The development of the country’s infrastructure in power, water and transportation will support the modernization of the agriculture sector, tourism and the decongestion of Metro Manila. The government adheres to the primacy of the private sector in the provision of infrastructure through the use of the build-operate-transfer and its variant modes. This will enable the government to devote a greater amount of resources for basic services and rural infrastructure which may not be financially viable for the private sector. The government will continue to intervene in the direct provision of basic infrastructure especially in the rural areas such as farm-to-market and feeder roads, feeder ports, irrigation, rural water supply, and missionary electrification, in support of the government’s poverty alleviation program.

Consistent with its continuing commitment to deregulation and privatization, the participation of the private sector in financing, construction, and operation of major infrastructure in transportation, power, and water shall be encouraged through partial or total cost recovery from user charges. The government will provide a regulatory framework that enhances competition and at the same time ensures public welfare, safety, and environmental quality. The government will focus on policymaking and regulation, leaving operations and management mainly to the private sector. In line with this, the government will concentrate on defining priorities, identifying and preparing core infrastructure projects, creating and enhancing the framework for private sector participation, economic and technical regulation, and reengineering the government bureaucracy to perform in the market-led environment. The supervisory capabilities of concerned government agencies will be strengthened to protect the interest of society and ensure transparency and integrity in project-related transactions.

The infrastructure program will consider the comparative advantages of the regions and the competitive edge of their people, with emphasis on meeting the basic needs of the severely disadvantaged and economically depressed areas.

In the transport subsector, priorities shall be focused on improving the quality of existing infrastructure through proper maintenance, rehabilitation, and upgrading. The government will concentrate on transport policy-making, planning, regulation, identifying and preparing core infrastructure projects. These shall support the private sector which will lead in the actual provision of transport infrastructure and services, inter and intraisland travel which will be facilitated by an all-weather network of roads, bridges, railways, sea and air lanes.

In the energy subsector, 95 percent of barangays will be provided with adequate, reliable, efficient and reasonably priced energy by 2004 with emphasis on the use of indigenous and renewable energy sources. The private sector, in partnership with the government and civil society, shall undertake major activities in energy resource development, power generation and distribution under a market-oriented environment and through an efficient and environmentally sustainable manner.

By year 2004, wider services for water supply shall have been extended through private sector participation, thus, enhancing service efficiency while shifting substantial public investment to other important governmental concerns. Strengthening the regulatory structure to oversee water utilities taken over by private operators is therefore essential and shall be effected upon the creation of an overall regulatory body.

ASSESSMENT

STRATEGIES

In Metro Manila, the rapid increase in the number of vehicles, coupled with the ongoing construction of key projects, strained the existing road network, particularly during peak hours, and caused severe traffic congestion. However, considerable traffic relief has now been noted on some corridors where LRT lines, road interchanges, and traffic signals have been completed.

Notwithstanding these efforts, basic access to farms, sources of livelihood, markets, and social services, remain inadequate. Tight budgetary constraints were a major problem that affected investments in the operation and maintenance expenditures for infrastructure projects particularly in rural areas.

The road density of the Philippines is much higher than those of other developing countries in the Association of Southeast Asian Nations (ASEAN) region (Table 6.1). However, the Philippines still falls below its neighbors in terms of road quality, as measured by the paved road ratio, i.e. the length of paved roads over the total length of roads.

The total length of Philippine roads as of end-2000 was 38,000 km. more than the total length in 1985 mainly due to the expansion of barangay roads. The length of roads and paved road ratios by classification, as of end-2000, are shown in Table 6.2.

About 85 percent or 171,956 km. of the total Philippine road network is composed of provincial, city, municipal, and barangay roads, which fall under the responsibility of the LGUs. Due to inadequate financial and technical resources, only about 15 percent of these roads are paved. Excluding barangay roads, 31 percent of the remaining local roads are paved.

The low paved road ratio of barangay roads at seven percent pulled down the overall paved road ratio to only 21 percent. Only very few barangay roads, however, carry substantial traffic which warrant paving, while the rest should be upgraded and maintained as all-weather unpaved roads.

For the national road system of 29,878 km., investments for rehabilitation and upgrading resulted in the improvement of both paved and all-weather roads (Table 6.3).

Moreover, about 89 percent of the 276,878 lineal meters (lm.) of bridges along national roads are now permanent structures, compared to 83 percent in 1998.

Meanwhile, a Road Safety Program was instituted. The Department of Public Works and Highways (DPWH) is also installing a computerized Road Information Management and Support System (RIMSS) to improve the quality and delivery of services in the provision and management of the national road network. Through the RIMSS, the DPWH instituted reforms in the procurement of infrastructure contracts which were incorporated in the latest set of amendments to the implementing rules and regulations of PD 1594. This has reduced the bidding and contracting process from about a year to only two to four months, aside from promoting greater transparency and competition. However, ROW difficulties continued to hound government projects.

In rail transportation, the Philippine National Railways (PNR) substantially completed the rehabilitation of the Main Line South (MLS) and the improvement and modernization of the Commuter Line South Project.

In urban transportation, Phase 1 of MRT Line 3 along EDSA, the Metro Manila Skyway from Bicutan to Buendia and four EDSA and C-5 interchanges were completed. The Light Rail Transit Authority (LRTA) also completed the 50-percent capacity expansion of Line 1 with the commissioning of seven new, air conditioned four-car trains and the transformation of the existing two-car trains to three-car trains, while simultaneously upgrading its facilities, including the rehabilitation of existing rolling stock. MRT Line 2, a 14-km. double-track elevated line which will link the east and west sides of Metro Manila from Santolan (Pasig) to Recto Avenue (Manila), and two other interchanges are under construction. However, the government faced problems pertaining to the network effects of several privately-initiated mass rail transit projects: (a) inadequate intermodal integration (LRT stations and expressway entries/exits with bus, jeepney and pedestrian facilities); (b) inadequate land use control; and (c) difficulties in ROW acquisition. Meanwhile, the Manila-Cavite Tollway project under a joint venture scheme slowed down because of ROW and financing difficulties.

