Thirsting for answers: The MWSS concession agreement

RECENTLY, public interest has been ignited at the “questionable” practice by Metro Manila’s water concessionaires of passing on costs to their customers. Advocacy groups such as Water for the People Network have framed the issue under a public interest angle, juxtaposing “onerous charges” borne by consumers vis-à-vis the profits enjoyed by water companies. No less than a key official of the Metropolitan Waterworks and Sewerage System (MWSS) has called some of these pass-on costs as “grossly unjust,” in the process hinting at a possible reduction in water rates.

The root of the issue, however, lies in the concession agreement between the MWSS and its private partners as the actions of both sides governed by a contract. A proper understanding of the matter, therefore, requires a close examination of the agreement and the context under which it was drafted.

Against the backdrop of a bleak water supply situation, the National Water Crisis Law or Republic Act 8041 was passed in 1997. The legislation paved the way for private sector involvement in the provision of water and wastewater services in Metro Manila, mirroring the Ramos administration’s belief in privatization as the most practicable means of improving the efficiency of public services while cutting down government subsidies.

Specifically, R.A. 8041 established the legal basis for the privatization of the MWSS, the government corporation mandated to ensure continuous and sufficient potable water supply and distribution while charging “just and equitable” water rates and sewerage service fees. In a bid to improve water coverage and accessibility, the government encouraged private companies to invest in the MWSS’s operations.

The MWSS was saddled with a myriad of problems: poor coverage, inefficient service, and skyrocketing non-revenue water (NRW). Back then, only 69% of total service area was supplied with water.

Availability was intermittent, averaging only 16 hours per day. The MWSS had the highest proportion of NRW in Asia, double that of developed nations, as a large amount of water was lost to leaks, meter tampering, illegal connections and use of fire hydrants. All these problems led to the privatization of MWSS.

The government commissioned the International Finance Corporation to provide technical assistance in the privatization process, consolidating pertinent data and analyses, designing contractual engagements, and guaranteeing transparency in the bidding process. Upon their recommendation, two 25-year concessions were auctioned to private investors, demarcated as the West Zone and East Zone of the metropolis. The concessions for the West and East zones were awarded to Maynilad Water Services, Inc. and Manila Water Company, Inc., respectively. This public-private partnership (PPP) engagement is administered by two separate Concession Agreements (CA) signed by the MWSS with the winning bidders.

Under the “Grant of Concession” clause of the CA, both Maynilad and Manila Water are considered as contractors and agents of the MWSS. As such, they are vested with certain functions, powers, and rights, including that to manage, operate, repair, decommission, and refurbish facilities located within their respective service areas, on top of the right of billing and collection.

The two companies agreed to absorb the MWSS’s debt obligations valued at $900 million at that time. Maynilad took responsibility for 90 percent of the outstanding loans, while Manila Water assumed the residual. To ensure the sustainability of the concessionaires’ operations, a guaranteed rate of return was provided, dubbed as the “appropriate discount rate” (ADR) based on operating expenses, capital investments, Philippine business taxes, and servicing of MWSS’s debts. ADR is defined as the “real (i.e., not inflation adjusted) weighted average cost of capital (after taxes payable by the concession business).”

Article 11 of the Concession Agreement provides for the establishment of the MWSS Regulatory Office (MWSS-RO). It is principally mandated to implement the CA’s provisions--specifically, to ensure effective regulation of the two concessionaires and guarantee equitable tariff rates. In 2003, the use of key performance indicators (KPI) and business efficiency measures (BEM) was introduced to improve the capability to monitor and assess the performance of the two operators.

Maynilad and Manila Water are entitled to get back costs incurred in operations and maintenance, investments, and concession fees payment--over and above a market-based real rate of return. This forms the foundation for the tariff-setting mechanism, undertaken every five years as “rate rebasing” exercises. During the rate rebasing review, the MWSS-RO evaluates the two companies based on KPI and BEM goals, taking into consideration expenditures and investments to achieve such targets. In the same vein, the concessionaire’s business plans, which lay the framework for new service obligations and anticipated future investments, are also assessed by the MWSS-RO. The tariff adjustment--which yields the ADR--is then derived after comprehensive deliberation and appraisal. The MWSS-RO’s recommended rates are subject to approval by the MWSS Board of Trustees.

Other important features of the tariff-adjustment mechanism is the quarterly foreign currency differential adjustment for the payment of MWSS’s foreign-denominated debt taking into account changes in the exchange rate, annual adjustments for inflation, and an annual extraordinary price adjustment --conditional on MWSS approval-- for events beyond the control of the concessionaires, e.g. natural calamities.

The CA also specifies that disputes, disagreements, controversies, or claims relating to the agreement that cannot be settled via negotiation and consultation between the parties shall be resolved through arbitration proceedings conforming with the arbitration rules of the United Nations Commission on International Trade Law, except in instances when these rules conflict with the stipulations of the CA. Costs incurred for such proceedings are treated as expenditures on the part of the concessionaire and thus can also be recovered through the rate adjustment mechanism. The decision in such arbitration proceedings, once issued, becomes binding on the parties involved.

These elements are key to understanding the controversy that water industry stakeholders (MWSS, water concessionaires, consumers) find themselves in. In a subsequent article, we will look into and try to address the issues that have been called to public attention.


The Institute for Development and Econometric Analysis (IDEA), Inc. is a non-stock, non-partisan institution dedicated to high-quality economic research, instruction, and communication. The views and opinions expressed herein are those of the author and do not necessarily reflect those of the organization. For questions and inquiries, please contact Remrick Patagan via ideainc.mail[@]gmail.com or telefax no. 920-6872.

source:  Businessworld

2013 IPP finally up for Palace okay

THE 2013 Investment Priorities Plan (IPP) has finally been submitted to Malacañang, a Cabinet official yesterday said, with the government also looking to fast-track the issuance of the 2014 blueprint to make up for the delays that marked this year.

“We already submitted the [2013] IPP,” Trade Secretary Gregory L. Domingo said at the sidelines of a FUJIFILM Corp. plant launch.

“There are minor changes there compared to last year. The major changes may be for 2014 ... [the IPP for] which we will try to issue by December,” he added.

The IPP -- which is updated annually -- identifies industries and sectors that are eligible for incentives such as income tax holidays and duty-free importation of equipment.

