Philippine Business Report (Feb.2014) by Department of Trade and Industry

February 2014

Volume 25 No. 02

PHL investment magnet in ASEAN — JETRO The Philippines is becoming the main destination of Japanese investments in Southeast Asia, a survey by the Japan External Trade Organization (JETRO) showed. Though lagging behind Association of Southeast Asian Nations (ASEAN) neighbors in attracting Japanese investments in the past, the country has emerged strong with the recent robust economic developments in the Philippines brought about by sound economic fundamentals laid out by the government. Statistics showed that prospects for the country “will continue in a high level,” JETRO’s Director of the Overseas Research Department (Asia and Oceana) Isamu Wakamatsu said. Wakamatsu’s observations echoed a separate survey conducted last year on Japanese expatriates which rated business challenges in Asia. While other Southeast Asian countries face a number of challenges, only two main constraints in the Philippines cropped up in the survey, specifically difficulty in local procurement of raw materials and lack of employee performance. JETRO is a government-related organization that promotes mutual trade and investment between Japan and the rest of the world. February 2014

Issues faced by Japanese investments in ASEAN JETRO Survey 2013 Philippines - Difficulty in local procurement of raw materials - Lack of employee performance Malaysia - Wage increase - Operational costs - Quality of employees Thailand - Wage increase - Competitors’ market share are growing - Lack of employee performance - Difficulty in hiring executive staff - High prices

Indonesia - Wage issues - Competition - Difficulty in hiring qualified staff - Quality of employees Viet Nam - Wage increase - Lack of raw materials - Red tape - Legal problems - Tax procedures - Lack of quality potential investments

INDUSTRY Trends PEZA investments rise Investment projects approved by the Philippine Economic Zone Authority (PEZA) in the January to November period last year rose by 15.29% to 626 projects from the 543 recorded in the same period a year ago. These projects translated to investments worth P210.9B, up by 72.16% from 2012’s P122.52B. Data showed that manufacturing projects, particularly in the electronics sector, comprised the majority of the committed investments. PEZA Director-General Lilia B. de Lima said the agency aims to surpass 2012’s record of P311.9B in committed projects. PEZA operates four public economic zones and oversees around 300 privately operated economic zones. PPP Center eyes 50 projects The Public-Private Partnership (PPP) Center is targeting a minimum of 50 projects in various stages of progress by 2016. Some PPP Projects

• Daang Hari-South Luzon Expressway Link Road • PPP School Infrastructure Project Phase (PSIP) 1 and 2 • Ninoy Aquino International Airport (NAIA) Expressway Phase 2 • Automated Fare Collection System (AFCS) • Integrated Transport System • Modernization of the Philippine Orthopedic Center (MPOC) PPP Center Executive Director Cosette V. Canilao said the 50 targeted projects in the pipeline would include at least 15 PPP contracts signed, 10 infrastructure projects handed over to private sector 2

for operation and maintenance, and seven projects completed.

or 8.2% of the 38.18M working individuals in the Philippines.

The PPP Center said the target is to finish seven projects by the end of President Benigno S. Aquino III’s term.

Residential condo supply seen peaking this year The supply of residential condominiums in the Philippines will likely peak this year, according to property consulting firm Jones Lang Lasalle (JLL).

The targeted 50 signed projects by 2016 would cost an estimated P222B. Canilao said the government raised total revenue of P27.4B for the four awarded projects, which include the Mactan-Cebu International Airport (MCIA), P14.4B; NAIA Expressway worth P11B; AFCS, P1.9B; and Daang Hari, P902M. Factory output up The country’s factory output grew by 16.3% in September last year, the fastest recorded since May, brought about by the three-digit increases in the production of chemical products and furniture and fixtures. Monthly Integrated Survey of Selected Industries September 2013 (in %)

Sectors

Chemical Furniture and fixtures Leather Tobacco Basic metals Wood and wood products Publishing and printing Rubber and plastic

Growth 173.3 167.9 43.0 34.4 21.8 13.3 11.4 10.1

The latest Monthly Integrated Survey of Selected Industries (MISSI) showed that manufacturing output in September grew faster than the 9.8-% growth recorded in the same period last year. The expansion in the volume of production for the said month was supported by the growth in chemical products and furniture and fixtures, which registered growths of 173.3% and 167.9%, respectively. Based on the labor force survey by the National Statistics Office (NSO) for July 2013, the manufacturing sector employed 3.14M Filipinos

“A glut won’t happen because the units are delivered in a staggered way,”JLL Associate Director Antonio Sabarre said. The new residential units coming into the market are priced at P1.5M to P3M, thus only addressing the housing backlog for this segment. Demand for units in this price range would remain strong in the next few years, Sabarre added. On the same note, Pinnacle Real Estate Consulting Services Inc. said the country’s property sector remains robust and competitive. It said the country’s economic fundamentals and sound investment environment continue to fuel the strong demand for the different sectors in the property market including office, residential, retail as well as hotel and gaming. The demand for office space in Metro Manila is still robust, with occupancy ranging from 94% to 98% in the different business districts. Pinnacle said the business process outsourcing (BPO) sector is relentless in its expansion mode, making it the biggest demand driver. Developers are pushing ahead with their projects to capture this pent-up demand. The Makati Central Business District and Bonifacio Global City (BGC) remain the preferred office locations, followed by Quezon City, Alabang, and Ortigas. Philippine Business Report

