Infrastructure In-Depth: Philippines

Infrastructure In-depth: Philippines

2015 Investment Guide by KPMG in the Philippines

In this issue:

Philippine Economy and Good Governance

Infrastructure Development Plan

Insights and Perspectives The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice and after thoroughly considering the circumstances of a particular situation. The views and opinions The articles do not purport to give advice on any particular issue or situation but are meant to be a general guide to the reader who expressed herein are those of the authors and interviewees and do not necessarily represent the views and opinions of R.G. should seek the advice of qualified professionals on issues specific to his situations. Although we endeavor to provide accurate and Manabat & Co., KPMG International or KPMG member firms. timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member © 2014 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member International have any such authority to obligate or bind any member firm. All rights reserved. firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

2015 Investment Guide Growthby and KPMG Opportunities in the Philippines in the Philippine Infrastructure Sector

2014-2015 Edition

IntroductionIntroduction 01Introduction Contributors 02Introduction Contributors02 03Contributors Acknowledgements 02 03 Contributors Acknowledgements03 Acknowledgements 0304 AcknowledgementsAppendix 04 Appendix 0467 Appendix Glossary 8504 GlossaryAppendix8574 AboutGlossary 86 85the About 86PhilippinesGlossary About the Philippines 86the 75 AboutPhilippines the 87 Philippines 87 Directory Directory Directory87 of Government of of DirectoryGovernment Government Agenciesof Government Agencies Agencies 90 90 KPMG 90Agencies KPMG KPMG Directory Directory 76 Directory About of Partners of ofKPMG Partners Partners and 77 and Principals and Directory Principals Principals 92 of Partners 92 Our 92 Our Values Our Valuesand Values 94Principals 94 94 78 Our Values 79 08050808 14111414 22192222 36253636 45314545 TheAThe Economic PromisingThe Economic Economic NEDATheNEDA NEDA Philippine DPWHPavingDPWH DPWH- Paving -the Paving - Way Paving Building BuildingBuilding TheAddressingThe The PromiseEconomyPromisePromise mediumMediummediummedium term term termthe Throughthewaythe way through way through Good through through Throughthrough through ChallengestheChallenges Challenges developmentDevelopmentdevelopmentdevelopment GoodGovernanceGood Good PartnershipsPartnershipsPartnerships of anChallengesof anof an planPlanplanplan GovernanceGovernanceGovernance EmergingofEmerging anEmerging GlobalEmergingGlobalGlobal CityGlobalCity City City

2 | Infrastruct2 | Infrastruct2 | Infrastructure Guide:ure Guide:ure Philippines Guide: Philippines Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. IntroductionIntroduction 01Introduction Contributors 02Introduction Contributors 02 03Contributors Acknowledgements 02 03 Contributors Acknowledgements 03 Acknowledgements 0304 AcknowledgementsAppendix 04 Appendix 04 67 Appendix Glossary 85 04 Glossary Appendix8574 AboutGlossary 86 85the About 86PhilippinesGlossary About the Philippines 86the 75 AboutPhilippines the 87 Philippines 87 Direct Direct Dir87oryect oryof ory Government of of DirectoryGo Gover vernmentnment Agenciesof Government Ag Agenciesencies 90 90KPMG 90Agencies KPMGKPMG Directory Dir76 Direct ectAbout oryofory Par of ofKPMG tnersP arP artnerstners and 77 and Pr and Directoryincipals Pr Principalsincipals 92 of Partners 92Our92 Our Values Our Vand aluesValues 94Principals 94 94 78 Our Values 79 575739 636347 717153 80 8057 61

WaterWaterEnhancing IssuesIssuesIssues Developingin inin TaxationTaxationTaxation of of of ProjectProjectFunding Risk Risk of Project Risk ResourcesResourcesWater DevelopingDevelopingEnergy InfrastructureInfrastructureInfrastructureInfrastructure Management ManagementInfrastructure Management Resources EnergyEnergyResources ProjectsProjectsProjects Projects ResourcesResources

InfrastructureInfrastrInfrastruct Guide:ure Guide: Philippines Philippines | 3 | 3 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. IntrIntroductionIntroductionoduction

PhilippinePhilippine realThe realgrossPhilippines gross domestic domestic continues product product to (GDP)be one(GDP) gre ofw grethe 5.7w strongest percent5.7 percent inand the infastest-growing firstthe firstquarter quarter of 20of14, 2014, whicheconomies which was was low in er low Southeast thaner than the 7theAsia..2 percent 7.2 With percent angro impressivewth gro wthfor full for average yearfull year 201 GDP 3201 and3 growth andthe the of 6.8 percent6.8 percent6.3% growth grosince wthin 20the in12. 20start 12.Notwithst of Notwithst the Aquino andinganding administrationthe slothewdo slowdown inwhicwn 2010, whic h was theh was attributedcountry attributed to theto impactthe remainsimpact of the of strong nattheural nat in uraldisasters its economicdisasters in 20 inmanagement1 320 on13 agricult on agricult ureand and ureis committed andto a totightening a tightening to biasbias in monet in improvingmonetar y policies,ary itspolicies, investment the Philippinesthe Philippines climate w asin w orderstillas stillthe to thirdtheachieve third fastest furtherfastest growing progress.growing economyeconomy inRating Asia in Asia afagenciester af Chinater China have and alsoandMala Malaconsistentlyysia.ysia. In theIn upgradedlastthe lastfive fivy ears,thee y ears,credit the Philippinesthe ratings Philippines of the real realGDP GDP grePhilippines.w gre atw an at a anv Moody’serage average of assigned6.33 of 6.33 percent, percent,a positive the thirdthe outlook third highest highestof Baa3 growth gro to wththerate country rateafter after in SingaporeSingapore Septemberand andChina. China. 2014 while Standard & Poor’s improved its rating with a stable outlook of BBB in May 2014. Fitch affirmed the country’s long-term RobertoRoberto G. Manabat RobertoG. Manabat G. Manabat The countrThe countr y'sforeign strongy's strong andperf ormancelocalperformance currency has caughthas issuer caught the atdefault thetention attention ratings of global of globalat ‘BBB-’ and ‘BBB,’ ChairmanChairman & CEOChairman & CEO & CEOinvestorsinvestors andrespectively, hasand beenhas been recogniz in recogniz Marched, someed, 2014. somewhatwhat belatedly belatedly, by rating, by rating agencies.agencies. Last Lastyear, y theear, three the three rating rating agencies, agencies, Moody’s, Moody’s, Standard Standard & & R.G.R.G. Manabat ManabatR.G. & Co. Manabat& Co. & Co. According to the East Asia and Pacific Economic Update report Poor’s (S&P) and Fitch finally upgraded the rating on the country’s Poor’s (S&P)released and Fitc hrecently finally upgraded by World theBank, rating1 the on government the countr needsy’s to ramp external debt to investment grade although the markets have, for external debtup to its investment spending ingrade order although to sustain the the markets country’s have, economic for several years, been pricing Philippine debt at tighter spreads than its several years, momentum. been pricing Infrastructure Philippine debt spending at tighter and spreads development, than its in particular, credit rating. credit rating.are essential in order to support growth, calling the projects under the public-private partnership program as “new sources of growth”. Underlying the remarkable performance are strong fundamentals Underlying theRepresentatives remarkable perf of ormancethe International are strong Monetary fundament Fundals also which have been forged over years of persistent sound macro policies, which have beenhighlighted forged the over need years to ofexpedite persistent infrastructure sound macro investment policies, and fiscal consolidation, an independent monetary policy framework, and fiscal consolidation,open up an the independent sector to increased monetar competition y policy frame bywork, lifting and restrictions flexible exchange rate policies. These reforms have allowed the flexible exchange on foreign rate policies.investorsThese for long-term reforms growth.have allowed the PhilippinesPhilippines to graduate to graduate from from the erst thewhile erstwhile "sick "sickman manof A sia"of A intosia" oneinto one of the most dynamic economies in the region. of the most Thedynamic Philippine economies government, in the region. on the other hand, is focused on enhancing infrastructure albeit implementing the projects and The country benefits from the significant steady flows of remittances The country developmentbenefits from plans the significant remains a steady challenge. flows It ofis workingremit tances on critical from 10 million overseas Filipino workers and the burgeoning Business from 10 millionreforms overseas in order Filipino to address workers these and the challenges, burgeoning improve Business governance Process Outsourcing (BPO) sector that taps the natural advantages of Process Outsourcingand create (BPO) a better sector investment that t aps climate the nat as ural the advantages infrastructure of sector educated young Filipinos in English-speaking shared services skills. educated youngcontinues Filipinos to bein English-speakingconsidered as a key shared driver ser invices the country’sskills. rapid and sustained economic growth.

We hope that this guide will provide an overview of the “The “ThePhilippine Philippineinfrastructure Development Development sector Program P rogramin ofthe this Philippines of go thisvernment government with is practical is insights for commitcommitted toted investorssustain to sustain the looking growth the growth torate enter trajectory rate thistrajectory dynamicof 7-8 of percent 7-8 sector. percent by investingby investing in the in right the rightinfrastructure infrastructure both bothpurely purely public public and and purelypurely pri vate pri infrastructurevate infrastructure so that so the that sustainability the sustainability of suc ofh such growthgrowth can be can assured. be assured. But at But the at same the same time, time,we are we not are just not just blindedblinded by high by growth.high growth.As impor As important astant high as growthhigh growth is the is the inclusiinclusive growth.ve growth. Geographically Geographically, we have, we havemapped mapped out out wherewhere we can we mak cane mak a dente a ofdent po ofverty po vertyreduction.” reduction.” NEDA NED DeputyA Deputy Director Director RolandoTungpalan RolandoTungpalan

1 Enhancing Competitiveness in an Uncertain World, World Bank East Asia and Pacific Economic Update. October 2014.

1 | Infrastructure In-depth: Philippines 2 | Infrastruct2 | Infrastrureuct Guide:ure Guide: Philippines Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Contributors

Infrastructure In-depth: Philippines | 2 InfrastructInfrastructure Guide:ure Guide: Philippines Philippines | 3 | 3 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. ContrContributors ibutors ContributibutContr orsors

The EconomicThe Economic PromiseThe Pr omiseEconomic Promise The ChallengThe Challenges ofThees an of Challenges an of an ProjectProject Risk RiskManagement ManagementProjectBuilding Riskis through Managementis is EmerEmerging gingGlobalEnhancing GlobalEmerging Water GlobalResources frequentlyfrequently overlooked overlookedfrequentlyPartnerships yet is yet one overlooked is ofone of yet is one of City City Jerome CityGarcia is a Principal in the Transactions & Restructuring the morethe more critical critical elementsthePaul elements more Afable to critical isto currently elements a senior to Project Project Risk RiskManagement ManagementProject Riskis Managementis is manager in the Advisory group of group of R.G. Manabat & Co. He successfulsuccessful project project successfuldeliv eries.deliveries. project deliveries. frequentlyfrequently overlooked overlookedfrequently yet is yet one overlooked is ofone of yet is one of R.G. Manabat & Co. He has has over 15 years of experience in the more critical elementsthe more to critical elements to Generally,Generally, deliv ering delivGenerally,ering aservice project’ a project’ experience deliverings s in a different project’s the morethe criticalareas of elements mergers and to defineddefined scope scope on timedefined onindustries timeand scope withinand such within on as time energy, and financial within successfulsuccessful projectacquisitions, project successfuldeliv investmenteries.deliveries. project banking, deliveries. budgetbudget are c haracteristicsare characteristicsbudgetservices, ofare project publiccharacteristics of project sector, retail of and project Generally,Generally, delivcorporate ering delivGenerally,ering finance,a project’ a project’ and deliverings financials a project’s success.success. success.real estate. defineddefined scopeadvisory, scope on timedefined onhaving timeand been scope withinand previously within on time and within connected with several investment banks and financial Paul Patrick R. Afable Jerome Andrew institutions. H. Garcia

Developing Energy Addressing the Challenges Water Resources Water Resources NEDANEDA medium medium termNEDA Resourcesterm medium term Water ofResour an Emergingces Global City developmentdevelopment plandevelopment planHenry Antonio plan is currently the Project Project RiskCynthia RiskManagement Management ProjectHernandez Riskis joined Managementis R.G. is Project Project Risk RiskManagement ManagementProjecthead of Riskis the ManagementisAdvisory group isof R.G. frequentlyfrequently oManabatverlooked overlookedfrequently & Co.yet inis y 2014etone overlooked is as ofone a of yet is one of frequentlyfrequently overlooked overlookedfrequentlyManabat yet is y etone &overlooked isCo. ofone He ofhas yet extensive is one of the morethe more criticalDirector critical elementsthe under elements more Transactions to critical to elements & to the morethe more critical critical elementstheexperience elements more to critical onto forensic elements and fraudto successfulsuccessful projectRestructuring project successfuldeliv eries. delivof theeries. Advisoryproject deliveries. successfulsuccessful project project successfuldelivinvestigations, eries.deliveries. project business deliveries. process Generally,Generally, delivgroup. ering deliv SheGenerally,ering a currentlyproject’ a project’ delivering shandles s a project’s WeWe are are grateful grateful for forthe the valuable valuable insights insights of theof the following: following: Generally,Generally, deliv ering delivGenerally,ering areviews, project’ a project’ corporatedeliverings s rehabilitation, a project’s defineddefined scopeengagements scope on timedefined on timeand in the scope withinand infrastructure within on time and within and risk management and defineddefined scope scope on timedefined on timeand scope withinand within on time and within budgetbudget are cand haracteristicsare energy characteristicsbudget sectors. ofare project characteristics of project of project compliance. budgetbudget are c haracteristicsare characteristicsbudget ofare project characteristics of project of project success.success. success. Mr. Mr.Rolando Rolando G.Tungpalan G.Tungpalan Henry D. Antonio Ma. Cynthia C. DeputyDeputy Director-General, Director-General, Investment Investment Programming Programming Hernandez NationalNational Economic Economic Development Development Authority Authority

A Promising Economy; Taxation of Infrastructure The Philippine Medium term Projects Ms.Ms. Maria Maria Catalina Catalina E. Cabral E. Cabral DPWHDPWH - Paving - Paving theDPWH Developmentthe - Paving the Plan IssuesIssues in Karenin Quizon-SakkamIssues in has been in AssistantAssistant Secretary Secretary way waythrough through Good wayGoodEmmanuel through Bonoan Good is the Vice DevelopingDevelopingthe tax practiceDeveloping for more than seven years. Her client portfolio DepartmentDepartment of Public of Public Works Works and and Highways Highways GovernanceGovernance GovernanceChairman and Head of Tax of R.G. EnergyEnergy Resources ResourcesEnergy Resources Manabat & Co. He is a former includes companies engaged in Project Risk ManagementProject Risk Managementis is Project Project Risk RiskManagement ManagementProject Riskis Managementis is Project Risk ManagementUndersecretary is of the Philippine the financial service and business frequently overlookedfrequently yet overlooked is one of yet is one of frequentlyfrequently overlooked overlookedfrequentlyDepartment yet is y etone overlooked is of ofone Finance of yet and is one of frequently oprocessingverlooked sectors.yet is one Karen of has also Ms.Ms. Cosette Cosette Canilao Canilao the morethe more critical critical elementsthe exercisedelements more to critical oversight to elements functions to over the morethe more criticalparticipated critical elementsthe elements morein a numberto critical to of elements tax due to ExecutiveExecutive Director Director successfulsuccessful project project successfuldelivthe eries.deliv Bureaueries. project of Internal deliveries. Revenue successfulsuccessful projectdiligence, project successfuldeliv compliance eries.deliveries. project review deliveries.and Generally,Generally, deliv ering delivGenerally,ering aand project’ the a project’ customs deliverings s authority. a project’s Generally,Generally, delivtax reportingering delivGenerally,ering a project’ engagements a project’ deliverings s a project’s Pulbic-PrivatePulbic-Private Partnership Partnership Center Center of the of thePhilippines Philippines Emmanueldefineddefined P. scope Bonoan scope on timedefined on timeand scope withinand within on time and within Mary Karendefined defined scopeinvolving scope on timedefined onclients timeand from scope withinand various within on time and within Quizon-Sakkam industries. Mr. Mr. Geno Geno Armstrong Armstrong Paving the Way Through Funding of Infrastructure Principal,Principal, Advisory Advisory Good Governance Projects KPMGKPMG LLP LLP (U.S.) (U.S.) Michael Guarin is the head of the Sharad Somani is a Partner at Transactions & Restructuring KPMG in Singapore who leads the BuildingBuilding through throughBuildinggroup of through R.G. Manabat & Co. Mike TaxationTaxation ofInfrastructure of Taxation and Projectsof practice Mr. Mr. Reid Reid Tucker Tucker PartnershipsPartnerships Partnershipshas extensive advisory experience InfrastructureInfrastructurefocusing ProjectsInfrastructure onProjects the Asia Pacific Projects region. Director,Director, Advisory Advisory ProjectProject Risk RiskManagement ManagementProjectin the Riskisbanking, Managementis mining, hospitality is Project Project RiskSharad RiskManagement Management specializesProject Riskis in Project Managementis is frequentlyfrequently overlooked overlookedfrequentlyand yet media is yet one overlooked sectorsis ofone ofin the yet is one of frequentlyfrequently oFinanceverlooked overlooked frequentlyand yet has is handledyet one overlooked is ofone various of yet is one of KPMGKPMG LLP LLP (U.S.) (U.S.) Philippines. projects across infrastructure the morethe more critical critical elementsthe elements more to critical to elements to the morethe more critical critical elementsthe elements more to critical to elements to sectors including broadband, successful projectsuccessful deliveries. project deliveries. successfulsuccessful project project successfuldeliv eries.deliveries. project deliveries. successful project deliveries. industrial infrastructure, energy Mr. Mr.Jonathan Jonathan Jong Jong Generally, delivering a project’s Generally, delivGenerally,ering a project’ deliverings a project’s MichaelGenerally,Generally, Arcatomy deliv ering deliv ering a project’ a project’s s Sharad SomaniGenerally, delivand eringtransport. a project’s defined scope on time and within AssociateAssociate Director Director definedH. Guarindefined scope scope on timedefined on timeand scope withinand within on time and within defineddefined scope scope on time on timeand withinand within budgetbudget are characteristics are characteristicsbudget ofare project characteristics of project of project budgetbudget are characteristics are characteristicsbudget ofare project characteristics of project of project KPMGKPMG Services Services Pte. Pte. Ltd. Ltd. (Singapore) (Singapore)

3 | Infrastructure In-depth: Philippines 2 | Infrastruct2 | Infrastructure Guide:2ure | InfrastructureGuide: Philippines Philippines Guide: Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. WeWe are are gratefulWe grateful are fgratefulor ftheorProject the v aluablefor Risk v aluablethe Management vinsightsaluable insights insightsof theof the following: of following: the following: Project Risk Management Geno Armstrong is a principal in Jonathan Jong is a Chartered Civil KPMG’s Major Projects Advisory Engineer and experienced project Mr. servicesMr.RolandoRolando practice.Mr. G. Rolando He T G.ungpalan has Tungpalan G.Tungpalan manager who has advised substantial experience with cost infrastructure clients on project DeputyDeputy DirectorDeputy Director-General,auditing, Director-General, independent In-General,vestment In riskvestment and Investment Programming Programming Programming delivery, project controls, risk NationalNational EconomicNationalcontrols Economic assessments, EconomicDevelopment Development and DevelopmentAuthorityAuthority Authority management, project monitoring assisting companies in developing and project reporting. He has appropriate strategies that extensive experience in Ms.Ms. Marpromote Maria Ms.successfulCatalinaia CatalinaMaria project E. Catalina Cabral E. Cabral E. Cabral construction, infrastructure, delivery. transportation, aviation, rail and Geno Armstrong AssistantAssistant SAssistantecretary Secretary Secretary Jonathan Jong mass-transit projects. DepartmentDepartmentDepartment of Public of Public W oforks WPublicorks and Wand Highworks Highw andays aysHighw ays

Ms.ProjectMs. Cosett Risk Cosett ManagementMs.e Canilao Cosettee Canilao CanilaoWe are grateful for the valuable insights of the Reid Tucker is currently a director following: inExecutive KPMG’sExecutive Major Executive DirectorProjects Director Advisory Director Pulbic-PrivatePulbic-PrivatePulbic-Private Partnerpractice Partner with ship Partnerovership Center 16 yearsCentership ofof theCenter of thePhilippinesMr. PhilippinesofRolando the PhilippinesG.Tungpalan project management, construction Deputy Director-General, Investment Programming management, project accounting National Economic Development Authority and contractMr. Geno administration.Mr. Ar Genomstrong In Armstrong Mr.addition, Geno Reid hasAr mstrongassisted in establishingPrincipal, Principal, project AdvisoryPrincipal, management Advisory Advisory Ms. Maria Catalina E. Cabral office organizationsKPMG KPMGLLP for delivering (U LLP.S.) (U.S.)Assistant Secretary majorKPMG power LLPand utility (U .S.) Department of Public Works and Highways ReidTucker construction programs. Mr. Mr.Reid Reid TuckerMr. Tucker Reid TuckerMs. Cosette Canilao Executive Director DirectorDirector, AdvisoryDirector,, Advisory AdvisoryPulbic-Private Partnership Center of the Philippines KPMGKPMG LLP KPMGLLP (U.S.) (U LLP.S.) (U.S.)

Mr. Mr.Jonathan JonathanMr. JonathanJ ong Jong Jong AssociateAssociate AssociateDirector Director Director KPMGKPMG Services KPMGServices Pte. Services Pte. Ltd. Ltd. (Sing Pte. (Sing apore)Ltd.apore) (Sing apore)

Infrastructure In-depth: Philippines | 4 InfrastructInfrastructure InfrastructureGuide:ure Guide: Philippines Philippines Guide: | 3 Philippines | 3 | 3 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. AA Pr Promisingomising EconomEconomyy EmmanuelCristina P.Roxas, Bonoan, Advisory Vice Chairman Partner, and HeadKPMG ofTax, in the KPMG Philippines in the Philippines

complement the rapidly growing services sector, domestic Philippine gross domestic product (GDP) grew 5.7 percent in the first quarter of 2014, which was Infrastructure: the Challenge and Opportunity Philippine gross domestic product (GDP) grew 5.7 percent in the first quarter of 2014, which was lower becoming, along with the BRICs, the world’s and foreign private investments have to be attracted to the lower than the 7.2 percent growth for full year 2013 and the 6.8 percent growth in 2012. largest economies of the 21st century. (Time, manufacturingAmong sector the key to createchallenges jobs toin anlarge investment-led numbers for than the 7.2 percent growth for full year 2013 and the 6.8 percent growth in 2012. Notwithstanding the becoming, along Notwithstanding the slowdown – which was attributed to the impact of the natural disasters in March 2014) inclusive growthgrowth. are the significant gaps in the country’s 2013slowdown on agriculture – which and was to attributeda tightening to biasthe impactin monetary of the policies natural disasters– the Philippines in 2013 wason agriculture still the third and to a with  PPICS: Peru, Philippines, Indonesia, Colombia, infrastructure and resolving the infrastructure deficits and Sri Lanka as countries “which are will by itself be a main driver for growth. fastesttightening growing bias economy in monetary in Asia policies after China– the Philippinesand Malaysia. was Instill the the last third five fastest years, growingPhilippine economy GDP in Asia Infrastructure: the Challenge and Opportunity after China and Malaysia. In the last five years, the Philippine GDP grew at an average of 6.33 percent, March 2014) accelerating their development.” (COFACE, Among the key challenges to an investment-led growth are grew at an average of 6.33 percent, the third highest growth rate after Singapore and China. March 2014) the third highest growth rate after Singapore and China.  PPICS: Peru, Philippines, Indonesia, Colombia, and Sri the significantThe major gaps gapsin the in country’s the country’s infrastructure roads, ports, and airports, The country's strong performance has caught the The recent turn of economic developments in the Lanka as countries “which are accelerating their resolvingurban the infrastructure mass transit, deficits water, willand byenergy itself havebe a beenmain the In order to realize the promise of its strong potential attentionThe country's of global strong investors performance and has been has caught recognized, the attention country The recenthas prompted turn of economic investors developmentsand analysts to in add the country development.” (COFACE, March 2014) driver forcumulative growth. result of years of underinvestment and for improving the lives of ordinary Filipinos and somewhatof global belatedly, investors byand rating has beenagencies. recognized, Last year, somewhat the hasPhilippines prompted in variousinvestors lists and of analysts countries to add the Philippines delays in implementing public capital expenditures, transforming the economy, the Philippines will have thebelatedly, three rating by ratingagencies, agencies. Moody’s, Last Standard year, the & three rating representingin various thelists next of countries wave, beyond representing Brazil, Russia, the next wave, In order to realize the promise of its strong potential for The majorfiscal gaps constraints, in the country’s and weak roads, institutions ports, airports, for urban to achieve consistent real economic growth of six to Poor’sagencies, (S&P) Moody’s,and Fitch finallyStandard upgraded & Poor’s the (S&P) country’s and Fitch Indiabeyond and China Brazil, (the Russia, BRICs), India of promisingand China economies(the BRICs), of improving the lives of ordinary Filipinos and transforming mass transit,governance. water, and energy have been the cumulative seven percent sustained for seven to 10 years. It has ratingfinally on upgradedexternal debt the country’sto investment rating grade on external – debt to withpromising significant economies upside potentials: with significant upside potentials: the economy, the Philippines will have to achieve result of years of underinvestment and delays in to shift from a consumption-led growth to an althoughinvestment the markets grade – have, although for several the markets years, have, been for several consistent real economic growth of six to seven percent implementingAccording public to capital the latest expenditures, survey in thefiscal World constraints, Economic investment-led one. To complement the rapidly pricingyears, Philippine been pricing debt Philippineat tighter spreadsdebt at tighter than its spreads than  Global Global Gro wthGrowth Generators Generators (GGG) (GGG) countries countries“with “with the sustained for seven to 10 years. It has to shift from a and weakForum institutions Global for Competitiveness governance. Report from 2013 to growing services sector, domestic and foreign private creditits creditrating. rating. the mostmost promisingpromising growthgrowth prospectsprospects inin thethe coming consumption-led growth to an investment-led one. To 2014, the Philippines ranks a very poor 98 in the investments have to be attracted to the comingdecades: decades: Bangladesh, Bangladesh, China, China, Egypt, Egypt, India, Indonesia, Accordingoverall to the quality latest ofsurvey infrastructure in the World compared Economic to its Asian manufacturing sector to create jobs in large numbers UnderlyingUnderlying the the remarkable remarkable perf performanceormance are are strong strong India,Iraq, Indonesia, Mongolia, Iraq, Nigeria, Mongolia, Philippines, Nigeria, Sri Lanka and country neighbors. The highest ranking is Singapore Vietnam. (Citi 2011)1 1 for inclusive growth. fundamentfundamentalsals which which have have been been forged forged o ver over years years of of Philippines, Sri Lanka and Vietnam. (Citi 2011) at 5.  The Next Eleven (N-11): Bangladesh, Egypt, Indonesia, persistentpersistent sound sound macro macro policies, policies, fiscal fiscal consolidation, consolidation, an  The Next Eleven (N-11): Bangladesh, Egypt, Indonesia,Iran, Mexico, Iran, Mexico, Nigeria, Nigeria, Pakistan, Pakistan, the Philippines, the Turkey, an independentindependent monetmonetar aryy policypolicy frameframewwork,ork, andand flexible 2 Philippines,South Korea, Turkey, and South Vietnam. Korea, (Goldman and Vietnam. Sachs 2007) flexibleexchange exchange rate policies.rate policies. TheseThese reforms reforms have haveallowed the (Goldman Next Break Sachs Out 2007) Stars 2 of Emerging Markets: Philippines, allowedPhilippines the Philippines to be recognized to be recognized as one of asthe one most of dynamic  NextIndonesia, Break Out Thailand, Stars of Peru,Emerging Chile, Markets: Colombia. “The economies in the region. the most dynamic economies in the region. Philippines,Philippines, Indonesia, for instance, Thailand, is now Peru, among Chile, the most Colombia.cost-competitive “The Philippines, destinations for instance, for information is now The T hecountr country benefiy benefits fromts from the the significant significant steady steady flows of amongtechnology the most and cost-competitive business process destinations outsourcing service – flowsremittances of remittances from 10from million 10 million overseas overseas Filipino Filipino workers and for informationsectors where technology India used and to business dominate process with its workersthe burgeoning and the burgeoning Business ProcessBusiness Outsourcing Process (BPO) outsourcingubiquitous service call centers.” – sectors (Wall where Street India Journal used Private

Outsourcingsector that (BPO) taps thesector natural that advantagestaps the natural of educated young to dominateEquity Beat with May its ubiquitous2013)3 call centers.” advantagesFilipinos inof English-speaking educated young Filipinosshared services in skills. (Wall Street Journal Private Equity Beat May English-speaking shared services skills. 2013) 3  The PINE economies: Philippines, Indonesia, Nigeria and Ethiopia with a high potential of

1 1 CitiCiti Global Global“Gro “Growth wth Generators: Generators: Mo Movingving be ybeond yond ‘Emerging ‘Emerging Mark Marketsets’ and’ and ‘BRIC’” ‘BRIC’”. Global. Global Economics EconomicsVie View 21w 21F ebruary February 2011. 2011. 2 2 GoldmanGoldman Sac Sachs.hs. “T he“T heN-1 N-1 1: More1: More Than Than An AnAcronym. Acronym.” Global” Global Economics Economics Paper Paper No No 153. 153. 28 28Marc March 2007.h 2007. 3 3 Wall Wall Street Street Journal, Journal, “Beyond “Beyond BRIC: BRIC: The The Ne Next Breakxt Break outout St arsStars of Emergingof Emerging Mark Markets.”ets.” Priv Private ate Equit Equit y Beat.y Beat. 15 15May May 2013. 2013. 5 | Infrastructure2 | Infrastructure In-depth: Guide: Philippines Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. complement the rapidly growing services sector, domestic becoming, along with the BRICs, the world’s and foreignInfrastructure: private investments the Challenge have toand be Opportunity attracted to the largest economies of the4 21st century. (Time, manufacturingAmong sector the key to createchallenges jobs toin anlarge investment-led numbers for becoming, along 4 March 2014) inclusive growthgrowth. are the significant gaps in the country’s with  PPICS: Peru, Philippines, Indonesia, Colombia, infrastructure and resolving the infrastructure deficits and Sri Lanka as countries “which5 are Infrastructure:will by the itself Challenge be a main and driver Opportunity for growth. March 2014) accelerating their development.” (COFACE, 5 Among the key challenges to an investment-led growth are  PPICS: Peru,March Philippines, 2014) Indonesia, Colombia, and Sri the significantThe major gaps gapsin the in country’s the country’s infrastructure roads, ports, and airports, The country's strong performance has caught the The recent turn of economic developments in the Lanka as countries “which are accelerating their resolvingurban the infrastructure mass transit, deficits water, willand byenergy itself havebe a beenmain the In order to realize the promise of its strong potential attentionThe country's of global strong investors performance and has been has caught recognized, the attention country The recenthas prompted turn of economic investors developmentsand analysts to in add the country development.” (COFACE, March 2014) driver forcumulative growth. result of years of underinvestment and for improving the lives of ordinary Filipinos and somewhatof global belatedly, investors byand rating has beenagencies. recognized, Last year, somewhat the hasPhilippines prompted in variousinvestors lists and of analysts countries to add the Philippines delays in implementing public capital expenditures, transforming the economy, the Philippines will have thebelatedly, three rating by ratingagencies, agencies. Moody’s, Last Standard year, the & three rating representingin various thelists next of countries wave, beyond representing Brazil, Russia, the next wave, In order to realize the promise of its strong potential for The majorfiscal gaps constraints, in the country’s and weak roads, institutions ports, airports, for urban to achieve consistent real economic growth of six to Poor’sagencies, (S&P) Moody’s,and Fitch finallyStandard upgraded & Poor’s the (S&P) country’s and Fitch Indiabeyond and China Brazil, (the Russia, BRICs), India of promisingand China economies(the BRICs), of improving the lives of ordinary Filipinos and transforming mass transit,governance. water, and energy have been the cumulative seven percent sustained for seven to 10 years. It has ratingfinally on upgradedexternal debt the country’sto investment rating grade on external – debt to withpromising significant economies upside potentials: with significant upside potentials: the economy, the Philippines will have to achieve result of years of underinvestment and delays in to shift from a consumption-led growth to an althoughinvestment the markets grade – have, although for several the markets years, have, been for several consistent real economic growth of six to seven percent implementingAccording public to capital the latest expenditures, survey in thefiscal World constraints, Economic investment-led one. To complement the rapidly pricingyears, Philippine been pricing debt Philippineat tighter spreadsdebt at tighter than its spreads than  Global Global Growth Growth Generators Generators (GGG) (GGG) countries countries “with “with the sustained for seven to 10 years. It has to shift from a and weakForum institutions Global for Competitiveness governance. Report from 2013 to growing services sector, domestic and foreign private creditits creditrating. rating. the mostmost promisingpromising growthgrowth prospectsprospects inin thethe coming consumption-led growth to an investment-led one. To 2014, the Philippines ranks a very poor 98 in the investments have to be attracted to the comingdecades: decades: Bangladesh, Bangladesh, China, China, Egypt, Egypt, India, Indonesia, Accordingoverall to the quality latest ofsurvey infrastructure in the World compared Economic to its Asian manufacturing sector to create jobs in large numbers UnderlyingUnderlying the the remarkable remarkable performance performance are are strong strong India,Iraq, Indonesia, Mongolia, Iraq, Nigeria, Mongolia, Philippines, Nigeria, Sri Lanka and Global Infrastructure Competitiveness Ranking country neighbors. The highest ranking is Singapore Philippines,Vietnam. Sri (Citi Lanka 2011) and Vietnam. (Citi 2011) for inclusive growth. at 5. fundamentalsfundamentals which which have have been been forged forged over over years years of of Country  The TheNext Next Eleven Eleven (N-11): (N-11): Bangladesh, Bangladesh, Egypt, Egypt, Indonesia, persistentpersistent sound sound macro macro policies, policies, fiscal fiscal consolidation, consolidation, an Global Infrastructure Competitiveness Ranking Indonesia,Iran, Mexico, Iran, Mexico, Nigeria, Nigeria, Pakistan, Pakistan, the Philippines, the Turkey, an independentindependent monetarymonetary policypolicy framework,framework, andand flexible Indicator Philippines Singapore Malaysia Thailand Indonesia Vietnam Philippines,South Korea, Turkey, and South Vietnam. Korea, (Goldman and Vietnam. Sachs 2007) Country Country flexibleexchange exchange rate policies.rate policies. These These reforms reforms have haveallowed the (Goldman Next Break Sachs Out 2007) Stars of Emerging Markets: Philippines, Quality of roads 87 7 23 42 78 102 allowedPhilippines the Philippines to be recognized to be recognized as one of asthe one most of dynamic  NextIndonesia, Break Out Thailand, Stars of Peru,Emerging Chile, Markets: Colombia. “The Indicator Philippines Singapore Malaysia Thailand Indonesia Vietnam economies in the region. Quality of railroad infrastructure 89 10 18 72 44 58 the most dynamic economies in the region. Philippines,Philippines, Indonesia, for instance, Thailand, is now Peru, among Chile, the most Quality of portQuality infrastructure of roads 116 87 2 7 24 23 56 4289 7898 102 Colombia.cost-competitive “The Philippines, destinations for instance, for information is now Quality of railroad infrastructure 89 10 18 72 44 58 TheThe country country benefits benefits from from the the significant significant steady steady flows of amongtechnology the most and cost-competitive business process destinations outsourcing service – Quality of air infrastructure 113 1 20 34 68 92 flowsremittances of remittances from 10from million 10 million overseas overseas Filipino Filipino workers and sectors where India used to dominate with its Quality of port infrastructure 116 2 24 56 89 98 for information technology and business process Quality of electricity Supply 93 8 37 58 89 95 workersthe burgeoning and the burgeoning Business ProcessBusiness Outsourcing Process (BPO) outsourcingubiquitous service call centers.” – sectors (Wall where Street India Journal used Private Quality of air infrastructure 113 1 20 34 68 92 Outsourcingsector that (BPO) taps thesector natural that advantagestaps the natural of educated young to dominateEquity Beat with May its ubiquitous2013) call centers.” Fixed telephoneQuality connectivity of electricity supply 109 93 29 8 79 37 96 5882 8988 95 advantagesFilipinos inof English-speaking educated young Filipinosshared services in skills. (Wall Street Journal Private Equity Beat May Mobile telephoneFixed telephoneconnectivity connectivity 81 109 18 29 27 79 49 9662 8221 88 English-speaking shared services skills. 2013) Overall Mobile telephone connectivity 98 81 5 18 25 27 61 49 82 62110 21  The PINE economies: Philippines, Indonesia, Nigeria and Ethiopia with a high potential of Source: WorldOverall Economic Forum (WEF) Global Competitiveness 98Report 2013-2014 5 25 61 82 110 Source: World Economic Forum (WEF) Global Competitiveness Report 2013-2014

4 Michael Shuman4 “Forget the BRICs; Meet the PINES.” TIME Business Emerging Markets 13 March 2014 5 Coface “COFACE Michael IDENTIFIES Shuman “Forget 10 EMERGING the BRICs; COUNTRIES Meet the PINES.”HOT ON TIME THE HEELSBusiness OF Emerging THE BRICS, Markets Country 13 RiskMarch and 2014 Economic Studies. 25 March 2014. 5 Coface “COFACE IDENTIFIES 10 EMERGING COUNTRIES HOT ON THE HEELS OF THE BRICS, Country Risk and Economic Studies. 25 March 2014.

InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 6 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. TheThe Philippines’ Philippines’ ov erallov erall ranking ranking is secondis second from from the the bot bottomtom after after Vietnam. Vietnam. It ranked It ranked the the worst worst on onfive five indicators indicators and and came The congestion caused by the inadequacy of mass CitigroupWithout to an be alternative as much as transport PhP320 linkage billion (aboutbetween 2.9 the camein second in second from from the thebottom bottom after after Vietnam Vietnam on theon theother other two two indicators, indicators, which which are arequality quality of roads of roads and and electricity supply. The congestiontransits caused is feeding by the on inadequacy itself, as Metro of mass Manila transits residents percenteconomic of GDP), zones putting in the at risk about a million electricity supply. is feeding buyon itself, more ascars Metro but useManila them residents less efficiently: buy more car manufacturingCavite-Laguna-Batangas-Rizal-Quezon jobs. Citigroup also said that the ensuing For specific sectors, there have been some improvements over the recent years, but the Philippines still ranks low among cars but useoccupancy them less decreased efficiently: from car 2.5occupancy to 1.7 persons per car. transportation(CALABARZON) bottleneck area, Citigroupcould chop has at estimated least 1 percent the to For144 specific countries sectors, in the there survey. have been some improvements over the recent years, but the Philippines still ranks low decreasedThe from efficiency 2.5 to 1.7 of persons public transportation per car. The efficiency has also of as economicmuch as 5 cost percent of the off truck the country’s ban has beenGDP estimatedmostly among 144 countries in the survey. public transportationsuffered with has vehicle also suffered occupancy with for vehicle jeepneys throughby Citigroup the impact to be on as the much country’s as US$7.25 nontechnology billion (about export Ranking and status of the Philippines, 2010-2012, and selected ASEAN countries, 2012, in key infrastructure indicators occupancydeclining for jeepneys from declining15.1 to 10, from while 15.1 for to buses 10, while vehicle for commodities.2.9 percent of GDP), putting at risk about a million Ranking and status of the Philippines, 2010-2012, and selected ASEAN countries, 2012, in key infrastructure indicators buses vehicle occupancy decreased from 46.5 to 35.5 Ranking/status of selected ASEAN countries in 2012 Ranking/status of selected ASEAN countries in 2012 occupancy decreased from 46.5 to 35.5 passengers. manufacturing jobs. Citigroup also said that the Indicator Philippine ranking/status Ranking/status of selected ASEAN countries in 2012 Indicator passengers. More trips made in vehicles are less efficient, The truck ban has further implications on the cost of cargo 2010 2011 2012 Malaysia Thailand Indonesia Cambodia Vietnam More trips made in vehicles are less efficient, and ensuing transportation bottleneck could chop at least 2010 2011 2012 Malaysia Thailand Indonesia Cambodia Vietnam and these vehicles, in general, are being used less shipping. Shipping companies such as Hapag Lloyd 6 these vehicles, in general, are being used less 1 percent to as much as 5 percent off the country’s QualityQuality of overall of overall infrastruct infrastructureure 6 113 of 113139 of 139 113 of 142 113 of 142 98 of 144 98 of 144 29 49 29 92 49 72 92 119 72 119 efficiently. impose a congestion surcharge of US$100 per twenty-foot 6 114 of 139 100 of 142 87 of 144 27 39 90 120 efficiently. GDP mostly through the impact on the country’s Quality of roads 66 equivalent unit (TEU) on all imports into Manila as a result QualityQuality of railroad of roads infrastructure6 6 97 of 111439 of 139 101 of 142 100 of 142 94 of 144 87 of 144 17 65 27 51 39 81 90 6668 120 nontechnology export commodities. In the meantime, traffic studies show that most roads are Quality of port infrastructure 6 131 of 139 123 of 142 120 of 144 21 56 104 69 113 In the meantime, traffic studies show that most of higher operational costs. Quality of railroad infrastructure6 97 of 139 101 of 142 94 of 144 17 65 51 81 68 Quality of air transport infrastructure 6 112 of 139 115 of 142 112 of 144 24 33 89 75 94 operating roadsat close are to operating capacity, atresulting close to in capacity, frequent resulting in The truck ban has further implications on the cost of Quality of electricity supply 6 101 of 139 104 of 142 98 of 144 35 44 93 105 113 gridlocks and reduced travel speeds. A recent Japan Quality of port infrastructure6 131 of 139 123 of 142 120 of 144 21 56 104 69 113 frequent gridlocks and reduced travel speeds. A Forcargo air infrastructure, shipping. Shipping according companies to Deputy such Director as Hapag General Information and communications 92 of 152 94 of 155 98 of 157 59 95 97 International Cooperation Agency (JICA) study reported John Andrews of the Civil Aviation Authority of the technology (ICT) development index 7 120 88 recent Japan International Cooperation Agency (JICA) Lloyd impose a congestion surcharge of US$100 per Quality of air transport infrastructure 6 112 of 139 115 of 142 112 of 144 24 33 89 75 94 ICT price basket (cost and that with a few exceptions, the average speed in major Philippines (CAAP), airlines have been incurring losses of 114 of 165 113 of 161 119 of 161 53 90 110 130 112 study reported that with a few exceptions, the twenty-foot equivalent unit (TEU) on all imports into affordability of ICT services)7 Quality of electricity supply 6 101 of 139 104 of 142 98 of 144 35 44 93 105 113 Metro Manilaaverage roads speed is 10 inkph, major with Metro 75 percent Manila to roads 92 is 10 kph, moreManila than as PhP7 a result billion of ahigher year in operational fuel expenses costs. because of e-Government ranking8 78 of 183 (no data)* 88 of 190 40 92 97 155 83 percent ofwith travel 75 in percent the network to 92 percentbelow 20 of kph. travel in the network the worsening congestion at Ninoy Aquino International WaterInformation supply cov anderage communications 9 84.8% 84.4% (no data) 100% 96% -- 96% Airport (NAIA). Planes unable to immediately land, for technology (ICT)9 development index 7 92 of 152 94 of 155 98 of 157 59 - 95 97 120 88 below 20 kph. On 13 September 2014, the Manila City government Sanitation coverage 92.5% 91.9% (no data) 100% 100% - - The same JICA study has estimated that the economic example, would need to burn extra amounts of fuel. Hospital beds per 1,000 people10 0.5 1.0 (no data) 1.8 2.10 - - 2.2 temporarily lifted the seven-month old truck ban in ICT price basket (cost and (c. 2009) (2009-2011) (c. 2010) (c. 2010) cost of congestion at PhP2.4 billion per day in Metro Andrews estimated that about 200,000 to 400,000 7 The same JICA study has estimated that the light of the severe congestion in the Port of Manila affordability of ICT services) 114 of 165 113 of 161 119 of 161 53 90 110 130 112 Manila, and another PhP1.0 billion in the Bulacan, Rizal, kilograms in additional fuel are expended as a result of the Note: *Survey conducted twice a year economic cost of congestion at US$54.35 million per and major losses to exporters and importers, food Source:e-Government Table 10.1 from ranking NEDA (2014)8 Philippine Development 78Plan of – 183 Midterm Update (no with data; Results Matrices. 88 of 190 40 92 97 155 83 Laguna andday Cavite in Metro area. Manila, This amounts and another to PhP1.2 US$22.65 trillion million per in congestion,shortages, or rising PhP10 prices million of tobasic PhP20 goods, million traffic a day, jams, by the Chapter 10: Accelerating infrastructure development, p. 3/24. Reproduced with permission. survey conducted year in thethe Mega Bulacan, Manila Rizal, area Laguna or 11 percent and Cavite of GDP. area. This airlines.and the Airlines threat incur of an close estimated to PhP3.7 US$7.25 billion billion a year loss in to twice a twice year) a year) Real life costs of infrastructure bottlenecks amounts to US$27.18 billion per year in the Mega addedthe economyfuel expenses attributed and lose to the another truck ban.PhP3.7 Prior billion to the from GoingWater beyond supply the cov eragestatistical9 comparisons, the84.8% infrastructure 84.4% deficiencies (notranslate data) to real100% costs to 96% the economy - - in 96% A truck banManila scheme area has or been11 percent in place of GDP.in Metro Manila “enginelifting costsof the and truck cost ban of the aircraft government time.” formed a Task since 1978 whereby cargo trucks with a gross vehicle Force Pantalan to oversee traffic management along termsSanitation of productivity coverage 9 and efficiency and to 92.5%ordinary citizens 91.9% in terms of travel(no data) time, congestion,100% pollution, 100% - and poor - - access to basic utilities. weight (GVW)A truck of moreban scheme than 4,000 has beenkg are in prohibited place in Metro from In thethe powermajor thoroughfaresspace, the critical leading power out situation of the Port in theof Hospital beds per 1,000 people 10 0.5 (c. 2009) 1.0 (no data) 1.8 2.10 - - 2.2 passing alongManila major since thoroughfares 1978 whereby during cargo peak trucks traffic with rush a gross countryManila. is well-documented. Electricity prices are the

For public transport, commuters anecdotally report a commute of three to four hours every(2009-2011) day, (c. requiring 2010) several (c. 2010) hours in thevehicle morning weight and (GVW) in the afternoon.of more than The 4,000 scheme kg are highest in Asia, even higher than Japan. There is limited transfersSource: Tablefrom 10.1 tricycle, from NEDA minivans, (2014) Philippine rail and Development bus from Plan the – Midterm suburbs Update to Makati,with Results Metro Matrices. Manila’s main business district. has been modifiedprohibited over from the passing years inalong terms major of restricted thoroughfares supplyFor airin theinfrastructure, Philippines according compared to to Deputy other countries. Director BloombergChapter 10: quoted Accelerating a jeepney infrastructure driver development, who has p. 3/24.been Reproduced driving forwith 20 permission. years who said that a 15-kilometer route which hours, alternativeduring peak routes, traffic and rush GVWs hours but in the the net morning effect hasand in AccordingGeneral toJohn an AmericanAndrews ofChamber the Civil of Aviation Commerce Authority report, used to take 30 to 40 minutes now takes two hours, cutting down his turnaround time and daily income.11 been the reductionthe afternoon. in efficiency The scheme and increase has been in modifiedthe cost ofover Thailandof the hasPhilippines 40,699MW (CAAP), power airlines capacity have serving been incurring 67 million Real life costs of infrastructure bottlenecks transportingthe goods years inin Metroterms Manila.of restricted The underutilization hours, alternative of people.losses South of more Korea than has US$158.56 79,859MW million serving a year 49 millionin fuel Going beyond the statistical comparisons, the infrastructure deficiencies translate to real costs to the economy in terms For a transport system to be successful in large volumes of passengers in urban areas, the system should be able freight vehiclesroutes, has and induced GVWs freightbut the forwarders net effect hasto have been the whileexpenses the Philippines because has of the only worsening 15,680MW congestion for 90.3 million at of productivity and efficiency and to ordinary citizens in terms of travel time, congestion, pollution, and poor access to to shift ridership away from cars, jeepneys and buses to urban mass transit systems – with cars as the least more trucksreduction than necessary in efficiency to handle and increase the cargoes in the in cost and of people.Ninoy InAquino per capita International terms, electricity Airport (NAIA). consumption Planes in the basic utilities. socio-economically efficient people movers across this range of transport modes to trains as the most efficient. out of portstransporting during the goodslimited in time Metro windows. Manila. TheTrucks trips Philippinesunable to is immediately the lowest at land, 588 for kilowatt-hour example, would (kwh). need per day areunderutilization cut down from of three freight to vehiclesone. The has additional induced freight to burn extra amounts of fuel. Andrews estimated For public transport, commuters anecdotally report a commute of three to four hours every day, requiring several transfers What has been happening, however, has been the opposite. From 1996 to 2012, person trips by car increased 15 transport costsforwarders are then to havepassed more on trucksto consumers. than necessary to Electricitythat about supply 200,000 and demandto 400,000 indicators, kilograms ASEAN-6, in additional 2008 from tricycle, minivans, rail and bus from the suburbs to Makati, Metro Manila’s main business district. Bloomberg quoted percent while trips using public transport (jeepneys and buses) declined by 7 percent. In terms of vehicle trips (as handle the cargoes in and out of ports during the fuel areInstalled expended as a result of the congestion, or a jeepney driver who has been driving for 20 years who said that a 15-kilometer route which used to take 30 to 40 opposed to person trips) car trips increased 69 percent during the 16-year period while public vehicle trips Recently, thelimited city timeof Manila windows. imposed Trucks a ban trips on per eight day are cut CapacityUS$226,000 to US$453,000 a day, by the airlines. minutes now takes two hours, cutting down his turnaround time and daily income.11 increased by only 41 percent. Among public vehicles (buses versus jeepneys), the pattern was similar. The wheelers downand vehicles from three with toa grossone. Theweight additional of 4,500 transport kgs (MilAirlines KW), incur close to US$83.79 million a year in increase in jeepney trips (less efficient for transporting people) was twice as much as the increase in bus trips.12 from plyingcosts Manila’s are then streets passed between on to 5:00amconsumers. to 9:00pm, 2008added Total fuel expenses and lose another US$83.79 For a transport system to be successful in large volumes of passengers in urban areas, the system should be able to shift with a temporary concession for six to eight months, domesticmillion from “engine costs and cost of aircraft time.” ridership away from cars, jeepneys and buses to urban mass transit systems – with cars as the least socio-economically Correlating the trends in person trips and vehicle trips, the trend reflects an increase in car ownership and a decline allowing aRecently, window fromthe city 10:00am of Manila to 3:00pm. imposed Without a ban on an eight production efficient people movers across this range of transport modes to trains as the most efficient. in the occupancy rate per vehicle. These trends do not augur well for more efficiency in moving people and alternativewheelers transport and linkage vehicles between with athe gross economic weight zones of 4,500 (GWh),In the power space, the critical power situation in the reducing congestion. in the Cavite-Laguna-Batangas-Rizal-Quezonkgs from plying Manila’s streets between 5:00am to 2008country Total is well-documented.supply, Electricity prices are What has been happening, however, has been the opposite. From 1996 to 2012, person trips by car increased 15 percent (CALABARZON)9:00pm, area, with Citigroup a temporary has estimatedconcession the for six to eight includesthe highest in Asia, even higher than Japan. There is while trips using public transport (jeepneys and buses) declined by 7 percent. 6 Global Competitiveness Reports for 2010-2011, 2011-2012 and 2012-2013 by World Economic Forum economic months,cost of the allowing truck bana window has been from estimated 10:00am by to 3:00pm. netalso exports limited supply in the Philippines compared to 7 Measuring the Information Society (MIS) Reports for 2011, 2012 and 2013 by International Telecommunication Union (ITU) 8 United6 Global Nations Competitiveness Global e-Government Reports for Survey 2010-20 2011 1,0 2011-2012and 2012 and 2012-2013 by World Economic Forum 7 9 AnnualMeasuring Poverty the Indicators Information Survey Society Report (MIS) for Reports2010 and for 2011 2011, by 2012National and Statistics 2013 by International Office (for Philippines); Telecommunication Progress Union on Sanitation (ITU) and 8 DrinkingUnited Water: Nations 2013 Global Update e-Government by WHO and Survey UNICEF 2010 (for and ASEAN 2012 countries) 10 World9 Annual Bank Poverty – Health Indicators Nutrition Survey and Population Report for Statistics 2010 and 2011 by National Statistics Office (for Philippines); Progress on Sanitation and 11 BloombergDrinking News, Water: “Epic 2013 Gridlock Update byReigns WHO over and Manila’s UNICEF 23(for Million.” ASEAN 10 countries) April 2014. 12 10 JICA,World Roadmap Bank – forHealth Transport Nutrition Sector and Development Population Statistics for Metro Manila and Its Surrounding Areas 11 (RegionBloomberg III and News,Region “Epic IV-A). Gridlock Final Report Reigns Main over Text. Manila’s March 23 2014 Million.” p. 2-37. 10 April 2014.

7 | Infrastructure2 | Infrastructure In-depth: Guide: Philippines Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. TheThe Philippines’ Philippines’ overall overall ranking ranking is secondis second from from the the bottom bottom after after Vietnam. Vietnam. It ranked It ranked the the worst worst on onfive five indicators indicators and and came The congestion caused by the inadequacy of mass CitigroupWithout to an be alternative as much as transport PhP320 linkage billion (aboutbetween 2.9 the camein second in second from from the thebottom bottom after after Vietnam Vietnam on theon theother other two two indicators, indicators, which which are arequality quality of roads of roads and and electricity supply. The congestiontransits caused is feeding by the on inadequacy itself, as Metro of mass Manila transits residents percenteconomic of GDP), zones putting in the at risk about a million electricity supply. is feeding buyon itself, more ascars Metro but useManila them residents less efficiently: buy more car manufacturingCavite-Laguna-Batangas-Rizal-Quezon jobs. Citigroup also said that the ensuing For specific sectors, there have been some improvements over the recent years, but the Philippines still ranks low among cars but useoccupancy them less decreased efficiently: from car 2.5occupancy to 1.7 persons per car. transportation(CALABARZON) bottleneck area, Citigroupcould chop has at estimated least 1 percent the to For144 specific countries sectors, in the there survey. have been some improvements over the recent years, but the Philippines still ranks low decreasedThe from efficiency 2.5 to 1.7 of persons public transportation per car. The efficiency has also of as economicmuch as 5 cost percent of the off truck the country’s ban has beenGDP estimatedmostly public transportationsuffered with has vehicle also suffered occupancy with for vehicle jeepneys throughby Citigroup the impact to be on as the much country’s as US$7.25 nontechnology billion (about export among 144 countries in the survey. 12 occupancydeclining for jeepneys from declining15.1 to 10, from while 15.1 for to buses 10, while vehicle for commodities.2.9 percent of GDP), putting at risk about a million buses vehicleoccupancy occupancy decreased decreased from from 46.5 46.5 to 35.5 to 35.5 passengers. manufacturing jobs.16 Citigroup also said that the passengers.More More trips trips made made in vehiclesin vehicles are are less less efficient, efficient, and Theensuing truck ban transportation has further implicationsbottleneck could on the chop cost at of least cargo and thesethese vehicles, vehicles, in general, in general, are being are beingused lessused less shipping.1 percent Shipping to as much companies as 5 percent such as off Hapag the country’s Lloyd efficiently.efficiently. 13 imposeGDP mostlya congestion through surcharge the impact of US$100on the country’s per twenty-foot equivalentnontechnology unit (TEU) export on allcommodities. imports into Manila as a result In the meantime,In the meantime, traffic studies traffic show studies that show most thatroads most are of higher operational costs. operating roadsat close are to operating capacity, atresulting close to in capacity, frequent resulting in The truck ban has further implications on the cost of gridlocks and reduced travel speeds. A recent Japan For air infrastructure, according to Deputy Director General frequent gridlocks and reduced travel speeds. A cargo shipping.16 Shipping companies such as Hapag Internationalrecent Cooperation Japan International Agency (JICA) Cooperation study reported Agency (JICA) JohnLloyd Andrews impose of a the congestion Civil Aviation surcharge Authority of US$100 of the per that with astudy few exceptions,reported that the with average a few speed exceptions, in major the Philippinestwenty-foot (CAAP), equivalent airlines unit have (TEU) been on incurring all imports losses into of Metro Manilaaverage roads speed is 10 inkph, major with Metro 75 percent Manila to roads 92 is 10 kph, moreManila than as PhP7 a result billion of ahigher year in operational fuel expenses costs. because17 of percent ofwith travel 75 in percent the network to 92 percentbelow 20 of kph. travel in the network the worsening congestion at Ninoy Aquino International below 20 kph.14 AirportOn 13 (NAIA). September Planes 2014, unable the toManila immediately City government land, for The same JICA study has estimated that the economic example,temporarily would lifted need the to seven-month burn extra amounts old truck of banfuel. in cost of congestionThe same at JICA PhP2.4 study billion has perestimated day in Metrothat the Andrewslight of estimated the severe that congestion about 200,000 in the Portto 400,000 of Manila Manila, andeconomic another costPhP1.0 of congestionbillion in the at Bulacan, US$54.35 Rizal, million per kilogramsand major in additionallosses to fuelexporters are expended and importers, as a result food of the 13 Laguna andday Cavite in Metro area. Manila, This amounts and another to PhP1.2 US$22.65 trillion million per in congestion,shortages, or rising PhP10 prices million of tobasic PhP20 goods, million traffic a day, jams, by the year in the Mega Manila area or 11 percent of GDP. airlines. Airlines incur close to PhP3.7 billion a year in the Bulacan, Rizal, Laguna and Cavite area. This and the threat of an17 estimated US$7.25 billion loss to Real life costs of infrastructure bottlenecks amounts to US$27.18 billion per year in the Mega addedthe economyfuel expenses attributed and lose to the another truck ban.PhP3.7 Prior billion to the from Going beyond the statistical comparisons, the infrastructure deficiencies translate to real costs to the economy in A truck banManila scheme area has or been11 percent in place of GDP.in Metro 15 Manila “enginelifting costsof the and truck cost ban of the aircraft government time.” formed a Task terms of productivity and efficiency and to ordinary citizens in terms of travel time, congestion, pollution, and poor since 1978 whereby cargo trucks with a gross vehicle Force Pantalan to oversee traffic management along access to basic utilities. weight (GVW)A truck of moreban scheme than 4,000 has beenkg are in prohibited place in Metro from In thethe powermajor thoroughfaresspace, the critical leading power out situation of the Port in theof passing alongManila major since thoroughfares 1978 whereby during cargo peak trucks traffic with rush a gross countryManila. is 18well-documented. Electricity prices are the hours in the morning and in the afternoon. The scheme highest in Asia, even higher than Japan. There is limited For public transport, commuters anecdotally report a commute of three to four hours every day, requiring several vehicle weight (GVW) of more than 4,00014 kg are has been modified over the years in terms of restricted supplyFor airin theinfrastructure, Philippines according compared to to Deputy other countries. Director transfers from tricycle, minivans, rail and bus from the suburbs to Makati, Metro Manila’s main business district. prohibited from passing along major thoroughfares 18 Bloomberg quoted a jeepney driver who has been driving for 20 years who said that a 15-kilometer route which hours, alternativeduring peak routes, traffic and rush GVWs hours but in the the net morning effect hasand in AccordingGeneral toJohn an AmericanAndrews ofChamber the Civil of Aviation Commerce Authority report, used to take 30 to 40 minutes now takes two hours, cutting down his turnaround time and daily income. been the reductionthe afternoon. in efficiency The scheme and increase has been in modifiedthe cost ofover Thailandof the hasPhilippines 40,699MW (CAAP), power airlines capacity have serving been incurring 67 million Real life costs of infrastructure bottlenecks transportingthe goods years inin Metroterms Manila.of restricted The underutilization hours, alternative of people.losses South of more Korea than has US$158.56 79,859MW million serving a year 49 millionin fuel Going beyond the statistical comparisons, the infrastructure deficiencies translate to real costs to the economy in terms For a transport system to be successful in large volumes of passengers in urban areas, the system should be able freight vehiclesroutes, has and induced GVWs freightbut the forwarders net effect hasto have been the whileexpenses the Philippines because has of the only worsening 15,680MW congestion for 90.3 million at of productivity and efficiency and to ordinary citizens in terms of travel time, congestion, pollution, and poor access to 19 to shift ridership away from cars, jeepneys and buses to urban mass transit systems – with cars as the least more trucksreduction than necessary in efficiency to handle and increase the cargoes in the in cost and of people.Ninoy InAquino per capita International terms, electricity Airport (NAIA). consumption Planes in the basic utilities. 15 socio-economically efficient people movers across this range of transport modes to trains as the most efficient. out of portstransporting during the goodslimited in time Metro windows. Manila. TheTrucks trips Philippinesunable to is immediately the lowest at land, 588 for kilowatt-hour example, would (kwh). need per day areunderutilization cut down from of three freight to vehiclesone. The has additional induced freight to burn extra amounts of fuel. Andrews estimated For public transport, commuters anecdotally report a commute of three to four hours every day, requiring several transfers What has been happening, however, has been the opposite. From 1996 to 2012, person trips by car increased 15 transport costsforwarders are then to havepassed more on trucksto consumers. than necessary to Electricitythat about supply 200,000 and demandto 400,000 indicators, kilograms ASEAN-6, in additional 2008 from tricycle, minivans, rail and bus from the suburbs to Makati, Metro Manila’s main business district. Bloomberg quoted percent while trips using public transport (jeepneys and buses) declined by 7 percent. In terms of vehicle trips (as handle the cargoes in and out of ports during the fuel areInstalled expended as a result of the congestion, or a jeepney driver who has been driving for 20 years who said that a 15-kilometer route which used to take 30 to 40 opposed to person trips) car trips increased 69 percent during the 16-year period while public vehicle trips Recently, thelimited city timeof Manila windows. imposed Trucks a ban trips on per eight day are cut CapacityUS$226,000 to US$453,000 a day, by the airlines. minutes now takes two hours, cutting down his turnaround time and daily income. increased by only 41 percent. Among public vehicles (buses versus jeepneys), the pattern was similar. The wheelers downand vehicles from three with toa grossone. Theweight additional of 4,500 transport kgs (MilAirlines KW), incur close to US$83.79 million a year in increase in jeepney trips (less efficient for transporting people) was twice as much as the increase in bus trips. from plyingcosts Manila’s are then streets passed between on to 5:00amconsumers. to 9:00pm, 2008added Total fuel expenses and lose another US$83.79 For a transport system to be successful in large volumes of passengers in urban areas, the system should be able to shift with a temporary concession for six to eight months, domesticmillion from “engine costs and cost of aircraft time.” ridership away from cars, jeepneys and buses to urban mass transit systems – with cars as the least socio-economically Correlating the trends in person trips and vehicle trips, the trend reflects an increase in car ownership and a decline allowing aRecently, window fromthe city 10:00am of Manila to 3:00pm. imposed Without a ban on an eight production efficient people movers across this range of transport modes to trains as the most efficient. in the occupancy rate per vehicle. These trends do not augur well for more efficiency in moving people and alternativewheelers transport and linkage vehicles between with athe gross economic weight zones of 4,500 (GWh),In the power space, the critical power situation in the reducing congestion. in the Cavite-Laguna-Batangas-Rizal-Quezonkgs from plying Manila’s streets between 5:00am to 2008country Total is well-documented.supply, Electricity prices are What has been happening, however, has been the opposite. From 1996 to 2012, person trips by car increased 15 percent (CALABARZON)9:00pm, area, with Citigroup a temporary has estimatedconcession the for six to eight includesthe highest in Asia, even higher than Japan. There is while trips using public transport (jeepneys and buses) declined by 7 percent. economic months,cost of the allowing truck bana window has been from estimated 10:00am by to 3:00pm. netalso exports limited supply in the Philippines compared to

12 JICA, Roadmap for Transport Sector Development for Metro Manila and Its Surrounding Areas (Region III13 and Ibid. Region IV-A). Final Report Main Text. March 2014 p. 2-37. 13 Ibid. 14 JICA (2014) p. 2-38. 14 JICA (2014)15 p. Op.2-38. cit. p. 2-41 15 Op. cit. p. 2-4116 Citi Macro Research Note 7 March 2014 16 Citi Macro Research17 SeaNews, Note Truck 7 March ban prompts2014 Hapag-Lloyd to levy Manila import congestion charge, 3 June 2014. 17 SeaNews, Truck18 “Erap ban liftsprompts Manila Hapag-Lloyd city truck ban”, to levy Philippine Manila Dailyimport Inquirer, congestion 14 September charge, 3 June2014. 2014. 18 19 Philippine DailyPhilippine Inquirer, Daily“Airlines Inquirer, losing “Airlines P7 billion losing due toP7 congested billion due airport.”to congested 29 May airport.” 2014. 29 May 2014. InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 8

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Electricity supply and demand indicators, ASEAN-6, 2008 Electricity supply and demand indicators, ASEAN-6, 2008

InstalledInstalled TotalTotal Total supply,Total supply, Total Total PopulationPopulation Consumption Consumption Distribution Distribution & & Capacity domestic includesincludes consumption,consumption, (million), per capita Capacity domestic (million), per capita transfer transfer (Mil KW), production net exportsnet exports includes use 2008 (kWh), 2008 includes use losses as losses% of as % of 2008(Mil KW), (GWh),production (GWh),(GWh), 2008 2008 of energy 2008 (kWh), 2008 of energy total supply,1 2008 sector but net 1 total supply, sector but net 2008 1 2008 (GWh), 2008 of distributionof distribution & transfer 2008 & transfer losses (GWh), 2008 losses (GWh), 2008 IndonesiaIndonesia 27.8016 27.8016 149,437 149,437 149,437 149,437 134,399 134,399 227.3 227.3 591.2 591.2 10.1% 10.1% Korea,Korea, South South 79.85979.859 446,428446,428 446,428446,428 429,052429,052 48.7 48.7 .618,80 8,8 0 1 .6 3.9%3.9% Malaysia* 22.973 96,916 97,392 94,721 27.0 3,506.3 2.3% Malaysia* 22.973 96,916 97,392 94,721 27.0 3,506.3 2.3% Philippines 5.6801 60,821 60,821 4053,1 90.3 588.2 2.6%1 Philippines 15.680 60,821 60,821 53,140 90.3 588.2 12.6% Singapore 10.950 41,717 41,717 39,610 4.8 8,184.9 5.1% Singapore 10.950 41,717 41,717 0139,6 4.8 84.918, 5.1% Thailand** 40.669 149,032 147,427 140,079 67.4 2,078.7 6.1% Thailand** 40.669 149,032 147,427 140,079 67.4 2,078.7 6.1% Vietnam 13.850 76,269 73,049 68,907 86.2 799.3 10.1% Vietnam 13.850 76,269 73,049 68,907 86.2 799.3 10.1%

Notes:Sources: *net International energy exporter, Energy **net Agency energy and importer, US Energy 1-Author’s Information calculation Administration; World Bank for the population Sources: International Energy Agency and US Energy Information Administration; World Bank for the population Notes: *net energy exporter, **net energy importer, 1-Author’s calculation

otherAn enormous countries. task According to an American Chamber Foreign equity restrictions for operators of public utilities have also discouraged potential foreign ofThe Commerce task of resolving report, Thailand the infrastructure has 40,699MW deficits power in the All of the foregoing reasons hindered the investments.The lack of legal and technical capacityPhilippines serving is arguably 67 million daunting people. in Southmagnitude Korea and has development of efficient and critical modern 79,859MW serving 49 million while the Philippines capacities on the part19 of the implementing complexity. For the Greater Capital Region (GCR) alone, agencies,infrastructure.” especially those relating to project hasthe only transport 15,680MW sector for projects 90.3 million identified people. in the In JICAper “dream capita terms, electricity consumption in the preparation and procurement, was also seen as plan” are estimated to cost a total of PhP520,440 billion It is onepossible, of infrastructure’s however, to stumbling identify certain block. Allelements of the in the Philippines is the lowest at 588 kilowatt-hour (kwh). (US$11,828 billion). countryforegoing situation reasons and thehindered current the government’s development ofinitiatives whichefficient count andtowards critical increasing modern infrastructure.” the chances 20of positive An enormous task According to the National Economic and Development and significant progress in the coming years. The macroeconomic stability and domestic financial TheAuthority task of Public-Privateresolving the infrastructurePartnership Center deficits (NEDA-PPP), in the It is possible, however, to identify certain elements in Philippines is arguably daunting in magnitude and evolution in recent years have created a base of domestic theFor country one, asituation new governance and the current ethic is government’s being put in place in local currency funding that can support the volume and complexity.“In Forthe thepast, Greater the Philippines’ Capital Region infrastructure (GCR) spending initiativesthe Department which count of Publictowards Works increasing and Highways the (DPWH) alone, the transport sector projects identified in the tenors required by infrastructure projects. was low compared to other ASEAN economies due chanceswhich of will positive enable and mission-efficient significant progress expenditures in the even as JICA “dreamto fiscal plan” deficit are estimated situation. toOther cost major a total impediments of comingthe government years. For one, accelerates a new governance the pace of ethic execution is and US$11.79include billion. the absence of long-term planning, no beingimplementation. put in place in the Hopefully, Department this will of alsoPublic be Works adopted in political will to improve infrastructure delivery, and andother Highways government (DPWH) infrastructure which will enable agencies. (See Chapter Accordinglack to theof reforms National in Economic the existing and policy framework. The mission-efficient3.) expenditures even as the Developmentpolicies Authority and procedures Public-Private already Partnership in place were no government accelerates the pace of execution and Center (NEDA-PPP),longer attuned to the existing business implementation.The new edition Hopefully, of the public-private this will also partnership be adopted (PPP) environment. in otherprogram government is building infrastructure capacity for agencies.tendering solicited (See “In the past, the Philippines’ infrastructure Chapterproposals 3.) consistent with the government’s development spendingIn addition was to low regulatory compared uncertainties to other ASEAN or risks, plans and priorities and ensuring appropriate risk allocation economies due to fiscal deficit situation. Other corruption likewise emerged as another critical between the private sector and the government. The major impediments include the absence of The new edition of the public-private partnership element contributing to the poor business coverage of the PPP modality is being expanded over a long-term planning, no political will to improve (PPP) program is building capacity for tendering infrastructureenvironment delivery, in the country.and lack ofForeign reforms equity in the solicitedbroader proposals portfolio consistent of sectors. with the government’s existingrestrictions policy forframework. operators The of policiespublic utilities and have also development plans and priorities and ensuring proceduresdiscouraged already potential in place foreign were investments.no longer appropriateThe macroeconomic risk allocation stability between and the domestic private financialsector attuned to the existing business environment. In andevolution the government. in recent Theyears coverage have created of the a PPP base of domestic additionThe lack to regulatoryof legal and uncertainties technical capacities or risks, on the part modalitylocal currency is being fundingexpanded that over can a supportbroader theportfolio volume and corruptionof the implementing likewise emerged agencies, as another especially critical those of sectors.tenors required by infrastructure projects. elementrelating contributing to project preparationto the poor business and procurement, environmentwas also seen in the as country. one of infrastructure’s stumbling block.

2 20 NEDNEDA-PPPA-PPP CenterCenter writwrittenten responseresponse toto KPMGKPMG questionnaire,questionnaire, 18July July, 18, 201 2014. 4.

