the philippines - setting the foundations

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TThe Philippines has everything it needs to be a regional economicpower: abundant natural resources, an industrious and educatedwork force, and a strategic location within three hours of all majorAsian cities. Growth last year was the fastest in three decades,bucking the global trend, and the country is enjoying political sta-bility and a commensurate peak in investor confidence – FDI lastyear topped $4.6 billion, according to the National StatisticalCoordination Board.

However, the country’s infrastructure bottlenecks, from roadand rail to ports and power generation, are a threat to sustainedeconomic growth. The Asian Development Bank, based in Manila,has closely linked the continued economic expansion of the Asia-Pacific region with the development of its infrastructure. Modernand efficient transport, energy, telecommunications, and water sys-tems, the bank suggests, are the backbone of the national economyand vital for its expansion.

Creating a world-class infrastructure in an archipelago of7,107 islands presents significant challenges, but the governmenthas committed major resources to achieving it. A national energyplan has been drafted that envisages a gradual shift toward domes-

RECORD ECONOMIC GROWTH AND RISING INVESTOR CONFIDENCE ARE THREATENED BY AN

INFRASTRUCTURE THAT IS NOT YET FIT FOR PURPOSE. A MASSIVE GOVERNMENT SPENDING

PROGRAM WILL CREATE THE BASIS FOR SUSTAINED ECONOMIC EXPANSION.

The Philippines Setting the foundations

tic energy sources, renewables, and increased private-sector partic-ipation in a bid to boost electricity production.

For transport, the government has drawn up an $18.5-billiontask list. And there are many ways to spend it: only one quarter ofthe country’s 200,000 kilometers of roads are paved and less thanhalf are adequate in all weather, for example. The World Bank hasagreed to provide a $232-million loan for the $576-million SecondNational Roads Improvement and Management Project that willinclude the building of 450km of arterial roads and bridges and acomprehensive road-maintenance program.

The government is close to finishing some major projectsthat will improve the lot of air passengers, too. The DisodadoMacapagal International Airport, once the Clark air force base,is undergoing a $1.2-billion expansion and modernization andcould in time take over as the capital’s main facility from Mani-la’s Ninoy Aquino International. The latter was built in 1940and is showing its age, despite a number of upgrades. A new$1.1-billion rail link between Clark and the main mass-transithubs in Manila is due for completion by 2011.

Sea transport also needs a major upgrade: the country has

Focus on Infrastructure

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PHILIPPINES Infrastructure

1,500 ports, but just six handle 80% of all public traffic. The arch-ipelago’s inter-island ferry fleet is inadequate and accidents promptquestions about its safety.

For Lawrence N. Leonio, CEO of leading domestic tankeringfirm Petrolift Inc., a major infrastructure overhaul could set thePhilippines on course to become a regional logistics center. Hepoints to the country’s proximity to Asia’s growth centers, Japan,Korea, China, Hong Kong, Thailand, Malaysia, and Singapore,and welcomes initiatives such as the activation of the former U.S.naval base at Subic Bay as a regional hub for cargo and shipping.

“At present, Harbour Centre Port Terminal in Manila is beingserviced by feeder vessels from Hong Kong and there are manyrestrictions on smaller ships, and at certain hours you have to waitbefore you take cargo out because of a truck ban,” he says. “Butwith Subic, you could have bigger ships come in and it could be amajor regional cargo hub.”

Leonio sees even better prospects with the expansion of Clarkand the improvement of its links with Subic Bay. “The only prob-lem with Clark right now is that we don’t have first-class terminals,but they are being built,” he says. “In addition, Subic and Clarkare being connected by a highway and this will give the Philippinesthe competitive edge as a regional hub.”

Subic and Clark are not just transport hubs, they are also freezones, and other areas in the Philippines are trying to emulatethem. However, developers of free zones often need to think later-ally to achieve success, as Jose Mari B. Ponce, Chairman, Admin-istrator and CEO of the Cagayan Economic Zone Authority(CEZA), has discovered.

The zone, located in the north of the Philippines, was set up in1997, but when Ponce took over in 2005 it had a promising loca-tion but very little else. “The problem was that they didn’t have aroad map to follow to turn it into a Freeport system, so I came upwith something that would be doable within my term, which wasbasically a five-year plan,” he says. “What I’m doing is to focus onthe infrastructure program and other strategic programs that areneeded for development.”

