Land-reclamation tack fraught with challenges, opportunties

 

By VG Cabuag, Lenie Lectura  & Jonathan Mayuga

Conclusion

(Published in the Business Mirror, May 19, 2016)

http://www.businessmirror.com.ph/land-reclamation-tack-fraught-with-challenges-opportunities-2/

 

LAND reclamation, explained  Philippine Reclamation Authority (PRA)  Assistant General Manager Joselito D. Gonzales, is the process of creating new land from ocean, sea, riverbeds, and the like.

These bodies of water, he explained, are all state-owned.

 

Gonzales added that private companies pursuing to build an establishment or road infrastructure within a state property need to seek the green light of the PRA and the National Economic and Development Authority  Board.

“We are very strict when it comes to issuing permits. We require studies, which should all be complete,” Gonzales told the BusinessMirror. “For as long as we see their project fit and they have complied with other requirements, such as environmental clearance, among others, then we can issue a permit.”

Another government agency that scrutinizes land reclamation projects is Public-Private Partnership (PPP) Center.

According to Andre C. Palacios, the executive director of the PPP Center, what his office does is to study the project carefully and try to mitigate risks to suit private- sector taste, and implement the bidding as soon as possible. 

“The land reclamation component of a PPP project raises unique legal, environmental and social risks,” Palacios told the BusinessMirror. “The international consulting firms and their local partners—e.g., law firms—acting as government transaction advisors, are required to pay close attention to these risks and to propose mitigation measures.”

 

This May 16 photo shows a portion of a reclaimed area being developed into a new resort and leisure place in Parañaque City. NONNIE REYES

He listed down examples of reclamation issues as: “Power of agency to undertake reclamation, approvals required, classification of reclaimed land into alienable public land and to patrimonial land that can be transferred to the winning bidder, resettlement of affected families, sufficiency of environmental mitigation measures.”

Bullish sectors

PRIVATE firms, especially those in the real-estate sector, generally welcome any bid by the state to expand space, especially in urban areas.

This is so since most of the players in the property sector are bullish about the prospects in the industry, both in the office, commercial and residential spaces.

A huge chunk of the commercial space is being taken by the business-process outsourcing (BPO) companies. Many developers see the BPO sector as a steady stream of revenue even on a medium-term contract.

Megaworld Corp., the property arm of businessman Andrew L. Tan, is one of them.

Megaworld has announced continuing construction of office spaces at an average of 100,000 square meters this year, a tack the firm began two years ago. Before 2014, Megaworld has only been building at an annual average of 50,000 sq m to 75,000 sq m. The company may end the year at supplying 712,000 sqm in office space, the bulk of which is again for the BPO sector.

Skyrocketing prices

KMC Research and Consultancy said office rentals in prime locations, such as Makati City, Bonifacio Global City in Taguig and Ortigas Center, continue to skyrocket on high demand.

Outside of these areas, however, it sees price softening.

In the Alabang market, for instance, rental rate was flat last year and is expected to remain sluggish over the next two years, as there will be new supply of office space of about 194,000 sq m through 2018.

The same is true in Quezon City, mainly in Araneta Center in Cubao, KMC said.

In the bay area, meanwhile, KMC expects vacancy rate to spike in the short to medium term.

“This is due to the impressive pipeline of office spaces coming online in the next three years close to 290,000 sq m,” a document by the company said. “Rental-rate growth is likely to ease given the demand and supply dynamics in the submarket.”

Residential market

FOR the residential market, 8990 Holdings Inc. President Januario Jesus Gregorio B. Atencio III said that, during the recent debates of candidates for the May 9 elections, only two included housing in their agenda: Vice President Jejomar C. Binay and Rep. Ma. Leonor Robredo of Third District of Camarines Sur. Binay is also the chairman of  the Housing Urban Development Coordinating Council (HUDCC).

“The idea of housing as an economic catalyst, as an inclusive society generator, as a social leveler has not been discussed [during the debates],” Atencio said. “Does it mean that if you are not the chairman of the [HUDCC] that housing means nothing?”

Robredo who is currently leading in the quick count for vice presidency, also mentioned housing as one of the catalyst of growth in the country, according to Atencio.

“Mass housing is the great equalizer because 98 percent of our buyers are nonproperty owners. In a way, this is also like land reform but in a noneconomic or agricultural setting because the result is the same,” he said. “We are able to distribute property to those who at [this] point have no land.”

Atencio declined to disclose if the mass housing developer iseyeing reclaimed land for residential property projects.

Andoni Aboitiz, president of Aboitiz Land Inc., is also bullish on the industry.

“If the new president [would be] able to lift the GDP and translates [the growth into] housing, that’s very good.”

Aboitiz Land, a relatively new entrant in the industry, as it mainly focused on development of sparse land areas in Cebu, said the company is looking for partners to expand its existing portfolio of residential space to other parts of the country. Aboitiz Land said it will focus on the mid-range market.