9 |8 Infrastr | Infrastructure ucture In-depth: Guide: Philippines Philippines

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. otherAn enormous countries. task According to an American Chamber Foreign equity restrictions for operators of public utilities have also discouraged potential foreign ofThe Commerce task of resolving report, Thailand the infrastructure has 40,699MW deficits power in the All of the foregoing reasons hindered the investments.The lack of legal and technical capacityPhilippines serving is arguably 67 million daunting people. in Southmagnitude Korea and has development of efficient and critical modern 79,859MW serving 49 million while the Philippines capacities on the part of the implementing complexity. For the Greater Capital Region (GCR) alone, agencies,infrastructure.” especially those relating to project hasthe only transport 15,680MW sector for projects 90.3 million identified people. in the In JICAper “dream capita terms, electricity consumption in the preparation and procurement, was also seen as plan” are estimated to cost a total of PhP520,440 billion It is onepossible, of infrastructure’s however, to stumbling identify certain block. Allelements of the in the Philippines is the lowest at 588 kilowatt-hour (kwh). (US$11,828 billion). countryforegoing situation reasons and thehindered current the government’s development ofinitiatives whichefficient count andtowards critical increasing modern infrastructure.” the chances of positive An enormous task According to the National Economic and Development and significant progress in the coming years. The macroeconomicThe macroeconomic stability and domestic stability andfinancial domestic financial For the non-PPP projects to be executed through TheAuthority task of Public-Privateresolving the infrastructurePartnership Center deficits (NEDA-PPP), in the It is possible, however, to identify certain elements in evolution in recent years have created a base of regular procurement, local private contractors can Philippines is arguably daunting in magnitude and evolution in recent years have created a base of domestic theFor country one, asituation new governance and the current ethic is government’s being put in place in local currency domesticfunding that local can currency support funding the volume that canand support the look forward to an improving governance framework complexity.“In Forthe thepast, Greater the Philippines’ Capital Region infrastructure (GCR) spending initiativesthe Department which count of Publictowards Works increasing and Highways the (DPWH) volume and tenors required by infrastructure projects. in the awarding of projects. Foreign contractors are alone, the transport sector projects identified in the tenors required by infrastructure projects. was low compared to other ASEAN economies due chanceswhich of will positive enable and mission-efficient significant progress expenditures in the even as allowed to bid only for the so-called foreign assisted JICA “dreamto fiscal plan” deficit are estimated situation. toOther cost major a total impediments of comingthe government years. For one, accelerates a new governance the pace of ethic execution is and What’s in it for the private sector? projects (FAPs) usually funded from grants and loans US$11.79include billion. the absence of long-term planning, no beingimplementation. put in place in theHopefully, Department this will of alsoPublic be Works adopted in The emphasis being given to the PPP modality from official development assistance (ODA) sources. political will to improve infrastructure delivery, and andother Highways government (DPWH) infrastructure which will enable agencies. (See Chapter attests to the recognition and expectation that the Accordinglack to theof reforms National in Economic the existing and policy framework. The mission-efficient3.) expenditures even as the private sector will have a major role in solving Developmentpolicies Authority and procedures Public-Private already Partnership in place were no government accelerates the pace of execution and infrastructure bottlenecks. Among the key Center (NEDA-PPP),longer attuned to the existing business implementation.The new edition Hopefully, of the public-private this will also partnership be adopted (PPP) challenges that remain is the need to calibrate the For further information, please contact: environment. in otherprogram government is building infrastructure capacity for agencies.tendering solicited(See risk-reward configuration offered to private investors “In the past, the Philippines’ infrastructure Chapterproposals 3.) consistent with the government’s development in PPP projects in order to have an optimal allocation spending was low compared to other ASEAN Roberto G. Manabat In addition to regulatory uncertainties or risks, plans and priorities and ensuring appropriate risk allocation of risks while attracting sufficient response from economies due to fiscal deficit situation. Other corruption likewise emerged as another critical between the private sector and the government. The investors to bid for the projects. This will be Chairman & CEO major impediments include the absence of The new edition of the public-private partnership element contributing to the poor business coverage of the PPP modality is being expanded over a KPMG in the Philippines long-term planning, no political will to improve (PPP) program is building capacity for tendering important for foreign investors which are allowed to infrastructureenvironment delivery, in the country.and lack ofForeign reforms equity in the solicitedbroader proposals portfolio consistent of sectors. with the government’s participate up to 40 percent of the project company in T: +63 2 885 7000 existingrestrictions policy forframework. operators The of policiespublic utilities and have also development plans and priorities and ensuring most sectors, and up to 100 percent in power E: [email protected] proceduresdiscouraged already potential in place foreign were investments.no longer appropriateThe macroeconomic risk allocation stability between and the domestic private financialsector generation projects. For further information, please contact: attuned to the existing business environment. In andevolution the government. in recent Theyears coverage have created of the a PPP base of domestic additionThe lack to regulatoryof legal and uncertainties technical capacities or risks, on the part modalitylocal currency is being fundingexpanded that over can a supportbroader theportfolio volume and Emmanuel P. Bonoan corruptionof the implementing likewise emerged agencies, as another especially critical those of sectors.tenors required by infrastructure projects. Vice Chairman and Head of Tax elementrelating contributing to project preparationto the poor business and procurement, environmentwas also seen in the as country. one of infrastructure’s stumbling KPMG in the Philippines block. T: +63 2 885 7000 ext. 200 E: [email protected]

InfrastrInfrastructureucture In-depth: Guide: Philippines Philippines | | 10 9

EmmanuelCristina P. Roxas, Bonoan, Advisory Vice Chairman Partner, and HeadKPMG ofTax, in the KPMG Philippines in the Philippines

The midterm update of the 2013-2016The midterm Philippine update Development of the 2013-2016 Plan calls Philippine for accelerating Development pace Plan of calls for economic growth. Gross domesticaccelerating product pace (GDP) of iseconomic targeted growth.to grow at Gross 6.5 todomestic 7.5 percent product in 2014, (GDP) is increasing to 7 to 8 percent growthtargeted in 2015, to grow and at to 6.5 7.5 toto 7.58.5 percent percent in by 2014, 2016. increasing to 7 to 8 percent growth in 2015, and to 7.5 to 8.5 percent by 2016. Infrastructure spending as component of capital outlay, 2012-2016 6.0% Infrastructure spending as component of capital outlay, 2012-2016 5.0% 6.0% 5.1% 4.0% 5.0% 3.0% 4.0% 5.1% 4.0% 3.5% 2.0% 2.5%3.0% 4.0% 1.0% 2.2% 3.5% 2.0% 0.0% 1.0% 2.2% 2.5% The performance for the first several months of 2014 is in line with the targets for full year 2014. Public infrastructure expenditures are budgeted to increase by 40 percent to US$9.15 billion from US$6.52 billion in 2013, 2012 20130.0% 2014 2015 2016 which ramps up from the 36 percent growth in the public infrastructure budget in 2013. The bulk of the Note: Actual figure for 2012. expenditures will be in Roads and Bridges at US$3.37 billion for full year 2014. This is before any supplemental Source: Department of Budget and Management and National2012 Economic and Development Authority 2016 Source: Department of Budget and Management and National Economic and Development Authority budgets for the Haiyan reconstruction requirements. Infrastructure development is to beNote: a key Actual driver figure to for achieve 2012. this rapid and sustained growth. There are several reasons why infrastructure spending to GDP has been historically low which continued to be “The overall strategy… is to Infrastructureinvest massively development in infrastructure is to be development a key driver byto achieveincreasing this public rapid and sustained 1 reflected in the major approval criteria for projects at the National Economic and Development infrastructure spending to atgrowth. least 5 percent of the country’s GDP by 2016. For the whole plan period, the Authority-Investment Coordination Committee (NEDA-ICC). Projects are evaluated at the NEDA-ICC based on the government expects to spend PhP4.17 trillion (US$94.44 billion) but the major single item in the plan is “fiscal, monetary and balance of payments (BOP) implications of major capital projects” taking into account the PhP2.46 trillion (US$55.71 billion) ‘for“The accelerating overall strategy… infrastructure is to invest development.” massively in infrastructure development by peso requirement and foreign exchange requirements of the project in terms of current and capital outlays, increasing public infrastructure spending to at least 5 percent of the country’s sources of funds and conditions for proposed financing, “compliance with the foreign debt ceiling under Republic For the first semester of 2014, actual governmentGDP by infrastructure2016. For the spendingwhole plan grew period, by almost the government 63 percent expects to US$552.57 to spend Act (RA) No. 4860 or the Foreign Borrowings Act of 1966.” million. The faster pace of infrastructure spendingPhP4.17 was trillion spurred but the by majorthe accelerated single item construction in the plan isprogram PhP2.46 of trillion the ‘for Department of Public Works and Highwaysaccelerating (DPWH) and infrastructure the rehabilitation development.” and reconstruction programs in the Such criteria were driven by the difficult macro environment which prevailed in the past few decades. The country Haiyan-hit areas. Budgetary reforms adopted in 2013, which made the General Appropriations Act (GAA) as the had to contend with the challenge of executing stable monetary policies on a consistent basis which was made 1 release document, also enabled the faster disbursements of budgetary appropriations. difficult by a weak fiscal base, chronic BOP problems, low international reserves, very high external debt (which was restructured in the early 1990s), and limited access to international capital markets. The macroeconomic conditions of the country posed a binding constraint on infrastructure spending. Other historical reasons were the weak bureaucratic institutions inherited from the Marcos martial law government. 1 NEDA (2014) Philippine Development Plan 2011-2016– Medium Term Update with Results Matrix. Chapter 10: 1 NEDA (2014) Philippine Development Plan 2011-2016– Medium Term Update with Results Matrix. Chapter 10:

11 | 2Infrastructure | Infrastructure In-depth: Guide: Philippines Philippines

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Public InvestmentPublic Investment Program Program (PIP) targets (PIP) targets by theme by theme* in PhP mn in PhP mn PDP Theme Total % PDP Theme Total (2013 - 2016) % (2013 - 2016) Accelerating Infrastructure Development 2,461,220 53.2 Notes: *With possible duplication AcceleratingSocial Infrastructure Development Development Sector 2,461,220 733,145 53.2 21.2 of investment targets reflected for Competitive arid Sustainable Agriculture and Fisheries Sector 549,063 15.2 cross-cutting programs and Social Development Sector 733,145 21.2 Peace and Security 207,139 4.3 projects (PAPs); May not add up CompetitiveSustainable arid Sustainable and CIimate-Resilient Agriculture and Environment Fisheries Sector and Natural Resources549,063 176,443 15.2 4.9 due to rounding off. PIP consists of both core investment programs Peace andCompetitive Security and Innovative Industry and Services Sector 207,139 23,230 4.3 0.6 and projects (CIPs) and non-CIPs. SustainableGood and Governance CIimate-Resilient and the Environment Rule of Law and Natural Resources 176,443 15,752 4.9 0.4 Macroeconomic Policy 4,115 0.1 Source: Enhancing Resilience to Competitive and Innovative Industry and Services Sector 23,230 0.6 Resilient and Inclusive Financial System 164 0.0 Sustain Inclusive Growth March Good Governance and the Rule of Law 15,752 0.4 2014 Presentation of the Bangko TOTAL 4,170,332 100.0 Sentral ng Pilipinas Macroeconomic Policy 4,115 0.1 ResilientThe and performanceInclusive Financial for the System first several months of 2014 is in line164 with the targets0.0 for full year 2014. Public TOTAL infrastructure expenditures are budgeted to increase by 40 percent4,170,332 to US$9.15 100.00 billion from US$6.52 billion in 2013, which ramps up from the 36 percent growth in the public infrastructure budget in 2013. The bulk of the expenditures will be in Roads and Bridges at US$3.37 billion for full year 2014. This is before any supplemental budgets for the Haiyan reconstruction requirements. Infrastructure development is to be a key driver to achieve this rapid and sustained growth. There are several reasons why infrastructure spending to GDP has been historically low which continued to be “The overall strategy… is to Infrastructureinvest massively development in infrastructure is to be development a key driver byto achieveincreasing this public rapid and sustained reflected in the major approval criteria for projects at the National Economic and Development infrastructure spending to atgrowth. least 5 percent of the country’s GDP by 2016. For the whole plan period, the Authority-Investment Coordination Committee (NEDA-ICC). Projects are evaluated at the NEDA-ICC based on the government expects to spend PhP4.17 trillion (US$94.44 billion) but the major single item in the plan is “fiscal, monetary and balance of payments (BOP) implications of major capital projects” taking into account the PhP2.46 trillion (US$55.71 billion) ‘for“The accelerating overall strategy… infrastructure is to invest development.” massively in infrastructure development by peso requirement and foreign exchange requirements of the project in terms of current and capital outlays, increasing public infrastructure spending to at least 5 percent of the country’s sources of funds and conditions for proposed financing, “compliance with the foreign debt ceiling under Republic For the first semester of 2014, actual governmentGDP by infrastructure2016. For the spendingwhole plan grew period, by almost the government 63 percent expects to US$552.57 to spend Act (RA) No. 4860 or the Foreign Borrowings Act of 1966.” million. The faster pace of infrastructure spendingPhP4.17 was trillion spurred but the by majorthe accelerated single item construction in the plan isprogram PhP2.46 of trillion the ‘for Department of Public Works and Highwaysaccelerating (DPWH) and infrastructure the rehabilitation development.” and reconstruction programs in the Such criteria were driven by the difficult macro environment which prevailed in the past few decades. The country Haiyan-hit areas. Budgetary reforms adopted in 2013, which made the General Appropriations Act (GAA) as the had to contend with the challenge of executing stable monetary policies on a consistent basis which was made release document, also enabled the faster disbursements of budgetary appropriations. difficult by a weak fiscal base, chronic BOP problems, low international reserves, very high external debt (which was restructured in the early 1990s), and limited access to international capital markets. The macroeconomic conditions of the country posed a binding constraint on infrastructure spending. Other historical reasons were the weak bureaucratic institutions inherited from the Marcos martial law government.

InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 12

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. MajorMajor Government Government Spending Spending Initiatives: Initiatives Ramped-up investments on public infrastructure As in previousAs in previous Public Investment Public Investment Plans, there Plans, is anthere effort is an to constructing roads, bridges, flood control, and ParticularsRamped-up investments on public2012 infrastructure Actual 2013 GAA 2014 GAA Growth Rate (%) have an effortintegrated to have approach an integrated in the development approach in the plan, government buildings with the projects and programs (PhP mn) (PhP mn) (PhP mn) 2012-2013 2013-2014 various termed as “cross cutting” or “cross reference” There are several reasons why development plan, various termed as “cross cutting” of the Department of Tourism (DOT), Department of Particulars 2012 Actual 2013 GAA 2014 GAA Growth Rate (%) projects. As explained by NEDA Director General Rolando Roads and Bridges (PhP mn) 84,218 (PhP mn) 108,097 (PhP mn) 149,599 2012-2013 2013-201428.4 38.4infrastructure spending to GDP has or “cross reference” projects. As explained by Education (DepEd), Department of Agriculture (DA) Basic Educational Facilities* 11,012 26,268 50,967 138.5 94.0 Tungpalan, the overall investment is not just a collation of been historically low which NEDA Director General Rolando Tungpalan, the overall and local governments. FloodRoads Control/Seawalls and Bridges 84,218 11,331 108,097 16,536 149,599 34,806 28.4 38.445.9 110.5 individual projects and programs (PAPs) submitted by each continued to be reflected in the investment is not just a collation of individual projects HousingBasic Educational Facilities* 11,012 10,518 26,268 22,373 50,967 16,317 138.5 94.0112.7 (27.1) agency, but there has to be a strategic roadmap that National Irrigation (28.9)major approval criteria for projects at and programs (PAPs) submitted by each agency, but The convergence program of DPWH and DOT will Flood Control/Seawalls 11,331 24,193 16,536 22,212 34,806 15,785 45.9 110.5(8.2) integrates the impact of PAPs on transportation, traffic, The integrated approach is reflected in the Convergence Farm-to-Market Roads 4,868 5,657 12,603 16.2 122.8the National Economic and there has to be a strategic roadmap that integrates coordinate construction of access roads to priority Housing 10,518 22,373 16,317 112.7 (27.1) drainage, etc. Strategies of the DPWH that supports and coordinates its Health Facilities Enhancement Program 5,078 13,558 9,138 167.0 (32.6)Development Authority-Investment the impact of PAPs on transportation, traffic, tourism destinations under the National Tourism National Irrigation 24,193 22,212 15,785 (8.2) (28.9) projects under its mandate of constructing roads, bridges, Electrification 4,950 6,374 9,679 28.8 51.8Coordination Committee (NEDA-ICC). drainage, etc. Development Plan (NTDP). The Department of Airports/AirFarm-to-Market Navigational Roads Facilities 4,868 5,657802 5,195 12,603 9,114 16.2 122.8547.8 75.4 The midterm update introduces a spatial dimension to the flood control, and government buildings with the projects Projects are evaluated at the Transportation and Communications (DOTC) will OtherHealth Public Facilities Works Enhancement 5,078 15,120 13,558 1,321 9,138 167.010 (32.6)(91.3) (99.2) challenge of inclusive growth by identifying the top and programs of the Department of Tourism (DOT), NEDA-ICC based on the “fiscal, The midterm update introduces a spatial dimension upgrade principal airports to international and WaterProgram Supply 1,516 1,839 6,954 21.3 278.1 provinces most affected by poverty either in terms of high Department of Education (DepEd), Department of Preliminary and Detailed Engineering 780 1,724 3,026 121.0 75.5moneta ry and balance of payments to the challenge of inclusive growth by identifying the principal Class 1 and 2 airports. Tourism airports are Electrification 4,950 6,374 9,679 28.8 51.8 numbers of poor families or high poverty incidence, and Agriculture (DA) and local governments. Land Transportation/Railway - 3,834 1,642 - (57.2)(BOP) implications of major capital top provinces most affected by poverty either in also planned for Marinduque, San Jose, Siargao, Airports/Air Navigational 802 5,195 9,114 547.8 75.4 those provinces most exposed to environmental hazards. Ports and Lighthouses 679 2,361 1,377 247.9 (41.7)projects” taking into account the terms of high numbers of poor families or high Vigan, Basco, Bukidnon, General Santos, and Roxas QuickFacilities Response Fund For each category, the plan proposes specific social The convergence program of DPWH and DOT will 1,383 1,150 1,305 (16.8) 13.5peso requirement and foreign poverty incidence, and those provinces most airports. Tourism ports will be upgraded in ports like OthersOther Public Works 15,120 35,015 1,321 49,964 10 81,989(91.3) (99.2)42.7 64.1 interventions such as employment creation, diversifying coordinate construction of access roads to priority tourism exchange requirements of the exposed to environmental hazards. Ivana Port in Batanes, Panganngan Port in Bohol, TotalWater Infrastructure Supply Outlays 1,516 211,463 1,839 288,464 6,954 404,312 21.3 278.136.4 40.2 income sources, and infrastructure services. destinations under the National Tourism Development Plan project in terms of current and Lawigan Port in Camiguin, and Cagban Jetty Port in Preliminary and Detailed 780 1,724 3,026 121.0 75.5 (NTDP). The Department of Transportation and Note: *Inclusive of School Building Program capital outlays, sources of funds and For each category, the plan proposes specific social Aklan. Engineering Communications (DOTC) will upgrade principal airports to Source: Table B.6, 2014 GAA-Based Infrastructure Outlays as published in Bangko Sentral ng Pilipinas investor Relationsconditions for proposed financing, interventions such as employment creation, OfficeLand (March Transportation/Railway 2014) Enhancing Resilience - to Sustain Inclusive3,834 Growth. Table 1,642 reproduced (57.2)with permission. international and principal Class 1 and 2 airports. Tourism “compliance with the foreign debt diversifying income sources, and infrastructure The integrated approach is also found in the Ports and Lighthouses 679 2,361 1,377 247.9 (41.7) airports are also planned for Marinduque, San Jose, ceiling under RA4860 or the Foreign services. innovation and growth corridors for Mindanao where Quick Response Fund 1,383 1,150 1,305 (16.8) 13.5 Siargao, Vigan, Basco, Bukidnon, General Santos, and The situation is clearly different today. The country is The sheer size of the infrastructureBorrowings deficits Act of suggests 1966.” Such integrated infrastructure development strategies will Others 35,015 49,964 81,989 42.7 64.1 Roxas airports. Tourism ports will be upgraded in ports like on a much stronger macroeconomic footing. The that a sustained effort to resolvecriteria bottleneckswere driven across by the adifficult The integrated approach is reflected in the link agricultural production bases to processing Total Infrastructure Outlays 211,463 288,464 404,312 36.4 40.2 Ivana Port in Batanes, Panganngan Port in Bohol, Lawigan fiscal sector, while in deficit, is manageable with an broad front of sectors andmacro regions environment will by itself which prevailed Convergence Strategies of the DPWH that supports centers and markets. improvedSource: Table revenue B.6, 2014 base GAA-Based after theInfrastructure passage Outlays of the as published in Bangkocontribute Sentral ng Pilipinas significantly investor to economic development. and coordinates its projects under its mandate of Port in Camiguin, and Cagban Jetty Port in Aklan. expandedRelations OfficeValue-Added (March 2014) Tax Enhancing (VAT) inResilience 2005 andto Sustain the sinInclusive Growth. The Table government, reproduced with however, is very conscious about permission. The integrated approach is also found in the innovation and taxNotes: law in*Inclusive 2013. ofAfter School the Building restructuring Program of the the “need to put in place the right infrastructure in government debt to commercial banks in 1992 under the right place, in the right time,” as expressed by growth corridors for Mindanao where integrated thein Brady the past deal, few the decades. government The countryhas nurtured had to an contend with NEDAIn the Director midterm General update Rolando of the Tungpalan. Philippine Development Plan, infrastructure development strategies will link agricultural investorthe challenge base in internationalof executing capitalstable markets.monetary Large policies on a the government maintains the objective of inclusive production bases to processing centers and markets. inflowsconsistent from overseas basis which Filipino was workersmade difficult and service by a weak fiscal Thus,growth, under to the consist overarching of poverty theme reduction of enhancing in multiple exportsbase, from chronic business BOP problems, process outsourcing low international (BPO) reserves, interconnectivitydimensions through of sectors, “massive urban quality centers, employment and companiesvery high have external generated debt (which strong was external restructured balances in the early markets, creation” the withgovernment a focus onintends spatial to and put sectoralin place strategies,a and1990s), boosted and international limited access reserves. to international There is ample capital markets. seamless and based multimodal on rapid logistics and sustained system economic along the growth. domesticThe macroeconomic liquidity. Term conditions project financing of the countryis available posed a Subic-Clark-Manila-Batangas (SCMB) corridor “to frombinding major constraint domestic onbanks infrastructure in sizable amountsspending. for Other ensureThe efficientgovernment flow has of commodities,introduced the supplies, concept andof High tenorshistorical of 10 reasonsto 12 years. were In the the weak midterm bureaucratic update of institutions the inputsStandard to tourism, Highways agricultural (HSH) whichproduction would and have limited Philippineinherited Development from the Marcos Plan, martialthe government law government. economic/industrialaccess, high speed, zones.” long Thedistance SCMB highways, corridor ismost of which maintains the objective of inclusive growth, to consist expectedwill be toconstructed eventually asextend concession further public-privatenorth and of povertyThe situation reduction is clearly in multiple different dimensions today. The through country is on a furtherpartnerships south. (PPPs). The master plan for the High Standard “massivemuch stronger quality employment macroeconomic creation” footing. with The a focus fiscal sector, Highway Network Development calls for the construction on whilespatial in and deficit, sectoral is manageable strategies, withand basedthe improved on rapid revenue Theof government an additional is 234.13also exploring kilometers the (km)establishment of toll expressways andbase sustained after the economic passage growth. of the expanded The government Value-Added Tax of athat long-distance, will provide high-speed interconnectivity mass railin Central transit Luzon, Metro has(VAT) introduced in 2005 the and concept the sin oftax High law Standardin 2013. After the systemManila and and an theintegrated/full-length CALABARZON (Cavite, railway Laguna, system Batangas, Highwaysrestructuring (HSH) of which the government would have limiteddebt to access,commercial banks for Rizalfreight-rail and Quezon). services across Luzon that would be highin speed,1992 under long distancethe Brady highways, deal, the governmentmost of which has nurtured linked to Metro Manila and other urban centers. The willan be investor constructed base asin internationalconcession public-private capital markets. Large governmentThe sheer also size continues of the infrastructure to pursue the deficits Central suggests that a partnershipsinflows from (PPPs). overseas The masterFilipino planworkers for the and High service exports ROROsustained (Roll-On/Roll-Off) effort to resolve Spine bottlenecks Project to enhance across a broad front Standardfrom business Highway process Network outsourcing Development (BPO) calls companies for the have inter-islandof sectors logistics and regions and the will movement by itself contribute of significantly constructiongenerated of strong an additional external 234.13balances kilometers and boosted (km) passengers,to economic vehicles development. and goods The along government, the however, is of tollinternational expressways reserves. that will There provide is ample interconnectivity domestic liquidity. Luzon-Panay-Negros-Cebu-Bohol-Mindanaovery conscious about the “need to put in nautical place the right in CentralTerm project Luzon, financing Metro Manila is available and the from major domestic highway.infrastructure in the right place, in the right time,” as CALABARZONbanks in sizable (Cavite, amounts Laguna, for tenorsBatangas, of 10 Rizal to 12 and years. expressed by NEDA Director General Rolando Tungpalan. Quezon).

13 | Infrastructure2 | Infrastructure In-depth: Guide: Philippines Philippines

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. As in previousAs in previous Public Investment Public Investment Plans, there Plans, is anthere effort is an to constructing roads, bridges, flood control, and have an effortintegrated to have approach an integrated in the development approach in the plan, government buildings with the projects and programs various termed as “cross cutting” or “cross reference” There are several reasons why development plan, various termed as “cross cutting” of the Department of Tourism (DOT), Department of projects. As explained by NEDA Director General Rolando infrastructure spending to GDP has or “cross reference” projects. As explained by Education (DepEd), Department of Agriculture (DA) Tungpalan, the overall investment is not just a collation of been historically low which NEDA Director General Rolando Tungpalan, the overall and local governments. individual projects and programs (PAPs) submitted by each continued to be reflected in the investment is not just a collation of individual projects Addressing the specific constraints faced by the poor agency, but there has to be a strategic roadmap that major approval criteria for projects at and programs (PAPs) submitted by each agency, but requiresThe consideration convergence program of geophysical of DPWH characteristics and DOT will integrates the impact of PAPs on transportation, traffic, The integrated approach is reflected in the Convergence the National Economic and there has to be a strategic roadmap that integrates coordinate construction of access roads to priority drainage, etc. Strategies of the DPWH that supports and coordinates its Development Authority-Investment the impact of PAPs on transportation, traffic, tourism destinations under the National Tourism projects under its mandate of constructing roads, bridges, Coordination Committee (NEDA-ICC). drainage, etc. Development Plan (NTDP). The Department of The midterm update introduces a spatial dimension to the flood control, and government buildings with the projects Projects are evaluated at the Transportation and Communications (DOTC) will challenge of inclusive growth by identifying the top and programs of the Department of Tourism (DOT), NEDA-ICC based on the “fiscal, The midterm update introduces a spatial dimension upgrade principal airports to international and provinces most affected by poverty either in terms of high Department of Education (DepEd), Department of monetary and balance of payments to the challenge of inclusive growth by identifying the principal Class 1 and 2 airports. Tourism airports are numbers of poor families or high poverty incidence, and Agriculture (DA) and local governments. (BOP) implications of major capital top provinces most affected by poverty either in also planned for Marinduque, San Jose, Siargao, those provinces most exposed to environmental hazards. projects” taking into account the terms of high numbers of poor families or high Vigan, Basco, Bukidnon, General Santos, and Roxas For each category, the plan proposes specific social The convergence program of DPWH and DOT will peso requirement and foreign poverty incidence, and those provinces most airports. Tourism ports will be upgraded in ports like interventions such as employment creation, diversifying coordinate construction of access roads to priority tourism exchange requirements of the exposed to environmental hazards. Ivana Port in Batanes, Panganngan Port in Bohol, income sources, and infrastructure services. destinations under the National Tourism Development Plan project in terms of current and Lawigan Port in Camiguin, and Cagban Jetty Port in (NTDP). The Department of Transportation and capital outlays, sources of funds and For each category, the plan proposes specific social Aklan. Communications (DOTC) will upgrade principal airports to conditions for proposed financing, interventions such as employment creation, I – provinces with highest II – provinces with highest III – provinces prone to multiple internationalnumber of the poor and principalproportion ofClass the poor 1 and 2hazards airports. Tourism “compliance with the foreign debt diversifying income sources, and infrastructure The integrated approach is also found in the airports. Create are more growthalso planned. Promote for economic Marinduque, mobility of . SanCapacitate Jose, officials and ceiling under RA4860 or the Foreign services. opportunitiesinnovation and growthlabor through corridors human capital for Mindanaoresidents on disaster whererisk- Siargao,. Undertake Vigan, skills training, Basco, Bukidnon,and infrastructure General Santos,reduction strategies and The situation is clearly different today. The country is The sheer size of the infrastructureBorrowings deficits Act of suggests 1966.” Such employmentintegrated facilitation infrastructuredevelopment development. Promote strategies income will Roxas. Encourage airports. flexible work Tourism . Link ports residents will to the valuebe upgradeddiversification in ports like on a much stronger macroeconomic footing. The that a sustained effort to resolvecriteria bottleneckswere driven across by the adifficult The integrated approach is reflected in the arrangementslink agricultural productionchain bases to. Expandprocessing social protection and Ivana Port in Batanes,. StrengthenPanganngan peace-building Port ininsurance Bohol, Lawigan fiscal sector, while in deficit, is manageable with an broad front of sectors andmacro regions environment will by itself which prevailed Convergence Strategies of the DPWH that supports centers and markets.efforts Port in Camiguin, and Cagban Jetty Port in Aklan. improved revenue base after the passage of the contribute significantly to economic development. and coordinates its projects under its mandate of Source: Bangko Sentral ng Pilipinas presentation on Enhancing Resilience expanded Value-Added Tax (VAT) in 2005 and the sin The government, however, is very conscious about to Sustain Inclusive Growth March 2014 tax law in 2013. After the restructuring of the the “need to put in place the right infrastructure in The integrated approach is also found in the innovation and government debt to commercial banks in 1992 under the right place, in the right time,” as expressed by growth corridors for Mindanao where integrated thein Brady the past deal, few the decades. government The countryhas nurtured had to an contend with NEDAIn the Director midterm General update Rolando of the Tungpalan. Philippine Development Plan, infrastructure development strategies will link agricultural investorthe challenge base in internationalof executing capitalstable markets.monetary Large policies on a the government maintains the objective of inclusive production bases to processing centers and markets. inflowsconsistent from overseas basis which Filipino was workersmade difficult and service by a weak fiscal Thus,growth, under to the consist overarching of poverty theme reduction of enhancing in multiple exportsbase, from chronic business BOP problems, process outsourcing low international (BPO) reserves, interconnectivitydimensions through of sectors, “massive urban quality centers, employment and companiesvery high have external generated debt (which strong was external restructured balances in the earlymarkets, creation” the withgovernment a focus onintends spatial to and put sectoralin place strategies,a and1990s), boosted and international limited access reserves. to international There is ample capital markets. seamless and based multimodal on rapid logistics and sustained system economic along the growth. Addressing the specific constraints faced by the poor domesticThe macroeconomic liquidity. Term conditions project financing of the countryis available posed a Subic-Clark-Manila-Batangas (SCMB) corridor “to requires consideration of geophysical characteristics frombinding major constraint domestic onbanks infrastructure in sizable amountsspending. for Other ensureThe efficientgovernment flow has of commodities,introduced the supplies, concept andof High tenorshistorical of 10 reasonsto 12 years. were In the the weak midterm bureaucratic update of institutions the inputsStandard to tourism, Highways agricultural (HSH) whichproduction would and have limited Philippineinherited Development from the Marcos Plan, martialthe government law government. economic/industrialaccess, high speed, zones.” long Thedistance SCMB highways, corridor ismost of which maintains the objective of inclusive growth, to consist expectedwill be toconstructed eventually asextend concession further public-privatenorth and of povertyThe situation reduction is clearly in multiple different dimensions today. The through country is on a furtherpartnerships south. (PPPs). The master plan for the High Standard “massivemuch stronger quality employment macroeconomic creation” footing. with The a focus fiscal sector, Highway Network Development calls for the construction on whilespatial in and deficit, sectoral is manageable strategies, withand basedthe improved on rapid revenue Theof government an additional is 234.13also exploring kilometers the (km)establishment of toll expressways andbase sustained after the economic passage growth. of the expanded The government Value-Added Tax of athat long-distance, will provide high-speed interconnectivity mass railin Central transit Luzon, Metro Category I – provinces with highest Category II – provinces with highest Category III – provinces prone to number of the poor proportion of the poor has(VAT) introduced in 2005 the and concept the sin oftax High law Standardin 2013. After the systemManila and and an theintegrated/full-length CALABARZON (Cavite, railway Laguna, system Batangas, multiple hazards Highwaysrestructuring (HSH) of which the government would have limiteddebt to access,commercial banks for Rizalfreight-rail and Quezon). services across Luzon that would be Addressing the specific • Rapid growth opportunities • Very remote, sparsely • Prone to multiple hazards populated in 1992 under the Brady deal, the government has nurtured constraints faced by the exist but not for the poor high speed, long distance highways, most of which linked to Metro Manila and other urban centers. The poor requires consideration • In-migrants are attracted but • Limited growth opportunities willan be investor constructed base asin internationalconcession public-private capital markets. Large governmentThe sheer also size continues of the infrastructure to pursue the deficits Central suggests that a of geophysical they cannot participate in the • Confronted by conflict and/or sustained effort to resolve bottlenecks across a broad front characteristics growth process as well frequent disasters partnershipsinflows from (PPPs). overseas The masterFilipino planworkers for the and High service exports RORO (Roll-On/Roll-Off) Spine Project to enhance I – provinces with highest number of II – provinces with highest III – provinces prone to multiple from business process outsourcing (BPO) companies have of sectors and regions will by itself contribute significantly the poor Addressing thepropor specifiction of the poor • Createhazards more growth • Promote economic mobility of • Capacitate officials and residents Standard Highway Network Development calls for the inter-island logistics and the movement of on disaster risk-reduction constructiongenerated of strong an additional external 234.13balances kilometers and boosted (km) passengers,to economic vehicles development. and goods The along government, the however, is . Rapid growth constraintsopportunities requires. Very remote, sparsely opportunities. Prone to multiple hazards labor through human capital and very conscious about the “need to put in place the right exist but not fordifferent the poor strategiespopulated • Undertake skills training, infrastructure development strategies of tollinternational expressways reserves. that will There provide is ample interconnectivity domestic liquidity. Luzon-Panay-Negros-Cebu-Bohol-Mindanao nautical . In-migrants are attracted but . Limited growth opportuniemploymentties facilitation • Link residents to the value chain • Promote income diversification infrastructure in the right place, in the right time,” as they cannot participate in the . Confronted by conflict and/or in CentralTerm project Luzon, financing Metro Manila is available and the from major domestic highway. growth process as well frequent disasters • Encourage flexible work • Strengthen peace-building • Expand social protection and arrangements efforts insurance CALABARZONbanks in sizable (Cavite, amounts Laguna, for tenorsBatangas, of 10 Rizal to 12 and years. expressed by NEDA Director General Rolando Tungpalan. Source: Bangko Sentral ng Pilipinas presentation on Enhancing Resilience to Sustain Inclusive Growth March 2014 Quezon). Source: Bangko Sentral ng Pilipinas presentation on Enhancing Resilience to Sustain Inclusive Growth March 2014

InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 14 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. InnoInnovationvation and and growth growth cor ridorscorridors in Mindanao in Mindanao massiveUnder quality the overall employment” goal of “poverty along with reduction the use in of multiple  Mindanao Food, Agribusiness and Logistics the dimensionsso-called “logical and the framework” creation of for massive formulating quality Corridor Mindanao (Tagum-Davao-General Food, Agribusiness Santos); and Logistics Corridor developmentemployment” plans, along the updatedwith the midtermuse of the Philippine so-called “logical  Mindanao(Tagum-Davao-General Industrial Trade Santos);Corridor (Western and Developmentframework” Plan for identifies formulating two development intermediate plans, goals the Northern Mindanao Mindanao); Industrial Trade Corridor (Western and of (1)updated rapid and midterm sustained Philippine economic Development growth while Plan identifies  MindanaoNorthern Food Mindanao); Basket Corridor (Central achievingtwo intermediate (2) equal development goals of (1) opportunities.rapid and sustained economic Mindanao-Bukidnon); Mindanao Food Basket Corridor (Central growth while achieving (2) equal development Mindanao-Bukidnon);  Mindanao Biodiversity and Ecotourism Corridor Thereopportunities. are, in turn, seven “infrastructure-supported  (Surigao-Agusan-DavaoMindanao Biodiversity Oriental and Ecotourism including Corridorformer sector outcomes”, which are driven by five (Surigao-Agusan-Davao Oriental including former Paper Paper Industries Corporate of the Philippinos “infrastructureThere are, inIntermediate turn, seven outcomes”“infrastructure-supported and 14 sector Industries Corporate of the Philippinos [PICOP] [PICOP] concessionaire areas); and specificoutcomes”, strategies. which are driven by five “infrastructure concessionaire areas); and  Mindanao Mariculture and Trade Corridor Intermediate outcomes” and 14 specific strategies. (Zambasulta: Mindanao Mariculture Zamboanga-Basilan-Sulu-Tawi-Tawi) and Trade Corridor (Zambasulta: Zamboanga-Basilan-Sulu-Tawi-Tawi) The sector outcomes, which are impacted by the Source: Philippine Development Plan 2011-2016 stateThe of sectorthe country’s outcomes, infrastructure, which are haveimpacted to do by with the state of http://plans.neda.gov.ph/pdp/chapter-10-accelerating-infrastructure-develoSource: Philippine Development Plan 2011-2016 pment/http://plans.neda.gov.ph/pdp/chapter-10-accelerating-infrastructure-development / (1) globalthe country’s competitiveness infrastructure, in the have industrial to do sector;with (1) (2) global competitivcompetitivenesseness in the in theagricultural industrial sector, sector; (3) (2) AnotherAnother manifest manifestation ation of ofthe the integrated integrated ef forteffort are are the the long effectivecompetitiveness governance, in (4) the stable agricultural national sector, security, (3) effective(5) longterm term “dream “dream plans” plans” for for 2035 2035 for for transportation transportation environmentalgovernance, sustainability, (4) stable national (6) improvements security, (5) environmentalin developmentdevelopment for f or Metro Metro Manila Manila and and Metro Metro Cebu Cebu put put humansustainability, capabilities, (6) and improvements (7) reduction in of human vulnerabilities capabilities, and togethertogether with with the the assist assistanceance of ofthe the Japan Japan International to natural(7) reduction calamities. of vulnerabilities to natural calamities. InternationalCooperation Cooperation Agency (JICA), Agency which (JICA), envisions which more livable, envisionsless congested, more livable, environmentally less congested, friendly mega-urban areasThese These sector sector outcomes outcomes will willdepend depend on fiv one five intermediate environmentallyconducive to productive friendly mega-urban employment. areas At conducive the same time, intermediateoutcomes: outcomes: (1) the enhancement (1) the enhancement of competitiveness of and to theproductive World Bank employment. is involved At in the formulating same time, plans the for the competitivenessproductivity, (2)and better productivity, governance, (2) better (3) improved security, Worldregions Bank that is involved do not belong in formulating to the National plans for Capital the Region governance,(4) environmental (3) improved quality, security, and most (4) environmental significantly, (5) regions(NCR). that do not belong to the National Capital quality,adequacy and most and significantly,accessibility (5)of basicadequacy infrastructure and services Region (NCR). Under the overall goal of “poverty accessibilityincluding of the basic far-flung infrastructure areas. services including reduction in multiple dimensions and the creation of the far-flung areas. Results framework on accelerating infrastructure development Results framework on accelerating infrastructure development Goals Poverty in multiple dimensions reduced and massive quality employment created Goals Poverty in multiple dimensions reduced and massive quality employment created 

Rapid and sus tained Equal development IntermediateIntermediate goalsRapid and sustained economic growth Equal developmentopportunities achieved goals economic growth  opportunities achieved  

Globally Competitive Effective and Stable Sustainable Human Vulnerabilities competiti v e and efficient national and climate capabilities reduced sustainable governance security resilient improved Competitiveand InfrastructureGlobally - innovati v e agriculture achieved achieved environment competitive and industry andEffective and fisheriesand Stable Sustainable achievedHuman Infrastructuresupported - sector sustainableservices sector and climate Vulnerabilities and innovative efficientachieved national capabilities agriculturesectors resilient reduced supported sector industry and achieved governance security improved outcomes environment outcomes services and achieved achieved sectors fisheries achieved achieved sector  achieved              Infrastructure Competiti v eness Governance Safer and En vironmen tal Adequacy and enhanced and improved more quality accessibility of basic intermediate productivity incresed in secured improved Adequacyinfrastructure and services Competitiveness environment the industry, services Safer and accessibility ofenhanced, basic and Infrastructure enhanced and and agriculture sectors created and infrastrucutre gaps in outcomes Governance more secured Environmentalsustained infrastructure services productivity incresed in far-flung areas reduced intermediate improved environment quality enhanced, and the industry, services created and improved infrastrucutre gaps in outcomes and agriculture sectors sustained far-flung areas reduced

Source: Philippine Development Plan 2011-2016 Source: Philippine Development Plan 2011-2016 http://plans.neda.gov.ph/pdp/chapter-10-accelerating-infrastructure-development/ http://plans.neda.gov.ph/pdp/chapter-10-accelerating-infrastructure-development/

15 |2 Infrastructure | Infrastructure In-depth: Guide: Philippines Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. The fourteen infrastructure development strategies Intermediate outcome B: Adequacy and accessibility of basic are directed towards the five intermediate infrastructure services enhanced and infrastructure gaps in Intermediate outcome E. Environmental quality improved infrastructure outcomes which support the sector far-flung areas reduced outcomes. Strategy 5: Improve access to and adequacy of basic Intermediate outcome A: Competitiveness enhanced and productivity Strategyinfrastructure 12: Strengthen services resilience to climate change increasedFor in the each industry, strategy, services there and agricultureis a results sectors matrix (RM) which and disasters specifies mostly physical indicators and targets to measure the government’s success in each strategy. Strategy 6: Address infrastructure gaps in Strategy 1: Improve connectivity and efficiency Strategyfar-flung 13: Improve areas wastewater and solid waste among urban centers, regional growth hubs management For Intermediate outcome A, Strategy 1: Improve connectivity and efficiency among urban centers, and Intermediate outcome B: Adequacy and accessibility of basic infrastructureStrategy services14: Support enhanced measures and to infrastructure improve air gaps in regionalStrategy growth 2: hubs,Support the agricultural following production is the Results quality far-flung areas reduced Matrix from 2013 to 2016 in the original Philippine

Development Plan, and the revalidated results matrixSource: Philippine DevelopmentStrategy Plan 2011-2016 5: Improve access to and adequacy of basic in the midtermStrategy 3: update. Pursue energy The end-of-plan and water security targets have http://plans.neda.gov.ph/pdp/chapter-10-accelerating-infrastructure-development/infrastructure services been mostly reaffirmed. (See Appendix A and B) The strategies are not Strategyjust motherhood 6: Address infrastructure statements. gaps in The targetsStrategy are 4: asImprove specific business as the climate transfer through time far-flung areas betweeninstitutional MRT/LRT and platform policy reforms, to platform and legislation and concourse to platform; the number of passengers perFor each strategy, there is a results matrix (RM) which specifies mostly physical indicators and targets to square meter vs. the optimal; the volume of tonnage Intermediate outcome C: Governance improved measure the government’s success in each strategy. Intermediatetransported outcome B: Adequacy through and the accessibility Central of basicRORO infrastructure spine; the services enhancednumber and of infrastructure passengers gaps intransported far-flung areas reducedthrough airlines; and percentage of mobile services with broadband For Intermediate outcomeStrategy A, Strategy7: Promote 1:good Improve governance through facilities. connectivity and efficiencyinformation among and urban communication centers, technologies and (ICTs) Strategy 5: Improve access to and adequacy of basic regional growth hubs, the following is the Results Matrix infrastructure services from 2013 to 2016 in the original Philippine Development As reflection of the scale and complexity of the Strategy 8: Improve coordination and planning, and transportation problem in Metro Manila and other Plan, and the revalidatedstreamline results government matrix in processes the midterm Strategy 6: Address infrastructure gaps in urban areas, it indicates that the target set for the update. The end-of-plan targets have been mostly far-flung areas reaffirmed. (See Appendix A.1 and A.2) average travel time via road along key urban corridors Strategy 9: Optimize resources and investments in is to decrease from the baseline of 20.59 minutes in infrastructure 2012 to just 20.03 minutes by 2016. An improvement The targets are as specific the “transfer time between of travel time by 56 seconds will hardly be felt by MRT/LRT: platform to platform and concourse to Intermediate outcome C: Governance improved platform”;Intermediate the number outcome of passengers D: Safer and per more square secured meter environment vs. urban commuters. Perhaps what the target created and sustained represents is the objective that traffic in Metro the optimal; the volume of tonnage transported through the Central RORO spine; the number of passengers Manila’sStrategy main 7:corridors Promote goodwill atgov leasternance not through worsen betweeninformation 2014 to and 2016. communication technologies (ICTs) transported through airlines;Strategy and 10: Provide percentage safety and of securitymobile measures services with broadband facilities.

The targetsStrategy for 8: the Improve transfer coordination times andfor planning,LRT and and MRT As reflection of the scaleStrategy and 11:complexity Enable development of the in passengersstreamline to go gov downernment by processes four to five minutes also conflict-affected areas do not seem material. transportation problem in Metro Manila and other urban areas, it indicates that the target set for the average travel IntermediateStrategy 9: outcome Optimize A: resources Competitiveness and investments enhanced in and time via road along key urban corridors is to decrease from productivityinfrastructure increased in the industry, services and agriculture the baselineIntermediate of 20.59 minutes outcome in E. 2012Environmental to just 20.03 quality improved sectors minutes by 2016. An improvement of travel time by 56 seconds will hardly be felt by urban commuters. Perhaps Strategy 1: Improve connectivity and efficiency Strategy 12: Strengthen resilience to climate change Intermediate outcome D:among Safer urbanand morecenters, secured regional growth hubs what the target representsand disasters is the objective that traffic in environment created and sustained Metro Manila’s main corridors will at least not worsen between 2014 to 2016. Strategy 2: Support agricultural production Strategy 13: Improve wastewater and solid waste Strategy 10: Provide safety and security measures management The targets for the transfer times for LRT and MRT passengers to go down by four to five minutes also do not Strategy 3: Pursue energy and water security Strategy 14: Support measures to improve air Strategy 11: Enable development in seem material. quality conflict-affected areas

Source: Philippine Development Plan 2011-2016 Strategy 4: Improve business climate through http://plans.neda.gov.ph/pdp/chapter-10-accelerating-infrastructure-development/ institutional and policy reforms, and legislation

InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 16 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. For other items in the Results Matrix,For other the items physical in the targets Results that Matrix, appear the physicalto be signiﬁcant targets that are: appear to be signiﬁcant are: Indicators Baseline (2012) End of Plan Percent change Indicators Baseline (2012)End of Plan Percent change Load transported via Central RoRo spine (tons per ship-hour) 189 251 32% increase Davao Load transported via Central RoRo spine (tons126 per ship-hour) 179 189 42%251 increase 32% increase Cagayan de Oro 42 47 11.9% increase Davao 126 179 42% increase Batangas 21 25 19.0% increase Passengers transported via air perCagayan annum de Oro 37,960,765 56,084,52842 47.7%47 increase 1 1.9% increase

Source: Philippine Development Plan revalidatedBatangas results matrix and author’s calculations. 21 25 19.0% increase

Another salient observation is thatPassengers the lead transported agency for via theair per strategies annum will mostly be the37,960,765 DOTC which 56,084,528 has been 47.7% increase managing challenges in rolling outSource: public-private Philippine Development partnership Plan revalidated (PPP) projects. results matrix and author’s calculations.

ParticularsLuzon, Visayas and Mindanao from 2013 to Luzon 2016, and the Visayas targeted ratio Mindanaoof dependable capacity to peak demand and required reserve by 2016. Capacity of committed power plant projects (2013-2016), in MW 767.4 429.6 515.0 also adds the spatial dimensions of poverty, vulnerability Capacity of indicative power plant projects (2013-2016), in MW 9,702.5 718.0 1,928.0 Target capacity of committed and indicate private sector-initiated power plant projects, 2013-2016 to natural disasters, and sustainability. Ratio of dependable capacity to peak demand and required reserve (2016) 107.86% 105.32% 100.0% Particulars Grid Source: Philippine Development Plan 2011-2016 http://plans.neda.gov.ph/pdp/chapter-10-accelerating-infrastructure-development/ Finally, it presents the midterm update results matrices Luzon Visayas Mindanao by which the government intends to evaluate In the water sector, the targets actuallyCapacity show of committed a degradation power ofplant the projects ratio of (2013-2016, million liters in MW per day (MLD) 767.4 of water 429.6supplied to 515.0 achievement versus the plan in terms of quantitative water demand for the country as a whole, from 116 percent to 92 percent. This appears to be weighed down by the physical targets and amount of time consumed. The prospects in the Metropolitan WaterworksCapacity of and indicative Sewerage power System plant projects (MWSS) (2013-2016, Concession in MW area which 9,702.5 drops from 718.0 122 1,928.0 plan reﬂects the government’s commitment to make percent to 113 percent, with a noteRatio that of the dependable MWSS capacity Concession to peak demand areas andwill required be in reservedeﬁcit (2016)by 2017. 107.86% 105.32% 100.0% measurable progress in infrastructure development.

Source: Philippine Development Plan 2011-2016 Although the other major urban areashttp://plans.neda.gov.ph/pdp/chapter-10-accelerating-infrastructure-development show an increase or a constant ratio of supply to demand,/ the actual ratios point to the continuing critical situation as well. In Metro Cebu, the ratio of supply to demand was only 32 percent, improving but The current Philippine development plan rightfully puts still below 100 percent, to 58 percent by 2016. Bulacan and Davao City targets show a slight improvement over actuals “pride of place” in infrastructure as the key challenge In the water sector, the targets actually show a degradation of the ratio of million liters per day but will still be in the 85 to 86 percent by 2016. Only Cagayan De Oro shows an improvement from 109 percent to 121 and major opportunity in the country’s economic growth (MLD) of water supplied to water demand for the country as a whole, from 116 percent to 92 percent in the plan period. and development. The ultimate goals reflect the mantra percent. This appears to be weighed down by the prospects in the Metropolitan Waterworks and of “inclusive growth”: poverty reduction and generation Sewerage System (MWSS) Concession area which drops from 122 percent to 113 percent, with a The full-time coverage of water supply services in cities are targeted to increase from 78 to 90 percent. Non-revenue of quality employment. water is projected to decrease fromnote 36 that to 23 the percent. MWSS Concession areas will be in deficit by 2017. The plan presents a logical framework on the The government also intends to develop master plans for river basins, including water resource assessments or water relationship between these ultimate goals, intermediate availability studies, particularly for water-critical areas, and to identify new water sources for domestic, commercial, goals, thematic outcomes, and sector strategies. industrial, irrigation and other needs. Reflecting recent natural calamities, the midterm update

17 | Infrastructure In-depth: Philippines Philippines 2 | Infrastructure Guide: Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. For other items in the Results Matrix,For other the items physical in the targets Results that Matrix, appear the physicalto be signiﬁcant targets that are: appear to be signiﬁcant are:

“The Philippine“The DevelopmentPhilippine Development Program of this Program government of thisis committedgovernment to sustain the isgrowth committed rate trajectory to sustain of 7-8 the percent growth by investingrate in thetrajectory right infrastructure of 7-8 percent both purelyby investing public and in the purely privateright infrastructure infrastructure so that both the purely sustainability public ofand such purely growth can be assured. But at the same time, we are not just blinded byprivate high growth. infrastructure As important so asthat high the growth sustainability is the of inclusive growth.such growth Geographically, can be assured.we have mapped But at outthe same where we time,can make we aare dent not of povertyjust blinded reduction.” by high growth. As importantNEDA Deputy as Director high growth Rolando is Tungpalan the inclusive growth. Another salient observation is that the lead agency for the strategies will mostly be the DOTC which has been Geographically, we have mapped out where we managing challenges in rolling out public-private partnership (PPP) projects. can make a dent of poverty reduction.”

Another salient observation is that the lead agency for the strategies will mostly be the For strategy 2, supporting agricultural production, the physical targets refer to the percent of potential areas with Surface water will be prioritized- NEDA Deputy over groundwater Director Rolando resources, Tungpalan where DOTC which has been managing challenges in rolling out public-private partnership (PPP) irrigation services. (See Appendix C) appropriate particularly in water-critical areas such as Metro Manila, projects. Metro Cebu, Metro Davao, Angeles City, Metro Iloilo, Cagayan de For Strategy 3 covering water and energy security, there are specific physical targets for the ratio of power supply Oro City and SurfaceBulacan. water Alternative will be waterprioritized sources over togroundwater the Angat Dam, For strategy 2, supporting agricultural production, the physical targets refer to the percent of to demand; non-revenue water; 24/7 water service availability; etc. The physical targets do not reflect ambitious which suppliesresources, 97 percent where of Metro appropriate Manila’s particularly water requirements, in water-critical are potential areas with irrigation services. target indicators. (See Appendix D) also being explored.areas such as Metro Manila, Metro Cebu, Metro Davao, Angeles City, Metro Iloilo, Cagayan de Oro City and For Strategy 3 covering water and energy security, there are specific physical targets for the For the power sector, the target for the ratio of dependable capacity to peak demand including required reserve in This is to reduceBulacan. the risks Alternative arising fromwater being sources dependent to the Angat on a singleDam, ratio of power supply to demand; non-revenue water; 24/7 water service availability; etc. The fact goes down from 108 percent in 2010 to 104 percent for the country as a whole. For Luzon, this goes down water sourcewhich for various supplies consumption 97 percent needs. of Metro The Manila’s two other water water physical targets do not reflect ambitious target indicators. (See Appendix A.3) from 113 percent to 107.85 percent while for the Visayas, the ratio increases from 103 percent to 105 percent. The PPP projectsrequirements, are Laiban Dam are and also the being Bulacan explored. Bulk Water projects. critical demand-supply situation in Mindanao and the realistic prospects for addressing them are reflected in the For the power sector, the target for the ratio of dependable capacity to peak demand includ- drop of the ratio from 107 percent to just 100 percent by 2016. This is to reduce the risks arising from being dependent ing required reserve in fact goes down from 108 percent in 2010 to 104 percent for the on a single water source for various consumption needs. country as a whole. For Luzon, this goes down from 113 percent to 107.85 percent while for The table below shows the committed and indicative capacities for private sector power projects in Luzon, Visayas The two other water PPP projects are Laiban Dam and the Visayas, the ratio increases from 103 percent to 105 percent. The critical demand-supply and Mindanao from 2013 to 2016, and the targeted ratio of dependable capacity to peak demand and required the Bulacan Bulk Water projects. reserve by 2016. situation in Mindanao and the realistic prospects for addressing them are reflected in the drop of the ratio from 107 percent to just 100 percent by 2016. Major government infrastructure projects to Target capacity of committed and indicate private sector-initiated power plant projects, 2013-2016 pursue energy and water security Table 3 shows the committed and indicative capacities for private sector power projects in  Angat Dam and Dyke Strengthening Project Luzon, Visayas and Mindanao from 2013 to 2016, and the targeted ratio of dependable  Angat Water Transmission Improvement Project capacity to peak demand and required reserve by 2016.  New Centennial Water Source-Kaliwa Dam  Bulacan Bulk Water Supply Project also adds the spatial dimensions of poverty, vulnerability Target capacity of committed and indicate private sector-initiated power plant projects, 2013-2016  Rehabilitation, Operation and Maintenance of the to natural disasters, and sustainability. Angat Hydro Electric Power Plant (AHEPP) Auxiliary Turbines 4 & 5 through PPP Finally, it presents the midterm update results matrices  Uprating of Agus 6 Units 1 & 2 by which the government intends to evaluate In the water sector, the targets actually show a degradation of the ratio of million liters per day (MLD) of water supplied to  50-MW Isabel Coal Mine-Mouth Power Plant achievement versus the plan in terms of quantitative water demand for the country as a whole, from 116 percent to 92 percent. This appears to be weighed down by the  50-MW Coal-fired Power Plant in Malangas physical targets and amount of time consumed. The  prospects in the Metropolitan Waterworks and Sewerage System (MWSS) Concession area which drops from 122 Major government infrastructure278.4 MW projects Renewable to pursue Energy energy Project and water security plan reflects the government’s commitment to make percent to 113 percent, with a note that the MWSS Concession areas will be in deficit by 2017. . Angat Dam and Dyke Strengthening Project measurable progress in infrastructure development. Source: Philippine Development Plan 2011-2016 For further information, please contact: . Angat Water Transmission Improvement Project http://plans.neda.gov.ph/pdp/chapter-10-accelerating-infrastructure-development/ Although the other major urban areas show an increase or a constant ratio of supply to demand, the actual ratios point to . New Centennial Water Source-Kaliwa Dam . Bulacan Bulk Water Supply Project Roberto G. Manabat the continuing critical situation as well. In Metro Cebu, the ratio of supply to demand was only 32 percent, improving but . Rehabilitation,The current Operation Philippine and Maintenance development of the planAngat rightfully Hydro puts Chairman & CEO still below 100 percent, to 58 percent by 2016. Bulacan and Davao City targets show a slight improvement over actuals Electric“pride Power of Plant place” (AHEPP) in infrastructure Auxiliary Turbines as 4the & 5 key through challenge PPP In the water sector, the targets actually show a degradation of the ratio of million liters per day . Uprating of Agus 6 Units 1 & 2 KPMG in the Philippines but will still be in the 85 to 86 percent by 2016. Only Cagayan De Oro shows an improvement from 109 percent to 121 and major opportunity in the country’s economic growth For further information, please contact: percent in the plan period. (MLD) of water supplied to water demand for the country as a whole, from 116 percent to 92 . 50-MW Isabel Coal Mine-Mouth Power Plant T: +63 2 885 7000 . 50-MWand Coal development.-fired Power Plant The in Malangas ultimate goals reflect the mantra percent. This appears to be weighed down by the prospects in the Metropolitan Waterworks and . 278.4 MWof “inclusive Renewable growth”: Energy Project poverty reduction and generation E: [email protected] Sewerage System (MWSS) Concession area which drops from 122 percent to 113 percent, with a Emmanuel P. Bonoan The full-time coverage of water supply services in cities are targeted to increase from 78 to 90 percent. Non-revenue of quality employment. water is projected to decrease fromnote 36 that to 23 the percent. MWSS Concession areas will be in deficit by 2017. Vice Chairman and Head of Tax KPMG in the Philippines The plan presents a logical framework on the The government also intends to develop master plans for river basins, including water resource assessments or water relationship between these ultimate goals, intermediate T: +63 2 885 7000 ext. 200 availability studies, particularly for water-critical areas, and to identify new water sources for domestic, commercial, goals, thematic outcomes, and sector strategies. E: [email protected] industrial, irrigation and other needs. Reflecting recent natural calamities, the midterm update

InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 18 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. PavingPaving the the Way Throughway through Good good Gogovverernancenance

MichaelCristina Arcatomy Roxas, H. Advisory Guarin, Advisory Partner, Partner, KPMG KPMG in the in the Philippines Philippines

InfrastrInfrastructucture ure spending spending by bthey the Department Department of ofPublic Public W orks Works and and Highw Highways ay (DPWH)s (DPWH) is eisxpected expected to to reach 2011-2015 DPWH Infrastructure Program: reachPhP190 US$4.30 billion billion in 2014, in 2014, which which would would be more be more than thandouble double the PhP90.67 the US$2.05 billion billion level level in 2011. in 2011. Infrastructure The DPWHCapital is also Outlays supporting (By Category) the development programs of other agencies such as the agriculture, tourism, and educa- Infrastructurespending has spending been growing has been at 28growing percent at a28 year percent in the a lastyear three in the years. last three The bulkyears. of Thethe spendingbulk of and the tion departments under its Strategic Convergence Program (SCP). the spending and the highest growth has been in highways, which jumped from US$1.54 billion in highest growth has been in highways, which jumped from PhP68 billion in 2011 to PhP128 billion in 2014. 2011-2015 DPWH Infrastructure Program: 2011The to DPWH US$2.90 budget billion for in 2015 2014. could The DPWHgo up to budget as much for as2015 PhP300 could billion.go up to as much as US$6.79 Capital Outlays (By Category) billion.DPWH has set ambitious targets to overcome the country’s deficit in terms of the quality of roads in comparison with Theneighbouring DPWH has setcountries. ambitious By targets 2016, the to overcometarget is to the completely country’s pave deficit the in 32,000 terms ofkilometers the quality (km) of roadsof national in roads, from only comparison86 percent with as ofneighbouring 2013. The qualitycountries. for the By paved2016, theroads target is targeted is to completely to be at the pave international the 32,000 roughness kilometers scale (km) ofof 4. DPWH nationalis upgrading roads, from117,000 only lineal 86 percent meters asof ofbridges 2013. nationwide. The quality Addedfor the topaved the taskroads are is thetargeted rehabilitation to be at andthe reconstruction internationalrequirements roughness in the regions scale of damaged 4. The DPWH by Typhoon is upgrading Haiyan. 117,000 lineal meters of bridges nationwide. Added to the task are the rehabilitation and reconstruction requirements in the regions damaged by Typhoon Haiyan. The Global Competitiveness Report TheRanking DPWH ofis thealso Philippines supporting significantly the development improved programs from no. of other114 (2010-2011) agencies such to no. as 87 the agriculture, tourism, and education(2013-2014) departments in the quality under of its roads Strategic indicator Convergence in the WEF Program Global Competitiveness (SCP). Index

The Global Competitiveness Report Quality of Roads The ranking of the Philippines signiﬁcantly improved from(2010 -no. 2013) 114 (2010-2011) to no. 87 (2013-2014) in the quality 2010 - 2011 2011 - 2012 2012 - 2013 2013 - 2014 of roads6.0 indicator5.7 5.7 in 5.4the 5.4World Economic Forum (WEF) Global Competitiveness Index 5.1 5 5 4.9 5.0 Quality of Roads 4.0 (20103.5 - 2013) 3.5 3.4 3.7 2.8 3.1 3.4 3.6 5.7 5.7 5.4 5.4 2010 - 2011 2011 - 2012 2.7 2.6 2.72012 3.1 - 2013 2013 - 2014 6.0 3.0 5.1 5 5 4.9 5.0 2.0

4.0 1. 0 3.5 3.5 3.4 3.7 2.8 3.1 3.4 3.6 2.7 2.6 2.7 3.1 3.0 0.0 Malaysia Thailand Indonesia Vietnam Philippines 2.0 Legend: 1 = extremely underdeveloped; 7 = extensive and efﬁcient by international standards (Based on 146 Countries) Source: Bangko Sentral ng Pilipinas presentation on Enhancing Resilience to Sustain Inclusive Growth March 2014 1.WEF: 0 World Economic Forum

0.0 Malaysia Thailand Indonesia Vietnam Philippines Source: Bangko Sentral ng Pilipinas presentation on Enhancing Resilience to Sustain Inclusive Growth March 2014

Notes: 1 = extremely underdeveloped; 7 = extensive and efﬁcient by international standards (Based on 146 Countries) Source: Bangko Sentral ng Pilipinas presentation on Enhancing Resilience to Sustain Inclusive Growth March 2014

19 | Infrastructure2 | Infrastructure In-depth: Guide: Philippines Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. 2011-2015 DPWH Infrastructure Program: The DPWHCapital is also Outlays supporting (By Category) the development programs of other agencies such as the agriculture, tourism, and education departments under its Strategic Convergence Program (SCP). 300.0 41% 2011-2015 DPWH Infrastructure Program: Capital Outlays (By Category)250.0 DPWH has set ambitious targets to overcome the country’s deficit in terms of the quality of roads in comparison with 300.0 32% Theneighbouring DPWH has setcountries. ambitious By targets 2016, the to overcometarget is to the completely country’s pave deficit the in 32,000 terms ofkilometers the quality (km) of roadsof national in roads, from only 41% 200.0 comparison86 percent with as ofneighbouring 2013. The qualitycountries. for the By paved2016, theroads target is targeted is to completely to be at the pave international the 32,000 roughness kilometers scale (km) ofof 4. DPWH nationalis upgrading roads, from117,000 only lineal 86 percent meters asof ofbridges 2013. nationwide. The quality Addedfor the topaved the taskroads are is thetargeted rehabilitation to be at andthe reconstruction 250.0 45% internationalrequirements roughness in the regions scale of damaged 4. The DPWH by Typhoon is upgrading Haiyan. 117,000 lineal meters of bridges nationwide. Added to 150.0 32% the task are the rehabilitation and reconstruction requirements in the regions damaged by Typhoon Haiyan. 200.0 10% The Global Competitiveness Report 100.0 TheRanking DPWH ofis thealso Philippines supporting significantly the development improved programs from no. of other114 (2010-2011) agencies such to no. as 87 the agriculture, tourism, and 45% Amount (in Billion Pesos) (in Billion Pesos) Amount education(2013-2014) departments in the quality under of its roads Strategic indicator Convergence in the WEF Program Global Competitiveness (SCP). Index 150.0 50.0 10% The Global Competitiveness Report 100.0

The ranking of the Philippines signiﬁcantly improved from no. 114 (2010-2011) to no. 87 (2013-2014) in the quality (in Billion Pesos) Amount 2011 2012 2013 2014 Proposed 2015 of roads indicator in the World Economic Forum (WEF) Global Competitiveness Index Highways50.0 68.0 78.1 100.9 129.4 173.5 Flood Control 11. 3 10.8 15.9 33.6 44.8 Others 11. 3 10.8 27.6 27.9 51.4 Total (PhP) 2011 90.7 2012 99.5 2013 144.3 2014190.9 Proposed 269.7 2015 Source:Highways Bangko Sentral ng Pilipinas presentation68.0 on Enhancing78.1 Resilience to Sustain 100.9 Inclusive Growth March 129.4 2014 173.5 TheFlood DPWH Control has introduced the11.3 concept of High 10.8 Standard Highways 15.9 (HSH) which 33.6 are limited 44.8access, high speed highwaysOthers for long distance trips11.3 in a 200 km radius10.6 in the National 27.6 Capital Region27.9 (NCR). These 51.4 will be constructed underTotal the public-private P partnership90.7 (PPP) program.99.5 By 2020, 144.3 the HSH network 190.9 is projected 269.7 to increase from 420 kilometers to 626 kilometers. Another 236 kilometers are proposed to be constructed by 2030, and 130 kilometers Source: Bangkobeyond Sentral ng2030, Pilipinas for presentation a total of on 995 Enhancing kilometers. Resilience to Sustain Inclusive Growth March 2014 The DPWH has introduced the concept of High Standard Highways (HSH) which are limited access, high speed highways for long distance trips in a 200 km radius in the National Capital Region (NCR). These will be constructed under the public-private partnership (PPP) program. By 2020, the HSH network is projected to increase from 420 kilometers to 626 kilometers. Another 236 kilometers are proposed to be constructed by 2030, and 130 kilometers beyond 2030, for a total of 995 kilometers.

InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 20

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. But even more significant than the quantum increase Governance Reform and Anti-Corruption Program In collaboration with the Philippine Contractors Association in infrastructure spending and physical Key Reforms Policies and Program and the DPWH’s Accreditation Board, the eligibility of In terms of getting the right people, DPWH has initiated a accomplishments by DPWH are qualitative changes contractors to bid is based on their certification and credit cadet engineer program to encourage young entry level in governance which are transforming the way the  Objective programming criteria based on rating. To ascertain the financial capacity, the DPWH engineers to pursue a career in government service. They planning applications (i.e. PMS-HDM 4); DPWH is delivering on its mandate. A “massive  Project Status available on the DPWH requires no less than a certification from the Bureau of are required to take qualifying exams, designed by the increase in spending” by government is usually Right Projects website; Internal Revenue (BIR). Development Academy of the Philippines (DAP) and the associated with massive irregularities and  Public consultation and disclosure on public Civil Service Commission (CSC), not just on the eligibility governance issues as well. Under the banner of a expenditure (eNGAS) and project DPWH is working to cluster projects to ensure that these but also on their management competencies. The identification up to project completion. “good governance reform and anti-corruption are executed by contractors with the proper capabilities and competency test is a way of making sure that the right  Detailed Design, Program of Work and program”, DPWH Secretary Rogelio Singson has Detailed Cost/Estimates prepared/evaluated equipment. Smaller project lot sizes are also being candidates are selected based on qualifications and not on launched various initiatives to safeguard against such Right Cost based on restructured Indirect/Direct Cost; discontinued as much as possible. The DPWH annual endorsement by government officials. Over time, this will risks. In pursuing its ambitious targets, the DPWH  Open, Transparent and Competitive Bidding report for 2012 states the following anecdote: result in the upgrading of the overall skills and adopted the following priorities: which resulted in savings. professionalism in DPWH.  24/7 DPWH Call Center (165-02) to address “Bidding irregularities in DPWH Region 4-B. The queries and complaints; District Engineering Office (DEO) in Mamburao, In addition, DPWH has also enlisted the support of civil Right Quality  Outsourced project inspection and quality assurance; Occidental Mindoro began a project worth society groups to improve performance and governance.  Developing ISO Standards of DPWH Offices. PhP473.457 million, well beyond the PhP50 million 1. Right Projects 2. Right Cost 3. Right Quality  Accredited 47 Civil Society Organizations that district engineers can sign off on their own. To “Road projects are now being implemented (CSOs) partners for monitoring; bypass clearance from regional and central offices, according to approved plans and specifications by Right On Time  Bantay Lansangan Road Sector Report Card they cut the project into components that would not better equipped and qualified contractors with closer Rating breach the said limit. DPWH cancelled the bidding of project inspection and monitoring, including the  Close monitoring of project implementation. 4. Right Time 5. Right People these projects, clustered them into six projects, and monitoring and participation of a network of Civil Source: Bangko Sentral ng Pilipinas presentation on Enhancing rebid these in September 2011. Total approved Society Organizations (CSOs), Non-Government The DPWH adopted concrete steps and approaches Resilience to Sustain Inclusive Growth March 2014 budget for the contract (ABC) for the six clustered Organizations (NGOs), Church and private sector to make sure that these priorities do not remain as In collaboration with the Philippine Contractors projects was PhP463.8 million. Through public organizations. As of February 2012, DPWH mere slogans. Many of these steps are ingeniously Association (PCA) and the DPWH’s Accreditation bidding, the DPWH was able to save PhP46.6 million accredited 52 Civil Society Organizations (CSOs) as simple but are proving to be effective in curbing Board, the eligibility of contractors to bid is based on as Thethe DPWHtotal awarded has created contract a national amounted road to database only of all partners/observersgovernment service. in all They stages are requiredof project to take moralBut evenhazards more and significant spending thanirregularities. the quantum increase in theirGovernance certification Reform and credit and rating. Anti-Corruption To ascertain Program the PhP417.2projects million.” nationwide which at any time can give the developmentqualifying exams, cycle designed(identification, by the preparation, Development infrastructure spending and physical accomplishments by financial capacity, the DPWH requires no less than a status of each project. It enables the DPWH to budgeting,Academy ofprocurement, the Philippines implementation, (DAP) and the operation Civil Service Commission (CSC), not just on the eligibility TheDPWH procurement are qualitative process changes has been in governance made more which are certificationKey Reforms from the Bureau ofPolicies Internal and Revenue Program DPWH hasoptimize created the a national deployment road ofdatabase resources of all for projects timely and post evaluation) and in other areas of mutual transparenttransforming and the simplified way DPWH to ensure is delivering the most on its mandate. (BIR). nationwideexecution which at and any completion, time can give and the to status prioritize of eachrepairs. interest.”but also on their management competencies. The qualified proponents are chosen. The number of Objective programming criteria based on competency test is a way of making sure that the Right Projects project. It enables the DPWH to optimize the deployment signaturesA “massive required increase has in also spending” been reduced by government to five. is usually The DPWH is working planningto cluster applications projects (i.e. to ensurePMS-HDM 4); of resourcesIn the for case timely of executionfarm to market and completion, roads under and the to SCP These reformsright candidates introduced are in selectedthe last three based years on qualifications have Project Status available on the DPWH Thisassociated lowers the with chances massive for irregularities moral hazard and in thegovernance form that these are executed by contractors with the prioritize repairs.with the Department of Agriculture (DA), the DPWH begun toand make not a on difference endorsement in the by public government perception officials. of Website; Over time, this will result in the upgrading of the of issuesbureaucratic as well. interference. Under the bannerThe number of a “good of governance proper capabilities and Publicequipment. consultation Smaller and disclosure project on public insists on one simple basic criterion: that the farm to governance at DPWH. overall skills and professionalism in the DPWH. documentsreform and required anti-corruption to be submitted program”, has DPWH also beenSecretary lot sizes are also beingexpenditure discontinued (eNGAS) as much and project as In the casemarket of farm road to hasmarket to connect roads under to a majorthe SCP road with or the reducedRogelio from Singson 20 to has five. launched various initiatives to possible. The DPWH annualidentification report up for to project2012 states completion. Departmenthighway. of Agriculture This curbs (DA), the DPWH tendency insists for onthe one alignment safeguard against such risks. In pursuing its ambitious the following anecdote: simple basicof farm criterion: to market that theroads farm to tobe market based moreroad has on localto OpportunitiesIn addition, for the the private DPWH sector has also enlisted the support Detailed Design, Program of Work and of civil society groups to improve performance and Additionally,targets, the the DPWH DPWH adopted used to the require following bidders priorities: to Right Cost Detailed Cost/Estimates prepared/evaluated connect topolitical a major considerations road or highway. rather This than curbs the thedirect governance. submit letters of intent for projects being tendered “Bidding irregularitiesbased inon DPWH restructured Region Indirect/Direct 4-B. The Cost; tendency contributionfor the alignment linking of farm farm areas to market to market roads centers. to be The significant opportunities for the private sector are in the and the potential1. Right biddersproject are posted in public. This District EngineeringOpen, Office Transparent (DEO) andin Mamburao, Competitive Bidding based moreThe on DPWH local politicalis geo-tagging considerations farm to rathermarket than roads the to PPP projects in the HSH of the DPWH: step allowed2. Right bidders cost to find out who the other Occidental Mindorowhich began resulted a project in savings. worth direct contributionsupport this. linking farm areas to market centers. “Road projects are now being implemented according to approved plans and specifications bidders competing3. Right quality for the project. Notwithstanding PhP473.457 million24/7 (US$ DPWH 10.72 Call Centermillion), (165-02) well to address DPWH is geo-tagging farm to market roads to support this. � Plaridel Bypass Toll Road (DPWH) Laguna Right Quality by better equipped and qualified contractors with laws and 4.rules Right to theon timecontrary, the process was prone beyond the PhP50queries million and (US$1.13 complaints; million) that In its SCP with the Department of Tourism (DOT), the Lakeshore Expressway Dike Project closer project inspection and monitoring, to collusive5. behaviourRight people to the disadvantage of the district engineersOutsourced can sign offproject on their inspection own. andTo quality DPWH emphasizes the interconnections between In its SCP with the Department of Tourism (DOT), DPWH � C-6 Expresswayincluding the (Southeast, monitoring East and and participation North of a DPWH. Under the current process, bidders simply bypass clearanceassurance; from regional and central emphasizesports the and interconnections airports to tourist between destinations. ports and Section) (DPWH) Developing ISO Standards of DPWH Offices. network of Civil Society Organizations (CSOs), procureThe DPWH the bid adopted documents concrete and submitsteps and their approaches bids with to offices, they cut the project into components airports to tourist destinations. � NLEX East Expressway (DPWH) that would not breach the said limit. DPWH Non-Government Organizations (NGOs), Church themake DPWH sure providing that these no prioritiesinformation do onnot who remain the asother mere Accredited 47 Civil Society Organizations The DPWH is also supporting local governments and � Camarines Sur Expressway Project (DPWH) Rightcancelled On Time the bidding of these projects, and private sector organizations. As of February biddersslogans. are. Many In the of past these few steps years, are this ingeniously new approach simple but (CSOs) partners for monitoring; DPWH is schoolsalso supporting in constructing local governments rainwater catchment and schools facilities in � Skyway Stage 3 clustered them into six projects, and rebid these 2012, DPWH accredited 52 Civil Society hasare allowed proving the to DPWHbe effective to generate in curbing US$452.93 moral hazards and Bantay Lansangan Road Sector Report Card in order to augment the water supply in specific in September 2011. Total approved budget for the constructing rainwater catchment facilities in order to Organizations (CSOs) as partners/observers in all millionspending in savings irregularities. in terms of the Approved Budget for Rating locations. contract (ABC) forClose the monitoringsix clustered of project projects implementation. was augment the water supply in specific locations. stages of project development cycle the Contract (ABC) and the actual cost of the bids PhP463.8 million (US$10.50 million). Through (identification, preparation, budgeting, In terms of getting the right people, the DPWH has awarded.The procurement The DPWH process also introduced has been standardmade more unit transparent Source:public Bangko bidding,Sentral ng Pilipinasthe DPWH presentation was onable Enhancing to save Resilience to Sustain procurement, implementation, operation and costsand whichsimplified are publishedto ensure inthe their most website qualified and proponents has are InclusivePhP46.6 Growth March million 2014 (US$1.06 million) as the total initiated a cadet engineer program to encourage post evaluation) and in other areas of mutual initiated a Quality Assurance program which is awarded contract amounted to only PhP417.2 young entry level engineers to pursue a career in interest.” outsourced to an external consultant. million (US$ 9.45 million).”

