Republic of the Philippines Department of Transportation and Communications and Philippine National Railways NORTH-SOUTH RAILWAY PROJECT – SOUTH LINE Project Information Memorandum August 2015 Transaction Advisors With Assistance From 0 Disclaimer This Project Information Memorandum (“PIM”) has been prepared by the Development Bank of the Philippines (“DBP”),the Asian Development Bank (“ADB”), and CPCS Transcom Limited (“CPCS”) on behalf of and in consultation with the Department of Transportation and Communications (“DOTC”) and Philippine National Railways (“PNR”). DOTC has engaged DBP and ADB to serve as the transaction advisors and CPCS to serve as the technical advisor (DBP, ADB and CPCS, collectively, the “Transaction Advisors”, and each a “Transaction Advisor”) to DOTC in the development, structuring and tendering of the North-South Railway Project – South Line (“NSRP South Line” or the “Project”) under the Philippine Build-Operate-Transfer Law (Republic Act No. 6957 as amended by RA 7718, the “BOT Law”) and its Revised Implementing Rules and Regulations (“Revised IRR”, as amended). This PIM does not purport to be all-inclusive or to contain all of the information that a prospective participant may consider material or desirable in making its decision to participate in the tender. No representation or warranty, express or implied, is made, or responsibility of any kind is or will be accepted by the DBP, ADB, CPCS, DOTC, PNR or the Government of the Philippines (“GOP”) or any of its agencies, with respect to the accuracy and completeness of this preliminary information. DOTC and PNR, by themselves or through the Transaction Advisors, may amend or replace any of the information contained in this PIM at any time, without giving any prior notice or providing any reason. In furnishing this PIM, DBP, ADB, CPCS, DOTC, PNR or the GOP or any of its agencies undertakes no obligation to provide recipients with access to any additional information, or to update, or to correct any inaccuracies which may become apparent in this PIM or any other information made available in connection with the Project prior to the issuance of the Instructions to Prospective Bidders (“ITPB”). Additional information shall be provided at appropriate times during the formal tender process. 1 No person has been authorized to give any information or make any representation not contained in this PIM and, if given or made, any such information or representation may not be relied upon as having been authorized by DBP, ADB, CPCS, DOTC, PNR or the GOP or any of its agencies. All information in this PIM is qualified by the terms and conditions of the ITPB and any supplemental bid bulletins that may be issued by the DOTC and PNR until the submission of bids. In case of any conflict between the information and terms in this PIM and the ITPB, the information and terms in the ITPB shall prevail. This PIM does not constitute a solicitation of bids for any aspect of the NSRP South Line. Solicitations of bids and bidding guidelines will be distributed separately. 2 Table of Contents Executive Summary 6 I. Introduction 8 A. The Republic of the Philippines 8 B. Project Overview 8 C. Project Implementing Agencies 9 II. Project Background 12 III. NSRP South Line – Commuter Line 15 A. Alignment and Fixed Infrastructure 16 B. Interface with Other Projects 17 C. Stations 18 D. Depots 19 E. Rolling Stock 19 F. Signaling and Communications 22 G. Performance Requirements 23 IV. NSRP South Line – Long Haul Line 24 A. Alignment and Fixed Infrastructure 25 B. Stations 26 C. Depots 26 D. Rolling Stock 27 E. Signaling and Communications 29 V. Other Project Parameters 30 A. NSRP South Line Cost 30 B. Right of Way 31 VI. Traffic Forecasts and Pricing 32 A. Long-Haul Line 32 3 B. Commuter Line 35 C. Fare Setting 37 VII. Procurement Process 38 A. Legal Basis for Procurement 38 B. Nature of the Procurement Process 38 VIII. Concession Structure 41 A. Legal Framework for Concession 41 B. Project Structure 41 IX. Key Commercial Features of the Concession Agreement 43 X. Investment Framework 45 A. Taxation 45 B. Foreign Exchange 46 C. Foreign Ownership and Management 46 XI. Indicative Timetable 48 4 Purpose of this Memorandum The purpose of this PIM is to provide preliminary information to potential investors on the proposed Project, and to solicit comments and feedback on key Project issues, the bid process and timing for the selection of the concessionaire. The feedback from this preliminary briefing and subsequent consultations with investors will help inform the DOTC, PNR, and the Transaction Advisors in finalizing the terms of the Project structure and the timetable for the tender process. Investor feedback is actively encouraged. In particular, the DOTC and PNR are keen to receive investors’ thoughts and feedback on the following areas: (i) Appetite and interest in participating in the Project. (ii) Risks and