Philippine Business Report (Jan.2012)

Volume 23 No. 01

January 2012

Local firms see expansion The number of firms eyeing to expand their operations in the first quarter of 2012 remained steady amid the uncertainties brought about by the fragile economic recovery in advanced countries led by the US and the debt crisis in Europe, the Business Expectations Survey for the fourth quarter of 2011 showed.

The survey revealed that the number of companies with expansion plans remained steady at 27%, Bangko Sentral ng PilipinasDepartment of Economic Statistics (BSP-DES) Acting Deputy Director Teresita B. Deveza said.

“About one in every four respondent firms in the industry indicated expansion plans for the first quarter of 2012. The number of respondents that indicated expansion plans was almost unchanged from a quarter ago,” Deveza stressed.

She noted that expansion plans in the manufacturing subsector remained steady while more

Shorter garment export categories okayed The Philippines has agreed to cut the number of garment categories to nine from the original 17 that can enjoy access to the United States (US) market with zero or preferential tariffs.

This developed as the Philippines secured the support of US Secretary of State Hillary R. Clinton during her recent visit in the country for the Save Act, which aims to revive January 2012

companies in agriculture, fishery, and forestry as well as electricity, gas, and water subsectors signified expansion activities.

Companies engaged in the mining and quarrying subsector also signified expansion plans.

Data showed that firms in the agriculture, fishery, and forestry subsectors recorded the highest expansion plans with 41.9%, followed by the mining and

both the Philippine and American garment and textile industries.

“Secretary Clinton is supportive of it. At least we have the support of the executive branch,” Department of Trade and Industry (DTI) Secretary Gregory L. Domingo said.

The abolished categories have something to do with the bill's provision that allows sourcing of fabrics and yarn from a third

quarrying with 41.1% and electricity, gas and water with 41%.

The manufacturing subsector recorded the lowest expansion plans with 24.9%.

The business confidence index on owned operations for the fourth quarter of 2011 improved to 37.1% from 29.5% in the third quarter.

The business outlook index on the macroeconomy for the fourth quarter of 2011 also rose to 38.7% from 34.1%.

country for assembly in the Philippines to be then exported to the US market at zero duty or preferential tariff rate.

Based on the US Congress computation, Domingo explained, this would entail an estimated loss of US$500M on the US side should they follow the original 19 categories.

The US textile industry players also moved for the removal 1

of the eight garment categories as granting preferential rates to these categories may put their operations at a disadvantaged position over low-cost producing countries.

These categories include critical cloth and garment types that the US wants excluded particularly “poplin” cloth, which American firms produce in huge volumes.

Poplin, sometimes called tabinet, is a type of medium to heavy weight durable fabric that is now most frequently made of cotton or a cotton/polyester blend.

The other category under exclusion is undergarments.

The DTI has mounted strong campaign for the bill’s passage.

DTI Undersecretary for Trade and Investment Promotions Group (TIPG) Cristino L. Panlilio met with the Filipino communities in Chicago, New York, Seattle, and Los Angeles last year to rally their support for the bill's passage.

The bill’s passage would also mean creation of more jobs for the industry that has been unable to compete with low-cost garment producing countries such as China, Cambodia, and Laos.

The Bureau of Export Trade Promotion (BETP) reported that Philippine exports of wearables reached US$1.4B in 2010. Garments and textile shares a major stake of 83% in the export of wearables followed by travel goods and handbags (9%), fine jewelry (4%), headwear (2%), costume jewelry (1%), and jewelry (1%).

4%

2% 1%

1%

Garments and textiles Travel goods and handbags

9%

Fine Jewelry

83%

Headwear Costume Jewelry

Wearable shares in 2010

Jewelry

The US remained the top market for garments and textile at 22% followed

by Germany (9%), Japan (8%), United Kingdom (UK)(7%), and France (6%).

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INDUSTRY Trends Local business social media usage reaches 44% The use of social media in the Philippines has reached 44% as businesses in emerging economies edged out their Western counterparts, the latest Grant Thornton's International Business Report (IBR) showed.

Released by Grant Thornton Philippine member firm Punongbayan & Araullo (P&A), the survey revealed that 43% of businesses globally use social media in some capacity. However, this rises to 53% in Latin America and 50% in the Brazil, Russia, India, and China (BRIC) economies. In mature markets, the figures are much lower, at 40% in the G7 and just 35% in Europe.

Technology 2011” survey conducted

by Microsoft revealed that Filipino families have the highest average number of gadgets in the region, which they use to communicate with friends and family.

The survey also showed that 34% of Philippine respondents cite social networking sites as their most preferred medium to stay in touch with loved ones.

Contact center industry accelerating growth The country’s call center industry expects to grow at a faster rate of 20-25% annually in the next five years as the economic crisis in the US and Europe would put pressures on the cost of companies making outsourcing and offshoring a very attractive option.

Asked for what purpose they use social media, 36% of Filipino business leaders said they use it for advertising, while 34% use it to communicate with their customers.

“If you look at the survey results, majority of Filipino business leaders [56%] still aren’t harnessing the potential of social media to expand their reach,” said P&A Managing Partner and Chief Executive Officer (CEO) Maria Victoria C. Españo.

