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Fiscal Year 2016 Overseas Expansion Base Development Project Project for Promoting High-quality Infrastructure System Overseas

Study on Infrastructure Development in ,

Final Report

March, 2017

Ministry of Economy, Trade and Industry Commissioned to: Ernst & Young ShinNihon LLC

Table of Contents

Introduction ...... 1 Chapter 1 Basic Information on Mindanao ...... 2 1.1 Recent History and Future Prospects ...... 2 1.1.1 Basic country information and Mindanao location ...... 2 1.1.2 Recent History of Mindanao ...... 7 1.1.3 Details of -Philippines Bilateral Summits ...... 8 1.2 Trends in Trade, Investment, and Industry Sectors, and Industries with Potential ...... 9 1.2.1 Characteristics and Comparative Advantages in Mindanao ...... 9 1.2.2 Trends in Mindanao Trade and Investment ...... 15 1.2.3 Trends in Trade and Investment by Region ...... 17 1.2.4 Current Major Industries and Industries with Future Potential by Region ...... 18 1.3 Related Industries and Anticipated Infrastructural Needs for Industry Sectors with Potential ...... 19 1.3.1 Related Industry Groups for Industry Sectors with Potential ...... 19 1.3.2 Infrastructural Needs for Companies in Industries with Potential ...... 20 1.4 Japanese Company Trends and Regions/Cities for Potential Entry ...... 20 1.4.1 Japanese Company Trends for Entering Mindanao ...... 20 1.4.2 Regions/Cities with Potential for Japanese Company Entry ...... 21 1.4.3 Issues for Japanese Company Expansion ...... 22 Chapter 2 Status and Future Plans on Mindanao infrastructure development ...... 26 2.1 Mindanao Infrastructural Development Plans and Development Status ...... 26 2.1.1 Overview of inftastructure related plans ...... 26 2.1.2 Summary of development plans and master plans ...... 27 2.2 Governmental Organization, Personnel Structures, and Budgets ...... 32 2.2.1 Relevant government agency structures ...... 32 2.2.2 Personnel structure and budget for main relevant organizations ...... 34 2.3 Related Laws and Regulations, Policy, and Institutions ...... 40 2.3.1 Institutions, regulations, etc. for infrastructure development (general) ...... 40 2.3.2 Institutions, regulations, etc. for infrastructure development (by sector) ...... 43 2.4 PPP System and its operational status ...... 45 2.4.1 Summary of PPP system ...... 45 2.4.2 PPP-applicable sectors ...... 46 2.4.3 Implementation status and pipeline for PPP projects ...... 47 2.4.4 Issues with PPP in the Philippines ...... 49 2.5 Candidate Local Partner Companies ...... 49

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2.6 Project Development Status for Other Countries ...... 50 Chapter 3 Current Status, Issues, and Priority Projects for Infrastructural Development ... 52 3.1 Status by City ...... 52 3.1.1 City ...... 52 3.1.2 de Oro ...... 55 3.1.3 City ...... 62 3.1.4 and City ( Region) ...... 66 3.2 Major planned and implemented projects in Mindanao ...... 80 3.3 List of Priority Projects ...... 82 3.3.1 Basic Approach ...... 82 3.3.2 Development Strategy...... 82 3.3.3 List of Priority Projects ...... 84 Chapter 4 Basic Information, Status, and Issues for the Power Sector in the Philippines and Mindanao ...... 88 4.1 Current Status and Issues for the Power Sector ...... 88 4.1.1 The Philippines ...... 88 4.1.2 Mindanao ...... 93 4.2 Future Projects...... 104 4.2.1 The Philippines ...... 104 4.2.2 Mindanao ...... 106 4.3 Power Sector Infrastructural Needs in the Philippines and Mindanao ...... 107 4.3.1 Power Sector Needs in the Philippines and Mindanao ...... 107 4.3.2 Roadmap for the Philippine Power Sector ...... 109 4.3.3 List of Priority Projects ...... 112 Chapter 5 Using Japanese Technology to Solve Issues with Philippine and Mindanao Infrastructure ...... 114 5.1 Transport ...... 114 5.1.1 Japanese Technology Compatible with Local Needs ...... 114 5.1.2 Short List for Promising Mindanao Projects ...... 115 5.2 Electricity ...... 118 5.2.1 Japanese Technology Compatible with Local Needs ...... 118 5.2.2 Short List for Promising Projects in the Philippines ...... 119 5.3 Action Plan for Solving Issues ...... 120 Chapter 6 Overview of Seminar ...... 122 6.1 Objective and Overview of Seminar ...... 122 6.2 Seminar Agenda ...... 123 6.3 Summary of Seminar Discussions...... 124

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List of Figures

Figure 1-1 Three regions of the Philippines ...... 2 Figure 1-2 The 3 regions, 18 administrative regions, and 81 provinces of the Philippines ...... 3 Figure 1-3 Geography of Mindanao ...... 4 Figure 1-4 Mindanao administrative divisions ...... 4 Figure 1-5 Climate map of the Philippines ...... 5 Figure 1-6 Population distribution by region ...... 6 Figure 1-7 GDP per capita by region (2015) ...... 7 Figure 1-8 Mindanao GRDP ...... 10 Figure 1-9 Breakdown of 2015 Mindanao GRDP by industry ...... 10 Figure 1-10 Figure 1-10 Breakdown of 2015 Mindanao GRDP by sector ...... 11 Figure 1-11 Percentage share of Mindanao agricultural production to Philippine totals ...... 11 Figure 1-12 Active mines in the Philippines ...... 12 Figure 1-13 Available ore production for Mindanao (2015 performance) ...... 13 Figure 1-14 List of main exploration projects ...... 13 Figure 1-15 Summary of coal reserves ...... 14 Figure 1-16 BIMP-EAGA economic corridor ...... 15 Figure 1-17 Itemized import/export trends for Mindanao...... 16 Figure 1-18 Mindanao investment trends (by industry) ...... 16 Figure 1-19 Cumulative percentages for foreign direct investment (by industry) ...... 16 Figure 1-20 Import/export trends for Mindanao (by administrative region) ...... 17 Figure 1-21 Top 10 countries for imports/exports (2013) ...... 17 Figure 1-22 Mindanao investment trends by administrative region ...... 18 Figure 1-23 Major industries by region ...... 18 Figure 1-24 Foreign companies active in industries with potential (not exhaustive) .... 20 Figure 1-25 Infrastructural needs by sector ...... 20 Figure 1-26 Presence of Japanese companies ...... 21 Figure 1-27 Cities with high potential for Japanese company expansion ...... 22 Figure 1-28 International comparison of electricity rates ...... 23 Figure 1-29 Local procurement rates for raw materials and components ...... 24 Figure 2-1 Structure of infrastructural development plans in Mindanao ...... 26 Figure 2-2 Relation of Philippine LGUs ...... 33 Figure 2-3 Relation of Philippine central government agencies ...... 33 Figure 2-4 NEDA organization chart ...... 35 Figure 2-5 MinDA organization chart ...... 38

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Figure 2-6 Philippines Infrastructure Budget ...... 39 Figure 2-7 Distribution of the budget by region ...... 39 Figure 2-8 NEDA budgets for FY 2017 ...... 40 Figure 2-9 Laws, regulations, institutions for infrastructure development (general) .... 41 Figure 2-10 Laws, regulations, institutions for infrastructure development ...... 42 Figure 2-11 Laws, regulations, institutions for infrastructure development (environment) ...... 42 Figure 2-12 Laws, regulations, institutions for infrastructure development (land) ...... 43 Figure 2-13 Laws, regulations, institutions for infrastructure development (by sector) 44 Figure 2-14 Overview of PPP system in the Philippines ...... 46 Figure 2-15 Infrastructure and project sectors allowing private involvement ...... 47 Figure 2-16 Completed and Operational Projects ...... 47 Figure 2-17 Projects under Construction ...... 48 Figure 2-18 Projects under Pre-Construction (approved by NEDA Board) ...... 48 Figure 2-19 Candidate Local Partner Companies for Japanese Infrastructure Companies ...... 50 Figure 2-20 Status of infrastructure development projects by other countries in Mindanao ...... 51 Figure 3-1 Industries in (Region XI) ...... 53 Figure 3-2 Projects planned in Davao ...... 55 Figure 3-3 Transport & Road Situation in ...... 56 Figure 3-4 Industries in Oriental (RegionX) ...... 58 Figure 3-5 Projects planned in Cagayan de Oro ...... 59 Figure 3-6 Development of Transport Infrastructure Facilities in General Santos ...... 63 Figure 3-7 Projects planned in General Santos City ...... 66 Figure 3-8 State of logistical infrastructure in Mindanao ...... 67 Figure 3-9 ODA loan assistance for infrastructural development in the Caraga Region ...... 68 Figure 3-10 GRDP for Mindanao by region (2014) ...... 68 Figure 3-11 Per capita GRDP for Mindanao by region (2014)...... 69 Figure 3-12 Breakdown of 2014 Caraga GRDP by industry...... 69 Figure 3-13 Philippine lumber production by region (2014) ...... 70 Figure 3-14 2014 Caraga agricultural production and producing regions by crop ...... 71 Figure 3-15 2014 Caraga agricultural production by province ...... 71 Figure 3-16 2014 Caraga aquaculture production by type ...... 72 Figure 3-17 2014 Caraga aquaculture production by province ...... 72 Figure 3-18 in Caraga ...... 73 Figure 3-19 Philippine processed woodworking production by region (2014) ...... 74

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Figure 3-20 Butuan City Development Plan (2017-2022) ...... 76 Figure 3-21 Masao Port expansion plan ...... 77 Figure 3-22 Current state of Masao Port expansion plan area ...... 77 Figure 3-23 Master plan for development of Port ...... 78 Figure 3-24 Current state of Nasipit Port ...... 78 Figure 3-25 Major Projects in Mindanao ...... 80 Figure 3-26 Major Pripority Projects in Mindanao ...... 81 Figure 3-27 Proposed PPP Projects in Mindanao ...... 81 Figure 3-28 Potential projects for bilateral cooperation (transport sector) ...... 86 Figure 3-29 Potential projects for bilateral cooperation (transport sector): Project locations ...... 87 Figure 4-1 Philippine power consumption by sector ...... 89 Figure 4-2 Total Philippine power generation (2002-2014) ...... 89 Figure 4-3 Power source weights for the Philippines (2014) ...... 90 Figure 4-4 Philippines electrification rates (2014) ...... 90 Figure 4-5 International comparison of power rates (indexed) ...... 91 Figure 4-6 Average rates for (PHP/kWh) ...... 92 Figure 4-7 Difference in power generation efficiency between coal-fired power plants in Japan and the Philippines ...... 92 Figure 4-8 World Risk Report (2016): Inadequate Infrastructure Pushes Up the Risk of Disaster ...... 93 Figure 4-9 Mindanao power consumption by sector ...... 94 Figure 4-10 Philippine power generation by region ...... 94 Figure 4-11 Total Mindanao power generation (2002-2014) ...... 95 Figure 4-12 Mindanao power generation weights by source (2015 and 2017) ...... 96 Figure 4-13 Location map of existing hydropower plants ...... 99 Figure 4-14 Location map of existing coal-fired plants and future scheduled projects ...... 100 Figure 4-15 Location map of existing geothermal plants and plants in pre-development or development ...... 101 Figure 4-16 List of future scheduled projects ...... 102 Figure 4-17 Mindanao electrification rates (2014) ...... 103 Figure 4-18 Philippine GDP Growth (2016-2030) ...... 104 Figure 4-19 GDP and Eectric power consumption (2016-2030) ...... 104 Figure 4-20 Power supply and demand forecasts for the Philippines (2016-2030) ... 105 Figure 4-21 Required power supply capacity for the Philippines ...... 105 Figure 4-22 Power supply and demand forecasts for Mindanao (2016-2030) ...... 106 Figure 4-23 Required power supply capacity by grid ...... 106

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Figure 4-24 Strategic Directions ...... 108 Figure 4-25 Tentative priority projects for the power and energy sectors ...... 113 Figure 5-1 Japanese technology compatible with local needs in the transport sector ...... 114 Figure 5-2 Japanese technology compatible with local needs in the power and energy sectors ...... 118 Figure 5-3 Japanese technology compatible with local needs in the power and energy sectors ...... 119 Figure 6-1 Seminar Venue ...... 123 Figure 6-2 Remarks by METI and MinDA ...... 125

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List of Abbreviations Abbreviation Proper Name ADB Asian Development Bank AFTA ASEAN Free Trade Area ARMM Autonomous Region In Muslim Mindanao ASEAN Association of South East Asian Nations BIMP-EAGA ---Philippines East ASEAN Growth Area BOT Build, Operate and Transfer BPO Business Process Outsourcing BRT CCGT Combined Cycle Gas Turbine CEPT Common Effective Preferential Tariff CIAP Construction Industry Authority of the Philippines DBM Department of Budget and Management DepEd Department of Education DOE Department of Energy DOTr Department of Transportation DPWH Department of Public Works and Highways DTI Department of Trade and Industry EPIRA Electric Power Industry Restructuring Act, 2001 ERC Energy Regulatory Commission FIT Feed-in Tariff FMB Forest Management Bureau F/S Feasibility Study FSRU Floating Storage and Re-gasification Unit GDP Gross Domestic Product GRDP Gross Regional Domestic Product ICT Information and Communication Technology IEC Information,Education and Communication IOT Internet of Things IPP Independent Power Producer IT-BPO Information Technology Business Process Outsourcing JCPC Joint Congressional Power Commission JETRO Japan External Trade Organization JICA Japan International Cooperation Agency JOGMEC Japan Oil, Gas and Metals National Corporation

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Abbreviation Proper Name LCC Life Cycle Cost LGU Unit LNG Liquefied Natural Gas MBTP Mindanao Backbone Transmission Project MCT Mindanao Container Terminal METI Ministry of Economy, Trade and Industry MILF Moro Islamic Liberation Front MinDA Mindanao Development Authority MNLF Moro National Liberation Front M/P Master Plan MRT Mass Rapid Transit MW Megawatt NAIA Ninoy Aquino International Airport NEA National Electrification Administration NEDA National Economic And Development Authority NGCP National Grid Corporation of the Philippines NPC National Power Corporation NPC-SPUG National Power Corporation - Small Power Utilities Group OD Origin-Destination ODA Official Development Assistance OLA-MCTAP Operation of Airport-Mindanao Container Terminal Allied Projects O&M Operation and Maintenance PCAB Philippine Contractors Accreditation Board PAGASA Philippine Atmospheric, Geophysical and Astronomical Services Administration PEZA Philippine Economic Zone Authority PNOC Philippine National Oil Company PPA Power Purchase Agreement PPA Philippine Port Authority PPP Public Private Partnership PSA Philippine Statistics Authority PSALM Power Sector Assets and Liability Management Corporation RCOA Retail Competition and Open Access SDG Sustainable Development Goals

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Abbreviation Proper Name SEZ Special Economic Zone SPC Special Purpose Company STEP Special Terms for Economic Partnership TEU Twenty foot Equivalent Unit TLA Timber License Agreement USAID Agency for International Development VAT Value Added Tax VGF Viability Gap Funding WESM Wholesale Electricity Spot Market

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Introduction

The Republic of the Philippines (hereinafter “the Philippines”) lies in a key position on sea lanes, making it important both geopolitically and in terms of maintaining regional security. Thus, sustainable growth in the Philippines will contribute to the future stability and growth of East . The Philippine GDP continued its strong growth in 2015 at 5.9 percent. Further, with more than 80 percent of its population under 50, the country’s demographic window should be open for at least another 30 years. Hoisting infrastructural development as its economic policy, this is the Philippines that the Duterte Administration inherited when coming to power in July 2016. Formerly acting as the longstanding of , President Duterte is expected to leverage his recent election as an opportunity to push for infrastructural development in his home of Davao and the rest of Mindanao. Long mired in conflict, Mindanao has to date not developed its economy to the extent of other Philippine regions. With the peace accord finally reached between the Philippine government and the Moro Islamic Liberation Front (MILF) in 2014, Mindanao is now waking to its high potential for infrastructural development as it continues the peace process toward establishment of an autonomous government. This project serves to study the high potential for infrastructural development in Mindanao and specify in detail the issues to proceeding with development. Further, it shows through a dialogue with the Philippine government that the technology and expertise of Japanese companies can effectively deal with these issues, and that Japan’s quality infrastructure can make a meaningful contribution to growth in the Philippine economy and society.

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Chapter 1 Basic Information on Mindanao

1.1 Recent History and Future Prospects

1.1.1 Basic country information and Mindanao location

(1) Administrative regions of the Philippines and Mindanao The Philippines is an island nation comprising more than 7,100 and covering a land area of roughly 300,000 km2, or approximately 80 percent the area of Japan. The Philippines is largely divided into three main regions: the Region, which includes Metro ; the Region, which includes ; and the Mindanao Region. In all, there are 18 administrative regions1 within these regions, further subdivided into 81 provinces.

Figure 1-1 Three island regions of the Philippines

Source: Embassy of the Philippines

1 These 18 regions are broken down into 15 administrative regions, , the Autonomous Region in Muslim Mindanao (ARMM), and the Cordillera Administrative Region (CAR).

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The Mindanao Region (hereinafter “Mindanao”) lies in the southern part of the Philippines and comprises six regions, which are further subdivided into 26 provinces. Four of these 26 provinces are on outlying islands. Note that the eponymous Mindanao Island, the largest in the region, is the second largest island in the Philippines after Luzon.

Figure 1-2 The 3 regions, 18 administrative regions, and 81 provinces of the Philippines

Region Administrative Region Province Region Administrative Region Province NCR NCR Ⅵ- CAR-Cordillera Ⅶ- Cebu Norte Visayas I-Ilocos Eastern Ⅷ- Cagayan Samar Ⅱ- Oriental XⅧ- Del Norte Ⅸ- Luzon Ⅲ- Ⅹ- Del Norte Ⅳ-A XI-Davao Compostela Valley Occidental South Mindanao Cotabato XII- Ⅳ-B Del Norte XIII-Caraga Ⅴ-Bicol Autonomous Region In Muslim Mindanao (ARMM) Tawi-Tawi Source: Philippine Statistics Authority

Mindanao’s most populous region is Davao, followed in descending order by Northern Mindanao, Soccsksargen, the Autonomous Region in Muslim Mindanao (ARMM), Zamboanga Peninsula, and Caraga. Maps illustrating the geography and administrative divisions of Mindanao are given below.

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Figure 1-3 Geography of Mindanao

Region X

Region XIII

Region IX

Region XI

ARMM

Region XII Source: Prepared by the Study Team Figure 1-4 Mindanao administrative divisions

Region Provinces Population (2015) Major Cities (pop.) Region IX ・ Zamboanga Zamboanga ・Zamboanga del Sur 3,629,783 (861,799) Peninsula Region ・Zamboanga Sibugay ・Misamis Oriental Region X ・Misamis Occidental Cagayan de Oro Northern ・Camiguin 4,689,302 (675,950) Mindanao Region ・ ・Bukidnon ・Compostela Valley ・Davao City Region XI Davao City ・Davao del Norte 4,893,318 Davao Region (1,632,991) ・Davao del Sur ・Davao Oriental ・Cotabato del Sur General Santos City Region XII ・Cotabato (594,446) Soccsksargen ・Sultan Kudarat 4,545,276 Region ・Sarangani (299,438) ・ Butuan ・Agusan del Sur (337,063) Region XIII ・Surigao del Norte 2,596,709 Caraga Region ・Surigao del Sur ・Dinagat Islands (154,137) ・Basilan Autonomous ・Lanao del Sur Region in Muslim ・Maguindanao 3,781,387 - Mindanao (ARMM) ・Sulu ・Tawi-Tawi Source: Prepared by the Study Team based on Philippine Statistics Authority data

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(2) Climate The Philippines is divided into four climate types:  Type I: Has two distinct seasons: a dry season from November to April, and a monsoon season from May to October.  Type II: Wet all year with no dry season, with particularly heavy from November to April.  Type III: Has indistinct seasons; November to April is relatively dry, and the rest of the year is wet.  Type IV: Relatively rainy throughout the year.

According to the Philippine Atmospheric Geophysical and Astronomical Services Administration (PAGASA), Mindanao weather differs by region. By region, Zamboanga Peninsula has Types II-IV and Northern Mindanao Types II and III, while Davao is Type IV throughout, Soccsksargen is Type IV, Caraga is Type II, and ARMM is Type III.

Figure 1-5 Climate map of the Philippines

Source: PAGASA

In the average year, many will hit the northern Philippine islands from to October. While relatively fewer typhoons have struck Mindanao compared to the northern regions in the past, damage has increased in the Mindanao regions of Davao and Northern Mindanao in recent years.

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(3) Religion According to basic data from the Philippine Department of Foreign Affairs (DFA), 83 percent of are Catholic, 10 percent other Christian denominations, and 5 percent Muslim. While the majority of Filipinos are Catholic, more than 20 percent of the population in Mindanao is Muslim.

(4) Philippine economic conditions by region By regional composition, Luzon has the largest population at 56.2 percent, while Mindanao’s population is roughly a quarter of the Philippine population at 24.4 percent. Within Mindanao, the population distribution by administrative region is relatively uniform compared to the other regions, ranging from two to four million for each administrative region.

Figure 1-6 Population distribution by region

Population Population Administrative Region (2015; Composition (2015) thousands) Philippines Philippines (Country) 101,562 100.0% 100.0% (Country) Metro Manila 12,652 12.5% CAR 1,784 1.8% Region I-Ilocos 5,136 5.1% Region II-Cagayan Valley 3,498 3.4% Luzon Region 56.5% Region III-Central Luzon 11,099 10.9% Region IV-A CALABARZON 14,127 13.9% Region IV-B MIMAROPA 3,089 3.0% Region V-Bicol 6,032 5.9% Region VI-Western Visayas 7,704 7.6% Visayas Region Region VII-Central Visayas 7,447 7.3% 19.4% Region VIII-Eastern Visayas 4,537 4.5% Region IX-Zamboanga Peninsula 3,765 3.7% Region X-Northern Mindanao 4,707 4.6% Region XI-Davao 4,963 4.9% Mindanao Region Region XII-SOCCSKSARGEN 4,599 4.5% 24.1% Region XIII-Caraga 2,717 2.7% Autonomous Region in Muslim Mindanao 3,707 3.6% (ARMM) Source: Prepared by the Study Team based on Philippine Statistics Authority data

Next, looking at GDP per capita, the differences are stark between Metro Manila and the other regions. Within Mindanao, GDP per capita is relatively higher in Davao and Northern Mindanao and prominently lower in ARMM.

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Figure 1-7 GDP per capita by region (2015)

Units: USD Philippines (Country) Metro Manila CAR I-Ilocos II-Cagayan Valley III-Central Luzon IV-A CALABARZON IV-B MIMALOPA V-Bicol VI-Western Visayas VII-Central Visayas VIII-Eastern Visayas IX-Zamboanga Peninsula X-Northern Mindanao XI-Davao XII-SOCCSKSARGEN XIII-Caraga ARMM Source: Prepared by the Study Team based on Philippine Statistics Authority data

1.1.2 Recent History of Mindanao

Mired in a state of conflict for many long years until the signing of a comprehensive peace accord between the Philippine government and the Moro National Liberation Front (MNLF) in 2014, Mindanao has historically lagged behind Luzon and Visayas in terms of development for infrastructure and other areas. Private businesses in Mindanao have also not progressed as expected. Following the death of MNLF Vice Chairman Hashim Salamat in 2003, Leader Murad Ibrahim petitioned the Philippine government for peace, declaring that the group would not push for complete independence from the Philippine government. For the good of the Islamic population in the southern Philippines as a whole, Ibrahim's demands were to improve economic conditions and transfer authority for mining resources and security. Meanwhile, Commander Ameril Umbra Kato of the MILF extremist faction withdrew from the MNLF in 2011 in opposition of the peace talks, instead organizing the Islamic Freedom Fighters (BIFF) to independently continue the armed conflict. In March 2014, Philippine President Aquino and MILF Chairman Murad signed the Comprehensive Agreement on the Bangsamoro (CAB) under the witness of Malaysia Prime Minister Najib, who served as intermediary for the peace negotiations. The CAB outlined the formation of a new Bangsamoro Autonomous Region in 2016 and the basic framework for the region. Then, the administration of President , longstanding in Mindanao, took power in July 2016.

In the speech “Japanese presence in the Philippines and Philippine investment and

7 business opportunities” at JETRO’s 2016 Philippine Economic Forum, the key policy points for the Duterte Administration are as follows:  Maintain current macroeconomic policy  Accelerate contributions for infrastructure: lift the bottleneck on PPPs, targeting 5% of GDP  Amend the Constitution and revise legislation to attract foreign capital and strengthen competitiveness  Agricultural development through support of smaller farmers  Revise land management system  Strengthen base education levels  Revise taxation for effective tax collection  Expand the Conditional Cash Transfer (CCT) Program for impoverished households  Promote science, technology, and the arts  Intensify enforcement of the Responsible Parenthood and Reproductive Health Act

In terms of the future prospects for Mindanao, given the CAB and the infrastructural development the Duterte Administration is promoting as its economic policy, there are opportunities for future growth in socioeconomic and infrastructural development. Furthermore, with President Duterte being from Southern Mindanao (currently Davao Region) himself and longstanding Mayor of Davao City, the administration is expected to promote infrastructural development in Davao City and Mindanao as a whole.

