Action 1.3 Formulate a strategy for international gateway development

14. 
    While the share of air transport in passenger and cargo movement nationwide is less than 1 percent, it has a significant role in the country’s international connectivity. Visitor arrivals grew at an average annual rate of 13 percent from 1.9 million in 2003 to 3 million in 2007, and the number of oversees workers (OFWs) grew at an average annual rate of 10 percent from 1.03 million in 2001 to 2 million in 2008. Serious capacity constraints at the Ninoy Aquino International Airport (NAIA) are foreseen and a combined strategy for an alternative gateway and NAIA should be formulated soon. Preparations are underway for the development of Diosdado Macapagal International Airport (DMIA) as international gateway and will need to be closely coordinated with plans for NAIA. It will be important as well to ensure that plans be made for a DMIA airport link to Manila, whether express rail or highway. As in the case of Manila-Subic-Batangas ports, this issue highlights the important role for a focal transport agency to coordinate inter-agency issues. Current efforts in meeting safety standards should be continued and supplemented.
    

15. 
    The rapid increase in urbanization in the Philippines requires a responsive urban transport strategy. If land use and urban transport issues are not managed properly, the quality of life in these urban areas will deteriorate. The National Environmentally Sustainable Transport Strategy (NESTS) provides recommendations for national agencies and LGUs on how to deal with urban transport bottlenecks, ranging from non-motorized transport to capacity improvements and transport demand management.
    

16. 
    The processes for allocating public resources need to be improved. Planning and budget processes and project preparation need to ensure that expenditures are focused on areas that offer the highest returns. The government has taken important initiatives to achieve this, but much remains to be done. The quality of multiyear planning and the quality of project preparation and selection in the annual budgetary process following stakeholder consultations can all be significantly improved—independent of whether projects are funded by the government, international financial institutions, or the private sector.
    

17. 
    In the short term, the annual budget of DPWH and DOTC/PPA can serve as the principal instrument to influence policies, programs and projects in the transport sector. Greater involvement from oversight and economic sector agencies is necessary to ensure that the transport budget supports broader economic objectives as the investment plans are prepared by DPWH/DOTC and taken through the Congressional budgeting process. A more broad-based consultation on new major capital investments needs to be institutionalized, with the participation of transport professionals, the business sector, academe, etc. This can serve as a starting point for introducing greater transparency in the sector, extending through the cycle of planning, programming, budgeting, procurement and project implementation.
    

18. 
    The government has a long list of infrastructure projects, including many transport projects, under the Comprehensive and Integrated Infrastructure Program (CIIP), but this is not a prioritized list that can be readily translated into an investment program. A consultative prioritization process is needed to select a shorter list of projects that will be supportive of urban and other sector development agenda, and can be supported by the DPWH/DOTC budgets. Budget for project preparation has been limited in the past and ensuring that there will be enough budget is necessary for taking forward any major capital investments. The government needs studies to identify the high priority projects based on technical and socio-economic analyses.
    

19. 
    Only a few comprehensive urban transport studies have been undertaken for cities, for example, transport studies for Metro Manila¹⁴, Metro Cebu¹⁵, and Davao City¹⁶. The Local Government Code of 1991 gives the LGUs primary responsibility over urban planning and management. However, urban transport planning has not been given due attention in the existing Housing and Land Use Regulatory Board guidelines and standards being used by the LGUs.¹⁷ Thus, capacity-building on urban transport development for local governments must start by including urban transport in planning guidelines and finding mechanisms for coordinating distinct urban plans. Financial assistance for transport infrastructure managed by LGUs that can be found in the budgets of DPWH and DOTC could be rationalized to support a more strategic program for urban transport and improving access in the rural areas. Active consultation between the Executive and Legislative will be important in this regard.
    

20. 
    A strategy for local/rural roads development is important with respect to improving the integration between leading and lagging regions/sectors, not only for providing access but also for connecting small farms and production units to the supply chains. A 2007 International Labour Organization (ILO) report roughly estimated that as much as half of the barangays (villages) in the country lack all-weather roads, and about half of the existing barangay rural roads are in such poor condition that they cannot be maintained any longer.¹⁸ It will be important to complete first the current inventory of local (barangay) roads, in order that a long-term strategy can be determined. Such a strategy may need to allow for national agencies to provide support to the development of local roads, especially barangay roads, given the evident lack of resources at the local level.
    

21. 
    Higher public spending on transport infrastructure will require an effective governance and accountability framework for the sector. Such a framework should start in national budgeting and planning processes and extend through project preparation, procurement, and project implementation. .
    

