Rappler, 01 October 2014
By Lala Rimando
It’s a testament to how much these Philippine firms have grown and matured. They’re now looking for yield and more portfolio expansion opportunities.
MANILA, Philippines – Metro Pacific. Ayala. San Miguel. Megawide. Fil-Invest. DMCI. Lopez and Ty groups. These business groups associated with the Philippines’ richest families are a staple whenever road, rail, airport and other infrastructure projects are up for privatization via the public-private partnership (PPP) scheme.
It’s a testament to how much they have grown and matured. They’re now looking for yield and more portfolio expansion opportunities. It used to be that the Philippine “playground” required the deep pockets and technological muscle of foreigners, especially when it came to multibillion-dollar projects, like infrastructure and power. Some were burned and spurned.
The situation today indicates that these Filipino families have the stomach for the projects’ risks. With how things are going in the roll out of PPP projects under the Aquino government, we’ll likely see more of the same. (READ:Â Gov’t raises infrastructure spending)
â€śMoney is not an issueâ€ť in big-ticket projects in the Philippines, Suraj Moraje, who manages McKinsey’s Manila office, told the audience at the Philippine Economic Briefing on Tuesday, September 30.
â€śLocal institutions have very good balance sheets,â€ť and therefore, can afford to finance infrastructure projects, which are inherently risky but potentially profitable. Moraje noted: â€śThe international community has not even started getting involved.â€ť Itâ€™s a hint that we are missing out on mega-billion long-term foreign funds that have made their way into emerging markets, including those in Asia. These are the same funds generally touted as a “vote of confidence,” thus state officials actively pursue them.
Sun Life Asia Investments managing director Michael Manuel echoed the same sentiment. â€śAt this time when interest rates are very low, we are looking at higher yields. PPP in infrastructure and power is a natural choice for us. We [are willing] to trade liquidity for more yield.â€ť Infrastructure projects under the PPP scheme involve long term commitment since funds and other resources are tied in it for years, even decades.
Manuel cited one of the Philippinesâ€™ golden tickets: an investment grade from the credit rating agencies. â€śThe opportunities in the Philippines are something weâ€™re looking at. The investment grade [rating of the country] means we have to include the Philippines in our [PPP investment] portfolio.â€ť
Time running out
That localsâ€™ pockets are deep and foreign investors are waiting in the wings are a recurring refrain.
Weâ€™ve heard this in other previous economic briefings, as well as other gatherings here and abroad. A handful of toll road, rail and airport projects planned and promised by the current officials way back in 2010 have made it through the PPP contracting mill, but a long list of crucial assets meant to ensure that the Philippine economy sustains its attractive growth rate have yet to get off the ground.
With just months to go before the Aquino administration turns over the reins of the government to its successor, Socioeconomic Planning Secretary Arsenio Balisacan said there are still about 950 infrastructure projects in the pipeline.
While more taxpayersâ€™ money will be spent on infrastructure â€” from 2.2% of GDP in 2012 to at least 5% by 2016 â€” â€śthe private sector is expected to participateâ€ť in these projects worth about US$46.7 billion, Balisacan told the audience at the Philippine International Convention Center.
Time is running out, admitted Cabinet Secretary Rene Almendras, who stressed: â€śItâ€™s now all about execution. Weâ€™re passed the planning stage. All agencies have roadmap to 2016.â€ť
Yet, the gap between these must-doâ€™s and what-is-happening remains wide. The Aquino government has previously explained they wanted to rid the system of corruption and wrongdoing, resulting in the delays in packaging and bidding of projects.
There are reasons beyond their control, including the Constitutionâ€™s foreign ownership limit at only 40%. Investors committing billions-worth of resources at such lengthy period would naturally want more control over or influence in the project. This limitation was brought up again by investors during the Filipino officialsâ€™ recent trip and meetings in Europe, according to Transportation Secretary Emilio â€śJunâ€ť Abaya. â€śClearly, it is an issue we need to address if we want more investments in infrastructure,â€ť he said, though also noting difficulties in changing the Charter now that 2016 is near.
Public Works Secretary Rogelio Singson also talked about right-of-way issues, which delay road and other projects. Government takes on the responsibility of buying the proposed site and relocating and compensating the affected residents, before passing it to the private firm. Heâ€™s up against the legislative mill, which also needs time, an elusive luxury. â€śWe have been pushing for the changing of the provisions on the BOT (Build-Operate-Transfer) Law to make it easier to have right-of-way.â€ť
Risky and costly
There are, however, bottlenecks and issues that are of the governmentâ€™s own doing.
