Together we make things happen - Philippine Ports Authority

A N N U A L R E P O R TTogether we make things happen

Together,Mission / Vision / Mandate 1Message of the General Manager 2Shipping and Trade Performance 4Port Services 7Physical Infrastructure Development and Maintenance 10Financial Performance 14Sustainability, Environment and People 16Five-Year Performance Highlights 24Locally Funded Projects Completed in 2008 26Ongoing Locally Funded Projects as of End of 2008 27Port Statistics 28Financial Statements 33we make things happenBoard of Directors 50Executive Officers 52Port District Office (PDO) /Port Management Office (PMO) Managers 54New Appointments 55Business Address 56our coverThe Philippine Ports Authority (PPA) has definitely become a potent pillar ofthe government in the nation’s thrusts towards economic development. Overthe years and in pursuit of its mandate, PPA has continued to strengthen thenation’s trade and commerce by singlehandedly providing an expansive andseamless network of infrastructure facilities to benefit producers, businessmen,consumers, end users and the travelling public; provide user-driven servicesfor its customers and connect the various island chains of the archipelago tomainstream commerce and trade.Behind PPA’s success are its people - a team of driven and committedManagement and workforce who unremittingly steer the organization towardsthe gargantuan task of sustaining its enviable record of achievement in thearea of port facilities development and operation backstopped by appropriatesystems and technology.The proposed theme for this year’s annual report - “Together, we make thingshappen” - pays tribute to the enduring spirit, teamwork, focused mindset andcommitment towards work of the men and women behind PPA’s operation.The annual report’s cover design and accompanying images vividly captureand deliver the theme’s message of PPA’s men and women as they go abouttheir usual 24/7 grind of minding PPA’s operations.Orange and yellow were used as the design’s primary thematic colors tocreate a vibrant and forward looking work perspective and approach. Thecolor orange in the context of psychology symbolizes enthusiasm while yellowconnotes optimism and intelligence. Polygons in the shape of arrows wereconstantly used throughout the design to support the concept “forward”.

Vision“To meet the international standards inport facilities and services in at least 10ports by year 2010 in support of nationaldevelopment”Mission“We commit to provide reliable andresponsive services in our ports, sustaindevelopment of our port communities andthe environment and be a model corporateagency of the government.”Mandate“To establish, develop, regulate, manageand operate a rationalized national portsystem in support of trade and nationaldevelopment”1Philippine Ports Authority • Annual Report 2008

M E S S A G E O F T H E G E N E R A L M A N A G E RWe believe that, ultimately, they can be madeDespite the global economic recession which becameevident during the last two quarters of 2008 and thecorresponding slowing down of its business volume, PPAdelivered on its mandate and registered modest successin its key areas of operation. PPA marked the year withguarded expectation as it pursued its normal business andconfigured a way out of complicated and volatile externalenvironment.Notwithstanding a 7% drop in the volume of cargoespassing through our ports in 2008, PPA managed tosustain a healthy pace in its revenue generation, posting a6.07% growth in gross revenues. Its P 6.626 billion earningsrepresent an increment of P 379.31 million over theprevious year or a 3.82% positive deviation from the year’sprojected revenue target of P 6.812 billion. In particular,income from port operations amounted to P 6.511 billion, animprovement of P 412.41 million or a 6.76% rise in port revenuefrom 2007. Its traditional top three revenue sources - ICTSIfees, wharfage and arrastre/stevedoring alone, contributednearly 75% to its gross revenues and, hence, assured PPA acomfortable income threshold. Other revenue sources suchas Dockage Fees, Port Dues, Storage Fees, Port Usage Fees,Terminal Fees, Other Income and Fund Management Incomeaccount for the remaining 25% and likewise shore up PPArevenue coffers.Our frontline units particularly the Port District Office (PDO) ofManila/Northern Luzon, a traditional best performer and hostto the country’s major ports of North Harbor, South Harborand the Manila International Container Port (MICT), generatedP4.544 billion or 69% percent of PPA’s gross revenue forthe year. The rest of our PDOs - Southern Luzon, SouthernMindanao, Northern Mindanao and Visayas ‒ shared theremaining 31%.Philippine Ports Authority • Annual Report 2008 2In keeping with the many adjustments that are happeningand to cope with the difficult and risky global environmentand help keep the domestic economy on the roll, PPA hasremained steadfast in securing that critical expenditures,such as those on facilities development, rehabilitation andimprovement, are amply provided for. Over a period of 7 yearsbeginning 2003, PPA programmed a total investment of aboutP 16 billion to support and focus on the National Government’spriorities such as those related to the fast-tracking of projectsfor the development of the Super Regions (SONA Ports),the continuing development of lateral port links for theStrong Republic Nautical Highway (SRNH) and ports coveredunder the President’s Accelerated Hunger Mitigation Program(AHMP). Part of this amount is the P2.0 billion domestic loanwhich PPA contracted in 2007 and 2008 to augment thebudget set aside for capital spending. The premium placed

manageable through needed reforms, inspired leadership and motivated people.by PPA on its corporate social responsibility over its corporatemotivation of generating profit has been significantlydemonstrated through its spending initiatives on capitalprojects in depressed communities that have very little or nofinancial viability.PPA was not deterred by the bleak scenarios of seriousfiscal deterioration in developed countries which are thePhilippines’ major trading partners. Instead, it channeled itsefforts to building projects that may empower people andlocal communities. PPA subscribes to the tenet that the bestway to avert recession and set the stage for recovery is forgovernment not to cut back but rather accelerate spendingon core areas like infrastructure, social services and humancapital development. In response, therefore, to the nationalgovernment’s call for government agencies to be at theforefront of pump-priming operations, PPA infused someP3.16 billion in 2008 to Capital Expenditure Program andutilized this amount for the completion/implementationof port projects identified under each major national thrustincluding other priority projects determined by PPA incoordination with and taking into account the requirements ofits stakeholders and/or related requests of other governmententities/offices including LGUs.We will always be encouraged by the positive resultsyielded by any training and development interventionwe introduce and cascade to our people. Developmentintervention need not always be in the form of formaltraining and current technology. We also believe thatexposing our managers and staff to a variety of worksituations will equip them with the necessary skills tobetter respond to the exigencies of our operations.Garnering commendations and awards from public andprivate entities because of outstanding performanceand exemplary accomplishment in any key area of ouroperation - is we believe - the fullest manifestation ofthe trust and confidence lodged on us by the publicand our stakeholders. Our innumerable awards, citationsand commendations through the years will alwaysmotivate us to perform even better.Looking forward, we hope to sustain a positivemomentum and continue to pray for the globaleconomy to regain its buoyancy and for the globalfinancial market to stabilize. Our continuing success andexistence, as with the rest of entities throughout theworld, remain hinged on these parameters.As a port facilities provider and investor, PPA remains sensitiveto how best it can balance its responsibility to its customersand stakeholders, keeps up with competition and stayscommitted to providing reliable and efficient service to thepublic.To be able to live up to the public’s expectation, we believethat we have to nurture our people so that together we canmake things happen however challenging the environmentwe may be in. Appropriate training for our executives andstaff is, therefore, at the cornerstone of our service culture.While there are serious challenges that we face whichmay at times be beyond the control of corporatepolicy, we believe that, ultimately, they can be mademanageable through needed reforms, inspiredleadership and motivated people.I wish to thank the entire Management Team and thePPA workforce for its hard work and commitment. Ithas been a challenging year but our team under theproactive and people-focused stewardship of its Boardof Directors has performed admirably and delivered wellas expected.ATTY. OSCAR M. SEVILLAGeneral ManagerPhilippine Ports Authority • Annual Report 20083

S H I P P I N G a n d T R A D E P E R F O R M A N C EPhilippine Ports Authority • Annual Report 2008 Port of Davao

Cargo, Passenger and Ship Call TrafficCargo (in MT)The lingering global recession which resulted in a slowing down ofthe Philippine economy took its toll in the volume of port business.Total cargo throughput during the year dropped by 7.32% or11.53 million metric tons (MMT), considerably lower than in2007 - indicative of a slump in the inflow and outflow of goodspassing through the country’s ports. Domestic cargo was down by2.58 MMT or 3.46% while foreign cargoes contracted by 8.95 MMTor 10.80%.The export cargo was adversely affected by the global downturn,losing as much as 6.90 MMT or 20.66% during the year while importcargo slipped by about 2.05 MMT or 4.14%. The lower demand forprime export commodities such as mineral ores, nickel ores, lime,cold rolled coils and coco oil, etc. was evident in the sharp decline offoreign cargo throughput at the following Port Management Offices(PMOs): Cagayan de Oro - 4.03 MMT; Surigao - 4.14 MMT; Dumaguete- 0.18 MMT; Nasipit - 0.61 MMT; and Tagbilaran - 0.046 MMT, amongothers. Meanwhile, domestic cargo skidded in 13 of the 23 PMOs, withsignificant losses recorded at Cagayan de Oro - 0.96 MMT or 18.54%;Batangas - 0.73 MMT or 11.12%; and Davao - 0.40 MMT or 10.14%.Notwithstanding the overcast economic climate, 9 PMOs maintainedtheir resiliency and posted positive growth during the year, namely:PMOs San Fernando, Calapan, Legaspi, Puerto Princesa, Iloilo,Pulupandan, Tacloban, Davao and General Santos. In particular,Manila International Container terminal Services, Inc. (MICT)maintained its record of positive growth with a cargo volume of17.25 MMT handled which is about 1.49 MMT or 9.46% higher thanthe previous year.Container (in TEUs)Containerized cargoes proved to be a bright spot this year, reachinga total of 4.09 million TEUs (twenty foot equivalent units), a modest2.34% improvement from last year. The contraction in domesticcontainerized cargoes was offset by the 5.85% growth in foreigncargoes handled. Of the total volume of containers handled inPhilippine Ports Authority • Annual Report 2008

Ship CallsPhilippine ports, 2.37 million TEUs or 57.81% passedthrough MICT and South Harbor. Moreover, thecombined share in foreign container traffic of MICTand South Harbor accelerated to 87% in 2008. Importcontainer traffic grew by 3.62% while containerizedexport traffic posted a growth of 8.14%.The country’s ports serviced 311,834 vessels in 2008,down by a little less than one percent compared to theprevious year. Domestic ship calls which registered lessthan 1% decrease was hardly affected but foreign shipcalls suffered the brunt of the global economic slowdownand posted a 5.35 percent decline.In addition to MICT which posted a 10.74% boost incontainer traffic volume during the year, 9 other PMOsshowed positive growth: Puerto Princesa -55.40%;Batangas - 38.30%; Tagbilaran - 30.11%; Davao - 15.07%;General Santos -9.77%; Iloilo - 6.72%; Nasipit - 3.55%;Zamboanga - 2.06%; and Pulupandan -1.51%.PassengersCargo Throughput, Container, Passenger & Ship Calls, 20082008 Volume% Inc/Dec from2007Cargo m.t. 145,898,911 (11,538,809) (7.33)Domestic 72,001,421 (2,589,857) (3.47)Foreign 73,897,490 (8,948,952) (10.80)Import 47,409,937 (2,049,930) (4.14)Export 26,487,553 (6,899,022) (20.66)Philippine Ports Authority • Annual Report 2008 6In 2008, the continuing stiff competition from airlinecarriers that offer reduced domestic air fare wasimmediately felt and resulted in a visible declinein passenger traffic in the following major ports:General Santos with -26.17%; North Harbor with -24.33%;Surigao with -15.92%; and Nasipit with -11.67%.The improved North Luzon Expressway (NLEX) andthe opening of Subic-Clark-Tarlac Expressway (SCTEX)may have diminished passenger traffic at PMO Limaywhich posted a huge 95.16% decline, indicating thatpassengers still prefer to travel by land than by sea.On the other hand, Puerto Princesa, home to some of themost popular tourist destinations recorded an impressivesurge in passenger traffic of 22.37% from the previousyear while PMO Cotabato also quadrupled its passengertraffic for the year.Container (in TEUs) 4,091,925 93,506 2.34Domestic 1,567,370 (46,061) (2.85)Foreign 2,524,555 139,567 5.85Import 1,253,272 43,825 3.62Export 1,271,283 95,742 8.14Passenger 43,866,270 (602,657) (1.36)Disembarked 43,819,359 (608,961) (1.37)Embarked 46,911 6,304 15.52Shipcalls 311,834 (2,667) (0.85)Domestic 302,102 (2,117) (0.70)Foreign 9,732 (550) (5.35)

p o r t s e r v i c e sPort of DavaoCargo Handling Service Contracts & PermitsAs of end 2008, the Authority, has awarded 13 cargo handling contracts to variouscargo handling contracts (CHOs) have satisfactorily complied with the standardsand qualifications prescribed under pertinent PPA regulations. The contractsawarded have tenures ranging from six months to ten years as shown below:Cargo Handling Contracts, 2008Cargo Handling OperatorSix (6) months contract1. Prudential Customs Brokerage Services Inc.2. MLD Brokerage Arr. & Stevedoring ServicesOne (1) year3. ATI Batangas Inc.Three (3) years4. Panaon Arrastre Services Inc.5. Panaon Arrastre Services Inc.6. Panaon Arrastre Services Inc.Five (5) years7. Regal Arrastre & Stevedoring Inc.8. Integrated Stevedoring & Arrastre Corp.9. Buenaflor Arrastre & StevedoringEight (8) years10. Prudential Customs Brokerage Services Inc.11. Prudential Customs Brokerage Services Inc.Ten (10) years12. Regal Arrastre & Stevedoring Inc.13. Prudential Customs Brokerage Services Inc.LocationBrooke’s Pt. PalawanBauan, BatangasBatangas, Phase 2 ContainerTerminal A-1Sogod, Southern LeyteLiloan, Southern LeyteSt. Bernard, Southern LeyteBulan, SorsogonPulupandan, Negros OccidentalKalamansig, Sultan KudaratSan Jose, Occidental MindoroPulauan, Dapitan CityLegaspi CityIloilo River WharfPort of Puerto PrincesaHarbor Pilot AppointmentsDuring the year, PPA issued appointments for six (6) chief pilots, four (4) regularpilots and eight (8) probationary pilots for the pilotage districts of Aparri, Manila,Batangas, Puerto Princesa, Tagbilaran, Cagayan de Oro, Davao, General Santosand Zamboanga.Manila North Harbor Modernization Project (MNHMP)The PPA Board Resolution No. 2111, which directed the SBAC to declare failure ofbidding was reconsidered and recalled under PPA Board Resolution No.2154 inview of the need to address the alarming condition of the under deck structuresof the North Harbor piers which may collapse anytime.7Philippine Ports Authority • Annual Report 2008

ComputerizationSubsequently, the final draft of the proposed CompromiseAgreement between PPA and Metro Pacific InvestmentsCorporation (MPIC) and Harbor Centre Port Terminal, Inc.(HCPTI) Joint Venture was approved during the 347thRegular Board Meeting held in September 2008.Under the Compromise Agreement, the PPA-SBAC shallundertake the remaining stages of public bidding for theMNHMP as follows:(1) Pre-bid Conference ‒ the first of which shall be heldwithin 15 days from the date of receipt of the SBAC ofthe approval of the Manila Regional Trial Court; and(2) Proceed with the next stages of the biddingprocess.During the year, the Oracle software to replace the oldPortrade Solution had been deployed and training of usersand technical support personnel as well as mapping ofthe system requirements for the following applicationsystems had been completed: Accounting and FinancialManagement System (AFMS); Front End Invoicing andReceipting System (FIRST); Port Engineering ManagementSystem (PEMS), and e-Procurement System (e-PROC).The new System Requirement Specifications (SRS) havebeen the basis for the establishment of the FunctionalSpecifications (FS) and application development. Theparticulars for the upgrading of the WAN facilities ofPPA have also been defined and the resources for DataConversion mobilized.All of the above activities were either completed or startedto set the stage for the remaining works for 2009, whichinclude application development, users’ acceptancetesting, end user training, pilot implementation andnationwide roll-out.Development/Operation of Private PortsClearance to DevelopFor the period in review, PPA received numerousapplications for the construction of private port facilitieslocated in different parts of the country and granted nine(9) permits to construct to those that have completeddocumentation requirements: Four (4) in PDO Manila/Northern Luzon; One (1) in PDO Southern Luzon; andFour (4) in PDO Visayas.Philippine Ports Authority • Annual Report 2008 Private Ports Issued with Permit to Construct, 2008Company/FirmLocationPDO Manila/Northern Luzon1. July-Ann Merchandise - Botolan, Zambales2. Platinum Group Metal Corp. - Dinapigue, Isabela3. SM Investment Corp. - Mall of Asia Complex, Pasay City4. SMC Shipping and Lighterage Corporation - Sto. Tomas, La UnionPDO Southern Luzon5. Sibuyan Nickel Properties Devt Corporation - Sibuyan Island, RomblonPDO Visayas6. Grand Wega Ferry Corp - Sibulan, Negros Oriental7. Northeastern Port & Storage Corporation - San Carlos, Negros Occidental8. Global Business Power Corp. - La Paz, Iloilo City9. FF Cruz & Co. Inc - Calapan, Oriental Mindoro

p o r t s e r v i c e sCertificate of Registration (COR) / Permit to Operate (PTO)In the same year, thirty (30) certificates of registration/permit to operate at various locations inthe port districts as shown in the table below were issued.Certificate of Registration / Permit to Operate, 2008Company/FirmLocationPDO Manila/Northern Luzon (7)1. National Power Corporation - Masinloc, Zambales2. Omnico Natural Resources, Inc. - Badoc, Ilocos Norte3. Petron Corporation - Limay, Bataan4. Phil. Foremost Milling Corp - Tondo, Manila5. SMC Shipping & Lighterage Corp - Mariveles, Bataan6. Team Sual Corp. - Sual, Pangasinan7. Wellington Investment & Manufacturing Corp. - Pasig River Bank, Pasig CityPDO Southern Luzon (7)8. Balayan Distillery Inc. - Calaca, Batangas9. Gonzalo Puyat & Sons Inc. - Lopez, Quezon10. J.G. Summit Petrochemical Corporation - Simlong, Batangas City11. National Granary - Sariaya, Quezon12. Patricia Louise Mining & Devt. Corporation - Narra, Palawan13. Patricia Louise Mining & Devt. Corporation - Sariaya, QuezonPilipinas Shell - Bagong Silang, Puerto Princesa14. Powerzone Petroleum Products Corporation - Virac, CatanduanesPDO Visayas (3)15. Bacolod Real Estate Corp - Banago, Bacolod City16. Phil. Ferries Corp. - Allen, Northern Samar17. Pryce Gases Inc. - Ayungin, Negros OrientalPDO Northern Mindanao (7)18. Carrascal Nickel Corporation - Carrascal, Surigao del Sur19. CTP Construction & Mining Corporation - Carrascal, Surigao del Sur20. Hinatuan Mining Corporation - Tagana-an, Surigao del Norte21. Holcim Phils. Manufacturing Corporation - Lugait, Misamis Oriental22. Iligan Cement Corp. - Kiwalan, Iligan City23. San Miguel Corporation - Opol, Misamis Oriental24. Surigao Integrated Resources Corp - Surigao del NortePDO Southern Mindanao (6)25. AJMR - Tibungco, Davao City26. Mindanao Estates Timber Corporation - Sindangan, Zamboanga del Norte27. Phoenix Petroleum Philippines, Inc. - Davao City28. PNOC Exploration Corp - Panacan, Davao City29. Tagum Agricultural Development Co. Inc. - Panabo, Davao del Norte30. Rell & Renn Fishing - Tabler, Gen. SantosLikewise, special clearances to operate a private port were issued to A3 Una Mining Corp.and DMCI Holdings Inc., both located in Sta. Cruz, Zambales.Real Estate ManagementPursuant to PPA’s policy on optimum utilization of available areas, the Authority has entered intovarious leasing contracts to raise additional revenues from real estate assets but likewise ensurethat lands within port areas are properly maintained and developed by responsibleand qualified lessees.PPA approved the following 5 lease applications in 2008: (1) 2M Property & Project ManagementCorporation for the lease of an advertising space inside Batangas Port; (2) Masbate ConsolidatedArrastre Inc. for lease extension of the passenger terminal building’s roof deck at Masbate Port;(3) Pacific Oil Products’ 10 year extension of lease at Sasa wharf, Davao Port; (4) Oceanic ContainerLines Inc.’s for lease of Container Yard measuring 949.04 sq.m. at Davao Port; and (5) ArvinInternational Marketing Inc.’s lease of 436 sq.m. area inside Sasa Wharf, Davao City to be usedas warehouse facility.Philippine Ports Authority • Annual Report 2008

