Philippine Business Report (Jun.2012) by Department of Trade and Industry

Volume 23 No. 06

June 2012

BOI streamlines investment registration “The long list of requirements would only make the investors hesitant to apply for registration with us. So we have to simplify the evaluation processes,” he said.

The Board of Investments (BOI) has simplified its processes in registering investment projects starting with tourism, mass housing, and agriculture sectors. Department of Trade and Industry (DTI) Undersecretary for Industry Development and Trade Policy Group (IDTPG) Adrian S. Cristobal, Jr., who also sits as BOI Managing Head, said they have substantially reduced the number of required data items from 52 to 14. Also, they have reduced the evaluation form to only two pages from 15 and the processing period to five days from the date of filing from 20 days.

Cristobal said they have piloted with the said three industries — tourism, mass housing, and agriculture — as these are not very complicated sectors when it comes to project evaluation. However, he said the new procedure is tailor-fit to every industry as each has its unique requirements.

“This is also part of our campaign to promote competitiveness. We can help by simplifying the way of doing business with BOI,” said Cristobal.

Some requirements deemed unnecessary and irrelevant like documents from other government agencies and other data items were removed.

US$3-B foreign investments expected this year Some US$3B in foreign investments in the business process outsourcing (BPO), electronics, and energy sectors are in the pipeline this year, Department of Trade and Industry (DTI) Undersecretary for Trade and Investment Promotions Group (TIPG) Cristino L. Panlilio said.

If the investment commitments are signed this year, the companies would be able to operate in two to three years.

Some US$1.5B to US$2B is expected to come from Europe. June 2012

“We are supporting them in registering their investments at the Board of Investments (BOI),” said Panlilio. A major electronic company from Asia and another one from the US have committed to set up operations in the Philippines.

The streamlined procedure is expected to declog the volume of project applications pending with the BOI. As of March this year, the agency had 141 projects under various evaluation stages.

The electronics sector, he said, is expected to rebound this year. The government is engaging 10 foreign electronics manufacturers to set up operations in the country. BOI Investment Promotions Group (IPG) Executive Director Fe Agoncillio-Reyes said that during the first quarter of the year, foreign investment interest was strong in information technology (IT)-BPO, manufacturing, tourism, agriculture, renewable energy (RE), 1

and public-private partnership (PPP) projects. Companies from Malaysia and Thailand are particularly searching for office spaces for IT-BPO operations. “Right now, many Association of Southeast Asian Nations (ASEAN) companies are coming for those sectors,” Reyes said. In the manufacturing sector, she said, the Philippines is becoming a destination for the manufacture of leather goods, noting the luxury brand Coach that recently opened in Pampanga. Foreign investment interest also continues to be strong in the mining sector.

however, delisted in the 2009 IPP and was placed under the preferred “manufactured products” heading of the 2010 IPP. It was totally delisted in the 2011 IPP. “Situation has changed with the expected growth of public spending and the interest of investors in shipbuilding and we have also some capability worth developing,” said Cristobal, who is also the BOI Managing Head. Filipino firms globalize The strength of franchising is going to further speed up the globalization of domestic companies and fuel the global economy, Philippine Franchising Association (PFA) Chairman Emeritus Samie Lim said.

“There is interest. Almost one in five inquiries is in mining,” she said. Some of the interested parties are from Australia, China, and Chile.

INDUSTRY Trends 2012 IPP restores iron, steel The Board of Investments (BOI) has restored the iron and steel in the 2012 Investment Priorities Plan (IPP) owing to the strong private sector interest. Department of Trade and Industry (DTI) Undersecretary for Industry Development and Trade Policy Group (IDTPG) Adrian S. Cristobal, Jr. said this after submitting the 2012 IPP to DTI Secretary Gregory L. Domingo. “We see very strong interest in both foreign and domestic investors in the iron and steel sector,” Cristobal said. This sector had been a constant fixture as a preferred priority sector in the annual IPP. It was, 2

Lim based his statement on the World Franchise Council (WFC) 2011 Country Report that showed franchising in eight of the top 11 countries created around 2M franchise outlets. The report showed that these outlets generated over 17M job opportunities globally. “Apart from these, franchising achieves other far-reaching economic and social benefits, among them wealth creation, advancement of micro, small, and medium enterprises (MSMEs) and women empowerment,” Lim said. Included in the top 11 performing countries in the WFC Report, the Philippines contributed more than a million jobs created from around 125,000 franchise outlets, which in turn accounted for US$11B or 30% of retail output in 2011. Potable water investment opportunities cited Providing potable water to the public by 2015 would cost billions of dollars and open big opportunities for private investments.