The Lopez Group: infrastructure with pedigreeFew private groups in the Philippines have a better history thanthe Lopez Group of Companies when it comes to power and infra-structure development. Although family history dates back to the 19th century, the latefounder of the group, Eugenio Lopez Sr., ventured into electricitydistribution in 1961 by acquiring The Manila Electric Co. (Meralco)from U.S. firm, General Public Utilities. “It was the biggest acquisi-tion in Philippine history at the time,” says Oscar M. Lopez, Chair-man of Benpres Holdings Corp., the listed flagship of the group.Benpres owns 43.2% of First Philippine Holdings Corp., a con-glomerate that plays a leading role in the development of thecountry’s utilities and infrastructure. While Meralco remains the largest electricity distributor in thePhilippines – serving more than four million customers and with afranchise area producing 50% of the country’s GDP – the companyis currently undergoing a controversial dispute with the government

over control of its shares. “Although we see this condition as tem-porary, it will continue to depress our recurring consolidated earn-ings in the short term,” says Elpidio Ibañez, the President of FirstPhilippine Holdings.The Lopez Group has experienced challenges throughout its his-tory, but its management feels confident about the outcome inthe long term. “We have been there before,” says Lopez. “In thelate 1960s First Philippine Holdings had better credit from interna-tional banks than the government itself; then in the 1980s, duringMarcos’ regime, we nearly went bankrupt; but in the 1990s wewere back on top.”The capacity to expand and contract in order to match markettrends is one of the Lopez Group’s main characteristics and it hasrecently divested some of its non-core businesses, including itsinterests in Manila North Tollways Corp. and The Medical City. n BY MARCO VENDITTI

Jose Mari Ponce, Chairman and CEO of the Cagayan Economic Zone Authority.

Ponce’s vision is to develop the zone along three key lines: asa transshipment hub, an agro-industry base, and a tourism center.The development of the port, he says, will be the crucial element inthe success of those plans. The zone has plenty of land that couldbe planted to support agro-industry, he says, but it lacks process-ing plants, and they won’t come unless there is a good port. AsiaPacific International Terminal Inc. has a build-operate-transfercontract to expand the existing port as it can only handle smallships currently. It has now received financing to install large cranesat the port and they should be operational in two years.

With the full port development likely to take seven to 10years, and with financial resources limited, the CEZA chief had toidentify a good source of income to get his plan underway. Hechose tourism, but lacked the resources to develop the necessaryinfrastructure, until he looked closely at his operating charter. “Ifound that the charter gave me the power to license and give fran-chises to amusement, gaming and casino operations,” he says.CEZA assigned First Cagayan Leisure and Resort Corp. as themaster licensor, it built the necessary telecommunications infra-structure and virtual e-gaming was introduced.

For Ponce, it is just the beginning. “I started only with threelocators and one port operator,” he says. “Now I have 68 locatorsand I can use or leverage all the funds that I generate from thegaming industry for the development of my infrastructure.”n BY PAM DOUGHERTY

Creating a world-class infrastructurein an archipelago of 7,107 islandspresents significant challenges, butthe government has committedmajor resources to achieving it.

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FFueled by a remarkable confluence of factors, the Philippine con-struction industry is enjoying a powerful resurgence after almost adecade of doldrums that followed the 1997 Asian financial crisis.Government infrastructure spending, inward investment from over-seas Filipino workers (OFWs), and a robust business outsourcingindustry are driving the construction boom, while growth in tourismand retail spending are supporting its continuation.

“The real estate business is booming right now because of the

economic and political situations,” says Jose L. Acuzar, Chairmanof New San Jose Builders Inc., a Manila-based developer that spe-cializes in infrastructure and residential projects. “My feeling isthat we have almost five more years to enjoy the boom. There is abig market for what we do.”

The Philippines has entered an era of political stability which hasboosted confidence in the economy. GDP growth last year – at morethan 7% – was the fastest in three decades, and a 4.6% expansion in

Construction: riding the boomA RESURGENT CONSTRUCTION SECTOR IS BUOYED BY RECORD REMITTANCES, INFRASTRUCTURE

IMPROVEMENTS, AND RENEWED INVESTOR INTEREST. METRO MANILA IS THE HUB OF THE ACTION,BUT THE BENEFITS WILL BE FELT NATIONWIDE.