Mr. Domingo said the 2012 plan remained in effect while this year’s IPP remained unapproved. It was supposed to have been submitted last March; the plan’s release was subsequently moved to May and then to end-June. There was no word as to when Palace approval would be secured now that it had been submitted.

Based on a draft, the 2013 list largely carries over the 2012 IPP that focused on the following areas:

• agriculture/agribusiness and fishery;

• creative/knowledge-based industries;

• shipbuilding;

• mass housing;;

• iron and steel;

• energy;

• infrastructure;

• research and development;

• “green” projects;

• motor vehicles;

• strategic projects;

• hospital/medical services; and

• disaster prevention, mitigation and recovery projects.

Projects will only be granted pioneer status if completely new to the Philippines.

Another proposed change is the need for an opinion from the Agriculture department before any farm project is given incentives.

The draft removes toll ways and railways from the IPP, consolidating these under the public-private partnership project heading. Power projects in missionary or off-grid areas are no longer included.

Income tax holidays for tourist accommodations in Cebu, Mactan, Metro Manila and Boracay were also removed.

source:  Businessworld

First of 4 Metro integrated bus terminal opens August 6

The southwest integrated bus terminal in Parañaque City will open on August 6, the Metropolitan Manila Development Authority (MMDA) said Sunday.

MMDA Organized Bus Route Director Mila Silvestre said the terminal, located at the Uniwide Reclamation Area, will help decongest the 23.8-kilometer long EDSA.

Silvestre said the terminal can handle about 955 buses from Cavite and Batangas daily, as well as 326 utility vehicles (AUVs, PUJs and taxicabs) to ferry passengers to their destination in the metropolis upon disembarking from their buses.

She said the terminal will also address the problem of “colorum” or out-of-line vehicles plying EDSA, the metropolis’ busiest highway where about 325,000 vehicles pass everyday.

“We are very sure that the integrated bus terminal will weed out colorum or out-of-line buses because it has the Bus Management Dispatch System,” she said.

The bus management dispatch scheme features a biometric-based system in which the drivers go through fingerprint scanning before they are allowed on the road.

The system’s databank makes sure that only authorized buses from Cavite and Batangas can use the facility. It also identifies drivers who are recidivist traffic violators.

MMDA General Manager Corazon Jimenez said similar integrated bus terminals will be set up on the fringes of Metro Manila.

“This is just one of the terminals and President Aquino has already issued an Administrative Order for its construction,” Jimenez said.

The other terminals will be at Trinoma Mall in Quezon City, the Uniwide Reclamation Area and Filinvest in Alabang, Muntinlupa City. 

source:  Manila Times

PPP still a myth

It still a standstill for  Skyway 3, one of the biggest projects that fall under the public-private partnership (PPP).

No less than the head of the Department of Transportation and Communications (DoTC) confirmed it three years after  President Aquino announced the project.

DoTC Secretary Joseph Emilio Abaya said the supplemental toll operation agreement of the project is still on President Aquinos desk.

It was the same reply Abaya gave when theDaily Tribune first asked about it some six months ago.
Skyway 3 will traverse from Gil Puyat Station in Makati up to Monumento in Caloocan.

Compared with the South Luzon Expressway-North Luzon Expressway connector, Skyway 3 is more expensive because of so many private properties that will be hit when the government pays the right of way of the project.

STOA of Citra/San Miguel Corp. Skyway stage 3 now at OP (Office of the President) for approval, Abaya explained.

The DoTC chief didn’t give substantial reply regarding the P11-billion Ninoy Aquino International Airport expressway.

NAIA expressway handled by Department of Public Works and Highways (DPWH). Not sure of time frame, the official said.

The DoTC and DPWH are the two government agencies that handle PPP projects.
Both departments have not seen the completion of any such project.

Earlier, Abaya denied that the government lacks legal and technical knowledge on how to roll out PPP thats why three years after President Aquinos announcement, none among those big ticket projects was built.
The former congressman of Cavite also said criticisms about the project are acceptable but not to the extent that they fall  below the belt or as if sounding like having a crab mentality.

Governments PPP has been labeled power point presentation by many critics as none of it has been built three years after announcement that all big ticket projects will be turned over to private sector.

Unless one or two  are built next year, we will not see our gross domestic product growing by at least seven percent. Infrastructure are very important because those who want to do business here look at it before throwing their money, said Finance Undersecretary Gil Beltran.

source:  Philippine Tribune

Tax holidays for mining removed from IPP

NEW MINING projects will no longer be able to enjoy tax holidays as the Trade department has removed the perk from the proposed 2013 Investment Priorities Plan (IPP) it has endorsed for the President’s approval, the agency said Friday.

Board of Investments (BoI) Executive Director Lucita P. Reyes said in a text message to reporters that "only mining projects have limited incentives to zero duty importation of capital equipment; there are no income tax holidays for [the sector]."

The Finance department said in its March 26 position paper that income tax holidays for some sectors, including mining, should be removed.

The 2013 IPP features much the same priority areas as the 2012 version, with only minor changes in some sectors.

"The proposed 2013 IPP roster includes agriculture/agribusiness and fishery, creative industries/knowledge-based services, shipbuilding, mass housing, iron and steel, energy, infrastructure, research and development, green projects, motor vehicles, strategic projects, hospital/medical services, disaster prevention and mitigation and recovery projects," the Trade department said in a statement Friday.

It also transferred health and medical-related activities from the tourism sector to hospital and medical services "for a more focused classification."

The IPP lays out which sectors the government can grant incentives, like four-year to six-year income tax holidays and duty-free importation. Other perks include relief from corporate taxes and employment of foreigners.

Trade Secretary Gregory L. Domingo said on July 16 that the department has forwarded the proposed IPP for the President’s approval. If approved, the IPP cannot be enforced without implementing guidelines.

The Trade department is also now preparing for the 2014 IPP.

"The agency is currently undertaking studies, in partnership with the private sector, in the development of the country’s industry roadmaps to support the formulation of the 2014 IPP," the statement said.

The draft 2014 IPP is expected to be completed by December this year.

source:  Businessworld

Cabinet cluster pushes nine priority measures

NINE PRIORITY legislative measures have been identified by the Cabinet’s economic development cluster ahead of the 16th Congress’ opening next week.

The Finance department, in a statement, said that its chief, Cesar V. Purisima, proposed the measures in a Cabinet meeting yesterday.

The list is expected to be considered by President Benigno S. C. Aquino III for possible inclusion in priority laws he will ask Congress to pass.

