Philippine Business Report (Nov.2013) by Department of Trade and Industry

Volume 24 No. 11

November 2013

PHL gets third investment rating upgrade

Reforms under P-Noy behind robust growth United Kingdom (UK)-based global financial institution Barclays cited the reforms being implemented by the Aquino administration as one of the reasons behind the country’s robust economic growth. “With President (Aquino) remaining in power until 2016, we expect positive momentum on fiscal consolidation and an improvement in the business environment to continue supporting overall investment in the economy,” Barclays said in its Emerging Markets Quarterly report. “We expect Aquino to use his political capital to further advance Mindanao peace process,” it said. At the same time, Barclays cited the government’s efforts in improving the business environment in the country such as raising its competitiveness ranking in the World Economic Forum’s (WEF) survey.

the upgrade would make the country more attractive to foreign investors.

the Philippines as it reduces the cost of development by lowering interest rates.

Moody's Investor's Service upgraded the country’s credit rating to Baa3, becoming the last major credit rater, after Fitch Ratings and Standard & Poor’s Ratings Services, to give the country an investment grade rating.

Moody's cited the sustainability of the country's robust economic performance, ongoing fiscal and debt consolidation, and political stability and improved governance. The rating comes with a positive outlook for the Philippines.

“Foreign investors will see this as another reason to come in and help sustain the Philippines’ economic growth,” Management Association of the Philippines (MAP) President Melito S. Salazar Jr. said. On the same note, European Chamber of Commerce of the Philippines (ECCP) President Michael Raeuber said every upgraded rating helps

“In addition, the stability of the Philippines' funding conditions — during the recent bout of market volatility in emerging markets — points to the country's relative lack of vulnerability to external financial shocks, such as those arising from anticipated tapering by the (United States) Federal Reserve of its quantitative easing policy,” Moody’s said.

“The Philippines remains our preferred macro story in the region – a favorable growth/ inflation trade-off, a political environment conducive to reform, solid central bank credibility, strong external finances, and sovereign rating on a positive trajectory,” it said. Meanwhile, business groups welcomed the third investment rating upgrade received by the Philippines, saying November 2013

INDUSTRY Trends ADB, Fitch, S&P hike PHL growth forecasts The Philippines gained another vote of confidence from three global financial institutions with improved economic growth forecasts for the country this year. In separate reports, the Asian Development Bank (ADB), Fitch, and Standard & Poor’s (S&P) revised upwards their 2013 growth forecasts for the country while cutting the outlook for the rest of the emerging economies in Asia. The ADB hiked its gross domestic product (GDP) growth forecast to 7% from an earlier 6%, citing strong domestic consumption, remittances, and investments as main growth drivers. On the same note, debt watcher S&P also upgraded its forecast for the country to 7.1% from 6.9%. It said the country, along with other economies in Asia Pacific, has seen the highest growth in the world following the global financial crisis in 2008. Meanwhile, Fitch Ratings revised its 2013 Philippine GDP growth forecast to 6.2% from 5.5%. “Fitch has made a substantial upwards revision to its 2013 growth forecast for the Philippines, reflecting a pick-up in investment spending and support from resilient remittance inflows,” the credit rating firm said. The Philippine economy expanded 7.5% in the second quarter, the fastest pace recorded in Southeast Asia. It also represented a fourth consecutive quarter that the country saw a growth of more than 7% due to higher government spending and strong domestic consumption. 2

PHL growth forecasts 2013 (in %)

Institution Initial Forecast Revised Forecast S&P ADB Fitch

6.9 6.0 5.5

7.1 7.0 6.2

Domestic trade expands 4.5% The value of commodities traded within the country rose by 4.5% in the second quarter this year compared with the same period in 2012, the National Statistics Office (NSO) reported. The preliminary results of the NSO’s Commodity Flow in the Philippines report showed the total value of domestic trade went up to P146.24B in the April to June period from the P139.91B in the comparable period last year. “Trade transactions through water transport accounted for 99.3% and 99.7% in the second quarter of 2012 and 2013, respectively,” the NSO said. Domestic trade refers to the flow of commodities within the country through its water, air, and rail transport systems. Data on domestic trade serves as basis in the formulation and implementation of programs like countryside development and port planning.

Bureau of Export Trade Promotion (BETP) Director Senen M. Perlada said the DTI plans to hold 125 sessions under the Doing Business in Free Trade Areas (DBFTA) program this year, higher than the 116 sessions conducted in 2012. Last year’s total sessions were attended by 11,169 participants representing 5,833 companies. Perlada said FTAs open up a lot of opportunities for local companies in terms of increasing exports to overseas markets. The DBFTA program, which was launched in 2010, is a series of business information sessions conducted nationwide to increase exporter awareness of the country’s FTAs. Currently the Philippines has FTAs with Japan and the Association of Southeast Asian Nations (ASEAN). The country has also entered into FTAs through the ASEAN with China, Korea, India, Japan, Australia, and New Zealand. PHL seeks EU GSP+ qualification The Philippines has filed its application to qualify for the European Union (EU)’s Generalized Scheme of Preference Plus (GSP+) which would allow the country to enjoy more tariff reductions.

Among the commodities traded within the country for the period, food and live animals had the largest chunk or 28.3-% share valued at P41.40B.