21 | 2Infrastructure | Infrastructure In-depth: Guide: Philippines Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. But even more significant than the quantum increase In collaboration with the Philippine Contractors Association in infrastructure spending and physical and the DPWH’s Accreditation Board, the eligibility of In terms of getting the right people, DPWH has initiated a accomplishments by DPWH are qualitative changes contractors to bid is based on their certification and credit cadet engineer program to encourage young entry level in governance which are transforming the way the rating. To ascertain the financial capacity, the DPWH engineers to pursue a career in government service. They DPWH is delivering on its mandate. A “massive requires no less than a certification from the Bureau of are required to take qualifying exams, designed by the increase in spending” by government is usually Internal Revenue (BIR). Development Academy of the Philippines (DAP) and the associated with massive irregularities and Civil Service Commission (CSC), not just on the eligibility governance issues as well. Under the banner of a DPWH is working to cluster projects to ensure that these but also on their management competencies. The “good governance reform and anti-corruption are executed by contractors with the proper capabilities and competency test is a way of making sure that the right program”, DPWH Secretary Rogelio Singson has equipment. Smaller project lot sizes are also being candidates are selected based on qualifications and not on launched various initiatives to safeguard against such discontinued as much as possible. The DPWH annual endorsement by government officials. Over time, this will risks. In pursuing its ambitious targets, the DPWH report for 2012 states the following anecdote: result in the upgrading of the overall skills and adopted the following priorities: professionalism in DPWH. “Bidding irregularities in DPWH Region 4-B. The District Engineering Office (DEO) in Mamburao, In addition, DPWH has also enlisted the support of civil Occidental Mindoro began a project worth society groups to improve performance and governance. PhP473.457 million, well beyond the PhP50 million that district engineers can sign off on their own. To “Road projects are now being implemented bypass clearance from regional and central offices, according to approved1 plans and specifications by they cut the project into components that would not better equipped and qualified contractors with closer breach the said limit. DPWH cancelled the bidding of project inspection and monitoring, including the these projects, clustered them into six projects, and monitoring and participation of a network of Civil rebid these in September 2011. Total approved Society Organizations (CSOs), Non-Government The DPWH adopted concrete steps and approaches budget for the contract (ABC) for the six clustered Organizations (NGOs), Church and private sector to make sure that these priorities do not remain as projects was PhP463.8 million. Through public organizations. As of February 2012, DPWH mere slogans. Many of these steps are ingeniously bidding, the DPWH was able to save PhP46.6 million accredited 52 Civil Society Organizations (CSOs) as simple but are proving to be effective in curbing as Thethe DPWHtotal awarded has created contract a national amounted road to database only of all partners/observersgovernment service. in all They stages are requiredof project to take moralBut evenhazards more and significant spending thanirregularities. the quantum increase in PhP417.2projects million.” nationwide which at any time can give the developmentqualifying exams, cycle designed(identification, by the preparation, Development infrastructure spending and physical accomplishments by status of each project. It enables the DPWH to budgeting,Academy ofprocurement, the Philippines implementation, (DAP) and the operation Civil TheDPWH procurement are qualitative process changes has been in governance made more which are DPWH hasoptimize created the a national deployment road ofdatabase resources of all for projects timely andService post Commissionevaluation) and (CSC), in other not areasjust on of the mutual eligibility transparenttransforming and the simplified way DPWH to ensure is delivering the most on its mandate. nationwideexecution which at and any completion, time can give and the to status prioritize of eachrepairs. interest.”but also on their management competencies. The qualified proponents are chosen. The number of project. It enables the DPWH to optimize the deployment competency test is a way of making sure that the signaturesA “massive required increase has in also spending” been reduced by government to five. is usually of resourcesIn the for case timely of executionfarm to market and completion, roads under and the to SCP These reformsright candidates introduced are in selectedthe last three based years on qualifications have Thisassociated lowers the with chances massive for irregularities moral hazard and in thegovernance form prioritize repairs.with the Department of Agriculture (DA), the DPWH begun toand make not a on difference endorsement in the by public government perception officials. of of issuesbureaucratic as well. interference. Under the bannerThe number of a “good of governance insists on one simple basic criterion: that the farm to governanceOver at time, DPWH. this will result in the upgrading of the documentsreform and required anti-corruption to be submitted program”, has DPWH also beenSecretary In the casemarket of farm road to hasmarket to connect roads under to a majorthe SCP road with or the overall skills and professionalism in the DPWH. reducedRogelio from Singson 20 to has five. launched various initiatives to Departmenthighway. of Agriculture This curbs (DA), the DPWH tendency insists for onthe one alignment safeguard against such risks. In pursuing its ambitious simple basicof farm criterion: to market that theroads farm to tobe market based moreroad has on localto OpportunitiesIn addition, for the the private DPWH sector has also enlisted the support Additionally,targets, the the DPWH DPWH adopted used to the require following bidders priorities: to connect topolitical a major considerations road or highway. rather This than curbs the thedirect of civil society groups to improve performance and submit letters of intent for projects being tendered tendency contributionfor the alignment linking of farm farm areas to market to market roads centers. to be The significantgovernance. opportunities for the private sector are in the 1 and the potential1. Right biddersproject are posted in public. This based moreThe on DPWH local politicalis geo-tagging considerationsfarm to rathermarket than roads the to PPP projects in the HSH of the DPWH: step allowed2. Right bidders cost to find out who the other direct contributionsupport this. linking farm areas to market centers. “Road projects are now being implemented according to approved plans and specifications bidders competing3. Right quality for the project. Notwithstanding DPWH is geo-tagging farm to market roads to support this. � Plaridel Bypass Toll Road (DPWH) Laguna by better equipped and qualified contractors with laws and 4.rules Right to theon timecontrary, the process was prone In its SCP with the Department of Tourism (DOT), the Lakeshore Expressway Dike Project closer project inspection and monitoring, to collusive5. behaviourRight people to the disadvantage of the DPWH emphasizes the interconnections between In its SCP with the Department of Tourism (DOT), DPWH � C-6 Expresswayincluding the (Southeast, monitoring East and and participation North of a DPWH. Under the current process, bidders simply ports and airports to tourist destinations. emphasizes the interconnections between ports and Section) (DPWH)network of Civil Society Organizations (CSOs), procureThe DPWH the bid adopted documents concrete and submitsteps and their approaches bids with to airports to tourist destinations. � NLEX EastNon-Government Expressway Organizations(DPWH) (NGOs), Church themake DPWH sure providing that these no prioritiesinformation do onnot who remain the asother mere The DPWH is also supporting local governments and � Camarinesand privateSur Expressway sector organizations. Project (DPWH) As of February biddersslogans. are. Many In the of past these few steps years, are this ingeniously new approach simple but DPWH is schoolsalso supporting in constructing local governments rainwater catchment and schools facilities in � Skyway2012, Stage DPWH 3 accredited 52 Civil Society hasare allowed proving the to DPWHbe effective to generate in curbing US$452.93 moral hazards and constructingin order rainwater to augment catchment the waterfacilities supply in order in specific to Organizations (CSOs) as partners/observers in all millionspending in savings irregularities. in terms of the Approved Budget for augment locations.the water supply in specific locations. stages of project development cycle the Contract (ABC) and the actual cost of the bids (identification, preparation, budgeting, awarded.The procurement The DPWH process also introduced has been standardmade more unit transparent In terms of getting the right people, the DPWH has procurement, implementation, operation and costsand whichsimplified are publishedto ensure inthe their most website qualified and proponents has are initiated a cadet engineer program to encourage post evaluation) and in other areas of mutual initiated a Quality Assurance program which is young entry level engineers to pursue a career in interest.”2 outsourced to an external consultant.

1 1 Adding geographical Adding geographicalidentification identificationmetadata for meteachadata road. for each road. 2 DPWH Accomplishment Report 2012. InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 22 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. These reformspartners/observers introduced in thein all last stages three of years project have development begun to make cycle a (identiﬁcation,difference in the preparation, public perception budgeting, of procurement, governanceimplementation, at the DPWH. operation and post evaluation) and in other areas of mutual interest. ” development cycle (identiﬁcation, preparation, budgeting, procurement, implementation, operation and post evaluation) and in other areasOpportunities of mutual interest.” for the2 private sector

TheThese signiﬁcant reforms opportunities introduced forin thethe lastprivate three sector years are have in thebegun PPP to projects make a indifference the HSH inof the the public DPWH: perception of governance at DPWH.  Plaridel Bypass Toll Road (DPWH) Laguna Lakeshore Expressway Dike Project  C-6 Expressway (Southeast, East andOpportunities North Section) for (DPWH) the pri vate sector  NLEx East Expressway (DPWH) The signiﬁcant Camarines opportunities Sur Expressway for the Project private (DPWH) sector are in the PPP projects in the HSH of the DPWH:  Skyway Stage 3  Plaridel Bypass Toll Road (DPWH) Laguna Lakeshore Expressway Dike Project  C-6 Expressway (Southeast,On-Going East and Construction: North Section) 160.83 (DPWH) km  NLEX East Expressway (DPWH)  Camarines ProjectSur Expressway Name Project (DPWH) Length (km) Project Cost (PhP Bn) Completion  Skyway Stage 3 Tarlac-Pangasinan-La Union Expressway 88.85 17.52 2018 Daang Hari-SLEx Link 4.00 2.01 2014 STAR, Lipa-Batangas, Phase II On-Going Construction: 19.74 160.83 km 2.32 2015 NAIA Expressway 7.15 15.52 2015 Project Name Legnth (km) Project Cost (PhP Bn) Completion Metro Manila Skyway Stage 3 14.82 26.66 2017 NLEx-SLExTarlac-Pangasinan-La Connector Road Union Expressway 26.27 88.85 37.07 17.52 2017 2018 Daang Hari-SLEx Link 4.00 2.01 2014 STAR, Lipa-Batangas, Phase II NEDA Board-Approved: 77.70 km19.74 2.32 2015 NAIA Expressway 7.15 15.52 2015 Project Name Length (km) Project Cost (PhP Bn) Completion Metro Manila Skyway Stage 3 14.82 26.66 2017 CALANLEx-SLEx Expressway Connector (Cavite andRoad Laguna side) 47.00 26.27 35.4337.07 2018 2017 Central Luzon Link Expressway (CLLEx), 30.70 14.94 2017 Phase I (Tarlac-Cabanatuan, Nueva Ecija) NEDA Board-Approved: 77.70 km

Project NameProposed (Priority): 140.79Legnth km (km) Project Cost (PhP Bn) Completion

CALA Expressway (CaviteProject and LagunaName side) Length (km)88.85 Project Cost (PhP17.52 Bn) Completion 2018 Central Luzon Expressway (CLLex), Phase I 30.70 14.94 2017 Metro Manila Expressway, C-6 58.09 TBD TBD (Tarlac-Cabanatuan, Nueva Ecija) Daang Hari-SLEx Link 47.00 122.81* 2021 STAR, Lipa-Batangas, Phase II Proposed (Priority):35.70 140.79 km 14.20 TBD Note: *Includes PhP57.89 billion reclamation cost Source: Bangko Sentral ng Pilipinas presentationProject on Name Enhancing Resilience to Sustain InclusiveLegnth Growth (km) March 2014 Project Cost (PhP Bn) Completion

Metro Manila Expressway, C-6 58.09 TBD TBD Daang Hari-SLEx Link 47.00 122.81* 2021 STAR, Lipa-Batangas, Phase II 35.70 14.20 TBD Source: Bangko Sentral ng Pilipinas presentation on Enhancing Resilience to Sustain Inclusive Growth March 2014 Note: *Includes PhP57.89 billion reclamation cost

2 DPWH Accomplishment Report 2012.

23 | Infrastructure2 | Infrastructure In-depth: Guide: Philippines Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. OtherOther prospective prospective PPP PPP Projects Projects

PPP Bridges:PPP Bridges: Ser vicesSer to vicesConduct to Conduct Business Business Case St udyCase and St udythe and  Field validation Field validation of national of bridgesnational proposed bridges proposed for PPP subsequentthe subsequentABC for the ABCcorresponding for the corresponding Consultancy is on-going.for PPP is on-going. ServicesConsultancy was already Services approved. was already approved.  The Researc Theh, Researc Educationh, Education and Instit andutional Institutional DevelopmentDevelopment (REID) F oundation (REID) Foundation will prepare will prepare Quirino HighwayQuirino Highway (Operation (Operation and Maintenance): and Maintenance): Business BusinessCase Study Case for Studythe Package for the I,Package I,  Improvement/rehabilitation Improvement/rehabilitation of a 93.45 of akm 93.45 (2 lanes) km (2 construction/rehabilitationconstruction/rehabilitation of 139 selected of 139 bridgesselected in national lanes)road that national traverses road Quezon,that traverses Camarines Quezon, Luzon bridges in Luzon Norte andCamarines Camarines Norte Sur andprovinces. Camarines Sur  Target for Target Invit ation for Invit to Bidation – Decemberto Bid – December 2012 2012  TOR for provinces.the Consultancy Services to Conduct  Submission Submission and Evaluation and Evaluation of Bids – ofAugust Bids –2013 August Business TOR Case for Study the Consultancy and the subsequent Services ABCto Conduct for 2013 the correspondingBusiness Case Consultancy Study and Services the subsequent was Kenon and Marcos Highway: already approved.ABC for the corresponding Consultancy  UpgradingKenon and and Marcos improvement Highway: of the landslide prone  ConductServices of Business was Casealready Study approved. to be funded under sections Upgradingof Kenon and and Marcos improvement Highway of withthe landslide a the Project Conduct Development of Business and CaseManagement Study to Facilitybe funded combinedprone length sections of 80.86 of km. Kenon and Marcos Highway (PDMF) underof the thePPP Project Center. Development and  Terms of withReference a combined (TOR) lengthfor the ofConsultancy 80.86 km. Management Facility (PDMF) of the PPP  Terms of Reference (TOR) for the Consultancy Center.

ADB, JICA,ADB, WB JICA, Road WB Sector Road Sector Portfolio Portfolio Summary Summary

ADB AssistedADB Assisted RUPP RUPPJICA AssistedJICA Assisted RUPP RUPP WorldWorld Bank Bank Assisted Assisted ComponentComponent NRIMPNRIMP 2 2 (P’B)(P’B) ($’M)($’M) (P’B)(P’B) ($’M) ($’M) (P’B)(P’B) ($’M) ($’M) Upgrading / Improvement Component 0.385 8.95 (P’B) 8.823 ($’M) 205.19 12.948 301.12 Upgrading / Improvement Component 0.385 8.95 8.823 205.19 12.948 301.12 Asset Preservation Component 4.519 105.09 23.77 541.33 13.657 317.60 Asset PreservationInstitutional Component Capacity Development 4.519 1.024 105.09 23.81 23.77 2.061 541.33 47.93 13.657 2.760 317.60 64.19 InstitutionalOthers Capacity (Front Development End Fee, CM) 1.024 0.313 23.81 7.28 2.061 - 47.93 - 2.760 0.029 64.19 0.67 Total 6.241 145.14 34.161 794.44 29.394 683.58 Others (Front End Fee, CM) 0.313 7.28 - - 0.029 0.67

Total Notes: 1. US$1 = PhP43, 2. P’B – pesos in billion, 3. $’M – US dollars6.241 in million 145.14 34.161 794.44 29.394 683.58 Source: DPWH presentation on Strategic Infrastructure Policies and Programs May 2012 Source: DPWH presentation on Strategic Infrastructure Policies and Programs May 2012 Notes: 1. US$1Going = PhP43 beyond these specific opportunities which include some very large projects, there is the recognition gaining 2. P’Bground – pesos in in thebillion private infrastructure sector of the improvements in the governance ethic in the DPWH which can 3. $’Multimate – US dollars translate in million into the significant expansion of the highway network with higher quality and cost efficiency, thereby broader economic opportunities for the private sector.

For further information, please contact: For further information, please contact: Michael Arcatomy H. Guarin RobertoAdvisory G. ManabatPartner ChairmanKPMG &in CEOthe Philippines KPMGT: +63 in the2 885 Philippines 7000 ext. 347 T: +63E: [email protected] 2 885 7000 E: [email protected]

InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 24 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. BuildingBuilding Thr throughough PParartnershipstnerships

PaulCristina Patrick R.Roxas, Afable, Advisory Advisory SeniorPartner, Manager, KPMG KPMG in the in thePhilippines Philippines

The The Philippine Philippine experience experience with with public-priv public-privateate partnership partnership (PPP) (PPP) programs programs goes goes bac back almostk almost 30 30 years. The owner in Piatco continues to be pending in the commercially attractive; (iii) PPP mode is the years.countr They hadcountr the y first had Build-Operate-Tthe first Build-Operate-Transfer (BOT)ransfer law (BOT) in Asia law in in 1990 Asia which in 1990 served which as served a model as fora other International Centre for Settlement of Investment terms for approvalmost by viablethe NEDA option Investment for the government Coordination to as in the Disputesprevious (ICSID)projects in but Singapore. also as a way to take Committee (ICC)undertake or NEDA theCabinet project Committee. and results Thein better PPP value modelcountries. for other Even countries. prior to the Even BOT prior law, to thethe firstBOT BOT law, contractthe first BOTin Asia contract was awarded in Asia wasto Hopewell awarded for to the advantage of the new confidence and positive investor Center also actsfor as money;a non-voting (iv) risks adviser are appropriately to the IAs in allocated; the Hopewell210MW for Navotas the 210MW plant inNavotas 1988. Theplant Philippines in 1988. The used Philippines the PPP approach also used to the solve PPP the approach power crisisto in the perceptionsA World of the Bank country’s country economic study in standing2005 noted and the bid and award process.(v) tariffs are affordable. During the cooperation solve1990s the whenpower eight crisis to in 12 the hour 1990s blackouts when eightparalyzed to 12 the hour industry blackouts and paralyzed crippled exports. the industry From and 1991 to 1995, prospects.involvement of the private sector in infrastructure had period, PPP projects are constructed and/or operated using an output-based specification crippled4,200MW exports. of new From private 1991 power to 1995, capacity 4,200MW were of commissioned new private power with project capacity costs was totalling commissioned almost US$5 dropped from a peak of six percent of gross domestic“The implementing agencies identify priority projects which approach. Concessionaires are required to follow The governmentproduct (GDP)has also in 1998adopted to one various percent modes by 2002.of PPP The shall be included in the Public Investment Program (PIP). withbillion. project In costs1997, thetotalling Philippines almost executed US$5 billion. the largest In 1997, water the Philippines privatization executed in the world the largestwith the water award of the the Minimum Performance, Standards, & privatizationMetropolitan in the Waterworks world with and the Se aw w arderage of theSystem Metropolitan (MWSS) Waterworksfranchise to twoand Sewerageconcessionaires System at a total structuresWorld outside Bank of observedthe usual thatBOT many or build-lease-transfer of the controversial The PIP contains the projects, programs and activities that (BLT) to include hybrid structures where the private sector will be implementedSpecifications by the agencies and key withinperformance the indicators projects were unsolicited proposals, and that the defined in each project’s concession (MWSS)project franchise cost of US$7.5 to two billion. concessionaires at a total project cost of US$7.5 billion. is responsible for civil works and the implementing agency medium-term. Note that projects selected should be framework for vetting unsolicited proposals was agreement.” (IA) is responsible for operation and maintenance (O&M), or consistent and aligned with the goals and objectives of the PrivPrivate ate sector sector participation participation in infrastrin infrastructureucture investments, NPCThe to thepeso Power depreciation Sector Assetsalso severely and Liabilities impacted one of the vague and gave a lot of leeway for corruption. To vice-versa, and Build Transfer with deferred payments. Philippine Development Plan. The PIP also indicates the investments,however, went however, through went a decliningthrough aphase declining in the second halfManagementMWSS water Corporation distribution (PSALM). concessionaires, The peso eventually address this, the World Bank suggested that the The country’s initial experience in PPP projects Different types of bid parameters beyond the typical procurement method of each project identified (whether phaseof the in the1990s. second The Asianhalf of Financial the 1990s. Crisis The in Asian 1997 adversely depreciationresulting inalso buyout severely and impactedre-privatization. one of the government try to reinstate a process for attracting yielded the following “lessons”: “lowest cost” bid are being applied, including highest PPP, official development assistance [ODAs], or traditional Financialaffected Crisis the ingovernment’s 1997 adversely exposure affected to the BOT projects in MWSS water distribution concessionaires, eventually private investments on a transparent and competitive premium offered and the lowest viability gap financing procurement). government’stwo ways. exposure The large topeso the depreciationBOT projects meant in two that NPC’s resultingOther in projects buyout undertakenand re-privatization. after the first phase of the PPP basis instead of through unsolicited bids. A key 1. Be judicious in providing guarantees and (VGF) required, etc. The VGF is being adopted from other ways.take-or-pay (1) The large contracts, peso depreciationmostly denominated meant that in US dollars, program became problematic. Take for example the MRT3 condition for this shift would be to address the performance undertakings, particularly for those countries which have used the approach to ensure The PPP Center aims to roll-out the Policy Guidelines on Nationalballooned Power dramatically Corporation’s in peso (NPC) terms. take-or-pay NPC, however, was Otherproject. projects The undertaken government after guaranteed the first 15phase percent of the equity weaknesses in the planning, preparing, and executing risks which the private sector is in a better affordability of consumer tariffs while making the project Pipeline Development, to aid agencies in mapping out their contracts,not able mostly to pass denominated on the higher in foreign US dollars, exchange costs fully PPPreturns program in dollarbecame terms problematic. to the project Take sponsorsfor example while tariffs of private infrastructure projects and even basic position to bear, such as market demand and commercially viable and attractive to investors. project pipeline and priority projects.” balloonedand immediately dramatically to consumers.in peso terms. NPC, however, the wereMRT3 highly project. subsidized. The government This resulted guaranteed in a heavy 15 fiscal requirements such as a sufficient budget and the foreign exchange depreciation. was not able to pass on the higher foreign exchange percentburden equity which returns continues in dollar to theterms present. to the project Another are the skills to prepare quality pre-investment studies for 2. Prefer solicited proposals on projects which are The government has reorganized the former BOT Center, The PPP Center manages the Project Development and costsOn fullythe otherand immediately hand, the economic to consumers. recession (2) Worse, resulted in a sponsorsalleged while irregularities tariffs were and highlydiscrepancies subsidized. between This the bid projects that are likely to attract private investors. aligned to the national government programs previously attached to the Department of Trade and Monitoring Facility (PDMF) which is the recipient of a theweaker economic economic recession growth resulted than inhad weaker been economicassumed in the resultedaward in and a heavy commercial fiscal burden franchise which in US$300continues million to Ninoy and priorities. Industry (DTI), into the PPP Center attached to the National revolving fund3. from Establish ODA afunds clear forand engaging transparent consulting process for growthprojections than had for been electricity assumed demand. in the Lowerprojections electricity for the Aquinopresent. International Another are Airport the alleged (NAIA) irregularities terminal 3. This resulted “PPP projects should be well-prepared, highly Economic and Development Authority (NEDA). The PPP firms in providingproject expertise selection in project and approvals. structuring and electricityconsumption demand. resultedLower in electricityexcess power consumption capacity which NPCandin discrepancies the Supreme between Court voiding the bid the award contract and and a lengthy bankable, and should undergo competitive Center is the nexusbidding and (for the solicited main driver projects) of the or PPPSwiss challengeinvestment requirements.4. Build up capacity for preparing solicited projects resultedwas committed in excess powerto pay capacityfor the take-or-pay which NPC contracts was whethercommerciallitigation franchisewhich has in not US$300 been settled.million Ninoy Program. The PPP(for unsolicitedCenter works projects). with IAs We toput prepare high regard in through business cases, pre-feasibility studies, committedthey were to dispatchedpay for the ortake-or-pay not. This contractscreated stranded costs, Aquino International Airport (NAIA) terminal 3. This PPP contracts prepared in a transparent manner, bidding packages, etc. resulted in the Supreme Court voiding the contract well-structured PPP projects and acts as a technical adviser “PPP is more than just a means to address the lack of whetherestimated they atwere PhP74.3 dispatched billion andor not. strandedThis created debts of PhP2.45 A World Bank country study in 2005 noted the involvement promote a level playing field, and can withstand and a takeover of the project from the in the project cycle of project structuring, setting minimum public funds. More than just a financing scheme, PPPs strandedbillion (incurredcosts, estimated when NPC at US$1.68 had to borrow billion andto cover its of the private sector in infrastructure had dropped from a legal scrutiny. Before a project can be undertaken It is in the context of such lessons that the concessionaire Piatco, and a lengthy litigation which performance standards and specifications, and contract bring in private sector innovation to implement critical strandedoperating debts and of financial US$55.48 losses). million The (incurred stranded when costs and peak of six percent of gross domestic product (GDP) in through PPP, there are certain criteria that must government sought to re-launch the PPP Program in has not been settled. Terminal 3 became fully infrastructure projects. Through PPP, private sector NPCstranded had to borrowdebts eventually to cover its required operating the andrestructuring of the 1998 to one percent by 2002. The World Bank observed be complied with such as the following: (i) 2010. financialpower losses). sector and The the stranded privatization costs andof NPC stranded under the the operationalthat many in Augustof the controversial 2014 after Takenaka projects Corp., were unsolicitedthe economic viability; (ii) financially and debtsElectric eventually Power required Industry the Reform restructuring Act (EPIRA) of the of 2002 which constructionproposals, contractor and that thecompleted framework the forrehabilitation vetting unsolicited powertransferred sector andthe theassets privatization and liabilities of NPC of NPC under to thethe Power worksproposals in the airport was vague which and was gave originally a lot of constructed leeway for theSector Electric Assets Power and Industry Liabilities Reform Management Act (EPIRA) Corporation of in 2002.corruption. The arbitration proceedings however 2002(PSALM). which transferred the assets and liabilities of between the German firm Fraport, the majority

25 | 2Infrastructure | Infrastructure In-depth: Guide: Philippines Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. UnderUnder the ne thew neframework,w framework, the gov theernment government is willing is willing to to assumeassume regulator regulatory risky but risk will but transf will transfer commercialer commercial risks risksto to privateprivate sector. sector. The national The national government government has also has beenalso been moremore sparing sparing in pro inviding providing performance performance undert undertakingsakings or or guaranteesguarantees on the on obligations the obligations of go ofvernment government agencies agencies and and corporationscorporations not only not toonly avoid to a incurvoid ringincur thering fiscal the fiscal burdens burdens as in asthe in pre thevious previous projects projects but also but asalso a wasay a tow aytake to take advantadvant age ofage the of ne thew neconfidencew confidence and positiv and positive investore investor perceptionsperceptions of the of countr the country’s economicy’s economic standing standing and and prospects.prospects.

The govTheernment government has also has adoptedalso adopted various various modes modes of PPP of PPP structstructures uresoutside outside of the of usual the usual BOT BOor build-lease-transfT or build-lease-transfer er owner in Piatco continues to be pending(BL inT) (BLthe to T) include to include hybrid h ybridstruct structures commercially ureswhere where the attractive; priv theate priv sector ate(iii) PPPsector mode is the International Centre for Settlement of Investmentis responsibleis responsible termsfor civil for for wcivil orks approval w andorksmost the byand viablethe implementing the NEDA implementingoption Investment for agencythe government agency Coordination to as in the Disputesprevious (ICSID)projects in but Singapore. also as a way to (IA)take is(IA) responsible is responsibleCommittee for operation for (ICC)operationundertake orand NEDA maintenance and themaintenanceCabinet project Committee.(O&M), and (O&M), results or Theinor better PPP value advantage of the new confidence and positive investorvice-vvice-versa, ersa,and Center Build and BuildTransfer also Transfer acts withfor as money; awithdeferred non-voting deferred (iv) payments. risks adviser payments. are appropriately to the IAs in allocated; the perceptionsA World of the Bank country’s country economic study in standing2005 notedDifferent and theDifferent t ypes tbid ypesof andbid of parametersaward bid parameters process.(v) tariffsbeyond beare yondthe affordable. typical the typical During the cooperation prospects.involvement of the private sector in infrastructure“lowest“low cost”est had cost” bid are bid being are being applied,period, applied, including PPP includingprojects highest are highest constructed and/or operated using an output-based specification dropped from a peak of six percent of premiumgrosspremium domestic offered “Theoff eredand implementing the and lo thewest lowest viabilit agencies viability gap identifyy financing gap financing priority projects which approach. Concessionaires are required to follow The governmentproduct (GDP)has also in 1998adopted to one various percent modes by(VGF) 2002.of(V PPPrequired,GF) The required, shall etc. be Theetc. included VTheGF isVGF beingin theis3 being adoptedPublic adopted Investment from fromother Programother (PIP). the Minimum Performance, Standards, & structuresWorld outside Bank of observedthe usual thatBOT many or build-lease-transfer of thecountries controversialcountries whic Thehwhic hav PIPhe havused containse usedthe approac thethe projects,approach to ensureh programs to ensure and activities that 1 Specifications and key performance indicators (BLT) to include hybrid structures where the privateaffordabilit sectoraffordabilit y of willconsumery of be consumer implemented tariffs tarif whilefs by while makingthe agenciesmaking the project the within project the projects were unsolicited proposals, and that the defined in each project’s concession is responsible for civil works and the implementingcommercially agencycommercially viable medium-term. viable and at andtractive Noteattractive tothat investors. toprojects investors. selected should be framework for vetting unsolicited proposals was agreement.”3 (IA) is responsible for operation and maintenance (O&M), or consistent and aligned with the goals and objectives of the PrivatePrivate sector sector participation participation in infrastructurein infrastructure investments, NPCThe to thepeso Power depreciation Sector Assetsalso severely and Liabilities impacted one of the vague and gave a lot of leeway for corruption. To vice-versa,address and Build this, Transfer the World with Bank deferred suggested payments.The that govThe theernment gov ernmentPhilippine has reorganiz has Development reorganized theed former thePlan. former The BOT PIP BOTCenter, also Center, indicates the investments,however, went however, through went a decliningthrough aphase declining in the second halfManagement MWSS water Corporation distribution (PSALM). concessionaires, The peso eventually 2 The country’s initial experience in PPP projects Different types of bid parameters beyond the typicalpreviouslypreviously attachedprocurement attached to the to Department themethod Department of eachof Trade ofproject Trade and identifiedand4 (whether phaseof the in the1990s. second The Asianhalf of Financial the 1990s. Crisis The in Asian 1997 adversely depreciationresulting inalso buyout severely and impactedre-privatization. one of the government try to reinstate a process for attracting yielded the following “lessons”: “lowest cost” bid are being applied, including highestIndustrIndustr y (DTI),y (DTI), PPP,into officialtheinto PPP the development CenterPPP Center attac assistancehed attac tohed the to National[ODAs], the National or traditional Financialaffected Crisis the ingovernment’s 1997 adversely exposure affected to the BOT projects in MWSS water distribution concessionaires, eventually private investments on a transparent and competitive premium offered and the lowest viability gap financingEconomicEconomic and procurement).De andvelopment Development Authority Authority (NEDA). (NEDA). The PPP The PPP government’stwo ways. exposure The large topeso the depreciationBOT projects meant in two that NPC’s resultingOther in projects buyout undertakenand re-privatization. after the first phase of the PPP basis instead of through unsolicited bids. A key 1. Be judicious in providing guarantees and (VGF) required, etc. The VGF is being adopted fromCenter Centerother is the is ne thexus ne andxus the and main the maindriver driv of erthe of PPP the PPP ways.take-or-pay (1) The large contracts, peso depreciationmostly denominated meant that in US dollars, program became problematic. Take for example the MRT3 condition for this shift would be to address the performance undertakings, particularly for those countries which have used the approach to ensureProgram.Program. The The PPP The PPP CenterPPP Center Center works aims w withorks to withroll-outIAs to IAs prepare the to Policyprepare Guidelines on Nationalballooned Power dramatically Corporation’s in peso (NPC) terms. take-or-pay NPC, however, was Otherproject. projects The undertaken government after guaranteed the first 15phase percent of the equity weaknesses in the planning, preparing, and executing risks which the private sector is in a better affordability of consumer tariffs while making thewell-struct projectwell-structured Pipeline uredPPP projectsPPP Development, projects and acts and toasacts aida tecas agencies hnicala technical adviser in mapping adviser out their contracts,not able mostly to pass denominated on the higher in foreign US dollars, exchange costs fully PPPreturns program in dollarbecame terms problematic. to the project Take sponsorsfor example while tariffs of private infrastructure projects and even basic position to bear, such as market demand and commercially viable and attractive to investors. project pipeline and priority projects.” balloonedand immediately dramatically to consumers.in peso terms. NPC, however, the wereMRT3 highly project. subsidized. The government This resulted guaranteed in a heavy 15 fiscal requirements such as a sufficient budget and the foreign exchange depreciation. was not able to pass on the higher foreign exchange percentburden equity which returns continues in dollar to theterms present. to the projectAnother are the skills to prepare quality pre-investment studies for 2. Prefer solicited proposals on projects which are The government has reorganized the former BOT Center, 1 The PPP Center manages the4 Project Development and costsOn fullythe otherand immediately hand, the economic to consumers. recession (2) Worse, resulted in a sponsorsalleged while irregularities tariffs were and highlydiscrepancies subsidized. between This the bid projects that are likely to attract private investors. aligned to the national government programs previously attached to the Department of Trade and Monitoring Facility (PDMF) which is the recipient of a theweaker economic economic recession growth resulted than inhad weaker been economicassumed in the resultedaward in and a heavy commercial fiscal burden franchise which in US$300continues million to Ninoy and priorities. Industry (DTI), into the PPP Center attached to the National revolving fund3. from Establish ODA afunds clear forand engaging transparent consulting process for growthprojections than had for been electricity assumed demand. in the Lowerprojections electricity for the Aquinopresent. International Another are Airport the alleged (NAIA) irregularities terminal 3. This resulted “PPP projects should be well-prepared, highly Economic and Development Authority (NEDA). The PPP firms in providingproject expertise selection in project and approvals. structuring and electricityconsumption demand. resulted Lower in electricityexcess power consumption capacity which NPCand in discrepancies the Supreme between Court voiding the bid the award contract and and a lengthy bankable, and should undergo competitive Center is the nexusbidding and (for the solicited main driver projects) of the or PPPSwiss challengeinvestment2 requirements.4. Build up capacity for preparing solicited projects resultedwas committed in excess powerto pay capacityfor the take-or-pay which NPC contracts was whethercommercial litigation franchisewhich has in not US$300 been settled.million Ninoy Program. The PPP(for unsolicitedCenter works projects). with IAs We toput prepare high regard in through business cases, pre-feasibility studies, committedthey were to dispatchedpay for the ortake-or-pay not. This contractscreated stranded costs, Aquino International Airport (NAIA) terminal 3. This PPP contracts prepared in a transparent manner, bidding packages, etc.5 resulted in the Supreme Court voiding the contract well-structured PPP projects and acts as a technical adviser “PPP is more than just a means to address the lack of whetherestimated they atwere PhP74.3 dispatched billion andor not. stranded This created debts of PhP2.45 A World Bank country study in 2005 noted the involvement promote a level playing field, and can withstand and a takeover of the project from the in the project cycle of project structuring, setting minimum public funds. More than just a financing scheme, PPPs strandedbillion (incurredcosts, estimated when NPC at US$1.68 had to borrow billion andto cover its of the private sector in infrastructure had dropped from a legal scrutiny. Before a project can be undertaken It is in the context of such lessons that the concessionaire Piatco, and a lengthy litigation which performance standards and specifications, and contract bring in private sector innovation to implement critical strandedoperating debts and of financial US$55.48 losses). million The (incurred stranded when costs and peak of six percent of gross domestic product (GDP) in through PPP, there are certain criteria that must government sought to re-launch the PPP Program in has not been settled. Terminal 3 became fully infrastructure projects. Through PPP, private sector NPCstranded had to borrowdebts eventually to cover its required operating the andrestructuring of the 1998 to one percent by 2002. The World Bank observed be complied with such as the following: (i) 2010. financialpower losses). sector and The the stranded privatization costs andof NPC stranded under the the operationalthat many in Augustof the controversial 2014 after Takenaka projects Corp., were unsolicitedthe economic viability; (ii) financially and debtsElectric eventually Power required Industry the Reform restructuring Act (EPIRA) of the of 2002 which constructionproposals, contractor and that thecompleted framework the forrehabilitation vetting unsolicited

1 1 powertransferred sector andthe theassets privatization and liabilities of NPC of NPC under to thethe Power worksproposals in the airport was vague which and was gave originally a lot of constructed leeway for World Bank World(2005). Bank The Philippines.(2005). The MeetingPhilippines. Infrastr Meetingucture Infrastr Challenges.ucture Challenges. Infrastructure Infrastructure Sector Department, Sector Department, East Asia and East Pacific Asia Region. and Pacific Region. 2 2 theSector Electric Assets Power and Industry Liabilities Reform Management Act (EPIRA) Corporation of in 2002.corruption. The arbitration proceedings however A Swiss challengeA Swiss is challengea form of publicis a form procurement of public procurement which requires whic theh requires government the government agency which agency has received which has an receivedunsolicited an proposalunsolicited to publishproposal the to bidpublish the bid and invite thirdand parties invite to third match parties or exceed to match it. or exceed it. between the German firm Fraport, the majority 3 3 2002(PSALM). which transferred the assets and liabilities of WB (2005) op.NEDA-PPP cit. Chapter Center 4 “Maximizing written response the benefits to KPMG of Private questionnaire, Sector Participation” 18 July 2014. 4 WB (2005)4 op.WB cit. (2005) p. 80. op. cit. Chapter 4 “Maximizing the benefits of Private Sector Participation” 5 WB (2005) op. cit. p. 80. InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 26 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. (GOCCs). Aside from efficiency gains, PPPs allow the To ensure the continuity of the revised PPP program, PPP projects, especiallyproper allocation those that of risksare supported to the party by that PDMF, is best  Executivethe government Order No. is introducing136, s. 2013, institutional allowed for measuresthe undergo a Value ablefor Money to manage (VfM) and analysis assume at the the consequences project creationthat would of a sustainPPP Governing the reforms Board beyond as the the current policy-making body for all PPP-related concerns, and development stageof the to riskdetermine involved. if PPPsa project enable is more the government viable administration. to be undertakento through take on PPPfewer or risks through due toother appropriate risk strengthening the monitoring of projects by authorizing the procurement of independent procurement methods.allocation If awith project the private is to be partner.” taken forward as  The Implementing Rules and Regulations (IRR) consultants through the PDMF. a PPP, it must be demonstrated that it will deliver better of the existing BOT Law and NEDA have also VfM thanPPP the traditionalprojects, especially method of those delivery that through are supported by issued the Revised Joint Venture Guidelines for  The Investment Coordination Committee-Cabinet PDMF, undergo a Value for Money (VfM) analysis at government-owned and controlled corporations government procurement, and that the government's Committee (ICC-CC) also introduced reforms in the the project development stage to determine if a (GOCCs). resources are managed with due regard for economy, appraisal of PPP projects which effectively and efficiencyproject and effectiveness. is more viable to be undertaken through PPP efficiently streamlines the process and delineates the  Executive Order No. 136, s. 2013, allowed for or through other procurement methods. If a project is roles of concerned agencies. It created the the creation of a PPP Governing Board as the To enhanceto bethe taken transparency forward andas a accountabilityPPP, it must be of the ICC-Technical Working Group (ICC-TWG) for PPP policy-making body for all PPP-related concerns, approval process,demonstrated a PPP that Governance it will deliver Board better has VfMbeen than the projects, which consists of (i) NEDA: for alignment The current edition of the Philippine PPP Program has works with IAs to prepare well-structured PPP and strengthening the monitoring of projects by institutedtraditional consisting method of the principals of delivery of through the major government agencies and contribution to the national, regional or local made significant strides since its inception, having projects and acts as a technical adviser in the project authorizing the procurement of independent involved inprocurement, the PPP process and that such the as government'sNEDA, Department resources of government plans or programs, and socio-economic achieved a sound policy framework, institutional cycle of project structuring, setting minimum consultants through the PDMF. reforms, robust pipeline of PPP projects, and performance standards and specifications, and Finance (DOF),are managed and the with Department due regard of Budgetfor economy, and efficiency analysis; (ii) DOF: for risk structure and allocation of Under the new framework, the government is willing to “The implementing agencies identify priority Managementand effectiveness. (DBM) the project, fiscal requirements and government well-capacitated implementing agencies. contract terms for approval by the NEDA Investment  The Investment Coordination assume regulatory risk but will transfer commercial risks to projects which shall be included in the Public undertakings, the project’s financial internal rate of Coordination Committee (ICC) or NEDA Cabinet Committee-Cabinet Committee (ICC-CC) also Investment Program (PIP). The PIP contains the return, and its impact on fiscal sustainability through Underprivate the sector.new framework, The national the government government has is willing also been Committee. The PPP Center also acts as a The BOT ToLaw enhance (RA 7718) the istransparency currently being and reviewedaccountability by of introduced reforms in the appraisal of PPP assessment of direct and contingent government more sparing in providing performance undertakings or non-voting projects,adviser to programs the IAs in and the activities bid and awardthat will be governmentthe agenciesapproval process,and legislative a PPP working Governance committees Board has projects which effectively and efficiently to assume regulatory risk but will transfer costs; (iii) Department of Environment and Natural guarantees on the obligations of government agencies and implemented by the agencies within the to updatebeen the legal instituted and regulatory consisting framework of the principals on issues of the streamlines the process and delineates the roles commercial risks to the private sector. The national process. Resources- Environmental Management Bureau corporations not only to avoid incurring the fiscal burdens medium-term. Note that projects selected should be such as themajor maximum agencies government involved in support the PPP for process a project, such as of concerned agencies. It created the government has also been more sparing in providing (DENR-EMB): for the environmental impact of the as in the previous projects but also as a way to take consistent and aligned with the goals and objectives VGF as a NEDA,mode ofDepartment subsidy, unsolicited of Finance proposals, (DOF), and joint the ICC-Technical Working Group (ICC-TWG) for PPP performance undertakings or guarantees on the “The implementing agencies identify priority project; and (iv) PPP Center: for VfM analysis, advantage of the new confidence and positive investor of the Philippine Development Plan. The PIP also ventures,Department etc. The PPP of Center Budget is anddiligently Management pushing (DBM).for the projects, which consists of (i) NEDA: for obligations of government agencies and corporations projects which shall be included in the Public commercial financial viability, bankability, and project perceptions of the country’s economic standing and indicates the procurement method of each project enactment of the PPP Act, which amends the existing BOT alignment and contribution to the national, not only to avoid incurring the fiscal burdens as in Investment Program (PIP). The PIP contains the structuring).The PPP Center also acts as the PPP prospects. identified (whether PPP, official development The BOT Law (RA 7718) is currently being reviewed regional or local government plans or programs, previous projects but also as a way to take advantage projects, programs and activities that will be Law, in order to ensure the sustainability of the PPP Secretariat for the ICC-TWG and ICC-CC for PPP assistance [ODAs], or traditional procurement). by government agencies and legislative working and socio-economic analysis; (ii) DOF: for risk of the new confidence and positive investor implemented by the agencies within the Program. It also aims to have a robust PPP pipeline with at projects. structure and allocation of the project, fiscal perceptionsThe government of the country’s has also adoptedeconomic various standing modes and of PPP medium-term. Note that projects selected least 50 projectscommittees in various to update stages the of legal the andproject regulatory cycle by shouldThe be PPP consistent Center aimsand aligned to roll-out with the the Policy goals requirements and government undertakings, the prospects.structures outside of the usual BOT or build-lease-transfer end of 2016;framework 15 PPP oncontracts issues signed;such as fivethe maximumprojects  Through the enhanced appraisal process which has project’s financial internal rate of return, and its (BLT) to include hybrid structures where the private sector andGuidelines objectives ofon the Pipeline Philippine Development, Development to aid agencies completed;government and at least support 10 infrastructure for a project, projects VGF as handed a mode of been in place since January of this year, approvals impact on fiscal sustainability through is responsible for civil works and the implementing agency Plan.in The mapping PIP also out indicates their project the procurement pipeline and priority over to thesubsidy, private unsolicited sector for operationproposals, and joint maintenance. ventures, etc. The have been secured for six projects from the ICC-CC, The government has also adopted various modes of assessment of direct and contingent (IA) is responsible for operation and maintenance (O&M), or methodprojects.” of each project identified (whether PPP, PPP Center is diligently pushing for the enactment of and four projects from the NEDA Board. The average PPP structures outside of the usual BOT or government costs; (iii) Department of vice-versa, and Build Transfer with deferred payments. official development assistance [ODAs], or The governmentthe PPP also Act, initiated which amends a process the for existing managing BOT Law, in turnaround time for the appraisal and ICC-CC approval build-lease-transfer (BLT) to include hybrid structures Environment and Natural Resources- Different types of bid parameters beyond the typical Thetraditional PPP Center procurement). manages the Project Development and contingentorder liabilities to ensure (CLs) the that sustainability may materialize of the from PPP PPP of projects is one month from the date of submission where the private sector is responsible for civil works Environmental Management Bureau “lowest cost” bid are being applied, including highest Monitoring Facility (PDMF) which is the recipient of a projects andProgram. how these It also CLs aims would to have be appropriateda robust PPP for pipeline and by the IAs. It is also notable to highlight the and the implementing agency (IA) is responsible for The PPP Center aims to roll-out the Policy (DENR-EMB): for the environmental impact of premium offered and the lowest viability gap financing revolving fund from ODA funds for engaging consulting funded. Aswith an at interim least 50 measure, projects the in variousgovernment stages has of the importance of the conduct of clarificatory and operation and maintenance (O&M), or vice-versa, and Guidelines on Pipeline Development, to aid the project; and (iv) PPP Center: for VfM (VGF) required, etc. The VGF is being adopted from other firms in providing expertise in project structuring and project cycle by end of 2016; 15 PPP contracts reconciliation meetings prior to the approval of Build Transfer with deferred payments. Different agencies in mapping out their project pipeline included provisions for CLs in the Unprogrammed Fund of analysis, commercial financial viability, investment requirements. signed; five projects completed; and at least 10 projects such that project issues are threshed out and typescountries of bid parameterswhich have usedbeyond the the approach typical “lowestto ensure and priority projects.”6 PhP20 billion in the General Appropriations Act of 2014. bankability, and project structuring.The PPP resolved prior to presentation to the ICC-CC. cost”affordability bid are being of consumer applied, includingtariffs while highest making the project infrastructure projects handed over to the private Center also acts as the PPP Secretariat for the commercially viable and attractive to investors. “PPP is more than just a means to address the lack The Centersector also foradvocates operation policy and reformsmaintenance. to improve the premium offered, lowest viability gap financing (VGF) The PPP Center also manages the Project  ICC-TWG and ICC-CC for PPP projects. of public funds. More than just a financing scheme, legal and regulatory frameworks governing the PPP Aside from these, the government will soon be required, etc. The VGF is being adopted from other Development and Monitoring Facility (PDMF) which issuing the IRR on alternative dispute resolution The government has reorganized the former BOT Center, PPPs bring in private sector innovation to implement Program.The government also initiated a process for managing  Through the enhanced appraisal process which countries which have used the approach to ensure is the recipient of a revolving fund from ODA funds (ADR); the PPP Manual for National Government previously attached to the Department of Trade and critical infrastructure projects. Through PPP, private contingent liabilities (CLs) that may materialize from has been in place since January of this year, affordability of consumer tariffs while making the for engaging consulting firms in providing expertise in Agencies (NGAs); policy guidelines on pipeline Industry (DTI), into the PPP Center attached to the National sector expertise and efficiency would enable us to PPP projects and how these CLs would be approvals have been secured for six projects project commercially viable and attractive to project structuring and investment requirements. To ensure the continuity of the revised PPP program, the development; and other sector-specific PPP build high-quality infrastructure services at a faster appropriated for and funded. As an interim measure, from the ICC-CC, and four projects from the investors.Economic and Development Authority (NEDA). The PPP government is introducing institutional measures that guidelines to continuously improve the PPP policy pace. NEDA Board. The average turnaround time for Center is the nexus and the main driver of the PPP “PPP is more than just a means to address the would sustainthe government the reforms has beyond included the currentprovisions for CLs in environment. the appraisal and ICC-CC approval of projects is TheProgram. government The has PPP reorganized Center works the with former IAs BOT to prepare lack of public funds. More than just a financing administration.the Unprogrammed Fund of US$452.93 million in the one month from the date of submission by the well-structured PPP projects and acts as a technical adviser scheme,Aside PPPs from bring efficiency in private gains, sector PPPs innovation allow the proper General Appropriations Act of 2014.  Cognizant of the important role of the local Center, previously attached to the Department of IAs. It is also notable to highlight the importance in the project cycle of project structuring, setting minimum to implementallocation criticalof risks infrastructure to the party projects.that is best able to  the Implementing Rules and Regulations (IRR) of the government units (LGUs) in achieving sustainable Trade and Industry (DTI), into the PPP Center of the conduct of clarificatory and reconciliation performance standards and specifications, and contract Throughmanage PPP, and private assume sector the expertise consequences and of the risk existingThe PPP BOT Center Law and also NEDA advocates have also policy issued reforms the to development and inclusive growth, the government attached to the National Economic and Development meetings prior to the approval of projects such terms for approval by the NEDA Investment Coordination efficiencyinvolved. would PPPs enable enable us tothe build government high-quality to take on Revisedimprove Joint the Venture legal and Guidelines regulatory for frameworks Authority (NEDA). The PPP Center is the nexus and that project issues are threshed out and resolved Committee (ICC) or NEDA Cabinet Committee. The PPP infrastructurefewer risks services due to atappropriate a faster pace. risk allocation with government-ownedgoverning the PPP and Program. controlled corporations the main driver of the PPP Program. The PPP Center prior to presentation to the ICC-CC. Center also acts as a non-voting adviser to the IAs in the the private partner.” bid and award process.

6 NEDA-PPP Center written response to KPMG questionnaire, 18 July 2014.

27 | 2Infrastructure | Infrastructure In-depth: Guide: Philippines Philippines

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. (GOCCs). Aside from efficiency gains, PPPs allow the To ensure the continuity of the revised PPP program, PPP projects, especiallyproper allocation those that of risksare supported to the party by that PDMF, is best  Executivethe government Order No. is introducing136, s. 2013, institutional allowed for measuresthe undergo a Value ablefor Money to manage (VfM) and analysis assume at the the consequences project creationthat would of a sustainPPP Governing the reforms Board beyond as the the current policy-making body for all PPP-related concerns, and development stageof the to riskdetermine involved. if PPPsa project enable is more the government viable administration. to be undertakento through take on PPPfewer or risks through due toother appropriate risk strengthening the monitoring of projects by 7 authorizing the procurement of independent procurement methods.allocation If awith project the private is to be partner.” taken forward as  The Implementing Rules and Regulations (IRR) consultants through the PDMF. a PPP, it must be demonstrated that it will deliver better of the existing BOT Law and NEDA have also VfM thanPPP the traditionalprojects, especially method of those delivery that through are supported by issued the Revised Joint Venture Guidelines for  The Investment Coordination Committee-Cabinet PDMF, undergo a Value for Money (VfM) analysis at government-owned and controlled corporations government procurement, and that the government's Committee (ICC-CC) also introduced reforms in the the project development stage to determine if a (GOCCs). resources are managed with due regard for economy, appraisal of PPP projects which effectively and efficiencyproject and effectiveness. is more viable to be undertaken through PPP efficiently streamlines the process and delineates the  Executive Order No. 136, s. 2013, allowed for or through other procurement methods. If a project is roles of concerned agencies. It created the the creation of a PPP Governing Board as the To enhanceto bethe taken transparency forward andas a accountabilityPPP, it must be of the ICC-Technical Working Group (ICC-TWG) for PPP policy-making body for all PPP-related concerns, approval process,demonstrated a PPP that Governance it will deliver Board better has VfMbeen than the projects, which consists of (i) NEDA: for alignment The current edition of the Philippine PPP Program has works with IAs to prepare well-structured PPP and strengthening the monitoring of projects by institutedtraditional consisting method of the principals of delivery of through the major government agencies and contribution to the national, regional or local made significant strides since its inception, having projects and acts as a technical adviser in the project authorizing the procurement of independent involved inprocurement, the PPP process and that such the as government'sNEDA, Department resources of government plans or programs, and socio-economic achieved a sound policy framework, institutional cycle of project structuring, setting minimum consultants through the PDMF. reforms, robust pipeline of PPP projects, and performance standards and specifications, and Finance (DOF),are managed and the with Department due regard of Budgetfor economy, and efficiency analysis; (ii) DOF: for risk structure and allocation of Under the new framework, the government is willing to “The implementing agencies identify priority Managementand effectiveness. (DBM) the project, fiscal requirements and government well-capacitated implementing agencies. contract terms for approval by the NEDA Investment  The Investment Coordination assume regulatory risk but will transfer commercial risks to projects which shall be included in the Public undertakings, the project’s financial internal rate of Coordination Committee (ICC) or NEDA Cabinet Committee-Cabinet Committee (ICC-CC) also Investment Program (PIP). The PIP contains the return, and its impact on fiscal sustainability through Underprivate the sector.new framework, The national the government government has is willing also been Committee. The PPP Center also acts as a The BOT ToLaw enhance (RA 7718) the istransparency currently being and reviewedaccountability by of introduced reforms in the appraisal of PPP assessment of direct and contingent government more sparing in providing performance undertakings or non-voting projects,adviser to programs the IAs in and the activities bid and awardthat will be governmentthe agenciesapproval process,and legislative a PPP working Governance committees Board has projects which effectively and efficiently to assume regulatory risk but will transfer costs; (iii) Department of Environment and Natural guarantees on the obligations of government agencies and implemented by the agencies within the to updatebeen the legal instituted and regulatory consisting framework of the principals on issues of the streamlines the process and delineates the roles commercial risks to the private sector. The national process. Resources- Environmental Management Bureau corporations not only to avoid incurring the fiscal burdens medium-term. Note that projects selected should be such as themajor maximum agencies government involved in support the PPP for process a project, such as of concerned agencies. It created the government has also been more sparing in providing (DENR-EMB): for the environmental impact of the as in the previous projects but also as a way to take consistent and aligned with the goals and objectives VGF as a NEDA,mode ofDepartment subsidy, unsolicited of Finance proposals, (DOF), and joint the ICC-Technical Working Group (ICC-TWG) for PPP performance undertakings or guarantees on the “The implementing agencies identify priority project; and (iv) PPP Center: for VfM analysis, advantage of the new confidence and positive investor of the Philippine Development Plan. The PIP also ventures,Department etc. The PPP of Center Budget is anddiligently Management pushing (DBM).for the projects, which consists of (i) NEDA: for obligations of government agencies and corporations projects which shall be included in the Public commercial financial viability, bankability, and project perceptions of the country’s economic standing and indicates the procurement method of each project enactment of the PPP Act, which amends the existing BOT alignment and contribution to the national, not only to avoid incurring the fiscal burdens as in Investment Program (PIP). The PIP contains the structuring).The PPP Center also acts as the PPP prospects. identified (whether PPP, official development The BOT Law (RA 7718) is currently being reviewed regional or local government plans or programs, previous projects but also as a way to take advantage projects, programs and activities that will be Law, in order to ensure the sustainability of the PPP Secretariat for the ICC-TWG and ICC-CC for PPP assistance [ODAs], or traditional procurement). by government agencies and legislative working and socio-economic analysis; (ii) DOF: for risk of the new confidence and positive investor implemented by the agencies within the Program. It also aims to have a robust PPP pipeline with at projects. structure and allocation of the project, fiscal perceptionsThe government of the country’s has also adoptedeconomic various standing modes and of PPP medium-term. Note that projects selected least 50 projectscommittees in various to update stages the of legal the andproject regulatory cycle by shouldThe be PPP consistent Center aimsand aligned to roll-out with the the Policy goals requirements and government undertakings, the prospects.structures outside of the usual BOT or build-lease-transfer end of 2016;framework 15 PPP oncontracts issues signed;such as fivethe maximumprojects  Through the enhanced appraisal process which has project’s financial internal rate of return, and its (BLT) to include hybrid structures where the private sector andGuidelines objectives ofon the Pipeline Philippine Development, Development to aid agencies completed;government and at least support 10 infrastructure for a project, projects VGF as handed a mode of been in place since January of this year, approvals impact on fiscal sustainability through is responsible for civil works and the implementing agency Plan.in The mapping PIP also out indicates their project the procurement pipeline and priority over to thesubsidy, private unsolicited sector for operationproposals, and joint maintenance. ventures, etc. The have been secured for six projects from the ICC-CC, The government has also adopted various modes of assessment of direct and contingent (IA) is responsible for operation and maintenance (O&M), or methodprojects.” of each project identified (whether PPP, PPP Center is diligently pushing for the enactment of and four projects from the NEDA Board. The average PPP structures outside of the usual BOT or government costs; (iii) Department of vice-versa, and Build Transfer with deferred payments. official development assistance [ODAs], or The governmentthe PPP also Act, initiated which amends a process the for existing managing BOT Law, in turnaround time for the appraisal and ICC-CC approval build-lease-transfer (BLT) to include hybrid structures Environment and Natural Resources- Different types of bid parameters beyond the typical Thetraditional PPP Center procurement). manages the Project Development and contingentorder liabilities to ensure (CLs) the that sustainability may materialize of the from PPP PPP of projects is one month from the date of submission where the private sector is responsible for civil works Environmental Management Bureau “lowest cost” bid are being applied, including highest Monitoring Facility (PDMF) which is the recipient of a projects andProgram. how these It also CLs aims would to have be appropriateda robust PPP for pipeline and by the IAs. It is also notable to highlight the and the implementing agency (IA) is responsible for The PPP Center aims to roll-out the Policy (DENR-EMB): for the environmental impact of premium offered and the lowest viability gap financing revolving fund from ODA funds for engaging consulting funded. Aswith an at interim least 50 measure, projects the in variousgovernment stages has of the importance of the conduct of clarificatory and operation and maintenance (O&M), or vice-versa, and Guidelines on Pipeline Development, to aid the project; and (iv) PPP Center: for VfM (VGF) required, etc. The VGF is being adopted from other firms in providing expertise in project structuring and project cycle by end of 2016; 15 PPP contracts reconciliation meetings prior to the approval of Build Transfer with deferred payments. Different agencies in mapping out their project pipeline included provisions for CLs in the Unprogrammed Fund of analysis, commercial financial viability, investment requirements. signed; five projects completed; and at least 10 projects such that project issues are threshed out and typescountries of bid parameterswhich have usedbeyond the the approach typical “lowestto ensure and priority projects.” PhP20 billion in the General Appropriations Act of 2014. bankability, and project structuring.The PPP resolved prior to presentation to the ICC-CC. cost”affordability bid are being of consumer applied, includingtariffs while highest making the project infrastructure projects handed over to the private Center also acts as the PPP Secretariat for the commercially viable and attractive to investors. “PPP is more than just a means to address the lack The Centersector also foradvocates operation policy and reformsmaintenance. to improve the premium offered, lowest viability gap financing (VGF) The PPP Center also manages the Project  ICC-TWG and ICC-CC for PPP projects. of public funds. More than just a financing scheme, legal and regulatory frameworks governing the PPP Aside from these, the government will soon be required, etc. The VGF is being adopted from other Development and Monitoring Facility (PDMF) which issuing the IRR on alternative dispute resolution The government has reorganized the former BOT Center, PPPs bring in private sector innovation to implement Program. The government also initiated a process for managing  Through the enhanced appraisal process which countries which have used the approach to ensure is the recipient of a revolving fund from ODA funds (ADR); the PPP Manual for National Government previously attached to the Department of Trade and critical infrastructure projects. Through PPP, private contingent liabilities (CLs) that may materialize from has been in place since January of this year, affordability of consumer tariffs while making the for engaging consulting firms in providing expertise in Agencies (NGAs); policy guidelines on pipeline Industry (DTI), into the PPP Center attached to the National sector expertise and efficiency would enable us to PPP projects and how these CLs would be approvals have been secured for six projects project commercially viable and attractive to project structuring and investment requirements. To ensure the continuity of the revised PPP program, the development; and other sector-specific PPP build high-quality infrastructure services at a faster appropriated for and funded. As an interim measure, from the ICC-CC, and four projects from the investors.Economic and Development Authority (NEDA). The PPP government is introducing institutional measures that guidelines to continuously improve the PPP policy pace. NEDA Board. The average turnaround time for Center is the nexus and the main driver of the PPP “PPP is more than just a means to address the would sustainthe government the reforms has beyond included the currentprovisions for CLs in environment. the appraisal and ICC-CC approval of projects is TheProgram. government The has PPP reorganized Center works the with former IAs BOT to prepare lack of public funds. More than just a financing administration.the Unprogrammed Fund of US$452.93 million in the one month from the date of submission by the well-structured PPP projects and acts as a technical adviser scheme,Aside PPPs from bring efficiency in private gains, sector PPPs innovation allow the proper General Appropriations Act of 2014.  Cognizant of the important role of the local Center, previously attached to the Department of IAs. It is also notable to highlight the importance in the project cycle of project structuring, setting minimum to implementallocation criticalof risks infrastructure to the party projects.that is best able to  the Implementing Rules and Regulations (IRR) of the government units (LGUs) in achieving sustainable Trade and Industry (DTI), into the PPP Center of the conduct of clarificatory and reconciliation performance standards and specifications, and contract Throughmanage PPP, and private assume sector the expertise consequences and of the risk existingThe PPP BOT Center Law and also NEDA advocates have also policy issued reforms the to development and inclusive growth, the government attached to the National Economic and Development meetings prior to the approval of projects such terms for approval by the NEDA Investment Coordination efficiencyinvolved. would PPPs enable enable us tothe build government high-quality to take on Revisedimprove Joint the Venture legal and Guidelines regulatory for frameworks Authority (NEDA). The PPP Center is the nexus and that project issues are threshed out and resolved Committee (ICC) or NEDA Cabinet Committee. The PPP infrastructurefewer risks services due to atappropriate a faster pace. risk allocation with government-ownedgoverning the PPP and Program. controlled corporations the main driver of the PPP Program. The PPP Center prior to presentation to the ICC-CC. Center also acts as a non-voting adviser to the IAs in the the private partner.” bid and award process.

7 Ibid.

Infrastructure In-depth: Philippines | 28 Infrastructure Guide: Philippines | 3 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.  Aside from these, the government will soon be 4 Projects with Live Bidding issuing the IRR on alternative dispute resolution  Mactan-Cebu International Airport (MCIA) (ADR); the PPP Manual for National Government Passenger Terminal Building [For issuance of Agencies (NGAs); policy guidelines on pipeline Notice of Award] development; and other sector-specific PPP  Cavite-Laguna Expressway guidelines to continuously improve the PPP  LRT Line 1 Cavite Extension and Operation and policy environment. Maintenance  Integrated Transport System - Southwest  Cognizant of the important role of the local Terminal government units (LGUs) in achieving sustainable development and inclusive growth, 1 NEDA Board-Approved the government advocates the mainstreaming of  Bulacan Bulk Water Supply Project PPPs at the local level through the PPP Center’s Capacity Building Program for LGUs. Further, the 4 For Evaluation of Relevant Bodies Internship Program and Partnerships with  Operation and Maintenance of the Laguindingan selected Local Capacity Building Institutions Airport (LCBIs) have been identified as short-term and  Enhanced Operation and Maintenance of the medium-term strategies of the PPP Center in New Bohol (Panglao) Airport providing assistance to LGU-PPP programs and  New Centennial Water Supply Source Project projects. (See Chapter 6)  Operation and Maintenance of LRT Line 2  Another important initiative is the standardization of PPP contracts, aimed at 1 For Finalization of Project Structure streamlining the drafting of concession  Davao Sasa Port agreements and creating templates for implementing agencies by incorporating the 11 Projects with On-going Studies tested procedures and lessons learned from  Operation and Maintenance of the Puerto previous PPP contracts. 13 Projects under Conceptualization/ Princesa Airport Development  Integrated Luzon Railway Project  Civil Registration System – IT Project Phase II  The PPP Center is also introducing probity  Mass Transit System Loop  Central Spine RORO management in PPP projects to bolster  Regional Prison Facilities through PPP  Ferry Passenger Terminal Buildings Development transparency and integrity in the existing PPP  Laguna Lakeshore Expressway  Operation and Maintenance of Clark Airport procurement process and also increase the Dike-Calamba-Los Baños Toll Expressway  Metro Cebu Expressway Project private sectors’ confidence in the bidding  Central Luzon Link Expressway Phase II process.  Tagum-Davao-General Santos High-Standard  Operation and Maintenance of Iloilo, Davao, and Highway Bacolod Airports Project  C6 Expressway (South-East, East, and North The government has enumerated a pipeline of  Improvement and Operation and Maintenance of Sections) projects based on an updated Philippine Kennon Road and Marcos Highway  Modernization of the Region 1 Medical Center Infrastructure Plan (but which includes some projects  Motor Vehicle Inspection System Project  PhilHealth Information Technology Project  LRT Line 1 Extension to Dasmariñas Project which have been on the drawing board for years)  Manila Heritage and Urban Renewal Project  Upgrading of the San Fernando Airport which will be bid out as solicited projects. The  Tri-Medical Complex (including Modernization of projects are in diverse sectors such as expressways, the Jose Fabella Memorial Hospital Project) airports, public school classrooms, hospitals, bulk 5 For Procurement of Consultants to Conduct  R-7 Expressway water, and urban railways. Pre-investment Studies  NLEx East  Modernization of the National Center for Mental Health Source: Public-Private Partnership Center publication on PPPs @ PH Pipeline of projects Investment Opportunities February 2014  Plaridel Bypass Toll Road 6 Awarded Projects  Manila Bay-Pasig River-Laguna Lake Ferry  Daang Hari-SLEx Link Road System  PPP for School Infrastructure Project (PSIP)  Batangas-Manila (BatMan) 1 Natural Gas Pipeline Phase I  C-5 Transport Development Project  NAIA Expressway (Phase II) Project  PPP for School Infrastructure Project (PSIP) 3 Other Projects for Implementation Phase II  NLEx-SLEx Connector Road  Modernization of the Philippine Orthopedic  Skyway Stage 3 Project Center  MRT Line-7  Automatic Fare Collection System

29 | Infrastructure In-depth: Philippines

11 Projects with On-going Studies  Operation and Maintenance of the Puerto 13 Projects under Conceptualization/ Philippine Development Plan, proper allocation of Princesa Airport Development risks between the government and the private  Integrated Luzon Railway Project  Civil Registration System – IT Project Phase II sector, with the government veering away from  Mass Transit System Loop  Central Spine RORO assuming risks in market demand, revenues, and  Regional Prison Facilities through PPP  Ferry Passenger Terminal Buildings Development returns.  Laguna Lakeshore Expressway  Operation and Maintenance of Clark Airport Dike-Calamba-Los Baños Toll Expressway  Metro Cebu Expressway Project The current PPP approach also pursues a more  Central Luzon Link Expressway Phase II  Tagum-Davao-General Santos High-Standard transparent mode of providing government capital  Operation and Maintenance of Iloilo, Davao, and Highway support in the form of the Viability Gap Funding as Bacolod Airports Project  C6 Expressway (South-East, East, and North the bid parameter which prompts investors to  Improvement and Operation and Maintenance of Sections) Kennon Road and Marcos Highway disclose efﬁcient level of government support for  Modernization of the Region 1 Medical Center  Motor Vehicle Inspection System Project affordable services and commercially viable and  PhilHealth Information Technology Project  LRT Line 1 Extension to Dasmariñas Project bankable projects.  Manila Heritage and Urban Renewal Project  Upgrading of the San Fernando Airport  Tri-Medical Complex (including Modernization of The prerequisites for moving in these directions the Jose Fabella Memorial Hospital Project) include capacity building for project development and 5 For Procurement of Consultants to Conduct  R-7 Expressway Pre-investment Studies  NLEx East preparation, where important progress has been  Modernization of the National Center for Mental made in the PPP Center and implementing agencies, Health Source: Public-Private Partnership Center publication on PPPs @ PH and enhancing the PPP framework through the PPP Investment Opportunities February 2014  Plaridel Bypass Toll Road government board and revisions of the BOT law now  Manila Bay-Pasig River-Laguna Lake Ferry While the number of PPP projects that have been pending in Congress. System rolled out for bidding or implementation has been  Batangas-Manila (BatMan) 1 Natural Gas Pipeline lower than initial expectations, the current edition of  C-5 Transport Development Project the PPP program arguably presents a signiﬁcant For further information, please contact: “proof of concept” of the PPP approach in enlisting 3 Other Projects for Implementation the participation of private investors in infrastructure Paul Patrick R. Afable  NLEx-SLEx Connector Road development.  Skyway Stage 3 Project Advisory Senior Manager  KPMG in the Philippines MRT Line-7 Taking into account important lessons from the previous BOT projects the current PPP program has T: +63 2 885 7000 ext. 767 emphasized solicited projects developed by the E: [email protected] government consistent with the priorities of the Infrastructure In-depth: Philippines | 30

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. AddressingThe Challenges the of an Challengesemerging global of an Emergingcity Metro Global transport City Ma.Cristina Cynthia Roxas,C. Hernandez, Advisory Advisory Partner, Director, KPMG KPMG in in the the Philippines Philippines

This is followed by Mandaluyong at 353, Pasay at 281, Navotas at 280 TheThe National National Economic Economic Development Development Authority AuthorityBoard, chaired Board, by President chaired Benigno by President Aquino BenignoIII, approved Aquino in III, This is followed by Mandaluyong at 353, Pasay at and Caloocan at 267. The cities which were growing higher than the earlyapproved September in early2014 a September long term "Dream 2014 Plan" a long for termthe transport "Dream infrastructure Plan" for the of Mega transport Manila infrastructure that aims to of 281, Navotas at 280 and Caloocan at 267. The cities rate of natural increase were Caloocan, Muntinlupa, Parañaque, and resolve the heavy congestion frequently experienced by Metro Manila commuters. This plan promises to which were growing higher than the rate of natural Mega Manila that aims to resolve the heavy congestion frequently experienced by Metro Manila Pasig. createcommuters.This a more liveable planGreater promises Capital Region to create (GCR) a withmore higher liveable mobility Greater and connectivity Capital Region by 2030. (GCR) with higher increase were Caloocan, Muntinlupa, Parañaque, and Pasig. According to the JICA study, at the barangay Accordingmobility to aand recent connectivity Japan International by 2030. Cooperation Population growth and density According to the JICA study, at the barangay level, “about 50 percent level, “about 50 percent of the people live in Agency (JICA) study the population of Metro Manila Between 1980 and 2010, the population in Metro of the people live in high-density barangays (> 300 persons/ha According to a recent Japan International Cooperation Population growth and density high-density barangays (> 300 persons/ha population is expected to reach 13.904 million by 2030, from Manila doubled from 5.9 million to 11.9 million while population density). If the population growth trend continues, Metro Agency (JICA) study the population of Metro Manila is Between 1980 and 2010, the population in Metro Manila density). If the population growth trend continues, 11.858 million in 2014. The population in the adjoining the rate of growth has slowed down from 2.95 Manila’s density will increase from 191 persons/ha to 224 expected to reach 13.904 million by 2030, from 11.858 doubled from 5.9 million to 11.9 million while the rate of provinces of Bulacan, Rizal, Cavite and Laguna percent annually in the 1980s to 1.79 percent in Metro Manila’s density will increase from 191 growth has slowed down from 2.95 percent annually in the persons/ha.” (BRLC)million is expectedin 2014. to The reach population 15.486 millionin the adjoiningby 2030, 2000-2010. This is lower than the natural rate of persons/ha to 224 persons/ha.” 1980s to 1.79 percent in 2000-2010. This is lower than the forprovinces a total population of Bulacan, in Mega Rizal, Manila Cavite 1 of and around Laguna 30 (BRLC) isincrease for the whole country growth rate of 1.9 natural rate of increase for the whole country growth rate “The outward rapid urbanization and densification from Metro Manila million,expected making to itreach one of15.486 the largest million urban by 2030, areas for in thea total “The outward rapid urbanization and densification 1 percent – an indicator of some out-migration from to BRLC and beyond is inevitable. Without policy and planning 2 of 1.9 percent – an indicator of some out-migration from the from Metro Manila to BRLC and beyond is inevitable. world.population in Mega Manila of around 30 million, making the core capital region. The population density of intervention, such urban sprawl will have the concomitant worsening 2 core capital region. The population density of 191 persons it one of the largest urban areas in the world. 191 persons per hectare (ha) in Metro Manila was 70 Without policy and planning intervention, such urban per hectare (ha) in Metro Manila was 70 times the national of the urban blight, environmental degradation, severe housing and times the national population density of 2.7 persons sprawl will have the concomitant worsening of the The JICA study observes that the complex social, population density of 2.7 persons per hectare. As a sanitation conditions, and traffic congestion,” says the JICA study. The JICA study observes that the complex social, per hectare. As a comparison, this is higher than the urban blight, environmental degradation, severe economic, and public sector management problems comparison, this is higher than the population density of economic, and public sector management problems population density of Seoul at 170, Tokyo at 131, housing and sanitation conditions, and traffic besetting Metro Manila can be boiled down to five Seoul at 170, Tokyo at 131, Jakarta at 131 and Shanghai at Under a “do nothing” scenario, the transport cost of traffic in Metro besetting Metro Manila can be boiled down to five major Jakarta at 131 and Shanghai at 124. congestion,” says the JICA study. major issues: 124. Manila will increase from PhP2.4 billion per day to PhP6.0 billion per issues: 1. Uncontrolled urbanization day by 2030, while in the peri-urban BRLC this will increase from 1. Uncontrolled urbanization For the adjoining BRLC provinces, population growth 2. Environmental degradation and hazard risk For the adjoining BRLC provinces, population growth PhP1 billion per day to PhP3.5 billion per day. The volume/capacity 2. Environmental degradation and hazard risk averaged 4.7 percent annually in the 1980s, rising to 3. Lack of affordable housing averaged 4.7 percent annually in the 1980s, rising to 5.9 ratio in the major thoroughfares will be 15 times in excess. 3. Lack of affordable housing 5.9 percent in the 1990s, and tapered to 4.0 percent 4. Traffic congestion percent in the 1990s, and tapered to 4.0 percent in 4. Traffic congestion in 2000-2010. These growth rates, far in excess of 5. Concentrated spatial structure 2000-2010. These growth rates, far in excess of the natural 5. Concentrated spatial structure the natural rate of growth, indicate high rates of rate of growth, indicate high rates of in-migration from in-migration from either the National Capital Region Given the importance of the region to the economy in either the National Capital Region (NCR) or from the rest of Given the importance of the region to the economy in (NCR) or from the rest of the country. By 2030, terms of share in population, gross domestic product the country. By 2030, Metro Manila is expected to terms of share in population, gross domestic product Metro Manila is expected to accommodate an (GDP), industry, and services, the manner in which accommodate an additional two million persons while (GDP), industry, and services, the manner in which these additional two million persons while BRLC will these issues are managed will make a significant BRLC will absorb an additional six million. Within Metro issues are managed will make a significant impact on the absorb an additional six million. Within Metro Manila impact on the country as a whole. These issues also Manila itself, densities in some cities are even higher by an country as a whole. These issues also provide an agenda itself, densities in some cities are even higher by an provide an agenda for integrating plans and programs order of magnitude. The highest density is in the City of for integrating plans and programs so that the interrelated order of magnitude. The highest density is in the so that the interrelated problems in Metro Manila are Manila proper at 662 persons per hectare. This is followed problems in Metro Manila are addressed in a coherent City of Manila proper at 662 persons per hectare. addressed in a coherent manner. by Mandaluyong at 353, Pasay at 281, Navotas at 280 and manner.

