Research for Facilitation of Infrastructure that … for Facilitation of Infrastructure that...

Research for Facilitation of Infrastructure that Utilizes PPP (Public-Private Partnership), etc. in the Republic ofthe PhilippinesFinal Report

２０１４０６１０財貿第１号

Fiscal 2014 Overseas Development Planning Research ProjectProject for Establishing Business Bases and Capturing the Overseas

Infrastructure Market

Research for Facilitation of Infrastructure that

Utilizes PPP (Public-Private Partnership), etc.

in the Republic of the Philippines

Final Report

March 2015

Ministry of Economy, Trade and Industry

Commissioned to: Ernst&Young ShinNihon LLC


i

Research for Facilitation of Infrastructure that UtilizesPPP (Public-Private Partnership), etc. in the Republic of the Philippines

Table of Contents

Preface ....................................................................................................... 1

Executive Summary.................................................................................... 2

(1) Research and Analysis of PPP System ................................................ 71. Current Status of PPP System in the Philippines ....................................................71.1. PPP-Related Laws and Regulations in the Philippines .......................................71.2. Track Record of PPP Projects in the Philippines ............................................... 101.3. Supervisory Agency of PPP in the Philippines ................................................... 121.4. Other Government Agencies Related to PPP in the Philippines ...................... 121.5. Procurement Procedures of PPP Projects in the Philippines ............................ 141.6. Characteristics of Procurement of PPP Projects in the Philippines ................. 171.7. Target Sector for PPP in the Philippines ............................................................ 191.8. Support System for PPP Projects in the Philippines ......................................... 201.9. Future Outlook of PPP Projects in the Philippines ........................................... 211.10. Status of Risk-Sharing Between the Public Sector and the Private Sector inPPP Projects in the Philippines .................................................................................... 221.11. “Dispute Resolution” of PPP in the Philippines ................................................. 251.12. “Added Obligations” of PPP in the Philippines .................................................. 261.13. Situation of “Restrictions on Foreign Equity” of PPP in the Philippines ......... 271.14. Public (Government) Commitment to PPP Projects in the Philippines ........... 29

2. Issues in the System for PPP Projects in the Philippines (Issues Recognized byJapanese Companies) ...................................................................................................... 322.1. Issue 1: Unclear and disproportionate risk-sharing between the public sectorand the private sector .................................................................................................... 322.2. Issue 2: Gap between the PPP system and market/companies ......................... 352.3. Issue 3: Presence of restrictions on foreign equity and competitive advantage oflocal companies ............................................................................................................... 36

3. Comparative Analysis of the PPP Systems of Advanced Countries and of thePhilippines ....................................................................................................................... 383.1. Perspectives for Review ....................................................................................... 383.2. Selection of Advanced Countries in PPP ............................................................ 383.3. Example of Advanced Country: PPP in Australia .............................................. 40


ii

3.4. Comparison of Issues of the PPP Systems of PPP Advanced Countries and ofthe Philippines ............................................................................................................... 42

4. Direction of Proposal ................................................................................................ 634.1. Direction of Improvement 1: Toward PPP System that Has ReasonableRisk-Sharing between the Public Sector and the Private Sector ............................... 634.2. Direction of Improvement 2: Toward PPP System that Expands InvestmentPossibilities of the Private Sector ................................................................................. 664.3. Direction of Improvement 3: Efforts to Increase Partnership Between JapaneseCompanies and Local Companies ................................................................................. 694.4. Possibility of Utilizing Financial Support Measures of Japan for InfrastructureProjects in the Philippines............................................................................................. 71

(2) Study on Specific Sectors ................................................................. 761. Important Projects Promoted by the Government of the Philippines in WhichJapanese Companies Are Interested .............................................................................. 761.1. Transportation/Transit ......................................................................................... 761.2. Water Supply/Sewage ........................................................................................... 951.3. Energy ................................................................................................................. 102

2. Issues, Bottlenecks and Solutions in Implementing Selected Projects ............... 1102.1. Overview .............................................................................................................. 1102.2. Transportation/Transit ........................................................................................ 1102.3. Water Supply/Sewage .......................................................................................... 1112.4. Energy .................................................................................................................. 111

3. Important Projects Promoted by the Government of the Philippines Where YenSTEP Loans and Technology/Knowhow Covered by STEP Yen Loans May be Used 1133.1. Overview .............................................................................................................. 1133.2. Transportation/Transit ........................................................................................ 1143.3. Water Supply/Sewage .......................................................................................... 1153.4. Energy .................................................................................................................. 115

(3) Infrastructure Development Seminar .............................................. 1161. Overview .................................................................................................................. 1162. Summary Minutes................................................................................................... 1163. (Reference) Program agenda ................................................................................. 1224. Result of the participant questionnaire................................................................ 1234.1. Overview of the questionnaire ........................................................................... 1234.2. Result of the questionnaire ................................................................................ 123


1

PrefaceThe Republic of the Philippines (hereinafter referred to as “the Philippines”) ispositioned at the strategic point on the maritime transportation routes, and is animportant country in terms of geopolitics and regional security. Thus, going forward,sustainable development of the country would contribute to the stability anddevelopment of the East Asian region. In addition, it is meaningful for Japan toproactively assist the country, as it has continued to realize healty growth with GDPgrowth rate of 7.2% in 2013, and it has high potential of infrastructure development inthe future under the national plan. Moreover, the Philippines in the recent years hastended to prefer Special Terms for Economic Partnership under yen loan program, andit is expected that infrastructure export based on the technology and know-how ofJapanese companies utilizing yen loan will continue.The Philippines has been actively promoting utilization of private sector’s know-howand technology, etc. for infrastructure development under the leadership of PresidentAquino who took office in June 2010. However, there are many issues when Japanesecompanies proactively participate in infrastructure projects, such as inappropriate risksharing between public and private, perceived lack of objectivity in bidding process, andperceived lack of transparency, etc.In this study, we surveyed the latest institutional framework related to PPP in thePhilippines with the view to contributing to facilitating business environment forJapanese companies to participate in PPP projects. Also, in order to facilitate theprogress of specific PPP projects, in consideration of the priority in the Philippines, wesorted out the potential PPP projects that Japanese companies would be interested in,identified specific issues in implementing such projects, and examined suggestions toaddress issues. Further, in order to assist infrastructure export by Japanese companies,we introduced the technology and know-how of Japanese companies to the Governmentand private companies in the Philippines.


2

Executive Summary

(1) Research and Analysis of PPP System1. Current Status of PPP System in the PhilippinesGiven the power crisis in 1980s and 90s, the Philippine government enacted the “Authority ActConcerning Funding, Building, Operation and Maintenance, etc. for Infrastructure Projects bythe Private Sector: BOT Law” (Republic Act No. 6957) for the purpose of promoting privatesector participation. This is the first legislation of the BOT scheme in Asia, which means theirattention on the necessity of infrastructure development through utilization of private capitalfrom an early stage.Regarding the Supervisory Agency of PPP in the Philippines, The umbrella body for PPPprojects in the Philippines is “PPP Center” established in 2010 in accordance with the ExecutiveOrder No.8. With the reorganization in 2010, the control of the Center was transferred toNational Economic and Development Agency (NEDA), and it creates and promotes PPPprojects based on its expertise in PPP such as support for bidding as well as preparation of F/S.Procedures concerning PPP projects are established in the Implementing Rules and Regulationsfor the Amended BOT Law (2012). There are two types of PPP, namely, 1) Solicited projectand 2) Unsolicited project. However, the number of unsolicited proposals that were made intoprojects is limited.Characteristics of Procurement of PPP Projects in the Philippines can be described as

“Interactive” Process, Information disclosure and Market sounding, and, “ComprehensiveEvaluation Bidding” and “One-Party Bidding”.The number and amount of investments in PPP projects in the Philippines have shown adeclining trend for several years since 2009.Meanwhile, due to the hosting of the APEC SummitMeeting in 2015 and the government announcement of acceleration of infrastructuredevelopment toward the expiration of President Aquino’s term in 2016, movements to facilitateapplication of PPP to public projects as well as the progress of existing PPP projects will beactive in the next one and two years.

2. Issues in the System for PPP Projects in the Philippines (Issues Recognized by JapaneseCompanies)Risk-Sharing between the Public Sector and the Private Sector in PPP Projects in thePhilippines can be described as follows; Public projects in the Philippines are generallygoverned by the REVISED IMPLEMENTING RULES AND REGULATIONS OF REPUBLICACT 9184, which stipulate that the risk-sharing between the public sector and the private sectorshould also be clarified for each project. In the “Daang Hari-SLEX Link Road Project” and the


3

“Ninoy Aquino International Airport Expressway Project”, the first PPP projects after thecurrent PPP system was launched in 2010, the risk-sharing between the public sector and theprivate sector shows more burden on the concessionaire in terms of demand risk and financingrisk.In infrastructure projects in the Philippines that require massive investment, a disputeconcerning a contract tends to be lengthened and get complicated. As there was an increasingdemand for setting the solution in advance and developing a better investment environment, theExecutive Order No. 78 (promulgated in 2012) stipulates that each PPP contract should includethe “Alternative Dispute Resolution mechanism”.In the Philippines, restrictions on foreign equity for PPP projects are stipulated as follows in the“9th Negative List (Executive Order No. 98 signed on October 29, 2012)” based on the“Omnibus Investments Code of 1987” and the “Foreign Investments Act of 1991”. TheGovernment of the Philippines has drafted a proposal for constitutional change concerning“restrictions on foreign equity” and is currently putting it before the Senate and the Chamber fordeliberation at the 16th Congress session as the joint resolution of the Senate and the CongressNo.1 (as of November 2014), in order to solve the issue of restrictions on foreign equity and aimto realize economic growth by attracting more foreign investment. Of economic provisions inthe Constitution of 1987, this proposal suggests amendment of the Articles 2, 12 and 16 inparticular (see below), and its future developments are drawing attention.Regarding government guarantee and support in the Philippines: In Article 13.3 of the currentImplementing Rules and Regulations for Amended BOT Law, it is stipulated that “thegovernment may provide any form of support or contribution to solicited projects as follows”.However, the total of such government support should not exceed 50% of a project cost.Regarding the support scheme of the government of the Philippines, there is a wide variety ofschemes in which the above-mentioned government support is realized, and measures to offerTA (PDMF) for promotion of PPP projects and various financial supports are proposed. (someare still of idea not-approved yet)In this research, the following issues concerning PPP projects in the Philippines were identified.l Issue 1: Unclear and disproportionate risk-sharing between the public sector and the private

sectorl Issue 2: Gap between the PPP system and market/companiesl Issue 3: Presence of restrictions on foreign equity and competitive advantage of local

companies

3. Comparative Analysis of the PPP Systems of Advanced Countries and of the PhilippinesWhen we compare the Philippine’s PPP framework with that of Australia, major differencesinclude (1) How to work on probity, (2) How to treat direct procurement and one-party bidding,


4

(3) How to deal with dispute resolution and (4) View on restrictions on foreign equity. For (1)and (3), while in Australia detailed procedures are in place, in the Philippines only the principlesare defined. (2) and (4) come from reflection of their differences in the procurement system andideas on economic development. For (4), it is assumed that the system in the Philippines willbecome similar to the one in Australia due to amendment of the Constitution.

4. Direction of ProposalWe identify the direction of desirable improvement based on the above-mentioned comparativeanalysis in order to solve the identified issues:1: Toward PPP System that Has Reasonable Risk-Sharing between the Public Sector and thePrivate Sector2: Toward PPP System that Expands Investment Possibilities of the Private Sector.3: Efforts to Increase Partnership Between Japanese Companies and Local Companies

(2) Study on Specific Sectors1. Important Projects Promoted by the Government of the Philippines in WhichJapanese Companies Are InterestedWe conduct detailed research on important projects the Government of the Philippines is promoting,

identify issues and propose solutions thereof in implementing these projects and select projects

which could be the target for yen STEP loans.

Regarding important projects promoted by the Government of the Philippines, in thetransportation/transit sector, JICA supported development of the comprehensive transit system

development road map for the Central Luzon and Calabarzon Region.

In the railroad sector, in the Philippines, there are two light rail transit (LRT) lines (Line-1 and

Line-2) operated by Light Rail Transit Authority (LRTA) and one metro rail transit (MRT) line

(Line-3) operated by Metro Rail Transit Corporation (MRTC), a special-purpose company funded by

the private sector. In addition, new lines are planned to be built for both LRT and MRT. Also,

extension of the existing three lines is in progress/scheduled. The following are considered to be the

projects in which Japanese companies may be interested in:

l LRT Line-1 Extension

l LRT Line-2 Extension

l North-South Railroad Project (South Line)

l Other urban transport projects

Regarding airport sector, in 2014, the following six airports were approved by the NEDA Board (the

first two were approved in June, and the rest was approved in October). For Bacolod-Silay, Davao,

Iloilo and Laguindingan, the scope of the project is expansion of the terminal building, apron, other


5

airside/landside facilities and their operation/maintenance while, for New Bohol and Puerto Princesa,

the project covers operation/maintenance after completion of construction and future expansion. The

following are considered to be the projects in which Japanese companies may be interested in:

l New Bohol Airport Projectl Other airport projectsIn addition, there are PPP projects/ national projects in the road sector as well. As with

railroad projects, it is common that the private sector bears demand risk in road projects.

Only the two projects below are planned as PPP projects in the water and sewerage sector. They aredevelopment of the water source and water supply project for the Manila Metropolitan Area, andMWSS (Metropolitan Waterworks and Sewerage System) serves as an implementing agency forboth of them. PPP projectshave not yet spread to implementing agencies other than MWSS. Thefollowing are considered to be the projects in which Japanese companies may be interested in:l Bulacan Bulk Water Supply Projectl Other water and sewerage projectsRegarding the energy sector, the Government of the Philippines has a policy to promote natural

gas power generation. DOE (Department of Energy) announced in September 2014 to increase the

ratio of natural-gas-fired power to 30-35% by 2030.

As Malampaya Gas Field is expected to be drained by 2024, projects for import of LNG are plannedtoward fuel procurement for existing and planned (in development) natural gas power plants andfuture utilization of natural gas for industries, etc. Specifically, in tandem with the LNG terminalconcept, natural gas pipeline projects which utilize LNG are planned. In 2002, JICA supportedformulation of a natural gas master plan, and in 2011, preparatory survey was conducted(-November 2014). Meanwhile, PPP Center also aims to develop this project under the PPP schemeand is now conducting F/S while reviewing the JICA study.

2. Issues, Bottlenecks and Solutions in Implementing Selected ProjectsRegarding the railway (urban transport) projects, in order to address various potentialissues, the following factors need to be considered:l To develop an environment where the private sector can participate in more easily

l To avoid any delay or trouble in the schedule for construction completion and delivery and

construction supervision, etc.

l As for the connection of the extension with the existing line, to conduct coordination among

concerned parties and proper monitoring, etc.

l To properly split it between the public sector and the private sector even when yen loans are

utilized.

Regarding airport operation projects, it is considered important to promote creation of projects

in which wide-ranging foreign companies can participate. If the project requires large capital

expenditures, the cost and risk borne by concessionaires tend to be significant, and thus it is required


6

to ask for measures which prevent the project framework from limiting bidders.

Regarding water projects, in order to promote PPP projects in the water supply/sewage sectoroutside Manila in the future, it is important to encourage the development of a guarantee frameworkthat foreign operators as well as financial institutions are willing to accept. Regarding sewerageprojects, encouraging the government’s involvement in terms of policy could be an option.Regarding energy projects, it may be necessary to implement measures (e.g. environmentalregulations, etc.) to increase the ratio of natural gas in the power generation sector while developingdemand of industrial customers in parallel with the pipeline project.

3. Important Projects Promoted by the Government of the Philippines Where Yen STEP Loans andTechnology/Knowhow Covered by STEP Yen Loans May be UsedIn the transportation sector, LRT and MRT development projects in the Philippines appear

likely to satisfy requirements of STEP projects.

In the water and sewerage sector, there is a great need, also in the Philippines, for projects on

water purification which utilizes Japan’s membrane treatment technology, and thus there seems to be

a potential room for using yen STEP loans.

In the energy sector, although there is a general tendency that gas pipeline projects are considered

commercially viable, it would be unlikely that such project in the current situation of the Philippines

is commercially viable. Thus, it may be possible to be developed as a STEP project.

(3) Infrastructure Development SeminarOn February 23rd, 2015, the Philippines Infrastructure Development Seminar was held. From the

Philippines side, Secretary Singson and senior officials of Department of Department of Public

Works and Highways, senior officials from Department of Energy, Department of Transportation and

Communications, National Economic and Development Authority, Public-Private Partnership Center

and Bases Conversion and Development Authority, etc. participated. From Japan, Ministry of

Economy, Trade and Industry, Ministry of Land, Infrastructure, Transport and Tourism, Japan

External Trade Organization, Japan International Cooperation Agency, and 6 external speakers

participated.


7

(1) Research and Analysis of PPP SystemIn this Chapter, we review the current status and issues of the PPP system in the Philippines and the

type of support Japan could provide. The environment that surrounds PPP projects in the Philippines

attracts global attention. While they ranked 8th in the ranking of the “Countries with the most ideal

environment for PPP projects” in 2011 by Infrascope1, expansion of Japanese companies into the

PPP market in the Philippines is not so active, and it is said there are various factors behind it.

1. Current Status of PPP System in the PhilippinesThe Philippines has faced management difficulties and excessive debt of State-Owned Enterprises,

leading to crisis in infrastructure supply such as power shortage. To address these issues, measures

such as introduction of Independent Power Producres (IPPs, in 1990s) and liberalization (Electric

Power Industry Reform Act (EPIRA) in 2001) in the power sector, or privatization in the

water/sewerage sector. In the course of such privatization and liberalization, advanced frameworks

such as those in the U.S. have been referred to, and the process has been accelerated by the fact that

the large domestic conglomerates were able to take over such responsibilities. These resulted in the

formation of the current framework in which the government involvement in infrastructure

implementation tends to be low.

Regarding the framework relatied to PPP, the Philippine government enacted the “Authority Act

Concerning Funding, Building, Operation and Maintenance, etc. for Infrastructure Projects by the

Private Sector: BOT2 Law” (Republic Act No. 6957) in 1991 for the purpose of promoting private

sector participation. This is the first legislation of the BOT scheme in Asia, which means their

attention on the necessity of infrastructure development through utilization of private capital from an

early stage.

1.1. PPP-Related Laws and Regulations in the PhilippinesIn the Philippines, the BOT Law as amended in1994 (Republic Act No. 7718) as well as the

Implementing Rules and Regulations for Amended BOT Law established in 2006 serve as a legal

basis for PPP projects, and since then, privatization of state-owned enterprises and BOT projects in

the power sector, etc. have increased. However, after that, mainly foreign investors’ willingness to

invest in BOT projects has declined due to country risks (concern for growth, etc.), insufficient

capital and unclear risk-sharing between the public sector and the private sector. Then, in 2010, the

Aquino Administration announced promotion of PPP projects, positioned it as one of the important

policies and has since implemented various measures to improve the various PPP systems.

1Evaluat.ing the environment for public-private partnerships in Asia-Pacific, The 2011 Infra-scope, Economist Intelligent Unit(http://www.eiu.com/)2 Acronym for Build-Operate-Transfer.


8

Exhibit 1 Transition of PPP-Related Laws and Plans in the Philippines

1990 BOT Law (Republic Act No. 6957)

1994 Amended BOT Law (Republic Act

No. 7718)

Amendment: Establishment of various rules for PPP,

addition of the ROT

(Rehabilitate-Operate-Transfer) scheme and the

BLT (Build-Lease-Transfer) scheme and

clarification of treatment of unsolicited projects, etc.

2006 Implementing Rules and

Regulations for Amended BOT

Law (BOT-IRR)

2010 Executive Order for Establishment

of PPP Center3

(No. 8 of 2010)

Reorganization of BOT Center established under DTI

(Department of Trade and Industry) in 1993 into PPP

Center Affiliated with NEDA, PPP Center aims to

ensure smooth cooperation with the national

development plan and the public investment program

and to optimize the approval process (six-month

examination period at maximum, etc.).

2013 Revision of JV Guideline Revision of the rules4 for the JV scheme promulgated

in 2008. The revision made possible project

implementation by a joint venture entity between a

government-linked public company and a private

company. The revision includes additional

requirement of approval of NEDA-Investment

Coordination Committee (ICC) depending on project

details and scheme and increase in the investment

ratio ceiling of a government agency to 50% of a joint

venture company, etc.

2013 Investment Priorities Plan The Board of Investment (BOI) determines the

priority sector for investment (revised annually).

3Executive order: Order of the President4JV scheme: Joint venture scheme. In the context of PPP, it is a scheme in which a corporation jointly established by the publicsector and the private sector offers a public service. It leverages each other’s strength by establishing a cooperative body whilesharing risks between them. The JV Guideline, which was formulated during the previous administration, was reviewed in 2010 dueto an issue of transparency and then revised in 2013. In the former Guideline, authority to approve a joint venture agreement wasgranted only to the top of government-funded organizations, and approval of the Department of Finance as well as the Departmentof Budget and Management was required for a joint venture agreement to which the government provided subsidy or guarantee,regardless of project cost.


9

2014 The amendment proposal for the

current BOT Law is under

deliberations in Congress (May-).

The proposal reinforces the policy environment that

surrounds PPP projects and aims for the more

sustainable PPP system.

The PPP Board approves several new government ordinances.l Policy for institutionalization of VGF (Proposal to institutionalize VGF for PPP

projects in order to make PPP projects available to citizens and to securecommercial feasibility)

l Material Adverse Government Action; MAGA (Cases where the governmentcompensates for any loss when any legal change at a national or local level,regulatory risk and a court order, etc. has a serious direct and indirect impact onthe ability of the concessionaire of PPP to fulfill performance obligations based ona contract)

l Guideline for identification, selection and prioritization of PPP projects (Guidelineto institutionalize the evaluation criteria and procedures in the process ofidentification, selection and prioritization of PPP projects, which recommends theMulticriteria Analysis Approach (MCA) in particular when creating a list ofcandidate projects likely to be implemented under the PPP scheme)

l Policy for best practice of PPP programs (Policy to accumulate best practice ofPPP by the government as a whole and to instruct implementing agencies toincorporate lessons learned into their PPP projects as well as PPP cycle. Bestpractice includes market sounding, one-to-one interview, formulation of disputeresolution plan, nationality check of companies (control test5) and retention ofthird party consultants and engineers, etc.)

l Policy for payment upon termination of contract (Fundamental principle forcalculation of payment upon termination of PPP contract in the case ofnon-performance by the government or the concessionaire or force majeure)* Currently under discussion

Exhibit 2 Improvements of PPP-related laws in the Philippines after 2010

l Raised the Single Borrower’s Limit (To 25% of equity capital of banks and quasi banksthat loan out to PPP projects).

l Made it compulsory to include the mechanism for Alternative Dispute Resolution (ADR)in all PPP projects.

l Revised the treatment of state-owned enterprises in the JV Guideline.l Included PPP projects into the target for tax exemption.l Established SSF (Strategic Support Fund) used to acquire ROW (Right of Way).l Established the “PPP Board” as a central policymaking body responsible for PPP projects.l Established the Contingent Liability Fund.

Source: Prepared by Ernst & Young ShinNihon based on the interview of PPP Center

As of November 2014, preparations are proceeding for further revision of the BOT Law and

5Control test: Rules established by the Securities and Exchange Commission to determine a nationality of a company (Source:JETRO2012、https://www.jetro.go.jp/jfile/report/07001402/haken_%20philippines.pdf)


10

establishment of the new PPP Law, and it is expected to be approved by the Senate and the Chamber

and take effect in the first half of 2015.

1.2. Track Record of PPP Projects in the PhilippinesIt is the fourth year since the policy to promote PPP was announced in 2010. While actual PPP

projects have been increasing, of candidate PPP projects designated as “15 projects for which bids

are called for within one year (Total project cost: Approximately 15.5 billion USD)” announced in

April 2014, less than half6 were sent out for bids as of September 2014, not proceeding as initially

expected by the government.

Exhibit 3 List of 15 priority PPP projects (announced in April 2014)

Projects expected to be put out to bids within the next 12 months

Project Project cost

Bulacan Bulk Water Supply 542.22

Development of Bus Terminal in Southwest of Manila

Metropolitan Area

115.56

Operation and Management of Laguindingan Airport 353.78

Operation and Management of Bohol (Panglao) Airport 52.00

Operation and Management of Iloilo Airport 322.34

Operation and Management of Davao Airport 476.39

Operation and Management of Bacolod Airport 208.98

Operation and Management of Puerto Princesa Airport 71.13

Development of New Reservoir 417.33

Operation and Management of LRT2 Line in Manila

Metropolitan Area

2.22

Construction of Expressway around Laguna Lake 2,730.00

Construction of Regional Prisons 895.33

Development of Luzon Railroad 6,030.00

Development of Mass Transit System in Manila Metropolitan

Area

3,000.00

Development of Vehicle Inspection System 313.16

Source: PPP Center, local newspaper (in million USD)

6Source: NNA article, http://news.nna.jp/cgi-bin/asia/asia_kijidsp.cgi?id=20140903php013A


11

Exhibit 4 List of PPP infrastructure projects in progress (as of November 17, 2014)

Source: Materials of PPP Center


12

1.3. Supervisory Agency of PPP in the PhilippinesThe umbrella body for PPP projects in the Philippines is “PPP Center” established in 2010 in

accordance with the Executive Order No.8. Its predecessor is BOT Center established under DTI in

1993 and promoted BOT projects and provided training on the BOT scheme to ministries and

municipalities. Its role was expanded with the revision of the BOT Law in 1994 to include

coordination and monitoring of BOT projects, support for BOT projects themselves, management of

the BOT database, global promotion of BOT and support for investors. With the reorganization in

2010, the control of the Center was transferred to National Economic and Development Agency

(NEDA), and it creates and promotes PPP projects based on its expertise in PPP such as support for

bidding as well as preparation of F/S.

Exhibit 5 Functions of PPP Center (Excerpt)

Ø Reinforcement of the PPP foundation (Cooperation with the PPP unit of eachimplementing agency, enhancement of its capabilities and coordination among ministries.Technical assistance targeting local governments and enhancement of their capabilities forpreparation for PPP projects)

Ø Design of the PPP system (Revision of the Implementing Rules and Regulations for theBOT Law and organization of the bidding and approval process)

Ø Guidance on and coordination for PPP (Discussion with private companies, financialinstitutions and aid organizations, etc. at home and abroad)

Ø Promotion of PPP projects (Support for preparation of F/S and support for transactionadvisory)

Ø Construction and management of the PPP databaseØ Management and operation of Project Development Monitoring Facility (PDMF)7

Source: PPP Center

Currently, in the new PPP bill pending for approval, the position of PPP Center will be raised to a

level equivalent to that of ministries, and the Director of the Center to a level equivalent to ministers.

Once approved, PPP Center is expected to possess more authorities over PPP projects.

1.4. Other Government Agencies Related to PPP in the PhilippinesMajor players in the government involved in PPP projects include NEDA, Department of Finance,

line ministries and local governments as implementing agencies besides PPP Center.

7PDMF: Government fund that supports preparation of the business case, preliminary F/S, F/S and bid documents


13

Exhibit 6 Ministries relevant to PPP and their functions

National

Economic

and

Development

Agency

� National Economic and Development Agency (NEDA)

Manage the consistency between PPP and the national development program.

* However, in fact, according to the Executive Order in 2013 (EO136), PPP

Center is required to make a business report only to the PPP Board and to make a

report to NEDA only for the purpose of administration management.

� Investment Coordination Committee (ICC)

Cross-ministerial organization affiliated with NEDA. Examine effects of cost

burden of major projects on national finance, report the progress of each project’s

schedule to the President and provide advice on funding to evaluate and approve

individual projects.

Department

of Finance

� Department of Finance (http://www.dof.gov.ph/)

Perform operations such as formulation of policies for economic stabilization,

budget management, management of revenues and expenditures, management of

national assets and monitoring of state-owned enterprises as well as financial

institutions. Responsible for government guarantee and budget management in

PPP projects. In particular, review of national support such as government

guarantee and an informal consent of the Department of Finance are required for

final selection of a concessionaire after the bidding for a solicited project is

completed. * However, no documented rules exist (actual condition of

enforcement only).

Department

of Budget

and

Management

� Department of Budget and Management

(http://www.dbm.gov.ph/index.php?pid=1)

Perform operations such as preparation of a national budget proposal, effective

management of public expenditures, fiscal management, promotion of

sustainable and stable national development and establishment of procedures to

manage resources of government agencies. In particular, approval is required

when the Department allows an implementing agency to sign a multi-year

contract for PPP projects (Multi Year Obligation Authority: MYOA).

Line ministry Implement projects.

Local

government

Implement projects.

Source: Prepared by Ernst & Young ShinNihon based on materials of JICA, etc.


14

1.4.1. Supervisory Ministries of PPP in the PhilippinesSupervisory ministries in charge differ by PPP project cost, as follows:

300 million PHP (about 700 million JPY) or more Economic and Development

Agency

200 million PHP (about 470 million JPY*) or more and less

than 300 million PHP

Investment Coordination

Committee

Less than 200 million PHP Municipalities and states

* Rate as of August 2014

1.5. Procurement Procedures of PPP Projects in the PhilippinesProcedures concerning PPP projects are established in the Implementing Rules and Regulations for

the Amended BOT Law (2012).

