Case Study: Conceptual Feasibility of a High Speed Rail Link between Manila-Ninoy Aquino International Airport (Manila-NAIA) and Clark-Diosdado Macapagal International Airport (Clark-DMIA)(Challenges in Determining High Speed Rail Costs)

Rommel C. Gavieta MA (Urban Energy), MSc (Eng Airport Finance)Vice President, Metro Rail Transit Development Corporation Senior Professorial Lecturer III, College of Business and Economic (MBA), De La Salle University Research Associate, York Center for Asian Research, York University

June 2011Hong Kong

1998 to 2010 Project Development Philippine Experience of the Philippines with High Speed Rail Projects

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North Luzon Railways Project Development Experience

Construcciones y Auxiliar Ferrocarriles (CAF) Spanish ODA Loan for a High Speed Rail Project (1997)High speed rail to ensure the viability of 25 million passenger capacity Clark International Airport (Joint Foreign Chambers of the Philippines)

China National Machinery Group (CNMEG now known as Sinomach) Chinese ODA Commuter Rail (2005)Regional commuter rail serving the McArthur Traffic Corridor

Project Cost:Caloocan to Clark: US$ 500.0 millionCaloocan to NAIA US$ 1.5 billion

Project Cost:Caloocan to Malolos: US$ 500.0 million (PhP28billion in 2004 to 2007)Malolos to Clark: US$ 500.0 million (PhP34billion in 2007 to 2011)

CAF Hong Kong Airport High Speed Rail Project Conceptual development perspective of North Rail http://www.sinomach.com.cn/templates/T_common_en/index.aspx?nodeid=203

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North Luzon Railways Technical Project Description Comparison

Legal framework Overseas Development Assistance Law (ODA)

Legal framework: North Rail Supply Agreement (NRSA) between North

Luzon Railways Corporation (NLRC) & Sinomach Bilateral Country Loan Agreement (BCLA) between

Philippine Government and Chinese Exim Bank was represented as an Executive Agreement

Exempt from bidding under ODA and Government Reform Procurement (GPRA) Laws

Electric High Speed Units Operating Speed 80 to 250 kph (high speed rail service) Estimated ridership is 146,000 passengers per day No. of Stations & Depot 6 train stations (NAIA, Fort

Bonifacio, Bocaue, Malolos and Clark) and depot in Clark

Diesel Multiple Units (DMUs) Operating Speed 80 t0 130 kph (regional rail service) Estimated ridership is 41,186 passengers per day Phase1: 6 Stations (Caloocan, alenzuela, Marilao,

Bocaue, Guiguinto, Malolos) and Depot in Valenzuela (2007 to 2009)

Phase2: 8 stations (Sta. Rita, Pulilan, San Simon, San Fernando, Mexico, Angeles, Dau and Clark) and depot in Clark

ODA loan from the Obuchi Fund with a 0.75% interest rate per annum, 25 year repayment and a ten-year grace period

Financed with Philippine counterpart fund for right-of-way acquisition and relocation.

ODA loan from the Export-Import Bank of China with a 3.0 % interest rate per annum, 20 year repayment and a five-year grace period.

Financed with Philippine counterpart fund of $82 million for right-of-way acquisition and relocation.

Development Benchmarks of High Speed Rail Systems

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Typical High Speed Rail Project Rational

Need for high speed rail is strongest in countries where there is a large market for travel over distances of between 150km to 800km,

There must either be very large cities of approximately the right distances apart, or there must be a number of significant population centres that can be accessed by the same high speed route

The existence of very good conventional rail lines reduces the incremental economic case for high speed rail, particularly over shorter distances, although if it is possible to use existing railway lines on final approaches to major cities, the construction costs of high speed rail can be significantly reduced.

The ultimate decision to proceed with a high speed rail project is taken at the highest levels of government, given the very significant investment involved. There was some evidence that perceived wider economic benefits of projects, national pride issues, and wider strategic impacts, were more important in decision making than the cost benefit analysis results from appraisals.

http://www.infrastructurist.com/2009/04/06/chart-comparing-new-hs-projects-around-the-world/

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At-grade, Elevated or Underground Development Benchmarks

High Speed Rail: International ComparisonsFinal Report Report, February 2004; Gleave, Steer Davies; Commission For Integrated Transport