DTI Undersecretary for Industry Development and Trade Policy Group (IDTPG) Adrian S. Cristobal Jr. said the DTI is consolidating all documentary requirements for the GSP+ application.

Accounting for the second biggest share at 21.3% was machinery and transport equipment worth P31.09B, followed by manufactured goods which had a 16.4-% share worth P23.94 B.

Cristobal said Philippine exports to the EU could increase by 12% once it qualifies under the scheme.

DTI to hold more FTA info sessions The Department of Trade and Industry (DTI) continues to conduct more information sessions on free trade agreements (FTAs).

In 2012, Philippine GSP exports to EU reached EUR 1.08B. “Increased exports will translate to enhanced production capacity and will generate an additional Philippine Business Report

270,000 jobs in both the agriculture and manufacturing sectors,” Cristobal said. Currently, the Philippines is a beneficiary of the regular GSP, which covers 6,209 products, with 2,442 products subject to zero duty and the rest, with lower tariffs. By qualifying for the GSP+, which has a larger coverage of 6,274 products subject to zero duty, the Philippines could benefit as more products shipped to the EU would be accorded zero tariff. Some PHL export products under GSP • Animal or vegetable fats and oils • Chemical products • Machinery and mechanical appliances • Plastic products • Prepared foodstuff • Textiles and garments

Rubber, paper industries bare roadmaps The Department of Trade and Industry (DTI) has already received the roadmaps for the domestic paper and rubber industries. The rubber industry roadmap, presented by University of the Philippines Institute for Smallscale Studies (UP-ISS) Director Leoncio Cubillas, aims to upgrade the industry’s manufacturing capabilities and technical and market standards to boost their links with local and export markets. The paper industry, on the other hand, as presented by Philippine Paper Manufacturers Association Inc. Director Ray Geganto, envisions itself to be able to serve the country’s all major pulp and papering requirements come 2020. It also plans to develop high-value, high-quality products in the long term to be competitive internationally and to be environmentally sustainable. “In the tradition of the Trade and Industry Development Updates, we have lined up November 2013

a series of stakeholder conferences to provide updates and present the complexities in the sector and significant findings of each roadmap,” DTI Undersecretary for Industry Development and Trade Policy Group (IDTPG) Adrian S. Cristobal Jr. said. Business leaders set policies for Mindanao Business leaders in Mindanao have set a policy agenda for the enhancement of the region’s competitiveness and readiness for Southeast Asian integration in 2015. “Through this policy agenda, we intend to work closely with key government agencies in attaining a seamless Mindanao economy as the country enters into free trade agreements with its fellow Association of Southeast Asian Nations (ASEAN) membernations,” 22nd Mindanao Business Conference (MinBizCon) Director John Gaisano Jr. said. The key policies were crafted from a series of consultations with nearly 250 Mindanao businessmen and organization leaders who sought for immediate and long-term solutions to the region’s economic issues and concerns. Key sectors in 22nd MinBizCon • • • • • • • •

Agriculture Energy Information and technology Tourism Small and medium enterprises Logistics and infrastructure Skills development Natural resource management

among micro, small, and medium enterprises (MSMEs) besides achieving affordable and reliable power supply. For his part, Davao City Chamber of Commerce and Industry President Daniel Lim said the island-region also needs to enhance its infrastructure and logistics support in key production areas. During the conference, President Benigno S. Aquino III announced that the Department of Public Works and Highways (DPWH) has so far allocated P61.54B for road, bridge, and other infrastructure projects in Mindanao for 2011 to 2014. The amount is expected to increase with the proposal of P34.29B for the 2014 budget. Solar rooftop sector growing in PHL The solar rooftop industry is expanding in the Philippines, with the players preparing on net metering which allows end-users to produce their own electricity to sell to the grid for their unused capacity. Philippine Solar Power Alliance (PSPA) President Tetchi CruzCapellan said aggregate rooftop installations in the country already reached 2.5 megawatts (MW) which could go up to 5 MW until the end of the year. The focus is on moving toward projects that could qualify under net metering or those solar-installed capacities of 100 kilowatts (kW) and below.

Key policies in 22nd MinBizCon • Amendments to the Cabotage Law to reduce transport cost of products coming from Mindanao • Improvement of tourism infrastructure • Addressing of jobs and skills mismatch • Amendment to the tariff and customs code of the Philippines • Policy framework for responsible and sustainable mining practices

Gaisano said Mindanao needs to improve on its financing

Trade and INVESTMENTS AUTOMOTIVE Temic expands auto supply plants Continental Temic Electronics Philippines Inc., expects revenues to double over the next five years 3

to EUR 1B as it expands its manufacturing operation in the country. “We’re planning to introduce a new manufacturing line for our plant here in the Philippines. Sophisticated systems of radar and camera technology may be introduced in 2014,” Temic President Devlev Von Ramm said. The company also planned to bring the technology to build crash protection system for the automotive industry in the country.