1 City of1 ManilaCity of andManila the andcities the of cities Caloocan, of Caloocan, Las Piñas, Las Makati, Piñas, Makati,Malabon, Malabon, Mandaluyong, Mandaluyong, Marikina,Muntinlupa, Marikina,Muntinlupa, Navotas, Navotas, Parañaque, Parañaque, Pasay, Pasig,Pasay, Quezon Pasig, Quezon City, San City, Juan, San Taguig, Juan, and Taguig, Valenzuela, and Valenzuela, as well asas thewell Municipalit as the Municipality of Pateros.y of Pateros. 2 Japan2 InternationalSource: Japan Cooperation International Agency Cooperation Presentation Agency on PresentationRoadmap for on Transport Roadmap Infrastructure for Transport Development Infrastructure for Development Metro Manila for and Metro Its SurroundingManila and Areas Its Surrounding(Region III and Areas Region (Region IV-A) IIISummary and Region of the IV-A) Outputs Summary September of the Outputs 2013 September 2013

31 | 2Infrastructure | Infrastructure In-depth: Guide: Philippines Philippines

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. This is followed by Mandaluyong at 353, Pasay at 281, Navotas at 280 2030 Do Nothing This is followed by Mandaluyong at 353, Pasay at Under a “do nothing” scenario, the transport cost of and Caloocan at 267. The cities which were growing higher than the Volume/ Capacity Ratio 281, Navotas at 280 and Caloocan at 267. The cities traffic in Metro Manila will increase from US$54.35 rate of natural increase were Caloocan, Muntinlupa, Parañaque, and V/C > 1.50 (beyond capacity) which were growing higher than the rate of natural million per day toV/C US$135.88 = 1.001.50– million(at & above per capacity) day by 2030, Pasig. 3 increase were Caloocan, Muntinlupa, Parañaque, and while in the peri-urbanV/C = 0.751.00BRLC– (reachingthis will capacity)increase from Pasig. According to the JICA study, at the barangay US$22.65 million per day to US$79.26 million per According to a recent Japan International Cooperation Population growth and density According to the JICA study, at the barangay level, “about 50 percent V/C < 0.75 (below capacity) level, “about 50 percent of the people live in day. The volume/capacity ratio in the major Agency (JICA) study the population of Metro Manila Between 1980 and 2010, the population in Metro of the people live in high-density barangays (> 300 persons/ha According to a recent Japan International Cooperation Population growth and density high-density barangays (> 300 persons/ha population thoroughfares will be 15 times in excess. is expected to reach 13.904 million by 2030, from Manila doubled from 5.9 million to 11.9 million while population density). If the population growth trend continues, Metro Agency (JICA) study the population of Metro Manila is Between 1980 and 2010, the population in Metro Manila density). If the population growth trend continues, 11.858 million in 2014. The population in the adjoining the rate of growth has slowed down from 2.95 Manila’s density will increase from 191 persons/ha to 224 expected to reach 13.904 million by 2030, from 11.858 doubled from 5.9 million to 11.9 million while the rate of provinces of Bulacan, Rizal, Cavite and Laguna percent annually in the 1980s to 1.79 percent in Metro Manila’s density will increase from 191 The economic contribution of transport systems is to growth has slowed down from 2.95 percent annually in the persons/ha.” (BRLC)million is expectedin 2014. toThe reach population 15.486 millionin the adjoiningby 2030, 2000-2010. This is lower than the natural rate of persons/ha to 224 persons/ha.” provide efficient connectivity among markets, factory 1980s to 1.79 percent in 2000-2010. This is lower than the forprovinces a total population of Bulacan, in Mega Rizal, Manila Cavite of and around Laguna 30 (BRLC) isincrease for the whole country growth rate of 1.9 districts, residential communities, shopping areas, natural rate of increase for the whole country growth rate “The outward rapid urbanization and densification from Metro Manila million,expected making to itreach one of15.486 the largest million urban by 2030, areas for in thea total percent – an indicator of some out-migration from “The outward rapid urbanization and densification business districts, recreation areas, schools and of 1.9 percent – an indicator of some out-migration from the to BRLC and beyond is inevitable. Without policy and planning population in Mega Manila of around 30 million, making the core capital region. The population density of from Metro Manila to BRLC and beyond is inevitable. hospitals, ports and airports. world. core capital region. The population density of 191 persons intervention, such urban sprawl will have the concomitant worsening it one of the largest urban areas in the world. 191 persons per hectare (ha) in Metro Manila was 70 Without policy and planning intervention, such urban per hectare (ha) in Metro Manila was 70 times the national of the urban blight, environmental degradation, severe housing and times the national population density of 2.7 persons sprawl will have the concomitant worsening of the A transport network facilitates the switching to the The JICA study observes that the complex social, population density of 2.7 persons per hectare. As a sanitation conditions, and traffic congestion,” says the JICA study. The JICA study observes that the complex social, per hectare. As a comparison, this is higher than the urban blight, environmental degradation, severe most appropriate mode according to the economic, and public sector management problems comparison, this is higher than the population density of economic, and public sector management problems population density of Seoul at 170, Tokyo at 131, housing and sanitation conditions,3 and traffic characteristics of the payload, e.g. commuters, besetting Metro Manila can be boiled down to five Seoul at 170, Tokyo at 131, Jakarta at 131 and Shanghai at Under a “do nothing” scenario, the transport cost of traffic in Metro besetting Metro Manila can be boiled down to five major Jakarta at 131 and Shanghai at 124. congestion,” says the JICA study. major issues: 124. Manila will increase from PhP2.4 billion per day to PhP6.0 billion per issues: 1. Uncontrolled urbanization day by 2030, while in the peri-urban BRLC this will increase from 1. Uncontrolled urbanization For the adjoining BRLC provinces, population growth Traffic demand and impact (Mega Manila) 2. Environmental degradation and hazard risk For the adjoining BRLC provinces, population growth PhP1 billion per day to PhP3.5 billion per day. The volume/capacity 2. Environmental degradation and hazard risk averaged 4.7 percent annually in the 1980s, rising to Traffic demand and impact (Mega Manila) 3. Lack of affordable housing averaged 4.7 percent annually in the 1980s, rising to 5.9 ratio in the major thoroughfares will be 15 times in excess. 2012 2030 ‘30/’12 3. Lack of affordable housing 5.9 percent in the 1990s, and tapered to 4.0 percent 2012 2030 ‘30/’12 4. Traffic congestion percent in the 1990s, and tapered to 4.0 percent in Traffic demand Metro Manila 12.8 14.5 1. 13 5. 4.Concentrated Traffic congestion spatial structure in 2000-2010. These growth rates, far in excess of Traffic demand Metro Manila 12.8 14.5 1.13 2000-2010. These growth rates, far in excess of the natural (mil.trips/days) BRLC 5. Concentrated spatial structure the natural rate of growth, indicate high rates of (mil.trips/days) BRLC* 6.0 8.0 1.33 6.0 8.0 1.33 rate of growth, indicate high rates of in-migration from Public transport share in total demand Given the importance of the region to the economy in in-migration from either the National Capital Region Public transport share in total demand 69% 69% 1.00 69% 69% 1. 0 0 either the National Capital Region (NCR) or from the rest of Occupancy road space by private vehicles 78% 78% 1.00 termsGiven of theshare importance in population, of the gross region domestic to the economyproduct in (NCR) or from the rest of the country. By 2030, Occupancy road space by private vehicles 78% 78% 1. 0 0 the country. By 2030, Metro Manila is expected to Transport cost Metro Manila 2.4 6.0 2.50 Source: Japan International terms of share in population, gross domestic product Metro Manila is expected to accommodate an Transport cost Metro Manila (GDP), industry, and services, the manner in which accommodate an additional two million persons while (PhP bil./day) BRLC 1.0 3.5 3.50 2.4 6.0 2.50 Cooperation Agency (GDP), industry, and services, the manner in which these additional two million persons while BRLC will Presentation on Roadmap these issues are managed will make a significant BRLC will absorb an additional six million. Within Metro (PhP bil./day)Metro Manila BRLCGHG 4.79 5.72 1.19 1. 0 3.5 3.50 impactissues on are the managed country as will a whole.make a significant These issues impact also on the absorb an additional six million. Within Metro Manila Air quality PM 0.014 0.019 1.36 for Transport Infrastructure Manila itself, densities in some cities are even higher by an GHG 4.79 5.72 1. 19 Development for Metro providecountry an asagenda a whole. for integrating These issues plans also and provide programs an agenda itself, densities in some cities are even higher by an (mil.tons/year) BRLC MetroGHG Manila 3.20 4.49 1.40 order of magnitude. The highest density is in the City of Air quality PM 0.014 0.019 1.36 Manila and Its Surrounding so forthat integrating the interrelated plans andproblems programs in Metro so that Manila the interrelated are order of magnitude. The highest density is in the PM 0.005 0.010 2.00 Areas (Region III and Manila proper at 662 persons per hectare. This is followed (mil.tons/year) GHG 3.20 4.49 1.40 Region IV-A) Summary of addressedproblems in in a Metrocoherent Manila manner. are addressed in a coherent City of Manila proper at 662 persons per hectare. *Bulacan, Rizal, Laguna, Cavite Source: Japan International Cooperation Agency Presentation on Roadmap by Mandaluyong at 353, Pasay at 281, Navotas at 280 and BRLC the Outputs September manner. PM for0.005 Transport Infrastructure0.010 Development2.00 for Metro Manila and Its Surrounding Areas (Region III and Region IV-A) Summary2013 of the Outputs September 2013 3 Area immediately adjoining an urban area.

3 Area immediately adjoining an urban area.

InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 32

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. high bulk low value, low bulk high value, long distance trips, etc. The transport system interacts Region III The rest of the country dynamically with the growth of urban hubs and Regional Growth Center (Subic-Clark-Tarlac) central business districts. The transport development  New urban-cove strategy will be instrumental in inﬂuencing the spatial  Green city conﬁguration of Mega Manila.  Gateway port/airport Mega Manila The JICA study has proposed a short-term strategy Planned Urban Expansion for the transport development priorities in the (Bulacan) 2014-2016 planning period, and a longer-term agenda  Affordable housing  New Towns based on a vision for a more viable and livable Mega Manila. Suburban Rail Expressway

Specific ideas proposed by JICA are: Metro Manila  Inner-city developments/revitalization 1. Consider a bigger planning area of a Greater  Rehabilitation of disaster prone areas Capital Region (GCR) consisting of Metro Manila, and Region III and Region IV-A. a. At the GCR level, avoid urban sprawl and Planned Urban Expansion promote the development of regional (Cavite, Laguna) growth centers instead while  Affordable housing strengthening the connectivity between  New Towns the region and Metro Manila, and among Region IV-A the regional growth centers. b. For Metro Manila, pursue a planned and Regional Growth Center (Batangas-Lipa-Lucena) guided expansion of urban areas toward  New urban-cove the peri-urban provinces of Bulacan and  Gateway port The rest of Cavite through integrated public transport the country and multi-modal network and services.

2. Promote the shift away from the metro-centric Source: Japan International Cooperation Agency Presentation on Roadmap for Transport Infrastructure Development for Metro Manila and urban pattern to a hierarchy of multiple urban Its Surrounding Areas (Region III and Region IV-A) Summary of the centers and hubs, including large new towns Outputs September 2013 that will be countermagnets to the attraction of Metro Manila. alternative to Manila. Provincial capitals or city centers such as in Malolos, Tarlac, Cabanatuan, Five regional clusters are envisioned consisting of: Olongapo, Malolos, Tagaytay, and Calamba will be 1. Metro Manila expected to be centers of sub-regions by providing a 2. Peri-urban areas in Bulacan wide range of employment opportunities, residential 3. Peri-urban areas in Cavite and Laguna areas, education and health services. 4. The northern regional growth center in Subic-Clark-Tarlac axis The transport development strategy for the GCR calls 5. The southern regional growth center of for the improvement of gateway ports in Subic and Batangas, Lipa-Lucena Batangas and the Clark International Airport, the north-south backbone in the form of expressways Metro Clark (San Fernando, Angeles City, Mabalacat and mass transit, and the secondary roads for City, and Porac) and Metro Batangas (Batangas City Regions III and IV-A. and Lipa City) are envisioned as regional centers and core cities with self-sustained diverse economies, The development plan for the transport network of industry, services, higher education, health services, Mega Manila aims to strengthen the north-south cultural activities, etc. transport axis to guide future urban expansion and to promote the shift from road-based trafﬁc to rail based They will serve as regional hubs of the transport mass transit, and to enhance the resiliency of the network within 100 kms from Metro Manila. They network through an integrated multi-modal transport will also function as international gateways as an system.

33 | Infrastructure In-depth: Philippines

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Five regional clusters are envisioned consisting of: They will serve as regional hubs of the transport 1. Metro Manila network within 100 kms from Metro Manila. They will 2. Peri-urban areas in Bulacan also function as international gateways as an alternative 3. Peri-urban areas in Cavite and Laguna to Manila. Provincial capitals or city centers such as in 4. The northern regional growth center in Subic-Clark-Tarlac axis 5. The southern regional growth center of Batangas, Lipa-Lucena Malolos, Tarlac, Cabanatuan, Olongapo, Malolos, Tagaytay, and Calamba will be expected to be centers of sub-regions by providing a wide range of employment opportunities, residential areas, education and health services. Proposed spatial structure of GCR

Source: Japan International Cooperation Agency Presentation on Roadmap for Transport Infrastructure Development for Metro Manila and Its Surrounding Areas (Region III and Region IV-A) Summary of the Outputs September 2013

Metro Clark (San Fernando, Angeles City, Mabalacat City, and Porac) and Metro Batangas (Batangas City and Lipa City) are envisioned as regional centers and core cities with Source: Japan International Cooperation Agency Presentation on Roadmap for Transport Infrastructure Development for self-sustainedMetro diverseManila and economies, Its Surrounding industry,Areas (Region services, III and Region higher IV-A) Summary of the Outputs September 2013 Source: Japan International Cooperation Agency Presentation on Roadmap for Transport education, health services, cultural activities, etc. Infrastructure Development for Metro Manila and Its Surrounding Areas (Region III and Region IV-A) Final Report March 2014 GatewayThe airports major components and seaports will be: share of railways in Metro Manila to 41 percent by GatewayAt airports grade roads Gateway2030, seaports compared to 10 percent at present.  Missing links in C3 and C5 Development of New NAIA  137 kms of new roads (existing NAIA will be closed The urban expressway network will cater to long-trip  Flyovers and converted for New CBD) fast travel trafﬁc for those willing to pay for  Sidewalks and pedestrianDevelopment facilities of CLARK (core congestion-free thoroughfares. airport for central and northern cluster; alternative Expressways to New NAIA) The proposed transport sector dream plan for Metro

 426 kilometers of inter-city expressways Manila is projected to avoid the US$135.88  78 kilometer of urban expressways million/day transport cost in the 2030 “do nothing” scenario by 45 percent and even reduce these from Urban/suburban rail the current level of US$54.35 million.  246 kilometers of six main lines Shift cargo-handling function of Metro Manila to Subic and  72 kilometers of ﬁve secondary linesBatangas There will also be remarkable improvements in air

Regenerate Manila Port to quality. Similar beneﬁts will accrue to the peri-urban An integrated urban mass transit networkhigh will value-added aim to diversified BRLC region. The “reach” of a one-hour travel time accommodate an increase in ridership fromwaterfront 1.5 areas from Manila will expand outward, giving better access and assisting in decongesting the core city Source: Japan millionInternational per Cooperation day in Agency 2012 Presentation to 9.1 million on Roadmap by for 2030 Transport and Infrastructure Development for Metro Manila and Its avoidSurrounding the Areas worsening (Region III and of Region trafﬁc IV-A) bySummary increasing of the Outputs the September modal 2013 center.

InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 34

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. OpportunitiesImpact for the of privateproposed sector transport network Opportunities for the private sector The focus on the(estimated PPP approach travel for time implementing from Manila) the urban rail andThe expressway focus on the projects PPP approach opens up for numerous implementing the urban opportunitiesToday for private investors. The bidding out of urban rail andrail expressway and expressway projects projects has gained opens some up numerous traction in the recent months, including LRT1, CALAx, NAIAx. The currentopportunities pipeline includes for private US$30.80 investors. billion in urban rail projects and US$16.33 billion in road and expressway projects. (See Appendix E) The bidding out of urban rail and expressway projects has JICA is quick to point out, however, that many of the projects havegained been onsome the traction drawing in board the recent for years, months, and manyincluding LRT1, of the original designs have been overtaken by the developments CALAx,on site. NAIAx. JICA urges: The current pipeline includes PhP1.36 trillion in urban rail projects and PhP721 billion in road and “All the projects that had been studied and planned in the past,expressway but which had projects. so far eluded realization, should now be rushed into implementation. The sweet spot (convergence of many favorable factors) may not last long. For roads, this includes: (i) all the missing sections of C3, C4, andJICA C5; is quick(ii) several to point flyovers out, andhowever, interchanges; that many (iii) atof the least one of the two North Luzon Expressway (NLEx) - South Luzon Expressway (SLEx) connector roads; and (iv) projects have been on the drawing board for years, and frontloading by private sector concessionaires of their investment commitments on SLEx, Manila-Cavite many of the original designs have been overtaken by the Expressway (CAVITEx), and NLEx. For railways, this includes: (i) LRT 1 Extension to Cavite; (ii) LRT 2 extension to the East; (iii) MRT-3 capacity expansion and system upgrade; (iv)developments improvement on and site. rehabilitation JICA urges: of the commuter service on the south and revival of the north service, and (v) MRT-7 from Quezon City Circle to San Jose del Monte. “All the projects that had been studied and planned in the past, but which had so far eluded realization, Similarly, the computerized traffic signalling system of Metro Manila shouldshould be now expanded be rushed rapidly, into and implementation. its system upgraded as part of an intelligent urban transport system. For airports, un-freeze and complete several landside and airside projects for Manila and Clark airports.” (See Appendix F) The sweet spot (convergence of many favorable factors) may not last long. For roads, this includes: (i) Immediate opportunities all the missing sections of C3, C4, and C5; (ii) For the short-term program (2014-2016), US$7.34 billion60 minin expressways andseveral other flyovers road projects and interchanges; are projected (iii) to at be least one of implemented, with many of the larger projects to be90 procured min under the thePPP two mode. North Another Luzon US$3.56Expressway billion (NLEx) in - South urban railway projects are also scheduled for implementation in the short-term.Luzon Expressway (SLEx) connector roads; and (iv) 120 min frontloading by private sector concessionaires of Short-term Program (2014-2016) 150 min their investment commitments on SLEx, Railways Manila-Cavite Expressway (CA VITEx), and NLEx. Name of Project Amount (PhP million) Status F ureut 1. LRT1 - Cavite Extension (Niyog) For railways,30,764 this includes:Committed (i) LRT 1 Extension to 2. LRT2 - East Extension Cavite; (ii)9,446 LRT 2 extensionCommitted to the East; (iii) MRT-3 capacity expansion and system upgrade; (iv) 3. MRT3 Capacity Extension 10,200 Committed improvement and rehabilitation of the commuter 4. MRT7 stage 1 (Quezon Ave. - Commonwealth Ave.) service on51,870 the south andCommitted revival of the north service, 5. AFCS CommonTicketing System and (v) MRT-71,722 from QuezonCommitted City Circle to San Jose 6. System Rehabilitations for LRT1 and 2 del Monte.4,500 Committed 7. Mega Manila a. C4 EDSA-Taft Ave. to Roxas Blvd. 24,800 Proposed North-South Similarly, the computerized traffic signalling system b. C4: Roosevelt / Congressional Committed Commuter of Metro Manila should be expanded rapidly, and its Railway c. C4: West Ave. / North Ave. / Mindanao Ave. system upgraded as partProposed of an intelligent urban 8. Metro Manila CBDTransit System Project Study transport system.120 Proposed 9. F/S of NewTransport System (e.g. Monorail, AGT) 75 Proposed Railways Total For airports,146,897 un-freeze and complete- se eralv landside and airside projects for Manila and Clark Road Public Transport airports.” Name of Project Amount (PhP million) Status

1. Source:ITS (3 Japan Provincial International BusTerminals) Immediate opportunities6,300 Comitted Cooperation Agency 2. Presentation Public Road on Roadmap PassengerTransport for Reform Study For the short-term program60 (2014-2016),Proposed PhP324 billion in Transport Infrastructure expressways and other road projects are projected to be 3. BRTDevelopment System 1 for Metro 3,500 Proposed Manila and Its Surrounding implemented, with many of the larger projects to be 9,860 - Road-basedAreas (Region Public III and Region Transport Total procured under the PPP mode. Another PhP157 billion in IV-A) Summary of the Outputs September 2013 urban railway projects are also scheduled for implementation in the short-term.

35 | Infrastructure In-depth: Philippines 2 | Infrastructure Guide: Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Short-term Program (2014-2016) Roads Name of Project Amount (PhP million) Status 1. Missing Link of C5 a. Flyover on CP Garcia in Sucat 251 Committed b. Coastal Rd/C5 Extn. South Flyover 210 Committed c. C5 South Extn. Flyover at Slex 235 Proposed 2. Global City-Ortigas Link Road 8,120 Proposed 3. Skyway/FTI/C5 Link 17,880 Committed 4. C3 Missing links (S. Juan to Makati [Sta. Ana oval]) 24,000 Proposed 5. EDSA Rehabilitation 3,744 Committed 6. Plaridel Bypass, packages 3 & 4 900 Committed a. C4 EDSA-Taft Ave. to Roxas Blvd. 2,430 Committed 7. Metro RoadsManila Interchanges / b. C4: Roosevelt / Congressional Amount (PhP941 million) CommittedStatus Flyovers Name of Project c. C4: West Ave. / North Ave. / Mindanao Ave. 1,502 Committed 1. Missing Link of C5 a. Flyover on CP Garcia in Sucat 251 Committed 1,575 Committed d. C5: Greenmeadowsb. Coastal Rd/C5 / Acropolis Extn. South Flyover 210 Committed 435 Committed e. C5: Pasig-Bagongc. C5 South Extn. Ilog Flyover at SLEx 235 Proposed 2. Global City-Ortigasf. LinkC2: Gov.Road Forbes / Espana 1,0708,120 CommittedProposed Roads3. Total Skyway/FTI/C5 Link 63,29317,880 Committed Expressways4. C3 Missing links (S. Juan to Makati [Sta. Ana oval]) 24,000 Proposed 5. EDSA Rehabilitation Name of Project Amount (PhP million)3,744 StatusCommitted 6. Plaridel Bypass, packages 3 & 4 1. Daang Hari-SLEx LinkTollroad 2,000 900 CommittedCommitted a. C4 EDSA-Taft Ave. to Roxas Blvd. 2,430 Committed 2. NLEx-SLEx7. Metro Manila a. Link Expressway (MNTC) 7,800 Committed ConnectorsInterchanges / b. C4: Roosevelt / Congressional 941 Committed Flyovers b. Skyway 3 section (Citra) 9,000 Committed c. C4: West Ave. / North Ave. / Mindanao Ave. 1,502 Committed c. Common section (DPWH) 11,000 Committed d. C5: Greenmeadows / Acropolis 1,575 Committed d. Seg. 9&10, and connection to R10 8,600 Committed e. C5: Pasig-Bagong Ilog 435 Committed 3. NAIA Expressway, phase 2 15,520 Committed f. C2: Gov. Forbes / Espana 1,070 Committed 4. CALA Expressway, stages 1 and 2 14,232 Committed Roads Total 63,293 - 5. CLLEX Phase I (La Paz,Tarlac-Cabanatuan) 12,833 Committed Expressways 6. Calamba-Los Banos Expressway 16,900 Proposed Name of Project Amount (PhP million) Status 7. C6 extension - Lakeshore Dike Road 43,380 Proposed 1. Daang Hari-SLEx LinkTollroad 2,000 Committed 8. Segment 8.2 of NLEx to Comm. 7000, Proposed 2. NLEx-SLEx a. Link Expressway (MNTC) 7,800 Committed Expressways Connectors Total 148,265 - b. Skyway 3 section (Citra) 9,000 Committed Other Roads Total c. Common section (DPWH) 11,000 Committed Amount (PhP million) Status Name ofd. Project Seg. 9&10, and connection to R10 8,600 Committed 1. Secondary3. NAIA Road Expressway, Packages phase 2 69,10015,520 ProposedCommitted 2. Preparatory4. CALA studies Expressway, for several stages projects 1 and 2 50014,232 ProposedCommitted 3. Other Central5. CLLEX Luzon Phase road I (La projects Paz,Tarlac-Cabanatuan) 16,00012,833 CommittedCommitted 4. Other Southern6. Calamba-Los Luzon roadBanos projects Expressway 36,36016,900 CommittedProposed 7.Other C6 extension Roads Total - Lakeshore Dike Road 121,96043,380 -Proposed 8. Segment 8.2 of NLEx to Comm. 7,000 Proposed Expressways Total 148,265 -

InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 36 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Railways Name of Project Amount (PhP million) Status 1. LRT1 - Cavite Extension (Niyog) 30,764 Committed 2. LRT2 - East Extension 9,446 Committed 3. MRT3 Capacity Extension 10,200 Committed 4. MRT7 stage 1 (Quezon Ave. - Commonwealth Ave.) 51,870 Committed 5. AFCS CommonTicketing System 1,722 Committed 6. System Rehabilitations for LRT1 and 2 4,500 Committed 7. Mega Manila a. C4 EDSA-Taft Ave. to Roxas Blvd. 24,800 Proposed North-South b. C4: Roosevelt / Congressional Committed Commuter Railway c. C4: West Ave. / North Ave. / Mindanao Ave. Proposed 8. Metro Manila CBDTransit System Project Study 120 Proposed Other9. F/S Roads of NewTransport Total System (e.g. Monorail, AGT) 75 Proposed Name of Project Amount (PhP million) Status 146,897 - 1. Secondary Road Packages 69,100 Proposed Road Public Transport 2. Preparatory studies for severalName projects of Project Amount (PhP500 million) Proposed Status 3. Other Central Luzon road projects 16,000 Committed 1. ITS (3 Provincial BusTerminals) 6,300 Comitted 4. Other Southern Luzon road projects 36,360 Committed 2. Public Road PassengerTransport Reform Study 60 Proposed Other Roads Total 121,960 - 3. BRT System 1 3,500 Proposed Traffic Management Projects Road-based Public Transport Total 9,860 - Name of Project Amount (PhP million) Status Traffic Management Projects 1. Modernization of traffic signaling system 5,000 Comitted Name of Project Amount (PhP million) Status 2. Systematic Road Safety Interventions 1,000 Proposed 1. Modernization of traffic signaling system 5,000 Comitted 3. ComprehensiveTraffic Management Study 60 Proposed 2. Systematic Road Safety Interventions 1,000 Proposed Traffic Management ProjectsTotal 6,050 - 60 Proposed Airports3. ComprehensiveTraffic Management Study 6,050 - Traffic Management ProjectsTotalName of Project Amount (PhP million) Status Airports1. NAIA a. NAIA improvements - airside package 4,249 Committed Amount (PhP million) Status b. NameNAIA improvements of Project - landside package Committed 2. Clark1. NAIA c. Clarka. NAIAimprovements improvements - airside - airside package package 6,802 4,249 CommittedCommitted d. Clarkb. NAIAimpro improvements vements - landside - landside package package CommittedCommitted 3. Feasibility2. Clark study of a new NAIAc. Clark improvements - airside package 50 6,802 ProposedCommitted Airport Infrastructure Total d. Clark improvements - landside package 11,125 - Committed Ports*3. Feasibility study of a new NAIA 50 Proposed Amount (PhP million) Status Airport Infrastructure TotalName of Project 11,125 - 1. Projects for North Harbor 6,000 Committed Ports 2. Projects for South Harbor Name of Project Amount1,000 (PhP million) Committed Status 3. MICT 4,000 Committed 1. Projects for North Harbor 6,000 Committed 4. Feasibility Study of NH Redevelopment 75 Proposed 2. Projects for South Harbor 1,000 Committed 5. Other Ports 1,010 Proposed 3. MICT 4,000 Committed Port Projects Total 12,085 - 4. Feasibility Study of NH Redevelopment 75 Proposed Notes:5. *Planned Other expansionPorts projects recommended for rescheduling to promote diversion of cargo to Batangas and Subic ports as1,010 well as decongest Proposed roads of Metro Manila Short-termPort Program Projects (2014-2016) Total = PhP520 billion 12,085 Source: Japan International Cooperation Agency Presentation on Roadmap for Transport Infrastructure Development for Metro Manila and Its SurroundingSource: Japan Areas International (Region III Cooperation and Region Agency IV-A) Summary Presentation of onthe Roadmap Outputs for September Transport Infrastructure 2013 Development for Metro Manila and Its Surrounding Areas (Region III and Region IV-A) Summary of the Outputs September 2013 Notes: *Planned expansion projects recommended for rescheduling to promote diversion of cargo to Batangas and Subic ports as well as decongest roads of Metro Manila Short-term Program (2014-2016) = PhP520 billion

37 | 2Infrastructure | Infrastructure In-depth: Guide: Philippines Philippines

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. The latestThe “Dream latest Plan”“Dream for Plan” Metro for Manila Metro conducted Manila conducted by The plan proposes development strategies that JICA andby recently JICA and approved recently by approved the government by the government breaks stretch to the year 2030, and a massive infrastructure down thebreaks problem down into the five problem areas: uncontrolled into five areas: development program for railways, roads, airports, urbanization,uncontrolled environmental urbanization, degradation environmental and hazard degradation risk, and seaports with a total cost of US$58.88 billion, lack of affordableand hazard housing, risk, lack traffic of affordable congestion, housing, and traffic including US$11.78 billion for 2014-16, as against the concentratedcongestion, spatial structure.and concentrated spatial structure. estimate of traffic congestion of US$54.35 million a day cited by the study. The urbanThe infrastructure urban infrastructure challenges challenges Metro Manila in Metro complex Manila and formidable.are complex The only and wayformidable. to make The a sensible only way plan to maketo a Private investors can consider several projects in the resolve thesesensible problems plan to is resolve to consider these development problems is to Metro Manila plan which are expected to be strategiesconsider for a wider development area, longer strategies time horizons, for a wider and area, executed under the PPP mode. multi-sectorallonger and time multi-modal horizons, andsolutions. multi-sectoral and multi-modal solutions. Thus the current plan identifies a Greater Capital Region the encompassesThus the currentan area planmuch identifies wider than a Greater the current Capital For further information, please contact: Greater ManilaRegion Area. the encompasses The plan proposes an area development much wider than For further information, please contact: the current Greater Manila Area. strategies that stretch to the year 2030, and a massive Ma. Cynthia C. Hernandez infrastructure development program for railways, roads, RobertoAdvisory G. Director Manabat airports, and seaports with a total cost of P2.6 trillion, ChairmanKPMG in &the CEO Philippines including P520 billion for 2014-16, as against the estimate KPMG in the Philippines of traffic congestion of P2.4 billion a day cited by the study. T: +63 2 885 7000 ext. 485 Private investors can consider several projects in the Metro T:E: +63 [email protected] 2 885 7000 Manila plan which are expected to be executed under the E: [email protected] PPP mode.

Infrastructure In-depth: Philippines | 38 Infrastructure Guide: Philippines | 3 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. EnhancingWater WaterResources Resources

JeromeCristina Andrew Roxas, H. Garcia, Advisory Advisory Partner, Principal, KPMG KPMG in inthe the Philippines Philippines

The T hePhilippines Philippines is eisxpected expected to tobe beon ontrac track tok tomeet meet the the 20 1205 1Millennium5 Millennium De Developmentvelopment Goal Goal (MDG) (MDG) on on wwaterater andand sanitsanitation.ation. TThehe MDGMDG ttargetarget wwasas toto cutcut inin halfhalf thethe proportionproportion ofof thethe populationpopulation without withoutsustainable sust ainable access access to saf eto drinking safe drinking water w andater impro and improve sanitation.ve sanitation. This translates This translates to an increaseto an in the increaseproportion in the of proportion Filipino families of Filipino with families access towith water access from to 73 water percent from in 73 1990 percent to 86.5 in 1990percent to 86.5by 2015. percentCiting by data 2015. from Citing the Association data from the of SouthAssociation East Asian of South Nations East (ASEAN) Asian Nations statistical (ASEAN) unit, thestatistical National unit,Statistical the National Coordination Statistical Board Coordination (NSCB) recorded Board (NSCB) that Filipinos stated that with Filipinos access withto safe access drinking to safe water drinkingrepresented water represented84.8 percent 84.8 of the percent population of the as population of 2010. Onas ofthis 2010. basis, On the this NSCB basis, tagged the NSCB this target as taggedhaving this a hightarget probability as having of a beinghigh probability achieved byof 2015.being achieved by 2015.

PercentagePercentage Access Accessto Safe Waterto Safe Water

90 90

85 This implies,This however,implies, however, that 15.73 that million 15.73 people million continue people continue not to have not access to have to access safe drinking to safe water.drinking The water. broad The MDG broad 85 indicator MDGmasks indicator the complicated masks the issues complicated in the water issues sector. in the Up-to-datewater sector. information Up-to-date on informationthe status of on water the status facilities of waterand facilities and access is either not available or not consistent and consolidated. 80 access is either not available or not consistent and consolidated. 80 75 Percentage (%) Percentage 75 PERCENTAGE (%) PERCENTAGE 70 Percentage (%) Percentage

PERCENTAGE (%) PERCENTAGE 70 1990 1995 2000 2005 2010 2015 1990 1995 Year 2000 2005 2010 2015 Source: Philippines Progress Report on the Millennium Development Goals 2010 Year

Source: Philippines Progress Report on the Millennium Development Goals 2010

39 | 2Infrastructure | Infrastructure In-depth: Guide: Philippines Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. St atistics St atatistics a glance at aof glance the Philippines' of the Philippines' Progress P basedrogress on based the MDG on the indicators MDG indicators Goals/Targets/Indicators Baseline Target Latest Probability Goals/Targets/Indicators Baseline Target Latest Probability Goal 7: ENSURE ENVIRONMENTAL SUSTAINABILITY Goal 7 : ENSURE ENVIRONMENTAL SUSTAINABILITY Target 7.C Halve, by 2015, the proportion of population without sustainable access to safe Target 7.C Halve, by 2015,drinking the proportionwater and ofimproved population sanitation without sustainable access to safe drinking water and improved sanit ation Target 7.7a 73 86.5 84.4 High Target 7.7a Proportion of families with 73 1990 86.5 2015 84.4 2011 Proportion ofaccess f amilies to safewith water 1990 2015 2011 High access to safe water Target 7.8a Target 7.8a 67.6 67.6 83.8 83.8 91.9 91.9 Proportion of families with Exceeded Proportion ofsanitary families toilet with facility 1990 1990 2015 2015 2011 2011 Exceeded sanitary toilet facility Source: Philippine Statistics Authority – Makati’s MDG Watch May 2014 publication Source: Philippine Statistics Authority – Makati’s MDG Watch May 2014 publication This implies,This however,implies, however, that 15.73 that million 15.73 people million continue people continue not to have not access to have to access safe drinking to safe water.drinking The water. broad The MDG broad indicator MDGmasks indicator the complicated masks the issues complicated in the water issues sector. in the Up-to-datewater sector. information Up-to-date on informationthe status of on water the status facilities of waterand access isfacilities either not and available access isor eithernot consistent not available and orconsolidated. not consistent and consolidated.

Levels ofLevels Access of to Access Safe Drinking to Safe DrinkingWater Water Access to formal levels of service: 80% Informal Access: 20% Access to formal levels of service: 80% Informal Access: 20% Level 3: 45% Level 2: 10% Level 1: 25% Self-provision through private Level 3: Level 2: Level 1: wells, tanked or vended water supply or piped supply 45% WDs: 20% POs: 5% LGUs and CBOs: 20%10% LGUs25% and CBOs: 35% Self-provision through private provided by SSIPs wells, tanked or vended water supply or piped supply WDs: Notes: 1. WDs:POs: Water Districts, LGUs 2. PO: and Private Operators (e.g.,LGUs concessionaires, and CBOs: private developers, etc.), 3. CBOs:provided Community-based by SSIPs Organizations (e.g., 20% rural or barangay5% water serviceCBOs: associations, 20% cooperatives, etc.)35% 1990 1995 2000 2005 2010 2015 Source: WB Report, Philippines: Meeting Infrastructure Challenges, 2005, as quoted in the NEDA Philippine Water Supply Sector Roadmap 2nd Edition

Source: WB Report, Philippines: Meeting Infrastructure Challenges, 2005, as quoted in the NEDA Philippine Water Supply Sector Roadmap 2nd Edition Notes: 1. WDs: Water Districts 2. PO: Private Operators (e.g., concessionaires, private developers, etc.) 3. CBOs: Community-based Organizations (e.g., rural or barangay water service associations, cooperatives, etc.)

InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 40 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. As defined in NEDA Board Resolution No. 12, Series of 1995: Level I A protected well or a developed spring with an outlet but without a distribution system as it is As defined in NEDA Board Resolution No. 12, Series of 1995: generally adaptable for rural areas where the houses are thinly scattered serving an average of 15 Level I A protected well or a developed spring with an outlet but without a distribution system as it is generally householdsadaptable with for peoplerural areas having where to fetch the houseswater from are thinlyup to scattered250 meters serving distance an average of 15 households with Level II A pipedpeople system having with to fetchcommunal water orfrom public up tofaucets 250 meters usually distance serving four to six households within 25 Level metersII A piped distance system with communal or public faucets usually serving four to six households within 25 meters Level III A fullydistance reticulated system with individual house connections based on a daily water demand of Level moreIII A thanfully reticulated100 liters per system person with individual house connections based on a daily water demand of more than Based on the National100 liters Statistics per person Office (NSO), the proportion of households in the Philippines in 2004 with access to waterBased was on the around National 80.2 Statistics percent. Office Of the (NSO), 80.2 percent the proportion with access of households to water from in the formal Philippines providers, in 2004 only with44 access to percentwater are was connected around 80.2 to Level percent. III waterworks Of the 80.2 systems percent withwith pipedaccess distribution to water from systems formal which providers, are subject only 44 to percent are nationalconnected quality to standards. Level III waterworks The rest of systems the population with piped get theirdistribution water from systems Level which II – communal are subject faucets to national or quality standpipes,standards. or TheLevel rest I – getprotected their water wells from without Level a IIdistribution – communal system faucets of the or population.standpipes, Theor Level local Igovernment – protected wells without unitsa distribution (LGUs) and system. community-based The local government organizations units (CBOs) (LGUs) provide and community-basedwater service to 55 organizations percent of those (CBOs) with provide access water to water.service Whileto 55 thepercent Level of III those coverage with foraccess the country to water. as Whilea whole the is Level 42 to III 48 coverage percent, for there the arecountry wide asdisparities a whole is 42 to 48 betweenpercent, the there urban are areas wide outside disparities of the between National the Capital urban Region areas outside(NCR) andof the rural National areas. Capital Region (NCR) and rural Estimatedareas. Level III Coverage, Philippines Population (2010 Est. % ofTotal Estimated Level III Coverage, Philippines Est. Level II Water Supply Providers Census) (millions) Population Coverage Population (2010 Census) Est. % of Total Est. Level II Water Supply Providers (s) Urban - NCR 11.9 13% 88% (1) Manila Water, Maynilad (millions) Population Coverage Other sector studies have found that water districts The physical challenges of the Philippine water Urban - Outside NCR 33.0 36% 50%-65% Water Districts percent toprovide 52 percent better only. water The service, improving citing ratios the corporatizedare behind thesituation serious include: deficit inlocalized investment raw waterlevels shortages,to develop Urban - NCR 11.9 13% 88% (1) Manila Water, Maynilad LGUs weighed naturedown byof thewater significant districts dropand thefor Metrobenefits Manila of the water resourcesflooding, to water meet pollution, the rising overexploitation demand. A main of hindrance is the low tariffs which do not allow for cost Urban - Outside NCR 33.0 36% 50%-65% Water P Districtsrivate operators from 122 LWUAto 113 creditpercent. and The institutional NEDA notes development that by 2017, support. groundwater particularly in major cities, and overuse Rural 47.4 51% 25% (2) Coops, BWSAs, RWSAs there will be a water deficit in the Metro Manila area. While recovery.of Another surface factorwater. is There the absence is increasing of a coherent pollution of LGUs financing framework for investments in water infrastructure. Total 92.3 100% 42%-48% overall supplyIn the (including revalidated for results irrigation) matrix is close for the to sufficiencymidterm groundwater and surface water in many localities for the country as a whole, there are seasonal and There has also been a bias for Metro Manila and other Private operators review of the National Economic and Development while marginal agricultural activities have resulted in Notes: 1. BWSA: barangay water and sanitation association, 2. Est: estimated, 3. LGU: local government unit, 4. NCR: National Capital Region, 5. geographicAuthority shortages. (NEDA) There Philippine are major Development water constraints Plan, thein urban areas,deforestation including spendingand degradation for water of supply,watersheds sewerage and RWSA: rural waterworks association and septage management. The lack of a monitoring system Source:Rural Asian Development Bank report47.4 on Philippine Water Supply and51% Sanitation Sector Assessment,25% (2) Strategy and RoadCoops, Map BWSAs,January 2013; RWSAs (1) MWSS; Metro Manilagovernment and Cebu target which is 100pose percent a serious Level problem III coverage to upper catchments, resulting in major flooding (2) JPM March 2012 Report the furtherby development 2016. of these major urban areas. makes it problems.difficult to assessThere are and also address few facilities the sustainability for storage of Total 92.3 100% 42%-48% developedinfrastructure, infrastructure. specifically reservoirs and tanks, which The MWSS reports Level III service coverage of 88 percent for Metro Manila and 11 percent for total households in Source: Asian Development Bank report on Philippine Water Supply and Sanitation Sector Assessment, Strategy and Road Map January 2013; (1) MWSS; (2) JPM March 2012 The physicalAnother challenges dimension of the targeted Philippine in the water government situation plan is a reflection of their high cost. the country. The Asian Development Bank (ADB) notes: Report include: localizedis the demand-supply raw water shortages, situation. flooding, The performance water Another major issue is the institutional fragmentation of Notes: pollution,indicator overexploitation for sufficiency of groundwater of supply particularlyversus demand in both the Theregulatory ADB cites bodies the and database agencies of the and World the water Resources 1. “AtBWSA: the barangay end ofwater 2011, and sanitation the Local association Water Utilities Administration (LWUA) reported that the 502 operational water 2. Est: estimated major cities,projects and overuse a deterioration of surface from water. 116 percent There is in 2011 to service providersInstitute which(WSPs). reports that the Philippines compares districts serviced about 3.5 million households. This is roughly 53 percent of urban households outside the 3. LGU: local government unit increasingonly pollution 92 percent of groundwater by the end andof the surface plan period.water in favorably with other Asian countries in terms of the 4. NCR,NCR: National or 19 Capital percent Region of total households nationally. Assuming 350 LGUs run water utilities with many localitiesImprovements while marginal in the demand-supplyagricultural activities ratio haveare The Worldannual Bank renewableobserved that, water “Water resources, Code with(1976) an has annual 5. approximatelyRWSA: rural waterworks 900 association service connections on average, these utilities supply Level III water to about five III connections, compared to about seven percent for resulted inprojected deforestation in Metro and Cebu, degradation Bulacan, of Cagayanwatersheds de Oro been weaklyper capitaenforced availability and the of National about 6,100 Water m3 Resources (cubic meter) percent of the country’s total number of households. Looking specifically at urban areas outside the NCR, The MWSS reports Level III service coverage of 88 percent LGU-run water utilities.” and upperand catchments, Davao, although resulting the in improvement major flooding in problems.Cebu is Board (NWRB)from groundwater has been unable and surfaceto mediate sources, conflicts which in is water districts (WDs) are estimated to account for about 80 percent of Level III connections, compared to for Metro Manila and 11 percent for total households in the There arefrom also 38few percent facilities to for 52 storagepercent infrastructure,only. The improving water demand,twice the and level provide of Asia sufficient and six planning times the and global about seven percent for LGU-run water utilities.” country. The Asian Development Bank (ADB) notes: This information indicates that 60 to 71 percent is a rough specificallyratios reservoirs are weighed and tanks, down which by the is significanta reflection drop of for coordinationscarcity of Water threshold Resource of 1,000 Management m3. (WRM). estimate for Level III water service coverage in all urban their highMetro cost. ManilaThe ADB from cites 122 the to database 113 percent. of the The World NEDA NWRB's original location under the Department of Public This information indicates that 60 to 71 percent is a rough estimate for Level III water service coverage in all urban “At the end of 2011, the Local Water Utilities areas in the country (broadly in line with the Joint Resourcesnotes Institute that bywhich 2017, reports there willthat be the a Philippineswater deficit in theWorks andThe Highways Philippine (DPWH) Development created Plan a conflict highlights of interest the areas in the country (broadly in line with the Joint Monitoring Programme’s (JMP) March 2012 estimate of 61 Administration (LWUA) reported that the 502 Monitoring Programme’s (JMP) March 2012 estimate of 61 comparesMetro favorably Manila with area. other While Asian overall countries supply in terms(including of forbetween issues its water behind resources the serious planning, deficit management in investment and levels percent in 2010). The estimated 50 to 65 percent Level III coverage in urban areas outside NCR is much lower than operational water districts serviced about 3.5 million percent in 2010). The estimated 50 to 65 percent Level III the annualirrigation) renewable is close water to resources, sufficiency with for thean annualcountry per as a regulationto roles, develop and water the development resources to function meet the of rising a public the 88 percent already achieved in Metro Manila. While coverage appears to be increasing, a report prepared for works =ministry. The original NWRB was governed by households. This is roughly 53 percent of urban coverage in urban areas outside NCR is much lower than capita availabilitywhole, there of about are seasonal6,100 m3 and (cubic geographic meter) from shortages. demand. A main hindrance is the low tariffs which the World Bank in November 2009,1 which evaluated the performance of water utilities outside Metro Manila, found households outside the NCR, or 19 percent of total the 88 percent already achieved in Metro Manila. While groundwaterThere and are surface major watersources, constraints which is intwice Metro the Manila level water-usersdo notsuch allow as LWUA, for cost National recovery. Irrigation Another factor is the that many of the performance targets for water service (including access to safe water, hours of service, households nationally. Assuming 350 LGUs run coverage appears to be increasing, a report prepared for the of Asia andand six Cebu times which the globalpose ascarcity serious threshold problem toof the1,000 Administrationabsence (NIA), of a Metropolitan coherent financing Waterworks framework and for compliance with national drinking water standards, and cost recovery) are not being met, particularly in the case of water utilities with approximately 900 service World Bank in November 2009, which evaluated the m3. further development of these major urban areas. (SeeSewerage investments System (MWSS), in water National infrastructure. Power Corporation There has also LGU-run utilities. connections on average, these utilities supply Level performance of water utilities outside Metro Manila, found Appendix G) (NPC) andbeen was a chaired bias for by Metro DPWH.” Manila and other urban areas, III water to about five percent of the country’s total that many of the performance targets for water service The Philippine Development Plan highlights the issued In 2002, the NWRB was transferred to the Office of the number of households. Looking specifically at urban (including access to safe water, hours of service, 1 The Water andareas Sanitation outside Program the (WSP) NCR, Field water Note (2009),districts “Prospects (WDs) and are Pitfalls in Integratedcompliance Water withServices national in the Philipines: drinking an analysiswater ofstandards, 35 Water and cost Districts”, WSPestimated Field Note Augustto account 2009. World for aboutBank. Available 80 percent at http://www.wsp.org. of Level recovery) are not being met, particularly in the case of

41 | 2Infrastructure | Infrastructure In-depth: Guide: Philippines Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

Other sector studies have found that water districts provide better water service, citing the corporatized nature of water districts and the beneﬁts of the LWUA credit and institutional development support. In the revalidated results matrix for the midterm review of the National Economic and Development Authority (NEDA) Philippine Development Plan, the government target is 100 percent Level III coverage by 2016.

Another dimension targeted in the government plan is the demand-supply situation. The performance indicator for sufficiency of supply versus demand projects a deterioration from 116 percent in 2011 to only 92 percent by the end of the plan period. Improvements in the demand-supply ratio are projected in the Metro Cebu, Bulacan, Cagayan de Oro and Davao, although the improvement in Cebu is from 38 Based on the National Statistics Office (NSO), the proportion of households in the Philippines in 2004 with access to waterBased was on the around National 80.2 Statistics percent. OfficeOf the (NSO), 80.2 percent the proportion with access of households to water from in the formal Philippines providers, in 2004 only with44 access to percentwater are was connected around 80.2 to Level percent. III waterworks Of the 80.2 systems percent withwith pipedaccess distribution to water from systems formal which providers, are subject only 44 to percent are nationalconnected quality to standards. Level III waterworks The rest of systems the population with piped get theirdistribution water from systems Level which II – communal are subject faucets to national or quality standpipes,standards. or TheLevel rest I – getprotected their water wells from without Level a IIdistribution – communal system faucets of the or standpipes,population. orThe Level local I government– protected wells without unitsa distribution (LGUs) and system. community-based The local government organizations units (CBOs) (LGUs) provide and community-basedwater service to 55 organizations percent of those (CBOs) with provide access water to water.service While to 55 thepercent Level of III those coverage with foraccess the country to water. as Whilea whole the is Level 42 to III 48 coverage percent, for there the arecountry wide asdisparities a whole is 42 to 48 betweenpercent, the there urban are areas wide outside disparities of the between National the Capital urban Region areas outside(NCR) and of the rural National areas. Capital Region (NCR) and rural areas.

Other sector studies have found that water districts The physical challenges of the Philippine water percent toprovide 52 percent better only. water The service, improving citing ratios the corporatizedare behind thesituation serious include: deficit inlocalized investment raw waterlevels shortages,to develop weighed naturedown byof thewater significant districts dropand thefor Metrobenefits Manila of the water resourcesflooding, to water meet pollution, the rising overexploitation demand. A main of from 122 LWUAto 113 creditpercent. and The institutional NEDA notes development that by 2017, support. hindrancegroundwater is the low tariffs particularly which doin major not allow cities, for and cost overuse there will be a water deficit in the Metro Manila area. While recovery.of Another surface factorwater. is There the absence is increasing of a coherent pollution of overall supplyIn the (including revalidated for results irrigation) matrix is close for the to sufficiencymidterm financinggroundwater framework for and investments surface water in water in many infrastructure. localities for the countryreview as of a the whole, National there Economic are seasonal and Developmentand There haswhile also marginalbeen a bias agricultural for Metro activities Manila andhave other resulted in geographicAuthority shortages. (NEDA) There Philippine are major Development water constraints Plan, thein urban areas,deforestation including spendingand degradation for water of supply,watersheds sewerage and Metro Manilagovernment and Cebu target which is 100pose percent a serious Level problem III coverage to and septageupper management. catchments, The resulting lack of in a majormonitoring flooding system the furtherby development 2016. of these major urban areas. makes it problems.difficult to assess There are and also address few facilities the sustainability for storage of developedinfrastructure, infrastructure. specifically reservoirs and tanks, which The MWSS reports Level III service coverage of 88 percent for Metro Manila and 11 percent for total households in The physicalAnother challenges dimension of the targeted Philippine in the water government situation plan is a reflection of their high cost. the country. The Asian Development Bank (ADB) notes: include: localizedis the demand-supply raw water shortages, situation. flooding, The performance water Another major issue is the institutional fragmentation of pollution,indicator overexploitation for sufficiency of groundwater of supply particularlyversus demand in both the Theregulatory ADB cites bodies the and database agencies of the and World the water Resources “At the end of 2011, the Local Water Utilities Administration (LWUA) reported that the 502 operational water major cities,projects and overuse a deterioration of surface from water. 116 percent There is in 2011 to service providersInstitute which(WSPs). reports that the Philippines compares districts serviced about 3.5 million households. This is roughly 53 percent of urban households outside the increasingonly pollution 92 percent of groundwater by the end andof the surface plan period.water in favorably with other Asian countries in terms of the NCR, or 19 percent of total households nationally. Assuming 350 LGUs run water utilities with many localitiesImprovements while marginal in the demand-supplyagricultural activities ratio haveare The Worldannual Bank renewableobserved that, water “Water resources, Code with(1976) an has annual approximately 900 service connections on average, these utilities supply Level III water to about five III connections, compared to about seven percent for resulted inprojected deforestation in Metro and Cebu, degradation Bulacan, of Cagayanwatersheds de Oro been weaklyper capitaenforced availability and the of National about 6,100 Water m3 Resources (cubic meter) percent of the country’s total number of households. Looking specifically at urban areas outside the NCR, The MWSS reports Level III service coverage of 88 percent LGU-run water utilities.” and upperand catchments, Davao, although resulting the in improvement major flooding in problems.Cebu is Board (NWRB)from groundwater has been unable and surfaceto mediate sources, conflicts which in is water districts (WDs) are estimated to account for about 80 percent of Level III connections, compared to for Metro Manila and 11 percent for total households in the There arefrom also 38few percent facilities to for 52 storagepercent infrastructure,only. The improving water demand,twice the and level provide of Asia sufficient and six planning times the and global about seven percent for LGU-run water utilities.” country. The Asian Development Bank (ADB) notes: This information indicates that 60 to 71 percent is a rough specificallyratios reservoirs are weighed and tanks, down which by the is significanta reflection drop of for coordinationscarcity of Water threshold Resource of 1,000 Management m3. 2 (WRM). estimate for Level III water service coverage in all urban their highMetro cost. Manila The ADB from cites 122 the to database 113 percent. of the The World NEDA NWRB's original location under the Department of Public This information indicates that 60 to 71 percent is a rough estimate for Level III water service coverage in all urban “At the end of 2011, the Local Water Utilities areas in the country (broadly in line with the Joint Resourcesnotes Institute that bywhich 2017, reports there willthat be the a Philippineswater deficit in theWorks and The Highways Philippine (DPWH) Development created Plan a conflict highlights of interest the areas in the country (broadly in line with the Joint Monitoring Programme’s (JMP) March 2012 estimate of 61 Administration (LWUA) reported that the 502 Monitoring Programme’s (JMP) March 2012 estimate of 61 comparesMetro favorably Manila with area. other While Asian overall countries supply in terms(including of forbetween issuesits water behind resources the serious planning, deficit management in investment and levels percent in 2010). The estimated 50 to 65 percent Level III coverage in urban areas outside NCR is much lower than operational water districts serviced about 3.5 million percent in 2010). The estimated 50 to 65 percent Level III the annualirrigation) renewable is close water to resources, sufficiency with for thean annualcountry per as a regulation to roles, develop and water the development resources to function meet the of rising a public the 88 percent already achieved in Metro Manila. While coverage appears to be increasing, a report prepared for households. This is roughly 53 percent of urban coverage in urban areas outside NCR is much lower than capita availabilitywhole, there of about are seasonal6,100 m3 and (cubic geographic meter) from shortages. works =ministry. demand. The A mainoriginal hindrance NWRB wasis the governed low tariffs by which the World Bank in November 2009, which evaluated the performance of water utilities outside Metro Manila, found households outside the NCR, or 19 percent of total the 88 percent already achieved in Metro Manila. While groundwaterThere and are surface major watersources, constraints which is intwice Metro the Manila level water-users do notsuch allow as LWUA, for cost National recovery. Irrigation Another factor is the that many of the performance targets for water service (including access to safe water, hours of service, 1 households nationally. Assuming 350 LGUs run coverage appears to be increasing, a report prepared for the of Asia andand six Cebu times which the globalpose ascarcity serious threshold problem toof the1,000 Administrationabsence (NIA), of a Metropolitan coherent financing Waterworks framework and for compliance with national drinking water standards, and cost recovery) are not being met, particularly in the case of water utilities with approximately 900 service World Bank in November 2009, which evaluated the m3. further development of these major urban areas. (SeeSewerage investments System (MWSS), in water National infrastructure. Power Corporation There has also LGU-run utilities. connections on average, these utilities supply Level performance of water utilities outside Metro Manila, found Appendix G) (NPC) andbeen was a chaired bias for by Metro DPWH.” Manila and other urban areas, III water to about five percent of the country’s total that many of the performance targets for water service The Philippine Development Plan highlights the issued number of households. Looking specifically at urban (including access to safe water, hours of service, In 2002, the NWRB was transferred to the Office of the areas outside the NCR, water districts (WDs) are compliance with national drinking water standards, and cost 2 ADB (2013), Philippines: Water Supply and Sanitation Sector Assessment, Strategy, and Road Map. January 2013., p. 2. estimated to account for about 80 percent of Level recovery) are not being met, particularly in the case of 1 NEDA Philippine Development Plan 2010-2016. Chapter 5: Accelerating infrastructure Development. p. 134.

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NationalDepartment Irrigation of AdministrationEnergy and Natural (NIA) Resources under (DENR) the Department of Watershed management Construction and management of irrigation systems Agriculture (DA) National Irrigation Administration (NIA) under Department of Construction and management of irrigation systems Local governmentAgriculture (DA) units (LGUs) With significant powers to invest and fund projects under the LGU code Local government units (LGUs) With significant powers to invest and fund projects under the LGU Irrigation Associations Operationscode and development of irrigation systems

Irrigation Associations Operations and development of irrigation systems Local Water Utilities Administration (LWUA) Finance and oversee autonomous Water Districts (WDs) operated water utilities; and (iii) a few private making, coordination, and resource regulation for sector operators that have been given a franchise the sector. It shall be provided with sufficient Local Water Utilities Administration (LWUA) ServesFinance and regulates and oversee Metro autonomous Manila Water water Districts supply (WDs) and sanitation Metropolitan Waterworks and Sewerage System (MWSS) or authority to operate within the geographical capacity and authority to implement key policies, services jurisdiction of an LGU or an industrial zone.” plans and projects in the water resources sector. Metropolitan Waterworks and Sewerage System (MWSS) Metro Manila serves and regulate Metro Manila water supply and Metro Manila concessionaires: Manila Water and Maynilad; Subic Private providers sanitation services In the meantime, NWRB should be Bay, LGU sponsored private firms, and housing subdivisions operatedAccording water to the utilities; LWUA, and as (iii) of thea few end private of 2011, sector 861 strengthened so it can continue its function as Private providers Metro Manila concessionaires: Manila Water and Maynilad; Subic Bay, Development Plan to prioritize the creation of a lead agency operatorswater districts that have had been been given established, a franchise of which or 502 the sector’s overall economic and resource Department of Public Works and Highways (DPWH) ConstructionLGU sponsored of flood private control firms, and housing subdivisions for the water sector and for capacity building among the authoritywere operational, to operate their within number the geographical of service regulator.” Department of Public Works and Highways (DPWH) Construction of flood control jurisdiction of an LGU or an industrial zone.” WSPs: Bureau of Fisheries and Aquatic Resources (BFAR) Inland fisheries connections ranging from 500 to 200,000 (with an average of 7,011 connections each). “Develop capacities of national government Bureau of Fisheries and Aquatic Resources (BFAR) Inland fisheries According to the LWUA, as of the end of 2011, 861 water “Work towardsagencies a (NGAs),lead agency LGUs, forand the WSPs water for thesector National Power Corporation (NPC) Hydropower development and operations districts had been“It established,is estimated ofthat which about 502 1,000 were LGU-run water A lead agencysustainable for the management entire water of sector infrastructure should and National Power Corporation (NPC) Hydropower development and operations operational, theirutilities number operate of service in urban connections and rural areas ranging ultimatelybetter be developed. service provision. The lead agency should be National Economic and Development Authority (NEDA) Highest policy-making body from 500 to 200,000throughout (with thean averagecountry. ofAccording 7,011 connections to the Project able to assumeThe capacities the functions of planning of policy and implementingmaking, institutions must be developed to improve the National Economic and Development Authority (NEDA) Highest policy-making body each). Management Unit of the Department of the coordination, and resource regulation for the sector. Source: NEDA 2010 The Philippine Water Supply Sector Roadmap 2nd Edition. p. 19-25 Interior and Local Government (DILG), there are It shall beperformance provided with of varioussufficient structural capacity and and nonstructural infrastructures for the water sector. including spending for water supply, sewerage and Natural Resources (DENR) as chair and NEDA as “It is estimatedabout 350 that LGU-operated about 1,000 LevelLGU-run III systems, water with authority to implement key policies, plans and NGAs and LGUs should enhance their capacities septageThe World management. Bank observed The lack that, of “Watera monitoring Code (1976) has co-chair.Outside Metro Manila, front line water services are utilities operatean average in urban of about and 900 rural connections areas throughout each. projects in the water resources sector. In the in effective water governance, sustainable use of been weakly enforced and the National Water Resources provided by LGUs. The LWUA Water District concept was the country.These According utilities are to thepart Project of the LGU Management concerned, meantime, NWRB should be strengthened so it can system makes it difficult to assess and address the water resources, and planning for climate 3 In termscreated of waterin 1973 service under providers,the Local Water there isUtilities a wide Act. LGUs with budgetary allotments coming directly from continue its function as the sector’s overall sustainabilityBoard (NWRB) of developed has been infrastructure.unable to mediate conflicts in Unit of the Department of the Interior and Local change adaptation (CCA), among others. LGUs water demand, and provide sufficient planning and varietywere of encouragedinstitutional toarrangements transfer their and water capabilities. supply systems to Governmentthe LGUs. (DILG), These there systems are about are 350 basically economic and resource regulator.” self-regulated by the LGU’s executive and and WSPs should be assisted in developing Thecoordination World Bank of observed Water Resource that, “Water Management Code (1976) (WRM). In thewater Metro districts, Manila which franchise are corporatized area, water servicesstand-alone entities LGU-operated Level III systems, with an average of relevant, practical, and up-to-date management hasNWRB's been weakly original enforced location and under the theNational Department Water of Public are supplyingprovided by water MWSS in a andfranchise two private area. As government-owned about 900legislative connections units. each. LGU-run These water utilities utilities are face part “Develop capacities of national government strong political pressure to keep water tariffs tools that support integrated water resources ResourcesWorks and Board Highways (NWRB) (DPWH) has been created unable a conflictto of interest concessionaires:specialized lender Manila to Waterwater districts,Company, LWUA Inc. has the dual role of the LGU concerned, with budgetary allotments agencies (NGAs), LGUs, and WSPs for the low, often below cost recovery levels, and the management and technologies. Service mediatebetween conflicts its water in water resources demand, planning, and provide management and (MWCI),of tariff serving regulator Manila’s and institutionaleast zone, and development Maynilad advisor. coming directly from the LGUs. These systems are sustainable management of infrastructure and absence of commercial practices such as providers should likewise be capacitated in plan regulation roles, and the development function of a public Water Services, Inc. (MWSI), serving Manila’s west basically self-regulated by the LGU’s executive and better service provision sufficient planning and coordination of Water ‘ring-fencing’ likely masks the indirect material development, budgeting and operations, among zone.As Outsidesummarized Metro by Manila, the ADB: front line water The capacities of planning and implementing Resourceworks =ministry. Management The (WRM).original NWRBNWRB's was original governed by legislativesubsidies units. LGU-run they receive water for utilities water supply.”face strong others, in order to improve coverage, efficiency locationwater-users under thesuch Department as LWUA, Nationalof Public Irrigation Works and services are provided by LGUs. The LWUA Water political pressure to keep water tariffs low, often institutionsand must sustainability be developed of infrastructure.” to improve the District concept“At present, was created the major in 1973 utilities under operating the Local Level III performance of various structural and nonstructural HighwaysAdministration (DPWH) (NIA), created Metropolitan a conflict ofWaterworks interest and belowThe institutional cost recovery fragmentation levels, and the of theabsence water of sector in Water Utilitiessystems Act. inLGUs urban were areas encouraged are (i) water to districts, which infrastructuresThese are basic for requirementsthe water sector. for theNGAs government and LGUs to betweenSewerage its water System resources (MWSS), planning, National management Power Corporation commercialterms of stakeholders practices such and as their ‘ring-fencing’ roles, and thelikely variety transfer theirare water local corporatesupply systems entities to formed water at the option of shouldbe able enhance to implement their capacities integrated in effectivewater resource water and(NPC) regulation and was roles, chaired and the by DPWH.”development function of masksof water the serviceindirect providersmaterial subsidieshas prompted they receivethe NEDA in districts, whichthe LGU; are corporatized (ii) LGU-owned stand-alone and operated entities water governance,management sustainable practices useand ofpursue water a resources, coherent and a public works ministry. The original NWRB was forthe water Philippine supply.” Development Plan to prioritize the supplying waterutilities; in aand franchise (iii) a few area. private As the sector operators that planninginvestment for climate and financing change programadaptation for (CCA), the sector. governedIn 2002, by the water-users NWRB was such transferred as LWUA, to National the Office of the creation of a lead agency for the water sector and for government-ownedhave been specialized given a franchise lender toor waterauthority to operate among others. LGUs and WSPs should be assisted IrrigationPresident Administration and reconstituted (NIA), Metropolitanto include agencies which are The institutionalcapacity fragmentation building among of thethe WSPs:water sector in terms Waterworksnot claimants and toSewerage water resources, System (MWSS), specifically National the districts, LWUAwithin has the the geographical dual role of jurisdiction tariff regulator of an LGU or an of stakeholders and their roles, and the variety of water in Opportunitiesdeveloping relevant, for the practical, private sectorand up-to-date and institutionalindustrial development zone.” advisor. management tools that support integrated water PowerDepartment Corporation of Environment (NPC) and was and chaired Natural by Resources the (DENR) service providers “Work has towardsprompted a leadthe NEDAagency in for the the Philippine water The privatization of the MWSS franchise area to two 4 DPWH.”as chair and NEDA as co-chair. sector. concessionaires, Manila Water and Maynilad, was the As summarizedAccording to by the the LWUA, ADB: at of the end of 2011, 861 water A lead agency for the entire water sector should largest water privatization in the world when this was In 2002,In terms the of NWRB water wasservice transferred providers, to therethe Office is a wide of variety districts“At present, had been the established, major utilities of operating which 502 Level were III ultimately be developed. The lead agency should executed in the 1990s. theof President institutional and arrangements reconstituted andto include capabilities. agencies In the Metro operational,systems intheir urban number areas ofare service (i) water connections districts, ranging be able to assume the functions of policy whichManila are franchisenot claimants area, to water water services resources, are provided by fromwhich 500 areto 200,000 local corporate (with an entities average formed of 7,011 at the connections specificallyMWSS and the two Department private concessionaires: of Environment Manilaand Water each).option of the LGU; (ii) LGU-owned and Company, Inc. (MWCI), which is the concessionaire serving Manila’s east zone, and Maynilad Water Services, Inc. 3 NEDA(MWSI), Philippine the Development concessionaire Plan 2010-2016. serving Chapter Manila’s 5: Accelerating west zone. infrastructure Development. p. 134. 4 World Bank (2003), Philippines: Country Water Resources Assistance Strategy 2003” East Asia Pacific Region p. 7 43 | 2Infrastructure | Infrastructure In-depth: Guide: Philippines Philippines