P h y s i c a l I n f r a s t r u c t u r eD e v e l o p m e n t a n d M a i n t e n a n c ePhilippine Ports Authority • Annual Report 2008 1 0Port of Dumaguete

PPA’s Capital Expenditure Program for 2008 supports and continued to focus on theNational Government’s priorities such as those related to the fast-tracking of projects forthe development of the Super Regions (SONA Ports), the continuing development of lateralport links for the Strong Republic Nautical Highway (SRNH) and ports covered under thePresident’s Accelerated Hunger Mitigation Program (AHMP).In line with these government thrusts, PPA programmed a total investment of aboutP16 billion spread over a period of 7 years beginning 2003. For 2008, the amount ofP3.16 billion was utilized for the completion/implementation of port projects identifiedunder each major national thrust including other priority projects determined by PPA incoordination with and taking into account the requirements of its stakeholders and/orrelated requests of other government entities/offices including LGUs.Locally-Funded Projects (LFPs)In 2008, PPA implemented 82 LFPs nationwide: 12 for PDO Manila/Northern Luzon;20 for PDO Southern Luzon, 23 for Port District Office (PDO) of Visayas, 13 for PDO NorthernMindanao, and 14 for PDO Southern Mindanao. Forty-four (44) of these projects were underthe supervision of the Head Office-Facilities Construction and Maintenance Departmentor FCMD and the rest by the PDO/Port Management Office (PMO) concerned. For projectsprogrammed in 2008, 13 are for SONA Ports, 9 for SRNH ports, 36 for AHMP, 7 for PPA visionports, and 17 are included under other development priorities.As of yearend, 50 of these projects, amounting to P3.89 billion were completed i.e. 9 projectsfor the development of Super Regions (P941.61 M), 6 for SRNH ports (P459.47 M), 23 forAHMP (P1,430.97 M), 4 for PPA vision ports (P813.41 M), and 8 Other priority ports/projects(P241.17M).The Authority’s full support to the Government’s development thrusts is evident in theinclusion of big ticket projects in its 2008 CAPEX Program. Among those completed atthe close of the year are the P429 M expansion of Davao Port under SONA Ports; P222 Mreclamation for Dapitan Port under SRNH; and the development/expansion of Masao Port(P130 M), Nasipit Port (P218 M) and Surigao (P418 M) under the AHMP. In line with PPA’svision of developing its ports to international standards, the Iloilo ICPC Extension Project(P334 M) and the expansion of General Santos Port (P435 M) were likewise completed duringthe year.Thirty-two (32) projects involving a total investment of P3.22 billion are in various stages ofcompletion as of yearend: 4 SONA Ports (P655M); 3 SRNH Ports (P515 M); 13 AHMP ports(P549 M); 3 PPA vision ports (P520 M) and 9 other priority ports (P980 M).The projects for the ports of Cawayan (P42.95 M), Claveria (P136.04 M), San Pascual(P46.97M), and Cagayan de Oro (P429.23 M), are the remaining SONA port projects expectedto be completed within the first semester of 2009. The expansion of Dumaguete Port whichis a component of SRNH is progressing ahead of schedule at 71.00 percent completion whileSan Ricardo Port is substantially complete at 99.50 percent completion. For the vision ports,1 1Philippine Ports Authority • Annual Report 2008

Maintenance DredgingZamboanga Port Expansion is substantially completeat 99.96 percent, the renovation of PPA Training Centerat South Harbor is 98.50 percent complete while thesuspended Construction of Transit Shed at Davao Port(78.50 percent) is expected to resume with the issuance ofthe RTC decision favorable to PPA relative to the Minterbocase which has delayed the project.Updates on SONA PortsThe year 2007 saw the completion of projects for the Portsof Dingalan in North Luzon Agri-Business Quadrangle;projects for the Ports of Balbagon, Pantao, Jagna,Siquijor and Ubay in Central Philippines Region, and therehabilitation of quay at Davao Port in Mindanao Region.In 2008, the fast-tracking of development requirements ofother ports for the Super Region (SONA Ports) remaineda top priority of the Authority. A total of 13 projectsentailing an aggregate investment cost of P1.60 billionwere implemented, of which 9 were completed at the endof the year.Investment Program in 2008(In MIllion Pesos)The dredging operation for the year has covered a totalof 22 ports/areas nationwide, 17 under the privatizedset-up and 5 under separate contracts with otherdredging operators. The completed dredging projectsinvolved a combined volume of 2.68 million cubic metersof silts removed from the ports/areas listed below.The bulk of the volume dredged was from the channels,berths, basin and anchorage of North Harbor, SouthHarbor and MICT where siltation rate is relatively high.The design depths which vary from 6.10 meter to 12.00meters at these ports is maintained within acceptablelevels to ensure the navigational safety of large vesselswhich regularly call at them.As of yearend, the dredging requirements of all 22ports were completed except for the Ports of Calbayog,Cagayan de Oro and Tabaco.Hydrographic & Topographic SurveysA total of sixty-four (64) surveys was undertaken in 2008.Hydrographic surveys alone which are attendant todredging operations covered 22 areas. Both topographicand hydrographic surveys which aimed to generateinformation for port planning, project developmentand/or identification of port zone delineation covered atotal of 42 areas. Parcellary survey was also undertakenfor Dumaguete Port.Consultancy Services for Engineering-Related StudiesPhilippine Ports Authority • Annual Report 2008 1 2distribution of 2008 LFPsConsultancy services for the conduct of feasibility andengineering-related studies were undertaken throughselected technical service-providers to ascertain theviability of developing new ports and/or providingappropriate facilities to existing ports as may be requiredby port operations.Consultancy services were rendered for the formulationof master plan and conduct of feasibility studies for threepackages, namely: 12 Selected Ports in PDO Visayas

P h ys i c a l I n f r a s t r u c t u r e D e v e l o p m e n t a n d M a i n t e n a n c eAreas Covered by the 2008 Dredging ProgramPrivatized Set-upUnder Separate Contract• North Harbor Entrance Channel (From Breakwater up to end of newNH Entrance Channel)• North Harbor Entrance Channel (From Inner Basin up to Pier 16)• South Harbor Anchorage• MICT Entrance Channel• North Harbor Piers & Slips (Piers 8,14,16, Basin 2-16 & Slip 11)• North Harbor Pier 10• North Harbor Pier 4• Talibon Port• Culasi Port• Fort San Pedro• Cagayan de Oro Port• Dalahican Port• Legazpi Port• Tabaco Port• Jagna Port• Masao Port• Nasipit Port• Lamao Port• Calbayog Port• San Jose Antique Port• Dumangas Port• Davao PortPhase II; 9 Selected Ports in PDO Southern Luzon; and 13Selected Ports in Northern Mindanao. The Study for PDONorthern Mindanao ports was completed as of May 2008while that for PDO Visayas and PDO Southern Luzon are89 percent and 88.13 percent complete, respectively.The Master Plans and accompanying feasibility studies areaimed at determining the long-term development directionof the selected ports and evaluation of the technical andoperational soundness as well as the economic and financialfeasibility/viability of any proposed short-term improvementsand/or expansion. Integrated into these studies, as part ofPPA’s environmental sustainability efforts, is the undertakingof the Initial Environmental Examination (IEEs) of each of theports.The study seeks to come up with a Manual that will codifyand standardize engineering practices and processes atPPA. The commissioned Consultant, Schema Consult, Inc. injoint venture with Science and Vision for Technology, Inc.,reported a 91 percent study completion as of yearend.Repair and Maintenance ProgramPPA allocated the sum of P404.85 million for the repairand maintenance of existing ports facilities nationwide tokeep them in safe and functional state. Of this amount,P294.63 million were allocated for repair projects whileP109.13 million were provided for routine maintenanceworks.Consultancy services for the conduct of soil investigation for13 identified Visayas and Mindanao ports were also procuredto generate information needed in foundation design analysisand for the evaluation of alternative type of structures.The conduct of soil investigation was completed in May 2008.The procurement of services is still in process at year-end foranother package involving 18 priority ports for development.A ground breaking study has been initiated by theEngineering Office on the Development and Preparation ofEngineering Standards for Ports and Harbors Structures.PDO Southern Luzon received the biggest share of theR&M Budget at P169.09 million followed by PDO Manila/Northern Luzon - P95.14 million; PDO Northern Mindanao- P52.57 million; PDO Visayas - P47.18 million: and PDOSouthern Mindanao - P39.81 million.Fifty six (56) repair projects were pursued during the year,33 of which were completed, 13 are ongoing and 9 areunder procurement stage. Having the biggest allocation,PDO Southern Luzon implemented the most number ofrepair projects during the year.1 3Philippine Ports Authority • Annual Report 2008

f i n a n c i a l P E R F O R M A N C EThe global recession has not only posed a threat but has immediately taken its tollon what could have been a moderately improving Philippine economy at the latterpart of 2008. At the close of the year, PPA suffered a loss of momentum in its financialperformance. Despite prudent fiscal measures, losses brought about by revaluationinevitably undermined the Authority’s revenue efforts for the year.RevenueIn 2008, PPA posted gross revenues of P 6.626 billion representing an increment ofP 379.31 million or a 6.07% growth over the previous year. This is a 3.82% positivedeviation from the year’s projected revenue target of P 6.812 billion. In particular,income from port operations amounted to P 6.511 billion, an improvement ofP 412.41 million or a 6.76% rise in port revenue from 2007.By source, ICTSI fees contributed the bulk or 37.04% of total port revenues atP 2.412 billion. On the other hand, wharfage fees generated the second largestcontribution of P 1.357 billion or 20.84% to PPA coffers. Likewise, significantcontribution came from Arrastre/Stevedoring fees of P 1.169 billion or 17.97%.In addition, other revenue sources include: Other Income - P 339.46 million or 5.21%;Dockage fees - P326.43 million or 5%; Port Dues - P 285.56 million or 4.39%; StorageFees - P 231.01 million or 3.55%; Port Usage Fees - P 202.72 million or 3.11%; TerminalFees - P 173.76 million or 2.67%; and Fund Management Income - P 99.91 million or 2%.PPA’s frontline units or the Port District Offices (PDOs) generated combined revenuesof P6.525 billion in 2008. PDO Manila/Northern Luzon, a traditional best performerand host to the country’s major ports of North Harbor, South Harbor and MICT, postedP4.544 billion or 69% percent of PPA’s gross revenue for the year. It is followed by PDOsSouthern Luzon - P676.22 million or 10%; Southern Mindanao -P527.92 million or 8%;Northern Mindanao - P400.40 million or 6%; and Visayas -P375.75 million or 5%.Philippine Ports Authority • Annual Report 2008 1 Fund Management IncomePPA generated a Fund Management Income (FMI) in 2008 of P 99.91 million, falling bymore than P 28.88 million or 22.43% from 2007. This is however P 9 million or 10.51%above the projected FMI for the year of P90.41 million.

ExpendituresOperating Expense which includes Personnel Services, MOOE, Dredging andRepair and Maintenance Expenditures reached P 4.009 billion end of 2008 but iswell within the targeted amount for the year of P 4.738 billion. As compared tolast year however, operating expenses ballooned by P 443 million or 12.43%.The swelling of the Non-Operating Expenses for the year due to the revaluation ofexisting debts and foreign-currency loans, particularly those denominated in Yenand Euro contributed to Authority’s financial underperformance. The volatility andweakening of the peso against the Yen and Euro currencies during the year inflatedthe Authority’s revaluated foreign-currency loans and accounts. Net loss due torevaluation was recorded at P 3.111.29 billion, inflating the total Expense toP 7.657 billion and consequently negated the otherwise moderate gains inrevenue of the Authority.Net IncomeNet Income before tax for 2008 posted a negative growth of 195.74% onaccount of the late recognition and posting of revaluated foreign loans.Net Loss of P1.031 billion for 2008 was almost 200% off the Authority’s TargetIncome for the year and a far cry from last year’s Net Income of P 2.764 billion,a reversal of about 137% in one year.Collection EfficiencyLooking into the overall collection effort of the Authority, the collection efficiencyratio (CER) for the Prior Year accounts (PY) stood at 65.90% where Receivablesamounting to P 763.056 million at the beginning of 2008, was reduced toP 260.18 million with actual amount collected reaching P 502.88 million.This exceeded the annual PY collection target of 60%. With regard to Current Year(CY) accounts, the Authority projected 100% CER for receivables of P 479.93 million.However, a slight negative deviation was posted with only P 472 million actualcollections for the current year, or about P 35.69 million short of the target resultingto a CER of 98.35% for CY accounts.1 Philippine Ports Authority • Annual Report 2008

S u s t a i n a b i l i t y ,E n v i r o n m e n t a n d P e o p l ePhilippine Ports Authority • Annual Report 2008 1 6

Safety, Security and Environment ProgramsCompliance to the ISPS StandardsStatement of Compliance of Port FacilityThe Philippines is one of the member states of the International MaritimeOrganization (IMO) that has integrated into its maritime and portadministration policies compliance with safety and security requirementsprovided under the ISPS Code. For one, efforts have been continuouslyundertaken to ensure that government-run ports regularly formulate newor update their Port Security Assessment and Port Facility Security Plan(SCPF) which are submitted for approval by the Office of TransportationSecurity (OTS) of the Department of Transportation and Communication(DOTC).For 2008, twenty-seven (27) government ports in Luzon, Visayas andMindanao have effective SCPFs. By the end of the year, 6 SCPFs for theports of Batangas (baseport), Bauan, Legaspi, Limay, Tabaco and Taclobanexpired, leaving the following 21 ports with valid SCPFs:Security Survey and InspectionTo ensure that only competent and highly-trained security personnelare manning critical and vulnerable ports, regular security inspectionand surveys are continuously being undertaken. In 2008, the Authority,thru its Port Police Department (PPD), spearheaded and conductedthe performance evaluation and inspection of security agencies/guardsdeployed in various ports in PDO Northern Mindanao and PMOs Cagayande Oro, Iligan, Ozamiz, Surigao, Nasipit, Limay, Tagbilaran and Dumaguete.Security survey/inspection was likewise completed at ports underPDO Northern Luzon namely, the PMO Batangas and TMOs Tabaco,El Nido, Brookes Point, Cuyo, Culion as well as in the Baseport ofPuerto Princesa.Security TrainingOver the years, PPA has adopted continuing measures to improve portsecurity standards pursuant to the ISPS Code which has since become anintegral part of PPA’s general security and safety policies. For this reason,1 7Philippine Ports Authority • Annual Report 2008

Vessel Traffic Management System (VTMS)Philippine Ports Authority • Annual Report 2008 1 8the Port Police Department (PPD) is not only responsiblefor the continuous upgrading of skills of port securitypersonnel and equipping them with the necessaryfire power but also in facilitating coordination andmaintaining strong linkage with external law enforcementagencies.During the year, the PPA-PPD participated in differenttraining courses, fora and conventions organized byvarious law enforcement groups, foreign and local, togain more experience and exposure on security-relatedprograms and issues. PPA participated in the followingtraining/fora:• Refresher Course for Trainers/RP-UK CrisisManagement Assistance Programme (RP-UK CMAP)• Meeting at the OTS-DOTC in connection with theASEAN-Japan Maritime Security Joint Exercise• Silver Commanders Refresher Course• Operational Commanders & Simulation Exercisefor National Counter Terrorism Action GroupCounter Terrorism Crisis Management& Simulation Exercise for Transport Sector• 2nd Philippine-Australia Bilateral Inter-AgencyConsultation on Counter-Terrorism• NALECC Sub-Committee on Traffic ManagementEnforcement and Anti-Carnapping (SCTMEA)As parallel initiatives, the PDOs as well as the PMO/TMOsunder their jurisdiction have likewise conducted inhousetraining/seminars on safety and fire drills, crisismanagement, bomb awareness, oil spill and radiationsafety seminar.The VTMS Control Center, now fully managed and operatedby the Vessel Traffic Services Division of PDO Manila/Northern Luzon, monitors vessel traffic within designatedareas of Philippine waters and provides assistance to ships,whenever necessary. Operating 24/7, the VTMS ControlCenter provides important and up-to-date advisory andalerts for emergency assistance to distressed vessels.Equipped with the state-of-the-art radar technologyestablished in three (3) strategic locations, the VTMS hasundoubtedly helped in the early detection of any imminentdanger of collision, as well as facilitate law enforcementagainst piracy and other crimes by supplying the PhilippineCoast Guard (PCG) and other law enforcement agencies withquick and timely information, thus enabling a safer and moreefficient navigation in Philippine waters.The VTMS facility has monitored a total of 10,751 vesselsin 2008 of which over 66% were domestic ships and 34%corresponding to 4,138 vessels were foreign ships. In May2008, the VTMS Control Center responded to the piracyincident involving MV “Thana Bhum” through close andimmediate coordination with the PCG Action Center.Shore Reception Facilities (SRFs)The PPA’s proactive approach to the protection of themarine environment provides the basis for the formulationof organizational policies on ecologically sound andsustainable port development. PPA actively encourages itscorporate partners to join the efforts toward environmentalprotection and water waste management. The specialproject on Shore Reception Facilities (SRFs) commissionedto the Golden Dragon International Terminals, Inc. (GDITI)has to date established 20 facilities for receiving wastes inselected ports nationwide.