AVIATION EEI bags P1.7-B air traffic surveillance contracts EEI Corp. recently won two air control projects with a combined value of P1.7B. EEI has resumed the Department of Transportation and Communications (DOTC) Communication, Navigation and Surveillance/Air Traffic Management (CNS/ATM) Systems Development construction under Sumitomo Corp. The first package is worth around P700M while the second is worth around P1.2B. PAL expands fleet Philippine Airlines (PAL) is seen to capitalize on the increasing air passenger traffic in the Asia Pacific region with its fleet buildup program, European aircraft manufacturer Airbus said. The annual volume of Asia Pacific’s passenger traffic is expected to soar 200% in the next 20 years, further expanding its air traffic lead to a 34-% share in 2032 from 29% last year. Factors contributing to Asia Pacific’s increasing air passenger traffic • Economic growth • Increasing accessibility of air transport services • Ease of travel • Migration 4

PAL has already ordered 64 Airbus aircraft worth around USD 10B, consisting of 44 single-aisle A321s and 20 wide-body A330-300s. This is part of the airline’s massive refleeting program aimed at restoring its financial health and reclaiming dominance of its local market.

the expansion of Philippine Airlines (PAL), SMC President Ramon S. Ang said.

PAL received the first of its new fleet of A330s last September and will get five more before the year ends.

The investment is a follow-up to the conglomerate’s initial USD 500M last April 2012 that allowed it to get a 49-% stake in PAL. Trustmark Holdings and affiliate Zuma Holdings own PAL Holdings and sister airline PAL Express.

Cebu Pacific eyes more PHL hubs Cebu Air Inc., operator of low-cost carrier Cebu Pacific, is looking at increasing the number of its hubs in the Philippines to cope up with increasing demand for air travel in and out of the country. The airline is set to establish more hubs in the country as it is in the midst of a USD 4-B refleeting program covering the acquisition of 49 new Airbus aircraft over the next nine years, Cebu Pacific President Lance Y. Gokongwei said. The airline reported that volume of passengers serviced by its hub in Iloilo jumped 33% while that of Cebu, through the Mactan Cebu International Airport, increased 15% in the first eight months of the year. AirAsia, ZestAir launch rebranded airline Sister firms AirAsia Inc. Philippines and Zest Airways Inc. have launched a rebranded airline known as “AirAsia Zest” less than a year after the two airlines announced their strategic allegiance. “With our alliance, we are well positioned to offer our guests the strength of our combined network of domestic and international routes and unrivalled daily low fares, proving a world class travel experience that every Filipino deserves,” AirAsia Vice Chairman Michael L. Romero said. SMC to spend USD 500M in plane-leasing firm San Miguel Corporation (SMC) plans to invest USD 500M in an aircraftleasing company to support

“We intend to come up with another USD 500-M equity for the aircraft-leasing company that will be 100-% owned by PAL,” Ang said.

BANKING RCBC, 2 Japanese banks tie up Rizal Commercial Banking Corp. (RCBC) has tied up with Saitama Resona Bank Ltd. and Kinki Osaka Bank Ltd. to give more financial assistance to Japanese small and medium enterprises (SMEs) in the Philippines. Both banks are members of Japan’s Resona Holdings Inc. Aside from providing financial services to Japanese SMEs, the banks will also help those planning to invest in any Southeast Asian country. “The Philippines is seen as the perfect venue for potentially greater investments by Japanese companies given its stable economy, strong domestic consumption, as well as a more cost-effective, English-speaking labor force,” RCBC said.

ENERGY Shell bullish on Batangas LNG facility Royal Dutch Shell Plc is optimistic on the viability of its planned liquefied natural gas (LNG) import facility in Batangas. Shell Executive Vice President for Integrated Gas Maarten Wetselaar also expressed optimism that the government will be able to put up the 105-km Batangas-Manila (BatMan) natural gas pipeline. Philippine Business Report

But even without the pipeline, Wetselaar said there are also power plants that would be built within the vicinity that could provide a case for an LNG terminal. He said Shell may import the LNG from Asia or Africa or wherever there is enough supply. Department of Energy (DOE) Secretary Carlos Jericho L. Petilla earlier urged Shell and First Gen Corp. to explore possible supply partnerships that could be critical in jumpstarting the country’s LNG industry. Initially, a 105-km transmission pipeline under the BatMan natural gas pipeline project would be constructed to transport and supply natural gas to targeted markets located along its route from Batangas, Laguna, Cavite, and eventually to Metro Manila. Included in the project is the construction of a LNG receiving plant and the installation of compressor stations, metering stations, valves and control stations. Otto Energy completes drilling of 2 Galoc wells Otto Energy Ltd. of Australia, operator of the Galoc oil field, has recently completed the drilling of two wells in northwest Palawan.

Otto said the planned upgrades to the floating, production, storage and offloading vessel Rubicon Intrepid, which will process the additional production, had also been successfully completed as scheduled. Aboitiz to drill more wells Aboitiz Power Corp. is looking at reaching an agreement with the Philippine Geothermal Production Company Inc. within the year to drill additional wells to increase the steam supply of the Tiwi-MakBan geothermal facilities in Albay and Laguna. Aboitiz Power operates the TiwiMakBan power plant complex, while Philippine Geothermal, a joint venture between Chevron Geothermal Inc. and SM Investments Corp., runs the steam fields. Aboitiz Power, through subsidiary AP Renewables Inc., acquired the Tiwi-MakBan geothermal plants through a bidding in 2008 for USD 446.89M.