[Criteria for project selection]Ø Common

A) A project should be proposed by a private proponent and approved in accordancewith the law <SEC.3.>.

B) Appropriate level of profit (earning ratio) should be secured. Especially for publicutilities projects, the earnings ratio should not exceed 12% <SEC.2.(O)>.

Ø Solicited project: Project publicly solicited by the governmentA) Maturity of and preparation for a project (business plan and priority projects of

implementing agencies, etc.)B) High feasibility (Analysis of economic performance and presence of obstacles, etc.)

Ø Unsolicited project: Project proposed by a private companyA) It is not included in the list of priority national projects and has novelty (in terms of

concept and technology).B) It does not require government support such as government guarantee, subsidy and

government investment.C) No counter offer is submitted within 60 business days after the announcement of an

project by an implementing agency or a local government of where a project islocated, or better conditions than those of a counter offer can be proposed (namely,Swiss Challenge method8).

D) Approval of NEDA’s ICC can be obtained before negotiation.A proponent of a project is required to obtain approval of an implementing agency and local

government of where a project is located.

8Swiss Challenge method: Method which allows a third party to submit a competing proposal. An original proponent of anunsolicited proposal has a right to present a counter proposal based on such competing proposal. In the transit sector, for example, ifan original proponent of an unsolicited proposal can resubmit a plan with the same fare setup as the one proposed by such thirdparty during a predetermined period, the resubmitted proposal is adopted.


15

1.5.1. Process for Implementation of Solicited ProjectsA concessionaire is selected in accordance with the following procedures for PPP projects which

satisfy the above-mentioned criteria for project selection. Documents are submitted to ICC affiliated

with NEDA after preparation for a project (creation of documents) by an implementing agency is

completed. After evaluation (30 days) of the Secretariat of NEDA and local government of where a

project is located, approval of ICC and the Chief of NEDA for starting to solicit bids for a project is

given (within 10 days after evaluation results). The preparation period for bid documents is about 90

days for a project whose cost is less than 300 million PHP and about 120 days for a project whose

cost is 300 million PHP or more. A concessionaire is then selected based on the bidding (six months

in total). Bidding is the two-envelope/two-stage system.

Exhibit 7 Involvement of PPP Center in each phase of PPP projects

Source: Prepared by Ernst & Young ShinNihon based on the “PPP Project Approval and Bid Flowchart”9 by PPP

Center

PPP Center provides support for making a proposal into a PPP project in each phase of the project

flow. For example, in the project preparation phase by an implementing agency, PPP Center

provides support for document creation (preparation of F/S, feasibility analysis and advice on legal

9http://ppp.gov.ph/wp-content/uploads/2011/03/PPP_Process_Flowchart1.pdf

PROCESS RESPONSIBLE PARTY PPP CENTER

Project Preparation Implementing agency/LGU

Submission of Project to Implementing agency/LGU

Project Review NEDA/LGU

LGU/ICC*1 Approval NEDA-ICC/LGU

Preparation of Request Implementing

Invitation &Implementing agency/LGU

Preparation for and Private company

Evaluation of BidsImplementing

Awarding & Implementation Implementing

• Support capacity

development

• Provide funds to

pre-investment activities

Provide support to an

implementing agency/LGU for

Assist in the preparation

• Participate in PBAC*3 as

an observer without a say

Assist in the evaluation

Manage


16

system, etc.), develops bid documents and provides support for evaluation of bidding results. As

such, PPP Center plays a significant role in promoting PPP projects, and it is said that provision of

PDMF to implementing agencies and local governments as well as transaction advicory greatly

shortened the time needed for bid preparation.

1.5.2. Process of Implementation of Unsolicited ProjectsThe process for implementing unsolicited projects is stipulated in Article 10.1 of the

“Implementing Rules and Regulations for Amended BOT Law”. It is stipulated that

implementing agencies and local governments are allowed to accept an unsolicited proposal only

when it satisfies the following conditions on a negotiation basis.

Ø It includes a new concept/technology and is not listed in the national priority PPP projects.Ø It does not require direct government guarantee, subsidy and capital infusion (in

accordance with the Implementing Rules and Regulations for Amended BOT Lawstipulating that the government does not provide support to unsolicited projects).

When the unsolicited proposal is received, it will be posted in a newspaper for three weeks and

accept competing proposals. If there is no competing proposal within 60 business days, an original

proposal is adopted immediately. If there is a competing proposal with a lower bidding price than the

original proposal, the original proponent has a right to place a bid against the competing proposal

within 30 business days after the notification by an implementing agency and a local government.

When the rebidding price of the original proponent is still higher than the bidding price of the

competing proposal, the competitor wins a contract. Meanwhile, when the rebidding price of the

original proponent is below that of the competing proposal, the original proposal is adopted

immediately. It takes about nine months from submission of a proposal to signing of a contract.

Bidding is conducted by the one-stage system.

The number of unsolicited proposals that were made into projects is limited, and under the current

BOT scheme, “NLEX-SLEX Connector in Manila Metropolitan Area” (DPWH) is the only project.

This unsolicited project with the total cost of 18 billion PHP (about 43.9 billion JPY) which was

approved in May 2010 was planned to be implemented by a joint venture company between the

proponent (MPIC) and the government-linked construction company (PNCC). However, in July

2014, the Department of Justice suspended the project because “it lacked validity for establishment

of a joint venture company”. Instead, the Department required to perform regular procedures for

unsolicited proposals and instructed to adopt the “Swiss Challenge” method which grants the

concession to a company that proposes better conditions (in terms of amount and details) than the

initial proposal. So the procedures for the project fell apart10. Also, “MRT7 Line”, which was made

10Source: http://www.philstar.com/business/2014/11/03/1387296/mpic-seeks-clarification-nlex-slex-road


17

into a project under the former BOT scheme, is a project that Japanese companies have participated

since its inception. As the current administration maintains a cautious stance on providing

government guarantee and various approvals to unsolicited projects approved by the former

administration, the project has not yet started as of November 2011.

“Third Terminal of Ninoy Aquino International Airport” is the only project implemented under the

former BOT scheme for which the competing proposal instead of the original one was adopted based

on the “Swiss Challenge” method, and it is said that there are increasing concerns for its

effectiveness11.

1.6. Characteristics of Procurement of PPP Projects in the Philippines1.6.1. “Interactive” Process of PPP Projects in the PhilippinesOne of the characteristics of the PPP system in the Philippines is its “interactive” process.

“One-to-One interview” is conducted individually between a procuring organization and a

company that has been pre-qualified to ensure the interactive procurement process. In the interview,

questions a bidder has and major conditions of a PPP project proposal are discussed, and concerns of

a bidder are resolved by this interview before official bidding. Questions raised at the “One-to-One

interview” by a company that has been pre-qualified and responses from the government are

disclosed in the official bid bulletin of the government every time an interview is conducted

(However, individual company remains anonymous for information protection). This interview is

held by an implementing agency under the presence of all relevant ministries in order to avoid any

doubt of extending facilities to one particular company.

In addition to the above-mentioned interview, the Government of the Philippines guarantees the

“interactivity” of procurement through the “Investor Forum” and“PQ Conference” hosted by

implementing agencies. From companies which participate in the forum, etc., ones that may be

interested in the project in the future are identified, and an implementing agency will then lay the

groundwork for market sounding of these companies.

1.6.2. “Information Disclosure” and “Market Sounding” of PPP Projects in thePhilippines

(1) Information disclosure of PPP projects

In Article 2.4 of the current Amended BOT Law, it is stipulated that “An implementing agency and

a local government should disclose the list of priority projects which need to be implemented by a

11Source: Observations about ”Proposal System by Private Companies” in the Amended PFI Act (2012, Bulletin No. 2 of PPPResearch Center of Toyo University)


18

contract method or a contract scheme (=PPP) based on the current BOT Law as well as the

Implementing Rules and Regulations”. The list of priority projects needs to be posted in a national

newspaper at least semiannually. Moreover, where possible, it is required to post the list in an

international version of newspaper and on the website of PPP Center, and information of PPP

projects is disclosed not only in the Philippines but in global markets.

(2) Market sounding

Market sounding means a dialogue between the public sector and the private sector and is

implemented frequently in the PPP market in the Philippines. Although there are no special rules in

the Implementing Rules and Regulations for Amended BOT Law (condition of actual enforcement

only), a procuring entity of PPP conducts market sounding through the “Transaction Advisor”

during the period of PPP project preparation. This sounding is conducted to determine major items to

be considered when a project is decided to be executed under PPP. Information obtained by market

sounding is provided as a guideline for creation of a project proposal (measures to improve the

feasibility as a PPP project, etc.) to a procuring entity.

(3) How to guarantee fairness in market sounding

The purpose of market sounding is to evaluate the capability of the private sector to carry out a

project in order to assess what kind of potential risks exist during the term of a PPP contract. It is

required to keep in mind that what companies with interest can offer to the project and what these

companies want from the project should be clarified by focusing on whether the project is suitable to

the PPP scheme, how many companies can handle the project and whether it is possible to attract

investors, etc. It is also required at the same time to understand possible risks of the project, check

the capacity of a company required for implementation of the project, find issues and concerns that

affect the project at an early stage and develop a strategy that enhances competitiveness in the

market.

The target for market sounding is the entire private sector. Individual companies, cases and

individuals are not included. All information obtained by market sounding is used as suggestions for

development of PPP projects and has no binding power for project development whatever.

1.6.3. “Comprehensive Evaluation Bidding” and “One-Party Bidding” of PPP Projectsin the Philippines

In the rules for public procurement in the Philippines, technical evaluation by the Pass/Fail method

should be adopted in principle for both general public procurement and PPP procurement (solicited),

which is the same as other countries. However, as for unsolicited PPP projects, Comprehensive


19

Evaluation Bidding is adopted which focuses on evaluating the life cycle cost of the entire project

(≒VFM), which is a progressive example. Also, in the Philippines, as with the rules for public

procurement, Section 2.5 of the Implementing Rules and Regulations for Amended BOT Law

admits one-party bidding by direct negotiation for PPP projects, but the equivalent rules in Japan and

US do not allow it, which makes the case of the Philippines progressive12.

1.7. Target Sector for PPP in the PhilippinesTarget sectors for PPP projects are established in Section 2.2 of the Implementing Rules and

Regulations for Amended BOT Law. Infrastructure projects which private companies can

participate in are as follows.

Exhibit 8 Target sector for PPP in the Philippines

Transportation

Highway (road projects such as expressway, bridge and other related

facilities)

Railroad and other related commercial development facilities

Mass transportation equipment other than railroad, inland navigation

channel and related facilities

Port and harbor (pier, wharf and related facilities)

Airport, air traffic control and other related facilities

Electricity and telecommunications

Power generation, transmission of electricity and other related

facilities

Network facilities such as communications and service/facilities

related to ground and satellite telecommunications

Information technology and database/infrastructure

Social infrastructure and other

Irrigation and related facilities

Water supply/sewage system and related facilities such as drainage

Infrastructure for education and medical service

Landfill, dredging and other related facilities

Industrial park, tourist site and related facilities and public facilities

Government building and housing project

Market, slaughterhouse and related facilities

12Source: Basic Research on Legal System, etc. for Entry into Emerging Markets (2013, Ministry of Economy, Trade and Industry)


20

Warehouse and facility used after harvesting

Public fishing port, aquaculture pond, warehouse including

processing facility

Environmental facility and solid waste management facility

Source: Prepared by Ernst & Young ShinNihon based on materials of PPP Center

1.8. Support System for PPP Projects in the PhilippinesPPP projects in the Philippines attract global attention, and the government of Australia and Asian

Development Bank (ADB), etc. provide active support. ADB, together with the Government of

Australia (AusAID) and the Government of Canada (CIDA), has provided technical assistance

under “Strengthening Public-Private Partnerships in the Philippines" (TA7796-PHI)” since 2011 and

conducted fundamental research to reform the PPP system. (Example: “Review of the PPP

Institutional Set-Up”, “Policy Brief: government Share of PPP Project Costs and Risks” and “Policy

Brief: Unsolicited Proposals”, etc.) Based on these basic research and recommendations, the

Government of the Philippines is now drafting the new BOT bill. In addition to the above-mentioned

technical assistance, the Government of Australia has been providing capital (Philippines: 18.5

million USD, Australia: 15 million USD) jointly with the Government of the Philippines to the

Project Development Monitoring Facility (PDMF).

The Japanese government started the “Comprehensive PPP Capacity Enhancement Project” by JICA

in 2014 to increase the possibility of Japanese companies winning PPP contracts in the Philippines.

Major points of this project are as follows.

Exhibit 9 Overview of the “Comprehensive PPP Capacity Enhancement Project” (JICA)l Objective: To enhance the capacity of implementing agencies of the Government of the

Philippines to create and implement a PPP project.l Expected achievements1. Support for improvement of the process of selection of PPP projects

2. Support for enhancement of the capacity of implementing agencies to create and implement a

PPP project

3. Policy dialogue toward establishment of the PPP public financial support systeml Details of operations (proposal)(1) Create a long list as well as a short list of PPP projects and identify pilot projects.

(2) Evaluate the capacity of each ministry to create and implement a PPP project and check their

needs for support.

(3) Provide support for design of research on the feasibility of such pilot project.

(4) Formulate a plan to enhance the capacity of each ministry to create and implement a PPP project

(including pilot training).


21

(5) Provide support for creation of bid documents (proposal) for such pilot project.

(6) Finalize a plan to enhance the capacity of each implementing agency to create and implement a

PPP project.

(7) Develop a handbook for PPP in the Philippines (including information by sector) (Japanese and

English), etc.

Source: Compiled from JICA public information

1.9. Future Outlook of PPP Projects in the PhilippinesThe number and amount of investments in PPP projects in the Philippines have shown a declining

trend for several years since 2009.

Exhibit 10 Amount and number of investments in PPP projects in the Philippines

Source: Prepared by Ernst & Young ShinNihon based on PPI Project Database (http://ppi.worldbank.org)

*Only projects in the major four sectors (water, electricity, public transit and telecommunications)

whose financial closing was completed

The data above shows that overall the number of PPP projects is limited except for 2009 when the

amount and the number of investments were high due to investments in several large-scale power

transmission projects.

Meanwhile, in addition to the steady economic outlook of the Philippines, due to the hosting of the

APEC Summit Meeting in 2015 and the government announcement of acceleration of infrastructure

development toward the expiration of President Aquino’s term in 2016, movements to facilitate

application of PPP to public projects as well as the progress of existing PPP projects will be active in

the next one and two years. In particular, the new BOT Law currently under deliberation by the

Number and amount of investments in PPPTotal investmentProject


22

Senate and the Chamber looks set to be approved, and further utilization of the PPP scheme is

expected.

1.10. Status of Risk-Sharing Between the Public Sector and the Private Sector in PPPProjects in the Philippines

1.10.1. Rules for Risk-Sharing in Procurement SystemPublic projects in the Philippines are generally governed by the REVISED IMPLEMENTING

RULES AND REGULATIONS OF REPUBLIC ACT 9184, which stipulate that the Project

Description should define “the objectives, purpose, limitations or constraints, as well as the

allocation of risks between the procuring entity and the winning bidder.” and that the risk-sharing

between the public sector and the private sector should also be clarified for each project.

Article 1, Section 1 of the Implementing Rules and Regulations for Amended BOT Law

stipulates that concerned parties should “ensure that Contractual Arrangements reflect appropriate

sharing of risks between the Government and the Project Proponent,” when signing a contract.

However, it does not stipulate a specific method to share risks and disclosure of information on

the risk-sharing.

As for unsolicited PPP projects, Section 10.7 of the Implementing Rules and Regulations for

Amended BOT Law stipulates that contractual arrangements should reflect “sharing of risks” after

obtaining approval of the Investment Coordination Committee (ICC) as with project summary and

investment IRR. However, according to the research of ADB13, although they are stipulated in

relevant rules, there is no way to check whether contractual arrangements actually reflect the

risk-sharing and how to handle it, which is considered a problem. “No assurance that approved risk

allocation is reflected in contract- Under the existing approval process, there is no way of verifying

that the approved risk allocation and risk management strategies are accurately reflected in the final

project agreement.”

1.10.2. Individual Cases of Risk-SharingIn the “Daang Hari-SLEX Link Road Project” and the “Ninoy Aquino International Airport

Expressway Project”, the first PPP projects after the current PPP system was launched in 2010, the

risk-sharing between the public sector and the private sector shows more burden on the

concessionaire in terms of demand risk and financing risk as follows.

(*The following information is mainly included in the Preliminary Information

Memorandum/Project Information Memorandum：PIM (prior to contract negotiations).)

13Source: “Policy Brief- Unsolicited Proposals (Tentative)” (PPP Center, September 2012)


23

(1) Risk-sharing of the “Daang Hari- SLEX Link Road Project” (Winning bidder: San Miguel)

Risk Concessionaire Procuring

entity

Demand risk �

Risk of toll

revision

� Liabilities when the toll revision stipulated in the

contract is not implemented

Funding risk � Liabilities for private capital source

Risk of inflation

and exchange

fluctuation

� Revise the toll based on fluctuations of the inflation rate

every two years.

Risk of land

expropriation

� Secure ROW.

Risk of design and

construction

� Include performance assurance for construction.

O&M risk � Include performance assurance. Penalty is imposed

when the predetermined KPI standard cannot be

fulfilled.

Government risk � Risk is borne only when it falls under the established

cases.

Force majeure risk � � KPI of O&M is reduced depending on the extent of

force majeure.

Source: “Preliminary Information Memorandum” (DOTC, June 2011)

(2) Risk-sharing of the “NAIA Expressway Project” (Winning bidder: Subsidiary of San Miguel)

Risk Concessionaire Procuring

entity

Demand risk � No minimum income guarantee is granted.

Risk of toll

revision

� Pay subsidy when the toll revision stipulated in the

contract is not executed.

Funding risk � � Bear the risk by private capital source (Concessionaire is

responsible) and GFS (DPWH is responsible).

Risk of inflation

and exchange

fluctuation

� Use the calculation formula for toll revision based on

fluctuations of the inflation rate.

Risk of land

expropriation

� Secure ROW and deliver land in accordance with the

predetermined schedule.


24

Risk of design

and construction

� Include performance assurance for construction.

O&M risk � Include performance assurance. Penalty is imposed when

the predetermined KPI standard cannot be fulfilled.

Government risk � Risk is borne only when it falls under the established

cases.

Force majeure

risk

� � KPI of O&M is reduced depending on the extent of force

majeure.

Source: “Preliminary Information Memorandum” (DOTC, June 2011)

Ø There is a note on the risk-sharing in PIM for the LRT1 Line Project (April 2012). Theconcessionaire needs to bear the transport demand risk, and there is no government guaranteefor the minimum number of passengers. The concessionaire also needs to bear the risk ofinflation and exchange fluctuation as well as the risk of connection with existing lines, which isquite severe (Winning bidder: MPIC/Ayala).

Risk/ResponsibilityWho bears

risk/responsibilityRemarks

Transfer of existing LRT

assetsDOTC

Assets are transferred at the time of signing an

agreement for loans and investment. Exempt

from KPI during a transfer period.

Transit demand/Number of

passengersLicensee

There is no guarantee for minimum

passengers.

Fare revision DOTC

Compensation for loss is present when DOTC

fails to adjust fares based on an agreed

formula.

Funding Licensee Private funding

Inflation risk and exchange

riskLicensee

Remedies for domestic inflation by using a

formula for fare calculation.

Acquisition and delivery of

siteDOTC

Acquisition, leveling and delivery of land by

agreed deadline

Design/Construction LicenseeGuarantee of performance for construction as

publicly announced by DOTC

Integration with the existing

No.1 line and the southern

extension line

LicenseeInter-connection with the existing line by

licensee on a trial basis


25

Risk/ResponsibilityWho bears

risk/responsibilityRemarks

Delivery of train cars DOTC

Licensee is given an opportunity to make a

request for specifications of train cars

required.

Development of train

depot/Construction of

satellite train depot

DOTC

Licensee is given an opportunity to make a

request for specifications of design and

construction of train depot.

Operation and maintenance

(O&M)Licensee

Key performance indicators (KPI) which

stipulate penalty and perquisite given

respectively in the case of non-performance of

guarantee of operation (favorable to DOTC)

as publicly announced and performance which

exceeds publicly-announced standards

Political risk DOTC The area of responsibility is limited.

Force majeureLicensee and

DOTC

Remedies for O&M performance given to

licensee in the case of force majeure event

which is stipulated in a licensing agreement

Delivery at the end of

licensing periodLicensee

Trial and approval under predetermined terms

and conditions which are included in a

licensing agreement

Source: “Research on Railroad Strategy in the Greater Metropolitan Area in the Philippines” JICA, July 2013

Ø There is a detailed note on the risk-sharing in PIM for the AFC System Development Projectfor LRT.

Ø There is no note on the risk-sharing in PIM for the Isabela Coal Mine Mouth Power PlantProject (April 2012).

Ø There is no note on the risk-sharing in PIM for the North-South Terminal Development Projectfor Comprehensive Traffic System (January 2014, DOTC).

As mentioned above, there are only a few projects where the risk-sharing matrix is disclosed in the

project summary of PIM. In most cases, there is no information on the risk-sharing.

1.11. “Dispute Resolution” of PPP in the PhilippinesIn infrastructure projects in the Philippines that require massive investment, a dispute concerning a

contract tends to be lengthened and get complicated. As there was an increasing demand for setting

the solution in advance and developing a better investment environment, the Executive Order No. 78


26

(promulgated in 2012) stipulates that each PPP contract should include the “Alternative Dispute

Resolution mechanism”.

In the concession agreement of the “Daang Hari-SLEX Link Road Project”, as an actual example,

provisions concerning dispute resolution are included, and mandatory regular discussions between

the winning bidder and the procuring entity as well as how to handle a dispute are stipulated.

Excerpt, Source: Concession Agreement of Daanhari-SLEX Expressway Project (2014)

1.12. “Added Obligations” of PPP in the PhilippinesIn the Philippines, as for added obligations by the government, Article 12.2 of the Implementing

Rules and Regulations for Amended BOT Law stipulates that “A change in a contract by an

implementing agency or a local government is allowed only in the following examples”.

1. When such change does not affect basic conditions of a project approved by its superioragency

2. When the agreed fee, toll or charges are not exceeded or when the share of profit andincome from such project of an implementing agency or a local government declines

3. When the scope of a project is not scaled back or the performance criteria does not decline,when there is no decisive impact on a contract or when a contract period is not extended.However, except for the case of default by an implementing agency or a local government

4. When no additional government support or an increase in government expenditure isrequired

5. Even for a change in a contract that satisfies the above-mentioned conditions, it is required


27

to obtain approval of the superior agency for government intervention, the extent of burdenof the government, performance criteria and fee/toll/charges. Without such approval, anychange in a contract is considered invalid.

When any action by the government, regardless of direct or indirect, has a real impact on the

performance of obligations by the concessionaire, the policy stipulates that the government provides

assistance to this concessionaire. Therefore, it is stipulated that a PPP project contract should include

provisions for “Material Adverse Government Action：MAGA”. MAGA includes a legal change

at a national/regional level, administrative guidance and court order. Also, like the LRT1 Line

Project (Ayala/MPIC), there are some examples where a compensation mechanism (stop clause and

rules for compensation upon termination) for a default by the government is included.

It is stipulated that as for a change in a contract suggested by a concessionaire, any increase in cost

due to this change should be paid by the concessionaire and that for a change suggested by the

government, the government should bear any cost increase.

1.13. Situation of “Restrictions on Foreign Equity” of PPP in the PhilippinesIn the Philippines, restrictions on foreign equity for PPP projects are stipulated as follows in the “9th

Negative List (Executive Order No. 98 signed on October 29, 2012)” based on the “Omnibus

Investments Code of 1987” and the “Foreign Investments Act of 1991”.

●Sectors where foreign

equity is restricted to 25%

or less

Contracts for the construction and repair of locally-funded public

works. However, infrastructure/development projects based on the

current Amended BOT Law are not included (no restrictions on

foreign equity for contracts for the construction and repair of PPP

projects).

●Sectors where foreign

equity is restricted to 40%

or less

Project proposal and facility operation of a BOT Project requiring a

public utilities franchise

Under Article 5.1 of the Implementing Rules and Regulations for Amended BOT Law, it is

stipulated that “any individual, company or organization (regardless of whether it is

foreign-affiliated or domestic-affiliated and whether it is a consortium of local organization or

foreign-affiliated company)” can apply for qualification (prior/simultaneous) examination for a

project based on the BOT Law”. Moreover, the following provisions are stipulated in Article 5.4 of

the Law, “Requirements for Pre-qualification”.


28

(1) In a contract for a public project requiring a franchise, when its proponent and facility operator

is the same company, the proponent should be of Philippine nationality and registered at the

Securities and Exchange Commission of the Philippines. Moreover, 60% or more of its equity

should be owned by Philippine nationals.

(2) In a contract for a public project managed by franchise formula, when its proponent and facility

operator are different, the operator should be of Philippine nationality and registered at the

Securities and Exchange Commission of the Philippines. Moreover, 60% or more of its stake

should be owned by Philippine nationals.

(3) In a contract for a public project not requiring a franchise, a proponent as well as a facility

operator can be either of Philippine or foreign nationality.

The Government of the Philippines actively attracts and encourages foreign investment and holds

circuit forum for attracting PPP investment in at France, Germany, Spain, Japan, Singapore, US and

Canada (planned to be held in Australia and neighboring Asian countries during 2014).

The Government of the Philippines has drafted a proposal for constitutional change concerning

“restrictions on foreign equity” and is currently putting it before the Senate and the Chamber for

deliberation at the 16th Congress session as the joint resolution of the Senate and the Congress No.1

(as of November 2014), in order to solve the issue of restrictions on foreign equity and aim to realize

economic growth by attracting more foreign investment. Of economic provisions in the Constitution

of 1987, this proposal suggests amendment of the Articles 2, 12 and 16 in particular (see below), and

its future developments are drawing attention.

l Relevant rules (Articles 12, 16) for restrictions on foreign equity in the current Constitution ofthe Republic of the Philippines (1987)

(1) The Republic owns all public land, water surface and natural resources, etc.(2) All natural resources, etc. except for farmland cannot be transferred.(3) Natural resources, etc. are developed under the control of the Republic.(4) Entities the Republic can cooperate with in development of the above-mentioned resource, etc.

are those whose 60% stake is owned by Philippine nationals only.(5) The term of a contract for such cooperation is 25 years at maximum (One-time renewal of 25

years is allowed.)(6) The President can sign a contract for development of natural resources with a foreign company

in accordance with laws.(7) Private land cannot be transferred to anyone other than individuals, companies and associations

which are qualified to acquire or own public land except for the case of succession.(8) The Congress, based on recommendations by the National Economic Development Agency,

reserves particular business activities for the people of the Philippines (in the case of companies,those whose stake of 60% or more is owned by Philippine nationals).


29

(9) Public utilities are reserved for the people of the Philippines (in the case of companies, thosewhose stake of 60% or more is owned by Philippine nationals), and the management teamconsists of Philippine nationals.

(10)The Republic develops and accumulates talents of the people of the Philippines and providesspecialist jobs only to Philippine nationals living in the Philippines.

(11)Management and ownership of mass media is only allowed to Philippine nationals, etc.Source: Extracted from “Investment Environment in the Philippines” (JBIC, 2013) and the Republic Constitution and

translated by Ernst & Young ShinNihon

1.14. Public (Government) Commitment to PPP Projects in the Philippines1.14.1. Guarantee by the Government of the PhilippinesIn Article 13.3 of the current Implementing Rules and Regulations for Amended BOT Law, it is

stipulated that “the government may provide any form of support or contribution to solicited

projects as follows”. However, the total of such government support should not exceed 50% of a

project cost.

l Article 13.3 of the Implementing Rules and Regulations for Amended BOT Law (Excerpt)1. Cost Sharing: The government can bear 50% of a project cost at maximum.2. Credit Enhancement: The government provides measures to enhance credit such as

government guarantee based on a project contract.3. Direct Government Subsidy: The government provides direct financial assistance such as

release/term extension of some debt and payment of expenses concerning operation andmaintenance and reduction of the real estate holding tax.

4. Direct Government Equity: The government supports equity contribution.5. Performance Undertaking: The government includes provisions in a contract for its

financial burden at the time of default.6. Legal Assistance: The government provides necessary legal assistance.7. Security Assistance: The police and the military provide support for security by the

completion of construction.

These government support measures are determined by individual project based on its needs

irrespective of its sector. It is stipulated that target projects should be “those that are useful

economically but cannot attract private companies from a commercial perspective”.

1.14.2. Support Scheme of the Government of the PhilippinesThere is a wide variety of schemes in which the above-mentioned government support is realized,

and measures to offer TA (PDMF) for promotion of PPP projects and various financial supports

exist. As for financial support, Article 13.3 of the Implementing Rules and Regulations for

Amended BOT Law stipulates that “the Government may provide any form of support or


30

contribution to solicited projects”. As examples of such support or contribution, Cost Sharing, Credit

Enhancements, Direct Government Subsidy, Direct Government Equity, Performance Undertaking,

Legal Assistance and Security Assistance are introduced.