“I believe we will see this attitude change very quickly especially as connectivity becomes more affordable and more Filipinos gain access to the Internet. Already we have a generation of children ­— some as young as pre-school age — who are very adept at using and navigating the world of social media. So I believe local businesses will realize soon enough that if they want to get a jump on their future market, they will have to turn to social media networks,” Españo said.

The Philippines has emerged as one of the most tech-savvy countries in Asia. The “Families and

The expansion would be faster than their earlier projection of 15-20% growth until 2016, Contact Center Association of the Philippines (CCAP) President C. Benedict Hernandez said.

“We earlier thought growth rate would be closer to 15% until 2016, but now it’s in the 20-25% range,” said Hernandez.

Hernandez said the crises in the US and Europe put pressures on companies to cut their expenses prompting them to look at offshoring and outsourcing their non-core functions.

“The crisis puts a lot of cost pressures on these companies which may now begin to accelerate their offshoring activities. Despite the volume of activities already, there are still a lot of these companies Philippine Business Report

which have yet to outsource, both US and non-US,” he said.

This means that growth in the next five years would be a combination of expansion and new investments in the offshoring and outsourcing business.

“There is still a lot of opportunities.

Companies that have not yet outsourced would start to look at this option,” he added.

Invest houses, finance firms book 14.6% profit growth Earnings of non-banks with quasi-banking functions amounted to P4.1B from January to September in 2011 or P520M higher than the profits of P3.6B booked in the same period in 2010, the Bangko Sentral ng Pilipinas (BSP) reported.

On the same note, investment houses booked a 12.9-% rise in net income to P2.3B in the first nine months of 2011 compared to a year-ago level of P2B. The earnings of financing companies went up by 16.8% to P1.8B in the first three quarters of last year from P1.6B in the same period in 2010 on the back of strong interest earnings and lower operating expenses.

BSP officials attributed the strong increase to the resiliency of the country’s financial and capital markets despite the recent credit downgrade of the US as well as the sovereign debt crisis in European countries.

40% of Filipino workers now take work home to finish Over 40% of workers in the Philippines work well over eight hours a day and almost 40% regularly take work home to finish in the evening, the latest global survey findings from Regus showed.

economies and, conversely, very rapid growth in emerging ones.

Key findings • 31% of workers in the Philippines (PHL) and 38% of global workers usually work between nine to 11 hours every day • 14% of workers in the PHL regularly work more than 11 hours a day compared to 10% globally • In the PHL, 38% of workers take tasks home to finish at the end of the day more than three times a week compared to 43% globally

“This study finds a clear blurring of the line between work and home. The long-term effects of this overwork could be damaging both to workers’ health and to overall productivity as workers drive themselves too hard and become disaffected, depressed, or even physically ill,” Regus Australia, New Zealand, and Southeast Asia Regional Vice-President William Willems said.

“While women were found to be less likely to work longer hours, probably because they are more likely to be employed in part-time work, small company workers are more likely to clock up the hours than large company employees.

Workers in small businesses are perhaps more likely to feel that the impact of the single employee on the success of a project is more marked,” Willems added.

Gov’t expects stronger growth for cargo volume The government expects stronger growth for the country’s cargo volume this year on the back of a more favorable world economic condition.

Service provider Regus polled over 12,000 business people in 85 countries.

The Philippine Ports Authority (PPA) said it plans to finalize port development efforts in response to the increase in cargo volume.

Key findings revealed that pressure on working hours has increased in recent years because of slow economic recovery in mature

PPA expects cargo volume to increase 4.5% to 175.4M metric tons (MT) this year from a forecast of 167.8M MT last year.

January 2012

“There is an expected increase in trade this year. The higher volume is also because of expected better conditions of the world economy,” PPA Assistant General Manager Raul T. Santos said.

According to the PPA data, cargo volume handled in ports located in Manila and Northern Luzon is expected to inch by 1% to 68.3M MT in 2012 from a forecast of 67.7M MT in 2011.

Cargo volume in ports in Southern Luzon is foreseen to climb by 2% to 30.8M MT in this year from a forecast of 30.1M MT last year, while volume in ports in the Visayas is expected to grow by 9% to 27.1M MT from 24.9M MT. For ports in Northern Mindanao, cargo volume is expected to go up by 11% to 30.8M MT this year from 27.7M MT last year, while volume in Southern Mindanao is seen to increase by 6% to 18.3M MT from 17.3M MT. “Because of the projected increase in volume, we would then have to increase the capacity of our ports. This is where our development plans for the ports come in,” Santos said.

Santos said his agency has been focused on developing the country’s main gateway ports, namely those located in Manila, Batangas, Iloilo, Cagayan de Oro, Zamboanga, Ozamiz, General Santos, and Davao.

The PPA has also laid development plans for ports in Dumaguete, Legazpi, and Matnog.

BPO firm ramps up hiring in the Visayas Outsourcing firm Transcom Worldwide (Philippines), Inc. is hiring additional 2,000 employees for its call centers in Bacolod and Iloilo, Transcom Worldwide (Philippines) Country Manager Siva Subramaniam reported.

The firm needs 500 associates for Bacolod and 1,500 for the Iloilo site.

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Other openings are for 100 team leaders and 50 quality specialists as well as five operations managers and five training and quality managers.

