ABSTRACT

The Belt and Road Initiative, or the BRI, has been touted as the most ambitious project in the 21st century. Spanning more than 64 countries, 62% of the world’s population and 30% of the global productivity output, the BRI aims to enhance trade flows between countries and strengthen their economic standings through massive infrastructure developments. The stand to benefit from the BRI from the investments and trade opportunities that the project will bring about, and the archipelagic nation is eager to play a role in the project, as exemplified in the Philippines’ President Rodrigo Duterte attendance in the Belt and Road Forum on International Cooperation on May 14, 2016.

This report analyses the competitiveness of the three main of the Philippines, by observing key drivers of past performance, identifying future possible demand and decline drivers, and providing forecasts of their container throughputs from 2017-2050. The study aims to shed light on the current expansion plans for each and recommend additional appropriate expansion plans in conjunction with the BRI, through qualitative and a brief quantitative analysis.

The analysis finds that all three ports will continue to see an upward trend of container throughput till 2050, and additional expansion plans are required for the ports to meet the prospective trade volumes. We also find that the Philippines is well poised to implement our proposals due to their growth rate and their potential to become a major economy in 2050. Due to this growth, we provide a case for the implementation of the expansion plans despite acknowledging the risks of the success of the BRI. Overall, we believe that the Philippines will be able to reap much benefits from the upcoming opportunities in the trading and maritime industries, and they will miss out capitalizing on them if they are ill-prepared. CONTENTS

Introduction to the Philippines 1 Belt and Road Initiative 4 Purpose of the Report – Philippines and the BRI 6 Port of 7 Port of 35 Port of Cagayan de Oro 49 A Feasibility Study 63 Conclusion 73 PORTS OF PHILIPPINES AND THE BRI

Port of Manila 1. INTRODUCTION TO THE PHILIPPINES Region Port Authority PPA 1.1 THE PHILIPPINES Port Office PDO Manila The Republic of Philippines is an island country located in the We stern Size Very Large Pacific and in Southeast Asia. Consisting of about 7641 islands, it is the 5th largest archipe lago in the world, and with a population of over Region Southern 103 million, it is the 12th most populous country in the world. The Port Authority PPA islands of Philippines are located very close to each other; climate is Port Office PMO Davao largely determined by its proximity to the sea, as on land the sea is Size Medium Port of Cagayan de Oro never far away. The archipelago is divided into 3 principal Region Northern Mindanao geographical areas: to the north; Luzon, the central; , and to Port Authority PPA the south; Mindanao. PMO Cagayan de Port Office Oro/Misamis Oriental Size Small

Country Container Throughput Lowest: 3031548 TEUs, 2000 Highest: 6517208 TEUs, 2016

8000000

6000000

4000000

2000000

0 2000 2002 2004 2006 2008 2010 2012 2014 2016

2016 Data of the Philippines Nominal GDP US$304.9B Population 103.3M Population Growth Rate 1.72% Real GDP Growth 6.9% Inflation Rate 2.6% Exchange Rate (1USD) PHP 49.81 Exports US$4732M Imports US$7298M Consumer Price Index 146.3 Balance of Payments US$(1671M) Figure 1: Map of Philippines Due to the archipelagic nature of the Philippines, an efficient maritime National Debt US$118.6B National Revenue US$4.06B transport network is crucial for growth and socio-economic integration. Underemployment Rate 18.0% Maritime transport has and still is the major me an s of transport for Unemployment Rate 4.7% facilitating movement of pe o ple and commodities, and its po rts are GINI Index (2015) 0.40 the archipelago’s main links to the international trade system. About HDI Index (2015) 0.682 98% of product imports and exports are facilitated through ports. Visitor Arrivals 422,943

1 In 2016, trade accounted for about 30% of the country’s GDP, with manufactures accounting for the bulk of the Philippines’ imports and exports. Major trading partners over the past few years include , the People’s Republic of , the United States of America, and .

1.2 PORT STRUCTURE OF THE PHILIPPINES According to government statistics, Philippines had 2452 ports in 2007, comprising of the following four categories: public and private ports handled by the Philippine Ports Authority (PPA), ports under Independent Port Authorities (IPAs), municipal and fishing ports under the Department of Transportation (DOTC previously), and ports under the Road-RoRo TerminalSystem(RRTS).

Figure 2: Structure of Philippine Port System

The PPA is the main government agency to coordinate port development throughout the country, overseeing 115 public ports and over 500 private ports. IPAs were created to decentralize the po we r of the PPA, but though they have the autonomy to set their own rates, they still take reference from the PPA. The DOTC, numbering about 421 ports, are used mainly for fishing and do some commercial cargo transfer under the agreement of both the PPA and the Philippine Fisheries and Development Authority (P FDA). Finally, the RRTS, or also known as the Philippine Nautical Highway System, is an integrated network of roads and ports developed by the government to connect the three major areas of Luzon, Visayas and Mindanao.

1.3 MAJORPORTS OF PHILIPPINES Out of the numerous po rts in Philippines, seven major ports with container liner services stand out; namely the Port of Bugo, Port of Cagayan de Oro, , Port of Davao, Port of General Santos, and the Port of . For the purposes of this report (which will be further detailed in Section 3), we will be focusing on the Port of Manila (comprising of the Manila International Container Terminal, South and North Harbour), Port of Davao and the Port of Cagayan de Oro. The reason for the choice of the trio is due to their high container traffic, with Manila being the highest, handling about majority of the container trade in the Philippines.

2.4 2.2 2 1.8 1.6 1.4 1.2 1 0.8

Millions (TEU 2016) (TEU Millions 0.6 0.4 0.2 0

Figure 3: Container Throughput of Philippines’ ports in 2016

2 1.4 CONTAINER THROUGHPUT OF THE PHILIPPINES The overall container throughput for Philippines has been steadily increasing from 2000 to 2016. In 2016, the total container throughput amounted to 6.5m TEUs, with 2.6m of domestic traffic and 3.9m of international traffic. Of the figure for international container traffic, exports and imports took up about half each. To provide a comprehensive view of the Philippines container trade over the years, we have done a brief comparison of the container throughput for countries within the region:

Year Container Throughput (TEU) by Country

Philippines Thailand Singapore Taiwan

2016 6,517,208 24,596,106 8,438,043 30,903,600 14,886,140

2015 5,810,669 23,876,552 8,339,000 30,922,300 14,491,654

2014 5,525,121 22,373,309 8,283,756 33,869,300 15,050,514

2013 5,238,419 20,876,318 7,702,476 32,578,700 14,046,868

2012 5,212,579 20,556,725 7,468,901 31,649,400 13,881,356

Figure 4: Container Throughput of Countries (2012-2016)

The Philippines underperforms in comparison to other ports in the region de spite its maritime nature and location in the Asia Pacific. We identify the strengths, weaknesses, opportunities and threats to the country in the following to illustrate an overarching view of the Philippines’ container port industry.

1.5 SWOT ANALYSIS

Strengths Weaknesses

• Fastest growing Asian economy in 2016 Q1 and Q2 • Lack of access roads to the international ports, (7% growth vs China’s 6.7%) exacerbated by traffic congestions • High focus on improvement of transport, starting from • Truck bans to alleviate traffic congestions cause the RRTS in 2003 disruptions in supply chain movements • Container throughput has been steadily increasing over • (BOC) is outdated and results in the years unnecessary delays and costs • International ports are utilising newest technologies and • Harsh tax environment: international vessels pay a 3% solutions, such as the Terminal Appointment Booking common carrier tax; local vessels pay corporate income System (TABS) and real-time IT in MICT taxes and 12% VAT on fuel and generator • A pool of talented seafarers who can offer maritime expertise to international shipping firms

Opportunities Threats

• Record government infrastructure spending in 2017 • Overdependence on Manila - when growing projected at $17.7bn will boost hinterland connectivity international container volume exceeds Manila’s • The PPA is promoting privatization of ports, allowing capacities, other ports in Philippines are not well more private investments for port enhancement equipped enough to handle the shifts • Progressive emphasis on development: the Subic Bay • Possible existing tension between the Philippines and Metropolitan Authority (SBMA) upgrading to double its China over the Scarborough Shoal chain of reefs total port capacity, new dry bulk terminal in province • Intense competition from other countries (Singapore – of in 2016 etc. upcoming Tuas Terminal, Taiwan – upgrading of • Potential to be a strong regional hub for ship repair Kaohsiung Port’s seventh container terminal etc.) and dry-docking services due to its geographical location and pool of talented maritime workers

Figure 5: SWOT Analysis of the Philippines

3 2. BELT AND ROAD INITIATIVE

2.1 BACKGROUND OF THE BRI The Belt and Road Initiative (BRI), or previously known as “One Belt One Road (一带一路)”, is a strategy underlining China’s push to adopt a larger role in global affairs through a China-centric trading network. The initiat ive was announced by President Xi Jinping of China in 2013, during his visits to Kazakhstan and , with the aim of promoting economic cooperation amongst co untr ies which fall along the pro po se d “Belt” and “Road” trading routes.

The “Belt”, or the Economic Belt, is a land-based route beginning in Xi’an, China, and links up with countries in Central Asia, the Middle East and into Europe. Alongside this route, the BRI also proposes six economic corridors reaching into Russia, South Asia and Southeast Asia.

The “Road”, or the 21st Century Maritime Silk Road, is a sea-based route utilising existing shipping channels and Chinese ports to link China with Europe via the South China Sea, the Indian Ocean and the Mediterranean Sea.

Figure 6: Road Map of BRI

For China’s proposed trade routes to work, the BRI encompasses a huge collective of current, planned and future infrastructure pro je cts, to ge the r with a host of bilateral and regional trade agreements with the countries that agree to participate in the initiative. As of 2017, 64 countries along the Belt and Road have expressed interest in being part of the project. Together with China, these nations make up 62% of the world’s population and 30% of the world’s economic output. China will then focus on the development of infrastructure in the se nations, which includes ports, roads, railways, power plants, and oil and gas pipelines, as well as establishing a supporting IT , communications and financial infrastructure, and this is estimated to cost about US$5 trillion.

4 2.2 RATIONALE FOR THE BRI There are a fewkey reasons for the proposal of the BRIby China.

Figure 7: Reasons for BRI Proposal

Therefore, with pressing problems that could hinder China’s economic growth in the long run, China has drafted the BRI in order to acquire investment stakes and strengthen diplomatic ties with other countries to facilitate its trade growth. Due to its scale and costs, the BRI is touted as the “most ambitious economic project in the 21st century”.

2.3 CURRENT PROGRESS OF THE BRI It is worth noting that China do e s not publish a list of all projects and deals under the BRI. However, the Chinese government issued a statement affirming that about 50 Chinese state-owned companies have invested in nearly 1700 such projects, and as of 2016, about $500bn worth of these pro je cts were announced. The following are notable examples,and are not exhaustive:

RAILWAYS

As of 2017, China has begun construction on the first stretch on a high-speed railway that will link Kunming with Singapore, linking the countries Laos, Thailand and Malaysia. The railway will allow the establishment of the economic corridor linking China and Southeast Asia.

In 2016, China sent the first cargo train from China to Iran, crossing through Kazakhstan and Turkmenistan. Sanctions against the Middle Eastern country were also lifted subsequently, followed by a pledge between the two nations to expand trade by $600m over the next decade.

Further proposed railways include a rail between Nairobi and Mombasa in Kenya to boost trade in Africa, and the China-Europe Railway Express which is the backbone of the Belt, which freight services have already been launched from Beijing to London.

PORTS

The Chinese terminal operator China Merchants Holdings International (CMHI) acquired a 65% equity stake in Turkey’s Kumport Terminal, which is the third largest container terminal in the country, in 2015. The Chinese firm will also invest up to $600m to develop the port of Hambantota in Sri Lanka, to utilise the port’s strategic location for the BRI.

The Gwadar Port in Pakistan will also be massively upgraded under the China-Pakistan Economic Corridor (CPEC) plan, together with other infrastructure such as a power plant and an airport, with the CPEC plan valued at $62bn.

In Europe, China Ocean Shipping Company (COSCO) has acquired a controlling stake in 2016 of Athens’s Piraeus Harbour, which will allow China to reach the Mediterranean Sea easily.

5 3. PURPOSE OF THE REPORT – PHILIPPINES AND THE BRI

The 21st Century Maritime Silk Road also has plans for another arm which connects the South Pacific region with the other parts of the Road. As the Philippines lie in this region, it is well positioned to play a role in the BRI if the South Pacific arm is established. The Philippines can then capitalize on the investment and trade opportunities that the initiative will bring about. Under the preside ncy of President Rodrigo Duterte of the Philippines, the country has established closer relations with China than before. During a state visit in October 2016, President Duterte signed 13 bilateral agreements with China and facilitated deals between firms from the two countries with an estimated value of $24bn. Despite the fact that the two nations had previously been in dispute over the Scarborough Shoal chain of reefs, the Philippines have softened its stance over the ruling in light of fostering closer relations with China. There is the be lie f that avenues will arise to effectively address the issue better in the future.

Figure 8: Road Map of Belt and Road Trade Routes

In preparation for the BRI, both countries have already exchanged letters addressing the feasibility of two infrastructure pro je cts in the Philippines, which are the Panay-Guimaras-Negros Bridges Project, and the Expressway Project. China has also expressed interest in helping fund partially the development of critical infrastructure such as railways and bridges in the Philippines under the BRI.

It then seems obvious that the Philippines will reap benefits from the BRI and the ports of Philippines will gain much from increased development and trade volumes. However, there are several possible reasons that this outlook might be too optimistic. Firstly,the Philippines sits on an extended branch of the Road leading into the South Pacific region, and is therefore not a crucial node in the Road in contrast to other countries like Malaysia or Turkey. Secondly, participation in the BRI brings about several risks for the Philippines to o , such as political risks, credit risks and social implications. Thirdly, there might be factors within the Philippines internally that affect the feasibility of the BRI, such as corruption perception, the current effectiveness of the country’s top ports and security issues.

This report aims to study the to p container po rts in the Philippines, and evaluate their handling capacities in view of the BRI for the next 30 years. We analyse the demand and decline drivers of the individual ports, together with the de ve lo pme nts be twe e n the Philippines and China under the BRI, and forecast the respective future container throughputs. Supplementing the forecasts with the current handling capacities of the ports, we will then provide our recommendations for each port for the next three decades. To wrap up, we will then assess the feasibility of the Philippines to undertake the proposed port development projects in light of the BRI.

6

4. PORT OF MANILA

4.1 GEOGRAPHY The Port of Manila is part of a series of ports located in the Port Area and the Tondo area of Manila, facing the . The port is unique to the Philippines as it is the largest domestic port and the pre mie r international shipping gateway to the country. As of 2016, it handles a total of 4.5m TEUs accounting for some 70% of the Philippines’s total container throughput. The Port of Manila is also the thirty-fifth busiest container po rt in the world, as reported by the World Shipping Council.

The Port of Manila comprises of 3 major ports, namely the Manila North Harbour, Manila South Harbour and the Manila International Container Terminal (MICT). Other than serving as a key transhipment port for other domestic ports in the Philippines, the Port of Manila also serves the extensive Manila hinterland region. As Manila is the country's main economic, cultural, and political centre, this places the Port of Manila in a unique and attractive position.

Figures 9, 10 & 11: Geographical Map of Port of Manila 4.2 GOVERNANCE The PPA is the governing port authority which is an arm of the Philippine’s Ministry of Transport. Under the jurisdiction of the PPA, Manila North Harbour Port Incorporated (MNHPI), Asian Terminals Incorporated (ATI) and International Container Terminal Services Incorporated (ICTSI) are the holding companies that operates the Manila North Harbour,Manila South Harbour and MICT respectively. 8 MNHPI is owned mainly by ICTSI (34.83%), San Miguel Holdings Corporation (43.33%) and Harbour Centre Port Terminal (21.67%). The main shareholding MNHPI Holdings structure of ATI consists of about 20 different entities Harbour Centre both foreign and local. The company is 38.96% 21.67% foreign owned. MICT is wholly owned by ICTSI. The 34.83% ICTSI constituents of the shareholders can be found to the right.

The Port of Manila adopts the landlord management 43.33% model, where PPA owns the land and regulates the San Miguel port but the port is leased to the respective operators. Figure 12: Shareholdings of MNHPI

4.3 MARKET STRUCTURE The Port of Manila follows an oligopoly and Top 20 Stockholders of ATI monopoly market structure. Previously, there was a DP World Australia (POAL) Ltd. 17.32% mixture of domestic and international cargoes among ATI Holdings, Inc. 14.57% the 3 terminals. In general, Manila North Harbour PCD Nominee Corporation (Filipino) 11.67% Pecard Holdings, Inc. 9.91% caters to domestic cargoes and both the Manila South Philippine Seaport, Inc. 9.85% Harbour and MICT cater to international cargoes. Daven Holdings, Inc. 7.80% Therefore, the domestic port segment of the Port of PCD Nominee Corporation (Non-Filipino) 6.99% Manila follows a monopoly market structure while the SG Holdings, Inc. 6.50% international port segment of the Port of Manila Morray Holdings, Inc. 5.00% follows an oligopoly market structure. Harbourside Holding Corp. 4.00% Aberlour Holding Co. Inc. 3.58% 4.4 PORT INFRASTRUCTURE & FACILITIES Rescom Developers, Inc. 1.33% Tanco, Eusebio, H. 0.76% 4.4.1 MANILA NORTH HARBOUR Granite Realty Corporation 0.05% Luym, Douglas 0.04% Manila North Harbour is a multi-purpose po rt that Tanco, Joseph Luym 0.04% offers de dicate d facilities and services to handle a Oben, Reginaldo Oben &/or Teresa 0.04% wide variety of cargoes. It is the largest and fastest Sy Tian 0.03% growing maritime gateway for domestic cargoes and Sy, Tiffany Grace Tan 0.03% acts as the key gateway between the Philippines Cheung Pek Ping 0.03% archipelago. Phase 1 of the modernisation and Total 99.54% redevelopment of the port was completed in July Figure 13: Top Shareholdings of ATI 2017. State-of-the -art technology such as the terminal operating system (TOS) was introduced in 2016 to provide greater efficiency in vessel planning and in ICTSI Holdings Enrique K. Razon, JR turn, enhancing productivity, yard operation and (Preferred) Public (net) container management. Authorities are already 25.70% 37.70% planning to commence with Phase 2 of the expansion which would take around 5 years to co mple te . This would eventually allow Man ila North Harbour to have Others 0.70% capabilities of handling of up to some 3.5m to 4m 35.91% TEUs annually. A snapshot of the facilities can be Enrique K. Razon, JR found be lo w, alongside Manila South Harbour and MICT. Figure 14: Shareholdings of ICTSI 9 4.4.2 MANILA SOUTH HARBOUR

Since 2014, all domestic cargoes at the Manila South Manila North Harbour Harbour have been transferred to other domestic No of Berths 8 Quay Line 660m ports. Today, the port, which is operated by ATI is one Berth Depth 13m of the key major international trade gateways of the Port Area 52.5 hectare Philippines, handling some 1.04m TEUs in 2016. Handling Capacity 2.2m TEUs Expansion and development in 2013 increased the STS QC Cranes 8 handling capacity of the po rt from 1.03m TEUs to RTG Cranes 27 1.2m TEUs. Manila South Harbour currently has a 30T Forklifts 21 facility with a total of 4 container berths, each with a 16T Forklifts 11 draft of 12 meters deep and about 975 meters of 10T Forklifts 2 quay line equipped with twin-lifts and ship-to-shore 8T Forklifts 2 gantry cranes. 4T Forklifts 3 Yard Tractors 59 The port is well connected with the hinterland as the Crane moves per hour 23 facility offers efficient gate access through 5 corridors connecting to the main roadways. The multiple access gates are equipped with weighbridges and are Manila South Harbour supported by automated truck queuing and call-up No of Berths 4 systems to improve traffic flow along roads. Real time Quay Line 975m terminal operating system is also utilised to ensure Berth Depth 12m efficiency at the port where the system allows for Port Area 80 hectare Handling Capacity 1.2m TEU better container segregation and stacking, vessels STS QC Cranes 7 berthing, loading and unloading, and equipment RTG Cranes 23 control. Moving forward, ATI will continue to be Transfer Cranes 19 committed in optimizing Manila South Harbour through Reach Stackers 3 capital investment programs in line with its investment Side Loaders 10 commitments with the PPA. Crane moves per hour 25 4.4.3 MICT

MICT, or the Manila International Container Terminal, is a dedicated container te rminal that mainly handles MICT international containerized cargo. As of 2017, MICT is No of Berths 4 the Philippines’ largest international container terminal Quay Line 1700m in terms of volume and capacity with an annual Berth Depth 10-12m handling capacity of around 2.75m TEUs. Around Port Area 93.9 hectare Handling Capacity 2.5m TEU 63% of the foreign container traffic passing through STS QC Cranes 13 Manila are being handled at the terminal and the RTG Cranes 45 terminal saw a throughput of 2.1m TEUs in 2016. The Transfer Cranes 32 MICT was PPA’s first pilot project in the privatization Reach Stackers 14 of ports in 1988, and today, it is operated by ICTSI. Side Loaders 15 The terminal utilises real-time IT control system to Prime Movers 92 ensure the most efficient and effective operation Top Loader 1 methods. MICT also has the capability of servicing Weighbridges 10 domestic containerised cargoes and this proves to be Crane moves per hour 30 beneficial to exporters as is reduces both cost and

Figures 15, 16 & 17: Port Facilities of Port of Manila 10 time due to the reduction of clearance and documentation requirement. Over the years, ICTSI has continued to invest in MICT heavily such as the addition of berth 6 in 2012 that enabled the terminal to increase its handling capacity from 1.9m TEUs to 2.5m TEUs. ICTSI has also committed a multi-billion-peso capacity improvement agreement with the PPA that will lead to an addition of a new berths and other capacity improvements by 2020.