Laguna Water Utilities Administration (LWUA) Chief Eduardo C. Santos and Metro Manila Waterworks and Sewerage System (MWSS) Chairman Ramon B. Alikpala said this during a meeting with the water committee of the Philippine Chamber of Commerce and Industry (PCCI). The two lead agencies, on top of developing potable water systems in the country, reported providing potable water to 17.5M people in the provinces under LWUA and 13.8M in Mega Manila under the MWSS. The MWSS estimated that the mega-city, which includes several towns outside of Metro Manila, has a population of 15M, while the latest official figure on total population of the country was pegged at 94M. Alikpala further reported that no less than 455 towns remain waterless or do not have functional waterworks systems. LWUA and MWSS admitted that there is an urgent need to urge private industries to help meet the challenge. Alikpala said the opportunities for private investments lie in water distribution facilities, waste water or sewerage system developments, and management including the treatment plants construction and watershed protection and management. Piping more private money into potable water systems and waste water management facilities, however, needs to meet institutional and legal considerations. They admitted that no single agency in government regulates the use of water. In providing safe water to towns and cities alone, local governments are known to either partner with LWUA in organizing water districts which are government-owned corporations or they partner with the Departments of the Interior and Local Government (DILG), Public Works and Highways (DPWH), and Health (DOH) or be on their own. Philippine Business Report

Gov’t, industry sectors commit to craft road maps The country’s industry sectors have committed to craft their respective strategic road maps in collaboration with the government to further boost the Philippine industries’ competitiveness and increase their global market presence. Sectors that have committed to do their respective road maps • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Air logistics for cargo Auto parts Biodiesel Business process outsourcingknowledge process outsourcing (BPO/KPO) Chemicals Coconut and coconut products Coffee Copper and copper products Engineered bamboo Fine jewelry Flat glass Furniture Garments and textiles Handicrafts Hogs Hotels Iron and steel Mass housing Medical travel/medical tourism (cancer treatment) Metal casting Motorcycle and motorcycle parts Paints and coatings Petrochemicals Plastics Poultry Printing ink Retirement industry Rubber and rubber products Tool and die

with the sectoral road maps,” the 2012 Strategic Industry Development Program report said. The DTI believes that these road maps are “essential in charting the future of Philippine industries for the realization of a comprehensive national industrial strategy.” DTI Secretary Gregory L. Domingo said these road maps would help the DTI set its priorities so the agency can contribute to the country’s development goals. He said the DTI aims to become a catalyst toward the inclusive growth that the Aquino administration has envisioned. Good government, infrastructure push top administration priorities The administration is prioritizing good government and infrastructure development to strengthen the local manufacturing sector. As a former “model for industrial transformation,” Socio-economic Planning Secretary Cayetano W. Paderanga, Jr. cited China’s strategy of decreasing the cost of moving goods by building roads and bringing down the cost of doing business. On the same note, Department of Trade and Industry (DTI) Secretary Gregory L. Domingo said the government is looking to raise the industrial sector’s share in the country’s economy to 20% from the existing 14% in 10 to 15 years.

The Board of Investments-Industry Development Group (BOI-IDG) met with 57 industry associations and companies, and eight government agencies, for the road maps’ formulation to assess the local industries’ needs to be able to compete globally.

Domingo said the Philippines needs to expand its industrial base to ensure that the country’s economy would not be held hostage by climate change and external shocks, both of which could affect the business process outsourcing (BPO) sector.

“Most of these organizations have expressed support to the projects and are now in close and constant coordination with the BOI on the next steps that need to be taken in coming up

He said the services sector accounts for 54% of the country’s gross domestic product (GDP) while agriculture accounts for 32%. The manufacturing sector only makes up 14%.

June 2012

To prop up the country’s manufacturing sector, Domingo said the government would have to solve the power problem first. Finding a solution to the energy crisis, particularly in Mindanao, would make the Philippines more attractive to prospective investors in the country’s manufacturing sector. Bright prospects seen for Philippine halal industry The Philippine halal industry is generating international awareness as a source of quality and globally accepted halal food. Local companies are gaining foothold in the US$632-B global halal food market. The country showcased its wide array of halal products – processed food, ingredients and condiments, seafood, fresh fruits and vegetables, natural and organic products – in the recent 9th Malaysia International Halal Showcase (MIHAS), an annual trade fair in Kuala Lumpur. The government has identified the halal industry as one of the key investment areas owing to its vast global market. Being non-Islamic, the country’s contribution to the lucrative halal industry is being noticed worldwide partly due to its effort to establish integrity and credibility, alongside religious requirement, with its halal industry.

Trade and INVESTMENTS AGRICULTURE/ AGRIBUSINESS AND FISHERY DBP launches P2-B tree financing The Development Bank of the Philippines (DBP) announced it is stepping up its efforts to protect 3

the environment with the Tree Plantation Financing Program (TPFP), a credit assistance program that seeks to support the expansion, harvesting, maintenance, and protection of existing tree plantations. DBP President and Chief Executive Officer (CEO) Francisco F. Del Rosario, Jr. said an initial P2-B budget has been allocated to promote the development and maintenance of tree plantations, help communities improve their socio-economic conditions, and arrest the rapid deforestation in the country. Existing tree plantations with at least four-year-old standing trees in at least 1% of the plantation area of qualified private and public land, Del Rosario said, are eligible for financing. Eligible projects for financing • Acquisition and planting of major tree planting stocks • Site development, maintenance, and operating expenses • Water system • Other related expenditures for expansion of an existing plantation Eligible borrowers • Industrial tree plantation companies • Integrated Forest Management Agreement (IFMA) holders • Local government units (LGUs) • People’s organizations • Private land owners • Private schools • Socialized Integrated Forest Management Agreement (SIFMA) holders • Wood producers Eligible projects should be at least 5-500 has. of open, contiguous area suitable for the planting of forest or fruit tree species and other crops. The TPFP shall support up to 80% of the total project cost for identified borrowers, and 90% for LGUs. The said facility shall be available for seven years from the date 4

