Comprehensive and Integrated Infrastructure Program

Slide 1:Comprehensive and Integrated Infrastructure Program

Philippines Development Forum Cebu City, Philippines March 8, 2007 Good morning! I am pleased to make this presentation on behalf of Socio-Economic Planning Secretary Romulo L. Neri who unfortunately cannot join us today. Good morning! I am pleased to make this presentation on behalf of Socio-Economic Planning Secretary Romulo L. Neri who unfortunately cannot join us today.

Slide 2:Promoting Global Competitiveness and Exports to Create Jobs

To strengthen and sustain our global competitiveness and create 10 million jobs, we will focus on five strategic measures: Make food plentiful at reasonable prices to make our labor cost globally competitive. Reduce cost of electricity to make cost of running our machines and our manufacturing processes regionally competitive. Modernize physical infrastructure and logistics system at least cost to ensure efficient movement of goods and people. Mobilize and disseminate knowledge to upgrade our technologies and increase our people�s productivity. Reduce red tape in all government agencies to reduce transaction costs. Secretary Teves and Secretary Andaya have discussed fiscal reforms and prospects for 2007. These reforms led to lower interest rates, stock market upsurge and stronger peso, which then created greater fiscal space in terms of having more revenues, among others. To make the impact felt by the real economy and the common people, there is need to spend on education, health, SME support, S &T, agribusiness and upland development, and infrastructure. The President in her 2006 State of the Nation Address mentioned modernizing physical infrastructure and logistics system at least cost to ensure efficient movement of goods and people as one of the strategic measures to strengthen and sustain our global competitiveness and create jobs. This presentation will provide an update on the Comprehensive and Integrated Infrastructure Program (CIIP) , an overview of ten priority projects as well as some necessary microeconomic reforms in the infrastructure sector. Secretary Teves and Secretary Andaya have discussed fiscal reforms and prospects for 2007. These reforms led to lower interest rates, stock market upsurge and stronger peso, which then created greater fiscal space in terms of having more revenues, among others. To make the impact felt by the real economy and the common people, there is need to spend on education, health, SME support, S &T, agribusiness and upland development, and infrastructure. The President in her 2006 State of the Nation Address mentioned modernizing physical infrastructure and logistics system at least cost to ensure efficient movement of goods and people as one of the strategic measures to strengthen and sustain our global competitiveness and create jobs. This presentation will provide an update on the Comprehensive and Integrated Infrastructure Program (CIIP) , an overview of ten priority projects as well as some necessary microeconomic reforms in the infrastructure sector.

Slide 3:CIIP Investment Requirement by Financing Source

Total investments = PhP 1,983.9 billion The Comprehensive and Integrated Infrastructure Program (CIIP) is a subset of the Medium-Term Public Investment Program (MTPIP). It is a list of priority infrastructure projects formulated by the Committee on Infrastructure (INFRACOM) in consultation with the implementing agencies. In this document, the projects� outputs and outcomes are identified, as well as the responsible implementing agencies, investment requirements, financing sources/strategies, implementation period, and the status of preparations. The total investment requirement of CIIP from 2006 and beyond 2010 amounts to PhP 1,983.9 billion. In financing this required investment, the government seeks to tap the private sector as its partner in development. About PhP 663.2 billion (33.4%) of the total estimated investment is expected to come from the private sector. This would focus on projects with acceptable return on investments that are attractive for the private sector to undertake. On the other hand, the government will focus more on projects with high socio-economic impact. As such, around PhP 848.5 billion (42.8%) will be sourced from the General Appropriations Act (GAA) of the National Government (NG), PhP 341 billion (17.2%) from the Government Owned and Controlled Corporations (GOCCs) and Government Financial Institutions (GFIs), PhP 44.4 billion (2.2%) from the Local Government Units (LGUs), and PhP 86.7 billion (4.4%) from other sources [i.e., Official Development Assistance (ODA) Grants, Universal Charge for Missionary Electrification, and Energy Regulation 1-94]. The Comprehensive and Integrated Infrastructure Program (CIIP) is a subset of the Medium-Term Public Investment Program (MTPIP). It is a list of priority infrastructure projects formulated by the Committee on Infrastructure (INFRACOM) in consultation with the implementing agencies. In this document, the projects� outputs and outcomes are identified, as well as the responsible implementing agencies, investment requirements, financing sources/strategies, implementation period, and the status of preparations. The total investment requirement of CIIP from 2006 and beyond 2010 amounts to PhP 1,983.9 billion. In financing this required investment, the government seeks to tap the private sector as its partner in development. About PhP 663.2 billion (33.4%) of the total estimated investment is expected to come from the private sector. This would focus on projects with acceptable return on investments that are attractive for the private sector to undertake. On the other hand, the government will focus more on projects with high socio-economic impact. As such, around PhP 848.5 billion (42.8%) will be sourced from the General Appropriations Act (GAA) of the National Government (NG), PhP 341 billion (17.2%) from the Government Owned and Controlled Corporations (GOCCs) and Government Financial Institutions (GFIs), PhP 44.4 billion (2.2%) from the Local Government Units (LGUs), and PhP 86.7 billion (4.4%) from other sources [i.e., Official Development Assistance (ODA) Grants, Universal Charge for Missionary Electrification, and Energy Regulation 1-94].