4.5 PORT PERFORMANCE Before forecasting the throughput for the Port of Manila for the next 30 years, it is important that we analyse the historical trends and assess the underlying reasons behind their movements. Through this, we can gain more insight into the likelihood of scenarios happening again in the future.

4.5.1 COMPOSITION OF CONTAINER TRAFFIC

In general, Manila North Harbour caters to do me stic cargoes and the Manila South Harbour and Manila International Container Terminal caters to international cargoes. The following tables show the composition of the containers at the Port of Manila:

MANILA NORTH HARBOUR Year Domestic (TEU) % International (TEU) % Total (TEU) 2000 763,823 100.00% 0 0.00% 763,823 2001 770,069 100.00% 0 0.00% 770,069 2002 808,772 100.00% 0 0.00% 808,772 2003 715,007 100.00% 0 0.00% 715,007 2004 665,509 100.00% 0 0.00% 665,509 2005 578,621 100.00% 0 0.00% 578,621 2006 608,017 100.00% 0 0.00% 608,017 2007 690,531 100.00% 0 0.00% 690,531 2008 631,467 100.00% 0 0.00% 631,467 2009 638,263 100.00% 0 0.00% 638,263 2010 553,548 100.00% 0 0.00% 553,548 2011 771,603 100.00% 0 0.00% 771,603 2012 865,726 100.00% 0 0.00% 865,726 2013 894,832 100.00% 0 0.00% 894,832 2014 1,043,705 100.00% 0 0.00% 1,043,705 2015 1,137,456 100.00% 0 0.00% 1,137,456 2016 1,301,237 100.00% 0 0.00% 1,301,237

MANILA SOUTH HARBOUR Year Domestic (TEU) % International (TEU) % Total (TEU) 2000 0 0.00% 576,592 100.00% 576,592 2001 0 0.00% 591,143 100.00% 591,143 2002 0 0.00% 612,487 100.00% 612,487 2003 90,374 12.23% 648,661 87.77% 739,035 2004 190,260 22.99% 637,494 77.01% 827,754 2005 232,222 26.59% 641,062 73.41% 873,284 2006 199,970 21.82% 716,307 78.18% 916,277 2007 112,157 7.63% 1,357,440 92.37% 1,469,597 2008 103,494 12.23% 742,984 87.77% 846,478 2009 86,608 10.32% 752,342 89.68% 838,950 2010 101,764 10.30% 886,504 89.70% 988,268 2011 123,489 12.64% 853,354 87.36% 976,843 2012 99,979 9.86% 914,521 90.14% 1,014,500 2013 63,353 6.45% 919,200 93.55% 982,553 2014 0 0.00% 889,464 100.00% 889,464 2015 0 0.00% 877,600 100.00% 877,600 2016 0 0.00% 1,047,084 100.00% 1,047,084

11 MICT Year Domestic (TEU) % International (TEU) % Total (TEU) 2000 746 0.08% 950,543 99.92% 951,289 2001 587 0.06% 934,352 99.94% 934,939 2002 440 0.04% 1,040,910 99.96% 1,041,350 2003 136 0.01% 1,106,625 99.99% 1,106,761 2004 422 0.04% 1,204,777 99.96% 1,205,199 2005 216 0.02% 1,208,016 99.98% 1,208,232 2006 42 0.00% 1,195,023 100.00% 1,195,065 2007 0 0.00% 1,371,731 100.00% 1,371,731 2008 65,792 4.33% 1,453,285 95.67% 1,519,077 2009 82,932 5.93% 1,314,662 94.07% 1,397,594 2010 89,542 5.55% 1,523,344 94.45% 1,612,886 2011 85,526 4.99% 1,627,762 95.01% 1,713,288 2012 93,728 5.13% 1,732,897 94.87% 1,826,625 2013 98,233 5.17% 1,803,243 94.83% 1,901,476 2014 35,085 1.87% 1,842,183 98.13% 1,877,268 2015 0 0.00% 1,960,699 100.00% 1,960,699 2016 0 0.00% 2,173,988 100.00% 2,173,988

TOTAL - PORT OF MANILA Year Domestic (TEU) % International (TEU) % Total (TEU) 2000 764,569 33.36% 1,527,135 66.64% 2,291,704 2001 770,656 33.56% 1,525,495 66.44% 2,296,151 2002 809,212 32.86% 1,653,397 67.14% 2,462,609 2003 805,517 31.46% 1,755,286 68.54% 2,560,803 2004 856,191 31.73% 1,842,271 68.27% 2,698,462 2005 811,059 30.49% 1,849,078 69.51% 2,660,137 2006 808,029 29.71% 1,911,330 70.29% 2,719,359 2007 802,688 22.73% 2,729,171 77.27% 3,531,859 2008 800,753 26.72% 2,196,269 73.28% 2,997,022 2009 807,803 28.10% 2,067,004 71.90% 2,874,807 2010 744,854 23.61% 2,409,848 76.39% 3,154,702 2011 980,618 28.33% 2,481,116 71.67% 3,461,734 2012 1,059,433 28.58% 2,647,418 71.42% 3,706,851 2013 1,056,418 27.96% 2,722,443 72.04% 3,778,861 2014 1,078,790 28.31% 2,731,647 71.69% 3,810,437 2015 1,137,456 28.61% 2,838,299 71.39% 3,975,755 2016 1,301,237 28.77% 3,221,072 71.23% 4,522,309

Figures 18, 19, 20 & 21: Composition of Container Traffic at Port of Manila (2000 – 2016)

4.5.2 TOTAL CONTAINER THROUGHPUT

The graphical representative of container throughputs of each port are listed below.

Port of Manila

5,000,000 16%

4,500,000 14%

4,000,000 12% 10% 3,500,000 8% 3,000,000 6% 2,500,000 4% 2,000,000 2% 1,500,000 0%

1,000,000 -2%

500,000 -4%

0 -6% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

TEU Growth Rate

12 Manila North Harbour

1,400,000 50%

1,200,000 40%

1,000,000 30%

800,000 20%

600,000 10%

400,000 0%

200,000 -10%

0 -20% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

TEU Growth Rate

Manila South Harbour

1,200,000 25%

20% 1,000,000 15% 800,000 10%

600,000 5%

0% 400,000 -5% 200,000 -10%

0 -15% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

TEU Growth Rate

MICT

2,500,000 20%

15% 2,000,000

10% 1,500,000 5% 1,000,000 0%

500,000 -5%

0 -10% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

TEU Growth Rate

Figure 22, 23, 24 & 25: Container Throughput at Port of Manila (2000-2016)

4.5.3 KEY DRIVERS OF PAST PERFORMANCE i. Worldwide Financial Crisis in 2001 2001 was a period of economic uncertainty and hardship for many countries around the world. The Philippine’s economy was affected as it recorded a modest 2.9% GDP growth rate. Some of the economic crises in 2001 were the Argentine economic crisis, Turkish economic crisis, bursting of the do t-com bubble and the early 2000s recession which affected the European Union and the United States. The Port of Manila being the key international gateway port of the Philippines was directly affected by the global uncertainties.

13 ii. Economic Performance of The Philippines in 2005 The Philippines economy grew by 4.8% in 2005 which is slightly lower than the 6.7% growth rate experienced in 2004. The Port of Manila experienced a negative growth rate of 1.42% in 2005. This can be attributed to a variety of factors such as the increase in oil prices, weak global demand, weather related issues and political uncertainties. Across the Philippines’ economy, the agricultural 2005: 2.0% sector performance was dismal in 2005, expanding 2004: 4.9% by merely 2%, compared to its growth of 4.9% in 2004. This was a result of the dry spell that the Philippines had to endure till the third quarter of 2005 which tempered the output growth of major Agriculture crops such as palay and corn. The forestry sector also saw a drastic decline in output from 29.8% in 2005: -36.5% 2004 to -36.5% in 2005. Consumption fell as oil 2004: 29.8% and commodity prices rose due to inflation, increasing to 7.6% in 2005 from 6% in 2004. The Forestry sharp rise in fuel prices was further aggravated by the political uncertainties during president Arroyo’s 2005: 7.6% re-election in 2004. Furthermore, we ak global 2004: 6.0% demand for electronics, the country’s major export product, lead to a significant decline in export growth rate from 14.1% in 2004 to 2.2% in 2005. Of the 3 ports at the Port of Manila, the Manila Inflation North Terminal was most badly affected having recorded a -13.1% growth rate in 2005. Due to its 2005: 2.2% nature as a domestic port, Manila North Terminal 2004: 14.1% was more volatile to the issues of concerns in 2015 as the drought, political uncertainty and the increase

Exports in oil price had a greater impact on the domestic economy. Figure 26: Overview of Philippines Economy in 2005 iii. 2009 Global Financial Crisis As with most economies around the world, 2009 was a to ugh year for the Philippines, which registered its lowest GDP in 11 years. In this year, the Philippines economy grew by a mere 1.1%. Similarly, 2009 saw the biggest decline in growth rate for the Port of Manila. The Port of Manila experienced a -4% growth rate, and both the Manila South Harbour and MICT had negative growth rates too. On the other hand, Manila North Harbour experienced a modest 1.08% growth rate. Such tro ubling growth rates were a result of the global financial crisis during this year,and total exports bore the brunt with a decrease of 14.2%.

Although there was a global slowdown on exports, the Philippines was able to avoid a recession unlike its neighbours due to investment in infrastructure and robust domestic consumer spending. The global financial crisis had a greater impact to international trade therefore having a more adverse and direct impact on Manila South Harbour and the MICT as compared to Manila North Harbour. Subsequently, the rebound of the global economy and the Philippine's economy in 2010 as seen from the 7.6% GDP growth rate of the country can be observedleading to the impressive performance of the Port of Manila in 2010.

14 iv. European Debt Crisis and Chinese Economic Slowdown in 2012 and 2013 After the rebound in 2010, the Port of Manila experienced declining growth rates in 2012 (7%) and 2013 (2%) as compared to earlier years. Macroeconomic factors that could explain this decline would be the European debt crisis, and the slowing down of the Chinese economy. The Philippines being a major trade partner of China, has a higher exposure to risks associated with the Chinese economy.

Industrialized economies tempering global demand led to a slower growth of the Philippines’ merchandise exports in 2013 (3.6%) as compared to 2012 (7.6%). Man ila South Harbour and the MICT saw a greater impact as the two majorly handled foreign cargoes. Manila North Harbour also experienced a de cline in growth rates but to a smaller degree, as the local manufacturing sector also recorded a much faster increase in production in 2013. This is attributed to the robust increase in domestic demand, which largely fuelled growth of the overall economy. Moreover, Manila North Harbour’s growth rate was also cushioned by spill over effects as much of the foreign cargoes from Manila South Harbour and the MICT are transferred over to Manila North Harbour for domestic transhipment. v. 2014 Manila Port Congestion Overall in 2014, the Port of Manila experienced sluggish growth rate of 0.84%. Both the Manila South Harbour and the MICT were badly affected as they experienced negative growth rates of 9.47% and 1.27% respectively. On the other hand, Manila North Harbour reported a 16.6% growth rate. The decline in the overall growth rate in 2014 was due to the Manila truck ban that was implemented from February to September 2014. The truck ban resulted in a huge number of containers be ing accumulated in the Port of Manila. Likewise, consignees were unable to return empty containers to the congested ports thereby filling up the empty container yards. Containers were hence diverted to the Port of Batangas and the . In contrast, Manila North Harbour which only handles domestic cargoes was less affected during the 2014 truck ban.

Figure 27: Container Traffic at Port of Manila vi. Robust Economic Performance in 2016 The Port of Manila overall saw impressive growth rates in 2016 (13.6%), with the total container throughput in that year being the highest ever recorded. The bullish performance was also observed in all three po rts with Manila North Harbour, Manila South Harbour and the MICT each with a record of 14.4%, 19.3% and 10.8% growth rates respectively. The Philippines was the fastest growing economy in East Asia in beginning 2016 and this was a direct result of robust consumption, which fuelled last year's growth and bolstered economic activity as exports pick up.

15 4.6 CONTAINER THROUGHPUT FORECAST In this section, we will forecast the future container throughput in te rms of TEU for the Port of Manila from 2017 to 2050. For the purposes of this report, we will construct our forecast for the Port of Manila as a single port, combining Manila North Harbour,Manila South Harbour and the MICT.

4.6.1 FACTORING OF MACROECONOMIC CRISES

To add a degree of realism in our forecast, we include a decline in growth rate that occurs every 5 years. This was calculated by taking the interval between events that caused a decline in the growth rate in the historical performance of the ports. In general, a possibility of a major macroeconomic crisis that would severely affe ct maritime trade in the Philippines lies between every 4 to 5 years. For the Port of Manila, the growth rates at each year with a major crisis is equal to 50% of the growth rates of the other years without the crisis in that particular forecasted period. This huge difference is used as the Port of Manila is more susceptible to global uncertainties due to it being the key international hub port of the Philippines.

Year Event Interval 2001 Worldwide Financial Uncertainty 4 Growth: Growth: Growth: X% 0.5X% X% 2005 Domestic Uncertainties 4 2009 Global Financial Recession 4 2014 European Debt Crisis & Chinese Economic 5 Slowdown Non-Crisis Crisis Non-Crisis

Figure 28: Table of Major Macroeconomic Crises (2000-2016) Figure 29: Forecast Growth Rate Adjustment for Port of Manila

4.6.2 FORECAST GRAPH

In forecasting the expected TEU for the Port of Manila from 2017 to 2050, we utilise the historical TEU data from the pe rio d 2000 to 2016. We denote Period 1 to be from 2000 to 2016 (17 years), Period 2 from 2016 to 2032 (17 years) and Period 3 to be from 2032 to 2050 (19 years). We first identify the compounded annual growth rate (CAGR) during Period 1 for reference in forecasting for the next two periods, which is a CAGR of 4.08%.

We adopt CAGR as our reference for the forecasts due to its smoothing nature and the long nature of our forecast horizon. With this, we can then better match the final expected throughput at the end of 2050 and evaluate the port’s capacity expansion plans accordingly.

Port of Manila

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Figure 30: TEU Forecast for Port of Manila There are 3 scenarios (Bull, Base & Bear) for the forecasted growth. We take into co ns ider atio n the various demand drivers, decline drivers and the possibility of a macroeconomic crisis occurring every 5 years. 16 Base Case BASE CASE We first forecast for the base case with the aid of the Year Forecasted TEU % Growth 2017 4,797,376 6.08% CAGR from Period 1. For the base case, we adopt a 2018 5,089,056 6.08% neutral view and identify which are the likely demand 2019 5,243,763 3.04% drivers and de cline drivers that would affect the Port 2020 5,562,584 6.08% of Manila. In this environment, there would likely be a 2021 5,900,789 6.08% mixture of bo th affe cting the Port of Manila (demand 2022 6,259,557 6.08% 2023 6,640,138 6.08% and decline drivers are elaborated upon in the next 2024 6,841,999 3.04% section). The increasing urbanisation of Manila, thus 2025 7,257,992 6.08% leading to an extensive hinterland, efficient port 2026 7,699,278 6.08% operators, the strategic location of the Port of Manila 2027 8,167,394 6.08% 2028 8,663,972 6.08% and the increased economic trade and relationship 2029 9,190,741 6.08% between its key partners and China will thus 2030 9,470,140 3.04% contribute to the growth of the port. However, the rise 2031 10,045,924 6.08% of other nearby international ports (P ort of Subic Bay 2032 10,656,717 6.08% 2033 11,198,078 5.08% and Port of Batangas), the similar ownership structure 2034 11,766,940 5.08% of the various ports in the Philippines and the 2035 12,364,701 5.08% constraints on transportation infrastructure could 2036 12,678,764 2.54% threaten the growth rate of the Port of Manila. 2037 13,322,845 5.08% 2038 13,999,646 5.08% 2039 14,710,828 5.08% Based on the CAGR of 4.08% for Period 1 we 2040 15,458,138 5.08% forecast an additional 2% increase in growth rate 2041 15,850,775 2.54% moving forward for Period 2 (2016 to 2032, 6.08%), 2042 16,655,994 5.08% as the outlook of the Port of Manila remains optimistic 2043 17,502,118 5.08% 2044 18,391,226 5.08% after weighing the demand and decline drive rs. For 2045 19,325,500 5.08% Period 3 (2032 to 2050, 5.08%), we added only 1% 2046 20,307,236 5.08% for the growth rate due to the uncertainties of the 2047 20,823,040 2.54% economy moving forward. Overall, we forecast a 2048 21,880,850 5.08% growth rate varying between 2.54% to 6.08% 2049 22,992,397 5.08% 2050 24,160,411 5.08% between 2017 and 2050. Figure 31: TEU Forecast Breakdown for Port of Manila

Bull Case In the bull case, we added a 2% in crease in the growth rate from the base case throughout the entire forecast horizon (the tables can be found in the Appendix). In this scenario, we co ns ide r that the Port of Manila would be able to take advantage of all of its demand drivers and alongside the rapid growth of the Chinese economy and key trading partners that have benefited from the increased economic activity from the BRI. On the other hand, the decline drivers would pose minimal threat to the port as they would have be e n resolved by the respective authorities.

Bear Case In the be ar case, we reduced 2% from the base case rates. Here, we co ns ider the situation where the Port of Manila and the Manila hinterland region is severely affe cte d by the de cline drivers. The key reasons for this scenario would be an inadequate transportation and port infrastructure to meet the growth needs coupled by the rise and availability of other international ports to cater for the growing demand. We also consider the potential internal uncertainty in the Philippines and the average economic performance of China and key trading partners involved in the BRI.