The measures, which Mr. Purisima noted would “answer key economic concerns of both the government and private sector,” comprise the following:

• amendments to the Build-Operate-Transfer (BOT) Law or Republic Act (RA) 7718;

• rationalization of the fiscal regime for mining;

• rationalization of the Fiscal Incentives Law and the Tax Incentives Monitoring and Transparency Act (TIMTA);

• Customs Modernization and Tariff ACT;

• amendments to the Bangko Sentral ng Pilipinas charter;

• further amendments to the Anti-Money Laundering Act;

• removal of restrictions in specific laws cited in the Foreign Investment Negative List;

• amendments to RA 8974, also known as the Act to Facilitate the Acquisition of Right-of-Way, Site or Location for National Government Infrastructure Projects and For Other Purpose; and

• amendments to the Cabotage Law.

Mr. Purisima leads the economic development cluster of the Cabinet. Its members include the heads of the National Economic and Development Authority (NEDA) and the Agriculture, Budget, Interior and Local Government, Trade, Public Works, Transportation, Energy, Science and Technology, and Tourism departments.

The Finance chief said amendments to the BOT Law would help the government implement its flagship public-private partnership (PPP) program.

“We propose to amend the inclusion of other PPP modalities such as joint ventures, concession and management contract, and enhancing provisions on unsolicited proposals including the conduct of competitive challenge,” he said.

“We also need to make sure that the PPP Governing Board is properly accounted for in legislation. These measures will make sure that the lessons we learned from our PPP experience are institutionalized.”

As for the rationalization of fiscal perks, Mr. Purisima said the measure would make the country’s incentives system more efficient.

He said the Finance and Trade departments, together with the NEDA, were discussing the measure.

“A monitoring and accountability mechanism through the TIMTA bill will effectively account for the utilization of public monies, including monies that are “spent” through the grant of tax incentives to businesses and activities,” Mr. Purisima added.

source:  Businessworld

Fast decision needed on NAIA-Clark tie-up

CLARK FREEPORT (PLDT/WeRoam) — With the tourism clock ticking, the Aquino administration has to quickly recognize the fact that the Ninoy Aquino International Airport has outlived its usefulness.
Ordering a facelift of the 52-year-old airport or constructing a fourth terminal nearby will not work.

Neither will locating an alternate site two hours away from Manila or reclaiming a portion of the bay for an entirely new aeropolis and then hurriedly building another network of freeways and holding areas.
As we keep saying, the situation is much like running a popular restaurant in the tourist belt. The operator cannot meet the demands of a growing clientele by simply doubling the number of tables -- if he does not boost the size and capability of the kitchen while upgrading the menu.

*      *      *

SUFFOCATING: Let us face the facts: NAIA, now handling 31.6 million passengers a year, is stuck with one bumpy 3.2-kilometer runway. The main airstrip and its shorter (1.9-kilometer) alternate handle some 820 landings a day.

There is simply no more space to make the landing strip longer and wider or to build a new one beside it. Neighboring commercial and residential areas are suffocating it.
We are lucky Dan Brown missed the usual NAIA ordeal, otherwise he would have referred to it, instead of Manila, as the Gates of Hell.

*      *      *

MISSING LINK: Much the same ideas run through the two-hour conversation of Rep. Oscar Rodriguez (3rd Dist, Pampanga) in the “Balitaan” breakfast forum last Friday of the Capampangan in Media Inc. (CAMI) at its Bale Balita (House of News) in this Freeport.

Rodriguez, who as three-term mayor of the capital city of San Fernando was head of the regional development council for Central Luzon, said Clark should be upgraded quickly as the premier international airport to ease the congestion at NAIA in Pasay City.

“Clark is already here, ready to absorb the NAIA overload,” he said. “The only missing link is a dedicated train connecting it to the national capital in less than an hour — and that’s not too difficult to solve.”
Assuming the NorthRail plan of using the old tracks of the Philippine National Railways is no longer feasible, he added, there is the viable option of laying out a line in the middle of the 88-kilometer North Luzon Expressway.

*   *   *

COSTLY IMPASSE: Businessman Manuel V. Pangilinan, whose company manages NLEx, has a proposal to build an express track in the middle of the expressway, but rival groups and bus operators who feel threatened oppose it.

Ramon S. Ang, San Miguel top honcho, has his own plan for another international airport variously reported to be either in Bulacan or Cavite. He has his own blueprint for expressways linking his would-be airport to NAIA and the hotel-casinos rising on the reclaimed bay area.

Somebody above them, maybe President Noynoy Aquino, should break the impasse to enable work to start in earnest on whichever plan is deemed best for short-term results and long-term benefits.

Rodriguez floated the idea of the MVP group being “assigned” the region north of Manila and the RSA camp south of the capital — if the idea of a consortium of taipans holding equal shares is not workable.

*      *      *

TOP QUALITY: Before the Mt. Pinatubo eruption in 1991 sent Americans scampering, Clark Field was the biggest US air base outside the American continent. It was home of the 13th US Air Force watching over the region.

Its 3.4-kilometer main airstrip was designed to handle the biggest plane there was, at that time the Guam-based B-52 behemoths then carpet-bombing Vietnam. If a B-52 got into trouble, it ran to Clark.
Engineers working on the landing project used to tell us boys how quality control authorities would order whole sections of the strip dug up and done all over again when they did not pass the strict standards.
Mabalacat officials used to complain that jet planes flew low over the populated community, raising fears of accidents aside from noise pollution that disturbs classes, masses, siesta time, poultry, among other concerns.
American officials explained that the direction of the airstrip was dictated by the prevailing wind pattern in the area. (The Zambales mountain range west of Clark, by the way, protected it from sneak attacks from the direction of China, at that time already considered a threat.)

*      *      *

SUPPORT NEEDED: While the decrepit NAIA has reached its limit, Clark still has boundless possibilities as the premier international airport.

Even now, bad weather in Manila or congestion forces planes’ diversion to nearby Clark, especially if they have to circle for at least one hour. Aircraft normally carry only enough gas to reach their destination, plus a minimal contingency extra fuel.

But Clark has not been getting the quick and full support it needs as a full-blown international airport handling growing traffic. For instance, even such basic equipment as modern x-ray machines has not been adequate, slowing down the processing of passengers and cargo.