To address the worsening traffic problem in Metro Manila, restrictions in travel patterns were implemented through the Unified Vehicle Volume Reduction Program (UVVRP), commonly known as color-coding, which significantly eased traffic. The DPWH also started to modernize the traffic signals at major intersections in Metro Manila, using a computerized demand-actuated system.

In water transportation, the government completed the initial expansion and modernization of Batangas port under Phase I of the Batangas Port Development Project. The Philippine Ports Authority (PPA) also implemented various improvement and expansion projects including the ports of San Carlos, Jolo, Davao (Sasa), Virac, Zamboanga, and Pagadian. The PPA continued its program of repair and maintenance of facilities covering the 114 ports comprising the PPA port system. However, the delay in the operationalization of the Cebu Port Authority affected the expansion of the terminal port as well as the roll-on, roll-off (Ro-Ro) network development program. This program, which is centered in Cebu, aims to connect the Visayas and Northern Mindanao.

A new fishing port complex in General Santos was completed under Package II of the Nationwide Fishing Ports Program. Under the ongoing Feeder Ports Program, 33 ports were completed, while a second package involving 36 ports focusing on rural and depressed areas was launched. The government also implemented the recommendations of the Maritime Safety Master Plan. For instance, lighthouses on the highest density Manila-Cebu route and at selected priority locations were installed. Another package of navigational aids is ongoing while two are under preparation.

In air transportation, the construction of NAIA Terminal 2 was completed and is now operational, decongesting the old domestic terminal and NAIA Terminal I. The runway of the Davao International Airport was upgraded and lengthened to 3,000 meters. This can now accommodate the bigger Boeing 747 and Airbus 340. The relocation of the airports in Cagayan de Oro, Iloilo, and Bacolod to bigger and ideal sites was approved and preparatory works are almost completed. The NAIA Terminal 3, a much bigger capacity airport terminal and the first BOT project in aviation, is now under construction. The air facilities modernization for 18 airports and sites under the Air Navigation Facility-2 (ANF) Project was completed, thereby enhancing safety in air routes leading to these airport destinations.

Several transport infrastructure projects under the BOT and other joint venture schemes were put on stream in 1999-2000: (a) the NAIA Terminal 3 BOT project was pursued; (b) the BOT Lipa-Batangas City segment of the Southern Tagalog Arterial Road (STAR) was started; (c) the Supplemental Toll Operations Agreement for the Manila North Tollway Project (Manila-Subic) was approved in principle while widening of the existing expressway was started; (d) the joint venture proposal for Philippine National Construction Corporation‘s (PNCC) South Luzon Tollway Extension Project (Alabang to Lucena) is under evaluation; and (e) the joint venture arrangements with the private sector for LRTA’s Line 1 South Extension Project and Skyway Phases II and III were initiated.

To further encourage private investments in ports, the PPA liberalized its guidelines for the development and operation of private ports. However, further attempts to demonopolize the sector beyond contracting out of port services in government ports were stymied by labor issues.

Strategies and Targets

Transportation policy will be geared to facilitate the movement of passengers and cargo. Transportation services should be safe, reliable, efficient, economical, environmentally friendly, accessible, and affordable even to the masses.

The medium-term plan will concentrate on providing the transport infrastructure needed to support the priority programs of the government, namely, modernization of agriculture, development of tourism, improvement of peace and order, decongestion of traffic, and development of information and communication technology.

The government’s medium-term priorities include an overall road framework plan for each region consistent with the Agricultural and Fisheries Modernization Act (AFMA), particularly for the identified Strategic Agriculture and Fisheries Development Zones. Roads leading to tourism development areas identified in the Tourism Master Plan will also be given attention. Roads in conflict-torn areas will be improved to help stabilize peace and order and thus pave the way to faster economic development. In Metro Manila and other major urban centers, a combination of intermodal transport systems, traffic management, and non-engineering measures will be pursued.

The Plan shall focus on improving the quality of existing infrastructure through proper maintenance, rehabilitation, and upgrading. Since the financial requirement for these activities is expected to be high, investments for completely new infrastructure will be limited and will generally be accorded secondary priority. More intermodal transportation systems will be provided to have an efficient flow of traffic, particularly at major urban terminals, stations, and transshipment points.

In undertaking these priorities, the transportation strategy in the medium-term shall call for well-defined complementary roles of the government and the private sectors. The central role of the government is to create competitive transportation markets where the private sector is encouraged to invest in and provide transportation infrastructure and operate transportation services. The government will create an institutional and policy environment that is fair and transparent and one that provides a level competitive playing field for the transport infrastructure and service providers. The government will concentrate on determining transport policies and strategies, defining development priorities, formulating the overall transport development plans and investment programs, identifying and preparing core infrastructure projects, setting performance and service standards, creating the framework for private sector participation, focusing on technical regulations, and reengineering the government bureaucracy to perform in the new market-led environment.

The private sector, on the other hand, will lead in the actual provision and operation of transport infrastructure and services. Public-private partnership schemes will be explored where the government and the private sector will share in the financing and provision of transport infrastructure to make the projects financially viable at affordable user tolls.

As far as practicable, the principles of full cost recovery and the adoption of a more commercial approach to the provision and operation of transportation infrastructure and services will be followed.

For transport infrastructure works, the contractor and consultant will generally be selected through a competitive bidding process. The contract procurement process will be further streamlined and tightened to make it more transparent, efficient, fair, nondiscretionary, and conducive to the widest possible competition of qualified contractors and consultants. This should result in works of better quality at lower prices which will be completed on time, with minimal opportunities for graft. Computerized and electronic bidding processes using the website will be adopted where feasible.

