July 31, 2014 12:00 am JST

The CEO who makes Manila run

CLIFF VENZON, Nikkei staff writer

Manuel Pangilinan

MANILA -- In the sprawling capital of the Philippines, lives depend on Manuel Pangilinan. The businessman controls practically everything: electricity, water, roads, telecommunications and media. Recently, he has set his sights on another human necessity: food.

     Pangilinan, 68, works as chief executive and overseer of First Pacific's vast assets in the Philippines. The Hong Kong-listed investment powerhouse, controlled by Indonesia's Salim Group, which belongs to Indonesia's third-richest family, made a huge bet on the country when it took over Philippine Long Distance Telephone in 1998. Since then, the venture has expanded into a diverse array of businesses.

     First Pacific's local unit, Metro Pacific Investments, is an infrastructure giant. Its subsidiary Manila Electric, the country's largest power distributor, has the monopoly of the capital's power supply. Manila Electric powers around 5.5 million households and is slowly penetrating provinces on the main island of Luzon.

     Maynilad Water Services, meanwhile, distributes water to more than a million households, mainly in the Philippine capital.

     Metro Pacific Tollways, for its part, holds the concession of two toll roads -- North Luzon Expressway and Manila Cavite Toll Expressway -- and operates another one, the Subic-Clark-Tarlac Expressway. The three roads, with a combined length of around 190km, are used by about 300,000 cars every day.

     And in recent years, Metro Pacific Investments has also made sizable acquisitions in health care. The company now owns eight major health care facilities, which have a total capacity of more than 2,000 beds.

     The growth potential of the hospital business attracted a significant investment from Singaporean sovereign wealth fund GIC.

     "We are simply trying to fill the huge demand for infrastructure services," Pangilinan told the Nikkei Asian Review in late July. "We need a new airport, we need to expand ports, we need to build roads and toll roads. The water services in Manila are good, but outside Metro Manila, it's from deep wells. It is not environmentally friendly, so we have to fix that."

     "The margin of supply to demand is very small, and we have been experiencing brownouts, so we have to build more power plants," he added.

     Despite the long list of domestic challenges, the group plans to expand beyond the Philippines.

Room for expansion

On domestic turf, Metro Pacific Tollways is proposing to the government a $415 million, 13km elevated toll road that would link the northern and southern parts of Luzon Island.

     Manila Electric, together with EGCO Group of Thailand, is also set to build later this year a 460-megawatt coal power plant in the province of Quezon.

     With the Ayala group, Metro Pacific Investments is poised to bag a 64.9 billion-peso ($1.49 billion) contract to expand and run Manila's longest elevated railway.

     The conglomerate also hopes to get in on the government's public-private partnership program, with more than $20 billion worth of deals still up for grabs.

     Abroad, the company took a roughly one-third stake in Thai toll road operator Don Muang Tollway. The group also acquired 70% of a Singapore-based liquefied natural gas company. And it is involved in a power distribution venture in Nigeria.

     "We are (also) looking at water projects in Vietnam and Indonesia," Pangilinan said.

     While Pangilinan sees bottlenecks in infrastructure, he sees wide gaps to fill in the agricultural sector.

     The businessman has been moving to increase First Pacific's exposure to Philippine agribusiness. The Hong Kong company already controls Indonesia's Indofood, and its presence in Southeast Asia's consumer food business is increasing.

     First Pacific has acquired a third of Roxas Holdings and a minority stake in Victorias Milling. Pangilinan said his group is gunning for higher stakes in two of the Philippines' largest sugar millers.

     Pangilinan said he wanted to enhance the productivity of Philippine agriculture, lest regional integration and the removal of tariffs threaten the precarious livelihoods of Filipino farmers.

     "The agricultural sector has been a neglected sector," he said, adding that his company is also evaluating opportunities in rice and coconuts. "It just needs more attention. People have to eat. I think we should plant more rice. Our sugar production has been fairly static, but we have to improve productivity."

     As the group focuses on infrastructure and food, First Pacific's crown jewel, Philippine Long Distance Telephone, is not about to be left behind.

     Now PLDT is looking beyond calling and texting and focusing on new ways to make money from demand for online data services. The company is sizing up a European company with Internet businesses and expects to make an investment "in a few weeks," according to Pangilinan.

     He declined to offer details of the potential deal but noted that one of the aspects that interests PLDT is e-commerce, which is important for the telecom company "because 70% of the (Philippine) population is unbanked."

     With smartphones becoming increasingly common even among the lower-middle class, online payments are gaining traction, albeit slowly.

     PLDT President Napoleon Nazareno said PLDT's investment in the Internet company should lead to "strategic alliances" that reach outside the Philippines, where it has nearly 70 million subscribers.

     Prior to zeroing in on e-commerce, PLDT made significant investments in the media business. Through a trust fund, it owns TV5, the Philippines' third-largest broadcaster. It also owns controlling interests in two newspapers.

     "We think there is a convergence that is happening already between (telecom companies), media and the Internet," Pangilinan said.

     He added that because Filipinos are heavy consumers of music, sports and news, "it is important to have investments in our own (proprietary) content."

     PLDT, which is backed by major Japanese telecom company Nippon Telegraph and Telephone group, took a step to prepare for its "convergence" strategy two years ago, when it spent 67 billion pesos to upgrade its network. Over the next three years, the company plans to spend another 30 billion pesos annually to further build up its equipment.

     Pangilinan has come a long way since he first tried his luck as a banker in Hong Kong in 1976.

     He has built an empire for First Pacific in the Philippines. But where does he go from here?

     Solving the country's looming shortage of oil and gas is likely to be his next challenge.

     Pangilinan is courting China National Offshore Oil (CNOOC) in the hope of jointly exploring for resources at Reed Bank, a disputed area in the South China Sea. So far, however, the Chinese side has shown little interest.

     "We understand that CNOOC is very busy ... including offshore acquisitions," he said. "But part of (the problem) is the rhetoric between the Philippines and China."

     The countries in recent months have traded barbs after Manila brought its territorial case to the United Nations, infuriating Beijing, which wants to deal with the matter bilaterally.

     Philex Petroleum, which Pangilinan chairs, controls Forum Energy, which in turn owns 70% of an exploration rights contract for Reed Bank. The Philippine government has prodded Forum to explore there, since it could be the answer for the shortage.

     The area is estimated to contain as much as 470 billion cu. meters of gas and 416 million barrels of oil.

     Reed Bank could replace the Malampaya natural gas field -- currently the Philippines' main source. Malampaya has reserves of 76 billion cu. meters and is expected to dry up by 2024.

     Pangilinan still hopes to clinch an agreement with CNOOC. Such a deal, he suggested, might help to ease tensions between China and the Philippines.

     "If indeed there is a significant gas deposit there, and the arrangement translates into mutual benefits for the Philippines and China, will that improve political relations? Hopefully, yes."