The author is the Vice-President of the Philippine Institute for Development Studies (PIDS). He is also a Research Fellow of the Rural Development Research Consortium, University of California, Berkeley. He was formerly Deputy Director-General of the National Economic and Development Authority (NEDA). He obtained his Ph.D. in Economics from the University of the Philippines School of Economics and specializes in money and banking, and public economics. He would like to thank the NEDA infrastructure staff, particularly Assistant Director-General R. Reinoso, L. Quitoriano, L. Abellera, J. Solidum, R. Guinto, N. Prudente, A. Paglinawan, and F. Medina for their invaluable assistance. The author acknowledges the excellent research assistance of G. Laviña and L. Calima of PIDS and R. Morales of NEDA who contributed to the section titled “The infrastructure sector after 25 years.” This paper was prepared for the PIDS Perspective Paper Symposium Series and presented on 20 August 2002 as part of the Institute’s celebration of its silver founding anniversary. Infrastructure Development: Experience and Policy Options for the Future Gilberto M. Llanto PERSPECTIVE PAPER SERIES NO. 7 PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES Surian sa mga Pag-aaral Pangkaunlaran ng Pilipinas Copyright 2004 Philippine Institute for Development Studies Printed in the Philippines. All rights reserved. The views expressed in this paper are those of the author and do not necessarily reflect the views of any individual or organization. Please do not quote without permission from the author nor PIDS. Please address all inquiries to: Philippine Institute for Development Studies NEDA sa Makati Building, 106 Amorsolo Street Legaspi Village, 1229 Makati City, Philippines Tel: (63-2) 893-5705 / 892-4059 Fax: (63-2) 893-9589 / 816-1091 E-mail: [email protected] Website: http://www.pids.gov.ph ISBN 971-564-078-8 RP 12-04-500 Table of Contents ○○○○○○○○ List of tables, figures and boxes ○○○○○○○○○ iv Foreword ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ vii ○○○○○○○○○○○○○○○○○○○○○○○○ Abstract ○○○○○○○○○ viii ○○○○○○○○○○○○○○○○○ I. Introduction ○○○○○○○○○○○ 1 II. The infrastructure sector after 25 years ○○○○○○○○○○○○○○ 5 ○○○○○○○○○ III. Infrastructure performance: an assessment ○○○○ 71 IV. Infrastructure policy and financing infrastructure ○○○○○○○○ 78 V. Framework for guarantees and management of contingent ○○○○○○○○○○○○○○○○○○○○○○○ liabilities ○○○○○○○ 114 ○○○○ VI. Decentralization and local effort in infrastructure ○○○○ 131 VII. Designing a regulatory framework ○○○○○○○○○○○○○○○○133 VIII. Conclusion ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○143 ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ Annex ○○○○ 149 References ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○150 iii Exchange Rate Policy in Philippine Development List of Tables, Figures and Boxes Tables 1 Summary of road statistics ○○○○○○○○○○○○○○○○○○○○○○ 9 2 Road contribution per administration ○○○○○○○○○○○○○○○ 9 3 Road network by system classification and surface type ○○○○○○10 4 Paved road ratios ○○○○○○○○○○○○○○○○○○○○○○○○○○ 11 ○○○○○○ 5 Number and length of national bridges ○○○○○○○○ 11 ○○○○○○○○○○○○○○○○○ 6 Type of national bridges ○○○○○ 11 ○○○○○○○○○○○○○ 7 Number of registered airports ○○○○○○ 16 8 Philippine National Railways revenue targets and collections ○○○ 21 9 Regional distribution of investments and paved national roads ○○22 10 Actual usage, projected usage, and ratio of actual to projected usage in regional fishing ports in the Philippines, 1995 ○○○○○23 11 Gross energy generation of NPC power plants by plant type ○○○24 12 Historical performance in oil and gas exploration/development ○○24 13 Yearly performance of geothermal resources development ○○○○ 25 ○○○○○○ 14 Historical energy consumption by source ○○○○○○○ 26 ○○○○○○○ 15 Status of energization by region and province ○○○○ 30 ○○○○ 16 Access to electricity by households ○○○○○○○○○○○○○ 30 ○○○○○○○○○○○○ 17 Energy summary ○○○○○○○○○○○○○○ 31 18 Actual and programmed population served with public sewerage ○○○○○ system ○○○○○○○○○○○○○○○○○○○○○○○○○○○ 34 19 Percentage of population served by location, by administration ○○38 ○○○○ 20 MWSS service status before and after privatization ○○○○○ 39 21 Proportion of families with access to safe water supply by region ○○○ 40 ○○○○○ 22 Proportion of households by main water supply ○○○○○ 42 23 Percentage of families by main source of water supply ○○○○○○ 43 ○○○○○ 24 NIA and BSWM service areas ○○○○○○○○○○○○○○○ 51 25 Difference between BAS and combined NIA and BSWM irrigated area ○○○○○○○○○○○○○○○○○○○○○○○○○○○○ 53 26 Irrigation service fees due and collected ○○○○○○○○○○○○○○ 54 27 Water rights usage as of December 1999 ○○○○○○○○○○○○○○ 55 28 Recorded teledensities during the Marcos administration ○○○○58 29 Teledensities recorded during the Aquino administration ○○○○59 30 Telephone