Changes ahead: Focus on modernisation of the entire network

After years of lagging behind its neighbours the Philippines is finally showing signs of overhauling its transport infrastructure. Backed by a favourable macroeconomic environment, political stability and increased spending, the country’s transport sector is slowly getting modernised. If the momentum continues, the Philippines could well become a thriving centre of investments, tourism and trade flows. Real growth for the infrastructure sector is expected to reach 5.9% per annum between 2013 and 2017.

Although the IMF revised its growth forecast for the country from 6% to 7% fuelled, in part, by increased public spending on infrastructure, a lack of significant progress on public-private partnership (PPP) projects suggests that execution risks remain considerable and could pose a threat to long-term outlook for the sector.

SPENDING PLANS: Over P299.4bn ($7.2bn) has been set aside for infrastructure upgrades targeting ports, roads and the rail network in 2013. In the 2014 budget, P399bn ($9.6bn) has been allocated for public infrastructure projects, an increase of 35%. That alone will constitute almost 3% of the country’s GDP. The target is even more ambitious going forward. The administration of President Benigno Aquino III plans to spend almost 5% of GDP (P834.5bn, $20.1bn) on infrastructure by 2016.

This increased spending by the government means plenty of project bidding opportunities for the private sector. However, a combination of inadequate oversight, lapses in agency coordination and domination of oligopolies have traditionally hampered its growth and improvement in the sector, striking a note of caution even as budgets rise.

President Aquino’s administration recognises the need for removing infrastructure bottlenecks to boost economic growth. It has taken steps to improve the business environment by mobilising resources, improving public sector coordination, curbing corruption and fostering greater levels of competition.

KEY AGENCIES: The National Economic and Development Agency (NEDA), chaired by the president, is the agency in charge of overall infrastructure planning and project identification. The Infrastructure Committee within NEDA is responsible for preparing an infrastructure programme. The Investment Coordination Committee (ICC) of the NEDA board, chaired by the secretary of finance, is the gatekeeper and recommends projects for financing.

The Department of Budget and Management is responsible for budgeting and funding the approved projects listed in the Mid-Term Philippine Development Plan, which typically runs through the term of a presidency. The Department of Transportation and Communications (DoTC) is the nodal agency in charge of regulating, planning and coordinating the modernisation and expansion of the transportation sector. Other agencies like the Department of Public Works and Highways (DPWH), the Bases Conversion and Development Authority, the Philippines Ports Authority (PPA), Philippine National Railway (PNR) and the various civil aviation authorities play a complimentary role in the management of the sector.

These agencies have different reporting requirements, which can impede the efficient movement of goods and passengers across different modes of transport. The Philippine Infrastructure Development Fund was established in 2010 with an initial capital of more than $100m to provide long-term financing support for PPPs.

PARTNERSHIP PROJECTS: A review of PPP projects in 2010-11 put projects on hold briefly but implementation has picked up pace since then. In April 2013, a consortium led by DM Consunji and Optimal Infrastructure Development – a subsidiary of local conglomerate San Miguel Corporation (SMC) – was awarded the P15.86bn ($382.2m) Ninoy Aquino International Airport (NAIA) Expressway build-operate-transfer project, making it the third major contract awarded under the PPP programme since its inception in 2010. It came after DPWH launched a tendering process for the $1bn Cavite-Laguna (CALA) Expressway bringing to seven the total number of PPP projects up for bidding.

The 7.75-km NAIA expressway would improve the airport’s connectivity with Metro Manila while the CALA expressway – the largest PPP road project – will alleviate traffic congestion in southern Manila. Construction of the 47.02-km CALA expressway project is expected to begin in January 2015 and is due for completion in 2017. Besides these two projects, there has also been progress on the 4-km Daang Hari, a major arterial road connecting the rapidly growing towns of Imus, Dasmariñas and Bacoor in Cavite to Metro Manila via the South Luzon Expressway (SLEX), which is expected to be completed by 2016.

DELAYS: There have, however, been delays in implementing several PPP projects which has tempered optimistic forecasts for the Philippines’ transport sector. In April 2013 the government pushed back the submission dates for receiving the prequalification documents for the P17.5bn ($421.8m) Mactan-Cebu international airport project for the fourth time, reportedly at the request of bidders themselves. Similarly a prequalification deadline for the $1.25bn Manila inter-city light rail transit (LRT) Line 1 extension project originally slated for 2012 was pushed back to June 2013.