1.1.3 Details of Japan-Philippines Bilateral Summits

Since the inauguration of Duterte administration in 2016, two Japan-Philippines summit meetings have been held—one in October 2016 and another in January 2017. In the two summits, Japan Prime Minister Shinzo Abe has spoken much of assistance for Mindanao.

First, in the summit on President Duterte’s initial visit to Japan in October 2016, the following was discussed regarding Mindanao:  Contribute to developing human resources and bridging disparity gaps to build peace in Mindanao.  Welcomed the signing of an exchange of notes on promotion of agribusiness.  Wants to make a decision on support for the energy sector in Bangsamoro quickly.  Wants to build up the nation based on long-term development plans; will formulate Master Plans for power, transport, and other sectors in Davao City and other regional

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cities in addition to Metro Manila.  Welcomed Japan-Philippines industrial cooperation initiatives and the signing of a memorandum of understanding for the ICT sector.

Then, in the summit on Minister Abe’s January 2017 visit to the Philippines, discussions on Mindanao touched on the following:  Japan will provide on the order of 1 trillion JPY to the Philippines in the next five years, including ODA and private investments. A joint committee on economic cooperation and infrastructure will be established for this purpose to conduct PPPs and other cooperation in national development. Japan will also dispatch experts to NEDA.  Discussions in the joint committee on economic cooperation and infrastructure will continuously contribute to the peace and development in Mindanao.  Japan wishes to help the Philippines develop its infrastructure using Japan’s technology and expertise. In terms of specific plans, Japan decided to help the Philippines formulate a national highway master plan and expressed the desire to wrap up an energy sector action plan by March 2017.  Decided to commence studies on assistance for urban development and measures for Davao City.  Will make a decision soon on a study for Bangsamoro and road development, power distribution grid development, and assistance in improving sanitation and education.

1.2 Trends in Trade, Investment, and Industry Sectors, and Industries with Potential

1.2.1 Characteristics and Comparative Advantages in Mindanao The gross regional domestic products (GRDP) for Mindanao by administrative region are given in the figure below. The Davao and Northern Mindanao regions have higher GRDP shares, collectively comprising more than half the Mindanao GRDP. Meanwhile, GRDP is much lower for ARMM and the Caraga Region.

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Figure 1-8 Mindanao GRDP Nominal GDP Nominal GDP GDP % of Administrative Region (millions PHP) (millions PHP) Growth GDP (2014) (2015) Rate (%) IX-Zamboanga Peninsula 256,854 275,835 7.4% 14.0% X-Northern Mindanao 485,625 516,254 6.3% 26.2% XI-Davao 518,810 563,793 8.7% 28.6% XII-SOCCSKSARGEN 351,031 355,963 1.4% 18.1% XIII-Caraga 153,936 158,380 2.9% 8.0% ARMM 104,773 99,185 -5.3% 5.0% Total 1,871,029 1,969,410 100.0%

Source: Prepared by the Study Team based on Philippine Statistics Authority data

A breakdown of the 2015 Mindanao GRDP by industry sector follows in the next figure. By industry, and has the highest share of GRDP, followed by manufacturing, and automotive and motorcycle sales and repair. In terms of noteworthy properties in Mindanao industry, the island has a booming agriculture with rich soil well suited to cultivating many agricultural products, including , , cacao, , and corn. Also, Mindanao has rich resources for major industrial crops such as palm oil and .

Figure 1-9 Breakdown of 2015 Mindanao GRDP by industry (Units: thousands（千ペソ） PHP) Agriculture農業および林業 and forestry 421,813,997 Manufacturing製造業 326,085,516 Automotive自動車、二輪車等販売および修理 and motorcycle sales and repair 278,694,414 Construction建設 178,012,369 その他サービスOther services 165,175,960 Transport, storage,輸送、倉庫および通信 and communications 137,131,036 Real estate不動産、賃貸 and leasing 132,932,722 Financial intermediation金融仲介 100,914,269 Public service and defense, 公務および防衛、必須社会保障required social protection 73,252,587 Fishing and aquaculture漁業 70,369,931 Electricity,電気、ガスおよび水道 gas, and water supply 57,354,607 Mining鉱業および採石 and quarrying 27,674,185

Source: Prepared by the Study Team based on Philippine Statistics Authority data

Sorting the above data for Mindanao GRDP by primary (agriculture, forestry, fishing), secondary (mining), and tertiary (service industry) sectors yields the figure below. Whereas the primary sector comprises 11.3 percent of the national GDP for the Philippines,

10 these industries comprise 25 percent in Mindanao, or double the national average for primary sector industries.

Figure 1-10 Figure 1-10 Breakdown of 2015 Mindanao GRDP by sector

(1,000s PHP)

Tertiary sector total

Other services

Public service and defense, required Secondary sector total social protection

Real estate Electricity, gas, Primary sector total and leasing and water supply

Financial Fishing and Secondary intermediation aquaculture sector

Automotive and motorcycle sales Agriculture and repair and forestry Manufacturing

Transport, storage, and communications Mining and quarrying Primary sector Secondary sector Tertiary sector

Source: Prepared by the Study Team based on Philippine Statistics Authority data

As mentioned above, agriculture and forestry comprise a particularly high percentage within the primary sector. Even in terms of itemized percentage shares for Mindanao for national figures, agricultural production in Mindanao is generally high, as seen below:

Figure 1-11 Percentage share of Mindanao agricultural production to Philippine totals

Source: MinDA

The highest Mindanao product in terms of its share of the Philippine total is natural rubber, an astoundingly high 99.97 percent of which is produced in Mindanao. Other crops with at

11 least 70 percent produced in Mindanao are palm oil at 90 percent, cacao at 89 percent, at 89 percent, at 82 percent, coffee at 75 percent, and aquaculture at 74 percent.

Further, while currently a lower percentage of the GRDP, minerals and metals are another major export besides agricultural products expected to grow in the future. Given speculations on the abundance of Mindanao reserves of mineral resources, mining could become a major industry moving forward.

A map of active Philippine mines is given below. For Mindanao, the map shows plentiful mines, centralized around the nickel mines near Surigao.

Figure 1-12 Active mines in the Philippines

Source: Mines and Geosciences Bureau (2016)

The following chart gives the available ore production for Mindanao mines. The figures show that Mindanao production is high for saprolite and limonite, two nickel oxide ores, as well as nickel itself, with smaller amounts of gold and silver.

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Figure 1-13 Available ore production for Mindanao (2015 performance)

Mine Name Location (Province) Mineral Ore Production Gold 1,450 kg MACO Compostela Valley Silver 7,947 kg Saprolite 2,656,788 t Taganito Surigao del Norte Limonite 4,369,754 t Saprolite 1,212,3881 t Dinagat Islands Limonite 880,126 t Cagdianao Dinagat Islands Nickel (in ore) 54,483 t Agata North Surigao del Norte Nickel (in ore) 14,833 t Surigao del Sur Nickel (in ore) 19,426 t Agusan del Norte Nickel (in ore) 34,130 t Dinagat Dinagat Islands Chromium ore 3,033 dmt Source: JOGMEC (2016)

In addition, there are multiple exploration projects, mostly for gold and copper, being run in Mindanao by American, Philippine, and Australian companies. If these mines are successfully developed, mining in Mindanao could grow even further in the future. The main exploration projects currently underway are listed in the figure below.

Figure 1-14 List of main exploration projects

Mineral Project Company (Country) Location (Province) Ore St Augustine Gold and Copper Copper, King King Compostela Valley Ltd (US) gold Sagittarius Mines, Inc (PHL) Copper Copper, Silangan Philex Mining Corp (PHL) Surigao del Norte gold Philex Mining Corp (PHL) Copper Zamboanga del Norte Tambis Medusa Mining Ltd. (AUS) Gold Surigao del Norte Saugon Medusa Mining Ltd. (AUS) Gold Surigao del Norte Medusa Mining Ltd. (AUS) Copper Surigao del Norte Kamarangan Medusa Mining Ltd. (AUS) Copper Surigao del Norte Source: JOGMEC (2016)

Furthermore, Mindanao is thought to have abundant coal reserves. There are also expectations for coal development for domestic use in power generation and other industries.

13

Figure 1-15 Summary of coal reserves

Source: DOE (2016)

Besides those presented in the mining sector, another comparative advantage of Mindanao is its geographical proximity to Malaysia and Indonesia. Both countries are members of ASEAN and BIMP-EAGA,2 a sub-regional framework, and are active in coordinating the regional economy. The figure below depicts a map of the BIMP-EAGA economic corridor.

2 The initials of BIMP stand for Brunei, Indonesia, Malaysia, and the Philippines. EAGA is an abbreviation for the East ASEAN Growth Area.

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Figure 1-16 BIMP-EAGA economic corridor

Source: MinDA (2016)

A BIMP-EAGA Senior Officials Meeting was convened in the Philippines over November 27-29, 2016. According to MinDA Chair Abul Khayr Alonto, themes included developing a new framework for expanding trade, with discussions touching on increasing sustainability in the transport sector, expanded services for facilitating trade and investment, and more. With ties between these countries strengthening in the future, trade is expected to increase within BIMP-EAGA.

1.2.2 Trends in Mindanao Trade and Investment

Agriproducts top the ranks for Mindanao exports. Exports by value for banana (9.11 million USD) and copra and palm kernel (7.73 million USD) constitute roughly 32 percent of all Mindanao exports. At 6.39 million USD, nickel ore is another major export, comprising another 12 percent of Mindanao exports. An itemized table of Mindanao import/export trends is given in the figure below.

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Figure 1-17 Itemized import/export trends for Mindanao (millions USD) Export Item Exported Value Banana (incl. cooking bananas, fresh bananas, and dried bananas) 911.38 (copra), palm kernel, babassu oil 773.81 Nickel ore and concentrate 639.50 Cooking fish, canned/bottled fish; caviar and caviar alternatives manufactured from fish roe 614.14 Other , nuts, and edible plant products 284.26 Dates, figs, pineapple, avocado, guava, , (incl. fresh and dried) 159.02 Acyclic alcohols and their halogenated, sulfonated, nitrated, or nitrosated derivatives 140.71 Oil cakes and other solid residues (incl. pulverized and pellet forms from extraction of 124.16 oils) Coconut, Brazil nuts, cashew nuts (incl. fresh or dried) 114.67 Export of finished goods manufactured from raw materials imported on consignment basis 113.49 Source: Prepared by the Study Team based on MinDA data

Next, the following figure shows investment trends for Mindanao by industry.

Figure 1-18 Mindanao investment trends (by industry) (millions PHP) Industry 2011 2012 2013 2014 Total Electricity, gas and A/C - - 3.64 2,089.70 2093.34 Mining and quarrying 63.56 0.07 1,774.82 - 1838.45 Agriculture, forestry, and - 62.38 - 880.65 943.03 Real estate 393.91 255.07 0 168.22 817.2 Manufacturing 8 0.68 329.46 - 338.14 Hotels and service industries - - 38.00 55.28 93.28 Transport and storage - 39.14 - - 39.14 Source: Prepared by the Study Team based on MinDA data

Figure 1-19 Cumulative percentages for foreign direct investment (by industry)

2% 1%

5%

電気、ガスおよび水道Electricity, gas and water supply 13% 34% Mining鉱業および採石 and quarrying Agriculture,農業、林業および漁業 forestry, and fisheries 不動産Real estate 15% Manufacturing製造業 Hotels宿泊、サービス業 and service industries Transport運送および倉庫 and storage

30%

Source: Prepared by the Study Team based on MinDA data

Looking at Mindanao investment trends by industry, the industry group with the highest foreign direct investment (FDI) cumulative from 2011 to 2014 was electricity, gas and A/C. In

16 order, this was followed by mining and quarrying; agriculture, forestry, and fisheries; real estate; manufacturing; hotels and service industries; and transport and storage. Note here that a total of 1.774 billion PHP was invested in mining and quarrying in 2013. Also, the Sumitomo Metal Mining Company is working jointly on a nickel refining project in the Taganito mine area in Surigao del Norte with Mitsui & Co. and . They will complete an HPAL smelting plant in June. In contrast, cumulative FDI was low in the manufacturing and hotels and services categories, coming in at 338.14 million PHP (5 percent) and 93 million PHP (1 percent), respectively. Comparatively, these industries are not as developed in Mindanao.

1.2.3 Trends in Trade and Investment by Region

Looking by the administrative regions in Mindanao, export trends are highest in Davao, Northern Mindanao, Soccsksargen, and Caraga, in descending order. In terms of imports by region, the figures are the highest for Northern Mindanao, Davao, and Soccsksargen.

Figure 1-20 Import/export trends for Mindanao (by administrative region) (millions USD) Exports by Value Imports by Value Administrative Region 2012 2013 2012 2013 Zamboanga Peninsula 226.56 45.72 27.57 32.8 Northern Mindanao 1,132.98 1,250.42 1,052.90 1,126.72 Davao 1,516.57 1,988.27 1,096.68 996.51 Soccsksargen 913.11 1,186.65 227.89 232.24 Caraga 397.08 736.97 18.43 4.76 Total 1.44 0.17 0.98 - Source: Prepared by the Study Team based on MinDA data

The figure below shows the highest ten exporting and importing nations for 2013. By value, the biggest exporters were the US, , and Japan. Meanwhile, the biggest importers by value were , China, and the US.

Figure 1-21 Top 10 countries for imports/exports (2013) (millions USD) Rank Exporting Country Exports by Value Importing Country Imports by Value 1 United States 1,113.87 Taiwan 401.79 2 China 910.78 China 336.90 3 Japan 895.20 United States 310.68 4 Netherlands 361.20 S. Korea 149.07 5 S. Korea 299.94 Indonesia 148.21 6 166.23 128.89 7 146.46 Japan 126.77 8 Malaysia 137.02 Malaysia 92.92 9 United Kingdom 108.06 86.27 10 UAE 95.62 Singapore 84.62 Source: Prepared by the Study Team based on MinDA data

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Looking by administrative region in Mindanao, the highest FDI cumulative from 2011 to 2014 was in Caraga, which contains Butuan and Surigao City. Caraga was followed in descending order by Soccsksargen, Davao, Northern Mindanao, and Zamboanga Peninsula.

Figure 1-22 Mindanao investment trends by administrative region (millions USD) Admin. Region (Major City) 2011 2012 2013 2014 Total Zamboanga Peninsula 68.78 11.87 - - 80.65 () Northern Mindanao 0.76 62.67 325.3 301.26 689.99 (Cagayan de Oro) Davao 325.13 203.57 45.8 270.16 844.66 (Davao City) Soccsksargen 8 0.68 - 986.79 995.47 (General Santos City) Caraga 63.56 67.64 1,774.82 1,648.63 3,554.65 (Butuan, Surigao City) Source: Prepared by the Study Team based on MinDA data

1.2.4 Current Major Industries and Industries with Future Potential by Region

The following figure shows the current major industries for the regions of Mindanao.

Figure 1-23 Major industries by region

Northern北部ミンダナオ地域 Mindanao Region Caragaカラガ地域 Region ・Health and social welfare ・Agriculture, hunting, and forestry ・・Agriculture,健康、社会福祉事業 hunting, and ・Fishing農業、狩猟、林業 forestry・農業、狩猟、林業 ・・漁業Hotels and restaurants ・・建設Construction ・・宿泊、飲食Individual household employers ・ Transport, storage, and ・Transport, storage, and communications・運輸、倉庫、通信 ・人を雇用している個人世帯 communications ・・製造Manufacturing ・運輸、倉庫、通信 Zamboangaサンボアンガ Peninsula半島地域 Region ・Hotels and restaurants ・・宿泊、飲食Manufacturing ・・製造Other services ・・その他のサービスTransport, storage, and communications ・・運輸、倉庫、通信 Davaoダバオ地域 Region Individual household employers ・ Agriculture, hunting, and ・人を雇用している個人世帯 forestry・農業、狩猟、林業 ・・漁業Fishing ・・公務、防衛Public service, defense ・Education ・・教育Hotels and restaurants ・宿泊、飲食 イスラム教徒ミンダナオ自治地域ARMM ・卸売業、小売業・Wholesale and retail ・Education ・教育・Manufacturing ・Construction ソクサージュン地域Soccsksargen Region ・製造 ・ ・Public service, defense Fishing ・建設 ・Construction漁業 ・公務、防衛 ・建設・Hotels and restaurants ・宿泊、飲食・Public service, defense ・ ・公務、防衛Education ・教育

Source: Prepared by the Study Team based on MinDA data

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In Davao, centered on Mindanao’s largest city, Davao City, the IT-BPO (business process outsourcing) industry, which includes call centers, is on the rise in addition to agriculture and fisheries. Centered on Butuan and Surigao City, the major industries in Caraga are agriculture, fisheries, and forestry due to soil fit for agriculture and forestry and high rainfall resulting in fast growth for crops. Mining is also a major industry in the Surigao City area given its multiple mines. Soccsksargen, centered on General Santos City, has gold and copper mines with great potential, but new mine development is currently not tenable. Given its fishing port, General Santos City also has fishing and marine product processing as major industries, including an expanding array of can manufacturing companies. Much like Davao, Northern Mindanao, centered on Cagayan de Oro City, has focused on education and is developing call centers and IT-BPO as a major industry. As rich producers of natural rubber, Zamboanga Peninsula and ARMM list agriculture and rubber manufacturing as their major industries. Thus, agriproducts are the main export industries of Mindanao. If the regions can develop agricultural processing to produce value-added agriproducts, it could have promise in terms of economic growth by growing regional exports.

1.3 Related Industries and Anticipated Infrastructural Needs for Industry Sectors with Potential

1.3.1 Related Industry Groups for Industry Sectors with Potential

As presented in the previous section, agriculture, forestry, and fisheries, as well as the derivative agricultural processing, are industries in Mindanao with potential. Specifically, processing for dry fruits and marine products present business opportunities. Here again, mining, manufacturing, and IT-BPO are the industries besides agricultural processing that have potential and are expected to grow. A sampling of foreign companies already active in Mindanao in these industries with potential is given in the following table.

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Figure 1-24 Foreign companies active in industries with potential (not exhaustive) Industry (Sector) Company Name Agriculture/agricultural ・Sumifru (Philippine) Corporation processing ・Dole Philippines, Inc. Marine product ・Fresh Del Monte Produce Incorporated processing ・Nissey Delica Corporation ・Sumitomo Metal Mining Co., Ltd. Mining ・St Augustine Gold and Copper Ltd (gold, copper) ・Medusa Mining Ltd. (gold, copper) ・Davao Central Chemical Corporation (activated carbon) Manufacturing ・Philippine-Japan Active Carbon Corporation (activated carbon) ・Nakayama Technology Corporation (construction materials) ・Teleperformance BPO ・Sutherland Global Services (call centers) ・Convergys Source: Prepared by the Study Team based on various data

1.3.2 Infrastructural Needs for Companies in Industries with Potential

While the infrastructure needed for a company to break into a market will vary by industry, electricity and water are two basic infrastructures of common need. On the other hand, developing the logistics network, consisting of roads and ports, is essential to companies entering the market in manufacturing and mining. Given that the Philippines is an island nation, in addition to roads, ports play a large role as part of the logistics network for domestic areas as well as exporting. Below is a chart arranging the general infrastructural needs by sector as gleaned from company hearings and other sources.

Figure 1-25 Infrastructural needs by sector Sector Required Infrastructure Agriculture, forestry, and fisheries Electricity, water, roads, ports Agricultural processing Electricity, water, roads, ports Mining Electricity, roads, ports IT-BPO (call centers) Electricity, ICT Source: Prepared by the Study Team based on interview of Japanese companies, etc.

1.4 Japanese Company Trends and Regions/Cities for Potential Entry

1.4.1 Japanese Company Trends for Entering Mindanao

According to the Japanese MOFA’s Statistics on Japanese Nationals Residing Overseas, a total of 1,448 Japanese companies had a presence in the Philippines as of 2016. Of these, 33 Japanese companies had a presence in Mindanao. By industry sector, two of these were

20 in agriculture and forestry, five in fishing, three in mining and quarrying, one in construction, 11 in manufacturing, three in electricity, gas, heat provision, and water supply, two in transport and postal services, two in wholesaling and retail, and one in another industry. By region, 16 of these companies had a presence in Davao del Sur, four in Misamis Oriental, four in Cotabato del Sur, two in Surigao del Norte, two in Agusan del Norte, two in Zamboanga del Sur, one in Bukidnon, one in Lanao del Norte, and one in Surigao del Sur. Japanese corporate presence by region is arranged in the following table:

Figure 1-26 Presence of Japanese companies Administrative Company Names (Sector) Region Davao del Sur  Dole Philippines, Inc. (Bananas)  Sumifru (Philippines) Corporation (Bananas)  Diamond Star Agro Products, Inc. (Fruits & )  Nakashin Davao International Inc. (Frozen fruits processing)  Davao Central Chemical Corporation (Activated Charcoal)  Nakayama Technology Corporation (Building Materials)  Creative Connections & Commons, Inc. (IT-BPO)  Japan Philippine Volunteer Association Inc. (Education) Misamis Oriental  Nissey Delica Corporation (Agriculture)  Philippine Sinter Corporation (Steel)  Pilipinas Kao, Inc. (Chemical) Caraga Region  Sumitomo Metal Mining Co., Ltd (Mining) Soccsksargen  Tenpoint Manufacturing Corporation (Fisheries) Region Source: Prepared by the Study Team based on the interview of Japanese companies

1.4.2 Regions/Cities with Potential for Japanese Company Entry

When discussing expansion into Mindanao, all Japanese companies at our hearings indicated that they place the utmost importance on confirming safety information, with particular weight given to MOFA safety information in their decisions. Specifically, whereas many companies were willing to conduct visits or expand into cities graded by MOFA as Level 1 or lower, few were willing to be active in Level 2 cities. No companies at the hearings for this study expressed a willingness to be active in Level 3 cities. Considering where Japanese companies have an actual established presence, many prefer the larger cities in terms of market access, securing manpower, residential environment, and other factors.3 Thus, in looking for areas with high potential for Japanese companies to establish a presence, the cities of Mindanao were evaluated based on these two points: having a MOFA safety level of 2 or lower, and being a major city with an airport. This analysis produced five

3 For example, Japanese companies with a presence in Davao City gave a MOFA security level of 1, rich yet low-cost land, proximity to the harbor, prevalence of English-speaking workers, and relatively good work ethic as their reasons for expanding into the city.

21 candidates: Davao City, Cagayan de Oro, General Santos City, Butuan and Surigao City. Note that all five of these cities are in regions with high export and FDI figures, as well as active economies.

Figure 1-27 Cities with high potential for Japanese company expansion

[Cagayan de Oro] [Surigao City] 【カガヤンデオロ市】 【スリガオ市】 Pop.: 675,950 (2015) Pop.: 154,137 (2015) 人口：675,950人（2015） Level 2 人口：154,137人（2015） Area: 488.86 km2 Area: 245.34 km2 面積：488.86km2 面積：245.34km2 Pop. density: 1382.7/km2 Level 1 Pop. density: 628.2/km2 人口密度：1382.7人/km2 人口密度：628.2人/km2 Main主な industry:産業：教育 Education Main主な industries:産業：鉱業、農業、漁業 Mining, agriculture, fishing Avg.平均世帯収入 household income:：137,000PHP/ 137,000 PHP/yr.年 Avg.平均世帯収入 household income:：126,000PHP/ 126,000 PHP/yr.年 Main主な宗教 religion:：カトリック教（ Catholic (79%) 79％) Mindanao, Philippines [【イリガン市 City] 】 Pop.:人口 342,618：342,618 (2015)人（ 2015） Level 2 Area:面積 775.76：775.76 km2km 2 2 [Butuan【ブトゥアン市] 】 Pop.人口密度 density:： 441.6/km2441.6人/km 主な産業：工業 Pop.:人口 337,063：337,063 (2015)人（ 2015） Main industry: Manufacturing MOFA Safety Level 3 平均世帯収入：137,000PHP/年 Area:面積 817.28：817.28 km2 km2 Avg. household income: 137,000 PHP/yr. Pop.人口密度 density: ：412.4/km2412.4人 /km2 Main主な industries:産業：農業、漁業（ｴﾋﾞ Agriculture, fishing､ﾐﾙｸﾌｨｯ (prawn, ), forestry (wood processing) [Zamboanga【ザンボアンガ市 City] 】 ｼｭ）、林業（木材加工） Pop.:人口 861,799：861,799 (2015)人（ 2015） Avg.平均世帯収入 household income:：126,000PHP/ 126,000 PHP/yr.年 Area:面積 1,483.38：1,483.38 km2km 2 Main主な宗教 religion:：カトリック教（ Catholic (79%) 79％) Pop.人口密度 density:： 580.9/km2580.9人/km 2 Level 3 Level 1 Main主な industries:産業：農業、漁業 Agriculture and fishing 平均世帯収入：119,000PHP/年 Avg. household income: 119,000 PHP/yr. Level 3 Level 3 [Davao【ダバオ市 City] 】 Pop.: 1,632,991 (2015) [Cotabato City] [General Santos City] 人口：1,632,991人（2015） 【コタバト市】 【ジェネラルサントス市】 Area: 2,444 km2 2 Pop.: 299,438 (2015) Pop.: 594,446 (2015) 面積：2,444km 人口：299,438人（2015） 人口：594,446人（2015） Pop.人口密度 density: 668.1/km2：668.1人 /km2 Area: 176.0 km2 2 Level 3 Area: 492.86 km2 面積：176.0km 面積：492.86km2 2 Main主な industries:産業：農業関連産業及び工業、 Agriculture-related industry and Pop.人口密度 density:： 1,701.3/km21,701.3人/ km Pop. density: 1,206.1/km2 2 人口密度：1,206.1人/km manufacturing,情報技術産業 ICT Main主な industries:産業：稲作、農業 Agriculture (, etc.) Main industries: Agriculture and fishing 主な産業：農業、漁業 Avg.平均世帯収入 household income:：143,000PHP/ 143,000 PHP/yr.年 Avg.平均世帯収入 household income:：119,000PHP/ 119,000 PHP/yr.年 Avg. household income: 119,000 PHP/yr. 平均世帯収入：119,000PHP/年 Main主 な宗教religion:：カトリック教 Catholic Source: Prepared by the Study Team based on MOFA data

1.4.3 Issues for Japanese Company Expansion

(1) Issues with expansion to the Philippines There are several issues particular to investment in the Philippines. These issues are outlined below.

