JAPANESE KOREAN PAMURI AMCHAM PHILIPPINES 22 March 2011 For the Members of the Economic Managers SECRETARY CESAR PURISIMA, DoF SECRETARY JOSE P. DE JESUS, DoTC SECRETARY ROGELIO SINGSON, DPWH SECRETARY CAYETANO PADERANGA, NEDA SECRETARY ALBERTO LIM, DoT SECRETARY GREGORY DOMINGO, DTI RE: Transport and Infrastructure Policy Recommendations Dear Sirs: We are pleased to submit for your consideration the following policy reform initiatives that will improve the country’s global competitiveness. These recommendations were culled from the various industry consultations we have had at the Export Development Council Networking Committee on Transport and Logistics, National Competitiveness Council Infrastructure Working Group, Philippine Business Congress of the Philippine Chamber of Commerce and Industry, Arangkada 2010 of the Joint Foreign Chambers among others. On the Development of Luzon Logistics Corridor The vision is to develop new “economic magnets” outside of Metro Manila. Regions 3 and 4 are the fastest growing economies in Luzon outside of the National Capital Region, accounting for almost 20% of the country’s total output (GDP). The good news is that the basic infrastructure network is already in place. We have expanded and extended SLEX, completed the second phase of the Southern Tagalog Arterial Road that leads all the way to the port of Batangas, improved NLEX, completed SCTex that leads all the way to Subic Port. Now we are even extending SCTEx all the way to La Union via TPLEx. New port capacities (additional 1 million container capacity per year) in Subic and Batangas provide new “gateways”. With these infrastructures in place, we hope that a more efficient logistics system will improve the overall supply chain. The International Port of Manila (MICT and South Harbor) is already experiencing congestion. Metro Manila itself is already congested. More than 6,000 foreign containers (TEUs) go in and out of MICT and South Harbor every day (roughly 2.4 million TEUs annually), notwithstanding the foreign non-containerized (break-bulk) cargoes. Our advocacy is to gradually shift foreign cargoes from Manila to the newly developed international ports in Subic and Batangas within a period of 3 years. This move will not only decongest Metro Manila but will (a) maximize the utilization of the ports in Subic and Batangas in order to be able to finance the US$ 240 million JBIC loan(s) contracted for their development and prevent them from becoming “white elephants”, (b) reduce transport cost (since export and import cargoes coming from and going to Regions 3 & 4 and their environs will no longer have to brave the traffic in Manila), and (c) lead industries that are operating in Metro Manila (and gravitating around the Port in Manila) to relocate to these new economic magnets. INTERNATIONAL PORTS ANNUAL CAPACITY ACTUAL TRAFFIC Subic Terminals 1 and 2 600,000 TEUs ~ 21,623 TEUs (2009) Batangas International Port 400,000 TEUs ~ 28,000 TEUs (2010) TEUs = Twenty Equivalent Units (20-footer container) Source: PPP Batangas PMO, SBMA RECOMMENDATION: We recommend the issuance of a policy (i.e., Executive Order) that would shift foreign cargoes from the port of Manila to the newly developed international ports in Batangas and Subic. Initially, the effort may be directed at the Batangas Port since there are enough cargoes coming from the 1,000 locators in 42 Industrial Estates operating in the CALABARZON. The capacity of Batangas Port is only 1/5 of the current foreign cargo traffic being handled in Manila. According to the Philippine Economic Zone Authority (PEZA), 86% of export-import cargoes come from the PEZA-registered companies, of which 60% originate from the CALABARZON area. In this regard, it is recommended that all exports and imports going to and coming from South Luzon should be handled at the Batangas Port. PPA and PEZA must simultaneously issue the following Memorandum Circulars to the effect: The Philippine Ports Authority (PPA) to issue a Memorandum Circular directing the International Shipping Companies, through its association (AISL), to service their clients based/operating in South Luzon at the International Port of Batangas. The Philippine Economic Zone Authority (PEZA) to issue a Memorandum Circular directing its Economic Zone locators to load and unload their foreign cargoes at the International Port of Batangas. On the ASEAN RORO Network ASEAN, as a region, is composed of more than 30,000 islands, of which 23,000 falls under the jurisdiction of Indonesia and Philippines. Its geographical disposition forms two (2) distinct sub-regions, the Greater Mekong Sub-Region (Cambodia, Laos, Malaysia, Myanmar, Thailand, and Vietnam) and BIMP-East Asia Growth Area (Brunei Darussalam, Indonesia, Malaysia and the Philippines). While the countries that form part of GMS are inter-connected by an intricate road network called ASEAN Highway Network (AHN), the countries in BIMP-EAGA have limited connectivity due to the barriers presented by the sea. In a similar fashion, there is also limited connection between