GREEN PROJECTS Company pushes P2.5-B wind project Local firm Philippine Hybrid Energy Systems, Inc. (PHESI) is moving ahead with the implementation of the P2.5-B first phase of its wind power project in Puerto Galera, Mindoro. The proposed wind power facility will kick off with 16-megawatt (MW) capacity. Essentially, it will be a three-phased development reaching total installed capacity of 48MW.

“Data recorded during drilling show high reservoir permeability in both wells, which suggests good production deliverability will be achieved,” the company said.

The developer’s move into construction came after it secured its confirmation of commerciality (CoC) from the Department of Energy (DOE).

The Galoc-5H and Galoc-6H development wells are being drilled within the existing producing field that has delivered over 10M barrels of oil since it was commissioned in 2008.

The project’s corporate vehicle PHESI has noted that it will be pursuing the wind facility in partnership with Berkeley Energy, a Dutch-registered company.

November 2013

The company said construction already started and it will take 18 months to bring it to completion and eventual commercial commissioning. “The project is expected to be completed early 2015, 10 months ahead of the December 2015 previous target date,” PHESI reported. New wind power project to rise in Mindoro Renewable energy resource developer PhilCarbon Inc. is set to construct a 33.4-megawatt (MW) wind power project in Bulalacao, Oriental Mindoro. The wind farm is currently in its pre-development stage and the facilities for it, including its power plant, would start construction in 2016, PhilCarbon Inc. President Ruth Y. Owen said. According to Owen, the wind power project will cost P3.4B and is estimated to generate 73.15 gigawatt-hour (GWh) of power annually. Guimaras wind project gets P600M Trans-Asia Oil and Energy Development Corp. (EDC) said it disbursed P600M to partially finance the construction of the 54-megawatt (MW) wind power project in San Lorenzo, Guimaras. The Department of Energy (DOE) earlier issued a declaration of commerciality to Trans-Asia Renewable Energy Corp., a unit of Trans-Asia Oil for the P6.3-B Guimaras wind project. Trans-Asia said the department would determine the project’s eligibility to avail of the feed-in tariff upon project commissioning and affirmation of the start of commercial operations. Trans-Asia expects to start construction of the wind farm project within the year. 5

BOI okays perks for first green building in CDO Green energy company Italpinas Euroasian Design and EcoDevelopment Corp. (ITPI), an Italian-Filipino joint venture, has received project perks from the Board of Investment (BOI) under the Investment Priorities Plan (IPP). The BOI approval is for Tower B of Primavera Residences, the first eco-friendly and selfsustaining condominium in Cagayan de Oro City, the company said. Primavera Residences is composed of two 10-storey towers located in Pueblo de Oro Business Park in uptown Cagayan de Oro City. The second tower is set to finish construction in 2014 and will have 166 residential and commercial units. DOE clears 26 renewable energy projects The Department of Energy (DOE) has issued permits to 26 renewable energy (RE) projects with a total capacity of 669.15 megawatts (MW), allowing them to proceed with construction. DOE-approved energy projects • 6 wind projects with a total capacity of 389.50MW • 12 hydro projects with 153.35MW • 3 solar projects with a combined capacity of 80MW • 5 biomass projects with combined capacity of 46.30MW

“We’re still on a first-come, firstserved basis,” Renewable Energy Management Bureau Director Mario C. Marasigan said. Marasigan said among the RE projects, wind and solar projects were currently oversubscribed. “They are expanding their capacities for wind…We believe that…especially for wind, the investment is very good,” he said. Gov’t renews permit of Aboitiz hydro unit The Energy Regulatory Commission (ERC) renewed the certificate 6

of compliance (CoC) of Luzon Hydro Corp., a unit of Aboitiz Power Corp., for another five years, allowing the company to supply clean and renewable energy to the Luzon grid.

Department of Transportation and Communications (DOTC) Secretary Joseph Emilio Abaya said President Benigno S. Aquino III has approved the contract for the Stage 3 project of the Metro Manila Skyway.

The company said the grant of the compliance certificate means Luzon Hydro complied with the environmental, technical, and financial standards set forth by ERC.

The 14.2-km road system would provide around 6,000 direct jobs and additional indirect jobs of around 10,000 during construction. Preparatory and advance works would start before the end of the year.

The 70-megawatt (MW) Bakun AC is a run-of-river hydropower plant situated in Alilem, Ilocos Sur that harnesses the natural flow of the Bakun-Kayapa rivers to generate electricity. Asea One eyes 60-MW biomass capacity Asea One Power Corporation is ramping up its investments in biomass facilities to reach 60 megawatts (MW) of aggregate capacity. The kick-off project for Asea One Power will be for 12MW for a facility in Aklan which will command an investment of USD 37M. After that, it will move forward with other scoured areas on investments. “One good thing about biomass is it is the only renewable energy that is baseload — one that can run 24 hours, seven days a week — and of higher efficiency, compared with solar and wind,” Asea One Power Senior Vice President and Chief Finance Officer (CFO) Ernesto Tan said.

INFRASTRUCTURE/ PUBLIC-PRIVATE PARTNERSHIP NLEX-SLEX connector road contract gets green light Citra Central Expressway Corp. of San Miguel Corp. (SMC) was given the green light to start the construction of the P26.5-B expressway that will connect South Luzon Expressway (SLEX) and North Luzon Expressway (NLEX).