Ø Project Development Monitoring Facility(PDMF)Under this scheme, PPP Center hires an external consultant to provide support for individual project

in the phase of project preparation or bidding to an implementing agency and a local government

which have difficulties promoting PPP projects due to insufficient capacity and budget. ADB

designs the scheme, and the Government of the Philippines (18.5 million USD) and the Government

of Australia (15 million USD) jointly bear the cost. The support menu consists of advisory services

provided in each phase ranging from support for preparation of Pre F/S and F/S, support for

development of bid documents, management of the bidding process to financial closing.

When using the scheme, an implementing agency or a local government files an application with

PPP Center, and after the application is approved, a designated consultant is selected from the group

of consulting firms shortlisted in advance by PPP Center or an implementing agency. Payment to

this consultant is covered by the PDMF budget, but this cost is later reimbursed to PDMF by a

project concessionaire.

Ø Private Equity Fund (Department of Finance): EBF (Equity Back Finance) scheme, alow-interest loan provided when a local government jointly implements a project with a privatecompany and a support system where the government of a developing country contributesequity to a special-purpose company (SPC) that engages in an infrastructure project.

Ø Viability Gap Funding (Department of Finance): Support scheme proposed in the new BOTLaw (discussed later)

Ø Contingent Liabilities Fund (Department of Finance): Contingency fund to make payment forany violation of a PPP contract by the government. 30 billion PHP were budgeted as RiskManagement Program in FY2014, and its specified usage is “for emergency cases such as whenthe government needs to pay debt as a result of problematic contracts”.

Ø Strategic Support Fund (Department of Budget and Management, ministries)Ø Provision of Income Tax Holiday

Among these, the Income Tax Holiday is not automatically granted to all PPP projects, but, in

practice, it is granted to all of them, making it the most utilized support measure.

1.14.2.1. VGF Support by the Government of the PhilippinesVGF (Viability Gap Funding) is the support provided by the government such as certain subsidy and

credit enhancement to public projects with low profitability. Its objective is to provide an


31

infrastructure service with the acceptable price level to its users. The new BOT bill includes the

VGF scheme and its management policy proposed in the “Policy Brief Government Share of PPP

Project Costs and Risks (ADB)”, and its realization is expected. Conditions for application of VGF

include (1) a concessionaire selected by competitive bidding, (2) a concession agreement and (3) a

project that satisfies the EIRR of 15% or more.

In order to use VGF, PPP Center and a procuring entity first estimate the required amount of VGF

and then present it to the Development Budget Coordination Committee. After approval by the

Committee, additional research is conducted to recheck the necessity of granting of VGF.

Exhibit 11 Overview of VGF in the Philippines

Target Initial investment or management cost of a PPP project

Form Cash, contribution in kind (equipment and other assets) and real estate

Limit Up to 50% of the total project cost (however, except for the cost of

land expropriation)

As written above, VGF framework in the Philippines allows “cash, contribution in kind (equipment

and other assets) and real estate” as the forms of VGF. In the LRT1 Line South Extension Project,

the Government of the Philippines provided rolling stocks and it could be considered as VGF in the

broad sense14. In addition, for this project, DOTC, the implementing agency, announced that NEDA

Board in November 2013 approved the provision of subsidy in the amount of P6 billion15. However,

as the result of bidding, this subsidy is seemingly not utilized.

1.14.2.2. Support for Site Acquisition by the Government of the PhilippinesIt is stipulated that site acquisition required for PPP projects should be negotiated for each project.

How to handle site acquisition is one of the indicators for evaluation of private companies and is

reflected in the project cost. Cost incurred for securing ROW and site acquisition, etc. is covered by

the above-mentioned “Strategic Support Fund”.

1.14.2.3. Support Measures Other Than AboveIn the Amended BOT bill which is under deliberation, it is proposed that “A large-scale PPP project

which has an impact on a national scale is exempt from all taxes and dues such as real property tax

and transfer tax imposed by local governments”.

14Source: Business Report on Development of Strategies for Construction and Real Estate Companies in Japan Based on MarketAnalysis by Foreign Geographic Area (Ministry of Land, Infrastructure, Transportation and Tourism, 2014)15Sourc: PPP Center website (http://ppp.gov.ph/?=19387), 13 February 2014


32

2. Issues in the System for PPP Projects in the Philippines (Issues Recognized byJapanese Companies)

In this research, the following issues concerning PPP projects in the Philippines were identified from

the interviews with major trading companies and major manufacturers/general contractors in Japan,

conducted in July and August 2014, as well as from the interview with the JICA section in charge of

the Philippines. In support of information obtained by the interviews, the following three issues can

be raised in reference to the existing literatures on issues of the PPP system in the Philippines.

1 There is a problem in the division of roles between the public sector and the private sector,

and the private sector bears the project risk the government should bear under normal

circumstances.

2 “Transparent and fair PPP” is pursued but has lost touch with the actual intention of the

market as well as companies.

3 The competitive advantage of Japanese companies is declining against local industrial

conglomerates.

2.1. Issue 1: Unclear and disproportionate risk-sharing between the public sector andthe private sector

- There is a problem in the division of roles between the public sector and the private sector,

and the private sector bears the project risk the government should bear under normal

circumstances. -

There is an imbalance in the risk-sharing of PPP projects between the public sector and the private

sector. The following can be listed as possible factors.

1) The private sector is forced to bear the risk the government should bear from the beginning

(Examples of the next section: (1) and (3)).

2) The government fails to perform an obligation it is supposed to perform, resulting in the private

sector bearing the burden instead (Example of the next section: (2)).

3) Risk-sharing is not clearly determined in a contract or rules for specifications (Example of the

next section: (2)).

Currently, of risks shared between the public sector and the private sector in the PPP market in the

Philippines, the major risks at issue are as follows (based on the results of the interviews and existing

literatures).


33

(1) Policy risk: As is obvious from an example of a change of administration in the past, there is a

concern that functions of the government virtually stop, and various processes of PPP projects

slow down for more than a year before the general election starts. Once an administration

changes, approval of projects decided under the previous administration may get delayed, etc.

Also, until now, there are actually examples where the concession agreement, that was once

decided before the current BOT Law was enacted, was torn up (3rd Terminal of NAIA

International Airport16), and where recording of corporate income taxes as expenses was

suddenly disallowed in some local project that Japanese companies invested in, resulting in

international arbitration (Maynilad water project) and where the government suddenly froze

tariff increase (Expressway PPP). Private companies are greatly concerned that inconsistent

policies may be applied to the existing PPP projects. In addition, other than the existing PPP

projects, some examples are observed where various permits and licenses needed to implement

a project are not unified and not granted swiftly. Even under the current PPP system, there is a

concern for the possibility that specific measures and management are not in place at the actual

operation level although upper-level policies to promote PPP are present. In particular, in the

Philippines, the governance of public administration is weak, and some cases have been

observed where decisions of the system or superior agencies were overturned by lower-level

administrative bodies. As such, the reality is that a concessionaire is forced to bear risks related

to policies which are out of their control such as a concessionaire bearing risks the government

is supposed to bear or the government failing to bear risks in completing PPP projects. In a

recent example, there is a project which was decided to be implemented under the previous

administration; however, the Department of Finance has not approved its performance

undertaking, and the project has not yet started as of November 2014.

(2) Construction completion risk: Risks concerning completion of construction include several

factors and thus are a great burden to a concessionaire.

Ø Issues on capital: While various support measures exist for CAPEX and operatingexpenses of PPP projects which often require massive investment, capital contribution bythe government and government guarantee are limited, and no subsidy is provided foroperation of PPP projects.

Ø Issues of time overrun: In large-scale projects such as LRT extension and construction ofan airport and an expressway, etc., the start of projects got delayed due to a limited numberof bids and postponement of bidding for a few months. Even after a project starts, there is

16 In the Third Terminal Project of Ninoy Aquino International Airport (NAIA) in the Manila metropolitan area, a consortium ofNissho Iwai (currently Sojitz) and Fraport (in charge of operation of Frankfurt Airport) proceeded with construction and included (1)“No duty free shops will be built outside Manila Airport”, (2) “The first terminal will be closed while using the second terminal fordomestic flights and the third terminal for international flights” and (3) “Clark International Airport (which could compete withNAIA) will not be expanded” in the terms and conditions to ensure stable project operation. However, the Government of thePhilippines failed to comply with them and renounced the concession, resulting in the withdrawal of the consortium from thisproject. Thus, Takenaka Corporation, which was in charge of construction, faced with difficulties in debt recovery.


34

a possibility for delay due to the delay in the licensing procedures or adjustment forlinking the PPP portion and the yen loan portion. In particular, the government bears theprimary responsibility for site acquisition and relocation of residents. However, someexamples are observed where the procedures for issuance of permission for site use gotdelayed, or a designated site was changed after the fact, resulting in certain impacts onprojects. As such, cost often exceeds the budget target in the event of such delay in thePhilippines where the inflation rate is very high, which affects completion of constructionfor projects.

Ø Issues of vague contracts: There are some cases where a concessionaire is required to takeadded responsibilities after signing a contract due to unclear rules for success and failureof a project such as no provisions concerning who is in charge of site acquisition in aproject contract or vague definition of specifications required. For instance, in an LRTLine Project, there is no clear stipulation on the traffic signal control system that should beunified for the entire line. Under normal circumstances, the sharing of risks ofdeterioration of the existing lines and risks of salt damage should be decided between thepublic sector and the private sector, but in reality, it remains unclear, and thus a winningbidder may be held responsible for such existing risks in the future.

(3) Demand risk: Although infrastructure projects have low profitability, and it is difficult to make

a demand projection, a concessionaire is forced to bear demand risk in many cases. In the public

transit sector such as railroad and expressway, etc., the assumption of demand is the

ridership-basis17 rather than the availability basis18, and in projects for which the public sector

takes demand risk (water supply/sewage system, etc.), off-take risk to water districts exists. As

such, risks a concessionaire is required to bear are excessively high. In the “Guideline by

Sector: Public Transit (Tentative)” (August, 2013)19 of the current PPP system in the

Philippines, the following four types are introduced as a payment mechanism. However, there is

no rule to stipulate the status and the extent of demand risk should be considered when deciding

which type to use, and the Guideline only says which type to adopt should be determined based

on the risk-sharing of each project.

Ø User Charge: Private consumers who use a facility/service of PPP directly pay the charge.Ø Usage Payments：An implementing agency pays to a concessionaire based on the extent a

facility/service of PPP is used.Ø Availability Payments：An implementing agency pays to a concessionaire to make a

facility/service of PPP available at all times.Ø Service Performance Payments：A concessionaire or an implementing agency pays based

on the level of the service quality provided by such concessionaire.

17Ridership-basis: Income of a concessionaire is determined by the user charge. Thus, the concessionaire bears the risk.18Availability-basis: Payment based on availability of infrastructure regardless of actual fare/toll19Sector Guidelines Transport (Draft)(PPP Center, August 2013)


35

(4) Income risk: A concessionaire has no right to decide a toll or a fee (expressway and railroad,

etc.), and there are cases where such toll or fee is set at an unreasonably low level for policy

purposes such as poverty program, or an application for an increase in such toll or fee filed by a

concessionaire may not be approved. In a recent example, LRT1 Line Project, the government’s

obligation to raise the fare which was scheduled in August 2014 was not performed as

scheduled. As all income calculation of this project was based on the fare after such increase,

even financial closing cannot be completed when this fare increase is not implemented20. In

North Luzon Expressway (NLEX) and Manila-Cavite Expressway (CAVITEX), the Toll

Regulation Board (TRB) has held its judgment for two to three years on applications for toll

increase filed as planned, and MPIC, the investing body, recorded a decline of revenue

amounting to about 2.2 billion PHP (about 5.8 billion JPY)21. Even in the sector where fare/toll

revenue is limited to PHP, exchange risk is not guaranteed, and thus the profitability of

foreign-affiliated companies is affected. In general, as railroad projects, water projects and toll

road projects, etc. in the Philippines (some exceptions in electricity and airport) assume

fare/charge/toll revenue from domestic users in PHP, foreign-affiliated companies are faced

with exchange risk and therefore at a disadvantage. Many Japanese companies expect the

government to hedge exchange risk with a foreign-currency-denominated contract22.

2.2. Issue 2: Gap between the PPP system and market/companies- “Transparent and fair PPP” is pursued but has lost touch with the actual intention of the

market as well as companies. -

The current PPP system in the Philippines is managed in a fair and transparent manner, based on the

stance of the current administration that aims for a departure from corruption. These activities of

PPP Center are progressive, and it was found that Japanese companies look at it positively. In June

2014, PPP Center won the gold prize of “Partnership Award 2014” (Award by an international

organization that promotes PPP) and is highly regarded23 globally for its contribution to expansion

of the PPP market in Asia. On the other hand, while the current system pursues fairness and

transparency too much, there is also a concern that the needs of infrastructure operators the market

really wants may not be reflected, such as failing to ensure effective competition because basics

required of public projects are not guaranteed as follows or failing to motivate participants.

20Source: Interviews with MPIC21Source: http://news.nna.jp/cgi-bin/asia/asia_tran_chk.cgi?flnm=/asia/member_new/news/20141127php009A22Note: In PPP projects of other countries, cases where Japanese companies include the framework for foreign currency remittancein F/S (Myanmar), or where Japanese companies request the government to bear conversion/remittance risk (Vietnam) are observed23http://ppp.gov.ph/?p=22574


36

Exhibit 12 Japanese companies’ impression of the PPP system in the Philippines (Selected

from the results of the interviews)

(1) The system is too careful in the bidding process as well as the project approval process,

and thus it takes time.

(2) Bid is often canceled as there is no bidder.

(3) Unsolicited24 proposals are not accepted by reason of their lack of transparency and

fairness, and proposals that meet local needs are hard to be created.

(4) As pure price competition is brought about in solicited projects, the quality and

uniqueness of a proposal are hardly evaluated.

(5) Market sounding is a mere formality for fear of being misunderstood as support for one

particular company, and findings pointed out by the private sector are hardly reflected.

(6) There is no clear arrangement and format for the risk-sharing between the public sector

and the private sector in requirements for application, bid documents and contract

documents.

2.3. Issue 3: Presence of restrictions on foreign equity and competitive advantage oflocal companies

- The competitive advantage of Japanese companies is declining against local industrial

conglomerates which are strong. -

It is said that the PPP market in the Philippines is open to domestic and foreign-affiliated companies,

but in reality, local industrial conglomerates are at an advantage, which has become an invisible

barrier to entry for foreign-affiliated companies. Opinions obtained from the interviews conducted in

Japan are as follows.

(1) Overwhelming advantage of local industrial conglomerates: In the Philippines, as PPP

projects are structured in a way that many project risks are borne by the private sector, it is

difficult for ordinary companies to place a bid. However, a local company which has already

implemented other projects in such an area can expect ancillary income from development of

the surrounding area, etc. and thus can secure the profitability from a comprehensive

perspective. At the same time, the administration puts pressure on local industrial

conglomerates to implement projects. Therefore, even for a project that Japanese companies

avoid because there is no potential for income or there are too many risks, local industrial

conglomerates actively place bids, and the bidding comes into effect as a result. As such project

with high risk is also approved, a procuring party uses the same method to create subsequent

projects, which may deprive the Government of the opportunity to improve the system as a

24Unsolicited: Project proposed by a private company


37

result. Some Japanese companies have historically collaborated with industrial conglomerates,

but they keep a distance from the unique characters of such conglomerates and only sign a

business contract for each project based on their policy not to establish a long-term partnership.

(2) Weakening of Japan’s advantage: It has been believed that financial as well as technical

capabilities are advantageous when the Japanese government and Japanese companies

participate in PPP projects in the Philippines. However, recently, Japanese loans are losing their

appeal as local banks are more willing to extend long-term loans with low interest rates as a

result of their increased funding abilities and excess foreign currencies. Also, in sectors such as

water supply/sewage and transportation/public transit, the level of technologies assumed to be

utilized in PPP projects in the Philippines remains moderate, and thus high-spec technologies of

Japanese companies are not required any more.

(3) Presence of restrictions on foreign equity: The Government of the Philippines welcomes

participation of foreign-affiliated companies to secure fairness in PPP projects and believes that

restrictions on foreign equity in PPP projects are not too strict25. However, the government

limits foreign equity in projects by stipulating the 60/40 rule and prohibition of land ownership

by foreign-affiliated companies. When the number of “track records of similar overseas projects”

is included in the requirements for application, even companies that have a proven track record

in Japan are not evaluated for their knowhow, which is another barrier to entry.

25Source: Interviews of PPP Center


38

3. Comparative Analysis of the PPP Systems of Advanced Countries and of thePhilippines

3.1. Perspectives for ReviewWe review issues of the PPP system in the Philippines identified in the previous section by

comparing the system with those of advanced countries in PPP and examine what the PPP system in

the Philippines should look like.

Exhibit 13 Issues assumed in the PPP system of the Philippines

Issue

1 There is a problem in the division of roles between the public sector and the private sector,

and the private sector also bears the project risk the government should bear under normal

circumstances.

2 “Transparent and fair PPP” is pursued but has lost touch with the actual intention of the

market.

3 While the competitive advantage of local industrial conglomerates is increasing, that of

Japanese companies is declining.

3.2. Selection of Advanced Countries in PPPWhile England (Europe), Korea (Asia) and Australia (Oceania) can be listed as target advanced

countries in PPP for comparative analysis which represent each region, the system in Australia,

which is thought to have served as a basis for the current system in the Philippines, has the highest

affinity and is thus chosen for comparative analysis.

England Korea Australia Philippines

Legal

system

PFI Act PPI Act National PPP Policy Amended BOT

Law

Risk-sharing

between the

public

sector and

the private

sector

Remaining

project cost

tends to be

covered by the

tax revenue of

the

government.

The private sector

bore project risks in

90s, and after the

legal revision in

1998, a certain

portion of income

under the BTO

scheme is covered

by the government.

However, the scope

Initially, the idea that

the private sector

should bear all risks

was prevalent, but it

was gradually

changing to increase

involvement of the

government.

Initially, the idea

that the private

sector should bear

all risks was

prevalent, but

attentions have

been paid to risks of

the private sector

after the revision of

the BOT Law in


39

of compensation by

the government was

greatly narrowed

due to the

re-amendment in

2006.

2010.

Government

support

• Loan

guarantee

•

Underwriting

of

subordinated

debt

• Minimum income

guarantee (Already

abolished)

• Risk-sharing

mechanism

• Compensation by

the government for

the shortfall of

actual project

income

• Infrastructure

Credit Guarantee

Fund

• Minimum income

guarantee

• There is a contract

form which requires

the public sector to pay

a regular amount every

month.

• Subordinated loan

• Loan guarantee

• Equity contribution

by state government

• PDMF (Support

for applying the

PPP scheme to

projects)

• Private Equity

Fund

• VGF

• Contingent

Liability Fund

• Strategic Support

Fund

• Income tax

exemption

Proposal by

the private

sector

× � Bonus system � Best and Final Offer

system

� Swiss Challenge

Interactive

procurement

�

Competitive

dialogue

Unknown � Market sounding

and dialogue

� Market sounding

and individual

dialogue

Other 1. Appointment of the

Probity Practitioner

Independent from both

a procuring entity and

a winning bidder

2. Disclosure of

contents of a PPP

contract on the Web

Source: “Basic Research on Legal System, etc. for Entry into Emerging Markets in FY2013” (2014, Ministry of

Economy, Trade and Industry), “PFI Annual Report in FY2006” (2006, Cabinet Office), “Observations about


40

Proposal System by Private Companies in the Amended PFI Act” (2012, Satoshi Kato, Bulletin No. 2 of PPP

Research Center of Toyo University)

3.3. Example of Advanced Country: PPP in AustraliaIn Australia, as part of the financial reform measures by the Labor Party administration, PPP started

by the “Harbor Tunnel Development Project” for the Port Sydney in 1989 and has been widely

utilized for economic infrastructure such as roads and public transit, etc. as well as social

infrastructure like schools and hospitals. During the Liberal Party administration in 1996,

infrastructure fund was established, and the number of PPP projects increased due to huge amounts

of funds. However, the private sector was still responsible for taking project risks at that time.

In 2000, Victorian Government established “Partnerships Victoria Policy and Guidelines,” which

categorized projects into core and non-core and stipulated that the private sector is in charge of

non-core services for which the public sector is not responsible for providing. As a result, the public

sector has stareted to bear major project risks. In 2008, the Commonwealth established

“Infrastructure Australia (IA)”, the legal advisory council of the Commonwealth, and introduced the

“National PPP Policy and Guidelines” (hereinafter called the “National PPP Policy”), which specify

the national PPP policy and establish the common axis for PPP systems each state separately

operated. It is said accordingly that PPP projects which had been implemented separately by each

state were standardized, and utilization and diversification of PPP scheme were facilitated.

The Commonwealth and states still keep revising their own PPP policies and guidelines. In 2012, IA

created the “Reform and Investment Framework”, which clarify the IA’s decision-making process as

well as the principle of guidance to private companies for PPP projects26.

26 Source: Mizuho Research Institute, “Trend of PPP in Australia and Its Implications for Japan” (July 2013), Ernst & YoungShinNihon, “Implications of PPP/PFI Procurement in Australia and Korea” (November 2010), EY Australia analyses (as of October2014)


41

Exhibit 14 Background of the PPP system in Australia

1989 Launched the first PPP project, “Harbor Tunnel

Development.

It was the first PPP project in

Australia whose cost amounted

to about 750 million AUD.

1997 Established the “Financial Management and Accountability

Act 1997” as well as the “Financial Management Guidance”.

2000 Victoria developed the “The Partnerships Victoria Policy

and Guidelines”.

Guidelines that serve as a basis

for the current PPP policy in

Australia

2008 The Commonwealth established the Infrastructure Australia

Act.

The Commonwealth established the Infrastructure Australia.

Legal advisory council on PPP

2009 The Commonwealth (Council of Australian Governments

(COAG)) established and started applying the “National

Public Private Partnerships (PPP) Policy Framework and

National PPP Guidelines”.

Including the PPP law system,

analysis of procurement

methods, guidance for

practitioners, commercial

principles of PPP, manual for

discount rate and manual for

VFM comparator, etc.

2012 IA formulated the “Reform and Investment Framework”. Framework which checks

strategic and economic

feasibilities of PPP projects.

Source: “Research on Project Evaluation of Commercialization Test, etc.” (PWC, March 2010), “Ways of

Cooperation Between the Public Sector and the Private Sector in Australia” (CLAIR, 2011), EY Australia analyses

One of the main characteristics of the PPP system in Australia is “respect for uniqueness of each

state and territory”. “National PPP Policy and Guidelines” formulated in 2009 just show the

common notion for PPP projects from a perspective of national interest and present lessons and

knowhow learned from the past best practice. As for specific operational procedures, etc., unique

management and application of existing laws in each state are still allowed. When choosing projects,

decisions are made based on the priority infrastructure plan of each state as well as restrictions. Each

state has individual PPP policy and clarifies the difference between the national policy and its own

policy as well as how to handle such difference. Also, the office in charge of PPP is established to

promote participation of the private sector while going between procuring entities and various

ministries in charge.


42

In Australia, “Procurement Option Analysis” is required for all infrastructure projects of 50

million AUD or more, based on the recognition that PPP is just one of the means for infrastructure

procurement. Project cost in the case of other schemes (e.g. Public Sector Comparator: PSC) is

compared to that in the case of PPP. If project cost in the case of PPP is cheaper, it is considered that

VFM can be achieved by PPP, and the PPP scheme is chosen27.

After the decision to apply the PPP scheme, the section of the government in charge of this project

formulates a project team which prepares the Business Case or conducts a feasibility study, appoints

the Probity Practitioner/auditor and prepares the Probity Plan, etc. Then, while “market sounding”

is performed intermittently based on the interactive process (discussed later), request for

pronouncement of interests in “EOI”, creation of a shortlist, distribution of RFP specifications, bid

for/selection of project proposals, selection of the Most Preferred Bidder and negotiation are

performed. After the bidding ends, the Project Document ((Summary), Section 1: Project overview,

principles and rules for PPP in a relevant state and VFM of project, Section 2: Explanation of project

profitability, risk-sharing, items the state government is responsible for, items a concessionaire is

responsible for and measures taken in the case of default) is prepared, and the Project Deed is

exchanged based on the project document28.

3.4. Comparison of Issues of the PPP Systems of PPP Advanced Countries and of thePhilippines

3.4.1. Verification 1: Comparison of the Risk-Sharing Between the Public Sector andthe Private Sector

For the Issue 1 of the PPP system in the Philippines identified in the previous section, “1. The

division of roles between the public sector and the private sector is unclear, and the private

sector bears the project risk the government should bear under normal circumstances”, we

compare it with the case in Australia, which represents general ideas on PPP (typical example).

3.4.1.1. Example of General Risk-SharingAccording to prior research on PPP, the general risk-sharing between the public sector and the

private sector for PPP projects are as follows.

27Source: IA Volume 1 “Procurement Options Analysis”28Source: IA Volume 2 “Practitioner’s Guide”


43

Exhibit 15 Risk-sharing of the public sector and the private sector (Example of a particular

project)

Pro

gres

s

Risk Details

Who bears risk

Pub

licse

ctor

Private sector

Con

cess

iona

ire

Con

stru

ctio

nco

mpa

ny

Ope

rato

r

Insu

ranc

eco

mpa

ny

Lend

er(L

oan

synd

icat

ion)

Bef

ore

cons

truct

ion

isco

mpl

eted

Risk of equity

contribution

Non-performance of equity contribution

obligation�

Construction

completion risk

Unable to secure and acquire land �

Opposition of residents �

Cost overrun �

Time overrun �

Unable to complete construction �

Afte

rcon

stru

ctio

nis

com

plet

ed Operational riskNon-performance of contract for operation

and maintenance�

Demand risk Decline in income due to less traffic volume � � �

Liability risk Worsening of project profitability � �

Risk of interest rate

fluctuation

Increase in payment burden for borrowing

interest� �

Bef

ore

cons

truct

ion

isco

mpl

eted

Environmental riskAdverse impact on environment such as

noise and dust� �

Force majeure risk Shutdown due to unforeseen circumstances � �

Risk of concession

cancellation

Contract cancellation/Shutdown due to

reasons of the government�

(�: Mainly responsible for taking risks, �: Shared upon consultation for each project)

Source: Excerpt from the JICA “PPP Project Research”

“Risks the Government of the Philippines should bear”, which are identified from the interviews

conducted in Japan as mentioned in the previous section and considered a problem by Japanese

companies, are items the public sector is supposed to be responsible for such as “risk of site

acquisition”, “demand risk”, “force majeure risk (including sudden policy change, etc.) and “risk of

policy change”.

The following risks also exist as risks concerning projects in addition to the table above, and it is


44

also required to properly share these risks between the public sector and the private sector29.

Exhibit 16 Various risks in PPP projects

Source: Prepared by Ernst & Young ShinNihon

3.4.1.2. Example of Risk-Sharing in Australia in PPP ProjectsThe principle idea on risk-sharing in PPP projects in Australia is to “minimize cost and risk by

allocating project risks to a party which is best at managing them”30. Considering the numerical

comparison of risks as well as the advantages of taking a risk (when intellectual property can be

retained or service quality can be maintained, etc.), the government is considered to have the policy

that the public sector (government) should actively share risks, rather than making the private

sector bear all risks31. In PPP projects, core services (led by the government) and non-core services

(led by the private sector) are clearly defined, and it is required to determine specific risk-sharing in

an individual project contract32.

29 Source: “Evaluation of BOT Method for Public Transportation Social Infrastructure in Development of Asian Cities” (2010,Tokyo Institute of Technology, Shinya Hanaoka), “Research on Issues to Be Considered for Fiscal Policy and Assumption of Debtby the Government of Myanmar” (Ministry of Economy, Trade and Industry, 2013)30Source: National PPP Policy of Australia31Source: EY Australia analyses (as of October 2014)32 Source: The rules for risk-sharing are stipulated in Volume 2, “Practitioner Guide”, Volume 3, “Commercial Principles for SocialInfrastructure Project” and Volume 7, “Commercial Principles for Economic Infrastructure Project” of the National PPP Policy(Infrastructure Australia). In some cases, guidelines at a state level are created based on them. (e.g. “PPP Risk Guidance”, Victoria)


45

Exhibit 17 Example of risk-sharing between the public sector and the private sector in PPP

projects in Australia

*This table is the results of independent analysis by EY based on public information, not the official position of the

Australian government.

Source: “Ways to Cooperate Between the Public Sector and the Private Sector in Australia” (Council of Local

Authorities for International Relations, 2011), “Basic Study on Application of PFI Method to Development of Social

Infrastructure” (Materials of National Institute for Land and Infrastructure Management, August 2004), EY Australia

Analyses (2014)

Main ideas on the risk-sharing in PPP projects in Australia are as follows33.

[Policy risk]

While the government bears the primary responsibility for risks concerning policy change and

approval, etc., a concessionaire is also considered responsible for a case where permits and licenses

may change depending on procedures taken by such parties. For instance, the government grants a

permit/license for acquisition of land deemed necessary for a relevant project, but in many cases, a

concessionaire often acquires additional sites, expecting to develop related facilities in the

surrounding area. In that case, it is a concessionaire’s responsibility to make efforts to acquire

additional sites and obtain a construction permit. Concessionaire is also responsible for obtaining a

33Source: EY Australia analyses (as of October 2014)


46

license for a relevant project (license for railroad operator and license for health care service

provider, etc.) as stipulated by each ministry in charge or the national/state government.