“Our clients are very happy with the quality and caliber of staff we get from Western Visayas and we are very committed to continuing our growth in this region,” Subramaniam said.

“We also have the active support of the academe, the private sector, and the local governments,” he added.

Western Visayas produces more than 40,000 graduates annually. The two highly urbanized cities in Western Visayas jointly host close to 20 major call centers.

JICA submits updated study on PHL natural gas industry The Japan International Cooperation Agency (JICA) handed over to the Philippine government an updated study and a set of recommendations to develop the Philippine natural gas industry, a program seen to help secure the country’s energy future.

The JICA study evaluates opportunities in the natural gas industry and identifies which infrastructure will be deemed priority projects and what kind of investments will be needed.

The report contains an evaluation of the viability of importing natural gas and the potential sources and validation of the supply and demand statistics.

Department of Energy (DOE) Secretary Jose Rene D. Almendras stressed the need to pursue alternative fuels such as natural gas given the global oil price volatility, to which the Philippines is highly vulnerable as it sources most of its fuel requirements abroad.

Natural gas has been deemed to be among the more feasible alternatives that will allow the country to diversify its energy and transport fuel sources.

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Aquaculture is world's fastest-growing source of animal protein More than 50% of the world’s food fish consumption will come from aquaculture this year, the Food and Agriculture Organization (FAO) of the United Nations UN said.

In the report titled “World Aquaculture 2010,” FAO reported that global production of fish from aquaculture grew more than 60% between 2000 and 2008, from 32.4 million tons (MT) to 52.5MT. “With stagnating global capture fishery production and an increasing population, aquaculture is perceived as having the greatest potential to produce more fish in the future to meet the growing demand for safe and quality aquatic food,” the report said.

The FAO noted that with its growth in volume and value, aquaculture has clearly helped reduce poverty and improve food security in many parts of the world.

However, the FAO report acknowledged that aquaculture has not grown evenly around the planet.

Marked differences in production levels, species composition, and farming systems exist within and between regions, and from one country to another, the report said.

The Asia-Pacific region dominates the sector. In 2008 it accounted for 89.1% of global production, with China alone contributing 62.3%.

Of the 15 leading aquacultureproducing countries, 11 are in the Asia-Pacific region.

Despite major technical developments, small-scale commercial producers remain the backbone of the sector in the Asia-Pacific region.

PHL reelected to IMO Council The Philippines was re-elected to the Council of the International Maritime Organization (IMO) under Category “C.” The elections took place on 25 November 2011 during the 27th Regular Session of the IMO Assembly held at the IMO Headquarters in London.

“The re-election of the Philippines to the IMO Council demonstrates the high-regard the 170-member UN organization has on the country.

It recognizes our status as the primary provider of seafarers to the global maritime fleet and our active contribution in the areas concerning the human element and maritime security, specifically in combating piracy,” IMO Philippine Permanent Representative Ambassador Enrique A. Manalo said.

The Philippines was first elected to the IMO Council in 1997 and has since been re-elected under Category “C” where 20 governments representing all major geographical areas of the world have special interests in maritime transport and navigation.

Elected together with the Philippines were Australia, the Bahamas, Belgium, Chile, Cyprus, Denmark, Egypt, Indonesia, Jamaica, Kenya, Liberia, Malaysia, Malta, Mexico, Morocco, Singapore, South Africa, Thailand, and Turkey.

In addition to Category “C,” 10 governments are elected each under Category “A” and “B.” States with the largest interest in providing international shipping services like Greece, Japan, and the United States were elected under Category “A” while states with the largest interest in international seaborne trade like Germany, Brazil, and France were elected under Category “B.” Philippine Business Report

The IMO is a UN specialized agency responsible for ensuring maritime safety and security and protecting the marine environment.

The Council is the Executive Organ of IMO and is responsible for supervising the work of the Organization.

Trade and INVESTMENTS AGRICULTURE/ AGRIBUSINESS AND FISHERY Canadian company leases 100 hectares to plant John Hay Coffee A Canadian company is leasing 100 has. of land inside the Camp John Hay Special Economic Zone in Baguio City where it plans to plant at least 100,000 coffee trees.

Resources, Inc. will invest additional US$200M for the second phase of the coal-fed power plant it plans to construct here.

This will be on top of the US$280M already announced by the Alsons power group for the project’s first phase which will have a 100-megawatt (MW) capacity and is targeted on stream by mid-2014.

The second phase will have the same capacity and will likely contribute to Mindanao grid’s supply by 2015.

“Our investment for phase 2 will be lower because we already gained economies of scale from the first phase. We already have the coal yard, jetty, and other facilities. We are targeting construction of phase 2 six months after,” Alsons Power Group Chief Executive Officer (CEO) Tirso G. Santillan, Jr. said.

The premium coffee yield from the plantation will be marketed globally under the brand John Hay Coffee.

The Bases Conversion and Development Authority (BCDA), the government agency authorized to oversee the country’s former military bases including Camp John Hay, announced that Canada’s Rocky Mountain Arabica Coffee Co. (RMACC) and John Hay Management Corp. (JHMC) have signed an agro-forestry management agreement for the venture.