Officials defend these decisions on the grounds of accountability. The Aquino administration has pursued widespread institutional and regulatory reform, which has involved suspending construction and bidding for proposed projects, as well as renegotiating contracts with investors and national partners such as China and Japan. But an important cause for the delay is procedure. Some projects, for instance, must receive approval from the ICC, which tasked with evaluating the financial and non-financial aspects of specific major projects. However, this evaluation process is slow and has prevented several PPP projects from taking off.

REFORMS: In a unique experiment soon after coming to power in 2010, Aquino started to implement the Community and Employment Development Programme under which small public works projects such as rural roads were carried out under the supervision of a local community or a non-governmental organisation. For bigger projects the PPP Centre was created to instil greater transparency, and integrity in the bidding process. Some of the measures adopted since then include a document-tracking system that shows how long a bidding document remains in an agency office. Although such reforms have been well received across the board, the tighter scrutiny of the bidding process has made winning contracts much more difficult. As of July 2013 there were 46 PPP projects in the pipeline but only three had been awarded since 2010. According to local news reports, 80 PPP projects worth $17.6bn were to be launched between 2011 and 2016, but progress is currently behind schedule.

ROAD NETWORK: The Philippines is estimated to have 213,151 km of roads, out of which 54,481 km are paved, according to the “Europa World Year Book 2011”. Less than half of the national roads are considered to be of good quality. The poor quality has resulted in high vehicle operating costs. Various informal transport services such as tricycles, pedicabs and ‘“Jeepneys” provide most of the urban transport needs of the city. The cost of congestion in Metro Manila alone is estimated to be around P100bn ($2.41bn), or 4.6% of GDP.

The Pan-Philippine Highway, also known as the Maharlika Highway (AH26) is a 3517-km network of roads, bridges and ferry services that connects the islands of Luzon, Samar, Leyte and Mindanao and serves as the country’s principal transport backbone. National roads account for only 14% of the total road network, provincial roads 13%, and city and municipal roads 11%. The rest are classified as barangay (district) roads, which are mostly unpaved village-access roads built by DPWH but handed over to local government units (LGUs). The total length of national expressways is more than 286 km.

REGIONAL DISPARITY: There are large differences in the regional distribution of national and local roads. Region IV (Southern Tagalog) accounts for the highest absolute share of the road network at 11% of the total, but has one of the lowest densities of roads per sq km (0.5 km per sq km). Road density is highest in Metro Manila (7.5 km per sq km) and lowest in Caraga (0.4 km per sq km). A third of all roads in Metro Manila (1820 km) are private.

The DPWH has been the dominant provider of roads throughout the Philippines, with LGUs playing a secondary role. It is responsible for planning, design, construction and maintenance of the national road network. The department also sets technical standards for the construction of all road and bridge classes, and establishes regulations regarding vehicle weights and axle loading. It also upgrades and constructs local roads financed by other agencies, such as the Department of Agriculture and the Department of Agrarian Reform. The Road Board, under the remit of DPWH, is responsible for managing the Special Road Fund, which earmarks funds for road maintenance, safety and air pollution control.

LOCAL MANAGEMENT: The planning, construction, and maintenance of local roads are the responsibility of LGUs. The Land Transportation Franchising and Regulatory Board, part of the DoTC, is responsible for the regulation of all road public transport in the country, except tricycles and non-motorised vehicles. Incidental players in road infrastructure are the Department of Agriculture and the Department of Agrarian Reform. They allocate funds for farm-to-market countryside roads. Specialised national agencies such as the Public Estates Authority and the Bases Conversion and Development Authority also manage roads within their own jurisdiction.

INCREASING SPEND: Public expenditure on the improvement of the national road network is rising steadily. DPWH plans to spend P586bn ($14.1bn) on construction and upgrade of the country’s highways. In 2013 alone 70% of the total P144.34bn ($3.5bn) capital outlay of the department was dedicated for these works. The department aims to pave all unpaved roads out of the 15,872 km of national arterial roads (the main trunk line from northern Luzon to southern Mindanao) by 2014, and do the same for 15,370 km of national secondary roads (roads complementing national arterial roads that also provide access to main population centres) by 2016. It also plans to revamp 58,592 metres of national bridges, widening 12,236 metres of present bridges, in addition to the construction of 18,255 metres of new bridges, as well as replacing 19,725 metres of damaged bridges. Improvement of the roads and bridges includes adoption of new standards for concrete pavement thickness from 230 mm to 280 mm, outsourcing project inspection and quality assurance, developing new construction design standards and retrofitting of bridges to comply with global seismic standards.

