INFRASTRUCTURE 61

PH aviation safety upgrade expected soon The government expects to successfully address by early 2013 the country’s remaining aviation safety issues identifi ed by the International Civil Aviation Organization (ICAO) in its latest audit. Remaining concerns are in aircraft registration and fl ight safety inspection. The government further expects to obtain a positive performance rating in the fi nal ICAO audit to restore Philippine aviation’s Category 1 status as determined by the U.S. Federal Aviation Administration, and lift the European Union ban on Philippine air carriers.

n late October 2012, the ICAO sent a Coordinated Validation Mission to the Philippines. This is for a preliminary audit Iof the improvements the country had made so far in civil aviation safety. During the mission, the ICAO validation team found 2 outstanding issues— aircraft registration and fl ight safety inspection— from the 88 areas of concern identifi ed in the 2009 audit. The 2009 ICAO Safety Oversight Audit identified a Signifi cant Safety Concern (SSC) in Philippine civil aviation. An SSC is issued when a state does not meet international standards in aviation safety, thus posing an immediate risk to international civil aviation. In the case of the Philippines, the 2009 ICAO audit revealed 88 safety concerns. According to the Civil Aviation Authority of the Philippines (CAAP), the ICAO found the recent validation mission “a announced that the government is confi dent the remaining success,” noting the “signifi cant progress of the Philippines” aviation safety issues can be addressed by the time ICAO in addressing the safety concerns. It clarifi ed that contrary to conducts the final audit. Specifically, the issues involve news reports the mission did not result in any failed rating for the lack of a defi nitive list of registered aircraft in the Philippine aviation. As explained, the validation mission only country and the shortage of qualified safety inspectors. sought to monitor progress. The fi nal audit that could lead to Indeed, it appears that the government is committed to the lifting of the SSC will only take place in February 2013. resolving these issues. The CAAP has released a circular In the Wallace Business Forum’s latest Quarterly Round instructing all commercial aircraft operators to update their Table held on November 19, Department of Transportation registration information with the agency by January 1, 2013. and Communications (DOTC) Secretary Joseph Abaya

It is expected that once ICAO clears the Philippines of safety violations, the US FAA and the EU will follow suit.

Philippine ANALYST December 2012 62 INFRASTRUCTURE

PHILIPPINE AVIATION SAFETY AUDITS

YEAR IMPLEMENTING CONDUCTED/ FINDINGS DECISION UPDATE BODY IMPLEMENTED Failure to comply with international safety standards set by the ICAO, in part due to - defi ciencies in*: As of the January 2012 FAA United States - Integrity of the issuance of certifi cates Downgraded PH pre-assessment audit, 23 Federal Aviation (ex. operating/compliance certifi cates or civil aviation from critical elements involving 2008 Administration airworthiness certifi cates) Category 1 to airline safety and aviation (US FAA) - Qualifi cation and training of inspectors and Category 2 status authority management still other critical technical personnel need to be addressed. - Conduct of safety oversight functions - Record-keeping, etc. As of the October 2012 International PH civil aviation 88 safety concerns involving 278 out of the 987 ICAO Coordinated Validation Civil Aviation was identifi ed as a 2009 audit protocols, indicating a 28% “lack of effective Mission, 2 out of the 88 Organization Signifi cant Safety implementation” score in aviation safety negative fi ndings still have (ICAO) Concern to be resolved. As of Vice President Binay’s meeting with EC offi cial Siik European Union Used as bases: PH-licensed carriers Kallas in October 2012, there (European 2010 - US FAA’s 2008 audit were blacklisted are still concerns in the Commission or - ICAO’s 2009 audit from EU airspace areas of professionalism and EC) the regularity of air safety inspections. *US FAA fi ndings derived from press statements on FAA’s pre-assessment audit conducted in January 2012 Sources: Presidential Communications Operations Offi ce, United States Federal Aviation Administration, press statements

