LOCAL STOCKS LIKELY TO BOUNCE BACK THIS WEEK
 

MANILA, FEBRUARY 28, 2011 (STAR) By Zinnia B. Dela Peña - Local stocks are likely to bounce off a week-long selloff as investors scamper for bargain issues.

Last week, the Philippine main composite index fell 114.2 points or three percent week-on-week to 3,737.04 with all sub-sectors except the mining-oil index in the red.

“After the long losing streak from the previous week, we could see the market make a technical rebound next week. The rebound could get a helping hand if the anxieties in Libya die down. Sentiments should improve once the worries of a long drawn Libyan civil war will not materialize as Libyan leader Moammar Qaddafi’s hold on power is growing weaker by the day,” said AB Capital Securities Inc.

Jun Calaycay of Accord Capital Equities said a protracted crisis may keep world oil prices rising and even as the country’s dependence on the commodity has been reduced, it continues to be significant to cause upward price pressures.

International pressures on Libyan leader Moammar Qaddafi have intensified. French President Nikolai Sarkozy took the initiative as first leader of a global power to openly call for Qaddafi’s resignation. The US, in turn, after having pulled out their personnel from Tripoli, have shifted to a more aggressive stance, vowing to impose sanctions, both unilaterally and in cooperation with other nations.

“The quicker the Middle East crisis is resolved, and its spread across other similarly situated nations, including North Korea is pre-empted, the earlier investors can re-focus on the improving economic numbers - the better for equities,” Calaycay said.

“The immediate effect is already being felt with oil and commodity prices running north, threatening to go over the $100 per barrel mark. This has already “pushed” local oil companies to jack up pump prices of fuel,” Calaycay said.

Calaycay said prices of basic commodities are going to rise as well as input and transportation costs adjust to the changes.

He said the government may be hard pressed to keep the budget deficit, set at P290 billion, in check.

“Over-all these will dampen domestic demand, ergo making firms think twice on revving up their capacities and increasing output. The net result will be slower economic activity. Government’s seven to eight percent GDP growth targets is threatened,” Calaycay said.

Calaycay noted that emerging economies are now reeling from the impact of aggressive investment flows over the last two years. “Thus, we are likely to see local equity investors hesitating to make early bets on listed firms forward earnings, at least until some clarity emerges on the resolution of the conflict, as well as a pre-emption of similarly- inspired uprisings in neighboring and peripheral countries.

Investors are also expected to track companies companies’ earnings results and their outlook for this year. Among those scheduled to release their results this week are Aboitiz Equity Ventures, Aboitiz Power, Manila Electric Co. and Metro Pacific Investments Corp. (MPI).

BIZ COLUMN

Stale bureaucratic thinking delays PPP DEMAND AND SUPPLY By Boo Chanco (The Philippine Star) Updated February 28, 2011 12:00 AM Comments (0)

I have been talking to people familiar with the government’s BOT/PPP programs and on how things happen or fail to happen at the ground level. These are people who are experts in their fields with experience in and out of government. The main impression I am getting is that stale bureaucratic thinking is causing the delay in launching P-Noy’s PPP.

In fact, one expert is sure they will not be able to get anything ready for bidding this year. This is contrary to Sec. Purisima’s bold promise to potential foreign investors that 10 PPP projects will be tendered in 2011. A time line chart based on past experience showed the earliest launch is April 2012.

But it is not hopeless if the folks in DOTC and DPWH had more sense of urgency and are willing to take new paths even if it means their prerogatives and potential tongpats may be sacrificed. I listened to a presentation on the status of the projects listed or being considered for PPP and apparently, there are two projects, possibly three that should have been ready for this year if only the bidding was opened last December. As it is, we are now moving into March and none of the line agencies have put out a bid bulletin.

So what’s holding things up? Stale bureaucratic thinking.

For instance, the MRT2 East extension project from Santolan, Pasig to Masinag, Antipolo is ready. The four-km elevated rail extension with two stations had been extensively studied. In fact, I was told there had been three feasibility studies on it, the latest in March 2010.

There was a NEDA decision on June 9, 2009 to go PPP on this project but DOTC has sought a new feasibility study, this time with JICA. They now plan to schedule a tender by the 3Q2011 which makes it impossible to get this project up and going this year. The tendering phase takes nine to 12 months.

Incredible? Here are the gory details: Invitation to Bid (21 days); Response (45 days), Prequalification (60 days), Preparation of Bids (120-150), Evaluation & Award (30-60) for a total of 276 to 336 days (nine to 12 months). And that’s only the tendering stage.