For public transport carrier services, the regulatory framework will center on setting and ensuring compliance with technical standards for public safety, performance, and quality of services. Subject to these standards, the government will guarantee free and unrestricted access or entry to markets by transport service providers. Tariffs and fares will be based on the principle of cost recovery with reasonable returns to reflect the cost of providing the services to the users. Tariffs and fares will generally be driven by competitive market forces and, thus, normally will not warrant government intervention, e.g. subsidy or rate fixing.

Institutional restructuring shall be done to ensure that the public and private sectors operate on the same levels, and that a government body is not both a regulator and operator within a given subsector.

However, in remote rural communities where the market is weak, the government may provide necessary assistance which shall be made open and transparent. With more major infrastructure in urban areas undertaken by the private sector and financed by users fees, the government can allocate more public funds to essential infrastructure in the countryside.

Appropriate steps will be taken for implementing agencies to come up with a timely and realistic list of transport projects for implementation. This is a critical requirement for raising public sector funding. These steps will apply not only to projects funded by government but also to BOT-type projects under the solicited or bidding process mode. An important measure to fasttrack project implementation is the recently approved RA 8974 which will expedite the acquisition of ROW, and RA 8975 which prohibits lower courts from issuing restraining orders and injunctions on infrastructure projects. To prevent corruption in government dealings, civil society participation will be mobilized to monitor and ensure transparency and accountability in transactions particularly those involving infrastructure projects.

To support economic growth and regional development, the national government will focus on a select group of strategic national roads comprising about 28,000 km., which will be upgraded to international standards. The rest will be offloaded to the local government units. Public-private sector partnership shall be expanded especially in the development of toll expressways along clogged road arteries.

Consistent with the provisions of the Agriculture and Fisheries Modernization Act or AFMA (RA 8435), an overall road framework plan shall be drawn up for each region particularly for the identified Strategic Agriculture and Fisheries Development Zones. Aside from the LGUs, the Departments of Agriculture (DA) and Agrarian Reform (DAR) shall identify and fund the improvement or construction of local roads, particularly farm-to-market roads to be implemented by the LGUs or the DPWH. Through the Local and Regional Development Councils, and with the active participation of the DA, local roads shall be planned and developed to complement the national roads especially in improving access to priority agricultural areas and urban/industrial centers and tourism areas.

Roads leading to tourism development areas identified in the National and Regional Tourism Master Plans particularly the "hubs and spokes" system of the Department of Tourism (DOT) will be given attention in the planning and programming of key infrastructure program of the concerned agencies (DPWH, DOTC, LGUs). The road projects shall center on the five key tourism hubs, namely, Manila, Cebu, Davao, Laoag/Baguio, and Subic/Clark, and their respective spokes. This will help facilitate travel movements by international and local tourists throughout the country as well as focus tourism investments in the rural areas and the countryside. Roads that will help improve the peace and order situation especially in conflict-affected areas such as those in Mindanao, Cordillera, Samar, Quezon and Panay, shall be developed. This will result in greater production and trading activities in these areas.

Road users will increasingly pay for the use of national roads to improve management and financing systems. Two measures will be undertaken to develop this commercial culture: (a) expand the Special Fund for road maintenance, which presently consists of road user charges from vehicle registration fees, to include a part of the existing and/or proposed fuel levies; and (b) subject to a study within the framework of the scrap-and-build policy, establish an autonomous highway authority, out of the existing DPWH, to contract out the design, construction, and maintenance of national roads to private entities in accordance with the programs authorized by the Road Fund Board, which shall be strengthened to effectively administer the Special Fund. The former is based on the principle that motorists should pay for the maintenance of the roads that they use which is reflected by the amount of vehicle fuel they consume.

In the allocation of limited resources for the national roads system, the highest priority shall be given to the maintenance of existing assets, including preventive maintenance, in order to prolong the useful life of the road network at minimum cost. Next in the hierarchy of investments will be: (a) rehabilitation of damaged sections; (b) improvement and widening of heavily traveled roads; and (c) construction of new roads especially developmental roads and missing links in the road network. The focus will be to improve the quality of the national roads, especially through paving, rather than to increase the quantity of the roads by building new ones. The program will also include the construction of by-pass roads to relieve traffic congestion in major urban centers.

LGUs in general, shall assume full responsibility for the financing and management of local (provincial, city, municipal, and barangay) roads. Where the financial and technical capabilities of LGUs particularly in less developed areas pose a constraint, the national government will provide appropriate assistance programs. This, however, will require counterpart funding from the LGUs whose share of the total project cost will increase as their capability and income improve.

To minimize road damage due to overloading, the allowable vehicle axle loads and configuration will be strictly enforced during vehicle registration and through the installation of more weighbridges. At the same time, the government will intensify its program to retrofit and strengthen bridges and roads, especially the older ones, to enable them to carry the heavier loads carried by the new generation of vehicles and to meet new seismic design standards.

The ongoing RIMSS will be pursued by the DPWH to implement he following priority business processes: (a) road survey and geographic information system; (b) road network planning and multiyear programming; (c) project/contract/procurement management; (d) financial management; (e) contractors’ billings and payment system; (f) environmental, socio-economic and land acquisition system; (g) pavement/bridge/maintenance management; (h) commercialization of operations; and (i) a nationwide electronic communications system. This will greatly raise the capability of the DPWH, in coordination with the Road Fund Board, to plan, develop, and manage the national road system in a more efficient and transparent manner.

Rail transport shall focus on the development of: (a) mass transport of commuters in major urban areas, particularly towards the North and South of Metro Manila because of the need to decongest the Metropolis, and, where feasible, interregional movement of people; and (b) long-distance transport of large volumes of cargo where they are generally more cost-effective than road transport. New rail projects shall be pursued taking into consideration conditions of economic viability and risk sharing with private capital.

A comprehensive interurban rail strategy for Metro Manila shall be established which will safeguard the following: (a) the future availability of a rail route through the urban area (at-grade or grade-separated); (b) the possibility of running cross-city express services; and (c) the operation of the rails as one system through the adoption of common technical and service standards (i.e., track gauge, traction type, ticketing, and signaling system).

