Siling Labuyo: Rebuilding Bicol Express: Is this a pipe dream?

November 3, 2017

 

The Bicol Express project is once again in the headlines with the national government taking the lead and the initiative to revive the historic railway. At the Bicol Express Modernization Forum recently held in Naga City, Under Secretary (USec) for Rails Cesar Chavez presented the national government’s reconstruction plan for the PNR’s Bicol Express that will be sourced through a P175B China development aid. In his words, “It is not a rehabilitation. It will be a reconstruction. Everything will be new. New railways. New train wagons. New stations. New modalities.”

Vice President Leni Robredo aired caution regarding the huge P175B fund to be loaned from China with 2 percent interest rate per annum in 20 years citing Sri Lanka’s difficulty in paying back loans from large infra projects funded by China. Robredo’s words of caution are timely before the national government embarks on this new scheme. Robredo reminded the Bicolano USec regarding previous initiatives to rehab said railway through the PPP route that did not materialize but can be pursued. Chavez pointed out that the PPP was not viable given the lack of investments and enthusiasm from the private sector. “The line from Los Baños to Bicol is not profitable with only 11,000 ridership,” he said.

If Chavez’ assertion is true regarding the low ridership that he said was validated by the Asian Development Bank, then all the more there is a need to rethink this whole project through. Does this makes good economic sense (what overriding economic objective will be achieved) or just plain nostalgia? With the Naga and Legazpi Airports seeing improvements coming down the pipeline and a new airport being built in Daraga, the demand for the train ride may remain at static levels or even less given also with the competing markets from provincial buses plying these routes.

Robredo’s caution should actually be a stern warning when zooming out from the Bicol PNR project and looking at the bigger picture of President Duterte’s very ambitious infrastructure plans. The price tag alone of P8.4 trillion pesos ($160 billion dollars) in 6 years should be enough to open up our eyes and realize what Robredo is talking about. The boldest, most ambitious infrastructure program in Philippine history plans to max out on credit cards and spend P847 billion in 2017, P1.2 trillion in 2018, P1.3 trillion in 2019, P1.5 trillion in 2020, P1.7 trillion in 2021, and finally, P1.9 trillion in 2022.

The business community is hailing such ambitious plan with glee and predicts that the Philippines will be up there comes 2030 as one of the world’s powerful economies estimated at $1.615 trillion dollars. It is indeed impressive when you look at the planned projects for the Luzon Spine Expressway and Mindanao Road Networks that includes freeways and freeway extensions, subways, railways, airports and airport expansions, new seaports or port modernization, bridges, and associated projects such as communication navigation surveillance and air traffic management systems. These are indeed projects and programs badly needed by the Philippines to be competitive in today’s global economy. But are they sustainable and affordable in the short and long runs?

With such huge undertakings, there will always be plenty of room for graft and corruption much like in the past that put the Filipino taxpayer on the hook for such extravagance and malfeasance by government officials. The Duterte administration although claiming a moralistic administration bent on dispensing extrajudicial justice has been shown to have its share of corrupt officials not to mention greedy and corrupt politicians who will be part of or have a vested interest in these projects. Just on the Manila-Bicol railway project, you’re looking at the various governors, congressmen, mayors, and even barangay captains along the route all the way to Matnog, Sorsogon.

But let’s give the administration the benefit of the doubt that everything (hold your breath) will be above board, there are still other equally important aspects that require a closer look. The original price tag of the PNR South Railway project from Manila to Bicol is P270 billion (not the P175 billion quoted at the forum) from the “Build, Build, Build” presentation of the Philippine government – a P95 billion difference. The project proposal is based on a 653 kilometers (km) rail line that can accommodate 400,000 passengers daily (with 350,000-400,000 commuters actually from Manila to Calamba). Nevertheless and more importantly, don’t lose sight of the bigger price tag of P8.4 trillion pesos after 2022 when supposedly all the projects under this “Build, Build, Build” infra plan is completed.

Here are the other issues that can crop up based on other China Railway projects around the world: land acquisition (biggest problem in Indonesia), ambitious infra projects (Sri Lanka), shoddy construction and cheap materials (Chinese Railway Construction Companies), labor issues/disputes (Latin America, Africa), high costs and cost overruns (almost all Chinese railway projects), contract disputes (almost all of them), social unrest (forced land evictions) and Chinese predatory practices (almost all projects the Chinese want a bigger share, control).

China will be lending the needed amount through its own bank – the Asian Infrastructure Investment Bank (AIIB) - under the Belt and Road Initiative (BRI). According to Chavez, the government’s target is to complete at least 50% of land acquisition by the third quarter of 2018 (payment and relocation of settlers). This is a critical timeline and contract provision because any delay on this aspect (due to court challenges, social unrest from evictions) could mean additional cost to the project or depending on the contract clause, could mean delays in obtaining loan funding. Indonesia’s failure in securing the necessary land for their railway project resulted in major delays because the Chinese bank would not release the loan until 100% of land acquisition was completed. To get the funding sooner, they had to agree to more concessions like bigger share of the ownership and extending the 50-year timeline for the turnover.

After more than a decade of taking out huge loans to build large-scale infrastructure Sri Lanka has a debt problem and the country is now struggling to make payments, and is looking for way out. They offered debt equity swaps (like giving control or bigger share to newly built airport and seaport, etc.). The Philippines will be similarly situated by 2022 with P8.4 trillion pesos loans to repay.

Contracts involving BRI projects often would stipulate the use of Chinese owned construction companies and workers. In some projects even those built in China by state firms where marked with corruption thus resulting in cutting corners (i.e. shoddy construction, cheap materials) to recoup the bribe money given to corrupt officials. The Chinese built expressways in Luzon are also good examples because of the cost overruns (bribe money, commissions) and project delays. With so many politicians along the Manila-Matnog route, from land acquisitions to actual construction work, good quality work can be sacrificed in the altar of corruption (like accepting the project or aspects of the project as complete even if not, just to move the money). Bringing in Chinese laborers means less local labor will be used. With Chavez’ enthusiasm to get the project going, will they even negotiate hard enough for hiring of local laborers (and only allowing use of Chinese technical experts versus laborers)?

The bigger picture of course is the reality about China whose own economy is now faltering. China has supplanted the United States as the biggest consumer of oil and petroleum. To fulfil such thirst for oil, China has embarked on economic diplomacy in Africa, the Middle East, Latin America, and now South China Sea (i.e. the Philippines) to secure the commodity they need by funding mega infra projects to curry favor and leverage. With the biggest population in the planet, China badly needs raw materials and work for its citizens and these projects give them access to such materials while getting some of its people employed. The continued Chinese militarization of Spratly Islands is one of the means for China to have access to the large oil deposit underneath. Even just promises of these loans, the Duterte administration is already looking the other way with no less than Foreign Affairs secretary Alan Cayetano lawyering for China.

China is already harvesting Philippine precious metals courtesy of former President Gloria Macapagal Arroyo by giving the Chinese a 50-year mining lease during her term, these new projects gives President Xi the upper hand planted firmly on Duterte’s balls. Tso! Tso!






 

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