S u s ta i n a b i l i t y ,E n v i r o n m e n t a n d P e o p l eIn 2008, GDITI has reported serving a total of 58,794 vesselvoyages, of which 52,942 or about 90% were domestic and5,852 were foreign. A total of 28,048.72 cubic meters ofwaste was collected, of which 21,262.78 cu.m. or 76% weresolid wastes and 6,785.94 cu.m. or 24% were liquid wastes.Program on Most Environment Friendly PortsThe Authority has taken concrete steps to address portrelatedenvironmental concerns. In 2007, it launchedthe Search for the Most Environment Friendly Ports withthe objective of encouraging the base ports to embarkon projects and activities geared towards environmentprotection and conservation of resources for a morebalanced ecology and sustainable development in theport communities. During PPA’s 34th anniversary program,the base port of Puerto Princesa was cited as the mostenvironment-friendly port. The second and third mostenvironment friendly ports were Cagayan de Oro andOzamisPuerto Princesa was adjudged as the most environmentfriendly port, having aggressively pursued and promotedthe Puerto Gwapo Project which includes among others,the following component activities:• Conduct of a symposium in October 2008 on“Economic Importance of an Environment-Conscious Port” participated in by about 60barangay officials from six (6) coastal municipalitiesin Puerto Princesa;• Conduct of a Mural Painting Contest withthe theme “The Sea, The Port and Me” ;• “Gamutang Bayan sa Pantalan 2008”, acommunity outreach component of the PuertoGwapo Project, in cooperation with variousagencies and organizations like Philippine CharitySweepstakes Office (PCSO), Supply OilfieldServices (SOS), medical and dental staff andvolunteers from the Provincial Health Office,City Health Office, Ospital ng Palawan, PalawanAdventist Hospital, Department of Education andPrudential Customs Brokerage and Services, Inc.(PCBSI).Taking the cue from Puerto Princesa’s “Puerto GwapoProject”, other PMOs have likewise pursued environmentalprojects within their areas of responsibility. For instance,a number of baseports have started labelling garbagecans for proper wastes segregation, as well as undertakena more rigorous information campaign for solid wastemanagement through posters, handouts and primers.People Development ProgramLocal TrainingA total of 62 courses benefiting 204 PPA personnel wereconducted during the year under PPA’s ManpowerDevelopment Program focusing on wide-rangingfields of specialization as Total Quality Management,Operation and Handling of Radiation DetectionEquipment, National Counter-Terrorism, Trade Policyand World Trade Organization, Cultural Property Theft,Democratic Governance, Chemical Industry Commodity,1 9Philippine Ports Authority • Annual Report 2008

Community Support ProgramsFormulation of Strategic Plan, Counter-Terrorism and CrisisManagement, Internal Quality Audit, Women’s HumanRights, Wildlife Law Enforcement, Methodical Risk SecurityInvestigation, Capability Enhancement on PersonnelSelection, Maritime Transportation Security OfficersCourse, New Generic Procurement Manual and Updates,Legal Liabilities for Maritime Disaster, InternationalAccounting Standards, Supervisory Development,Auditing Rules and Regulations, Public Accountability,among others.Training conducted in-house by the PPA TrainingCenter produced 1,622 graduates from 54 courses i.e.18 courses for 554 organic personnel and, 36 coursesfor 1,068 non-organic personnel. Specifically, organicpersonnel underwent training on, among others, QualityManagement System, Port Safety and EnvironmentalManagement, Change Management and Public ServiceEthics and Accountability, Financial Planning, PMS-OPESOrientation, Accreditation of Government Contractors,and Financial Planning. In-house training included three(3) GAD-sponsored livelihood courses on basic beadwork,Chinese Cuisine and Bread & Cake Making.Foreign TrainingIn 2008, eleven (11) PPA personnel underwent nine (9)foreign scholarship training in economics, hydraulicengineering, coastal engineering and port development,course for auditors, bulk cash smuggling, sustainableport development and planning, port facility securityand strategic port management. The foreign scholarshipgrantees completed their respective training in Japan,Netherlands, Malaysia, Indonesia, Singapore and Korea.PPA ascribes to the philosophy that giving back to thecommunities where it operates is an important aspect of itsculture.Hence, in 2008, PPA implemented various gender-relatedprograms and projects as part of its corporate socialresponsibility. The projects are both organization- as well asclient-focused. Through its Gender and Development (GAD)Focal Point, the PPA reaches out to its employees and themarginalized segment of the port communities whereit operates through gender neutral and socially-directedprojects that are aimed at generating positive and beneficialimpact on the target recipients.Organization-Focused ProgramsIn 2008, the PPA GAD Focal Point intensified its GADawareness and advocacy program through sustainedpromotion and information drive, i.e., tapping the printand the broadcast media. Gender-related materials such ascomics, newsletters, brochures and posters were publishedand disseminated throughout the port communities andthe public in general. GAD corners nationwide were amplysupplied with Gender-related materials and paraphernalia.In support of gender-sensitivity advocacy program, PPAadopted the policy of including female guards in the securityservices contracts it awards and posting them at PTBs toconduct bodily search and inspection of for example, femalepassengers and children. A number of PPA GAD Focal Pointsat the districts extended technical consultancy and advisoryservicesPhilippine Ports Authority • Annual Report 2008 2 0

S u s ta i n a b i l i t y , E n v i r o n m e n t a n d P e o p l ePPA extended its full support to GAD related activities byencouraging active participation in the Women’s MonthCelebration, Family Day activities, Children’s MonthCelebration, International Human Rights Day, EnvironmentMonth Celebration, Gender Equality activities, 8th Women’sCongress, Alay-Lakad, Oplan Kalakbay, Gamutang Bayansa Pantalan, Undas 2008, National Maritime Week, SightSaving Month, and setting up of WIMAPHIL chapters at thePDOs and PMOs, among others. It also sponsored sociallydirectedprojects such as blood letting, medical/dental/feeding missions, environmental, safety/health activities, andlivelihood training programs for PPA employees. A numberof PPA’s GAD Focal Points went a step further in renderingtechnical assistance to the LGUs where they operate in theformulation, implementation and review of GAD Plans.The gender sensitivity training of the PPA GAD Focal Pointwas brought to a higher level through actual visits toinstitutions to observe GAD related practices, tracing ofhuman trafficking routes and research on best practices inecological/environmental protection/eco-tourism. Amongthe sites visited include the Correctional Institution, LGUMarikina Solid Wastes Management Program, Port Visitationand Assessment Tour of Ports Along the SRNH routes,Assessment Visit of PTBs, Bathaluman Crisis Center, and theHistorical/Cultural Places of Intramuros, and Nasugbu.Zamboanga, PMO Surigao, PMO North Harbor, PMOIloilo were inaugurated in January 11, 2008; April 8, 2008;April 10, 2008; and May 8, 2008, respectively. Kiddiecorners, child-care stations and prayer rooms were alsoconstructed in selected PTB facilities for the convenienceof passengers.Pro-poor ProjectsGAD has provided an avenue for PPA to undertake propoorprojects as part of its mandate and corporate socialresponsibility. For 2008, PMOs San Fernando and NorthHarbor spearheaded the “Payong ken Tsinelas ni Adeng“,”Lapis, Papel, atbp.” for the benefit of informal settlers.Finally, PPA and its employees took part in the charitydrive to provide economic assistance to families affectedby typhoon Milenyo.Maintaining Corporate StatureSupport to the National GovernmentLosses due to the revaluation of its foreign-denominatedloans did not deter the Authority from remitting dividendsto the national government as its contribution to thenational development efforts. In 2008, the Authorityremitted P 1.362 billion to the National Treasury.Client-Focused ProgramsStrengthening Global TiesPPA has also undertaken major infrastructure projectsfor the construction, development and maintenance ofhalfway houses. The completed halfway houses of PMOA total of 14 international conferences/meetings/workshop was attended by PPA top management, officersand staff in 2008 as part of capacity building, regular2 1Philippine Ports Authority • Annual Report 2008

international liaison and exchanges and keeping abreast withlatest development in maritime shipping and transport.Two (2) of the 14 conferences, namely, World Conference ofWomen’s Shelters and China-ASEAN Senior Officials Meetingfor Ports Cooperation Mechanism were attended for the firsttime by PPA senior officials.These are as follows:(1) APA HRD Seminar on “Workplace Safety and Healthin Port Operations” held in Singapore onMarch 27-28, 2008;(2) 5th BIMP-EAGA Transport Infrastructure and ICTDevelopment Cluster Meeting in Bandar SeriBegawan, Brunei Darussalam on April 1-2, 2008;(3) 2008 Southeast Asia Bulk Cash Smuggling Trainingand In-Country Exercise in Semarang, Indonesia onApril 21-29, 2008;(4) 15th ASEAN Maritime Transport Working Group inHanoi, Vietnam on April 23-25, 2008;(5) 3rd BIMP-EAGA CIQS Task Force and Mid-TermReview Meeting in Pontianak, West Kalimantan,Indonesia on May 25-28;(6) 29th ASEAN Ports Association Working CommitteeMeeting in Brunei Darussalam on August 5-6, 2008;(7) 31st APEC Transport Working Group (TPT-WG31)Meeting in Lima, Peru on August 25-28, 2008;(8) 1st World Conference of Women’s Shelters inEdmonton, Canada on September 8-11, 2008;(9) 2nd Workshop on Strategic Plan for ASEAN-ChinaTransport Cooperation in Shanghai on September23-25, 2008;(10) Special CIQS Task Force Meeting cum ConsensusBuilding Workshop on CIQS Harmonization inKuala Lumpur, Malaysia on September 22-23, 2008;(11) Consolidation Meeting of the Mid-Term review of theBIMP-EAGA Roadmap to Development and StrategicPlanning in Kota Kinabalu, Malaysia on October 7-10,2008;(12) 1st China-ASEAN Senior Officials Meeting for PortsCooperation Mechanism in Guilin, China on October19-22, 2008; and(13) 34th ASEAN Ports Association Meeting inHo Chi Minh City, Vietnam on November 25-27, 2008.(14) 1st Session of the Council of APEC Port ServicesNetwork (APSN) and the Inauguration Conference ofthe APSN in Ningbo, China on November 3-5, 2008.Internal Audit ProgramFor 2008, the Internal Control Department (ICD) of the HeadOffice conducted and completed the performance auditof the 5 District Offices except for Southern Luzon and theHuman Resource Management Department which areongoing.Compliance audit of ATI-PMO South Harbor was likewisecompleted while that of ICTSI-PDO Northern Luzon is ongoingas of yearend.In 2008, the conduct of audit for ten (10) projects under theConstructors Performance Evaluation System (CPES) wascompleted. The CPES Rating is an inter-agency undertakingamong implementers of infrastructure projects such as PPA,DPWH, DOTC, DECS, etc. The CPES is the primary tool ormechanism for accrediting local contractors/constructorswho may want to participate in bidding for various domesticinfrastructure projects. The objective is to monitor thequality of implementation of infrastructure projects duringPhilippine Ports Authority • Annual Report 2008 2 2

S u s ta i n a b i l i t y , E n v i r o n m e n t a n d P e o p l econstruction and upon completion as well to monitor thecompliance of projects with the contract provisions andto relevant PPA regulations and issuances. Shown on thesucceeding table are the constructors which were subjectedto completed CPES audits.Constructors subjected to CPES Audit in 2008Audited During Construction1. Sunwest Construction & Development Corp ‒ Davao Port Expansion Project2. JV Loreto Construction & Development Corp ‒ Construction of PMO Tacloban Port Operation Building3. Equi-Parco Construction Co. ‒ Nasipit Port Project4. Golden Ridge Enterprises ‒ Masao Port Expansion Project5. Goldrich Construction ‒ Masantol Pampanga River Wharf6. MRB Construction & Supply ‒ Jagna Port ExpansionAudited Upon Completion7. Dakay Construction & Development Corp. ‒ Dapitan Port Development Project8. F. Guerra Construction ‒ Sibunag Port Improvement9. Golden Ridge Enterprises ‒ Masao Port Expansion Project10. Equi-Parco Construction Co. ‒ Nasipit Port ProjectThe Internal Control Service staff of the PDOs also audited17 Cargo Handling Operators (CHOs) as follows: PDO NorthernLuzon ‒ 5 CHOs; Southern Luzon ‒ 3 CHOs; Visayas ‒ 6 CHOs;Northern Mindanao ‒ 3 CHOs. PDO Southern Mindanao audited1 security contract. Performance audit was likewise conductedin PMO San Fernando, TMOs Sual and Dapitan and LGU Nabilid.2 3Philippine Ports Authority • Annual Report 2008

R e v e n u e sf i n a n c i a l p e r f o r m a n c en e t i n c o m e b e f o r e t a xe x p e n s e s 2 4d i v i d e n d r e m i t t a n c e sn e t i n c o m e

u s i n e s s r e s u lt sb u s i n e s s r e s u l t st r a d e a c T i v i t i e sc a r g o t h r o u g h p u t(In MMT)c o n t a i n e r i z e d c a r g o e s(In TEUs)p a s s e n g e r t r a f f i c(In Million)s h i p c a l l sp o r t d e v e l o p m e n t , e x p a n s i o n &r e h a b i l i t a t i o nV A l u e o f a c t u a l a c c o m p l i s h m e n t *(In Million)* Completed & Ongoing Projects** Based on Unaudited Financial Report2 Philippine Ports Authority • Annual Report 2008

l o c a l l y f u n d e d p r o j e c t s c o m p l e t e d i n 2 0 0 8By Investment Program, In Million PesosPhilippine Ports Authority • Annual Report 2008 2 6Project LocationPortPMOA. Development of Super Regions (SONA Ports)Project DescriptionCompletionDateProject1 Aroroy LEG Port Development (RORO Ramp, Back-up Area, Drainage System) 14-Aug-08 100.702 Balbagon CDO Port Development (Construction of PTB) 25-Jul-08 17.853 Balbagon CDO Extension of Existing RORO Ramp 27-Apr-08 25.414 Davao DAV Port Expansion (Construction of RC Wharf, Back-up Area, Drainage, Port Lighting System) 2-Dec-08 428.915 Dingalan LIM Site Development and Construction of PTB 5-Feb-08 47.116 Esperanza BAT Port Development (Back-up Area, Stairlanding and Mooring System) 4-Dec-08 110.387 Maripipi ORMPort Expansion (Rehabilitation/Widening of Existing RC Pier, RORO Ramp and Breasting Dolphin;12-Dec-08 53.84Back-up Area and Rock Causeway; Port Lighting System, Passenger Terminal Building)8 Naval ORM Port Devt (PTB Construction) 6-Jul-08 55.999 Sibunag ILOPort Improvement (R.C. Platform, RORO Ramp; Breasting Dolphin; Rock Causeway, Port Lighting9-Jul-08 101.41System)B. SRNH Ports10 Calapan CAL Construction of 2-storey Terminal Building 3-Jun-08 45.6411 Calapan CAL Relocation of Baggage Screening Facilities & Provision of Ticketing Booth 31-Oct-08 2.3812 Dapitan OZA Port Expansion (Reclamation) 24-Jan-08 222.1913 Dumaguete DUM Port Expansion (Construction of RC Wharf, Back-up Area, Drainage System, Port Lighting System) 22-Mar-08 91.6314 Jagna TAGPort Expansion (Extension of RC Wharf, Construction of RORO Ramp and Platform and Concrete10-Dec-08 56.51Pedestal for Lamp Post)15 Lipata ILO Rehabilitation of Existing Pier 9-May-08 41.12C. AHMP Participating Ports16 Babak DAV Reclamation and Reconstruction of RORO Ramp 3-Jul-08 49.1217 Banay-Banay DAV Construction of RORO Ramp 25-Jun-08 14.8118 Bulalacao CAL Port Development (Construction of Rock Causeway) 25-Jun-08 32.9919 Cantilan SUR Construction of Port Facilities 24-Sep-08 38.1120 Caramcam SUR Construction of PTB and Other Facilities 21-Nov-08 7.1821 Carigara TAC Rehabilitation of Port 4-Jan-08 4.9422 Concepcion ILO Rehabilitation of Causeway 7-May-08 17.6023 Culion PP Construction of RORO Ramp with RC Platform 25-Apr-08 21.1624 El Nido PP Construction of Back Up Area and RORO Ramp 5-Jul-08 52.5925 Glan GS Reconstruction of Existing Damaged RC Wharf 21-Apr-08 20.4626 Himamaylan PUL Construction of Port 9-Jan-08 60.0627 Ipil ZAM Extension of RC Pier 5-Nov-08 21.9728 Margosatubig ZAM Construction of PTB and TMO 12-Nov-08 18.9029 Masao NAS Port Expansion (Back-up Area, Drainage, Port Lighting System) 26-Aug-08 92.2230 Masao NASPort Development (Demolition, Reclamation, RC Wharf, Mooring & Fendering, Port Lighting19-Feb-09 130.17System)31 Nasipit NAS Port Expansion (Construction of RC Wharf, Back-up Area, Drainage, Port Lighting System) 28-Oct-08 217.8932 Pagadian ZAM Reclamation and Extension of RC Wharf 21-Oct-08 83.2333 Polilio BAT Additional Port Development 15-Mar-08 21.3434 San Isidro DAV Construction of Rock Causeway and RC pier 2-Feb-08 18.2135 Surigao SURPort Expansion (Wharf Extension, RORO Ramp, Breasting Dolphin, Back-up Area, Drainage System31-Aug-08 417.79& Port Lighting System)36 Tapal TAG Concreting of Ubay-Tapal Port Road 10-Apr-08 11.6437 Tilik CAL Construction of RC Wharf , Backup Area and Perimeter Fence 28-Feb-08 53.2938 Vinisitahan TAC Port Development 29-Apr-08 25.28D. Vision Ports39 Iloilo ILO ICPC Extension (Extension of R.C. Wharf, Fendering and Mooring System and Dredging Works) 4-Dec-08 333.6340 General Santos GS Port Expansion (Construction of RC Wharf, Back-up Area and RORO Ramp) 2-Jul-08 434.7341 North Harbor NH Construction of Halfway House 11-Apr-08 11.0442 South Harbor SH Renovation of Existing PPA Building 5-Dec-08 34.01E. Other Priority Ports/Projects43 Balite ORM Extension of RC Pier and Construction of RORO Ramp 30-May-08 12.6044 Basco SF Strengthening of RC Pier 29-Sep-08 7.6545 Calbayog TAC Port Expansion (Extension of RC Pier; Mooring and Fendering System) 12-Aug-08 40.9546 Currimao SF Pavement Improvement of Back-up Area and Construction of Shore Protection 18-Nov-08 7.6347 Lamao LIMPort Expansion (Back-up Area, Wharf and RORO Ramp, Mooring and Fendering System, Drainage9-Apr-08 107.90System, Concrete Duct)48 Maco DAV Port Development (Phase II) 20-Feb-08 27.4149 Masantol SF Improvement of River Wharf 14-Oct-08 17.6850 San Jose Dinagat SUR Extension of RC Wharf 29-Apr-08 19.36Cost