A classic case is how the economic managers handled the much-needed tollroad meant to connect the main north and south Luzon expressways (NLEx and SLEx), and designed to ease road congestion leading into and out of the crucial Manila port.
TheÂ P18-billion toll roadÂ was further delayed for another year after the justice department ruled that the public works and transportation agency officialsâ€™ decision on how to move the project forward was illegal. Wanting to expedite the process, the team of Transportation Secretary Abaya pushed for a joint venture deal between local infrastructure giant Metro Pacific Investment Corporation (MPIC) and the state-run Philippine National Construction Corp. (PNCC), a move that the National Economic and Development Authority (NEDA) Board, led by President Benigno Aquino III, endorsed.
Justice Secretary Leila de Lima said Singsonâ€™s public works department should just proceed with the projectâ€™s original design and conduct a Swiss challenge to the unsolicited proposal of MPIC, instead of evading it via a joint venture scheme. Under the process, MPIC would have the right to match the highest bid, an option Aquino was not comfortable with. This NLEx-SLEx connector project was originally submitted to the DPWH in May 2010, and would have been finished by 2016.
These and other issues in the design and permitting process are what turn off foreign investors, noted Moraje of McKinsey. The risk-return profile of the Philippines remains a concern and often compared to other peer countries, like Indonesia and Malaysia, he noted, citing a World Bank study.
Another issue that keeps the Philippinesâ€™ risk profile uncompetitive is the ability of the government to be consistent with the application of laws and processes. Transportation Secretary Abaya said the Cabinet officials are fully aware of this stigma and that â€śconsistency of policy is on the top consciousness of the economic development cluster.â€ť
â€śWe cannot turn a blind eye on previous contracts. In DOTC, we are in arbitration proceedings with regards to two major projects,â€ť he said. He was referring to the cases filed by German firm Fraport against the Philippine government in a Washington court for its investments in the scandal-ridden Ninoy Aquino International Airport Terminal 3 (NAIA-3), as well as by the Filipino consortium involved in the rail project, MRT-3. The latterâ€™s case is ongoing in a Singapore court.
These two cases have been often cited as reasons why transportation officials are careful and deliberate â€” thus, slow â€” in processing much-needed rail and airport projects.
That puts us, the consumers and taxpayers, at the losing end. Risks are costly, and unfortunately, weâ€™ll have to bear that burden through higher fares or fees just to have access to the infrastructure we deserve.- Rappler.com
Lala Rimando was former business editor of Rappler. She specializes in stories on political economy, boardroom dramas, infrastructure and energy issues, and corporate governance. She is currently doing strategic consulting for multilateral agencies and foreign groups keen on investing in the Philippines.
Manila Standard Today, 30 September 2014
By Macon Ramos-Araneta
Senate President Franklin M. Drilon onÂ Monday said he was ready to recommend to President Aquino the holding of special session toÂ enact a number ofÂ measures which will improve business climateÂ and help spur economic growth.
Speaking during the Management Association of the Philippinesâ€™ General Membership meeting, Drilon said: If we cannot make a substantial progress with our economic legislative agenda by March 2015, I am prepared to recommend to the President that we convene Congress to hold a special session in May and June 2015 to pursue our economic reform policies.
â€śThe 2016 elections can wait. We have work to do,â€ť said Drilon who is eligible to seek a fresh mandate when his term ends in 2016.
Drilon told the business leaders that upon the resumption of session in October, the Senate will shift its focus on a comprehensive package of reforms that will improve the business and investment climate, apart from the enactment of the 2015 national budget and the proposed Bangsamoro Basic Law.
He said that the reform package includes the proposed amendment of the Build Operate Transfer Law â€śto create a better enabling policy environment for Public-Private Partnership.â€ť
â€śTo attract foreign investment, we have set our sights on cultivating a business environment that allows foreign investors to engage in a wider array of financial activities, to comply with reasonable and expedient regulatory requirements, and subsequently earn fair and equitable return of their investments,â€ť said Drilon.
The Senate leader assured business leaders that the Congress is looking into the looming power shortage in the summer of 2015.
However, he maintained that the request of the President to authorize him to contract additional generating power must not be done in haste and must be the â€ślast resortâ€ť.
Although there is a need for additional generating capacity, Drilon said he Â believed thatÂ other available solutions to the problem must be explored.