densities recorded from 1992-1997 ○○○○○○○○○○ 61 ○○○○○○ 31 Public Calling Offices (PCOs) across years ○○○○○○○ 62 32 Mobile telephone subscribers and teledensities in 1997-2001 ○○63 33 Summary of the telecommunications industry ○○○○○○○○○○○ 65 34 Broadcast stations and CATV networks ○○○○○○○○○○○○○○○ 66 35 Postal density (total population per post office) ○○○○○○○○○○ 67 36 Summary of mail volume handled, 1980-2001 ○○○○○○○○○○○ 68 iv 37 Performance in infrastructure: rank of select countries ○○○○○○71 38 Average annual infrastructure expenditures as a percentage of GDP of selected ASEAN countries ○○○○○○○○○○○○○○○○ 72 39 Road densities and paved road ratios for the Philippines and other ASEAN developing countries ○○○○○○○○○○○○○○ 72 40 Landline teledensity per 100 persons, selected countries ○○○○○ 72 41 The infrastructure sector—a comparative summary ○○○○○○○○74 42 Investment in infrastructure projects with private participation in developing countries by sector and region, 1990-1998 ○○○○○82 43 National solicited BOT projects (as of 31 March 2002) ○○○○○○86 44 Local government unit-solicited BOT projects ○○○○○○○○○○○○○○○○ (as of 31 March 2002) ○○○○○○○○ 88 45 National unsolicited BOT projects (as of 31 March 2002) ○○○○○ 90 46 Local government unit-unsolicited BOT projects as of 31 March ○○○○○○○○○○○○○○○○○○○○○○○○ 2002 ○○○○○○○○○ 91 47 Typical financial profile of Philippine infrastructure projects ○○○98 48 Characteristics of the Philippine bond market ○○○○○○○○○○○101 ○○○○○○ 49 Key issues facing Philippine capital markets ○○○○○○ 109 50 Comparison of alternative financing options (MRT III Phase 2 ○○○○○○○○ Project) ○○○○○○○○○○○○○○○○○○○○○○○ 110 ○○○○○ 51 BOT projects vis-à-vis ODA projects by sector ○○○○○○○ 110 ○○○○ 52 ODA infrastructure projects (as of 31 March 2002) ○○○○ 111 53 ODA commitment and availment for infrastructure sector ○○○○○○○○ as of 31 March 2002 ○○○○○○○○○○○○○○○○○ 112 54 Selected project-specific risks and sectoral examples ○○○○○○○116 55 Estimated exposure in infrastructure BOTs ○○○○○○○○○○○○○○ (as of March 31, 2000) ○○○○○○○○○○ 121 56 Identifying risks covered in small sample of contracts ○○○○○○○123 ○○○○○○○○○ 57 Reporting format for exposure and risk ○○○○○ 128 ○○○○○○ 58 Status of infrastructure projects ○○○○○○○○○○○○○ 128 59 Local government infrastructure projects under the BOT Law ○○○○131 Figures 1 Urban population with access to water supply ○○○○○○○○○○○ 41 ○○○○○○○○○ 2 Rural population with access to safe water ○○○○ 42 3 Annual NIS and CIS under NIA (1979-1985) ○○○○○○○○○○○ 45 4 Total rehabilitated NIS and CIS developed under NIA (1978-1985) ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ 46 5 SWIPs undertaken by the BSWM (1977-1985) ○○○○○○○○○○○ 46 6 Target and actual new NIS and CIS service areas (1986-1991) ○○○ 47 7 Target and actual rehabilitated NIS and CIS service areas (1986-1991) ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ 47 ○○○○ 8 Total NIS and CIS under NIA (1992-1997) ○○○○○○○○ 48 ○○○○○○○○○ 9 New NIS and CIS under NIA (1992-1997) ○○○○ 49 v Exchange Rate Policy in Philippine Development 10 Rehabilitated NIS and CIS under NIA (1992-1997) ○○○○○○○○ 49 11 Postal network development, 1993-1999 ○○○○○○○○○○○○○○ 69 ○○○○○○ 12 Different ownership structure in infrastructure ○○○○ 83 Boxes 1 The privatization of the Metropolitan Waterworks and Sewerage System ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ 36 2 Why are asset-backed securities an attractive form of financing? ○○○103 3 Reasons for low utilization of Official Development Assistance ○○○○113 vi Foreword The Philippine Institute for Development Studies (PIDS) celebrated its silver founding anniversary in 2002. In this connection, various activities were held to highlight the contribution and significance of policy research in governance as well as to commemorate more than two decades of providing competent research. One of these activities is the Perspective Paper Symposium Series where the PIDS research fellows presented a perspective of the development and evolution of issues and concerns over the past 25 years in their respective fields of specialization such as infrastructure, banking and finance, science and technology, human resources development and labor markets, competition policy, poverty analysis and housing development. The 11 papers covered most of the themes in the PIDS research agenda and presented reviews of specific policy issues from where policy debates can proceed with greater focus. Such outputs, however, are best disseminated in book formats so as to widen the reach of the excellent observations, analyses and recommendations put forward by the Institute’s inhouse pool of researchers. Thus, the Institute presents 11 commendable titles under the Perspective Paper Series as its contribution to Philippine policy research. It is with confident expectation that this Series will provide the essential answers