Budget carriers flying here include Air Asia Phils, Air Asia Malaysia, Cebu Pacific, Jin Air and Tiger Air Phils. They are favorites of people going to neighboring capitals on business or for pleasure. There are also long-haul carriers such as DragonAir and Asiana Airlines (which has an office near our Bale Balita).
Emirates Airlines will start on Oct. 1 its non-stop daily Dubai-Clark-Dubai services. Qatar Airways will follow on Oct. 28 with its Doha-Clark-Doha flights.

The Clark aviation complex, with its twin airstrips, sprawls on 2,367 hectares. In 2012, it handled 1.3 million passengers, a big improvement on the 650,000 average of previous years. This year, Clark is targeting two million passengers.

*      *      *

RESEARCH: Access past POSTSCRIPTs at www.manilamail.com. Follow us via Twitter.com/@FDPascual. Send feedback to fdp333@yahoo.com

POSTSCRIPT By Federico D. Pascual Jr. (The Philippine Star)

Public expectations of P-Noy in his last 3 years

The recent sacking of Angelito Nangel – who some Palace insiders call the National “Irritation” Administration chief for having managed to irritate President Aquino because of the National Irrigation Administration’s consistent underperformance — came as a welcome surprise to many, which is contrary to what some people say that P-Noy has an aversion to firing people and would rather wait for them to resign by giving them the cold shoulder.

The president is already in the second half of his term, and like basketball, the last quarter is considered very crucial. The worst thing that could happen is when somebody “drops the ball” — something that this administration should totally avoid considering that everything it has done could simply go down the drain once the game is over. Three years is a short time if there are a lot more points to score on a fast play, but three years can become a very long time if the game play is too slow. But one thing is certain: The clock keeps ticking, and time is running out.

As one of P-Noy’s Cabinet Secretaries who did not want to be identified told me, there are quite a number of non-performing “asses” — NPAs — who need to be nudged to make things move much faster. To be fair, there are those who are proving to be this administration’s BPAs — “Best Performing Assets” — because they have been consistent and have shown admirable progress in many aspects, from project implementation to enhancing their agency’s or department’s image.

Among them are Public Works Secretary Babes Singson and Tourism chief Mon Jimenez – both dubbed as “good news bears” for making great strides in their respective departments. The DOT recorded 2.011 million arrivals from January to May — the first time ever that we breached the two million mark. On the other hand, by July last year the DPWH already bidded out over 91 percent of planned projects for fiscal year 2012. By streamlining processes, Singson saved the government P16.35 billion — money it can use for more infrastructure facilities that would benefit the public.

Unfortunately, the same cannot be said of the Department of Transportation where things continue to move at a snail’s pace, with biddings either postponed or delayed. Some DOTC officials blame private sector bidders but insiders claim delays happen because bidding specs and technical aspects are unclear. Apparently, consultants and key people are lawyers who are too legalistic and lack the engineering knowhow needed for the projects.

For instance, MRT-3 and MRT-7 are extremely crucial projects that need to be fast-tracked because they affect commuters, motorists, pedestrians – practically everyone from the lower sector to the high-end of society with the horrendous traffic costing the country P2.4 billion a day as clearly pointed out in a study made by the Japan International Cooperation Agency. Every year, you see more and more people packed like sardines in trains or waiting in kilometric lines for bus and jeepney rides. Add to it the fact that more people can now afford to buy cars, rendering the number coding system almost inutile, making traffic congestion even worse than ever.

The DOTC had very boldly predicted that by 2016, P500 billion worth of infrastructure projects would be completed. At the rate they are going — or rather, not going — we’d be lucky to see even half of all these projects finished by the time President Aquino’s term ends.

Mining is another sector that can very well benefit from some quick decision-making. We’re glad to note that the DENR is lessening the foot dragging, extending Philex Mining’s temporary permit to operate Padcal mine in Benguet. Despite the Philippines’ huge mineral wealth — sitting on almost a trillion dollars worth of untapped resources — unresolved issues continue to hamper the industry’s potential to substantially contribute to the country’s GDP.

No wonder mining and transport infrastructure merited “special mention” in the petition of some of the country’s biggest business groups that are asking P-Noy to amend the Constitution, in particular the restrictive economic provisions. Unfortunately, Charter change is one major issue that the President continues to resist touching. But sooner than later, this is something that needs to be seriously considered — gaining ground from a number of legislators and businessmen all eagerly pushing for crucial constitutional amendments.

The changes need not dwell too much on the political aspect — like adopting a new system of government for instance — since most of the proponents see the need to amend only the flaws in economic provisions that would make it difficult for the Philippines to compete globally and in the region as the ASEAN economic integration comes closer to reality.

However, if we’re going to do it anyway, we might as well go the whole nine yards because a transformed and improved system will provide an opportunity to institutionalize the reforms and changes we all want to see — for instance the justice system that everyone agrees needs to be completely reformed. Ultimately, Charter change will help define P-Noy’s presidency.

One good thing for a president with a six-year term like P-Noy is that he can “do the right thing” without worrying about political expediency — which could benefit whoever his successor is — reaping the harvest sown by this administration.

It is said that history is the ultimate judge – and it’s clear that Noynoy Aquino has already made a name for himself apart from the legacy left by his parents. The opportunity to permanently change the kind of politics that people have grown tired of is here. The moment has come — we must seize the moment before the moment seizes us.

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E-mail: babeseyeview@yahoo.com

BABE’S EYE VIEW By Babe Romualdez (The Philippine Star)

No one should be left behind

PROOF positive that confidence in the Philippine economy is on the upswing is the increase in foreign investments in the country’s economic zones. According to the Philippine Economic Zone Authority (Peza), the various economic zones attracted P83.692 billion worth of fresh investments in the first half of the year, mostly from Europe, Japan and the US. This figure is double the P43.61-billion new investments recorded by the agency in the first six months of 2012.

This growth was driven mainly by electronics and manufacturing, with five multinational companies due to inaugurate their new manufacturing plants in economic zones in Batangas and Laguna later this year.

Peza expects more foreign investments to be channeled to the different economic zones in the country in the coming months, with companies from Germany, the UK and the US leading the charge. At least 289 European companies have invested in the Philippines’s economic zones, but the country’s top source of foreign investments is still Japan.