of implementation, subject to extension and mid-term program review. P1.3-B Thai project gets perks The Board of Investments (BOI) has granted incentives to Charoen Pokphand (CP) Foods Philippines Corp., the local arm of a Thailand conglomerate, for its P1.3-B hog raising project in the country. “We see a steady increase of investments from foreign investors in strategic sectors like agribusiness. This trend helps balance our investment portfolio, increase opportunities in rural areas, and strengthen food security,” Department of Trade and Industry (DTI) Undersecretary for Industry Development and Trade Policy Group (IDTPG) and BOI Managing Head Adrian S. Cristobal, Jr. said. CP Foods’ investments will be infused into three swine farms that are expected to start commercial operations by 2013. One swine farm, which will be located in Pampanga, will be used for the production of parent stocks. The two others, both in Tarlac, will be used for the production of breeder stocks and swine. The BOI said CP Food plans to source its primary inputs such as feeds, including corn, soybean, and fish meal from both local and foreign suppliers. Zanorte Palm Rubber invests P737M in palm oil project The Board of Investments (BOI) has given perks to local firm Zanorte Palm Rubber Plantation for its P737-M palm oil project, which is expected to boost the palm oil as a new growth industry. The Zanorte plantation will produce palm oil fruits to be used as raw materials for crude palm oil production and dried palm kernel by-products. These by-products will be sold to food firms like Universal Robina Corp., RFM Corp., Nestlé Philippines, and Mina Oil Mill Corp. as well as to manufacturers

and exporters of soap and other industrial products. Once operational, the project, to be located at Sirawai and Sibuco in Zamboanga del Norte, is expected to produce 9,900 metric tons (MT) of palm oil and 2,338MT of dried palm kernel. It is likewise expected to generate 1,055 jobs. Calata expands agriculture retail chain nationwide Calata Corporation is planning to set up a chain of one-stop convenience stores for all agricultural products needed by farmers for their crops and livestock. As part of its major strategy to sustain rapid growth and expand operations and distribution network, Calata is planning to open 100 retail outlets in Luzon this year which will be funded by its planned P270-M initial public offering (IPO). Calata Founder and Chairman Joseph H. Calata said once they boost the firm’s cash flow, they have the capacity to open 80-100 stores a year and envisioned their retail chain to have a nationwide presence with 300 stores.

AVIATION PAL to buy 100 new planes The Philippine Airlines Inc. (PAL) is planning to order at least 100 new planes to resume flights to Europe and bolster US services after selling a stake to San Miguel Corp. (SMC). PAL and San Miguel President Ramon S. Ang said the carrier’s two main owners will provide US$1B to fund the fleet plan. San Miguel will inject US$750M in PAL and affiliate Air Philippines Corp. while billionaire Lucio Tan will deliver the rest. The 100 new planes will be divided between PAL and Air Philippines. San Miguel may build an airport near Manila to improve its services and extend its own push away from a traditional focus on food and beverages. Philippine Business Report

Lufthansa to start giving training at Jocson College The aircraft maintenance subsidiary of Lufthansa has entered into a training contract with Jocson College Inc. (JCI) that offers two-year aircraft maintenance technology and avionics technology courses.

investment projects contribute to long-term inclusive economic growth,” Department of Trade and Industry (DTI) Undersecretary for Industry Development and Trade Policy Group (IDTPG) and BOI Managing Head Adrian S. Cristobal, Jr. said.

The agreement signed by Lufthansa Technical Training Philippines Inc. (LTTP) General Manager Jochen Harms and JCI Vice President Ma. Felisa Jocson states that LTTP will provide theoretical and practical instructions and trainings to JCI students in accordance with the requirements of the European Aviation Safety Agency (EASA)starting this June.

Department of Energy (DOE) data showed that electricity demand is expected to grow at an average of 4.5% annually, or up to 12,005 megawatts (MW) by 2014. The Luzon grid alone will require an additional 1,050MW capacity by 2014.

“We are both willing to provide young people with world-class training for their future tasks,” Harms said. JGS interested in airport projects JG Summit Holdings, which owns budget airline Cebu Pacific Air, has expressed interest to participate in the government’s airport projects. JGS President and Chief Executive Officer (CEO) Lance Gokongwei said they are taking a serious look at these projects. Gokongwei cited four government airport projects in Laguindingan, Tagbilaran, Puerto Princesa, and Cebu. He said they are on track with their 14-M passenger target this year.

ENERGY BOI registers P62.3-B power projects The Board of Investments (BOI) approved the registration of two power projects, namely the South Luzon Thermal Energy Corp. worth P12.9B and the P49.4-B expansion project of Masinloc Power Partners Co. Ltd. “The two projects will help address the country’s energy supply requirements. The BOI’s goal is to also ensure that approved June 2012

Thai firm relocates to PHL, infuses US$100M Thai-based multinational electronics firm is relocating its operations into the Philippines and is expected to bring an initial investment of US$100M for its integrated circuits production. The project is expected to generate 3,000 jobs. Department of Trade and Industry (DTI) Undersecretary for Trade and Investment Promotions Group (TIPG) Cristino L. Panlilio has arranged the entry of this investor that will particularly assemble computer motherboards. This Thai multinational company has already decided to register with the Philippine Economic Zone Authority (PEZA) to locate in one of the agency’s economic zones. Foxconn eyes PHL for relocation The Philippines has been included in Foxconn Technology Group’s shortlist of countries as investment destination to relocate some of its capacities outside China.