BIMP-EAGA and GMS. To enhance this connectivity and integration, the proposal calls for the establishment of nautical highways that will link to the road network in order to provide a seamless inter- modal transport system for ASEAN. During the 15th ASEAN Summit in Cha-am Hua Lin, Thailand, the Leaders created a High Level Taskforce on ASEAN Connectivity (HLTF-AC) to craft the Masterplan on ASEAN Connectivity. President Aquino put forward as a Philippine initiative the establishment of an ASEAN RORO Network. At the 43rd ASEAN Foundation Day, the President announced: “In the light of this, the country will continue to support the ASEAN connectivity project… The Philippines has major interest here, with its existing nautical highways or RORO project. Once it is implemented, ASEAN connectivity will bridge our nation to our neighbors, shorten transport distances and open more economic opportunities for more people”(August 9, 2010). In October 2010, during the 17th ASEAN Summit in Ha Noi, Viet Nam, the Leaders adopted the Masterplan on ASEAN Connectivity. Contained in the Masterplan is the Philippine initiative to establish an ASEAN roll-on/roll-off (RO-RO) shipping network as one of the key strategies to enhance physical connectivity in the region. The initiative was likewise included among the 15 Flagship Projects for immediate implementation. Similarly, the proposed ASEAN RO-RO Network was included in the ASEAN Strategic Transport Plan for 2011-2015. In line with this, a Key Action of the Masterplan on ASEAN Connectivity calls for the conduct of feasibility studies on potential RO-RO routes in ASEAN. Our Department of Foreign Affairs (DFA) is developing the Terms of Reference for the preparation of studies that will look at the viability of RO-RO links between the Philippines and its ASEAN neighbors (e.g., Zamboanga-Muara, Zamboanga-Kota Kinabalu, Davao-Bituing, Batangas-Shenzhen among others). RECOMMENDATION: One critical policy that must be put in place in support of this initiative is the inclusion of the Chassis-RORO (or ChaRO) as part of the RORO service. This entails the amendment of EO 170 (SEE ANNEX _). The international ports of Batangas, Davao and Zamboanga will play a critical role in the establishment of RO-RO connections between the Philippines and other ASEAN countries. There is, therefore, a need to ensure that government services (like customs, immigration and quarantine) will be provided in these designated ASEAN RO-RO ports. On Public-Private Partnerships The current Administration highlights Public-Private Partnership (PPP) as a centerpiece strategy in infrastructure development as well as in harnessing greater private sector participation in nation building. On this note, we will extend our support to this PPP program. We laud the current efforts of the PPP Coalition, composed of the Philippine Constructors Association, Bankers Association of the Philippines, and the Investment Houses Association of the Philippines, in promoting openness, transparency, and effective competition for PPP projects. Accordingly, the Administration has announced that solicited process, which is more transparent and competitive, will be the default mode for priority PPP projects. Public interest must be the foremost consideration in planning and implementation of these projects. RECOMMENDATIONS: We support the policy advocacy of the PPP Coalition calling for the a) Issuance of an EO creating a 10th variant (on Joint Ventures) under the BOT Law b) Amendment of the BOT IRR (especially the deletion of the granting of “provisional” franchise) c) streamlining of right-of-way (ROWA) negotiation and court procedures d) appointment of a PPP Center head with the rank of Secretary, PPP Center to be transferred from NEDA to the Office of the President e) establishment of PPP units within the implementing agencies in order to support the newly-created PPP Center. f) Bid out a few ready-to-go projects (LRT 1 South Extension, LRT 2 East Extension, CALA and Clark Budget Terminal) considering that these projects have existing feasibility studies, commercially interesting to the developers and financial institutions, socio-economically viable, part of the government’s priority projects, and can be bidded out immediately. On the separation of PPA’s regulatory and development functions There have been numerous attempts in the past to amend the Charter of the Philippine Ports Authority (PPA) aimed at separating the regulatory and development functions of PPA. The Congressional Oversight Committee Report in 2006 concluded that the PPA suffers from “conflict of interest”. The conflict of interest emanates from the fact that the PPA, through LOI 1005-A Section 3 s. 1980, is allowed to share “at least 10%” from cargo handling revenues. This provision is a source of “conflict of interest” because the “regulator benefits from its own regulation”. No wonder, cargo handling rates increase almost annually. As a GOCC, the PPA must raise its own revenue to support its operating costs as well as investments in the development of new ports.