“This agreement will augur well for the people of Baguio as this will generate employment and at the same time put Baguio City in the map for producing high-quality coffee,” BCDA President and Chief Executive Officer (CEO) Arnel Paciano Casanova said.

ENERGY Alsons investing additional US$200M The power generation arm of the Alcantara-owned Alsons Consolidated January 2012

in Nabas, Aklan, as anchored on the preliminary outcome of a micrositing study undertaken

by Danish engineering firm Cowi, Inc. The Danish company rendered consultancy services to PetroGreen Energy Corporation, the renewable energy arm of publicly-listed PetroEnergy Resources Corporation, chiefly in the assessment of wind potential in Aklan.

The company is a holder of wind energy service contract awarded to it by the Department of Energy (DOE) covering the Nabas-BuruangaMalay area.

Cowi, Inc. is still undertaking a detailed geologic survey for civil works and construction planning purposes.

Ormin Power starts Mindoro plant Ormin Power, Inc., a subsidiary of listed company Jolliville Holdings Corp., has recently inaugurated its 6.4-megawatt (MW) power plant in Calapan City, Oriental Mindoro.

The plant is expected to produce up to 4.6M kilowatt hours (kWh) per month. Its power output will be sold to Oriental Mindoro Electric Cooperative, Inc. (Ormeco) for distribution to end users.

At least 70MW of the power plant’s capacity had already been committed to South Cotabato II Electric Cooperative (Socoteco II) via a 25-year power sales agreement (PSA).

Santillan noted that the offered rate to the electric cooperative-offtaker is at P5.95 per kilowatt hour (kWh).

“It is still subject to approval by the Energy Regulatory Commission (ERC),” he emphasized.

Danish firm affirms 50-MW prospect A 50-megawatt (MW) wind power facility is feasible for development

Ormeco’s current peak demand is 28MW and its energy demand is 159.7M kWh. It distributes power to the entire province of Oriental Mindoro which consists of Calapan City and 14 municipalities including Puerto Galera, San Teodoro, Baco, Naujan, Victoria, Socorro, Pola, Pinamalayan, Gloria, Bansud, Bongabong, Roxas, Mansalay, and Bulalacao.

“Ormin Power aims to help meet the demand for sufficient and continuous power supply for the increasing number of households, commercial establishments, and industries in Oriental Mindoro. Its objectives are in line with the call of the Department of Energy (DOE) 5

for the need to expand and upgrade power generating facilities throughout the country,” said Ormin Power Executive Vice President Boyet Ilagan.

The 5,000-sqm. plant is located in Brgy. Sta. Isabel in Calapan and has four modular powergenerating units and a Heavy Fuel Oil Treatment Unit with a cooling water system and intake air exhaust gas system.

The diesel generating set is designed to produce electric power using a Himsen engine manufactured

by Hyundai Heavy Industries of South Korea.

Seaoil sees double-digit growth in 2011, plans to put up more stations this year Seaoil Petroleum, Inc. projected a double-digit sales growth last year.

Seaoil President Glenn L. Yu said the company expects to cash in on its expansion and the improving economy with a 15-20% increase in revenues.

“For us, we continue to expand... last September 2011, we opened our 200th station. I think we’re beneficiaries of a strong economy as well,” Yu said.

Formed in 1997, Seaoil is the first company outside of the Big Three oil companies in the Philippines (Petron, Shell, and Caltex) to put up a fuel station after government liberalized the downstream petroleum industry in 1998.

In 2010, the company registered total sales of P11B out of the 180 retail outlets it operated. The company targets to hike its pump stations this year.

“We’re looking at around 60 stations this year which we are breaking down into 30 in Luzon, 15 in Visayas, 15 in Mindanao,” Yu said.

Aside from the fuel stations, the company also plans to put up 6

additional storage facilities to support its network.

The facility’s site will be in Negros Occidental.

Seaoil expects to spend P1B for the expansion and plans to use its own cash and tap lenders to bankroll the proposed projects.

Asia’s largest ethanol plant to rise in PHL Netherlands-based North Sea Group plans to put up Asia’s largest ethanol manufacturing plant in the Philippines.

Over the next three years, the company would spend P3B for capital expenditure projects aimed at making Seaoil the “Jollibee of the oil industry,” Yu said.

Korean firm mulls US$400M underwater Vis-Min Power Connection Korea’s Advanced Management Development Association (AMDA) mulls a US$400-M underwater cable that would link the Visayas and Mindanao power grid with supply coming from the Leyte geothermal power plant.

The potential investment was facilitated by business and consulting firm ZMG Ward Howell, Department of Trade and Industry (DTI) Undersecretary for Trade and Investment Promotions Group (TIPG) Cristino L. Panlilio said.

There is also the potential of another underwater cable that would connect power from Batangas to Mindanao.

GREEN PROJECTS Eastern Petroleum seeking foreign partners for its P2-B biomass project The renewable energy arm of local firm Eastern Petroleum Corporation is moving ahead in discussions with prospective foreign partners on its proposed P2-B bioethanol plant with integrated biomass power project.

The proposed ethanol-cum-biomass facility will have a production capacity of 100,000 to 125,000 liters per day, while the biomass component is set for a generation capacity of 18-20 megawatts (MW).