Mindanao oil and gas resource inventory on the upswing A huge potential for oil and gas exploration in Mindanao with up to 551M barrel oil equivalent remains undiscovered in several areas in the island with a total of 162,000 sqm. Engineer Gil M. Dureza in Davao said there is a 285,000-sqm area of oil and gas potential along the Sulu Sea area which is already in the process of commercial exploration. Dureza said 95% of the oil and gas resources in Sulu Sea are offshore, with a yet undiscovered 200M barrels of oil. PHL IT spending to grow 11% The Philippines is expected to record 11-% growth in total information technology (IT) spending for 2014 to reach USD 6.76B on the back of sound economic fundamentals and healthy domestic consumption. The IT expenditure target for 2014 for the Philippines is grounded on the country’s expected 6-% gross domestic product (GDP) growth for the year.

and the continuous spending from the consumer sector put IT spending at a more advantageous level in 2014. Sales of imported vehicles grow 6% Sales of imported vehicles grew by 6% in the first 11 months of 2013 to 27,908 units from 26,272 units during the same period in 2012, the Association of Vehicle Importers and Distributors Inc. (AVID) reported. AVID President Ma. Fe Perez-Agudo said sales of light commercial vehicles rose 26% to 13,560 units in the January-November period from 10,952 units in the same period in 2012. Sales of passenger cars, however, dropped by 6% to 14,348 units from 15,320 units. Infrastructure spending to exceed target The ratio of infrastructure spending to the country’s gross domestic product (GDP) growth may exceed the government’s target this year due largely to the reconstruction efforts in calamity-stricken areas, the Department of Budget and Management (DBM) said.

Robust consumption, rising investments and remittances from overseas Filipinos (OFs) will fuel the acceleration of IT spending. These and the recent developments in the country’s investment grade, ease of doing business, and corruption perception index all contribute to healthy uptake on IT products and services in the Philippines. International Data Corporation (IDC) Philippines Research Manager Jubert Alberto said over half of the companies in the country are looking to be even more aggressive when it comes to their IT expenditure to meet their business objectives. Alberto said the increasing demand from the small and medium enterprises (SMEs) February 2014

Trade and INVESTMENTS AGRICULTURE/ AGRIBUSINESS AND FISHERY Shrimp exports seen to rise by 25% Shrimp exports are expected to increase 25% this year on the back of strong demand from key markets, the Bureau of Fisheries and Aquatic Resources (BFAR) said. BFAR Director Asis G. Perez said they are now looking at expanding aquaculture of vannamei shrimp to sustain demand from Japan, the United States (U.S.), Singapore, and other Asian countries. “Among the areas identified include Bicol, Quezon, Bataan, and General Santos City, where 35% of the country’s shrimp supply are coming,” Perez said. Besides traditional markets, BFAR said that they are now looking at other export markets, including China and Hong Kong, for the shipment of frozen vannamei or white shrimp. The monthly value of vannamei exports was estimated at P325M.

“The target for next year is at 3.2% but it can go even higher,” DBM Secretary Florencio B. Abad said. The government has previously pledged a higher-spending percentage for the country’s infrastructure to address its lagging spending compared to its peer nations in the region. The World Bank also proposed an increased infrastructure spending for the Philippines to at least 5% of the country’s output growth to support inclusive growth.

Maharlika Premium exports peking duck meat Davao City-based agri-business company Maharlika Premium Peking Duck recently shipped 50 metric tons (MT) of duck meat to Japan. “Davao now is producing duck for export to Japan. This is the first time the Philippines will take advantage of its status of being a bird flu-free country,” Maharlika Chairman and Chief Executive Officer Vicente Lao said. Their client in Japan has ordered 50 tons of duck meat weekly, Lao said. Some of their products are whole duck, premium breast meat, 3

boneless leg meat, bone in leg meat, wing, fillet, and dressed Peking duck. These products are blast frozen and are ready for shipping. Aside from Japan, they are also eyeing the Middle East as an export destination. They also want to penetrate the domestic market to take advantage of the importation ban of poultry products from bird flu-affected countries. He said aside from its potential in the export market, the industry alone can generate a lot of jobs. The dressing plant alone is able to employ 300 people per shift, Lao added. Bounty fresh to export chicken Bounty Fresh said it may start exporting chicken cuts to South Korea this year, after securing accreditation from the said country. The poultry products would come from the company’s farm and would be processed at the dressing plant in Pulilan, Bulacan, Bounty Fresh Assistant Vice President for Operations Carl Chung said. Some of the products they were considering include choice chicken cuts such as wings and breast parts, Chung said. ANI receives add’l P335-M infusion from Black River Fruit and vegetable grower Agrinurture Inc. is receiving a P335-M capital infusion to enhance its farming and manufacturing operations. The capital infusion would be used for farm development and improvement of the company’s manufacturing operations, Agrinurture Assistant Corporate Secretary and Information Officer Jennifer T. Ong said. DA to spend P290M for meat facilities The Department of Agriculture (DA) has earmarked over P290M 4

for the construction of world-class slaughterhouses, processing, and trading facilities to make the livestock and poultry sectors more competitive both in the local and international markets. Some of DA’s meat facility projects