Foxconn is a known manufacturer of electronics and computer components. It assembles an estimated 40% of the smartphones, computers, and other electronic gadgets sold worldwide. It also produces for various American and United Kingdom (UK) brands. The potential Foxconn investment was identified by the Department of Trade and Industry’s (DTI) Global Marketing Intelligence System (GMIS). Its local presence is expected to further boost the electronics industry. GMIS synchronizes the trade and investment promotion activities of DTI and other government agencies in more efficient and effective ways.

GREEN PROJECTS China hydro mulls RE projects China Hydro Corp. is planning to put up two renewable energy (RE) power generating plants with total capacity of 250 megawatts (MW) with investments worth US$500M. The proposed power plants, which will be located in Subic Freeport, include a 150-MW wind power energy plant and a 100-MW solar power plant.

The Board of Investments (BOI) has started courting the multinational company to choose the Philippines over other possible sites.

Dutch-Filipino group plans solar power farms The Department of Agrarian Reform (DAR) said a Dutch-Filipino solar power company wants to rent non-agricultural lands in rural areas to establish solar farms that could be plugged into the national grid.

Foxconn is a multinational business group anchored by the Hon Hai Precision Industry Co., Ltd., a People’s Republic of Chinaregistered corporation headquartered in Tucheng, Taiwan.

DAR said beneficiaries of the Comprehensive Agrarian Reform Program (CARP) can lease out part of their land to Sunconnex Solar Powered Agri-Rural Communities (SC-Sparc), which signed 5

a memorandum of agreement (MOA) with the agency. The company is targeting to put up 50 solar farms in the countryside that could produce 5-10 megawatts (MW) each. In the long run, the company said, it aims to provide 250-500MW of power to the national grid.

INFRASTRUCTURE NEDA approves LRT-1 Cavite extension Department of Transportation and Communications (DOTC) Secretary Manuel A. Roxas II has announced that the P60-B Light Rail Transit-1 (LRT-1) Cavite Extension was already approved by the National Economic and Development Authority (NEDA) in March and is already under bidding. The construction of the tracks, the stations, and all its attendant facilities worth about P30B would be bidded out. The other half, which includes the purchase of the coaches, will be borne by the government via Official Development Assistance (ODA). “We want companies with huge capitalization, who have a good track record of delivering large infrastructure projects, who clearly have access to the latest technology, manpower, management, and all the skills necessary to successfully deliver all of these projects,” he said. Roxas said the government wants to avoid or minimize participation of ‘flippers,’ or companies that bid low on a contract, then sell it to some other groups without the necessary expertise to implement the project. This ploy only delays a project and badly affects its delivery. The Cavite Extension project will extend the existing 20.7-km. LRT-1, which runs from Roosevelt Avenue in Quezon City to Baclaran in Parañaque City, by adding 11.7km. of rail heading toward Bacoor, Cavite. 6

Eight passenger stations, with provision for two additional stations, one satellite depot, and three intermodal facilities are part of the project. Areas where passenger stations are planned to be constructed • Redemptorist Station in Redemptorist Road near Roxas Boulevard • MIA Station near the Coastal Mall along Roxas Boulevard • Asia World Station near Asia World Development in Roxas Boulevard • Ninoy Aquino Station on the east side of Ninoy Aquino Bridge over the Parañaque River • Dr. Santos Station, south of Dr. Santos Road • Las Piñas Station, east of Quirino Avenue and south of Las Piñas River • Zapote Station, north of the AlabangZapote flyover • Niyog Station, south of the Niyog Road bypass and Aguinaldo Highway intersection Two provisional stations in Manuyo Uno in Las Piñas City and Talaba in Cavite are also being proposed. Once complete, the new line will increase LRT-1 ridership from 500,000 passengers to 700,000 passengers a day. It will provide faster and more convenient alternative mode of transport for residents of Cavite, Las Piñas, and Parañaque. The construction will be divided into two phases - from Baclaran to Dr. Santos Avenue (Phase 1A) and from Dr. Santos Avenue to Niyog Station (Phase 1B). “We expect half the work to be completed by late 2014 and the other half by late 2015,” Roxas said. Maynilad commissions P521-M pumping station Maynilad Water Services Inc. said that its P521-M Pagcor Pumping Station discharge line has been commissioned. With the commissioning of its 4-km. discharge line stretching from the Pagcor Pumping Station in Pasay

City to Coastal Road (Kabihasnan) in Parañaque City, Maynilad was able to improve water supply and pressure to more than 109,600 water service connections in Las Piñas and Cavite City, and the municipalities of Noveleta, Imus, Bacoor, and Kawit in Cavite. Before the project was completed, some Maynilad customers in these cities and municipalities only received water supply at an average of 12 hours a day.

