The government of the Philippines intends to invite bids for construction projects worth US$16.82bn over the next two years to 2012

London 6/10/2011 01:30 AM GMT (TransWorldNews)

Our View: Since President Benigno Aquino's election at the end of June 2010, the Philippines has been trumpeting a plethora of infrastructure projects. The government intends to invite bids for projects worth PHP739.8bn (US$16.82bn) over the next two years (to 2012), as it continues to move expeditiously to tackle the country's substantial infrastructure deficit. However, the bidding process for many of these projects did not start until March 2011 and only five out of a touted 26 are ready to go to tender, with the rest to be offered in the second hand of 2011. Consequently, we believe that construction activity, which should have contributed to industry value in 2010, will be pushed back to 2011. We are now pencilling in 13.5% real growth in the construction sector in 2011, with the sector valued at HP531.2bn.

Major recent developments include:

- In March 2011, the Philippine government announced the start of the bidding process for five infrastructure projects worth a combined value of US$1.05bn under a public-private partnership (PPP) framework. The five projects are all located in the metropolitan area of Manila, the Philippines' capital. They consist of three road construction projects and two urban railway operations and management (O&M) projects. They will be launched on different months throughout the first half of 2011, with the earliest projects earmarked for launch at the end of March 2011.

- In March 2011, the Philippine National Renewable Energy Board (NREB) announced a revision of the timeframe for the enforcement of a Feed-in-Tariff (FiT) system, which will now be postponed until January 2012. We believe that continued delays to the implementation of a feed-in tariff system - crucial to the development of a sustainable renewables industry in the Philippines - will deter investment in the renewable energy sector.

- Despite the government vowing to resolve the Ninoy Aquino International Airport Terminal 3 (NAIA-3), the dispute over expropriation payments is still ongoing. If an amicable solution is found, it would be a very strong positive signal for foreign investors.

Over the medium term, we believe that growth in the construction sector will be driven by the country's increasingly attractive investment climate, the launch of a plethora of infrastructure projects and the strong demand for electricity. We are forecasting real growth to average 8.4% per annum between 2012 and 2015, reaching an industry value of PHP852.9bn (US$20.9bn) by 2015. Part of this will be driven by private investment, which the new government is hoping will take a substantial portion, if not all, of infrastructure development funding. To achieve this, the Philippine government have stated that they will establish several regulatory changes and financial incentives to entice investors but it remains to be seen if investors are convinced by these government initiatives given the legal problems with previous government-linked projects.

Click for report details: Philippines Infrastructure Report Q3 2011


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