Regions and Countries

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p. 10 of 20 BACK | NEXT I. Country Performance Assessment II. Country Operational Strategy III. Sector Strategies A. Agriculture B. Infrastructure C. Social Infrastructure and Environment D. Governance Dimensions of ADB Operations E. Gender Dimensions of ADB Operations F. Private Sector Development IV. Subregional Economic Cooperation V. Donor Activities and Aid Coordination VI. Cofinancing and Catalyzing External Resources VII. ADB’s Operational Program VIII. Economic and Sector Work Program IX. Local Cost Financing

Country Assistance Plans - Philippines : III. Sector Strategies

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B. Infrastructure

1. Energy

37. In the energy sector, one of the major ongoing structural reforms is the restructuring and privatization of the electric power industry. Government plans include:

1. divestment of NPC’s power generation functions to newly created government-owned companies to be sold to the private sector;
2. introduction of competition in power generation;
3. formation of a separate transmission company, shares of which will eventually be offered to a strategic investor;
4. creation of a market mechanism (which will cater to bilateral contracts between buyers and sellers of bulk electric power), a spot market for short-term transactions, and a power exchange to bridge the supply/demand gap in power;
5. unbundling of distribution operations and the introduction of retail wheeling; and
6. consolidation of rural electric cooperatives to achieve economies of scale.

38. An ongoing program loan is providing assistance in these areas. In addition, ADB technical assistance is programmed to assist in NPC privatization and in strengthening regulation in the energy sector covering both power and gas. To improve the overall efficiency of the power industry, ADB will provide assistance to the Government to support the integration of the Luzon-Leyte grid with the Mindanao grid. While efficiency will remain a subject of concern, particularly in distribution, the main focus of ADB lending in the sector will shift to equity, i.e. providing reliable electricity to the poor and in less developed areas. Thus, in line with the ADB poverty reduction strategy, the forward program emphasizes:

1. rural electrification including renewable energy options; and
2. strengthening of transmission, sub-transmission and distribution in less developed areas.

2. Transport and Communications

39. Key concerns of the strategy in the transport sector include:

1. improving intermodal and modal planning to ensure that plans and projects are appropriate to meet national development needs and contribute to poverty reduction, particularly in rural areas;
2. raising quality and levels of investment in transport infrastructure, particularly in underserved rural areas, and ensuring proper maintenance;
3. promoting appropriate institutional restructuring and capacity building within mainline government agencies and local governments;
4. enhancing transport safety; and
5. increasing participation by the private sector.

40. In the road subsector, ADB will support the formulation of a policy framework for a rural roads investment program to promote rural development and reduce poverty. Efforts to improve the utilization of resources will be made while also improving quality assurance measures, strengthening routine and preventive road maintenance activities, and addressing axle overloading. These efforts will come in addition to ADB’s continued support for strengthening highway planning and improved sector management and operations. As a rule, ADB will continue encouraging private sector participation. In the Metro Manila area, ADB is providing capacity building assistance in traffic engineering, management and enforcement, and in transport planning. ADB has also provided assistance to prepare an intermodal national transport strategy; and transport policy action plan, which identifies future assistance to the sector and highlights the critical need for private sector participation.

41. ADB is providing assistance to the civil aviation subsector through ongoing projects, to streamline operations (including to remote areas), promote restructuring of the Air Transportation Office, and improve regulation and safety standards. The railway and road subsectors could offer opportunities for ADB involvement in promoting sector restructuring, regulation, and public-private partnership in the future.

3. Finance and Industry

42. The Philippines will need to actively pursue reforms in the finance, corporate, trade, and investment sectors if it is to sustain recovery and remain competitive. Improving external and domestic competitiveness will be the crucial test of the effectiveness of the reforms. The Government’s medium term strategy articulated in the MTPDP recognizes this and focuses on establishing and developing globally competitive industries; and increasing employment opportunities, particularly in the countryside and poverty endemic areas. Policies include further liberalization of trade and investment; strengthening links between government, private sector and civil society; developing appropriate technologies; strengthening small and medium enterprises (SMEs) and increasing their access to financing; and promoting competition. In the area of capital market development, the Government’s areas of focus include strengthening secondary markets and credit rating; developing the bond market; promotion of contractual savings and pension funds to generate long term savings; encouraging private sector institutions in housing finance; and development of mortgaged securities.

43. ADB assistance envisages support for two main areas: financial sector reforms with particular focus on non-bank financial sector development; and industry and trade development with a focus on fostering greater competitiveness, including development of small and medium enterprises. In addition, support for corporate and financial restructuring will also be considered. In the financial sector, concerns include capital market development, systemic risk, regulatory consistency, strengthening prudential regulations, and better supervision. Improving the efficiency of financial intermediation is also necessary. Of crucial significance is the role of capital markets in efficient resource mobilization and risk diversification. However, the Philippines’ capital markets require improved governance and rationalization of regulatory and institutional structures. Capital market development will focus on reforms in debt and equity markets and other non-bank financial institutions. Recent ADB and other studies indicate that reforms in corporate governance are necessary. Inadequate transparency and disclosure of financial information contributing to lax enforcement, is an area of major weakness. Technical assistance will be extended to support reforms in the debt and equity markets to increase disclosure requirements, strengthen rules and regulations, and support enforcement efforts and measures to professionalize the management of the Securities and Exchange Commission (SEC) and the Philippine Stock Exchange. Attention to developing financial markets for responding to private sector provision of infrastructure at the local government level is also an important objective. While considerable progress has been made in liberalizing the industry and trade sector, several distortionary and protectionist practices remain. Trade liberalization needs to be pursued in the agriculture sector to improve competitiveness, promote efficiency in resources allocation, and reduce poverty. Increasing value added in exportables is another important objective requiring SME development, including attention to the financial structure for export activities and enhanced business advisory services. Other important objectives which should be pursued include creating a level playing field by providing effective investment incentives and instruments to efficiently allocate resources beyond special economic zones; and developing an appropriate competition policy to promote contestable markets through removal of entry barriers and restrictive trade practices. These issues are part of an advisory technical assistance (ADTA) study currently being provided. The findings would provide the basis for a sector development program in the future.

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