Based on the project’s blueprint, Eastern Renewables Corporation will likely spend P1.5B-P2B for the project.

Department of Energy (DOE) Undersecretary Jay Layug said North Sea has signified its intention to construct a 400-M liter ethanol processing plant at a still undisclosed location in the country.

Layug said once built, the facility would not only be the biggest ethanol plant in the Philippines, but also in the whole of Asia.

“They are planning to invest in the Philippines. They’re hoping to build the largest ethanol facility in Asia here in the Philippines,” he said.

Thai company joins energy project Siam Cement Group (SCG) has invested 24% in Green Alternative Technology Specialist, Inc. (GATSI), which is engaged in the manufacture of refuse-derived fuel (RDF) in Rizal province.

In a statement, SCG said it invested some US$7.3M in the project, which has a production capacity of 28,000 tons a year of RDF. The facility is scheduled for completion early part of the year.

“SCG seeks to fulfill the vision of becoming an ASEAN sustainable business leader by 2015, and the group continues to expand Philippine Business Report

business across ASEAN countries, especially in strategic countries, namely, Viet Nam, the Philippines, and Indonesia,” said SCG President and Chief Executive Officer (CEO) Kan Trakulhoon.

8 German firms eye solar projects in PHL The European Chamber of Commerce of the Philippines (ECCP), German-Philippine Chamber of Commerce and Industry (GPCCI), and the Deutschen Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH said they are bringing to the country eight leading German solar power firms to explore possible business opportunities in the Philippines.

The German companies are coming to the Philippines under the “renewables - Made in Germany” program of the German government which is spearheading a drive to promote renewable energy in Southeast Asia.

ECCP Vice President for External Affairs Henry J. Schumacher said the German companies are interested in setting up partnerships for solar energy development in the country.

INFRASTRUCTURE Deal sealed for free port dev’t Real estate firm Megaworld Corp. has forged a deal with state-run Clark Development Corp. to build a P7-B, mixed-use development at a free port in Pampanga.

Freeport Zone and Clark Special Economic Zone totaling 550 has.

The Megaworld complex, located within the site of the former United States Air Force base in the Philippines, will feature office, commercial, and retail spaces, as well as leisure and entertainment, residential, and health and wellness components.

These amenities would cater to foreign and local business process outsourcing (BPO) firms, retirement communities, and tourism enterprises beyond the company’s existing base in Metro Manila.

MINING MRC invests P800M in gold processing in Surigao del Sur MRC Allied, Inc. (MRC) is putting up an P800-M gold processing project in San Miguel, Surigao del Sur that will cover 20,000-ha.property and will produce 100 tons (T) of raw materials daily.

The project is expected to generate revenues for MRC by the first quarter of this year.

“The development is consistent with the goal of MRC to support the tribal groups as the latter will thereby benefit from the employment, education, health, and other facilities that will be developed pursuant to the terms of the agreement. In turn, the tribal groups have expressed full support and cooperation with MRC,” Chief Executive Officer (CEO) Benjamin M. Bitanga said.

MRC started entering mining industry by acquiring the 8,200-ha.

Kiblawan prospect which straddles between Sultan Kudarat and Davao del Sur and is adjacent to the US$5.2-B Tampakan copper-gold project.

The developer signed a memorandum of agreement (MOA) to develop portions of the Clark January 2012

The latest development is the acquisition of the 2,059-ha. gold and copper mining project in Marihatag, Surigao del Sur costing P140M.

US$6-M Apex investments completed by Monte Oro Monte Oro Resources & Energy, Inc. acquired a 5-% stake in Apex Mining Company, Inc. for US$6M. “The investment by Monte Oro is a solid affirmation of Apex’s commitment to develop its mineral resources under their Mineral Production Sharing Agreement (MPSA) tenements. We are happy to have Monte Oro on board as a minority partner,” Apex Chairman Colin D. Patterson said.

China Trend to enter PHL mining industry China Trend Investments Ltd. expressed interest in making a P700-M placement in Vulcan Industrial & Mining Corp.

“In our evaluation, it would be more prudent for us to invest directly into Vulcan. Our proposal is to make a provate placement of up to P700M, instead of a memorandum of agreement (MOA),” China Trend Chairman Chan Wai Keung said.

Vulcan was incorporated in January 1953 and owns three approved mineral prediction sharing agreements, exploration permit applications for 10 mining prospects.

It also operates two other mining projects under operating agreements with third parties.

Mining Group acquires 80% of Comval project Australia-listed Mining Group Limited has entered into an agreement with Toronto-listed Cadan Resources Corp., acquiring 80-% interest in the Comval copper and gold project in the Compostela Valley.

“The Comval project in the Philippines is located in an established copper and gold producing region. Having evaluated a number of opportunities in Australia and offshore, this represents Mining Group’s first offshore project and builds on the company’s existing gold 7

and base metal tenements in Western Australia,” Mining Group Managing Director Andrew Maurice said.

The Mining Group will also be granted an option to acquire 80-% interest in the Batoto gold/silver project, with nine-month exercise period from settlement of the Comval project acquisition.

Maurice added that acquiring Comval is an exciting phase in the company’s growth and is consistent with having commercially significant mineral properties that can readily be brought into production.