A. High electricity costs Electricity rates in the Philippines are one of the highest in Asia and one factor that raises the costs of expanding companies. Further, given the sometimes instable power supply, in- house generation equipment is often needed for plants, driving down investment efficiency.

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Figure 1-28 International comparison of electricity rates

Index(Price/GDP per Capita PPP) As of 2015 1.2

1

0.8

0.6

0.4

0.2

0

Cebu

Seoul

Hanoi

Dhaka

Manila

Beijing

Jakarta

Karachi

Yangon

Mumbai

Bangkok

Da Da Nang

Colombo

Vientiane

Shanghai

Singapore New Delhi New

Yokohama

Guangzhou

Ho Chi Minh Ho Chi BatamIsland KualaLumpur Source: Prepared by the Study Team based on JETRO data * Relative to the value of the Philippines in 2015 as 1.

B. Weak logistics infrastructure Given the chronic traffic plaguing downtown Manila and other large cities, the low percentage of roads paved, and other issues, distribution infrastructure is reportedly weak as a whole. Also, as trade grows in the Philippines, inadequate handling capacity in Manila Port and other ports are becoming a particular problem area, with freight piled up at port (shipment delays of up to a month). The production schedule delays, sales inventory shortages, and other ripple effects of port issues are a bottleneck to Japanese manufacturing companies in terms of using the Philippines as a production base.

C. Low rates of local procurement The supporting industries to manufacturing are less advanced in the Philippines than in other neighboring Asian countries. Japanese companies will often be unable to find local suppliers from which to procure components locally, forcing them to import their materials. For industries where materials are a large part of costs, this can reduce the cost benefits to expansion.

According to JETRO’s 2016 Survey of Japanese Companies in Asia and Oceania, local procurement rates in the Philippines are the lowest in the ASEAN at 31.6 percent.

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Figure 1-29 Local procurement rates for raw materials and components

Breakdown of raw material and component suppliers by country/region (responses Local Japan China Other add to 100%)

NOTE: countries/regions where n ≧ 10 Total China New Zealand S. Korea Taiwan Indonesia Malaysia Vietnam Philippines Pakistan Sri Lanka Bangladesh Singapore H-K/Macao

Source: JETRO (2016)

D. Issues with refunding for VAT In terms of value-added tax (VAT), the Philippines will refund the difference if output VAT paid when purchasing products and services exceeds input VAT collected when selling products and services to customers. Export companies tend to have particularly high VAT refunds as they do not collect any VAT when selling to customers. However, of major concern given all the export-oriented manufacturing in the Philippines is the number of years required for VAT refunds.

E. Difficulties with withdrawal The Philippines has a reputation internationally for being a difficult country for companies to liquidate or file for bankruptcy. The lengthiest part in the corporate liquidation process is the tax audit, which covers the past three years of taxes. Up through completion of the withdrawal process, this takes an average of two years and up to three years.

(2) Mindanao Many Japanese companies will face the common issues listed in the previous section when expanding into the Philippines, and Mindanao is no exception.4

4 That being said, conditions are better in Mindanao than in other regions for certain items. For example, the roads in Mindanao cities are in relatively better condition than the roads in Manila, and Mindanao ports are not as busy as Manila ports. Also, electricity fees in Mindanao are on average lower than those in

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However, Mindanao does have its own particular issues, such as safety, which make expansion into Mindanao different from expansion into Luzon or Visayas. These Mindanao- specific issues are listed below.

A. Safety concerns The majority of Mindanao has a MOFA safety level of 2 or higher, with safety level 1 areas being limited to Davao City, Cagayan de Oro, and General Santos City. As many Japanese companies are reluctant to enter areas of safety level 2 or higher, those who do enter Mindanao tend to concentrate in Davao City, Cagayan de Oro, and other level 1 cit ies. A sampling of the comments given by Japanese companies in our hearings follows below. ・The Home Office will not approve applications for business trips to Level 2 areas. ・Staying overnight is prohibited for trips to Level 2 areas, meaning any trips require returning home that same day. ・Overland movement to non-Level 1 areas is restricted by company rules, meaning any movement has to be by air. ・It would likely be difficult to receive internal approval for infrastructural projects involving longer roads and railroads due to the difficulties in ensuring safety. The likelihood would be higher for seaports, airports, or other projects in which operations are contained to a limited scope.

As illustrated by these comments, safety is a huge bottleneck keeping companies in general—Japanese or otherwise—from expanding into Mindanao and is a situation that should be improved as quickly as possible.

B. Weak communication infrastructure Mindanao has only two major telecom service providers: and PLDT. Connections are slow and unstable, with phone calls and internet connections being severed frequently. There are even times where internet service will shut down citywide for a half day or full day at a time. Recently, call centers and other IT-BPO sector companies have started popping up in Mindanao, with activity centered on the bigger cities such as Davao City and Cagayan de Oro. Thus, in order to spur on the IT-BPO industry moving forward, enhancing the communication infrastructure in Mindanao will be increasingly more important in the future.

Luzon and Visayas.

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Chapter 2 Status and Future Plans on Mindanao infrastructure development

2.1 Mindanao Infrastructural Development Plans and Development Status

2.1.1 Overview of inftastructure related plans

This chapter will provide an overview and the related drawings for all projects related to infrastructural development in the Philippines and regions of Mindanao5.

Figure 2-1 Structure of infrastructural development plans in Mindanao

(Philippine（フィリピン全体の開発計画） National Development Plan) Philippine Development Plan 2011-2016

(Min danao（ミンダナオ島内の各地域開発計画） Regional Development Plans) (Mindanao（ミンダナオ島 overall全体 developmentの開発計画） plan)

【Region X】 Mindanao 2020 Peace and Northern Mindanao Regional Development Plan Midterm Update 2013-2016 Development Framework Plan (2011–2030) 【Region XI】 Davao Regional Development Plan 2014-2016 Update

【Region XII】 Updated Soccsksargen Regional Development Plan 2013-2016

【Region XIII】 Revised Caraga Regional Development Plan 2013-2016 【Region IX】 Zamboanga Peninsula Regional Development Plan 2014-2016

【ARMM】 ARMM Regional Development Plan 2011-2016 Source: Prepared by the Study Team, based on NEDA regional office websites, etc.

As illustrated in the above figure, the Philippine Development Plan (PDP) 2011-2016 is the top level plan for infrastructural development plans nationwide throughout the Philippines. As devised by the National Economic and Development Authority (NEDA), this plan stipulates accelerated infrastructural development in order to spur economic growth and eradicate . Further, the plan illustrates that the Philippine government promotes safe, effective, reliable, and sustainable development of infrastructure at a high cost performance. NEDA has regional offices in each region of the Philippines. These NEDA regional offices organize a Regional Development Council (RDC), comprised of local government

5 Note that information for this section is based on the latest versions as of the writing of this report in January 2017. Each region is scheduled to update their Regional Development Plans in 2017. Also, as of report writing, the Philippine government has published drafts for some of the chapters of the Philippine Development Plan 2017-2022 and are soliciting public comments.

26 representatives, regional departments of national-level agencies, and the private sector, and formulate Regional Development Plans (RDP) encompassing various aspects, such as regional vision, industrial growth, infrastructural development, legislation, and social development. Separate from the NEDA-formulated national and Regional Development Plans mentioned above, the Mindanao Development Authority (MinDA) formulates a Mindanao-wide development plan for infrastructural development and industrial growth. Regional Development Plans formulated by NEDA and its regional offices focus mainly on target figures and projects. On the other hand, the Mindanao 2020 Peace and Development Framework Plan (2011-2030) (hereinafter “Mindanao 2020”) formulated by MinDA focuses mainly on visions, goals, and strategies. MinDA is a government body for making strategic decisions for peace and development on Mindanao, responsible for coordinating policy and projects for the regions of the island.6 As outlined above, Mindanao 2020, PDP formulated by NEDA, and RDPs formulated by the NEDA regional offices, are the three types of plans related to participation in infrastructural projects on Mindanao.

2.1.2 Summary of development plans and master plans

2.1.2.1 MinDA medium-term plans MinDA has formulated Mindanao 2020 as its medium-term plan for Mindanao. In order to improve the quality of life for residents through peace and sustainable growth in Mindanao, this plan aims to deal with any election fraud and clan conflict, build up the business environment in terms of infrastructure and finance, and grow industry in an environmentally responsible manner. This section contains a summary of the current status and plan objectives regarding industry and infrastructure.

(1) Current status and objectives for Mindanao industry Mindanao 2020 has the following to say about industry in Mindanao:  Historically, Mindanao has exported large amounts of coconut, banana, pineapple, and other agricultural products. Mindanao has a large world share of these agricultural products and will continue striving to expand their export production.  Mindanao is rich in resources, with much latent potential for tourism growth.  Muslim-based markets such as halal foods and Islamic finance are expanding in Asia, offering a business chance for Mindanao-based .

6 More detail on MinDA given in 2.2.2 “Personnel Structure and Budget for Major Relevant Organizations”.

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 With recent advances in ICT infrastructure development in Mindanao, investments both private and public are anticipated for the business process outsourcing (BPO) industry.  Given the rich mineral resources in Mindanao, there is great growth potential in the mining industry. Foreign investors have also expressed interest in Mindanao mining resources. Points to consider in development are: (i) it is environmentally responsible, (ii) local government is properly compensated for the mining resources, and (iii) local economy produces sufficient added value and benefit from mining.

(2) Current status and objectives for Mindanao infrastructure Mindanao 2020 indicates the following issues regarding infrastructure in Mindanao:  Infrastructure development plans are not consistent. (Ex.: integrated roads, bridges, distribution, water resource management, etc.)  Government resources for infrastructure development and maintenance are insufficient.  Private sector investments are insufficient due to the weak public environment for enacting PPP development projects.  There are issues of theft, destruction, and other criminal acts upon public infrastructure, as well as security issues in select areas of Mindatao.

Mindanao 2020 also lists the following issues and opportunities regarding the current state of infrastructure in Mindanao:  While serious power shortages in Mindanao have been abated in the short term, another 1,000 MW or more by 2020 and another 1,500 MW by 2030 is needed in new power generation capacity. The outlook for cheap hydroelectric power is compromised by siltation of river systems and dams tracing to deforestation, compounded by climate change impacts. The share of fossil fuel-based power generation is increasing, resulting in an outflow of foreign currency and distancing the country from its environmental cost reduction targets. Meanwhile, needs are great in terms of managing the increases in power consumption and reducing losses in the transmission and distribution systems, theft, and energy waste.  A full 34.8 percent of national roads and 95 percent of locally-maintained roads are unpaved. Further, 39.2 percent of paved roads are in a state of disrepair.  Residents greatly desire urban rail, but the ROI of rail continues to be disputed from the feasibility study results. A railway development project for an 82.5-km line connecting Cagayan de Oro to Iligan is scheduled to receive foreign funding.  While annual freight transport by volume has steadily increased at a rate of 2.5 percent, the number of port calls to Mindanao’s 128 ports is decreasing. Possible causes for

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the decline include inadequate coastal trade laws, unreasonably high transport and handling tariffs, and safety concerns over aging facilities.  Roll-on/roll-off (RORO) ships have increased, promoting economic activity and benefitting the island by reducing transport time from Luzon and reducing transport costs.  The existing airports need repairs, with proper handling of the short-term and long- term risks to the natural environment. Further, airports on the outlying islands need to be located such that residents can access them by land within four hours.  Access to ICT infrastructure is too expensive for low income households and schools. This is limiting opportunities in the development of ICT sector human resources.

Mindanao 2020 also lists strategies for infrastructure by sub-sector. The strategies concerning power generation and transport are excerpted below:

[Power Generation]  Draft a long-term plan for power generation and sustainability for Mindanao.  Reform power rate policy and reduce the issues limiting investment in power development in Mindanao.  Carefully handle the issues regarding power loss in power generation, transmission, and distribution systems.  Strengthen schemes for urging private investment and public involvement in the power sector.  Increase the shares of renewable energies and Philippine-sourced energy to diversify the energy mix.  In order to reduce environmental load, raise priority for construction of smaller hydropower plants over larger hydropower plants.  Raise priority for development of renewable energy facilities. Establish funds earmarked for research and development of renewable energy.  Open the Mindanao Wholesale Electricity Spot Market (WESM) in 2014 to increase competition in the power market.  Comprehensively strengthen regional electricity cooperatives.  Provide more information and increase educational campaigns on how to save electricity and power policy.

[Transport]  Expand the roles of water transport in the inland, coastal, and inter-island transport and distribution systems for Mindanao.  Work with the related industries to reform the policies and regulations which make

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transport and distribution systems inefficient and costly. (Ex.: coastal trading law, high import duties on steel products)  Integrate land, air, and water transport systems to develop a consistent, interdependent transportation network.  Upgrade the main trunk roads to world-class all-weather highways, building new roads as necessary. (Ex.: Mindanao East-West Lateral Road)  Enhance the alliance between local government bodies and the community, developing legislation and leveraging subsidy systems to promote road construction by the local government.  In order to complement a consistent super-highway for transport and distribution, other infrastructural plans are to be coordinated in detail, developing a long-term plan for a railway system.  Upgrading, expanding, and modernizing existing airports is to be given increased priority. In addition, special priority is to be given to construction of airports on outlying islands and cutting-edge airports planned in the core region of Mindanao.  Policies on user charges are to be improved so that the infrastructural resources will be used effectively.

2.1.2.2 Regional Development Plans

A summary of the infrastructural development portions of RDPs for those areas of Mindanao with cities targeted in this study follows below.

 Revised Caraga Regional Development Plan 2013-20167 [Land Transport] The 1,477.925km national road network of the Caraga Region was scheduled to be fully paved, with DPWH contributing 20.1 billion PHP through 2016. Also, another 4.4 billion PHP was contributed to build or improve a total of 179.61 km in access roads for prominent tourist attractions. [Marine Transport] Four terminals connecting Mindanao and for RORO ships (harbors mainly for freight ships with decks for vehicle transport) will be built to bolster ports in the region, which are unable to keep pace with increasing usage. [Power Generation] All projects listed in the plan for the power sector were private sector projects. The four projects mentioned are the 30 MW Puyo Hydropower Project, 25 MW Lake

7 This study includes the Caraga Region cities of Butuan and Surigao City.

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Mainit Hydropower Project, 25 MW Wawa Hydropower Project, and 9.75 MW Hydropower Project.

 Revised Davao Regional Development Plan 2014-20168 [Land Transport] High-priority projects include the following: paving for trunk roads; improvement of intercity national roads; expansion of the Davao-Agusan Highway, Davao-Cotabato Highway, and other trunk roads; bridge improvements and construction; construction of roads to connect farms and markets in Davao Oriental and Compostela Valley; construction of urban rail in Davao City and a railway connecting the major Mindanao cities; introduction of traffic demand management; development for sidewalks, bike lanes, and bypass roads in urban areas; and a feasibility study for a bridge between Davao City and the Island Garden City of Samal. [Marine Transport] High-priority projects include a feasibility study for construction of a RORO ship terminal in or and expansion of Davao (Sasa) Port. [Airport] High-priority projects include construction of radar equipment and IT system improvements at Davao International Airport. [Power Generation] High-priority projects include the following: construction of a power plant on Talikud Island, introduction of biomass and solar power generation, construction of the privately-funded Therma South coal power plant (300 MW), construction of the EEI diesel power plant (15 MW), and construction of the Tudaya Hydropower Plant (Unit 1: 6.7 MW, Unit 2: 7 MW).

 Northern Mindanao Regional Development Plan Midterm Update 2013-20169 [Transport] The infrastructural items of highest priority in the Northern Mindanao Region are starting commercial service at Laguindingan International Airport (airport opened on June 15, 2013) and expanding the Mindanao Container Terminal (MCT). The Operation of -Mindanao Container Terminal Allied Projects (OLA-MCTAP) was designed to combine these two for increased convenience and efficiency. Both Laguindingan Airport and the MCT are located on the Cagayan-Iligan corridor and would have an economic ripple effect within Northern Mindanao Region. Also, a highway and the System (MRS) are planned for development in order to support growth in the Cagayan-Iligan industrial trade corridor.

8 This study includes the Davao Region city of Davao. 9 This study includes the Northern Mindanao Region city of Cagayan de Oro.

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[Power Generation] The National Power Corporation (NPC) power plants located in Northern Mindanao generate 67 percent of all power generated on Mindanao. One of the main projects for new power plant construction is the Agus 6 Hydropower Plant (Units 1 and 2) Improvement Project (budget: 2.6 billion PHP), which will extend plant life by 30 years. The National Grid Corporation of the Philippines (NGCP) is also working on its 9.5 billion PHP Mindanao Transmission Backbone Project.

 Updated Soccsksargen Regional Development Plan 2013-201610 [Land Transport] Land transport projects include a project for road construction to improve access to the industrial area, schools, hospitals, and tourist attractions, as well as projects for the GenSan Circumferential Road (budget of 100 million PHP) and the -- Road (budget of 170 million PHP). [Power Generation] In efforts to increase power self-sufficiency for the region, a number of renewable energy projects are planned, including geothermal generation on Mt. Zion and four hydropower projects in the Sultan Kudarat and Sarangani Provinces. Additionally, the Southern Mindanao power station (two 100 MW reactors) is under construction in , Sarangani. Lastly, the power distribution network is under expansion to reduce the number of households without power.

2.2 Governmental Organization, Personnel Structures, and Budgets 2.2.1 Relevant government agency structures The Philippines can broadly be divided into three areas: Luzon (incl. Metro Manila), Visayas, and Mindanao. These are divided into 18 regions and sub-divided into 81 provinces acting as local governmental units (LGUs). The provinces in turn are comprised with cities and municipalities, both of which are further sub-divided into barangays, the smallest governmental units.

10 This study includes the Soccsksargen Region city of General Santos.

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Figure 2-2 Relation of Philippine LGUs

Central government

Region

Province

City Municipality

Barangay Barangay

Source: Prepared by the Study Team

Next, for reference, the relation between central government agencies in the Philippines is as given below.

Figure 2-3 Relation of Philippine central government agencies

Philippine President Ombudsman

Commission on Human Vice President Executive Office Rights Cabinet Executive Presidential Special Secretary Secretary Advisors/Aides

Dept. of Foreign Affairs Dept. of Agrarian Reform Dept. of Public Works and (DAR) Highways (DPWH) (DFA) National Economic and Dept. of Finance (DOF) Dept. of Agriculture (DA) Development Authority (NEDA) Dept. of Energy (DOE) Dept. of Budgets and Dept. of Environment and Metropolitan Manila Management (DBM) Natural Resources (DENR) Development Authority Dept. of Interior and Local (MMDA) Government (DILG) Dept. of Social Welfare and Development (DSWD) Dept. of Tourism (DOT) Department of National Defense (DND) Dept. of Trade and Industry Dept. of Health (DOH) (DTI) Dept. of Justice (DOJ) Dept. of Transportation and Communication (DOTC) Dept. of Labor and Dept. of Education Employment (DOLE) (DepEd) Dept. of Science and Technology (DOST)

Source: Prepared by the Study Team based on Philippine government website

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2.2.2 Personnel structure and budget for main relevant organizations

The main relevant organizations in infrastructural development for Mindanao are the two responsible for the development plans overviewed in the previous section: NEDA and MinDA. This chapter gives summaries of these organizations as shown below.

(1) NEDA A. Establishment, governing law, and history  Established on January 24, 1973 based on Presidential Decree (PD) No. 107 of President .  Current organizational structure, authority, and responsibilities set out by Executive Order (EO) No. 230 of President on July 22, 1987.

B. Roles  Acts as the government agency responsible for drafting top-level socioeconomic plans, macroeconomic forecasting, policy analysis, and surveying.  Provides high-level advice to policymakers in Congress and administrative departments.

C. Authority and roles  Drafts policy, development plans, and development programs and coordinates all related activity in order to efficiently set numerous parameters at the national and regional levels (for regional and local development).  Reviews, evaluates, and monitors all infrastructural development projects listed in the development plans in line with year-on-year increases in demand for quality infrastructural facilities and efforts to increase public infrastructural investments.  Reviews short-term policies to provide government decision-makers with critical analysis for any issues with development and policy alternatives.

D. Personnel structure  Composed of a board and secretariat.  The NEDA Board is chaired by the President, with the NEDA Director-General as Vice Chair and 20 members in total, rounded out by the various Ministers and heads of development companies.  According to the DBM budget for FY2017, NEDA personnel for FY2016 totaled 1,074.  Below is the NEDA organization chart:

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Figure 2-4 NEDA organization chart NEDA Board

Office of the Director-General

Internal Audit Services

Financial, Planning and Development Agriculture National Monitoring and Management Staff Information Staff Resources and Evaluation Staff Environment Staff Legal Staff Regional Development Infrastructure Staff Staff Trade, Services and Administrative Staff Industry Staff Public Investment Staff Governance Staff Information and Social Development Communications National Policy and Staff Technology Staff Planning Staff

Regional Offices (15)

Source: NEDA

E. Regional offices NEDA has 15 regional offices spread across the regions of the Philippines. The four NEDA regional offices with jurisdiction over the cities included in this study are given below:

 NEDA Region X (Northern Mindanao NEDA Regional Office)  NEDA Region XI (Davao NEDA Regional Office)  NEDA Region XII (Soccsksargen NEDA Regional Office)  NEDA CARAGA (Caraga NEDA Regional Office)

(2) MinDA A. Establishment, governing law, and history  Established by Republic Act (RA) No. 9996, approved by President Corazon Aquino on February 17, 2010.  Not belonging to any specific ministry or executive department, annual reports of MinDA actions are submitted to the Philippine President and Congress (RA No. 9996).  MinDA predecessor Mindanao Economic Development Council (MEDCo) was established on March 19, 1992, also by President Aquino.

B. Roles  Coordinates between the regions of Mindanao, coordinating policy and projects for Mindanao regions and municipalities, as well as holding seminars. Is not authorized to make any structural decisions regarding infrastructural development (NEDA controls

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decisions and budgets).  Also coordinates between donors (World Bank, ADB, JICA, etc.)

C. Chairman  Currently Abul Khayr Dangcal Alonto, the first Muslim Chairman of MinDA. Alonto studied Political Science at Cairo University in Egypt. Immediately following the in 1968, he organized the LAM ALIF, a Muslim Youth Group whose members went on to form the core leaders of the Moro National Liberation Front (MNLF). Subsequently, Alonto was elected Vice Mayor of in 1972, being the youngest city executive at the time.  In 1979, Alonto participated in the institutionalization of the Autonomous Region in Muslim Mindanao. He established the Muslim Federal Party in 1982 and was chosen as Vice President for Mindanao. In 2014, he became MNLF Chairman.

D. Authority and roles (detailed) According to RA No. 9996, MinDA has the following authorities and functions in implementing activity for projects at the Mindanao level and between Mindanao regions:

i. To the extent feasible, determines an integrated development framework for Mindanao to be consistent with central government peace and development initiatives. ii. Integrates, prioritizes, plans, and executes Mindanao-level, inter-regional, and regional programs, as well as projects with impact on Mindanao as a whole (including ODA projects). iii. As necessary, requests action from the appropriate agencies on programs for technical and physical support, agriculture (generally given priority), industry, commerce, infrastructure, environment, and technology, as well as projects for which direct or indirect governmental assistance is requested. iv. Maintains national policy to promote integrated, balanced growth in Mindanao and supports Mindanao shareholders and representatives selected by Congress and the central government. v. Promotes monetary and capital investments in all sectors leading to the socioeconomic growth of Mindanao and works closely with agencies responsible for improving living standards and related social and governmental initiatives. vi. Plans and prioritizes financing for programs and projects at the Mindanao level and between Mindanao regions. vii. Provides complementary assistance for agencies coordinating and recommending planning, managing, and technical support in need of investors. viii. Has established a comprehensive, integrated database for Mindanao and the East

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ASEAN Growth Area (BIMP-EAGA). ix. Monitors, evaluates, and provides recommendations on development programs, initiatives and projects at the Mindanao-wide and inter-regional levels. x. Indicates strategic direction for Mindanao. xi. Establishes appropriate frameworks to ensure timely implementation of projects at the Mindanao-wide and inter-regional levels. xii. Discusses and recommends NEDA Board-approved projects at the Mindanao-wide and Mindanao inter-regional levels, as well as plans by the national government and donor agencies. xiii. Coordinates policy and program formation and implementation as the Philippine coordinating agency for BIMP-EAGA and lead government agency. xiv. Accepts and manages all donations and grants for development in Mindanao from foreign governments, international organizations, and private groups, including ODA. xv. Handles contracting, acquisitions, purchasing, ownership, lending, relocation, and disposal for the various properties as required to accomplish the objectives of this legislation.

