Major railway projects to tackle traffic and congestion in the Philippines

Rail networks in the Philippines are set for a major overhaul as the government moves forward on its sweeping North-South Railway Project (NSRP), which will re-establish a national rail backbone in the coming years. The project’s North-South Commuter Rail (NSCR) will also connect to major mass transit networks in Metro Manila, which suffers from dense traffic and records significant congestion losses annually.

The government has made notable progress in delivering the new project, after Japan announced in 2015 it will provide more than $2bn in soft loans for its development. The next challenge for stakeholders will be to decide on the project’s financing framework, begin the procurement process and commence construction on schedule. Upgrades to the city’s existing mass transit networks will also be critical, as years of underinvestment have significantly affected operations across Manila’s system of urban mass transit networks.

As it moves forward on this ambitious railway agenda, the government has benefitted from rising interest from both the private sector and its major trade partners, which have pursued new rail opportunities in the capital city. Outside of Manila, planned new networks in Mindanao and Cebu have also attracted significant interest, most notably a planned light rail system in Cebu City. Additionally, inter-city rail lines connecting major secondary cities are expected to move forward in 2017 with both bilateral and private sector support.

Existing Network

According to the country’s 2014 Roadmap for Transport Infrastructure Development for Metro Manila and its surrounding areas, the Philippines’ railway network is sparsely developed, despite the fact that Metro Manila was one of the first cities in the region to build a commuter rail system.

Manila’s existing network comprises three light rail transit (LRT) lines: the 20-km LRT-1; 13-km LRT-2; and 17-km Metro Rail Transit (MRT) 3, all located in Manila. Philippine National Railways (PNR) also operates a commuter line between Laguna and Metro Manila.

Luzon’s railway system was robust and well connected during the 1970s, spanning a 900-km track linking the northern La Union province to Albay’s Legazpi City in the south. Decades of underinvestment have reduced rail passenger and cargo volumes, however.

LRT-1, which opened in 1985, has failed to undergo any significant expansion during the previous three decades, while the LRT-2, which began operations in 2003, has struggled to maintain service due to low availability of spare parts. In August 2016 Philtrak, LRT-2’s operator, proposed the line be completely dismantled and replaced with a bus rapid transit system.

A 653-km line connecting Tutuban to Legazpi City has been suspended since 2012 due to typhoon damage. The Manila-Bulacan northern line, meanwhile, was closed in 1984. The Japan International Cooperation Agency (JICA) reports that Luzon’s railway network has only expanded by 5 km over the last 10 years, despite rapid population growth and urbanisation.

New Commuter Line

On August 12, 2016 Japan reaffirmed its commitment to provide $2.4bn in funding for a new railway in Manila, a 38-km elevated commuter line connecting the city to Bulacan province, just north of Quezon City. One of the largest projects ever undertaken by the Japanese using a yen-denominated loan, the NSCR project is the first phase of a large project to build new north-south rail backbone, the NSRP.

The P214bn ($4.5bn) project spans 534 km, with 56 km of commuter line and 478 km of long-haul passenger line, and includes plans for 175 km of spur extensions: a 58-km line connecting Calamba in Laguna to Batangas City in the eponymous province, as well as a 117-km line from Legazpi City to Matnog in Sorsogon.

According to local media reports from January 2016, the NSRP’s southern portion was planned to be financed under a public-private partnership (PPP) scheme, while the northern line will be funded by JICA through a JPY242bn ($2.2bn) soft loan agreement that was signed by the parties in November 2015.

Impact

Construction on the first 38-km northern stretch was expected to start in 2017 and wrap up in late 2020. The line was planned to have a total of 15 stations, with ridership forecast to hit 340,000 passengers per day, reducing the total trip time to 35 minutes, from up to three hours previously. It was expected to have a significant impact on rising congestion in Metro Manila. In February 2017 authorities announced that a new feasibility study for the 38-km line had been completed, with the network revised to run across 10 elevated stations on 13 train sets of eight cars each, carrying 2238 passengers per train, and trains running at six-minute intervals. An estimated 200,000 commuters will ride the train daily on initial opening, according to the updated plan.

The line has been designed for longevity, with low-emission trains, earthquake protection systems, and closed circuit television cameras and monitors. The line will also preserve historic stations in Malolos, Balagtas and Meycauayan. Construction is now expected to begin in 2019, and finish between 2021 and 2022.

If completed as envisioned by a separate joint study between JICA and the National Economic and Development Authority (NEDA), published in 2014, the NSCR will connect to Metro Manila’s three existing LRT lines, with public transport ridership forecast to rise from 1.5m per day in 2012 to 7.4m in 2030. An estimated 2.1m passengers from Bulacan, Rizal, Laguna and Cavite will also benefit from the new system, which is expected to meet 41% of Metro Manila’s total traffic demand.

Bilateral Bargaining

Rising international interest in transportation upgrades puts the Philippines in an advantageous position when negotiating the terms of new rail deals, and could offer the country a solution to frequent delays, which have slowed PPP project delivery in the past. On making the August NSCR announcement, Japanese officials told media Japan is also open to building a planned rail line in the southern region of Mindanao, which has received offers of funding assistance from the Chinese government. Competition for a larger share of the Philippines’ infrastructure market ramped up in October 2016, when the state-owned China Railway Group announced it would be willing to invest up to $3bn in Philippine infrastructure, likely on the Mindanao Railway Project.

Japan’s move to shore up ties with the Philippines comes as both countries attempt to negotiate disputes with China over the South China Sea, and could see both countries offered more favourable financing terms for new projects than a PPP model could offer.