A luxury landmarkDesigned by National Artist of the Philippines and respected architect,Leandro Locsin, the InterContinental Manila has been a five-star landmark inMakati City since 1969. While Metro Manila’s commercial heart hasdeveloped at a furious pace around the hotel, it remains the venue of choicefor the city’s most discerning visitors.State-of-the-art function rooms and meeting spaces, including a GrandBallroom, attest to the hotel’s position at the heart of big business. A stylishmakeover, recently completed, has allowed for contemporary touches amid thehotel’s easy elegance. It also allowed for the addition of Club InterContinental,three floors and a top-floor Club Lounge, designed by architect and designerArlen de Guzman, that offer guests premium amenities and services. Eateries such as buzzing Cafe Jeepney and the Prince Albert Rotisserie –named by Philippine Tatler among the city’s finest dining options – appealboth to locals and visitors. The hotel regularly hosts food fairs, too, tointroduce diners to dishes from across the archipelago. n BY PETER DRENNAN

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the second quarter of this year eclipsed both Hong Kong (4.2%)and Singapore (2.1%). The government has played a direct rolein stimulating construction, and the economy, by pouring moneyinto roads, bridges, airports, and rails as part of a $20-billion,countrywide infrastructure-development program. More than 20airport and seaport upgrades are included in the plan, along witha dozen or so major bridge and highway works and a handful ofrail projects, including a high-profile $130-million light-rail sys-tem for Manila.

Some of the most ambitious projects are in the south, includingMindanao, where a 70-kilometer highway that includes three largebridges is underway between Butuan City and Las Nieves. The Min-danao projects will improve both the business climate and the quali-ty of life in one of the archipelago’s poorest regions.

The continuing strength of the country’s business process out-sourcing (BPO) industry, especially call centers and back-office sup-port, has also amplified the demand for construction, as BPO opera-tors typically require large amounts of office space. According toproperty consultants CB Richard Ellis, more than 730,000 squaremeters of new BPO space will open this year in Metro Manila alone.

At the same time, overseas Filipinos are driving the constructionof affordable housing. Remittances from OFWs hit a record $1.4 bil-

lion in June and residential property at home is a favored investment,escalating the need for condo towers. Meanwhile, the rising popu-larity of the Philippines as a tourist destination – visitor arrivalsjumped 8.7% in 2007, and another 6.9% in the first half of this year– has encouraged developers to build hotels and related infrastructuresuch as convention centers, while steady growth in consumer spend-ing has raised the demand for shopping malls and other retail space.

“The recent boom in property development is due to increasedconsumer confidence, and that has also made the country invitingto foreign investors,” says Manuel S. Mendoza, President andCEO of Monolith Construction and Development Corp. (MCDC),based in Quezon City, Manila.

A few mixed-use, mall-retail-office projects are underwaybeyond the capital, notably in Davao City and Cebu, but most arestill to be found in Metro Manila. Developers such as Ayala Land,among the country’s largest, and Megaworld are involved in theconstruction of Bonifacio Global City, a former U.S. military baseat the heart of the capital. Megaworld is developing the 50-hectareMcKinley Hill complex there, a project that will encompass resi-dential towers, plus office and retail space. The same firm’s 9,000-unit, 20-tower Manhattan Garden City development in QuezonCity is the largest condominium project in the country. QuezonCity will also be the site of the Araneta Group’s Cyber Park, a 10-building complex devoted exclusively to the BPO industry, andAyala Land’s own 37-hectare BPO complex.

To meet the demand for such varied construction, developershave expanded their areas of expertise. MCDC, for example, onceconcentrated on high-rise condo and office projects, mostly inMetro Manila. But after the crisis of 1997, the company movedinto the mall-building business, and has since built more than 20,including part of the SM Mall of Asia in Pasay City, one of the

“The recent boom in propertydevelopment is due to increasedconsumer confidence, and that hasalso made the country inviting toforeign investors.”


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world’s biggest. “The cost of buildingshopping malls is much lower than high-rise condos,” says Mendoza, “and it takesless time to build them, so there is a fasterand greater return on investment.”

