The Philippines remains an attractive market for PPPs. 57 projects are now in the pipeline and the model is proving particularly attractive to foreign investors looking to access the growing market in the Philippines.
After the deadline for submissions was pushed back several times on account of bidding parties' request for more time to consider their position and despite a revision of the guidelines for the bidding of airport projects, s even consortia have now been qualified for the PHP17.5bn ( US$425mn ) public-private partnership (PPP) to upgrade Matcan-Cebu International Airport and operate and maintain the asset for 20 years . The award represents the latest in a wave of PPP projects approved by the Philippine government and confirms our belief that there is strong growth potential in the Philippine infrastructure sector.
The qualified consortia are:
MPIC-JG Summit Consortium composed of Metro Pacific Investments Corp. and JG Summit Holdings, Inc., with France's Aeroports De Lyon for operation and maintenance (O&M);
AAA Airport Partners composed of the Ayala and Aboitiz groups, with Texas-based Houston Airport System as O&M partner;
Filinvest-CAI Consortium of Filinvest Development Corp. and Changi Airports Mena Pte. Ltd., with Changi Airport Saudi Ltd. as the O&M partner;
San Miguel-Incheon Airport Consortium, composed of South Korea's Incheon International Airport Corp. as lead member and three others, including San Miguel Corp.-led Optimal Infrastructure Development, Inc. - with Incheon acting as the O&M partner;
First Philippine Airports led by First Philippine Holdings, Inc., with Wellington International Airport Ltd., NZ Airports Ltd., and Infratil Ltd. as O&M partners;
Premier Airport Group led by SM Investments Corp., with Switzerland-based Flughafen Zurich AG as O&M partner; and
GMR Infrastructure and Megawide Consortium of Megawide Construction Corp. and India-based GMR Infrastructure Ltd., with Delhi International Airport (P) Ltd. and GMR Hyderabad International Airport Ltd. as O&M partners.
The involvement of such a high number of international firms continues the trend for international firms to be interested in the Philippines market. The availability of financing through the government's infrastructure fund is enabling projects to progress and therefore has caught the attention of the international infrastructure sector. The fund, known as the Philippine Investment Alliance for Infrastructure (PInAI), has been developed with the support of two multilateral financial institutions - the Asian Development Bank (ADB) and the International Finance Corporation (IFC), the private sector investment division of the World Bank - and this should make it easier to attract much-needed private and foreign capital to the PPP programme.
Besides the ADB, Dutch pension fund asset manager Algemene Pensioen Groe, Australian bank Macquarie Group, and one of Philippines' state pension funds, the Government Service Insurance System (GSIS) are also investing in PInAI. Given this level of support in the PPP market, we are bullish on the opportunities the Philippines will offer over our forecast period. In 2013, we forecast real growth of 7.9% for the infrastructure sector forecast, and then expect 5.9% per annum between 2013 and 2017. Compounding this positive outlook for the sector, the government recently passed an aggressive expansionary budget for FY2013, with a record PHP404.6bn (US$10.0bn) dedicated to infrastructure development (a 19.3% increase on 2012's budget).
|PPPs Lead To Good Infrastructure Growth|
|Philippines Infrastructure Industry Value (US$bn) and Real Growth (% year-on-year)|
We do however highlight the risk of doing business in the Philippines, with the World Bank ranking the Philippines 138 out of 185 countries on its ease of doing business in 2012, one of the lowest rankings in the Asia-Pacific region. As such, whilst we believe the likelihood of projects seeing the construction phase is high thanks to a strong economic performance and high demand for better infrastructure, we highlight the risk of major delays to projects. This is especially the case in the pre-construction phases where the tendering process is yet to reach maturity and as such will likely subject to usual hurdles in such markets.
Illustrative of the timescale on Philippine PPP projects, as we noted in mid-April 2013, a consortium consisting of South Korea's Daelim Industrial and Philippines' DM Consunji and Optimal Infrastructure Development (a subsidiary of Philippine conglomerate San Miguel ) was awarded the BOT (Build-Operate-Transfer) contract to implement the PHP15.86bn (US$385mn) Ninoy Aquino International Airport Expressway project. This is only the third contract awarded under the PPP programme since its inception in 2010.