O N G O I N G L O C A L L Y F U N D E D P R O J E C T S A S O F E N D O F 2 0 0 8By Investment Program, In Million PesosProject LocationPercentage of ProjectProject DescriptionPort PMOCompletion CostA. Development of Super Regions (SONA Ports)1 Cagayan De Oro CDO Back Up area for the newly constructed wharf 99.60% 429.382 Cawayan LEGPort Improvement (Rock Causeway and Back-up Area, RC Platform, RORO Ramp and99.88% 42.95Breasting Dolphin, Mooring and Fendering System, Port Lighting System)3 Claveria Port LEGPort Improvement (Back-up Area, RORO Ramp and Widening of Rock Causeway;Construction of Breasting Dolphin; Mooring and Fendering System; Port Lighting82.50% 136.04System; PTB)4 San Pascual LEGPort Expansion (RC Trestle, RORO Ramp and Breasting Dolphin; Back-up Area, Port96.50% 46.97Lighting System)B. SRNH PortsPort Improvement (Construction of RC Pier and RORO Ramp; Rehabilitation and5 San Ricardo ORM99.50% 71.63Expansion of Back-up Area; Passenger Terminal Building)Port Expansion Phase II (Reclamation, Mooring and Fendering System; Drainage &6 Dumaguete DUM 71.00% 394.77Fencing; Port Lighting System)7 Dumaguete DUM Construction of two storey PTB and Baseport Terminal Office 39.67% 48.46C. AHMP Participating Ports8 Basiao ILO Widening and Extension of Rock Causeway 2.04% 16.879 Buliluyan PP Construction of Rock Causeway and RC Pier 60.00% 21.0810 Caramoan LEGPort Expansion (RC Platform, RORO Ramp, Breasting Dolphin, Back-up Area, Port62.00% 58.82Lighting System)11 Carigara TAC Rehabilitation of Rock Causeway 1.50% 11.4112 Guimbal ILO Additional Port Development 84.73% 17.5113 Lianga SURPort Construction (Rock Causeway, RORO Ramp & Breasting Dolphin, Port Lighting98.12% 46.32System)14 Margosatubig ZAMRehabilitation, Extension and Widening of RC pier and improvement of entrance gate,82.67% 27.12fence and guardhouse15 Mati DAV Rehabilitation of Existing Pier 86.63% 41.7316 Mulanay BAT Port Devt Phase I (Rock Causeway and Port Lighting System) 95.44% 40.3017 Poctoy BATPort Expansion (Back-up Area, Mooring and Fendering System, Drainage System, Port61.13% 76.95Lighting System)18 Punta Baja PP Rehabilitation of Rock Causeway and RC pier 98.00% 19.9219 San Andres BATPort Improvement (Improvement of RC Pier, RORO Ramp and Breasting Dolphin, Rock39.00% 91.39Causeway and Back-up Area, Port Lighting System)20 Taytay PPPort Development (Dredging and Disposal; Rock Causeway and Back-up Area, Construction90.50% 79.48of RC Platform and RORO Ramp)D. Vision Ports21 Davao DAV Construction of Transit Shed 78.50% 74.6922 South Harbor SH Renovation/Improvement of PPATC Building 98.50% 34.4223 Zamboanga ZAMPort Expansion Phase II (RC Wharf Extension, Back-up Area, Drainage System, Port99.96% 411.18Lighting System)E. Other Priority Ports/ProjectsPort Improvement (Construction of RC Wharf and RORO Ramp; Widening/Upgrading24 Casiguran LIM27.60% 63.51of Rock Causeway; Port Lighting System)25 Currimao SF Construction of RC Pier for Cruise Ship Berth 64.59% 99.5726 Fort San Pedro ILOPort Improvement (Improvement/Widening of Existing RC Wharf, Construction of RC90.87% 186.24Platform and RORO Ramp)27 Lucena BATPort Protection/Breakwater Phase II (Construction of Light Beacon Tower Foundation;62.75% 248.79Removal and Reinstallation of existing Light Beacon including accessories)28 Plaridel OZAPort Improvement (Reclamation and RORO Ramp, Construction of 2 units Breasting93.66% 66.43Dolphin, Drainage System)29 San Roque SH Construction of Ferry Port Terminal 72.50% 11.5330 Tacloban TAC Construction of 3-Storey Port Operations Bldg 90.00% 80.2931 Ubay TAGPort Expansion (Construction of Back-up Area, RC Pier; RORO Ramp; Dredging and49.68% 215.43Disposal; Mooring and Fendering System; Provisional Items; Port Lighting System)32 Valanga SF Construction of Valanga Port 55.40% 7.872 7Philippine Ports Authority • Annual Report 2008

P O R T S TAT I S T I C SC A R G 0 T H R O U G H P U T (in m.t.)By Port District/Port Management OfficeAt Berth and AnchoragePDO/PMO2 0 0 8 2 0 0 7Total Domestic Foreign Total Domestic ForeignPDO - MANILA 66,066,668 27,166,612 38,900,056 66,914,078 27,975,751 38,938,327North Harbor 16,741,867 14,592,375 2,149,492 18,291,789 15,543,188 2,748,601South Harbor 11,235,172 5,432,490 5,802,682 12,094,491 5,603,583 6,490,908MICT 17,252,345 685,929 16,566,416 15,761,302 155,498 15,605,804Limay 16,629,330 6,005,477 10,623,853 17,946,823 6,400,834 11,545,989San Fernando 4,207,954 450,341 3,757,613 2,819,673 272,648 2,547,025PDO - LUZON 27,971,890 12,926,323 15,045,567 29,034,925 13,377,802 15,657,123Batangas 18,128,334 5,850,989 12,277,345 19,702,991 6,582,746 13,120,245Calapan 1,988,315 1,988,315 0 1,832,601 1,832,601 0Legazpi 4,157,751 3,789,911 367,840 4,139,043 3,795,396 343,647Puerto Princesa 3,697,490 1,297,108 2,400,382 3,360,290 1,167,059 2,193,231PDO - VISAYAS 19,751,502 14,932,335 4,819,167 19,634,465 14,735,691 4,898,774Dumaguete 1,692,400 1,432,476 259,924 1,823,910 1,388,164 435,746Iloilo 5,789,750 3,528,784 2,260,966 5,058,172 3,523,717 1,534,455Ormoc 3,796,058 2,116,912 1,679,146 4,598,079 2,322,463 2,275,616Pulupandan 5,343,718 4,983,270 360,448 4,986,249 4,602,843 383,406Tacloban 1,417,879 1,244,196 173,683 1,344,134 1,205,503 138,631Tagbilaran 1,711,697 1,626,697 85,000 1,823,921 1,693,001 130,920PDO - N. MINDANAO 17,483,645 9,218,177 8,265,468 27,467,996 10,222,340 17,245,656Cagayan de Oro 6,093,297 4,234,898 1,858,399 11,090,134 5,198,837 5,891,297Iligan 2,664,858 1,688,137 976,721 2,965,457 1,750,740 1,214,717Nasipit 2,454,484 1,417,737 1,036,747 3,012,523 1,364,037 1,648,486Ozamiz 1,447,706 1,248,404 199,302 1,454,187 1,297,328 156,859Surigao 4,823,300 629,001 4,194,299 8,945,695 611,398 8,334,297Philippine Ports Authority • Annual Report 2008 2 8PDO - S. MINDANAO 14,625,206 7,757,974 6,867,232 14,386,257 8,279,694 6,106,563Cotabato 90,367 90,367 0 92,723 92,723 0Davao 9,117,811 3,527,130 5,590,681 8,951,568 3,925,229 5,026,339General Santos 2,951,225 1,843,519 1,107,706 2,700,417 1,778,755 921,662Zamboanga 2,465,803 2,296,958 168,845 2,641,549 2,482,987 158,562GRAND TOTAL 145,898,911 72,001,421 73,897,490 157,437,721 74,591,278 82,846,443

P A S S E N G E R T R A F F I CBy Port District/Port Management OfficeAt Berth and AnchoragePDO/PMO2 0 0 8 2 0 0 7Total Disemb. Embarked Total Disemb. EmbarkedPDO - MANILA 2,316,941 1,219,792 1,097,149 2,793,341 1,460,576 1,332,765North Harbor 1,045,502 561,933 483,569 1,381,584 734,225 647,359South Harbor 1,270,950 657,592 613,358 1,401,648 721,435 680,213MICT 0 0 0 0 0 0Limay 489 267 222 10,109 4,916 5,193San Fernando 0 0 0 0 0 0PDO - LUZON 12,613,391 5,765,238 6,848,153 12,268,088 5,602,409 6,665,679Batangas 5,642,688 2,302,905 3,339,783 5,495,016 2,285,124 3,209,892Calapan 3,767,654 1,857,680 1,909,974 3,583,829 1,745,564 1,838,265Legazpi 2,780,863 1,383,816 1,397,047 2,844,237 1,398,398 1,445,839Puerto Princesa 422,186 220,837 201,349 345,006 173,323 171,683PDO - VISAYAS 15,378,867 7,708,927 7,669,940 15,700,163 7,956,587 7,743,576Dumaguete 2,761,987 1,394,329 1,367,658 2,734,142 1,400,681 1,333,461Iloilo 2,328,339 1,152,881 1,175,458 2,461,502 1,245,356 1,216,146Ormoc 2,011,750 1,015,171 996,579 2,018,612 1,020,689 997,923Pulupandan 2,955,015 1,492,573 1,462,442 3,095,563 1,556,530 1,539,033Tacloban 1,935,152 975,622 959,530 2,001,732 1,020,905 980,827Tagbilaran 3,386,624 1,678,351 1,708,273 3,388,612 1,712,426 1,676,186PDO - N. MINDANAO 8,511,733 4,297,014 4,214,719 8,786,852 4,454,055 4,332,797Cagayan de Oro 1,665,588 848,052 817,536 1,752,534 882,210 870,324Iligan 2,187,238 1,019,343 1,167,895 2,126,269 1,038,483 1,087,786Nasipit 365,268 180,181 185,087 413,549 206,775 206,774Ozamiz 3,134,240 1,645,687 1,488,553 3,115,525 1,601,991 1,513,534Surigao 1,159,399 603,751 555,648 1,378,975 724,596 654,379PDO - S. MINDANAO 5,045,338 2,518,716 2,526,622 4,920,483 2,470,303 2,450,180Cotabato 1,594 236 1,358 313 95 218Davao 1,616,457 825,061 791,396 1,537,248 785,631 751,617General Santos 119,299 60,770 58,529 161,596 80,594 81,002Zamboanga 3,307,988 1,632,649 1,675,339 3,221,326 1,603,983 1,617,343GRAND TOTAL 43,866,270 21,509,687 22,356,583 44,468,927 21,943,930 22,524,997Philippine Ports Authority • Annual Report 20082 9

N U M B E R O F S H I P C A L L SBy Port District/Port Management OfficeAt Berth and AnchoragePDO/PMO2 0 0 8 2 0 0 7Total Domestic Foreign Total Domestic ForeignPDO - MANILA 22,797 17,685 5,112 24,210 18,918 5,292North Harbor 5,088 4,690 398 5,368 4,899 469South Harbor 7,889 6,034 1,855 8,177 6,272 1,905MICT 2,148 87 2,061 2,168 27 2,141Limay 6,841 6,360 481 7,686 7,233 453San Fernando 831 514 317 811 487 324PDO - LUZON 85,206 83,941 1,265 83,699 82,293 1,406Batangas 39,615 38,567 1,048 38,867 37,704 1,163Calapan 20,388 20,388 0 18,754 18,754 0Legazpi 19,741 19,694 47 20,373 20,299 74Puerto Princesa 5,462 5,292 170 5,705 5,536 169PDO - VISAYAS 114,903 114,424 479 114,895 114,386 509Dumaguete 34,428 34,379 49 34,639 34,590 49Iloilo 19,210 19,075 135 20,119 20,003 116Ormoc 12,109 11,947 162 12,513 12,300 213Pulupandan 23,640 23,580 60 22,945 22,878 67Tacloban 8,554 8,489 65 8,950 8,894 56Tagbilaran 16,962 16,954 8 15,729 15,721 8PDO - N. MINDANAO 51,730 51,001 729 53,444 52,546 898Cagayan de Oro 14,027 13,625 402 15,607 15,127 480Iligan 14,177 14,027 150 13,932 13,780 152Nasipit 1,020 997 23 1,019 983 36Ozamiz 15,842 15,804 38 15,361 15,330 31Surigao 6,664 6,548 116 7,525 7,326 199Philippine Ports Authority • Annual Report 2008 3 0PDO - S. MINDANAO 37,127 34,980 2,147 38,253 36,076 2,177Cotabato 621 621 0 587 587 0Davao 22,324 20,675 1,649 21,589 19,829 1,760General Santos 1,560 1,150 410 1,421 1,117 304Zamboanga 12,622 12,534 88 14,656 14,543 113GRAND TOTAL 311,763 302,031 9,732 314,501 304,219 10,282

N U M B E R O F C O N T A I N E R S H A N D L E D (in T.E.U.)By Port District/Port Management OfficePDO/PMO2 0 0 8 2 0 0 7Total Domestic Foreign Total Domestic ForeignPDO - MANILA 2,999,314 802,660 2,196,654 2,945,828 819,097 2,126,731North Harbor 631,467 631,467 0 690,531 690,531 0South Harbor 846,478 103,494 742,984 880,789 112,157 768,632MICT 1,519,077 65,792 1,453,285 1,371,731 14,291 1,357,440Limay 2,292 1,907 385 2,777 2,118 659San Fernando 0 0 0 0 0 0PDO - LUZON 25,406 25,269 137 18,836 18,176 660Batangas 1,809 1,672 137 1,308 648 660Calapan 131 131 0 442 442 0Legazpi 1,207 1,207 0 2,762 2,762 0Puerto Princesa 22,259 22,259 0 14,324 14,324 0PDO - VISAYAS 218,380 218,303 77 211,064 210,924 140Dumaguete 20,275 20,275 0 21,100 21,100 0Iloilo 91,417 91,417 0 85,661 85,661 0Ormoc 5,493 5,493 0 6,246 6,246 0Pulupandan 80,319 80,242 77 79,122 78,982 140Tacloban 9,192 9,192 0 7,538 7,538 0Tagbilaran 11,684 11,684 0 11,397 11,397 0PDO - N. MINDANAO 241,364 208,619 32,745 282,200 246,833 35,367Cagayan de Oro 158,526 125,781 32,745 194,634 159,267 35,367Iligan 16,784 16,784 0 18,737 18,737 0Nasipit 28,819 28,819 0 27,830 27,830 0Ozamiz 34,905 34,905 0 36,867 36,867 0Surigao 2,330 2,330 0 4,132 4,132 0PDO - S. MINDANAO 607,461 312,519 294,942 540,491 318,401 222,090Cotabato 0 0 0 0 0 0Davao 415,113 162,808 252,305 360,763 167,952 192,811General Santos 127,362 84,725 42,637 116,028 86,749 29,279Zamboanga 64,986 64,986 0 63,700 63,700 0GRAND TOTAL 4,091,925 1,567,370 2,524,555 3,998,419 1,613,431 2,384,988Philippine Ports Authority • Annual Report 20083 1

