Philippines heads for construction boom

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The government in the Philippines is giving a new push to major construction projects awarded under a public-private partnership scheme, putting the building sector on a strong growth path after last year's Typhoon Haiyan wrecked havoc in the southeast Asian country.

The construction industry has already shown impressive growth so far this year. Residential building and reconstruction efforts have been driving the surge after the tropical cyclone, known as Typhoon Yolanda in the Philippines, hit the Visayas islands in November 2013. One of the strongest typhoons ever recorded in terms of wind speed, it caused total losses estimated at $12bn-$15bn, according to Kinetic Analysis Corp, a US-based hazard research company.

President Benigno Aquino’s government seems determined to move forward with mothballed developments, while simultaneously rolling out major new roads and utilities projects as part of the PPP scheme, which has been hit by severe delays since its launch in 2010.  

Reconstruction after Haiyan

The Philippines Statistics Authority (PSA) announced in June that the total number of approved building permits had grown by a fifth during the first quarter of 2014 year-on-year to reach 29,468. The total project value was PHP61bn ($1.4bn), a 4.3% increase over the first quarter of 2013. The number of residential building projects, which accounted for the bulk of new building permits, increased 17% year-on-year.

Meanwhile, the number of construction permits issued for additions, alterations and repairs of existing structures totalled 5,474 during the first quarter, a 42% year-on-year jump, with part of this hike attributed to reconstruction efforts following Typhoon Haiyan.

Reconstruction works and major infrastructure projects are expected to continue to fuel the growth of the construction industry. The National Economic and Development Authority (NEDA) approved a PHP123bn ($2.81bn) highway and dyke project in June, which will be put to tender before 2015.

The Laguna Lakeshore Expressway-Dyke project involves the construction of a 47-km dyke on top of which will be a high-speed six-lane motorway. It is expected to protect an estimated 200,000 households, or 1m Filipinos, living in low-lying, flood-prone communities. The motorway was deemed an urgent priority following extensive flooding in Laguna and south Metro Manila caused by Typhoon Ondoy in 2009, and a long period of damaging monsoon floods in 2012 and 2013.  

New push with PPP

Previous PPP projects have been hit by severe delays with The Economist Intelligence Unit reporting two years ago that none of the government’s 10 original planned projects had yet been put to tender. Recognising the need for timely delivery of new infrastructure, the government has begun a new push to implement PPP projects, announcing in June that it will shortly award a PHP65bn ($1.5bn) contract for a railway linking Manila to Cavite, as well as a PHP35.4bn ($809m) project for a toll road located south of Metro Manila. At the same time, NEDA recently approved a bid by Ayala Corp and Metro Pacific Investments Corp to build the planned Light Rail Transit (LRT) line, a contract worth PHP9.35bn ($214m), PPP Centre Executive Director Cosette Canilao told local media.

The Transportation Department’s biggest PPP project yet, a PHP271bn ($6.2bn) North-South commuter railway in Luzon is expected to be offered to investors towards the end of this year or early next year with a hybrid PPP structure being studied, Transportation Secretary Joseph Abaya told reporters at the end of June.

Two major water supply projects, the first time utility projects have been included in the PPP scheme, are also on the cards. Bidding for the two contracts, which are worth a combined total of PHP43bn ($983m), opened in June, with a final decision expected during the first half of 2015. The first of these is a PHP24.4bn ($558m) contract to supply water to Bulacan, in the north of Manila, and the second involves construction of a dam in the northeast of Manila, worth an estimated PHP18.7bn ($428m.)  

Cement challenge

With President Aquino fast-tracking major infrastructure projects, private contractors are set to see considerable activity. However, the increased demand for cement could pose a major problem. The Iloilo province has experienced a serious cement shortage following the launch of several major construction and real estate projects in the area, reported in June. Projects including a PHP1bn ($22.86m) convention centre, as well as continuing road and infrastructure projects, have driven suppliers to limit the amount of cement sold in one transaction to ten bags according to reports.

Cement shortages are reportedly worst in the northern part of the province, which was heavily damaged during Typhoon Haiyan. This shortage, while highly localised, nonetheless underscores the need to ensure steady supply of new materials; a 2010 cement shortage, for example, saw cement prices surge from PHP205 ($4.69) per bag, to PHP270 ($6.17).

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