THE PHILIPPINES recently sealed a new air service agreement with Qatar that added more flights to the route and a commitment from Doha to mount direct flights from Davao.

The new deal — signed by Transportation Undersecretary for Aviation Manuel Antonio L. Tamayo and Abdullah Al Subaey of Qatar on May 28 — increased the maximum number of flights between Manila and Doha flown by Qatar Airways to 18 flights per week for the airlines of each country from the current total of 14 flights per week.

“It is perceived that the expansion of traffic rights between the Philippines and Qatar under the new Memorandum of Understanding will enhance the connectivity between the two countries that will enable the further expansion of trade, investment, services and people to people exchange between the two countries,” the Department of Transportation (DoTr) said in a statement yesterday.

“More importantly, the inclusion of Davao in the route structure of Qatar Airways will provide much-needed connectivity for Davao to the major markets of the world, especially with Qatar directly connected to 161 international destinations. This connectivity will support Davao’s emergence as a major economic and commercial hub of the Philippines,” it added.

The agreement was tagged by the DoTr as a “landmark” deal since it included as a condition for Qatar Airways to have flights from Davao “within one year from commencement of the four additional flights to Manila.”

The target for commencement of operations for the four additional flights to Manila is between October and March 2018.

Qatar Airways currently operates 14 flights per week between Doha and Manila, plus seven flights per week to Clark, while Philippine Airlines (PAL) currently operates four flights between Manila and Doha.

PAL and Cebu Pacific Air earlier cited “overcapacity” on Middle Eastern routes, prompting airlines to suspend some of their services.

“[O]ur position is that there should be no additional flights, just like our position during the last air talks,” PAL President Jaime J. Bautista told reporters recently.

Sought for comment on the outcome of the air talks, Civil Aeronautics Board (CAB) Executive Director Carmelo L. Arcilla said the additional flights were in the national interest.

“The exchange of traffic flights shall be based on national interest. The air talks are an opportunity for us to negotiate some additional flights from other hubs outside Manila … to sweeten the pot in Davao… that’s the value for us as we promote other airports,” he said via phone.

“It’s not the first time that we’re using this strategy. It’s like the agreement with UAE, there is a provision that they have to fly to an airport outside Manila. (The) national interest (involves) the development of gateways outside Metro Manila,” Mr. Arcilla added in the telephone interview.

PAL announced it is suspending its Manila-Abu Dhabi flights starting July 8 as it undertakes “route assessment initiatives” although it will continue flying to Dubai, Doha, Jeddah, Riyadh, Kuwait and Dammam.

Cebu Pacific meanwhile said it will suspend its long-haul service from Manila to Riyadh, Kuwait and Doha — citing “oversupply” amid intense competition from Gulf carriers. The airline, however, will continue to fly to Dubai.

Both PAL and Cebu Pacific were not immediately available for comment yesterday.

The CAB executive said the next air talks are with Egypt on June 16, to be held here in Manila. — Imee Charlee C. Delavin

FINANCE Secretary Carlos G. Dominguez III said perks given to Real Estate Investment Trusts (REIT) may not be generating an adequate return for the government, and added that the incentives given to the sector are under review.

“This is my problem… We are giving people a big tax break. What do we get in return? Are we sure that the money that they will be getting tax-free will really be reinvested here? Or will it be invested in foreign shares or something else?” Mr. Dominguez III told reporters at the Department of Finance headquarters on Monday.

Mr. Dominguez said that he wants to make sure that investor profits from tax-free asset transfers under the REIT will not be taken out of the Philippines.

“What the REIT law said, if you create an REIT, whatever transaction you have to transfer the property is VAT (value-added tax) free right? That’s fine. The theory is that the money that will… be reinvested,” he said.

“But how do I know that? How do I know that the tax break will actually generate money that is reinvested here and not brought abroad. We have hardly any control here over investing (the funds) abroad,” he added.

REITs promote the development of the capital market by expanding the participation of the investing public in real estate development including residential projects, hotels, hospitals, malls, power plants and even toll roads.