Abaya said the first section of the expressway from Buendia to Nagtahan could be opened to traffic by early 2016. Construction of P7.2-B Clark terminal starts next year Construction of the proposed P7.2-B low-cost carrier terminal at the Clark International Airport is expected to kick off in the second quarter of next year. President and Chief Executive Officer (CEO) of Clark International Airport Corp. (CIAC) Victor Jose Luciano said construction of the budget terminal would take two years and would be completed by the second quarter of 2016. San Miguel Corp. (SMC) and Metro Pacific Investments Corp. (MPIC) earlier offered to fund the construction of a new passenger terminal in the former US military airbase. Luciano added that Aeroport de Paris of France has offered to conduct the detailed and design study for the proposed passenger terminal. Manila Water begins P300-M sewage project Manila Water Company Inc. broke ground for the P300-M Marikina North wastewater priority segment project to benefit more than 400,000 Marikina City and San Mateo, Rizal residents. The project was currently using the micro tunnelling or trenchless methodology to minimize the project’s traffic impact, Manila Philippine Business Report

Water Project Delivery Group (PDG) Officer-in-Charge (OIC) Estelita C. Orodio said. Maynilad starts P225-M Bacoor pipe-laying project Maynilad Water Services Inc. has started its P225-M pipe-laying activities covering a total of 33 km. in Molino, Mambog, Niog, and Tirona Roads in Bacoor, Cavite. The new pipes will provide safe, potable water to around 7,000 households once completed by the end-year.

The submarine cable has one of the highest capacities worldwide addressing bandwidth-intensive applications spanning almost 9,000 km. CIAC inks agreement with ADP Clark International Airport Corporation (CIAC) is set to sign an agreement with Aeroports de Paris (ADP) of France to finance a feasibility study for a proposed budget terminal. The Department of Transportation and Communications (DOTC) is also studying plans for the proposed P7.2-B terminal at the airport. The terminal is designed to accommodate 10M-15M passengers annually once operational.

Ayala Land keen on P800-M Makati BRT project Ayala Land Inc. (ALI) is keen on pursuing the P800-M bus rapid transit (BRT) project in the Makati central business district (CBD). ALI is just waiting for government approval to build up to six underground BRT stations that would link the Metro Rail Transit (MRT-3), Light Rail Transit (LRT) Line 1, and Philippine National Railways (PNR). ICT, BPO sectors to benefit from new submarine cable Globe Telecom Inc. has launched a USD 400-M Pan-Asian submarine cable system to benefit Philippines’ information and communications technology (ICT) and business process outsourcing (BPO) industries. Globe’s participation in the South-East Asia Japan Cable (SJC) system is expected to improve the overall country’s competitiveness to achieve economic stability, positioning it at par with the most technologically advanced countries in the world, Globe Telecom Chairman Jaime Augusto Zobel de Ayala said. November 2013

Meanwhile, the CIAC management was preparing for the P360-M passenger terminal expansion which could accommodate at least 5M passengers annually once it is completed, CIAC President Victor Jose Luciano said.

MANUFACTURING RC Cola opens Cebu bottling plant Asiawide Refreshments Corporation (ARC), the licensed Philippine bottler of RC Cola, expects to better serve their growing consumer base in Cebu now that they have expanded operations in the province. “The company’s engagement in the province will enable us to align the Visayas market with the growth of Asiawide and RC Cola in other areas,” ARC Executive Vice President and Chief Operating Officer (COO) Gerry T. Garcia said. Garcia said Cebu will be considered as an investment market and ARC in Luzon can re-channel part of its manpower and equipment there as needed.

MASS HOUSING PHINMA Properties, QC partner on a housing project PHINMA Properties Holdings Corporation has partnered with the Quezon City government for a socialized housing project in Novaliches. Bistekville II, a 4.4-ha property, was put up to respond to the call of delivering adequate, affordable, and decent housing especially to the underprivileged family-beneficiaries. A typical unit has 27-sqm lot area that would only cost P2,500 per month with up to 30 years to pay through Home Mutual Development Fund (HMDF) or Pag-IBIG housing loan package.

MOTOR VEHICLES Japan firm to invest P4.4B for e-trikes BEET Philippine Inc. has committed to invest P4.4B and produce an initial batch of 5,000 electronic tricycles (e-trikes), which are expected to be commercially available by April 2014. The company, which is also planning to hire 1,000 employees, recently registered its first e-trike with the Land Transportation Office (LTO). The company is planning to produce 150,000 e-trikes in the country within the next five years. Volkswagen reestablishes presence in PHL market German automotive brand Volkswagen is looking to reconnect with the Filipino consumer market amid the country’s rising demand for vehicles. “Our come back to the Philippines is important to us. The car industry is growing here,” Volkswagen President for Commercial Operations of Greater China and the Association of Southeast Asian Nations (ASEAN) Weiming Soh said. 7

Automobile Central Enterprise, Inc., (ACEI) has been appointed as the Volkswagen cars’ official distributor.

The plant is anticipated to begin power generation within the year and provide electricity to cooperatives in the area.

from Toshiba and were targeted to be installed to Unit 2 by the fourth quarter of 2014 and to Unit 1 in the first quarter of 2015.

Isuzu invests P100M to boost D-Max production line Isuzu Philippines Corp. (IPC) is investing between P60M up to P100M to enhance its local production assembly line as it intends to manufacture the new D-Max pick-up.