â€śWe can implement various efficiency and conservation measures such as load curtailments (or demand response), an example of which is utilization of the existing Interruptible Load Program,â€ť underscored Drilon.
HeÂ saidÂ that now is an opportune time â€śto establish a clear energy agenda and to address the growing concern over the perceived inability of the countryâ€™s power sector to keep up with the growing demand that is intricately linked to the Philippine economyâ€™s immense economic growth.â€ť
15 September 2014
The Philippines led by President Benigno S. Aquino III will showcase the countryâ€™s Public-Private Partnership infrastructure projects in a bid to expand its trade relations and secure investment deals with its European counterparts. The President will lead a four-nation official tour of Europethat will cover Spain, Belgium, France, and Germany.
One of the highlights during the four-nation EU official tour is the PPP Infrastructure Conference. The conference to be held in Brussels, Belgium on September 16 will promote the Philippinesâ€™ infrastructure projects under its Public-Private Partnership Program.
Among the big-ticket PPP projects to be featured in the Brussels PPP infrastructure projects conference include the USD 2.73 Billion Laguna Lakeshore Expressway Dike Project of the Department of Public Works and Highways, and the USD 542.22 Million Bulacan Bulk Water Supply project of the Metropolitan Water Works and Sewerage System. The conference will also feature transportation projects, including airports, massive transport terminals, and rail lines.
PPP Center Executive Director Cosette V. Canilao is set to present to European investors a pipeline of over fifty (50) PPP projects estimated at US$ 20 Billion or approximately EUR â‚¬ 14 Billion.
â€śThis is a huge opportunity for the Philippines to pitch our PPP Infra projects and let European investors know that we have built up a major deal flow in which they can participate in. Our investment climate is ripe for investors to bring their business to the Philippines,â€ť Canilao pointed out.
â€śOur credit ratings are at an all-time high as evidenced by major international rating agenciesâ€™ successive upgrades. We made significant strides in the world competitive index. Clearly, now is the best time to invest in the Philippines,â€ť Canilao added.
The PPP program is a flagship program of the Aquino administration. Recently, aÂ leading provider of credit ratings, research, and risk analysis cited the accelerating PPP infrastructure projects of the present administration. Â Moodyâ€™s Investor Service stressed that this is despite the constraints on regulatory framework in the country.
ViewÂ PPP Investment Brochure 2014Â (3MB)
Manila Standard Today, 14 September 2014
By Alena Mae S. Flores
The Transportation Department awarded its largest public-private partnership project, the P65-billion Light Rail Transit Line 1 Cavite extension contract, to the tandem of Metro Pacific Investments Corp. and Ayala Corp.
Light Rail Manila Consortium, the joint venture of MPIC and Ayala, which emerged as the only bidder for the project, bagged the contract and was given 20 days to comply with post-award requirements, including the payment of 10 percent of its P9.35-billion premium bid.
â€śWe are pleased to push the project forward for the sake of the riding public, especially those who live in the southern part of Metro Manila such as Pasay, ParaĂ±aque, Las PiĂ±as and Muntinlupa as well as Cavite. This project will level the playing field for them, giving them convenient access to employment and educational opportunities in the metropolis,â€ť Transportation Secretary Joseph Emilio Abaya said.
The award, however, is subject to the final decision of the Supreme Court, with respect to the common station project, which will connect LRT-1, Metro Rail Transit Line 3 and MRT-7 at the EDSA-North Avenue intersection.
The LRT-1 Cavite bid included a component for the design of the common station in front of TriNoma, the original site for the infrastructure project.Â Â SM Prime Holdings Inc. contested the location and obtained a temporary restraining order from the Supreme Court in a bid to locate the common station next to SM North EDSA mall.
Construction of the common station will be procured separately once the case is resolved. The winning consortium may begin construction works and take over LRT-1 operations within a maximum of one year from the signing of the concession agreement, or by October 2015.
The project should be fully operational within 54 months, or by May 2019.
The Transportation Department, on Saturday, also launched the tender for another PPP project with the publication of its invitation to pre-qualify and bid for the LRT-2 operations and maintenance contract, pursuant to the transport agencyâ€™s thrust to modernize the countryâ€™s railways and provide the public with convenient, safe, affordable and reliable mass transport systems.
The 13.8-kilometer LRT-2 traverses the cities of Manila, San Juan, Quezon City, Marikina, and Pasig and caters to around 200,000 passengers daily.