MCDC remains active in other sec-tors, too: it recently completed the state-of-the-art SMX Convention Center at theMall of Asia, and is building call centerson a large scale. Like other developers, itis busy in Bonifacio Global City, a 4,440-hectare site that will become Asia’snewest multi-use urban center, completewith offices, banks, residences, retailspace, and schools.

Developer DDT Konstract Inc., whichis building BPO projects around the country,along with high-rises, churches, and malls,also wants to ride the economic tide intonew sectors. “I want to move into infra-structure,” says Danilo D. Tamayo, thefirm’s President. “It’s a significant market.”

Similarly, New San Jose Builders,which was launched in 1986 as a smallsubcontractor building houses, roads andother modest projects, has taken advan-tage of the robust market to move into agrowth area: developing and building resi-dential towers. And Rey L. Vergara, thefirm’s President, has targeted a significantmarket niche.

“If I were to classify our markets, weare dealing with the middle and the lower-middle income groups,” Vergara says.“These groups appreciate the lower pricesof the condos we sell, where value is givenprecedence over everything else. We sayvalue because we are priced 30% to 40%lower than our competitors.”

The company is also active in Fort

Bonifacio, where it plans to build residen-tial towers for middle-income buyers. Atthe same time, it has expanded its infra-structure business into larger highway pro-jects, such as the South Luzon Expressway.

So far, the strategy has worked, saysVergara. “We started growing fast in 2002,and from 2006 to 2007 we doubled in size,and in 2008 we are almost double the sizeof 2007,” he says. “And if we start FortBonifacio soon, we will almost doubleonce again.”

In spite of the current strength of theindustry, there are clouds on the horizon.Costs have risen sharply, especially foressential materials like steel, oil and con-crete. “The cost of steel has almost tripled,and this has been a rough experience forthe company,” says Tamayo of DDT Kon-stract. “But I think we can weather it. Thechallenge is really how to lock in goodprices for these major materials.”

There are also signs that demand fromend users may be slowing. The peso hasrisen in value more than 20% against theU.S. dollar over the past three years, threat-ening the inflow of cash from overseasworkers, while an economic slowdown inthe U.S. or Europe would dampen the mar-ket for business outsourcing and tourism.

Yet a significant slowdown in the mar-ket is still several years away: Acuzar, NewSan Jose’s Chairman, says five years, whileMendoza of MCDC says three. However,New San Jose’s Vergara is more optimistic.“We have a huge market in the Philippines,and for as long as that huge market is here– and I think it will be for 20 to 30 moreyears – we can take advantage of thatstrength.” n BY BRENT HANNON

Rey L. Vergara, President (left) and Jose Acuzar, Chairman of New San Jose Builders, Inc.


BusinessWeek


Bathroom-fixtures manufacturer HCG chose the Philippines as a base from which to launch itsexport drive. More than a decade later, the company leads the local market and is

contemplating expansion.

HCG: Global talent yields a competitive edge

Ask an investor in the Philippines about the country’sgreatest asset, and Steve Chien, President of HochengPhilippines Corp., says the answer will always be the same:“the people.”Chien is well positioned to comment. The bathroom-fixturesmanufacturer, HCG, has been active in the Philippines for 13years. The company, from Taiwan, has since created thelargest production facility of its kind in the Philippines with acapacity of 1.5 million pieces annually.HCG viewed the Philippines as a basefor its export drive, and the creativity,enthusiasm and multiculturalism ofHCG’s local employees, Chien says,has established the plant in Cavite,south of Manila, as a springboard intoforeign markets.

“We could not [conduct] internationalbusiness without the people here,”Chien confirms. “For global businessyou need people who communicatewell, and we feel lucky to have them inthe Philippines. Many of ouremployees have worked abroad, in theMiddle East for example, and theycome back and bring their new skillswith them. In the Philippines, you havemultinational talent speaking acommon language.”Since its foundation in 1931, HCG hasfused a culture of tradition andcraftsmanship with the pursuit ofinnovation. While remaining faithful tothese founding principles, HCG hasgrown to become one of the largest manufacturers ofbathroom fixtures in Asia. Chien says HCG has achieved success based on three keyvalues: Style, Satisfaction, and Society. “The bathroom is thefirst room we go to when we wake up, and the last room wego to before we go to sleep,” Chien says. “To ensure peoplelive in a nice environment, we believe in style, not only indesign but also in function.” Although HCG opened its plant in the Philippines with aneye on overseas sales, the company’s distinctive style andinnovative design, supported by high levels of customerservice, have established the company as the market leader,with a solid export base. HCG has tapped into the growinglocal demand for better bathrooms, often financed by