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Water Supply Providers Outside NCR Water SupplyUrban OutsideProviders NCR: Outside NCR Est. Est. Average Est. % of Level III Est. % of Urban Urban OutsideEst. NCR:Level III WSP WSP Est. NumberEst. of AverageConnections Est.per %Connections of Level III in UrbanEst. % of OutsideUrban NCR Est. Level IIICoverage Number ofWSPs Connections WSP Connections- outside in NCR Outside NCRPopulation Coverage Water DistrictsWSPs 502 per WSP7, 0 11 (1)Urban - outside NCR82 Population 53 50-65% Water DistrictsLGUs LGUs 502 (1) Est. % of Level III7 Est. % of Urban5 50-65% 350 7, 0 11 900 (2) Private operatorsPrivate operators 350 900 (2) Connections in 11 Outside NCR 7 Urban - outside NCR Population Source: Asian Development Bank report on Philippine Water Supply and Sanitation Sector Assessment, Strategy and Road Map January 2013; (1) Local Water Source: AsianUtilities Development Administration Bank as reportof 31 Decemberon Philippine 2011; Water (2) DepartmentSupply and Sanitation of Interior Sector and Local Assessment, Government Strategy estimate and Road Map January 2013; (1) Local Water Utilities AdministrationNotes: 1. Est: estimated,as of 31 December 2. LGU: 2011;local government(2) Department unit, of 3. Interior NCR: andNational Local Capital Government Region, estimate 4. WSP: water service provider Note: 1. Est: estimatedoperated water utilities; and (iii) a few private making, coordination, and resource regulation for 2. LGU: local sectorgovernment operators unit that have been given a franchise the sector. It shall be provided with sufficient 3. NCR: National Capital Region 4. WSP: wateror service authority provider to operate within the geographical capacity and authority to implement key policies, jurisdiction of an LGU or an industrial zone.” plans and projects in the water resources sector. In the meantime, NWRB should be operatedAccording water to the utilities; LWUA, and as (iii) of thea few end private of 2011, sector 861 strengthened so it can continue its function as Development Plan to prioritize the creation of a lead agency operatorswater districts that have had been been given established, a franchise of which or 502 the sector’s overall economic and resource for the water sector and for capacity building among the authoritywere operational, to operate their within number the geographical of service regulator.” WSPs: jurisdictionconnections of anranging LGU orfrom an 500industrial to 200,000 zone.” (with an average of 7,011 connections each). “Develop capacities of national government According to the LWUA, as of the end of 2011, 861 water “Work towardsagencies a (NGAs),lead agency LGUs, forand the WSPs water for thesector districts had been“It established,is estimated ofthat which about 502 1,000 were LGU-run water A lead agencysustainable for the management entire water of sector infrastructure should and operational, theirutilities number operate of service in urban connections and rural areas ranging ultimatelybetter be developed. service provision. The lead agency should be from 500 to 200,000throughout (with thean averagecountry. ofAccording 7,011 connections to the Project able to assumeThe capacities the functions of planning of policy and implementingmaking, each). Management Unit of the Department of the coordination,institutions and resource must be regulation developed for to theimprove sector. the Interior and Local Government (DILG), there are It shall beperformance provided with of varioussufficient structural capacity and and nonstructural infrastructures for the water sector. including spending for water supply, sewerage and Natural Resources (DENR) as chair and NEDA as “It is estimatedabout 350 that LGU-operated about 1,000 LevelLGU-run III systems, water with authority to implement key policies, plans and NGAs and LGUs should enhance their capacities septageThe World management. Bank observed The lack that, of “Watera monitoring Code (1976) has co-chair.Outside Metro Manila, front line water services are utilities operatean average in urban of about and 900 rural connections areas throughout each. projects in the water resources sector. In the in effective water governance, sustainable use of systembeen makesweakly it enforced difficult toand assess the National and address Water the Resources provided by LGUs. The LWUA Water District concept was the country.These According utilities are to thepart Project of the LGU Management concerned, meantime, NWRB should be strengthened so it can 2 water resources, and planning for climate In termscreated of waterin 1973 service under providers,the Local Water there isUtilities a wide Act. LGUs with budgetary allotments coming directly from continue its function as the sector’s overall sustainabilityBoard (NWRB) of developed has been infrastructure.unable to mediate conflicts in Unit of the Department of the Interior and Local change adaptation (CCA), among others. LGUs water demand, and provide sufficient planning and varietywere of encouragedinstitutional toarrangements transfer their and water capabilities. supply systems to Governmentthe LGUs. (DILG), These there systems are about are 350 basically economic and resource regulator.” self-regulated by the LGU’s executive and and WSPs should be assisted in developing Thecoordination World Bank of observed Water Resource that, “Water Management Code (1976) (WRM). In thewater Metro districts, Manila which franchise are corporatized area, water servicesstand-alone entities LGU-operated Level III systems, with an average of relevant, practical, and up-to-date management hasNWRB's been weakly original enforced location and under the theNational Department Water of Public are supplyingprovided by water MWSS in a andfranchise two private area. As government-owned about 900legislative connections units. each. LGU-run These water utilities utilities are face part “Develop capacities of national government strong political pressure to keep water tariffs tools that support integrated water resources ResourcesWorks and Board Highways (NWRB) (DPWH) has been created unable a conflictto of interest concessionaires:specialized lender Manila to Waterwater districts,Company, LWUA Inc. has the dual role of the LGU concerned, with budgetary allotments agencies (NGAs), LGUs, and WSPs for the low, often below cost recovery levels, and the management and technologies. Service mediatebetween conflicts its water in water resources demand, planning, and provide management and (MWCI),of tariff serving regulator Manila’s and institutionaleast zone, and development Maynilad advisor. coming directly from the LGUs. These systems are sustainable management of infrastructure and absence of commercial practices such as providers should likewise be capacitated in plan regulation roles, and the development function of a public Water Services, Inc. (MWSI), serving Manila’s west basically self-regulated by the LGU’s executive and better service provision sufficient planning and coordination of Water ‘ring-fencing’5 likely masks the indirect material development, budgeting and operations, among zone.As Outsidesummarized Metro by Manila, the ADB: front line water The capacities of planning and implementing Resourceworks =ministry. Management The (WRM).original NWRBNWRB's was original governed by legislativesubsidies units. LGU-run they receive water for utilities water supply.”face strong6 others, in order to improve coverage, efficiency locationwater-users under thesuch Department as LWUA, Nationalof Public Irrigation Works and services are provided by LGUs. The LWUA Water political pressure to keep water tariffs low, often institutionsand must sustainability be developed of infrastructure.” to improve 7the District concept“At present, was created the major in 1973 utilities under operating the Local Level III performance of various structural and nonstructural HighwaysAdministration (DPWH) (NIA), created Metropolitan a conflict ofWaterworks interest and belowThe institutional cost recovery fragmentation levels, and the of theabsence water of sector in Water Utilitiessystems Act. inLGUs urban were areas encouraged are (i) water to districts, which infrastructuresThese are basic for requirementsthe water sector. for theNGAs government and LGUs to betweenSewerage its water System resources (MWSS), planning, National management Power Corporation commercialterms of stakeholders practices such and as their ‘ring-fencing’ roles, and the likely variety transfer theirare water local corporatesupply systems entities to formed water at the option of shouldbe able enhance to implement their capacities integrated in effectivewater resource water and(NPC) regulation and was roles, chaired and the by DPWH.”development function of masksof water the serviceindirect providersmaterial subsidieshas prompted they receivethe NEDA in districts, whichthe LGU; are corporatized (ii) LGU-owned stand-alone and operated entities water governance,management sustainable practices useand ofpursue water a resources, coherent and a public works ministry. The original NWRB was forthe water Philippine supply.” Development Plan to prioritize the supplying waterutilities; in aand franchise (iii) a few area. private As the sector operators that planninginvestment for climate and financing change programadaptation for (CCA), the sector. governedIn 2002, by the water-users NWRB was such transferred as LWUA, to National the Office of the creation of a lead agency for the water sector and for government-ownedhave been specialized given a franchise lender toor waterauthority to operate among others. LGUs and WSPs should be assisted IrrigationPresident Administration and reconstituted (NIA), Metropolitanto include agencies which are The institutionalcapacity fragmentation building among of thethe WSPs:water sector in terms Waterworksnot claimants and toSewerage water resources, System (MWSS), specifically National the districts, LWUAwithin has the the geographical dual role of jurisdiction tariff regulator of an LGU or an of stakeholders and their roles, and the variety of water in Opportunitiesdeveloping relevant, for the practical, private sectorand up-to-date and institutionalindustrial development zone.” advisor. management tools that support integrated water PowerDepartment Corporation of Environment (NPC) and was and chaired Natural by Resources the (DENR) service providers “Work has towardsprompted a leadthe NEDAagency in for the the Philippine water The privatization of the MWSS franchise area to two DPWH.”as chair and NEDA as co-chair. sector. concessionaires, Manila Water and Maynilad, was the As summarizedAccording to by the the LWUA, ADB: at of the end of 2011, 861 water A lead agency for the entire water sector should largest water privatization in the world when this was In 2002,In terms the of NWRB water wasservice transferred providers, to therethe Office is a wide of variety districts“At present, had been the established, major utilities of operating which 502 Level were III ultimately be developed. The lead agency should executed in the 1990s. theof President institutional and arrangements reconstituted andto include capabilities. agencies In the Metro operational,systems intheir urban number areas ofare service (i) water connections districts, ranging be able to assume the functions of policy whichManila are franchisenot claimants area, to water water services resources, are provided by fromwhich 500 areto 200,000 local corporate (with an entities average formed of 7,011 at the connections 5 specificallyMWSS and the two Department private concessionaires: of Environment Manilaand Water each).option of the LGU; (ii) LGU-owned and Ring-fencing of regulatory accounts is needed when a regulated public utility (e.g., water supply) financially separates itself from a parent entity that Company, Inc. (MWCI), which is the concessionaire serving engages in non-regulated business. This is done mainly to protect consumers of essential services such as power, water, and basic telecommunications Manila’s east zone, and Maynilad Water Services, Inc. from financial instability or bankruptcy on the part of the parent corporation that might result from losses in the parent’s open-market activities. 2Ring-fencing ofRing-fencing regulatory accounts also keeps is neededcustomer when information a regulated within public the utilitypublic (e.g.,utility water business supply) private financially from the separates parent corporation’s itself from a otherparent business, entity that Source: ADB, op. (MWSI), the concessionaire serving Manila’s west zone. engages in non-regulatedcit. p. 22. business. This is done mainly to protect consumers of essential services such as power, water, and basic telecommunications from financial6 instabilityPhilippine or Development bankruptcy on Plan the 2011-2016 part of the (PDP), parent p. corporation 135. that might result from losses in the parent’s open-market activities. 7 Ring-fencing alsoPDP, keeps p. 136. customer information within the public utility business private from the parent corporation’s other business, Source: ADB, op. cit. p. 22. InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 44

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. SinceOpportunities then, there forhave the been private increasing sector private sector mustbecause be developed of climate in a changetimely manner would tofurther ensure exacerbate issuance of the notice to proceed and the Resolving the issues of water supply has significant participationThe privatization and investment of the MWSS in urban franchise water areasystems to two domesticthe demand water supply.for water. This Thus, may adoptnew water sources signing of the contract is set for the first short term and long term implications for country’s in Metroconcessionaires, Manila as privateManila companiesWater and Maynilad,were awarded was the ecoefficientmust be 8 developed measures, in including a timely the manner reuse toof ensure quarter of 2015.” economic development and sustainability. A major congressionallargest water franchises privatization or were in the granted world when this was excessivedomestic rainwater water supply.and recycled This maywastewater adopt ecoefficient for of the notice to proceed and the signing of the contract task involves the rationalization of the institutional concessions by LGUs or special economic zones. non-householdmeasures,3 includingpurposes theto rationalize reuse of excessivewater is set for the2. The first Bulacanquarter ofBulk 2015.” Water Supply Project and regulatory framework for the water sector, given executed in the 1990s. 9 Private developers have also built water systems in distribution.”rainwater and recycled wastewater for (BBWSP) costing US$542.22 million the interests of different social sectors, and the Source: MWSS presentation on New Centennial Water Source – Kaliwa Dam multiple economic uses of water. The parallel major privateSince subdivisions. then, there have Medium been to increasing large-scale private private sector non-household purposes to rationalize water Project (NCWSP) - June“The 2014 PhP 24.4 billion peso Bulacan Bulk Water WSPsparticipation include Boracay and investment Island Water, in urban Laguna water Water, systems in Two large distribution.”new water sources projects have been System project will provide universal access to task is the development of physical infrastructure in launched under the PPP mode: ClarkMetro Water Manila at the as Clark private Freeport companies Economic were Zone,awarded congres- 2. The Bulacanpotable Bulk waterWater specifically Supply Project for the (BBWSP) Bulacan terms of new raw water sources and production and Subicsional Water franchises and Sewerage or were Company,granted concessions Inc., Balibago by LGUs or Two large new water sources projects have been launched costing US$542.22Province, increasing million (PhP23.7 the volume billion). of potable distribution water in which includes specific projects Waterworksspecial economic System, zones. Mactan Private Rock Industries,developers have also built under1. Newthe PPP Centennial mode: Water Source – Kaliwa Dam water supplied, the service coverage and the initially identified opportunities for private investors Project (NCWSP) costing US$416.1 million “The PhP 24.4 billion peso Bulacan Bulk Water PrimeWaterwater systems Infrastructure in private Corporation, subdivisions. and Medium Calapan to large- number of households served. The project will such as the Kaliwa dam and the Bulacan Bulk Water “The new dam will help gain water security for System project will provide universal access to Waterworks.scale private WSPs include Boracay Island Water, Laguna 1. New Centennial Water Source – Kaliwa Dam Project be undertaken using the projects, and other projects down the road. Metro Manila and its adjoining areas by potable water specifically for the Bulacan Province, Water, Clark Water at the Clark Freeport Economic Zone, (NCWSP) costing US$416.1 million (PhP18.2 billion) Build-Operate-Transfer (BOT) law under a increasing the supply of raw water and reducing increasing the volume of potable water supplied, the The Subic next Waterbig ticket and items Sewerage for the Company, private sector, Inc., Balibago Metro“The Manila’s new dam dependence will help ongain the water Angat security for service coverage30-year contract.and the number It will cover of households the financing, however, Waterworks will be System, in the development Mactan Rock of Industries, new raw PrimeWater Reservoir.Metro ManilaThe private and proponentsits adjoining will areas construct by increasing served. Theconstruction, project will operation be undertaken and maintenance using the of water Infrastructure sources which Corporation, is also a priorityand Calapan in the Waterworks. Philippine thethe 600 supply million of liters raw a water day (MLD) and reducingdam as well Metro as Manila’s Build-Operate-Transferthe needed facilities (BOT) lawfor treatedunder a bulk30-year water Development Plan: thedependence 2,400 MLD water on the conveyance Angat Reservoir. tunnel, The private contract. supply.It will cover Bidding the forfinancing, the Bulacan construction, Bulk Water The next big ticket items for the private sector, however, accessproponents roads, bridges will construct and drainage the 600 to be million used litersin a day operationproject and maintenance will be conducted of the neededusing a facilitiesperformance will be“Develop in the development sustainable new of newwater raw sources water to sources which building(MLD) the dam dam. as However, well as the the 2,400 project MLD does water not for treatedor bulkoutput-based water supply. specification Bidding for approach the and is alsomeet a priority demand in the Philippine Development Plan: includeconveyance the construction tunnel, accessof the water roads, treatment bridges and Bulacan Bulkbulk Waterwater projectcharge aswill its be bidding conducted parameter. using A comprehensive approach, adhering to the plantdrainage and its tooperation be used and in maintenance.building the dam. The However, a performanceThe MWSS or output-based hopes to publish specification its Invitation to Integrated Water Resources Management “Develop sustainable new water sources to meet Newthe Centennial project does Water not project include will the be construction of the approach Pre-Qualifyand bulk water and Bidcharge within as itsJune bidding 2014.” (IWRM) framework for projecting the demand undertakenwater treatment through theplant BOT and law’s its operationBuild-Transfer and parameter. The MWSS hopes to publish its Invitation demand-supply gaps across the country and for A comprehensive approach, adhering to the variant.maintenance. The private The sector New partner Centennial will recover Water its project will toThe Pre-Qualify government and Bidwill withinalso tender, June 2014.”under the PPP planningIntegrated the development Water Resources of new Management water sources (IWRM) investmentsbe undertaken from thethrough amortization the BOT payments law’s Build-Transfer mode, the transmission improvement project for the should be developed not only to support the framework for projecting the demand-supply gaps duringvariant. the 25The years private contractual sector partner agreement. will recover its Source: MWSSAngat presentation Dam worth on Bulacan US$131.35 Bulk Water Supplymillion. Project (BBWSP) - growing population, but also economic activity in across the country and for planning the development MWSSinvestments plans to publishfrom the the amortization Invitation to payments during June 2014 growth centers – based on a viable national of new water sources should be developed not only Pre-qualifythe 25 yearsand Bid contractual within June agreement. 2014, while MWSS bid plans to land-use plan. Extended dry seasons because of submissions are expected in December 2014. to support the growing population, but also publish the Invitation to Pre-qualify and Bid within The government will also tender, under the PPP mode, the climate change would further exacerbate the The indicative timelines for the issuance transmission improvement project for the Angat Dam worth demandeconomic for water. activity Thus, in growthnew water centers sources – based on a June 2014, while bid submissions are expected in viable national land-use plan. Extended dry seasons December 2014. The indicative timelines for the US$134 million or PhP5.8 billion.

8 Ecoeffciency is having “more value with less impact on the environment”; it emphasizes monitoring of material and energy flows of stocks and life cycle assessment. Source: NEDA op. cit. p. 139 9 PDP, p. 139. 3 International Energy Agency, Power Generation Investment in Electricity Markets

45 | 2Infrastructure | Infrastructure In-depth: Guide: Philippines Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. SinceOpportunities then, there forhave the been private increasing sector private sector mustbecause be developed of climate in a changetimely manner would tofurther ensure exacerbate issuance of the notice to proceed and the Resolving the issues of water supply has significant participationThe privatization and investment of the MWSS in urban franchise water areasystems to two domesticthe demand water supply.for water. This Thus, may adoptnew water sources signing of the contract is set for the first shortFor term further and long information, term implications please for contact: country’s in Metroconcessionaires, Manila as privateManila companiesWater and Maynilad,were awarded was the ecoefficientmust be developed measures, in including a timely the manner reuse toof ensure quarter of 2015.”10 economic development and sustainability. A major congressionallargest water franchises privatization or were in the granted world when this was excessivedomestic rainwater water supply.and recycled This maywastewater adopt ecoefficient for of the notice to proceed and the signing of the contract task involves the rationalization of the institutional concessionsexecuted in by the LGUs 1990s. or special economic zones. non-householdmeasures, includingpurposes theto rationalize reuse of excessivewater is set for the2. The first Bulacanquarter ofBulk 2015.” Water Supply Project and regulatoryRoberto frameworkG. Manabat for the water sector, given Private developers have also built water systems in distribution.”rainwater and recycled wastewater for (BBWSP) costing US$542.22 million the interestsChairman of different & CEO social sectors, and the Source: MWSS presentation on New Centennial Water Source – Kaliwa Dam multiple economic uses of water. The parallel major privateSince subdivisions. then, there have Medium been to increasing large-scale private private sector non-household purposes to rationalize water Project (NCWSP) - June“The 2014 PhP 24.4 billion peso Bulacan Bulk Water KPMG in the Philippines WSPsparticipation include Boracay and investment Island Water, in urban Laguna water Water, systems in Two large distribution.”new water sources projects have been System project will provide universal access to task isT: the+63 development 2 885 7000 of physical infrastructure in launched under the PPP mode: ClarkMetro Water Manila at the as Clark private Freeport companies Economic were Zone,awarded congres- 2. The Bulacanpotable Bulk waterWater specifically Supply Project for the (BBWSP) Bulacan termsE: of [email protected] new raw water sources and production and Subicsional Water franchises and Sewerage or were Company,granted concessions Inc., Balibago by LGUs or Two large new water sources projects have been launched costing US$542.22Province, increasing million (PhP23.7 the volume billion). of potable distribution water in which includes specific projects Waterworksspecial economic System, zones. Mactan Private Rock Industries,developers have also built under1. Newthe PPP Centennial mode: Water Source – Kaliwa Dam water supplied, the service coverage and the initially identified opportunities for private investors Project (NCWSP) costing US$416.1 million “The PhP 24.4 billion peso Bulacan Bulk Water PrimeWaterwater systems Infrastructure in private Corporation, subdivisions. and Medium Calapan to large- number of households served. The project will such as the Kaliwa dam and the Bulacan Bulk Water “The new dam will help gain water security for System project will provide universal access to Waterworks.scale private WSPs include Boracay Island Water, Laguna 1. New Centennial Water Source – Kaliwa Dam Project be undertaken using the projects, and other projects down the road. Metro Manila and its adjoining areas by potable water specifically for the Bulacan Province, Water, Clark Water at the Clark Freeport Economic Zone, (NCWSP) costing US$416.1 million (PhP18.2 billion) Build-Operate-Transfer (BOT) law under a increasing the supply of raw water and reducing increasing the volume of potable water supplied, the The Subic next Waterbig ticket and items Sewerage for the Company, private sector, Inc., Balibago Metro“The Manila’s new dam dependence will help ongain the water Angat security for service coverage30-year contract.and the number It will cover of households the financing, however, Waterworks will be System, in the development Mactan Rock of Industries, new raw PrimeWater Reservoir.Metro ManilaThe private and proponentsits adjoining will areas construct by increasing served. Theconstruction, project will operation be undertaken and maintenance using the of water Infrastructure sources which Corporation, is also a priorityand Calapan in the Waterworks. Philippine thethe 600 supply million of liters raw a water day (MLD) and reducingdam as well Metro as Manila’s Build-Operate-Transferthe needed facilities (BOT) lawfor treatedunder a bulk30-year water Development Plan: thedependence 2,400 MLD water on the conveyance Angat Reservoir. tunnel, The private contract. supply.It will cover Bidding the forfinancing, the Bulacan construction, Bulk Water The next big ticket items for the private sector, however, accessproponents roads, bridges will construct and drainage the 600 to be million used litersin a day operationproject and maintenance will be conducted of the neededusing a facilitiesperformance will be“Develop in the development sustainable new of newwater raw sources water to sources which building(MLD) the dam dam. as However, well as the the 2,400 project MLD does water not for treatedor bulkoutput-based water supply. specification Bidding for approach the and is alsomeet a priority demand in the Philippine Development Plan: includeconveyance the construction tunnel, accessof the water roads, treatment bridges and Bulacan Bulkbulk Waterwater projectcharge aswill its be bidding conducted parameter. using A comprehensive approach, adhering to the plantdrainage and its tooperation be used and in maintenance.building the dam. The However, a performanceThe MWSS or output-based hopes to publish specification its Invitation to Integrated Water Resources Management 11 “Develop sustainable new water sources to meet Newthe Centennial project does Water not project include will the be construction of the approach Pre-Qualifyand bulk water and Bidcharge within as itsJune bidding 2014.” (IWRM) framework for projecting the demand undertakenwater treatment through theplant BOT and law’s its operationBuild-Transfer and parameter. The MWSS hopes to publish its Invitation demand-supply gaps across the country and for A comprehensive approach, adhering to the variant.maintenance. The private The sector New partner Centennial will recover Water its project will toThe Pre-Qualify government and Bidwill withinalso tender, June 2014.”under the PPP For further information, please contact: planningIntegrated the development Water Resources of new Management water sources (IWRM) investmentsbe undertaken from thethrough amortization the BOT payments law’s Build-Transfer mode, the transmission improvement project for the should be developed not only to support the framework for projecting the demand-supply gaps duringvariant. the 25The years private contractual sector partner agreement. will recover its Source: MWSSAngat presentation Dam worth on Bulacan US$131.35 Bulk Water Supplymillion. Project (BBWSP) - growing population, but also economic activity in Jerome Andrew H. Garcia across the country and for planning the development MWSSinvestments plans to publishfrom the the amortization Invitation to payments during June 2014 growth centers – based on a viable national of new water sources should be developed not only Pre-qualifythe 25 yearsand Bid contractual within June agreement. 2014, while MWSS bid plans to Advisory Principal land-use plan. Extended dry seasons because of submissions are expected in December 2014. to support the growing population, but also publish the Invitation to Pre-qualify and Bid within The government will also tender, under the PPP mode, the KPMG in the Philippines climate change would further exacerbate the The indicative timelines for the issuance transmission improvement project for the Angat Dam worth demandeconomic for water. activity Thus, in growthnew water centers sources – based on a June 2014, while bid submissions are expected in T: +63 2 885 7000 ext. 208 viable national land-use plan. Extended dry seasons December 2014. The indicative timelines for the US$134 million or PhP5.8 billion. E: [email protected]

10 MWSS, Presentation on New Centennial Water Source – Kaliwa Dam Project (NCWSP) - June 2014 11 MWSS, Presentation on Bulacan Bulk Water Supply Project (BBWSP) - June 2014

InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 46 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Issues in Devdevelopingeloping EnerEnergygy Resour resources Cristina Roxas, Advisory Partner, KPMG in the Philippines Henry D. Antonio, Head of Advisory, KPMG in the Philippines worth noting that increasing private sector participation in PowPower ergeneration generation is oneis one sector sector where where in vinestments vestments are are cr uciallycrucially dependent dependent on on the the priv privateate sector sector. . Under The government has also set the target of increasing the powerElectric sector Light and moreand Railroad market-based Company regulatory (MERALCO) Underthe curtherent cur rent regulator regulatory framewy framework, additionalork, additional generation generation capacit capacity, particularlyy, particularly for baseload for baseload plants, can only the country’s energy self-sufficiency (ratio of regimes washas beenawarded the globalthe franchise trend during to sell the electricity same period to plants,be undertaken can only be by undertaken private investors. by private New investors. power plants New havepower to plants be built have as merchantto be built power as plants, with indigenous energy sources such as geothermal both in industrialManila and as well52 municipalities as emerging aroundcountries. the Thecity. power http://plans.neda.gov.ph/pdp/chapter-10-accelerating-infrastructenergy and natural gas from Malampaya) from 58.3 sector in many countries are more or less in the same merchantno government power plants, guarantees with no on government market demand guarantees risk and on no market guaranteed demand offtaker. risk and no guaranteed ure-development/ percent in 2010 to 60 percent by 2016. situation Theas in National the Philippines Power Corporation with new capacity (NPC), createdto be in the offtaker. mandated1930s as merchant through powerCommonwealth plants assume Act 120, market was These targets are to be met through new power projects Today Today, the, the tight tight demand-supply demand-supply balance balance is beingis being felt felt in the 2016, Target and thecapacity decline of incommitted Mindanao and from indicate 107.7 percentprivate The liberalized and market-based power industry put demand originallyrisk. intended to develop the country’s totalling 10,469MW in Luzon, of which 767.4MW are in theVisayas Visayas and andMindanao Mindanao regions, regions, and andepisodically in Luzon. in 2010sector-initiated to 100 percent power by plant2016. projects, Only the 2013-2016 Visayas will in place by the Electric Power Industry Reform Act hydroelectric resources. committed. The remaining 9,702MW of indicative power episodicallyGiven the inlead Luzon. time Givenfor construction the lead time before for plants can be show a slight increase in the ratio from 103 percent (EPIRA) relies on the private sector to construct In fact, the earlier phases of electric power industry in the plants are expected to come mostly from brownfield constructioncommissioned, before the plants immediate can be periodcommissioned, and the next the two to to 105 percentParticulars for the same period. Nevertheless, Grid generation plants to meet demand. Private sector country have beenIn 1939, managed NPC constructedby private enterprise. its first project, the Luzon Visayas Mindanao expansions of existing plants. In the Visayas, total capacity immediatethree years period will andbe a the test next of whether two to three the current years power the government expects to meet the target of 100 investments in power generation, however, have 8MW Caliraya Storage Hydro Power Station in through 2016 is projected to reach 1,147MW, of which willindustry be a test framework of whether can the engender current powera sufficient industry response percent in all the regions by 2016. (See Appendix H) been lower than expected vis-à-vis projected energy ElectricityLumban, was first Laguna. introduced NPC continuedin the Philippines to build otherin Capacity of committed power 767.4 429.6 515.0 429.6MW are committed. In Mindanao, total capacity is frameworkfrom private can investorsengender so a sufficientthat adequate response new fromcapacity can demand. 1890 withhydropower the installation facilities, of three and by electric 1956, NPCarc lamps plant projects (2013-2016, in MW projected at 2,443MW with 515MW committed. privatebe installed investors in aso timely that adequate manner to new meet capacity the projected can Target capacity of committed and indicate private in Escolta,generation Manila, and accounted the first for power about stationone-third built of thein Capacity of indicative 9,702.5 718.0 1,928.0 bedemand. installed in a timely manner to meet the projected sector-initiated power plant projects, 2013-2016 The current regulatory configuration of the power 1895. In country's1901, Manila total Electricgeneration Light capacity. and Railroad The power plant projects (2013-2016, in MW The government has also set the target of increasing the demand. sector stems from the outcome of the Investment Companyremaining (Meralco) two-thirds took over was the infranchise the hands for of 336 RatioParticulars of dependable capacity 107.86% 105.32%Grid 100.0% country’s energy self-sufficiency (ratio of indigenous energy private and municipally-owned electric utilities, Peak demand according to the Philippine Development Plan Luzon Visayas Mindanao Priority Plan (IPP) program used by the country to providing electricity to Manila and 57 municipalities to peak demand and required reserve (2016) sources such as geothermal energy and natural gas from of which Meralco was the largest, accounting for Peakis expected demand accordingto increase to at the 4.5 Philippine percent annually from 2009 Capacity of committed power resolve the power crisis in the early 1990s and the around the city. Private electric utilities were also 767.4 429.6 515.0 Malampaya) from 58.3 percent in 2010 to 60 percent by 990MW of 1,745.5MW total demand. Most of Developmentto 2030. For Plan the is period expected 2010 to to increase 2016, this at translates4.5 to a plant projects (2013-2016), in MW consequences of the program in the aftermath of the established during this period in other major cities Source: Philippine Development Plan 2011-2016 2016. this private generating capacity was thermal total of 11,900MW capacity required for the Luzon grid; Capacity of indicative power plant Asian Financial Crisis. It is worth noting that and towns throughout the country. percent annually from 2009 to 2030. For the period http://plans.neda.gov.ph/pdp/chapter-10-accelerating-infrastructure-development9,702.5 718.0 1,928.0/ plant. NPC acquired Meralco's generation and 20102,150MW to 2016, for this the translates Visayas grid;to a totaland 2,500MW of 11,900MW for the projects (2013-2016), in MW increasing private sector participation in the power The liberalized and market-based power industry put in distribution systems outside Manila in 1953 capacityMindanao required grid. forThe the revalidated Luzon grid; results 2,150MW matrix for in the Ratio of dependable capacity to peak sector and more market-based regulatory regimes The National Power Corporation (NPC), created in the 1930s These targets are to be met107.86% through new 105.32% power 100.00% projects place by the Electric Power Industry Reform Act (EPIRA) when Meralco decided to concentrate its themidterm Visayas updategrid; and of 2,500MW the plan calls for thefor powerMindanao demand up todemand and required reserve (2016) has been the global trend during the same period through Commonwealth Act 120, was originally intended to totalling 10,469MW in Luzon, of which 767.4MW are relies on the private sector to construct generation plants to electricity business in the Manila area. grid.2016 The to revalidated be met – definedresults matrixas maintaining in the midterm above 100 percentSource: Philippine Development Plan 2011-2016 both in industrial as well as emerging countries. develop the country’s hydroelectric resources. committed. The remaining 9,702MW of indicative power meet demand. Private sector investments in power updatethe ratio of the of dependableplan calls for capacity power demand to total peakup to demand plushttp://plans.neda.gov.ph/pdp/chapter-10-accelerating-infrastructure-development/ Many countries are more or less in the same plants are expected to come mostly from brownfield generation, however, have been lower than expected Outside Manila, the electricity services were 2016required to be metreserves. – defined For asthe maintaining country as aabove whole, 100 the ratio is situation as the Philippines with new capacity to be In 1939, NPC constructed its first project, the 8MW expansions of existing plants. In the Visayas, total capacity vis-à-vis projected energy demand. provided by private companies or rural cooperatives, percentprojected the ratioto go of down dependable from 108.14 capacity percent to total as of the 2010 Thesethrough targets 2016 are is to projected be met through to reach new 1,147MW, power of which mandated as merchant power plants assume market Calirayaeither buyingStorage power Hydro from Power private Station generators in Lumban, or from peakbaseline demand to 104.39plus required percent reserves. by 2016. The For thedecrease in the demand risk. Laguna. NPC continued to build other hydropower projects429.6MW totalling are 10,469MW committed. in InLuzon, Mindanao, of which total capacity is The current regulatory configuration of the power sector NPC. Fast forward to 1972 when under martial law, countryratio is as weighed a whole, down the ratio by the is projecteddecline in to Luzon go down from the facilities, and by 1956, NPC generation accounted 767.4MWprojected are atcommitted. 2,443MW Thewith remaining 515MW committed.9,702MW of stems from the outcome of the Investment Priority Plan the government nationalized the generation and from113.4 108.14 percent percent baseline as of in the 2010 2010 to baseline107.86 percent to by 2016, In fact, the earlier phases of the electric power for about one-third of the country's total generation indicative power plants are expected to come mostly (IPP) program used by the country to resolve the power transmission phases and regulated the 104.39and the percent decline by in2016. Mindanao The decrease from 107.7 in the percent ratio is in 2010 to industry in the country have been managed by the capacity. The remaining two-thirds was in the hands fromThe brownfield government expansions has also of set existing the target plants. of increasing In the the crisis in the early 1990s and the consequences of the privately-owned distribution sector. weighed100 vby down 2016. by Only the declinethe Visayas in Luzon will showfrom thea slight increase private enterprise. When, starting in 1901, Manila of 336 private and municipally-owned electric Visayas,country’s total energycapacity self-sufficiency through 2016 is(ratio projected of indigenous to energy program in the aftermath of the Asian Financial Crisis. It is 113.4in the percent ratio frombaseline 103 inpercent 2010 to to 107.86 105 percent percent for by the same reachsources 1,147MW, such ofas which geothermal 429.6MW energy are and committed. natural gas from utilities, of which Meralco was the largest, period. Neverthless, the government expects to meet the Malampaya) from 58.3 percent in 2010 to 60 percent by target of 100 percent in all the regions by 2016. For a more in-depth look on the Philippine electric energy industry, you can refer2016. to R.G. Manabat & Co.s’ 2013-2014 annual investment guide entitled The Energy Report: Growth and Opportunities in the Philippine Electric Power Sector available for download at www.kpmg.com.ph.

47 | 2Infrastructure | Infrastructure In-depth: Guide: Philippines Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. worth noting that increasing private sector participation in The government has also set the target of increasing the powerElectric sector Light and moreand Railroad market-based Company regulatory (MERALCO) the country’s energy self-sufficiency (ratio of regimes washas beenawarded the globalthe franchise trend during to sell the electricity same period to indigenous energy sources such as geothermal both in industrialManila and as well52 municipalities as emerging aroundcountries. the Thecity. power 1 http://plans.neda.gov.ph/pdp/chapter-10-accelerating-infrastructenergy and natural gas from Malampaya) from 58.3 sector in many countries are more or less in the same ure-development/ percent in 2010 to 60 percent by 2016. situation Theas in National the Philippines Power Corporation with new capacity (NPC), createdto be in the mandated1930s as merchant through powerCommonwealth plants assume Act 120, market was These targets are to be met through new power projects Today,Today, the the tight tight demand-supply demand-supply balance balance is beingis being felt felt in the 2016, Target and thecapacity decline of incommitted Mindanao and from indicate 107.7 percentprivate The liberalized and market-based power industry put demand originallyrisk. intended to develop the country’s totalling 10,469MW in Luzon, of which 767.4MW are in theVisayas Visayas and andMindanao Mindanao regions, regions, and andepisodically in Luzon. in 2010sector-initiated to 100 percent power by plant2016. projects, Only the 2013-2016 Visayas will in place by the Electric Power Industry Reform Act hydroelectric resources. committed. The remaining 9,702MW of indicative power episodicallyGiven the inlead Luzon. time Givenfor construction the lead time before for plants can be show a slight increase in the ratio from 103 percent (EPIRA) relies on the private sector to construct In fact, the earlier phases of electric power industry in the plants are expected to come mostly from brownfield constructioncommissioned, before the plants immediate can be periodcommissioned, and the next the two to to 105 percent for the same period. Nevertheless, generation plants to meet demand. Private sector country have beenIn 1939, managed NPC constructedby private enterprise. its first project, the expansions of existing plants. In the Visayas, total capacity immediatethree years period will andbe a the test next of whether two to three the current years power the government expects to meet the target of 100 investments in power generation, however, have 8MW Caliraya Storage Hydro Power Station in through 2016 is projected to reach 1,147MW, of which willindustry be a test framework of whether can the engender current powera sufficient industry response percent in all the regions by 2016. (See Appendix H) been lower than expected vis-à-vis projected energy ElectricityLumban, was first Laguna. introduced NPC continuedin the Philippines to build otherin 429.6MW are committed. In Mindanao, total capacity is frameworkfrom private can investorsengender so a sufficientthat adequate response new fromcapacity can demand. 1890 withhydropower the installation facilities, of three and by electric 1956, NPCarc lamps projected at 2,443MW with 515MW committed. privatebe installed investors in aso timely that adequate manner to new meet capacity the projected can Target capacity of committed and indicate private in Escolta,generation Manila, and accounted the first for power about stationone-third built of thein bedemand. installed in a timely manner to meet the projected sector-initiated power plant projects, 2013-2016 The current regulatory configuration of the power 1895. In country's1901, Manila total Electricgeneration Light capacity. and Railroad The The government has also set the target of increasing the demand. sector stems from the outcome of the Investment Companyremaining (Meralco) two-thirds took over was the infranchise the hands for of 336 country’s energy self-sufficiency (ratio of indigenous energy Peak demand according to the Philippine Development Plan Priority Plan (IPP) program used by the country to providingprivate electricity and municipally-ownedto Manila and 57 municipalities electric utilities, sources such as geothermal energy and natural gas from of which Meralco was the largest, accounting for Peakis expected demand accordingto increase to at the 4.5 Philippine percent annually from 2009 resolve the power crisis in the early 1990s and the around the city. Private electric utilities were also Malampaya) from 58.3 percent in 2010 to 60 percent by 990MW of 1,745.5MW total demand. Most of Developmentto 2030. For Plan the is period expected 2010 to to increase 2016, this at translates4.5 to a consequences of the program in the aftermath of the established during this period in other major cities Source: Philippine Development Plan 2011-2016 2016. this private generating capacity was thermal total of 11,900MW capacity required for the Luzon grid; Asian Financial Crisis. It is worth noting that and towns throughout the country. percent annually from 2009 to 2030. For the period http://plans.neda.gov.ph/pdp/chapter-10-accelerating-infrastructure-development/ plant. NPC acquired Meralco's generation and 20102,150MW to 2016, for this the translates Visayas grid;to a totaland 2,500MW of 11,900MW for the increasing private sector participation in the power The liberalized and market-based power industry put in distribution systems outside Manila in 1953 capacityMindanao required grid. for The the revalidated Luzon grid; results 2,150MW matrix for in the sector and more market-based regulatory regimes The National Power Corporation (NPC), created in the 1930s These targets are to be met through new power projects place by the Electric Power Industry Reform Act (EPIRA) when Meralco decided to concentrate its themidterm Visayas updategrid; and of 2,500MW the plan calls for thefor powerMindanao demand up to has been the global trend during the same period through Commonwealth Act 120, was originally intended2 to totalling 10,469MW in Luzon, of which 767.4MW are relies on the private sector to construct generation plants to electricity business in the Manila area. grid.2016 The to revalidated be met – definedresults matrixas maintaining in the midterm above 100 percent both in industrial as well as emerging countries. develop the country’s hydroelectric resources. committed. The remaining 9,702MW of indicative power meet demand. Private sector investments in power updatethe ratio of the of dependableplan calls for capacity power demand to total peakup to demand plus Many countries are more or less in the same plants are expected to come mostly from brownfield generation, however, have been lower than expected Outside Manila, the electricity services were 2016required to be metreserves. – defined For asthe maintaining country as aabove whole, 100 the ratio is situation as the Philippines with new capacity to be In 1939, NPC constructed its first project, the 8MW expansions of existing plants. In the Visayas, total capacity vis-à-vis projected energy demand. provided by private companies or rural cooperatives, percentprojected the ratioto go of down dependable from 108.14 capacity percent to total as of the 2010 through 2016 is projected to reach 1,147MW, of which mandated as merchant power plants assume market Calirayaeither buyingStorage power Hydro from Power private Station generators in Lumban, or from peakbaseline demand to 104.39plus required percent reserves. by 2016. TheFor thedecrease in the demand risk. Laguna. NPC continued to build other hydropower 429.6MW are committed. In Mindanao, total capacity is The current regulatory configuration of the power sector NPC. Fast forward to 1972 when under martial law, countryratio is as weighed a whole, down the ratio by the is projecteddecline in to Luzon go down from the facilities, and by 1956, NPC generation accounted projected at 2,443MW with 515MW committed. stems from the outcome of the Investment Priority Plan the government nationalized the 2generation and from113.4 108.14 percent percent baseline as of in the 2010 2010 to baseline107.86 percent to by 2016, In fact, the earlier phases of the electric power for about one-third of the country's total generation (IPP) program used by the country to resolve the power transmission phases and regulated the 104.39and the percent decline by in2016. Mindanao The decrease from 107.7 in the percent ratio is in 2010 to industry in the country have been managed by the capacity. The remaining two-thirds was in the hands The government has also set the target of increasing the crisis in the early 1990s and the consequences of the privately-owned distribution sector. weighed100 vby down 2016. by Only the declinethe Visayas in Luzon will showfrom thea slight increase country’s energy self-sufficiency (ratio of indigenous energy private enterprise. When, starting in 1901, Manila of 336 private and municipally-owned electric program in the aftermath of the Asian Financial1 Crisis. It is 113.4in the percent ratio frombaseline 103 inpercent 2010 to to 107.86 105 percent percent for by the same sources such as geothermal energy and natural gas from utilities, of which Meralco was the largest, period. Neverthless, the government expects to meet the Malampaya) from 58.3 percent in 2010 to 60 percent by target of 100 percent in all the regions by 2016. 1 2016. 1 Cham Rowena M, The Philippine power sector: issues and solutions. The Philippine Review of Economics. Vol XLIV No 1 June 2007 p. 33-63ic Studies. Cham Rowena25 March M, 2014. The Philippine power sector: issues and solutions. The Philippine Review of Economics. Vol XLIV No 1 June 2007 p. 33-63ic Studies. 25 March2 Cham, 2014. op. cit. 2Cham, op. cit. Infrastructure In-depth: Philippines | 48 Infrastructure Guide: Philippines | 3 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. The power sector was viewed as a strategic asset, rating, the government provided take-or-pay contracts requiring large amounts of capital which the public which transferred market demand risk to the sector could provide. NPC embarked on an government, and guaranteed NPC’s obligations aggravated the weak operational and financial performance The NPC contracted 9,085MW of power from IPP plants aggressive development program of the power through performance undertakings by the national of NPC and resulted in undercapacity in generation and which at one point, accounted for half of total energy sales system with significant support from official government. (In contrast, it has been pointed out transmission capacity in the country. in the Philippines. The IPP program succeeded in drawing development assistance (ODA) financing. that Thailand bidded out its independent power producersufficient [IPP] response contracts from at a thetime private when sector.its economic The provisions No new generating capacity was added to the in the IPP contracts, however, turned out to be fiscally The deep political, economic, and external debt crisis performance was attractive to foreign investors such system in the Luzon grid at the time because of the burdensome particularly in the aftermath of the Asian which marked the culmination of the martial law that they submitted competitive proposals including expectation that the Bataan Nuclear Power Plant Financial Crisis which resulted in economic recession (weak regime in 1986 aggravated the weak operational and assuming foreign exchange risks and offering 10 would begin operation in 1984. NPC was also in a demand for electricity on which the government was paying financial performance of NPC and resulted in times the power being contracted for by the poor financial position as tariffs were not adjusted to whether or not the plants were dispatched) and major peso undercapacity in generation and transmission Electricity Generating Authority of Thailand [EGAT], keep in step with costs. Thus, internally generated devaluation which impacted NPC’s dollar denominated capacity in the country. the Thai power company.) resources were insufficient to finance new capacity. take-or-pay contracts and capitalized lease payments. The The existing generating plant was unable to meet financial impact were stranded costs of US$1.7 billion from No new generating capacity was added to the The NPC contracted 9,085MW of power from IPP the power requirements because it was nearing its payments to IPPs not recovered from power sales, and system in the Luzon grid at the time because of plants which at one point, accounted for half of total 3. access to the transmission and distribution participate on the demand side. WESM started themaximum expectation life. that Installed the Bataan generating Nuclear capacitiesPower in the energyUS$6 sales billion in thein stranded Philippines. debt The incurred IPP program to cover NPC’s network, privatized as a long term concession. commercial operations on 26 June 2006. Currently Planttwo would major begin grids, operation Luzon and in 1984. Mindanao, NPC was were succeededdeficits inand drawing accumulated sufficient subsidies response to consumersfrom the with This took place in 15 January 2009 when the participating in the WESM are 13 generating alsooperated in a poor at financial less than position their nameplateas tariffs were ratings privategeneration sector. charges The provisions not fully in reflected the IPP contracts,in the electricity bill transmission company formally turned over the companies with 11 distribution utilities (DUs) and five notbecause adjusted ofto age.keep For in step example, with costs. in the Thus, Luzon grid, however,but absorbed turned out by NPC.to be fiscally burdensome 25-year concession of the National Transmission registered direct suppliers. Corporation (TransCo) to the National Grid internallyavailability generated ranged resources from 2,300MW were insufficient to 3,100MW particularly in the aftermath of the Asian Financial 3. access to the transmission and distribution network, able to bid out 68.22 percent of NPC contracts to IPPAs. Corporation of the Philippines (NGCP), which is to financeagainst newan installed capacity. capacity The existing of 4,321MW. generating Several CrisisRepublic which resultedAct 9136, in or economic the EPIRA, recession was passed (weak in June 2001 privatized as a long term concession. This took place in PSALM is also required to privatize 70 percent of the responsible for the development, upgrading, and plantolder was oil-fired unable thermalto meet theplants, power used as base load, alsodemandto restructure for electricity the power on which industry the government and privatize was NPC. The 15 January 2009 when the transmission company The Departmenttotal energy ofoutput Energy of power(DOE), plants in its assessmentunder contract of the rehabilitation of the electricity grid. requirementsbroke down. because With no it wasnew nearing plant to its supplement Power Sector Asset Liability Management Corporation formally turned over the 25-year concession of the demand-supplywith NPC to situation, independent has identified power producer critical periods in paying whether or not the plants were dispatched) 4. unbundling of tariffs into generation, maximumexisting life. capacity, Installed NPC generating ran its remaining capacities plantin to the (PSALM) was created to assume the generation assets of National Transmission Corporation (TransCo) to the administrators (IPPAs) prior to the start of an open and major peso devaluation which impacted NPC’s transmission, distribution, systems losses, and the Luzon, Visayas and Mindanao grids. The largest deficits themaximum, two major grids,which Luzon led to and further Mindanao, breakdowns. were Since the NPC for eventual privatization and to manage its National Grid Corporation of the Philippines (NGCP), dollar denominated take-or-pay contracts and stranded costs, and will occuraccess in market.Luzon of To-date,up to 635MW PSALM by was March able to to July bid 2016,out operatedNPC was at less in a than weak their financial nameplate position, ratings rehabilitation liabilities. The restructuring centered on: which is responsible for the development, upgrading, capitalized lease payments. The financial impact 5. provisions for resolving the stranded costs and and up68.22 to 940MW percent inof theNPC March contracts to December to IPPAs. 2018 period. because of age. For example, in the Luzon grid, and rehabilitation of the electricity grid. and maintenance were on a piecemeal basis. were stranded costs of US$1.7 billion from payments stranded debts through universal levies. The The deficits in the Visayas and Mindanao will not be as availability ranged from 2,300MW to 3,100MW 4. unbundling of tariffs into generation, transmission, to IPPs a.not unbundling recovered thefrom generation power sales, and anddistribution US$6 sectors government would no longer offer to guarantee largeThe but Departmentwill be more of frequent. Energy (DOE), in its assessment against an installed capacity of 4,321MW. distribution, systems losses, and stranded costs, and The power crisis precipitated an economic crisis. In billion in strandedfrom the debt transmission incurred to function cover NPC’s market risks through take-or-pay contracts, and of the demand-supply situation, has identified critical Several older oil-fired thermal plants, used as 5. provisions for resolving the stranded costs and 1990, there were 103 days of blackouts for an annualdeficits b.and introduction accumulated of subsidiescompetition to consumersin generation with the would not engage in power generation. In Mindanao,periods in the the years Luzon, 2013 Visayas to 2015 and are Mindanao expected grids. to be base load, also broke down. With no new plant stranded debts through universal levies. The duration of 1,273 hours, resulting in 251GWh of lost open market to be triggered by the privatization of criticalThe periods largest based deficits on willavailable occur supply,in Luzon prior of up to tothe plants to supplement existing capacity, NPC ran its with generation charges not fully reflected in the government would no longer offer to guarantee market energy sales]. Daily 8 to 12-hour-long blackouts electricity bill70 butpercent absorbed of NPC’s by NPC. generating capacity. As of Suppliers were encouraged to enter into long-term committed635MW in bythe March pipeline. to July 2016, and up to 940MW in remaining plant to the maximum, which led3 to risks through take-or-pay contracts, and would not severely crippled the economy as factories were June 2010, the government was able to privatize 26 further breakdowns. Since NPC was in a weak engagebilateral in powercontracts generation. with users, with the power to be the March to December 2018 period. The deficits in financialforced position, to close rehabilitation or reduce operations. and maintenance Productivity fellRepublic Actof 9136,its generating or the EPIRA, or operating was passed plants in and June four delivered through the transmission grid which would the Visayas and Mindanao will not be as large but will and unemployment rate increased. decommissioned assets. 20 of these assets were on a piecemeal basis. 2001 to restructure the power industry and privatize Suppliersbe were paid encouraged through wheeling to enter charges. into long-term The Wholesale bilateral be more frequent. comprise 91.7 percent of PSALM-owned capacities NPC. The Power Sector Asset Liability Management contractsElectricity with users, Spot with Market the power (WESM) to be was delivered created To solve the crisis, the government resorted to the in the Luzon and Visayas. The power crisis precipitated an economic crisis. Corporation (PSALM) was created to assume the through theconsisting transmission of IPPs, grid privatized which would NPC be generators, paid through and In Mindanao, the years 2013 to 2015 are expected to build-operate-transfer (BOT) format for involving the private c. access to the transmission and distribution network, In 1990, there were 103 days of blackouts for an generation assets of the NPC for eventual wheelinggenerating charges. The plants Wholesale not yet Electricity privatized Spoton the Market supply be critical periods based on available supply, prior to sector in the design, construction, financing, and operation privatized as a long term concession. This took place annual duration of 1,273 hours, resulting in privatization and to manage its liabilities. The (WESM) side,was created while distribution consisting companies,of IPPs, privatized large commercial NPC the plants committed in the pipeline. of the251GWh new generation of lost energy capacity. sales. GivenDaily 8 the to urgency of in 15 January 2009 when the transmission company restructuring centered on: generators,and and industrial generating users, plants and aggregatorsnot yet privatized would on the resolving12-hour-long the economic blackouts crisis severely caused crippled by the the power crisis formally turned over the 25-year concession of the supply side, while distribution companies, large and theeconomy weak asnegotiating factories were position forced due to to close its weak or National Transmission Corporation (TransCo) to the 1. unbundling the generation and distribution commercial and industrial users, and aggregators would macroeconomicreduce operations. position Productivity and credit fell rating, and the government sectorsNational from Gridthe transmission Corporation functionof the Philippines (NGCP), 3 participate on the demand side. WESM started commercial providedunemployment take-or-pay rate contracts increased. which transferred market 2. introductionwhich is ofresponsible competition for in the generation development, with operations on 26 June 2006. Currently participating in the demand risk to the government, and guaranteed NPC’s the upgrading,open market and to berehabilitation triggered by of the the electricity grid. WESM are 13 generating companies with 11 distribution To obligationssolve the crisis, through the performancegovernment resortedundertakings to the by the privatizationd. unbundling of 70 of percenttariffs into of NPC’s generation, generating transmission, utilities (DUs) and five registered direct suppliers. build-operate-transfernational government. (BOT) (In contrast,format for it involving has been the pointed out capacity.distribution, As of June systems 2010, thelosses, government and stranded was costs,

privatethat Thailandsector in bidded the design, out its construction, independent ﬁnancing, power producer ableand to privatize 26 of its generating or operating PSALM is also required to privatize 70 percent of the total and[IPP] operation contracts of the at anew time generation when its economiccapacity. Givenperformance plantse. provisions and four fordecommissioned resolving the strandedassets. 20 costs of and energy output of power plants under contract with NPC to thewas urgency attractive of resolving to foreign the investors economic such crisis that caused they submitted thesestranded assets comprisedebts through 91.7 percent universal of levies. The independent power producer administrators (IPPAs) prior to by competitivethe power crisis proposals and the including weak negotiating assuming foreignposition exchange PSALM-ownedgovernment capacities would no in longer the Luzon offer and to guarantee the start of an open access market. To-date, PSALM was duerisks to its and weak offering macroeconomic 10 times the position power being and credit contracted for Visayas.market risks through take-or-pay contracts, and by the Electricity Generating Authority of Thailand (EGAT), would not engage in power generation. the Thai power company. ) 3 3 Cham op.Cham cit. op. p. 38cit. p. 38

49 | 2Infrastructure | Infrastructure In-depth: Guide: Philippines Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. The power sector was viewed as a strategic asset, rating, the government provided take-or-pay contracts requiring large amounts of capital which the public which transferred market demand risk to the sector could provide. NPC embarked on an government, and guaranteed NPC’s obligations aggravated the weak operational and financial performance The NPC contracted 9,085MW of power from IPP plants aggressive development program of the power through performance undertakings by the national of NPC and resulted in undercapacity in generation and which at one point, accounted for half of total energy sales system with significant support from official government. (In contrast, it has been pointed out transmission capacity in the country. in the Philippines. The IPP program succeeded in drawing development assistance (ODA) financing. that Thailand bidded out its independent power producersufficient [IPP] response contracts from at a thetime private when sector.its economic The provisions No new generating capacity was added to the in the IPP contracts, however, turned out to be fiscally The deep political, economic, and external debt crisis performance was attractive to foreign investors such system in the Luzon grid at the time because of the burdensome particularly in the aftermath of the Asian which marked the culmination of the martial law that they submitted competitive proposals including expectation that the Bataan Nuclear Power Plant Financial Crisis which resulted in economic recession (weak regime in 1986 aggravated the weak operational and assuming foreign exchange risks and offering 10 would begin operation in 1984. NPC was also in a demand for electricity on which the government was paying financial performance of NPC and resulted in times the power being contracted for by the poor financial position as tariffs were not adjusted to whether or not the plants were dispatched) and major peso undercapacity in generation and transmission Electricity Generating Authority of Thailand [EGAT], keep in step with costs. Thus, internally generated devaluation which impacted NPC’s dollar denominated capacity in the country. the Thai power company.) resources were insufficient to finance new capacity. take-or-pay contracts and capitalized lease payments. The The existing generating plant was unable to meet financial impact were stranded costs of US$1.7 billion from No new generating capacity was added to the The NPC contracted 9,085MW of power from IPP the power requirements because it was nearing its payments to IPPs not recovered from power sales, and system in the Luzon grid at the time because of plants which at one point, accounted for half of total 3. access to the transmission and distribution participate on the demand side. WESM started themaximum expectation life. that Installed the Bataan generating Nuclear capacitiesPower in the energyUS$6 sales billion in thein stranded Philippines. debt The incurred IPP program to cover NPC’s network, privatized as a long term concession. commercial operations on 26 June 2006. Currently Planttwo would major begin grids, operation Luzon and in 1984. Mindanao, NPC was were succeededdeficits inand drawing accumulated sufficient subsidies response to consumersfrom the with This took place in 15 January 2009 when the participating in the WESM are 13 generating alsooperated in a poor at financial less than position their nameplateas tariffs were ratings privategeneration sector. charges The provisions not fully in reflected the IPP contracts,in the electricity bill transmission company formally turned over the companies with 11 distribution utilities (DUs) and five notbecause adjusted ofto age.keep For in step example, with costs. in the Thus, Luzon grid, however,but absorbed turned out by NPC.to be fiscally burdensome 25-year concession of the National Transmission registered direct suppliers. Corporation (TransCo) to the National Grid internallyavailability generated ranged resources from 2,300MW were insufficient to 3,100MW particularly in the aftermath of the Asian Financial 3. access to the transmission and distribution network, able to bid out 68.22 percent of NPC contracts to IPPAs. Corporation of the Philippines (NGCP), which is to financeagainst newan installed capacity. capacity The existing of 4,321MW. generating Several CrisisRepublic which resultedAct 9136, in or economic the EPIRA, recession was passed (weak in June 2001 privatized as a long term concession. This took place in PSALM is also requiredCritical Periods to privatize 70 percent of the responsible for the development, upgrading, and plantolder was oil-fired unable thermalto meet theplants, power used as base load, alsodemand to restructure for electricity the power on which industry the government and privatize was NPC. The 15 January 2009 when the transmission company TheOn AvailableDepartmenttotal energy Capacity: ofoutput Energy of power(DOE),On Available plants in its assessmentCapacityunder contract+ of the rehabilitation of the electricity grid. requirementsbroke down. because With no it wasnew nearing plant to its supplement Power Sector Asset Liability Management Corporation formally turned over the 25-year concession of the demand-supplywith NPC to situation, independent has identified Commipowertted: producer critical periods in paying whether or not the plants were dispatched) 4. unbundling of tariffs into generation, maximumexisting life. capacity, Installed NPC generating ran its remaining capacities plantin to the (PSALM) was created to assume the generation assets of National Transmission Corporation (TransCo) to the administrators (IPPAs)Luzon prior to the start of an open and major peso devaluation which impacted NPC’s transmission, distribution, systems losses, and the Luzon, Visayas and Mindanao grids. The largest deficits themaximum, two major grids,which Luzon led to and further Mindanao, breakdowns. were Since the NPC for eventual privatization and to manage its National Grid Corporation of the Philippines (NGCP), April-May 2015: Projected Deficit April-June 2017: Projected dollar denominated take-or-pay contracts and stranded costs, and will occuraccess in market.Luzon of To-date,up to 635MW PSALM by was March able to to July bid 2016,out operatedNPC was at less in a than weak their financial nameplate position, ratings rehabilitation liabilities. The restructuring centered on: which is responsible for the development, upgrading, of 184 MW Deficit of 200 to 450MW capitalized lease payments. The financial impact 5. provisions for resolving the stranded costs and and up68.22 to 940MW percent inof theNPC March contracts to December to IPPAs. 2018 period. because of age. For example, in the Luzon grid, and rehabilitation of the electricity grid. and maintenance were on a piecemeal basis. were stranded costs of US$1.7 billion from payments stranded debts through universal levies. The The deficits in the Visayas and Mindanao will not be as availability ranged from 2,300MW to 3,100MW 4. unbundling of tariffs into generation, transmission, March-July 2016: Projected Deficit March-December 2018: to IPPs a.not unbundling recovered thefrom generation power sales, and anddistribution US$6 sectors government would no longer offer to guarantee largeThe but Departmentwill be more of frequent. Energy (DOE), in its assessment against an installed capacity of 4,321MW. distribution, systems losses, and stranded costs, and of 240 to 635MW Projected Deficit of 270 to 940 The power crisis precipitated an economic crisis. In billion in strandedfrom the debt transmission incurred to function cover NPC’s market risks through take-or-pay contracts, and of the demand-supply situation,MW has identified critical Several older oil-fired thermal plants, used as 5. provisions for resolving the stranded costs and 1990, there were 103 days of blackouts for an annualdeficits b.and introduction accumulated of subsidiescompetition to consumersin generation with the would not engage in power generation. In Mindanao,periods in the the years Luzon, 2013Visayas Visayas to 2015 and are Mindanao expected grids. to be base load, also broke down. With no new plant stranded debts through universal levies. The duration of 1,273 hours, resulting in 251GWh of lost open market to be triggered by the privatization of criticalNovemberThe periods largest-December based deficits 2014 :on willavailable occurDecember supply,in Luzon 2015: prior Projectedof up to tothe plants to supplement existing capacity, NPC ran its with generation charges not fully reflected in the government would no longer offer to guarantee market energy sales]. Daily 8 to 12-hour-long blackouts 70 percent of NPC’s generating capacity. As of Projected635MW Deficit by of 30March to 90MW to July De2016,ficit of and 60MW up to 940MW in remaining plant to the maximum, which led to electricity bill but absorbed by NPC. risksSuppliers through were take-or-pay encouraged contracts, to enter and would into long-term not committed in the pipeline. severely crippled the economy as factories were June 2010, the government was able to privatize 26 bilateral contracts with users, with the power to be the March to December 2018 period. The deficits in further breakdowns. Since NPC was in a weak engage in power generation. April-December 2015: Projected April-June 2016: Projected forced to close or reduce operations. Productivity fellRepublic Actof 9136,its generating or the EPIRA, or operating was passed plants in and June four the Visayas and Mindanao will not be as large but will financial position, rehabilitation and maintenance delivered through the transmission grid which would Deficit of 80MW to Max 220MW Deficit of 70 to 100MW and unemployment rate increased. decommissioned assets. 20 of these assets be more frequent. were on a piecemeal basis. 2001 to restructure the power industry and privatize Suppliersbe were paid encouraged through wheeling to enter charges. into long-term The Wholesale bilateral December 2017-December comprise 91.7 percent of PSALM-owned capacities NPC. The Power Sector Asset Liability Management contractsElectricity with users, Spot with Market the power (WESM) to be was delivered created 2018: Projected Deficit of 120 to To solve the crisis, the government resorted to the in the Luzon and Visayas. The power crisis precipitated an economic crisis. Corporation (PSALM) was created to assume the through theconsisting transmission of IPPs, grid privatized which would NPC be generators, paid through and In Mindanao, the years 2013305MW to 2015 are expected to build-operate-transfer (BOT) format for involving the private c. access to the transmission and distribution network, In 1990, there were 103 days of blackouts for an generation assets of the NPC for eventual wheelinggenerating charges. The plants Wholesale not yet Electricity privatized Spoton the Market supply be critical periods basedMindanao on available supply, prior to sector in the design, construction, financing, and operation privatized as a long term concession. This took place annual duration of 1,273 hours, resulting in privatization and to manage its liabilities. The (WESM) side,was created while distribution consisting companies,of IPPs, privatized large commercial NPC 2013:the Projected plants De committedficit of 50 to in theJan uarypipeline.-February 2015: of the251GWh new generation of lost energy capacity. sales. GivenDaily 8 the to urgency of in 15 January 2009 when the transmission company 110MW Projected Deficit of 100 to restructuring centered on: generators,and and industrial generating users, plants and aggregatorsnot yet privatized would on the resolving12-hour-long the economic blackouts crisis severely caused crippled by the the power crisis formally turned over the 25-year concession of the 130MW supply side, while distribution companies, large and theeconomy weak asnegotiating factories were position forced due to to close its weak or National Transmission Corporation (TransCo) to the On Available Capacity: On AvailableCritical Capacity2014: Periods Projected + Committed: Deficit of 50 to November-December 2017: 1. unbundling the generation and distribution commercial and industrial On Available users, Capacity and aggregators would On Available Capacity + Committed macroeconomicreduce operations. position Productivity and credit fell rating, and the government National Grid Corporation of the Philippines (NGCP), 190MW Projected Deficit of 20 to 50MW sectors from the transmission function participate on the demand side. WESM started commercial providedunemployment take-or-pay rate contracts increased. which transferred market 2. introductionwhich is ofresponsible competition for in the generation development, with Luzon2015: Projected Deficit of 120 to 2018: Projected Deficit of 50 to operations on 26 June 2006. Currently participating in the 280MW 200MW demand risk to the government, and guaranteed NPC’s the upgrading,open market and to berehabilitation triggered by of the the electricity grid. April - May 2015: Projected Deficit of 184 MW April - June 2017: Projected Deficit of 200 to 450MW WESM are 13 generating companies with 11 distribution To obligationssolve the crisis, through the performancegovernment resortedundertakings to the by the privatizationd. unbundling of 70 of percenttariffs into of NPC’s generation, generating transmission, March - July 2016: Projected Deficit of 240 to 635MW March - December 2018: Projected Deficit of 270 to 940 MW utilities (DUs) and five registered direct suppliers. build-operate-transfernational government. (BOT) (In contrast,format for it involving has been the pointed out capacity.distribution, As of June systems 2010, thelosses, government and stranded was costs, Visayas privatethat Thailandsector in bidded the design, out its construction, independent financing, power producer ableand to privatize 26 of its generating or operating November - December 2014: Projected Deficit of 30 to 90MW December 2015: Projected Deficit of 60MW PSALM is also required to privatize 70 percent of the total and[IPP] operation contracts of the at anew time generation when its economiccapacity. Givenperformance plantse. provisions and four fordecommissioned resolving the strandedassets. 20 costs of and April - December 2015: Projected Deficit of 80MW to Max 220MW April - June 2016: Projected Deficit of 70 to 100MW these assets comprise 91.7 percent of energy output of power plants under contract with NPC to thewas urgency attractive of resolving to foreign the investors economic such crisis that caused they submitted stranded debts through universal levies. The December 2017 - December 2018: Projected Deficit of 120 to 305MW PSALM-owned capacities in the Luzon and independent power producer administrators (IPPAs) prior to by competitivethe power crisis proposals and the including weak negotiating assuming foreignposition exchange government would no longer offer to guarantee Mindanao due to its weak macroeconomic position and credit Visayas. the start of an open access market. To-date, PSALM was risks and offering 10 times the power being contracted for market risks through take-or-pay contracts, and 2013: Projected Deficit of 50 to 110MW January - February 2015: Projected Deficit of 100 to 130MW by the Electricity Generating Authority of Thailand (EGAT), would not engage in power generation. 2014: Projected Deficit of 50 to 190MW November - December 2017: Projected Deficit of 20 to 50MW the Thai power company. ) 2015: Projected Deficit of 120 to 280MW 2018: Projected Deficit of 50 to 200MW

Source: Department of Energy presentation on 2013 to 2020 Supply-Demand Outlook and Updates on Mindanao Power Situation August 2013

InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 50 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

Luzon Supply-Demand Outlook 2013-2020 the expectation that consumers put value and are e.g. through direct price caps which could drive 2014 2015 2016 13500 Luzon Supply-Demand Outlook 2013-2020 There have been recent discussions, however, on revising willing to pay for security of supply. away needed investment. Mar: Maibarara Geo - 20MW Feb: Southwest Luzon 2 - 150MW Mar:the AEPIRAnda Power framework, - 82MW prompted by a spike in prices and a 13000 Aug: Puting Bato 1 -135MW Mar: SJCI Power - 9.9MW Dec: EWC Phase 3 - 200MW Sep: Pililia Wind - 67.5MW Isabela Bio - 18 MW seeming lack of coordination between PSALM, DOE, and  Monitor adequacy of gas markets and 12500 The International Energy Agency (IEA) has the Sep: Avion - 100MW Nov: Puting Bato 2 - 135MW the Energy Regulatory Commission (ERC). Such uncer following recommendations: investments. 12000 Nov: Southwest Luzon 1 - 150 MW Dec: EWC Phase 2 - 200MW Dec: EWC Phase 1 - 200MW tainty in the regulatory framework may affect investment The preference of investors in some markets for 1150 0 decisions and execution of capacity expansions.  Define clearly the government’s role in Combined Cycle Gas Turbine (CCGT) for building 11000 electricity market reform and the terms of its new power generating capacity means that gas 10500 It would be useful to take a page from the experience of involvement as precisely as possible. markets assume a greater importance than ever for power generation development. For 10000 other countries with merchant power. In the Organisation Attracting investment in power generation governments, this means moving forward on 9500 for Economic Co-operation and Development (OECD) requires a clear market design, with predictable changes and no interference into the market or liberalization of both the gas market and the 9000 countries and emerging markets, merchant power projects Source: Department of Energy presentation on 2013 to 2020 Supply-Demand Outlook and are becoming more common. In OECD countries, it is into the operation of the independent institutions electricity market, and monitoring the adequacy Jul 17 Jul Jul 19 Jul Jul 16 Jul Jul 15 Jul Jul 14 Jul Jul 13 Jul Jul 18 Jul Updates on Mindanao Power Situation August 2013 20 Jul Nov13 Jan 17 Jan Jan 19 Jan Jan 16 Jan Jan 15 Jan Jan 14 Jan Jan 18 Jan Jun 20 Jun Sep 17 Sep 19 Sep 16 Sep 15 Sep 14 Sep 13 Sep 18 Nov 17 Nov Mar 17 Nov 19 Nov Nov 16 Nov Nov 15 Nov Nov 14 Nov Sep 20 Nov 18 Nov Mar 19 Mar 16 Mar 15 Mar 14 Mar 18 Nov 20 Nov Mar 20 May 17 May May 19 May May 16 May May 15 May May 14 May May 13 May May 18 May May 20 May of investment in both gas and electric shown that merchant power investor response has been established to implement the market reform. The infrastructure. VisayasVisayas Supply-Demand Supply-Demand Outlook Outlook 2013-2020 2013-2020 adequate to match the capacity requirements, as long as government’s role must be clearly set out both 3200 as the agent of the reforms and in its energy 2014 2015 2016 wholesale prices for base load and for peaking plants are For emerging markets, similar prescriptions and 3000 the expectation policythat consumers involvement put once value the and market are opens.willing to Greater demand response in electricity markets is Mar: Villasiga - 8MW Mar: Sn Carlos Bio - 16MW Jul: Concepcion Coalallowed 1 - 135MW to accurately signal emerging demand situations. Jun: ASIAN Bio - 3.6MW Sep: Concepcion Coal 2 -135MW pay for security of supply. neededobservations to help have ensure been that made electricity on the markets policy and are 2800 Jun: Nasulo Geo - 50MW Investors are able to plan on base load demand given the Sep: Toledo - 82MW  Recognize that electricity price fluctuations are alwaysregulatory able tomerchant clear, i.e. power by rationing environment electricity to draw 2600 expectation that consumers put value and are willing to pay The Internationalintrinsic Energy toAgency well-functioning (IEA) has the electricity following supplysufficient according response to price from rather investors. than throughA key 2400 for security of supply. recommendations:markets. brownoutsrecommendation or blackouts. is to haveA stronger a rational demand tariff 2200 Allowing markets to signal the need for new regulations, a strong independent regulator, and The International Energy Agency (IEA) has the following response will help mitigate market power in 1800 investment in generation means that prices will viable and financially stable distribution utilities. recommendations:4  Define clearly the government’s role in electricity electricity markets and provide potential investors 1600 market reformgo high andon occasion. the terms Governments of its involvement need to with more predictable energy (and ancillary service) as preciselyanticipate as possible. that such fluctuations will occur and pricesAlthough and thereforethe government decrease is reportedlyinvestment considering risks. Jul 17 Jul Jul 19 Jul Jul 13 Jul Jul 14 Jul 15 Jul 16 Jul 18 Jul Jul 20 Jul Nov13 Jan 17 Jan Jan 19 Jan Jan 14 Jan 15 Jan 16 Jan  18 Jan Jun 20 Jun

Sep 17 Deﬁne clearly the government’s role in electricity Sep 13 Sep 14 Sep 15 Sep 16 Sep 19 Sep 18 17 Nov Mar 17 Nov 14 Nov 15 Nov 16 Nov Nov 19 Nov Sep 20 18 Nov Mar 14 Mar 15 Mar 16 Mar 19 Mar 18 Nov 20 Nov Mar 20 May 17 May 14 May 15 May 16 May May 19 May May 13 May 18 May May 20 May ensure that consumers are aware of price risks Source: Department of Energy presentation on 2013 to 2020 Supply-Demand Outlook and invoking the emergency powers of the President market reform and the terms of its involvement as Attracting investment in power generation requires a MindanaoUpdates on Mindanao Supply-Demand Power Situation August Outlook 2013 2013-2020 and have options to mitigate these risks. under the existing EPIRA law in order to contract for precisely as possible. clear market design, with predictable changes and  Be prepared to detect and to act upon wholesale 2900 no interference into the market or into the operation electricityadditional market power duringmanipulation. possible low power reserve Mindanao Supply-Demand2015 Outlook 2013-20202016  Develop demand response within electricity 2700 of the independent institutions established to Insituations order to address in 2015, concernsthe basic aboutindustry wholesale structure that Mar: Therma South 1 - 150MW Sep: FDC Coal - 405MW markets. 2500 Jun: Therma South 2 - 150MW implement the market reform. The government’s electricityhas been market put in placemanipulation, under the governments EPIRA law: mustopen Sep: Southern Mindanao Coal - 200MW Fluctuating spot electricity prices offer rewards 2300 access competitive merchant power plants in the role mustas be well clearly as risks. set out The both low priceas the elasticity agent of of the ensure that electricity markets have monitoring 2100 generation sector, a monopoly in the national grid reforms andelectricity in its energydemand, policy especially involvement for small once mechanisms that cannot only detect manipulation as 1900 the marketcustomers, opens. is at least partly due to the inability it operatedis occurring by abut private also takeconcessionaire, prompt action and to a regulated 1700 to reward consumers for adjusting their mitigatedistribution its impacts. utilities Thiswill continuewill reduce to pressurebe the regulatory on the 1500  Recognizeconsumption that electricity when price prices ﬂuctuations are high. Greater are framework under which the power sector will 1300 intrinsic demandto well-functioning response in electricity electricity markets markets. is develop and expand to meet electricity demand in 110 0 Allowing neededmarkets to to help signal ensure the thatneed electricity for new markets the future. This framework has been proven in other Jul 17 Jul Jul 19 Jul Jul 16 Jul Jul 15 Jul Jul 14 Jul Jul 13 Jul

Jul 18 Jul countries to work in attracting sufﬁcient investments Jul 20 Jul Nov13 Jan 17 Jan Jan 19 Jan Jan 16 Jan Jan 15 Jan Jan 14 Jan Jan 18 Jan are always able to clear, i.e. by rationing