P A S S E N G E R T R A F F I CBy Port District/Port Management OfficeAt Berth and AnchoragePDO/PMO2 0 0 8 2 0 0 7Total Domestic Foreign Total Domestic ForeignPDO - MANILA 2,316,941 2,295,769 21,172 2,793,341 2,772,499 20,842North Harbor 1,045,502 1,045,502 0 1,381,584 1,381,584 0South Harbor 1,270,950 1,249,778 21,172 1,401,648 1,380,806 20,842MICT 0 0 0 0 0 0Limay 489 489 0 10,109 10,109 0San Fernando 0 0 0 0 0 0PDO - LUZON 12,613,391 12,613,391 0 12,268,088 12,268,004 84Batangas 5,642,688 5,642,688 0 5,495,016 5,495,016 0Calapan 3,767,654 3,767,654 0 3,583,829 3,583,829 0Legazpi 2,780,863 2,780,863 0 2,844,237 2,844,237 0Puerto Princesa 422,186 422,186 0 345,006 344,922 84PDO - VISAYAS 15,378,867 15,378,867 0 15,700,163 15,700,163 0Dumaguete 2,761,987 2,761,987 0 2,734,142 2,734,142 0Iloilo 2,328,339 2,328,339 0 2,461,502 2,461,502 0Ormoc 2,011,750 2,011,750 0 2,018,612 2,018,612 0Pulupandan 2,955,015 2,955,015 0 3,095,563 3,095,563 0Tacloban 1,935,152 1,935,152 0 2,001,732 2,001,732 0Tagbilaran 3,386,624 3,386,624 0 3,388,612 3,388,612 0PDO - N. MINDANAO 8,511,733 8,511,733 0 8,786,852 8,786,852 0Cagayan de Oro 1,665,588 1,665,588 0 1,752,534 1,752,534 0Iligan 2,187,238 2,187,238 0 2,126,269 2,126,269 0Nasipit 365,268 365,268 0 413,549 413,549 0Ozamiz 3,134,240 3,134,240 0 3,115,525 3,115,525 0Surigao 1,159,399 1,159,399 0 1,378,975 1,378,975 0Philippine Ports Authority • Annual Report 2008 3 2PDO - S. MINDANAO 5,045,338 5,019,748 25,590 4,920,483 4,901,297 19,186Cotabato 1,594 1,594 0 313 313 0Davao 1,616,457 1,616,457 0 1,537,248 1,537,248 0General Santos 119,299 119,299 0 161,596 161,596 0Zamboanga 3,307,988 3,282,398 25,590 3,221,326 3,202,140 19,186GRAND TOTAL 43,866,270 43,819,508 46,762 44,468,927 44,428,815 40,112

f i n a n c i a l s tat e m e n t sRepublic of the PhilippinesCOMMISSION ON AUDITCommonwealth Avenue, Quezon City, PhilippinesI N D E P E N D E N T A U D I T O R’S REPORTThe Board of DirectorsPhilippine Ports AuthorityBonifacio DrivePort Area, ManilaWe have audited the accompanying financial statements of the Philippine Ports Authority (PPA), which comprise the balance sheetas at December 31, 2008, and the statement of income and expenses, statement of changes in equity and cash flow statement forthe year then ended, and a summary of significant accounting policies and other explanatory notes.Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with accountingprinciples generally accepted in the Philippines. This responsibility includes: designing, implementing and maintaining internalcontrol relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whetherdue to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonablein the circumstances.Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. Except as discussed in the followingparagraphs, we conducted our audit in accordance with Philippine Standards on Auditing. Those standards require that we complywith ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are freefrom material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of thefinancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevantto the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriatein the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An auditalso includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made bymanagement, as well as evaluating the overall presentation of the financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.Basis for Qualified OpinionThe property and equipment account as of December 31, 2008 excludes the value of a reclaimed land in PMO Legazpi measuring20,549.48 square meters, and the Port of Aras Asan in Surigao. The property are being used in operations by the PPA to generateport revenue but had remained unrecorded due to undetermined costs of development by the DPWH and transfer by the NIA,respectively. They were not included in the appraisal of PPA fixed assets conducted in year 2006. Meanwhile, the balance of theaccount is overstated with the inclusion of 27.76 million worth of non-operational assets, and the unadjusted depreciation expensepertaining to the demolished buildings and structures valued at 53.11 million, newly completed projects of 680.56 million, and209.28 million cost of major repair of various fixed assets which initially was accounted as repair and maintenance expense insteadof capitalized and treated part of the carrying cost of the assets. The Head Office was unable to correct the reported depreciationexpense and its corresponding effect on the net loss and retained earnings in the combined financial statements, in the absence ofpertinent records and/or financial data which are kept in the books of the Port Management Offices of the PPA nationwide.As disclosed in Audit Observation No. 2, the Authority entered into a service concession agreement with the “Service Operator”, theAsian Terminal, Inc. (ATI) involving exclusive cargo handling services at South Harbor, Manila. The explanatory notes accompanyingthe prior year’s financial statements (FS) inadequately conformed to the requirements of the Standing Interpretations Committee(SIC) Interpretation 29 on Disclosure – Service Concession Arrangements with the reported cost of the assets invested undervalued.In 2008, the PPA as “Service Provider” did not consistently observe the reporting standard with management incapable ofproviding the vital financial information in the notes accompanying the FS. The actual value of the assets provided to complyPhilippine Ports Authority • Annual Report 20083 3

with the commitment cannot be ascertained except that as of December 31, 2005 these were estimated worth $45.66 million orapproximately more than 2.34 billion. Additions thereafter, including the newly completed building utilized as PPA Head Officewith allocated contract cost of 520 million cannot be determined as of December 31, 2008.Further as discussed in Audit Observation No. 3, the computation of the dividend due to the Bureau of Treasury (BTr) was not inaccordance with the provision of Section 3 of RA 7656, resulting in the understatement of the retained earnings and overstatementof dividends payable by 179.70 million for income earned in 2007 and the non-recognition of dividends of 1.01 billion for incomeof 2008 that is due for payment in 2009. In conformity with PAS 21 Gain/Loss on Revaluation is recognized as of reporting date torecognize the effects of foreign exchange fluctuations on PPA’s outstanding foreign loans and dollar savings deposit. This recordedgain or loss adjusting the peso equivalent of the foreign denominated accounts is treated as a non-taxable income and nonallowablededuction, respectively in determining the corporate income subject to tax. In the computation of the dividend basesubject to the rate of 50% mandated in RA 7656, the net loss on revaluation in 2008 which is a non-allowable deduction under theInternal Revenue Code was not added back while, the non-taxable net gain on revaluation in 2007 was not excluded.Also as disclosed in Audit Observation No. 8, various assets amounting to 214.72 million and a miscellaneous liability accountof 1.96 million still carried in the books as of December 31, 2008, are doubtful and unreliable. Further, the related Provision forDoubtful Accounts Receivable is understated by 13.11 million. The inflow or outflow of economic benefit on some of theaccounts which have been unidentified, dormant or inactive and unrealized for several years more likely is no longer probable.We were unable to obtain from management sufficient appropriate audit evidence about the reasonable value of the unrecordedassets and depreciation, the inactive and unidentified subsidiary accounts, and those covered with the concession arrangementhaving no access to the records of the concession Service Operator. Consequently, the financial information that may be necessaryin determining the over/understatement on the value of property and equipment account, the reliability and validity of the inactiveaccounts, and to assist in assessing the certainty of cash inflow or benefit that may be derived from the assets under arrangementcannot be provided.Qualified OpinionIn our opinion, except for the effects of such adjustments and disclosures, if any, as might had been necessary on the mattersreferred to in the preceding paragraphs the financial statements present fairly, in all material respects, the financial position of thePhilippine Ports Authority as of December 31, 2008, and of its financial performance and its cash flows for the year then ended inaccordance with accounting principles generally accepted in the Philippines.Emphasis of MatterWithout further qualifying our opinion, we draw attention to the contingent accounts which had amounted to a significant 903.03million as of December 31, 2008. In conformity with PAS 37, the contingent accounts comprised mostly of contested accountsreceivable on lease where the inflow of cash is not virtually certain of collection were not presented in the financial statements butwere adequately disclosed in accompanying Note 47 and partially discussed in Audit Observation No. 4. Relatively, the net lossof the PPA for CY 2008 will be significantly reduced and its Retained Earnings will significantly increase had the contestability anduncertainty of said Accounts Receivable been settled or resolved.Philippine Ports Authority • Annual Report 2008 3 4Other MatterAs part of our audit of the 2008 financial statements, we also audited the adjustments described in Note 45 that were applied toamend the 2007 financial statements. In our opinion, such adjustments are appropriate and have been properly applied.July 8, 2009BY:COMMISSION ON AUDITDIVINIA M. ALAGONDirector IV

B A L A N C E S H E E TDecember 31, 2008Notes 2008As Restated2007ASSETSCurrent AssetsCash on Hand and in Banks 5 678,981,276 1,210,481,424Receivables - Net 6 923,662,608 899,761,368Inventories 7 125,871,341 119,953,196Prepayments 8 558,088,942 854,282,440Other Current Assets 9 588,443,311 573,353,012Total Current Assets 2,875,047,478 3,657,831,440Non-Current AssetsProperty and Equipment - Net 10 86,412,712,582 84,779,037,846Investments in Securities 11 1,200,503,266 1,340,730,484Notes Sinking Fund 12 267,562,753 -Other Non-Current Assets 13 1,056,688,117 916,786,918Total Non-Current Assets 88,937,466,718 87,036,555,248LIABILITIES AND EQUITY91,812,514,196 90,694,386,688Current LiabilitiesAccounts Payable 14 1,693,757,774 2,078,466,941Payables to Other Government Agencies 15 324,859,735 177,464,046Current Portion of Loans Payable 16 745,265,687 348,972,258Other Current Liabilities 17 391,662,096 357,031,867Total Current Liabilities 3,155,545,292 2,961,935,112Non-Current LiabilitiesLoans Payable 18 9,579,798,390 7,333,955,909Corporate Notes 19 2,000,000,000 1,000,000,000Retirement Payable 20 317,945,063 332,560,964Total Non-Current Liabilities 11,897,743,453 8,666,516,873Deferred Credits 21 90,838,302 67,390,170Equity 76,668,387,149 78,998,544,533See accompanying Notes to Financial Statements.91,812,514,196 90,694,386,688Philippine Ports Authority • Annual Report 20083 5

S T A T E M E N T O F I N C O M E A N D E X P E N S E SFor the Year Ended December 31, 2008Notes 2008As Restated2007REVENUESICTSI Fees 26 2,411,851,509 2,164,984,125Wharfage Dues 27 1,357,002,790 1,314,896,698Share in Arrastre/Stevedoring Income 28 1,169,754,022 1,106,622,892Dockage Fees 29 326,426,552 390,407,328Port Dues 30 285,559,283 306,797,597Storage Charges 31 231,012,699 196,023,512Port Usage Fees 32 202,725,688 183,463,225Terminal Fees 33 173,755,971 108,706,653Vessel Traffic Management Service Fees 34 10,478,446 10,352,927Pilotage 35 1,971,030 3,354,479Lay-up Fees 36 756,336 685,815Other Income 37 339,459,016 312,049,3356,510,753,342 6,098,344,586OPERATING EXPENSESPersonal Services 38 1,047,598,699 1,043,267,094Maintenance and Other Operating Expenses 39 2,962,088,728 2,523,270,8304,009,687,427 3,566,537,924INCOME FROM OPERATIONS 2,501,065,915 2,531,806,662Philippine Ports Authority • Annual Report 2008 3 6OTHER INCOME (LOSS AND EXPENSES)Fund Management Income 40 99,908,715 128,794,100Other General Income 41 15,090,396 19,301,535Gain (Loss) on Revaluation 42 (3,111,290,692) 359,393,735Financial Expenses 43 (536,440,585) (274,800,079)(3,532,732,166) 232,689,291INCOME(LOSS) BEFORE INCOME TAX (1,031,666,251) 2,764,495,953INCOME TAX 44 69,843,215 57,851,909NET INCOME(LOSS) (1,101,509,466) 2,706,644,044See accompanying Notes to Financial Statements.

S T A T E M E N T O F C H A N G E S I N E Q U I T YFor the Year Ended December 31, 2008Notes 2008As Restated2007CAPITAL CONTRIBUTION 22Balance at beginning of year 4,312,507,096 4,308,508,640Cost of transferred assets at PMOPulupandan and Calapan - 3,998,456Derecognition of land (baseport) -PMO-Zamboanga (88,720) -Balance at end of year 4,312,418,376 4,312,507,096DONATED SURPLUS 23Balance at beginning of year 845,077,671 586,640,504Cost of transferred assets with expired lease - 258,437,167Balance at end of year 845,077,671 845,077,671APPRAISAL SURPLUS 24Balance at beginning of year 57,593,897,378 51,769,813,260Adjustments in assets' appraised values 29,539,695 5,824,084,118Balance at end of year 57,623,437,073 57,593,897,378RETAINED EARNINGS 25Balance at beginning of year 16,247,062,388 14,890,574,423Capitalization of repairs and maintenanceexpense to fixed assets/other assets - 95,733,616Correction of prior years' errors 104,179,543 (80,384,625)Net income (loss) (1,101,509,465) 2,706,644,044Dividends paid (1,182,581,570) (1,365,505,070)Provision for additional dividends (179,696,867)Balance at end of year 13,887,454,029 16,247,062,388See accompanying Notes to Financial Statements.76,668,387,149 78,998,544,533Philippine Ports Authority • Annual Report 20083 7

S T A T E M E N T O F C A S H F L O W SFor the Year Ended December 31, 20082008As Restated2007CASH FLOWS FROM OPERATING ACTIVITIESCollection of port revenues 6,493,380,404 5,971,666,200Receipt of miscellaneous liabilities / deferred credits 179,647,220 7,453,598Receipt of fund management income 99,450,930 128,794,100Receipt of trust liabilities 38,901,816 93,061,048Receipt of other income 17,098,927 23,267,785Payment of operating expenses (3,850,893,304) (3,432,154,879)Receipt (Refund) of depository liabilities (79,852,857) 7,486,847Payment of accrued interest (814,812) (7,053,087)Payment of guaranty deposits (773,723) (804,672)Net cash from operating activities 2,896,144,601 2,791,716,940CASH FLOWS FROM INVESTING ACTIVITIESNet proceeds from investments 50,227,218 1,718,578,188Net payments for construction-in-progress (3,369,886,537) (4,138,721,848)Net payments for acquisition of fixed assets 467,896,490 (1,345,232,691)Net cash used in investing activities (2,851,762,829) (3,765,376,351)Philippine Ports Authority • Annual Report 2008 3 8CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of Corporate Notes 1,000,000,000 1,000,000,000Calamity loans collected 75,854,432 80,159,833Proceeds of loan availments - 2,053,413,514Dividend payments (1,182,581,570) (1,365,505,070)Loan repayments (473,058,848) (432,125,802)Net cash from (used in) financing activities (579,785,986) 1,335,942,475EFFECT OF EXCHANGE RATE CHARGES ON CASHON HAND AND IN BANKS 3,904,066 22,807,049NET INCREASE (DECREASE) IN CASH ON HANDAND IN BANKS (531,500,148) 362,283,064CASH ON HAND AND IN BANKS AT BEGINNING OF YEAR 1,210,481,424 848,198,360CASH ON HAND AND IN BANKS AT END OF YEAR 678,981,276 1,210,481,424See accompanying Notes to Financial Statements.

N O T E S T O F I N A N C I A L S T A T E M E N T S1. AGENCY BACKGROUNDoVessel Traffic Management SystemThe Philippine Ports Authority (PPA) was created by virtue of PresidentialDecree (PD) No. 505 dated 11 July 1974, revised by substitution on 23December 1975 by PD 857. Its functions are to coordinate, streamline,improve and optimize the planning, development, financing, construction,maintenance and operations of ports or port system for the entire country.Subsequent amendments under Executive Order (EO) Nos. 523 & 546, issuedon 16 November 1978 and 23 July 1979, respectively, as well as Letter ofInstruction (LOI) dated 11 April 1981 further enhanced PPA’s corporatepowers to be more responsive to the requirements of optimum portutilization, development and operation. In Executive Order No. 159 dated13 April 1987, corporate autonomy was reverted to the PPA to insure therapid development of port or the port system directly under it and authoritywas granted to execute port projects under its port program. The PPA isnot exempted from payment of all taxes, duties, fees, imports and othercharges imposed directly or indirectly by the Republic of the Philippines andits instrumentalities.The PPA is a government-owned corporation attached to the Department ofTransportation and Communications for policy and program coordination.The corporate powers of the Authority are vested to its Board of Directorscomposed of eleven (11) members. Its top management is headed by aGeneral Manager and three (3) Assistant Managers, one each for EngineeringServices, for Operations and for Finance and Administrative Services.Delivering the front line services are five (5) Port District Offices (PDOs) andtwenty-three (23) Port Management Offices (PMOs) and about ninety-four(94) Terminals or Satellite ports. A Port District Manager heads each PortDistrict Office, exercising supervision over Port Management Offices that areheaded by PMO Managers.As of December 31, 2008, the PPA has a total of 2,259 employees, composedof 462 Head Office personnel and 1,797 filled positions at the PDOs andPMOs.Major accomplishments of the Authority in CY 2008 comprised of thefollowing:• Billion pesos worth of projects were pursued in line with the PPA’s visionof developing at least 10 ports that would meet international standards.The development of SONA Ports and Roll-ON Roll-OFF (RORO) portswere PPA’s priority on capital expenditures in 2008. Implemented were120 locally funded projects and 18 SONA ports of which 41 and 11,respectively, were completed during the year.• Major Repair and Maintenance Projects involving 61 port facilities, 37 ofwhich were completed while the rest are still on-going.• Implementation of Dredging Projects which covered 21 port areas orchannels under the 2008 PPA Harbor Maintenance Program.oooInternational Ship and Port Facility Security CodeShore Reception FacilityFormulation of Standards for Port Development and Maintenance2. PPA COMPUTERIZATION PROJECTThe Authority in year 2002 embarked into its Management InformationSystem Computerization Project, otherwise known as the PROMPT (ProvidingReliable Operations and Management of Ports Thru Technology). The projectcovers the automation of all aspects of the business processes of the PPA.Components of the project consisting of the Port Operations ManagementSystem (POMS), Real Estate Management System (REMS), and Legal SupportSystem (LSS) were rolled out for use at different offices of the PPA in year2007. The other components of the project are still being developed,namely, Accounting and Financial Management System (AFMS), Projects andEngineering Management System (PEMS), Executive Information System (EIS),and Electronic Procurement (eProc). Management approved the extensionup to the end of August 2009 the delivery by the contractor of the systemcomponents still being developed aside from the upgrading of the existingWAN facilities nationwide.As of December 31, 2008, a total of 628.63 million have been spent forthe project consisting of payments to the UNISYS (solution provider) inthe amount of 376.94 million, to the Economic Development Foundation(consultant) amounting to 96.45 million, costs of various hardware includingsite preparation and installation of 77.38 million, and administrativeexpenses totaling 77.86 million.3. THE NEW GOVERNMENT ACCOUNTING SYSTEMCOA Circular No. 2004-02 dated 29 April 2004 prescribed the Chart of Accountsunder the New Government Accounting System (NGAS) that is required foruse by Government Owned and Controlled Corporations (GOCCs) startingCY 2005. The PPA due to its on-going computerization project recognizedits financial transactions using the PPA Chart of Accounts following thecommercial system of accounting until December 31, 2007.On 19 December 2007, PPA Finance Memorandum Order No. 09-2007was issued ordering compliance with the requirement of the Circular. Theadoption of the NGAS commenced January 1, 2008 with the individualbalances of accounts as of December 31, 2007 reclassified from the PPA Chartof Accounts to the account codes prescribed in the NGAS.• Generation of 6,625.75 million port revenue which was 379.31 millionor 6.07% higher than that of the previous year.• Awarding of contracts to 11 Cargo Handling Operators (CHOs) either thrubidding or renewal of expired contracts.• Implemented the PPA ISO-Quality Management System (QMS) insupport of Executive Order No. 605 dated 23 February 2007. Conductedorientations/trainings/workshops and completed during the year theQuality Procedure Manual covering 12 QMS procedures.• Continued the implementation of the following special projects:ooMIS Computerization ProjectManila North Harbor Modernization Project4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of the Financial StatementsThe Philippine Ports Authority has adopted and consistently applied thePhilippine Government Accounting Standards (PGAS) promulgated by theCommission on Audit per Resolution No. 2006-06. Full adoption of the newPFRS will be done by the Authority in 2009. In the preparation of the CY 2008PPA Combined Financial Statements, the following Philippine AccountingStandards were observed:• PAS 1 Presentation of Financial Statements (FS), financial statementswhich consist of the Balance Sheet, Statement of Income and Expenses,Statement of Changes in Equity, and Statement of Cash Flow; andrelevant Notes to FS which provide for information of significantaccounting policies adopted by the agency, basis of their preparation,and other information necessary for fair presentation thereof.Philippine Ports Authority • Annual Report 20083 9