Antiflooding

UNDER the current pipeline of national PPP deals, there are two projects that are currently at different stages.

One is the unsolicited proposal submitted by San Miguel Corp. to the Department of Public Works and Highways (DPWH).

According to documents from the DPWH, the P338.8-billion Manila Bay Integrated Flood Control Expressway deal will help protect the Manila Bay coastline against flooding from the sea—by means of a city flood barrier and coastal sea barrier—and provide an attractive urban waterfront development with space for new commercial activities.

The coastal sea barrier also functions as an expressway that cuts the travel time between Bataan and the National Capital Region.

Along the barrier, the project also offers reclaimed land for urban and economic development. In between the reclaimed land and the present shoreline are mangrove forests that help develop the ecological value of Manila Bay.

The project can be sorted into two subprojects: the City Flood Proofing and the Coastal Sea Barrier and Expressway.

It is currently being reviewed by a technical working group from the DPWH. The administration of President Aquino, however, is regarded to have a general distaste for unsolicited proposals.

Dead deal

ANOTHER project under the current pipeline of national PPP deals is the construction of the Laguna lakeshore expressway dike (LLED), which is as good as dead due to the lack of participation from qualified bidders.  Groups interested in the contract were one and the same in their issue on the deal: it is not commercially viable.

Team Trident—composed of Ayala Corp., Aboitiz Equity Ventures Inc., SM Prime Holdings Inc. and Megaworld Corp.—has three key issues on the deal: economic viability, problems with connectivity and the complexity of the deal.

“We looked at the overall economic viability and risks. We took some of those to see if we can get this financed,” Aboitiz Equity Ventures First Vice President Roman Anthony V. Azanza said in a March 28 interview. “But we couldn’t get to a sufficient level of comfortability with the economic viability and risks and our ability to take it to the banks.”

Connectivity to different growth areas in Metro Manila was also an issue for the so-called mega-consortium.  “You have to have a guaranteed access to other central business districts,” Azanza said. “Connectivity is crucial as it is a 700-hectare development.”

The deal’s complexity, he added, made it more commercially unviable. “The other one is the complexity of the deal,” he said. “Consequently, the technological solutions for this project were so challenging that the cost implications almost doubled than what the government initially had.”

Alternative route

The P122.8-billion LLED project involves the construction of a 47-kilometer flood-control dike—on top of which will be a six-lane expressway—on an offshore alignment 500 meters away from the western shoreline of Laguna Lake. It includes interchanges, bridges, floodgates and pumps from Taguig to Los Baños in Laguna.

It also involves the reclamation of 700 hectares of raw land adjoining the expressway dike.

The thoroughfare-cum-dike project is expected to help mitigate flooding along the western coast of the Laguna Lake, which runs from Taguig to the town of Bay in Laguna. The project is also expected to serve as an alternative transport route to the congested South Luzon Expressway and enhance the hydrology for the ecosystem of Laguna Lake.

“The government also wants this rolled out in seven years. So, its complexity, less connectivity, and a very tight time frame to roll this project out. So just imagine how the risk-reward balance was clearly not in the favour of the bidders,” Azanza said.

MTD Philippines Inc. President Isaac S. David also tagged the bidding process as illegal. In its letter to the public works department, the company said the lack of a presidential proclamation “reserving the reclamation area for purposes of procurement transaction” made the tender illegal.

“Second, the the legal personality of the procuring entity is questionable. It has to be the Philippine Reclamation Authority, not the public works agency, nor the Laguna Lake Development Authority,” the company said in its letter.

With little time left, the current government will have to pass the deal’s tender process to the incoming administration of President-elect Rodrigo R. Duterte.

Prospects: BatMan

ENERGY Secretary Zenaida Y. Monsada said her office would look at the prospects of utilizing a portion of a reclaimed land for the use of natural gas pipeline.

“Eventually, we will look at natural-gas pipeline,” Monsada said. “We have plans to put up  the  Batangas-Manila [BatMan] pipeline, so maybe, if there is an area that is government-owned and can be used for this project, then we will explore it with the PRA.”

The BatMan natural-gas project involves the construction of a 121-km transmission pipeline that will transport and supply natural gas to targeted markets along its route from Batangas, Laguna and Cavite and, eventually, to Metro Manila.

The BatMan project, however, faces delay due to technical issues. The Department of Energy (DOE) needs to further review the project design, as well as the prospective off-takers for the gas supply.

With such challenge, the PRA is thankful it has not encountered road right-of-way (ROW) problems in the past.

“Effectively, there is no right- of-way issue to begin with,” Gonzales told the BusinessMirror in a phone interview.

While the Philippines, an archipelago that consists of an estimated 7,641 islands, with a total land area of approximately 300,000 square kilometers (or 3 billion sq m), grappling for more space for economic growth, the incoming administration, hopefully, would not dig itself into troubles but fill more pockets.