E. Personnel structure The personnel structure for MinDA is given in the organizational chart below. Currently, there are 16 members on the MinDA Board and another 21 members as MinDA Secretariats.

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Figure 2-5 MinDA organization chart

MinDA Board MinDA Chairman

RDC IX Chairperson Senate of the ULAP President Philippines RDC X Chairperson CONFED President House Committee on RDC XI Chairperson Mindanao Affairs SPDA Administrator Chairperson RDC XII Chairperson NCMF Secretary

RDC XIII Chair House Committee on Mindanao Business BIMP-EAGA Affairs Council Chairperson ARMM Chairperson PS/NGO Rep

MinDA Secretariat Executive Director

Deputy Exec. Dir.

IPPAO PPPDO OFAS OACPM

Source: MinDA

(3) Infrastructure Budget and Mindanao Regional Budgets A. Infrastructure budget As shown in the figure below, the Philippines Infrastructure Budget was 756.4 billion PHP for FY2016 and is 860.7 billion PHP for FY2017, accounting for roughly 5 percent of the Philippine GDP. By agency, the DPWH budget for FY2017 was more than half of the overall infrastructure budget, accounting for 458.6 billion.

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Figure 2-6 Philippines Infrastructure Budget

Source: MinDA

B. Budget distributions by region for Mindanao By region, the FY2017 budget will be distributed as follows:

Figure 2-7 Distribution of the budget by region

Source: MinDA

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Of the total 360.9 billion PHP distributed for infrastructure, 151.7 billion is allocated for Mindanao regions, accounting for nearly half of the entire budget (Northern Luzon: 67.2 billion; Southern Luzon: 60.1 billion; Visayas: 58.5 billion; NCR: 23.4 billion). Within Mindanao itself, the largest distribution of 38.7 billion goes to the Northern Mindanao Region (Region X), followed closely with 38.1 billion for the Davao Region (Region XI). This is followed by 23.2 billion for the Caraga Region (Region XIII), 18.6 billion for ARMM, 16.6 billion for Zamboanga Peninsula (Region IX), and 16.5 billion for Soccsksargen (Region XII).

C. Distributions for NEDA budget According to the National Expenditure Program for FY2017 as published by DBM, total NEDA expenditures are 1.576 billion PHP. The amounts allocated for the NEDA Central Office budget and regional budgets are given in the figure below.

Figure 2-8 NEDA budgets for FY 2017 (Units: Thousands PHP) Region FY 2017 Budget NEDA Central Office 999,790 Region I Ilocos 36,619 Cordillera Administrative Region 48,206 Region II Cagayan Valley 29,442 Region III Central Luzon 36,508 Region IV A CALABARZON 31,259 Region IV B MIMAROPA 26,847 Region V Bicol 38,348 Region VI Western Visayas 33,396 Region VII Central Visayas 39,496 Region VIII Eastern Visayas 34,864 Region IX Zamboanga Peninsula 36,831 Region X Northern Mindanao 38,321 Region XI Davao 43,475 Region XII SOCCSKSARGEN 66,539 Region XIII Caraga 36,071 Total 1,576,012 Source: DBM

As given in the figure above, nearly two thirds of the total NEDA budget is for the central office, and the remaining third (576.2 million PHP) is distributed between the NEDA regional offices. In total, 221.2 million is distributed to Mindanao regions, accounting for nearly 40 percent of all distributions for the regional offices.

2.3 Related Laws and Regulations, Policy, and Institutions 2.3.1 Institutions, regulations, etc. for infrastructure development (general)

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The main laws, regulations, institutions, etc. in the Philippines relating to infrastructure development follow below, listed by type (general, investment, environment, and land).

Figure 2-9 Laws, regulations, institutions for infrastructure development (general) Name Overview Civil Code (RA No. Gives detail on various rights and relationships. Of note in terms of 386) relevance to foreign capital, the Civil Code makes a hard distinction between landowners and building owners, allowing for foreign building owners. Also provides for partnership with local companies. Corporation Code Of interest in establishing corporations. Note that Omnibus (BP 68) Investment Act and Foreign Investments Act provisions must be followed if foreign capital for the company to be established is to exceed 40 percent. Labor Code (PD The base Labor Code was enacted in 1974 by PD 442, “Labor Code 442 of 1974) of the Philippines.” Further provisions for employment conditions, welfare benefits, labor relations, dismissal, retirement ages and more are stipulated in the implementation regulations and related notices. Internal Revenue A 1997 code and related laws which stipulate taxes including Code (RA 8424) personal income taxes, graduated taxation maxing at 32 percent, corporate tax rate of 30 percent, minimum corporate income tax of 2 percent, improperly accumulated earnings tax of 10 percent, VAT of 12 percent, liquor tax, and tobacco tax. Philippines-Japan A bilateral treaty convened in 1980 to prevent double taxation. New Tax Treaty tax rates applied in a revision from January 1, 2009. Stipulates that only the local country can tax business income through permanent facilities only, etc. Intellectual The central Philippine law protecting IP, enacted in 1997. Stipulates Property Code (RA constituent requirements of infringement, penalties, and damages. 8293) Japan-Philippines Convened in 2006 to expand trade and investment between Japan Economic and the Philippines, developing a legal framework for a deeper Partnership interdependence. Agreement AFTA and CEPT Implements Common Effective Preferential Tariffs (CEPT) as an Agreement element of ASEAN Free Trade Agreement (AFTA) for most items. Items excluded are those pertaining to national defense, protection of life and health, and historic and archaeological protection. Contractors’ Provides for acquisition of permits issued by the Philippine License Law Contractors Accreditation Board (PCAB). Local companies with foreign capital of 40 percent or lower can acquire a general license. National Building Provides the rules and regulations for general construction, as well Code as the licenses and approvals required before construction. Uniform General Construction Industry Authority of the Philippines (CIAP) stipulations Conditions of for agreements and contract performance. Contract for Private Construction

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Figure 2-10 Laws, regulations, institutions for infrastructure development Name Overview Omnibus Enacted in 1987 to incentivize investment in the Philippines by Investment Act expanding tax and other incentives. In order to receive incentives, (EO 226 of 1987) businesses must register with and gain approval from the Board of Investment (BOI). Registered businesses earn corporate tax exemptions for a set period, as well as exemption from customs for raw materials and select goods, additional deductions for labor costs, and other incentives. Foreign Enacted in 1991 to replace provisions concerning "non-incentivized Investments Act investments" as originally included in the Omnibus Investment Act. (RA 7042) This act details provisions for foreign shareholder ratios on business activities given in Foreign Investment Negative Lists (FINLs). Anti-Dummy Law Meant to restrict businesses which manufacture Filipinos formal (Commonwealth shareholders with Filipino capital to avoid foreign investment Act No. 108) restrictions but are in fact run by foreign parties. Special Economic Enacted in 1995 to incentivize businesses to enter designated Zone Act (RA economic zones such as the Philippine Economic Zone Authority 7916) (PEZA), , Clark SEZ, and the Aurora SEZ. Provides incentives for registered exporting companies in economic zones exporting at least 70 percent of products and services, exempting them from corporate tax for either four (for non-pioneer companies) or six years (for pioneer companies) following registration and imposing a 5 percent gross income tax after the exempt period. Bases Conversion Established the Bases Conversion Development Authority (BCDA) and Development with 100 billion PHP in capital as the managing authority for Act (RA 7227; converting Clark Air Force Base, Subic Naval Base, and their related amended in RA bases to production centers, also establishing the Subic Bay 9400) Metropolitan Authority (SBMA) and Clark Development Corporation (CDC) as BCDA subsidiaries. Also grants qualifying exporting companies registered with SBMA or CDC the corporate tax exemptions as provided for in RA 7916.

Figure 2-11 Laws, regulations, institutions for infrastructure development (environment) Name Overview Basic Stipulate national environmental policy, environmental targets, rights environmental to a sound environment, the implementing and executing bodies for laws environmental impact assessments (EIAs), and guidelines. Also establish systems for managing air quality, water quality, land usage, natural resources, and waste. Law Establishing Provides procedures for performing EIAs. an Environmental Impact Statement System (PD 1586 of 1978) Philippine Requires government agencies, commercial enterprises, and other Environmental parties to prepare Environmental Impact Statements (EIS) when Policy (PD 1151 of performing any business activity with significant impact on the 1977) environment. Revised guidelines Guidelines for preparing an EIS as based on the environmental for review of EIAs protection guidelines.

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Name Overview Clean Air Act Prohibits incineration of any municipal waste emitting harmful gases, medical waste, and hazardous waste. Biofuels Act Mandates that liquid fuel as used in automobiles and other vehicles include biofuel.

Figure 2-12 Laws, regulations, institutions for infrastructure development (land) Name Overview Investors’ Lease Permits foreign investors to lease lands for general industrial use for Act (RA 7652) up to 75 years. Lease periods for non-industrial use are capped at 50 years in accordance with PD 471. Condominium Act Foreign parties are permitted to own up to 40 percent of (RA 4726) condominium buildings, which are defined as buildings with combined land usage rights for the owned area and common areas. National Protects the rights to ancestral land to guarantee the economic, Integrated social and cultural well-being, welfare, and health of indigenous Protected Areas cultures. Also provides for the establishment and management of System Act protected areas within the Philippines with the aim of protecting remarkable habitats for rare and endangered species of flora and fauna, as well as public lands of biological importance. The Rules and An ordinance for granting Certificates of Ancestral Domain Claims Regulations for the (CADC) and Certificates of Ancestral Land Claims (CALC) to Identification, . Delineation and Recognition of Ancestral Land and Domain Claims The Indigenous Recognizes, protects, and promotes the rights of indigenous Peoples’ Rights communities and peoples, establishing and funding a national Act committee and implementing organization for indigenous issues. National Strategy Conserves afforestation areas and existing forest to improve life for to Achieve mountain residents. It strategically promotes sustainable forest Sustainable Forest management by providing the framework to organize residents and Management and to grant the resident organizations authority over forest resources. Social Justice The resident organizations are made responsible for usage, development, and conservation of forest resources so that the forest and coastal areas are managed effectively and sustainably. The policy grants the resident organizations a 25-year contract on forest usage rights, prompting the residents to manage the natural resources. The basic principles are: 1) sustainable management of forest resources and 2) social justice and community welfare, with DENR working closely together with the communities.

2.3.2 Institutions, regulations, etc. for infrastructure development (by sector) The main laws, regulations, institutions, etc. in the Philippines relating to infrastructure development as listed by sector follow below.

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Figure 2-13 Laws, regulations, institutions for infrastructure development (by sector) Sector Name Overview Railways, Public Service Act Businesses entrusted as common carriers such as maritime railways and marine transport, or to provide public shipping, services such as electricity or water supply, are electricity, strictly monitored by the government based on this water act. supply Railways Act creating the Provides financing for Philippine National Railways Philippine National (PNR) to build and manage the railways, as well as Railways (RA 4156) the authorities and functions of PNR. Roads Philippine Highway Act Outlines the construction, management, and (RA 917) financing for highways. Electricity Electric Power Industry Enacted in 2001 to promote the liberalization of Reform Act (EPIRA) power producers. As of the end of 2012, roughly 91 percent of NPC plants were privatized, and NPC has also sold independent power producers (IPPs) the rights to purchase and sell its power to the public through power purchasing agreements (PPAs). Privatization in the power sector is lagging for Mindanao compared to other areas, however. Electricity Renewable Energy Act The Philippines has been promoting policies and (RA 9513) legislative measures to develop domestic energy resources as not to rely on imported oil for more than the past 30 years. Within this policy, renewable energy providers rank as supplying stable power at superior cost and durability; tax incentives for geothermal, micro hydropower, wave, solar, and wind power are all provided for by their own Executive Orders. In December 2008 the enactment of the Renewable Energy Act introduced a feed-in tariff (FIT) system and new incentives to encourage further private-led development of renewable energy. Electricity Act to Promote the Provides tax and accounting incentives which have Exploration and spurred the Philippines to have the world's second Development of largest geothermal power equipment capacity Geothermal Resources behind the United States. (PD 1442 of 1972) Electricity Private Sector Permits and incentivizes private operators to Participation for research and develop the means to use ocean Ocean, Solar and Wind waves, solar, and wind power to generate power, Energy Resources (EO and to use these energies for commercial activity. 462 of 1997), amended in EO 232 of 2000 Electricity Mini-hydroelectric Enacted in 1991 to grant various tax incentives for Power Incentive Act small hydropower generation, although foreign (RA 7156) investment ratios are limited to 40 percent. Electricity Energy Regulations Laws providing for contribution of a fixed amount of Nos. 1-94 (Benefits to power sales per kWh to each of three funds for rural LGUs) electrification, development, and environmental conservation in order to help improve area living standards.

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Sector Name Overview Water Program for promoting Promotes water supply improvement projects in supply water supply aims to develop rural areas and improve quality of improvements (RA life. 6716)

2.4 PPP System and its operational status 2.4.1 Summary of PPP system Since the days of the Aquino administration, diplomacy has been focused on actively working to attract foreign direct investment. Meanwhile, PPP-based infrastructure development projects have been a major theme for national policy, promoting projects for highways and airport access roads, airports, railways, schools, and other infrastructure. In September 2010, the BOT Center was reorganized and renamed the PPP Center, transferring hands from the DPWH to the NEDA. Wanting to eradicate corruption, President Aquino stressed transparency in projects, but was criticized by some for slow progress. Larger projects in particular were revised several times over through this process, and bid dates were frequently postponed. In the interest of selecting implementing bodies with higher transparency for projects, solicited projects (government plans) are given more weight than unsolicited projects (private proposals). To this end, the revised BOT Law in July 2012 (originally enacted in 1994) stipulates that unsolicited projects cannot be granted Viability Gap Funding (VGF). Policy has not wavered in its focus on PPP with the incoming Duterte Administration in 2016. With national finances being tight, the Philippine government at its base under the current administration looks to conduct infrastructure projects with PPPs. However, the majority of government-led infrastructural development projects are concentrated on Luzon and are required to be of a certain project scale. Accordingly, there are no PPPs led by the national government in Mindanao. 11 Given the island’s issues with power deficiencies, however, Mindanao depends on privately-run unsolicited energy development for its power in lieu of solicited projects. An overview of the PPP system in the Philippines is given in the following chart.

11 Numerous LGU-run water supply projects utilize private resources, e.g. bulk water supply.

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Figure 2-14 Overview of PPP system in the Philippines Item Overview Major legislation RA 7718 (revised BOT Law) Implementing Rules and Regulations for the BOT Law (BOT-IRR) EO 8 of 2010 (Sept. 2010): BOT Center reorganized into PPP Center JV Guidelines (Enacted 1989; revised 2008 and 2012) Promoting PPP Center: Established under NEDA by EO 8 of 2010 (transferred agencies from DTI control) PPP Governing Board: Established in EO 136 of 2013. Projects exceeding 500 million PHP require Cabinet approval (economic cabinet comprising NEDA Board, with President as Chair and members from DOF, NEDA, and DBM) Budgetary Financing: Projects can be financed from either domestic or foreign provisions on sources. Budgets can be approved with up to 50 percent of total VGF, etc. project financing coming from either the Philippine government budget or a foreign government (ODA). Government assistance: For government-run solicited projects, indirect and direct assistance available, including cost sharing, creditworthiness (government guarantee), direct government subsidy, government investment, shared responsibility, legal support, and security support. For unsolicited projects, government guarantee, direct government subsidy, and government investments will not be approved. Foreign From the Negative List, foreign capital is restricted to at most 40 investment percent for proposal and facility operations of BOT projects requiring regulations a public utility project license. Source: Prepared by the Study Team based on METI surveys, JICA reports, etc.

2.4.2 PPP-applicable sectors According to the BOT Law and the BOT-IRR, private involvement through the PPP system in the Philippines is allowed in the transport, power and communications, and social infrastructure sectors. The applicable sectors and projects are listed in detail in the figure below.

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Figure 2-15 Infrastructure and project sectors allowing private involvement Transport sector Social infrastructure sector, etc. ・ Main roads (highways road projects, ・Irrigation and related facilities bridges, etc.) ・ Water supply, sewerage, and drainage ・Rail and related commercial development facilities facilities ・Education and medical infrastructure ・Non-rail mass transport facilities, inland ・ Landfills, dredging, and other related navigation canals, etc. facilities ・ Ports and harbors (docks, piers, and ・ Industrial parks, tourist attractions, and related facilities) their related facilities and public facilities ・Airports, air traffic controllers, and other ・ Government buildings and residential related facilities projects ・ Marketplaces, slaughterhouses, and Electricity and ICT sectors related facilities ・Power generation, transmission, and other ・Storage, post-harvest facilities related facilities ・Public fishing ports and aquaculture areas, ・ICT network facilities, land and satellite incl. storage and processing facilities communication services and facilities ・ Environmental facilities, solid waste ・ICT and database infrastructure treatment facilities Source: Prepared by the Study Team

As mentioned above, however, the BOT Law was originally enacted back in 1994. While revised slightly in 2012, the law does not always align with modern PPPs in practice. For example, given the reforms in the power sector with EPIRA in 2001, no new power plant projects are conducted through a PPP or BOT. Thus, in effect, there are no PPP power projects in the Philippines.

2.4.3 Implementation status and pipeline for PPP projects The PPP Center updates a listing of the implementation status and plans for PPP projects in the Philippines on their website on an irregular basis.

Figure 2-16 Completed and Operational Projects Sector Awarded projects Project cost Agency Road -SLEX Link Road 2.23 billion PHP DPWH (-Cavite Expressway) Project Education PPP for School Infrastructure Project 9.89 billion PHP DepEd (PSIP) Phase I Railway Automatic Fare Collection System 1.72 billion PHP DOTr (AFCS) Road NAIA Expressway (Phase II) Project 17.93 billion PHP DPWH Source: Prepared by Status of PPP projects (as of 15 December 2016) issued by Philippines PPP center

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Figure 2-17 Projects under Construction Sector Awarded projects Project cost Agency Education PPP for School Infrastructure Project 3.86 billion PHP DepEd (PSIP) Phase II Airport Mactan-Cebu International Airport 17.52 billion PHP DOTr Passenger Terminal Building Road Metro Manila (MMS) Stage 3 37.43 billion PHP Toll Project Regulatory Board Transport South Integrated Transport System 2.50 billion PHP DOTr Project Railway MRT Line 7 Project 69.30 billion PHP DOTr Source: Prepared by Status of PPP projects (as of 15 December 2016) issued by Philippines PPP center

Figure 2-18 Projects under Pre-Construction (approved by NEDA Board) Sector Awarded projects Project cost Agency Railway LRT Line 1 Cavite Extension and O&M 64.9 billion PHP DOTr Road Cavite – Laguna (CALA) Expressway 35.43 billion PHP DPWH Transport South Integrated Transport System 5.20 billion PHP DOTr Project Water Bulacan Bulk Water Supply Project 24.41 billion PHP MWSS ICT Civil Registry System Information 1.59 billion PHP PSA Technology Project (Phase II) Road NLEx-SLEx Connector Road 23.20 billion PHP DPWH Airport New Bohol (Panglao) Airport Operations, 4.57 billion PHP DOTr & Maintenance & Development Project CAAP Airport Laguindingan Airport Operations, 14.62 billion PHP DOTr & Maintenance & Development Project CAAP Airport Davao Airport Operations, Maintenance 40.57 billion PHP DOTr & & Development Project CAAP Airport Airport Operations, 20.26 billion PHP DOTr & Maintenance & Development Project CAAP Airport Iloilo Airport Operations, Maintenance & 30.40 billion PHP DOTr & Development Project CAAP Railway Operation & Maintenance of LRT Line-2 No CAPEX DOTr & LRTA Port Davao Sasa Port Modernization Project 18.99 billion PHP DOTr Road Road Transport IT Infrastructure Project 0.298 billion PHP DOTr & (Phase II) LTFRB Water New Centennial Water Source-Kaliwa 18.72 billion PHP MWSS & Dam Project DPWH Justice Regional Prison Facilities through PPP 50.20 billion PHP DOJ & BuCor Railway LRT Line 6 Project 65.09 billion PHP DOTr Road NAIA PPP Project 74.56 billion PHP DOTr & MIAA Urban New Nayong Pilipino at Entertainment 1.47 billion PHP DOT development City Project Source: Prepared by Status of PPP projects (as of 15 December 2016) issued by Philippines PPP center

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2.4.4 Issues with PPP in the Philippines As seen above, PPPs are actively utilized and steadily building up a track record in the Philippines to prominent levels, even when compared to neighboring countries. Still, the issues outlined below remain outstanding. First, being enacted in 1994 and revised in 2012, the BOT Law does not mesh with current PPP practices. The content of the law remains largely unchanged from its 1994 state and needs to be reformed in terms of applicable scope, PPP modalities, government assistance measures, and other facets. The Philippine government has talked about establishing a new PPP Law (tentative title) to replace the BOT Law since about 2010, but little progress has been made in congressional debates. Second, the regions and agencies for which PPPs can be applied are limited. Many of the PPP projects implemented are on Luzon. Further, almost all “official” government-run PPP projects are implemented by the national government; very few are run by LGUs. In addition to the aforementioned deficiencies in the BOT Law, PPP use tends to be concentrated in larger central projects. Note that there are still no “official” PPP projects running on Mindanao. Third, the market is dominated by local conglomerates. In practice, 100-percent foreign investment groups are not allowed to bid on PPP projects in the Philippines, and the majority of SPC shares are held by local companies. Participation of one of the conglomerates Ayala, San Miguel, or Metro Pacific is virtually essential in PPP projects, resulting in an oligopoly of sorts. Diversifying the players in PPP projects to allow foreign companies and local SMEs to participate is another important issue in PPP policy in the Philippines.

2.5 Candidate Local Partner Companies The following companies are candidate partners in the Philippines for Japanese infrastructure companies. For projects on Mindanao, a local general contractor would likely make a powerful partner. In fact, there are several cases of companies successfully entering Mindanao to participate in various infrastructure projects by partnering with a local Mindanao general contractor or infrastructure company.

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Figure 2-19 Candidate Local Partner Companies for Japanese Infrastructure Companies Company Name Location Sector Overview , energy, Philippines’ largest conglomerate. Develops etc. projects in various fields, including retail, education, real estate, banking, communications, water supply infrastructure, renewable energy, electronics, ICT, automotive, and health care. Aboitiz Power Manila Energy Conglomerate involved in power generation, transmission, and distribution. A new company, Aboitiz Holdings, is the biggest player in domestic marine transport. Alcantara Group Manila Energy, real An equal player with Aboitiz in terms of estate, etc. Mindanao infrastructure development, although mainly active in electricity. Has close relationships with Japanese businesses due to cement work and other work. Metro Pacific Manila Real estate, An investment trust holding company which Investment Corporation infrastructure, invests in water supply, sewerage, real estate, hospitals infrastructure projects, and hospital projects. Manila Foodstuffs, A conglomerate which invests in foodstuffs, toll roads, roads, power providers, oil refineries, real electricity, real estate, and more. estate Anflo Management and Davao Agriculture, A conglomerate which invests in agriculture, Investment Corporation foodstuffs, terminal operations, real estate, resort airports, real development, foodstuffs, and more. estate Engineering Equipment Davao Electricity An engineering firm listed on the Philippine Inc. stock exchange involved in construction of thermal, solar, wind, and other power plants in the Philippines and abroad. DM Consunji Inc. Davao Ports, water An engineering firm listed on the Philippine supply stock exchange involved in the Zamboanga water treatment plant and Davao pier extension project, among others. Dizon Farms Davao Agriculture While not connected to infrastructure, may be good to ask for information on promising partner companies and other issues given their status in the Davao Chamber of Commerce. A local business which involves local communities in the Davao area to add trees (coffee, cacao, etc.), fruits, vegetables, etc. A key member in the Davao Chamber of Commerce and in good standing with the current President. Equiparco Construction Butuan Roads, Mindanao’s largest general contractor. Company bridges, Involved in design and construction for roads, seaports, highways, bridges, seaports, airports, dams, airports, dams irrigation, and more. Twinpeak Hydro Butuan Investment An operating company located in Butuan Resources Corporation which invests in project plans and development. Source: Data prepared by the Study Team

2.6 Project Development Status for Other Countries

A summary of the status of project development by other countries in infrastructure-related sectors in Mindanao is given in the chart below.