The rail sector institutions, the LRTA and the PNR, will be restructured. To the extent feasible, public funding shall be limited to the capital costs of the ROW and track infrastructure. The responsibility for transit operations and maintenance may be left to the private sector who shall bear the commercial risks. Separate concessions for each rail line shall generally be awarded through competitive bidding.

The current private sector initiatives on railway projects provide the government opportunities to modernize rail tracks, build a critical mass of rail resources using common technical standards, phase out inefficient, outdated and unsafe operations, and configure the rail lines for seamless transfer of users and maximum system patronage. Therefore, the government shall take steps to temper, harmonize, and manage these efforts towards a safe and integrated public transport system.

The government shall restructure port institutions to improve port services. Regulatory functions shall be transferred to an independent regulator (or regulators), which shall have jurisdiction over all ports. Commercial decision-making, planning, and management of port operations shall progressively be decentralized to Port District Offices and Port Management Offices in preparation for the privatization of individual ports or groups of ports. The government will pursue the amendment of the PPA charter to address, among other things, the dual role of PPA as regulator and operator.

The tariff levels and structures to be applied at each port or group of ports shall be rationalized based on the cost of providing services. Pursuant to this, the PPA will initiate activities to determine the financial condition of each port which will serve as a basis for establishing the appropriate increase in tariff charges. Improved cost accounting will also be introduced at government-oriented ports to support this policy. To level the playing field for government and private ports, the government will also take steps to discontinue the payment of levies by the private ports to the PPA which will correspondingly reduce the contribution of PPA to general government revenues. The PPA will be implementing its computerization project to provide the statistical basis for these activities. Meanwhile, the PPA will continue tapping financial assistance from various agencies, such as the Coordinating Council For Private Sector Participation (CCPSP) for the conduct of studies pertaining to the regulatory framework for privatized port operations, tariff and revenue structures, and the development and operation of terminals.

The government will adopt a more proactive approach in the planning of new port facilities, emphasizing commercial requirements and financial feasibility. Technical assistance will be procured for the preparation of comprehensive ports master plans covering both the physical and commercial aspects of port development. Specific attention will be given to the preparation of priority projects needed to overcome capacity constraints.

Maximum private sector participation and investment will be encouraged in the ports subsector. Government subsidies may be granted in cases where a clear social need is present. Such circumstances will normally be restricted to passenger ports on remote islands. Furthermore, these subsidies will be given on a competitive basis to private entities willing to operate and develop these ports. The number of ports being sustained will be periodically reviewed.

A clear strategy for port provision in the Greater Capital Region (GCR) will be developed to ensure adequate capacity and availability of additional facilities. This will take into consideration the highway access in and around Metro Manila. The DOTC will continue to manage the development of feeder ports which, if appropriate, will be subjected to regulation by independent port regulating agency or agencies.

In the shipping subsector, economic liberalization and deregulation will be further pursued. To encourage private sector investment in shipping, the possible establishment of a special window at the Development Bank of the Philippines (DBP) and other commercial banks to provide financial assistance for fleet expansion and modernization of the maritime sector shall be studied. Meanwhile, inland waterway transport will be developed to complement road transport where feasible such as in Samar and Metro Manila. To protect the riding public, the formulation of responsive policies and implementation of safety programs exemplified by the National Safety Management Code will foster a culture to consciousness on the importance of safety in domestic shipping. This will apply to all domestic vessels not covered by classification requirements and enforced under existing MARINA circulars.

In support of the country’s increasing integration with the global market, more international gateways will be developed to serve different regional markets. Domestic airports will be upgraded to international standards to strengthen domestic linkages with foreign carriers. Priority will be given to the development of an airport at Clark, Pampanga to encourage the operation of cargo and charter flights at the said airport. New airport projects, however, shall be implemented only when they are economically feasible. A review of existing bilateral air agreements shall also be undertaken to address the current needs of the aviation, tourism, and trade industries.

Air transportation communication, navigation, surveillance, and air traffic management (CNS/ATM) technology will be modernized to comply with International Civil Aviation Organization (ICAO) standards. The shift from ground to satellite-based CNS/ATM technology will be implemented gradually to fully exploit the economic life of existing ground based equipment. Priority will also be given to the installation of satellite ground earth stations (GES): (a) to enhance communication especially in mountainous areas and oceanic airspace, where communications between aircraft and ground stations are difficult and limited; and (b) to enable aircraft to land safely following a precision-guided path leading to the runway. Selective BOT projects will be encouraged if government budgetary problems will continue to restrain future developments.

The government will reduce its role in developing and operating landside airport facilities and will focus more on the provision of airside safety aids and equipments. This is consistent with the government’s plan to intensify enforcement of safety regulations. The deregulation of the domestic aviation industry shall continue and private sector participation under BOT schemes will be encouraged to upgrade airport capacity to cope with future demands of growing air traffic volume.

Full cost recovery of air services including airport investment will be applied. Government subsidies may be given in exceptional circumstances, but these will have to be justified, transparently applied, and competitively bidded out. Noncommercially viable airports, for which subsidies cannot be justified, shall be considered for closure or offered to LGUs.

Consistent with the scrap-and-build policy of the national government, the conversion of Air Transportation Office (ATO) into a corporate body shall be studied. An independent oversight unit shall be established within the DOTC to handle economic regulation and safety concerns. Operators, both public and private, will be subjected to regulation on equal terms.

Airport development plans and enforcement of air safety standards will be prepared to comply with ICAO-recommended standards and practices which best suit local conditions. For example, the removal of obstruction along departure and landing paths within and outside of the airport perimeter will be strictly implemented.