Slide 4:National Government Total Budget Requirement (CIIP vs. DBM Proposed Budget 2006-2010)

- Of the total PhP 848.5 billion requirement from NG/GAA, PhP 429.7 billion will be disbursed within the period 2006-2010 and the balance of PhP 418.8 billion beyond 2010. Considering the proposed Budget Strategy of DBM for the infrastructure sector for the period 2006 to 2010 with an estimated allocation of about PhP 605.0 billion, the PhP 429.7 billion NG requirement of CIIP can easily be accommodated. There will be an annual budget surplus for infrastructure, wherein by year-end 2010 the accumulated surplus will reach PhP 175.3 billion. With surplus funds available, additional projects can actually be accommodated and/or implementation of CIIP projects accelerated on or before 2010. The following slides will present the GoP�s Selected Priority Infrastructure Projects where financing from bilateral and multilateral agencies, and the private sector is being explored. Of the total PhP 848.5 billion requirement from NG/GAA, PhP 429.7 billion will be disbursed within the period 2006-2010 and the balance of PhP 418.8 billion beyond 2010. Considering the proposed Budget Strategy of DBM for the infrastructure sector for the period 2006 to 2010 with an estimated allocation of about PhP 605.0 billion, the PhP 429.7 billion NG requirement of CIIP can easily be accommodated. There will be an annual budget surplus for infrastructure, wherein by year-end 2010 the accumulated surplus will reach PhP 175.3 billion. With surplus funds available, additional projects can actually be accommodated and/or implementation of CIIP projects accelerated on or before 2010. The following slides will present the GoP�s Selected Priority Infrastructure Projects where financing from bilateral and multilateral agencies, and the private sector is being explored.

Slide 5:The criteria for selection are as follows: Must be in the Comprehensive and Integrated Infrastructure Program (CIIP)/SONA (excluding ongoing projects & those proposed with firmed-up/concluded ODA or private financing). Ready-to-Go Projects � Projects endorsed by the Investment Coordination Committee (ICC)-Technical Board (TB)/Cabinet Committee (CC) or approved by the NEDA Board, but indicative financing are not yet concluded). c) Reasonable Rate of Return � Particularly for private sector undertaking or PPP. In peso cash flows � ICC approval ranges from 17% to 21% for IRR on equity In dollar cash flows �ICC approval ranges from 9% to 13% for IRR on equity d) No Major Issues that could hinder the implementation of the project (e.g., legal issues, ROW). e) High Socio-economic impact � critical/high impact projects with EIRR greater than 15% hurdle rate. The criteria for selection are as follows: Must be in the Comprehensive and Integrated Infrastructure Program (CIIP)/SONA (excluding ongoing projects & those proposed with firmed-up/concluded ODA or private financing). Ready-to-Go Projects � Projects endorsed by the Investment Coordination Committee (ICC)-Technical Board (TB)/Cabinet Committee (CC) or approved by the NEDA Board, but indicative financing are not yet concluded). c) Reasonable Rate of Return � Particularly for private sector undertaking or PPP. In peso cash flows � ICC approval ranges from 17% to 21% for IRR on equity In dollar cash flows �ICC approval ranges from 9% to 13% for IRR on equity d) No Major Issues that could hinder the implementation of the project (e.g., legal issues, ROW). e) High Socio-economic impact � critical/high impact projects with EIRR greater than 15% hurdle rate.

Slide 6:Financing: The second component of the project is proposed for WB retroactive financing. TransCo has already undertaken the first component of the project using its Internal Cash Generation (ICG). This project will fully restore power in Bicol. Financing: The second component of the project is proposed for WB retroactive financing. TransCo has already undertaken the first component of the project using its Internal Cash Generation (ICG). This project will fully restore power in Bicol.