Another sign that the economy is going great guns is the increase in tourist arrivals. The Department of Tourism reported late last week that the country attracted 2.011 million tourists from abroad from January to May, the highest five-month total ever. This covered both foreign tourists and overseas Filipino workers who visited their relatives here during the period. Overall, arrivals grew by 10.54 percent from only 1.819 million in the same period in 2012.

The downside of the economic upturn, however, is that the country is not spending enough for the social protection of the vulnerable sections of the population, according to the Asian Development Bank (ADB). Our spending for social-protection programs remains below the regional average, despite the fact the Philippines is already considered a “large middle-income” country.

The country’s total expenditures for social protection, which the ADB breaks down into three major categories—social insurance, social assistance and labor-market programs—represent less than 10 percent of its poverty-line expenditures.

What this means is that the Aquino administration is not spending enough to address the needs of the poor, who make up a third of the total population.

What this means is that the Aquino administration has yet to walk the talk when it says it is determined to achieve inclusive growth.

Foreign investments do create jobs and more tourist arrivals bring much-needed revenues to the government. By the same token, credit-rating upgrades and gross-domestic-product increases are definitely welcome. But all these would be meaningless unless they lead to uplifting the lives of those who need help the most: the poor. At this point, much needs to be done so that the poor are not left behind in the country’s march to progress.

source:  Business Mirror

Gov’t can’t handle PPP untrue, DoTC chief says

Department of Transportation and Communications (DoTC) Secretary Joseph Emilio Abaya fired back on former Budget and Social Security System chief Romulo Neri on the latter’s allegation that the current economic team of the government has no enough legal and technical expertise to pursue public-private partnership (PPP) projects.

“That is not true. There are just processes and clarifications made just to ensure it is clear what government wants and private sector knows what they are bidding for,” Abaya told the Daily Tribune.

It was evident that Abaya didn’t like Neri’s pronouncement as he strongly defended the PPP, saying everything is being exerted to push the projects no matter what it takes.

“PPP allows private sector to be channeled towards infra. They complement government funds or at least allow government to channel some funds towards human capital development and social protection as part of the inclusive growth of government,” Abaya, who was a three-term Cavite congressman, said.

He said anybody, especially those from the past administrations, have the right to criticize the PPP but not to the extent that the criticism will be like a sort of having crab mentality.

Abaya also shot down proposals that government should abandon PPP and use the billions of pesos of official development assistance (ODA) given by Japan, European Union and United States for a very low interest.

“ODA has its advantages but going all ODA has its drawback and the ODA process also takes time,” he said.

Neri earlier said current technocrats are adamant to push for the PPP as they might be charged criminally for just a simple mistake.

He said PPP is a very complex contractual arrangement that is like an irritant to government executives to implement.

“That’s why government bureaucrats tend to be extra cautious. They don’t get rewarded for success but get punished for slight missteps,” he said.

source: Daily Tribune

Cheap power option for mega projects readied

Lilia de Lima, director-general of the Philippine Economic Zone Authority, said the government is near to resolving the issue of granting cheap power  to select mega projects in special economic zone.

De Lima said the option being considered is different from an earlier plan to extend the so-called industry competitiveness fund (ICF) which gives preferential power rates as incentives to Hanjjn Heavy Industries Philippines in Subic and Texas Instruments and Phoenix Semiconductors in Clark.

“We are coming close to a conclusion which would be positive and fair to all. The investors have been waiting for this,” said De Lima.

De Lima refused to disclose further details except to say that the formula departs from an earlier plan to set aside a certain amount from the General Appropriations Act (GAA).

The government has been preparing a program that would effectively continue the ICF by providing it with a strong legal support.

The ICF, which expired in March 2011, was granted to Hanjin, Texas Instruments Philippines and Phoenix Semiconductors as a quid pro quo and incentive for these big projects which hired a lot of workers.

One of the companies, Phoenix Semiconductors, is entitled up to 2020.

He said the plan is to allocate it in the GAA.

The three were given cheap power under the ICF support through executive orders signed by then President Arroyo

In coming up with the extension plan, the government previously wanted to tap other hydro power plants like Bakon and Casecnan to source fuel on subsidized rate following the privatization of Angat. These two operate more expensively than Angat, according to reports from the Power Sector Assets and Liabilities Management and the National Power Corp.

This means the government would have to shell out more to continue the ICF.

Based on computations, with Angat as the source of power, all-in cost would be below P5 per kilowatt-hour and above P5 for the two other hydro power plants.

Hanjin, Texas Instruments and Phoenix Semiconductors had been working out a plan with the government on how the ICF would  be extended after it expired.

Under the 10-year ICF program, Texas enjoyed the power rate subsidy for four years already and has six more years to go while Hanjin had availed itself of the ICF for three years and Phoenix enjoyed the discount for one year.

The three were paying a preferential P2.15 per kwh under the expired ICF.

source: Malaya

European firms prefer economic zones

Reducing red tape and business-friendly environment are key to attracting investments from the European Union (EU), according to Guy Ledoux, ambassador to the Philippines of the EU.

Some 289 European companies have invested in the country’s economic zones citing these areas’ good regulatory environment.

The latest one to invest is Danish firm Sonion which is employing 800 workers up to 2014 at its new factory at the First Philippine Industrial Park (FPIP) in Sto. Tomas, Batangas.

Ledoux said at the Sonion factory’s inauguration yesterday that EU firms are interested to invest in zones administered by the Philippine Economic Zone Authority (PEZA) because “many of the red tapes often hampering business development are lifted.”

“When looking at measures to be taken to attract more foreign investment in the Philippines, the regulatory environment offered in PEZA would provide a good guide,” he said.

Ledoux said European companies are very interested in the fast expanding Philippines market and welcome the objectives of reducing all the existing red tapes as well as encouraging local government unit to be business friendly and reduce the numerous permit that are often required.

The 289 EU firms in ecozones are  in a wide variety of sectors including food products, textiles, chemicals, precision and optical instruments, etc..

Ledoux said  European companies EU  is the largest investor in the Philippines with a stock of 7.6 billion Euros.

“The inauguration of this factory is a good illustration of the strong and growing economic relationship between the EU and the Philippines.

The remarkable example we have today, is not hot money invested by stock broker which can be withdrawn in a few days, this is an investment with a brick and mortar factory that demonstrates the confidence of the investor in the Philippines government and the quality and reliability of the Philippines workers. We have here a state of the art factory in a high tech sector that will manufacture sophisticated equipment that will be exported all over the world,” Ledoux said.

source:  Malaya

NDC eyes control of Goodyear site

Goodyear site The National Development Co. (NDC) is retaining its 60 percent shareholdings in, and is still keen on buying the remaining 40 percent of, a real estate joint venture company with American tire maker Goodyear Corp. to take advantage of good property values, its general manager Lourdes Rebueno said.