Japan has donated coast guard vessels and aircraft to boost military and maritime capabilities, and its role in the Philippines railways sector has become increasingly prominent, with Japan standing as the country’s largest source of official development assistance (ODA). As competition for new deals ramps up, ODA is beginning to feature more prominently in rail development.

Investor interest in the south line, which was originally planned to be financed under a PPP model, was strong. In February 2016 the PPP Centre announced that a call for prequalified bidders had attracted five proposals from companies including San Miguel Holdings Corporation, Metro Pacific Investment Corporation, AC Infrastructure Holdings Corporation, IL&FS Transport Networks and Fluor Daniel Pacific.

The deadline for submission of qualifying documents was set for March 31, 2016, with the winning bidder to design, construct, install, commission, finance, operate and maintain the existing commuter line from Tutaban to Calamba City. However, on March 21, 2017 NEDA announced that its Investment Coordination Committee-Cabinet Committee had supported a move to change the financing scheme for the south line from a PPP model to an ODA model, meaning it is more likely the project will be financed through bilateral loans.

Challenges

There are concerns that Manila’s existing mass transit network is unequipped to handle a surge of new passengers from the NSCR. Although 80% of Filipinos use public transportation, JICA researchers have highlighted the fact that much of this is on road vehicles including jeepneys, tricycles and UV express units. This is in part due to challenges facing riders of the city’s MRT-3 line, a major commuter line that carries close to 600,000 passengers daily in Manila, despite a design capacity for just 350,000.

The government has halted plans for an equity value buyout of the MRT-3 line’s private owner, Metro Rail Transit Corporation, announcing in August 2016 that it will instead focus on upgrades to the line, including power supply and signalling systems (see overview). At present, the line is characterised by frequent service interruptions, technical errors and breakdowns, making timely upgrade of existing systems an equally critical priority for NSCR stakeholders.

There are also concerns about the delivery framework for the project. In mid-June international media reported that the NSRP was facing delays as the PPP Centre wrangled with the Department of Transportation (DoT) to change the terms of the project. Andre Palacio, former executive director of the PPP Centre, argued the project’s two lines – the 56-km commuter line and 478-km, long-haul passenger line – should be part of the same deal, with the commuter segment’s profitability helping to cross-subsidise the long-haul segment. The DoT told media it would be better to change the project and bid the two lines separately. NEDA, which holds ultimate decision-making power on the project through its board of directors, approved the DoT’s suggested change, prompting the PPP Centre to counter the proposal. In September 2016 the new administration’s special Committee on Public Services (CPS) unveiled detailed plans for the 35-km PNR North Commuter line from Tutuban to Malolos in Bulacan, a 55-km PNR North extension from Malolos to Clark, in Pampanga and a PNR South Line running 72 km from Tutuban to Los Baños, Laguna. In August NEDA announced it had approved the NSRP’s P170.7bn ($3.6bn) south line. Once construction is finished, the line is expected to kick-start development in provinces north and south of Metro Manila.

Ongoing Projects

The NSRP is not the only rail project aimed at improving congestion. In making the September announcement, the CPS also said it would tender a host of planned projects in the near future, including the LRT-2 East and West extension lines, and an LRT spur line called Line 5a, which connects to the Makati Central Business District. Work on four new LRT lines, including the landmark LRT-5 subway system, is also advancing, with construction on the LRT-7 kicking off in April 2016 (see overview).

Outside of Metro Manila, railway projects in Cebu and Mindanao are also expected to boost multimodal connectivity and regional development. These projects include a P98bn ($2.1bn) section of the Cebu Rail Project, a 25-km section of the Central Philippine Rail Project, valued at P86bn ($1.8bn), and a 20-km, P79bn ($1.7bn) section of the Mindanao Rail Project.

Cebu Rail & LRT

In January 2017 the Department of Finance (DoF) announced that the five-line Cebu railway project is taking priority under the administration of President Rodrigo Duterte, with the DoF unveiling a new list of 64 big-ticket projects, which will be developed in the near term, although no further details of the projects’ proposed timeline have been made public.

As is the case with many other rail projects, there has been a high level of international interest in building up Cebu’s rail network. In August 2016, for example, Ernesto Pernia, director-general of NEDA, told media that an unnamed South Korean firm had submitted an unsolicited proposal to build an LRT system in Metro Cebu. The announcement came just weeks after Michael Dino, presidential assistant for the Visayas region, told media that the cost of constructing an LRT system in the city could be as much as $30m per km, making international partnerships and cost-sharing under a PPP model a key priority for the government.

According to Pernia, a contract award for the Cebu LRT project could come in 2017 if the proposal passes the so-called Swiss challenge – in which an unsolicited bid is published and other contractors are invited to match or exceed the original offer – and undergoes a feasibility study. The planned LRT system would be integrated with an existing World Bank-funded 16-km BRT network connecting Bulacao to Talamban.

Mindanao Rail Project

The 2000-km Mindanao Railway Project is also scheduled for near-term development, after NEDA announced in January 2017 that the project was expected to be tabled for approval at a February 2017 NEDA board meeting. The proposed project will connect key cities, including Davao, Zamboanga, Butuan, Surigao, Cagayan de Oro, Iligan and General Santos, in addition to inter-island bridges linking the islands of Panay, Guimaras and Negros. The project is expected to be divided into phases and developed under both PPP and ODA financial frameworks.

Procurement for the high-priority build is planned to begin before 2018, with the DTC reporting that China, Japan and South Korea have already expressed interest in the project. Four private firms – San Miguel Corporation, Metro Pacific Investments Corporation, Ayala Corporation and Megawide Construction Corporation – have shown an interest in participating.