ITA Working Group Number 13; Underground or aboveground? Making the choice for urban mass transit systems A report by the International Tunnelling Association (ITA). Prepared by Working Group Number 13 (WG13). ‘Direct and indirect advantages of underground structures’; Tunnelling and Underground Space Technology 19 (2004) 3–28

Philippine Macro-economic and Project Financing Indicators

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Fiscal Policy, Public Debt and Lender’s Security Requirements

WORLD ECONOMIC OUTLOOK: REBALANCING GROWTH

Benchmark Debt to GDP Ratio (1985-2002)• Industrial Countries: 75% of GDP• Emerging Market: 25% of GDP• Old Doctrine: 60%• Philippines: 57% in 2010 from 65% in 2001• Philippine Debt was PhP2.2trillion in 2002 and

now PhP4.5trillion in 2010 • Decline in Debt to GDP ration is more a result of

the peso appreciation since the stock of debt has increased and not decreased from 2001

Source: Diokno, D.; How Deeply Indebted is Citizen Pinoy; BuinessWorld; June 16, 2010; Philippines

Public Sector Guarantee should be limited to • Extreme Foreign exchange rate guarantee• Extreme Inflation rate • Tariff rate setting

At present, the national government allocates 39% for debt payment, 32% for personnel services, 15% for MOE and only 14% for capital expenditure. The combined capital expenditure budget of the three agencies that develop infrastructure and agriculture is PhP 128billion out a budget of PhP1.6trillion

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Equity Effective Rates of Return

http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm

http://www.investorsfriend.com/return_versus_gdp.htmBosworth, Collin, Chodorow-Riech; Returns On Fdi: Does The U.S. Really Do Better?; Working Paper 13313http://www.nber.org/papers/w13313

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Debt Market and Project Financing Interest Rates

Total External Debt: http://data.worldbank.org/indicator/DT.DOD.DECT.CD/countries/PH-TH-MY-ID-4E-7E?display=graph

Proposed Conceptual Alignment of the Manila-NAIA to Clark-DMIA High Speed Rail Project

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Airport Rail Link Project Benchmarks

Types Of Airport Rail Links Dedicated: Heathrow, Stockholm, Oslo, New

York, Toronto, Arlranda Airport processes 17million passengers a year. Arlanda to Stockholm is 50km

Branches of urban rail systems (metro, LRT, suburban trains): Charles de Gaulle-Paris, Washington D.C., Atlanta, San-Francisco

Regional: Zurich, Frankfurt, Copenhagen

Six critical factors for a successful Airport High Speed Service:

Frequency of service: critical for rail-air substitution

Wider transport connectivity: national, regional and local

‘At Heathrow’ passenger experience: should feel like a plane-to-plane interchange

Ease of interchange: time, distance, ambience Baggage management: check-in points, amount

of handling Inter-Terminal connectivity: efficient movement

to/from each of the airport terminals

The development of an ‘airport corridor’ (i.e. areas that link the airport to the existing urban region) can play an important role in the international competitiveness of metropolitan areas.

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Comparison of Alignment of NorthRail Regional Rail Serviceand Manila-NAIA to Clark-DMIA High Speed Rail Service

Many governments see their cities’ airports as the interface between their country and the rest of the world. First impressions gleaned by travelers arriving at a nation’s airport are not only lasting but pivotal in terms of how foreigners perceive a nation’s sophistication and innovation.

Airport rail links are giving us a peep into how more of us will be discovering new cities in the future. No longer will the trip to the city centre be an ordeal but an extension of our in-flight experience.

Manila-NAIA and Clark-DMIA will process 25 passengers a year and distance between Manial-NAIA to Clark-DMIA is 125 km.

North Rail Regional Rail Service will follow the existing alignment until Caloocan and go elevated from Caloocan to Manila-NAIA

Manila-NAIA to Guinguinto will be undergroud following the alignment of Circumferential Highway-5 and then at grade from Guiguinto to Clark-DMIA follwing the North Expressway alignment.

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North Rail At-grade from Clark-DMIA to Caloocan and elevated to Manila-NAIA following PNR alignment

13.2-km elevated connector road project will run along the Philippine National Railway (PNR) tracks from the end of North Luzon Expressway (NLEX) at C3 to the beginning of Skyway 1 at Buendia and is projected to start in 2012.