For Metro Manila and other major urban centers like Cebu and Davao, the alleviation of traffic congestion remains a priority undertaking. For more efficient and more coordinated development, medium- and long-term framework plans for urban transportation in these centers will be drawn up and periodically updated. These plans shall emphasize intermodal systems which will promote the wider use of public transport in order to effectively handle mass traffic movements. The transport plans shall also be closely related to land use development. In general, rail transport will be given priority over road transport in the bulk movement of people in urban areas. The selection and phasing of specific projects shall be guided by these plans. For this purpose, a geographic information system based on urban transportation infrastructure network will be established. For Metro Manila, the master plan up to 2015 and its medium-term investment program, which were developed under the Metro Manila Urban Transportation Integration Study (MMUTIS) and recently adopted by the MMDA, DPWH, DOTC, and the National Economic and Development Authority (NEDA) Infrastructure Committee, shall be the guiding framework for identifying priority transport investment projects.

Initiatives to increase the efficiency of existing infrastructure will be fully explored since it is very difficult and costly to acquire right-of-way for additional roads. The medium-term program for urban transportation will include a combination of nonengineering and engineering measures.

Nonengineering measures to be intensified will include: (a) stricter and consistent traffic enforcement; (b) demand management measures similar to the color coding scheme; (c) giving priority on road use to buses and high-occupancy vehicles; (d) maximizing use of road space; and (e) land use regulations such as restrictions on building densities, mandatory traffic impact assessment and mitigation measures for major property development in order not to overload the road network, limited entry/exit along primary roads, and possible opening up of subdivision roads. Highway reserves shall be delineated and acquired well ahead of construction. Using the recently enacted laws will expedite the acquisition of ROW and prohibit lower courts from issuing restraining orders and injunctions on infrastructure projects. These will significantly facilitate project implementation. For the long term, the strategy of dispersed concentration will be vigorously pursued to relieve the infrastructure pressures on Metro Manila and other megacenters.

More attention will be devoted to future transportation needs of emerging growth areas especially to the east and north of Metro Manila.

To help finance major road projects in Metro Manila and other urban areas, beneficiary LGUs will be required to put up counterpart funds at a level proportional to their income. In addition, special levies will be introduced to recover from property owners a part of the unearned increment in land value brought about by the construction of roads through or near the property.

Government intervention in mass transit will be limited to planning, regulation, asset-ownership, and, where justified, extending funding support for track infrastructure and ROW provision. Project implementation, operation, and maintenance shall essentially be lodged with the private sector. To strengthen the transit backbone and the urban structure, system integration under a multiplicity of private operators shall be achieved through a common ticketing system, realignments of rail lines, off-street seamless transfers at common stations, and provision of intermodal linkages.

A combination of pricing and administrative measures shall be introduced to control air pollution from vehicle emissions. Administrative measures that comply with the provisions of the Clean Air Act will include mandatory vehicle inspections at periodic intervals, phase-out of old and inefficient engines, and use of environment-friendly fuels for new public transport system. The greening of major arteries shall be undertaken to improve the urban environment.

Key Measurable Targets

The medium-term targets for transportation infrastructure are the following:

1. National arterial roads (16,799 km.) will be 90 percent paved by 2004, compared to 70 percent in 2000. This will require the paving of 3,358 km. of roads and the rehabilitation/widening/upgrading/construction of 2,504 km.

2. National secondary roads (13,079 km.) will be 65 percent paved by 2004, compared to the existing 51 percent in 2000. This will entail the paving of 1,838 km of roads and the rehabilitation of 1,086 km.

3. National bridges (276,878 lineal meters or lm.) will be 95 percent permanent by 2004, compared to 89 percent in 2000. This will involve the reconstruction of 16,612 lm of temporary bridges, the improvement of 36,494 lm. of existing bridges, and the construction of 4,211 lm. of new bridges.

4. The structure of investments for national roads will shift in favor of regions with low road densities and low paved road ratios, as reflected in the percentage shares of investments and target paved road ratios (Table 6.4).

5. The medium-term plan will emphasize the upgrading of arterial roads leading to regional growth centers with special attention to Mindanao and other underdeveloped regions (Table 6.5).

7. Access roads will be improved or built to and from the priority tourism hubs, particularly Manila, Cebu, Davao, Subic-Clark, and Baguio. Among the major road projects are those listed in Table 6.7, which indicate their lengths, estimated costs, and implementation schedules.

8. Strategic roads will be improved to stabilize the peace and order situation in areas affected by armed conflicts and, therefore, provide for an environment more conducive to economic growth. These include among others: (a) Basilan Circumferential Road; (b) Jolo Circumferential Road; (c) Zamboanga-Pagadian Road; (d) Awang-Upi-Lebak Road (Maguindanao and Sultan Kudarat); (e) Narciso Ramos Highway; (f) Parang-Barira-Abubakar Road; (g) Davao-Cotabato Road; (h) Lake Lanao Circumferential Road; (i) Abra-Kalinga and Kalinga-Mt. Province Roads; (j) Bondoc Peninsula Roads in Quezon; (k) Hinobnan-Basay Road in CHICKS area; and (l) South Samar Road.

The government will pursue a prioritized program of port development and modernization integrated with computerization and use of information technology covering the 114 ports of the PPA port system.

1. The following major port development projects or packages will be pursued: Batangas Port Development Project (Phase II), the Southern Philippine Ports Development Package covering the ports of Iloilo, Davao, General Santos, and Zamboanga under foreign financial assistance; Manila North Harbor Modernization, Manila South Harbor Expansion, and Manila South Harbor Expanded Port Zone Development with private sector participation; and the ports of Cagayan de Oro, Culasi in Capiz and Pantao in Albay under the locally funded program.

3. Thirty-six feeder ports will also be developed.

1. Airside safety aids and facilities will be modernized for 25 airports and sites, and 3 new airports and 28 airports terminal facilities/capacities (Table 6.8) will be upgraded to cope with annual growth of passenger and cargo traffic.

2. New terminal radar for NAIA and new automatic flight inspection/check aircraft will be acquired and commissioned to enhance air safety and efficiency in providing air traffic and navigational services in the country.