As for the more diffi cult task— by Sec. Abaya’s own The U.S. FAA is the organization in charge of the much- admission— of addressing the need for more qualifi ed safety discussed aviation safety categorization. In 2008, the U.S. inspectors, CAAP Assistant Director General (DG) for Flight FAA downgraded Philippine aviation rating from Category Standard Inspectorate Services Beda Badiola said that the board 1 to Category 2, resulting in limited operations of Philippine already approved an increase in the salary of inspectors from 30% air carriers in the US. In 2010, the EU followed FAA’s lead of industry standards to 50%. Mr. Badiola did not go into the and blacklisted the Philippines from operating in EU airspace. specifi cs of the salary increase, but added that they are presently working for a further raise of up to 80% of industry standards. This is expected to attract more qualifi ed inspectors to join CAAP. MAP proposes solutions to PH airport infra Sec. Abaya said the CAAP currently has 120 inspectors, but that they have set an internal target of 200 qualifi ed inspectors. challenges The government’s confidence is further boosted by The Management Association of the Philippines (MAP) ICAO’s commitment made during the last mission to “hand- hold” the Philippines in the mean time to ensure that the recently came up with a proposal seeking to address the outstanding issues can be fully addressed by February 2013. interlocking challenges in Philippine airport infrastructure. Reports indicate that this will involve a monthly visit from The proposal lists MAP’s suggestions for the designation an ICAO representative until the time of the fi nal audit. of domestic and international gateways, for structural CAAP DG William Hotchkiss III previously said that modernization of existing facilities, and system upgrades. It ICAO compliance is the priority of the CAAP. This will be is aimed towards the goal of setting up modernized domestic followed by compliance with the United States Federal Aviation and international gateway airports. Administration (U.S. FAA) and the European Union or EU (see table). It is expected that once ICAO clears the Philippines of The proposal, entitled “A Total Systems Approach to Gateway safety violations, the U.S. FAA and the EU will follow suit. Airports Problems,” takes a holistic approach in tackling the While these are 3 different organizations conducting separate various issues hounding Philippine airport infrastructure. assessments, essentially all refer to ICAO’s safety standards. The As MAP explains, “(t)he problems… cannot be effi ciently effect won’t be automatic, but as Sec. Abaya explained, once approached piecemeal. An integrated system approached in ICAO grants clearance, “logically, they (U.S. FAA) should follow its totality is recommended.” (MAP members may inquire at because the downgrade merely stemmed from the SSCs. We the MAP offi ce on how to secure a copy of the full report.) expect them to immediately bring us up to Category 1 without any The recommendations include the designation of the Ninoy audit, likewise the ban in the EU was also triggered by the SSCs.” Aquino International Airport (NAIA) as the domestic hub, and the Clark Airport as the international hub; the relocation of general aviation to adjacent airports; the installation of night landing facilities in more provincial airports; and the

Philippine ANALYST December 2012 INFRASTRUCTURE 663

DOTC will come up with a decision on the NAIA-Clark gateway airport issue in 1Q13.

KEY EVENTS COMMUNICATIONS, NAVIGATION SURVEILLANCE AND AIR TRAFFIC MANAGEMENT (CNS/ATM) SYSTEM

YEAR EVENT Packages 1 and 2 of the CNS/ATM project were rolled out for pre-qualifi cation of interested bidders, under the Arroyo 2009 government 1H2010 Bids were submitted for Packages 1 and 2 Pres. Aquino assumed the presidency, and new DOTC Sec. Ping de Jesus subjected the CNS/ATM project to a “thorough Jun 2010 review”. The DOTC decided to proceed with the project. Nov 2010 Package 1 contract was signed with Sumitomo/Thales The Commission on Audit (CoA), in its audit report, called on the DOTC to re-evaluate the CNS/ATM project “taking into Dec 2010 consideration the redundancy with the completed and installed MACC (Manila Air Control Center) system” Dec 2010 Package 1 commenced implementation Apr 2011 Package 2 contract was signed with Sumitomo/Thales Jun 2011 Package 2 commenced implementation Jul 2011 Mar Roxas replaced Ping de Jesus as DOTC Secretary and ordered a fresh round of review of the CNS/ATM project Sep/Oct 2011 Implementation of both packages were put on slow mode Nov 2011 The CNS/ATM project was suspended Sources: Press statements, DOTC, Commission on Audit