Rebueno said in a chance interview that the 18-hectare property in Las Piñas, site of the former plant of Goodyear that shut down in 2009, is now worth P2.8 billion.

“The site of the property offers good prospects; it would be a waste if we just dispose of it,” said Rebueno.

For now, Rebueno said NDC is evaluating what development is suited for the site or if could lease it out. “We are evaluating our options. The property market is healthy.”

NDC said Goodyear wants to sell its shares in the JV, Goodyear Real Estate Inc. but not necessarily to NDC as it too is evaluating its options.

The value of the property is placed at P14,000 per square meter. Two years ago, NDC offered to buy out Goodyear for the property for P872 million, exercising its right of first refusal.

Goodyear originally wanted P14,000 per sq. m. but NDC made a counteroffer P10,000 per sq. m. They settled for P12,000 per sq. m. but the deal did not pan out.

The site, located in Almanza, was the home of Goodyear in the Philippines for more than 25 years although Goodyear as a brand had been here for more than 50 years. The property is located along the Zapote-Alabang road and close to the posh Ayala Alabang subdivision.

The government’s policy for crown jewels is to keep them for long-term lease which could give the government a steady stream of revenues earlier estimated at about P1 billion for a 25-year lease contract. However, earlier estimates also said an outright sale of the entire piece of land at P20,000 per sq.m. could be as high as P3.6 billion.

Goodyear’s closure paved the way for the possibility of disposing the property. The tire company’s lease contract with NDC expired in 2000 and until then, the contract had been on extended lease.

The property was among the pieces of property on lease contracts bv American firms  covered by the Laurel-Langley agreement between the Philippines and the United States in 1955 that gave parity rights to American companies, including multinational giants like Citibank, Goodyear Tire & Rubber Co., Caltex, Shell and Mobil.

After the treaty expired in 1974, the US firms donated the lands they owned to the Philippine government, which in turn leased them back at preferential rates.

To facilitate the lease agreement, some companies formed real estate joint ventures with the Philippine government, with the American firms owning 40 percent stake in keeping with the constitutional prohibition for foreign ownership on lands.

Goodyear Philippines used to export 50 percent of their production of different types of tires.

Domingo said NDC will be sourcing part of the money from government financial institutions.
As of now there is no concrete plan for the property but said it is a nice property. Domingo said there is no more available lot in that area that is that big. “I’m sure if we open it up, a lot of companies will be interested.”

source:  Malaya

Credit upgrade may spawn P147B new loans

Bangko Sentral ng Pilipinas yesterday said that banks may be able to release more money that may be used for lending and other expenses as a result of lower risk weight covers brought by the credit rating upgrade into investment grade by two international rating agencies.

Amando Tetangco, BSP Governor, said that the lower risk weights assets have the effect of making available more funds that may be potentially used for lending and other banking activities.

BSP simulations indicate that about P147.13 billion may effectively be released for loans and other expenses as a result of the upgrade to investment grade.

The same BSP simulations show that the calibrated risk weights will raise the capital adequacy ratio (CAR) of universal and commercial banks (U/KBs) from 17.28 percent to 17.83 percent using end-2012 banking figures.

Tetangco pointed out that “these are the direct gains that accrue with the investment-grade rating”.

He highlighted, however, that “the impact is not only about the feel-good effects of a lower risk weight but that there are balance sheet implications to consider as well”.

The BSP last month announced a reduction in the risk weights of Philippine sovereign issues denominated in foreign currencies, a direct result of the credit rating upgrade of the Philippines into investment grade by two international rating agencies.

As part of its overall risk management framework, the BSP conservatively raised in July 2007 the risk weights of sovereign issues denominated in foreign currencies.

Under the same guidelines, the recent investment grade ratings from Fitch and Standard and Poor’s respectively recognize the stronger risk standing of the Republic of the Philippines.

This then allows for the reduction in risk weights.

The reduced risk weights cover two risk categories—credit risk weights for foreign currency denominated sovereign issues are reduced from 100 percent to 50 percent and the capital charge for interest rate risks on bank holdings of foreign currency bonds issued by the Philippine government and the BSP is reduced from eight percent to a range of 0.25 to 1.60 percent of these assets, depending on the residual maturity of the debt securities or derivative contract.

The BSP pointed out that the simulated effects are not insignificant.

However, the BSP also reminds banks that credit underwriting standards need to be sustained if we are to sustain the benefit of such ratings upgrade.

The Philippines last May received its second investment grade rating as Standard & Poor’s Ratings Services raised its sovereign credit ratings on the Republic of the Philippines to BBB- from BB+.

The upgrade came a month after another credit rating agency, Fitch Ratings, also gave the country an investment grade rating.  Moody’s Investors Service is also expected to upgrade the country’s rating within the year.

source:  Malaya

‘Traffic costs P2.4B daily’

If time is money, then the Philippines is losing P2.4 billion a day in potential income due to traffic congestion that eats up time that could have been used for productive pursuits, Socioeconomic Planning Secretary Arsenio Balisacan said.

Balisacan, National Economic Development Authority (Neda) chief, was quoting a study by the Japan International Cooperation Agency (Jica) that the government has tapped to help come up with a transportation development road map for the country.

“It’s a no-brainer that we need to boost infrastructure. We have a huge backlog in almost all types of infrastructure,” Balisacan said, adding that the government intends to invest in more roads, bridges, railways, airports, and sea ports during the remainder of President Benigno Aquino III’s term.

Compared with neighboring countries, the Philippines spends significantly less on public infrastructure at only 2.5 percent of gross domestic product (GDP) in 2012, against the 5 percent average spending in other Southeast Asian countries.

Balisacan said that the Aquino administration wants to boost public infrastructure spending to at least 5 percent of GDP by 2016 to compete with other countries for foreign investments.

Earlier this week, Budget Secretary Florencio Abad said the government intends to increase its budget for infrastructure from about P400 billion last year to at least P800 billion in 2016, to reach the target of 5-percent infra spending to GDP ratio.

Fast-track projects
Abad said the government has embarked on an infrastructure rationalization plan under which government processes are streamlined to fast-track infrastructure projects.