• PAS 3 on Cash, which provides for money and other negotiableinstruments as money items, their valuation and classification as atreporting date.• PAS 4 on Receivables, which provides for the recognition of collectiblesfrom customers and other debtors, their classification including theprovision for allowance on estimated uncollectibles, and write-off ofaccounts subject to legal and regulatory requirements.• PAS 6 on Investments, which provides for the basis of recognition,classification and valuation of assets not directly identified with theoperating activities of a government agency.• PAS 18 on Revenue, which provides for the recognition of the inflow ofeconomic benefits during the period arising in the course of the ordinaryactivities of an entity when those inflows result in increases in equity,other than increases relating to contributions from equity participants.• PAS 21 on The Effects of Changes in Foreign Exchange Rates, whichprovides for the recognition of exchange difference. Exchange differencesarising on the settlement of monetary items or on translating monetaryitems at rate different from those at which they were translated on initialrecognition during the period or in previous financial statements shall berecognized in profit or loss in the period in which they arise.• PAS 23 on Borrowing Cost, which provides for the recognition of interestand other costs incurred in connection with the borrowing of funds asexpenses in the period in which they are incurred, except to the extentthat these costs are directly attributable to the acquisition, constructionor production of a qualifying asset, in which case, such borrowing costsare capitalized and included in the cost of the asset.Head Office and Branch Office Accounting PrincipleThe PPA financial statements include the accounts of the Head Office andthe different Port District and Port Management Offices of the Authority.Branch accounting is maintained to account for the transactions betweenand among PPA offices. The reciprocal Head Office Subsidy Account takesthe customary capital account at the PDOs and PMOs while, the PDO/PMOSubsidy Account maintained at the Head Office indicates the amountinvested by the Authority in its field offices. Financial statements are preparedperiodically by the PDOs and PMOs and submitted to the Head Office for thecombined financial statements.Recognition of Income and ExpenseThe Authority uses the accrual method of accounting wherein income andexpenses are recognized as they are earned or incurred.Income Taxng Pilipinas (BSP) guiding rates prevailing at the time of issuance of theinvoice computed by the Commercial Services Department shall be used indetermining the peso value of the dollar denominated port charges due toPPA. Meanwhile, the remittances of cargo handling operators are convertedinto pesos using the BSP guiding rate prevailing at the time of payment inconformity with their contract agreements with the PPA.PPA Finance Memorandum Circular No. 01-2003 provides that the monetaryasset or depository account and liabilities denominated in foreign currenciesshould be restated using the BSP guiding rate of exchange as of balancesheet date. Foreign exchange differences are treated as follows:a).b).c).For loans identified with completed projects and those used to acquireinvoiced assets, the gain or loss is recognized in current year’s income/loss.For loans related to assets still in-progress, the foreign exchangedifference is capitalized and included in the carrying amount of theFixed Asset-In Process.For other foreign currency transactions, i.e. deposits in foreign currency,the gain or loss in foreign exchange fluctuation is recognized in theincome or loss for the current period similar to item a.Provision for Doubtful AccountsReceivables are valued at face amounts minus allowances set up for doubtfulaccounts and for any anticipated adjustments which, in the normal course ofevents, will reduce the amount of receivable from the debtor to estimatedrealizable values.PPA Finance Memorandum Order No. 11-2006 dated July 21, 2006 prescribesthe rates on provisions for doubtful accounts, as follows:Age (Days) of A/RTrade 1-15 16-30 31-90 91-180 181-365Over365Dormant withNil Chance ofCollectionRate of Allowance - 5% 10% 20% 40% 60% 100%InventoriesInventories of spare parts, except for PPA dredgers, accountable forms,supplies and materials are valued at cost, net of Value-Added Tax (VAT), usingthe first-in, first-out (FIFO) method of pricing.Pursuant to PPA Memorandum Circular No. 35-2003 dated 8 December 2003,spare parts needed for PPA dredgers which are under contract with F. F. Cruzand Company should be sourced first from the stock pile of the Authorityand shall be valued at the prevailing market price upon issuance to theContractor.Philippine Ports Authority • Annual Report 2008 4 0For income tax purposes, net income less tax credit on investment in fixedassets is declared. The tax credit is allowed under Section 25 of PD 857dated 28 December 1975. The Bureau of Internal Revenue ruled that thereis no express legal basis by which the PPA shall claim as deduction in full itsinvestments or capital expenditures and simultaneously, recover its cost asdepreciation allowance. The PPA opted for the special deduction or tax crediton investment in fixed assets or capital expenditures during the year insteadof the depreciation expense as allowable deduction in the computation ofthe Regular Corporate Income Tax (RCIT).Pursuant to Section 27(E) of the 1997 National Internal Revenue Code, asamended, the prescribed Minimum Corporate Income Tax (MCIT) which isequivalent to two percent (2%) of gross income is paid, if higher than theRCIT. The PPA does not expect to avail of the carry forward proviso or usethe excess of the amount of MCIT over the RCIT in the years ahead. Thus, theMCIT paid is expensed or charged to income for the period.Foreign Exchange TransactionsTransactions in foreign currencies are recorded using the exchange ratein effect at the date of the transaction. PPA Memorandum Circular No. 16dated October 6, 2006 prescribed that the 15 day average Bangko SentralIn conformity with COA Circular 2005-002 dated April 14, 2005, semiexpendableitems with estimated useful life of more than a year but smallenough to be considered as property and equipment are considered part ofthe inventory upon acquisition. Items issued during the year are treated asexpense, charged to income of the current year.InvestmentsInvestments in the form of Treasury Bills and Treasury Bonds and Land Bank ofthe Philippines-issued bonds are valued at cost including withholding taxes.Property and EquipmentProperty and equipment of the Authority are carried in the books at appraisedvalues except for additions in between the periods of appraisal which arerecorded at acquisition cost net of Value Added Tax (VAT). Appraisal of assetsis done by an independent appraiser once every five years pursuant to itsloan covenants with the World Bank. Upon retirement or disposal, both thecost and appraisal increment and their related accumulated depreciation areremoved from the accounts and any resulting gain or loss is recognized forthe period.

Depreciation is computed based on the carrying value of the property, netof ten percent (10%) residual value, using the straight-line method over theestimated useful life of the asset.Infrastructure projects are valued following the Construction Period Theory.The costs of on-going projects and accounts payable on the projects arebased on actual physical accomplishment reported by the EngineeringOffice.Land that form part of property and equipment is acquired either thru:• Purchase• Transfer by the National Government consistent with Section 30and Section 10B (i) of PD 857.• Reclamation of port areas pursuant to Section 6.b (x) of PD 857.Land purchased by the Authority is covered with Transfer Certificate of Title,while property transferred from the National Government and land reclaimedfrom the sea are covered by Proclamation and Executive Order. To date, atotal of 39 ports have been issued with the covering Executive Orders/Proclamations granting PPA administrative jurisdiction over the pieces ofproperty. Executive Orders for 49 ports are for signature at the Office of thePresident, while 142 Executive Orders covering other Port Zone DelineationProjects of the Authority are for preparation and approval.5. CASH ON HAND AND IN BANKSThe breakdown of this account is as follows:20082007(As Restated)Cash in Banks 630,518,423 1,171,082,832Cash with Collecting Officers 47,530,247 38,845,786Cash with Disbursing Officers 335,651 368,250Cash with Other Officers 596,955 184,556678,981,276 1,210,481,4246. RECEIVABLESThis account includes the following:Notes Receivable represents the realizable value of promissory notes issuedby port users to cover the assessments of their restructured accounts, payablewithin specified repayment period.Interest Receivable is comprised of interest and penalty charges imposed onunpaid accounts due from port users.Due from Officers and Employees includes calamity loans granted to PPAofficers and employees amounting to P75.85 million. Also, accounted part ofthis account are receivables for tax deficiencies, and cash advances for travelgranted to PPA Officers and employees.Due from Operating Units & Other Fund covers the net income of SpecialTake-Over Units (STUs) amounting to 57.61 million that are due forremittance to the Port Management Offices of the Authority, the revolvingfunds of field or terminal offices and unsettled Cash Advances for various portdevelopment projects.Due from NGAs, GOCCs, & LGUs consist of the amounts due from variousdepartments, bureaus, corporations and local units of the government.Included is a cash advance amounting to 11.96 million issued by PMOCagayan de Oro to the provincial government of Camiguin for land acquisitionand relocation expenses of families affected by port development projectsat Benoni. The account also includes accrued interests earned but not yetcollected on investments in Treasury Bills and on bank deposits.Miscellaneous Receivables comprised largely of the balance on advancesmade by the Authority in payment of the past service benefits of port workersat the Special Take-Over Unit (STU), United Dockhandlers Inc. (UDI) of PMONorth Harbor which are subject of audit disallowances amounting to 102.60million.The Allowance for Doubtful Accounts provided in conformity with the ratesprescribed in PPA Finance Memo Order No. 11-2006 dated 21 July 2006,determined according to the number of days the Accounts Receivable hadremained outstanding follows:No. of DaysPast Due RatePast DueAccountsReceivableAmountof Provision16-30 5% 14,343,185 717,15931-90 10% 6,337,657 633,76691-180 20% 10,321,755 2,064,351181-365 40% 19,538,143 7,815,257Over 365 60% 216.642,005 129,985,203dormant 100% 37,324,785 37,324,785178,540,52120072008 (As Restated)Receivables-Trade:Accounts Receivable 756,105,158 756,953,341Notes Receivable 1,794,412 1,267,923Interest Receivable 998,051 46,139,621758,897,621 804,360,885Less: Allowance for Doubtful Accounts (146,736,853) (148,893,180)612,160,768 655,467,705Other Receivables:Due from Officers & Employees 101,777,782 73,607,626Due from Operating Units & Other Funds 62,618,852 69,159,187Due from NGAs, GOCCs & LGUs 44,999,347 12,278,944Miscellaneous Receivables 133,909,527 134,694,372343,305,508 289,740,129Less: Allowance for Doubtful Accounts (31,803,668) (45,446,466)311,501,840 244,293,663923,662,608 899,761,368Accounts Receivable - Trade refers to the amounts due from port users/customers arising from trading or business transactions that are expected tobe collected within the allowable credit period.7. INVENTORIESSupplies and materials substantially consist of the book value of spare partsfor PPA dredgers in the custody of the Head Office Harbor MaintenanceDepartment amounting to 101.88 million for CY 2008 and 104.15 millionfor CY 2007.8. PREPAYMENTS2008 2007Prepaid Taxes 264,873,788 332,934,909Advance Payment toContractors 209,551,110 441,610,482Procurement Service 32,231,535 53,199,895Prepaid Insurance 19,449,409 16,248,259Other Prepayments 31,983,100 10,288,895558,088,942 854,282,440Philippine Ports Authority • Annual Report 20084 1

This account includes the following:Prepaid Taxes consist of the amounts of expanded or creditable withholdingtaxes deducted by port users from wharfage and rental of real property andother port facilities. Section 76 of the National Internal Revenue Code allowscash refund of the amount withheld or the use of the covering tax creditcertificates against future tax liabilities.Advance Payment to Contractors not exceeding 15% of the total contractprice are granted pursuant to Republic Act 9184. The advances which arerepaid thru deductions from progress payments to Contractors are securedwith irrevocable letters of credit of equivalent values from commercial banks,bank guarantees or surety bonds.Other Prepayments consist of the amounts of National Scholarship forDevelopment (NSFD) grants, charges on feasibility study, and other deferredcharges.9. OTHER CURRENT ASSETSThe breakdown of this account is as follows:2008 2007Miscellaneous-Input VAT 579,439,856 569,869,140Guaranty Deposits 8,762,695 3,343,112Others 240,760 140,760588,443,311 573,353,012Miscellaneous-Input Value Added Tax (VAT) pertains to the carried overbalance of VAT paid by the Authority for acquired goods and services thatmay be applied as tax credit or deducted from Output VAT. Input VAT offsetagainst output VAT in 2008 amounted to 661,630,415.Guaranty Deposits consist of the amounts deposited with contractors/suppliers to guarantee performance of obligation, such as deposits withMeralco, PLDT, lessors of buildings occupied by the Authority, and others.10. PROPERTY AND EQUIPMENTThis account is composed of the following:LandBuildingsand OtherStructuresConstructionin Progress(Amounts in Thousands)MotorVehiclesMachinery andEquipmentOfficeEquipmentOther FixedAssetsAt December 31, 2007Cost 56,427,462 27,309,763 11,045,169 144,457 357,947 577,135 1,254,114 97,116,047Accumulated Depreciation - (10,896,281) - (92,223) (181,270) (331,072) (836,164) (12,337,010)Net Book Value 56,427,462 16,413,482 11,045,169 52,234 176,677 246,063 417,950 84,779,037Year Ended December 31, 2008Opening Book Value 56,427,462 16,413,482 11,045,169 52,234 176,677 246,063 417,950 84,779,037Additions 2,920,333 7,687,811 2,170,146 26,320 67,837 857,341 107,252 13,837,040Disposed/RetiredCompleted/Transferred(140,133) (937,894) (9,850,057) (2,292) (3,992) (95,244) (14,157) (11,043,769)Depreciation for the Year - (1,080,613) - (14,685) (20,561) (87,942) (59,645) (1,263,446)Adjustment on PriorYears’ Depreciation- 66,689 - 7,815 (9,006) 47,532 (9,180) 103,850Closing Net Book Value 59,207,662 22,149,475 3,365,258 69,392 210,955 967,750 442,220 86,412,712At December 31, 2008Cost 59,207,662 34,059,680 3,365,258 168,485 421,792 1,339,231 1,347,209 99,909,317Accumulated Depreciation - (11,910,205) - (99,093) (210,837) (371,481) (904,989) (13,496,605)Net Book Value 59,207,662 22,149,475 3,365,258 69,392 210,955 967,750 442,220 86,412,712Construction in Progress account includes the cost incurred relative to the Management Information System (MIS) Computerization Project amounting to 628.63million. The significant decrease in the carrying value of the account by 9.85 billion is primarily due to the 6.18 billion cost of the Batangas Port DevelopmentProject II, and of other projects whose costs of development was reclassified to appropriate fixed asset accounts upon completion in 2008.TOTALPhilippine Ports Authority • Annual Report 2008 4 2

11. INVESTMENTS IN SECURITIESThis account represents the Authority’s investment of funds earmarked forvarious infrastructure projects and retirement benefits of PPA personnel inthe following:off in PPA books since inactive for several years and no longer found in thebooks of the Bureau of Treasury. The use of this account was discontinuedwith the issuance of Executive Order No. 159. The account of the PhilippineNational Railways (PNR) amounting to 18 million has remained unsettleddespite series of negotiations with the PPA.2008 2007Treasury Bills 1,100,769,787 1,192,411,704Treasury and LBP Bonds 99,463,479 148,048,780Other Investment in MarketableSecurities 270,000 270,0001,200,503,266 1,340,730,484The holding period of the T-bills, with interest rates of 4.00% to 6.80%, rangesfrom 147 to 357 days. The Land Bank bonds consist of 25 year, 6% bonds thatare tax-free, whereas, the Treasury bonds with holding period of 974 days andinterest rate of 8.5% will mature in March 2011.12. NOTES SINKING FUNDIn accordance with the Sinking Fund Management Agreement covering theissuance of 2 billion Corporate Notes, the PPA shall establish and maintaina Sinking Fund with the Bureau of Treasury, the Sinking Fund Manager,for the purpose of redeeming the Notes upon maturity in 2015. The Fundamounting to 267,562,753, inclusive of interest earned as of December 31,2008, shall be payable annually on every anniversary of its issue date in July18, 2007.13. OTHER NON-CURRENT ASSETS14. ACCOUNTS PAYABLEThis account is composed of:2008 2007Trade/Business Payables 1,328,413,156 1,742,169,701Due to Officers and Employees 229,677,551 265,625,561Intra-Agency Payables 84,159,052 41,416,081Accrued Interest Payable 51,508,015 29,255,5981,693,757,774 2,078,466,941Trade/Business Payables are obligations incurred in the procurement ofgoods and services from private suppliers and entities arising from theconduct of business operations.Due to Officers and Employees consist of liabilities set-up for the paymentof services rendered by employees i.e., salaries, overtime, bonuses andincentives, allowances, reimbursement of official expenses, and other claimsdue to PPA personnel.Intra-Agency Payables are liabilities of one PPA office to another such asthose covered with Authority to Pay (ATP) and amounts due to Special Take-Over Units.Accrued Interest Payable pertains to the amount of interests due for paymenton foreign loans acquired from various creditors.This account consists of the following:2008 2007Restricted Cash Deposits 748,384,150 717,914,749Non-Operating Assets 270,460,813 162,124,015Deposits with the BTr and PNR account 36,748,154 36,748,154Others 1,095,000 -1,056,688,117 916,786,918Restricted Cash Deposits pertain to the funds held in escrow which areeither kept in fixed term deposits at the Bureau of Treasury, Land Bank ofthe Philippines and the Development Bank of the Philippines. These fundsare earmarked for the partial settlement of claims involving Case No. 5447concerning land expropriation in Batangas and claim for real estate tax at thePort of Iloilo.Non-Operating Assets to a large extent is comprised of the costs of projectsimplemented by the Department of Public Works and Highways (DPWH) thruthe issuance of cash advances amounting to 109.58 million, and another10.80 million issued in 1977 to its accountable officers which have remainedunsettled to date. The accounts are subject of a request to the Commissionon Audit for closure/derecognition in the books. Evaluation of the requestcannot be completed pending completion and submission of additionalsupporting documents. Also, included are the carrying values of serviceableassets but no longer used in port operations, and the value of unserviceableassets awaiting disposal.Deposits with the BTr & PNR account pertain to the balance of the SpecialAccount kept with the Bureau of Treasury in the amount of 18,748,154pursuant to the requirements of PD 1234. Collections remitted, as well asreimbursements of PPA advances for project expenditures financed byforeign loans, are deposited to this account through the then Central Bankof the Philippines. The account is similarly covered with request for write15. PAYABLES TO OTHER GOVERNMENT AGENCIESThis account is comprised of inter-agency payables involving the mandatorydeductions withheld from salaries of personnel that are due for remittancein payment of taxes, employees’ insurance premium contributions, andloan amortizations. Also included are liabilities for advances made by othergovernment agencies for specific purposes.2008 2007Due to the National Treasury 196,842,242 27,076Due to the Bureau of InternalRevenue (BIR) 55,702,950 129,620,766Due to Other Government Owned andControlled Corporations (GOCCs) 38,330,382 8,230,495Due to Gov’t. Service Insurance System 19,299,865 13,683,575Due to Other National GovernmentAgencies 8,441,131 24,354,286Due to Local Government Units (LGUs) 4,626,399 395,982Due to Pag-Ibig 1,234,540 941,020Due to Philhealth 382,226 210,846324,859,735 177,464,04616. CURRENT PORTION OF LOANS PAYABLEThe amount of 745.27 million represents maturing obligations on long-termdebts or the principal amortization on foreign loans due for repayment inyear 2009.Philippine Ports Authority • Annual Report 20084 3