While PAVI provided equity, the company’s joint venture partner would oversee plant operations and maintenance.

Meanwhile, a part of Unit 2 is being repaired and re-certified in Indonesia and is expected to be re-installed by the second quarter of 2014 to act as an interim solution.

The new D-Max was the first full-model change in 10 years, after the old model was introduced in 2003, Isuzu Philippines Vice President (VP) Takashi Tomita said. Isuzu will start producing the D-Max line in the Philippines next year, with an initial production target of 4,000 units.

The Energy Regulatory Commission (ERC) has given PAVI’s Retail Electricity Supplier (RES) unit, Kratos RES, Inc., a retail electricity supplier license valid for five years. Alsons Iligan power plant fully operational Alsons Consolidated Resources, Inc. (ACR) subsidiary Mapalad Power Corporation’s 98-megawatt (MW) diesel power plant in Iligan has been rehabilitated and started power generation at full capacity.

POWER

“We saw that the original transformer was showing signs of deterioration so we expedited the installation,” NGCP Spokesperson Cynthia D. Perez-Alabanza said. Based on NGCP’s 2012 Transmission Development Plan (TDP), the company expects a 2-% annual growth of customers in Batangas in the next five years. Villar group enters power sector Villar Group of Companies’ holding firm, Prime Asset Ventures Inc. (PAVI), is preparing to venture into power generation with plans of building a 6.5-megawatt (MW) diesel-fired power plant in the Visayas. 8

Siemens eyes off-grid RE projects Germany-based Siemens AG had spoken to two local independent power producers (IPP) and was discussing with developers, through its Philippine subsidiary Siemens, Inc., prospects of renewable energy (RE) and hybrid power projects mostly in off-grid areas. Hybrid power projects will combine diesel plants to RE sources seen to reduce emission and fuel expenditure by 60%, and also save on logistics and transportation costs.

NGCP completes 300-MVA transformer in Batangas The National Grid Corporation of the Philippines (NGCP) completed the installation of a new 300-megavolt ampere (MVA) transformer at its substation in Batangas City. NGCP fast-tracked the project, which was originally set to be energized in December 2013, to address the upcoming increase in the power requirement of the province.

Returning the BacMan plant to full operation is estimated to cost USD 100M, EDC said.

The Alcantara Group that owns majority of ACR allocated P1.2B to acquire and prepare the 20-year-old Mapalad plant for renewed operations. Plant rehabilitation started last March where 18 diesel engines were repaired. The plant is seen to alleviate power shortages in Mindanao and help the Alcantara Group reach its target of increasing power generation capacity to 436MW by 2016. EDC upgrades BacMan plant The Energy Development Corporation (EDC) has ordered new equipment to replace damaged parts of Units 1 and 2 of its BaconManito (BacMan) geothermal plant in Albay. The equipment needed include a turbine rotor and diaphragms, which were already ordered

Siemens is primarily looking at pairing solar energy to diesel plants in the country, though other forms of RE are also considered. Marubeni joins Pagbilao plant expansion The engineering, procurement, and construction (EPC) contract for the 400-megawatt (MW) expansion of the 700-MW Pagbilao coal-fired power plant in Quezon is already in the works with Japan-based Marubeni Corporation. Arrangements for the project’s EPC contract and financing are anticipated to be finalized within the year. Construction will immediately start after contract signing and is expected to be completed by late 2016 to early 2017. The expansion is estimated to cost around USD 700M with 70% to be funded through local bank loans and 30% through equity. Philippine Business Report

The plant is run under a buildoperate-transfer (BOT) contract between the government and Marubeni and Tokyo Electric Power Corporation joint venture TeaM Energy. Aboitiz eyes Magat plant expansion SN Aboitiz Power (SNAP) awaits the Department of Energy’s (DOE) approval of its renewable energy (RE) service contract to begin expansion on the 360-megawatt (MW) Magat hydropower plant. The expansion would add 115MW to the plant located at the border of Ifugao and Isabela. SNAP also applied for the construction of five small-scale hydropower plants with 50MW total capacity. Meanwhile, the company completed rehabilitation of the Binga hydropower plant in Benguet that began in 2010. SNAP is a 50-50 joint venture of Norway-based SN Power and AboitizPower.

REAL ESTATE SM proposes P54.5-B reclamation project in Pasay SM Land Inc. submitted an unsolicited proposal for a P54.5-B reclamation and development project to the Pasay City government Public-Private Partnership Selection Committee (PPP-SC). The project, which will be fully financed by SM Land, will have 300 ha. of foreshore and offshore areas of Manila Bay in the western part of Pasay. Under the unsolicited proposal and invitation for competing proposals, the project will be a jointventure with the city government which will be allocated with 153 ha or 51% of the reclaimed area including roads and open spaces. SM Land proposed that the project would be completed in seven years November 2013

from the issuance of the notice to proceed by the city government. SPPI to develop industrial estate in Batangas The Investment & Capital Corporation of the Philippines (ICCP) Group’s Science Park of the Philippines Inc. (SPPI) is planning to develop the Light Industry and Science Park IV in Malvar, Batangas in response to growing investor interest of bringing manufacturing operations to the Philippines. The Philippine Economic Zone Authority (PEZA) has approved registration for the P4-B industrial park. The 260-ha project is targeted to be completed in two to three years. Of the total area, 60 has would be allocated for residential and commercial use and 200 has will be for the industrial park to be located alongside the Southern Tagalog Arterial Road (STAR) expressway.