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Figure 2-20 Status of infrastructure development projects by other countries in Mindanao No. Country Sector Location Companies Budget Scale Remarks Involved 1 S. Korea Solar power Southern Hanwha Q Cells Unknown 28.6 MW Mindanao scale 2 S. Korea Coal power Surigao del Korea Electric 2 billion PHP 200 MW Sur, Mindanao Power Corp. scale (KEPC) 3 S. Korea Bridge , Export-Import 4,858,890,00 Misamis Bank of Korea 0 PHP Occidental and (KEXIM) Tubod, Lanao del Norte 4 S. Korea Waste Bukidnon and Sudokwon Unknown Buried treatment Misamis Landfill Site landfill Occidental Management waste Dohwa treatment Consulting Engineers 5 China Elevated Mindanao CNR Dalian 3,759,350,00 railway 0 PHP 6 Singapore Solar power Surallah, South nv vogt 1 billion PHP 5 MW scale Cotabato, Philippines Mindanao 7 Thailand Hydropower Visayas and Conal Holdings Unknown 99 MW Mindanao Corp. (CHC) scale 8 UK Biomass Visayas and Global Green Unknown 87.5 MW power Mindanao Power PLC scale Corp. (GGP) 9 Germany Solar power Luzon and Conergy Asia Unknown 454 MW Mindanao, Pacific, etc. scale Visayas 10 Geothermal Oriental Tamoin Industrial Unknown 40 MW Mindoro Services scale. Will Corporation supply (TISCO), Nickel 250,000 Asia Corporation homes. (NAC), Emerging Power, Inc. (EPI), etc. 11 Belgium Solar power , Davao Enfinity Group 2 billion PHP 286 MW del Sur, (Phase I) scale Mindanao 12 Cement Solid cement CEMEX 300 million Production plant, , USD / 80 capacity of Rizal/Naga, million USD 3 million Cebu tons / 5.25 million tons Source: Data prepared by the Study Team

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Chapter 3 Current Status, Issues, and Priority Projects for Infrastructural Development

3.1 Status by City

3.1.1 Davao City 3.1.1.1 Current Status of Infrastructure As topographical constraints have driven Davao City’s 1.63 million12 residents into the limited flatter area, road network development is also concentrated around these densely populated flatlands. However, the road network has not been developed in any kind of systematic fashion, leaving it a chaotically intertwined complex of roads lacking any continuity. Chronic congestion has plagued downtown Davao City in recent years given a sudden increase in car traffic. Moreover, limited parking space downtown encourage drivers to park on the streets, making it another delimiting factor reducing road capacity. Also, in the field study, Davao City streets appeared dark at night due to insufficient street lighting. In terms of public transportation, Davao City is in urgent need of a mass transit system given the serious traffic issues downtown. As with other Philippine cities, Davao City has no organized public transportation system in operation, instead relying only on shared transport services, such as Jeepneys, minivans, and taxis. ADB is providing assistance for a bus rapid transit (BRT) line development project, and NEDA is conducting a feasibility study for development of a Tagum-Davao City-Digos rail line.

3.1.1.2 Existing Industry The main industries in the Davao City area are farming and livestock, mining, IT-BPO, tourism, and real estate. According to the DTI Davao Regional Office, they felt it important to promote manufacture of high value-added agriproducts and mine development. Also note here that Davao City is planning to build a food terminal modeled after Tsukiji market in , with the Toril neighborhood as a prospective candidate. By the data, GRDP for Region XI, which includes Davao City, has grown approximately 11 percent per year since 2013. Finally, within agriculture, production by tonnage is particularly high for for bananas and coconut.

12 Exact figures are 1,632,991 residents according to the 2015 Census.

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Figure 3-1 Industries in Davao Region (Region XI) 11% CAGR 4.00 563 3.50 3.37 600 518 500 459 3.00 2.33 Billions 400 264 289 2.50 237

300 2.00 Php

In 200 129 150 168 1.50 100 94 105 107 1.00 0 0.45 0.50 0.28 0.34 2013 2014 2015 Tons Metric Million In 0.03 0.05 0.01 - AFF Industry Service Region XI (Davao Region) Palay Corn Coconut Pineapple Banana Mango Coffee GRDP (Region XI) Major Region XI crop yields Source: Philippine Statistical Yearbook 2015, Philippine Statistics Office

3.1.1.3 Project Needs (1) Future planned projects

The major projects currently planned in Davao City are as follows:

・Construction for a Davao City bypass road (work on south and central sections underway with a Japanese ODA loan, including tunnel section) ・Construction for another bypass road closer to than the above bypass road ・Davao City-Samal Island connection road (Construction could be a bridge or tunnel. Only the bridge plan has been studied by METI.) ・Bus rapid transit (BRT) development ・Railway development (Tagum-Davao City-Digos line)

(2) Project needs

A. Private sector needs

During the hearings conducted at the Davao Chamber of Commerce and Industries (DCCI), the 80 member companies stated that the DCCI was a very independent-minded group and politically distinct from the Philippine Chamber of Commerce and Industries (PCCI) with regards to their infrastructural development needs. They cited personnel issues: officials with no previous direct business connections to Davao were put in charge over the Davao Region. DCCI members conduct most of their business to the south of Davao City,13 and thus intend to invest and develop mostly in the Davao-Digos-General Santos corridor.

13 Between Davao City and Cagayan de Oro, the cities of Valencia, , and Bukidnon have each established their own independent chambers of commerce and have built up busiensses on their local . Members of the Cagayan de Oro Chamber of Commerce hold plantations, lumber production companies, and other businesses in this area. Meanwhile, DCCI members base their businesses outside of this area, on both ends of the road from Davao to General Santos City.

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Therefore, the business sector is also more interested in strengthening the Davao City- Digos-General Santos City route than it is in developing within the borders of Diversion Road in Davao City. Strengthening the road network of this route could potentially promote development in the following industries:

・The peninsula east of General Santos City has potential for mining and tourism development. ・ In Bangsamoro to the west of General Santos, investments are heating up for production of corn, , and other feed crops. (An Indian company has committed to invest.) ・Potential for adding value for fish landed in General Santos Fish Port Complex. ・Relieving traffic along the Pan-Philippine Highway (Route 1) south of Davao would stimulate distribution.

B. Public sector needs

In January 2017, JICA commenced the Davao City Infrastructure Development Plan and Capacity Building Project. The project aims to efficiently and effectively develop local infrastructure, consisting of plans for developing urban infrastructure (land usage, roads, urban transport, water supply and sewerage, waste management, etc.) and a project to build up the implementing capacity of Philippine bodies. The public sector in Davao has high expectations for this master plan. Meanwhile, according to interviews with the NEDA Region XI office, DTI Region XI office, and DPWH, the Davao public sector is in search of more efficient means for transporting locally grown produce and fish to Cagayan de Oro Port. Currently, transport by boat to Cagayan de Oro takes roughly three days, whereas land transport takes a half day. Thus, business owners hope the shift in strategy will shorten time in transport, in turn improving freshness and reducing damage. Also, it being the home of President Duterte, Davao is expected to receive additional investment moving forward, and the population and employment are expected to increase. Local officials also look to push for improvements to the road between Davao and Cagayan de Oro in order to facilitate transport of incoming construction materials, daily goods and other products from Cagayan de Oro Port.

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Figure 3-2 Projects planned in Davao

Source: Prepared by the Study Team

3.1.2 Cagayan de Oro 3.1.2.1 Current Status of Infrastructure (1) Roads

The Cagayan de Oro area is building up, with growth mainly in the areas with gentler terrains, around the trunk roads. However, traffic at major intersections and the downtown area is starting to worsen. The road system is underdeveloped, failing to function as a network, and is unequipped to handle the rapid increases in traffic volume of recent years. Further, the lacking road network structure almost invariable forces through traffic to other destinations to go through downtown Cagayan de Oro. The downtown traffic congestion is exacerbated by rampant street parking due to insufficient parking space downtown. The road network deficiencies are likely caused by development being limited to smaller, demand-driven projects in reaction to bottlenecks as they occur. The government maintenance budget is insufficient and uncertain, being allocated on a single-year basis, and no master plan or other top-level plan exists for urban planning or road maintenance. The trunk intercity road around Cagayan de Oro, National Highway 10, is on a bad lie,

55 passing through hills and mountains. Also, the hills encroach into the port’s hinterland. This causes congestion from trucks reducing speed on the steep inclines as well as sharp turns difficult for trucks hauling 40-foot ISO containers to navigate. Currently, DPWH is working on widening the trunk road and installing climbing lanes for the steep inclines. As mentioned above, however, meager budging allocations have necessitated that improvements advance on a patchwork basis. Also, given the steeply cut slopes and shoulders endangered by instable slopes, future road stability is of concern due to erosion from rainfall and flooding.

Figure 3-3 Transport & Road Situation in Cagayan de Oro

Traffic on NH Rt. 9, running east-west through Cut slope with bare ground on NH Rt. 10 downtown Source: Photographed by the Study Team

(2) Public transportation

As with other Philippine cities, Cagayan de Oro has no organized public transportation system in operation, instead relying mainly on shared transport services, such as Jeepneys, minivans, and taxis. Thus, traffic is chaotic; vehicles haphazardly stop to let passengers on and off, and drivers do not follow traffic rules, all contributing to slow down traffic. Given the compactness of the limited flatlands downtown, an organized public transportation system downtown should alleviate traffic conditions if established. Still, none is confirmed to be planned at present.

(3) Airport

Laguindiangan Airport in Cagayan de Oro is designated by the Philippine government as one of five city airports (in Bacolod, Iloilo, Bolod, Cagayan de Oro, and Davao City) for enhancement. As of January 2017, potential operating contractors are submitting tenders for a PPP for the enhancements. In addition, as MinDA has relocated its headquarters to Bukidnon and looks to establish the city as the center of Mindanao development, there is talk

56 of building a new airport in Bukidnon. While NEDA headquarters wishes to focus on enhancing the airports in the major five cities first, there may be some movement on the Bukidnon airport construction in the future.

(4) Ports and harbors

Cagayan de Oro has two port areas: the PPA Container Terminal and the Mindanao Container Terminal. There is no fishing port. Given the geographical advantage Cagayan de Oro port facilities offer over other Mindanao ports in terms of transport to Luzon, Cebu, and other destinations, the surrounding areas hope that Cagayan de Oro Port is enhanced as part of strategic development to function as a hub and improve port access to surrounding Mindanao areas. From local interviews, the Study Team found that Cagayan de Oro Port is currently at 83 percent of its freight handling capacity and will likely exceed its capacity in the near future. Thus, Cagayan de Oro Port must be expanded with enhanced functionality over the longer term in order to keep pace with steadily increasing freight demands.

3.1.2.2 Existing Industry Misamis Oriental, the region where Cagayan de Oro is located, has all the right conditions for agricultural development; the soil is rich, and typhoons are few and far between. To the south of Cagayan de Oro, Bukidnon has a booming agriculture, earning it the name of food basket of Mindanao. Dole, Del Monte, and other major plantations produce crops including bananas, pineapple, and coconut, and smaller farmers raise and harvest high value-added crops such as broccoli, lanzones, pepper, coffee, and . While to date, crops have been exclusively for export off the island, capacity for processing in Mindanao would stimulate local industry. In terms of mining, full JFE Steel subsidiary Philippine Sinter manufactures and sells sintered ore (the main raw material for blast furnaces, fired from iron ore) out of Cagayan de Oro. With the Philippines lying on the transport route to Japan for Brazil and Australia, the area can efficiently manufacture sintered ore from iron ore and transport the product. By the data, GRDP for Region X, which includes Cagayan de Oro, has grown approximately 9 percent per year since 2013. Within agriculture, production by tonnage is particularly high for cane.

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Figure 3-4 Industries in Misamis Oriental (RegionX) 4.00 3.44 9% CAGR 3.50 600 516 486 3.00 500 436 2.50 Billions 400 207 224 186 1.84 300 2.00 1.78 Php 1.39 In 200 138 156 165 1.50 1.20 100 1.00 0.71 112 123 127

0 Tons Metric Million In 0.50 0.05 0.01 2013 2014 2015 - AFF Industry Service Region X (Northern Mindanao) Palay Corn Coconut Sugarcane Pineapple Banna Mango Coffee

GRDP (Region X) Major Region X crop yields Source: Philippine Statistical Yearbook 2015, Philippine Statistics Office

3.1.2.3 Project Needs (1) Future planned projects

NEDA Regional Office X gives the following priority projects:

 Road Inland Alignment (Expressway System) Project ・CDO-Malaybalay-Valencia-Davao route ・-- route ・Pagadian-Tubod (Lanao del Norte)-Iligan-CDO--Butuan route ・Expected to reduce business costs for Davao and GenSan businesses. ・ Reduced transport times and damage in transport will increase value for agriproducts and marine products.  Bukidnon Airport Development Project  Ozamiz City Airport Development Project  Mindanao Railway Project ・Iligan-CDO-Butuan line ・Butuan-Davao line (feasibility study for Tagum-Davao-Digos line in progress) ・Davao-Iligan line  Laguindingan Seaport Development Project  Improvement/upgrading of road leading to Laguindingan Airport (airport access)  Other projects given in JICA logistics studies

In addition, the DPWH Regional Office is discussing the following road development projects:

 Development for elevated highway between and Villanueva  Construction of superhighway connecting Iligan, CDO, and Butuan ・Future plans are for a six-lane highway, but due to budget constraints, a two-lane road will first be developed.

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 Construction of bypass road between Bukidnon and Gingoog ・Scheduled to break ground in 2017. As above, the road will be built in stages due to budgetary constraints. The complete road is expected to take 10 years to complete.  Construction of bypass road between Bukidnon and Davao ・DPWH is discussing construction of the bypass with tunnels for the poorly-aligned mountain section. As the profile figures will not work for the route in the materials received from DPWH, an alternative route must be discussed.

Figure 3-5 Projects planned in Cagayan de Oro

Source: Prepared by the Study Team

(2) Project needs

A. Private sector needs

The Cagayan de Oro Chamber of Commerce (Oro Chamber) is smaller than its Davao counterpart with 50 member companies. The member companies base their businesses mainly on agriculture and plantations between Bukidnon and Cagayan de Oro, centering around Malaybalay. Thus, the members naturally have a high need for roads from Malaybalay to both the port and airport facilities in Cagayan de Oro. Their needs are lower for improvement of the roads from Malaybalay and further south to Davao. Oro Chamber member companies mainly deal with palm, corn, and pineapple products,

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shipping as canned and fresh produce as well as raw feed materials to Luzon and from Cagayan de Oro Port. Thus, these companies need improved access for freight transport between Malaybalay and Cagayan de Oro Port. More than improvements to the existing mountain route between Malaybalay and Cagayan de Oro, they require a new, high-standard bypass road from Malaybalay to Cagayan de Oro Port. A direct link from production area to port facilities will enable greater utilization of inland agricultural resources. While the Bukidnon highlands are reknowned for their vegetables and the Malaybalay area for its , little ties these local industries to the larger Cagayan de Oro businesses. They are no doubt categorized in people’s mind as small local farmers and businesses for their respective local chambers of commerce. According to the Oro Chamber, traffic over the bridge for the on National Highway 9 to the east of Cagayan de Oro Port is restricted to a weight of 10 tons. Thus, in its current state, the bridge cannot be used to transport the heavy components for construction of Mindanao power plants and other projects. As part of its corporate responsibility activities, Philippine Sinter is privately supplying its own deep barge for landing of the plant components between eastern Cagayan de Oro and Butuan. Without this barge, construction of the Mindanao power plant is currently not feasible. The Port of Gingoog shows promise as an alternative site east of Cagayan de Oro for port development. Another proposal has multiple private sector harbors being repaired and enhanced through PPP schemes. Much construction material and raw material will be transported between 2017 and 2022, a period when Mindanao will be producing a surplus of power. In general, the current bridge is a hindrance to goods distribution due to its weight restriction and needs to be reinforced for heavy traffic, along with all the trunk roads. Additionally, Japanese companies on the east side of Cagayan de Oro greatly need road network to be improved on the coastal route in town (National Highway 9). Specifically, they speak of developing mass transit running east to west over an approximately 25-km area. There is manufacturing and a power plant along the Cagayan de Oro , and the city has multiple larger universities. Further, unlike Davao City, Cagayan de Oro is laid out in a straight line with many subdivisions along the coast. These conditions would make mass transit profitable and easy to implement in the city.

B. Public sector needs

Both the public and private sectors in Cagayan de Oro very much see Davao City as their rivals, and JICA’s Davao City Infrastructure Development Plan and Capacity Building Project has kindled a strong desire in them to conduct a similar project in Cagayan de Oro. According to both the NEDA and DTI regional offices, RDC members have discussed various plans for

60 development in the Cagayan de Oro area with several parties; still, the Cagayan de Oro government, who would be the implementing body, has yet to rank these projects in terms of development priority. Lots of Philippine people stresses that a master plan is necessary to set priorities and ensure technical links between the projects. Thus, Cagayan de Oro greatly needs to create a master plan like that for Davao and define its development priorities. Given these circumstances, the national ministries each have different priorities in terms of infrastructural development. DPWH and NEDA see development for a Malaybalay airport and a Malaybalay-Gingoog bypass road as high priorities, whereas DTI told us that they felt it was still too early for railway development and that development for Gingoog Port should be prioritized.

C. Direction for transport infrastructure development

When looking to drastically improve traffic in an urban setting, it is essential to develop a top-level plan that decentralizes traffic demands and provides appropriate guidance for urban development. Striking a balance between development for roads and public transportation is also key. Thus, the following are our recommendations on the ideal for future development of downtown and intercity roads in Cagayan de Oro.

i. Downtown roads

Enhance the downtown road network and develop roads which allow distribution and other throughtraffic to bypass the downtown area.

ii. Intercity roads

Upgrading the intercity roads to high-standard roads will improve drivability, stimulate Mindanao industry, and promote interregional interaction. In particular, connecting Cagayan de Oro, Davao City, and General Santos City along the north-south axis with highway or high-standard roads should be a priority. Such roads should help to serve as a backbone for promoting Mindanao industry. Considering Mindanao as a whole, with excellent international gateways in both the north and south, establishing organic connections between these gateways and the potential for Mindanao industry could mean redundancy for local distribution and compound growth.

iii. Public transportation

As of 2015, Cagayan de Oro had a population of 680,000. For cities of this scale, the most economical and effective option is to develop a bus-centric public transportation network. This system needs to be organized and systematic in operation, not like the

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current system in which independent drivers with Jeepneys and other vehicles drive for profit. Possible solutions include establishing a new bus company, and/or improving the business model by unionizing the existing Jeepneys and other shared transport, and introducing a uniform charge collection system.

3.1.3 General Santos City 3.1.3.1 Current Status of Infrastructure General Santos City, or GenSan, serves as a gateway on the open ocean in the Soccsksargen Region.14 The catchment area for the airport and ports in GenSan extends through a wide portion of southern Mindanao. In terms of the Mindanao transport sector, Makar Wharf, the general port in GenSan, is recognized as part of the RO-RO ship network connecting to Indonesia’s Port for BIMP-EAGA. 15 Meanwhile, General Santos International Airport is the sole gateway in the region. The intercity trunk road connecting inland areas to these gateways is the Pan-Philippine Highway, also connecting to Davao City and Cotabato. The Pan-Philippine Highway was rehabilitated with Japanese assistance and dubbed the Philippine-Japan Friendship Highway. The Davao-GenSan section of the highway was expanded on the Philippine budget, and the 200-km section to Cotobato is a multi-lane section in well-maintained condition. The roads in GenSan itself are gradually becoming more congested, although not as bad as in some other Mindanao cities. Still, the GenSan transport sector is expected to see more activity as the southern regions of Mindanao grow in the future. GenSan is servicing both inbound and outbound directions of its Circumferential Road and other key roads in anticipation of this growth, and the road infrastructure development plan appears to be proceeding appropriately. In terms of downtown traffic management, however, there are still not enough traffic signals in place to handle future increasing traffic levels. GenSan also lacks the basic information needed to discuss regional infrastructure development. They do not have clear figures on current intercity movement in terms of human and goods logistics.

14 Name used for Region XII in Mindanao. The name is a combination of the names of the four provinces and city (General Santos) in the region. The central cities are and Cotabato. 15 The Master Plan and Feasibility Study on the Establishment of an ASEAN RO-RO Shipping Network and Short Sea Shipping, JICA, 2013

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Figure 3-6 Development of Transport Infrastructure Facilities in General Santos

Six-lane trunk road from GenSan to Koronadal Makar Wharf expansion in progress (piledriving) Source: Photograped by the Study Team

3.1.3.2 Existing Industry The Soccsksargen Region produces pineapple (Dole has a major plantation in the region), coffee, coconut, banana, rice, corn, asparagus, and other crops, operating as a main supply base both domestically and internationally. Further, GenSan is one of Mindanao’s more prominent cities in terms of fisheries and marine products, with plenty of fishing and marine product-related industry. In terms of mining resources, an exploration feasibility study for gold and copper mines is underway in Tampakan, located to the north of GenSan. Development is scheduled to proceed through the Financial and Technical Assistance Agreement (FTAA), but the Cotobato del Sur government has a legal ban in place on open-pit mining. The project has already obtained an Environmental Compliance Certificate (ECC), but as of January 2017, no development permit has yet been issued. GenSan has multiple special economic zones (SEZs) with many companies. The only SEZ which could be considered an industrial park, the Gensan Economic Zone, is being developed near the airport and is anticipated to attract demand from marine product processing and other industries. As its growth model, GenSan seeks for development to spread regionwide. They wish to move away from the current pattern of fishing and marine industry only concentrated in the city and toward growth for agriculture, mining, tourism, and other industries to spread throughout the region.

3.1.3.3 Project Needs According to the Soccsksargen Area Development Project Office, the airports, ports, and other main logistical infrastructure was constructed in the with JICA and USAID assistance, and much of it is aging with no repairs. They have requested the central Philippine government for rehabilitation projects.

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As determined on site, the infrastructural development needs in terms of transport facilities, as well as the projects currently planned or underway in GenSan and the surrounding areas, are outlined in the following sections.

(1) Future planned projects and project needs

A. Port and harbor infrastructure

・GenSan is working to expand the handling capacity of its main port, Makar Wharf. Makar Wharf is currently at full capacity, causing delays; in interviews, the Study Team was told that ships were left waiting in the bay for up to a month. To alleviate this, the wharf is currently under expansion, paid for on the Philippine governmental budget and based on a port master plan drafted by the South Korean government. ・Several items in the aforementioned master plan are already completed: the gantry crane, berth expansion, the passenger terminal, and more. ・The project will have three phases in all. For Phase I, the pier will be expanded 200 m on the eastern side; this work is scheduled to complete in December 2017. ・At Makar Wharf, 80 percent of the freight handled is for export, and approximately 80 percent is container freight (Dole pineapples, bananas, etc.). Palm oil from Kenram I&D accounts for much of the bulk freight handled. ・In terms of imported freight, many bulk freight ships haul construction equipment and materials, as well as raw materials for processing. Recently, cement importers have increased from two companies to five. ・ With the government investing 7 percent of its annual budget in infrastructure, development planned in the region will likely mean further diversification in freight. Cement, steel material, and other construction-related freight should increase. ・While the Philippine Port Authority (PPA) is working on a port development project, government-run projects take time. Thus, a private port development project is desired. ・Specifically, private port development has potential for bulk freight (soy, rice, wheat), an area of low priority for the PPA which is often delayed. ・The fish port complex developed in the 1990s with JICA assistance is still in use. The units are being improved one-by-one with EU assistance but still have issues in terms of waste water treatment and other areas.

B. Airport infrastructure

・GenSan Airport has not been renovated for 20 years; it is one of the airports the central government plans to expand and renovate in the next two years. Specifically, the plans are to expand the two-story airport building and double the airport apron capacity from

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space for three planes to six. The tender process has already started for part of the project. ・The government has secured approximately 600 ha of land in the airport vicinity. The land is expected to be earmarked for industrial and commercial development of an “Airport City.” With the airport functioning as a gateway for the region, officials see tourism in particular as an industry with benefit and hope this development will include tourist welcoming facilities.

C. Road infrastructure

・The coastal road between GenSan and Cotabato is currently being expanded with ADB assistance. ・Improvements are slow on the GenSan-Davao section of the Pan Philippine Highway (NH1); heavy traffic, likely including many heavy trucks, has greatly damaged the road surface, and the road starts to deteriorate immediately upon repair. Further, many sections require expansion due to the heavy traffic. ・The farm to market connection is also important in the GenSan region; area farmers greatly need the roads from the trunk roads to be developed. ・GenSan is currently developing a circumferential road in the outskirts of town; the section connecting the airport and wharf remain incomplete. GenSan expects the circumferential road to perform the following functions: a) alleviate downtown traffic by allowing freight traffic to circumvent the downtown area, b) entice new industry by strengthening the connection between airport and wharf, and c) provide an alternate access road for Makar Wharf. GenSan also plans to relocate the intercity bus terminal to the circumferential road. One outstanding issue remains: insufficient street lights make night travel dangerous. ・As flood control measures, DPWH is currently strengthening the bridges and fixing the river channels up and downstream of the bridges.

D. Rail infrastructure

・In GenSan, rail is of lower priority for development than other transport infrastructure.