17. OTHER CURRENT LIABILITIES20072008 (As Restated)Due to Other Funds-Trust Liabilities 206,153,384 179,516,897Depository Liabilities 60,774,123 36,144,519Current Portion-Retirement Payable 41,510,191 3,592,173Performance/Bidders/Bail Bonds Payable 29,348,004 27,744,865Tax Refund Payable 1,200,389 806,756Other Payables - Miscellaneous 52,676,005 109,226,657391,662,096 357,031,867Trust Liabilities consist substantially of retention fees withheld from suppliersand contractors, Creditable Expanded Withholding Taxes on fixed fees andvariable fees paid by the port operator ICTSI, funds for transfer to variousPDOs/PMOs, deductions on salaries of personnel, such as Pantalan UnionDues, collections for the Employees Cooperative and RATA disallowances.Depository Liabilities are deposits other than those required to guaranty theperformance of contracts.Other Payables – Miscellaneous includes liabilities for the relocation ofinformal settlers of Camiguin in PMO Cagayan de Oro.18. LOANS PAYABLEBelow is the breakdown of the account:LoanAccountInterestRate%No. of Years& MaturityDateLoanAmountOutstanding BalanceIn PesoIn Foreign Currency2008 2007 **ADB-875 6.53 20.0 Oct. 2012 $ 43,083,327 ¥2,106,633,894* 920,750,809 767,236,064JBIC-PH-P20-2 3.25 20.5 Nov. 2008 ¥ 4,433,743,861 ¥ 216,254,000 - 78,759,707JBIC-PH-P40 3.00 20.5 June 2010 1,529,753,393 55,965,000 17,531,596 20,382,453JBIC-PH-P61 3.00 20.5 Sept. 2013 169,794,479 49,680,000 21,614,940 18,093,456JBIC-PH-P84 3.00 20.5 Jan. 2018 61,381,669 31,437,000 14,850,090 11,449,355JBIC-PH-P91 3.00 20.5 Jan. 2018 169,158,544 86,604,000 40,909,668 31,541,177JBIC-PH-P122 2.70 20.5 June 2021 5,497,049,624 3,619,971,000 1,749,987,832 1,318,393,438JBIC-PH-P172 2.30 20.5 Mar. 2027 502,889,141 478,296,000 236,912,273 174,195,403JBIC-PH-P187 2.20 20.0 Sept. 2028 13,788,000,000 13,279,233,778 6,763,972,572 4,836,296,942JBIC-PH-P187A 2.20 31.0 Sept. 2038 767,000,000 1,020,776,244 524,177,958 371,766,708KFW-D1-P1 2.00 20.0 June 2009 € 3,579,043 € 268,428 5,927,457 16,255,262KFW-D1-P2 2.00 20.0 Dec. 2011 306,775 61,355 3,048,404 3,715,485KFW-D2-P1 2.00 20.0 June 2009 1,431,617 107,374 2,370,988 6,502,109KFW-D2-P2 2.00 20.0 Dec. 2011 2,388,410 467,997 23,009,490 28,340,60810,325,064,077 7,682,928,167Current Portion (745,265,687) (348,972,258)9,579,798,390 7,333,955,909* equivalent to $ 19,390,351** restated peso equivalent using BSP rates of exchange, after revaluation was recorded in 200819. CORPORATE NOTES21. DEFERRED CREDITSPhilippine Ports Authority • Annual Report 2008 4 4The PPA entered into an Issue Management and Underwriting Agreementwith the Development Bank of the Philippines in 2007, for the issuance of2.00 billion seven-year Corporate Notes with fixed interest rate of 7.783%,payable every quarter. The first tranche of the Corporate Notes guaranteedby the Republic of the Philippines amounting to 1.00 billion was released on18 July 2007. The second and third tranches amounting to 0.50 billion eachwere released on 14 March 2008 and 13 May 2008, respectively. The taxesand other charges incurred in the issuance of the notes were recognizedexpenses in the period of release.20. RETIREMENT PAYABLEThis account represents the amount earmarked to cover the present moneyvalue of the retirement gratuity of PPA personnel qualified to retire underRepublic Act (RA) 1616 wherein the Agency is mandated to pay lump sumamount to the retirees, including the present money value of accumulatedleave credits of personnel based on their basic salaries as of December 31,2008.This account includes the amount of income received before it is earned orrealized, such as advances on leased property and Output Vat on incomeearned but not yet collected as of December 31, 2008.20082007(As Restated)Deferred Credits to Income 51,123,246 44,076,826Output VAT 39,715,056 23,313,34490,838,302 67,390,17022. CAPITAL CONTRIBUTIONExecutive Order No. 513, amending PD 857, increased the authorized capitalof the Authority from three billion to five billion pesos.

Government Contribution to the Authority as initial paid up capital consistedof:a) The value of assets (including port facilities, quays, wharves, andequipment) and such other property, movable and immovablecontributed or transferred by the Government and its agencies valuedat the date of the contribution or transfer after deducting the loans andother liabilities of the Authority.b) The initial cash appropriation of two (2) million pesos out of the fundsof the National Treasury and further sums, including working capitalcontributed by the National Government.23. DONATED SURPLUSDonated Surplus represents the amount of cash or property received asdonations from entities other than the national government.A renewal of the agreement was made on April 20, 2005 which provides foran extension of the contract period for another 25 years reckoned from May19, 2013. Further, the agreement requires that the contractor shall:1. Provide additional investment of not less than US$125 million forthe construction and development of new facilities which shall becompleted not later than 18 May 2013;2. Pay lump sum fee of 670 million on 20 May 2013;3. For the extended term, the Fixed Fee shall be US$600 million payable in100 quarterly installments, to be paid in advance not later than the 5thday of the first month of every quarter without the need for demand;4. The variable fee during the extended term shall be 20% of the grossrevenue earned at the MICT.27. WHARFAGE DUES24. APPRAISAL SURPLUSAppraisal increase, which is the difference between historical cost and theappraised value of fixed assets, is added to the carrying value of propertyand equipment. Appraisal Surplus corresponds to the cumulative amountsof appraisal increase determined by hired independent appraisers in theconduct of appraisal of PPA Fixed Assets, once every five years. Adjustmentstaken up on the recorded entries in 2007 to recognize the results of theappraisal increase in 2006 increased the balance of the account during theyear by 29.54 million.25. RETAINED EARNINGSThis account represents the recorded cumulative net income of the PPA fromthe start of its operation, net of the dividend paid to the Bureau of Treasury.Pursuant to Section 5 of RA 7656 dated 9 November 1993, the Authoritydeclares and remits fifty percent (50%) of its annual earnings as dividends tothe National Government.This refers to the charges levied on loaded/unloaded cargoes whetherimports, exports, inbound, outbound, or transshipments. The computationis based on metric ton for non-containerized cargoes and per box forcontainerized cargoes.28. SHARE IN ARRASTRE / STEVEDORING INCOMEThis account represents the government share on the receipts or earnings ofcargo handlers from arrastre and stevedoring service. Arrastre refers to theset of shore-based cargo handling activities that include but is not limited tothe receiving or loading of cargoes to/from ship’s tackle with the use of dockgang and cargo handling equipment. On the other hand, stevedoring servicecover the discharging and loading of containers, loaded or empty from thevessel to the dock/apron and vice-versa, and the opening and closing ofhatch covers, lids and supporting beams.29. DOCKAGE FEES26. ICTSI FEESIn 1988, the Authority entered into an agreement with the InternationalContainer Terminal Services, Inc. (ICTSI), a consortium of Andres SorianoCorporation (ANSCOR), E. Razon, Inc. (ERI), and Sealand Orient International(SOI), for the management, operation and development of the ManilaInternational Container Terminal (MICT) at the Port of Manila, subject to thedirect control and supervision of the Authority.The contract provides that the contractor shall remit to the Authority inPhilippine Pesos an amount equivalent to Three Hundred Thirteen MillionSeven Hundred Fifty Six Thousand ($313,756,000) US Dollars in one hundred(100) quarterly installments, payable in advance not later than the fifth (5th)day of the first month of every quarter without the need for demand. The U.S.dollar equivalent of the Philippine peso shall be based on the reference rateof the Bankers Association of the Philippines or the equivalent reference rateat the time the payment is made.In addition to the Fixed Fee, the contractor shall share with the Authorityvariable fee equivalent to 20% of its “GROSS REVENUE” which, as definedin the contract, shall include all income generated by the Contractor fromthe MICT from every source and on every account except interest income,whether collected or not, to include but not limited to Harbor Dues, BerthingFees, Wharfage, Cargo Handling Revenues, Cranage Fees, Stripping/StuffingCharges and all other revenues from Ancillary Services.“Dockage or berthing fee is the amount assessed against a vessel engaged ininternational (foreign) trade for berthing or making fast to vessel so berthed.It is levied on the cargo vessels based on the number of days of stay, whichberth for the purpose of discharging and/or loading cargo; and on non-cargovessels for the purpose of loading and/or taking passengers or for takingfresh water supply or receiving bunker fuel.30. PORT DUESVessels engaged in foreign trade, including those engaged in barter tradethat enter any port, whether private or government-owned for loading anddischarging cargoes, embarking/disembarking passengers, bunkering ortaking provisions or repairs and changing members of the crew are chargedwith port dues based on the vessel gross revenue tonnage (GRT). It is a onetimecharge assessed against vessels everytime they call at any port.31. STORAGE CHARGESStorage fees are charges on cargoes that remain in the cargo sheds,warehouses or in the open storage area of any government-owned portbeyond the “free storage period” allowed. The increase/decrease in storagerevenue can be attributed to the growth/decline in the number of shippers/port users availing of storage services.Philippine Ports Authority • Annual Report 20084 5

32. PORT USAGE FEESVessels engaged in coastal domestic trade that berth or temporarily lay up ordrop anchor at any government port are charged a port usage fee based ongross revenue ton (GRT).38. PERSONAL SERVICESThe breakdown of expenses incurred for PPA employees in 2008 follows:2008 200733. TERMINAL FEESSalaries and Wages 446,601,854 444,687,569Philippine Ports Authority • Annual Report 2008 4 6The account consists of the amount charge on vehicles for the use of the portfacilities and services which is collected by the PPA on a per sea–leg journeyat the port of loading or embarkation.34. VESSEL TRAFFIC MANAGEMENT SERVICE (VTMS) FEESPPA Administrative Order No. 03-2006 dated 16 June 2006 authorized thecollection of the Vessel Traffic Management Service (VTMS) Fee. It includesfees collected/assessed on all international and domestic vessels entering,departing, navigating, operating, and anchoring/mooring within the VTMScovered areas.35. PILOTAGEIt represents the government share on the service rendered or required tobe performed by the harbor pilots to maneuver vessels to/from the ports, asrequired or is deemed necessary in each pilotage district.36. LAY-UP FEESIt is the amount assessed against a vessel engaged in coastal (domestic) tradethat are authorized to temporarily lay-up and anchor at any port.37. OTHER INCOMEBreakdown of this account is shown below:2008 2007Permits and Licenses 17,125,243 16,756,879Permit Fees 7,935,866 8,945,115Other Permits and Licenses 6,970,688 4,657,203Fines and Penalties-Permits & Licenses 2,218,689 3,154,561Service Income 3,146,624 6,163,980Fines and Penalties-Service Income 2,495,751 3,377,253Seminar Fees 286,984 183,010Other Service Income 363,889 2,603,717Business Income 319,187,149 289,128,576Rent Income-Buildings, Warehouses andGuesthouses 153,942,288 155,887,171Sale of Water 65,283,522 48,153,511Net Income from STUs 29,961,452 31,884,330Reefer Services 26,484,491 -Sale of Power 19,179,050 39,128,366Printing and Publication Income 9,429,407 -Parking Fees 5,622,335 8,427,729Fines and Penalties-Business Income 1,504,290 -Rent Income-Operations/Rental of Crane/Cargo Handling Equipment 456,424 517,540Other Business Income 421,892 -Truck Scale 391,400 203,616Income from Dormitory Operations 70,185 84,747Consultancy Fees 10,145 180,235Others 6,430,268 4,661,331339,459,016 312,049,335Other Compensation 434,441,091 428,581,204Other Bonuses and Allowances 231,797,802 228,738,844Year-End Bonus 55,562,498 53,535,064Overtime and Night Pay 47,699,872 39,833,716Additional Compensation 40,375,194 41,290,497Personnel Economic AssistanceAllowance13,485,946 14,196,989Representation Allowance 11,571,714 10,318,004Cash Gift 11,328,102 15,095,333Transportation Allowance 9,245,562 8,390,694Clothing/Uniform Allowance 8,563,866 9,365,765Productivity Incentive Allowance 4,524,000 7,538,942Hazard Pay 171,441 145,877Longevity Pay 107,894 131,479Subsistence/Laundry/QuartersAllowance7,200 -Personnel Benefits Contribution 65,679,478 65,992,695Life/Retirement Insurance PremiumContributions52,672,661 49,661,910PHILHEALTH Premiums 5,312,992 5,002,921PAG-IBIG Premiums 4,296,495 7,135,817ECC Contributions 3,397,330 4,192,047Other Personnel Benefits 100,876,276 104,005,626Rice Allowance 46,196,355 27,756,863Retirement Benefits 28,100,725 -Monetized Leave 14,110,466 46,367,862Medical Allowance 5,166,542 1,367,528Meal Subsidy 1,853,931 1,861,933Children’s Allowance 1,107,681 996,887Other Benefits 4,340,576 25,654,5531,047,598,699 1,043,267,094

39. MAINTENANCE AND OTHER OPERATING EXPENSESThis account consists of:2008 2007Maintenance & Other OperatingExpensesDredging Expense 633,946,114 177,369,790Security Services 184,967,646 173,167,940Utility Expenses 177,977,731 151,890,038Repairs and Maintenance 164,435,862 465,142,419Awards and Indemnities 115,417,226 75,591,095Other Professional Services 101,279,722 70,279,905Supplies and Materials Expense 74,489,657 56,871,640Taxes, Insurance and Other Fees 65,677,935 52,306,282Auditing Services 43,256,915 37,721,641Janitorial Services 29,805,123 24,484,619Communication Expense 20,683,234 20,371,256Traveling Expense 20,478,530 16,525,055Rent Expense 13,766,823 13,821,016Intelligence Expense 8,000,000 8,000,000Representation Expense 7,278,258 7,126,241Training and Scholarship Expense 5,336,039 3,154,051Printing and Binding Expense 5,310,997 6,579,710Subsidies and Donations 1,028,569 1,449,843Consultancy Services 1,024,220 877,793Rewards and Other Claims 750,000 670,000Subscription Expense 623,097 981,060Advertising Expense 308,999 601,570Membership Dues & Cont. toOrganizations229,893 245,629General Services 218,421 2,590,845Miscellaneous Expenses 12,080,074 12,607,659Non-Cash ExpensesDepreciation Expense 1,263,444,576 1,124,756,387Bad Debts Expense 10,268,266 17,912,830Loss on Assets 4,801 174,5162,962,088,728 2,523,270,830Dredging Expense represents cost incurred in dredging the harbors to therequired depth through removal of silts. It also includes expenses in themaintenance of basins and navigational channels, cost of minor repairs ofdredging equipment, spare parts, salaries and wages of casual and contractualemployees, incidental traveling expenses and other related costs.Repairs and Maintenance consists of expenses in bringing to normal conditionthe following assets:2008 2007Land Improvements 127,501,740 91,748,440Buildings and Structures 25,444,524 275,420,280Motor Vehicles/Other TransportEquipment 8,389,924 8,936,476Furniture, Fixtures & Equipment 3,099,674 89,037,223164,435,862 465,142,419Awards and Indemnities pertain to amounts awarded by courts oradministrative bodies to persons affected by the destruction of property/death/injury, as well as the monetary service/loyalty awards given to officialsand employees for attaining several years of service to the PPA. It alsoincludes the corporate Christmas package given to all officers and employeespursuant to PPA Memorandum Order No. 76-2008.Taxes, Insurance and Other Fees represents the amount incurred fortaxes, duties, licenses, vehicle registration fees, fidelity bond premiums ofaccountable officers, and insurance premiums for motor vehicle and otherproperty.Intelligence Expense pertains to expenses incurred for highly sensitiveactivities as approved by the President of the Philippines.Depreciation Expense on Property and Equipment is computed based onthe carrying value of the property, net of ten percent (10%) residual value,using the straight-line method over the estimated useful life of the asset inaccordance with PPA Memorandum Circular No. 37-2005 issued in conformitywith COA Circular No. 2004-003. Depreciation expense on port structuresamounting 989.16 million accounted for 78% of the total depreciationduring the year of 1.26 billion.40. FUND MANAGEMENT INCOMEThis account covers interest earned from various deposits and investments inT-bills, bonds and other marketable securities.41. OTHER GENERAL INCOMEThis account consists of:On 15 October 2001, a contract was entered into by and between the PPA andF.F. Cruz & Co., Inc. (FFCCI) for the Rehabilitation, Operation and Maintenanceof the PPA Dredging Fleet under the Rehabilitate and Maintain Scheme.Under the contract, the private dredging contractor shall rehabilitate,operate, and maintain the six (6) dredge vessels ( PHILPORTS D-I to D-VI) andthe two (2) supply boats (PHILPORTS A-I and A-II) and shall undertake themaintenance dredging at various ports in the country that are included in thePPA Port System. The contract started on 6 November 2001 and shall be validfor ten (10) years. The Authority will pay FFCCI the cost of the actual volumedredged per year within the contract period. The contract has a guaranteedminimum annual dredging volume of 2,000,000 cubic meters.Utility Expenses cover the costs of water, electricity, and gas for illuminationconsumed at office buildings, grounds and other port structures.2008 2007Interest Income 3,247,591 2,972,113Insurance Income 366,818 239,991Dividend Income 17,573 86,761Miscellaneous Income 11,458,414 16,002,67015,090,396 19,301,535Philippine Ports Authority • Annual Report 20084 7