“A TOTAL SYSTEMS APPROACH TO GATEWAY AIRPORTS PROBLEMS” (PARTIAL LIST OF PROPOSED MEASURES) MAJOR PROPOSALS COMPONENTS − Revert ownership of the Nayong Pilipino land area to the Manila International Airport Authority in order accommodate lateral expansion of NAIA − Link the 4 terminals of NAIA to create ease of movement during passenger transfer A. NAIA as domestic hub and gateway for Linking of Terminal 2 (T2) and Terminal 4 (T4) domestic travel Linking of T1 and T2 Linking of T3 and T4 − Expropriation of the Baltao Subdivision located in the middle of the aerodrome for future expansion of NAIA Structural works for the airport: − Construction of a new terminal for domestic and international low-cost carriers (without air bridges for quick aircraft turnaround) − Construction of a new international terminal for legacy airlines − Construction of new domestic and cargo terminals − Construction of a 3rd runway suited to wide-body aircraft B. Clark Airport as the international hub

Transfer services for passengers − Construction of a high-speed railway link between NAIA and Clark Airport − Construction of the NLEX-SLEX Connector to facilitate land travel − Provision of helicopter service pads and terminals − Provision of bus, taxi, and car rental terminals C. Relocation of general aviation to adjacent airports (e.g. Sangley or Lipa) (To free a wide area in NAIA needed for expansion and other modernization initiatives) to mitigate airport congestion D. Night landing facilities for more provincial airports E. Modernization of the Communications, Navigation Surveillance and Air Traffi c Management (CNS/ATM) System Source: Management Association of the Philippines

The Philippines is trailing behind its SE Asian neighbors in terms of quality of air transport infrastructure.

Philippine ANALYST December 2012 64 INFRASTRUCTURE

Source: National Statistical Coordination Board

*1 as the highest; Ranking against annual total of countries surveyed: 2008-2009 (total of 164 countries evaluated), 2009-2010 (133 countries), 2010-2011 (139 countries), and 2011-2012 (142 countries)

Source: World Economic Forum Global Competitiveness Reports

installation of the Communications, Navigation Surveillance share of 62.2% of total passenger movement (see graph on and Air Traffi c Management (CNS/ATM) system. Essentially Philippine passenger traffi c). As for Clark Airport, it has room these measures are envisioned to support the growth in the for major expansion that could handle the rapidly growing country’s domestic and international air traffi c. Between international traffi c. This supports the government’s target of 2001 and 2011, domestic and international passenger attracting 6 million tourist arrivals into the country by 2016. movement grew by an annual average of 10% (see graph on Earlier reports show that the government remains undecided Philippine passenger traffi c). These are also seen to mitigate on the NAIA-Clark gateway issue, particularly on making airport congestion, and ensure ease and safety of air travel. Clark the international gateway, given the concerns regarding The NAIA is currently the country’s primary international its accessibility and distance. During the Wallace Business gateway. There have been suggestions to shutdown this facility Forum’s last quarterly roundtable in mid-November, however, because of its limited capacity for expansion, and to transfer Department of Transportation and Communications (DOTC) its operations to the Clark Airport. While MAP acknowledges Sec. Joseph Abaya announced that his agency has set an NAIA’s limitations, it counsels against this suggestion. MAP internal deadline to come up with a proposal on the NAIA- explains that since the bulk of the domestic air traffi c is Clark gateway airport issue. This is expected to be fi nalized accounted for by travel to and from Metro Manila, the domestic for submission to the president within the 1st quarter of 2013. hub is best located within the metropolis. Over the last decade, travel to the national capital (NCR) accounted for an average