(2) Direction for transport infrastructure development

If city roads are developed and traffic management enhanced with more traffic signals and other measures, this will alleviate traffic congestion. GenSan needs all development to be completed in order as planned; the missing airport-to-wharf section of the circumferential road must be completed, and the coastal roads must be expanded. Preferably, GenSan’s

65 role as a regional gateway should be enhanced now to drive future industrial growth in the region, and not vice versa. To this end, development for the airport, ports, and other infrastructure should be strategically planned with sufficient capacity, and the relatively well- maintained intercity roads need to remain safe and stable. In terms of public transport, a bus- centered system should be developed, accounting for factors such as population growth, residential areas, and commuting routes within the city.

Figure 3-7 Projects planned in General Santos City

Source: Prepared by the Study Team

3.1.4 Butuan and Surigao City (Caraga Region) 3.1.4.1 Current Status of Infrastructure (1) Transport The regions described to this point--Northern Mindanao Region, containing Cagayan de Oro; Davao, containing Davao City; and Soccsksargen, containing General Santos City—each have per capita GRDPs at or above the Mindanao average. These regions claim 11 of the 13 Agro-Industrial Economic Zones present in Mindanao. Further, the ports of each of these regions handle between 160,000 and 210,000 TEUs of containers per year, and almost all are connected to industrial parks by four-lane national highway.

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In contrast, the Caraga Region has not one Agro-Industrial Economic Zone. Caraga’s central port, Nasipit Port, handles only 30,000 TEUs of containers annually, and none of the national highways in the port vicinity currently have four lanes.

Figure 3-8 State of logistical infrastructure in Mindanao

Sources: DPWH GIS web apps, PPA, and Philippine Economic Zone Authority (PEZA). Containers handled by Mindanao Container Terminal obtained from Port Call Asia.

(2) Japanese assistance for infrastructural development in the Caraga Region (ODA loan assistance) To date, the following infrastructure development projects have been completed in Caraga with ODA loan assistance:

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Figure 3-9 ODA loan assistance for infrastructural development in the Caraga Region

Project Name Project Period Project Scale Second Magsaysay Bridge and Butuan City Aug. 2000 – Cost: 5,722MM JPY Bypass Road Construction May 2007 (3,506MM JPY in ODA loans) Philippines-Japan Phase I Mar. 1997 – Cost: 8,303MM JPY Friendship Highway Sept. 2006 (6,744MM JPY in ODA loans) Mindanao Section Phase II Dec. 1999 – Cost: 9,639MM JPY Rehabilitation Project Feb. 2008 (7,842MM JPY in ODA loans) Lower Agusan Phase I (flood Jan. 1988 – Cost: 3,696MM JPY Development Project control) Feb. 2000 (2,798MM JPY in ODA loans) Phase II (flood Mar. 1997 – Apr. Cost: 10,828MM JPY control) 2007 (7,317MM JPY in ODA loans) Irrigation Aug. 1995 – Cost: 5,765MM JPY component Aug. 2006 (3,899MM JPY in ODA loans) Source: JICA website

3.1.4.2 Existing Industry (1) Caraga Region population In 2015, the population of the Caraga Region was 2,469,557, up roughly 147,000 residents (7 percent) from the 2010 population of 2,302,412.

(2) Caraga Region per capita GRDP The Caraga Region is one of the poorest in the Philippines. In 2014, the per capita GRDP for the Caraga Region was 59,941 PHP, placing it second lowest in Mindanao behind conflict-stricken ARMM, where development is greatly lagging.

Figure 3-10 GRDP for Mindanao by region (2014)

Population GRDP Per capita GRDP Administrative Region (1,000s (millions PHP) (PHP) ppl) Philippines (Country) 99880.3 12,642,736 126,579 Mindanao 23,748 1,874,849 78,948 Region IX Zamboanga Peninsula 3,668 257,060 70,074 Region X Northern Mindanao 4,659 485,705 104,242 Region XI Davao 4,830 519,069 107,479 Region XII SOCCSKSARGEN 4,524 351,357 77,662 Region XIII Caraga 2,591 155,296 59,941 ARMM 3,476 106,362 30,602 Source: Philippines Statistics Authority (PSA)

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Figure 3-11 Per capita GRDP for Mindanao by region (2014)

Source: PSA

(3) Industrial composition of the Caraga Region In order of proportion, GRDP in the Caraga Region is highest for agriculture and forestry (20.6 percent); primary industry as a whole comprises 23.7 percent, including agriculture, hunting, forestry, and fisheries. Whereas the primary sector comprises 11.3 percent of the national GDP for the Philippines, these industries comprise double the national average for primary sector industries in Caraga.

Figure 3-12 Breakdown of 2014 Caraga GRDP by industry Production Sector Item Percentage (1,000s PHP) Primary sector (agriculture, Agriculture and forestry 31,931,859 20.6% hunting, forestry, and 4,875,675 3.1% fishing) Fishing Secondary sector (heavy Mining and quarrying 21,958,338 14.1% industry) Manufacturing 4,013,888 2.6% Construction 16,239,692 10.5% Electricity, gas and water supply 2,282,444 1.5% Tertiary sector (services) Transport, storage, and 25,511,652 16.4% communications Automotive and motorcycle sales 6,940,380 4.5% and repair Financial intermediation 7,749,738 5.0% Real estate, rentals 10,419,511 6.7% Public service, defense, and needed 8,486,361 5.5% social security Other services 14,886,470 9.6% Total 155,296,007 100.0% Source: PSA

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(4) Major Caraga industries A. Forestry Caraga is the largest Philippine producer of lumber. In 2014, the region produced 765,725 tons (69 percent) of the total 1,102,365 tons of lumber produced in the country. Mindanao production was 967,670 tons, or 88 percent of the national total.

Figure 3-13 Philippine lumber production by region (2014)

Source: Forest Management Bureau (FMB)

Logging exports flourished in Caraga in the 1950s, but were outlawed in 1986. Logging is now strictly regulated; most wood production is performed by afforestation operations in secondary forests. Currently, 1,331,491 ha (70 percent) of the 1,913,842 ha in Caraga is classified as forest area. Furthermore, 939,685 ha (71 percent) of this forest area is managed or business-operated based on a Timber License Agreement, Integrated Forest Management Agreement (IFMA), Socialized Forest Management Agreement (SFMA), Community Based Forest Management Agreement (CBFMA), or other agreement.

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B. Agriculture In 2014, Caraga agriculture produced 2,027,066 tons in crops, with the key crops being coconut, rice, banana, oil palm, and corn. In order, coconut production is highest in Surigao del Sur, followed by Surigao del Norte and Agusan del Norte. Rice production is highest in Agusan del Sur.

Figure 3-14 2014 Caraga agricultural production and producing regions by crop

Source: PSA

Figure 3-15 2014 Caraga agricultural production by province

Source: PSA

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C. Aquaculture By value, Caraga aquaculture produced 719,867,000 PHP of product. In order of value, milkfish was the highest, followed by black prawn, and various forms of algae. In the 1990s, Agusan del Norte farmers intensively cultivated black tiger prawn, but then slowed their pace when illness spread through the prawn colonies. Currently, aquafarms are shifting to milkfish, tilapia, and other fish. Aquaculture production is highest in Surigao del Sur and Agusan del Norte, which comprise 48 and 40 percent of Caraga sales, respectively.

Figure 3-16 2014 Caraga aquaculture production by type

Source: PSA

Figure 3-17 2014 Caraga aquaculture production by province

Source: PSA

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D. Heavy industry Caraga is rich in mining resources, including gold, copper, iron, and nickel. In 2013, mining production in Caraga earned 29.8 billion PHP. In 2013, the industry paid 1.8 billion PHP in mining usage fees and excise taxes, and directly employed just over 20,000 workers. Of note here, the Taganito HPAL Nickel Corporation, operating in Surigao del Norte, is run by Sumitomo Metal Mining Philippine Holdings Corporation.

Figure 3-18 Mining in Caraga

2012 2013 YoY Change (%) Shipments 608 618 1.64 Value (millions PHP) 33,150 29,840 -9.98 Mine usage fees (millions PHP) 1,350 1,200 -11.11 Excise tax (millions PHP) 663.04 596.88 -9.98 Direct employment 18,828 20,363 8.15 Source: Department of Trade and Industry (DTI)

E. Wood processing While Caraga accounts for 69 percent of overall Philippine lumber production, the region only manufacture 28 percent of processed wood products nationally. Meanwhile, neighboring regions Northern Mindanao and Davao manufacture nearly equivalent shares of processed wood products as Caraga at 30 and 27 percent, respectively, despite their low shares of lumber production at 7 and 4 percent, respectively.

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Figure 3-19 Philippine processed woodworking production by region (2014)

Source: FMB NOTE: Total of lumber, plywood, and cosmetic woodworks

3.1.4.3 Project Needs

(1) Logistical infrastructure development projects to support regional development (1): Coastal road DPWH is planning a coastal road connecting Taguibo Industrial Park, which is developed in Butuan with support from Japanese companies, to the logistical centers in Masao Port and Nasipit Port. DPWH sees developing the 14.15-km Taguibo-Masao Port section (Section 1-1) as the priority; they plan to construct a new bridge, tentatively named the “Third Magsaysay Bridge,” about 5 km downstream from Magsaysay Bridge across a more than 200 m river span. While already underway with expansion work on sections of the existing road, DPWH is hoping for yen loans for development of the bridge. They feel that Japanese ODA loans and technical cooperation are needed moving forward. Development of this road will greatly improve access between the industrial park and Masao Port. It will shorten travel time when passing through the downtown area, reduce downtown congestion, and reduce traffic accidents. Further, the road is hoped to help develop the coastal areas currently used mainly as rice paddies.

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■ Overview of Taguibo Industrial Park The development site for Taguibo Industrial Park lies in a key point of convergence for the national highways connecting Davao City, Cagayan de Oro, and Surigao City. The area is designated as an industrial zone in Butuan land-use plans. Approximately 60 percent of the planned 141 ha is already acquired. A rice milling plant has already been built in one corner of the park development site and started operations.

■ Industrial Park Features Taguibo is planned as a base for processing the wealth of agricultural and marine products in Caraga. It is meant to drive economic development by adding value to competitive primary sector products. Taguibo will receive incentives with PEZA designation as an Agro-Industrial Economic Zone and should provide quality utilities and services which help to draw in Japanese companies. Taguibo is planned as a low- carbon industrial park using locally-produced energy. It will utilize small hydropower, biomass, solar, wind, and other renewable energies, as well as receive a park-wide system for curtailing power consumption.

■ Tenant companies (planned) Taguibo tenant companies are expected to be mainly Japanese companies from the following industries: processing and packaging for primary products (lumber, agriproducts, marine products, etc.), drinking water bottling (mineral water, etc.), agricultural equipment and material manufacturing (agricultural machinery, parts, packing materials, etc.), and logistics.

■ Business scheme Investors Equi-Parco Construction Company (Equi-Parco), Twin Peak Hydro Resources Corporation (Twin Peak), and the Chodai Group signed a memorandum to jointly develop Taguibo Industrial Park. The consortium plans to establish a special purpose company (SPC) for park development and management by April 2017 and is discussing use of overseas investment loans from Japanese government financial institutions.

■ Local mayoral intentions, etc. Former COO of Equi-Parco and Butuan Mayor Ronnie Lagnada is a key figure in driving local development through PPPs. He is actively involved in a model promoting local development through PPP based on Taguibo Industrial Park. The model in the Butuan development plan envisions the industrial park connected by industrial roads to Masao Port, expanded to be the international port, and Nasipit Port, acting as the domestic logistics base. As the former COO of a construction company, Mayor Lagnada has long worked with Japanese construction companies on Japanese ODA projects and actively incorporates Japanese products, technology, and management from the perspective of a low cost country.

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Figure 3-20 Butuan City Development Plan (2017-2022)

Source: Butuan City

(2) Logistical infrastructure development projects to support regional development (2): Port expansions (Masao Port and Nasipit Port) In response to increased freight demand, the Philippine Port Authority (PPA) is discussing using ODA loans for future port development, with expansion of Masao Port positioned as a key in the development. Of the short-term expansion plans in Masao Port, 2,800 m2 of land has already been reclaimed for the yard, and the wharf is currently being expanded by an additional 51 m. In the future, a breakwater is also scheduled for construction. Subsequently, medium-term plans have approximately 4.0 ha of landfill for the yard and 724 m for new berths.

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Figure 3-21 Masao Port expansion plan

Butuanブトゥアン湾 Bay N

W 150.00

84.71

CONVENTIONAL

VESSEL E 100M LOA S

RO-RO VESSEL EXISTING WHARF

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47.02

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F U T U R E E X P A N S I O N VEHICLE PARKING AREA OPEN STORAGE ENTRY / EXIT GATE AREA EXIT GATE RESERVOIR PTB w/ CANTEEN FOR FOREIGN BERTH ENTRANCE DOMESTIC

86.00 DOMESTIC 86.00 TICKET BOOTHS AREA RESERVED FOR SHIPPING & OTHER RELATED OFFICES ARRASTRE OFFICE CR PH GH VEHICLE PARKING AREA VEHICLE PARKING AREA VEHICLE PARKING AREA STP OPEN STORAGE TRANSIT SHED VEHICLE PARKING AREA AREA

TEMP.

W.T. WAREHOUSE

OFFICE VEHICLE PARKING AREA PPA OFFICE & QUARTER

PASSENGER WAITING / VENDOR AREA PUJ / TRICYCLE TERMINAL RESERVED AREA FOR PCG P R O P O S E D P O R T R O A D ( 15 meter - wide )

Legend Land 凡 例 陸地

H O U S E S E H S O U 既存港湾施設Existing port facilities

S hort-term 短期開発計画development plan TO BUTUAN CITY ITC

Medium-term 中期開発計画development plan

33.03 110.25 240.00 119.81 Long-term 長期開発計画development plan 503.09

Source: Master plan (PPA)

Figure 3-22 Current state of Masao Port expansion plan area

Source: Photographed by the Study Team

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Meanwhile, long-term plans for Nasipit Port are to reclaim the south end of the .

Figure 3-23 Master plan for development of Nasipit Port

Source: PPA

Figure 3-24 Current state of Nasipit Port

Source: Photographed by the Study Team

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Given Nasipit Port’s position on an inlet, the PPA deems large-scale expansion unrealistic. Thus, in order to meet future increases in freight demand, they will focus development on the Port of Masao and are considering use of ODA loans for the development. Still, neither of the current plans for either port accounted for development of an industrial park. A port expansion project is needed, including revision of these plans.

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3.2 Major planned and implemented projects in Mindanao

To date, development of Mindanao infrastructure has lagged behind that in other Philippine regions. However, development in Mindanao has received assistance from agencies including JICA, ADB, and USAID. According to Minda, the main projects conducted in Mindanao by each donor to date, are given in the following figure.

Figure 3-25 Major Projects in Mindanao

Source: MinDA

Further, MinDA has shared the projects in the following figure as being the projects of highest priority and prpopsed PPP projects.

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Figure 3-26 Major Pripority Projects in Mindanao

Source: MinDA

Figure 3-27 Proposed PPP Projects in Mindanao

Source: MinDA

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3.3 List of Priority Projects

3.3.1 Basic Approach To date, Mindanao has lagged behind Luzon and Visayas in terms of investment, making it one of the Philippines’ poorer areas; statistically speaking, Mindanao’s per capita GRDP averages just 60 percent of the national per capita GDP. In particular, Caraga in eastern Mindanao and the Autonomous Region in Muslim Mindanao (ARMM) in the west are some of the poorest regions in the Philippines, with per capita GRDPs of approximately 47 percent and 24 percent, respectively. The Mindanao provinces with bigger cities, such as Davao City and Cagayan de Oro, fair relatively better. Infrastructural development is the natural vessel for growing industry to create jobs and building the capacity for sustainable economic growth across the region. Overconcentration of people, goods, and money in areas such as Manila or Cebu only widens their gap with surrounding regions and overpopulates the cities, which could potentially hinder balanced nationwide growth. Thus, it is important for the Philippine government to actively invest in the Mindanao region to correct its developmental lag. There could be great significance in the Japanese government assisting the Philippines in this endeavor. “Peace and development in Mindanao” is listed as a point of priority in the Japanese government’s announced assistance policy for the Philippines for 2017. Mindanao needs infrastructural development that drives demand and harnesses regional strengths, not the demand-driven, overcentralizing development of the past. We should clarify what form this infrastructure should take and prioritize projects based on this.

3.3.2 Development Strategy As illustrated to this point, upon both broad and close examination of the current state of infrastructure and local needs, a possible strategy for development is outlined below. First up is strategically building a logistical network in anticipation of local industry development. It is important to shed the demand-driven, incremental development mindset of the past and strive for proactive development, with a top-level plan modeling the form development should take. From there, development will ideally proceed in sequence, starting with core infrastructure strategically developed according to a region-wide Mindanao development strategy. In terms of road infrastructure, roads must be made more functional for travel and transport, first by developing new roads and expanding old ones between and within the major cities, as well as access roads connecting inland industrial bases to trunk roads. In concrete terms, roads could be developed along the following stages:

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・Stage 1: Develop a high-standard road network connecting the major cities ・Stage 2: Regional development to appropriately disperse traffic demand within major cities ・Stage 3: Enhance access from inland industry bases to trunk roads, i.e. farm to market roads

With the roads developed, enhancing the function and capacity for ports with potential for further development, such as Cagayan de Oro Port, Masao Port in Butuan, and Nasipit Port, will help to streamline and stimulate land transport both on the island and beyond. Meanwhile, in the long term, demand may surface for development of rail networks on the island. Serving this demand may have merit in terms of transporting people and goods more efficiently, but in the short term, expanding the road network should be prioritized to fulfill the the urgent needs for basic infrastructure for industrial growth. Also, note that railway development will require comprehensive planning to clearly delineate the roles of roads and rail in order to prevent overlapping investments in roads and railways. The second proposed development strategy is to ease traffic congestion in the cities. Traffic has progressively worsened in Davao City and Cagayan de Oro and is hindering economic development. These cities require traffic systems designed to mitigate this obstacle: they must strike a balance between roads and public transportation in order to appropriately control urban traffic demands. With the exception of Davao City, no other cities in Mindanao have a population greater than one million. Furthermore, many of these cities have limited lands flat enough for residential development, making for compact downtown areas. Thus, no massive infrastructural investments are needed for mass transit such as MRT or monorails; an efficiently-operated bus system should suffice to improve public transportation and consequently ease traffic congestion. It is important, however, that bus service be optimized; the bus system should not merely expand upon the current system, in which the individual drivers drive for profit. Rather, a public or private company should be established to manage service routes and schedules in orderly fashion. Preferably, these should also be clean and safe so that all will want to use them. These changes will help cities pivot from transportation systems dependent on private vehicles to ones built upon use of public transportation. Another alternative for making service more systematic and efficient could be to unionize the owners and drivers of the Jeepneys and establish a centralized fare collection system with electronic fare payments. The third proposal for development strategy is to encourage private investment. Given the budgetary limitations of the Philippine government and local governments of Mindanao in making public investments, private investment is needed for the Mindanao economy to grow.

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To spur this private investment along, the national and local governments must take various measures to encourage companies both domestic and foreign to actively invest. For public infrastructure in particular, the Philippine government must include PPPs in its approach now more than ever. In targeting Japanese companies, there are two possible approaches to enticing them to invest in and expand exports to the Philippines: 1) Involve them in infrastructural projects directly, and/or 2) use infrastructure to help them expand their business in the Philippines. Possible strategies for 1) are to request infrastructure of specifications advanced enough to warrant outside help, or to promote assistance focused on infrastructure projects requiring advanced technology. For 2), it is extremely important to work with strategically-selected partners to develop basic infrastructure for power, water, transport, and beyond in strategic areas. With this in mind, the following will be the strategic policy for assisting development of transportation infrastructure.

3.3.3 List of Priority Projects

(1) Mindanao

In specific terms, ideally, projects should proceed in the order recommended in top-level plans, such as the Davao City Infrastructure Development Plan and Capacity Building Project (JICA) or the Master Plan on High Standard Highway Network Development in the Republic of the Philippines (JICA). Listed below are the transport sector projects considered to be important at present time.

A. Roads

As mentioned above, roads must be made more functional for travel and transport by developing new roads and expanding old roads between and within the major cities, as well as access roads connecting inland industrial bases to trunk roads. The following are possible projects with high priority.

・Develop a high standard highway network connecting Cagayan de Oro, Davao City, and General Santos City to act as the backbone of the Mindanao Region ・Enhance the intercity network based on the top-level plans for the and the ASEAN maritime economic corridor concept: Enhance Route AH26 into a high standard highway (main route connecting Surigao, Ampayon, Davao City, General Santos City, Cotabato, and Zamboanga; secondary route between Davao City and Cagayan de Oro)

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・Improve and enhance the northern Mindanao corridor (Butuan, Cagayan de Oro, Iligan, Ozamiz, and Dipolog) ・Assist in developing logistical roads for Mindanao (Butuan to Malaybalay) ・Develop downtown road networks in the major cities to diffuse traffic demands (Davao City bypass, Cagayan de Oro bypass, GenSan Circumferential Road, Butuan logistic road)

B. Ports and harbors

In the interest of improving logistical functionality (particularly for exports from Mindanao), the existing ports should be expanded to extract their latent potential. Looking across the region, there are major ports in Davao City, Cagayan de Oro, GenSan, and Butuan, among others. The ports to the north are of particular interest in terms of development potential and needs. The following are possible projects with high priority:

・Expand the Mindanao Container Terminal in Cagayan de Oro ・Extract potential from developing Masao Port in Butuan and Nasipit Port

So that freight being transported between cities does not get routed through downtown traffic, it is also important to build bypass roads that improve access between the trunk roads and hub ports.

C. Urban transportation

The public transportation network can cover the majority of passenger demand downtown by doing the following: 1) introducing a public transportation system organized to cover urban travel demands, and 2) promoting development of the infrastructure to support that system in the form of bus stops, bus only lanes, and bus priority lanes. These changes can be expected to mitigate downtown congestion and shorten travel times. Additionally, all traffic signals downtown—even those on national highways—are managed by city traffic authorities, not DPWH. Individual signals operate on independent systems and are not networked for efficient citywide control. Introducing the Japanese traffic control system and assisting city staff to build their capacity would likely be beneficial in dealing with the ever-increasing traffic demands.

D. Railways

Over the long term, there is merit to discussing development of a Mindanao rail network in the interest of promoting island-wide growth (efficient transit of people and goods). The concept of railway development must be kept in mind when developing roads, ports, and

85 other infrastructure. Still, rail network plans have yet to be clearly settled as the matter is still under discussion by the Philippine government. It would be best to perform a study to confirm the basic details necessary for the discussion, such as current logistics figures, commodity analysis, potential, and the development concept and plan.

(2) Summary of priority projects

The list given below shows the priority projects in the transpor sector by city in this study.

Figure 3-28 Potential projects for bilateral cooperation (transport sector)

Source: Prepared by the Study Team

Next, the projects listed above are mapped out in the following map.

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Figure 3-29 Potential projects for bilateral cooperation (transport sector): Project locations

Source: Prepared by the Study Team

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Chapter 4 Basic Information, Status, and Issues for the Power Sector in the Philippines and Mindanao

4.1 Current Status and Issues for the Power Sector

4.1.1 The Philippines

4.1.1.1 Overview of the National Power Sector

(1) Features of the Philippine power sector The Electric Power Industry Reform Act of 2001 (EPIRA) was enacted in 2001 to promote the privatization of power producers in the Philippines. As part of EPIRA, roughly 91 percent of the power plants formerly owned by the National Power Corporation (NPC) were privatized at the end of 2012. Also, the NPC has sold independent power producers (IPPs) the rights to purchase and sell its power to the public through power purchasing agreements (PPAs). As a result of this line of reforms, power is generated by private power producers, distributed by private distribution utilities (DUs), and supplied by not-for-profit electric cooperatives (ECs). Meanwhile, due to a concessionary agreement with the Philippine government, transmission is exclusively the purview of the National Grid Corporation of the Philippines (NGCP). Finally, The Energy Regulatory Commission (ERC) licenses the power vendors and approves all fees.

(2) Power demand Recently, both power consumption and generation in the Philippines continue to trend upward. By sector, power consumption has increased roughly 30 percent in the past 10 years, with increases for residential, commercial, and industrial use. With the economy continuing to grow at nearly 6 percent annually, power demand growth is also high. Meanwhile, the Philippines generated a total of 77,261 GWh nationally in 2014, an increase of approximately 40 percent over the past 10 years.

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Figure 4-1 Philippine power consumption by sector

Source: Prepared by the Study Team based on DOE data

Figure 4-2 Total Philippine power generation (2002-2014)

90,000 80,000 70,000 60,000

GWh 50,000 40,000 30,000 20,000 10,000 0 2002年2003年2004年2005年2006年2007年2008年2009年2010年2011年2012年2013年2014年 Biomass Solar Wind Hydro Geothermal Natural Gas Oil-based Coal

Source: DOE

In terms of where power is sourced, coal fuels 43 percent of power plants, followed by natural gas at 25 percent. Nationally, many Philippine plants are aging. The Luzon and Visayas systems are particularly prone to power outages from failures in generation facilities and other causes. In Mindanao, the demand situation has improved recently, but power supply still needs enhancement for the island as a whole. Power self-sufficiency rates may

89 also decrease in the future; if domestic natural gas production is depleted, the weight will increase for imported coal used for coal power.