remittances from overseas workers. The company has alsosecured relationships with the country’s leading developers,which use HCG products in their building projects. At the same time, HCG has responded to its success in thePhilippines with a number of social initiatives, such asproviding bathroom fixtures to schools across the country.“We have a responsibility in this country,” Chien explains.“When getting so much from the Philippines, how can you

not return to society?”HCG also strongly advocatesenvironmental awareness. In particular,the company is focused on improvingthe efficiency of water consumption inits sanitary ware. “We want topromote water conservation. Water iscritical in the Philippines. If you go toa place like Boracay, there is littlewater,” Chien says. In the export market, too, water-conservation standards are critical. “Allour products meet U.S. and Canadianwater-conservation standards,” Chiensays. “As part of our world strategy,we have to meet world standards, asonly this way can you know how goodyour toilet is.”Chien says HCG has a two-foldstrategy for global growth. In Asia, it islooking to grow based on its ownHCG brand, which it is introducinginto major real estate developments inSingapore, Malaysia, Indonesia andelsewhere in Asia. In the U.S. and Europe, HCG will focuson private labeling, providing realestate developers, hotel chains andmajor stores with entire bathrooms fornew developments. HCG produces

stylish bathroom fixtures, designed andbranded according to the specifications

of these customers. HCG already has a strong brand andsolid foundations to support its image. “We are going to bea specialized manufacturer for any private label brands,”Chien explains. And here again, thanks to its base in themulticultural Philippines, HCG will be at an advantage overcompetitors. For the production of stylish bathroom fixtures for anincreasingly discerning world market, few countries canmatch the Philippines in terms of the supply of a creative,motivated, and globally aware workforce. “We would like toincrease our capacity here by investing more in thePhilippines,” Chien says. “The Philippines is the base forinternational growth, and we are going to be a globalplayer.”n BY MARK BERESFORD

Steve Chien, President of Hocheng Philippines Corporation

“In the Philippines, you have multinationaltalent speaking acommon language.”


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TThe Philippines is building an international reputation for the excel-lence of its health-care facilities, and is increasingly attracting “med-ical tourists” from around the world.

Medical tourism is a significant growth market. A recent studyby Deloitte, a firm of consultants, reported that the global market isestimated at around $60 billion today and is expected to grow to$100 billion by 2010. Last year, some 750,000 Americans traveledabroad for medical care and this number is expected to increase tosix million by 2010. Health care is set to become increasingly globalas practitioners, patients and funding migrate.

“Medical tourism is an emerging phenomenon in the health-careindustry,” said Paul Keckley, Executive Director of Deloitte’s Centerfor Health Solutions.

Although the Philippines has entered the medical-tourism mar-ket later than some of its Asian neighbors – Singapore, India andThailand are well established – the sector is expected to grow rapid-

ly in the next five years. The government has set up a private-publicinitiative, the Philippines Medical Tourism Program, to attract over-seas clients who can combine their medical needs with a vacation.

“We have a medical-tourism program in place so that foreign-ers can come here for the quality of our services and extremelyaffordable health care,” says Francisco T. Duque, Secretary ofHealth. “Our doctors are world class and many have been educatedat the best training institutions in the world.”

Keckley agrees that cost is a key factor: “The impact of dramat-ically rising U.S. health-care costs is felt in every household and byevery company. Even consumers with employer-sponsored healthinsurance are increasingly considering medical tourism as a viablecare option,” he says. “Medical care [in some countries] can cost aslittle as 10% of the cost of comparable care in the U.S.”

For consumers, he says, “the safety and quality of the careavailable in many offshore settings is no longer an issue as organi-

The pursuit of wellnessSTATE-OF-THE-ART HEALTH-CARE FACILITIES OFFER THE PHILIPPINES AN ADVANTAGE IN THE

GLOBAL MARKET FOR MEDICAL TOURISM, AND WORLD-CLASS TREATMENT FOR DOMESTIC USERS.