Next comes Contract Negotiation and Government Approvals and this takes 30 to 90 days or three months. Then there is Financial Closing which takes anywhere from three to 12 months. Sure, they can cut the process short but it isn’t likely. Bureaucrats don’t normally work that way.

The project cost is now estimated at P11,300 million ($251 million) but will definitely go up because bureaucrats want still another study on top of the three previous studies. I am beginning to suspect there is a mafia making big bucks on feasibility studies.

I am told that the cost of an ODA-funded study could range from $300,000 to $1 million. When they use local experts, the cost tends to go to the lower cost range. Japan’s Ministry of Economy, Trade and Industry (METI) submitted a feasibility study on this Line 2 Extension to LRTA and DOTC in March 2010. The cost of that study was picked up by Marubeni. LRTA could have used the information from this study to proceed, but they did not. They asked JICA to conduct another one – whose recommendations, according to experts, won’t be any different from the March 2010. And that’s where we are now.

The new feasibility study was requested from JICA by our bureaucrats and JICA readily approved a grant. This would effectively buy time for the Japanese - so they can place the project on the ODA pipeline - on the argument that the interest rate is lower than domestic loan and the tenor is longer. That would however relegate Philippine contractors, consultants, and funders to 2nd class status and permit the Japanese contractors to jack up the project cost.

The Japanese are eager to keep the project under their wings possibly to prevent a project successfully implemented with local financing and ending up at a cost lower (P9 billion) than the one the Japanese pushed for in 2008 (P11.3 billion). The new study will not reduce the level of ignorance by government, nor affect the terms of the PPP tender. So why wait for some report that will not materially affect the tender?

The other project that could have been launched is the Cavite to Laguna expressway or CALA. It is a 27.5-km six-lane expressway, in two phases.The feasibility study was completed in 2006, with high focus on it being implemented via the BOT/PPP route. From what I understand, the alignment had been surveyed and talks initiated with affected landowners and local government officials and everything is already set.

But the DPWH changed the alignment of CALA, which justified a new feasibility study. The World Bank is financing the new study. That would place the project on the World Bank/IFC pipeline. They claim they will schedule a tender by 3Q2011, after end of WB study. A more realistic timetable for tender would be 3rd week 2012. Project Cost ~P10.5 million ($233.3 million) will probably end up higher too due to time delay and new talks for right of way.

I couldn’t get a clear and justifiable reason for the realignment. I suspect, there are pressures from some politicians and businessmen with land along the new proposed alignment.

The third possible project that could be launched this year is the proposed elevated expressway that will link the North and the South expressways running on top of PNR’s current railway line. It is actually an unsolicited bid from the Metro Pacific Group of Manny Pangilinan and as such not supposed to be in the PPP list.

It would be better to convert it into a solicited mode. It is a less risky path, aside from consistency with P-Noy’s transparency policy. The bigger danger of proceeding on the unsolicited path is the opportunity it opens to opponents of the administration to say that P-Noy is favoring MVP because of previous links of Babes Singson with MVP.

This project also has a major problem involving “air rights”. Apparently, PNR raised money in the past by mortgaging the “air rights” over its tracks and failed to pay so the “air rights” were foreclosed. Air rights are supposed to be the rights above one’s real estate property which apparently can be bought and sold separate from one’s right over the land.

There are various theories on how this concept is or is not legally tenable in this country. One view states it is a worthless piece of paper that has no legal basis. But that’s neither here nor there. The important thing is, no lenders will be willing to extend credit to MetroPac on the Link Expressway, unless that air right issue is validated. In short, doubts about it would choke financing. So it would be safer to assume that it exists.

The latest report on this “air rights” is that it had fallen into the lap of the Home Guarantee Corporation (HGC), a government corporation. I understand HGC values these “air rights” over the PNR tracks at P2.4 billion! Until this issue is resolved, the Link expressway over the PNR tracks can’t break ground this year either.

If you go down the list of all the other projects in their PPP list, the situation is even worse… bureaucrats are asking for new studies.

I hope Sec. Purisima does not think we have been over critical of PPP. In fact, we want his promised 10 projects this year to be realized by pointing out problems that are delaying things. There is nothing more I would like than to be proven wrong on my fears about PPP because that would give the best outcome for the country.

Unless they do something drastic with their processes and thinking, P-Noy won’t be able to claim a single PPP project on-stream when he delivers his SONA in July 2011. The bureaucrats and their usual foreign partners in crime should be told to stop doing things the old, tired and ineffective way. Yes, stop studying and start shoveling.


Chief News Editor: Sol Jose Vanzi

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