Panel Discussion 2: Big Winner Sectors (Infrastructure)

Moderator Maria Ressa Chief Executive Officer and Executive Editor Rappler Policy Eduardo V. Francisco President Banco de Oro Capital Transportation Meneleo Carlos Chairman, Federation of Philippine Industries Private Sector Co-Champion, Infrastructure Working Group, National Competitiveness Council

Power and Water Ray Cunningham First Vice President for Business Development Aboitiz Power Ressa:

Telecommunications Donald R. Felbaum Managing Director OPTEL Ltd.

Its nice to be here a year later, and most of the panel members were here last year. So, Bobby de Ocampo last year said the focus should be infrastructure, infrastructure, infrastructure. What are the key accomplishment in the last year, and what do you want to see happen next? Why dont we start with Ed. In terms of the key accomplishments, the coalition has done its job. The PPP Center is in place; resource building is in the works. As Secretary Jimenez and Bill Luz said, demand is easy now that it is getting the supply out. Its getting the strategies in place. I think that is what I want to see.
Francisco:

In terms of accomplishments, I represent the private sector. The private sector has already funded the DepEd classrooms. We at BDO are willing to provide the 30 billion [peso] financing for the LRT. We are willing to provide the 12 billion [peso] financing for the NAIA expressway. We are willing to work with rest of the locals. I am glad to have read that the JBIC is willing to lend the 30 billion [pesos] for the LRT, which is the component the government needs. That in itself shows you that we are putting our money where our mouth is, because there is a component needed by the private sector for the sponsor, which we are willing to provide and the Japanese government is willing to provide. All the local
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banks are competing. We are willing to finance MRT-7, MRT-3, even the Cebu Mactan airport, we are very interested in that. We just need to see the numbers. With the National Orthopedic, we are looking at the numbers and willing to look at the financing of that. With the automated fare collection, there have been more than two dozen interested bidders. I was in the bid conference. That shows you how successful these programs are. There is more than enough equity interested. The government, together with SSS and GSIS, has already launched the PINAI fund, and they are willing to provide equity. The projects are there, and we want more projects. The private sector is ready. There is enough demand. I remember when the DOF and DPWH went on road shows with the PPP, a lot of foreign interest showed up. I was with them in Singapore and Geneva, and it was always packed. I think they went to Australia, but I was not with them, and there was also so much interest. We are in our sweet spot, and we just want to make sure we dont drop the ball. The last point I wanted to say is that the PPP is not all the infrastructure the government is doing. Our NEDA speaker can elaborate. There are so many investments being done by the government that is not being reported but is showing up as investments. Those are also critical, because those have a multiplier effect.
Ressa: Carlos:

Lets go to transportation.

Wed like to thank the governmentthe Congress, toofor answering the call of the private sector. Airlines were concerned about the Customs, Immigration, and Quarantine overtime. The government finally decided we will operate 24/7, and we will have the budget for that. The second issue that international airlines were concerned with was the abolition of Common Carriers and Philippine Gross Billings taxes, which were both approved by Congress. They removed Common Carriers Tax and made Gross Philippine Billings Tax conditional based on reciprocity. The other issue is the amendment of the BOT law, which I think will be put into effect pretty soon by NEDA, allowing joint ventures and other modifications. Finally, they encourage the transfer of the use of Subic and Batangas by reducing the wharfage fee by 50%. On general issues, we would like to have NEDA upgrade the multi-transport policy issue that will look at all the basic transport sectors in the country and see how we can make them interconnected. One issue brought up by Secretary Jimenez is that a lot of people dont have to fly to Manila; they can head to other airports, too. It might relieve congestion at the NAIA 3. These are issues that can be integrated in a national policy. That means we also need a wider open skies application. We also agree that we should get that 5% GDP in
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investment infrastructure. Otherwise, we really wont move forward. Im glad its there in their plans. Although there is another issue that we would like to address to Congress, because we inherited a lot of flaws from the Marcos regime, which combined the regulatory and developmental functions in the line agencies of the government like PPA, CAAP, and so on. This confuses the issue because public interest is often sacrificed in such an arrangement. We would like to separate the regulatory from the developmental functions. In the meantime, it can be done by an Executive Order. Allow the user to participate in the regulatory function, so they can at least benefit from all this development.
Ressa:

Let me give the other gentlemen a chance. Ray Cunningham, its nice to see you

again. Thank you very much. The foundation for power is the Electric Power Industry Reform Act of 2001. Its now approaching its 13th year. The most significant achievement out of our 21 recommendations was in December of 2012, the trial period of the open access and retail competition was announced. In June it will go forward on a restrictive basis, but on an actual basis its absolutely essential to achieve the intent and objectives of the Electric Power Industry Reform Act. In addition, there has been a significant improvement to the transmission system under the concessionaire National Grid Corporation of the Philippines. Beyond that, not so much on the 21 recommendations.
Cunningham:

For water supply, we have nine recommendations. The good news is significant progress was made on all nine. There are several bills in Congress under consideration. Some deal with regulatory reform, while some deal with structural reform. Both are needed. We advocate approaching water on a river basin basis rather than political geographic boundaries. Water doesnt care what municipality or province its in, and to focus on all the benefits of waterbe it water supply, power, hydropower, irrigation, or flood control is very important. We are hopeful that during 2013 some positive measures will come out of the Congress that can help structure this. Some of the bills though, I must caution, are extremely bureaucratic and are unlikely to succeed, but there are positive signs in some of those bills as well.
Ressa:

Lets wrap it up with accomplishments in telecommunications.