Jun 20 Jun investment in generation means that prices will go Sep 17 Sep 19 Sep 16 Sep 15 Sep 14 Sep 13 Nov 17 Nov Sep 18 Mar 17 Nov 19 Nov Nov 16 Nov Nov 15 Nov Nov 14 Nov Nov 18 Nov Sep 20 Mar 19 Mar 16 Mar 15 Mar 14 Mar 18 Nov 20 Nov Mar 20 May 17 May May 19 May May 16 May May 15 May May 14 May May 13 May May 18 May May 20 May Source: Department of Energy presentation on 2013 to 2020 Supply-Demand Outlook and high on occasion.electricity Governmentssupply according need to priceto anticipate rather than in merchant power capacity as long as there is an UpdatesStart ofon Critical Mindanao Periods Power Situation Projected August 2013 Demand Available Capacity Available + Committed that suchthrough fluctuations brownouts will occur or blackouts. and ensure A stronger that independent tariff regulator and transparent market Source: Department of Energy presentation on 2013 to 2020 Supply-Demand Outlook and Updates on Mindanao Power Situation August 2013 consumersdemand are aware response of price will helprisks mitigate and have market options based pricing. What is significant in the pipeline of indicative power power in electricity markets and provide potential What is significant in the pipeline of indicative power projects is that most of them are expansion projects of to mitigate these risks. projects is that most of them are expansion projects of investors with more predictable energy (and existing existing po werpower plants. plants. This This would would be bean anindication indication that that power plants, which have been operating in the country  Develop ancillarydemand service) response prices within and therefore electricity decrease withpower a connectivity plants, which to and have a track been record operating of supplying in the country to the grid, are in a position to expand capacity and obtain markets.investment risks. financingwith a connectivitysupport to take to andadvantage a track recordof the expectedof supplying increases to the in demand. For those with existing take-or-pay Fluctuating spot electricity prices offer rewards as contracts,grid, are this in a is position also a sign to expand that as capacity they look and at obtainthe expected financ critical periods in the demand-supply balance, they  well as risks.Be prepared The low to price detect elasticity and to ofact electricity upon willing be support able to taketo take market advantage demand of therisks expected under a merchantincreases contractin and/or expect to sell into the WESM at wholesale electricity market manipulation. demand, especially for small customers, is at least market-baseddemand. For pricing. those with existing take-or-pay contracts, this In order to address concerns about wholesale partly due to the inability to reward consumers for is also a sign that as they look at the expected critical electricity market manipulation, governments adjusting their consumption when prices are high. Thereperiods have in been the demand-supplyrecent discussions, balance, however, they willon revising be able theto EPIRA framework, prompted by a spike in prices and must ensure that electricity markets have a seemingtake market lack demandof coordination risks under between a merchant PSALM, contract DOE, and and/or the Energy Regulatory Commission (ERC). Such monitoring mechanisms that cannot only detect uncertaintyexpect to in sell the into regulatory the WESM framework at market-based may affect pricing. investment decisions and execution of capacity expansions. It manipulation as it is occurring but also take would be useful to take a page from the experience of other countries with merchant power. In the Organisation prompt action to mitigate its impacts. This will for Economic Co-operation and Development (OECD) countries and emerging markets, merchant power projects reduce pressure on the government to respond, are becoming more common. In OECD countries, it is shown that merchant power investor response has been 4 adequateInternational to match Energy Agency,the capacity Power Generation requirements, Investment as in Electricitylong as Marketswholesale prices for base load and for peaking plants are allowed to accurately signal emerging demand situations. Investors are able to plan on base load demand given

51 | 2Infrastructure | Infrastructure In-depth: Guide: Philippines Philippines

the expectation that consumers put value and are e.g. through direct price caps which could drive Luzon Supply-Demand Outlook 2013-2020 There have been recent discussions, however, on revising willing to pay for security of supply. away needed investment. the EPIRA framework, prompted by a spike in prices and a seeming lack of coordination between PSALM, DOE, and The International Energy Agency (IEA) has the  Monitor adequacy of gas markets and the Energy Regulatory Commission (ERC). Such uncer- following recommendations: 4 investments. tainty in the regulatory framework may affect investment The preference of investors in some markets for decisions and execution of capacity expansions.  Define clearly the government’s role in Combined Cycle Gas Turbine (CCGT) for building electricity market reform and the terms of its new power generating capacity means that gas It would be useful to take a page from the experience of involvement as precisely as possible. markets assume a greater importance than ever other countries with merchant power. In the Organisation Attracting investment in power generation for power generation development. For for Economic Co-operation and Development (OECD) requires a clear market design, with predictable governments, this means moving forward on countries and emerging markets, merchant power projects changes and no interference into the market or liberalization of both the gas market and the Source: Department of Energy presentation on 2013 to 2020 Supply-Demand Outlook and are becoming more common. In OECD countries, it is into the operation of the independent institutions electricity market, and monitoring the adequacy Updates on Mindanao Power Situation August 2013 of investment in both gas and electric shown that merchant power investor response has been established to implement the market reform. The infrastructure. Visayas Supply-Demand Outlook 2013-2020 adequate to match the capacity requirements, as long as government’s role must be clearly set out both wholesale prices for base load and for peaking plants are as the agent of the reforms and in its energy For emerging markets, similar prescriptions and allowed to accurately signal emerging demand situations. the expectation policythat consumers involvement put once value the and market are opens.willing to Greater demand response in electricity markets is observations have been made on the policy and Investors are able to plan on base load demand given the pay for security of supply. needed to help ensure that electricity markets are  regulatory merchant power environment to draw expectation that consumers put value and are willing to pay Recognize that electricity price fluctuations are always able to clear, i.e. by rationing electricity intrinsic to well-functioning electricity sufficient response from investors. A key for security of supply. The International Energy Agency (IEA) has the following supply according to price rather than through recommendations:markets. brownoutsrecommendation or blackouts. is to haveA stronger a rational demand tariff Allowing markets to signal the need for new regulations, a strong independent5 regulator, and The International Energy Agency (IEA) has the following response will help mitigate market power in investment in generation means that prices will viable and financially stable distribution utilities.5 recommendations:  Define clearly the government’s role in electricity electricity markets and provide potential investors market reformgo high andon occasion. the terms Governments of its involvement need to with more predictable energy (and ancillary service) as preciselyanticipate as possible. that such fluctuations will occur and pricesAlthough and thereforethe government decrease is reportedlyinvestment considering risks.  Define clearly the government’s role in electricity ensure that consumers are aware of price risks Source: Department of Energy presentation on 2013 to 2020 Supply-Demand Outlook and invoking the emergency powers of the President market reform and the terms of its involvement as Attracting investment in power generation requires a Updates on Mindanao Power Situation August 2013 and have options to mitigate these risks. under the existing EPIRA law in order to contract for precisely as possible. clear market design, with predictable changes and  Be prepared to detect and to act upon wholesale no interference into the market or into the operation electricityadditional market power duringmanipulation. possible low power reserve Mindanao Supply-Demand Outlook 2013-2020  Develop demand response within electricity of the independent institutions established to Insituations order to address in 2015, concernsthe basic aboutindustry wholesale structure that markets. implement the market reform. The government’s electricityhas been market put in placemanipulation, under the governments EPIRA law: mustopen Fluctuating spot electricity prices offer rewards access competitive merchant power plants in the role mustas be well clearly as risks. set out The both low priceas the elasticity agent of of the ensure that electricity markets have monitoring generation sector, a monopoly in the national grid reforms andelectricity in its energydemand, policy especially involvement for small once mechanisms that cannot only detect manipulation as the marketcustomers, opens. is at least partly due to the inability it operatedis occurring by abut private also takeconcessionaire, prompt action and to a regulated to reward consumers for adjusting their mitigatedistribution its impacts. utilities Thiswill continuewill reduce to pressurebe the regulatory on the  Recognizeconsumption that electricity when price prices fluctuations are high. Greater are framework under which the power sector will intrinsic demandto well-functioning response in electricity electricity markets markets. is develop and expand to meet electricity demand in Allowing neededmarkets to to help signal ensure the thatneed electricity for new markets the future. This framework has been proven in other investmentare inalways generation able to means clear, i.e. that by prices rationing will go countries to work in attracting sufficient investments Source: Department of Energy presentation on 2013 to 2020 Supply-Demand Outlook and high on occasion.electricity Governmentssupply according need to priceto anticipate rather than in merchant power capacity as long as there is an Updates on Mindanao Power Situation August 2013 that suchthrough fluctuations brownouts will occur or blackouts. and ensure A stronger that independent tariff regulator and transparent market consumersdemand are aware response of price will helprisks mitigate and have market options based pricing.For further information, please contact: What is significant in the pipeline of indicative power power in electricity markets and provide potential What is significant in the pipeline of indicative power projects is that most of them are expansion projects of to mitigate these risks. projects is that most of them are expansion projects of investors with more predictable energy (and existingexisting power power plants. plants. This This would would be bean anindication indication that that power plants, which have been operating in the country  Develop ancillarydemand service) response prices within and therefore electricity decrease Roberto G. Manabat withpower a connectivity plants, which to and have a track been record operating of supplying in the country to the grid, are in a position to expand capacity and obtain markets.investment risks. Chairman & CEO financingwith a connectivitysupport to take to andadvantage a track recordof the expectedof supplying increases to the in demand. For those with existing take-or-pay Fluctuating spot electricity prices offer rewards as KPMG in the Philippines contracts,grid, are this in a is position also a sign to expand that as capacity they look and at obtainthe expected financ- critical periods in the demand-supply balance, they  well as risks.Be prepared The low to price detect elasticity and to ofact electricity upon willing be support able to taketo take market advantage demand of therisks expected under a merchantincreases contractin and/or expect to sell into the WESM at wholesale electricity market manipulation. ForT: +63further 2 885 information, 7000 please contact: demand, especially for small customers, is at least market-baseddemand. For pricing. those with existing take-or-pay contracts, this In order to address concerns about wholesale E: [email protected] partly due to the inability to reward consumers for is also a sign that as they look at the expected critical electricity market manipulation, governments Henry D. Antonio There have been recent discussions, however, on revising the EPIRA framework, prompted by a spike in prices and adjusting their consumption when prices are high. periods in the demand-supply balance, they will be able to must ensure that electricity markets have Head of Advisory a seeming lack of coordination between PSALM, DOE, and the Energy Regulatory Commission (ERC). Such monitoring mechanisms that cannot only detect take market demand risks under a merchant contract and/or KPMG in the Philippines uncertaintyexpect to in sell the into regulatory the WESM framework at market-based may affect pricing. investment decisions and execution of capacity expansions. It manipulation as it is occurring but also take would be useful to take a page from the experience of other countries with merchant power. In the Organisation prompt action to mitigate its impacts. This will T: +63 2 885 7000 ext. 387 for Economic Co-operation and Development (OECD) countries and emerging markets, merchant power projects reduce pressure on the government to respond, E: [email protected] are becoming more common. In OECD countries, it is shown that merchant power investor response has been adequate to match the capacity requirements, as long as wholesale prices for base load and for peaking plants are 5 4 International Energy Agency, Power Generation Investment in Electricity Markets Anoop5 Singh, Private Investment in Power Sector in Developing Countries: Lessons from Reforms in Asian and Latin American Countries allowed to accurately signal emerging demand situations. Investors are able to plan on base load demand given Anoop Singh, Private Investment in Power Sector in Developing Countries: Lessons from Reforms in Asian and Latin American Countries

InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 52 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. TTaxationaxationTaxation of of of InfrInfrInfrastrastrastructuctucturururee Pr ePr Projectsojectsojects MaryCristina KarenCristina Quizon-Sakkam,TaxRoxas, Roxas, AdvisoryAdvisory PDirector,artner Partner, KPMGKPMG, KPMG in inthe the Philippines in Philippinesthe Philippines

InfrastrInfrastructInfrastructucture ure projects projectsure projects are are granted granted are granted fiscal fiscal and fiscal and non-fiscal non-fiscaland non-fiscal incentiv incentiv incentiveses under underes the under the Omnibus Omnibus the Omnibus In vestmentsInvestments Investments Code. Code. DevelopmentAgreementDevelopmentAgreement Agency with the(CIDA),with Agency Philippines, the United Philippines,(CIDA), States such United assuch Agency theStates as Canadian the for Agency Canadian authorities TransferTransferTransfer early pricing in pricing pricing2013 guidelines althoughguidelines guidelines were as were of wereissued date, issued issued bythe the by by Philippinethe the Philippine tax tax Code.To qualify TToo qualifyqualify, the, , project thethe projectproject must mustmust be registered bebe registeredregistered with withwiththe B thetheoard BB oardoardof In vofofestments InInvvestmentsestments (BOI). (BOI).(BOI). 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(25%)unless ofunless theexempted project exempted undercost under unless any of an exemptedthey of f ollothe wing:following: under any of the following: BankInternational for ReconstructionBank’sInternational International Cooperation Cooperation and Development.Bank Agency for Agency Reconstruction (JICA), (JICA), and World and and World Bank’s allocateBank’s Nonetheless, incomeunderNonetheless, the and theOrganisation expenses Philippine the Philippine between fortax Economic authority tax or authority among hasCooperation therelated has power the power to to InternationalDevelopment.International Bank Bankfor Reconstruction for Reconstruction and Development. and Development.parties,allocate inand allocateorder Developmentincome to incomeprevent and expenses andthe(OECD) expensesevasion Transfer between of between taxes Pricing or oramong toorGuidelines. clearlyamong related related 1. Projects of applicants with good track record payments thereto are subject to two percent (2%) Project Operations reflectparties, theAlthough parties,income in order intheamong orderto implementing prevent relatedto prevent the parties. evasion rules the evasionThe and of “arm’s regulationstaxes of taxes or to clearlyor to clearly 1in. implementingPP rojects 1. Projects of applicants ofregistered applicants with projects; good with tracgoodk recordtrack record in in creditablebanks,banks, withholdinginterest interest payments tax pa ifyments the thereto operating thereto are subject companyare subject to tisw oto two An operatingProjectProjectProject companyOperations Operations Operations in the Philippines is subject to the length”reflect testhavereflect the is not used income the been to income evaluateissuedamong among asrelated transactions of therelated parties. time parties. betweenof The writing, “arm’s The the“arm’s 2. Projectsimplementingimplementing of publicly-listed registered registered companies; projects; projects; or classifiedpercentpercent and (2%) notified credit(2%) ascreditable a top withholdingable twenty withholding thousand tax if ttheax ifoperating the operating regularAn corporate operatingAnAn operating operating income company company company tax in (RCIT) the in in Philippinesthe theof Philippinesthirty Philippines percent is subject is is subject (30%) subject to the to to related thelength” taxpayersPhilippinelength” test isfollowing testtax used authorityis usedto OECDevaluate to is evaluate guidelines.empowered transactions transactions by betweenlaw to between 2. Projects 2. Projects of publicly of publicly-listed-listed companies; companies; or or 3. Projects not entitled to Income Tax Holiday (20,000)compan corporationcompanyy is classifi is byclassified the and taxed notifi andauthorities. ednotifi as eda top as On at w thetopent tywent thousandy thousand basedregular onthe netregular corporateregular income. corporate corporate incomeHowever, income incometax beginning (RCIT) tax tax (RCIT) of (RCIT) thethirty of fourth ofthirtypercent thirty percent (30%) (30%) related allocaterelated taxpayers income taxpayers following and following expenses OECD OECD guidelines.between guidelines. or among Note bethat compliance the details with of the the Development formalities or Cooperation reportorial obligations 3. Projects 3. Projects not entitled not entitled to Income to IncomeTax Holida Tax Holidayy (ITH) (ITH) (ITH) other(20,0 hand,0(20,000)0) loanscorporation corporationobtained by bythe bythe tt ax the operating authorities. tax authorities. companyOn theOn other the other taxablebased yearpercentbased on immediately net on(30%) income. net basedincome. following However, on However,net the income.beginning year beginningin whichHowever, the fourth the the fourth Project Incentivesrelated parties, in order to prevent the evasion of duty,3. 3. Exemption impost Exemption3. Exemption and from fees; from wharfagefrom wharfage wharfage dues dues duesand and any and any export any export tax, tax,7. Cash6.7. VAT-zeroincentive Cash6. VAT-zero incentive rate for missionaryon rate forsale on missionary of sale fuel electrification; of or fuel powerelectrification; or power generated; generated; AgreementNoteimposed that should beon the complianceBOI-registered detailsbe carefully of thewith and Developmententities the thoroughly formalities to ensure Cooperationanalyzed or the reportorial continued to percent. asset, Sale there ofOn realis the capital property other gains hand, also tax gainstriggers (CGT) realized at DST the at fromrate the of salerate 6 of shares fromhand, Offshorehand, loans Banking loansobtained obt Units ainedby the (OBUs) by operating the oroperating from compan the companyy from from operatingtaxablebeginning companytaxable year immediatelyyear thecommenced immediatelyfourth taxablefollowing its businessfollowing year the immediately year operations,the inyear which in which the Infrastructure the taxes projects or to clearly (transport, reflect water,the income logistics, among waste related 4. Tax exemptionduty,export duty,impost tax,on impost breedingandduty, fees; andimpost stocksfees; and and fees; genetic 8. Tax7. 8.exemption Cash Tax7. Cashexemptionincentive of incentive carbon for of missionary carbon credits;for missionary credits; and electrification; and electrification; determineAgreementavailment theobligations coverageof should tax incentives. beand imposed carefully duration on and ofBOI-registered thethoroughly tax exemption. analyzed entities ofto 1.5percent. percent, Saleareregardless subject of real ofpropertyto whetherCGT at also the the triggers rate real of property fiveDST percent at is the rate InfusionInfusion of equit of yequity capital capit throughal through subscription subscription of shares of shares of of ProjectProject Incentives Incentives Infusion of equity capital through subscription of ForeignOffshore CurrencyOffshore Banking Deposit Banking Units Units Units(OBUs) (FCDU) (OBUs) or from of or banks thefrom F oreignthein Foreign the corporateoperatingfollowingoperating income company the company taxyear commenced shall in whichcommenced be the the itshigher operatingbusiness its of business the companyoperations, 30 operations, managementInfrastructure parties.Infrastructure facilities, projects tollways, projects (transport, railways,(transport, water, water, logistics, logistics, waste waste materials;4. 4. Tax Tax4. exemption Tax exemption exemption on on breeding breedingon breeding stocks stocks stocks and and genetic and genetic 9. Tax8. 9. credit Tax Tax8. exemption oncreditTax domestic exemption on domesticof carboncapital of carbon capital credits;equipment credits; equipment and and and and Further,determine there ensuremust the coveragebe the compliance continued and duration with availment the of formalities the of tax incentives.exemption. or treated of 1.5as anpercent, ordinary(5%)/ten regardless asset percent(10%). or ofa capital whether Thereasset. the is real also property DST implication is stocksstocks attracts attracts stamp st dutampy tdut ax ofy t ax.5 percent,of .5 percent, based based on the on theCur rencyCurrency Deposit Deposit Unit (FCDU) Unit (FCDU) of banks of banks in the in Philippines the Philippines shares of stocks attracts stamp duty tax of 0.5 the Philippines are generally subject to ten percent percentthe RCITcorporatecommencedthe orcorporate the income two its income percentbusiness tax shall tax(2%) operations, beshall minimumthe be higher the the highercorporate of corporate the of 30 the 30telecommunication managementmanagement facilities, facilities, facilities, tollways, Public-Private tollways, railways, railways,Partnership 5. Tax creditsmaterials;genetic materials;on imported materials; raw materials; services.9. Taxservices.9. credit Tax credit on domestic on domestic capital capital equipment equipment and and reportorialFurther,Repatriation obligations there must imposed be compliance on BOI-registered with the formalities entities or treated asof an 0.375 ordinary percent, asset basedor a capital on the asset. total par value of the percent,total partotal based value par on vof aluethe the totalof originally the par originally value issued of issued theshares. originally shares.Should Should a (10%)a are final generallyare withholding generally subject subject tax. to ten to percent ten percent (10%) (1 final0%) withholding final withholding incomepercent taxincomepercent (MCIT) RCIT tax orRCITwhich shallthe or two isbe the based the percent two higher onpercent gross(2%) of the minimum(2%)income. 30 minimum percent corporate RCIT corporateprojects, telecommunication Projectandtelecommunication disaster Incentives prevention, facilities, facilities, mitigationPublic-Private Public-Private and Partnershiprecovery Partnership 6. Tax5. and5. Tax Tax5. duty-fee credits Tax credits credits on importation on imported importedon imported rawof rawconsigned materials; raw materials; materials; services.services. to ensurereportorialDividends the Repatriationcontinued paidobligations by a availmentdomestic imposed ofcorporation on tax BOI-registered incentives. to non-resident entities shares sold. Lastly, the selling price of the shares issuedforeign shares.foreign investor Shouldinv estoropt toa opt foreignbu yto the bu investor yshares the shares ofopt an to ofe buyxisting an existing tax. tax. incomeorincome the tax two (MCIT) tax percent (MCIT) which (2%) which is based minimum is based on gross corporate on gross income. incomeincome. projects), projects,Infrastructure asprojects, well and as disaster and projects projects disaster prevention, on (transport, ecologicalprevention, mitigation water,solid mitigation waste logistics,and recovery and recovery equipment;6. 6. Tax Tax6. and Tax and duty-fee and duty-fee duty-fee importation importation importation of ofconsigned consigned of consigned Tax andTax duty and exemptions duty exemptions are also are provided also provided for infrastructure for tocorporate ensureDividends theshareholders continued paid are byavailment asubject domestic ofto tax30 corporation incentives.percent final to must not be lower than its book value, otherwise, a theoperating sharesoperating of compan an existing company,y, the operating st theamp stamp dut company,y tduty ax rate t axthe is rate .375 is percent.375 percentIn case of foreign loans, interest payments to the Value Addedtax (MCIT)Tax (VAT) which at the is ratebased of ontwelve gross percent income. (12%) Value is managementprojects),wasteprojects), and as management wellrenewable as as well projects as energyfacilities, projects on (RE)ecological tollways,on development, ecological solid railways, wastesolid are waste 7. Additionalequipment;equipment; equipment;deduction for labor expense; projectsTaxinfrastructure fundedandTax duty and by exemptionsduty Development projects exemptions funded are Cooperation also are by provided Developmentalso provided Agreements for infrastructure for infrastructure Repatriationwithholding non-resident tax. The taxcorporate rate may shareholders be reduced are when subject there to donor’s tax of thirty percent (30%) shall be imposed stampbased dutybased on taxthe on rate tot theal is par total0.375 value par percent vofalue the of basedacquired the acquiredon shares.the shares. offshoreIn case lendersIn ofcase foreign ofare f oreignsubject loans, loans, interestto twenty interest pa ymentspercent payments to(20%) the to of thefshore offshore generallyValueAdded imposed ValueAdded TaxAdded Tax on (VAT) (VAT)sale Tax at of (VAT)at the goodsthe rate at rate the andof of twelverate servicestwelve of twelvepercent percent in, and percent (12%) (12%)on is included(12%) is management is telecommunicationinmanagement the 2013 and Investment renewable and renewablefacilities, Priority energy Public-Private energy Plan (RE) (IPP) development, (RE) as development, are are 8. Employment7. 7. Additional Additional7. Additional of deductionforeign deduction deduction nationals; for for labor forlabor laborexpense; expense; expense; (e.g. projectsAusAid).Cooperationprojects funded Exemptions fundedAgreements by Development bycommonly Development (e.g. AusAid). Cooperationprovided Cooperation Exemptions are Agreementsfor: Agreements DividendsRepatriationis an applicablepaidthirty by a percentdomestic tax treaty (30%) corporation between final withholding the to Philippinesnon-resident tax. and The the tax on the difference. total par value of the acquired shares. finallenders withholdinglenders are subject aretax. subjectThe to twithholdingw entent to tywent percenty tax percent (20%)rate may (20%) final final importationgenerallygenerallygenerally of imposedgoods imposed imposed to onthe sale onPhilippines. on saleof sale goods of of goods goods and andservices and services services in, and in, in, onpreferred and includedon Partnership orincluded mandatory in the in 2013[PPP] the investment Investment2013 projects, Investment areas.and Priority disaster AsPriority Plan such, prevention, (IPP)Plan these as(IPP) as 9. Simplification8. 8. Employment Employment8. Employment of customs of offoreign foreign of procedures;foreign nationals; nationals; nationals; and (e.g.commonly AusAid).(e.g. AusAid). provided Exemptions Exemptions are for: commonly commonly provided provided are for: are for: corporateDividendshome shareholders countryrate paid may of by the abeare domestic shareholder,reduced subject corporationwhento 30 or percenttherewhen to isthe non-residentfinalan home applicable tax In manIny manyinstances, instances, debt financingdebt financing is part is of part the of pre-project the pre-projectbe reducedwithholdingwithholding if there tax. isT t heanax. withholdingapplicable The withholding tax tax treaty rate tax mama ratey be ma reducedy be reduced if if importationandimportation on importationof goods of goods to ofthe goods to Philippines. the toPhilippines. the Philippines. projects,preferred mitigationwhenpreferred or registered mandatory and or mandatory recovery with investment the projects), investment BOI, canareas. as enjoy wellareas. As asthesuch, Asprojects tax such,these these 10. Access9. 9. Simplification Simplification9. to Simplificationbonded ofmanufacturing ofcustoms customs of customs procedures; procedures; warehouse. procedures; and and and 1. Taxes on income received by the personnel of the withholdingcorporatecountry tax. oftreaty shareholders the The shareholder between tax rate are themay allowssubject Philippines be reduced a tocredit 30 and percent whenfor the taxes therehome final paid country in In manyactivities. activities.instances, Local Localtdebtax rules financingtax andrules regulations andis part regulations of the allow allothew the betweenthere thereisthe an Philippines applicableis an applicable andtax treatthe tax homey treaty betw country eenbetw theeen of Philippines the Philippines Operating losses incurred in a tax year may be carried over incentivesprojects,on projects,provided ecological when when forregistered solid under registered waste the with Omnibus management thewith BOI, the Investment canBOI, and enjoy can enjoythe tax the tax 10. Access10. Access to bonded to bonded manufacturing manufacturing warehouse. warehouse. cooperating1.1. Taxes Taxes1. Taxes on onforeign income income on income country received received received for by activities by the the by personnel personnelthe performed personnel of of the of the is an withholdingtheapplicable Philippines.of tax thetax. treaty shareholder,For The repatriation between tax rate or may the whenof capital, Philippinesbe the reduced home foreign and when country investorsthe there of the pre-projectdeductiondeduction activities. of interest of interestLocal payments tax pa rulesyments on and loans on regulations loansfor purposes for purposes of lender. of and theand home the home countr country of they of lender the lender... as a deductionOperatingOperatingOperating fromlosses losses grosslosses incurred incurredincome incurred in a forintax in athree yearatax tax year mayconsecutiveyear may bemay carried be be carried carried overCode overincentives of therenewableincentives Philippines. provided energy provided for (RE) under for development, under the Omnibus the Omnibus are Investment included Investment in For entities engaged in RE development projects, they have in thecooperating Philippines;the cooperating foreign foreign country country for activities for activities performed performed homeiscan country an either applicableshareholder of sell the the taxshareholder, assets treaty allows orbetween sella or credit whenthe the sharesfor the Philippinestaxes home of paidthe operating inand the the allowPhilippine thePhilippine deduction income income of t ax interest subject tax subject payments to the to tax the on arbitrage tloansax arbitrage for rule rule yearsas immediately a overdeductionas a as deduction a deductionfollowing from grossfrom thefrom gross income year gross incomeof forsuch income three forloss, threeforconsecutive provided three consecutive Codethe Codeof 2013 the of Philippines. Investment the Philippines. Priority Plan (IPP) as preferred the optionForFor entities Fortoentities elect entities engaged engagedthe engaged incentives in inRE RE indevelopment grantedREdevelopment development by the projects, projects, Omnibus projects, they havethey have2. Taxes in andperformed the dutiesin Philippines; the Philippines; onin theproject Philippines; supplies and for countryhomecompany. of thecountryPhilippines. shareholder of the shareholder, allows a credit or whenfor taxes the paidhome in purposeswhereinwherein of the Philippine amount the amount income of allo ofw tax able allow subject deductionable deduction to the for tax interest for interest There There areT arealsohere also certare cert ainalso lendersain cert lendersain that lenders that enjo enjo ythat preferentialy enjoprefyerential preferential tax tax that thereyearsconsecutive yearsisimmediately no substantialimmediately years following changeimmediately following the in yearthe the following ownership ofyear such of loss,thesuch of year theprovidedloss, of provided The tax incentivesor mandatory under investment the Omnibus areas. Investment As such, Codethese are Incentivethethey option Codethe have option orto the theelect tooption incentives electthe incentivesto the elect underincentives the granted the incentives Renewable granted by the granted by Omnibus the Omnibus professional2.2. Taxes Taxes2. Taxes and andand duties anddutiestechnical duties on on project materialsproject on project supplies supplies imported supplies and and forinto andfor for the Philippines.country of theFor shareholderrepatriation ofallows capital, a credit foreign for investors taxes paid in arbitrageexpense e rulexpense shall wherein beshall reduced bethe reduced amount by thirt bofyy allowablethirtythree threepercent percent (33%) (33%) of tax of treatmenttreatment in the in Philippines the Philippines such assuc theh as A sianthe Asian De velopment Development businessthat suchthereorthat enterprise. loss, thereis no provided substantialis noSuch substantial thatlosses, change there however, change is in no the substantial in ownershipshall the notownership be of theas of follows: theThe projects,taxThe incentives tax whenincentives under registered under the Omnibus withthe Omnibus the InvestmentBOI, Investmentcan enjoy Code Codeare are EnergyIncentive byAct theIncentive of Omnibus 2008Code which Codeor theIncentive orare incentives the as incentives follows:Code under or the under the incentives Renewable the Renewable the Philippines;professionalprofessionalprofessional and and and technical andtechnical technical materials materials materials imported imported imported into into can eithertheGains Philippines. sell derived Forthe repatriation assets from For salerepatriation or sell ofof assetsthecapital, sharesof arecapital, foreign subject of the foreign investors operating to 30 investors percent can either deductionthe interestthe for interest interest income income expense subjected subjected shall to finalbe to reduced t finalax. Similarlytax. by Similarly,, DevelopmentBank B(ADB)ank Bank(ADB) and (ADB)the and International the and International the International Finance Finance Corporation Corporation (IFC). (IFC). allowedbusiness aschangebusiness a deduction or inenterprise. the or enterprise. ownershipin a taxable Such Suchlosses,of year the losses, duringbusiness however, however,which or shall the notshall be not beas follows:theas taxfollows: incentives provided for under the Omnibus EnergyunderEnergy Act the of Renewable Act 2008 of 2008which Energy which are as Actare follows: asof 2008follows: which are 3. Taxesthe andinto Philippines; dutiesthethe Philippines;Philippines; on personaland andand and household effects, company.canRCIT either or 2sell percentsell the the assets MCIT,assets orwhichever or sell sell the the shares is shares applicable. of of the the operating Inoperating case thirtydocument threedocumentary percentary stamp (33%) stamp tax of (DS taxtheT) (DSinterestpaidT) on paid debtincome on instrdebt uments instruments FinanceSince CorporationSince these these entities (IFC). entities are Sincee xareempt ethesex emptfrom entities Philippinefrom Philippine are income income tax,ax, tax, operatingallowedenterprise. companyallowed as a deduction as was Such a deduction exempt losses, in a taxablefrom however,in a taxableincome year shall during yeartax. not during whichbe which the the1. ITHInvestment of six (6) years Code for of projectsthe Philippines. with pioneer status 1. ITHas follows: of seven (7) years and3.3. motor Taxes Taxes3. Taxes vehiclesand and duties andduties for duties on personalon personal personal on personal use and and imported household andhousehold household and effects, effects, company.the assetcompany. sold is real property and treated as a capital subjected(rate is(rate .5to percent), finalis .5 tax.percent), whoseSimilarly, whose object documentary object is located is located stampor used or usedin the inexempt theinterest frominterest pa Philippineyments payments to income these to these organizations tax, interestorganizations are consequently are consequently The Philippinesoperatingallowedoperating company has as noacompany deduction controlled was exempt was in foreign exempta taxable from corporation incomefrom year income during tax. (CFC) whichtax. and1. forITH 1.projects of ITH six of(6) locatedsix years (6) years forin aprojects Less for projects Developed with pioneerwith Area pioneer status status 2. Duty-free1. ITH1. of importationITH seven of seven (7) years of (7) RE years machinery, equipment exportedandeffects, motorintoand theandmotor vehicles Philippines motor vehicles for vehicles personal by for the personal for personnel usepersonal imported use ofuseimported the and and Gainsasset, derived there from is salecapital of gainsassets tax are (CGT) subject at theto 30 rate percent of 6 taxPhilippines, (DST)Philippines, paid onis t debtax isdeductible. taxinstruments deductible. (rate is 0.5 paymentsexempt ex to emptfrom these withholdingfrom organizations withholding tax. are tax. consequently rules.The Neither thePhilippinesThe operating doesPhilippines it has have company no has formal controlled no was controlledthin exempt capitalizationforeign foreign fromcorporation incomecorporationrules (CFC) tax. (CFC) (LDA);Theand tax four forincentivesand (4) projects yearsfor projects forunder located new locatedthe projectsin Omnibus a Less in awith DevelopedLess Investment Developed Area Area and2. 1.materials; Duty-free ITH2. Duty-freeof seven importation (7)importation years of RE of machinery, RE machinery, equipment equipment cooperatingexportedimportedexported foreign into and the intocountry.exported Philippines the Philippines into bythe the Philippines by personnel the personnel by of the of the RCIT Gainspercent.or 2 percent derived GainsSale MCIT, fromof derived real salewhichever property from of assets sale alsois applicable.of are triggers assets subject are DST In to subjectcase at30 the percent rateto thirty percent), whose object is located or used in the exempt from withholding tax. althoughrules. for rules.Neither BOI Neither registered does doesit have enterprises, it formalhave formal thin a debt-to-equity capitalization thin capitalization rules rules non-pioneerCode(LDA); are(LDA); asfour status; follows: (4) four yearsand (4) three yearsfor new (3) for years projectsnew projectsfor with with 3. Net 2.Operatingand Duty-free materials;and materials;Loss importation Carry-Over of (NOLCO);RE machinery, cooperatingthe personnelcooperating foreign of foreign the country. cooperating country. foreign percent (30%) RCIT or two percent (2%) MCIT, InterestInterest payments, payments, howe hoverwever,, may be may subject be subject to withholding to withholding the assetRCITof 1.5 soldor percent, 2 ispercent real regardless property MCIT, whichever and of whether treated is asapplicable.the a realcapital property In case is Philippines, is tax deductible. A similarA similar preferential preferential tax treatment tax treatment is accorded is accorded to to ratio althoughof 3:1Thealthough must Philippines for beBOI for maintained. registered BOI has registered no controlled enterprises,Tax consolidation enterprises, foreign a debt-to-equity corporationisa debt-to-equityalso expansion/modernizationnon-pioneer1. ITHnon-pioneer of six status; (6) years status; and projects; for three andprojects three(3) years with (3) years forpioneer for 4. Corporate3. Netequipment3. Operating Nettax rateOperating andof Loss 10% materials; Carry-OverLoss after Carry-Over ITH; (NOLCO); (NOLCO); country. whichever is applicable. In case the asset sold is real taxes taxandes the and la wthe designates law designates the operating the operating compan companyy is is asset,thetreated there asset isas capitalsold an ordinary is realgains property assettax (CGT) or and a atcapital treated the rate asset. as of a 6capital A similarinfrastr infrastructpreferentialucture projectsure tax projects treatment funded funded b yis the accorded b yOf theficial Official to Development Development not allowedratio(CFC) ofratio as3:1 eachrules.of must 3:1 company Neither mustbe maintained. be does withinmaintained. it havea Tax corporate consolidationformal Tax consolidation groupthin isis also is also2. Duty expansion/modernizationexemptionstatusexpansion/modernization and on importedfor projects capital projects; located projects;equipment, in a Less 5. Accelerated4. 3. Corporate Net4. Corporate Operating depreciation; tax rate tax Loss of rate 10% Carry-Over of after10% ITH;after (NOLCO); ITH; property and treated as a capital asset, there is designateddesignated to act to as act the as withholding the withholding agent. agent. The rates The ratesof of Interest payments, however, may be subject to infrastructureAssistAssistanceance projects (ODA), (OD InternationalfundedA), International by the Finance official Finance Instit utionsInstitutions (IFI), (IFI), taxednot as allowedcapitalizationa notseparate allowed as eachentity. rulesas companyeach although company within for withinBOI-registered a corporate a corporate group group is is spare2. Duty parts2.Developed exemptionDuty and exemptionaccessories; Area on imported (LDA); on imported four capital (4) capitalyears equipment, for equipment, new 6. VAT-zero5. 4. Accelerated Corporate5. rate Accelerated on sale depreciation;tax ofrate depreciation; fuel of or(10%) power after generated; ITH; Note that the details of the Development capital gains tax (CGT) at the rate of six percent (6%). withholdingwithholding tax var taxy. vary.Thus, Thus,for loans for loansobtained obt ainedfrom localfrom local withholding taxes and the law designates the developmentand internationaland internationalassistance aid through (ODA), aid through Internationala Developmentv aelopment Development Finance Cooperation Cooperation Transfertaxed pricingenterprises,taxed as a separateguidelines as a separatea debt-to-equity entity. were entity. issued ratio by theof 3:1 Philippine must be tax 3. Exemptionspareprojectsspare partsfrom partswharfageand with accessories; andnon-pioneer accessories;dues and status; any export and three tax, (3) 5. Accelerated depreciation; Cooperation Agreement should be carefully and Sale of real property also triggers DST at the rate of operating company is designated to act as the Institutions (IFI), and international aid through a maintained. Tax consolidation is also not allowed as years for expansion/modernization projects; 6. VAT-zero rate on sale of fuel or power thoroughly analyzed to determine the coverage and 1.5 percent, regardless of whether the real property withholding agent. The rates of withholding tax vary. Development Cooperation Agreement with the each company within a corporate group is taxed as a 2. Duty exemption on imported capital generated; duration of the tax exemption. Further, there must is treated as an ordinary asset or a capital asset. Thus, for loans obtained from local banks, interest Philippines, such as the Canadian International separate entity. equipment, spare parts and accessories;

53 | 2Infrastructure | Infrastr2 | Infrastructuct ureIn-depth: Guide:ure PhilippinesGuide: Philippines Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. DevelopmentAgreement DevelopmentAgreement Agency with the(CIDA),with Agency Philippines, the United Philippines,(CIDA), States suc Unitedh assuc Agency theStatesh as Canadian the for Agency CanadianauthoritiesTransfTransfT erearlyransf pricinger erin pricing pricing2013 guidelines althoughguidelines guidelines w ereas w of wissuedere eredate, issued issued bthey the b yb yPhilippinethe the Philippine tax tax InternationalInternationalforInternational International Development Development De Developmentvelopment (USAID), Agency Japan A gency (USAID),(CID International A), (CID United JapanA), United States States implementingauthoritiesPhilippineauthorities rules early tax and inearly authorities 20regulations1 in3 although2013 early although have as in not of2013 asdate, been ofand date,the issued. are thelargely CooperationAgencyInternationalAgency Agencyfor International for (JICA), InternationalCooperation and De Worldvelopment AgencyDev Bank’selopment (JICA),(US InternationalAID), (US and AID),Japan World Japan Nonetheless,implementingbasedimplementing the on Philippine the rules arm's andrules tax lengthregulations and authority regulations methodologies hahasve the nothav power ebeen asnot set been issued.to out issued. BankInternational for ReconstructionBank’sInternational International Cooperation Cooperation and Development.BankAgency for A gencyReconstruction (JICA), (JICA), and World and and World Bank’s allocateBank’sNonetheless, incomeunderNonetheless, the and theOrganisation expenses Philippine the Philippine between fortax Economic authorit tax or authorit among y hasCooperation y therelated has po thewer po tower to InternationalDevelopment.International Bank Bforank Reconstr for Reconstruction uction and De andvelopment. Development. parties,allocate inand allocateorder Developmentincome to incomeprevent and e andxpensesthe(OECD) eevasionxpenses Transfer bet wof een bet taxes Pricingw oreen oramong toorGuidelines. clearlyamong related related 1. Projects of applicants with good track record payments thereto are subject to two percent (2%) Project Operations reflectparties, theAlthough parties,income in order intheamong orderto implementing pre relatedtovent pre thevent parties. evasion rules the evasionThe and of “arm’s regulationstaxes of taxesor to clearlyor to clearly 1.in implementingProjects1. Projects of applicants ofregistered applicants with projects; good with trackgood recordtrack record in in creditablebanks,banks, withholdinginterest interest payments tax payments if the thereto operating thereto are subject companyare subject to twois to two An operatingProject PProject roject companyOperations Operations Operations in the Philippines is subject to the length”refl ecttest haverefl the is ectnot used income the been to income evaluateissuedamong among asrelated transactions of therelated parties. time parties. betweenofThe writing, “arm’s The the“arm’s 2. Projectsimplementingimplementing of publicly-listed registered registered companies; projects; projects; or classifiedpercentpercent and (2%) notified creditable(2%) ascreditable a top withholding twenty withholding thousand tax if taxthe ifoperating the operating regularAn corporate operatingAnAn operating operating income compan compan compan taxy in (RCIT) ythe yin in Philippinesthe theof Philippinesthirty Philippines percent is subject is is subject (30%) subject to the to torelated thelength” taxpayersPhilippinelength” test isfollowing testtax used authorityis usedto OECDev aluateto is e guidelines.empoweredvaluate transactions transactions by betlawween to bet ween 2. Projects2. Projects of publicly-listed of publicly-listed companies; companies; or or 3. Projects not entitled to Income Tax Holiday (20,000)company corporationcompany is classified is byclassified the and tax notified andauthorities. notified as a top asOn atwenty thetop twenty thousand thousand basedregular onthe netregular corporateregular income. corporate corporate incomeHowever, income incometax beginning (RCIT) tax tax (RCI of (RCI thethirtT) ofT) fourth y ofthirtpercent thirty percent y (30%) (30%)relatedallocaterelated taxpayers income taxpayers follo andwing follo expenses wingOECD OECD guidelines.between guidelines. or among Note bethat compliance the details with of the the Development formalities or Cooperation reportorial obligations 3. Projects3. 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Tax creditsmaterials;genetic materials;on imported materials; raw materials; services.9. Taxservices.9. credit Tax credit on domestic on domestic capital capital equipment equipment and and reportorialFurther,Repatriation obligations there must imposed be compliance on BOI-registered with the formalities entities or treated asof an 0.375 ordinary percent, asset basedor a capital on the asset. total par value of the percent,total partotal based value par on valueof the the totalof originally the par originally value issued of issued theshares. originally shares. 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Taxes on onforeign income income on income country received received received for by activities by the the by personnel personnelthe performed personnel of of the of the is an withholdingtheapplicable Philippines.of tax thetax. treaty shareholder,For The repatriation between tax rate or may the whenof capital, Philippinesbe the reduced home foreign and when country investorsthe there of the pre-projectdeductiondeduction activities. of interest of interest Local payments tax payments rules on and loans on regulations loansfor purposes for purposes of lender. of and theand home the home country country of the of lender. the lender. as a deductionOperatingOperatingOperating fromlosses losses grosslosses incur incurincome redincur inredred a forintax in athree yearat axtax y mayconsecutiveearyear ma bemay carried ybe be car car riedoverriedCode overincentives of therenewableincentives Philippines. provided energy provided for (RE) under for development, under the Omnibus the Omnibus are In vestmentincluded Investment in For entities engaged in RE development projects, they have in thecooperating Philippines;the cooperating foreign foreign country country for activities for activities performed performed homeiscan country an either applicableshareholder of sell the the taxshareholder, assets treaty allows orbetween sella or credit whenthe the sharesfor the Philippinestaxes home of paidthe operating inand the the allowPhilippine thePhilippine deduction income income of tax interest subject tax subject payments to the to tax the on arbitrage taxloans arbitrage for rule rule yearsas immediately a overdeductionas a as deduction a deductionfollowing from grossfrom thefrom gross income year gross incomeof fsuch orincome three floss,or threeforconsecutiv provided three consecutiv e e Codethe Codeof 2013 the of Philippines. Investment the Philippines. Priority Plan (IPP) as preferred the optionForFor entities Fortoentities elect entities engaged engagedthe engaged incentives in inRE RE indevelopment grantedREdevelopment development by the projects, projects, Omnibus projects, they havethey have2. Taxes in andperformed the dutiesin Philippines; the Philippines; onin theproject Philippines; supplies and for countryhomecompany. of thecountryPhilippines. shareholder of the shareholder, allows a credit or whenfor taxes the paidhome in purposeswhereinwherein of the Philippine amount the amount income of allowable of tax allowable subject deduction deduction to the for tax interest for interest There There areThere arealso also certainare certain also lenders certain lenders that lenders that enjoy enjoy that preferential enjoypreferential preferential tax tax that thereyears consecutive yisimmediatelyears no substantialimmediately years following changeimmediately following the in yearthe the following ownership ofyear such of loss,thesuch of year theprovidedloss, of providedThe tax incentivesor mandatory under investment the Omnibus areas. 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Taxes and andand duties anddutiestechnical duties on on project materialsproject on project supplies supplies imported supplies and and forinto andfor for the Philippines.country of theFor shareholderrepatriation ofallows capital, a credit foreign for investors taxes paid in arbitrageexpenseexpense rule shall wherein beshall reduced bethe reduced amount by thirty byof allowablethirtythree threepercent percent (33%) (33%) of tax of treatment treatment in the in Philippines the Philippines such assuch the as Asian the Asian Development Development businessthat suchthereorthat enterprise. loss, thereis no provided substis noSuch substantial thatlosses, antialc hange there however, c hangeis in no the substantial in oshall wnershipthe notownership be of theas of follows: theThe projects,taxThe incentiv tax whenincentives under registeredes under the Omnibus withthe Omnibus the InBOI,vestment Incanvestment enjoy Code Codeare are EnergyIncentive byAct theIncentive of Omnibus 2008Code which Codeor theIncentive orare incentives the as incentives follows:Code under or the under the incentives Renewable the Renewable the Philippines;professionalprofessionalprofessional and and and technical andtechnical technical materials materials materials imported imported imported into into can eithertheGains Philippines. sell derived Forthe repatriation assets from For salerepatriation or sell ofof assetsthecapital, sharesof arecapital, foreign subject of the foreign investors operating to 30 investors percent can either deductionthe interestthe for interest interest income income expense subjected subjected shall to finalbe to reduced tax. final Similarly,tax. by Similarly, DevelopmentBank Bank(ADB) Bank(ADB) and (ADB)the and International the and International the International Finance Finance Corporation Corporation (IFC). (IFC). allowedbusiness aschangebusiness a deduction or inenterprise. the or enterprise. ownershipin a taxable Such Suclosses,of year theh losses, duringbusiness however howhichwever ,or shall the, notshall be not beas follows:theas taxfollows: incentives provided for under the Omnibus EnergyunderEnergy Act the of Renewable Act 2008 of 2008which Energy which are as Actare follows: asof 2008follows: which are 3. 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Taxes vehiclesand and duties andduties for duties on personalon personal personal on personal use and and imported household andhousehold household and effects, effects, company.the assetcompany. sold is real property and treated as a capital subjected(rate is(rate .5to percent), finalis .5 tax.percent), whoseSimilarly, whose object documentary object is located is located stampor used or usedin the in exempt theinterest frominterest payments Philippine payments to income these to these organizations tax, interestorganizations are consequently are consequently The Philippinesoperatingallowedoperating compan has as noacompan deduction ycontrolled wasy ex wasempt in foreign exa taxable emptfrom corporation incomefrom year income during tax. (CFC) which tax. and1. for ITH 1.projects of ITH six of(6) locatedsix years (6) y finearsor aprojects Less for projects Developed with pioneerwith Area pioneer status st atus 2. Duty-free1. ITH1. of importationITH seven of seven (7) years of (7) RE years machinery, equipment exportedandeffects, motorintoand theandmotor vehicles Philippines motor vehicles for vehicles personal by for the personal for personnel usepersonal imported use ofuseimported the and and Gainsasset, derived there from is salecapital of gainsassets tax are (CGT) subject at theto 30 rate percent of 6 taxPhilippines, (DST)Philippines, paid onis tax debt isdeductible. taxinstruments deductible. (rate is 0.5 paymentsexemptexempt to from these withholdingfrom organizations withholding tax. are tax. consequently rules.T Neitherhe thePhilippinesThe operating doesPhilippines it has have company no has formal controlled no was controlledthin exempt capitalizationforeign foreign fromcorporation incomecorporationrules (CFC) tax. (CFC) (LDA);Theand tax four forincentivesand (4) projects yearsfor projects forunder located new locatedthe projectsin Omnibus a Less in awith DevelopedLess Investment Developed Area Area and2. 1.materials; Duty-free ITH2. Duty-freeof seven importation (7)importation years of RE of machinery, RE machinery, equipment equipment cooperatingexportedimportedexported foreign into and the intocountry.exported Philippines the Philippines into bythe the Philippines by personnel the personnel by of the of the RCIT Gainspercent.or 2 percent derived GainsSale MCIT, fromof derived real salewhichever property from of assets sale alsois applicable.of are triggers assets subject are DST In to subjectcase at30 the percent rateto thirty percent), whose object is located or used in the exempt from withholding tax. althoughrules. for rNeitherules. BOI Neither registered does doesit ha enterprises,ve it fhaormal ve formal thin a debt-to-equity capit thinalization capitalization rules rules non-pioneerCode(LDA); are(LDA); asfour status; follows: (4) four yearsand (4) three yearsfor ne (3) forw years projectsnew projectsfor with with 3. Net 2.Operatingand Duty-free materials;and materials;Loss importation Carry-Over of (NOLCO);RE machinery, cooperatingthe personnelcooperating foreign of foreign the country. cooperating country. foreign percent (30%) RCIT or two percent (2%) MCIT, InterestInterest payments, payments, however, however, may be may subject be subject to withholding to withholding the assetRCITof 1.5 soldor percent, 2 ispercent real regardless property MCIT, whichever and of whether treated is asapplicable.the a realcapital property In case is Philippines, is tax deductible. A similarA similar preferential preferential tax treatment tax treatment is accorded is accorded to to ratio althoughof 3:1Thealthough must Philippines for beBOI f maintained.or registered BOI has registered no controlled enterprises,Tax consolidation enterprises, foreign a debt-to-equit corporationisa debt-to-equitalso y y expansion/modernizationnon-pioneer1. ITHnon-pioneer of six st (6)at us;years st andat projects;us; for three andprojects three(3) y earswith (3) y forpioneerears for 4. Corporate3. Netequipment3. Operating Nettax rateOperating andof Loss 10% materials; Carry-OverLoss after Carry-Over ITH; (NOLCO); (NOLCO); country. whichever is applicable. In case the asset sold is real taxes taxesand the and law the designates law designates the operating the operating company company is is asset,thetreated there asset isas capitalsold an ordinary is realgains property assettax (CGT) or and a atcapital treated the rate asset. as of a 6capital A similarinfrastructure infrastructurepreferential projects tax projects treatment funded funded by is the accorded by Official the Official to Development Development not allowedratio(CFC) ofratio as3:1 eachrules.of must 3:1 company Neither mustbe maint be does withinmaintained. it ained.havea Tcorporateax consolidationformal Tax consolidation groupthin isis also is also2. Duty eexemptionxpansion/modernization statusexpansion/modernization and on importedfor projects capital projects; located projects;equipment, in a Less 5. Accelerated4. 3. Corporate Net4. Corporate Operating depreciation; tax rate tax Loss of rate 10% Carry-Over of after10% ITH;after (NOLCO); ITH; property and treated as a capital asset, there is designateddesignated to act to as act the as withholding the withholding agent. agent. The rates The ratesof of Interest payments, however, may be subject to infrastructureAssistanceAssistance projects (ODA), (ODA), Internationalfunded International by the Finance official Finance Institutions Institutions (IFI), (IFI), taxednot as allowedcapitalizationa notseparate allowed as eachentity. rulesas companeach although company within fory withinBOI-registered a corporate a corporate group group is is spare2. Duty parts2.Developed exDuty andemption exaccessories;emption Area on imported (LDA); on imported four capit (4)al capityears equipment,al for equipment, new 6. VAT-zero5. 4. Accelerated Corporate5. rate Accelerated on sale depreciation;tax ofrate depreciation; fuel of or(10%) power after generated; ITH; Note that the details of the Development capital gains tax (CGT) at the rate of six percent (6%). withholdingwithholding tax vary. tax vary.Thus, Thus,for loans for loansobtained obtained from localfrom local withholding taxes and the law designates the developmentand internationaland internationalassistance aid through (ODA), aid through Internationala Development a Development Finance Cooperation Cooperation Transfertaxed pricingenterprises,tax as eda separateguidelines as a separatea debt-to-equity entit werey. entit issuedy. ratio by theof 3:1 Philippine must be tax 3. Exemptionspareprojectsspare partsfrom partswharfageand with accessories; andnon-pioneer accessories;dues and status; any export and three tax, (3) 5. Accelerated depreciation; Cooperation Agreement should be carefully and Sale of real property also triggers DST at the rate of operating company is designated to act as the Institutions (IFI), and international aid through a maintained. Tax consolidation is also not allowed as years for expansion/modernization projects; 6. VAT-zero rate on sale of fuel or power thoroughly analyzed to determine the coverage and 1.5 percent, regardless of whether the real property withholding agent. The rates of withholding tax vary. Development Cooperation Agreement with the each company within a corporate group is taxed as a 2. Duty exemption on imported capital generated; duration of the tax exemption. Further, there must is treated as an ordinary asset or a capital asset. Thus, for loans obtained from local banks, interest Philippines, such as the Canadian International separate entity. equipment, spare parts and accessories;

InfrastructInfrastructureInfrastructure Infrastruct Guide:ure In-depth: Guide: urePhilippines Guide: PhilippinesPhilippines Philippines| 3 || 543 | 3 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. DevelopmentAgreementDevelopmentAgreement Agency with the(CIDA),with Agency Philippines, the United Philippines,(CIDA), States such United assuch Agency theStates as Canadian the for Agency Canadian authorities TransferTransferTransfer early pricing in pricing pricing2013 guidelines althoughguidelines guidelines were as were of wereissued date, issued issued bythe the by by Philippinethe the Philippine tax tax InternationalInternationalforInternational International Development Development Development Development (USAID), Agency Japan Agency (USAID),(CIDA), International (CIDA), United Japan United States States implementingauthorities Philippineauthorities rules early tax and inearly authorities 2013regulations in although2013 early although have as in not of2013 asdate, been ofand date,the issued. are thelargely CooperationAgencyInternationalAgency Agencyfor International for (JICA), InternationalCooperation and Development World AgencyDevelopment Bank’s (JICA),(USAID), International (USAID), and Japan World Japan Nonetheless, implementingbasedimplementing the on Philippine the rules arm's andrules tax lengthregulations and authority regulations methodologies havehas the nothave power been asnot set been issued.to out issued. BankInternational for ReconstructionBank’sInternational International Cooperation Cooperation and Development.Bank Agency for Agency Reconstruction (JICA), (JICA), and World and and World Bank’s allocateBank’s Nonetheless, incomeunderNonetheless, the and theOrganisation expenses Philippine the Philippine between fortax Economic authority tax or authority among hasCooperation therelated has power the power to to InternationalDevelopment.International Bank Bankfor Reconstruction for Reconstruction and Development. and Development.parties,allocate inand allocateorder Developmentincome to incomeprevent and expenses andthe(OECD) expensesevasion Transfer between of between taxes Pricing or oramong toorGuidelines. clearlyamong related related 1. Projects of applicants with good track record payments thereto are subject to two percent (2%) Project Operations reflectparties, theAlthough parties,income in order intheamong orderto implementing prevent relatedto prevent the parties. evasion rules the evasionThe and of “arm’s regulationstaxes of taxes or to clearlyor to clearly 1.in implementingProjects1. Projects of applicants ofregistered applicants with projects; good with trackgood recordtrack record in in creditablebanks,banks, withholdinginterest interest payments tax payments if the thereto operating thereto are subject companyare subject to twois to two An operatingProjectProjectProject companyOperations Operations Operations in the Philippines is subject to the length”reflect testhavereflect the is not used income the been to income evaluateissuedamong among asrelated transactions of therelated parties. time parties. betweenof The writing, “arm’s The the“arm’s 2. Projectsimplementingimplementing of publicly-listed registered registered companies; projects; projects; or classifiedpercentpercent and (2%) notified creditable(2%) ascreditable a top withholding twenty withholding thousand tax if taxthe ifoperating the operating regularAn corporate operatingAnAn operating operating income company company company tax in (RCIT) the in in Philippinesthe theof Philippinesthirty Philippines percent is subject is is subject (30%) subject to the to to related thelength” taxpayersPhilippinelength” test isfollowing testtax used authorityis usedto OECDevaluate to is evaluate guidelines.empowered transactions transactions by betweenlaw to between 2. Projects2. Projects of publicly-listed of publicly-listed companies; companies; or or 3. Projects not entitled to Income Tax Holiday (20,000)company corporationcompany is classified is byclassified the and tax notified andauthorities. notified as a top asOn atwenty thetop twenty thousand thousand basedregular onthe netregular corporateregular income. corporate corporate incomeHowever, income incometax beginning (RCIT) tax tax (RCIT) of (RCIT) thethirty of fourth ofthirtypercent thirty percent (30%) (30%) related allocaterelated taxpayers income taxpayers following and following expenses OECD OECD guidelines.between guidelines. or among Note bethat compliance the details with of the the Development formalities or Cooperation reportorial obligations 3. Projects3. Projects not entitled not entitled to Income to Income Tax Holiday Tax Holiday (ITH) (ITH) (ITH) other(20,000) hand,(20,000) loanscorporation corporationobtained by bythe bythe tax the operating authorities. tax authorities. company On the On other the other taxablebased yearpercentbased on immediately net on(30%) income. net basedincome. following However, on However,net the income.beginning year beginningin whichHowever, the fourth the the fourth Project Incentivesrelated parties, in order to prevent the evasion of duty,3. 3. Eximpost Ex3.emption emption Ex emptionand from fees; from wharffrom wharf wharfageage duesage dues duesand and an and any exporty an y export tax, tax,7. Cash6.7. 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Tax creditsmaterials;genetic materials;on imported materials; raw materials; services.9. Tax services.9. credit Tax credit on domestic on domestic capital capit equipmental equipment and and reportorialFurther,Repatriation obligations there must imposed be compliance on BOI-registered with the formalities entities or treated asof an 0.375 ordinary percent, asset basedor a capital on the asset. total par value of the percent,total partotal based value par on valueof the the totalof originally the par originally value issued of issued theshares. originally shares. Should Should a (10%)a are final generallyare withholding generally subject subject tax. to ten to percent ten percent (10%) (10%) final withholding final withholding incomepercent taxincomepercent (MCIT) RCIT tax orRCITwhich shallthe or two isbe the based the percent two higher onpercent gross(2%) of the minimum(2%)income. 30 minimum percent corporate RCIT corporateprojects, telecommunication Projectandtelecommunication disaster Incentives prevention, facilities, facilities, mitigationPublic-Private Public-Private and Partnershiprecovery Partnership 6. Tax5. and5.Tax T5. axduty-fee credits Tcreditsax credits on importation on imported importedon imported raof w raconsigned wmaterials; ra materials;w materials; services.services. to ensurereportorialDividends the Repatriationcontinued paidobligations by a availmentdomestic imposed ofcorporation on tax BOI-registered incentives. to non-resident entities shares sold. 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(12%) Value is managementprojects),wasteprojects), and as management wellrenewable as as well projects as energyfacilities, projects on (RE)ecological tollways,on development, ecological solid railways, wastesolid are waste 7. Additionalequipment;equipment; equipment;deduction for labor expense; projectsTaxinfrastructure fundedandTax duty and by exduty Development projectsemptions exemptions funded are Cooperation also are by pro Developmentalsovided pro Agreements videdfor infrastructure for infrastructure Repatriationwithholding non-resident tax. The taxcorporate rate may shareholders be reduced are when subject there to donor’s tax of thirty percent (30%) shall be imposed stampbased dutybased on taxthe on rate total the is par total0.375 value par percent valueof the of basedacquired the acquiredon shares.the shares. offshoreIn case lendersIn ofcase foreign ofare foreign subject loans, loans, interestto twenty interest payments percent payments to(20%) the to offshore the offshore generallyValueAdded imposed ValueAdded TaxAdded Tax on (VAT) (VAT)sale Tax at of (VAT)at the goodsthe rate at rate the andof of twelverate servicestwelve of twelvepercent percent in, and percent (12%) (12%)on is included(12%) is management is telecommunicationinmanagement the 2013 and Investment renewable and renewablefacilities, Priority energy Public-Private energy Plan (RE) (IPP) development, (RE) as development, are are 8. Employment7. 7.Additional A7.dditional Additional of deductionforeign deduction deduction nationals; for f orlabor flaboror laborexpense; expense; expense; (e.g. projectsAusAid).Cooperationprojects fundedExemptions fundedAgreements by Dev bcommonlyyelopment Dev (e.g.elopment AusAid). 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Employment ymentof customsyment of offoreign f oforeign procedures;foreign nationals; nationals; nationals; and (e.g.commonly AusAid).(e.g. AusAid). providedExemptions Ex areemptions for: commonly commonly provided pro videdare for: are for: corporateDividendshome shareholders countryrate paid may of by the abeare domestic shareholder,reduced subject corporationwhento 30 or percenttherewhen to isthe non-residentfinalan home applicable tax In manyIn manyinstances, instances, debt financingdebt financing is part is of part the of pre-project the pre-project be reducedwithholding withholding if there tax. is The tax. an withholdingapplicable The withholding tax tax treaty rate tax may rate be may reduced be reduced if if importationandimportation on importationof goods of goods to ofthe goods to Philippines. the toPhilippines. the Philippines. projects,preferred mitigationwhenpreferred or registered mandatory and or mandatory recovery with investment the projects), investment BOI, canareas. as enjoy wellareas. 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Tax Tax1.es esTaxes on onforeign income income on income country receiv receiv received edfored b activities yb ythe the b ypersonnel personnelthe performed personnel of of the of the is an withholdingtheapplicable Philippines.of tax thetax. treaty shareholder,For The repatriation between tax rate or may the whenof capital, Philippinesbe the reduced home foreign and when country investorsthe there of the pre-projectdeductiondeduction activities. of interest of interest Local payments tax payments rules on and loans on regulations loansfor purposes for purposes of lender. of and theand home the home country country of the of lender. the lender. as a deductionOperatingOperatingOperating fromlosses losses grosslosses incurred incurredincome incurred in a forintax in athree yearatax tax year mayconsecutiveyear may bemay carried be be carried carried overCode overincentives of therenewableincentives Philippines. provided energy provided for (RE) under for development, under the Omnibus the Omnibus are Investment included Investment in For entities engaged in RE development projects, they have in thecooperating Philippines;the cooperating foreign foreign countr country for activitiesy fforor activities performed performed homeiscan country an either applicableshareholder of sell the the taxshareholder, assets treaty allows orbetween sella or credit whenthe the sharesfor the Philippinestaxes home of paidthe operating inand the the allowPhilippine thePhilippine deduction income income of tax interest subject tax subject payments to the to tax the on arbitrage taxloans arbitrage for rule rule yearsas immediately a overdeductionas a as deduction a deductionfollowing from grossfrom thefrom gross income year gross incomeof forsuch income three forloss, threeforconsecutive provided three consecutive Codethe Codeof 2013 the of Philippines. 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Taxes in andperformed the dutiesin Philippines; the Philippines; onin theproject Philippines; supplies and for countryhomecompany. of thecountryPhilippines. shareholder of the shareholder, allows a credit or whenfor taxes the paidhome in purposeswhereinwherein of the Philippine amount the amount income of allowable of tax allowable subject deduction deduction to the for tax interest for interest There There areThere arealso also certainare certain also lenders certain lenders that lenders that enjoy enjoy that preferential enjoypreferential preferential tax tax that thereyearsconsecutive yearsisimmediately no substantialimmediately years following changeimmediately following the in yearthe the following ownership ofyear such of loss,thesuch of year theprovidedloss, of provided The tax incentivesor mandatory under investment the Omnibus areas. 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(IFC). allowedbusiness aschangebusiness a deduction or inenterprise. the or enterprise. ownershipin a taxable Such Suchlosses,of year the losses, duringbusiness however, however,which or shall the notshall be not beas follows:theas taxfollows: incentives provided for under the Omnibus EnergyunderEnergy Act the of Renewable Act 2008 of 2008which Energy which are as Actare follows: asof 2008follows: which are 3. Taxesthe andinto Philippines; dutiesthethe Philippines;Philippines; on personaland andand and household effects, company.canRCIT either or 2sell percentsell the the assets MCIT,assets orwhichever or sell sell the the shares is shares applicable. of of the the operating Inoperating case thirtydocumentary threedocumentary percent stamp (33%) stamp tax of (DST) taxthe (DST)interestpaid on paid debtincome on instrumentsdebt instruments Finance Since CorporationSince these these entities (IFC). entities are Sinceexempt are exemptthese from entities Philippinefrom Philippine are income income tax, tax, operatingallowedenterprise. companyallowed as a deduction as was Such a deduction exempt losses, in a taxablefrom however,in a taxableincome year shall during yeartax. not during whichbe which the the1. ITHInvestment of six (6) years Code for of projectsthe Philippines. with pioneer status 1. ITHas follows: of seven (7) years and3.3. motorTaxes Taxes3. Taxes vehiclesand and duties andduties for duties on personalon personal personal on personal use and and imported household andhousehold household and effects, effects, company.the assetcompany. sold is real property and treated as a capital subjected(rate is(rate .5to percent), finalis .5 tax.percent), whoseSimilarly, whose object documentary object is located is located stampor used or usedin the in exempt theinterest frominterest payments Philippine payments to income these to these organizations tax, interestorganizations are consequently are consequently The Philippinesoperatingallowedoperating company has as noacompany deduction controlled was exempt was in foreign exempta taxable from corporation incomefrom year income during tax. (CFC) whichtax. and1. forITH 1.projects of ITH six of(6) locatedsix years (6) years forin aprojects Less for projects Developed with pioneerwith Area pioneer status status 2. Duty-free1. ITH1. of importationITH seven of seven (7) years of (7) RE years machinery, equipment exportedandeffects, motorintoand theandmotor vehicles Philippines motor vehicles for vehicles personal by for the personal f or personnel usepersonal imported use ofuseimported the and and Gainsasset, derived there from is salecapital of gainsassets tax are (CGT) subject at theto 30 rate percent of 6 taxPhilippines, (DST)Philippines, paid onis tax debt isdeductible. taxinstruments deductible. (rate is 0.5 paymentsexemptexempt to from these withholdingfrom organizations withholding tax. are tax. consequently rules.The Neither thePhilippinesThe operating doesPhilippines it has have company no has formal controlled no was controlledthin exempt capitalizationforeign foreign fromcorporation incomecorporationrules (CFC) tax. (CFC) (LDA);Theand tax four forincentivesand (4) projects yearsfor projects forunder located new locatedthe projectsin Omnibus a Less in awith DevelopedLess Investment Developed Area Area and2. 1.materials;Duty ITH2. -free Dutyof seven import-free (7)importation years ationof RE of mac REhinery machinery, equipment, equipment cooperatingexportedimportedexported foreign into and the intocountry.exported Philippines the Philippines into bthey the Philippines by personnel the personnel by of the of the RCIT Gainspercent.or 2 percent derived GainsSale MCIT, fromof derived real salewhichever property from of assets sale alsois applicable.of are triggers assets subject are DST In to subjectcase at30 the percent rateto thirty percent), whose object is located or used in the exempt from withholding tax. althoughrules. for rules.Neither BOI Neither registered does doesit have enterprises, it formalhave formal thin a debt-to-equity capitalization thin capitalization rules rules non-pioneerCode(LDA); are(LDA); asfour status; follows: (4) four yearsand (4) three yearsfor new (3) for years projectsnew projectsfor with with 3. Net 2.Operatingand Duty-free materials;and materials;Loss importation Carry-Over of (NOLCO);RE machinery, cooperatingthe personnelcooperating foreign of f theoreign countr cooperating country. y. foreign percent (30%) RCIT or two percent (2%) MCIT, InterestInterest payments, payments, however, however, may be may subject be subject to withholding to withholding the assetRCITof 1.5 soldor percent, 2 ispercent real regardless property MCIT, whichever and of whether treated is asapplicable.the a realcapital property In case is Philippines, is tax deductible. A similarA similar preferential preferential tax treatment tax treatment is accorded is accorded to to ratio althoughof 3:1Thealthough must Philippines for beBOI for maintained. registered BOI has registered no controlled enterprises,Tax consolidation enterprises, foreign a debt-to-equity corporationisa debt-to-equityalso expansion/modernizationnon-pioneer1. ITHnon-pioneer of six status; (6) years status; and projects; for three andprojects three(3) years with (3) years forpioneer for 4. Corporate3. Netequipment3. Operating Nettax rateOperating andof L oss10% materials; Carry-OvL ossafter Carry-Ov ITH; er (NOLCO);er (NOLCO); country. whichever is applicable. In case the asset sold is real taxes taxesand the and law the designates law designates the operating the operating company company is is asset,thetreated there asset isas capitalsold an ordinary is realgains property assettax (CGT) or and a atcapital treated the rate asset. as of a 6capital A similarinfrastructure infrastructurepreferential projects tax projects treatment funded funded by is the accorded by Official the Official to Development Development not allowedratio(CFC) ofratio as3:1 eachrules.of must 3:1 company Neither mustbe maintained. be does withinmaintained. it havea Tax corporate consolidationformal Tax consolidation groupthin isis also is also2. Duty expansion/modernizationexemptionstatusexpansion/modernization and on importedfor projects capital projects; located projects;equipment, in a Less 5. Accelerated4. 3.Corporate Net4. Corporate Operating depreciation; tax rate t axLoss of rate 1 Carry-Over0% of after10% ITH;after (NOLCO); ITH; property and treated as a capital asset, there is designateddesignated to act to as act the as withholding the withholding agent. agent. The rates The ratesof of Interest payments, however, may be subject to infrastructureAssistanceAssistance projects (ODA), (ODA), Internationalfunded International by the Finance official Finance Institutions Institutions (IFI), (IFI), taxednot as allowedcapitalizationa notseparate allowed as eachentity. rulesas companyeach although company within for withinBOI-registered a corporate a corporate group group is is spare2. Duty parts2.Developed exemptionDuty and exemptionaccessories; Area on imported (LDA); on imported four capital (4) capitalyears equipment, for equipment, new 6. VAT-zero5. 4.Accelerated Corporate5. rate Accelerated on sale depreciation;tax ofrate depreciation; fuel of or(10%) power after generated; ITH; Note that the details of the Development capital gains tax (CGT) at the rate of six percent (6%). withholdingwithholding tax vary. tax vary.Thus, Thus,for loans for loansobtained obtained from localfrom local withholding taxes and the law designates the developmentand internationaland internationalassistance aid through (ODA), aid through Internationala Development a Development Finance Cooperation Cooperation Transfertaxed pricingenterprises,taxed as a separateguidelines as a separatea debt-to-equity entity. were entity. issued ratio by theof 3:1 Philippine must be tax 3. Exemptionspareprojectsspare partsfrom partswharfageand with accessories; andnon-pioneer accessories;dues and status; any export and three tax, (3) 5. Accelerated depreciation; Cooperation Agreement should be carefully and Sale of real property also triggers DST at the rate of operating company is designated to act as the Institutions (IFI), and international aid through a maintained. Tax consolidation is also not allowed as years for expansion/modernization projects; 6. VAT-zero rate on sale of fuel or power thoroughly analyzed to determine the coverage and 1.5 percent, regardless of whether the real property withholding agent. The rates of withholding tax vary. Development Cooperation Agreement with the each company within a corporate group is taxed as a 2. Duty exemption on imported capital generated; duration of the tax exemption. Further, there must is treated as an ordinary asset or a capital asset. Thus, for loans obtained from local banks, interest Philippines, such as the Canadian International separate entity. equipment, spare parts and accessories;