CONNECTING PLACES: DPWH has launched multiple infrastructure projects to improve road connectivity in the country. At least P585.93bn ($14.1bn) has been earmarked for the road sector until 2016, and the DPWH plans to spend more than $5.5bn in the next four years. Construction of the 10.12-km road linking Bacolod to the new airport in Silay City was completed in 2013 at a cost of P400m ($9.6m).

Meanwhile, groundbreaking and civil works of Phase II-A of the P15.5bn ($373.6bn) NAIA Expressway project is expected to start in early 2014. This project consists of the construction of a 7.15-km, four-lane highway that will link Terminals 1, 2 and 3 to the SLEX, the Manila-Cavite Expressway and the Entertainment City complex in Parañaque City.

The DPWH is also working on a detailed engineering design for the project, which, according to the Philippines Daily Inquirer, will “supplement” the completed phase I project that connects with the SLEX at Sales Interchange. The government has promised to finance the project’s right-of-way acquisition, which is expected to cost P2.25bn ($54.2m). A further P6.5bn ($156.7m) will come from the state-run Philippine Amusement and Gaming Corporation. Construction of phase II-B, which will link the Domestic Road to NAIA Terminal 3, is expected to be completed in September 2015. Conglomerate SMC won the bidding for the construction, operation and maintenance of the NAIA Expressway in April 2012 – the first of the Aquino administration’s PPP schemes.

SECONDARY ROADS: One of the key road investment projects is the $214.4m Secondary National Roads Development Project financed by the Millennium Challenge Corporation. It includes the rehabilitation of 222 km of roads connecting eastern and western Samar and is expected to be completed by 2015. Other significant road projects include the P29.54bn ($711.9m) Central Luzon Link Expressway Project, which would connect the Subic-Clark-Tarlac Expressway and the Tarlac-Pangasinan-La Union Expressway; the $214m Wright (Western Samar) to Guiuan (Eastern Samar) rehabilitation road project; the P2.5bn ($60.3m) Arterial Road Bypass Project Phase II; and the $400m Northern Luzon Expressway (NLEX) extension project which is expected to be completed by 2016. PPP road projects also include the 36-km CALA Expressway and the second phase of the Southern Tagalog Arterial Road; The C-5 coastal expressway; the C-6 Expressway and Global Link; Kennon Road and Marcos Highway improvement; C-6 Extension; rehabilitation of Quirino Highway; Camarines Norte and Camarines Sur; Calamba-Los Baños Toll Expressway; R-7 Expressway; and the NLEX East Expressway in Bulacan and Nueva Ecija.

There are plans for 12 new expressway projects under PPP initiatives. These include the Daang Hari-SLEX link road, the NLEX-SLEX link, the CALA Expressway-Cavite Side link, the CALA Expressway-Laguna Side link, the NAIA Expressway phase II and the rehabilitation of the Quirino Highway. The department will also commence the PPP Bridges Project, under which it will replace 139 bridges with new ones. Projects that have already been identified for investment include the upgrade of the Metro Manila road, the refurbishment of the Villamor Bridge and the widening of Juliano Avenue, Lawton Avenue and Pasong Tamo Junction. DPWH has also been constructing loading and unloading bays on the national road network and assessing the safety conditions of 2500 km of roads that are considered “high-risk”.

AIRPORT CAPACITY BOOST: Out of the 254 airports in the Philippines only 85 have paved runways, out of which only four are more than 3047 metres in length. With the economy expanding and tourist arrivals in the country rising, airport infrastructure is being stretched to the limits. The government has therefore made investments in the improvement of airports a priority. The three major international airports – NAIA, Mactan-Cebu International Airport and Diosdado Macapagal International Airport ( widely referred to as Clark International) – are all undergoing facelifts. The most ambitious of these is the plan to raise the annual handling capacity of Clark International from 2.5m passengers to 10m.

POTENTIAL PLANS: With the NAIA-Clark Express Rail Link expected to connect the two airports, the Manila-Clark air corridor could become a major aviation hub. NAIA now handles more than 32m passengers a year and is heavily congested. The government is thus considering an integrated twin-airport system for the capital. As of March 2013, the DoTC was preparing a final report to recommend whether to expand NAIA or develop Clark alongside it.

Complicating the issue was a plan (now suspended) by Philippine Airlines’ president Ramon Ang (who is also the chairman of San Miguel Corporation) to build a new airport in Bucalan province and connect it to Metro Manila by extending a highway. The conglomerate already holds the right to develop the Manila Metro Rail Transit Line 7 (MRT-7) into the province, which could also connect to the airport. The plan – had it gone ahead – could have been brought serious competition to Clark International due to its proximity to Metro Manila.