[Demand risk]

In Australia, in the 80s when PPP started to be introduced, the target sectors were limited. Various

sectors ranging from social infrastructure to economic infrastructure are now the target for PPP. For

public transit infrastructure, based on the past example of many toll road projects where the actual

traffic volume was significantly below the estimate, there is now a tendency that the government

bears the risk of traffic volume. It is common to establish a funding structure for each project.

Exhibit 18 Types of management of demand risk in Australia (Income-earning scheme)

Income-earning

scheme

Overview Example

Availability-basis The government bears all demand risks.

Concessionaire receives remuneration for

maintaining assets with specifications and

functions as stipulated in a project contract.

Ø Victoria Cancer CenterProject

Ø New Adelaide HospitalProject

Ø Northwest Connector LineProject

Demand-basis Concessionaire earns income from fees paid by

those who use its facility.

Public transit infrastructure such

as toll road and railroad, etc.

Government

guarantee

Concessionaire earns income from fees paid by

those who use its facility based on details of the

minimum income guarantee by the government.

Public transit infrastructure such

as toll road, etc.

[Funding cost (interest expense) risk]

Funding cost is shared between the public sector and the private sector in principle. The

government bears the risk for a period from bidding to signing of a contract while a concessionaire

bears it together with the government from the start to completion of a contract period. When there

are revenues by refinancing, etc., they are split in half. For any loss, a concessionaire absorbs

it.

[Exchange risk]

Funding cost is shared between the public sector and the private sector in principle. The

government bears the risk for a period from submission of RFP to signing of a contract while a

concessionaire bears it from the start to completion of a contract period. Concessionaire is required

to take measures for risk control such as currency hedge, etc.


47

[Risk to local culture and people]

As for risks that may affect culture or people in the location where a project is implemented, it is

first required to handle them in advance during preparation of F/S and the business case by assuming

various negative impacts that could be expected due to implementation of such project. It is therefore

preferable to maintain the risk-free situation for actual projects.

[Risk of technological innovation]

The “National PPP Policy” stipulates that risk of obsolescence of technologies should be borne by a

concessionaire, but in reality, it should be considered and determined on a case-by-case basis.

For example, in the “Victoria Desalting Plant Construction Project”, it is stipulated in the project

deed that “adopted technologies should be updated constantly through project changes”, and that

when cost reduction in the long term is realized as a result, profit should be split in half between the

public sector and the private sector.

[Force majeure risk and risk of natural disaster, etc.]

Funding cost is shared between the public sector and the private sector in principle.

Concessionaire is required to take out insurance against natural disasters and terrorism, and

compensation by the government is stipulated in the project deed. If a force majeure event continues

for 180 days or longer, the government has the right to cancel the PPP project. In such a case, the

government should make compensation for a concessionaire in accordance with provisions of the

project contract.

These policies for risk-sharing for individual project are proposed in the business case and also

announced in EOI. Based on negotiations with a winning bidder, it is required to include these

policies in the Project Summary as well as Contract Summary and submit them to an auditor of state

government. These principles for risk-sharing are all disclosed.

As an example, a published contract summary of the “Peninsula Connector Project” in Victoria is

shown below. it is stipulated that the state government bears demand risk.


48

Exhibit 19 Example of “Risk-Sharing Table” as stipulated in the contract summary of the

“Peninsula Connector Project” in Victoria (Excerpt)

Source: Partnership Victoria Project Summary, the Peninsula Link Project, May 2010, Department of Treasury and

Finance, Victoria

In PPP projects in Australia, the Design, Build, Finance and Operate (DBFO) model is common

where design, construction, funding and operation are implemented in a consistent way, and a

long-term blanket contract for 25 to 30 years is mainstream. In this case, a concessionaire should

consider risk management over the entire project life cycle. Normally, a consortium to implement a

project diversifies and transfers individual risks to subcontractors and project partners to keep the

overall risks at minimum.

If we compare the examples of risk-sharing between the public sector and the private sector in


49

Australia with those in the Philippines in the abovementioned PPP projects, the following points can

be listed as major differences in the overall view on risk-sharing: (1) While in Australia the public

sector bears policy risk and inflation risk that private companies cannot control, in the Philippines

the private sector bears these risks and (2) While in Australia the public sector and the private sector

share exchange risk and risk of natural disaster, etc., in the Philippines either sector takes primary

responsibility, etc (However, we cannot generalize all of them due to some exceptions and difference

in projects).

Exhibit 20 Major differences in the risk-sharing in the Philippines and Australia

Source: Extracted from the EY Australia analyses and various already-mentioned materials and prepared by Ernst &

Young ShinNihon

3.4.2. Verification 2: Comparison of PPP SystemsThe second issue in the PPP system of the Philippines identified in the previous section is that

“’Transparent and fair PPP’ is pursued but has lost touch with the actual intention of the market.” IN

relation to this issue, we compare major points of the PPP systems of the two countries. PPP systems

of both countries have similar principles and are based on advanced ideas.


50

Exhibit 21 Comparison of major points of the PPP systems in the Philippines and Australia

Australia Philippines Difference/

Similarity

Bidding

system

[Efforts for probity]

l Ensure transparency of theprocurement process.

l Appoint the ProbityPractitioner.

[Efforts for probity]

l Respect transparency.

Different

(1)

[PPP procurement]

Conform to the “Commonwealth

Procurement Rules”.

[PPP procurement]

Stipulate separately in the “Amended BOT

Law”.

�

[Direct procurement]

Prohibit direct procurement.

[Direct procurement]

Allow one-party bidding by direct

negotiation.

Different

(2)

[Unsolicited]

Allowed. Leave it to the discretion of

each state.

[Unsolicited]

Allowed. Swiss Challenge method

�

Information

disclosure •

Fairness

“Encouragement of interactivity” “Encouragement of interactivity” �

[Market sounding]

Perform several interviews

before/after and during a bidding.

[Market sounding]

Perform several interviews before/after

and during a bidding.

[Information disclosure]

Require to disclose a project plan and

a contract in “AusTender” and each

state. What and how to disclose is

strictly decided in the probity plan.

[Information disclosure]

Require to disclose project information to

international media as well as on the HP of

an implementing agency and in a national

newspaper (in the case of a large-scale

project).

�

Dispute

resolution

l Assume a solution other thanlawsuit in court.

l Establish the DisputeResolution Committee.

l Utilize the independentexaminer.

l Require to include provisions formeans of dispute resolution in acontract.

Different

(3)

Government

support

Focus in improvement of the PPP

system rather than subsidy.

Various schemes for financial support

exist.

�

l Minimum income guaranteel Shadow toll (toll road)l Equity contribution by state

government (VGF)

l VGFl EBFl tax holiday, etc.


51

Australia Philippines Difference/

Similarity

Ex-post

addition

One-sided addition of obligations by

the government is not allowed.

Clearly stipulate the possibility of

ex-post change and how to manage it

in a project plan as well as a contract.

Provide support to a concessionaire when

a project is affected by any ex-post action

of the government. Require to include the

MAGA provision in a contract.

�

Restrictions

on foreign

equity

Non-discrimination policy Certain restrictions in place Different

(4)[Restrictions on investment ratio]No

restrictions

[Restrictions on investment ratio]Up to

40%

[Restrictions on landowning]

Allow foreign-affiliated companies to

own land.

[Restrictions on landowning]

Do not allow foreign-affiliated companies

to own land.

Minimum preferential treatment to

domestic companies

Preferential treatment to domestic

companies in place

Source: Mizuho Research Institute “Trend of PPP in Australia and Its Implications for Japan” (July 2013), JETRO

“PPP Projects in Infrastructure Sector in Australia and Japan ~ For Promotion of Participation of Private Sector ~”

(August 2010), “Industrial and Distribution Infrastructure Development Project (Evaluation of Research on Creation

of Yen Loan Project and Infrastructure Project with Private Sector Participation)” (Commissioned by the Ministry of

Economy, Trade and Industry in March 2011, Value Management Institute), “Evaluation of BOT Scheme for Transit

Social Infrastructure in Development of Asian Cities” (December 2010, Tokyo Institute of Technology, Professor

Hanaoka), EY Australia analyses (as of October 2014)

In the comparison above, major differences include (1) How to work on probity, (2) How to treat

direct procurement and one-party bidding, (3) How to deal with dispute resolution and (4) View on

restrictions on foreign equity. For (1) and (3), while in Australia detailed procedures are in place, in

the Philippines only the principles are defined. (2) and (4) come from reflection of their differences

in the procurement system and ideas on economic development. For (4), it is assumed that the

system in the Philippines will become similar to the one in Australia due to amendment of the

Constitution.

Detailed analysis of each item is as follows.

A) Bidding system(1) Procurement system

In Australia, any project implemented under the PPP scheme should comply with the “Financial


52

Management Guideline” as well as the “Commonwealth Procurement Rules”. Fairness is

emphasized, and direct procurement, etc. for the purpose of avoiding competition and eliminating

domestic and foreign-affiliated companies is not allowed in any case.

In the Philippines, procurement under the PPP scheme needs to comply with the Implementing

Rules and Regulations for Amended BOT Law. While interactivity is emphasized, one-party

bidding, direct negotiation and comprehensive evaluation bidding are allowed, which is considered

quite advanced.

(2) Probity

In Australia, a third party independent from both a procuring entity and a winning bidder is

appointed the “Probity Practitioner” who monitors the process to ensure transparency in

procurement in an objective fashion and evaluates/reports whether fairness is guaranteed. This

“Probity Practitioner” gives advice to the project team as well as the operation committee and

formulates the Probity Plan before procurement begins. The National Guidelines require formulation

of this “Probity Plan” (Plan for confidentiality, protection of intellectual property and method to

manage interests)34 and also stipulate in details guarantee of probity in the bidding process, how to

communicate with bidders and level of authority, etc.

In the Philippines, although it is not mandatory to appoint the Probity Practitioner, Article 1 of

the Amended BOT Law stipulates the “importance of transparency”, and considerations are given

in market sounding by collecting and providing information through the advisor.

(3) Treatment of unsolicited proposals

In Australia, unsolicited proposals are allowed in Section 3.2 of the “National PPP Guidelines”. In

the case of unsolicited proposals, high VFM is required as a tool to convince the government to

engage in exclusive negotiations without general competitive bidding, and they should be in line

with the national infrastructure plan, policy and priority. On the other hand, as the Guidelines only

refer to the concept of unsolicited proposals, each state establishes a guideline based on the situation

of its market (except for Western Australia and Tasmania) to provide instructions on how to prepare

and submit unsolicited proposals and post the proposal form on the website. In particular, New

South Wales prepared the revised guideline for unsolicited proposals in February 2014, which

summarizes advices to private companies and encourages them to use it. While the “Best and

Final Offer system”35 is applied to unsolicited proposals in principle as with bidding for other PPP

34Source: Volume 2 “Practitioner’s guide, Sections 3.3, 8.4, Chapter 13, Appendix D of the National PPP Guidelines35Best and Final Offer system: System in which two candidate bidders are selected, notified in writing of any part of their projectproposals that fail to meet the standard of the government and required to resubmit revised proposals.


53

proposals in determination of the final most preferred bidder, in New South Wales, it is stipulated

that if the government determines appropriate after the prior dialogue with a proponent of an

unsolicited proposal, an interview after placing a bid and three-phased examination, the government

directly enters in exclusive contract negotiations.

Unsolicited proposals are also allowed in the Philippines. As with Australia, the most important

point when examining proposals is VFM (economic performance in a life cycle), and a decision is

made based on comprehensive evaluation. “Swiss Challenge method” is required for competing

proposals against an original unsolicited proposal. However, as it has a limited track record, and

original proposals won contracts in most cases, there are not only doubts about its effectiveness, but

the number of unsolicited proposals the PPP scheme is applied to is limited.

B) Fairness and information disclosureIn Australia, the Interactive Bidding Process is valued above everything else, and individual

interviews with private companies by the government are held frequently in the form of market

sounding. The government (procuring body) arranges a meeting with private companies which may

place bids to provide project information and have a dialogue during each process of bidding. During

the process of preparing F/S, the government assesses the competitive environment as well as the

degree of interest of private companies, and during shortlisting, the government (procuring body)

and the Practitioner answer questions on RFP of potential bidders. Market sounding during

evaluation of bids is rare, but for example, when there are concerns about the financial model

presented in a proposal, a meeting with a person who creates such financial model may be held. In

any case, it is stipulated that the government (procuring body) provides the same information to all

bidders in the presence of the “Probity Practitioner” to ensure fairness by strictly managing

information to be disclosed. Also, in the “Probity Plan”, there are rules concerning utilization and

disclosure of information on a project including bidding.

The Probity Practitioner recommends companies which may be involved in a project in the future as

those to be invited to market sounding, and the government then directly contacts these companies.

It is said that as there is a limited number of players in the infrastructure market in Australia, efforts

are made to involve a wide range of private companies.

Also in the Philippines, thorough disclosure of information on PPP projects is enforced, and it is

required to disclose such information on large-scale projects not only on domestic media but

international ones. The procurement process that focuses on interactivity is emphasized, and as a

means for that process, market sounding is frequently implemented. The situation is evaluated


54

widely and fairly such as whether PPP is appropriate as a procurement method for a certain project

and how many companies exist in the market which can implement such project, etc., and utmost

consideration is given to avoid supporting one particular company.

C) Management of dispute resolutionAccording to the “National PPP Guidelines” of Australia, it is said in a broad sense that “Due to a

nature of a PPP project that extends over a long period of time, powerful principles and procedures

for dispute resolution are necessary” and requires to “resolve a dispute swiftly without going to trial”.

However, there are no rules for specific means for resolution. So on a practical level, the

“Independent Certifier” is appointed in each project, who approves any claim against defect or

flow in a project and trial operation/operation activation after construction is completed. The

Independent Certifier is selected from an engineering company, etc. which has no connection with a

project, and several people are appointed as necessary in areas such as technology and construction,

etc.

Specific procedures for dispute resolution are stipulated in the “project deed”, and generally, the

“Dispute Resolution Panel” is established at the time of project launch (Appoint one person each

from a PPP business operator and a procuring body, and these two people choose the third person

who serves as a chairman). The Panel is required to be deeply involved in a project from its

inception such as regular site visits and review of relevant documents. If the Panel fails to prevent or

resolve a dispute, and a dispute officially arises, the following series of actions is recommended36:

(1) Request a president of a PPP business operator and a representative of a procuring body to

resolve a dispute by themselves, (2) When they cannot resolve it, seek advice from an expert

(Appointment of an expert requires approval of both parties, and when such approval cannot be

obtained, DAB appoints an expert instead), (3) This expert makes a decision on the issue in

accordance with the “Expert Determination Rules” of Institute of Arbitrators and Mediators (IAMA),

(4) When both parties cannot agree on this decision, a party which disagrees gives “notice of

refusal”, (5) When they cannot reach a settlement, the government announces to a PPP business

operator that it would resolve the issue through litigation, (6) If litigation is not filed, then enter into

reconciliation procedures.

In the Philippines, while no concrete method for dispute resolution has been established, it is

newly required to determine for each project how to handle a dispute if any in contract documents,

etc. There is an increasing awareness of the importance of dispute resolution among concerned

parties.

36Source: IA Volume 3 Volume 7


55

D) Scope of government supportIn Australia, availability payment is common for PPP projects in social infrastructure. In some cases

(e.g. Sydney International Convention Center Project), “minimum income guarantee” is provided

such as earning income from user charge in addition to the method mentioned above. As for

economic infrastructure projects (mainly toll roads), “minimum income guarantee” and “shadow toll”

are applied. In the “Sydney Harbor Tunnel Project (1989)”, for example, the user-payment method

was used where the concessionaire bears the primary responsibility for the risk of traffic volume, but

when the volume is below the estimate, the “Ensured Revenue System Agreement” stipulates that

the government makes additional payment. (Such support is not provided anymore.) In the “Sydney

Expressway M4/M5 Project (1982/1992)”, the concessionaire bears the risk of traffic volume, but

the “cash-back” (equivalent to the “shadow toll” method) scheme was introduced additionally where

the government gives users a refund as a result of the opposition by users of the expressway to tolls

after the construction was completed.

The Government of Australia has shifted its policy from provision of subsidy to revision of the PPP

project model itself, and the availability-basis has started gradually to be adopted even for economic

infrastructure projects (e.g. Northwest Rail Link Project, Sydney LRT Project).

“State Capital Contribution” is made as direct financial support such as VGF, etc. (Although the

term “VGF” is not used, it is the same in meaning.) However, as needs and the size differ by project,

the amount/timing of capital contribution as well as associated restrictions should be determined on a

case-by-case basis. No common principle is in place. In the “Victoria Cancer Center Project”, a

recent example of massive capital contribution by the government, the Government of Victoria

contributed 200 million AUD for its proper design and management.

In the Philippines, various methods are prepared as support measures of the government for PPP

projects, and PDMF, support measures for promotion of PPP projects, is used in almost all candidate

projects for PPP. Also, VGF and tax holiday are considered as financial support measures, and after

the new BOT Law is approved, all PPP projects will be exempt from value-added tax, etc.

E) Status of addition of obligations, regulations and restriction, etc. after the start of a projectIn Australia, the government is not allowed to add obligations or conditions other than those

already stipulated after signing a PPP project contract. Therefore, to avoid any additional change, it

is required to consider assumed risks and ex-post changes with legal and technical experts and

include them in the “Commercial Principle (principle that ensures commercial feasibility and


56

profitability)37” as much as possible. It is necessary to include the situation where the government

makes a change after the fact in assumed risks no matter how unlikely it is and clarify any change in

cost, risk-sharing and the service provided, etc.

Exhibit 22 “Primary items the state government is responsible for” and “Risk-sharing in the

case of global financial crisis” stipulated in the contract summary of the “Peninsula Connector

Project” in Victoria (Excerpt)

Source: Partnership Victoria Project Summary, the Peninsula Link Project, May 2010, Department of

Treasury and Finance, Victoria

However, in some cases, provisions which allow the government to submit a proposal for

“modification” of a project as required are stipulated without making it added obligations. (Same

with a concessionaire)

37Prepared for each project based on the principles of Infrastructure Australia; Volume 3 “Commercial Principles for SocialInfrastructure Project”, Volume 7 “Commercial Principles for Economic Infrastructure Project”


57

Exhibit 23 “Changes by the state government” stipulated in the contract of the “Peninsula

Connector Project” in Victoria (Excerpt)

Source: Partnership Victoria Project Deed, the Peninsula Link Project, Department of Treasury and Finance, Victoria

Meanwhile, in the Philippines, addition of obligations by the public sector is allowed under certain

conditions. Therefore, it is stipulated that a PPP project contract should include provisions for

“Material Adverse Government Action：MAGA”.

3.4.3. Verification 3: Restrictions on Foreign Equity and Competition with LocalCompanies

According to a report by the Japan Bank for International Cooperation38, “The Government of the

Philippines actively works on attracting direct investment in the Philippines by foreign companies,

and various preferential treatments are offered along with deregulation”. Overall, the government

welcomes foreign capital in order to improve fairness and competitiveness. However, in reality,

there are restrictions on the investment ratio by foreign companies regardless of sector, and

foreign companies cannot be a main player in major infrastructure projects. In addition, the presence

of local industrial conglomerates is significant. Therefore, the advantage of foreign-affiliated

companies tends to be lost when competing in bidding.

3.4.3.1. Restrictions on foreign equityIn the Philippines, the investment ratio of foreign-affiliated companies is limited to 40%or less for

38Source: “Investment Environment in the Philippines” (JBIC, 2013)


58

management of a facility for a BOT project which requires a license for public utility, and it is

stipulated that a proponent of PPP should be of Philippine nationality and registered with the

Securities and Exchange Commission. As for landowning, foreign-affiliated companies are not

allowed to own land, and it is stipulated that only corporations, etc. whose 60% or more stake is

owned by Philippine nationals are allowed.

Exhibit 24 Overview of Fireign Capital Restrictions in Relation to PPP

Restrictions Content Basis law

Restrictions on

investment ratio

Foreign capital is limited to 40% or less. Foreign Investment Act of 1991

Restrictions on

landowning

Landowning by foreign-affiliated companies

is prohibited.

Only corporations, etc. whose 60% or more

stake is owned by Philippine nationals is

allowed to own land. Foreign-affiliated

companies can lease land for a maximum of

50 years with one-time renewal (additional 25

years).

Constitution of the Republic of

the Philippines

Funding Project funds can be sourced at home and

abroad, but there is a limit. Funding from

budget of the Government of the Philippines

or foreign governments (ODA) is limited to

50% of the total project funds at maximum.

Excluding unsolicited projects.

Amended BOT Law

Source: Prepared by Ernst & Young ShinNihon based on “Investment Environment in the Philippines”

(JBIC, 2013)

Exhibit 25 PPP projects subject to regulation by the Foreign Investment Negative List

Sectors where foreign equity is restricted to 40% and less

17. Exploration, development and utilization of natural resources (100% foreign equity

is allowed if based on a contract for funding/technical assistance approved by the

President.)

18. Ownership of private lands

19. Operation and management of public utilities

20. Ownership/establishment and administration of educational institutions

21. Cultivation, milling, processing, trading of rice and corn (100% foreign equity is


59

allowed when 60% and more of its stake is to be transferred/assigned to Philippine

nationals within 30 years from the start of operation.)

22. Contracts for the supply of materials, goods and commodities to

government-owned or controlled corporations, companies, agencies or municipal

corporations

23. Project proponent or facility operator of a BOT Project requiring a public utilities

franchise

24. Operation of deep sea commercial fishing vessels

25. Adjustment companies

26. Ownership of condominium units where the common areas in the condominium

project are co-owned by the owners of the separate units or owned by a corporation

Source: “Investment Environment in the Philippines” (JBIC, 2013)

As a reference, in Australia, the “Non-discrimination policy39” is the principle in overall public

infrastructure projects, and there are no legal restrictions on placement of bids by

foreign-affiliated companies. In particular, no restrictions are in place on the investment ratio by

foreign-affiliated companies regardless of sector. (However, there are restrictions on foreign equity

in the airport sector (international route only), which limit investments to 49% as stipulated in

Article 40 of the Airport Act.) The government believes that domestic companies cannot meet all

needs for infrastructure in the country and thus actively attracts foreign capital. In fact, many

participating companies are foreign-affiliated.

As for restrictions on landowning, foreign-affiliated companies are allowed to own land. (However,

it is necessary to obtain approval of the Foreign Investment Review Board (FIRB) before acquiring

land rights.) In a project where it is assumed that the ownership is granted to a concessionaire,

foreign-affiliated companies’ ownership of certain assets which are stipulated in the “Foreign

Enterprise Title Act” may be restricted. In this case, it is necessary to create a consortium with a

local company as its partner. It is considered that participation of foreign-affiliated companies in a

bid shows the infrastructure market in Australia is regarded globally as having a healthy and

adequate procurement framework. Most infrastructure projects have been implemented by domestic

companies, but now foreign-affiliated companies increasingly participate in capital contribution and

project implementation. This trend seems to continue and expand. On the other hand, as domestic

39 Note: Non-discriminatory rules are stipulated in Article 5.2 of the “Commonwealth Procurement Rules”. In the “FinancialManagement Guideline”, it is stipulated that “All potential suppliers should be given the same opportunity in signing of a projectcontract and bidding (as long as they comply with the Commonwealth Procurement Rules) and should be given fair treatmentlegally, commercially, technologically and financially. Potential suppliers should not be discriminated against in procurementscheme because of its partnership with foreign companies, the stake owned by foreign companies, location and size. Assets andservices provided are reviewed solely based on whether they match the purpose required for a project, not on where suppliersoriginate from.”


60

companies (general contractor, etc.) in Australia want to remain a main player in domestic

infrastructure projects, an increasing number of companies win contracts of large projects by

forming a joint venture with foreign-affiliated companies (primary operators: Australian companies).

(E.g. Victoria Cancer Center Project)

In Australia, based on the recognition that domestic companies cannot implement all infrastructure

projects needed in the country, participation of foreign companies in public infrastructure projects is

welcomed, and foreign-affiliated companies are given rights equivalent to those given to domestic

companies as there is no preferential treatment in bidding given to domestic companies. In the

bidding process, considerations are also given to ensure fairness by choosing a bidder which

provides the best service based on the outcome of VFM4041, regardless of its nationality.

3.4.3.2. Trends of Local Industrial ConglomeratesIn the Philippines, local industrial conglomerates exist, which have a significant advantage in

bargaining power with the government and ancillary earning power, and our interviews, etc.

conducted in the Philippines also show that it is better to partner with local companies.

Major local industrial conglomerates in the Philippines include Ayala, San Miguel, Metro Pacific

(MPIC), Shoemart and DMCI (Consunji Group). Interviews with major companies show that as with

Japanese companies, they consider risks such as default by the government or lack of consistency in

policies as problems and that the government’s actions are insufficient. Meanwhile, awareness of the

PPP system in the Philippines differs among companies by their strength and culture. Some

companies feel the need to improve the current system while others think otherwise.

The following advantages of local companies as well as advantages required of Japanese companies

are identified based on the interviews with Japanese companies and local industrial conglomerates.

Ø Advantages of local companies:Ø Ancillary earning power: It is easier to earn ancillary income from urban development

created by infrastructure projects. Therefore, in the current PPP market, they are active inwinning contracts for PPP projects even if there is limited government intervention,subsidy and guarantee.

Ø Bargaining power with the government and capacity to propose opinions: They are atan advantage at the time of individual negotiation such as market sounding due to their

40Idea for PFI projects that a service with the best value to money paid is offered It is decided by comparing PSC (Public SectorComparator) throughout the entire project period when the public sector implements a project on its own with LCC (Life CycleCost) when a project is implemented by PFI/PPP. (Definition by Cabinet Office)41When capital expenditure of a project is 50 million AUD or more, it is required to compare VFM (Value for Money) of thetraditional procurement scheme with that of PPP.


61

long-standing network with the government.Ø Ability to deal with uncertainties of policies: It is easier for them to predict any

movement in the government as well as its policies.Ø Strong local network: They can flexibly collaborate with other conglomerates and have

high ability to collect information.

Ø Expectations on Japanese companies:Ø Technical capabilities and project knowhow: High technical capabilities of Japanese

companies are still widely recognized, and they are expected to transfer technologies to thePhilippines through partnership. Expectations for each sector are as follows.² Water and sewerage: In addition to filtration technology, operational support is

required in leakage control and charge collection system, etc.² Urban transit: Introduction of railroad operators, knowhow of on-time operation and

safety and knowhow of commercial development within a train station, etc. Inengineering works, advanced drilling technology such as shield tunneling method andnight-time construction technology, etc.

² Airport: Knowhow of on-time flight as well as airport management, etc.

Meanwhile, in the water sector, some Japanese companies believe that the companies in

the Philippines tend to be satisfied with the existing technology, and their needs for

high-cost Japanese technologies are not very high42. Also, local technical capabilities have

been developed, and it is said they can manufacture the usable product with approximately

one-third of the cost of Japanese companies.

Ø Funding ability: They expect to utilize the substantial funding ability of Japan (includingyen loans and JBIC loans). However, the recent situation of lending by local financialinstitutions has improved, and loans with 5-7% interest rate for 7-10 years (15 years insome cases) are approved. As JICA’s overseas loans and investment in local currency havean interest rate of 10% for 10 years, the advantage of Japan’s funding ability is being lost.It is also said that one of the appeal of loans from local financial institutions is the easinessto pass loan examinations even if project details are not clear. On the other hand, as localfinancial institutions currently make substantial loans to several major electricity projects,and their lending capability to other sectors is limited, compensation for the shortfall byJapan is considered as an option.

3.4.3.3. Current Status on Entry of Foreign-Affiliated Companies in the PPP Market ofthe Philippines

Foreign-affiliated companies involved in PPP infrastructure projects in the Philippines include

companies from India, Hong-Kong, Singapore and Korea, but involvement by creating a consortium

42Source: Interviews


62

with local companies is more common. As for Japanese companies, major trading companies and

electric utilities have entered into the infrastructure market in the Philippines, but most major general

contractors which had actively worked on project participation withdrew from the market. In

Australia, which is used for comparative analysis, domestic investors and construction companies

have been common as participants in the infrastructure market, but recently, an increasing number of

foreign companies are entering the market43.

43Source: “Infrastructure Map of Australia” (JETRO, 2014)


63

4. Direction of ProposalWe identify the direction of desirable improvement based on the above-mentioned comparative

analysis in order to solve the following issues identified from the results explained in Chapters 1

through 3.

Issue Direction of proposal

1 There is a problem in the division of roles between

the public sector and the private sector, and the

private sector bears the project risk the government

should bear under normal circumstances.

What should the desirable

risk-sharing between the public

sector and private sector be?

2 “Transparent and fair PPP” is pursued but has lost

touch with the actual intention of the market.

What is the PPP system whose

participants increase while

maintaining fairness and

transparency?

3 Restrictions on foreign equity are in place, and there

are local industrial conglomerates with

overwhelming advantage.

What are measures that increase

partnership between Japanese

companies and local companies?