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On the telco side, which is predominantly driven by the private sector, we have a lot of positive developments over the last few years. We have I think nearly 90 million subscribers coming in, so there is high penetration. We have excellent fibre optic networks throughout the country, and good resiliency for supporting the BPO sector. We have strong wireless broadband. Both major networks are now deploying LTE, which is the next generation or fourth generation in wireless technology.
Felbaum:

One issue we need to address in 2013, under former President Ramos tenure in the 90s, we passed Republic Act 7925, Telecoms Policy Act, which basically provided the legal framework for deregulation. That law is over 15 years old. In the digital world, thats a long time. We need to move toward convergence. There were some efforts made in the last administration to pass legislation on convergence, but we didnt get the muscle to make it happen. Convergence has to happen in the near future to help us stay competitive with our ASEAN partners. Other items I might notewe have no Philippine satellite today. In the 90s we had the Mabuhay satellite, and it was a great bird which provided connectivity for the 7000 islands we have. Today, we have to source from Malaysia, Hong Kong, and Thailand, so hopefully, thats something we can move forward. A strong satellite will provide excellent educational services all over the country. Finally, we tried very hard this last year to support the creation of the Department of ICT, which will have a lot of merits. The House and the Senate passed it and got to the bicam session, but it was frozen there. Unfortunately, we ran out of time and well have to start again. Hopefully, we can make that happen in 2013. Undersecretary Tungpalan is also on the panel. Let me ask you to put this in context, because if you look at the handbook that Arangkada has put together, we are not doing so well in ASEAN-6. In fact if you look at Policy, we rank fifth out of the six nations in capital outlays. For airports, we are at the bottom. For Seaports, also at the bottom. For Roads and Rails, we are fourth out of six. For Water, fifth out of six. Telecommunications is fifth out of 6. We actually moved back from from second from 2003. What do we need to do to compete more?
Ressa:

In Power, we need more foreign investment. Congress passed the Renewable Energy Act, but DOE imposed foreign ownership restrictions. Why? If you are trying to build a power plant such as my colleague Dan Chalmers, the co-chair of our Energy
Cunningham:
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committee, why does a foreign contractor have to get 60% Filipino partner? The PCAB, the Philippine Contractor Accreditation Board, is in the way. We recommend doing everything we can to allow foreign investments and allow the benefits of major foreign expertise.
Ressa: Carlos:

Ito?

Concerning the congestion at NAIA, we have the open skies. If we applied it, as Secretary Jimenez said, people will fly directly to the other airports. The other thing is we should light up the other provincial airports so they can operate at night. This is something we can do. Why dont we apply existing policies?
Ressa:

Ed, do you want to add?

Theres this memo that the SEC, together with the Supreme Court, came out with on foreign ownership, and it looks like there is going to bewithout preemptingat least, a new draft coming out. Its not perfect, but it will address the issues most of the investors and sponsors have on doing business.
Francisco: Ressa:

On telcos, how could we have moved back?

I think one of the issues that Ray mentioned is that we are also handicapped by a 60-40 percent cap on foreign equity. Thats still a struggle. That takes changes in the constitution to administrative. Thats a tough one. On the other side, we talk more frequently about the creation of the Department of ICT. We are the only nation in ASEAN that doesnt have a dedicated full-time cabinet secretary overseeing ICT. Although DOST is trying to cope with supporting BPO, the telecoms has moved to the back burner, and we are not getting the support.
Felbaum: Ressa:

We are actually fourth out of six in terms of internet penetration.

I just want to say that we have a very clear and feasbile Philippine Development Plan, and the roadmaps coming out will give very specific directions. I think the bonus is, we now have in the infrastructure committee a working mechanism that brings together the infrastructure agencies to do what, where, and when. That very mechanism can make a difference in infrastructure planning and development.
Tungpalan: Ressa:

Ito?
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We have Subic and Batangas seaports operating at 3% capacity. Weve been pushing traffic in that direction. The big trouble is, the trucks are causing tremendous nightmare in Manila. What we need is the MMDA to compel those trucks to go to Batangas and Subic instead. Lets tighten that window of operations for the trucks. That will ease the traffic for the Manila traffic system. The government has already helped in reducing the wharfage fee. What we need to do now is reduce the cargo handling fees for the sake of the shippers.
Carlos:

Ressa: Ray, you have always been outspoken. If you were to want one thing done this year, what do you want? On the power side, we need open access and retail competition. Wed have to wait two years, because despite having satisfied the criteria a long time ago, the computer programs, the billing and settlement programs, and so forth were not ready. No one has taken any step. We desperately need that to go forward, because people are getting impatient to see the effects of the power reform.
Cunningham:

We still have one of the most expensive electricity costs. I know this has been a problem, and everybody has addressed it in different ways.
Ressa:

True. Power is expensive in the Philippines, but we do not subsidize our power. One reason why power is so cheap in some countries relative to the Philippines is because its being subsidized. This is counterproductive and many of these countries are getting out of that mode now. In addition, we must remember that the Philippines is a group of islands. In order to transmit power, we need submarine cables. Those are things that we cant change so easily. Nonetheless, I believe EPIRA can deliver on its promise.
Cunningham:

Will there be power shortage in 2013? Weve been seeing some of it in 2012. Has it been as bad as expected by Arangkada? Without what you are asking for, what do you say?
Ressa:

There is a chance that we can skate through until 2016. Right now the GNPower project is being commissioned. It should be ready by the beginning of the second quarter. That should help us greatly until, perhaps, 2015. At that point, whether the coal fire plants will carry us through until other cheaper plants are built, Im not so sure.
Cunningham: Ressa:

Thank you, our time is up, gentlemen.

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