17 4.6.3 DEMAND DRIVERS

We highlight some of the competitive advantages and the surrounding factors of the Port of Manila that were identified to support our forecast. i. Efficient Port Operator The port operators of all the three ports (MNHP, ATI and ICTSI) of the Port of Manila has proved their efficiency with a crane TEU/hour which are amongst the highest in the Philippines, and on par with the global average of 27. In particular, the three ports had a co mbine d yard utilization of 53%, a combined berth occupancy rate of 57% and a quay crane productivity at 26 moves per crane per hour. Productivity remains at a “very healthy” level according to the PPA with no sign of congestion. After the 2014 Manila Port congestion situation, the respective port operators took measures to improve the efficiency of the port. The efficiency and the high-level of productivity at the Port of Manila can also be observed by the utilization of the real time terminal operation and booking system in all the three ports, and an increasing investment in automation to reduce operationalcosts. ii. Forward Looking Government The Philippines government is aware of the importance of an efficient and world class maritime infrastructure as the country is heavily dependent on water transport. The Port of Manila being the key national and international load centre of the Philippines would have direct impacts from any policies undertaken by the government. To ensure greater connectivity from the hub po rts to the other regions, the government had implemented a Ro-Ro terminal system (the Strong Republic Nautical Highway), which is an intermodal system designed to connect the islands of the archipelago and improve the distribution of trade such as agricultural products. Routes involving the Port of Manila include the Manila- Dapitan (Route 1), Manila-Cagayan de Oro (Route 2) and Manila-Orion, Bataan (Route 3). This will enable greater accessibility and reach in the hinterland and thus contribute to the overall growth and importance of the Port of Manila. Figure 32: Strong Republic Nautical Highway

Similarly, the government had made legislative changes to ensure the competitiveness of Philippines’s ports. Previously, vessels not registered under the Philippine flag had to unload their goods at the port of entry. The cargo will then be re-loaded onto a domestic vessel to carry it to its final local destination. This led to a serious bottleneck to the Philippine port growth, as it created entry barriers and thereby stifled competition. Since 2015, the government has signed a law allowing foreign vessels to transport and co-load foreign cargoes for domestic transhipment in order to create a more well-organized import and export system, as well as decongest the major ports of the country. The Port of Manila with the improved infrastructure and system is well poised to continue being the key transhipment port for access to the Philippines archipelago.

18 iii. Upgrading of Hinterland Infrastructure The Philippines government is overhauling its ageing infrastructure to boost its co mpe titive ne ss , job cr e atio n and attractiveness for foreign investment. Issues tackled include power costs, logistics inadequacy and supply chain challenges. An inter-agency panel chaired by the Philippines President Rodrigo Duterte has approved major infrastructure projects pertaining to bridges, roads and the country's first subway. One of the key projects is the 355.6bn peso Subway Project, the first of its kind in the Philippines to alleviate the sprawling capital's notorious gridlock. iv. Increasing Urbanisation of Metro Manila The Port of Manila serves the extensive Metro Manila hinterland region. Also officially known as the National Capital Region (NCR), it is composed of 16 cities with Manila being the capital city. It is the 5th most popular urban region in the world, establishing itself as the centre of the Philippines’ culture, economy, education and government. With a population projection of 20 million people residing in Metro Manila by the year 2020 and even more in the decades ahead, the rapidly increasing urbanisation rate with the increase in a youthful and educated workforce will certainly have a direct impact on the Port of Manila.

v. Strategic Location The location of the Port of Manila is geographically ideal as it lies in the middle of major Trans-Pacific, Europe-Asia and Intra-Asia shipping lanes. As a result, it is poised to be a perfect port for the hub and spoke system. The Port of Manila has the potential to develop into a major regional transhipme nt port for Eastern Asia offering direct links to major trades. Using the eastern Indonesia region as an example, which is not far from the Philippines, presently cargo heading to destinations in the East or the North must first be shipped we s twar ds to Singapore or Malaysia and before continuing on to their de stinatio ns. By transiting at Manila instead, it will significantly reduce the transit time as Manila has the ge o graphical advantage in this situation. Figure 33: Crowds in Metro Manila vi. BRI The Port of Manila (Manila South Harbour & MICT) accounts for over 70% of the international cargo traffic into the Philippines and is the key international gateway hub to the extensive Philippines archipelago. Therefore, any international collaboration with key trading partners would have a direct and significant effect on the Port of Manila. Similarly, much of the international cargoes will be transhipped into other ports within the Philippines via the Manila North Harbour. Under the current presidency of Rodrigo Duterte, there has be e n a sense of a renewed relationship between the Philippines and China. The President of the Philippines has opted to court China for its business and investment and avoid the rows over maritime sovereignty that dogged his predecessors. In the same vein, Chinese foreign minister Wang Yi has described the relationship between China and the Philippines one that has entered a “golden pe rio d of fast development”. The recent agreement between the PPA and the Shipping Authority of Haikou City (China) is a clear indication of future collaboration and prosperity between Chinese po rts and the Port of Manila. Today, China is the Philippines fourth largest trading partner with a trade volume worth $6.2bn. An increasing collaboration between the two countries would no doubt have a significant positive impact on the Port of Manila.

19 Under the BRI, China is exploring new port investments in the Philippines with the aim of growing its influence in the South China Sea. As of 2017, senior officials, which included representatives from the China Development Bank (a primary BRI investor tool pledging to pour US$900bn into BRI projects) have visited the te rminals of the Port of Manila to discuss investment possibilities, alongside the Port of Cebu and the Port of Davao.

The biggest BRI project in the Philippines is also located in Man ila, which lies in between the Manila South Port and the mouth of the River. Named the “New Manila Bay – City of Pearl”, the project involves building a smart city to allow business opportunities to advance and ease economic cooperation between China, Hong Kong and Southeast Asia. The City of Pearl will be built on reclaimed land and will include a new integrated central business district, a loop road network, an advanced driverless railway system alongside other features that will enable to city to be self-sufficient.

Figure 34: Artist Impression of City of Pearl Location The City of Pearl will bring about much economic development, jobs, and enhance connectivity within the immediate area which will allow the nearby Port of Manila to gain much benefits. The Port of Manila will hence be able to attract more business investment and the increase in demand will raise the port’s productivity and volume upon completion.

Figure 35: Artist Impression of City of Pearl

20 4.6.4 DECLINE DRIVERS

We also highlight some of the key challenges that the Port of Manila faces that we identified in our container throughput forecast. i. Inadequate Transportation Infrastructure The Port of Manila faces operational challenges due to the shortcomings of its road infrastructures. The existing lack of access roads to the ports in Manila is exacerbated by traffic congestions, coupled by mistimed government policies such as the trucks ban as seen in 2014. Today, traffic volume in Metro Manila exceeds the current road capacity and congestion is felt throughout the day from 6am to 9pm. This inadequate road infrastructure leads to disruptions of the entire supply chain, and hence lowers the competitiveness of the ports. Shipping firms might then opt to call port at the nearby Port of Subic Bay and the Port of Batangas. During the 2015 truck ban crisis, ships were diverted to these two ports due to the traffic bottleneck at the Port of Manila. Even though significant investment has been channelled into improving the transportation infrastructure in Manila, projects of these nature have a long implementation period. The possibility exists whereby the growing demand will still outstrip the expanded handling capacity upon completion. In addition, the Port of Manila is one of the few global ports in the world that does not have access to its own road infrastructure. As such, cargoes heading for the terminal find themselves competing with the regular commuter traffic. ii. Outdated Processes The performance of the Port of Manila is challenged and burdened through the outdated processes of the Philippine’s Bureau of Customs. To ensure efficiency, the Bureau of Customs needs to ensure that processes are automated and simplified. The processes conducted by the Bureau of Customs regarding overstaying delivery have to be reconsidered to avoid unnecessary complications and costs. As the country’s development grows, the Port of Manila’s role of an international and domestic hub port would greatly increase, making it crucial that the Bureau of Customs simplify and update customs processes to keep in pace with Philippines’ growth.

Figure 36: Port of Manila iii. Shallow Channel The Port of Manila does not have the capacity to handle very large vessels such as post-Panamax ships which require a depth of at least 14 meters. The depth of the entrance channel is only 13 meters for the MICT while the alongside berth and channel de pth is only around 12 meters de e p for Manila South Harbour. Thus, cargo originating from or to major international markets will therefore be transhippe d via other po rts such as Singapore,Kaohsiung, Shanghai and Hong Kong.

21 iv. Rise of Other International Ports The growing international container volume will inevitably lead to a po int where the handling SBITC capacity of the Port of Manila reaches its limit. Given 2.96% MICT current gro wth rates, the Port of Manila will reach its 49.28% maximum handling capacity by 2020 and even earlier for the case of the Manila South Harbour. ATI Therefore, nearby international ports such as the Port 22.15% of Subic Bay and Port of Batangas will automatically become of increasing importance to both the MICTSI 2.75% government and shipping firms as a possible BCT alternative solution to the congestion at the Port of 3.35% Manila. Moving forward, decentralisation will no CIP doubt be among one of the key discussion solutions as 7.70% part of the lo n g-term infrastructure improvement by DICT the government to alleviate the congestion at the Port 6.53 of Manila and further increase the utilisation of surrounding ports. Figure 37: Share of Foreign Container Throughput in 2016 v. High Tariffs at Port of Manila The Port of Manila currently imposes a high tariff on international cargoes. In comparison to rival international ports such as the Mindanao public ports (including Sasa Wharf), Davao International Container Terminal and the Port of Cebu, the tariff at the Port of Manila was amounted to twice of the other ports. vi. Similarity of Port Operators ICTSI operates the MICT and owns MNHPI which operates the Manila North Harbour. On the other hand, ATI operates the Manila South Harbour. Nearby rival ports such as the Subic Bay International Terminal and Batangas Container Terminal are also operated by ICTSI and ATI respectively. Due to this structure of possessing shared port operators, the Port of Manila may see much of its traffic being directed to the nearby rival ports, should ICTSI or ATI wish to increase the utilisation rates at Subic Bay and Batangas.

Figure 38: Manila International Container Terminal

22 4.7 PORT CAPACITY EVALUATION Based on our forecasted co ntaine r throughput, we evaluate the current capacity expansion plans for the Port of Manila. We provide each port in the Port of Manila with a separate analysis due to the dynamic nature of each port and the difference is the handling capacity and forecast TEU.

4.7.1 CURRENT EXPANSION PLANS

4.7.1.1 MANILA NORTH HARBOUR Currently, the North Harbour has a handling capacity of 2.2m TEUs. MNHPI currently has plans to commence with the PHP10bn Phase 2 of the expansion which would be completed around 2022. In Phase 2 of the expansion, Pier 14, 12, 10 and 8 will be redeveloped to give Manila North Harbour a total of 1.7 km of continuous quay length. Additionally, this will allow the North Harbour to accommodate up to 10 vessels of 140m in length at any one time. In general, domestic ships ranges from 95m to 150m in length. Phase 2 of the expansion will also add another 30 hectares for mixed-use development, including road utilities and other facilities such as warehouses and storage facilities. This would eventually allow Man ila North Harbour to have capabilities of handling of up to 4m TEUs annually by 2022.

Figure 39: Current Layout of Manila North Harbour, where ships can dock perpendicular to the shoreline

Figure 40: Phase 2 Expansion of Manila North Harbour, where ships can dock parallel to the shoreline

23 Figure 41: Layout Before Phase 2 Expansion Figure 42: Layout After Phase 2 Expansion

4.7.1.2 MANILA SOUTH HARBOUR ATI, the operator of Manila South Harbour has benefited from the continued growth of the port and has committed to the PPA a minimum of PHP 1.9bn (US D61m) in capital investment for 2017 for the continuous expansion of Manila South Harbour. This includes the deployment of more cargo handling equipment (e.g. RTGs & quay cranes) as well as the de ve lo pme nt of additional cargo storage facilities to cope with growth ahead. With these plans, we expect the total handling capacity of Manila South Port to reach 1.4m TEUs by end 2018.

4.7.1.3 MICT To meet gro wing demands, MICT has invested in 5 post-Panamax quay cranes capable of servicing up to 13,000 TEUs, 20 RTG cranes as well as the construction of another berth. The investment in the quay cranes and RTG will increase MICT handling capacity to 2.75m TEUs by 2019. The additional berth is expected to be completed by 2020. With these, it is expected that the total handling capacity of MICT by 2020 would be around 3.1m TEUs.

4.7.2 OUR RECOMMENDATIONS

The timing of when to increase the handling capacity of a port is crucial, as an ill-timed expansion plan will result in a situation where the port is approaching a 100% capacity which would dissuade additional shipping lines from calling at the port. The reverse is also not an ideal outcome as the re will be idle and underutilised capacity. The construction phase usually take be twe e n 3-5 years depending on the scale of the project. As such, using backward induction, we identify the year in which construction has to commence.

In our recommendation for the future development of the Port of Manila, we take into consideration for the base case scenario. The recommendations are also elaborated separately in te rms of the channel dredging and the expansion of the respective ports.

4.7.2.1 DREDGING OF CHANNELS The dredging of the channels is crucial in order to ensure that the Port of Manila remains a frontrunner in the region. Both the Manila South Harbour and the MICT will have to undergo dredging of their channels, and in addition, dredging of the alongside area of the berths for future phases too. Manila North Harbour has no immediate need for such action as the North Harbour is a domestic port and ships that call port the re are generally smaller. We allow the dre dging period to be 2 years, and the depth of the channels to be at least 16m to allow for handling of Post-Panamax ships.

24 4.7.2.1.1 MANILA SOUTH HARBOUR DREDGING PROPOSAL

The channel and the alongside berth depth of the Manila South Harbour is 12 m. A gre ater emphasis will be placed on the dredging of new expansion phases, including the South Harbour channel, rather than the current alongside regions of the be rths. For the po rt to handle Post-Panamax ships, we propose a dredging of 4m to the channel to reach the desired depth of 16m. The whole process will comprise of 5 phases:

Dredging Phase 1 Dredging Phase 2, 3, 4 & 5 Dredging of alongside berth area for future container Dredging of South Channel expansion phases Construction commences in 2018, completed by 2020 Simultaneously with Port Expansion Phases 1, 2, 3 and 4

Figure 43: Summary of Manila South Harbour Dredging Proposals

Figure 44: Proposed Location of South Channel Dredging

25 4.7.2.1.2 MICT DREDGING PROPOSAL

There will be a total of 4 dredging phases for the MICT region. Similar to the South Harbour, we place a greater emphasis on the dredging of the channel rather than the region alongside be rths. The rationale lies with the fact that the current alongside be rth depth is between 14.5m to 16m, wh ile the MICT channel only has a depth of 13m. We therefore propose a dredging of the MICT channel by 3 m to the optimal 16m depth to facilitate Post-Panamax ships.

Dredging Phase 1 Dredging Phase 2, 3 & 4 Dredging of alongside berth area for future container Dredging of MICT Channel expansion phases Construction commences in 2018, completed by 2020 Simultaneously with Port Expansion Phases 1, 2, and 3

Figure 45: Summary of MICT Dredging Proposals

Figure 46: Proposed Location of MICT Channel Dredging

4.7.2.2 DOMESTIC THROUGHPUT EXPANSION – MANILA NORTH HARBOUR Manila North Harbour solely handles do me stic cargoes. We pre vio usly identified that from 2000 to 2016, on average, domestic cargoes accounted for 29% of total cargoes at the Port of Manila. Hence, when forecasting for the pe rio d 2017 to 2050 we assign a 29% weight to the to tal forecasted TEU of the Port of Manila as a representation for the future domestic throughput. In our recommendation, we propose a Phase 3 and 4 expansion for Manila North Port as Phase 1 had already been completed and Phase 2 is due for completion in 2022. In addition, we exclude the cost for Phase 2 as it was already pre-planned by the authorities.

The key details can be found on the following page.

26 Year Key Details 2022 Completion of Port Expansion Phase 2. Increased handling capacity to 4m TEUs. 2033 Commence construction of Port Expansion Phase 3. 2036 Completion of Port Expansion Phase 3. Increased handling capacity to 6m TEUs. 2042 Commence construction of Port Expansion Phase 4. 2047 Completion of Port Expansion Phase 4. Increased handling capacity to 8m TEUs.

Figure 47: Summary of Manila North Harbour Port Expansion Proposals

Manila North Harbour Forecasted Throughput

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Phase 1 Phase 2 Phase 3 Phase 4 TEU

Figure 48: TEU Forecast and Proposed Capacity Expansion Phases (2017-2050)

A tabular breakdown can be found in the Appendix.

From the above image, we have designated the respective areas for Phase 3 and Phase 4 of the North Harbour development. Currently, the area on which Phase 3 is located consists of slums, abandoned land, warehouses and container yards. Thus, the cost of land would be rather affo rdable and the PPA should not have any issue in developing the land. Therefore, if the recommended location for Phase 3 is chosen, the local government would have to ensure proper resettlement of the affe cte d businesses and residents. The area for Phase 4 would have to be reclaimed. This locat ion is chosen as the area beside Phase 3 is be ing utilised by a petrochemical plant and a milling factor. The PPA is likely to face difficulty in obtaining the area for port expansion plans, and therefore we recommend the reclamation of land for Phase 4.

Figure 49: Proposed Locations of Manila North Harbour Phase 3 & 4

27 4.7.2.3 INTERNATIONAL THROUGHPUT EXPANSION – MANILA SOUTH HARBOUR In general, Manila South Harbour and MICT handles international cargoes. From our analysis we identify that from 2000 to 2016, on average, international cargoes accounted for 71% of to tal cargoes at the Port of Manila. Hence, when forecasting for the period 2017 to 2050 we assign a 71% weight to the total forecasted TEU as a representation for the international TEU.

For Manila South Harbour in particular, the port accounted for about 37% of the international cargoes at the Port of Manila. We use this weight in our forecasting for the pe rio d 2017 to 2050 as a representation for the international throughput for the South Harbour. In our recommendation, we propose a Phase 1, 2, 3 and 4 expansion for Manila South Harbour,and the areas designated for expansion would have to be reclaimed.

Year Key Details 2018 Commence construction of Port Expansion Phase 1 and Investment of capital infrastructure. 2019 Addition of capital infrastructure. 2023 Completion of Port Expansion Phase 1. Increased handling capacity to 2.4m TEUs. 2024 Commence construction of Port Expansion Phase 2. 2029 Completion of Port Expansion Phase 2. Increased handling capacity to 3.9m TEUs. 2035 Commence construction of Port Expansion Phase 3. 2040 Completion of Port Expansion Phase 3. Increased handling capacity to 5.4m TEUs. 2042 Commence construction of Port Expansion Phase 4. 2047 Completion of Port Expansion Phase 4. Increased handling capacity to 6.9m TEUs.

Figure 50: Summary of Manila South Harbour Port Expansion Proposals

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Current Phase 1 Phase 2 Phase 3 Phase 4 TEU

Figure 51: TEU Forecast and Proposed Capacity Expansion Phases (2017-2050)

By the end of 2017, it is expected that the South Harbour wo u ld not be able to meet the growing cargo capacity. Therefore, it is important that ATI commences construction of Phase 1 at the nearest po ssible time preferably in early 2018. However, as we expect that the construction would take approximately 5 years, ATI should invest in capital infrastructure such as purchasing more RTG and quay cranes to ge the r with utilizing more automated technology to meet the growing container volume.

28 Figure 52: Proposed Locations of South Harbour Expansion Phases Figure 53: Location of upcoming BRI “New Manila Bay” Project

Our proposed expansion plans are de taile d as above due to the likely difficulty in converting the 3 piers into container terminals. The first pier on the right of the South Harbour cargo be rth is currently used as a yard area. The subsequent pier currently hosts a number of naval assets and thus is most likely to be owned by the Philippines Navy. Furthermore, that pier is frequently used by foreign navy ships to call port and docking at Manila. Therefore due to national security and military reasons, it is unlikely that the PPA would be allowed to developed this pier. The last pier is current used by Eva Macapagal Super Terminal as a passenger terminal. Similar to the growing container volume, passenger traffic is growing at the Port of Manila and it is unlikely that the passenger terminal would be given up for the container port expansion.

The land area (B ase co Compound) on the le f t of the South Harbour and the are a aro und it is also not suitable for port expansion as it is where the “New Manila Bay - City of Pearl” a BRIproject would be located.

