The JICA funded the P10-billion Batangas Port

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1 64 INFRASTRUCTURE JICA report finds Batangas Port to be less viable The Japan International Cooperation Agency (JICA) overestimated the economic viability of the Batangas Port project as an alternative to the Manila Port. It currently serves 83% below its target volume of cargo. The JICA funded the P10- Batangas Port Development Project (Phase 2) which is now fully operational (see table). It was aimed at raising the logistical efficiency of the Philippines and improving its capability to serve foreign and domestic container cargoes. But 7 years after the project was completed in 2007, the volume of cargo that the port served in 2013 remained low at 1,078,061 tonnes while the original target by that time was 6,372,000 tonnes. A post-evaluation of the project identified 4 major factors affecting its current viability: weak government policy action; delays in civil engineering works; delays in the selection of the port operator; and insufficient interest from the private sector to migrate from Manila to Batangas port. The JICA commissioned Japanese firm IC Net Ltd. to review the project. The report showed that delays in construction and selection of a port operator has led to Batangas port operating at a minimum level. The port was planned for completion in 2002 but was not fully completed until 2007 because of delays in land acquisition and resettlement. And because of this delay, the selection of port operator was delayed from August 2007 until June During that time, a temporary outsourcing agreement was in place with Asian Terminals Inc., who is the present operator of the Batangas Port. Full-scale operations of the port only began in March The result of the evaluation also found that JICA overlooked several conditions at the Batangas Port when it initially did the study in 1984, which essentially magnified the expected interest coming from the private sector. One of the conditions overlooked is that companies located between Batangas and Manila hire shipping companies to haul shipments. And these shipping companies choose the port that will handle the cargo. Another faulty assumption was that cost of shipping is equivalent to overland transport cost when in fact overland transport cost across Luzon is found to just be a small fraction of the total transport cost in shipping. Most comes from maritime transport; therefore depending on shipment destination or origin. Third is that Philippine-based offices do not select the routes rather it s the companies main office that does. And lastly, there is a large risk associated in changing shipping routes. Thus shipping companies are cautious when adjusting routes and changing ports. Because of these facts, stakeholders were taking the wait-and-see approach rather than taking the bait. Delays in construction and selection of a port operator has led to Batangas port operating at a minimum level.