concerns associated with the Project. (iii) Manner and timetable for the competitive tender process. Interested parties may send feedback, questions, and comments by email to DBP and ADB at the contact information provided below: Srinivas Sampath / Pratish Halady Francis Nicolas Chua / Nigel Rillon Office of Public–Private Partnership Investment Banking Asian Development Bank Development Bank of the Philippines +63-2-632-4444 +63-2-812-5069 [email protected] [email protected] / [email protected] Information Contained in this Memorandum This PIM summarizes the major elements of the NSRP South Line, including the service area, tariff structure, the configuration of Metro Manila’s transport system, government institutions that would be involved in the implementation of the Project, and transaction structure. It also summarizes possible investment issues and the BOT Law procurement process. 5 Executive Summary The Investment Opportunity The NSRP South Line, sponsored by the DOTC and PNR, is a keystone transport project of the GOP under its Public-Private Partnership (“PPP”) Program launched by President Benigno C. Aquino III in November 2010. The NSRP South Line is part of the GOP’s efforts to promote inclusive growth. The Project aims to revive and improve the existing railway to provide enhanced passenger transport services to currently underserved areas in southern Luzon and encourage more productive activities. PNR currently operates a 56 km commuter line from Tutuban to Calamba. PNR briefly suspended its commuter line service so that PNR could conduct a safety audit and inspection of the line, but has since resumed operations of the commuter line as of July 23, 2015. PNR also operates a 35 km commuter line from Naga to Sipocot with four trips daily. PNR used to offer train services to Legazpi, Albay, but operations have been suspended since October 2012 as a result of train derailment in Sariaya, Quezon caused by typhoon damage to bridges along its railway route. The Project will entail the construction, financing, operations, and maintenance of three (3) segments of rail connecting Manila to the provinces of southern Luzon: 1. Commuter Line from Manila to Calamba City in Laguna (56km); 2. Long-Haul Line from Manila to Legazpi City in the Bicol Region (478 km main line), which may be developed on a phased basis based on delivery of right of way; and 3. Long-Haul Line Expansion consisting of (a) an extension from Legazpi City to Matnog in Sorsogon (117km) (the “Long Haul Line Extension”) and (b) a branch line from Calamba to Batangas City (58km) (the “Long Haul Line Branch”), to be developed once right of way is available. 6 The Project was approved by the National Economic and Development Authority (“NEDA”) Board, chaired by President Aquino, on 16 February 2015 and will be tendered under the BOT Law. DOTC and PNR, as the representative governmental agencies on behalf of the GOP, will be the direct counterparties and grantors under the concession agreement for the Project (the “Concession Agreement”) that will be awarded to and entered into by the winning bidder for the Project (i.e., the “Concessionaire”). 7 I. Introduction A. The Republic of the Philippines The Republic of the Philippines is an archipelago comprising more than 7,100 islands located in Southeastern Asia. It has a total area of 300,000 km2, with the two largest islands (Luzon and Mindanao) taking up over 66% of the land area. With over 100 million people, the archipelago is the seventh most populated Asian country and 12th most populated country in the world. It is estimated that half of the population resides on the island of Luzon, where the Project will be located. Metro Manila, one end of the NSRP South Line, is the most populous of the twelve defined metropolitan areas in the Philippines and the 11th most populous in the world. As of the 2007 census, it had a population of over 11.5 million, comprising 13% of the national population. The Philippine economy is the 39th largest in the world, with an estimated 2014 gross domestic product (GDP) of $290 billion. A newly industrialized country, the Philippine economy has been transitioning from one based upon agriculture to an economy with more emphasis upon services and manufacturing. Of the country's total labor force of around 41 million, the agricultural sector employs close to 32% of the labor force and accounts for 14% of GDP. The industrial sector employs around 14% of the workforce and accounts for 30% of GDP. The GOP, under President Benigno C. Aquino III, launched in November 2010 an aggressive program for PPPs in order to mobilize much needed investments in infrastructure that would support its objectives of sustained and inclusive economic growth. The implementation of PPP projects has become a cornerstone of the Aquino administration. Since its inception in 2010, ten (10) projects (valued at about $3 billion) have been awarded.