MOTOR VEHICLES Toyota plans 2015 plant expansion Toyota Motor Philippines (TMP) mulls the expansion of its production capacity at its assembly plant in Sta. Rosa City, Laguna as it is running out of capacity starting this year. “We are running out of capacity so we have to think about expansion,” TMP President Michinobu Sugata said, noting the plant, which is the assembly site for Innova and Vios, is expected to fully attain its 30,000-unit capacity this year. Sugata added that they would be forced to add a second shift to maximize the plant capacity to between 35,000 and 36,000 units starting next year. Suzuki to start test production of motorcycles Suzuki Philippines will soon begin test production of motorcycle units in its new production plant in Canlubang, Laguna. Suzuki Philippines President Satoshi Uchida said the new plant would have a capacity of 200,000 units, double the capacity of its old production plant in Pasig. Uchida said the production of motorcycle units and parts for domestic consumption would be localized to cut on transportation cost. Suzuki Philippines used to import parts from Thailand, Indonesia, and China. Philippine Business Report

The company would increase its current workforce of around 250 workers to around 500 workers to bring the plant to full operation. The Canlubang plant had its groundbreaking in July last year, a month after the Board of Investments (BOI) approved tax incentives for the P1.5-B expansion project for the production of motorcycles.

PUBLIC-PRIVATE PARTNERSHIP PROJECTS Banks establishing US$1-B PPP fund Local banks are forming a consortium to put up a US$1-B fund to bankroll many of the government’s public-private partnership (PPP) projects of which Banco de Oro (BDO) can take up 50%, making multilateral donor fund more of just additional financing option. This was raised recently by BDO Chairperson Teresita Sy-Coson as part of the programs lined up by the Philippine Corporate and Investment (PCI) Pavilion during the panel discussion on “Build to Grow: Investing on Urban Development through Infrastructure.” “We can fund many of these projects and I hope banks will agree with me. Of course, we welcome multilateral donors including official development assistance (ODA) funds but the local market is very liquid. We can do US$1-B syndicated fund,” Sy-Coson said.

for Metro Manila and the rehabilitation of the Quirino Highway in the Bicol region are now under pre-investment study, the PPP Center announced. The PPP Center said the conduct of the pre-investment studies was approved by the Philippine Development Monitoring Facility (PDMF) Board, which ensures that agencies planning to undertake infrastructure projects under PPP modes are able to avail themselves of competent transaction advisory services, to ensure competitive and transparent preparation of such projects. The PPP Center said PDMF also implemented new policies that would speed up the start of pre-feasibility and feasibility studies under PPP’s stewardship. PPP Center Executive Director Cosette V. Canilao said the integrated multi-modal transport terminals for Metro Manila was presented by the Department of Transportation and Communications (DOTC), while the rehabilitation of the Quirino Highway was presented by the Department of Public Works and Highways (DPWH).

TOURISM RLC opens hotels in Dumaguete and Tacloban Robinsons Land Corp. (RLC) has added 200 rooms to its hotel portfolio with the opening of two budget hotels in Visayas under the gohotels.ph brand.

Sy-Coson said tapping local funds can show confidence in infrastructure projects because there is no government and foreign currency risks. PPP Center announces two transport projects Two public-private partnership (PPP) projects that involve the construction of integrated multi-modal transport terminals June 2012

Gohotels.ph General Manager Elizabeth D. Gregorio said the two new no-frills hotels in Tacloban and Dumaguete were ideally located beside Robinsons Malls.

The 102-room in Dumaguete and the 98-room in Tacloban held a soft opening last March and April, respectively. “The quiet city of Dumaguete has recently seen surge in tourism because the lush marine life off the beaches of nearby Dauin and Apo Island has been attracting a rising number of local and foreign scuba-diving enthusiasts,” an RLC statement said. It added that educational facilities in the city have generated a demand for hotels in the area, which also attracts business process outsourcing (BPO) firms into setting up operations in the city. RLC plans to roll out 30 gohotels over the next five years. H2O Ventures investing US$200M for five themed hotels and resort destinations The Manila Ocean Park developer H2O Ventures is planning to invest US$200M in building five uniquely themed hotels in Metro Manila and resort destinations over the next five years. H2O Founder Lim Chee Yong said they have started the construction and will open the P2-B WorldHotel and Residences Makati by the second quarter of 2014. H2O is also opening hotels in Cebu, Boracay, and Busuanga and had acquired resort properties in Busuanga and Boracay. Yong said they are looking for land owners who are interested in partnership for its fifth hotel project and another WorldHotel property in Metro Manila, particularly in Quezon City, Ortigas or Manila. WorldHotels Vice President for Asia Pacific Roland Jegge said H2O intends to expand the WorldHotels brand to 15-20 hotels over the next 10 years in addition to their recently opened Le Monet Hotel in Camp John Hay in Baguio City. 7

MINING IPVG to partner with REC for a mineral refinery IPVG Corp. announced a potential partnership with Canadian mining firm REC for the construction of a mineral refinery in the Philippines.

In a disclosure to the Philippine Stock Exchange (PSE), IPVG said its subsidiary, New Wave Resources Ltd., had already signed a US$250-M design, build, and operate deal with the foreign firm. The facility is expected to be completed in 2015 and can process 3,000 metric tons (MT) of minerals annually. Under the deal, REC will tend to the sale of refined products in markets abroad through long-term, off-take contracts. On the other hand, IPVG intends to export most of its finished products to countries such as Japan, Korea, United States (US), and Europe where the products are high in demand. REC is a Vancouver-based company formed to meet growing demand for strategic and rare minerals in international markets by building processing facilities in key locations worldwide.