Slide 7:Financing: Loan- Proposed for JBIC funding ( for yen loan financing) Financing: Loan- Proposed for JBIC funding ( for yen loan financing)

Slide 8:Financing: GOP to provide Php900 million equity This will ensure an effective road network and facilitate the delivery of socio-economic service in Mindanao.Financing: GOP to provide Php900 million equity This will ensure an effective road network and facilitate the delivery of socio-economic service in Mindanao.

Slide 9:Financing: Loan-Calyon Corporate and Investment Bank Loan Facility (French Commercial Loan) or PPP-There is possibility that the loan can be picked up by the concessionaire, after successful privatization of TransCo. Without the project, in the event that the Binan-Sucat circuit trips, overloading of the remaining lines will occur during maximum dispatch of generators in the South of Luzon. Financing: Loan-Calyon Corporate and Investment Bank Loan Facility (French Commercial Loan) or PPP-There is possibility that the loan can be picked up by the concessionaire, after successful privatization of TransCo. Without the project, in the event that the Binan-Sucat circuit trips, overloading of the remaining lines will occur during maximum dispatch of generators in the South of Luzon.

Slide 10:Financing: Civil works are proposed for Build-Transfer (BT) while operation and maintenance will be part of the entire Line 1 operations which is also for private sector participation.Financing: Civil works are proposed for Build-Transfer (BT) while operation and maintenance will be part of the entire Line 1 operations which is also for private sector participation.

Slide 11:Financing: Loan-Proposed for Korean financing. This aims to develop a fast, safe, comfortable and reliable commuter train service to the South of Manila. This is part of the solution to the Metro Manila traffic problems. It will also encourage the dispersal of Metro Manila population to Southern Luzon.Financing: Loan-Proposed for Korean financing. This aims to develop a fast, safe, comfortable and reliable commuter train service to the South of Manila. This is part of the solution to the Metro Manila traffic problems. It will also encourage the dispersal of Metro Manila population to Southern Luzon.

Slide 12:Financing: Loan- Civil works component is proposed for ODA funding-WB. Note: VOT refers to value of timeFinancing: Loan- Civil works component is proposed for ODA funding-WB. Note: VOT refers to value of time

Slide 13:Prospective Financing: Loan-JBIC under 26th Yen Loan PackageProspective Financing: Loan-JBIC under 26th Yen Loan Package

Slide 15:Financing: Loan-Proposed for Korean financing.Financing: Loan-Proposed for Korean financing.

Slide 16:Micro-Economic Reforms

Transportation (Air and water services, including port services) Telecommunications Power We just presented the CIIP and the priority infrastructure projects, which are the hard infrastructure. These are not sufficient, we need to complement these with the soft infrastructure, the policy infrastructure, which is in the realm of microeconomic reforms. The biggest problem areas in microeconomic reforms are in the transportation, telecommunications and power sector services. Putting soft infrastructure in said services mean, for example, liberalizing the airlines and shipping in the nautical highway. However, it has been reported that the agencies regulating said important services sectors are prone to regulatory capture, for example, PPA, MARINA, ERC, NTC, CAB. There is need to reform these agencies if we want to be competitive. It is hard to be competitive with costs of services still very high. The actions of said agencies will have an investment effect, competitive effect and an effect on the total economy. CAB- Investment Effect: Hotels, resorts, and other related businesses Competitiveness Effect: Cost of Air Transport Total Economy: Tourists Arrivals, Employment Generation, 1 million additional tourists means 1 million new jobs PPA- Investment Effect: May discourage investment by competitors Competitiveness Effect: Cost of Cargo Handling, Turnaround Time Total Economy: Logistics Efficiency, Export Cost MARINA-Investment Effect: Investment in Shipping Competitiveness Effect: Cost of Sea Transport Total Economy: Logistics Efficiency, Inter-island Trading NTC- Investment Effect: Investment in Telecommunication Facilities, Call Centers, BPOs Competitiveness Effect: Cost of Telecommunications (reduced because of VOIP, but further reduction possible) Total Economy: Business transaction costs and efficiency ERC- Investment Effect: High cost may discourage investments in machinery Competitiveness Effect: Cost of electricity Total Economy: Labor productivity, Wages/workers� income, Household/consumer welfare We just presented the CIIP and the priority infrastructure projects, which are the hard infrastructure. These are not sufficient, we need to complement these with the soft infrastructure, the policy infrastructure, which is in the realm of microeconomic reforms. The biggest problem areas in microeconomic reforms are in the transportation, telecommunications and power sector services. Putting soft infrastructure in said services mean, for example, liberalizing the airlines and shipping in the nautical highway. However, it has been reported that the agencies regulating said important services sectors are prone to regulatory capture, for example, PPA, MARINA, ERC, NTC, CAB. There is need to reform these agencies if we want to be competitive. It is hard to be competitive with costs of services still very high. The actions of said agencies will have an investment effect, competitive effect and an effect on the total economy. CAB- Investment Effect: Hotels, resorts, and other related businesses Competitiveness Effect: Cost of Air Transport Total Economy: Tourists Arrivals, Employment Generation, 1 million additional tourists means 1 million new jobs PPA- Investment Effect: May discourage investment by competitors Competitiveness Effect: Cost of Cargo Handling, Turnaround Time Total Economy: Logistics Efficiency, Export Cost MARINA-Investment Effect: Investment in Shipping Competitiveness Effect: Cost of Sea Transport Total Economy: Logistics Efficiency, Inter-island Trading NTC- Investment Effect: Investment in Telecommunication Facilities, Call Centers, BPOs Competitiveness Effect: Cost of Telecommunications (reduced because of VOIP, but further reduction possible) Total Economy: Business transaction costs and efficiency ERC- Investment Effect: High cost may discourage investments in machinery Competitiveness Effect: Cost of electricity Total Economy: Labor productivity, Wages/workers� income, Household/consumer welfare