• P120-M “AAA” dressing facility in Bamban, Tarlac • P15-M “AAA” slaughterhouse, processing, and trading facility for hogs in Tanauan, Batangas • P10-M “AA” slaughterhouse for livestock and poultry in Tayug, Pangasinan; and another “AA” abattoir and trading center for livestock in Candon, Ilocos Sur Banana exporter applies for perks Delinanas Development Corp., a subsidiary of Del Monte Fresh Produce Philippines, Inc., is applying for government incentives for its banana plantation in Mindanao, the Board of Investments (BOI) reported. Delinanas is registering its banana plantation in Lambayong town, Sultan Kudarat that can produce 2.76M boxes or 37.257 metric tons (MT) of Cavendish bananas every year. Delinanas earlier spent P569M to develop a 550-ha banana plantation in Maguindanao that is expected to produce more than 2M boxes of Cavendish bananas annually. The plantation is also projected to employ close to 1,000 local residents.

AVIATION PAL gets six Airbus A330-300s Philippine Airlines (PAL) has officially received six Airbus A330-330 wide-body aircraft last year to boost a fleet modernization program. The aircraft’s cabin can accommodate 414 passengers, configured into premium economy with 39 seats and economy with 375 seats. The unit is equipped with more powerful Rolls Royce Trent engines and bigger fuel tanks.

The first A300 to arrive debuted in the company’s inaugural flight in Abu Dhabi in October 2013. Five more units had arrived before 2013 ended, the last of which landed in Cebu City carrying 20 tons of tents and other donations from a French charitable organization for Super Typhoon Yolanda survivors. PAL has ordered 21 A300s and 44 more A-321s for delivery over the next six years.

BANKING Korea Eximbank pledges USD 500M to PHL for programs The Republic of Korea has pledged USD 500M worth of official development assistance (ODA) to the Philippines for 2014-2016. “This (ODA) reflects the enhanced economic cooperation between the Philippines and Korea. We are considering the needs of the country and then we decide the amount and the priority areas,” Export-Import Bank of Korea (Korea Eximbank) Senior Program Officer Gimin Kang said. The proposed ODA is still being negotiated by the agency and Philippine state agencies, which started the discussions and negotiations for a new framework agreement in November 2013. Types of projects to get 70% of the loans upon framework approval

•

Projects promoting sustainable economic growth through infrastructure development • Projects supporting food security and rural poverty alleviation through agriculture and water resources development • Projects strengthening national health systems and expand access to local health services

Postbank pursues expansion plans Government-owned Philippine Postal Savings Bank (Postbank) will pursue this year its expansion plan, which started last December, with the opening of six microPhilippine Business Report

banking offices (MBOs) in selected unbanked and underserved locations in Luzon. Postbank President Cesar N. Sarino said the first batch of MBOs were established in the countryside to provide access to financial services and in the process create livelihood opportunities and mobilize local savings. “This year, we are planning to open about 20 MBOs. These are mostly in Bicol region, Samar, and other areas,” Sarino said. Locations of first six MBOs

• • • • • •

Bacacay, Albay Binmaley, Pangasinan Bombon, Camarines Sur Bula, Camarines Sur Malinao, Albay Mapandan, Pangasinan

BPO Tech startup Kalibrr launches P83-M hiring platform Kalibrr, a cloud-based software firm, launched a recruitment, assessment, and talent management platform for the local business process outsourcing (BPO) market after raising USD 1.9M or about P83M from global investors. “[The BPO industry is growing, but it is threatened by] the inability to find skilled workers since existing practices are extraordinarily inefficient and cannot scale to meet the labor demands,” Kalibrr Co-founder and Chief Executive Officer (CEO) Paul V. Rivera said. Kalibrr streamlines the recruitment process, eliminating inefficiencies in sourcing and screening candidates. With advanced machine learning algorithms and online assessments, Kalibrr matches job seekers with jobs based on the candidates’ skills. Rivera pointed out that the platform would speed up the recruitment process especially February 2014

now that more foreign companies are setting up shop in the country. Ortigas & Co. boosts BPO office portfolio Property developer Ortigas & Co. has beefed up its business process outsourcing (BPO) office portfolio after inking a deal with technology firm Anthem Solutions for the lease of 20,600 sqm. at Silver City 2 and 3. Silver City 2 and 3 are the latest buildings to comprise the planned five-building Knowledge Process Outsourcing (KPO) campus development inside Frontera Verde. “We will be significantly adding more to our portfolio upon completion of the three remaining buildings in Frontera Verde, in addition to a planned BPO space of 21,000 sqm. in our Pasig development, Capitol Commons,” Ortigas & Co. Senior Vice President Joey F. Santos said. Other locators housed in Frontera Verde

• • • • • • •

Ark Avilon Fun Ranch Las Farolas Silver City 1 SM Hypermarket Tiendesitas Transcom Center

PanAsiatic gears up for expansion PanAsiatic Call Centers, Inc. (PanAsiatic Solutions) plans to hire 4,000 more workers with the planned opening of its second center in Bacolod City. PanAsiatic Site Director and General Manager Siony T. Hijara said the plan will bring the company’s total workforce to 7,000. Operations of the second center will likely start this month. Hijara added the company recruits under its Barangay ACHIEVE Program, which channels job openings for customer service representatives and operations support staff through barangay officials who then identify possible candidates.