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zations including Joint Commission International [JCI – the largestaccreditor of health organizations in the U.S.] are accrediting thesefacilities.”

Among the Philippine institutions attracting clients from abroadis The Medical City, a private, tertiary-care hospital with more than40 years’ experience. It is based in Manila and has full JCI accredita-tion. With impressive new facilities, The Medical City has centers ofexcellence in cardiovascular, cancer, neuroscience and regenerativemedicine and says that its philosophy is to treat the patient as “anequal, informed and empowered partner in the pursuit and preserva-tion of health.”

Dr. Alfredo R.A. Bengzon, President and CEO of The MedicalCity, says: “We have a distinguished medical staff of some 1,000physicians, all of whom are experienced, recognized and establishedexperts in their various fields of specialization.”

He adds that many of the nursing staff have worked in some ofthe best medical facilities in the world and have brought that experi-ence back to the Philippines. “A lot of people, when it comes tohealth and hospitals, think only about the technology. But themachines and instruments are only as good as the people behindthem. We have state-of-the-art technology and great facilities, butwhat drives them is the people we employ.”

While Dr. Bengzon, a former Secretary of Health, takes pride inthe international component of his business – revenues from medicaltourism trebled from 2006 to 2007 – he also considers The MedicalCity a referral center for hospitals across the Philippines. “Our desireand ability to service other hospitals is not simply about the deliveryof health services. We also want to help them with management. Wehave developed all this experience, these talented people, and wewant to share them.”

While the Philippines is developing a presence as a provider of

world-class medical care, it is also building a reputation abroad forcosmetic procedures. Dr. Victoria Belo, who is credited with enhanc-ing the looks of a number of Filipino celebrities, is attracting clientsfrom around the world, and in particular from the Middle East.

Dr. Belo, who trained as a dermatologist, is Medical Directorof the Belo Group, which has eight clinics in the Philippines. “I goabroad a lot to train with the best doctors in their fields, you cannever stop learning, and then I bring that expertise back to thePhilippines,” she says. What sets the Belo Group apart from otherproviders, she adds, is “the language, the technology, the care andthe experience.”

Dr. Alfredo Bengzon, President and CEO of The Medical City


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Cost is also a factor. “In Beverly Hills, abreast-augmentation procedure costs up to$12,000, here it costs $4,000. Liposuction inthe U.S. is between $5,000 and $7,000, herein the Philippines it is $3,000. And whenpeople have had procedures, they can take avacation at a spa and relax,” she says.

Looking forward, Dr. Belo says hervision is for both her company, and hercountry, to be global leaders in medicaltourism. “If we are leading, it is because we

invest in what we do. There are machinesthat I have put to pasture because they are nolonger the very best, but it’s expensive to belike that, especially in the Philippines,” shesays. “It is my dream to make the Philippinesthe [world] beauty capital.”

As well as attracting medical tourists,the Philippines is rapidly improving healthcare for its own people. The governmenthas created “FOURmula One,” a policy tobring together the public and privatehealth sectors with national agencies toimplement health reforms and institutenational health insurance.

“We are expanding our specialist hos-pitals with expertise in lung, heart, kidney,trauma, and children’s medicine, and wehave begun upgrading many of our primaryhospitals so that they are capable of man-aging and treating more difficult cases,”says Health Secretary Duque.

While national health insurance isgrowing, so too is the provision of compa-ny health-insurance schemes throughAmerican-style health management organi-zations (HMOs). Among them is AsalusCorp., which is popularly known as Intelli-Care, the brand name of its HMO business“Our mission is to lead, innovate, and trail-blaze a holistic approach to health-caremanagement by consistently providing top-

quality, highly personalized health-care ser-vices that are easily available, accessible,and affordable,” says Mario M. Silos, Pres-ident of Asalus Corp.

He explains that the company hasforged strategic alliances and affiliationswith a network of over 480 hospitals, clinics,diagnostic centers, and other medical institu-tions that are manned by more than 7,000 ofthe country’s most highly regarded physi-cians and medical specialists.

Asalus Corp. is expandingand moving beyond the majorcities. The company plans tooffer a nationwide service in thenext five years. “Corporationsare now moving into rural areas[as] they want to save money onurban rents, and that is playingto our strategy,” says Silos. “Weput up the systems ahead ofthem.” IntelliCare now hasmore than 360,000 membersand a client retention rate ofover 90%. Silos says that withinthe next 10 years, it plans tohave a million members.

