THE ROAD-RORO TERMINAL SYSTEM: Bicol Mainland-Masbate-Cebu Connection

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THE ROAD-RORO TERMINAL SYSTEM: Bicol Mainland-Masbate-Cebu Connection Final Report THE ROAD-RORO TERMINAL SYSTEM: Bicol Mainland-Masbate-Cebu Connection by Ruperto Alonzo, Team Leader, Gudmund Rognstad, RoRo Shipping Expert, Asaf Ashar, Ports Specialist, and Adoracion Navarro, Research Associate Prepared for Marietto A. Enecio, Sr. Vice President Development Bank of the Philippines (DBP) Republic of the Philippines Submitted for review to USAID/Philippines OEDG January 9, 2007 Economic Modernization through Efficient Reforms and Governance Enhancement (EMERGE) Unit 2003, 139 Corporate Center, 139 Valero St., Salcedo Village, Makati City 1227, Philippines Tel. No. (632) 752 0881 Fax No. (632) 752 2225 Preface This report is the result of technical assistance provided by the Economic Modernization through Efficient Reforms and Governance Enhancement (EMERGE) Activity, under contract with the CARANA Corporation, Nathan Associates Inc. and The Peoples Group (TRG) to the United States Agency for International Development, Manila, Philippines (USAID/Philippines) (Contract No. AFP-I-00-00-03-00020 Delivery Order 800). The EMERGE Activity is intended to contribute towards the Government of the Republic of the Philippines (GRP) Medium Term Philippine Development Plan (MTPDP) and USAID/Philippines’ Strategic Objective 2, “Investment Climate Less Constrained by Corruption and Poor Governance.” The purpose of the activity is to provide technical assistance to support economic policy reforms that will cause sustainable economic growth and enhance the competitiveness of the Philippine economy by augmenting the efforts of Philippine pro-reform partners and stakeholders. This report, an investment folio, was written by Dr. Ruperto Alonzo, Team Leader, Gudmund Rognstad, RoRo Shipping Expert, Asaf Ashar, Ports Specialist, and Adoracion Navarro, Research Associate, after several months of analysis beginning in May 2006 at the request of Marietto A. Enecio, Senior Vice President, Development Bank of the Philippines. Brief biographies of the team members are included on the following page. The views expressed and opinions contained in this publication are those of the authors and are not necessarily those of USAID, the GRP, EMERGE or the latter’s parent organizations. Biographical Sketch of the Study Team Ruperto Alonzo – Team Leader Ruperto Alonzo has conducted several studies over the past three decades on the Philippines’ infrastructure sector, including transport. His first experience as transport economist dates back to 1973, in the preparation of the feasibility study of the EDSA interchanges. In 1995 he was with the team that conducted an economic evaluation of liberalization and deregulation in the domestic shipping industry for USAID. He is currently Professor of Economics at the University of the Philippines: As NEDA Deputy Director-General in August 1998-January 2001, he chaired the technical boards of the Investment Coordination Committee and Infrastructure Committee and represented NEDA in the Toll Regulatory Board. He holds an M.A. in Economics from the University of the Philippines and has completed Ph.D. coursework at the University of Chicago. Gudmund Rognstad – RoRo Shipping Expert Gudmund Rognstad specializes in transport analysis and logistics, shipping, and ferry operation and management. He is the president and owner of SHIPDECO, a Norwegian shipping development company that was formed to assist the Norwegian Aid Agency and other donor organizations in shipping and shipyard projects in developing countries. His experience in Philippine projects dates back to 1987, when he became a project manager for two shipping-related projects. In 1995, he worked as project manager for the technical assistance component of the Domestic Shipping Modernization Program loan by DBP from Japan. He has been doing collaborative work with DBP since then. He holds an M.Sc. in Physics and Operations Research from the Technical University of Trondheim, Norway. Asaf Ashar – Ports Specialist Asaf Ashar has extensive international experience with multi-modal transportation systems for containerized, breakbulk and bulk cargoes, with an emphasis on the linkage between ships, barges, trains, and trucks. He has directed numerous planning projects, including master plans for ocean and inland waterway ports, intermodal railyards, inland distribution centers (dry ports), and rail-to-barge transfer facilities. He has been involved in a wide array of port-related feasibility studies, including: productivity enhancement systems and handling technologies for containerized, bagged and neo-bulk cargoes. He is currently Professor at the University of New Orleans and Research and Group Manager for Port and Intermodal Systems of the university’s National Ports and Waterways Institute. He holds a Ph.D. in Maritime Studies and International Transport from the University of Wales and an M.S. in Marine Systems Management from the Massachusetts Institute of Technology. Adoracion Navarro – Research Associate Adoracion Navarro has evaluated several transport projects for the Philippine