22. 
    Reforms in procurement, financial management and implementation quality have been initiated and need to be sustained. Greater transparency through public disclosure of important documents such as agency budgets, expenditure and accomplishment reports will be important. Sector performance assessments by a third party, such as that initiated by RoadWatch in the roads sector, would be helpful. A specific area where serious governance questions have been raised is the Motor Vehicle User's Charge (MVUC) introduced in 2001. It provides allotments for maintenance of national roads through the Special Road Support Fund, managed by the Roads Board. Total MVUC collections have increased from P3.2 billion in 2001 to P8.6 billion in 2008. However, there has been a tendency to allocate a significant portion (ranging from 25 to 35 percent) of funds for purposes other than preservation of national roads. To improve the effectiveness of the Road Fund for its intended purpose, the Roads Board has to adopt a more objective, needs-based and transparent set of criteria for allocating the Road Fund, based on planning tools/models of DPWH.
    

A closer look at the number and size of civil works contracts being administered by the DPWH would reveal that there is huge potential for increasing efficiencies in the use of the available budget. About 84 percent of over 12,800 civil works contracts awarded by DPWH in 2008 are small contracts amounting to 10 million pesos or less. A huge volume of small contracts poses serious challenge for quality control in project preparation, procurement and implementation. Consolidating contracts into bigger packages could result not only in greater efficiencies for DPWH operations, but could also help local contractors to increase their construction capacity and experience to allow them to compete in bigger contracts. Potentially, OPRCs for a longer section of roads, or even a small network, offer potential efficiencies in contract management and could increase accountability of a private contractor for a specified section of the network. Figure 2: Civil Works Contracts Awarded by DPWH in 2008 Source: Department of Public Works and Highways

23. 
    Other forms of maintenance arrangements that could be explored by DPWH to increase accountability of private contractors and allow effective public monitoring for the roads network include output and performance-based road contracts (OPRCs) for rehabilitating and maintaining long sections of roads, rather than through conventional contracts that are input-based and designed for short sections. OPRCs could cover several years, contain more optimal risk-sharing between government and the private sector, and link the payments to how well the contractor manages to comply with minimum conditions of assets and levels of services that are specified in terms that the public could comprehend.
    

24. 
    Governance issues in the ports and shipping sectors relate more to institutional arrangements and market structure, respectively. The need to have a separate policy-making and regulatory body independent of the ports operating entity has been recognized in previous medium-term plans. The PPA, by virtue of its charter, issues certificates of registration and permits to operate private ports, and it operates its own ports, some of which compete with private ports. It has been noted also that the quality and productivity at PPA-owned ports is low because the players do not have the right incentives; cargo handlers have monopoly rights and do not invest in equipment, while the PPA gets a share of cargo-handling revenues. While port charges may be comparatively low, cargo handling costs are high—ranging from 29 percent to 46 percent of total sea transport cost for break-bulk cargoes and from 10 percent to 43 percent for containerized cargoes.¹⁹ In domestic shipping, a 2004 study of the industry concluded that the industry is highly concentrated, in that the top five operators accounted for more than 90 percent of the passenger and freight volumes. Together with domestic inter-island shipping rates, the impact of port charges and cargo-handling costs on freight movement need to be analyzed because they contribute to the final cost of goods and services as they are transported throughout the archipelago. (AusAID-PEGR)
    

25. 
    The private sector needs to be encouraged to continue its important role in transport infrastructure investment. Public resources alone will not be sufficient to meet the financing needs to raise the quality of infrastructure. Learning from the lessons of the past, better structured Public Private Partnership (PPP) projects need to be developed that will result in optimal risk allocation between the government and the private sector, and these projects should be brought to the market through a competitive process. Procedures need to be streamlined for the PPP approval process, while appropriate checks and balances for project review are retained. Contingent costs of public-private partnerships need careful analysis beforehand, which will require criteria for assessing public contributions.
    

26. 
    Two critical factors in pursuing a PPP agenda are policy dialogue/resolution and project preparation. At the policy level, it is important for the government to have a forum for involving key stakeholders in resolving policy issues with implementing agencies and interested private sector investors. Typically, the issues involved in PPP projects cut across a number of government agencies—including oversight, regulating, and implementing agencies—and it will facilitate project development if such a forum is in place to allow discussion and resolution of various issues between the private sector and the government. Another important factor in developing a PPP program is the presence of quality feasibility studies for projects that can be used as the basis for a competitive solicitation process. The government needs to regularly include a budget for the preparation of such studies in the DPWH and DOTC programs.
    