4.7.2.4 INTERNATIONAL THROUGHPUT EXPANSION - MICT

MICT accounted for about 63% of the international cargoes at the Port of Manila from 2000 to 2016. As such, when forecasting for the period 2017 to 2050 we assign a 63% weight to the to tal forecasted TEU as a representation for the international throughput for MICT. In our recommendation, we propose a Phase 1, 2 and 3 expansion for MICT and as with Manila South Harbour, the area designated for expansion would have to be reclaimed.

Year Key Details 2020 Commence construction of Port Expansion Phase 1. 2025 Completion of Port Expansion Phase 1. Increased handling capacity to 5.1m TEUs. 2029 Commence construction of Port Expansion Phase 2. 2034 Completion of Port Expansion Phase 2. Increased handling capacity to 9.1m TEUs. 2041 Commence construction of Port Expansion Phase 3. 2046 Completion of Port Expansion Phase 3. Increased handling capacity to 13.1m TEUs.

Figure 54: Summary of MICT Port Expansion Proposals

29 MICT Forecasted Throughput

14

Millions 12

10

8

6

4

2

- 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050

Current Phase 1 Phase 2 Phase 3 TEU

Figure 55: TEU Forecast and Proposed Capacity Expansion Phases (2017-2050)

Figure 56: Proposed Locations for MICT Expansion Phase 1, 2 & 3

From the above image, we have designated the respective areas for Phases 1, 2 and 3 of the MICT development. In the case of MICT, all expansion phases requires land reclamation as there is a lack of available land area around the MICT. To the left of the MICT is the North Harbour and to the right is the New Manila Bay - City of Pearl project under the BRI. Due to the se geographical constraints, the container terminal in Phase 3 will have to be expanded far into the Manila Bay. In this orientation, we recommend that the ships call port on the right side of the pier facing the hinterland.

30 4.7.3 FINANCIAL COSTS OF RECOMMENDATIONS

4.7.3.1 DREDGING COSTS Using recent previous dredging projects in the po rts in Malaysia as a reference, we estimate the co r re s po nding costs of the dredging that we propose to be done in the Port of Manila. From this, the cost of dredging from 16.5m to 18m is approximately USD24m. Assuming that the cost to dredge is the same at all depths, we approximate the cost to dredge 1.5m would be USD24 million too. Since the scale of the dredging projects in Malaysia are similar to the projects we propose in Manila, we do not make adjustments to the costs. However, for the case of dredging of the alongside berth depth for future po rt expansion phases, we will divide the cost required for the respective port’s channel by 4, as the area required to dredge is significantly lesser.

Manila South Harbour

Dredging Phase 1: South Channel Dredging Phase 2-5: Part of Port Expansion

Current Depth: 12m Current Depth: 12m

Optimal Depth: 16m Optimal Depth: 16m

Dredging Depth Required: 4m Dredging Depth Required: 4m

Cost: 4 x USD16m = USD64m Number of Phases: 4

Cost: 4 x (USD64m/4) = USD64m

Total Cost US64m + USD64m = USD128m

MICT

Dredging Phase 1: MICT Channel Dredging Phase 2-4: Part of Port Expansion

Current Depth: 13m Current Depth: 13m

Optimal Depth: 16m Optimal Depth: 16m

Dredging Depth Required: 3m Dredging Depth Required: 3m

Cost: 3 x USD16m = USD48m Number of Phases: 3

Cost: 3 x (USD48m/4) = USD36m

Total Cost US48m + USD36m = USD84m

Figures 57 & 58: Costs of Proposed Dredging Projects

4.7.3.2 PORT EXPANSION COSTS We use the cost of MICT’s Berth 6 as a guide to forecast the rough co s t of our port expansion plans. In 2012, MICT completed the construction of Berth 6 at a cost of USD200m. Berth 6 required land to be reclaimed, and its handling capacity amounts to 600,000 TEUs, fully equipped with 10 RTGs and 3 quay cranes. In our analysis we reference the market price of each quay crane as USD 13m and each RTG as USD 3m. For simplicity, we will ignore the cost of inflation in our analysis as we provide a rough gauge of the cost of a port expansion.

With reference to MICT’s Berth 6, we calculate the cost of the major capital infrastructure to be USD69m. We subtract the capital cost and identify the cost of the land reclamation and the yard area to be USD131 m for a handling capability of 600 000 TEU. In the case where land reclamation is not required, we use ⅓ of the cost price for the berth that requires land reclamation and has similar yard and handling capacity. Therefore, the cost of a berth that do not requires land reclamation and has a handling capacity of 600 000 TEU is estimated to be USD44m.

31 Manila North Harbour

Port Expansion Phase 3

Handling Capacity 2,000,000 TEUs

Land Reclamation No

Infrastructure 9 Quay Cranes + 32 RTG

Expansion Without Reclamation Cost (2,000,000/600,000) x USD44m = USD146.67m

Infrastructure Cost (9 x USD13m) + (32 x USD3m) = USD213m

Total Cost USD146.67m + USD213m = USD359.7m

Port Expansion Phase 4

Handling Capacity 2,000,000 TEUs

Land Reclamation Yes

Infrastructure 9 Quay Cranes + 32 RTG

Expansion With Reclamation Cost (2,000,000/600,000) x USD131m = USD436.67m

Infrastructure Cost (9 x USD13m) + (32 x USD3m) = USD213m

Total Cost USD436.67m + USD213m = USD649.7m

TOTAL COST FOR NORTH HARBOUR USD1.0094B

Manila South Harbour

Capital Investment Phase

Capital Investment USD60m

Total Cost USD60m

Port Expansion Phase 1

Handling Capacity 860,000 TEUs

Land Reclamation Yes

Infrastructure 3 Quay Cranes + 12 RTG

Expansion With Reclamation Cost (860,000/600,000) x USD131m = USD187.8m

Infrastructure Cost (3 x USD13m) + (12 x USD3m) = USD75m

Total Cost USD187.8m + USD75m = USD262.8m

Port Expansion Phase 2

Handling Capacity 1,500,000 TEUs

Land Reclamation Yes

Infrastructure 8 Quay Cranes + 28 RTG

Expansion With Reclamation Cost (1,500,000/600,000) x USD131m = USD327.5m

Infrastructure Cost (8 x USD13m) + (28 x USD3m) = USD188m

Total Cost USD327.5m + USD188m = USD515.5m

Port Expansion Phase 3

Handling Capacity 1,500,000 TEUs

Land Reclamation Yes

Infrastructure 8 Quay Cranes + 28 RTG

Expansion With Reclamation Cost (1,500,000/600,000) x USD131m = USD327.5m

Infrastructure Cost (8 x USD13m) + (28 x USD3m) = USD188m

Total Cost USD327.5m + USD188m = USD515.5m

32 Port Expansion Phase 4

Handling Capacity 1,500,000 TEUs

Land Reclamation Yes

Infrastructure 8 Quay Cranes + 28 RTG

Expansion With Reclamation Cost (1,500,000/600,000) x USD131m = USD327.5m

Infrastructure Cost (8 x USD13m) + (28 x USD3m) = USD188m

Total Cost USD327.5m + USD188m = USD515.5m

TOTAL COST FOR SOUTH HARBOUR USD60m + USD262.8m + 3 x (USD515.5m) = USD1.87B

MICT

Port Expansion Phase 1

Handling Capacity 2,000,000 TEUs

Land Reclamation Yes

Infrastructure 9 Quay Cranes + 34 RTG

Expansion With Reclamation Cost (2,000,000/600,000) x USD131m = USD436.67m

Infrastructure Cost (9 x USD13m) + (34 x USD3m) = USD219m

Total Cost USD436.67m + USD219m = USD655.7m

Port Expansion Phase 2

Handling Capacity 4,000,000 TEUs

Land Reclamation Yes

Infrastructure 18 Quay Cranes + 68 RTG

Expansion With Reclamation Cost (4,000,000/600,000) x USD131m = USD873.3m

Infrastructure Cost (18 x USD13m) + (68 x USD3m) = USD438m

Total Cost USD873.3m + USD438m = USD1311.3m

Port Expansion Phase 3

Handling Capacity 4,000,000 TEUs

Land Reclamation Yes

Infrastructure 18 Quay Cranes + 68 RTG

Expansion With Reclamation Cost (4,000,000/600,000) x USD131m = USD873.3m

Infrastructure Cost (18 x USD13m) + (68 x USD3m) = USD438m

Total Cost USD873.3m + USD438m = USD1311.3m

TOTAL COST FOR MICT USD655.7m + 2 x (USD1311.3m) = USD3.32B

Figures 59, 60 & 61: Costs of Proposed Port Expansion Projects

Summary

Manila North Harbour

Dredging Cost 0

Port Expansion Cost USD1.0094B

Manila South Harbour

Dredging Cost USD128m

Port Expansion Cost USD1.87B

MICT

Dredging Cost USD84m

Port Expansion Cost USD3.32B

TOTAL COST FOR PORT OF MANILA USD6.41B

Figures 62: Summary of Costs of Proposals for Port of Manila

33 4.7.4 OTHER CONSIDERATIONS

In our recommendations for the Port of Manila, we assume that while there are significant proposals and enhancement to the port itself, the lo cal government wo u ld similarly invest in the supporting infrastructure and resources (i.e. transport, labour and education) so as to complement the port’s attractiveness as the busiest port in the Philippines. There is also a possibility of construction delay given the significant scale and complexity of the project and thus causing a triggering down effect for subsequent development plans. We are also unable to factor in the efficiency capability of the contracted firm or firms, which might result in a less than optimum outcome in allowing for the expansion of the Port of Manila for an increasing container throughput.

In addition, it has been noted that a revolutionary change in the shipping industry occurs approximately 20-30 years. Hence, as our forecasts and proposed plans assume a constant level of technological progress, a huge innovation such in terms of vessels, infrastructure, or port facilities may alter the desired outcomes significantly. As the Port of Manila’s expansion projects are of the largest in scale amongst the other ports, a significant amount of funding is required for the proposals to come to fruition. In the event the BRI fails to bring in an adequate amount of investment, the Philippines might face restrictions in their capability to fully implement the expansion plans for the port.

34

5. PORT OF DAVAO

5.1 GEOGRAPHY The Port of Davao is a deep-water port containing both government and private ports located at the southern part of the Philippines’ Mindanao Island. The prominent seaports in Davao are some of the most bustling seaports in the Southern Philippines. In 2016, the port has handled 304,785 TEUs, contributing to approximately 4.68% of the total container throughput of the country. For this report, we will focus our analysis on Sasa Wharf, the base port of Davao, as it handles a significant percentage (approximately 50%) of containers in Davao. The others ports located at Port of Davao are listed on the right:

Connecting Davao to international regions such as Singapore, China, the Middle East and the United Port of Davao States and being bounded by natural masses on most Government Private sides, Sasa Wharf is situated between latitude 7° 6' Base Port Permanent Non-commercial 30" N and longitude 125° 39' 22" E. The port lies Sasa Wharf AIMR Port Services Corp 10km north of downtown Davao city, 419 nautical Terminal Port Davao Bay Coconut Oil Mills, Inc miles from Cagayan de Oro and 851 nautical miles Babak Port Davsam from Manila. The port can be entered through the Mati Wharf Petron Corporation , on the Southern Coast of Mindanao Municipal Port Pheonix Petroleum PH Island, and it is also accessible via the Pakiputan Banay-Banay Port Temporary Non-commercial Cogon Port Craft Haven Intl Services Strait that exists between the mainland of Davao City Kaputian Port Insular Oil Corporation and the water west of Samal Island. The port is also Limao Pier Private Commercial situated right beside the Davao Agusan National Maco Port Hijo Intl Port Services Highway, which is the main North-South road network Terminal FACILITIES Services Pantukan Port in the region and therefore faces a high traffic Corp volume. Figures 63: Constituents of Port of Davao

Figures 64 & 65 (below): Geographical Location of Sasa Wharf

Sasa Wharf 5.2 GOVERNANCE Sasa Wharf operates as a landlord port whereby the operations of Sasa Wharf is being managed by the PPA, Port Management Office (P MO) Davao, and its various services are being leased to the respective operators. Some of these operators includes the Davao Integrated Port and Stevedoring Services Corporation (DIPSSCOR) and Filipinas Port Services, Inc. (Filport) with both operators providing stevedoring and arrastre services. An example of the different contracts signed between PPA and the respective operators can be seen in the figure below.

It should be noted that in December 2016, DIPSSCOR became a subsidiary of ICTSI after 90.7 % of its outstanding capital stock was being acquired by ICTSI via Abbotsford Holdings,INC. (AHI).

Agreement Service Expiry Cargo Service Agreement between Cargo April 2016 PPA and DIPSSCOR Service Cargo Service Agreement between Cargo September PPA and FILPORT Service 2016 Supplementary Cargo Service Reefer Agreement between PPA and April 2016 Facilities DIPSSCOR Permit to Operate Agreement Reefer April 2020 between PPA and DIPSSCOR Facilities

Figure 66: Summary of Contracts between PPA and Operators

5.3 MARKET STRUCTURE Despite the presence of several ports in Davao, a large majority of market share is currently and forecasted to be dominated by three ports namely: Sasa Wharf, HIJO and DICT. Due to the limited competition among the small number of ports, the market structure at Davao is considered to be that of an oligopoly. This implies that a change or action in any one of the abovementioned ports may have a significant impact and influence on the Sasa Wharf operations of the others. No of Berths 10 Terminal Length 1093m 5.4 PORT INFRASTRUCTURE AND FACILITIES - Berths 1-5 575m Sasa Wharf is multi operational whereby the cargo - Berths 6-9 405m handled varies from containerised cargos to bulk or - Berth 10 113m break-bulk cargoes. As such, it has different facilities in Berth Depths place to cater to the different services required. The po rt - Berths 1-5 18m spread across 18 hectares with a container yard size of - Berths 6-9 35m - Berth 10 25m 9.50 hectares is able to contain 864 containers. Before Draft 10m MLLW the scrapping of the P19 billion Davao Sasa Port Container Yards 41490sqm Modernization Project in 2017, there were plans to Reefer Structures 288 increase co ntaine r grounds slots from 1900 to a minimum Transit Shed 6250 sqm bldg of 2700. Other enhancements of the project included Support Facilities 613 sqm expanding the back-up area, development of a new RTG Cranes 3 apron and linear quay. A snapshot of the facilities and Reach Stackers 9 SasaWharf can be seen below. Capacity Spreaders 18 Weighbridges 1

Figure 67: Port Facilities at Sasa Wharf

37 5.5 PORT PERFORMANCE

5.5.1 COMPOSITION OF CONTAINER TRAFFIC Sasa Wharf handles bo th do me stic and foreign containers. Despite observable fluctuations through the years, overall, the pe rce ntage of domestic containers being handled has experienced a declining trend between 2000 – 2011 while the percentage of foreign containers has be e n undergoing an increasing trend between 2000 – 2011. The switch in trend started in 2012 whereby the proportion of domestic containers handled increased once again. The percentage of domestic containers handled reached its highest peak at 63.99% in 2016 while the percentage of foreign containers handled reached its highest peak at 72.45% in 2011.

TOTAL – SASA WHARF Year Domestic (TEU) % International (TEU) % Total (TEU) 2000 87,735 60.35% 57,637 39.65% 145,372 2001 90,368 58.46% 64,212 41.54% 154,580 2002 101,478 57.44% 75,201 42.56% 176,679 2003 114,551 56.70% 87,465 43.30% 202,016 2004 131,676 58.26% 94,342 41.74% 226,018 2005 129,405 57.33% 96,316 42.67% 225,721 2006 124,737 48.33% 133,367 51.67% 258,104 2007 116,133 38.88% 182,542 61.12% 298,675 2008 111,899 32.06% 237,107 67.94% 349,006 2009 136,289 34.77% 255,740 65.23% 392,029 2010 167,522 31.88% 356,979 67.93% 525,498 2011 157,687 27.55% 414,630 72.45% 572,317 2012 158,475 31.68% 341,813 68.32% 500,288 2013 149,657 36.78% 257,246 63.22% 406,903 2014 150,399 55.21% 122,000 44.79% 272,399 2015 179,422 60.56% 116,832 39.44% 296,254 2016 194,421 63.99% 109,398 36.01% 303,819

Figure 68: Composition of Container Traffic at Sasa Wharf (2000-2016)

5.5.2 TOTAL CONTAINER THROUGHPUT

Generally, it can be observed that container throughput in Sasa Wharf has been fluctuating throughout the years with significant peaks and dips in its growth rates in years. Container throughput handled have be e n steadily increasing between 2001 and 2011 where it reached its peak at 572,317 TEUs in 2011. In addition, Sasa Wharf received an impressive increase in containers from 392,029 TEUs in 2009 to 525,498 TEUs, thus attaining its highest growth rate of 34% in 2010. This was then followed by a decreasing trend between 2011 and 2014 whereby during which, Sasa Wharf experienced a negative growth rate between -13% and -33%. After 2014, containers handled starting experiencing an increase once again where growth rate experienced started returning to a positive value.

Sasa Wharf

650,000 40% 600,000 30% 550,000 500,000 20% 450,000 400,000 10% 350,000 0% 300,000 250,000 -10% 200,000 150,000 -20% 100,000 -30% 50,000 0 -40% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

TEU Growth Rate

Figure 69: Container Throughput of Sasa Wharf(2000-2016) 38 5.5.3 KEY DRIVERS OF PAST PERFORMANCE i. Global Trade of Bananas With Davao producing 40.4% of the Philippines’s total banana production and Philippines being ranked as 3rd in banana production globally, banana trading has a significant impact on the amount of TEUs be ing handled at Sasa Wharf. Between 2009 and 2010, DIPSSCOR experienced a 27% rise in the volume handled from 284,237 TEUs to 359,561 TEUs. This can be attributed to the expansion of the international trading business of bananas. Also, the 12.6% fall in TEU in 2012 could be due to the 15% fall in reefer bo xe s carrying bananas and Typhoon Bopha which had destroyed a huge proportion of banana plantations in Davao. The fall in reefer boxes may have resulted from the banana trade restrictions in China which was imposed as a result of quarantine regulations. All in all, the banana business is a key driver for the volume of TEUs received at SasaWharf.

Figure 70: Banana Trade ii. Enhancement of Facilities and Equipment DIPSSCOR announced a 20% rise in containerisation between 2007 and 2008 due to capacity developments by shipping customers especially those involved in the export sector. Moreover, enhancement of operations such as the shifting of bananas trade from the use of reefer shipping to reefer containers, installing of new reefer facilities that can contain 144 reefer containers and the enhancing of existing equipment have led to a significant increase in TEUs handled between 2009 and 2010. iii. European Debt Crisis and Chinese Economic Slowdown in 2012 and 2013 The fall in TEUs between 2012 and 2013 is due the European turmoil and a slowing down of economic growth in China. With 13.2% of Philippine’s exports being exported to Europe in 2011, this implies the significant impact that the European turmoil has on the volume of TEUs be ing handled at Sasa Wharf. In the first semester of 2012, there was a notable fall in exports from US$6.4bn 2011 to US$3.5bn in 2012. Furthermore, in 2012, China, being the third largest destination for Philippine exports experienced her slowest growth in three years with a one percentage-point decline in China’s growth leading to a 0.01 percent decrease in growth in the Philippines.

39 iv. Commencement of DICT The commencement of the Davao International Container Terminal, or DICT, a port with world class facilities and modernised operations, has resulted in Sasa Wharf hitting an all-time low growth rate at -33% in 2014 since a percentage of containers was be ing transferred from Sasa Wharf to DICT. DICT has successfully attracted investors due to to p notch infrastructure and system for instance that includes operating with the Navis N4 terminal operating system and being the only port in the Philippines to accommodate Post-Panamax vessels.