The DoTC announced in July 2013 that seven out of the 18 bidders that submitted prequalification documents had won the right to move forward for the tendering of construction of semi-permanent passenger terminals worth P68.5m ($1.7m). The projects are aimed at decongesting three major airports in the country (Clark International Airport, the Puerto Princesa Airport and the Tacloban Airport). Four local firms – Jo Builders, AQA Global Construction, Jerry R Santiago Construction, and a joint venture of EM Cuerpo and Ascutia were declared eligible for the P27m ($650,700) Clark International Airport project, while DG Sarmienta Group qualified for the Puerto Princesa project, worth P22.7m ($547,070).

NAIA UPGRADES: All the runways and terminals of NAIA are in need of upgrades. Built to handle an average of 36 takeoffs and landings per hour, they are currently seeing up to 40 flights an hour, causing delays and cancellations. To decongest the main terminal, Manila International Airports Authority (MIAA) decided to transfer some flights from Terminal 1 to the relatively less used Terminal 3. “As an initial step, we are looking at moving seven flights,” Cecilio Bautista, assistant general manager of MIAA, told OBG. Other measures include controlling the schedule of flights to a maximum of 40 flights an hour; moving small aircraft operations to Sangley Airport; restricting operations of flying schools within the general aviation area; and putting the rapid exit taxiway into full use to clear aircrafts from the main runway more swiftly after landing.

NAIA is currently the 34th-busiest airport in the world, up from 46th in 2011, according to the Centre for Aviation, a think tank. NAIA handled a total of some 31.2m passengers in 2012, up from 29m passengers in 2011. Of these, close to 14m were on international flights and more than 17m travelled domestically. The total figure of passengers is expected to increase to 34m in 2013, according to Jose Angel Honrado, general manager of MIAA.

On reason for rising demand is the opening of aviation markets in key tourist destinations. In September 2013, for example, Japan lifted a ban on Philippine carriers from mounting additional flights after both governments signed a new air-service agreement that also allowed unlimited routes between them. The EU and US are also revising their agreements with Philippine carriers (see Tourism chapter).

PLANNED WORK: To accommodate the future rise in passenger numbers, the authority is exploring the possibility of building a new terminal beside Terminal 3, which would be able to handle 10m passengers. The P4bn ($96.4m) facility, which could take two years to complete, would be built over a 3.3-ha lot and would likely handle local flights. A feasibility study is expected to be ready by the end of 2013. If deemed viable, construction could begin in 2014. Terminals 1, 2, 3 and 4 have a combined capacity of 31m passengers. Passenger volumes, however, are expected to reach 40m by 2021.

As the country gears up for double-digit growth in air traffic, domestic air travel is also receiving attention. Seven consortiums were shortlisted to bid for a project to construct a new terminal with a capacity of 8m passengers at the Mactan-Cebu International Airport, the second-largest aviation facility in the Philippines. Originally due to be awarded in September 2013, the submission date was subsequently extended to mid-November. After the new international terminal building is completed, the existing terminal, which caters to both domestic and international passengers, will be converted into an exclusively domestic terminal.

PORT FACILITIES: The 3219 km of navigable waterways that the Philippines has are a lifeline for the country. However, these are only accessible by shallow-draft vessels (less than 1.5 metres). The country has nine significant ports that handle the bulk of domestic and international cargo. These are Manila, Subic, Batangas, Cebu, Davao, Zamboanga, Cagayan de Oro, Iloilo and General Santos.

According to the World Economic Forum’s Global Competitiveness Index the Philippines’ ports rank lowest out of its 13 regional peers. The country’s ports handle more than 4m twenty-foot equivalent units (TEUs). Manila is the gateway for domestic and international shipping and is heavily congested. In a bid to ease pressure at Manila, the PPA dropped port and docking charges at Batangas in 2012 to encourage more users to move operations there. Subic Port also expressed its willingness to grant up to 100% waiver on breaking and wharfing fees.

“Handling of cargo has increased in recent years in tandem with higher economic activity,” Erry Hardianto, managing director of Maersk Filipinas, told OBG. “However, the most persistent problem associated with the higher activity has not been the handling capacity or facilities of port operators alone, but the supporting infrastructure to and from the ports to facilitate trade and transport of shipments.”