ENERGY Jetti puts up Bataan plant, 10 more stations Jetti Petroleum Inc. will start operations of its new import and bulk terminal in Mariveles, Bataan this year. The company expects to start operating the Bataan plant by July as it starts construction early 2014. The company will also put up 10 additional stations in Northern Luzon this year after it opens its new depot in Bataan. In 2013, it put up a total of 15 new stations, bringing their total stations to 112, 46 of which were in Luzon, 24 in Visayas, and 42 in Mindanao. PTTPC allots P2.1B for expansion PTT Philippines Corp. (PTTPC) is setting aside P2.1B for its expansion projects in the next five years. The investment plan involves the opening of 75 new service stations, PTTPC President and Chief Executive Officer (CEO) Wisarn Chawalitanon said. The investment would also include renovation of existing service stations, additional depots and storage facilities, and setting up of coffee shops and convenience stores, Chawalitanon said. PTTPC currently has 70 service stations in the Philippines, 15 of which were newly opened in 2013 in the provinces of Bulacan, Pampanga, Nueva Ecija, La Union, Pangasinan, Laguna, and Quezon. The construction of seven more stations is ongoing and is expected to open early this year. Shell investing P6B in Cagayan de Oro port Pilipinas Shell Petroleum Corp. is investing at least P6B to improve the Cagayan de Oro Port, the Philippine Ports Authority (PPA) said. 5

Pilipinas Shell currently has access to the CDO port facilities to serve the fuel requirements in the area. The CDO port, owned and operated by PPA, has been nearly idle over the past couple of years, after most cargoes shifted to nearby Mindanao Container Terminal, which is being run by International Container Terminal Services Inc. (ICTSI). Under the plan, Pilipinas Shell will upgrade the port and convert it into an airport-like facility as well as refurbish the crane facility into an import-capable facility. The PPA said the structures to be built would be movable and would not hamper future expansion in the area, considering that the designated berthing for passenger vessels is about 300m away. Eastern Petroleum puts up refilling plants Eastern Petroleum targets to distribute its composite liquefied petroleum gas (LPG) in the Visayas and Mindanao in 2014. Eastern Petroleum Group Chairman Fernando L. Martinez said they target to build their refilling plant in the Visayas and Mindanao in the first quarter of this year since they have already acquired the lots.

to optimize flow rate to 12,000 barrels of oil per day.

pre-determined feed-in tariff (FiT) rate scheme.

Otto Energy Chief Executive Officer (CEO) Gregor McNab said all subsea installation work had been completed as of November 2013; while final commissioning, testing, and certification were accomplished thereafter.

Belgian firm to build four solar farms worth USD 100M Belgium-based Enfinity Group, through its local arm Enfinity Philippines Renewable Resources Inc., will develop within the year up to four solar power plants with a total cost of USD 100M.

McNab added that 11 cargoes are expected to be lifted from the field through the year. The field is estimated to be productive until 2020.

GREEN PROJECTS DOE approves Negros solar farm The Department of Energy (DOE) issued a service contract and certificate of registration for the 22-megawatt (MW) stand-alone solar power plant project by Bronzeoak Philippines’ San Carlos Energy Inc.

The 35-ha. plant that will be built in San Carlos Economic Zone in Negros Occidental is seen to provide the Visayas grid annually with 35M kWh.

These plants are being eyed to be located in Cebu, General Santos City, Digos, and Sta. Cruz in Davao.

Proponents of the San Carlos Solar Energy Project (SaCaSol), Bronzeoak and Swiss-German firm ThomasLloyd Group, secured equity funding for the power plant valued at P1.9B.

The company will invest at least P250M to put up each plant, which will take about six months to be constructed.

German-based Conergy is the main contractor of SaCaSol and will provide the 22 inverters and 88,000 photovoltaic modules for the plant.

The company is also targeting 500 outlets for this year.

The project is targeted to start operations by the second quarter of this year and will be developed in two phases—phase one encompassing 13MW and phase two adding 9MW.

Oil production at Galoc’s Phase 2 starts The Phase 2 of the Galoc petroleum development has logged its first oil production at reinforced 14,500 barrels, and with target 6

SaCaSol aims to obtain the Energy Regulatory Commission’s (ERC)

The company’s solar power projects for the year will have a total capacity of 50 megawatts (MW) with a cost of USD 2M per MW, and construction targeted to begin within the first quarter of the year. Of the four projects, Luzon and Mindanao will get two each with the first to be built in Mindanao. Solar panels for the plants will be sourced from Europe, China, and the United States (U.S.). Enfinity holds 18 of the 34 solar power project service contracts issued by the Department of Energy (DOE) and is seeking for confirmation of commerciality from the Department for the first four projects. The 18 solar power projects are planned to have a capacity of 10-20MW each and targeted to be built in two years. Japan provide JPY 600-M grant for solar rooftop installations The government of Japan allocated JPY 600M or P258M to fund four solar rooftop projects in accordance to an economic cooperation agreement signed in 2011 by President Benigno S. Aquino III and Prime Minister Yoshihiko Noda following a bilateral summit meeting. Locations for solar rooftop installations

