Bridges across Oceans Initial Impact Assessment of the Philippines Nautical Highway System and Lessons for Southeast Asia April 2010 0 2010 Asian Development Bank All rights reserved. Published 2010. Printed in the Philippines ISBN 978-971-561-896-0 Publication Stock No. RPT101731 Cataloging-In-Publication Data Bridges across Oceans: Initial Impact Assessment of the Philippines Nautical Highway System and Lessons for Southeast Asia. Mandaluyong City, Philippines: Asian Development Bank, 2010. 1. Transport Infrastructure. 2. Southeast Asia. I. Asian Development Bank. The views expressed in this book are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. 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Note: In this report, “$” refers to US dollars. 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines Tel +63 2 632 4444 Fax +63 2 636 2444 www.adb.org For orders, please contact: Department of External Relations Fax +63 2 636 2648 [email protected] Table of Contents Abbreviations v Foreword vi Acknowledgments vii Introduction 1 The Regional Context of the Study 1 The Philippines Context 2 Philippines Ro-Ro: Concept, Policy Process, and Framework 4 The Ro-Ro Concept 4 Policy Process 4 The Ro-Ro Policy and Regulatory Framework 6 Conclusion 8 An Initial Assessment of the Economic Impact of Ro-Ro in the Philippines 9 The Philippine Ro-Ro Network 9 Impact on the Structure and Operations of the Maritime Industry 9 Impact on Passenger Mobility 11 Impact on Cargo Mobility 12 Impact on Transport Costs 14 Impact on Logistics, Operations, and Strategy 19 Impact on Local Area Development 22 The Roxas, Oriental Mindoro Experience 22 Impact on Tourism 28 Impact on Agricultural Productivity 29 Impact Summary and Lessons 34 Impact Summary 34 Lessons for aSEA 35 References 36 Appendix Description of the Strong Republic Nautical Highway 37 iii Bridges across Oceans: List of Tables Initial Impact Assessment Table 1: Poverty Incidence Levels in Selected Poorest Provinces in the Philippines 3 of the Philippines Nautical Highway System and Table 2: Increasing Cargo Handling Rates 5 Lessons for Southeast Asia Table 3: Comparative Shipping Costs within Philippine Islands and the Region 5 Table 4: Domestic Cargo Handling Rate Increases 15 Table 5: Comparative Cost of Conventional Shipping vs. Ro-Ro Shipping 15 Table 6: Cost Comparison between Conventional and Ro-Ro Shipping for San Miguel Corporation 18 Table 7: Nestlé’s Frequency of Trips per Destination 20 Table 8: Dangay Port Traffic Statistics 23 Table 9: List of Routes Serviced by Vallacar Transit 27 Table 10: Fare Comparison for the Manila–Iloilo Route Using Different Modes of Transport 29 Table 11: Northbound Movement of Agricultural Products (Panay–Luzon) 31 Table 12: Agricultural Products Passing along the Matnog–Allen Route 33 List of Figures Figure 1: Major Philippine Nautical Highways 10 Figure 2: Comparison between Containerized Shipping and Ro-Ro Shipping 11 Figure 3: Number of Passengers Using the Western Nautical Highway 12 Figure 4: Number of Shipcalls in the Western Nautical Highway 13 Figure 5: Number of Vehicles Passing through the Western Nautical Highway 13 iv Abbreviations ADB Asian Development Bank aSEA Archipelagic Southeast Asia ATS Aboitiz Transport System CO2 carbon dioxide DOH Department of Health DOTC Department of Transportation and Communications EO Executive Order KFC Kentucky Fried Chicken Lo-Lo load-on/load-off LCO2 liquid carbon dioxide LGU local government unit MARINA Maritime Industry Authority PPA Philippine Ports Authority Ro-Ro Roll-on/roll-off RRTS Ro-Ro Ferry Terminal System SMC San Miguel Corporation SMEC Southern Marine Economic Corridor TAF The Asia Foundation USAID United States Agency for International Development v Foreword The archipelagic region of Southeast Asia, comprising 24,000 islands, is unique in the world in its development challenges. Economic growth centers are few and most of the islands have remained isolated from mainstream economic growth and are mired in poverty. Economic activities are at low levels and many social services are primitive. Most islands rely on poor, infrequent transport services, which are often unreliable. Physical isolation is the most pressing development challenge that these islands are facing. Yet, connecting islands in the traditional manner through increased shipping services, has proven to be almost prohibitive in costs, in terms of