4.1. Direction of Improvement 1: Toward PPP System that Has ReasonableRisk-Sharing between the Public Sector and the Private Sector

The principle of PPP projects lies in business efforts made by the private sector to improve the

efficiency of public infrastructure projects, but the primary principle of risk-sharing is that “the party

which can manage risks in the most proper way bears such risks”44. Therefore, the public sector

should bear the risks concerning politics and administration while the private sector should bear

commercial risks. By sharing these risks between the public sector and the private sector,

participation of private companies is facilitated, which results in optimal management of public

infrastructure projects.

Although specific risk-sharing differs by sector of public infrastructure projects (transportation,

transit, water supply/sewage and energy, etc.), risks such as policy risk that could be incurred by any

unpredictable change in rules by the government, force majeure risk and risk of technological

innovation the private sector cannot control, demand risk, risk of fare/toll/charge increase and

infrastructure risk are risks unique to that country which should be borne by the public sector.

We present the following specific proposals in order to improve the PPP system to ensure reasonable

44Source: “Guideline for Risk-Sharing, etc. in PFI Projects” (Cabinet Office, January 2001)


64

risk-sharing between the public sector and the private sector.

4.1.1. Re-affirmation of Risks the Public Sector Should Bear in PPP ProjectsFirst, it is necessary to share with the Government of the Philippines the primary principle of PPP

projects that “the party which can manage risks in the most proper way bears such risks”. In order to

invite more private investment and ensure success of PPP projects in the Philippines, it is necessary

to work on the high-level government officials to realize that both the public sector and the

private sector need to bear risks to a certain extent.

→Plan to be proposed at intergovernmental talks between Japan and the Philippines in the future.

4.1.2. Reasonable Sharing and Determination of PPP Project RisksAs examined in Chapter 3, based on the comparison of the general principle of risk-sharing between

the public sector and the private sector in Australia, etc. with the current situation of the risk-sharing

in the PPP system in the Philippines, it is suggested to revisit the risk ssharing principles in the

Philippines. In particular, if the government bears or provides some support for risks in areas such

as policies and infrastructure over which private companies cannot control, exchange risk when the

income structure is denominated in local currency and demand risk when it is difficult to forecast

demand (railroad and road, etc.), risks of entry for private companies could be reduced. Also, it is

necessary to put how the risk-sharing between the public sector and the private sector should look

like in the statutory form and properly disclose it when soliciting bids from private companies.

→Provide support in the JICA project to enhance comprehensive PPP capabilities of the Philippines

in the future.

4.1.3. Making Stipulation of Treatment of Risks Shared Between the Public Sector andthe Private Sector and Risks for Each Project Compulsory

As for risks for which it is difficult to determine which sector should take primary

responsibility such as risks that differ in nature by project, force majeure risk and risk of

technological innovation, it is necessary to decide how to handle them on a case-by-case basis.


65

Exhibit 26 Project risks of PPP projects in the Philippines that should be shared between the

public sector and the private sector (Proposal)

Publicsector

Country risk

Risk of policy and system change Sudden change in a system �

Risk of project nationalization Sudden nationalization or condemnation of project �

Risk of prohibition of foreign remittance and exchange Prohibition of foreign remittance and exchange �

Licensing risk Not granting necessary permits and licenses �

Force majeure risk Stoppage of project due to terrorism and war, etc. � � Insurance company

Commercial risk Concessionaire＋Other concernedparty

Before construction is completed

Risk of equity contribution Non-performance of equity contribution obligation � Equity investor

Construction completion risk Unable to secure and acquire land �

Opposition of residents and issue of relocation of residents �

Cost overrun �Constructioncompany/supplier

Time overrun �Constructioncompany/supplier

Unable to complete construction �Constructioncompany/supplier

After construction is completed

Operation risk Non-performance of contract for operation and maintenance � Operator

Demand risk Decline in income due to less demand � � Lender

Liability risk Worsening of project profitability � Lender

Risk of interest rate fluctuation Increase in payment burden for borrowing interest � Lender

Exchange risk Decline in income due to significant exchange fluctuation � �

Inflation risk Increase in cost and decline in income due to excessive fluctuation of inflation rate � �

Risk of fuel and raw material supply Unable to ensure long-term and stable supply of fuel and raw material � Operator

Risk of development of related infrastructure Development of expected connecting infrastructure not completed �

Sales risk Decline in income due to unexpectedly low fare/toll setup � �

Other risk

Risk to local culture and people Adverse impact on surrounding cultural heritage due to project � �

Social environmental risk Environmental pollution or noise problem caused by project � �

Risk of technological innovation Obsolescence of adopted technology and decline in income due to emergence ofnew technology � �

Risk of natural disaster, etc. Stoppage of project due to natural disasters such as earthquake, tsunami,flood, etc. � � Insurance company

Who bears risk

Private sectorType of risk Timing Risk Details (Example)

Source: Prepared by Ernst & Young ShinNihon

(�: Taking primary responsibility, �: Shared between the public sector and the private sector, Red dotted line: Risk the public

sector should bear, Blue dotted line: Risk that requires separate discussion)

As an example, the following risks are subject to discussion and review.

(a) Treatment of “demand risk”: As compared in the previous chapter, the public sector should

share part of demand risk to promote PPP projects. In projects where demand forecast itself is

difficult (railroad and road, etc.), measures are available such as a contract scheme that is not

affected by demand change (take-or-pay contract, full amount purchase system, availability

payment method, traffic volume band method (reduce the basic toll/fare for each traffic volume

band) and variable contract period method (terminate a contract when certain accumulated

income is achieved), etc.), and specific measures to share and handle risks between the public

sector and the private sector should be decided on a case-by-case basis.

(b) Treatment of “exchange risk”: As there is no direct support for exchange risk from the

Government of the Philippines, it is an option to add government guarantee or support to the

current system for any income change due to fluctuations in exchange in the sector where

collection of fares and tolls as well as recovery of expenses are performed mainly in local


66

currency. Currently, PPP Center is considering support measures to secure income and

minimize uncertainties45, and capacity payment contract or take-or-pay contract are included in

support proposals. Efforts to encourage PPP Center to consider including exchange fluctuations

in these measures may be required. It is also desirable to consider the possibility of utilizing the

JICA’s “yen loans with foreign currency repayment” or “overseas loans and investments in

local currencies” and consider specific measures to be taken.

(c) Treatment of “other risks”: As both the public sector and the private sector cannot forecast

“force majeure risk” and “risk of technological innovation”, it is necessary to stipulate a rule in

advance to evenly split responsibilities for such risks, etc.

4.2. Direction of Improvement 2: Toward PPP System that Expands InvestmentPossibilities of the Private Sector

~Toward PPP System that Fits the Reality of the Market~

Eradication of corruption is stressed in the current PPP system in the Philippines, and PPP Center

and the NEDA Board comply with fairness and transparency. However, private companies in Japan

hesitate to make a bid as inefficiency exists such as time-consuming examination and approval

process, in-depth market sounding is hardly implemented to carefully avoid supporting one

particular company, unsolicited proposals in which ideas from the private sector can be utilized are

on the decline as a result, and a means to resolve a dispute is not stipulated in details. Also, the

system to evaluate project creation based on the life cycle cost and VFM is not yet fully developed at

implementing agencies, etc., and there are concerns for sustainability of PPP projects in the

Philippines if this situation continues46. Therefore, it is required to further clarify the function of

dispute resolution and items the public sector and the private sector are responsible for respectively

when there is any risk, restore unsolicited proposals in which it is easier to reflect the latest private

market as well as intentions of the market while ensuring transparency and fairness and

expand/deepen market sounding. We present the following specific proposals to improve the PPP

system so that it facilitates participation of the private sector while ensuring fairness and

transparency.

45Source: Policy Brief Government Share of PPP Project Costs and Risks (PPP center, 2013)46Findings in ADB’s TA (Policy Brief Unsolicited Proposals, 2012)


67

4.2.1. Development of Mandatory Documents to Stipulate Risk-Sharing between thePublic Sector and the Private Sector in a Project Contract

It is required to prepare the “standard documents” (Master Agreement and Standard Documents

such as EOI/RFP, etc.) applied to all PPP projects, which clearly state the risk-sharing between

the public sector and the private sector as well as how to handle it stipulated as the PPP system

in the Philippines, and to use this format in principle. Also, it is desirable to expand application

of government support such as “Performance Undertaking” (Department of Finance), which

clearly stipulates payment responsibilities in case of a default, and “Multi Year Obligation

Authority” (Department of Budget and Management), which allows a multi-year contract.

→Provide support in the JICA project to enhance comprehensive PPP capabilities of the Philippines

in the future.

4.2.2. Review of Challenge Method that Ensures Implementation of UnsolicitedProposal in Fair and Transparent Manner

While less unsolicited proposals are adopted recently because they are prone to corruption, it is

easier to reflect the latest trend of private companies as well as the market in unsolicited proposals,

which leads to higher success in project implementation. It should be reviewed again by

conducting interviews with private companies, etc. whether the Swiss Challenge method

currently adopted is fair to these companies. If the current method is appropriate, issues in

operation of the method should be improved.


4.2.3. Review of Market Sounding MethodIt is often pointed out that in PPP projects in the Philippines, market sounding tends to be superficial

in order to avoid placing disproportionate weight on one particular company’s opinion at the time of

market sounding. In market sounding which is implemented before soliciting bids for PPP projects,

it is necessary to select project terms and conditions which can be accepted by the current market by

accurately understanding skills and knowhow of private companies, reflect them in the required level

and requirements for application and keep specifications flexible so that knowhow can be fully

utilized. Then, it is required to adopt a market sounding method suitable to characteristics of

each project47 by “holding a meeting in public” and “increasing the number of samples by using a

questionnaire”, etc. as a specific sounding method to ensure fairness. In market sounding, it is

required to properly capture information on the following important points, not just confirm

superficial information.

In particular, it is necessary to estimate the number of groups which would apply based on the results

47Source: “Research on PPP Projects” (JICA, April 2005)


68

of market sounding and to review project details again, etc. if it is likely that competitiveness is

not ensured.

→Plan to be proposed at intergovernmental talks between Japan and the Philippines in the

future.

Exhibit 27 Important points to be checked in market sounding

・ Identify potential participants in projects (domestic and foreign companies, infrastructurefunds and multi-organizations, etc.)

・ Present various ideas on sharing of market risk and accurately understand the permissible limitof private companies for the degree of risk-sharing

・ Figure out what kind of preparations are necessary for public bidding by the government(including pre-qualification criteria, period to prepare a proposal, evaluation criteria/method,terms and conditions for compensation by reason for cancellation of a contract and financialclosing period, etc.)

・ Terms for cost related to projects, market price level・ Adequacy of various terms and conditions for risk-sharing・ Details of risks the government is required to bear

Source: “Research on PPP Projects” (JICA, April 2005)

4.2.4. Provision of Dispute Resolution/Specific RulesIn common infrastructure projects, not just PPP projects, it is required to take measures to prevent a

dispute between a procuring entity, a consultant and an operating company. For PPP projects in

particular, introduction of a dispute resolution system is essential to guaranteeing private sector

participation. In general, in overseas PPP projects, the Dispute Resolution Panel is established by

both parties when a dispute arises, and this Panel cannot resolve a dispute, arbitration, settlement and

a third-party panel are often used. For arbitration, there is ICC (International Court of Arbitration),

etc., and it is necessary for both parties to stipulate in an arbitration agreement in advance that a

dispute (if any) shall be resolved by ICC arbitration (including its cost sharing). Currently, in the

Philippines, in the Executive Order No. 78 (2012), it is stipulated that a PPP project, a BOT project

and a joint venture project between the public sector and the private sector should include provisions

concerning utilization of the ADR (Alternative Dispute Resolution: method to resolve a dispute

without going to trial), and cheaper, simpler and shorter dispute resolution is pursued out of

consideration to private companies.

However, as it is not applicable to projects before 2012 when the Order came into effect, and the

stipulation of provisions is discretionary (“shall include provisions on the use of ADR mechanisms,

at the option and upon agreement of the parties to said contracts”), it is required to institutionalize

introduction and application of a means to resolve a dispute to prepare for future PPP projects,


69

based on examples in Australia, which foreign companies will be satisfied with.


4.3. Direction of Improvement 3: Efforts to Increase Partnership Between JapaneseCompanies and Local Companies

~Enhancement of Partnership with Local Companies and Expansion of Advantages of Japanese

Companies~

4.3.1. Promotion of Partnership with Local Industry ConglomeratesIt is likely that local industrial conglomerates obtain ancillary income from development of the

surrounding area and related projects although income they can earn from a project itself is limited.

So they have advantage over Japanese companies. We cannot deny the idea of domestic companies

in the Philippines implementing the infrastructure projects in the Philippines as it has validity in

terms of how the national economy should be. However, the Government of the Philippines (PPP

Center) considers participation of foreign-affiliated companies in the PPP market in the Philippines

essential and has implemented various activities to invite them (e.g. circuit forum for attracting

investment in North America, France, Germany, Spain, Singapore, Japan and Australia), and we

believe it is desirable for the Government of the Philippines to promote participation of

foreign-affiliated companies (Japanese).

Joint venture and partnership between Japanese companies and local companies have been made.

According to interviews with companies in Japan, while some companies keep a distance from

partnering with local industrial conglomerates due to failures in the past attempts for partnership,

some companies have nurtured a long-term trusting relationship. On the other hand, some companies

prefer a loose partnership which presents benefits for the other party for each project rather than

creating a certain partnership with one particular company.

Since the Government of the Philippines strongly requires Japanese companies to “create jobs on a

wider scale in the Philippines (by investment)” and “contribute to development of immature

domestic supporting industries”48, it may lead to future effective partnership for Japanese

companies if they consider and make an appeal for direct contribution to the people of the

Philippines in forming a partnership with local companies, not just sell their funding ability and

technical capabilities.

It is important to appeal for the usefulness of partnership between Japanese companies and local

48 Source: “Why the Philippines now?” (2013, Manila Office of the Japan Bank for International Cooperation)


70

companies and consider/promote ways to form a partnership.

→Propose to Japanese and Philippine companies (in the future).

4.3.2. Further Promotion of Deregulation of Foreign Investment and Facilitation ofLocal Companies’ Understanding

In the current PPP infrastructure project market in the Philippines, local industrial conglomerates

which have significant local power as well as network tend to dominate the market. However, when

viewed from the opposite side, it may be likely that some local industrial conglomerates implicitly

assume excess demand risks. It is said that local industrial conglomerates do not have a financial

capacity to cover all infrastructure projects that are necessary in the Philippines, some concerns

remain for sustainability for both the Government of the Philippines and local industrial

conglomerates if such oligopoly by conglomerates continues in the PPP market. According to the

policy recommendation in the latest Article IV Consultation Report49, deregulation of foreign

investment is essential to improvement of the investment environment, saying “Improving the

investment climate by relaxing foreign ownership limits, reducing red tape, limiting tax holidays,

and reducing labor and product market rigidities would enhance competition, support PPP execution

and create employment opportunities within the Philippines”. Similarly, many economic

organizations in Japan also request deregulation of foreign investment including land ownership.

Based on such remarks at home and abroad, the Government of the Philippines drafted a proposal

for constitutional change concerning “restrictions on foreign equity” of the Constitution of the

Republic of the Philippines50 and put it before the Senate and the Chamber for deliberation at the

16th Congress session as the joint resolution of the Senate and the Congress No.1 (as of November

2014), in order to aim to realize economic growth by attracting more foreign investment. Future

development is receiving a lot of attention.

However, as the President’s Office shows a negative attitude toward constitutional change under the

present administration51 concerning the amendment proposal including the reduction of the

“Negative List” which stipulates sectors in which foreign equity and employment of foreigners is

prohibited/restricted, future development is receiving a lot of attention.

Also, lack of interest in or objection to deregulation are assumed in the Philippines. According to the

opinion polls, 60% of the population does not care about deregulation, and in July 2014, the

49Source: ”2014 ARTICLE IV CONSULTATION - STAFF REPORT” (IMF, August 2014)50Chapter 12 and Chapter 16 (9) of the Constitution of the Republic of the Philippines of 1987 stipulate that “Public work is reservedfor the people of the Philippines (in the case of a company, the one whose stake of 60% or more is owned by Philippine nationals),and the management team consists of Philippine nationals.”51 Source: NNA articlehttp://news.nna.jp/free/news/20140509php015A.html; May 2014


71

Government of the Philippines abolished the restrictions on foreign equity in the financial sector and

approved establishment of a locally-incorporated solely-owned subsidiary by foreign banks. BAP,

which consists of small- and medium-sized local financial institutions, expressed its opposition,

saying, “Management of small- and medium-sized local banks will be jeopardized once restrictions

on foreign equity are abolished”. As such, there is still ongoing debate as to deregulation of foreign

investment in the Philippines. In PPP projects covered by the BOT Law, it is necessary to appeal

for the win-win results for both local companies and foreign-affiliated companies due to

increased foreign capital as opposition from local companies and trade associations against

deregulation is expected.


4.3.3. Utilization of Japan’s Financial Capabilities (VGF, etc.)Examples of the advantages Japan can utilize over the Philippines include financing which uses

ODA (EBF and VGF by yen loans, etc.) and technical assistance, and creation of projects that utilize

these measures is expected. However, under the current Japanese system, strict conditions are in

place in order to realize VGF by yen loans (see below), and it is required for both the Philippines

and Japan to consider terms and conditions to utilize VGF and EBF by yen loans and come up

with special measures as necessary.


4.4. Possibility of Utilizing Financial Support Measures of Japan for InfrastructureProjects in the Philippines

Of the “Directions of Improvement” as mentioned above, we review specific measures to “facilitate

utilization of Japan’s financial capabilities”.

4.4.1. VGF Support by JapanIn Japan, “Viability Gap Funding” (measures to reform the system in October 2013), the yen loan

system aiming to support VGF in developing countries as part of the new ODA scheme, was

established in 2013. According to the new measures the Japanese government positions as part of the

infrastructure export strategy52, this scheme is limited to cases where Japanese companies make

an investment in principle and is defined as the one which provides yen loans to the portion aided

by the government of a developing country for infrastructure projects. (However, goods and services

to be procured are untied.)

52 Source: “Reform of Economic Cooperation (JICA’s Yen Loans and Overseas Loans and Investment)” (June 2014, Ministry ofForeign Affairs, Ministry of Finance and Ministry of Economy, Trade and Industry)


72

As prerequisites for application of the scheme by the Japanese government, (1) “Responsibilities for

management” of the government of a developing country for such project should be guaranteed and

(2) “Back finance should not be realized” by loans made by general financial institutions, etc. As for

(1), the government is required to bear risks that project profitability is not secured after a certain

period and risk of exchange fluctuations, etc. In particular, for unsolicited PPP projects for which

Japanese companies can utilize their technical capabilities, the Government of the Philippines

provides no support under the current Amended BOT Law, so this scheme cannot be applied, in

which yen loans are provided as resource for VGF support the Philippine government offers to SPC.

4.4.2. EBF Support by JapanIn Japan, “Equity Back Finance” was established in October 2013, the yen loan system that supports

EBF in developing countries as part of the new ODA scheme as with VGF. As measures to reduce

financial burden of the government of a developing country, this scheme provides yen loans to

infrastructure development projects, in which such government or state-owned enterprises invest as

back finance. As prerequisites to use this scheme, responsibilities for management of projects are

required of such government as with VGF, and the scheme is applied to projects for which back

finance by general financial institutions is not realized. In the Philippines, the above-mentioned PEF

(Private Equity Fund) would be considered applicable to this case.

4.4.3. Needs of Domestic Companies and the Government of the Philippines forSupport

According to the interviews, it was found that Japanese companies were highly aware of Japan’s

new financial support measures such as “VGF loans”, “EBF loans” and “overseas loans and

investment”. Meanwhile, application of such measures to PPP projects in the Philippines is not

specifically assumed. However, since the effectiveness of the VGF scheme is still unknown, some

companies believe it is desirable to introduce VGF as ancillary measures while maintaining the

soundness of the scheme of recovering project cost by tariff in principle. The background and needs

of each sector are as follows.

[Water]

It is considered that VGF is unsuitable to projects in the Manila metropolitan area in which the cost

is to be recovered by tariff, and thus it is desirable to apply VGF to water projects in other regions.


73

Name Bulacan Bulk Water Supply Project

Overview

Ø Overview: Water project for treated bulk water supply in BulacanØ 30-year concession agreementØ Project cost: About 560 million USDØ Implementing agency: MWSSØ PPP system: Build-Transfer/Build-Lease-Transfer method

Current

status

2013: Approved by NEDA. June 2014~: Already started taking bids. Five bidders were

pre-qualified, of which only ManilaWater accepts an investment from a Japanese

company (Mitsubishi Corporation).

[Energy]

Currently, the “Bat-Man Gas Pipeline Development Project” attracts attention at home and abroad,

but it has not been decided whether it will become a PPP project or an ODA project (yen loans) (as

of November 2014). If the development portion of this project are to be implemented by PPP,

large-scale land expropriation as well as relocation of residents will be required. Thus, many believe

that it will not be implemented unless the government takes significant responsibilities. Potential

Japanese assistance cases would include the one in which EBF is utilized for state-owned enterprise

in the Philippines (e.g., PNOC: Philippine National Oil Company) that form JV with Japanese

companies to develop/construct the pipeline.

Meanwhile, some consider that VGF is not suitable for energy projects, as these are considered a

business in which profitability is the first priority.

[Airport]

For the Bohol Airport Project and other projects for regional airports, which are scheduled to be

implemented, conglomerates in the Philippines request to bundle them in packages, but some

consider that it is difficult to do so due to differences in nature of each airport project. Also, there

has been no request to use VGF for these projects. However, there have been comments that it is

preferrable to combine with ODA if there are significant capital investment requirements.

[Urban transit]

There has been no request to use VGF for existing PPP projects. However, there have been

comments that procurement of rolling stocks, etc. through Japanese government assistance is

desirable. Also, there are many requests for improvement of government’s measures for sharing of

demand risk and fare setup.

In urban transit sector, there are also many requests for guarantee against exchange risk and support,

according to the interviews with Japanese companies. As JICA’s current overseas loans and

investment are denominated in yen, and swap cost is borne by private companies, it is said that they


74

are difficult to be utilized. Although the new scheme called “overseas loans and investment in local

currency” was established in 2013, it has not yet been used.

4.4.4. New Additional Funding Scheme, “Contingent Credit Enhancement Facility”On December 9, 201453, the Japanese government developed a new yen loan scheme for the purpose

of avoiding financial issues Japanese companies face with when participating in

development/operation of overseas power plants and water infrastructure, etc. In the “Contingent

Credit Enhancement Facility”, developed under the initiative of the Ministry of Economy, Trade and

Industry, when the government or a state-owned enterprise of a developing country defaults on

payment for purchase of infrastructure service due to unforeseen circumstances (international

currency crisis, worsened cash-flow situations of a procuring entity, etc.), JICA provides yen loans

to the government of such country while the government uses the loans for payment to the

concessionaire. In PPP projects which are recently increasing in developing countries, solvency of

these developing countries with limited financial strength is considered a great risk. It is the

objective of this scheme to reduce such risk by providing guarantee through yen loans and to support

Japanese companies’ participation in infrastructure projects in developing countries. Its main target

is PPP projects with high off-take risk as well as demand risk in the power generation, water and

railroad sectors, etc., in which a concessionaire develops facilities and operates them for a long term

and gets compensated for their service by a procuring entity (state-owned enterprise, etc.). The

maximum guarantee period is 30 years, the maximum redemption period 40 years and commission

of 0.5% of guaranteed amount, and variable interest rate is applied to these loans.

This scheme targets countries where development of PPP is in progress, and PPP projects in the

Philippines, together with Indonesia and Vietnam, are considered as potential candidates. As of

December 2014, no specific project candidate or schedule has been determined, but various

infrastructure PPP projects for which Japanese companies will bid for will be considered.

In the past, there was a case in FY2013 where “Post Disaster Stand-by Loan” was granted as

emergency loans for a large-scale natural disaster in the Philippines. It is a great step forward as well

as an incentive for concerned parties of infrastructure and PPP projects in both countries that standby

loans to deal with worsened short-term cash flow or non-performance in infrastructure projects are

developed. The scheme is greatly expected to have the idea of risk-sharing between the public sector

and the private sector take root in the Government of Philippines and contribute to further

improvement of the environment for PPP projects, by making the Government of the Philippines

53 Press release of the Ministry of Economy, Trade and Industry:http://www.meti.go.jp/press/2014/12/20141209003/20141209003.pdf


75

guarantee payment through yen loans.


76

(2) Study on Specific SectorsHere, we conduct detailed research on important projects the Government of the Philippines is

promoting, identify issues and propose solutions thereof in implementing these projects and select

projects which could be the target for yen STEP loans. Specifically, we organize projects by sector

such as transportation/transit (airport, railroad, etc.), water supply/sewage and energy (LNG terminal

project) and identify projects that Japanese companies are interested in. Furthermore, we summarize

issues and consider solutions thereof in implementing these projects after checking their progress.

Also, from the identified projects, we select those which could be the target for yen STEP loans.

1. Important Projects Promoted by the Government of the Philippines in WhichJapanese Companies Are Interested

We cover priority projects in the Philippines in the transportation/transit, water supply/sewage and

energy sector and identify those Japanese companies may be able to participate in.

1.1. Transportation/Transit1.1.1. OverviewIn the transportation/transit sector, JICA supported development of the comprehensive transit system

development road map for the Central Luzon and Calabarzon Region. Its report, “Transportation and

Transit System Road Map for Sustainable Development in the Manila Metropolitan Area”, was

published in March 2014 and includes the list of projects in this sector which should be implemented

in the Manila Metropolitan Area in the short term as well as medium- and long-term, as in the list

below. This list was officially approved as a master plan by the NEDA Board in June 2014.

The list includes many short-term investment projects because there are often cases where projects

have not yet been implemented although there are project plans. Therefore, there is an urgent need to

implement these short-term projects given the future economic growth and population increase in the

Manila Metropolitan Area.


77

Exhibit 28 List of projects in the transportation/transit sector which should be implemented inthe short term (JICA study)

Source: Research on Support for Development of Transportation and Transit System Road Map forSustainable Development in the Manila Metropolitan Area of the Republic of the Philippines Final Report

Project Total (million PHP) Public fund Private fund

RoadC5 Missing Link (South): 3 PackagesBGC-Ortigas Link RoadSkyway/FTVC5 LinkC3 Missing Link (San Juan-Macati Santa Ana Opal)Edsa RepairPlaridel Bypass, Packages 3&4Edsa-Taft FlyoverManila Metropolitan Interchange/Flyover: 6 PackagesExpresswayDaang Hari-SLEX Link RoadNLEX-SLEX ConnectorLink ExpresswaySkyway 3 SegmentsSegments 9&10 and Connector to R10NAIA Expressway, Phase 2CALA Expressway, Stages 1&2CLLEx (La Paz, Tarlac-Cabanatuan)Calamba-Los Banos ExpresswayC6 Extension, Lakefront Bank RoadNLEX Segment 8.2 to Commonwealth AvenueSTAR Stage II (Batangas-Lipa)Other roadSemi-Major Road PackageTechnical Assistance for Development of Semi-Major RoadOther Region 3 Road PackageOther Region 4A Road PackageRailroadLine 1-Cavite ExtensionLine 2-Eastern ExtensionLine 3-Capacity ExpansionLine 7, Stage 1 (Quezon-Commonwealth Avenue)AFCS Common Ticket SystemLine 1 System RepairMega Manila North-South Commuter LineManila Metropolitan CBD Transit System StudyNew Transit System (Alabang-Zapote)F/S on New Transit SystemStreet public transitIntegrated Interstate Bus Terminal System (3 Terminals)Street Public Transit Improvement StudyBRT System 1Traffic management projectTraffic Signal System ModernizationSystematic Road Traffic Safety MeasuresComprehensive Traffic Management StudyAirport infrastructureNAIA Improvement-Several PackagesClark International Airport Improvement-Several PackagesF/S on New NAIAPort and harbor projectManila North Bay ProjectManila East Bay ProjectManila International Container TerminalFeasibility Study on Manila North Bay RedevelopmentOther Port and HarborTransit investment program totalProject to which a commitment is made or that has been approved for implementation

Financial resources are granted to local capital to implement these projects (mainly backlog).

Although F/S and design, etc. are not yet completed, early bidding before 2016 is possible. It can be postponed depending on financialcapability.

Preparatory survey is required to secure investment. It can be postponed in the case of fund shortage.

Funds before 2014 or after 2016 are also used for a part of a project.


78

Exhibit 29 List of projects in the transportation/transit sector which should be implemented inthe medium- and long-term (JICA study)

Project Distance(km)

Cost (millionPHP) Remarks

A Expressway 225,4801 2017-2022 333.1 140,600 It consists of 10 projects.2 2022-2030 206.0 84,880 It consists of six projects.

B National highway 205,854 Total cost is 201,080 PHP excluding preparatorysurvey.

1 9 GCR Road Packages (2017-2022) 353.2 78,0402 5 GCR Road Packages (2023-2030) 145.4 33,0403 Other Region 4A Road Package 60,000 Prior road network analysis is required.4 Other Region 3 Road Package 30,000 Prior road network analysis is required.5 Preparatory Survey 4,774C Mass transit system 323.1 935,188 Total cost is 1,020,840 PHP excluding F/S cost.1 Major Railroad Lines (2017-2022) 78.2 452,6802 Major Railroad Lines (2023-2030) 60.7 294,160

3 Manila Metropolitan Semi-Major Railroad Lines(2017-2022) 39.8 76,600

4 Mega Manila Semi-Major Railroad Lines (2023-2030) 20.6 25,640

5 Suburban Railroad, Phase 2 (Malolos-Tulrac) 81.1 28,000 Extension of the airport high-speed railroad service isa prerequisite.