RESEARCH AND DEVELOPMENT STI completes WNU acquisition STI Education Systems Holdings Inc. (STI) is now into basic education and graduate school services as it has completed the West Negros University Corp. (WNU) acquisition. The company acquired the shares constituting 99.45% and 99.93% of the WNU issued and outstanding common and preferred stock. WNU offers pre-elementary, elementary, secondary and tertiary education, and graduate courses. Malampaya HSSE Training Center opened The Malampaya Deep Water Gas-to-Power Project opened the Malampaya HSSE (Health, Safety, Security, and Environment) Training Center in Clark Freeport Zone, Pampanga.

The facility offers world-class training on HSSE to equip local workers with competencies necessary to execute fabrication yard and offshore work for Malampaya Phase 3 (MP3) efficiently. Malampaya Gas Project is one of the country’s premier ventures in addressing energy security, Department of Energy (DOE) Secretary Carlos Jericho L. Petilla said.

RETAIL Villar group harmonizes retail business The Villar group restructures its business to unite its retail properties under the newly established MBV Retail Holdings with P1B capital. Its retail establishments will be synchronized into the “All Group” in efforts to boost the company’s retail portfolio. MBV’s convenience store chain will be rebranded from Finds to All Day and is anticipated to add 20 stores to its existing 80 before the year ends, and expected to double in number next year. Five small outlets of the company’s All Home hardware store are planned to open within the year and four bigger outlets are targeted for 2014. Meanwhile, expansion of the firm’s department stores will be in sync with that of Villar group’s Starmalls.

SHIPPING Asian Marine adds international routes Asian Marine Transport Corp. expanded its roll-on roll off (RORO) operations for Association of Southeast Asian Nations (ASEAN) routes.

Asian Marine inaugurated its ASEAN connectivity with the recent voyage from Davao and General Santos City to Bitung and Manado City in Indonesia. Another route planned to be launched by 2015 will connect Batangas to Humen Port in Guangdong, China and Da Nang Port in Viet Nam. The expansion is seen to boost revenues from P800M posted in 2012 to P1.5B or P2B next year.

TELECOM Globe completes fiber optic Palawan connection Globe Telecom completed its 400-km underwater fiber optic cable system connecting Palawan to the rest of Luzon. The Palawan cable system uses dense wave division multiplexing (DWDM) system enabling high-speed internet connection and stronger telecommunications network. The system’s overall transmission capacity is 19.2Tbps and can transmit 40 wavelengths at 40Gbps capacity per fiber pair upgradable to 100Gbps. Palawan’s fiber optic backbone is part of Globe’s USD 700-M network transformation initiative that includes nationwide roll-out of 12,000-km optical fiber lines.

COMPANY NOTES Puregold extends expansion Puregold Price Club Inc. extended its rapid expansion program from three years to five. Puregold will open at least 25 new stores annually, mostly Puregold Hypermarkets, in its rapid expansion program. “We generate about P3.5B to P4B in cash annually. That’s why we 10

are targeting a minimum of 25 stores annually because those 25 stores will require P3-B capital expenditures,” Puregold Investor Relations Officer Jimmy F. P. Perez said. The expansion is focused outside Metro Manila with only three of 35 new stores to be opened located in Metro Manila. The company reached 192 stores as of June with 21 new Puregold and S&R stores, as well as obtaining 15 stores following acquisition of Company E Corp. Net sales growth of 30% or around P75B is targeted by the company this year, from last year’s P57.5B. Puregold distribution of 35 new stores for 2013 • • • •

Metro Manila – 3 Northern Luzon – 14 Southern Luzon – 14 Mindanao – 4

Company performance Net income Net sales Cost of sales *First semester

2012 P1.03B P23.27B P19.59N

2013* P1.77B (71.5%) P33.01B (42%) P27.23B (39%)

URC raises USD 150M capex for 2014 Aiming to become a major player with strong brands in Southeast Asia, food and beverage firm Universal Robina Corp. (URC) raised its 2014 capital expenditure (capex) to USD 150M from USD 120M in the past three years. The company is investing heavily to maintain its lead in the Philippine market and fortify its position in the Association of Southeast Asian Nations (ASEAN). In the next six months, URC will introduce its biscuits and confectionary in Myanmar, according to URC Vice President for Corporate Planning and Investor Relations Chief Michael Liwanag.