The Comval project will cover 4,310 has. and had 24,000 meters (m) of drilling completed.

OTTO and BHP to drill petroleum well in Palawan OTTO Energy Ltd. and BHP Billiton Petroleum Pty Ltd. of Australia are set to drill a petroleum well in Palawan in the second quarter of 2012 as covered by Service Contract 55 (SC55).

The SC55 covers a 9,000km2 area that contains a robust, diverse and extensive portfolio of exploration prospects based on 3D seismic studies conducted by the OTTO Energy in 2010.

the 1,406.7-ha nickel tenement in Sta. Cruz, Zambales.

Luzon connection of the Central Luzon tourism route.

Its operations provide local employment and other community services such as scholarship grants, nutrition programs, medical missions, livelihood program, and tree planting activities.

The ARBP phase II would cost P3.3B of which P1.6B is being sourced from the Japan International Cooperation Agency (JICA).

It will pursue a medium-term plan to transform the company from a simple direct ore exporter into a processed nickel producer.

MAJOR PROJECTS NEDA okays P18.4-B road projects The Investment Coordination Committee (ICC) of the National Economic and Development Authority (NEDA) has approved two Luzon road projects worth P18.4B. To be spearheaded by the Department of Public Works and Highways (DPWH), the project includes the construction of four bridges and drainage facilities. .

OTTO Energy is currently operating the exploration block and controls 85-% stake. Local firms TransAsia Oil and Energy Development Corp. hold the remaining 15-% shareholdings in the contract.

BHP Billiton will pay OTTO Energy US$150M for a 60-% stake in the SC55 that covers the costs for two deep water wells.

P247M allotted for nickel subsidiary The Benguet Corporation provided the Benguet Corp. Nickel Mines, Inc. (BNMI) with additional P247-M equity to complete the Sta. Cruz nickel project.

The BNMI exports nickel ore in different markets and operates 8

The second project is the first phase of the Central Luzon Link Expressway (CLLEX) that will stretch from the Subic-Clark-Tarlac Expressway (SCTEX) in Tarlac City then eastward to Cabanatuan City until San Jose City, Nueva Ecija.

The project would cost a total of P15.1B of which P10.6B is being applied for JICA loan assistance.

Gov’t to upgrade health facilities The Department of Budget and Management (DBM) was set to release P1B for the health facilities enhancement program of the Department of Health (DOH) to improve the government health services.

The release, which is also part of the government’s commitment to fulfill the United Nations Millennium Development Goals (MDGs) to improve maternal health and reduce children mortality rates, would also upgrade health services benefitting the poor and marginalized sector of the society.

“The government is serious in its efforts in upgrading the overall delivery of its services, particularly in the social services sector,” DBM Secretary Florencio B. Abad said.

NEDA Director-General Socio-Economic Planning Secretary Cayetano W. Paderanga, Jr. said the arterial road bypass project (ARBP) phase II will complete the plan to bypass the congested part of the Pan-Philippine Highway (PPH) from Guiguinto to San Rafael, Bulacan.

The project would encourage local and international tourism by improving the North Eastern

Upgrading of health facilities nationwide is part of the government’s social development plan in line with the Department of Social Welfare and Development’s (DSWD) conditional cash transfer (CCT) program.

The DBM has previously released P4.6B for the same DOH program apart from the P1B released budget for health facilities upgrade.

The P1-B funding, which will cover the costs of infrastructure and Philippine Business Report

equipment needed by the health facilities in three regions, will upgrade rural health units in Regions 4-A, 4-B, and 5.

COMPANY NOTES ALI, Mitsubishi form P1.2-B joint venture Ayala Land, Inc. (ALI) and Japan’s Mitsubishi Corp. have formed a P1.2-B joint venture to promote increased energy efficiency in the Philippines.

ALI said it will own 60% of the new firm, Philippine Integrated Energy Solutions, Inc. (PhilEnergy), while Mitsubishi will hold the remaining 40%.

PhilEnergy has budgeted close to P1B for the construction of two district cooling system (DCS) plants in Ayala Center in Makati and in Alabang Town Center in Muntinlupa.

The DCS facilities are expected to provide significant savings on both capital expenditure and operating costs.

To be managed by ALI, the joint venture is also planning other DCS projects in Cebu, Cagayan de Oro, and Quezon City.

Mitsubishi will provide critical technical support through its extensive network of affiliated energy-saving companies, which have leading track records in Japan and around the region.

The joint venture marks the latest cooperation between the Ayala and Mitsubishi groups, which is a long-term strategic partnership that stretches all the way back to 1974.

Gardenia builds P700-M facility To meet rising domestic demand for loaf and other pastries, the country’s biggest industrial bread maker Gardenia Bakeries January 2012

(Philippines), Inc. (GBPI) is building its fourth bakery facility worth P700M this year.

The plant will be constructed beside its Laguna facility. It is expected to produce 150,000 loaves daily, half of the existing Laguna plant’s production of 300,000 loaves per day.

Said plant will have German and Japan-made machineries, which are made specifically for the kind of bread they produce.

Local bread industry has been witnessing respectable growth since 2010, an improvement from two years of flat growth in 2008 and 2009.

Globe and Puregold tie up Globe Telecom, Inc. partnered with Puregold Price Club, Inc. for its commercial load service targeting retailers.