Slide 17:Cost of Business

POWER: 10-25 % of costs LOGISTICS: 25-30% of costs TELECOMMUNICATIONS: 5% of costs Secretary Neri estimates that power can approximately be 10 to 25 % of your costs; logistics, 25 to 30 %, including warehousing, shipping, handling and so forth, and marketing. Telecommunications is about 5 %. On the whole, the costs affected by actions of said agencies ranges from 40 to 60 %. Secretary Neri is encouraging the business sector to help government in undertaking microeconomic reforms as these are the most difficult reforms to do and yet have significant impact on the cost of doing business. Secretary Neri estimates that power can approximately be 10 to 25 % of your costs; logistics, 25 to 30 %, including warehousing, shipping, handling and so forth, and marketing. Telecommunications is about 5 %. On the whole, the costs affected by actions of said agencies ranges from 40 to 60 %. Secretary Neri is encouraging the business sector to help government in undertaking microeconomic reforms as these are the most difficult reforms to do and yet have significant impact on the cost of doing business.

Slide 18:ADB on ImprovingPhilippine Competitiveness

Infrastructure Ranks behind Malaysia and Thailand in ICT indices Power cost in RP highest compared with Thailand, China and Singapore Comparative Indices and Rates Source: NSCB and WESM, Senate This and the following slide shows the Philippines� ranking compared to our neighbors in terms of ICT indices, electricity rates, time and cost to export. With micro-economic reforms, the cost of doing business in the country can be reduced and make us more competitive. This is an opportune time to segue into the next presentation. This and the following slide shows the Philippines� ranking compared to our neighbors in terms of ICT indices, electricity rates, time and cost to export. With micro-economic reforms, the cost of doing business in the country can be reduced and make us more competitive. This is an opportune time to segue into the next presentation.

Slide 19:ADB on ImprovingPhilippine Competitiveness

Logistics Relative quick export time and customs clearance but highest cost to export among ASEAN and China Trading Across Borders Source: World Bank

Slide 20: End of Presentation

http://www.neda.gov.ph For more information on the CIIP, please visit the neda website at www.neda.gov.ph. For more information on the CIIP, please visit the neda website at www.neda.gov.ph.

Slide 21:In terms of sectoral allocation covering 2006 and beyond 2010, PhP 952 billion (48%) is allocated for transportation, PhP 456 billion (23%) for power, energy, and electrification, PhP 346.9 billion (17.5%) for water resources, PhP 33.1 billion (1.7%) for communications/digital infrastructure projects under the Cyber Corridor, PhP 177.8 billion (9%) for social infrastructure, and PhP 18.1 billion (0.9%) for cross-sectoral projects in support to ARCs. hideIn terms of sectoral allocation covering 2006 and beyond 2010, PhP 952 billion (48%) is allocated for transportation, PhP 456 billion (23%) for power, energy, and electrification, PhP 346.9 billion (17.5%) for water resources, PhP 33.1 billion (1.7%) for communications/digital infrastructure projects under the Cyber Corridor, PhP 177.8 billion (9%) for social infrastructure, and PhP 18.1 billion (0.9%) for cross-sectoral projects in support to ARCs. hide

Slide 22:NG Investment Allocation of PhP429.7 B for 2006-2010 (by Super Region)