2 INFRASTRUCTURE 65 JICA overlooked several conditions at the Batangas Port, which essentially magnified its expected interest coming from the private sector. COMPARISON OF THE PLANNED AND ACTUAL SCOPE OF THE PROJECT CONSTRUCTION WORKS Container Berth Dredging Reclamation Pavement works ITEM PLAN ACTUAL 2 Berths: 450m; Water depth: 15m As planned Water depth: 13m, 4.5Mn m 3, Water depth: 13m, 4.1Mn m 3, Land excavated: 200,000 m 3 Land excavated: 330,000 m 3 Phase II: 800,000 m 3 Phase IV: 2.4 million m 3 General cargo berth: 700,000 m 3 Container terminal: 2.1 million m 3 Total Pavement: 17ha --Container yard: 15ha Berth of domestic berth for Phase 1 3 Berths As planned Attaching a boarding bridge with the ferry dock for Phase 1 1 Set As planned Total Pavement: 16.7ha --Container yard: 15ha Terminal buildings, electricity, water line, sewerage, and facilities 1 Set As planned for waste disposal Flyover construction 1 Extension: 650m Extension: 824m Additional items PROJECT TIMEFRAME n.a. Sept Mar (43 months) Installation of cargo handling machinery and port security system Sept Dec (112 months) PROJECT COST (TOTAL) 19,441 million yen 17,595 million yen ODA loan 14,555 million yen 14,527 million yen 1 Manila and Batangas ports are connected by the South Luzon Expressway, Lipa-Batangas highway, and access roads by the Department of Public Works and Highways. Source: Ex-Post Evaluation of Japanese ODA Loan Batangas Port Development Project Phase II, Ryujiro Sasao, IC Net Limited (2014). SOME DETAILS IN THE OPERATION AND MAINTENANCE SET-UP OF BATANGAS PORT FACTORS FOR SUSTAINABILITY Structural Aspect Technical Aspect Financial Aspect DETAILS Contract with Asian Terminals Inc. (ATI) is effective for 25 years (signed March 2010). ATI must pay the Philippine Ports Authority a fixed fee and a variable fee in sales annually. For personnel (like crane operators), training is offered and only those who pass the exam are employed. Annual turnover of staff is less than 5%. Members of the maintenance division consist of the maintenance supervisor, crane technician, and plant electrician. Inventory control for necessary parts are computerized. Quay Side Gantry Crane is inspected monthly. While greasing on fitting, wire cable joints, and fastening for bolts and nuts is inspected quarterly. Engine oil and various filters from the Rubber Tired Gantry Crane are replaced after 300 or 600 hours. Air filters are inspected and lubrication is given to wire ropes and pulley every 1,200 hours. Generator system is inspected every 3,600 hours. ATI has full responsibility to pay for the operation and maintenance of the port. ATI has reserved necessary financial resources for operation and maintenance. Detailed financial figures cannot be obtained from ATI. Source: Ex-Post Evaluation of Japanese ODA Loan Batangas Port Development Project Phase II, Ryujiro Sasao, IC Net Limited (2014). According to the report, The project has shown only an extremely limited effect on local employment and the economic growth of local businesses; therefore its effectiveness and impact is low. It found that the Economic Internal Rate of Return (EIRR) dropped drastically from 22.9% at the time of appraisal to -8.1%. But the report added, Overall, however, with its financial uncertainties...sustainability of the project is fair. The current status of the operation and maintenance of the project is, so far, running smoothly with regards to the organization and technical aspect of it. But in terms of financial stability for maintenance of the project is uncertain (see table). The report stated that as the volume handled is lower than expected a significant deficit is deemed to occur. In the attempt to encourage the use of Batangas Port, the Philippine Ports Authority has implemented a measure that reduces port charges on vessels. However, to be fully effective, the report suggested that the expansion policy in the Port of Manila be changed. It added that since the capacity of the Port of Manila was increased the chances of the Batangas Port being chosen as an alternative narrowed. But to stop any expansion activities in the Port of Manila is impractical. The government should just be able to implement better incentives for shipments and vessels in the Batangas Port and make it into a smart choice for shipping companies.

3 66 INFRASTRUCTURE Gov t looks at New Centennial Water Supply to help Angat As summer heat worsens the country s water supply problem, the development of new dams are needed more than ever. The National Water Resources Board (NWRB) is supporting the push for the development of additional water sources for Metro Manila as the need for more water heightens. The Angat dam has a capacity of 4 liters per day, while Metro Manila is projected to consume 5 liters per day in the next years as population grows and economic development becomes more dynamic in the Philippines. To support this growing need, the National Economic Development Authority (NEDA) has already lined-up the proposal to develop Laiban dam in Tanay, Rizal and Kaliwa dam in General Nakar, Quezon under the New Centennial Water Supply Source (NCWSS) Project for President Aquino s final approval. This is expected to be given in June. According to Manila Waterworks and Sewerage System (MWSS) the project s implementing agency the Kaliwa dam project will have a capacity of 600 million liters per day, while Laiban dam will have 2.4 liters per day by The estimated cost for the development of Laiban dam is P26, while Kaliwa dam will be around P18.7. The NWRB already granted both projects rights to use water from the Agos River. Once approved, both projects are eyed to be offered under the government s public-private partnerships (PPP) through the build-operate-transfer mode (see box).

4 INFRASTRUCTURE 67 Metro Manila is projected to consume 5 liters/day in the next years as population grows and infrastructure development becomes more dynamic in PH. Aside from the 2 dams, the NCWSS project also includes the construction of the Laiban Hydro Electric Power Plant (HEPP) similar to 218-megawatt Angat hydroelectric power plant. However, no specifics on the project were given yet. At the present, the water level in Angat dam is already below critical level (<180 meters above sea level or masl). The NWRB approved the reduction of Metro Manila s share of water from Angat dam from 46 cubic meters per second (cms) to 42 cms effective April 1 until May 21 as a precautionary move. Although the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) advised that rainfall will be normal for this year, the delayed onset of rains is still a major concern. PAGASA projects rains to come by June or July when water level in Angat dam is expected to dip at 170 masl. As a short-term counter measure, the Bureau of Soils and Water Management is already preparing to commence a cloud seeding operation at the Angat dam and watershed upon the issuance of clearance from the Civil Aviation Authority of the Philippines. The lowest water level recorded at Angat dam was at 157 masl in 2010.