Greenergy expands into agri-tourism, IT Greenergy Holdings Inc. invested in agri-tourism and information technology (IT) services to increase its income base that currently includes renewable energy (RE) and waste management projects. Greenergy bought 20-% stake in Sunchamp Real Estate Development Corp. for P55M while it executed a binding term sheet for acquiring 25-% equity interest in IT Group Inc. “The final terms and conditions of the foregoing investments shall be subject to the results of the due diligence to be conducted by the company,” Greenergy said.

bilateral Agreement PHL, Chile expand bilateral trade The Philippines and Chile agreed to expand their bilateral trade particularly in the fruit trading field. “We are continuing to create higher value-added exports to supply the requirements of our partner countries as we also elevate our standards for agri-imports,” Philippine Exporters Confederation Inc. Trustee Roberto Amores said. Chile can supply the country with excellent quality fruits such as kiwis, plums, peaches, cherries, and pears. PHL, China ink investment pact The Philippines, through the Philippine Investment Promotions Plan Steering Committee (PIPP-SC), has signed a pact with China-Association of Southeast Asian Nations Business Council (CABC) to expand the two countries’ investment and cooperation. The contract is based on the equality and mutual benefit Philippine Business Report

Both parties also agreed to promote mutual investments by facilitating exchanges among investment promotion agencies (IPAs) and CABC-member industry associations. Likewise, the agreement is expected to encourage the higher education institutions’ participation in investment facilitation events, exhibitions, and conduct joint research and development efforts. PHL-Japan trade ties remain strong Participants to the recent Sub-Committee on the Improvement of Business Environment under the Philippines-Japan Economic Partnership Agreement (PJEPA) meeting talked about the improvements in the Philippines’ business environment. The Philippines and Japan welcomed strengthening strategic ties which highlighted the recent visits of Japan’s high-ranking officials that included Japan Prime Minister Shinzo Abe. In 2013’s second quarter, Japan was the second-largest investor in the country with P4.2B. “The dialogues between the Philippines and Japan are ensuring transparent, predictable, and consistent business environment through the concrete progress made in resolving specific issues,” according to the Japanese Embassy in Manila.

ASEAN WATCH PHL eyes FTA with EFTA The Philippines is looking into a possible free trade agreement (FTA) with the European Free Trade Association (EFTA) which groups November 2013

Iceland, Liechtenstein, Norway, and Switzerland. In 2011, EFTA started to express their interest into a free trade deal with the Philippines. The country plans to begin technical discussions for the potential FTA with the EFTA within the year, probably this month, Department of Trade and Industry (DTI) Undersecretary for Industry Development and Trade Policy Group (IDTPG) Adrian S. Cristobal Jr. said. Asian toy industry expects 4%-6% growth The traditional Asian toy industry, including the Philippines, is expected to develop between 4%-6% in the next five to 10 years as higher incomes lead to a robust consumption in the region. Asia is seen to be among the fastest growing markets for traditional toys due to the region’s positive economic prospects. “As we see higher social level and incomes, people in the region will consume more and will buy more toys,” Spielwarenmesse eG Chief Executive Officer (CEO) Ernst Kick said. The traditional toys’ demand is still expected to remain for they are seen to help in children’s development.

On the calendar Putting Your Business Online (e-Marketing) Promote and sell products or services online. Participants will learn the benefits of building their own company website where customers can reach them online. It will be held on December 4, 2013 at the Philippine Trade Training Center (PTTC) with a registration fee of P250.

Current Good Manufacturing Practices Current Good Manufacturing Practices (cGMP) is a three-day workshop that will teach attendees to adopt good manufacturing practices (GMP). They will also learn how to avoid complaints from internal and external customers and gain knowledge on international requirements for cGMP. The workshop will be held on December 4–6, 2013 at the PTTC with an enrolment fee of P3,000. Problem Solving and Decision Making Techniques Problem Solving and Decision Making Techniques seminar will provide attendees the information about a systematic approach to problem solving and decision making process. The two-day seminar will be held on December 12–13, 2013 at the PTTC with P2,500 registration fee. Marketing and Business Advertising Strategy Marketing and Business Advertising Strategy training will teach participants the importance of Setting the Product and Branding Strategy and Design and Manage Services. Also, integral topics from Brand Decisions, Packaging, and Labelling, Nature of Services, to Advertising Philosophies, and Strategies will be discussed. PTTC will serve as the training’s venue on December 5, 2013. Registration fee is P2,000.

Philippine Postal Permit No. 504

principle and win-win cooperation for both countries, PIPP-SC Chairman Arnel Paciano D. Casanova said.

Economic Indicators

GNI Growth Rate (%) 10

2 0

1Q (2012) 2Q (2012) 3Q (2012) 4Q (2012) 1Q (2013) 2Q (2013)

Exports

Consumer Price Index (2000 base year)

136 135 134 133 132 131 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

(In USD Billion)

6000 5000 4000 3000 2000 1000 0

As of November 12, 2013

5,400 5,000 4,800 4,600 4,400

Inflation Rate (%) (1994 base year)

4 3 2 1 0

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13

Imports (In USD Billion)

5,200

Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13

Peso per US Dollar Rate 44.5 44 43.5 43 42.5 42 41.5 41

GDP Growth Rate (%)

May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13

Interest Rate (%) 6 5 4 3 2 1 0

As of November 12, 2013

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13

*GNI - Gross National Income Entered as Third-Class Mail at the Makati Central Post Office under Permit No. 504 valid until 31 December 2013

Editorial Team: Anne L. Sevilla, Editor-in-Chief • Vic S. Soriano, Managing Editor • Cresenciano P. Par, Assistant Editor • Jam H. Raposon, Hazel S. Dizon, Joanna D. Cruz, Airiz A. Casta, Kit S. Andaya, Writers • Ren C. Neneria, Design Layout • Myrna V. de los Reyes, Circulation. 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 • Online: http://www.dti.gov.ph/dti/index.php?p=116

Philippine Business Report November 2013

Philippine Business Report