POWER DMCI sets US$425-M Calaca expansion The power generation unit of DMCI Holdings of the Consunji group will be spending additional US$425M for the second phase of the Calaca power plant’s expansion of another 300 8

megawatts (MW) capacity, bringing the plant’s installed total capacity to 1,200MW. DMCI Holdings President Isidro A. Consunji said the estimated funding for the next phase of the Calaca expansion will be the same as the initial 300MW that the company expects to set on stream by 2014 to 2015.

the new exploration’s value at US$10M, Layug said. Recently, PetroEnergy Resources Corp. Tran-Asia Oil and Energy Development Corp. and state-run PNOC Renewables Corp. secured a DOE approval to drill two new wells in the Maibarara contract area.

The Calaca plant expansion will form part of the shortto medium-term supply solution in the Luzon grid, along with the other power projects already moving forward into implementation.

First Gen eyes participation in Pagbilao plant expansion First Gen Corp., the Lopez Group’s power generation firm, plans to take part in the US$700-M expansion of the Pagbilao coal-fired power plant in Quezon province.

Geothermal power plant breaks ground Maibarara Geothermal, Inc. (MGI) broke ground for a 20-megawatt (MW) geothermal power project in Barangay San Rafael, Sto. Tomas, Batangas, which is expected to be operational by late 2013.

TeaM Energy Philippines, a joint venture between Japanese firms Tokyo Electric Power Co. and Marubeni Corp., has given First Gen the rights to take part in the Pagbilao plant’s expansion, First Gen President Francis Giles B. Puno said.

The company is 65%-owned by PetroGreen Energy Corporation, with Trans-Asia Oil & Energy Development Corporation owning 25%, and the government, 10%.

In March, TeaM Energy announced its partnership with the Aboitiz Group to expand the coal-fired power plant at a cost of between US$600M to US$700M. The announcement triggers certain rights for First Gen to buy into the Pagbilao expansion.

Department of Energy (DOE) Undersecretary Jay Layug said the groundbreaking demonstrates firmly the Aquino administration’s focus and resolve in working with the private sector, local governments, and other national agencies to ensure the stability of the country’s power supply and infrastructure. In a related story, the proponents of the Maibarara geothermal power project have committed to invest US$10M more to further explore the potential reserves in Batangas and Laguna. “The commitment is to drill two wells next year to determine additional capacity,” Layug said. Benchmark investment per drilling in geothermal projects costs between US$4M to US$5M, bringing

The third Pagbilao power plant will increase the available electricity in the Luzon grid by 400 megawatts (MW) in 2015.

MAJOR PROJECTS P11-B Iloilo irrigation project pushed The government is set to implement the second phase of the P11.2-B Jalaur River irrigation project in Iloilo, the largest Korea Economic Development Cooperation Fund (EDCF)-supported project. Philippine Business Report

The project, of which P8.9B of the total cost would be financed through an official development assistance (ODA) loan from the EDCF, is a groundbreaking venture in terms of scale and importance in facilitating the increase in food production and ensuring food security in the country. “The Jalaur River Multipurpose Project Phase II is one of the first batch of projects and biggest of the three irrigation projects approved by the NEDA board this year,” National Economic and Development Authority (NEDA) Deputy Director General Rolando G. Tungpalan said. The Jalaur River Multi-purpose Project Phase II involves the construction of a storage dam, a high dam, and reservoir across the Jalaur River and is expected to provide water supply to 22,340 has. of croplands. The project is also expected to increase yields of palay and other crops in the area, strengthen the region’s Irrigators Associations (IAs) and enhance community organizing activities for IAs in 9,500-ha. new irrigable areas that will be created upon project completion. The project’s implementing government agencies are the Department of Agriculture (DA) and National Irrigation Administration (NIA). MWSS lines up US$2-B water projects The Metropolitan Waterworks and Sewerage System (MWSS) is lining up about US$2B worth of water projects and programs, as it crafts a holistic water roadmap for Metro Manila and the surrounding suburbs, MWSS Chairman Ramon B. Alikpala said. The projects are a combination of big-ticket ones to be pursued via public-private partnership (PPP) and smaller projects “with investment potential” not under PPP. June 2012

The government is also considering developing a number of scalable water projects, including the Laiban dam project in Rizal, for which San Miguel Corp. had earlier submitted a proposal. Several other new water sources are being considered, including Pampanga River, Wawa River, Laiban, Laguna Lake, and even Sierra Madre. NGCP to upgrade operational capacity The National Grid Corp. of the Philippines (NGCP) will invest P355M to increase its operational capacity in a substation in Southern Luzon. The installation of additional equipment is expected to ensure efficient, stable, and reliable delivery of electrical power to its load center. Additional substation capacity will help to avert overloading of the existing transformers. The upgrade involves the installation of an additional 100-M volt-ampere transformer, nine units of 230-kilovolt (kV) and three units of 69-kV power circuit breakers, and substation accessories. The project is under NGCP’s Luzon Substation Expansion I, which includes Naga Substation and six other substations in Northern Luzon. NGCP said the Luzon Substation Expansion project aims to accommodate load growth and N-1 contingency of various substations.