• Lung Center of the Philippines, Quezon City • National Power Corporation, Bulacan • Rizal Park, Manila • SM Mall of Asia parking lot, Pasay City Philippine Business Report

The Department of Energy (DOE) is evaluating the four locations for the solar rooftop installations. Trans-Asia gets P4.3-B loan for wind project Trans-Asia Oil and Energy Development Corp. subsidiary, Trans-Asia Renewable Energy Corp. (TAREC), secures a P4.3-B loan deal with the Development Bank of the Philippines (DBP) and Security Bank Corp. (SBC) for a 54-megawatt (MW) wind farm in San Lorenzo, Guimaras. The loan deal that will last for 15 years, will fund part of the project estimated to cost at P6.3B The project pre-qualified for the feed-in tariff (FIT) scheme and is expected to start commercial operations 16 months from its Engineering, Procurement, and Construction (EPC) date. TAREC holds 12 wind energy service contracts.

INFRASTRUCTURE/ PUBLIC-PRIVATE PARTNERSHIP Spanish firms among interested in LRT 1 extension rebidding Spanish companies Fomento de Construcciones y Contratas, S.A. (FCC) and Bankia, through their infrastructure arm Globalvía, are among those that acquired documents for the rebidding of the Department of Transportation and Communications’ (DOTC) P64.9-B Light Rail Transit (LRT) Line 1 Cavite Extension Public-Private Partnership (PPP) project. Some of the local bidders were among the pre-qualifiers in the first offering of the project. The deadline of submission for the documents, as well as technical and financial proposals, is on April 24, 2014. Meanwhile, DOTC decided to adopt a single-stage bidding process. February 2014

Firms that acquired bid documents

• • • •

DMCI Holdings Inc. Globalvía Megawide Corp. San Miguel Corp. (SMC) Infra Resources Inc. (GS Engineering and Construction Corp. and Posco Engineering and Construction Co. Ltd)

BCDA allots P76M for Poro Point road projects The Bases Conversion and Development Authority (BCDA) appropriated P76M for three road projects to make the Poro Point Freeport Zone in San Fernando, La Union more accessible and increase tourism in the province. To be implemented by the Department of Public Works and Highways (DPWH), planning for the project began in 2012 while fund allocation was done July last year. The projects, which are also expected to solve the seasonal road flooding problem, are targeted to be completed this month. Under Republic Act (RA) 7917 or the Act Amending Section 8 of the Bases Conversion and Development Act of 1992 (RA 7227), 27.5% of revenues by the BCDA are to be allocated on infrastructure projects to enhance accessibility of former military bases. BCDA road projects

•

Construction of road leading to Poro Point Lighthouse • Repair of road leading to Poro Point Management Corp. (PPMC) • Upgrade of road leading to San Fernando Airport

MCIA project to be awarded The Mactan-Cebu International Airport (MCIA) Passenger Terminal Building project of the Department of Transportation and Communications (DOTC) under the Public-Private Partnership (PPP) scheme is set to be awarded.

All seven bidders for the P17.5-B MCIA project passed the technical evaluation and all financial proposals were opened on December 12, 2013. The consortium of Megawide Construction Corp., and India's GMR Infrastructure Ltd. were found to have submitted the highest of the financial proposals which were all premium bids. The Department was hoping to have the contract signed this month. When the notice of award is issued, GMR-Megawide consortium said it will be paying in lump sum and upfront. The consortium will apply a special purpose vehicle for the project with a 60-40 mix in both investment and ownership. The group plans to source 70% of the funding from debt and 30% from equity and sees a capital expenditure (capex) of P13B-15B for the project’s first phase. Phase one consists of construction of a new passenger terminal targeted to begin in the fourth quarter of 2014 and be completed by 2017. MCIA bidders

Company

Amount In Billion Pesos

• GMR-Megawide Consortium • Filinvest Development

14.4 14.0

• Premier Airport Group • Metro Pacific Investments

12.5 11.2

and Changi Airports

Corporation and JG Summit Airports Holdings • AAA Airport Partners 11.1 • San Miguel Corp. (SMC) and 9.0 Incheon Airport Consortium • First Philippine Airports Consortium 4.7

3 pass technical evaluation for DOTC's AFCS project The Department of Transportation and Communications (DOTC) approved technical proposals of three of five pre-qualifiers 7

for the P1.72-B Automatic Fare Collection System (AFCS) project. Financial proposals of the three passers were subsequently opened and evaluated following the Build-Operate-Transfer (BOT) Law last December, revealing that the consortium of Ayala Corp. (AC) and Metro Pacific Investments Corp. (MPIC) submitted the best bid. The Department's Bids and Awards Committee (BAC) was prepared to announce the winner of the single ticketing system project for the Metro Rail Transit (MRT) and Light Rail Transit (LRT) last December 23, 2013. Bids for the project that looks to replace the current magneticbased tickets of both transits with a unified ticket were submitted in November last year. Pre-qualified AFCS project bidders technical evaluation passers