Figure 71: Davao International Container Terminal v. Davao Bombings, 2003-2005 In 2003, the bombing at the old Davao International Airport terminal killed 22 and wounded 155 and just a month later, another bomb exploded at the entrance of Sasa Wharf, killing 16 and injuring 46. In 2005, an improvised explosive de vice (IED) exploded at the Davao City Overland Transport Terminal (DCOTT), killing one and injuring 5. With the occurrence of these bombings, it is of no surprise that a decline in growth rates was experienced between 2003-2005. This can be attributed to the fall in investor’s confidence.

40 5.6 CONTAINER THROUGHPUT FORECAST The forecast at Sasa Wharf has been calculated based on our analysis of the po ssible de mand and decline drivers. With reference to Port of Manila, we have considered a decline in growth rates every 5 years to better reflect the global situation for our forecast between 2017 – 2050.

5.6.1 FACTORING OF MACROECONOMIC CRISES

For Sasa Wharf, the growth rates at each year with a major crisis is equal to 75% of the growth rates of the other years without the crisis in that particular forecasted period. We adopt this degree of adjustment taking into account that for Sasa Wharf, unlike the Port of Manila, has a higher proportion of domestic containers and therefore, would be relatively less susceptible to large-scale macroeconomic shocks.

Growth: Growth: Growth: X% 0.75X% X%

Non-Crisis Crisis Non-Crisis

Figure 72: Forecast Growth Rate Adjustment for Sasa Wharf

5.6.2 FORECAST GRAPH

Using the same methodology as the Port of Manila, we utilise the historical TEU data from the period 2000 to 2016 in our forecast to 2050. We again denote Period 1 to be from 2000 to 2016 (17 years), Period 2 from 2016 to 2032 (17 years) and Period 3 to be from 2032 to 2050 (19 years). Identifying the CAGR during Period 1 gives us a reference growth rate of 4.43%.

Sasa Wharf

4.0

3.5 Millions

3.0

2.5

2.0

1.5

1.0

0.5

0.0 2000 2010 2020 2030 2040 2050

Bear Base Bull Historical

Figure 73: Container Throughput Forecast for Sasa Wharf (2017-2050) Base Case In the base case scenario, we expect a combination of demand and de cline drivers in influencing the growth rate experience at Sasa Wharf. With growth rates returning to its initial increasing trend since 2015 and possible demand drivers that will be explained below, we expect Sasa Wharf to experience higher growth rates from 2017 onwards. Based on the CAGR of 4.43% for Period 1 we forecast an additional 1.5% increase in growth rate moving forward for Period 2 (2016 to 2032, 5.93%). For Period 3 (2032 to 2050, 5.43%), we added only 1% for the growth rate due to the uncertainties of the economy moving forward. Overall, we forecast a growth rate varying between 4.07% to 5.93% between 2017 and 2050. 41 Bull Case BASE CASE In the bull case, we added a 2% increase in the Year Forecasted TEU % Growth 2017 321,835 5.93% growth rate from the base case throughout the entire 2018 340,920 5.93% forecast horizon (the tables can be found in the 2019 356,091 4.45% Appendix). Here, we assume that Sasa Wharf will be 2020 377,207 5.93% able to tap on the potential of all the demand drivers 2021 399,576 5.93% and there exists a low possibility of occurrence of the 2022 423,271 5.93% 2023 448,371 5.93% decline drivers. The 2% upwards adjustment is due to 2024 468,323 4.45% the significant impact that we expect new 2025 496,095 5.93% opportunities to arise such as increasing and easier 2026 525,513 5.93% access to new markets alongside the BRI. 2027 556,676 5.93% 2028 589,687 5.93% 2029 624,655 5.93% Bear Case 2030 652,453 4.45% In the bear case, we reduced 2% from the base case 2031 691,143 5.93% rates, with the assumption that none of the de mand 2032 732,128 5.93% 2033 771,882 5.43% drivers come to fruition and there is a dominance of 2034 813,796 5.43% the decline drivers for Sasa Wharf. This adjustment is 2035 857,985 5.43% based on the significance of Davao’s natural weather 2036 892,905 4.07% condition that has le d to disasters such as landslides 2037 941,389 5.43% and typhoons, which had impacted Davao’s 2038 992,507 5.43% 2039 1,046,400 5.43% agricultural production negatively previously. 2040 1,103,219 5.43% 2041 1,148,120 4.07% 2042 1,210,463 5.43% 2043 1,276,192 5.43% 2044 1,345,489 5.43% 2045 1,418,549 5.43% 2046 1,495,576 5.43% 2047 1,556,446 4.07% 2048 1,640,961 5.43% 2049 1,730,065 5.43% 2050 1,824,008 5.43%

5.6.3 DEMAND DRIVERS Figure 74: Forecast Breakdown for Sasa Wharf (2017-2050) i. Banana Trade The rising usage of containers for trade in bananas and the shifting of bananas trade to reefer containers have led to an estimated 20% increase in containerisation annually between 2015 and 2020. The low production cost and the signing of international agreements such as the de al with Japanese firm Farmind Corporation, who has agreed to purchase 20 million boxes annually and develop banana farms will further stimulate the business in Davao. Thus, together with IndexBox forecasting an upward trend for bananas, the banana market will continue to increase the volume of TEUs being handled at SasaWharf. ii. Development of Davao With attention being given to the enhancement of the Mindanao and in projects such as Davao By-Pass Road, Davao City Coastal Road Development Project, and the initial phase of the Mindanao Rail system, it is expected that Davao will be increasingly attractive to businesses due to a more efficient infrastructure and operations. Moreover, the Davao Regional Development Plan (DRDP) has been initiated with aims to drive economic growth in Davao in 2022 to hit 11.5% and is in alignment with Philippine’s Sustainable Development Goal. Thus, it is no do ubt that Sasa Wharf will see a higher throughput in the future alongside the proposed and ongoing developments in Davao. 42 iii. Global Relations The Philippines have been actively signing agreements such as a Memoranda of Understanding (MOU)and Memorandum of Intent between the Philippines’ Department of Trade and Industry and Russia’s Ministry of Economic Development with China and Russia respectively. Also, with the economic ties between Japan and Philippines, Japan has agreed to provide PHP434bn to aid in its infrastructure development, creation of business opportunities through the Official Development Assistance (ODA) and private sector investments in the Philippines. These agreements and improved relationships will provide opportunities to drive further developments in Philippines and by extension,, enhance the potential of the Philippines’ second busiest port SasaWharf. iv. Rapid Growth in Davao’s Industry Sector Davao experienced a 9.4% growth, a number much higher than the national economic performance pegged at 6.9% in 2016. The positive outlook of the economy can be attributed to the rapid growth in the industry sector which accelerated from 12.2% in 2015 to 16.5% in 2016. This can be associated to the enhanced performance of electricity, gas and water supply (EGWS) and construction whereby EGWS has accelerated by 44.5% from16.1% while construction increased from10.2% to 25.8%.

Figure 75: Construction Works in Davao v. Launch of Davao-Gensan-Bitung (DGB) Searoute Connecting Philippines to ASEAN countries and the world, the DGB route encourages domestic and foreign production of goods in both Davao and Mindanao through its cheaper and shorter journeys. This will, therefore, increase the total trade at Davao City which has been appointed the transhipment hub for goods. vi. BRI China has plans to develop the Port of Davao in order to make use of the port under the BRI. Though an initial investment plan with a minimum of US$340m was reduced to USD$80m, there still lies a positive, despite diminished, outlook for the Port of Davao in increasing its trade volume and upgrading of its operations. With the Chinese investment, the Port of Davao will be open to opportunities under the BRI such as the increased and easier access to new markets along the two trade routes and enhance the country’s competitive advantage, especially in manufactured goods and tropical fruits.

43 Another po ssibility is that in China’s quest to enhance co nne ctivity in Southeast Asia, the BRI might invest in the ASEAN Master Plan for Connectivity (AMPC) which is currently in progress since 2013. The AMPC aims to bring together participating countries in Southeast Asia closer and facilitate trade, investment and people-to -pe o ple exchanges. Systems that allow for RoRo vessels were implemented in various ports to allow for ease of transport. Davao was identified as one of the main routes in the plan and as the AMPC has laid the groundwork for infrastructure connectivity, China which possesses extensive experience in RoRo might collaborate in the plan as its goals are in alignment with the BRI in Southeast Asia. With the increase in investment and expertise, Davao being one of the main routes in the AMPC will stand to gain much from partnership with the help of the Chinese.

As a testament to the increased involvement from China in Davao, on the 30th of April 2017, three Chinese warships docked at the Port of Davao,which is a historic first for both parties.

Figures 76 & 77: Chinese Warships Docking at Port of Davao, President Duterte Welcoming the Chinese Navy

44 5.6.4 DECLINE DRIVERS i. Unproductive Facilities and Operations As the port was initially planned to accommodate non-containerised traffic, the regional economic progress and growing containerisation have resulted in a higher cost for shippers who have to deal with congestion and long waiting time. The lack of enhancement such as the repairing of deteriorating equipment at Sasa Wharf has led to the port not being to accommodate to larger cargoes and a loss of PHP317m in 2015 and an estimated PHP1.8bn between 2015-2020.

Secondly, the current unproductive operations at Sasa Wharf have also led to operational issues and poor performance such as small vessels calling, long dwelling and berthing waiting times, poor turnarounds and high cargo damage. ii. Competition from Neighbouring Ports Sasa Wharf is currently facing tough competition from neighbouring ports such as DICT of Panabo City, which is about 20km from Sasa, and also the Port of Singapore. DICT is well equipped with world-class container terminal facilities and thus, has been considered the most modern te rminal in the country. The commencement of DICT has led to a fall in container volumes from 406,903 TEU in 2013 to 272,399 TEU in 2014 since foreign container vessels have been transferred over from Sasa Wharf. In addition, Singapore is able to handle boats of capacity up to 1000 TEU while the majority of vessels at Sasa Wharf have a capacity of 300-500 TEU. iii. Weather and Natural Disasters Davao is prone to bad weather and natural disasters such as earthquakes, landslides and typhoons, that have an immense impact on agricultural production. The long drought that to o k place between 2015 and 2016 have resulted in a more than 40% fall in banana exported to South Ko re a. In 2016, countries in Latin and Central American and neighbouring nations in SEA have also captured the de mand shift from the Philippines due to the El Nino in Philippines which have also led to a 32% fall in coconut oil exports. Thus, with the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) forecasting a general decreasing trend in rainfall in Mindanao and a rise in temperature across Philippines between 2020- 2050, Philippines’ natural condition may pose a threat to its growth.

Landslide Hazard Map Earthquake Hazard Map Typhoon Hazard Map

Very High Risk High Risk Medium Risk Low Risk Negligible Risk

Figures 78, 79 & 80: Hazard Maps in Davao Region iv. Threat of Terrorism Davao has been a city that has be e n particularly prominent amongst various terrorist groups. Some te rrorism associated attacks that to ok place includes the bombings at the entrance of Sasa Wharf in 2003 and at Davao City Overland Transport Terminal in 2005. Additionally, in May 2017, Davao was on lockdown due to clashes between go vernme nt forces and te rro rist gro ups that started in Marawi City. As a result, the unstable position brought about by the terrorism situation may deter investors and dampen growth.

45 5.7 PORT CAPACITY EVALUATION Based on our forecasted co ntaine r throughput, we evaluate the current capacity expansion plans for Sasa Wharf.

5.7.1 CURRENT EXPANSION PLANS

With a current capacity of 700,000 TEUs per year, there have been new proposed projects to further increase the capacity of Sasa Wharf. The pro po se d pro je cts and its target implementation can be seen in Figure 81 and the proposed development has been highlighted in orange in Figure 82.

Current Proposed Projects Target Implementation Proposed Upgrading of General Cargo Berth and Construction of Back-up Area Q32017 – Q32020 Proposed Construction of Wharf for Rail Mounted Gantry (RMG) Crane Q32017 – Q32020

Figure 81: Current Proposed Expansion Projects for Sasa Wharf

Figure 82: Location of Proposed Developments in Sasa Wharf

A public-private partnership project for the modernisation of Sasa port has also been proposed yet the procurement for the project was not pursued by Department of Transportation as of 3rd quarter 2016. Additionally, despite the scrapping of the initial Sasa Wharf modernisation project valued at PHP19bn, the PPA currently has plans to continue pursuing the modernisation project at a lower magnitude and lower cost of approximately PHP5bn.

5.7.2 OUR RECOMMENDATIONS

Based on our forecast, the current handling capacity of Sasa Wharf that stands at 700,000 TEUs will only be able to handle its demand till 2031 since it is estimated to receive approximately 732,128 TEUs in 2032 in the neutral case. Thus, it is imperative for Sasa Wharf to enhance its current development by expanding its current capacity to meet the forecasted increase in demand in the future.

The timing of implementation is crucial in ensuring that the port will be able to capture and meet all the needs of the services demanded. It is recommended that Sasa Wharf expands its capacity by 700,00 TEUs each time in two phases to avoid the case of idle capacity. As such, with reference to the neutral case, the expansion of Sasa Wharf should be ready by year 2032 and 2045.

Port Expansion Phase 1 Port Expansion Phase 2 Reallocating of Samal Ferry Wharf and reclamation of Reallocating of villages from nearby slums and reclamation land of land Construction commences in 2027, completed by 2032 Construction commences in 2040, completed by 2045

Figure 83: Summary of Proposed Port Expansion Phases for Sasa Wharf

46 Sasa Wharf Forecasted Throughput

2500000

2000000

1500000

1000000

500000

0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050

Current Phase 1 Phase 2 TEU

Figure 84: TEU Forecast and Proposed Capacity Expansion Phases (2017-2050)

We propose an expansion of Sasa Wharf towards the direction of Samal Ferry Wharf and away from the Plant Quarantine Service. The plot of land towards the designated direction has been selected due to the existence of pro pertie s owned by the go vernme nt in the area. As such, the procedure of securing and reclaiming land from the current properties such as Samal Ferry Wharf and the slums will be smoother and more efficient since it will be easier for the PPA to attain ownership over the land.

Figure 85: Proposed Location of Phase 1 & 2 Expansion for Sasa Wharf

Figure 85: Proposed Locations of Port Expansion Phases 1 and 2 for Sasa Wharf On the other hand, obtaining land towards the South Direction of Sasa Wharf will be tougher since more administrative work is required in the negotiating of agreements with private organisations who owns the Plant Quarantine Service for instance. The specific location for expansion in the two different phases has be e n circled and labelled in the picture below. The area that will be reclaimed will be similar to the current area taken up by Sasa Wharf, which has a terminal length of 1093m. We have determined the duration for construction without any forms of reclamation to be 3 years and the entire development that includes the reclamation of land to be 5 years. As such, the length of development for both phases of Sasa Wharf will require 5 years.

5.7.3 FINANCIAL COSTS OF RECOMMENDATIONS

For a fair evaluation of our recommendation, the cost required for our recommendation has been de te rmine d with reference to the expansion of MICT that has been mentioned in the Port of Manila above. Phase 1 of the port expansion plan for Sasa Wharf involves reallocating the Samal Ferry Wharf and a partial land reclamation, while Phase 2 is entirely built on reclaimed land.

Sasa Wharf

Port Expansion Phase 1

Handling Capacity 700,000 TEUs

Land Reclamation Partial (50%)

Infrastructure 3 Quay Cranes + 12 RTG

Expansion Without Reclamation Cost (350,000/600,000) x USD44m = USD25.67m

Expansion With Reclamation Cost (350,000/600,000) x USD131m = USD76.42m

Infrastructure Cost (3 x USD13m) + (12 x USD3m) = USD75m

Total Cost USD25.67m + USD76.42m + USD75m = USD177.1m

Port Expansion Phase 2

Handling Capacity 700,000 TEUs

Land Reclamation Yes

Infrastructure 3 Quay Cranes + 12 RTG

Expansion With Reclamation Cost (700,000/600,000) x USD131m = USD152.83m

Infrastructure Cost (3 x USD13m) + (12 x USD3m) = USD75m

Total Cost USD152.83m + USD75m = USD227.8m

TOTAL COST FOR SASA WHARF USD404.9m

Figure 86: Costs of Proposed Port Expansion Phases of Sasa Wharf

5.7.4 OTHER CONSIDERATIONS

As reallocation and reclamation procedures are required for the expansion plan, the rise of resettlement and reclaiming issues may hinder the possibility of our recommended proposal. The resettling of slum villagers may pose significant risks to the proposed expansion plan as Philippines is, after all, a developing country with a lack of suitable land for the construction of houses. There is also a po ssibility that the Philippines government may have plans for the de ve lo pme nt of the current plot of land that we have proposed to be reclaimed. Moreover, Philippines is a developing country facing several uncertainties and ce r tain changes may be required to be made from time to time to remain adaptable to the global situation. In addition, there is a possibility of construction delays that may be influenced by several factors such as the inefficiency of workers and the unstable weather co nditio n in Philippines. Despite be ing able to anticipate certain weather disasters and better prepare for them, the possible impacts that these disasters may bring about are unavoidable. Therefore,a delay may result in a snowball effect and affect future developmental plans.

48

6. PORT OF CAGAYAN DE ORO

6.1 GEOGRAPHY Cagayan de Oro is lo cat e d in Northern Mindanao in the Southern part of the Philippines and is governed under PMO Misamis Oriental/Cagayan de Oro. The Port of Cagayan de Oro takes up the largest share of container throughput amongst the ports under PMO Misamis Oriental followed by some private ports, which takes up an insignificant share of co ntaine r throughput. However, for the purpose of this report we will only be looking at the Port of Cagayan de Oro (CDO). Situated in the Barangay Macabalan facing the Macajalar Bay, the po rt serves as a major transfer junction for domestic and foreign shipping.

The Port of CDO (Macabalan Port) serves regular trips to and from cities of Metro Manila, Cebu City, Tagbilaran, , Dumaguete, Iloilo City and Jagna, Bohol.

Port of CDO

Figures 87, 88 & 89: Geographical Location of Port of CDO

6.2 GOVERNANCE The Port of CDO operates as a landlord port whereby the port infrastructure is owned by the PPA. In 1999, two companies Continental Arrastre and Stevedoring Company (CASCO) and Gold City Integrated Port Services (INPORT) formed a joint venture to provide integrated cargo-handling services at the Port of CDO. In 2001, the two companies merged to form Oroport Cargo Handling Services, Inc. The port is currently be ing leased out to Oroport and the company runs the operations of the port. 6.3 MARKET STRUCTURE The Port of CDO has been a major and key port in Northern Mindanao. It was the monopoly of co ntaine r cargo in PMO MOC before 2004, owning a market share of 90% of container cargo in the region in 2004. However, its port facilities have been utilized for both passengers and cargoes that reached nearly 100% of its capacity, which soon caused remarkable congestion in the po rt areas. In order to improve these situations, the Philippine Government, in 2000, requested financial assistance from the Japanese

Government to build a new container te rminal at Figure 90: Governance of Port of CDO Tagoloan, located at the opposite side of the base Port of Cagayan de Oro port across Macajalar Bay. This new terminal, Total Land Area 24 hectares Mindanao Container Terminal (MCT), now a sub port Quay Length 1.152m in PMO MOC, was completed in 2004. No of Berths 13 Container Berths 3 (Berths 8, 9 & 10) Since then, MCT which is privately operated by ICTSI Berth Depth 10.84m from 2008, became a major competitor of Port of Berth Length 1068m CDO. The base port used to be the key foreign Controlling Draft, Phase 1 8.5m transhipment hub in Northern Mindanao but has lost Controlling Draft, Phase 2 11m Controlling Draft, Phase 3 12m all its foreign container traffic to MCT since 2011. As Container Yard 1.44 hectares of 2016, the market share of the base port fell to Container Freight Station 5506 sqm 55% while MCT has 44%. As a result, the Port of Open Storage Areas 2.16 hectares CDO no longer operates as a monopoly within a Two Transit Sheds 700 sqm region but an oligopoly with MCT. Open Transit Sheds 5280 sqm Passenger Terminals 15400 sqm 6.4 PORT INFRASTRUCTURE AND FACILITIES RORO Ramp 1 The Port of CDO is one of the most modern outside RTG Cranes 4 Metro Manila. Located in Macajalar Bay near the RMG Cranes 9 Cagayan River estuary, it occupies an are a of 22.01 Reefer Structures 126 Water Hydrants 8 hectares, 19.75 hectares of which is used for its Weighbridges 2 operations, and 2.26 hectares are for commercial purposes. The anchorage is ideal for transnational Figure 91: Facilities of Port of CDO

Figure 92 (below): Area Map of Port of CDO

51 vessels: It is 18 meters deep, and is approximately 400 meters from the shoreline. The port serves 14 domestic and four foreign shipping lines. The port’s facilities include 9RMG/Gantry Crane and 4 RTGs and the port has the potential to hold a capacity of 270,000 TEUs.