The Philippine Star, 14 September 2014
By Lawrence Agcaoili
MANILA, Philippines – The government is pushing for reforms to sustain the momentum of the Public-Private Partnership (PPP) projects even after President Aquino steps down from office in June 2016.
PPP Center executive director Cosette Canilao said the government is pursuing the enactment of the PPP Act that would amend Republic Act 7718 or the Build Operate Transfer (BOT) Law.
â€śThe enactment of the PPP Act will ensure that the PPP program and the deal flow will continue in the next administration regardless of whoever takes over,â€ť Canilao said.
She pointed out that the proposed PPP Act has already been forwarded to both the Senate and the House of Representatives.
â€śWe hope both chambers will act on passing the law as it will be one of the major measures to ensure sustainability of our economic growth,â€ť she added.
The rollout of PPP projects in the Philippines is in full swing after the award of seven projects worth close to P68 billion including the Daang Hari â€“ South Luzon Expressway link road (P2 billion), PPP for School Infrastructure Project Phase 1 (P8.86 billion), the PSIP-2 (P16.28 billion), the modernization project for the Philippine Orthopedic Center (P5.98 billion), the Ninoy Aquino International Airport expressway (P15.52 billion), the automated fare collection system project (P1.72 billion), and the Mactan â€“ Cebu International Airport expansion project (P17.5 billion).
The Aquino administration is set to roll out 18 PPP projects worth P407 billion before June next year as part of the inventory of over 50 projects in the pipeline.
The government has launched the biggest PPP project to date, the P123-billion Laguna Lakeshore expressway dike project; the P24.4-billion Bulacan Bulk Water supply project; the P4-billion Integrated Transport System (ITS) â€“ South terminal; and the P2.5-billion ITS-Southwest terminal.
It is set to roll out the PPP portion of the P265.3-billion North-South commuter rail worth close to P70 billion; the subway system Mass Transit loop (P132 billion); the operation and maintenance of Davao Airport (P39.7 billion), Iloilo Airport (P29.7 billion), Bacolod Airport (P19.8 billion), Laguindingan Airport (P14.3 billion), Puerto Princesa Airport (P5.01 billion), the new Bohol (Panglao) Airport (P2.28 billion), the Regional Prison Faciities through PPP (P39.4 billion), the Motor Vehicle Inspection System (P18.9 billion) and the Tanauan City public market (P381.2 million).
The government has yet to determine the cost of several projects including the San Fernando Airport, the Batangas-Manila natural gas pipeline, the Manila Bay-Pasig Ferry-Laguna lake ferry, and the proposed extension of the Light Rail Transit Line 1 (LRT-1) all the way to DasmariĂ±as in Cavite instead of only Bacoor City under the P65-billion LRT-1 Cavite extension project.
Canilao said the robust pipeline of projects is due to the reforms the government initiated primarily by the establishment of the PDMF, the PPP Governing Board and the new project evaluation process wherein the PPP Center is the secretariat to the ICC for PPP projects.
â€śWe are hoping to institutionalize these reforms on the proposed amendments to the BOT Law (PPP Act),â€ť she added.
Moodyâ€™s Investor Service has cited the accelerating infrastructure projects under the PPP scheme of the Aquino administration.
Moodyâ€™s associate managing director Patrick Mispagel cited the expanding PPP market in the Philippines in a special comment titled â€śGlobal P3 Landscape,â€ť providing a region-by-region round-up of major themes in infrastructure investment.
Mispagel noted the accelerating deal flow for PPP projects under the Aquino administration and the PPP Center despite the constraints on regulatory framework in the region.
â€śDespite these constraints, Moodyâ€™s report notes that the PPP markets in the Philippines and China are expanding, with deal flow accelerating in the Philippines under the current administration and its PPP Center,â€ť he said in a statement.
Inquirer,Â 13 September
The Department of Transportation and Communications (DOTC) ordered the award of a P65-billion railway public-private partnership (PPP) contract to a sole bidder late on Friday after weighing the legal implications for weeks.
The project would link Metro Manila to Cavite province through an elevated light-rail service.
Michael Sagcal, spokesperson for the DOTC, said in a text message that the LRT 1 Cavite extension PPP, which went through two auctions due to poor investorsâ€™ reception, was awarded to Light Rail Manila Consortium.
Light Rail Manila, which is backed by Manuel V. Pangilinan-led Metro Pacific Investments Corp. and Ayala Corp., confirmed the award, a source with knowledge of the deal said.