“We are accelerating our infrastructure spending and adjusting procedures to ensure (the) timely implementation of infrastructure projects and to improve the absorptive capacity of government agencies,” Abad told the Inquirer.

Absorptive capacity refers to the capability of government agencies to spend allocated funds on time.

One administrative reform that the budget secretary cited is the adoption of the advance procurement system that would allow line agencies to start procuring goods and services needed for infrastructure projects scheduled for 2014.

Payment processes
Another reform, Abad said, is the streamlining of payment processes to help government agencies settle their obligations to contractors and suppliers within a shorter period of time.

The budget chief also said that the President has instructed the Department of Public Works and Highways to take over the supervision of infrastructure projects of other government agencies—such as health facilities under the Department of Health—to help complete them within a shorter time frame.

“There is a huge room for increased infrastructure spending, and we want to maximize it,” Abad said.
The Department of Budget and Management on Friday reported that public infrastructure spending rose year on year by 35.6 percent to reach P104.6 billion from January to May this year. The amount was equivalent to 2.6 percent of estimated GDP for the period.

source:  Philippine Daily Inquirer

Infra spending up 35.6% to keep growth momentum

The government increased its expenditures on infrastructure by 35.6 percent for the first five months of the year, disbursing P104.6 billion from PP77.1 billion last year.

The additional P27.5 billion spent resulted from a “deliberate and strategic” approach to ensure inclusive growth according to Budget Secretary Florencio Abad.

“Key to that is ensuring swift disbursements to high-impact sectors—such as public infrastructure and capital outlay—and other crucial industries that will deliver immediate benefits to Filipinos and allow us to sustain the country’s strong economic momentum,” the budget chief added.

Abad said that more than half of the amount spent for infrastructure and other CO was attributed to the P60 billion in payments made by the Department of Public Works and Highways to suppliers and contractors for various public infrastructure projects.

He said that disbursements made for projects under the Department of Transportation and Communication, as well as the construction of farm-to-market roads under the Department of Agriculture, contributed to the increase in infrastructure spending.

Abad also noted that spending for maintenance and other operating expenditures (MOOE) rose by 25.1 percent in the first five months of the year.

Disbursements for MOOE as of end-May went up to P120.2 billion, P24.2 billion higher than the P96.1 billion recorded in the same five month period last year.

Abad said that this amount includes releases for social welfare programs under the Department of Social Welfare and Development, the branding campaign program under the Department of Tourism, and expenses made to cover the 2013 National and Local Elections.

The budget chief said that he expects more focused and accelerated disbursements in the second half of the year.

 “We are working actively with our Account Management Teams in key implementing agencies to sustain and further improve the pace of disbursements, as well as to eliminate expenditure bottlenecks that might prevent our agencies from making the most of their fund releases,” Abad said.

Expenditures for personnel services likewise grew by 12.2 percent to P237.7 billion for the first five months of the year.

Abad said that this was mostly due to the annualized salary adjustments as a result of the implementation of the Salary Standardization Law III, as well as claims for retirement gratuity and terminal leave benefits.
Interest payments also went up by 5.9 percent to P138.7 billion, on account of interest payments to domestic borrowings, in addition to interests to bonds issued in the first quarter of the year.

source:  Malaya

SSS offers Fort Boni property

THE SOCIAL SECURITY System (SSS) wants to sell an 8,300-square-meter property in Fort Bonifacio for P2.24 billion, looking to take advantage of a real estate boom in the area.

The state-run pension fund has set a minimum price of P269,894 per square meter for the property, which consists of four lots along McKinley Parkway between 10th and 11th avenues near the newly opened SM Aura.

Interested bidders will have to make a deposit of at least 10% of the bid price for the property, which SSS Commissioner Diana Pardo-Aguilar told reporters had been purchased in 2003.

“[It] was then worth P850 million,” Ms. Pardo-Aguilar said in a press conference, adding that over “10 years, I think 16% [annually] is a very fair return to our members so far as the investment fund is concerned.”

She said the SSS was not looking at a joint venture as it was “not a property developer.”

Invitations to bid will be published on July 3, 10 and 17, with a pre-bidding conference set for July 22. Eligibility documents need to be submitted by August 15 and the cash bids by September 4. A winning bidder is expected to be named between Sept. 26 and Oct. 2.

“This is the most opportune time to sell, while land prices are at peak levels,” SSS President and Chief Executive Officer Emilio S. de Quiros, Jr. said at the press conference.

With the former military base in Taguig being aggressively transformed into an upscale business/residential district, Mr. de Quiros said the property being offered represents “a great opportunity for interested developers to acquire a substantial block in the area.”

Ms. Pardo-Aguilar said the asset sale was part of efforts to maximize returns and minimize risks for the pension fund, which services the private sector.

Mr. de Quiros said the SSS’ net revenue grew by 41.7% last year to P36.20 billion. Its investable fund, meanwhile was at P350 billion as of April this year.

“[A] good portion of that is fixed income,” he added.

CORRECTION: An earlier version of this article mistakenly used "hectares" instead of "square meters" to describe the area of the SSS property in Fort Bonifacio. 

source:  Businessworld

SSS to sell P20B real estate assets this year

Retirement fund Social Security System (SSS) plans to sell a  piece of property given to it as payment in kind of Bonifacio Land Corp.

The 8,300 sq.m. property near McKinley Parkway and known as Block 56, will be sold for at least P2.24 billion.

The BGC property is the first of a number of real estate assets worth P20 billion that SSS  intends to sell this year. These are  properties SSS was paid with instead of cash for monies borrowed from the retirement fund.

SSS president Emilio de Quiros Jr said  this floor price is  163 percent    more than  the property’s dacion en pago (payment in kind)  value.

It is between the 10th and 11th  avenues  and near commercial areas like the Market! Market!, Bonifacio High Street, and the newly-opened SM Aura.  “This is the most opportune time to sell, while land prices are at peak levels. Also, the ongoing developments in the BGC created a high demand for land where there’s a short supply of sellers. So this sale offers a great opportunity for interested property developers to acquire a substantial block in the area,” De Quiros said.

The property carries an accommodation value of P29,988 per sq.m., the SSS said, as the property can be developed to generate a total gross floor areas of 74,700 sq.m., based on a floor area ratio of 9.

De Quiros said the sale would be made through public bidding to attract both domestic and foreign investors and unlock the best value for the property. 