“We see this joint service from Globe and Puregold spurring an increase in micro-entrepreneurs, especially since this will expand our commercial reload channels in the communities,” Globe Consumer Sales Group Head Ramon G. Matriano said.

Globe AMAX retailers would be able to buy prepaid credits for as low as P500 to as much as P150,000 with the opening of the point-of-sale (POS) commercial load service to 25,000 check-out counters nationwide.

in 2010. The low-cost loaf, sold for P38.50 for 250 grams versus branded bread of P60 for 450 grams, is expected to have a higher volume demand this year.

Stanhome World opens five more service centers Stanhome World Philippines (SWP), a European direct selling company, opened five more service centers in Luzon, Visayas, and Mindanao, bringing the total number of Stanhome service centers to 12.

SWP opened up new service centers in the cities of Batangas, Iloilo, Cebu, Zamboanga, and Kidapawan in the third quarter of 2011.

“We are very upbeat about the way business has progressed.

With the opening of our new branches, we will further strengthen our presence in the Philippines,” SWP President Ina Quiogue said.

Walter Mart opens community mall Walter Mart strengthens its foothold in the Calamba, Laguna, Batangas, and Rizal (CaLaBaR) area with the opening of its Makiling shopping center in Laguna. With a population of over 10M, the CaLaBar area is home to employees of nearby factories and their families.

Walter Mart Makiling will cater to the needs of the developing communities of the area now known as “New Calamba.”

Walter Bread expands health products Creative Bakers Co., Inc., makers of Walter Bread, is expanding its product line in 2012 by including high-fiber and sugar-free bread snacks.

Walter Bread Owner Walter Co said the Pinoy Pandesal and Pinoy Tasty, two cheaper bread brands, helped generate interest in bread and even helped the market increase sales by 10%.

Pinoy Tasty, for example, had a volume demand of up to 700,000 pieces last year from only 450,000

Manila Water completes acquisition Manila Water Company, Inc. (Manila Water) has completed the acquisition of Clark Water Corp.

(CWC), the water concessionaire 9

of the Clark Freeport Economic Zone in Pampanga.

Manila Water said the acquisition was pursuant to a sale and purchase agreement signed with Veolia Water Philippines, Inc., Philippine Water Holdings, Inc. and Veolia Eau-Compagnie General Des Eaux.

Clark Water holds a 25-year water utility concession, serving 1,800 locators with a billed volume of approximately 20M liters per day.

Manila Water, on the other hand, supplies water to the east zone concession of the capital, Laguna, and Boracay Island.

bilateral Agreement Germany extends technical economic package to PHL The German government is extending a technical and economic assistance package worth P500M to the country aimed at helping the Philippines improve on certain areas such as peace development, conflict prevention, and environment protection.

assistance from the German Agency for International Cooperation (GIZ) and the KfW Development Bank.

National Economic Development Authority (NEDA) Deputy Director-General Rolando G. Tungpalan said the agreement was forged at the conclusion of the 2011 Philippines-Germany Governmental Dialogue held on 15 November 2011.

PHL, Korea ink pact on grant aid Department of Foreign Affairs (DFA) Secretary Albert F. del Rosario and Korean Foreign Affairs and Trade Minister Kim Sung-hwan signed a framework agreement governing the Korean government’s provision of grant aid to the Philippines.

The agreement sets forth the specific measures and responsibilities to be undertaken by the Philippines when receiving grant aid from Korea, thereby reducing the administrative impediments usually encountered by both countries in implementing development cooperation programs.

The National Economic and Development Authority (NEDA) and the Korea International Cooperation Agency (KOICA) shall be the responsible agencies for its implementation.

Exports to Japan jump 12.8% in first 3 quarters in 2011 The value of local goods shipped to Japan rose 12.8% to more than US$6.5B in the first three quarters in 2011 from US$5.8B in the same period in 2010.

The agreement said Germany will provide new allocations worth P278M for bilateral technical cooperation.

It will also provide P205M worth of financial and technical cooperation funds for four ongoing programs being implemented with 10

Philippine imports from Japan, on the other hand, slipped 1.3% to close to US$8.1B in JanuarySeptember 2011 from US$8.B in the same period in 2010.

Moreover, the Philippines was the destination for 1.3% of Japan’s overall exports, while Japan sourced 1.1% of its imported goods from the country.

ASEAN WATCH UN commits US$667M in new Philippine Dev’t Assistance Framework The United Nations (UN) has committed a total of US$667M in four development and social services projects in the Philippines over the next seven years under the UN Development Assistance Framework (UNDAF).

Under the UNDAF, around US$147.2M has been allotted to strengthen the capacities of the national and local agencies to deliver quality social services for the poor.

Of the total investment, some US$79.3M will come from regular UN sources, while the rest will be mobilized from other sources.

The US$147.2-M budget aims to support the Philippine government’s delivery of social services that seek to eradicate hunger, reduce maternal and infant mortality, achieve universal primary education, provide access to safe water, and combat human immunodeficiency virus (HIV) and acquired immunodeficiency syndrome (AIDS).

Around US$75.4M will be used to support the Philippine government’s effort to improve the access to food and nutrition of vulnerable populations.