The decision marks the eighth and largest PPP deal to be awarded by the Aquino administration, which has been trying to bolster infrastructure investment through the PPP program to support gains in the broader economy.
It is also the third to be won by Ayala, which bagged the governmentâ€™s first PPP project, the 4-kilometer Daang-Hari SLEx Link Road, and the second to be won by Metro Pacific.
Sagcal said Light Rail Manila had 20 days to comply with the postaward requirements, after which a concession agreement could be signed.
The award suggested that legal challenges the DOTC was earlier worried about had been cleared.
Light Rail Manila had been poised to win the LRT 1 deal in late July before the SM Group obtained a Supreme Court order temporarily halting the transfer of the location of a common station mentioned in the PPP contract.
SM Prime Holdings said it was not interested in stopping the PPP process, as it was only protecting its interests based on a 2009 agreement.
Nevertheless, the DOTC took a step backward and decided to review whether it could award the project despite the temporaryÂ Â restraining order.
The award means Light Rail Manila can start the process that will allow the construction of a new 11.7-km extension of LRT 1, currently one of Metro Manilaâ€™s busiest railway lines serving about half a million people daily.
Under the deal, Light Rail Manila will also operate the entire LRT 1 line for 32 years.
More deals coming
Much is riding on the success of these big-ticket PPP deals, partly because investors will look to how these are implemented ahead of much larger infrastructure contracts the government is seeking to auction off in the next two years.
These include the countryâ€™s first subway system, valued at $3 billion, linking Metro Manilaâ€™s central business districts, and a â€śnorth-south commuter railwayâ€ť valued at $6 billion, information provided by the PPP Center showed.
Originally posted: 9:19 pm | Friday, September 12th, 2014
Philippine Star, 13 September 2014
MANILA, Philippines – The Department of Transportation and Communications (DOTC) has awarded the P65-billion Light Rail Transit line 1 (LRT-1) extension up to Bacoor in Cavite to Metro Pacific Investments Corp. (MPIC) and conglomerate Ayala Corp.
Michael Arthur Sagcal, DOTC spokesman, yesterday said the Light Rail Manila Consortium has 20 days to comply with the post-award requirements, including the partial payment of its P9.35-billion premium offer.
Sagcal said the Light Rail Manila Consortium would have to pay 10 percent of P9.35 billion, with the balance payable during the concession period.
Upon compliance, a concession agreement for the largest public private partnership (PPP) project would be signed, he said.
The lead member of the group is MPIC Light Rail Corp. with 55 percent, while Ayalaâ€™s AC Infrastructure Holdings Corp. has 35 percent and Macquaire Infrastructure Holdings (Philippines) Pte Ltd., 10 percent.
The award was made after Transportation Secretary Joseph Emilio Abaya sought a legal opinion from the Office of the Solicitor General after the Supreme Court issued a temporary restraining order (TRO) preventing the government from transferring the location of a proposed P1.4-billion common train station to Trinoma mall instead of SM City North EDSA.
The Light Rail Manila Consortium was the lone group that submitted a bid last May 28 where it offered a premium payment of P9.35 billion to undertake the project.
Other bidders including diversified conglomerate San Miguel Corp. (SMC) through SMC Infra Resources Inc., construction giant DMCI Holdings Inc., Filipino-owned Megawide Construction Corp., Spanish-owned Globalvia Inversiones SAU, Eco Rail Services Inc. of businessman Reghis Romero II and Malaysian-owned MTD Philippines Inc. did not submit bids.
Both the National Economic and Development Authority board chaired by President Aquino as well as the joint Bids and Awards CommitteeÂ of the DOTC and the Light Rail Transit Authority (LRTA) recommended the award of the PPP project to the lone bidder.
However, SM Prime Holdings Inc. of retail and banking magnate Henry Sy obtained a TRO from the high tribunal preventing the DOTC from transferring the location of the common train station in front of Trinoma Mall instead of SM City North EDSA based on an agreement in 2009.
Abaya insisted that the injunction was on the transfer of the common station and not the P65-billion project.
The Cavite extension project would increase the span of Line 1 from 20.7 kilometers to 32.4 kilometers with a new south endpoint in Niog, Bacoor, Cavite. The extension would open up the Line 1 services to the nearly four million residents of ParaĂ±aque, Las PiĂ±as and the province of Cavite.
More than half of the cost of the PPP project will cover the construction of the tracks, the stations and all its attendant facilities, while P30 billion will be used to purchase the trains to be funded by the government through official development assistance.
By Lawrence Agcaoili