Philippines Infrastructure - Interesting Article

[OnMyWay]

http://www.bloomberg.com/news/2014-10-28/spatting-tycoons-stunt-philippine-infrastructure-southeast-asia.html

[Methersgate]

Good article.

[Call me bubba]

interesting read..

http://www.bloomberg.com/news/2014-10-28/spatting-tycoons-stunt-philippine-infrastructure-southeast-asia.html

While Philippine tycoons argue over a typing error in a highway bid and whose shopping mall benefits the most from a train station, commuters including Aneka Rodriguez are paying the price.

A 47-kilometer (29-mile) expressway connecting Manila to the southern provinces has been delayed by a San Miguel Corp. appeal to President Benigno Aquino after its bid was rejected on a technicality. Meanwhile, SM Prime Holdings Inc., the group of billionaire Henry Sy, and Ayala Land Inc. (ALI) are fighting over where to build a train station, both seeking to place it closer to their respective malls 600 meters from each other.

 

Caught in the middle are 22.7 million people who live and work in Metro Manila, where inadequate infrastructure and recurring flooding produce gridlock and stunt the economy. The project delays threaten Aquino’s plan to lure $11.6 billion of investment in roads, railways and airports to spur growth to as much as 8.5 percent by the time he leaves office in 2016.

 

“It is frustrating how delays in major infrastructure arise from conflicts between those who wield economic or legal power,” said Rodriguez, 31. A court injunction on the train station means further delays to projects that may cut her daily commute by five hours, she said.

 

The Philippine economy is dominated by business groups run by a handful of politically connected families. The Zobel family owns half of 180-year-old Ayala Corp., which transformed a former airstrip in Makati City into the nation’s Wall Street and has a market value of $9 billion. The Zobels supported Corazon Aquino, the former president and Benigno’s mother.

Political Businesses

Sy, 90, is the nation’s richest man with a net worth of $11.6 billion, according to the Bloomberg Billionaires Index. He built his empire from a shoe business and now owns the nation’s biggest bank and mall operator. SM Prime (SMPH) has also locked horns with Ayala Land over reclamation projects in Manila Bay.

 

San Miguel, the nation’s biggest company and maker of the 116-year-old beer brand, is run by Ramon Ang and its chairman, Eduardo Cojuangco, is an uncle of the nation’s president.

The key to cutting Rodriguez’s commute is the planned station where Light Rail Transit 1, Metro Rail Transit 3 and Metro Rail Transit 7 intersect, which is in limbo as SM Prime and Ayala fight over the location.

 

The argument stems from a contract SM Prime signed five years ago putting the station in front of its mall, while an Ayala-led venture won a government contract to extend LRT-1 last month that effectively allowed it to build the station near its own mall. San Miguel (SMC), which is building MRT-7, supports SM Prime.

Expressway Bids

The delays frustrate about 1.1 million commuters who use LRT-1 and MRT-3 daily. The MRT-7 line, first proposed in 2002, has an estimated capacity of 450,000 travelers.

Corazon Guidote, SM’s head of investor relations, said the delays on the common station isn’t their fault and the company “does not include, nor intend to delay all other infrastructure projects.”

Guidote said: “If the original memorandum of agreement that was signed September 2009 was followed, the common station would have been completed by now and used by the public.”

 

The $790 million Cavite-Laguna Expressway, or Calax, is also stalled after a 20.1 billion-peso ($449 million) bid by San Miguel in June was rejected because of an incorrectly dated credit letter, leaving an Ayala venture as the winner with a bid of 11.7 billion pesos.

Presidential Appeal

“This huge undertaking will have a big impact on the country for many years to come, and we believe government should have the best options available,” San Miguel said in a statement on Oct. 22.

Earlier this year, a delay in the awarding of the Cebu airport project to a venture of GMR Infrastructure Ltd. raised concern on contract disputes and regulatory flip-flops in past administrations that led companies like Fraport AG to leave.

 

Ayala has asked President Aquino to award the project to either San Miguel or its venture, Ayala Managing Director Eric Francia said in an e-mail reply to questions. He said Ayala won’t go to court if San Miguel gets the project, to avoid further delays.

Court cases and appeals to the president’s office “delay the process and can be frustrating to investors,” Francia said. “The possibility of a rebid in the case of Calax yet threatens further delay.”

The discrepancy led President Aquino to signal last week that the bidding process might be repeated, potentially leading to further legal challenges and delays in the project.

Attracting Investment

Aquino has said that accepting a lower bid while there is a higher offer is a public issue. “We have to protect the people’s interest,” he said.

 

Ayala Corp. (AC) fell 0.2 percent in Manila today, lagging a 0.4 percent gain for the benchmark Philippine stock index. SM Prime rose 3.8 percent, while San Miguel slipped 0.4 percent.

To get to grips with delays caused by legal challenges, a proposed law now in Congress calls for companies to be fined 0.5 percent of a project’s cost if they make an appeal to the government after bids are submitted, said Cosette Canilao, executive director at the Public-Private Partnership Center. An appeal costs about $40 now, she said.

 

“The Philippine economy can grow even faster if infrastructure logjams were cleared,” said Gundy Cahyadi, a Singapore-based economist at DBS Group Holdings Ltd. “If infrastructure development goes full steam that would mean higher capacity, improved production and lower cost for industries.”

‘Right Direction’

While the Philippine economy is projected to be among the world’s five fastest-growing until 2016, it ranks 96th in infrastructure in the World Economic Forum’s 2013 Global Competitiveness report, the lowest among major Southeast Asian nations.

The Philippines attracted a record $4 billion in foreign direct investment in 2013, yet it drew the least among major Southeast Asian economies, according to the United Nations Conference on Trade and Development.

“Material delays in project implementation could incur concerns on regulatory consistency and transparency, which are important for sustainable, long-term interest from private-sector investors,” said Mic Kang, a Hong Kong-based infrastructure analyst at Moody’s.

 

Not all projects are delayed. About 80 percent of 15,000 classrooms being built in a PPP venture are finished, while Ayala’s 4-kilometer toll road south of Manila is 50 percent complete.

The government is moving “in the right direction,” said Richard Bolt, the country director at Asian Development Bank. “Reforms don’t happen overnight.”

 

For commuters like Rodriguez, they can’t happen soon enough. The legal associate rented a $300-a-month apartment with friends to be closer to her office in Makati and goes to her family home 34 kilometers away only on weekends.

“I chose to move around this problem,” she said, noting that not everyone in the nation has that ability.