Figure 4-3 Power source weights for the Philippines (2014)

Hydro Solar Wind 12% 0% 0% Bioma ss 0% Geoth ermal 13% Coal 43%

Natur Oil- al Gas based 24% 8%

Source: DOE

4.1.1.2 Rural Electrification At the smallest administrative unit level, the Barangay, nearly 100 percent of the Philippines has access to electricity. On an individual consumer level, however, there is still room for improvement; power has not yet reached some small and households removed from the barangay centers. Consumer-level electrification rates are particularly low in Mindanao: only 71 percent of Mindanao consumers had power as of 2014, compared to 92 percent in Luzon and 91 percent in Visayas.

Figure 4-4 Philippines electrification rates (2014) Barangays Connections Energized/ Energized/ Region Potential Completed % Potential Completed % To date To date Total Philippines 36,063 36,053 99% 13,081,400 11,174,080 85% Luzon 15,516 15,513 99% 5,909,500 5,440,235 92% Visayas 10,956 10,955 99% 3,242,400 2,939,400 91% Mindanao 9,591 9,585 99% 3,929,500 2,794,445 71% Source: National Electrification Administration (NEA)

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4.1.1.3 Power Rates Power rates in the Philippines are extremely high by international standards. While direct comparison is difficult given how rates are subsidized in many cases, the power rates in Manila and Cebu are exhorbitantly high compared to other Asian countries, including Japan.

Figure 4-5 International comparison of power rates (indexed)

Index(Price/GDP per Capita PPP) As of 2015 1.2

1

0.8

0.6

0.4

0.2

0

Cebu

Seoul

Hanoi

Dhaka

Manila

Beijing

Jakarta

Karachi

Yangon

Mumbai

Bangkok

Da Da Nang

Colombo

Vientiane

Shanghai

Singapore New Delhi New

Yokohama

Guangzhou

Ho Chi Minh Ho Chi BatamIsland KualaLumpur Source: Prepared by the Study Team based on JETRO data * Relative to the value of the Philippines in 2015 as 1.

Power generation costs are the component with the highest weight in Philippine power rates. According to the annual report for Meralco, which supplies power mainly to Metro Manila, generation costs in 2015 accounted for 54 percent of power rates. Something must be done about this generation component in order to abate the Philippines’ internationally high power rates.

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Figure 4-6 Average rates for Meralco (PHP/kWh) Rate component 2011 2012 2013 2014 2015 （Percent） Generation 5.12 5.61 5.39 5.34 4.49 54％ Transmission 1.06 0.98 0.86 0.92 0.87 11％ Distribution 1.59 1.56 1.66 1.61 1.49 18％ System Loss 0.52 0.52 0.46 0.44 0.37 4％ Taxes/Subsidies/Universal 0.85 0.97 1.08 1.11 1.00 12％ Charge FIT-Allowance － － － － 0.04 0％ Total 9.14 9.46 9.45 9.42 8.26 － Source: Meralco

Incidentally, generation costs for 2015 dropped 16 percent from the previous year. According to Meralco, this reflects the lower fuel costs and lower wholesale prices on the WESM. Finally, the “FIT – Allowance” portion is collected from power consumers under ERC direction to cover introduction of renewable energies with the FIT program as introduced by the Philippine government. The Philippine government introduced the FIT program in 2012, but the collection of the allowance portion began in 2015. This portion would inclease further in the future, as the amount of renueable energies incleases. In order to reduce power generation cost, Inproving power generation efficiency would be important.

Figure 4-7 Difference in power generation efficiency between coal-fired power plants in Japan and the Philippines

Source: METI

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4.1.1.4 Disaster Resiliency Similar to Japan, the Philippines is one of the disaster-prone countries and reducing disaster risk is important in power sector too.

Figure 4-8 World Risk Report (2016): Inadequate Infrastructure Pushes Up the Risk of Disaster

Source: University

4.1.2 Mindanao

4.1.2.1 Overview of the Power Sector in Mindanao Power demand in Mindanao is increasing as the local economy awakes. Power consumption has increased by approximately 40 percent in the past 10 years. Total power generation for 2014 was 9,481 GWh, a 33 percent 10-year increase. In terms of recent trends, the demand-supply balance is improving as new coal-fired plants continue to be built since 2016.

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Figure 4-9 Mindanao power consumption by sector

Source: Prepared by the Study Team based on DOE data

Figure 4-10 Philippine power generation by region

Source: Prepared by the Study Team based on DOE data

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Figure 4-11 Total Mindanao power generation (2002-2014)

10,000 9,000 8,000 7,000 6,000

5,000 GWh 4,000 3,000 2,000 1,000 0 2002年 2003年 2004年 2005年 2006年 2007年 2008年 2009年 2010年 2011年 2012年 2013年 2014年

Biomass Solar Hydro Geothermal Oil-based Coal

Source: DOE

In 2015, 44 percent of power was generated by hydropower, followed by diesel power at 32 percent. As Mindanao residents depend on hydropower as their main power source, many power plants on the island have historically been located in the north, where water resources are plentiful. In contrast, roughly half of Mindanao’s overall demand is concentrated in the Davao area in the southeast, meaning that power generated in the north must be transmitted south. Further, hydropower is susceptible to fluctuations in water resources, making it weak in droughts and similar situations. Also, note that with the many coal-fired power plants going online in 2016 and beyond, the energy mix is projected to change greatly. As shown in the figure below, coal will comprise 56 percent of power in 2017.

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Figure 4-12 Mindanao power generation weights by source (2015 and 2017)

Source: MinDA

4.1.2.2 Current Status of Study Regions

(1) Davao Region The Davao Region has four active diesel power plants and two active hydropower plants generating a cumulative total of 252.8 MW. By energy source, diesel generates 205.7 MW, and hydropower generates 47.1 MW. Further, three power plants owned by the NPC Small Power Utilities Group (NPC-SPUG) supply power to off-grid areas. The NPC-SPUG plants, located in Davao del Norte and Davao del Sur, generate a total of 1.34 MW. Davao’s ECs and power utilities are as given below.

Electric cooperatives: • Davao Oriental Electric Cooperative (DORECO) • Davao del Norte Electric Cooperative (DANECO) • Davao del Sur Electric Cooperative (DASURECO) Power utilities: • Davao Light Power Company, Inc. (DLPC)

(2) Caraga Region The Caraga Region has no power plants; it depends entirely upon power generated

96 elsewhere in Mindanao for its electricity. Each Caraga province has its own EC. Each province’s EC purchases power for distribution to the region from Mindanao IPPs through the power grid, owned by the National Grid Corporation of the Philippines (NGCP). Caraga’s ECs and power utilities are as given below.

Electric cooperatives: • Surigao del Norte Electric Cooperative • Surigao del Sur Electric Cooperative • Agusan del Norte Electric Cooperative • Agusan del Sur Electric Cooperative

(3) Northern Mindanao Region Active power plants in Northern Mindanao are as follows: eight hydropower plants, including micro hydro power; five diesel power plants; one coal-fired plant; one biomass plant; one solar power array. These power plants generate a combined total of 1,172 MW. By energy source, hydropower generates 739.9 MW, coal generates 232 MW, diesel generates 163.2 MW, biomass generates 35.9 MW, and solar generates 1 MW. Northern Mindanao generates 63 percent of Mindanao’s total hydropower generation, including micro hydro, and is greatly dependent upon hydropower. Northern Mindanao’s ECs and power utilities are as given below.

Electric cooperatives: • Misamis Occidental I Electric Cooperative (MOELCI I) • Misamis Occidental II Electric Cooperative (MOELCI II) • Misamis Oriental I Electric Cooperative (MORESCO I) • Misamis Oriental II Electric Cooperative (MORESCO II) • First Bukidonon Electric Cooperative (FIBECO) • Bukidnon II Electric Cooperative (BUSECO) • Camiguin Electric Cooperative (CAMELCO) • Lanao del Norte Electric Cooperative (LANECO)

Power utilities: • Cagayan Electric Power and Light Company, Inc. (CEPALCO) • Iligan Light and Power, Inc. (ILPI)

(4) Soccsksargen Region The Soccsksargen Region has three active diesel power plants and one active geothermal plant generating a cumulative total of 189.5 MW. By energy source, diesel generates 81 MW,

97 and geothermal generates 108.5 MW. Soccsksargen’s ECs and power utilities are as given below.

Electric cooperatives: • Cotabato Electric Cooperative (COTELCO) • South Cotabato Electric Cooperative I (SOCOTECO I) • South Cotabato Electric Cooperative II (SOCOTECO II) • Sultan Kudarat Electric Cooperative (SUKELCO)

Power utilities: • Cotabato light and Power, Inc. (COLIGHT)

4.1.2.3 Location of Mindanao Power Plants by Power Source

(1) Hydropower According to the DOE, as of the end of 2016, Mindanao has 14 active hydropower plants, the majority of which are concentrated in Northern Mindanao. Davao, whose power demand is highest, has only three hydropower plants: TUDAYA 1 (6.6 MW) and 2 (7 MW), SHIBULAN HEP (42.6 MW), and TALOMO HEP (4.5 MW). A location map of existing hydropower plants is given below.

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Figure 4-13 Location map of existing hydropower plants

Source: Prepared by the Study Team based on DOE data

(2) Coal-fired power All of the coal-fired plants in Mindanao are recent additions; only five were active as of the end of 2016. The existing plants are: Villanueva, Misamis Oriental (since 2006; 232 MW); Santa Cruz, Davao del Sur (since 2015; 300 MW); Malita, Davao Oriental (since 2016; 150 MW); Maasim, Sarangani (since 2016; 118 MW). A location map of existing coal-fired plants is given below.

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Figure 4-14 Location map of existing coal-fired plants and future scheduled projects

Plant Name：Mindanao Coal U1&U2 Location ：Villaueva, Misamis Oriental Capacity ：232MW Plant Name： Thermal CFBC Coal-Fired Power Plant ： Plant Name FDC MISAMIC U1&U2 Location ：Balingasag, Misamis Oriental ： Location Villaueva, Misamis Oriental Capacity ：165MW Capacity ：270MW Plant Name：Therma South U1&U2 Plant Name： FDC MISAMIC U3 Location ：Santa Cruz, Davao Del Sur Location ：Villaueva, Misamis Oriental Capacity ：300MW Capacity ： 135MW

Plant Name：GNPower Clean Coal-Fired Power Plant Plant Name ：SMC Malita U2 Location ：Kauswagan, Lanao del Norte Location ：Malita, Capacity ：540MW Capacity ：150MW

Plant Name：SMC Malita U1 Plant Name：SEC Location ：Malita, Davao Occidental Location ：Maasim, Saragani Capacity ：150MW Capacity ：118MW Plant Name：Southern Mindanao Coal Operating Fired Power Station Unit2 Future scheduled project Location ：Maasim, Saragani ： Capacity 100MW Source: Prepared by the Study Team based on DOE data

(3) Geothermal The only active geothermal power plant in Mindanao is the geothermal power plant in Davao del Sur. According to the DOE, there are a 108.48 MW geothermal plant in development in Cotobato del Norte and seven geothermal plants in the pre-development stages. A location map of existing geothermal plants and plants in the pre-development and development stages is given below.

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Figure 4-15 Location map of existing geothermal plants and plants in pre-development or development

Balingasag, Misamis Oriental （20MW)

Mainit, Surigao del Norte Ampiro, Misamis Occidental （30MW) （30MW)

Lakewood, Zamboanga del Sur （40MW) North Cotabato geothermal power plant Mt.Shibulan-Kapatagan, Capacity：108.48MWe Davao del Sur

Mt. Talomo-Tico, North Cotabato

Mt. Zion, North Cotabato （20MW）

Mt. Apo geothermal power plant Operating Capacity：103.2MWe Development stage Pre-development stage

Source: Prepared by the Study Team based on DOE data

4.1.2.4 Future Scheduled Projects in Mindanao

The future scheduled projects in Mindanao will generate a combined capacity of 1,687.9 MW. By energy source, 1,510 MW of this capacity will be coal-fired, 29.54 MW will be diesel- fired, 134.2 MW will be hydropower, and 14.2 MW will be biomass. The future projects scheduled in Mindanao are listed in the following chart.

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Figure 4-16 List of future scheduled projects Rated Target Name of the Project Location Capacity Commercial (MW) Operation Coal FDC-Misamis CFB Coal-Fired Power Villanueva, Misamis Oriental 405 Nov-Dec 2016 Plant Project SMC Davao Power Plant Project Phase Malita, Davao del Sur 150 Nov 2016 I, Unit 1 SMC Davao Power Plant Project Phase Malita, Davao del Sur 150 Dec 2016 I, Unit 2 Balingasag Thermal CFBC Coal-Fired Balingasag, Misamis Oriental 165 Jan-May 2017 Power Plant GNPower Kauswagan Clean Coal-Fired Kauswagan, Lanao del Norte 540 Mar 2018 Power Plant Southern Mindanao Coal Fired Power Maasim, Sarangani 100 2018 Station Unit 2 Oil-based Peakpower Soccsargen, Inc. Bunker General Santos City, South 13.94 Dec 2016 Fired Power Plant Cotabato Peakpower San Francisco, Inc. Bunker San Francisco, Agusan del Sur 5.2 Mar 2017 Fired Power Plant Peakpower Budiknon, Inc. Bunker Fired , Bukidnon 10.4 Jun 2017 Power Plant Hydro , Compostela New Bataan 2.4 Jan 2017 Valley Manolo Fortich 1 Santiago, Bukidnon 43.40 Jun 2017 Manolo Fortich 2 Santiago, Bukidnon 25.40 Jun 2017 , Agusan del Norte 25 Dec 2017 Puyo Hydoelectric Power Project Jabonga, Agusan del Norte 30 Jul 2018 Asiga HEPP Santiago, Agusan del Norte 8 Aug 2019 Biomass PTCI Rice Husk-Fired Biomass Maguindanao 1.6 Nov 2016 Cogeneration Facility GEEC Biomass Cogeneration System Maguindanao 2.6 Nov 2016 LPC Rice Husk-Fired Biomass Power Maguindanao 10 Nov 2016 Plant Project Total 1687.9 Source: MinDA

4.1.2.5 Rural Electrification

As in Luzon and Visayas, nearly all Mindanao bangarays have electricity. As illustrated by the following chart, however, electricity has not yet permeated to the more remote parts of the bangarays. With policy stressing improvement of local economic disparities in Mindanao, electrifying these pockets is also important. Electrification rates are particularly low in ARMM; only 36 percent of ARMM households had electricity as of 2014.

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Figure 4-17 Mindanao electrification rates (2014) Barangays Connections Energized/ Energized/ Region Potential Completed % Potential Completed % To date To date Total Mindanao 9,591 9,585 99% 3,929,500 2,794,445 71% Region IX 1,865 1,865 100% 654,000 463,960 71% Region X 1,843 1,843 100% 750,700 625,762 83% Region XI 896 896 100% 555,600 425,380 77% Region XII 1,230 1,230 100% 892,000 558,142 63% ARMM 2,447 2,441 99% 483,600 171,904 36% CARAGA 1,310 1,310 100% 593,600 549,297 93% Source: NEA

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4.2 Future Projects

4.2.1 The Philippines

The Philippine economy has continuously acchived high growth, and the growth rate is expected to remain around 7% in the future too. Along with this strong economic growth, it is expected that electricity demand continues to grow at a high rate. In the future

Figure 4-18 Philippine GDP Growth (2016-2030)

10 5000 8 4500 6 4000 4 estimates 3500 2 3000 0 2500 -2 2000 -4 1500 -6 1000 -8 500

-10 0

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Gross domestic product per capita, current prices (U.S. dollars, RHS) Gross domestic product, constant prices （percent change, LHS)

Source: IMF

Figure 4-19 GDP and Eectric power consumption (2016-2030) 1000 900 800 700 600 500 400 300

PowerConsumption 200

(kWh per Capita) (kWh per 100

Eletric 0 0 1000 2000 3000 4000 5000 GNI per Capita （USD)

Source: World Bank

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According to DOE forecasts for power supply and demand, by 2030, the Philippines as a nation must double its 2016 generation capacity to reach 35,000 MW. With the Philippines basically dependent on the investment decisions of private providers regarding power plants, all eyes are on whether enough will be invested moving forward.

Figure 4-20 Power supply and demand forecasts for the Philippines (2016-2030) (Units: MW)

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

2023 2016 2017 2018 2019 2020 2021 2022 2024 2025 2026 2027 2028 2029 2030

Existing Comitted Capacity Addition System Peak Demand

Source: DOE

As of the end of 2016, private investment commitments for power generation projects fell well short of what is required. Investments are particularly lower than expected for mid-merit projects, which include natural gas-fired power plants.

Figure 4-21 Required power supply capacity for the Philippines 2017 2030 Capacity Capacity Existing Committed Existing Committed Addition Addition Baseload 11,277 1,383 0 11,277 3,091 8,388 Mid-Merit 0 876 150 0 876 7800 Peaking 2,600 66 2,500 2,600 111 1,150 Source: DOE

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4.2.2 Mindanao

With coal-fired plants going online one after another in the second half of 2016 and first half of 2017, the power supply and demand balance in Mindanao is forecasted to improve. Even if the baseload is improved, however, Mindanao will need additional power plant investments over the medium and long terms. By 2030, Mindanao will need investments for 3,650 MW in total: 2,100 MW of baseload power, 1,500 MW of midmerit power, and 50 MW of peaking power.

Figure 4-22 Power supply and demand forecasts for Mindanao (2016-2030)

Source: MinDA

Figure 4-23 Required power supply capacity by grid Units: MW

Luzon Visayas Mindanao Total Baseload 4,320 1,968 2,100 8,388 Mid-merit 4,800 1,500 1,500 7,800 Peaking 950 150 50 1,150 Grid totals 10,070 3,618 3,650 17,338 Source: DOE

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4.3 Power Sector Infrastructural Needs in the Philippines and Mindanao

4.3.1 Power Sector Needs in the Philippines and Mindanao

In order to keep its economic growth stable and sustainable, the Philippines will need to create jobs and attract investment in manufacturing and other industry from both domestic and overseas sources. Stable, low-cost provision of infrastructure is critical to this goal. For power, this means maintaining a stable supply of power and reducing electricity rates. Looking at the power sector nationally, the baseload supply-to-demand ratio is improving for the Mindanao grid but continues to slump for the Luzon grid, where demand is greatest. Further, the electricity rates of Meralco, the power provider for Metro Manila, are high by international standards at around 10 PHP/kWh. All investment decisions on power generation assets are basically left in the hands of private providers, however; all the central players in the Philippine power sector are private enterprises, with public contributions limited to roles such as licensing and approval for electricity rates. Thus, chances are that the ideals will not be met in terms of longer-term power demands, energy self-sufficiency, electrification, power efficiency, environmental considerations, and other such factors if left up to the market, e.g. private investor decision. Some have voiced concerns that, if left up to the market, coal-fired plants relying on imported coal could come to dominate 80 percent of future power, or no one will pony up the large- scale capital required for investments in efficient, large-scale plants.

The following local needs were voiced in the local hearings conducted for this study:

 Meeting increasing demands Investment will be needed for power plants with sufficient capacity to meet the growing power demands in the future. Further, peak, mid-merit, and baseload power will also need to be rebalanced and expanded, and the existing and aging plants require overhauling.

 Rural electrification Energy needs to be spread through rural electrification. This will require stronger ECs and an enhanced distribution grid.

 Ensuring energy safety With natural gas reserves expected to deplete, there are concerns over how to ensure energy security as the country becomes increasingly dependent upon imported coal for its power.

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 The risks of climate change With the weight for coal-fired power expected to increase, the risks of climate change are noteworthy.

Note here that the DOE has given the following nine items as its outline of the direction it wishes to take as its energy strategy for 2016-2030, including ensuring energy security, expanding energy access, and promoting a low carbon future. The Philippine government is thus focusing on how to align the orientations of the market and national policy.

A) Ensure energy security B) Expand energy access to ensure affordable, reliable, sustainable and modern energy for all C) Promote a low carbon future D) Encourage investment in infrastructure and facilities E) Pursue development and implementation of local energy plans in support of regional economic development plans F) Implement and monitor sectoral roadmaps and action plans G) Advocate the passage of the department’s legislatie agenda H) Strengthen consumer welfare and protection through multi-sectoral murtimedia IEC programs I) Foster stronger international relations and partnerships

Next, the following chart expounds upon the details of each of the above nine items.

Figure 4-24 Strategic Directions Strategy Contents Ensure Energy ・ Improve reliability, availability and resiliency of energy Security infrastructure and facilities  Connect the Mindanao grid with the interconnected Visayas and Luzon Grids ・ Promote indigenous energy development and utilization ・ Promote technology innovation through research, development, demonstration and deployment  Clean, efficient and smart technologies ・ Climate proof energy infrastructures and facilities  Practice climate change adaptation and disaster readiness/ preparedness Expand Energy ・ Update and implement the Power Development Plan and its Access to Ensure component plans Affordable, reliable, ・ Achieve 100 percent electrification of targeted households in all sustainable and the three major islands modern energy for ・ Accelerate total privatization of PSALM assets all

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Strategy Contents Promote a low ・ Review fuel mix policy carbon future ・ Increase RE Capacity by 2030 (based on 2010 level) Encourage ・ Plan and build an appropriate portfolio of installed and investment in dependable power capacities for baseload, mid-merit and infrastructure and peaking requirements facilities ・ Build a “common carrier” LNG receiving and distribution infrastructure anchored at a future “Clean Energy City” Pursue ・ Formulate/ update Philippine Energy Plan and Regional development and Energy Plans implementation of  Mindanao Energy plan local energy plans  Visayas Energy Plan in support of  Mindoro Island Power Development Plan regional economic  Palawan Island Power Development Plan development plans Implement and ・ Alternative fuels monitor sectoral ・ Energy efficiengy and conservation roadmaps and ・ Resource development (oil, gas and coal) action plans ・ Renewable energy ・ Downstream oil, gas and coal ・ Power and electrification ・ ICT for energy Advocate the ・ Energy efficiency and Conservation, Natural Gas, Liquified passage of the Petroleum Gas (LPG), Energy projects as projects of national department’s significance, Petroleum Upstream Regulation legislative agenda ・ Review of existing laws such as EPIRA, Downstream Oil Industry, Renewable Energy Strengthen ・ Conduct nationwide IEC campaigns on ways to reduce consumer welfare electricity, fuel consumption and safe hundling and usage of and protection petroleum products through multi- ・ Promote energy awareness among public school students sectoral multimedia through conduct of seminars and field visits IEC programs Foster strengthen ・ Bilateral and multi-lateral energy cooperation international ・ Facilitate free trade agreements on energy trade and services relations and ・ UN’s Sustainable Energy for All (SE4All) partnerships Source: DOE

4.3.2 Roadmap for the Philippine Power Sector

The DOE has created roadmaps for each energy sector based on its aforementioned energy strategy. In the power sector, the DOE aims to focus on improving the following five items by 2030:

 Full restructuring of the electric power industry  Ensure power supply security  Expand access to electricity

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 Install enersy-resilient infrastructure  Achieve power market independence

In order to achieve these targets, the DOE has set an energy sector roadmap, which is broken into roadmaps for power generation, transmission, distribution, and provision; market development; and a systematic mechanism for assistance. These roadmaps are shown below.