Another organization withambitious plans is Pascual Lab-oratories, a privately held phar-maceutical company that isnow the second-largest domes-

tic player in the sector. “We have consis-tently been one of the industry’s fastest-growing companies for the past decade,”says Abraham F. Pascual, Chairman of theBoard. “We have achieved leadership inthe OTC [over-the-counter] wound-reme-dy segment, in the locally producedherbal-medicine market, and in generics,as well as prominence in anti-infectives,anti-tuberculosis and vitamins segments.”

Pascual Laboratories was set up by thecurrent Chairman’s parents in 1946, and hesays one advantage the company has over itscompetitors is “our name recognition andour relationships, which count a lot in Asia.We have developed relationships with thedoctors, they know us and they know whatkind of company we are.”

As well as producing generic pharma-ceuticals under the Pharex brand, the com-pany has moved into health supplements andherbal remedies. “We are now looking atthe export market,” says Pascual. “We arelooking at the ASEAN countries. We have atrade agreement with them and they are try-ing to harmonize the requirements – as soonas that is done, we will be able to expand.”

But Pascual won’t sanction expansionat all costs. “Our long term vision is tocontinue to do business the way that wedo it now. It’s nice to make money, buthow you make it is what is really impor-tant to me.” n BY HELEN JONES

Dr. Victoria Belo, Medical Director of the Belo Group.

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LLike many other countries reliant on imported energy, the Philippineshas ambitious plans to achieve energy independence in the face ofsoaring commodity costs.

But today the Philippines remains dependent on imported oiland coal, which together provide more than 70% of the archipelago’senergy needs. This reliance on imports has been hard on consumersforced to pay sky-high global prices, but is creating new opportuni-ties for the country’s private energy companies, which have seen theirportfolios expand rapidly since the oil sector was liberalized in 1997.

The increased demand for energy brought about by a sustainedeconomic boom, combined with the steep climb in oil prices, prompt-

ed the government to draw up the Philippines Energy Plan for 2005-2014. It set ambitious targets that included not only energy self-suf-ficiency, but establishing the Philippines as a global leader in sectorssuch as geothermal and wind-energy production.

The plan set an interim target of achieving 60% self-sufficiencyby 2010 through a combination of increased access to domestic oiland gas reserves, reduced coal imports, and the development of bio-fuels. The timeframe for the plan was subsequently extended to 2030.

Domestic oil production, at 23,000 barrels per day (bpd), metjust 7% of the country’s demand for 336,000 bpd in 2007, butnew fields due to come into production in 2008 should push that

Energy: seeking solutionsSOARING OIL PRICES PROMPT AN AMBITIOUS PUSH TOWARD ENERGY INDEPENDENCE AND

RENEWABLE ALTERNATIVES. LEADING PRIVATE PLAYERS PROVE THEIR GREEN CREDENTIALS.

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contribution to 10%. The Department ofEnergy has also awarded a number of con-tracts for exploration, mainly in theMalampaya region that has both a natural-gas field and deep-sea oil deposits. Explo-ration and development of the area will beexpensive but the rise in world oil priceshas made it attractive, and the internation-al majors are moving in. Chevron Texacoand Shell are already active in the area, andExxon Mobil, the world’s biggest oil andgas producer, announced in June that itplans to drill exploration wells from mid-2009, if initial data proves positive.

The growing demand for oil productshas been good news for the Philippines’largest petroleum-tankering and bulk logis-tics provider, Petrolift Inc. The companyhas long been a pioneer in the domestictankering sector, being the first to introduceIACS-classed coastal tanker barges, the firstto secure International Safety Management certification from theAmerican Bureau of Shipping to operate oil tankers in the Philip-pines, and the first to introduce IACS-classed ocean-going double-hulled oil tankers, the largest in the Philippines.

The introduction of three double-hulled tankers in 2007 hassharply raised the company’s capacity to deliver oil productsthroughout the archipelago, and the bottom line. But it isn’t all aboutbusiness. “[The ships are] more socially responsible and environ-mentally safe. We are very happy to expand, it’s very good for thecompany. But helping the environment is something you cannot puta value on,” says Lawrence N. Leonio, CEO of Petrolift, and mem-ber of a family that has been in marine-related businesses for fourgenerations. “Each time we reach a milestone like this, we also raisethe quality in the industry and then it becomes the new standard.”