6.5 PORT PERFORMANCE

6.5.1 COMPOSITION OF CONTAINER TRAFFIC

The Port of CDO used to be a international and domestic shipping hub, with majority of its traffic consisting of domestic cargo, as seen from the figures above. However, since 2012, the port only handles domestic cargo, losing all of its foreign cargo to MCT.

TOTAL – Port of Cagayan de Oro Year Domestic (TEU) % International (TEU) % Total (TEU) 2000 140,016 94.30% 8,466 5.70% 148,482 2001 149,348 94.16% 9,259 5.84% 158,607 2002 169,422 93.00% 12,747 7.00% 182,169 2003 176,090 90.34% 18,839 9.66% 194,929 2004 182,920 88.70% 23,295 11.30% 206,215 2005 185,246 91.60% 16,990 8.40% 202,236 2006 166,693 93.41% 11,765 6.59% 178,458 2007 143,785 88.76% 18,204 11.24% 161,989 2008 123,750 82.39% 26,457 17.61% 150,207 2009 116,466 82.68% 24,393 17.32% 140,859 2010 146,735 89.56% 17,096 10.44% 163,831 2011 162,332 99.96% 72 0.04% 162,404 2012 182,881 100.00% 0 0.00% 182,881 2013 187,844 100.00% 0 0.00% 187,844 2014 206,328 100.00% 0 0.00% 206,328 2015 236,713 100.00% 0 0.00% 236,713 2016 263,203 100.00% 0 0.00% 263,203

Figure 93: Composition of Container Traffic in Port of CDO

6.5.2 TOTAL CONTAINER THROUGHPUT

We observe that the total container throughput and growth rate fluctuates across from 2000 to 2016. The container throughput first saw a steady rise to a volume of 206,215 TEUs in 2004, before dropping to a low of 140,859 TEUs in 2009. The container throughput increased steadily from then on, reaching a high of 263,203 TEUs in 2016. The growth rate saw a similar trend, from a peak of 15% in 2002 to -12% in 2006, and peaking again in 2010 with 16%. From 2010 to 2016, the growth rate fluctuated greatly ranging from - 1% to 15%. Port of Cagayan De Oro

300,000 20%

15% 250,000

10% 200,000

5% 150,000 0%

100,000 -5%

50,000 -10%

0 -15% Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Container Throughput Growth

Figure 94: Container Throughput of Port of CDO (2000-2016) 52 6.5.3 KEY DRIVERS OF PAST PERFORMANCE i. Loss of Domestic Cargo to MCT Due to co mpe titio n from its better equipped neighbour, Mindanao Container Terminal (MCT), container throughput at CDO dropped by 12% in 2006 as another major domestic client, Lorenzo Shipping as well as affiliate NMC Container Lines and Maersk shifted all their shipping calls to MCT. These hurt the Port of CDO’s container traffic significantly since the base port has been a major domestic shipping hub in the region.

Figure 95: Mindanao Container Terminal ii. Del Monte’s Operation in CDO The sudden hike in the growth of container throughput of 16% can be attributed by the economic recovery since the 2008 global financial crisis. Additionally, US firm Del Monte Fresh invested $1 million to operate a cold storage facility in the Port of CDO in 2008. Del Monte Fresh imports at least 200 TEUs a week of fresh pineapples from its plantation in Mindanao and shipped pineapples in containers through the CDO port. As such, it led to a sharp increase in container throughput in 2010. iii. Loss of Foreign Cargo to MCT The Port of CDO lost all of its foreign containers in 2011, leading to a fall of 1% in throughput. This is due to the fact that American President Lines (AP L) moved from CDO to MCT be cause of the limited hinterland area and congested access to the national highway within CDO. Since foreign cargo takes up about 10% of the total container throughput, this sudden loss in all its foreign containers attributed to this significant dip. iv. Chinese Economic Slowdown After the rebound in 2012, the slower growth rate of 3% in 2013 compared to a 13% growth in 2012, could possibly be due to the slowing down of the Chinese economy. As China is the key export partner of the Philippines, its economy slowdown has fed through the country’s supply chain. As a result, this led to a slower container throughput growth for the year.

53 6.6 CONTAINER THROUGHPUT FORECAST As with the Port of Manila and Sasa Wharf at the Port of Davao, the forecast at the Port of CDO has be e n calculated based on our analysis of the possible demand and decline drivers.

6.6.1 FACTORING OF MACROECONOMIC CRISES

For the Port of CDO, the growth rates at each year with a major crisis is equal to 75% of the growth rates of the other years without the crisis in that particular forecasted period. We adopt this degree of adjustment taking into account that for the po rt of CDO, similarly with Sasa Wharf, experience drops in container traffic which are not as significant for years with a global crisis.

Growth: Growth: Growth: X% 0.75X% X%

Non-Crisis Crisis Non-Crisis

Figure 96: Adjustment for Forecast Growth Rate for Port of CDO 6.6.2 FORECAST GRAPH

We utilise the historical TEU data from the period 2000 to 2016 in our forecast to 2050, denoting Period 1 to be from 2000 to 2016 (17 years), Period 2 from 2016 to 2032 (17 years) and Period 3 to be from 2032 to 2050 (19 years). Identifying the CAGR during Period 1 gives us a reference growth rate of 3.45%.

Port of Cagayan de Oro

2.5 Millions 2.0

1.5

1.0

0.5

0.0 2000 2010 2020 2030 2040 2050

Base Bear Bull Historical

Figure 97: Container Throughput Forecast of Port of CDO (2017-2050)

Base Case Based on the Period 1 CAGR of 3.45%, we increased its growth to 4.7% by adding 1.25% between 2017- 2032 for the base case. We performed a scenario analysis and de duce d that the de mand drivers outweigh the decline drivers, due to the advanced development and initiatives planned by the government. This co uld potentially lead to a boom in CDO’s economy hence we maintained a positive outlook for Port of CDO and see an increase in growth of co ntaine r throughput in the future. From 2033 onwards, we forecasted a lower growth of 4.2% (adding only 0.75%) as there are more uncertainties in the future which might include increasing competition.

54 Bull Case BASE CASE In the bull case, we forecasted a growth rate of 6.7% Year Forecasted TEU % Growth 2017 276,911 4.70% by adding 2% to the base case for the period 2018 289,925 4.70% between 2017-2032. With plans to develop the Port 2019 300,160 3.53% of CDO as a foreign cargo handling hub and logistics 2020 314,267 4.70% centre, the base port is likely to benefit from the BRI 2021 329,038 4.70% greatly, bringing in higher trades to the country and 2022 344,503 4.70% 2023 360,694 4.70% the Mindanao region. The slight fall in growth rate to 2024 373,427 3.53% 6.2% after 2032 is due to po ssible market saturation 2025 390,978 4.70% that could slow down the growth. 2026 409,354 4.70% 2027 428,593 4.70% 2028 448,737 4.70% Bear Case 2029 469,828 4.70% In the bear case, we forecasted a growth rate of 2030 486,413 3.53% 1.7% by subtracting 3% from the base case between 2031 509,274 4.70% 2017-2032. Subtracting a further 0.5%, we expect a 2032 533,210 4.70% 2033 555,605 4.20% growth rate of 1.2% between 2033-2050. This is due 2034 578,940 4.20% to the likelihood of te rro rism and conflicts to happen in 2035 603,256 4.20% the region. With the recent uprising of ISIS terrorists in 2036 622,258 3.15% the Mindanao region, there lies a possibility that such 2037 648,393 4.20% threats to security would potentially hurt the city’s 2038 675,626 4.20% 2039 704,002 4.20% economy and development and thus slowing the 2040 733,570 4.20% growth of container traffic in the region. 2041 756,678 3.15% 2042 788,458 4.20% 2043 821,573 4.20% 2044 856,079 4.20% 2045 892,035 4.20% 2046 929,500 4.20% 2047 958,779 3.15% 2048 999,048 4.20% 2049 1,041,008 4.20% 2050 1,084,730 4.20%

Figure 98: Forecast Breakdown for Port of CDO

6.6.3 DEMAND DRIVERS i. Strategic Location The Port of Cagayan de Oro has the shortest distance go ing to and from the major po rts in the Visayas and Luzon regions, thus making it the favourite po int of entry for people and cargo coming from various points in Mindanao. With its strategic location and with the numerous expansion, Cagayan de Oro city has become the logistics centre for the adjacent provinces of Misamis Oriental, Lanao del Norte, Bukidnon, Agusan and Surigao City. As such, the Port of CDOis a popular shipping hub in the region and will continue to grow in the future. ii. Plans to Modernize Port of CDO The PPA has adopted a program of continuous sustained and massive de ve lo pme nt starting with the country’s major gateways and poured investments on secondary ports as well as roll-on, roll-off (RORO) facilities. Additionally, there have be e n talks to mo de r n ize Port of CDO by upgrading their capacity for container operations. This includes expanding its port in 2 phases and this expansion is estimated to be completed by 2030. This expansion is also supported by Pilipinas Shell Petroleum Corporation, who invested PHP6bn to improve the port.

55 iii. Development of CDO City The Philippines government has made plans to develop the city as the country’s fourth economic centre by 2025. The Northern Mindanao Regional Development Plan 2017-2022 outlined plans and programs that would ensure the socio economic progress of the region that could contribute to inclusive de ve lo pment of the country. Cagayan de Oro is poised to become the newest “metropolitan centre” due to its projected population growth, its strategic location as gateway and logistics hub for northern Mindanao and its status as an education centre in the south.

The region is mainly composed of manufacturing, agriculture and forestry, and trade subsectors which confirm the potential of Northern Mindanao to be a major industrial hub and trade center in the Southern Philippines. In addition, the Department of Public Works (DP WH) is currently pursuing various road development projects such as the CDO Coastal Road intended to de co nge st the traffic in the city, which will consequently bring better access to Port of CDOand be advantageous to PPA.

Figure 99: Cagayan de Oro City iv. Growing Economy of CDO Regional GDP Per Capita Index From 2014 to 2016, the regional GDP per capita 160,000 index of Cagayan de Oro city registered stable 140,000 growth. Cagayan de Oro’s access to regional and 120,000 foreign markets presents golden opportunities to 100,000 investors inside and outside the country. The city’s abundant natural and manmade resources have made 80,000 it much easier for economic progress to sprout within 60,000 its borders. It has been ranked by the National 40,000 Competitiveness Council as the second most 20,000 competitive city in the Philippines after City, 0 the country’s premier financial district. 2014 2015 2016

Philippines Northern Mindanao

Figure 100: Comparison of Regional GDP Per Capital Index 56 v. Increasing Business Prospects With the growth in economy and plans to de ve lo p the city, the lo cal government has came up with many initiat ives to attract businesses to the area. The Cagayan de Oro Investment Incentives Code was passed and approved to provide lo cal tax breaks to eligible businesses. Additionally, the local government’s efficient business registration and processing, Business One Stop Shop (B OS S ), makes it ideal for businesses to sprout up. With such incentives, more businesses will be set up in the city, having a potential in bringing in more container traffic to the port in the future. vi. BRI Under the BRI, Cagayan de Oro has participated in the “One-Belt-One-Road Inclusive and Sustainable City Exhibition and Dialogue” in the October of 2016. Consisting of 46 cities from over 25 countries, the dialogue is an event under the BRI which aims to promote the connectivity between Asian, European and African countries by setting up comprehensive connectivity across their adjacent seas. The initiative was also launched to help participating cities in develop sustainably and improve their economic standings.

With Cagayan de Oro’s participation in the dialogue, being one of the only two Philippines’ cities involved, the Port of Cagayan de Oro will stand to benefit much from the increased co o pe r atio n with other cities and countries in the BRI. Investments will be promoted from all over the world, and knowledge and industrial solutions could also find their way to expedite the processes and operations of the Port of Cagayan de Oro. Since the dialogue also encourages city-to -city, city-to-business and business-to -business cooperation, Cagayan de Oro has a positive outlook as demand for its port will continue to rise in conjunction with the expected increase in productivity of the city.

Figure 101: Road Map of BRI

57 6.6.4 DECLINE DRIVERS i. Moro Conflict/Battle of Marawi The Moro co nf lict is an insurgency in the Mindanao region of the Philippines due to po litical tensions between the Philippines government and Moro Muslim rebel groups. Recent events include the 2016 bombing in Davao and attacks in Butig, Lanao del Sur, a town next to CDO, by the Maute group. In particular, the government has been battling with the Islamic State-linked Maute group since May 23 2017 in Marawi City, which is a mere 2 hours drive away from CDO. Such threats in the Mindanao region set back prospects of a boom in investment and could potentially hurt the shipping business in Mindanao. ii. Intense Competition from MCT MCT has presented itself as a threat for Port of CDO as mentioned above, as the Port of CDO’s foreign container traffic had all been lost to MCT. APL moved from CDO to Tagoloan be cause of limited hinterland area and co nges te d access to the national highway. Furthermore, MCT be ing better equipped in comparison to the Port of CDO has a higher potential for further growth. This is augmented by ICTSI and the Phividec Industrial Authority announcing plans to expand MCT, further posing as a thre at for the base po rt’s co ntaine r traffic.

Figure 102: Mindanao Container Terminal iii. Future Competition from Opol Port Due to congestion in the Port of CDO, the PPA has looked at alternative ways to de co ngest the base port. Port projects to de ve lo p Opol Port is one of them which is aimed to strengthen domestic functions. The pro pose d Port of Opol will be located right beside the newly-inaugurated Municipal Fish Port in Luyong Bonbon, Opol town in Misamis Oriental, some 14 kilometres west of CDO City. Considering that the majority of the base port’s container traffic is dependent on do me stic cargoes, the development of Opol port could possibly create competition in the future leading to a fall in throughput. iv. Limited Hinterland and Poor Infrastructure Even though there are plans to expand the Port of CDO, the PPA mentioned however that the expansion plans are still conceptual at this stage, which will be later supported by justification with demand forecast and budgetary measures. PPA will then determine whether or not to push for this expansion. As such, the uncertainty in expansion and modernization could be a challenge for the future of the port. Additionally, the Port of CDO is currently operating close to full capacity and even if the expansion plan is finalised, it will only be completed in 2030. Hence,this time lag limits the growth of the port till 2030. 58 6.7 PORT CAPACITY EVALUATION Based on our forecasted co ntaine r throughput, we evaluate the current capacity expansion plans for the Port of Cagayan de Oro.

6.7.1 CURRENT EXPANSION PLANS

There are ongoing plans to develop the Port of CDO and this includes a wharf extension, a new platform and additional back-up area of 11,868 square metres. This short te rm expansion plan is to resolve the pressing issue of berth congestion. This de ve lo pment will increase the po rt’s handling capacity and increase the po rt’s efficiency to about 300,000 TEUs from a previous 270,000 TEUs. Figure 103 below is a snapshot of the ongoing plans:

Figures 103 & 104 (below): Port of CDO Current Development Projects Apart from the ongoing de ve lo pme nt plans in CDO, there are talks to further expand the port to strengthen foreign container handling functions, specifically to expand the existing wharf toward south-eastward by constructing berths and yards. The plans aim to develop a wharf length of 260m as Phase II with an addition of 2 be rths and additional 450m as Phase III with an addition of 3 be rths by the year 2026 and 2030 respectively. These two phases are intended to be connected to the Coastal road to help ease congestion. The port currently has 3 container handling berths, total 312m in length, and with the ongoing development plans, the handling capacity of the Port of CDO amounts to 300,000 TEUs. These additional 5 berths would bring about an increase in the port’s handling capacity to approximately 750,000 TEUs by year 2030.

59 6.7.2 OUR RECOMMENDATIONS

With the forecasted container volume, it is essential for the Port of CDO to be prepared for future developments to meet the expected increasing container demands. The timing for expansion is also of utmost importance as elaborated with the Port of Manila and SasaWharf.

Year Key Details 2017 Completion of current developments (Phase 1). Increased handling capacity to 300,000 TEUs. 2018 Commence early construction of Port Expansion Phase 2. 2022 Completion of Port Expansion Phase 2. Increased handling capacity to 480,000 TEUs. 2030 Completion of Port Expansion Phase 3. Increased handling capacity to 750,000 TEUs. 2035 Commence construction of Port Expansion Phase 4 and land reclamation for Phase 5. 2040 Completion of Port Expansion Phase 4. Increased handling capacity to 1.02m TEUs. 2045 Commence construction of Port Expansion Phase 5. 2048 Completion of Port Expansion Phase 5. Increased handling capacity to 1.29m TEUs.

Figures 105: Summary of Proposed Port Expansion Phases for Port of CDO

Port of CDO Forecasted Throughput

1.4

Millions 1.2

1

0.8

0.6

0.4

0.2

0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050

Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 TEU

Figure 106: Forecasted Throughput for Port of CDO (2017-2050)

Figure 107: Proposed Locations of Port Expansion Phases 2, 3, 4 & 5

60 i. Pushing Phase II Expansion Forward. Based on the forecasted container throughput, Port of CDO’s container volume would have exceeded its handling capacity before the completion of Phase II in 2026. In light of this, it is recommended that the plans for phase II is pushed forward and the development works to start in 2018. As the project would require land reclamation, it is estimated for it to be completed in 5 years. Hence, the po rt’s handling capacity would be increased to approximately 480,000 TEUs by 2022 with the inclusion of Phase II. ii. Phase IV and Phase V Based on the forecasted container throughput, the Port of CDO is expected to receive a co ntaine r volume of approximately 756,67 TEUs by 2041, which exceeds its estimated handling capacity of 750,000 TEUs after the completion of Phase III. As such, we propose a Phase IV expansion to be completed by 2040. Land reclamation works for both Phases IV and V should be rolled out in 2035 as well as the development of Phase IV. The project will require 5 years to be completed. The proposed Phase IV will consist of construction of 1 berth of wharf length of 450m, instead of 3 berths similar to phase III, as we are proposing to increase the port’s capabilities to accommodate larger vessels. This will in crease the po rt’s total capacity to about 1,020,000 TEUs by 2040.

According to the forecast, the container volume will reach 1,041,008 TEUs in 2049, thus it is necessary for Phase V expansion to be completed by 2049 to meet this demand. Since land reclamation of Phase V is done previously, the development for Phase V would take approximately 3 years. Similarly, the expansion of Phase V will in crease the wharf length by 450m, and an increment of 1 berth to the port, leading to an overall container handling capacity of 1,290,000 TEUs. iii. Dredging Currently, all the container handling berths de pth at the Port of CDO are approximately 11m, which is lower than the international standard of 13m. As such, it is proposed to undertake dredging to a uniform depth of 13m to optimize cargo handling and vessel turnaround, making the port more attractive. Dredging of existing berths will take about 2 years and is proposed to be do ne after Phases II is completed and dredging of the channels for Phases II, III, IV and V can be done simultaneously with the expansions. iv. Capital Investments It is recommended that Port of CDO invests in equipment such as additions of RTG and quay cranes. The po rt currently has 4 RTGs and 9 RMGs for its 3 container handling berths, and we propose an investment in a total of 20 RTGs, 3 in 2018 and 8 for Phases II and III, and 9 for Phases IV and V. The 4 quay cranes will be added with Phases IV and V. The addition of the RTGs will lead to an improvement in the terminal’s efficiency by reducing the time needed to load and unload cargo. As the port is likely to be over utilized before the completion of Phase II, the addition of RTGs could be a temporary solution to increase port efficiency in the meantime. Increasing the port’s ability to handle mo r e cargo will result in ships spending a shorter amount of time at the berth.