“I just want to make sure that that money is indeed reinvested in productive enterprises so that they make more jobs. So that’s what they should be thinking about. You are giving somebody a tax break in exchange for what?”

“Its not the government, the money belongs to the people. We are only custodians. We are going to be asking the public to give up so much.”

The REIT Act was signed into law in 2009, and the bourse has long been seeking the amendment of its implementing rules and regulations, as current rules discourage property developers from establishing trusts.

The REIT rules have conflicting provisions, particularly on the minimum public float requirements and taxation on property transfers.

The law states that one third of the investment trust should be publicly owned, while the implementing rules and regulations mandates 40% for the first two years and at least two-thirds thereafter. The government also subjected the transfer of assets into REITs to tax and levies a 12% rate on additional income generated, while the law considers them to be tax-free.

House members last week gave the Finance department two months to come up with amendments to address these issues. — Elijah Joseph C. Tubayan

THE PPP CENTER has asked the National Economic and Development Authority (NEDA) to come up with guidelines for assessing the best mode to implement infrastructure projects after the government said it favors “hybrid” methods of financing projects instead of public-private partnerships (PPPs).

The PPP scheme — the centerpiece infrastructure program of the previous government that hoped to tap the private sector’s expertise and resources — has taken a back seat under President Rodrigo R. Duterte, who has made infrastructure a centerpiece of his economic program. His officials have said the PPP mode of procurement takes too long to implement such projects.

Instead, the present government prefers them to be funded internally, through official development assistance (ODA), PPP or a mixture of these modes.

“[T]here is no default best option and the choice has to be evaluated on a case by case basis. The PPP Center had requested NEDA to have an interagency group establish the said evaluation methodology,” the PPP Center said in a statement on Thursday.

“Whether a project should be pursued through government funding, ODA, PPP, or hybrid is a matter of finding the solution that best meets the government’s objective given a set of constraints, and the risks presented by each option.”

The PPP Center said if the objective is to build quickly, then public funds will take up the burden. “However, if the capability of a government agency to implement the project is constrained, then PPP or ODA would be the next best options.”

“PPPs bring in the private sector’s expertise while ODAs harness a particular donor’s capabilities,” it added in its statement.

The agency noted that another constraint, should government be the one to build infrastructure, is its ability to raise funds through taxes or borrowing.

“If this constraint exists, then PPP could be a better option. But this has to be weighed against the government further taking on contingent liabilities. The current hybrid model refers to construction of infrastructure using public funds or cheaper financing (local borrowing and ODA) and the subsequent operations and maintenance using PPP,” it said.

The PPP center earlier said implementing infrastructure projects through the PPP scheme “remains a viable option,” especially those that require an integrated approach — design-build-operate-maintain — in order to save on procurement timing, reduce interface risks and avail of the private sector’s technology and efficiency.

The government recently decided to abandon the PPP mode of procurement for regional airport projects, with the implementing bodies — the Department of Transportation (DoTr) and Civil Aviation Authority of the Philippines — deciding they “would be implemented through other modes.”

“If the objective is to deliver public service of the required quality and lowest cost, then either the hybrid model or integrated PPP (build-operate-maintain) would be better options. The hybrid model works if the infrastructure is built and equipped to enable the delivery of the services expected from the O&M (operation and maintenance) provider,” the PPP Center said.

“The active management of this conflict between builder and O&M provider in a hybrid model has to be planned, as soon as a decision to go hybrid is made. Conflict management, if done post construction, could potentially entangle the government, the builder and the O&M provider in costly finger-pointing should problems in the infrastructure or in service delivery later arise. This is in fact already happening in some hybrid projects,” it added.

The PPP Center further said that compared with the integrated build-operate-maintain PPP model, “the private partner manages this kind of conflict and assumes responsibility for the performance from construction all the way to operation and maintenance” and that the government only has to deal with one party — an important considerations when choosing between hybrid and integrated PPP.