Petrolift is not focused only on the Philippines, nor on oil.Leonio is keen to use the company’s leading position in domestictankering to expand in the region. “Our strategy is to play theintra-country [market], the domestic shipping. We want to lever-age what we have in the Philippines and enter other SoutheastAsian countries.” He is also excited about a recent move into themining logistics business. “With [rising prices], everyone is lookingat commodities. China is very hungry for metals, and fortunately

the Philippines is very rich in naturalresources. We expect a lot of demand interms of mining logistics.”

Oilink International, the largest indepen-dent oil company in the Philippines, has alsoseen business expand strongly, from humblebeginnings. “We started in 1966 as a recyclingplant. We collected used engine oil, refined itand used it as a lubricant. We pioneered thebusiness of energy conservation and environ-mental protection when crude oil was still afew dollars,” says Chairman Paul Co. Follow-ing the deregulation of the oil industry in 1997,the company moved into retail, opening thefirst full-service gas station under the Unioilbrand. It was also the first to open an oilimport terminal, to reduce dependence onexisting refineries.

Diesel oil is the major product the company imports, supplyinglocal public-transport networks and most of the independent gas-sta-tion chains. “We have long-term supply contracts [with] foreignrefineries operating in the region,” Co explains. The company alsomanufactures and retails lubricants having partnered with Japanesemanufacturer, Idemitsu.

Lawrence Leonio, CEO of Petrolift (left) andRamon Villavicencio, Chairman of Flying V (below).

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Oilink is also a major supplier of asphalt to projects such as theIloilo Airport and Subic/Clark Expressway. “We expect more infra-structure projects in the coming years,” Co says.

Co adds the rapid rise of oil prices, and the 20% appreciationof the peso, contributed to record profits for Oilink in 2007, and itis moving to take advantage of the buoyant market. “Our strategy isto expand the reach of our service stations, and to encourage theindependents we supply to follow suit,” he says. “We would also like

to introduce better qualityfuel oil to the market. Atpresent, when interna-tional vessels come to thePhilippines, they usuallycarry enough fuel oilwith them to go back totheir port of originbecause the prices andquality to be found hereare not competitive.”

The company is alsoworking toward a greaterrole for environmentallyfriendly energy sources.“We are required to put1% of CME [coconutmethyl ester] into dieseloil. We have invested in abio-diesel plant in Min-danao where coconut isreadily available,” Coexplains.

Flying V, the opera-tor of more than 160 gasstations throughout thePhilippines, was also bornout of the deregulation ofthe oil industry in the late

1990s. Conscious of the environment, Ramon F. Villavicencio, FlyingV’s Chairman, is proud of the fact that his company was ahead of thegovernment in introducing environmentally friendly fuels.

“We were the first to dispense bio-diesel through our sta-tions, two years before the law mandated it,” Villavicencio says.“For which we were recognized by the Department of Energy andgiven a Presidential Award for pioneering the commercializationof bio-fuels. We have strengthened our R&D efforts on plantsources like sorghum, jatropha, malunggay and the developmentof coco-ethanol.”

Although he describes Flying V as a fully integrated oil com-pany whose infrastructure extends from the import terminal andstorage depots to the dispensing pumps in its gas stations, Villav-icencio knows renewable energy is the future. “Fossil fuels will bedepleted and going green is imperative. The global need to searchfor alternative energy sources and renewables applies equally tothe Philippines.”

Together with its affiliates, Flying V’s activities also encom-pass depot and logistics operations, lubricants and asphalts manu-facturing, and a distribution network complemented by barges andtanker trucks which supply its retail outlets and customers. “Thecompany has established its presence in all facets of the petroleumbusiness,” Villavicencio says. “Flying V’s network strength puts itin an enviable position.” n BY PAM DOUGHERTY

MARKETING: Ana Molinos - RESEARCH: Silviu Nistor - PRODUCED BY: Carmen MouraEDITOR: Peter Drennan - DESIGN: Mercia Fuoco

a VEGA MEDIA creation www.vegamedia.com

Aerial view of the Oilink terminal in Bataan.

the philippines - setting the foundations

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