5 68 INFRASTRUCTURE STATUS OF BIG TICKET INFRASTRUCTURE PROJECTS AS OF APRIL 2014 PROJECT TITLE IMPLEMETING AGENCY FUNDING SOURCE CIVIL WORKS TIMEFRAME PROJECT COST STATUS / ISSUES ROADS Laguna Lakeshore Expressway Dike Cavite-Laguna Expressway DPWH PPP DPWH PPP Skyway Stage 3 DOTC-TRB PPP NLEX-SLEX Connector Road Ninoy Aquino International Airport (NAIA) Expressway Phase 2 NLEX-Harbor Link Project (Segment 9 and 10) Daang Hari-SLEX Link Road P122.8 P35.42 P26.7 DPWH PPP P18 DPWH PPP P15.5 DPWH PPP P9.7 DPWH PPP P2 Cavitex-C5 Link Project DPWH PS 2015 P8 RAILWAYS LRT-1 South Extension Construction/O&M LRT-1 North Extension Common Station DOTC/LRTA PPP DOTC PPP P64.9 P1.39 AIRPORTS Mactan-Cebu International Airport P17.5 DOTC-MCIAA PPP Passenger Terminal Building OTHER TRANSPORT PROJECTS Metro Manila Integrated Transport System Project DOTC-LTFRB PPP P2.5 Southwest Terminal Metro Manila Central Business District Transit BCDA TBD TBD TBD System NEDA-ICC has approved the project and is endorsing it for President Aquino s approval. Bidding is scheduled on 1Q2015. Bidding was again postponed to June 2. Citra made some changes in the construction plan to avoid hitting major utility lines. Roadwork along Osmeña Highway will be completed by May 17. Construction is said to be 2% ahead of schedule. The 1st phase of the project is expected to be operational by mid MNTC is planning to raise P10 in 4Q2014 for the project s construction, which is expected to start in July. The project will be funded through 70% debt and 30% equity. Commercial operation is eyed within 2H2015. Construction of Segment 10 is slated to begin in May. MNTC signed a contract with Leighton Contractors Ltd. for the construction of Segment 10, which is expected to be completed in While Segment 9 will begin commercial operations in 3Q2014. Construction is now expected to be completed anytime between June and December Previous target for completion was June. Detailed engineering and design for the project will start in 3Q2014, while construction will begin early in DOTC reduced the subsidy for the winning bidder from P6 to P5 following the removal of the concessionaire s obligation to fund the relocation of affected informal settlers for the ROW acquisition. The definition of outstanding dispute has been revised to attract more bidders and prevent unnecessary disqualification. The design of the project will be bundled with the rebidding of the LRT- 1 Cavite extension project. A separate contract will be bid out for the construction of the common station. The concession agreement between GMR-Megawide Consortium and DOTC was signed on April 22, following the payment of a P14.4- upfront premium. Deadline for bids was moved from May 15 to June 16. DOTC made some changes in the terms of the project and is now awaiting NEDA s approval, which is expected to be given in May. The feasibility study funded by JICA is expected to be completed in October. UTILITIES Bulacan Bulk Water Supply MWSS PPP TBD P29.8 Bid submissions is expected to start anytime between May 12 and May 16 and the deadline is tentatively set on Aug. 29. Target schedule for awarding is between Oct. 10 and 14. OTHERS Contactless Automated Fare Collection System DOTC-LRTA PPP P1.72 AF Consortium signed a contract on April 2 with MSI Global Pte Ltd., a Singaporean company, as technical partner for the project. Notes: Agencies BCDA = Bases Conversion and Development Authority; DOTC = Department of Transportation and Communications; DPWH = Department of Public Works and Highways; LRTA = Light Rail Transit Authority; LTFRB = Land Transportation Franchising and Regulatory Board; MCIAA = Mactan Cebu International Airport Authority; MWSS = Metropolitan Waterworks and Sewerage System Funding ODA = Offi cial Development Assistance; PPP = Public-Private Partnership; PS = Private Sector TBD = to be determined