4 Suburban Railroad, Southern Upgrade 47.7 18,800 Important intersections will be elevated.7 Railroad Preparatory Survey 38,508 Cost for F/S on railroad projects.D Street public transit 58,500

1 Bus Reorganization and Modernization 25,000 Old buses will be replaced with low-emission buses inthe ITS project.

2 Jeepney Modernization 30,000 Old jeepneys will be replaced with modern jeepneys inthe ITS project.

3 BRT (2 Lines) 3,500 Successful completion of BRT Line-1 is a prerequisite.E TEAM 6 5,250 The computer system will be expanded. Traffic Signal, Phase 6 3,500 ITS: Traffic Management 1,000 ITS will be widely applied to traffic management. ITS: Public Transit 750 Central control system of buses and jeepneys.

F Airport/Port and harbor 515,900 New NAIA Airport 435,900 Successful completion of prior F/S is a prerequisite. Clark Passenger Terminal 2 40,000 New passenger terminal for international routes.

Manila North Port Redevelopment 40,000 Transfer of domestic ships to Batangas is aprerequisite.

AA 1,877,672

Source: Research on Support for Development of Transportation and Transit System Road Map for

Sustainable Development in the Manila Metropolitan Area of the Republic of the Philippines

Final Report

1.1.2. RailroadIn the Philippines, there are two light rail transit (LRT) lines (Line-1 and Line-2) operated by Light

Rail Transit Authority (LRTA) and one metro rail transit (MRT) line (Line-3) operated by Metro Rail

Transit Corporation (MRTC), a special-purpose company funded by the private sector. In addition,

new lines are planned to be built for both LRT and MRT. The following are the existing lines.

l LRT 1: Roosevelt – Baclaran、19.65 kml LRT 2: Recto – Santolan、13.8 kml MRT 3: North Avenue – Taft Avenue、16.3 km


79

l North-South Railway: Tutuban – Cabuyao、52.9 km

LRT Line-1 is the first LRT and urban railroad in ASEAN countries whose entire line opened in

1985 by loans from the Government of Belgium. Yen loans were provided for its enhancement

project in 1994. MRT Line-3 opened in 1999 while LRT Line-2 opened in 2004.

Extension of the existing three lines is in progress/scheduled.

Other than LRT and MRT, there is a commuter line in the metropolitan area operated by Philippine

National Railways (PNR), which runs from Tayuman to Calamba (56km).

Recent urban transit projects in the Philippines Japanese companies participated in are as follows.

l Construction of LRT Line-3 (1997) - Maintenance (Ended in 2012)

l LRT Line-1 Construction Phase 2 (2005)

l MRT Line-7 Construction and Provision of Railroad System (2012)

The urban transit network in the Manila Metropolitan Area is depicted in the following diagram. In

this diagram, yellow line shows Line 1, purple line shows Line 2 and blue line shows Line 3. Orange

line shows the PNR commuter line.

Exhibit 30 Urban Transit Network in the Manila Metropolitan Area (Existing)

Source: DOTC Seminar Material54

54 Seminar materials cited in this report are the presentation materials in theInfrastructure Development Seminar held in February 23rd (as described in the lattersection of this report). Copies of the materials can be obtained from PPP Center’swebiste (www.ppp.gov.ph/?p=28093)


80

Exhibit 31 Urban Transit Network in the Manila Metropolitan Area (New)

Source: DOTC Seminar Material

PPP projects in the urban transit sector are as follows.


81

Exhibit 32 PPP projects in the urban transit sectorProject name Project overview Status/ObservationOperation & Maintenanceof LRT Line-2

• Overview: Project which introduces efficiency of theprivate sector into operation and maintenance of LRTLine-2 that connects the Manila Metropolitan Areastretching east to west for the purpose of improving itsservice.

• Project cost: No capital expenditure (Maintenancecontract: 30 million USD)

• Project period: 3 years• Implementing agency: DOTC (LRTA)• PPP system: TBD*LRT Line-2: LRTA owns assets and the concession.

• Bid announcement hadbeen made (ITB) as ofJune 25, 2014, and thedeadline was July 30.

• Four consortia wereannounced to have gotpre-qualified in January2015.

Integrated TransportSystem Project- Terminals

• Overview: Project which enables effective interconnectionand realizes a seamless public transit system throughcompletion of the central transit terminal where variousmeans of transportation concentrate.

• Construction of the Southwest Terminal Station: for theComprehensive Transit System (About 2.9ha). In thisproject, multiple means of transportation are integrated toallow passengers from Cavite to efficiently transfer toother transit systems (e.g. LRT Line-1 southern extensionarea, city bus, taxi and other public transit, etc.) in theManila Metropolitan Area. The project includesdevelopment of station building facilities for passengers, adeparture/arrival area, a public broadcasting system, park& ride facilities and facilities for ticket gate as well asluggage office, etc.

• Construction of the South Terminal Station: will beconstructed within a site area of 4.7 hectares. It willconnect passengers coming from the Laguna/Batangasside to other transport systems such as the futureNorth-South Commuter Railway project (currently thePhilippine National Railways), city bus, taxi, and otherpublic utility vehicles that are serving inner Metro Manila.The project will include passenger terminal buildings,arrival and departure bays, public information systems,ticketing and baggage handling facilities, and park-ridefacilities.The private partner will undertake the design,construction, and financing of the ITS South Terminal aswell as the operation and maintenance of the wholefacility. The concessionaire can also undertakecommercial development and collect revenues generatedfrom the same.

• Project cost: 55.6 million USD (Southwest Terminal); 88.9million USD (South Terminal); TBD (North Terminal)

• PPP system: Build-Transfer-and- Operate (BTO) method• Project period: 35 years (Including construction period)

Southwest – Awarded (Aconsortium of MegawideConstruction Corp. and WMProperty Management Inc.was awarded a contract forthis project in January 2015.)South – Under Procurement;North – Study ongoing

Mass Transit System Loop • Overview: Project which constructs MRT loop line whichconnects Bonifacio Global City, Makati Central BusinessDistrict and Mall of Asia in Pasay in order to deal withrapid urbanization in the Manila Metropolitan Area. Thepurpose here is to enable easier access between cities,realize swift and comfortable traveling and ease the trafficjam in urban areas by providing a mass public transitsystem.

• As the necessity to develop a guideway transit system wasrevealed in pre-F/S, this project was launched.Underground installation is required for the 12-km route,and once realized, it will be the first subway in thePhilippines.

• Project cost: About 8,238 million USD• Project period: TBD• PPP system: TBD

For NEDA Board Approval

* Feasibility as a PPP projectwas examined in the detailedF/S (JICA study, -October2014).Study method:http://www.jica.go.jp/chotatsu/program/ku57pq00001fsatj-att/20130710_g_61011.pdf


82

Project name Project overview Status/ObservationNorth-South RailroadProject (South Line)

• Overview: Part of the approx. 900-km LuzonComprehensive Railroad System Project (betweenCagayan Valley and Sorsogon in Bicol, entire railroadnetwork in northern and southern regions).This railroad system covers 56 km from Tutuban toCalamba (commuter line) and 653 km Legazpi toBatangas (long-haul).

• Implementing agency: DOTC• Project period: 5-6 years (DOTC estimate)• Project cost: 3,793 million USD• PPP system: TBD

The NEDA Board approvedit together with North-SouthCommuter Rail (NSCR) inFebruary 2015.

C-5 High Quality BusService

• Overview: Bus operation from Commonwealth to FTI(24km; 26 proposed stations)

• Implementing agency: DOTC• Project cost: 13.3 million USD + about 28 vehicles (PHP

35.45 M)

Study ongoing

LRT-1 Extension toDasmarinas Project

• Overview: Project which extends LRT Line-1 from BacolStation (terminal station) to Dasmarinas Station (about15km) as a succeeding project of the above-mentionedLRT Line-1 Cavite Extension Project*.

• Implementing agency: DOTC• Project cost: TBD• PPP system: TBD

Currently, how to utilizeprivate capital is beingconsidered in FS.

Manila East-MassTransport System Project

• Overview: Project which develops a mass public transitsystem and constructs MRT Line-7, which connects,Rodriguez, San Mateo (Rizal), Taguig, Pasig andMarikina, to meet transport demand in the eastern ManilaMetropolitan Area.

• Implementing agency: DOTC• Project cost: TBD• PPP system: TBD

Currently, a consultant isbeing selected. Thisconsultant will conduct FS,select a PPP system andprepare bid documents, etc.

R1-R10 Link Mass TransitSystem Project

• Overview: TBD• Project cost: TBD• BRT development project for R-1 (which runs between

Navotas and South Caloocan along Roxas Boulevard) andR-10 (along Bonifacio Street and Marcos Highwayrunning to Manila, Parañaque and Pasay).

FS to be conducted withPDMF funds.Currently, for procurement ofconsultants to conductpre-investment studies.

*LRT Line-1 Cavite Extension Project: This project extends LRT Line-1 to Bacol Station (from 20.7km to 32.4km).It includes development of 10 station buildings, an elevated line (10.5km), support beams and three inter-modalfacilities. Although this project was sent out for bids in August 2013, it did not close because only one companyplaced a bid. Currently, six companies have expressed interest in rebidding. Yen loan project.

Source: PPP Center, etc.55

Meanwhile, the following two projects are designated as NEDA national projects. Japan is involvedin both projects (JICA study and METI F/S).

55 Information in the lists of projects are gathered by browsing the PPP Center websiteetc. in August 2014 and/or February 2015, and may not reflect the latest information.


83

Exhibit 33 National projects in the railroad sectorProject name Project overviewLRT Line 2 EastExtension, includingJICA TA for FS

Overview: Project which extends the existing line from Santolan Station to MasinagJunction Station (4.12km)Implementing agency: DOTC-LRTA (Light Rail Transit Authority)Project cost: 217 million USD(-2016), 1.5 million USD (2017-)

*JICA Study Report, “Study on LRT Line -2 Extension Plan in Manila”:https://www.jetro.go.jp/jetro/activities/contribution/oda/model_study/earth_infra/pdf/h21_saitaku07.pdf

New Transport System(Alabang – ZapoteMonorail)

Overview: Project which develops a new monorail line along the road betweenAlabang and Zapote (about 9.3km). The project includes construction of eight stationsand 14 train cars.Implementing agency: DOTCProject cost: 307 million USD (-2016)

*Ministry of Economy, Trade and Industry, “Research Report on Possibility ofIntroducing Monorail in the Manila Metropolitan Area in the Philippines”http://www.meti.go.jp/meti_lib/report/2013fy/E003623.pdf

Source: NEDA, etc.

Among these, the level of interest of Japanese companies in major projects is as follows.

1.1.2.1. LRT Line-1 ExtensionThis project extends the LRT Line-1 to Bacol Station (from 20.7km to 32.4km). While procurementof train cars (30 cars) and construction of a train depot (including funding) are funded by yen loans(STEP), the private sector is responsible for operation.As for the part funded by yen loans, a consulting company was appointed in November 2014together with loans used for extension of LRT Line-2 (discussed later).The latter part of the project is “LRT Line-1 Cavite Extension Project”, which includes developmentof 10 station buildings, an elevated line (10.5km), support beams and three inter-modal facilities (theconcession period is 32 years including construction period). This project was put out for bids inAugust 2013, but the bidding did not close because only one company placed a bid. In the rebiddingin May 2014, JV of Ayala and Metro Pacific (local companies) was awarded a contract for thisproject.In this project, the government is responsible for procurement of train cars/construction of a traindepot, transfer of the existing line as well as related commercial facilities to the concessionaire,phased acquisition of ROW (Right-of-Way), construction of a common station, outsourcing of anautomatic fare collection system to a private vendor/installation of such system at stations of theexisting lines and approval of regular fare increase.Japanese companies which participated in PQ as JV did not place bids in the end. As explained in theprevious chapter, given the situation where the level of return was inadequate to compensate for therisk of fare income in PHP (demand risk, exchange risk and risk for approval of fare increase56), itwas quite difficult for Japanese railroad operators with limited experience in overseas projects toparticipate.Therefore, main interest of Japanese companies in this project would be in provision of train carsand construction of a train depot funded by yen loans. Also, it may be an opportunity to providevarious facilities to be developed under PPP.

56 Fare increase is approved based on the predetermined formula.


84

The existing line of LRT Line-1 was also developed using yen loans (1994, enhancement project),and train cars by Japanese manufacturers were delivered.

1.1.2.2. LRT Line-2 ExtensionLRT Line-2 runs between CM Recto Avenue and Santolan, which was developed using yen loans. Itsentire line opened in 2004. Japanese companies provided train cars as well as a railroad system.Currently, a project which extends the line from Santolan Station to Masinag Junction Station(4.12km) is being prepared under DOTC (3.9km elevated railroad). DMCI was awarded a contractfor civil engineering work (January 2015, 2.27 billion PHP. Consortium which includes a Koreancompany as its member was appointed as a civil engineering consultant (2014)57). In November2014, a consulting company was appointed for extension of LRT Line-2 (Eastern) as well as LRTLine-1 (Northern) to be supported by JICA.Procedures have already started for the operation and maintenance project of LRT Line-2 (includingthe above-mentioned extended line) as a PPP project. In January 2015, it was announced that thefollowing group which includes railroad operators in Japan, Singapore, Korea and France waspre-qualified. This project only covers railroad operation (no capital investment).l Aboitiz – SMRT Transport Solutions Consortium (Singapore)l DM Consunji Inc. – Tokyo Metro Co., Ltd. Consortium (Japan)l Light Rail Manila Holdings 2, Inc. (LRM2) Consortium (a. LRMH of Ayala and MPIC, b.

RATP TRANSDEV Asia, c. RATP Developpement SA (France)l SMC (San Miguel Corporation) – Korail Consortium (Korea)Aboitiz – SMRT Transport

Solutions Consortium (Singapore)l DM Consunji Inc. – Tokyo Metro Co., Ltd. Consortium (Japan)l Light Rail Manila Holdings 2, Inc. (LRM2) Consortium (a. LRMH of Ayala and MPIC, b.

RATP TRANSDEV Asia, c. RATP Developpement SA (France))l SMC (San Miguel Corporation) – Korail Consortium (Korea)For Japanese companies, there may be opportunities to participate in the above-mentioned PPPproject itself and win a contract for train cars as well as facilities, etc.

1.1.2.3. North-South Railroad Project (South Line)This project is a part of the approx. 900-km Luzon Comprehensive Railroad System Project(between Cagayan Valley and Sorsogon in Bicol, entire railroad network in northern and southernregions) and consists of the PPP project portion and the portion implemented by DOTC.The former is North-South Railway Project, which covers 56 km from Tutuban to Calamba(commuter line) and 653 km Legazpi to Batangas (long-haul). This railroad section is a part of thelong-distance line of NSCR (North-South Commuter Rail), and a commuter line is considered to beadded.The latter portion of the project is NSCR (North-South Commuter Rail) and used to be called ClarkInternational Airport High-Speed Railroad (Commuter Line) Development Project. In Phase 1, the

57 Source: The Philippine Star(http://www.philstar.com/business/2014/05/04/1319009/dotc-oks-lrt-2-consulting-contract-korean-group)


85

line between Malaos and Tutuban (89.7km) will be improved and modernized, and a narrow-gaugeelevated railroad of 36.7km will be constructed by using ROW of PNR. It includes procurement oftrain cars and installation of an electromechanical system.Advisability, etc. of diverting ROW of the existing national railroad which runs through the ManilaMetropolitan Area was reviewed in JICA-FS (- November 2014).Both projects were approved by the NEDA Board in 2015, and for Japanese companies, there maybe opportunitiesin projects supported by JICA or those by PPP concessionaires to provide train carsas well as a railroad system.

1.1.2.4. Other Railroad ProjectsIn addition, various urban transit projects are planned as follows. They are not yet approved by theNEDA Board, and which scheme will be used is unknown. However, as Japanese companiesconducted F/S for some of them, utilization of yen loans, etc. and participation of Japanesecompanies are expected.l Manila Metropolitan MRT Loop Line Project (Taguig-Makati- Pasay. Included in the list of PPP

projects)l LRT Line-2 Western Extension Projectl LRT Line-1 Dasmarinas Station Extension Project (Included in the list of PPP projects)l Eastern Manila MRT Development Project (Included in the list of PPP projects)l NAIA Railroad Link (Baclaran-NAIA)l Mega Manila Subwayl Monorail (Possibility of introducing monorail is being studied in F/S by the Ministry of

Economy, Trade and Industry)

1.1.3. AirportCAAP (Civil Aviation Authority of the Philippines) supervises airports in the Philippines, and thereare 85 airports throughout the nation. Of those, 11 are international airports, and 13 are major “Class1” domestic airports (airport which has domestic service by jets with 100 seats or more).Of international airports, four are operated by Manila International Airport Authority (MIAA),Mactan Cebu International Airport Authority (MCIAA), Clark International Airport Corporation(CIAC) and Subic Bay Metropolitan Authority (SBMA) while the remaining international airports aswell as domestic airports are operated by CAAP. Of those, the terminal building expansion projecthas been implemented under PPP for Mactan Cebu International Airport (Consortium of GMR(India) and Megawide was officially awarded a contract for this project in April 2014, and financialclosing was completed in December 201458). As seen in the following list, six international airports(including Mactan Cebu International Airport) are planned to be operated and maintained under PPP(terminal building or entire airport).

58 Syndicated loan by six banks including ADB (BDO Unibank, Inc, Bank of the Philippine Islands,Development Bank of the Philippines, Land Bank of the Philippines, Metropolitan Bank & TrustCompany and Philippine National Bank)


86

In 2007, Federal Aviation Administration of US pointed out that airports in the Philippines failed tosatisfy the ICAO standards, and takeoff/landing as well as flying within the US territory wererestricted since then. However, in 2014, it was admitted that they satisfied the ICAO standards, andthus restrictions were lifted.

Planned PPP projects in the airport sector are as follows.

Exhibit 34 PPP projects in the airport sectorProject name Project overview Status/ObservationMactan-Cebu

International Airport

Terminal Building

Project

Overview: Project which expands the existing terminalbuilding. Currently, as both domestic routes as well asinternational routes are managed in the same building and thecapacity for passengers has already been outstripped, thebuilding will be expanded to accommodate twice as manypassengers as now and enable separate operation of domesticroutes and international routes.Project cost: 389.3 million USDImplementing agency: DOTCPPP system: BOT method

Bidding is already

completed. Megawide-GMR

Consortium won the bid and

signed a contract on April

22.

Operation and

Maintenance of

Laguindingan Airport

Overview: Project which expands and operates/maintains theinternational airport in northern Mindanao.Project cost: 324.9 million USDImplementing agency: DOTC and CAAPPPP system: Operate-Add-and-Transfer (30 years)

NEDA already approved F/S.

Under preparation for bid

solicitation (scheduled in

2015).

Enhancement of

Operation and

Maintenance of New

Bohol Airport

Overview: Project which operates and maintains the newairport being constructed in Panglao, BoholProject cost: 260.22 million USD (PPP portion: 52 millionUSD)Implementing agency: DOTC and CAAP

Construction is in progress

funded by yen loans. F/S for

this project has already been

approved by NEDA. Under

preparation for bid

solicitation (scheduled in

2015).

Operation and

Maintenance of Puerto

Princesa International

Airport

Overview: Project which operates/maintains and improvesfunctions of the airport in PalawanProject cost: 228.2 million USD (PPP portion: 129.16 millionUSD)Implementing agency: DOTC and CAAP

F/S for this project has

already been approved by

NEDA. Under preparation

for bid solicitation

(scheduled in 2015).

Operation and

Maintenance of Iloilo


Overview: Project which operates/maintains and improves theairport in Iloilo, PanayProject cost: 322.44 million USDImplementing agency: DOTC

Construction of the airport is

completed in 2007 (yen

loans). F/S for this project

has already been approved

by NEDA. Under preparation



Operation and

Maintenance of Davao


Overview: Project which operates/maintains and improvesfunctions of the airport in Davao, MindanaoProject cost: 476.44 million USDImplementing agency: DOTC

F/S for this project has

already been approved by

NEDA. Under preparation




87

Project name Project overview Status/ObservationOperation and

Maintenance of

Bacolod-Silay Airport

Overview: Project which operates/maintains and improvesfunctions of the airport in Northern NegrosProject cost: 450.2 million USDImplementing agency: DOTC

Construction of newBacolod Airport iscompleted in 2007 (yenloans). F/S for this projecthas already been approvedby NEDA. Underpreparation for bidsolicitation (scheduled in2015).

Repair of San Fernando

Airport

Overview: Project which repairs and improves the airport inLa Union. The project includes repair of theinternational-standard airport and construction of relatedcommercial facilities.Project cost: TBDImplementing agency: Bases Conversion and DevelopmentAuthority

F/S is being prepared.

Clark International

Airport Project

Overview: Project which expands the international airportlocated in Clark Special Economic Zone (CSEZ) inPampanga, Luzon. It is said to be an international airportbehind Manila International Airport.


Operation and

Maintenance of Manila


• Overview: Project which expands the functions andoperates/maintains the airport. Operation andmaintenance (O&M) and development of newrunways are divided into separate projects, andbidding for a consultant appears to be in progress forrunway development by DOTC.


Source: PPP Center, etc.

Exhibit 35 Airport projects in the Philippines



88

In 2014, the following six airports were approved by the NEDA Board (the first two were approvedin June, and the rest was approved in October). For Bacolod-Silay, Davao, Iloilo and Laguindingan,the scope of the project is expansion of the terminal building, apron, other airside/landside facilitiesand their operation/maintenance while, for New Bohol and Puerto Princesa, the project coversoperation/maintenance after completion of construction and future expansion.l Lagindingan Airport (P14.6-billion)l New Bohol Airport (P2.3-billion)l Iloilo International Airport (P30.40 billion)l Bacolod-Silay International Airport (P20.26 billion)l Davao International Airport (P40.57 billion)l Puerto Princesa Airport (P5.23 billion)


89

Exhibit 36 Airport projects in the Philippines (PPP)


Meanwhile, projects in the following table are planned as national projects. Construction of NewBohol Airport is a prerequisite for the PPP project for this airport.


90

Exhibit 37 National projects in the airport sectorProject name Project overview Status/ObservationDevelopment of Bicol International

Airport

Overview: Project which constructsa terminal for domestic routes inaccordance with internationalstandards in Daraga, Albay. Oncecompleted, it will replace LegazpiAirport.Project cost: 110 million USD

The President is highly interested inthis project, which is scheduled to becompleted in June 2016. 2.1 billionPHP were injected into acquisitionof land, design and construction ofroads around the planned sitebetween 2007 and 2012.Appointment of a consultant wascompleted in December 2013.

Construction of New Bohol Airport

and Sustainable Environment

Preservation Project

Overview: Project which constructsa new airport in Panglao, Bohol(Central Philippine), the other sideof Tagbilaran (State Capital ofBohol) where the existing airport islocated.Eco-friendly airport isconsidered to be built.Project cost: 140 million USD

Loan agreement for yen loans wasalready signed (2013). Detaileddesign and preparation of biddocuments were already performedunder JICA’s cost-share technicalassistance between December 2012and June 2013. Bidding for civilengineering work is in progress.

Tacloban Airport Redevelopment

Project

Overview: Project whichredevelops the airport located inLeyte.

NEDA already approved the projectin January 2014. The repair projectis in progress (BM Marketing). Yenloans are used for a part of the repairproject. Airport equipment wasprocured with free financial aid asmeasures to deal with typhoondamage.

Source: NEDA, etc.

The airport development plan in the Philippines is included in the Medium-Term PhilippineDevelopment Plan (2011-16) as well as DOTC Medium-Term Development Plan (2011-16).Furthermore, the National Tourism Development Plan of the Department of Tourism includes airportprojects.

Exhibit 38 Projects listed in the Action Plan of DOTC and the Department of TourismAirport Remarks

Kalibo International Airport Project listed in the Medium-Term Development Plan of the Departmentof Transportation and Communications. Progress on the project is

unknown.

Legazpi Airport Project listed in the Medium-Term Development Plan of the Departmentof Transportation and Communications. It is said to replace Bicol

International Airport.

Zamboanga International Airport Project listed in the Action Plan of the Department of Tourism. Progress

on the project is unknown.

Laoag International Airport Project listed in the Action Plan of the Department of Tourism. F/S and

bidding for consultant in charge of preparing MP started in September2013.

Source: DOTC, Department of Environment



91

1.1.3.1. New Bohol Airport ProjectNew Bohol Airport Project consists of airport construction funded by yen loans andmaintenance/operation implemented under PPP (scheme of separating infrastructure and operation).The former project constructs a new airport in Panglao, Bohol (Central Philippine), the other side ofTagbilaran (State Capital of Bohol) where the existing airport is located, and bids for civilengineering work are already being solicited. The latter is an operation and maintenance project aftercompletion of airport construction. It was approved by the NEDA Board in 2014 together withLaguindingan Airport, and acceptance of applications for PQ started in December 2014 together withother five airports.As this airport operation project was originally planned to be funded by yen loans and its project costwas somewhat moderate (about 52 million USD), it was seen as a project Japanese operators couldeasily work on. However, the project is expected to be bundled with two other airports for bidding,and the possibility of Japanese companies to participate remains unclear.

1.1.3.2. Other airport projectsOf airport PPP projects approved in October 2014, Puerto Princesa Airport is similar to Bohol NewAirport in terms of scale, but it is likely to be bundled with other airports for bidding. As theconsortium of Korean companies (Kumho Industrial Co. Ltd. and GS Engineering & Construction)financed by KEXIM designs and constructs the airport (Puerto Princesa), it is expected that Koreancompanies aggressively place bids for its PPP project (O&M).Promising large-scale airport projects are Clark and Ninoy Aquino. As for Clark InternationalAirport, the expected scope of the project includes both capital investment andoperation/maintenance.l New terminal:Development of a new terminal building to add capacity; will serve primarily

LCCsl O&M：Operations, maintenance, and development to be done through public-private

partnership (PPP). Scope to be determined during business case phasel Development of a new terminal building to add capacity; will serve primarily LCCsl O&M：Operations, maintenance, and development to be done through public-private

partnership (PPP). Scope to be determined during business case phase

1.1.4. RoadNational projects in the road and related sector are summarized in the following table. As withrailroad projects, it is common that the private sector bears demand risk in road projects.


92

Exhibit 39 PPP projects in the road and related sectorProject name Project overview Status/ObservationCentral LuzonLink ExpresswayPhase II; CLEX

• Overview: Project which extends Central LuzonLink Expressway. After the Phase I, in which afour-lane expressway (30.7km) was constructedbetween Tarlac and Cabanatuan by yen loans, atwo-lane extension (35.7km) will be built betweenCabanatuan and San Jose.

• Project cost: TBD• Implementing agency: DPWH• PPP system: TBD

Currently, DPWH retains an externalconsultant and is conducting researchon ROI.

Improvement andOperation andMaintenance ofKennon Road andMarcos Highway

• Overview: Project which improves (landslidecountermeasures, etc.) Kennon Road (34km) andMarcos Highway (47km) so that they function astoll roads.


Economic and financial analysis ofthe project was submitted to PPPCenter in September 2014.

Plaridel BypassToll Road

• Overview: Project which improves Plaridel Bypass(construction funded by yen loans) to use it as a tollroad.


• 2013: Research on ROI wasconducted.

• September 2013: Report on shift totoll road was submitted to PPPCenter, which then revised TOR inthe report.

• As of March 2014, constructionwas complete for Package 1-2while bidding did not close forPackage 3-4. Currently,pre-investment study is in progress,and a PPP scheme is underconsideration. Applications havealready been filed for PDMF fund*.

* Project Development andMonitoring Facility (Revolving fundsupported by the Government of thePhilippines, etc.)

C-6 expressway(Southeast, East,and North Section)

• Overview: Project which constructs a ManilaMetropolitan expressway (Southeast: 34km, East:24km, North: Unknown). Construction of theSoutheast expressway (Phase 1) started during2014, with the expected opening in January 2019.


The basic alignment as well as designof Phase 1 has already been approvedby TRB (Toll Regulatory Board).Currently, project cost is underreview.

NLEX EastExpressway

• Overview: Project which constructs a 92-kmexpressway leading to Cabanatuan (includingconstruction of several bridges)

• Project cost: About 366.7 million USD• Implementing agency: DPWH• PPP system: TBD

The project was originally planned tobe implemented between February2012 and August 2013, but it gotdelayed. Consulting started inFebruary 2013, and ground surveywas completed in September 2013.The business case proposal wasalready submitted to PPP Center.

Camarines SurExpresswayProject

• Overview: Camarines Sur Expressway Project inNorthern Luzon


Details are unknown (one of 11projects the Government of thePhilippines announced to implementunder PPP in April 2014).


National projects in the road sector (department in charge: DPWH) are as follows.