(2006 to 2010) With only the PhP 429.68 billion budget requirement from the National Government for the period 2006 to 2010, allocation by Super Region reflects the following: North Luzon Agribusiness 15%; Luzon Urban Beltway 43%; Central Philippines 21%; Agribusiness Mindanao 18%; and Cyber Corridor 3%. While government investments in the Luzon Urban Beltway is the largest at 43%, it nonetheless contributes about 50% of the total GDP or an investment to GDP ratio of 0.86, that is, the Luzon Urban Beltway gets PhP 0.86 in infrastructure investments for every PhP 1.00 it contributes to the economy. hideWith only the PhP 429.68 billion budget requirement from the National Government for the period 2006 to 2010, allocation by Super Region reflects the following: North Luzon Agribusiness 15%; Luzon Urban Beltway 43%; Central Philippines 21%; Agribusiness Mindanao 18%; and Cyber Corridor 3%. While government investments in the Luzon Urban Beltway is the largest at 43%, it nonetheless contributes about 50% of the total GDP or an investment to GDP ratio of 0.86, that is, the Luzon Urban Beltway gets PhP 0.86 in infrastructure investments for every PhP 1.00 it contributes to the economy. hide

Slide 23:Civil Aeronautics Board (CAB)

Investment Effect: Hotels, resorts, and other related businesses Competitiveness Effect: Cost of Air Transport Total Economy: Tourists Arrivals Employment Generation 1 million additional tourists means 1 million new jobs

Slide 24:Investment Effect: May discourage investment by competitors Competitiveness Effect: Cost of Cargo Handling Turnaround Time Total Economy: Logistics Efficiency Export Cost

Philippine Ports Authority (PPA)

Slide 25:Maritime Industry Authority (MARINA)

Investment Effect: Investment in Shipping Competitiveness Effect: Cost of Sea Transport Total Economy: Logistics Efficiency Inter-island Trading

Slide 26:National Telecommunications Commission (NTC)

Investment Effect: Investment in Telecommunication Facilities Call Centers, BPOs Competitiveness Effect: Cost of Telecommunications (reduced because of VOIP, but further reduction possible) Total Economy: Business transaction costs and efficiency

Slide 27:Energy Regulatory Commission (ERC)/EPIRA Legislation 

Investment Effect: High cost may discourage investments in machinery Competitiveness Effect: Cost of electricity Total Economy: Labor productivity Wages/workers� income Household/consumer welfare

Slide 28: Civil Aeronautics Board (CAB) Philippine Ports Authority (PPA) Maritime Industry Authority (MARINA) National Telecommunications Commission (NTC) Energy Regulatory Commission (ERC)

Agencies Prone to Regulatory Capture CAB- Investment Effect: Hotels, resorts, and other related businesses Competitiveness Effect: Cost of Air Transport Total Economy: Tourists Arrivals, Employment Generation, 1 million additional tourists means 1 million new jobs PPA- Investment Effect: May discourage investment by competitors Competitiveness Effect: Cost of Cargo Handling, Turnaround Time Total Economy: Logistics Efficiency, Export Cost MARINA-Investment Effect: Investment in Shipping Competitiveness Effect: Cost of Sea Transport Total Economy: Logistics Efficiency, Inter-island Trading NTC- Investment Effect: Investment in Telecommunication Facilities, Call Centers, BPOs Competitiveness Effect: Cost of Telecommunications (reduced because of VOIP, but further reduction possible) Total Economy: Business transaction costs and efficiency ERC- Investment Effect: High cost may discourage investments in machinery Competitiveness Effect: Cost of electricity Total Economy: Labor productivity, Wages/workers� income, Household/consumer welfare CAB- Investment Effect: Hotels, resorts, and other related businesses Competitiveness Effect: Cost of Air Transport Total Economy: Tourists Arrivals, Employment Generation, 1 million additional tourists means 1 million new jobs PPA- Investment Effect: May discourage investment by competitors Competitiveness Effect: Cost of Cargo Handling, Turnaround Time Total Economy: Logistics Efficiency, Export Cost MARINA-Investment Effect: Investment in Shipping Competitiveness Effect: Cost of Sea Transport Total Economy: Logistics Efficiency, Inter-island Trading NTC- Investment Effect: Investment in Telecommunication Facilities, Call Centers, BPOs Competitiveness Effect: Cost of Telecommunications (reduced because of VOIP, but further reduction possible) Total Economy: Business transaction costs and efficiency ERC- Investment Effect: High cost may discourage investments in machinery Competitiveness Effect: Cost of electricity Total Economy: Labor productivity, Wages/workers� income, Household/consumer welfare