporate entity that owns the assets of the railway system.
He explained that the key step for the complete takeover of the line is to execute a compromise agreement with the concessionaire to end an ongoing arbitration case in Singapore.
‚ÄúThe interim step is to enter into a compromise agreement with MRTC, then proceed with the execution of the buyout,‚ÄĚ Caringal said in an interview.
He expressed his confidence that the private company would agree to the government‚Äôs proposal.
‚ÄúThe government controls the board, majority of the members seated in the MRTC board are from the government. We hope that our control of the board would pave the way for an easy buyout,‚ÄĚ he said.
The execution of the compromise agreement is seen to be completed by September this year.
‚ÄúA third-quarter target is a very optimistic assessment. The best scenario is by year-end‚ÄĒthat is if no cases will be filed against us,‚ÄĚ he said. ‚ÄúWe are also in discussions with the Office of the Solicitor General [OSG] on how best to proceed.‚ÄĚ
MRTC, the concessionaire controlled by the Sobrepe√Īa family, owns the assets of the railway line under a 25-year build-lease-transfer agreement, which mandates the government to pay an annual P7-billion fee in equity-rental costs for the state to operate the line.
Ahead of the buyout plan, the government has earmarked a P6.6-billion subsidy for the railway line for 2015.
‚ÄėHoping and praying‚Äô
CARINGAL¬†clarified that the full takeover of the railway line by the government will take about a year and a half, or up until President Aquino steps out from office in June 2016.
‚ÄúI‚Äôm hoping and praying that we could complete the takeover of the line even before 2016. There are a lot of stumbling blocks that are hindering us from easily executing this plan,‚ÄĚ he said.
Caringal was referring to the myriad of cases filed by businessman Robert John ‚ÄúBob‚ÄĚ L. Sobrepe√Īa,
one of the major stakeholders in the parent company of MRTC.
MRTC is owned by MRT Holdings II Inc. (MRTH-II), which in turn is owned by MRT Holdings Inc. (MRTH).
BUT¬†could the government really take over the line by 2016? Could it even enter into a compromise agreement by September?
An MRTH executive was lukewarm about it.
‚ÄúThe government is not even discussing its proposal to us, the owners of MRTC. Who they are talking to are the government representatives, not the owners,‚ÄĚ MRTH Vice President Frederick C. Parayno told the¬†BusinessMirrorin a phone interview.
He said the owners found themselves dumbfounded of the government‚Äôs plan with the line.
The government representatives that Parayno was referring to were bond holders Land Bank of the Philippines and the Development Bank of the Philippines (DPB), two state banks that own roughly 80 percent¬† in economic interest in the line.
He then called on the government to schedule a meeting with the Sobrepena Group to discuss and possibly meet at a certain point to set things straight.¬† ‚ÄúWe are open to meeting with the government and to discuss the possible plans that they would want to pursue,‚ÄĚ he said, referring to the buyout of the line.
He noted, however, that the P54 billion that the government has earmarked for the takeover of the line only represents the amount for the acquisition of MRTC‚Äôs bonds.
‚ÄúBack in 2009, when the arbitration case in Singapore started, the price of the line was already pegged at $2.5 billion [roughly P110 billion]. This could have ballooned by this time,‚ÄĚ the businessman said.
P6B for MRT improvement
‚ÄúONE¬†more thing: the government is pumping in money to the line, but there will be no improvements to be seen,‚ÄĚ Parayno lamented.
The most-congested railway line in the country has not seen any improvement since it was built 15 years ago.¬† The line‚Äôs management has been under fire recently for mishaps and accidents. The worst one happened two weeks ago, when a wayward train rammed against a concrete barrier at the southernmost station in Pasay City.
Transportation Secretary Joseph Emilio A. Abaya insisted that the accident was a result of human error. Four employees‚ÄĒtwo drivers and two control center personnel‚ÄĒwill be charged with administrative cases, with the possibility of losing their retirement benefits at the worst.
In view of this, the agency will soon auction off a P6-billion project for the complete makeover of the train line.
This involves track rehabilitation, the procurement of a new signaling system and communications technology, among others.
Separate from this is the procurement of a new maintenance provider.
The government plans to auction off within the next few weeks an expanded maintenance contract of the train system, extending the concession period from one year to three years to ensure that the upkeep of the system is constant.
Autre Porte Technique Global Inc. (APT Global) currently holds the contract for the maintenance of the railway line. The contract will expire on September 5.
MRT 3 has a rated capacity of only 350,000 passengers a day, but is servicing an average of 500,000 commuters daily. It operates a fleet of 73 light-rail vehicles, which run at a maximum speed of 40 kilometers per hour to cover the rail system‚Äôs 13 stations in about 45 minutes.
To be continued
Malaya Business Insight, 28 August 2014
Ayala Corp. plans to spend as much as P18 billion in capital expenditures between this year and the next for its power and infrastructure projects.
Part of this spending will be funded by Ayala‚Äôs P15-billion preferred share sale recently announced by the company.
Last Tuesday, Ayala said it will be selling 30 million class B preferred shares at P500 apiece, structured as ‚Äúperpetual equity securities,‚ÄĚ and which will be priced based on the prevailing market rate of either the 5-year or 7-year PDST (Philippine Dealing System Treasury) rate plus a premium.
The company is looking at spending P4 billion for projects under AC Infrastructure Holdings Corp., Ayala‚Äôs vehicle for its private-public partnership projects like the Cavite-Laguna Expressway (CALAX), the Light Rail Transit (LRT) 1 expansion, the Automated Fare Collection System for the LRT and Metro Rail Transit, and the Daang-Hari-South Luzon Expressway link.
Projects under the power unit AC Energy Holdings Inc., with its projects Kauswagan, Mariveles, South Luzon Thermal Energy Corp. and some hydropower projects, will be spending another P12 billion for the period.
The share sale proceeds will also be used to refinance the company‚Äôs maturing debts worth P9.28 billion due in the coming months.
Among these debts are a P1.46 billion Metrobank loan carrying an interest rate of 6.7 percent, P2.82 billion various corporate notes maturing with an interest rate of 7.45 percent, and P5 billion BDO Unibank loan carrying an interest rate of 2.5 percent.
The company closed the first half of the year with profits of P9.8 billion over revenues of P91.16 billion, a 34 percent increase in profit over last year while revenues were also up by 22.2 percent.
It is in the midst of diversifying its business to the power and infrastructure sector, allocating P24 billion as capital expenditures.
It recently won the LRT 1 bid together with the Metro Pacific group and was the highest complying bidder for the CALAX project in partnership with the Aboitiz group.
Since 2012, the company is eyeing to invest as much as $1 billion in energy and infrastructure projects through 2016. It has so far committed equity of close to $500 million in various power and transport infrastructure projects.