Manila NAIA-Clark DMIA At-grade, from Clark-DMIA to Guiguinto

following North Espressway alignment and underground from Guinguinto to Manila-NAIA

following C-5 alignment

MPIC is considering a dedicated railway system that would link the Manila-NAIA and Clark-DMIA at the middle portion of the 84-km North Luzon Expressway (NLEx), which is being operated and managed by the Manila North Tollways Corp. (MNTC).

Comparative New Conceptual Development of North Rail and Manila NAIA-Clark DMIA High Speed Rail Civil Works

Private Public Partnership Rationale

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Privately and Publicly Project Administration Comparison

• Average public sector project suffered 50% to 70% time overruns and 10% to 20% cost overruns in dollar terms. (Klien, So, Shin Transaction Costs in Private Infrastructure Projects—Are They Too High?, 1996, WB

• Non-PFI project suffered 37% time overrun and 46% cost overrun. Of those projects that were delivered late, two thirds also incurred price increases. (2008 National Accounting Office Survey UK).

PFI Project suffered a 31% time overrun and 45% cost overrun(NAO 2009 PFI Construction performance Report)

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MRT3 (PPP) and LRT2 (ODA) Project Completion Cost (Philippine Experience)

• NPV of PPP developed MRT3 is less than NPV of original ODA developed LRT2 project (with cost overruns.

• NPV of normalized PPP developed MRT3 almost equal to NPV of ODA developed LRT2

• NPV of normalized PPP developed MRT3 is less than NPV of ODA developed LRT2 (using MRT3 project cost) with cost overruns

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Market driven or Non-Market driven High Speed Rail Project

Manila NAIA to Clark DMIA is borderline as far as competitiveness to regional or conventional rail

Case studies demonstrated that there is a strong correlation between whether countries have extensive high speed rail networks and whether they have significant population centres that are distances apart that makes high speed rail a competitive transport option. (Gleave, Steer Davies; High Speed Rail: International Comparisons Final Report; Commission for Integrated Transport; UK; Feb 2004)• Manila-NAIA to Clark-DMIA with a ridership of 143,000

passenger a day maybe classified as a non-market driven high speed rail project without enhancement from the government for non-transit revenue sources

• Developing Manila-NAIA to Clark-DMIA primarily as a 130 km people-mover high speed rail rather than a commuter high speed rail ensures a market demand for the project and ensures the sustainability of the development of the proposed 25 to 50 million passenger a year Clark-DMIA.

High Speed Rail: International ComparisonsFinal Report Report, February 2004; Gleave, Steer Davies; Commission For Integrated Transport

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Simple Comparative Cashflow between at-grade/elevated and at-grade/underground project cost and revenue

North Rail Alignment Project cost will be US$759million 70% at grade and 30% elevated Assuming a 10 year repayment period with a 4%

interest rate the annual amortization payment will be US$92million

The average annual fare will PhP200 and the estimated annual revenue will be US$106million

There will be little budget left for operating and maintenance expenses which will directly result in subsidies by the Public Sector

Manila-NAIA to Malolos/Guigunto to Clark-DMIA alignment

Project cost will be US$1.3billion Assuming a 10 year repayment period with a 4%

interest rate the annual amortization payment will be US$156million

The average annual fare will be PhP200 and the estimated annual revenue will be US$ 223million

There maybe enough budget for operating and maintenance expenses which will result in minimal or no Public Sector Subsidy.

• Manila-NAIA toMalolos/Guiginto to Clark-DMIA HSR is market driven project because of the captive ridership who will be checking in Manila-NAIA to takeoff in Clark-DMIA

• Manila-NAIA to Malolos/Guinguinto to Clark-DMIA development cost of the HSR is $8,879 per passenger compared to the development cost of a regional commuter rail service of $11,000 to 19,000 per passenger.

Conclusion

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Conclusion

Philippine macro-economic indicators provides a market driven and affordable environment for the development of the NAIA-DMIA High Speed Rail Service and affordable interest rates from debt market reasonable returns from the capital market.

Manila-NAIA to Clark-DMIA High Speed Rail project will need to be developed as simultaneously with the development of the minimum 25 million passenger capacity Clark DMIA.

Manila-NAIA to Clark-DMIA Airport High Speed Rail Service as a shuttle service between the airport passengers checking in Manila and taking-off in Clark-DMIA will make the project a market driven project and projected to be financially and economically feasible as a PPP project.

Manila-NAIA to Clark-DMIA alignment following the North Expressway (at-grade) and C-5 Highway (tunnel) is technically and financially feasible.

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Thank you