3. The satellite-based technology of CNS/ATM including satellite weather system will be partly implemented in 2002-2004 to supplement operations of existing land-based CNS equipment. The phase out of the latter will follow the scheme of full exploitation of its economic life, and by 2006, the former will be completely operational. The full sophistication/upgrading will coincide with the Asian Region Harmonization Program in 2010.

4. The transition works of resurveying each airport and installation site in accordance with World Geodetic Survey-1984 (WGS-84) requirements are now being undertaken in preparation for the design/preparation of enroute airways, of instrument/precision approach to land procedures and of standard instrument departure routes/tracks.

1. Demand-actuated traffic signal facilities (Smart Traffic Signal System) in 419 interssections in Metro Manila will be completed in September 2001. An additional 54 intersections will be provided new traffic signals under the Metro Manila Urban Transport Integration Project (MMURTRIP) in 2001-05 and 212 more under the Phase V Traffic Signalization Project.

2. Grade separation structures will be built at six major intersections of EDSA and C-5. (EDSA/Quezon Ave., EDSA-Roosevelt, EDSA/North-West Ave., C-5/Ortigas, C/5/B. Serrano/Katipunan and C-5/Lanuza-Vargas.).

3. Under MMURTRIP, traffic management along the EDSA/LRT3, Aurora/LRT2 and South Expressway corridors will be undertaken in 2001-04, including intermodal facilities (LRT stations and expressway entries/exits with jeepney, bus and pedestrian facilities). A secondary roads program covering 15 routes will also be implemented to decongest the main thoroughfares.

4. Three expressway projects will be carried out along heavy traffic corridors in Metro Manila, namely, Metro Manila Skyway (Bicutan-Alabang, Buendia-Quirino), Manila-Cavite Expressway, and Ninoy Aquino International Airport Expressway. The lengths, estimated costs, and implementation schedules of these projects are shown in Table 6.7. Busways will be provided towards Cavite.

5. LRT lines will be installed in Aurora Boulevard (Line 2), Quezon Avenue (Line 4), and Manila to Bacoor (Line 1 South extension). Partial shuttle operation (Santolan to Cubao) of MRT 2 will commence in June 2003 and its full commercial operation one year later.

6. An automated fare collection system for LRT Line 1 will be implemented within 2001 while Phase II of the Capacity Expansion of the same line will be completed in 2003.

7. Traffic signalizations and urban bypasses will be provided at major cities.

ENERGY

Assessment

The continued increase in energy production from locally available energy resources such as oil, coal, and geothermal, as well as the intensified promotion and technology development of new and renewable energy (NRE) sources raised the energy self-reliance level of the country’s energy mix from 40.8 percent in 1998 to 45 percent in 2000 (Figure 6.11). This was spurred by aggressive research and exploration initiatives to harness the country’s indigenous resources.

Specifically, new and renewable energy sources contributed 30 percent in the country’s energy consumption. Developing indigenous and renewable energy sources for energy self-sufficiency is a continuing task in the energy sector. Data from the Philippine Atmospheric, Geophysical and Astronomical Organization (PAGASA) showed that the national average mean wind power density is about 31 watts per square meter (W/m2). A wind resource analysis and mapping study showed that the country has over 10,000 square km of windy land areas with good to excellent wind resource for utility-scale operations and village power applications, particularly in the northern and central regions (Figure 6.12). This can support over 70,000 megawatts (mW) of potential installed capacity. The first large-scale wind power project of 40 MW capacity will be developed in Ilocos Norte by Philippine National Oil Company (PNOC)-Energy Development Corporation for commissioning in 2003.

Microhydro has a potential of about 28 mW located in various areas of the country.

There are, however, factors that currently constrain the accelerated development of indigenous and renewable resources: (a) inadequate incentive system and low priority for research and development (R&D); (b) social acceptability of energy projects; and (c) need for a program to make the country an attractive investment for energy resource exploration and development.

The Department of Energy (DOE) has likewise laid the foundation for the development of the natural gas industry. It is envisioned that natural gas will displace a substantial portion of oil consumption in the power sector. In the restructured power industry, natural gas will be the preferred fuel for power generation.

Natural gas will likewise be competitive in the industrial and commercial sectors in economic and financial terms. For over a 20-year period starting 2002, there is an expected government revenue of $8 billion and foreign exchange savings of $4.5 billion (Figure 6.14). Furthermore, natural gas will displace approximately 20 percent of the country’s fuel imports.

The Malampaya Deep Water Gas-to-Power project achieved a historic milestone and engineering feat with the completion and tow-out of the 95,000-ton concrete gravity structure (CGS) from the Subic Bay Freeport to Palawan. The CGS was installed on the seabed 50 km. offshore Northwest Palawan in May 2000. Subsequently, the laying of the 504-km. pipeline from the offshore field to the Tabangao onshore gas processing plant in Batangas was completed on November 8, 2000.

As exploration and development works progress in the Malampaya gas-to-power project, the DOE assessed more natural gas supply and demand prospects. To address the regulatory gaps and to enhance investors’ confidence in the gas industry, the DOE is preparing a comprehensive set of rules and regulations to guide pipeline construction, operation and maintenance as well as pricing of gas commodity and transport.

The DOE also signed an implementation agreement with the Japan International Cooperation Agency (JICA) for the conduct of the "Master Plan Study for Natural Gas Utilization in the Philippines." The study will prepare demand projections in various sectors, evaluate supply options, and suggest measures to promote natural gas utilization, among others. Meanwhile, the PNOC-Exploration Corporation worked on a study which focused on the technical and economic viability of a natural gas transmission and distribution network in Southern Luzon which will primarily target the industrial sector. The first phase of the feasibility study was completed in November 1999 and the second phase is underway towards detailed pipeline route studies, as well as to address right-of-way and environmental issues of the CALABARZON-Manila-Bataan gas transmission system. Furthermore, a pilot project entitled "Study on Natural Gas Utilization in Transport" looks into the use of natural gas as an alternative fuel to diesel for the transport sector. Jointly conducted by the DOE, Department of Science and Technology (DOST), and PNOC, the project has successfully converted an Isuzu diesel vehicle to use compressed natural gas (CNG) for fuel. The country’s first CNG station was commissioned last March 2000 in PNOC-EC’s gas power plant compound in Echague, Isabela.