93

Exhibit 40 National projects in the road sectorProject name Project overviewCavite-Laguna(CALA) Expressway

Overview: Project which constructs a four-lane expressway (47km), which connects Caviteand Laguna in Northern Luzon. Of the entire length, 28.9km (Cavite) will be constructedunder PPP while the remaining 18.1km (Laguna) will be constructed with ODA.Project cost: About 714 million USD

Flood Control DikeExpressway

Overview: Project which constructs a four-lane expressway (43.6km), which starts fromBicutan and connects it with C-6.Project cost: 426 million USD

Southern TagalogArterial Road(STAR)

Overview: Project which constructs two more lanes (about 19.7km) paved with asphalt byPCCP method. Of Phase 1, this project covers the connector between Lipa and SantoTomas.Project cost: TBD

Calamba - Los BañosToll Expressway

Overview: Project which constructs a four-lane expressway (15.5km), which starts fromthe SLEX Connector along Laguna Lake.Project cost: About 188 million USD

Arterial Road BypassProject Phase II,Plaridel Bypass RoadProject

Overview: Project which constructs a bypass road (about 10km) in Plaridel in the northernManila Metropolitan Area. The road will be extended from the terminal point of the Phase1 road to Bustos, Bulacan.Project cost: About 77 million USD

Samar Pacific CoastalRoad Project

Overview: Project which improves the coastal road in Samar (Central Philippines). Theexisting gravel road (about 15km) will be improved to the paved one by PCCP method, andbridges will be built in Palapag and Lapinig, etc.Project cost: About 24 million USD

Baler-CasiguranRoad Project

Overview: Project which improves and constructs the existing road (about 33km), whichconnects Baler and Casiguran (northeastern Manila), and eight bridges (including drainagesystem, etc.)Project cost: About 34 million USD

Albay West CoastRoad

Overview: Project which constructs a road (42.9km) in Western Albay in Southern Luzon.The existing gravel road will be paved with concrete. The project covers nine bridges, fourflood control channels and Bailey Bridge.Project cost: About 19 million USD (-2016), 8 million USD (2017-)

Dalton Pass EastAlignment

Overview: Project which constructs an alternative route for the east segment of DaltonPass. It will be about 60km in length and located in the east segment of Dalton Pass, whichstarts from San JoseProject cost: 18 million USD (-2016), 200 million USD (2017-)

*Related FS (Ministry of Economy, Trade and Industry, 2014)http://www.meti.go.jp/meti_lib/report/2014fy/E2012.pdf

Bridges under Designand Build

Overview: Project which rehabilitates and improves 309 bridges across the nation. Phase 1covers 110 bridges while Phase 2 covers 199 bridges.Project cost: About 455 million USD

EDSA - Taft Flyover Overview: Project which constructs a four-lane flyover as well as rampway. It will be1.44km in length. Prestressed beams, iron beams and iron truss method will be used.Project cost: About 70 million USD

Metro ManilaInterchangeConstruction ProjectPhase IV

Overview: Project which constructs interchanges in the Manila Metropolitan Area (at thefollowing seven locations).

1. C-2 and R-72. C-3 and E. Rodriguez Sr.3. C-5 and Lanuza St.-Julia Vargas Ave.4. EDSA and North Ave.-West Ave.-Mindanao Ave.5. EDSA and Roosevelt Ave.6. C-5 and Kalayaan Ave.7. C-5 and Green Meadows/Acropolis/Calle Industria8. P. Tuazon and Katipunan

Project cost: 64 million USDRehabilitation ofEDSA (C-4)

Overview: Project which rehabilitates and improves EDSA with severe traffic jams. Itstretches from Roxas Boulevard (R-1) to Monument Circle (23km). The project will bedivided into three packages.

1. From Roxas Boulevard to Julia Vargas Avenue (9.21km)2. From Julia Vargas Avenue to North Avenue (8.72km)3. From North Avenue to Monument (5.0km)


94

Project name Project overviewMaguindanaoTacurong RoadProject(Midsayap-Sultan)

Overview: Project which constructs a road (71km) in Tacuron in Central Maquindanao(Mindanao)Project cost: 1 million USD (-2016), 33 million USD (2017-)

Tangub DonbigtorinoRoad Project

Overview: Project which constructs a road (57km) in Tangub in Northern ZamboangaProject cost: 1 million USD (-2016), 26 million USD (2017-)

Caticlan-Malay-Navas Road Project

Overview: Project which constructs a road (23km) between Caticlan, Malay and Navas inAklanProject cost: 1.5 million USD (-2016), 28 million USD (2017-)

SanCarlos-DumagueteRoad Project

Overview: Project which constructs a road (127km) in Dumaguete, the state capital ofNegros OrientalProject cost: 2.4 million USD (-2016), 47 million USD (2017-)

Guihulngan-Isabela-Binalbagan RoadProject

Overview: Project which constructs a road (68km) in Negros OrientalProject cost: 2 million USD (-2016), 38 million USD (2017-)

Cordillera RoadImprovement Project(Phase 2,Bulanao-PinukpukJunction (Kalinga),Abbut-Tuao(Cagayan))

Overview: Project which constructs a road (about 48km) in Kalinga and CagayanProject cost: 1 million USD (-2016), 22 million USD (2017-)

Abo-Abo-Quezon-Rizal Junction RoadProject

Overview: Project which constructs a road (about 65km) in PalawanProject cost: 1 million USD (-2016), 30 million USD (2017-)

Sto. Niño-BuluangRoad Project

Overview: Project which constructs a road (about 44km) in PalawanProject cost: 1.6 million USD (-2016), 35 million USD (2017-)

Caramoan PeninsulaRoad Project(Lagonoy-Presentacion-Caramoan-Guijalo-San Vicente)

Overview: Project which constructs a road (about 90km) in Camarines SurProject cost: 3.3 million USD (-2016), 65 million USD (2017-)

Cebu-Bogo RoadProject

Overview: Project which constructs a road (about 106km) in Bogo, CebuProject cost: 2.6 million USD (-2016), 49 million USD (2017-)

Biliran Loop RoadProject(Kawayan-Culaba-Caibiran-Cabucgayan)

Overview: Project which constructs a loop road (about 69km) in BiliranProject cost: 1.5 million USD (-2016), 32 million USD (2017-)

Iligan-Aurora RoadProject(Linamon-LalaSection)

Overview: Project which constructs a road (97km) in Lanao del NorteProject cost: 1.9 million USD (-2016), 45 million USD (2017-)

Davao-Digos andDavao-CotabatoRoad Project

Overview: TBDProject cost: 1.5 million USD (-2016), 37 million USD (2017-)

Parang-Lumbayanague Junction RoadProject

Overview: Project which constructs a road (67km) in Lanao del SurProject cost: 1.3 million USD (-2016), 31 million USD (2017-)

Source: NEDA, etc.

As with railroad projects, demand risk, exchange risk and risk for approval of fare increase exist inPPP projects in the road sector. Since possible introduction of Japanese equipment is limited tobridges, etc., it is likely that few Japanese companies express interest in them except for thosefunded by yen loans.


95

1.2. Water Supply/Sewage1.2.1. OverviewPotable water supply rate by water pipe in the Philippines is 61% in urban areas and 26% in ruralareas (national average: 43%). The coverage by water distributing pipe (nationwide) is the secondhighest behind Thailand among emerging countries in Asia, a relatively high level. Compared to thelevel in 1990 (numbers in parentheses in the following table), the Philippines remained at the samelevel as Vietnam, India and Indonesia, which shows that the Philippines made great improvement inthe last 20 years.

Exhibit 41 Coverage of the water supply system in Asian countriesNationwide Urban areaImproved coverage Coverage of the

network connectedby water distributingpipe

Improved coverage Coverage of thenetwork connectedby water distributingpipe

Philippines 92%(84%)

43%(24%)

93%(92%)

61%(40%)

Singapore 100% 100% 100% 100%Japan 100% 98% 100% 99%Korea 98% 93% 100% 99%China 91% 68% 98% 95%Thailand 96% 48% 97% 80%Cambodia 64% 17% 87% 63%Vietnam 95% 23% 99% 59%Pakistan 92% 36% 96% 58%Laos 67% 20% 77% 55%India 92% 23% 97% 48%Indonesia 82% 20% 92% 36%Bangladesh 81% 6% 85% 20%Myanmar 83% 8% 93% 19%

(Note) Data is as of 2012 (Data for the Philippines in the parentheses is as of 1990).Source: UNICEF, WHO

According to a survey by Global Water Markets (2014), NRW (Non-Revenue Water) is 37.6% (samelevel as Malaysia and Indonesia and higher than Thailand and China), and the water meterpenetration rate is 96% (same level as Malaysia and higher than China).

Meanwhile, the coverage of the sewage system remains low. In general, it is said that the coverage ofthe sewage system rapidly improves when GDP per capita reaches a certain level, but in thePhilippines, the coverage relative to GDP per capita also remains low. One of the reasons isextremely diversified suppliers of the water supply/sewage service in the Philippines.


96

Exhibit 42 Relationship between the coverage of the sewage system and GDP per capita

GDP per capita (USD)Source: Global Water Markets 2014

Water suppliers in the Philippines are highly diversified including 1,000 municipalities, 455 waterdistricts (WD), various community-based organizations (CBO) and private water companiescommissioned by MWSS and LWUA. State subsidies and finances from government-affiliatedfinancial institutions are provided to municipalities while finances from LWUA andgovernment-affiliated financial institutions are provided to WD. Due to this diversified structure, it isdifficult to develop projects through a master plan, financial cooperation, etc.

South Africa

Cov

erag

eby

sew

age

netw

ork

Japan

Saudi Arabia

China

India

Philippines,Indonesia,Vietnam


97

Exhibit 43 Government agencies, etc. involved in water system in the Philippines

Note: The role of each agency is as follows.NWRB (National Water Resource Board) is responsible for development and operation of water resources and

regulates water rates of suppliers other than MWSS.

DPWH develops/operates a water supply system and provides technical assistance for a water supply system in

rural areas.

LWUA extends loans and provides technical assistance to WD and establishes standard water rates of WD.

MWSS (Metropolitan Waterworks and Sewerage System) is an agency responsible for water supply/sewage in

the Manila Metropolitan Area and performs the above-mentioned operations through two concessionaires.

DILG (Department of Interior and Local Government) develops programs to improve the ability of local

officials as well as programs for a water system.

DOH (Department of Health) establishes the water quality standard for potable water.

Source: Ministry of Health, Labor and Welfare “Report on Promotion of International Deployment of Water Business

in FY2011”

As for the Manila Metropolitan Area, there are two concessionaires with whom MWSS sets upcontracts. Mainylad Water Services Inc. serves the Western Metro Manila, while Manila WaterCompany Inc. serves the Eastern Metro Manila. Japanese companies take a stake in both companies.

1.2.2. WaterOnly the two projects below are planned as PPP projects in the water sector. They are developmentof the water source and water supply project for the Manila Metropolitan Area, and MWSS serves asan implementing agency for both of them. PPP projectshave not yet spread to implementing agenciesother than MWSS.

Developmentsupport

Loans and technical assistance, etc.

Governmentorganization

Local governmentorganization, etc.

Operation of watersupply/sewage facilitiesin the ManilaMetropolitan Area*Operation is outsourcednow.

Operation of local water project

[Legend] : Implementing agency of water project


98

Exhibit 44 PPP projects in the water sectorProject name Project overview Status/ObservationNew CentennialWaterSupply(NCWS)

Overview: Project which prepares a financial plan for, designsand constructs Kaliwa Dam under PPP. It consists of 1)construction of the Kaliwa Dam water storage facility andother ancillary facilities and 2) development of waterconveying tunnel. This wide-ranging project includesdevelopment of Laiban Dam as well as Laiban HydroelectricPower Plant (HEPP). The purpose of this project is to securesufficient water resources and lessen the dependence on AngatDam while increasing water supply to the ManilaMetropolitan Area and satisfying the future demand fordrinking water. This is the first PPP project for MWSS.Project cost: About 430 million USDProject period: 25-30 years (Estimate)Implementing agency: MWSSPPP system: BOT method

FS was completed in2013, and approval of theNEDA Board has beenobtained. Applicationsfor PQ are accepted byApril 6, 2015.

Bulacan Bulk WaterSupply Project

Overview: Water project for treated bulk water supply inBulacan.Project cost: About 540 million USDProject period: 30 yearsImplementing agency: MWSSPPP system: BOT method

It was approved byNEDA in 2013, andpre-qualified companieswill be disclosed inOctober 2015.



99

National projects in the water sector are as follows. They all target the Manila Metropolitan Area,which has large water supplied population.

Exhibit 45 National projects in the water sectorProject name Project overview Status/ObservationAngat Dam and DykeStrengthening Project

• Overview: Project which rehabilitates Angat Damas well as Dyke in Norzagaray, Bulacan. AngatDam, which was constructed by NAPOCOR in1960s, supplies water to approximately 97% ofthe Manila Metropolitan Area. As there areconcerns for any future effect of the West ValleyActive Fault, which runs 200 meters east ofAngat Dam, the dam as well as the dyke will bestrengthened as earthquake countermeasures. Theproject consists of (a) leveling of main dykeslopes, (b) leveling of dam dyke slopes, (c)strengthening of down-faulted support plate ofdam dyke, and (d) pulling-up of cores for maindam and dam dyke.

• Project cost: About 88 million USD (-2016),About 43 million USD (2017-)

• Implementing agency: MWSS

The project was approved byNEDA in September 2012.The Supreme Court approvedacquisition of the ownershipof the dam by K-WATER, aKorean water company, in2012. DMSS is waiting forK-WATER’s comment onthis project.

Angat WaterTransmissionImprovementProject , Angat Waterand Utilization andAqueductImprovement Project(AWUAIP), Phase 3

• Overview: Project which constructs a new tunnel(4m in diameter, 6.4km in length) as well asancillary facilities and improves four aqueducts ofAngat Dam, which were constructed in the earlystage. The purpose is to ensure safe water supplyfrom Ipo Dam to La Mesa Water TreatmentFacility. A new tunnel connects Ipo Dam andBigte Sand Basin.

• Project cost: 64 million USD (-2016), about 68million USD (2017-). 92.3% of the cost will becovered by loans extended by ADB.

• Implementing agency: MWSS• Project period: Expected to be completed in

February 2018, ADB website:http://www.adb.org/projects/46362-001/main

New CentennialWater Source Project

• Overview: Project which constructs Laiban Damin the upstream of Kaliwa River and Kaliwa-LowDam in the downstream. It crosses throughTanay, Rizal and General Nakar, Quezon. Thisproject consists of (a) headworks*, (b) waterconveying facilities from water treatment facility,(c) water treatment facility, and (d) hydroelectricpower plant facilities. Hydroelectric powergeneration will be expanded from 25MW to80-120MW. The capacity of Angat Dam willincrease by 1,800 million liters/day from 4,000million liters/day as a result of this project.

• Project cost: About 388 million USD (-2016),about 629 million USD (2017-)

• Implementing agency: MWSS• Project period: Scheduled to be concession of

over 25 yearsInfrastructure will be constructed by ODA and governmentfunds while O&M will be implemented by private funds(idea).*Headworks: General term for facilities which take thewater from a river (water intake, diversion weir, ancillaryfacilities and management facilities, etc.)

In construction of LaibanDam, large-scale eviction ofindigenous people became abig issue. Opposition wasspurred again in May 2013.Although this project isincluded in the list of PPPprojects, the effect as wellas the possibility ofcombined use of ODA,government funds andprivate funds, etc. is beingconsidered.


100

Project name Project overview Status/ObservationBulacan Bulk WaterSupply Project(BBWSP)

• Overview: Project which constructs a watertreatment facility with supply capacity of 230million liters/day, reservoir, a booster pumpstation and a driving channel.

• Implementing agency: MWSS• Project cost: 165 million USD (-2016), 395

million USD (2017-)

It overlaps with the PPPproject list.

Rehabilitation,Operation andMaintenance of theAngat Hydro ElectricPower Plant(AHEPP) AuxiliaryTurbines 4 & 5through PPP

• Overview: Project which rehabilitates andmaintains the auxiliary turbines 4 (10MW) and 5(18MW) of Angat Electric Power Plant to extendthe economic useful life for another 30 years andincrease the output capacity by 60%.

• Implementing agency: MWSS• Project cost: About 2,600 million USD (-2016)

Source: NEDA, etc.

National projects in relevant sectors include the following project for flood management.

Exhibit 46 National projects in relevant sectorsProject name Project overviewImplementation ofimmediate high-impactprojects identifiedunder the Master Planfor Flood Managementin Metro Manila andSurrounding Areas

• Overview: Project which implements various small projects(Caloocan-Malabon-Navatos)of KAMANAVA Area Project, Phase 1.

• Detail: Development of revetment and floodgate for Manila Bay, improvementof the upper Marikina River (Nangka River), development of a drainage channelin the western Mangahan River, development of a drainage channel in theeastern Mangahan River, dredging for Napindan, cleaning and prevention ofclogging of major drainage (Mandaluyong River and San Juan River, SanFernando-Santo Tomas-Minalin dyke in Central Luzon, Pampanga, Tarlac andZambales), and Calabarzon (improvement and development of dredging forrivers that flow into Laguna Lake).

• Project cost: About 80 million USD (-2016), about 7,776 million USD (2017-)• Implementing agency: DPWH

Source: NEDA, etc.

1.2.3. SewageThe Government of the Philippines developed the National Sewerage and Septage ManagementProgram (NSSMP) in 2010 based on the Clean Water Act of 2004. NSSMP covers 17 major citiesand stipulates that the Department of Public Works and Highways (DPWH) pays 40% of the projectcost for developing a sewage system. Objectives of NSSMP are as follows59.l All municipalities will have a septage management system while 17 major cities will have a

sewage system by 2020.l 43.6 million people will have access to a septage management system while 3.2 million people

will have access to a sewage facility by 2020.l 26.3 billion PHP will be invested in the hygiene improvement project by 2020.l 346 million BOD (Biochemical Oxygen Demand) will be cut down by 2020.

However, as of February 2015, there is no project proposal that meets the requirements, and thusDPWH needs to change the program policy. DPWH points out the following issues60.

59 Quote from the “Issues and Prospect of Water Supply/Sewage Sector in the Philippines” by JICA60 DPWH “National Sewerage and Septage Management Program” (Material for the seminar oninfrastructure in the Philippines)


101

l High cost of sewerage systemsØ Estimates vary widely but range from PhP5,000 to PhP10,000 per capitaØ HUCs going for septage programs as an initial phase (cost ranges from PhP230- PhP445

per capita)l Lack of political will, slow passage of local ordinancel LGU-Water District conflictl High cost of sewerage systems

Ø Estimates vary widely but range from PhP5,000 to PhP10,000 per capitaØ HUCs going for septage programs as an initial phase (cost ranges from PhP230- PhP445

per capita)l Lack of political will, slow passage of local ordinancel LGU-Water District conflict

Accordingly, DPWH plans the following system reforms, and the following reform proposal for theprogram is pending for approval by the NEDA Board.l Broaden the scope for the NG Cost Share to include septage projects;l Expand eligibility to non-HUCs and municipalities;l Allow WDs to directly apply for the NG Cost Share.l Broaden the scope for the NG Cost Share to include septage projects;l Expand eligibility to non-HUCs and municipalities;l Allow WDs to directly apply for the NG Cost Share.

In this connection, research on the “project to diffuse the use of dewatering equipment for sludge ofseptic tank” is being conducted as the “Project to Diffuse the Use of Japan’s Technologies toDeveloping Countries” in FY2012 by the Ministry of Foreign Affairs.There is no national project in the sewage sector.


1.2.3.1. Bulacan Bulk Water Supply ProjectThis project is one of the few water supply/sewage projects in the Philippines for which there is apossibility of private sector participation. Water supply/Sewage system in the Manila MetropolitanArea is operated by two concessionaires. This project covers the area outside the Metropolitan Area,and several water districts supply water. This project supplies treated bulk water to water districts.The scope of the project includes funding, detailed design, construction and operation/maintenanceof water conveying facilities, water treatment facilities and water resources (30-year BOT includingconstruction period).

In the Manila Metropolitan Area, Japanese companies participate in projects through concessionaires,and it is expected that Japanese companies express interest in this project as well including the PPPproject and EPC projects derived therefrom.In November 2014, it was announced that the following five companies got pre-qualified. Comparedto previous PPP projects in the Philippines, more foreign companies participate.l Team Polaris-ManilaWater Consortium：ManilaWater, M.E. Sicat Construction, J.H. Patawaran

Constructionl First Philippine Holdings Corp. and Abeima Consortium：First Philippines Holdings Corp.,

Abeinsa Infraestructuras Medio Ambiente, S.A. (Spain)


102

l Filinvest Agua Consortium：Filinvest Development Corp., Tecnicas De Desalinizacion DeAguas, S.A. (Spain)

l San Miguel Corp.-K Water Consortium：San Miguel Corp., Korea Water Resources Corp.(Korea)

l Prime Alloy Water Consortium：Prime Water Infrastructure Corp., MTD Capital BHD(Malaysia), Team Polaris-Manila Water Consortium：Manila Water, M.E. Sicat Construction 、

J.H. Patawaran Constructionl First Philippine Holdings Corp. and Abeima Consortium： First Philippines Holdings Corp. 、

Abeinsa Infraestructuras Medio Ambiente, S.A. (Spain)l Filinvest Agua Consortium：Filinvest Development Corp.、Tecnicas De Desalinizacion De

Aguas, S.A. . (Spain)l San Miguel Corp.-K Water Consortium：San Miguel Corp. 、Korea Water Resources Corp.

(Korea)l Prime Alloy Water Consortium：Prime Water Infrastructure Corp.、MTD Capital BHD

(Malaysia), Biwater International Ltd. (UK)

1.2.3.2. Other Water Supply/Sewage ProjectsManilaWater and Maynilad have utilized EPC, etc. by Japanese companies for sewage plant, etc.,and there are still needs for technologies of Japanese companies.

1.3. Energy1.3.1. OverviewThe power sector in the Philippines was greatly deregulated by the Electric Power Industry ReformAct of 2001 (EPIRA). Power generation, transmission and distribution of electricity were separated,and open access to retail sales of electricity to customers with demand for 1MW or more wasrealized in 2013.The power generation sector was completely separated from the PPP framework and entrusted to theprivate sector. Power plants in the Philippines consist of those owned by National PowerCorporation (NPC) before EPIRA became effective, IPP power plants and merchant power plants,and about 80% of former state-run power plants were sold to private companies. As a result, a fewindustrial conglomerates own many of the power plants, which is often pointed out as one of thefactors for the electric rate hovering at a high level.


103

Exhibit 47 Power generation market share by company

Source: Congressional Policy and Budget Research Department, House of Representatives,

”Facts in Figures - POWER SUPPLY-DEMAND SITUATIONER” (July 2013)

As mentioned above, for the electricity distribution and retail sector, open access is given forcustomers with demand for 1MW or more. However, Manila Electric Company (MERALCO)satisfies about 70% of demands in Luzon (about 55% of demands in the Philippines) and hassubstantial market power.As for the electricity transmission sector, TransCo, which was established by the transfer ofelectricity transmission assets of NPC, granted the concession for 25 years to National GridCorporation of the Philippines (NGCP) by bidding to manage power lines.


104

Also, in 2006, the wholesale electricity spot market (WESM) was introduced (initially for the Luzonpower line and then the Visayas power line in 2010).

Due to the above-mentioned circumstances, many of the national projects in the energy sector aresomewhat unique such as renewable energy and coal mine-mouth power plant, etc.

Exhibit 48 National projects in the energy sectorProject name Project overview278.4 MW Renewable Energy Project Overview: Project which develops water/geothermal power sources

that generate 278.4MW of electricity. This project includesconstruction of eight hydroelectric power plants as well as fourgeothermal plants.Implementing agency: DOE-PNOCProject cost: 5,798 million USD (-2016)

50-MW Isabela Coal Mine-Mouth PowerPlant

Overview: Project which develops a coal mine month and constructs a50-MW power plant in Isabela.Implementing agency: DOE-PNOCProject cost: About 225 million USD (-2016)

50-MW Coal-fired Power Plant inMalangas

Overview: Project which constructs a 50-MW coal-fired power plantin Malangas, Zamboanga Sibugay.Implementing agency: DOE-PNOCProject cost: About 196 million USD (-2016)

Uprating of Agus 6 Units 1&2 Overview: Project which upgrades the capacity of units from 50MWto 69 MW.Implementing agency: DOE-PSALM (Power Sector Assets andLiabilities Management Corporation)Project cost: About 59 million USD (-2016)

Source: NEDA, etc.

The natural gas pipeline project (Bat-Man), which is discussed later, is the only PPP project.

1.3.2. Power Source CompositionIn the Philippines, production of natural gas started at Malampaya Offshore Gas Field in 2001, andthe following gas-fired power plants are in operation. As of 2013, gas-fired output accounted forabout 25% of the total electric generating capacity (discussed later).l Ilijan Combined-Cycle Power Plant（1,200MW）

l Sta. Rita Combined Cycle Gas Turbine (CCGT) Power Station（1,000MW）

l San Lorenzo CCGT Power Station（500MW）

Ilijan Power Plant is a project awarded to KEPCO as a result of the bidding by NPC in 1996, and theconsortium of shareholding companies includes Japanese companies. Also, Japanese manufacturerssupply necessary equipment.Santa Rica and San Lorenzo are projects developed by First Gas, an affiliated enterprise of LopezGroup (major industrial conglomerate). In addition, First Gas is planning three more natural gaspower plants and needs natural gas over a long term.l Avion：100MW. Operation will start in April 2015. Gas/liquid fuel will be used. It will be used

during periods of peak demand for electricity.


105

l San Gabriel：400MW. Operation will start in April 2016. Only natural gas will be used. No PPA(Merchant plant)

l Santa Maria: 900MW (450x2). Only natural gas will be used. Operation will start between 2017and 2022. PPA: TBD

However, as mentioned above, power generation is managed and operated entirely by the privatesector, and new capital investment concentrates on coal-fired power plants with low fuel cost.Currently, coal accounts for about 43% of the total power source, and its ratio is on the upward trend.The Department of Energy aims to increase the share of natural gas from the perspective ofenvironment and energy security, but in reality, specific policy measures to achieve that are limited.In addition, one of the structural issues of the electricity sector in the Philippines is the electric ratehovering at a high level61, and introduction of natural gas has politically difficult factors as well.

Exhibit 49 Power source composition in the Philippines

Source: DOE Seminar Material

1.3.3. Policy Trend for Introduction of Natural GasAs described above, the Government of the Philippines has a policy to promote natural gas powergeneration. DOE announced to increase the ratio of natural-gas-fired power to 34.3% by 2030 under“Low Carbon Scenario,” in comparison with “Bsuiness As Usual” scenario of 19.9%.The policy of the Government of the Philippines to promote natural gas can be summarized asfollows.

61This issue is analyzed in the “Research Report on Progress and Achievement of Reform of theEnergy Sector in the Philippines” (FY2013) by JICA.


106

Exhibit 50 Policy for natural gasTitle Description StatusDownstreamNatural GasIndustryDevelopment ActHouse Bill No.1521(DownstreamNatural GasIndustryDevelopment Act)

Aims to provide a framework for the developmentof a downstream natural gas industry and itstransition from an emerging to a mature industrystatus and competitive natural gas market and definethe responsibilities of various government agenciesand private entities in furtherance of this nationalgoal.

Referred tostakeholders (13August 2013)

PhilippinePipeline ActSenate Bill 2863

Seeks to provide a petroleum pipeline code that willestablish a regulatory framework in providing basicstandards for the design, construction, operation andmaintenance of liquid petroleum pipelines. Thisalso strengthens the jurisdiction and power of DOEover pipeline operations

Pending with theSenate Committeeon Public Services,Energy, Ways andMeans and Finance(7 June 2011)

EPIRAAmendments

Conducted series of sectoral public consultationson proposed amendments

The report on theresults of the publicconsultations wasforwarded toCongress

Other regulatoryframeworks

l Amendment of the Department Circular2002-08-005 – to consider current developmentrequirements of the industry such as theconstruction of the LNG Import facilities and theemerging technologies in the natural gasinfrastructure facilities

l Development of Standards for Health,Safety, Security and Environment (HSSE)– the standard will provide guidelines onthe technical and safety operations of theexisting and incoming natural gasfacilities by the operators

l Organization and Institutionalization of theHSSE Inspection and Monitoring Team– Theteam will composed of representatives fromgovernment agencies to conduct holisticapproach of inspection that will immediatelyaddress the concerns in the respective natural gasfacilities

l Capacity Building Program or Regulators –equips the regulators and be updated of thecurrent technologies in inspection and monitoringas well as in the operations and maintenance ofthe natural gas facilities.

Source: Compiled by EY from DOE sources.

Specific developments of projects in consideration of the discussions above are as follows.l Detailed FS for Batangas-Manila 105-km pipeline to be conducted by JICAl 1st Phase of the Natural Gas Master Plan with focus on the Investment Framework for LNG


107

was completed by World Bankl Drafted natural gas quality specification for promulgation into a Philippine National Standard

by DTIl Commissioned with PPP Center the FS on Batangas-Manila Pipeline (Bat-Man 1)l Monitored ongoing construction of LNG terminal (Energy World Corp.) and merchant power

plant in Pagbilao, Quezonl Detailed FS for Batangas-Manila 105-km pipeline to be conducted by JICAl 1st Phase of the Natural Gas Master Plan with focus on the Investment Framework for LNG

was completed by WorldBankl Drafted natural gas quality specification for promulgation into a Philippine National Standard

by DTIl Commissioned with PPP Center the FS on Batangas-Manila Pipeline (Bat-Man 1)l Monitored ongoing construction of LNG terminal (Energy World Corp.) and merchant power

plant in Pagbilao, Quezon

1.3.4. LNG TerminalAs Malampaya Gas Field is expected to be drained by 2024, projects for import of LNG are planned,as follows, toward fuel procurement for existing and planned (in development) natural gas powerplants and future utilization of natural gas for industries, etc.