COMPANY NOTES Food firm eyes 100 branches Prime Pacific Grill Incorporated (PPGI), operator of restaurant chain Gerry’s Grill, is set to boost its business with a new dine-in concept as the company aims to attain a total of 100 restaurants nationwide by 2015.

PPGI President and Chief Executive Officer (CEO) Gerry Apolinario said they planned to have at least 100 branches nationwide, a mix of Gerry’s and Kusina restaurants. Aside from the first branch in Binondo, Kusina is set to open in four more locations within the second quarter of 2012 in Cavite, Subic, Dagupan, and Cagayan de Oro. 3M Pizza plans 60 outlets Three M Golden Pizza Corp. (3M Pizza) is set to expand its network as the company aims to open more outlets from the current 44 to at least about 60 by year-end.

The company is offering franchise opportunities for Filipino entrepreneurs who are looking for a time-tested brand and concept. 3M Pizza Co-Owner Emmanuel Sun said the company is finalizing talks with a logistics provider that can deliver inventory to franchisees, which is convenient to prospective franchisees in the Visayas and Mindanao as they will not have to personally obtain their supply from the company’s headquarters in Manila. PLDT sets up third data center operations in Cebu Philippine Long Distance Telephone Company (PLDT) has started operation of its third Internet data center situated in Cebu during the second quarter of the year. The first facility was set up in Pasig City while the second one was in Subic. The data center will cater to the data and information management requirements and information and communications technology (ICT) 9

needs of businesses in the Visayas area, particularly in Cebu. Davao to host S&R Price Club’s 6th store S&R Price Club Inc. has begun issuing membership cards in Davao City and is now hiring staff for its sixth store in the country, and its first in Mindanao. S&R Marketing Officer Velinda Funelas said that the store is expected to open its doors in November, situated at the corner lot on Maa Road and MacArthur Highway. Hiring was expected to be completed last May for the Davao City crew, consisting of the management team on human resources, accounting and administration, and the sales force. S&R Price Club is formerly known S&R Membership Shopping until it was acquired by Puregold Price Club. It would retain its exclusive shopping menu for cardholders. Pepsi, Max's renew tie-up Pepsi-Cola Products Philippines, Inc. (PCPPI) and Max’s Restaurant reaffirmed their strong partnership through a third three-year exclusivity contract signed recently by ranking officials of both companies. The accord embodies a strategic marketing alliance between Pepsi and Max’s which was initially forged in 2002 when the partners signed their first three-year exclusivity contract involving canned Pepsi soft drink products and post-mix machines.

bilateral Agreement PHL, US to hike bilateral trade, investments The Philippines and the United States (US) pledged to increase bilateral trade and investment through continued discussions on their trade and investment 10

framework agreement during a joint ministerial meeting in Washington, DC. The two countries discussed economic issues and the interest of the Philippines in potentially joining the Trans-Pacific Partnership Agreement (TPPA). The US reaffirmed the Partnership for Growth Joint Statement of Principles signed in Manila last 16 November 2011 and will seek to mobilize a broad range of Philippine and US entities within and outside their governments to achieve a more accelerated, sustained, and inclusive growth path for the Philippines. TPPA is a multilateral free trade agreement (FTA) that aims to further liberalize the economies of the Asia-Pacific region. PHL, New Zealand to boost trade and investment Department of Trade and Industry (DTI) Secretary Gregory L. Domingo met with New Zealand Ambassador to the Philippines Reuben Levermore at the Board of Investments (BOI) on 13 April 2012 to further strengthen bilateral trade and investments between the two countries.

The Cooperation Agreement between the Philippine Chamber of Commerce and Industry (PCCI) and Laos National Chamber of Commerce and Industry was aimed at promoting, strengthening and expanding trade, economic, scientific, technological cooperation, and other business relations between concerned organizations and firms. A Philippines-Laos PDR Business Council is hoped to be established under the agreement between the two countries’ chambers of commerce to spur economic growth on both sides. The Philippines and Laos have been enjoying 57 years of bilateral relations. Czech, Filipino firms sign cooperation Czech Renewable Energy Alliance (CREA) Hydro & Energy, a Czech industry cluster whose members deal with construction, services, and equipment for water, and the Sta. Clara International Corporation, a Philippine company engaged with the construction of water structures, have signed a memorandum of agreement (MOA) to pursue projects in the country.

Ambassador Levermore said New Zealand companies are interested in the Philippines’ public-private partnership (PPP) program. New Zealand has a working relationship with the Philippines in regional and multilateral fora such as Asia-Pacific Economic Cooperation (APEC) and the ASEANAustralia-New Zealand Free Trade Agreement (AANZFTA) process. PHL, Laos sign 4 agreements The Philippines and Laos signed four agreements to improve bilateral relations as Laos Prime Minister Thongsing Thammavong arrived for a three-day state visit. The Philippines wants Laos businessmen to invest in agriculture, textile, mining, energy, and tourism.