Among the PPP projects that are completed are: Daang Hari-SLEx Link Road (Muntinlupa-Cavite Expressway) Project, PPP for School Infrastructure Project Phase-I, Automatic Fare Collection System, and the Ninoy Aquino International Airport (NAIA) Expressway Project (Phase II).

PPP projects under construction are: PPP for School Infrastructure Project-Phase II, Mactan-Cebu International Airport Passenger Terminal Building, Metro Manila Skyway Stage 3, Southwest Integrated Transport System Project, MRT Line 7, Bulacan Bulk Water Supply Project, and the Civil Registry System-Information Technology Project Phase II. — Imee Charlee C. Delavin

HYBRID RICE producer SL Agritech Corp. has signed a memorandum of agreement with Bangladesh’s EnP Solutions Ltd for trial production there of one of its seed varieties.

EnP Solutions will initially import some 20 to 50 tons of SL-18 hybrid rice for a pilot test.

“We’re happy to collaborate with them. And we’re hoping to target bigger seed production in Bangladesh,” said Henry Lim Bon Liong in a briefing in Makati City on Wednesday following the signing of the deal.

In two to three years, Mr. Lim Bon Liong is hoping to expand the area of seed production to “hundreds of hectares.”

“By that time we can produce 1,600 MT of seed; two tons of seed per hectare,” he said.

“This is our first collaboration. We’re still feeling each other out. But we’re looking for a long business-relationship,” he added.

EnP Solutions mainly provides services for the oil and gas industry in Bangladesh.

This will be the first time the firm will be venturing into agriculture, according to EnP Solutions Chairman Syed Mahmudul Huq.

“We are almost self sufficient in food but Bangladesh like Philippines, is subject to natural calamities and we have drought or floods. We will lose our standing crop and look for imports,” he told reporters on Wednesday.

“Nevertheless, government and the private sector in the eventual long run have to go forth for expansion in agriculture,” he added.

For his part, Ambassador of Bangladesh to the Philippines Asad Alam Siam welcomed the collaboration, saying this move is seen to help Bangladesh face the challenge of feeding its rapidly expanding population.

“We are a small country with a big population. Our farmland is shrinking while our population is [increasing]… This technology, in terms of hybrid rice, that the Bangladeshi companies take to the Philippines, will increase our productivity… and will help us ensure food security,” he said.

SL Agritech currently exports rice seed to the United States and the Middle East. — Janina C. Lim

DMCI Masbate Corp. has agreed to temporarily restore its power supply with Masbate’s electric cooperative as the two discuss ways to resolve the distribution utility’s debts owed to the Consunji-led company.
“We hope this matter is resolved immediately for the continued progress of Masbate,” DMCI Masbate said in a statement on Thursday.

It said power supply to Masbate Electric Cooperative (Maselco) had been restored effective 8:00 a.m. on Thursday “pending discussions … with [Maselco] as to its firm and acceptable commitment to settle its overdue obligations” to DMCI Masbate as well as the upgrade of the distribution utility’s system “to ensure reliability of the power supply to its customers.”

DMCI Masbate also said it had been negotiating with its creditors and suppliers for “cooperation and support to ensure temporary supply of electricity to Maselco.”

It also said that Masbate Gov. Antonio T. Kho gave its assistance as well as the Department of Energy, the National Electrification Administration and other local government units, which it said had given their assurance “that the necessary reforms to resolve the issues will be implemented.”

DMCI Masbate is among the off-grid power companies of DMCI Holdings, Inc. under subsidiary DMCI Power Corp.

It currently has a 24.4 megawatt (MW) diesel-powered power plant in Mobo, Masbate, a 4.23 MW diesel-powered generation sets in Aroroy, Masbate, 4.23 MW diesel-powered generation sets in Cataingan, Masbate, 1 MW diesel-powered generation sets in Cawayan, Masbate and 0.75 MW diesel-powered generation sets in Balud, Masbate.