2 | Infrastr255 | Infrastruct | Infrastructure2uct |ure Infrastruct Guide:ure Guide: In-depth: urePhilippines Guide: Philippines Philippines Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. DevelopmentAgreementDevelopmentAgreement Agency with the(CIDA),with Agency Philippines, the United Philippines,(CIDA), States such United assuch Agency theStates as Canadian the for Agency Canadian authorities TransferTransferTransfer early pricing in pricing pricing2013 guidelines althoughguidelines guidelines were as were of wereissued date, issued issued bythe the by by Philippinethe the Philippine tax tax InternationalInternationalforInternational International Development Development Development Development (USAID), Agency Japan Agency (USAID),(CIDA), International (CIDA), United Japan United States States implementingauthorities Philippineauthorities rules early tax and inearly authorities 2013regulations in although2013 early although have as in not of2013 asdate, been ofand date,the issued. are thelargely CooperationAgencyInternationalAgency Agencyfor International for (JICA), InternationalCooperation and Development World AgencyDevelopment Bank’s (JICA),(USAID), International (USAID), and Japan World Japan Nonetheless, implementingbasedimplementing the on Philippine the rules arm's andrules tax lengthregulations and authority regulations methodologies havehas the nothave power been asnot set been issued.to out issued. BankInternational for ReconstructionBank’sInternational International Cooperation Cooperation and Development.Bank Agency for Agency Reconstruction (JICA), (JICA), and World and and World Bank’s allocateBank’s Nonetheless, incomeunderNonetheless, the and theOrganisation expenses Philippine the Philippine between fortax Economic authority tax or authority among hasCooperation therelated has power the power to to InternationalDevelopment.International Bank Bankfor Reconstruction for Reconstruction and Development. and Development.parties,allocate inand allocateorder Developmentincome to incomeprevent and expenses andthe(OECD) expensesevasion Transfer between of between taxes Pricing or oramong toorGuidelines. clearlyamong related related 1. Projects of applicants with good track record payments thereto are subject to two percent (2%) Project Operations reflectparties, theAlthough parties,income in order intheamong orderto implementing prevent relatedto prevent the parties. evasion rules the evasionThe and of “arm’s regulationstaxes of taxes or to clearlyor to clearly 1.in implementingProjects1. Projects of applicants ofregistered applicants with projects; good with trackgood recordtrack record in in creditablebanks,banks, withholdinginterest interest payments tax payments if the thereto operating thereto are subject companyare subject to twois to two An operatingProjectProjectProject companyOperations Operations Operations in the Philippines is subject to the length”reflect testhavereflect the is not used income the been to income evaluateissuedamong among asrelated transactions of therelated parties. time parties. betweenof The writing, “arm’s The the“arm’s 2. Projectsimplementingimplementing of publicly-listed registered registered companies; projects; projects; or classifiedpercentpercent and (2%) notified creditable(2%) ascreditable a top withholding twenty withholding thousand tax if taxthe ifoperating the operating regularAn corporate operatingAnAn operating operating income company company company tax in (RCIT) the in in Philippinesthe theof Philippinesthirty Philippines percent is subject is is subject (30%) subject to the to to related thelength” taxpayersPhilippinelength” test isfollowing testtax used authorityis usedto OECDevaluate to is evaluate guidelines.empowered transactions transactions by betweenlaw to between 2. Projects2. Projects of publicly-listed of publicly-listed companies; companies; or or 3. Projects not entitled to Income Tax Holiday (20,000)company corporationcompany is classified is byclassified the and tax notified andauthorities. notified as a top asOn atwenty thetop twenty thousand thousand basedregular onthe netregular corporateregular income. corporate corporate incomeHowever, income incometax beginning (RCIT) tax tax (RCIT) of (RCIT) thethirty of fourth ofthirtypercent thirty percent (30%) (30%) related allocaterelated taxpayers income taxpayers following and following expenses OECD OECD guidelines.between guidelines. or among Note bethat compliance the details with of the the Development formalities or Cooperation reportorial obligations 3. Projects3. Projects not entitled not entitled to Income to Income Tax Holiday Tax Holiday (ITH) (ITH) (ITH) other(20,000) hand,(20,000) loanscorporation corporationobtained by bythe bythe tax the operating authorities. tax authorities. company On the On other the other taxablebased yearpercentbased on immediately net on(30%) income. net basedincome. following However, on However,net the income.beginning year beginningin whichHowever, the fourth the the fourth Project Incentivesrelated parties, in order to prevent the evasion of duty,3. 3. Exemption impost Exemption3. Exemption and from fees; from wharfagefrom wharfage wharfage dues dues duesand and any and any export any export tax, tax,7. Cash6.7. VAT-zeroincentive Cash6. VAT-zero incentive rate for missionaryon rate forsale on missionary of sale fuel electrification; of or fuel powerelectrification; or power generated; generated; AgreementNoteimposed that should beon the complianceBOI-registered detailsbe carefully of thewith and Developmententities the thoroughly formalities to ensure Cooperationanalyzed or the reportorial continued to percent. asset,Sale there ofOn realis the capital property other gains hand, also tax gainstriggers (CGT) realized at DST the at fromrate the of salerate 6 of shares fromhand, Offshorehand, loans Banking loansobtained obtained Units by the (OBUs) by operating the oroperating from company the company from from operatingtaxablebeginning companytaxable year immediatelyyear thecommenced immediatelyfourth taxablefollowing its businessfollowing year the immediately year operations,the inyear which in which the Infrastructure the taxes projects or to clearly (transport, reflect water,the income logistics, among waste related 4. Tax exemptionduty,export duty,impost tax,on impost breedingandduty, fees; andimpost stocksfees; and and fees; genetic 8. Tax7. 8.exemption Cash Tax7. Cashexemptionincentive of incentive carbon for of missionary carbon credits;for missionary credits; and electrification; and electrification; determineAgreementavailment theobligations coverageof should tax incentives. beand imposed carefully duration on and ofBOI-registered thethoroughly tax exemption. analyzed entities ofto 1.5percent. percent, Saleareregardless subject of real ofpropertyto whetherCGT at also the the triggers rate real of property fiveDST percent at is the rate InfusionInfusion of equity of equity capital capital through through subscription subscription of shares of shares of of ProjectProject Incentives Incentives Infusion of equity capital through subscription of ForeignOffshore CurrencyOffshore Banking Deposit Banking Units Units Units(OBUs) (FCDU) (OBUs) or from of or banks thefrom Foreign thein Foreign the corporateoperatingfollowingoperating income company the company taxyear commenced shall in whichcommenced be the the itshigher operatingbusiness its of business the companyoperations, 30 operations, managementInfrastructure parties.Infrastructure facilities, projects tollways, projects (transport, railways,(transport, water, water, logistics, logistics, waste waste materials;4. 4. Tax Tax4. exemption Tax exemption exemption on on breeding breedingon breeding stocks stocks stocks and and genetic and genetic 9. Tax8. 9. credit Tax Tax8. exemption oncreditTax domestic exemption on domesticof carboncapital of carbon capital credits;equipment credits; equipment and and and and Further,determine there ensuremust the coveragebe the compliance continued and duration with availment the of formalities the of tax incentives.exemption. or treated of 1.5as anpercent, ordinary(5%)/ten regardless asset percent(10%). or ofa capital whether Thereasset. the is real also property DST implication is stocksstocks attracts attracts stamp stamp duty taxduty of tax .5 percent,of .5 percent, based based on the on theCurrency Currency Deposit Deposit Unit (FCDU) Unit (FCDU) of banks of banks in the in Philippines the Philippines shares of stocks attracts stamp duty tax of 0.5 the Philippines are generally subject to ten percent percentthe RCITcorporatecommencedthe orcorporate the income two its income percentbusiness tax shall tax(2%) operations, beshall minimumthe be higher the the highercorporate of corporate the of 30 the 30telecommunication managementmanagement facilities, facilities, facilities, tollways, Public-Private tollways, railways, railways,Partnership 5. Tax creditsmaterials;genetic materials;on imported materials; raw materials; services.9. Taxservices.9. credit Tax credit on domestic on domestic capital capital equipment equipment and and reportorialFurther,Repatriation obligations there must imposed be compliance on BOI-registered with the formalities entities or treated asof an 0.375 ordinary percent, asset basedor a capital on the asset. total par value of the percent,total partotal based value par on valueof the the totalof originally the par originally value issued of issued theshares. originally shares. Should Should a (10%)a are final generallyare withholding generally subject subject tax. to ten to percent ten percent (10%) (10%) final withholding final withholding incomepercent taxincomepercent (MCIT) RCIT tax orRCITwhich shallthe or two isbe the based the percent two higher onpercent gross(2%) of the minimum(2%)income. 30 minimum percent corporate RCIT corporateprojects, telecommunication Projectandtelecommunication disaster Incentives prevention, facilities, facilities, mitigationPublic-Private Public-Private and Partnershiprecovery Partnership 6. Tax5. and5. Tax Tax5. duty-fee credits Tax credits credits on importation on imported importedon imported rawof rawconsigned materials; raw materials; materials; services.services. to ensurereportorialDividends the Repatriationcontinued paidobligations by a availmentdomestic imposed ofcorporation on tax BOI-registered incentives. to non-resident entities shares sold. Lastly, the selling price of the shares issuedforeign shares.foreign investor Shouldinvestor opt toa opt foreignbuy to the buy investor shares the shares ofopt an to ofexisting buy an existing tax. tax. incomeorincome the tax two (MCIT) tax percent (MCIT) which (2%) which is based minimum is based on gross corporate on gross income. incomeincome. projects), projects,Infrastructure asprojects, well and as disaster and projects projects disaster prevention, on (transport, ecologicalprevention, mitigation water,solid mitigation waste logistics,and recovery and recovery equipment;6. 6. Tax Tax6. and Tax and duty-fee and duty-fee duty-fee importation importation importation of ofconsigned consigned of consigned Tax andTax duty and exemptions duty exemptions are also are provided also provided for infrastructure for tocorporate ensureDividends theshareholders continued paid are byavailment asubject domestic ofto tax30 corporation incentives.percent final to must not be lower than its book value, otherwise, a theoperating sharesoperating of company, an existing company, the operating stamp the stamp duty company, taxduty rate tax the is rate .375 is percent.375 percentIn case of foreign loans, interest payments to the Value Addedtax (MCIT)Tax (VAT) which at the is ratebased of ontwelve gross percent income. (12%) Value is managementprojects),wasteprojects), and as management wellrenewable as as well projects as energyfacilities, projects on (RE)ecological tollways,on development, ecological solid railways, wastesolid are waste 7. 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The taxcorporate rate may shareholders be reduced are when subject there to donor’s tax of thirty percent (30%) shall be imposed stampbased dutybased on taxthe on rate total the is par total0.375 value par percent valueof the of basedacquired the acquiredon shares.the shares. offshoreIn case lendersIn ofcase foreign ofare foreign subject loans, loans, interestto twenty interest payments percent payments to(20%) the to offshore the offshore generallyValueAdded imposed ValueAdded TaxAdded Tax on (VAT) (VAT)sale Tax at of (VAT)at the goodsthe rate at rate the andof of twelverate servicestwelve of twelvepercent percent in, and percent (12%) (12%)on is included(12%) is management is telecommunicationinmanagement the 2013 and Investment renewable and renewablefacilities, Priority energy Public-Private energy Plan (RE) (IPP) development, (RE) as development, are are 8. Employment7. 7. Additional Additional7. Additional of deductionforeign deduction deduction nationals; for for labor forlabor laborexpense; expense; expense; (e.g. projectsAusAid).Cooperationprojects funded Exemptions fundedAgreements by Development bycommonly Development (e.g. AusAid). Cooperationprovided Cooperation Exemptions are Agreementsfor: Agreements DividendsRepatriationis an applicablepaidthirty by a percentdomestic tax treaty (30%) corporation between final withholding the to Philippinesnon-resident tax. and The the tax on the difference. total par value of the acquired shares. finallenders withholdinglenders are subject aretax. subject The to twentywithholding to twenty percent tax percent (20%)rate may (20%) final final importationgenerallygenerallygenerally of imposedgoods imposed imposed to onthe sale onPhilippines. on saleof sale goods of of goods goods and andservices and services services in, and in, in, onpreferred and includedon Partnership orincluded mandatory in the in 2013[PPP] the investment Investment2013 projects, Investment areas.and Priority disaster AsPriority Plan such, prevention, (IPP)Plan these as(IPP) as 9. Simplification8. 8. Employment Employment8. Employment of customs of offoreign foreign of procedures;foreign nationals; nationals; nationals; and (e.g.commonly AusAid).(e.g. AusAid). provided Exemptions Exemptions are for: commonly commonly provided provided are for: are for: corporateDividendshome shareholders countryrate paid may of by the abeare domestic shareholder,reduced subject corporationwhento 30 or percenttherewhen to isthe non-residentfinalan home applicable tax In manyIn manyinstances, instances, debt financingdebt financing is part is of part the of pre-project the pre-project be reducedwithholding withholding if there tax. is The tax. an withholdingapplicable The withholding tax tax treaty rate tax may rate be may reduced be reduced if if importationandimportation on importationof goods of goods to ofthe goods to Philippines. the toPhilippines. the Philippines. projects,preferred mitigationwhenpreferred or registered mandatory and or mandatory recovery with investment the projects), investment BOI, canareas. as enjoy wellareas. As asthesuch, Asprojects tax such,these these 10. Access9. 9. Simplification Simplification9. to Simplificationbonded ofmanufacturing ofcustoms customs of customs procedures; procedures; warehouse. procedures; and and and 1. Taxes on income received by the personnel of the withholdingcorporatecountry tax. oftreaty shareholders the The shareholder between tax rate are themay allowssubject Philippines be reduced a tocredit 30 and percent whenfor the taxes therehome final paid country in In manyactivities. activities.instances, Local Localtaxdebt rules financingtax andrules regulations andis part regulations of the allow allowthe the betweenthere thereisthe an Philippines applicableis an applicable andtax treatythe tax home treaty between country between the of Philippines the Philippines Operating losses incurred in a tax year may be carried over incentivesprojects,on projects,provided ecological when when forregistered solid under registered waste the with Omnibus management thewith BOI, the Investment canBOI, and enjoy can enjoythe tax the tax 10. Access10. Access to bonded to bonded manufacturing manufacturing warehouse. warehouse. cooperating1.1. Taxes Taxes1. Taxes on onforeign income income on income country received received received for by activities by the the by personnel personnelthe performed personnel of of the of the is an withholdingtheapplicable Philippines.of tax thetax. treaty shareholder,For The repatriation between tax rate or may the whenof capital, Philippinesbe the reduced home foreign and when country investorsthe there of the pre-projectdeductiondeduction activities. of interest of interest Local payments tax payments rules on and loans on regulations loansfor purposes for purposes of lender. of and theand home the home country country of the of lender. the lender. as a deductionOperatingOperatingOperating fromlosses losses grosslosses incurred incurredincome incurred in a forintax in athree yearatax tax year mayconsecutiveyear may bemay carried be be carried carried overCode overincentives of therenewableincentives Philippines. provided energy provided for (RE) under for development, under the Omnibus the Omnibus are Investment included Investment in For entities engaged in RE development projects, they have in thecooperating Philippines;the cooperating foreign foreign country country for activities for activities performed performed homeiscan country an either applicableshareholder of sell the the taxshareholder, assets treaty allows orbetween sella or credit whenthe the sharesfor the Philippinestaxes home of paidthe operating inand the the allowPhilippine thePhilippine deduction income income of tax interest subject tax subject payments to the to tax the on arbitrage taxloans arbitrage for rule rule yearsas immediately a overdeductionas a as deduction a deductionfollowing from grossfrom thefrom gross income year gross incomeof forsuch income three forloss, threeforconsecutive provided three consecutive Codethe Codeof 2013 the of Philippines. Investment the Philippines. Priority Plan (IPP) as preferred the optionForFor entities Fortoentities elect entities engaged engagedthe engaged incentives in inRE RE indevelopment grantedREdevelopment development by the projects, projects, Omnibus projects, they havethey have2. Taxes in andperformed the dutiesin Philippines; the Philippines; onin theproject Philippines; supplies and for countryhomecompany. of thecountryPhilippines. shareholder of the shareholder, allows a credit or whenfor taxes the paidhome in purposeswhereinwherein of the Philippine amount the amount income of allowable of tax allowable subject deduction deduction to the for tax interest for interest There There areThere arealso also certainare certain also lenders certain lenders that lenders that enjoy enjoy that preferential enjoypreferential preferential tax tax that thereyearsconsecutive yearsisimmediately no substantialimmediately years following changeimmediately following the in yearthe the following ownership ofyear such of loss,thesuch of year theprovidedloss, of provided The tax incentivesor mandatory under investment the Omnibus areas. Investment As such, Codethese are Incentivethethey option Codethe have option orto the theelect tooption incentives electthe incentivesto the elect underincentives the granted the incentives Renewable granted by the granted by Omnibus the Omnibus professional2.2. Taxes Taxes2. Taxes and andand duties anddutiestechnical duties on on project materialsproject on project supplies supplies imported supplies and and forinto andfor for the Philippines.country of theFor shareholderrepatriation ofallows capital, a credit foreign for investors taxes paid in arbitrageexpenseexpense rule shall wherein beshall reduced bethe reduced amount by thirty byof allowablethirtythree threepercent percent (33%) (33%) of tax of treatment treatment in the in Philippines the Philippines such assuch the as Asian the Asian Development Development For furtherFor further information, information, please please cont contact: act: businessthat suchthereorthat enterprise. loss, thereis no provided substantialis noSuch substantial thatlosses, change there however, change is in no the substantial in ownershipshall the notownership be of theas of follows: theThe projects,taxThe incentives tax whenincentives under registered under the Omnibus withthe Omnibus the InvestmentBOI, Investmentcan enjoy Code Codeare are EnergyIncentive byAct theIncentive of Omnibus 2008Code which Codeor theIncentive orare incentives the as incentives follows:Code under or the under the incentives Renewable the Renewable the Philippines;professionalprofessionalprofessional and and and technical andtechnical technical materials materials materials imported imported imported into into can eithertheGains Philippines. sell derived Forthe repatriation assets from For salerepatriation or sell ofof assetsthecapital, sharesof arecapital, foreign subject of the foreign investors operating to 30 investors percent can either deductionthe interestthe for interest interest income income expense subjected subjected shall to finalbe to reduced tax. final Similarly,tax. by Similarly, DevelopmentBank Bank(ADB) Bank(ADB) and (ADB)the and International the and International the International Finance Finance Corporation Corporation (IFC). (IFC). allowedbusiness aschangebusiness a deduction or inenterprise. the or enterprise. ownershipin a taxable Such Suchlosses,of year the losses, duringbusiness however, however,which or shall the notshall be not beas follows:theas taxfollows: incentives provided for under the Omnibus EnergyunderEnergy Act the of Renewable Act 2008 of 2008which Energy which are as Actare follows: asof 2008follows: which are 3. Taxesthe andinto Philippines; dutiesthethe Philippines;Philippines; on personaland andand and household effects, company.canRCIT either or 2sell percentsell the the assets MCIT,assets orwhichever or sell sell the the shares is shares applicable. of of the the operating Inoperating case thirtydocumentary threedocumentary percent stamp (33%) stamp tax of (DST) taxthe (DST)interestpaid on paid debtincome on instrumentsdebt instruments Finance Since CorporationSince these these entities (IFC). entities are Sinceexempt are exemptthese from entities Philippinefrom Philippine are income income tax, tax, RobertoRober G.to Manabat G. Manabat operatingallowedenterprise. companyallowed as a deduction as was Such a deduction exempt losses, in a taxablefrom however,in a taxableincome year shall during yeartax. not during whichbe which the the1. ITHInvestment of six (6) years Code for of projectsthe Philippines. with pioneer status 1. ITHas follows: of seven (7) years and3.3. motor Taxes Taxes3. Taxes vehiclesand and duties andduties for duties on personalon personal personal on personal use and and imported household andhousehold household and effects, effects, company.the assetcompany. sold is real property and treated as a capital subjected(rate is(rate .5to percent), finalis .5 tax.percent), whoseSimilarly, whose object documentary object is located is located stampor used or usedin the in exempt theinterest frominterest payments Philippine payments to income these to these organizations tax, interestorganizations are consequently are consequently The Philippinesoperatingallowedoperating company has as noacompany deduction controlled was exempt was in foreign exempta taxable from corporation incomefrom year income during tax. (CFC) whichtax. and1. forITH 1.projects of ITH six of(6) locatedsix years (6) years forin aprojects Less for projects Developed with pioneerwith Area pioneer status status 2. Duty-free1. ITH1. of importationITH seven of seven (7) years of (7) RE years machinery, equipment exportedandeffects, motorintoand theandmotor vehicles Philippines motor vehicles for vehicles personal by for the personal for personnel usepersonal imported use ofuseimported the and and Gainsasset, derived there from is salecapital of gainsassets tax are (CGT) subject at theto 30 rate percent of 6 ChairmanChairman & CEO & CEO taxPhilippines, (DST)Philippines, paid onis tax debt isdeductible. taxinstruments deductible. (rate is 0.5 paymentsexemptexempt to from these withholdingfrom organizations withholding tax. are tax. consequently rules.The Neither thePhilippinesThe operating doesPhilippines it has have company no has formal controlled no was controlledthin exempt capitalizationforeign foreign fromcorporation incomecorporationrules (CFC) tax. (CFC) (LDA);Theand tax four forincentivesand (4) projects yearsfor projects forunder located new locatedthe projectsin Omnibus a Less in awith DevelopedLess Investment Developed Area Area and2. 1.materials; Duty-free ITH2. Duty-freeof seven importation (7)importation years of RE of machinery, RE machinery, equipment equipment cooperatingexportedimportedexported foreign into and the intocountry.exported Philippines the Philippines into bythe the Philippines by personnel the personnel by of the of the RCIT Gainspercent.or 2 percent derived Gains Sale MCIT, fromof derived real salewhichever property from of assets sale alsois applicable.of are triggers assets subject areDSTIn to subjectcase at30 the percent rateto thirty KPMGKPMGFor in further the in Philippinesthe information, Philippines please contact: percent), whose object is located or used in the exempt from withholding tax. althoughrules. for rules.Neither BOI Neither registered does doesit have enterprises, it formalhave formal thin a debt-to-equity capitalization thin capitalization rules rules non-pioneerCode(LDA); are(LDA); asfour status; follows: (4) four yearsand (4) three yearsfor new (3) for years projectsnew projectsfor with with 3. Net 2.Operatingand Duty-free materials;and materials;Loss importation Carry-Over of (NOLCO);RE machinery, cooperatingthe personnelcooperating foreign of foreign the country. cooperating country. foreign percent (30%) RCIT or two percent (2%) MCIT, InterestInterest payments, payments, however, however, may be may subject be subject to withholding to withholding the assetRCITof 1.5 soldor percent, 2 ispercent real regardless property MCIT, whichever and of whether treated is asapplicable.the a realcapital property In case is T: +63T: +632 885 2 8857000 7000 Philippines, is tax deductible. A similarA similar preferential preferential tax treatment tax treatment is accorded is accorded to to ratio althoughof 3:1Thealthough must Philippines for beBOI for maintained. registered BOI has registered no controlled enterprises,Tax consolidation enterprises, foreign a debt-to-equity corporationisa debt-to-equityalso expansion/modernizationnon-pioneer1. ITHnon-pioneer of six status; (6) years status; and projects; for three andprojects three(3) years with (3) years forpioneer for 4. Corporate3. Netequipment3. Operating Nettax rateOperating andof Loss 10% materials; Carry-OverLoss after Carry-Over ITH; (NOLCO); (NOLCO); country. whichever is applicable. In case the asset sold is real taxes taxesand the and law the designates law designates the operating the operating company company is is asset,thetreated there asset isas capitalsold an ordinary is realgains property assettax (CGT) or and a atcapital treated the rate asset. as of a 6capital E: rgmanabat@kpmgE:Mary rgmanabat@kpmg Karen Quizon-Sakkam.com.com A similarinfrastructure infrastructurepreferential projects tax projects treatment funded funded by is the accorded by Official the Official to Development Development not allowedratio(CFC) ofratio as3:1 eachrules.of must 3:1 company Neither mustbe maintained. be does withinmaintained. it havea Tax corporate consolidationformal Tax consolidation groupthin isis also is also2. Duty expansion/modernizationexemptionstatusexpansion/modernization and on importedfor projects capital projects; located projects;equipment, in a Less 5. Accelerated4. 3. Corporate Net4. Corporate Operating depreciation; tax rate tax Loss of rate 10% Carry-Over of after10% ITH;after (NOLCO); ITH; property and treated as a capital asset, there is designateddesignated to act to as act the as withholding the withholding agent. agent. The rates The ratesof of Tax Director Interest payments, however, may be subject to infrastructureAssistanceAssistance projects (ODA), (ODA), Internationalfunded International by the Finance official Finance Institutions Institutions (IFI), (IFI), taxednot as allowedcapitalizationa notseparate allowed as eachentity. rulesas companyeach although company within for withinBOI-registered a corporate a corporate group group is is spare2. Duty parts2.Developed exemptionDuty and exemptionaccessories; Area on imported (LDA); on imported four capital (4) capitalyears equipment, for equipment, new 6. VAT-zero5. 4. Accelerated Corporate5. rate Accelerated on sale depreciation;tax ofrate depreciation; fuel of or(10%) power after generated; ITH; Note that the details of the Development capital gains tax (CGT) at the rate of six percent (6%). withholdingwithholding tax vary. tax vary.Thus, Thus,for loans for loansobtained obtained from localfrom local withholding taxes and the law designates the developmentand internationaland internationalassistance aid through (ODA), aid through Internationala Development a Development Finance Cooperation Cooperation Transfertaxed pricingenterprises,taxed as a separateguidelines as a separatea debt-to-equity entity. were entity. issued ratio by theof 3:1 Philippine must be tax 3. Exemptionspareprojectsspare partsfrom partswharfageand with accessories; andnon-pioneer accessories;dues and status; any export and three tax, (3) 5. Accelerated depreciation; Cooperation Agreement should be carefully and Sale of real property also triggers DST at the rate of KPMG in the Philippines operating company is designated to act as the Institutions (IFI), and international aid through a maintained. Tax consolidation is also not allowed as years for expansion/modernization projects; 6. VAT-zero rate on sale of fuel or power thoroughly analyzed to determine the coverage and 1.5 percent, regardless of whether the real property T: +63 2 885 7000 ext. 351 withholding agent. The rates of withholding tax vary. Development Cooperation Agreement with the each company within a corporate group is taxed as a 2. Duty exemption on imported capital generated; duration of the tax exemption. Further, there must is treated as an ordinary asset or a capital asset. E: [email protected] Thus, for loans obtained from local banks, interest Philippines, such as the Canadian International separate entity. equipment, spare parts and accessories;

InfrastructureInfrastrInfrastructureuct Guide:ure Guide: PhilippinesIn-depth: Philippines Philippines | 3 | 3 | 56 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Project Risk FundingManagement of Governments must, however, carefully evaluate assets most attractive to private investors, and consider Geno Armstrong, Advisory Principal, KPMG LLP (U.S.) regulatory oversight to ensure service affordability and consumer protection, since these assets are primarily InfrastructureReid Tucker, Advisory Director, KPMG LLP Projects (U.S.) public utilities. Understanding sovereign cash flows would also help establish a practical timeline for greenfield development. Learning from the Philippines, power privatization has to be reflected so that the end customer also SharadJonathan Somani, Jong, Partner Associate and ASPAC Director, Head for KPMGPower & Services Utilities, KPMG Pte. Ltd. Singapore (Singapore) feels the benefits of privatization by way of improved performance of the utility and competitive tariffs. We also need to see how to effectively use the proceeds for the development of greenfield projects rather than only TheProject world Risktoday Management is faced with is multitude frequently challenges overlooked pursuant yet is one to populationof the more growth critical (global elements to successful extinguishing the debt obligations and leases. (Power sector privatization proceeds in the Philippines were largely to make the ASEAN infrastructure PPP financing a Given the size of Philippine GDP (~US$250 billion+), used to service debt and lease obligations.) populationproject deliveries. to reach 9 Generally,billion by 2050), delivering urbanization a project’s (more defined than scope 50 percent on time of andthe worldwithin population budget are US$30 billion per annum market? if the government can target to divest assets worth 1 livescharacteristics in urban centers), of project ageing success. infrastructure, Unfortunately, low carbon these imperatives success factors and needare often for poverty not achieved, especially percent of the GDP per year, that not only means a alleviation.for large complexThe need projects is to develop where infrastructure both external at influences a pace that and can internal support project strong requirements economic may change While the regulatory and institutional constraints are ready pipeline of US$2.5 billion per year of operating growthsignificantly to not onlyover cater time. to the growing population but also to help lift masses of people now well understood and are also being addressed infrastructure assets that could benefit from better below the poverty line. Of the about 945 million people below poverty line globally, close to 21 comprehensively through intervention by multilateral technology and management practices brought in by percent lives in Southeast Asia.1 agencies like the World Bank and the Asian the private sector, but also a source of capital for Development Bank, perhaps we need further government to reinvest in new greenfield The challenge today is not the lack of infrastructure launched multiple social and economic innovation and out of the box thinking by the industry infrastructure projects. projects or financing. It is the availability of funding to infrastructure projects, Indonesia has a list of stakeholders to realise the vision. Also some simple Others such as the ASEAN Infrastructure Fund (AIF) capital markets solution (bonds, infrastructure funds, the projects being made available to the market. The key PPP projects to be implemented as PPPs course correction measures by the government and This will not only potentially increased the and Climate Investment Fund (CIF) also offer an etc.) in the short to medium term, that could make quality of the regulatory framework, market 5. Financing Institutions – Clifford capital has been tapping on the most underused source of public infrastructure spend in the country from current alternative investment for country reserves and US$20 billion per annum available to infrastructure set up in Singapore to fund infrastructure attractiveness, commercial sustainability and capital may be a solution. levels (potentially by one percent point increasing pension funds. These funds have started to have an project financing in ASEAN. projects in the region transparency as well as lack of successful from 2.5 percent to 3.5 percent for Philippines) but impact on several countries – the Philippines, for precedence for smooth implementation of the 6. Project preparation support – Asian Monetization of government infrastructure assets also provide an opportunity to set up successful Conclusion Development Bank (ADB) and International instance, is drawing US$250 million from CIF’s Clean infrastructure projects in various developing countries One alternative worth considering is to bolster the precedence for infrastructure project developers and The above two sources of financing, viz. Enterprise (IE) Singapore have set up a center of Technology Fund for small, solar-powered vehicles, pose major impediments. A few commendable ability of states to raise financing through financiers. This in turn also helps strengthen Capital Markets Solution monetization of assets and the capital markets excellence in Singapore to help identify and industrial energy efficiency, and renewable energy. steps have been taken by the governments in the Other financing source, which has largely remained untapped in Asian markets, is the local capital markets. The prepare infrastructure opportunities for potential monetization of the infrastructure assets and reinvest institutional capability at the public sector and solution, could cumulatively bring up to about US$ 40 nominal average savings rate in Asian countries is 37.5 percent and is expected to remain constant for the next 20 region including – PPP in greenfield infrastructure development. Privatization enhanced performance for infrastructure assets. These are good initial steps and clearly much needs billion per annum thereby significantly helping meet of government assets has been undertaken by years. Not much of this savings go into capital markets. The ASEAN market capitalization is at US$1.1 trillion – to be done by the central banks and regulators of the target spend of US$60 billion per annum for 1. Setting up of Public-Private Partnership (PPP) only half of the region’s GDP – in local currency bonds by end 2013. Nearly 80 percent of which is from more Given the need of infrastructure investments in the various countries in the region. For the ASEAN region of over 620 million people and each country to help develop a thriving debt capital whole of ASEAN in the infrastructure space. Center – The Philippines reorganized the combined GDP of US$2.2 trillion, a one percent developed Malaysia, Singapore and Thailand. Such underutilized financing, combined with the high savings rate, market solution that one day could match the Build-Operate-Transfer Center into the PPP region (US$60 billion is needed per year until 2022 to 4 The Philippines, for example, has carried out privatization target can generate US$22 billion of indicate a significant source for further infrastructure capital. success achieve in Northern America and Europe. Center in 2010 to facilitate the implementation meet infrastructure needs in ASEAN ) and the current private financing quantum (US$18 billion privatization of assets across sectors – oil and gas revenue per year which can go a long way in meeting Education and comfort relating to understanding of PPP programs and projects A few initiatives are being undertaken in the region to channel more of the savings into the capital markets. The worth of financing was arranged by the top 10 banks (O&G), water, power, airports, etc. The aggregate the projected annual infrastructure investment the nature of risks in a capital market bond issuance 2. PPP regulatory and contractual framework – Credit Guarantee and Investment Facility (CGIF) is a commendable initiative to encourage corporate sector to raise in ASEAN between 2009-2013 5 ), we are surely infrastructure spend in Philippines has been between requirement in ASEAN of US$60 billion. The funding are critical for its success. If we can get even 25 State Enterprise Policy Office (SEPO) in Thailand local currency bonds in their capital markets with improved credit rating. The inaugural guarantee of Thai Baht and looking at a huge gap. The private participation is very 2.0 percent to 2.5 percent of the gross domestic raised thus could be potentially also be used to percent of savings moving to infrastructure through has set up comprehensive framework for PPPs Indonesian Rupiah bonds in 2013 bodes well for the concept and we believe it can gain momentum in the years low compared to the target of at least 50 percent of product (GDP) over the last few years leading to a provide viability gap funding for infrastructure 3. Supporting Institutional framework – Indonesia ahead. The success, plus the pipeline of guarantee offers this year, prompted CGIF contributors to raise the has set up IIF 2 and IIGF 3 infrastructure projects to be implemented as PPPs in strong infrastructure asset ownership. projects structured as PPPs. (See box in the next guarantee capacity to US$1.75 billion. This paves the way to guaranteeing project bonds, thereby helping support 4. Pipeline of pilot projects – Philippines has the region. So the question is what is required for us page for the concept) regional infrastructure development.

1 Source: UNESCAP Statistical Yearbook for Asia and the Pacific 2011 2 Indonesia Infrastructure Fund 3 Indonesia Infrastructure Guarantee Fund 4 World Economic Outlook, S&P, and KPMG Analysis 5 Infrastructure Journal and KPMG Analysis

57 | 2Infrastructure | Infrastructure In-depth: Guide: Philippines Philippines

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Governments must, however, carefully evaluate assets most attractive to private investors, and consider regulatory oversight to ensure service affordability and consumer protection, since these assets are primarily public utilities. Understanding sovereign cash flows would also help establish a practical timeline for greenfield development. Learning from the Philippines, power privatization has to be reflected so that the end customer also feels the benefits of privatization by way of improved performance of the utility and competitive tariffs. We also need to see how to effectively use the proceeds for the development of greenfield projects rather than only extinguishing the debt obligations and leases. (Power sector privatization proceeds in the Philippines were largely to make the ASEAN infrastructure PPP financing a Given the size of Philippine GDP (~US$250 billion+), used to service debt and lease obligations.) US$30 billion per annum market? if the government can target to divest assets worth 1 percent of the GDP per year, that not only means a While the regulatory and institutional constraints are ready pipeline of US$2.5 billion per year of operating well understood and are also being addressed infrastructure assets that could benefit from better comprehensively through intervention by multilateral technology and management practices brought in by agencies like the World Bank and the Asian the private sector, but also a source of capital for Development Bank, perhaps we need further government to reinvest in new greenfield The challenge today is not the lack of infrastructure launched multiple social and economic innovation and out of the box thinking by the industry infrastructure projects. projects or financing. It is the availability of funding to infrastructure projects, Indonesia has a list of stakeholders to realise the vision. Also some simple Others such as the ASEAN Infrastructure Fund (AIF) capital markets solution (bonds, infrastructure funds, the projects being made available to the market. The key PPP projects to be implemented as PPPs course correction measures by the government and This will not only potentially increased the and Climate Investment Fund (CIF) also offer an etc.) in the short to medium term, that could make quality of the regulatory framework, market 5. Financing Institutions – Clifford capital has been tapping on the most underused source of public infrastructure spend in the country from current alternative investment for country reserves and US$20 billion per annum available to infrastructure set up in Singapore to fund infrastructure attractiveness, commercial sustainability and capital may be a solution. levels (potentially by one percent point increasing pension funds. These funds have started to have an project financing in ASEAN. projects in the region transparency as well as lack of successful from 2.5 percent to 3.5 percent for Philippines) but impact on several countries – the Philippines, for precedence for smooth implementation of the 6. Project preparation support – Asian Monetization of government infrastructure assets also provide an opportunity to set up successful Conclusion Development Bank (ADB) and International instance, is drawing US$250 million from CIF’s Clean infrastructure projects in various developing countries One alternative worth considering is to bolster the precedence for infrastructure project developers and The above two sources of financing, viz. Enterprise (IE) Singapore have set up a center of Technology Fund for small, solar-powered vehicles, pose major impediments. A few commendable ability of states to raise financing through financiers. This in turn also helps strengthen Capital Markets Solution monetization of assets and the capital markets excellence in Singapore to help identify and industrial energy efficiency, and renewable energy. steps have been taken by the governments in the Other financing source, which has largely remained untapped in Asian markets, is the local capital markets. The prepare infrastructure opportunities for potential monetization of the infrastructure assets and reinvest institutional capability at the public sector and solution, could cumulatively bring up to about US$ 40 nominal average savings rate in Asian countries is 37.5 percent and is expected to remain constant for the next 20 region including – PPP in greenfield infrastructure development. Privatization enhanced performance for infrastructure assets. These are good initial steps and clearly much needs billion per annum thereby significantly helping meet of government assets has been undertaken by years. Not much of this savings go into capital markets. The ASEAN market capitalization is at US$1.1 trillion – to be done by the central banks and regulators of the target spend of US$60 billion per annum for 1. Setting up of Public-Private Partnership (PPP) only half of the region’s GDP – in local currency bonds by end 2013. Nearly 80 percent of which is from more Given the need of infrastructure investments in the various countries in the region. For the ASEAN region of over 620 million people and each country to help develop a thriving debt capital whole of ASEAN in the infrastructure space. Center – The Philippines reorganized the developed Malaysia, Singapore and Thailand. Such underutilized financing, combined with the high savings rate, region (US$60 billion is needed per year until 2022 to combined GDP of US$2.2 trillion, a one percent market solution that one day could match the Build-Operate-Transfer Center into the PPP The Philippines, for example, has carried out privatization target can generate US$22 billion of indicate a significant source for further infrastructure capital. success achieve in Northern America and Europe. Center in 2010 to facilitate the implementation meet infrastructure needs in ASEAN ) and the current private financing quantum (US$18 billion privatization of assets across sectors – oil and gas revenue per year which can go a long way in meeting Education and comfort relating to understanding of PPP programs and projects A few initiatives are being undertaken in the region to channel more of the savings into the capital markets. The worth of financing was arranged by the top 10 banks (O&G), water, power, airports, etc. The aggregate the projected annual infrastructure investment the nature of risks in a capital market bond issuance 2. PPP regulatory and contractual framework – Credit Guarantee and Investment Facility (CGIF) is a commendable initiative to encourage corporate sector to raise in ASEAN between 2009-2013 ), we are surely infrastructure spend in Philippines has been between requirement in ASEAN of US$60 billion. The funding are critical for its success. If we can get even 25 State Enterprise Policy Office (SEPO) in Thailand local currency bonds in their capital markets with improved credit rating. The inaugural guarantee of Thai Baht and looking at a huge gap. The private participation is very 2.0 percent to 2.5 percent of the gross domestic raised thus could be potentially also be used to percent of savings moving to infrastructure through has set up comprehensive framework for PPPs Indonesian Rupiah bonds in 2013 bodes well for the concept and we believe it can gain momentum in the years low compared to the target of at least 50 percent of product (GDP) over the last few years leading to a provide viability gap funding for infrastructure 3. Supporting Institutional framework – Indonesia ahead. The success, plus the pipeline of guarantee offers this year, prompted CGIF contributors to raise the has set up IIF and IIGF infrastructure projects to be implemented as PPPs in strong infrastructure asset ownership. projects structured as PPPs. (See box in the next guarantee capacity to US$1.75 billion. This paves the way to guaranteeing project bonds, thereby helping support 4. Pipeline of pilot projects – Philippines has the region. So the question is what is required for us page for the concept) regional infrastructure development.

InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 58

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. register and develop efficient response plans that focus impact on the project. attentionUpfront on capitalitems with contribution higher priority. / Viability It is important Gap Funding to – Many infrastructure Acceptance projects – failproceeding the commercial as planned and identifyviability all potentialtest although risks the that economic will require rationale follow-up for the by project the may be very strong.accepting This isthe mainly outcome on account of a risk. of projectpoor team. payment ability, underdeveloped tariff models, regulatory constraints Finalizing and political and documenting will. Until the the time various we risk are able to graduate to full cost recovery models on infrastructure utilityresponses service pricing, identified a good by eachoption responsible is for party. The Stepgovernment 2 – Quantitative to provide Analysis upfront grant / low cost debt / zero-rated bondsplan to defray should the clearly high tariffdefine expectations the agreed upon response For forquantitative making the analysis, project viablethe project in the teamlight of assigns lower traffic a most forecasts. Indonesiafor a risk, has setthe upresponsible a VGF facility party, and results this from both likelycould cost be value a good to precedenceeach identified for otherrisk. ThisASEAN value countries takes intoto follow. The thechallenge quantitative is, of course, and qualitative availability analysis, of and a considerationfinancing with both the the state probability exchequer and in potential the region impact and the of strain the statebudget budget. and Role timeframe of multilaterals for the (likerisk responses. the ADB,risk event World occurrence. Bank, etc.) could Determining be effective, probability wherein, and they could structure a framework and a time bound impactroadmap can result for moving from towardsa variety cost of exercises, reflective modelincluding: for utility servicesMonitoring to make and this Control more sustainable while state Interviews governments – gathering find avenues impact for raisingand probability funding. data The final step of risk management is monitoring and for a range of scenarios (e.g. optimistic, most likely, control. This process should be set up to track potential and pessimistic). risks, oversee the implementation of risk plans, and Governments Decisions must, Trees however, – comparing carefully the evaluate probability assets of mostrisks attractive evaluate to theprivate effectiveness investors, ofand risk consider management procedures. regulatoryand oversight rewards to between ensure service various affordabilitydecisions. and consumerMonitoring protection, and since control these should assets occur are primarily throughout the project public utilities. Model Understanding simulations – conductingsovereign cash a project flows simulation would also help lifecycle establish and help a practical improve timeline and guide for greenfield the overall risk development.in order Learning to quantify from potentialthe Philippines, impacts power to the privatization project. managementhas to be reflected process. so that This the step end should: customer also feels the benefits of privatization by way of improved performance of the utility and competitive tariffs. We also need to see how to effectively use the proceeds for the development of Equip greenfield management projects andrather the than project only team to make extinguishingResponse Planning the debt obligations and leases. (Power sector privatizationinformed proceeds decisions in the Philippines regarding wererisk. largely to make the ASEAN infrastructure PPP financing a Given the size of Philippine GDP (~US$250 billion+), used to service debt and lease obligations.) US$30 billion per annum market? if the government can target to divest assets worth 1 Response planning is the phase where the project team  Evaluate the effectiveness of risk response actions.  percent of the GDP per year, that not only means a develops responseInfrastructure actions and and alternative Other Capital options Outlay to IdentifyPSALM: risk characteristics Use of Privatization that Proceedsappear to have While the regulatory and institutional constraints are ready pipeline of US$2.5 billion per year of operating reduce project risks. Project teams use response planning changed from what was documented in earlier to200,000 decide ahead of time how they will address possible risk 3.0 %identification and analysis stages. well understood and are also being addressed infrastructure assets that could benefit from better 1 Regular Debt Service occurrences and how they will avoid, transfer, mitigate, or comprehensively through intervention by multilateral technology and management practices brought in by 150,000 Lease Obligations accept project risks. Response planning must take into Tools used for monitoring and control include: agencies like the World Bank and the Asian the private sector, but also a source of capital for 2.0 % Debt Prepayment Development Bank, perhaps we need further government to reinvest in new greenfield consideration100,000 available resources and potential  Project25 Risk Audits 24– a seriesOthers of audits that examine The challenge today is not the lack of infrastructure launched multiple social and economic innovation and out of the box thinking by the industry infrastructure projects. repercussions of the response plans. The goal of response the effectiveness of risk response strategies and planningPHP millions 50,000 is to align risks with an appropriate response 1.0% project risk assessments. These audits can be used projects or financing. It is the availability of funding to infrastructure projects, Indonesia has a list of stakeholders to realise the vision. Also some simple Others such as the ASEAN Infrastructure Fund (AIF) capital markets solution (bonds, infrastructure funds, based on the severity of the risk along with cost, time, and to stimulate process improvement and make the projects being made available to the market. The key PPP projects to be implemented as PPPs course correction measures by the government and This will not only potentially increased the and Climate Investment Fund (CIF) also offer an etc.) in the short to medium term, that could make feasibility considerations. Risk response planning includes: recommendations regarding the risk management quality of the regulatory framework, market 5. Financing Institutions – Clifford capital has been tapping on the most underused source of public infrastructure spend in the country from current 0.0% alternative investment for country reserves and US$20 billion per annum available to infrastructure set up in Singapore to fund infrastructure procesAs. attractiveness, commercial sustainability and capital may be a solution. levels (potentially by one percent point increasing 50 pension funds. These funds have started to have an project financing in ASEAN. projects in the region  Assigning responsibility for identified risks to  Project Risk Report – a summary report or 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 transparency as well as lack of successful from 2.5 percent to 3.5 percent for Philippines) but (%) PERCENTAGE impact on several countries – the Philippines, for 6. Project preparation support – Asian appropriate project team members or stakeholders. dashboard that communicates the risk status for a precedence for smooth implementation of the Monetization of government infrastructure assets also provide an opportunity to set up successful instance, is drawing US$250 million from CIF’s Clean Conclusion Development Bank (ADB) and International Source: Department of Budget and Management Source: Power Sector Assets and Liabilities Management infrastructure projects in various developing countries One alternative worth considering is to bolster the precedence for infrastructure project developers and It is imperative that the assignment take into project. This tool can be customized to update The above two sources of financing, viz. Enterprise (IE) Singapore have set up a center of Technology Fund for small, solar-powered vehicles, pose major impediments. A few commendable ability of states to raise financing through financiers. This in turn also helps strengthen Capital Marketsconsideration Solution the individual’s capability to address management on current project risks. monetization of assets and the capital markets excellence in Singapore to help identify and industrial energy efficiency, and renewable energy. steps have been taken by the governments in the monetization of the infrastructure assets and reinvest institutional capability at the public sector and Other financingspecific source, risk areas. which Assigning has largely a risk remained to someone untapped in Asian markets, is the local capital markets. The solution, could cumulatively bring up to about US$ 40 prepare infrastructure opportunities for potential who has little or no knowledge of a risk area is not Monitoring and control is essential for maintaining effective region including – in greenfield infrastructure development. Privatization enhanced performance for infrastructure assets. nominal average savings rate in Asian countries is 37.5 percent and is expected to remain constant for the next 20 These are good initial steps and clearly much needs billion per annum thereby significantly helping meet PPP 6 an effective risk planning approach. and efficient risk management. It is a barometer for of government assets has been undertaken by years. Not much of this savings go into capital markets. The ASEAN market capitalization is at US$1.1 trillion – to be done by the central banks and regulators of the target spend of US$60 billion per annum for  Developing a response plan to address the determining7 how well your risk management plan is 1. Setting up of Public-Private Partnership (PPP) various countries in the region. For the ASEAN region of over 620 million people and only half of the region’s GDP – in local currency bonds by end 2013. Nearly 80 percent of which is from more each country to help develop a thriving debt capital whole of ASEAN in the infrastructure space. Given the need of infrastructure investments in the identified risk. This process should be iterative and designed. If monitoring and control reveals that certain Center – The Philippines reorganized the combined GDP of US$2.2 trillion, a one percent developed Malaysia, Singapore and Thailand. Such underutilized financing, combined with the high savings rate, market solution that one day could match the region (US$60 billion is needed per year until 2022 to include all stakeholders affected by the risk. risks are not being mitigated or avoided as planned, then an Build-Operate-Transfer Center into the PPP The Philippines, for example, has carried out privatization target can generate US$22 billion of indicate a significant source for further infrastructure capital. success achieve in Northern America and Europe. Center in 2010 to facilitate the implementation meet infrastructure needs in ASEAN ) and the Common options for a response include: adjustment can be made to the response plan. Likewise, if current private financing quantum (US$18 billion privatization of assets across sectors – oil and gas revenue per year which can go a long way in meeting Education and comfort relating to understanding of PPP programs and projects A few initiatives Avoidance are being – undertakenmodifying the in theproject region plan to to channel avoid more monitoring of the savings and control into thereveals capital that markets. an identified The risk is worth of financing was arranged by the top 10 banks (O&G), water, power, airports, etc. The aggregate the projected annual infrastructure investment the nature of risks in a capital market bond issuance 2. PPP regulatory and contractual framework – Credit Guaranteethe andpotential Investment condition Facility or occurrence. (CGIF) is a commendableunlikely initiative to materialize, to encourage the corporate plan can sectorbe adjusted to raise to in ASEAN between 2009-2013 ), we are surely infrastructure spend in Philippines has been between requirement in ASEAN of US$60 billion. The funding are critical for its success. If we can get even 25 State Enterprise Policy Office (SEPO) in Thailand local currency Transferencebonds in their – capitalshifting markets the consequences with improved and credit reprioritize rating. The the inaugural risk to aguarantee lower level. of Thai Baht and looking at a huge gap. The private participation is very 2.0 percent to 2.5 percent of the gross domestic raised thus could be potentially also be used to percent of savings moving to infrastructure through has set up comprehensive framework for PPPs Indonesian Rupiahresponsibilities bonds in 2013 associated bodes well with for the the risk concept to a and we believe it can gain momentum in the years low compared to the target of at least 50 percent of product (GDP) over the last few years leading to a provide viability gap funding for infrastructure 3. Supporting Institutional framework – Indonesia ahead. The success,third party plus (oftenthe pipeline accomplished of guarantee by contractual offers this year,Benefits prompted of Risk CGIF Management contributors to raise the has set up IIF and IIGF infrastructure projects to be implemented as PPPs in strong infrastructure asset ownership. projects structured as PPPs. (See box in the next guarantee capacityagreement). to US$1.75 billion. 8 This paves the way to guaranteeingAlthough a project well-designed bonds, therebyand executed helping risk support management 4. Pipeline of pilot projects – Philippines has the region. So the question is what is required for us page for the concept) regional infrastructure Mitigation development. – taking preventative action to process can significantly reduce the risk of failure, the  reduce the probability of a risk occurrence or Identify risk characteristics that appear to have changed

6 NBER Working Paper No. 17581 (The National Bureau of Economic Research) 7 Asia Bond Monitor June 2014, ADB 8 CGIF Progress Report 2013, ASEAN

59 2 | Infrastructure | Infrastructure In-depth: Guide: Philippines Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. 2013 LCY Bond Market

800 600 400

US$ Billions 200

Indonesia Malaysia Philippines Singapore Thailand Vietnam

PERCENTAGE (%) PERCENTAGE Government Corporate GDP Governments must, however, carefully evaluate assets most attractive to private investors, and consider 2013 LCY Bond Issuance regulatory oversight to ensure service affordability and consumer protection, since these assets are primarily public utilities. Understanding sovereign cash flows would also help establish a practical timeline for greenfield 400 development. Learning from the Philippines, power privatization has to be reflected so that the end customer also feels the benefits of privatization by way of improved performance of the utility and competitive tariffs. We also 300 need to see how to effectively use the proceeds for the development of greenfield projects rather than only extinguishing the debt obligations and leases. (Power sector privatization proceeds in the Philippines were largely 200 to make the ASEAN infrastructure PPP financing a Given the size of Philippine GDP (~US$250 billion+), used to service debt and lease obligations.) US$30 billion per annum market? if the government can target to divest assets worth 1 US$ Billions 100 percent of the GDP per year, that not only means a While the regulatory and institutional constraints are ready pipeline of US$2.5 billion per year of operating well understood and are also being addressed infrastructure assets that could benefit from better Indonesia Malaysia Philippines Singapore Thailand Vietnam comprehensively through intervention by multilateral technology and management practices brought in by agencies like the World Bank and the Asian the private sector, but also a source of capital for (%) PERCENTAGE Government Corporate Development Bank, perhaps we need further government to reinvest in new greenfield Source: Asian Bond Monitor The challenge today is not the lack of infrastructure launched multiple social and economic innovation and out of the box thinking by the industry infrastructure projects. projects or financing. It is the availability of funding to infrastructure projects, Indonesia has a list of stakeholders to realise the vision. Also some simple Others such as the ASEAN Infrastructure Fund (AIF) capital markets solution (bonds, infrastructure funds, the projects being made available to the market. The key PPP projects to be implemented as PPPs course correction measures by the government and This will not only potentially increased the and Climate Investment Fund (CIF) also offer an etc.) in the short to medium term, that could make quality of the regulatory framework, market 5. Financing Institutions – Clifford capital has been tapping on the most underused source of public infrastructure spend in the country from current alternative investment for country reserves and US$20 billion per annum available to infrastructure set up in Singapore to fund infrastructure attractiveness, commercial sustainability and capital may be a solution. levels (potentially by one percent point increasing pension funds. These funds have started to have an project financing in ASEAN. projects in the region transparency as well as lack of successful from 2.5 percent to 3.5 percent for Philippines) but impact on several countries – the Philippines, for precedence for smooth implementation of the 6. Project preparation support – Asian Monetization of government infrastructure assets also provide an opportunity to set up successful Conclusion Development Bank (ADB) and International instance, is drawing US$250 million from CIF’s Clean infrastructure projects in various developing countries One alternative worth considering is to bolster the precedence for infrastructure project developers and The above two sources of financing, viz. Enterprise (IE) Singapore have set up a center of Technology Fund for small, solar-powered vehicles, pose major impediments. A few commendable ability of states to raise financing through financiers. This in turn also helps strengthen Capital Markets Solution monetization of assets and the capital markets excellence in Singapore to help identify and industrial energy efficiency, and renewable energy. steps have been taken by the governments in the Other financing source, which has largely remained untapped in Asian markets, is the local capital markets. The prepare infrastructure opportunities for potential monetization of the infrastructure assets and reinvest institutional capability at the public sector and solution, could cumulatively bring up to about US$ 40 nominal average savings rate in Asian countries is 37.5 percent and is expected to remain constant for the next 20 region including – PPP in greenfield infrastructure development. Privatization enhanced performance for infrastructure assets. These are good initial steps and clearly much needs billion per annum thereby significantly helping meet of government assets has been undertaken by years. Not much of this savings go into capital markets. The ASEAN market capitalization is at US$1.1 trillion – to be done by the central banks and regulators of the target spend of US$60 billion per annum for 1. Setting up of Public-Private Partnership (PPP) only half of the region’s GDP – in local currency bonds by end 2013. Nearly 80 percent of which is from more Given the need of infrastructure investments in the various countries in the region. For the ASEAN region of over 620 million people and each country to help develop a thriving debt capital whole of ASEAN in the infrastructure space. Center – The Philippines reorganized the developed Malaysia, Singapore and Thailand. Such underutilized financing, combined with the high savings rate, region (US$60 billion is needed per year until 2022 to combined GDP of US$2.2 trillion, a one percent market solution that one day could match the Build-Operate-Transfer Center into the PPP The Philippines, for example, has carried out privatization target can generate US$22 billion of indicate a significant source for further infrastructure capital. success achieve in Northern America and Europe. Center in 2010 to facilitate the implementation meet infrastructure needs in ASEAN ) and the current private financing quantum (US$18 billion privatization of assets across sectors – oil and gas revenue per year which can go a long way in meeting Education and comfort relating to understanding of PPP programs and projects A few initiatives are being undertaken in the region to channel more of the savings into the capital markets. The worth of financing was arranged by the top 10 banks (O&G), water, power, airports, etc. The aggregate the projected annual infrastructure investment the nature of risks in a capital market bond issuance 2. PPP regulatory and contractual framework – Credit Guarantee and Investment Facility (CGIF) is a commendable initiative to encourage corporate sector to raise in ASEAN between 2009-2013 ), we are surely infrastructure spend in Philippines has been between requirement in ASEAN of US$60 billion. The funding are critical for its success. If we can get even 25 State Enterprise Policy Office (SEPO) in Thailand local currency bonds in their capital markets with improved credit rating. The inaugural guarantee of Thai Baht and looking at a huge gap. The private participation is very 2.0 percent to 2.5 percent of the gross domestic raised thus could be potentially also be used to percent of savings moving to infrastructure through has set up comprehensive framework for PPPs Indonesian Rupiah bonds in 2013 bodes well for the concept and we believe it can gain momentum in the years For further information, please contact: low compared to the target of at least 50 percent of product (GDP) over the last few years leading to a provide viability gap funding for infrastructure 3. Supporting Institutional framework – Indonesia ahead. The success, plus the pipeline of guarantee offers this year, prompted CGIF contributors to raise the has set up IIF and IIGF infrastructure projects to be implemented as PPPs in strong infrastructure asset ownership. projects structured as PPPs. (See box in the next guarantee capacity to US$1.75 billion. This paves the way to guaranteeing project bonds, thereby helping support 4. Pipeline of pilot projects – Philippines has the region. So the question is what is required for us page for the concept) Sharad Somani regional infrastructure development. Partner and ASPAC Head for Power & Utilities KPMG in Singapore E: [email protected]

InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 60 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. PrProjectoject Risk Risk ManagManagementement Geno Armstrong, Advisory Principal, KPMG LLP (U.S.) GenoReidTucker, Armstrong, Advisory Advisory Principal, Director, KPMG KPMG LLP LLP (U.S.) (U.S.) Reid Tucker, Advisory Director, KPMG LLP (U.S.) JonathanJonathan Jong, Jong, Associate Associate Director, Director, KPMG Services KPMG Pte. Services Ltd. (Singapore) Pte. Ltd. (Singapore) organization will define how risks are addressed and Project Project Risk Risk Management Management is frequentlyis frequently ov erlookedoverlooked yet yet is oneis one of ofthe the more more critical critical elements elements to to successful managed.organization Strategy and will planning define how should risks take are into addressed and process to solicit input from all project stakeholders consideration:managed. Strategy and planning should take into including those outside of the core project team. successfulproject deliveries. project deliveries. Generally, Generally, delivering delivering a project’s a project’sdefined scope defined on scope time and on timewithin and budget within are  prject team members (planners, engineers, budgetcharacteristics are characteristics of project of success. project success.Unfortunately, Unfortunately, these success these factorssuccess are factors often arenot oftenachieved, not especially consideration: Potential contributors to risk identification include:  Corporate or enterprise - wide risk management architects, contractors, etc.) achieved,for large especially complex projectsfor large wherecomplex both projects external where influences both external and internal influences project and requirements internal project may change  ris management team members guidelines Corporate (including or tolerance enterprise levels - wide for risk risk)  project team members (planners, engineers,  requirementssignificantly may over change time. significantly over time.  Available managementresources (staffing, guidelines budgets) (including tolerance subject matterarchitects, professionals contractors, (IT, etc.)Safety, Legal, etc.)  customers (internal and external) Project risk management is a continuous process of project teams may express the view that “everything we do  Preferredlevels reporting for risk) and communication protocols  risk management team members Project risk management is a continuous process of as tracking potential change orders, and project  end users identifying, analyzing, prioritizing, and mitigating risks that is risk management.” While all of these activities help to  The organization’s Available resourcesstrategic objectives (staffing, budgets)  subject matter professionals (IT, Safety, Legal, identifying, analyzing, prioritizing, and mitigating risks teams may express the view that “everything we do  organization management and leadership  Preferred reporting and communication etc.) thatthreaten threaten a project’sa project’s likelihood likelihood of of success success in interms of cost, is riskidentify management.” and manage While discrete all of elementsthese activities of project help risk, they schedule, quality, safety, and technical performance. do not fully describe a comprehensive approach to project Strategy and planningprotocols activities include:  customers (internal and external) terms of cost, schedule, quality, safety, and technical to identify and manage discrete elements of project Successfully capturing all project risks increases with 1. Assigning The roles organization’s and responsibilities strategic related objectives to risk  end users performance.Organizations Organizations and owners andoften owners consider often project risk risk,risk they management. do not fully describe A comprehensive a comprehensive project risk management activities. Identifying and defining frequent communication organization and managementfeedback among and projectleadership team considermanagement project activitiesrisk management as “nice activitiesto have” onas “nicea project rather approach management to project approach risk management. should have A the following requirements for project stakeholders regarding risk members and stakeholders. These discussions should to have”than as on a acore project component rather than of project as a core controls. Additionally, comprehensivecomponents, project which riskshould management be scalable approach to the specific managementStrategy and activities. planning activities include: attempt toSuccessfully identify inaccuracies, capturing all inconsistencies, project risks increases and componentthere is some of project confusion controls. between Additionally, organizations there isand project should project’s have sizethe followingand type: components, which should 2. Establishing1. Assigning common roles risk and categories responsibilities for identified related to assumptionswith regardingfrequent communicationthe project. The and resulting feedback product among of someteams confusion as to what between exactly organizations constitutes andrisk managementproject be scalable to the specific project’s size and type: risks. Categoriesrisk management can either activities. be based Identifyingon common and these workingproject sessions team members should be and the stakeholders. initial list of identified These teamsactivities. as to what exactly constitutes risk 1. Strategy and Planning industry risksdefining or on requirements the organization’s for project risk categories stakeholders risks. discussions should attempt to identify inaccuracies, management activities. 1. Strategy2. Risk Identificationand Planning (e.g., construction,regarding riskfinancial, management operations, activities. governance, inconsistencies, and assumptions regarding the Defining Project Risk Management 2. Risk3. Analysis Identification (Quantitative & Qualitative) etc). 2. Establishing common risk categories for From theproject. initial list The of identifiedresulting productrisks, a riskof these register working or log DefiningThe objective Project Riskof project Management risk management is to understand 3. Analysis4. Response (Quantitative Planning & Qualitative) 3. Developingidentified a risk matrix risks. and Categories assigning can risk either ratings be to can be populatedsessions toshould ensure be that the allinitial risk list items of identified are analyzed, risks. Theproject objective and ofprogram project levelrisk managementrisks, minimize is theto likelihood of 4. Response5. Monitoring Planning and Control identifiedbased risks. on The common risk matrix industry should risks define or onrisk the prioritized, and monitored. Risk registers should typically understandnegative events,project andand programmaximize level the risks,likelihood minimize of positive 5. Monitoring and Control ratings basedorganization’s on probability risk categories and impact (e.g., by taking include theFrom following the initial fields: list of identified risks, a risk register theevents likelihood on project of negative and program events, andoutcomes. maximize Project the risk Strategy and Planning management is a continuous process that begins during Strategy and planning activities set the foundation for a risk into accountconstruction, the organization’s financial, risk operations, tolerance. or log can be populated to ensure that all risk items likelihood of positive events on project and program The power industry is one in which project risk management is 1. Risk Type the planning phase and ends once the project is management program and ultimately determine whether governance, etc.). are analyzed, prioritized, and monitored. Risk outcomes. Project risk management is a continuous particularly ill-defined. Where a utility has both a regulated and 2. Description successfully commissioned and turned over to operations. the initiative is successful. During the strategy and Risk Identification3. Developing a risk matrix and assigning risk registers should typically include the following fields: process that begins during the planning phase and an unregulated business unit, the regulated side often focuses 3. Cost Impact its riskplanning management phase, procedures an organization around cost will recovery. define howIn risks are Risk identificationratings is the to identification identified risks. of all The possible risk matrix risks ends once the project is successfully commissioned 4. Probability Construction owners, project teams, and contractors often contrast,addressed the unregulated and managed. side typically Strategy has a more and traditionalplanning should that could eithershould negatively define or positivelyrisk ratings affect based the on project. probability 1. Risk Type and turned over to operations. 5. Risk Level define and apply risk management activities differently on arisk takemanagement into consideration: approach. It is important inand the impactrisk identification by taking into process account to solicit the 2. Description input from all projectorganization’s stakeholders risk tolerance.including those outside 6. Possible3. CostResponses Impact Constructionproject. Owners owners, may project practice teams, informal and contractors or ad hoc practices,  of the core project team. Potential contributors to risk 7. Action4. Owner Probability oftensuch define as stage and applygate approval, risk management that they activitiesinterpret as risk Strategy andCorporate Planning or enterprise wide risk management identificationRisk include:Identification 5. Risk Level differentlymanagement on a project. activities, Owners contractors may practice may define risk Strategy andguidelines planning (including activities toleranceset the foundation levels for forrisk) Risk identification is the identification of all possible 6. Possible Responses informalmanagement or ad hoc as practices, tracking potential such as stagechange gate orders, and a risk management program and ultimately, risks that could either negatively or positively affect 7. Action Owner approval, that they interpret as risk management determine whether the initiative is successful. the project. It is important in the risk identification activities, contractors may define risk management During the strategy and planning phase, an

61 | 2Infrastructure | Infrastructure In-depth: Guide: Philippines Philippines

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. organization will define how risks are addressed and managed.organization Strategy and will planning define how should risks take are into addressed and process to solicit input from all project stakeholders consideration:managed. Strategy and planning should take into including those outside of the core project team.   consideration: prPotentialject team contributors members to (planners, risk identification engineers, include:  Corporate or enterprise - wide risk management architects, contractors, etc.)  ris management team members guidelines Corporate (including or tolerance enterprise levels - wide for risk risk)  project team members (planners, engineers,   Available managementresources (staffing, guidelines budgets) (including tolerance subject matterarchitects, professionals contractors, (IT, etc.) Safety, Legal, etc.)  customers (internal and external) Project risk management is a continuous process of project teams may express the view that “everything we do  Preferredlevels reporting for risk) and communication protocols  risk management team members Project risk management is a continuous process of as tracking potential change orders, and project  end users identifying, analyzing, prioritizing, and mitigating risks that is risk management.” While all of these activities help to  The organization’s Available resourcesstrategic objectives (staffing, budgets)  subject matter professionals (IT, Safety, Legal, identifying, analyzing, prioritizing, and mitigating risks teams may express the view that “everything we do  organization management and leadership  Preferred reporting and communication etc.) thatthreaten threaten a project’sa project’s likelihood likelihood of of success success in interms of cost, is riskidentify management.” and manage While discrete all of elementsthese activities of project help risk, they schedule, quality, safety, and technical performance. do not fully describe a comprehensive approach to project Strategy and planningprotocols activities include:  customers (internal and external) terms of cost, schedule, quality, safety, and technical to identify and manage discrete elements of project Successfully capturing all project risks increases with 1. Assigning The roles organization’s and responsibilities strategic related objectives to risk  end users performance.Organizations Organizations and owners andoften owners consider often project risk risk,risk they management. do not fully describe A comprehensive a comprehensive project risk management activities. Identifying and defining frequent communication organization and managementfeedback among and projectleadership team considermanagement project activitiesrisk management as “nice activitiesto have” onas “nicea project ratherapproach management to project approach risk management. should have A the following requirements for project stakeholders regarding risk members and stakeholders. These discussions should to have”than as on a acore project component rather than of project as a core controls. Additionally, comprehensivecomponents, project which riskshould management be scalable approach to the specific managementStrategy and activities. planning activities include: attempt toSuccessfully identify inaccuracies, capturing all inconsistencies, project risks increases and componentthere is some of project confusion controls. between Additionally, organizations there isand projectshould project’s have sizethe followingand type: components, which should 2. Establishing1. Assigning common roles risk and categories responsibilities for identified related to assumptionswith regardingfrequent communicationthe project. The and resulting feedback product among of someteams confusion as to what between exactly organizations constitutes andrisk managementproject be scalable to the specific project’s size and type: risks. Categoriesrisk management can either activities. be based Identifyingon common and these workingproject sessions team members should be and the stakeholders. initial list of identified These teamsactivities. as to what exactly constitutes risk 1. Strategy and Planning industry risksdefining or on requirements the organization’s for project risk categories stakeholders risks. discussions should attempt to identify inaccuracies, management activities. 1. Strategy2. Risk Identificationand Planning (e.g., construction,regarding riskfinancial, management operations, activities. governance, inconsistencies, and assumptions regarding the Defining Project Risk Management 2. Risk3. Analysis Identification (Quantitative & Qualitative) etc). 2. Establishing common risk categories for From theproject. initial list The of identifiedresulting productrisks, a riskof these register working or log DefiningThe objective Project Riskof project Management risk management is to understand 3. Analysis4. Response (Quantitative Planning & Qualitative) 3. Developingidentified a risk matrix risks. and Categories assigning can risk either ratings be to can be populatedsessions toshould ensure be that the allinitial risk list items of identified are analyzed, risks. Theproject objective and ofprogram project levelrisk managementrisks, minimize is theto likelihood of 4. Response5. Monitoring Planning and Control identifiedbased risks. on The common risk matrix industry should risks define or onrisk the prioritized, and monitored. Risk registers should typically understandnegative events,project andand programmaximize level the risks,likelihood minimize of positive 5. Monitoring and Control ratings basedorganization’s on probability risk categories and impact (e.g., by taking include theFrom following the initial fields: list of identified risks, a risk register theevents likelihood on project of negative and program events, andoutcomes. maximize Project the risk Strategy and Planning management is a continuous process that begins during Strategy and planning activities set the foundation for a risk into accountconstruction, the organization’s financial, risk operations, tolerance. or log can be populated to ensure that all risk items likelihood of positive events on project and program 1. Risk Type the planning phase and ends once the project is management program and ultimately determine whether governance, etc.). are analyzed, prioritized, and monitored. Risk outcomes. Project risk management is a continuous 2. Description successfully commissioned and turned over to operations. the initiative is successful. During the strategy and Risk Identification3. Developing a risk matrix and assigning risk registers should typically include the following fields: process that begins during the planning phase and 3. Cost Impact planning phase, an organization will define how risks are Risk identificationratings is the to identification identified risks. of all The possible risk matrix risks ends once the project is successfully commissioned 4. Probability Construction owners, project teams, and contractors often addressed and managed. Strategy and planning should that could eithershould negatively define or positivelyrisk ratings affect based the on project. probability 1. Risk Type and turned over to operations. 5. Risk Level define and apply risk management activities differently on a take into consideration: It is important inand the impactrisk identification by taking into process account to solicit the 2. Description input from all projectorganization’s stakeholders risk tolerance.including those outside 6. Possible3. CostResponses Impact Constructionproject. Owners owners, may project practice teams, informal and contractors or ad hoc practices,  of the core project team. Potential contributors to risk 7. Action4. Owner Probability oftensuch define as stage and applygate approval, risk management that they activitiesinterpret as risk Strategy andCorporate Planning or enterprise wide risk management identificationRisk include:Identification 5. Risk Level differentlymanagement on a project. activities, Owners contractors may practice may define risk Strategy andguidelines planning (including activities toleranceset the foundation levels for forrisk) Risk identification is the identification of all possible 6. Possible Responses informalmanagement or ad hoc as practices, tracking potential such as stagechange gate orders, and a risk management program and ultimately, risks that could either negatively or positively affect 7. Action Owner approval, that they interpret as risk management determine whether the initiative is successful. the project. It is important in the risk identification activities, contractors may define risk management During the strategy and planning phase, an

InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 62

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Analysisregister and develop efficient response plans that focus feasibility considerations.impact on the Risk project. response planning Theattention analysis on phase items determines with higher the priority. likelihood It is andimportant to includes:  Acceptance – proceeding as planned and impactidentify of eachall potential identified risks risk that and will prioritizes require follow-uprisks for by the accepting the outcome of a risk. managementproject team. attention. Successful risk analysis  Assigning Finalizing responsibility and documenting for identified the various risks riskto requires objective thinking and input from those most appropriateresponses project identified team by members each responsible or party. The familiarStep 2with – Quantitative the area affected Analysis by the possible risk. stakeholders.plan should Itclearly is imperative define the that agreed the upon response AnalysisFor quantitative is typically analysis, a two-step the approach:project team 1) assigns a most assignmentfor a risk, takethe responsible into consideration party, results the from both qualitativelikely cost analysis, value to and each 2) identifiedquantitative risk. analysis. This value takes into individual’sthe quantitative capability and to qualitative address specific analysis, risk and a consideration both the probability and potential impact of areas.budget Assigning and timeframe a risk to forsomeone the risk who responses. has Stepthe 1 risk – Qualitative event occurrence. Analysis Determining probability and little or no knowledge of a risk area is not an Forimpact the qualitative can result analysis, from a varietythe project of exercises, team assigns including: Monitoringeffective and risk Control planning approach. a priority levelInterviews (e.g. high, – gathering medium, impact low) toand each probability risk. data The Developingfinal step of a risk response management plan to isaddress monitoring the and The priorityfor levela range should of scenarios be aligned (e.g. with optimistic, the most likely, control.identified This process risk. This should process be setshould up to be track potential organization’sand pessimistic). risk management plan, risk tolerance risks,iterative oversee and the include implementation all stakeholders of risk affectedplans, and level, and Decisionsother organizational Trees – comparing objectives. the Theprobability priority of risks evaluateby the the risk. effectiveness Common optionsof risk management for a response procedures. levels canand be rewardsused to rankbetween the risks various on thedecisions. risk Monitoringinclude: and control should occur throughout the project register and Model develop simulations efficient – responseconducting plans a project that simulation lifecycle andAvoidance help improve – modifying and guide the project the overall plan riskto focus attentionin order on to items quantify with potential higher priority. impacts It to is the project. managementavoid process. the potential This conditionstep should: or important to identify all potential risks that will require occurrence. follow-up by the project team.  Equip Transference management – shifting and thethe projectconsequences team to make Response Planning informedand responsibilities decisions regarding associated risk. with the StepResponse 2 – Quantitative planning Analysisis the phase where the project team  Evaluaterisk to athe third effectiveness party (often ofaccomplished risk response actions. Fordevelops quantitative response analysis, actions the projectand alternative team assigns options a to  Identifyby contractual risk characteristics agreement). that appear to have mostreduce likely project cost value risks. to Project each identifiedteams use risk. response This planning changed Mitigation from – takingwhat was preventative documented action in earlierto valueto decide takes intoahead consideration of time how both they the will probability address possible risk identificationreduce the andprobability analysis of stages. a risk andoccurrences potential impact and how of thethey risk will event avoid, occurrence. transfer, mitigate, or occurrence or impact on the project. Determiningaccept project probability risks. Responseand impact planning can result must from take a into Tools used Acceptance for monitoring – proceeding and control as include:planned and varietyconsideration of exercises, available including: resources and potential  Projectaccepting Risk theAudits outcome – a series of a ofrisk. audits that examine Tools used for monitoring and control include: Benefits of Risk Management repercussions of the response plans. The goal of response  Finalizingthe effectiveness and documenting of risk responsethe various strategies risk and Tools used for monitoring and control include: Although a well-designed and executed risk Benefits of Risk Management planning Interviews is to align – gathering risks with impact an appropriate and probability response responsesproject risk identified assessments. by each responsible These audits can be used  Project Risk Audits – a series of audits that management process can significantly reduce the Although a well-designed and executed risk management baseddata on thefor aseverity range of of scenarios the risk along (e.g. withoptimistic, cost, time, and party.to stimulate The plan processshould clearly improvement define the and make  Project Riskexamine Audits the – aeffectiveness series of audits of riskthat response examine risk of failure, the benefit of performing a process can significantly reduce the risk of failure, the feasibilitymost considerations. likely, and pessimistic). Risk response planning includes: agreedrecommendations upon response regarding for a risk, the the risk management the effectivenessstrategies of and risk project response risk strategies assessments. and comprehensive risk analysis may be costly and benefit of performing a comprehensive risk analysis may be  Decisions Trees – comparing the probability of responsibleprocesAs. party, results from both the project riskThese assessments. audits can beThese used audits to stimulate can be used burdensome for smaller projects with limited costly and burdensome for smaller projects with limited risks Assigning and rewards responsibility between for various identified decisions. risks to quantitative Project Risk and Report qualitative – a summary analysis, reportand a or to stimulateprocess process improvement improvement and and make make complexity. As noted earlier, risk management complexity. As noted earlier, risk management processes  Modelappropriate simulations project – conductingteam members a project or stakeholders. budgetdashboard and timeframe that communicates for the risk theresponses. risk status for a recommendationsrecommendations regarding regarding the risk management the risk processes should be scalable to the size and should be scalable to the size and complexity of an simulationIt is imperative in order that to quantifythe assignment potential take into project. This tool can be customized to update procesAs.management process. complexity of an organization’s program or project. To organization’s program or project. To achieve this, an impactsconsideration to the project. the individual’s capability to address Monitoringmanagement and Control on current project risks.  Project Risk Project Report Risk – Reporta summary – a summary report or report or achieve this, an organization should consider defining organization should consider defining a baseline set of specific risk areas. Assigning a risk to someone The final step of risk management is monitoring and dashboarddashboard that communicates that communicates the risk status the risk for status a a baseline set of procedures to apply to all projects procedures to apply to all projects along with a more Quantitativewho risk analysishas little is orone no of knowledgethe tools used of by a utilities risk area to is not control.Monitoring This process and control should is essential be set up for to maintainingtrack effective project. Thisfor a tool project. can be This customized tool can be to customized update to along with a more rigorous set of procedures for high rigorous set of procedures for high value, complex projects. justify contingencyan effective levels riskto the planning regulatory approach. bodies. potentialand efficient risks, overseerisk management. the implementation It is a barometer of risk for managementupdate on managementcurrent project on risks. current project risks. value, complex projects.  Developing a response plan to address the plans,determining and evaluate how the well effectiveness your risk management of risk plan is The value of risk management has traditionally been a Responseidentified Planning risk. This process should be iterative and managementdesigned. Ifprocedures. monitoring Monitoringand control andreveals control that certain MonitoringMonitoring and control and is control essential is essentialfor maintaining for maintaining effective The value of risk management has traditionally been difficult concept to quantify. Many organizations and project Responseinclude planning all isstakeholders the phase where affected the by project the risk. shouldrisks occur are not throughout being mitigated the project or avoided lifecycle as andplanned, then an and efficienteffective risk management. and efficient risk It is management. a barometer forIt is a a difficult concept to quantify. Many organizations teams understand the risks as they impact their respective team developsCommon response options actions for a response and alternative include: helpadjustment improve and can guide be made the overallto the responserisk management plan. Likewise, if determiningbarometer how well for your determining risk management how well planyour isrisk and project teams understand the risks as they roles on the project. However, without a risk management options to reduce Avoidance project – risks. modifying Project the teams project use plan to avoid process.monitoring This andstep control should: reveals that an identified risk is designed.management If monitoring plan and is control designed. reveals If monitoring that certain and impact their respective roles on the project. process for identifying, analyzing, quantifying, and response planningthe potential to decide condition ahead of or time occurrence. how they unlikely to materialize, the plan can be adjusted to risks are controlnot being reveals mitigated that certainor avoided risks as are planned, not being then an However, without a risk management process for communicating project risks to all stakeholders, the ability will address possible Transference risk occurrences – shifting the and consequences how they and reprioritize Equip managementthe risk to a lower and thelevel. project team to adjustmentmitigated can be ormade avoided to the as response planned, plan.then anLikewise, adjustment if identifying, analyzing, quantifying, and to effectively manage project risks is greatly diminished. will avoid, transfer,responsibilities mitigate, or associated accept project with therisks. risk to a make informed decisions regarding risk. monitoringcan and be controlmade to reveals the response that an identifiedplan. Likewise, risk is if communicating project risks to all stakeholders, the The two case studies below help demonstrate the value Response planningthird partymust (often take into accomplished consideration by contractual Benefits Evaluate of Risk the Management effectiveness of risk response unlikely tomonitoring materialize, and the control plan can reveals be adjusted that an identifiedto risk ability to effectively manage project risks is greatly and benefit of a comprehensive risk management process. available resourcesagreement). and potential repercussions of the Althoughactions. a well-designed and executed risk management reprioritizeis theunlikely risk toto amaterialize, lower level. the plan can be adjusted to diminished. The two case studies below help response plans. MitigationThe goal – oftaking response preventative planning action is to to process Identify can significantlyrisk characteristics reduce that the appearrisk of failure,to the  reprioritize the risk to a lower level. demonstrate the value and benefit of a align risks withreduce an appropriate the probability response of a basedrisk occurrence on the or Identifyhave risk changed characteristics from what that was appear documented to have changed in comprehensive risk management process. severity of the risk along with cost, time, and earlier identification and analysis stages.