SUBIC: Subic is one of the most technologically advanced container terminals in the Philippines and is beginning to act as an alternative to the Port of Manila. Its location makes it suitable for trans-shipping cargoes to and from Japan, Korea, Singapore, the Middle East and other major Asian ports. Subic Bay International Terminal Corporation, which operates Subic Bay Freeport’s new container terminal, has the potential to fill the capacity shortage of 14m TEUs for South-east Asia. With a terminal area of 28 ha, the port has an annual capacity of 600,000 TEUs.

A major expansion of port capacity is now under way. In 2012, the Philippine Department of Trade and Industry announced that two seaports in the province of Davao del Norte were to be expanded. According to Christian Gonzalez, vice-president of International Container Terminal Services, which runs the Manila International Container Terminal (MICT), piling and underground development work at Berth 7 is expected to be completed by the first quarter of 2014. The P4bn ($96.4m) Berth7 will add 600,000 TEUs of capacity to MICT. Elsewhere, Asian Terminals Incorporated (ATI), which manages the Manila South Harbour is adding another 3520 TEUs of capacity. It can currently handle 1m TEUs at its container terminal, 1m tonnes for general cargo and 300,000 TEUs at the domestic terminal. ATI is also increasing berth capacity at Pier 3 by making room for an additional 1960 TEUs for empty stacking by year-end. It also plans to have additional 4080 TEUs over the next three years with further development of its main container yard. ATI has forecast a capital expenditure of P4.2bn ($101.2m) for the next three years and has allocated $300m funding for South Harbour development and its Batangas Container Terminal with a capacity of 300,000 TEUs.

MANILA NORTH HARBOUR: Meanwhile, the biggest and busiest domestic port, Manila North Harbour (MNH), operated by the Manila North Harbour Port, allocated over P5bn ($120.5m) to strengthen its cargo-handling capacity. MNH is one of the four main terminals that comprise the Port of Manila. In total, MNH has around 41 berths along its various piers and slips. MNH services the Metro Manila area and the immediate provinces of Bulacan, Pampanga, Tarlac, Nueva Ecija, Nueva Vizcaya, Rizal, Cavite, Batangas and Quezon. The port handled 836,385 TEUs in 2012 and it is targeting to hit 958,000 TEUs in 2013 and up to 1.2m by 2018.

The government is on a drive to improve provincial port facilities, too. In July 2012 it announced plans to spend P565m ($13.6m) in the upgrading of seven ports: Tabaco, Pio Duran, Lucena City, Iloilo, Dumangas, Ormoc and Dumaguete City. It is also investing in a roll-on, roll-off terminal, an intermodal system designed to connect the islands of the archipelago and improve agricultural commerce. In the province of Davao del Norte private operator Hijo Resources is developing a modern port container yard to facilitate banana shipments, while San Vincente Terminal and Brokerage Services is building a P2.7bn ($65.07m) container-handling facility at Panabo City.

RAILWAY DEVELOPMENTS: The total rail network in the Philippines is less than 1000-km long and is confined largely to the main island of Luzon. This includes two LRT lines (LRT-1 and LRT-2), which serve Metro Manila along the north-south and east-west axis, and MRT-3 traversing the Epifanio de los Santos Avenue (EDSA), the busiest commercial corridor in the city. The PNR runs inter-city train services on two lines running north and south.

In October 2011 the government announced plans to revive Phase 1 of the Northrail project, after the Aquino administration succeeded in renegotiating the financial terms and design of the project with the Chinese government. The project had previously been halted in 2010 due to allegations of irregularities in the original contract.

The revised project, which is better known as the NAIA-Clark Express Rail Link, is estimated to cost some P108bn ($2.6bn) and will be extended from its original length of 80 km to more than 90 km, connecting NAIA in Manila to Clark International in Clark Field, Pampanga province. In addition, there are also plans to develop railway systems on other islands. For instance, in May 2011 the DoTC announced that it was planning to award a construction contract for a mass rail system in Mindanao.

MASS TRANSIT: The urban rail network in Metro Manila serves as a swift mode of transport and is heavily used by commuters. However, it is very congested and in urgent need of expansion. Local firms lack sufficient technical expertise to develop an effective urban railway projects on their own. DoTC rules stipulate, for instance, that eligible bidders must have completed (or be in the process of completing) at least one similar project worth at least P7bn ($168.7m) in order to advance to the next step of the tendering process. Most local companies do not meet such criteria. This creates potential for foreign participation – most likely as partners in a consortium with a domestic corporation.