• • •

AF Consortium (AC and MPIC) Cormworks and Berjaya Consortium SM Consortium

Cagayan international airport opening this year The P1.67-B Cagayan International Airport in Lal-lo, Cagayan is set to be opened by May this year. The airport, which will accommodate domestic and international flights, is under the 50-year joint venture agreement between the Cagayan Economic Zone Authority (CEZA) and Cagayan Land Property Development Corp. (CLPDC) signed in 2009. Construction of the facility, which has a capacity to hold 320 airbuses in its 2.1-km. and 45-m. wide runway, was completed in December 2012. The Civil Aviation Authority of the Philippines (CAAP) tested it early in 2013 to see that it fits the International Civil Aviation Organization (ICOA) standards. 8

The airport is seen to boost economy and tourism in the Cagayan Special Economic Zone and Freeport (CSEZF) as well as complement the Port Irene seaport. POC modernization bid winner readies The consortium of Megawide Construction Corp. and World Citi Medical Center is preparing for the Department of Health’s (DOH) P5.7-B Public-Private Partnership (PPP) Project to modernize the Philippine Orthopedic Center (POC). Under the contract, the winning bidder is to design, construct, finance, operate, and maintain a new hospital with 700-bed capacity within the 25-year concession period. The project is already in the design phase and is targeted to start construction within the last quarter of the year. The construction phase is seen to take two years and targeted to be completed by 2017. The consortium has finalized its syndicated loan deal of P2.9B to partially fund the project. The Land Bank of the Philippines was the lead arranger for the deal. Gov’t to develop P14.2-B water project for Manila Through its Public-Private Partnership (PPP) program, the government will pursue the development of the P14.2-B New Centennial Water Supply Source Project (NCWSP) to provide an alternative water source for Metro Manila. PPP Center Executive Director Cosette V. Canilao said the NCWSP is a critical infrastructure deal as it aims to augment a secondary water source to the Angat Dam in Bulacan, which supplies 97% of Metro Manila's water requirements. The study and evaluation phase has already started last year

and the implementation phase will start upon award of project targeted in the first quarter of this year. Facilities to be built under NCWSP

• Kaliwa Dam producing 600 megaliters per day (MLD) • 27.7-km. water conveyance tunnel • 2 units of 300 MLD Water Treatment Plants

MASS HOUSING Property firms seek BOI perks Three property developers are applying for incentives with the Board of Investments (BOI) for their low-cost mass housing projects on a non-pioneer status. Company

Project

SM Development Corp. (SM Group of Companies)

3,483-unit Shore Residences Tower C and Tower D in SM Mall of Asia (MOA) Complex, Pasay City

Amaia Land Corp. (Ayala Land Inc.)

1,043-unit Amaia Skies Cubao Tower 3 in Barangay Socorro, Cubao, Quezon City

Filinvest Land Inc. 360-unit Sorrento (Filinvest) Oasis in Barangay Rosario, Pasig City

Once the applications are approved, the companies can enjoy income tax holiday (ITH), among others. Vista Land eyes expansion in 100 areas Vista Land & Lifescapes Inc. is targeting to establish its presence in 100 cities and municipalities in the Philippines in the next two to three years. “We continue to be bullish. We will continue to build more Camella homes in the provinces and second-tier cities,” Vista Land Chairman Manuel B. Villar Jr. said. In line with this, the firm is planning to expand in 10 new locations and borrow USD 150M to finance the projects. Philippine Business Report

Areas of expansion

• • • • • •

Bukidnon Zamboanga Samar Nueva Vizcaya Cauayan, Isabela Zambales

MOTOR VEHICLES Isuzu to continue D-Max local assembly Isuzu Philippines Corp. (IPC) would continue the local assembly of the D-Max pick-up truck. IPC has started assembling the newly launched D-Max in the country after formally introducing the P100-M multi-line system for the vehicle assembly in December 2013. IPC Assistant Division Head for Sales Joseph Bautista said that with the recent upgrade in its manufacturing facilities, the company would be able to produce 4,000-5,000 D-Max units, depending on how much the market would demand. Bautista added that IPC remains optimistic about securing 20%-25% of the local pick-up market this year.

POWER Meralco buying four power utilities Manila Electric Co. (Meralco) plans to acquire four distribution utilities, including one this year. Moreover, the power distributor borrowed P18.5B to finance the expansion of its power distribution business. The money will be used to strengthen its distribution system to meet heightened demand from casinos at the Philippine Amusement and Gaming Corporation (PAGCOR) City, expanding industrial estates and business process outsourcing (BPO) centers. February 2014

NAPOCOR gets P1B for off-grid areas The government released P1B to the National Power Corp. (Napocor) to boost its power facilities that service off-grid areas in the country. The Department of Budget and Management (DBM) released the budget to support Napocor’s operational and maintenance requirements of the Small Power Utilities Group (SPUG) or the missionary electrification arm. It will also fund the procurement of much-needed spare parts to ensure Napocor’s efficient and optimal operation of its power plants nationwide. “By putting far-flung areas without electricity on the power grid, we can ensure the gradual economic empowerment and much-needed commercial expansion in these remote communities,” DBM Secretary Florencio B. Abad said. Angat sale expected in Q1 2014 Power Sector Assets and Liabilities Management Corp. (PSALM) is expecting to close the sale of the Angat hydropower plant in Bulacan this first quarter, PSALM President Emmanuel R. Ledesma Jr. reported.