Philippine ANALYST December 2012 INFRASTRUCTURE 665

MAP’s recommendations were accompanied by proposals P3-trillion investments needed for suffi cient for structural works on the facilities (see table). For NAIA, in particular, it is proposed that the 4 terminals of the power until 2030 airport be interconnected to create ease of movement as In his presentation during the launch of Philippine Energy passengers transfer from one terminal to another. For Clark, Plan (PEP) 2012-2030, Energy Secretary Jericho Petilla the modernization will have to be complemented by the construction of an additional runway and other terminals, revealed that at least P3.174 trillion worth of investments and with the provision of convenient and effi cient transfer is needed to provide 11,400 megawatts (MW) of additional options for passengers going to and from Clark Airport. capacity over the next 18 years. The Department of Energy Additionally, MAP has called for the transfer of general (DOE) also unveiled during the launch its long-term plan aviation operations—air charter, air cargo, aviation training, and that would enable the country’s power supply to cope with corporate aviation operations— from NAIA to adjacent airports the growth of the economy. such as Sangley or Lipa. This will free up a wide area of NAIA needed for the expansion of commercial aviation operation. Under the 2012-2030 PEP, the domestic economy is forecast Another recommendation is the installation of night landing to grow at an average of 7%, requiring a total of 29,329 MW facilities in more provincial airports. At present, only NAIA of power by 2030. As of end 2011, the country has only has and 10 other provincial airports have night landing operations. 16,163 MW installed capacity and committed projects with Fortunately, there appears to be progress here with the government 1,766 MW capacity. To achieve the needed 11,400 MW, the recently allocating about P1 billion for the installation of night country would require P3.174 trillion worth of investments in the landing facilities in 14 provincial airports (see related article). energy sector “to put up the necessary production and logistical Without night vision technology in provincial stations, airport network to ensure availability and continuous supply of all forms congestion results as airlines “bunch” up scheduled fl ights within of energy in the economy.” To ensure that the private sector the day in order to beat sunset. Once equipped with the necessary will invest, the DOE will collaborate with concerned agencies technology for night landing, fl ight schedules could be spread and institutions to harmonize energy laws with other laws, across a 24-hour day, instead of the limited 12-hour stretch. especially those involving indigenous peoples’ rights and the MAP also emphasized the importance of the CNS/ATM National Integrated Protected Areas System. “We will streamline system in ensuring commercial aviation safety and security in business procedures and rationalize processing for energy project the country. The existing ATM system is outmoded. It has been applications at the national and local levels through a one-stop- in use for 16 years, with replacement parts no longer available. shop, and advocate the continuous inclusion of energy projects In 2010, a project for the installation of a modern and effi cient in the annual Investment Priorities Plan,” Sec. Petilla said. nationwide CNS/ATM system at par with international standards Sec. Petilla also noted that the reference of the new was launched under the Arroyo government (see table for PEP is the Energy Reform Agenda (ERA) formulated by key events of the CNS/ATM project). However, a few months the administration of President Aquino, which outlines after the contract was awarded to the Sumitomo/Thales joint the strategic action plan of the energy sector particularly venture, the Commission on Audit (CoA) claimed that the focusing on providing energy access to more Filipinos. The project was unnecessary in view of a parallel initiative—the ERA is based on 3 pillars: energy security, optimal energy setting up of a new Manila Air Control Center (but a DOTC pricing, and development of sustainable energy system. offi cial earlier explained that the 2 are different projects with Following the ERA, the PEP 2012-2030 will be guided different scopes), and subsequently the project was suspended by policy thrusts set by the department which are: 1) ensure when Mar Roxas assumed the DOTC post. Sources also energy security; 2) expand energy access; 3) promote law indicate that the CoA found the project to be too sophisticated carbon future; 4) climate proof the energy sector; 5) promote and expensive. Incumbent DOTC Sec. Abaya is reportedly investment in the sector; 6) and develop regional energy plans. urging CoA to issue a clearance for the suspended CNS/ATM Under its energy security thrust, the government is project, and thus allow the agency to continue with the project. eyeing an increased installed capacity in the 3 grids in MAP’s suggestions gain importance in light of survey the country, the upgrade and expansion of transmission results ranking the quality of the country’s airport infrastructure and distribution network, and the expansion of energy as among the lowest in the region. Between 2008 and 2012, market from Luzon-Visayas grid to the Mindanao grid. the annual survey conducted by the World Economic Forum The DOE will also formulate Geographic Energy Plans (GEPS) showed the Philippines trailing behind its Southeast Asian in coordination with local executives and regional development neighbors in terms of the quality of air transport infrastructure councils that will identify potential energy sources, which in turn (see graph on quality of Philippine air transport infrastructure). will be harnessed to address area-based energy issues and concerns.