For the year 2000, a total of 1,600 mW of installed generating capacity was added into the system while several plants with a cumulative generating capacity of 1,020 mW have been retired. This gives a net installed generating capacity of 13,196 mW (59.7% are privately operated) as of year-end, exceeding by 82 mW the 2000 target of 13,115 mW or an accomplishment level of 100.62 percent for the year and representing 82 percent of the 16,089 mW target by 2004. Major capacity additions include the 1,000-mW Sta. Rita natural gas-fired combined cycle power plant and the 470-mW Quezon coal-fired power plant.

Out of the net installed generating capacity of 13,196 mW by end-2000, only 9,937 mW is actually available for consumption. The level of the plant’s dependability may be attributed to the normal wear and tear of the plant over the designed economic life. Table 6.9 and Figure 6.15 are presented to give the system-wide power demand and supply outlook during the planning period considering both low and high hydro (water level) scenarios. The supply curve is based on the targeted generating capacity additions but converted to available capacities using appropriate factors per plant type.

In terms of the power generation mix, the share of indigenous energy showed an increasing trend primarily due to the higher share of geothermal energy (25% in 2000 from 21% in 1998) (see Figure 6.16). The share of geothermal energy rose from 8,914 gigawatt-hours (gWH) in 1998 to 11,445 gWH in 2000. Higher production from geothermal facilities could be attributed to the completion of the Leyte-Luzon interconnection project, commissioning of the 48.25 mW Mindanao II geothermal plant and the stability of existing geothermal facilities in the country. Hydro’s contribution also increased from 5,066 gWH in 1998 to 7,152 gWH in 2000 due to the commissioning of Bakun I hydro power plant. As a result, the share of indigenous energy to the total generation mix expanded from 38.9 percent in 1998 to 46.9 percent in 2000.

Transmission line (T/L) infrastructures were added to the system to enhance systems reliability and dependability. Additional line length projects have reached an aggregate of 407.5 circuit kilometers (ckt-kms) in 2000, bringing the total line length to about 20,500 ckt-kms.

Meanwhile, to accommodate the increased infrastructures in terms of generating capacity and T/L expansion networks, six substation projects were completed during the year, adding a total of 500 megavolt-amperes (mVA) substation capacity to the system. This brings the total substation capacity to 27,600 mVA.

The interconnection of Luzon, Visayas, and Mindanao into a unified grid remains an integral part of the power development program. Completed earlier were the Negros-Panay interconnection in 1990, the Negros-Cebu grid in 1994, the Leyte-Cebu grid in 1997, and Leyte-Luzon grid in 1998. For 2000, phase I of the Leyte-Bohol grid was completed (Figure 6.17).

The accelerated electrification of barangays has been a major thrust. In 2000 alone, some 1,366 barangays gained access to electricity service, bringing the total number of barangays energized to 33,647. The electrification level rose to 80.1 percent as of end-2000 from 76.9 percent in the previous year.

The O-Ilaw program was launched in March 2000. It aims to consolidate the regular programs being undertaken by the National Electrification Administration/Electric Cooperatives (NEA/ECs), National Power Corporation-Strategic Power Utilities Group (NPC-SPUG), DOE and other agencies of the government like the Department of Interior and Local Government (DILG), Department of Agrarian Reform (DAR) and Department of Agriculture (DA). The program likewise seeks to maximize the participation of the private sector in electrification projects, which resulted in an energization of 302 additional barangays.

In terms of cumulative consumer connections, the efforts of the electric cooperatives (ECs) resulted in about 5.3 million connections corresponding to 68 percent of potential consumers as of end-2000. Table 6.10 gives the energization indicators, as well as the targets for 2000 as indicated in the Angat Pinoy 2004 and under the Accelerated Barangay Electrification Program (ABEP). Though ambitious, the working target for barangay energization under ABEP is 95 percent by the end of the plan period in 2004, with 71.5 percent of barangays energized by the ECs under the supervision of NEA.

Meanwhile, there is a need to provide a program to ensure the long-term viability of EC operations. Some ECs operate as political institutions rather than corporate entities resulting in high overhead expenditures and ineffective management, which are reflected in their billing rates. Others have very low customer density and requires heavy subsidies due to geographical location, difficult terrain, and absence of large industries, among others.

The country’s electricity tariffs ranked as one of the highest in the Asian region. Table 6.11 shows the average rates in selected Asian countries. The main reason for this high electric tariff is the operational as well as the technical inefficiency of the system.

The long-term solution to the high power rates involves the restructuring of the electricity industry as embodied in the Electricity Industry Reform Act of 2001. Prior to its passage, the following short-term measures were adopted to reduce power rates:

1. Various rate reduction schemes were offered as follows:

2. NEA provided technical support to rural electric cooperatives, which resulted in the reduction of their average systems loss from 17.3 percent in 1998 to 16.0 percent in 2000.

3. NPC implemented more stringent cost-cutting measures to generate savings to help stabilize power rates. It continued to shift to cheaper energy alternatives to mitigate the impact of rising oil prices.

With the rise in world crude oil prices came increasing pressure from Congress, consumers, and other interest groups for government action to mitigate rising prices and to review the downstream oil industry deregulation law.

To ensure that petroleum prices remain fair and reasonable, the Department of Energy (DOE) tightened its watch over the oil industry with daily reviews of international market prices and closely monitored the various operations of local oil companies, including their inventories and actual acquisition costs of both crude and product importations. The analyses of these variables/parameters were crucial in determining the reasonableness in the price adjustments of local oil firms. Close coordination with various government agencies, particularly the National Economic and Development Authority (NEDA), Department of Trade and Industry (DTI), and Office of the Press Secretary (OPS) was undertaken to ensure that unscrupulous businessmen did not use oil price hikes to unfairly raise their prices. Meanwhile, private consumer groups, such as the Oil and Consumer Price Watch, were likewise formed to closely monitor oil prices and assess the reasonableness of retail prices of petroleum products.