63 | 2Infrastructure | Infrastructure In-depth: Guide: Philippines Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Analysisregister and develop efficient response plans that focus feasibility considerations.impact on the Risk project. response planning Theattention analysis on phase items determines with higher the priority. likelihood It is andimportant to includes:  Acceptance – proceeding as planned and impactidentify of eachall potential identified risks risk that and will prioritizes require follow-uprisks for by the accepting the outcome of a risk. managementproject team. attention. Successful risk analysis  Assigning Finalizing responsibility and documenting for identified the various risks riskto requires objective thinking and input from those most appropriateresponses project identified team by members each responsible or party. The familiarStep 2with – Quantitative the area affected Analysis by the possible risk. stakeholders.plan should Itclearly is imperative define the that agreed the upon response AnalysisFor quantitative is typically analysis, a two-step the approach:project team 1) assigns a most assignmentfor a risk, takethe responsible into consideration party, results the from both qualitativelikely cost analysis, value to and each 2) identifiedquantitative risk. analysis. This value takes into individual’sthe quantitative capability and to qualitative address specific analysis, risk and a consideration both the probability and potential impact of areas.budget Assigning and timeframe a risk to forsomeone the risk who responses. has Stepthe 1 risk – Qualitative event occurrence. Analysis Determining probability and little or no knowledge of a risk area is not an Forimpact the qualitative can result analysis, from a varietythe project of exercises, team assigns including: Monitoringeffective and risk Control planning approach. a priority levelInterviews (e.g. high, – gathering medium, impact low) toand each probability risk. data The Developingfinal step of a risk response management plan to isaddress monitoring the and The priorityfor levela range should of scenarios be aligned (e.g. with optimistic, the most likely, control.identified This process risk. This should process be setshould up to be track potential organization’sand pessimistic). risk management plan, risk tolerance risks,iterative oversee and the include implementation all stakeholders of risk affectedplans, and level, and Decisionsother organizational Trees – comparing objectives. the Theprobability priority of risks evaluateby the the risk. effectiveness Common optionsof risk management for a response procedures. levels canand be rewardsused to rankbetween the risks various on thedecisions. risk Monitoringinclude: and control should occur throughout the project register and Model develop simulations efficient – responseconducting plans a project that simulation lifecycle andAvoidance help improve – modifying and guide the project the overall plan riskto focus attentionin order on to items quantify with potential higher priority. impacts It to is the project. managementavoid process. the potential This conditionstep should: or important to identify all potential risks that will require occurrence. follow-up by the project team.  Equip Transference management – shifting and thethe projectconsequences team to make Response Planning informedand responsibilities decisions regarding associated risk. with the StepResponse 2 – Quantitative planning Analysisis the phase where the project team  Evaluaterisk to athe third effectiveness party (often ofaccomplished risk response actions. Fordevelops quantitative response analysis, actions the projectand alternative team assigns options a to  Identifyby contractual risk characteristics agreement). that appear to have mostreduce likely project cost value risks. to Project each identifiedteams use risk. response This planning changed Mitigation from – takingwhat was preventative documented action in earlierto valueto decide takes intoahead consideration of time how both they the will probability address possible risk identificationreduce the andprobability analysis of stages. a risk andoccurrences potential impact and how of thethey risk will event avoid, occurrence. transfer, mitigate, or occurrence or impact on the project. Determiningaccept project probability risks. Response and impact planning can result must from take a into Tools used Acceptance for monitoring – proceeding and control as include:planned and varietyconsideration of exercises, available including: resources and potential  Projectaccepting Risk theAudits outcome – a series of a ofrisk. audits that examine Tools used for monitoring and control include: Benefits of Risk Management repercussions of the response plans. The goal of response  Finalizingthe effectiveness and documenting of risk responsethe various strategies risk and Tools used for monitoring and control include: Although a well-designed and executed risk Benefits of Risk Management planning Interviews is to align – gathering risks with impact an appropriate and probability response responsesproject risk identified assessments. by each responsibleThese audits can be used  Project Risk Audits – a series of audits that management process can significantly reduce the Although a well-designed and executed risk management baseddata on thefor aseverity range of of scenarios the risk along (e.g. withoptimistic, cost, time, and party.to stimulate The plan processshould clearly improvement define the and make  Project Riskexamine Audits the – aeffectiveness series of audits of riskthat response examine risk of failure, the benefit of performing a process can significantly reduce the risk of failure, the feasibilitymost considerations. likely, and pessimistic). Risk response planning includes: agreedrecommendations upon response regarding for a risk, the the risk management the effectivenessstrategies of and risk project response risk strategies assessments. and comprehensive risk analysis may be costly and benefit of performing a comprehensive risk analysis may be  Decisions Trees – comparing the probability of responsibleprocesAs. party, results from both the project riskThese assessments. audits can be These used audits to stimulate can be used burdensome for smaller projects with limited costly and burdensome for smaller projects with limited risks Assigning and rewards responsibility between for various identified decisions. risks to quantitative Project Risk and Report qualitative – a summary analysis, reportand a or to stimulateprocess process improv improvementement and and mak make e complexity. As noted earlier, risk management complexity. As noted earlier, risk management processes  Modelappropriate simulations project – conductingteam members a project or stakeholders. budgetdashboard and timeframe that communicates for the risk theresponses. risk status for a recommendationsrecommendations regarding regarding the risk management the risk processes should be scalable to the size and should be scalable to the size and complexity of an simulationIt is imperative in order that to quantifythe assignment potential take into project. This tool can be customized to update procesAs.management process. complexity of an organization’s program or project. To organization’s program or project. To achieve this, an impactsconsideration to the project. the individual’s capability to address Monitoringmanagement and Control on current project risks.  Project Risk Project Report Risk – Reporta summary – a summary report or report or achieve this, an organization should consider defining organization should consider defining a baseline set of specific risk areas. Assigning a risk to someone The final step of risk management is monitoring and dashboarddashboard that communicates that communicates the risk status the risk for status a a baseline set of procedures to apply to all projects procedures to apply to all projects along with a more who has little or no knowledge of a risk area is not control.Monitoring This process and control should is essential be set up for to maintainingtrack effective project. Thisfor a tool project. can be This customized tool can be to customized update to along with a more rigorous set of procedures for high rigorous set of procedures for high value, complex projects. an effective risk planning approach. potentialand efficient risks, overseerisk management. the implementation It is a barometer of risk for managementupdate on managementcurrent project on risks. current project risks. value, complex projects.  Developing a response plan to address the plans,determining and evaluate how the well effectiveness your risk management of risk plan is The value of risk management has traditionally been a Responseidentified Planning risk. This process should be iterative and managementdesigned. Ifprocedures. monitoring Monitoringand control andreveals control that certain MonitoringMonitoring and control and is control essential is essentialfor maintaining for maintaining effective The value of risk management has traditionally been difficult concept to quantify. Many organizations and project Responseinclude planning all isstakeholders the phase where affected the by project the risk. shouldrisks occur are not throughout being mitigated the project or avoided lifecycle as andplanned, then an and efficienteffective risk management. and efficient risk It is management. a barometer forIt is a a difficult concept to quantify. Many organizations teams understand the risks as they impact their respective team developsCommon response options actions for a response and alternative include: helpadjustment improve and can guide be made the overallto the responserisk management plan. Likewise, if determiningbarometer how well for your determining risk management how well planyour isrisk and project teams understand the risks as they roles on the project. However, without a risk management options to reduce Avoidance project – risks. modifying Project the teams project use plan to avoid process.monitoring This andstep control should: reveals that an identified risk is designed.management If monitoring plan and is control designed. reveals If monitoring that certain and impact their respective roles on the project. process for identifying, analyzing, quantifying, and response planningthe potential to decide condition ahead of or time occurrence. how they unlikely to materialize, the plan can be adjusted to risks are controlnot being reveals mitigated that certainor avoided risks as are planned, not being then an However, without a risk management process for communicating project risks to all stakeholders, the ability will address possible Transference risk occurrences – shifting the and consequences how they and reprioritize Equip managementthe risk to a lower and thelevel. project team to adjustmentmitigated can be ormade avoided to the as response planned, plan.then anLikewise, adjustment if identifying, analyzing, quantifying, and to effectively manage project risks is greatly diminished. will avoid, transfer,responsibilities mitigate, or associated accept project with therisks. risk to a make informed decisions regarding risk. monitoringcan and be controlmade to reveals the response that an identifiedplan. Likewise, risk is if communicating project risks to all stakeholders, the The two case studies below help demonstrate the value Response planningthird partymust (often take into accomplished consideration by contractual Benefits Evaluate of Risk the Management effectiveness of risk response unlikely tomonitoring materialize, and the control plan can reveals be adjusted that an identifiedto risk ability to effectively manage project risks is greatly and benefit of a comprehensive risk management process. available resourcesagreement). and potential repercussions of the Althoughactions. a well-designed and executed risk management reprioritizeis theunlikely risk toto amaterialize, lower level. the plan can be adjusted to diminished. The two case studies below help response plans. Mitigation The goal – oftaking response preventative planning action is to to process Identify can significantlyrisk characteristics reduce that the appearrisk of failure,to the  reprioritize the risk to a lower level. demonstrate the value and benefit of a align risks withreduce an appropriate the probability response of a basedrisk occurrence on the or Identifyhave risk changed characteristics from what that was appear documented to have changed in comprehensive risk management process. severity of the risk along with cost, time, and earlier identification and analysis stages.

InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 64 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. CaseIn bothStudy the 1 case studies, the risks were well-known to the integratingproject lifecyclerisk management and project into control their projectactivities. By Projectproject Description: teams and Newcould medicalhave likely office been building, avoided or the protocolsintegrating and controls.risk management Primary considerationssteps into the approvalfor an US$30+mitigated million if a risk management process would have been inorganization process, stageto establish gates, an and effective project planreporting, include: the importance place. Having a risk management process would have of risk management is emphasized and it becomes a Riskallowed Description: the organizations In order to to commission track, quantify, the plan and mandatory Allotting element appropriate of the resources project controlto perform environment. risk buildingcommunicate at the completion the risks toof individualsconstruction, with the the utilities capability to management activities. needhelp to mitigate be connected or avoid to thethe risk.public utility system (gas Monitoring Creating adherence an environment to risk thatmanagement embraces proceduresand and electric). Throughout the project the team could An organizationpromotes risk should management perform regularand actively monitoring and notEmbedding get a commitment Risk Management from the utility into Day-to-Daycompany for Activities auditingencourages of their andrisk pursuesmanagement risk management process. As atpreviously whenEffective they would risk management complete the is connection.typically achieved This risk when an mentionedall levels this of thecan organization.be accomplished through the use of a wasorganization never communicated undertakes beyond an active the commitment project team to risk Clearlyreport/dashboard defining and and training risk audits. personnel on risk andintegrating there was risk no analysismanagement of the into impact their for project a delay protocols or management controls. an andalternative controls. plan Primary developed considerations to address forthe an risk. organization to Risk Reporting – reporting should be evaluated by through the use of a risk report/dashboard and risk and procedures and to emphasize the establish an effective plan include: Developingmanagement a risk onmanagement a regular basis process to ensure risks are being audits. organizations commitment to risk Risk Impact: The risk ultimately did occur and Theidentified, first step tracked,to integrating and accounted risk management for in project into planning. management. resulted inAllotting the need appropriate for temporary resources generators, to perform an risk yourManagement project activities should is tobe determine diligent in whoreviewing is best risk reports Risk Reporting – reporting should be evaluated by increase inmanagement the contractor’s activities. general conditions, and suitedand to question manage/control reports that risk. appear Should stagnant. risk It is imperative management on a regular basis to ensure risks are Training is often a forgotten aspect of policy several months Creating of delayan environment to the project that completion. embraces and managementfor management be the toresponsibility actively participate of a central in risk management being identified, tracked, and accounted for in project implementation; however, this is a particularly critical promotes risk management and actively encouragesorganization to reinforce specializing the importance in risk (suchof the as risk a projectmanagement planning. Management should be diligent in function to establish an effective risk management Case Studyand 2 pursues risk management at all levels of the controlsprocess. group) or should it be controlled by the reviewing risk reports and question reports that approach. Often overlooked, training is crucial for Project Description:organization. New bridge construction, project team? Items to consider when determining appear stagnant. It is imperative for management to informing employees about the importance of risk US$600 millionClearly defining and training personnel on risk controlRisk of Audits risk management – Organizations functions should include: self perform or procure actively participate in risk management to reinforce management and its various elements. management controls. an independent audit of their risk management practices on the importance of the risk management process. Risk Description: During the design and planning an annualCapacity or semi-annualof project team basis - do (independent they have the risk audits Conclusion stagesDeveloping of the project, a risk management a decision was process made to rely on shouldtime/resource also be considered to effectively for projects manage that the pose risk a Risk Audits – Organizations should self perform or A well-defined risk management process can greatly a geotechnicalThe first step report to integrating that was risk30+ management years old and into in a your significantprocess? risk to an organizations objectives or financial procure an independent audit of their risk increase project and program success. However, risk differentproject location activities than is tothe determine planned bridge who is best suited to stability). Expertise The - intentwho has of the the audit most should knowledge be to: and management practices on an annual or semi-annual management has traditionally been overlooked and is foundations.manage/control The engineers risk. Should designing risk management the bridge be the experience in risk management? basis (independent risk audits should also be considered by many one of the more fuzzy areas of understoodresponsibility this asof a risk,central however, organization there specializingwas no in risk  Potential Validate conflicts compliance of interest with –risk would management there be process. considered for projects that pose a significant risk to project management. At a minimum, organizations process(such inas placea project to capture controls this group) risk andor should quantify it beor controlled a potential Review incentive accuracy forand risks thoroughness not to be of data being through thean organizationsuse of a risk report/dashboard objectives or financial and risk stability). audits. The with significant capital expenditures should clearly communicateby the project the team? risk to Items project to leadershipconsider when or to determiningthe accuratelyentered reported into process. by the project team; is an intent of the audit should be to: define their procedures and expectations for risk teamcontrol responsible of risk management for managing functions the construction include: independent Identify any evaluation process moreimprovement appropriate? opportunities. Risk Reporting – reporting should be evaluated by management, communicate its importance, phase of the project.  Identify any trends in overall program risk. management on Validate a regular compliance basis to ensure with risk risks management are being adequately train its personnel, and monitor high-risk  Capacity of project team - do they have the Many energy companies, especially power & utility companies, set identified, tracked,process. and accounted for in project planning. projects for compliance with risk management Risk Impact:time/resource The bedrock to ineffectively the actual manage location the of therisk up separateDeveloping project management risk management organizations training (PMOs) to manage  Identify any trends in overall program Management should Review be accuracydiligent in and reviewing thoroughness risk reports of data procedures. bridge foundationsprocess? was substantially different than the uniqueTraining risk of is major the capitalkeystone programs. to any This risk assists management the plan. risk. organization in aligning dedicated resources with the specific skill and question reportsbeing that entered appear into stagnant. process. It is imperative the geotechnical Expertise report - who indicated. has the This most resulted knowledge in a and Without a formal training effort, a risk management sets team structure to manage major construction projects. for management Identify to actively any participateprocess improvement in risk management complete experienceredesign of inthe risk foundations management? and several approach will most likely not be embraced or followed. Not Developing risk management training to reinforce the importanceopportunities. of the risk management months delay Potential on the conflicts project. of The interest financial – would impacts there be a only should training occur at the inception of the policy, it Training is the keystone to any risk process.  Identify any trends in overall program risk. were greaterpotential than US$30incentive million. for risks not to be accurately Onceshould the ownership include: of this process is determined, management plan. Without a formal training reported by the project team; is an independent risk management activities are typically most effort, a risk management approach will most Risk AuditsDeveloping – Organizations risk management should self training perform or procure In both theevaluation case studies, more the appropriate? risks were well-known effective (and On-boarding adhered to) for when new hires. they are embedded likely not be embraced or followed. Not only an independentTraining audit is the of keystone their risk tomanagement any risk management practices on plan. to the project teams and could have likely been throughout Regular the project “brown lifecycle bag” and or informational project control sessions to should training occur at the inception of the an annualWithout or semi-annual a formal basis training (independent effort, a risk risk management audits avoidedOnce orthe the ownership mitigated of if thisa risk process management is determined, risk activities. review By integrating any lessons risk management learned, updates steps to into the policy, or policy, it should include: should alsoapproach be considered will most for likely projects not be that embraced pose a or processmanagement would have activities been arein place. typically Having most a effectiverisk (and the approvalidentified process, leading stage practices. gates and project significantfollowed. risk to an Not organizations only should objectives training occur or financial at the managementadhered to) process when they would are haveembedded allowed throughout the the reporting, theRequired importance refresher of risk sessions management to maintain is staff  On-boarding for new hires. stability). inception The intent of of the the policy, audit itshould should be include: to: organizations to track, quantify, plan and emphasized and it becomes a mandatory element of  Regular “brown bag” or informational communicate the risks to individuals with the the project control environment. sessions to review any lessons  Validate On-boardingcompliance with for new risk hires.management capability to help mitigate or avoid the risk. learned, updates to the policy, or process. Regular “brown bag” or informational Monitoring adherence to risk management  Review accuracysessions andto review thoroughness any lessons of data learned, being Embedding Risk Management into Day-to-Day procedures entered intoupdates process. to the policy, or identified leading Activities An organization should perform regular monitoring  Identify anypractices. process improvement opportunities. Effective risk management is typically achieved when and auditing of their risk management process. As  Required refresher sessions to maintain staff an organization undertakes an active commitment to previously mentioned, this can be accomplished awareness of the risk management policies

65 | 2Infrastructure | Infrastructure In-depth: Guide: Philippines Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. CaseIn bothStudy the 1 case studies, the risks were well-known to the integratingproject lifecyclerisk management and project into control their projectactivities. By Projectproject Description: teams and Newcould medicalhave likely office been building, avoided or the protocolsintegrating and controls.risk management Primary considerationssteps into the approvalfor an US$30+mitigated million if a risk management process would have been inorganization process, stageto establish gates, an and effective project planreporting, include: the importance place. Having a risk management process would have of risk management is emphasized and it becomes a Riskallowed Description: the organizations In order to to commission track, quantify, the plan and mandatory Allotting element appropriate of the resources project controlto perform environment. risk buildingcommunicate at the completion the risks toof individualsconstruction, with the the utilities capability to management activities. needhelp to mitigate be connected or avoid to thethe risk.public utility system (gas Monitoring Creating adherence an environment to risk thatmanagement embraces proceduresand and electric). Throughout the project the team could An organizationpromotes risk should management perform regularand actively monitoring and notEmbedding get a commitment Risk Management from the utility into Day-to-Daycompany for Activities auditingencourages of their andrisk pursuesmanagement risk management process. As atpreviously whenEffective they would risk management complete the is connection.typically achieved This risk when an mentionedall levels this of thecan organization.be accomplished through the use of a wasorganization never communicated undertakes beyond an active the commitment project team to risk Clearlyreport/dashboard defining and and training risk audits. personnel on risk andintegrating there was risk no analysismanagement of the into impact their for project a delay protocols or management controls. an andalternative controls. plan Primary developed considerations to address forthe an risk. organization to Risk Reporting – reporting should be evaluated by through the use of a risk report/dashboard and risk and procedures and to emphasize the establish an effective plan include: Developingmanagement a risk onmanagement a regular basis process to ensure risks are being audits. organizations commitment to risk Risk Impact: The risk ultimately did occur and Theidentified, first step tracked,to integrating and accounted risk management for in project into planning. management. resulted inAllotting the need appropriate for temporary resources generators, to perform an risk yourManagement project activities should is tobe determine diligent in whoreviewing is best risk reports Risk Reporting – reporting should be evaluated by increase inmanagement the contractor’s activities. general conditions, and suitedand to question manage/control reports that risk. appear Should stagnant. risk It is imperative management on a regular basis to ensure risks are Training is often a forgotten aspect of policy several months Creating of delayan environment to the project that completion. embraces and managementfor management be the toresponsibility actively participate of a central in risk management being identified, tracked, and accounted for in project implementation; however, this is a particularly critical promotes risk management and actively encouragesorganization to reinforce specializing the importance in risk (suchof the as risk a projectmanagement planning. Management should be diligent in function to establish an effective risk management Case Studyand 2 pursues risk management at all levels of the controlsprocess. group) or should it be controlled by the reviewing risk reports and question reports that approach. Often overlooked, training is crucial for Project Description:organization. New bridge construction, project team? Items to consider when determining appear stagnant. It is imperative for management to informing employees about the importance of risk US$600 millionClearly defining and training personnel on risk controlRisk of Audits risk management – Organizations functions should include: self perform or procure actively participate in risk management to reinforce management and its various elements. management controls. an independent audit of their risk management practices on the importance of the risk management process. 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For further information, please contact: Risk Reporting – reporting should be evaluated by management, communicate its importance, phase of the project.  Identify any trends in overall program risk. management on Validate a regular compliance basis to ensure with risk risks management are being adequately train its personnel, and monitor high-risk  Capacity of project team - do they have the identified, tracked,process. and accounted for in project planning. projectsFor for morecompliance information, with risk management you may Risk Impact:time/resource The bedrock to ineffectively the actual manage location the of therisk Developing risk management training  Identify any trends in overall program Management should Review be accuracydiligent in and reviewing thoroughness risk reports of data procedures.contact: bridge foundationsprocess? was substantially different than Training is the keystone to any risk management plan. risk. and question reportsbeing that entered appear into stagnant. process. 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KPMG LLP (U.S.) were greaterpotential than US$30incentive million. for risks not to be accurately Onceshould the ownership include: of this process is determined, management plan. Without a formal training E: [email protected] reported by the project team; is an independent risk management activities are typically most effort,Geno a Armstrongrisk management approach will most Risk AuditsDeveloping – Organizations risk management should self training perform or procure In both theevaluation case studies, more the appropriate? risks were well-known effective (and On-boarding adhered to) for when new hires.they are embedded likelyPrincipal, not be Advisory embraced or followed. 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Not only should training occur at the KPMG LLP (U.S.) significant risk to an organizations objectives or financial  On-boarding for new hires. managementadhered to) process when they would are haveembedded allowed throughout the the reporting, theRequired importance refresher of risk sessions management to maintain is staff inception of the policy, it should include: E: [email protected] stability). The intent of the audit should be to: Reid TuckerRegular “brown bag” or informational organizations to track, quantify, plan and emphasized and it becomes a mandatory element of Director, Advisory communicate the risks to individuals with the the project control environment. Jonathansessions Jong to review any lessons  Validate On-boardingcompliance with for new risk hires.management KPMG LLP (U.S.) capability to help mitigate or avoid the risk. Associatelearned, Director updates to the policy, or process. Regular “brown bag” or informational E: [email protected] Monitoring adherence to risk management KPMG Services Pte. Ltd. (Singapore)  Review accuracysessions andto review thoroughness any lessons of data learned, being Embedding Risk Management into Day-to-Day procedures E: [email protected] entered intoupdates process. to the policy, or identified leading Jonathan Jong Activities An organization should perform regular monitoring  Identify anypractices. process improvement opportunities. Associate Director Effective risk management is typically achieved when and auditing of their risk management process. As  Required refresher sessions to maintain staff KPMG Services Pte. Ltd. (Singapore) an organization undertakes an active commitment to previously mentioned, this can be accomplished awareness of the risk management policies E: [email protected]

InfrastructureInfrastructure Guide: In-depth: Philippines Philippines | 3 | 66 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Appendix

Appendix A Annual target indicator matrix on accelerating infrastructure development, 2013-2016

Annual Plan targets (in %) Means of Agency Indicators 2013 2014 2015 2016 veriﬁcation responsible Intermediate outcome A: Competitiveness enhanced and productivity increased in the industry, services and agriculture sectors Strategy 1: Improve connectivity and efﬁciency among urban centers, regional growth hubs Metro Manila 20.46 20.31 20.15 20.03 Actual survey data MMDA

Transfer time in MRT/LRT 9 9 5 5 decreased (in min) Actual Operation DOTC Platform to platform 8 8 4 4 date of MRT/LRT

Concourse to platform 10 10 5 5 Optimal capacity (train’s standing with allowance to consider passengers’ 4-8 4-8 4-8 4-7 Actual Operation DOTC, PNR, comfort/space) in train data LRTA systems achieved (per sqm.) PNR-Metro Commuter 7 6 6 6 Actual DOTC, PNR (Optimal capacity = 6 passenger/sqm. passengers per sqm.) LRT 1 (Optimal capacity = 6 7-8 7-8 5-7 5-7 DOTC, LRTA passengers per sqm.) Project status LRT 2 report, operations- (Optimal capacity = 4-5 4-5 4-5 4-5 4-5 related report, DOTC, LRTA passengers per sqm.) accomplishment MRT 3 report (Optimal capacity = 6 8 8 8 6 DOTC passengers per sqm.) Annual / actual Load transported via the survey / monitoring / DOTC, PPA, Central RORO Spine 202 221 232 251 veriﬁcation on port MARINA, increased (in tons per ship- operation and DPWH and TRB hour) performance Davao 137 153 161 179 Monthly statistical Cagayan de Oro 43 45 47 47 PPA reports Batangas 22 23 24 25 Passengers transported Actual operation via air increased per 46,340,236 49,334,076 53,153,098 56,084,528 data, DOTC report DOTC annum Coverage of cellular mobile telephone service 99 100 100 100 with broadband coverage increased (in % of total NTC annual report, number of NTC monitoring / ICTO, NTC cities/municipalities) evaluation of private Cities and municipalities sector with broadband coverage 60 70 80 100 increased (in % total number of cities/municipalities

Source: Philippine Development Plan 2011-2016 http://plans.neda.gov.ph/pdp/chapter-10-accelerating-infrastructure-development/

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© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Appendix B Revalidated results matrix (RM) on improving connectivity and efﬁciency among urban centers, regional growth hubs

Indicators Baseline (2010) End -of- Plan target (2016) Assumptions and risks

. Satisfactory traffic management system in place by LGUs Travel time via road in key 20.59 (2012) 20.03 . Implementation of other infra projects corridors and key urban corridors (e.g. communications, water system) decreased (in min) systematically coordinated for smooth traffic Transfer time in MRT/LRT 9 5 decreased . Contactless Automatic Fare Collection Platform to platform 8 4 System to be implemented in 2015 Concourse to platform 10 5 Optimal capacity (train’s standing capacity with allowance to consider 4-8 4-7 passengers’ comfort/space) in train systems achieved (per sqm.) PNR-Metro Commuter (Optimal capacity = 6 6 6 passengers per sqm.) LRT 1 . Rolling stocks/materials are available and (Optimal capacity = 6 6 5-7 sufficient passengers per sqm.) LRT 2 (Optimal capacity = 4-5 4 4-5 passengers per sqm.) MRT 3 (Optimal capacity = 6 8 6 passengers per sqm.) Load transported via the Central . Efficiency indicator affected by: RORO Spine increased (in tons o Economic factors (e.g. demand per ship-hour) 189 (2012) 251 and supply affecting cargo throughput); o Physical and operational condition of ports Davao 126 (2012) 179 . Does not consider government policy on Cagayan de Oro 42 (2012) 47 diversion from Manila port to Batangas Batangas 21 (2012) 25 port Passengers transported via air 37,960,765 56,084,528 . Projects to be completed as scheduled increased per annum Coverage of cellular mobile . Enabling policies / regulations on telephone service (CMTS) in increasing coverage to be issued by 95 100 cities and municipalities government (DOST-ICTO, NTC, etc.) increased (in % of total number . There are services requiring broadband of cities/municipalities) (e.g. e-Government) . Return of investment is good/attractive for private sector Cities and municipalities with broadband coverage increased 47 100 (in % of total number of cities/municipalities)

Source: Philippine Development Plan 2011-2016 http://plans.neda.gov.ph/pdp/chapter-10-accelerating-infrastructure-development/

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© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Appendix C Intermediate outcome A: Competitiveness enhanced and productivity increased in the industry, services and agriculture sectors

Annual Plan targets (in %) Means of Agency Indicators 2013 2014 2015 2016 verification responsible Strategy 2: Support agricultural production Irrigation service coverage increased (in % of total 67.44 69.01 70.91 73.80 NIA, DA, DAR NIA / DA report, potential irrigable area) actual inventory NIA 59.39 60.74 62.63 65.27 NIA data DA-BSWM and DA-RFUs 8.05 8.26 8.29 8.53 DA-BSWM, DA- RFUs Strategy 3: Pursue energy and water security Power demand met (i.e. ratio of dependable capacity to total peak 106.52 103.86 108.06 104.39 demand with required reserve is maintained above 100%) (in %) Phil. Energy Plan Luzon 113.07 109.28 110.37 107.86 2012-2030 Power DOE Visayas 109.14 109.54 103.95 105.32 Outlook Mindanao 97.35 92.78 109.86 100.00 Target energy self- 59.04 59.28 60.22 60.00 sufficiency (at 60%) met (in % of total energy) Water demand in water critical areas met (in % ratio of water supplied in 89 90 90 92 million liters per day [MLD] to water demanded in MWSS MLD) concessionaires, MWSS Concession 119 117 116 113 LWUA, WDs, Areas DENR-RBCO and Metro Cebu 43 46 49 52 NWRB Bulacan 83 86 89 89 Cagayan de Oro City 109 115 119 121 Actual inventory Davao City 89 87 79 86 data / report Coverage of 24/7 water MWSS concessionaires, supply (WS) services in 86.98 88.62 89.34 90.12 cities increased (in %) LWUA, WDs, LGUs and NWRB Level III WS service MWSS 98 99 99 100 coverage increased (in %) concessionaires, LWUA, WDs and NWRB Non-revenue water MWSS decreased (in % total water 26 25 24 23 concessionaires, volume produced) LWUA, WDs Tourist Destination Areas (TDAs) with improved Actual inventory DPWH, DOT, water system increased (in 4 100 100 100 data / report LWUA, WDs % of TDAs identified as waterless) Source: Philippine Development Plan 2011-2016 http://plans.neda.gov.ph/pdp/chapter-10-accelerating-infrastructure-development/

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Indicators Baseline (2010) End -of- Plan target (2016) Assumptions and risks Power demand met (i.e. ratio . Projections based on 7.0% GDP of dependable capacity to growth total peak demand with 108.14 104.39 . Actual commercial operation required reserve is dependent on private sector decision maintained above 100%) (in %) . Private sector investment in the subsector increased Luzon 113.42 107.86 . Management of the service is Visayas 103.29 105.32 efficient and effective. Mindanao 107.70 100.00 . Energy savings targets under the National Energy Efficiency and Target energy self-sufficiency Conservation met (at 60%) met (in % of total 58.31 60.00 . RE committed projects implemented energy) as scheduled . Mandated biofuels blending implemented as scheduled Water demand in water . Scheduled projects are implemented critical areas met (in % ratio without delay of water supplied in million 116.06 (2011) 92 . Sector investment increased and liters per day [MLD] to water management for the water system demanded in MLD) by LGU / private sector are satisfactory. . Deficit MWSS Concession Area by MWSS Concession Areas 122 (2011) 113 2017 Metro Cebu 38 (2011) 52 . Projections only for the Balagtas, Bulacan 88 (2011) 89 Bocaue, Bulacan, Calumpit, Plaridel and Malolos WDs Cagayan de Oro City 109 (2011) 121 Davao City 86 (2011) 86 . Average of 559 WDs and 2 MWSS Coverage of 24/7 water concessionaires supply (WS) services in cities 77.59 90.12 . Sector investment increased and increased (in %) management for the water system by LGU / private sector are satisfactory. Level III WS service coverage 82 100 increased (in %) . Average of 559 WDs and 2 MWSS Non-revenue water concessionaires decreased (in % of total 36 23 . Management for the water system water volume produced) by LGU / private sector are satisfactory. . Covers only 26 TDAs that are Tourist Destination Areas identified as waterless areas (TDAs) with improved water NA 100 . Private sector investments in tourist system increased (in % of areas increased and management are TDAs identified as waterless) efficient and effective. Source: Philippine Development Plan 2011-2016 http://plans.neda.gov.ph/pdp/chapter-10-accelerating-infrastructure-development/

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Suburban/Urban Rail Projects Length Cost Project Status (km) (PhP mil.) Mega Manila North-South Commuter Railway (Malolos Calamba, Elevated) 91.3 195,520 Proposed Malolos-Tarlac & Calamba-Batangas 128.8 47,680 Proposed

Lines 1-3 Upgrade Existing Lines 47.2 62,040 Proposed LRT 1 North (to Malabon) 2.7 9,960 Proposed Committed/ South (to Dasmariñas)* 30.2 111,640 Proposed LRT 2 Committed/ East (to Antipolo)* 13.2 61,640 Proposed West (to MM North Harbor) 4.7 30,840 Proposed Main Lines Main Lines MRT 3 Ext. (to Malabon & MoA) 9.4 68,600 Proposed MRT-7 (Recto-Comm.Av.-Banaba) 26.1 128,360 Committed N-S Subway (Dasmariñas East-San Jose 68.6 514,160 Proposed Delmonte) Total Primary (Incl. Upgrade) 202.1 987,240 Total Main 422.2 1,230,440 Ortigas- Angono 13.7 31,720 Proposed

Paco - Pateros 11.3 33,800 Proposed

Marikina - Katipunan 16.8 31,480 Proposed Alabang - Zapote 9.3 13,400 Proposed Lines Lines

Secondary Zapote - Cavite - Gen. Trias 20.6 25,560 Proposed Total Secondary 71.1 135,960 Total Metro Rail 493.9 1,366,400

Road/Expressway Projects

Project Length Cost Status (km) (PhP mil.) C3 Missing Link (Sanjuan - Makati)* 5.9 24,000 Proposed Committed/ C5 Missing Link 6.9 680 Proposed Pasig River Bridge (BGC - Ortigas)* 1.2 8,120 Proposed Skyway-FTI-C5 Connector* 3.0 17,880 Committed

Other Interchanges/Flyovers 6.7 8,040 Committed

Road Other Urban Roads 32.9 2,400 Committed NCR (Secondary Roads Package) 208.4 145,670 Proposed BRCL (Secondary Roads Package) 432.2 82,360 Proposed Region III (Sec Roads - Approx.) 200.0 16,000 Proposed Region IV-A (Sec Roads - Approx.) 400.0 32,000 Proposed Road Total 1,297 337,240 SEG 9 & 10 / connection to R10* 8 8,600 Committed NLEx-SLEx Connector* 13.3 18,800 Committed Skyway Stage 3* 13.3 9,000 Committed NAIA Expressway Phase 2* 7.1 15,000 Committed Pasay - Makati - BGC 9.3 24,200 Proposed

Sta. Mesa - Pasig (Shaw Boulevard) 7.1 23,440 Proposed CALA Exp. (Bacoor - Sta. Rosa)* 47.2 30,200 Committed Committed/ Other Expressways 388.3 221,840 Proposed Expressways Upgrade 208.4 33,040 Proposed Expressway Expressway Expressway Total 702 384,120 Roads & Expressway Total 1,999 721,360

Note: *Short term project Source: Japan International Cooperation Agency Presentation on Roadmap for Transport Infrastructure Development for Metro Manila and Its Surrounding Areas (Region III and Region IV-A) Summary of the Outputs September 2013

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A. Airports Amount Name of Project Status (PhP million) a. NAIA improvements - airside Committed package* 1. NAIA 4,240 b. NAIA improvements - Committed landside package* a. Clark improvement - airside Committed package* 6,800 2. Clark b. Clark improvement - landside Committed package* c. Clark Future Development 40,000 Proposed 3. New NAIA 140,500 Proposed Airport Infrastructure Total 191,040 -

B. Ports Amount Name of Project Status (PhP million) 1. Replacement of North Harbor 40,000 Proposed 2. Other regional ports 2,000 Proposed 3. Other Port Programs* 12,080 Proposed Port Project Total 54,080 -

C. Traffic Management Projects Amount Name of Project Status (PhP million) 1. Modernization of traffic signaling system* 5,000 Committed 2. ITS and other road safety interventions 2,800 Proposed 3. Pedestrian Facilities 2,000 Proposed Traffic Management / Capacity Expansion Total 9,800 -

D. Road-based Public Transport Amount Name of Project Status (PhP million) 1. ITS (3 Provincial Bus Terminals)* 6,320 Committed 2. 2-BRT Lines * 7,000 Proposed 3. Jeepney Fleet Modernization 30,000 Proposed 4. Urban Bus Modernization 25,000 Proposed Road-based Public Transport Total 68,320

Notes: *Short term project Sub-total (A-D) PhP323 billion (=US$8.1 billion) Total Investment Program for Transport: PhP2,411 billion (=US$60.3 billion) Source: Japan International Cooperation Agency Presentation on Roadmap for Transport Infrastructure Development for Metro Manila and Its Surrounding Areas (Region III and Region IV-A) Summary of the Outputs September 2013

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Indicators Baseline (2010) End -of- Plan target Assumptions and risks (2016) . Scheduled projects are Water demand in water implemented without delay critical areas met (in % ratio . Sector investment increased and 116.06 (2011) 92 of water supplied in million management for the water liters per day [MLD] to system by LGU / private sector are water demanded in MLD) satisfactory.

. Deﬁcit MWSS Concession Area MWSS Concession Areas 122 (2011) 113 by 2017 Metro Cebu 38 (2011) 52 . Projections only for the Balagtas, Bulacan 88 (2011) 89 Bocaue, Bulacan, Calumpit, Plaridel and Malolos WDs Cagayan de Oro City 109 (2011) 121 Davao City 86 (2011) 86 . Average of 559 WDs and 2 MWSS concessionaires Coverage of 24/7 water . Sector investment increased and supply (WS) services in 77.59 90.12 management for the water cities increased (in %) system by LGU / private sector are satisfactory.

Level III WS service 82 100 coverage increased (in %) . Average of 559 WDs and 2 MWSS Non-revenue water 36 23 concessionaires decreased (in % of total . Management for the water water volume produced) system by LGU / private sector are satisfactory. . Covers only 26 TDAs that are Tourist Destination Areas identified as waterless areas (TDAs) with improved water NA 100 . Private sector investments in system increased (in % of tourist areas increased and TDAs identified as management are efficient and waterless) effective. Source: Philippine Development Plan 2011-2016 http://plans.neda.gov.ph/pdp/chapter-10-accelerating-infrastructure-development/

Appendix H Revalidated results matrix (RM) on pursuing energy

Indicators Baseline (2010) End -of- Plan target Assumptions and risks (2016)

Power demand met (i.e. . Projections based on 7.0% GDP ratio of dependable growth capacity to total peak 108.14 104.39 . Actual commercial operation demand with required dependent on private sector reserve is maintained decision above 100%) (in %) . Private sector investment in the Luzon 113.42 107.86 subsector increased . Management of the service is Visayas 103.29 105.32 efficient and effective. Mindanao 107.70 100.00 . Energy savings targets under the Target energy self- National Energy Efficiency and sufficiency (at 60%) met (in 58.31 60.00 Conservation met % of total energy) . RE committed projects implemented as scheduled . Mandated biofuels blending implemented as scheduled Source: Philippine Development Plan 2011-2016 http://plans.neda.gov.ph/pdp/chapter-10-accelerating-infrastructure-development/

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© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Glossary ABC Approved Budget for the Contract LCBI Local Capacity Building Institutions ADB Asian Development Bank LGU local government unit ADR alternative dispute resolution LLED Laguna Lakeshore Expressway Dike AIF ASEAN Infrastructure Fund LRT Light Rail Transit ASEAN Association of Southeast Asian Nations LRTA Light Rail Transit Authority BBWSP Bulacan Bulk Water Supply Project LWUA Local Water Utilities Administration BLT build-lease-transfer MDG Millennium Development Goal BFAR Bureau of Fisheries and Aquatic Resources MERALCO Manila Electric Light and Railroad Company BOP balance of payments MLD million liters per day BOT build-operate-transfer MRT Metro Rail Transit BPO Business Process Outsourcing MW megawatt BRICs Brazil, Russia, India, China MWCI Manila Water Company, Inc. BRLC Bulacan, Rizal, Cavite, Laguna MWSI Maynilad Water Services, Inc. CAAP Civil Aviation Authority of the Philippines MWSS Metropolitan Waterworks and Sewerage System CAVITEx Manila-Cavite Expressway m3 cubic meter CALABARZON Cavite, Laguna, Batangas, Rizal, Quezon NAIA Ninoy Aquino International Airport CBO community-based organizations NCR National Capital Region CCA climate change adaptation NCWSP New Centennial Water Source - Kaliwa Dam CCGT Combined Cycle Gas Turbine Project CGIF Credit Guarantee and Investment Facility NEDA National Economic and Development Authority CIF Climate Investment Fund NEDA-ICC National Economic and Development Authority – CL contingent liabilities Investment Coordination Committee CLB Calamba – Los Baños Toll Expressway NGA national government agencies CLEx Central Luzon Expressway NGCP National Grid Corporation of the Philippines CSC Civil Service Commission NGO non-government organization CSO civil society organizations NIA National Irrigation Administration DA Department of Agriculture NLEx North Luzon Expressway DAP Development Academy of the Philippines NPC National Power Corporation DBM Department of Budget and Management NSCB National Statistical Coordination Board DEO District Engineering Office NSO National Statistics Office DENR Department of Environment and Natural NTDP National Tourism Development Plan Resources NWRB National Water Resources Board DepEd Department of Education N-11 Next Eleven DILG Department of Interior and Local Government ODA official development assistance DOE Department of Energy OECD Organisation for Economic Co-operation and DOF Department of Finance Development DOT Department of Tourism O&G oil and gas DOTC Department of Transportation and O&M Operation and Maintenance Communications PAP projects and programs DPWH Department of Public Works and Highways PCA Philippine Contractors Association DTI Department of Trade and Industry PDMF Project Development and Management Facility DU distribution utility PINE Philippines, Indonesia, Nigeria, Ethiopia EGAT Electricity Generating Authority of Thailand PIP Public Investment Program EPIRA Electric Power Industry Reform Act PPICS Peru, Philippines, Indonesia, Colombia, Sri Lanka ERC Energy Regulatory Commission PPP public-private partnership FAP foreign assisted project PSALM Power Sector Asset Liability Management GCR Greater Capital Region Corporation GDP gross domestic product RA Republic Act GGG Global Growth Generators REID Foundation Research, Education and Institutional GOCC government-owned and controlled corporations Development Foundation GVW gross vehicle weight RORO Roll-On/Roll-Off GWh gigawatt-hour RM Results Matrix HSH High Standard Highways SCMB Subic-Clark-Manila-Batangas IA implementing agency SCP Strategic Convergence Program ICC-CC Investment Coordination SEPO State Enterprise Policy Office Committee – Cabinet Committee SLEx South Luzon Expressway ICC-TWG Investment Coordination Committee – SWS Social Weather Stations Technical Working Group S&P Standard & Poor’s ICT information and communications technology TEU twenty-foot equivalent unit IEA International Energy Agency TOR Terms of Reference IE Singapore International Enterprise Singapore TransCo National Transmission Corporation IPP Investment Priority Plan VAT Value-Added Tax IPPA independent power producer administrators VfM Value for Money IRR Implementing Rules and Regulations VGF Viability Gap Financing ITS Integrated Transport System WB World Bank IWRM Integrated Water Resources Management WEF World Economic Forum JICA Japan International Cooperation Agency WESM Wholesale Electricity Spot Market JMP Joint Monitoring Programme WRM Water Resource Management KWH kilowatt-hour WSP water service providers

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. The Philippines officially became a republic in 1946. . The . PhilippinesThe Philippines officially officially became became a republic a republic in 1946. in 1946. . Benigno Aquino III is the current President of the . The year 1986 was a landmark year in the country’s Republic. The of yearthe Philippines. 1986 was a His landmark main platform year in theis country’s efforts to become a self-governing, full-fledged good governanceefforts to become and the aelimination self-governing, of corrupt full-fledged democratic country when President Ferdinand Marcos practicesdemocratic in the government. country when Under President his Ferdinand Marcos was ousted from power and President Corazon administration,was ousted the overallfrom po financialwer and strength President of Corazonthe Aquino assumed the presidency. governmentAquino has assumed improved, the owing presidency to a more. efficient . Former President Gloria Macapagal-Arroyo’s tax administration. Former President and responsible Gloria Macapagal-Arroyo’s government presidency (2001-2010) has made the economy the spending.presidency (2001-2010) has made the economy the focus f ocusof her of presidency her presidency. Economic. Economic growth gro inwth terms in terms of of . The current Aquino regime posted a GDP growth of GDP averaged 4.6 percent during the Arroyo 7.6 percentGDP in averaged 2010 and 4.6 slowed percent down during to 3.6 the percent Arroyo administration from 2001 up to the end of 2003, to 5.5 in 2011.administration It then grew by from 6.8 20percent01 up into 2012the end and of 2003, to 5.5 percent in 2006. 2007 saw the country’s GDP grow by exceededpercent the government’s in 2006. 2007 expectations saw the country’s when theGDP grow by 7.3 percent as continuing fiscal reforms allowed the Philippine7.3 economypercent as expanded continuing to fiscal7.2 percent reforms in allowed2013. the government to make headway in its development The countrygovernment still remains to make as oneheadway of the in strongest its development initiatives. The country’s economic growth for 2009 is economiesinitiatives. in the TheAsian country’ regions with economic infrastructure growth for 2009 is 4.6 percent. development4.6 percent. encouraged to continue in the next . Benigno Aquino III is the current President of the administration.. Benigno Aquino III is the current President of the Republic Republic of the of Philippines. the Philippines. His main His mainplatform platf isorm good is good . Different rating agencies have also consistently governance and the elimination of corrupt practices in upgradedgov theernance credit and ratings the ofelimination the Philippines. of corr uptFitch practices in the government. Under his administration, the overall affirmedthe the government. country’s long-term Under his foreign administration, and local the overall financial strength of the government has improved, currencyfinancial issuer defaultstrength ratings of the at go ‘BBB-’vernment and has‘BBB,’ improved, owing to a more efficient tax administration and . Average temperature: 27 degrees Celsius (81 respectively,owing in to March a more 2014, efficient followed tax administration by Standard & and responsible government spending. degrees Fahrenheit); Average Humidity: 78 percent Poor’s stableresponsible outlook go ofvernment BBB in Mayspending 2014.. Another . Year-round average temperature range: 23-32 vote of confidence was also seen from Moody’s LanguagesLanguages degrees Celsius positive outlook of Baa3 in September 2014. Population . Over. Ov87 erlanguages 87 languages and dialects and dialects belonging belonging to the to the Population Malayo-PolynesianMalayo-Polynesian linguistic linguistic family family Population . 92.34. 92.34 million million (National (National Statistics Statistics Office, Office, May 2010May 2010 Languages estimate) . Three . T principalhree principal languages: languages: Cebuano, Cebuano,Tagalog, Tagalog, and and . 92.34 millionestimate) (National Statistics Office, May 2010 . Over 87 languages and dialects belonging to the . Population growth rate of 1.81 percent per year (2014 Ilocano.Ilocano.. Filipino. Filipino is the is of theficial of language.ficial language. estimate). Population growth rate of 1.81 percent per year (2014 Malayo-Polynesian linguistic family estimate) . English. English is the is language the language of business of business and go andvernment. government. . Population estimate)growth rate of 1.81 percent per year . Three principal languages: Cebuano, Tagalog, and GlobalEnglish, an independent research group, ranked (2014 estimate). Literacy. Literacy Rate: Rate: 97.5 percent97.5 percent of tot ofal populationtotal population Ilocano.GlobalEnglish, an independent research group, ranked the Philippinesthe Philippines number number 1 in the 1 in w theorld w inorld terms in terms of of . Literacy Rate: 97.5 percent of total population . Filipino is the official language. proficiencyproficiency in business in business English English for its f or2012 its 2012study. study. EducationEducation . English is the language of business and Education . K-12:. K-12:universal univ ersalkindergarten, kindergarten, six years six y ofears elementary of elementar y government. GlobalEnglish, an independent GeographyGeography . K-12: universaleducation kindergarten,education (Grades (Grades six1-6), years four1-6), of yearsfour years of junior of junior high schoolhigh school research group, ranked the Philippines number 1 in with additional two years for senior high school . Located . Located in Southeast in SoutheastAsia Asia elementarywith education additional (Grades two years1-6), four for senioryears ofhigh school the world in terms of proficiency in business English (Grades 11 to 12) . Area:. Area: 300,000 300,000 sq. km. sq. (117,1 km. (117,187 square87 square miles) miles) junior high (Gradesschool (Grades 11 to 12) 7-10) with additional two for its 2012 study. . Public Elementary and High School education . Three . T majorhree major geographical geographical areas: areas: Luzon, Luz Visayas,on, Visayas, years for .senior Public high Elementar school (Gradesy and High 11 toSc hool12) education MindanaoMindanao . Public Elementarysubsidizedsubsidized and by High the by Schoolgovernment the government education Geography . English is part of the curriculum and is the medium of . Major. Major cities cities (2010 (20 estimate):10 estimate): Capit Capital - Manilaal - Manila (pop. (pop. subsidized. Englishby the government is part of the curriculum and is the medium of . Located in Southeast Asia 11.85 11million.85 million in the in metropolit the metropolitan area)an area) . English is partinstruction ofinstruction the curriculum for most for mostsubjects and subjectsis the medium . Area: 300,000 sq. km. (117,187 square miles) . Other. Other cities cities - Cebu - Cebu City (0.87City (0.87million); million); Davao Da Cityvao (1.45City (1.45of instruction for most subjects . Three major geographical areas: Luzon, Visayas, million)million) PoliticalPolitical Mindanao . Type: Republic . Terrain:. Terrain: Archipelago Archipelago composed composed of 7,107 of 7islands,,107 islands, 65 65Political . Type: Republic . Major cities (2010 estimate): Capital - Manila (pop. percent mountainous, with narrow coastal lowlands. Type: Republic. Independence:. Independence: 1946 1946 11.85 millionpercent in themount metropolitanainous, with area) nar row coastal lowlands . Independence:. Current. 1946Current constitution: constitution: Ratified Ratified on 11 on February 11 February 1987 1987 . Other cities - Cebu City (0.87 million); Davao City ClimateClimate . Current constitution:. Branches:. Branches: RatifiedExecutive; Executive; on Legislative11 February Legislative - 1987Bicameral - Bicameral (1.45 million) legislature; Judiciary . Tropical,. Tropical, sitting sit astrideting astride a typhoon a typhoon belt belt . Branches: Executive;legislature; Legislative Judiciary - Bicameral . Terrain: Archipelago composed of 7,107 islands, 65 . Three seasons: Rainy (June to October); Cool and Drlegislature;y . Administrative Judiciary. Administrative Subdivisions: Subdivisions: 17 regions 17 regions including including percent. Three mountainous, seasons: with Rainy narrow (June coastalto October); lowlands Cool and Dry (November(November to Februar to Februar y); Hoty); and Hot Dr andy (March-May) Dry (March-May) . AdministrativeMetro Subdivisions:Metro Manila Manila (National 17 (National regions Capit Capitalincluding Region),al Region), 80 provinces, 80 provinces, . Average temperature: 27 degrees Celsius (81 degreesMetro Manila138 (National cities138 cities Capital Region), 80 Climate . Average temperature: 27 degrees Celsius (81 degrees Fahrenheit);Fahrenheit); Average Average Humidit Humidity: 78 y:percent 78 percent provinces,. Suffrage:138. citiesSuffrage: Universal, Universal, but not but compulsor not compulsory, at agey, at 18 age 18 . Tropical, sitting astride a typhoon belt . Year-round. Year-round average average temperat temperature range:ure range: 23-32 23-32 degrees degrees. Suffrage: Universal, but not compulsory, at age 18 . Three seasons: Rainy (June to October); Cool and Celsius Sources:Sources: National National Statistics Statistics Office, Office, CIA World CIA World Factbook, Factbook, Dry (NovemberCelsius to February); Hot and Dry Sources: Nationalwww.gov.ph Statisticswww.gov.ph Office, CIA World Factbook, www.gov.ph, (March-May) www.nscb.gov.ph

75 | Infrastructure2 | Infrastruct2 | Infrastruct In-depth:ure Guide:ure PhilippinesGuide: Philippines Philippines © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. DirectDirDirory ectect ory ofory Go ofof vernment GoGo vernmentvernment Agencies Ag Agenciesencies Department of Agriculture Department of Transportation and Elliptical Road, Diliman, Quezon City Communications Department of Agriculture DepartmentDepartment of Transportation of Transportation and and DepartmentTel. No.: of +63 Agriculture 2 928 8756 to 65 TheCommunications Columbia Tower, Ortigas Avenue, Mandaluyong City Elliptical Road,Website:Elliptical Diliman, da.gov.ph Road, Quezon Diliman, City Quezon City Communications Tel.The No.: Columbia +63 2 Tower,727 7960 Ortigas Avenue, Mandaluyong City Tel. No.: +63Tel. 2 No.:928 8756+63 2 to 928 65 8756 to 65 The Columbia Tower, Ortigas Avenue, Mandaluyong City Website:Tel. No.: dotc.gov.ph+63 2 727 7960 Website: Departmentda.gov.phWebsite: da.gov.ph of Budget and Management Tel. No.: +63 2 727 7960 Website: dotc.gov.phWebsite: dotc.gov.ph General Solano St., San Miguel, Manila Department of Public Works and Highways Department of Budget and Management DepartmentTel. No.: of +63 Budget 2 490 1000 and Management BonifacioDepartment Drive, Port of Area,Public Manila Works and Highways General SolanoWebsite:General St., dbm.gov.ph SolanoSan Miguel, St., San Manila Miguel, Manila Department of Public Works and Highways Tel.Bonifacio No.: +63 Drive, 2 304 Port 3000 Area, Manila Tel. No.: +63Tel. 2 No.:490 1000+63 2 490 1000 Bonifacio Drive, Port Area, Manila Website:Tel. No.: dpwh.gov.ph+63 2 304 3000 Website: Departmentdbm.gov.phWebsite: dbm.gov.ph of Environment and Natural Tel. No.: +63 2 304 3000 Website: dpwh.gov.phWebsite: dpwh.gov.ph Resources Energy Regulatory Commission DepartmentDepartment of Environment of Environment and Natural and Natural Pacific Center Building, San Miguel Avenue DENR Bldg., Visayas Avenue, Diliman, Quezon City Energy RegulatoryEnergy Regulatory Commission Commission ResourcesTel.Resources No.: +63 2 929 6626 / 988 3367 Ortigas Center, Pasig City Pacific CenterPacific Building, Center San Building, Miguel San Avenue, Miguel Ortigas Avenue, Center, Ortigas Center, DENR Bldg.,Website:DENR Visayas Bldg., denr.gov.ph Avenue, Visayas Diliman, Avenue, Quezon Diliman, City Quezon City Tel. No.: +63 2 689 5372 Pasig City Pasig City Tel. No.: +63Tel. 2 No.:929 6626+63 2 / 929988 66263367 / 988 3367 Website: erc.gov.ph Tel. No.: +63Tel. 2 No.:689 5372+63 2 689 5372 Website: denr.gov.phWebsite: denr.gov.ph Department of Education Website: erc.gov.phWebsite: erc.gov.ph DepEd Complex, Meralco Avenue, Pasig City National Economic and Development Department of Education DepartmentTel. No.: of +63 Education 2 633 7208 / 633 7228 NationalAuthorityNational Economic Economic and Development and Development Authority Authority DepEd Complex,Website:DepEd Meralco Complex,deped.gov.ph Avenue, Meralco Pasig Avenue, City Pasig City 12 St., Josemaria Escriva Drive, Ortigas Center 12 St., Josemaria12 St., EscrivaJosemaria Drive, Escriv Ortigasa Driv Center,e, Ortigas Pasig Center City, Pasig City Tel. No.: +63Tel. 2 No.:633 7208+63 2 / 633 72087228 / 633 7228 Pasig City Tel. No.: + 63Tel. 2 No.: 631 +0945 63 2 to 631 56 0945 to 56 Website: deped.gov.phWebsite: deped.gov.ph Tel. No.: + 63 2 631 0945 to 56 Department of Energy Website: neda.gov.phWebsite: neda.gov.ph Energy Center, Rizal Drive, Bonifacio Global City Website: neda.gov.ph Department of Energy DepartmentTaguig Cityof Energy NationalNational Power Corporation Power Corporation Energy Center,Tel.Energy No.: Rizal +63 Center, Drive, 2 840 RizalBonifacio 1401 Drive, to 21Global Bonifacio City, Global Taguig City, City Taguig City Agham RoadNationalAgham corner Road Quezon Power corner Avenue, CorporationQuezon Diliman, Avenue, Quezon Diliman, City Quezon City Tel. No.: +63Website:Tel. 2 No.:840 doe.gov.ph 1401+63 2to 840 21 1401 to 21 Agham Road corner Quezon Avenue, Diliman Tel. No.: + 63Tel. 2 No.: 921 +3541 63 2 921 3541 Website: doe.gov.phWebsite: doe.gov.ph Quezon City Website: napocor.gov.phWebsite: napocor.gov.ph Department of Interior and Local Tel. No.: + 63 2 921 3541 Website: napocor.gov.ph DepartmentGovernmentDepartment of Interior of and Interior Local and Government Local Government National Statistics Office DILG-NAPOLCOM CENTER, EDSA cor. Quezon Avenue,National Statistics Office DILG-NAPOLCOMDILG-NAPOLCOM CENTER, CENTER,EDSA cor. EDS QuezonA cor. Avenue, Quezon AvenueSolicarel Building,Solicarel Ramon Building, Magsaysay Ramon MagsaysayBoulevard, Boulevard,Sta. Mesa, Sta. Mesa, Quezon City Quezon CityQuezon City Manila NationalManila Statistics Office Tel. No.: +63 2 925 0330 / 925 0331 Solicarel Building, Ramon Magsaysay Boulevard Tel. No.: +63Tel. No.:2 925 +63 0330 2 925 / 925 0330 0331 / 925 0331 Tel. No.: + 63Tel. 2 No.: 716 +0807 63 2 / 716713 08077074 / 713 7074 Website: dilg.gov.ph Sta. Mesa, Manila Website: Website:dilg.gov.ph dilg.gov.ph Website: census.gov.phWebsite: census.gov.ph Tel. No.: + 63 2 716 0807 / 713 7074 Website: census.gov.ph DepartmentDepartmentDepartment of Finance of of Finance Finance National Transmission Corporation 6/F DOF Bldg., Roxas Blvd. cor. Pablo Ocampo St., ManilaNational Transmission Corporation 6/F DOF Bldg.,6/F DOF Roxas Bldg., Blvd. Roxas cor. Blvd.Pablo cor. Ocampo Pablo St.,Ocampo Manila St., Power Center,Power Quezon Center, Avenue Quezon corner Avenue BIR cornerRoad, Diliman,BIR Road, Diliman, Tel. No.: +63 2 523 9911 to 14 Tel. No.: +63Manila 2 523 9911 to 14 Quezon CityNationalQuezon City Transmission Corporation Website: dof.gov.ph Power Center, Quezon Avenue corner BIR Road Website: Tel.dof.gov.ph No.: +63 2 523 9911 to 14 Tel. No.: + 63Tel. 2 No.: 902 +1500 63 2 902 1500 Diliman, Quezon City Website: dof.gov.ph Website: transco.phWebsite: transco.ph DepartmentDepartment of Tourism of Tourism Tel. No.: + 63 2 902 1500 Website: transco.ph DOT Bldg.,Department DOTT.M. KalawBldg., T.M.St., of AgrifinaKalaw Tourism St., Circle, Agrifina Rizal Circle, Park, ManilaRizal Park, Manila Public-Private Partnership Center Tel. No.: +63 2 523 8411 Public-Private Partnership Center Tel. No.: +63DOT 2 Bldg., 523 8411 T.M. Kalaw St., Agrifina Circle, Rizal Park, NEDA sa QC,NEDA EDSA, sa QC,Diliman, EDSA, Quezon Diliman, City Quezon City Website: tourism.gov.ph / itsmorefuninthephilippines.com Website: Manilatourism.gov.ph / itsmorefuninthephilippines.com Tel. No.: +Public-Private 63Tel. 2 No.: 990 +0721 63 2 990 Partnership 0721 Center NEDA sa QC, EDSA, Diliman, Quezon City Tel. No.: +63 2 523 8411 Website: ppp.gov.phWebsite: ppp.gov.ph DepartmentWebsite:Department ofTrade tourism.gov.ph andof Trade Industry / and Industry Tel. No.: + 63 2 990 0721 361 Tradeitsmorefuninthephilippines.com and361 Industry Trade and Building, Industry Sen. Building, Gil J. PuyatSen. GilAvenue, J. Puyat Avenue, Website:Power ppp.gov.ph Sector Assets and Liabilities Management Makati City Power Sector Assets and Liabilities Management Makati City CorporationCorporation Tel. No.: +63Tel. 2 No.:751 0384+63 2 751 0384 Power Sector Assets and Liabilities Department ofTrade and Industry 7th Floor Bankmer7th Floor Building Bankmer 6756 Building Ayala 6756Avenue, Ayala Makati Avenue, City Makati City Website: dti.gov.phWebsite: dti.gov.ph 361 Trade and Industry Building, Sen. Gil J. Puyat Tel. No.: +Management 63Tel. 2 No.: 893 +8202 63 2 893 Corporation 8202 7th Floor Bankmer Building 6756 Ayala Avenue Avenue, Makati City Website: psalm.gov.phWebsite: psalm.gov.ph Tel. No.: +63 2 751 0384 Makati City Website: dti.gov.ph Tel. No.: + 63 2 893 8202 Website: psalm.gov.ph

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KPMG aims to respond to the complex business KPMG recognizes that clients are looking for the best challenges facing our clients. KPMG adopts a global solutions and advice, locally implemented with a approach spanning professional disciplines, industry global mindset. KPMG helps client-facing teams KPMGKPMGsectors InternationalKPMG and International national International borders. is a isglobal a is global a net global wnetork wnet oforkwork prof of coalesceprof essionalof professional aroundessional firms the firms issues pro firmsviding prothat vidingmatterpro Audit,viding most Audit, Taxwith Audit, Tax Tax support from KPMG Centers of Excellence and our and andAdvisoryKPMGand Advisory is organized Advisory services. seraround vices.ser theKPMGvices. 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Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. DirectDirectDirectory ory ofory ofP ar ofPtners ar Ptnersartners and and andPr incipalsPr incipalsPrincipals

RobertoRoberto G.Roberto Manabat G. Manabat G. Manabat ChairmanChairman Chairman& Chief & ChiefEx &ecutive Chief Executive ExOfficerecutive Officer Officer [email protected]@kpmgrgmanabat@k .compmg.com

EmmanuelEmmanuelEmmanuel P. Bonoan P. Bonoan P. Bonoan Vice ChairmanVice ViceChairman Chairman& Head & Headof &Tax Head of Tax of Tax [email protected]@kpmgebonoan@kpmg .com.com

SharonSharon G.Sharon Dayoan G. Dayoan G. Dayoan Head Headof AuditHead of Audit of Audit [email protected]@[email protected]

HenryHenry D. AntonioHenry D. Antonio D. Antonio Head Headof AdvisoryHead of Advisory of Advisory [email protected]@kpmghantonio@k .compmg.com EmeraldEmerald Anne C. Anne Bagnes C. Bagnes ArthurArthur Z. Machacon Z. Machacon ebagnes@[email protected] Anne .com C. Bagnes [email protected]@kpmg.comTireso Randy F. Lapidez [email protected] [email protected] CarmelCarmel Lynne LynneM. Balde M. Balde TomasTomas G. Mahinay G. Mahinay [email protected]@kpmg.comNoel A. Baladiang [email protected]@kpmg.comRicardo G. Manabat [email protected] [email protected] Enrico EnricoE. Baluyut E. Baluyut RicardoRicardo G. Manabat G. Manabat [email protected]@kpmg.comCarmel Lynne M. Balde [email protected]@kpmg.comVirgilio L. Manguilimotan [email protected] [email protected] Oliver OliverC. Bucao C. Bucao VirgilioVirgilio L. Manguilimotan L. Manguilimotan [email protected]@kpmg.comEnrico E. Baluyut [email protected]@kpmg.comMaria Myla S. Maralit [email protected] [email protected] Joan C.Joan Cariño C. Cariño Maria MylaMaria S. Myla Maralit S. Maralit [email protected]@kpmg.comOliver C. Bucao [email protected]@kpmg.comAdor C. Mejia [email protected] [email protected] Pacifico Pacifico Castañeda Castañeda Ador C.Ador Mejia C. Mejia [email protected]@kpmg.comJoan S. Cariño [email protected]@kpmg.comJohn Molina [email protected] [email protected] Alicia S.Alicia Columbres S. Columbres John MolinaJohn Molina acolumbres@kpmgacolumbres@kpmgPacifico.com Castañeda .com [email protected]@kpmg.comHerminigildo G. Murakami [email protected] [email protected] ImeldaImelda H. Corros H. Corros HerminigildoHerminigildo G. Murakami G. Murakami [email protected]@kpmg.comAlicia S. Columbres [email protected]@kpmg.comAline A. Novilla [email protected] [email protected] Dindo DindoMarco MarcoM. Dioso M. Dioso WilfredoWilfredo Z. Palad Z. Palad [email protected]@kpmg.comImelda H. Corros [email protected]@kpmg.comWilfredo Z. Palad [email protected] [email protected] YoshiakiYoshiaki Endo Endo Ma. CarmelaMa. Carmela M. Peralta M. Peralta [email protected]@kpmg.comDindo Marco M. Dioso [email protected]@kpmg.comMa. Carmela M. Peralta [email protected] [email protected] JeromeJerome Andrew Andrew H. Garcia H. Garcia JimmyJimmy S. Quiñones S. Quiñones [email protected]@kpmg.comYoshiaki Endo [email protected]@kpmg.comKathleen L. Saga [email protected] [email protected] MichaelMichael Arcatomy Arcatomy H. Guarin H. Guarin ManuelManuel P. Salvador P. Salvador III III [email protected]@kpmg.comJerome Andrew H. Garcia [email protected]@kpmg.comManuel P. Salvador III [email protected] [email protected] DennisDennis I. Ilan I. Ilan Ma. GeorginaMa. Georgina J. Soberano J. Soberano [email protected]@kpmg.com Arcatomy H. Guarin [email protected]@kpmg.comMa. Georgina J. Soberano [email protected] [email protected] KristineKristine S. Imperial S. Imperial RobertoRoberto L.Tan L.Tan kimperial@[email protected] .com I. Ilan [email protected]@kpmg.comDarwin P.Virocel [email protected] [email protected] Jose P.Jose Javier P. JavierJr. Jr. DarwinDarwin P. Virocel P.Virocel [email protected]@kpmg.comJose P. Javier, Jr. [email protected]@kpmg.com [email protected] Infrastructure In-depth: Philippines | 78 InfrastructureInfrastructure Guide: Guide: Philippines Philippines | 3 | 3 © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. R.G. Manabat & Co.

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© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Infrastructure In-depth: Paul Patrick R. Afable EmmanuelEmmanuel P. P.Bonoan Bonoan Editor-in-Chief Philippines Henry D. Antonio Editor-in-Chief Emmanuel P. Bonoan The Infrastructure Issue Sharad Somani Sharon Smith JeromeHenry Andrew D. Antonio H. Garcia VaughnAssociate F. Montes, Editor PhD 2015 Investment Guide Michael Arcatomy H. Guarin Editorial Consultant Growth and Opportunities in the Ma. Pia A. Urgello by KPMG in the Philippines Ma. Cynthia C. Hernandez Philippine Infrastructure Sector John Molina Sachin Gohel MaryMichael Karen Arcatomy Quizon-Sakkam H. Guarin MarielEditorial D. Javier Consultant Sharad Somani Ma. Cristina Isabel L. Roxas 2014-2015 Edition Paul Patrick R. Afable Geno Armstrong EditorialMariel D. Coordinators Javier Emmanuel P. Bonoan Ma. Cristina Isabel L. Roxas ReidWriters Tucker Jonathan Jong JohnEditorial Ernest Coordinators T. Tandoc Art Direction and Layout Writers John Ernest T. Tandoc Art Direction and Layout

Infrastructure Guide: Philippines | 3

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