Philippine ANALYST December 2012 66 INFRASTRUCTURE

The DOE chief said the government will also push for the development and use of energy effi cient technology and practices in households and industries; and the development of natural gas, alternative fuels and renewable energy. DOE aims to achieve 10% energy savings by 2030 as part of promoting low carbon future. “Apart from our effi ciency target, we are also eyeing the 30% by 2030 target or 30% of all public utility vehicles running on alternative fuels by 2030,” Sec. Petilla said. The government targets to hike threefold the country’s renewable energy-based power generation capacity with the addition of 9,931.3 megawatts by 2030, which would almost be enough to supply demand growth during the period. Before the PEP 2012-2030, the department formulated the fi rst long-term plan under the PEP 2009-2030. The newly-launched PEP (considered as the fi rst update of the plan), will continue the strategies provided by the previous one, and supplement additional plans to address the changing needs of the sector.

Philippine ANALYST December 2012 INFRASTRUCTURE 667

STATUS OF BIG TICKET INFRASTRUCTURE PROJECTS AS OF DECEMBER2012 IMPLEMENTING FUNDING CIVIL WORKS PROJECT TITLE PROJECT COST STATUS / ISSUES AGENCY SOURCE TIMEFRAME According to the PPP Center, Segment 1 (Junction Daang Hari- Daang Reyna to Sta. Rosa) has been under construction since June 2012, but Segment 2 (Sta. Rosa to Susana Heights Interchange) Daang Hari-SLEX Link Road DPWH PPP 2012 (start) P1.96 billion is still pending. Ayala Corp. has submitted design revisions Project for Segment 2 to accommodate future SLEX expansion. Cost adjustments are still being discussed with DPWH, while SLTC (SLEX concessionaire) has yet to approve the revised design. Construction is expected to commence in January. As of mid- PPP for School P16.4 billion December, DepEd was still in the process of bidding out the Infrastructure Project DepEd PPP 2013-2014 contract for the independent consultant who will approve the Phase I project design, and monitor and audit the implementation. 4 groups pre-qualifi ed to bid: Light Rail Manila Consortium, SMC Infra Resources Inc., DMCI Holdings Inc. and MTDC-Samsung LRT-1 South Extension DOTC-LRTA PPP/ODA 2013-2015 P59.2 billion Consortium. Submission of fi nancial bids is slated between Jan. and Feb. 2013, while awarding is eyed in 2Q2013. The project is currently in the pre-qualifi cation stage. Actual NAIA Expressway DPWH PPP 2013-2016 P15.86 billion bidding is expected to commence in January 2013. Modernization of the Bidding is ongoing. Bid submission deadline is set on March 26, Philippine Orthopedic DOH PPP 2013-2016 P5.69 billion 2013. Center The project involves the design and construction of 10,679 PPP for School classrooms in 14 regions nationwide. The Invitation to Pre-Qualify Infrastructure Project DepEd PPP 2013-2014 P13.1 billion to Bid was published on Dec. 20, with submission deadline set on Phase II Feb. 12, 2013. Mactan-Cebu International Invitation to Pre-Qualify to Bid published on Dec. 21, 2012. 2014-2016 P8.9 billion Airport Development DOTC-MCIAA PPP Interested fi rms include SMC, Ayala Corp.