ERC approves power deal between NGCP, SPC The Energy Regulatory Commission (ERC) approved the power supply deal between the National Grid Corp. of the Philippines (NGCP) and SPC Island Power Corp. (SIPC). The agreement between the two companies would ensure reliable operation of the transmission system and electricity supply in the Visayas grid. The ERC said the ancillary services procurement agreement would benefit the consumers in terms of reliable, efficient, and affordable power supply.

REAL ESTATE Philam Life earmarks P2.1B for modern facility Philippine American Life and General Insurance Company (Philam Life) is allocating P2.1B to build an “ultra-modern” tower in Cebu that is expected to rise by end-2015.

The power facility is sold to K-Water Resources Corp. of Korea. TSI asks for project expansion The Aboitiz Power subsidiary Therma South, Inc. (TSI) requested the Davao City Council to endorse its plan to expand the existing 300-megawatt (MW) coal plant project in Barangay Binugao to 645 MW.

Located in Cebu Business Park, the project will serve as the company’s new corporate center. “It is high time for Philam Life to establish presence in the heart of Cebu City’s business district along with other big players in the industry,” Philam Life Chief Executive Officer (CEO) and President Rex Mendoza said.

Aboitiz Power First Vice President for Mindanao Affairs Manuel M. Orig said the existing 300-MW coal plant project, which is expected to operate early 2015, will consume nearly 40 MW to satisfy its own power requirements. Therefore, only 260 MW can be tapped to add to Mindanao’s power supply.

Robinsons opens 33rd shopping mall Robinsons Land Corp. (RLC) opens their 33rd mall and fourth Robinsons mall in Mindanao, the Robinsons Place Butuan.

Completion of the project expansion, if approved, is targeted by 2017.

The newly opened mall is a three-level development that 9

includes a branch of RLC’s Go Hotels which will have 102 rooms. The mall and hotel will have a combined total gross floor area of 45,300 sqm. Robinsons Place Butuan also has four digital cinemas (including one 3D cinema), an amusement center, baby care lounge, persons with disability (PWD) friendly facilities, and free WIFI hotspots. “The Butuan economy is booming and we intend to be part of its growth as the commercial and business hub of the Caraga Region,” RLC Commercial Centers Division General Manager Arlene G. Magtibay said. More S&R expansion until 2016 Puregold Price Club, Inc. plans to open at least one S&R supermarket annually until 2016, Puregold Price Club Investor Relations Officer Jimmy F.P. Perez said. S&R’s expansion will be less aggressive than Puregold as it caters to a different market. The company usually spends around P600M for an S&R supermarket. It also requires at least 20,000 sqm. in areas where consumers have high disposable income.

TOURISM RLC to expand budget hotels Robinsons Land Corporation (RLC) plans to put up a minimum of five Go Hotels in the Philippines through a franchising deal with the Roxaco Land Corporation (Roxaco) and Singaporean Vanguard Hotels Group over the next two years. The market for local travellers is growing at an increasing rate and more value hotels need to be built throughout the country, Roxaco Senior Vice President Santiago R. Elizalde said. The Philippines represents the best market for value hotel projects in Southeast Asia over the coming decade, Vanguard Hotels Group Chief Executive Officer (CEO) Bruce Musick said. 10

COMPANY NOTES PLDT keeps 2014 capex unchanged PLDT President and Chief Executive Officer (CEO) Napoleon L. Nazareno said the company’s capital expenditure (capex) for 2014 is more or less the same level as that of 2013’s. The telecom company has allotted P29B capex last year for its network expansion, including the rollout of its fiber facilities. The 60%-65% capex for 2014 would be spent on PLDT’s broadband business, with another 25 % for the rollout its fiber-optic network. SMDC allots P18B in 2014 SM Development Corporation (SMDC) is investing P18B to launch new condominium projects and acquire more lands this year. The property firm would launch four projects in Metro Manila with 11,000 units, SMDC President Jeffrey C. Lim said. The company would unveil one to two residential projects within its existing developments and it would continue to launch residential projects as demand for condominium units was expected to remain strong, Lim said. Ayala investing more this year Ayala Corp. said it will remain aggressive with its capital spending this year as it prepares to fund additional investments in the power, banking, and property businesses. Some of Ayala Corp.’s projects for 2014

• Acquisition of stakes in GNPower Mariveles • BPI’s expansion program and capital

base strengthening • Infrastructure projects such as Mactan Airport, LRT 1, and Cavite-Laguna expressway • Expansion of its property, telecommunications and water businesses, as well as new investments in the power and transport infrastructure sectors

Ayala Chief Finance Officer (CFO) Delfin L. Lazaro said the company would likely spend higher this year as economic conditions remained positive. ALI keeps P70B capex for this year Ayala Land Inc. (ALI) expects to retain its capital expenditures (capex) for this year at P70B as it continues to expand its property portfolio.

Ayala Land Chief Operating Officer (COO) Bobby O. Dy said they see continued encouraging growth in the economy that is underpinned by strong consumer spending. The business process outsourcing (BPO) industry, a big market for property developers, also continues to expand. Eastern Petroleum sets record P1.6-B capex Eastern Petroleum Corp. is looking to spend a record capital expenditure (capex) of P1.6B this year. The capex will be spent for new liquefied petroleum gas (LPG) tanks, new company-owned distribution outlets, refilling plants, and new retail stations, Eastern Petroleum Chairman and Chief Executive Officer (CEO) Fernando L. Martinez said.