61 6.7.3 FINANCIAL COSTS OF RECOMMENDATIONS

Similar with Sasa Wharf, for a fair evaluation of our recommendation, the co s t required for our recommendation has been de te rmine d with reference to the expansion of MICT that has been mentioned in the Port of Manila above.

Port of Cagayan de Oro

Early Port Expansion Phase 2

Handling Capacity 180,000 TEUs

Land Reclamation Yes

Expansion With Reclamation Cost (180,000/600,000) x USD131m = USD39.3m

Total Cost USD39.3m

Port Expansion Phase 4

Handling Capacity 540,000 TEUs

Land Reclamation Yes

Expansion With Reclamation Cost (540,000/600,000) x USD131m = USD117.9m

Total Cost USD117.9m

Port Expansion Phase 5

Handling Capacity 540,000 TEUs

Land Reclamation Yes

Expansion With Reclamation Cost (540,000/600,000) x USD131m = USD117.9m

Total Cost USD117.9m

Dredging Projects

Total Depth to Dredge for each Phase 13m – 10.48m = 2.52m

Total Depth to Dredge for 5 Phases 2.52m x 5 = 12.6m

Cost of Dredging 12.6m x USD48m = USD604.8m

Total Cost USD604.8m

Infrastructure Cost

20 RTG + 4 Quay Cranes (20 x USD3m) + (4 x USD13m) = USD112m

Total Cost USD112m

TOTAL COST FOR PORT OF CDO USD991.9m

Figure 108: Costs of Proposed Expansion Projects for Port of CDO

6.7.4 OTHER CONSIDERATIONS

With the expansion projects of Phases II, III, IV and V, land is required to be reclaimed along the coastal road. This means that buildings and houses along the coastal area are to be demolished, many of which are illegal. The government is already undergoing construction operations, for the co ns tructio n of the Coastal Road, and has plans to relocate the affected families. However, this upheaval might result in a lot of unhappiness amongst the affected citizens, leading to conflicts between the citizens and the Government.

Since these projects are usually handed to private construction companies, there is uncertainty in the efficiency of these contractors. There are possibilities of the company experiencing financial difficulties or the productivity of the employees of these contractors. Furthermore, the Mindanao region is prone to bad weather conditions such as ty phoo ns making a delay in the construction unavoidable. Additionally, there have be e n cases whereby expansion plans were being postponed due to a shift in focus on other are as of de ve lo pment in the country or region, this could potentially delay the completion time of the projects.

62

7. A STUDY OF FEASIBILITY – THE PHILIPPINES

After the analysis of the three main ports of the Philippines, proposing recommendations for port development would be myopic without considering their feasibility. In this section, we will take a macro view at the outlook of the country to help us ascertain if the Philippines is able to implement our proposals in the first place.

7.1 PAST PERFORMANCE The Philippines have been a strong growing nation for the past 17 years, and as of 2017, it ranks as the 10th fastest growing economy in the world. This remarkable growth is due to a stable macroeconomic environment of low inflation and a lo w debt to GDP ratio, enabling the country to sustain a healthy domestic demand growth. Expansionary fiscal-policy stance has helped capitalism formation in the co ns tructio n sector and accommodative monetary policies have kept interest rates low. Exports from the Philippines was also boosted from a revival of the Asian Pacific, rising 12.1% from 2016 to USD 4.81bn in April of 2017. Due to the lo w inflation rates, purchasing power of households and the steady increase in remittance inflows resulted in the growth of household consumption. Consumer spending, which makes up about 70% of GDP, gained 5.9% and government spending increased by 7.1% in the same period.

GDP Breakdown of the Philippines

18

PHP Millions PHP 15

12

9

6

3

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

GDP GDP: Net Primary Income GDP: Gross National Income GDP: Exports GDP: Imports

Figure 109: Past GDP Breakdown of Philippines (2000-2016)

In terms of trade , the Philippines have also increased not only their trade volumes but their trade values. The Export (or Import) Value Index is the current value of exports (or imports) converted to US dollars and expressed as a percentage of a base period. From 2000 to 2015, the Export Value Index generally saw an increase, by 54% in 2015 using 2000 as the base year, with a peak of 63% in the 2014. A similar trend is observed for the Import Value Index, with an 89% increase in 2015, which is also the highest increase from 2000 to 2015.

Trade Value Breakdown of the Philippines

200

180

160

140

120

100

80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Export Value Index Import Value Index

Figure 110: Past Trade Value Breakdown of Philippines (2000-2016)

64 The country’s growth in its value of foreign trade is te stame nt to its growing productivity, increasing developments in public spending and infrastructure and efficient governance. This strong trading environment presents the Philippines the ability to further increase its attractiveness as a global trading partner in the long run.

7.2 GDP FORECAST We forecast the GDP of the Philippines to get a better understanding of its growth till 2050, using growth rates until 2050 which are based on rates from HSBC. Since HSBC had based its forecasts on fundamentals such as current income pe r capita, rule of law, democracy, education levels and demographic change, we make further adjustments in light of the BRI. With the many developments in infrastructure projects and the establishment of closer relations with multiple countries under the BRI, we believe that the Philippines’ growth will be bolstered in the next few decades.

Period 2017-2020 2020-2030 2030-2040 2040-2050

Reference Growth 8.4% 7.3% 6.6% 5.8%

Forecast Growth 9.4% 8.3% 7.6% 6.8%

GDP Forecast of the Philippines

200

180 Millions 160

140

120

100

80

60

40

20

0

Figure 111: GDP Forecast of the Philippines (2017-2050)

7.3 DEMAND DRIVERS OF PHILIPPINES GROWTH i. Trade Philippine’s trade has been steadily increasing over years, especially since the integration of the ASEAN (Association of Southeast Asian Nations). Just in 2016 alone, the country’s total external trade in goods was recorded at $141.514 billion, expanding by 8.9 percent from $129.894 billion in 2015. It is expected to increase by about 6.4% annually. The Philippines's main export markets are Japan, China and the US and together they account about half of the to tal exports. These increases can be attributed to the many Free Trade Agreements (FTA) signed with countries like Japan, EU countries as well as within the ASEAN region. The robust growth in Philippine’s trade can also be linked to the overall decline in trade costs globally, particularly logistics, driven by the use of larger cargo vessels, expanded shipping lanes and energy-efficient transport technologies.

65 Philippines has be e n actively boosting their trade co mpe titive nes s and the government has a department that focuses on trade, known as The Industry Development Group (IDG). IDG builds and grows the domestic industry by establishing international trade policy directions and reforms. Its strategy rests on three pillars: Public Consultations,Policy Research Network and Inter-Agency Coordination.

Figure 112: Container Trade

Furthermore, it is mentioned that the trade is especially crucial in contributing to global growth and prosperity and Asia is leading in the edge of technological and supply chain innovation giving the region a unique opportunity to benefit from this next wave of globalization with the expectedexpansion in trade in the future, up to year 2050. Hence, is likely to enhance growth in the Philippines in the future, with HSBC forecasting that the Philippines has the potential to become the world’s 16th largest economy by 2050. Such trade opportunities and positive outlook for international trade in the Philippines will position Philippines as a large trading hub in the future,thereby increasing the potential of its ports. ii. Human Capital The Philippines also hold great po te ntial in human capital in the upcoming years in terms of population size and knowledge.

Population Forecast in the Philippines

145

Millions 140

135

130

125

120

115

110

105

100 2017 2018 2019 2020 2025 2030 2035 2040 2045

Figure 113: Population Forecast in Philippines (2017-2045)

66 With a possibility that the Philippine’s work force can grow up to approximately 75 million by 2050, it is expected that the productivity of the nation will be accelerated while making Philippines the third fastest in work force growth. The forecasted increase in the labour pool is predicted to account for 1% of the projected 4.5% growth between 2019 and 2050. Several projects and programs have be e n proposed to better prepare the workers by equipping them with the relevant skills:

• Substantial increase in annual budget for health and education • Curriculum reforms to better meet industry requirements • Technical skills development • Expansion of the Conditional Cash Transfer (CCT) program

Additionally, the Philippines has a significant competitive advantage due to its possession of internationally renowned, skilled and experienced pool of seafarers. Therefore, Philippines can tap on the potential of these seafarers in educating their workforce in relevant maritime expertise to create attractive business opportunities for the country. All in all, with plans to enhance the skills of its population, it is expected that the human capital of the Philippines will influence our proposed recommendation in bringing about positive impacts for the nation.

Figures 114 & 115: Maritime Workers in the Philippines iii. Infrastructure The Philippines performed poorly in the 2015-2016 World Economic Forum Global Competitiveness Report index in terms of infrastructure development. The country was ranked 106th out of 140 countries. However, moving forward, we are confident that the country will have one of the be st transportation and port infrastructure in East Asia. The government is committed in tackling this problem as President Rodrigo Duterte and his administration, has launched a USD 180 billion “Build, Build, Build” infrastructure campaign. Already, the government has approved 21 projects worth USD 16 billion which includes the improvement and development of airports, ports, railways and roads. Furthermore, the government plans to roll out more Public- Private-Partnership (PPP) infrastructure projects. Examples of investment in transportation infrastructure can be seen in the USD 160 Billion transportation roadmap outline for Metro Manila, Central Luzon (Region III) and the -Laguna-Batangas--Quezon (Region IV-A). This will ease mobility and ensure sufficient infrastructure to meet the growing population and rising commerce activity.

In 2003, in order to ensure gre ater and more efficient integration of the Philippines's ports, the government and the PPA have invested in the RoRo facilities to improve the inter-island connectivity. In 2016, the PPA made additional improvement to the RoRo facilities and logistic transport costs are expected to drop by 15- 20%. There has also be e n increasing collaboration be twe e n the PPA and port operators. Aimed at reducing the container traffic of the Manila road network, the MRAIL, Inc., in collaboration with ICTSI, announced a 10 billion PHP (USD195m) project in 2016 to revitalize old railways for the transport of cargo. Therefore a decrease of between 200 and 600 container trucks pe r day is expected and improving the traffic situation. As such we can see the commitment of the government in ensuring that the ports are well supported by an excellent transportation infrastructure which is crucial for the success for any port around the world.

Figures 116 & 117: Port and Road Infrastructure in the Philippines

68 8. A STUDY OF FEASIBILITY – THE BRI

As elaborated before in Section 2.1, the BRI is a huge undertaking involving billions of dollars of investments in infrastructure projects spanning many several countries. While we have highlighted the current progress and the potential for the BRI in enhancing the development of the main ports in the Philippines, the BRI brings along many risks due to its scale and number of stakeholders involved.

8.1 RISKS OF BRI i. Overdependence on China The entire BRI project relies heavily on China pumping in funds for the infrastructure projects and integrating trade policies with each country onboard with the initiative. While China is more than capable of jump starting the BRI with its vast amounts of do me stic savings, the Chinese economy itself is not invulnerable to shocks and decline drivers. In the event the Chinese economy experiences a slowdown as seen in 2012, countries like the Philippines who are involved with the BRI will see a much greater adverse impact on their home economies than ever before.

The Chinese economy is particularly vulnerable to shocks in global oil supply. Being the world’s largest importer at 8.5m barrels a day mostly from the Middle East, a negative supply shock such as a major conflict in the region will hinder Chinese productivity greatly. The supply of oil from the Middle East is also safeguarded by US protection of the sea lanes, which might be diminished in the future as US domestic shale oil production increases in market share. Thus, China would not be able to enjoy a safe and secure oil trading route from the Middle East, and taking over the US’s role in protecting the sea lanes would be difficult as the current capabilities of the Chinese Navy are not adequate to do so. As China gro ws, it is expected to import more oil in the future, about 75% of its consumption needs, and this vulnerability will stand to grow even greater.

Figure 118: Oil Tanker

Domestically, China is also fraught with problems that could affect the economy’s productivity. China faces the social and environmental issue of air pollution, which was the result of the rapid industrialization of the economy in the past decade. In 2015, there were 700,000 cases of lung cancer, and it is estimated that about 1.2m premature deaths were attributed to air po llutio n alone. In response to this, China launched an “Action Plan on Prevention & Control of Air Pollution” in 2013, to reduce the negative externalities of pollution by reducing coal consumption, shutting down pollutive factories,or upgrading current production facilities to

69 produce le s s pollution. While these measures do mitigate the social unrest in China, some economic growth would have to be sacrificed, as using alternative sources of energy other than coal and upgrading current factories co uld drive up production co s ts , and closing several factories restricts the quantity of goods produced. The Chinese economy will then experience a slowdown in conjunction with its effort to clean up air pollution.

Figure 119: Deck of Oil Tanker ii. Exposure to All Different Risks of Countries in BRI As the BRI brings together many countries, the initiative is exposed to countless risks from every country involved which may undermine the feasibility of the entire BRI. In addition, the constituent countries are now also exposedto a greater extent the risks of each other with the trade integration of the BRI.

Operational risks vary gre atly among countries that have petitioned to participate in the BRI. Countries such as Tajikistan and Uzbekistan who are likely to be involved heavily in the BRI have high operational risks scores globally, which includes assessing security, stability, the legal and regulatory environment, foreign trade and payment issues and tax risks to name a few. Whereas on the other hand, countries such as Italy and Malaysia are on the other end of the operational risk spectrum. In addition, political risks also play a huge role, as most BRI projects are high-profile construction projects, so the de als would have to made with the respective governments be fore clearance. Changes in political stability have to be anticipated when planning for infrastructure projects amongst the countries in the BRI.

70 The BRI involves financing mostly from the banks of China (which includes the Asian Infrastructure Investment Bank, China Development Bank, the Export-Import Bank of China and China’s sovereign wealth fund, the China Investment Corporation), with huge outlays to the participating countries for development. Therefore, as many of these funds are loans, credit risk is particularly important in assessing the overall risk of the BRI. There also exists a huge disparity of the credit risk scores of the constituent countries of the BRI, not only across the world but even for those in the same region. In ASEAN, Myanmar and Cambodia have significantly higher credit risk scores than that of neighbouring countries Thailand and Malaysia. In the Middle East, countries are stricken with debt due to war and therefore possess high credit risk scores too.

iii. Uncertainty of Planning While BRI projects are being initiated and undergoing implementation in several countries, most of these development projects are done to facilitate the BRI’s grand plan of making the Belt and Road trade routes come into fruition. Thus, some projects might not be aimed at addressing the most pressing infrastructure needs but rather to facilitate the Belt and Road, and could fail to deliver expected returns. There is also a doubt that China's banks can identify profitable projects and manage risks better than international commercial banks and multilateral lenders. The implied backing of projects by the Chinese go vernme nt could lead to government planners, firms and financial institutions into a false sense of security that their projects will be a success, wh ich could amount to bad and risky planning. In addition, in some cases ge nuine infrastructure and commercial needs might be secondary to political motivations.

The uncertainty of BRI projects, which is a result of its scale, financing and long duration combined, is also a significant factor. Forecasts may change anytime, and this would mean a change in the level of investment in constituent countries, or may not even come into fruition. Hence, countries which are too de pe ndent and hopeful for the BRI should also exercise caution in their planning for their own economies.

71 8.2 SCENARIO ANALYSIS

With the benefits and the risks of the BRI highlighted, we acknowledge that there exist two cases: one where the BRI has be e n smooth sailing in its implementation and its risks are mitigated, and the other where the BRI has failed to deliver its expectedreturns in the long run.

In the event the BRI do es not live up to the expectations due to the complexities and the scale of the project, we believe that the Philippines should still keep its port development as one of its top priorities in the near future. Without the BRI, the Philippines is already po ise d to grow exponentially in the upcoming decades, exhibiting strong growth as an emerging economy since 2000. In 2015, global consulting firm PwC foresaw that the country will be the 16th largest in the world by 2050, and achievable goal taking into consideration the abovementioned demand drivers.

Hence, even if the BRI fails to deliver its expected returns, the Philippines still have to prepare itself for the exponential growth in terms of trade volume, infrastructure development and growing population. As the country is archipelagic in nature and 98% of product imports and exports are facilitated through its ports, it is of utmost importance that the Philippines ensure the effectiveness of its main ports and their capacity to handle the increasing volumes to come.

In the event the BRI is smooth sailing and the project reaps much greater than expected be nefits, the Philippines will be able to capitalise on the BRI’s success if it po sse sse d a strong and developed po rt system. With the success of the BRI, many countries along the trade routes wo u ld be significantly developed with modernised ports, and by choosing not to focus on port development Philippines would stand to lose out on its competitive advantage and standing.

Therefore, in light of whether the BRI becomes a success or not, we are of the stand that the Philippines should invest and develop their main ports, minimally meeting the container throughput demand forecasted in the next few decades at the base case. Along the way, if stronger indicators of a successful implementation of the BRI emerges,the Philippines can attempt to meet the forecasted demand at the bull case for the ports.

Figure 122: Night View of Port Under the BRI

72 9. CONCLUSION

“[The BRI] is about connecting culture. It is about connecting communities, it is about enriching economies and improving the standard of living of people”. – IMF Managing Director Christine Lagarde, 2017

The BRI remains one of the greatest and most ambitious global projects in the 21st century. Many countries and leaders are preparing themselves for the developments in facilitating the flow of goods and services across the world, and have forged closer trade relations with each other to grow not only as individual nations but as a collective whole. It is therefore inevitable that the Philippines will be affected directly or indirectly with the advent of such changes, and we have studied to what degree these effects will have on its main ports which handle a significant majority of the country’s trade.

In our evaluation of the main ports of the Philippines, namely the Port of Manila, Port of Davao (Sasa Wharf) and the Port of Cagayan de Oro, we have observed the key drive rs of the ir past pe rfo rmance , considered future demand and decline drivers in conjunction with the BRI, and then forecasted the appropriate bull, base and bear container throughputs until 2050. Overall, we see an upward trend for all three ports, and our proposal is for these po rts to increase their handling capacities to handle the stipulated forecasted throughputs.

However, we acknowledge that to truly enhance the co mpe titive ne ss of the po rts, leading authorities and the government should exercise critical planning and undertake effective measures to capitalise on opportunities and mitigate the decline drivers. It is also worth noting that a revolutionary change occurs in the maritime industry every 20-30 years, and given the long horizon of our forecasts, it would be myopic for authorities to disregard adjusting periodically in planning for future container throughputs or po rt handling capacities. In this report, we offer the planning authorities of the Philippines a framework and a brie f identification of the factors that are key to each port, and serve not as a step-by -step manual but a generic guide for responding to the growth of the Philippines and the BRI.