“We are optimistic to get the best offer for this prime property. It is strategically located at the heart of growing business markets and financial activities,” De Quiros said.

De Quiros also noted the country’s improving political and investment climate will offer enormous growth potential for enterprises especially those in real estate, business process outsourcing and tourism.

“The overall business climate is becoming increasingly attractive to investors. With the recent credit-rating upgrade, we see more companies establishing their businesses particularly in these areas, where there are active developments,” he said.

“Not only can they help spur the economy once they develop the property, but any business that will be put up there will surely result in new employment. And as more jobs become available, SSS covers more employees,” he added.

The pre-bidding conference is slated on July 22, while the submission of bids is scheduled on September 4.

De Quiros said SSS  plans to complete the sale by October.

De Quiros said they are still determining how to go about with the other properties they have. The SSS is also eyeing joint-venture arrangements in developing some of the  properties.

The sale would be a boost to SSS’ gross  revenues which is targeted to hit P30 billion this year. So far, it has realized  at least P8 billion after it sold investments in the stock market in the first four months of the year.

Ed Solilapsis, SSS vice president for investment, said the retirement fund has been a “net seller” of stocks in  the first five months of the year as they saw opportunities to realize gains in this year’s run up of company shares in the market.

Solilapsis said that for the remainder of the year, SSS  may opt to buy more than sell as the recent drop in shares made many stocks attractive for picking.

Solilapsis said the fund still has elbow room to increase holdings in the equities market as it is  allowed to pour in as much as 30 percent of its P350 billion investible fund to the equities market.

Among the fund’s preferred stocks are those exposed to banking and finance, power generation and distribution, utilities and infrastructure, telecommunications, and mining.

SSS is currently reviewing the actuarial life of fund which when reviewed in 2007 was found to run up to 2039, De Quiros said.

Last year, the actuarial life of the fund was boosted by a P9- billion proceeds from member contribution and a P30 billion profit from investments, said Solilapsis.

source:  Malaya

Gov’t to build 50 fish ports

The Philippines plans to build 50 fish ports over the next three years, according to the Bureau of Fisheries and Aquatic Resources.

BFAR Director Asis Perez said the agency wants to attain sustainable development of the fisheries sector by focusing more on building and maintaining post production facilities.

“We want to invest on post production this time, because majority of the budget is usually focused on increasing the production and we have implemented fishing bans in various fishing areas in the country, but we have seen that part of the process doesn’t generate the money. What generates income is the post-harvest facilities such as infrastructures, ports, cold storage facilities, ice plants,” he said.

Perez said the comprehensive fish port development program would complement the sustainable fishery projects of the government under the fisheries modernization plan.

He said the budget for the ports will come from next year’s budget of P6.7 billion, 45 percent higher than this year’s P4.6 billion.

source: Malaya

Dutch firm to build spa with geothermal plant in Mindoro

Dutch company IF Technology in partnership with Constellation Energy Corp. (CEC) and Emerging Power Resource Holdings Inc. (EPRHI) will build a 70 megawatt geothermal plant and a spa and wellness center along  Naujan Lake in Barangay Montelago, Naujan, Oriental Mindoro.

“Aside from providing electricity, we will give rise to a world-class attraction in Mindoro. Green power and green tourism will boost the province’s tourism and economy,” Dr. Antonie de Wilde, EPRHI Project CEO said.

De Wilde said the the hot spring and wellness center will be patterned after the world-renowned Blue Lagoon Spa in Reykjavik, Iceland where geothermal seawater—with its minerals, silica and algae – is tapped to provide a rejuvenating spa.

The Blue Lagoon, which was rated as one of the top 10 wellness retreats from around the world in 2011, was created as an over-spill pool for the nearby Svartsengi geothermal power station. 

Much like the Blue Lagoon in Iceland, the hot spring in Barangay Montelago, Naujan, Oriental Mindoro will also pump out excess mineral-rich water after producing electricity.

The director of the DOE’s renewable-energy management bureau, Mario Marasigan, said the Philippines currently uses between 38 to 39 percent renewable energy in its primary energy mix.

DOE figures on gross power generation in the Philippines show that geothermal plants account for 14 percent of renewable power.

Tapping geothermal power in the country dates back to 1977, when the first geothermal plant, small scale at about 3MW, was inaugurated in Leyte. Since then, the Philippines has become the second-highest producer of geothermal power, next only to the United States.

 “We will bring life back to Montelago. We are also bound to add medical tourism to the many attractions of Oriental Mindoro,” CEC Chairman Jose P. Leviste, Jr. said.

The geothermal water’s silica, dubbed as a “beauty mineral” is used in health and beauty products like mud packs and silica facial scrubs.

The project will also lower power cost in the island grid.

Until the introduction of renewable energy sources that include wind, solar, bio-mass and geothermal power, isolated grids like Oriental Mindoro have to rely on expensive gas-powered turbines.

The 20MW geothermal plant will provide base load capacity with as much as 90% availability. Once the Montelago plant is operational, it will be a big factor in providing a reliable and secure source of power and in stabilizing retail electricity rates.

In Mindoro, electricity is distributed by the Oriental Mindoro Electric Cooperative, Inc. (ORMECO) which resulted from the merger of two electric coops that used to serve the province’s two congressional districts, separately. ORMECO now covers all the 14 municipalities and the capital city of Calapan and sources its power from National Power Corp., Global Business Power and the Dulangan Mini-Hydro Plant which supplies about 1.2 MW of ORMECO’s requirements.

Geothermal power is expected to balance out ORMECO’s generation mix.

CEC-EPRHI-IF Technology consortium is developing the Montelago project under a Geothermal Renewable Energy Service Contract granted by the Department of Energy (DOE).

CEC, together with its technical and financial partners, is one of the many companies and groups identifying and developing geothermal steam fields. Other than the Montelago project, CEC is also developing renewable energy projects in Biliran province and Negros Island.

“We are confident,” de Wilde said, “that the addition of geothermal power into the province’s present mix of electricity sources will have a stabilizing effect on the grid.

The geothermal base load is best suited for an island grid’s shift from bunker fuel to renewables, because it is not seasonal and has higher availability. The stability or reliability investors will seek can be provided by geothermal power,” he added.

Today, the Tiwi-Makban fields in Luzon and Tongonan steam fields in Leyte are among the country’s highest producers of geothermal electricity.

source:  Malaya