Country-toCountry Malaysia offers more export opportunities to PHL Malaysia urged the Philippines to explore trade opportunities in its country mostly in agriculture and manufacturing sectors. The Philippines can export crude rubbers to Malaysia as the country has limited rubber plantation, Malaysia External Trade Development Corporation Philippine Business Report

Malaysia also demands for products such as mango and pineapple as well as processed food, redefined petroleum, chemical products, manufactures of metal, machineries, and appliances and its parts. British firms visit PHL The trade and investment links between the Philippines and the United Kingdom (UK) was boosted anew by the visit of over 25 British companies and a delegation of UK infrastructure firms, which are partnering with Filipino businesspeople. British businesspeople are keen on investing in big infrastructure projects under the Public-Private Partnership (PPP) program as well as in energy, retail, agriculture, tourism, and education. 8 Japan firms eye investments in PHL At least eight Japanese companies are considering making an investment in the Philippines amidst favorable economic conditions, good governance efforts, and available skilled workforce. Many indicated interest to invest from power to plastic molded parts, to banking, to auto, and more, said Department of Trade and Industry (DTI) Secretary Gregory L. Domingo. Meanwhile, the DTI is actively promoting the country as an investment destination thereby creating more jobs to sustain and make the Philippines’ economic growth more inclusive. Cebu, Canada sign trade agreement More trade exchanges between Cebu and Canada are expected to happen to drum up investment and trade opportunities. A memorandum of cooperation (MOC) was formally signed by Canadian Chamber of Commerce of the Philippines (CanCham) President Julian Payne February 2014

and Cebu Chamber of Commerce and Industry (CCCI) President Lito R. Maderazo. Maderazo voiced optimism that the partnership is seen to enhance Cebu’s visibility to Canadian investors and opening the doors for Cebuano companies to learn and connect with Canadian business players.

ASIAN WATCH S&P expects PHL to remain fastest growing in ASEAN Standard & Poor’s Financial Services (S&P) said the Philippines will continue to reflect strong growth in 2014 compared to the rest of the countries in the Association of Southeast Asian Nations (ASEAN). “Of this group, only the Philippines looks like growth will continue at a high pace, particularly as rebuilding efforts begin after the disastrous typhoon that hit the country,” S&P said. S&P’s baseline outlook for Philippine gross domestic product (GDP) growth rate remains at 7%, but would likely taper to 6.4% this year and at 6% in 2015. Japan mulls USD 20-B aid to ASEAN over 5 years Japan pledged USD 20B in aid to Southeast Asian countries as it looks to shore-up ties in the region. Prime Minister Shinzo Abe announced 2T yen (USD 20B) in loans and grants over five years in a summit of Japan and 10 Association of Southeast Asian Nations (ASEAN) members. Shinzo announced an expansion of the existing Japan-ASEAN Integration Fund aimed at ASEAN economic integration with a fresh JPY 10B, the reports said. Southeast Asia sustains IT growth It is not only in the Philippines that mobile devices and smartphones

have increasingly become popular but also in the whole region. Singapore is the leader in terms of mobile phones, Internet usage, and broadband Internet penetration rates among Southeast Asian countries. Meanwhile, Japan is increasing its investments in the region with Thailand being the primary recipient and Indonesia following second.

On the calendar PHL to host SIAL food show in June The Philippines is hosting the Salon International de l’Agroalimentaire (SIAL) food exhibition, one of the largest food shows in Southeast Asia. SIAL ASEAN will be held at the World Trade Center (WTC) from June 1114, 2014 along with the Manila Food and Beverage Expo (MAFBEX) which would be held in a separate venue inside the complex. The exhibition, themed “Best-Kept Secret for Food Business in Asia,” is expected to draw in 800 exhibitors and 15,000 visitors. The Department of Agriculture (DA) said the trade show would provide an opportunity for agribusinesses to showcase their export products.

Philippine Postal Permit No. 504

(MATRADE) Trade Commissioner Har Man Ahmad said.

Economic Indicators

GNI Growth Rate (%) 10

7.5

6.5

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

138 137 136 135 134 133 132

Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14

(In USD Billion)

5200 5000 4800 4600 4400 4200 4000 3800

As of February 12, 2014

Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14

Imports 6,000

5,000 4,500 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13

(1994 base year)

5 4 3 2 1 0

(In USD Billion)

5,500

4,000

Inflation Rate (%)

Peso per US Dollar Rate 45.5 45 44.5 44 43.5 43 42.5 42

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

Exports

Consumer Price Index (2000 base year)

5.5

GDP Growth Rate (%)

Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14

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

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

As of February 12, 2014

Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14

*GNI - Gross National Income Entered as Third-Class Mail at the Makati Central Post Office under Permit No. 504 valid until 31 December 2014

Editorial Team: Anne L. Sevilla/Editor-in-Chief • Vic S. Soriano/Managing Editor • Jam H. Raposon/Assistant Editor • Cresenciano P. Par, 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 February 2014

Philippine Business Report