The World Bank

1. 
   Information and Communications Technology (ICT) contributes substantially to the economy and society in the Philippines today. ICT goods exports account for about 30 percent of total exports (World Bank, 2007), while ICT service exports (7 percent of total service exports) exceed the average for the region. Total value-added from the telecommunications sector contributes over 4 percent of GDP. The IT-enabled services industry (particularly business process outsourcing) alone employs over 400,000 people directly, thousands more indirectly, and contributed about 4 percent to GDP in 2008. The dynamic mobile market has also created incentives for several telecommunications operators to develop value-added features such as mobile phone-enabled financial services.
   

2. 
   Access to telecommunications is almost universal, with 99 percent of the Philippine population within range of mobile phone networks. The majority of Filipinos now have access to basic telephony, the result of substantial private investments in telecommunications infrastructure over the past decade. The Philippines has one of the East Asia & Pacific region's highest mobile phone penetration rates and one of the highest rates of text messaging (SMS) usage worldwide. As of 2008, there were 68 million mobile phone subscribers, representing 76 percent of the population.²⁰ All but 1 percent of the population lives within range of a mobile signal. There are about 3.6 million fixed lines in service (out of 7 million installed lines; the difference in utilization is in part due to the lower cost of mobile service and the relatively higher cost of fixed line maintenance).
   

3. 
   Access to Internet is limited. Overall, there are about 6 million Internet users, 400 licensed Internet Service Providers (ISPs), and 40,000 registered Internet cafes.²¹ However, Internet penetration is generally low in comparison with regional neighbors (Figure 1). Broadband penetration outside Metro Manila and Metro Cebu remains low. The number of broadband subscribers, using various access technologies, but primarily mobile, is currently around 2.2 million, or about 2.4 percent of the population (Table 1). This is attributable to infrastructure limitations and the total cost of ownership. The same factors also limit the quality of Internet service; i.e., connection speeds and reliability of service.
   

Operator Mobile broadband subs (3G, 3.5 G, HSPA) Fixed/Wireless broadband Fixed broadband (DSL) Total Smart/ PLDT ~ 1 million ~600,000 ~200,000 1.8 million Sun Cell (Digitel) ~20,000 plus 20,000 Bayantel ~85,000 85,000 Globe 97,000 34,000 159,000 290,000 Total 1.1 million 634,000 444,000 ~2.2 million Source: Interviews with operators, May 2009

Broadband Internet market shares Sources: Interviews with operators, Industry reports, May 2009

4. 
   The infrastructure required to expand Internet use includes both “backbone” (transmission) networks and local “access” networks to reach consumers.²² Fiber-optic backbone, offering the fastest transmission speeds, is largely available in all significantly-sized cities and municipalities along the developed transmission routes (Figure 2). However, 17 provinces have no fiber-optic backbone networks, and rely on either satellite or microwave (both lower capacity) transmission. In areas not served by fiber, mostly in central and southern regions of the country, the cost of access is relatively high, and the available bandwidth is much more limited. Fixed or mobile broadband access networks are available in at least 761 cities and municipalities nationwide (about half). However, the geographical reach of these networks is limited²³. New wireless technologies provide capacity for more extensive coverage; obligations and incentives will be required for services providers to deploy these more widely.
   

Provinces with Fibre-Optic Transmission Infrastructure None At least one operator 2 or more operators 17 63 38 21% 79% 48%

5. 
   Other constraints to more widespread Internet use in the Philippines are limited electricity access and the relatively high total cost of ownership (computers, Internet subscription), especially for lower-income households. Even the lowest-cost “start-up” package (including basic laptop, plus pre- or post-paid Internet subscription) is around US$300 (as of end-2009), equivalent to 85 percent of average monthly household income²⁴. A typical post-paid broadband Internet subscription (up to 2 Mbps) ranges from US$19-40 per month, also as of end-2009. Pre-paid pricing may be lower or higher, depending on volume and/or time restrictions.²⁵
   

6. 
   The existing level of backbone/broadband infrastructure, though increasing, is insufficient to meet the fast-growing demand from commercial and institutional users, including government. One analysis of the trends in demand for bandwidth in the Philippines projects that demand will treble from 55,932 Mbps in 2008 to 156,669 Mbps in 2010 (Telegeography). The World Bank (2010) has recently attempted to quantify and project the volume of demand from the public sector, in particular from health and education institutions, concluding that these sectors alone could account for 16 percent of total bandwidth demand in the country (25,000 Mbps)²⁶. Major potential sources of demand include projects/programs such as public expenditure management projects, Internet access for high schools (and prospectively other schools also), a variety of new E-Government services at the national and LGU level, applications such as ‘telehealth’, and agricultural information systems.
   

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