government while at the NEDA-Infrastructure Staff and the Build-Operate-Transfer Center. She has produced infrastructure-related research papers for the University of the Philippines-Law Center and the Philippine Institute for Development Studies. She has also conducted research in a multilateral setting, as Summer Scholar at the International Monetary Fund. She currently works as Transport Economist for WBG Consulting Services International and Project Economics Consultant for the Asian Development Bank. She holds an M.A. in Economics from the University of the Philippines and an M.P.A. in Economic Policy Management from Columbia University. THE ROAD-RORO TERMINAL SYSTEM Bicol Mainland-Masbate-Cebu Connection Executive Summary The Road-RoRo Terminal System (RRTS) is one of the flagship programs of the Arroyo administration. Executive Order (EO) 170 and subsequent issuances set the policy that the RRTS be integrated into the national highway system. The RRTS can be made to work with significant private sector participation, as presented by this study in its viability analysis of the Bicol Mainland-Masbate-Cebu connections. In practice, roll-on-roll-off (RoRo) vessel operation and RoRo terminal operation in the Philippines are often viewed as separate activities—the government through the Philippine Ports Authority (PPA) or the local governments provide the port services and the private sector supplies the vessel services. However, this study points out that in principle, for any defined route, the two are actually interdependent and complementary investments (one cannot operate without the other), and there is merit in “bundling” both into a single business if integration proves to be viable. For the case at hand, i.e., the Bicol Mainland-Masbate-Cebu connections, integrated operation, even under the new RRTS paradigm of charging only passage and terminal fees and eliminating certain other passenger and vehicle fees and charges, is financially viable, offering sufficient returns to attract private sector interest not just in vessel but in port operations as well. Macro and Micro Perspectives The 2004-2010 Medium-Term Philippine Development Plan (MTPDP) lays out the blueprint for a nautical highway system in the archipelago by identifying the road- RoRo links that need to be developed, namely, the Western Nautical Highway (also called the Strong Republic Nautical Highway or SRNH), the Central Nautical Highway, and the Eastern Nautical Highway. The 919-kilometer SRNH was promoted in 2003 to enhance the accessibility of local destinations in the western part of the country; since then, it is reputed to have reduced travel costs by 40 percent for passengers and 30 percent for cargo. A visit to Roxas, Oriental Mindoro—one of the links in the SRNH—provides an interesting perspective on the impact of the SRNH on the local economy. The Roxas- Caticlan route became part of the SRNH when RoRo vessels started operating in the route in June 2003. With the opening of the route, the municipality of Roxas in Oriental Mindoro was transformed from a sleepy village into a town with steadily growing commercial activities. The RRTS Concept The RRTS concept regards ferries as part of the road network. Thus, traveling along an RRTS sea route is similar to crossing a bridge (like San Juanico). RRTS is not to be regarded as part of regular shipping. When crossing a bridge or using an expressway, one may have to pay a toll fee, but under no circumstances is one asked to declare what he or she carries in the vehicle. One just pays for the passage or, in other words, the use of that facility. The RRTS concept suggested by this study is based on criteria and conditions that are distinct and separate from regular shipping, namely: 1. Only self-driven vehicles and passengers are allowed. There is therefore no need for cargo handling. 2. No manifests are required for cargo inside the vehicles. 3. The passage rate for vehicles is based on occupancy of lane meters onboard. 4. A given RoRo terminal is dedicated to a single ferry operator, with no other users than the operator himself. 5. The ferry operator is given a special franchise and may enjoy no direct competition for that particular terminal. 6. The ferry operator is responsible for compliance with safety regulations. 7. The ferry operator is selected (ideally) based on an open bidding for the franchise. 8. The franchise may be given to the one who offers the highest fee (either lump sum or present value at a specified discount rate) to the franchise issuer, with lane meter charges fixed, or to the one who offers the lowest lane meter charges to the users. This concept is largely consistent with the policies laid down by EO 170, issued in January 2003, and its subsequent amendments. EO 170 spells out the elements and principles of the RRTS. It defines RRTS as a network of RoRo terminals all over the country, separated by a distance of not more than 50 nautical miles and linked by RoRo vessels. It also defines the RRTS toll as consisting of the terminal fee, passage fee, and berthing fee. EO 170-A, issued in June 2003, amended EO 170 and abolished the 50- nautical mile distance qualification.
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