investments in ports and facilities, and the subsidies needed to provide a minimum standard of service. The development of the Philippines Nautical Highway system—using roll-on/roll-off vessels— shows that there is hope for the millions of poor in archipelagic Southeast Asia. The development of the system started in 2003, with the issuance of a presidential order following lengthy but healthy discussions among different interest groups. Once the order was signed, the system developed rapidly, and today consists of three main north–south trunks and numerous lateral connections. The initial impact of this policy reform measure has been encouraging. Transport costs have been reduced, as have transit times of goods, and the frequency of deliveries has increased. Businesses have started to change their business models, farmers in isolated areas now have enhanced market access, business activities have increased on islands where there was hardly any before, local government revenues have increased, and tourism has expanded. Importantly, the system has developed with limited amounts of public investment. Port facilities needed are minimal compared to traditional ports, and most of the investments have come from the private sector, in vessels, buses, trucks, and in some cases ports. Of course, there remains a pressing need to continuously upgrade and maintain the road system, and in due course invest in other infrastructure, but this is becoming affordable as a result of the increased economic activity. This report presents the findings of an initial impact study conducted by the Asian Development Bank in collaboration with The Asia Foundation. The purpose is to show that relatively simple policy reforms in the area of sea transport can have large positive impacts on the lives of millions of poor who now live in isolation. The lesson for archipelagic Southeast Asia is that policy reforms allowing the introduction of roll-on/roll-off transport systems, coupled with small public investments, could also have material impact on regional economies. The Asian Development Bank hopes to contribute to the public policy debate and related changes through this report. Kunio Senga Director General Southeast Asia Regional Department Asian Development Bank vi Acknowledgments This report was prepared by a team from the Asian Development Bank (ADB) and The Asia Foundation (TAF), comprising Enrico L. Basilio (TAF), Barend Frielink (ADB), Jeremiah Acena, Rafael Hernandez, and Jaime Faustino (TAF). Valuable comments were provided by Nina Merchant and Steve Rood (TAF), as well as Myles Buerano (ADB consultant). vii Introduction The Regional Context of the Study trade using larger and larger vessels, and the introduction of containerized trade. Today, Archipelagic Southeast Asia (aSEA)1 has a most trade between aSEA and other regions, unique geography characterized by more and within aSEA, is through a limited number than 24,000 islands and long distances. Even of ports. Shipping even through these ports is Peninsular Malaysia has many archipelagic constrained in Indonesia and the Philippines by characteristics compared to the mainland difficulties in land transport access. economies. This geography demands a special approach to connectivity—to the ability to Eastern Indonesia and the southern Philippines move goods and people, and to travel and are therefore dependent on shipments from undertake other transport services.2 On many their respective capitals in non-containerized islands, businesses face prohibitive transport vessels, incurring high transshipment and costs to larger, especially international markets. transit costs in the process.3 In BIMP-EAGA,4 for Small, local markets limit economies of example, there are 33 designated secondary scale, growth, and economic opportunities. ports. Most of these ports have poor facilities, In addition, national and local policy and are not well connected to the hinterland regulatory environments differ widely between because of the poor quality of roads, and and within countries, providing additional are serviced by smaller vessels. In fact, while disincentives for the private sector to operate. Singapore’s fleet is large and new, the Philippines and Indonesia rely on small, aging As with all archipelagos, the people of aSEA vessels, especially for transport within the have always engaged in seafaring trade respective nations. activities with