DMCI Power provides off-grid power to missionary areas through long-term power supply agreements with local electric cooperatives. It currently operates and maintains bunker-fired power plants and diesel generating sets in parts of Masbate, Oriental Mindoro, Palawan and Sultan Kudarat. — Victor V. Saulon

Oxford Business Group

THE CENTRAL BANK has stepped up efforts to protect the banking industry from hacking and theft by approving a series of new authentication regulations, which come as part of a broader push to strengthen the sector against cybercrime.

In late April the monetary board of the Bangko Sentral ng Pilipinas (BSP) ratified changes to existing regulations, mandating that banks and other financial institutions adopt multi-factor authentication (MFA) techniques for certain transactions.

The measures are aimed at countering cyberattacks that target fund transfers, payments and other transactions through online channels. In addition, they are part of an ongoing program undertaken by the BSP and the financial sector to increase bank and client security as the industry adopts EMV technology, the chip-based system developed by Europay, MasterCard and Visa.

The technology uses a chip — contained as a component of bank cards — to store information about the cardholder, a development considered to be more secure than existing magnetic strip technology.

Under the new MFA regulations, scheduled to come into effect by Sept. 30, users will be required to deploy two or more authentication factors before a transaction can be conducted. These security factors include a password or PIN, or something unique to the user such as a fingerprint or retinal pattern.

The enhanced MFA barriers will also protect users against cybercrime involving card-not-present transactions, such as those conducted online, by using stronger authentication controls.

BSP has highlighted that the new regulations will reinforce the bank’s existing stringent security controls.

“In particular, MFA is mandatory for those transactions considered as sensitive communications and/or high-risk, such as enrolment in transactional e-services, payments and fund transfers to third parties, online remittance, account maintenance and use of payment cards in e-commerce websites, among others,” it said as part of a media release in April.

While the new requirements will add to banks’ expenses, the investment required to improve security barriers as demanded by the BSP should be more than compensated by the reduction in losses stemming from cybercrime.

GOOD PRACTICE AND DIGITAL AMBITIONS
Many banks have already upgraded their MFA systems to firewall against cyberattacks, according to Nestor Espenilla, Jr, deputy governor of the BSP, who told local media last month that key industry stakeholders had undertaken the measure as a prudent business decision.

“This is a preemptive response to the potential increase in card-not-present fraud as cyber criminals try to look for other opportunities, since card fraud has become harder due to EMV chip migration,” he told media.

The push to ensure banks bolster their MFA defenses comes amid an increased likelihood of further regulatory updates in the future, particularly following the May 9 announcement that Espenilla will be the BSP’s next governor.

Though not taking up the position until July, Espenilla has immediately set out his priorities, which include further digitalization of the financial system, boosting market liberalization and strengthening safeguards such as the MFA upgrades.

In his current role, Espenilla has overseen the still-to-be completed policy initiative mandating banks shift their cards from a magnetic to a chip-based system, part of the BSP’s drive to raise the security bar.

While the shift was initially earmarked for January, some banks are still working to achieve full compliance.

The broader digitalization drive has been welcomed by many in the industry, as the process reinforces efficiency of services, according to John Cary Ong, senior vice-president and head of transaction banking at Union Bank of the Philippines.

“Digital platforms can streamline highly manual processes and make delivery of services efficient and error-free,” he told OBG. “In addition, information from these platforms provides the bank and the customer with relevant insights that enable them to make the right decisions.”

STRENGTHENING REGULATIONS MAINTAINS RATING
Ongoing efforts to strengthen the banking sector’s regulatory framework were cited by ratings agency S&P on April 28 as one of the factors behind maintaining the Philippines’ investment grade rating of “BBB” with a stable outlook.

The banking sector represented a plus in the ratings assessment, the S&P statement said, with the BSP having strengthened oversight of the financial sector. This, along with modest growth in private sector liabilities and of real estate prices, has contributed to improved system stability in recent years.

The ratings agency said it remained positive about the BSP’s capacity to help sustain strong domestic expansion, while at the same time ensuring economic and financial shocks are prevented.

“This reflects the central bank’s sound record in keeping inflation low and its history of independence,” S&P said. “The BSP’s new monetary policy measures will improve the effectiveness of monetary policy transmission.”