Figure 123: Container Terminal In Operation

73 APPENDIX

PORT OF MANILA, FORECAST TABLES

BASE CASE BEAR CASE BULL CASE Year Forecasted TEU % Growth Year Forecasted TEU % Growth Year Forecasted TEU % Growth 2017 4,797,376 6.08% 2017 4,706,927 4.08% 2017 4,887,824 8.08% 2018 5,089,056 6.08% 2018 4,898,970 4.08% 2018 5,282,760 8.08% 2019 5,243,763 3.04% 2019 4,998,909 2.04% 2019 5,496,184 4.04% 2020 5,562,584 6.08% 2020 5,202,865 4.08% 2020 5,940,275 8.08% 2021 5,900,789 6.08% 2021 5,415,141 4.08% 2021 6,420,250 8.08% 2022 6,259,557 6.08% 2022 5,636,079 4.08% 2022 6,939,006 8.08% 2023 6,640,138 6.08% 2023 5,866,031 4.08% 2023 7,499,677 8.08% 2024 6,841,999 3.04% 2024 5,985,698 2.04% 2024 7,802,664 4.04% 2025 7,257,992 6.08% 2025 6,229,915 4.08% 2025 8,433,120 8.08% 2026 7,699,278 6.08% 2026 6,484,095 4.08% 2026 9,114,516 8.08% 2027 8,167,394 6.08% 2027 6,748,646 4.08% 2027 9,850,969 8.08% 2028 8,663,972 6.08% 2028 7,023,991 4.08% 2028 10,646,927 8.08% 2029 9,190,741 6.08% 2029 7,310,570 4.08% 2029 11,507,198 8.08% 2030 9,470,140 3.04% 2030 7,459,706 2.04% 2030 11,972,089 4.04% 2031 10,045,924 6.08% 2031 7,764,062 4.08% 2031 12,939,434 8.08% 2032 10,656,717 6.08% 2032 8,080,835 4.08% 2032 13,984,940 8.08% 2033 11,198,078 5.08% 2033 8,329,725 3.08% 2033 14,975,074 7.08% 2034 11,766,940 5.08% 2034 8,586,281 3.08% 2034 16,035,309 7.08% 2035 12,364,701 5.08% 2035 8,850,738 3.08% 2035 17,170,609 7.08% 2036 12,678,764 2.54% 2036 8,987,039 1.54% 2036 17,778,449 3.54% 2037 13,322,845 5.08% 2037 9,263,840 3.08% 2037 19,037,163 7.08% 2038 13,999,646 5.08% 2038 9,549,166 3.08% 2038 20,384,994 7.08% 2039 14,710,828 5.08% 2039 9,843,281 3.08% 2039 21,828,252 7.08% 2040 15,458,138 5.08% 2040 10,146,454 3.08% 2040 23,373,692 7.08% 2041 15,850,775 2.54% 2041 10,302,709 1.54% 2041 24,201,121 3.54% 2042 16,655,994 5.08% 2042 10,620,033 3.08% 2042 25,914,560 7.08% 2043 17,502,118 5.08% 2043 10,947,130 3.08% 2043 27,749,311 7.08% 2044 18,391,226 5.08% 2044 11,284,301 3.08% 2044 29,713,962 7.08% 2045 19,325,500 5.08% 2045 11,631,858 3.08% 2045 31,817,711 7.08% 2046 20,307,236 5.08% 2046 11,990,119 3.08% 2046 34,070,405 7.08% 2047 20,823,040 2.54% 2047 12,174,767 1.54% 2047 35,276,497 3.54% 2048 21,880,850 5.08% 2048 12,549,750 3.08% 2048 37,774,073 7.08% 2049 22,992,397 5.08% 2049 12,936,282 3.08% 2049 40,448,477 7.08% 2050 24,160,411 5.08% 2050 13,334,719 3.08% 2050 43,312,229 7.08% APPENDIX

PORT OF MANILA (NORTH, SOUTH) EXPANSION CAPACITY TABLES

MANILA NORTH HARBOUR MANILA SOUTH HARBOUR Year Forecasted TEU Capacity Phase Utilisation Year Forecasted TEU Capacity Phase Utilisation 2017 1,391,239 2,200,000 1 63.24% 2017 1260271 1,200,000 0 105.02% 2018 1,475,826 2,200,000 1 67.08% 2018 1336895 1,400,000 0 95.49% 2019 1,520,691 2,200,000 1 69.12% 2019 1377537 1,540,000 0 89.45% 2020 1,613,149 2,200,000 1 73.32% 2020 1461291 1,540,000 0 94.89% 2021 1,711,229 2,200,000 1 77.78% 2021 1550137 1,540,000 0 100.66% 2022 1,815,272 4,000,000 2 45.38% 2022 1644386 1,540,000 0 106.78% 2023 1,925,640 4,000,000 2 48.14% 2023 1744364 2,400,000 1 72.68% 2024 1,984,180 4,000,000 2 49.60% 2024 1797393 2,400,000 1 74.89% 2025 2,104,818 4,000,000 2 52.62% 2025 1906675 2,400,000 1 79.44% 2026 2,232,791 4,000,000 2 55.82% 2026 2022600 2,400,000 1 84.28% 2027 2,368,544 4,000,000 2 59.21% 2027 2145574 2,400,000 1 89.40% 2028 2,512,552 4,000,000 2 62.81% 2028 2276025 2,400,000 1 94.83% 2029 2,665,315 4,000,000 2 66.63% 2029 2414408 3,900,000 2 61.91% 2030 2,746,341 4,000,000 2 68.66% 2030 2487806 3,900,000 2 63.79% 2031 2,913,318 4,000,000 2 72.83% 2031 2639064 3,900,000 2 67.67% 2032 3,090,448 4,000,000 2 77.26% 2032 2799519 3,900,000 2 71.78% 2033 3,247,443 4,000,000 2 81.19% 2033 2941735 3,900,000 2 75.43% 2034 3,412,413 4,000,000 2 85.31% 2034 3091175 3,900,000 2 79.26% 2035 3,585,763 4,000,000 2 89.64% 2035 3248207 3,900,000 2 83.29% 2036 3,676,842 6,000,000 3 61.28% 2036 3330711 3,900,000 2 85.40% 2037 3,863,625 6,000,000 3 64.39% 2037 3499911 3,900,000 2 89.74% 2038 4,059,897 6,000,000 3 67.66% 2038 3677707 3,900,000 2 94.30% 2039 4,266,140 6,000,000 3 71.10% 2039 3864534 3,900,000 2 99.09% 2040 4,482,860 6,000,000 3 74.71% 2040 4060853 5,400,000 3 75.20% 2041 4,596,725 6,000,000 3 76.61% 2041 4163998 5,400,000 3 77.11% 2042 4,830,238 6,000,000 3 80.50% 2042 4375530 5,400,000 3 81.03% 2043 5,075,614 6,000,000 3 84.59% 2043 4597807 5,400,000 3 85.14% 2044 5,333,456 6,000,000 3 88.89% 2044 4831375 5,400,000 3 89.47% 2045 5,604,395 6,000,000 3 93.41% 2045 5076809 5,400,000 3 94.01% 2046 5,889,098 6,000,000 3 98.15% 2046 5334711 5,400,000 3 98.79% 2047 6,038,681 8,000,000 4 75.48% 2047 5470212 6,900,000 4 79.28% 2048 6,345,446 8,000,000 4 79.32% 2048 5748099 6,900,000 4 83.31% 2049 6,667,795 8,000,000 4 83.35% 2049 6040103 6,900,000 4 87.54% 2050 7,006,519 8,000,000 4 87.58% 2050 6346940 6,900,000 4 91.98%

IMPORTANT YEARS IMPORTANT YEARS Year Key Details Year Key Details 2022 Completion of Phase 2 2018 Commencement of Phase 1 2033 Commencement of Phase 3 2019 Addition of Capital Infrastructure 2036 Completion of Phase 3 2023 Completion of Phase 1 2042 Commencement of Phase 4 2024 Commencement of Phase 2 2047 Completion of Phase 4 2029 Completion of Phase 2 2035 Commencement of Phase 3 2040 Completion of Phase 3 2042 Commencement of Phase 4 2047 Completion of Phase 4 APPENDIX

PORT OF MANILA (MICT) EXPANSION CAPACITY TABLES

MICT Year Forecasted TEU Capacity Phase Utilisation 2017 2,145,866 2,500,000 0 85.83% 2018 2,276,335 2,500,000 0 91.05% 2019 2,345,535 2,750,000 0 85.29% 2020 2,488,144 3,100,000 0 80.26% 2021 2,639,423 3,100,000 0 85.14% 2022 2,799,900 3,100,000 0 90.32% 2023 2,970,134 3,100,000 0 95.81% 2024 3,060,426 3,100,000 0 98.72% 2025 3,246,500 5,100,000 1 63.66% 2026 3,443,887 5,100,000 1 67.53% 2027 3,653,275 5,100,000 1 71.63% 2028 3,875,395 5,100,000 1 75.99% 2029 4,111,019 5,100,000 1 80.61% 2030 4,235,994 5,100,000 1 83.06% 2031 4,493,542 5,100,000 1 88.11% 2032 4,766,749 5,100,000 1 93.47% 2033 5,008,900 5,100,000 1 98.21% 2034 5,263,352 9,100,000 2 57.84% 2035 5,530,731 9,100,000 2 60.78% 2036 5,671,211 9,100,000 2 62.32% 2037 5,959,309 9,100,000 2 65.49% 2038 6,262,042 9,100,000 2 68.81% 2039 6,580,153 9,100,000 2 72.31% 2040 6,914,425 9,100,000 2 75.98% 2041 7,090,051 9,100,000 2 77.91% 2042 7,450,226 9,100,000 2 81.87% 2043 7,828,698 9,100,000 2 86.03% 2044 8,226,395 9,100,000 2 90.40% 2045 8,644,296 9,100,000 2 94.99% 2046 9,083,427 13,100,000 3 69.34% 2047 9,314,146 13,100,000 3 71.10% 2048 9,787,304 13,100,000 3 74.71% 2049 10,284,499 13,100,000 3 78.51% 2050 10,806,952 13,100,000 3 82.50%

IMPORTANT YEARS Year Key Details 2020 Commencement of Phase 1 2025 Completion of Phase 1 2029 Commencement of Phase 2 2034 Completion of Phase 2 2041 Commencement of Phase 3 2046 Completion of Phase 3 APPENDIX

PORT OF DAVAO (SASA WHARF), FORECAST TABLES

BASE CASE BEAR CASE BULL CASE Year Forecasted TEU % Growth Year Forecasted TEU % Growth Year Forecasted TEU % Growth 2017 321,835 5.93% 2017 315,759 3.93% 2017 327,916 7.93% 2018 340,920 5.93% 2018 328,168 3.93% 2018 353,925 7.93% 2019 356,091 4.45% 2019 337,849 2.95% 2019 374,983 5.95% 2020 377,207 5.93% 2020 351,127 3.93% 2020 404,725 7.93% 2021 399,576 5.93% 2021 364,926 3.93% 2021 436,826 7.93% 2022 423,271 5.93% 2022 379,268 3.93% 2022 471,473 7.93% 2023 448,371 5.93% 2023 394,173 3.93% 2023 508,867 7.93% 2024 468,323 4.45% 2024 405,801 2.95% 2024 539,145 5.95% 2025 496,095 5.93% 2025 421,749 3.93% 2025 581,907 7.93% 2026 525,513 5.93% 2026 438,324 3.93% 2026 628,061 7.93% 2027 556,676 5.93% 2027 455,550 3.93% 2027 677,876 7.93% 2028 589,687 5.93% 2028 473,453 3.93% 2028 731,641 7.93% 2029 624,655 5.93% 2029 492,060 3.93% 2029 789,671 7.93% 2030 652,453 4.45% 2030 506,576 2.95% 2030 836,656 5.95% 2031 691,143 5.93% 2031 526,484 3.93% 2031 903,016 7.93% 2032 732,128 5.93% 2032 547,175 3.93% 2032 974,638 7.93% 2033 771,882 5.43% 2033 565,943 3.43% 2033 1,047,054 7.43% 2034 813,796 5.43% 2034 585,355 3.43% 2034 1,124,850 7.43% 2035 857,985 5.43% 2035 605,432 3.43% 2035 1,208,426 7.43% 2036 892,905 4.07% 2036 620,992 2.57% 2036 1,275,735 5.57% 2037 941,389 5.43% 2037 642,292 3.43% 2037 1,370,523 7.43% 2038 992,507 5.43% 2038 664,323 3.43% 2038 1,472,352 7.43% 2039 1,046,400 5.43% 2039 687,109 3.43% 2039 1,581,748 7.43% 2040 1,103,219 5.43% 2040 710,677 3.43% 2040 1,699,272 7.43% 2041 1,148,120 4.07% 2041 728,941 2.57% 2041 1,793,922 5.57% 2042 1,210,463 5.43% 2042 753,944 3.43% 2042 1,927,210 7.43% 2043 1,276,192 5.43% 2043 779,804 3.43% 2043 2,070,402 7.43% 2044 1,345,489 5.43% 2044 806,551 3.43% 2044 2,224,233 7.43% 2045 1,418,549 5.43% 2045 834,216 3.43% 2045 2,389,493 7.43% 2046 1,495,576 5.43% 2046 862,830 3.43% 2046 2,567,032 7.43% 2047 1,556,446 4.07% 2047 885,004 2.57% 2047 2,710,016 5.57% 2048 1,640,961 5.43% 2048 915,360 3.43% 2048 2,911,370 7.43% 2049 1,730,065 5.43% 2049 946,757 3.43% 2049 3,127,685 7.43% 2050 1,824,008 5.43% 2050 979,231 3.43% 2050 3,360,072 7.43% APPENDIX

SASA WHARF, PORT OF CAGAYAN DE ORO, EXPANSION CAPACITY TABLES

SASA WHARF PORT OF CAGAYAN DE ORO Year Forecasted TEU Capacity Phase Utilisation Year Forecasted TEU Capacity Phase Utilisation 2017 321,840 700,000 0 45.98% 2017 276,911 300,000 1 92.30% 2018 340,930 700,000 0 48.70% 2018 289,925 300,000 1 96.64% 2019 361,152 700,000 0 51.59% 2019 300,160 300,000 1 100.05% 2020 382,574 700,000 0 54.65% 2020 314,267 300,000 1 104.76% 2021 399,593 700,000 0 57.08% 2021 329,038 300,000 1 109.68% 2022 423,295 700,000 0 60.47% 2022 344,503 480,000 2 71.77% 2023 448,402 700,000 0 64.06% 2023 360,694 480,000 2 75.14% 2024 474,999 700,000 0 67.86% 2024 373,427 480,000 2 77.80% 2025 503,174 700,000 0 71.88% 2025 390,978 480,000 2 81.45% 2026 525,558 700,000 0 75.08% 2026 409,354 480,000 2 85.28% 2027 556,731 700,000 0 79.53% 2027 428,593 480,000 2 89.29% 2028 589,754 700,000 0 84.25% 2028 448,737 480,000 2 93.49% 2029 624,735 700,000 0 89.25% 2029 469,828 480,000 2 97.88% 2030 661,791 700,000 0 94.54% 2030 486,413 750,000 3 64.86% 2031 691,231 700,000 0 98.75% 2031 509,274 750,000 3 67.90% 2032 732,231 1,400,000 1 52.30% 2032 533,210 750,000 3 71.09% 2033 772,002 1,400,000 1 55.14% 2033 555,605 750,000 3 74.08% 2034 813,933 1,400,000 1 58.14% 2034 578,940 750,000 3 77.19% 2035 858,142 1,400,000 1 61.30% 2035 603,256 750,000 3 80.43% 2036 893,099 1,400,000 1 63.79% 2036 622,258 750,000 3 82.97% 2037 941,608 1,400,000 1 67.26% 2037 648,393 750,000 3 86.45% 2038 992,751 1,400,000 1 70.91% 2038 675,626 750,000 3 90.08% 2039 1,046,672 1,400,000 1 74.76% 2039 704,002 750,000 3 93.87% 2040 1,103,522 1,400,000 1 78.82% 2040 733,570 750,000 3 97.81% 2041 1,148,475 1,400,000 1 82.03% 2041 756,678 1,020,000 4 74.18% 2042 1,210,854 1,400,000 1 86.49% 2042 788,458 1,020,000 4 77.30% 2043 1,276,621 1,400,000 1 91.19% 2043 821,573 1,020,000 4 80.55% 2044 1,345,961 1,400,000 1 96.14% 2044 856,079 1,020,000 4 83.93% 2045 1,419,066 2,100,000 2 67.57% 2045 892,035 1,020,000 4 87.45% 2046 1,476,874 2,100,000 2 70.33% 2046 929,500 1,020,000 4 91.13% 2047 1,557,090 2,100,000 2 74.15% 2047 958,779 1,020,000 4 94.00% 2048 1,641,663 2,100,000 2 78.17% 2048 999,048 1,020,000 4 97.95% 2049 1,730,829 2,100,000 2 82.42% 2049 1,041,008 1,290,000 5 80.70% 2050 1,824,839 2,100,000 2 86.90% 2050 1,084,730 1,290,000 5 84.09%

IMPORTANT YEARS IMPORTANT YEARS Year Key Details Year Key Details 2027 Commencement of Phase 1 2018 Early Commencement of Phase 2 2032 Completion of Phase 1 2022 Completion of Phase 2 2035 Commencement of Phase 2 2030 Completion of Phase 3 2040 Completion of Phase 2 2035 Commencement of Phase 4 2040 Completion of Phase 4 2045 Commencement of Phase 5 2048 Completion of Phase 5 APPENDIX

PORT OF CAGAYAN DE ORO, FORECAST TABLES

BASE CASE BEAR CASE BULL CASE Year Forecasted TEU % Growth Year Forecasted TEU % Growth Year Forecasted TEU % Growth 2017 276,911 4.70% 2017 268,976 1.70% 2017 282,200 6.70% 2018 289,925 4.70% 2018 273,549 1.70% 2018 301,108 6.70% 2019 300,160 3.53% 2019 277,050 1.28% 2019 316,253 5.03% 2020 314,267 4.70% 2020 281,760 1.70% 2020 337,442 6.70% 2021 329,038 4.70% 2021 286,550 1.70% 2021 360,051 6.70% 2022 344,503 4.70% 2022 291,421 1.70% 2022 384,174 6.70% 2023 360,694 4.70% 2023 296,375 1.70% 2023 409,914 6.70% 2024 373,427 3.53% 2024 300,169 1.28% 2024 430,533 5.03% 2025 390,978 4.70% 2025 305,272 1.70% 2025 459,378 6.70% 2026 409,354 4.70% 2026 310,462 1.70% 2026 490,157 6.70% 2027 428,593 4.70% 2027 315,739 1.70% 2027 522,997 6.70% 2028 448,737 4.70% 2028 321,107 1.70% 2028 558,038 6.70% 2029 469,828 4.70% 2029 326,566 1.70% 2029 595,427 6.70% 2030 486,413 3.53% 2030 330,746 1.28% 2030 625,376 5.03% 2031 509,274 4.70% 2031 336,369 1.70% 2031 667,277 6.70% 2032 533,210 4.70% 2032 342,087 1.70% 2032 711,984 6.70% 2033 555,605 4.20% 2033 346,192 1.20% 2033 756,127 6.20% 2034 578,940 4.20% 2034 350,346 1.20% 2034 803,007 6.20% 2035 603,256 4.20% 2035 354,550 1.20% 2035 852,794 6.20% 2036 622,258 3.15% 2036 357,741 0.90% 2036 892,449 4.65% 2037 648,393 4.20% 2037 362,034 1.20% 2037 947,780 6.20% 2038 675,626 4.20% 2038 366,379 1.20% 2038 1,006,543 6.20% 2039 704,002 4.20% 2039 370,775 1.20% 2039 1,068,948 6.20% 2040 733,570 4.20% 2040 375,224 1.20% 2040 1,135,223 6.20% 2041 756,678 3.15% 2041 378,601 0.90% 2041 1,188,011 4.65% 2042 788,458 4.20% 2042 383,145 1.20% 2042 1,261,668 6.20% 2043 821,573 4.20% 2043 387,742 1.20% 2043 1,339,891 6.20% 2044 856,079 4.20% 2044 392,395 1.20% 2044 1,422,964 6.20% 2045 892,035 4.20% 2045 397,104 1.20% 2045 1,511,188 6.20% 2046 929,500 4.20% 2046 401,869 1.20% 2046 1,604,882 6.20% 2047 958,779 3.15% 2047 405,486 0.90% 2047 1,679,509 4.65% 2048 999,048 4.20% 2048 410,352 1.20% 2048 1,783,638 6.20% 2049 1,041,008 4.20% 2049 415,276 1.20% 2049 1,894,224 6.20% 2050 1,084,730 4.20% 2050 420,259 1.20% 2050 2,011,666 6.20% REFERENCES ABS-CBN News. Japan pledges aid, investments for Philippine infrastructure (2017) Retrieved from http://news.abs- cbn.com/business/01/12/17/japan-pledges-aid-investments-for-philippine-infrastructure

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