-Aboitiz Equity Ventures, (Phase 1) (Phase 1) (Passenger Terminal) and MPIC. Angat Hydro Electric Power Plant Auxiliary Turbines Invitation to Pre-Qualify to Bid published on Dec. 12, 2012. Bidding MWSS PPP 2013-2014 P1.2 billion 4 & 5 (Rehabilitation and is expected to be completed in July 2013. O&M) Approved in principle by the NEDA Board on Nov. 29, but still subject to further review of costs. According to the Offi ce of the CALA Expressway DPWH PPP/ODA 2013-2017 P43.3 billion President, Pres. Aquino called for a verifi cation of costing to see if this can be lowered. Approved in principle by the NEDA Board on Nov. 29, but still subject to further review of costs. The gov’t stepped in to resolve NLEX-SLEX Connector Road DPWH PPP 2013-2016 P25.6 billion the issue on the common alignment with Citra’s Skyway Stage 3 Project after MPTDC and Citra failed to reach an agreement by the Dec. 15 deadline. The government’s decision has yet to be announced. The project is still under consideration of the TRB Board, reportedly in the “fi nal stage” pending resolution on the common Skyway Stage 3 DOTC-TRB PPP 2013-2015 P25.4 billion segment shared with MPTDC’s NLEX-SLEX Connector. Once endorsed by the TRB, the project would still have to be approved by the President. It was also included in the PPP pipeline. Tacloban Airport DOTC PPP 2013-2016 P2.12 billion Approved by the NEDA Board in November 2012. O&M contract is still being fi nalized by DOTC. As of November, P7.9 billion (const.); Laguindingan Airport DOTC ODA/PPP 2008-2013 98.66% of civil works has been completed. According to earlier P1.8 billion (O&M) reports, soft opening is planned in January 2013. Puerto Princesa Airport Feasibility study for O&M contract is still ongoing. Korean ODA- DOTC ODA/PPP 2013-2015 P4.5 billion (const.) Development funded construction is expected to start within 2013. DOTC is bidding out the P350-million contract for consultancy LRT-2 East Extension DOTC/LRTA NG/ODA 2013-2016 P9.76 billion services. Bidding is limited to Filipinos or fi rms at least 60% Filipino-owned. Bidding ends on Jan. 7, 2013. The Department of Finance is fi nalizing the conditions governing MRT-7 DOTC PPP 2013-2016 $2.2 billion the revised contract. SMC said that it is ready to begin construction once the contract is approved. It was deferred by the NEDA Board in December due to the Cebu Bus Rapid Transit suggestions given by Pres. Aquino to include segregated roads and DOTC ODA 2013-2015 $211 million (BRT) dedicated bus lines in the BRT plan. The project implementation is scheduled in October 2013. Contactless Automatic DOTC/LRTA PPP 2013-2014 P1.72 billion Approved by the NEDA Board in November 2012. Fare Collection System Agus VI Hydroelectric Bidding is expected to push through in January or February 2013. Power Plant (Units 1 & 2) DOE-NAPOCOR NG 2013-2015 P2.6 billion The contract is scheduled to be awarded in April 2013. Uprating The P91.42-million feasibility study (FS) is still ongoing. It involves Leyte-Mindanao DOE -- 5-7 years P24 billion the preparation of an updated FS from 2001, survey about Interconnection Project transmission route, and the hiring of consultancy services.

Philippine ANALYST December 2012