(1) Generation Short-Term (2016 – 2017) Mideum-Term (2018 – 2020) Long-Term (2021 – 2030) ・ Declare Power Projects as Project ・ Continuing efforts to ・ Reduce emission of National Significance encourage investments in levels of fossil-based  Exemption from Real power generation power plants Property Tax and Local  Continue ・ Pursue the entry of Taxes developing market- new and emerging  Express grant of business driven policies technologies for power permit and licenses to  Improve generation (e.g. operate transparency in ocean, fuel cells, ・ Institute fuel mix policy for power policies and nuclear, etc) generation regulations ・ Provide the portfolio of required ・ Implement national additional baseload, mid-merit and strategy for efficiency in peaking power plants to meet 24/7 power generation sector electricity demand and reserve requirements in Luzon, Visayas and Mindanao grids ・ Encourage private sector investments in power generation ・ Pursue privatization of NPC/ PSALM power generating facilities

Source: DOE

(2) Transmission Short-Term (2016 – 2017) Mideum-Term (2018 – 2020) Long-Term (2021 – 2030) ・ Facilitate timely completion of ・ Continue implement ・ Complete transmission projects to: transmission system Interconnection of the  Connect new power projects upgrades and expansion Visayas and and enable injection of program Mindanao Grids power generated in the grid ・ Adopt Resiliency ・ Develop energy-  Remove congestions Program through resilient Transmission presence in the existing regrofitting of existing System transmission facilities poles and transmission ・ Interconnect relatively ・ Enhance rules and procedures in facilities to withstand 300 larve SPUG areas the conduct of Transmission kph wind velicity (e.g. Palawan, System Impact Studies (SIS) ・ Inclease transmission Mindoro, Siquijor, ・ Provide guide for investors in backbones and etc.) to the main grid power generation siting through alternative transmission enhance and ersponsive corridors Transmission Development Plans (TDP) ・ Study or facilitate interconnection of the three major grids – Luzon, Visayas, and Mindanao (Leyte-

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Mindanao Interconnection Projct) and interconnection in the main grids, emergent Island-grids (e.g. Mindoro) ・ Ensure adequate contracted capacities for reserves

Source: DOE

(3) Distribution Short-Term Mideum-Term Long-Term (2016 – 2017) (2018 – 2020) (2021 – 2030) ・ Facilitate timely implementation of necessary ・ Continue implement distribution line Distribution Facilities (e.g. CAPEX provision) upgrades and expansion programs for ・ Enhance Distribution Development Plan (DPP) better services at the least cost to towards operational and institutional efficiency consumers ・ Strengthen regulatory support ・ Continuing improvement in operational ・ Facilitate economies of scale in the Distrubution efficiency and good governance in the Uilities’ Operation (eg, Joint Actions or demand operations and management of aggregation and supply auctioning) Distribution Utilities ・ Provide policy and regulatory support to new and emerging needs of the consumers ・ Increase transparency mechanism in rates and charges ・ Ensure adequate power supply contracts to suerve Captive Market through Competitive Selection Process ・ Enhance power supply contracts to include among others replacement power and penalty provisions

Source: DOE

(4) Supply Short-Term (2016 – 2017) Mideum-Term (2018 – 2020) Long-Term (2021 – 2030) ・ Mandatory contestability for 1 MW ・ Start Retail Aggregation ・ Implement RCOA in and up electricity end-users ・ Open access for 500 kW Mindanao ・ Full open access for 750 kW and and below above Contestable Customers ・ Conduct Market Studies for Retail Aggregation (750 kW and 500 kW) ・ Increase transparency in the retail supply contracting

Source: DOE

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(5) Market Development Short-Term (2016 – 2017) Mideum-Term (2018 – 2020) Long-Term (2021 – 2030) ・ Implement WESM Design ・ Implementation of ・ Forwards Market/ rovements / NMMS Mindanao Electricity Financial ・ Appoint Independent Market Market Transmission Rights/ Operator ・ Researve/ Energy Market Day-ahead market/ ・ Continuing privatization of NPC Co-optimization Derivatives Market assetsin Luzon/Visayas/Mindanao ・ Operationalize ・ Demand Bidding in ・ Policy for Embedded Generators Renewable Energy the WESM ・ Undertake preparatory activities in Market the implementation of Mindanao ・ Continuing privatization Electricity Market of NPC assets in ・ Develop Roadmap for Smart Grid Luzon/Visayas/Mindanao ・ Smart Grid Policy for all Sectors

Source: DOE

(6) Institutional and Support Mechanism Short-Term (2016 – 2017) Mideum-Term (2018 – 2020) Long-Term (2021 – 2030) ・ Intensify Information, Education and Communication (IEC) campaign ・ Continuing Market Operations Audit and Metering Service Provided Review ・ WESM Rules Review ・ Establishment of DOE Electric Power Database Management System ・ DOE Capacity Building ・ Monitoring of Market Operator Performance ・ Monitoring of compliance to WESM Rules ・ Regular submission ・ Supervise/ assist ECs institutional strengthening program ・ Support to enhance power generation planning through procurement of generation planning software and transmission planning tools

Source: DOE

4.3.3 List of Priority Projects

Upon both broad and close examination, priority projects along the lines of those given in the following chart should align well with the current state of Philippine power infrastructure, local needs, and the Philippine strategic directions for the power and energy sectors as outlined to this point.

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Figure 4-25 Tentative priority projects for the power and energy sectors Local Needs, Tentative Priority Projects Aligned with Local Needs and Strategic Stragetic Direction Direction Ensuring energy ・ Developing/utilizing domestically-produced energy security: improving ・ Introducing LNG, building logistical infrastructure energy self- sufficiency Ensuring energy ・ Linking the Mindanao grid to the Luzon and Visayas grids security: ・ Linking larger islands to the main grid rebalancing power ・ Responding to climate change, introducing disaster adaptation supply and demand technology ・ Enhancing the power grid and alternate routes ・ Building durable energy transmission systems

Investing in power ・ Introducing smart technology sources for ・ Introducing new technology (marine current power, fuel cells, efficiency nuclear power, etc.) ・ Overhauling existing plants ・ Introducing facilities to improve distribution system losses ・ Upgrading power generation operations ・ Upgrading the power grid

Expanding energy ・ Promoting rural electrification access Promoting a low ・ Introducing renewable energies carbon future ・ Introducing clean coal-firing plants Source: Prepared by the Study Team

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Chapter 5 Using Japanese Technology to Solve Issues with Philippine and Mindanao Infrastructure

5.1 Transport

5.1.1 Japanese Technology Compatible with Local Needs

The hilly terrain covering much of Mindanao has to date slowed construction of high- standard roads. Road construction in such hilly terrain requires tunnels, long bridges, and other structures and slope protection work in many sections; there are hopes that Japan will provide technical assistance. While Special Terms for Economic Partnerships (STEP) have been used for projects using Japanese technology to date, moving forward, a framework is needed for Japan-tied ODA loans in which technology transfer is the focus. Competition in bidding for Philippine infrastructural development has heated up in recent years: in addition to Philippine construction companies, Chinese, Korean, and Spanish companies have also submitted bids. Taking pride in their quality control and schedule management, Japanese companies are extremely unlikely to be competitive in such price- centered general international bids. STEP, with its requirement that 30 percent of the materials used be Japanese, is showing its limitations in terms of project format. Tunnel construction, for example, is a field in which Japanese companies distinguish themselves with their expert knowledge. The specific materials used are not important; the key to a good tunnel is to proceed with the work based on the actual geology, soil conditions, and groundwater status: details which can only be ascertained after excavation. Thus, expanding the project format to include training local construction contractors during the work by providing expert guidance should expand the use of Japanese technology.

Figure 5-1 Japanese technology compatible with local needs in the transport sector Sector Technologies Roads ・ Tunnels, tunnel excavation ・ Long bridge construction (all-weather steel material) ・ Slope protection, slope monitoring Logistics ・ Field surveying for logistics using tracking data ・ Securing disaster logistical routes and transport planning (developing disaster prevention facilities, etc.) Source: Prepared by the Study Team

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5.1.2 Short List for Promising Mindanao Projects

Broadly considering the above, we propose the following as the projects in Mindanao showing promise.

Functionally enhancing the Philippine-Japan Friendship Highway Since forming the development plan in the late 1960s for a Philippine-Japan Friendship Highway passing north to south through Surigao, Butuan, Tagum, and Davao City in eastern Mindanao, the Japanese government has assisted in development and repair for the road. This section, also acting as Route AH26 of the Asian Highway Network, could help raise the Mindanao economy to the next level. If made more convenient with four-lane traffic throughout and climbing lanes, and safer with measures to prevent accidents, the road could be built into the basic infrastructure for a stronger, high-quality transportation network and stimulate intercity traffic. Further, the same mountain sections of this route repeatedly experience the same damage, resulting in costly repairs. Transferring Japanese disaster response technology would increase road standards, making it stronger against disaster and more reliable for transport.

Building a high standard highway between Cagayan de Oro and Davao City Similar to the above, a more drivable route between Cagayan de Oro and Davao City is another project of high priority. With this section traversing many hills and mountains, a high proportion of the section will require bridges, tunnels, and other structures. This presents an opportunity to utilize Japanese technology: long bridges, mountain tunnels, slope protection, and more.

Enhancing and increasing capacity for Cagayan de Oro ports, and developing access roads Expanding the Mindanao Container Terminal (MCT) and building a port access road should strengthen Cagayan de Oro as a gateway to Mindanao. While the MCT expansion plan and access road development are both currently underway, there are issues: an interchange was considered for the junction of Route NH9 and the port access road, but the section is being developed at grade due to owner management and budgetary factors. The interchange is needed to ensure the port’s function as a gateway.

Developing logistical infrastructure in Butuan (roads and ports) Butuan is building industry with local products while utilizing Japanese products, technology, management, and capital under new mayor Ronnie Lagnada, a Japan supporter. Together with DPWH, projects are underway to expand Masao Port and Nasipit Port into marine logistical hubs and to develop a logistic road connecting the ports to an industrial

115 development. The port expansion projects and development of a road across require Japanese governmental assistance. (The Overseas Construction Association of Japan (OCAJI) conducted a baseline survey on industrial park development and logistical infrastructure in 2015.)

Develop the northern Mindanao corridor (Butuan, Cagayan de Oro, Misamis, and Dipolog)

Originally operating as a unified region, Misamis has split into multiple provinces. This route is extremely important to rekindling the area's sense of unity by strengthening connections between the gateway cities in Northern Mindanao. This section is currently not designated as a national highway. The road condition is poor; alignment is poor, and the pavement is mainly concrete. With fragile product being transported, the road should preferably be developed to a higher standard.

Develop the Davao City-Samal Island connection road While the METI study reported that future traffic demand would only be in the range of 10,000 vehicles per day, improving access to Samal Island is expected to develop the region and increase passenger demand for Davao given the tourist resources on Samal Island. If a bridge is selected for the access road, structural construction will have strict vertical space restrictions in light of the clearances needed for both large passing ships and flights landing and taking off at Davao Airport. Going with a tunnel would eliminate the clearance considerations, but carry higher construction costs. Whether bridge or tunnel, Japanese companies could be enlisted to utilize their high skills in this project.

Technical assistance in road asset management/management assistance for pilot road Pavement on the intercity roads is deteriorating from overloading, and road failures are constantly occurring at the same locations due to disasters. In this case, a technology transfer program would be effective means for introducing asset management for a road section as a pilot project and building an appropriate O&M system. The transfer would be to establish O&M management to better regulate and control overloading, as well as to help reduce life cycle costs (LCC) for the road.

Form a master plan for Butuan urban transportation Butuan is a hub city of approximately 350,000 located in the Caraga Region in northeastern Mindanao. Increases in the Butuan population and traffic, as well as urban development, are starting to affect the smoothness of traffic. Having built up an inter-city cooperation with Toyama, a low-carbon city, Butuan is pushing forward with its urban development utilizing Toyama knowledge, with convenient mass transit infrastructure at its core.

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Thus, Japanese ODA strategy is to assist the city from the early stages in formulating an urban transportation master plan which anticipates additional traffic demand in the future and developing quality infrastructure. This in turn paves the way for Japanese technology, products, management, and capital to be introduced.

Conduct logistics surveys in Mindanao (incl. passenger survey) This project would involve conducting an origin-destination survey and a freight transport survey to determine what has changed since 2004 and collect basic data to be used in discussing the future needs for transport infrastructure.

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5.2 Electricity

5.2.1 Japanese Technology Compatible with Local Needs

In light of sector needs as summarized in Chapter 4, Japanese companies were interviewed to select the Japanese technology compatible with local power and energy sector needs. The findings are summarized in the table below.

Figure 5-2 Japanese technology compatible with local needs in the power and energy sectors

Local Needs, Tentative Priority Projects Aligned Compatible Japanese Stragetic Direction with Local Needs and Strategic technology Direction Ensuring energy ・ Developing/utilizing ・ LNG terminals security: domestically-produced energy improving energy ・ Introducing LNG, building self-sufficiency logistical infrastructure Ensuring energy ・ Linking the Mindanao grid to ・ CCGT-fired power plants security: the Luzon and Visayas grids ・ Enhanced disaster rebalancing power ・ Linking larger islands to the response for power supply and main grid distribution grids demand ・ Responding to climate change, introducing disaster adaptation technology ・ Enhancing the power grid and alternate routes ・ Building durable energy transmission systems Investing in power ・ Introducing smart technology ・ Overhauling existing plants sources for ・ Introducing new technology ・ Upgrading management for efficiency (marine current power, fuel power generation cells, nuclear power, etc.) (Expanding O&M service ・ Overhauling existing plants with IoT devices) ・ Introducing facilities to improve distribution system losses ・ Upgrading power generation operations ・ Upgrading the power grid Expanding energy ・ Promoting rural electrification ・ Rural electrification access (expanding the distribution grid, introducing a system combining diesel generation and renewable energies) Promoting a low ・ Introducing renewable ・ Renewable energies carbon future energies (geothermal, wind power, ・ Introducing clean coal-firing etc.) plants ・ Clean coal-firing plants Source: Prepared by the Study Team

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5.2.2 Short List for Promising Projects in the Philippines

Based on the information arranged in the previous section, listed below are the projects with promise in the Philippines:

Figure 5-3 Japanese technology compatible with local needs in the power and energy sectors

Project Region Possible Partners Remarks LNG terminal Luzon ・ Local private ・ Local companies want Japanese company technology. ・ PNOC ・ Some in the Philippines see potential for the country to be the LNG hub of Asia. CCGT-fired Luzon ・ Local private ・ Electricity could be sold to power plants company Mindanao if the Mindanao grid is ・ PNOC connected to the Luzon and Visayas grids. ・ Contingent upon introducing LNG as mentioned above. Clean coal-firing Mindanao ・ Local private ・ Important for Mindanao to link to plants company both the Luzon and Visayas grids ・ PNOC (so that electricity can be sold to Luzon) Overhauling Nationwide ・ Local private ・ Japanese companies are existing coal- company experienced in refitting equipment firing plants for existing facilities. ・ Could increase efficiency, reducing fuel costs and environmental loads. Geothermal Nationwide ・ Local private ・ Must also consider the risks of company, etc. prospecting and possibilities for public funding in promoting geothermal resource development. Rural Mindanao ・ NEA, NPC- ・ Also of interest to ADB. electrification and outlying SPUG islands Enhanced Nationwide ・ ECs, etc. ・ JICA baseline study complete. disaster ・ Philippine side interest also high. response for power distribution grids Upgrading Nationwide ・ Local private ・ Japanese companies are management for company, etc. experienced in installing IoT. power generation (Expanding O&M service with IoT devices) Source: Prepared by the Study Team

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5.3 Action Plan for Solving Issues

Japan has much to offer the Philippines and Mindanao in terms of solving their developmental issues. An action plan outlining these solutions follows.

(1) Create power sector action plan and proceed promising projects

As posed in the Philippine-Japan summit meeting held in the Philippines in January 2017, Japan will assist in formulating power sector action plan and will also assist in solving issues in the Philippine power sector. For specific projects which show promise, see Figure 5-4 in the preceding section. Note that the government will need to continue to actively step in for areas of need and use private investments.

(2) Assist in major transport sector projects to develop Mindanao

Transport sector projects, including development of roads, ports, and urban transportation, contribute greatly to growth in the Mindanao economy. Thus, such major transport sector projects will require active assistance in their formation and performance. Those projects showing promise for Japanese technology are given in 5.1.3 Short List for Promising Mindanao Projects.

(3) Help formulate a “Mega Mindanao Vision” focused on core cities

There would be great meaning in formulating a greater development vision covering the whole of Mindanao, similar to JICA’s Mega Cebu Vision 2050 for urban development in the 13 municipalities of . Currently, the Japan side is strengthening its connections with the 4-5 cities seen as the core for this vision, and these cities see benefit in Japan assisting formulation of the vision.

(4) Establish Mindanao PPP Center/platform

Promoting investment by PPPs and other private parties is essential to growing the Mindanao economy and society. A PPP unit or PPP platform specialized for Mindanao needs to be established to push for development with private and public sectors hand in hand. Further, the Japanese could provide benefit by helping to establish and operate this effort, or by helping to conduct a pilot PPP project.

(5) Assist development across Mindanao Much of Mindanao is slow to develop, especially in ARMM and other the western areas. Also, improving safety Mindanao-wide is an essential element in attracting new companies

120 to invest. JICA has actively supported western Mindanao in the past with the Comprehensive Capacity Development Project for Bangsamoro and other projects. It is hoped that they will continue providing similar grant aid in the future to achieve SDGs, improve resiliency, and build peace.

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Chapter 6 Overview of Seminar

6.1 Objective and Overview of Seminar

As part of this study, METI and MinDA jointly held the Mindanao Power/Energy Seminar in Davao City of the Philippines. The seminar first focused on potential for infrastructural development in Mindanao, then went on to give an overview of the current status for infrastructural development and future projects focusing mainly on the power sector. Further, the seminar served as a forum to encourage matching Japanese technology and expertise with local project needs in Mindanao. The seminar introduced officials with connection to Mindanao infrastructure to the technologies available from Japanese companies, with the aim of winning yen loan projects and other projects for Japanese companies. More than anything, the seminar brought together key players in local infrastructure projects from the public and private sectors of both countries to interact directly and updated them on infrastructural development in Mindanao. Among those in attendance were the of cities in the study and chairpersons of the local chambers of commerce, as well as both MinDA Chair Alonto and Deputy Executive Director Montenegro, who were on hand to give speeches. A summary of seminar details follows below:

Seminar title: Mindanao Power/Energy Seminar Date and time: 9:30-12:30, Feb. 16, 2017 Venue: Marco Polo Davao, Ballroom I&II Attendees: 120 total 58 Japanese (13 government officials, 45 private business) 44 Philippines and others (24Philippine government officials, 1 international organization, 19 private business)

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Figure 6-1 Seminar Venue

Source: Photographed by the Study Team

6.2 Seminar Agenda

The seminar agenda was as follows:

Time Agenda Speaker 9:00-9:30 Registration 9:30-9:35 Opening remarks Mr. Shinji Hirai, Director, Financial Cooperation Division, METI 9:35-9:40 Welcome remarks Sec. Datu Abul Khayr D. Alonto Chairman Mindanao Development Authority 1) Mindanao Development Plan 9:40-10:00 Outline and Issues of Mindanao Asec. Romeo M. Montenegro Development Plan Deputy Executive Director Mindanao Development Authority 2) Japan’s support and action plan for Mindanao Development 10:10-10:20 Mindanao Infrastructure Study Mr. Satoshi Yamada, Report Executive Director, Ernst & Young ShinNihon LLC 10:20-10:40 Q&A / Coffee break

3) Case Study Presentation 10:40-11:00 Improving Disaster Resiliency of Mr. Kenichi Kuwahara, Electric Power Distribution Shikoku Electric Power co., Inc Network Mr. Takeshi Kuwabara, SOMPO RISK MANAGEMENT & HEALTH CARE 11:00-11:20 Introduction of Small Size Mr. Taiga Todoroki Geothermal Power Plant Commercial, Thermal Power Global Sales, Toshiba Corporation

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11:20-11:40 History of Power / GSC Future Mr. Hiroshi Fujii Aspect Chief Technical Officer Mitsubishi Hitachi Power Systems Asia Pacific Philippines Branch 11:40-12:00 Chodai's Renewable Energy Mr. Satoshi Kato Projects towards Regional Head of Manila Representative Development in Caraga, Office, Chodai co., Ltd. Mindanao 12:00-12:10 Q&A 4) Actions to be taken by the Philippine Government 12:10-12:30 Philippine Energy Plan - Current Mr. Jesus Tamang Status and Future Plan Director, DOE 5) Networking Lunch

6.3 Summary of Seminar Discussions

A basic summary of the presentations and discussions at the seminar follows below.

(1) METI opening remarks  Opening Remarks (9:40-9:50)  Mr. Shinji Hirai, Director, Financial Cooperation Division, METI  Mentioned how PM Abe spoke of wanting to draft an action plan for power in Mindanao on his January 2017 visit to Davao. Thus, METI must deftly construct details to draft an action plan for power.  Mindanao has room for future growth and is key to Philippine-Japan bilateral relations.  The seminar’s theme—power and energy—is a key element to improving life for Mindanao residents.  As with the Philippines, Japan is beset with natural disaster, but has compensated for disasters with technology.  Wants to help grow the Philippine-Japan network with today’s seminar.

(2) MinDA welcoming remarks  Welcome Remarks (9:50-10:00)  Datu Abul Khayr D. Alonto, MinDA Chairman  Mindanao is currently open to investments from various countries.  Optimistic that investments in Mindanao will increase given Mindanao’s rich natural resources and recent burgeoning of ties with other countries.  The Mindanao economy will grow sustainably through infrastructural investments, including the ongoing 3,000 MW in power development and port development with assistance from JICA and other agencies.

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Figure 6-2 Remarks by METI and MinDA

Opening Remarks by Mr. Hirai, Director, METI Welcome Remarks by Sec. Alonto, MinDA Source: Photographed by the Study Team

(3) MinDA presentation  Outline and Issues of Mindanao Development Plan (10:00-10:30)  Romeo M. Montenegro, MinDA Deputy Executive Director Presented on the Mindanao investment situation.  Poverty and low electrification rates in ARMM are particularly concerning. MinDA is focused on improving the electrification rates.  Power generation rates for hydropower and other renewables has dropped from 95 percent 20 years ago to only 30 percent currently. Coal power generation has risen in the last five years.  While increasing base load capacity will take time, future plans are to increase renewables.  PPPs are of special interest for utilizing in the power sector.

(4) Ernst & Young ShinNihon presentation  Mindanao Infrastructure Study Report (10:30-10:40)  Mr. Satoshi Yamada, Executive Director, Office of Global Planning, Ernst & Young ShinNihon LLC Presented results on the study of Mindanao infrastructure.  Thinks Japan can assist in improving energy self-sufficiency and electrification rates. Notes the importance of public sector contributions in attracting investment.  While important to balance power supply and demand, leaving supply solely in the hands of the private sector could result in bias.  Japanese companies have the technology and want to invest, but sense risks in investing in Mindanao.

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(5) Japanese company presentations 1) Improving Disaster Resiliency of Electric Power Distribution Network (10:55-11:20)  Mr. Kenichi Kuwahara, Project Manager, Business Planning Dept., International Business, Shikoku Electric Power Co.; Mr. Takeshi Kuwabara, Vice President and Executive Officer, General Manager, Global Risk Engineering Services Dept., Sompo Risk Management & Health Care Presented on how to reduce the impacts of disaster on the Philippine distribution network.  Both Japan and the Philippines experience frequent typhoon damage.  Damage from natural disasters can never be completely eliminated, but it can be reasonably mitigated.  Consider the situation in terms of risk management: it may be difficult to secure funding, but taking preventive measures now will reduce the bottom line for measure costs and recovery costs from damage.

2) Introduction of Small Size Geothermal Power Plant (11:20-11:40)  Mr. Taiga Todoroki, Global Sales Group 4, Thermal Power Global Sales Dept. 2, Thermal & Hydro Power Systems & Services Div., Toshiba Corporation Presented on small geothermal power plants.  Large geothermal power plants require digging many wells, have high development costs, and must operate for some time to turn a profit.  In contrast, small geothermal power plants can be operational quickly by digging only a few wells. Further, dormant wells dug in the past can be reused.  There are two types of geothermal power: backpressure and condensation. Decide which to use based on well size, environmental regulations, and other factors.

3) History of Power / GSC Future Aspect (11:40-12:00)  Mr. Hiroshi Fujii, Chief Technical Officer, Mitsubishi Hitachi Power Systems (MHPS) Asia Pacific Philippines Branch Presented on the history of the steam engine and MHPS experience and bases in the Philippines.  MHPS works with the latest in technology, including the Integrated Coal Gasification Combined Cycle (IGCC), and has supply from more than 5,000 boilers worldwide.  In the Philippines, MHPS is currently working on a 500MW coal thermal power plant in San Buenaventura and other projects.  MHPS stresses training and wants to share Japanese technology with Filipinos.

4) Chodai's Renewable Energy Projects towards Regional Development in Caraga, Mindanao (12:00-12:20)

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 Mr. Satoshi Kato, Head of Manila Representative Office, Chodai co., Ltd. Presented on Chodai initiatives in the renewable energy sector in the Caraga Region.  Reported the status of a PPP project in the Butuan area in Caraga, as well as the results of the feasibility study Chodai conducted for METI on renewable energy.  Japanese companies see the Philippines’ location as favorable, but more companies enter the Luzon or Visayas markets than do the Mindanao market. Mindanao presents three risks: 1) safety, 2) government-related, and 3) local partner-related.  Myanmar may be touted as Asia’s final frontier, but Mindanao is on equal footing.

(6) Q&A (12:20-12:35)  The following questions and their answers came in the subsequent Q&A session:  We’re interest in investing in Mindanao. What is your plan for assuaging investor concerns on public order and security? (MinDA’s Montenegro) While peace negotiations have taken long, even within Mindanao, the civil unrest issues are limited to specific areas. Other areas are not affected. Also, the Philippine government and MinDA are committed to protecting private foreign company bases and private company assets in Mindanao.  It seems difficult to gain permissions to invest in hydropower in Mindanao. What are the government criteria for selecting hydropower projects? (MinDA’s Montenegro) All development projects for power generation are decided based on the Philippine national power generation plan and national priorities. Points of emphasis are whether the project fits environmental regulations and whether the power will sell on the market.

(7) DOE presentation and conclusion  Philippine Energy Plan - Current Status and Future Plan (12:35-12:45)  Mr. Jesus Tamang, Director, Energy Policy and Planning Bureau, DOE Presented on the Philippine power generation plan.

 Capital investments need to be resilient against disaster and must be concentrated for power generation, distribution, and transmission as a whole in order to ensure that the required power can be supplied.  Increasing electrification rates is important to the Philippine population as a whole.  As economic growth requires electricity, the government will press for power plants of the required capacity according to the national plan to be built, whether by issuing Executive Orders or other means.

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