42. GAIN (LOSS) ON REVALUATIONIn accordance with the Philippine Accounting Standards (PAS) 21, balancesof foreign currency-denominated accounts (i.e., foreign loans and dollardeposits) are revalued at year-end to reflect their actual values at balancesheet date. The difference is recognized as gain/loss on revaluation. The neteffect of gains and losses as a result of foreign exchange fluctuations duringthe year compared to last year follows:20082007(As Restated)Gain/(Loss) on the revaluation of theoutstanding balances of foreignloans (3,115,194,758) 382,200,784Gain/(Loss) on revaluation of thebalance of the foreign currencydeposit accounts 3,904,066 (22,807,049)Net Gain(Loss) on Revaluation (3,111,290,692) 359,393,735The policy to revalue the outstanding balances of the foreign currencydenominated accounts as of reporting date that was not applied as atDecember 31, 2007 was complied instead in 2008 with the foreign exchangedifference charged to Retained Earnings. A restatement as gain or losson revaluation was made in the 2007 Statement of Income and Expensespresented in this report.44. INCOME TAXDespite the net loss incurred in 2008, payment of Income Tax based on theMinimum Corporate Income Tax (MCIT) is mandatory, computed as follows:2008 2007Gross Income exclusive of allowabledeductions and non-taxableincome, and, inclusive of nondeductibleexpenses and taxableother income 3,076,916,284 2,348,227,708Less: Investment in Fixed Assetspursuant to Sec. 25 of PD 857 (3,245,578,000) (6,003,010,000)Net Taxable Income (168,661,716) (3,654,782,292)Regular Corporate Income Tax (RCIT) - -Gross Income net of direct expensessubject to the tax rate of 2% 3,492,160,735 2,897,621,512Minimum Corporate Income Tax (MCIT) 69,843,215 57,851,909The income tax liability of 69.84 million as in the previous year will be settledusing the accumulated creditable withholding taxes which are allowed as taxcredits under the Internal Revenue Code.Philippine Ports Authority • Annual Report 2008 4 8The following are the peso equivalent per Bangko Sentral ng Pilipinas guidingrates of exchange that were used in determining the outstanding balances offoreign loans and dollar deposits as of December 31, 2008:43. FINANCIAL EXPENSESCurrency 2008United States Dollar ($) 47.4850Japanese Yen (Y) 0.5221European Euro (€) 66.2463This account is composed of financial charges as follows:2008 2007Interest Expense – Loans/Borrowings 323,629,296 182,343,420Other Financial Charges 124,636,734 96,060,408Loss/(Gain) on Foreign Exchange 88,014,658 (3,670,279)Bank Charges 131,182 61,580Commitment Charges 28,715 4,950536,440,585 274,800,079Other Financial Charges include payment of guarantee fees to the NationalGovernment for foreign loan obligations, management fees and documentarystamp expenses for managing and investing the bond sinking fund of theAuthority.Loss/(Gain) on Foreign Exchange represents the amount recognized as actualgain/loss from foreign currency transactions which is the difference betweenthe (a) actual amount billed and settled at the time of debt servicing of theforeign loan and its recorded book value; (b) peso equivalent of the amountof withdrawal from dollar bank deposits at actual rates prevailing at the timeof withdrawal as against its carrying value using the adopted booking rate.45. RECLASSIFICATION OF ACCOUNTSIn conformity with PAS 8 on Accounting Policies, Changes in AccountingEstimates, and Errors, certain accounts in the 2007 financial statements wererestated or reclassified to other accounts to conform and be comparativewith the 2008 presentation.To apply the adopted accounting policy and to conform to PAS 21 on therecognition of the effects of foreign exchange rates, the outstanding balancesof foreign loans and foreign currency deposits as of December 31, 2007 wererevalued with the following impact on the balances of accounts a) decreasedloans payable by 1,027,865,907; b) decreased Construction in Progress by645,665,123; c) decreased peso equivalent of cash in bank by 22,807,049;and d) net gain on revaluation by 359,393,735. The net gain on revaluationcorrespondingly increased the net income and the dividends payable to thenational treasury by 50% thereof or equivalent to 179,696,867 for CY 2007payable in 2008..The changed accounting treatment of the estimated output VAT on incomeearned but not yet collected as of reporting date was reflected retrospectiveDecember 31, 2007 to be comparable with 2008. It resulted in a) decreasedOther Receivables-Miscellaneous by 28,629,510; b) increased AccountsReceivable-Trade by 16,670,376; c) decreased Other Payables-Trust Liabilityby 27,798,408; d) increased Deferred Credits by 15,839,274; and e)increased Contingent Accounts disclosed in Note 46 by 11,959,134.46. CONTINGENT ACCOUNTSIn compliance with the provisions of PAS 37, Contingent Assets and its contraaccount Contingent Surplus were excluded among the accounts presentedin the Balance Sheet. As of December 31, 2008, income or surplus that maybe realized on contingent assets amounts to 903,033,605. The accountconsists mainly of contested accounts receivable with expected income fromincreased rates on lease of land and other PPA port facilities. It is the policyof the Authority and as embodied in the lease agreements, rental rates areautomatically adjusted based on the appraised value of the property. Thisadjusted rate on lease serves as the basis of computation of charge in theinvoice issued to the lessee.

47. PENDING LAWSUITSThe Authority is involved as a party litigant in several lawsuits still pendingfor resolution that could materially affect its financial position. Among theselawsuits are the following:• PPA vs. Acosta, et al Civil Case No. 5447 – This is an expropriation caseof property covered by the Batangas Port Development Project PhaseII. A motion for reconsideration was filed and oral argument was heardby the Supreme Court whose en banc decision is being awaited. Totalaward on the property was initially estimated to reach a substantialamount of 11.30 billion with just compensation pegged by theRegional Trial Court at PhP5,500 per square meter.However, in the recent En Banc Decision promulgated by the SupremeCourt on 22 June 2009 rendering judgment on the six petitions anda motion for reconsideration on the expropriation case, the highcourt directed the PPA to pay with dispatch the lot owners as “justcompensation for their respective lots at the unit price of PhP 425 persquare meter with 12% interest per annum from the date of PPA’s entryto the lots or on September 11, 2001 until fully paid less whatever initialpayments they have received. In case of overpayment, the affected lotowners shall refund the excess to the PPA.”On 20 July 2009, the Authority filed a Prayer for reconsideration tomodify the interest rate into “6% per annum from the time of takinguntil the decision in the present cases becomes final and executory;and thereafter at 12% per annum from such time that the presentdecision becomes final until the award is fully paid.”The amount still to be paid by the PPA minus the 382.64 millionalready paid in court is now approximately 200.94 million.• Aboitiz Transport System Corp. (ATSC) vs. PPA – A damage suitamounting to about 1.20 billion was filed against the Authorityby ATSC claiming that the PPA forced Aboitiz to transfer from NorthHarbor to South Harbor, Manila resulting in ATSC incurring increasedoperating expenses. The lawsuit is pending at the Regional Trial Court• Benny Espinosa, in his capacity as Owner/General Manager of VSGeneral Services vs. PPA and Christian Santillan, Port Manager of PMOIloilo – Espinosa is claiming for damages worth 23 million because thePPA took over his company as a Special Take-Over Unit (STU).• Barangay 650, Zone 68, etc. versus PPA et al and Barangay 651, Zone68, etc. vs. PPA et al and MMDA, et al – These two cases involved therelocation of squatters from the two barangays by the Metro ManilaDevelopment Authority (MMDA). The case is with the RTC and in bothcases the payment for damages demanded is 8 million each or a totalof 16 million.• Antonio Altas, et al vs. Iloilo River Wharf Port Services, et al – This refersto claim of the workers of Iloilo River Wharf Port Services for profitsharing since the PPA took over the management of the Iloilo RiverWharf Port Services and converted it into a Special Take Over Unit. TheLabor arbiter awarded 15.10 million as the profit share. The case waselevated to the Court of Appeals.• Banago Port Stevedoring vs. PPA – The stevedoring company operatesat a private port in Pulupandan. The company is claiming that itoverpaid PPA by 3 million. The case is now at the Court of Appeals.• COLA Cases – These are two cases filed by PPA employees for thepayment of COLA back pay and the continuous payment of COLA toincumbent including former employees. Both decision of the RTC werenot favorable to PPA. The agency appealed both decisions to the Courtof Appeals.• Arnel Dilay Diaz vs. PPA – This is a legal case involving claim for damageson the property asserted owned by Mr. Diaz which was affected whenthe Authority implemented the construction of the Batangas PortDevelopment Project Phase I. The case is still pending at the RegionalTrial Court.• MIPTI vs. PPA Civil Case No. 96-37673 – The operator of the ManilaInternational Port Terminal Incorporated (MIPTI) filed a case againstthe Authority for taking over the operations of the Manila InternationalContainer Terminal (MICT). The RTC ruled in favor of MIPTI and orderedthe PPA to pay 750 million. The case was elevated to the Court ofAppeals and is still pending to date.• At Iba Pa, Rank & File Sa Sulpicio Lines, Inc., etc., et al. vs. PPA/TondoStevedoring, etc., et al – Employees of Sulpicio Lines and TondoStevedoring are claiming money benefits worth 192 million on thepremise that PPA is the contractor of Sulpicio and should thereforepay the employees’ benefits such as the 13th month pay. The case ispending at NLRC• United Harbor Pilots’ Association of the Philippines (UHPAP) vs. PPA etal – The association is questioning the agency’s authority to impose a10% government share on their gross income. This case is pending atthe RTC and the Association is demanding return of all fees collectedsince the beginning of their operation estimated at a total of 98million.• Amelia Aquino vs. PPA – PPA officers particularly, Section Heads/Chiefs whose representation and transportation allowances (RATA)were disallowed by the Commission on Audit filed a case claimingthat they are entitled to receive the RATA they refunded, therefore,should be returned to them. Those promoted to Division/DepartmentManagers receiving RATA based on the rates provided in the GeneralAppropriations Act (GAA) demand that they be given 40% of basicsalary and RATA similar to the other managers who were alreadyreceiving 40% of basic salary before the implementation of the SalaryStandardization Law.Philippine Ports Authority • Annual Report 20084 9

Leandro R. MendozaChairman / SecretaryDepartment of Transportationand CommunicationsB O A R D O F D I R E C T O R SPhilippine Ports Authority • Annual Report 2008 0Atty. Oscar M. SevillaVice-Chairman /General ManagerPhilippine Ports Authority2008Annual Report

Members51

e x e c u t i v e o f f i c e r sOffice of the General ManagerFinance and AdministrationOperations OfficeEngineering OfficeAtty. Ma. Asuncion HiyasminH. delos SantosInternal ControlVirginia S. ValeroAdministrative ServicesEmma L. SusaraCommercial ServicesTomas B. CarlosFacilities Const. & Maint.Philippine Ports Authority • Annual Report 2008 5 2Atty. David R. SimonLegal ServicesElizabeth C. FolloscoMgmt & Information ServicesAmelia M. AquinoStrategic PlanningArnel F. ReyesHead Executive AssistantRosalia G. BansonControllershipAdelaida C. HernandezHuman Resource Mgmt.Madeleine C. AbadaPPA Training CenterVirginia G. QuinaTreasuryLilian T. JavierPort Operations & ServicesLoving F. Fetalvero, Jr.Port PoliceRoberto C. AquinoHarbor MaintenanceRomelo T. MascariñaProject Development

(L -R)Atty. Oscar M. SevillaGeneral ManagerLeopoldo F. BungubungAssistant General Managerfor OperationsAtty. Gloria J. Victoria-BañasAssistant General Managerfor Finance and AdministrationEngr. Claro V. MarananAssistant General Managerfor EngineeringRaul T. SantosAssistant to the General Managerfor Corporate Affairs and Special ProjectsD e p a r t m e n t m a n a g e r s2008Annual Report5 3Philippine Ports Authority • Annual Report 2008

P o r t D i s t r i c t O f f i c e ( P D O ) / P O R T M a n a g e m e n t O f f i c e ( P M O ) M a n a g e r sP o r t D i s t r i c t O f f i c e ( P D O ) M a n a g e r sLeopoldo F. Bungubung - Manila / Northern LuzonHector E. Miole- Southern LuzonRaul T. Santos- VisayasBienvenido P. Basco - Northern MindanaoAbdussabor A. Sawadjaan - Southern MindanaoP o r t m a n a g e m e n t o f f i c e ( P M O ) M a n a g e r sP D O m a n i l a / n o r t h e r n L u z o nConstante T. Fariñas, Jr. - North HarborAtty. Edgar C. Pilar- South HarborGerman P. Tuguigui - LimaySilverio D. Mangaoang, Jr. - San FernandoP D O N o r t h e r n M i n d a n a oEfren B. BollozosPrudencio B. Mercado, Jr.Liberto C. De la RosaNoeme W. CalderonNecitas G. Loyola- Cagayan de Oro- iligan- Nasipit- Ozamiz- SurigaoP D O S o u t h e r n L u z o nAlex T. CruzFelix M. BarcalaMaximo L. QuijanoLuis A. Cuison- Batangas- Calapan- Legaspi- Puerto PrincesaP d o S o u t h e r n M i n d a n a oManuel C. AlbarracinAtty. Christian V. SantillanManuel C. AlbarracinLeonilo E. MioleAtty. Roger V. Asprer- Cotabato- Davao- General Santos- Zamboanga- DapitanPhilippine Ports Authority • Annual Report 2008 5 4P D O V i s a y a sRenato T. TolentinoFernando B. ClaveriaEnrique H. FuentebajaWinfred G. ElizaldeManuel A. BoholanoDominador D. Licayan- Dumaguete- Iloilo- Pulupandan- Tacloban- Tagbilaran- Ormoc

N E W A P P O I N T M E N T SMr. Leopoldo F. BungubungMr. Leopoldo F. Bungubung, Port District Manager of Manila andNorthern Luzon has been appointed as the new Assistant GeneralManager for Operations (AGMO) following the retirement offormer AGMO Benjamin B. Cecilio in October 2008.Mr. Leopoldo F. Bungubung obtained his AB Political Sciencedegree from the University of the Philippines and attendedvarious training in port management and operations in Japan, UK,Germany, Belgium, Rotterdam and France. Prior to serving at PPA,he had previous stint as Development Management Officer at theDevelopment Management Staff of the Office of the President.Mr. Bungubung started his career at PPA as Port OperationsSpecialist and eventually rose to the position of Port Manager ofDumaguete, Iloilo and Cebu, before being appointed as Port DistrictManager of Luzon.Mr. Bungubung has been awarded consecutively for three yearsas Best Port District Manager from 1997 to 1999. He has receivedcommendations for his active involvement in the Pasig River Clean-Up Operations and other port community-related undertakings.Atty. Gloria J. Victoria-BañasAtty. Gloria J. Victoria-Bañas, prior to her appointment as thenew Assistant General Manager of Finance and Administration(AGMFA) vice Ms. Aida P. Dizon, has been an active member ofthe PPA Board Committee.Prior to her new post at PPA, Atty. Bañas was appointed asDeputy Administrator for Planning of the Maritime IndustryAuthority in November 2003 and had direct supervision overMARINA’s Planning and Policy Office, Management InformationSystems Office, Administrative and Finance Office and ManpowerDevelopment Office. As Deputy Administrator for Planning,Atty. Bañas had direct involvement in the formulation, revisionand implementation of national maritime policies and regulationsand counts among her various achievements MARINA’s successfulparticipation in PGMA’s flagship SRNH or Strong Republic NauticalHighway Project and successful laying of the groundwork towardsthe crafting of the Philippine Maritime Industry Development Bill.Atty. Bañas distinguished herself as a government careerexecutive since she first joined MARINA as an office trainee inMarch 1984. Rising from the ranks, she was appointed as Directorof Franchising Office in September 1995; designated as CorporateBoard Secretary in February 1996 and subsequently as CorporateBoard Secretary in April 1998.Holding an impressive academic record, Atty. Bañas, a CertifiedPublic Accountant, graduated with a degree in Bachelor inAccountancy, Magna Cum Laude. She obtained her law degree atthe Far Eastern University where she graduated Salutatorian andcompleted her nine-month Professional Shipping Course in Oslo,Norway as First Honor. In 1994, she pursued and completed herMasters in International Shipping at the University of Plymouth,Devon, United Kingdom.As coordinator of MARINA’s foreign desk, Atty. Bañas, distinguishedherself in the international arena with her active participation,representing MARINA in various international organizations as theASEAN, APEC, BIMP-EAGA, IMO and ILO. Philippine Ports Authority • Annual Report 2008

u s i n e s s a d d r e s sH e a d O f f i c eBonifacio Drive, South Harbor, Port Area, Manila 1018Telephone No.: (0632) 527-8356 to 83Fax No: (0632) 527-4855Webpage: www.ppa.com.phP o r t D i s t r i c t O f f i c e o f M a n i l a / N o r t h e r n L u z o nPNR Building, South Harbor, Port Area Manila 1018Telephone No.: (0632) 525-5264Fax No.: (0632) 301-9042Email: ppa_manila@ppa.com.phP o r t D i s t r i c t O f f i c e o f S o u t h e r n L u z o nMARSMAN Building, Muelle de San Francisco St.,South Harbor, Port Area, Manila 1018Telephone No.: (0632) 301-9577Fax No.: (0632) 301-9679Email: pilosoluz.msd@gmail.comP o r t D i s t r i c t O f f i c e o f V i s a y a sCIP Complex, Cebu City 6000Telephone No.: (032) 232-3401 to 04Fax No.: (032) 232-1990Email: ppa07@bukid.cvis.net.phPhilippine Ports Authority • Annual Report 2008 5 6P o r t D i s t r i c t O f f i c e o f N o r t h e r n M i n d a n a oPort Area, Agora Gate, Cagayan de Oro City 9000Telephone No.: (088) 856-2819Fax No.: (088) 856-2820Email: pilonomin@yahoo.compilonomin@philwebinc.comP o r t D i s t r i c t O f f i c e o f S o u t h e r n M i n d a n a oKm 10, Port Area, Sasa, Davao City 8000Telephone No.: (082) 233-2080 to 82Fax No.: (082) 234-0079Email: ppasomin@pldtdsl.netppasomin@mozcom.comPrepared by:Monitoring and Evaluation Division,Strategic Planning DepartmentTel. Nos.: 527-4755 & 527-4721 • Email: amie@ppa.com.phConcept, Design, Photography and Printing:Mode Matrix Manila, Inc.