In May 2013 a consortium comprising of the Philippines-based DM Consunji (DMCI) and Japan-based Marubeni were awarded the contract to construct the $1.12bn, 22-km new metro railway line between Bulacan and EDSA in Quezon City known at MRT-7. The line is expected to connect with the existing MRT-3 line at Quezon City and carry a total of 300,000 passengers every day. The project is expected to be completed in 2016. DMIC-Marubeni will also build a terminal to link the MRT-7, MRT-3 and LRT-1. As of July 2013, four companies had been prequalified for the operation and management contract of LRT-1 and its 11.7-km extension to Bacoor. A P3.77bn ($90.9m) contract to supply a total of 48 new trains for the expanded MRT-3 was auctioned off in June 2013. Meanwhile, the DoTC is also exploring the possibility of constructing a subway system for Metro Manila to alleviate traffic congestion. The Japan International Cooperation Agency is currently conducting a feasibility study for the project.

INCENTIVES: The Aquino administration is working with international financial institutions such as the Asian Development Bank and International Finance Corporation to attract funds into the infrastructure projects. It has also mobilised local savings and set up benchmarks to help domestic banks offer longterm financing. Some of the incentives offered to investors include tax holidays for up to six years, capital import duty exemption, waiver of wharfage charges, tax credit on imported raw materials, additional tax deduction for labour expenses and liberal work permit quotas for foreign employees.

FINANCING: The Philippines Infrastructure Fund was established in 2010 with $100m from state-owned financial institutions to finance PPPs. This was followed by another $625m in private equity funds in 2012 – the Philippine Investment Alliance for Infrastructure, which set a milestone for the country in its efforts to raise international investor interest. It has since received $214bn for a road rehabilitation project from the Millennium Challenge Corporation.

The stipulation imposed under the PPP arrangement that contract bidders must have experience in running a similar project has compelled local companies to form consortiums with multinationals.

TYPHOON HAIYAN: On November 8, 2013, the Philippines was hit by Typhoon Haiyan, locally known as Yolanda, the strongest storm to make landfall ever recorded. With winds of up to 380 km per hour, the typhoon lashed the central islands of Samar and Leyte and ploughed through the provincial capital of Tacloban. The typhoon created a storm surge of up to seven metres with a tsunami-like effect. As of November 26, the official death toll stood at 5240, with 1613 missing, while over 4.2m people had been displaced and 350,000 were living in shelters.

In addition to the government’s initial estimate of the damage, at approximately $559m, another $ 6bn7bn will be required to fund longer-term rebuilding and reconstruction costs. The aftermath of Haiyan drew attention to the need to boost transport infrastructure development in the region due to the fact that aid efforts were severely hampered by poor road, air and sea connections. Natural disasters are often followed by an increase in economic activity, especially if the reconstruction effort is properly organised and financed. The typhoon highlighted bottlenecks between local and national authorities, with communications between the two often poor.

SECTOR CHALLENGES: The transport sector has gone through a series of boom-and-bust cycles. There are no guarantees that the current administration’s infrastructure drive will be sustained by the next incoming one after elections in 2016.

The revision of guidelines for the bidding of airport projects and the tightened investment requirements for foreign companies show how omnipresent policy risks are for investors in this sector. Changes in governing administrations can also bring abrupt reversals in government decisions. Projects can get delayed or cancelled according to the predilection of politicians. Political influence is also prevalent at provincial level. Efforts by legislators to insert pet projects into the infrastructure programme of the government have resulted in fragmented utilisation of scarce fiscal resources. A total of 22% of the DPWH budget in 1997-2001 was spent on local infrastructure projects funded out of such legislation.

Further, a number of private sector participation projects have been implemented through unsolicited bids, instead of competitive tendering. Such practices not only make projects expensive but also increase opportunities for corruption. Although the Philippines has a policy for dealing with unsolicited bids, the only successful challenge to an unsolicited proposal has been the NAIA terminal 3 bid by Asia’s Emerging Dragon Corporation.

The uneven public-private playing field hampers competition. For example, in the ports sector, the PPA regulates entry of the private sector through the issuance of permits to construct and operate ports, and sets the port dues that private ports charge for handling non-own cargo. However, by setting rates at among the lowest in the region, and charging high taxes, the PPA inadvertently discourages private sector interest in port operations.

OUTLOOK: However, despite such challenges the overall outlook for the transport sector in the medium term looks positive and is supported by a healthy economy, decisive leadership and a strong financial situation that has made the nation an outlier of growth in a region that is otherwise buffeted by economic troubles. Keeping pace with the workload will be among the government’s biggest challenges.