The MOA was one of the highlights of the business meeting during the recent visit of Czech Republic Deputy Prime Minister and Minister of Foreign Affairs Karel Schwarzenberg. The meeting was hosted by the Philippine Chamber of Commerce and Industry (PCCI) in cooperation with the Czech Embassy-Manila and the Czech Chamber of Commerce. Malaysia keen on increasing agriculture trade with PHL Kuala Lumpur and Manila are exploring possible strategies to increase two-way agricultural trade. Philippine Business Report

home,” ADB Managing Director General Rajat Nag said. ASEAN member countries and ADB have provided initial equity of US$485M for the AIF.

The officials agreed to facilitate private-sector investments in agriculture, particularly in palm oil.

The AIF will finance approximately six projects a year with a US$75-M lending cap per project. Criteria for investments include their potential to cut poverty, increase trade, and bolster investment.

Dompok said he is particularly keen on the trade in palm oil, timber, rubber, cocoa, and tobacco, encouraging the oils and fats communities of the Philippines and Malaysia to form alliances and capitalize on the potential business within the palm and coconut oil industries.

ASEAN forms anti-crisis unit to monitor economies The ASEAN+3 Macroeconomic Research Office (AMRO) established by the Philippines and its neighbors is expected to help the countries improve their crisis-prevention ability amid a backdrop of global economic uncertainties.

Last year, Malaysia accounted for 38% of the world’s total palm oil production and 46% of total palm oil exports.

AMRO is a body formed to conduct regular surveillance of the economic performance of member-countries of the ASEAN+3, and to come up with prescriptions in case of deteriorating indicators of economic health.

ASEAN WATCH ADB launches US$485-M fund to finance ASEAN infrastructure projects The US$485-M ASEAN Infrastructure Fund (AIF), the Association of Southeast Asian Nations’ (ASEAN) largest financing initiative, is set to start operations following its board’s first meeting on the sidelines of the Asian Development Bank’s (ADB) 45th annual meeting. The AIF will finance the development of road, rail, power, water, and other critical infrastructure needs which are estimated at about US$60B a year. “This is a watershed moment for ASEAN nations working together to finance infrastructure projects that will boost trade, foster economic growth, and create more job opportunities for the half a billion people who call ASEAN June 2012

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said central bank officials of countries from the ASEAN+3 agreed to give all the resources that AMRO needs to effectively fulfill its mandate and to help the region shield itself from ill effects of shocks from other parts of the globe. AMRO will assume a surveillance function for the selected Asian countries and that is similar to what the International Monetary Fund (IMF) does for its member-countries globally. ASEAN, Japan vow to complete trade ‘road map’ Japanese and Southeast Asian ministers agreed to complete a road map by August this year to double trade in 10 years between Japan and the 10 member states of the Association of Southeast Asian Nations (ASEAN). The road map will be presented for approval at a meeting of ASEAN and Japanese economic ministers in Cambodia in August.

It will focus on areas such as liberalizing trade, harmonization of systems and narrowing development gaps. Japan also backed the Regional Comprehensive Economic Partnership (RCEP), ASEAN’s proposed pact to encourage trade and investment. The pact is envisioned to involve 16 countries – the ASEAN members and their dialogue partners, namely Australia, China, India, New Zealand, Japan, and South Korea – that host a population of more than 3B people.

On the calendar Go Negosyo The Department of Trade and Industry (DTI)-11 will host a “Go Negosyo” caravan in Tagum City, Davao Del Norte on 28 June 2012. The event will highlight business opportunities among targeted sectors. Talks showcasing established entrepreneurs to inspire and share knowledge in starting a business will be featured.

Philippine Postal Permit No. 504

Malaysia’s Minister of Plantation Industries and Commodities Tan Sri Bernard Dompok met with Department of Agriculture (DA) Secretary Proceso J. Alcala to increase the trade of a number of farm commodities between the two countries.

GNI Growth Rate (%)

Economic Indicators

GDP Growth Rate (%)

7 6 5 4 3 2 1 0

4Q (2010) 1Q (2011) 2Q (2011) 3Q (2011) 4Q (2011) 1Q (2012)

Exports (In US$Billion)

Consumer Price Index (2000 base year)

5000

130 129.5 129 128.5 128 127.5 127 126.5

4000 3000 2000 1000 0

Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12

Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12

(1994 base year)

42.5

0 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12

Interest Rate (%) 4.8 4.6

Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12

Inflation Rate (%)

Peso per US Dollar Rate 43.5

Imports (In US$Billion) 6 5 5 5 5 5 4 4

4.4 4.2 4 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12

As of 29 May 2012

3.8 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12

*GNI - Gross National Income Entered as Third-Class Mail at the Makati Central Post Office under Permit No. 504 valid until 31 December 2012

Editorial Team: Anne L. Sevilla, Editor-in-Chief • Vic S. Soriano, Managing Editor • Cresenciano P. Par, Assistant Editor • Jam A. Hourani, Ariel B. Salcedo, Elaine M. Lazaro, and Emman R. Caleon, Writers • Ren C. Neneria, Design Layout • Myrna V. de los Reyes, Circulation. Philippine Business Report is published monthly by the Trade and Industry Information Center (TIIC), Department of Trade and Industry, 2F Trade and Industry Building, 361 Sen. Gil J. Puyat Avenue, Makati City 1200, Philippines • Phone (+632) 895.3611 • Fax (+632) 895.6487 • To subscribe, e-Mail: publications@dti.gov.ph

Philippine Business Report

June 2012

Philippine Business Report