Exhibit 51 Plan for LNG supplyCompanies Overview

Royal Dutch Shell It plans to construct FSRU off the shores of Batangas near Tabangao Refinery and import

LNG of 4 million tons/year by 2017. A Korean company is interested in supplying equipment.

However, this plan is delayed, and the latest progress is unknown.

First Gen It secures a site for an LNG terminal halfway between Batangas Port and the power plant. It

estimates the capacity of 4-5 million tons/year.

Energy World Corp It plans to construct an LNG terminal and a merchant power plant in Pagbilao, Quezon.

Petroleum Brunei It signed MOU with PNOC concerning construction of FSRU and a power plant in Mindanao.

Source: Local news

1.3.4.1. Natural Gas PipelineIn tandem with the above-mentioned LNG terminal concept, natural gas pipeline projects whichutilize LNG are planned. Of these, Bat-Man Pipeline Project (about 105km in total length), whichconnects Batangas and the Manila Metropolitan Area, is the major one (Currently, Phase 1concerning laying of a pipeline is under consideration. In Phase 2, gas receiving facilities, etc. willbe built while power generation facilities will be developed in Phase 3).In 2002, JICA supported formulation of a natural gas master plan, and in 2011, preparatory surveywas conducted (-November 2014). Meanwhile, PPP Center also aims to develop this project underthe PPP scheme and is now conducting F/S while reviewing the JICA study (appointed a consultant


108

in March 2014). PPP Center seems to have almost finished F/S, and the PNOC Board will determinethe direction of the PPP scheme for Bat-Man I approximately in mid-February 2015. Then, theNEDA Board (cabinet meeting hosted by the President) will begin a process of adopting a project.PNOC (Philippine National Oil Company) is appointed as the implementing agency on thePhilippine side.

Exhibit 52 Project plans for natural gas pipeline

Source: DOE Seminar material

There are two relevant studies on this theme as follows.

l March 2012: JETRO, “F/S on LNG Terminal and Pipeline in the Philippines” (Osaka GasEngineering).

This study examined the necessity of an LNG terminal in Bataan and Bat-Man II based on thestudy on the gas pipeline between Batangas and Manila (Bat-Man I).• Examination of construction/operation of an LNG terminal around Limay, Bataan


109

• Demand for gas in Bataan (industrial park, electricity, etc.)• Analysis of demand for gas around Manila, etc.As for Bat-Man II, utilization of yen loans is considered as the implementing agency positionsit as a national project and from the economic and financial perspective. As an LNG terminalhas high commercial viability, ECA-basis funding is considered.Japanese companies are likely to participate in areas where they have high internationalcompetitiveness concerning design, construction, provision of materials, operation andmaintenance for an LNG terminal as well as a gas pipeline.

l March 2014: Ministry of Economy, Trade and Industry, “Research on Development of Basesfor Market Entry Utilizing Natural Gas in the Republic of the Philippines”In this report, the following issues were examined.

Fist Gas also plans laying and development of a natural gas pipeline besides Bat-Man. Fist Gas wasgranted the franchise right of a gas pipeline system. First Gas already owns the oil pipeline betweenBatangas and Manila and is conducting a study on diverting it to gas. As a result, First Gas seems tohave determined that this plan is technically and economically feasible and to have entered the finalstage of consideration including laying of a new gas pipeline. However, as construction of theabove-mentioned LNG terminal is a prerequisite, First Gas appears now to be at the stage of settingup a project including financing for this terminal.

Demand for naturalgas in thePhilippines

Demand is expected toincrease as there is a plan toconstruct a new thermalpower plant around thepipeline.

Analysis of strengths ofJapanese gas companiesand relatedlaws/regulations

It is possible to cover a broad rangeof value chain. As electric powerproviders and gas provides areseparated, they each have a highlevel of expertise.

Comparison withsystems in variouscountriesLocal market tends to bemonopolized until pipelines areinstalled throughout the nationwith demand expansion. Thistendency is also observed inthe Philippines.

Recommendation onbusiness model andlegal system for gasbusiness in thePhilippines

Malaysian gas system isrecommended (Verticalintegration which limits a valuechain).


110

2. Issues, Bottlenecks and Solutions in Implementing Selected Projects2.1. OverviewPPP projects in the Philippines tend to be behind the initial schedule, but bidding is in progresscontinuously. However, some issues are identified (other than the risk-sharing discussed in theprevious chapter) in the scheme of PPP projects, and there may be issues in project implementationand participation of Japanese companies, etc.

2.2. Transportation/Transit2.2.1. LRT Line-2 Extension ProjectIn this project, there may be opportunities to participate in the PPP project of operation/maintenanceof LRT Line-2 and to win a contract for train cars as well as facilities, etc. (the PPP concessionaireprocures/develops a train depot, train cars and an electric/mechanical system). The PPP portion ofthe project was approved by the NEDA Board in 2012. PQ process started in 2014, and its resultswere disclosed in January 2015. It is expected to be put out for bids in the second half of 2015. Also,a contractor has already been chosen for civil engineering work of the extension. It is making aprogress.For the extension portion of the project, it is necessary to develop an environment where the privatesector can participate in more easily, given the fact that the first bidding for LRT Line-1 did not close,and only one company placed a bid for the second one. Specifically, treatment of demand risk(Ridership risk) as well as property tax will become important.As civil engineering work for the extension is proceeding concurrently, it is necessary to avoid anydelay or trouble in the schedule for construction completion and delivery and constructionsupervision, etc.

2.2.2. Construction of Train Car and Train Depot for LRT Line-1This project consists of the portion funded by yen loans and the PPP portion, both of which are nowproceeding in parallel. As development of train cars, etc. is funded by yen loans, connection of theextension with the existing line is considered more complex compared to the LRT Line-2 Project.Coordination among concerned parties and proper monitoring, etc. are crucial.

2.2.3. North-South Railroad Project (South Line)Although which scheme to be used is not yet determined for this project, it is required to properlysplit it between the public sector and the private sector based on the experiences of LRT Lines-1 & 2even when yen loans are utilized.This project requires large capital expenditures (3,793 million USD), and its bidding is thought to bemore difficult compared to LRT Line-1 (1,442 million USD). In order to solicit bids from a widevariety of companies, it is necessary to ask the government to cover a part of capital investment andprovide support such as minimum income guarantee, etc.


111

2.2.4. Enhancement of Operation and Maintenance of New Bohol AirportConstruction of New Bohol Airport is funded by yen loans and expected to start in 2015 and becompleted in 2017.According to DOTC, the PPP project for airport operation will be put out for bids as a packagebundled with Laguindingan Airport and Davao Airport, which are both geographically close toBohol. This policy to bundle several projects is being considered based on the results of sounding oflocal industrial conglomerates, etc. This would affect the possibility of foreign companies’participation. As the private sector in the Philippines does not have knowhow in airport operation yet,it is considered important to promote creation of projects in which wide-ranging foreign companiescan participate.For airports, such as Laguindingan, which require large capital expenditures, the cost and risk borneby concessionaires tend to be significant. So it is required to ask for measures which prevent theproject framework from limiting bidders in such a case.

2.3. Water Supply/Sewage2.3.1. Bulacan Bulk Water Supply ProjectThis project was approved by the NEDA Board in November 2013. Five companies got pre-qualifiedin 2014. It is making a steady progress, but one of the issues for foreign companies is how to handlepayment risk concerning WD (Water District), the water supply destination. Some form of guaranteescheme will be provided for this project, but no details have yet been disclosed. In order to promotePPP projects in the water supply/sewage sector outside Manila in the future, it is important toencourage the development of a guarantee framework that foreign operators as well as financialinstitutions are willing to accept.

2.3.2. Sewage Plant Project (Overview)While most business opportunities for Japanese companies in the sewage sector in the Philippineswere sewage plant projects in the Manila Metropolitan Area, the use of septic tanks is beingfacilitated in the Philippines in general, and accordingly, there is a need for sludge disposal. Assmall- and medium-sized water districts and municipalities become implementing agencies in theseprojects, it is not easy to create such project from the Japanese side. Therefore, encouraging thegovernment’s involvement in terms of policy could be an option. For instance, the government mayprovide subsidies, etc. to capital investment which is necessary to satisfy the effluent standard whilestrictly monitoring such standard.

2.4. Energy2.4.1. Bat-Man Pipeline ProjectDiscussions concerning Bat-Man Pipeline Project have started since the early 2000s, but its schemeis not yet determined as of now. This is partly due to securement of customers of natural gas. Ingeneral, a long-term contract with gas-fired power plants (anchor customers of natural gas) isrequired. However, as power generation cost is high for natural gas, it is difficult to find supply


112

destination such as power distribution companies as well as customers. Also, another privatecompany (First Gas) is planning to construct a gas pipeline, which affects the feasibility of Bat-Man.In order to remove this bottleneck, it may be necessary to implement measures (e.g. environmentalregulations, etc.) to increase the ratio of natural gas in the power generation sector while developingdemand of industrial customers in parallel with the pipeline project.


113

3. Important Projects Promoted by the Government of the Philippines Where YenSTEP Loans and Technology/Knowhow Covered by STEP Yen Loans May be Used

3.1. OverviewHere, we examine the possibility of extending yen STEP loans to promising projects including thosementioned above.Major cases where STEP was actually used (excerpt) and Japan’s technologies utilized over the last10 years are as follows. By country, there are three cases in the Philippines, and by sector, there aremany cases in the transportation/transit sector.

Exhibit 53 Major STEP projects in the last 10 yearsSector Project name Country Year Project

costWhere STEP was applied

Powergeneration

LahendongGeothermal PlantExpansion Project

Indonesia 2004 5.9billionJPY

Knowhow on corrosion-resistant technology thatJapanese companies are good at was used for asteam turbine for geothermal power generation(Japanese companies monopolize the market forsteam turbines for geothermal power generation).

Urbantransit

ManilaMetropolitan MassPassengerTransport SystemExpansion Project

Philippines

2013 43.2billionJPY

Japan’s railroad technology (which enables energyand maintenance saving by introducing ahighly-efficient inverter to a train car) was adopted.

Airport Construction ofNew BoholAirport andSustainableEnvironmentPreservationProject

Philippines

2013 10.8billionJPY

Japan’s environmental conservation technology(which, under the concept of “Eco-friendly airport”,installs a solar power system and geotextile sheet toan infiltration pond for prevention of deteriorationof the environment due to drainage at the time ofconstruction) was adopted.

Watersupply/Sewage

Port MoresbySewageDevelopmentProject

PapuaNewGuinea

2010 8.3billionJPY

Oxidation Ditch (OD) method, a technology uniqueto Japan, was used for sewage treatment. (ODenables energy-saving operation and low-costmaintenance of a sewage facility by effectivelysupplying oxygen and activating microorganisms’decomposition of organic matter.)

Urbanfloodcountermeasures

Pasig-MarikinaRiver ChannelImprovementProject

Philippines

20072013

20.3billionJPY

Japanese technology which reduces the effect ofcivil engineering work, etc. on the environment wasadopted.

Bridge New BridgeConstructionProject over theKelani River

Sri Lanka 2013 35billionJPY

Rapid construction technology, which minimizesthe effect on existing transit systems, narrowground construction technology, which enablesconstruction on a small site in urban areas, and“Extradosed Bridge” method that Japanesecompanies are good at were adopted.

Nhat Tan Bridge(Vietnam-JapanFriendship Bridge)ConstructionProject

Vietnam 2006,2011,2013

54.1billionJPY

“Steel pipe sheet pile” method, which wasdeveloped in Japan to enable swift foundation workon soft ground, was adopted for the first time inVietnam.


114

Sector Project name Country Year Projectcost

Where STEP was applied

Highway North-SouthExpresswayConstructionProject (BenLuc-Long Thanh)

Vietnam 2011 14billionJPY

Japan’s high-standard road construction technologywas adopted (it is planned to utilize this project tofacilitate introduction of Japan’s ITS/ETC, althoughit is outside the scope of yen loans).

Source: Compiled by Ernst & Young ShinNihon

In originating yen STEP loans, it is necessary to analyze and review the “rule of origin” and“commercial viability”. In particular, as for the rule of origin, there may be a case where no biddercan comply with the rule for procurement rate in the phase of actual procurement even after L/A issigned for yen STEP loans.

Exhibit 54 Overview of rule of origin and analysis of commercial viability[Rate of procurement from Japan]

1. 30% or more of the total amount of a main contract to which yen loans are extended shouldbe of Japanese origin.

2. It is decided on a case-by-case basis which of A) or B) should be applied to whendetermining what can be included in calculating the rate of procurement from Japan.

A) Project in which a technology of Japanese companies is expected to be utilized interms of construction method (e.g. tunnel, port and harbor, concrete bridge,highway, dam, sewage, underground headrace tunnel in large cities, publicinformation system, hydropower generation and geothermal generation, etc.):Equipment of Japanese origin and services provided by Japanese companies can beincluded.

B) Project in which a technology of Japanese companies is expected to be utilized interms of equipment and whose main purpose is installation of equipment and aplant, etc. (e.g. telecommunication/broadcast facilities, wind power/solarpower/thermal power generation, oil/gas transport and storage system, wastedisposal facility, waste incineration plant, steel bridge, urban transit system, urbanriver flood control and transmission/distribution of electricity, etc.): Equipment ofJapanese origin can be included.

3. When there are several packages in a main contract, the rate of procurement from Japan isestablished for each package (the rate is established so that the entire project satisfies therequirement 1 above).

Source: Compiled by Ernst & Young ShinNihon

3.2. Transportation/TransitAreas in the transportation/transit sector to which yen STEP loans could be extended are as follows.

【Analysis of commercial viability】In accordance with the OECD Guideline for Export Credit, the“Commercial Viability” rule (rule which prohibits provision of development assistance to anyproject which invites competition for export with companies in other countries no matter how highthe binding ratio gets) is applied in principle, and it is prohibited to extend tied loans to projectswhich are “commercially viable”.“Commercially viable” means private companies can participate and earn revenue.


115

l Bridge and tunnell Highway (limited to projects which utilize Japan’s quake-resistant engineering and

quake-absorbing technology, ground treatment technology and rapid construction technology)l Port and harbor (shortening of work periods, improvement of safety)l Airport (eco-friendly airport, etc.)l Urban transit system (measures for soft ground, rapid and space-saving measures, etc.)

LRT and MRT development projects in the Philippines appear likely to satisfy requirements of STEPprojects. There are many projects in the pipeline which are under consideration. As they requiremassive capital investment, opportunities for STEP could be significant. Some Japanese companieshave a hope for a scheme where train cars and systems are provided by STEP andoperation/maintenance is provided under PPP.

3.3. Water Supply/SewageAreas in the water supply/sewage sector to which yen STEP loans could be extended areas follows.l Environmental project (limited to projects which utilize water pollution prevention technology,

waste disposal/recycling technology and heat recovery/waste heat utilization technology)

There is a great need, also in the Philippines, for projects on water purification which utilizes Japan’smembrane treatment technology, and thus there seems to be a potential room for using yen STEPloans. However, as municipalities and water districts become implementing bodies, thegovernment’s active involvement such as provision of sovereign guarantee, etc. is required.

3.4. EnergyAreas in the energy sector to which yen STEP loans could be extended are as follows.

l Transmission and distribution of electricityl Oil and gas transport and storage facilities

Since Bat-Man Gas Pipeline Project is unlikely to be commercially viable, it may be possible to bedeveloped as a STEP project. For instance, role-sharing can be considered: while the public sector isresponsible for ROW for laying of a pipeline, civil engineering work and asset holding funded byyen STEP loans, operation/maintenance is handled under PPP.


116

(3) Infrastructure Development Seminar1. OverviewDate and time: 9.05 a.m. – 15.50 p.m., February 23rd (Mon), 2015Venue: Ballroom I, II and III, New World Makati HotelParticipants: 140 people in total

* Agenda and presentation materials are attached in the Appendix.

2. Summary Minutesn Opening Remarks (9.10 – 9.20)

l Deputy Director-General Kurosawa, Trade and Economic Cooperation Bureau:Greetings and appreciation to the participants, followed by the comments:Ø Philippine’s economy is growing and it will be the APEC chair this year.

Given such situations, it is important to develop robust infrastructure.Ø For this, PPP is an appropriate tool, but at the same time the public sector

needs to play its role and it is important to share the risks. If theresponsibility is solely on the private sector, the outcome would beshort-sighted and is not optimal.

Ø Japanese government is ready to assist the initiatives of the Governmentof the Philippines. Specifically, we would be able to provide ODA financing(including EBF and VGF) and technology. In this seminar, we would like tointroduce the technology of Japanese companies.

n Keynote Speech 1 (9.20 – 9.30)l On behalf of Secretary Balisacan of NEDA, Assistant Secretary Kenneth

Tanate participated and read the Secretary speech:Ø Infrastructure investment is indispensable for economic growth and the

Philippine government will tackle this seriously. The infrastructuredevelopment strategy for 2011-16 has been formulated, and theamendment of the National Sewerage and Septage Management Programwas approved in the Infracom (Interagency Infrastructure Committee) inOctober last year.

Ø NEDA Board approved 97 projects (totaling 31.42 million USD), amongwhich 24 are PPP, 54 are ODA and 19 are local financing. In 2016, wetarget to raise government’s infrastructure investment to 5% of GDP.

Ø Also, to improve investment environment, we are reviewing the guidelines


117

for JV contract.Ø We received various assistances from Japan, including JICA’s

transportation infrastructure roadmap of Metro Manila, and we expectfurther cooperation.

n Priority projects in the Philippines (9.30 – 10.00)l Deputy Executive Director Ricote, PPP Center: Addressing appreciation to the

Japanese government on the seminar, followed by explanation andpresentation:Ø On the implementation of PPP legal framework (such as amendment of

BOT law) in the PhilippinesØ On the PPP projects (11 projects ongoing worth 5 billion USD, 50 projects

under planning and consideration worth 21.6 billion USD)Ø On the PPP bidding process

l President Casanova, BCDA: Made a presentation on Clark Green City which isbeing planned and developed by BCDA; expressed anticipation towardsJapanese company’s participation.

l In the later Q&A session, following questions and answers were madeØ A question to PPP Center on the delay of progress of the PPP projects. PPP

Center responded that even though with delays, the projects are steadilyimplemented.

Ø A question to BCDA on the details of Clark Green City. BCDA made theresponse.

n Energy (10.00 – 11.00)l On behalf of Undersecretary Monsada, Ms Saguin (Chief Science Research

Specialist) participated and made a presentation on the policy trend andproject plans on natural gas in the Philippines.

l Mr. Kannen and Mr. Kuwahara of Osaka Gas made a presentation titled“Natural Gas Market Development ~Osaka Gas Activities ~” on the proposal ofgas utilization and infrastructure development in the Philippines, based on theexperiences of Osaka Gas in Japan.

l On behalf of Secretary Petilla of DOE, Undersecretary Aguilos participatedand read the Secretary’s speech:Ø We appreciate that many Japanese companies participate in and

contribute to the Philippine’s energy sector.


118

Ø Philippine’s natural gas industry started off with the development ofMalampaya gas field in 2001. Now, natural gas is playing indispensablerole in power generation, and is expected to be utilized for transport andindustry sectors as well.

Ø The largest issue with the natural gas utilization is infrastructure, andPNOC is planning to implement Bat-Man pipeline. After the depletion ofMalampaya gas field, import of natural gas from overseas is alsonecessary.

Ø Partnership between public and private is also indispensable, and it isnecessary for the government to provide for the legal framework onnatural gas. There are many issues ahead, and we expect cooperation fromJapan.

l In the later Q&A session, following questions and answers were madeØ A question was raised on the current status of CNG bus which was

introduced in 2008. Ms Saguin of DOE explained that Shell, whichoperated the CNG daughter station, expressed suspension of operation in2014 and PNOC is preparing for the continuation of the project.

Ø Also, there was a question on how much power generation can be expectedfrom Bat-Man pipeline. Osaka Gas responded that it is approximately1,400MW.

n Railway (11.00 – 11.50)l Mr. Otsuka of Tokyo Metro made a presentation titled “Keeping Tokyo on the

Move” on the railway operation and related businesses (such as commercialdevelopment) by Tokyo Metro.

l Assistant Secretary Bonifacio made a presentation on PPP projects underimplementation and plan in the railway sector.

l In the later Q&A session, following questions and answers were madeØ A question was raised about the current status of the plan to introduce new

rolling stock in April this year (for MRT Line 3). Assistant SecretaryBonifacio of DOTC responded that the procurement contract of the rollingstock has been awarded to Dalian Locomotive, and the prototype will bedelivered in August.

n Airport (11.50 – 13.00)l Mr. Nishiyama of the Civil Aviation Bureau, MLIT made a presentation


119

titled ”Airport Environmental Measures Taken by Japan (Eco-Airport)” on theexperiences of “eco airport” for Naha Airport, as well as the proposal forASEAN and the Philippines.

l Mr. Miyakawa, Senior Chief Engineer of Mitsubishi Heavy Industry made apresentation titled ”An Integrated Solution – Next step to win in the fastgrowing market” on the proposal to rearrange the aviation network includingutilization of regional airports and Clark Airport, based on the aviationdemand growth in the Philippines.

l On behalf of Assistant Secretary Caringal, Ms Mariano (Project ManagementOfficer) participated and made a presentation on the plan and progress of 6airport PPP projects, as well as the study status of NAIA and Clark Airport.

n Keynote Speech 2 (13.55 – 14.05)l Secretary Singson of DPWH participated, addressed greetings and

appreciation to the participants, followed by the speech:Ø We appreciate the assistance from the Japanese government, JICA and

JETRO.Ø Economic integration of ASEAN is an important momentum in which the

flow of goods, services and investment will be liberalized. With this,ASEAN will become the 6th largest economy in the world. Given thedemographic structure of ASEAN, it is very important to invest ininfrastructure, including water and sewerage.

Ø Aquino administration targets infrastructure investment at more than 5%of GDP by 2016. In the water supply and sanitation, P100 billioninvestment is needed to achieve the Millennium Development Goal, andwe continue to promote penetration and improve legal framework.

Ø DPWH introduced National Sewerage and Septage Management Program(NSSMP) and has been promoting investment in sewerage and sanitation.For sewerage treatment, it is difficult to recover cost from user fees, andthus this program offers up to 40% subsidy for such investment.

n Water/sewerage (14.10 – 15.20)l Mr. Yokoyama of Yokohama Water made a presentation titled ”Not difficult to

reduce NRW (Non-Revenue Water) rate” on the experiences of addressing NRWissue in the City of Yokohama as well as Yokohama Water’s activities in thePhilippines (in Cebu, JICA grant aid).


120

l Mr. Kawamura of Kubota made a presentation titled” Kubota’s technologies forwater environment improvement” on the overview and track records of itsMBR (Membrane Bio Reactor) technology.

l Undersecretary Cabral of DPWH, after greetings and appreciation toparticipants, made a presentation on the overview of NSSMP, its assistancemeasures, current status and issues (that there has been no realized projects).

l Mr. Mattison of Manila Water Company made a presentationtitled ”Challenges in building Water and Used Water infrastructure” on itswater supply business as well as its track records (improved water supply rateand reduced NRW rate) in Metro Manila.

l In the later Q&A session, following questions and answers were madeØ A question to Kubota on the possibility of introducing johkaso in the

Philippines. Kubota responded that if there is an opportunity it is willingto consider.

n Towards the further promotion of PPP (15.25 – 15.50)l Director Wakabayashi of JICA made a presentation titled ”JICA’s Support to

Accelerating Infrastructure Development in the Philippines” to explain thefinancial cooperation framework of JICA, EBF, VGF, Contingent CreditEnhancement Facility for PPP Infrastructure Development) and on itsactivities in the Philippines (such as Bat-Man pipeline, Metro ManilaTransport Infrastructure Development Roadmap).

l Executive Director Ando of JETRO Manila Office delivered the closing remarks,with greetings and appreciation to the participants:Ø According to a questionnaire survey of Japanese companies, 58.7% of

Japanese companies wish to expand business in the Philippines, and71.2% of them are making profits in the Philippines. The latter is thehighest number in ASEAN.

Ø On the other hand, more than 60% of Japanese companies pointed toinfrastructure as their risk factor/ management issue (especially, 40% ofcompanies pointed to logistics-related infrastructure).

Ø JETRO would be able to introduce Japanese products and technologies andfunction as intermediary. For example, we have introduced technology forshortening of construction period.


121

Deputy Director-General Kurosawa (METI) and Secretary Singson (DPWH)

Deputy Director-General Kurosawa (METI), Secretary Singson (DPWH) and speakers

Research for Facilitation of Infrastructure that Utilizes PPP (Public-Private Partnership), etc. in the Republic of the PhilippinesFinal Report

122

3. (Reference) Program agendaTime Agenda Speaker

Morning Session9:10-9:20 Opening remarks Mr. Kurosawa, Deputy Director-General, Trade and Economic

Cooperation Bureau, METI9:20-9:30 Keynote Speech – Morning Session Hon. Kenneth Tanate, Assistant Director-General, NEDA

On behalf of Hon. Arsenio Balisacan, Economic PlanningSecretary and NEDA Director-General

1) Priority projects in the Philippines9:30-9:40 Priority projects Mr. Eleazar Ricote, Dep Exe Director, PPP Center9:40-9:50 Speech on Clark Green City Mr. Arnel Paciano Casanova, President and CEO, BCDA9:50-10:00 Q&A2) Energy10:00-10:20 Priority gas projects in the Philippines Ms. Laura Saguin,

DOE10:20-10:40 Natural Gas Market Development

~Osaka Gas Activities ~Mr. Kannen, Mr. KuwaharaManager, Osaka Gas Co., Ltd.

10:40-10:50 Keynote Speech – Morning Session Hon. Raul Aguilos, Undersecretary, DOEOn behalf of Hon. Jericho Petilla, Secretary, DOE

10:50-11:00 Q&A3) Railway11:00-11:20 Keeping Tokyo on the Move Mr. Otsuka, Manager, Tokyo Metro Co.,Ltd.11:20-11:40 Priority railway projects Hon. Sherielysse Reyes Bonifacio,

Assistant Secretary, DOTC11:40-11:50 Q&A4) Airport11:50-12:10 Eco airport Mr. Nishiyama, Civil Aviation Bureau, MLIT12:10-12:30 An Integrated Solution

~Next step to win in the fast growing market~Mr. Miyakawa, Senior Chief Engineer,Mitsubishi Heavy Industries, LTD.

12:30-12:50 Roadmap of airport projects Ms. Patricia Mariano,DOTC

12:50-13:00 Q&A13:00-13:55

Afternoon Session13:55-14:05 Keynote Speech-Afternoon Session Hon. Rogelio L. Singson,

Secretary, DPWH10:45-11:005) Water/sewerage14:05-14:25 Not difficult to reduce NRW rate (from case study

of Cagayan de Oro Water District: COWD)Mr. Yokoyama,Yokohama Water Co.,Ltd.

14:25-14:45 Kubota’s technologies for water environmentimprovement

Mr. Kawamura,KUBOTA Cooperation

14:45-15:05 Natural Sewerage and Septage ManagementProgram

Hon. Maria Catalina E. Cabral,Undersecretary, DPWH

15:05-15:15 Speech on the water/sewerage in the Philippines Mr. Tom Mattison,Manila Water Company Inc.

15:15-15:25 Q&A6) Towards the further promotion of PPP15:25-15:45 Cooperation from JICA Mr. Wakabayashi, Director, Southeast Asia Div., JICA15:45-15:50 Closing remarks Mr. Ando, Executive Director, JETRO Manila Office


123

4. Result of the participant questionnaire4.1. Overview of the questionnaireRespondents: 85 people

(Among which: 38 from the Government of the Philippines (includinggovernment-related agencies and public-owned enterprises); 28 from Japanesecompanies, and 3 others/N.A.)

Questions:Question 1

How useful was this seminar for you? Please check the appropriate box below and fillin the reason.

Question 2Please check your interested industry.

Question 3If you have any opinion or request with regard to this seminar, please write it below.

4.2. Result of the questionnaire4.2.1. Question 196% of respondents responded “Useful” or “Fairly useful.”

Exhibit 55 Question 1 Distribution of Answers

4.2.2. Question 2In terms of sectors, energy sector attracted highest interest, with over 2/3 or 58respondents answered “interested.” Water/sewerage, railway and airport followed.

■Useful ■Fairly Useful ■Not Particularly Useful ■Not Useful


124

For other sectors, interests were raised in road, port and environment sectors.

Exhibit 56 Question 2 Distribution of Answers

(Unit) Person

4.2.3. Question 3In the open question, many comments from the Philippines side were raised to expressinterests in the technologies of Japanese companies. From Japan side, comments wereraised to express anticipation to future cooperation.

End of Report

Energy

Railway

Airport

Water/sewerage

Others

Research for Facilitation of Infrastructure that … for Facilitation of Infrastructure that...

Documents

Transcript of Research for Facilitation of Infrastructure that … for Facilitation of Infrastructure that...