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Philippines: North Luzon Expressway Rehabilitation and Expansion (Loan 7162/1769)

sector: Transport | country: Philippines

The project was designed to enhance economic development of central and northern Luzon, but no clear or measureable objectives were set at the outset. While economic growth has occurred in this region-3.4% per annum overall-it is not possible to quantify the extent that rehabilitation of an already existing toll road has contributed. At appraisal there should have been a design monitoring framework which would have identified these objectives and targets. While economic development has occurred, growth remains similar to that of the rest of Luzon, excluding that of the National Capital Region (NCR), the powerhouse of the Philippine economy, but less than that of the country overall. ADB’s follow-up as to the development and employment impact of an improved North Luzon Expressway has been insufficient.

The fact that traffic volumes have been scarcely half those projected by technical consultants at appraisal has meant lower revenues and a less favorable financial internal rate of return. While it is understood that a range of projections were made and the lower ones were used, they nevertheless proved to be overly optimistic. Clearly, ADB could have done a more thorough test of the forecasts’ sensitivity to changes in the basic variables, including tariff price elasticity, lower-than-expected economic growth, and higher gasoline prices.

The right-of-way issue should have been resolved earlier. Land acquisition by the government in the Philippines has been difficult causing delays. Although this was raised at the Board meeting considering the project, not enough attention was given to the potential problems until it was too late.

The inability of Philippine National Construction Corporation (PNCC) to raise funds for the project, too, should have been anticipated at a time when most government corporations were strapped for cash and that PNCC had few alternative revenue sources apart from government subsidies. It should have been foreseen that PNCC would need to reduce its exposure in the project. Stronger due diligence on the part of ADB would have identified this risk earlier and reduced project delays.

While the loan conversion from dollars to pesos was completed successfully, the price to Manila North Tollways Corporation (MNTC) of reducing its foreign exchange risk was quite high. Although there are potential benefits to the consumers from removal of the forex factor from the toll rate adjustment formula, the peso has since appreciated further against the dollar and the financial benefits of the conversion to MNTC are mixed. Regarding the issue of equity participation, ADB was seen to be more conservative and slow in its process than was the private sector.

Regulation of the toll road sector under Toll Regulatory Board (TRB) remains weak. TRB was established in 1977 to regulate expressways and toll rates while increasing private sector investment in infrastructure projects. It lacks capacity and resources relative to its mandate, however, and in practice only monitors operations, maintenance, and the adjustment of toll rates. TRB lacks independence, remaining under the control of the government. Its executive director is appointed by the president, and all but one member of its board are government officials. Funding is provided exclusively through the public budget as approved annually by Congress under the General Appropriations Act. In 1977, when there was only one toll road, it had 28 employees. Today, it has only 26 staff to monitor six toll roads. A request to increase its staffing to 96 was rejected by the government and only four new positions were approved. The executive director and some senior personnel change frequently, particularly when a new government takes office.

Toll Regulatory Board (TRB) lacks a clear vision for the sector, and because of its human and financial resource limitations adopts a passive rather than proactive role. A more independent regulatory body is needed to balance the interests of all stakeholders-the government, toll road operators, road users, communities, and business. This could be achieved by transforming TRB through the appointment of an independent board with a clear majority of members and the chairperson coming from the private sector. Independent funding could be provided through a direct levy on toll fees and the toll road operators.

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