Domestic oil prices were kept at levels below what would have been charged under the automatic pricing mechanism (APM) used by the Energy Regulatory Board (ERB) as basis for automatic adjustments during the transition period prior to deregulation. Under the APM, local retail prices should have been higher by an average of P0.60 to P1.00/liter. On this basis, since March 1999 when the Organization of Petroleum Exporting Countries (OPEC) announced production cutbacks, local oil users were able to save roughly P10 billion from having one of the lowest petroleum product prices in the region. Close monitoring, moral suasion, and intense competition as a result of deregulation worked to the advantage of our economy.

In addition, the three-percent tariff on crude oil and petroleum product imports was modified from November 8, 2000 to February 7, 2001 to mitigate the impact of increasing oil prices.

Government intervention in the deregulated oil industry remained focused on ensuring fair competition, security of domestic oil supply, public health and safety, product and facility standards and quality, and environmental protection. To guarantee the promotion of fair trade practices and encourage competition, joint industry activities including rationalization of depot operations, tanker and pipeline utilization and hospitality agreements were pursued. The DOE continued to respond to incidences of fire and oil spills to serve the public interest and enhance environmental protection, achieve efficiency and cost reduction, and ensure continued supply of petroleum products. To ensure high quality petroleum products, the DOE, in cooperation with the Bureau of Product Standards (BPS), closely monitored product quality for adulteration and other forms of product misrepresentation in order to prevent the sale of products that fall below the existing national quality standards and Clean Air Act provisions.

In terms of downstream facilities, the three major oil players continuously upgraded their network of operations. A significant number of new investments in fuels bulk marketing, petroleum product refilling, LPG refilling and bulk marketing, terminating, and bunkering have been put up under a deregulated downstream oil industry. In petroleum product retailing, 296 new gasoline stations have been opened by the new entrants in the industry, bringing the total number to 3,488 stations. LPG refilling stations likewise increased to 166 plants, 141 of which are owned by new independent players. The total number of LPG dealers also rose with 537 total distributors, 223 of which are independent players. In terms of market share, the new players accounted for a bigger share of 10.2 percent in 2000 from 4.3 percent in 1998 (Figure 6.18).

In terms of product monitoring, the LPG Industry Task Force, composed of DOE and private sector representatives was created to provide a self-regulatory mechanism to ensure consumer protection against unscrupulous traders. Since August 2000, the Task Force Teams have conducted actual inspection of various LPG facilities in different areas throughout the country with greater intensity in Metro Manila.

As part of its system loss reduction program, NEA has been providing technical support to rural electric cooperatives which helped in reducing the average systems loss of the latter to 15.3 percent in 2000 from 17.1 percent in 1998.

Private investor-owned utilities (PIOUs) such as Manila Electric Company (MERALCO) have also been undertaking systems loss reduction programs. Said programs include redesigning and/or rehabilitation of old transmission/distribution lines, installation of additional capacitor banks in poles and/or in power substations and replacement of old and inefficient pole mounted transformers. Non-technical losses were also reduced through strict monitoring and apprehension of pilferers of electricity.

Energy policies and program shall work towards improving the availability of competitive, affordable, and reasonably priced energy supply through socially-and-environmentally compatible energy infrastructures. To attain this objective, the following policies and strategies will be continued and/or pursued, guided by the formulation of the Philippine Energy Plan (PEP).

The passage of the Electric Power Industry Restructuring Act (EIRA ACT of 2001) provides for a truly competitive market which can better achieve the social policy objectives of ensuring adequate, reliable, efficient, and reasonably priced power.

To ensure smooth transition to a competitive market structure, preparations are underway to guarantee the effective implementation of the Act. The law mandates the unbundling of the generation, transmission, distribution, and supply businesses in the industry towards the establishment of wholesale and retail markets. The generation and supply businesses shall be subject to market competition, while the wire businesses (transmission and distribution) are natural monopolies subject to regulation to safeguard consumer interests. Moreover, the law mandates the creation of: (a) Power Sector Assets and Liabilities Management (PSALM) Corporation, a government owned and controlled corporation, which shall manage the orderly sale, disposition and privatization of NPC; (b) National Transmission Company (Transco), wholly-owned by PSALM Corporation, which shall provide open and non-discriminatory access to its transmission facilities; (c) Wholesale Electricity Spot Market (WESM), which shall provide mechanisms for identifying and setting the price of variations from the quantities transacted under contracts between sellers and purchasers of electricity; and (d) Energy Regulatory Commission (ERC), which shall promote, encourage market development, ensure customer choice, and penalize abuse of market power. The drafting of the Implementing Rules and Regulations, as well as the Grid and Distribution Code and institutional capability building for both DOE and ERC staff are now being pursued.

Retail competition and open access shall also be established no later than 2004. The subsequent implementation of cross subsidies removal and the opening of the market to competition is expected to bring about operational efficiency, reasonable prices reflecting marginal cost and greater productivity which shall support economic growth.

The program seeks to maximize the participation of the private sector in electrification projects. Legislation in this area will be prioritized through the New and Renewable Energy Bill.

The government shall also review existing distribution mechanisms to provide more reliable and reasonably-priced power in the rural sector. Relatedly, an Act mandating all ECs to organize barangay power associations within their coverage areas will be prioritized. The Barangay Power Association Act (BAPA) aims to muster membership participation in order to strengthen the cooperatives and assure operational efficiency.

To attain energy self-sufficiency, the government shall accelerate the exploration, development, and utilization of the country’s indigenous resources, including the adoption of technologies for both power and non-power applications. Consistent with this strategy, it shall likewise diversify sources and types of local and imported energy while ensuring balance between cost and supply security.

Investments will also bring about a flourishing consumer-oriented industry. Government intervention in the deregulated industry will be focused on ensuring fair