Moreover, the UN has committed to help bring peace and prevent conflict in Mindanao through some US$38.7M worth of projects over the next seven years.

“We believe that sustained development is key to achieving peace. That is why UN agencies here are working as one to reach that goal,” UN Resident Coordinator, Dr. Jacqueline Badcock said.

Philippine Business Report

“We are fully committed to the ASEAN goal of economic integration by 2015. While we remain cautiously optimistic that this agenda can be achieved, we also want to ensure that the ASEAN population benefits from the integration,” Department of Trade and Industry (DTI) Secretary Gregory L. Domingo said during the recent 19th ASEAN Summit held in Bali, Indonesia.

ASEAN leaders adopted key cooperation frameworks to fast-track economic integration and boost trade and investments in the region.

One of the agreements signed during the Bali ASEAN Meeting will now implement the second package of specific commitments in trade in services between ASEAN and China.

ASEAN likewise signed the Second Protocol to amend the agreement on trade in goods between ASEAN and Korea.

Pushpanathan said the agreement will facilitate opening up of more point-to-point routes for air services between India and ASEAN countries.

He said a free trade agreement (FTA) between ASEAN and India on investment and services is being finalized and is likely to be inked in the first quarter of this year.

APEC slashes 'green' goods tariffs Asia-Pacific leaders representing more than half of the global economy committed to cutting tariffs on environmental goods to no more than 5% by the end of 2015 and reducing energy intensity.

Leaders of the Asia-Pacific Economic Cooperation (APEC) bloc said they would also eliminate non-tariff barriers that impede trade in green products.

“Taking these concrete actions will help our businesses and citizens access important environmental technologies at lower costs, which in turn will facilitate their use, contributing significantly to APEC's sustainable development goals,” a statement from APEC said.

Three working groups (trade in goods, services, and investments) will be established to define specific principles and template under which ASEAN will engage its trading partners.

ASEAN-India air agreement pushed The Association of Southeast Asian Nations (ASEAN) plans to conclude an air services agreement with India by yearend to boost regional movement of both passengers and cargo.

“Initial discussions at the technical level have already taken place and there is a commitment at the highest level to sign this agreement this year,” ASEAN Deputy Secretary-General Sundram Pushpanathan said.

January 2012

China-ASEAN fund to deploy US$500M this year The China-Association of Southeast Asian Nations (ASEAN) Investment Cooperation Fund, a private equity firm backed by the Export-Import Bank of China, plans to invest US$500M in ASEAN this year.

China-ASEAN Investment Fund Cooperation Associate Director Ryan Chung said the firm raised about US$1B for its first fund in April 2010 and has already invested

US$400M of that money in four companies in the Philippines, Thailand, Cambodia, and Laos. The investments range from a container terminal to a potash miner.

China’s Premier Wen Jiabao urged the development of free trade zones between China and ASEAN as China is seeking to increase the scale of currency swaps with the region.

The China-ASEAN Fund, which counts China Investment Corp. and International Finance Corp. as investors, may seek to raise US$2B to US$3B in the second half of this year after it deploys a majority of the capital collected in the first fund.

On the calendar Manila FAME International 2012 Manila FAME International will be held on 14-17 March 2012 at the SMX Convention Center in Pasay City.

It will bring together ManilaNow, CEBUNEXT, and Bijoux Cebu, and four of the country’s major sourcing events to mark the Philippines as Asia’s design destination for lifestyle products in furniture and furnishings, holiday and gifts, and fashion.

Philippine Postal Permit No. 504

PHL sees ASEAN eco integration by 2015 The Philippines remains optimistic that the Association of Southeast Asian Nations’ (ASEAN) goal of economic integration will be done by 2015.

11

Economic Indicators

GNI Growth Rate (%) 10

10

8

8

6

6

4

4

2

2 0

0 2Q (2010) 3Q(2010) 4Q (2010) 1Q (2011) 2Q (2011) 3Q (2011)

128

4.6 4.4

127.5

4.2

127

4

126.5

3.8

126 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11

3.6 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11

44

(1994 base year)

6 4

43 42.5

2

42 41.5

0 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11

Imports (In US$Billion) 6 5 4 3 2 1 0

Inflation Rate (%)

Peso per US Dollar Rate 43.5

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

Exports (In US$Billion)

Consumer Price Index (2000 base year)

GDP Growth Rate (%)

Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11

Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11

Interest Rate (%) 4.74 4.73 4.72 4.71 4.7 4.69 4.68 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11

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

Editorial Team: Anne L. Sevilla, Editor-in-Chief • Vic S. Soriano, Assistant Editor • Cresenciano P. Par, Jam A. Hourani, Ariel B. Salcedo, Elaine M. Lazaro, and Emman R. Caleon, Writers • Ren C. Neneria, Design Layout • Myrna V. de los Reyes, Circulation.

Philippine Business Report is published monthly by the Trade and Industry Information Center (TIIC), Department of Trade and Industry, 2F Trade and Industry Building, 361 Sen. Gil J. Puyat Avenue, Makati City 1200, Philippines • Phone (+632) 895.3611 • Fax (+632) 895.6487 • To subscribe, e-Mail: publications@dti.gov.ph

Philippine Business Report

12

January 2012

Philippine Business Report